There is no doubt that managing company`s receivables has become extremely important in the recent years. The poor receivables management may decrease cash flow and cause bad debt expense. At the same time the optimum credit policy increases the efficiency of the company`s performance and maximizes its value.

Ideally companies would like to get cash immediately, but it`s highly unrealistic. That`s why they must establish a policy for credit terms given to its customers. But how can companies be sure that the debtors are trustworthy and eventually will pay back? The answer is - by checking and monitoring their financial health.

One of the tools that helps to predict bankruptcy is the Altman`s Z-Score model, which measures 5 key performance ratios. Each of these five financial ratios can be used individually to assess credit risk. According to David Kirk[1], «the giant step of Z-score was to combine them objectively using robust statistical techniques and hard data». Although this model has been used for more than 50 years, many professors of economics and finance point out limitations which it includes.

Firstly, Jeffrey Lui indicates[2] that model`s accuracy has decreased in recent periods than that reported in Altman`s study. The reason for that is the wrong assumption that the model remains stable across economic conditions which constantly change. The environment, in which the Altman`s research was conducted, was absolutely different from today`s. That leads us to the fact that the model is outdated and cannot be accurate.

Secondly, Altman focused on the one particular industry - all of the 66 sample companies were manufacturing. According to Platt and Platt (1991) or Steven Hall (2002), each industry has different characteristics so it`s also inaccurate to apply the model for all industries.

Thirdly, Altman himself doesn`t view his model as perfect, indicating 4 issues[3]: «subjectiveness in the weightings, an element of ambiguity within the model, the univariate approach and some misleading ratios». For example, he agrees that the 4<sup>th</sup> ratio is difficult to use for non-public companies, because the market value of equity is based on stock prices. Moreover, he thinks that the 5<sup>th</sup> ratio (Sales/Total assets) doesn`t show the difference between failed and non-failed companies and doesn`t reflect any variations among industries.

Furthermore, Morten Reistad Aasen states[4] that the model uses unadjusted accounting data. Some changes in balance sheets and income statements can seriously alter the results, so that the model is also not immune to false accounting practices.

Although the Altman`s Z-score model has to be proven as a reliable tool for predicting insolvency and is still widely used, we should keep the limitations mentioned above in mind and understand that it`s not valid in every situation.

Author: Luidmila Nikitina (April 2016)

***

95% of the predictions made by the Altman Z-Score are supposed to be accurate. This is a powerful statement if you look at how this can be used by companies. Every merger, every cooperation between two firms and every customer selection could be assessed by this Score and would be heavily influenced by it, since you do not want to be involved with any organization that is likely to go bankrupt.

The question of the limitations is thus a very important one to raise, in order to leverage the decision-making effect this tool comes along with.

The first thing that has to be affirmed is that the Z-Score model is relatively old. Developed in 1968, it is justified to raise the question of whether this tool can still be applied to modern companies.[1]

Apart from that, a deeper analysis of the specific ratios that are being used to predict bankruptcy is needed to further examine the limitations of the model.

Researchers do claim that the Z-Score’s validity is limited to certain industries. The reason for this is based on two specific ratios which I am trying to explain further in detail.

Altman himself did already affirm that there are differences in the predictions according to the instable nature of the relation between the variables as such. Besides, there have been studies that provided samples where the Altman’s Z-Score was proved to having misclassified more than half of the companies that where part of the sample.[2]

The first ratio that restrains the applicability of the Score is the T4 which measures the Market Value of Equity by Total Liabilities. For firms that are not traded publicly there is no market value of equity, so this score would bias the outcome.[3]

The other ratio is the asset turnover which is significantly dependent on the type of industry analysed.[4] This led to the affirmation that the Altman Z-Score was not applicable for non-manufacturing companies.[5]

Another thing that I do see problematic as well is the fact that the Score does limit the time horizon for falling into bankruptcy (12 months) but it does not give any indication about when exactly this is going to happen and if the bankruptcy can yet be prevented. Hence, it does serve as an indicator to undertake actions, but it might also be too late already.

Author: Verena Klaebe (April 2016)

For decades, the Management Accountant was perceived as a “numerically obsessive, tight-fisted human calculator” (Baier, 2014) and the profession’s image was quite negatively connoted. But with the evolution of new technologies and the growing importance of non-financial process-oriented measures, also the traditional role of the Management Accountant changed. He is no longer regarded as a picky Bean Counter or “number-cruncher” (The Economist) but instead as a value-adding Business Partner who enhances the organizational performance (BPM Partners, 2009).
Today Management Accountants play multiple roles like for example the Trusted Advisor who maintains a good relationship with the CEO and the Board of Directors (BPM Partners, 2009). Moreover, Management Accountants serve as Leaders creating shared beliefs and boundaries and facilitating decision making. Finally, Management Accountants also take part in continuous learning and improvement, support strategic management and enhance operational alignment (Brewer, 2008).
So far, skills like number affinity, sticking to rules and attention for detail were prerequisites for a Management Accountant whereas now especially communication and social skills are needed. Management Accountants have to look beyond numbers and serve as an interface between management and technologies. Therefore, skills in data mining and analytics are indispensable (Pickard, Cokins, 2015). Furthermore, Management Accountants are working together with different departments like HR, sales and marketing to provide financial information, tools and analysis. Consequently, they have to be people-oriented, have strategic knowledge and be able to communicate and present information. In order to conduct negotiations and performance management, relationship building and influencing skills are required as well as the ability to think critically.
One has to take into considerations that this development takes place slowly and that executives need time in order to develop respect and trust for this newly transformed profession. Having interpersonal and strategic skills will be a basic requirement for future accountants and those who don’t have this expertise will be quickly out of the game. Therefore, Management Accountants have to upskill themselves and acquire for example know-how to handle new software and interact with colleagues from other departments. Management Accountants as Business Partners are not a fad or fashion but an ongoing evolving trend which will shape business organizations in the future. They are valuable assets for a company as they combine strategic thinking with financial knowledge. Thus they will no longer be regarded as bean counters but instead help grow the beans.



