Nanyang Technological University

Nanyang Business School

Division of Financial and Management Accounting

AB212 Management Accounting, Semester 2, 1998/99

Essay

Student Details

Declaration of Originality

We, Cheong Yew Meng Wyman and Cheng Siew Kim declare that:

• this essay is our own work
• all information derived from the published or unpublished work of others has been acknowledged in the text of the essay and a list of references, which is given in the References in Section 7
• all information derived from the Web has been acknowledged by an appropriate hyperlink
• we have read and understood the School of Accountancy and Business's Policy on Academic Dishonesty at http://nbs1.ntu.edu.sg/ab212/essay/academic_dishonesty.htm
• we are aware of the content of the University's Statutes as they relate to cheating.

Signed:

Cheong Yew Meng Wyman, 14 March 1999

Cheng Siew Kim, 14 March 1999

1. Introduction

2. Changes in Business Operations

3. Implications on the Roles of Management Accountants

4. Challenges Faced By Management Accountants

5. Skills and Knowledge Required to Remain Relevant

6. Conclusion

7. References

1. Introduction

2. Changes in Business Operations

As we step into the next millennium, increased global competition will continue as before. Corporations of various sizes are inevitably brought together in the global market. This is especially evident in the current Asian economic crisis that is threatening the western market as well. To survive in a more globally competitive environment, companies have to brave themselves for radical changes in their business operations. Some undergoing changes will be discussed in this section.

Better management of partnerships with customers

In the next millennium, managing customers will become one of the top priorities of most organizations. They will emerge to become more proactive in handling their customers and in building stronger relationship with their best ones, with the aim of securing their trust and loyalty. The only way organizations can achieve these objectives is to offer products and services that are highly valued by them, and not only meet but to exceed their expectations. But, why is there an increased need to better manage customers?

Firstly, the increasing competitive pressure from the global market has made organizations review their present way of attending to their customers. Even organizations that have been successful in securing a large market share and have earned the trust and loyalty of their customers cannot afford to rest on their laurels. This is due to the presence of intense competition from both the foreign and the domestic markets, which simply do not allow room for complacency. Thus, organizations will have to continuously improve the quality of their products and services.

Secondly, the increasing monetary cost involved in gathering relevant and accurate customer information has made organizations greater appreciate the value of customer relationship, and has led them wanting to maintain or even develop stronger customer relationship. This is because organizations have long been aware of the value of customer information in identifying their most valuable prospects and the opportunities for new products, in order to be one step ahead of competitors or just to be on par with them. Building better customer relationship begins with knowing exactly what customers desire and value, and delivering the products and services to best meet their needs.

However, two emerging trends have led to difficulties in gaining access to customers' information. One of the trends that have evolved over the past few years is the growing resentment of customers towards divulging personal information to corporations (Hagel and Rayport, 1997). Consumers have increasingly realized the amount of personal information they have divulged to the companies through their daily activities, from simply filling up a feedback form in a restaurant to arranging financial matters with the bank. What is causing the frustration in customers is that they feel they are getting nothing in return for providing the information, which are certainly valuable to serve corporate interests. Because of this, consumers are often protesting against the invasion of their privacy through the press and the government. They were outraged by the fact their information was used solely for the purpose of the companies to the detriment of consumers' rights. This was evident in Microsoft in 1995 when the public sparked a protest after users found out that its Registration Wizard automatically collected information about the major software products running on their systems without their knowledge and permission when users registered online for the first time. Microsoft immediately removed the practice upon the protest.

However, the issue involved is not solely about the invasion of privacy of consumers. In fact, research findings have shown that most people consider their privacy in an abstract sense and have shown that they are willing to divulge personal information if there are valued benefits in return. An example is the success of the frequent-flier program where passengers willingly revealed their flight histories to airlines in return for some tangible benefits such as discounted air fares. This changing attitude of customers towards revealing personal information has some implications on the way companies collect information. They now have to offer other products or services that are valuable in the eyes of customers in return for their information. Firms would have to incur additional costs on freebies, dining and purchasing vouchers and so on, in return for the personal information.

Another trend that has led to difficulties in gaining access to customers' information is the emergence of new technology enabling consumers to challenge organization for the ownership of personal information (Hagel and Rayport, 1997) because consumers can now gain more control over it. An example of such technology is the "cookie" found in Netscape, an Internet browser. The "cookie" which captures information about the activities of the Internet users, can now be turned off on the option of the consumer. Thus organizations are deprived of a source of information about consumers as they could not gain access to the "cookie" that has recorded information like the web sites users visited, the amounts spent, the items purchased and so on.

