Abstract
The paper involves the study of the implementation of management accounting in the business environment as a way for companies to attain competitive advantage. The aspect of the paper is of high importance because every business needs to succeed or be ahead of a competitor and the only way to achieve that is through use of the competitive advantage. Competitive advantage can be difficult to obtain especially if a firm does not implement Porter’s competitive resources to analyse and understand the market environment. The paper will also briefly describe the aspect of management accounting and the activities it involves. The report details the current trends in the business environment and evaluates Porter’s competitive forces to find out how a firm can utilize them to attain competitive advantage. In addition, it will also incorporate the details to Fransoko Group to see how it can achieve competitive advantage through use of value chain analysis and Porter’s five competitive forces.
Introduction
Management Accounting is a tool that companies use to measure value and use current economic changes to create information for effective governance. It is the process where an accountant measures, identifies, analyses accumulates, prepares, interpret and communicate information to the top management that will assist in planning, evaluating and controlling the company (Mayanja and Van der Poll, 2011). The role of management accounting will help Fransoko group to get ahead in the health sector industry because it will provide not only the data but also perform other functions such as approve and monitor company strategy, approve major financial decisions, provide counsel and support to the CEO and ensure compliance.
The performance of this report will use Porter’s five competitive force model to assist the company to stay ahead of competitors and attain competitive advantage (Mayanja and Van der Poll, 2011). In addition, the report will discuss the current business trends that will enable the management of performing its functions better evaluate Porter’s methods and discuss the Value chain analysis.
Trends in the business environment
According to Ouye (2011), five trends are present in the market require the attention of the top management. The trends are such as the continued distribution of organizations, advancement in technology and social enabling tools, shortage of skilled workers, demand for more flexible work schedules and need for sustainable firms and work styles. The trends affect the way the company will perform its production process and require the management to change its tactics if it wishes to attain competitive advantage.
The distribution of organizations: The business environment has undergone many changes over the years. In the 21st Century, the way business activities run are not the same as that of the 20th Century. It because the present changes in economies have made certain business activities are from outsourced businesses and other removed from the production process. Almost all of a firm's operations that a company can perform in the 20th Century come from outsourced companies today such as financial analysis and forecasting, IT services and market analysis. According to Ouye (2011), the method has come with many benefits, as workers are capable of relocating to different companies, lower labor costs and new market penetration.
Fransoko will be capable of performing the essential business operation at reduced costs because of most of the projects such as accounting, human resource and real estate. It will assist the company to broaden its operations in other regions thus tapping into new talents at a lower price. In addition, the company will be capable of penetrating new market segments when the opportunities present itself without the risk of losing its existing ones.
Advancements in technology and social enabling tools: The advancements in technology have made it simpler for a company to be capable of communicating, store and manage data. Access to work materials is easy, and communication with colleagues can be 24/7. It enables a business to grow especially is a company performs its operations in different time zones. Social Medias have also become essential in the business environment especially when it comes to competitive advantage. Firms may use different Medias such as podcasts, blogs and forums to reach and penetrate new markets. It can also be a marketing strategy for a company’s products and services (Ouye, 2011).
The use of technology in Fransoko will enable the efficient functioning of business operation. It will also allow the firm to improve certain functions such as streamlining, standardizing and automation. The company should also invest in ERP systems, which make the management accounting easier as there will be better access to vital information required for decision-making (Chartered Institute of Management Accounting, 2007).
Shortage of skilled workers: According to Barry Bluestone in (Ouye, 2011), the future does not look good regarding recruitment. According to him, few youths are studying to replace those who will come to retire in the coming years. In addition to that, the new generation may not have the required skill set the company lost when an employee retired. At this rate, the coming will come to face losses in the future. According to Bluestones, businesses will pay more to keep older people due for retirement working for them. Catering to the needs of the elderly will be costly thus losses.
Fransoko is in the medical field and because of the effect of the Great Recession. In addition, the hypothesis of Bluestone affects all business sectors including the area of health. The company has to prepare itself because, in the future, it will have extra expenditure regarding medical insurance and providing a safe workplace for the elderly.
Demand for flexible work schedule: Research dictates that employees are in demand for a more and more for flexible working hours. Labor being the primary resource essential for success and a limited one, companies compete for it. The competition will cause the business to compensate and offer more salary to keep valued employees and fulfill the needs of both existing and potential employees (Ouye, 2011).
Fransoko is no exception to this trend, especially since there are not many specialized doctors in different medical fields. Physicians are a limited resource, and because of that, the company will have to spend more to create a working environment that caters their needs. There will also be the element of compensation because expert physicians will have to work for more than one hospital. Therefore, the business has to offer a suitable salary to be the sole employer of a particular physician or be open to the idea of sharing.
Need for Sustainable organizations and working styles: the element of safeguarding the environment in another significant trend. The production processes a business performs have to be environmentally friendly and dispose of waste carefully while protecting the environment. In addition, the business has to support environmental groups. The association will assist to create a positive image of the company not only to the market but also to potential employees thus encouraging recruitment and reducing employee turnover (Ouye, 2011).
Fransoko does not need to worry about pollution of waste materials. However, it still has to create a positive image and the only way to do that it to engage in activities that are environmentally friendly such use of technologies or medical equipment that use renewable sources of power and support environmental groups or have an environmental department.
Porter’s generic strategies
According to Porter, a company is capable of attaining two types of competitive advantage, which are low cost and differentiation. From the types of competitive advantage, he created strategies that a company can use to achieve them. They are cost leadership, differentiation and focus. Focus strategy has two more categories, cost focus and differentiation focus (Porter, 1985). These strategies are techniques a business can use to achieve a competitive edge in the market.
