затраты. Управление затратами и структурой затрат по цепочки создания стоимости Исследования по стратегическому управлению затратами
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4. Стратегические методы управления затратами на границе фирмы В этом разделе я рассматриваю исследование по управлению затратами для расширенной цепочки создания стоимости. Сначала я считаю relations between the firm and its value chain partners, including upstream suppliers as well as other strategic alliance partners. I then turn to relations between the firm and its customers. 4.1 Strategic Cost Management in Supplier and Alliance Partner Relations Management accounting research has only recently begun to consider issues that arise when firms transact. Until recently, market transactions (also referred to as “arms-length” transactions) held little interest for management accounting researchers because prices for inputs simply flowed through the firm's accounts and there was no need or opportunity for exercising “management control” beyond the legal boundaries of the firm. Procurement was simply a matter of negotiating the best price and management accountants were only responsible for providing internal product costs to be compared against external prices in the make-or-buy decision. As noted in Section 3, with the advent of lean manufacturing, firms began to see the wisdom of collaborating with key suppliers as a means of enhancing new product development (eg, Carr and Ng 1995), controlling what for many firms was a very large share of total costs (Seal et al. 1999), and increasing the quality and reliability of production (Womack et al. 1990; Clark and Fujimoto 1991). Moreover, as cost accounting systems began to support analysis of different cost objects, it became clear that the “price” paid to suppliers was often only a portion of the total cost of doing business with a particular firm. Finally, with advances in information technology, firms have replaced manual paper processes with electronic processes that provide new opportunities to economically integrate information exchange between firms (eg, Anderson and Lanen 2002; Kulp 2002; Kulp et al. 2004). These developments have thrust inter-organizational transactions to the forefront of current management accounting and control research (Anderson and Sedatole 2003; Kinney 2001; Hopwood 1996; Mouritsen et al 2001; Otley 1994). A unique challenge of managing costs at the boundaries of the firm is motivating value chain participants to enhance their own returns in ways that increase rather than diminish returns for the entire 17 value chain. In colloquial terms, participants must focus on growing the size of the pie, not simply growing their share of the pie. Coase (1937) argued that the boundaries of the firm are defined by cost- minimizing configurations of technical capabilities and inputs. However, conditions that preclude complete contracts from being written may lead firms to adopt second-best solutions. Williamson (1975, 1985) argued that in typical settings that accompany negotiations between firms (ie information asymmetry, significant upfront investments that have little or no value outside of the transaction, various transaction uncertainties (technological, market, performance measurement)), firms may retain activities within the firm to avoid opportunistic behavior at a later date by self-interested transaction partners. Таким образом, transactions costs --- the costs of transacting with another business partner --- are yet another cost to be minimized in the determination of firm boundaries.16 While transactions costs were originally posited to explain the dividing lines between transacting organizations, this line has become increasingly blurred as firms adopt hybrid organizational forms such as joint ventures, franchise and licensing arrangements, strategic alliances, supplier networks and various other collaborative forms (Adler 2001; Williamson 1991). Transactions cost theory continues to be an important theory for identifying transaction risks; however, in the strategy literature, the resource–based view of the firm posits that opportunities that are only obtainable through collaboration may more than offset these hazards (eg, Dyer 2000; Gulati and Singh 1998; Poppo and Zenger 1998; Ring and Van de Ven 1992, 1994). On closer investigation, hybrid organizational arrangements often employ innovative approaches to structuring their relations that reduce transactions costs.17 For example, Anderson et al. (2000), Anderson and Lanen (2002); Baiman et al. (2001), Baiman and Rajan (2002); Cachon and Fisher (2000), Cachon and Zipkin (1999), Gietzmann (1996), and Novak and Eppinger (2001) provide examples of structural cost management, with firms adopting innovative approaches to product and process development, inventory ownership and management, and information sharing. In many cases, these new approaches are made possible by new technologies for monitoring or measuring partner performance or 16 Extensive research in economics and business strategy tests the relation between transaction costs and firm boundaries. See Shelanski and Klein (1995) and Anderson and Sedatole (2003) for comprehensive reviews. 17 See Anderson and Sedatole (2003) for a review of management control practices in strategic alliances. 