Management Accounting in Strategy Formation

In the two case studies explored by Nielsen et al. (2015), one company uses outsourcing as a process of cleaning up the company, and re-structuring its supply chain system. In the first instance, the company adopts an analytical methodology to facilitate them in the use of accounting information, with accounting dissertation help ensuring that the methodology aligns with industry standards The process however alienates lower level and decentralized managers and employees in the process of decision making by merely perceiving them as information ‘automatons.’ in the other case, outsourcing is mainly applied in establishing a new supply chain configuration to facilitate product innovation. The same methodology also uses accounting information in the manufacturing process. The methodology comprises of different iterative phrases, that include the cooperation of various managers and employees in the decision-making process. It also allows the organization to adjust the degree of human intervention in examining the approximations. Through such a framework it gives information that can be used to manage various unforeseen events in the process of making a binding decision. By giving an in-depth analysis of the role that accounting information plays in strategic management and decision making, Nielsen et al. (2015) provides an assessment on the current management accounting research on the process of decision making. From the analyses it is clear that accounting can be produced and used in the context of complex and strategic decision-making processes. In short, management accounting can be developed to link more systematic argumentation that is integrated in the process of strategy formation.

As per the study, using a methodological approach to research on outsourcing decision-making process enhances an explanation of the manner in which accounting can be incorporated into the process of strategic decision making. The authors however did not conclude on how to determine the best methodological approach and how the situation that necessitates using these approaches. Some decision context could necessitate the use of an analytical methodology, while in the case of an actor-basis the preference could be an alternative. The pre-dertminants of successful development of various approach are also important to know, while this study does not touch on them. For instance, finding out how the cooperative and constructive interaction among managerial groups can be developed using the actor-based methodology.

By drawing from Modell (2005) discuss different approaches to research performance measurement in the public sector.

Modell (2005) established four major approaches to research performance measurement in the public sector, which are multi-dimensional stakeholder approach, balanced scorecard approach, institutional approach, and radical learning approach. The multi-dimensional stakeholder approach majorly combines both the financial indicators along with the non-financial ones. It reveals that the performance of the stakeholders has a direct impact on the performance of the organization. The approach is an improvement of the other performance measures, since it evaluates the performance based on the objectives of the institution. In a public organization, the stakeholders are majorly the employees, the managers, the board of directors, the government and the citizens at large. Therefore, the multi-dimensional approach asses the impacts of a public sector’s action to all these stakeholders.

Balanced score card approach also incorporates both financial and nonfinancial aspects of performance, it entails financial perspectives, which evaluates the financial performance of the organization. The customer perspective evaluates the degree to the institution meets the needs of its customers. Learning and growth perspective, which examines the performance of the institution in regards to its employees. Lastly, the internal business process, which examines the magnitude to which the internal systems and framework of a public entity has changed. The balanced score card methodology explains the objectives and the ultimate goals of a public institution into a valuable set of performance measurement. It majorly focuses on creating an environment that improves institutional growth and development. A balance must be attained between the four perspectives mentioned of the scorecard. The methodology aims at cascading the fundamental performance measures from the topmost level to the respective individuals.

The institutional approach focuses on the legal, functions, rules and the formal dimensions of a public institution. The approach lays its emphasis on the social and political dimensions of performance. It looks at the performance of the different types of formal institutions that control the activities of the organization through the formulation, implementation and regulation of the activities involved. The approach examines the inter relationship between all the stakeholders and other parties involved in the organization, and how they influence the performance of the public organization and attaining a balance between the interest of the company’s stakeholders and other parties.

The radical leaning approach departs from the above approaches by advocating for a direct method for assessing public institution performance. As per the tenets of this theory, the radical approach seeks to evaluate a public institution directly through its actions and benefits to stakeholders. For example, if a project implemented by the institution was aimed at realizing positive changes, while in reality the project led to no change or deteriorated the condition, then the project can be assessed as failed without considering other factors such the stakeholder input, capital and such factors. It is a tool that can give evaluators the freedom to open up the black box of assumptions on the needed organizational change. The methodology forces, evaluators to clear any assessment gaps by revisiting for a second time. Radical approach also develops critical thinking, encourages critical reflections on a specific context.

By drawing from Hall (2014) discuss different logics and approaches to evaluate performance in the non-profit sector. Which performance indicators could be applied?

Hall (2014), highlights three types of logics of evaluation in the non-profiting sector, which he refers to as the non-profit sector, these are the scientific, bureaucratic and learning evaluation logics. The scientific evaluation logic majorly focuses on the systematic observations, collecting of observable, and quantifiable evidence and an emphasis on objective and vigorous experimental measures. The fundamentals of the scientific evaluation are majorly proof, objectivity, reduction and anti-conflict. The major role of the evaluator is to use these scientific methods to draw a conclusion.

The bureaucratic evaluation draws its foundations from the rational planning, with an emphasis on complex step-by-step frameworks, the constraints of deviations from the framework, and an assessment of the achievements of the projected goals. The evaluation logic majorly focuses on intended effects, categorization, and the role of the evaluator in the whole process. Lastly, the learning evaluation logic, prides itself as a system that is open to change, consideration of a wide range of perspectives and focusing on professional expertise. The methodology’s ideals emphasize on egalitarianism, richness of information, and the revision of beliefs.

Hall (2014), does not advocate for the use of a specific methodology rather, he advocates for the use a combination of these logics, such that the implementor would use the principles of a logic as per the situation at hand. In short, the researcher states that establishing a hybrid logic that suits the interest of the evaluator is the situation at hand is the best methodology to use.

By drawing from Andon, Baxter & Chua (2007) and Collier (2001), define and discuss:

the field of management accounting change and the mechanisms applied

the actors (facilitation vs. resistance)

the outcome of management accounting change.

