STRATEGIC MANAGEMENT ACCOUNTING

Strategic Management Accounting

Summary

This paper addresses the various aspects of strategic management accounting from the perspective of a Finance Director, who has recently been appointed at this post and assigned certain tasks to maximize profits for the corporation as a whole. It is supposed that the company is a large multinational corporation which operates in nearly twenty countries across the globe. The corporation has an unusually diverse product, service, and business portfolio due to which some of its business units often have to buy from one another. As a person responsible for the financial decisions of the company, the finance director has two job tasks to be performed in the current scenario. First, he has to assess the advantages and disadvantages of making individual managers either based on the approach of 1) Cost Centre, 2) Profit Centre, or 3) Investment Centre. Secondly, he has to critically evaluate the suitability of three approaches to costing products and services of the company i.e. Marginal or Variable Costing, Full or Absorption Costing, and Activity Based Costing (ABC) for a variety of decision-making situations. The structure of this paper will be followed by an introduction, a discussion about these two tasks, and conclusive connotation at the end of the paper.

Strategic Management Accounting

Introduction

Every organization needs some fundamental and essential departments to carry out its functions in a proper manner. Usually, there are four main functional areas in an organization, which include marketing, human resource, operations and finance. These departments work as a whole and are interrelated with each other. Each of these departments has its own plans, procedures, strategies, and goals and interacts with each other to maintain the integrity with the overall organizational mission and goals. Strategic management is involved in the decision-making process of each of these departments and reflects the organizational intent and direction. It is concerned with four main functional areas i.e. marketing, operations management, finance, and human resource management. These four functional areas are integrated and are responsible for working together so as to realize the overall objectives of the organization. Thinking for the future is the core element of strategic management. As such, a strong manager is not required to think operationally, rather strategically. The process of strategic management involves future planning, which is indispensable for the successful development and maintenance of any organization (Coburn and Preston, 1997, 41-43).

The process of strategic management consist of various activities to be performed in a sequential approach that are of prime magnitude for any organization in the course of accomplishing the organizational goals, carrying out necessary tasks pertaining to those goals, and formulating the required tactics, strategies, plans and procedures that pave the way for overall organizational success. The primary components of strategic management comprises outlining definite missions and objectives, and carrying out adequate and authentic situation analysis; an examination of company's strengths and weaknesses (internal environment), opportunities and threats (external environment), an environmental analysis consisting of the socio-political, psychographic, demographic, industrial, and monetary examination of the target market (Atkinson, Kaplan and ...