STRATEGIC MANAGEMENT ACCOUNTING: DEFINITIONS AND DIMENSIONS. Rui Alexandre R. Pires Institute Polytechnic of Bragança - PDF

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76d STRATEGIC MANAGEMENT ACCOUNTING: DEFINITIONS AND DIMENSIONS Rui Alexandre R. Pires Institute Polytechnic of Bragança Maria do Céu G. Alves University of Beira Interior Lúcia Lima Rodrigues University

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76d STRATEGIC MANAGEMENT ACCOUNTING: DEFINITIONS AND DIMENSIONS Rui Alexandre R. Pires Institute Polytechnic of Bragança Maria do Céu G. Alves University of Beira Interior Lúcia Lima Rodrigues University of Minho Área Temática: D) Accounting and Management Control D) Contabilidad y Control de Gestión Keywords: Strategic management accounting, management accountant, strategic decision-making, strategic management accounting practices Palabras clave: Contabilidad de gestión estratégica, profesional de la contabilidad de gestión, toma de decisiones estratégicas, herramientas de contabilidad de gestión estratégica STRATEGIC MANAGEMENT ACCOUNTING: DEFINITIONS AND DIMENSIONS Abstract The purposes of this paper are twofold: firstly it aims to discuss prior definitions of strategic management accounting (SMA) in order to understand the main purposes and the scope of SMA; secondly the management accountant s participation in the strategic decision-making and SMA practices are discussed. The SMA literature review shows us that there is no consensus in the SMA definition. However, there is some common elements in the SMA definitions, such as: i) a development of management accounting with a strategic orientation; ii) an external orientation (outward-looking orientation); and, iii) an orientation for future (forward-looking orientation). In addition, SMA adopts both financial and non-financial measurement typologies and an orientation to internal resources and organizational capabilities (intellectual capital). There is also some consensus on the main purpose. SMA must cooperate and provide strategic information for the strategic management, marketing, and other managerial functions. The purpose is to create and achieve competitive advantages and enhance organizational performance. To accomplish this goal SMA considers two dimensions related with the management accountant s participation in the strategic decisionmaking process and a set of SMA practices. Therefore, this paper contributes to a better understanding of the concept and scope of SMA and its two dimensions. In this sense, it assists practitioners and researchers to understand, adopt, use, and research the SMA. Resumen Los objetivos de este trabajo son dos: el primero pretende debatir algunas definiciones previas de contabilidad de gestión estratégica (CGE) a fin de comprender el principal objetivo y el ámbito de la CGE; el segundo objetivo es analizar la participación del profesional de contabilidad de gestión en la toma de decisiones estratégicas y las herramientas de CGE. La revisión de la literatura realizada demuestra que no hay consenso en la definición de CGE. Sin embargo, hay algunos elementos comunes en las definiciones de CGE, tales como: i) desarrollo de la contabilidad de gestión con una orientación estratégica; ii) orientación hacia el exterior; y, iii) orientación hacia el futuro. Además la CGE adopta tipologías de medición tanto financieras como no financieras y una orientación para los recursos internos e capacidades de la organización (capital intelectual). También hay algún consenso sobre el principal objetivo de la CGE que debe cooperar y suministrar información estratégica para la gestión estratégica, marketing y otras funciones de gestión. El objetivo es crear y obtener ventajas competitivas y mejorar el desempeño de la organización. Para lograr este objetivo la CGE considera dos dimensiones relacionadas con la participación del profesional de contabilidad de gestión en la toma de decisiones estratégicas y las herramientas de CGE. Por consiguiente, este trabajo contribuye para un mejor entendimiento del concepto y ámbito de la CGE y sus dimensiones. En este sentido, ayuda los profesionales y los investigadores a entender, adoptar, usar e investigar la CGE. 1 1. Introduction Over the last decades several changes have occurred in the external environment (e.g. business globalization, growth of the knowledge economy, shorter product life cycles, and more intense competition) and organizational design (e.g. application of flexible work structures and advanced manufacturing technologies) that intensified the challenges for managers (Baines & Langfield-Smith, 2003; Chenhall, 2008; Dent, 1996; Lee & Yang, 2011). In the planning, decision-making, and control process, in order to achieve competitive advantages and enhance organizational performance managers need to complement traditional management accounting information (financial, internal, and historical information) with non-financial, external, and prospective or forwardlooking information (Baines & Langfield-Smith, 2003; Kaplan & Norton, 1992; McManus, 2013). Due to the