The Changing Role Of The Management Accountant Commerce Essay

The Changing Role Of The Management Accountant Commerce seeCharles Darwin the famous scientist who introduced the theory of natural selection said In the struggle for survival, the fittest win surface at the expense of their rivals because they succeed in adapting themselves best to their environment. He used this theory to explain the extinction of the dinosaurs from the earth.I believe this theory in fact is not confined to species. It is a universal truth which is pertinent to so many phenomena we see in our day to day lives. One much(prenominal) illustration is the slip of pay serve up. The enormous change the corporate domain of a procedure underwent over the goal few decades has inevitably pressurized the pay function to adapt to its operating environment. As a result, today the finance function is in the fore-front of finale making positioning itself as a contrast recessner for the organization as opposed to a conventional support function.It is in this context that either organization today should embark on the journey of transforming its finance function to adapt to the challenges of the advanced byplay environment. It is needless to exaggerate the changes this brings about in the division of the guidance accountant. up to now being humans it is natural for us to resist much(prenominal) change. What we should remember nevertheless is that if we fail to adapt to these changes, our destiny would not be different to that of dinosaurs.This reinforces the argument that tomorrows successful heed accountants will be the ones who not only understand the need importance of finance fracture but too who take proactive measures to bring about effective change and eventually manage such change to ensure sustainability of the furrow.2. finance Transformation2.1 How it has changed?Accounting pay function over the centuries has evolved significantly from the basic double entry bookkeeping the revolutionary concept which started it all. To day we live in a world where world(a) companies exist and the finance function like so many other things in human life has transformed itself to cater the ever increasing demands of modern day phone linees.Let it be monetary reporting, treasury management, budgeting or any other area in finance for that matter, there is visible transformation. For instance, tail assembly-line in financial jargon, only meant financial favourableness until recently. But today organizations strive for a triple bottom-line which is agency beyond the boundaries of financial profitability.A recent look for conducted by CIMAs centre of excellence at the University of Bath concluded the following changes (see Figure 1) as the most frequent changes faced by businesses.Figure 1 discover changes faced by the finance Function in the last decadeSource CIMA Centre for Excellence, Excellence in Leadership, December 2009, p.12As per the above research data, an overwhelming majority of 96.4% has confirmed tha t there had been at least one change in their finance function for the period in concern. However the degree, to which these changes take up been popular, may extremely vary with Cost reduction being the forerunner with a popularity of 59% while Outsourcing of non-routine tasks was confined to a mediocre 5.5%.The same think over later classifies these changes to four broad types and besides pinpoints two main motives behind these changes namely Cost efficiency and Value creation (See Table 2).Table 2 Classification of Changes Faced by the Finance FunctionSource CIMA Centre for Excellence, Excellence in Leadership, December 2009, p.12Cost Efficiency motive is where a business is keen to improve its output by using its resources more efficiently. On the other hand Value creation involves performing tasks in better ship focusing whilst eliminating non-value adding activities such that the organization creates value in terms of profitability.It is clear from the data (See Figure 1) that it is the Cost Efficiency based changes which were more prominent in businesses during the last decade. As the research suggests, Cost Reduction and Business Process Re-engineering (BPR) appear logical steps for organizations as they grow. The economies of scale, firms are pass judgment to achieve with its size, rationalize such change. Further the world economic crisis stemmed in 2007 prolongs to date would also have significantly influenced finance managers to run their businesses on tighter budgets and thus focus on efficiency based transformation.Although cost efficiency measures, up to now, have had the upper hand in finance transformation, it is expected that the value based changes would take precedence in times to come, as finance functions embark on the journey to achieve the visionary value creator status.2.2 Why has it changed?So far we discussed how the finance function has evolved over the years. Let us now examine the underlying drivers which caused this drama tic change. This inevitably leads us to look at the changes that occurred in the environment in which businesses operate. One thing that surely comes to my mind is globalization. I believe this concept single handedly revolutionized the way people engaged in business. For instance virtual organizations such as Dell and online market places such as e-bay have not only been highly successful, but also have challenged the future viability of usageal business models.However globalization is only one among many drivers of change as per CIMAs recent research findings on finance transformation. In fact it ranks well under the likes of increased competition technological advancement which grabbed the top two spots in terms of popularity (See Figure 3).Figure 3 Drivers of organizational change rank in terms of popularitySource CIMA Centre for Excellence, Excellence in Leadership, December 2009, p.15Increased risk and uncertainty and External reporting requirements achieved 3rd and 4th p laces singly with market development coming next. It is important to mention the part played by the collapses of big corporate giants such as Enron, Worldcom and subsequent changes it created in the finance function especially in terms of risk assessment models and stringent reporting guidelines.The report further highlights