Management and Decition

SMA

1. Definition and scope of strategic management accounting

SMA may be defined as a form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information. Strategy involves attempts to meet the firm’s overall objectives through changes in its competitive position. It is the direction and scope of an organization over the long term and matches its resources to its changing environment - markets, customers or clients to meet stakeholder expectations.

2. Competitive Environment – Porter’s Five Forces

1) Bargaining Power of Buyers – High

* Taking the market as a whole, the ability to switch quickly to different substitutes of LEGO improves the buyers’ bargaining power as a whole.

* In addition, the bargaining powers of large retailers are high due to them being a main source of distribution for LEGO’s products.

2) Bargaining Power of Suppliers – Low to Moderate

* On the front of manufacturing LEGO bricks, the company faces little power from suppliers given the large number of suppliers available, over 11,000 suppliers.

* Switching costs to different suppliers are low, as there is no influence to LEGO when it cuts 80% of its suppliers.

* However, on the licensing front, the power of suppliers is high.

3) Threat of Substitutes – High

* The building toys industry is subject to a larger shift toward electronic solutions, notably the computer games industry. The growing number of interactive games available online is slowly eating away the broader market for children’s playtime.

* Computer games are thus the biggest substitute to LEGO as well as other toy companies.

* Other substitutes such as instruments and board games also develop the creativity of children

4) Threat of New Entrants – Moderate to High

* Given the expiration of LEGO’s Patents in 1988, the barriers of competition...