Manufacturing Strategy Implementation And Cost Management Systems Effectiveness Accounting Essay


The selected article has been written by Andreas I. Nicolaou of Bowling Green State University. Here we are going to critically analyze the article, emphasizing upon its objectives, hypothesis, results, research methodology, sampling techniques, and its impacts on industrial trends and performance. We shall also address the need and importance of this article, highlight its strengths and weaknesses, discuss the implications, and suggest improvements wherever possible. We shall also compare this essay with the modern day trends and researches going on in the specific niche. The organization of this essay is outlined in the following manner, we start with an introduction to the author and his background, followed by a synopsis of the article, moving on we shall include a thorough critical discussion based upon its objectives, problems, assumptions, data collection and analysis, inferences and their significance, contribution to the field, the style of presentation and depth of research. This will be followed by management accounting perspective of the paper and the practicality and implications of this research paper on the foresaid topic. We shall conclude while providing our methodology that we have pursued and the references used in the way.

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About the author

Andreas I. Nicolaou is a professor at the Department of Accounting and Management Information Systems at the Bowling Green State University (BGSU). He currently delivers lectures on Accounting Information Systems (Basics and Advanced), Accounting for executives and seminar on Professional Ethics. Nicolaou is a renowned researcher and has published 2 books, several research paper and still more publications in journals, magazines and other resources. His principal focus of research remains the Information systems and use of technology to unleash the potential of information exchange in organizations. Nicolaou has demonstrated his abilities in various fields including Data Exchange, Financial reporting, Enterprise Resource Planning, Management Information Systems, Management accounting, Database management systems, Information System Development strategies, and Value added taxation to name just a few.

A few words about his educational background, Nicolaou received his Bachelor of Science in Business Administration in 1981 from the Athens University of Economics and Business, Greece. He then completed his Master of Arts in Accountancy from the Southern Illinois University at Carbondale in 1983. Nicolaou was awarded his Ph.D. in Accounting Information Systems from the same in 1993.

Before moving as an associate professor at the Bowling Green University in fall 2000, Nicolaou served as an assistant professor at the University of Piraeus, Greece and also as an Assistant Professor at Morgan State University. He had also been a visiting professor at the University of Cyprus, Greece and Adjunct Assistant professor at the University of Maryland in 1996.

Introduction and overview of the Article

The paper under discussion focuses upon the use of cost management systems, implication and application of JIT systems in manufacturing and delivering systems, and use of EDI in conjunction to produce better efficiency in implementation of manufacturing strategy and effectiveness of cost management systems.

The paper tests the stated hypothesis that the perception of Cost Management System effectiveness is positively associated with the extent of complementarities between the use of Just In Time/Electronic Data Interchange systems and scope of Cost management in operational decision making.

The author has used a sampling frame of 612 organizations that used the JIT system in either in the whole production system or in the delivery process only. He has further categorized his finding on a binary variable that the JIT is further supported with EDI system or not. Using mailing to find answers to their specifically designed questionnaire, he received a 20% response rate and based his conclusions on the responses that he got.

The research variables were "CMS Scope", "CMS effectiveness", "use of "JIT" manufacturing techniques", and "use of EDI systems". The author used regression analysis to find out the relationship between these variables. The regression model can be outlined through the following equation.

CMS-EFF = b0 + b1 CMS-SCOPE + b2JIT +b3EDI +b4 CMS-SCOPE*JIT*EDI + e

The author used various techniques for testing the measures using validity and reliability tests naming construct validity, internal consistency of measures, and principal component analysis. The entire testing procedure revealed that the input data was secure and valid and could be used to be entered in the model.

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The results were supportive of the first assumption of positive association between the use of JIT/EDI systems and the CMS scope. This indicated that the complementary use of CMS for decision making process along with the use of JIT and EDI systems (in procurement) was associated with the higher level of effectiveness of Cost Management System.

The Research Topic: Relevance, Importance and Need

The business today is passing through an era of evolution where the whole business concept in changing its dimensions. The whole business processes starting through procurement, research and development, production, marketing and distribution are going through this revolution. The basic driver of this change is technology. The nurture of Information Systems and their increased use in management and planning is a hot topic today. Various schools of thoughts exist on the use, benefits and implication of these management information systems. These systems are normally associated with huge initial capital layouts, whole business transforms and sometimes a complete change of the business core competency. The businesses have been reported to trying to go through a business reengineering process to be able to cope with the growing demand of technology and remain alive in the race of achievements.

