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The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company Australasian Accounting, Business and Finance Journal Volume 8 | Issue 2 Article 9 The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company Daniel Watts McGrathNicol, Australia P.W. Senarath Yapa RMIT University Steven Dellaportas RMIT University,
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[email protected] Recommended Citation Watts, Daniel; Yapa, P.W. Senarath; and Dellaportas, Steven, The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company, Australasian Accounting, Business and Finance Journal, 8(2), 2014, 121-137. doi:10.14453/aabfj.v8i2.9 http://ro.uow.edu.au/?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/aabfj?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/aabfj?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/aabfj/vol8?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/aabfj/vol8/iss2?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/aabfj/vol8/iss2/9?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://ro.uow.edu.au/aabfj?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages http://dx.doi.org/10.14453/aabfj.v8i2.9 The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company Abstract Contemporary management accounting techniques (such as TQM, BSC, JIT) are widely lauded by academia but the proposed relevance to business has not necessarily the view held by industry (e.g. Burns & Vaivio, 2001; Chenhall & Langfield-Smith, 1998; Innes et al., 2000. The purpose of this article is to investigate the acquisition by a modern multi-national firm of a major IT-based management accounting program to assess the relevance and usefulness of its functionality by identifying the type(s) of systems that are utilised and the rationale for upgrading or modifying its system(s). This study relies on a single case based on two in-depth semi structured interviews with accounting and finance professionals in a multi-national manufacturing company that recently implemented a modern management accounting system. The findings indicate that despite demonstrating some relevance of the management accounting information, the manufacturer deactivated components of the system that were deemed irrelevant at particular levels of the organisation. This paper provides evidence about the non-reliance on management accounting information in a multinational company operating in Australia. The findings in the study imply that relevance is linked to implementation, planning and training will help managers to better prepare themselves in setting up contemporary management accounting systems. Keywords Change, IFRS, institutional, Portugal, principles, rules This article is available in Australasian Accounting, Business and Finance Journal: http://ro.uow.edu.au/aabfj/vol8/iss2/9 http://ro.uow.edu.au/aabfj/vol8/iss2/9?utm_source=ro.uow.edu.au%2Faabfj%2Fvol8%2Fiss2%2F9&utm_medium=PDF&utm_campaign=PDFCoverPages 121 Technical Note The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company Daniel Watts1, P.W. Senarath Yapa2 & Steven Dellaportas3 Abstract Purpose Contemporary management accounting techniques (such as TQM, BSC, JIT) are widely lauded by academia but the proposed relevance to business has not necessarily the view held by industry (e.g. Burns & Vaivio, 2001; Chenhall & Langfield-Smith, 1998; Innes et al., 2000. The purpose of this article is to investigate the acquisition by a modern multi-national firm of a major IT-based management accounting program to assess the relevance and usefulness of its functionality by identifying the type(s) of systems that are utilised and the rationale for upgrading or modifying its system(s). Design/methodology/approach – This study relies on a single case based on two in-depth semi structured interviews with accounting and finance professionals in a multi-national manufacturing company that recently implemented a modern management accounting system. Findings – The findings indicate that despite demonstrating some relevance of the management accounting information, the manufacturer deactivated components of the system that were deemed irrelevant at particular levels of the organisation. Originality/value – This paper provides evidence about the non-reliance on management accounting information in a multinational company operating in Australia. The findings in the study imply that relevance is linked to implementation, planning and training will help managers to better prepare themselves in setting up contemporary management accounting systems. Keywords: Change, IFRS, institutional, Portugal, principles, rules JEL Code(s): M40 1 McGrathNicol, Australia 2 RMIT University 3 RMIT University,
[email protected] AABFJ | Volume 8, no. 2, 2014 122 Introduction Contemporary management accounting techniques such as Activity Based Costing (ABC), the Balanced Scorecard (BSC), Just in Time (JIT), Value Chain Analysis (VCA), Total Quality Management (TQM) are practices that have gained widespread attention in accounting, particularly since the latter decades of the 20th century (Argyris & Kaplan, 1994; Bromwich, 1999/2000; Bromwich & Bhimani, 1994; Horngren, 1995; Kaplan, 1994; Kaplan & Norton, 1992; Otley, 1983; Scapens et al., 1996). Where management accounting information has not kept pace with uncertain environments, the relevance of management accounting has been increasingly questioned by business unit managers (Murphy et al., 1995; Kaplan, 1986). The determination of academic research to maintain the relevance of management accounting is a