Author: Pia Sander, April 11, 2016

Baier, N. (2014): Bean Counters no more!, Strategic Finance, http://www.imanet.org/docs/default-source/sf/05_2014_baier-pdf.pdf?sfvrsn=
Brewer, P. (2008): Redefining Management Accounting, Strategic Finance
Pickard, M., Cokins, J. (2015): From Bean Counters to Bean Growers: Accountants as Data Analysts - A Customer Profitability Example, Journal of Information Systems, Vol. 29, No. 3, Fall 2015, pp. 151–164
Author unknown: From bean counter to business strategist: The changing role of the accountant, The Economist, file:///C:/Users/Pia%20Sander/Downloads/CRM_Changing_role_of_accountant.pdf
Author unknown (2009): Bean Counter to Business Leader: The Changing Role of the CFO, BPM Partners, http://inforln.com/wp-content/uploads/2014/05/Bean-Counter-to-Business-Leader-The-Changing-Role-of-the-CFO.pdf

People use to define Management Accountants' role into organization using the widely accepted adjectives of planning, control, and decision making. Their function is indeed broader in scope, and can be summed up in adding stakeholder value. This goal is reached by Manager Accountant through several activities in four important organizational fields which are leadership, strategic management, operational alignment, and continuous learning and improvement. Some of these activities are: enable decision making and organizational innovation, create shared beliefs and boundaries, identify and manage risks, formulate strategy, assess performance, communicate vertically, coordinate horizontally, evaluate employees and so on. So, summarizing, they provide help and decision bases for business development and strategic guidance, as well as for the planning process. What emerges by this brief definition of the Management Accountant's functions, is that Management Accountant are actually a strong pillar in the enterprise, and not only bean counter.

Why than, in some organizations, they are still merely seen as bookkeeper? How is it possible to develop them from mere accountants to business partners?
Before starting to answer this questions, I would like to focuse a while on the reason why it is important to include Management Accountants in the business partnership. I am explaining my point through an example. I see MAs as a sort of bridge which connects into a unique body the organs - the empirical and practical organizational world - with the mind – the management and directive offices. While working the organs produce an overabundance of data, which are to be filtered by MAs in order to provide the mind (management and direction) just the vital information (and not general data!) that helps them to make more informed and faster decision. If MAs were only seen as Accountants, they would also be embedded in the organs, providing and producing just data instead of re-elaborate them to help the direction.

Once explained this, it is easy to answer the question introduced at the beginning of the last paragraph: the key for the development of MAs from bean accountant to business partners is just make the business partnership aware of the importance of MAs activities, by simply do what they firstly stand for: re-elaborate and communicate data. This is indeed the first step to reach consideration in the enterprise's managament deeds. The communications must be precise, punctual, accurate, incisive and efficient, which is actually the difference between share generic data and share vital information. If MAs do that properly, they will be automatically more and more firstly consulted and than included in the decision making process, becoming trusted influential and suvvy advisors.

Once they develop and establish partnership, MAs have to reinforce their position by striving to add value to the business showing tangibles results. Which means for example elaborate cost savings or efficienty projects; use knowledges of business strategy coupled with rigorous data analysis to accuratly forecast future sales and expenses and allocate resources across business units in order to provide optimal performance; minimize the financial impact of stockouts; align operation through vertical communication and horizontal coordination; and so on.. The keypoint of this step is to recive trust by the business not just acting as advisor, but also as a leader: business shoul look at MAs as someone to count on, someone able to lead the enterprise on a higher level of efficienty.

Author: Anna Pezzini, April 11, 2016

At this point the MA should be automatically allowed to act in the strategic management and leadership area, becoming a properly business partner. Finally the Management Accountant can cooperate with managers on all the four fields I introduced in the first paragraph (leadership, strategic management, operational alignment, learning and improvement) supporting the management processes, and acting all those activities which allow him to add stakeholder value.

Not only by looking at the recent developments in ERP systems but also by considering the increased usage of business intelligence and process automatization it becomes obvious that there has been going on a profound change in the professional field of management accounting. The “Bean counter image” is slowly beginning to vanish, being substituted by a business partner role in which management accountants have huge potential to contribute substantially to business decision-making. The information which is provided my management accounting is vital for a company’s survival, on the one hand regarding its competitive environment and on the other hand with respect to the globalization. This 1 pager essay seeks to shortly outline what has to be done in order to successfully turn Management Accountants from Bean Counters to Business Partners.
Organizations have been facing some major transformations in their organizational environment, there is bigger uncertainty and market competition (cf.Cullen and Wanderley 2013, p.2 ). As a consequence, the profession of management accounting has to adapt to the ever changing market place. New skill development and training has to be undertaken in order to create a more people oriented and strategic profession on the field of management accounting. Without any doubt the number affinity is still playing an important role, however today’s changing environment demands to accommodate further. In order to be a business partner, the management accountant has to get rid of the image of just being the cost accountant, rather focusing on in-house management consulting. The value chain has to be controlled in all business functions which is why management accountants should consider themselves as business navigators having to conduct operational planning, people orientated management and driving the strategic planning process.
Additionally, the management accountants’ environment plays an essential role in the transformation. The profession has to be seen as internal management consultant by employees from all business functions. Certainly, the business-partner concept needs to be better understood and promoted by entrepreneurs and decision-makers. This can only be achieved in the long run if businesses understand that in the 21st century the bean counting is a rather old fashioned image since planning and establishing a budget has been becoming increasingly difficult in many industries. It is wrong to see the management accountant simply as a number-provider. The profession’s helping function has to be accepted regarding the strategic planning process. Hence it is crucial to consider the tasks of management accountants as cross-functional, including as well management control and the proper planning of employees’ creativity. By aiding decision-making, the management accountants have to be better incorporated, their skills have to be respected and they need to be seen as vital to the business performance. This implies that there is a need for better education with reference to the management accounting profession. Employees have to be made aware of its huge importance in the 21st century and have to include, respect and share information with management accountants (cf. Kulkarni 2014).
To put it in a nutshell, management accounting has been playing an essential role in making business. However, the profession keeps struggling to be taken serious as such. In order to become a business partner, adaption processes, education and skill development on several levels have to be conducted.

