Management And Accounting Web

Bruns Jr., W., and S. McKinnon. 1993. Information and managers: A field study. Journal of Management Accounting Research (5): 84-108.

Summary by Mohamed Gomaa
Ph.D. Program in Accounting
University of South Florida, Spring 2002

Behavioral Issues Main Page | Performance Measurements Main Page

The main purpose of this article, as stated by the authors, is to describe a field study undertaken to learn more about how managers use accounting information. Previous literature that exists in this area is fragmented into several major areas including the following.

1. A normative body of research which addresses the definition of accounting information itself and the characteristics it should possess to be "useful". This body of literature is missing studies that address the characteristics of "actual" information used.

2. A body of literature that focuses on the sources from which managers receive information.

3. A body of literature that includes studies which examine the decision-making processes of managers and suggests reasons for their choices of information sources.

RESEARCH QUESTIONS

The authors review of previous literature and research interest led them to formulate the following four research questions:

What information do managers say the need and use?

Where do managers get the information that they use?

Are some managers better prepared to use information than others?

Has the development of technology changed the way managers receive and process information?

THE FIELD STUDY

The authors conducted interviews with 73 managers in twelve manufacturing organizations in North America, six in each the United States and Canada. These corporations comprised a non-random sample selected on the basis of location and accessibility, personal contacts, and expected willingness to help with the research process. All of the companies were engaged in manufacturing and were a member of one of the following groups:

Heavy manufacturing of basic materials and products

High tech manufacturing

Consumer branded food product manufacturing.

The authors asked their contacts in each firm to identify at least five managers who would be willing to spend an hour answering their questions. They asked them for two managers each in production or sales and marketing functions and at least one manager involved in information provision such as accounting or information systems. All the managers were salaried. The authors chose to focus questions about information around the activities in which the managers engaged. They also included sections on useful reports, office communication, performance evaluation, computer use and demographics.

SUMMARY OF RESEARCH FINDINGS

Exhibits 4 and 5 provide an overview of the information managers told the authors they needed.

Burns and McKinnon’s Exhibit 4
Daily Needs, Sources, and Uses of Managers’ Information
Needs Sources Uses

Information for day-to-day production, operations and logistics

Face-to-face meetings, Plant tours, M.B.W.A., Telephone contacts, Staff meetings, Informal daily reports prepared by plant staff or user, Reports of inputs, outputs, status, exceptions, defects, injuries, Inventory available, Transportation Monitoring status of capacity and utilization, Monitoring abilities to meet customer needs, Solving problems of operations, materials, or supply, Maintenance problems, Safe operations, Maintaining quality, Delayed shipments, Incoming, Outgoing

Almost all data is delivered, used discussed, and accumulated in unit rather than financial terms. Oral reports by persons, telephone, or fax usually precede or substitute for written reports.

Information for day-to-day sales and marketing

Face-to face meetings, Telephoned reports, Accompanied sales calls, Staff meetings, Customer contacts, Order summaries, Shipping data, Competitors data, Invitations to quote or bid, Call reports, Industry reports Monitoring order production, Monitoring sales staff and effects, Monitoring shipments, Monitoring customer service, Monitoring competitors, Anticipating problems and market opportunities, Coordinating production and transportation to meet customer needs

Burns and McKinnon’s Exhibit 5
Long-term Needs, Sources, and Uses of  Information for Production and Marketing
Needs Sources Uses
Product line planning information, Production capacities and capabilities, Forecasts of industry demand and company market share, Industry developments and trends, Competitive conditions and developments in customer industries Past and current operating performance and possibilities future trends Planning and coordination meetings, Task forces, Weekly, monthly, quarterly, and annual reports of actual performance vs plans, Future plans and schedules, Status of projects Control of budgeted expenses, Long-range product strategy and production planning, Analysis of capital projects, Spreadsheet analysis of performance and plans, Communication and discussion of alternatives, potential problems, and possible opportunities.

Information for daily Management of Production, Operations, and Logistics

The authors found that companies with relatively high finished goods inventory levels tend to follow a master production plan rather than produce to fill current orders. Finished goods inventories in these companies act as a buffer between the production activity and the shipment of orders. Managers seek information that helps them monitor the use of a key production limiting factor in these companies. The information needs of managers in low inventory companies was not found to be very different. The main difference was their daily interest in and reliance on some measure of bookings or orders. Exhibit 6 provides a summary of the key production information managers told the authors they used.