noble pursuit but it is undermined by the choices made in industry and the lack of a pure definition for its achievement and worth (Bromwich & Bhimani, 1994). With a myriad of conventional management accounting systems and the ability to modify or specify alterations, the type and provision of contemporary management accounting systems is an important decision for many firms. The selection of an inappropriate system may result in a detrimental effect on the strategic or operational functioning and positioning of the firm (Burns & Vaivio, 2001; Coad, 1999; Langfield-Smith et al., 2000; Mintzberg, 1990; Mintzberg et al., 1998; MacDonald & Richardson, 2002). Whilst the benefits of contemporary management accounting techniques are evident, successful implementation remains an important and unresolved issue that constrains the benefits derived from new management accounting technologies. This occurs in part because of the contention that management accounting has not developed its own persona and remains merely a tool, rather than an essential component of the decision making process (Loft, 1995; Granlund & Lukka, 1998). Industry challenges of the ilk of globalised competition and fluctuating macro-economic conditions may be the saviour of management accounting as industry seeks to find any advantage, no matter how insignificant (Langfield-Smith et al., 2000). Until the worth of management accounting can be categorically demonstrated, its value may not live up to its potential. The onset of globalised competition and ready access to high technology has forced companies to change the way they operate (Langfield-Smith et al., 2000). Increasing IT investment is touted as the advantage that provides the leverage for achieving a stronger more flexible production process to deal with persistent change and improve organisational performance (Chenhall, 2003; Grandeet al., 2010). Dechow et al., (2007) claim that IT automates many control functions with use friendly systems capable of adaption to low level or line management. With the rapid development of high-end technology, efficient and instantaneous communication, and increased competition, many firms have been forced to seek comparative advantage to remain viable (Langfield-Smith et al., 2000). Management accounting systems and the resulting information used to assist management in its decision making process is argued to provide a comparative advantage in a dynamic and competitive environment (Chenhall & Langfield-Smith, 1998). Designing and maintaining effective cost management systems has become a fundamental task for corporations and their management accountants. IT now plays an important role in areas that are typically the domain of management accounting. A central and emerging theme arising from this discussion is the focus on how organisations utilise innovative technology-based management accounting systems across the value chain to support corporate strategy. The aim of this study is to investigate the acquisition and implementation of a major IT- based management accounting program with management accounting functionality by a modern multi-national firm and to assess its relevance by seeking to identify the type(s) of systems that Watts, Senarath Yapa & Dellaportas | Newly Implemented Modern Management Accounting System 123 are utilised at different organisational levels and the rationale behind upgrading or improving its system(s). The identification and analysis of how well a management accounting system has been implemented and subsequently utilised in a multi-national firm provides a practical perspective on how industry perceives the relevance of management accounting. The installation of management accounting systems and the degree to which they are utilised is left up to individual firms (Bromwich & Bhimani, 1994). This study, based on a single case with semi-structured interviews, provides deep and personal insight on the issues facing an organisation in implementing a contemporary management accounting system, at a time where delays may mean loss in market share or an ill-needed drop in profitability. Dechow et al., (2007) contend that the role of information technology as a provider of information and facilitator for management accounting is an important area for further investigation. This study examines the relevance of a recently implemented technology-based management accounting system. Data is sought on the relevance of management accounting information by management in their strategic and operational decision making processes as well as the systems utilised (or discarded) and modified by the company. Identification of the type, level of detail and format that this information takes, in addition to external information will assist in forming the conclusions to this study. The remainder of this paper is organised as follows: a review of relevant literature is presented in the next section. This literature review outlines the arguments that call for management accounting change and the impediments to effective implementation. This section also highlights the research objectives of this study. Section three outlines the methodology adopted in this study that is based on a single case with interviews as the primary method of data collection. This section is followed by a discussion and analysis of the findings in section four and a conclusion in section five. Management Accounting Change The prominence of modern management accounting emerged in the latter part of the 20th century with the promise of radical changes in management accounting techniques (Burns &