some of the differences that exist within different business sectors.For example, demographics are as twice as popular driver in public sector compared to the private sector in which competition market dynamics are more prevalent.In financial services industry risk uncertainty is hailed above all drivers of change.All these drivers subsequently created pressure on the tradition finance function and new finance control models evolved to suit the new playing field.3. The changing role of the management accountant in todays environment3.1 The way forwardSo far we analyzed the nature of finance transformation and its underlying causes. It is now high time to loo k at the evolving role of tomorrows management accountant. Having acted as a steward for decades, today the finance professionals are increasingly pressurized to be a navigator or a business partner in performing his/her duties.With reference to the previously mentioned study done by CIMA, it is evident that Business partnering is clearly emerging as a way forward for finance transformation.Table 4 Business Partnering in finance functionSource CIMA Centre for Excellence, Excellence in Leadership, December 2009, p.11.In its research report, Finance transformation business partnering, CIMA Centre for Excellence defines business partnering as a behavior which involves members of the finance function acting as close advisors or internal consultants in greater collaboration and cross-functional working with others in the organization, so they can understand the business better, and provide the advice and support that is needed.1The idea here is, for finance members to actively go int o in the decision making carry through and take bodied ownership of the decision as opposed to being passive advisors. However in launch to do so, the finance professionals not only need to posses technical companionship in finance IT, they should also be equipped with extensive industry knowledge business acumen. In addition to that, the need for enhanced interaction across all the levels in the organization would mean that the management accountants need to master essential communication and interpersonal skills.Further the traditional barriers that exist between plane sections would also need to be relaxed so that effective inter-functional associations are enabled. Erik ter Horst, Vice President Finance, chief financial officer EMEA and Latin America, BT, offering insights to CIMAs survey adds for me, finance can only be functional if the finance function is a part of the whole organization2.However one might also argue that this may compensate the level of independence exercised by finance and hence affect the objectivity of its decisions. While acknowledging the possibility, Morten Sorensen, Finance Director Central Europe, Middle East and Asia Pacific, SSP, believes that the potential risk to the objectivity of finance function will be outweighed by the additional value generated at the end of the day it comes down to the integrity and professionalism of the individual(a).33.2 Finance transformation and the role of the Management Accountant at Bodyline3.2.1 BackgroundBodyline Private Limited, a joint hypothesis between MAST Industries, Triumph International MAS Holdings, is one of the largest lingerie sportswear manufactures in Sri Lanka with a workforce of around 6000 employees and an annual capacity of around 15 one thousand million pieces of bras. The company caters to some of the worlds most glamorous brands including Victoria Secret, Nike, Marks Spencer and Lane Bryant.Over the last couple of years Bodyline has synergized its multi mathematical product node portfolio to its competitive usefulness whilst investing on technologies such as bonding, 3D hemming and ultrasonic welding.However the company is constantly facing stiff competition from low cost manufacturers in Asian countries such as Bangladsh Vietnam, and as a result recently underwent drastic changes in its business model which in turn caused the finance function to transform accordingly.3.2.2 Finance Transformation at BodylineTable 5 Changes faced by the finance function at BodylineFinance Function Change congressmanType of ChangeMotive for Change1Greater emphasis on cost reductionProjects to curb major cost overrun areas. E.g. overtime Tracking MechanismCost ReductionCost Efficiency2Increased outsourcing of routine tasksOutsourcing of VAT Returns Process to a 3rd partyBPR3Increased Use of Shared Service Centers for routine tasksSetting up a common commercial part in collaboration with MAS Intimates group4Increased work on product pricingDevelo pments of Pre Post Order Profitability functions on rakeProduct FocusValue Creation5Cross functional teamsFormation of customer teams comprising of beatives of different departments including financeFocus on internal processes6Greater emphasis on poor death penalty within the organizationFacilitating greater depth in Performance Management. (Catering to Business, Departmental Individual levels)7Increased external benchmarking of the whole organizationRisk assessments and external benchmarking activities leading to sound business decisions being takenSource Primary data collected from BodylineThe above diagram depicts functional changes experienced by Bodyline Finance and it could be directly compared with Table 2 in page 3. (CIMAs original model)3.2.2.1 Cross Functional TeamsA drastic structural change was introduced few months behind where cross functional teams (representing virtually all the departments) were formulated to uniquely cater each customer. A business analyst w as appointed to each team to represent finance and he/she adheres to a dual reporting structure where the individual reports to the Head of Finance as well as to the Head of the respective customer account. Each customer team sits together in a separate area within the factory so that interaction between the members is enhanced.However the transformation involved significant cultural change. People had to be convinced that the previous structure that had been adopted for the past 15 years was not the indemnify way forward. Members of finance worked very closely with the new leadership to change the internal structures reporting lines to logical cross functional business teams to support