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Sakurai, M. 1995. Past and future of Japanese management accounting. Journal of Cost Management (Fall): 21-30.

Summary by Michael C. Massi
Master of Accountancy Program
University of South Florida, Summer 2002

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The current state of Japan’s economy is one of recession and lost international competitiveness. Reasons behind Japan’s fall include the collapse of the bubble economy, a major decrease in the value of the yen, and a decrease in domestic product demand. Japan experienced its greatest period of economic growth from 1960-1973 by emphasizing a volume expansion management accounting theme. Thus, the country became a major player in the international arena through mass production and reductions in unit costs. By the early 1990’s, Japan’s bubble economy collapsed and the need for a new management accounting direction was the first order of business for many Japanese companies to escape recession and regain an international presence. For Japan to once again be a major player in the global economy, Sukurai suggests a change in management strategy and accounting techniques from volume expansion to effective management as a goal for the future economy.

The rise of the Japanese economy in the middle half of the 20th century arose from globalization, factory automation, and information technology. But the rise of the economy was not without its costs. The rise also dramatically changed the cost and income structure of Japanese companies by dramatically increasing overhead costs (p. 22). With increased overhead and pressures from international competitors, Japanese companies fell prey to a decrease in efficiency in operations and the management of their companies. Naturally, a decrease in return on sales (ROS), return on investment (ROI) and operating ratios were next to victimize Japanese companies. Sukurai uses the increase in overhead-to-manufacturing ratio as an example of how increased overhead costs spelled disaster for Japanese companies. The increase in overhead costs that affected this ratio is due to the depreciation in exchange rates, large amounts of idle capacity, and diversification of business operations that reduced business risk and the company's effectiveness. Also, additions to overhead costs included the increase in selling and administration costs. A rise in research and development, physical distribution, advertising, and information processing all contributed to increasing overhead costs for companies. All these reasons behind the dramatic increase in overhead are considered to be the main cause behind low returns in Japanese companies.

Japan’s economy in the 1990’s was in dire need of a change in management accounting. Sukuari suggests the need for effective management to use Japan’s already restricted resources efficiently and attain pleasing rates of return. To clarify his suggestion of effective management, Sukurai describes the change of corporate goals and management accounting techniques through different time periods in Japan’s economic history. From postwar to 1960, management accounting was set on improving efficiency through increasing input-resource efficiency by standard costing and other management tools. From 1961 to 1990, this became a period of high economic growth through volume expansion.

Sukurai divides this era into two periods: 1960-1973 & 1973-1991 (p. 23). The first period is characterized by economic growth through expansion into new markets by mass production and reduction of unit costs. Variable costing was the management accounting tool of choice because it could provide managers with the most suitable blend on deciding additional production when there was idle capacity. The second period was depicted by stable or low economic growth due to the world’s oil crisis during the 1970’s. The oil crisis in the 1970’s taught managers that volume expansion was not the right direction for the future and only through effective use of a company’s resources would a company enjoy growth and prosperity. Also, economies of scope played a greater role than that of economies of scale during this period. Unfortunately for Japan, many companies still had a business strategy of volume expansion which set them back and contributed to the collapse of the their bubble economy. From 1991 to 1995, the Japanese economy was crushed by the collapse of the bubble economy. The collapse led to industries that were once competitive becoming uncompetitive and dramatically raising the break-even point for domestic companies. As a result, many Japanese companies made direct investment in other countries. As the money left domestic industries, a sign of deterioration of worker quality began due to a decrease in young workers and their motivation. Thus, due to the collapse of the bubble economy, Japanese companies needed to reengineer their business processes.

The reengineering called for effective management in Japan. To accomplish this needed goal, input/output relationships needed to be examined to create enhanced efficiencies. Sukurai introduces a concept of "+ α" which is being efficient plus social benefits that cannot be quantified. These social benefits include reduction of working hours, environmental preservation, good relationships with suppliers, customer satisfaction, and protection of shareholders. The "+ α" benefits can be expressed as goals as well as constraints or costs to individual companies. For companies to achieve these goals, Sukurai comments that managers will be required to increase economies of speed by reducing manufacturing cycle, time, delivery, and turnover through effective management (p. 25).

The tools that are available to Japanese managers to accomplish effective management will be target-costing to reduce direct costs, just-in-time manufacturing, value engineering, activity-based costing (ABC), and activity-based management (ABM). Sukurai identifies target costing and ABC/ABM as the most powerful management tools due to their effectiveness in reducing materials cost and overhead.

As ABC/ABM were introduced to the Japanese, management accountants defined ABC as a methodology that measures the cost and performance of activities, resources and cost objectives based on their use. AMB was defined as an activity-based approach to process-based management. Unfortunately, ABC was ignored by Japanese controllers because they wanted information about managing overhead costs, not product costs. The only companies in Japan to use ABC were those that had American connections. As for the academic world, research papers and seminars were given and great interest was given to ABC after the collapse of the bubble economy, in fact, far more interest was given to ABM than ABC during that time.

In the article, Sukurai presents a 1994 case study of Sanyo Electric's ABM system used as a tool for process improvement and innovation. The case study found that many who promoted ABC/ABM were fired, thus participants were reluctant to participate. Also, the study found the goal at Sanyo included promoting new businesses, not just a business restructure. When Sanyo designed its ABM system, they proceeded to do this independently of their current standard cost system. Cost drivers were identified that were sufficient for providing information to top management and analysis included drivers that captured most overhead costs. The study found the greatest benefit from introducing ABM was the discovery of non-value added expenditures that included underutilized employees and other resources. Sanyo's spare employees were rotated to new businesses with no layoffs.

The future for the Japanese economy will center on developing effective management tools for quality costing, life-cycling costing, cost accounting for computer software, and investment justification methods for advanced manufacturing environments. These new goals will include entrenching target-costing within every Japanese company to reduce life-cycle costs, introducing ABC/ABM to use value engineering and as a motivation for employees, managing research and development costs to develop new products and new technologies, tools developed for the management of overseas operations as the Japanese continue to make direct investment into other countries, and lastly, regarding ROI as a more important factor for performance and evaluation by Japanese shareholders.


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