The Role of Management Accountants of Tesco Plc - Case Study Example

The role of Management Accountants at Tesco Plc Table of Contents Executive Summary 3 Introduction 4 Changing role of management accountants in the 21st century 4 Business Partnering model in Tesco Plc 9 Challenges pertaining to implementation of model 11 Conclusion 12 Reference List 13 Executive Summary Management accounting has encountered significant changes over the few decades due to globalization. This has affected the role of management accountants globally as they have to adopt the new practices. This practice needs high level of understanding and skills, which are evident for the accountants. Their role has changed gradually with the passage of time and advent of new techniques in management accounting. The changes have given rise to a number of challenges for the accountants and at the same time provided new opportunities to them to excel in the new era of technological support. The report lays emphasis on the role of management accountants in the 21st century and highlights the same of Tesco Plc. The report is prepared for the Board of Directors of the company so that they could be informed regarding the role of management accountants and the success of business partnering model. It is observed that the management accounting principles implemented by Tesco Plc had also encountered considerable changes over the years due to invention of new techniques. These facts are highlighted in the report along with the results of implementing business partnering model in Tesco Plc. Introduction In the volatile and competitive global economy, traditional organisational directives have virtually strengthened all management functions within an organisation and have reduced the operating cost by improving value of the business (Accenture, 2011; Atrill and McLaney, 2009). However, the business executives had struggled to understand whether changes are required in the management accounting system of their organisation, though the traditional methods of accounting had provided huge benefit. They had measured the accounting performance through a set of benchmarks; this was set in order to evaluate whether the strategies and methods relating to management accounting were effective enough to bring success to the organisation. Benchmarking is regarded as a vital tool for the leaders as it helps them to identify right strategy and gauge the performance of the organisation with that of their competitors (Pricewaterhouse Coopers LLP., 2013). It also assists the leaders to identify the vital issues that can become an obstacle for the organisation in future. However, in the past few decades there had been significant changes in operational and financial management of companies mainly due to globalization and technological up gradation. The report concentrates on the changing functions of management accounting system. Changing role of management accountants in the 21st century There is significant degree of interest for evaluating the changing operation of management accounting and the role of management accountants in private and public organisations. Johnson and Kaplan (1987) was the first one to alert the accounting community to understand the changes that are taking place in the management accounting practices, systems and techniques. He had recommended few solutions for undertaking changes in the management accounting process, which includes information frameworks pertaining to Activity Based Costing (ABC), Key Performance Indicators, Balance Scoreboard, Benchmarking and Economic Value Added (Forsaith, Tilt and Lobo, 2001). The author stated that the traditional management accounting was losing its relevance in the past few decades and this conception of Johnson and Kaplan (1987) was a turning point for every organisation as it encouraged them to re-evaluate management accounting systems. Nevertheless, few organisations prefer to employ traditional accounting system than to adopt the new techniques mainly due to the complexity and uncertainty of the environment. Moreover, if the role of the management accountants are evaluated it can be suggested that their work has shifted from traditional control jobs to business analysis and consultancy (Burns, Ezzamel and Scapens, 1999). The report aims at evaluating the role of management accounting in the 21st century with changing management accounting principles and techniques. The role of accountants of Tesco Plc, is explained in order to understand the changes that have taken place in the last few decades and also elaborate on how the changes have affected their work. It also lays emphasis on evaluation of the Management Accounting Business Partners model and how it helped Tesco Plc to take appropriate decisions. The challenges pertaining to the implementation of the model is also explained. The management accountants in 21st century are encountering severe challenges from the dynamic commercial landscape. For avoiding strict consequences, they have adopted the changes and techniques that will add value to the organisational success (Burns, Ezzamel and Scapens, 2003; Maskell and Baggaley, 2001). The new management accounting