STRATEGIC MANAGEMENT PHILOSOPHIES

At the end of the chapter, you should be able to:

• Differentiate traditional management from strategic management models
• Discuss the importance of quality processes.
• Elaborate on the principles of strategic management
• Identify the emerging business models and practices
• Explain the concepts of total quality management.
• Classify and give examples of quality costs
• Deliberate the effects of change in relation to managing
• Expound on new terms on quality management
• Relate just-in-time system with quality-based management
• Correlate the effects of technology to process management
• Discourse the importance of benchmarking and product life cycle.
• Critically identify and explain the principal steps in activity-based management.
• Describe the four perspectives of Balanced Scorecard.
• Explicate business process re-engineering and its effects to the dynamics of management

Recent Developments and Emerging Business Practices

The continuing advancement in technology and changes in management philosophy have paved the way for the
introduction of holistic management accounting systems used to generate information for management decisions.
These developments have brought into the forefront the importance of strategic management accounting.

The following is a tabulation of some techniques used in strategic management accounting functions:

Table 1. Strategic Management Philosophies and Techniques

Strategic Management Management Philosophy Technology

Accounting Techniques TQM ABM JIT BPR Kaizen EMA BS AMT CIM
Activity-based costing ✓ ✓ ✓ ✓
Backflush costing ✓ ✓
Target costing ✓ ✓ ✓
Throughput costing ✓ ✓
Life cycle costing ✓ ✓ ✓ ✓ ✓ ✓
Customer profitability
analysis ✓ ✓ ✓ ✓ ✓
Learning curve analysis ✓ ✓ ✓ ✓ ✓
Direct product profitability ✓ ✓ ✓
Expected value and
probabilities ✓
Decision tree analysis ✓ ✓
Monte Carlo analysis ✓ ✓ ✓

Relevant Management
Concepts and Practices
Benchmarking ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Boston consulting group ✓ ✓ ✓
Building blocks ✓ ✓
Contingency tehory ✓ ✓ ✓ ✓ ✓
Mckinsey 7S ✓ ✓ ✓
Pareto's law ✓ ✓ ✓ ✓ ✓ ✓ ✓
PDCA cycle ✓ ✓ ✓ ✓
Theory of constraints ✓ ✓ ✓ ✓
Value-chain analysis ✓ ✓ ✓ ✓ ✓ ✓ ✓
Flexible manufacturing
system ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Strategic Management
Accounting Techniques
Computer-aided design ✓ ✓ ✓ ✓ ✓ ✓
Computer-aided
manufactuirng ✓ ✓ ✓ ✓ ✓ ✓
Materials requirements
planning 1 ✓ ✓ ✓ ✓ ✓ ✓ ✓
Manufacturing resource
planning 2 ✓ ✓ ✓ ✓ ✓ ✓ ✓
ABM Activity-based management EMA Environment management accounting
AMT Advanced manufacturing technology JIT Just in time
BPR Business process reengineering PDCA Plan, do, check, act cycle
BS Balanced scorecard TQM Total quality management
CIM Computer-integrated manufacturing

The Modern Business Environment

Managing had tremendously changed in the last three decades and has been disrupted in the last ten years. The
influential developments in technological revolution, especially in the fields of electronics and biogenetic engineering,
coupled with new and more sophisticated needs and wants of customers have permanently refaced organizational
structures, standards, processes and practices. Meeting deadlines, optimizing resources, increasing productivity and
efficiency, and creating innovative ideas have predominantly characterized business dealings and managing. Business
entities are now more interdependent than ever and outsourcing has become an attractive alternative of doing things.
Employees are increasingly empowered, multi-skilled and are confidently accepting more responsibility. Trust and
openness characterize human and organizational relations, and teamwork is encouraged versus individuality. Direct
labor becomes a lesser component of total production cost as processes are reengineered while machines and
equipment play significant components in the manufacturing process. Products are manufactured based on global
standards as customers intelligently demand for more. Superiority of goods and services redefines the meaning of the
law of supply and demand. New ideas are encouraged and the continuous search for improvements and betterment is
institutionalized. A high profile battle against inefficiencies and waste is ongoing. Speed and accuracy give meaning to
quality and excellence. Management has shifted its focus from short-term profitability to strategic sustainability, from
organizational systems to ecosystems.

The business world has reawakened and started its stride towards perfection. The listing of comparative attributes
between the old ways of managing and the new ways of managing is provided below:

Quality is What the Customer Says!

