Management Accounting Innovation in Modern Organizations - Essay Example

Management Accounting Innovation in Modern Organizations [Name] [Course] [Date] Management Accounting Innovation Has Been One of the Core Themes Driving Modern Organizations Organizations the world over are working themselves up trying to adopt new processes, styles and modes of management. Currently pretty much all modern day organizations are heavily investing in research on new concepts in management, their implications, benefits, demerits and possible lifetime. This constant exercise in trying to discern between the better and the best methods has seen organizations allocate lion’s share specifically to this purpose. These new means of management are commonly referred to as Management Accounting Innovation. This paper will attempt to clearly and comprehensively bring out the concept of Management Accounting Innovation and thus answering the question, is Management Accounting Innovation (MAIs) one of the core driving themes of modern organizations? In addition, the paper will review several examples of Management Accounting Innovation and the different styles that some modern organizations have adopted. Management Accounting Innovation is defined as the adoption of a new concept by an organization in the presentation of both financial and non-financial information that will aid the managers of the organization in realizing the organization’s goals. Several examples of Management Accounting Innovation are: Balance Scorecards (BSC), Target Costing (TC), Activity Based Costing (ABC), Activity Based Management (ABM), Benchmarking etc. This definition however has had a number of disputing claims. There has been a debate on whether Management Accounting Innovation is a process or an idea; this is going with the study of Kimberley (1981. p. 90). If indeed it is a process, then the whole concept of innovation fades away. It is basically a phase of transition with guidelines and steps to be adhered to that leads to an end product or service. Here there is absolutely no innovation taking place whatsoever because, technically speaking, nothing has changed the least bit. What about an idea? If Management Accounting Innovation is an idea, then we conserve the innovation part. In an idea we have the likelihood of a new creation or improvement of a process, concept, result etc that ends in a better, more preferable product or service. But going with our definition, two issues arise with this argument. Firstly is, we are not guaranteed that once we adopt a given Management Accounting Innovation, we are going to get better results or the organization is going to project an upward trend in profits. The exact opposite might just happen; the result of Management Accounting Innovation might be way worse than what was derived from the previous process. Schoute and Wiersman also go ahead to note that, standing alone, Management Accounting Information does not lead to the organization realizing benefits but rather indirectly depending on the kind of change it brings (2009. p. 5). Secondly, our definition above describes Management Accounting Innovation as the adoption of a new concept…meaning it actually is a process when wholly considered. Management Accounting Innovation could also be many things but that is beyond our scope of interest for now. What we want to know is: Is Management Accounting Innovation really a core theme driving modern organizations? The various characteristics in our research paper therefore, we will be referring to Management Accounting Innovation as a process so as to avoid ambiguity and lack of comprehension. Management Accounting Innovation has several characteristics that make it stand out. Let us consider a couple of these characteristics. According to Schoute and Wiersman (2009 p. 13), there are a myriad of characteristics along which Management accounting can be grouped. We will consider four types of characteristics here, namely: administrative, technical, incremental and radical characteristics. Administrative is concerned with the Management Accounting Innovations adopted for decision making usually by the top most management. Technical refers to the innovations adopted in the lower levels of management. Upon implementation, these innovations offer more tangible results. There effect is felt in a short term. Incremental characteristic involves any characteristic absorbed that results in increase in value creation of a given target process. Radical characteristic brings absolute change in results derived from a given process, e.g. change in sales volume to new margin in a semi-permanent mode. It is important to note, that more often one characteristic will work hand in hand with one another. For instance, it is not pragmatic to have administrative Management Accounting Innovation coming out solely in application upon implementation. During implementation of the Management Accounting Innovation, two or more characteristics will be adopted. There is hardly any one time when a sole characteristic will be absorbed alone. There is also the concept of a package and synergy proposed by Emsley (2000. p. 35) wherein, the adoption of several characteristics simultaneously leads to better results as opposed to when one Management Accounting Innovation was adopted. There are different types of Management Accounting Innovation. They are activity Based Costing (ABC) which involves assigning costs to objects such as products, customers etc. based on the cost of the various activities as determined, Activity Based Management (ABM) which is involved in spotting and elimination of activities that add no value to the organization thus attempting to keep only the beneficial activities. It borrows the principles of the Activity Based Costing, Target Costing (TC) which applies the concept of cost ceiling to determine whether product is worth manufacturing or a particular service is worth rendered. This enables setting of profit-realizing price of the product or service, Balanced Scorecard (BC) which integrates several facets of both financial and non-financial parts of the innovation to determine whether there is any considerable performance steps to be realized from the organizations long-term objectives Benchmarking which draws attention to the environment outside the organization and especially the organization’s competitors and trying to learn from their successes. It lays emphasis on the external environment of the organization in an attempt to improve performance and finally, Chongruksut (2009. p. 4) explains that target costing and activity based costing are interlinked processes. Both processes can be used to determine cost of objects and