Importance of Modern Accounting in the Current Business Scenario

Discuss about the importance of advanced management accounting techniques in the current business environment.

In the recent times, the modern business environment has evolved and changed drastically in short period of time. The business environment is now known as modern business environment as it is it characterized by advanced technology, globalization, intense competition, social responsibility. Though the basic methods or procedures have changed but the purpose of accounting still remains the same.  The owner uses various accounting techniques for measuring the financial performance of the business and making appropriate decisions (Nørreklit & Mitchell, 2014). Modern accounting is the vital aspect in the current business scenario. Management accounting is related with information present within the organizationto help people in improving the efficiency and effectiveness of the present business operations and making better decisions. It is completely different from the previous traditional financial accounting.

Moreover, management accounting is the study of accounting related to management functions. This advanced accounting functions shows how they can be modified to suit the managerial activity framework. The vital function related to accounting of modern management is the redesigning of the entire accounting system to serve the firm’s operational needs. It provides definite accounting information that may be used as a basis for the management action that can be used in present and future (Tan, Zhang &Khodaverdi, 2017). moreover, the financial data are highly devised as well as systematically development so this becomes a unique tool for executing the management decisions.

The Strategic Performance Management system (SPMS) is a process, which relates the efficiency of the employees with theperformance of overall organizational to increase the productivity for the management compensation system (Tizroo et al., 2017). This ensures that the employees attain their goals that have been set by the company and on the other hand, the organization achieves their objective that has been set as their strategic plan.  Improvement in the organizational or individual performance is incomplete until the management getsadequate feedback of the performance. This provides the ultimate result of the task provided to the employee or the firm. Performance measures helps in creating link between the individual own behavior and the objectives of the organization (Cao et al., 2015. Moreover, for the organization, performance measurement acts as a link between the organizational goals and decisions. It is important to examine the existing condition of the surrounding and anynegative consequences if present  should be analyzed before adopting performance measures.

Strategic Performance Management System

The performance measures for the organization shall generally be classified into two major types as the ones relating tofirm’s overall output or outcomes like financial performance and competitiveness. On the other hand, those focusing on result determinants, the inputs like, flexibility, quality, innovation and resource utilization (Jali, Abas& Ariffin, 2017).

• Goals which are related to organizational priorities.
• Systems that are outcome and output oriented.
• Team approach for performance management.
• Communication plan, and
• Information system supporting monitoring and evaluation.

The strategic performance measurement system would help in assisting the supermarket by developing competitive strategies by the following ways:

Performance planning: in this stage, the indicators for success are determined. The success indicators are generally the measures indicating the performance targets (Chiarini & Vagnoni, 2015). It serves as base in individual and office’s employee preparation for the performance rating and contract form.

Performance monitoring: the performance of the employees as wellas the overall organization is monitored at different levels. Evaluating and monitoring mechanisms enables to track that appropriate and timely steps is taken and the goals and objectives are further evaluated in an efficient manner.

Performance evaluation: this help in assessing both the individual and organizational employees performance level that is based on both the organizational and individual’s employee performance (Buckingham & Goodall, 2015). the assessment mainly focuses on the competency related gaps, strengths and the opportunities for addressing the career paths, gaps and alternatives.

Performance rewarding:The results for the performance assessment and evaluation serves as major inputs for the organizational HR plan that includes identification for provision of interventions and rewards conferment.

According to Turco (2014), the balance scorecard helps in identifying and improving the different internal function for business and its resulting external outcomes. This is a performance metric, which is applied in the management practices to measure and helps in providing feedback to the company. It is used to obtain efficient organizational behaviors in the organization by analyzing the business processes, growth, finance and customers. This approach is used in attaining measurements, objectives, goals and initiatives, which results in the major primary function of the organization.  a company uses balance scorecard technique to develop strategic initiatives and the objectives of the strategy.  The organization uses balanced scorecard helps in implementing the strategy mapping to obtain the value added in the organization (Melnyk et al., 2014).  This system helps in providing an inclusive view of firm to the managers by ascertaining the measures that helps in evaluating performance. This BSC approach is used in the following ways:

• To bring the organizational strategy to life: the company can apply this strategy that would help in making major decisions.
• To communicate with the strategies present in the organization.
• Balance scorecard is further used to evaluate the strategic performance.

