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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 was...

Integrated reporting systems are the wave of the future from two points of view: for their support to management decision making processes, and as stra-tegic information source for annual Integrated Reporting (IR). This chapter describes Value-based Cost Management (VCMS) as one tool available to the financial and marketing communities that can be used in the integration effort because it naturally joins data streams from across the organization to provide a unified picture of the firm’s performance. Furthermore this chapter shows the twofold potential contribution of VCMS to IR. First, it supports the management and monitoring of the company performance with specific regard to customers and internal processes as fundamental dimensions of an integrated performance measurement system. Second, the role played by waste in VCMS is argued to support the sustainability movement and reporting.

Networked organizations are receiving increasing attention in the management literature because of their perceived success in terms of fast growth, increased flexibility and efficiency of operations, lower overhead costs, and effective competitive positioning. For all firms, the choice of which activities to perform internally and which to outsource is a critical issue. Cost information can play a fundamental role in the decision about how much "market" and how much "hierarchy." Indeed, outsourcing is, basically, a cost and benefits evaluation. Management accounting and strategic management studies have, so far, not addressed this perspective explicitly. Management accounting is too internally focused on the costs of the firm rather than the entire supply chain. The strategic management perspective, on the contrary, focuses its attention on the supply chain, but only deals very generally with those transaction costs which emerge in using the market. Both approaches fall short in providing a well articulated financial rationale for which activities should be outsourced and which should be entrusted to the market. Neither approach does much to help managers understand where value is created in the value chain, the costs of the activities involved or their cost drivers. Strategic cost management (SCM) studies provide a useful cost analysis framework which is too often missing in the strategic decision making process. Competitive analysis, value or supply chain mapping, and cost driver analysis are, in particular, the tools of SCM. The aim of this paper is to apply SMC to the theory of networked organizations. In this paper we will use SCM to explain the Italian motor bike industry where both vertically integrated and network organizations exist. In particular, we will try to interpret different firms performance by comparing their value chains and their positions along the value system. The financial impact of the complexity involved in these different organization models and its impact on profitability and competitive position is our main theme.

Interfirm organisations are receiving increasing attention in the management literature owing to their superior performance in terms of fast growth, increased flexibility and efficiency. Effective design of these organisations depends on the choice of which activities to perform internally and which to outsource, and also on how to manage relationships within the network. Building on the emerging field of strategic cost management studies, this paper presents a general framework that supports the rationale underpinning the cost structure and effectiveness of interfirm organisations. Specifically, it focuses on three important cost drivers relating to: a) how transactions with partners are settled; b) how technological interfaces with partners are managed; c) how activities are distributed among partners. The model is then applied to an Italian firm operating in the electronics industry. This work is to be considered as a work-in-progress, but nevertheless it provides two major contributions. At a theoretical level, while the traditional transactional approach focuses on the nature and on the object of the relationships, this paper extends its attention on the technological structure and managerial process that make transactions with the external environment possible. At a methodological level, our aim is to operationalise the data collection process in order to analyse the effects on the firm's cost structure of different ways of interacting with the actors of the value chain.