Value chain analysis. Strategic cost analysis method

Value analysis focuses on the relative cost position of a firm relative to its rivals. The primary analytical approach of such analysis is the construction of a value chain for individual actions, showing the picture of the accumulation of value from raw materials to the price of final consumers. The main and auxiliary activities of the company are distinguished (Fig. 8.3).

Rice. 8.3. The main and auxiliary activities of the company in the formation of the value chain

When conducting a cost analysis, costs are assessed for each type of activity (in each link) and compared with similar parameters of a competitor. It should be remembered that differences in prices and costs among competing companies arise, among other things, due to the activities of suppliers or at the stage of delivery of goods to the end consumer. In this regard, when assessing a company’s competitiveness in terms of prices and costs, not only the costs of the company itself are taken into account, but also the costs of suppliers and distributors. Ultimately, the value chain of a producer company is part of a business system that begins in the value chain of suppliers and ends in the value chain of consumer companies.

The most difficult stage of cost analysis is obtaining information about the costs and organization of work of competitors. The source data for comparative analysis can be information from publicly available annual reports of companies, research materials from consulting companies, and information obtained from conversations with analysts, consumers or suppliers. Comparing cost information is also difficult because competing companies often use different cost accounting methods.

For the purpose of analyzing the value chain, we highlight three main areas where differences are possible for competing firms (Figure 8.4).

Rice. 8.4. Key links in the value chain

The costs at each link in the chain depend on many factors.

1. Scale of production. Economies of scale are achieved as the volume of activity increases.

2. Olearning and accumulation of experience. Business costs are reduced over time by gaining experience and increasing professionalism.

3. Pacquisition of key resources. Costs in a company's value chain depend, among other things, on the costs of acquiring resources.

4. Cconnection with other links in the value chain. Coordination of activities allows you to reduce total costs.

5. Sharing equipment and resources. Distributing costs across several types of activities provides economies of scale, reduces the time to create new technology, and increases production capacity utilization.

6. Company strategy. Cost levels may vary depending on the company's competitive position and objectives.

Cost benefits can be achieved by restructuring processes and tasks in three areas.

1. If costs are high in the internal part of the chain, you should:

Implement best industry standards;

Conduct an audit and eliminate costly activities;

Move high-cost activities to areas;

Invest in cost-effective technologies;

Consider outsourcing functions as an alternative solution;

Modify products to reduce their cost;

Balance internal costs with savings at the front and back of the chain.

2. If there are problems at the back of the chain, you should:

Back integration to gain cost control;

Transition to substitute materials;

Revision of delivery terms.

3. If there are problems in the front part of the chain, you should:

Use more attractive distribution channels;

Use the possibility of front integration;

Make up the difference by reducing costs in other parts of the chain.

When planning corrective measures, it should be taken into account that, on the one hand, changes in one part of the chain can lead to changes in other links in the chain, and on the other hand, the high cost in one part can be compensated by reducing the cost of other links.

In a general sense, cost chain analysis is a systematic approach to accounting for the costs of business processes from the very beginning to the very end. As part of the decision-making process, the determining factor is the cost of products and services; producing products at low cost can provide high profits. The nature of the enterprise in terms of their size is different. For example, an unprofitable group of products in a large enterprise will not cause an immediate crisis, whereas in a small enterprise the situation will be completely different. In a small business, if the business is not profitable, it simply cannot survive.

Given the many factors that influence cost differences, a company must always know how its costs compare with those of its major competitors. This requires a strategic cost analysis that captures the company's cost position relative to its closest competitors.

Cost chain concept. The initial analytical tool of strategic cost analysis is the cost chain concept, which defines the activities, functions and processes that must be carried out in the development, manufacture, marketing, delivery and support of products or services. The chain of work that creates costs begins with the purchase of raw materials, continues with the manufacture of parts and assemblies, their assembly, wholesale distribution, and ends with the retail sale of the finished product or service to the final consumer.

A company's cost chain demonstrates a sequential set of activities and functions performed within it (Figure 4-1). This chain includes profit because the markup on the cost of operating the company's value-creating units is usually part of the price (or total cost) paid by the buyer. Creating value beyond the cost of obtaining it is a fundamental business goal.

