The building materials industry in Europe is currently facing a period of moderate growth, driven by the resurgence in construction activities post-pandemic. However, the industry is also navigating through challenges such as raw material price volatility and changing regulatory standards.

Understanding the competitive landscape requires an examination of the primary forces shaping the industry:

• Internal Rivalry: High, due to the presence of numerous players from both within the region and international markets.
• Supplier Power: Moderate, with fluctuations driven by availability and price volatility of raw materials.
• Buyer Power: High, as buyers have a variety of choices and price sensitivity is increasing.
• Threat of New Entrants: Low, given the high capital investment and established relationships required.
• Threat of Substitutes: Moderate, with innovation in sustainable materials posing a long-term threat.

Emergent trends include a shift towards sustainable and eco-friendly building materials. This shift has led to:

• Increased demand for green building materials, presenting an opportunity for differentiation but also the risk of increased R&D and compliance costs.
• The adoption of digital technologies in manufacturing processes, offering the chance to improve efficiency but requiring significant upfront investment.

The STEER analysis highlights that technological advancements and environmental regulations are key external factors influencing the industry, presenting both opportunities and challenges in maintaining competitiveness and compliance.

The organization boasts a strong market position and a comprehensive product portfolio. However, it faces significant challenges in operational efficiency and cost management.

A MOST Analysis reveals misalignments between the organization's objectives and strategies, particularly in the adoption of modern costing methodologies and operational processes. This misalignment is a critical factor in its declining profitability.

The McKinsey 7-S Analysis indicates that while the organization has strong shared values and staff competencies, there are gaps in systems, particularly in cost management and operational processes, which hinder its ability to respond agilely to market changes.

A Core Competencies Analysis underscores the company's expertise in product innovation and market knowledge. However, it also reveals a crucial gap in operational efficiency and modern cost management practices, which are essential for maintaining competitiveness and profitability.

• Implement Advanced Activity Based Costing Models: To enhance pricing accuracy and profitability by better aligning product prices with the actual costs of production. This initiative aims to improve margin accuracy and decision-making related to product development and customer segmentation. The value creation comes from increased profitability through more strategic pricing and resource allocation. This will require investment in financial analysis software and training for the finance team.
• Digital Transformation in Manufacturing Processes: Adopt digital technologies to streamline operations and reduce waste. The intended impact is to decrease production costs and increase efficiency. The source of value creation lies in operational cost savings and improved product quality, which is expected to enhance market competitiveness. This initiative will require investment in technology and change management processes.
• Sustainable Product Innovation: Develop a new line of eco-friendly building materials in response to market demand for sustainable construction products. This initiative aims to position the company as a leader in sustainable building materials, creating value through market differentiation and potential premium pricing strategies. The initiative will require R&D investment and marketing efforts to promote the new product line.

Activity Based Costing Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.

• Margin Accuracy Improvement: To assess the effectiveness of the new activity based costing models in aligning product pricing with actual costs.
• Reduction in Production Costs: A measure of the efficiency gains from digital transformation initiatives in manufacturing processes.
• Revenue Growth from New Product Lines: To evaluate the market acceptance and financial success of the newly launched eco-friendly building materials.

These KPIs offer insights into the strategic initiatives' impact on the company's profitability, operational efficiency, and market positioning. Tracking these metrics allows for timely adjustments to strategies to maximize their effectiveness.

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Activity Based Costing Deliverables

• Activity Based Costing Implementation Plan (PPT)
• Digital Transformation Roadmap for Manufacturing Processes (PPT)
• Sustainable Product Development Strategy (PPT)
• Operational Efficiency Financial Model (Excel)

The strategic initiative to implement advanced Activity Based Costing (ABC) models was underpinned by the Value Chain Analysis framework. This framework, developed by Michael Porter, is instrumental in understanding how activities within an organization contribute to value creation and cost. It proved especially valuable in identifying where traditional costing methods fell short in accurately assigning costs to products. The team embarked on this process by:

• Mapping out the entire value chain of the organization, from inbound logistics to after-sales services, to identify all the activities that contribute to the production and delivery of the company's products.
• Applying the ABC model to these activities, assigning costs based on actual consumption of resources, thereby moving away from traditional volume-based costing methods that often led to cost distortions.
• Revising pricing strategies based on the insights gained from the ABC model, ensuring that product prices more accurately reflected the costs of production.