difficulty of conventional management accounting to provide relevant management accounting information and as a result of several criticisms (e.g. Johnson & Kaplan, 1987; Kaplan, 1984; Roslender, 1995, 1996), some developments of management accounting such as activity-based accounting, accounting for advanced manufacturing technology, and strategic management accounting (SMA) have emerged. The concept of SMA was introduced in management accounting literature for the first time by Simmonds (1981) in a paper published in Management Accounting, an UK professional magazine. Several studies and developments that followed (e.g. Bromwich, 1990; Bromwich & Bhimani, 1989, 1994; Roslender & Hart, 2002, 2003, 2006, 2010; Simmonds, 1982, 1986) have considered SMA a development of the management accounting with orientation for strategic management (which encompasses formulation, implementation, and strategy control) and also for marketing and other managerial functions. They considered that SMA adopts mostly an external or outward-looking (with customers, competitors, and markets focuses) and forwardlooking orientation that provides a strategic orientation. Some authors (e.g. Nixon & Burns, 2012a; Tayles, Bramley, Adshead, & Farr, 2002; Tayles, Pike, & Sofian, 2007) have also considered that SMA comprises an orientation to internal resources and organizational capabilities in order to support external competitive bases. This orientation is especially important given that those resources are now the focus of the strategic management (Cummings & Daellenbach, 2009; Dent, 1996; Furrer, Thomas, & Goussevskaia, 2008; Nixon & Burns, 2012a). For over 30 years, there is no agreed definition of SMA and there is also no agreement about what constitutes SMA (Agasisti, Arnaboldi, & Azzone, 2008; Cadez & Guilding, 2008; Ewert & Ernst, 1999; Guilding, Cravens, & Tayles, 2000; Langfield-Smith, 2008; Tomkins & Carr, 1996). Some studies (e.g. Cadez & Guilding, 2007; Cinquini & Tenucci, 2010; Guilding et al., 2000) have also concluded that the use of SMA is very low. However, according to several authors (Bhimani & Langfield-Smith, 2007; Cadez & Guilding, 2008; Guilding et al., 2000; Langfield-Smith, 2008; Ma & Tayles, 2009; Roslender, 1995, 1996; Roslender & Hart, 2002, 2003, 2006) the development and use of SMA are important given that its strategic orientation allows to achieve competitive advantages and enhance organizational performance. The interest in the SMA research has also been maintained and strengthened with the publication of special issues by the Management Accounting Research journal in 1996 (Tomkins & Carr, 1996) and in 2012 (Nixon & Burns, 2012b), and the recent development of some studies (e.g. AlMaryani & Sadik, 2012; Alnawaiseh, 2013; Carlsson-Wall, Kraus, & Lind, 2015; Cinquini & Tenucci, 2010). Therefore, the purposes of this paper are twofold: firstly it aims to discuss prior definitions of strategic management accounting (SMA) in order to identify some common elements that allow to understand the main purposes and the scope of SMA; 2 secondly it aims the knowledge and discussion of two SMA s dimensions related with the involvement of the management accountant in the strategic decision-making and the SMA practices. In this context, this paper contributes to clarify the concept and scope of SMA which is useful for researchers and practitioners in the research and use of SMA. To accomplish the purposes a literature review was done related with the conceptual development of SMA as well as related with the empirical research of implementation and use of SMA practices. Some prior reviews of SMA adoption, implementation, and use were also analysed (e.g. Langfield-Smith, 2008; Nixon & Burns, 2012a; Roslender & Hart, 2002, 2006, 2010). The review was based namely on papers published in the leading journals in the field, such as Accounting, Organizations and Society, and Management Accounting Research. The review was selective and illustrative of issues pertinent to the SMA literature. The remainder of this paper is structured by three sections. In the next section is provided a brief analysis and discussion of prior SMA definitions. Section 3 contains a presentation and an analysis of the two dimensions of SMA related with the involvement of management accountant in the strategic decision-making and SMA practices. Finally, the discussion, main conclusions, and some limitations of this paper are presented. 