Viewing management accounting change as ongoing processes

by John on May 17, 2017 at 6:37 pm
Posted In: Ch 22 - Management Accounting Change (Implementation), Ch1 - changing contexts, General management accounting

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Most of the literature on management accounting (MA), both practitioner-oriented and academic literature, views ‘change’ rather as a means to an end, with emphasis on the ‘end’. The majority of business schools also teach MA change as a phenomena for which there is assumed to be some optimal design, so simply design it!

So, conventional MA approaches not only see its subject as a neutral bundle of tools and techniques which will inform managers’ rational decisions, but also that any changes necessary in MA systems, techniques and/or roles for accountants are borne out of a state of disequilibrium and a need to re-establish optimal MA practices.

Furthermore, in the conventional, mainstream view of MA, change is generally assumed to be unproblematic, straight-forward and ‘simply’ a case of good (i.e., rational) design.

An alternative way to view MA change, however, is to treat it as constituting complex, frequently irrational in nature, and ongoing processes over time. One such alternative approach, though certainly not the only one, would be the ‘institutional framework’ of MA change, proposed by Burns and Scapens (2000).

The Burns and Scapens (2000) theoretical framework of MA change assumes that much MA practice is underpinned by rules (e.g., budgets are underpinned by the budgeting manual), which over time become routinized practices, and can eventually become ‘institutionalised’ such that their use becomes rather unquestioned and taken-for-granted. As such, over time, this routinised and potentially institutionalised nature of MA practices can bring a degree of predictability and stability to their form and use.

That said, it is held in the Burns and Scapens (2000) framework that changes can occur, in particular when powerful people in organisations force or coerce change. But, changes in rules (e.g., changes to particular systems, techniques, roles) tend to be easier than forcing change in routines and institutions. Importantly, and probably more than anything else, an aim of the Burns and Scapens (2000) framework is to emphasise that it is important to view the ‘life’ of MA practices as ongoing processes over time rather than as static outcomes.

Reference: J. Burns and R. W. Scapens (2000), Conceptualising management accounting change: an institutional framework, Management Accounting Research, 10(1), pp.1-19.

Multi Ethnic People Holding The Word Change

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New public management and management accounting

by John on May 3, 2017 at 2:06 pm
Posted In: Ch 22 - Management Accounting Change (Implementation), Ch1 - changing contexts, General management accounting

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New public management (NPM) is a bundle of management tools and techniques adopted within a public sector organisation, which together are aimed at emulating the ‘best’ practices of big, private-sector business enterprises. In particular, NPM aims to use a configuration of management accounting (MA) practices which assist and maximise benefits from the organisation, coordination and day-to-day management of public sector organisations.

A good paper to read is Hyndman and Lapsley (2016), who state that “[NPM] portrays a set of ideas and practices which modernising reformers actively pursue as a solution to the challenge of making the public sector more economical, efficient and effective” (p.404).

So, how is MA implicated in the roll-out of NPM in many of today’s societies? Here are some examples:

  • NPM introduces market-like structures to public sector organisations; this includes the use of budgets on a resource competitive basis for different units within the organisation. For instance, many UK hospitals are forced to compete with each other for their portion of the Government’s health sector budget and, in turn, there are competitive tendencies within hospitals, across different clinics and departments;
  • It is not unusual to observe numerous MA practices in the public sector which resemble practices that are more common in the private sector. So, for instance, as mentioned above, budgets are commonplace in all kinds of public sector organisations – in particular because the latter are constrained by limited state funding. And there has also been evidence to suggest that some public sector organisations are turning to the balanced scorecard to steer its strategic, planning, decision-making and evaluation processes;
  • It is quite normal to witness a focus on frugality (e.g., a keen eye on control and often cutting costs) in the public sector these days; and a focus on – sometimes an obsession with – performance measurement and results-oriented management controls is equally commonplace in the contemporary world.

Reference: N. Hyndman and I. Lapsley (2016), New public management: the story continues, Financial Accountability and Management, 32(4), 385-408

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The role of management accounting in globalisation

by John on April 19, 2017 at 2:00 pm
Posted In: Ch 18 - Multinational Organisations, Ch 2 - information, Ch 22 - Management Accounting Change (Implementation), Ch1 - changing contexts, General management accounting

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Globalisation is associated with the extensive mobility of products and services, information and people across national borders. It has existed for centuries but, fostered by advances in communications and travel technologies, for example, it has had a meteoric increase in recent decades.

For a long time, it has been assumed that globalisation has been a primary driver of changes in management accounting (MA) practices. But how much do we really understand about how and in what ways MA becomes implicated in the globalisation process?

