Management Accounting: The Importance for Business

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Introduction

An innovation can be defined as an idea or practice considered as new by an individual or organisation. It might either be an entirely different approach in handling issues or an improvement of the present case. Zaltman, Duncan & Holbeck (1973) expounded innovation to not only include new ideas, but also new products and services, new processes in production technologies and changes in work practices in an organisation among others. Innovations are mainly developed for adoption by organisations upon approval to mitigate projected harsh business environments and help attain some specific business goals. Before one can successfully innovate, s/he needs to critically examine the need for that innovation and the resources available detailing the challenges faced by the current technology or process. This examination will provide the innovator with necessary information surrounding that technological process so as to come up with new ideas or ways – innovation, which will help solve the challenges faced by the preceding technology.

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A management accountant on the other hand can simply be defined as the ‘brain’ behind innovations in a business organisation. Kupper & Burkhard (2005), define management accountants as professionals who apply accounting principles to develop necessary financial information which may be used to plan financial protection of organisations both in publicly and privately owned organisations. They are charged with the responsibility of formulating and implementing financial policies in liaise with business unit managers for the realisation of the organisation’s set goals. They scrutinise the performance of a business and propose ways of how to pre-empt problems and adapt to changing business conditions. Management accountants are drawn from two orientational backgrounds: functional and business unit orientation. Management accountants drawn from the former have accounting skills and might have worked in the accounting department of the organisation while those drawn from the later have managerial skills and probably might have worked with business unit managers in the past.

Management accounting innovations

Management accounting is the use and provision of accounting information to business unit managers for the purpose of providing them with the foundation to make and base sound business decisions (Kaplan & Johnson, 1987). This has the eventual effect of improving the management and control skills of the business unit managers within the organisation. In light of the changing business environments and the increasing uncertainty in conducting businesses in the modern world, management accounting innovation plays a very important role and is one of the core themes driving modern organisations. To continue being relevant to their mission and vision, modern organisations’ managers need real time information to make informed business decisions on the way forward for their organisations. Successful organisations continue to be so because of the fact that they have ready access to information about the challenges facing their operations, service delivery and competitors (Sebastian, 2000). For this reason, management accountants develop ideas and technologies that make their organisations cope with the changing business times. Typically, management accounting information are used within an organisation for decision making and continue to be a vital part in the organisations growth.

Role of management accountant in driving innovation

The role involvement of a management accountant has been paramount in driving innovation. Their involvement takes a three fold importance in driving innovation. First, any innovation requires the scrutiny of available information to determine the baseline factors affecting the current technological or operational process so as to generate new ideas of solving these problems. As part of their role, management accountants gather financial, managerial and accounting information of a business organisation (Tajfels, 1978). They then carefully scrutinise the information and propose ways of countering pre-empted challenges to better the performance of the organisation. From the records gathered, management accountants consider all possible alternatives of solving the problems and recommend the option that will best suit the organisation under the pre-empted circumstances.

Secondly, for any innovation to be successful, the innovator must be incorporated in the implementation team. Management accountants have the advantage of knowing and pre-empting variables that affect the innovation. Based on this vast knowledge of the innovation parameters, management accountants are a vital component in the implementation phase of the innovation as they are able to give guidance when certain dead ends are reached during the implementation.

Effects of role involvement on innovativeness

Role involvement of a management accountant can simply be defined as the authority with which the management accountant dissipates his or her job. According to Anderson (1995), role involvement can be defined as, “the centralisation of a management accountant’s job and responsibility to the organisation’s comptroller department”. David Emsley documents that role involvement affects innovativeness in three ways. Firstly, it affects innovativeness in terms of the knowledge about the appropriateness of the innovation. Management accountants need to have knowledge about an innovation and understand the information needs of business unit managers to effectively come up with appropriate innovations. A management accountant with business unit orientation tends to be advantaged over one having functional orientation for the simple fact that s/he has a rough idea of the appropriateness of an innovation to generate the information needs of the business unit manager.

