The relationship between Total Quality Management (TQM) and managerial accounting lies in that fact that managerial accounting concerns itself with decision making in an organization. Apparently, management accounting is one of the mechanisms that an organization relies on for the generation of information used in decision making. Total Quality Management (TQM), a management philosophy that has its roots in the Japanese traditional management systems has become increasingly popular. This paper, which assumes the structure of a literature review plus some additional research, seeks to explain the relationship between the two key concepts, which are Total Quality Management (TQM) and Managerial accounting. In so doing, the paper considers the capability of managerial accounting to alter the quality of decisions and processes within an organization. Similarly, the paper focuses on the manner in which Total Quality Management (TQM) practices within an organization impact on the managerial accounting processes. The relationship between the two concepts is explained in light of how it affects the decision making structure of the entire business. Previous research indicates that there is a considerable contribution made by incorporating Total Quality Management (TQM) into Managerial accounting. This paper puts substantial reliance on such research.
The tremendous success of Japanese companies in the 1990s has greatly been attributed to the use of such process oriented approach as Total Quality Management (TQM), Kaizen as well as Business Process Re-Engineering (BPR). Although they are used in the same breath, there is a difference between total quality management, quality management and quality. The three terms cover different scopes of the concepts and refer to totally different aspects related to quality. Perhaps the only common thing about the three is the fact that they refer to the nature of goods or services offered by a company or organization. Apparently, such process oriented approaches to management have their roots in Japan. Kaizen is notably among the novel concepts that have seen Japanese companies, such as Toyota, soaring at the heights of success. Apparently, TQM, which is a wider, all-inclusive concept, is founded on Kaizen and the theory of continuous improvement (Zelbst et al, 2010). Research indicates that there is a very close connection between Managerial Accounting and TQM. Managerial accounting, a concept concerned with strategic decision making it quite different from financial accounting. The fundamental difference between managerial accounting and financial accounting is the fact that managerial accounting is concerned with planning (future) while financial accounting is concerned with explaining past accounting information (historical). This paper endeavors to explain the strong relationship between Managerial Accounting and Total Quality Management.
The background of Managerial Accounting
According to Mehra et al (2001), managerial accounting is a system within the management structures that is concerned with the supplying of information to the top decision making body. Typically, managerial accountants concern themselves with such information as non-monetary information, which in most cases, is on the non-routine nature. Mira et al (2001) describes the managerial accounting as a primary strategic management tool, which supplies the strategic team with relevant information relating to such things as cost reduction, efficiency, as well as market research. Typically, the managerial accountants are concerned with such things as a collection of information from suppliers with an aim of achieving efficient stock handling with an organization. Stock management, is made effective through the use of such concepts as Just-In-Time, Economic Order Quantity (EOQ) and Economic Batch Quantity (EBQ). Apparently, all these concepts work on the principle of total quality management. Managerial accounting, provides information that will help in such future plans as budgeting and long-term planning. Worth noting is the fact that, however different they may seem, Financial Accounting and Managerial Accounting or related in such a way that the latter supplies the former with relevant information, which can be used in forecasting. According to Mehra et al (2001) TQM’s success relies, to a great extent, on Managerial Accounting.
The background of Total Quality Management (TQM)
The concept of TQM, which has its roots in Japan, has been explained variously by business authors as a way of ensuring that quality is an inherent characteristic of all business processes. Steingard and Fitzgibbons (1993) have given a step by step explanation of what Total Quality Management (TQM) entails. According to the authors, Total Quality Management (TQM) can best be explained by breaking down the whole concepts into the definitive elements. Worth noting is the fact that total quality management is a continuous concept rooted in the processes of the organization. It is for this reason that the concept is defined as total. According to Steingard and Fitzgibbons (1993), the word Total is used in the definition to refer to the all-embracing nature of TQM as a concept. Apparently, total, is a term used to refer to the totalizing effect that TQM will have on organizational resources, including, and more especially the human resources. In straightforward terms, the term total is used to describe the summing up of resources, systems, processes and people.
Steingard and Fitzgibbons (1993) Quality is a term referring to the expectations of customers and the market at large. Something is regarded to as being of high quality if such a thing meets the expectations of the market. In other words, Steingard and Fitzgibbons (1993) endeavor to imply that Quality refers to the deliberate efforts by the organization to improving the acceptability of the market and the customers. Management, according to Steingard and Fitzgibbons (1993) is a continuous process that makes up the organization by coordinating all other resources as well as upholding effective communication between the various departments and sections of the organization. Management is brought out as an essential part of the organization, by the authors. Mehra et al (2001) explains “total quality management is an organization-wide philosophy requiring all employees at various level of an organization to focus his or her efforts to help improve each activity.”
