The Changing Role of Management Accountants With Respect To Globalization
Changing role of management accountants with respect to globalization
Management accounting refers to the process of identification, interpretation, preparation, analysis as well as communication of information that is utilized by the management of a business organization to plan, organize, and control business activities (Burns and Vaivio, 2001). As such, a management accountant uses his or her professional skill and knowledge to prepare and present financial information that is decision oriented in a manner that will assist the management in the creation of policies to be implemented in the organization (Johnson, and Kaplan, 1987). This is important as it assists the management to make the right decisions with respect to the proper use of the organization’s resources (Goold, 1986).
Management accounting is usually interested in the future and therefore it is forward looking providing information that will have an effect on the organization’s future. Management accounting is therefore involved in these three major areas:
Strategic Management by assisting in the decision making process by providing relevant information to management.
Performance Management by providing decision making information, it helps develop business policies and practices thus managing the organization’s performance (Mouritsen, 1996).
Risk Management by identifying, measuring, and reporting risks that face the organization so that it can be able to achieve its objectives.
Globalization refers to a process that involves the integration of economies, cultures, and societies from different parts of the world into one international economy and society with shared cultures. This integration has occurred as a result of increasing regional and international trade and communication that has transformed the world into a global village (Bhagwati, 2004). As a result, businesses in one country can do business in other countries where they can fond additional markets for their goods and services. In addition, people from different cultures are bale to meet and interact together in different activities despite of the differences in their cultures.
The changing role of management accountants with respect to globalization
Globalization has affected the way most things are carried out especially in the business sector and more so the management accounting profession. As more and more businesses get into foreign markets in other countries, they have to follow the business rules established in those countries in order to continue operating in these markets. The international economy created by globalization has led to the development of new ways of doing business that require business to abide with (Friedman, 2005). As such, management accountants have to change as well so as to be able to collect relevant information that reflects the changing business environment.
The role of management accountants has changed mainly due changes in economic and business trends in areas that include:
Change in dynamics revolving around competition
Technical capacities available for exploitation.
The ever changing dynamic role of the consumer.
New product development challenges
Changing business practices such as mergers and acquisitions.
Evolution of management structures within organizations (management styles)
Globalization has resulted in increased competition as businesses can now access new markets and sell their goods and services. Businesses have also come up with new ways of providing cutting edge competition to remain afloat. These new businesses come with different ways of doing business that could pose a threat to the existing businesses hence the need to stay ahead for continued success. With each passing day, new management styles are being implemented, employee relationships are changing as well as the general relation between firms in competition. Businesses are engaging employees on contractual basis preferring short contracts that ensure the companies gain maximum benefits within the shortest period from an employee. The role of management accountants is predictive, they act as the foresight for the management. As such, they need to evaluate future business environment and devise ways in which the company can gain a competitive edge. The method devised should not be rigid since with globalization the business environment is ever changing.
In addition, management accountants everywhere now more than ever have to be knowledgeable on the economic and social influences that are affecting dynamism so that they can be in a position to give sound recommendations to the management with strong analytical backing with a view to helping the company achieve its objectives as well as satisfy the consumer who is becoming more and more important by the day. In addition, they need to actively participate in the decision making processes now more than ever supporting management directly by providing them both with financial as well as non financial information (Epstein, 1993). As such, they need to develop ways that will assist the management both in short-term as well as long-term planning. This requires them to come up with new management accounting systems that are able to provide relevant information which is supportive of strategic and operational policy formation and implementation.
Mergers and acquisitions
It has been recognized that the major role of a management accountant is to provide the organization’s management with information needed for decision making. As such, the size, form, and structure of an organization play a major role in determining the role that the management accountant will have towards the provision of information to the management (Cooper, 2006). With globalization, mergers and acquisitions have become a common occurrence. This means that management accountants have to be well versed on how to use information available to them to help the management steer the merged enterprise clear of trouble. They have to take into consideration that the management styles of the merging companies may be different and thus need to be reconciled. This reconciliatory role is assigned to management accountants.
