Accountancy & Management: Leading the new revolution: Management accountants have come a long way from the annual audit trail, says Philip Hewitt

A BUDGET of pounds 200m provided for Jaguar's new model production programme was set in concrete by the parent company Ford. How, then, could the production team find an extra pounds 15m investment to enhance the programme with a highly desirable technological development?

Management accountants at Jaguar came up with the answer. Working closely with the production engineers they analysed the costs of the programme and 'found' the money needed by making a great many small savings across the budget.

We hear a lot about new car plants where robots patrol the aisles, about the 'clean' rooms of modern electronics manufacturing where the air is filtered and humans are barely tolerated and about computer programs so complex that only other computers can understand them.

But, while robots get the headlines, a quiet revolution is taking place in industry and business as a new breed of people is being trained and is slotting into the key senior and middle management positions. The special skill of these managers is to be able to apply sophisticated financial and numerical control to the whole corporate operation. That means they handle not just the company's balance sheet but also the whole gamut of the business process, from ordering the first machine tools to monitoring how much power the robots consume.

The fact that my institute is called the Chartered Institute of Management Accountants gives the game away.

The men and women who are now making their mark so forcibly in the most modern industrial sectors are, of course, the management accountants. They are in the forefront of the new industrial revolution.

Cima has helped to turn financial control in industry from a theoretical subject to a hands-on skill that its members actually deliver.

Even 10 years ago talk about accountants was always about financial accounting. The accountant was seen as someone who simply handed down the score-card from time to time before returning to an invisible existence in a remote office.

Now management accounting has become highly visible. Basically it means trained accountants working inside companies as an integral part of management to achieve best results.

Numerical skills and methods are being applied to identify, measure, and solve problems rather than the traditional 'suck-it-and-see' approach. Management accountants are busily updating and renewing cost and accounting systems for the new environment.

New tools are being employed in management accountancy. Activity- based costing (ABC) is one modern approach. It says, in essence, that costs are determined by activities and a lot of them, such as safety, health and welfare, are independent of the cost of production. However, many management accountants are now exploring other possibilities in their search for that elusive animal, the perfect management accounting system.

There is a great deal of interest in the Japanese approach, which strives to use management accountancy as part of its production equipment.

The idea is to choose a new product and the market share desired for it - and then fix a suitable price to achieve those goals. If production costs are too high, as they frequently are, it is up to the accountants and engineers, working together in the hurly burly of the production shop floor, to set about reducing those costs.

The strength of that approach is that the management accountant stays with the project at all stages from design to final volume output. Accountancy is being integrated into the manufacturing process as a production tool.

Yet another route being taken by some management accountants is to force strategy downwards through the organisation to make sure that all people are working towards it. Everyone's contributions to the success of the project can then be readily and constantly assessed.

To return to Jaguar, the quality car maker used the management accounting skills of being able to measure, understand, and resolve other people's problems to reshape and enhance its pounds 200m new model production programme without spending an extra penny.

The company wanted to adopt a new production line technique for fitting car doors. However, the cost of production changes would amount to an extra pounds 15m. And the overall budget set by Jaguar's owner, Ford, was inflexible.

It became a joint finance-manufacturing project. It was decided that the door technique was a priority. So it was by raking the budget and establishing what else was a priority that money was saved on many other items in order to stay within budget.

Jaguar has an image of expensive wood and leather for its car interiors. To find that pounds 15m every square inch of wood and leather used in a car was scrutinised by the management accountants, together with the designers and engineers, to make savings where they could be achieved without loss of quality or customer appeal.

No British business sector has felt the impact of modern management accounting more forcibly than the highly competitive retail stores sector. The big retail stores chains have turned management accountancy into the mission control centres for their businesses.

J Sainsbury had an unexpected management problem when sales of a single item rose by 1,200 per cent overnight in the company's stores across Britain.

A television advertisement showed the actor John Nettles using Sainsbury's bergerac red wine in a recipe. Refilling the shelves with fresh bottles of the wine was a top priority next day as the customers flocked in.

That was an extreme case, which demonstrates a retail business's need to be able to keep track of sales on a very short timetable scaled in hours, not days, a text-book argument for activity-based management accounting.

The supermarkets now track billions of items sold in a year, together with all the processes of buying, marketing, and selling, on an hourly basis through thousands of stores. One might say management accountants are information vending machines.

At this level of applications in retailing the skills of management accounting have already gone far beyond financial monitoring. Looking beyond cash flow, they are equally interested these days in the patterns and profiles of the people who use the stores. When they shop. How they travel. Why they might change their habits.

Good management accounting must always be challenging history. In the supermarkets example people might suddenly change their shopping habits in a town for a special reason. Perhaps they stay at home to watch the arrival of a Martian space ship live on television - thus leaving a line of empty check-outs in a big supermarket. Or perhaps they choose to get their shopping done early because an unexpected sunny day has dawned - thus leaving queues of irritated customers if the supermarket staffing programme has not anticipated the surge.

The modern management accountant must predict behaviour by analysing information, and tailor the company's service accordingly. The job is light years ahead of the old accountant's image of the person who 'did' the annual audit.

The author is president of the Chartered Institute of Management Accountants.

(Photograph omitted)