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Cost management and value creation: the missing link

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  • C. J. McNair
  • Lidija Polutnik
  • Riccardo Silvi

Abstract

Understanding of the relationship between the costs of the firm and the value the firm provides to its customers is the key to the ability of the firm to reach its profit potential. From this perspective the firm needs to have a thorough understanding of its activities, their costs and their relation to market prices. Advanced cost management studies and practices suggest a variety of different tools that help us understand the relationship between value and cost. However, most of these studies provide us with qualitative tools only. An exception is studies related to product cost planning, as in the case of target costing or value analysis/value engineering. This paper, while being a part of emerging literature on strategic cost management, extends the existing knowledge of the relationship between costs and value by introducing the value creation model (VCM). In particular, the VCM model defines the firms' cost structure in terms of value added, non-value added but required activities, as well as of waste. A firm's cost structure is aligned with value attributes embedded in products and services. The VCM model seeks to understand the trade-off between what the customer is willing to pay for a product/service bundle (value) and the cost the firm bears to provide what the customer desires. Based on these trade-offs, VCM defines value multipliers, which help the firm determine which activities the firm should focus on in order to develop a competitive advantage.

Suggested Citation

  • C. J. McNair & Lidija Polutnik & Riccardo Silvi, 2001. "Cost management and value creation: the missing link," European Accounting Review, Taylor & Francis Journals, vol. 10(1), pages 33-50.
    • Handle: RePEc:taf:euract:v:10:y:2001:i:1:p:33-50
    DOI: 10.1080/09638180122848
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    References listed on IDEAS

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    1. Hammer, Michael & Champy, James, 1993. "Reengineering the corporation: A manifesto for business revolution," Business Horizons, Elsevier, vol. 36(5), pages 90-91.
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    Cited by:

    1. Alnoor Bhimani, 2002. "European management accounting research: traditions in the making," European Accounting Review, Taylor & Francis Journals, vol. 11(1), pages 99-117.
    2. Heinz Ahn & Marcel Clermont & Stephan Schwetschke, 2018. "Research on target costing: past, present and future," Management Review Quarterly, Springer, vol. 68(3), pages 321-354, August.
    3. François Meyssonnier, 2012. "Le contrôle de gestion des services : réflexion sur les fondements et l'instrumentation," Working Papers hal-00694326, HAL.
    4. Véronique Malleret, 2006. "Peut-on gérer le couple coûts-valeur ?," Post-Print halshs-00558375, HAL.
    5. Alexander Himme, 2012. "Critical success factors of strategic cost reduction," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 23(3), pages 183-210, December.
    6. Ulf Diefenbach & Andreas Wald & Ronald Gleich, 2018. "Between cost and benefit: investigating effects of cost management control systems on cost efficiency and organisational performance," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(1), pages 63-89, March.
    7. François Meyssonnier, 2011. "Le contrôle de gestion des services : Réflexion sur l'instrumentation et les concepts," Post-Print hal-00650555, HAL.
    8. Enrico Bracci, 2013. "La gestione e ottimizzazione dei costi amministrativi d?azienda: il lean office in azione," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2013(2), pages 67-86.
    9. Helgesen, Øyvind & Ivar Håvold, Jon & Nesset, Erik, 2010. "Impacts of store and chain images on the “quality–satisfaction–loyalty process†in petrol retailing," Journal of Retailing and Consumer Services, Elsevier, vol. 17(2), pages 109-118.

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