Malmi & Brown(2008) Management control systems as a package—Opportunities, challenges and research

directions
Monday, September 23, 2019
4:27 PM

MCSs as a Package
 Management Control Systems(MCS) are connected to a wider control system always, and they should
not be examined in isolation.
 This in turn might create issues when research in accounting innovation for example is not followed by
research of the entire control system where innovation is taking place.

A broader approach to MCS will help researchers develop better theories support organizational
about innovations, which in turn will performance

Challenges in studying MCSs as a package

 Hard to clearly define the concepts of MCS
 What is included in the MCS package?
 MCSs are large and complex, and research is difficult

MCS definition
Here the authors give a presentation of various definitions of MCSs given overtime. They conclude that
management control systems are systems that managers use in order to ensure the behavior of the
employees is consistent with the organizations objectives and strategies.

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As seen above there are 5 types of controls in this framework

1. Planning
a. Action Planning: Short term plan of 12 months or less
b. Long Range Planning: Mid and long term goals are set, strategic focus
2. Cybernetic
 a. Budgets: the foundation of MCS. A comprehensive plan with many different purposes, mainly
performance control
b. Financial measures: specialized economic measures(unlike budget which is broad) e.g. economic
value added
c. Non-Financial measures: Might be used to identify drivers of performance, since they overcome
the limitations of financial measures
d. Hybrid(Mix of financial and non-financial measures)

3. Rewards and Compensation:

a. Attaching rewards and or compensations to achievement
4. Administrative
a. Organizational design and structure: Certain designs can encourage certain types of
contact/relationships
b. Governance structure within the firm: formal lines of authority and accountability. Where
coordination happens
c. Procedures and policies: bureaucratic approach, includes things like: standards, practices, rules
and policies,
5. Cultural
a. Value-based Controls: examples of that include mission and vision statements etc. Value based
control operates in three different levels
i. When organizations hire individuals with a certain set of values
ii. When those individuals change their values to fit the organizational values
iii. When employees adhere to these values even if they do not agree with them

Andersson & Larsson(2006) Book Chapter: Boundless value creation: Strategic management accounting in
value system configuration
Tuesday, September 24, 2019
2:31 PM

Apparently, there are 7 new group models and are grouped into four groups. Factors that are taken in
consideration by those models are:
 Costs(real or estimated)
 Quality
 Function
 Revenues
 Customer value

IOMA models presented in other literature.

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Cost Tables(CT)
Pretty straight forward, when the buyer makes an estimation of the cost of the supplier, and then different
suppliers are compared(and their costs). Sometimes it can be used to calculate one's production cost and
then compare it with competitors,

Cost Split Up(CSU)

This model involves more interorganizational interaction. The model basically is the supplier calculating the
cost of a product based on the specifications of the buyer. This way the buyer can see how the different parts
of the activities are calculated. This kind of analysis can be used to analyze one's own cost structure as well as
those of competitors.

Cost Breakdown(CB)
This model goes in deeper since it demands from suppliers not only to disclose the costs, but also break them
into categories. Suppliers also have to provide feedback in order to enable cost reductions. That being said,
categorizing costs can be very difficult, especially when it comes to overhead.

Interorganizational Cost Investigation(ICI)

This model takes the cooperation between supplier and buyer even further, since members from those
organizations meet and study the costs of both companies in an attempt to identify how and if they are
influencing each other. ICI can be done two ways:
 Going through the value system and reducing costs
 Jointly agreeing to outsource the activity/process
Concurrent Cost Management(CCM)
CCM has two functions
 Reaching a consensus between companies in the calculation of their costs. Suppliers should be involved
in R&D from the start. Additionally consensus has to be maintained when an important function is
outsourced from the system
 The other purpose of the CCM is to aggressively reduce costs. CCM in this case can be either
parallel(firms work independently and compare results at the end) or simultaneous(firms work together
through the whole process)

Strategic Costing(SC) and Value Chain Costing(VCC)

SC is identifying strategic positioning for future competitiveness. VCC is where costs are linked to activities
like R&D, logistics, HRM, production, and marketing

Minimum Cost Investigation(MCI)

Going all the way talking and investigating with suppliers how costs can be minimized. Companies jointly
attempt to the point where the least amount of effort and machinery is involved in order to minimize costs,
that why engineers and designers are also involved in those processes.

Quality Function Price(QFC)

This model does not only try to reduce costs, but also quality and function(to an acceptable level). QFP tries
to find the optimal point between price, quality and function.

Strategic Pricing(SP)
Evaluating factors related to competitors' price relations, price elasticity, market growth, economies of scale
and experience. This model shifts the attention from internal considerations to customers and competitors.

Value Analysis(VA) and Kaizen Costing(KC)

 VA focuses on customers and customer value, where basically the cost calculation process shifts from
costs based to revenue based. It also investigates what price is the customer willing to pay.
 KC is a costing technique that provides company with tools from revenue, cost ceiling, and a working
method to arrive to Target Costing(TC)

Value Engineering(VE) and Value Based Management(VBM)

 A way of looking even more towards the customer and the value associated. VE takes into
consideration customer value from the design face. This approach aims for better value or/and unique
characteristics
 VBM introduces a focus in revenue. Successful companies and value systems have a developed focus
on customer value

Attribute Costing(AC)
Attributing costs to certain "values". In this case values implies a set of characteristics that the customer is
willing to pay for(design, service, quality, etc.) This can be a tool for attaining a differentiation amongst
competitors. Additionally, linking costs and product attributes brings out the ultimate cost drivers. Costing
starts with the final customer and then the design and processes of the value system are created.

