4. Management accounting as a business value driver
Business value creation is the ultimate goal of any business organization and can also be defined
as being the sum of the value created by all business activities and processes from the specific
organization. The todays business organizations must compete in the globalized, dynamic and
information driven markets. The competitive advantage that assures the future of the business
organization can be gained by coping with the 21st century market requirements, understanding
and managing the available data and information that are business relevant.
Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the
many discrete activities a firm performs in designing, producing, marketing, delivering and
supporting its product. (Porter, 1985, p. 33)
Porter, in his book “Competitive Advantage” has identified that support activities have a
contribution to the business margin at the beginning of the information age, that has made its mark
on the existing economic and business processes.
In the quest for more reliable, quicker and actual business information business organizations
have invested and made maximum use of the new information technology features and possibilities
in data processing, storage and distribution. Management accounting has become a driver for the
usage and adoption of modern IT systems that allowed and eased the data acquisition,
transformation and dissemination process.
The business data used as inputs and outputs by management accounting are matching the
knowledge value chain. Raw data are acquired, aggregated into information that is transformed into
business knowledge to gain more and more and reliable business wisdom that is used for the
business management and decision process to assure the much-needed competitive advantage and
to create sustainable business value for its shareholder. The more aggregated data is the more value
it creates for its users.
The knowledge value chain represents the conceptual basis for the development of a more
prescriptive model for the definition and the implementation of knowledge management projects
oriented to improve the value-generating capability of a company. (Carluci, et al., 2004, p. 13)
Knowledge value chain has been defined by Powell as being a process model of how data
becomes intelligence, and eventually becomes part of a business result or benefit. The knowledge
value chain (KVC) comprises two major sets of activities, knowledge acquisition and knowledge
application. This reflects the division of labor in knowledge work that has evolved in large,
complex organizations. Here, knowledge workers are primarily tasked with knowledge acquisition
and development, and decision-makers apply the resulting knowledge to make better business
decisions, plan and execute actions, and thereby achieve business results. (Powell, 2001, p. 3)
Powell has defined the knowledge value chain (KVC) as a shared process between knowledge
worker and decision maker. The KVC starts with a joint shared understanding and ends with
results. Powell’s KVC is illustrated in Figure 3. The KVC includes 7 steps, each being considered
and opportunity and a potential point of failure where quality control is required and needed.
In the context of an information and data driven economy and business environment, business
support activities, like management accounting, have been transformed by the influence and
requirements of the information revolution. The classical approach of business support activities as
non-productive, resources consuming and unproductive needs to be reconsidered.
Management accounting, as a science, still in its early ages, has morphed from the more
simplistic cost calculation and financial control focus to business value creating activity by the
most efficient use of existing resources.
The modern 21st century business organizations must adopt and accept that management
accounting is a data-driven business partner that is providing the needed information and data by
the business planning and decision activities.
“Ovidius” University Annals, Economic Sciences Series
Volume XVII, Issue 1 /2017