Accounting and Financial Perspectives and Manufacturing Strategy

  • Terry Hill


Two common denominators are used in manufacturing businesses as the basis for control and performance measurement. The first is the time base on which manufacturing principally works. Product mix and volumes, capacity, efficiency, utilization and productivity are all normally measured by time. The second common denominator is that of money. At the corporate level, forecast activity levels, performance measures, levels of investment and similar activities use the money base. The importance of getting the correct links between the time-based and money-based measures is self-evident (correct not only in terms of being accurate, but also in reflecting the key perspectives associated with the business itself).


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Notes and references

  1. 1.
    R. C. Dean, Jr, ‘The Temporal Mismatch — Innovation’s Pace versus Management’s Time Horizon’, Research Management, May 1974, pp. 12–15.Google Scholar
  2. 2.
    R. H. Hayes and J. Abernathy, ‘Managing Our Way to Economic Decline’, Harvard Business Review, July–August 1980, pp. 66–77.Google Scholar
  3. 3.
    R. H. Hayes and D. A. Garvin, ‘Managing as if Tomorrow Mattered’, Harvard Business Review, May–June 1982, pp. 71–9.Google Scholar
  4. 4.
    H. T. Johnson and R. S. Kaplan, Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press, 1987) includes important insights into accounting systems: for example, Chapter 8. ‘The 1980s: The Obsolescence of Management Accounting Systems’.Google Scholar
  5. 5.
    R. Cooper and R. S. Kaplan, ‘How Cost Accounting Distorts Product Costs’, Management Accounting, April 1985, pp. 20–7.Google Scholar
  6. 6.
    R. Cooper and R. S. Kaplan, ‘Measure Costs Right: Make the Right Decisions’, Harvard Business Review, September–October 1988, pp. 96–103.Google Scholar
  7. 7.
    K. Simmonds, ‘Strategic Management Accounting’, in R. Crowe (ed.), Handbook of Management Accounting, 2nd ed. (Aldershot: Gower, 1988), pp. 25–48.Google Scholar
  8. 8.
    Several authors highlight these types of consequence including BCG, ‘The Experience Curve — Reviewed: II History’; S. Rose, ‘The Secrets of Japan’s Export Prowess’, Fortune, 30 January 1978, pp. 56–62; and Simmonds,’ strategic Management Accounting’.Google Scholar
  9. 9.
    This argument also forms part of S. C. Wheelwright’s research paper no. 517, ‘Facilities Focus: A Study of Concepts and Practices Related to its Definition, Evaluation, Significance, and Application in Manufacturing Firms’, Graduate School of Business, Stanford University 12 December 1979, p. 55.Google Scholar
  10. 10.
    G. Foster, ‘Drucker on Record’, Management Today, September 1987, pp. 58–9 and 110.Google Scholar
  11. 11.
    S. Parkinson, T. J. Hill and G. Walker, ‘Diagnosing Customer and Competitor Influences on Manufacturing Strategy’, in F. Bradley (ed.), Marketing Thought around the World, Proceedings of the 20th Annual Conference of the European Marketing Academy, Dublin, May 1991, pp. 741–55.Google Scholar
  12. 12.
    R. Davies, C. Downes, and R. Sweeting, U.K. Survey of Cost Management Techniques and Practices, 1990/91 (London: Price Waterhouse, 1991), p. 11.Google Scholar
  13. 13.
    K. Ohmae, ‘Japan: From Stereotypes to Specifics’, The McKinsey Quarterly, Spring 1982, pp. 2–33.Google Scholar
  14. 14.
    Ibid, p. 3.Google Scholar
  15. 15.
    In some sectors, such as pharmaceuticals, this alternative is not feasible due to the drug agencies’ requirements for products to be made by processes for which approval has been given. The delays involved would make this approach impractical. Also refer to V. Griffith, ‘No Cure No Risk’, Financial Times, 7 April 1994, p. 13.Google Scholar
  16. 16.
    Davies, Downes and Sweeting, U.K. Survey, p. 11, confirmed this point. Although 96 per cent of respondents were required to demonstrate quantifiable future benefits, only 55 per cent regarded intagible benefits as playing an important role in the justification process.Google Scholar
  17. 17.
    T. J. Hill and D. J. Woodcock, ‘Dimensions of Control’, Production Management and Control, 10, no. 2 (March–April 1982), pp. 16–20.Google Scholar
  18. 18.
    K. J. Blois, ‘The Manufacturing/Marketing Orientation and Its Information Needs’, European Journal of Marketing, 14, pp. 354–64.Google Scholar
  19. 19.
    For instance, refer to W. L. Ferrara, ‘More Questions than Answers: Is the Management Accounting System as Hopeless as the Critics Say?’ Management Accounting, October 1990, pp. 48–52.Google Scholar
  20. 20.
    Ibid, p. 48.Google Scholar
  21. 21.
    Davies, Downes and Sweeting, U.K. Survey, p. 16.Google Scholar
  22. 22.
    R. S. Kaplan, ‘Yesterday’s Accounting Undermines Production’, Harvard Business Review, July–August 1984, pp. 95–102.Google Scholar
  23. 23.
    BCG perspective no. 219, ‘Specialization or the Full Product Line’, 1979.Google Scholar
  24. 24.
    Ferrara, ‘More Question than Answers’, p. 52.Google Scholar
  25. 25.
    Davies, Downes and Sweeting, U.K. Survey, p. 11, reported that budget versus actual was employed by 98 per cent of respondents as a performance measure. However, only 35 per cent utilised flexible budgeting procedures.Google Scholar
  26. 26.
    A fact confirmed in the 1991 UK survey, which reported that for 51 per cent of all respondents, overheads represented 26 per cent or more of total costs. See Davies, Downes and Sweeting.Google Scholar
  27. 27.
    The increasing size of overheads was clearly shown in the comparison of cost structures between 1960 and 1986, given belowGoogle Scholar
  28. 28.
    Kaplan, ‘Yesterday’s Accounting’, p. 96, provides another example of what, all too often, is a common situation.Google Scholar
  29. 29.
    Overhead allocation involves the allocation, apportionment or allotment of overhead costs to the appropriate cost centre or cost unit. Overhead absorption is achieved by dividing the costs involved on a suitable basis (e.g., standard labour hours, direct clocked hours, direct labour costs, material costs or floor space) and then spreading them on a pro rata basis in line with the common factor that has been chosen.Google Scholar
  30. 30.
    The Davies, Downes and Sweeting, U.K. Survey, pp. 12–13, revealed that whereas 90 per cent of respondents used costs as an important factor in establishing prices, only 30 per cent ‘attempted to allocate indirect/nonmanufacturing costs to products on a cause and effect basis’.Google Scholar
  31. 31.
    Ibid, p. 15.Google Scholar
  32. 32.
    Simmonds, ’Strategic Management Accounting’.Google Scholar
  33. 33.
    Ohmae, ‘Japan: From Sterotypes to Specifics’, p. 7.Google Scholar

Copyright information

© Terry Hill 1995

Authors and Affiliations

  • Terry Hill
    • 1
  1. 1.London Business SchoolUK

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