Evaluating the application of strategic cost management in the South African automotive industry: a case study

Abstract

In the ongoing drive to maximising value for shareholders through revenue enhancement and cost rationalisation, organisations tend to pursue cost cutting as a mechanism to realise instant cost savings and the resultant increase in profits. This is achieved to the detriment of the long-term success of the business. Cost cutting is often reactive in nature and sometimes leads to the termination of value adding services. Strategic cost management aims to resolve the aforementioned shortcomings by adopting a strategic approach to cost management. The purpose of the study is to evaluate how an automotive firm perceives the application of strategic cost management techniques. The theoretical background to the research is based on differentiating between traditional cost management and strategic cost management, analysing specific strategic cost management techniques relevant to the automotive industry, integrating the concept with the appropriate theoretical framework and analysing the significance of the various tools and methods pertinent to the successful application of the concept. The study adopts a qualitative case study based approach to research, which considers Company A, an automotive company located in South Africa. Questionnaires and interviews demonstrating the qualitative nature of this study were administered to a group of participants representing primary and key support functions. The empirical study aims to establish the extent to which the automotive industry perceives the application of strategic cost management. The findings indicate that strategic cost management is perceived as a concept that leads to optimisation of costs and consequently enhances the strategic positioning of firms. However, the application of the concept in the automotive industry to successfully realise its benefits continues to remain a challenge. It is recommended that sustainable objectives and related strategies, focussed on strategic cost management, be developed in the industry.