Rivers State University of Science And Technology, Nigeria From the SelectedWorks of Lawyer Obara

2002

ACCOUNTING INFORMATION NEED FOR STRATEGY FORMULATION, IMPLEMENTATION AND CONTROL Chukwumah Lawyer Obara, Dr

Available at: http://works.bepress.com/chukwumah_obara/14/

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101

ACCOUNTING INFORMATION NEED FOR STRATEGY FORMULATION , IMPLEMENTATION AND CONTROL DONALD I. HAMILTON (MBA) Department of Management

And

LAWYER C. OBARA (MBA) Department of Accounting All of Rivers State University of Science and Technology Port Harcourt.

ABSTRACT The role of accounting information in operational planning is well known . This is however not the case with strategic management. Against this background this study was carried out to determine the need for accounting information in strategy formulation, implementation and contro l. Our study revealed that accounting information ranks high in strategy formulation, implementation and control in Nigeria. We also found management accounting information to be the most important information for strategy implementation and control phase of strategic management. We recommend an accounting model that is capable of embracing subject ive judgement about the uncertain future and also the inclusion of accountants in strategic .rnanaqernent teams.

1.

INTROD UCTION

The need for maintaining financial chastity of business operation, ensuring the reliability of recorded experience resulting from these operations and the conduct of a frank appraisal of such experience has made accounting a prime activity along with such other activities as marketing , production and finance . Accounting concepts , systems and procedures in use today are the out growth of developments that began in the accounts of merchants in the Italian City states during the Renaissance period. Accounting developed as a result of the needs of firms to keep track of their relationship with outsiders, to maintain listings of their assets and to permit an accurate determination of the amounts accruing to various parties connected with the conduct of business (Mohan et a11985) The last three decades have witnessed rapid changes in the development of account ing from a mere device of recording and compiling of income and expenditure relating to past business transaction to a formidable instrument of forecast ing,

102 planning, and regulating business and other econom ic activities. Accounting thus provides information that forms the basis of management actions and decis ions . The use of accounting information for operational decisions in business is widespread and long standi ng. This is however not the case with strategic management. This is because acco unting informatio n is basically a record of past business transactions whereas strategic management is the vision of top level managers today about their business in the future. The past records of business transact ions are of use to managers when they visualize the future of their business. This study is therefore designed to investigate how useful accounting information is to senior managers in Nigeria when they perform their strateg ic management responsibili ties. Specifically we investigated: • The need for accounting information in strategy formu lation, implementa tion and control; • If accounting information is useful in strategic manag ement , what type of accounting information is required?

2

ACCOUNTING INFORMATION Acco unting is looked upon as a discipline that records, and classifies the moneta ry impact of business transactions and events in an enterprise for the purpose of report ing and interpreting the results to a variety of interested parties (Asechemie: 1992). Accounting information would therefore seek to provide records of past financial transactions to its numerou s internal and external users. Accounting information is useful in forec asting future trends, planning the activities of an organiza tion and regulat ing business and other economic activities. Accounting, as Drury (1985) said, is therefo re a language that comm unicates financial information to people who have interest in an organization. These people could be managers, shareholders, employees, creditors, potential investors etc. Accounting information could be divided into three inseparable parts as shown in Figure 1 below.

Fig . 1: Venn diagramme of account ing info rmati on Circle 'A' represents managem ent accounting information directed at key decision-makers and designed to aid manag erial decision making. Circle '8' represents Financia l Accou nting information designed to provide information required to be published by regulatory bodies to meet the needs of stakeholders of the orga nization. Circle 'C' represents cost accounting information that provides cost information and designed to aid managerial control. Management, Financial and Cost accoun ting information are all interrelated and it is difficult to see how one can be sepa rated from the others.

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STRATEG IC MANAGEMENT

Strategic management is a set of managerial decisions and actions that determines the long-term performance of a corporation (Wheelen and Honger: 1995). Strateg ic manag ement activities are varied and diverse. Firmly rooted in the visions of the owners , strategic management may commence with the mission (reason for existence) which is then tailored to specific and measu rable objectives. With this focus , an analysis profile and the diagnosis of internal strengths and weakness would see the organization adopting strategies with which it hopes to actual ize the objectives it has chosen for itself. The strategies are then implemented through budgets, programmes and proced ures. Evaluation of the last phase ensures that the strategies in their implemented form take the organization to the height it has set for itself. Thompson and Strickland (1984) broke the strategic management process into four distinct categories: •

Strategy formulation which includes developing a comprehensive blueprint specifying where the organization is headed and how it plans to get where it wants to go.

