Chapter 18Emerging Management Practices

Cost AccountingFoundations and Evolutions

Kinney, Prather, Raiborn

Learning Objectives (1 of 3)

• Explain how business process reengineering affects the way that firms execute processes

• Describe the competitive forces that encourage downsizing and restructuring

• Explain why operations are becoming more diverse

Learning Objectives (2 of 3)

• Describe how diverse operations affect the accounting system

• Describe the purpose of enterprise resource planning (ERP) systems and explain the benefits of adopting an ERP.

• Describe strategic alliances and the different forms they take

Learning Objectives (3 of 3)

• Explain why firms engage in strategic alliances

• Describe open-book management and how it requires changes in accounting methods and practices

• List three generic approaches used to control environmental costs

Managing Change• Recognize the importance of

organizational culture• Adopt only those innovations that support

current strategies• Do not try to implement innovations

during downsizing• Dedicate as much time to managing the

human side of change as the technical side

Managing Change• Educate all employees about the change• Use medium and long-term performance

measures to gauge success• Generate useful and understandable

reports to illustrate the effects of change• Make explicit agreements regarding when

old information systems should be turned off once new one is in place

Business Process ReengineeringExamine processes to identify and then eliminate, reduce, or replace functions and processes that add little customer value to

products or services• Handling or storing materials and components• Issuing checks• Packaging finished goods for shipment to customers• Recording journal entries• Developing an organizational strategic plan

Business Process Reengineering

• Associated with– radical change– employee layoffs– outsourcing– technology

acquisitions

• Enabled by– advanced

technology– pursuit of increased

quality– increase in price

competition due to globalization

Business Process Reengineering

• Define objectives of the project• Identify processes to reengineer• Determine how to measure success• Identify technology levers (innovation,

increased quality, increased output, decreased costs)

• Develop a prototype of the reengineered process and then refine it

Creativity

Downsizing• Reduces costs and improves profits in

conjunction with substantial investments in advanced technology

• Changes mix of inputs used to produce outputs

• Increases emphasis on technology-based conversion processes

• Reduces the emphasis on manual conversion processes (reduces the labor requirement)

Why Diversify?• Legal requirements• Business initiatives to employ minorities• Organizational self-interest

– diverse workforce connects to diverse markets– increased diversity leads to lower employee turnover– heterogeneous groups are more creative– diverse employee pool yields more management talent– need large employee pools for future workers

Enterprise Resource Planning (ERP)

• Automate and integrate business processes• Share common data and practices across the

entire enterprise• Produce and access information real-time• Links the customer end of the supply chain

through production and delivery to the supplier

Enterprise Resource Planning

• Financial professionals– Help to select and install ERP software– Analyze the data repository to support

management decisions– Maintain the integrity of the data

Strategic AlliancesAn agreement, involving two or more firms

with complementary core competencies, to jointly contribute to the supply chain

• Joint ventures• Equity investments• Licensing arrangements• Joint R&D arrangements• Technology swaps• Exclusive buyer/seller agreements

Strategic AlliancesOutput produced reflects a joint effort between

(or among) independent firms and the rewards of that effort are split between (or

among) the allied firms• Blurs boundaries between supplier and

customer• Typical strategic alliances

– Exploit partner knowledge– Have partners with access to different markets– Allow sharing of risks and rewards

Strategic Alliances and the Finance Function

• When forming a strategic alliance, finance professionals– Assess risk– Develop strategies for parent company

management– Design the financial structure– Develop management control systems– Install accounting and other information

systems

Open-Book ManagementIncreasing a firm’s performance by involving all workers and by ensuring

that all workers have access to the operational and financial information

necessary to achieve performance improvements

• Disclose financial information to all employees

• Train employees to interpret and use financial information

• Empower employees to make decisions• Tie a portion of employee pay to

the company’s bottom lineFinancialResults

Open-Book Management

• Open-Book Management works best in the following types of firms – Small size– Decentralized management– History of employee empowerment– Trust between employees and management

FinancialResults

Open-Book Management

Environmental Issues• Measure business performance with regard

to environmental issues and management of environmental costs

• Span the entire value chain– amount of scrap and by-products produced– materials used - are they recyclable?– actions of suppliers who produce inputs– customer habits in consuming and disposing of

products and packaging

Questions

• How does business process reengineering affect the way that firms execute processes?

• What are the benefits of adopting an enterprise resource planning system?

• Why do firms form strategic alliances?