Author: Louisa Keller, April 11th, 2016

Sources:
Cullen, J / Wanderley, C (2013): Management Accounting Change: A Review. Ebsco Database Vol. 10 Issue 4, p294-307. 14p.2
Kulkarni, S (2014): Journey from Bean Counter to Business Partner, accessed 04/10/2016, available at: https://www.linkedin.com/pulse/20141012100622-22677758-journey-from-bean-counter-to-business-partner
Schönbohm, A (2016): Material Binder Management Accounting & Controlling. DRAFT 2016 © Avo Schönbohm

When investors contemplate investing money into a new company, one of the first and most important things they do is an analysis of the financial statements such as the Balance Sheet, Cash Flow Statement or the Income Statement. Even though the usefulness of some of these ratios could be put into question because they are very theoretical - the Acid-Test ratio for example assumes all the current liabilities become due immediately which is unlikely to happen- most likely there is a reason why millions of people around the globe use this tool during the last decades to evaluate a company’s current status and prospects for the future.
Figures like the Sales Revenue do not necessarily tell you very much as an (potential) investor unless you know what share of it is left for you as a Net Income at the end of the day. Many Financial ratios were probably invented because of their simplicity and because they are more intuitive to understand: If I tell someone that my inventory is being replaced on average every 30 days (Inventory Turnover), people can imagine that a lot faster and easier than complicated statistics. Days of Sales Outstanding tells you straight away how fast you normally collect your receivables without causing too much confusion about your collection policies.
Even if you are an expert in reading Financial Statements it can be difficult and take time to cope with a spreadsheet full of numbers in front of you and extract useful information. Some people might think that more complex information yields better insights, but even the opposite could be true: Simplicity should be the final stage of an evaluation, not (only) the beginning. The fact that these ratios are being taught in introductory courses of Finance and Accounting hints to the fact that these ratios bear a very fundamental meaning and build the basis for a lot of concepts to think about consequentially.
If people are engaging in a discussion during a business event and talk about companies, they can easily use these metrics as “anchors” or as a reference to compare other companies to if they want to see if they are doing better or worse than their competitors for example.
The debt ratio for instance can “visualize” how much your leverage is; better than the mere “raw” information about equity and debt as numbers in the Balance Sheet to give decision-makers a more intuitive understanding about what is happening with the company or how it is structured.
Some of the Financial Ratios however, could have the problem of being useless but being too often used by everyone else to be dropped as a useful metric: The often-used price-earnings ratio (P/E ratio) should ideally make a prediction on how much earnings per share you can expect in the future from this share relative to its price. In theory, this might hold true, but as Einstein said: “In theory, theory and practice are the same. In practice, they are not.”
As Ken Fisher could prove through statistical analysis, the P/E ratio can only explain 20% of an observed 10-year stock development correctly which does not make it one of the most useful measures to evaluate a stock purchase. In the short-run, over a 1-year stock development, the P/E ratio can be considered entirely random, so it has no implication on future stock development whatsoever.
Even though Financial Ratio analysis is obviously not a guarantee for success, it might still be one of the best techniques we have. Or as Rolf Dobelli described it: “It is as if you were in a foreign city without a map, and then pulled out one for your home town and simply used that.”   (Availability bias) Financial ratios do not always pave the road to a successful decision but as long as they do most of the time and don’t cause any additional confusion when it comes to Financial Statements and their analysis, we are probably better off having them than not to have them.

Author: Lorenz Postner/ 15.04.2016

[1] Ruhanirabin.com, Editorial staff, “Famous Quotes from Albert Einstein”, retrieved 14.04.2016 from https://www.ruhanirabin.com/famous-quotes-from-albert-einstein/

[1] Investaura, “Why P/E ratios are useless, unless you are Warren Buffett”, retrieved 14.04.2016 from http://www.investaura.co/2012/07/why-pe-ratios-are-useless/

[1] Rolf Dobelli, „The art of thinking clearly“, Sceptre, 2013, page 37

****

Manipulating financial statements is a prevailing problem in the modern corporate world. Albeit, international efforts for standardizing accounting practices, like the Generally Accepted Accounting Principles (GAAP) as well as incentive restructuring on management level, which used to be closely tied to the financial performance of the company¹, try to minimize the loopholes of opaque financial business details. Still, investors have to carefully evaluate existing issues, understand warning signals early on and prepare strategies to mitigate the risk of investments¹.

