Management Accounting Innovation

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Introduction

Akroyd, (2008) defines Management Accounting Innovation as an idea considered as new by the organization that adopts it. Such an idea serves as a basic principle for information systems that assist managers in making decisions aimed at achieving the organization’s goals. Management Accounting Innovation is therefore the basis of information that is used by managers in making managerial decisions.

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Drury, (2004) demonstrates that there are two types of Management Accounting Innovation. These are technical innovations and administrative innovations. Technical innovations are those which directly affect the main operations or business unit of the organization, while administrative innovations are those which do not directly affect the main operations or business unit of the organization. Technical Management Accounting innovations are normally brought about by management accountants who have a business unit orientation, while administrative Management Accounting innovations are normally brought about by management accountants who have a functional orientation.

Main body

  • Johnson and Kaplan (1987) demonstrate that Management Accounting Innovation is very important to modern organizations because it provides information that is used by managers in making important decisions regarding the operations and success of the organization. If the information provided by Management Accounting Innovation is wrong or irrelevant or not helpful, this would lead to wrong managerial decisions which may have serious negative effects on the organization. For example, Management Accounting Innovation may provide information about a process that should be discontinued and replaced with a modern process which would lead to huge savings on operation costs. If such information is not available, the decision would not be made and the organization would continue to incur high operation costs which would mean that the organization cannot compete effectively with other organizations which have adopted current technology.
  • Khan and Tata (2007) demonstrate that it is the Management Accountant who provides the necessary information needed by business unit managers in making crucial decisions. Without this information, innovation would not be possible because business unit managers would make uninformed decisions which would hamper any progress of the organization. This is because lack of information, may cause the business unit manager to fail in making a decision that would save the company a great amount of money, or due to wrong information, the business unit managers may decide to invest in a project which would not benefit the organization, or may even lead to the organization incurring huge losses.

Ashton, (1995) demonstrates that the role of Management Accountants who are business unit-oriented has particularly been very instrumental because they have been involved in the operations of their organizations and have therefore been providing the much-needed information that is very important in moving the organization forward.

I, therefore, agree that the role of a Management Accountant has been adequate in driving innovation. However, there is still room for improvement, and there is still more that can be done to promote innovation by management accountants.

Hanson, (2006) demonstrates that involvement in the operations of an organization promotes innovation by management accountants. It would therefore help if management accountants become more involved in the operations of their organizations.

  • Bromwich and Hopwood (1986) demonstrate that role involvement is the kind of duties that are ordinarily carried out by a management accountant in their day-to-day activities. Management accountants whose duties involve the major operations of the organization such as manufacturing for an organization in the manufacturing industry are referred to as having a business unit orientation, while Management accountants whose duties involve traditional accounting which is normally like a support function in the organization are referred to as having a functional orientation.

Bhimani, (2006) demonstrates that Management accountants who are involved in the main operations of the organization are more likely to understand the operations and the kind of problems that are encountered in those operations because they experience those problems practically. They are therefore more likely to come up with innovations that address the problems that they experience in the operations, that is, technical innovations. This makes their innovations more relevant and responsive to problems that are unique to the organization.

Shim and Siegel (1998) demonstrate that Management accountants who are functionally oriented, on the other hand, lack personal experience in the major operations of the organizations, and may not come up with practical innovations. Such management accountants are likely to come up with innovations that sound very good and sophisticated, but which cannot be implemented or even if implemented, would add minimal or no value to the organization.

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Johnson and Kaplan (1987) demonstrate that Management accountants who are involved in the main operations of the organization would normally initiate technical innovation, as opposed to Management accountants who are functionally oriented, who normally initiate administrative innovation such as the balanced scorecard.

Hopper et al. (2007) demonstrate that business unit managers would find it easier to accept innovations that are initiated by a management accountant who is involved in the main operations of the organization than they would accept innovations initiated by a management accountant who has a functional orientation. This is because they would identify more with the management accountant that they interact with within their day-to-day operations since they feel that such a management accountant understands the system more and is more likely to initiate innovations that would improve the system, than a functionally oriented management accountant.