Quality may be associated with durability, color, size, thickness, price, delivery response time, relationship or any
measure of satisfying customer’s needs. The business of industrial and commercial companies is to satisfy wants,
needs, desires, and even vanity. Satisfying customer’s needs means finding what the customer wants. Customers are
treated not only as rational but intelligent players in the market who know exactly what they need or want. In the end,
the customers make the decisions. Hence, a lot of options must be offered. This makes the market competitive
among several business producers who treat buyers as the “market king”. This philosophy stresses servicing what the
customer wants and not what a seller can do or provide as emphasized in the following table.

Table 2. Quality is What Customers Say

The Customer says The Seller says Quality means

• Power • Durability • Power
• Fashionability • Safety • Fashionability
• Portability • Bigness • Portability
• Comfort • Price • Comfort
• Precision • Usability • Precision
• Design • Color • Design
• Length • Thickness • Length
• Price • Excellent materials • Price

Apparently, there is a difference between what the customer wants and what the producer offers. For example, the
customer says he needs power while the seller says the customer needs durability. In such a case, the customer’s need
is not satisfied. A sale may have been made, but the need or want is not met and on the next occasion, when
customers are given options by other sellers, they may jump ship to a new vendor. To meet quality, producers and
sellers must know how to listen to the customer. Listening is the first order of a successful sale. Then, the
management process is done backwards. Production processes and systems, operational procedures and policies,
strategies, and standards are established in accordance with what the customer says.

According to the American Society for Quality Control (ASQC) quality is the “totality of features and characteristics
of a product made or a service performed according to specifications, to satisfy customers at the time of purchase and
during use”. The dimensions of quality include performance, aesthetics, reliability, serviceability, fitness for use,
perceived quality and conformance.

The Paradigm Shift… New Way of Thinking

The ability of the customer to fully exercise its right in the marketplace coupled with the calculated consent of the
seller to align its efforts with what the buyer wants and needs have redefined management philosophies, thinking, and
ways of doing things. These new management concepts have confidently swept corporate boards, executive offices,
operating departments, and production floors that brought profound changes in the business environment. These
changes may be classified as to business relationships, psychology of employees, handling of activities, application of
methods and the emergence of new management terms. Table 3 in the following page shows an attempt to highlight
the differences in the old and new ways of managing.

Table 3. Traditional Management v. Strategic Management

Point of Reference Traditional management Strategic management

Business relationship • Independent companies • Interdependent companies
• Suppliers are evaluated as to their reliability and
credibility
Employees • Individualism • Integration
• Creative, innovative
• Takes responsibility and initiate endeavors towards
self-education and improvement
• Empowered
• Multi-skilled
• Participatory
• Demands for ownership (e.g., process improvement,
equity)
• Labor cost has become fixed and has diminished in
total
• Labor cost is now a part of factory overhead or is
integrated in the conversion costs account
Activities • Input-output model • Output-input model
• Product-oriented • Process-oriented
Methods • Inspection is made at end • Inspection is made before the process
of the process • Lean and mean organizational system, system-based
• Organizational structure is • Production is technology-oriented
hierarchical and • Use of electronic and mechanical equipment and
functional machineries
• Production is labor- • Emphasis on suppliers-company-customers relations
intensive (integrated approach)
• Use of mechanical • Heavy investments in capital expenditures
equipment and • Generally, lower cost of doing business in the long-run
machineries
• Emphasis on company-
customer relations
(forward approach)
• Less investment in capital
expenditures
• Generally, lesser cost of
production in the short-
run
Managerial terms • Line and staff • Process re-engineering
• Job description • Process value analysis
• Product • Kaizen (continuous improvements)
• Standards • Benchmarking
• Lead time • Just-in-time
• Job order costing, process • Backflush costing
 costing • Life-cycle costing
• Convenience-based • Activity-based costing and activity-based management
management • Non-financial and non-quantitative measures
• Convenience-based costing • Balanced-scorecard
• Financial measures • Theory of constraints

Principles of Modern Management

Change, technology and quality

As aptly put by a renaissance philosopher, “there are only three permanent things in this world – death, taxes, and
change”. Indeed, change is here to stay.

Change is the genesis of quality environment. Change is precipitated and exacerbated by technological advancements
in electronics, biogenetic engineering, physics and other fields of modern science. Because of the incessant changes in
the business environment, people and customers have re-created their needs necessitating adjustments on the way
businesses are done. Change is triggered by technology germinated by inventions ad discoveries, which in turn, are
crafted by needs. There is a change because a need is not yet satisfied. And to satisfy a need, quality becomes a
necessity.

