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Management Accounting (MA) is a field that combines financial information and managerial aspects to enable internal managers of an organization make management decisions (Drury, 2008). It was introduced to augment cost accounting because scholars argued that the latter overly relied on numbers for decision-making, and it focused on getting the total cost of products only. Nevertheless, according to academicians, Management Accounting did not seem to offset the limitations of cost accounting. For instance, two authors by the name Johnson and Kaplan wrote an article criticizing Management Accounting’s relevance in today’s accounting environment since it was meaningless in product costing, management’s performance evaluation, and in the control process; all of which are meaningful in strategic decision-making (Shah, Malik, & Malik, 2011). They further argued that since Management Accounting information was acquired from the organization’s financial accounting information, it was heavily dependent on the annual, periodical targets as well as the internal accounting systems. Consequently, MA failed to give holistic information that factored other additional factors such as available products, technology, and complex operational processes. Moreover, it failed to integrate these factors in operational processes, yet integrating them would have yielded better results in the modern day highly competitive environment.

More scholars continued to research on Management Accounting and myriads of criticism continued to arise. Some also argued that since the information is based on aggregates, it was potentially useless to managers who needed customized information to meet their specific management needs. In addition, there were growing concerns of window dressing accounting aimed at making financial information look attractive to external users; therefore, the information seemed unreliable for managerial decision-making. More arguments arose on the basis that companies missed spotting opportunities and threats because MA did not give any external information.

With a growing number of discontented scholars, calls for Management Accounting to be replaced by a more suitable form of accounting continued to spread. This led to the development of Strategic Management Accounting (SMA). SMA is an extension of Management Accounting with internal and external focus. This form of accounting relies on both financial information and external information relating to competitors and customers. It is driven by an aim to increase an organization’s competitive advantage through product differentiation and cost reduction in comparison to competitors (Shah, Malik, & Malik, 2011). An illustration of SMA in practice is the case of Tesco, which applies SMA principles through strategic partnerships with construction companies to reduce the cost of constructing its stores and warehouses. The company also constantly compares the prices of its merchandise to those of competitors in a bid to keep its positioning on check. Moreover, it ensures that it promotes customer delight and loyalty by using store cards, which help the store identify individual customer purchase patterns with an aim of meeting individual needs by providing them with information related to products and promotions.

In summary, Shah, Malik, & Malik (2011) summarized the differences between MA and SMA as shown in the table below:

MA

SMA

Historically driven

Prospective

Manufacturing oriented

Competition oriented

Data oriented

Information oriented

Reactive

Proactive through information support

Based on ongoing activities

Based on future possibilities

Found on the basis of conventions

Ignores conventions

Based on a single-entity

Relative

Introspective

Outward looking

Programmed

Unprogrammed

Performance evaluation is based on profit-related measures

Performance evaluation is based on strategic tools such as balanced scorecard

Focuses on existing systems

Not limited by existing systems

 

In Strategic Management Accounting, ‘external factors’ refer to competitors, suppliers, customers, and market. From these definitions, several SMA techniques have been suggested. First, activity-based costing management technique is founded on the activities performed by an organization, which are the ultimate drivers of indirect costs. Second, attribute costing assumes products have different features, and these attributes form the basis for costing. Third, benchmarking involves identifying an industry’s best practices and using this benchmark to evaluate the organization's performance in relation to those of the industry to identify areas that need improvement (Cadez & Guilding, 2007). Fourth, competitive position monitoring is based on competitor information with respect to sales; unit costs; market share, and volume. This information enables a company to assess its position in comparison to its competitors. Fifth, competitor cost assessment, is based on competitors’ cost structures. Sixth, competitor performance appraisal, obtained from public financial statements, and with new developments, it is possible to make comparisons between companies from different countries. Seventh, customer accounting uses customers for accounting analysis, and it entails all the processes that aim at increasing profits or sales that are directly related to relational marketing. The eighth is integrated performance measurement, which comprises financial and non-financial indicators. Other SMA techniques include balanced scorecard; life cycle costing; strategic costing; quality costing; target costing; strategic pricing, and value chain costing (Cinquin & Tenucci, 2006). 