The new business organizations formed will have to undergo internal transformations so as to integrate their former business cultures and practices. The role of the management accountant will thus include increased responsibilities that will require them to understand the new acquired businesses so as to provide relevant information to the management (Holtzman, 2004). In addition, there will be a change in the resources that are dedicated to the management accounting function requiring appropriate adaptation by management accountants. Lastly, management accountants in the big companies that have gone global have to learn about other markets and how these can be exploited. This is done considering that each market that constitutes a part of the global market has different characteristics.
The advent and proliferation of information technology has been one of the major breakthroughs of the 20th century. Information technology has revolutionized the way things are done right from business organizations to institutions, government processes, industries and homes. Information technology has been one of the major reasons for the development of globalization especially after the introduction of the internet. The management accounting profession has been affected as well with the introduction of new accounting packages and programs that are used within the accounting profession to prepare financial statements (Kaplan, 1995).
The influence of information technology on accounting has revolutionized analysis and storage of information that is essential for management. To start with, management accountants have to be well versed on the use of information technology to be in a position to access and utilize vital information required to make reliable decisions. The new programs created can effectively prepare future forecasts of the business based on the past and current position of the business organization enabling the management to formulate business policies that will steer the business towards success. In addition, the dynamic status of information technology has led to the development of new and increasingly efficient accounting information systems that effectively make future forecast (Granlund and Lukka, 1998).
Other technological advancements such as data warehouses and enterprise resource planning software, decision support systems as well as artificial intelligence have made it easy for management accountants to access important information on the business which then is used to develop a knowledge base necessary for decision making.
Information technology has therefore revolutionized management accounting and made it much easier to analyze data for decision making. Management accountants therefore have their main role in interpreting the forecasts produced from accounting related programs.
Changing dynamic role of the consumer in the market.
The changing business environment has led to the increasing significance of the customer to a business for continued success. The increasing competition between businesses serving the same consumers has led to the need for businesses to better understand the needs of their consumers so that they can remain relevant to these needs. Though this function had been traditionally carried out by the marketing department of most businesses, management accountants are now increasingly being involved in the formulation of business policies and strategies that will enable the business to serve its consumers well (Chenhall and Langfield-Smith, 1998).
This requires management accountants to be well versed with the needs of the consumers so that they can be able to aid in strategic management (Byrne and Pierce, 2007). With globalization, businesses are now faced with a consumer population that has varying characteristics that have to be carefully analyzed. The role of a management accountant now involves a careful study of consumer trends in different markets and how this can be tapped by the business. The management accountant has to advice the management on the different approaches the business has to take to satisfy customers in different markets.
Increasing large pool of management accounting professionals
Globalization has led to the creation of a global village where people can interact with each other as well as live and work anywhere irrespective of one’s home country. The international economy has resulted in the consolidation of most business practices around the world as more and more business from different countries get to work together. Management accounting professionals can therefore work in any business organization in the world irrespective of their home country. The increasing level of competition between businesses has necessitated the employment of well qualified professionals who will be able to steer the business into success (Pierce, 2002).
The increase in the number of qualified management accountants has lead to stringent vetting methods and the demand for higher and higher qualifications in the management profession. This has forced management accountants to take up additional courses in non-accounting related fields to make them more competitive in the market. Businesse are now demanding for employees (management accountants included) who can serve in various roles within an organization (Hopper, 1980). This requires the management accountants to develop skills such as better oral and written communication competencies, the non financial workings of the business, market research methods, strategic management concepts as well as the ability to use the ever changing information technology applications used in the management accounting field (Mathews, 1998).
