Honest Beancounters and Savvy Business Advisors
Author:
Orla Feeney
With ever increasing competitive pressures in the marketplace for most organisations, a regular supply of relevant management accounting information is arguably more important than ever. There is a growing body of writing that voices heavy criticism of management accountants (MAs) and even suggests that many managers now resort to preparing their own financial information. However, there is a severe shortage of evidence gathered directly from managers regarding their information requirements and how well suited they perceive MAs to be for providing information that meets those requirements. Orla Feeney and Bernard Pierce report on recent research that examined the issue through a series of interviews with managers in 18 Irish companies.
In other disciplines such as MIS, user satisfaction is a well recognised measure of information quality. It therefore seems important that if the alleged shortfall in management accounting information is to be addressed, some attempt should be made in the first instance to ascertain the views of the managers who use the information. This article summarises some findings from a recent research study carried out in Ireland that focused on how managers describe the information they require and how they characterise those MAs that are best qualified to deliver it.
BEAN COUNTER OR BUSINESS PARTNER?
The role of the MA has traditionally been characterised as concentrating on two main areas – one focused on monitoring, control and scorekeeping, and the other on supporting managerial decision-making (DM) and assisting in problem-solving. Developments in the business environment have altered the dynamics of these two broad aspects of the role, with the result that today’s MA is responsible for providing an increasingly wide range of information. The accounting literature argues that contributing to control in today’s environment involves putting financial numbers in a strategic context and relating non-financial results to strategic objectives. Contributing to DM requires the MA to be strategically aware, with sufficient business knowledge to be able to advise management in the context of particular decisions. A clear implication is that MAs must be able to furnish ‘softer’ accounting information in addition to ‘hard’ financial data. They must incorporate qualitative, non-financial details which better enable managers to relate financial performance to success or failure in the competitive marketplace. Alongside sales margins and bottom lines, one might now expect to see the MA reporting such items as production times, customer satisfaction feedback and employee turnover. The traditional MA is presented as a ‘bean counter’ who cannot relate to the business, lacks initiative and creativity, and encourages sub-optimal decisions. In contrast, the contemporary MA is expected to consistently demonstrate a strong business understanding as well as broad-based personal skills and commercial capabilities.1
This contemporary MA has been described as a ‘hybrid’ accountant who assists managers in maintaining effective control, while also performing as a ‘business partner’ as part of the management team. Candidates for these two broad roles might differ significantly in their academic orientation, their skills, attributes and competencies, their time orientation and their scope of work.2 The question has therefore been raised as to whether one person can occupy a role akin to that of policeman or umpire and simultaneously be an active participant in the DM process.3
For the purposes of this study, interviews were conducted with 18 managers in 18 different companies in Ireland. They were asked a series of questions regarding how they would characterise the information they need and the MAs who are best qualified to supply it. In order to get a sense of the perceived importance of various characteristics and traits, a scale of 1 to 5 was used, where 1 signified not important and 5 extremely important. MAs’ actual performance was rated on a similar scale of 1 to 5, where 1 signified bad and 5 excellent.
WHAT TYPE OF INFORMATION DO MANAGERS WANT?
The managers were presented with a list of eight specified information characteristics and requested to indicate their rating of the importance of each in the context of information provided by their MA. Average ratings are reported in Table 1, showing values for control information and DM information.
The managers valued relevance and reliability above all else, in both control and DM information, but the dominant message from this table is the importance attached to different information characteristics depending on whether the information is required for control or DM. Timeliness and scope were considered significantly more important for DM, while accuracy and consistency were ranked as more important for control (a typical quote was: ‘With regard to control or historical information, timeliness is somewhat important but it’s not paramount. However, for DM purposes I can tolerate far less accuracy as long as timeliness is improved’).
While the quantitative ratings revealed that scope was considered significantly more important in DM information, more detailed discussions with the managers indicated that not all managers expect broad scoped information from their MAs. There was evidence that some MAs are relied upon primarily for their financial input and that their managers often source the broader scoped information elsewhere (‘From the MA, I require three key pieces of informational output – my controllable lines. That’s all I’m interested in from a management accounting perspective. If those things are reported adequately, that would be everything I am concerned about’).
HOW DO MANAGERS RATE EXISTING INFORMATION?
