Strategic Management Accounting and applying it

strategical trouble Accounting and applying itWith the rapid development of the global economy, traditional heed account statement has been difficult to meet the business strategical worry and requirements. Strategic Management Accounting(SMA) for the modern opening is of non bad(p) signifi backce. However, it is a sunrise(prenominal) techniques and approaches. Although strategic counselling write up has been developed all everywhere 20 years, the SMA is motionless debatable. In sum amount, a number of scholars demand experienced to define what SMA is, however, the opinions of the scholars is still not yet able to be generalized. Yet, strategic anxiety history is still at the exploratory stage.Management news report plays a of the essence(p) role in the business world. It provides primary(prenominal) advice in order to concord decision for the firms in the horse opera society. The termss of offering excellent overlaps strategically need to be fully integrat ed into the enterprisingness personify system and being reported by these systems. Management account helps supervise the performance of the circumspection. on that pointfore, the customers can whence be securely kept in the same market. This could withal be helpful on agreement the market in a better way. Strategic management market aims to obtain the training of the rivals in the same market this provides leap out to their business when making decision since the induceer could adjust their budget course of study according the reports of the strategic management market.Strategic management accounting is recently developed in management accounting. It involved in provision, control and requires financial information. In the strategic management planning and control systems, R.N.Anthony believes that at that place atomic number 18 two antithetic oriented processes which argon impertinently and internally. Externally oriented process is a financial accounting. More over, an internally oriented process is including strategic planning, management control and practicable control. During the strategic planning process, it is the role of formulating schema and it wildness on planning. Planning defines aims, objectives and natess of organizations and also does formulation, evaluation and selection of policies, strategies, tactics and actions to fulfil them. The orientation is planning alfresco the organization which is relating to the organizations environment. Secondly, after strategic planning, management control would be followed. The briny matter of this process is implementing schema which can be a instigate of the planning. In the final stage, operational control is mainly responsible for controlling however also performing the tasks as well as planning. In this process it ensure that resources and obtained and make use ofd effectively and efficiently to achieve organizational goals and procedures adhered to or get hold of remedial action taken. It normally occurs within the organization.Strategy orientated accounting complements the traditional concerns of the West accounting. It focalisees on the additional embodys in order to keep up rivalrous advantages of enterprises of actual and potential rivals. It concentrees on the comprise impact enterprise wares and marketing strategies and it can be seen as an essence for success in todays coming upon the challenges of an increasingly global market. Generally speaking, such re-orientation is another license management accounting focused on the take to be of consumer generated relative to its competitors. It also helps monitoring the companys performance in the market variables using a series of strategic decisions over the horizon which would be long enough to achieve the strategic plan. These concepts form the marrow of the new concept of SMA. In addition, thither are 12 strategic management accounting practices. They are matched position monitoring, strategic pricing, competitor performance appraisal, competitor comprise assessment, strategic existing, regard as-chain costing, brand value monitoring brand value budgeting, attribute costing, quality costing, life-cycle costing and target costing. However, the main methods in SMA which are strategic costing, target costing and product life-cycle. Although there are a lot of practices, there is still of a lower usage and recognized by a couple of organizations.In 1981, Ken Simmonds has for the first time proposed the strategic management accounting, he developed the SMA definition. After his speech, SMA has been concerned day by day. In the speech, he mentioned to heap up management accounting information about a business and the competitors for the uses in developing and monitoring the business strategy. He argues that management accounting should be more(prenominal) outward looking and should help the emphasis to place upon relative levels and trends in real costs and price s, cash flow, market share and stewardship of the resources available to the business. It can be developed and controlled the enterprise strategic.Ken Simmonds suggested that realises are not from internal efficiencies but from the companys warring position in its market. He raised several ideas for the application of SMA in the business. He stressed the richness of the learning plication with respect to achieve strategic advantage by forecasting cost reductions and thence selling price reductions of competitors. He also drew attention to the importance of early experience to the new product as a meaning to give a unique advantage over competitors. study competitor should be able to reduce the sales price of the products which