Advanced Management Accounting PDF

Advanced Management Accounting Accounting and Strategy (iii) Dr Mohamed Fadzly Learning objectives   Evaluate the contribution(s) of SMA to MA knowledge and practice Discuss a selection of ‘SMA techniques’ “SMA has made an impact on practice, scholarship and accounting, but not in the way tha...

Advanced Management Accounting Accounting and Strategy (iii) Dr Mohamed Fadzly Learning objectives   Evaluate the contribution(s) of SMA to MA knowledge and practice Discuss a selection of ‘SMA techniques’ “SMA has made an impact on practice, scholarship and accounting, but not in the way that was envisaged by the SMA founders.” Langfield-Smith (2008: 221) 2 How much impact has SMA had?  Otley (2001): SMA has had a major impact on the thinking of management accountants and managers.  the influence of key SMA advocates  the influence of professional accounting bodies in sponsoring research + training on SMA  management consultants promote specific SMA techniques  SMA in high-profile publications, e.g., HBR  3 Because of the way that SMA has permeated other management disciplines, it can be regarded as a success (Langfield-Smith, 2008). Has SMA made a ‘real’ impact on MA practice?  SMA is often presented as an efficacious approach to strategy formulation and implementation.  The same ‘SMA technique’ can support different strategic approaches  Yet limited empirical evidence of SMA adoption and effectiveness in practice.  Not all implementation of SMA techniques are “as per the textbooks” – high variety in form and nature  SMA not necessarily related to superior performance – but rather due to match between contingent factors and SMA application (see, e.g., Cadez & Guilding, 2008) 4 5 SMA: critiques  SMA as evolving notion with unclear boundaries:  Cost management focus – and beyond?  What counts as ‘SMA’ practice?  No single, agreed definition (Langfield-Smith, 2008; Guilding et al., 2000):  SMA used in some form – with little awareness  Specific MA techniques vs. SMA ‘brand name’  Strategy itself as a dynamic, multi-faceted concept (Nixon & Burns, 2012):  Whittington’s four perspectives 5 6 SMA: critiques  SMA mainly sees strategies as deliberately ‘planned’:  vs. emergent or processual  Competitor analysis can mean concentrating too much on ‘matching’ the competitors.  looking to the side (vs. looking ahead)   6 Strategic decisions not always based on financial considerations – intuition, judgment, etc. Value chain & cost analysis can be done without SMA. 7 SMA: the ‘paradox’  A lot of SMA happening within organisations but not necessarily led by or involve the accounting function (Anderson, 2007):  Strategizing ‘everywhere’ and ‘by everyone’?  Nixon & Burns (2012):  Little impact on managerial discourse and practice  Lack of understanding & recognition of SMA ‘brand name’ 7 8 SMA: the ‘paradox’ Hoskin et al. (2006; 186-7) – temporal & spatial paradoxes: “… strategy will (like accounting – e.g. Yamey 1964) be most successful where the future is like the past… but that is when it is most unnecessary; meanwhile, it will be most necessary when the future is different from the past, which is when it will be most useless.” “… {strategy} will always be… most apt at dealing with the space in here’; and it is therefore not surprising that strategy as practice (military or business) devotes most of its real time effort to controlling that space… However, strategic success actually needs control of the ‘space out there’, where the enemy and/or competition lies… but that is where strategy proves so easily disproven and overturned, whether by counterstrategy or simply by events.” 8 9 SMA techniques (Pitcher, 2015: p10) Competitive position monitoring Strategic pricing Competitor performance appraisal Capital budgeting Competitor cost assessment Benchmarking Brand value budgeting & monitoring Integrated performance measurement (e.g., BSC) Strategic cost management Customer profitability analysis Quality costing Attribute costing Target costing Life-cycle costing Value-chain costing 9 10 Strategic Cost Management (SCM)  ‘Traditional’ MA vs. SCM:  Cost containment vs. cost management focus  Continuous process vs. ad hoc basis  Reliance on (non) accounting techniques  Strategic cost analysis – value chain analysis:  Costing product attributes with what the customer is prepared to pay (e.g., target costing)  Long term perspective (e.g., lifecycle costing) Cost reduction + customer satisfaction as key aim. 10 11 SCM: competitive to collaborative   Early work adopted highly competitive approach, based on Porter (1985) and Shank and Govindarajan (1992). More recent work adopts a more co-operative perspective:  Outsourcing  Joint Ventures  Strategic Alliances  Buyer-supplier collaborations  Virtual corporations 11 12 SCM: Benchmarking & BPR  Benchmarking = identify, compare vs. ‘best practice’.  