Moreover, the current retail technology such as the typical point-of-sale scanners and credit cards could not adequately collect information about customers from the transactions they made. This is because the current retail technology only allows companies to obtain information on customers' purchases on one shopping trip and they are unable to connect such information with subsequent purchases made by the same customer on his subsequent shopping trips. As the development in the retail technology is lagging behind the development of the new technology which enables consumers to control the disclosure of their personal information, organizations which need information about consumers will have to buy them from infomediaries. These infomediaries have emerged to help people negotiate the best deals with organizations for information about them and their transactions. This translates into higher cost for organizations in obtaining information about customers. Hence, organizations will have to be more proactive in gaining the trust and loyalty of their customers and to build strong relationship with them. This is so that their customers will be willing to release their personal data and they can avoid paying high fees to those infomediaris to obtain the needed information.

In view of the difficulties and problems discussed above, organizations will be changing their way of operating business to place higher emphasis on their customers and will strive to gain their trust and loyalty, and to build stronger relationship with them. This will then enable the organization to compete more aggressively in facing the trends of globalization.

Greater use of technology

The evolution of information technology has drastically change the internal operations of organizations as well as the way organizations transact with their customers and suppliers. We will now look at the emergence of third-wave technology such as electronic commerce (E-commerce) and the electronic data interchange (EDI) system and how these technologies will have an effect on organizations' interactions with their suppliers and customers as well as on their internal operations.

Electronic Commerce - Changing the interface between consumers and organizations

E-Commerce, which refers to the purchase and sale of products and services over the World Wide Web (WWW), is changing the way organizations transact with their customers (Primoff, 1998). Geographical distances will no longer be a hindrance to organizations which want to reach potential customers located at the far end of the globe. The growth in the amount of transactions occurring with use of the E-commerce technology is happening at an alarming rate. For example, the amount of transactions for airline tickets and travel services has increased from $276 million to $827 million within one year (1996-1997). Many organizations, small or large, have realized that E-commerce will be essential for survival in the near future. Several reasons account for the increasing use of E-commerce.

Firstly, the competitive pressures from globalization have forced organizations to search for new avenues to sell their products and services. The emergence of E-commerce opens up new ways for organizations of all sizes to reach their potential niche of customers. For example, Amazon Book & Music (www.amazon.com) has capitalized on this new technology and has established its position well as a major retailer of books on the Internet.

Secondly, the ever increasing number of people going on-line has become a potential group of customers to whom organizations can promote and sell their products. Organizations certainly cannot underestimate the potential of business from this group of Internet users. With the ongoing development and continual improvement of the E-commerce infrastructure, especially in the areas of security, transactions will be carried with greater security, convenience and speed over the Internet. With the enhanced and improved features of the E-commerce infrastructure, users will be more willing to make their purchases over the Internet.

Electronic Data Interchange (EDI) - Changing the interface between suppliers and companies

The use of EDI networks changes the way companies transact with their suppliers. EDI, which is defined as an on-line communication network that links the computer systems of a vendor and its customers, enables purchases of and payments for supplies to be made electronically. This has greatly reduced the delivery and paper-processing time and as well as labour costs associated with the traditional amount of paper administration (Tsay, 1993).

In an EDI network, a retailer will be able to collaborate with its suppliers by making his inventory file available to its suppliers on-line. Suppliers can then track the flow of inventory in real time and replenish the dwindling inventory more efficiently and at even lower costs.

Another area where EDI networks are changing the way organizations operate is the management of materials inventory through the just-in-time (JIT) system. EDI serves as the network essential for the successful implementation of JIT delivery as it speeds up the communication between the manufacturer and its suppliers. The manufacturer can effectively reduce the size of material inventory by coordinating with the suppliers to deliver the required materials to the production floor where and when it is needed. Organizations will be able to save on warehousing costs and costs of maintaining the inventory.

Increased globalization, again is the force that drives organizations to establish partnerships with their suppliers in managing their inventories. By working closely with their suppliers through the JIT delivery system, manufacturers can avoid the costs of storing materials that are not used.