Dividing a company's activities into strategic stages and processes allows us to better understand the company's cost structure and determine what the main cost elements are. Each activity in the cost chain creates costs and binds assets. Accruing the operating costs of a company and its assets for each individual activity allows you to estimate the costs associated with this work. The company's costs for each type of work can be increased or decreased under the influence of two types of factors: structural (scale effects and learning curve, technological requirements, capital intensity and complexity of the product range) and managerial (stimulating employees to continuously improve their work, creating organizational capabilities, etc. employee relations that would contribute to the high quality of both the work itself and the product, reducing the time between the start of developing a new product and offering it on the market, maximizing the use of production capacity, qualified development and rational use of internal technological processes, effective work with suppliers and consumers to reducing the costs of carrying out these types of activities). A value chain is a tool for analyzing potential sources of providing greater value to consumers and identifying synergies. The value chain includes all types of activities of the organization (chain links) aimed at creating value for the consumer. In the classical model of an organization, these activities include the development, production, marketing, distribution and support of its products. These activities are grouped into main activities (input logistics - providing production operations with everything necessary; production operations - release of finished products; output logistics - handling of finished products; marketing, including sales, and services) and supporting activities (organizational infrastructure - provision effective management, finance, human resource management, technological developments, procurement, which involves the acquisition of everything necessary to conduct the main activity). Supporting activities relate to the conduct of all main activities. In a more detailed model of an organization, each of its nine types of activity, in turn, can be specified - for example, marketing - according to its individual functions: conducting marketing research, promoting a product, marketing development of a new product, etc. The task is to examine the costs and outputs of each of the nine activities and find ways to improve them. By comparing this data with competitors' data, ways to gain competitive advantage are identified.

Primary activity

1. Incoming logistics - acceptance, storage and sorting of suppliers’ products; control; inventory management.

2. Production activities - activities, costs and assets aimed at transforming the flow of raw materials into the final product (production, assembly, packaging, ensuring the functioning of equipment, installation, certification of product quality, environmental protection)

3. Outbound logistics (delivery of goods to the consumer) - activities, costs and assets associated with the physical delivery of goods to the buyer (warehouse of the final product, order processing, scheduling, shipping, transportation).

4. Sales and Marketing - Activities, costs and assets related to sales efforts, advertising and promotion, marketing research and planning, dealer and distributor support.

5. Maintenance (service) - activities, costs and assets designed to provide assistance to customers in installation, delivery of spare parts, maintenance and repair, technical assistance, customer information and complaint resolution.

Support activities

Technology development (know-how, technological innovations used in each link of the value chain) - activities, costs and assets related to the process of research and product development, the process itself, improvement of the design process, development of the necessary equipment, development of software, telecommunications systems , computer developments, new database capabilities, development of computer support system.

2. Personnel management - activities, costs and assets related to the hiring of employees, training, development and social security of personnel, relations between employees, increasing professionalism (skills).

Firm infrastructure—activities, costs, and assets related to general management, accounting and finance, legal, security and privacy, management information systems, and other top management functions.

Considering the many factors influencingto differences in costs, the company should alwaysknow how its costs compare to costsmain competitors. This requires ategical cost analysis fixing the position companies in terms of costs in relation toits closest competitors.

Cost chain concept.The initial analysisa strategic tool for strategic analysiscost is the concept of a cost chain that defineslying work, functions and processes thatmust be carried out during the development, manufactureproduction, marketing, supply and supportproducts or services. The chain of work that creates costs begins with the purchase of raw materialsmaterials, continues in the manufacture of parts and assemblies, their assembly, wholesaledistribution and ends with retail sale to the final consumercommercial products or services.

The company's cost chain demonstrates a consistent set of activitiesand the functions performed within it (Figure 4-1). This chain includes profit,because the premium to the cost of operating a company's value-creating units is usually part of the price (or totalcost) paid by the buyer. Creating value that exceedsthe cost of obtaining it is a fundamental business goal.

Dividing the company’s activities into strategic stages and post-processesallows you to better understand the company's cost structure and determine what the maincost elements.Each activity in the cost chain creates costs and associatesassets. Accrual of operating costscompany and its assets for each individual typeactivity allows you to estimate the costs associated withnew with this work. The company’s costs for each type of work can be increased or decreased under the influence of two factors:types: structural (scale and curve effectsdevelopment, technological requirements, capitalcapacity and complexity of product range) and managerial (stimulating employees tocontinuous improvement of labor, creationorganizational capabilities and suchemployees who would contribute to the developmenthigh quality of both the work itself and the products,reducing the time between the start of developmentnew products and offering them on the market,maximum use of production capacity, qualified development and rational use of internal technologiesical processes, effective work with suppliers and consumers in order to reduce the costs of carrying out these activities). If it's good to knowthe company's cost structure, we can come to an understanding of the following:

It is necessary to strive to obtain a competitive advantage based onve: 1) low costs (in this case, management efforts to reduce costs along the cost chain should be clearly visible); 2) individualization (withIn this regard, management should pay more attention to those departmentswhich are responsible for creating individualizing properties).

