1. Managerial Accounting and the Business Environment
Chapter 1: Managerial Accounting and the Business Environment.
This chapter describes the larger business environment within which management accounting operates. It is divided into nine sections: (1) globalization, (2) strategy, (3) organizational structure, (4) process management, (5) the importance of ethics in business, (6) corporate governance, (7) enterprise risk management, (8) corporate social responsibility, and (9) the Certified Management Accountant.
Chapter 1
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Customer Value Propositions
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Customer Value Propositions
Understand and respond to individual customer needs.
Customer Intimacy Strategy
Operational Excellence Strategy
Deliver products and services faster, more conveniently, and at lower prices.
Part I.
Companies that adopt a customer intimacy strategy strive to understand and respond to individual customer needs better than competitors. Examples of companies that pursue this strategy include: Ritz-Carlton, Nordstrom, and Starbucks.
Part II.
Companies that adopt an operational excellence strategy strive to deliver products and services faster, more conveniently, and at a lower price than competitors. Examples of companies that pursue this strategy include: Southwest Airlines, Wal-Mart, and The Vanguard Group.
Part III.
Companies that adopt a product leadership strategy strive to offer higher quality products than competitors. Examples of companies that pursue this strategy include: BMW, Cisco Systems, and W.L. Gore.
Product Leadership Strategy
Offer higher quality products.
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3. Organizational Structure
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Organizational Structure
Decentralization is the delegation of decision-making authority throughout an organization.
Decentralization is the delegation of decision-making authority throughout an organization by giving managers the authority to make decisions relating to their area of responsibility.
An organization chart shows how responsibility is divided among managers and it shows formal lines of reporting and communication.
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4. Business functions making up the value chain
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Process Management
A business process is a series of steps that are followed in order to carry out some task in a business.
Business functions making up the value chain
Product Customer
R&D Design Manufacturing Marketing Distribution Service
Part I.
A business process is a series of steps that are followed in order to carry out some task in a business.
Part II.
A value chain consists of the major business functions that add value to a company’s products and services. 
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5. Traditional “Push” Manufacturing Company
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Traditional “Push” Manufacturing Company
Traditional “push” manufacturing
Large inventories
Raw materials
Work in process
Finished goods
Materials waiting to be processed.
Completed products awaiting sale.
Partially completed products requiring more work before they are ready for sale.
Part I.
The “push” approach almost inevitably results in large inventories of raw materials, work in process, and finished goods.
Part II
Raw materials are the materials that are used to make a product.
Part III.
Work in process inventories consist of units of product that are only partially complete and will require further work before they are ready for sale to the customer.
Part IV.
Finished goods consist of units of product that have been completed but have not yet been sold to customers.
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6. Lean Production The lean thinking model is a five step approach.
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Lean Production
 Identify value in specific products/services.
 Identify the business process that delivers value.
The lean thinking model is a five step approach.
 Organize work arrangements around the flow of the business process.
Part I. The lean thinking model is a five step management approach that organizes resources, such as people and machines, around the flow of business processes and that pulls units through these processes in response to customer orders.
 The first step is to identify the value to customers in specific products and services.
Part II.
 The second step is to identify the business process that delivers this value to customers. The linked steps that comprise a business process typically span the departmental boundaries that are specified in an organization chart.
Part III.
 The third step is to organize work arrangements around the flow of the business process. This is often accomplished by creating what is known as a manufacturing cell.
Part IV.
 The fourth step is to create a pull system where production is not initiated until a customer has ordered a product. This facet of the lean thinking model is often called just-in-time production, or JIT for short.
Part V.
 The fifth step is to continuously pursue perfection in the business process.
 Continuously pursue perfection in the business process.
 Create a pull system that responds to customer orders.
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Lean Production
The five step process results in a “pull” manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times.
Customer places an order
Create Production Order
Generate component requirements
The result of this five step process is to lower inventories, decrease defects, reduce wasted effort, and shorten customer response times.
Production begins as parts arrive
Goods delivered when needed
Components are ordered
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Theory of Constraints
A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want.
The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success.
The constraint in a system is determined by the step that has the smallest capacity.
A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The constraint in a system is determined by the step that has the least capacity.
The Theory of Constraints is based on the insight that effectively managing the constraint is the key to success. The goal is to manage the constraint with the intent of generating more business rather than cutting the workforce.
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9. Theory of Constraints 2. Allow the weakest link to set the tempo.
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Theory of Constraints
2. Allow the weakest link to set the tempo.
Only actions that strengthen the weakest link in the “chain” improve the process.
3. Focus on improving the weakest link.
1. Identify the weakest link.
The Theory of Constraints approach to process improvement involves four steps:
 Identify the weakest link in the chain which is the constraint.
