Strategic Management Accounting: A Better Contribution to the Firm’s Strategy Anthony and Govindarajan (2007) define strategy as “...the general direction in which an organisation plans to move to attain its goals” (p.56), the goals of strategy include: profitability, maximizing shareholder value, balancing risk and preserving company assets as well as pleasing customers and the market.(Anthony and Govindarajan, 2007). Lord (2007) adds that strategy’s main focus is to give the firm a competitive advantage and to do this it must take the actions of its competitors into consideration. He also states that business strategy produces “... long-term plans for the business, takes into consideration plans and possible actions of competitors, the main objective being to position the firm so it has a competitive advantage … .” Therefore, Lord (2007) believes that for management accounting to assist in the development of strategy it “... must provide managers not only with internal, financial information, but also with information, both financial and non-financial, about the environment in which the firm is operating...” (p. 135). Through the examination of the contributions of traditional management accounting and strategic management accounting to the firm’s efforts in defining strategy, as well as the exploration of management accounting in other cultures and globalisation, this paper will discuss Lord’s statement.
Firstly, the various schools of Management Accounting must be defined. Shah (2011) notes that that the general discipline of Accounting is based on two elements, “process”, where accounting is said to identify, measure, analyse and report economic information. Second, “purpose” which is stated to be helping the users of that information make better decisions (American Accounting Association, 1966, p1)” (p.1-2) Cost Accounting, being the “... calculation and measurement of resources utilized for different business activities usually production and service provision. It relates to calculation of per unit cost using different costing techniques” (PakAccountants, 2013), took care of the former element. However it left something to be desired in relation to the latter element, as “cost accounting [hereafter CA] focused entirely on numbers and ... it was only interested in working out full cost of products” (p.2, Shah, 2011). Shah also noted that CA provided information from the external user perspective. Traditional Management Accounting (hereafter TMA) was intended to make up for the deficits in cost accounting. Carmen and Corina (2009) describe (traditional) management accounting as "... the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources" (Statement on Objectives of Management Accounting A no.1, 1
FPC_Z0930086 1981)” (p. 736). Shah (2011) notes that TMA “focuses mainly upon the needs of internal managers of an organisation (Hopper et al., 2007)” (p.2). “... Simmonds (1981) defined strategic management accounting [SMA hereafter] as the provision of management accounting data about a business and its competitors which are of use in the development and monitoring of the strategy of the business. Bromwich (1990) extends the definition noting that SMA is also used to “... assess the firm’s valueadded relative to its competitors” as well as “monitoring the firm’s competitiveness in the marketplace”(p.28). Carmen and Corina (2009) agrees noting that one of the five major goals of SMA is “assessing the organization‘s competitive position, and working with other managers to ensure the organization‘s long-run competitiveness in its industry” (p. 737). These definitions already support Lord’s point however a through comparison on each point within his statement is in order.
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