Strategic Management Accounting
Connecting the classroom to the "real world"
Textbook Rentals Close to Home
Sep 3rd
It sounds like the U of M has started offering textbook rentals for some courses. You can read more at KARE-11 or watch the video below (the textbook story starts about 30 seconds in). Time will tell if this practice spreads, but I’d guess that even the notion of a paper-based textbook will seem quaint in 10-15 years (maybe sooner).
Sustainability Emphasis at the AICPA
Sep 1st
In Chapter 2 of the Blocher text, we discussed the idea that Sustainability is becoming a new focus in the accounting profession. Coincidentally, today I received the following by email from the AICPA. It is interesting to see this emphasis coming from the primary association for CPA in America.
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An Interview With Kasper Rorsted
Aug 29th
Kasper Rorsted photo courtesy nrkbeta on Flickr
I was alerted to this NYTimes piece because I follow Bill George on Twitter. George is the former head of Medtronic and he spoke at the MNCPA Management & Business Advisers Conference in June. If he thinks an article is worth looking at I usually find something of value in reading the article myself.
In this case, I love what Rorsted has to say about email (being less valuable that face-time and with the fact that cc: emails are usually to cover someone’s backside) and with corporate culture:
So I took a number of the yay-sayers out because I didn’t want them to be part of our corporate culture, a culture where the end result is most important. It’s not who got the idea.
He also had some interesting things to say on the kinds of people he hires including the fact that he wants to know the person and he never focuses on GPA:
I never look at grades from university. I look at what they’ve done, but I look very much at what they’ve done outside work. How do they spend their time? Who do they relate to? Have they moved? Have they been put in situations in their personal and professional lives that were not very straightforward?
I’m concerned about people who have come through their career with “A” grades throughout their entire life, and have never really had any setbacks and have always been in environments where they knew the environment.
Read more at: http://nyti.ms/a7anNJ
What is “Management” in the 21st Century?
Aug 27th
50 years ago, management meant a top-down, dictatorial structure. Today, things are more collaborative with participation in strategy formulation and execution not only at the top of the pyramid but in the middle and low levels as well. Where will things be 50 years from now? The Wall Street Journal offers some interesting thoughts about where we have been and where we are headed.
The new model will have to instill in workers the kind of drive and creativity and innovative spirit more commonly found among entrepreneurs. It will have to push power and decision-making down the organization as much as possible, rather than leave it concentrated at the top. Traditional bureaucratic structures will have to be replaced with something more like ad-hoc teams of peers, who come together to tackle individual projects, and then disband. SAS Institute Inc., the privately held software company in North Carolina that invests heavily in both research and development and in generous employee benefits, ranging from free on-site health care and elder care support to massages, is often cited as one company that could be paving the way. The company has nurtured a reputation as both a source of innovative products and a great place to work.
The End of Management — Corporate bureaucracy is becoming obsolete; Why managers should act like venture capitalists. Alan Murray. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 21, 2010. pg. W.3
Nobody Prices Better Than Airlines
Aug 27th
One of the first things frequent fliers learn is that the number of fares paid by each person a plane is nearly equal to the number of passengers. Airlines aggressively price routes to try to maximize usage of capacity while also maximizing profits. The end result is that airlines can and do change prices multiple times a day as they jockey themselves amid a sea of competitors to sell what has largely become a commodity, at least in the eyes of leisure travelers. Simply put, too many people have grown accustomed to searching for flights based on price (because nearly every online search defaults to sorting with the lowest priced flights first) that airlines were unable to differentiate themselves effectively from competitors because when their fares were on screen 2 or 3 of the search they never got booked.
Realizing this (and realizing that not every company can compete solely on cost/price) we’ve seen the “unbundling” of items that used to be included in airfares. Everything from checked-baggage fees to higher penalties for changing flights (and even carry-on baggage fees at Spirit Airlines) is now seen as a way to charge customers which, in turn, makes it hard for airline passengers to compare two prices because one needs to know all the fees that each airline can assess to make a valid comparison.