 Do not place a greater strain on the system than the weakest link can handle – if you do, the chain will break.
 Concentrate improvement efforts on strengthening the weakest link.
 If the improvement efforts are successful, the weakest link will improve to the point that it is no longer the weakest link. At this point, a new weakest link must be identified and the improvement process starts over again.
4. Recognize that the weakest link is no longer so.
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10. Sometimes associated with the term zero defects.
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Six Sigma
A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement.
Refers to a process that generates no more than 3.4 defects per million opportunities.
Sometimes associated with the term zero defects.
Six Sigma is a process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvement.
The term Six Sigma refers to a process that generates no more than 3.4 defects per million opportunities.
Because this rate of defects is so low, Six Sigma is sometimes associated with the term “zero defects.”
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Six Sigma
The DMAIC (Define, Measure, Analyze, Improve, and Control) framework has five stages: 
 The Define stage identifies the scope and purpose of the project, the flow of the current process, and the customer’s requirements.
 The Measure stage gathers baseline performance data concerning the existing process and narrows the scope of the project to the most important problems.
 The Analyze stage identifies the root causes of the problems that were identified during the Measure stage. The Analyze stage often reveals non-value-added activities that should be eliminated, wherever possible.
 The Improve stage is where potential solutions are developed, evaluated, and implemented to eliminate non-value-added activities and any other problems uncovered in the Analyze stage.
 The Control stage ensures that problems remain fixed and that the new methods are improved over time.
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12. IMA Guidelines for Ethical Behavior
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IMA Guidelines for Ethical Behavior
Recognize and communicate professional limitations that preclude responsible judgment.
Maintain professional competence.
Competence
Follow applicable laws, regulations and standards.
Management accountants have responsibility for ethical behavior in four broad areas. The first area is professional competence.
Management accountants must:
Maintain professional competence.
Follow applicable laws, regulations, and standards.
Provide accurate, clear, concise, and timely decision support information.
Recognize and communicate professional limitations that preclude responsible judgment.
Provide accurate, clear, concise, and timely decision support information.
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13. IMA Guidelines for Ethical Behavior
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IMA Guidelines for Ethical Behavior
Do not disclose confidential information unless legally obligated to do so.
Do not use confidential information for unethical or illegal advantage.
Confidentiality
The second area is confidentiality. Management accountants must:
Not disclose confidential information unless legally obligated to do so.
Ensure that subordinates do not disclose confidential information.
Not use confidential information for unethical or illegal advantage.
Ensure that subordinates do not disclose confidential information.
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14. IMA Guidelines for Ethical Behavior
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IMA Guidelines for Ethical Behavior
Mitigate conflicts of interest and advise others of potential conflicts.
Refrain from conduct that would prejudice carrying out duties ethically.
Integrity
The third area is integrity. Management accountants must:
Mitigate conflicts of interest and advise others of potential conflicts.
Refrain from conduct that would prejudice carrying out duties ethically.
Abstain from activities that might discredit the profession.
Abstain from activities that might discredit the profession.
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15. IMA Guidelines for Ethical Behavior
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IMA Guidelines for Ethical Behavior
Communicate information fairly and objectively.
Disclose delays or deficiencies in information timeliness, processing, or internal controls.
Credibility
Disclose all relevant information that could influence a user’s understanding of reports and recommendations.
The fourth area is credibility. Management accountants must:
Communicate information fairly and objectively.
Disclose all relevant information that could influence a user’s understanding of reports and recommendations.
Disclose delays or deficiencies in information timeliness, processing, or internal controls.
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16. The system by which a company is directed and controlled.
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Corporate Governance
The system by which a company is directed and controlled.
Board of Directors
Top Management
Stockholders
To pursue objectives of
Incentives and monitoring for
Corporate governance is the system by which a company is directed and controlled.
If properly implemented, the corporate governance system should provide incentives for the board of directors and top management to pursue objectives that are in the interests of the company’s owners and it should provide for effective monitoring of performance.
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17. Enterprise Risk Management
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Enterprise Risk Management
Should I try to avoid the risk, share the risk, accept the risk, or reduce the risk?
A process used by a company to proactively identify and manage risk.
Part I.
Enterprise risk management is a process used by a company to proactively identify the risks that it faces and manage those risks.
Part II.
Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.
Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.
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18. Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept whereby organizations consider the needs
of all stakeholders when making decisions.
Customers
Employees
Suppliers
Communities
Stockholders
Environmental & Human Rights Advocates
Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions. CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.
Stakeholders include groups, such as customers, employees, suppliers, communities, stockholders, and environmental and human rights advocates, whose interests are tied to the company’s performance.
CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.
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19. End of Chapter 1
End of chapter 1.
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