Ranging from the problem that the GAAP still allows the flexibility to adjust accounting principles in favor of the financial conditions of a business, to the difficult relationship between the seemingly independent auditor and the business client that pays the auditor, the reasons for tuning up financial information are manifold¹ and will ultimately be represented in the financial ratios. This naturally can lead to faulty decision-making in investment activities. However, simply stating that the financial ratio analysis is meaningless and is only used to confuse investors seems somewhat ignorant.

Financial ratios, used with some caution, can reveal significant knowledge about the current and future performance of a company for investors. A major advantage of financial ratios is that they can give a quick insight on the financial situation of a company as well as the possibility to compare the performance with other companies. This is not only meaningful to investors, but also managers in general². At the same time, as the corporate world is getting more and more complex, we cannot only rely on some given information, but have to critically review them and, if necessary, expand the collection of information to a broader level.

Let me transfer this scenario to the world of online dating to better illustrate the issue and to discover some surprising parallels. Imagine you meet someone online and the “metrics”, meet your expectations - blue-eyed, 1, 85cm tall, engineer - then this already gives you a good first impression. However, in any case you would always look for more details, maybe a date vis-à-vis, to evaluate whether the chosen one is really a good match. Upon closer examination, he might be an engineer in the weapon industry and someone who fudged on his height, which would not be conform with your expectations and thus would prevent you from engaging with this person. So why not transferring these precautions to an even more sensitive topic than someone’s love life? Financial ratios can be very useful to give a first lead to a much more complex situation. However, investors should be careful with the information they are provided with, and not only limit their view on pure financial intelligence which can be easily manipulated.

1 Adkins, T., Financial Statement Manipulation An Ever-Present Problem For Investors, Investopedia, Retrieved: 18.04.2016  from: http://www.investopedia.com/articles/fundamental-analysis/financial-statement-manipulation.asp.

2 Lohrey, J., Pros and Cons of Financial Ratios, eHow, Retrieved: 18.04.2016 from: http://www.ehow.com/info_7808678_pros-cons-financial-ratios.html.

Author: Helena Sternkop, April 20th, 2016

***

Every company produces financial statements containing different financial ratios every year. These ratios are supposed to help outsiders and also the management to understand the current position of the company. But are these ratios nothing more than a farce? Are financial ratios reliable indicators or a mere meaningless effort to confuse investors and make them think the company is doing better than it actually is?
    In every financial statement there seems to be a myriad of different ratios. In general they measure one of three things: whether a company can pay back its’ debt, whether it can sell its’ inventory and collect money from customers and lastly, simply whether it is profitable. All these ratios, including debt ratio, current ratio, inventory turnover and others paint a picture of how a company is doing. This picture however, is incomplete and flawed. Even though ratios “help explain financial statements” (Faello, 2015, p. 75), they do not show the reasons for specific developments in a firm’s financial statement. To understand what is really going on in a company and whether there is any reason for major concern, special reporting sections in the annual report can be an indicator. (Schönbohm, 2016) In these sections the company’s president, the management and an independent auditor explain the circumstances surrounding the financial ratios and their development. So it can be said that financial ratios really do confuse investors until they are properly explained and put into context. Moreover, the financial ratios used may differ between firms and over time (Faello, 2015), making it harder to compare them and therefor hard to analyze. A ratio in general can be affected by a lot of things depending on industry and system (Biery, 2014) (e.g. LIFO or FIFO). So it is essential to not just look at the numbers without taking their environment into account. But there are more limitations to financial ratios. One is the fact that ratios can be easily influenced and in that sense manipulated. Looking at the current ratio as an example, it can be improved by either transforming short term loans into long-term debt or simply get a new loan altogether. That way the current liabilities go down, making it seem like they can be covered by the current assets. This fact can be used to make a financial statement look better than it actually is and therefor is a meaningless effort to confuse investors in that way. 
    However, financial ratios in themselves give heavy indicators about how a company is performing. There are signs that should warn investors about a firm’s performance like the loss of profitability or decreasing cash flow. (Schönbohm, 2016) These numbers among others indicate a problem in a company’s finances that could eventually lead to insolvency. As can be seen, it is still important to put the numbers into context and look for reasons for changes in the explanatory notes (Faello, 2015). Putting together a complete picture by looking at details, red flags and connections between the different values is what makes financial ratios so valuable. If they are taken for what they are in the environment they were produced in, they can give a pretty coherent picture of a firm’s situation. This can also be done by doing a vertical analysis, so taking values of the statements and evaluating them against their base, and a horizontal analysis by comparing different years. (Schönbohm, 2016)
    In short, financial ratios are more than a meaningless effort to confuse investors. Even though they can be influenced and only show part of the whole story, they can be the key to understanding a company’s situation. It is important to also make use of other sources like additional parts of the annual report to wholly understand them. By looking at the reasons for certain developments and comparing numbers across years and companies, these ratios can be crucial when deciding how a company is really doing. 