Target Costing(TC)
The objective here is to make sure that a product makes money from the first day of launch. When immediate
profitability is not attainable the TC system returns to the design face until TC is attained. For companies
going after a differentiation strategy, TC involves costs rather than savings. TC might vary on the degree of
how many organizations of the value chain it includes.
Life Cycle Costing, LCC
LCC is basically the distribution of the cost throughout the life of the product, from inception to the grave.
Once a product is conceived, we have investments and starting costs, and also annual costs and revenues.
This concludes with closing down costs, equipment sales, and recycling commitments. When it is applied in a
value system it includes all the companies involved.

Open Book(OB)
This is the most comprehensive model, where companies give other companies in the value chain access to
their books. This method requires a great deal of trust between companies, but leads to cost following up
even for activities taking place in other companies.

Brand Value(BV)
This is the attempt to make a financial assessment of the brand based on strengths such as management,
marketing, trend, internationality etc. Then the assessments are compared with past figures and the value
enhancing process continues.

Open Balanced Scorecards (OBSc)

An experimental model where companies not only sharing financial but also non-financial data. This in turn
might create stronger links between the companies in the value chain.

Competitors Positioning(CP)
An attempt into making an assessment of competitor positioning It consists of:
 Competitor Cost Assessment: direct observation
 Competitor Positioning Monitoring : analysis of sales, market share, cost estimates and return on sales
 Competitor appraisal based on published financial statements: public accounts

Conclusion
These models can vary greatly in the way they calculate costs/revenues, openness, insight and participation.
Therefore different combinations of these models have to used. If ranked by ambition it would look like
something below.
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Krauss & Lind(2007)

Wednesday, September 25, 2019
4:46 PM

Definition of Inter-organisational relationships: Various forms of cooperation between independent

organisations. Joint ventures, Strategic Alliances, Supply Chain Relationships.

Main Drivers of inter-organisational relationships:

 Increased Globalisation: Increased Collaboration helps with Increased competition.
  Rapid Technological transformation: Makes it difficult for them to maintain in-house expertise in every
potentially relevant technical area. Therefore it makes sense for a company to outsource some activities
to other companies who are expert in that area.
 Technical complexity of products: Requires the need of R&D of other companies.

These drivers lets the companies share the fixed costs and risks associated with product development. This
leads to enhanced core competencies, the gain of access to complementary competencies, and speed of
market entry. So, both revenues and costs provides motives for forming inter-organizational relationships.
Instead of forming joint ventures or merging in order to achieve economies of scale, this also enables
companies to share fixed costs and produce barriers for entry towards competition.

General trends of inter-organizational relationships:

 Developments of closer business relationships between companies for buying and selling to each other.
o Leads to a closer and longer-term relationships between units within and outside the company.
 The break-up of large companies into independent units through outsourcing.
o Outsources production units, IT, maintenance, internal audit.
o Says they do it to reduce costs and focus on core competencies, but it seems like they do it to
gain insight of the suppliers know-how.

Forms of inter-organizational relationships:

 Dyadic relationships between collaborating companies:
o Vertical collaboration between a company and its customers and suppliers. Examples:
1. Technology licensing: Access to technology at a low cost by paying a fee to another firm
for the know-how.
2. Research consortium: Share the cost of research for a basic but specific project.
3. Strategic Alliance: More complex version of research consortium. Improves the
competitiveness for both companies.
4. Joint Venture: Basically merging two companies by setting up a common parent company,
and dividing the ownership based on the amount of equity of the parent company that
each underlying company owns.
o Horizontal collaboration between companies targeting the same customers.
Example: When Volvo and Mitsubishi formed NedCar, a dutch car manufacturer.
Networks: Inter-organisational relationships can also be seen as an element within a network of relationships.
The network setting is characterised by the embeddedness of the actors. This means that interactions between
companies A and B can have an influence through network effects on Company C.
Dyadic settings
Inter-organizational control in a dyadic setting:
Management controls are described as the specific mechanisms used in the control process to influence the
behavior of people to work towards a goal. Three types of management controls:
 Outcome controls: Measure, evaluates and rewards the outcome or results of the inter-organisational
relationship. The outcome should be measured in a way to tell if the goals are achieved or not, so it’s
important to know how this is best done. Doesn’t have to be financial measures, can be soft values as
well. Common techniques:
o Open-book accounting (See other summary)
o Integrated information systems
o Target costing (See other summary)
o Interorganizational cost management
o Value-chain analysis
o Rank-based rewards
 Behavior controls: Specifies how the parties should act and then evaluate whether the specifications have
been followed. Common techniques:
o Policy documents
 o Procedures
o Structures of employment and training
 Social controls: Relates to the values, norms and culture that influence the behavior of the people in the
companies. Controls cannot be designed, but can be influenced through the choice of partner through
activities such as meetings, ceremonies and by conducting negotiations. Having prior experience of
working together and matching cultures are an important criteria when choosing a partner for an
organizational relationship. Trust is what is important.

