The term 'strategy' originated from the military; a strategy was seen as the plan of action for
moving aircraft or shipping troops to help overcome their enemies. From this, the notion of
'strategic management' was created to integrate strategy into the business environment, as a
plan of action to help organisations with accomplishing their drawn-out objectives or goals.
Likewise, organisations use strategy to plan how they can overcome their competitors by
achieving a competitive advantage (Ghemawat, 2002) (Nixon & Burns, 2012). Traditionally,
management accounting has focused on internal trends of an organisation alone to aid in
decision making. However, in more recent years, focusing exclusively on internal variables to
make decisions has demonstrated to be ineffective as it does not allow senior management to
gain a variety of internal and external information that will enable senior management to
create strategic plans for the future (Horngren, Datar, Rajan, Maguire & Tan, 2018) (Sharma,
2020a, 2020b). From this, Kenneth Simmonds combined the concepts of business objectives
and management accounting information to create the concept' strategic management
accounting' in 1981. It was characterised as the arrangement and examination of management
accounting data about an organisation as well as its competition to use in developing a
business strategy (Chartered Institute of Management Accountants, 2013, 2015) (Lord, 1996)
(Simmonds, 1982).
The purpose of this essay is to discuss what strategic management accounting is, how
strategic management accounting can be used to meet the needs of managers to accomplish
business objectives and to identify in what ways management accountants can adjust their
services provided to the changing environment.
As mentioned earlier, strategic management involves both the construction and
implementation of an organisation's significant plans and objectives based on the resources
available and the internal and external environmental factors that could affect an organisation
in any way. Strategic management blossomed in the 1950s and 1960s from numerous
contributors including Alfred Chandler, Igor Ansoff, Peter Drucker and Bruce Henderson.
The 1950s saw a focus on budgetary planning and financial controls to achieve a competitive
advantage, but in the 1960s, the focus was less on financial factors and led to increased
corporate planning for growth and diversification. According to Ghemawat (2002), due to the
additional demand caused by destruction post World War II in Europe and Asia, many
organisations had to look at global competitors when planning and decision making for the
future. The 1970s saw an increase in strategic management, becoming a more serious practice
and extending to look at business competitors. With this, organisations looked to improve
, their market share and started focusing on particular market segments and leadership
positioning (Ghemawat, 2002). By the 1980s strategic management was seen as its own
discipline and started taking shape with the increase in global competition and organisations
looking to gain a competitive advantage, this was the decade of which strategic management
thrived among managers and researchers, and strategic management accounting was created
(Bromwich, 1990) (Herrmann, 2005) (Nixon & Burns, 2012) (Vaish, 2016).
Strategic management accounting has coined many definitions from different works of
literature. However, the overall idea reached by professionals about strategic management
accounting is to help senior managers by delivering data that is both financial and non-
financial. This information will then be utilised to make and sustain a competitive advantage
in an antagonistic competitive environment (Sharma, 2020a, 2020b) (Lord, 1996) (Nixon &
Burns, 2012). Simmonds explained that strategic management accounting focused on
"comparison of the organisation with its competitors. He advocated the collection of
information necessary to enable determination of market share and competitors' pricing, costs
and volume" (Lord, 1996, p. 349).
This examination of competitors helps the senior managers to understand their competitors
positioning as well as the current competitive environment as a whole. This collection of data
from competitors can be achieved by collecting information about their positions through
different mediums the same way that the military would about their enemies in order to attack
(Lord, 1996) (Nixon & Burns, 2012) (Sharma, 2020a, 2020b). Although, for an organisation
to compete against other organisations in the industry, they need to ensure they not only
understand the industry they are competing in but to understand their position within the
industry.
Michael Porter created Porter's Five Forces of Competitive Position Analysis in 1979 to help
assess competitive strategies and a business's position compared to its competitors. Porter's
Five Forces also helped by providing a "much more specific basis for systematic analysis of
industry attractiveness" (Nixon & Burns, 2012, p. 232) These five forces for industry analysis
includes number and strength of competitors, potential entrants to the market, availability of
equivalent products, bargaining power of customers and bargaining power of input suppliers.
