The Hidden Side of Traditional Management Accounting
Proceedings of the Research and Academic Conference "Research and Technology – Step into the Future". Transport and Telecommunication Institute, Riga, Latvia (2015)
Posted: 18 May 2015
Date Written: April 23, 2015
Abstract
Research by Flanholtz and Randle (1998) demonstrated striking results that successful companies from start-ups to Fortune 100 could experience extreme difficulties (and even failure) after sufficient growth including:
• People Express, which reached $1.8 billion in revenue and then entered bankruptcy;
• MaxiCare, which reached $1.6 billion in revenue and the entered bankruptcy;
• Compaq Computers which reached $40 billion in revenue before it had to be sold to Hewlett-Packard to survive;
• Osborne Computer which reached $100 million in revenue in two years, and went bankrupt in year 3;
• Eastman-Kodak which once dominated the field of photography and now fights for survival;
• Sears which was once “where America Shops” and now is fighting for survival.
Many of these companies are regarded as leaders and even some of them were considered as “too big to fail”. In recent studies by Flamholtz and Randle (2007) pointed out that the common reason for failure was non-uniform development of organization, mainly delay in operation, strategic management systems and corporate culture. This is caused as management (especially of entrepreneurial type) of growing companies are not focusing on the fact that “All organizations are perfectly designed to get the result they get” and to get new higher results organizations need to be carefully re-designed, including environmental analysis and selection the proper configuration that corresponds strategy type of organization. In some cases management would like to control everything and insisting on functional configuration that suits for environment with limited scope of predictable changes and feel uncomfortable for necessity to delegate authority for matrix configuration that comply with highly unpredictable environment. Organizations with functional configuration are profitable as following effect of volume, but permitting very limited scope of changes compared to matrix and could not be successful in high unpredictable environment. Fact of inconvenience for changes is the reason that some factors limiting organizational capacities to drive growing revenues into profit were invisible for management as the hidden side of the Moon.
We know it from the nature that it is really difficult to deal with something invisible. That is the reason for medical diagnostics for humans. The same is for organizations. Traditional management accounting excessively concentrated on revenue/profit oriented marketing metrics has limited opportunities to discover organizational risks experienced by businesses.
The organizational risks could have been detected and eliminated early on if senior leaders had paid attention to the early warning signs.
Flamholtz and Randle (2007) developed and validated general set of “growing pain” symptoms that could evaluate organizational risks for an organization as a result of “Growing pains Survey©”. In case of high value assessment research should be “drilled” through the organizational building blocks that helps to define specific problems as a result of “Organizational Effectiveness Survey©” that are grounds for organizational risks.
Comparative analysis for local organizations with the similar is USA and other countries demonstrate differences in management habits and corporate culture. And such differences helps companies to become “best-in-the class” in high competitive markets and obtain sustainable competitive advantage.
Keywords: Management science, organizational failure, organizational configuration, growing pains survey, organizational effectiveness survey, sustainable competitive advantage
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