During the last years issues of strategic management accounting have received widespread attention in the accounting literature. Adapting to the changing needs of business in the 1990's is one of the main challenges facing management accountants today. One dramatic change, in how many organisations operate, is the growing shift towards strategic alliances and partnering agreements with suppliers. However, there is still no comprehensive framework as to what constitutes strategic management accounting. Basically the management accounting practices has one or more of the following characteristics: environmental or marketing orientation, focus on competitors and long term forward-looking orientation. To implement these criteria there are twelve main key recommendations have been identified: attribute costing, brand value budgeting and monitoring, competitor cost assessment, life cycle costing, quality costing, strategic costing, competitive position monitoring, competitor appraisal based on publish financial statements and value chain analysis. This paper will review some of these recommendations that have had impact on development of strategic management accounting.
The term SMA was coined by Simmond (1981, 1982). Simmonds (1981) defines the concept as 'the provision and analysis of management accounting data for use in developing and monitoring business strategy, particularly relative levels and trends in real costs and prices, volume, market share, cash flow and the proportion demanded of a firm's total resources'.
Unlike the conventional cost and management accounting, strategic decisions usually involve the longer-term, have a significant effect on the organization and, have not only an internal element, but also have an external element. Adopting this definition suggests that the provision of information that supports an organization's major long-term decisions, such as the use of activity-based costing information for product profitability analysis, falls within the domain of strategic management accounting. This view is supported by Cooper and Kaplan (1988) who state that strategic accounting techniques are designed to support the overall competitive strategy of the organization, principally by the power of using information technology to develop more refined product and service costs.
Because of the lack of consensus on what constitutes strategic management accounting Lord (1996) takes the external competitor focus a little further and outlines the different strands or emphasis in understanding of SMA. These are:
-Competitor Focused Accounting (CFA): The key question being to determine what a company's competitors are doing.
-Accounting for strategic position where the relationship between the strategic position chosen by a firm and the expected emphasis on management accounting is examined.
-Cost Reduction: Based on analysing the different ways of decreasing costs and/or enhance differentiation of a firm's products, through exploiting linkages in the value chain and optimizing cost drivers.
The comprehensive categorization framework proposed by Lord shall constitute the central analytical foundation of this review. Other categorization approaches will be either be mapped to or taken as complementary to this approach.
Competitor analysis and external focus was central to the definition of SMA provided by Simmond (1981). Lord (1996) outlines the elements contained in competitor focused accounting. These include:
-Monitoring market share to determine the extent to which a firm is losing or gaining market share and an examination of relative market shares will indicate the strength of different competitors. Including market-share details in management accounting reports helps to make management accounting more strategically relevant. Competitor information may be obtained through public, formal sources, such as published reports and the business press, or...
References: Bromwich, M. (1990), The Case for strategic Management Accounting: the Role of Accounting Information for Strategy, Management Accounting Research, 14, 225-279
Coad, A.F., Smart work and hard work: Explicating a learning orientation in strategic management accounting, Management Accounting Research, 7, 1996, pp. 387-408.
Cooper, R. and W.B. Chew (1996), Control Tomorrow 's Cost Trough Today 's Designs, Harvard Business Review, Jan-Feb, 88-97.
Dekker, H.C. (2003), Value Chain Analysis in Interfirm Relationships: a field study, Management Accounting Research, 14, 1-23.
Guilding Chris. (1990), Competitor focused Accounting: an exploratory note, Accounting, Organizations and Society. Vol 24, 583-595
Hart Susan, Roslender Robin, Distinguishing Marques, Financial Management (CIMA), February 2002, p32.
Kaplan Robert and Johnson Thomas, (1987), Relevance Lost: The Rise and Fall of Management Accounting, Harvard Business School Press
Lord, B.R. (1996), Strategic Management Accounting: the emperor 's new clothes? Management Accounting Research, 7, pp.347-366.
Roslender, R. and Hard S.J. (2003), In Search of Strategic Management Accounting: theoretical and field study perspectives, Management Accounting Research, 14, pp.225-279.
Simons R., (1987), Accounting Control Systems and Business Strategy, Accounting, Organizations and Society. Vol 12, 357-374
Please join StudyMode to read the full document