Cost Leadership: The approach just means that the firm sets out to be a low producer within its industry. It depends highly on the structure of the industry (Management Technology Policy, n.d.). The strategy attains competitive advantage in two ways by increasing profits while reducing costs and charging industry average prices or increasing the company market share charging its products at lower prices while still making reasonable profits. Fransoko is capable of utilizing this strategy even though medical services are becoming more expensive every day through reducing its costs (Mind Tools, 2017).
Differentiation strategy: It involves when a company seeks to be unique in its industry by providing something that its buyers find in high value. The strategy depends on some things such as the nature of the industry and the products or services it offers (Management Technology Policy, n.d.). The strategy is also risky and only worth it for large organizations capable of spending resources on research and sales. The health sector is a tricky industry to implement this strategy. It is because when a firm finds out of discovery in the medicine industry the motto is to share with other enabling physicians to save more lives. However, being the first to make the discovery will cause the company attain competitive advantage and profits for a short time before other health companies catch up (Mind Tools, 2017).
Focus strategy: The strategy allows a business to concentrate on the niche market. The use of the strategy come with many benefits such as understanding the unique needs of your consumers, developing well-specified products and build brand loyalty. It allows a company to increase its segment market while making the niche market less attractive to other competitors present in the market. It is necessary for the enterprise, Fransoko, to utilize this strategy, mostly because it is still very young and attaining a market segment is of high importance. The method will also assist to create brand awareness among the consumers in the niche group and increase the loyalty of its buyers in the market. The outcome of these efforts will be an established clientele and increase in profits (Mind Tools, 2017).
Attaining Competitive Advantage
Porter’s five competitive model is a technique that a company can deploy to analyse itself and its operations to find out if a business can be profitable in the industry. Another advantage of the method is that it gives the firm the ability to anticipate and influence competition. A company is only capable of achieving competitive advantage if it understands the competitive forces.
Competitive rivalry: it seeks to analyse the market and determine how many competitors are present. The level of competition is high when there are only a few key places in the market. It allows consumers to change from one producer to another. For, Fransoko Group the level of competition is low mostly because there are many medical providers in the medical sectors. It is also a new company in the medical field only two years old thus still trying to attain a segmented market. The only way it is capable of achieving competitive advantage is through diversity where it offers more than one product or service (Porter, 1985).
Bargaining power of suppliers: The Force looks at how much power a business has on the market making it capable of controlling access and product prices. The fewer providers of a commodity are, the larger the power. The medical sector has many key suppliers, thus has a low bargaining power of the vendor. It means it is simple to switch to another producer and there is the presence of many substitutes. Competitive advantage can be by being a reliable company and spend capital on creating awareness thus increasing its market coverage.
Bargaining power of buyers: It looks at the ability for consumers to affect the price and quality of a product. The bargaining power is low when there are fewer buyers but high when the number of customers is high. The health sector is ever in demand meaning that it has a higher buying power thus a higher bargaining power. It is evident as the federal government seeks to reduce the cost of healthcare because there are many in need of medical services. Fransoko can attain a competitive advantage by being diverse (Porter, 1985).
The threat of new entrants: the force tries to determine the state of the market and find out if it can allow new competitors to join. The easier it is to enter the market, the greater the threat. The medical sector is a market that also has opportunities, and because of that, there is a bigger threat of new entry. Fransoko can attain a competitive advantage by spending more capital on marketing is brand and creating awareness.
The threat of substitutes: it studies how simple it is to switch from a business’ products or services to that of a competitor’s. In the medical field, the act is because there are many players and when a consumer is not satisfied, he or she is at free liberty to switch. Fransoko can attain a competitive advantage by giving quality products and services (Porter, 1985).
Value Chain Analysis is another way to determine competitive advantage. It looks at analyzing the internal operation of the company and finding out, which add more value and work on reducing their costs in the production process. According to Porter, it consists the method includes analyzing the primary activities which are inbound logistics, operations, outbound logistics, service, marketing and sales. The reduction of cost in the production process will enable the company to allocate the resources elsewhere and still attain competitive advantage (Porter, 1985). Reduction of costs is crucial to the health sector mostly because it is a basic need for every person.
Conclusion
The use of Porters strategic analysis, the five competitive models and the value chain analysis is an effective way to gather data that management can use to support its decision. It is because the technique involves observation and analysis of both the business environment and the company itself. It is a proficient method that allows cost reduction in essential areas or expertise that will allow the company to be cost effective and still produce quality products and services. The whole process also enabled identification of competitive advantage techniques at different levels of market understanding Fransoko can use to stay ahead of competitors and grow in the medical field.
References
Chartered Institute of Management Accounting. (2007).Improving decision making in organizations: The opportunity to reinvent finance business partners. CIMA
Management Technology Policy. (n.d). Porter's Generic Competitive Strategies (ways of competing). Cambridge University.
Mayanja, M. K. and Van der Poll, H. M. (2011). Management Accounting: An instrument for implementing effective corporate governance. African Journal of Business Management.
Ouye, J. A. (2011). Five Trends that Are Dramatically Changing Work and the Workplace. Knoll Workplace Research.
Porter, M. E. (1985). Competitive Advantage. The Free Press: New York.
Porter's Generic Strategies: Choosing Your Route to Success. Mind Tools. Accessed on 1/12/2017. https://www.mindtools.com/pages/article/newSTR_82.htm
