Management And Strategy In Action As Strategic Management Accountancy

International Journal of Applied Finance For Non-Financial Managers (ISSN: 1742-528X) Volume 1 Issue 2 Professor Mike Harvey This series concerns management and strategy – areas which have, these days, increased in both interest and importance as far as the skills and competences that the accountant needs to develop if s/he(1) is to keep abreast of entrepreneurial and business developments. Even, as far as the accountant in practice is concerned, knowledge of tools and techniques in these areas has become important when considering clients performance and how they can be helped to become more effective and efficient in their enterprises. Recent examples, such as the Enron and Worldcom cases, point to this. Press reports in the case of the later suggest that some £2.6 billion of operating expenses were allowed to be capitalised – having, of course, the effect of inflating the company’s reported profits. Assuming that this was not the result of something which was untoward, the question to my mind is whether the auditors concerned would have let such an amount of revenue expenses be capitalised if they had have had sufficient knowledge and understanding of the appropriate ratios associated to the firm’s operational management – such as those related to: expenses/turnover; working capital/fixed assets (the trading ratio); and a string of others. Today the CCAB bodies have increasingly recognised the importance of the accountant developing administrative and business proficiency skills generally and management and strategic talents and expertise in particular. They have done this by giving greater emphasis to such in the study packages they have developed for the students they enrolled – that is their potential members. The recognition of the need to be armed with these competencies is no longer only the province of those aspiring to become management accountants through CIMA, but also those following ICAEW and ACCA courses where the attraction in the past has been to gain a

A key in all this has been pragmatism remembering that each situation. has words like delegation. which enables the needs of every changing environments be met. namely that management and strategy are living subjects and so dynamic rather than static. strategy. The latter. Management and Strategy Management and strategy have been written about and debated using a variety of labels. although having commonality related to some of the principles and practices that can . must be remembered. Although these tags provide different approaches the ingredients are basically the same. With today sometimes the softer labels of business planning and strategy appended to it while the term Strategic Management Accounting has become used to show its accountancy focus. after its initial guise as long-term planning has subsequently been developed into various forms of corporate strategy. supervision and control coming into it both for establishments in the public sector as well as in the private sector. linked with organisation and administration. This spin of the development Strategic Management Accounting now has many theories. especially when this helps to demonstrate applications. Thus strategy concerns the long term. However theory will be linked to practice where appropriate. With the need to consider this being carried out effectively and in an efficiently way – especially in today’s changing and sometimes turbulent environment. This series will be heavily focused on ‘real world’ situations. Here adaptability and flexibility has become of the keys.qualification that enabled the holders to be employed or set up in practice – not forgetting the need for CIPFA members involved in public sector organisations to acquire wider skills. But the obvious. covering its far reaching effects related to an organisation’s vision. concepts and principles associated with it coming from principles and practices which underpin the areas which underlie it – some of which have been firmly incorporated into it whilst others merely impinge loosely upon it. The former. These are related to some aspect of running a business or the management of an organisation. Thus management concerns an organisation’s day-to-day operations and the tactics related to its short term actions as it attempts to fulfil the strategy it has set down. mission and objectives.

will inevitably have some unique features related to it so making it necessary to deal with it on a once off basis. there are.which those people at the very top of an organisation should hopefully have! It is noticeable that the index to Peter Drucker’s book. distinct professional features and a scientific aspect to management. When pursuing these steps management must.” He continues that management “ … can be learned by anyone with normal human endowment. First there is the establishment of a mission supported by strategic objectives. Peter Drucker is emphasising the fact that. . in other words. Drucker and Ansoff’s authoritative statements Peter Drucker writing in 1955 identified that “ … the work of a manager can be systematically analysed and classified. For ‘The Law of the Situation’(2)(! must inevitably come into the analysis as things are adapted to the circumstances concerned – and that is one of the secrets of successful Strategy Management Accounting. Once the plans have been formulated they require implementation through operational management. The ingredients in all this concern a number of steps . while the scientific features can be taught. whether knowingly or not. This will be followed by decision-analysis to develop plans to achieve the objectives. ask whether there are the resources to enable the strategies be achieved within the bounds of the organisation’s mission and the environment within which it works. These operations must be monitored through the provision of feedback which should be followed by any controlling measures to ensure things are going according to the plan – or to enable that allimportant question to be asked as to whether changing circumstances have required that the plan be revised. did not mention the word strategy. at all times. it is more difficult to learn those ‘art’ aspects of management which really fall under the heading of leadership . by a number of enterprises in the past in some way or another.steps which require constant reiteration. Many of the ideas brought into this series will have been employed.be applied to it. published in 1955. even if not exactly as depicted.” But also states that managing a business is not “just a matter of hunch or native ability(3)”.