Retailers will be able to meet the demands of customers as the EDI network enables stocks of goods to be replenish regularly, hence eliminating the possibility of running out of stock. The establishment of EDI networks between the companies and their carriers allows the tracking of the location of the deliveries and helps to ensure that goods are delivered on time, thus improving customer satisfaction. Only when organizations are more efficient in their operations and are keeping their customers satisfied, will they be able stay competitive into the next millennium.

EDI - Improving cash and credit management

EDI systems also change the way organizations manage their costs. With EDI networks, organizations are able obtain the most up-to-date cash information. They can better manage the cash flow by maintaining sufficient cash to meet the demands of day-to-day operations as well as making decisions on future investments and loans.

Furthermore, organizations can identify the potential insolvent clients more effectively with the use of EDI network, as it can capture the most up-to-date transactions and accounts of receivables. Credit managers will be then be able take the necessary actions in dealing with these clients.

As we can see, the evolution of technologies in Electronic Commerce and Electronic Data Interchange has certainly changed the way businesses operate. Organizations must keep themselves updated with the latest development of the E-commerce and EDI networks, as well as the information technology, in order to seize the opportunities to reap the potential benefits. Only by constantly reviewing existing technology and incorporating new technology into their business operations, will organizations be able to survive the competition in the next millennium.

Increasing Use of Cost Management Techniques

Another change in business operations of the near future would be the growing emphasis on managing organizational costs and hence, the increasing use of cost management tools to track, monitor and manage costs in a proactive way (Cooper, 1996a). Moreover, the way in which cost management tools are used will also be changed. Three driving factors have led to these changes; they are the continued globalization of corporations, the advancement of technology and the failure of western companies to use cost management tools effectively.

Firstly, with increased global competition, effective cost management is critical to organizations operating in today’s business environment where organizations compete in not only producing goods valued by customers, but also to do so efficiently. Organizations that want to have an edge over their competitors, based solely on developing innovative products without being proactive in reducing their costs, may find their success short-lived. Thus, firms need to ensure that business activities are adding more value to the final products offered to consumers and at the same time paying close attention to costs.

Secondly, the advancement of technology has led to the development of some of the current cost management tools that enable firms to better manage costs. Some of the cost management techniques used by western companies are the Activity-based costing (ABC) and treatment protocols. Japanese companies on the other hand, manage costs using techniques such as target costing, kaizen costing and harnessing the entrepreneurial spirit within the organisation. It is the advancement in technology that has made the use of such sophisticated cost management techniques possible.

Thirdly, the past failures of western organizations in using activity-based costing technique to manage costs have forced organizations to re-examine how they have used this cost management tool in their business. And they are likely to change the way they have utilized ABC had it been applied incorrectly. The reason why ABC has failed in western organizations is that the ABC system is often viewed as an initiative of the Finance and Accounting department that further serves the purposes of budgeting and preparation of financial statements. Employees in the other functions like production and engineering and even the Finance department itself consider ABC as an accounting tool rather than a cost management technique. As there was the lack of commitment among employees from the various functions of the organization and the failure of the Finance department to see the value of using ABC system to manage costs and had taken "ownership" of it, ABC system failed in these western companies.

Because of the driving factors mentioned above, western companies are likely to change their attitudes towards the implementation of ABC and adopt new cost management techniques that are currently used by the Japanese companies. One of the new cost management techniques used by Japanese companies is the target costing, which constantly assesses ways to improve the functionality of a product without increasing costs and searches for ways to reduce cost without compromising the functionality of products. Another technique is known as Kaizen costing, which is about the continuous effort to pursue cost objectives and the use of value analysis to achieve the cost targets. Another new technique growing in popularity is known as the "entrepreneurial " approach, which divides the organization into small units called profit centres where each unit, there is pressure to reduce cost and increase revenue.

Hence, by the 21st century, the growing recognition of the importance of effective cost management will lead to increasing use of cost management tools. The main drivers of this change are the competition that comes with globalization and the evolution of technology that has led to the emergence of these cost management tools. As for western companies, their past failures in using ABC will force them to look at the practices of their Japanese counterparts who are known for their success in cost management. Thus, there will be an increasing use of the cost management techniques as organizations realize how Japanese companies have used them to achieve cost reduction advantageously.

