ACCT30002Lecture 1

Introducing organisations, strategy and management control systems

Administration*

AdministrationYou should consult the subject guide for further details relating to the administration of the subject. The following slides relate toTeaching staffTeaching formatAssessmentSubject road-map diagram

Note: need to attend the workshop for which you are enrolled

Teaching staffSee Subject guide for details:

Albie BrooksSarah TesarAndrew LewinskyJanelle Crowe

Teaching FormatOne 1.5 hour lecture and one 1.5 hour workshop. New content is introduced in the lecture with links to the material covered in the workshop the following week. The focus of the workshop is to review prepared work; complete in-class tasks through an interactive discussion of the materials.

Bear in mind the difference in purpose of the two..the lecture provides an introduction to the content; (not all the material can be explored in this time).which is then supported by the relevant readings and articlesthe workshops provide an opportunity for exploring some of these issues in an organisational context through an interactive group and class discussion.

AssessmentFinal Examination (3 Hours)70 %Mid-term test 10 %Group Assignment12 %(due week 9)Seminar Preparation & Contribution 8 %

NOTE A pass in the final exam is required to pass this subject

For matters relating to special exams, special consideration and the like, you will need to contact the Commerce Student Centre and be aware of the policies regarding such matters. Please note, supplementary assessment is not available in this subject.

Emphasis in lectures and workshops Lecture emphasis: focus on an introduction to topic area; supported by recommended chapters and readingsWorkshop emphasis: focus on understanding of content and application to tasks through problems, short cases and articles. Completion of preparation work for workshops is considered essential. Workshops will also contain additional in-class tasks.

Links to Cost Management CM topics included: Standard costingJob costingActivity analysis and managementQuality and quality costs

See: Yahoo illustration used in first workshop

How does EPM fit into accounting?

EPM themes and topics

But I just want to be an auditor!!!Sure..but

External auditors today are seeking the internal management reports to see behind the numbers in the financial statementsand

Youll soon be in a managing position (audit manager, managing partner).and be working more closely with managerial control system issues.

Topic 1: Introducing organisations, strategy and management accounting and control *

Recommended readings and referencesLangfield-Smith et al; 5e, Chapters 1 and 2Bhimani et al 5e chs 1 and 2Eldenburg et al; 2e, chapters 1 and 12Porter, M. 2008, The five competitive forces that shape strategy, Harvard Business Review, January, 78-93.Flamholtz, E. 1996, Effective organizational control: A framework, applications, and implications, European Management Journal, 14, 6, 596-610.

ObjectivesExplain the concepts of management accounting and control.Distinguish between formal and informal planning and control mechanismsSource current articles/news pieces relevant to management accounting and controlExplain the concepts of incentives, sustainability and risk as the effect the contemporary organisationDescribe the key contingent factors influencing the nature of the management accounting and control system in an organisationIllustrate the links between vision/core values; strategy; key performance drivers; and performance metrics.

Story-timeFinancial Times 19 Jan 2012

What is management accounting?Traditionally: management accounting is the process of gathering, summarising and reporting financial and non-financial information used internally by managers to make decisions.... (Eldenburg et al 2010).....

More broadly, management control information has evolved to include a broader scope of information than a traditional management accounting definition...This information may include external information relating to markets, customers, competitors, non-financial information relating to processes, predictive information, as well as informal peresonl and social controls. .....and may serve multiple roles and decision contexts. Essentially.....management accounting and control is all about managing the organisation.

What is management accounting?