In this world of turbulent and disruptive changes and awesome technological advances, customer satisfaction is more
than ever the prime business objective of profit. In meeting sophisticated customer demands, utmost efficiencies and
productivity must be applied and improved. Errors, wastes and delays must be eliminated and avoided and customer
relations are intensified to eradicate customer complaints. In this way, customers are delighted!

Serve the customer… the King

Customers are classified as external or internal. External customers are outside users of organization’s products while
internal customers are those to which products or services are delivered within the organizational activities. Along the
process, departments serve either as suppliers to, or customers of, other departments. For example, the timekeeping
department is the supplier of time tickets to the payroll department, which in turn is the supplier of payroll register to
the accounting department. Consequently, the accounting department is the supplier of payroll vouchers to the cash
department, which is the supplier of cash and payroll sheets to employees.

Customers both internal and external, should be satisfied as to their needs and wants. A delay or inaccuracy in
delivering an internal business service would create a bandwagon effect in causing an ultimate delay in delivering a
service to an external customer. Delay is one of the most vicious enemies of quality environment.

In Search of Excellence

Many of the principles applied in the early stages of modern organizations are mentioned in the book in Search of
Excellence authored by Tom J. Peters, Price Watermann, et. al. published in 1982. This writing is a product of years
of research in identifying excellent companies and investigating the reasons why they performed excellently over the
past couple of decades. The authors identified the following principles practiced by excellent companies:

• A bias for action.

• Close to customer.
• Autonomy and entrepreneurship.
• Productivity through people.
• Hands-on, value-driven.
• Stick of the knitting.
• Simple form, lean staff.
• Simultaneous lose-tight properties.

Instituting quality cannot happen overnight. It follows strategic stages of events, phasing, and influenced circumstances
that involve the whole aspects of integrated business operations and internal dynamics. It takes time to develop a
quality environment.

5 S’s

One of the principles used in instituting quality is the 5S that stands for Sorting out (equivalent Japanese term for
Seisu), Systematic arrangement (Seiton), Spic and Span (Seiso), Standardizing (Seiketsu), and Self-
discipline(Shitsuko). All of these 5S are designed to fight inefficiencies and install order and discipline, register higher
yield, create a friendly and creative organizational climate and find out the best way to satisfy customer needs. Sorting
out means classifying tasks and processes, organizing physical resources according to use, sizes, locations, age, etc.
Systematic arrangement refers to instituting best scientific processes to effect best methods, procedures, and
processes using the best technologies. Spic and span (or sweep) refers to cleaning not only physically, in terms of
tangible resources, but also intrinsically, in terms of organizational culture and values. Standardizing measures
performance and expectations as to output, actions, attitude, and processes. Self-discipline is the stage of internalizing
all the 5S and making it as a way of life, thereby enhancing human relations, interrelations and approaches which
define organizational climate, cultures, aspirations, dreams, and excellent results.

Quality costs

If you want quality, pay for it!

Instituting quality environment in an organization involves the complete participation of the top
management who will show the way towards attaining it. In the process of producing non-conformance costs
are incurred.

Conformance costs cover the costs of prevention and appraisal. Non-conformance costs include the internal
failure costs an external failure costs. the major sources and specific activity costs of these quality costs are
identified in Table 4 shown in the following page.

Conformance costs are those incurred in order to know what the customer wants, producing the same, and
ensuring that the produce is in conformity with what the customer wants. Conformance connotes precision.
And precision means an error-free environment. And the best way to avoid errors is to prevent it.
Preventing errors should be done at the very start. The best way to prevent an error is to cure it from the
source. Quality says, “do it right from the very first time.”

Table 4. Quality Costs

Conformance Costs Non-conformance costs

Prevention Costs Appraisal Costs Internal Failure Costs External Failure Costs
• Design engineering • Product testing • Repairs, rework, • Product warranty (e.g.,
• Suppliers evaluation • Statistical quality control retooling changes (i.e., recalls and
and management techniques costs incurred to correct replacements)
• Employees training errors, etc., before • Product liability (i.e.,
• Equipment delivery to customers) costs incurred to
maintenance program correct errors after
sales are made to
customers)