customer expectations.The management accountants involved in articulating the methodology of performance management systems including Key Performance Indicators as well as devising segmental reporting of customer bottom lines coupled with policy control deployment. This helped the people to underst and the big picture and most importantly, where do they fit in to the new structure. The increased level of transparency helped us create a healthy competition among customer teams which in turn contributed to break the resistance to change whilst aggressively driving towards the achievement of business objectives.3.2.2.2 Greater emphasis on poor performance Performance management initiatives across many departments layers are being introduced with the direct involvement of finance which provides be after to delivery solutions. For instance, the incentive scheme for sewing operators was changed to an efficiency based group incentive mechanism from an individual performance based incentive system, with finance department functioning as the project champion. This is one fine example where Bodylines finance function operated as a true business partner coming out of its comfort zones, co-operating with the other relevant departments and executing the project to perfection. It is note worthy to mention that whilst executing this project, complex human dynamics of 6,500 people and the cost implications of providing incentives to all of them were considered. A series of information sessions had to be conducted to manage the knowledge transfer requirement in terms of the new system. Nevertheless a significant increment in factory efficiency was noticed within the first month of project implementation.In order to facilitate such advance business requirements, the finance function was strengthened with people having dual backgrounds. In other words, apart from hardcore finance graduates, Bodylines finance team comprises of several apparel engineering graduates from the University of Moratuwa who are also qualified in CIMA. It is this unique resource combination that has enabled Bodylines finance team to successfully strive for excellence amidst numerous challenges.3.2.2.3 Risk Analysis The members of the finance department are also engaged in analysis assessment of risks facing the company, developing projections based on such risks to draw the attention of the management on high risk areas. For example early identification of the risks of Western economic recession, paved the way for the company to take immediate actions and thereby mitigate the touch on of these adverse events at least to a certain extent.3.2.2.4 Cost Reduction As a follow up action plan to Budget Monitoring, the finance team in collaboration with other departments initiated 4 major projects to cut down companys overhead cost. These are namelyImplementation of overtime cost track controlling mechanismA project to control transport expenditureA project to control courier chargesA project to control unmoving costA project leader is appointed from Finance for each project and this individual is solely responsible for delivering the objectives of the project. The leader is expected to collaborate with relevant departments, device an action plan, follow up action points and p resent the progress at the next months budget monitoring session. Significant cost reductions were observed in each area with the inception of these projects.On the other hand, these projects offer a great opportunity for the budding management accountants to move out their comfort zones, actively involve in cross cultural teams, learn and become business partners who actively participate in achieving the companys strategic objectives.3.2.2.5 Increased work on product pricing To enhance the visibility of financial information at the Sales Order level, a project was initiated by finance with the collaboration of IT to develop SAP (the companys ERP system) based modules which calculates the expected profitability of a Sales order in the system itself. This process currently happens on spread sheets off the ERP system and as a result lot of information is duplicated and resources are wasted. The second phase of this project involves linking purchase order authorization procedure to sal es order profitability so that an effective control on at the point of material purchases can be exercised.Yet again this is a challenging project which requires the individual to move out of the comfort zones of an accountant and work with System users/IT specialists and to gather system requirements and thereby ensure effective system development is achieved later.4. Conclusion groundbreaking day businesses experience change at a dramatic rate and whichever the ones that do not adapt quickly, would be gone before long. Being part of that business, the finance function can never isolate itself so should get accustomed to change.If the finance function has to change, that indirectly means the management accountants should expect their roles to a great deal change in future. In fact it is the management accountants who are expected to manage the process of finance transformation. As their roles evolve, tomorrows management accountants will be expected to learn new skills (more often out of their comfort zones) work with cross functional teams and ultimately act as business partners who take responsibility for the collective decisions.Although we all tend to resist change initially, we also might feel it is after all not so bad. It certainly brings opportunities provided we take it in the right spirit we may end up being better off. The story of finance transformation at Bodyline is certainly of that type. Transforming was never an easy journey and it settle down is not. However as a team the finance function moved forward with positive attitude and as a result in the process has achieved so many milestones.As I conclude, the fundamental point I wish to bring up is that the finance transformation is inevitable. Irrespective of whether we like it or not its here to stay. However it is our decision either to embrace the change like a lizard which quickly changes its color to suit the environment and thereby survive through successful camouflaging or else ignore the change just like the dinosaur and simply extinct.