IBM started in New York City at first. The company outspread the office to other places of New York State, Washington, DC, Ohio, Michigan and Toronto, Canada soon. Thomas J. Watson turned into the president of the company after he entered the company in year 1914. The company developed its product and services in his leadership. Watson had broadened the company's business to Australia, Asia, South America and Europe in ten years. The company's name was changed to IBM to show the firm's international expansion. (ibm,2013)
International Business Machines Corporation (LSE-IBM), or IBM, is multinational technology and consulting corporation. IBM provides hosting, infrastructure and consulting services in sectors covering from mainframe computers to nanotechnology. Moreover, it also runs computer hardware and software businesses by manufacturing and marketing. IBM which runs its businesses in more than 170 countries has many talented employees around the world to settle difficulties for businesses, governments and non-profits.(ibm,2013)
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The core of IBM's strategy is innovation. Today, IBM concentrates on business analytics, cloud computing, growth markets and Smarter Planet, the four growth initiatives. IBM sets up business value for clients and settles business difficulties by applying the solutions of leverage information technology and expertise of business processes. IBM produces value by cutting down a customer's running costs and enables new ability to increase revenue.(Reference,2013)
IBM has an organizational structure which is highly complex and that is always controlling its managements to the highest efficiency. The structure is a complex matrix structure. The structure of organization is divided into small units by this matrix. Open communication is used between the management and employees and make a sense of flat structure in the small units. The culture of IBM is always called social business culture.(InfoBarrel,2011) It always sees their clients in the first position and the employees have their own authority. IBM makes several management accounting decisions in its organization. This has been highlighted accordingly.
2.0 Management Accounting Decision Making in IBM
2.1 Discount Rate
When the discount rate assumptions are changed, interest cost components of the net periodic pension cost calculation, loss amortization and the projected benefit obligation will be affected. The management reduced the discount rate assumption for a U.S.-based defined benefit pension plan. This alteration will raise pre-tax cost and expense identified in 2013 through an estimation of $156 million.
2.2 Product Warranties
The hardware products are offered warranties by IBM generally range up to three years. Warranty costs standard is estimated by the management to the deliverable according historical warranty claim experience and future spending estimates, and uses the estimate to revenue stream for products in warranty. The future costs which are estimated for warranties applicable to revenue identified in the particular period are charged to cost of sales. When actual warranty claim experience is different from estimates, adjustment are made.
2.3 Income Taxes
Valuation allowances are identified to decrease deferred tax assets to the total that will likely not be achieved. Management thinks over any available proof for every jurisdiction such as past operating results, the feasibility of ongoing tax planning strategies and estimates of future taxable income in assessing the require for a valuation allowance. The valuation allowance is regulated when the determination of IBM is changed as to the total of deferred tax assets that can be achieved.
2.4 Derivative Financial Instrument
IBM is exposed to the risk of interest rate changes. The management manages the risk by building risk management policies which includes the use of derivatives. In interest rate exposure, the management uses derivatives to better align the movements of rate between the interest rates related to IBM's lease and financial assets.
2.5 Forecasted Debt Issuance
Interest rate volatility on future debt issuances exposes to IBM. The management manages this risk through the lock in the interest payments rate associated to the forecasted debt issuance by using forward starting interest rate swaps. The swaps are accounted as hedges of cash flow.
3.0 Modern Management Accounting in IBM
Nowadays, traditional management accounting has developed into many modern management accounting techniques to be applied by a lot of big company.IBM always makes decision regarding how to survive and expand its business in a competitive market by applying modern management accounting. Modern management accounting system gives related information to each management department of IBM for decision making which can increase the effectiveness and efficiency of the company. There is some modern management accounting practices which are applied by IBM. This has been highlighted accordingly.
