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Management, Uncertainty, and Accounting pp 97–127Cite as

Palgrave Macmillan

Profit Opportunity, Strategic Innovation, and Management Accounting

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Abstract

This chapter reexamines the concept of profit in management accounting from the viewpoints of opportunity, profit opportunity, and strategic (feed-forward) innovation. The information required today for strategic management and performance evaluation has become distinct from accounting profit information required for traditional management, given the current transitory and uncertain business environment. However, management accounting cannot exist without profit. Therefore, the chapter seeks to examine the source of profit and clarify the profit opportunity–based aspects of contemporary management accounting through the analysis of opportunity, profit opportunity, and strategic innovations. For this purpose, the chapter first addresses the relationship between opportunity and profit opportunity. Secondly, in association with management accounting, it seeks to understand current innovations intended to enhance profit opportunity. Thirdly, effects of innovations and profit opportunity on target costing in Japan are discussed. Lastly, this chapter develops profit opportunity–based variance analysis that is useful in feed-forward planning and feedback control processes. Increased use of strategic innovation management is found to yield more useful variance analysis and strengthen the strategic feature of management accounting, which can contribute to future innovation in management and help objectively recognize and reduce opportunity costs.

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Notes

  1. 1.

    This book uses the term ‘feed-forward innovation’ more roughly than as used in cybernetic science. In this context, the word means proactive and preventive information and management /production system in which global information, knowledge, resources, competence, and technologies are used for self-reliance (internal innovation), agile supply chain management (external innovation), and global innovation. Enterprises have invested large amounts of money and time for establishing this feed-forward innovation. Thus, it would be better to say ‘strategic innovation’ in this chapter, because it is strategic and we are not familiar with ‘feed-forward innovation’. For example, a leading mobile phone manufacturer, Nokia, adopted integrated project management, which consists of collaborative demand planning with customers, site-based ordering by progress, professional cost management, and performance metrics with an integrated platform. The supply chain is flexibly decentralized according to changing markets on the basis of concentrated demand planning and site-based ordering, whereas parts and components are standardized and modularized for finished products in response to changes in demand in markets. Its goal is “to provide customers with more speed, efficient and cost effective deliveries by better orchestrating the end-to-end supply chain” (Collin and Lorenzin 2006). In the case of Zara, each of the more than 300 small contractors specializes in one particular part of the production process or one particular garment type. They work exclusively for Zara’s parent company, Inditex SA. In return, they receive the necessary technological, financial, and logistical support required to meet the stringent time and quality targets (Christopher 2000).

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Authors and Affiliations

  1. Beppu University, Beppu-city, Oita, Japan

    Akira Nishimura

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  1. Akira Nishimura
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Appendix

Appendix

Table 5.3 Employee number (EN), sales, and industrial sector of the investigated companies (2011) (money amount in 100 million yen)
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Nishimura, A. (2019). Profit Opportunity, Strategic Innovation, and Management Accounting. In: Management, Uncertainty, and Accounting. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-10-8989-3_5

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