2. Definitions of SMA The Table 1 shows some definitions of strategic management accounting (SMA) that have been presented by several authors. The list is merely illustrative and does not claim to be exhaustive. Therefore, the main purpose is to understand the main differences and similarities derived of its analysis, and to identify the common elements that allow to understand the scope of SMA. Simmonds (1981) presented a definition focused in the provision and analysis of information about competitors, and its use in developing and monitoring business strategy. Similarly, Langfield-Smith (2008) strengthened the importance of the provision of strategic information related with the competitors activities. They oriented the SMA mainly for the provision of external information (related with the competitors) and forward-looking information, which is useful in the development and monitoring of strategy. However, those definitions limit SMA to the provision of competitors information and there is no mention about the information related with customers, markets, and general environment. This information is essential in the development and monitoring of business strategy and for sustainable value creation (Carlsson-Wall et al., 2015; Dixon, 1998; McManus, 2015). Bromwich (1990), like Simmonds (1981) and Langfield-Smith (2008), referred to the provision of competitors information, but also focused SMA in products and markets in general (Roslender & Hart, 2010). However, Bromwich (1990) has restricted the scope of SMA on the provision of financial information and information about costs. This restriction seems obvious because several authors (e.g. Agasisti et al., 2008; Bhimani & Langfield-Smith, 2007; Cinquini & Tenucci, 2010; Dixon, 1998; Langfield-Smith, 2008) have considered the provision of non-financial information a key feature of the SMA. Moreover, the non-financial information represents a key feature of the contemporary management accounting and control systems, because it allows to overcome the limitations of the financial information and to identify the principal drivers of success and performance (Baines & Langfield-Smith, 2003; Chenhall, 2008; Kaplan & Norton, 1992, 1996). 3 Table 1: Definitions of Strategic Management Accounting Source Definition Simmonds (1981, p. 26) the provision and analysis of management accounting data about a business and its competitors for use in developing and monitoring business strategy Bromwich (1990, p. 28) Roslender and Hart (2003, p. 255) Agasisti et al. (2008, p. 2) Langfield-Smith (2008, p. 206) Tillmann and Goddard (2008, p. 80) the provision and analysis of financial information on the firm s product markets and competitors costs and costs structures and the monitoring of the enterprise s strategies and those of its competitors in these markets over a number of periods SMA is identified as a generic approach to accounting for strategic positioning, defined by an attempt to integrate insights from management accounting and marketing management within a strategic management framework the identification of a set of information to support strategic decisions SMA entails taking a strategic orientation to generation, interpretation and analysis of management accounting information, and competitors activities provides the key dimension for comparison SMA can broadly be defined as being the use of management accounting systems in supporting strategic decision making Ma and Tayles (2009, p. 474) the body of management accounting concerned with strategically orientated information for decision making and control Agasisti et al. (2008) and Tillmann and Goddard (2008) defined SMA as the utilization of management accounting and identification of information to support strategic decision-making. Additionally, Ma and Tayles (2009) considered that the SMA provides strategic information for decision-making and control. However, given that SMA represents a development of management accounting with a stronger outward-looking orientation (e.g. Agasisti et al., 2008; Brouthers & Roozen, 1999; Cadez & Guilding, 2008; Cinquini & Tenucci, 2010; Guilding et al., 2000) those definitions are also a little restrictive. SMA must contribute to the planning (i.e. formulation and development of the strategy), implementation, and control of strategy which represent the three fundamental things of the strategic management concept that have the consensus of the researchers (Nixon & Burns, 2012a). For instance, the study developed by Cuganesan, Dunford, and Palmer (2012) has shown the importance of the management accounting in the context of strategic planning. More generally, Roslender and Hart (2003) considered that SMA contributes to the strategic positioning and encompass insights of the management accounting, marketing, and strategic management. Thus, they highlighted in the definition the orientation of the SMA for marketing. In any case, this orientation has been highlighted by other authors (e.g. Guilding et al., 2000; McManus & Guilding, 2008) and in some definitions analysed above are implicitly considered. Some authors have also defined SMA as a process that encompass aspects of management accounting and strategic management. For instance, Dixon and Smith (1993) defined SMA as a four-step process: i) strategic business unit identification; ii) strategic cost analysis; iii) strategic market analysis; and, iv) strategic evaluation. Lord (1996), in turn, considered SMA as a process (or cycle) with three steps: i) collection of competitor information; ii) exploitation of cost reduction opportunities; iii) matching of accounting emphasis with strategic position. Others authors (e.g. Cinquini & Tenucci, 4 2010; Cravens & Guilding, 