Greater integration and national responsiveness

As globalization takes place, organizations respond to the distinctive tastes and preferences of the different markets by decentralizing the operations to the sub-units and granting them substantial amount of leeway for them to manage their local affairs independently (Dent, 1996). However, organizations require a higher level of integration to gain scale economies due to the pressures of global competition exerting on them to reduce cost. Therefore, organizations will be changing the way they operate to incorporate greater integration among subsidiaries, while achieving national responsiveness.

Some factors that drive these changes have been identified. Firstly, the changing political pressures, economic and social environment and the variations across countries made it necessary to decentralize business operations (Dent, 1996). Secondly, the need to achieve global efficiency and economies of scales led to higher level of integration among the local subsidiaries. Each of the subsidiaries is identified to have its unique source of expertise and ideas that could be exploited by other parts of the multinational corporation. Greater integration would be seen in the sharing of information, resources, expertise and human resources.

Another trend which is likely to continue is that multi-corporations are likely to aggressively pursue innovation. However, new ideas will not only come from a particular unit of the company; every part of the multi-corporation has the potential of coming up with innovations. This potential arises from the difference in the local market conditions such as the presence of active competitors which forces the particular subsidiary to innovate in order to maintain their domestic market share. Ownership of innovations is no longer held by the unit that developed them, but is held by the company as a whole.

Hence, the global organizations of the near future would be characterized by project teams, with lateral communication among units. Furthermore, the center of operations is likely to create conditions for integration among subsidiaries and also to facilitate lateral communications.

Structural and functional changes in the Finance and Accounting Department

The Finance and Accounting Department will undergo fundamental changes in the next millennium. Firstly, the Finance department of the future is likely to be much smaller in size than the present one because much of the recording of business transactions and book-keeping can be done with the use of computers, thus eliminating the need of the many book-keeping personnel. Secondly, there are certainly fewer management accountants and those who remain in the company would find themselves handling responsibilities that are different from their present tasks. They are likely to find themselves holding positions that are among the upper ranks of the organisational hierarchy. Their responsibilities would shift from that of record-keeping to that making strategic decisions with other professionals from other functions.

Increasing use of teams in business management

More and more organizations have chosen to use teams to manage business their operations (Anastas, 1997). These teams usually comprise of employees from different functions. Well-managed teams have proven to be very effective in resolving operational problems. The employees from the various departments share their expertise with one another and offer multiple perspectives on the problems. Organizations will therefore increasing adopt the use of teams in their business management as they have come to realize the benefits associated with it.

Growing diversity of workforce

Another change is the growing diversity of employees and the greater appreciation for people with highly specialised and valued expertise (Anastas, 1997). This growing emphasis leads to another trend where outsourcing for the required expertise and skills are likely to be the guiding mode of employment (Pierse, 1998). More people especially those with highly specialised and valued skills will be sub-contracting their services to organisations. Thus the composition of employees will change in the years to come, with more employees hired on a contractual basis instead of full-time employment.

Sub-contracting of business activities

Besides sub-contracting for human resources, companies may also sub-contract some aspects of activities to other organisations that are more specialised and efficient in the respective areas (Pierse, 1998). These activities can range from maintenance, research & development, professional services to packaging, transport and cleaning services.

The driving forces of the above these changes are again the increased competition that comes with globalization and the growth of information technology. The need for companies to operate more efficiently in order to survive will lead to changes in the ways companies manage their human resources, of the Finance and Accounting department as well the general workforce of the organization. Furthermore, the growth of information technology has resulted in the automation of accounting systems, thus easing the workload of management accountants from having to do traditional tasks like record-keeping. They are now able to make use of the information processed by the management accounting systems to make decisions.

3. Implications on the roles of Management Accountants

The changes discussed earlier will have an impact on the functions of management accounting. The implications of the changes on the roles of management accountants will be discussed in this section.

The growing importance of cost management in organisations has several implications on the practice of management accounting, hence also the roles of management accountants. Firstly, the traditional role of management accountants as collectors of cost data is decentralized to other employees (Cooper, 1996b). The need for management accounting information is essential for the effective implementation of cost management techniques such as activity-based costing, Kaizen costing and Target costing as mentioned earlier in the essay. To collect relevant and accurate cost information, other organisation members especially those at the factory floor will be involved in the process, which means that management accountants are no longer solely responsible. This is because employees at the factory floor are familiar with the operations and are able to collect timely cost information and take the necessary actions. Examples of such changes were seen at Sumitomo, Shionogi and in activity-based costing management applications.

