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JYU EMBA: Accounting in Action - latest in Management and Strategic Accounting
Accounting is numbers, reports and calculations. At the same time accounting is part of organizational action, part of decision making, part of understanding what is happening in an organization, part of deciphering what could be possible and profitable and many other things in organizational life.
Accounting in action perspective is very much present in Jyväskylä University.
I wanted to know and share with readers what is happening in accounting research right now and what topics are most relevant at the moment, in particular on the fields of management accounting and strategic accounting.
Well, how you find out something, one way is to ask from the experts. Here I asked from professors Marko Järvenpää and Jukka Pellinen and from MBA director Pasi Aaltola to give their insights about the latest development in accounting.
I formulated my question so that in giving their written answers Marko, Jukka and Pasi would take into consideration that this blog is aimed to experienced executives and professionals. I also suggested that they should also bear in mind what appears to be happening in organizations and society at the moment when examined from the perspective and economy and finance.
Hence this blog is largely written by Marko, Jukka and Pasi. Please find below their written comments:
To give few basic messages for interested reader, I would like to state, that there are plenty of opportunities for financial management and management accounting (MA) to support the strategic success of the organization. Financial analysis can support the strategic planning in order to give some realistic solid rock and milestones for plans otherwise remaining fantasies. Both are needed, fantasies and hard measures.
Moreover, in order to turn the strategies into successful reality, targets and incentives need to be aligned with strategy. Measures and incentives should be derived from strategy.
Executives should be aware of management accounting’s opportunities to support management, which are, due to the software development and new skills, better than ever. Knowledge on and attitudes towards MA should be increased amongst executives, while hybridization on professions develops further. Moreover, controllers should be able to analyze strategic information and be a sparring partner for the executives, while at the same time future oriented monthly reporting is running effectively, typically integrated in business intelligence reporting and offering a wide but focused panorama for management in the executive’s bridge.
Big data (BD) and it’s opportunities for the management is currently in the hot seat in the practically oriented discussion. One major question is how to integrate BD analysis, including high volume, velocity and veracity of different internal and external data with new generation financial analysis. This might provide endless opportunities for competitive advantage e.g. in forecasting short term demand, customer behavior, needs for human resources and coordinating the value chain, but also in scanning strategic uncertainties and opportunities.
Where do we know that the firm has a strategy? In large organizations, in particular, there may be resources to have specialists in strategic planning. In that type of cases there, for sure, strategy exists – at least as a plan. But there are stories from the late eighties of such organizations like GE that went to serious troubles, even they had armies of planners, the right methods of planning in use, and lot of formal information going up and down in the organization hierarchy, and lots of accounting controls too.
In some sense, these firms did not have strategy – strategy that everyone in the organization would know – strategy that everyone in the organization would enact. One of the most intrinsic question in strategic management accounting is that what kind of controls we would need to help strategies flourish in the business environments of the day?
And where do we know that the strategy in use is the right one? If the effects are right, might be one obvious answer. But even though a firm is performing, would it be even better performing when it had different strategy? And where do we know when it is time to replace old strategy with a new?
In most organizations, financial control system forms the core control system. Even though it is essential in programming the organizations do effectively what they do, there is a growing need for different kind of control systems – for practices to exchange critical business information that challenge the existing routines and levels of performance, and open eyes for new opportunities. These additional control systems might be called as strategic control systems that are often largely based on nonfinancial and qualitative information, combined with cost information.
Have you ever thought that the chosen organization structure may hinder the effective implementation of the strategy? I have started to think profit centre organization model as a problem. It is a standard model. Applied almost in every organization. But there are business cases where the profit centre model has become the barrier for strategy implementation. And there are current examples of the most profitable organizations of the day, such as Apple, that do not use profit centres. And there are other options to control large organizations. What do you know about them?
MBA Director Pasi Aaltola
I think it is essential for us to understand better the relationship of accounting and managers’ strategic thinking. Why this is interesting is because management accounting practices are usually focused on making sense of incidents that have already happened and on measuring performance along the already chosen strategic path. Management accounting has tools to produce reports representing the past and even the current situation, but what about the strategic foresight and visioning aspect of managerial work?
Based on my research among practising managers, accounting information and methods seems often play surprisingly little role in supporting decisions and strategic sense making of individual managers. Why is this, shouldn’t a manager always make rational decisions based on data?
I have come to the conclusion that strategic thinking is more than merely decision-making. The strategic decisions in managerial work that have to be made do not exist, as such, ready to be analytically solved. It is often the strategic thinker who outlines and constructs the strategic issue. Naturally in managerial work we quantify our intentions in terms of desired financial outcomes. Accounting offers valuable tools and frameworks for this. But we also have to appreciate that the managerial mind that envisions the future is more one of faith and hope than it is of analysis and knowledge.
Thank you Marko, Jukka and Pasi for your insightful comments. Thus it can be concluded that accounting in action is alive and well, and accounting has the role to play when organizations change and develop, when new technologies emerge, when executives do their work in all their roles like in decision making, motivating, controlling, etc. In fact accounting on its part appears to be essential element of constantly changing organizational life.
The point of this blog was to briefly outline what is happening in the world of management and strategic accounting. At the same time it is hoped that this blog may, on its part, create new connections between people. Hence, please feel to approach Marko, Jukka, Pasi or me in case you have in mind projects where topics of this blog would be most relevant. Projects could be theoretical or practical in their nature, they might relate to change or development task at hand, or they might be educational projects.
Whatever your needs on the field of accounting in action are, feel free to send any of us a note and let us see what we could develop together.
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