Determination of analysis indices suited to the industry and business type

The first point is "identification of analysis indices suited to the business type and business conditions. There are various methods of management accounting, but the appropriate axis of analysis and indicators differ greatly depending on the type of industry and business. Let us look at some examples.

Pattern 1) BtoB or BtoC?

For example, profit-and-loss analysis by segment is a common management accounting method, but there are various types of segments such as "customer," "product," "region," and "sales channel," and the segment to focus on varies depending on the industry and business type.

As a simple example, let us consider the customer segment. Profit-and-loss analysis by customer segment is not very effective for BtoC companies, but it can be very important for BtoB companies. This is because in BtoC, the number of customers is so large that analyzing the percentage of customers that make up sales and calculating profit/loss by customer does not make much sense, whereas in BtoB, the majority of sales are generated by the top few customers, and profit/loss management of those top few customers may be the key to the company. In addition, customers with large sales may incur entertainment expenses or demand higher prices or rebates, so that although they contribute to sales, they may not actually contribute to profits. For these reasons, in many cases, it is important for BtoB to manage profit and loss, such as how much SG&A expenses are incurred by each customer, what the discount rate is, and how much profit is generated.

The table below shows the differences in analysis methods between BtoB and BtoC in management accounting.

Pattern 2: Fixed cost type or variable cost type?

In management accounting, companies are often categorized as "fixed cost type" or "variable cost type" depending on their industry and business type. This is because management accounting analysis methods often differ depending on whether a company is a "fixed cost type" or a "variable cost type.

First, as the name implies, a "fixed cost type company" is one whose fixed cost expenditures are large and variable cost expenditures are small. Fixed costs are expenses that do not depend on sales, such as labor costs and capital investment costs, etc. "Fixed cost-type companies" are companies in the manufacturing industry, such as the electric and gas industries, the service industry, such as theme parks and hotels, and the retail industry, especially large supermarkets and electronics retail stores, that have large capital investment costs. This applies to manufacturing companies such as electric and gas companies, service companies such as theme parks and hotels, and retailers, especially large supermarkets and electronics retailers. In addition, because variable costs such as SG&A expenses, which are dependent on sales, are small, the (marginal) profit margin per unit sold is generally high.

And in many cases, "customer volume management" is more important than "cost reduction" for these "fixed-cost companies. This is because, while there are many fixed cost expenditures that are difficult to reduce, the profit margin on products is high, and therefore, an increase in the number of customers can be expected to significantly improve profit margins. Furthermore, discounting in anticipation of an increase in the number of customers can also be effective because the original profit margin is high.

On the other hand, variable-cost companies have characteristics that are in contrast to those of fixed-cost companies. Variable cost enterprises" are "enterprises with small fixed costs and large variable costs," and generally apply to companies in the retail and wholesale industries. And since variable costs are easier to save than fixed costs, "cost reduction" by reducing variable costs is important. On the other hand, because variable costs are large, profit margins on products are low, and easy discounting is dangerous.

As described above, there are various methods of management accounting, but the appropriate axis of analysis, indicators, and decision-making methods differ depending on the industry and business type. It is important to determine which management accounting method is best suited to your company's industry and business type.

This is because, if the axis and indicators of analysis are not right, you will have to spend a lot of time and effort in tabulating ineffective axes and indicators and creating reports. The unnecessary tabulation and creation of forms can burden not only the accounting and management planning departments, but also the field departments, such as the sales department, which cooperates in providing data. Furthermore, the time it takes to prepare reports delays the reporting of management accounting information to management, which in turn delays decision-making by management. The time and effort required are not effective, leading to dissatisfaction from all parties involved and the disorganization of management accounting. Therefore, it is very important to determine the management accounting method that is appropriate for your industry and business type.

Identifying issues suited to the growth phase

It is also important to note that the key themes of management accounting that should be addressed change depending on the growth phase of a company.

