Learning outcomes Introduction Organisational strategy o Definition o Cumulative strategy (strategising)
Strategic management accounting (SMA) o Definition o Components of SMA o Does SMA still exist; or, what is it becoming?
The balanced scorecard o Its origins and its purpose o Elements and characteristics of a balanced scorecard o Designing a balanced scorecard o Features of a balanced scorecard o Why has the balanced scorecard stood the test of time? o Critique of the balanced scorecard
Roles of management accountants in accounting for strategic management Chapter summary Recommended reading References
© John Burns, University of Exeter February 2012
Group discussion topics Review questions Exercises Chapter case study
On completion of this chapter, students will be able to:
Appreciate the organisational necessity, and difficulty, in being strategic – i.e., (re-)planning and continually monitoring for alignment between organisational aims and actions.
Describe some of the key components (tools and techniques) comprising SMA, and understand why they are regarded as such.
Describe the balanced scorecard, including its four main perspectives and main assumptions; and understand its aims for holistic and integrated performance measurement.
Be critical and alert to some of the potential problems of a balanced scorecard, and articulate how improvements might be made to overcome such problems, hence describing some of the details of tomorrow’s strategic performance measurement tool(s).
Much of the content of this textbook to this point has described various tools and techniques of management accounting which assist an organisation to plan (often in the short-term) and monitor and control its activities in a fairly static manner. But, nowadays organisations need to be strategic, and in this chapter we specifically © John Burns, University of Exeter February 2012 2
consider the role(s) of management accounting in assisting an organisation to maintain alignment between its operational activities (and daily decision-making processes) and long-terms strategic goals. The chapter begins with a brief exploration of what we mean by ‘strategy’ and also being ‘strategic’. Next, we describe what constitutes so-called ‘strategic management accounting’, a collection of tools and techniques which some have claimed (together) represent management accounting’s main contribution to the organisational endeavour of aligning decisions and actions with strategic goals.
Definition Managers in all organisations must be strategic, when faced with the complex, fastmoving, often volatile and unpredictable environments in which they operate. We say that they engage in a complex process of strategic management, and management accounting is one of the important sources (though by no means the only source) of information produced and used by managers to make decisions and subsequently steer their organisation in a preferred direction.
Being strategic in an organisation is about establishing the aims and goals of an organisation, planning and making decisions on how to achieve such aims, to monitor performance against the aims along the way, and to (re)act if at any point such achievements look doubtful. The idea is for managers to (continuously) have a view of where the organisation ‘is going’ in relation to its planned goals (which may well be set by shareholders or other stakeholder to whom the managers have ultimate © John Burns, University of Exeter February 2012 3
responsibility) and, where necessary, to take action to ensure re-alignment when actions and decisions do not appear to be taking the organisation towards its goals.
A useful management (accounting or other) tool for steering an organisation in its ‘best’...