Business today is rapidly changes to suits today consumers demand. With increasing of competition, organization needs to strive to be step ahead of their rival to keep their market's share intact. To success, organizations need to make customers satisfaction as number one priority which is translated by product quality and innovation. They need to adapt to the new management approaches and changing their manufacturing system as well as investing in Advanced Management Techniques. Continuous improvement is essential for today business as well as total quality management implementation to the organization. Kaizan and Target costing approach, together with the concept of learning organization can be enforce for a rapid improvement across all company workstation.
This increasing demand from customers is a result of too many competitions in the market. It is inevitable for the company to do something about it and react. They need to set a target as to maximize long-term value or reputation of the company and strengthening their brand to beat the competition, as well as to maintain a good short-term budgetary for their daily operations. In other word, company need to have a set of long-term vision and at the same time their short-term mission that can be break into a several objectives that need to be fulfill. Thus, the use of management accounting system can make everything more manageable and controllable.
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Managing the ongoing operations of any business and, at the same time, allowing sufficient innovation to adapt to a changing market is one of the basic challenges in today management. The problem may arise when a change in short-term can affect the long-term goals. For example, machinery break down can wasted a several hours of productivity output. To counter this, company need to anticipate this possible situation and ready for back-up plan, like outsourcing to ensure a consistent production output. On this duration, they can also try to 'play' with the product to set it popular for a current trend.
The way the organization is operated is changed mostly in manufacturing sector. Management method like Activity Based Costing is used instead of the old traditional costing method, because of complexity of the daily operation of the various products that needed to be monitor. Labor is being replaced by machinery to speed up the production process. Organization's structure is also change. Decentralization structure, outsourcing and service shared center using transfer pricing method can greatly reduce the costs. Further subdivided the organization into unit so it will become specialized in certain thing will make everything run smoothly. Each subunit will be appointing a manager who will be responsible for their centre activities. There are four centre, which is cost centre, revenue centre, profit centre and investment centre. Company can also cut cost further by downsizing or dropped off non-cost effective department.
An employee is the important factor to form company's vision. Employer must convince their employees to adopting company's system of believe. Performance measurement systems can help employees to keep them motivated to achieve company's entire objective and employee empowerment can make employees feels 'needed' by the company.
However, this change in modern organization does not mean the traditional management controls need to be abandoned. All the modern approaches are based on traditional method. And almost nowadays companies still using traditional management. For example, the advanced ABC method is not relevant to Small Medium Enterprises (SME) industry because the costs to implement it exceed their benefits. Transfer pricing only works for multinational companies. It is primarily used to cut cost from the tax. Static budget is still widely used despite the new advanced budgeting method like zero based budgeting and activity based budgeting. There is a reluctant to change because people have become way too accustomed to old budget and afraid of any change will affect their business, one way or another. Cost volume profit analysis is not as practicable as FIFO, LIFO and weighted average stock management but somehow still being used for getting margin of safety for the stocks.
In manufacturing sector, the traditional method relies on produce a large batch of product to lower the cost of sales for each product. Nowadays, the manufacturing sector needs to be flexible, adaptive, and responsive to changes, and be able to produce a variety of products in a short time at a lower cost to compete with others (Nagalingam, 1999).
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Just in Time manufacturing cuts waste while supplying parts only when ordered by customers. It developed from Kaizen, a Japanese method of continuous improvement of total quality management. It needs a precision estimation of demand it will received in order to have enough supply for it when required. Business Process Re-engineering although costly, can change internal operational activities and eliminated non value added activities to save costs and minimize wastage.
In reward for performance system, Return on Investments (ROI) should be replaced by Residual Income as ROI had a loophole in the system that the managers tend to make a short-term profit decision rather than long-term profit decision.
Balance Scorecard added strategic non-financial performance measures against managers and executives into their performance measurement. It is proven to be a useful tool in providing guidance for the employee to make them understand about how they can contribute to the organization. It can be used for employees to see the consequences of their actions or decisions. It can also provide executives an effective tool to translate a company's vision and strategy. For managers, they will first identified organization objectives and short-term goal, and then they develop long-term strategy and short-term plans before developing budget. This budget will be evaluate and assess from time to time for control purpose. Any weaknesses identified will be fixed as soon as possible.
For long-term planning, investing in research and development is essential and technology achieved can be trademark to not let rivals copied it. Product quality is a short-term goal that can be achieved but may be hindered by innovation of the product for long-term benefit. They need to be separate from daily operations. Quality and innovation need to work side by side. Innovative companies should minimize formal controls to reduce bureaucracy and allow creativity to flourish. Total quality management and continuous improvement philosophy play an important role here. Controlling strategy is also very important, to allow innovation and flexibility.
The great method to use to get overall current view of the company and situation around is SWOT analysis. It can evaluate company's current position and current opportunity present outside the company. PESTEL analysis is a useful tool for companies that want to venture to a new market or making a new product. It is suitable for a company seeking a growth or market opportunity. Porters five forces provided the company information on risk for current external environment and how to assess the threat presents in the outside market and the risks associated.
Value creation is something that being perceived by customers in company's product or service. Co-creation of value is possible by third party help, by being participative in all supplier and customer activities in an unspecified process that leads to value for customers. Existence of supplier-customer interactions, and the effective use of them as a means of directly influencing customers' value fulfillment, enables co-creation of value (Gronroos and Ravald, 2011). The after-service of the product purchase like given a warranty is a must, since customers' decisions in buying a product usually depends on this factor.