18 for reducing uncertainties or informational asymmetries that create opportunistic hazards (eg, Anderson and Lanen 2002; Kulp et al. 2004; Seal et al. 1999). Studies that focus on how internal management accounting and control practices are structured in interorganizational transactions include: Anderson and Dekker (2005), Kajuter and Kulmala (2001), Kulp (2002), Seal et al. (1999), Gietzmann (1999), and Van der Meer-Kooistra and Vosselman (2000). Although transaction costs have a direct bearing on the firm's value proposition and organizational design, the transaction costs that accompany the chosen organizational design --- whether, costs of dealing with an external supplier, or costs of retaining activities within the firm that could be better performed by another firm --- are, on the whole, invisible to management accountants. In part this is due to opportunity costs falling outside the purview of accounting records; however, it is also related to arguments about the appropriate object of cost analysis (Hergert and Morris 1989). Transactions costs include costs of writing (albeit incomplete) contracts, costs of coordination, costs of management control practices aimed at mitigating opportunistic behavior, and costs associated with any subsequent opportunism that emerges. However, as Tirole (1999: 772-3) remarks, “While there is no arguing that writing down detailed contracts is very costly, we have no good paradigm in which to apprehend such costs.” He suggests that field based research may be required to better understand the relation between costs and the mechanisms of management control that firms employ. A recent field-based study that examines inter-organizational cost management in a setting other than new product development is Dekker (2003). Dekker studies a retailer that uses activity-based costing to assign “costs of ownership” to its suppliers, thereby explicitly assigning costs associated with poor supplier performance as an additional cost that is added to the price of goods procured from the supplier (Carr and Ittner 1992). In a classic example of executional cost management, the cost system is used to diagnose problems and improve performance in the supply chain. In summary, management accounting has only recently awakened to the cost management and management control issues that emerge when self-interested trading partners collaborate for mutual advantage. Inevitably, the partners face difficult choices in apportioning rights and responsibilities (and 19 associated costs and revenues) among value chain participants. Ideally, firms identify mutually beneficial opportunities for enhancing the value proposition of the entire value chain. However, competition, technological change, or new strategies may at times require an adjustment to the value proposition or to the organizational design that diminishes the scale or scope of value-added activities for a given partner or that reduce the return that a given partner should receive for their contributions. Researchers in economics, strategy, and operations have made significant advances in exploring the forces that affect alternative organizational configurations and governance structures. And recent management accounting research on innovative control practices have contributed to this literature. However, although transactions costs play a major role in these explanations, research on strategic cost management in the accounting literature provides little understanding of how firms account for these costs in their decisions. 4.2 Strategic Cost Management in Customer Relations Even more so than upstream relationships, management accounting research is virtually silent on managing costs in the portion of the value chain connecting the firm to the end customer. As Johnson and Kaplan (1987: 244) note: We [researchers] have been as guilty as conventional product cost systems in focusing narrowly on costs incurred only in the factory. Manufacturing costs may be important, but they are only a portion of the total costs of producing a product and delivering it to a customer. Many costs are incurred “below the line” (the gross margin line), particularly marketing, distribution, and service expenses. Research on using activity based costing to assign costs in the firm's accounting system to customers has sought to remedy this shortcoming. Paralleling the analysis of “costs of ownership” for suppliers, these studies suggest treating the customer as the object of cost analysis (eg, Foster and Gupta 1994; Foster et al. 1996; Kaplan and Narayanan 2001; Niraj et al. 2001; Narayanan and Sarkar 2002). A common conclusion is that a small group of customers who demand a disproportionate amount of “free” support resources (eg, after sales service, customized products or shipping, credit terms) and order small volume or low-margin products are unprofitable. “Hidden loss” customers subsidize “hidden profit” customers and present an opportunity for firms to develop customized pricing that better reflects resource usage by 20 individual customers (Shapiro et al. 1987; Kaplan 1997). Customer cost analysis supports executional cost management by allowing firms to align their strategy to a particular set of target customers while dissuading other customers who are not part of the target audience for the firm's products or services. One structural cost management approach that is often used to try to shift customers from unprofitable to profitable status is the introduction of lower cost-per-use channels of distribution (eg, web-based services instead of in-store service for banking customers) (eg, Chen and Hitt 2002; Hitt and Frei 2002). However, this assumes that customers can be shifted to lower cost channels with no impact on доходы. In a recent paper, Campbell (2003) finds evidence to the contrary. Evidence of interactions between the cost and revenue function highlights the dangers of accounting and marketing researchers working in isolation to understand the drivers of customer profitability. Although the focus of this chapter is strategic cost management, it is important to note that research on customer-specific costs has strong synergies with research in marketing that uses new sources of customer-level data to predict customer revenue streams (eg, Berger and Nasr 1998; Rust et al 2000; Dwyer 