Another framework that played a crucial role was the Economic Value Added (EVA) model. EVA is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit. This model helped in quantifying the financial benefits of implementing the ABC models. The organization:

• Calculated the EVA before and after the implementation of ABC models to measure the impact on the company's financial performance.
• Used the insights from the EVA calculation to fine-tune the ABC implementation, ensuring that it not only improved costing accuracy but also enhanced overall financial health.

The results from implementing these frameworks were transformative. The organization witnessed a marked improvement in margin accuracy and a reduction in cross-subsidization between products. This not only led to more strategic pricing decisions but also highlighted areas within the value chain where operational efficiencies could be improved, ultimately enhancing the company's financial performance as evidenced by a significant increase in EVA.

For the strategic initiative focusing on digital transformation in manufacturing processes, the Lean Manufacturing framework was pivotal. Lean Manufacturing, which focuses on minimizing waste within manufacturing systems while simultaneously maximizing productivity, was instrumental in identifying inefficiencies and areas for improvement. The organization successfully implemented this framework by:

• Conducting a comprehensive review of current manufacturing processes to identify waste, including overproduction, waiting time, transportation, excess processing, inventory, motion, and defects.
• Integrating digital technologies such as IoT devices and AI algorithms to automate processes, enhance quality control, and optimize production planning and scheduling.
• Establishing continuous improvement teams tasked with leveraging digital tools to implement and sustain lean manufacturing principles.

The Capability Maturity Model Integration (CMMI) was another framework that guided the digital transformation initiative. CMMI is a process level improvement training and appraisal program. It helped the organization in benchmarking its digital processes against best practices and identifying areas for improvement. The steps taken included:

• Assessing the current maturity level of the organization’s manufacturing processes in terms of digital integration and capability.
• Developing a roadmap to reach higher maturity levels, focusing on process standardization, optimization, and automation.
• Implementing targeted improvements and monitoring progress through regular assessments and audits.

The implementation of these frameworks led to a significant reduction in waste and production costs, while also improving product quality. The digital transformation initiative, guided by Lean Manufacturing and CMMI frameworks, enabled the organization to achieve operational excellence, resulting in increased competitiveness in the market.

The strategic initiative to develop a new line of eco-friendly building materials was supported by the Design Thinking framework. Design Thinking is a human-centered approach to innovation that integrates the needs of people, the possibilities of technology, and the requirements for business success. It was crucial in ensuring the new product line met market needs and sustainability goals. The organization proceeded by:

• Empathizing with customers and stakeholders to understand their needs and preferences regarding sustainable building materials.
• Defining the problem statements based on the insights gathered, focusing on sustainability and usability.
• Prototyping and testing eco-friendly building materials, incorporating feedback into iterative development cycles.

Conjoint Analysis was the second framework utilized to gauge market acceptance and optimal product features for the sustainable product line. This statistical technique is used in market research to determine how people value different attributes that make up an individual product or service. The organization:

• Conducted surveys with potential customers using hypothetical eco-friendly product options to understand their preferences.
• Analyzed the data to determine the most valued features and attributes of sustainable building materials.
• Adjusted the product development focus to align with customer preferences, ensuring a market-driven approach to innovation.

The outcomes of employing Design Thinking and Conjoint Analysis were profound. The organization successfully launched a highly anticipated line of eco-friendly building materials that not only met environmental standards but also resonated well with customers, leading to a positive reception in the market and a promising start in terms of sales and brand differentiation.