Management Accounting Innovation as a Core Theme in Driving Modern Organizations - Essay Example

Management accounting Management accounting innovation as a core theme in driving modern organizations In today’s business environment all organization functions have to move with the times and position themselves in this radical environment. Constant innovations guarantee the prosperity of the organization as well as ensuring that the organization remains competitive. Management accounting is no exception to this. Though management accounting differs from one organization to another due to the structure and policy of the organization the process of preparing management accounts is the same. Management accounting is a useful tool for advising managers on which projects to undertake based on the financial implications to the organization using formulated strategies aimed at producing desirable performance by providing systems of checks. Management accounting innovations have been developed for use in many organizations such as the Balanced Scorecard (BSC) and the Activity Based Costing (ABC) (Banker, et al., 2004). The balanced scorecard which is strategic performance management tool is used by management to monitor and control the actions of employees. The BSC presents a mixture of financial and non financial measures compared to a target value within a single concise report capturing information that is most relevant (Banker, et al., 2004). Activity based costing on the other hand recognizes the need to avoid disruptive events to be as important as reducing the costs of raw materials. The focus of ABC is on cost driving activities in the production process of a single component or in service delivery. This makes management accounting to be a system of control that provides surveillance within an organization (Banker, et al., 2004. The response of management accounting to existing changes in the business impacts on the performance of the organization this is because the traditional practices of management accounting ignored the key features that have an impact on the performance trends and failed to provide long term monitoring tools (Smith 2005). Innovations in management accounting therefore are the practices and ideas that organizations view as new with the fundamental concept being change. Generally the information generated by management accounting reports is geared towards making decisions that achieve the objectives and goals of a business but due to the changing business environment this has necessitated change in the role of management accounting in the way it provides information which is relevant to the various users. The invention of cost controlling techniques has caused a change to the redundant accounting practices and opened the door for an innovative and dynamic approach to management accounting. This modern accounting practice is used as the central method for comparing the actual and budgeted costs of direct costs used in the production period. This has lead to optimal efficiency in the production process by ensuring that machine breakdowns are minimized as well as failures in quality control. Innovation plays a crucial part in the strategy of a business; therefore innovation adoption in the management accounting process necessitates the adoption of new administrative and technical innovations to support it. The long run impact of innovation to the organization results in the overall organizational behavioral change. The role of a management accountant in driving innovation The role of management accountants has not been adequate in driving innovation. This is because for a business plan to be successful it needs to have a firm grip on the process of innovation which is determined by the willingness of the participants to work out the different outputs associated with each stage of the innovation process. Management accountants provide a stage for managers with which to view the internal structure of the organization thereby facilitating control. Management accountants provide a scorecard by which the overall performance of the organization can be rated by outsiders (Chadwick, 2000). Knowledge based innovation is regarded as the most hard to manage because of the long lead times associated with it (Chadwick, 2000). Creating new knowledge to its development and eventual adoption is no walk in the park. This knowledge based innovation requires a coming together of different kinds of knowledge which makes it follow a pattern of long term investment and pattern (Chadwick, 2000). The process of coming up with new innovations should be focused on: The present and not the future because the innovation may be well ahead of its time and this may impede on its usefulness. One thing because the innovation should be focused on solving a specific problem but not an array of problems. Analyzing the opportunities because the opportunities are usually hidden in the problem. Problems are indicators of areas of opportunity. Capturing innovation involves separating old and new ventures to enhance performance and establish structures. Innovation is not an easy process to implement because of the complicated process that requires the participation of everyone in the organization (Dury, 2008). This causes management to provide attractive packages to guarantee the participation of every member of the organization. Management accounting addresses cost, time, innovation and quality which are viewed as the drivers of the management accounting process. The focus has mainly been on cost, time and quality and innovation has been left behind. Though the balanced scorecard has raised the contour of innovation and the factors driving innovation cost, time and quality have generated management changes than innovation. Innovation needs a focus on new performance measures such as; process time to maturity, time