Management Accounting in the Organization - Essay Example

?MANAGEMENT ACCOUNTING al Affiliation) Management accounting combines finance, accounting and management with other leading edge techniques necessary for managing a successful business. The fact that organizations are made of people the management structure must accomplish its objectives by working through the people. Since the director’s of companies cannot execute their company’s strategies on their own, they have to rely on people and thus create an organization structure that allows decentralization of management responsibilities. According to Hoskin & Macve (1990, pg. 17), management invented modern business. Early forms of management accounting integrated both decision-making and analysis, going beyond financial and operational performance data. Chandler stated that before managerial, there was no equivalent of the modem multi-unit organization as there was nothing remotely like the divisional Wed corporation (Chandler 1977, pg.18). Chandler states that the managerial revolution invents something new which it is frequently misunderstood as the "modern business enterprise". This did nothing less than overturn the old economic world which is a world within which he tells much basic economic theory is still distressingly rooted. The new form of management was accelerated by industrial revolutions in the 19th century. After the 20th century the impending requirements by financial accounting in most organizations developed new pressures placed on the capital markets, creditors and taxation (Schaltegger et al 2006, pg. 72). Decentralization involves the distribution of decision-making authority within the organization by offering managers at different operation levels the authority to make decisions relating to their areas of focus. In the new form of management that was developed around 1850, decentralization of organizations is a key issue in its performance. In this form, the managing director makes major strategic decisions but most of the remaining decision is catered for by various managers thought the organization. Different people at different positions are responsible for achieving the objectives in their respective areas alone. Chandler singled our two separate parallel developments in managerial structures. The first structure was the development of a management system for individual single-unit organizations, such as the factory while the second structure was the development of management for the large multi-unit organization (Chandler 1977, pg.29). The structure of the management that was developed around 1850 is in the form of an inverted tree. The board of directors in an organization is above all other levels and below the board of directors is the managing director. The managing director is in charge of the organization activities at any given time. The managing director handles upcoming issues in the organizations and makes strategic decisions. Below the managing director, there are several branches which cater for different purposes. In an ideal organization, the branches could include the purchasing department, personnel department, operations director and finance director who in the organization has a different function that it has to perform for the smooth functioning of the organization. All branches are responsible to the managing director who is in turn responsible to the board of directors. The purchasing department has several functions in the organization which include the purchasing department where it procures all necessary materials that are needed for production or daily operation of the company or organization. The purchasing department is charged with a responsibility of continuously evaluating whether it is receiving the required merchandise at the least possible price so as to maximize profitability. In most organizations, the Purchasing department ensures timely delivery of materials from its associates like the vendors, and also ensures the accounts payable department to ensure that awaiting deliveries are received in full and are being paid for on time. The personnel department is responsible for advising other management levels from Managing Director to the lowest line supervisor on all area relating to the personnel management. The Operations manager is expected to oversee and having responsibility for all the activities in the organization which in the end contribute to the effective production of goods and services. However, different organizational structures tend to make the role of an operations manager differ from business to business. Despite the differences some tasks tend to be similar including planning and controlling organizations activities used in designing the organizations operations products, services and processes and also developing an operations strategy. The operations manager is also in charge of different branches of the organization. This occurs when the organization is broad and has several branches located in different areas. These branches also have managers who are responsible to the operations director. Under the finance director is where the chief accountant and the treasurer are found. The main role of the chief accountant is to plan the expenditures of the organization and distribute resources evenly. The management accountants are responsible for ensuring financial accounting requirements are met and financial reports are released on time. In the recent past, new economic forces have led to important innovations in management accounting. The treasurer is the ‘bank’ of the organization. The treasurer keeps records of the organizations expenditures, monitors the fund usage within the organization and also takes part in financial planning of the organization. According to Drury (2006, pg. 103), there may be informal relationships between managers of different levels that often develop outside the formal relationship on the organization structure. Despite these informal structures not being represented in the organization chart, it is vital for effective operations within the organization. Management