The managers were requested to rate the information they currently receive from their MA, based on the eight specified characteristics. The average ratings are shown in the second column of Table 2. The third column shows managers’ perceptions of the importance of each characteristic regarding control information as reported in Table 1 and the fourth column shows the difference between actual and importance ratings. The final two columns show the same details for DM information.
Table 2 indicates the extent to which MAs are providing information which meets the needs of managers and the results indicate that MAs are falling short of expectation in almost all cases. From a control perspective, the largest shortfalls were in relation to the relevance, flexibility and reliability of information. From a DM perspective managers were most disappointed with the relevance, scope and flexibility of information (‘They tend to miss what I am getting at sometimes. They are always trying to get it back to the nearest numbers … I won’t be asked about numbers. I’ll be asked about issues’).
The ratings revealed that the MA was perceived to be stronger at producing accurate, consistent, reliable and timely information. However, discussions with the managers indicated that they were less satisfied with the MA’s timeliness than the ratings suggest, and this was largely attributed to the pressures of corporate reporting (‘I am aware that they are subject to heavy reporting requirements… and that is what I think is one of the failings of the MA, the information doesn’t come back to me on time, it’s very rarely real time. It’s what stops us being proactive a lot of the time’).
WHAT SKILLS, ATTRIBUTES, COMPETENCIES DO MANAGERS WANT IN THEIR MAs?
The managers were presented with a list of specified skills, attributes and competencies (SACs) and requested to indicate their rating of the importance of each in their MA. Average ratings are reported in Table 3, showing values for the control role and DM role.
It was noticeable that managers valued ethics above all else in their MAs. Honesty was also rated as very important by almost all of the managers.
An interesting feature is the extent to which managers have different expectations of their MA depending on whether they are engaged in providing control or DM information. Sound business understanding, communication and interpersonal skills, team-skills, problem solving and creativity were considered more important in the context of DM than in the context of control (‘If the system is going to be useful in terms of making any decisions, it’s important that the accountant’s communications skills are strong in order to facilitate this’). Again, in the context of supplying relevant DM information, some managers rated a sound business understanding as being even more important than honesty (‘They may get by without a huge business understanding for the day-to-day stuff, but for DM and projects, a sound business understanding would be critical’).
Discussions with the managers revealed that they appreciated impartiality in their MA, with half of those interviewed perceiving impartiality to be very or extremely important.
Many managers value the unbiased and objective perspective offered by the MA (‘The financial numbers cannot afford to be skewed in favour of a certain standpoint – I value impartiality in that sense’).
Creativity was the attribute that generated the widest range of views among the managers.
As indicated in Table 3, managers generally considered creativity to be significantly more important in a DM scenario (‘In a project sense creativity goes up even further in terms of coming up with new ideas of presenting data or new ways of analysing data for a project’). Some managers did not attach much importance to creativity in the MA (‘Creativity is not at all important to me. There’s no room nor necessity for it’). Some wanted to enjoy the best of both worlds (‘The key for me is getting the right balance. I want them to be conservative when they’re generating my monthly reports but “You guys can be geniuses with your spreadsheets but there isn’t that many of you that can sit down in a meeting and share information …” I don’t want them to be blind to new ideas or improvement’).
WHAT SKILLS, ATTRIBUTES,COMPETENCIES ARE MOST COMMONLY EXHIBITED BY MAs?
The managers were requested to rate their MAs based on the specified SACs and average ratings are shown in the second column of Table 4. The third column shows managers’ perceptions of the mean importance of each SAC in a control context as reported in Table 3 and the fourth column shows the difference between actual and importance ratings. The final two columns show the same details for DM.
Table 4 demonstrates the extent to which MAs’ performance does not match managers’ expectations. The MAs’ actual ratings fell below managers’ expectations most significantly in relation to interpersonal and communications skills (‘You guys can be geniuses with your spreadsheets but there isn’t that many of you that can sit down in a meeting and share information’), sound business understanding (‘I sometimes feel that they are managed by spreadsheets and if the spreadsheets say we shouldn’t do it, then we shouldn’t do it. There is, at times, an absence of any judgement that is non-financially driven’) and creativity (‘I’d like them to show more initiative, kick-start more ideas, find more solutions’). These SACs were among those perceived to be significantly more important in providers of DM information, namely, sound business understanding, interpersonal and communications skills and creativity.
