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Lecture Notes 1

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Queensland University of Technology

AYB321 – STRATEGIC MANAGEMENT ACCOUNTING Lecture 1: Organisational Architecture Strategic Management Accounting  Management accounting refers to the processes and techniques that focus on the effective and efficient use of organisational resources, to support managers in their tasks of enhancing both customer value and shareholder value Organisational Architecture  Refers specifically to three critical aspects of the organisation: o Assignment of Decision Rights o Methods of Rewarding Individuals o The structure of systems to evaluate the Performance of both individuals and business units  The three are individually important but are more important when added together  Successful firms: o Assign decision rights in ways which effectively link decision making authority with the relevant information for making good decisions  e.g. hire and fire decisions  information must be appropriate and relevant o Ensure the company’s reward and performance evaluation systems provide decisions makers with appropriate incentives to make value-increasing decisions  e.g. productive decisions which enhance value  profit level or % of profit  Ensure three critical aspects are coordinated with each other and are compatible with the firm’s strategy Economic Analysis  Provides a theory to explain the way individuals make choices  Individuals respond to incentives o Incentives can be used to promote desired behaviour o BUT: individuals can be resourceful in exploiting opportunities o Perverse incentives: poorly designed incentives can result in unintended behaviour (opposite of what was intended)  Managers can design organisations which motivate individuals to make choices which can ↑ firm value o Designing an effective organisational architecture
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