Management And Accounting Web

Hiromoto, T. 1991. Restoring the relevance of management accounting. Journal of Management Accounting Research (3): 1-15.

Summary by Stephanie Rodriguiz
Master of Accountancy Program
University of South Florida, Summer 2001

Japanese Management Main Page | JIT Main Page

According to Hiromoto, the management accounting of yesterday has lost its relevance in the business world of today. Management accounting has tended to focus on its decision making influence and its ability to determine constraint optimization. Workers were not considered to be creative forces in the business. They were almost looked at as being part of the equipment and machinery. Businesses of today are heading in a different direction. Management accounting must take a new direction to be applicable in today’s business environment. The new focuses are as follows:

1. A behavior influence.
2. Market-driven management.
3. A dynamic approach.
4. A team-oriented approach.

Behavior Influencing Focus

The primary purpose of this focus is to influence employees to perform the desired actions. The system does not necessarily reflect accurate information, but puts twists on the information to paint the desired picture. Accounting systems are being used to motivate employees to act in accordance with the company’s strategies and achieve the goals.

Market-driven Management

Under this focus, the accounting system focuses on the market or customer demands instead of the technological limitations. In order to implement this thinking successfully, management and employees must stay close to their customers in order to stay aware of the market demands. Successful implementation of the focus by the Japanese has involved focusing on the cost that would still allow a profit and then to design a method for achieving that cost.

Dynamic Approach

Performance is judged over time without focusing on the individual performance at an specific point in time. Traditional management accounting systems have become accustomed to judging performance for specific time periods. This new system of management accounting stresses the improvement of performance over a period of time, helping the organization learn and improve.

Team-Oriented Approach

Specialization is not necessarily the key to achieving optimal success. Management accountants should focus on communicating information to all levels within the organization. Non-financial goals should also be used to measure success. When people within an organization become too specialized, there is often too much passing of responsibilities. People tend to only function within their specifications and know nothing of what others are doing within the organization.


Example A:

The problem that Factory A faced was the challenge of developing and maintaining a diverse product offering and controlling indirect manufacturing costs. In order to solve this problem, management paid attention to standardization of the parts for the products. The company’s product designers were expected to work with the idea that their department was a profit-generating department in the company, and they were expected to contribute to the effort. Management developed a method of allocating manufacturing overhead to products based on the number of parts used and the number of non-standard parts used. The factory stressed improvement overtime, and noted significant improvement in the cost of the products over time.

Example B:

Factory A faced a new problem in the late 1980s. Sales began to increase rapidly for 1.5 to 3.0 hp air conditioners. The 2 hp and 5 hp products had the same amount of standard parts, but very different prices. The allocation system developed in Example A no longer supported the company's strategy because it made one of their main line products (2 hp) appear to be less profitable. As a result, the Factory developed a new method to allocate costs to each product category based on the number of employees, and then allocated to each model in a category based on sales. Under this method, they were able to increase the profits on the desired air conditioner and promote the desired behavior.

Example C:

Factory C developed a new cost accounting system. Under this new system, the conversion costs allocation to each product or job order was not based on its own currently accrued cost, but based on the cost arising from outside manufacturers. This new strategy permits the company to remain competitive in the long-term with regards to internal production. See the example on pg. 12 of the article for example calculations.

Example D:

Factory D was operating near full capacity, but not very profitable. To correct the problem management made changes in their production methodology and performance measurements. These changes included:

Converting to a demand pull system, i.e., not producing orders/units until actually ordered and requiring delivery.

Placing emphasis on two new performance measures: lead time and inventory turnover.

To promote cooperation between divisions, actual processing time was no longer reported by division. Management realized that reporting processing time by division discouraged the necessary cooperation. This measurement had promoted the efficiency of the divisions, rather than the efficiency of the whole company.

Remarkable improvement was noted as the entire organization committed to improving efficiency and working together to meet the goals of the company. Inventory turnover days decreased from 102 days to 30 days from 1985 to 1988. If we have interpreted this correctly, inventory turnover increased from approximately 3.58 to 12.17 over this period, i.e., 365/102 = 3.58 times per year and 365/30 = 12.17 times per year. Production lead time was reduced from 108 days in 1984 to 52 days in 1988.


Yesterday’s management accounting focused on a static environment. In today’s economy, demands and markets are constantly changing along with the measurements of success. In order to achieve success, an organization must be able to alter there methods to the changing constraints. Management accounting is being used to encourage creativity within the employees so that they are able to "think out of the box" on how to achieve the goals of the organization given current market conditions.


Related summaries:

Cooper, R. 2000. Cost management: From Frederick Taylor to the present. Journal of Cost Management (September/October): 4-9. (Summary).

Johnson, H. T. 1987. The decline of cost management: A reinterpretation of 20th-century cost accounting. Journal of Cost Management (Spring): 5-12. (Summary).

Johnson, H. T. 1992. Relevance Regained: From Top-Down Control to Bottom-up Empowerment. The Free Press. (Summary).

Johnson, H. T. and A. Broms. 2000. Profit Beyond Measure: Extraordinary Results through Attention to Work and People. The Free Press. (Summary).

Kaplan, R. S. 1983. Measuring manufacturing performance: A new challenge for managerial accounting research. The Accounting Review (October): 686-705. (JSTOR link). (Summary).

Kaplan, R. S. 1984. The evolution of management accounting. The Accounting Review (July): 390-418. (JSTOR link). (Summary).

Martin, J. R. Not dated. Relevance Lost in a question and answer format. Management And Accounting Web. and

Noreen, E. 1987. Commentary on H. Thomas Johnson and Robert S. Kaplan's Relevance Lost. Accounting Horizons (December): 110-116. (Summary).