The Role of Management Accountants at Tesco Plc - Essay Example

Management Accounting and Financial Management The Role of Management Accountants at Tesco Plc Executive Summary The objective of this study was to assess the importance of management accountants in the current scenario of organizational behavioral performances. In accordance, the example of Tesco Plc was considered in order to obtain a critical understanding of the roles played by management accountants today and its implications in maintaining organizational sustainability in the 21st century context. A varied range of secondary sources were used in this study, which helped identifying the diversified roles and the complexities associated with the responsibilities of management accountants in a large-sized company such as Tesco. Accordingly, the study findings revealed that management accountants are imperative as decision makers to modern organizations and play a crucial role to ensure adequate organizational sustainability in the long run. Table of Contents Executive Summary 2 Introduction 4 Changing Role of Management Accountant in 21st Century 5 Implementation of Management Accounting Business Partners Model to Better Support Decision Making Within the Company 8 Changing Role of Management Accountant 9 Challenges of Implementing the Business Partnering Model 12 Conclusion 13 References 15 Introduction In the present state, management accountants form an important facet of any organization. When concerning at the business environment currently persistent in the global platform, management accountants play an important role of providing useful information to the decision makers of the organisation, and thereby, facilitate alignment in the financial planning and its overall business goals (Accenture, 2011). Globalization has also been a major reason for the changing role of management accountants in the present organizational context. Nowadays, management accountants have also been bestowed with the responsibilities for analysing, preparing, interpreting the financial data as well as delivering information about the current strategic position of the organization. Every business planning and decision taken within an organisation is today related with financial matters, wherein financial stability is perceived as a key requirement towards ensuring long-run sustainability of the entity (CIMA, 2009). Evidently enough, the role played by management accountants has become more complex as compared to their initial functions within the organisational management domain. This particular factor can be better understood with the help of practical illustrations, taking example of an organisation. With this particular motif, the study has considered Tesco Plc as the organisation, and hence, reference will be drawn to identify the role of management accountants in the current phenomenon. Changing Role of Management Accountant in 21st Century Management accountants are often considered as the oxygen of financial department and the overall organisation. It is in this context that with the changes observed in the organizational working patterns, the role of management accountants have also changed. In the conventional mechanism of organisational management, accountants were only bestowed with the responsibility to maintain financial reports and records that were further used for taxation and other purposes, which were mainly associated with controlling costs and expenditures rather than in the core decision making of the firm. However, when emphasising the modern trend of organisational management and the role of accountants within, it can be observed that professionals of this particular domain not only need to record the financial data but also suggest the most suitable solutions to the identified issues. These issues can commonly be identified in terms of making pricing decisions, determining costs to be incurred and deciding upon investments for the business. This particular fact further suggests that management accountants play a major role in organisational decision-making, which again determines the sustainability of the company largely (Byrne & Pierce, n.d.). As argued by Burns & et. al. (2003), proper decision-making is quite essential to ensure that the business is sustainable and is developing on a continuous basis. Such wide exposure of the roles played by management accountants can be easily identified with reference to the organisational behaviour related strategies of Tesco Plc. Source: (Vasquez, 2014) Tesco Plc is one of the largest multinationals of the UK and has been considerably affected due to globalisation. Due to globalization, operations performed by multinationals have also transformed to suit the competitive needs of today’s changing business structure, emphasising better sustainability and effectiveness (Botten, 2007). Accordingly, Tesco has also been changing its business structure, incorporating new strategies to maintain its alignment with the external market scenario. A major constituent to its transformation was its expansion in diversified fields, which demanded rigorous investment planning and a mechanism to deal with the risks identified. In order to determine its efficiency in investment planning, the management team of the company had been highly emphasised towards the financial decisions and techniques undertaken, which further implied an active participation of management accountants in the strategic decision making of the company. Being one of the oldest multinational grocery retailers in the world, Tesco has a long chain of consumers as well as