Total Quality Management gained prominence in the 1980s, when competition was becoming stiffest in the world market, with the companies in various countries across the world going global. The competition posed by the industry compelled the new and less established organizations to find ways of surviving in the market. The efforts to come up with such ways marked the conception of the idea of TQM in Japan. Japanese companies embraced the concept as a way of attaining Continuous Improvement Process (CIP). Steingard and Fitzgibbons (1993) define Continuous Improvement Process (CIP) as the deliberate efforts to establish consistency and continuity in ensuring zero-deviations. In explaining the two concepts, Steingard and Fitzgibbons (1993) describe Total Quality Management as continuously ensuring zero defects. In other words, the organization should endeavor to minimize errors in the processes of such departments as production.
The relationship between the two concepts is a dual-effect relationship. In simple terms, changes in either concept affect the other. This implies that a change in managerial accounting practices of a company will result in a change in the total quality management efforts of the company. Zelbst et al (2010) explains that Management Accounting, being one of the common business processes in any organizations, especially in manufacturing concerns, plays a critical role in ensuring Total Quality Management efforts are upheld. Mehra et al (2001) who identify Total Quality Management as a process oriented approach, argue that such decision making structures as Managerial Accounting are bound to be affected by the efforts of a company to manage quality. Mehra et al (2010) explain the relationship between management and TQM from many perspectives. For instance, they explain that there is a connection between the Managerial Accounting function and the employees. Typically, cost accountants work hand in hand with the management accountants. While many people have used the terms cost accounting and managerial accounting as synonyms of one another, there is a notable difference between the two concepts. A cost accountant is concerned with cost ascertainment and resource acquisition. On the other hand, the managerial accountant is concerned with using such information to make a decision.
The role of the management accountant in influencing TQM efforts is seen in the fact that, while the cost accountant seeks to ascertain costs and keep them on the low, the managerial accountant will come up with such suggestions as the enlightenment and training of the work force. A well trained workforce is quite efficient. Such efficiency yields quality in all procedures and processes in the organization. In other words, the managerial accounting function will have made the attainment of total quality possible. According to Mehra et al (2001) the managerial accountant ensures all employees and managerial involvement. Such involvement makes quality management an inherent part of every organizational process. Focusing on the human resources, management accounting will initiate such things as employee motivation as a way of achieving quality service delivery. Service quality is an aspect of Total Quality Management. According to Mehra (2010) managerial decision making ensures service quality through reward systems, as well as empowerment of the human resources.
Mehra et al (2001) acknowledge that the top management is primary to total quality management. Apparently, top management is made up of many functions, the management accounting function being the most prominent. Since the top management is concerned with the planning and implementation of Total Quality management, and considering that management accounting is an integral part of the top management, then it is reasonable to conclude that management accounting function both contributes to the creation of TQM efforts, and is required to embrace the TQM philosophy. Worth noting is the fact that managerial accounting is part of the organizational leadership. Mehra et al (2001) observe that, in explaining the management structure focus, many researchers emphasize the relationship between TQM and leadership. Managerial accounting can therefore be said to be affecting TQM through leadership planning.
Another way through which TQM is incorporated into management accounting is what Steingard and Fitzgibbons (1993) refer to as supplier support. Supplier support is a series of process through which the managerial accountants involve the suppliers in the planning process of an organization. This may take the form of what TQM gurus refer to as supplier partnerships. In their research, Mehra et al (2001) notes that, according to many business researchers, supplier support as a key concept in business management. According to the researchers, the managerial accountant will add to the efforts of TQM by ensuring high incoming quality. The researchers as well established that defective materials were the cause of failures in many manufacturing concerns. The fact that defective materials compromised quality is a clear indication that the managerial accountants have to ensure entry of proper quality, proper management and handling of such materials as well as proper use of such materials to produce the highest quality products.
Zelbst et al (2010) explains that managerial accounting is among the key business processes that touch on the various activities and procedures within an organization. Notably, managerial accounting, much like cost accounting, deals with all departments within an organization. This is majorly because managerial decisions regarding costs and budgets touch on all departments. Apparently, all departments are cost centers. While some are revenue centers, others are purely cost centers. Even so, it is worth noting that even the revenue centers do spend. In regulating and reporting of such expenditure, the management accountants help contribute to the decision making of the department hence affecting quality, of both the products and the decision. Management accounting is explained by Mehra et al (2001) as a function that concerns itself with setting quality related goals. Quality related goals trigger the employment of such TQM concepts and principles as Kaizen and Business Process Re-engineering. Such methods of ensuring quality are monitored through a quality audit.
Steingard and Fitzgibbons (1993) define a quality audit as the efforts by the management of a company to make certain that all departments and production functions are compliant with the quality standards set by the company. Typically, an organization sets a threshold of quality, below which no department should perform. Essentially, therefore, much like the financial audit, the quality audit concerns itself with verifying compliance and transparency. Managerial accountants are the people entrusted with the task of performing quality checks and continuous audit procedures. This way, again, managerial accounting adds to total quality management. Additionally, the management accounting function performs benchmarking, a process Mehra et al (2001) describe as the adoption of the best practices of a company that performs better than the organization carrying out the process of benchmarking. Benchmarking is among the most effective ways of incorporating Kaizen and Continuous Improvement in the organization. As such, the efforts of managerial accounting at enhancing Total quality management are said to have yielded.
