Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 49

Strategy; Critical Success Factors; Martial Arts Training Martial Arts of Cincinnati (MAC) provides karate training and practice services in three locations in Cincinnati, Ohio. MAC is known for its quality of training and has grown rapidly in recent years due to its solid reputation and the growing interest in martial arts, particularly karate. George Moody, the owner of MAC, is a retired police officer who has been training and teaching martial arts for almost 20 years. He has a plan to grow his business to 10 locations in the Cincinnati area in the coming 5 to 10 years. George thinks that by careful attention to customer service, and by choosing his locations wisely, he can achieve this goal. He plans to locate his new studios in strip malls where rental costs are relatively low. This way he can keep his prices down, perhaps lower than other competitors, and thereby attract more customers.

George has developed a list of indicators that he uses to manage the business. The indicators are targeted to George’s two key concerns—sales growth and teacher performance.

Sales Indicators

?Number of introductory lessons

?Number of new students

?Number of students attending classes

?Total Number of enrolled students

?Class Size by teacher and age group

?The first four indicators are obtained on a daily basis, while the last is obtained weekly

Teacher performance indicators (for each teacher)

?Number of classes taught

?Average number of students per class

?Average retention percentage

?Student progress in martial arts skills

?The first three of these indicators are obtained weekly, while the last one is obtained monthly.

Required

1. How would you describe George’s competitive strategy?

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2. George has listed some of his CSFs. Critically review these indicators, and explain which CSFs you would add, or change, and why.

Step 1 of 2

This problem was developed in part from information from Jack Ottenheimer, “How Are We Doing,” Journal of Accountancy,  February 1999, pp 35-37.

1.?George’s strategy seems to be a mix of differentiation (customer service, reputation for quality training) and cost leadership (keep prices low, lower than competitors,  by locating in strip malls).  What do his customers want?   For this type of service (as for many types of personal services: personal trainers, hair stylist, etc) it is likely to be the quality of training as a priority, and the cost of the training has to be in line with competitors, but not the primary competitive advantage. This would suggest differentiation should be his strategy, and the pricing should not be a key issue. Rather the focus on selection locations should be the attractiveness and accessibility of the locations to his targeted customer groups.