Secondly, management accountants are less likely to dominate the entire cost management process of tracking and monitoring costs. This is not to say that management accounting information is no longer needed in cost management. In fact, management accounting information is still essential but inputs from other functions are also needed for the successful implementation of the cost management tools (Cooper, 1996b). This is evident in Nissan where the accountants are involved at the end of the target costing process by ensuring that products at the beginning of production meet the assumptions underlying the targeted costs. The role of management accountants ends here as other departments such as marketing, production, product engineering will be roped in to take charge of the remaining part of the target costing process. Management accountants are likely to play a smaller role rather than dominating the entire cost management process as members from other functions bring their expertise into the process.

Thirdly, the increasing importance of cost management on the role of management accountants is that they must acquire the necessary skills in designing and implementing new cost management systems (Cooper, 1996b). Research has shown that the current management accountants lack the knowledge and skills in systems design. Most of them see their responsibilities as doing pure accounting work and are familiar only with simple financial software such as Microsoft Excel. They do not keep astride with the latest development in technology and have avoided using the complex and sophisticated technologies which could be used to enhance the cost management systems.

Next, the emergence of new technology which leads to the automation of management accounting systems increases the ease of access to financial information. This reduces the need for management accountants to prepare financial information, which means that they are losing their relevance in the organisation. The role of management accountants as record-keepers of financial data and keeping with numbers (Anastas, 1997) will be replaced by the emerging technology such as EDI which is capable of capturing all the relevant financial information with accuracy.

The next implication that comes with the increasing use of team in managing business operations is that management accountants could no longer see their roles as merely accountants. Presently, many of the them are unable to see the overall "picture" in how they could fit into cross-functional teams, collaborating with those from other departments to resolve operational problems.

4. Challenges Faced By Management Accountants

The changes in business operations discussed in the earlier section presented some challenges to management accountants as they move into the next millennium. The challenges they face are centralized around issues on the future roles and functions they will have to play and serve. Can a management accountant maintain his status quo instead of facing up to the challenges? If he really does so, he will risk losing relevance in the dynamic climax, where organizations are and will be operating in, today and tomorrow.

A Broader and More Active Role

The first challenge calls for management accountants to assume a broader and more active role as information managers (Doolin, Fisher, McCutcheon and Nelson 1994), as opposed to their traditional role as "scorekeepers". Management accountants responsible for merely recording historical financial data have now almost become a thing of the past as the job could be better done with greater accuracy and speed with the effective use of technology. Management accountants will therefore have to go beyond the role of simply "scorekeeping".

To be effective information managers, management accountants have to harness the powers of technology to bring froth valuable managerial accounting information, in both the forms of financial and non-financial.

As organizations steer towards globalization, information regarding the product-line, regional markets, competitors' resources and so on will be needed to help organizations make decisions in developing products or services and extending their reach to more new markets. With the need to provide such information, which is the notion behind strategic management accounting (Roslender, Hart and Ghosh, 1998), management accountants are required to have a strategic perspective of the business operations. Especially in organizations where operations are carried out in many locations in the world, there is an even greater need to balance the multiple perspectives (Dent 1996) because biases in management attention and influence are present in some organizations' systems and administrative structures. Management accountants would have to overcome the biases favouring particular regions, products or functions in order to provide the unbiased information needed for use in analyses and decision-making.

In addition to this market-oriented information, management accountants also have to provide the relevant non-financial information regarding the internal operations of the organization for the its decision-making processes and formulation of strategies. Some examples of such internal non-financial information which the management of an organization would be interested include the productivity level of the plant, the cycle time, the number of defects in a batch, the quality of the products manufactured and so on. Such information would have to be analyzed together with the information obtained about the market and competition, in order to make well-informed decisions about the business directions organizations would want to take.

In order for management accountants to provide useful and relevant information, they will have to take on a more active role by working closely with the frontline personnel and getting to know the operations even better and the type of information required to help achieve the organization's objective in effective cost management. Cooper has noted that Hewlett Packard’s Roseville Network Division has adopted a "private cost system" where the finance department should give whatever information the designers needed and not the reverse (Cooper, 1996b).

Incidental to the new role of a management accountant as an information manager, he will also function as a trainer, educating individuals in the organization on the appropriate use of the information systems and imparting knowledge and skills of management accounting techniques.

