The 1950’s were a remarkable period in the business world. The world at large was on a recovery path after two devastating world wars which had changed the focus of business towards the provision of military goods than on providing quality value to customers. Production was mainly concentrated on few organizations and was characterized mainly by bureaucratic methods of organizational management. It was during this period that there was increased pressure to develop internal methods of cost evaluation that would aid in the decision making process of managers. It was necessary to have in place relevant accounting information that was internal to the organization to enable the making of the most optimal decisions to ensure that an organization remained profitable and within its objectives in an increasingly competitive business environment. Business environment has been changing since then, and the internal needs of accounting information which necessitate management accounting in business organizations keep changing with time. This means that management accounting research has become a continuous process as new and more efficient and effective methods and techniques have to be developed to meet these information needs.
In their book, relevance lost: the rise and fall of management accounting (1987), Johnson and Kaplan raised some key concerns about the historical development of management accounting. These concerns have influenced greatly the path taken in management accounting research since then and have led to a critical evaluation of the role of historical study of the development of management accounting and the role it plays in the current research in management accounting. In their book, Johnson and Kaplan argued that management accounting was not formed in the 1950’s as had been traditionally agreed, but rather the formation of management accounting occurred in the 1920’s. This indicated a shift from the traditional view that management accounting had its inception at the period of great growth that followed the end of the Second World War to the period of stagnation of the 1920’s that preceded the great depression. Johnson and Kaplan also promoted the argument that for a period of two decades following the publication of their book, there would be great developments in the field of management accounting research. The book relevance lost has thus raised concerns on the development of management accounting research since its inception in the 1950’s. The first concern is on the importance of studying historical development of management accounting. The second concern raised by the book is on the relevance of historical developments if management accounting in the current research in management accounting. This paper seeks to investigate these two issues through a critical evaluation of the development of management accounting theories since the 1950’s, the development of management accounting techniques since the 1950’s and the development in research strategies and methods over the same period of time.
Development in management accounting techniques since the 1950’s
The period between 1950 and 1965 was characterized by an emphasis for management accounting to provide information within the organization for planning and control purposes. To achieve this objective, management accounting research developed techniques of management accounting which were most appropriate to meet the information needs specifically for planning and control purposes within the organization. This led to the development of management accounting techniques of decision analysis and responsibility accounting. During this period, the development of these accounting techniques was mainly focused on the provision of information to management by staff for the purposes of manufacturing and internal administration. As Ashton (1995), argues, the focus of management accounting techniques during this period was not geared towards strategic considerations and was usually reactive, only meant to take actions when significant deviations occurred from a business plan.
The twenty year period between 1965 and 1985 was characterized by a recession brought about by oil price crisis of the 1970s and increased global competition. There was also a remarked technological development during this period, and businesses could practically employ technology to improve quality and have a more firm control on costs. The development of increased computing power also meant that more data could be stored and accessed with ease by mangers. This business environment led to the development of management accounting techniques which could effectively interpret large amounts of data to give mangers information relevant for decision making (Hopwood 2008). The focus of management accounting at this period thus became the control of costs in the new management and production techniques that were introduced to counter increasing global competition. Techniques such as process analysis and cost management process were developed during this period.
The challenge of global competition has been growing since the 1990’s, and e-commerce has become a reality. This increased competition has led to the development of management accounting techniques which are focused on the provision of value to the organization through an effective use of the organization’s resources and the reduction of wastages. The focus of management accounting has thus essentially shifted from mere information provision to the use of the information as a resource in the creation of value within the organization. Management is accounting techniques such as strategic decision analysis, budgeting, performance based evaluation and decision making communication have evolved to meet the information needs of the organization while at the same time creating value (Atkinson et al 1997).