The figure above is an example of the steps a company can take to promote management accounting. When trying to promote management accounting, do not proceed in the dark,

(1) Establish a system to collect data accurately and quickly:
Accurate understanding of profit/loss by product and customer, prompt disclosure of financial information, solid-state breakdown, etc.

(2) Develop people and organization:
Preventive management by department, development of management executives, establishment of performance evaluation system, etc.

(3) Utilize management accounting in business strategy:
Decision making for entering new markets, decision making for new product development, mid- to long-term profit Establishment of medium- to long-term profit plan, etc.

It is important to work in order according to these three steps. Let us consider why these steps are important by referring to examples of other companies.

Case 1: Company A in the manufacturing industry with 800 employees

Company A is a company with multiple divisions, and although sales targets for each division are set by division managers, the corporate planning department, and management, detailed sales plans are not made, such as which products to sell and under what policies, etc. Furthermore, the accounting department always kept budgets for expenses such as travel expenses and SG&A expenses roughly the same as the previous year. Furthermore, the budget for expenses such as travel expenses and SG&A expenses was always recorded by the accounting department roughly on the same balance as the previous fiscal year.

However, in order to expand the number of employees and the scale of the business, to refine order accuracy, and to reduce costs, the company decided to have each business unit establish detailed sales targets, profit targets, sales plans, and variable cost budgets, and also to conduct monthly forecast analysis, which had not been conducted so rigorously before.

However, when we actually proceeded with the project, we found that the monthly closing information in the financial accounting area was prepared late, so the information disclosure in the management accounting area was also late, and as a result, effective forecasting and analysis was not possible at all. For example, the April profit-and-loss report by business unit was not available until mid-June, so even if issues were identified, effective measures could not be taken because the market and other conditions had already changed. In addition, each site had to prepare its own budget for expenses that had previously been prepared mainly by the accounting department. This placed a heavy burden on the accounting department, which had to prepare new budget sheets, distribute them to sites, manage progress, and check their contents.

Since the system was not effective despite the heavy workload, the divisional budget management became a mere formality, and strong dissatisfaction erupted from all quarters.

As shown in this example, before implementing Step 2, "divisional forecast management," it is important to perform Step 1, "accurately grasp profit/loss by segment" and "promptly disclose financial results" in Step 1. For example, it is important to create a mechanism to collect data accurately and quickly by effectively utilizing a system.

Case 2: IT services company with 1,000 employees (Company B)

Company B is a company whose founder is the current president, and under the strong leadership of the founder, Company B has achieved rapid growth and the number of employees has expanded steadily. Company B was planning to plan new services and enter new markets for further growth.

However, it was only at this point that Company B realized that it was at a scale where the founder alone could not manage the profit and loss of all services and the performance of all employees. Until then, Company B had been able to achieve Step 1, "accurate understanding of profit and loss by segment" and "prompt disclosure of financial information," but the founder was almost solely responsible for managing them, managing the profit and loss of each product and the performance of each employee down to the smallest detail. As a result, when Company B grew to a size where the founder could no longer manage everything on his own, he was faced with the problem of not having the right people to manage the company.

As shown in this example, the issue of "developing people and organization" (Step 2) must first be addressed before "developing new products" and "entering new markets" (Step 3). It is important to establish rules for performance evaluation linked to personnel evaluations and other measures in order to manage the forecast and actual performance of each department, develop executives who can be entrusted with such management, and effectively motivate a larger number of employees.

As we have described, the above problems may occur if management accounting is not promoted in sequence along the three steps in accordance with the growth phase of the company. Therefore, it is very important to determine which phase your company is currently in and what management accounting themes should be addressed.

In this article, we have introduced examples of management accounting applications from the two perspectives of "business type and business category" and "corporate growth phase. There are a variety of management accounting methods, and they vary from company to company, but it is important to correctly identify the "business type" and "growth phase" of your company and apply the method that best fits them.


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