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Management accounting in recent years has changed significantly due to the change in production technology, bitter competition, involvement of consumers, and increased professionalism in managing business. Billions of dollars are now invested in manufacturing process whereas life cycle of
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Research Report
Date of Submission: January 21, 2018
Researchers: Dr. Nikhil Chandra Shil FCMA, ACMA (UK), CGMA, CPFA Associate Professor, Department of Business Administration
East West University, Dhaka, Bangladesh
Dr. Bhagaban Das
Professor, Head & Dean, Department of Business Management
Fakir Mohan University, Odisha, India
contextual variables. Again, establishing a crude relationship between AMAT and MME is not so easy. Amid of such difficulty and differences in opinion, it is pleasing for the management accounting researchers that a couple of techniques have already been developed and used in the field of management accounting giving sufficient support to MME. Exploring the relationship between AMAT and MME is an area for study in Bangladesh as Bangladesh becomes a destiny of large industrial investments, even by international investors.
Asian countries are lagging behind in terms of advanced manufacturing process as compared with advanced economy and thus AMAT already developed strongly cater the specific need of management in these countries. This study basically targets to put light over the management accounting techniques developed so far in response to modern production technology and their application from the perspective of Bangladesh. It also target to highlight the specific benefits that management may capitalize from the use of such management accounting techniques. It will open up new avenues to carry out further researches in line with the specific objectives of different management accounting techniques. To fulfill the prime objective, literature review method has been extensively used. A semi-structured questionnaire has been constructed and administered covering sampled manufacturing firms in Bangladesh to find out the possible bearing of management accounting techniques on productivity, competitive advantage and strategic positioning. The outcome of the study shows that the firms operating in Bangladesh still utilizes traditional techniques seriously and the relationship is not so strong. It develops a weak profile of management accounting tools applied in Bangladesh. However, the result should be analyzed keeping the time frame and profile of the responding companies into consideration.
We are very much thankful to the almightily God without whose blessings it was not possible to complete the research project. At the same time, we have received enormous support from people surrounding us who has extended their support for the cause of research. It is not manageable to mention the name of all of them, however, we believe that it is our moral responsibility to acknowledge someone who has taken lot of trouble and allowed us to take their precious time by responding to our queries multiple times.
We would like to express our sincere gratitude to the participants in the survey whose active support made this research possible to finish. Their knowledge and wisdom helped us a lot to bring out best from the project.
We are also thankful to East West University community who has taken part in both of the research seminar and contributed through suggestions and criticisms. Particularly the discussant in both the research seminar, Professor Dr. Mahfuzul Haque, Professor, Department of Accounting and Information Systems, University of Dhaka, deserves special thanks to bring some new dimensions into the research. We are also thankful to Professor Dr. Tanbir Ahmed Chowdhury, Dean of the Faculty of Business and Economics and Professor Dr. Anup Chowdhury, Chairperson of the Department of Business Administration of East West University for their valuable comments in research seminars.
Last but not the least, we would like to express our sincere gratitude to Dr. Rafiqul Huda Chaudhury, honorable chairperson, EWUCRT and his team to support us throughout the process. It is his continuous endeavor to keep our interest towards the research goal. We are really indebted to you, sir.
We are really sorry if we have missed anybody who has supported us which is unintentional. We believe that this research will open new avenues of further research in coming days.
Dr. Nikhil Chandra Shil, FCMA, ACMA (UK), CGMA, CPFA
Associate Professor
IC Intellectual capital
ICMAB Institute of Cost and Management Accountants of Bangladesh
IMA Institute of Management Accountants
JIT Just in time
LCC Life Cycle Costing
MA Management Accounting
MME Modern Manufacturing Environment
MNC Multinational Corporations
NOPAT Net Operating Profit after Taxes
PD Product Differentiation
QC Quality Costing
RCA Resource Consumption Accounting
SCM Strategic Cost Management
TC Target Costing
TOC Theory of Constraints
TQM Total Quality Management
reduce stock levels, improve delivery performance and generally to reduce critical management accounting timing (Bright et al., 1992). Thus, management accounting techniques serve management from different perspectives.
However, most new cost management systems came about after the publication in 1987 of Johnson and Kaplan’s book, Relevance Lost: The Rise and Fall of Management Accounting, which served as a wake-up call to management accountants. This book emphasized that virtually all management accounting practices at the time had been developed by 1925, after which innovation stopped. A few years ago Kaplan (Dent, 2002) again referred to the inadequacy of existing management accounting systems in these times of technological change, global competition and knowledge management. Moreover, many of the management accounting systems that developed after 1987 emanated from practitioners and not academics.