•

Strategy implementation which is purely administrative and involves putting the organization's game plan into place by allocating resources, assigning tasks , delegating authority, and otherw ise carrying out day-to-d ay activities in accordance wi h the chosen strategy.

•

Measurement of strateg ic performance which involves monitoring the organiza tion's performance and the result which the strategy is producing.

•

Strategy evaluation which involves assessing how well the current strategy is work ing and how it might be improved in the light of external market conditions and internal circumstances.

Strategic management is crucial for the success of most organizations especially the large organizat ions that operate in turbulent environments. Strategic manage ment deals with strategic decision. To make strategic decisions, top level managers require information, from many sources. This paper examines the usefulness of accounting information to strategic decision making.

4.

METHODS AND MATERIALS

A preliminary survey of seventy-e ight companies in Nigeria was carried out to isolate companies where strategic management system has been developed. Of the 78 compan ies surveyed, 47 had developed strategic managem ent system. Properly validated questionnaires were sent to the 47 compani es. We achieved a response rate of64 percent represe nting 30 companies in all. 5.

FINDINGS

This study was designed to investigate the accounting information needs for strategy formulation, implementation and control. Objective setting, a key aspect of strategy formulation, appears to have a high accounting information content. More than eighty percent of our respondents, ranked accounting information need for this activity either moderately or highly. This depicted in

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the table 1 below: Table l ,' Acco un ting Information contentof Strategic Obiectives c>.

H inh

• I~

R '''' no n " ' '''

1R

Rn

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"

100

Total 30 Source: Field work , 1998.

On env ironmental analys is, at least sixty percent of our respondents said tI'ley needed accounting information to decide upon the impact of each of the ten environmental variables presented to them. The only exceptions were the Demog raph ic and Socia l/Cultu ral Variables where our respondents were unanimous in saying that accounting information was not needed at all. On the whole, the predominance of the need for accounting information is reported. This can be seen in table 2 below. "

Tabl e 2 A ccou ntma .m f ormation content 0 f env tronmenta ana lVSIS R" " n n n" " " 1: . v",,, Nn

r:,

,:\n

-

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Technolonical

24

6

Dn l ; t ;~~ 11 1 on~ 1

1R

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C':, Customers Marketina intermediaries

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c.

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24 24 ?4 ?R iQR

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So urce : Field work, 1998. The need for accounting information also ranked high in decid ing the internal strengths and weaknesses of the organization. Finance and accounting, production and operations management, research and deve lopment, and marketing were all reported by at least eighty percent of our respondents to have high accou nting informati on conten t. The purely administrative aspects of personnel and organization were the only exceptions. This is dep icted in table 3 below:

105 Table 3: A ccounting info rm ati on co ntent of co rporate resou rce aud it Responses

Factors Financeand Acco unt ino Productionand ooeranon manaoement Researchanddevelopment Marketino Personnel Total sou rce : held work 199tl .

30 30

-

24

6

-

30

L4

ti

120

60

More than eighty percent of our respondent companies had forma lized plan ning systems in the sense of their having a written end- produ ct called 'Corporate plan'. All our respondents attested to a high accounting info rmat ion content of these formal plans. They all rated accoun ting informatio n need either modera tely or highly as shown in table 4 below : Tab le 4: Ranking Accou nting In forma t ion Co ntent of fo rma l Pla n Rank High MOderate

Score 18

Percen t aaes 60

1L

4U

I n '"

n

n

Total 30 So u rce: Field work, 1998 .

100

A sect orial allocation of scores between the different information systems showed accounting information topi ng the list with thirty-five percent of the scores. Marketing infor mation system came next with twenty percent of the scores ; the last is the personnel information system with eig hteen percent. Our resp ondents are thus sa ying that acc ounting information system is the most impo rtant information system for strategy formulation, implementation and control , as indicated in table 5 below : Table 5: Co nt rib utio n of Info rm ati o n System to Strategic Management in Order of Importance. Information Svs tem Accounting Info rmation System Ma rketino tnrormat ron Svstern ,