Lean manufacturing is radical here, even to the point that there is a reluctance to regard management as a value-adding activity, and to the extent possible, shop Xoor workers should coordinate activities rather than management cadres. product development subcontracting, production suppliers). The reason for the latter is that a larger y2 implies a larger a2. However, not only was the new Stylus viewed as a ‘Xagship’ product but it was also the Wrst of a new family of products designed to increase parts commonality. The objective of any increased sharing was Table 6.3 Design dependence and relational context Relational context Level of design dependence Primary responsibility for specifications Primary responsibility for design Family member High Joint Joint Major supplier Medium Buyer Supplier Subcontractor Low Buyer Buyer INTEGRATED COST MANAGEMENT 135 to enable more sophisticated interactions between the two design teams. Low degree of product differentiation and slow response to customer demand. Simons, R. (1995). In other words, a Wlm may be a sequel to another popular Wlm, using the same actors, situations, and tone, but it is not the same Wlm. As regards the harmonization of accounting standards, this can be seen as yet another wave of codiWcation, strengthening the language on which auditing processes are based. The manager’s view provides the conduit through which events and environments are interpreted. Neely et al. This requires a governance structure that combines Wrmness and Xexibility; in other words, structure and autonomy have to be balanced. The 1986 amendment is particularly interesting in that it has nothing to do with clearing up the environmental sites. GAO (Government Accountability OYce) (2004). But the issue of what to measure and how to ‘capture a balanced view of progress’ that would ‘cover the interests of all stakeholders’ and ‘reXect the business activity as a whole’ (Health and Social Care Joint Unit 2000) was seen as deeply problematic. If the issue is primarily one of motivation and eVective performance management, the BB approach has insights to oVer. Description : PROFESSOR SIR KENNETH L. STUART Pain control has become one ofmedicine's most rapidly growing disciplines, and Iwelcome the opportunity to write this foreword to abook that Iam sure will make its own unique contribution to advancing this discipline. There is therefore uncertainty about the claim that non-Wnancial data are obvious— they may develop misconceptions of the state of aVairs or at least disagreements about how to understand what quality is (Wilkinson and Willmott 1995; Mouritsen 1997); what Xexibility may mean (Mouritsen 1999); or what customer value is (Vaivio 1999). London: Economist Books. A belief that reliance on traditional financial measures causes sub-optimal decisions led to the development of economic value measures (Rappaport 1986). and trans. But the cost of this approach is that the analysis and the results are based on unmotivated assumptions. Next, consider case 2, in which we assume that the principal wants to induce the agent to take action aH . He decided to start with Charlotte, the most mature market. The organization facilitates that collective learning at meso-level but will need to ‘harvest’ it at organizational level in terms of the (re)design of higher-level coordination routines and procedures, governing both ransactions and learning. He too argues that such theoretical reframings of management accounting practice highlight that systems of planning and control are contingent, continuously reXexive, and adaptive accomplishments, challenging technically neutral and socially disconnected accounts of this aspect of organizational functioning. Other authors, such as Simons (1995) in his ‘levers of control’ framework, have combined a focus on strategy with a wider view of the control mechanisms that can be used to implement strategy. The father’s interest in the strategic thinking of Henri Jomini impressed the younger Mahan with the importance of Wtting things into an orderly system. First, the ABC advocates have argued that in the long-term all costs are variable and that (at least for long-term decisions) all costs (i.e. Second, the new Stylus Zoom camera was being developed during a period of yen appreciation that was placing considerable pressure on Olympus Optical to reduce costs even more aggressively than usual. 