Strategic Management - Manac Plc.
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The company focus is not always driving to the business organization’s goals and objectives. The business is currently facing a drastic challenge that affects the entire organization. The main problem of the Manac Plc. appeared due to the target profits that did not satisfy the current situation. The projected profits are lowered than the assumed profits, and it is more disturbing for the entire management team. Different cost-cutting activities affected the production across the foreign countries and reduced the competitive advantage of the business. Therefore, with the different economic changes that the business world encountered a proposal for the critical yet comprehensive strategic management is anticipated.
Things are not always in favor for us but with the help of strategic management, another door will soon open for the entire organization. With strategic management which is also combined with the strategic planning, a tool is crafted not to make things right but to identify the appropriate things that the organization can do. It is expected that all of the plans and postponed strategies are adjusted continuously to achieve the business organization’s vision. All of the progress are monitored and measured in terms of achieving the economic goals.
The truth behind the strategic management is different form other change process. Strategic management requires a long-term commitment from the top of the organization, as much as possible including the business leaders within the organization, up to the bottom of the hierarchical organizational structure (Scribner, 2002). All of the energy and effort should be applied to maintain the long-run of the organizational objectives (Bryant, 1997). In associate with these actions, an organization that is willing to plunge in taking such efforts in using strategic management is the same organization that survives in the tight competition and economic changes. In short, they became successful and therefore, experiencing the benefits of it.
The first thing that every organization should understand is the important of analysis. The people in the business organization should asses the factors that might affect the firm’s current situation. The market, customer, competitors, and internal analysis are the contributing factors considered to affect the business’s performance (Bryant, 1997).
What is the latest technology that is out in the market? What are the basic preferences that a customer considered before buying? What is the new strategic approach of the competitors? And what is the problem inside the organization that affects the business’s life cycle? All of these questions are easy, and from the past business strategies were all answered. But these questions are immortal; they keep coming back whenever there is a chance. One of the chances could be the introduction of the technology or another financial crisis. And with that evidences, strategic management is best deliberated in the time when it is needed most.
The beginning of the strategic management is close to a country that has no policy and no outstanding armies that can protect them (Walker, 2002). Subsequently, there are two problems that are associated in delivering the strategy which are very evident. First, not all the strategies are qualified for implementation because there are the presence of customers’ perception, tastes and preferences that the products that the company sells may not be in their number one priority. This category also includes the recession of financial crisis and political chaos. Since, Manac Plc. is a company that produces standard electrical goods, being the number priority is not part of the ordinary consumers’ necessity. However, there are many electrical and construction companies that still support the company products. It is clearly that the company specifies the market we making business with.
Second, the strategies that are actually implemented are not developed during the planning stage. The planning process takes time and every millisecond – there are new interventions or different business problems that might be added in the strategic management. All that is left to for the business propellers is to acquire the appropriate planning that is meant for the organizational needs, save all of the things such as information and data for the future use, and develop the strategies that did not pass the current requirements. Managers should filter the principles that enclosed in every approach that the entire team might create as a basis of the organization’s decision making (Lucas, 2006).
As a business model, strategic management process can help clarify the future direction of the business. This is not because it sets the right way but to choose the right way strategically. It can help solving major organizational problems and improve performance among people through the human resource department, planning and management (McWilliams, Van Fleet, and Wright, 2001). In addition, an organization that adopted the strategic management can deal effectively with the rapid circumstances through building of teamwork and facilitating different areas of expertise, together with the cooperative relationships between the people (Liou, 2000).
Organizations should understand that setting long-term target in a strategic management and planning constitutes a collection of mind-set (Scribner, 2002). Strategic management can be effective if there is also a development in the mentality or business outlook because thinking is the basic step before meeting the requirements of planning and implementing.
Models and Concepts on Pricing Decision
The organization faced a great challenge in profit maximization. And this report will first tackle the pricing methods of the organization. Ideally, maximization of profits is only possible if the organization valued and critically assessed the concepts and models used in pricing decisions.
Many firms ignore the effects of every pricing decision they create and realizing it only when it reached the phase where there is no turning back. For example, a company based his price structure higher than the competitor’s price; the tendency of this action is losses and slow income. On the other hand, if the price is too low, there is a return of profit that is ironically low. For any given cost realization, firms must adopt some principles or models in their pricing decision to hit two objectives: one is to gain profit and the other is to answer the market demands.