In this new era of globalization, organizations place greater emphasis on cost management to stay competitive. This objective cannot be achieved unless as many individuals in the organization as possible have access to management accounting information and are knowledgeable in using it to the advantage of the organizations. This calls for the decentralization of management accounting function (Cooper, 1996b) , with the users themselves practising the management accounting principles and generating the reports they require. In doing so, the organization can implement their cost management strategies more efficiently and effectively.

With this decentralization of the management accounting function, individuals in the organization will need to be adequately trained to handle such functions. Therefore, it requires the management accountants who are competent in this area to provide training to these individuals in the organizations so that they could become proficient in the management accounting techniques. The challenge posed to the management accountants would be this new instructional function they will have to serve in their organizations.

As A Business Partner, Change Agent and More

As management accountants move into the next millennium, their main role will become less definitive and their traditional role of recording historical financial data will be supplanted by many other new roles. The resultant management accountant of the future are expected to play the roles of a business partner to the organization, its change agent and much more (Zarowin, 1997). They are challenged to leave their "back-office" job to join the top management in making and taking responsibility for all the decisions that push their business forward.

With the changes in business operations, brought about by the advancement in information technology, relieving the management accountants from their traditional role of "scorekeeping", management accountants are expected to play the role of a business partner to an organization. In playing this role, the management accountant has to coordinate the complexities of organizations resulted from globalization. Because business operations span over several parts of the world, the coordination of the flows of materials, resources and knowledge as well as promoting beneficial interactions across the organizational units (Dent 1996) become problematic. Management accountants, as business partners, have to face the challenge of the massive task in such coordination and promoting the use of a more effective communication channel for beneficial interactions between the organizational units in the world.

With organizations having activities carried out in several parts of the world, management accountants, being business partners to their organizations, are faced with the challenge of assuming the function of allocating resources among the various organizational units spread in the many geographical regions. Since the organization depends on its units to market and distribute its products worldwide, it is imperative that resource allocation must be performed prudently with the overarching goals of maximising the value of the organization. However, as the units are much dispersed in a number of locations, the way resources are allocated are often too fragmented, for example, market by market, project by project (Dent 1996). Jeremy Dent suggested that management accountants would have to incorporate into their financial analysis the value of intangible assets, which are the brands and distribution channels, the investment competencies and the organization's market share, when allocating resources. It is only when organization allocate resources in a more integrated way can it confront the attack by competitors.

As business partners to the organizations, management accountants are also expected to provide constructive ideas and insightful advice regarding the business operations to guide management decisions and creating the strategies required to enhance the value of the organization. To be able to perform his functions in the strategic management process, the management accountant has to first understand the organization's strategic strengths and weaknesses as well as capabilities and resources of the organization's competitors. He will be required to identify trends, formulate strategies to counteract the competitors' attack, and provide forecasts advantageous to the creation of value to the organization. Because of this, the management accountant needs to be always at the forefront of developments, appreciating what the emerging trends are and to take on a more creative and dynamic approach to analyze the organization's competitors (Dent 1996). Base on the analyses of organization's strengths and weaknesses identified and the capabilities and resources of the competitors, the management accountant is required to be resourceful in seeking ways to improve the organization's competitive edge. Therefore, management accountants are no longer "bean counters" or merely information providers, but have evolved to become discriminating information analysts and important decision-makers, ranking alongside the top management of the organization.

As organizations tend toward globalization, with greater emphasis placed on cost management in order to stay lean and competitive, management accountants are responsible for developing suitable cost systems and implementing them. For many organizations, survival is dependent upon the management accountants' abilities to formulate sophisticated cost management systems with intense downward pressures on all elements of costs across the entire value chain, from the beginning process of research and development through to customer service (Cooper 1996a). If an organization fails to reduce costs as quickly as its competitors, it will find its position threatened and profits eroded. Here, the management accountant is called upon to be a designer of an organization's cost management system, which is also in line with the role of a business partner who takes the responsibilities of keeping the organization in business and propelling it forward.

Besides being a business partner to the organization, the management accountant is also required to take up the challenge of being its change agent. With organizations operating in an environment characterized by uncertainties and intense competition, there is a need for the management accountants, to act in the capacity of change agents, to transform the organization to one which can respond to changes more quickly and more adaptable to future trends. From the above discussion (on cost management systems), with the intense competition brought about by globalization of organizations, the challenge is upon the management accountants to successfully manage the organization's transition to a new cost management system and achieving the organization's objective of cost reduction in its value chain.