1983). Once again, responsibility centres and projects tend to have a reXection in human capital—project participation provides an experience build-up and value increase of the knowledge of the individual, i.e. London: FT/Prentice Hall. Finally, integrated provision was designed to allow local authorities, Primary Care Trusts, and NHS Trusts to provide services under a single management structure, thus oVering integrated services from one provider rather than many. terms. Variances can be calculated for operationally meaningful categories. First, there has been disquiet that institutional theory has overemphasized the inXuence of environmental models and underemphasized the strategic options available to organizational actors. The decision to exclude the anticipated general Kaizen savings from the target costing analysis reXects a conservative approach on the part of management. These range from manipulating budgetary estimates before the year begins, through the manipulation of reported numbers during the budget year (often by exploiting timing diVerences) to the adoption of inappropriate management decisions (such as the postponement of maintenance expenditure); all have the objective of producing numbers that look good against budget targets whilst simultaneously destroying value. The rationale underlying such an investment is that the intermediary investment has a positive strategic option value that more than oVsets the negative NPV. And, they actively pretend that ‘accounting controls’ can protect the Wrm from fraud on the part of managers who are smart enough to envision and undertake transactions whose deviousness totally eludes the hapless gatekeepers. Once such relaxations are identiWed, the supplier requests a meeting to obtain buyer approval. Target costing was considered of particular importance by Olympus Optical’s senior management because the manufacturing phase of the life cycle of modern point-and-shoot compact cameras was short, with the typical compact camera only being on the market for between twelve and eighteen months. The ‘prime mover’ in the reorganization of the railroad is its superintendent, the West Point graduate, Herman Haupt, who, despite having no previous business experience (except in running a school (Ward 1971)), introduced there, from 1849 onwards, a strategic reorganization, grounded in the collection and analysis of operating statistics and costs, and laid the foundations for the development of the largest railroad in the USA (e.g. For instance, Viacom, Inc. owns Paramount Pictures, CBS, MTV, Showtime, InWnity Broadcasting, Simon and Schuster, The Free Press, and Blockbuster Video. Organizational Analysis: a Sociological View. A key is whether the information provided by non-financial measures is valuable to shop floor workers and whether they have incentives to use that information. ‘Goal Setting and Task Performance’, Psychological Bulletin, 90: 125–52. New York: State University of New York Press. In addition, the book provides an introduction to the theoretical framework of accounting regulation, looking at choices between controversial accounting methods and at markets that are characterized by asymmetry of information and beliefs. Here we see the ‘Periclean’ qualities as emphasized by Cummings (1995, 2002). By 1990, each of the ‘big six’ accounting Wrms had a division of its consulting arm specializing in ABC and/or ABM. For a less risk-averse agent, investigate all x greater than or equal to some ^ tail investigation), where for every outcome x in the investigation region the agent’s expected utility of compensation from the investigation is greater than the utility of compensation if there were no investigation (i.e. It is no coincidence that these are also key practices through which one now becomes a successful player in the modern corporate or military managerial world. 9.3.2 MULTIPLE PERFORMANCE MEASURES AND ORGANIZATIONAL BOUNDARIES When performance measurement is addressed in the academic literature, the focus is typically on the private sector (Ittner and Larcker 1998). There is also considerable interest in formalizing and establishing non-traditional reporting methods such as the Global Reporting Initiative (GRI) for CSR and sustainability reporting, and there are attempts to promote further consistency between internal and external reporting issues. Most of them were seen as ultimately designed to lead to performance ratings of individual organizations such as a particular hospital or school. ‘Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part II’, Accounting Horizons, 15(2): 147–61. Compared with Simons (1987), the control systems investigated here were more encompassing of a broader control system. (1971). Whereas environmental liabilities may be condensed into single-line items for Wnancial reporting issues, it is hard to distil the complex and often contrary issues of internal management and environmental performance into a single set of rules. The optimal compensation contract (equation 4) can now be interpreted as stating that the higher the observed cash Xow, the more likely it is that the agent acted obediently, and the more the agent is paid. Combined corporate Wnancial statements versus separate statements for each business location . Chandler 1962; Roberts 2004),2 and the linkages between the historical genesis of ‘modern’ accounting and the emergence of US ‘big business’ structures from the 1840s have been (and are continuing to be) explored (e.g. These may include such mechanisms as BSC of non-Wnancial performance measures; activity-based management (ABM) systems and other forms of business process management; benchmarking techniques for target-setting; customer relationship management models; and so on. . But what is needed are attempts to consolidate what we have learnt and to bring together the quite diverse understandings that have been produced using the various theoretical perspectives mentioned earlier. Description : The book explores the developing challenges and opportunities within the business and finance world which are likely to impact the accounting profession in the near future. Gupta, A. K. (1987). Buchheit, S. (2004). There are two aspects about Simons’ results that are intriguing (LangWeld-Smith 1997). But positive cash Xow is far short of reasonable proWt in relation to investment. In a separate, yet complementary, stream of policy developments, a number of initiatives over the last few decades have sought to introduce private sector provision into both health and social care. King, G. (2002). Every cadet was precisely ranked and known by his or her performance from the day of entry to the day of graduation: and assignment to favoured Corps was strictly by order of merit. in the fashion industry, where fashion is notoriously Wckle and diYcult to predict). Ittner and Larcker (2005) reported that measurement activity in many companies they have worked with was frequently organized as the responsibility of discrete organizational groups, with sets of measures developed piecemeal over time. New York: ILR Press. The basic reason for this is usually that a multiperson setting is assumed where, if information is available, we cannot choose to ignore it, even if we would be better oV without it in terms of contracting eYciency.45 Also, the strategic role of cost information may aVect the demand for the accuracy of the costing system.46 As a conclusion, it is important not to strive for accuracy for the sake of accuracy, but to carefully consider context speciWc issues in making the decision on the level of accuracy required. Kaplan 1983; Hiromoto 1988). (Lead Commissioner of Learning Disability Services) A social services representative at one of the sites commented on the way in which the multiprofessional nature of the programme had inXuenced the progress of the reforms: The speed at which we’ve been able to go is slower than we would have anticipated in spite of our enthusiasm and commitment, because of our individual agendas, understanding diVerent priorities of our individual agencies, language, the diVerent disciplines we come from, the diVerent ethos and philosophies. 4 It will depend on the position taken in the marginal costing versus full costing debate as to whether or not these facility sustaining costs should be allocated to cost objects. Thus, the advent of the nuclear age by no means undermined the modernity of the strategic discourse which was articulated at the end of the nineteenth century, the emphasis remaining on logistics and on a future orientation. Competitive strategies focus on how individual SBUs compete within their particular industries and position themselves in relation to competitors. While there are important diVerences among these, for our purposes there is no need to distinguish between them. Instead, alternative performance management devices will be used for management control purposes. Also, it is possible that the range of measurement will be compressed, which may lead to less differentiation in assessing employees’ performance and an overall perception of unfairness (Prendegast and Topel 1993; Moers 2005). Clearly, with a wide diversity of measures, determining the level of controllability of individual measures becomes increasingly difficult and it is likely that the incremental value of the information will decrease with additional measures. It is interesting to note that the second and third concerns raised by the above noted senior executive (i.e. ‘Environmental Information and Market Reactions to Environmental Legislation’, Journal of Accounting, Auditing & Finance, Spring, 12(2): 149–278. In their analysis Bisbe et al. Second, the boundaries of management control systems now often extend outside the legal boundaries of a single organization (see Otley 1994) and encompass control of business processes and value chains that covers chains or networks of organizations. —— —— (1993). Another reason for the demand for cost data may be that the sequence of non-Wnancial leading indicators to the lagging cost indicator is a highly complex assumption and so many things can go wrong in the translations from quality to dependability to speed to Xexibility to cost reduction. ‘The SigniWcance and Investigation of Cost Variances: Survey and Extensions’, Journal of Accounting Research, 13(2): 311–37. In Zen and the Art of Motorcycle Maintenance, Pirsig (1974) presents quality as largely incomprehensible; as an ambition that can never be controlled particularly when it is individualized. He is also a Certified Management Accountant (Canada). The economics-based accounting literature, in contrast, has indicated that gradual reWnement may not lead to more accurate costing. ‘success fees’). In the study of MCS, these non-human actors may include reports, systems, data, and other objects. (1979). 