State of Maps in Saudi Organizations - Essay Example

OF MAPS IN SAUDI ORGANIZATIONS MAPs and its significance Management Accounting Practices is considered to be an important tool for an organizations management to promote both affectivity and productivity. Especially keeping into consideration the small enterprises, MAPs prove to be a vital information system for well structured and well defined information processing. MAPs are very beneficial when financial and non financial data needs to be extracted by firms in order to sustain the intense competition in the dynamic business world and timely adapting to change. Past researches have certainly given no guarantee for MAPs as a success tool but on the contrary in the absence of this tool, a firm’s competitive advantage is deteriorated to a significant extent. The State and Extent of Using Modern Management Accounting Techniques In Particular in Making the Right Decisions Decision making is considered to be an all inclusive and widespread process that consists of various activities such as identification of the problem or the concerns, allocation of certain weights or ranks to the identified problem, evaluation and implementation of the alternative plans. Management accounting on the other hand is related to the appropriate use of relevant information in order to facilitate and direct managers to undertake informed business decisions effectively and efficiently. The most advantageous fact of management accounting practices is that is does not require conforming or following the national accounting standards which further gives a liberty or room for the business people to adopt customized management accounting techniques that are most effective in terms of their business operations. For realizing the affectivity in the decision making process, organizations combine or merge the advanced quantitative and qualitative techniques. According to Johnson, The use of modern management practices has helped in focusing on the problem which inclines more towards how accounting information can be made more useful for decision making rather than how we could improve things we do . The recent developments in the modern management accounting techniques have enabled the managers to make sound decisions so that excessive costs incurred by firms could be pruned down and at the same time, the value of the products and services rendered could be enhanced. The extent to which the management accounting practices have been put into action is tremendous and quite rigorous, especially in the past two decades. Lot many research work and in-depth study in various countries across the world have undertaken to find out the relevance and significance of the modern practices to various sectors in the economy. For instance, in a research conducted by Philip and Kerckhoffs Christian (2005), the significance of Activity Based Costing (ABC) and throughput accounting (TA) was brought forward and was revealed that MAP’s are more used as accounting tools to “make-up” the technical insights from an accounting viewpoint. The research indicated the use of working-floor insights and production process data in the formulation of a company’s income statements that are utmost essential for managerial decision making. When most of the countries have already adopted the MAPs, there are countries like Bangladesh which still need to incorporate the changes in the accounting practices. Bidhan has conducted one such study whereby it was found t modern techniques like Activity-Based Costing, Cost-Volume-Profit, Target Costing, and Just-in-Time (JIT) etc were not applied in the public and private sector manufacturing enterprises but used by just a few Multinational Corporations (MNC). (8) Most of the companies in Saudi were still found to use the conventional and traditional accounting practices. Traditional management accounting techniques are generally perceived by the Saudi manufacturing and service sector firms to be highly important and frequently used by the responding firms. As per Ei-Ebaishi, the managers rely less in comparison to their other counter-parts across the world on the advanced accounting practices for critical decision making within an organization. In a recent study initiated by Yeshmin Farjana and Das Sumon on financial institutions in Bangladesh, was found that managers are more comfortable using techniques such as budgetary control analysis and variance analysis to measure performance and take necessary decisions for the organization. Research also revealed that segment reporting was highly discouraged in Saudi countries and techniques like ratio analysis, budgetary control, CVP analysis, variance analysis and fund flow analysis were commonly used performing managerial tasks. The role of advanced management accounting practices in Saudi is undermined. Extreme reliance on the traditional methods has restricted the manufacturing and the service sectors to reach the root cause of the concerns and take necessary actions to overcome them. Yeshmin Harjana and Amran Hossan (2011) in their study surveyed on 74 manufacturing organizations in Bangladesh clearly revealed the need for the managerial accounting techniques to be adopted