Management control issues in a dyadic setting:

 Transaction cost economies: A framework that with criteria for answering two questions:
1. Under what circumstances should an inter-organizational relationship be chosen as the most
suitable governance form?
 The question for managers is whether particular transactions should be executed within
the company in the hierarchy, through the market or in an inter-organizational
relationships (which is in between).
2. What control mix should be chosen for the inter-organizational relationship?
 After choosing an inter-organizational relationship; how should this relationship be
structured, managed and controlled?
 Agency Theory: In this context, this is relevant since its impossible to incorporate all the information
required to cover future loop-holes in a final buyer-supplier relationship. This leads to two problems:
o Information asymmetry and opportunism: Means that one company has information that can be
used against the other company. That's why its important to share information between the
companies to avoid this problem. It’s also important to provide incentives to discipline and
motivate the companies in the relationship so that they don’t behave opportunistically.

Network settings
Inter-organizational control in a network setting:
The content and control of an inter-organizational relationship are dependent on the other relationships in
which that relationship is embedded. When trying to understand inter-organizational control in an inter-
organizational relationship, it becomes important to include the interconnected relationships with all the other
companies in the analysis. Thus, information sharing within one relationship is treated as related to the
information sharing within other relationships. This makes open-book accounting a good tool to know how
interconnected the cooperating company is with other companies as well. You can also try to map the
network of interconnected relationships for example. But this also means that more information sharing in
one relationship could create problems in other relationships. Therefore, the company needs to prioritize who
to share information with.
Hard to explain more than that; see examples with Nokia and Ericsson on p. 286 and Australian telecom industry in the end
of p.285.
Management control issues in a network setting:
 Actor Network Theory: Within this theory, inter-organizational relationships are conceptualized as
“action-nets”. The underlying concept is that changes in the relationship between actor A and B can
also change the relationship between actor B and C. Thus, actor B and its relationships are embedded
in a larger action net.
 Industrial Network Approach: In this approach, a central concern for management control is to provide
information about both the direct and indirect effects of changes in the individual inter-organizational
relationships.
o For example: When a company evaluates customer profitability. Some customers may seem
'unprofitable' when a yearly customer profitability analysis is prepared. But, the same customers
could appear profitable if the time period is extended and the indirect benefits of network effects
are measured.
Kaplan & Anderson: Time driven activity based costing
Sunday, October 13, 2019
3:01 PM

Many companies find the process of activity based costing(ABC) very timely and costly. The new approach
for using ERPs in order to automize these processes has solved many of the issues that companies have been
facing in the past. Th authors call this Time Driven Activity Based Costing(TDABC). TDABC helps
companies implement activity based costing, as well as receiving accurate information that in turn will help in
the decision making process.

A brief history of activity based costing

Traditionally speaking, productions costs were split into labor, materials, and overhead. As the direct labor
cost decreased due to automation, the overheads have been growing during the 20th century.

Companies also started implementing the strategy of giving customers more variety in products. Some
services that were introduced are:
 Specialized technical support
 Direct delivery to customer
 Production and delivery of smaller order sizes

These new services increased overhead costs due to the plethora of new processes that companies had to
introduce

By that point, companies were using antiquated cost systems that gave distorted information about
profitability. ABC solved those issues since it allowed managers to monitor the costs related to orders,
products, and customers on the basis of the quantity of each organizational activity consumed. This greatly
enhanced the decision making ability of managers

ABC Pitfalls
 Adoption was low since behavioral and organizational resistance
 Those systems were expensive to build, complex to sustain and difficult to modify
 People questioned the validity of the data produced
 Those methods gave estimates rather than information on how to improve processes
 Complex processes gave inaccurate
 ABC produce an insane number of data, suprasssing the capacity of popular software like excel. Also,
data takes days to process

Those lead to companies building isolated ABC systems for certain facilities. Companies then could not take
a holistic view of cost and profitability.

In summary, ABC implementation faced the problems below:

 Interviewing and surveying process was time consuming and costly
 ABC data was subjective and difficult to validate
 Data was expensive to store process and report
 Most models were local and did not provide a holistic image of cost and profitability
 ABC models were hard to update according to organizational needs
 Model was incorrect because it ignored the potential of unused capacity

Time driven ABC: An elegant, more accurate approach

TDABC is a more elegant and simplified approach to calculate costs.

First it can divide the total cost of a department(labor, supervision, technology) to the total capacity(the
amount of time available) to assign the capacity cost rate

Second it assigns the demand for resource capacity that each cost object requires. It requires an estimate of
the time that is needed for a process.

Example

Here follows an example using both conventional ABC models and the TDABC model. Consider a customer
service department which is assigned $576,000 per quarter for all costs, including labor, supervision,
occupancy, and technology. We also assume that the 576.000 are dedicated to the department and it will not
change during the quarter.

Conventional ABC
It starts by interviewing people on how they perform various activities

The department performs the following activities:

 Process customers orders
 Handle customer inquiries and complaints
 Perform customer credit checks

The employees are then interviewed in order to assign how much time they have spent on each activity. This
is a time consuming process that usually produces inaccurate data.

The department performed the activities below in the quarter:

 49.000 customer orders
 1.400 customer inquiries
 2.500 credit checks

The team assumes that all processes take the about the same quantity of time to perform

Budget Activity Time Assigned Cost Driver Cost

Spent(%) Cost Quantity Driver
Rate
576,000 Process customer 0.7 $403,200 49,000 $8.23 per order
orders
Handle customer 0.1 $57,600 400 $144.00 per
inquiries and inquiry
complaints
Perform customer 0.2 $115,200 2,500 $46.08 per credit
credit checks check
Total 1 $576,000
The team then uses the data to assign the departmental expenses to individual customers

Time-Driven ABC

TDABC skips the interviewing process. Only the capacity cost rate and capacity usage need to be estimated.

