Chapter 20

1. Chapter 20 Current Issues in Strategic Managerial Accounting

2. Objectives After studying this topic you should be able to: Understand how management accounting has changed over time; Appreciate the use of strategic managerial accounting to managers in performing their roles and responsibilities; Critically evaluate research into management accounting, both generic and applied, from a manager’s perspective; and Critique opportunities for further applied research into management accounting within hospitality, tourism and events sectors.

3. Management accounting change over time

4. Management accounting change over time • Started as management accounting in the 1800s • Developed into the broader management accounting in the 1900s • More recently a strategic management accounting discipline has developed • This textbook considered strategic managerial accounting and its application to hospitality, tourism and event sectors.

5. Use of management accounting in hospitality, tourism & events Usefulness and validity of techniques has been discussed in relation to these specific service sector environments. Some techniques, such as total absorption costing and full cost pricing, are sometimes inappropriate within specific service industries, though they work in manufacturing environments. Figure 20.2 (next slide) identifies some of the management accounting tools and techniques that are useful in hospitality, tourism and events, all of which (amongst others) have been explored within this textbook.

6. Use of management accounting in hospitality, tourism & events

7. Use of management accounting in hospitality, tourism & events This textbook has demonstrated these techniques and detailed their application within these sectors. Generic coverage of these techniques and tools is often with manufacturing examples, so makes it difficult to translate this knowledge into a service sector environment. Adoption and adaption are important phrases - some approaches can be utilised unchanged, others can be adapted to meet specific industry needs, for example the use industry specific ratios alongside generic ratios for financial analysis purposes. There are techniques that have been developed within hospitality, tourism or events i.e. do not originate from the generic management accounting literature. An example would be the development of yield management that started within airlines. This has spread more broadly to sophisticated revenue management systems within hospitality and other closely linked environments. The Uniform System of Accounts for the Lodging Industry (USALI) is also an example of a specific development. USALI does use the principles of responsibility accounting which is generic, but to generate an industry specific tool. This has also allowed the development of benchmarking beyond that available in many other industries

8. Use of management accounting in hospitality, tourism & events Changes in the external environment such as: globalisation, increased competition, faster pace of change, and environmental concerns have all had an impact. In financial accounting this has led to the need for international financial reporting standards (IFRS) that permeate over national boundaries. IFRS terminology is therefore becoming more widely utilised within management accounting, to reflect the changes in financial accounting. Corporate social responsibility (CSR), where firms demonstrate their ‘corporate conscience’ has also led to the use of concepts, such as ‘triple bottom line’ reporting (profit, planet & people). Within management accounting the key outcome has been the development of environmental management accounting (EMA). The focus beyond profits (or instead of profits), the ‘planet’ and ‘people’ elements is also strong in the not-for-profit sector. The NFP sector utilises a number of management accounting tools, but the focus, on a ‘good cause’ in such charity organisations impacts on their management accounting practices. This evidence further supports the case that management accounting has a vital role to play across hospitality, tourism and events organisation.

9. Role of the management accountant Generic management accounting literature identifies management accountant has changed over time (Burns, & Baldvinsdottir, 2005; Hopper, Otley, & Scapens, 2001). This is mirrored within hospitality applied research (Burgess 2006). Research shows that in the later part of the twentieth century the traditional role of a ‘bean counter’, working in isolation from unit management was changing. Financial controllers were taking a more active role at unit level hotel management, being viewed as part of the management team and working alongside managers and working with them to aid their decision making process. Into the twenty first century, as many organisations considered cutting costs in a competitive environment, centralising ‘support functions’, and outsourcing became more popular. By 2006 Burgess was concerned if there was actually a future for financial controllers at the unit (hotel) level. Evidence suggested a number of chain hotels were moving financial controllers into regional or national ‘hubs’ to support a group of individual hotels. There has also been some evidence of outsourcing the accounting function altogether. In the events sector, a number of horseracing courses in the UK have moved away from venue based management accountants to a more centralised base needing less staffing. This raises is the need for ‘non-financial’ managers to have sufficient accounting skills at unit level. This stresses the point that managers across hospitality, tourism and events need to develop a sound working knowledge of management accounting in order to be effective.

10. Contemporary applied research - Changes in management accounting practice research Adapted from Scapens 2006

11. Contemporary applied research - Changes in management accounting practice research • Scapens’ reflections in this paper are: • In the 1970s academic researchers believed all the management accounting tools needed for organisation to use existed; it was just a case of getting managers to use them. • By the 1980s researchers focused more on field research in organisation that discovered what management accounting tools were being used (mainly surveys of practice). • In the 1990s research asked ‘why?’ this became critical when considering the perceived ‘gap’ between theory and practice. Research in the 1990s focused on understanding why academic theory was not being used in practice. • Within the twenty first century Scapens (2006) see the role of researchers in management accounting to be working alongside managers in industry to aid them in developing practice.

12. Applied research into a specific industry, such as hospitality, mirrors the development pattern outlined in the generic area of management accounting over this period. academic management accounting research applied specifically to tourism is limited in volume and almost non-existent within the events sector. Within hospitality applied research the vast majority of management accounting research is applied specifically to hotels (estimated over 90%), with only a few studies applied to restaurants (Atkinson & Jones 2008, 2011). Atkinson & Jones’ 2011 review of management accounting research across hospitality and tourism found only a few studies related to accounting, with single figures of papers majoring on a management accounting topic applied to tourism. Their 2011 paper identified just over 100 hospitality and tourism applied management accounting journal articles in a period covering 11 years, averaging less than 10 papers a year, far less research than that into operations or marketing for example. Contemporary applied research - Changes in management accounting practice research

13. The ‘state of the art’ of hospitality applied research can be summarised as having a history of over 40 years and has developed, both in subject areas and methodological approaches during that period of time. The volume of research is still lower than applied to other areas, such as operations management, marketing or human resource management (HRM). The current state of research into management accounting within tourism and events can be described, at best, as minimal. This provides many opportunities for new research in this field. The tourism and events applied discussion of management accounting topics within this textbook identifies some fantastic opportunities exist for research in these area. Such research development can assist in improving the use of management accounting by managers within tourism and events sectors, whilst also adding to academic knowledge in the discipline. Contemporary applied research - Changes in management accounting practice research

14. Students of management study many disciplines, many view accounting as difficult. Yet accounting, and in particular managerial accounting, provides vital knowledge and tools for managers to support their day to day decision making. Managers are held accountable for the resources they use and the decisions they make - managerial accounting has a fundamental role to play in information for decision making and reporting on performance. Some managers in industry and students alike view anything numerical as ‘something to leave the accountant to do’ - management accounting information as an integral part of management decision making, both at an operational and strategic level in the organisation Some students and managers understand management accounting information is something, with which they need to engage yet still view it as a ‘necessary evil’. It is hoped the industry focused examples and the managerial focus takes the readers beyond this view to a deeper understanding of the subject. There is a need for the use of management accounting for decision making, planning and control purposes across hospitality, tourism and events organisations. Managerial accounting and the textbook user

15. Summary Management accounting has developed from manufacturing cost accounting into strategic management accounting over the last century; A vast variety of management accounting tools and techniques exist that are valid and useful for hospitality, tourism and events organisations; The management accounting function is changing, making it critical that managers in organisations have their own sound financial skills; and There is a history of applied management accounting research in hospitality, with opportunities for further research across hospitality, tourism and events.