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The Sonax Group From Data To Decisions A Practitioners Viewpoint on the Priorities for Management Accounting Education & Research David A.J.Axson President.

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Presentation on theme: "The Sonax Group From Data To Decisions A Practitioners Viewpoint on the Priorities for Management Accounting Education & Research David A.J.Axson President."— Presentation transcript:

1 The Sonax Group From Data To Decisions A Practitioners Viewpoint on the Priorities for Management Accounting Education & Research David A.J.Axson President and Founder Sonax Group Inc. January 2005

2 Page 2 Copyright © 2004 The Sonax Group The Sonax Group About David Axson President of The Sonax Group Co-founder of The Hackett Group Author of the book Best Practices in Planning and Management Reporting (John Wiley & Sons) Former Head of Corporate Planning for Bank of America Twenty years of business and consulting experience in finance and accounting

3 Page 3 Copyright © 2004 The Sonax Group The Sonax Group Discussion Topics Comments on the current environment Current state of management accounting Implications for management accounting education and research

4 Page 4 Copyright © 2004 The Sonax Group The Sonax Group Today the spotlight is on financial management like never before... Manage Risk Provide Visibility Accept Uncertainty Assure Integrity Reduce Costs

5 Page 5 Copyright © 2004 The Sonax Group The Sonax Group Prompting some serious questions... Are we: Focused on the right things ? Fast enough ? Delivering insight ? Cost effective ? Technology enabled ?

6 Page 6 Copyright © 2004 The Sonax Group The Sonax Group The world is very different Then Manufacturing centric Demand exceeded supply Local to national markets Few competitors Long product life cycles Constrained capital Weak special interests Now Service centric Supply often exceeds demand Global markets Many competitors/alternatives Short product life cycles Easy access to capital Organized special interests (lawyers, environmentalists) Simplicity Predictability Stability Complexity Volatility Uncertainty

7 Page 7 Copyright © 2004 The Sonax Group The Sonax Group Quiz … What do these companies have in common? Amdahl Boeing Chesebrough-Ponds Data General Delta Airlines Digital Equipment Du Pont K-Mart Kodak Levi Strauss McDonalds Raychem Revlon Wang Labs

8 Page 8 Copyright © 2004 The Sonax Group The Sonax Group Quiz … How long will todays most admired remain there? Wal-Mart Berkshire Hathaway Southwest Airlines General Electric Dell Microsoft Johnson & Johnson Starbucks Fedex IBM Rubbermaid Digital Equipment Lucent Technologies Levi Strauss Eastman Kodak Time Inc. Merck Walt Disney Motorola AT&T 2004Former Top 10 Companies 1983-2002 Source: Fortune Magazine/Sonax Group Research

9 Page 9 Copyright © 2004 The Sonax Group The Sonax Group Fact … most companies are fighting a tough battle Innovators & Leaders Stagnating Declining 15% 25% 60% Growth Time Source: Sonax Group Research

10 Page 10 Copyright © 2004 The Sonax Group The Sonax Group Fact… after 5 years most stagnate Years in existence Profitability of New Market Entrants Relative to Industry Peers Source: Foster & Kaplan, Creative Destruction, Doubleday 2002 05101520

11 Page 11 Copyright © 2004 The Sonax Group The Sonax Group Two key reasons companies stagnate and die 1.Miss profound external changes 2.Too much good management … Lets discuss each in turn

12 Page 12 Copyright © 2004 The Sonax Group The Sonax Group 1. External changes are coming faster Globalization Product Life Cycles Channels Outsourcing/ Offshoring Special Interests TechnologyLoyalty Innovation Regulation Stakeholders Demographics Competitors Market Turmoil

13 Page 13 Copyright © 2004 The Sonax Group The Sonax Group Companies miss the danger signs The challenge of running day to day operations is so great that little time is left to look outside No one has responsibility for understanding the environment Success tends to breed risk aversion and desire to protect the status quo Plans focus on success rarely contemplating failure No early warning mechanisms exists Useful information is scarce – all history all the time

14 Page 14 Copyright © 2004 The Sonax Group The Sonax Group 2. Good management is stagnating companies … Follow a professional approach to decision making Plan in detail and stick to it MBA discipline – all analytics all the time Follow the latest management fads Systematic planning Activity based costing Six sigma Sustainable competitive advantage ERP/Web/CPM etc. Balanced scorecards Continuous improvement