Specific examples Specific examples Specific examples Specific examples

• Systems development • Inspection and tests of • Rework costs such as • Handling of customer
• Quality engineering incoming materials, in- labor, overhead, complaints
• Quality training process goods, and reinspection, and • Field services
• Quality circles/ cells finished goods retesting of reworked • Warranty repairs and
• Supervision of • Supervision of products replacements (within
prevention activities inspection and testing • Downtimes and outside the
• Quality data gathering
activities • Disposal of defective warranty period)
analysis and reporting • Depreciation of test products • Product recalls
• Quality improvement equipment • Analysis of the costs of • Liability arising from
projects • Maintenance of test defects defective products
equipment • Reentering of data in • Sales returns and
• Quality technical
support to suppliers • Supplies, utility and the system allowances related to
other incidental costs in • Debugging of software quality problems
• Audits on the
the testing area errors • Lost contribution
effectiveness of the
quality system • Testing costs at the margin on lost sales
• System development customer sites related to quality
problems

The original source of wants and needs is the customer. So, listen to what the customer says and make a design based
on it. Design becomes a very powerful tool in manufacturing and other business activities. Designing is not the
domain of only one person. The process of designing should be participated by people from marketing,
manufacturing, distribution, finance, legal services, human resources, purchasing, supply chain, and representatives
from the customers chain. Once the design is done, suppliers are evaluated as to their reliability and credibility,
employees are trained, and equipment and machineries are prepared, mounted, installed, and maintained.

Suppliers’ management refers to the careful selection of vendors to ensure that materials will arrive on time and in
accordance with specifications. This means cultivating long-term supply chain relationships based on precisely
delivering orders on schedule. Employees shall be continuously trained to heighten awareness, give the best technical
preparation, improve self-esteem and self-respect, make them understand more about people and organizational
culture, and create an active, dynamic, and well-motivated yet continuously learning team of personnel. Employees
must be involved in problem solving at source. Checking and inspecting of work is the responsibility of every
employee, group, department, and supplier behaviorally compelling business process stakeholders, especially
employees, to be involved and empowered. Many companies have restructured their production by forming
manufacturing cells or work cells. In this set up, employees learn how to work as a team. Individual responsibility has
been eclipsed by team’s responsibility. Individualism has been overtaken by teamwork. Rewards and recognition for
quality improvement are grouped oriented and based on quality measures.

Equipment repairs are to be avoided. Repairs denote inefficiencies, machine downtimes, and production
disturbances. Errors should be avoided in the process. to avoid the irritating occurrence of repairs, an efficient and
effective equipment maintenance program should be in place. Consequently, machines’ commercial use has been
shortened, maintenance denotes machines utility and repairs shall be avoided along the way.

Inspection is done to detect conformance to established processes. In case where defects are detected on a product
before delivery to customers, internal failure costs will be incurred. This cost includes the cost of rework such as
order costs, scheduling costs, inspection costs, tooling changes, and production downtimes. Once the product is
delivered and customers discover the defects or errors, and external failure cost will be incurred. This cost includes
product warranty, liability to damages, parts replacement, and incremental costs of addressing and correcting the
complaint such as decommissioning costs.

There is an observed inverse relationship between conformance costs and non-conformance costs. That is, if
conformance cost is increased, the non-conformance cost consequently decreases, and vice-versa.

The locations in which quality costs are incurred are tabulated below:

Table 5. Tracing Quality Costs in the Integrated Business Process

Suppliers Company Customers

Suppliers evaluation Design engineering External failure costs
Suppliers’ management
Employee training
Equipment maintenance program
Testing
Statistical quality controls
Internal failure costs

Quality Costs Report

Quality costs are accumulated from the initial point of research and development through the post-customer services
phase. Conformance and non-conformance costs are to be accumulated per activity, batch, and plant. Normally, if
conformance costs are given more budget, the costs of non-conformance consequently decline. An example of a Cost
of Quality Report is shown in Table 6 below.

Table 6. Quality Cost Report

MJP Corporation Quality Cost Report

Year 1 and Year 2 Year 1 Year 2
Conformance Costs Amount % Amount %
Prevention costs:
Design engineering P 550,000 1.38 P 900,000 2.25
Suppliers’ management 250,000 0.63 800,000 2.00
Employees training 400,000 0.01 700,000 1.75
Equipment maintenance 230,000 0.58 500,000 1.25
 Total 1,430,000 3.58 2,900,000 7.25
Appraisal costs
Inspection and testing 370,000 0.93 540,000 1.35
Depreciation of testing equipment 120,000 0.30 300,000 0.75
Supervision of testing and inspection 60,000 0.15 120,000 0.30
Total 550,000 1.38 960,000 2.40
Total conformance costs 1,980,000 4.95 3,860,000 9.65
Nonconformance Costs
Internal failure costs
Rework costs 1,300,000 3.25 500,000 1.25
Tooling changes 120,000 0.30 70,000 0.18
Downtime 500,000 1.25 100,000 0.25
Total 1,920,000 4.80 670,000 1.68
External failure costs
Warranty costs 1,200,000 3.00 600,000 1.50
Field servicing 700,000 1.75 200,000 0.50
Lost contribution margin 800,000 2.00 250,000 6.25
Total 2,700,000 6.75 1,050,000 2.63
Total nonconformance costs 4,620,000 11.55 1,720,000 4.30
Total quality costs P 6,600,000 16.50 P 5,580,000 13.95
(The percentage is determined as a percentage of net sales assumed at P 40,000,000.)