For example, orgnanisations might require management accounting and control information to: .........Direct resources; consider investment opportunities; manage and evaluate risk; evaluate performance of managers and sub-units; evaluate and improve production and/or service delivery performance; improve quality; meet customer/client expectations; evaluate customers and suppliers, develop suitable incentives;

Ultimately, management accounting and control information helps in the management of organisations through: directing behaviour..eg through the use of performance measures, incentives , bonuses and rewards.providing a mechanism for information provision and therefore facilitate decision-making (eg providing cost information for pricing decisions) and/or influence decision making (eg advising on strategy)providing feedback on performance across the organisation .....eg formally in performance appraisals; facilitating learningeg ...getting better at what we do

Four functions of control Motivate decisions and actions consistent with organisational objectivesIntegrate the efforts of several different parts of the organizationProvide information about the results of operations and peoples performanceFacilitate the implementation of strategic plans

(adapted from Flamholtz 1998)

From Flamholtz 1996 p596

Formal management accounting and control mechanismsThese might include:Formal budgeting and planning processesCost system data for costing, pricing, product and customer profitability analysis, Activity-related analysis for improved process managementStrategic-related data collection to assist with decisions such as: outsourcing, capital investment, involvement in strategic alliances and collaborative venturesFormal evaluation procedures of units and managersIncentive programs and reward system structures.

*Include:Informal practices such as informal meetings and social work settings, Practices such as observation/copying and employee engagement that permeate the organisationRecruitment and hiring practices that might result in seeking new employees most likely to suit existing organisational culture Informal feedback processes which might include one-on-one consultations between senior and subordinate managers and/or informal meetingsEmployee development and organisational learning practices

Note that the divide between the formal and the informal is not necessarily as clear-cut as we might think, and tend to be intertwined. (Pitkanen & Lukka 2010 in press).

Informal controls mechanisms

Management accounting and control tools: an illustrationhttp://www.youtube.com/watch?v=WFW5fgypGtY&list=PL9C714B940B77100A&index=8

See article: trains skip stations to evade fines

Key influences on managing the contemporary organisationSee following examples of each*

See following examples of each

Incentives and the contemporary organisationEspecially notorious, at least in terms of the publics perception, is the finance industry, where the use of short-term incentives linked to inappropriate performance metrics is widely thought to have encouraged excessive risk taking(Alan Fels, Australian Accounting Review 52, 20, Issue 1, 2010 p77)

Time to reassess how fund managers are rewarded .(The Economist July 29 2010)

IBM to Give Hundreds of Thousands of Workers $1,000 in Stock(Bloomberg Business Week, January 20, 2011, 6:00 PM EST)

Incentives

Risk and the contemporary organisationLessons not learned The Economist

..The risk/reward equations on which the individual decisions seem to have been taken look as though they were strongly weighted towards getting things done quicker, and thus cheaper. The commission tabulates nine decisions where higher-risk options were chosen over lower ones; in seven of them the riskier option was also the time-saving one (in the other two the implications for time-saving are not clear). Poor management meant that there was no overall view of how the decisions interacted and thus no good sense of how these risks added up. Poor communication meant that key people on the rig were unaware of the increased risk some of those decisions were seen as entailing(Jan 6th 2011, 15:20 by The Economist online; quoted from the BP Oil Spill investigative report)

Risk

Inside Job - reward systems.wmv

Sustainability

Sustainability and the contemporary organisationSource: Nestle Presentation November 2009

Key influences on the nature of the management accounting and control systemStrategy: both organisational (what businesses do we want to be in?); and business-unit level (how do we best compete?).YouTube - What is Strategy..mp4

Organizational culture and belief systems as well as national cultureOrganisational structureExternal environmentSizeTechnology

Porters Five Forces ModelRivalry among existing competitorsRisk from potential entrants to the marketBuyers and customersSuppliers and inputs of resourcesSubstitute products or servicesSee Porters (2008) most recent five forces model analysis in the additional reading on LMS

Compare Google to General MotorsThink about the differences in the management accounting and Control tools likely to be used by Google and GM: what about the similarities?

Google and General MotorsWe will look at this again in Workshops

Key InfluencesGoogleGeneral MotorsStrategy

Culture and belief systems

Structure

External environment

Size

Technology

Recent/current organisational developments and issues and links to managerial control system issuesThe predicament of strategic direction...Virgin AustraliaThe inability to evolve ....Kodak; Borders; Billabong (?) Nokia (?)Executive remuneration and bonus systems...banking sector....Eg..Royal Bank of Scotland The globalised marketplace...predicament of outsourcing; complex alliance arrangements of various formsThe role(s) of government and private sector business activity....a new organisational form???

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