Some scholars have also criticized the adoption of Strategic Management Accounting including Lord who argued, “Strategic management accounting is but a figment of the academic imagination.” In 1996 and 1998, Lord and Dixon respectively used evidence from case studies to contend the application strategic management accounting in corporations (Hoffjan & Wömpene, 2006). In her findings, Lord found that characteristics of strategic management accounting were being used on practice, but he had an issue with the assumption that the information was quantified in accounting terms or collected by management accountants. She further posits that it is the prerogative of the operations department to collect and use competitor and market information. These sentiments were backed by Dixon who argued that collecting and using competitor information in strategic actions does not necessarily apply the formal process of strategic management accounting.

The statement by Lord (1996) forms the basis of this paper, which seeks to evaluate the truth of the statement. She questioned the legitimacy of Strategic Management Accounting citing that the characteristics inherent in SMA can be found in functions in other departments of an organization, without a need for in-depth accounting information. Moreover, it is now over 30 years since the concept of SMA was introduced, but the concept has not been adopted as widely as expected; therefore, it is necessary to review what developments have been made over the 30 years by reviewing literature and conceptual information relating to the concept.

The Development of ‘Strategic Management Accounting’ since 1981

Strategic Management Accounting is the process of analyzing financial and management accounting information about a business, as well as competitors and market data in order to develop and monitor business strategies. Some of the distinct features of SMA include obtaining information and date pertaining to competitors; integrating accounting information in strategic decision-making; using strategic decisions to cut company costs; and attainment of competitive advantage (Collier & Gregory, 1995).

The term SMA is commonly used in New Zealand, UK, and Australia by accounting academics, but the term Strategic Cost Management (SCM) is used in the USA to mean the same as SMA. Consequently, SMA is defined as the integration of financial analysis value analysis, cost driver analysis, and strategic positioning analysis: all of which are concepts derived from a strategic management perspective (Lang%uFB01eld-Smith, 2007). Researchers have posited that SMA and SCM are similar because they both use a strategic perspective in generating, interpreting, and analyzing information from Management Accounting. Additionally, they both use competitors’ activities as a benchmark for evaluating a firm’s performance.

Ken Simmonds developed the concept on Strategic Management Accounting in 1982, when he published an article in Management Accounting, a UK professional magazine, and in his analysis, he supported the adoption of Strategic Management Accounting (Lang%uFB01eld-Smith, 2007). He put emphasis on using information related to trends in volume of sales; real costs; prices; market share; cashflow, and management of resources. Over the years, the subject continued to gain momentum and support from other scholars such as Professor Bromwich, who added a new dimension to the subject in 1994 by proposing the addition of customer information and the idea of using product features to allocate costs. He wrote an influential paper and a book titled ‘Pathways to Progress; on the subject. More studies on this subject have been conducted from case studies, surveys, conceptual investigations, and empirical investigations. 

Bromwich made a significant contribution to the SMA concept through empirical evidence and economic theories, which was a deviation from the theoretical arguments that other scholars provided at the time. Bromwich de%uFB01ned SMA as the process of providing and analyzing financial information about a company’s product markets, the cost structures of competitors, and monitoring a firm and competitor’s strategies over a period. This definition focuses on %uFB01nancial information for comparing a firm’s performance to that of competitors (Lang%uFB01eld-Smith, 2007). He pointed out that Strategic Management Accounting is made useful when the accounting role is reviewed from two perspectives. In the first, the user of SMA should integrate costs into the desired strategy by using strategic cost analysis, and consequently, the costs and the strategy will be aligned. The second perspective is to determine competitors’ cost structure, and ensure to monitor changes in the structure over time. He goes ahead to note that it may be difficult to determine accurate information about competitors’ cost structure; therefore, determining a fairly, general way is equally acceptable (Inman, 1999). Bromwich also proposed two distinct approaches to integrating costs and strategies to achieve SMA. The first approach involves using costing product features as per the company’s products, and the second approach is costing the functions of the value chain process that management perceives as adding value to customers.  

There was inestimable literature surrounding SMA in the 1990s with consultants, academicians, and practitioners advocated for strategic accounting. John Shank, an American highlighted that SCM (which is similar to SMA in US) tools were widely used in conducting pilot studies in the US, and the deductions were used as case studies in educational institutions. In addition, professional journals highlighted SCM in their periodic articles, while global consulting companies started using practices derived from SCM to the extent of specializing in designing and implementing particular SCM techniques. Unfortunately, all this effort was not enough to persuade business schools, and publishers of key Management Accounting textbooks to incorporate SCM as a field of study or practice in the US. This trend elicited interest from scholars especially upon observing that accounting departments were not actively involved in the implementation of SCM in leading organizations. Robin Cooper, a scholar, noted that the reason why internal accounting departments were not involved in implementing SCM was because accountants find it difficult to learn and adopt new practices outside the accounting profession. 

