Innovation in Management Accounting Driving Modern Organization - Essay Example

Introduction
The business environment has always been dynamic and this has rendered the traditional methods of costing ineffective in assessing the organizations’ profitability and efficiency.

Due to this radical change in the business environment and the ever-increasing competition among organizations, many have been triggered to delve into new and innovative management accounting techniques to try to outplay the rest in terms of market share and dominion. These innovations have provided the organizations with the basis to make informed decisions that will enable them to be better equipped in the management and control functions. Moreover, the move to adopt these new systems of management accounting has been triggered by the ever-increasing complexity of the manufacturing systems that render the convectional inefficient in the analysis of the company’s profitability and control. Despite the continual use of some traditional methods like variance, it currently integrates innovative management accounting techniques.

The essay further puts forth the practical areas of application of these systems and how they have transformed the face of most modern organizations and brought about a revolution in modern businesses.

Such techniques include:
 Lean accounting
 Resource consumption accounting(RCA)
 Throughput accounting
 Activity-based costing (ABC)
 Life cycle costing
 The German costing method of GPK

Lean accounting
This innovation of lean manufacturing was developed by Toyota and other Japanese companies. This was after they paid a courtesy call to the Ford Motor Company. Both European and American companies in the 1980s saw it worthwhile to incorporate this innovation in financial and management accounting processes.

Most of the traditional methods are anti-lean in that they do not reflect the positive and cost-saving measure that a lean technique provides. Lean accounting techniques measure positive gain by implementing ways like eliminating waste, freeing up capacity, speeding up the process, eliminating errors and defects, and making the process clear and understandable hence improved overall capacity, unlike the traditional methods which worked to deliver numbers that are not a real reflection of the company profitability “lean Accounting 96” (Content). It is worth noting that as an organization matures with lean thinking and methods it leads to motivation for change that is required for the prosperity of the company’s ongoing lean transformation

Why lean accounting?
The adoption of the lean accounting technique by modern organizations has been due to the positive impact it has brought about in many companies. For instance, it is associated with providing accurate, timely, and understandable information that is crucial for the accounts team, managers, and sales team. The information gives a vivid insight into the organization’s efficiency in terms of operation and financial aspects. It has also been associated with improved production floor morale and thereby increased overall capacity. Moreover, the timely information ensures that the financial management team is able to do their analysis in time and provide financial reports in time hence minimizing the time wastage and ensuring the organization moves forward. The reports are readily understandable to anyone in the company. Emiliani, Bob, Better thinking Better Results, CLBM; 2 edition Wethersfield, CT, USA, (23 March 2007).

Noting that lean accounting is a work in progress, a standard approach to accounting is facilitated by an agreed body of knowledge. This management accounting innovation technique has been in application in a number of companies; for example, Danaher has created a competitive factory after a long lag that had led them to drown due to a generation of designing and building awful products. Moreover, Marshfield Doors Systems in Marshfield, Wisconsin have followed the lean accounting technique. The employees had created the work cell for each of the four machine models it produced which performed tasks of machine production in sequence at one place. Within a year, the production capacity increased and time wastage reduced.