Problem Set 2

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Problem Set 2

1. As elaborately as you could, define and describe the terms mentioned below and state how each is related to the concerns of Management Control: a. The concept of the Value Chain
* Aside from Portfolio matrices and industry structure analysis, another tool in developing business unit strategies is the value chain analysis. This analysis is a useful tool in developing competitive advantage based on low cost, or differentiation, or preferably, cost-cum-differentiation. The value chain disaggregates the firm into its distinct strategic activities. The value chain is the complete set of activities involved in a product, beginning with the extraction of raw material and ending with post delivery support to customers. Value chain analysis seeks to determine where in the company’s operations- from design to distribution- customer value can be enhanced or costs lowered. In such analysis, questions arise for each value activity as to whether costs can be reduced, holding value (revenues) constant; increase value (revenue) holding costs constant; reduce assets in such activity, holding costs and revenue constant; and lastly, if above can be done simultaneously. By systematically analyzing costs, revenues and assets in each activity, the business unit can achieve cost-cum-differentiation advantage. Cost cum-differentiation strategy aims at providing better customer value at a lower cost. The value chain framework is a method for breaking down the chain- from basic raw materials to end-use customers- into specific activities in order to understand the behavior of costs and the sources of differentiation. * In identifying the costs, revenues and assets in each activity, management control will incorporate the activities as to planning what the organization should do, coordinating the activities of several parts of the organization, communicating information, evaluating information, deciding what, if any, action should be taken, and influencing...
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