Strategic management accounting - do we need it?

Headnote

Strategic Management Accounting makes companies more responsive. Linking performance measurement to the organisation's strategic goals contributes to success. To enable management accountants to play a more managerial role within organisations, accounting educators must incorporate SMA concepts into academic and professional programmes. Peter Clarke and Noel Tagoe explain.

Genesis of Strategic Management Accounting

Compared to a decade ago the operating environment of most firms is dynamic and hyper-competitive. It seems that the only constant is change itself! Competitors try to outmanoeuvre each other with new and improved products or services, more efficient manufacturing and service delivery processes and better quality. Consumers have also become more sophisticated and discerning in their requirements for convenience of delivery, customer service and value for money.

In such an environment, the ability of a firm to provide consistent superior performance is unlikely to happen by chance. Rather, if it is to be achieved (and there is no guarantee that it will be achieved), it will need a carefully thought-out and executed strategy that takes into consideration the important dimensions of a firm's internal and external operating environment.

It is now generally argued that the traditional orientation of management accounting, based mainly on internal financial data, is not adequate to fully inform managerial decision making in today's complex and dynamic business environment. Traditional cost accounting has been described, somewhat uncharitably but nevertheless colourfully, as trying to drive a car down a motorway using only the rear-view mirror. Strategic Management Accounting (SMA) was therefore forced to evolve in recent years to meet the growing strategic information needs of managers. In brief, the remit of SMA is (a) to provide information and analysis for strategy formation, (b) to communicate strategy throughout the firm by way of designing appropriate Performance Measures, and (c) to monitor the validity of the firm's strategy. This short article gives an overview of how SMA carries out this remit and mentions some of the difficulties involved. It concludes by noting the role that management accountants can play in SMA and the necessity for accounting educators to prepare future management accountants for this expanded role.

Strategy Formation

An interesting way to introduce the notion of strategy is to compare the difference between, say, planning our personal finances and planning...