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:
Professor Marko Järvenpää
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.
Professor Jukka Pellinen
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.
Summary
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.
2016 might be the year of podcasts. These digital audio files have been around for a decade, but I've noticed that recently they have become increasingly popular. For example in our Executive MBA's Web For Executives module, students found them really inspiring. And why not, podcasts come with many benefits:
The following presents some podcasts that I highly recommend for any manager to listen. I subscribe and listen to them with my iPad's podcast app but naturally other services will do. Below are just a few of my favorites. Feel free to share your favorites in the comment box.
