Management Accounting Innovation as one of the Core Themes - Case Study Example

Management Accounting Innovation has been one of the Core Themes Driving Modern Organizations. Author’s Name Institutional Affiliation Abstract Management accounting concept has evolved over the last three decades with the changing technological evolution and increased globalization that affected the global business and market environment. Management accountants have had a tough role to address the changing needs and business challenges that face the organizations. Several examples of corporation like Enron had failed in the past for various reasons associated with corporate and finance governance forcing numerous factors in management accounting to change. There have developed innovative management accountants’ roles specifically in business partnership that brings management accountants closer to participate at decision making, other that advising and providing consultancy service to the other management team. Other roles involve change agency and risk management besides the traditional roles. Organizations have been employing MAI techniques (especially ABC and BSC) and implementing both administrative and technical innovations. All these have enabled them to stay competitive and maintain their success in the dynamic marketplace. The document discusses how MAI has been central in driving the contemporary organizations. Keywords: Management Accountants, Competition, ABC, BSC, Business Partner, Organizations, Change Agent, Risk, Finance Governance, Techniques, Decision Making. 1. Introduction The contemporary set businesses operate in a dynamic market place, where each needs to find a niche or competitive advantage over the others to achieve profitability and sustainability. It requires that management accountants have strategic business skills to identify and manage risks, formulate business strategies, enable analysis and planning activities among others. Traditional management accounting practices have proved inadequate in assisting companies maintain competitive advantages. The only way ahead is to integrate the traditional practices with the innovative strategic management accounting. While traditional management accounting had been constrained to financial aspects, contemporary MAI is strategic focused and highly involved with financial and non financial information to critically drive organizations’ performances and financial use to a success (Zawawi & Hoque, 2008). No doubt the last two decades have seen management accounting in a critical juncture. Change in management accounting became apparent, with continuous development in economic and social environment, such that businesses were faced with uncertain conditions in their operations, while competition increased (Johansson & Lundstrom, 2011). The paper analyzes how management accounting innovation has been central in driving organizations performances to achieve success. Through continous innovation, most businesses can be cost effective, but this requires patience and adequate monitoring to assess the measurable inputs verses output upon innovation implementation. The paper discusses: the changing roles of innovative management accountants; technical and administrative MAI initiatives; and critical analysis of MAI techniques. 2. Adoption and effects of MAI techniques Different organizations have varying organizations’ structure; hence each firm would adopt specific innovation technique and tailor it to fit its needs and purpose. Traditional management accounting have been criticized for their reduced efficiency and inability to cope with the requirements of the dynamic business environment; the practices have been surveyed to have attributed to the high level of dissatisfaction among management accountants for failure to keep to the demands of technological changes in industries, hence slowing down organizations’ activities (Askarany, 2006). Most firms around the world have adopted innovative management accounting techniques like ABC, BSC, target costing, value chain and total quality management and OCS among others to improve their operations. These innovations introduce innovative procedures, ideas and objects in organizations that enhance organizations effectiveness and efficiency in resource allocation and profit maximization. However, the acceptance of these innovative techniques varies with different regions of the world. Research indicates that ABC/ABM and balanced scorecards have been more diffused in firms across the world since 1980s, whom among other innovations have proved to be beneficial (Zawawi & Hoque, 2008). 2.1. ABC Every firm has to take measures in evaluating the cost of its numerous activities for production. Budgeting in most large modern companies may not be sufficient to provide accurate product costing. ABC technique has been in the past recommended for environments exhibiting manufacturing complexities, large business environments and those dealing with speciality product costs (Shil & Pramanik, 2012). ABC technique has been applied in firms across UK and USA, but highly popular in Australian companies compared to elsewhere areas of Asian (Rehman, 2011). Its spread is no longer limited to manufacturing forms, but has been adopted even in the service sector. The importance of ABC meets the need for accurate information, which gives clear picture to improve decision making. ABC systems have continued to support managers to with detailed and timely information to aid decisions in cost modelling, pricing and profitability analysis among others. 2.2. Balanced scorecard Other companies have also adopted BSC technique, which is critical in focusing and aligning business resources (IT infrastructure, employees and finances) to the organizations strategies. Most companies around the world have employed the accounting management tool for performance measurement and also improve internal effectiveness of their businesses. Over the last decade most of the fortune 1000 companies have employed balanced scorecard systems to support better decision making in resource allocation, align resources with strategy and foster collaboration and financial results (Ahmad, n.d). Most of the earliest adopters like the Mobil oils achieved much benefits by aligning its objectives with the four (internal process, financial, learning and growth and customer) perspectives of the concept. Although the BSC has substantially evolved modern organizations can evaluate their immediate future, provide a balanced view of firms’ performances and be certain that the strategic action taken would yield the desire results (Kootanaee, Kootanaee, Hoseinian & Talari, 2013). However the above two popular techniques have been criticised to be complex upon development and implementation and even costly for some companies. 