should go on increase its production and upgrade its market share which eventually force some competitors to leave the effort. Secondly, Simmonds shows that the cost-volume-profit relationship of competitors could predict the price result and manage ment accounting functions to help assessing the cost structure of each major competitor and relating this to their prices. In addition to handling costs and prices, Simmonds concentrated on volume and market share by monitoring the reason of the market share as the main products, companies can see if it is acquired or lost status and competitors go out show different strength in the market share. Including detailed information on the market, management accounting report will help to enable more strategic management accounting-related. Simmonds suggested that the market share of the statements whitethorn be included in managed accounts. He believes that SMA will develop in management accounting in the future.One of the main advocates of Strategic Management Accounting is M.E. Porter(1985). His argument on strategic management is considered as the important information. Porter mentions a two pronged approach.First, he assessed various aspects of the industrys long-term profitability . He believes the v militant forces will contribute to strategic balance. This is a threat to new entrants, substitute products or function enter the market, competition among existing institutions within the industry, bargaining index of suppliers and consumers. These five forces fully reflect the combat of many enterprises in an increasingly competitive. However, Porter has also raised the question of the relative position of the enterprise in the industry. This issue is important because it affects the ability of enterprises to create profits above or below the industry average. Returns may be higher(prenominal) than average to achieve a sustainable competitive advantage. This is achieved by tercet basic generic strategies which are cost leadership, differentiation and focus.Cost leadership means that companies intended to work as the lowest cost of production in the industries. This is achieved by economies of scale capital of the experience curve effect, tight cost contro l and cost minimization. Also, the company aims to provide a number of different levels of product and service value to customers. It can generate a premium price. This is the differentiation part. Focus is another part of the bargaining power which concerns about the cost and differentiation focus.Porter mentioned that the value chain is needed to restrict the future of the practice of strategic management accounting. Value is the customer willing to pay which is a function of the image products. In the value chain, there are nine elements. Some of these cost drivers may be controllable. The nine elements of the value chain can also be separated as either tide over activities or main activities. For the support activities, they are firm infrastructure, human resources, technology development and procurement. And the main activities are inbound logistics, operations, outbound logistics, marketing and sales and services.For example, Internal value chain depth psychology is the obje ctives of promoting enterprises to eliminate unprofitable operations and reduce waste. The factory analyses the operating level step by step. The main reason is to focus on the market and customer. The operations and the activities of the business-internal price chain abridgment enable the cost management of enterprises to maintain the basic operating level, and explore each layer of worth operations, eliminating useless operations.The value of Competitors chain summary can identify the merits and shortcomings in the company. The conclusion of the market and competitors analysis that compared to the competitors on the market, production quality and diversification may not have too much effect. If the strategic can improve the quality or diversification in product to enhance competitiveness, it would be hard to achieve. On the other hand, if firm blindly relying on low prices to gain market share, it will lead to greater losses.In the analysis, the impact of the cost drivers on e ach of the elements must be assessed by efforts. Also, there must be a o.k. margin which produced by the cost of the nine elements.Once this is completed, manager must try to make analysis of their own competitors in the same way. Strategic advantage will be able to establish if the elements of the total cost is less than competitors. It is necessary to adopt a more positive attitude to assess if the profit margins higher than those of competition. If not, it is needed to develop strategies to achieve the low cost advantage by controlling the cost drivers. The cost savings would lead to a reduction on costs or improve productivity. Marketing, sales and service costs may be reduced more efficiently, if the reduction in external fault. An obvious example provides a good customer support services to the public. If a Volkswagen breaks down occurs, objet dart the automobile is in a warranty period, the rescue vehicles comes out and fix it. If it cannot be fixed, and then provide repl acement. This is would be good way handle but the cost would be expensive (C.DRURY, 2008).Shank based on Porter (1985) proposed three generic strategies in order to achieve sustainable competitive advantage. Shank also mentions the needs for management accounting to support the enterprises competitive strategy and clarify two different types of competitive strategy the first one is cost leadership and product differentiation. The second one is demand different cost analysis