2001; Guilding et al., 2000) have also defined SMA as a set of practices, techniques or tools of management accounting with strategic orientation which support the strategic management process. However, in this paper those practices, techniques or tools (hereafter referred to as practices ) are considered as means or a dimension of SMA to fulfil its purpose. In this context, the analysis of definitions (Table 1) set out above demonstrates that there is no consensus on the SMA definition. However, the definitions that were analysed show that SMA adopts a strategic approach in the identification, collection, analysis, and report, and in the use of information needed for strategic management, marketing, and other managerial functions. The analysis also allows to highlight some common elements, as partially underlined by Agasisti et al. (2008) which are: i) a development of management accounting with a strategic orientation; ii) an external orientation (outward-looking orientation) with focus in the actual and potential competitors, but also in the customers and markets in general; iii) an orientation for future (forward-looking orientation) in order to allow to create and achieve competitive advantages and enhance organizational performance. According to Nixon and Burns (2012a) the emphasis in most definitions in competitive strategies and marketing, more than in the strategic management, represents a limitation of the SMA literature that does not take into account recent developments in strategic management. Therefore, it is important that the SMA also considers an orientation to the internal resources and organizational capabilities (intellectual capital) to support external competitive bases (Nixon & Burns, 2012a; Tayles et al., 2002; Tayles et al., 2007). These resources, intangibles and not easy to imitate are now the focus of the strategic management (Cummings & Daellenbach, 2009; Dent, 1996; Furrer et al., 2008; Nixon & Burns, 2012a) and they are essential to support organizational strategy and to get sustainable competitive advantages. It is also important that SMA takes an active role in rethinking strategies and developing new forms of management accounting (Cuganesan et al., 2012). To summarize, SMA represents a development of management accounting that should cooperate and provide strategic information for strategic management, marketing, and other managerial functions. For this purpose, SMA adopts: i) a more outward-looking orientation in focusing on the customers, actual and potential competitors, and markets in general; ii) an orientation to the internal resources and organizational capabilities (intellectual capital); iii) a forward-looking orientation that allows to create and achieve competitive advantages and enhance organizational performance; and, iv) both financial and non-financial measurement typologies. In order to attain its objectives SMA considers a greater management accountant s involvement in managerial functions and in the strategic decision-making and the use of management accounting practices with a strategic orientation. These dimensions are presented and analysed in the next section. 3. Dimensions of SMA Most studies on strategic management accounting (SMA) implementation and use only have considered one dimension related to the management accounting practices with strategic orientation (e.g. Cravens & Guilding, 2001; Cinquini & Tenucci, 2010; Guilding, 1999; Guilding et al., 2000; Guilding & McManus, 2002; McManus, 2013). Nevertheless, several authors (e.g. Coad, 1996; Ma & Tayles, 2009; Roslender, 1995; Roslender & Hart, 2003, 2006, 2010; Tillmann & Goddard, 2008) have recognized into the context of the SMA literature the importance of management accountant s 5 participation (or involvement) in the strategic management process and other managerial functions. They have claimed that a greater management accountant s participation in the strategic decision-making allows an appropriate development of management accounting systems with strategic orientation and the use of SMA practices, in order to meet the current requirements of management accounting information. Although some studies implicitly have considered the importance of management accountant s participation in the strategic management process and others (e.g. Chiucchi, 2013) have considered essential to understand the role of the management accountant in management accounting and control systems adoption and its use, only Cadez and Guilding (2008) considered in simultaneous the two dimensions described above in the SMA research. These dimensions are considered below Management Accountant s Participation in the Strategic Decision-Making Process The importance of management accountant s participation in several organizational functions and in development of management accounting systems with strategic orientation have been mentioned by many authors (Cadez & Guilding, 2008; Carr & Tomkins, 1996; Chiucchi, 2013; Coad, 1996; Cravens & Guilding, 1999; Langfield- Smith, 2008; Ma & T
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