to develop innovations and market these innovations and emphasis on new goals such as technological advantage, new product and processes as well as manufacturing learning. Pursuing innovation as a key factor to success at the same pursuing the other three areas causes a trade off because they cannot all be pursued at the same time. Application of innovation to the management accounting setting includes not only the techniques but work practices as well. Innovation is concerned with the full range of innovations developed and so a management accountant who has several ideas but implements none is regarded as more innovative than the one who implements a single innovation. Its innovativeness that gives a reflection of the extent to which a management accountant is innovating and this makes single innovations therefore not to be representative of the innovations in general. Role involvement and its effect on innovativeness Knowledge about appropriateness of innovations Yes the knowledge about the appropriateness of innovations affects the ability of a management accountant to innovate because you cannot innovate something that you have no knowledge of. For an innovation to be successful it ought to meet the needs of its users or it is termed as obsolete and therefore there is no use for it (Emsley, 2005). As a management accountant it is important to understand the user needs to develop appropriate innovations. Management accountants working under business unit managers are better placed to understand their information needs and so innovate what is useful to solve the needs of the business unit managers. Being familiar with the needs of business unit managers enables a management accountant to have knowledge of the information that is of value for decision making and this will act as a pointer to the kind of innovation needed to produce that information (Emsley, 2005). On the other hand management accountants that report to the accounting function are less likely to produce innovations that are appropriate to the business unit managers because they have no knowledge of the kind of information the business unit manager requires and so present standard solutions while their requirement needs is a radical one (Emsley, 2005). This lack of familiarity with the business unit manager decisions and the information needs will cause them to design and even implement innovations that are irrelevant to the needs of the business unit managers. Acceptance of innovations by business unit managers Yes because this acceptance affects the ability of the management accountant to innovate. Innovations that have been initiated with an orientation to the business unit are more likely to be accepted by business unit managers (Emsley, 2005). For an innovation to be accepted by a unit in the organization there must be the perceived benefit of this innovation to the business unit. Administrative innovations have more perceived uncertainty as compared to technical innovations which can be easily demonstrated as compared to demonstrating an improved decision making as a result of implementing an administrative innovation (Emsley, 2005). To counter this effect the business unit manger need to be familiarized with the information generated by the innovation for him or her to appreciate the value of the innovation. In cases of radical innovations the business unit manager ought to trust the management accountant to develop innovations that are beneficial and relevant to him. This is especially so fro innovations that require a lot of financial resources to implement and are very difficult to demonstrate. This does not mean that the business unit manager will accept any new innovation easily from a management accountant because if the manager has a functional orientation he or she will have to build trust with the business unit manager to the point that he or she is viewed as one of them. Carrying out any innovation in the business unit may have a potential downside may occur because of implementing the new innovation and so there needs to be cordial relationship that inspires success (Emsley, 2005). Incentives to innovate Yes incentives play a major role with motivating people to work hard and make great achievements. The incentives used to motivate a worker are rewards, job satisfaction and enrichment which are future prospects of any employee. Management accountants are no exception to motivation. Motivation is important in achieving the best in any workforce. Management accountants have different reporting lines depending on the organizational structure and so depending on the lines of authority they receive different incentives from the business unit and the functional area of accounting. This puts a management accountant at a bind regarding which allegiance he or she will hold. Should loyalty be to the immediate supervisor who in this case may be the functional unit or the needs of the business unit. A business unit manager providing incentives to a management accountant aims at achieving business unit goals and so the management accountant will aim at producing information that has this orientation. To be able to meet the business unit goals innovations are made to be more radical (Emsley, 2005).. Functional areas will align management accountants with incentives that facilitate the achievement of functional objectives which are different from business goals. So management accountants in functional areas have a hard time convincing business unit managers of the benefits of the innovation especially if those innovations threaten the achievement of functional goals (Emsley, 2005).. This makes management accountants in functional units less likely to develop radical innovations as compared to management accountants with a business unit orientation. How management accountants can accelerate the innovation within the