Process That Make Up the New Form of Management - Essay Example

The structure and process that make up the new form of management (Chandler and Hoskin &Macve) A simple yet very meaningful story of an old man who observes the dilemma of a king and innovatively uses it to his advantage is told. The king tries without success to capture a city. This old man knows how and not only will he tell the king, but also he will make gold while at it. The story brings out in a very meaningful way the relationship between innovation and competitive advantage of organisations. If an organization has the capacity to innovate, then it can utilize new technologies and other inventive resources to its advantage. This takes us back to the origin of management back in the 20th century at the times of Alfred chandler who celebrated the improvements in transportation and communication in the twentieth century resulting to rise of vertically integrated mass producing corporation. If change in the external environment shapes and influences an organization in a positive way, then that organization is said to be innovative. Just like invention of improved modes of communication and transportation at the time of chandler, every new development in technology presents multifaceted opportunities and challenges for organizations and as a result, changes in management practices occur (Chandler 1977). There is always a co-relation between technological inventions and organizational inventions. Management is said to be a form of power which invented the modern business because it is a carrier of the key power that runs not only the modern business, but also the modern world this power is said to go back as in the 1800 (Hoskin & Macve 1990). The structures that make up the new forms of management are greatly influenced by technological inventions and this is called the power-knowledge relationship. In modern management functions, innovation in organizations is measured by the ability of an organization to adapt to the external environment. In the beginning of 19th century, cost of inland transportation was very high which made markets inaccessible. As a result, markets were said to be controlled by the invisible hand because only independent merchants and middle men could coordinate production and distribution. The merchants had a wide range of skills and there was lack of specialisation. Chandler argued that vertically integrated corporations emerged in the United States to replace the existing local and fragmented structure of production and distribution. This was greatly influenced by improvements in transportation and communication which increased speed and volume in the flow of goods. The then existing markets could not handle the new developments effectively and thus, there was need for administrator commonly referred to as managers today. In the modern world, we are experiencing the kind of revolution described by chandler due to the invention of computers, telecommunication and internet. There is increased population and need for advanced forms of management to effectively deal with this. Today, with the increased population, income and with reduction of trade barriers due to technological advancement management is still as important as it was described by chandler. Modern management structure is a continuously changing problem due to change in technology which directly affects firm and requires conscious attention. New developments of increased population, increased income and improved means of communication and transportation led to specialisation. Specialisation is seen as a large part of secret to success. Innovation is an important source of growth and has also been known to be a key in determinant of the competitive advantage organization posses. To achieve innovation, coordinated efforts of many different actors is required. The many actors need to combine specialized functions and their knowledge. If an organization has the capacity to innovate, then it can utilize new technologies and other inventive resources to its advantage. Just like invention of improved modes of communication and transportation at the time of chandler, every new development in technology multifaceted opportunities and challenges for organizations. As a result, changes in management practices occur. There is always a co-relation between technological inventions and organizational inventions since the structures that make up the new forms of management are greatly influenced by technological inventions. In modern management functions, innovation in organizations is measured by the ability of an organization to adapt to the external environment. In the present world, there are two main types of corporation. One of the two main types of corporation is the unbending organization which follows a given chain of command and is usually suited to steady unchanging conditions. The other type is more flexible and adapts very quickly to changing conditions and inventions. Those two main types of firms have their strong points and weak points. However, they are affected by unforeseen event which require a response to technological inventions in the management structure. This is called the contingency theory and it proposes that for an organization to be successful, it has to organize its structure to much the present situation. Furthermore, because change is permanent, an effective management structure is one which is capable to adapt rapidly and steadily to occurrence of any unseen factors. One can only conclude that the principles envisaged from the origin of management, back in the 20th century are still very relevant today. Activity Based Costing Management accounting system One of the most outstanding management accounting innovation which has been developed in the recent times is the Activity Based Costing. Activity Based Costing (ABC) management system was first defined by Robert Kaplan. Its development is mainly associated with industrialization which increased indirect costs. Its application has been proposed as highly valuable to all firms whether dealing in goods or services. This is mainly because it provides information which makes visible all expenses which increase the cost of production without adding value to the final production. Those are called overheads and they include procurement costs, costs of handling goods and the like. Innovation has been defined by Universities and Councils Network on Innovation for Inclusive Development in South East Asia (UNNID-SEA) as a process of creating new ideas and getting them to work while Management accounting can be described as the measures and reports of financial and non- financial information that help managers to make decisions for fulfilment of organizational goals. As an Innovative Management accounting system, the main focus of the ABC system is determination of the true cost of the final products (individual goods, services and consumers). It uses activities as opposed to cost centres for accumulating costs: resources are assigned to activities and the cost of activities is determined based on estimated consumption. In the ABC system, the information collected by the system at the activity level to determine any possible chances for reducing costs in the organizations activities. Usually an activity dictionary which contains a list of major activities performed by an organization is kept. The initial analysis of activity costs in the ABC system is usually complex. Activities performed and their individual costs are identified to determine overhead rates. After identification of activities performed and their individual costs, identification of a cost driver is each activity takes place. Cost driver are measurement units for the level of activity performed. Actively Based Management (ABM) is the process of developing the principles that govern Activity Based Costing management system (CFO Tips, Feb 5th 2012). The aim of ABC system is to lower costs, increase efficiency and improve utilization of assets and consequently improve the profits of an organization. The ABC system provides special reports which the management uses in making decisions concerning production and distribution of an organizations products and services. The ABC system minimizes and avoids possible negative impacts on the product cost resulting from randomly allocating costs to the products. Impact of ABC system ABC system has been implemented by a sizeable number of organizations engaged in production of both services and goods. The system is believed to have impacted on cost management systems fundamentally. Management practices changed from vertical to horizontal and the ABC system has bridged the resulting informational gap by providing information reflecting the horizontal managing practice. The major reported benefits of the ABC system include: its accuracy in costing products; provides better understanding of overheads and their cause and also enables organization to recognize costly yet non-value adding activities. The ABC system has however been held to be expensive to adopt. Data collection is also a cumbersome and time consuming activity. References Chandler A., (1977) the visible hand: The managerial Revolution in American business. Drury C., (2006) Management Accounting: An Introduction (6th ed.) published by Cengage Learning EMEA Kaplan S., R., (1987) Accounting and Management (reprint) published by Harvard Business Press Ezzamel M., Hoskin K., Macve R., (1990) Managing it all by Numbers: A Review of Johnson & Kaplan’s ‘Relevance Lost’ What you need to know to be a CFO Today (Feb 5th 2012) Retrieved from http://cfotips.com Universities and Councils Network on Innovation for Inclusive Development in South East Asia (Aug 6th 2012) Retrieved from http://uniid-sea.net/explaining innovation theory through innovation means Read More