Where organizations have their activities dispersed throughout the world, there is a tendency for the organizational structure to be fragmented as each of the organizational units has differentiated roles and responsibilities (Dent, 1996). Such situations, which have been termed as centrifugal forces, are impediments to an organization's implementation of its strategies, because of the subordination of its central objectives to the individual interests of the organizational units. These fragmented organizational units will be like, according to Sunzi's Art of War, swords without edges and are therefore useless in the organization's battle against its competitors. Management accountants in these organizations will be faced with the challenges of integrating these differentials by overcoming with centripetal forces. Jeremy Dent has identified that a clarity of strategic intent (an overriding goal for the organization), teamwork and a new performance measures and reward structures base on global effort are three potent centripetal forces that can be used to overcome the centrifugal forces. Management accountants would therefore have to address these agendas in their roles as business partners to their organizations.

In this section, we have addressed the challenges management accountants will face in the next millennium. From the discussions, we realized the reasons why management accountants cannot maintain their status quo. In order to remain relevant to the business operations of the organizations, management accountants will have to make significant changes to the roles they play, by adopting a broader and a more active role and doubling up as business partners to the their organizations as well as change agents. In such a dynamic environment in which businesses operate, management accountants will inevitably face even more challenges in the years ahead.

5. Skills and Knowledge Required to Remain Relevant

Due to the changes occurring in business operations, which have significantly changed the way management accountants operate within the organizations, management accountants will have to better prepare themselves to face the new challenges in moving into the next millennium. They will have to acquire the relevant skills and knowledge to stay competitive as purely technical accounting competencies are no longer sufficient.

Commercial Business Skills

As organizations are facing greater competition from globalization, management accountants who are expected to play the role of a business partner to the organization, will have to be equipped with commercial business skills (Basser, 1998). It requires the management accountants to be aware of emerging trends, and be able to perform a SWOT analysis on the environment facing the organization. The management accountants must be able to skillfully identify the strengths and weaknesses that are present in the organization as well as extracting the threats the organization will be vulnerable to and the opportunities the organization can seize to build up its competitive advantage. In performing such analyses of the environment, the management accountants would need to be equipped with strong analytical and interpretive skills in order to be exact in their investigation.

Commercial business skills also encompass a comprehensive knowledge of business, especially in the areas where the organization operates. It will be beneficial for management accountants' participation in business matters if they have a background knowledge in science and technology, engineering, politics, world history and cultures because organizations operate in an environment constantly surrounded by these issues. They are also critical as companies are no longer looking for many subject-matter experts (Head, 1998). Moreover, management accountants are expected to have knowledge in a broad spectrum of cross-functional disciplines, for example in environmental management, intellectual capital management and quality management (Sharma, 1998) which are of growing importance in recent years. With knowledge in these areas, the management accountants would be able to engage in constructive debates when addressing the feasibility of new projects which organizations may be venturing into. The management accountant would also be able to critically examine and evaluate business performance and to provide insightful advice to the top management.

Lateral Vision

Increasingly, management accountants will be expected to provide solutions to the many business problems of the organization. They will be required to have lateral vision so as to be able to think across a range of disciplines, visualize problems in different perspectives and offer creative solutions (Alexander, 1998). Management accountants with such vision will be valuable to the organization as they can "think outside the box" and foresee business problems before they happen. Such ability is necessary in whatever new roles the management accountant will take up as they move into the next millennium.

Communication Skills

Another important must-have for the management accountants will be communication skills, since they will no longer be merely dealing with numerals or figures but more with people as their roles as traditional "scorekeepers" continue to change with the changes in business operations of organizations. They will be required to communicate with people of different cultures and ethnic groups in an even wider range of ways made possible by advancement in technology (Alexander, 1998), for example, electronic-mailing, video-conferencing and teleconferencing via the internet. Communication skills have taken on a greater level of importance in global organizations as management accountants need to effectively deliver instructions and messages across employees of a greater diversity in culture and races.

Communication skills are definitely essential to management accountants with the additional consultative or educational role they assume in the training of employees in the appropriate use of information systems and the application of management accounting techniques. They will have to use communication skills effectively in their delivery of training programs so that the trainees would be able to gain proficiency in the techniques taught and be able to apply them in their work in the organization.

