Management Accounting and Performance Improvement Initiatives for Organisations - Literature review Example

MANAGEMENT ACCOUNTING AND PERFORMANCE IMPROVEMENT INITIATIVES FOR ORGANISATIONS STUDENT NUMBER: MODULE TITLE: STRATEGIC MANAGEMENT ACCOUNTING MODULE CODE: ASSIGNMENT: SUBMITTING DATE: Table of Contents: 1.Introduction 2 2.The Balanced Scorecard (BSC) Approach 4 2.1.Benefits and Demerits of the Balanced Scorecard (BSC) Approach 5 3.Benchmarking Approach 7 3.1.Benefits and Demerits of Benchmarking Approach 9 4.Just- in- Time (JIT) Approach 10 4.1.Benefits and Demerits of Just-in- Time(JIT) Approach 12 5.Conclusion 14 References 15 1. Introduction Management accounting is the process of organizing reports and accounts for management benefits to give accurate, timely information regarding finance (Leauby, sB.A., and Wentzel, K., 2012). This information is useful to managers in making short-term decisions for the institution. In management accounting, there is a generation of monthly or even weekly reports given by the internal auditors of the organization. These reports are very essential in assessing the performance of any organization. They are also important in developing initiatives to improve the performance of the organization. The main objective of management accounting is to improve the performance of the organization by increasing the value of products or services offered. Management accounting enables the management of an organization to make short-term decisions according to Fullerton, R.R. et al. (2013). The reports which are usually generated on the monthly or weekly basis in management accounting show the amount available, the accounts receivable, the current inventory trends in the market, the current outstanding debt and many others which are essential for analysing and assessing the performance of an organization (Ward, K., 2012). This assignment will discuss and evaluate critically three approaches for measuring and ascertaining performance. Each approach will be analysed explaining how to improve it. Real-world examples will be used so as to support the analysis. The performance approaches which will be discussed in this assignment are balanced scorecard approach, benchmarking approach and finally the just-in-time approach. This assignment will critically evaluate each approach while discussing the potential benefits of the approach to the organization. From the results, this assignment will show the importance of initiatives inclined in improving the performance of the organization. Lastly, there is a conclusion which will summarize this paper. 2. The Balanced Scorecard (BSC) Approach According to Babington, J. and Thomson, I., (2013), Balanced scored card (BSC) can be defined as a performance management tool for strategy purposes in an organization which is often accompanied by methods for designing and automating it. These methods are very essential for managers since they enable them to keep track of how activities in the organization are being executed by the staff. This approach also enables managers to monitor the consequences as a result of these actions by the staff. The balanced scorecard approach originated from the USA in the 1990s as posited by Ahn, H., (2005). The main objective of developing the balanced scored card was to translate strategic management statements into objectives which are measurable. There are various features which critically characterise the balanced scored card. Firstly, BSC is usually focused on the agenda of the organization involved (Ahn, H., 2005). Secondly, BSC involves the choosing of a small number of items from the data provided for monitoring. Lastly, BSC involves a mix of both financial and non-financial data items for analysis of the performance of the organization. BSC approach aim is to give strategic statements into targets which can be measured. Also, the BSC approach also provides information which can be useful for the sustainability of the business. In the current business world, organizations have been challenged to employ the balanced scorecard as a way of measuring the financial performance of the organization. The balanced scorecard incorporates both a management and a measurement system. This makes it suitable for use in the organization for them to achieve their set targets and objectives considering that it is focused on both vision and strategy (Hoque, Z., 2012). With the increasing competition in the current business world, companies ought to use BSC approach as a way of ensuring sustainability in the competitive business environment. The use of BSC will help them to communicate the top priorities to the concerned so as to prioritise the areas which will be helpful in attaining the desired success. The use of BSC approach will also be essential in linking the short-term objectives with the long-term as a way of ensuring sustainability of the organization. The various performance measures of BSC approach include the business, the operations of the company, the growth of the institution and the customers in general. BSC is applicable nowadays by the managers who are targeting to maximise returns with financial performance as explained by Seal, W. and Ye, L., (2014). BSC is helpful in balancing the customer and financial perspective in that it ensures that companies maximise returns, and also they ensure customer satisfaction with the provision of high-quality products and services (Apostolides, N., 