Today the buzz is all about customers—how to serve them better than the competition in order to gain a competitive edge. In order to achieve this goal, companies need a financial system that points to where their spending is aimed at providing customer satisfaction and where spending can be cut to either improve the bottom line or initiate price reductions. The value-based cost management system is such a financial approach. Using activity analysis that allows for one activity to have both value-added and nonvalue-added components, it provides a level of precision in costing analysis that can support strategic and tactical initiatives. It also marries cost and revenue by separating both into dollar terms based on customers’ value profiles so that costs can be directly tied to the value-creating actions of the firm. It is an innovative way to bring financial management into line with the efforts in marketing, product development, and customer service. It is one more step in the journey to keep finance relevant in the 21st century.

 

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