Carlton Perkins, JD, CPA, Assistant Professor of Business Administration
Texas Southern University

Introduction

What do accountants do? Have you ever heard it said that accountants just do math, do boring and methodical projects, work in isolation, and do not make important decisions? A review of popular textbooks in cost and managerial accounting reinforces this misconception. For example, strategic planning is often given only brief coverage while emphasis is placed on short-run planning, such as operating budgets.

Why Teach Strategic Planning?

Teaching strategic planning illustrates that accountants are not working in isolation but are part of a team involved in making important decisions. It also illustrates that accountants perform qualitative as well as quantitative analyses. And, when taught properly, the misconception of strategic planning as a boring and methodical project is revealed. Strategic management includes strategic planning as well as strategic control. As a result of its relative complexity, one obstacle to overcome in teaching this concept to students may be professor’s reluctance to step out of their comfort zones and breach the subject in the classrooms. Therefore, a model of strategic management, including strategic planning and control, is presented here in a summarized format to facilitate classroom discussion.

The Strategic Management Model

 



Strategy is the fundamental pattern of present and planned resource deployments and environmental interactions that indicates how the organization will achieve its objectives. Five components of organizational strategy include Scope, Resource Deployment, Competitive Advantage, Design, and Strategic Control.

Scope

Strategic scope deals with the organization's environment, and the extent to which it currently interacts and plans to interact with that environment. Scope includes the first two steps in the Strategic Management Model.

1. Study your potential markets.

A critical component of strategic scope is a careful and frank study of the marketplace. Two important considerations include making sure that all potential market segments are distinguished, and then clearly identifying the unique, specific needs of each of those market segments.

2. Evaluate your raw materials.

Take into account what raw materials are received. If you receive silver as a raw material, you are not likely to succeed in trying to produce gold as a finished good.

Resource Deployment

How resources are deployed to help the organization achieve its goals is looked at in the second component of organizational strategy, resource deployment. Thus, the next step is as follows.

3. Evaluate your resources.

Resources that make the organization unique or particularly strong in specific areas should be identified. Internal weaknesses must also be examined carefully.

Competitive Advantage

Properly focusing the organization's scope and resources on a position that is unique from its competitor enables an organization to achieve a competitive advantage. The next two steps deal with Competitive Advantage.

4. Study your competition.

This step involves studying the capabilities, resources, and strategic advantages and disadvantages of competing organizations.

5. Develop your strategy (select your niche).

To achieve above-average performance, an organization can use three generic strategies.

a. Cost Leadership (low-cost provider)

The cost leadership strategy focuses on the organization becoming the low-cost producer.

b. Differentiation (unique in a valued dimension)

Differentiation attempts to make the organization unique in a dimension that is valued by the customer.

c. Focus (exclude other segments)

Focus, specifically "niche strategies", concentrates efforts on serving a narrow segment of the market, purposely excluding other segments.

Design

The next three steps of the Strategic Management Model follow.

6. State your mission.

A formalized mission statement is essential at this point in the planning process. The "right" mission objective can only be defined after careful consideration has been given to scope, resource deployment, and competitive advantage.

7. Design your product.

To design your product, it is critical that you carefully cater to the specific needs and wishes of the customer(s) in your defined market niche. Write out a description of what you want your finished product to look like.

8. Design your production process.

Spend your resources to differentiate your product as the best in whatever niche you chose.

Strategic Control

Plans may not be accomplished unless controls are effective. Two basic steps follow.

9. Implement change.

For implementation to be successful, key individuals must be supportive and active in the change process.

10. Monitor outcomes.

The last step in the Strategic Management Model is to implement a strategic information system to provide feedback on (1) whether the strategic plans are being properly implemented as planned and (2) whether the strategy is yielding the intended results. A fundamental purpose of monitoring outcomes is to provide input into the next strategic cycle; therefore the ten steps must be repeated continuously.

Conclusion

According to the IMA, the traditional corporate accountant will become extinct. In increasing numbers, accountants are members of teams involved in strategic planning. Only accountants with the right skill sets, such as strategic management, will be sought after to help organizations seize opportunities. Accounting students need exposure to strategic management in cost and managerial accounting courses. Also, including strategic management in the introductory managerial accounting course can increase the students' interest in the accounting profession. The model of strategic management summarized above is an attempt to increase the comfort level of professors who have an interest in discussing strategic planning and control in their classrooms.

References

Nelson, I. T., J. A. Bailey, and A. T. Nelson. 1998. "Changing Accounting Education with Purpose: Market-Based Strategic Planning for Departments of Accounting." Issues in Accounting Education (May): 301-326.

Taylor, B. G. 1999. "Hints for Attracting the ‘Best and Brightest’ Introductory Accounting Students to the Accounting Discipline." http://college.hmco.com/accounting/AIR/Spring1999/taylor.html

"Traditional Corporate Accountant to Become Extinct, Say IMA." http://www.nysscpa.org/cpajournal/1998/0198/newsviews/0198nv10.htm