Issues in Management Accounting - Literature review Example

Issues in Management Accounting Student’s Name Institutional Affiliation Date Issues in Management Accounting Introduction There are a significant number of studies that has been undertaken on the Management Accounting Innovations (MAI) like target costing, activity-based costing, strategic management accounting, and the balanced scorecard, among others (Ax & Greve, 2017). The aspect of compatibility is essential in linking the organizational culture and the management innovations since it will impact the way employees will work towards achieving these goals (Ax & Greve, 2017). Also, the social and economic considerations play a vital role in the decision-making process concerning innovation (Ax & Greve, 2017). Therefore, the paper will evaluate the role of compatibility as a link between organizational culture and the management innovations while describing the innovative roles that are played by the social and economic considerations in the adoption of decision-making. Compatibility between Organizational Culture and Management Innovations According to Ax and Greve, innovation is said to be compatible with the culture of an organization when the beliefs and values which are desirable for the efficient use of that practice are the same as the important shared beliefs and values of the participants of the organization (Ax & Greve, 2017). Therefore, compatibility can be defined as the relationship which exists between an innovation and a firm which means that it is not solely a feature of the enterprise alone. Therefore, the authors have emphasized the role of compatibility because it significantly affects the rates of adoption of innovation by an organization (Prajogo & Sohal, 2003). The management together with its employees finds it rather easy to adopt and implement an innovation that is not in conflict with its organizational beliefs and values which mean that they could easily relate and implement the innovation strategy (Prajogo & Sohal, 2003). The emphasis on compatibility also stems from the fact that organizational culture also tends to significantly influence the strategy that a company will select between imitation and innovation (Greenhalgh et al., 2004). For companies that view imitation to be compatible with their organizational cultural values and beliefs, then they may choose to imitate, and when they perceive the innovative strategies to be compatible with their organizational values, then they will adopt it (Greenhalgh et al., 2004). This means that compatibility is at the centre of what an organization may choose to pick in terms of adopting strategies as long as the approaches are compatible with their organizational culture (Greenhalgh et al., 2004). The aspect of compatibility can then either impact the way forward for a company which means that it is a fundamental link between the organizational culture and the adoption and implementation of management innovations. Organizational culture significantly impacts the way the employees and the members of staff of an organization interpret the social practices and objects, the organizational strategies that they are trying to enact which would, in turn, link the practices and objects to the goals (Ax & Greve, 2017). This creates a dire need for the management innovations to be compatible with the culture failure to which they would not fulfil the goals that they intend to achieve in the long run. Additionally, the argument of compatibility of organizational culture with innovations is also important in that it will impact the individual employee behaviour, productivity, and eventually the outcome concerning the developed innovative strategies (Bradford & Florin, 2003). This is not to say, however, that there are no instances where compatible organizations reject innovations even during the later innovation stages (Ax & Greve, 2017). In most cases, when this happens, then it means that some management issues, practices, and aspects of decision-making were overlooked or were not addressed in the initial stages of implementing the innovation strategies (Ax & Greve, 2017). Despite the few cases where this occurs, compatibility usually makes the employees motivated to apply the management innovations and in good timing. Social and Economic Considerations in Decision-Making Innovation is usually perceived as an opportunity. This means even before there is thinking about its implementation; the decision-makers will first have to evaluate the probability of achieving maximum gains when doing so (Ax & Greve, 2017). Therefore, before the decision-makers decide whether or not to adopt a particular innovation strategy, they factor in some social and economic considerations which will assist them to know whether or not they will achieve the maximum gains from implementing the strategy (Ax & Greve, 2017). Following this, it is evident that the social and economic considerations play some innovative roles in the decision-making process. Traditionally, decision-making regarding innovation focused on the economic evaluation of the particular innovation. According to the various economic theories, the adoption of a management innovation is dependent on its average performance value which is profitability and productivity (Epstein & Buhovac, 2014). Taking this into perspective, it is then evident that the innovation strategies are usually a function of the rational thinking. This takes into consideration the benefits which will