military position. For example, standard product cost is likely to be a very important tool for management control in the company that pursuing a cost leadership strategy in a mature commodity business.On the contrary, standard product cost is probably not important after the differentiation strategy of enterprises. With the market-driven, there is rapidly changing and luxuriant-growing business. A companys pastime of product differentiation strategy may require more information than on the cost of the jumper cable about new product innovation, design cycles, research and development expenditures and marketing cost analysis. The difference amidst the cost leadership and product differentiation which depend on the primary strategic thrust of the firm.Recently, professor Bromwich(1994) further discusses strategic management accounting and definition of strategic management accounting such as the provision analysis of financial information on the firms product markets, competitors costs, cost structures, the monitoring of the enterprises strategies and those of its competitors in these markets over a number of periods. Bromwich found that SMA is a development of management accounting. This new techniques needed to be further discussed by the accountants in the future. Moreover, Bromwich mentioned that the role of accounting is going to extend in two directions when adding the strategic perspective to traditional management accounting. First, in strategic cost analysis, costs need to inte grated into it and thus line up costs with strategy. Secondly, in a fairly general way, the cost structure in competitors businesses and to record the changes over time. To achieve this, Bromwich also highlights this distinction identifying two dominant approaches to SMA. One seeks to cost the product attributes offered by a companys goods. It is to attract customers. The other approach is to cost the functions in the value chain which provide value to the customer. (Bromwich and Bhimani ,1994)In the cost leadership strategy development trends, as well as obsolete the traditional cost accounting. SMA focus is based on the benefits and it is doubtful for the standard costing performance measurement suspected the use of flexible manufacturing costs, budget control, a worship of the budget strict adherence to the traditional product cost pricing decisions one to consider the cost of competitors the absence of formal consideration of the marketing costs.Roslender (1995) determine the t arget cost as a domain within strategic management accounting. This is the reason why focus on the external part and this is a market-oriented approach for product pricing and cost management. In addition, it involves the proliferation of management accounting throughout the organization and active participation of staff in a broad couch of management functions. Their goal is to achieve the target cost, including the identification, evaluation and use of cost functional analysis of the product attributes and research opportunities to reduce costs throughout the value chain. Moreover, a recent contribution to the role of SMA, stress the management accounting in the development and support the overall competitive strategy of an organization is the equilibrise Scorecard. The purpose of the Balanced Scorecard is to encourage behavior consistent with organizational strategy. It includes a comprehensive theoretical account for performance measurement to clarify, communication and mana gement strategy. (Kaplan and Norton, 1992). He sees SMA as an approach that to account for strategic location by the trials to integrate the enchants from the previous marketing texts into management accounting.Robin Roslender and Susan J.Hart mentions that SMA is intimately associated with both management accounting and marketing management because SMA is on a strategic level who attends to change in the environment outside the enterprise but not limited to this one part of the enterprise, SMA explore the whole industry value chain in the business information and improve the enterprises economic environment. It emphasis that enterprise development and environmental change are consistent, in order to achieve the optimal effectiveness of industry, SMA requires marketing management to collect the information of competitors. The management accountants collect, compare, and analyze the information. The analysis of SMA is depending on the information from marketing management. It is co ntroversial that if it is necessary for the management accountants to handle to the marketing information or the marketing management can obtain the information with their own tool.Innes (1998) believes that strategic management accounting for the provision of information to support strategic decision-making in enterprise. Strategic decision-making ordinarily involves in a long-term period, there is a significant impact on the organization, even though they may have an internal element, and they also have external factors. This definition was introduced that provide information in order to support an organizations principal long-term decisions, such as the use of activity-based costing information, provide the pertinent information product structure, the introduction and abandonment decisions are the domain of SMA. This view is support by barrel maker and Kaplan (1988) who state that strategic accounting techniques are designed to support the entire organizations competitive strat egy. Generally speaking, the power of using information technology is to develop more sophisticated product and service costs.Despite strategic management accounting has received, there is still no comprehensive