The first model that many companies consider is the consumer’s preferences and behavior where the consumer is the one who makes decision in purchasing a product (Heidhues and K’oszegi, 2005). If the firms will observe the buying behavior of the consumer and discovered that the consumers patronize the product with low prices, the firm will take an action in making it possible to lower their own product’s market price. This simple consumer decision affects the entire product’s characteristics.
The second model is the market equilibrium. This situation is considered by the firm as part of their pricing strategy. There are uncertainties that include in market equilibrium that drives the price change (Heidhues and K’oszegi, 2005). The relationship of demand and supply is the basis of market equilibrium. For example, there is a great demand in purchasing an electrical outlet; the company who sells in the lower prices is enough information for the consumers and other potential consumers to react in this and purchase the products. And if the product is subjected in higher prices, firms and retailers should expect that there is a low sales range (Evans, 1997). This phenomenon is closely similar to the consumer behavior where the only difference is consumers in consumer behavior judged their buying decisions in their needs and preferences, while market equilibrium is solely about the price. For the economists view, if the price is low, the demand is high; but if the price is high, the demand is low and there is a possible abundance of supply.
The third is the idea of price stickiness, where firms prices responses on the price they created (Heidhues and K’oszegi, 2005). This is more clearly seen in monopolists’ world, and the tendency toward the price stability is high and firms are chained in different circumstances that prevent them to increase their price. This unchanging cost offers increasing customers’ expectation to consume and continuously attracting more demand at higher prices.
In contrary, using the model of economic activity is not an applied model for corporations to make pricing decisions. It is because this type of model represents an image of economic activity because of its inconsistency when there is a presence of economic changes and sometimes too much consistent that economists see the market behavior in a stable phase (Evans, 1997).
Pricing distribution and strategies are all commits in consumer’s side or on the demand side. It is important on the consumer side to think over the products they are purchasing and for the firm is their willingness to buy. Organization must reconcile the values involved when they are making price decisions (Clemen and Gregory, 1995).The concepts of pricing involve the element of psychology that affects the consumers’ decision to buy. Both consumer behavior and market equilibrium are essential factors in determining the impact of the consumers decision as well as realizing the price of the product, which in effect includes the decision of whether the consumer will or will not buy the product.
Role of Standard Costing and Variance Analysis in Management Accounting
The use of the standard process in strategic management, accounting such as the standard costing and absorption costing system, can also affect the managerial cycle of the organization (Mestas, 2005). At first, standard costing and variance analysis should be specific in their role within the organization, because assessing their roles will determine the applicable process for the entire organization.
Standard Costing is a method that is used in accounting process which determines the cost control that includes the measurement of an actual performance and differences or the variance. The basis of the measurement is through the past costs, estimation of the engineers and workers input, and the type and the quality of the materials involved in the production.
In managerial cycle, standard costing is used in planning to develop budgets in accordance to the materials, labor, and in monitoring the production costing. Upon execution, the standard costs are best employed when the actual cost data is collected. And in reporting, the costing is utilized by the managers in measuring the operation’s effectiveness and also in the performance of the managers. Firms view the usefulness of the standard costing in increasing automation that decreases the costs of direct labor and applied to direct materials and processing.
Meanwhile, the variance analysis is the computing process of the differences between the standard costs and the actual costs and at the same time identifying the causes of those differences. In management cycle, the variance analysis is important in controlling the costs due to the flexible budgets, especially when there is accuracy in the measurement of the variance analysis.
When the analysis of variance is more detailed, the managers will be more effective in controlling the costs although this method does not prevent the variance from reoccurring. However, variance analysis as an effective tool can help the leaders to select the performance measures that will help track the problem and then afterwards, finds the suitable solution. The limitations of the variance analysis happened when the data are not computed accurately. Managers have to analyze the different variances in costs categories, including the labor and materials, and their elements, like the price and the quantity which is time consuming and can be subject for errors.
Advantages and Disadvantages of Activity Based Costing System
The activity based system creates a basis for optimizing the benefits through the understanding of the relationship between decisions and the resulting costs, which is unlikely to the traditional absorption costing that measure the costs of activity directly. Many firms suggest the use of the activity based system because they view it as the provider of a comprehensive understanding of cost that emphasizes the drivers of wasteful supply, production and distribution processes (Hilton, 2003).
In general, the activity based costing system is a modified state of the absorption costing system that is both way of calculating the product costs. Many firms’ turns to activity based coating to provide answer from the inadequate cost accounting and process losses. In return, the competitive advantages are gained in the areas of product quality, product development, and cost-efficiency production (Edgerly, 1994).
The simplest form of activity based costing acceptable method is meant for assigning or allocating the manufacturing costs. However, there are a number of advantages and disadvantages in using the method.