Development in theories since the 1950’s
Management accounting research has not only been influenced by accounting theories, but also by the development in theories of management. Taylor’s scientific management theory played a critical role in the development of the cost control systems that were developed in the 1950’ and in the 1960’s. Management accounting research at that time was more focused on developing methods and techniques which could be used to promote efficiency in the organization in a manner which was in tandem with the ideals envisioned in Taylor’s scientific management (Nixon & Burns 2005).
Management accounting research has also been influenced in its development by the financial accounting theories that have developed since the 1950s to date. In the 1950s, the matching concept was developed and it influenced the development of management accounting practice to focus on cost determination and financial control. As accounting theory developed and identified the varied users of accounting information, management accounting research became more focused on the provision of information only for the internal use in the organization for the purposes management planning and control in the 1970s, later evolving in the 1980s to shift focus to the reduction of waste, the use of just in time technique and activity based costing. Al, these development were influenced on a greater part on the development of accounting period over the same period of time (Ashton, Hopper & Scapens 1995).
The development of strategic management theories has also influenced the direction of management accounting research in the recent years. The emphasis of strategic management is the making of decisions which ensure the continuity and profitability of the business organization in the long term. This has led to the integration of management accounting techniques which have a strategic value to the business and which are not constrained only to the traditional one accounting time period. Techniques in management accounting which focus on cost control in the long term are as a result of the development in the strategic management theories (Scapens & Bromwich 2001).
The development of the total quality management theory has also been influential on the development of management accounting research (Askarany & Smith 2001). It has led to the development of management accounting techniques which are geared towards aligning the goals of management accounting to those of total quality management. The shifts in focus of management accounting objectives towards the creation of value in the firm are informed by this theory.
Development in management accounting research strategies and methods
Management accounting research methods in the 1950s were majorly quantitative and usually had the objective of providing quantitative information which could be used in the decision making process. However, as the information needs of the organization evolved, more qualitative methods of conducting management accounting research were adopted, mainly from the 1980’s to date. These research methods are intended to provide objective results and inferences on research issues whose results cannot be provided by quantitative information such as levels of customer satisfaction and employee morale (Shields 1997).
The methods used for carrying out management accounting research have also changed over the period from the 1950s with the change in technology. The development of computers has enabled the ability to analyze large volumes of data within a short time and with a higher degree of accuracy than was previously possible (Baines & Langfield-Smith 2003). This development has led to the development of more credible management accounting techniques which are informed by more detailed research carried out using complex methods made available by computers. The use of computers has thus increased the validity of the information that results from the use of various research methods in management accounting.
The most common management accounting strategy over time has been the use of surveys to conduct management research (Anthony & Govindarajan 2001). The use of surveys has remained as the most popular method of conducting management accounting research for the period of time since the 1950’s. The use of practical insight and case study follow as the other strategies that have been favored by management accounting researchers. Experimentation and mathematical analytics as strategies of conducting management accounting research have not been very popular despite the reliability and increased validity of results from such strategies.
Discussion and conclusions
Management accounting research has undergone a lot of changes from the 1950s to date, always attempting to reconcile the objectives of management accounting to the objectives of the business organization in a changing global business environment. It has also been influenced by the developments in technology, which has enabled the development of more efficient and comprehensive management accounting techniques which analyze huge amounts of data to provide management with relevant information. The value of historical understanding of the development of management account research cannot be overemphasized. The study of the past of management accounting research is important because of two reasons; it enables present day researchers to understand the current management accounting practices than can be possible by the use of current data and enable present day management accounting research benefit from the critiques that have been made in historical studies, and thus highlight the limitations that present day research may face.
Future research directions in management accounting
Management accounting research in the future will be more informed on the ethical requirements that need to be observed as ethical standards of research become a sensitive area. The development of technology will also influence the direction of management accounting research as more efficient and reliable production methods and management practices are introduced. Management accounting research will also have to change to be more qualitative as business information on subjective areas such as value creation; employee morale and motivation among others become important basis on which decisions in a business organization are based. The direction of management accounting research will be informed by these factors in the future, and a shift towards such should probably start.
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