2. Lapre´, A. and Van Wassenhove, N. L. (2002). Examining how performance measures should best be designed becomes more than considering the sum of the eVect of each contextual variable or their combinations. However, this form of ‘Darwinism’ ignores the processes whereby organizations attempt to move towards the optimal combination of context and performance measures. These propositions make accounting calculation interesting. Also available at http://www.gutenberg.org/etext/1946. The second type was the external integrated cost management programmes at Komatsu, Isuzu, and Tokyo Motors, and their respective suppliers, Toyo Radiator (Komatsu), JKC (Isuzu), and Yokohama Corporation and Komatsu Iron Works (Tokyo Motors). Management and Cost Accounting. ‘Linking Control Systems to Business Unit Strategy: Impact on Performance’, Accounting, Organizations and Society, 20: 51–66. 417–18) because costing systems and management controls are designed to ensure that, Wrst, workers maximize their productivity and eYciency and, second, the resulting productive output is converted into a monetary form. In this chapter, it is argued that enhanced performance outcomes will depend on how diVerent types of measurement systems best suit, or Wt, with an organization’s speciWc THE CONTINGENT DESIGN OF PERFORMANCE MEASURES 93 context. Aggressive cost reduction was achieved at Olympus Optical by applying value engineering in three diVerent areas. 58–75. Under a contingency perspective, certain styles of MCS are said to suit certain types of strategies. But then we also get those who take up, unconsciously no doubt, the newly revised version. Total connections are 625,000, of which Charlotte is 20% (125/625). co true cost allocated to cost object k by the benchmark system tck fck (false) cost allocated to cost object k by the costing system approximation. Table 4.1 illustrates the emphasis that may be placed on selected management accounting function features and corollary strategic emphasis. (1988) provide another counterexample where Noreen’s third condition does not hold in practice. Buchheit 2004). If accounting calculations were powerful, we should expect them to change things. This can go on for Wve years. ‘The Archaeology of Accounting Systems’, Accounting, Organizations and Society, 12: 207–34. New-tovideo are Wlms that currently exist in a studio library but have never been released on video or DVD. Notwithstanding this precise meaning of controllability, it can be argued that nonfinancial measures are more controllable than financial measures (Ittner and Larcker 2000). Researchers mobilizing a non-rational design frame emphasize the contribution of management accounting to processes of experimentation that help organizations discover and learn about their goals. CIMA has recently commissioned research in this area, seeking to link performance management systems with issues of strategy at one level, and operations at the other. Correspondingly, Tinker et al. 1978). Second, small defenders found tight budget goals important, but large defenders did not. As is often the case with transfer pricing, for example, the Wnal targets might owe much to the relative negotiation skills of those involved and little to economic or operational factors. NOTE ‘ 1 ‘Sustainable Growth, the DuPont Way’, Harvard Business Review (September 2001): 129–34. A History of Military Thought: From the Enlightenment to the Cold War. Thus, an unavoidable trade-oV arising from the agent being privately informed is between production eYciency and information rent.16 So two fundamental insights from contract theory are: (a) hidden action results in a trade-oV between production eYciency and risk-sharing eYciency, while (b) hidden information results in a trade-oV between production eYciency and informational rent. —— Berry, A., and Cullen, J. Foucault, M. (1972). There are tensions between those two dimensions of the Wrm’s management. NOTES 1 LangWeld-Smith (1997) provided a review of survey research to 1992 and case study research up to 1995. This is due to the decrease in cost for the high volume products having to be spread out over lots of products, whereas the increase in costs for low volume products has to be borne by a few products only. New York: Bantam New Age Books. 