The Wall Street Journal today took a look at airline pricing (more from a consumer’s point-of-view than a scientific one as this appeared in the Personal Journal section) and asked some questions about why it is sometimes cheaper to fly overseas than to fly a few hundred miles. The short answer? Because people are willing to pay more to fly to certain places and/or the competition is not as rigorous on certain (especially international) routes.
The price you pay for a ticket is driven by a number of variables: competition, types of passengers, the route and operating costs. But the biggest factor, by far, is whether discount airlines fly in a market. Low-cost carriers often set the price in markets because competitors feel compelled to match that price or risk losing customers and flying empty seats. And when they aren’t there, big airlines behave radically differently when setting prices.
Over a year ago when Southwest began serving MSP, I offered my own examples coupled with a Marketwatch article of the wide disparity in fares on routes where discount carriers are strong vs. those where they are absent. The Wall Street Journal piece largely comes to the same conclusion.
And when there’s not low-fare competition, prices soar. The most-expensive average domestic ticket in the first quarter was $786 for round-trip flights between San Francisco and Philadelphia, according to the DOT. That 2,521-mile route is dominated by United and US Airways, who are competitors but also partners in the Star Alliance. Fly to Boston from San Francisco—183 miles farther by air than Philadelphia—and you paid an average $296 less round-trip in the first quarter, according to DOT. The difference: JetBlue Airways has 17% of the San Francisco-Boston market, but none of the San Francisco-Philadelphia market.
As you will discover in this course (and in life) the cost of something often has little to do with the price that is charged. Does it really cost 100 times more to make a Coach bag that sells for $4,000 as it does to make the one at Target that goes for $40? Of course not…yet many still fall into this trap with regard to their expectations about prices.
The Middle Seat: You Paid What for That Flight? — It Can Cost More to Fly to Hartford Than Barcelona; How Airlines Determine Ticket Prices. Scott McCartney. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 26, 2010. pg. D.1
Should Business Benefit Society?
Aug 26th
We discuss things like “sustainability” and the “environment” and “human capital investment” as new ideas in the business world…but are they really new? I guess the increased focus is new but it seems like recent postings on this blog have linked to articles where the case has been made that focusing on these things is secondary to focusing on the financial aspects of business. Many of the Environmental Accounting posts echo this sentiment…they say that business should focus on pleasing shareholders through increased profits and respond to environmental/sustainability only a means to that end.
But maybe focusing on financial measures is exactly what creates the short-term approach and expectations that cause problems for companies and the economy. As I mentioned this week in class, strategy is supposed to be a long-term vision and positioning of a company but time and time again we see that the measures and incentives are increasingly short-term. A posting at the HBR blog caught my eye with some thoughts on this issue. Read more at HBR: http://blogs.hbr.org/cs/2010/08/should_your_business_be_for_be.html
It’s an interesting notion that Business, held captive by a narrow definition of fiduciary responsibility, is not able to make the long-term investments that could benefit communities, the environment, and ultimately the shareholders. If this notion is even partly correct, then our most powerful institution will be unable to do enough to solve the social and environmental crises confronting us.
The HBR piece goes on to mention that the state of Vermont now provides for a new kind of organization: a Benefit Organization that exists not simply to pursue profits but also to provide a benefit to society. Perhaps this is going to spread beyond Vermont and will ultimately cause companies to take longer-term views and set long-term strategies tied to incentives for their employees to think long-term.
Are the directors of a Benefit Corporation still obliged to act in the best interests of the company’s owners? Absolutely. But they have legal protection to make investments with an eye to the long term, aiming for sustainable returns, not fast paybacks for shareholders.
As I mentioned in class, the book The Big Short: Inside the Doomsday Machine by Michael Lewis talks extensively about how incentives influence behavior and that the impacts are real as evidenced by the recent economic meltdown on Wall Street and beyond (you can view a great 60 Minutes piece with the author on this site as well).
Whether through the expansion of the Benefit Organization concept or some other way I think that businesses with long-term visions and strategy ultimately do their shareholders a greater service than the ones that take risks for temporary, short-term gains. Hopefully that philosophy becomes more prevalent and we begin to demand more of our business leaders so that their behaviors and decisions will align with this concept.