Just In Time (JIT) systems, Enterprise Resource Planners (ERP), Accounting Information Systems (AIS), Cost Management Systems (CMS) and Electronic Data Interchange (EDI) are just technological tools to unleash the values. Whatever maybe, there are two ways to adapt to these technological instruments:

A: To modify or to implement the tool or technology in line with your business strategy and decision making process (modify to your needs)

B: To modify your vision to match the tools available to be able to use them.

Yet, there is a clear consensus that the Technological systems and the business strategy need to be in line with each other to unleash the maximum potential offered by these information systems and tool.

Considering this background this article has been an excellent contribution to the world of business, especially important to those who pursue their careers in project implementations of Management Information System, specifically cost management systems. The organizations involved in implementation, whether they are the clients or the vendors, need to emphasize on the concept that the applied system must be supportive to the need of the business strategy and contribute towards ease and act as an informational gateway to strategic and operational decisions.

Talking on grass-root level the addressed technologies, CMS, EDI, JIT along with management and cost accounting, and the manufacturing strategy is a hot topic in the MIS sphere. There are many benefits said to be associated with the implications of these systems that include better management, better information spread, huge cost savings, and better customer service which leads to better quality.

Thus this article can be termed as a useful and relevant one and can benefit its target readers. Studies reveal that in most of cases the reason behind the failure of Management Information Systems is not their bad quality but is in fact the mismatch between the scope of these systems and the needs of the organization or the department where they have been implemented. Thus the hypothesis statement that addresses the perception of the CMS as an effective tool if the CMS/JIT/EDI is in line with the business strategy appears to have been rationally chosen.

The organization and objective of the article are a bit confusing to general readers as they cannot relate to the context, the language being too complex and technical. The author perhaps should have phrased his research objectives and hypothesis in a more simpler and understandable way to make his target audience for the article relatively bigger.

Though the author has not made any significant assumptions yet there are a few which need to be addressed. First, despite a response rate of 20% he has gone forward with the research which could have resulted in a response bias. Secondly he has studied all variable at a single point of time that further limits the scope of the research. Despite these two assumptions or limitations, the article is a meaningful contribution to the world of Cost Management Systems.

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Background Theories and Hypothesis

MIS and CMS the topics under discussion have been addressed frequently in various research papers and have been an option which offers business research from a relatively new, important and effective point of view, and this is the reason why there is so many literature and publishing's present on the topics. Yet, despite so rigorous research conducted and published, the MIS implementation, its fit and other related topics have not yet been well saturated. The large number of failures may be a big reason behind that but there are other reasons which include debates on short seasonal life of technological tools and software, un needed extra expenditure involved with them, risk involved in implementation and the resistance, behavioral and cultural aspects within the organization going through the process are some of the topics which are a constant source of heat among the participants of debate.

In this aspect the author has highlighted the lateral information processing concept (Dertouzos and Hayes), importance of Information Systems as a cost saving tool (Cooper and Slagmulder), the emphasis of strategic management of costs (Bromwich, Shank and Govindarajan, Simons). Furthermore the author has also pointed out recent developments in accounting trends and studies, design of information systems for cost control and management, the impact of manufacturing strategy on management of costs, and the use of cost management systems as a support to manufacturing strategy.

His literature review is not very much thorough, as it doesn't delve deeper into the theories, and skips some of the major contributions also. Furthermore his literature review is not pretty organized hence a difficult task for a general reader (who doesn't understand a lot about management information systems and the related terminology) to relate to the concept going underway. But the references and studies that he has pointed to are relevant to the proceedings of the paper. He has based his hypothesis on the literacy review and it has helped him to come up with concise statement of the problem.

Data Collection and Analysis

The author sampled 604 organizations through searching SEC online database which contains annual reports and other related stuff. SEC database is reported to have a huge number of registered and listed companies and their information which is relevant to SEC. He has searched this database for a time period leaning upon 10 years and searching for related keyword in the documents that are available on SEC database, and then he has used certain filters to narrow down his focus of research.

