Strategic management accounting (SMA) is the merging of strategic business objectives with management accounting information to provide a forward looking model that assists management in making business decisions. Unlike management accounting -- which focuses on internal accounting metrics -- SMA strategy evaluates external information regarding trends in costs, prices, market share and cash flow, and their impacts on resources, to determine the appropriate tactical response. The strategic element of management accounting requires enhanced intelligence about competitors, suppliers and technologies.
Management Accounting Triangular Structure
According to a study released by Houghton Mifflin Company there are three primary attributes of SMA: technical, behavioral and cultural. Technical analysis enhances understanding and provides information on the event measured. The behavioral metric promotes actions to achieve the organization's strategic objectives. The cultural element of the triangle establishes a shared set of beliefs within the organization. These three tenets comprise the elements of an effective SMA program.
Strategic Triangulation of Management Accounting
The primary strategic elements of organizations are based on quality, cost and time (QCT). An enterprise uses these factors to differentiate itself from competitors. Each firm evaluates the relative importance of QCT factors predicated on its customer base and the preferences or demands made by its market. In some instances, firms will demand products subject to primary issues of time and cost. Other customers demand quality and are indifferent to cost factors.
Illustrating Strategic Management Accounting
According to research from McGraw-Hill, a study of London-based retail store Tesco determined that the company's primary fixed asset base was its stores. Based on this factor management created strategic partnerships with construction companies to lower costs and maintain quality. In addition, Tesco monitored competitor product pricing to reduce customer prices and gain market share. Tesco also enhanced its technology by offering store cards that track customer purchase patterns.
SMA Focus on Organization Environment
Awareness of competitive conditions is the primary difference between strategic management accounting and traditional management accounting systems. SMA focuses on the company's environment. One environment a firm focuses on revolves around its relationship with suppliers and customers. Another environment involves a company's current and potential competitors. Hence, a firm's intelligence may indicate a need to reduce prices to compete. SMA would evaluate the organization's up-stream (suppliers) cost structure to determine if it can renegotiate with suppliers, or if it must seek suppliers with lower price points.
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