How are the costs of each type of activitycost chains and costs in one type of activityties will affect costs in other types of activities ness.

Do linkages along a company's cost chain createfavorable opportunities for cost reduction(for example, Japanese cassette video manufacturerstape recorders were able to reduce prices for theirproducts from $1,300 in 1977 to less than $300.

Ushanov I.G.
Samara State University of Transport, Samara
The main difference between traditional management accounting and strategic accounting, as is known, is the fact that the former concentrates attention on the consideration of the main processes occurring in the company (such as procurement, production cycles of products, relationships with customers), only in that part of them that is carried out directly within the organization. In other words, traditional management accounting covers a set of processes from the moment of payments to suppliers for supplied raw materials to the receipt of payment for delivered products from customers. From the point of view of the cost approach, within this set of processes there are several stages of adding value, limited by the internal environment of the enterprise. In this case, value added means the difference between the total revenue from the sale of manufactured products and the cost of intermediate products obtained at various stages of the end-to-end business process of the enterprise. Added value includes all internal costs of the organization, incl. the cost of raw materials and materials, wages paid to employees, depreciation, rent, and profit. The main goal of the organization, accordingly, is to bring the difference between the cost of resources spent on production and the sale of manufactured products to the maximum, i.e. maximizing added value.
However, from the standpoint of strategic management accounting as a system of information support for making strategic decisions, the concept of added value contains a number of shortcomings that limit the possibility of its application for strategic purposes. These shortcomings can be simplistically expressed as follows: the application zone of this concept begins too late and ends too early. Carrying out a cost analysis only from the moment of purchasing raw materials does not allow the company to take advantage of the connections between its suppliers and the various delivery options between them, and completing the cost analysis when the product is sold does not allow taking into account connections with key customer groups. However, from a strategic point of view, taking into account and analyzing such opportunities can be extremely useful for the enterprise. A convenient tool within the framework of strategic management accounting that allows an organization to carry out such an analysis is the idea of building value chains (value chains or value chains), proposed by Michael Porter as an addition to the concept of added value.
Value chain is one of the methods of strategic analysis used within the framework of the cost approach. Modeling and analysis of various value chains allows us to identify possible ways to optimize end-to-end business processes, thereby stimulating the development of investment decisions to change them, as well as determine the return on invested capital for key client groups and identify the most attractive client groups or market segments. The basic idea of the value chain concept is that the effectiveness of an organization as a whole in a competitive environment is based on how effectively the organization itself carries out the activities necessary to develop, manufacture, market, deliver, and support its products or services. To assess its strategic capabilities, as well as implement strategic initiatives, an organization must carefully analyze its entire value chain, which means that each individual activity must be considered in the context of what value it creates for the customer, and what costs are required to create this consumer value.
So, the value chain of an individual enterprise is a set of types of economic activities that the enterprise carries out in various areas of operation. The traditional composition of the value chain in this context can be represented as follows (Fig. 1). 1 J 1 Raw materials R&D Production Marketing Distribution Service 1 1 P 1
Rice. 1. Value chain of an individual enterprise
From a similar perspective, it seems interesting to also consider the approach to building the value chain of an organization’s internal business processes, proposed by R. Kaplan and D.
Norton as part of the construction of a balanced scorecard. Kaplan and Norton note that each enterprise has a unique set of processes for creating value for consumers in order to achieve specified financial indicators, but, nevertheless, a generalized model of creating a value chain can be identified, which can be used as a basis by organizations of various profiles.
The chain of internal business processes begins with innovation processes - identifying present and future customer needs and how to satisfy them, continues in operational processes - production and delivery of goods and services to existing customers and ends with after-sales service, that is, the offer of after-sales service, which also increases the value of goods and services received from the supplier. this model is shown in Fig. 2.
Let's consider each of the three main components of this model. The internal business value chain innovation process primarily involves an organization's process of understanding the emerging or latent needs of its customers in order to develop appropriate products and services that can satisfy those needs. Operations Process - The second main process in the overall internal value chain model is the production and delivery of goods and services to the customer. Improving the quality of this particular process is traditionally considered as one of the most important reserves for increasing the overall efficiency of the company and reducing its costs, however, Kaplan and Norton, within the framework of the balanced scorecard, place it on a par with the other two main processes they identify in terms of the degree of influence on the achievement of strategic goals. goals of the organization. This model considers after-sales service as the third component of the internal value chain, which is designed to increase the value of the company's product or service offering in the eyes of target customers.
