Research Report: Strategic Management Accounting

 

Research Report: Strategic Management Accounting

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Introduction

Over the last twelve months, the relationship between strategy, performance, and management accounting control framework command significant attention in the accounting and management accounting paradigm due to the impacts of the novel COVID-19 pandemic.  The strategic management accounting framework has developed significantly and shows similar agreements in comprehending the management techniques and concepts (Taschner and Charifzadeh 2020). This report extensively discusses the recent trend in the Costa Coffee business environment and, more specifically, in the COVID-19 pandemic business environment. The paper conducts the Porter five forces generic strategy analysis and the value chain analysis to develop a management strategy that the firm can use to gain a competitive advantage in the novel COVID-19 business environment. Strategic management accounting involves identifying, collecting, controlling, measuring, and reporting useful information for management planning, controlling, and making decisions for an organization.

Company Overview

Costa Coffee is a British multinational coffee house headquartered in Dunstable, United Kingdom (Costa. co, 2020). Costa Coffee offers high-quality services to its customers and is operational in supplying roasted coffee, caterer, and coffee shops. Moreover, the company had developed a great strategic management accounting framework, skills to care for the perfection of its coffee products, retain its customers, attract more customers, and provide the high valued coffee services.  Its coffee shops are designed towards the customer’s perception of an effective customer retention strategy. The company boasts extensive ownership over a whole array of subsidiaries and a vast market size. While the multinational coffee house generates a relevant amount in sales revenue, the company has faced significant challenges due to the novel COVID-19 containment measures.

Trends in Strategic Management Accounting

The contemporary business environment brings pressure on organizations and, as a result, unsettling the delicate balance that has long existed in the management accounting strategic making process (Bhimani and Horngren 2008). Moreover, globalization and the turbulent nature of the current business environment’s discomforts, brought about by the novel COVID-19, necessitates the strategic management accounting proactivity to gain a competitive advantage. Over a third of the world population is under movement restrictions, with most forced to work from home. The current changes forced by the COVID-19 have both short-term and long-term impacts on business cost structures. Organizations are forced to embrace remote working protocols as well as being acquainted with the remote technology. Consequently, management accountants should think about their business strategies and operating models to respond appropriately to these changes.

The current development forces the Costa Coffee management accountants to revisit its organization’s office lease agreements. The pandemic containment measures offer better management accountants performance for the company as it is better to budget time and the limited resources where there is no consideration of office costs and other unnecessary costs than back in office cracking handles. Additionally, as good management accountant managers for Costa Coffee, they should be thinking about the operational cost saving and how it can be achieved in the organization, saving unnecessary cost for the organization. Critically, the operational cost calculus should be a function of the cost and benefits remaining in the budget or anticipated crisis period and the severance costs.

Another trend in the wake of the novel COVID-19 pandemic is the use of technology in making the business workforce borderless. Besides the cost benefits associated with the use of technology in business workforce management, time zones can significantly help Costa coffee increase its productivity level for each day. A work diversity will enhance creativity, talent availability, and a better talent management strategy (Drury 2013). Moreover, technology reduces regulatory differences that can significantly improve the coffee powerhouse responsiveness and business resilience during and after the crisis. During the pandemic, the accounting management key is to keep an open eye to the new business approaches, an open helping hand for the stressed colleges and the business employees, and a continuous evaluation of the business operational and financial performance.

Porter’s Generic Strategies

The Michael Porter Generic strategies give the contemporary organizations a useful framework to identify the appropriate strategies in the wake of the COVID-19 Pandemic in gaining competitive advantage in their industry of operations.  The strategies are defined as generic as they apply to all products and services across all industries and diverse organizations in size and variety (Powers and Hahn 2004). Porter’s generic forces include cost leadership, differentiation, cost focus, and differentiation focus. Cost coffee can apply these four generic strategies during the current global health crisis to gain a significant competitive advantage.

Cost Leadership

Generally, cost leadership consists of a business’s attempt to gain market share by appealing to cost-restricted or cost-conscious consumers and customers. Hereby, the main objective of the business is becoming the lowest cost producer in its specified industry. To implement this strategy, Costa Coffee should mass production of its coffee products, allowing the company to exploit the economies of scale in the wake of the pandemic. The company may cut its production costs during the various stages of its production process. The strategy will allow Costa Coffee to sell its coffee products and services below the industry’s average price, increasing its sales revenue resulting to cost limitations. It will allow the company to gain a greater market share of the consumers and customers than its competitors in coffee production, especially if the company profit margin can remain high with low production costs.

Differentiation

The differentiation strategy’s general objective is to make organizations’ products different or more attractive than the rivalry products with the industry and achieve a competitive advantage. The organizations generally target the larger markets, and the focus of the differentiation is on a much wider scale within the industry. Costa Coffee can implement the differentiation strategy by producing differentiated coffee and espresso product from what is currently offered to cushion the economic impacts of the novel COVID-19. The company differentiation strategy should be associated with charging premium prices to the coffee and espresso products. It will potentially reflect in higher sales to cover up the higher production costs associated with developing unique products and the extra features and uniqueness exhibited by the products. However, Costa Coffee should first develop strong research, development, and innovation for the strategy to be successful.

Cost Focus

Cost focus entails a strategy whereby organizations seek to develop a lower-cost advantage, but only within a small and specified business environment. Generally, the organizations’ products are basic and vaguely similar to the average products in the market and must be accepted by a large number of consumers for the business to make a profit. Costa Coffee can implement this strategy by offering its generalized coffee products or other products at a low cost in underdeveloped counties. Moreover, the company may achieve this strategy by focusing on certain coffee products and services that are generic in the market to achieve a competitive advantage.