The balanced scorecard techniques help in evaluating the performance from four major perspectives that are as follows:

Balanced Scorecard Approach in Strategic Management

Financial analysis: this includes the measures like thereturn on investment, operating income and sales growth.

Customer analysis: this includes the satisfaction level and retention of customers in the supermarket.

Internal analysis: this shows how the business processes are related with the organizations strategic goals.

Learning and growth analysis:  this helps in assessing the employee retention and satisfaction besides information system performance (Jain & Gautam, 2016).

These major four perspectives are hierarchical and interdependent in form. The growth of the organization is ascertained through the continuous innovation and learning that further accelerates the internal processes refinement.  The BSC approach facilitates improvement of internal processes, which provides in raising the operating outcome that further leads to an increase in  financial performance as well as maximum customer satisfaction.

As per Shannak (2015), balance scorecard approach has been redefined to be applied in the strategic management in the following ways:

• Translating and clarifying the vision into strategy: this approach helps in identifying the organizational strategic objectives and further retaining them in a strategic map.
• Communicating the various strategic objectives and measuring as well as linking it to the operations: This involves establishing an efficient communication with the organizational stakeholders to initiate dialogues for refine processes and promoting feedback.
• Setting targets and planning to achieve strategic initiatives: this includes identifying the targets for each of the objectives that is to be measured by the Key performance indicators (Treven, 2015). The individual targets that are set for obtaining the strategic objectives of the organization.
• Enhancing learning and strategic feedback: this generally involves the learning techniques from performance information. Further the findings obtained from balance scorecard are used to refine the decision-making.

The complete contribution of manager is difficult to measure due to the three vital reasons. Firstly, the actions and strategies that is implemented by manager is difficult to observe directly, therefore the manager cannot compensate the inputs directly into the organization. Secondly, the major consequences related to manager action are difficult to observe in major parts because the impacts of these actions are beyond the manager’s time. Finally, the unavoidable circumstance often have an impact on the results that should be evaluated, as per Patrick, Blessing & Gloria (2015). It becomes quiet difficult to measure the contribution of the managersso various performance measures techniques are utilized to ascertain the firm’s performance. An efficientmeasures would reflect the organization or firm’s value that includes both externalities related to the business units and major dynamic effect of the existing actions in long-run.

There are various types of performance measures, which a company uses. The Balanced scorecard approach is one of them. Generally, the balanced scorecard consists of different perspectives that include two types of measures as the financial performance measures and non-financial measures. The financial performance measures are classified as the performance measure that is related to accounting. These are measures such as earning per share, total shareholders return or sales growth and firms profit.  The major limitation of using this this financial performance measures is that it can lead to accrual manipulation. On the other hand non- financial performance measures helps in evaluating the non-financial determinants of the firm. The instances of non-financial measures include the manpower development, level of customer satisfactions, product quality, innovation measure, market share productivity, and efficiency and employee satisfaction. The non-financial performance measures have more important advantages than the financial performance measures (Jamei, 2016).

Types of Performance Measures

 Strategic performance measurement system (SPMS) should beimplemented in various forms in the supermarket with the following characteristics:

• This includes the financial measures, which focuses on short term effect on manager related decisions involving matters like income growth, cash flows as well as assets utilization.
• This supplement financial measures with the organization non-financial measures indicating operational achievement to drive the financial performance in future.
• They design to fulfill the various purposes leading from cost determination to value creation.

In the study, according to Roussas & McCaskill (2015), the influence on the outcomes of the SPMS from the above characteristics is evaluated. The SPMS is expected to directly or indirectly determine the information quality, and the intensity to which the balance scorecard is adopted.  These resulted in contributing for the increased performance of the organization through their impact on practices of human resources and through improved business results.

Use of financial measures:financial measures of the organizational performance are important for the head managers in providing short-term feedback  to the outcomes of past initiatives that aims in increasing the value of the shareholders. According to  the authors, Singh & Sohani(2014), through BSC framework the measures help in addressing the important question like, how to look at the shareholders on being successful. In the diverse set of companies this measure is generally the most popular. This involves measures for output like revenue and growth, for measuring profitability like the earnings before interest and taxes EBIT, earnings per share or EPS, gross margin for the comprehensive measures of profit through asset utilization like economic value added, return on investment that includes the cash flows as the popular liquidity measures.