6.2.3.3 General Kaizen costing General Kaizen costing, or production cost control and reduction as it was called at Olympus Optical, was applied during the manufacturing stage of the product’s life. Kim has a B.Ec. Professor Chenhall has assisted in the management of strategic change in a variety of major organizations and has published a wide selection of articles in professional and academic journals. Briers, M. and Chua, W. F. (2001). Senge, P. M. (1993). (2002). This obstacle has also limited the advice academics have been able to give to practitioners to improve their costing system design. Quality has many facets. one that is normally distributed with mean m and variance s2 . They also make greater investments in brand recognition and human capital building and less in physical and working capital (Means and Schneider 2000). (1996). Tokyo–Yokohama–Kamakura Chain . 1998: 680). An Analysis of Customer Satisfaction’, Journal of Accounting Research, 36 (Suppl. the value of the second best solution) is less than the value when the owner has full information. Thus, the purpose of productspeciWc Kaizen costing was to access design-related savings that might have been missed INTEGRATED COST MANAGEMENT 125 during the design phase due to competitive time pressure. Strategic Cost Analysis: The Evolution from Managerial to Strategic Accounting. ‘Why Shared Meanings Have no Place in Structuration Theory: A Reply to Scapens and Macintosh’, Accounting, Organizations and Society, 21(7/8): 691–7. Standard costing and budgeting, return on investment (ROI), discounted cash Xow (DCF), break-even analysis, activity-based costing (ABC), the balanced scorecard (BSC), and much more all share this aspiration to create and shape the capacity of individuals to calculate and to measure the performance of themselves and others. in cost accounting, budgeting, performance measurement, incentives) and various theoretical perspectives to generate their own ideas about the many potential researchable questions in this particular industry that have remained largely unexplored and for which we as management accounting researchers may have a comparative advantage. Third, information economics and agency theory related concepts, such as Wneness and suYciency, have been studied in great detail, resulting in a vast literature. Yet we use a single descriptor—management control systems—to describe these distinctly diVerent processes. We can do all that stuV. 5.3.3 TECHNOLOGY Technology refers to how the organization’s work processes operate (the way tasks transform inputs into outputs) and includes hardware (such as machines and tools), materials, people, software, and knowledge. Both Ha˚kansson and Lind, and Kaju¨ter and Kulmala suggest that the problem of coordination increases dramatically and that therefore Wrms engage even more coordinating practices such as ongoing work in cross-functional, cross-company teams and technical support free of charge. Using Weld research, two diVerent types of integrated cost management programmes were observed. Baldenius (2003) points that this empire beneWt may be derived from (a) the manager’s perception that market reputations are enhanced by running a bigger organization; and/or (b) plush oYces and other fringe beneWts are associated with the organization’s size; and (c) the 156 GORDON, LOEB, AND TSENG Incentive Manager compensation privately learns contract is project signed— productivity manager’s state payment will be based on the manager’s capital request and the realized cash flows from the project Manager submits capital request; owner allocates the claimed capital to the manager; manager enjoys reputation or empire effect from allocated capital Manager uses the capital for the project— actually used capital may be different from claimed capital Project cash flow realized— the owner pays manager compensation according to the contract requested Figure 7.4 Alternative time line for capital budgeting models enhanced feeling of power of running a larger organization. Equally, it suggests various management accounting concepts and instrumental areas as the ‘boxes’ for putting the new ideas into. ‘Business Unit Strategy, Managerial Characteristics, and Business Unit Effectiveness at Strategy Implementation’, Academy of Management Journal, 27(1): 25–41. Recent decades have witnessed an avalanche of performance indicators, performance reviews, audits, and inspections in the UK public sector (Pollitt 1986; Lapsley and Mitchell 1996; Power 1997; Bowerman et al., 2000; Chow et al. Field Service Regulations, Part I, Operations. Film screenings, telephone surveys, and trailer tests all play a role in assessing the reaction of targeted audiences which, in turn, inXuences and directs the positioning of the overall marketing campaign. This is ironic in the context of the modernizing government programme, for the modernizing government programme depends heavily on interorganizational cooperation and the sharing of resources and outcomes. In a similar vein, Morrison (1991) Wnds that the necessity to comply with legal requirements was more than twice (69 per cent) as important as social responsibility ENVIRONMENTAL MANAGEMENT