19th May, 2012Management accounting innovationIntroductionThis paper researches and analyses a management accounting issue. Specifically, the paper researches and analyses whether management accounting innovation has been one of the core themes driving modern organisation. In this paper, innovation has been used to mean the successful introduction of an idea that is perceived as new in a given system. Large scale use of an idea is what determines the success of an innovation. The paper has shown that an organization needs to be innovative in order to gain a competitive advantage over their competitors - failure of which the organization can be driven out of the market. Change is a must for any organization.
Therefore, it is important for organizations to deal with changes in order to survive. The intensity and speed of management accounting changes in the market place is sending shockwaves to all market participants. Organizations’ competencies and product portfolios are expanding and going global and since competition is intensifying and life is becoming more and more complex by day, organizations’ profit margins are shrinking, hence organizations are only left with two choices – either change or go under.
Horngren & Harrison (2009) observes that these changes provide both opportunities and challenges. The changes in environment have resulted in various new techniques and approaches to existing techniques. One of these new emerging techniques is strategic management accounting. Traditional management accounting is basically an information system whereby providing information is a management requirement in policy formulation, planning and monitoring organization transactions, and selecting the appropriate course of action from the available opportunities. It had various limitations that can be overcome through strategic management accounting.
Traditional management accounting mostly works under stable environment in national boundaries and emphasizes on tangibles and quantities (Weygandt, et al. , 2009). It focuses more on financial accounting and cost systems that are aligned to the financial reporting systems. Moreover it has a short-term perspective, annual planning and control functions among others. However today’s business environment has become far more challenging and demanding for organizations as a result of global competition, rapid innovation and increasingly demanding customers. Accordingly companies now demand better management accounting information, for instance; quality of products, customer satisfaction, and customer retention.
According to Fess and Warren (2004), management accounting is a central part of management concerned with identification, presenting and interpretation of information used for: strategy formulation; planning and monitoring activities; making decision; maximizing the use of scarce production factors, and safeguarding of assets among others. Planning is where the management specifies the necessary steps in directing the organization towards its goals and objectives. These plans will be both long term and short term in nature. For instance, the management will be concerned with what costs will be incurred in the future so that appropriate plans and decision can be made in good time. Controlling is where managers study the accounting and other reports coming to them and making comparison against the plans set earlier (Bromwich, 1989).
These comparisons show where operations are not proceeding effectively or where certain persons need help in carrying out their assigned duties. Management accounting systems provide sound bases of information for financial control. The intention of a good managerial accounting system is getting important data for transactions relating to the organization. The system should inform the top management about organization position at a particular point.
The data should be easily available within management accounting system. This is because management accounting concerns itself with provision and usage of accounting related information to management in the organization to offer the managers the ground of making undisputed decisions which enables them to be efficient in managerial issues of the organization. For instance, an organization with a smart retail management system enables the organization to maintain adequate stock to meet customer’s demand. Lack of sufficient inventory slows down cash inflows in the organization whereas too much inventory is costly for the organization because of holding cost.