Chapter 19 Emerging Management Practices Cost Accounting Foundations and Evolutions Kinney and Raiborn Seventh Edition COPYRIGHT © 2009 South-Western, a part of Cengage Learning. South-Western is a trademark used herein under license.

Learning Objectives (1 of 3) Explain how business process reengineering affects the way that firms execute processes Describe the competitive forces that encourage downsizing and restructuring Explain why operations are becoming more diverse and how diversity affects the accounting systems

Learning Objectives (2 of 3) Describe the purpose of enterprise resource planning (ERP) systems and explain the benefits of adopting an ERP. Describe strategic alliances and the different forms they take and their purposes

Learning Objectives (3 of 3) Describe open-book management and how it requires changes in accounting methods and practices List three generic approaches used to control environmental costs

Managing Change Recognize the importance of organizational culture Adopt only those innovations that support current strategies Do not try to implement innovations during downsizing Dedicate as much time to managing the human side of change as the technical side

Managing Change Educate all employees about the change Use medium and long-term performance measures to gauge success Generate useful and understandable reports to illustrate the effects of change Make explicit agreements regarding when old information systems should be turned off once new one is in place

Business Process Reengineering Examine processes to identify and then eliminate, reduce, or replace functions and processes that add little customer value to products or services Handling or storing materials and components Issuing checks Packaging finished goods for shipment to customers Recording journal entries Developing an organizational strategic plan

Business Process Reengineering Associated with –radical change –employee layoffs –outsourcing –technology acquisitions Enabled by –advanced technology –pursuit of increased quality –increase in price competition due to globalization

Business Process Reengineering Define objectives of the project Identify processes to reengineer Determine how to measure success Identify technology levers (innovation, increased quality, increased output, decreased costs) Develop a prototype of the reengineered process and then refine it Creativity

Downsizing Reduces costs and improves profits in conjunction with substantial investments in advanced technology Changes mix of inputs used to produce outputs Increases emphasis on technology-based conversion processes Reduces the emphasis on manual conversion processes (reduces the labor requirement)

Why Diversify? Legal requirements Business initiatives to employ minorities Organizational self-interest –potential leadership resources –to reach diverse groups of customers –improve business strategy –provide more innovation potential –increase experience levels for projects

Enterprise Resource Planning (ERP) Automate and integrate business processes Share common data and practices across the entire enterprise Produce and access information real-time Links the customer end of the supply chain through production and delivery to the supplier

Enterprise Resource Planning Financial professionals –Help to select and install ERP software –Analyze the data repository to support management decisions –Maintain the integrity of the data

Strategic Alliances An agreement, involving two or more firms with complementary core competencies, to jointly contribute to the supply chain Joint ventures Equity investments Licensing arrangements Joint R&D arrangements Technology swaps Exclusive buyer/seller agreements

Strategic Alliances Output produced reflects a joint effort between (or among) independent firms and the rewards of that effort are split between (or among) the allied firms Blurs boundaries between supplier and customer Typical strategic alliances –Exploit partner knowledge –Have partners with access to different markets –Allow sharing of risks and rewards

Strategic Alliances and the Finance Function When forming a strategic alliance, finance professionals –Assess risk –Develop strategies for parent company management –Design the financial structure –Develop management control systems –Install accounting and other information systems

Open-Book Management Increasing a firm’s performance by involving all workers and by ensuring that all workers have access to the operational and financial information necessary to achieve performance improvements

Disclose financial information to all employees Train employees to interpret and use financial information Empower employees to make decisions Tie a portion of employee pay to the company’s bottom line Open-Book Management

Open-Book Management works best in the following types of firms –Small size –Decentralized management –History of employee empowerment –Trust between employees and management Open-Book Management

Environmental Issues Measure business performance with regard to environmental issues and management of environmental costs Span the entire value chain –amount of scrap and by-products produced –materials used - are they recyclable? –actions of suppliers who produce inputs –customer habits in consuming and disposing of products and packaging

Questions How does business process reengineering affect the way that firms execute processes? What are the benefits of adopting an enterprise resource planning system? Why do firms form strategic alliances?

Potential Ethical Issues Giving executive bonuses combined with worker firings Hiring new, lower-paid employees to replace higher-paid long-term employees Failing to include system controls for sensitive data during ERP installations

Potential Ethical Issues Holding employees accountable for financial results without providing training to understand financial statements Ignoring the costs to society of pollutants produced Minimizing environmental costs by moving polluting processes to countries with lax regulations