Author: Julia Franz, April 18, 2016   

Faello, J. (2015) Understanding the limitations of financial ratios, in:  Academy of Accounting and Financial Studies Journal, Vol. 19, Issue 3; September 1st

Biery, M.E. (2014) Can a company pay its’ bills? Which industries have strong liquidity ratios?, Dec. 7th, retrieved from http://www.forbes.com/sites/sageworks/2014/12/07/can-a-company-pay-its-bills-which-industries-have-strong-liquidity-ratios/2/#70cfcf5b735e (04/17/16, 8:29pm)
   
Schönbohm, A. (2016) Management Accounting and Controlling, Material Binder

"A company does not only create budgets to reach the company’s goals and objectives – it does also follow a strategy to succeed on the market. A case study has shown that strategic and budgetary decisions are however linked to each other.[1] The interpretation of accounting numbers can influence strategic decisions, which then again have an effect on other employees concerning cost control and budgets (Marginson/Sharma p.3). One can describe the broad connection of strategy and budgeting as followed: “(…) the process of budget setting is viewed as enabling top management’s strategic plans to be translated into a series of financial targets (...).“ In order to achieve strategic plans through budgeting, the company must follow a strategy that involves advanced knowledge and management of human resources, since the efforts undertaken by individuals within the firm determine the company’s achievement of goals (Jorgensen/Messner(2010)[2]). However, traditional budgeting is increasingly seen as impediment to progress and as a time-consuming (simultaneously budgets run out of date and lose relevance), non-cherished effort.[3] In order to be successful and remain competitive, a company must develop budgeting processes that are efficient and allow to “constantly develop human capital and keep the good employees” (Daum, 2001). New management implications such as the Balanced Scorecard (for better internal coordination of strategic targets) and the value based management (focus on expectations of investors) allowed for more flexibility but the Beyond Budgeting model increases flexibility even more (Daum, 2001) and allows performance improvement through the motivation of employees and managers. Beyond Budgeting is a concept that should introduce leadership principles to liberate managers and employees from the original controlling system and motivate them “with shared values, [through which] a company can mobilize enormous innovative potential” (Rickards, p.62[4]). It also provides principles of decentralized responsibilities, which encourages all actors to take part in decision-making and develop entrepreneurial skills. The implementation of a coach-and-support leadership helps to encourage decentralized managers, knowing that the top management only interrupts peripherally (Rickards, p.65). Through one common information system applicable for everyone to receive information in real time, a company can create transparency and division of control[5] which again leads to an increase in motivation as it is a psychological evidence, that people tend to contribute more when they feel integrated and important. All in all, a company should focus more on “non-monetary performance indicators” during the budgeting processes (Rickards, p.66) to motivate the individuals in contributing to the company’s objectives."

"According to businessdictionary.com digitization is the “conversion of analog information in any form (text, pictures, voice, etc) to digital form [...] so that the information can be processed, stored and transmitted through digital circuits, equipment and networks”.  We now live in a digitized world, where every transaction, exchange of information and communication happens digitally or, otherwise expressed in a 21^st century word, online. This transformation has caused the emergence of a new type of consumer, ever more demanding and in search of flexible, cheap and fast solutions to his problems. In turn, this led to companies having to adapt to the new requirements by becoming ultimately available to satisfy customer`s needs. Digital companies, whether born or transformed, are now the providers of the latest services in the whole range of industries and are first and foremost characterized by the fiercest of competition. Staying competitive in the fast-paced, ever-changing environment of digital services requires an equally competitive performance management strategy.

Making sure an organization`s goals and objectives are effectively and efficiently met is not an easy task. In the digital industry, where everything is equally available and easily comparable it is even more difficult to coordinate customer satisfaction with cost control and profit maximization. In order to meet the high customer expectations and make sure customers remain loyal to the company, organizations have to constantly reinvent and upgrade business processes such as reducing the number of steps required to perform a transaction or developing automated decision making capabilities. Data and operating models require constant adjustments so as to enable improved performance tracking and customer insights. The complexity of the issues digital companies have to keep track of can now be more easily dealt with by using web and application performance monitoring software. This relatively new product category is offered by a wide variety of vendors, each promising to optimize the speed and availability of digital content, to identify areas of weak performance and recommend effective solutions. The software collects and analyses data on different variables and statistics such as page load times, heat maps, segmentation, etc to determine what motivates customer behaviour. An example would be analysing the number of customers that made a purchase versus the number of customers that abandoned their shopping carts and determining what exactly caused the customers not to complete the purchase in order to find solutions for this particular issue.

The software can also be used to predict an outage or potential performance issue before they actually occur, through tracking, monitoring and controlling multiple metrics. Some of them also have integrated “self-learning” capabilities that automate performance analysis with customer behaviour learning tools and anomaly detection. This whole arsenal is aimed to equip digital companies with qualitative and quantitative predictive data that allow them to create and maintain competitive advantage, increase conversion rates and ensure business success. In the future, information collected by the system could be combined with other valuable data from finance, marketing and operations to create new insights that can further increase organizational performance. Integrating data from sources across all business functions and using it for predictive purposes is the next step to becoming the know-it-all leaders of their sectors.

In conclusion, the digitisation era in which we now find ourselves has brought about numerous changes and transformations, including in the way we manage a company`s performance. Ever since the emergence of the internet in the late 20^th century we have triggered a so called domino effect that has now reached the level of creating new markets for whole new products, one of the latest being web and application performance management software for digital companies. The question now is how long it will be until we witness another fashionable business changing phenomenon that lately has been happening very frequently, the one we call disruption."

Author: Madalina

Sources

https://dzone.com/articles/the-now-and-future-of-digital-performance-manageme

http://23je8jawagt19m8da2cje4yb.wpengine.netdna-cdn.com/wp-content/uploads/2015/03/Sell-Sheet-Performance-Management-Digital.pdf

http://www.computerworld.com/article/2919001/app-development/the-changing-face-of-application-performance-management-apm.html

