Accountants have narrow view of strategic role, says survey

Education needs to widen accountants’ strategic thinking. By Graham Pitcher, Dean of the Business School at BPP Professional Education.

In a survey of recently qualified accountants, the majority worryingly suggested that their role in setting strategy is helping to evaluate strategic options. Many added that the evaluation was in strategic as well as financial terms. Nevertheless it is a pretty narrow view of the accountant’s contribution to the determination of strategy.

An informal survey of HR, legal and marketing professionals produced a similarly blinkered view – accountants do the numbers. Non accounting professionals believed the growing number of MBA-qualified senior staff capable of ‘doing strategy’ meant accountants no longer had to be involved in strategic management.

'Accountants do the numbers’ is an attitude that pervades the whole strategic management process. One reason for the narrow view could be the way accountants encountered strategy during their studies in both learning and assessment.

Learning business strategy

All qualified accountants, whatever accounting body they qualified with, will have studied business strategy. Not surprisingly the main motivation when studying is to pass the assessment. So, although the teaching is designed to encourage decontextualised learning, it is still taking place within the context of the qualification.

For the student, learning how to pass the assessment is as much a part of the knowledge as theoretical models and techniques. There is nothing wrong with that. But educators need to be aware that learning takes place in a student community and there is a danger that the knowledge will not transfer to the community of practice. Experienced accountants should be aware of this and help newly-qualifieds make the transition.

Thinking inside the boxes

Another potential problem derives from the classic model used to teach strategy, the rational approach, shown in figure 1.

Figure 1 – Rational planning approach to strategy formulation

Texts and lectures usually work through this from top to bottom, stopping to discuss theoretical models and techniques where appropriate. There is nothing wrong with this. However, the student will leave having memorised the linear approach to strategy, in which models and techniques are related to boxes. The feedback loop given prominence is the comparison of the results from the implemented strategic choice with the original objectives.

The assessments usually test strategy in narrative form, requiring discussion of the strategic issues along with numerical analysis. The use of case studies in assessment, whether professional or higher education qualifications, goes part of the way to promoting the accountant’s strategic role. But even then the evaluation and, as students perceive it, the management accounting elements, are often limited to strategic options and performance measurement.

The survey suggested that, although accountants are knowledgeable about assessment techniques, few relate them to strategic management. There was evidence of knowledge being compartmentalised rather than integrated into a holistic strategic model. If this is the view that students take into the workplace, organisations’ strategic decisions may not be as informed as they think.

Taking a wider view

Strategic accounting has a role to play that is much wider than this. Survey participants rightly suggested that carrying out competitor analysis illustrated the role of the accountant in environmental analysis. Management accounting techniques, they believed, can also inform the competitive strategy of an organisation. Reassuringly many appreciated the variety of factors requiring evaluation when Dyson made a strategic decision to transfer production of its vacuum cleaners to Malaysia. But the thinking stopped at evaluating the strategic option.

Most participants suggested that part of the rationale was to boost profits, allowing Dyson to expand into the US – a future development. Few contemplated that Dyson’s strategy also had an impact on the structure of the industry. This, in turn, affects the forces that influence the current level of competition. This needed quantifying in terms of the risk and financial consequences – the impact on prior analysis.

Asking the right questions

The strategic management process is not just a linear process with one feedback loop from implementation to the objectives. The strategic impact of a chosen course of action should be ascertained on the earlier analysis (see figure 2).

Figure 2 – Strategic impact analysis of chosen strategy

For example, we should go back and calculate the effect of our chosen strategy on the industry analysis. Questions need to be asked. Will the strategy affect the likelihood of potential entrants? By how much has the risk from any threats been increased or decreased and what are the financial consequences? How has the impact on the external factors affected the balance between the strengths and weaknesses and the opportunities and threats?

Sceptics will say that this is part of evaluation. It is, except that it sees the evaluation process as pervading the whole strategic planning model, rather than as one ‘box’. It also goes beyond competitor response analysis by reviewing the impact of a chosen strategy on the structure of the industry. This knowledge aids the development of a strategy that is sustainable and promotes a proactive approach to strategic management.

Time for a challenge

Many theoretical models are used to develop strategies. But students, and I would argue professional accountants, are rarely challenged to evaluate the financial consequences of strategic issues. Many accountants will be familiar with the PEST (political/legal, economic, socio-cultural, technological) model for environmental analysis. Few would consider feeding the details of a company’s planned strategic decision back into the models to see the overall financial effect. Most would wait until the results filtered into the review and control box and into the next strategic review cycle. Even when working through scenarios the tendency is to work forward, rarely iterating back to assess the impact on the prior analysis. 

The way ahead

Educators must ensure that students do not start work with a linear, compartmentalised view of the role of accountants in strategic management. The working professional must ensure that newly qualified accountants have the opportunity to put their learning into practice. Professional bodies must ensure that assessments test strategy in as realistic and holistic a way as possible.

We must all remember that accounting techniques are part of a continuous, iterative process. Whatever the organisation or activity, everything has a financial consequence. We still need to get the message across that accountants are capable of adding value to the whole strategic management process.

September 2005