Page 266 - DCOM206_COST_ACCOUNTING_II

Unit 14: Emerging Concepts in Cost Management

chain saws and power tools. Other Honda core competencies are dealership management and Notes
shorter product development cycles.
3. Use core competencies to reconfigure the value chain of an existing business: While firms
may manage their existing value chains better than their competitors, sophisticated firms
work harder on using their core competencies to reconfigure the value chain to improve
payoffs. Otherwise, competitors may exploit opportunities.

Example: Japanese watchmaker’s side-stepped traditional distribution channels in favour
of mass merchandisers such as department store chains.
Tetra-Pak is an excellent example of a firm that reconfigured the value chain in the packing
industry for dairy products and orange juice. Tetra Pak designed filling machine for its
aseptic packages and changed the packaging industry.

4. Use core competencies to create new value chains: With strong core competencies in its
existing businesses, an organisation can seek new customers by developing new value
chains.

Example: Federal Express (FedEx) transferred its expertise in the delivery of small
packages to contract new business with L.L.Bean for overnight distribution. Disney has exported
its people-moving skills to urban mass transit for Oakland, California.

14.4.3 Segmentation Analysis

Industries are sometimes collections of different market segments. Vertical integrated industries
are good examples of a string of natural businesses from the source of raw materials to the end
use by the final consumer. Several firms in the paper and steel industries are vertically integrated.
Not all firms in an industry participate in all segments.
Differences in structural and competition among segments may also mean differences in key
success factors among segments.
Using the value chain approach for segmentation analysis, Grant (1991) recommended five
steps:
1. Identify segmentation variables and categories: There are many ways to divide the market
into segments. Typically, an analysis considers between five to ten segmentation variables.
These variables are evaluated on the basis of their ability to identify segments for which
different competitive strategies are (or should be) pursued.

The selection of the most useful segment-defining variables is rarely obvious, industries
may be subdivided by product lines, type of customer, channels of distribution and region/
geography. The most common segmentation variables considered are type of customer
and product related as illustrated below:
The first category of variables describes segments in terms of general characteristics
unrelated to the product involved. Thus, a bakery might be concerned with geographic
segments, focusing on one or more regions or even neighbourhoods. It might also divide
its market into organisational types such as at-home customers, restaurants, dining
operations in schools, hospitals and so on.

The second category of segment variables includes those that are related to the product.
One of the most frequently employed is usage. A bakery may employ a very different
strategy in serving restaurants that are heavy users of bakery products than restaurants
that use fewer bakery products.

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