2.3 Strategic Management Accounting - Concepts and the Underlying Theme

The preceding section reveals that management accounting has evolved parallel with the development of technology and business environment. It is apparent that management accounting information has changed in emphasis in order to serve today's organisation purpose. Earlier development has neglected the strategic information requirement. As a result, strategic management accounting is claimed one of the emerging developments that may restore the relevance of management accounting in its organisational settings (Bromwich & Bhimani, 1989). It is portrayed as a crucial means for organisation to achieve superior performance via its provision and analysis of strategic information relating to strategy formulation and implementation (Bromwich, 1990; Roslender, 1995; Simmonds, 1981). This section attempts to dwell on 'what is SMA?' recognising the apparent scarcity of documented work on the subject.

Noteworthy, review of literature further reveals that SMA development is still at its infancy stage and slow in pace, and what it should constitute is debatable. It is interesting to note that though SMA has been coined for more than two decades ago, only limited disjointed researches are available in the literature. Various perspectives have been put forth which attempt to define SMA, and pave some ways on how the matter may progress and further develop. As a consequence, SMA has also been interpreted and approached in different perspectives by respective researchers. There remains ample confusion regarding what SMA entails (Nyamori et al., 2001). Nevertheless, these advocates have implicitly highlighted some common themes and characteristics they claim as best featuring SMA.

The term SMA was first formally coined in accounting literature in the early 1980s. Simmonds, whom have much influenced the requirement for SMA has conceptually put forth the potential of management accounting in aiding organisation to sustain their competitiveness (Simmonds, 1981; 1982; 1986). He criticises the traditional management accounting such as internal cost-volume-profit (CVP) as being inadequate for strategic purpose and calls for externally focused management accounting that can aid managers in formulating and monitoring their organisation's strategy (Simmonds, 1981). He conceptualises SMA as the provision and analysis of management accounting data about a business and its competitors which is used for developing and monitoring business strategy. It is apparent that he emphasises on the importance of learning about competitor information in dealing with organisation's strategic pursuit.

Quite apparently that Simmonds's concern is on organisation's competitive positioning in its industry which is the basic determinant of future profits and organisation's value. Competitiveness is an outcome of organisation distinct capability relative to its competitors through creating competitive advantage (Barney, 1991). According to Simmonds (1981) this could be achieved through the provision of competitor's information and analysis relating to costs and costs structure (prices and market share) whereby an organisation will be able to make comparison with its main competitors. He has also emphasised on the continuous monitoring on these information so that an organisation could ensure its long term survival by being superior relative to its competitors.

Inherited by the broad notion of SMA, the response amongst academic were not encouraging. Bromwich (1990; 1992) amongst the earliest who responded to the subject extends that SMA is crucial because of its ability to help managers to focus their efforts more on their markets (economics goods attributes) and ascertain cost positioning relative to its rivals (theory of contestable market). He argues that accounting has a role in providing management accounting information that enable an organisation to monitor its performance in the market place through optimum combination of product attributes and continuous monitoring its cost structure relative to competitor using a whole range of strategic variables over a decision horizon sufficiently long for strategic plans to come to fruition. In addition, concurring with Simmonds, Bromwich further reiterates on the need for organisation to know about its competitors.

In general, Bromwich has gone a step further by emphasising the importance of market factors in dealing with competition (Bromwich, 1990). It is apparent from the preceding discussion that today's customer become sophisticated, disloyal, and demanding. This has forced organisation to concentrates on the matters pertaining to the product market to maintain its existing share or to attract new customers. Bromwich argues that organisation's market share depends on the match between the attributes provided by its products and consumer's tastes and on the supply of these attributes by competitors (Bromwich, 1992). Looking from this perspective, SMA is closely associated with marketing function. It emphasises that organisation should not only match their product and customers' taste but also it should offer product that is distinct from their competitors. It might be distinct in terms of costs or attributes of the product offered.

It could be linked that the two advocates are in line with the concepts of competitive strategy postulated by Porter (1980; 1985). Bromwich in particular, very much assimilates Porter's concept of cost leadership (i.e. emphasis on competitors' costs structure) and product differentiation (i.e. emphasis on competitors and product attributes) in his argument. Porter (1980; 1985) postulated that organisation's could compete either being the lowest costs producer (cost leadership), or by offering unique products (product differentiation) for creating a defensible position and outperforming competitors in a given industry.

Thus, two notable points emerge from Simmonds and Bromwich contentions about SMA. First, the importance of information and analysis of competitor costs, and costs structure as a means of creating competitive advantage is emphasised. With such information organisation could devote their effort towards creating their cost advantage compared to their core competitors which consequently leads to superiority in terms of pricing. Secondly, the importance of the information and analysis that reflects the value that market willing to accept. This perspective recognises marketing capability as the determinant of firm's sustainable performance. SMA information serves as a mean of achieving competitive advantage (marketing capability) via continuously providing the management with comparative information and analysis on the strategic indicators which are external to the organisation, and future oriented in nature. Nonetheless, earlier advocates have been conceptual and how it could be crystallised is a matter of concern, and left too abstract a subject.

Other conceptual perspectives have been offered by Shank (1989) and a series of Shank and Govindarajan works (1988; 1989; 1992) through their concept of strategic cost management (SCM). Different from the former view, these authors incorporate accounting inputs to value chain analysis the concepts put forth by Porter (1980). For example, Shank and Govindarajan (1992) illustrated how value chain analysis using strategic cost analysis would result in different decisions compared to using traditional management accounting techniques. Shank (1989) argues that traditional management accounting often adopts a focus which is largely internal to the firm whereas SCM emphasis on managing cost for the entire value chain. The focus is external to the firm whereby individual organisation is seen in the context of the overall chain of valuecreating activities of which it is only a part - from basic raw material components to end-use consumers.

