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Strategic management accounting (SMA) combines strategic business goals and objectives with information from management accounting. The purpose of the merger is to provide a forward-looking model that supports management in making business decisions. While management accounting focuses on internal accounting measurements, strategic management accounting evaluates external information regarding price trends, costs, cash flows, market share, and impact on resources. Strategic elements of management accounting require a high degree of intelligence of competitors, technology, and suppliers.
Implement strategies using a variety of approaches and develop an integrated methodology of performance metrics. The different performance measurement tools include target costing, life-cycle costing, benchmarking, kaizen costing, theories of constraints, activity-based costing, and the just-in-time approach (Roslender and Hart 2010, p.24).
The concept of strategic management accounting came into the limelight in the late 1980s as among the ranges of new techniques and approaches made to uphold the lost importance of management accounting. The difference between strategic management accounting and other parallel developments was the external orientation to its direction of operations. The incorporation of the term strategic to refer to the approach was intended to portray that SMA had a long-term outlook and a wider emphasis as compared to traditional management accounting. In the formulation of the SMA, there was the drawing of material from a broad range of important insights. Porter’s ideology on business strategy came up with different generic strategies: product differentiation; cost leadership; and focus. Each of the strategies had different implications for both accounting and management functions (Lord 2007, p.138).
Lord observed that practices similar to SMA were used by the Cycle maker’s marketing function although it did not appear to have much involvement of the management accountants. Strategic management accounting calls for the accountants to embrace new skills that extend beyond their usual areas and cooperate with general management and corporate strategists. SMA is closely connected to both management accounting and marketing management (Lord 2007, p.143). It has been identified as a general methodology for accounting for strategic positioning, which is characterized by attempts to integrate insights from marketing theories into management accounting. The SMA approach includes Porter’s competitive advantage theory and more so, the strategic cost analysis technique together with both life-cycle and target costing.
In the mid-1990s, there was the encountering of SMA as simultaneously valid interdisciplinary theory and uncertain management accounting development. Considering the manner in which SMA was viewed, it was concluded that a means of revitalizing it was to explore the probabilities of expanding the marketing content. Apparently, much interest was shaping up within the marketing management theories with various initiatives for measuring the marketing performances being canvassed (Nixon and Burns, p.232).
In tandem with the management accounting in the early 1980s, marketing faced growing questions regarding its relevance as an important management function. There is the identification for the necessity for marketing management to extend the traditional concern with the customers to the competitors. Commending a market-orientation is not meant to exaggerate the relevance of the marketing function. Market-orientation makes the marketing function the responsibility of all the departments within the business organization (Nixon and Burns, p.236). The formulation of the market-orientation theory emphasizes the inclusive nature of strategic marketing, identifying the inter-functional coordination along with the competitor and customer orientation.
it is evident that SMA usage usually has a positive impact on the general results in an organizational setting. It seems to be moderated by variables such as environmental uncertainty and competitive positioning. Strategic management accounting in various cases is worth pursuing in realistic settings (Juras 2014, p.76). For example, in cost accounting, the strategic management concept can be used to reduce the costs of production in various production lines of a manufacturing entity.
There is less attention that is accorded to the process of using SMA as compared to other research concepts. Some authors view SMA as a procedure and make the argument that the usage of SMA techniques can be framed into procedure phases. Depending on the differences in the SMA techniques listing, there are also differences in the perceptions of the SMA processes. In this respect, Lord advances SMA's three-phase process. There is the collection of information concerning the competitors, the exploitation of the cost reduction opportunities, and the matching of the accounting emphasis with strategic positioning. It is through this process that a business organization usually gains a competitive edge against other players in the industry (Cadez and Guilding 2012, p.486).
From the SMA processes, it is clear that the perception of the processes relies on the various points of view regarding strategy application within an organizational setting. It is the expected result because SMA, with the constituent techniques, intends to be information support for decision-making on the strategic, long-term, and the externally oriented level. For this reason, the concept of SMA should be discussed in association with, but not in isolation from, a complete comprehension of the strategic processes (Cadez and Guilding 2012, p.487).
Management accountants conduct relative cost positioning. It is a detailed analysis that includes production capacity and the cost positions of all the competing companies within the commercial marketplaces. The top management team uses this information in forming a chart that indicates the players that have the highest and the lowest relative cost position within the market. It is also the role of the management accountants to create a sustainable cost advantage for the organization. Business organizations often use sustainable cost advantages to make sure that their products are the most competitively priced within the commercial marketplaces. The sustainable cost advantage is also created to avoid losing sales to substitutes or other inferior products. The management accountants within the SMA concept usually conduct differentiation for the organization. In this way, certain organizations are distinguished from other players in the industries. SMA works with other organizational units in order to create value for consumer goods and services. Differentiation is accomplished through the supply chain, customer service, product, and image placement (Langfield-Smith 2008, p.213).
The SMA concept is deficient in various areas of development, and it is not clearly defined. This has resulted in different conceptually diverse research directions and methods. Given that the concept of SMA significantly relies on and is closely associated with strategic management, it is clear that the concept is still in pursuit of a clear definition and research areas. It is an indication that the SMA concept has a long way to go from the clearly established field of research that requires linking strategy, marketing, and accounting. The management accountants have vital roles to play in strategic management accounting. The roles include differentiation, conducting relative cost positioning, and the creation of sustainable cost advantages for the business organizations.
Cadez, S. and Guilding, C., 2012. Strategy, strategic management accounting and performance: a configurational analysis. Industrial Management & Data Systems, 112(3), pp.484-501.
Juras, A., 2014. Strategic Management Accounting-What Is the Current State of the Concept?. Economy Transdisciplinarity Cognition, 17(2), p.76.
Langfield-Smith, K., 2008. Strategic management accounting: how far have we come in 25 years?. Accounting, Auditing & Accountability Journal, 21(2), pp.204-228.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3, pp.135-154.
Nixon, B. and Burns, J., 2012. The paradox of strategic management accounting. Management Accounting Research, 23(4), pp.229-244.
Roslender, R. and Hart, S.J., 2010. Strategic Management Accounting: Lots in a Name? (No. 1005). Accountancy Research Group, Heriot Watt University.
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