Looking at the matter from the point of view of management accountants embracing the concept of total quality management as a central point of reference, the function should supply reliable information, which is critical and relevant to the decision making process. Mira et al (2001) explains “information, specifically the flow of information will become an extremely crucial element of future success”. The decision making course relies to a great scope on the information generated by the managerial accountants. Information can be described as being of high quality if such information serves the intended purpose. By disseminating quality information, the managerial accountants determine the quality of such departments as the production department. Managerial accounting, through adoption of such techniques as Just-In-Time method of handling stocks, can enhance the effectiveness of the warehousing and stock holding departments. This may enhance the overall quality of the processes (Steingard and Fitzgibbons, 1993).
Zelbst et al (2010) argue that the managerial accounting function is better placed to embrace and enhance total quality management due to a number of reasons. The first reason is that management accountants have a near perfect understanding of the manner in which the organization operates. Much like the auditors, the managerial accountants are well aware of all the processes that take place and how they happen within an organization. This way, they are better placed to interpret and translate the cost accounting language to the decision makers and the customers. In modern business organizations, the customer is the most important stakeholder. The major reason as to why the customer has replaced the owner as the most important stakeholder is because, currently, competition has become so much stiffer, with new entrants flooding the market with quality products. This leaves the customer with wide-ranging decision making powers with regard to the business to transact with.
As a way of incorporating total quality management, the organization’s management should ensure that all the members of staff in the cost accounting and managerial accounting departments are equipped with novel computer applications which can enable them perform their duties efficiently. The use of such technology does not only serve to keep the organization abreast with the times, but also to serve the customer effectively. Total quality management can be achieved by the management accounting function through exhibiting confidence to participate in the decision making process. A managerial accounting function that has embraced total quality management will no doubt contribute quality to the decisions made by the highest decision making body. In a typical business company, the strategic team is the highest decision making body in as far as long term goals are concerned. Strategic teams concern themselves with the coordination of processes, people as well as departments. An organization, being a network of subsystems, needs a strong managerial accounting department to hold the various parts together. TQM employs such concepts as the systems approach. In explaining the role of managerial accounting and TQM in coordinating other departments, Zelbst et al (2010) says, “Systems theory provides a way to examine the interrelationships within an organization by focusing on the interdependence among the subsystems.”
Arguably, the managerial accountants are better placed to engage the strategic managers in embracing continuous improvement and such novel techniques as Kaizen and Business Process Re-engineering (BPR). Advocating for and enforcing continuous improvement is paramount to the success of managerial accounting as a department and the organization as a whole. Steingard and Fitzgibbons (1993) explained that among the key functions of the managerial accountants is to mitigate wastes as a way of enhancing high quality production at minimal costs. Research by various business gurus indicates in near unanimity that wastes account for 20 percent failure in manufacturing concerns. Zelbst et al (2010) explains “Once wastes have been eliminated or substantially reduced, the organization can fully benefit from efforts to improve quality through programs such as TQM. JIT and TQM combine to support the successful implementation of management programs which, in turn, result in the organization’s ability to respond rapidly and aggressively to changes in customer demand”.
In conclusion, it is clear to establish that, from the foregoing discussion, there is a very strong connection between Managerial Accounting and Total Quality Management (TQM).worth noting, as well, is the fact that the relationship is in such a way that the two concepts affect one another. Deviation in the effectiveness of one causes defectiveness on the other. It is as well plain to see that the Management Accounting function of an organization can go a long way in upholding TQM in many or all departments. The major reason as to why Managerial Accounting and Total Quality Management are closely knit together is because, much like auditing, managerial accounting touches on every department and section of the organization. The major ways, upon which researchers have unanimously accepted as being the links between the Managerial Accounting and Total Quality management are such things as supplier support, quality tools, management structure focus, human resources focus, and customer satisfaction. Additionally, TQM has been brought out as the source of information used in decision making and measuring performance.
Mehra, S., Hoffman, J. M & Sirias, D. (2001). TQM as A Management Strategy for the Next Millennia. International Journal of Operations & Production Management, 21(5/6) Proquest Research Library, Pg. 855
Steingard, D. S & Fitzgibbons, D. E (1993). A Postmodern Deconstruction of Total Quality Management (TQM). Journal of Organizational Change Management, 6 (5). Proquest Research Library, Pg. 27
Zelbst, P., Green, K., Abshire, R & Sower, V. (2010). Relationships among Market Orientation, JIT, TQM, and Agility. Industrial Management & Data Systems, 110(5), Pp. 637-658