Burns and McKinnon’s Exhibit 6
Key Production Control Information
For Companies Marinating High Levels of Finished Goods

Branded Foods Products

Filters

Steel

Cable

Labor counts; units of output

Labor counts; units of output; scrap

Output; quality

Scrap; labor time

For Companies Marinating Low Levels of Finished Goods

Latex

Chemicals and explosives

Petroleum products

Electronic and Telecommunications Eq.

Software

Order quantity; product specifications

Order quantity; inventory availability

Order quantity; inventory availability

Order quantity; product specs; quality

Order quantity; specifications; quality

Exhibit 7 displays the factors affecting the value of information for purchasing material. The authors found that financial data about the effectiveness of purchasing was used more and more as the time horizon was extended.

Burns and McKinnon’s Exhibit 7
Factors Affecting Value of Information for Purchasing Material
Key Information Items
Inventory Levels (counts) Materials prices
Key Considerations
Costs of running out Cost of maintaining inventory
Factors Affecting Costs
Nature of production process Stable…Unstable
Nature of raw materials Perishable… Dangerous… Homogenous
Cost of raw materials High… Changing… Low

Exhibit 8 provides a matrix of some of the types of data that are associated with inventory levels and logistics. It is divided into two major categories of customer service and distribution cost.

Burns and McKinnon’s Exhibit 8
Information Used in Distribution
  About Finished Goods Inventory About Logistics
For managing customer service Days in Inventory Availability Back orders Location of carriers Fill rates Due dates
For control of distribution costs Inventory investment Space constraints Freight rates Lease versus buy Fill rates

Information for Daily Management of Sales and Marketing

A summary of the important information needed for sales activities is provided in Exhibit 9.

Burns and McKinnon’s Exhibit 9
Information Used in Sales Activities
On Orders On Production On Relationships
Customer, Specifications, Accounts, Prices, Geographical areas, Delivery data, Salesperson, Backlog, Product types, Benchmarks, Patterns Inventory availability, Production plans, Production capability, Constraints, Quality issues, Special problems Economic trends, Customer problems, Customer production plans, Personal data, Profit data, Competitors, Cancellation history, Financial condition, Special problems, Capital programs, Sales promotions

Daily Units Versus Monthly Dollars

The authors’ research supports previous findings that manufacturing executives made more use of physical unit data than dollar data. However, financial numbers still play a role in production and sales management. First, there is an underlying knowledge of the financial implications of physical counting data implicit in their analysis and actions. Second, financial indicators are more important when considered on a longer time dimension.

Information for the Longer View

The authors indicate that managers begin using financial measures for production control at about the one month interval. They use these measures mainly to monitor monthly budgeted expenses. By analyzing past performance, managers can identify the production bottlenecks which are not immediately obvious in daily operations. Exhibit 10 presents the data used in production planning.

Burns and McKinnon’s Exhibit 10
Data Used for Production Planning
Data on Existing
Factors in Process
Analysis of Revised
Sales Forecast
Making Changes
Labor force numbers Reschedule/hire/layoff
Inventories, Material amounts, Finished goods units Checking existing factors availability vs. new needs in revised forecast Find/hold off suppliers, Ship/change plan
Machine capacity, Yields per unit, Flexible uses Revise process schedule, Change lines/plants

Sources of Information

The authors found two sources of information: interpersonal communication and distributed reports. They found that executives use oral communication as their primary source of internally generated information. Exhibit 11 summarizes the different types of reports based on the type of information they provide.

Burns and McKinnon's Exhibit 11
Types of Reports
Types of Reports Examples Some Reports Characteristics
Operating Deliverables not made, Units produced, Downtime, Daily sales Frequently updated, Physical counts or sums
Status Rail car location, Units out-of-service, Inventory levels, Backlog Frequently updated, Non-financial, narrative or summary
Changes, Direction New customers, New employees, Comparative reports News, Latest update compared to past year-to-date
Reference Summary of production, Heating expenses by daily temperature Detail, Summary of operational data for period, Relational data

Conclusions from the field study

The authors provided five conclusions that offer clues for improving management accounting systems. First, managers develop their own personal system for getting the information they want because of their desire for timeliness. Second, much of the information managers use is not in the same metric as that used by management accounting systems and reports. Third, personal information sources are used by every manager. Fourth, the most effective management accounting reports described to the authors were not oriented towards providing information for day-to-day decisions. Fifth, organizations should consider effective communication media when building facilities, locating operations, or locating organizations.