There are a number of issues related to the sampling that he has used. First of all he has limited his focus to companies registered within the United States, so has ignored the patterns which can be different in the other parts of world. The Eastern, Asian, Russian and Chinese cultures can be a bit different towards the perception of these Information Systems and their benefits. The demographics and educational background of managers in these areas are significantly different than the ones working within US and they might have a totally different perspective on the issue. This implies that the study is only slightly relevant to other markets, and a sampling bias exists if he claims that the article addresses all the major markets of the world.

Secondly searching based on reports and documents does not stand too much valid, because there maybe instances that either smaller companies, or such organizations which aren't listed on the SEC database may have used these technological tools, and may have their own point of view about the issue.

Thirdly he has attributed the 80% non response rate towards denials due to lack of time or company policies or non deliveries, but all these reasons of non response when added up count up to 11% of the target respondents, he is silent about the remaining 69%, and it arises a question that why didn't they choose to reply. Where there is a chance that there may be similar reasons for non response, there is also a major chance that they may have denied response because either they thought of IS as a source of expenditure and headache, or they may have wanted to keep their views to them because they thought that if their contribution is of no use if they don't agree with the intention of the author.

Here although the author tested the data to trace out that whether the non response rate has resulted in a sampling bias, and found that it hadn't, but yet one can point out that there may be some hidden reasons behind these non responses.

Concerning the analysis methodology and techniques, the author has done this part superbly, he has just used the relevant theories and has used those measures and analytical methods which don't cast an effect on the quality of research, the paper reveals that he has always adapted corrective methods whenever his data was not in accordance with the prescribed data form required with a particular form of model. The author having long term experience as a researcher and as a professor can be taken as an authority to analytical methods and I don't think that there is the slightest chance that he has used poor analytical techniques. The author has used a regression model to test for the coefficients of strength for various relationships and has well interpreted the results. It is evident that no attempt has been made to twist the results to the author's choice. He has remained unbiased through the process and has analyzed and presented what the data has supported, he hasn't made a single attempt to manipulate any finding or data part.

The Findings and Relation to recent trends

The author tested the hypothesis statement by estimation of regression model of CMS effectiveness on the interaction between CMS scope and use of JIT/EDI systems. The results supported the aforesaid hypothesis statement in general. The data provided evidence that there is a significant positive relation among the CMS effectiveness and the perception of scope of CMS that whether it is in line with the business strategy or not, along with the use of JIT/EDI systems.

The results of the research are quite meaningful which actually have provided a clear proof of importance of design of cost management systems and the related tools so that they support the overall strategic planning and operation decision making process on an operational basis. This is an important concept in the field of information systems and has pointed out a new dimension in the implementation phase of management information systems; the research has suggested that this is one of the most important aspects of successful implementation of information system, which adds value to the overall operations of the organization. Specifically talking about manufacturing strategy where costs are a significant variable, thanks to the economic recession, low disposable incomes and severe competition that exists in our markets at this time. This implies that the findings of this research can't be ignored as they can act as a competitive weapon for the manufacturing department of any organization, if the concept is successful integrated into the cost management systems implemented.

The research has also posed a possible issue behind the failure rates of Information system implementations, which were touching up to 80% worldwide in the previous decade although it has now resonated near 60% at present but this is still a failure rate that needs attention. This has been a significant discouraging factor when companies undergo the decision phase of implementation of MIS systems because of the huge costs involved and the required human capital, transformation of objectives and strategies and business process re engineering at certain times.

Overall Presentation of the topic

Taking a look on presentation style, the article has been organized in a logical way but has not addressed the issue going into the base level. He has not emphasized much about the background and has not discussed the implications of the paper up to the level which he should have discussed. The objectives are quite technical and the reader has to be well aware of background researches and theme to gain from the article otherwise it will be an utter confusion. That's why this article seems to address only those who are technologically adapted and groomed and can relate to the underlying concepts. It would prove a difficult task for those to understand who have a pure business background and they don't have enough awareness about technological advances and the terminology.

Implications for Management Accounting

The article definitely has a perspective of management accounting. The overall theme of the article has actually been management accounting, as the author has based his research on cost management and inventory control mechanisms.

The article discusses the impacts of cost management systems on the manufacturing costs, which he has discussed in terms of value addition and value chain. Manufacturing costs control systems and mechanisms are some of ingredients of management accounting and a part of the firms overall value chain. The sustenance of a firm actually stands upon its cost management system because profits can be handled from two poles, either through the pricing pole or through the cost pole. In today's market, it's harder to imagine covering your inefficiencies in cost control through charging higher prices; we are left with only one way of reaping greater profits or in other terms creating value that is control of costs.