Capacity cost rate = Cost of capacity supplied(576k)/Practical capacity of resources supplied

(28 employees, working average of 20 days a month, and paid for 7.5 hours of work each day)

Each employee shows up at work for 450 hours or 27.000 minutes per quarter

75 minutes a day are spent on brakes, education and training. Thus the practical capacity of each employee is
22.500 per quarter.

With 28 employees(not supervisors) the department has a capacity of 630.000 minutes per quarter

Capacity cost rate= 576.000/630.000 = 0.90 per minute

Then we need the capacity required to perform each transaction. We need a rough estimate here.

We assume that
 Process customer orders take 8 minutes
 Handling customer inquiries takes 44 minutes
 A credit check takes 50 minutes

Activity Unit Time(Minutes) Rate(at $0.90/minute)

0.9 Process customer orders 8 $7.20
Handle customer inquiries and complaints 44 $39.60
Perform customer credit checks 50 $45.00

We then can calculate the capacity for the entire quarter

Activity Unit Time Quantity Total Minutes Total Cost

Process Customer order 8 49,000 392,000 $352,800
Handle customer inquiries and complaints 44 1,400 61,600 $55,440
Perform customer credit checks 50 2,500 125,000 $112,500
Used Capacity 578,600 $520,740
Unused Capacity 51,400 $46,260
Total 630,000 567,000
The traditional ABC model overestimates the cost of each task

The TDABC's main power is to predict the future. When projecting future numbers, managers can find ways
on how and whether they will reduce the cost of unused capacity. They can also use the numbers for when
negotiating with clients

Unused capacity might be used for future growth, when new products are introduced.

TDABC models make it easier to adjust for differences in time of processes by simplifying the process. Using
modern ERPs alongside TDABC models is a more effective way of measuring compared to the complex and
inaccurate ABC methods

TDABC makes it easier to update the models too. For example if employees received an 8% increase in rate
then the figure will change to $0.97 per minute.

If new machinery and technology is implemented then it still remains easy to change the model and get the
new numbers. For example if a new software allows the credit check to be performed in 12 minutes rather
than 50 then the cost per credit check will automatically change to $10.80.

In summary TDABC are updated on the basis of events rather by calendar dates.

Integrating time-driven ABC with lean six sigma

1. Define the process

2. Measure the elapsed time for each process step
3. Build the process time equation

Summary
TDABC has proven its utility in many occasions in different geographies. It enhances the value delivery since
it has a broader scope, which encompasses an enterprisewide solution instead of a local one.

Companies do not only optimize their processes but can also utilize the TDABC to customers and suppliers.

A time driven model implemented within the supply chain can identify inefficiencies and trigger actions to
improve processes and hence profits

Lord(2007) Strategic Management Accounting

Sunday, October 13, 2019
8:15 PM

In the 70s firms started positioning in the industry while thinking of other participants in the industry as
adversaries.
This developed into strategic management where it was characterized by planning on different levels, cutting
across organizational boundaries, an emphasis in entpreneurial thinking, flexibility and creativity, manager's
commitment to corporate strategy, teamwork, open communication and shared belief that ambitious goals
can be achieved

Porter highlighted the problems that arise for an organization due to competitors. But in some cases,
competition is good since it stabilizes demand fluctuations and gives the company the chance to differentiate.

In a Swedish case study, two competing companies were competing one time, and collaborating the other. In
some cases they were competing and collaborating, while completing R&D together. They were able to
develop new products quicker and in a most cost efficient manner.

As strategy has changed over the years, so has strategic management accounting.

Management accounting data is needed throughout the strategic decision making process. This data is not
limited only in financial data, but also included non-financial data, quantitative and qualitative factors about
both internal and external factors.

Traditional management accounting and strategy

Traditional management accounting is focused on narrow accounting periods. While strategic management
accounting has a long term focus.

Traditional management accounting is backward looking while strategic management accounting is forward
looking.

Trad acc is inward looking while strat acc is outward looking

Strat acc also requires non-financial data as well as financial information

Trad acc is reactive and designed to react to regular or one off decisions. Strat acc is proactive and contributes
to all stages of decision making, making it unprogrammed

In Summary:
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Components of strategic management accounting

Competitor information
Collecting and analyzing data on competitors is an important part of strategic management accounting.
Accessing that information is vital for the company to understand its position in the cost structure as well as
its strategic positioning.

Knowing that information helps a company when a competitor is attmepting to change competitive position.

This information can be collected by suppliers, public financial statements and government departments

Bromwich suggests that management accountants of newcomers should gather and analyze data on capex,
strategic pricing, r&d, excess capacity and vertical integration , and sales networks when making strategic
decisions.

Strategic position and management accounting emphasis

According to Porter a firm can gain a strategic advantage by either differentiating their products or by being
cost leaders.

Differentiation means providing something unique to the purchasers and then being able to ask for a
premium

Cost leadership means not only having low costs, but having the lowest costs from all competitors
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Differentiators will pay more attention to marketing rather than product cost, while cost leaders will place
attention on cost control and comparison with competitor's controls

Cooper suggest that lean enterprise do not focus on either strategies, rather the collide with competition by
developing a similar product as soon as competitors introduce a new product. This strategy make it
impossible for competitors to sustain a competitive advantage. These firms place a lot of attention on
relationship with suppliers , by sharing information and in cases combining R&D

The value chain analysis

Value chain analysis
It is the linked set of value-creating activities all the way from raw material to the end product being delivered
to customers.