Khan and Tata (2007) demonstrate that the business unit managers often feel that functionally oriented management accountants can only initiate theoretical innovations which do not apply to the organization and will therefore reject the innovations initiated by such management accountants because they feel that such innovations are only administrative and may not be of many benefits to the organization.

Shim and Siegel (1998) demonstrate that incentives such as rewards and possible prospects are a major source of encouragement for management accountants to come up with innovations. The management accountant’s supervisor plays a major role in deciding such incentives since it is the supervisor who would conduct the performance appraisal to determine whether the management accountant deserves the incentive. The supervisor of a business unit-oriented management accountant would normally be a business unit manager, so the incentives would ordinarily aim at attaining the business unit goals. This would therefore motivate the management accountant with a business unit orientation to innovate since innovation would directly lead to the incentives. The supervisor of a functionally oriented management accountant would normally be an accountant and so the incentives would aim at attaining functional goals. The management accountant with a functional orientation would therefore not be motivated to come up with innovations since such innovation would not earn him any incentives. He would rather concentrate on the functional areas since that is where he would be rewarded.

I agree with the author on his allegation that innovativeness is affected by role involvement in terms of knowledge innovations that are appropriate; business unit managers accepting the innovations, and incentives to innovate.

  • Emsely, (2005) demonstrates that innovation within an organization can be accelerated by a management accountant becoming more involved in, and learning, the operations or core business of the organization, thereby leading to several innovations in the future. That is, giving the management accountant a business unit orientation. This would sensitize the management accountant about the operations of the organization, enabling him to identify the problems within the system and thereby designing suitable solutions that would resolve the problems that were identified within the system.

Emsely, (2005) also demonstrates that by management accountants becoming more involved in the operations of the organization, they would be able to establish good working relationships with the business unit managers. This would also build the trust and confidence of the business unit managers in the management accountant such that when the management accountant initiates any innovation, the business unit managers would be able to embrace the innovation because they would consider it as having come from one of their own. They would therefore be confident that the management accountant understands the system and the innovation that is introduced would benefit the organization. This would therefore reduce the business managers’ resistance to the innovations to a bare minimum, thus reducing time wasted before implementation.

Emsely, (2005) also demonstrates that incentives to innovate influence innovation. Management accountants who are involved in the business unit would be more motivated to innovate since the incentives would aim at attaining good results in the business unit. Functionally oriented management accountants, on the other hand, would be less motivated to innovate, since their performance appraisal and incentives would be based on functional goals.

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Conclusion

Innovation is largely influenced by the day-to-day roles played by a management accountant, and management accountants who are more involved in the day-to-day operation of the organization’s core business are found to be more innovative than their counterparts who are more functionally oriented. Therefore, every organization should devise a way of involving all its management accountants in the day-to-day operations of the organization’s core business. If possible, management accountants should be rotated periodically within the organization to ensure that every management accountant appreciates all departments of the organization. If rotation is not possible, all management accountants, even functional-oriented management accountants, should become more involved in the operations of their organizations so that they learn more about the business and operations of their organization.

Reference List

Akroyd, C., 2008 Issues in management accounting. Emerald group publishing Limited.

Ashton, D., 1995 Issues in management accounting. Prentice Hall.

Bhimani, A., 2006 Contemporary issues in management accounting. Oxford university press.

Bromwich, M. and Hopwood A., (1986) Research and current issues in management accounting. Financial Times Prentice Hall.

Drury C., 2004 Management and Cost Accounting. Cengage Learning Business Press.

Hanson, D., 2006. Management Accounting. South Western College Publishing.

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Hopper, T. et al., 2007. Issues in management accounting. Prentice Hall.

Johnson, T. and Kaplan, R., 1987. Relevance lost: the rise and fall of management accounting. Harvard business press.

Khan, Y. and Tata, Jain P. 2007 Theory and Problems of Management and Cost Accounting. McGraw Hill Publishing Co. Ltd.

Shim, J. and Siegel, J., 1998 Schaum’s outline of theory and problems of managerial accounting. McGraw-Hill Professional.

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