---

In today’s world, digitization no longer means companies “playing around” with IT Technology. In fact, more and more companies across industries leave the analog market place and immigrate to a digital marketplace that is characterised by always-on, real-time and information rich transactions with their “connected” customers. The so-called generation C is growing up in a digital world and is thus directly familiar with technology, which shapes a new way of working and consumption. The economic benefits that can be derived through digitisation are great, which leads to big amounts of capital being invested in the digital transformation process of companies (PwC, n.d.).
Some companies are directly “born digital”, while many former brick-and-mortar companies go trough a complete digital transformation process that leads to both cultural and structural change. When a great percentage of a company’s revenues and costs or even its survival depend on digitization, it becomes clear that IT no longer is a side business but one of the top priorities of CEOs as it leads to a completely new way of doing business (Hendrik Andersson and Tuddenham, 2014). However, there are some things to keep in mind when it comes to digitization of companies. Besides the fact that it requires increasingly sophisticated technology, digitization also changes the way of how performance measurement is conducted. Previously companies focused on efficiency as the most important performance measure. However, now everything matters and a lot of new KPIs need to be considered. While Time-to-Market has always been of great importance, it now becomes even more critical as seconds can matter in deciding who becomes the new supplier of digital innovations (Hendrik Andersson and Tuddenham, 2014). Also, measuring a company’s sales now ranges from store sales to online sales of physical and non-physical products and goes on to measuring online subscriptions and descriptions as well as a downloads of a company’s apps. Companies also need to watch out how they perform among others in the digital community. How many and how effective do they reach online customers? What is their search engine performance? What is the conversion rate, e.g. how many of the company’s website visitors do buy something on the site? All these questions now come up with the digital market place. Also customer lifetime value measurement becomes more comprehensive as customers now have multiple ways how to consume the products of one and the same company. Besides, digitization also affects the performance measurement of a company concerning business networks. KPIs such as “cost per click” or “backlinks” need to be taken into consideration to find out how well and at what cost the company is integrated in the digital
market place. Next to this new performance indicators such as “analog reliability” (as in the digital world no manual work-around is possible to make up for shortcomings) and “online security” are of great concern to not loose competitiveness in the digital world. All of the aspects mentioned above show how different and how much more comprehensive performance measurement becomes in times of digitization. It also gives an impression of how much more data concerning the performance of a company need to be analysed. This requires on-time analytical systems in order to make use of the data. Only then, the company business can be keep up with new evolutions on the digital market place. Real-time comprehensive performance measurement thus becomes an integral part of
business to be able to compete on the digital market place.

Author: Josepha Niebelschütz

Bibliography
Hendrik Andersson, Tuddenham, P., 2014. Reinventing IT to support digitization | McKinsey
& Company [WWW Document]. URL
http://www.mckinsey.com/insights/business_technology/reinventing_it_to_support
_digitization (accessed 11.5.15).
PwC, n.d. Digitization | The Digitization megatrend | PwC’s Strategy& [WWW Document].
URL http://www.strategyand.pwc.com/global/home/what-wethink/
digitization/megatrend (accessed 11.5.15).

---

"Digitization changes performance management in many ways. Managing performance in a traditional company requires the analysis of various financial indicators such as financial ratios. Financial ratios are always necessary in a business, but businesses becoming heavily digitalized or even new businesses having their origins in the digitized market will find themselves analyzing different kinds of ratios as well. Another change relates to the culture of a digitalized business. The culture must be closely connected with its viewers and have a tight network. A business like that of my wife, for example, where her blog earns revenues from companies posting ads on her web page, is largely analyzed and managed by focusing on web activity. The business idea is to make new recipes for meals and desserts, making the product, and posting the recipe and photos of the new recipe on the site. We do not have a product that sells physical products. The physical product is actually never sold (just eaten by me). Rather, the real product is the information on the page, whereby the number of sales takes on a new form- the number of page views. So a ratio that indicates the success of the business would be, for example, page views per day. Many page views per day attract the companies that wish to advertize on the website, meaning more cash for the blog. For this new digitized performance management, we must decide how best to place advertizements on the page so as to optimize the ad companies' earning capabilities and ours. Performance management in these businesses is often outsourced to management companies that specialize in this task. The web-based company Ezoc is an example of this. The founder of Ezoic “set off to start [his business]” after “realizing that most websites lacked the resources to scientifically analyze, test, and improve their sites” (ezoic.com/#about). They also function as an ad intermediary while testing ad placement using their own ads and the existing ads from their customers' websites to optimize earnings for clients.
It is also important to maintain the community the blog creates. In addition to the website itself,
keeping active on pinterest, facebook, instagram, or twitter are ways to maintain a loyal community. Pins or shares or likes per day are key performance indicators, and they always correlate with the monetary success sought. Also featured posts from other blogs in the same market are indicators of healthy performance. To summarize, performance management in the digitized world is changing in that the focus tends towards a different set of performance indicators. These indicators focus on views or advertizement placements. Another change is the culture where interconnectedness and strong networks are increasingly important due to increasing competition within the already existing culture of the internet."

Samuel (November 10th, 2015)

"As we already discussed during our last lecture in class the activity based costing approach is most applicable for service companies as they cannot use the cost accounting approach.
When looking at production companies using this approach makes the most sense for businesses that produce/ manufacture two or more different products that have totally different manufacturing requirements. The ABC approach especially makes sense to be applied when one of these products is for example a high volume piece that runs continuously and does not need special activities or attention. Additionally the company also produces a low volume piece that requires special activities such as additional testing, many machine set ups due to small quantity orders and special engineering. If the company uses traditional costing, all the overhead will be allocated based on the number of machine hours. This would lead to a little amount of overhead costs allocated to the low volume product as it did not need as many machine hours as the high volume product. As a result there is a miscalculation of the true overhead costs of each product. The low volume product will at the end have little overhead costs even when it needed more complex overhead activity. We also said in class that changing the company’s cost system and implementing the activity based costing system takes a lot of time and energy as well as it is expensive. This shows that not every company should consider / make the step to apply this costing approach. The system works best for companies that have a complex production environment as for example many machines and products, different, tangled processes and so on. As a consequence it makes no sense and is only a waste money and time to apply the ABC in a rationalized production
environment with less complex and short production processes. As a conclusion it is to say that, and also referring to the question from the beginning, the activity based costing approach should not be used by every company. A company that wants to use the approach should consider before whether its production environment really needs such a complex costing system or not. ABC should only be used/ considered to be applied by companies that have lots of overhead costs and produce multiple products that on the one hand completely differ in the way they are produced and on the other hand uses complex manufacturing methods. In other words if a company has only a small amount of overhead costs and produces products that are almost identical, this company should not apply ABC."