Exploiting linkages in the value chain of the firm can result in lower costs and therefore competitive
advantage. Value chains can also contribute to the quality and performance of the product.

Cost driver analysis

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Competitive advantage analysis

When gathering all the data related to competitors and their costs and the firms has the lowest cost of all of
its competitors then it has a cost advantage.

Market oriented information

This is the approach where market information about what the customer wants and is willing to pay, is
gathered.

Criticism of strategic management accounting

The strategic planning process
There are several critics of strategic management accounting on not citing enough strategic management
literature while others argue that strategies are not always a result of strategic planning
Others claim that the strongest stakeholder group defines strategy, rather than managers. Accounting in those
cases may be used in order to establish an agenda

Competitor analysis
Others claim that many companies overemphasize in competitor analysis while they miss focus on their
innovation.

While in some cases alliances do happen, competitor analysis has a military tone competitors as
that points out enemies

According to critics strategic management accounting should not be relied upon exclusively without
consideration of intuitive, immeasurable aspects such as customer expectations, needs, and specific
knowledge of the market.

The value chain perspective

Some argue that companies will find linkages in the value chain without conducting a financial analysis. In
summary, value chain linkages and cost savings will be exploited without the help of strategic management
accounting.

The role of the accountant

Accountants can participate in the competitor data collection, due to the place they hold in the firm.

There are pages missing for sure in this section since it jumps straight into the references here.

Burns & Baldvinsdotter: The changing role of management accountants

Friday, October 25, 2019
5:43 PM

The traditional management accountant's role

In the past there were several characteristics of accountants and accounting departments:
 Often the accountants and clerks were isolated from the rest of the organization
 Management accountants compiled numerous reports that were used in decision making. Applying
techniques like:
 o Budgeting
o Product costing
o Capital appraisal
o Variance analysis
 Management accountants were considered independent assessors of performance, implying that they
had a rather passive role since the "numbers spoke for themselves". A crucial role for the management
accountant was thus to monitor and control the performance of others
 Responsibility is an essential part of the traditional management accounting model. Responsibility and
financial incentives go hand in hand.
 The narrow economic approach of this model ignores factors such as personal growth, community and
self fulfillment.
 Responsibility accounting also sets departments and business against each other in a competitive
manner.

Background to the changing roles of management accountants

Globalization

 Due to the faster and cheaper flow of information most organizations now face international
competition
 This flow of information, ephemeral customer taste, and lowered barriers to entry mean that
companies enjoy shorter periods of competitive advantage
 Managers in the 21st century demand information faster as well as global information
 A bigger emphasis on product quality has been developed since customers have become more choosy.
Companies therefore try to first maintain customer loyalty and then add more

Technology

 All the new manufacturing and design methods alongside the new ways of delivering products/services
to clients have affected management accounting since they demand a whole new set of information
 Computers have sped up and made easier the processing of data
 All this new technology has made information extremely portable and transparent

Accounting Scandals

 Recent corporate scandals have made people associate accountants with corporate unethical behavior
 New regulation has not stopped scandals from surfacing, therefore accountants have a long way before
proving their trustworthiness

Corporate Trends

 Corporate trends impact greatly the role of the management accountant

 Trends like downsizing the workforce and business process re-engineering changed the information
needs, often involving faster responses to customer demands
 Privatization and deregulation led companies in considering cost management and profitability as
incredibly important factors in order to be able to compete effectively
 Networks, alliances and relationships between organizations led to a new trend involving information
sharing, cooperation and flexibility. All these new processes have changed information needs and
therefore the role of management accounting
 Leaner and flatter organizations led to more outsourcing, demanding different management
information
New and emerging roles

Pharmaceuticals case summary: The company was pretty chill and prosperous in the 90s because of a couple
of patented drugs and aggressive pricing policies. That changed when the patents ended and global regulation
imposed limitations on the price of drugs. Management therefore decided that stuff had to change. What
happened was that many departments were disbanded and replaced by horizontal process oriented product
teams. Individuals manufacturing sites were dealing with their entire process of the value chain. The powerful
management teams included members from all sorts of backgrounds including management accounting. Only
three departments in the organization that kept their independence were accounting, IT, and quality and they
charged monthly to individual streams for their services.

Hybrid Accountants

The role of the accountant has moved forward from the scorekeeping function into a more consulting based
role.
The traditional accounting tasks have been either outsourced, given to specialists, or being handled by
software and applications.

In the case of pharmaceuticals the accounting department was quite centralized with most of the people there
performing menial tasks. Although the accounting department kept its independence its headcount was
reduced in half, and many accountants were expected to combine their accounting knowledge with a detailed
understanding of business processes. They became "hybrid securities".

Many of the standard accounting tasks were overtaken by managers, since they have increasingly become
business-aware and focused on the bottom line. This new advising role of the accountants implies that they
can promote the ethical behavior of the company. This can be done by explaining how sustainable materials
can be cheaper in the long run and how people can be evaluated also on a non-financial basis.

Accounting expertise remains important, even though a big part of it has become automatized by computers.
This has led accountants in becoming more involved in the value chain and have to have a great
understanding of business processes and complexities.

