Management Accounting

Management Accounting - Assignment One

I- Describe how organizations adapt to their environment in order to increase both customer and organizational value. (479 words)

In order to create organizational value, it is critical that an organization offers a good-value for money to its customers, which is also called customer value. Therefore, according to Art Weinstein (Designing and delivering customer value, 1999) many organizations consider customer value as the overall basis for a good business strategy and a strong organizational viability.

The impact of a changing environment forces structures to evolve, therefore changes in technology, globalization or customer preferences induced organizational change as a response. These changes modify the way organizations operate and management must adapt always keeping in mind the creation of value. As Jerold L. Zimmerman explains, the management accounting system of a structure has a key role in providing information within the organization, it allows better overall view, eases the decision-making and helps create organizational value.

In 1980 Rice & Rogers already wondered on the degree of uncertainty associated with a technological breakthrough and the complexity of how to adapt it into an organization in order to increase profits. In the nineties many organizations revolutionized the way they communicated by using new technologies of communication such as Internet, mobile phones and PDA’s creating the real-time information. Thanks to other advanced technologies such as computer-assisted manufacturing and computer-assisted design, companies were also able to provide better quality products through programmed machines. Those breakthroughs permitted at the same time to reduce production costs (increasing organisational value) and increase customer value through the image of a more reliable brand.

Technological projection in transports and low labour cost in many countries has brought globalization to be one of the major force affecting business organizations (D.Vittry, 2001). If on one hand this unique market conditioned the growth of a given company on the other hand it can also be a threat. Because consumers are now able to compare prices for a same item thanks to Internet, high prices must correspond with high value. Therefore to remain efficient on such a competing market organizations must adapt and seek for new processes.

To better handle the production of his car factory and to “kill the incurring costs of inventories” (Taiichi Ono, 1989) a Japanese businessman created the Just In Time process. The global idea was to start producing only when the order had been received, so that activities and costs that do not influence customer value can be eliminated. In the same factory other processes of minimization of loose such as Total Quality Management and Total Productivity Maintenance were created with the implicit objective to better meet customers needs and expectations. Companies like Toyota well understood the importance of the Value chain analysis and saved many resources eliminating non-value-added-activities.

Organizations adapts to external changes modifying the way they operate based on new management strategies. Companies are able to optimize their resources developing ways to create organizational value and customer value through innovation, high quality or low cost products.

II. Evaluate the role of management accounting in adapting as described above. Your answer should consider the strengths and weaknesses of management accounting (as against other elements of the management control system) in making this adaptation. (507 words)

As we just saw, organization adapts to environment changes modifying their management strategies; considering an evolving environment it is normal that the role of management accounting has changed as well. The traditional role of a managerial accountant consisted in providing reports and information on past events in monetary terms to managers within the organization. Johnson and Kaplan (1988) stated that until the mid-1980 the practice of managerial accountant stagnated focused on cost determination and financial control only.

The role of management accounting has increased within the organization when it started to focus on non-financial information and became clearer and more relevant for decision-making. Indeed, by taking in consideration information such as

...