organizations Innovation studies in management accounting are focused on single innovations as the main emphasis of the study (Emsley, 2005). But this does not mean that innovative studies in management accounting are based on this single innovation only. To have a grasp on innovativeness it is important to understand the concept of innovation. Innovation has many facets such as product and technologies innovation, new products and services as well as new structures and administrative systems. In management accounting innovations are the changes to the work practices as well as accounting techniques (Emsley, 2005). The process of innovation begins with generating an idea to the point of its implementation. Not all innovations take the same route as some innovations can take longer and other shorter periods of time (Siasye and Birnberg 2010). Single innovations in management accounting have become problematic especially with the concept of innovativeness because innovativeness is concerned with the full range of innovations developed and not a single innovation only. This makes a management accountant who implements only one innovation to be less innovative than one that one who has many ideas but implements none. The importance of innovativeness: It gives a reflection of the degree to which management accountants innovate As more innovations are studied it is easy to make more generalizations They enable categorization which in turn opens up explanatory variables that affect innovations differently. Radical innovations are a representation of new management accounting techniques characterized by the desire to have things done differently while the innovations that are not radical represent the changes to existing management techniques. Role involvement applied in management accounting is important in the job of an accountant. The development of management accounting explores the multiple roles played by management accountants which may cause them to have conflicting interests (Emsley 2006).The role of a management accountant to a business unit may conflict with the same role to a functional structure. The involvement of management accounting in business unit structures differs from their role in functional orientation (Emsley, 2005). While working under the direct supervision of a functional area management accountants are expected to generate information to business units which is supposed to cause these units to grow and this may clash with the objectives and goals of the functional area. Also the management accountants whose role involvement is inclined towards the business unit will spend most of his or her time within the business unit and this will give an attachment to the information needs of the business unit managers. This is more likely in situations where the business unit managers evaluate the performance of the management accountants (Emsley, 2005). A functional orientation causes management accountants to be less inclined to the providing relevant information to the business unit managers and this is an incentive to discourage innovation that is relevant. For innovation to develop and flourish their needs to be a close interaction between management accountants and the users of the information that management accountants generate. Role involvement and innovativeness of management accountants is affected by the knowledge about appropriateness of innovation, acceptance and the incentives (Emsley, 2005). Innovation requires the appropriate knowledge. For innovation and information to be useful it needs to be relevant to people who use it. Management accountants need to have knowledge about what the kind of information that business unit managers require. An assessment of needs requirement ensure that the innovation developed is relevant and remains relevant. When innovating it is not about the idea but about the users of the innovation. If the innovation is not relevant to its users it is deemed to be obsolete because of its lack of use. Management accountants have the responsibility of getting to know the needs of the users of information they generate. The varying needs of users should be put into consideration to be able to provide relevant information. The incentive to innovate which includes job satisfaction and job enrichment plays a role in motivating management accountants to innovate. A radical innovation which is the requirement for business units will be achieved if they motivate the management accountants well. The management accountant in a business unit is likely to be geared towards achieving business unit goals where the information produced is geared towards achieving this. Management accountants with business unit orientation are therefore likely to be more innovative because of the prospects of developing radical innovations as compared to those in the functional orientations who do not have prospects of developing radical innovations References Banker, R.D et al., 2004. The balanced scorecard: judgmental effects of performance measures linked to strategy. The Accounting Review, 79(1), 1-23. Chadwick, L. 2000. Essential management accounting. New York. Prentice hall publishers. Dury, C. 2008. Management and cost accounting. New York. Thompson publishing. Emsley, D. 2005. Restructuring the management accounting function: a note on the effect of role involvement on innovativeness. Management Accounting Research, 16(1). 157-77. Emsley, D. 2006. Discipline of accounting and business law. New Southwales: University of Sydney. Siasye, S. and Birnberg, J. 2010. Extent and scope of diffusion and adoption of process innovations in management accounting systems. International Journal of Accounting and Information Management, 18(2), 118-139. Smith, M. 2005. Performance measurement and management: a strategic approach to management. New York. Sage Publishers. Read More