Pharmaceuticals decided to keep accountants attached to the accounting department, therefore their services
were booked as overhead in the production process. Other organizations could integrate accountants in the
business stream and keep a small team of specialized accountants attached to the accounting department.

Nowadays the role of the management accountant is more proactive and strategy oriented and intertwined
with non financial information. It is therefore very attached to value creation.

Management accountant duties have therefore switched from backward looking into forward looking, since
now forecasts can be more important to companies than budgets. The profession is therefore leaning towards
a more real-time, forward looking orientation.

Pharmaceutical accountants emphasized more on rolling forecasts and feed-forward information. While
budgets remained important, rolling forecasts received more attention. Also the fact that those forecasts were
internally generated meant that there was more ownership involved and greater motivation to achieve those
goals.
An important role of the management accountant now is to link financial and non-financial data as well as
short-term and long-term KPIs. In order to be able to do that the management accountant needs to have a
good understanding of the business.

In the past the role of the accountant was to be independent and observing. Now the accountant has to be
able to link many sources of information and explaining the interconnections. Integration is therefore key for
the accountant but technical expertise is still very important. Management accountants are therefore
performing a series of various duties that involve strategy, risk management, system design and
implementation.

The core values of the consulting accountant are:

 Shared control
 Service to customers
 Analytical capabilities
 Seamless systems and communication

New Skills Requirements

 Proficiency in IT
 Business understanding
 Openness in adopting and implementing new technology
 Have a grasp and be able to implement initiatives in strategy, market dynamics, and new product
development
 Communication skills
 Recognizing and coping with different organizational perspectives
 Interpersonal skills
 Trust building
 Professional Status and awareness

Discussion

Opportunities

Since the role of the accountant changes the concept of responsibility and control becomes broader and is no
longer attributable to individual business functions like for example product design and procurement.
Therefore more team-based measures might be needed along with accounting information that encourages
cooperation.

Therefore the understanding of business and how various processes interact, integration, understanding of
strategy, day-to-day operations, as well as the redesign of incentives become very important.

Some other trends that are derived from the points above are:
 Turning accounting departments into centers of excellence with the possibility of outsourcing
 Decentralization of management accounting and managers taking on more tasks
 Automation of many accounting tasks
 Computerization and automation of routines

Those changes should not be taken for granted and a proactive approach should be adopted, just like in the
Pharmaceuticals case.
Challenges

 Managers with formal education(MBA) can replace the accountant as a consultant

 IT specialists also pose threats to accountants since they can become the information specialists of the
future
 Implementing ERPs is daunting
 Antiquated systems
 As information becomes more readily available, business managers might start questioning the
management accountant

Lueg and Randlach(2016) Luka's Summary

Saturday, October 26, 2019
1:44 PM

Lueg & Radlach (2016)

Introduction:
 Sustainable Development remains only a good intention, unless organizations make serious efforts to
enforce it.
 MCSs are essential for fostering the integration of SD with its social, environmental and economic
dimensions.
 Research question: “Which management control systems do organizations apply to manage and evaluate
sustainable development”?
 Main contribution: A structured map of contemporary research that points to areas where our
understanding of SMCSs is still scarce.
Main Results:
 There are various types of sustainable management control systems.
 More focus on environmental than on social issues (maybe because it’s easier to measure).
 Traditional MCSs are not enough (you need more performance measures).
Specific results:
 Cultural controls:
 SD is integrated in culture through communication and engagement of top management.
 Needs to be gradually integrated into corporate culture to avoid resistance.
 Cultural controls are powerful.
 Diffusion of cultural control disputed (is the cultural control really integrated?).
 Planning:
 Short- and long-term sustainability objectives needs to be included in the planning process.
 Integration of SD in planning requires other tools than traditional financial planning tools.
 Senior managers need to be included in the change process for it to transfer down through the
entire organisation.
 Cybernetic controls:
 Cybernetic controls are widely used for SD in Europe.
 Cybernetic controls are powerful but should be complemented with other controls.
 Flexible budgets, Balanced scorecards and sustainability accounting are often used.
 Environmental KPIs are more common than social and economic KPIs.
 Reward and compensation:
 Rewards for meeting sustainability targets are rare, since there is a lower prioritization of SD
compared to the main business strategy.
 Managers cherry pick between sustainability development objectives based on the most optimal
cost-to-reward ratio.
 Administrative controls:
 There is no structure that fits all organization.
 Top management and other key persons must be involved.
 The new structure should be supported by transparent communication, formal statements and
change agents that convey the seriousness of the managers SD concerns.
Conclusions:
 The financial effect of SMCSs is unclear.
 Traditional MCS is not enough.
 It is important to clearly define the concept of sustainability before designing and using an SMCS.
 Both formal and informal controls are necessary.
 The idea of a control package is essential.
 External forces may trigger SMCSs.

Anthony et al(2014): Planning and Budgeting

Saturday, October 26, 2019
1:47 PM

Budgeting has been complex and time consuming while in many cases they are not even that reliable.

When the environment is unpredictable it is better for an organization to remain flexible and wait to see what
happens before deciding what to do.

Planning involves what the organization will try to do in the budgeting period. Resource distribution is one of
the most important parts of planning, and makes it possible to estimate how much resources will each
department need.

Coordination is also a vital part. Budget planning is a way to ensure that all parts of the organization will
follow the same plan. Plans can succeed only if all the parts of the organization fulfill their part of the plan.

