H is a large marketing consultancy that provides a range of services including developing marketing campaigns, designing web pages, managing media relations and so on. There are approximately 300 professional staff working in departments such as advertising and media relations and 600 support staff in areas such as administration and information technology (IT). Honey operates from a large office block in the centre of a major city. In common with similar agencies, H is successful because it can offer clients an integrated service for all of their marketing and public relations needs. Sometimes those needs are related. For example, advertising staff may work alongside public relations staff to ensure that a new product is advertised effectively and that any positive press publicity, such as the consumers favourable reaction at the products launch, can be maximised. H has a traditional management accounting system. Each department has its own detailed management accounts, which show financial transactions and chargeable hours. Financial transactions include all revenue from billings invoiced to clients and all costs. Included in the costs are substantial amounts for overheads associated with the running costs of the office building and the business as a whole. Chargeable hours are monitored for each member of staff. The hourly charge-out rate varies according to the seniority of the staff member and is set so that all costs are recovered and a healthy profit is charged on top. Any work undertaken for another department is charged internally at the staff members full charge-out rate. The media buying department of H buys and sells advertising space in newspapers and airtime on radio and television. The department sells this space and time to its clients at cost plus a mark-up and also makes it available at the same price to other departments in H. This means that H can offer to plan and implement a marketing campaign from the initial design all the way through to the publication or broadcast of the finished advertisement. Hs board is concerned that the companys traditional management accounting system is encouraging dysfunctional behaviour and causing disputes between managers. The following examples have been debated at recent board meetings: The public relations department is paying external web designers to design blogs on behalf of clients rather than using the web designers from Hs web design department. The web design business has seasonal peaks and troughs and there are times when there is spare capacity, but the hourly rates charged by the web design department are more expensive than those available from third parties. The staff coffee shop was closed to create additional work space. Since the closure the space has been empty because none of Hs department heads wish to be charged with the cost of additional overheads. Account executives within H are keen to earn as much profit for themselves from each sale. Consequently, they are dealing directly with major broadcasters and newspapers and are not using the media buying department. These individual deals are taking away the bargaining power of the media buying department. Hs board is keen to consider whether the implementation of lean manufacturing and lean management accounting techniques might improve matters. In particular, the following principles have been identified as being relevant to H: Honey should be managed through processes or value streams rather than traditional departmental structures. The board believes that the two value streams are the sale of professional services and the sale of media space.

The consultancy should maximise the flow of services through the value streams while eliminating waste.

Lean management accounting should provide the value stream leader with performance measurement information to both control and improve the value stream. Required - DETAILED ANSWERS!.

(a) (i) Advise Honeys board on the differences between managing value streams and managing departmental profits. (5 marks)

(ii) Recommend, stating reasons, the changes that H should make to its management accounting systems and policies in order to improve the management of the value streams. (10 marks) , PLEASE NOTE ANSWERS SHOULD BE IN DETAIL

(b) Advise Hs directors on the difficulties that are likely to be associated with implementing the changes that a move towards lean management accounting will create. Your advice should include recommendations as to how those difficulties might best be dealt with. (10 marks), PLEASE NOTE ANSWERS SHOULD BE IN DETAIL