In several organizations that I have worked in, the cost or management accountant performed a function that was complementary to that of the financial accountant and actually far more interesting but this is not always the case.
Sometimes controllers and bookkeepers are expected to red flag stuff before it even lands in the hands of someone to do analysis – actually, if you don’t want to stay in that processing hell-hole for the rest of your life, you better get a head-start on being more actively involved in the management accounting function.
Unfortunately an accounting function filled with only cost or management accountants will likely never produce a balanced set of books, so you have to have both kinds of functions but I am advocate for a blended role if you can afford the time it takes to perform some of both.
Disenfranchise accounting at your own peril
Also of importance is the fact that the whole function of cost management accounting frequently gets a bad rap these days from contemporary business consultants who consider even cost management accounting to be an old fashioned way of analysing the way the business is functioning. In fact to bear this out, I borrow a quote from serial inventor and entrepreneur James Dyson, the king of innovative vacuum cleaners who says in his book Against the Odds: An Autobiography, 2003 – “Innovation requires builders not bean-counters, and the last person who should be running something is the man who controls the costs”.
So he says it, quite clearly, ‘running something’. Well for anyone aspiring to be CFO this doesn’t sound like a very promising statement. In fact, if you’re the CFO with your eyes on the CEO seat then it is an even worse suggestion.
This view, in my mind at least, speaks to how engineers and operational people view accountants and accounting in the grand scheme of things – not very strategic. I say this, because ‘running things’ successfully requires more than just a familiarity and knowledge of the numbers. What is also required is more than an in depth knowledge of the products and services, more than an in depth knowledge of which buttons to press and which people to press when trying to capture or close a deal.
Howard Schultz, CEO of Starbucks, was quoted in the book, “Lessons from the top: The Search for America’s Best Business Leaders” as saying that
“I think it’s very difficult to lead today when people are not really truly participating in the decision. You won’t be able to attract and retain great people if they don’t feel like they are part of the authorship of the strategy and the authorship of the really critical issues. ”
This inability to be part of the decision making process is what holds the accounting function back. While accounting does the number compilations and plots the number trends, reallocates the income and expenditure and makes recommendations on further adjustments, what are the real decisions that accounting makes that steer the business in a different direction? Does accounting hold sway in deciding whether the business will discontinue in a particular market or stop producing a particular product? Generally, the answer is no.
Accounting can tighten the reins on the business and be an influencer in the way the business is steered. As such it really can help the business to be more nimble in the way it executes on strategic decisions.
Accounting gets mentioned in dispatches
A decision to acquire another business is usually made on a number of facts and one of them has to be the belief in the ability that the statement of accounts fairly represent the state of play of the target for acquisition. Further, your ability to absorb that entity not only in terms of people, products and facilities has to factor in the data migration, the data merge and de-duplication and process realignment of the target business.
The due-diligence effort and process realignment from an accounting perspective can be substantial and failure to do it properly and well can make the acquisition actually harmful to business – the most recent example of this that comes to mind, is the HP & Autonomy accounting scandal.
So while accounting in this instance isn’t the final strategic decision maker, failure to ensure all T’s are crossed and I’s dotted from an accounting standpoint can ultimately mean that a strategic decision could be interpreted as bad. HP had bought autonomy on the back of a controversial decision to stop producing hardware and refocus on software and services and be more business oriented and Autonomy held the promise for being aligned with that aspiration.
There are other ways as well, consider Boeing’s decision to reinvent itself. Complex products like aircraft involve a high level of outsourcing because it doesn’t make economic sense to own all the expertise in some areas such as electronic systems, jet engines etc. Boeing’s big roll of the dice in the 787 increased the amount of outsourcing from that of the 737 and 747 series aircraft which had been around 35-50 percent. For the 787, Boeing planned to increase outsourcing to 70%.
If accountants were part of the strategic decision making process they would likely tell you that make vs. buy decisions should be based on complete assessments of all of costs. Boeing didn’t do this and instead outsourced the engineering and construction of the plane long before the product was defined and the relative costs established. As a consequence the 787 project ran significantly over budget and delivery schedules have been pushed back at least 7 times. The first planes were delivered over three years late.
Monitoring the Pulse and Rhythm of Your Business
I can’t say what the accountants were doing during the decision making processes for these two examples of strategic decisions but ultimately it was the accountants who ultimately became the harbingers of bad news. Perhaps this is one of the reasons why accounting always get this rap for not being strategic – it comes after the event with the revelations.
In reality though, the accounting function can be strategic but is not strategic in and of itself – you’ll almost never hear that ‘the way we do accounting is our strategic differentiator’ – the only exception to this might be some mad Ponzi scheme or the accounting firms who have to differentiate themselves from their competitors by positioning themselves with unique value propositions.
The finance and accounting function for most businesses is by necessity simply the heart rate monitor of the business but when your business decides to pivot or make a strategic decision then it can be of value in the strategic decision making process when used to look at the relevant financial accounting and management accounting aspects.