by organizations in Bangladesh and other Saudi developing countries in order to make effective management decision (1). The modern practices help organizations especially in the developing countries like Saudi to enhance the innovative capacity of the organization and induce flexibility in the work approach so that performance could be augmented and necessary changes could be adapted (151). Though certain organizations, especially from the financial sectors like the National Commercial Banks have tried to incorporate the best accounting management practices in order to take the most effective decisions for the organization and attain optimum utilization of the resources for the firm. They are amongst few organizations that understand the significance of modern accounting practices that can assist in taking key managerial decisions as such practices provide imperative skills and techniques in building organizational competitiveness. NCB works on a firm belief that by incorporating management accounting techniques and practices, the organizational planning, development and strategic competitive position is strengthened. The NCB also believes that MAPs like Activity Based Costing and CVP (Cost Volume Profit) has certainly helped the organization in extending strategies that generate a competitive advantage within an organization. Explore and Examine the Factors That May Influence Maps in Saudi Organizations It is a fact that all the firm operating at various levels are not equal. Past empirical studies have proved that two organizations that work at par on the same level, having the same kind of operating size, working in the same country as well never produce at the same levels. This is due to the fact that every organization is influenced by various factors and variables that effect productivity and effectiveness. As Management Accounting Practices is one such area that can be used as a competitive tool for formulating organizational strategy for growth and profitability, various factors that influence MAPs need to be explored. In an origin like Saudi where still the adoption of such modern practices is minimal and is direly required to promote growth and profitability within the economy, it becomes quintessential to explore factors that influence MAPs in Saudi organizations. Factors that influence MAPs in Saudi Organizations Saudi Background Saudi Arabia is one of the renowned desert countries that possess 20% of the world’s oil reserves having 28 million inhabitants. 8 million of those inhabitants are expatriates. The country 70 percent labor is engaged in the service sector while the remaining 30 percent is divided in the agricultural and industrial sectors. Technology One of the most critical factors observed is ‘technology’. Technology is a common term linked with the growth of an organization. Technology can be further divided into diversified areas such as human capital, IT, research and development. It is proved that implementation of an advanced technology could lead to higher productivity levels that can be one of the major factors for determining the differences in practices adopted by varied organizations. Hsieh and Klenow in their study revealed that inefficient allocation of resources and inputs could lead to disparities and large productivity gaps between organizations, especially in a location like Saudi where disparities are at a higher range (1420). The Management Accounting Practices can certainly be a bridge to reduce the gap and help in optimum reallocation of resources like labor and capital. Implementation of IT Practices The use and implementation of new IT practices in Saudi organizations can also be one of the variables that require consideration. Management Accounting Practices involve usage of advanced softwares that help in deriving at vital decisions. Till the organizations feel the need to incorporate and update the information technology department, the advantage of latest accounting softwares and tools cannot be realized. Saudi organizations need to adopt the latest IT infrastructure that greatly influences MAP’s. Management Style Management style is a great influence for the different productivity levels, workmen’s performance, critical corporate decisions and a firm overall growth and profitability in future. The organizations investments, financial and organizational decisions such as acquisition or diversification, expansion, dividend policy, cost-cutting policy etc are directly correlated with the management style and the corporate policies. Such critical decisions are highly dependent on the kind of accounting policies embraced that delve deeper into managerial decision making criterion. Manager’s educational background is also a part of the variable. Managers that choose to work upon the modern Management Accounting Practices, perform comparatively efficient practices. Smart and proactive managers tend to implement efficient practices while poor quality managers result in reduced output and productivity levels by taking irrational and unreasonable decisions. Saudization program Kechrid helped in exploring one of the most interesting factors explored is the ‘Saudization program’ whereby the Saudi organizations