Kaplan (1983, p.686) states that “a particular challenge is to de-emphasise the

Question

Kaplan (1983, p.686) states that “a particular challenge is to de-emphasise the current focus of senior managers on simple, aggregate, short-term financial measures and to develop indicators that are more consistent with long-term competitiveness and profitability”.

Critically discuss whether the above statement made by Kaplan in 1983, is still relevant in the current day and age, as far as indicators for financial success in a business environment are concerned, and how can management accounting helps in achieving the business long-term competitiveness and profitability.

Explanation / Answer

The statement made by Kaplan beautifully states the stance of various companies. Companies like to show good short term performance for which many times they tend to ignore the long term financial parameters. If we see the various financial frauds that has happened over the past years, are mostly owing to this focus on short term parameters. Company wants to show good short term performance and have a good performance in the market, so they make decisions like capitalising Costs and all.

This short term mindset can be critical and may cause harm to the company in the long term.

Now, the competitiveness and long term profitability take a back seat owing to short term focus. Even, if you see the quarterly results or the short term results impact the stock price such drastically that the company tends to convert there focus towards that to neglect bad performance.

Now, management accounting can help companies realise their long term objectives. It can show the impact of various decisions on the company over the long term. It shows how the products are performing, how they are performing within their budgets. Also, it make sure that the managers performance gets evaluated on the basis of their performance based on their unit's performance, not on overall company's performance. Hence ensuring them to keep long term profitability in mind.

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