In 1991, a researcher called Günther conducted an only survey in German companies to test the effectiveness of Strategic Management Accounting. He was testing the correlation between SMA’s intensity and organizational performance. They find that using above-average systems for strategic management accounting has a direct, positive impact on the performance of an organization (Hoffjan & Wömpene, 2006).

In 1992, Shank and Govindarajan introduced the concept of strategic cost management into the term SMA. They introduced activity-based costing, and used value chain analysis to evaluate strategic cost drivers (Hoffjan & Wömpene, 2006).

In 2005, Shank wrote another article titled the “unravelling of the pieces”, which documented the troubles implementation of SCM was likely to face from the observations he made in his case studies. He noted that organizations that had conducted pilot studies on SCM had not undertaken full implementation of the process because few had been successful. In the US, this period marked a challenging time for SCM because corporations and educational institutions did not find it necessary to teach or practice SCM techniques (Lang%uFB01eld-Smith, 2007). This shift in focus led to the collapse of large corporations like Enron that were highly publicized. These corporate scandals once gain revived interest in Strategic Management Accounting in the US. However, Shank notes that even though accountants have the capability to learn and make a smooth transition to SCM, the environment may not be favourable for such as transition because of the stringent measures that have been enforced to curb corporate scandals; such measures include the Sarbanes-Oxley and pressure from the capital markets requiring corporations to report quarterly financial results.

Bromwich and a colleague, Bhimani, decided to evaluate the findings from numerous practice surveys between the 1980s and 1994 in the US and reviewed the UK. They made similar deductions as those made by Shank, noting that SMA techniques had low adoption levels despite their usefulness, and there were intentions to adopt such techniques in the future, with activity-based costing being the most popular SMA technique. Like Shank, they established that most SMA techniques implementation did not go beyond the pilot study since very few organizations had implemented the practice. However, they continued hoping that SMA techniques would be adopted widely with time. 

Robin Roslender is another renowned scholar as far as SMA development is concerned. He published multiple papers arguing SMA developments from a sociological perspective.  In 1996, he conducted a survey on some influential accountants on their perception of SMA techniques. He deduced that a majority of accountants were pessimistic about the potential contributions of SMA techniques to the accounting practice.  He went further to categorize critiques of SMA into three groups namely: those who use a Foucauldian framework, autocritique, and a Marxian approach; those who advocated for accounting in strategic positioning; and those who responded to autocritique papers. He observed that critical accounting commentaries on threats of adopting SMA were heavier than were those based on its opportunities.  Roslender goes ahead to highlight that SMA techniques have enormous potential for opportunities, citing that they were an ‘empowerment option’ that ought to be explored further. 

In 2002, Roslender and a co-author, Hart, used the findings from Roslender to formulate a framework that integrated marketing and management accounting to augment the potential of SMA techniques. They studied the efforts to integrate strategy and management accounting and those seeking to integrate marketing and management accounting, only to find that the former had several shortcomings. So they decided to re-evaluate the link between marketing and management accounting, and from their deductions, they grouped SMA research contributions into three groups. The first one is quantitative research, which provides a link between management control systems and strategy, and Simons falls here. Simons is the author of research papers that focus on contingency relationships, and how strategy and management accounting can be customized in order to back a company’s strategy.  Roslender and Hart go ahead to criticize this approach citing that it only serves to view management accounting from a strategic point.

The second group is one of commentators and authors who focus on balanced scorecard literature to examine SMA. They support this approach because it aims at promoting strategy and vision, as opposed to strategy and control, as the key drivers of effective competition. However, they point out that this approach puts strategy at a higher order than management accounting. Finally, the third group is related to research work surrounding SCM, such as that provided by Govindarajan and Shank. They argue that SCM proves there is an explicit link between strategic management and management accounting because it applies tools used in the former including value chain analysis, cost driver analysis, and strategic positioning analysis. Roslender and Hart posit that the relationship between marketing and management accounting is a strong groundwork for SMA. They add that using the link between marketing and management accounting would provide the badly needed link between management accounting and strategy because there are synergetic effects between functions. Therefore, they suggested a shift from discipline-focused practices to inter-functional coordination and probably to what they call ‘strategic marketing management accounting’ (Lang%uFB01eld-Smith, 2007).

