The Role of Management Accounting in Driving Innovation

Cite this

Introduction

According to Martijn and Eelke (2009), a management accounting innovation refers to a new idea that is adopted by an organization and this idea is used for information systems and financial systems to help managers in decision making. Rogers (1995) observes that management accounting innovation is a vital aspect that management accountants need to observe to enable organizations to successfully cope in the current market environments.

On-Time Delivery!
Get your customized and 100% plagiarism-free paper done in as little as 3 hours
Let’s start
322 specialists online

Management accounting as a core theme in driving innovation

Other proponents of management accounting innovation support the understanding that management accounting is one of the main themes driving modern organizations. Organizations that are keen to improve their competitive position have to adopt innovative management accounting systems. The information presented by management accountants could be useful in directing a firm toward increased innovation.

Role of management accountants in driving innovation

The role of management accountants in driving innovation has been inadequate, though; Atkinson (1997) has argued that different studies on management accounting innovation have resulted in varied perspectives on the understanding of the approaches to management accounting innovations. Some authors have stated that the role of management accounts has been inadequate in increasing innovation as shown in the extremely slow implementation of modern management accounting ideas. Some scholars have come up with causes for this low rate of implementation of activity-based Costing and the Balanced Score Card.

According to Kaplan (1986) there has been a lot of criticism for the lack of innovation of management accountants. He further points out that the lack of innovation was prevalent and described it as „accounting lag. He suggested that this problem should not be in firms that wish to compete in today’s dynamic business environment. Other proponents of the role of management accountants’ innovation have evaluated the varying roles of management accountants in organizations particularly in terms of problem-solving and the directing of attention (Simon, 1954).

The problem-solving role which focuses on provision of information to business unit managers for decision making as observed by different researchers has become vital managers face competitive and volatile market environments which rely on innovative ideas to counter those uncertainties. As pointed out by Murphy (et al., 1995), the role of management accountants in driving innovation has been inadequate. This has then increased questions concerning the relevance of the management accounting function in an organization.

Management accountants require to be involved with business units and the users of information they generate. This means that the managers have to reduce the time spent in traditional accounting jobs. The success of management innovations depends on the familiarity that the managers have with the different business units. Emsely (2005) was right in his analysis of the relationship between role involvement and innovation. This includes knowledge about the benefits of an innovation, approval of new ideas by unit managers and the creation of incentives that encourage innovation.

For the management accounting innovation to be successful, the management accountant has to be aware of the effects of a particular innovation on the entire organization and its relevance to the business unit managers Murphy (et al., 1995).

Yes, we can!
Our experts can deliver a custom The Role of Management Accounting in Driving Innovation paper for only $13.00 $11/page
Learn More
322 specialists online

Role involvement in management accounting innovations

According to McGowan (1998), role management is different from user involvement in the following ways, the involvement of individuals who are users of management accounting information were involved in developing the innovations as opposed to management accounting which was seen to simply innovate new accounting models). It also examines the effect of the satisfaction of the users with the implementation of innovations instead of the likelihood of new innovations being developed (Emsely 2005).

The knowledge of appropriate innovation (Emsely 2005) can be best understood by management accountants who are acquainted with business unit orientation since they work together with the business unit managers. Emsely (2005) explains that this positioning of the management accountants to unit managers not only exposes them to their decisions but also deepens their understanding of the relevant information in making such decisions. Therefore, they are in a better position to possess information that is useful in decision making. (Anderson &Young, 1999). On the other hand Emsely (2005) argues that individuals in the management accounting function who work closely with the accounting function only are most likely to give information that does not reflect the changing business unit needs. Emsely (2005) emphasized that they will not be familiar with the business unit’s decisions and the information they need to make the appropriate decisions. Therefore they may implement ideas that are not helpful to the users.

He further argues that in a different perspective, the management accountants who are familiar with the different functions in the organization will be keen to differentiate between the needs of one manager and another. This will enable the management accountant to come up with solutions that can be useful throughout the organization. According to Emsely (2005), another effect of role involvement is in its effect on the development of new innovations by the manager of business units. He explains that business unit managers are most likely to accept innovations initiated by management accountants because it will reduce the uncertainty that will be perceived about the benefits of new ideas and the resistance to new ideas. The business unit managers are the most likely to be concerned with the effects of the innovations. It is easier to demonstrate a technical innovation like an increase in the efficiency of a machine than administrative innovations involving decision making such as the ABC method. (Emsely, 2005)

On the other hand, to boost confidence in the benefits of management accounting information, the business unit managers should spend time with the relevant sections to appreciate the positive outcomes of embracing a new innovation. This means that the individual business unit manager can only accept the innovations if he trusts the opinion of the management accountant as a result of the management accountant’s long experience on the cost and benefits of an innovation. This situation is more likely to be experienced in situations where the innovations are radical and the changes to the different units are substantial while large resources are needed to implement them. In addition, a business unit manager may not trust the information generated by a management accountant who is not acquainted with the operations of his or her department. Therefore the business unit manager is likely to be unwilling to implement the specifications of the management accountant since they perceive a lack of relevance to the department (Emsley, 2005). Lastly according to Emsley (2005), the role involvement can also affect innovations by the incentives that are provided by top management to innovate which includes both management’s accountant’s rewards, future prospects and the enhanced job satisfaction. These incentives may be determined by the management accountant’s superior. Incentives are created so as to ensure that the goals of the organization are met. The goals of the business units are also important in ensuring that there is a considerable increase in the efficiency and effectiveness of their operations (Kaplan, 1998). The management accountants who understand what happens in the different parts of the organization will have superiors who trust their decisions and are more likely to accept the recommendations of the management accountant. This situation will be realized if a functionally oriented management accountant invests a substantial amount of effort and time in convincing the business unit managers of the positive effect of the innovations if the pursuit of such innovations can threaten the achievement of functional goals (Emsley, 2005).

