The Changing Nature of Management Accounting and the Emergence of ‘Hybrid’ Accountantsby John Burns, Lecturer in Accountingand Robert Scapens, Professor of Accounting University of Manchester, UK

CIMA Publishing – November 2000

Brief SynopsisThe paper presents evidence from a study of management accounting change in UK companies. Motivated by claims that management accounting had lost its relevance in informing managers’ decisions, our research investigated whether management accounting has been too slow to change despite the rapidly changing technological and organisational environment in recent years. We conclude that management accounting is changing. However, rather than change being necessarily in the type of management accounting techniques adopted, it seems to be more about the manner through which management accounting, including many traditional accounting techniques, is being used. Furthermore, our research also highlights the emergence of new, more proactive management accountants who increasingly become part of the management team within a business process. The paper highlights the roles and expectations of these so-called hybrid accountants and projects implications for the professional accounting bodies and its members.Biographical DetailsJohn Burns, Lecturer in Accounting since 1996, at the University of Manchester, UK. Main research interests in: all areas of management accounting; organisational change; institutional theories of organisational change; industrial policy.Robert Scapens, Professor of Accounting since 1983, at the University of Manchester, UK. Editor-in-Chief of CIMA’s academic publication, Management Accounting Research. Main research interests in: all areas of management accounting; enterprise resource planning (ERP) systems; case study research methods; institutional theories of organisational change.IntroductionIn recent years there has been considerable debate over the extent to which management accounting is changing. Johnson and Kaplan (1987) argued that management accounting had not changed since the early part of the twentieth century and, as such, had lost its relevance for the purpose of informing managers’ decisions. Although, it has also been argued that the environment in which management accounting is practiced has changed considerably – with advances in information technology, more competitive markets, different organisational structures and new management practices (see, for example, Ezzamel et al., 1993).Since the publication of Johnson and Kaplan’s work, various new accounting techniques have been developed such as activity-based costing (ABC) and strategic management accounting. However, such so-called modern techniques are not being used as widely as their advocates might have expected. For example, various surveys indicate that ABC is only used by between 20% and 30% of companies (eg., Innes and Mitchell, 1995). Whereas traditional management accounting techniques continue to be used widely (see Drury et al., 1993). These surveys, therefore, appear to support the relevance lost thesis.This leads us to question whether management accounting has been too slow to change despite the rapidly changing technological and organisational environment in recent years – the focus of a research project based at Manchester University (UK) . The project was generously funded by the Chartered Institute of Management Accountants and the Economic and Social Research Council; it comprised a questionnaire survey, a field study of 12 companies, and 8 longitudinal case studies (all UK-based and lasting between 3 and 5 years).Broadly speaking, our research findings suggest that management accounting is changing. However, rather than change being necessarily in the type of management accounting techniques adopted, it seems to be more about the manner through which management accounting, including many traditional techniques, is being used. Whilst it is difficult to disagree with the findings of surveys that, at a superficial level, traditional management accounting techniques continue to be used, these surveys fail to identify changes in the way that traditional accounting techniques are now used in practice.Furthermore, our research also highlighted the emergence of new, more proactive management accountants. As will be developed in the paper, rather than there being a change in management accounting (eg., Bromwich and Bhimani, 1989), the profession faces exciting challenges ahead. Although, as we shall explain, individuals must be prepared to accept, and have organisational backing to, change traditional ways of doing accounting.Factors Shaping Management Accounting ChangeHowever, before describing our observations on the changing nature of management accounting and the changing roles of an accountant, we should briefly outline some of the external factors which seem to be shaping such change. No attempt was made to assess the extent of the impact of each of these external factors, they are simply the factors which managers and accountants claim to be having an impact on their management accounting.Various factors were mentioned by different people, but probably the most frequently cited was the competitive economic situation of the 1990s, and especially global competition. The extent to which the claims of increased competition are rhetorical, rather than actual economic effects, does not really matter. It is the perception of managers and accountants which is important, and how they perceive the economic climate in which they operate. If there is a perception of greater competition, then an increased focus is likely to be given to markets and the customer. And, though much of this customer focus may simply be rhetoric, in the companies we studied there did appear to be a greater emphasis on the service given to customers, and to providing that service in a market-orientated way.Another