Always on Time
Marked to Standard
JIT which is an inventory system applied to guarantee that the arrival and leave time of inventory. IBM uses this inventory system to make sure the raw materials are delivered at the time when they are required on the assembly line while manufactured goods are produced at the time before they are sent to its clients. The purpose of JIT is grounded on quantity and quality required and finishing the work at the accurate time. Traditionally, raw materials are ordered in a large quantity and stored in warehouse until they are required for manufacturing or supplying a service. Under the JIT system, IBM orders raw materials in small quantity frequently. By this the company can save money by reducing the storage expenses. One of aims of the JIT system is to eliminate waste. In JIT system, IBM manufactures and orders the raw materials only when they are required by using a demand pull system. IBM has applied JIT successfully as part of a modern management with a highly disciplined workforce.(Horngren, 2011)
3.2 Total quality management (TQM)
TQM is a management approach where a successive effort by the management of an organization to make sure the loyalty and satisfaction of clients in long term. IBM is one of the companies which implemented TQM. By applying the purpose of TQM, IBM works hard to decrease the mistakes arose during the production and service processes, improve clients' satisfaction, modernize of equipment and make sure the highest level of training of its employees. In enhancing quality by TQM, IBM is assisted by all department its company, from the top executive position to the lowest-level part time employee.IBM has trained many experts in information technology sector all around the world to give the best services to its clients in achieving the TQM system. The company realizes the significance of communication in improving quality. TQM cannot work without an effective communication.(Weetman.P,2010)
3.3 Activity-based costing(ABC)
IBM has applied ABC system which is a costing method of allocating the costs to services and products based on the quantity of transactions associated to the process of supplying the services and products. Generally, it is applied as a method to plan and control. ABC enables managers of IBM to assign costs to events involved and products more accurately when it is compared with traditional cost accounting method. Furthermore, non-value adding events and costly activities are clear in ABC, therefore managers of IBM enable to concentrate on these parts to decrease or eliminate them. Detailed cost information is provided by ABC system to assist annual budgets and evaluate its client profitability. ABC system also allows IBM's management to find out the ways to maximize the performance and realize the growth strategies.(Drury.C, 2004)
3.4 Strategic planning skill
Strategic skill is the ability of a company's process of determining its strategy, or direction, and making decisions of how to apply its resources to achieve the strategy. Planning is the method of deciding a proposal carefully before a company wants to carry out it. IBM's managers always emphasize the importance of strategic planning skill. This skill enables IBM to achieve a goal by avoiding financial problems and make prudent decisions. IBM applies planning skill to do a budget, construct various projects and ensure the direction taken by the company. Moreover, IBM controls its expenses and improves revenue by the skill. Therefore, strategic planning skill plays a vital role in modern management accounting part as the skill is essential for IBM to be successful in business. This skill is applied in 2.2.
3.5 Analytical skill
In management accounting part of IBM, analytical skill is known as the analyzing ability of the company's financial performance to do forecasts in long term. This skill also applies a logical thinking to collect and identify information then the company can decide a wise solution to solve the problem and create the suitable plan. Analytical skill is important in the IBM to make sure the difficulties can be solved to maintain productivity and the workforce errorless functioning. (job-interview-site.com,2013) This skill is applied in 2.5.
The definition of budgeting is setting out a plan for income and expenses in respect of a future period time very detailed in term of money. The management accounting part of IBM makes budgets for incoming production and manufacturing operation. In IBM, the budgeting skill is based on the past production quantities, raw materials and labor costs and the average labor hours consumed to accomplish particular tasks. By applying a budgeting skill, IBM can measure and guide a particular project to be carried out by following the budget. Adjustments will be made to budgets grounded on the targets of the budgeting of IBM. IBM can allocate and apply its resources wisely by budgeting skill. This skill plays an important role in IBM as budgets can be an early warning system. The managers of IBM will be aware of the exact sum of money. Budgeting gives awareness to managers of IBM about the actual sum of money in the company and always reminds them of their targets. Moreover, based on the financial statements of IBM, budgeting makes management accounting department to plan systematically.(Weetman,P,2010) This skill is applied in 2.2.
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IBM has an effective management accounting system to report financial data for managerial purpose. This system helps the company to decrease expenses, improve cash flow, make prudent business decision and also increase the financial returns. The company has applied modern management accounting techniques and enhanced its operation and overall profitability successfully. In a modern management accounting system, IBM can enhance the innovation and flexibility of the organization. However, IBM should maintain and improve the quality of its existing products and services in this competitive market. It is recommended to provide personalized products or services based on its clients' interests and needs in order to leave its rivals in the dust. Since IBM is an innovation company, its continuous transformation has to be pursued every time. This is because IBM, the high performing information technology organization can pull away from its rivals when the competitors are focusing on reducing budgets and maintenance. By this, IBM can accomplish its vision and mission successfully.