Emerging Management Practices

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Cost Accounting Foundations and
Evolutions Kinney, Prather, Raiborn
Chapter 18 Emerging Management Practices
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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

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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

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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

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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

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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

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The Changing Workplace

• Business Process Reengineering
• helps achieve large, quick gains in effectiveness
  or efficiency through redesigning the execution
  of specific business functions

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Business Process Reengineering
Examine 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

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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

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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

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Business Process Reengineering
Aggressive Objectives
Top Management Support
Pilot Project
Involve Customers and Suppliers
Specific Person Responsible
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Downsizing
Any management action that reduces employment
upon restructuring operations in response to
competitive pressures
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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)

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Risks of Downsizing

• Deplete in-house talent pool
• Loss of workforce knowledge
• Loss of organizational memory
• Loss of feeder pools for future top management

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Risks of Downsizing

• Diminished worker morale
• Loss of trust
• Lessened communication
• Fear that sharing information will eliminate jobs

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Risks of Downsizing

• Negative impact on corporate culture
• where lifetime employment was the norm
• where environment was perceived as nurturing

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Monetary Costs of Downsizing

• Restructuring - one-time loss caused by sale of
  unprofitable assets
• Downsizing - severance costs for employee layoffs

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Nonmonetary Costs of Downsizing

• Impact on
• Customer service
• Employee morale and loyalty
• Future growth opportunities

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Workforce Diversity

• Worldwide marketing and manufacturing
• Diverse
• religions
• races
• values
• work habits
• cultures
• political ideologies
• education levels

Accounting provides an international technical la
nguage
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Global Business Challenges

• Currency values
• Labor practices
• Political risks
• Tax rates
• Commercial laws
• Infrastructure (ports, airports, highways)

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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

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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

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Traditional System
A/P
G/L
A/R
HR
Fixed Assets
Pur- chasing
Manu- facturing
Mar- keting
Silos of data that are not connected
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Enterprise Resource Planning
ERP
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ERP Benefits

• Reduced overhead
• Eliminates duplicate keying and reconciliations
• Improved customer service and better quality
• More timely management information
• All information in one database that can be
  queried in real time
• Allows customers and suppliers direct access to
  information in the database

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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

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ERP and the Finance Function

• Help to select and install software
• SAP
• Oracle
• JD Edward

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ERP and the Finance Function

• Analyze the data repository to support management
  decisions
• Drill down from aggregate data to identify
  opportunities to better manage costs
• Data mining use statistical techniques to
  uncover quality problems, study customer
  retention, determine which promotions generate
  the greatest sales impact, and identify cost
  drivers

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ERP and the Finance Function

• Maintain the integrity of the data
• Ensure that the raw data converts into the
  standardized format required for the main
  database
• Integrate external data into the ERP system

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Strategic Alliances

• An agreement, involving two or more firms with
  complementary core competencies, to jointly
  contribute to the supply chain

• Joint ventures
• Equity investments
• Licensing arrangements
• Joint RD arrangements
• Technology swaps
• Exclusive buyer/seller agreements

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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 customer
• Typical strategic alliances
• Exploit partner knowledge
• Have partners with access to different markets
• Allow sharing of risks and rewards

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Forming a Strategic Alliance

• Determine contributions from parent organizations
  (cash, human capital, technology, distribution
  channels, patents, supply contracts)
• Establish a governing board
• Agree to profit and loss sharing
• Align interests of the parent organizations with
  the new entity

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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

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Open-Book Management
Increasing a firms performance by involving all
workers and by ensuring that all workers have
access to the operational and financial
information necessary to achieve performance
improvements
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Open-Book Management

• Causes workers to understand how their actions
  affect costs and revenue
• Employees can adopt or change work practices to
  increase revenues or decrease costs
• Employees understand how their actions affect
  achievement of overall corporate objectives

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Open-Book Management

• 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 companys bottom line

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Common Principles ofOpen-Book Management

• Turn management of the business into a game
  employees can win
• Open the books and share information
• Teach employees to understand financial
  information
• Show employees how their work
  influences financial results
• Link nonfinancial measures to financial
  results

Tim Davis
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Common Principles of Open-Book Management

• Target priority areas and empower employees to
  make improvements
• Review results together and keep employees
  accountable
• Post results and celebrate successes
• Distribute bonus awards
• Share ownership of the company (ESOP)

Tim Davis
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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

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Open-Book ManagementImplementation Challenges

• Overcome history of guarding financial
  information
• Convey information in understandable way
• Teach workers to interpret and use information

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Open-Book ManagementImplementation Challenges

• Develop performance measures that employees
  understand
• Measure what is important
• Integrate program across segments and functional
  areas

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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

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Environmental Management Systems

• End-of-pipe strategy - produce waste and then
  find a way to clean it
• Wastewater cleaning systems
• Smokestack scrubbers

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Environmental Management Systems

• Process improvements
• Recycle wastes internally
• Reduce production of waste
• Generate no waste

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Environmental Management Systems

• Pollution prevention
• Avoid pollution by not producing any pollutants

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Environmental Costs

• Include quality and environmental benefits in
  capital budgeting analyses
• Recognize the costs of pollution control

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Environmental Issues

• What is the relationship between quality costs
  and environmental costs?
• Can an increase in quality reduce environmental
  costs?
• A reduction in scrap and waste
• (quality improvement)
• reduces waste disposal costs

YES
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The Environment and New Product Design

• New product design determines
• Types and quantities of materials produced
• Types and quantities of waste, scrap, and
  by-products produced
• Amount of energy consumed in production process
• Potential for gathering and recycling products
  when they reach obsolescence

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The Environment and Technology Acquisition

• Technology acquisitions affect
• Energy consumption and conservation
• Environmental emissions
• Quantity, types, and characteristics of future
  obsolete equipment (recyclables)
• Rate of defective output produced
• Quantities of scrap, waste, and by-products
  produced
• Nature and extent of support activities necessary
  to keep the technology operating

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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?