As discussed, the costs can be controlled through an efficient manufacturing process which is cost saving, and this can be achieved through implementing the aforesaid technologies, i.e. JIT, EDI, and CMS at each and every level of manufacturing process. The article discusses the factors through which these systems can be more effective and a source of contribution in value addition in a firm. This suggests that the research paper has also a management accounting dimension, and it is reasonably important and relevant in the context.

The paper also opens a new door to research, that how should the JIT systems and CMS be tailored that they not only meet the strategic functions of the organizations, but also cater to the needs of management accounting function as the firms strive upon this function, management accounting is perhaps an important competitive tool which makes successful firms distinctive from those who are not that much successful.

Practical usefulness of research findings

Findings of this research papers are quite practical and are not just theoretical. The research suggests that the use of JIT and EDI can be significantly helpful in a firm's strategic process and decision process in day to day operations. The research also suggests that the use of a CMS to support manufacturing strategies and operations is a useful tool and can act as a competitive weapon in the modern era of competition.

The research has concluded that the CMS effectiveness depends to the scope of the use of CMS. This means that the perceptions of effectiveness of CMS in a firm indicated that whether the CMS effectively supports the strategies and helps in the decision making process or not. It also indicates that CMS is an effective tool which actually provides relevant information which is useful in the strategic planning especially manufacturing strategic planning. It was noted that if the design and structure of the CMS was according to the manufacturing strategy of the firm, use of complementary systems, that as JIT and EDI also proved quite effective.

Implication for the future of Management Accounting

One can be bold enough to conclude form all this research and background that is provided, that management accounting is also going to take a turn as technology impacts management accounting systems. This implies that the management accounting will now be done in a more technical way, in a more aligned way, in a more balanced approach that matches the manufacturing strategy of the firm. This will lead to better integration within various departments of the firm and it will lead to superior performance due to cost reduction. Management accounting has been serving as a tool to increase profits since long, but it has yet to develop into a major tool. The JIT/EDI will be an integral part of management accountancy in future and it will heavily rely upon these systems as discussed above these systems cast a very positive impact on the efficiency of cost management systems, which is a function of management accounting. Thus management accounting will serve as a tool to value addition which will lead to an increase in its need and importance.

Approach, Learning and Knowledge Value Addition

I have used a step by step approach to analyze this article, and have followed the organization of the original article. I have tried to deal with this article without any bias, giving equal importance to its strengths and weaknesses, and suggesting improvements wherever possible. I have addressed the article from a dual point of view, both from a technological and accounting point of view. My approach to analyze this article was based upon strategic benefits, and a top management point of view in terms of value addition and problem solving approach, yet I have also tried to dig to the operational level at instances where I have deemed fit to do so. Moreover, in the sections where a perspective of methods and theories of business research is more relevant I have switched to that perspective.

The entire process of critical analysis of this paper has proved quite beneficial in improvement of my knowledge base. I have reviewed a lot of material on management information systems, cost management, cost control, inventory control and management, past and present trends in the industry and future trends that are underway.

I had also the opportunity to take a look on the management accounting trends and principles that are practical to the modern industry and the introduction of technology and information systems to pursue management accounting goals and objectives. I have also came across some business research principles to which I am new and this will give me opportunity to further think about them.

Overall the whole article has provided me a good insight of theories of social behavior, information needs and strategic decision making and has proved to be an excellent learning experience for me.

The Title of the Article

Coming to the title of the article, it is already a good one and outlines the purpose and objective of the article quite effectively. If he would have used the terms JIT, EDI or CMS, this would have rather narrowed down the scope of the article which would have resulted in lower search results also. Once again, considering the search engine optimization concept, the article title is relevant, effective and well versed.

Improvements and Future Research

In this aspect, I would like to talk upon Research methodology first. In my point of view it would have been better if the author would have used some other sampling technique and frame which would have led to more relevant respondent profile which will make the article broader and will increase its validity score. The author should make the sample of at least 50% of the companies where JIT/CMS/EDI has been ever used implemented and study their perspectives and include their results either quantitatively or qualitatively.

The future researches might include financial aspects of the CMS alignment with corporate strategy, the successful ways of CMS implementation, and use of management accounting with technology to maximize profitability.