CIMA sponsored this year’s management accounting research group (MARG) conference, held on 31 March 2011 at the London school of economics. Naomi Smith, CIMA’s research and development manager, reports from the event.
Prestigious speaker Professor Zhang Xinmin (pictured left), from the University of International Business and Economics, delivered a presentation on the Chinese perspective of strategic cost management.
He spoke about the successes of the Haier Group – a Chinese firm established in 1986 which has grown rapidly to dominate the global market share of the consumer appliances industry. Haier now employs over 70,000 people and in 2010 achieved a turnover in excess of GBP13 billion.
Management accounting innovations
Professor Xinmin believes Haier’s phenomenal growth has largely been due to the implementation of management accounting innovations. The company has moved from mass production of appliances to large scale product customisation, which reduced costs through an overall increase in efficiency and a more effective motivation scheme.
Following the new strategic focus, a restructure saw Haier drop a strategic business unit model in favour of the creation of 4,100 self managed operational units. The new structure ensures each major customer has a designated unit responsible for its needs.
Professor Xinmin said that a traditional hierarchical structure was not fit for purpose for a strategy based on the dynamic decision making required for meeting the personalised needs of modern customers. A more flexible structure allowing faster decision making was required and Haier refers to this as its ‘inverted triangle’.
Each unit now produces its own income statement against which its performance is measured. Only sales accompanied by cash inflow are recorded as income on the P&L.
Excess stock is charged at 1RMB per unit per day. Residual value belongs to each unit and unit staff can share this as a bonus. In the best performing units, staff can see their salaries tripled.
Empowering frontline staff
This combined strategy and structure empower staff who deal directly with customers, by giving them the autonomy to make expedient decisions on behalf of customers. Managers exist only to support and provide resources.
By attributing the organisation’s costs to different operating units, all costs that are unable to produce value for customers can be avoided. HR can also identify any unnecessary personnel.
Additionally, Haier found that dysfunctional employee behaviour was reduced because employee interests are aligned with Haier’s. Cost reduction has become the concern of every employee as strategic business unit residual income belongs to the staff in that unit.
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