Value analysis, SWOT and internal analysis

Accounting Ahead | Original study resource | accountingahead.com.au

Value analysis, SWOT and internal analysis

MODULE 1 | PART E.1 | STUDENT COMPANION

How management accountants support strategy

The challenge is not finding the best tool, but choosing the most relevant tool for the business problem.

Strategic task Useful information and tools

Internal analysis Product and customer profitability, activity costs, life cycle costing, financial and

non-financial measures

External analysis Competitor cost estimates, industry growth and profitability, supplier and customer

intelligence

Planning and choice Ranking strategies with capital budgeting and strategic costs and benefits

Implementation Accurate, timely costings and results

Evaluation Key performance indicators; review of estimates, measures and incentives

Four ways to improve the value chain

1. Remove what customers won't pay for

Minimise or eliminate non-value-adding activities: rework,

double handling, waiting time

2. Use cheaper substitute inputs

Lower-cost inputs that do the same job

3. Find new ways to perform activities

Redesigned processes or new technology

4. Link activities better than rivals

The linkages between activities are often where value is won

or lost

Porter: competitive advantage comes from how the value chain's activities are organised and linked

Some activities add value only indirectly: a restaurant's food safety audits add nothing a diner can taste, but they

protect customers and the licence to trade. Judge activities against what every stakeholder values.

Case note: Inditex (Zara) - value from linkages

Inditex keeps a large share of production close to its Spanish headquarters: in recent years roughly half of its

suppliers have been in 'proximity' countries (Spain, Portugal, Morocco and Turkey). Nearby suppliers let it make

more of a style that is selling during the same season and less of one that is not, cutting unsold stock and

markdowns. The advantage comes from how quickly the activities are linked, not from any one activity being the

cheapest.

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Sources: Inditex supplier disclosures as reported by Modaes (2019-2024) and Georgetown McDonough School of Business.

An industry value chain: coffee

Grower

Farms and harvests

beans

Exporter

Grades, ships and

sells

Roaster

Roasts and blends

Cafe

Brews and serves

Customer

Drinks and pays

Backward (upstream) integration: the roaster buys a farm

Forward (downstream) integration: the roaster opens its own cafes

Pushing costs onto suppliers or customers does not change the total value the chain creates

SWOT analysis: Glacier Bay Gelato (imagined)

Helpful Harmful

Internal

External

Strengths

Recipes developed over 30 years (distinctive)

A brand locals love (distinctive)

Weaknesses

A single factory

Cash flow dries up every winter

Opportunities

A supermarket chain wants a premium gelato for its

own label

Threats

Rising dairy prices

A large competitor launching a premium range

Strategy: use the recipes to win the supermarket contract (which smooths winter cash flow) and lock in milk prices with a longer

supply agreement

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Distinctive versus reproducible capabilities

Resource-based theory says only distinctive capabilities create sustainable competitive advantage. A core

competency is something the organisation does better than its competitors.

Distinctive capabilities Reproducible capabilities

Hard to copy: patents, strong brands, special supplier

relationships, government licences

Can be bought or copied: most technical capabilities,

standard equipment

Can create a sustainable competitive advantage Cannot create a lasting advantage on their own

Glacier Bay: 30-year recipes, a loved local brand Glacier Bay: freezing and packing machines

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 1 | PART E.1 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Value-adding, indirect or non-value-adding?

Bakery activity Your classification

(a) Baking bread

(b) Moving trays between two storerooms before baking

(c) Re-icing cakes damaged in transport

(d) Food safety inspections

(e) Delivering orders to cafes

(f) Waiting for the oven to free up

(g) Preparing the tax return

(h) Designing new seasonal products

Question 2 - Integration moves for a winery

Suggest one backward (upstream) integration move and one forward (downstream) integration move for a

winery that currently buys grapes and sells all its wine through wholesalers. Give one benefit and one risk for

each.

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Question 3 - A SWOT for a local gym

A local gym has experienced trainers who run popular small-group classes, an ageing building, a new housing

estate being built nearby, and a low-cost 24-hour chain planning to open down the road. Prepare a short SWOT

and identify which strengths are distinctive.

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 1 | PART E.1 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Value-adding, indirect or non-value-adding?

Activity Classification

(a) Baking bread Value-adding

(b) Moving trays between storerooms Non-value-adding (double handling)

(c) Re-icing damaged cakes Non-value-adding (rework)

(d) Food safety inspections Indirect value (protects customers and the licence)

(e) Delivering orders Value-adding (distribution)

(f) Waiting for the oven Non-value-adding (waiting)

(g) Preparing the tax return Indirect value (serves government, a key stakeholder)

(h) Designing seasonal products Value-adding (support activity: development)

Question 2 - Integration moves for a winery

Backward: buy or lease vineyards. Benefit: control over grape quality and supply. Risk: large capital outlay and

exposure to weather and crop risk.

Forward: open a cellar door, an online store or its own distribution. Benefit: higher margins and direct customer

relationships. Risk: new skills and costs, and possible conflict with existing wholesalers.

Question 3 - A SWOT for a local gym

Strengths: experienced trainers; popular small-group classes. Weaknesses: ageing building. Opportunities:

new housing estate (new members). Threats: low-cost 24-hour chain.

Distinctive: the trainers' relationships with members and the community around the classes are hard to copy.

Equipment and opening hours are reproducible. A sensible strategy uses the classes to win new-estate

residents and competes on expertise and community rather than on price.

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART E.1 | WORKED ANSWERS

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