Another part of planning is accountability. Managers prepare the budgets for their department and they are
responsible for following it. If they fail to follow the budget they should also provide the reasons why this has
happened.

Accountability can be broken down into monitoring and motivation. Monitoring is the process where
superiors check subordinates if they are sticking to the budget. Motivation is the process of setting goals and
achieving those goals. If there are goals, individuals are more motivated to achieve them, especially if they
have been involved in the process of formulating these goals. Usually some form of reward is tied to the
goals.

Reflection and communication are also parts of the process. When managers have to devise a budget they
have to actually sit down and reflect on the future. They will also probably realize that they do not have all the
answers so that will probably lead them to communicate with other stakeholders to get those answers. These
activities usually end up being very valuable.

Another part of budgeting is ritual. When the budget has become a habit it means that it is no longer used for
the purpose of management control. In other words, budgeting has become an activity that is taken for
granted.

Another possible reason for preparing budgets may be legitimacy. Organizations prepare budgets in order to
convince other stakeholders that they are serious.

Long range strategic planning

Before an organization commits to creating a budget it usually has to commit to long-term strategic plan.
Strategic planning has benefits and limitations.

Different strategic options have to be considered and once narrowed down, the organization can decide on
the the budget. This can be demonstrated below.

Framework for developing the budget

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Management development tool

Formal strategic planning is a great thinking and educational tool for managers. In many cases we can say that
the process itself is more important than its output.

Mechanism for forcing management to think long term

Managers usually are concerned with current issues and managing day-to-day processes. Strategic planning
makes them think important long-term issues.

Means of aligning managers with corporate strategies

The discussions and negotiations that arise during the strategic planning process clarify corporate strategies,
unify and align managers and reveal the strategic implications related to each individual manager.

Limitations

 Danger that strategic planning might just become a bureaucratic process

 An organization might create a strategy department and delegate the entire process to that department
while depriving that department from input form line managers.
 Strategic planning is time-consuming and expensive.

Budgeting Process

Top-down or bottom-up budgeting

In the top down budgeting process, top management prepares the budget and then forwards it to the
individual managers. They then see if the budget is actually realistic and decide whether there should be
changes. Then the controlling department look at the suggested changes and decides whether they should be
implemented in the final budget.

Benefits of top-down management

  Fast and easier to control the end result
Drawbacks
 Managers and employees provide little input in the process
 Leads to lack of commitment from lower-level managers and employees

Participating in the budgeting process has positive motivational implications for two reasons.

 Greater acceptance of budget goals if a manager has personal control. This leads to higher personal
commitment to achieve the goals
 Participative budgets results in important information exchanges since the budget receives the benefits
from the knowledge and expertise of the manager

In the bottom up budgeting process, managers make their own assessment on how well they think they will
perform based on the budget guidelines they have received. Then they send the figures to the controlling
department which then consolidates them into a complete budget that is sent top management.

There is also a hybrid approach where it starts as bottom up and continues as top down until top
management is happy with the consolidated budget. This process is called iterative budgeting.

Critiques against budgeting

 Budgets create internal games and myopia:

 Budgeting is too resource consuming
 Calendar year is not a good time period
 It is impossible to make a reliable budget these days
 The budget makes organizations less flexible

Alternatives to budgeting

 Rolling forecasts
 KPIs and relative targets
 Decentralization

Critiques against beyond budgeting

 Budgeting fulfils many purposes

 Different contingencies require different management control systems
 Beyond budgeting is just budgeting in disguise

Kaplan & Porter(2011): How to solve the cost crisis in healthcare

Saturday, October 26, 2019
3:36 PM

Idea in Brief

Much of the rapid escalation in health care costs can be attributed to the fact that providers have an almost
complete lack of understanding of how much it costs to deliver patient care. Thus they lack the knowledge
necessary to improve resource utilization, reduce delays, and eliminate activities that don’t improve outcomes.
Pilot projects under way at hospital systems in the U.S. and Europe demonstrate the transformative effect of
a new approach that accurately measures costs—at the level of the individual patient with a given medical
condition over a full cycle of care—and compares those costs to outcomes. As providers and payors better
understand costs, they will be positioned to achieve a true “bending of the cost curve” from within the
system, not based on top-down mandates. The sheer size of the opportunity to reduce health care costs—
with no sacrifice in outcomes—is astounding.

Lecture 1 Slides Summary

Sunday, October 27, 2019
12:37 PM

 The control package approach: The tools in the management system must support each other
 The contingency approach: There is NO universally applicable management control system. The
choice of appropriate management control techniques will depend on the circumstances surrounding a
specific organization
 The behavioral approach: Management control systems include all the devices and tools that
managers use in order to align employee behavior and decisions with the organizations objectives and
strategy

Malmi and Brown framework

 Planning
o Action planning
o Long range planning
 Cybernetic Controls
o Budgets
o Financial Measures Systems
o Non-financial measurement systems
o Hybrid measurement systems
 Rewards and compensation
 Administrative controls
o Governance structure
o Organizational structure
o Policies and procedures
 Cultural Controls
o Clans
o Values
o Symbols
Debates and questioning

 Relevance lost: Management accounting is too focused on financial performance, the past, short-term
performance, too hierarchical and top-down oriented
 Beyond budgeting: Budgeting is costly, inefficient and sometimes risky
 Management accounting and control VS operations management: Management accounting and control
does not support modern operations management like lean production