fundamental change, and far more than rhetoric, is the advance in information technology which has taken place in recent years. The speed of technological change over the last 30 years or so, and especially the advent of the PC, has had a profound affect on organisational life. Particularly significant over the last 5-10 years has been the extent of the dispersion of computers and computing capacity around the organisation. The increased use of the computer has had major effects on the nature of work, especially clerical work, and on information flows around the organisation.In addition, there have been other substantial changes in organisational structure, although again whether they are generated by rhetorical or real economic factors is not clear. For example, whereas in the UK in the 1970s, there was a wave of acquisitions and mergers, with the creation of conglomerates, by the 1990s organisations were moving in the opposite direction. The trend was then for de-mergers, with companies focusing on core competencies, and outsourcing non-core activities.These various changes – in competition, technology and organisational structure – all have important implications for the nature of management accounting – particularly the manner in which traditional accounting techniques are now being used. In the next section we discuss such implications.The Changing Nature of Management AccountingAs described above, there have been considerable advances in information technology in recent years. One of the most important, apart from the speed and capacity of modern systems, has been the development of data-base technologies which provide the ability to store vast amounts of information in easily accessible ways. These technologies permit various users simultaneously to access the information stored on the database and to use it in different ways. When Johnson and Kaplan were proclaiming their relevance lost thesis, one of the reasons they advanced was that management accounting is dominated by financial reporting. They argued that as financial reporting is a legal requirement, it has to be done. So if a company has only one information system, it is the needs of financial reporting which will take precedence. Thus, information for other purposes has to be accommodated within that system, so far as it is practical. In this sense, management accounting is second place to financial reporting. Database systemsBut with modern databases, information can be analysed in a number of different ways. This makes it possible to design an information system that meets the needs of the various users, and in effect to have different information for different purposes. There need only be one database, but which is used to produce the information needed for different accounting systems, and these systems are then integrated through the information systems as a whole.Another significant effect of IT development is the way in which information is more widely dispersed around the organisation. All managers and many other people at all levels within the organisational hierarchy have PCs on their desks, which can be used to access the information they need. Traditionally, managers would ask accountants for the information, especially the financial information, they needed. Although some managers would maintain their own, often informal, records, the formal information was maintained in the accounting system. If managers wanted to access that information or they need particular analyses, they would ask the accountants. But now, as information systems become more integrated and access to them is dispersed around the organisation, the information flow has, to some extent, been reversed. Individual managers have greater responsibility for information concerning their areas of activity, and instead of asking accountants for information, they can obtain the information directly from their PC. Thus, rather than managers seeking information from the accountants, the accountants use the information stored in the information system to produce both financial and management accounting reports. So, as it were, the accounting reports are extracted from the information system, rather than being the basis on which information is provided to the rest of the organisation. This implies a change in the role of accountants, from one of information provider to, at least to some extent, the “customer” of the broader integrated information system. Accountants, however, are often directly involved in the design and maintenance of the information system.Decentring accounting knowledgeA particular management accounting consequence of these technological developments is what we have called elsewhere, the decentring of accounting knowledge (see Scapens et al., 1996). Information such as budgets, variances, and actuals are all now available at various levels in many organisations. Even in companies that have not implemented one of the new integrated information systems, we have found that such accounting information is often available, for instance, in the production information system, and is designed and maintained by production personnel, rather than by accountants. Furthermore, it is the managers who now have the responsibility for cost management, whereas previously it was the accountants responsibility to monitor costs. Cost management is now more generally accepted to be a managerial function, and managers increasingly think and talk about their activities in cost terms. This means that, within the various areas of a business, there is a need for individuals who understand costs, variances, accounting reports and so on. Such individuals may be accountants (part or fully-qualified), or more likely people from other functions who are financially literate. In some of the organisations we studied, such people were described as “pseudo-accountants” or something equivalent. These