3. Changing roles of innovation management accountants 3.1. Business partners Just as the management accounting has undergone changes, management accountants’ role and capacities have shifted with the evolution of technologies and business dynamics. The traditional roles involved with number crunching have been supplemented with new roles of management accountants as strategic business partners. Their role as business partners assist improve organizations performances by allowing them to offer consultancy and advisory service to the organizations management; such that they have to participate in formulation of the business strategy and their implementation and most importantly, the decision making process (Wolf, Weibenbenger, Kabst & Wehner, 2010). Most of modern CFOs and finance officers in most companies are ether asked to take up the role of business partners in organizations. Considering the market trend that offers organizations access to similar types of resources, the only factors that would valuable differentiation to the firm in the midst of competition lies in the decision making function. Due to the changes and challenges in businesses, professional accountants have taken an extra mile to enhance their analytical skills and support decision making process. Though many feel they are placed in a conflicting position, the new role is crucial in supporting other organizational departments in their business plan and operations (Civichino, 2013). These roles have given most management accountants the opportunity to promote an innovative culture. 3.2 Change agent Management accountants are brought much closer to the business units operations and the products themselves; hence, they work closely to the departments’ leaders and are made familiar to the procedures and unit’s plan. Through these their financial roles are integrated with operational activities of the department. They can comprehend the activities, better as much closer to the actual work, engage in critical thinking and central for any implementation of changes. Modern management accountants are active facilitators of organizational or units’ change by a conscious choice. They can not only trigger but promote progressive change when fully aware of the situation, by directly affecting the decision making (Granlund & Lukka, n.d). Other than their supportive and advisory role in management, their financial unction still counts extensively. Based on how convinced with the units’ plans, its complexities and certainties upon implementation, management accountants can approve resource allocation or fail to, which basically affects the departments. However, their involvement in the organizational units’ activities could generate differences between them and units’ bosses, which slows down reaching a decision when one feels unwanted or his role interfered. When management accountants are more involved in business units’ orientation, the existing managers would reduce resistance for an introduction of an innovation or change in the organization and enhance their participation (Emsley, 2005). 3.3. Risk managers The economic integration and globalization around the world pose a great threat and an opportunity for businesses in the market. However without proper governance companies could get themselves into tuff position that could lead to their demise. In the past, corporation like Enron yielded a market failure due to failure of the corporate governance that was caused by conflicting interests among management line to offer inadequate information on the financial stability of the firm (ISDA, 2002). Today managers have improved their auditing functions and companies would go an extra mile to invite external auditors who work with the internal management accountants to assess and report on companies’ finances. Management accountants have acquired profound training to practices in managing risks in their managerial function. Their role not only entails identifying and managing the risks, but also taking appropriate actions and advising the financial department on the way ahead. Most of the modern management accountants will take proactive measures to monitor and control various innovations and changes in the business unit, while evaluating their progress. In relation to monitoring the use of the resources allocated to an organization’s unit and the management accountants choose to implement the activities in phases, where they can be well criticized and kept on check. Investment on projects may be stopped if proved unviable early in time and the organizations’ managers and board advised on the way forward. 4. MAI occur as technical or administrative initiative Without continous innovation, most existing organizations could have been forced out of operation. To ensure their prosperity in the competitive dynamic market, management accounting has either adopted radical or incremental innovations to sustain the organizations. Some employ innovative techniques like earlier mentioned, other invent and implement new managerial practices, establish rules and procedures to maximize the efficiency of organizations’ performances. Companies have heavily deployed and technical innovations in their corporate governance to aid in managerial activities of decision making, analysis, among other traditional management accountants function. Today, electronic technology and developed software are used in combination with the administrative innovations to yield their beneficial results that occur in the long term. It is important to note that these two types of innovations influence the organization’s behavioural change, when put into practice. In the future, MAI has high possibility of further evolution, which may continue to enhance management accountant’s roles, lead to further radical innovations especially in the technical realm and changes to the existing MAI techniques. 5. Conclusion Management accounting has dramatically changed over time. New ideas, objects and practices have been introduced with time changing the field of management accounting to perfect it. New MAI techniques including ABC and BSC among other s have been employed in modern companies, while management accountant roles have advanced into mainly strategic business partners, change agent and risk managers to sustain modern organizations success and competitiveness. Similarly, the types of innovations employed in organization could be administrative focused, which support management accountants in the administrative function. Others are not only limited to management accountants for their changing roles, but help drive organizations’ industrial and office activities for better results. MAI has and will continue to be essential in driving modern organizations. Acronyms ABC- Activity Based Costing ABM- Activity Based Management BSC- Balanced Scorecard MAI- Management Accounting Innovation CFO- Chief Financial Officer Reference List Ahmad, A. (N.d). Improving Government performances: Use of balanced Scorecard Nine Step Model for E-government Projects. 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