Management accounting fails to keep pace with the development of manufacturing system. As newer manufacturing technologies are coming regularly proving earlier best practices wrong, it becomes a big challenge for management accountants to address the revised need. Management accounting, as a separate branch of knowledge, has got its identity in supporting management with any sort of information to supplement their decision making process. Thus, there should be a close relationship between changes in business environment and nature of management accounting. Changes in business environment are caused by technological advances of doing business which should be addressed in management accounting through innovation of advanced techniques. Now the question is, whether such innovation results in management accounting?
Management accounting techniques developed so far give support to the manufacturing staff and management to take decision. However, there was a gap in management accounting research for a period of more than half a century (from 1925 to 1987) when the discipline has witnessed a big loss due to the stagnation. Later on, it has been covered as management accounting literature has been enriched with some advanced techniques like ABC, TC, BSC, JIT and Lean Manufacturing Systems etc. Question is whether it is possible to absorb such management accounting techniques in a particular organizational set up.
Manufacturing adjustments in Asian countries, particularly in Bangladesh, is not so rapid as compared to west, which makes the management accounting techniques more powerful in these countries. In a simple manufacturing process, management accounting techniques can be applied avoiding complexities making such application cost effective. Current research targets to identify management accounting techniques with their specific role in decision making from different perspectives. Literature review will guide the process to delineate AMAT and their application status in different countries. The study has been extended to find the contribution of management accounting techniques in explaining productivity, competitive advantage and strategic positioning of firms in
Bangladesh. A semi-structured questionnaire is developed and used for the study. Different descriptive and inferential statistical tools are used to present the findings of the study. The research in this area is completely a newer one in Bangladesh which can be used to develop further research agenda for possible extension in coming days.
Manufacturing environment in Bangladesh has been improving since privatization initiatives started in nineties. Foreign direct investment in economic zones is also increasing significantly. Global brands are also coming to take the productive advantages that Bangladesh offers. All together, the manufacturing sector in the country is observing tremendous growth. And when the foreign management enters into the affairs of local operation, they are not only bringing the funds, skill staffs and advanced technologies but they also bring management philosophies and styles to run the business here. Bangladesh has already entered into the development highway; base of the economy has already been shifted from agriculture to industry, industrial products are getting exported and the country offers enough infrastructural facilities for smooth development of industrial sector. As the industrial sector grows and sustains, it requires the support from accounting systems for taking different tactical and strategic decisions. Traditional financial accounting system is not enough to provide required data to take decisions. Thus management accounting system enters into the realm of provision of unstructured decision making process. In this backdrop, a research on the state of application of management accounting techniques and their implication on the outcome becomes an important research agenda. This research will be a pioneering one to guide the future works in the area.
The development of management accounting as a separate branch of accounting lies on great industrial revolution when the industrial process changed dramatically and financial accounting fails to provide relevant information to supplement the decision making process of management. Due to the change profile of corporate sector in Bangladesh, it becomes important to know the level of application of different management accounting techniques and the inherent reasons of their choices in the form of any pertinent relationship between management accounting practices and productivity, competitive advantage and strategic positioning.
in management accounting research (Fisher, 1995; Cadez and Guilding, 2008). This section presents a brief review of existing literature on the application of contingency theory in the field of management accounting research.
One of the earlier works in management accounting research adopting a contingency perspective was Hofstede's (1967) classic field work. Hofstede (1967) found that, economic, technological and sociological considerations had a significant impact on the functioning of budgeting systems. In addition, cultural effects on management control systems have been studied (Hofstede, 1983; Brownell, 1982; Brownell and Hirst, 1986). This has become an important area of research (Harrison, 1992, 1993; O'Connor, 1995; Taylor, 1996; Chenhall, 2006).
Contingency theory has also been applied to the subunit level of organizational behavior. Hayes (1977) examined the appropriateness of management accounting in order to measure the effectiveness of different departments in large organizations and found that contingency factors or contingencies were the major predictors of effectiveness for production departments. Hayes (1977) also advocated the use of contingency theory in studies of organizational assessment and subunit evaluation. Hayes’ study hypothesized three major contingencies affecting sub-unit performance: internal factors, interdependency factors and environmental factors. The results of the study suggest that the underlying causal variables should be studied rather than just narrowly examining surrogates. The results also implied that a contingency approach should be taken to managerial accounting and the relevant assessment methods should be determined by sub-unit type, sub- unit inter-relationships and the extent of environmental influence on the performance of sub-units.
