Innovation in Management Accounting - Literature review Example

Innovation in Management Accounting Student’s Name Institutional Affiliation Innovation in Management Accounting Innovation in the field of management accounting is of great importance for the survival of an organization. Focusing on the journal article by Emsley, the author has emphasized on the importance of theory development. Also, he has addressed the importance of incentives in innovativeness. Therefore, it is important to focus on patents, patents citations, promotion, and golden parachutes as form of incentives. Emsley (2005) states that innovation is normally regarded as a research topic of importance because innovativeness is believed to have the capacity top make organizations be able to successfully acclimatize to as well as survive fluctuating business environments. Therefore, when management accountants contribute to this innovativeness, they ensure that their managers are up to date with the information that is continuous relevance as business circumstances keep changing (Emsley, 2005). The reason as to why the author of the journal has emphasized on the role of Theory development is because of its main roles in expounding the relationship between innovation and management. The first role is to differentiate innovation research which is generally concerned with particular innovations from researches involving innovativeness that is the kind of research that deals with any as well as all innovations (Emsley, 2005). The second role is its capacity to the function involvement of management accountant in the form of an exploratory variable through tracing its advance by the management and administrative accounting literatures. Also, it defines the extent a management accountant has when it comes to functional orientation in a business unit. The third role is its capacity to examine the theoretical link between innovativeness and an administrative accountant’s function involvement. The author of the article has addressed the importance of studying innovativeness. The main reason he has adopted that approach is to bring forth the advantages associated with innovativeness as compared to an individual innovation. The first advantage is that innovativeness exhibits a full reflection of the extent to which an administrative accountant is innovating unlike when the same is found by examining a single innovation. Therefore, this is suitable when the theory evaluates the factors that lead to the predisposition of the management accountants in innovating more generally. The second advantage is that despite the availability of more information concerning an innovation, for example ABC, this does not mean that the latter is an archetypal of innovations more commonly (Major & Trevor, 2005). This is because, factors that may be essential to ABC may not necessarily be essential to other forms of innovations. However, when the quantity of innovations examined continue to increase, the effect of explanatory variables that may be pertinent to any individual innovation consequently drops there by allowing simplifications to be simply made. The third advantage is the capacity of innovativeness to embrace a variety of innovations and as well enable them to be grouped (Emsley, 2005). This aspect of grouping is important because it is able to open up the option of explanatory variables such as role involvement will influence various innovations in various means. The approach which is contingent in type may be expected given the dominance of the theory of contingency in other areas in the literature of management accounting. However, these associations are yet to be examined in more depths. In the journal paper, the author in his research has suggested that “incentives” have a role to play in developing of innovations by management accountants. These incentives could include rewards and prospects in the future as well as enhanced satisfaction in the job which is as a result of great job enrichment. I agree with this conclusion and I believe that there are other incentives that may be useful in innovations and will discuss them below. One of the incentives that the management could use is performance-based promotion which is highly significant in encouraging innovation (Gibbs, 1995). Due to the long time taken by an organization to realize the benefits and returns that it will gain from the innovations, it thus should set a system where those who continuously supply fresh ideas that may be of help will be promoted. However, the actual promotion should occur after the idea has been generated, implemented, and commercially tested on its effectiveness (Barros & Lazzarini, 2012). The long-term perspective of innovation is important since it will motivate the accountants to devote more attention to the valuable ideas of innovation they may have with the aim of getting their long-term incentive. According to Besley and Ghatak (2008), the incentive of promotion creates both salary rewards and also offers social recognition. Also, due to its nature to openly reward accountants, promotion thus acts as an intrinsic motivation compared to short term pays (Kreps, 1997). Another form of incentive is the patent system which serves two prime functions (Gilbert & Shapiro, 1990). One, it acts as a motivation for research and as well encourages the movement of ideas and information (Lybecker, 2014). According to Moschini and Clancy (2013), the incentives of exclusive rights originate from the reserved value of which in most cases, it is derived from the function of the range, scope, and size (Clancy, 2013). Economic studies have confirmed the empirical evidence that patents offer incentives that result to the promotion of innovation and the effects have been specifically evident in various sectors. For example, in a study that was conducted in over 60 countries for a period of 30 years since 1960 to 1990, there was found to have a positive correlation between the strength of property rights and research and development investments (Park & Ginarte, 1997). Also, the importance of patents as significant incentives has been confirmed in other major areas such as pharmaceuticals, medical instruments, and biotechnology (Hall & Harhoff, 2012). Also, the use of golden parachutes as an incentive could help increase innovation. When accountants are protected from failure and the risk of dissolution, they are likely to be inspired to go after projects that have high risk but has the potential of increasing the firm-value in the long-term (Brusa, Lee, & Shook, 2009). Lastly, the use of citation in patents is another form of incentive that is of great importance to innovation (Hall, Jaffe, & Trajtenberg, 2005). Patent citations indicate a flow of knowledge where in using citations which are identified by parties apart from the inventors, it may help to convey important information concerning the technological footmark of the stated patent. Hence, the use of these citations serves as a ration for worth of innovation (Aghion, et al, 2012). As a result, use of compensation contracts as incentives where citations have been truncated also contribute not just innovation but the quality as well (Francis, Hasan, & Sharma, 2011). In conclusion, this paper has focused on why Emsley regards innovation as an important topic in accounting management as well as the importance of theory development. Also, it has focused on various forms of innovation incentives such as patents and patent citations among others. Therefore, for an organization to excel in the market, it has to be innovative and for there to be high quality innovation, incentives are of paramount importance. Read More