It should be noted that building the value chain of a separate organization both from the point of view of the main activities and from the point of view of internal business processes still does not solve the main problem that arises when using the concept of added value in a strategic aspect - taking into account, including external “links” of the value chain that are outside the scope of a given company. The key role of the value chain idea as a strategic management accounting tool lies precisely in the fact that, unlike the concept of added value, it places emphasis on processes occurring even outside the organization, and each individual organization is considered in the context of the overall chain types of activities that create value. Thus, the value chain in the strategic aspect should be a single sequence of transformations, starting from the raw materials and ending with the sale of the product to the final consumer, and each specific organization should be considered as shown in Fig. 3, as part of a common circuit.
The value chain shown in Fig. 3, takes into account all the value added by the industry as well as the competitive enterprise of the industry. In addition to this, as already noted, the contribution to added value created by individual types of core and supporting activities within the organization should be differentiated. Let us briefly describe each of the presented main activities.
Distribution channel value chain Customer value chain Supplier value chain
I support Main activities Activities Company infrastructure
Human resource management Technology development Materials and technical supplies Incoming supplies Production Outgoing supplies
Marketing and sales _ Fig. 3. Unified industry value chain according to M. Porter
Incoming supplies may include activities such as receiving, storing and distributing incoming resources for products produced or services provided. Production involves performing basic technological operations within the production cycle. Outbound deliveries involve the distribution of a product among customer groups and include processes such as storage, packaging, loading and unloading, etc. Marketing and sales are activities related to familiarizing consumers with a product or service, expanding sales markets, optimizing distribution channels, etc. , i.e. they reflect all aspects of an organization's marketing activities. Maintenance is intended to maintain or enhance the value of a product or service to the consumer through preparation of the product for use, repair, after-sales service, etc. .
In turn, the supporting activities identified by M. Porter are related, in one way or another, to each of the main activities of the organization.
In further detail, each of the nine activities of the organization can be specified even more deeply, for example, marketing and sales can be subdivided according to their individual functions: conducting marketing research, product promotion, marketing development of a new product, etc. The main task of analyzing activities within the value chain, as already noted, is to check the costs and output parameters of each of the listed activities and find ways to improve them. By comparing this data with competitors' data, ways to gain a competitive advantage are identified. Od-
However, we should not forget that the value chain of any enterprise is part of a broader system, which also includes the value chains of suppliers and consumers. An enterprise can improve its profitability by not only analyzing its value chain and implementing measures to optimize it, but also by assessing the mechanisms through which the organization's value creation activities are combined with the value chains of its suppliers and consumers.
In order to create a value chain from raw materials to the final consumer, it is necessary to identify strategically important economic activities and then analyze cost behavior in accordance with the accepted sources of differentiation. However, according to experts, at present there are practically no organizations capable of carrying out such an analysis with high efficiency solely within their own internal framework, since organizations that completely cover the entire value chain with which they work are extremely rare. In the vast majority of cases in practice, different companies operate at different stages of the value chain, covering only a few “links” of a single chain, which means that from a methodological point of view, the process of conducting value chain analysis begins with an internal analysis of the company and then moves into external competitive analysis of the industry cost system. It ends with the integration of these two analyzes to define, create as well as maintain the competitive advantage of the organization.
The goal of creating a long-term competitive advantage for a business requires a serious analysis of what benefits existing production and commercial operations in current market segments bring to the organization and how effective its existing production and commercial chains are (i.e., relationships with existing suppliers and customers) . If the analysis shows that the organization can achieve greater success in other market segments or with a different organization of value chains, this company should concentrate its efforts on developing this area and rebuild its relationships with suppliers and consumers, or optimize internal processes for the implementation of certain types economic activity in accordance with identified opportunities. It should be noted once again that the implementation of these opportunities can be achieved, among other things, through cooperation with other industry participants.
Thus, the need to take into account when building a value chain not only internal factors and types of economic activities of the organization, but also external factors, in particular relationships with suppliers and consumers, in the context of given strategic guidelines allows us to consider the construction of value chains as an effective tool for strategic management accounting, allowing carry out an analysis of the added value created by the organization within the value chain of the industry as a whole. Moreover, the very concept of Porter's value chain can be, to a certain extent, contrasted with the approaches adopted in traditional management accounting, in particular the need to focus exclusively on internal factors.
List of sources used
Tooth A.T. Strategic management: theory and practice: textbook. manual for universities. M.: Aspect Press, 2002.
Kaplan R., Norton D. Balanced Scorecard. M.: Olimp-Business, 2003.
Nikolaeva O.E., Alekseeva O.V. Strategic management accounting. Ed. 2nd. M.: LKI Publishing House, 2008.
Worth K. Strategic management accounting. M.: ZAO "Olymp-Business", 2002.
Shank J. and Govindarajan V. Strategic cost management. St. Petersburg: Business Micro, 1999.
Golubkov E.P. Strategic planning and the role of marketing in an organization // Marketing in Russia and abroad. 2000. No. 3.
Porter M. Competitive Advantage. New York: Free Press, 1985.

