How Management Accounting Can Supply Information to Assist the Management of Sony Corporation - Essay Example

How management accounting can supply information to assist the management of Sony Corporation Name: Tutor: Background to the company Sony Corporation is a company that specialises in consumer electronics such as televisions, hi-fi and mini hi-fi systems, digital still cameras, home theatre systems, MP3 players, notebook and tablet computers, headphones and digital video cameras among others. The company also manufactures electronic components such as batteries, recording media such as compact discs and USB memory sticks, data recording systems and video games. Other products offered by the company include broadcast and professional-use devices as well as medical-related equipment (Sony Corporation, 2012). Consumer electronics account for 60 percent of Sony’s worldwide business operations (Albarran, Chan-Olmsted & Wirth, 2005, p. 208). Sony’s competitors include consumer electronics manufacturers such as Samsung, Philips, LG, Toshiba, Dell, Apple, Microsoft and Panasonic among others. One of the areas in which Sony faced stiff competition was the advent of the Walkman portable music player, which the company released in 1979. The device dominated the portable music market for a long time before other manufacturers intervened when portable music moved to compact discs. Sony’s competitors were able to introduce several inexpensive portable CD players, and this was the beginning of stiff competition for Sony with the advent of digital electronics (Wesley & Barczak, 2010, p. 133). Sony has strict policies relating to Quality Management System, Environmental Management System, Compliance Management System, Safety Management System, as well as Personal Information Management and Customer Service Management systems. The company is committed to integrity and honesty and ensures that all employees comply with the prescribed code of conduct (Akpolat, 2004, p. 88). With respect to processes, Sony has an integrated product development process called “process of R&D to business” (Rafinejad, 2007, p. 162). The process involves a series of stages from development and planning to manufacturing and sales. The process is incorporated with research findings and market data by way of a variety of feed-forward as well as feedback loops. The information that is gathered through various research studies is integrated into all stages of the development course, prospective market tendencies and opportunities are inputted into the improvement stage, and information on sales is utilised in the design stage to facilitate incessant development and improvement of derived products. These processes are summarised in the figure below: Figure 1: Process of R&D to business at Sony Source: Rafinejad (2007, p. 162). Review of management accounting Management accounting is a branch of accounting that encompasses presenting and availing accounting data to the management in an organised manner so that it can conduct its managerial duties of planning, controlling and making decisions in an effective and competent manner (Debarshi, 2011, p. 1). The practice is specifically oriented towards managerial control and other decision-making groups within an organisation. Oftentimes, an organisation’s management needs timely financial information that addresses various aspects of the firm, and the information ranges from special purpose reports for a particular division’s operating performance to the preparation of yearly budgets and forecasts about the entire organisation. An organisation such as Sony needs accurate and timely accounting information to facilitate planning, measuring of performance, and making decisions about its products and services. The role of management accounting in this regard is to offer an information system that enables managers and people throughout the organisation to make informed decisions, to be more effective at their jobs, and to improve the organisation’s performance (Needles, Powers & Crosson, 2010, p. 720). The key techniques used in management accounting are listed below: [according to Rao (2003, p. 13)] Financial accounting: This tool provides accounting information to a management accountant who consequently reorganises the same for reporting to management. Financial management: This technique is used in determining financial aspects such as proportion of equity, the level of trading on equity, sources of capital and assessment of alternate investment proposals. Cost accounting: Cost accounting offers information pertaining to the cost of production. Management accounting then makes a comparison of actual cost and standard cost to determine the efficiency of the business. Analysis of financial statements: Techniques such as comparative financial statements, find flow statements, common size statements, ratio analysis and cash flow statements are used to evaluate the performance of the organisation in simple form. Cost control: These methods are used to evaluate the efficiency of all business aspects such as differential costing, marginal costing, standard costing and budgetary control. Statistical analysis: Statistical methods are employed in management accounting to make financial information more meaningful to facilitate comparative study. These include charts, diagrams, graphs, measures of dispersion, regression analysis and so forth. Management information system: This technique deals with furnishing information promptly to the management. Inflation accounting: This method is used for guaranteeing the maintenance of initial capital during periods of inflation. Management accounting techniques recommended for Sony To understand the management accounting techniques that should be recommended for Sony, it is important to first understand the company’s operating environment. A number of issues have affected Sony’s products in recent times. First, there was an episode of Sony batteries used in personal computers exploding. Then, the Blu-Ray DVD format, which the company