Management Accounting Innovation is one of the core themes driving modern organizations since these innovations lead to improvements in the organization. There are different techniques which are used for management accounting innovations. These techniques include; life cycle costing, activity based costing, throughput accounting, lean accounting, resource consumption accounting, balanced scorecard and German costing method of GPK. All these techniques have been developed for use in management accounting innovations. Among them, the mostly used is activity based costing (ABC) and balanced scorecard (BSC). According to different researchers, the use of these two techniques in combination with other innovations can be very beneficial to an organization.
Different organizations have reacted differently to innovations. Some have adopted them; others are in the process of adopting while others are still researching on the benefits which are brought about by the innovations. All these organizations have been found to have a common characteristic that they are large and adopting innovations requires a careful plan. In modern organizations, activity based costing helps in recognizing that it is important to avoid production disruptions which much more than only reducing the costs of the raw materials. This can be explained that if the cost of raw materials is low but the production process faces breakdowns, this can increase cost in trying to correct these disruptions. Activity based costing puts emphasis on services as the ones that determine the cost. Some of these services include service provision or productions of goods and services.
Management accounting has been viewed as the mechanism which can be utilized to control management which is important within an organization. Management accounting is crucial as it manages and controls the activities important to meeting the goals of an organization; it measures the progress of an organization and is responsible for rewarding good performers while at the same time punishing poor performers. If management accountants do not act upon the existing and upcoming changes in an organization, they may pose a negative impact on the organization. Management accounting can be changed to incorporate both productive and unproductive elements. This can have either a positive or negative innovative decisions depending on the information given.
Traditional management accounting techniques have been left out and incorporation of modern innovative techniques have been adopted. Some of practices of traditional management accounting included; it put emphasis on labor as the basic to production, monthly financial cycles were mostly utilized, to reach to average actual costs, they used variations from standards then added to inventory then to cost of goods. These are some of the practices of traditional management accounting. They left out some of the key aspects required for innovation, therefore they can be considered as ineffective. This makes innovation key to any organization.
Management accounting innovations can be clearly described as radical and administrative. Though not all changes are innovations, innovations can be described as changes. Since they are changes, they must be achieved through utilization of new technical and administrative elements. This is because sometimes it may be necessary to adopt these new techniques in order to implement the innovations. To evaluate the implementation of innovations, numerous components have to be looked at. Even if management accounting innovations are implemented, the results are not likely to be seen directly. However they are seen indirectly through organizational behavior change. The impacts of the innovations can be clearly seen after sometime.
It is important that those implementing management accounting innovation understand the innovation process as this is a very crucial aspect in an organization. The innovation process has not been clearly defined but it basically involves generation and mobilization of ideas, screening and advocacy, experimentation, commercialization, diffusion and implementation. For the innovation process to be successful, the implementation team must be willing and should go through each step carefully. Implementation of innovations has been one of the most difficult processes since the process is demanding and taxing. Organizations have to come up with good strategies which are adaptable by all members of an organization and in which they can fully participate. Though the process is difficult, the organization can encourage its employees by use of reward and goal achievement. Members participating in the innovation process should also agree in every thing they are doing otherwise disagreements can result to negative impacts.
Management accountants provide information which is necessary in this process. They are responsible for providing a scorecard which outsiders use to rate the organization. The same information provided by management accounting is used by other managers to prepare reports on how the organization is performing. The reports prepared using these information include; reports based on how well managers or business units have performed assessed against actual plans and benchmarks, reports geared at providing timely and frequent updates on the key indicators like; orders received, order backlog, capacity utilization as well as sales. Other reports may be based on the problems facing the organization or the opportunities which may be arising for business expansion.
This makes management accounting core to every organization and the information they provide must be well utilized otherwise it can result to wrong decisions. Before being involved in any management accounting planning or control, it is important that modern business environment are constantly changing and affect the way organizations are run.