system has increased the responsibility and work of the accountants. They need to participate in formulation and implementation of strategies that relate to handling of finance of the company. They also help the management in translating the strategic objective into managerial and operational measures (Deloitte LLP., 2013). The management accountants have to move forward in designing critical management systems from traditional scorekeeping jobs. The traditional performance management system focuses on enhancing the operation of the existing process. However, the new techniques such as balance scorecard give emphasis on new processes that are required for achieving breakthrough performance goals for the shareholders and customers. It is worth mentioning that apart from several challenges, the changes have developed huge opportunities for the management accountants. It has created a new competitive world for the accountants, where they have to maintain the standard set by the system and perform to achieve the organisational goals (Burns, Ezzamel and Scapens, 2003; Maskell and Baggaley, 2001). The new environment demands for more accurate performance and cost information based on the different activities, methods, processes, services, products and customers of the organisation. They are required to fetch cost information for the following purposes: 1) Design the services and products that have the ability to meet the expectation of the customers and can also deliver profit. 2) The information is required for ensuring whether discontinuous or continuous improvements are needed in efficiency, quality and speed. 3) It helps in guiding decision pertaining to product mix. 4) Select appropriate suppliers from a group. 5) Gives appropriate opinions regarding negotiation pertaining to product features, price, delivery, services and customers. 6) Helps in structuring effective and efficient service processing and distributing channels so as to ensure that proper customers segments and target markets are developed (Burns, Ezzamel and Scapens, 2003; Maskell and Baggaley, 2001). The role of management accountants in the 21st century can be explained through an example. In Tesco Plc, the management accountants have to deal with the challenges that are developed in the new competitive environment. They have to be more accurate and finish their work on time so that the organisation is benefitted. They have to provide accurate information for guiding improvement activities and learning of the individual in the organisation. The knowledge will make Tesco Plc more customers focussed. The accountants have to generate new ideas that can reduce or eliminate defects and wastes, simultaneously enhance the quality to delivery and shorten throughput time and life cycle of the products. Tesco Plc mainly concentrates on providing products to its customers at the lowest possible price so they take measures to avoid excessive production cost. The company has adopted new management accounting system and have rejected the traditional cost control system. However, it can be stated that the traditional system aims at controlling cost centres effectively and maintain stability throughout the operation. In the traditional system the management accountants are concerned about their routine jobs and neutral observers who are not concerned with the activities of the company (Burns and Baldvinsdottir, 2007; goals Burns, Ezzamel and Scapens, 2003; Maskell and Baggaley, 2001; Davis and McLaughlin, 2009). There are many new techniques of management accounting, which are needed to be adopted by the companies so as to sustain in the competitive and dynamic world. The techniques are management accounting techniques such as just-in-time (JIT), activity based costing (ABC) and total quality management (TQM). ABC model is appropriate for a company as this particular costing model helps in identifying activities and allot cost accordingly. This ensures that there is no waste of cash and there is real utilization of resources. This model assists the management accountants in a retail company to assign cost to every activity that is significant for the success of the same. Among thousands of products that the retailer company is selling to the customers, the technique allows it to identify individual costs relevant for each of them (Byrne and Pierce, 2007). The management accountant has to make appropriate decision regarding understanding the cost of products, when it is charging high for specific products. In this way they can add value to the success of the company by increasing its profit (CIMA, 2009; Davis and McLaughlin, 2009). Another new approach that is important for a company to adopt is Just-in-time (JIT). JIT is an inventory management approach that aims at providing appropriate return by decreasing in-process carrying cost and inventory. The management accountants have the responsibility to manage inventory in such a way that it does not harm the cost structure. They have to maintain the quality of the product and at the same time manage the cost of production. Thus, it is a crucial task for them. This is one of the main reasons behind the need of best skills for the