Use of non-financial measures: the performance measures that are non- financial in nature are required to improve the various limitations that are inherent within the financial measures . The short-term partiality that makes the  senior managers  to cut down the expenses for employee’s training on research and development for achieving the profitability targets. The performance measures of customer satisfaction helps in promoting long term focus by providing the strategic priorities details at all levels for the managers that is based on the factors which they can control. This helps in driving future performance. The non-financial measures of the supermarket are shown in the three perspectives of the BSC frameworks that include the customer perspectives thatare how the supermarket achieves their vision, by looking for their customers. The internal perspectives are to satisfy their customers and the processes adopted by the organization through which it can be evaluated. Finally the learning and growth perspectives, ascertains how the supermarket can achieve their vision and furthermore, how the supermarkets learn and improve in future (Wahid et al., 2017). 

Non-financial performance measures are often utilized for the firm’s performance and productivity evaluation. The non-financial measures help in reducing the risks through its costless performance measures techniques.  The non-financial measures of performance includes the quality of product, rate of customer satisfaction as well as employee turnover are relevant more in situations, where market- based performances measures showing the firm overall value is not included. Usually, the non-financial measures facilitate no intrinsic value to their director. According to Schwieger (2015), the non-financial measures are the leading indicator for financial results in future. The leading indicators are necessary for managerial compensation and performance measurement . The current managerial actions in the organization generally influence the financial return in long-term but it is not reflected in the accounting measures.

Implementing SPMS in Supermarkets

Through SPMS implementation, several desirable outcomes for the supermarket can be evaluated, like the information quality, system effectiveness and the intensity of Balance Scorecard.

• Information quality:

The information should be well-defined and relative importance or usefulness is attributed by the users. Information quality is positively related with the success of the information system.  In most of the measures for the performance, the quality is proved to be much lower than the significance of the measures (Tizroo et al., 2017).

• Effectiveness:

SPMS effectiveness is linked with the information quality as higher is the quality of data, more is theeffectiveness of system. This includes the increase utilization of information of data, level of satisfactionof the user and their impact on the supermarkets as well as their employees. In the performance measurement method, the BSC system is the most effective when the worker are motivated and could control and influence the performance measures and they can further earn various recognition.

• Degree of BSC adoption:

The organization has measured the accounting based business performance, shareholders value, investments and accounting based performance of the business (Tan, Zhang&Khodaverdi, 2017).  Through the combination of process and customer measures that is still the key performance indicators. The intensity of BSC adoption is defined to the extent in which SPMS captures their cause and effect relation from the different sources of value calculation.

The effect of SPMS system has not only influence the business performance but also the cause and effect relationship. The overall performance of the organization is improved through cause-and-effect relationship. This can be evaluated through two ways:

Impact on human resources:Strategic performance management system impacts the human resource of the supermarket chains through different ways, like, organizational structure, leadership and control practices. The major focus is given on the HR initiatives to make sure that the organization possesses all the required skills to implement the vital strategies like, training, recruitment and turnover. The SPMS requires organizational structures as well as control practice by developing new planning and assigning new responsibilities.

Impact on business result: The SPMS effect on the supermarkets efficiency can be reflected by the variations in organizational process is through product and service innovation, research and development, process improvement. Customer value and financial results, like productivity and revenue growth that culminate in re-evaluation of the business strategy. According toNørreklit & Mitchell (2014), the value creation process in the organization by adopting BSC that is useful in evaluating the overall performance of the organization.

Use of Financial and Non-Financial Measures in Performance Evaluation

Conclusion:

Therefore it can be concluded that SPMS is gaining popularity in the organization over the few decades. They are helpful in providing the manager with the various financial and non-financial measures that covers various perspectives and providing ways of executing the strategy to various coherent set of the performance measures. BSC method is known as the best practice in theorganizational world. This approach is beneficial for the management more than the cost management techniques. SPMS implementation has a very crucial impact on the business performance of the organization.In the medium size industry of supermarket , the SPMS implementation would help in evaluating both the information and accounting system which as result influences SPMS outcomes and thus affecting the organizational performance. The owner or director of the organization uses non-financial data and accounting based for management compensation and performance evaluation. Moreover, BSC adoption helps in evaluating the performance effects through multidimensional approach by ascertaining the impact on human resources and business performance of the supermarket chain by ascertaining both the financial as well as operational research.

References

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