The conformance costs increase from 4.95% in year 1 to 9.65% in year 2 causing a significant decrease in non-
conformance cost from 11.55% in year 1 to 4.30% in year 2. A reduction in non-conformance cost is inversely related
to an increase in conformance costs. Overall, because of the quality improvements initiated and made, the total
quality cost decline from 16.50% in year 1 to 13.95% in year 2 or on absolute decrease in peso of P 1,020,000 (i.e., P
6.6 million – P 5.58 million)

The optimum total quality cost, however, is reached when the total conformance cost equals the total non-
conformance cost. The expected behavior of the total quality cost is presented in Fig. 12.1 shown below:

Fig. 1. Effects of Quality Costs on Quality of Conformance

Total quality cost is the sum of conformance (e.g., prevention and detection) costs and nonconformance (or failure)
costs. increasing conformance costs would reduce nonconformance costs. The object is to reduce the cost of errors
and customer complaints and dissatisfactions. As the failure costs start declining, efforts should be directed to intensify
prevention costs than appraisal costs. errors are less costly when prevented rather than when detected and remedied.

Life-cycle analysis

Quality costs are tranced and managed over the life-cycle of an activity or process. the life-cycle has the following
stages; infancy, growth, expansion, and maturity/decline as depicted in Fig. 1.

Throughout these life stages, strategic business functions are created such as shown in Fig. 2 on page.

Expenditures related to research and development and design engineering are labeled as “upward costs”, while,
marketing and distribution expenditures are called as “downward costs”.

Change and managerial lingo

There are two viewpoints of instituting quality environment in an organization. One is business process re-engineering
(BPR) and the other is kaizen (i.e., continuous improvement). They are not exclusive from each other but are both
applied in managing change. BPR and kaizen have basic elements – process mapping and process value analysis.

Process mapping and process value analysis

Process mapping (i.e., input to output) lines up activities from the start to the end of a process cycle to show the
connections of different activities in completing a particular cycle (e.g., production cycle, specific department or unit
cycle). Process value analysis shows the relevance of the interrelationships and interdependencies of the activities in a
given process to determine their usefulness, identifying possible areas where improvements could be done, and
creating options on how to make the process more relevant and feasible. In the process value analysis, activities are
classified as either value-added or non-value-added. Examples of activities measured in terms of time are process
time, move time, wait time and inspection time. Process time is a value-added activity while move time, wait time and
inspection time are non-value added activities. Based on this, the Manufacturing Cycle Efficiency is determined as
follows:

Fig. 2. Manufacturing Cycle Efficiency Rate

Manufacturing Cycle Efficiency Rate = Process Time/ Throughput Time

Throughput time (or manufacturing time) is the sum of all activities from input to output which includes the process
time, wait time, move time, and inspection time.

Sample Problem 1. Manufacturing Cycle Efficiency Rate

After analyzing and identifying and time spent in completing a production process, the following were observed:

Wait time – from the time the order is placed to the date the
units are delivered and received 5.0 days
- from the start of production to completion 7.0 days
Inspection time 2.5 days
Process time 3.0 days
Move time 2.5 days

What is the manufacturing cycle efficiency rate and the delivery cycle time?

Solutions/ Discussions:
• Manufacturing Cycle Efficiency Rate = Process Time/ Throughput Time
= 3 days/ 15 days
= 20%
(Throughput time is 15 days (i.e., 7 + 2.5 + 3 + 2.5).

• Delivery Cycle Time = Throughput time + Suppliers’ lead time

= 15 days + 5 days
= 20 days

Business Process Re-engineering

Process (re-engineering is a macro-approach to process improvement. It needs a new paradigm (i.e., mental frame) of
doing the process. Process re-engineering is revolutionary, makes an overhaul of the process (i.e., paradigm shift), and
definitely needs the involvement and commitment of the top management. For example, a mental shift happens when
the seller listens first before serving customers instead of assuming what they need. Such is the major change in the
way managers are conducting businesses now. Process re-engineering creates a new standards, beliefs, goals, practices,
procedures, and systems of doing things.

