1.1 Management Accounting as a Competitive Tool
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WHAT Explain how management accounting is a competitive tool.
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WHY Understanding how management accounting gives a competitive edge is critical in helping business leaders make decisions.
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HOW Use management accounting to create better management insight so that the organization is able to perform more effectively.
An important facet of the DuPont story is that no government regulations or accounting rules prompted DuPont to develop the ROI analysis. Instead, the managers of DuPont were motivated by a desire to run their business better. They hoped that the ROI measurements would help them make better decisions than their competitors. In short, good management accounting is a competitive tool.
Consider another example: two soup-and-salad restaurants are competing for business in a college community. One of the restaurants has a traditional pricing structure and offers coupons and special discounts for holidays, back-to-school week, and so forth. This restaurant's accounting system is centered on getting the bills paid on time and accurately accounting for payroll. The other restaurant has a management accounting system that carefully tracks the cost of each item on the menu, the time of day that each order is made, the server who takes each order, the demographics of the customers (as reported by the server), and the items that are ordered in combinations. These data are used to design special offers targeted to certain types of customers for certain days and times of day. The order combination and cost data are used to cut prices on some popular items, knowing that this will attract customers who will then order related items at regular prices. If the second restaurant doesn't serve good food in an attractive atmosphere, then its fancy management accounting system can't make it successful. But if the quality of the food and service is good, then the improved decision making using a superior management accounting system will, in the long run, give the second restaurant the competitive edge.
Because management accounting is a competitive tool, the practice of management accounting involves innovation, experimentation, diversity, success, and failure as businesses tinker with their management accounting systems. Remember that a good business is always re-examining its internal information system to see whether it can be coaxed into providing better, timelier data. As a result, there are “best practices” in management accounting, which you will learn in the succeeding topics.
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Good management accounting is a competitive tool.
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Good companies experiment with their internal information systems in order to generate better data, allowing them to make better decisions than their competitors.
International Management Accounting
The International Accounting Standards Board (IASB) is becoming increasingly important as both developed and developing nations come together to agree on a common body of International Financial Reporting Standards (IFRSs). These reporting standards would allow companies all over the world to follow a common body of financial accounting “rules,” leading to greater consistency and comparability in the financial reports of organizations all over the world. Clearly, as the economies of more and more nations continue to intertwine, this is a good and important process.
The question being asked by management accounting institutions in a number of countries is whether or not it makes sense to establish international management accounting standards. Some argue that a common set of international standards in management accounting would strengthen the process of organizations working together across international boundaries by creating consistency in performance measures and definitions of accounting terminology. This consistency could certainly help speed up the effort of international partnering by different organizations, and improve communication between international business segments within big multinational companies. On the other hand, management accounting is based on successfully creating proprietary systems and metrics that allow unique organizations to compete strategically in a competitive market place. Further, research reports that strong cultural differences in management practice significantly impact the use of management accounting in different countries. For example, because Korean culture tends to avoid uncertainty more than Australian culture, Korean management accounting systems employ more financial and nonfinancial performance measures than do Australian firms. In fact, when too many performance measures are used in management accounting systems, performance in Australian firms can actually decline!1
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