Accounting Innovations Chandler stated that an extraordinary innovation is to have organizations where managers supervise the work of other managers and in turn report upwards to executives who execute the tasks of an organization. The improvements in global communication have resulted to introduction of Global Competition over the past few decades (Paton 2001, pg. 45). This has been good news to consumers as increased competition has eventually led to reduction in prices of goods, improvements in goods quality and increase in variety of goods. Many changes have occurred in organization to cater for the rapid changes in the markets. The environment around companies changes continuously. In the recent past, about three decades ago, managers have developed and incorporated new ways of doing businesses (Seleshi 2000, pg. 89). Major changes, now termed as revolution, have been made on the way the organizations are managed. The causes of the changes include development of competitive environments, changes in the needs of consumers and increase in organizations activities. The process which is already in place shows the positive effect outstandingly in the work of Alfred Chandler. His major work, The Visible Hand: The Managerial Revolution in American Business (1977) means exactly what its title says: that managerial was a revolution globally. The technological improvements have led to new innovations in organizations. The new technologies especially in computers and telecommunications have had the greatest impact (Information Resources Management Association & Khosrowpour 2001, pg. 56). The advancement in technology has seen the automation of pre-existing manual systems. This has led to reduction in the working force in organizations and increase in outputs. The management of such organizations has eased due to the subdivision of the management to simpler sectors. These technologies have enabled the restructuring of whole industries, organization and even economies. This has been fostered by the introduction of new communication modes as seen by the internet which has been a major cause of change (Devinnev et al 2010, pg. 37). Some previous merits of management accounting like the idea that businesses plan which is used to make profits have failed after certain technologies were outdated like the ‘dotcom’ bubble. A good example of an impacted area is the airline business especially in Europe and North America. The new technologies in database management such as booking online have combined older activities such as booking and ticketing. The combination of new thinking with well-known principles in the sector has resulted into emergence of low-cost airlines like Easy jet which have countered the previous high-cost airlines. The improvements in airlines came with a need for privatization of airline companies. This fostered changes in the management of these companies. Some changes in the technology have not only affected the management accounting environment but also have had direct impacts on collection and dissemination of management information (Chapman et al 2007, pg. 49). There has been an increase in the use of complex real time information systems provided by certain companies like Oracle has changed the nature of management accounting work and also the roles of financial sectors. There has been an increase in the amount of attention directed towards business support, shifting the previous emphasis from routine information gathering. Also, accounting information has become more dispersed within the organization as it has become more accessible to non-accounting personnel. The management structure is ideal for most organizations as they are able to relate different sectors easily. This structure also makes decision making an easier task as professionals make decisions in their respective areas (Charnes 2004, pg. 22). The structure of organizations ensures all sectors are responsible for their well doing and hence optimize performance leading to the dominance of this management structure. For the purpose of promoting quick reaction in spite of tough decisions, it is imperative to develop an integrative structure with a less hierarchical process. The holistic discipline across all levels of organization becomes a guiding principle, with close relations being cultivated between upper managers and operative employees. The global changes are an issue in the business structure and management accounts either positively or negatively. Advancement in technology levels account for about 90% of the changes in Management accounting innovations. It is henceforth important for organizations to keep on updating their systems to comply with the advancements (Werther & Chandler 2011, pg. 38). References Chandler, A. D. 1977, The visible hand the managerial revolution in American business, Cambridge, Mass: Belknap Press of Harvard University Press. Chapman, C. S., Hopwood, A. G., & Shields, M. D. 2007, Handbook of management accounting research, Amsterdam: Elsevier. Charnes, A. 2004, Data envelopment analysis: theory, methodology, and application, Boston: Kluwer. Devinney, T. M., Pedersen, T., & Tihanyi, L. 2010, The past, present and future of international business & management, Bingley: Emerald. Drury, C. 2006, Management accounting for business, London: Thomson Learning. Hoskin, Keith, & Macve, Richard, 1990, Understanding Modern Management, Business and Economics Review 5, 17–22. Information Resources Management Association, & Khosrowpour, M. 2001, Managing information technology in a global environment, Hershey, PA: Idea Group Publishing. Seleshi Sisaye 2000, Organization change and development in management control systems: process innovation for internal auditing and management accounting, Greenwich, Conn: JAI. Schaltegger, S., Bennett, M., & Burritt, R. 2006, Sustainability accounting and reporting, Dordrecht: Springer. Paton, R. 2001, The new management reader, London: Thomson Learning. Werther, W. B., & Chandler, D. 2011, Strategic corporate social responsibility: stakeholders in a global environment, Los Angeles: SAGE. Read More