are the increasing number of people who have accounting knowledge, and although not trained as accountants, can access, analyse and use accounting information without the intervention of an accountant.In part, this decentring of accounting knowledge is the result of accountants educating other people in the organisation, but it has been made possible by the availability of financial information at all levels in the organisation. Furthermore, it has implications for the role of a management accountant, as was illustrated in several of our case studies. Many managers, although not trained as accountants, displayed a very high level of understanding of accounting systems and accounting information. Nevertheless, most still claimed the need for an accountant. In several companies we visited, the management accountant would be notionally a member of the centralised accounting function, but assigned out in the field where he/she works most of the time. In general, these accountants were regarded as important because of their links to the centralised accounting function which means that he/she has knowledge of the interactions with other parts of the business. So, the accountant is able to provide a much broader understanding of the business, and able to advise on the impacts and implications which actions within the particular function would have on the other parts of the business. In essence, management accountants were seen as people who could look outwards from a particular area of activity, to the business more generally.ForecastsA further issue that emerged in most of the companies we have studied relates to the role of the budgets. Increasingly, budgets are being seen as backward looking and out of date before the start of the year. There now appears to be much greater emphasis given to forecasts – either rolling forecasts for, say the next 3, 6 or 12 months (depending on the nature of the business); or, forecasts to the year end. This is particularly important because, whereas budgets are usually associated with the accountants, forecasts are more closely identified with individual managers.Budgets are usually produced as part of a business-wide exercise, co-ordinated by the accounting function. Frequently, budgets are perceived as imposed from outside, even where there is some input from individual departments and functions. Forecasts, however, whether they are rolling forecast, or forecasts to the year end, require considerable inputs from these individual departments and functions themselves, as they are the only people with the necessary detailed knowledge, and this greater personal involvement can create a feeling of ownership of the forecast. Consequently, there is a shift of emphasis from budgeting, which has essentially been backward looking and is to a great extent imposed, to forecasts which are forward-looking and locally-owned.Commercial orientationA further general finding from our project is the change from what might be termed a financial accounting mentality, to a more commercial orientation. More emphasis on commercial orientation does not mean that profit is unimportant, profit remains crucial. The vast majority of businesses need to earn profits to survive – but profit can be conceptualised rather differently. A commercial orientation recognises that it is the business ability to continue to earn profits in future periods which is important, rather than just seeking to earn a profit in the current period. This implies a more strategic view, and an emphasis on managing the capacity to generate profits. This does not necessarily imply less quantification ñ indeed, it may involve more quantification and a wider range of performance indicators. Furthermore there is likely to continue to be an ongoing comparison of actual performance against targets, as expressed in terms of these indicators. But this may be over a longer time period than traditional short-term accounting cycles. However, a word of caution needs adding about what might happen in an economic downturn. It may have been relatively easy in the early part of the 1990s, with stock market growth and buoyant economies, to focus on a broader conception of profitability. But with declining stock markets and, say, a global recession, there could well be a return to more bottom-line focus.Strategic FocusThis commercial orientation appears in many of the companies we visited to have a more strategic focus, leading to the use of a range of performance indicators – including a significant increase in the use of non-financial measures of performance (eg., customer satisfaction and quality indicators). Key performance indicators, which may be financial or non-financial, attempt to assess the factors which impinge on a company’s ability to earn profits, both in the short and long term. Given that broader based performance indicators are increasingly becoming more important, what is the role of the management accounts which are produced month by month? In one of our case studies, management accounts are prepared for the monthly Management Board meetings, which generally last one whole day and offer the opportunity to discuss current issues and problems in the company. Referring to the management accounts, the Managing Director explained that they are presented by the management accountant, and “it takes 20 minutes – including the jokes!”