2016). Also, there is a need for companies to facilitate learning and growth in their business as a way of ensuring future innovation and growth which will ensure the company is still sustainable even in the long term. 2.1. Benefits and Demerits of the Balanced Scorecard (BSC) Approach There are various benefits of the use of the BSC approach in the current business world. Firstly, is that the BSC approach has facilitated flexibility thus improving communication in the organizations which it is employed in according to Jakobsen, M. and Lueg, R., (2014)? Organizations have of late become flexible thanks to BSC approach making them realize the current customer needs. Secondly, the BSC approach is essential in translating organization’s targets and goals into various performance measures. This enables the companies to get bet information regarding their performance regarding both financial and customer perspective. Thirdly, the BSC is very efficient in assisting managers is the assessment of their organization’s objectives and targets (Hoque, Z., 2012). Finally, BSC approach assists organizations in planning for their future long-term sustainability thus achieving future success (Jakobsen, M. and Lueg, R., 2014). However, the BSC approach is very beneficial to organizations it still has various demerits. Firstly, is that it does not address the main points since the company is trying to ensure customer perspective. The organization is likely to address customer perspective forgetting financial perspective. The use of BSC approach is likely to make an organization concentrate on satisfying the customer by providing high-quality products and services at considerably low prices thus not making large profits. The BSC approach does not meet the shareholders’ value at full. Secondly, the BSC approach does not give effective management control system to the companies they are employed according to Hoque, Z., (2012). The BSC goals are usually easy to attain but very difficult to quantity since the approach does not effectively give stability for the companies it is employed. It is only used to reduce tensions which may ensue amongst the professionals and the top management. Thirdly, the BSC is not effective in attaining the organization’s goals and objectives, since the approach mostly emphasises on customer satisfaction (Rasila, H. et al. 2010). It mostly emphasises on offering customers with high-quality products and services at low prices so as to fully satisfy the customers but does not emphasise on the organization making more profits (Bhattacharya, A. et al. 2014). There is a need for research on the use of this approach .the BSC approach needs to give emphasis on the shareholder’s value. Finally, the approach requires more training to the users so that they can understand how to take and analyse the available data as found out by Hoque, Z., (2012). However, BSC is used in the provision of information that is useful regarding areas which require improvement; it requires to understand the indicators and effective implementation of appropriate strategies for the management (Jakobsen, M. and Lueg, R., 2014). The approach requires effective data measures. There is a need to input consistently the correct information to minimise the risk of acquiring inaccurate results. 3. Benchmarking Approach Benchmarking is the process of comparison of the business performance and activities of a particular organization to the industry’s best performances and activities from the other organization (Goetsch, D.L. and Davis, S.B., 2014). The major dimensions which are measured in this approach are time, quality and cost. The management is mandated with the identification of the best performing and activities from other companies in the industry which can be used for benchmarking activities. There is the comparison of the results and processes of the organization studied with the organization which is taking the benchmarking process. The organization taking part in the benchmarking process learns from the “target organization” of the various activities which facilitate their good performance. The main units which are used in measuring performance using the benchmarking approach are cost per unit and the productivity per unit of the measure. In the current business world, the approach has been on the rise whit many organizations using it. Many companies are comparing their activities and performance of the leading companies in the world. With the help of this approach, organizations can analyse their operations and compare them with other leading organizations thus discovering competition (Goetsch, D.L. and Davis, S.B., 2014). The benchmarking approach helps in improvement of the key practices instead of the best activities. Typically, benchmarking supports organizations thus increasing their competitive aspects. The approach is very essential for organizations since it enables the companies to avoid mistakes thus saving their time and money. The effectiveness of the approach can be assessed with the use of both financial and non-financial information. Management accounting is very essential in the provision of important financial and non-financial data for the benchmarking process as found out by Kerzner, H.R., (2013). The benchmarking approach is categorised in three major activities. First, there is the internal benchmarking. This benchmarking group involves the look for partners within the company but in the different department such as the marketing department. Secondly, there is the external benchmarking where the management seeks assistant managers from external organizations. They seek to recognize how the company is performing compared to the others in the industry which help them to grow in the market. Finally, the other category of benchmarking is the best-practice which involves the management seeking companies with the best-practices in the business (Kerzner, H.R., 2013) s. From the organization, the management learns how the company has promoted innovation and best organization policies thus achieving success. 