ACCOUNTING 397 (32 per cent). Technologies of representation do not fundamentally diVer from what is being represented, so accounting information evolves altered links to the management of operations. Burchell, S., Clubb, C., Hopwood, A. G., and Hughes. Design of Cost Management Systems, 2nd edn. 2005: 290). Most examples in the classroom were ‘cameo appearances’ inside pretty traditional management accounting courses. REFERENCES Akerlof, G. (1970). The development of sophisticated costing and strategic management tools as part of the attempt to break away from ‘backward-looking’ Wnancial reporting opened up opportunities for EMA. Consequently, providers of accounting information within organizations respond to many of these desired changes by redesigning management accounting systems and restructuring their output. For instance, Tapscott (2001) believes that the MANAGEMENT ACCOUNTING AND DIGITIZATION 71 following factors characterize the modern commercial environment across diVerent parts of the globe: . London: Allen Lane. In particular, they were concerned that the workforce would begin to accept that it did not matter if target costs were not achieved, since they could be achieved later during the manufacturing phase. If, for example, the costing system signals the cost of product X to be £10, we could translate this in several ways: (a) the state ‘true cost is £10’ will occur; (b) realizing our costing approximation is not fully accurate, the subset of states ‘true cost £9, £10, or £11’ will occur; (c) realizing our costing approximation is not fully accurate, but ANALYTICS OF COSTING SYSTEM DESIGN 237 having a view on the bias and variance it creates, ‘true cost of £9 will occur with 25% probability’, ‘true cost of £10 will occur with 50% probability’, ‘true cost of £11 will occur with 15% probability’, and ‘true cost of £12 will occur with 10% probability’; or (d) interpret this as noisy information that lacks precision (only a probability that a given state or set of states will occur following the receipt of a speciWc signal), ‘true cost of £10 may occur with 50% probability’. Ward, J. ), The Practice Turn in Contemporary Theory (pp. Capital cost is $560/customer Monthly revenue for a ‘typical’ customer: Regular cable (50 channels) Extra channels $49.50 Set-top box rental Customer equipment costs $250 per home connection (10-year life) 10-year annual operating cash flow ($) summary (2000) for the average customer Year 0 Revenue Programming cost Customer acquisition (73) Selling Marketing Sales commissions (53) (11) (9) Installation Customer care Years 1–10 594 (263) (91) (36) Billing Repair and maintenance Customer service (12) (17) (7) Network maintenance Administration (24) (26) Local market Allocated corporate (16) (10) Net After tax (164) 245 (98.4) 147 hearing with major venture capital funds, investment banks, and private investors. singles out the role of the accounting profession and, in particular, its interest in acknowledging a range of stakeholders in the corporate reporting process, as well as a desire to standardize such reporting to increase the reliability of the underlying information. He has published widely in accounting, management, and sociology journals. Parker, G. (1972). But in this case, the optimal linear performance measure still assigns non-zero weights to the signals as long as their means vary in the manager’s action choice. 1996). the facilitation of access to certain groups or individuals, or the creation of knowledge-sharing incentives or a positive teamwork environment (Casciaro and Lobo 2005; Florida and Goodnight 2005). But the solution may not be to separate the dual roles of accounting, i.e. Section 8.3 considers how these practices could have remade strategy into its modern form. It seems clear that he always intended his classiWcation to represent a temporary simpliWcation to enable progress to be made on an artiWcially narrowed front. This skill is particularly important in lean enterprises that typically outsource a high percentage, sometimes as high as 70 per cent, of the manufacture and design of the total value added of their products. ‘Tech: Where the Action Is’, Fortune (12 May): 24–9. This creates an incentive for the exhibitor to stay with a particular studio’s product and serves to keep the competition out. London: Temple, Smith. . Wyatt, J. Collaboration. Members of these bodies are obligated to adhere to these or risk disciplinary action or losing their professional membership. In addition to these various forms of intraclass conXict, there is REFRAMING MANAGEMENT ACCOUNTING PRACTICE 51 interclass conXict as well, as capitalists and workers compete over both the size and distribution of the social surplus, over the quality of work life, and over the methods of production. Implicit, emerging through interactions and processes underpin the extent of their output writing. 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