Porter also introduced the value chain analysis to help organisations gain a competitive
advantage. "The aim of value chain analysis is to find linkages between value-creating
activities which result in lower costs and/or enhanced differentiation. These linkages may be
moving aircraft or shipping troops to help overcome their enemies. From this, the notion of
'strategic management' was created to integrate strategy into the business environment, as a
plan of action to help organisations with accomplishing their drawn-out objectives or goals.
Likewise, organisations use strategy to plan how they can overcome their competitors by
achieving a competitive advantage (Ghemawat, 2002) (Nixon & Burns, 2012). Traditionally,
management accounting has focused on internal trends of an organisation alone to aid in
decision making. However, in more recent years, focusing exclusively on internal variables to
make decisions has demonstrated to be ineffective as it does not allow senior management to
gain a variety of internal and external information that will enable senior management to
create strategic plans for the future (Horngren, Datar, Rajan, Maguire & Tan, 2018) (Sharma,
2020a, 2020b). From this, Kenneth Simmonds combined the concepts of business objectives
and management accounting information to create the concept' strategic management
accounting' in 1981. It was characterised as the arrangement and examination of management
accounting data about an organisation as well as its competition to use in developing a
business strategy (Chartered Institute of Management Accountants, 2013, 2015) (Lord, 1996)
(Simmonds, 1982).
The purpose of this essay is to discuss what strategic management accounting is, how
strategic management accounting can be used to meet the needs of managers to accomplish
business objectives and to identify in what ways management accountants can adjust their
services provided to the changing environment.
As mentioned earlier, strategic management involves both the construction and
implementation of an organisation's significant plans and objectives based on the resources
available and the internal and external environmental factors that could affect an organisation
in any way. Strategic management blossomed in the 1950s and 1960s from numerous
contributors including Alfred Chandler, Igor Ansoff, Peter Drucker and Bruce Henderson.
The 1950s saw a focus on budgetary planning and financial controls to achieve a competitive
advantage, but in the 1960s, the focus was less on financial factors and led to increased
corporate planning for growth and diversification. According to Ghemawat (2002), due to the
additional demand caused by destruction post World War II in Europe and Asia, many
organisations had to look at global competitors when planning and decision making for the
future. The 1970s saw an increase in strategic management, becoming a more serious practice
and extending to look at business competitors. With this, organisations looked to improve
, their market share and started focusing on particular market segments and leadership
positioning (Ghemawat, 2002). By the 1980s strategic management was seen as its own
discipline and started taking shape with the increase in global competition and organisations
looking to gain a competitive advantage, this was the decade of which strategic management
thrived among managers and researchers, and strategic management accounting was created
(Bromwich, 1990) (Herrmann, 2005) (Nixon & Burns, 2012) (Vaish, 2016).
Strategic management accounting has coined many definitions from different works of
literature. However, the overall idea reached by professionals about strategic management
accounting is to help senior managers by delivering data that is both financial and non-
financial. This information will then be utilised to make and sustain a competitive advantage
in an antagonistic competitive environment (Sharma, 2020a, 2020b) (Lord, 1996) (Nixon &
Burns, 2012). Simmonds explained that strategic management accounting focused on
"comparison of the organisation with its competitors. He advocated the collection of
information necessary to enable determination of market share and competitors' pricing, costs
and volume" (Lord, 1996, p. 349).
This examination of competitors helps the senior managers to understand their competitors
positioning as well as the current competitive environment as a whole. This collection of data
from competitors can be achieved by collecting information about their positions through
different mediums the same way that the military would about their enemies in order to attack
(Lord, 1996) (Nixon & Burns, 2012) (Sharma, 2020a, 2020b). Although, for an organisation
to compete against other organisations in the industry, they need to ensure they not only
understand the industry they are competing in but to understand their position within the
industry.
Michael Porter created Porter's Five Forces of Competitive Position Analysis in 1979 to help
assess competitive strategies and a business's position compared to its competitors. Porter's
Five Forces also helped by providing a "much more specific basis for systematic analysis of
industry attractiveness" (Nixon & Burns, 2012, p. 232) These five forces for industry analysis
includes number and strength of competitors, potential entrants to the market, availability of
equivalent products, bargaining power of customers and bargaining power of input suppliers.
Porter also introduced the value chain analysis to help organisations gain a competitive
advantage. "The aim of value chain analysis is to find linkages between value-creating
activities which result in lower costs and/or enhanced differentiation. These linkages may be