management accountants, who have the ability to control the management system effectively (Davis and McLaughlin, 2009). Reduction in stock helps in saving cost and warehouse space. The management accountants have the responsibility to track the progress in sales and devote resources to the production team so as to produce more products. As for example, management accountants of a retailer company have to improve their levels of understanding regarding product costing so as to ensure that company is effective enough to earn profit. Moreover, it is worth mentioning that the role of management accountant in 21st century has become more complex and decision centric (May, 2001). Excellent management accounting process of a company ensures competitiveness only when the management accountants are confident about their decisions. The system will design services and products that have the ability to add value to the customers and satisfy their needs. The products are manufactured with the help of responsive operating processes, which bear high quality. Business Partnering model in Tesco Plc Business partnering models in finance is defined as a professional function that operates alongside different business activities. This model helps in supporting and advising operational and strategic decision making via insights, which drive improved business performance. The responsibilities of the business partners are discussed hence forth. They have to interpret, explain and drive performance of the company and improve it. Presenting a dynamic picture of the industry, economy and competitor so as to establish the unknown challenges is one of their crucial tasks. They assist in influencing the vital strategic and operational decisions. They are allowed to give advice on main business planning activities, opportunities and trade-offs. The business partners have the duty to prepare an ad-hoc analysis and insight into the specific issues that arise in a company (Burns and Baldvinsdottir, 2007; KPMG, 2011). The business partners adopt a different approach by concentrating on conventional finance than on historical numbers. The core finance functions of the business partners include controlling the management and reporting of different activities that place during operation of the business. It provides insights on the basis of macro-economic trends, competitive dynamics and industry. The partners are responsible for examining the operational performance via lenses in order to bring in new direction in the projects. This is done by preparing stakeholder value analysis, customer profitability, return on capital, zero or activity based costing and channel profitability (KPMG, 2011). The business partner team in Tesco Plc are aligned with the senior business leaders, functions and businesses. The team organise themselves for developing solution dimension. These solutions are required for managing the situations and team collects and builds the global intellectual capital (checklists, tools, case studies and benchmarks) for supporting the decisions relating specific areas. They are collateral in nature and are simultaneously available for business partners for employing them as standard and analyse the situations (KPMG, 2011). The team members of Tesco Plc play an important role in formulating solutions, which can manage each and solutions tactfully. The solutions are dependent on nature of business and Tesco plc has team members who concentrate on working capital optimization, marketing effectiveness, pricing, investment appraisal, effectiveness of the sales force customer retention/ acquisition and activity based approaches. This has many similarities with consulting model, where the consultants have ht responsibility to mark the definite customers. This model has the responsibility for driving thoughts, leadership, harvesting knowledge and creating new tools for specific solutions (KPMG, 2011). The team size of Tesco Plc is proportionate with the finance function and business. About 15% of the financial resources are dedicated to business partnering (KPMG, 2011). However, at times the marginal benefit of the extra resources is very important for the company. Outsourcing few supporting activities have the ability to reduce costs and improve productivity of the company. Nevertheless, the main benefits are required to be measured with respect to risks that are associated with approaches like the fragmented responsibility, which is visible in particular projects (KPMG, 2011). Tesco Plc balances the relationship between new recruits and the business partner teams so as to ensure that the team as a whole is performing effectively. However, it is observed that appropriate training and development programs are preferred by the company than to concentrate on recruitment and selection. The company prepares the recruits as per their requirement and develops a healthy relation with the business partners’ team. This team as a whole supports in decision making process of the company. At the same time, the skills of the team are also improved so that they are capable enough to communicate with each other when required (Burns and Baldvinsdottir, 2007; KPMG, 2011). Challenges