Also of importance is the recent development of outsourcing as a result of the information technology revolution. Outsourcing involves having business procedures and activities being done elsewhere by individuals who are not employees of the business (Carruth, 2004.) Under this arrangement, a business asks another firm that is specialized in a certain business function to do that function for them and not necessarily at the business’s premises. Outsourcing poses a threat to internal employees as their jobs could be assigned to other individuals who do not work in-house (King, et. al., 1991). In addition, most outsourcing firms are specialized in that one specific area and could be cheaper making them a better option for most business. This has also posed a threat to in-house management accountants as their services can now be outsourced.
New product development challenges
Every department is concerned with new product development at one time or the other over the span of its existence. The need for new products and services arises as a result of changing consumer needs which may require a business to develop a new product or service or make a few changes in its existing products and services. This function had been traditionally preserved for the marketing, research and development departments of businesses, the current level of business competition requires management accountants to get involved as well. Management accountants give a forecast of the expected path the business will take based on a given set of decisions taken.
Management accountants therefore play a major role in this process as they advice management on the best viable product for the business to develop from a list of proposed products or services based on the financial ability of the business organization (Burns, Ezzamel and Scapens, 1999).
In addition, management accountants have to be well versed in knowledge of the product, rival products as well as consumer expectations to gauge whether a product will be successful in the market or not.
Bhagwati, J. (2004). In Defense of Globalization. Oxford, New York: Oxford University Press.
Boer, G., (2000). Management Accounting Education: Yesterday, Today and Tomorrow. Issues in Accounting Education 15(2), 313-334.
Burns, J. and Vaivio, J., (2001). Management Accounting Change. Management Accounting Research 12, 389-402.
Burns, J., Ezzamel, M. and Scapens, R., (1999). Management Accounting Change in the UK. Management Accounting 77 (3), 28-30.
Byrne, S. and Pierce, B., (2007). Towards a more Comprehensive Understanding of the Roles of Management Accountants. European Accounting Review 16(3), 469-498.
Carruth, B., (2004). Management Accounting-what’s new? Chartered Accountants Journal, Sept, 29-30.
Chenhall, R. and Langfield-Smith, K. (1998) Factors influencing the role of management accounting in the development of performance measures within organizational change programs. Management Accounting Research, 9, 361–386.
Cooper, P., (2006). Adapting Management Accounting Knowledge Needs to Functional and Economic Change. Accounting Education 15(3), 287-300.
Epstein, M.J. (1993) The Expanding Role of Accountants in Society. Management Accounting, 67 (2), 22–26.
Friedman, T. L. (2005). The World Is Flat. New York: Farrar, Straus and Giroux.
Granlund, M. and Lukka, K., (1998). It’s a Small World of Management Accounting Practices. Journal of Management Accounting Research, 10, 153-179.
Goold, M. (1986) Accounting and Strategy. In Bromwich, M. & Hopwood, A. (eds.) Research & Current Issues in Management Accounting, p. 181–191.
Holtzman, Y., (2004). The Transformation of the Accounting Profession. Journal of Management Development 23(10), 949-961.
Hopper, T. (1980) Role conflicts of management accountants and their position within organization structures. Accounting, Organizations and Society, Vol 5, No 4, 401–411.
Johnson, H. and Kaplan, R., (1987). Relevance Lost: The Rise and Fall of Management Accounting. Boston: Harvard Business School Press.
Kaplan R. S. (1995) New Roles for Management Accountants. Journal of Cost Management, Fall, pp. 6–13.
King, M. et. al. (1991) Information Technology and the Changing Role of Management Accountants. In Issues in Management Accounting, eds. Ashton, D & Hopper, T. S & Scapens, R.W. Prentice Hall, Hemel Hempstead.
Mathews, S., (1998). The Changing Role of the Management Accountant and its Implications for Qualification Development. Management Accounting 76(8), 68-70.
Mouritsen, J. (1996) Five Aspects Of Accounting Departments Work. Management Accounting Research, 7, 283–303.
Pierce, B., (2002). Management Accounting without Accountants? Accountancy Ireland, 33(3), 10-12.