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04Apr

Research paper Strategic Management Accounting Practices

The research paper partially goes with the title as it tries to understand and analyze the prevailing scenario of strategic management accounting and how it is implemented among organizations across the globe. To develop better understandings of the issue of strategic management accountings samples of economically advanced companies are taken that are namely United States, United Kingdom and New Zealand. Thus title of paper can be said to be partially aligned with its content as various other countries and their strategic management accounting practices are not considered as there may be a case that a more holistic analysis would have provided a broader and existing scenario of strategic management accounting practices.

Thus it seems that this attempt to analyze the strategic management accounting practices would be more beneficial for the considered countries and could vary with those followed in other parts of the globe. So another title of this research paper could be A comparison of strategic management accounting practices in US, UK and New Zealand.

Abstract and Introduction

Abstract of the paper gives an immediate idea and creates a perception in minds of reader about the study conducted and the results that are being met by the authors.  Author illustrates and reaches to a conclusion about  strategic management accounting practices  that there exists a wide range of application rates for the 12 practices appraised which are attribute costing; brand value budgeting and monitoring; competitor cost assessment; competitive position monitoring; competitor appraisal based on published financial statements; life cycle costing; quality costing; Strategic costing; strategic pricing; target costing; and value chain costing. Out of these practices competitor accounting and strategic pricing are the most widely-used among the companies of the three countries.

Most of the strategic management accounting practices appraised is not extensively used. Although, based on the perceptions of the cost and benefits from adopting such practices, the potential for greater use exists in all countries examined as there are several pros and cons that are being associated with these strategic management accounting practices.

The abstract also gives details about the comparison that exists in the strategic management accounting used in these companies and draws a contrast for the same. Thus abstract of the paper is self sufficient in providing the idea about the study conducted by the authors.

Introduction part of the research paper is quite explanatory in the sense that it does provide details about the objectives of the study conducted and what all factors were considered during the competitive analysis of the strategic management accounting practices being followed in the three countries

Introduction also explains the factors behind choosing United States, United Kingdom and New Zealand for the analysis and then names out the various heads that are being followed, talked about and analyzed in the research paper. Various factors have been considered while selecting these countries such as commercial environment, size of economies and the companies, languages spoken in these countries. Research paper names out the various heads that are being followed, talked about and analyzed those are the research method employed the empirical results and a conclusion that discusses findings as well as the study’s limitations.

Background

 Author put some definition of ‘strategy’ they appear deferent meaning of strategy and the And the roots of this term back to the military literature this terminology has deferent meaning in modern origination they put deferent definition of   ‘strategy’ from deferent author its appear  deferent meaning of strategy this shows the divergence of views. They mention there are “problems associated with defining ‘strategy’, problems also abound when attempting to describe the ‘strategic management process’ “and describe this problems. Then they move to meaning of strategic management accounting (SMA) which is an emerging field and “there is no unified view of what it is or how it might develop” as they see and its beginnings by Simmons in 1981which was “generally acknowledged to be the father of SMA”. And also they put different perspective of some authors. Therefore, we believe that it a good start they shows deferent view of some authors of the meaning of strategy and strategic management accounting (SMA) because the reader understand these meaning and different perspective of some authors .

The authors identified 12 strategy’s which are (attribute costing; brand value budgeting and monitoring; competitor cost assessment; competitive position monitoring; competitor appraisal based on published financial statements; life cycle costing; quality costing; strategic costing; strategic pricing; target costing; and value chain costing.) and inform us of the “It should be underlined that the criteria adopted for determining whether a management accounting practice qualifies as SMA do not relate to the proximity of the accounting practice to the needs of those managers charged with ‘managing corporate strategy’”  The practices under study have been operational zed  using the definitions of each of these practices. After that they review all of these strategies and they mention what the academic see in each of them

Strategic management accounting

Strategy: author starts at the grass root level and tries to identify the basics and emergence of each and every component of strategic management accounting. He uses the definition of Chandler for explaining the idea that should be understood for the term strategy and according to the definition strategy is “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action, and the allocation of resources necessary for carrying out these goals”. He also explains how the term strategy has been derived from military application to commercial world. In addition to this strategy is said to have long term objectives and plan associated with it and sees future prospects during its execution.