. As such, the management accounts are the starting point for the day’s discussions, but the Managing Director did not expect to find anything contained within them which he did not already know.However, the month-by-month figures in the management accounts have to be understood in the context of broader performance indicators, linking the financial outcomes with the strategic consequences of the activities which have been undertaken. One of the roles of the management accountant is to bring together the broad view of the business expressed in the key performance indicators, with the narrower financial view shown in the management accounts. For this purpose the management accountant needs a broad understanding of the business and it operations. Such ideas will be developed in the section below.The Changing Role of Management AccountantsHaving briefly outlined the changing nature of the use of management accounting, we will now explore possible implications for accountants and the professional accounting bodies. As a starting point, it can be said that there are both opportunities and threats. In one case study, a UK-based manufacturer of healthcare products, the number of people in the accounting function declined in the period 1990-97 from 120 to 60. Similar high-percentage reductions were observed elsewhere. Such reductions are largely a result of advances in information technology, particularly the computerisation of recording and processing transactions.But during the same period in this company, there was also an emergence of hybrid accountants – as they were called by some managers. The company had changed from a functionally organised business (with separate business units and service functions to support them) to a process-based form of organisation. Whereby, each unit, and if possible each site, was responsible for all its activities from the receipt of an order to delivery of the final product. Under this new structure there is now a process leader who is responsible for all these activities, together with the associated support functions which are an integral part of the process. In this particular case, the only functions which are now separate are finance, IT and quality. But even the finance function, although notionally separate, became increasingly integrated into the individual processes.Supporting each individual process is a small group of accountants – the hybrids. A hybrid accountant is someone who has both accounting knowledge and an in depth understanding of the operating functions or commercial processes of the business. Throughout most of the company, hybrids are physically located in the process steams, where they work alongside the process managers. They have offices next to the process leaders, where they work at least three days a week. They then spend the other day or two in the accounting function, where they have an additional desk and are able liaise with their accounting colleagues. But, in most instances, it appeared that the hybrids regarded the process as being their “home”, and that they regard themselves as part of the process management team.There is clearly an opportunity to extend the role of management accountants within such process teams. Although, if accountants are to be involved in the management process in this way, they need to understand the complexities of the business and to have the capability of interacting with people in all parts of the organisation.We have seen various examples in our case studies. At one extreme there was an accountant who was excellent at producing and analysing the numbers but he could not relate them to the business, and consequently he was not retained in the organisation. At the other extreme, someone complimented an accountant saying: “He’s not like normal accountants. He can see the real business through the numbers”. While intended as a compliment to this particular individual, the comment was a criticism of accountants more generally. There does appear to be a need for more management accountants to understand their business, but this requires broader forms of training and experience, not simply training in accounting numbers. In particular, management accountants need to relate the accounting and financial information to the wider information flows within the organisation, including strategic information, and to recognise the limitations as well as the potential of management accounting.As was mentioned at the start of this paper, our research project was motivated by concerns over claims that management accounting had lost its relevance for managerial decision-making. Our findings, however, indicate that professional bodies should not be unduly concerned about the relevance lost thesis. Management accounting is still very much alive, though in many companies its use is undergoing change. Nevertheless, there is an important issue which the professional accounting bodies do have to address. They must ensure that their members are capable of taking a broader role within the management team. Some accountants clearly are ñ as we have seen in our case studies. But the issue for the professional bodies is whether both their student training programmes and their continuing education activities are preparing their future and current members for this broader role and, in general, helping them to cope with the changing nature of management accounting.ReferencesBromwich, M. and Bhimani, A. (1989) Management Accounting: Evolution not Revolution, The Chartered Institute of Management Accountants: London. Drury, C., Braund, S., Osbourne, P. and Tayles, M. (1993) A Survey of Management Accounting Practices in UK Manufacturing Companies, Chartered Association of Certified Accountants: London.Ezzamel, M., Lilley, S. and Willmott, H. (1993) Changes in Management Practices in UK Companies, The Chartered Institute of Management Accountants: London.Innes, J. and Mitchell, F. (1995) A survey of activity-based costing in the UK’s largest companies, Management Accounting Research, June, pp. 137-54.Johnson, H. T. and Kaplan, R. S. (1987) Relevance Lost: The Rise and Fall of Management Accounting, Harvard Business School Press: Boston, Mass.Scapens, R., Turley, S., Burns, J., Joseph, N., Lewis, L. and Southworth, A. (1996) External Reporting and Management Decisions: A Study of their Interrelationship in UK Firms, The Chartered Institute of Management Accountants: London.

