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With the development of economic globalization and information technology, modern enterprise has to face competitive challenges from both domestic and international markets. The conventional management accounting (MA) was difficult to meet the requirements of modern enterprise management because it just focused on short-term interests of MA and often revealed closed, narrow and simple characteristics and lack of contingency. In the fierce competitive business environment, enterprise has to hold a global perspective to choose a management mode which is strategic management oriented, according to the changing environment and making appropriate adjustments correspondingly to keep balance in and out of enterprise , in order to gain overall competitive advantage. Modern enterprise management which is in a complex and dramatically changing external environment has begun to enter the era of strategic management dominated. To challenge of conventional MA, strategic management proposes an urgent requirement to update the concept of conventional MA, especially to provide broader and more useful information of strategic decision-making. In order to make up the deficiencies of conventional MA, scholars who devote to making MA meet the needs of the strategic management and provide valid information and control methods for strategic management have done for a lot of related research. Hence, strategic management accounting (SMA), which both concerns the long-term interests of enterprise and coordinates the internal resource with external environment, have emerged. Due to its long-term, overall, extroversive and comprehensive characteristics, SMA can meet the development needs of the enterprise from a strategic perspective. It has a profound impact on conventional MA, especially is a creative breakthrough of modern MA. This essay will firstly tell the evolution of conventional MA. Following this, it will explain the emergence of SMA from its background, definition and function, respectively. Then, it will turn into the most important part where it will state some strategic management accounting tools. Finally, it will make a discussion about the advantages and disadvantages of SMA and draw a conclusion.
The Evolution of Conventional Management Accounting
Since separating from the accounting, MA has got a rapid development. The development course of MA in the 20th century can be divided into four stages:
1) The MA era of pursuing efficiency (from the early 20th century to the 1950s)
The principle of the 20th century, the original development of MA dues to the paper "Principles of Scientific Management" published by Taylor(1911) who is the representative of classical school. Then, Harrison (1918) work for his research of standard cost which was subsequently popular in the 1920s. McKinsey (1920) who first opened the MA seminar in the University of Chicago was regarded as the founder of American MA. Quaintance (1922) published "Managerial Accounting: an Introduction to Financial Management" and first proposed the name "Management Accounting".
MA, which mainly contains standard cost, budget management and variance analysis, aims to help enterprises solve the problems of how to improve production efficiency and economic interests in the implementation process. In this era, MA mainly pursues "efficiency", which emphasizes "doing thing right".
2) The MA era of pursuing effectiveness (from the 1950s to the 1980s)
From 1950s, western countries had come into a so-called post-war era. In this era, many new features of economic development appeared. When it comes to this new situation, the defects of Taylor's scientific management theory which was once in vogue began to expose completely. It could not adapt to the new demand of the post-war economic development in western countries and was replaced by the modern scientific management. In a research report in 1958, it clearly pointed out the basic methods of MA, namely, standard cost, budget management, break-even point analysis, analysis of poor, sliding budget, marginal analysis, which formed the foundation of MA methodology. In 1960s, performance accounting and decision-making accounting emerged with the development of computer and information technology. Becker and Green (1962) address a new area "behavioral accounting" in their paper. In 1970s, Caplan's "Management Accounting and Behavioral Science" and Hopwood's "An Accounting System and Managerial Behavior" published to complete the content of this area. In this era, MA mainly pursues "efficiency", which emphasizes "doing thing right". Meanwhile, MA was established a structure system mainly containing decision-making accounting, planned accounting and executive accounting.
3) The MA era of reflection (1980s)
In the 1980's, due to the introduction of "information economics " and "agency theory", MA had new development. In this period, the research of MA could be divided into two schools: the traditional school and innovative school. Traditional school which advocated from the standpoint of standard cost, budget management and variance analysis took cost as the core factor and emphasized on the accumulation of historical experience. Horngren's "Introduction to Management Accounting" is the representative work of traditional school. The innovative school advocated using the theory and method of mathematics and behavioral science to solve the problems of MA. They stressed comprehensive innovation, preferred mathematical model and relied on computer to solve complex MA problems about forecasting, analysis and decision-making. Kaplan's "Advanced Management Accounting" is the representative work of innovative school. The arguments between traditional school and innovative school prompted the MA research into a reflection era. Kaplan (1983) argues that MA researchers must go out of their offices to practice new theories and methods. Activity-Based Management (ABM) which was proposed by Kaplan is widely used in MA textbooks. Corresponding to the concept of "value chain" raised by Porter, MA dedicated to optimization for the "value chain" of enterprises by means of ABM.
Glimpsing the whole development course of MA before 1990s, modern MA follow a development track of "efficiencyâ†’effectivenessâ†’value chain optimization" which basically revolved around a theme of " value added ".
4) The MA era of theme changing (1990s)
In the 1990s, global economic environment was undergoing persistent changes. At this time, the theme of MA had transferred from the value added to the enterprises' adaptability of the changing external environment. Thus, this period can be regarded as the transitional period of theme changing of MA. According to the research of Atkinson et al. (1997), the research trends of MA theory in 1990s can be reflected in the following three areas: position and role of MA in organizational change, intergrowth and interaction between MA and organizational structure and, the role of MA in the decision support system. In this period, a notable characteristic is the emergence of SMA. Meanwhile, a series of techniques and methods appeared, such as competitor analysis, value chain analysis, activity-based costing and balanced scorecard.