the estimated value that they can generate in the course of their lifetime for the organization. Many modern organizations believe that innovation is the future. This has been heavily supported with the advent of technology. Technological innovations have been spreading like bushfire over the last few decades not to mention, they are almost synonymous with mundane necessities of life. Innovation has therefore become almost mandatory in determining potential value creation objects within an organization. Modern organizations are now willing to go any length, some even investing more in Management Accounting Innovation than on other aspects of the business organization such as marketing. Activity Based Costing is one of the few types of Management Accounting Innovation that organizations will constantly apply in determination of the costs of products and the estimate of value garnered from the product as described by Gosselin (1997. p. 107). But Askarany (2009) has a counter-opinion in which he argues that there is stiff competition between Management Accounting Innovation and Technological Innovations and those in Information systems especially the Management Information System. He records that over 50% of the organizations in Australia feel like they haven’t obtained the projected value from the already implemented Management Accounting techniques yet they are all in no hurry to implement new Management Accounting Innovation. Management Accounting has the following as its top priorities: - value creation based on future rather than historical data, apply as accurately and appropriately as possible the Management Information Systems which so as to create useful information for managers strategic decision making and finally, provide both financial and non-financial information crucial for decision making. In a nutshell, it tries to predict and estimate future transactions and occurrences, their effect on the organization and value they portend for the business organization. To be able to determine the value of a given Management Accounting Innovation, evaluation of such innovation is necessary. There are various ways of evaluating an innovation. This is usually through an evaluation research where we use the usual research method to assess the idea and implementation of a given Management Accounting Innovation. Currently as stipulated by Schoute and Wiersman (2009. p. 7), there are three types evaluation research. These are; Analysis of the idea and its design, monitoring of the innovation to be implemented and finally assessment of the innovation based on the outcomes generated. Organization use all three but the last one is a better way of evaluating an innovation since you use the results obtained. There is however the innovation has any effect on the outcome generated whatsoever. This is so as to avoid crediting the Management Accounting Innovation with the positive results yet it had little to do with it. Other factors may have contributed to the success and that is why organizations will heavily invest in evaluation research on an innovation thus corroborating the fact that Management Accounting Innovation truly is among the core themes that drive modern organizations. Organizations need to implement the adopted innovation. This requires open and clear communication especially in the implementation phase of the process. This phase of communication is known as Diffusion. It is also described as the periodic communication of innovation through given channels to members the system (Rogers, 1995. p. 130). Diffusion can be either when the organization develops innovations for use by external companies or when an organization adopts a particular diffusion from another organization. This is seriously affected by a couple of factors such as lack of adequate resources, resistance by members of the system to adopt it among other factors. Diffusion of any innovation is important in the adoption and subsequent implementation of a Management Accounting Innovation. How the information is received by member of the system that will be applying the innovation will be crucial in determining how effectively the innovation will be. Organizations will therefore want to communicate as openly and exhaustively as possible so that they reduce chances of resistance of the proposed innovation method. Traditional methods of management also compete with the innovations in the modern day world (Khosrowpour, 2001. p.750). Sometime blending the two will lead to realization of a far much greater value in the organization that if both systems were treated as completely incompatible processes. If a firm or business organization is using one or a combination of more types of Management Accounting Innovation, then the company is said to be innovative. Modern organizations are therefore investing heavily in research and studies as well as simulation and model programs in trying to identify, test and hopefully utilize the essential tool that is Management Accounting Innovation. It is through these innovations in management styles adopted that organizations realize increase in profit, increase in value of their assets and property as well as increase in size of the organization (growth) or the opposite of all these. It is therefore a thin line between success and failure. Modern organizations therefore try to tap into all means of value creation. But in order to be able to determine possible value creation from a cost object, special tools have to be applied and so far Management Accounting Innovation proves to be the most sufficient tool. Management Accounting Innovation therefore is one among the core themes driving modern organizations today. References Askarany, D. (2009). An Investigation into the Diffusion of Cost and Management Accounting Innovations in Australia. Sydney: Social Science Electronic Publishing Inc Chongruksut, W. (2009). Organization Culture and the Use of Management Accounting Innovations in Thailand. Thailand: Ramkhaeng University Emsley, L. (2000). Essential Management Accounting. London: FT Prentice Hall 2 Gosselin, M. (1997). The Effects of Study and Organization Structure on the Adoption and Implementation of Activity Based Costing. Boston: Irwin/McGraw-Hill. Khosrowpour, M. (2001). Managing Information Technology in a Global Economy. Hershey: Idea Group Publishing Kimberley, J. (1981). Managerial Innovation: Concepts of Management Accounting Innovation. New York: oxford university press. Rogers, E. (1995). Diffusion of Innovations (4th edition). New York: Free Press. Schoute, M., Wiersman, E. (2009). The Evaluation of Management Accounting Innovations: Some methodological issues. Boston: Dante University Press. Read More