Embedded in this concept is its continuous improvement on organisation processes throughout the value chain which subsequently has an implication on its costs structure. It recognises that cost information plays a role at each of business management cycle (Shank, 1989). Under SCM, organisation use the cost information explicitly directed at one or more of the four stages of the strategic management cycle (strategy formulation, communicating strategy, develop and carrying tactics, and develop and monitor success of strategy) carried out through value chain analysis, strategic positioning analysis, and cost driver analysis (Shank, 1989). The application of these analysis notably reflects the emphasis on strategic costs information where apparently traditional management accounting unable to fulfil these information requirements. It demands management accounting system information that is characterised by external and future oriented. For example, in monitoring the success of organisation's strategy, it will require organisation to be able to compare the outcome of its strategy in the market relative to its competitors i.e. the ultimate goal of every organisation in order to sustain its competitiveness and consequently protect their long term survival.

While the advocates were arguing on the need for management accounting information to fulfil organisation's strategic purpose, Hiromoto (1988) reveals that the key success factor of Japanese companies compared to their Western competitors was that they tailored their management accounting systems in such a way that support their continuous innovation through target cost management. It reinforces a top-bottom commitment to process product innovation by linking their management accounting system to their company's strategies for innovation. It emphasises on continuous strategic thinking and act among employees. Nevertheless, distinct from SCM it considers the final market demand and work backward on the allowable targeted costs that the organisation set earlier in the development process which is termed as 'market driven cost management' (Hiromoto, 1988) and promotes continuous product innovation during research and development phase.

Thus, in brief it is apparent that the concepts advanced by the respective advocates distinct quite considerably from one and another. It spans from forwarding the analysis of information that claimed as crucial to be incorporated in organisation's management accounting system to the individual techniques that could aid organisation to achieve their strategic pursuit. SMA being portray as competitive essentials. The review carried out reveals that three common themes emerge that can describe 'what?' SMA is. First is on the external orientation of SMA as opposed to internal oriented portrays by traditional management accounting. The respective advocates argue that management accounting system has to incorporate information and analysis on competitors, customers, and products to enable organisation to execute its strategic priorities especially with regards to cost management and their pursuit on product development. As been discussed somewhere in the preceding section, today's environment companies compete in terms of price and differentiation simultaneously (Adler et al., 2000). Thus, by continuously providing the management (strategic) with information that relates to competitors, customers, and product, they will be able to make improvement where necessary.

Secondly, to enable organisation to foresee their strategic direction, the SMA advocates emphasise on future oriented information, whereby the information will have a long term implication to company's future performance. Tillman & Goddard (2008) purport that organisation requires such information in its attempts to understand situations that may have occurred in the past, that might be occurring in the present, and that may also be anticipated for the future. In other words, the information (management accounting) feed for strategic purposes should not concern mere accounting period but reflect the achievability of organisation's long term plan (strategy implementation). For example, information and analysis about customers will ensure that organisation has, as far as possible reflected in their strategic decision, and ideally will met customers' preferences and generate future demand. This is also apparent when SMA put emphasis on learning elements of management accounting information (Coad, 1996).

Thirdly, it entails provision and analysis of information that are financial, non-financial, and qualitative in nature. This is apparent in line with the emphasis on SMA requirement for organisation's sustainable competitiveness. Langfield-Smith (2008) concurs that the non-financial information is an important component of SMA. SMA information provides a form of indicators, or rather signal that will alert organisation whether competitive advantage has been achieved according to plan, or more importantly superior than competitors.

Notwithstanding to the theme underlying the respective advocates, the concepts put forward were too general and how it could be empirically tested bound to be problematic. Furthermore, what element to be included as SMA is also open for debate and the term itself entails too broad a concept. This could explain the paucity of published evidence on SMA. Nonetheless, these notable works can be the basis for further research endeavour. The review presented above implicitly suggested that SMA could be approached in two ways.

First is through addressing the fundamental question of information requirements that portrays strategic concern. This could be carried out through investigating the element of information and analysis that claimed by respective advocates as crucial for organisation's strategic pursuit. Secondly, research can embark through looking at individual techniques that is claimed to constitute SMA. However, the issue of operationalisation in the latter is problematic due to the uncommon terms used among organisations (Guilding et al., 2000), and the generalisability is rather limited. In addition, it also recognised that it would seem unlikely that the adoption of any one specific SMA technique will meet the requirements of all contexts (Tillman & Goddard, 2008). As a result, the first approach is adopted in the current research simply attempting to unravel what SMA constitutes of and understanding the information usage by organisation.

To sum up, this section attempts to unravel 'what is SMA?'. Briefly, SMA could be defined as management accounting information that is characterised by external, future-focused, and qualitative in nature used by organisation for their strategic pursuit. In particular, it could be further portrayed as information and analysis in relation to organisation's competitor, customer, and product; the information that are crucial for organisation strategic achievement. Note that the elements are also claimed to be crucial for organisation's strategy implementation and long term performance. However, the development has been conceptual and descriptive. To date, only a handful of documented empirical evidences are available with regards to SMA. As a consequence, much of the development can be considered as tentative and provide avenue for further research. Thus, the following section discusses and presents the findings of a pilot study carried out on manufacturing companies in Malaysia

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