Financial control role – The traditional view of accounting is as a mechanism for control, and therefore the focus of the management accountant’s role has traditionally been on financial control within an organisation.
In this traditional model, it was felt that management accountants needed to remain independent from operational managers, in order for accountants to be able to judge performance objectively and then report on it to senior management.
Business support role – However, Burns and Scapens’ studies found that the primary purpose of management accounting has now changed from financial control to business support. The management accountant’s role has also had to change accordingly.
In particular, instead of remaining detached from operating divisions, management accountants now need an understanding of these divisions and the commercial issues they are facing, so that, in effect, accountants can provide an internal consultancy service to the divisions.
Hybrid accountant – Burns and Scapens characterise the management accountant’s new role as being that of a hybrid accountant. As such, an accountant is no longer simply a financial or numbers specialist, but also needs an understanding of the operating functions and commercial processes of their organisation. The accountant acts as a source of business support and advice for operational managers.
Accordingly, management accountants have become increasingly involved with the operations of their business, rather than working in a separate ‘accounting department’.
Burns and Scapens state that there are three main forces for change in the role of the management accountant: changes in technology, management structure and competition.
Technology
In recent decades there have been major changes in the quality and quantity of information technology (IT) resources available in organisations.
Historically, the management accountant was one of the few people in an organisation who had access to the IT system and the information generated, because the outputs from the IT system were usually used to prepare financial reports to management. Data input was strictly controlled, and only a few people were allowed to enter data onto the IT system.
Impact of management information systems (MIS) – Now, however, MIS allow users across an organisation to run reports, providing them with the type of analysis once only provided by the management accountant. Therefore, rather than having exclusive access to information, the management accountant is simply another user of the system, in the same way that operational managers are.
This force for change is evident at TH, because the new management information system has increased the data available to all managers throughout the business.
Management structure
Changes in management structure have also affected the role of the management accountant in organisations.
Responsibility for budgeting – One of the main changes in organisations has been a shift in the responsibility for budgeting. Instead of budgets being produced by head office, and imposed on operational managers, operational managers now have greater responsibility for producing their own budgets.
This force for change is also evident at TH. The SBU managers have taken on greater responsibility for budgeting, whereas this had previously been carried out by the finance team at head office.
The increased autonomy given to the operational managers in organisations also means they have increased responsibility for managing the performance of their operations; for example, by monitoring actual performance against key financial and non-financial performance indicators, and producing revised forecasts based on current performance and trading conditions.
Producing reports – Consequently, whereas in the traditional model, the management accountant was the only person who produced performance reports for senior management, now operational managers will also be producing them.
Therefore, the nature of the reports produced by the management accountant will need to change. For example, the accountant’s reports may have to try to highlight the financial consequences of the information presented in the operational reports, or may have to illustrate how operational performance is affecting the organisation’s progress towards achieving its strategic goals.
Competition
Strategic focus – Burns and Scapens’ project found that the management accountant’s role had an increasingly commercial orientation. This change reflected organisations’ own needs to respond to competition and deploy a more strategic focus to help achieve, and maintain, competitive advantage.
Traditionally, management accountants focused largely on the ‘bottom line’ profit figure. However, this focus on profit has subsequently been associated with a short-term approach to performance management.
A commercial and strategic orientation recognises the importance of an organisation’s future earning capacity as well as its profit in the current period. Therefore, management accountants need to look at a wider range of performance measures to try to capture longer-term trends in performance and future profitability, as well as reporting on current profits.
This strategic orientation also encourages management accountants to assess an organisation’s performance in the context of its wider external environment.
Competitive position at TH – Competition and the competitive environment is having a significant impact on the role of the management accountant at TH.
TH sells its goods across the world and its main goal is to grow the business organically for the next generation of the family. This highlights that TH isn’t solely interested in short-term performance, but also has longer-term goals.
However, TH is also faced with increasing competition in its markets, and it needs to be aware of the threat from large brands which will try to dominate markets using economies of scale to their competitive advantage. Therefore, TH needs to be flexible and innovative in its response to larger competitors, but will also need to ensure it maintains the high quality of its products which could help it differentiate itself from these competitors.
Appropriateness of the changes at TH
The three main forces for change in the management accountant’s role (changes in technology, management structure and competition) are all present at TH.
The changes in organisational structure (leading to SBU managers taking more responsibility for budgeting) would appear to fit particularly well with the concept of the accountant as an internal consultant. For example, the accountant could work with the operational managers to identify ways of improving how the new MIS is used, and tailoring the reports it produces to the managers’ particular needs.
Equally, the accountant can play an important role in ensuring that the aspects of operational performance which the SBU managers measure are properly aligned to, and support, TH’s overall strategic goals and objectives.