Persuasion & Facilitation Skills

Since management accountants are taking up the roles of a change agent as they move into the next millennium, they will have to develop strong persuasion and facilitation skills (Zarowin, 1997). They need to be able to create and deliver presentations and influence others to do what they would not have done otherwise, in other words, to convince others to change. With organizations operating in an environment characterized by uncertainties and intense competition, the ability of the organization to transform into one which can respond to changes and adapt to future trends quickly depends heavily on such skills of the management accountant to lead and manage the transition.

E-commerce & EDI Competence

As organizations are making greater use of the advancement in technology in their operation of business, management accountants would definitely have to gain competence in such areas, especially in Electronic Commerce (E-commerce) and Electronic Data Interchange (EDI). It is necessary for the management accountants to gain a functional understanding of these technologies, for example on how information is controlled, secured and protected (Primoff, 1998). As E-commerce and EDI are expected to grow as predicted, with large and small organization embracing these technologies in the years to come, it is essential for management accountants to be equipped with knowledge in these areas in order to remain relevant within the organization.

Financial Information System Design Skills

Management accountants are also expected to develop financial information system design skills (Barbera, 1996) as they need to support the design of an information system to serve the needs of the organization. They need to design information systems that are capable of capturing financial data and process the data into information useful for decision-making. To design good information systems, management accountants must have the necessary financial information system design skills in order to competently understand the latest development in information technology and identify the benefits the organization can reap.

6. Conclusion

The increased global competition and evolution of the information technology have changed the way companies operate. For the last decade, most companies have realized the importance of customer-orientation and placing customers' satisfaction as one of their top priorities. In the next century, companies will continue to develop products and services to satisfy their customers. However they will adopt a more active approach to secure customers' trust and loyalty, that is to better manage their partnerships with them. To survive the global competition, companies will also be restructuring the functions of various units and better manage human talents to make the best use of resources and stay profitable. Moreover, the drive to be efficient will lead to greater use of cost management tools to manage operational costs. The emergence of technologies such as electronic commerce (E-commerce) and electronic data interchange (EDI) will continually change the way organizations interact with their customers and suppliers and help businesses to become more efficient in running internal operations.

Changes in business operations have significant impact on the way management accountants operate within the organization. The increasing use of cost management techniques implies that management accountants are playing a smaller role in managing costs (managers of other functions in the organization play their part too!), not because management accounting information is losing relevance in cost management but rather a cooperative effort is needed for the success of cost management. Management accountants will no longer adopt a domineering role as other departments will be roped in to participate in the process. Furthermore, the role of management accountants in recording financial data will become redundant with the emergence of new technologies. The evolving team-based organization also implies that management accountants have to see beyond their roles as merely accountants, and collaborating with others to achieve organizational goals.

As changes in the way organizations operate their business take place continually, management accountants are inevitably posed with challenges which they must embrace to remain relevant within their organizations. They will no longer be merely involved in keeping scores. They are expected to take up the challenge of providing new or 'strategic' information by being actively involved in the use of Information Technology (IT) and the design and implementation of information systems, to provide organizational users with valuable information perennially for making important decisions. Also, they have to assume a broader role in managing the information systems that provide the organization with the needed information. Besides, they are also required to serve as a trainer to organizational users in ensuring that these users are proficient in the management accounting techniques to handle the decentralized management accounting functions. Management accountants are expected to extend their role to include those of a business partner of an organization. They will be required to be part of an organization's value-added team by involving themselves in the overall planning, formulating, implementing, monitoring and controlling processes. In executing their duties in this area, they are further challenged by the problems and issues that are constantly surrounding the top management.

Management accountants have to prepare themselves ready for the next millennium in order to remain relevant within the organization. Firstly, they must be equipped with sound commercial business skills, so that they are able to analyze business performance critically and provide competent information inputs to top management for the decision-making process. Lateral vision can help management accountants consider problems from different perspectives and come out with creative solutions. As management accountants have to communicate with people of all levels and of all races and cultural groups (as a result of globalization of firms), communication skills are important to them. Communication skills are also useful to the management accountants as they take up instructional roles in coaching employees. Persuasion and facilitation skills are also required of a management accountant as he is to convince employees of the changes needed in the organization, in his capacity as a change agent. Competence E-commerce and EDI are also required of a management accountants as organizations incorporate such technologies into their business operations. Finally, as management accountants are also required to support the designing of information systems to serve the needs of the organization, financial systems design skills are needed.

 

7. References