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 |
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| Needs | Sources | Uses |
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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 |
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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. |
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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 |
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Burns and McKinnon’s Exhibit 5 Long-term Needs, Sources, and Uses of Information for Production and Marketing |
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| 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 |
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| For Companies Marinating High Levels of Finished Goods | |
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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 | |
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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.
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Burns and McKinnon’s Exhibit 7 Factors Affecting Value of Information for Purchasing Material |
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| 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 |
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| 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.
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Burns and McKinnon’s Exhibit 9 Information Used in Sales Activities |
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| 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 |
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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.
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Burns and McKinnon's Exhibit 11 Types of Reports |
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| 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.