Managerial Accounting and the

Business Environment
Chapter 1

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Customer Value Propositions

Customer
Intimacy
Strategy

Understand and respond to

individual customer needs.

Operational
Excellence
Strategy

Deliver products and services

faster, more conveniently,
and at lower prices.

Product
Leadership
Strategy

Offer higher quality products.

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Organizational Structure
Decentralization is the delegation of decisiondecisionmaking authority throughout an organization.

Corporate Organization Chart

Board of Directors
President
Purchasing

Personnel

Vice President
Operations

Chief Financial
Officer

Treasurer

Controller
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Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.

R&D

Product
Design

Customer
Manufacturing Marketing Distribution Service

Business functions making up the value chain

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Traditional Push Manufacturing Company

Traditional push
manufacturing
Raw
materials

Large
inventories
Work in
process

Finished
goods

Materials waiting
Completed products
to be processed.
awaiting sale.
Partially completed products
requiring more work before
they are ready for sale.
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Lean Production
Identify value
in specific
products/services.

Identify the
business process
that delivers value.

The lean thinking

model is a five
step approach.

Organize work
arrangements around
the flow of the
business process.

Continuously pursue
perfection in the
business process.

Create a pull
system that responds
to customer orders.
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Lean Production
The five step process results in a pull manufacturing system
that reduces inventories, decreases defects, reduces
wasted effort, and shortens customer response times.

Customer places
an order

Create Production
Order

Generate component
requirements

Goods delivered
when needed

Production begins
as parts arrive

Components
are ordered
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Theory of Constraints
A constraint (also called a bottleneck) is anything that
prevents you from getting more of what you want.
The Theory of Constraints is based on the observation that
effectively managing the constraint is the key to success.

The constraint in a system is determined

by the step that has the smallest capacity.

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Theory of Constraints
Only actions
that strengthen
the weakest link
in the chain
improve the
process.

2. Allow the
weakest link to
set the tempo.

3. Focus on
improving
the weakest
link.

1. Identify the
weakest link.

4. Recognize that
the weakest link
is no longer so.
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Six Sigma
A process improvement method relying on customer
feedback and fact-based data gathering and analysis
techniques to drive process improvement.
Refers to a process that
generates no more
than 3.4 defects per million
opportunities.

Sometimes
associated
with the term zero
defects.

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Six Sigma
Stage
Define

Measure

Analyze

Improve

Control

The Six Sigma DMAIC Framework

Goals
Establish the scope and purpose of the project.
Diagram the flow of the current process.
Establish the customer's requirements for the
process.
Gather baseline performance data related to
the existing process.
Narrow the scope of the project to the most
important problems.
Identify the root cause(s) of the problems
identified in the Measure stage.
Develop, evaluate, and implement solutions
to the problems.
Ensure that problems remain fixed.
Seek to improve the new methods over time.
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IMA Guidelines for Ethical Behavior

Recognize and
communicate professional
limitations that preclude
responsible judgment.

Maintain
professional
competence.

Competence

Follow applicable
laws, regulations
and standards.

Provide accurate, clear,

concise, and timely decision
support information.
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IMA Guidelines for Ethical Behavior

Do not disclose confidential
information unless legally
obligated to do so.
Do not use
confidential
information for
unethical or illegal
advantage.

Confidentiality

Ensure that subordinates do

not disclose confidential
information.
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IMA Guidelines for Ethical Behavior

Mitigate conflicts of
interest and advise others
of potential conflicts.
Refrain from
conduct that
would prejudice
carrying out
duties ethically.

Integrity
Abstain from activities that
might discredit the
profession.
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IMA Guidelines for Ethical Behavior

Communicate information
fairly and objectively.

Credibility

Disclose delays or
deficiencies in information
timeliness, processing, or
internal controls.

Disclose all relevant

information that could
influence a users
understanding of reports
and recommendations.
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Corporate Governance
The system by
which a company is directed
and controlled.

Board of
Directors

Incentives and
monitoring for

Top
Management

To pursue
objectives of

Stockholders
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Enterprise Risk Management

A process used
by a company to
proactively identify
and manage risk.

Should I try to avoid the risk,

share the risk, accept the
risk, or reduce the risk?

Once a company identifies its risks, perhaps the

most common risk management tactic is to reduce
risks by implementing specific controls.
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Corporate Social Responsibility

Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.

Customers

Employees

Suppliers

Communities Stockholders

Environmental
& Human Rights
Advocates

CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.
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End of Chapter 1

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