Strategic management accounting: moving ahead author next illustrates on the conceptual aspect of Strategic management accounting and tries to explain the significance of the same. Simmons is considered the father of Strategic management accounting and is given credit of coining the term. He defined Strategic management accounting as ‘the provision and analysis of management accounting data about a business and its competitors for use in developing and monitoring the business strategy

 The understanding of this definition could be seen as that it is understanding and scrutinizing of the for aiding in designing strategies and plans about the future endeavors and supporting the decisions that are intended to be taken by the facts based on allocation of these data. When a manager would be having the analysis of business and the existing competition than he could use this as a support function for justifying the decisions to be taken and strategy to be followed by the company

Various other definitions and perspectives of different experts have been included in the research paper like that of  Govindarajan and Shank who considered strategic management accounting as a process and comprising of following components: strategy formulation, strategy communication, strategy implementation and strategic control.

To these components various themes have been suggested by the authors namely Value Chain Analysis;Strategic Positioning Analysis; and Cost Driver Analysis . These analyses approach formulate a model that is concerned with the relationship between strategy and management accounting.

There have been a contrast found in two approaches that of simmonds and Govindarajan and Shank. while the former is based on analysis of competitor costs, prices and cash-flows and the lowering of this information to price-cost-volume figures the latter focuses on basically porter’s five model forces which sees the bargaining power of suppliers, consumers, competition and new entrants as threats or forces of transformation.

This difference occurs due to variation in mind sets of various perspectives for strategy and its understanding. The difference in seeing strategy as a long term and future oriented factor and seeing it as business environment concerned and having a marketing orientation could be a root cause behind these differences.

Learning’s:

Various learning’s emerged from the analysis of this research paper on strategic management accounting. I learnt about the twelve practices followed for the strategic accounting.

Attribute costing: this practice is based on the theory that products are comprised of a set of attributes or characteristics which constitute commodities. These packages or attributes appeal to consumers and sees him as a target destination. Attributes differentiate products and the matching of a product’s attributes with the tastes of consumers determines a firm’s market share. Any mismatch leads to lowering of the market share whereas on the contrary a good match between the two leads to increased and higher market share.

Competitor cost assessment. next practice is that of Competitor cost analyses and assessment . It is quite widely followed approach and is supported by many experts of management accounting field. It focuses on technological investments and sees them as a major factor behind competitor cost analysis. This approach outlines a systematic and organized approach to competitor cost assessment that involves, inter alia, appraising competitors’ manufacturing facilities, economies of scale, governmental relationships and technology-product design. This approach is quite widely followed in these three countries because of its good results and good insights available.

Competitive position monitoring. this could also be seen as extension of above approach as it sees a more broader and holistic approach towards competitior analysis and gives a better picture of its market share and position. It also considers factors such as major competitors’ sales, market share, volume, unit costs and sales.

As a broader picture is being considered thus this approach seems to be quite viable and practically useful for analysis purpose.

Life cycle costing.: the difference occurs on the time frame being considered for the analysis purpose.  Instead of  appraising costs on an annual basis, the relevant time frame in life cycle costing is dependent on the length of the stages in a product’s life. These stages can include design, introduction, growth, maturity and decline. Thus analyses is done on the life time of product existing and not on the annual basis as that of traditional approach . this helps to give more focused information and analyses of the competitor and is quite debatable technique used for analyses. This approach is viewed as a short term approach of the company and is quite beneficial for the project and manager.