pioneered and pushed very hard, was met with mixed success and turned out to be a real cost to the company. Toshiba had access to Sony’s technology and beat Sony to the market. Further, Sony delayed the launch of its Playstation 3 game so that it could use the Blu-Ray disc technology with it but was beaten on the video game market by Wii from Nintendo and Microsoft’s Xbox 360 (Samson & Daft, 2011, p. 58). This trend can be related to Sony’s lacklustre performance and low profitability in recent years. According to Chang (2011), Sony’s sales have been sluggish or moving down since 2003 and profitability has declined since 1997. In addition, the company’s TV and audio business has been performing poorly over the years. It is thus evident that there are many instances when Sony makes decisions belatedly, takes too long to launch a product, or fails to provide the quality of product that the market wants. These are the key areas that need management accounting intervention. To intervene, it is important to apply two management accounting techniques: cost accounting and statistical analysis. Cost accounting is necessary for providing data about profitable and unprofitable activities and products (Lal & Srivastava, 2009, p. 13). After investigating the causes of unprofitability or low profitability, Sony management can take suitable remedial actions that may lead to higher profit. For instance, all items of costs can be evaluated to minimise the losses and wastage arising from manufacturing processes and lower the costs related with various activities. Through cost accounting, the company may change or improve its manufacturing and methods so as to control costs and increase profits. Sony can also use cost accounting to determine the price of any new product that it launches to avoid overpricing or offering a very low price that would result into losses. According to VanGundy (2007, p. 101), Sony seems to be emphasising on innovations and thus it can brainstorm internally and then sell products at inflated prices. Statistical analysis is important for forecasting market trends, new innovations, prices, production costs and so on. Through statistical analysis, companies can analyse their sales trends over a given period and determine whether their sales volumes are stagnated, increasing or decreasing. For instance, by finding out that TV sales have declined over the years, Sony would have to question itself why the statistics are so. The reason could be that the company has stayed with an old technology for too long and other manufacturers have ventured in more modern TV technologies. With such information, the company is able to determine where exactly to innovate. Statistical analysis such as regression analysis is also applicable to understand the relationship between IT investment and payoff (Pagani, 2005, p. 501). By doing this, Sony would be able to know whether a given innovation will lead to profits or losses. Strengths and weaknesses of the analysis Strengths The analysis has touched on significant aspects of Sony as a company including its products, competitors, policies and processes. This information is important for understanding the company’s internal and external environments. The analysis also outlines how Sony can use available information to enhance planning, measuring of performance, and making decisions about its services and products – which are critical to its success. The paper has identified critical areas that need the application of management accounting, and how management accounting techniques can be applied to ensure that the company invests in the appropriate technologies and makes profits. As pointed out in the report, cost accounting can enable the company to make wise decisions with regard to reducing wastage, minimising losses and thus increasing profitability. Similarly, statistical analysis is vital for predicting the company’s future trends including sales, prices, impact of innovations, and so on – which are critical elements in the planning process. Weaknesses The report has not delved deep into the causes of Sony’s decline in sales. Such information would have been derived from financial accounting information and analysis of financial statements and would have enabled interpretation of the company’s financial position. In addition, the report does contain detailed information on aspects such as Quality Management System, Environmental Management System and Management Customer Service Management System – which would have been vital in determining the all-round wellbeing of the company. References Akpolat, H 2004, Six sigma in transactional and service environments, Gower Publishing, Ltd., New York. Albarran, AB, Chan-Olmsted, S M & Wirth, MO 2005, Handbook of media management and economics, Routledge, New York. Chang, S 2011, Sony vs Samsung: The inside story of the electronics giants' battle for global supremacy, John Wiley & Sons, New York. Debarshi, B 2011, Management accounting, New Delhi, Pearson Education India. Lal, J & Srivastava, S 2009, Cost accounting, 4th edn, Tata McGraw-Hill Education, New Delhi. Needles, B E, Powers, M & Crosson, S V 2010, Financial and managerial accounting, 9th edn, Cengage Learning, New York. Pagani, M 2005, Encyclopaedia of multimedia technology and networking, Idea Group Inc (IGI), Calgary, AB. Rafinejad, D 2007, Innovation, product development and commercialization: Case studies and key practices for market leadership, J. Ross Publishing, New York. Rao, M E T 2003, Management accounting, New Age International, New Delhi. Samson, D & Daft, R L 2011, Management: Asia Pacific, 4th edn, Cengage Learning, New York. Sony Corporation 2012, ‘Sony Corporation info’, viewed 6 August 2012, VanGundy, A B 2007, Getting to innovation: How asking the right questions generates the great ideas your company needs, AMACOM Division American Management Association, New York. Wesley, D & Barczak, G 2010, Innovation and marketing in the video game industry: avoiding the performance trap, Gower Publishing, Ltd., New York. Read More