Investigate the extent to which there is agreement on what the term may actually mean and what it encompasses

There is a raging controversy surrounding the meaning of the term ‘Strategic Management Accounting’ as pointed out by Tomkins and Carr in their special issue in 1996. They noted that even after using the term for well over fifteen years, scholars were not in agreement on what it actually means, probably explaining why the concept is not widely used in practice (Roslender & Hart, 2010). Regardless of lack of generally accepted conceptual frameworks on SMA, there are three themes that can be employed in addressing SMA, which are a partial theme, normative theme, and a positive theme. The partial theme comprises of work from the pioneers of the SMA concept, whose work focused on specific SMA techniques. Additionally, this work also uses case studies to justify SMA techniques. The normative theme was argued from broad conceptual models that used rationale, as opposed to empiricism. Finally, the positive theme evaluates managerial accounting principles and practices, followed by an examination of the degree of strategic orientation in the practice (Cadez & Guilding, 2007).

It is not clear why the technique is not widely used amongst practitioners or why it is not commonly referred to by researchers. As noted earlier, SMA techniques such as activity-based costing and balanced scorecard, which had gained popularity in yesteryears, are slowly losing their popularity for reasons that have not been established. Largefield (2007) suggested that the SMA concept is no longer in its early days of introduction; therefore, one cannot argue that the slow adoption is as a result of the concept being relatively new.  She goes ahead to highlight that it is improbable that additional literature and research will push the adoption of SMA to higher levels. These observations have introduced an element of doubt in what the term Strategic Management Accounting actually means. 

Lang%uFB01eld-Smith (2007) noted that the UK and the US use the use of different terms to refer to a convergence of strategic management ideas and those of management accounting. This is an indicator that there is a difference in the opinion in what the term covers and what it means. As mentioned earlier, the US academics use the word Strategic Cost Management (SCM) and the UK, Australia, and New Zealand are fond of the term Strategic Management Accounting (SMA). Moreover, Roslender and Hart as cited by Lang%uFB01eld-Smith (2007) argue that the term SMA is relevant, but only if viewed from a marketing perspective in order to add weight to the term. They even suggest that the convergence of ideas from marketing, strategic management, and management accounting should be referred to as ‘strategic marketing management accounting’.

Moreover, a scholar named Simons’, whose work has been reviewed in detail by Lang%uFB01eld-Smith (2007), worked strategy theory and management accounting concepts, albeit without reference to Michael Porter’s Value Chain Model. On the other hand, Shank and Govindarajan’s concepts of strategic cost management heavily rely on Porter’s work. The balanced scorecard, which had been hyped as strategic development tool, also proved to be problematic in explaining SMA techniques. Roslender and Hart (2010) go ahead to give their opinion about using strategic cost management and balanced scorecard perspectives to explain SMA. They cite that these tools do not provide a reliable perspective because they apply limited strategic thinking, which is probably why adoption of SMA techniques did not thrive for long despite its promising prospects in the early days.   

Evidently, even though there are conflicting perspectives of what SMA encompasses, relevant literature over the thirty-year period the concept has existed have highlighted three consistent ideas. The first concept is that all the scholars have continued to integrate ideas from strategic management and those from management accounting. This means that in order to attain effective, strategic planning, management accountants would have to accept ideas and theories that strategy literature puts forth because there is sufficient literature proving the convergence of ideas from the two disciplines. Notably, is the Porter’s Value Chain concept, which forms a significant foundation for Strategic Management Accounting. Roslender and Hart (2010) also note that leading practitioners accepted the technique and the term in the 1980s for fear of being phased out if they did opposed it.

Second, scholars agree that SMA takes into account a variety of latest managerial accounting techniques that have a strategic orientation. For example, Langfield-Smith suggested activity-based accounting as an example of SMA, even though this proposition has been rejected by many. However, suggestions by Guilding, Craven and Tayles have been accepted by a majority, who say that their idea has a strategic orientation (Roslender & Hart, 2010). Unfortunately, the term ‘strategic orientation’ has not been widely researched on in SMA; thus, explaining why there is no agreeable definition of the term.