stakeholders, which altogether indicates to the high opportunity of profit as well as increased costs simultaneously. It is in this context as well that Tesco needs considerable support from management accountants, who could promote good decision to the board members. This particular observation also depicts the role of management accountants in the decision making process of the organisation (Botten, 2007). Source: (CIMA, 2008) To be mentioned in this context, it is not only the strategic decision making complexities that raises issues and problems for a multinational when deciding upon expansion, related to cultural diversity and increased need for resource utilization, but also related to finances and resource allocation, wherein the role of management accountants are considered as essential (Zokaei & et. al., 2013). It is noteworthy in this context that investment holds considerable significance as the major base of business, as it helps maintaining a good liaison with the investors and other stakeholders apart from confirming the competitive position of the company overall. These attributes also form a part of the roles played by management accountants in the current phenomenon suggesting suitable decisions according to the situation to maintain the sustainability of the organisation, as in the case of Tesco. Such an active participation of management accountants in the decision making of the firm has further leveraged the profitability and sustainability strengths of the company, providing it with greater competencies to preserve stakeholder satisfaction. Risk management has also been a major advantage of involving accountants in the decision making process of the company, wherein it is able to identify the risks beforehand and thereby, ensure greater profitability (Bhimani & Bromwich, 2009). Implementation of Management Accounting Business Partners Model to Better Support Decision Making Within the Company As already argued in the above context, management accounting helps organisations to build better financial positioning and make decisions in an all-inclusive manner that further assists it to preserve inter-organisational relationships throughout its supply and distribution channels (Bhimani & Bromwich, 2009). With reference to the strategic development process experienced in Tesco, the organisation can be witnessed as initially commenced in the form of a grocery business. It was Tesco to have promoted the concept of ‘Supermarket’ in the global periphery, although it was established in the UK as a small grocery shop. However, in its latter developmental phase, Tesco expanded vastly to capture the markets of the UK, Asia, the US, other countries of Europe. Today, Tesco is regarded as the fourth largest retailer after Walmart. Throughout its course, Tesco had to emphasise ethical practices and accordingly maintain strategic competencies in order to gain better control on its financial capacity, which is mandatory to suffice organisational sustainability needs and maintain partnership relations throughout its business structure. Evidences thus reveal that while there were many instances wherein the organisation was able to take due measures for investments with the help of management accountants, it also proved that in many occurrences, the organisation was embarrassed owing to the fault of its management accountants resulting in poor relationship. For instance, in a recent incident of 2014, Tesco had to witness a plunge in its share price by £2.2bn owing to an accounting scandal. This further indicates a severe impact of management accounting effectiveness on the degree of confidence within the investors in the global market place (Mulligan, 2014). Hence, it can be argued in this context that a major role of management accountants is also to ensure ethical soundness in the decision-making process providing reliable information to the management personnel. This further would help in maintaining stakeholders’ confidence, which also includes investors as well as customers in the targeted industry context. Changing Role of Management Accountant Unlike previously, management accountants’ roles have today become much diversified and wide-ranging with their active inclusion in the strategic decision making process of the organisation. In the past decades, management accountants were liable to handle different sorts of reports, which were solely based on the financial aspects of the organisation. The role was limited to the deliverance of requisite information as needed by the decision-makers, but had minimum significance in their decision making process. However, with gradual transitions witnessed until the 21st century, management accountants are today, not only responsible for controlling the financial obligations of the company, but also perform as a risk manager, a planner, a budgeter, a decision maker and a strategist as well as an analyst. IT is by performing these diversified roles that management accountants also help the head authority or board of directors during decision-making (Scott, 2006). With continuous monitoring of investor trends, customers purchase behaviour and financial position of the company, management accountants have also been observed to play a crucial role in identifying the current trends and opportunities that may help the company’s growth substantially. It is in this context that building upon investor confidence, management accountants are also responsible for arranging funds for future projects and operations of the organisation, and thus, influence its long-run sustainability (Deloitte, 2013). From a critical