The current business environment is increasingly becoming more complex, because of the rapid changes in the competitiveness of different companies. Factors such as economic liberalization, and technology among other advancements have jeopardized the existence of various companies challenging. The only chance of survival is for organizations to constantly change their systems of operation. Therefore, the process of management accounting change is among the needed dynamics in the business area. The whole process revolves around finding the effect of introducing change in the financial operations of an organizations and its impact on power, which brings about harmonization of the interests of two conflicting groups who prefer legitimizing the process of accountability and those who give more priority to operational policing.

Actors (Facilitation and resistance)

In an organization those in power tend to resist the introduction of management accounting change, because they have a perception that these variations might interfere with their interests, increase accountability and operational performance and the duties allocated to them. In some cases, it is not only those in power who resist, but also their followers, who think that the change will threaten their interests in the company. As for those in power, they are likely to resist the additional control that would be imposed on them by management accounting .Management account systems enhance accountability in every institution and a control system that asses actual performance in comparison to external and internal standards of the projected performance. Management accounting focuses on the efforts of the management to attain legitimation and track technical processes in the organization. Accounting is the tool that helps the management in harmonizing the power relations between the organizational and technical needs. The external regulators are satisfied and more authority is granted to the operational personnel, hence rendering them more efficient

The outcomes of management accounting change

Management accounting change leads a reduction of conflictual relationship within an organization by harmonizing the interests of various protagonists (those pursuing legitimation and those pursuing technical work activity) within an organization and directing them towards a shared goal or a set of interests. It leads to commitment, accountability and efficient use of allocated resources as there are control measures and targets that ought to be achieved. Besides, it makes it easier to attain the set targets and help in the process of decision making. It also enables the managers to have a greater control over the company’s finances and are able to work with limited resources, which eventually leads to cost-saving measures and increased efficacy. Management accounting connects institutional beliefs with technical work processes by coordinating the efforts the involved parties.

By drawing from Burchell et al (1985):

Which accounting event is discussed in the paper?

Define the concept of accounting arena. Which arenas are identified in the paper?

What is an accounting constellation?

Which accounting event is discussed in the paper?

The article by Burchell, Clubb, & Hopwood (1985) majorly focus on the value that enterprises add the society, that the employees, the surrounding companies, the government and the relevant stakeholders. In short, the paper discusses value added event in accounting. Agency-based accounting practices focused on the interests of the owners, stakeholders and the managers of the company, where the stakeholders established accounting standards and policies that were based on their own interests. However, the ideology by Burchell et al. (1985), switches its focus to the value an organization adds to the society. Burchell et al. (1985), stated that the value that is added by a firm and its employees in the society can be evaluated by the difference between the market value of the products that have been manufactured by the company, and the real cost of these goods, and the subsequent materials that have been purchased by other manufactures. The assessment however, does not include the contributions that has made by other manufacturers to the total value of the production realized by a company, so that it is essentially equal to market value that has been crated by the same firm. The value-added measure evaluates the net contribution of every company to the total value of production, through summing up all the contributions. Burchell et al. majorly concerns themselves with the social dynamics in the 1970s in the United Kingdom, and how accounting policies have evolved in respect to these dynamics. In other words, how accounting practices have been able to satisfy the ever-changing needs of the society, and later they propose for a new framework which evaluates accounting practices in regards to their social benefits and not only organizational benefits

Accounting Arena

According to Burchell et al. (1985), accounting arenas are the foundations/basis of which an accounting system was established on. The authors list three major accounting arenas which are …” the explication of standards for corporate financial reporting, the management of the national economy and the functioning of the system of industrial relations” (Burchell et al., 1985, p. 390). The authors however, state that there could be other phases that have not been mentioned in this paper, which the authors described as, “a succession of phases in the trajectory of a social movement.” Besides, within each arena, there have been a dynamic pattern of relations between different agencies that work in this field, which are the ruling regime, workers unions, the accounting practitioners, and the variations in their modes of operation and objects of concern.

Accounting Constellation

Accounting constellation revolves around discovering the pre-conditions of the social space, which supports value addition. As an outcome of tracing the genealogy of accounting practices, the sphere which has been occupied by the value-added event is perceived to have been made up different fields of relations, which existed in some institutions, economic and administrative processes, bodies of knowledge, classifications techniques, a system of norms and measurement; this field is referred to as accounting constellation. In short accounting constellation is a network of coordinating intersecting practices, process and institutions, which instituted this constellation that value added was caught and it is this network that governs how organizations might work cumulatively. In a broader sense constellation also works as a regime, one which governs the distribution and the application of value-added statements. Business entities operate within this regime as concentration of social relations, which refers to a connection of different information economies that are set into a web of more dispersed.

References

Andon, P., Baxter, J. & Chua, W.F. (2007), Accounting change as relational drifting: A field study of experiments with performance measurement. Management Accounting Research, 18: 273–308.

Burchell, S., Clubb, C. & Hopwood, A. G. (1985), Accounting in Its Social Context: Towards a History of Value Added in the United Kingdom, Accounting, Organizations and Society: 381--413.

Hall, M. (2014). Evaluation Logics in the Third Sector. Voluntas, 25, 307–336.

Modell, S. (2005), Performance Management in the Public Sector: Past Experiences, Current Practices and Future Challenges, Australian Accounting Review, Vol. 15, No.3, pp. 56–66.

Nielsen, L. B., Mitchell, F., & Nørreklit, H. (2015). Management accounting and decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1, pp. 64-82).

O Collier, P.M. (2001), The power of accounting: a field study of local financial management in a police force. Management Accounting Research, 12: 465–486.