Third, the term Strategic Management Accounting was coined by Simmonds to explain an accounting approach to management; Bromwich later borrowed the term. There is a variation in the way Simmonds and Bromwich applied the term. Simmonds used the term to include competitor-focused tools such as strategic pricing, competitive position monitoring, and competitor cost assessment, whereas Bromwich adopted Simmonds approach and added other strategic information relating to customers, markets, and products.

Management Accounting is a field of management that uses financial information to make management decisions. However, there was increasing pressure for managers to incorporate strategic management in decision-making to avoid missing opportunities or failing to detect threats. This shift in focus marked the development of Strategic Management Accounting (SMA), which is a concept that combines ideas from strategic management and managerial accounting. Literature shows that normally, strategic management accounting techniques development and use relates to identifying strategic issues from the external environment, and using the available, external information to make strategic decisions. Furthermore, information from the external environment may be surrounding key competitors, which can help an organization attain competitive advantage; business partners’ information is derived from value chain analysis; and the market of the products. SMA techniques include balanced scorecard; life cycle costing; strategic costing; quality costing; competitor cost assessment; competitive position monitoring; target costing; benchmarking; attribute costing; customer performance appraisal derived from financial statements; integrated performance measurement; activity-based costing; customer accounting; strategic pricing, and value chain costing. It was introduced by Simmonds in 1982, though his definition focused on using competitors’ information for SMA. A few years later, Bromwich built up on Simmond’s definition by adding the use of customer information to the concept.

The subject continued to receive significant interest from other scholars, and Shank researched on a similar topic in the USA, though he referred to it as Strategic Cost Management (SCM). It is worth noting that the term SMA was widely used in Australia, UK, and New Zealand, while SCM was used in the US. Shank and Bromwich conducted research in US and UK respectively, and they found that SMA or SCM was widely publicized in professional journals and accounting textbooks, unfortunately, there was little practical use of the techniques in real life practice. They highlighted that most corporations that had attempted to use the techniques had only conducted pilot studies, but never went ahead to implement the entire concept, a factor that contributed to low adoption rate of the techniques.

Unfortunately, there was little evidence in favour of using SMA techniques, as most of the information in favour of the same was based on theories. In contrast, there was no doubt that large companies were using ideas related to SMA techniques, but Lord and Dixon used evidence from case studies to contend that the ideas were being applied from a strategic management accounting perspective. Lord contended the assumption that the information was quantified in accounting terms or collected by management accountants, suggesting that the information might as well have been collected by the operations department. These sentiments were backed by Dixon who argued that collecting and using competitor information in strategic actions does not necessarily apply the formal process of strategic management accounting. These findings made SMA adoption somehow shaky especially after Lord posited that “Strategic management accounting is but a figment of the academic imagination.”

It has been over thirty years since Simmonds introduced the strategic management accounting concept, yet there has been low levels of adoption considering the immense potential the concept had projected in its earlier days. Literature suggests that there is no agreeable definition of the term and what it constitutes among scholars, a key drawback that might have contributed to the low reception levels. For instance, scholars in the US and the UK use different terms to refer to a similar concept; SCM and SMA are preferred terms in the US and the UK respectively. Another bone of contention is an argument by Roslender and Hart, suggest that there is no direct link between strategy and management accounting, instead; SMA can be explained by converging ideas from marketing and managerial accounting. The two authors even suggest the inclusion of the term marketing to strategic management accounting.  

In conclusion, based on the write-up I have provided, I wish to support Lord’s argument that “Strategic management accounting is but a figment of the academic imagination.” I say this because, corporations are formulating new strategies and making strategic decisions each day, and most of these decisions are pegged on financial and non-financial information. The process does not commonly apply strategic management accounting techniques, but it bears similarities with the SMA concept, something that I must acknowledge. I reject the idea that SMA proponents tried to project, indicating that the information applied in SMA techniques was predominantly collected and used by management accountants, yet in the modern world, we see marketing departments being actively involved in obtaining non-financial information for strategic decision-making. In addition, if the SMA concept was not a conjured up idea in the minds of academics, it would have meaningful usability in the practical world, supported by high adoption rates. 

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