be accumulated from adopting the given innovation, the costs that will be incurred, and the benefits that the firm could have obtained were it to adopt a different choice (Epstein & Buhovac, 2014). However, as much as it is the intention of every organization to make maximum profits from adopting and implementing an innovative strategy, the social factors also play a central role in making those innovation decisions (Epstein & Buhovac, 2014). There is always the need of developing an integrative approach which combines both the social and economic viewpoints in the innovation decision-making process. Taking into consideration the social factors during the innovation decision making may enable a company to evaluate the way it could raise its competitive edge which will assist it to distinguish itself from its competing companies (Ax & Greve, 2017). This is the essence of innovation; to make an organization different which will make consumers choose one company and not another. Also, innovation plays a role in enhancing the competitiveness levels of a company which is an economic factor that will lead the other non-innovative businesses to perceive a threat of losing legitimacy which is a social factor (Burritt & Schaltegger, 2010). Additionally, the social worthiness of a particular innovation is made up of its probability of being viewed or perceived as desirable, meaningful, and appropriate within its adoption context (Burritt & Schaltegger, 2010). Thus, this makes the social factors as important as the economic factors when it comes to making decisions about a given innovation. Relevance of Proposed Hypotheses One of the hypotheses that have been presented in the article is that the early innovation adopters are the compatible organizations, but the proportion of the compatible adapters decreases as diffusion progresses (Ax & Greve, 2017). As described above, although the early innovation adopters are usually the compatible firms, it is not always that the compatible organizations always do adopt an innovation. The relevance of this is founded on the decision-making process and the perspectives of the decision-makers when they decide to pursue a particular innovation strategy (Black & Lynch, 2004). Compatible firms may not succeed in the adoption of innovation if the innovation is adopted as a response to a developing threat as opposed to being achieving gains. If the decision makers implement innovation for the wrong reason, even if the firm is compatible it will bound to fail (Black & Lynch, 2004). This is a scenario that is experienced commonly in highly competitive industries where they undertake innovation for all the wrong reasons and in the end, they end up not being successful (Black & Lynch, 2004). The second hypothesis is that compatibility positively interacts with the perception of achieving gains when innovation is adopted (Ax & Greve, 2017). When the innovation is adopted at an early stage, then there is a high probability of obtaining benefits from the innovation while those who do not adopt innovation perceive it as a risk if incurring losses (Ax & Greve, 2017). This is true because innovators are likely to gain a better competitive edge as compared to the non-innovators or the incompatible firms. As discussed earlier, there are positive social and economic benefits that are related to the compatible firms adopting an innovation, and on the other hand, the incompatible and non-innovators are not likely to experience these benefits; instead, they face high levels of competition (Liang et al., 2007). This is in line with the third hypothesis that there is a positive interaction between the competition intensity of the incompatible companies and their future decision to adopt an innovation. If the incompatible firms do not adopt an innovation, then it is evident they will face high competition levels which mean that instead of perceiving innovation as a risk of incurring losses, they will use it to stimulate innovation so that they could also gain the competitive edge (Liang et al., 2007). Conclusion Compatibility is a significant link between the organizational culture and management innovations. This is particularly the case because the organizational culture affects the way the people stay motivated and become willing to implement the innovative strategies. Therefore, compatible companies will have high adoption levels while incompatible firms will have low innovation adoption levels. Both the social and economic considerations play a significant role in the innovative decision making since when they are innovation is adopted, the firm will gain both economically and socially. The paper has also discussed the relevance of the three hypotheses that have been discussed in the article. References Ax, C., & Greve, J. (2017). Adoption of management accounting innovations: Organizational culture compatibility and perceived outcomes. Management Accounting Research, Vol. 34, pp. 59-74. Retrieved 22 March 2017, from http://dx.doi.org/10.1016/j.mar.2016.07.007 Black, S. E., & Lynch, L. M. (2004). What's driving the new economy?: the benefits of workplace innovation. The Economic Journal, 114(493): F97–F116. Bradford, M., & Florin, J. (2003). Examining the role of innovation diffusion factors on the implementation success of enterprise resource planning systems. International journal of accounting information systems, 4(3): 205-225. Burritt, R. L. & Schaltegger, S. (2010). 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