perspective, business strategy formulation is regarded as an important facet of company’s decision process, which demands the active participation of management accountants. Correspondingly, Tesco has been taking the necessary assistance from its management accountants to ensure effective planning and thereby, attain its goal of continuous expansion and innovation. It is in this context that management accountants are expected to assist organisations in making decisions that can leverage its competitive position, as in the case of Tesco. Accordingly, such an initiative has assisted the organisation to obtain efficiency in its business strategy formulation, which has in turn increased its potential of profitability (Schroeder & et. al., 2011; Botten, 2007). Auditing conducted for the soundness of internal business functions and thereby, helping in maintain alignment with the organisational objectives is another important part of management accounting functions performed today by Tesco. Auditing is a tool, which helps the authority to learn about its performance loopholes, identify its strengths and weaknesses, as well as take strategic decisions to leverage its position both amid the stakeholders and within the industry context (Sadler & Robson, 1973). As mentioned in the previous section, management accountants in Tesco had failed to maintain adequate ethical soundness in its functions, which in turn resulted in the hindrances, caused to investors’ confidence and likewise, resulted in diminished profitability of the organisation. This particular fault can further be related with the lacuna of adequate efficiency in its auditing process, which has further resulted in the poor performance of the organisation (Botten, 2007). Accordingly, it can be argued that performing sound auditing is also an essential role of management accountants. To a certain extent, management accountants can also be dignified as the decision makers of the company, as they take active roles in maintaining organisational profitability, sustainability and efficiency in alignment with organisational goals and external as well as internal environmental trends (Peck & et. al., 2013). As can be observed in the case of Tesco, management accountants can be observed as responsible to suggest a varied range of financial steps, which can increase the opportunity cost of the company to a substantial extent. A noteworthy example in this context can be identified in terms of the need to balance between opportunity costs and financial as well as strategic obligations owed by the organisation towards its stakeholders around the globe. It is with this particular notion that management accountants of Tesco aimed at increasing its opportunity costs and identify the hidden costs of inventory maintenance. Based on these information, the decision makers of the company further emphasised accurate pricing decisions that would suffice the profitability needs of the organisation as well as provide due significance to the affordability and satisfaction of the targeted customers. As a result, involvement of management accountants in the supply chain management helped reducing different sorts of hidden costs associated with the functions and thus, maximised the chances of profitably for the company even when serving the customers at a comparatively lower price (Hitt & et. al., 2014; Botten, 2007). In the broader paradigm, this helped the company maintain both customer satisfaction and process efficiency, further adding to its sustainability concerns. Drawing from the above inferences it can further be argued that resource optimization, with due concentration to cost efficiency, is another important and valuable role played by management accountants in the modern scenario. As in the case of Tesco, to save the resources and make quality products constitute the ultimate goal for the company. Management accountants in Tesco can also be identified as responsible to take different steps to minimize wastage of resources and thereby, assure adequate cost efficiency in the organisational processes (Tesco, 2014; Grabski & et. al., 2009). Evidently, with the expansion of roles required to be performed by management accountants, the complexities in financial management has also increased substantially. For instance, Tesco needs substantial support to overcome its varied problems concerning its hidden inventory costs, direct and indirect costs, increased opportunity costs, and frequently changing customer tastes and preferences. Contextually, Tesco has been faced varied difficulties to control its hidden inventory costs and managing the pricing strategy in accordance with the vastly diversified tastes and preferences of its customers (Tesco, 2014; Dyckhoff & et. al., 2004). Challenges of Implementing the Business Partnering Model When emphasising the implementation of the management accounting model, Tesco might have to face a certain degree of challenges, which can be identified in the form of increased managerial complexities, lack of adequate flexibility in the organisational procedure and increased cost of management that in turn might influence the financial stability of the firm (Deegan, 2014). These challenges further give rise to the need of management accountants and their adequate proficiency in the domain. Suggestively, management accountants are the ultimate resource for any company to sustain in the current market situation. Due to varied economic challenges, multinationals such as Tesco, have been facing major challenges in financial matters, which are often left unidentified during auditing procedures and