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Knowledge of the organization’s mission and core competencies is a key consideration
in the design of a cost management system. The mission provides a longterm
goal toward which the organization wishes to move. If the mission that the
entity wishes to achieve is unknown, it does not matter what information is generated
by the cost management system—or any other information system!
As discussed in Chapter 1, in pursuing the business mission, companies may
avoid or confront competition. For example, companies may try to avoid competition
by attempting to be more adept in some way than other entities. The generic
paths a company may take to avoid competition include differentiation and cost
leadership.8
In the current global environment, it is often difficult to maintain a competitive
advantage under either a differentiation or cost leadership strategy. Competitors
are becoming skilled at duplicating the specific competencies that gave rise to
the original competitive advantage. For many companies, the key to success in
the future may be to confront competition by identifying and exploiting temporary


opportunities for advantage. In a confrontation strategy, companies “still try to differentiate
their products by introducing new features, or try to develop a price
leadership position by dropping prices, . . . [but, the companies] assume that their
competitors will rapidly bring out products that are equivalent and match any price
changes.”9 Although it may be necessary, a confrontation strategy is, by its very
nature, less profitable for companies than differentiation or cost leadership.
Exhibit 2–7 shows how the strategy of the firm, together with the life-cycle
stages of products, determines what a firm must do well to be successful at any
point in time. This exhibit illustrates how the information requirements of managers
change over time as the life cycle evolves and, thus, are dependent upon
the strategy being pursued.
The globalization of markets has created, in many industries, competition among
equals. Today, many firms are capable of delivering products and services that are qualitatively and functionally equivalent. Without being able to distinguish one
competitor’s products from those of another based on quality or functionality, the
consumer’s focus switches to price. In turn, price-based competition changes the
internal focus to costs. One industry currently particularly affected by price-based
competition is communication. The accompanying News Note illustrates the shift
to an intensive internal focus on costs.
Clarification of mission can be served by identifying the organization’s core
competencies, which are dimensions of operations that are key to an organization’s
survival. Most organizations would consider timeliness, quality, customer service,
efficiency and cost control, and responsiveness to change as five critical competencies.
Once managers have gained consensus on an entity’s core competencies,
the cost management system can be designed to (1) gather information related to
measurement of those items and (2) generate output about those competencies in
forms that are useful to interested parties.