Strategic Accounting
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Part A: Strategic Decision-making
Strategic decision making is one of the most important skills that may help to improve an organization’s competitiveness. Unlike the simple process of decision making, which simply involves selecting the best option out of several alternatives, strategic decision making is applied in organizations to come up with speedy and quality solutions to more complex problems (Davis and Davis, 2011, p. 47). The current section presents a literature review of the application of strategic decision-making in strategic management accounting. The origin of strategic decision-making in the strategic management is examined. Lastly, the section examines the impact of the technique in creating and sustaining an organization’s competitive advantage.
Literature Review
The concept of strategic decision-making can be traced back from the traditional model of decision-making developed by March, Simon and Guetzkow (1958 as cited in Hoque, 2005, p. 42). Although the model does not explicitly show the elements of management participation, it describes the human being as having a limited ability to exhaust all the possible options in the process of decision making within an organization. The model presents the reality as being complex, and at the same time, human cognition as limited. Consequently, it is even difficult for a human being to make optimal decisions or to find optimal solutions to problems occurring in an organization; rather, an individual makes the most satisfying choice. In his contribution to the model, Simon (1979 as cited in Hoque, 2005, p. 42) noted that it is difficult for managers in an organization to make rational decisions; rather, the make use of shortcuts and rule of thumb to come up with a solution that will at least solve the current problem.
Cohen, March and Olsen (1989 as cited in Hoque, 2005, p. 43) came up with another model that focused on organizational management practices called “the garbage can” model. The model states that every organization has a “garbage can” that contains a set of solutions developed to solve predetermined problems. Organizational managers achieve effectiveness in the process of strategic decision-making after gaining experience in problem-solving over time. Eventually, the strategic decisions that are made are a product of the “garbage can” contestation and fermentation process.
Mintzberg and Westley (2001 as cited in Hoque, 2005, p. 45) argued that the rational model can be developed further by adding two conditions: “seeing” and “doing.” According to Mintzberg and Westley (2001 as cited in Hoque, 2005, p. 45), seeing involves evaluating various ideas for solutions to problems. Seeing enables managers to predict the problems that may be encountered in the future and to design solutions in advance to counter them. On the other hand, “doing” involves active experimentation through application of strategic decision-making techniques to solve problems. According to Mintzberg and Westley (2001, as cited in Hoque, 2005, p. 45), managers learn from experience and supplement that knowledge gained with that which is derive from “seeing” to come up with effective solutions to problems that may arise in the future. On top of that, Mintzberg and Westley (2001 as cited in Hoque, 2005, p. 45) argue that managers should come up with a thinking approach that involves the utilization of available data to construct more robust solutions to the complex, emerging problems. The last major model is the Decision-Making Model, which guides managers to involve other internal stakeholders in decision-making processes in order to ensure that the eventual processes are successful.
In the recent years, organizations are increasingly operating in constantly changing internal and external environments. In some cases, the changes are unpredictable and may have huge effects on the performance of an organization (Davis and Davis, 2011, p. 46). In some cases, the changes may involve uncertainties that may have unfavorable effects on an organization. In order to counter the unfavorable effects, organizations must come up with strategies to enhance the quality and speed of the reaction to both the predictable and unpredictable changes (Davis and Davis (2011, p. 46). Large and medium-size organizations are using strategic decision-making technique in order to achieve quality and speed in the reaction to changes in the internal and external environments of an organization.
Impact on a Firm’s Competitive Advantage
The strategic decision-making is one of the techniques that help to create and to sustain completive advantage of an organization, against the competitors. As mentioned earlier, business organizations are increasingly operating in volatile markets. In some cases, effective responses to the uncertainties may require the use of accounting information, such as prices, revenues and income. For instance, an organization selling differentiated products and operating at a loss as a result an increase in the cost of manufacturing one of the products may need to use all accounting information related to all products in order to make adjustments to offset the loss (Cadez & Guilding, 2008, p. 6).
Management responses to changes may also lead to the modification of accounting information. A good example is a situation where an organization responds to an increase in supply in the market through reducing the prices of particular products. When uncertainty occurs as a result of sudden changes in market conditions, the time needed to make appropriate decisions may be limited. The accountants, who handle the accounting information and understand it better, may be in a better position to give further directions on the responses that should be taken. Incorporating the ideas of the accountants enables the senior managers to make the most appropriate choice, among a set of options (Cadez and Guilding, 2008, p. 6). In addition, incorporating the ideas of the accountants makes them feel that they are valued and that they are part of the overall decision-making process. Consequently, the technique motivates them to work harder in order to steer organizations meet the set short- and long-term goals, which leads to improved organizational performance (Cadez and Guilding, 2008, p. 6).
Further, strategic decision-making technique involves the move from strict focus on operational issues a more integrated approach that facilitates effective interaction between all organizational stakeholders. Precisely, effective implementation of the technique requires effective integration of financials, senior staff, junior staff, processes and customers. In order to achieve competitive edge in the current uncertain and competitive markets, organizations must adopt approaches that enhance customer value in all departments. A customer-focused strategy requires effective communication within an organization in all directions (Cadez and Guilding, 2008, p. 6). Precisely, there must be effective communication about the general and specific goals of an organization between staff at all levels within an organization. The strategy improves information flow within an organization. In this sense, technique enhances the ability of an organization to respond to both predictable and unpredictable changes. As well, the technique opens an avenue for accountants to liaise and to form interdepartmental teams. Interdepartmental teams help to improve job efficiency the process of carrying out tasks and to enhance quality in decision-making processes, which translates in improved organizational performance (Cadez and Guilding, 2008, p. 6). In summary, the strategic decision-making process is a technique that enhances organizational performance, which is a key factor in creating and sustaining competitive advantage in any given market.
References
Cadez, S. and Guilding, C. (2008). “An exploratory investigation of an integrated contingency
model of strategic management accounting,” Accounting, Organizations and Society,Vol 33, p. pp. 836-863.
Davis, C. E. & Davis, E. (2011). Managerial Accounting. John Wiley & Sons, London
Hoque, Z. (2005). Handbook of Cost and Management Accounting. Spiramus Press Ltd, New
York