Secondly, it affects innovativeness in terms of the rate with which business unit managers accept the innovations. If an innovation is idealised and initiated by a management accountant having functional orientation, it faces slow acceptance rates by business unit managers. Business unit managers perceive such innovations as the works of ‘outsiders’ and act reluctantly in accepting their findings and judgements (Scapens, 1991). On the other hand, innovation initiated by a management accountant having business unit orientation faces high acceptance rates by business unit managers. Business unit managers tend to trust the judgements of such accountants as they are perceived to understand the dynamics of the business unit structures.

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Finally, incentives offered to management accountants to innovate also characterise the effects of role involvement in innovativeness. For any employer to get the best out of his or her employee, s/he needs to motivate the employee and provide conditions favourable for the employee to work effectively. Just like any other employee of an organisation, management accountants need motivation and incentives for them to innovate. This shows a sign of appreciation for their work and continued loyalty by business unit managers and motivates the accountants to continue innovating new ideas in line with changing times to keep their organisations at bay with current business environments.

Management accountants in accelerating innovation in an organisation

For successful innovation and speedy implementation of the innovation, management accountants responsible for the innovation need to be the epicentre of the innovation process right from the initial stages to the implementation phase. The role involvement of management accountants in the innovation process determines the rate with which innovations will be accelerated in the organisation. For accelerated innovations within the organisation, management accountants need to come up with innovations that will generate the information needs of business unit managers (Sharman, 2003). Knowledge of how business unit managers make decision by management accountants can provide them with options of developing innovations that will generate the required information and aide the business unit managers in making sound business decisions (Emsley, 2005).

Also, for speedy and accelerated innovations within the organisation, management accountants need to take charge of the innovation process. By virtue of being the ‘experts’ in innovation, management accountants need to lead by example to help build confidence of other departmental managers in the process of innovation (Kaplan & Johnson, 1987). When management accountants show professionalism in their innovation process and succeed in gaining the confidence of departmental heads, the innovation is more likely to see through all its phases up to and including its implementation.

In addition, management accountants need to show stewardship during the innovation process (Rogers, 1995). They need to accept inputs and corrections from other colleagues and not portray themselves as superior so as to develop a cordial and workable relationship with their colleagues.

Finally, just like any other employee of the organisation, management accountants need to work within the bounds of the organisation’s rules and regulations. For successful working relationship with business unit managers, management accountants need to be governed by the provision and limits of their organisations.

Conclusion

Management accountants play a vital role in the day to day running of any business organisation. Apart from their basic functions of score keeping and attention direction (Emsley, 2005), they are charged with the responsibility of ensuring the organisation remains true to both its mission and vision statements. To attain this objective, management accountants are required to develop new ideas and principles on which the organisation is to be run. This imperative role played by management accountants ensures that the organisation not only continues to attain its objectives but also ensures that the organisation keeps in touch with the changing business times.

References

Anderson, S.W. (1995). A framework for assessing cost management system changes: the case of activity – based costing implementation at General Motors. J. Manage. Acc.Res.7, 1–65.

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Emsley, D. (2005). Restructuring the management accounting function: A note on the effect of role involvement on innovativeness. Management Accounting Research, 16, 157–177. Web.

Kaplan, R.S. & Johnson, H.T. (1987). Relevance Lost: The rise and fall of management accounting. Harvard University: Harvard Business Press.

Kupper, H. & Burkhard, P. (2005). “Relevance Added: Combining ABC with German Cost Accounting”. Strategic Finance, pp 56–61.

Rogers, E.M. (1995). Diffusion of Innovations. New York, Free Press.

Scapens, R. W. (1991). Management Accounting: A Review of Recent Developments. London, MacMillan.

Sebastian, N. (2000). “Taking control of IT costs”. Financial Times, pp 17-19.

Sharman, P. A. (2003). “Bring On German Cost Accounting”. Strategic Finance, 2–9.

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Tajfels, H. (1978). Social Identify and Intergroup Relations. London, Cambridge University Press.

Zaltman, G., Duncan, R. & Holbeck, J. (1973). Innovation and Management. New York, Wiley.

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