Management Accounting in the 21st Century

By Harry Byrne
Management accounting has undergone a transformation over the years. However, a constant
theme in management accounting is that its role is to provide what a business requires and what
managers need and want. This contrasts strongly with financial accounting which is governed by
external laws and standards. In the commercial environment, Chartered Management
Accountants help organisations establish viable strategies and convert them into profit, or value
for money in a not-for-profit context. To achieve this, they have to work effectively in multi-
skilled management teams.
A number of activities are core to the work of management accountants and these include:
• Planning and controlling activities
Performance management aligns business unit and corporate performance targets with the
objective of maximising shareholder value. The principal activities of performance
management include setting targets, monitoring performance, and responding to
differences between actual and expected results.
The way organisations plan and control varies generally between two schools. The first is
for top management to set overall strategic and financial goals and targets for the
organisation and then task the business units to achieve them – a top-down process. The
second school, and one that is gaining more popularity, is that performance targets should
be plan driven. The company’s performance targets are the products of, rather than
determinants, of the business unit and corporate centre strategies.
• Decision-making
Effective decision-making is, of course, the backbone of performance in organisations.
• Resource allocation and efficient resource usage
Determining the right quantity of resources and ensuring that they are leveraged
efficiently is the most important consequence of strategic planning. Management
accountants have embraced a number of techniques to facilitate strategy execution and
efficient resource usage such as reducing inventories through Total Quality Management
approaches, the Balanced Scorecard and strategy mapping and activity based
management– all approaches now widely used.
Other important areas that have been rising in prominence include:
• Performance improvement and value enhancement
• Safeguarding and reporting on tangible and intangible assets
• Corporate governance and internal control
Key skills
While the traditional technical accounting skills are important, they are no longer the
predominant skill set for emerging management accountants. New skills required are generally in
two areas – hard and soft skills.
Hard skills include IT proficiency and the ability to understand, design and communicate new
accounting systems using the latest technologies. A broad business understanding is required
which includes knowledge of market dynamics and key success factors, strategic objectivity, and
knowledge of key operational value drivers.
Soft skills, which are not always the strength of accountants, include communications internally
and externally, interpersonal, relationship building, leadership and conviction and being sensitive
to and managing different organisational mindsets.
A profession transforming
There are many macro drivers of change that accountants should be aware of, namely, the
globalisation of product and capital markets, business and competition driven primarily by the
liberalisation of global capital and the information technology revolution. Other drivers of
change are the transformation to a knowledge economy and the centrality of intangibles to
wealth creation. The dynamics of change have speeded up together with increasing
unpredictability and ambiguity.
The new business environment is characterised by the empowerment of customers and the
skilling and empowerment of front-line staff to make organisations more responsive to
customers. Increasingly, there are flexible organisational structures based on networks and
alliances and these are re-focused around core competencies. Shifts in the nature of management
have placed a premium on better strategic management, decision making and change
management. All these result in a blurring of professional domains and the structures of
professionalism.
Enterprise wide information systems allow managers to access data and reports thereby
bypassing the finance function. Many managers will be very computer literate and will get their
day-to-day needs from databases within the company.
Routine accounting activities may be moved to shared service centres or outsourced. Many of the
major multinational companies have developed shared service centres either individually or in
partnership, where routine accounting operations and other back office activities are drawn
together into single, specialist offices.
Opportunities
In the light of changes in the business environment, opportunities are presented to management
accountants in different areas.
• Better forms of management and measurement. The skills of management accountants
predisposes them to new forms of management and measurement that are better at
assessing company performance and formulating and executing strategy such as
shareholder value analysis and the Balanced Scorecard

• Risk, control and assurance role. Their background in evaluating controls and monitoring
and performance management provides a good basis for roles in risk and control in
organisations

• Financial analysis and planning will remain the preserve of accountants and financial
discipline is the basis of the challenging mentality that needs to exist in organisations.
Financial awareness both at operational and strategic level is critical before decisions are
taken.
 • The experience of finance professionals in mergers/acquisitions and corporate
reconstruction is a crucial input into organisational design.

• Accountants with their business acumen can provide consultancy and advisory services,
which is seen as an ideal background for being effective business partners and working at
a strategic level.

• IT development is deskilling routine account and budget preparation but freeing up

management accountants for more advance diagnostic, advisory, decision-making and
control work.
The scenario in 2010
A study by the International Federation of Accountants (IFAC) indicates the role of the finance
professional in 2010. The first is that of information provider. To improve strategic thinking and
decision-making capability and to empower employees to manage operations on a day-to-day
basis will require:
• Analysis, and not just quantity of reporting
• User friendly systems which can handle a dynamic environment
• Data integration and integrity
• Web-enabled decision support tools
The finance professional will also act as a guardian involved in compliance, control and risk
management. In addition, they may act as a partner to the CEO although the relationship would
often depend on the organisation and its culture. A further challenge for management accountants
and CFOs will be to communicate strategy internally and externally, particularly as
management’s credibility is one of the most crucial intangible value drivers common to all
businesses today.
First class communication skills will be invaluable to finance professionals on two levels.
Internally, written and verbal communication of very high quality will be needed, particularly as
finance professionals will be increasingly moved into the front lines (at operational and strategic
level) to develop non-financial people to be more financially aware. Externally, finance
professionals will be subject to negotiations with funds providers, outsource and service
providers, auditors, lawyers, business partners, customers, suppliers, governments and many
others.
In essence, finance professionals need to review their role and re-invent themselves to face the
challenges ahead.

Harry Byrne FCMA is a Past President of CIMA. This article is contributed by CIMA (The
Chartered Institute of Management Accountants), the leading professional accountancy body in
the world that trains and qualifies accountants in business. It offers the internationally
recognised CIMA Professional Qualification in Management Accounting. Currently CIMA has
155,000 members and students throughout the world.