Quality costing: Another source of competitive advantage could be quality associated with the product and service. This quality could be both real and a perceived one. The quality associated is a form of edge that an organization could make benefit of while exploiting this quality characteristic. There are three interrelated costs involved with the quality costing that are prevention, appraisal and failure costs. It is apparently believed that increased preventative expenditure Can lead to substantial savings and competitive advantage arising from Reduced failure costs .these failure cost could be in form of returns, rework, scrap, lost sales, etc..

strategic cost: It does not consider long term views into its implementation. It is advantageous to implement this approach as it would provide a broader perspective into consideration of business extension. As a broader picture is being considered thus this approach seems to be quite viable and practically useful for analysis purpose. This approach is quite widely followed in these three countries because of its good results and good insights available.

Strategic pricing: It derives that sub-optimality can result from a pricing decision informed by A conventional accounting financial analysis based on internally-orientated, historically-based Information. Past information is analyzed and pricing decision than result in strategic management accounting decisions. Various factors are considered and taken into account during strategic pricing decisions such as competitor price reaction; price elasticity; projected market growth; and economies of scale and experience. What these factors do is present better picture of the scenario as major contributing factors in pricing decisions are accounted and this would lead to better understanding and better decision making process. It would aid financial manager in decision making process and decide optimal and acceptable price setting for product and services.

Target costing: This method is employed at design and development phase of the manufacturing process and is aimed at order to earn a target profit level for the product. Extension of target costing is kaizen costing which considers and is employed beyond the design and development phase. This process or costing focuses on employing the target costing method at manufacturing phase of product life. Kaizen costing requires that continuing efforts are made to secure further cost savings. Various other philosophies have also been identified and stated. The external factors hold true for these theories when it is recognized that they signify market-led costing rather than cost-led pricing.

Value chain costing: this method is based on porter’s value chain analysis and focus on whether or not customer is deriving value from the product or services that company is offering. It basically is concerned with identifying where customer value can Be enhanced or costs lowered in a firm’s relevant segment of the value chain. It sees that whether customer are deriving value or not and if they do then how can this value be enhanced or on other hand cost can be lowered in that specific segment of the value chain. This estimate helps in analyzing the situation and reaching to a better decision making situation so that accurate and efficient decision could be taken.

Methodology:

A questionnaire methodology was adopted and followed wherein a questionnaire to determine the usage rate was analyzed and information regarding usage rate was elicited. A senior official was delegated the responsibility. The process involved going to many companies of three countries that were considered under sampling for strategic management accounting practices. These countries are United States, United Kingdom and New Zealand. Out of these countries the final survey that was done with the permits from companies were 920 for United States, 155 for United Kingdom and 217 for New Zealand.  A table was prepared usage pattern understanding and following heads were considered

  • Sample size
  • First mailing respondents
  • Second mailing respondents
  • Total respondents
  • Unadjusted response rate (%)
  • Usable response rate (%)

Out of these respondents some were contacted through telephonic interview and were asked about the strategic management accounting practices. Based on their responses and with the use of normal probability distribution the analysis of the result was done and a consensus was reached and inferred.

Along with this procedure a variable measurement technique was also employed which corresponded to different questions and the scaling pattern were followed. In scaling pattern what the respondents were supposed to do is to arrange or rank the pattern followed in company on this scale. The various questions that were covered during this process is

  • To what extent does your organization use the following practices?
  • To what extent do you consider the following practices could be helpful to your Organization?
  • Prior to completing this questionnaire, do you consider you had a strong appreciation of what is meant by ‘strategic management accounting?’
  • Is the term ‘strategic management accounting’ used in your organization?’

Responses to these answers were recorded on a scale of 1 to 7 where 1 referred to never used and 7 referred to used frequently.

Findings and analysis of methods

Results

the analysis of above data lead to reaching to some consensus and arriving out at some results about strategic management accounting practices prevailing in three countries, united states, united kingdom and new Zealand. This analysis has been useful in finding some of the useful patterns associated with strategic management accounting practices and giving us the insight about what is prevailing in the industry across these three nation’s commercial world and how and what changes could be brought in to improve the condition of these states further. Some of the results observed are as follows:

Firstly, the SMA practices appraised are experiencing wide-ranging degrees of application. It was observed that out of the twelve strategic management accounting practice Competitor accounting and strategic pricing appear to be the most commonly and widely used technique. This inference could be supported and backed up by the fact that all Three dimensions of competitor accounting appraised scored above the average on the scale of one to seven that is not used and very much used. Apart from this another finding is that the same results holds true for all three countries investigated with the exception of competitor cost assessment technique.