Internal and external benchmarks  To improve key activities or business processes  Business Process Re-engineering (BPR) involves examining current business processes and making substantial changes to achieve:  Cost reduction  Simplification  Improved quality & customer satisfaction 12 13 SCM: Life-cycle costing  A comprehensive approach to product costing.  Before, during and after the manufacturing stage  R&D – Manufacturing & Sales – Post-sales & abandonment  Identify, understand (and manage) total costs incurred throughout the life-cycle of a product.  Committed vs. incurred costs  What the product ‘actually’ costs?  Areas for cost reduction efforts – cost drivers, etc.  Target costing – planning & design phase 13 14 SCM: Life-cycle costing 14 15 SCM: Target costing  With TC, cost management efforts take place much earlier (i.e., ‘committed’ costs).  Product/service planning and design phase  Customer-oriented  Life-cycle perspective  Success relies hugely on accurate costing system and time-consuming analysis.  Tear-down analysis (or reverse engineering)  Value engineering and functional analysis  15 (Japanese) automotive industry – suit others too? 16 SCM: Target costing  An ‘iterative process’, with cross-functional team. Determine target price (i.e., what customers will pay) Determine target cost (Target price – desired profit) Design and estimate actual cost of product 16 If actual cost > target cost? Find ways to drive down the actual cost 17 SCM: Kaizen costing   Kaizen = improvements via small, incremental changes. Continuous cost reduction at manufacturing stage (vs. target costing).  Incurred (variable) costs  Small % reduction vs. base (or prior) period   Key concerns = improving processes efficiency and achieving cost reduction targets. Relies heavily on employee empowerment.  Better insights on how to improve processes/reduce costs 17 18 SCM: Just-in-Time  A manufacturing (management) ‘philosophy’.  Radical change – possible outcome of BPR process  Required quantity, at required quality, precisely at the required time  Some key elements of the JIT philosophy:  Stock as a liability (vs. an asset)  Lead times kept at minimum  Focus on quality  Cultivate excellent relationships with suppliers  Multi-skilled employees 18 19 SCM: Just-in-Time  Cost management via JIT may involve:  Elimination of non-value-added activities  Zero inventory  Zero defects  Zero breakdowns  A 100% on-time delivery service 19 SCM: Just-in-Time 20 https://www.youtube.com/watch?v=nFu4FFgbMY4 Summary  Nearly three decades have passed yet still lack of conclusive evidence regarding impact and acceptance of SMA ‘brand name’:  Different strands of SMA in the literature  Specific MA & SCM tools seem to develop in silos – not always within the domain of accounting 21 References         22 Otley, D. (2001). Extending the boundaries of management accounting research: developing systems for performance management. The British Accounting Review, 33(3), 243-261. Carlsson-Wall, M., Kraus, K., & Lind, J. (2015) Strategic management accounting in close interorganisational relationships, Accounting and Business Research, 45(1), 27-54. Hoskin, K., Macve, R., & Stone, J. (2006). Accounting and Strategy: towards understanding the historical genesis of modern business and military. In Bhimani, A. (Ed.), Contemporary Issues in Management Accounting. Oxford: Oxford University Press, 165-190. Guilding, C., Cravens, K. S., & Tayles, M. (2000). An international comparison of strategic management accounting practices. Management Accounting Research, 11(1), 113-135. Langfield-Smith, K. (2008). Strategic management accounting: how far have we come in 25 years? Accounting, Auditing & Accountability Journal, 21(2), 204-228. Nixon, B., & Burns, J. (2012). The paradox of strategic management accounting. Management Accounting Research, 23(4), 229-244. Cadez & Guilding (2008) An exploratory investigation of an integrated contingency model of strategic management accounting, Accounting, Organizations and Society 33: 836-863 Cinquini & Tenucci (2010) Strategic management accounting and business strategy: a loose coupling? Journal of Accounting and Organizational Change 6 (2): 228-259