15 Page 15 Copyright © 2004 The Sonax Group The Sonax Group … By using mid-20th century processes to manage turmoil Current management process created by Alfred P. Sloan at General Motors Doesnt work today Multi year strategic plans Detailed annual budgets Static monthly reporting Single point or rolling estimates Metric overload Consumed by rapid short term problem solving

16 Page 16 Copyright © 2004 The Sonax Group The Sonax Group Reinforced by an inflexible culture Stiffens over time Assumption of success and continuity Reward predictability Unwillingness to shed dying business Poor track record of driving major changes Relentless pursuit of incremental improvement

17 Page 17 Copyright © 2004 The Sonax Group The Sonax Group Current trends are making it worse More data – less insight More analysis – less dialog and intuition Single point decision making – missing the big picture Inwardly focused – controlling the controllable Over reliance on technology – bad data faster

18 Page 18 Copyright © 2004 The Sonax Group The Sonax Group Most finance executives are very frustrated… Ever increasing compliance load Developing detailed plans and budgets Inability to develop accurate forecasts Unproductive internal cost allocation and transfer pricing Incentive compensation systems that reward the best games players Top causes of senior finance management frustration Source: Sonax Group Research

19 Page 19 Copyright © 2004 The Sonax Group The Sonax Group Example Budgeting is a dangerous and pernicious activity Only certainty is you will be wrong Mismatched with business cycles Ceased to be an effective control mechanism Riddled with sandbagging and conservatism Desire for detail increasingly mismatched with predictive capability Used as an excuse for poor performance not a motivator of excellent performance Whats important Acquiring customers Retaining customers Retaining talent employee Fostering innovation Successfully managing projects Whats budgeted Salaries and wages Facilities expense Telecommunications costs Travel & entertainment Depreciation Plan what matters

20 Page 20 Copyright © 2004 The Sonax Group The Sonax Group One definition… Management accounting is concerned with the provision and use of accounting information to managers within organizations, to facilitate the managers in their decision making and management control functions.

21 Page 21 Copyright © 2004 The Sonax Group The Sonax Group What does this mean for management accounting? A personal view Current focus Costs Certainty Precision Budgeting Cost accounting Operational execution Criteria for success Calendar driven processes Silver bullets Required focus Revenues Risk Accuracy Forecasting Cost elasticity External threats Criteria for abandonment Event triggered processes Portfolio of skills and tools

22 Page 22 Copyright © 2004 The Sonax Group The Sonax Group Attributes of an effective 21 st century set of management practices Well developed risk based early warning system Reporting that balances external and internal views Dynamic planning replacing annual budgeting Desire for detail matched to predictive capability Finance staffs focused exclusively on risk management and decision support Reward performance not plans Value speed and responsiveness over precision and detail

23 Page 23 Copyright © 2004 The Sonax Group The Sonax Group Example Performance measurement -- measure what matters What We Measure Plant & equipment Rent Travel expenses Depreciation Bad debt What We Value Talented associates Customer relationships Supplier partnerships Unique knowledge Execution capability

24 Page 24 Copyright © 2004 The Sonax Group The Sonax Group Example Performance measurement – redefine balance LaggingLeading External Internal 1 23 4

25 Page 25 Copyright © 2004 The Sonax Group The Sonax Group Example Performance measurement – drive decisions & action Close ratio Orders placed Quotes issued 1 2 3 4 5 6 Pipeline of quotes has dropped 30% in last 30 days ABC Inc is aggressively discounting in top 20 markets Attributes 1.Relevant ratio 2.Trend 3.Tolerance 4.Early alert 5.Call to action 6.Forecast impact 7.Additional information for context 7

26 Page 26 Copyright © 2004 The Sonax Group The Sonax Group A personal list of issues that require further research and education Risk management Identifying and analyzing risk Integrating risk and scenario planning into core management practices Developing an early warning mechanism Use of tolerances Event triggered Context based Project and initiative accounting Integration with planning Development of more credible ROI measures Incorporation of risk of failure -- criteria for abandonment


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