3.1. Benefits and Demerits of Benchmarking Approach There are various benefits of the benchmarking approach as an improvement initiative. First, is that the benchmarking approach gives directions which enable the organization to improve their performance and activities. The approach sets the important foundation which is essential to enhancing the competitive edge of the company according to Schulze, M et al. (2016). Benchmarking helps the management to develop tactics on how to better their competitors thus ensuring the sustainability of their company in the industry. With the help of benchmarking approach, it is possible to quantify the gap in between the predicted performance and the real performance as found out by Jermias, J. and Armitage, H.M., (2013). Secondly, benchmarking helps build new paradigms. A benchmarking program makes a company move from their comfort zone. The approach provides measurable improvement plans to the organization (Paixão Casaca et al. 2013). Organizations can set targets based on the trends and patterns established. This approach forces companies to take new approaches so as to broaden their perspective on success. Finally, benchmarking embraces change for organizations (Jermias, J. and Armitage, H.M., 2013). It also gives the direction for the process to take so as to change. Change is very essential in improving the standards of the organization thus improving their competitive edge. The change will also enable the company to come up with new ideas which the organization can employ to improve their performance (Shabani et al., 2012). Benchmarking process will open the minds of the management to the new ideas which facilitate the organization to becoming a learning organization (Ikpe et al. 2015). However, there are various limitations on the use of the benchmarking approach in an organization. One of the limitations is that it is inadequate for measuring the overall effectiveness of the various operational metrics which are employed in the other companies. Benchmarking reveals the standards which have been reached by the other companies in the industry without revealing the conditions under which the companies achieved those standards as posited by Ikpe et al. (2015). The other limitation of the benchmarking approach is that there is the likelihood of complacency and arrogance as claimed by Shabani et al. (2012). There is the temptation that the best performing companies which are excelling beyond their competitors may allow complacency thus “standing still”. When they understand they are the leader in the industry, they may become arrogant thus assuming the need for further improvements. Thirdly, benchmarking requires significant resources which are time, money and also people. This may be expensive for many companies. Fourthly, benchmarking is also limited by the fact that it is difficult in finding organizations with same comparators. Finally, the process involved in benchmarking may be difficult, making it ineffective in the collection of the information of the competitors from the industry. 4. Just- in- Time (JIT) Approach Just-In-Time (JIT) approach (manufacturing) is a methodology whose main objective is to minimise the flow timer which occurs within the production and also the response times from the various suppliers to the customers (DRURY, C.M., 2013). In the current business world, manufacturing and service companies are emphasised to improve the quality of the products and services they offer to their customers and thus improve customer satisfaction. With the current global competition, organizations have to develop ways which will enable them to reduce expenditure costs but also ensure quality so as to achieve customer satisfaction. The JIT manufacturing system is applied in various functional areas of companies to achieve this. The approach was first employed by the Japanese firms in the year 1950s. The major objective of the system was to improve efficiency and effectiveness of the manufacturing department for the companies (Leauby, sB.A et al. 2012). A good example is the Toyota Motor company plants which are located in Taichi Ohno. They employed the JIT approach, and it proved a success since the efficiently and effectiveness of the manufacturing department was attained (DRURY, C.M., 2013). Also, the JIT approach emphasis on the production of the required items in the specified quantities without exceeding the limited quantities as posited by Hill, C. et al. (2014). The application of the JIT system enables companies to achieve zero inventories. The other primary goal of the JIT approach is the attainment of a considerable high production efficiency meaning products are produced within less time, thus minimising the efforts and waste. Japanese manufacturing companies are minimising their