Basically these have had the objective of trying to ensure that the organisation’s objectives for the long term are fitting to it and can be achieved within the resources that it has available – with the choice of tactics providing an appropriate link between the two.” He continued that “This interest grew out of a realization that a firm needs a well-defined scope and growth direction. cannot. A structured framework Over the years a variety of structured frameworks related to the production of strategies for enterprises and their operational management have been developed. In all this it is necessary to recognise that although some things can be controlled others. Such decision rules and guidelines have been broadly defined as strategy … “(4) Thus strategy was born out of short-term management principles and practices because of the recognition of the need to take a longer-term view of the running of enterprises. such as related to changes in the economic or other environments faced by the establishment. especially if these change in an unstable way. The requirement to gain a competitive advantage over rivals and the need to ensure the survival of the organisation. In the implementation of operations feedback is required to ascertain how well these are going towards achieving any targets set. Since Drucker and Ansoff wrote about management and strategy some 50 years ago two things have become uppermost. In this management’s operational intentions and the enterprise’s strategic purposes have become linked through the tactical objectives developed to enable the former achieve the later. that objectives alone do not meet this need. These tactics dealing with the allotment of resources within the constraints of the environment and the other external factors that the organisation faces. In the case of uncontrollable factors action needs to be taken to mitigate against any harmful and/or . If ‘off-course’ appropriate control measures must be considered. and that additional decision rules are required if a firm is to have orderly and profitable growth.Writing some ten years later in 1965 Igor Ansoff stated “During the past ten years the idea of strategy has received increasing recognition in Management literature.

However it appears that this decision was not supported by the approach taken in the formulation of the tactics for its initial contents. for what will ultimately lead to bigger long-term gains. it was quite clear that Objectives related to its purpose had not been carefully thought through and clearly established. These . Firstly. although there are many more that can be taken from the public sector which is notorious for not developing strategies using appropriate frameworks. It seems that it was decided that the Dome would have a long-term life of some 25 years. One framework related to the development and implementation of strategy is summarised in the ‘O! WOTS UP DOC’. and not just with the benefit of hindsight but even before the decision was made to go ahead with this project. Sometimes this means doing things which require the forgoing of short-run benefits.undesirable effects these may have – or even return to and possibly revise the strategic direction being pursued as is necessary. mnemonic. can be taken from the debacle related to The Greenwich Dome. This follows the stages of: When frameworks for the development of strategy are not followed How problems can arise when the appropriate stages in the development of a long-term strategy are not followed can be best demonstrated through the use of an example. A major problem in all this can be related to behavioural factors such as may be found in the deterioration of inter-personal relationships as different members of the management team’s views divergence and so lead to disagreements and dissentions. A prime one. such as greater longterm profits after expansion has taken place. for example income distribution.

No thought appears to have been given as to how such a capital and time consuming project would translate from its initial short-term concept into its longer-term operational survival. it was quite clear that Objectives related to its purpose had not been carefully thought through and clearly established. Perhaps it is now time to consider changing the long-term strategy taken towards the Dome. not in this case because of environmental change but because the initial strategy was not well-thought out? When frameworks for the development of strategy are not followed How problems can arise when the appropriate stages in the development of a long-term strategy are not followed can be best demonstrated through the use of an example. When the Millennium Year had passed there were no plans as to what to do with this ‘long-term’ capital project. In academia he was one time Professor of Business Studies at the University of Westminster. Professor of Accounting at South Bank University and the Grant Thornton Professor. as well as having been Chair of the .were developed on the basis of a short term time horizon. A prime one. Firstly. Perhaps it is now time to consider changing the long-term strategy taken towards the Dome. although there are many more that can be taken from the public sector which is notorious for not developing strategies using appropriate frameworks. It seems that it was decided that the Dome would have a long-term life of some 25 years. These were developed on the basis of a short term time horizon. can be taken from the debacle related to The Greenwich Dome. However it appears that this decision was not supported by the approach taken in the formulation of the tactics for its initial contents. not in this case because of environmental change but because the initial strategy was not well-thought out? About the Author Professor Mike Harvey MSc BSc(Econ) FRSA FCCA FCIS FCMI MCIM has had a distinguished career in both academia and the accounting profession. When the Millennium Year had passed there were no plans as to what to do with this ‘long-term’ capital project. No thought appears to have been given as to how such a capital and time consuming project would translate from its initial short-term concept into its longer-term operational survival. and not just with the benefit of hindsight but even before the decision was made to go ahead with this project.

page 104) 3. Peter Drucker The Practice of Management (Heinemann. D J Hickson and C R Hinings say “It is important to ensure that the work that people are required to do is based on the objective requirements of the situation. pronoun.” Pugh D S. Although managers can be male or female in future in this series the male gender will be used to avoid the clumsy repetition of the use of the male plus the female noun. H Igor Ansoff Corporate Strategy (Penguin Books 1965 page 94) . 2. London 1955 page 9 4. References 1. Writing about Mary Parker Follett and her work on the Law of the Situation D S Pugh. Related to the accounting profession he is a former President of both the Association of Accounting Technicians (AAT) and the Association of Chartered Certified Accountants (ACCA).Business School and Dean of the Faculty of Accounting and Finance at London Guildhall University where he was made Professor Emeritus. etc. D J Hickson & C R Hinings Writers on Organizations (Penguin Books 2nd ed 1971. He is currently the President of the International Association of Book-Keepers and Director of Academic Affairs (International) at the City of London College.

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