L. November 24, 2015

References:

·     Gervais, S., Heaton, J. B., Odean, T. . (2011). Overconfidence, Compensation Contracts, and Capital Budgeting.Available: https://faculty.haas.berkeley.edu/odean/papers/Managers/GervaisHeatonOdean2011.pdf. Last accessed 15th Nov 2015.

·     Schönbohm, A., Zahn, A. (2012). Corporate Capital Budgeting – Success Factors from a

Behavioral Perspective. Available: https://kluedo.ub.uni- kl.de/frontdoor/index/index/year/2013/docId/3419. Last accessed 15th Nov 2015.

"The primary purpose of accounting is to provide information for decision-making. The recipient of the information generated by the unit accounting system, need to understand how the company generates a value for the customers and revenues, to introduce a new Business Model. In all companies there is unbreakable link between Accounting and Business Models.

A Business Model is kind of a value chain made of two parts: “Part one includes all the activities associated with making something: designing it, purchasing raw materials, manufacturing, and so on. Part two includes all the activities associated with selling something: finding and reaching customers, transacting a sale, distributing the product, or delivering the service.”[1]

According to second paragraph, to create new business model is important to remember this three different but complementary tools: strategy, business model and management accounting. It needs to be used by companies to create value in the long term. All activities taken by the company involved significant changes in the expenditure and effort within it, need to be controlled by the managers on regular basis.  In order to achieve the intended objectives of introducing a Business Model, they should first perform an in-depth financial analysis and consider any changes, which may occur as an income or expense of the company, and, consequently decide, whether the model will bring the company success in the market.

What’s more, supporting the above paragraph, I quote the statement of L.W. Walter, who emphasize one sentence in his book “Principles of Accounting”, that “one of the primary task of the management accounting professionals is the mapping of the Business Model used by the unit and examine whether this business model will allow you to achieve the required level of profitability. [2]

To sum up, there is a link between Accounting and Business Models, which cannot be broken. It is impossible for the company to create its value without carrying out the measurement results of the actions."

Author: Dagmara (Nov. 2015)

Resources:

-          Harvard Business Review, January 23, 2015, “What is a Business Model?”

-          ICAEW, Financial reporting Activity, “Business Models In Accounting: the theory of the financial reporting”; www.iceaw.com

-           CEEOL, Article by Jan Michalak, “Business models impact on accounting representation of an entity’s financial position”, www.ceeol.com

-          https://www.youtube.com/watch?v=B4ZSGQW0UMI

The principal and agent problem suggests, that in a conflict of interest people are prone to pursue their own agenda and ignore the best interest of their employer. (The Economic Times, 2015) Managers often face the pressure of fulfilling the needs of the stakeholders, and controlling that the organizational objectives are achieved by the employees. The attention of the management is thus often limited, which management control systems are trying to solve.

Employees are governed through hierarchic systems, supervisory boards, budgets and rules and regulations. They can be monitored with the help of peer pressure, or even technologically. Technology can support managers and owners to keep a finger on the pulse of people they may never meet in person, but who are responsible for work that contributes to the growth of their businesses. The control systems are there to provide supervision, pressure and even fear of replacement if desired outcomes are not achieved, but also to provide the employees with tools of improvement. These can be feedback processes, planning and setting objectives, and incentive programs. (Simons, 1992) As a whole, management control systems cover almost the entire company; its culture, planning processes, cybernetic controls and administrative controls such as the company policies and procedures. (Schönbohm, 2015) Companies want engaged employees, who fully identify themselves with the company. For this reason, cultural control plays a significant role in controlling. The more employees feel belongingness within the company clans and share its values, the more integrated they are, and the more they are committed.

Different methods of control can affect the employees positively or negatively. Control in the form of micromanagement is actually a decrease in power for everyone involved. When every detail of the employee’s work is scrutinized, managers don’t have the bandwidth to perform their own necessary tasks and employees are never given the autonomy to grow so that they can excel in those particular duties. On the other hand, when small groups of people work together, they can easily get feedback from their peers, not from their bosses and that gives them more chances to improve. A strong sense of belonging to the work group and feelings of being a part of the organization will motivate the employees to work more effectively and create more benefits to the company.

In the end these systems give an illusion of control of the management. Management control is often only a “rationality facade”, a social dilemma, where there truly is no full supervision. (Schönbohm, 2015).  People are also not machines that can be controlled, nor does the management control only serve the sole purpose of supervision. It serves a bigger picture, as a process by which the managers influence other members of the organisation to implement the organization’s strategies and goals. It is communicating information and improving the company as a whole.

The value of management control systems is to improve the overall performance inside a company with the use of different methods.

