Total words IntroductionIn today’s volatile business environment, innovation is the cornerstone to successful survival of organizations. Accounting management in this innovation is to ensure that managers are adequately informed about the changing business circumstances. However, accounting managers have been criticized over the years for their lack to innovate. This perception continues to persist in the light of relatively slow implementation rates of management accounting innovations such as balanced scorecards (BSC) and Activity based costing (ABC). Askarany and Yazdifar (2007) nevertheless underscore the importance of management accounting innovations terming it as the driving force to effective managerial practices. Management accounting innovation is a process which enables preparation of management accounts that are aimed at providing timely and accurate statistical and financial information needed by accounting management agents within an organization such as chief executive officers and department managers for purposes of decision making.
It is a tool used to explain to managers about the financial implications of various projects being run within the company as well as the consequences of critical decisions. Management accounting provides a platform for conducting internal checks and audits.
In a growing competitive landscape, organizations need to stir up management accounting techniques in order to remain on a competitive edge (Balakrishnane et al, 2009). The purpose of this paper is to discuss the contribution of management accounting innovations towards the success of organizations. It begins by examining the role and importance of management accounting innovations in modern organizations. The second part evaluates the role of management accountants in driving the innovation. The third part will discuss how management accountants ensure sustainability of innovations. Role of management accounting innovations in modern organizationsManagement accounting techniques have been developed and adopted by many organizations over the past few decades.
Topping the list are the Activity Based Costing (ABC), Balanced Scorecards (BSC) and tagged costing. Research indicates that the use of these innovations coupled with a wide range of other management accounting innovations has proved to be a crucial tool in gaining a competitive advantage. Nevertheless, there is a gap in research regarding this argument which formed the focal point for debates concerning the appropriateness of management accounting innovations. Opponents argue that innovations are quite unreliable due to the constantly changing technological atmosphere thus places an organization on a risky position.
Nonetheless, organizations across the globe have embraced the concept and have actually integrated them into their systems. Epstein and Lee (2010) observe that management accounting innovations have gained a breakthrough in relatively large organizations; those with the financial ability to install these rather expensive innovations. Activity based costing is one of the most important and apparently most common innovation in the field of management accounting. ABC, was in the pasts, predominantly use in the manufacturing context but is now applied in the service sector.
This innovation traces overheads in two basic stages. In the first stage, significant activities in the company are identified after which overheads are allocated depending on the proportion of resources used. In the second stage, the activity cost poll is allocates to each product or service depending on the proportion of the cost driver absorbed by product or service. Numerous studies reveal that information accrued from ABC systems serve as platforms for making critical decisions in many areas within the organization such as activity budgeting, pricing, product and service development cost modeling and customer profitability analysis.
However, ABC has one notable limitation in that it technically complex and requires considerable amount of money, time and skilled personnel.