In contrast, MAs exceeded the managers’ expectations in relation to impartiality, single-mindedness and conservativeness. These SACs might be considered MA strengths by other organisational stakeholders such as directors, shareholders, or the audit committee, but discussions with the managers provided somewhat conflicting perspectives. Some managers valued these particular competencies (‘I find them good at pushing back on me and my directs in terms of doing the right thing and stating everything correctly’). Others identified them as factors that inhibit the MA’s performance of a more involved role (‘I find them a bit too impartial. I wish they could be on my side a bit more’).
“Honesty is excellent but they can be too bloody honest. If only they could combine honesty with a bit of cop on …”
The discussions revealed a similar range of views in relation to honesty. Some managers appreciated the MA’s inherently honest approach, while others felt that they could be ‘too honest’ and that this was detrimental to their proposed ‘business partner’ role (‘Honesty is excellent but they can be too bloody honest. If only they could combine honesty with a bit of cop on’ and ‘Yeah I appreciate their honesty and openness but sometimes they just lack that bit of commercial savvyness that is required to get the job done’).
CONCLUSIONS
Changes in external operating environments and internal workings of organisations have combined to underline the importance of high quality accounting information. High profile corporate scandals such as Enron and Worldcom have led to increased government and public scrutiny of accounting practices and procedures. This has resulted in a growing emphasis on compliance and transparency which places increased pressures on the organisation’s control function. At the same time, technological developments have contributed to a shortening of product life cycles, and a wider range of products and services. Innovations in production and delivery methods and the opening up of new markets have led to rapid globalisation and increased competition. This has had a knock-on effect on the way in which many organisations operate with the result that the decisions faced by today’s managers are varied in nature, usually require prompt response, are often ill-structured and tend to be dominated by issues related to customers, competitors and the external environment.
With these developments in mind, the question of the suitability of the approach these two aspects of their role in different ways. In doing this they must exercise initiative and adaptability in tailoring information for particular circumstances without frequent input from the manager. In essence, they are expected to be able to put themselves in the position of the decision maker.
The study revealed that MAs demonstrate high degrees of ethical behaviour, conservativeness and impartiality, important traits in any scorekeeper that provide reassurance for shareholders. Managers, however, want MAs to demonstrate greater levels of business understanding, communications skills and creativity, making them more commercially aware and externally focused. MAs must develop their skills and abilities beyond the purely technical if they are to strengthen their role as a simultaneous controller and business
Managers want Management Accountants to demonstrate greater levels of business understanding, communications skills and creativity, making them more commercially aware and externally focused.
MA as a simultaneous ‘controller’ and ‘business partner’ is more important then ever. The study was limited in that it focused exclusively on the perceptions of managers and there are of course other organisational stakeholders such as directors and shareholders who may hold very different opinions regarding the MA’s role. Although rarely reported, the views of managers who are charged with the running of key areas of the business are particularly important, and the findings therefore provide some key insights into the challenges facing MAs if they are to contribute effectively to control and DM in the future.
MAs can fulfil the role of ‘honest bean counter’ and ‘savvy business advisor’, but in doing so they must overcome considerable challenges and address the growing complexities presented by such a role. The study provided consistent evidence that managers have different expectations of their MAs depending on whether they are engaged in providing information primarily for use in control or DM. Contemporary MAs are expected to partner. Educators and professional bodies need to continually review their education, training and continued professional development programmes to ensure that they are providing the necessary support and opportunities for continued updates and personal development. Finally, managers can build better relationships with MAs by communicating with them more frequently, by engaging them in the DM process at an earlier stage and by recognising their value adding potential as members of the management team.
Tables have been omitted from the online version of this article.
Notes
1. Burns, J. and H. Yazdifar, 2001. ‘Tricks or Treats’. Financial Management, March, pp. 33-35.
2. Pierce, B. and T. O’Dea, 2003. ‘Management accounting information and the needs of managers: Perceptions of managers and accountants compared’. British Accounting Review, Vol. 35, No. 3, pp.257-290.
3. Granlund, M. and K. Lukka, 1998. ‘Towards increasing business orientation: Finnish MAs in a changing cultural context’. Management Accounting Research, No. 9.