CHANGES IN THE SCOPE OF MANAGEMENT ACCOUNTING AND PERFORMANCE MEASUREMENT IN THE DYNAMIC BUSINESS
ENVIRONMENT
Poznan, April 26, 2012
Toomas Haldma, Kertu Lääts
Introduction
Intensified competition increases companies management need for objective information about the formation and shape of their performance.
In the organisations facing complex situations and high environmental dynamism, the broad scope management accounting information is crucial for managers decision making (Mia and Chenhall, 1994).
Introduction
Research groups of the Faculty of Business
Administration of the University of Tartu investigated in 2007 and in 2011 the largest Estonian companies
development of management accounting systems (MAS)
development of performance management methods and
its influencing factors
Structure
Theoretical background
Sample of the companies
Market environment
Design of the scope of management accounting systems
Financial versus non-financial measures
Conclusion
Theoretical background
The scope of MAS involve the following dimensions (Chenhall and Morris, 1986): - focus, - quantification and - time horizon.
Broad scope MAS allows managers better to understand the relations between companies’ objectives, internal processes and activities, and organisational outcomes.
Broad scope of MAS has a positive effect on company’s performance (Van der Stede et al., 2006).
Samples description
Three datasets:
- Survey on 65 companies from the Estonian sales TOP in 2007 + interviews - in period of economic booming (see findings Lääts, Haldma, 2011) - Survey on 198 Estonian companies in 2010-2011 + interviews - in economic recession period (see Vadi et al, 2011) - Survey on 100 Estonian machinery companies + interviews in 2010 - in economic recession period (see Varblane et al., 2011)
Sample of 2007
Sample: 140 companies from the Estonian sales TOP
Replies: we received from 65 companies (51% response rate)
Investigation: position in 2007 and 2004
Object: 16 indicators + 21 methods/principles
Areas :
Manufacturing - 35 companies
Wholesale – 10
Financial services – 7
General service – 7
Others - 6
Companies’ profile
•
Estonian dynamic environment
• GDP decline: 1999 -0,3%
-3,6%
-14,6%
Market environment
In 2004 – 75% in growing stage
In 2007 – 52% in growth (CEE-47%, GE-36%) - 44% maturity (CEE-46%, GE-61%)
Change in market environment :
in customer needs for – 44%;
in products for – 50%;
in pricing policy for – 31%;
MAS scope – FOCUS - BOOMING YEARS
high interest on the internal dimensions
- cost budgeting;
- direct costing and - contribution margin analyse of products or services and business units.
shifts towards higher use of external dimension
- key performance indicators and - contribution margin analyse of customer groups
higher application of balanced scorecard approach
MAS scope – FOCUS RECESSION
YEARS
shifts towards higher use of external (market) dimension
higher application of balanced scorecard approach – 42% of companies (10% in machinery companies)
MAS scope – QUANTIFICATION - BOOMING YEARS
high reliance on the traditional financial principles
companies use less nonfinancial information than financial information. .
more emphasis on the traditional financial information (e.g. revenue, net income, cost efficiency and EBIT) than the modern financial approaches (e.g. customer profitability, DCF, EVA calculation)
increasing use of modern financial approaches, (activity based costing; customer profitability) and various nonfinancial approaches (e.g. customer satisfaction, employee satisfaction, sustainable growth).
MAS scope – QUANTIFICATION RECESSION YEARS
focus more and more on non-financial indicators (e.g. On-time delivery, market share)
In strategic planning - market based external dates (e.g.market share) have used equally with financial based dates
In short term planning the financial dates played more important role.
MAS scope – TIME-HORIZONS BOOMING YEARS
common prevalence of historical dimension – monthly reporting
increasing long-run orientation by higher application of strategic planning (mean: 4,82 in 2004 and 5,52 in 2007) and midterm planning
early warning system was indicated as the less intensively used approach
MAS scope – TIME-HORIZONS
RECESSION YEARS
the relevance of budgeting issues has been grown substantially
companies stress more on short-term budgeting issues than on strategic approach.
response capability on customer changed needs has substantially increased
the planning period has been shortened - the share of budgets compiled for the period up to one-year has been increased.
financial plans and development plans were mainly compiled for a period up to three years.
relevance of budgeting issues were estimated higher than performance reporting ones.
Activity based costing – ABC
Growing implementation – better understanding on the cost formation mechanism through the value chain
– 7% manufacturing companies in 1999
– 56% companies in 2007
• Has grown almost to double during 3 years (+ 81%)
– Continuous increase in 2011
Client vs product orientation
1999: 52% product-based vs 20% client-group based + 17% sales region based
2007: 75% product-based vs 53% client-group based contribution margin analysis of clients or customers has doubled
Client-group based approach has grown in smaller companies
Financial versus non-financial measures
Growth of implementation more than 25%:
– Financial indicators: ROI
– Non-financial measures : on time delivery, customer profitability, fastness of the reaction to new market threats
Financial versus non-financial measures
Aspects of indicators which are used in more than 70% of companies:
– Financial aspects
– Client aspects – Internal processes aspects
Balanced Scorecard: 42% of companies
Conclusion
Stages in the development of management accounting and performance measurement systems:
I From financial accounting to management accounting
II Product-based financial indicators
III Client-market and internal processes based non-financial indicators