pertaining to implementation of model There are few challenges pertaining to the implementation of the model, which are discussed hence forth. The main issue is to attain balance between the focus of the internal customers and business partner team. The team has the ability to directly contribute towards the business performance whereas the internal customers do not have that permission; as a result there is a clash between the two parties. This hinders successful implementation of the model. When the team is formed they do not have the full authority to participate in all functions and give their decision. Slowly when the team gains trust and creditability in the company, they are invited to advice regarding different issues in the company. However, there are off limit issues which are not discussed with the team (KPMG, 2011). The model is devised in such a way that it is time consuming to build relationship and develop effective communication between management and team. Extensive dialogues and refinements of models are required, which is expensive. If the model fails to deliver expected outcome then capital wasted in building the team. Thus, it can be stated it is quite difficult to implement the model and expect its success simultaneously. Both are dependent on the operation of the team members and their interest regarding the model. Conclusion The role of management accountants has changed over the past few decades with the modification in management accounting system, This new system have imposed enough pressure on the accountants to adopt the new methods and practices so as to remain competitive in this dynamic world. The management accountants in the 21st century have much responsibility other than preparing reports for the management use. They are permitted to give their decision regarding any financial or operational issues. The management accountants have to adopt the new methods of accounting that includes activity based costing and inventory costing and thus it is difficult for them to encounter the changes. However, it is observed that the management accountants of Tesco Plc have adopted new practices tactfully by encouraging activity based and inventory costing. The business partnering model implemented by the company aims at supporting crucial decision making functions. Thus, it can be concluded that change in management accounting system has helped the company to motivate its team to give their full effort and contribute positively towards the achievement of the main objectives. However, it is observed that there are few challenges pertaining to the implementation of the business partnering model. The model is time consuming and expensive. It takes into account a lot of capital investment, which are wasted if the outcomes are not positive. Hence, it can be stated that though the model helps in supporting decision making in the company but it also possess notable obstacles during implementation process. Reference List Accenture, 2011. Achieving High Performance: The Value of Benchmarking. [pdf] Accenture. Available at: < http://www.accenture.com/Microsites/finance-mastery/Documents/pdf/Accenture-Value-of-Benchmarking-USLo.pdf > [Accessed 24 October 2014]. Atrill, P. and McLaney, E., 2009. Management accounting for decision makers. Harlow: Pearson Education Limited. Burns, J. and Baldvinsdottir, G., 2007. The changing role of management accountants, in issues in management accounting. Harlow Pearson Education. Burns, J., Ezzamel, M. and Scapens, R., 1999. Management Accounting Change in the UK. Management Accounting, 77(3) pp. 28-30 Burns, J., Ezzamel, M. and Scapens, R., 2003. The challenge of management accounting change: Behavioural and cultural aspects of change management. Oxford: Elsevier. Byrne, S. and Pierce, B., 2007. Towards a More Comprehensive Understanding of the Roles of Management Accountants, European Accounting Review, 16(3) pp. 469-498. CIMA, 2009. Improving decision making in organisations. [pdf] CIMA. Available at: http://www.cimaglobal.com/Documents/Thought_leadership_docs/cid_execrep_finance_business_partners_Jul09.pdf > [Accessed 24 October 2014]. Davis, T. and McLaughlin, L., 2009. Is Finance a Business Partner yet? Strategic Finance, 90 (1), pp 35-40. Deloitte LLP., 2013. M&A Perspectives. [pdf] Available at < http://www.deloitte.com/assets/Dcom: UnitedKingdom/Local%20Assets/Documents/Market%20insights/uk-ma-manda-perspectives-edition-1-restarting-the-uks-sme-engine.pdf > [Accessed on 24 October 2014]. Forsaith, D., Tilt, C. and Lobo, M., 2001. The future of management accounting: A South Australian Perspective. 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Future of Management Accounting in the 21st Century. [online] Available at: < http://www.maskell.com/lean_accounting/subpages/lean_accounting/future_of_management_accounting.html > [Accessed 24 October 2014]. May, M., 2001. New Financial Times. Financial Management, 9(1) pp. 36-37. Pricewaterhouse Coopers LLP., 2013. Finance Effectiveness Benchmark Study. [online] < http://www.pwc.co.uk/consulting/publications/unlocking-potential-finance-effectiveness-benchmark-study-2013.jhtml > [Accessed on 10th March 2014] Read More