are literally forced to retain the Saudi employees irrespective of the fact whether they deserve the jobs on account of their ability and capability or not. Just due to the fear of fines and legal consequences, organizations forcefully retain the inefficient staff, inspite of high youth unemployment (10). On the contrary , there is also an adverse side to the country’s laws that is on account of the immigration laws of the country , once the Saudi organizations procures a foreign employee, it becomes even more costly affair for the firms to dismiss the employee. Such practices are certainly a hindrance in the adoption of modern accounting practices and also deter managerial decision making process. Cultural practices Past studies have clearly unfurled the facts Saudi Arabia is a country that scores high on the scales of power distance, uncertainty avoidance, high collectivism and low on the scales of individualism, and femininity (low masculinity), which is a true indicator of the fact that the country’s culture does not promote implementation and adoption of new practices to MAPs or in any other form. Comparing Management Accounting Practices/Techniques And The Factors That Influence The Use Of These Practices/Techniques Across Different Sectors Of Saudi Organizations Saudi Arabia is a developing country that has mainly two main sectors that is manufacturing and the service sectors, further divided into various industrial streams such as oil, cement, petrochemicals, telecommunications, finance, energy, retail real estate and many more. As already stated above, Saudi is a location that is rooted to its old values, conservative outlook and masculinity due to which adoption of advanced Management Accounting Techniques has not been enough. Still organizations working under various industry heads are comfortable using techniques like Ratio Analysis, Budgeting etc but few of the emerging strong sectors such finance, banking, energy etc have started adopting the changing practices and have shown a keen bent of mind for using competitive MAPs practices such as Activity based costing, Cost-Volume-Profit analysis, Profit planning etc. Mainly in the financial, energy and telecommunication sectors people believe that competitive advantage and sustainable development could be achieved only if techniques like activity based costing, CVP and profit planning are applied as such techniques intend to build up a new horizon of managers and change their outlook from merely being a ‘bean counter’ to more active members in formulating and designing competitive business strategies. Activity based costing is more inclined towards implementing high quality targets with improvisations in cycle time and the overall quality as well. ABC aims to reduce the manufacturing costs through achieving high quality and reduced cycle time that further reduces excessive costs. Profit planning on the other hand aims to step down the most effective means to achieving targeted rate of profit for the growth and expansion of the organization keeping the quality intact and bringing out the inner potential of a manager and his affectivity into action. Though most of the organizations across world such as UK and USA have discouraged the use of management techniques like CVP, instead implemented more beneficial techniques of capital budgeting for accurate results but in Saudi people are reluctant to implement such practices apart from few sectors like finance and are more comfortable with cost-volume-analysis which in modern times is not so much preferred due to its limited approach. In a research conducted by El-Ebaishi et al. (2003), it was found that manufacturing sector in Saudi perceives use of traditional management accounting techniques more beneficial due to the cultural norms, lack of training and expertise in modern areas of management accounting etc. On the contrary only few sectors such as, Saudi financial sector, Information technology sector etc are more inclined towards the usage of new management techniques such as ABC and JIT. Past researches have clearly revealed that Saudi organizations have an autocratic form of management style whereby they do not encourage participative management and belief in their own values and religious norms which is also one of the deterrents to growth and change. The country needs to come out of the ‘Saudization’ phenomenon to be more responsive and receptive towards the required changes in the Management Accounting Practices and techniques. Bibliography Bidhan, Chandra Roy. “Application of Management Accounting Techniques in Decision Making in the Manufacturing Business Firms in Bangladesh.” The Cost and Management, 35.1 (2007) : 5-18. Kechrid, Dania. “Management Practices and Productivity: the Case of Saudi Arabia”. (2012). (15). Web. 13 Dec 2012. Hsieh, Chang-Tai and Klenow, Peter. 2009. “Misallocation and Manufacturing TFP in China and India.” Quarterly Journal of Economics, 124.4 (2009): 1403-1448. Yeshmin , Farjana and Hossan, Amran. “Significance of Management Accounting Techniques in Decision-making: An Empirical Study on Manufacturing Organizations in Bangladesh “. World Journal of Social Sciences 1. 1. (2011):148 - 164 Read More