This chapter is aimed at solving some ambiguities and overcoming misunderstandings pertaining to the roles and duties of a management accountant . The utmost mistake consists of collapsing the management accounting function to budgeting and cost accounting as though they were bean counters, devoted to calculating costs and quantities and preparing various schedules and forms of income statements.
Although this role does exist and is part of a management accountant ’s work, it is less and less central. In fact, since the 80s, the management accountant has increasingly become a business partner acting like an internal consultant and advising other managers on financial and operational matters (Adams, 2004; Baxter & Chua, 2006; Chotiyanon & Joannidès de Lautour, 2018; Hopper, 1980; Jeacle, 2008; Lambert & Pezet, 2011; Ramirez, 2009).
This new central role played by management accountants does not appear in the same way everywhere but is characterised by contingency factors. Outwith these management accountants’ role is not uniform but varied, revealing mostly three figures. All this implies specific skillsets and career paths for management accountants.
1 Role Contingency Factors
Assumedly, the role of a management accountant consists of ensuring that operations are aligned with organisational strategy and can be put in numbers that can be managed and followed (Kaplan & Norton, 2008; Simons, 2005, 2010). Even this is multiple, the actual role depending on numerous contingency factors: organisation type, position within the organisation and hierarchic ranking.
1.1 Organisation Type
Given that not all organisations are confronted with the same strategic and operational issues and do not face the same challenges, their management accountants shall be assigned different duties.
1.1.1 Manufacturing Company
This section develops the case of a manufacturing company as certainly the best-known context in which a management accountant operates. The general situation, taught in most managerial accounting courses and books, is presented first. This is then followed by a discussion of the impact each tier of strategy has on the work of a manufacturing accountant ’s work.
The General Situation
In such a company, the strategic issue comprises managing the following:
- Raw materials that are to be transformed or assembled;
- The manufacturing process;
- The end product .
In manufacturing companies , quantities of raw materials and end products are central to management accounting. Associated with this issue is that of cost control:
- Cost of materials;
- Labour costs;
- Overhead costs.
Therefore, it is central that management accountants operating manufacturing companies have an accurate view of costs and quantities and assess their evolution over time as well as across branches (e.g. factories). This leads indeed management accountants to focus on internal financial reporting and CVP analyses.
Generic Strategies
Even within a manufacturing company , roles can vary, depending on the generic strategy adopted. That is, cost domination , product differentiation or a bundle of both shall affect strategic priorities and therefore a management accountant ’s work.
Cost Domination
A cost domination strategy applies to manufacturing companies producing and commercialising a generic product with substitutes on the market . Cost domination then applies to manufacturing companies operating on a market with numerous competitors, none of them being particularly known as a brand. As a consequence, a competitive advantage can be gained from selling at lower price than their competitors would. In this situation, traditional cost accounting is management accountants’ main occupation.
Case n°1. ST Microelectronics
Manufacturing Chips at the Lowest Cost
ST Microelectronics produces chips utilised in any electronic products, such as mobile phones, computers hi-fi but also in vehicles (car GPS, aircraft entertainment, etc.) The company is confronted with international competition , many substitutes existing on the market , since the end customer does not even know the components assembled in the end product .
Given the pressure by client companies , ST Microelectronics can only sell its chips if at the lowest possible price. This results in management accountants placing a particular emphasis on the management of all sorts of costs and focusing on producing periodical schedules of costs.
As the main components of chips are various metals, management accountants are very attentive to the variation of these metals’ prices on the markets. Part of their role consists of suggesting alternative suppliers or materials to meet the final selling price, set by client companies . Below is a management accountant ’s job description:
- follow up contracts with suppliers;
- follow up contracts with clients;
- follow up raw materials’ rates on the market ;
- prepare P&L reports.
Product Differentiation
A product differentiation strategy applies to a manufacturing company when its product is semi-generic and it can differentiate itself from others on the market . It is then purchased, not necessarily because of a low price but because of its intrinsic characteristics that are different from those of other products. Such is the case of manufacturing companies operating on a market where clients expect rare or relatively exclusive products, not necessarily a generic item.
Thence, a management accountant ’s work consists of ensuring that the manufacturing process allows for this differentiation on the market .
Position on the Market
Depending on company positioning on the market , a management accountant ’s role shall vary. When the company is setting of its own product characteristics and price, management accountants do not place emphasis on the same items as in a company where prices and costs are imposed from the market . Thence, management accountants have different roles if they work for an incumbent company, a challenger company or a following company.
Incumbent
The incumbent is the leader on its market . When it is a manufacturing company , massive investments in equipment, procedures or research and development have already been incurred. Hence, this company leads the market by imposing its own standards that other manufacturers endeavour to mimic.
In the twenty-first century, being an incumbent tends to be associated with patents and intellectual property protection. The central focus is to remain in the position of being the incumbent on the market , which implies controlling technology, patents and procedures, as well as ensuring new product development. Hence, other...