Secondly, while usage rates for most of the practices appraised scored relatively lowly, two factors suggest it would be inappropriate to dismiss their potential one of them is the significant difference between the usage rate scored and perceived value of the score and the other reason for this inference is that for the eight SMA practices Where relatively low degrees of usage have been found, ‘strategic costing’, ‘Quality costing’ and ‘value chain costing’, scored above the mid value when compared with the perceived value These inferences also suggest us that the difference between what is required and what are being supplied could be attributed to strategic management accounting practices as well.

Finally, it has been found that there is negligible use of the term ‘strategic Management accounting’ in organizations and that appreciation of the term amongst practicing accountants is somewhat limited signifying of the fact that this term is not well defined, recognized and accepted in big companies of the three countries and one reason could be that companies or finance managers are not well aware of this techniques regardless of the fact that these strategic management accounting practices are being followed or not in some way or the other. So there arises a need of making these organizations aware of the practices existing so that more and more benefit could be derived out of those techniques and would aid them in long term goals achievement.

Suggestions for improvement

Although this research paper has covered and conducted the research in quite comprehensive manner there are still some areas of improvement which if done could result to more accurate and realistic results. For example some of the twelve strategies were overlapping w=in their concepts and implementation and there was not a clear and distinctive boundary in them. Thus standardization in terminology could be an area of scope of improvement.

Then in the research methodology only three countries organizations have been considered which do not provide holistic view of the concept. The Asian and African markets are one of the emerging markets and these should be considered while studying strategic management accounting practices.

It is mentioned in the paper that each author tailored some sets of questionnaire and kept one set of questionnaire intact. This could result in some disparity in results and cloud lead to some inferences that were not realistic or displays variation from reality. Instead the same process should have been adopted and then some differences should have been noted by altering some parameters.

By incorporating these and some other changes the research paper could have been more comprehensive and the attempt of the author could be reached to the deserved results.

Comparison with similar article

We referred to another paper of similar nature entitled is the adoption of Strategic Management Accounting techniques really “strategy-driven”? Evidence from a survey by Coquina, Lion and Temuco, Andrea (2007) and there was a striking difference found between the two studies and their inferences. This study was conducted in Italian companies through more or less the same procedure which is employed in this current paper but the results that were reached were quite different in the way that it was found in the study of this article that SMA techniques appear to be extensively used. Although the paper was indicating the similar results when it was to be seen that which techniques or practices are more commonly followed and there it was found that Attribute costing, Customer accounting, Strategic Pricing and Competitive Position Monitoring represent the most widely used SMA techniques. In the correlation analysis only strategic positioning is weakly found to play a contingent role in SMA technique usage, while strategic pattern, strategic mission, company size and industry variables do not provide any results thereby indicative of the fact Strategic Management Accounting techniques adoption don’t appear to be “strategy -driven”.

Bibliography:

Gilding C., 1999, Competitor -focused accounting: an exploratory note, Accounting, Organizations and Society, 24 (7), pp. 583-595.

Coquina L., Collin P., Marcella A., Quigley A., Silvia R., 1999, A survey on cost accounting practices in Italian large and medium size manufacturing firms , Paper presented at the 22th Annual Congress of the European Accounting Association, Bordeaux, May, 5-7.25

Reflective Summary

Author illustrates and reaches to a conclusion about  strategic management accounting practices  that there exists a wide range of application rates for the 12 practices appraised which are attribute costing; brand value budgeting and monitoring; competitor cost assessment; competitive position monitoring; competitor appraisal based on published financial statements; life cycle costing; quality costing;

Strategic costing; strategic pricing; target costing; and value chain costing. Out of these practices competitor accounting and strategic pricing are the most widely-used among the companies of the three countries. The paper also gives details about the comparison that exists in the strategic management accounting used in these companies and draws a contrast for the same. Various factors have been considered while selecting these countries such as commercial environment, size of economies and the companies, languages spoken in these countries. Research paper names out the various heads that are being followed, talked about and analyzed those are the Research method employed, the empirical results and a conclusion that discusses

Findings as well as the study’s limitations.