1997; Blattberg et al. 2001). Advances in information technology (eg, bar coding, internet sales) and statistical analysis (eg, data mining) enable companies to know their customers better and to use customer relationship management (CRM) to customize the marketing and sales investments (Schmittlein et al. 1987; Pine et al. 1995; Hitt and Frei 2002). Marrying customer-level costs and revenues with assumptions about repurchase frequency and customer loyalty allows marketing researchers to quantify lifetime customer profitability (See Ofek 2002 for a detailed example) and manage marketing and sales campaigns to affect the equation (Dwyer 1997; Schnaars 1991). A weakness of the literature on customer-specific costs as compared to the supply chain management literature is that there is little consideration of costs that fall outside the boundaries of the firm or its accounting system. Thus, while inter-organizational cost management is typically described as jointly optimizing all supply chain members' or alliance partners' costs for the good of the full value chain, the literatures on customer costing and customer profitability typically do not consider costs to the 21 customer of doing business with the firm.18 This is in counterpoint to Hotelling's (1929) classic model of competition between firms that sell identical products (ie, same cost) from different store locations. В this model, customers pay for goods, but they also incur transactions costs in obtaining the goods from the firm (ie, transportation costs traveling to and from the store). In equilibrium, each firm's price is determined by both the cost of the product and by the transactions costs borne by customers. If economic theory suggests that costs borne by customers are optimally included in pricing strategy, it seems only reasonable to expect strategic cost analysis to comprehend these costs as well. Indeed, this is what Womack and Jones (2005a, 2005b) propose --- that “lean consumption” processes should be developed to do for the final stage of the value chain what “lean production” did for upstream manufacturing and supply processes. As information technology blurs the distinction between consumption and production, firms increasingly adopt cost savings approaches that off-load work to customers (eg, entering data in web-based order forms, checking in for air travel, tracking progress of their orders) (Womack and Jones 2005b: 60). However, in treating customers' time as a “free resource,” firms may unwittingly increase the customer's total cost of ownership of their product.19 Another way to look at this is that the customer is incurring the full cost of ownership, but only a portion of that is remitted to the firm. Thus, the firm that can design better processes to connect production and consumption can charge more without alienating customers. Womack and Jones (2005a, 2005b) decompose the consumption experience into six components: search, obtaining, installing, integrating, maintaining and disposing of the product and provide examples of firms that structure operations to reduce customers' costs in each activity. Another research stream that speaks to structural cost management opportunities for designing operations to enhance customer interactions and firm profitability is that of service operations 18 An exception is research in marketing on how customer switching costs cause past purchase behaviors to influence future purchases (eg, Chen and Hitt 2002; Heide and Weiss 1995; Keaveney 1995). In an industrial setting (ie, OEM purchasing), Cannon and Homburg (2001) examine the relation between characteristics of the supplier-buyer relationship and buyer's direct product costs, acquisition costs and costs of operations. 19 The issue of how firms account for free use of resources in strategic cost management is revisited in the next section. 22 management and, closely related, research on services marketing. Both of these fields have contributed to our understanding of causal models that relate operational performance to customer satisfaction and financial performance. Sasser et al.'s (1978) pioneering work on the differences between manufacturing and services launched this research. More recently, researchers take as their point of departure the service value profit chain model of Heskett et al. (1997, 2003) (eg, Anderson et al. 2005a; Goldstein et al. 2002; Roth and Menor 2003). Performance of service operations is posited to depend critically on employees delivering high quality service that leads to satisfied customers (Chase 1978; 1981; Anderson et al. 2005b). Satisfied customers deliver financial performance as a result of a more resilient stream of revenues (ie, due to customer loyalty and positive word of mouth) and lower costs of service (ie, fixed acquisition costs are spread over more purchases and customer need less support in subsequent purchases) (eg, Bitner 1990; Goldstein 2003; Heskett et al. 2003; Parasuraman et al. 1985; Rust and Zahorik 1993; Rust et al. 2000; Soteriou and Chase 1998; Schneider et at. 2003). Accounting researchers have focused on developing measurement systems that support assessment of these causal models; specifically a measurement system that embodies a multidisciplinary, multi-stakeholder, dynamic view of performance and is linked to firm strategy (Kaplan and Norton 1996, 2004). These parallel developments reveal an increased appreciation for “systems thinking” as a necessary starting point for effective design and execution of service operations. As these measurement systems mature and are used for both structural and executional cost management, it may become more common for management accounting researchers to consider both approaches to strategic cost management. Continuing the theme of “systems thinking”, I turn now to costs that must be managed to ensure sustainable profits for the firm as it participates in the broader economic system. 