conceptual framework of what strategic management accounting (Tomkins and Carr, 1996). For example, Coad(1996) states that SMA is an emerging line of merchandise whose boundaries are loose and there is still no unified view of what it is or how it might develop. The existing literature in the field is both disparate and disjointed (Coad, 1996332).There is an exception such the survey which conducted by Guilding et al. (2000). The survey sample included 312 large companies. Guilding et al. found that knowledge of what is difficult to determine the composition of the strategic management of generally accepted accounting practice. According to the examine of the literature, they identified 12 strategic management accounting practices including value-chain costing, strategic costing, target cost, life-cycle costing, attribute costing and so on These are being used to determine the practice, it is a must demonstrate one or more of the following characteristics the environment and market position focus on competitors and long-term, forward-looking direction. At the end of the experiment, Guilding et al concluded that 12 strategic management accounting practices are of relatively low usage, there are two factors that should not dismiss their potential. First of all, all the evaluation of SMA practices may be significantly higher than expected utilization of the advantages of scoring points. Secondly, there are still many companies have abandoned the usages of the SMA. These findings showed that there is a difference between the neediness and the actual reports conducted. It finds that there the practicing accountants do not familiar with the usage of the SMA. This gives supports to the findings of Tomkins and Carrs (1996) while they believed that the SMA is ill-defined.In addition, it is still lacking of the strategic management accounting consensus. (Lord, 1996) stated that a number of strands have been used to describe the strategic management accounting. It magnifies the internal focus of traditional management accounting and the external information to competitors. The linkage between the strategic position which decided by the companies and the anticipated emphasis on management accounting and lastly obtaining competitive advantage by interpreting methods to reduce costs or to boost the varieties of the companies goods by exploiting the relationship between the value chains and generalizing the cost drivers.In conclusionStrategic management accounting is recently developed in management accounting. It involved in planning, control and requires financial information. Nevertheless, SMA have not formed a unified knowledge. While some firms may have perceive SMA. They may lack for a clear understanding in SMA.Although SMA has lots of different views from various authors. For example, Simmonds is the early to introduce the strategic management accounting. He mentions to collect information on business competitors. Than Bormwich has further information SMA is not only to collect information . It still need to Research and competitors on their own competitive advantage and value creation process and research a long-term decision-making cycle in the enterprise perspective, for the marketing of these products and services give enterprises the total revenue. In addition, Porter identified 3 generic strategies in SMA to achieve sustainable competitive advantage. .However ,Innes (1998) believe that strategic management accounting for the provision of information to support strategic decision-making and Cooper and Kaplan (1988) views that Strategic Accounting technology is designed to support the entire organizations competitive strategy to develop more sophisticated products and services costs. On the other hand,lo rd (1996) identified SMA not only analysis external competitor information but also extend the main point of traditional management accounting. They are all authors who hold different evidence to support their own mind in SMA, so SMA is totally confide, it is remains a mystery .,In my opinion, the main reason of SMA occurs because Economic is developing very fast and SMA is reclamation and atone for traditional management accounting in a new environment. However,SMA has many of obstacles in developing process such as enterprise keep continue to apply the SMA in the realistic application and do adjustment and innovation , thereby it can promote the development of SMA application to make it update. So I believe that Although SMA lack of consistent theory at this moment , it will be a big management accounting develop in the future.BibliographiesBromwich, M. Accounting information for strategic integrityBromwich, M.,1990 The case for strategic management accounting the role of accou nting information for strategy in competitive markets.Accounting Organization and Society, Vol 15, No , pp.27-46Cadez, S.,2008 An exploratory investigation of an integrated contingency model of strategic management accounting ,Accounting, Organizations and Society,33,pp.836-863Drury,C. 2008, Management Costing Accounting, 7th ed. , London South-Western.Horngren,C. T. ,1999,Management and cost accounting London Prentice Hall, 1999Lucey,T.,1988 Management accounting 2nd ed. London DP PublicationsRoslender,R. and Hart,S.,2003 In search of strategic management accounting theoretical and field study perspectives .Management Accounting Research 14 , pp.255-279Ryan, B.,1998, Strategic Accounting for Management 5th ed ,Australia Thomson skillTillmann, K.,2008 Strategic management accounting and sense-making in a multinational company, Management Accounting Research ,19,pp.80-102Wright, D.,1996 Management accounting London Longman