Knowledge and skills of employees is important as a competitive asset. Civi, E. (2000) stated, knowledge is often called the intellectual capital of a firm and it is also very critical. Beyond brand name and physical assets, a corporation gains knowledge from years of experience in such things as manufacturing, engineering and sales. This cumulative experience, together with information gathered from outside sources, constitutes one of the firm's critical resources.
Leaderships had an important effect on knowledge creation in the projects studied through the informal control the top management exerted over the projects. At later stages there are reasons to increase control, as there is an increased need to make the knowledge created more explicit (Richtner and Ahlstrom, 2010).
Information systems (IS) need to be implemented in the product innovation. Firms should continue to invest in and deploy IS that support product innovation. There is also firm-specific, complementary information and knowledge to put into consideration for product innovation in gaining competitive advantage. It can also make such IS less susceptible to imitation by competitors (Zhang, M.J., 2011). The successful of the organizations nowadays lies in the knowledge and skills of its people. Gone are the days when product design, production process or customer service could create competitive advantage. Thus, the organization must ensure staffs are suitably rewarded with good package remuneration with other benefits. Organization needs to foster an environment where individual creativity and innovation can flourish assuming the individuals in the organization are committed, have shared common values and beliefs of the organization, and do not feel constrained by rules and regulations, systems and processes (Weymes, 2004). Building relationships based on trust is important for the organization in long-term.
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Six Sigma consists of three management principles namely customer-focus, continuous improvement and innovation. A lot of analyzing of customer information and goal orientation for continuous improvement can help company achieving a new innovation. Six Sigma has global recognition for changing organizational mindsets and improving business performance in short-term (Eng, 2011).
Organization may want to try to be a lowest cost producer in the market as possible. Transfer pricing method as well as supply chain management, can minimize various costs, while retaining the quality and true innovation (not imitation) targeted at the large, low-income segments of the population. A low-cost innovation might take away a chunk of your current profit, but it will also expand your market scope in a significant way and more importantly, possibly can alter customer purchasing behavior permanently (Kachaner et al., 2011).
Total quality management (TQM) comes from the philosophy of continuous improvement. The ideal is a bit of an extreme while it is really been adopted into Japanese large corporations management. Babbar and Aspelin (1994) stated that TQM is for long-term benefits. The cost-versus-benefits of TQM implementation is not a straightforward method of predicting future cash flows. The intangible components of TQM are hard to value too. It is simply just a tool to increase your firm competitiveness in the market and tried to be the best. Only perfectionist managers will take this into account to achieve a sustainable competitive advantage which will eventually drive their subordinates possibly to frustrations.
Corporate social responsibility (CSR) is considered as useless and even subversive in the traditional economic approach, as traditional economic approach encourage competition to ensure efficient management of resources and incites innovation and thus has a positive impact on the community. But fierce competition especially between large multinational companies exerts strong pressure on costs, leading to policies of externalization, including outsourcing to countries with less restrictive on social and environmental regulation. Firms play on the inequalities between different economic spaces to take advantage of countries and areas where local political authorities are weak and, therefore, where the firms can impose their own terms and conditions. Many third-world countries become a place for their greed. Reviewers remark those firms as 'irresponsible' (Mokhiber and Weissman, 1999; Bakan, 2004). Fierce competition necessarily generates social and environmental costs that anti-globalization movements detested. With CSR strategy implementation that depends mainly on the added value that economically customer or other stakeholders can grant to the 'socially' and 'environmentally' responsible behaviour of companies, CSR act as a 'license to operate' (Quairel-Lanoizelee, 2011).
Customer loyalty schemes can retain some of the customers. Usually company will issued member cards for purchase above certain minimum price. Its objective is to reward loyal customers, to generate information on consumer purchasing, and to combat a competing scheme. However O'Malley (1998) said customers are not loyal to the brand, but they just looking for the best deal getting for doing frequent shopping. Nevertheless this method will benefit the company in long-run. Kerr, B. (2009) stated, that the long-term value of any loyalty scheme is determined by how well you can analyze customer data to sharpen your tactics in support of an overall strategy. It is just a part of the long-term strategic management.
In company's marketing department, they need to have a good Public Relationship people to build up the fame of their brand. They need to handle complaints from stakeholders and customers well. Magazines like Forbes and TIME usually can make certain brand popular. News can make company's brand known to public. And a good financial statement can attract shareholders to invest in the company. Once you have unlocked the potential of your brand, you will create environment that enable and encourage loyalty (Duffy, 2003).
To reduce the tension between the predictable goal achievement and the pursuit of strategic adaptation, Simons proposed four basic levers: beliefs systems, boundary systems, diagnostic control systems, and interactive control systems. The four levers each offers some measure of guidance to the strategy process. Boundary systems set organization to focus on either differentiation of products, low cost or specific customer groups while avoiding risks associate on how certain product being compete into market. Belief systems communicate core values such as mission statements, credos and vision statement. Diagnostic control systems provide strategic feedback and vehicles to update and redirect strategy such as competitive analysis and market feedback reports, and interactive control systems need managers to continuously involve themselves in the decisions and behavior of their subordinates (Simons, 1995).
To further the study about this a new theory of control that recognizes the need to balance competing demands is required. Inherent tension must be controlled, tensions between freedom and constraint, between empowerment and accountability, between top-down direction and bottom-up creativity, between experimentation and efficiency. You can't choose but need both in organizations.