likewise, results in organisational deficiencies. The above identified roles played by management accountants not only attempt to help the organisation in balancing its profitability and sustainability objectives, but also to attain competitive positioning with an accelerated strategic strengths and gain the identified opportunities. Overall, management accounting efficiencies can help an organisation to preserve ethical soundness in its strategic decision-making and operations through auditing, apart from playing a major role in preserving effectiveness among the partners associated with the company throughout its supply chain (Botten, 2007). Nevertheless, the organisation should emphasise on a systematic application of its accounting strategies so that the issues arising due to complexities can be avoided at the root level. Conclusion Arguably, the study findings justify that to an extent, management accountants form an essential part of the organisational structures. The modern business format applied in the 21st century context has been diversified in terms of its wide-ranging functions, incorporating the varied dimensions of organisational management. It is in this context that with the changing notions of organisational management, the role of professionals in managerial positions have become increasingly diversified and challenging. The same can be witnessed with reference to the role played by the Management Accountants. To be precise, with the diversifications and transformations witnessed within the sphere of modern organisational management, the role of management accountants has undergone various changes decades after decades. While in the traditional period the role of management accounting and likewise, that of the management accountants only comprised of recording the inflow and outflow of cash in the business, with transformations in managerial perspective of the 21st century, it expanded to financial planning, cost control and strategic evaluation of the financial positioning held by the organisation. In the 21st century, management accountants are not only responsible to manage accounts of the organization, but also take active participation in the company’s strategic planning for its improvement in the intended dimensions. References Accenture, (2011). Achieving High Performance: The Value of Benchmarking. Documents. [Online] [Accessed October 22, 2014] http://www.cimaglobal.com/Documents/Thought_leadership_docs/cid_execrep_finance_business_partners_Jul09.pdf. Bhimani, A. & Bromwich, M., (2009). Management Accounting: Retrospect and Prospect. Elsevier, Oxford. Botten, N., (2007). CIMA Official Learning System Management Accounting Business Strategy. Butterworth-Heinemann. New York. Burns, J. & et. al., (2003). Challenge of Management Accounting Change. Elsevier, Oxford. Byrne, S. & Pierce, B., (No Date). Towards a More Comprehensive Understanding of the Roles of Management Accountants. Waterford Institute of Technology and Dublin City University. CIMA, (2009). Improving Decision Making In Organizations: The Opportunity To Reinvent Finance Business Partners. Documents. [Online] [Accessed October 22, 2014] http://www.cimaglobal.com/Documents/Thought_leadership_docs/cid_execrep_finance_business_partners_Jul09.pdf CIMA, (2008). Whats it really like inside... Tesco? Thought Leadership. [Online] [Accessed October 22, 2014] http://www.cimaglobal.com/Thought-leadership/Newsletters/Velocity-e-magazine/Velocity-Apr-2008/Whats-it-really-like-inside-Tesco/ Deegan, C. M., 2014. Financial Accounting Theory. McGraw-Hill Education, Australia. Deloitte, (2013). M & A for Growth: Restarting the UK’s SME Engine. M & A Perspectives. [Online] [Accessed October 22, 2014]. http://www.cimaglobal.com/Documents/Thought_leadership_docs/cid_execrep_finance_business_partners_Jul09.pdf Dyckhoff, H. & et. al., (2004). Supply Chain Management And Reverse Logistics. Springer Science & Business Media, United States Of America. Grabski, S. & et. al., (2009). Management Accounting In Enterprise Resource Planning Systems. Butterworth-Heinemann, New York. Hitt, M. & et. al., (2014). Strategic Management: Concepts: Competitiveness And Globalization. Cengage Learning, United States Of America. Mulligan, J., 2014. Share Plunge Knocks €2.8bn Off Tesco After Accounting Scandal. Independent. [Online] [Accessed October 22, 2014] http://www.independent.ie/business/world/share-plunge-knocks-28bn-off-tesco-after-accounting-scandal-30606749.html. Peck, H. & et. al., (2013). Relationship Marketing. Taylor & Francis, USA. Sadler, P. & Robson, A. P., (1973). Corporate Planning And The Role Of The Management Accountant: Prepared By A Joint Working Party Of The Institute Of Cost And Management Accountants And The Society For Long Range Planning. Institute of Cost And Management Accountants; Society For Long Range Planning. Schroeder, R. & et. al., (2011). Financial Accounting Theory And Analysis: Text And Cases. John Wiley & Sons, USA. Scott, W. R., (2006). Financial Accounting Theory. Pearson Prentice Hall, New York. Tesco, (2014). Investors. Tesco Plc. [Online] [Accessed October 20, 2014] http://www.tescoplc.com/files/pdf/responsibility/2014/tesco_and_society_review_2014.pdf Vasquez, L. (2014). Tesco halts in-store sales of E.ON plans Grocer drops big six supplier after £12M mis-selling fine. News. [Online] [Accessed October 20, 2014] http://www.uswitch.com/gas-electricity/news/2014/05/27/tesco-halts-in-store-sales-of-e-on-plans/ Zokaei, K. & et. al., (2013). Creating A Lean And Green Business System: Techniques For Improving Profits And Sustainability. CRC Press, USA. Read More