Here are some examples:

  • MA practices are at the core of most organisation’s governance structures – e.g., reporting lines and accountability can be underpinned by such tools as budgeting, variance analysis and benchmarking
  • MA tools such as forecasts, customer profitability analysis and the balanced scorecard are amongst the inputs for (re-)designing and implementing an organisation’s strategies and forward plans
  • MA information, both final- and/or non-financial-oriented, is central to how a globalised organisation (e.g., a Multinational) both allocates responsibility amongst, and makes comparisons of performance, across different (subsidiary) units.

All in all, MA practices comprise and represent key mechanisms for aligning ‘localised’ (e.g., subsidiary, units) activities with globalised (e.g., head office, owners) strategies.

A good article to further explore how MA becomes implicated in the dynamics of globalisation is: C. Busco et al. (2008), ‘Managing the tensions in integrating global organisations: the role of performance management systems’, Management Accounting Research, 19, 103-25.

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Management accounting in manufacturing organisations

by John on April 5, 2017 at 9:01 pm
Posted In: Ch 17 - Strategic Performance measurement, Ch 18 - Multinational Organisations, Ch 19 - Cost Management, Value Creation and Sustainable Development, Ch 2 - information, Ch 22 - Management Accounting Change (Implementation), Ch1 - changing contexts, General management accounting

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The origins of management accounting can be credited to pioneers in the manufacturing sector during the industrial revolution of the late 19th century and early 20th century. As organisations grew in size and business complexity (e.g., more complicated transactions, separation of owners and managers), there was a greater demand to be able to control operations more, to monitor (manager and employee) behaviour, to report and evaluate performance, and more.

These sorts of demands were met with an influx of emergent management accounting techniques. So, it was during this period that we witnessed the emergence of early MA tools such as standard costing techniques, budgeting and net present value capital appraisal techniques.

However, the manufacturing organisation of the 21st century faces fundamentally different challenges and context and, with that, many questions can be asked with regards to the relevance and fit-for-purpose of today’s armoury of management accounting tools – even so-called “advanced” techniques such as activity-based costing, lean accounting and the balanced scorecard.

Today’s manufacturing landscape is typically characterised by such attributes as: immense global competition, where production and other costs are therefore key for survival and success; greater consumer demands, in turn requiring flexibility and agility on the part of the manufacturers; mind-blowing technological change in production techniques, including robots; seismic informational technological advance, digital, wireless and other forms of making the manufacturing family closer and ‘smaller’; and new and emerging economies but still with continuing global financial problems and prevalent policies of austerity.

This characterisation of the contemporary manufacturing field is non-exhaustive – it is a minefield of ongoing development – and the above characteristics are far from independent, they intertwine. So, can we really expect a relatively static portfolio of management accounting tools and techniques – indeed, rather undeveloped for many decades now – to still fulfil its expected role of informing managers’ decision-making? This is just a probing question (for discussion), and I certainly have no answers!

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Management accounting and popular culture

by John on March 22, 2017 at 8:14 pm
Posted In: Ch 2 - information, Ch1 - changing contexts, General management accounting, Uncategorized

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Popular culture is significant in contemporary life – culture of the masses rather than the elites. It lies in the influences on everyday people of such day-to-day phenomena as sport, music, fashion and shopping, cinema, theatre, celebrities, magazines, TV, radio and social media.

Most people probably don’t associate popular culture with management accounting (or vice-versa). To the lay person, accounting normally connotes ways to manage manufacturing companies or glossy annual reports distributed to shareholders.

But, on the contrary, management accounting is everywhere in and around the globalised landscape of popular culture. Absorb the following facts, for example:

  • Star Wars – the Force Awaken had a production budget of $245 million, and worldwide box office receipts of $2.07 billion
  • The film Forest Gump took $660 million in box office receipts and was the winner of 7 Oscars in 1995 and nominated for 7 further categories. Yet it made no profit!
  • Between 1992 and 1997, the English Premier League received £191 million in global TV revenues. From 2016 to 2019, it will receive £5.1 billion in global TV revenues
  • British vlogger, Zoella, is reported to be earning at least £50k per month, mostly from YouTube and sponsorships. Some U.S. vloggers are multi-millionaires!

There are many other examples like these which could illustrate just how important finances are implicated in popular culture. So, important and relevant, clearly, to all the above examples, are: revenues, costs, profits and much more from a financial (and associated non-financial) lens.

Now hands up who still doesn’t see any connections between management accounting and popular culture?

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