Differentiation Focus

According to porter, the differentiation focus strategy, organizations develop differentiated products within one product or a smaller market segment. The organization identifies a smaller consumer group to focus on, and more specifically, appeal to the identified group’s wants and needs rather than differentiating for the wider market. While the novel COVID-19 has significantly disrupted the global economy, Costa Coffee can achieve a competitive advantage in the coffee industry through a differentiated focus strategy. The company can implement the differentiated focus strategy by modifying its products to meet the United Kingdom market’s specific requirements during the winter period. However, for the strategy to be successful, the company should first identify the United Kingdom Market segment’s different and specific needs from the larger global market. The strategy will enable the company to forcer itself into the differentiated market segment, thus gaining a completive advantage over its competing firms.

Value Chain and Porter’s Five Forces

In the wake of the novel COVID-19 pandemic, a robust value chain and porter’s five forces analysis and implementation of a strategic plan based on the analysis can offer a significant competitive advantage for businesses. A value chain model analysis helps businesses understand their operational process in creating products and services (Grundy 2006). On the other hand, porter’s five forces offer a framework that focuses on analyzing the industry’s microenvironment and thus enabling the company to understand its ability to provide services to its customers and make profits.

Value Chain

According to Grundy (2006), competitive advantage cannot be achieved by only looking at a firm as a whole but from the many discrete business opportunities in producing, designing, delivering, marketing, and supporting the firm’s products. Through the uses of value-based management, a business approach management that focuses on maximizing value creation, Costa Coffee management accountants will create, analyze, and sustain the value of its operations. Therefore, the company should analyze its infrastructure, human resource management, technology advancement, and the procurement of raw materials, equipment, and facilities. Such a move will enable the coffee house to gain a competitive advantage by extensively looking at its production process and figuring out how to deliver more value and customer experience for the lowest cost.

Porter’s Five Forces

Porter’s five forces model is used in accessing how competitive a particular industry is as a business analysis tool. While it is true that the five forces model typically targets diverse areas in business operations to the value chain approach, the two competitive advantages analysis tools help organizations in gaining a competitive advantage (Grundy 2006). Therefore, understanding the Porter five forces is essential in ensuring that the organization gains a competitive advantage by reducing the business operation costs. Porter’s five forces include the threat to new entrants, consumers’ buying power, the buying power of purchasers, threats to substitutes, and the industry competitors.

The threat of New Entrants

Profitable and easy to enter markets attracts numerous competitors to the market, eroding the profitability over the long run. In the coffee and hot beverages industry, the startup costs such as the purchase of coffee berries and renting of catering facilities, labor, highly specialized machinery, as well as adherence to the stringent safety measures on the novel COVID-19, are extremely high in the industry. Moreover, the industry is highly regulated, with numerous commissions set up to review its operations continuously. Therefore, Costa Coffee has a competitive advantage as it is little threat to new entrants.

The Buying Power of Consumers

Costa Coffee holds the second largest market share in the coffee and coffee products business segment. The industry has numerous sellers, thus increasing consumer purchasing power. Moreover, the demand for coffee products is closely tied to disposable income; when the disposable income increase, the demand for coffee products increases, and thus Costa Coffee should implement strategic management to have return clients.

The Purchasing Power of Suppliers

Like the consumers’ purchasing power, suppliers’ purchasing power in the coffee industry, there is uniqueness in their size and strength. In the context of supplier power, the coffee industry has few suppliers, forcing Costa Coffee management accounts to formulate policies that strategically retain the company’s key suppliers. The strategy should be based on the Costa Coffee cost structure.

Threat of Substitutes

The threat of substitutes entails how viable the available substitutes are and how buyers are likely to gravitate to those substitutes.  In the coffee industry, there are numerous perfect substitutes. Therefore, Costa Coffee’s management should strive to differentiate its products to achieve a competitive advantage.

Industry Competitors.

Generally, the industry competitor’s component of Porter’s five forces focuses on the number of competitors’ capabilities within the market. In the coffee industry, numerous competitors are operating with high capabilities of turning customers onto their side. Therefore, Costa Coffee management accountants should improvise cost reduction strategies that will reduce the company products costs, thus giving the company the much-needed competitive advantage over its competitors.

Conclusion and Recommendation

Conclusively, the relationship between strategy, performance, and management accounting control framework command significant attention in the accounting and management accounting paradigm due to the novel COVID-19 pandemic’s impacts.  Consequently, the Strategic management accounting framework has developed significantly and shows similar agreements in comprehending the management techniques and concepts. The current development forces the Costa Coffee management accountants to revisit its organization’s office lease agreements. Therefore, Cost coffee should apply Porter’s four generic strategies to gain a significant competitive advantage in the coffee industry during the current global health crisis. Moreover, choosing a value chain model analysis can help Costa Coffee businesses understand their operational process in creating products and services. Lastly, porter’s five forces framework can help the coffee house focus on analyzing the industry’s microenvironment and thus understanding its ability to provide services to its customers and make profits.

 

Bibliography

Bhimani, A., and Horngren, C.T., 2008. Management and cost accounting (Vol. 1). Pearson Education.

Costa.co, 2020. Costa Coffee|About Us. [online] Costa Coffee. Available at: https://www.costa.co.uk/our-coffees  [Accessed 24 November 2020].

Drury, C.M., 2013. Management and cost accounting. Springer.

Grundy, T., 2006. Rethinking and reinventing Michael Porter’s five forces model. Strategic Change15(5), pp.213-229.

Powers, T.L., and Hahn, W., 2004. Critical competitive methods, generic strategies, and firm performance. International Journal of Bank Marketing.

Taschner, A., and Charifzadeh, M., 2020. Management accounting in supply chains–what we know and what we teach. Journal of Accounting & Organizational Change.

 

 

 


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