Flamholtz et al. (1985) reviewed the contingency literature concerned with the issue of control. In this aspect of the contingency literature, the issue of control is studied along three main traditions: the sociological, the administrative and the psychological perspectives. The sociological perspective focuses on the entire organization and the larger groups within it. In this view, structural mechanisms of rules, policies, hierarchy of authority or coordinative units obtain control (Flamholtz et al., 1985). The administrative perspective focuses on the individuals or departments within an organization. The control
mechanisms employed by the administrative theorists are plans, measurement, supervision, evaluation and feedback. The psychological perspective emphasizes goal and standard setting, extrinsic and intrinsic rewards, feedback or interpersonal influence (Flamholtz, 1979).
Shank (1989) applied contingency principles in investigating the use of managerial accounting systems and information in a strategic way. Banker et al. (1991) looked at the impact of structural factors and found that firms which implemented just-in- time (JIT) or other team-work programs were more likely to provide information regarding performance to shop-floor workers.
Research studies such as Govindarajan and Gupta (1985) have investigated the relationship between firms' strategies and the design of their control systems. Merchant (1985) uncovered contingent relationships between corporate contextual factors, such as size of the firm, product diversity, extent of decentralization and the use of budgetary information. Additionally, some studies have investigated the influence of external factors such as impact of environmental uncertainty. Environmental uncertainty was found to be a major explanatory variable as to whether accounting data was appropriate in evaluating the performance of business units (Fisher, 1995; Hartmann, 2000; Chenhall, 2003).
From review of management accounting research using contingency theory, the usage of contingency theory is summarized. Contingency theory has been applied in management accounting research in order to address three types of questions. These questions are about: first, the fit between organizational control and structure; second, the impact of such fits on performance; third, investigation of multiple contingencies and their impact on organizational design.
Contingency theorists attempted to identify the important variables assumed to influence organizational performance. They then attempted to operationalize and measure these variables and determine their effects on performance. Seminal studies were done by researchers such as Lawrence and Lorsch (Lawrence & Lorsch, 67) (influence of the environment on organizational integration and differentiation), Burns and Stalker (Burns & Stalker, 61) (influence of environment on organization structure), and Woodward (Woodward, 65) (influence of the technology on organizational structure).
Ittner & Larcker (2002) defined management accounting practices as a variety of methods specially considered for manufacturing businesses so as to support the organisation’s infrastructure and management accounting processes. Management accounting practices can include budgeting, performance evaluation, information for decision-making; and strategic analyses are some of the methods used among many others. Ittner & Larcker (2001) has also argued that due to the development of these new methods, it has changed the basic principles of management accounting to a more superior one that adds value to various practices. The literature has also indicated that some practices such as absorption costing and marginal costing have not been highly favoured by most manufacturing businesses. For example, Dugdale and Jones (2002) stressed that there is a limitation within these costing systems, since they do not provide an accurate method of recording costs to be exact in order to make sound management decisions.
The reflections of strategic approach in management begun in the emergence of many methods and techniques in cost accounting and management accounting which directed mainly to serve the goals of the contemporary strategic management of business organizations, where it developed many accounting methods and techniques in the field of strategic cost management and strategic management accounting, such as ABC costing, Value chain, Benchmarking, BSC, etc. which aims to assist modern strategic managements in achieving it functions and objectives in the strategic-term. The use of these methods and techniques are no longer limited to industrial organizations but exceeded to all organizations and all kinds and in different sectors, where it became the adoption of strategic tools and ways one of the main characteristics of the modern managements of business organizations in the contemporary world of business.
Since then several attempts have been made to identify a set of tools and techniques that can be classified under the banner of Management Accounting. However, there has not been little agreement within the academic and professional literature on the associated techniques, nor is the term widely used by practicing accountants (Nixon et al., 2011). In such a context, an attempt has been made to review selected literatures for identifying the tools/techniques of management accounting in practice.
Management accounting, or managerial accounting, is the use of accounting techniques for business analysis to support strategy formation, business execution, decision making and risk management. It includes both analyses of financial and non-financial measures. A management accounting tool is a
framework, approach, model, technique or process that enables management accountants to: improve performance; facilitate decision-making; support strategic goals and objectives; and otherwise add value. There is a huge array of practices and tools available, all promising to help define and manage the organization’s strategy, resources, customers and costs; and improve overall performance. In this context, managers can often struggle to evaluate and identify the most suitable tools to support their organization and to implement and manage them effectively.
There are almost an infinite number of tools, methods, techniques, approaches, and other concepts floating around; and management accountants must first own up to their inability to canvas the MA landscape exhaustively. In such a context, Clinton and Merwe (2006) segment the Management Accounting (MA) landscape into three categories such as: (1) comprehensive MA approaches, (2) MA techniques, and (3) management processes.