Author: Mia Varis, Dec. 2015

References:

Robert Simons (1992) The Role of Management Control Systems in Creating Competitive Advantage: New Perspectives. In Emmanuel C., Otley D. & Merchant K.  Readings in Accounting for Management Control

Schönbohm, Avo (2015) Management Control Systems 08 CMA Management Control System WS15-16, lecture slides

The Economic Times (2015) Principle Agent Problem [online] Available from: http://economictimes.indiatimes.com/definition/principle-agent-problem                      [Accessed on 27^th November]

"Risk management is not just preventing bad things from happening but “properly implemented, it can provide strategic and operational opportunities by focusing activities on what is important to an organization”[1].

When conducting strategic planning, according to the environment, in which the company is concerned, is the inevitable risk that occurs during its implementation. Risk management is a key aspect of strategic planning, because it gives the company ability to determine where it is most likely to appear, it provides quick response and appropriate measures taken to minimize the risk and its consequences.

Moreover, a certain amount of risk is necessary and unavoidable, but can be a positive force in the development of services that the companies provide.         The companies need to remember that “risk management is not a barrier to innovation but it is an enabler”[2].  All of them face threats in their environment-new competition, new technology, changes in consumer tastes but only a few of them manage these risks effectively. Those who do so are alert to changes in the environment and are willing to change internally to respond to them. “Today’s risk managers see their role as helping firms determine and clarify their appetite for risk and communicate it across the company to guide decision making.          In some cases this means helping line managers reduce their risk aversion”[3].

Unfortunately, risk management is to often treat as a compliance issue that can be solved by drawing up lots of rules and making sure, that all employees follow them. Many such rules are sensible and reduce some risk that could surely damage a company; nevertheless, rules-based risk management did not prevent the failure of many financial institutions during the 2007-2008-credit crisis.

To sum up, risk management has a lot f common with strategic planning. Companies, that identified risk management with the introduction of a series of principles designated to protect the company against potential threat, should rather focus on the conversion of its strategy, minimizing existing risk and work together on the further implementation of their plans and continuously succeeding.

Author: Dagmara Kozlowska, December 2015

Resources:

-          “Risk management. Achieving the value proposition”, Paul Wallis; www.gfoa.org

-          Integrating Risk Managment into Strategic and Business Planning, Paladin Risk

-          How to live with risks, Harvard Business Review, July-August 2015

-          More bureaucracy or strategic change agent?, Julian Luevano

-          Managing Risks: A New Framework, Harvard Business Review, June 2012, Robert S. and Anette Mikes

A management Control is defined as the “the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.”  This definition shows the key importance of the MSC as an encompassing the largely accounting-based controls of planning system, monitoring of activities, measuring performance and integrating mechanisms, but MCS also served to artificially separate management control from strategic control and operational control.
Management control/performance system is very important for every manager because the concept of MCS can include management accounting systems, budgetary practices, performance measurement systems, project management systems, planning systems, and reporting systems. MCS is the type of control, which ‘requires performance measures and evaluations and the provision of incentives, dominance in importance in the vast majority of organization.”  Moreover, when we are talking about incentives we are not thinking just about bonuses or stock opinions but also nonmonetary incentives, like praise or recognition.
MCS provides managers with effective control over performance across the whole organization and one of the effective tools that support MCS is the Performance Wheel, suitable for most organizations. This tool suggest, that “different models of control can be reduced to one overarching model, provides a comprehensive model of performance management that can be adapted to meet the needs of any form of enterprise.”
Moreover, managers need to use MCS to increase the employees’ motivation to work. In fact employees spend at work an important part of their life and spewed from time to time speeches is not enough. Mostly managers assume, that an effective program to raise employee morale requires the expenditure of a specific sum, but it is not true. Research shows that those elements, that make employees happy, managers cannot even buy.
To sum up, management control system is very important for managers in every enterprise. Managers do not normally take part in everything that takes place in the company and they are not able to control all activities, nor any employee. A well-chosen MCS can become an effective solution in this situation. It ensures effective management of the company, contently employees and thus faster and more efficient work.

by  Dagmara Kozlowska (2015)

  1 Management Control System, Strategy and Performance, Anthony, 1965, dcs.uchile.ci
  2 Kenneth A. Merchant &Wim A. Van der Stede, Management Control System, Prentice Hall, 2007
  3 Ted Watts, New performance measurement and management control system, University of   

     Wollongong, 2012

“Sustainability Accounting has seen its peak and there is no need to revive it.”

Sustainability accounting is a useful tool that can be employed to assist organisations in becoming more sustainable. „It recognises the important role of financial information in this transformation and shows how traditional financial accounting can be extended to take account of sustainability impacts at the organisational level.”[1] The focus is on extending the range of monetised information (covering environmental, social and economic impacts) on which decisions are made. Nevertheless, in nowadays comapnies sttoped to creating this raport and there is no need to revive it.

Sustainability reporting regards how the company distributes the value created among the stakeholders in order to achieve a sustainable competitive advantage. “If there is no point of reference in a sustainability report, such as comparisons to industry peers readers of the report will find it difficult to know if what they are reading is in fact truthful.”[2]

"Sustainability reporting becomes too burdensome"[3]. Much of the current criticism has to do with the number of indicators expected and the inclusion of value chain assessments in order better define an organization’s broader negative and positive impacts. Critics say this is too complex for multinationals and too burdensome for smaller organizations. Moreover, despite the fact that sustainability and CSR reports focus on ESG factors, the information they contain is seldom useful to investors.

To sum up, even if the objectives of sustainability accouting give a clear and complete picture of the real costs and benefits arrising from decisions about allocating resources – financial, human or physical, there is no need to reviev it. Nowadays, „value generation of the company does not happend by simply creating a sustainability raport, but it focuse on teh resoults of a company analysis, vision, implementation and execution”[4].

by  Dagmara Kozlowska (2016)