Define ‘business strategy’. (Section 25.2)

Data from section 25.2

The successful management of a business depends on having a successful business strategy. It has been argued that if the business strategy gives the organisation its com- petitive edge, then the management accounting should reflect that strategy as closely as possible. The traditional emphasis on costs and revenues may not achieve this aim. What really matters is the influence of the external environment. Strategy usually includes planning to achieve a better performance than competitors. It is argued that management accounting should show the extent to which the organisa- tion is beating its competitors. Market share, market prospects and the impact of product mix would all be useful information to include in a management accounting report as factors contributing to sales, profits and cash flows. Another way of looking at the influence of the external environment is to consider competitive advantage in costs. If the business has an influential position as a pur- chaser of goods and services, then its strategy may include an aggressive policy of negotiating contracts for those goods and services. The just-in-time strategy of order- ing goods from suppliers to arrive exactly when they are needed may put strains on the suppliers and force up their costs, increasing the price of the goods. The concept of a value chain has been proposed to describe how the corporate strategy affects the entire chain of value-creating activities. Strategic management accounting might show that 1 saved at one point in the chain has been offset by an extra 2 incurred at another stage.