Cost Accounting

Foundations and Evolutions

Kinney, Prather, Raiborn

Chapter 18
Emerging Management Practices
 Learning Objectives (1 of 3)
• Explain how business process reengineering
affects the way that firms execute processes
• Describe the competitive forces that encour
age downsizing and restructuring
• Explain why operations are becoming more
diverse
 Learning Objectives (2 of 3)
• Describe how diverse operations affect the a
ccounting system
• Describe the purpose of enterprise resource
planning (ERP) systems and explain the ben
efits of adopting an ERP.
• Describe strategic alliances and the different
forms they take
 Learning Objectives (3 of 3)
• Explain why firms engage in strategic allian
ces
• Describe open-book management and how i
t requires changes in accounting methods an
d practices
• List three generic approaches used to contro
l environmental costs
 Managing Change
• Recognize the importance of organization
al culture
• Adopt only those innovations that support
current strategies
• Do not try to implement innovations duri
ng downsizing
• Dedicate as much time to managing the h
uman 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 repor
ts 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 Reengineering
Examine processes to identify and then elimi
nate, reduce, or replace functions and proce
sses that add little customer value to product
s 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 • Enabled by

– radical change – advanced technolog
– employee layoffs y
– outsourcing – pursuit of increased
– technology acquisiti quality
ons – increase in price co
mpetition due to glo
balization
 Business Process Reengineering

• Define objectives of the project

Creativity
• Identify processes to reengineer
• Determine how to measure success
• Identify technology levers (innovation, incr
eased quality, increased output, decreased c
osts)
• Develop a prototype of the reengineered pro
cess and then refine it
 Downsizing
• Reduces costs and improves profits in conju
nction with substantial investments in advan
ced technology
• Changes mix of inputs used to produce outp
uts
• Increases emphasis on technology-based con
version 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 turnov
er
– heterogeneous groups are more creative
– diverse employee pool yields more management ta
lent
– 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 t
hrough production and delivery to the suppl
ier
 Enterprise Resource Planning

• Financial professionals
– Help to select and install ERP software
– Analyze the data repository to support ma
nagement decisions
– Maintain the integrity of the data
 Strategic Alliances
An agreement, involving two or more firms w
ith complementary core competencies, to joi
ntly contribute to the supply chain
• Joint ventures
• Equity investments
• Licensing arrangements
• Joint R&D arrangements
• Technology swaps
• Exclusive buyer/seller agreements
 Strategic Alliances
Output 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 custo
mer
• 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 p
rofessionals
– Assess risk
– Develop strategies for parent company manage
ment
– Design the financial structure
– Develop management control systems
– Install accounting and other information system
s
 Open-Book Management
Increasing a firm’s performance by invol
ving all workers and by ensuring that al
l workers have access to the operational
and financial information necessary to
achieve performance improvements
 Open-Book Management
• Disclose financial information to all employ
ees
• Train employees to interpret and use financi
al information
• Empower employees to make decisions
• Tie a portion of employee pay to Financial
the company’s bottom line Results
 Open-Book Management
• Open-Book Management works best in the f
ollowing types of firms
– Small size
– Decentralized management
– History of employee empowerment
– Trust between employees and management
Financial
Results
 Environmental Issues
• Measure business performance with regard t
o environmental issues and management of e
nvironmental 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 af

fect the way that firms execute processes?
• What are the benefits of adopting an enterpr
ise resource planning system?
• Why do firms form strategic alliances?