One indicator of a company's situation is its price position relative to its competitors.

M. Porter believes that it is impossible to identify the strengths and weaknesses of an enterprise if we consider the enterprise as a whole, since its competitive advantages are formed in the course of multilateral activities: in the process of design, production, marketing, and when performing auxiliary functions. In the “value chain”, the activities of an enterprise are divided into two parts:

Primary activities (materials and technical supply, production, marketing and sales);

Secondary (technology development, personnel management, management infrastructure).

Each type of activity can help reduce costs and create a basis for differentiation of products and services. By examining the process step by step, you can determine where the enterprise is competitive and where it is vulnerable. However, the danger of such a step-by-step approach is associated with the possibility of so-called “substitution of goals” during the analysis, as well as with a high degree of probability of getting carried away with particular problems, missing strategic aspects. Therefore, M. Porter warns that the activity of an enterprise should be considered not simply as the sum of its individual types. A significant role is played by the resulting communications. “Adjustment” of individual types of activities to each other, although associated with significant costs, is nevertheless one of the most important factors in increasing the competitiveness of an enterprise. Information technology plays a special role in this - a powerful tool for improving management while coordinating various types of activities.

Support activities: Structure, planning, finance, legal services; Technological development; Human Resources, Management and Development

Main activities: Inventories Materials Personnel; Production; Storage and distribution of products; Marketing and sales; Dealer support and service

Differences in costs between competitors may be due to the following reasons:

Ø Difference in prices for raw materials, etc.;

Ø Differences in basic technologies and age of equipment;

Ø The difference in internal costs, which is caused by the level of productivity, production organization, that is, internal factors of the organization;

Ø Difference in sensitivity to inflation;

Ø Differences in transport costs;

Ø Differences in costs in distribution channels;

Strategic-value analysis focuses on a company's relative value position relative to its competitors. The primary analytical approach of such an analysis is the construction of a value chain for individual actions, showing a picture of the cost from raw materials to the price of final consumers;

A value chain is a table that has 3 main areas:

v Supply area;

v The actual internal activities of the company;

v Forward parts of distribution channels;

I. First chain:

a. Supply costs:

i. Purchased materials;

ii. Accessories;

iii. Incoming logistics;

II. Second chain:

a. Activities in the production process;

b. Marketing and sales activities;

c. Customer service and outbound logistics;

d. Internal support staff activities;

e. General and administrative activities (net profit)

III. Third chain:

a. Wholesale trade and dealer network;

b. Retail;

(Figure 1) Main and auxiliary activities of the company when forming the value chain

For the purpose of analyzing the value chain, we will highlight three main areas where differences are possible for competing firms (Fig. 2).

Rice. 2. Main links of the value chain

The costs at each link in the chain depend on many factors.

1. Scale of production. Economies of scale are achieved as the volume of activity increases.

2. Learning and experience accumulation. Business costs are reduced over time by gaining experience and increasing professionalism.

3. Acquisition of key resources. Costs in a company's value chain depend, among other things, on the costs of acquiring resources.

4. Connection with other parts of the value chain. Coordination of activities allows you to reduce total costs.

5. Sharing of equipment and resources. Distributing costs across several types of activities provides economies of scale, reduces the time to create new technology, and increases production capacity utilization.

6. Company strategy. Cost levels may vary depending on the company's competitive position and objectives.

Cost benefits can be achieved by restructuring processes and tasks in three areas.

1. If costs are high in the internal part of the chain, you should:

Implement best industry standards;

Conduct an audit and eliminate costly activities;

Move high-cost activities to areas;

Invest in cost-effective technologies;

Consider outsourcing functions as an alternative solution;

Modify products to reduce their cost;

Balance internal costs with savings at the front and back of the chain.

2. If there are problems at the back of the chain, you should:

Back integration to gain cost control;

Transition to substitute materials;

Revision of delivery terms.

3. If there are problems in the front part of the chain, you should:

Use more attractive distribution channels;

Use the possibility of front integration;

Make up the difference by reducing costs in other parts of the chain.