The most important factor of the activity based costing is its accuracy in the process of costing because it identified the non-value activities and detailed the costs and profitability information. The data gathered can be transformed into different information and open for new and better decisions like assisting the process in understanding the concept related to the costs, allocation and utilization (VCG, 2008). This new process is anticipated to help identify the least and forgotten matters of the business activities such as the wastes and added services that might turn out as the burden of the business (Reyhanoglu, 2004). This allows the companies to implement the costing strategies in their business activities and processes because it is an important factor in benchmarking process most especially in the part of the quality control system.
In contrast to the benefits of the activity are the drawbacks. The activity based costing is a time consuming process in terms of collecting the data needed. It is historical in nature in which the maintenance as well as implementation is very costly (VCG, 2008). This running cost of the activity is considered as the road block of the firms due to its expenses. Activity based costing is very detailed and transparent system where it assumes that there is equality and proportionate benefits from the results (Reyhanoglu, 2004).
Against the traditional absorption costing, activity based costing is more focus in assigning to the cost targets which is entirely based on the specific activity. The products involved are simple and the activities or procedures are the one that has a high appraisal.
Assessment and Analysis
Based on the report conducted the company, Manac Plc., is ready to introduce a new kind of strategic management. It is in the matter of time that the company should employ the changes and development. As a manager, I believe that there are hidden probabilities within the company. Being one of the propellers allows us to see what’s inside the organization. The current situation that the company is facing is a crucial state not only to the managers, not only to the workers but to the entire organization where the profit is one of the considered fuels of the business to continue its cycle.
Seeing the company slowly reaching its fall is heartbreaking since I know that I can help to change the future state of the business. I made the report to critically evaluate the other factors that might affect the business cycle and at the same time, help increase its efficiency and bring back the competitive advantage.
The pricing of the products should be based in different scope of considerations. The price should be based truthfully on the materials used in crafting the product. It should also include the shipping, taxes, and labor appeared as part of the manufacturing expenses. The price should be also based on the current market competition and should avoid the price stickiness, since the market activities are changing.
Based on the consumer behavior analysis, consumers only buy our product whenever they need it. The involvement of the low-price promotion doesn’t make any appeal on their buying preferences; therefore, the idea of lowering the prices is not applicable. Consumers do not took any part of the organization’s pricing decisions not unless these consumers are not individuals but companies and corporations that involve in electrical businesses. In short, individual consumers’ own tastes and preferences did not alter the company’s business cycle.
However, the internal part of the organization is also part of the strategic management and development. It is better if the strategic management accounting utilizes both standard costing and variance analysis. For the reason that standard costing determines the control on cost and the result like the difference is better to be analyzed. In these processes, the organization can have more confidence in meeting the cost-efficiency and waste elimination requirements. Both of the accounting methods are working in the same concept and the business aimed to find a good process where it can manage the production, monitor and controlled.
Although there are many limitations when the two accounting methods are employed, I believe that there is accuracy in the costs. It is also time consuming and critical in computation but with the right technology, nothing is impossible. There are many computer programs where the manager can sort the items, compute and analyze the factors that can be use for the future. With this system, the data can be gathered easily and the information can be transformed as a report and can be easily stored.
In the case of using the costing system in accounting process, I believe that it is more appropriate and close to reality if the traditional absorption method is replaced with the activity based costing system. Many firms assume that the strategic management can be only realized if the company pays value on understanding the details or the fibers enclosed to the process. Activity based costing is simple yet critical in assessing the factors involved in the management of the possible costs. Calculating what is essential in the production is the main concept of the activity costing. According to its word, the cost is entirely based on the activity employed when there is a production.
The use of the cost- effective model is not new and it is applicable in the nature of the business since we are very concerned in the cost of the production that affects the price and the profits. When all of these things are involve in the management cycle of the organization, the success will soon be ours. Experiencing the profit where there is a minimize wastes is one of the target of many companies, here and abroad. There is too much promise in this kind of business activity but with the organizations’ mind setting and core objectives, the business will soon be recognize as one of the business leaders.
Strategic management can be achieved if the business leader or propellers are willing to undertake the series of changes. In accordance, people should also use all their knowledge and skills in promoting the competitiveness within their organization. Managing the development is part of the strategy, and in reality it is not easy nor happens in one day. If the organization assumes to have the advantage, they should consider different techniques, plan well, and orient everybody about the company objective and goals. Moreover, the said objectives and goals are the things the boosts the competency of the people as well as the system. With that the entire organization can achieve the strategic approach in the long run.
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