Emergence of strategic management accounting
In recent years, the dramatic changes of the enterprise business environment, the increasingly fierce global competition, the information needs of management innovation are the ultimate reasons for the emergency of SMA. The concept of competition is of great significance in the strategic management which requires enterprise should determine its competitive advantages. To meet the needs of enterprise strategic management, SMA emerged and should expand its original methodology through absorption and innovation. SMA aims to set up organizational structure, product development, marketing and resource allocation and, to provide information support for strategic management of enterprise from a strategic perspective. The changes of the external environment and internal management system bring the changes of information need types of MA, which expand the scope of information to various corporate strategic decision-making related, including internal and external, short-term and long-term, financial and non-financial, quantitative and qualitative, and so on. Being different with conventional MA which mainly focuses on providing financial and quantitative information, SMA increases significantly the demand of non-financial information such as product replacement, intellectual property, market competition in the information and strategic planning. Furthermore, the information of the company's core competitiveness cannot be quantified while it is an important part of management accounting information.
Simmonds (1981) first proposed the concept of SMA in his paper "Strategic Management Accounting". He stressed the importance of combining MA with enterprise strategies and he emphasized SMA should focus on external environment in order to measure competitive position of enterprise. Bromwich (1990) explained SMA is a development rather than a branch of MA. He further stated that SMA is not only to collect business and competitors' information but also to research competitive advantage and value-added process of enterprise themselves through comparing with their competitors. Govindarajan and Shank (1992) represented that SMA is the role of cost information in the stage of strategy statement, strategic delivery, strategic implementation and strategic control. Lord (1996) identified that SMA is an extension from internal focus of MA to include external information about competitors and, it could gain competitive advantage through exploiting linkages in the value chain. The Chartered Institute of Management Accountants (CIMA) formally define that SMA is a kind of MA which emphasizes on internal information as well as external and non-financial information.
The basic functions of conventional MA are generally divided into four kinds: planning, organization, evaluation and control which are gradually decaying in modern times. The function of modern MA (mainly refers to SMA) expand from simple financial accounting to analyze the past, control the present and plan for the future. First, analyzing the past means restructuring the information provided by the financial accounting in order to better adapt to future planning and present controlling. Second, controlling the present means revising deviations promptly in the implementation process through observing a series of index so as to carry out the Economic activities effectively according to planned decision-making. Third, planning for the future means taking full advantage of information available and strictly executing quantitative analysis to help managers master the situation objectively, and this may finally improve the accuracy of forecasting and the scientificity of decision-making. SMA combines these three functions to work together where they may generate a comprehensive function.
Strategic Management Accounting Tools
Performing MA functionally depends on various applications of MA tools. Conventional MA tools mainly contain Budget Management (BM), Standard Cost (SC) and Variance Analysis (VA). But recently, many new MA tools appear in people's view. The most representative tools are Activity-Based Costing (ABC) and Activity-Based Management (ABM) (Cooper & Kaplan, 1991; Cooper et al, 1992), Balanced Scorecard (BSC) (Kaplan& Norton, 1992), Economic Value Added (EVA) (Stern &Stewart, 1993) and so on. The new MA tools has changed the conventional MA method of financial control oriented, and transformed the function of MA from control oriented to value-added oriented. The table presented below will comprehensively evaluate these four main tools according to some key issues of MA to make a comparative analysis of them.
Key issues of MA
Clear long-term objectives and strategies of organization
Multiple financial indicators: profit, cash flow, return on investment, etc; Not formally consider the relationship between means and results, although the budget is based on action plan.
Single financial indicator; Driven factor of strategy is financial capital; Specific strategic planning and implementation delegate to subordinate managers.
Multiple objectives: including financial and non-financial indicators; Although having no formal strategic management procedures, strategic intent is implicit in strategy mapping and performance indicators choosing.
Value-added objective: mainly by reducing the consumption of resources to achieve strategic objectives.
Organization (organization and process design)
Responsibility center built on the traditional hierarchical organizational structure
Stressing "Thorough Authorization"
Analyzing organizational effectiveness from the perspective of value chain, and tending to build organizations based on the activities and processes.
Mainly using financial indicators, having a good financial plan; Many targets set for the hierarchy of control.
Partial adjustment of traditional accounting measurement setting targets.
Despite emphasizing "balance", not mentioning how to set targets.
Stressing activity benchmarking of organization, and implementing standard activity costs.
Performance evaluation and reward
Not emphasized, but the majority of the organizations according to the completion of budget to determine rewards and punishment.
Incentive Plan (Bonus Pool) is the core part of this method.
Only stressing evaluation, not involving how to join with incentive plan.
Short-term feedback of budget variance.
Discussions involving long-term effects.
Reporting performances, but no specific guidance.
Providing activity accounting and decision-making, emphasizing analysis of activity cost variance.
Discussion: Advantages and Disadvantages of SMA
In this part, a discussion about advantages and disadvantages of SMA runs and is summarized in the following table.
By employing all the internal and external, financial and non-financial information, SMA can unfold a big picture of business.
By taking all of the company's financial and non-financial information, SMA can find a effective way to cut costs.
By planning for the future, SMA can follow up the pace of changing world and meet the needs of consumers.
Lack of Standardization
There are no standards to follow in SMA, and discordance often emerges.
Focus on Quantitative Information
Quantitative information is so rational that other useful non-quantitative information is ignored.
The tools of SMA have a certain bias more or less because of involving people's personal beliefs and feelings.
Conclusion: Nature and Significance of SMA
To sum up, SMA does not change the functions of conventional MA, and the fields it participated cover through the whole process of enterprise management. So, SMA is a development rather than a branch of conventional MA. SMA focuses on competitor analysis, concerns about the impact of environmental change, and has comprehensive characteristics. These advantageous characteristics make SMA better adapt to meet the needs of new business environment and enterprise management environment and become the future development direction of MA.