The main writing on this topic is from Hammer and Champy’s Reengineering the Corporation (1993) from which the
following discussions are lifted.

Business Process Re-engineering (BPR) is the fundamental rethinking and radical design of business processes to
achieve dramatic improvements in critical contemporary measures such as cost, quality, service, and speed.

The key words here are fundamental, radical, dramatic, and process.
• Fundamental and radical that BPR starts by asking basic question such as “why do we do what we do”,
without making any assumptions or looking back to what has always been done in the past.
• Dramatic means that BPR should always achieve “quantum leaps in performance,” not just marginal
incremental improvements.
• A process is a collection of activities that takes one or more kinds of input and creates an output. It is the
processes that are subject to fundamental and radical changes to achieve dramatic improvements. A re-
engineered process has certain characteristics:
o Often several jobs are combined into one.
o Workers often make decisions.
o The steps in the process are performed in a logical order.
 o Work is performed where it makes most sense.
o Checks and control must be reduced and quality “built-in”.
o One manager provides a single point of contact.
o The advantages of centralized and decentralized operations are combined.

According to Hammer, the principles of BPR are:

• Processes should be designed to achieve a desired outcome rather than focusing on existing tasks.
• Personnel who use the output from a process should perform the process. For example, a company could
set-up a database of approved suppliers, this would allow personnel who actually require supplies to order
from themselves, perhaps using on-line technology, thereby eliminating the need for a separate purchasing
function.
• Information processing should be included in the work which produces the information. This eliminates the
differentiation between information gathering and information processing.
• Geographically dispersed resources should be treated as if they are centralized. This allows the benefits of
centralization to be obtained, for example, economies of scale through negotiation of supply contracts,
without losing the benefits of decentralization, such as flexibility and responsiveness.
• Parallel activities should be linked rather than integrated. This would involve, for example, coordination
between team working on different aspects of a single process.
• Doers should be allowed to be self-managing. The traditional distinction between workers and managers can
be abolished. Decisions aids such as expert systems can be provided where they are required.
• Information should be captured once at source.

Most business organizations that have adopted BPR have developed the following key characteristics:
• Work units change from functional departments to process teams where team members are expected to have
multi-skills in handling the tasks needed in the team.
• Job enlargement and job enrichment where people do more as each team member is responsible for results.
• People empowerment where team members are empowered to made decisions relevant to the process.
• Performance measures concentrate on results rather than activities. Process teams create value which is
measurable.
• Flat organizations, rather than hierarchical, is prevalent where people work as a whole team, recognizing
team’s responsibility on the task at hand, resolving interdepartmental issues in a team’s level requiring less
managerial intervention, and allowing lines of communications to “naturally” develop around business
processes.

The emergence of business process re-engineering has given way to the importance of value chain analysis where the
interrelationships and interdependence of players in the entire value creation network are emphasized. The link
between different departments in the business and its relationships with external parties (i.e., suppliers, customers) are
recognized creating interdependence among them. Interdependence may be viewed as follows:
• Pooled interdependence where each unit works independently of the others subject to achieving the overall
goals of the enterprise.
• Sequential interdependence is where there is a sequence (or a linked chain of activities) with a start and end
point. For example, the
• output of a preceding department in an assembly line must be precise enough to serve as a valuable input to
this department of which output must be accurately fitting to the input need of the next department.
• Reciprocal interdependence where the output of one department becomes the input of another department
whose output is also an input of the first department.

The significant changes caused by the introduction of BPR have reshaped some of the fundamental processes in
accountancy. Responsibility centers have been modified in response to the layering of organizational structure,
information becomes much more detailed to identify the creations of values in each segment and activity, and new
variances are identified and developed explaining deviations of expectations from actual results. The BPR has the
following implications for the accounting systems:

Table 7. Business Process Restructuring: Issues and Implications

ISSUES IMPLICATIONS
Performance measurement Key performance measures must be built around processes not
departments, this may affect the design of responsibility centers.
Reporting There is a need to identify the values being added in each responsibility
center and process.
Activity Activity-based costing is used to model business processes.
Structure The complexity of the reporting system depends on the organizational
structure.
Variances analysis New variances have been identified and developed.
Kaizen

Reference used:

Agamata, Franklin T. Management Services 2019 Edition. GIC Enterprises & Co., Inc.