The problem of accounting

 Accounting promotes financial performance measures rather than non-financial ones

 Accounting promotes hierarchical rather than lateral relations
 Accounting promotes standard situations rather than improvement
 Accounting promotes control rather than empowerment

Vertical and Horizontal Structures

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External Developments

 Advances in information technology

 Globalization
 Increased and changed competition
 Growth of the service industry
 More demands(such as sustainability LOL)
Trends and Developments in accounting and management control
 Strategic management accounting
 Activity based costing(ABC) and management(ABM)
 Value based management(VBM)
 Multidimensional performance measurement
 Accounting and management control of inter-organizational relationships
 Accounting and management control for sustainability

Lecture 2 Slides Summary

Sunday, October 27, 2019
12:52 PM

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Industries and sectors are developed backwards, meaning that businesspeople have to think of what the client
wants and needs before they decide on the product and subsequently on the value chain.
The value system configurator is the organization that has the most power within the value chain and
therefore can coordinate the other members of the value chain.

Rightsourcing means looking at whether it is a best choice to either produce something inhouse or outsource
it.

For rightsourcing Volvo used the Strategic Make or Buy Matrix

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Inter-organizational management accounting

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Lecture 3 Slides Summary

Sunday, October 27, 2019
1:05 PM

Key Concepts of Strategy and Management Control

 Accounting and management control is all about implementation of the strategy
 Different strategies require different accounting and management control
 Accounting and management control facilitates the long-term focus in the organization

A typical text book strategic planning process

1. Reviewing and updating the strategic plan from last year
2. Deciding on assumptions and guidelines
3. First iteration of the new strategic plan
4. Analysis
5. Second iteration of the new strategic plan
6. Review and approval
Depending on the strategic emphasis of the organization, different accounting and management control
tactics become important:

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Management accounting should not only provide managers with internal information but also with
information that are related with the environment the firm is operating in.

For that, there are several key differences between strategic management accounting and traditional
management accounting.
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Two important features of strategic management accounting

 Information about the market and the firm's competitors
 Value chain perspective

Lecture 4 Slides Summary

Sunday, October 27, 2019
1:18 PM

The four stages sustainability approaches:

 Talk
 Unreflected donations to different types of charity
 Attempts to integrate sustainability thinking in the organization
 Attempts to link sustainability issues to the business model

Here the slides look at the findings by Lueg and Randlach: Check summary for that

The role of the controller

There are several definitions when it comes to the controller

  "The person that is in charge for both management and financial accounting"
 "The person dealing with financial record keeping, reporting and control"
 "The person responsible for designing and operating the management control system"

A historical perspective on the controller

 The first controllers arisen 100 years ago in America

 First controller in Sweden in the 1970s
 Initial task was to plan, control, and analyze the report
 In the 80s the controller was more focused on budgeting, reporting, product costing, capital budgeting
 In the 90s the controller was more focused on management accounting change and non-financial
performance measures. It became a more decentralized job
 In the 80s and 90s the controller function became popular in public organizations in Sweden

This part here is essentially a summary of the required reading. Check Anthony et al for more information

Lecture 5 Slides Summary

Sunday, October 27, 2019
1:32 PM

The budget process can be:

 Top-down
 Bottom-up
 Iterations
 Combinations

The degree of difficulty and participation define the budget method basically

The main purposes of budgeting:

 Implementation of strategy
 Planning
 Resource allocation
 Coordination and communication
 Responsibility allocation
 Motivation
 Ritual
 Legitimacy

The budget document might be expressed differently depending on the organizational level, different unit,
and depending on the allocation of responsibility

Aggregated budget items are then compiled in budgeted PnLs, balance sheets, and cash flow statements

Critiques against budgeting:

 Too time consuming and costly
 The calendar year is not a relevant period
  You cannot foresee the future
 Leads to less flexibility
 Leads to gaming
 Is just a ritual

Alternatives to budgeting:
 Forecast
 Rolling forecast
 KPIs
 Decentralization
 Benchmarking

For decades there has been the "beyond budgeting" discussion

Critique against the critique:

 Budgeting has several purposes
 Different types of organizations have different needs
 Forecasting is just an alternative way of budgeting

The balance scorecard:

 A hybrid measurement system
 Gives a lot of complex information with a glance
 What gets measured gets done

The different perspectives

 Financial perspective
 Customer perspective
 Internal business perspective
 Learning and growth perspective, renewal and development perspective
 Employee perspective

Examples of financial perspective:

 Return on total assets
 Profit margin
 Cash flow
 Equity/Total Assets
 Total Costs

Customer perspective examples

 Market sales
 Annual sales/customer
 Satisfied customer index
 Brand image index
 Customer visits to the company

Process perspective examples

 On-time delivery
 Lead time, from order to delivery
 Inventory turnover
 Emissions from production to environment
  Admin. Expenses/ Employee

Learning and growth perspective examples:

 RnD expenses / total expenses
 Patents pending
 Suggested improvement / employee
 Competence development expense / employee
 Ratio of new products to full company catalogue

Lecture 6 Slides Summaries

Sunday, October 27, 2019
2:15 PM

The criticism of old ways brought in three new tools

 ABC-TDABC
 BSC
 Lean

Advantages of process mapping:

 Increases understanding of the work process
 Provides understanding of resource allocation
 Documents training procedures
 Tracks workflow
 Increases staff awareness

Lean six sigma as explained on google

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