A Case Study On Strategic Management Accounting

Introduction: Strategic management is ready to flower as a prime function of the management accounting because strategic decisions determine the competitive market position of a business. They are the managerial decisions in which the greatest sums are at risk. Since the value of information lies in avoiding the cost of mistakes that would have been made otherwise, it is in the formation of strategy that the greatest value of management information will arise-where the mistakes can be most costly. It follows that management accounting should see it as a primary task to provide for management the essential information for strategy formation and adjustment.

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An Article on Strategic Management Management accounting has a strategic purpose. Providing essential information for strategy formation and adjustments to management are considered to be the primary task of management accounting.

The word Strategy is derived from the Greek word strategos, meaning a general, and the Greek verb stratego, describing generalship. The concepts of military strategy were discussed by early writers like Homer and Euripides. At one point Socrates likens the duties of a general and a businessman; both are planning the use of resources to meet objectives in the face of competition.

There are generally agreed to be three levels of business strategy:  Corporate strategy  Business strategy  Functional level strategy

This ladder of strategy levels parallels organizational levels. In many ways business strategy dominates the other two.

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Without well considered business strategies as a basis, it would be foolish to develop a well-designed corporate strategy and even more imprudent to make a comprehensive functional strategy. Management accounting clearly has a major role to play in enabling the identification and definition of the appropriate business unit’s strategy. Management accounting system must be designed as Strategic Management Accounting.

The four significant questions:

1. What is the Definition of Business (Unit)?

2. What is the Essence of Business Strategy?

3. What are the major Eleven Elements of Business Strategy?

4. Should Accountants extend their effort to cover the entire area of MIS?

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Answer of 1:

Definition of Business

It might be usually granted that in its static definition a business provides products or services in the face of competition to meet market needs. Additionally, it may be defined either by product, competition, or market attributes. The preference, however, is to lean towards definition based on market attributes which indicate a break in the chain of product substitutes. And the strategic definition of a business is provoked by the need to actions to build or defend the unit of business. For the true strategist there can be no fixed definition of a business. Units will need to be changed and reformed in step with perceptions of the need for defense or the opportunity for advance.

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Answer of 2: Essence of Business Strategy

The word Strategy is derived from the Greek word strategos, meaning a general, and the Greek verb stratego, describing generalship. Despite the long history of writing on strategy, however, the field of business strategy is predominantly a creation of the past to decades with its own set of subtle business terms and meanings that have become firmly embedded in the business policy and marketing literature. One attempt in the mid-1960s to relate the emerging field of business planning to modern principles of military strategy showed a very considerable distance between what the military saw as strategy and the business concept of strategic planning (Caplan, 1965). There are generally agreed to be three levels of business strategy: corporate strategy, business strategy, and functional strategy (Hofer and Schendel, 1978). Of course, business does not conform to one standard pattern. But by reducing the confusion of reality to some basic elements, patterns of strategy have become examinable.

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Answer of 3: The eleven elements of business Strategy

1.

Strategy is applicable to business within defined

boundaries. While the boundaries may change, the strategy applies at any specified time to actions affecting a delimited area of demand and competition.

2.

There are direct competitors. These competitors sell

essentially the same products or services within the defined demand area.

3.

There is zero-sum competition between the direct

competitors for the market demand, subject to competitive action affecting the quantity demanded.

4.

Demand within the defined market varies over time.

5.

Strategy unfolds over a sequence of time periods.

Competition evolves through a series of skirmishes and battles during the product life cycle.

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6.

Single period profit is a function of the price level ruling

for the period, the accumulated volume experience of the firm, and the firm’s achieved volume as a proportion of capacity.

7.

Market share has intrinsic value.

8.

Competitors differ in market share, accumulated

experience, production capacity, and resources. Competitors are unequal, identified and positioned.

9.

Objectives differ. Firms composed of ownership,

management and employee factions and operating a range of different business have different objectives.

10.

Within a given situation, a core of strategic actions will

determine changes in competitive position.

11.

Identification of an optimal core of strategic actions

requires reasoning and diagnosis, is not attached through the application of a fixed set of procedures, and is situational.

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Answer of 4:

Should Accountants extend their effort…?

Basically, this questions whether the intellectual skills required to be an ‘expert’ in accounting are easily transferred to the whole area of management information systems (MIS). At present it must be concluded that they are not. This option is based on the fact that there is a certain advantage, at least initially, in limiting our efforts only to financial data, because processing and analysis of non-financial data require technical knowledge unfamiliar to accountants. Besides, the processing and analysis of financial data alone offer challenges and opportunities that will not be exhausted in any foreseeable future.

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Conclusion:

Management accounting clearly has a major role to play in enabling the identification and definition of the appropriate business units anytime. To do so, the management accounting system must be designed so that management can be both stimulated to consider what might be appropriate units for strategic action and also able to search further in a process of confirming or rejecting possible units of action. Thus the requirement to design the management accounting system to enable diagnosis of the units of business requiring strategic attention does not require a major reorientation of the technical aspects of classification. The missing ingredient is the acceptance of strategic competitive position as the determinant for identifying units. To achieve such acceptance, the findings of contemporary research into the patterns of competitive strategy will need to take their place at the beginning of management accounting.

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Recommendation:

Changes in competitive position generally build gradually through the ebb and flow of many moves and counter-moves. Thus strategy is a field in which an ongoing precision can pay off attractively. If strategic management accounting is to become a reality, some fundamental changes must be made to the format of management accounting records, plans and reports. With formal acknowledgement of the legitimacy of a strategic focus and a firm step away from the search for information from internal cost analysis, strategic management accounting is ready to flower as a prime function of the management accountant.

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A Select Bibliography: Books and Articles: Abell, D. F., and Hammond, J. S., Strategic Market Planning: Problem and Analytical Approaches, Englewood Cliffs, N.J.: Prentice-Hall, 1979. American Accounting Association, Report of the committee on foundations of Accounting Measurements, New York: AAA, 1971. Amey, L.R., Budget Planning: a dynamic reformulation, Accounting and Business Research, winter 1979. Ansoff, H. I., Corporate Strategy, New York: McGraw-Hill, 1965. Boston Consulting Group, Perspectives on Experience, Boston, Mass.: Boston Consulting Group, 1968. Chandler, A., Strategy and Structure, Cambridge. Mass.: MIT Press, 1962. ………………………..Etcetera. Websites: http://www.prenhall.com/accountingconnection http://www.engr.udayton.edu http://www.findfreecollegeessays.com ………………………..Etcetera.

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