inventory levels with the employment of the JIT manufacturing approach which is essential for the improvement of the product's quality, and the efficacy of the manufacturing process. In general, JIT approach seeks to attain the main objective through ensuring zero inventory, breakdowns, defects, lead time and wastes. Moreover, Just-In-Time eliminates stocks in the manufacturing industry. The approach is very applicable in key manufacturing areas. First, in the product designs where it is used to minimise the number of components used in the production. Secondly, it is also employed in the process design where its main objective is to utilize the flexible manufacturing. Thirdly, the approach is also useful in the human element perception where the skills of the employees are used to attain the set production goals (Hill, C. et al., 2014). Finally, it can apply to the control and planning objectives in order to ascertain the production planning process employed by the company involved. There are major aims of the use of JIT for organizations. First, is that it increases the company’s ability in competing with the major competitors thus ensuring the sustainability of an organization in the long run (Hill, C. et al. 2014). Secondly, it is aimed at improving the efficiency of the manufacturing process, and finally, it aims at reducing material and time wastage. 4.1. Benefits and Demerits of Just-in- Time(JIT) Approach There are various benefits of the JIT approach. First, is that it enables lowering of the warehouse costs. It is expensive to store extra inventory and minimise the amount of inventory. Implementation of the JIT approach is essential in the reduction of the number of warehouses companies maintain (Ibanichuka, E.A.L. and James, O.K., 2014). Secondly, the JIT approach also enables right supply chain for enterprises. The approach makes companies more efficient and more competitive in handling their supply activities. A supply chain which is effective can provide low costs in the manufacturing process. The small cost of production makes the products cheaply available for purchase by the customers. This is critical for companies in gaining a larger market share thus being sustainable in the industry (Leauby, sB.A et al. 2012). Thirdly, JIT improves customer satisfaction. Implementation of the JIT approach enables organizations to ensure high customer satisfaction with fast, efficient delivery. The use of JIT system enables companies to respond swiftly to the changing needs of the customer. Finally, JIT approach reduces wastes. This helps to minimize the perceived decline in firm’s products. The JIT system responds quickly to the needs of the customers reducing waste. However there are various benefits of the use of JIT approach in companies there are also limitations of using this approach. In a general perspective, cultural differences and organizational cultures vary in different companies as observed by Leauby et al. (2012). Some cultures align with JIT effectively, but others find it difficult to align with the system. Some companies may find it difficult to shift to the JIT approach within a short period since the approach requires a change in organizational culture and philosophy (Ibanichuka, E.A.L. and James, O.K., 2014). Companies which have the tendency of relying on the safety stocks usually have the use of JIT. Possible loss of team autonomy decreases the buffer inventories. This leads to lower flexibility among the workers thus making it hard to implement JIT. Finally, the possible loss of self-reliance amongst individuals may make it hard to incorporate JIT as found out by DRURY, C.M., (2013). The loss of self-reliance may stress the employees of the company. The reduced cycle timer which may come as a result of JIT makes workers change due to the management demand without considering the requests. 5. Conclusion In this paper, the three performance initiatives have been critically discussed. The approaches which have been discussed in this assignment are the balanced scorecard, the benchmarking and then the Just-In-Time approach (JIT). The approaches are very essential in the business world since they enable performance improvement for the companies they are employed in. "standing still" is not an option in the current business world there is a need to employ the performance initiatives discussed in this assignment to ensure the sustainability of the organization in the long-term. This assignment has critically analysed the benefits of each approach and why it ought to be implemented in an organization. Additionally, it has also analysed the various limitations of using the approaches in any company. The high competition in the current business world, there is a need for organizations to employ performance improvement initiatives by using the discussed approaches as a way of ensuring a company’s sustainability in the industry. From this assignment, we can conclude that the performance improvement initiatives are essential for the organization in the current competitive business world since they enable performance improvement ensuring the company is sustainable in the long-term. References Ahn, H., (2005) ‘How to individualise your balanced scorecard’, Measuring business excellence, 9(1), pp.5-12. Apostolides, N., 2016. Management Accounting for Beginners. Routledge. Bebbington, J. and Thomson, I., 2013. 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