Management Accounting Control Systems Essay

Pages: 9 (2433 words)  ·  Style: Harvard  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business

Management Control Systems

Managerial Accounting Problems and Management Control System Solutions:

A Hypothetical Case Study

Wincor Nixdorf, one of the world's leading developers and suppliers of user-interface banking software and point-of-sale kiosks, has long been a powerhouse in its industry, having achieved international success with its ATMs, lottery ticket machines, distribution deals with IBM, and several other endeavors. Through a streamlining of company operations in the late twentieth century, the company increased its profitability by increasing efficiency and decreasing costs, an orientation which the organization has attempted to maintain in the first decade of the twenty-first century. This, however, has been more difficult for Wincor Nixdorf and for other companies than would have been predicted even a few short years ago, due to the global recession that became evident in 2008.

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The collapse of several major banking institutions and the ripple effect this caused in the economy as a whole led to major restructuring and a great deal of shrinkage in operations and profitability for many organizations in diverse industries. Generally speaking, the larger the organization both in sheer size and in the global spread of its operations, the harder the company was hit by the global financial meltdown, and Wincor Nixdorf was certainly not immune to the effects of this economic event. Especially as the company's operations are intimately tied to banking success (though it is more involved with individual and personal banking than inter-organizational operations, where the damage might have been more severe), there were definite negative effects on the company from the recession.

TOPIC: Essay on Management Accounting Control Systems Assignment

This paper will examine some of the specific ramifications of the recession and the initial banking collapse on Wincor Nixdorf and its bottom line, suggesting managerial accounting problems in the company's reaction to the external situation as well as methods for brining these managerial accounting practices in line with the optimum performance of the organization. Specifically, the managerial control system proposed by Simons (1995) of levers of control will be applied to the internal and external situations facing Wincor Nixdorf following the banking collapse and onset of the recession in an attempt to examine how a different approach might have allowed the company to fare better in these tough economic times. Though Wincor Nixdorf continues to be a profitable enterprise, improvement in managerial control and accounting is always advantageous.

Problem Statement

One of the primary characteristics of any recession, but perhaps especially one as sudden and violently begun as the current economic slowdown and shrinkage, is uncertainty. It is this uncertainty that has kept the unemployment rate so high even amidst signs of recovery; it has also kept consumer sending lower, stalled a recovery in the housing market, and caused many businesses to postpone expansions and any other unnecessary expenditures while they wait to see what further developments n the global economy might occur. This lack of economic movement has, almost by definition, prolonged the recession to some degree, and though some analysts claim we are already moving out of it many problems persist.

What all of this uncertainty means for the economy as a whole is a matter of debate, and the exact cause-and-effect mechanisms at work here will likely continue to be the subject of academic disagreement for generations, as have those of the Great Depression and other major economic shifts. What all of this uncertainty means for Wincor Nixdorf, however, is fairly straightforward: uncertainty, for any business, means risk, and risk management is a key element to success in terms of both stability and growth. There are, of course, many different methods for managing risk, each with its own set of attendant issues -- both advantages and disadvantages -- and managing risk is in fact such a complex and constant process that a single clear method is rarely (if ever) a truly fixed part of an organization's strategic operations beyond a set of more generalized guiding principles.

For simplicity's sake, this paper will examine Wincor Nixdorf's response to the global economic slowdown and uncertainty as a more singular and extreme variation of its current general position in regards to risk management. The company's real-world response to the worldwide recession has left the company fairly viable and possibly poised for later growth, but it is not as aggressive as it could be in this situation. Essentially, Wincor Nixdorf has moved to far into the area of risk avoidance, which has limited the company's growth potential during these volatile times. Risk avoidance can be an effective strategy to some degree, especially in times of higher uncertainty, but a total risk avoidance -- the semi-hypothetical business strategy being examined here in relation to Wincor Nixdorf -- is a severely limiting and ultimately self-defeating way to manage risk.

Much of the risk avoidance problem that Wincor Nixdorf is facing could be solved with an application of a management control system to the managerial accounting practices -- specifically putting a break on managerial conservativism in response to accounting statements. Though some degree of protective and risk-avoidant managerial action is of course warranted in response to shrinking numbers that reflect the global pattern, establishing a clear system of action and control that would allow management to be focused more on long-term growth strategies rather than on day-to-day survival based on accounting reports, which is to some degree what Wincor Nixdorf is experiencing, would be more beneficial. The managerial accounting practices at Wincor Nixdorf have become to fixated on risk management through number control, and this is limiting company potential.

Literature Review

There is abundant available literature on the effects of the global recession on many individual companies, as well as much larger volumes of research into the areas of managerial accounting, management control systems, and risk management. In an effort to narrow the amount of literature reviewed and digested in This paper, selections from academic and professional journals were limited in their scope to a specific discussion of managerial control in the current economic climate and previous examples of the specific managerial control system/framework -- i.e. Simon's levers of control hypothesis. Literature regarding risk management as a function of the levers of control was also sought.

One of the most interesting phenomenon noticed regarding changes in management control systems in Simons' framework is the fact that companies unused to dealing with uncertainty are more likely to change managerial practices and controls in a drastic manner in response to shifts in conditions when compared to companies that operate in an environment of greater uncertainty to begin with (Asel 2009, pp. 5-9). That is, perceived environmental uncertainty leads to managerial control and accounting practices in many companies that are more rapid and extreme than they generally need to be, and ultimately prove to be counterproductive (Asel 2009). The conservative managerial accounting reactions to the recession practiced by companies such as Wincor Nixdorf do not encourage individual and organizational behaviors that are as beneficial as could be desired.

Simons' identification and description of the four levers of control that can be used to develop a comprehensive managerial control system requires integration and some semblance of equality in their application (Abas 1999). The basic levers identified in this framework are diagnostic systems, beliefs systems, boundary systems, and interactive systems, and when there is an imbalance in the application of or focus towards these systems managerial control becomes less effective. Though particulars such as cost accounting are specifically and explicitly identified as essential components of any managerial control system, they cannot be the sole or even primary focus of such controls if the organization is to continue to function and grow effectively (Abas 1999). A focus on accounting issues does not provide an accurate view of the company or its environment.

Perhaps one of the most essential elements of Simons' levers of control framework in the case at hand is the proper implementation of what he identifies as interactive control systems (Simons 1995). Regular interaction and contact between supervisors and subordinates -- and executives, to some extent and in some circumstances -- is essential for maintaining real control over an organization. This allows for the incorporation of all of the most relevant and critical information form the company's operations and environment, rather than simply the managerial analysis of whatever information crosses their desk (Simons 1995). Through properly functioning interaction control systems, accurate and up-to-date analysis of the company, its operations, and its external environment and internal situation can be maintained in a way that accounting alone does not allow for.

Despite the success that Simons' framework of the four levers of control has had in the business world as well as in academia, there are also those that caution against a complete devotion to this method of exerting managerial control (Tuomela 2005). The perception that the measures themselves will eventually produce a solid understanding of cause and effect relationships was noted as a common feature of the implementations of Simons' framework of managerial control, which limits the actual effectiveness of the framework (Tuomela 2005). This does not negate the essential claims made… [END OF PREVIEW] . . . READ MORE

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