5. Sustainable Cost Structures and Management of Sustainability “Sustainability” has been defined in both broad and narrow terms to suit various needs. В то время как broad definitions (eg, “sustainable development 'meets the needs of the present without compromising the ability of future generations to meet their own needs' [World Trade Commission on Development 23 (1987:8)”) have intuitive appeal, they are difficult to translate into performance measures and thus difficult to incorporate in government or organizational policy (Reinhart 2000: 26). Reinhart (2000) offers instead a two part definition in which a sustainable firm maintains on its balance sheet an undiminished level of total net assets, measured at both social costs and prevailing private costs. The first condition ensures that firms “internalize” external impacts on society and the second condition ensures that the firm can pay input suppliers today without jeopardizing future revenue streams. The “sustainable enterprise” label is often associated with the environmental or “green” movement; however, there are many other contemporary examples of firms failing to internalize and account for the full impact (both present and future) of their products and services on society. Более того, social responsibility often extends beyond stewardship of natural resources. As forces for globalization yield value chains that traverse national boundaries, firms increasingly confront challenges of defining ethical business practices in settings where local governments impose few constraints or protections for their citizenry. In a survey of annual reports, Elias and Epstein (1975) found that the most commonly mentioned elements of social responsibility were: environmental impact, equal employment opportunities, product safety, educational aid, charitable donations, industrial safety, employee benefits, and community support programs. In the interest of space this section discusses environmental issues as one example of a sustainable cost management issue; however, I provide references to studies that examine other aspects of social responsibility. Market failures arise when the price of a good fails to represent the full cost to society of producing the good. When firms employ or impair nonrenewable community resources at little or no cost, the price of goods in a competitive market will be too low (and conversely the consumption too high) as compared to the optimal solution for societal welfare to be maximized. Governments counter market failures with a variety of responses ranging from banning certain activities, to creating markets by pricing (or taxing) resource usage (or, as in the case of pollution credits, creating markets for the right to deplete or diminish resources (Annala and Howe 2004)), to allowing firms free rein and implicitly transferring societal wealth to the firm's stakeholders (eg, Corson 2002). These alternatives are important because 24 they define the costs (present and future) that do and do not appear in firms' accounting records and they interject uncertainty about costs that may appear in future accounting records if policies for addressing market failures change. Concern for sustainable profits demands that managers be aware of these costs and manage as if they are (or will be) attributed to the firm by some, if not all, stakeholders. Much of the literature on sustainability concludes that a necessary condition for strategic management of environmental and social costs is increased visibility of the full costs (and benefits) of a firm's operations.20 Joshi et al. (2001) provide evidence on the degree to which cost accounting systems obfuscate the magnitude of costs associated with environmental compliance. After the full costs are identified, two mechanisms are commonly suggested for increasing the visibility of the costs and supporting decisions related to the best use of resources. First, activity based costing or cost allocation approaches are employed to attribute costs to the activities, products and services that consume societal resources (Hammer and Stinson 1995, Kite 1995, Miettinen and Hamalainen 1997, Quarles and Stratton 1998, Bleil et al. 2004). These studies fit within the research stream that Lord (1996) identifies as examining whether and how firms configure accounting data to support value chain analysis. Presumably, cost attributions are the precursor to setting prices that compensate the firm and society for resources used in the product or service. However, often these attributions are not enough. Studies also recommend that new monitoring and reward/punishment mechanisms be adopted to align managers' interests with economizing on all costs, including the newly “internalized” societal costs associated with firm operations (Aggarwal et al. 1995, Baber et al. 2002, Bloom and Morton 1991). Lanen (1999) describes such a program of cost attribution, environmental performance measurement and incentives at a major chemical firm. Avila and Whitehead (1993) provide a fascinating interview with top executives about the evolution and components of Dow Chemical Company's environmental strategy. According to these managers, cost management, control systems and organizational structure are central 20 Argandona (2004) considers internal management systems needed to support ethical, social and environmental management. Epstein (1994), Hammer and Stinson (1995), Parker (1996), Boer et al. (1998), Lander and Reinstein (2000), Bansal (2002) and Pearce (2003) focus specifically on environmental costs. Zetlin (1990), Stern (2004) and Elias and Epstein (1975) provide examples of social costs. 