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In order to critically evaluate the likely impact of the application of Strategic Management Accounting and associated techniques on organisational performance, Strategic Management Accounting needs to be explained and understood, alongside the associated techniques. After that, the likely impact on organisational performance can be assessed.
As previously mentioned, the accounting role is becoming more strategic, which introduces the concept of Strategic Management Accounting. Pitcher (2015) stated in his report that it was in the 1980's when management accounting was criticised for becoming too focused on operational issues, instead of assisting managers with strategic decisions.
It was after this, Simmonds defined SMA, however, academics and professionals are yet to agree on the definition and the associated techniques.
There is no universal definition of SMA, however, Simmonds (1981, cited by Langfield-Smith, 2008) defined it as "the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy."
Bromwich (1990, cited by Langfield-Smith, 2008) provided a definition of SMA that restricted it to financial information.
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This confines SMA, whereas many consider non-financial information to be an important component of SMA. (Langfield-Smith, 2008)
Many interpretations of SMA relate to external information such as the market and competitors.
SCM, similar to SMA, was described by Shank (2007, cited by Langfield-Smith, 2008) as the third stage of developing the management accounting role. It has evolved from cost accounting, to managerial accounting to SCM.
The following techniques can be associated with SMA as noted by Pitcher (2015); activity-based costing, benchmarking, brand value budgeting and monitoring, capital budgeting, integrated performance measurement (balanced scorecard), life-cycle costing, strategic pricing, target costing and value chain costing.
However, as SMA is problematic to define, it can be argued that the associated techniques are irrelevant to SMA. Langfield-Smith (2008) agrees with the inclusion of the associated techniques noted above, under the "umbrella" of SMA. Some people argue that ABC should not be included under SMA techniques as it focuses on cost allocation, nothing to do with strategic decisions.
Organisational performance refers to how well an organisation is doing to reach its vision, mission and goals. Assessing it is a vital part of SMA. (Emiaso and Egbunike, 2018)
Bromwich and Bhimani (1994, cited by Langfield-Smith, 2008) found that in the UK and North America, there had been a low level of companies adopting SMA techniques. On the contrary, they found that adopters did find the techniques useful. Guilding et al. (2008) also found that SMA and its associated techniques aren't widely used, especially in the UK. A vast number of accountants and organisations don't even understand the term.
SMA and associated techniques have the ability to positively impact organisational performance as long as the accountant has the appropriate skills set (technical and interpersonal), alongside having the desire to be involved and the appropriate business knowledge required. The application of SMA techniques requires certain practicalities to be successful, they are; provision of information, resource capacity and information systems. (CIMA, 2015)
Bromwich and Bhimani (1994, cited by Lanfield-Smith, 2008) suggested that the accounting lag in terms of SMA is possibly due to resistance to change. They found that the adoption of ABC can have a negative effect on profits in the short term, as well as undesirable changes regarding employee performance. This would negatively impact on organisational performance, especially if the employees aren't adapting to change well.
The balanced scorecard, as described by Roslender and Hart (2002, cited by Langfield-Smith, 2008), "puts strategy and vision, not control, at the centre". This allows organisational performance to be promoted in an efficient manner, as managers are able to focus on the direction they want to take their company. Even though the balanced scorecard has many benefits and is highly regarded, its adoption rates are relatively low as found by Krumweide (2007).
Roslender and Hart (2002, cited by Langfield-Smith, 2008), "view target costing as providing a strong foundation for SMA". They believe it focuses on market share and market growth, alongside brand strength and awareness. Organisational performance can be boosted via target costing as this enables managers and accountants to effectively plan ways to gain a greater market share.
The type of impact SMA and its associated techniques will have on organisational performance will be different for every company as they all have different strategies, visions and goals. Customer-focused, cost-focused and product-focused companies as noted in Krumweide (2007) will all have different impacts on the implementation of SMA and its associated techniques.
Krumweide (2007) stated that finding the "right mix of management tools and practices", alongside eliminating others, will enable the effective implementation of strategy and appropriate usage of resources. In order to find the right mix, Krumweide identified a 5-step process for organisations. Identify your strategy and environment, then identify current practices. Following on, research what practices make sense for your strategy and environment, then propose an ideal set of practices. Finally, develop an implementation plan. In my opinion this is a very logical approach and any company wishing to successful implement SMA should follow it.
Emiaso and Egbunike (2018) researched how implementing SMA impacted the organisational performance of manufacturing firms in Nigeria. Their study found a positive effect on organisational performance and decision making after switching to SMA from traditional techniques.
Based on the above information, I believe the likely impact of implementing SMA and associated techniques on organisational performance will be positive, as long as the accountants and whoever is intends to use these new techniques, understands them.
SMA is still a relatively new concept, therefore its impact cannot be fully assessed as more time is needed. Also, low adoption levels throughout the UK and other countries make it difficult to assess. Overall, companies who have adopted SMA techniques have found it beneficial. ?
Strategic Management Accounting: Impact on Organisational Performance. (2019, Nov 16). Retrieved from https://studymoose.com/strategic-management-accounting-impact-on-organisational-performance-essay
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