How Management Accountants can accelerate the innovations within an organization

For management accountants to accelerate the innovations within organizations, they need to deepen their understanding of innovations and tailor it to the requirements of specific business units while ensuring that the innovations are matched to the changes in their needs according to the situation in the market environment. Management accountants should come up with information with is relevant to the achievements of business unit goals with radical information compared to existing practice. The management accountants who have substantial knowledge of the different functions should invest a lot of time in educating the members of different business units of the benefits of the innovations to the particular unit.

It is important for management accountants to divide strategic planning innovation into different parts such as competitor costing and value chain management. Emsley (2005) further indicates that management accountants need to introduce relevant customer relationship management system and an integrated financial system as an outcome of enterprise resource planning which will assist the organization in the calculation of customer profitability.

Management accountants need to interact a lot with the users of the information they come up with. This mainly includes the business unit managers and supervisors. They also need to empathize with the goals of business units through their priority of business unit work, reports to and the performance evaluation of unit managers (Foster &Young, 1997). In coming up with management accounting innovation, Management accountants also need to scan and evaluate the environment by taking into consideration; how predictable the customers, competitors and supplies are, the socio-political environment, technological advancement the overall perceived uncertainty of the internal and external environment (Emsley,2005)

Cut 15% OFF your first order
We’ll deliver a custom Accounting paper tailored to your requirements with a good discount
Use discount
322 specialists online

Conclusion

Management accounting innovations like the balanced scorecard and Activity-based costing have played a significant role in enhancing the accounting function and contributing to the overall efficiency of the decision-making process. Although several benefits are accruing to management accounting innovation, there has been much criticism toward the lack of innovation in management accounting. However, initiatives like role involvement are likely to enhance management accounting innovation while ensuring acceptance of the same throughout the company.

References

Anderson, S. W., &Young, S.M. (1999).The impact of contextual and progress factors on the evaluation of activity-based –costing system: Accounting, organizations and society, (24) 525-559.

Atkinson, A. (1997). New directions in management accounting research: Management Accounting Research, (9)79-108.

Emsely, D. (2005).Restructuring the management accounting function: note on the effect of role involvement in innovativeness, (16), 157-177

Foster, G., &Young, S.M. (1997).Frontiers of management accounting research: Management Accounting Research, (9) 63-77.

Kaplan,.S. (1998). Innovation action research, creating new management theory and practice: Management Accounting Research, (10)89-118

Klammer, P. (1997). Satisfaction with activity-based cost management Implementation: Management Accounting Research, (9)217-237.

Get a custom-written paper
For only $13.00 $11/page you can get a custom-written academic paper according to your instructions
Let us help you
322 specialists online

Martijn, S. & Eelke, S. (2009).The evaluation of management accounting innovations: Methodological issues, (1), 153-154

McGowan, A. (1998). Perceived benefits of ABCM implementation: Accounting Horizons, (12) 3 1-50.

Murphy, C., Currie, J., Fahy, M., Golden, W., 1995. Deciding the Future: Management Accountants as Decision Support Personnel. CIMA.

Rogers, E. (1995). Diffusion of innovations. Fourth edition. New York, NY: The Free Press.

Cite this paper

Select style

Reference

BusinessEssay. (2022, February 24). The Role of Management Accounting in Driving Innovation. Retrieved from https://business-essay.com/the-role-of-management-accounting-in-driving-innovation/

Reference

BusinessEssay. (2022, February 24). The Role of Management Accounting in Driving Innovation. https://business-essay.com/the-role-of-management-accounting-in-driving-innovation/

Work Cited

"The Role of Management Accounting in Driving Innovation." BusinessEssay, 24 Feb. 2022, business-essay.com/the-role-of-management-accounting-in-driving-innovation/.

References

BusinessEssay. (2022) 'The Role of Management Accounting in Driving Innovation'. 24 February.

References

BusinessEssay. 2022. "The Role of Management Accounting in Driving Innovation." February 24, 2022. https://business-essay.com/the-role-of-management-accounting-in-driving-innovation/.

1. BusinessEssay. "The Role of Management Accounting in Driving Innovation." February 24, 2022. https://business-essay.com/the-role-of-management-accounting-in-driving-innovation/.


Bibliography


BusinessEssay. "The Role of Management Accounting in Driving Innovation." February 24, 2022. https://business-essay.com/the-role-of-management-accounting-in-driving-innovation/.