REQUIRED:

With reference to the above article discuss how you believe the role of the management accountant has changed since this article was published in 2000 and, in hindsight, if there is evidence to support the arguments put forward by John Burns and Robert Scapens.

The above is the question and below is information to assist you in this task.

This is a research piece and will therefore require you to investigate, in some detail, the changes which have taken place in accounting in general (but with a focus on management accounting), global and national economic conditions, technology and accounting education since the article was published.

The course work is to be written in the “style” of an academic article and must be referenced accordingly.

One of the main aims of the course work is to develop your research skills. I expect to see evidence of extensive reading about and around the subject, from sources including ALL of the following:

Text books;

Academic articles; and

Internet sources.

The course work will constitute 60% of the overall mark for the module, BAF-4-IM2 Intermediate Management Accounting, and marks will be awarded for content, evidence of research, presentation and insight into the area under investigation. For such a substantial percentage of the module I expect effort to be in evidence.

The word count is 2,000 words +/- 10%. This is to be strictly adhered to and marks will be deducted accordingly if you go under or over the limit stated.

Presentation is important when undertaking academic writing. While I understand this is a first year module and do not expect anything new to emerge (although I would welcome original thought), I do expect you to write and present this work in a professional manner. If you are unsure of how to write in the style of an academic article then look on the library website in any recognised accounting journal and see for your selves.

One of the skills you must learn is that of referencing your work to a very high standard. You are all aware of the fact sheet offered by the library regarding the Harvard System of referencing. I expect you all to follow that style and if you choose not to do so marks will be severely deducted and you run the risk of failure. The help sheet can be found at:

http://www.lsbu.ac.uk/library/html/documents/HS30_000.pdfYour work must also be submitted to the module “Turn-it-In” site, which will be made available on the Blackboard site for Intermediate Management Accounting.

Turn-it-In is a Web-based service that can find and highlight matching or unoriginal text in a written assignment. Although it can be used to detect plagiarism I want you to utilise the software as a way of self-checking your final submission.

You must include a print out of the summary page(s) of your individual turn-it-in report as appendices to your final submission. I will check each submission to see if it matches your summary pages – YOU HAVE BEEN WARNED.

I will run through the Turn-it-In system prior to you having to submit your course work.

I will allow multiple submissions to the module turn-it-in site but be aware that while your first submission normally takes around 24 hours before you get the report back, subsequent submissions may take considerable longer. I therefore suggest that your final submission is put through the site at least 2/3 days prior to the deadline I have set.

This is an individual piece of work and you will be severely penalised if you are found to have copied/plagiarised a fellow students work or any other work submitted both to LSBU and/or in the public domain. I have had cases in the past where students have innocently shared their work with others only to find that their work has been copied and used. In a scenario like this both parties will be penalised. That is not to say you cannot discuss the work with both your fellow students and your lecturers and I will assist any student who needs help. I will not look at any work sent to me via e-mail but I do understand that from time to time (and I mean occasionally, not on a weekly basis) you may wish to seek guidance.

Part of the university experience is to learn to think independently. I expect you all to embrace this culture and have the confidence to work on your own without constantly seeking reassurance.

The all-important hand-in date is as follows:

HAND IN DATE: TUESDAY 16TH APRIL 2013.

This is week 9 of the semester and also allows you 3 weeks over the Easter break to finalise your submission (this gives you 10 weeks in total which includes the Easter break). Your exams will not start until at least 4 weeks after submission and I have chosen this date so as not to affect any revision you may have leading up to your end of year exams. The course work is to be submitted to LR105 (The Faculty Office in London Road) no later than 4pm on the date specified above.

It is not within my power, or the power of any academic/administrative member of staff, to extend this deadline in any way. Please familiarise yourselves with the course guide/student handbook for clarification in this area.

For your guidance the course work will be assessed against the 4 general criteria below:

Communication 15%

Writing ability – power of expression; clarity of language and analytical logic; adherence to an appropriate structure and presentation.

Knowledge & Understanding 50%

Depth of analysis and extent of understanding of the subject; breadth of knowledge demonstrated; the relevance and practicability of the conclusions made and the extent to which they relate theory to practice.

Research 30%

The extent of research as evidenced by a bibliography, reflection, informed critical discussion and analysis.

Turn-It-In5%

This mark is to be awarded if the student has followed the brief and submitted their summary turn-it-in report as part of the appendices.

The above is for your guidance and a more substantive break down of grade marks will be utilised when marking your work. This will incorporate the learning outcomes as stated in the module guide, especially those related to intellectual, practical and tr