Management Accounting Innovation, Essay Example

You are required to explain why Management Accounting Innovation is one of the core themes driving modern organizations

The reason why management accounting innovation is one of the core themes driving modern organizations is because it helps ensure the success of those innovations. In the article, Emsely states that “Innovation is generally regarded as an important research topic because innovations are believed to enable organizations to successfully adapt to, and survive, volatile business environments” (Emsely, 2005). In this respect it is clear that innovation in general is an essential aspect of company survival and competitiveness.  Management accounting innovation utilizes accounting information to extract vital company data that could assist stakeholder in making informed decisions. The reason why management accounting innovation is one of the core themes driving innovation is that it provides for the fund allocation and the resources necessary to nurture a creative and forward thinking environment. It also allows for realistic pathways to profitability with new ideas and concepts in their article, the author notes that innovation is not an end itself. This means that in order for new innovations to be affective, they often require funding and resources beyond their initial projections or maintenance beyond their launch this can be costly if not properly budgeted. That is where management accounting innovation comes into play as the role of the management accountant is to draft a realistic pathway towards profitability for new innovations. The author notes that, Innovation is not an end in itself. The authors state that, “finding the path to profits when an innovation moves towards implementation is a core requisite capability of management accountants. Building cash flow models, advising on financing approaches, understanding costs and allocating resources are just some of the many ways in which management accountants can bring rigour to the process of commercializing ideas” (CGMA Report, 2013). The report attributes this to the fact that stable and conscious financing can be one of the core factors in ensuring an innovations success. The example used is that efficient and effective account management can lead to more available funding to expand business models and inspire other investors to get on board, or supplement extensions to the original business idea to spur more innovation.

Do you agree that the role of a Management Accountant has been adequate in driving innovation? If Yes/No and why?

I do agree that management accounting has been adequate in driving innovation but as Emsley notes it depends on whether the Management Accountant has a functional accounting orientation background or a business unit orientation mindset. The author notes that,“the results support the hypotheses that, compared to a management accountant with a functional (Accounting) orientation, a management accountant with a business unit orientation is not only associated with a greater level of innovativeness but is also associated with more radical innovations” (Emsely, 2005). He attributes this distinct difference between the two types of management accountants to the fact that business unit oriented accountants are more familiar with marketable and profitable products, making them more proficient in spotting potential innovations and their probability for success. Accountant oriented management accountants on the other hand are less innovation minded and less likely to grasp the intangible aspects. This proves that Management Accountants can be equally as ineffective at driving innovation as they are effective at it; the real level of adequacy is dependent on the type of Management Accountant overseeing the project.

The author (Emsely 2005) suggests that- Role involvement is expected to affect innovativeness in terms of: (i) knowledge about the appropriateness of innovations;

The author identifies management accountants with a business unit background as those most equipped to identify potential innovations as well as assess their intangible risk. This is something traditional managers are often unequipped to handle. Business unit oriented management accountants are familiar with the types of factors necessary for an innovation to be successful. They are also familiar with the use of incentives to drive work in a promising direction. This is partly why Business unit managers are more willing to accept innovation proposals, approved by Management Accountants, that they might otherwise turn down or take more time to evaluate.

Acceptance of the innovations by business unit managers

We agree with Ensely on the argument that management accountants tend enhance the possibility of a particular idea getting accepted due to the fact that they are viewed as insiders as opposed to outsiders to the company. The author notes they are are viewed by the rest of staff as “one of us” as opposed to separate form us. This in turn results in stakeholders such as business unit managers accepting their innovative ideas and concepts. In addition to in-house management accountant managers having the perception of being integral to the company’s operations, they are also viewed as having the company’s best interests in mind. This also plays a role in perceiving innovative ideas or new project proposals presented by management accountants as being better suited for a company than those presented from outside consultancy sources.

Incentives to innovate

We agree with Emsely that incentive plays a major role in the success of innovation. On the topic of incentive to integrate, Emsely notes that incentives can result in higher productivity and more creativity within the innovation process. Creativity in turn leads to radical thinking and an awareness of business innovations that are occurring within the outside climate of the industry. We agree with this but it also depends on whether the incentives are team based or individually driven. Authors Drake, Haka and Ravenscroft support this perspective noting that “incentives that motivate workers to cooperate are a prerequisite to successful process improvements based on ABC. Alternatively, when competitive incentives are combined with ABC, the result can be unexpected and negative. We examine how accounting cost system and incentive structure choices interact. We find that profits are highest when ABC is linked with group?based incentives, which provide high motivation to cooperate” (Drake, Haka & Ravenscroft, .The authors state that the  lowest level of profit happens when Activity Based Costing (ABC) is combined with tournament level incentives that reward individual performers as opposed to team success.  This can be attributed to the fact that team based invectives motivate teams to work together and to produce the best product as opposed to just producing the best individual numbers.

In your analysis that is derived from the journal, explain how the Management Accountant/s can accelerate the innovation within an organization

In Emsely’s article, the authors note that management accounting supplements innovation by positioning companies in a way where they are more exposed to innovative properties and have more tangible access to resources that might spawn innovation. The way this works is that managers have more funding to allocate to research and development departments or for new technology that would better equip them in their pursuit of innovation. The CGMA report supports Emsely’s idea of nurturing innovation through providing financial confidence, the researchers note that, “there can be a clash of cultures between those responsible for coming up with ideas and the finance

professionals who are the guardians of financial integrity and rigour”. They further state that this interaction can harbor distrust, especially when early-stage ideas are tested against traditional financial metrics in a premature way. The way Management accountants can accelerate innovation is by having the business unit knowledge and financial knowledge necessary to know when the “creation of ring-fenced  budgets with more relaxed criteria” would be necessary to make room for innovations to grow, and to know when ti would be appropriate to tighten up budgets or reallocate funds to more practical ventures that could potentially support innovative projects in an alternative fashion. for early-stage innovations. This is due to the fact that finance must work in an environment of risk and uncertainty, which empowers the Management Accountant with a business unit mindset to be more effective than other types at identifying paths towards profitable innovation and accelerating the activity and ultimately success of those innovations.

Work Cited

CGMA Report (2013). Managing Innovation : Harnessing the power of finance. <Retrieved from> http://www.globalaccountantweb.com/wp-content/uploads/2013/05/CGMA-report-Managing-Innovation-harnessing-the-power-of-finance.pdf

Drake, A. R., Haka, S. F., & Ravenscroft, S. P. (1999). Cost system and incentive structure effects on innovation, efficiency and profitability in teams.The Accounting Review, 74(3), 323-345.

Emsley, D. (2005). Restructuring the management accounting function: A note on the effect of role involvement on innovativeness. Management Accounting Research, 16 (2), 157-177, Retrieved from http://www.sciencedirect.com