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Why management accounting needs to change

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22nd Sep 2010
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In this extract from her Executive Field Guide, “Becoming a Best of Breed Organisation”, Leslie L Kossoff says it’s time to overhaul the management accounting agenda.

Smart, successful companies are filled with smart, successful people. And one of the smartest things anyone in any organisation needs to do to create success is understand how the numbers work.

Organisations operate based on metrics. The old adage, “You manage what you measure” is absolutely true. But the reason that what is measured is managed is because that’s what’s visible.

That’s why the skills that come with a background in management accounting are so important when applied throughout the enterprise. Especially now.

If everyone in every area knew and understood what it costs to run their area – in effect, if they were thinking as mini-CFOs or business owners responsible for making sure that every penny in every currency is wisely spent – they’d look at what they do and how they do it far differently than they do now.

They’d be finding profit and market opportunities. Seeing how staff could be better utilised or training targeted for better results. Creating innovations in how they do business and what the business offers.

They’d be changing their worlds – which means they’d be helping you and the rest of the executives change the world in which your organisation resides.

And it’s not as if those skills aren’t already resident in every employee to a greater or lesser extent. They are. Every person in the organisation – before they walk in the door and immediately after they walk out – is dealing with his or her own finances. What to invest. What to spend. What to buy. What to sell. How to pay the least taxes – and still be legal. How to send their kids to college. Whether they can pay for their next family vacation.

The predisposition to think in terms of finance is part of everyone’s life. It has to be. It’s a money-based, global economy.

The trick is to engage all those minds in thinking about the finances of the organisation.

And that takes it back to you.

It doesn’t matter in which function you reside. You have the ability to bring a level of understanding – and, by extension, commitment and improvement – to the organisation simply based on your ability to communicate what they need to know.

Because the other outcome is that the more information you share, the more they will feel part of the enterprise and in control of their own destinies.

You will be empowering them to do more and to be more. And that makes you more.

Strategy, Execution and Finance
At its simplest, money is fuel. It propels the organisation toward its goals.

But to make sure that the money is being used in the best possible ways requires that finance, budget and economic thinking is strategically applied from the inception of strategy development through the innovations the organisation pursues to the last details of execution leading to exquisite customer experience.

Management accounting, as a result, has to be involved at every step in the organisation’s progress toward its goals.

For you, at the senior level, it means that you can leave no stone unturned in the ways that you work with your colleagues to ensure that they have the information they need. But to give them that information, you need to extend yourself to understand their operations and requirements.

Remember, too, that you have knowledge that they don’t have. You see things differently. And that’s where your even greater value comes in.

Because you can see the things that others can’t, you are in a position to add depth and breadth to the strategic planning process. You can identify markets and market opportunities which you can help grow. If you’re global, you can bring an international understanding to the table which can be factored into strategic decisions – whether for manufacturing products, service provision or customer access.

If you’re local, whether you’re manufacturing or service, you can bring a broader supply chain understanding using finance as one of the determinants of how best to make your supply chain work. And, if you’re part of someone else’s supply chain, you’ll know how to add your perspective so that you can negotiate the best deals possible.

It is also your expertise that will expand external relationships. That, too, creates opportunities.

And, as a result of all that, you expand the vision of the enterprise so that it not only sees what you see – but also understands even better how your function and your people will help the larger organisation get there.

Then, by virtue of their expertise, your people become the organisation’s best resource and first line of defense in figuring out why things are the way they are and how to make them better.

Finance and management accounting thinking drives the organisation to achieve its vision – profitably and quickly – only for that vision to be exceeded again and again over time.

Then, when people talk about you having a background in management accounting, it will be with the respect the specialty deserves. And they’ll be able to do so because they will see you clearly – as the visionary, ethical executive and leader you are.

Copyright © 2010 Leslie L Kossoff

About the author
Executive advisor Leslie Kossoff is the author of a series of Executive Field Guides. This article is an extract from The Management Accounting Special Edition Executive Field Guide “Becoming a Best of Breed Organisation” published in association with CIMA.

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