The Relevance of Strategic Management Accounting - Essay Example

The Relevance of Strategic Management Accounting Management is an integral part of business, and its practices and without it an enterprise is not able to function efficiently in its various operations. There are various types of management, but one of the recent and most popular can be considered to be strategic management (Mulcaster, 2009). Strategic management can be defined as the process of analyzing the various initiatives taken by an organization involving the resources available to them and performance within their external environments. This is in a bid to realize the mission and vision of the company and its objectives through developing modes of approach that will allow the organization to realize these aspects of its business (Friedl, Hans-Ulrich & Burkhard, 2005). Management accounting can be described as the use of various accounting information by managers of an organization to assist them in making proper decisions in situations that they may be faced with. Therefore, strategic management accounting can be considered to be a combination of these two ideals whereby management accounting is used to enhance the strategic decision making that takes place in an organization in a bid to increase the chances of success in a business (Mulcaster, 2009). Strategic management accounting combines accounting information with strategic objectives in an effort to leverage the position of the company into a more favorable angle for the attainment of the objectives set out for the business. The use of this practice has ensured that businesses have a better probability of success in the strategies that they implement for their businesses. Hierarchal Structure of Strategy There are a number of levels where strategy management accounting can take place within an organization (Clinton & Van der Merwe, 2006). The levels occur according to the hierarchal structure of the organization and can be divided into operational, functional, and business and corporate levels according to the activities that take place. Corporate strategic management accounting – This can be considered to be the overall management of all the various businesses that an organization may be involved in and thus can be refereed to as the main strategic management accounting process (Armstrong & Greene, 2007). The management processes that take place here deal with handling the organization as a whole including the various enterprises that it may be involved with. Corporate strategic management accounting involves the handling of all businesses to ensure that there is no enterprise that may be causing the organization to suffer a loss (Friedl, Hans-Ulrich & Burkhard, 2005). This level of management accounting is handled by the top brass of the organization, and decisions are made by top officials within the organization like members of the board of directors upon advisors familiar with the situation that they are facing. Business strategic management accounting – This level of strategic management accounting, deals with businesses belonging to an organization on a personal level. This is to say that it handles the management (Mulcaster, 2009) of the various businesses that an organization may be involved with according to the particular needs and situations that the business may be faced with. This level of strategic management accounting is also handled by top level management, but in this case management is of that particular business such as the company CEO and various heads of department (Armstrong & Greene, 2007). This level of management allows the organization to concentrate on their various enterprises in a manner that allows them to address the various problems that they may face on a one on one level that allows the involved parties to figure out the proper solutions that are needed to take care of the various complications that may have arisen (Clinton & Van der Merwe, 2006). This is an essential practice in any organization as a chain is only as strong as its weakest link, and thus all the enterprises of an organization need to be in tip-top shape if they are to be successful in their overall endeavors. Functional strategic management accounting – This level of management deals with a specific area of the business (Friedl, Hans-Ulrich & Burkhard, 2005). This is to say that the management activities that take place are confined to a particular department of the business and the various objectives that need to be achieved in this part of the business. The strategies that take place are based on the achievement of these objectives and can be considered to be part of concentrating on a small part of the frame so as to improve the bigger picture. This management is handled by the heads of the various departments and at times approved by the head of the company. Operational strategic management accounting – This is the lowest level of strategic management accounting and deals with a specific objective of a business in particular. This sort of management can be handled by an employee who has had the duty delegated to them. Operational strategic management accounting looks at ways in which a certain objective in a department can be achieved in the most direct and cost effective manner (Clinton & Van der Merwe, 2006). This level of strategic management accounting can be considered to be the start of all the other levels above and its success will lead to the success of the other levels above it. Without success in this level of management accounting, the other levels are likely to be affected by failure to achieve an objective that on its own may seem insignificant but may actually be a significant cog in the overall machinery of the business workings of the department (Armstrong & Greene, 2007). This in turn will affect the business in general, which will affect the corporate affairs at the highest level of the organization (Clinton & Van der Merwe, 2006). Thus, operational strategic management accounting can be considered to be the most integral level of management as without it, the other levels would not be able function efficiently. The Importance of Strategic Management Accounting There are various reasons that one can look upon the strategic management accounting to be one of the most important parts of an organizations activities (Friedl, Hans-Ulrich & Burkhard, 2005). Though this activity can be said to a relatively new practice in the business world, it has proved to be an integral part of the success of an organization in the modern business environment that organizations find themselves placed in today. Public Relations Strategic management accounting can be considered to be responsible for the public relations that take place between a company and the public which consist of the target market they are trying to reach (Friedl, Hans-Ulrich & Burkhard, 2005). A good example of this can be seen in the Vehicle business where Toyota had to recall a number of their cars from a new line they had recently developed due to a problem they had discovered with the braking system. Though this problem was not present in a majority of the cars, it was concluded that it would be safer to recall all the cars anyway despite the costs incurred from doing so. This can be considered to have been a part of strategic management accounting as calculations would show that though it may have cost large sums of money to recall the cars, the company would have lost even more money had they ignored this problem and it had been discovered later by an external party as they would have lost a significant grip on the vehicle market thus leading to a massive reduction in profits (Mulcaster, 2009). Recalling all the cars also showed responsibility on the part of the company and thus made those buying their products feel safer in the process. Business Activities Strategic management accounting can also said to play a significant role in the various business activities that take place in an organization and the level of success that is achieved (Mulcaster, 2009). The use of strategic management accounting allows for the development of a feasible plan that can be implemented to increase the potential of success. A good example of this would be the activities that are taken by technology company Apple Inc. This company is responsible for various technology products such as the “iPhone” and the “iPad” which have received a lot of competition from other companies such as Samsung and Alcatel among other communication technology companies (Armstrong & Greene, 2007). However, the use of strategic management accounting has ensured that they are able to stay above competition through various strategies such as the development of new products to ensure that their market remains interested in their products. This can be seen through the release of the “iPhone” series that currently ranges from 1 – 5. The introduction of new features and technology in tablets and cell phones has also been another strategy that has been successfully implemented by the company to ensure they remain relevant in the technology industry (Clinton & Van der Merwe, 2006). Conclusion Strategic management accounting can be considered to one of the secrets of a successful company, and without it, it would be a milestone for an organization to maintain the achievements that they may have enjoyed in the past (Mulcaster, 2009). The activities involved in this type of management brings together the best parts of account and strategic management and joins them together to bring out an effective means of achieving the various objectives that an organization may have set for its businesses. References Clinton, B.D. & Van der Merwe, A. 2006. Management Accounting - Approaches, Techniques and Management Processes. Cost Management. Thomas Reuters RIA Group, New York. Friedl, G., Hans-Ulrich, K. & Burkhard, P. 2005. Relevance Added: Combining ABC with German Cost Accounting, Strategic Finance. Armstrong, J. S & Greene, K. C. 2007. Competitor-oriented Objectives: The Myth of Market Share, International Journal of Business 12 (1). Mulcaster, W.R. 2009. Three Strategic Frameworks, Business Strategy Series 10 (1). Read More