Strategic Profitability Analysis

Course Director: Jonny Lind

General Course Description

Profitability is a key concern for most organisations. But how to achieve that goal? What are the fundamental drivers for profitability, externally and internally? In this course, we investigate how to run a business profitably, focusing on managerial decision making, i.e., how managers can use financial information to improve value creation. The course will increase the students' understanding for how they can use various forms of financial information to improve decision making. The course consists of two modules: 1) Costing analysis for improving company profit, 2) Specific problems in costing analysis when it is used in inter-organizational relationships.

1. Costing analysis for improving company profit Managers and employees at various organizational levels continuously need to make decisions that will have consequences for the short-term company profit as well as influence the future profit opportunities. This module will provide the students with a number of tools in which various forms of financial information can be used to improve the profitability.

This module starts with a session that puts the various forms of costing analysis for decisions into a strategic context to be able to evaluate different possible choices. In the next phase, various forms of costing analysis will be investigated such as capital cost, product costs, strategic costing, customer profitability analysis and target costing.

2. Specific problems in costing analysis that occur when it is used in inter-organizational relationships.
A specific problem that arise when managers and employees use costing analysis in inter-organizational relationships is that the issue involves more than one legally independent organization. Hence, there is no obvious hierarchical order that can decide how to do things. This module starts with a session that discusses the specific challenges that an inter-organizational setting brings to the various forms of costing analysis. In the next phase, various forms of costing analysis will be investigated in such a setting. Examples of costing analyses that are investigated are customer profitability analysis, target costing and open book accounting.

Format & Structure

The course consists of a series of lectures and a series of seminars. The lectures and seminars are not compulsory.

9 lectures that are common for the whole class.

8 seminars with preparation assignments and cases, smaller groups of students if necessary. The students are expected to have prepared the seminar assignment before the seminar. The assignments will be found on Canvas a few days before the seminar. When attending the seminars, each student individually are requested to hand in written solutions to the seminar assignments and participate in the seminar discussions. (This consists of 10% of the course grade).

Course administrator: jessica.kihlman@hhs.se

1. Quantitatively and qualitatively evaluate and discuss issues related to costing analysis i.e. capital cost, product costs, strategic costing, customer profitability analysis and target costing

2. Quantitatively and qualitatively evaluate and discuss specific problems that occur within costing analysis in inter-organizational relationships i.e. problems related to customer profitability analysis, target costing and open book accounting.

No formal prerequisites. However, knowledge in accordance to if the students have passed the courses BE0301 Accounting I: Understanding Financial Reports and BE0302 Accounting II: Analyzing Performance are expected.

Book:

Bjornenak, T., 2019, Strategic Profitability Analyses (translated). Fagbokforlaget. Chapter 1-5. (Will be available on Canvas)

Compendium:
Zimmerman, J.L., 2006, Accounting for decision making and control, fifth edition, McGraw-Hill Irwin, ISBN: 0-07-297586-5. 7 pages (Will be available on Canvas)

Cooper, R. & Kaplan, R.S., 1991, The design of cost management system, Prentice-Hall International editions, ISBN: 0-13-202789-5. 7 pages (Will be available on Canvas)

Articles:
Agndal, H. & Nilsson, U. (2009). Interorganizational cost management in the exchange process, 20, 2, 85-101.

Alenius, E., Lind, J. & Strömsten, T. (2015). The role of open book accounting in a supplier network: Creating and managing interdependencies across company boundaries, Industrial Marketing Management, 45, Feb., 195-206.

Barros, R.S. & Ferreira, A.M.D.S.C. (2017). Time-driven activity-based costing Designing a model in a Portuguese production environment, Qualitative Research in Accounting & Management, 14, 1, 2-20.

Dubois, A. (2003). Strategic cost management across boundaries of firms, Industrial Marketing Management, 32, 5, 365-374.

Helgeson, Ø. (2007). Customer accounting and customer profitability analysis for the order handling industry – A managerial accounting approach, Industrial Marketing Management, 36, 6, 757-769.

Kajüter, P. & Kulmala, H.I. (2005). Open-book accounting in networks: Potential achievements and reasons for failures, Management Accounting Research, 16, 2, 179-204.

Kaplan, R.S. & Anderson, S.R. (2004). Time-driven Activity-based Costing, Harvard Business Review, 82, 11, 131-138.

Kaplan, R.S. & Ramanna, K. (2021). Accounting for Climate Change, Harvard Business Review, 99, 6, 120-131.

Kato, Y. (1993). Target costing support systems: lessons from leading Japanese companies, Management Accounting Research, 4, 1, 33-47.

Lind, J. & Strömsten, T. (2006). When do firms use different types of customer accounting?, Journal of Business Research, 59, 12, 1257-1266.

Nicolini, D. Tomkins, C., Holti, R., Oldman, A. & Smalley, M. (2000). Can target costing and whole life costing be applied in the construction industry?: evidence from case studies, British journal of management, 11, 4, 303-324.

Shank, J.K. (1989). Strategic Cost Management: New Wine, or Just New Bottles?, Journal of Management Accounting Research, 1, Fall, 47-65.

Zimmerman, J.L. (1979). The Cost and Benefits of Cost Allocations, The Accounting Review, 54, 3, 504-521.

+ additional articles that will be announced before the course starts.

1. Written exam (90 % of the grading).
2. Individual written solutions to the seminar assignments. NOTE. Attendance at the seminars and be able to discuss the solutions is required to get some of the seminar points. (10 % of the course grading).

1. Written exam
The examination consists of a written exam where the demonstrated achievement of the intended learning outcomes (ILO:s 1-2) of the course is evaluated. 90% per cent of the grading is based on the written exam. Calculators approved by the school are allowed during the exam. The written exam covers ILO 1-2 via a number of exam questions that aim to provide an overall evaluation of whether the student has achieved the ILOs. This means that each exam question covers one or more ILOs. The assessment of the student’s accomplishment of the intended learning outcomes, as demonstrated in the answers to questions on the written exam, is first made question-by-question and subsequently as an overall evaluation. In practice, this is done with the aid of a numerical scale when assessing the exam questions. The sum of the points on the written exam constitutes the basis for the grading. The composite evaluation of the ILO:s is motivated by the course’s intention to combine and integrate knowledge of various parts of the course. Accordingly, we believe that a composite evaluation is better than solely making separate assessments with regard to each ILO.

2. Individual written solutions to the seminar assignments and active seminar participation
Before attending the seminars, each student individually is requested to hand in written solutions to the seminar assignments. This written solution needs to be handed in via Canvas at the latest 7 am on the day of the seminar. If the hand-in is given a 'pass' the student gets 0.5 points for each hand-in. If the student attends the seminars and is prepared to discuss the solutions, an additional 0.5 points per seminar is given. Thus, the student can earn a maximum of 1 point per seminar. This means a total of 8 points can be earned, because there are 8 seminars. Those students that receive at least 6 points in total get an additional 2 bonus points, which means a total of 10 points can be earned, and 10 % of the course grading is thereby based on this.

The total grading of the course is made on the basis of the sum of points on the written exam and the points from the seminar assignments.

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