The Case AGAINST Corporate Social Responsibility
Aug 24th
Here is an interesting take that I’ve not seen so bluntly stated before: CSR can be a bad thing for companies to focus on. I’m a firm believe in the idea that there aren’t any “bad ideas” and then being exposed to more viewpoints is nearly always a good thing, so I offer you this Wall Street Journal piece as food for thought. It appeared in a special section on Monday (the Journal often runs special sections on Mondays in place of Personal Journal, which runs the rest of the week).
The basis for this argument isn’t as crazy as it first sounds…in fact, the author seems to be echoing some of the thoughts I’ve posted before that companies that pursue profits end up being socially responsible. Or vice versa. In the end it might be the pursuit of financial goals that is the means to the end.
In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business. The only sure way to influence corporate decision making is to impose an unacceptable cost—regulatory mandates, taxes, punitive fines, public embarrassment—on socially unacceptable behavior.
Pleas for corporate social responsibility will be truly embraced only by those executives who are smart enough to see that doing the right thing is a byproduct of their pursuit of profit. And that renders such pleas pointless.
WSJ Executive Adviser (A Special Report): The Case Against Corporate Social Responsibility: The idea that companies have a duty to address social ills is not just flawed, argues Aneel Karnani; It also makes it more likely that we’ll ignore the real solutions to these problems. Aneel Karnani. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 23, 2010. pg. R.1
Culture at Zappos
Aug 24th
Company culture is probably more important than what we discuss in class given its impact on so many aspects of company performance as well as employee satisfaction (which then touches so many things). Online shoe-seller, Zappos, puts culture first and focuses on performing well in terms of finding employees that are good cultural fits and lets the results flow from that process:
At the top of the list of Zappos’ values is “Deliver WOW through service.” In fact, Zappos describes itself as a service company that happens to sell shoes and other products. This value is reflected in such niceties as a 365-day return policy with free shipping both ways, 24/7 customer phone lines, live online help, and customer product ratings — none of which is all that weird. But things do become, if not weirder, then at least different, when seen from the perspective of Aaron Magness, Zappos’ director of business development and brand marketing. He told me, “I read about how Zappos is focused on customer service. It isn’t. It’s focused on company culture, which leads to customer service. We don’t talk about customer service; we allow it to happen on its own by having the right people.”
The genuine happiness of employees is felt by customers and Zappos appears to, as a result, have very loyal customers (as well as employees). By focusing on culture, Zappos has differentiated itself in an online world crowded with commodities.
I encourage you to read more about Zappos at this link: http://www.strategy-business.com/article/10311
Sustainability Reporting
Aug 24th
Tom Hood has a piece today at CPA Success that mentions the idea that sustainability reporting may be on the fast track to becoming standardized and required.
On Monday, Aug. 2, 2010, the formation of the International Integrated Reporting Committee (IIRC) was announced. The committee is led by Prince Charles, The Prince’s Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI) in an attempt to add a globally accepted set of standards for accounting for sustainability.
As I have posted previously, there have been more companies voluntarily heading down this path or even requiring suppliers to do some limited sustainability reporting, but these have been largely voluntary efforts. The Blocher textbook dives into this issue as well by discussing “sustainability” as the “5th perspective” of the balanced scorecard. As this ball gets rolling and as the public demands ever more information on environmental impacts from companies it makes sense to have standards to allow for comparability. Keep watching for more of this…
Read more: http://www.cpasuccess.com/2010/08/are-you-ready-for-global-sustainability-reporting.html
Categories adjusted for new textbook
Aug 24th
I have adjusted the categories to reflect our adoption of a new textbook for fall semester. Instead of “HDFRI” you will now notice “Blocher” chapters in the category list. This is because we will be using Cost Management: A Strategic Emphasis, 5th Edition by Blocher, Edward; Stout, David; Cokins, Gary this semester. As best I could I mapped the old chapters to the new chapters but there could be some older posts that don’t quite fit in where the new textbook has the related material. Newer posts should match up better and better as I get used to the format of the new book. As always, the “tags” list or search function may be better tools to use if you are looking for materials on a specific topic.