Author starts at the grass root level and tries to identify the basics and emergence of each and every component of strategic management accounting. He uses the definition of Chandler for explaining the idea that should be understood for the term strategy. In addition to this strategy is said to have long term objectives and plan associated with it and sees future prospects during its execution.

A questionnaire methodology was adopted and followed wherein a questionnaire to determine the usage rate was analyzed and information regarding usage rate was elicited. A senior official was delegated the responsibility. The process involved going to many companies of three countries that were considered under sampling for strategic management accounting practices. These countries are United States, United Kingdom and New Zealand. Out of these countries the final survey that was done with the permits from companies were 920 for United States, 155 for United Kingdom and 217 for New Zealand

Moving ahead author next illustrates on the conceptual aspect of Strategic management accounting and tries to explain the significance of the same. The understanding of this definition could be seen as that it is understanding and scrutinizing of the for aiding in designing strategies and plans about the future endeavors and supporting the decisions that are intended to be taken by the facts based on allocation of these data. To these components various themes have been suggested by the authors namely Value Chain Analysis; Strategic Positioning Analysis; and Cost Driver Analysis. These analyses approach formulate a model that is concerned with the relationship between strategy and management accounting.

Some of the results observed are as follows

Firstly, the SMA practices appraised are experiencing wide-ranging degrees of application. It was observed that out of the twelve strategic management accounting practice

Competitor accounting and strategic pricing appear to be the most commonly and widely used technique. Secondly, while usage rates for most of the practices appraised scored relatively lowly, two factors suggest it would be inappropriate to dismiss their potential one of them is the significant difference between the usage rate scored and perceived value of the score and the other reason for this inference is that for the eight SMA practices. Finally, it has been found that there is negligible use of the term ‘strategic management accounting’ in organizations and that appreciation of the term amongst Practicing accountants is somewhat limited signifying of the fact that this term is not well defined, recognized and accepted in big companies of the three countries.

The study proved to be a great learning curve for the group and various intricacies were able to understand related to strategic management accounting by the group and the understanding would be highly enriching and beneficial in our future endeavors. Various learning’s emerged from the analysis of this research paper on strategic management accounting. I learnt about the twelve practices followed for the strategic accounting.

Attribute costing: this practice is based on the theory that products are comprised of a set of attributes or characteristics which constitute commodities. These packages or attributes appeal to consumers and sees him as a target destination. Attributes differentiate products and the matching of a product’s attributes with the tastes of consumers determines a firm’s market share. Any mismatch leads to lowering of the market share whereas on the contrary a good match between the two leads to increased and higher market share.

Having a practical and industrial oriented study the group also understood about the prevailing culture in commercial world and thus it is of great importance. The learning process was such that each member gets equal opportunity of understanding the concept and implements it if required. The paper was basically divided into the theory part and the implication or the methodological part. Theory areas concerned with various practices of strategic management accounting and that was then combined with the learning gained from study and analysis if the sample observation and analysis of the data provided. When both the technical and conceptual understanding was combined then the group was able to get the interlinking better and then we followed it by rigorous discussion among the group members. This was essential as different perception understood were discussed and this lead to new dimensions to our thinking. So overall it was a very enriching experience and strategic management accounting and their status in industries were bolstered. Apart from this group also undertook a similar project and was able to draw contrasting and comparative features with the present article. The reading of the article was more beneficial in the sense that the group was able to think in similar way and analyze the different Italian market so that the difference and the cause of the difference were understood.

Read more : Future of ERP Systems

Thus all in all groups was highly keen to understand the strategic management accounting princes and did it in a great manner. We feel that this was the best way to approach analyzing the article and writing the report, and would not change this if we did the work again.