25 to ensuring that sustainability defines firm performance. This is consistent with Christmann's (2000) large sample evidence that capabilities for process innovation and implementation are complementary assets that moderate the relationship between best practices in environmental management and subsequent cost performance. Perhaps less visible to management accounting researchers is a significant body of research that has emerged on the use of structural cost management to redesign the organization, its products and its processes so that environmental and societal impacts are minimized. These efforts begin in the design and development of products and processes. For example, texts on product design and development (eg, Wheelwright and Clark 1992, Ulrich and Eppinger 1995) treat environmental impact or work place practices that promote safety as additional constraints that define the set of feasible design options (eg, Hughes and Willis 1995, Miettinen and Hamalainen 1997, Brooks 2003, Brink 2003). Once quantified, these costs may be incorporated in target costing, value engineering and process re-engineering processes to ensure that the design of the product and the organizational delivery systems provide the lowest total cost solution (Kumaran et al 2001). Costs are also used to assess alternative operational strategies (eg, end-of-pipeline, process-improvement and pollution prevention) for managing environmental impact (Boer et al. 1998). Consistent with Sections 3.1 and 4.1, suppliers are often important collaborators in designing products and processes for low societal impact (Walton et al. 1998). In the particular case of environmental costs, product and process designers are often required to explicitly design for product take-back and remanufacture or disassembly and disposal (Epstein 1996, Thierry et al. 1995, Jayaraman et al. 1999, Fleischmann et al. 2001). As firms internalize responsibility for the full product lifecycle, a new process is added to the value chain --- the reverse supply chain (Daniel et al. 2002). Like the supply chains that produced and delivered products to end customers, opportunities for optimizing the reverse supply chain exist (Bloemhofruwaard et al. 1995; Kulp et al. 2004). And, like the forward supply chain, the greatest opportunities for structural cost management may be realized when the product and the reverse supply chain process are jointly optimized (Krikke et al. 2003). While the reverse supply chain may involve a similar set of suppliers as the forward supply chain, 26 it is also common for a new set of disassembly and disposal specialists to join the value chain (Fleischmann et al. 2001). Corporate environmental and social responsibility may introduce environmental and social welfare interest groups to the set of stakeholders that the firm must consider (Rondinelli and London 2003). New suppliers and special interest groups present further opportunities for collaboration and strategic cost management as discussed in Section 4.1. Although the focus of this chapter is on cost management, as we have already noted it is often inappropriate to treat costs and revenues as if they can be optimized in isolation. This is particularly true for costs associated with environmental, social and ethical business practices. A sizeable literature examines the impact on customers, employees and shareholders of firms adopting a progressive stance on corporate social responsibility (eg, Alcorn and Smith 1991; Li et al. 1997; Owen and Scherner 1993; Barth and McNichols 1994; Yue et al. 1997; Russo and Fouts 1997; Berry and Rondinelli 1998; Hughes 2000; Bloemers et al. 2001; Kassinis and Soteriou 2003; Clarkson et al. 2004; Ferrell 2004; Schuler and Cording 2006). Hart and Milstein (2003) explicitly recognize multiple stakeholder perspective in their framework that links sustainable practices to shareholder value. Thus, while sustainability is certainly a strategic cost management issue, its implications for attracting and retaining employees, capital, and customers means that managing for sustainability demands a strategic profit management orientation. 6. Strategic Cost Management and Enterprise Risk Management The recent financial distress of several large firms and the attendant effects on employees, debt holders and shareholders have caused those responsible for ensuring the smooth functioning of capital markets to question firms' risk management practices. More generally, there is a sense that “Risk is on the rise as the boundaries of traditional business expand to include intangible 'new economy assets' or sources of value that are neither owned nor ownable (customer and supplier relationships, for example)” (DeLoach 2000: 9) and that accounting practices have not kept up with these changes (Kinney 2001). Risk management has been focused on discrete transactions and tangible assets and has tended to be functionally managed with a view toward simply reducing risk rather than exploiting it for the firm's 27 advantage. Firms have failed to recognize that risk is inherent in most business models and can be managed in a structured, disciplined manner that “...aligns strategy, processes, people, technology and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value” (DeLoach 2000: 5). A key thrust of policymakers has been to enact legislation that locates responsibility for risk management with the firm's top executives and Board of Directors. Coincident with legislative action, accountants and standards setters have developed frameworks and internal control guidelines to support management efforts at enacting appropriate enterprise-wide risk management practices.21 One such framework presented in The Enterprise Risk Management Framework (Committee of Sponsoring Organizations of the Treadway Commission 2004) identifies three dimensions of enterprise risk management: 1) objectives of risk management (ie, strategic, operations, reporting, compliance), 2) organizational units that influence and are involved in risk management (eg, firm, division, SBU), and 3) the activities that comprise risk management. The eight activities of risk management are: 1) establishing an appropriate risk management culture within the firm, 2) establishing the strategic objectives of the firm and its appetite for risk, 3) identifying events that are associated with risk and determining whether these events are interdependent, 4) assessing the firm's exposure to its full portfolio of risks (eg, measuring and 'pricing' risk to ensure that adequate returns are realized on risky activities), 5) developing appropriate responses (eg, avoid, insure, hedge, monitor and control) to risk, 6) enacting processes for controlling risks, 7) enacting processes for communicating and informing key personnel about risks, and, 8) continually monitoring the effectiveness of risk management practices. 21 Overviews of modern risk management and associated internal control practices are found in: DeLoach (2000); Froot et al. (1994); McNamee and Selim (1998); Miccolis et al. (2000); Shaw (2003); Tillinghast-Towers Perrin Study (2001); Committee of Sponsoring Organizations of the Treadway Commission (2004); Walker et al. (2002); and Bailey et al. (2003). 28 Kinney (2000, 2003: 135) and DeLoach (2000: 53-55) present business risk models that describe many types of risk, all of which are categorized according to three broad components: 1) environmental uncertainty, which is associated with the viability of the firm's strategy and value proposition, 2) process uncertainty, which is associated with the proper execution of strategy, and 3) information uncertainty, which is associated with unreliable data leading to poor management decisions. Risks within all three categories may lead to uncertainties about the level or volatility of costs. Thus for example, environmental uncertainty associated with technological innovation may demand unexpected capital investment requirements and catastrophic losses that are not full insured may be associated with lost or impaired assets that require replacement or repair. Similarly, process uncertainty associated with risks of product or service failures, supplier or partner failures, business interruptions, or health and safety violations may be associated with costs of remediation. Finally, information uncertainty can contribute to flawed decisions in the management of costs, as for example, when budgeting and planning systems or performance measurement systems do not provide managers with timely, reliable information. DeLoach (2000: 48) defines risk as “... the distribution of possible outcomes in a firm's performance over a given time horizon due to changes in key underlying variables. The greater the dispersion of possible outcomes, the higher the firm's level of exposure to uncertain returns.” A firm's exposure to risk is defined by the likelihood and severity of impact on the key underlying variables that affect performance. So although it will not be true for every firm, to the degree that uncertainties about costs or cost structure expose the firm to a significantly greater dispersion of financial outcomes, strategic cost management demands a risk management perspective. Recent examples include fuel price surges that have disrupted airline profits, reduced stock market valuations that have affected pension costs for firms in industries that employ defined contribution plans, and disruptive technologies (eg, digital cameras) that make earlier generation technologies obsolete. In sum, when risks are defined as internal and external events that may materially affect profits, modern finance theory on risk management demands that we also consider uncertainty surrounding costs as part of strategic cost management. 29 Accounting scholars have contributed extensively to the theory and practice of internal control (eg, Kinney 2000). More recently, risk management has attracted the attention of management accounting researchers, with performance measurement models including risk as another facet of performance to be managed (eg, DeLoach 2000: 16, Kaplan and Norton 2004: 73-76, Epstein and Rejc 2005). These authors posit that quantifying and communicating the firm's financial exposure to risk and continually monitoring risk management capabilities, promote alignment between the risks that are inherent to the value proposition and the organizational design choices that emerge during strategy development (Figure 1). These studies reflect executional cost management activities associated with improving existing practices to diminish the firm's risk exposure. Although arguments for promoting performance with better performance measures are familiar, the specific application to risk measurement and risk management practices is new to management accounting research and requires further study. Turning to structural cost management, we find much more research that examines how risk management activities are implicated in the firm's cost structure. Three bodies of research are relevant. First, in the area of operations and service management, the concepts of reducing process variability and enhancing process flexibility are pervasive themes of lean manufacturing (eg, Womack et al. 1990). These strategies offer cost savings from eliminating safety stocks and work-in-process inventories that support process variability rather than exogenous demand variability. In the service sector, Weiss and Maher (2005) find that passenger airlines hedge risks associated with demand shocks through their operational and technological choices. Research on product design has also promoted concepts such as modular design (Baldwin and Clark 1999, 2000; Krishnan and Gupta 2001), platform architecture and |