Question

H is a large marketing consultancy that provides a range of services including developing marketing campaigns, designing web pages, managing media relations and so on. There are approximately 300 professional staff working in departments such as advertising and media relations and 600 support staff in areas such as administration and information technology (IT). Honey operates from a large office block in the centre of a major city. In common with similar agencies, H is successful because it can offer clients an integrated service for all of their marketing and public relations needs. Sometimes those needs are related. For example, advertising staff may work alongside public relations staff to ensure that a new product is advertised effectively and that any positive press publicity, such as the consumers’ favourable reaction at the product’s launch, can be maximised. H has a traditional management accounting system. Each department has its own detailed management accounts, which show financial transactions and chargeable hours. Financial transactions include all revenue from billings invoiced to clients and all costs. Included in the costs are substantial amounts for overheads associated with the running costs of the office building and the business as a whole. Chargeable hours are monitored for each member of staff. The hourly charge-out rate varies according to the seniority of the staff member and is set so that all costs are recovered and a healthy profit is charged on top. Any work undertaken for another department is charged internally at the staff member’s full charge-out rate. The media buying department of H buys and sells advertising space in newspapers and airtime on radio and television. The department sells this space and time to its clients at cost plus a mark-up and also makes it available at the same price to other departments in H. This means that H can offer to plan and implement a marketing campaign from the initial design all the way through to the publication or broadcast of the finished advertisement. H’s board is concerned that the company’s traditional management accounting system is encouraging dysfunctional behaviour and causing disputes between managers. The following examples have been debated at recent board meetings: • The public relations department is paying external web designers to design “blogs” on behalf of clients rather than using the web designers from H’s web design department. The web design business has seasonal peaks and troughs and there are times when there is spare capacity, but the hourly rates charged by the web design department are more expensive than those available from third parties. • The staff coffee shop was closed to create additional work space. Since the closure the space has been empty because none of H’s department heads wish to be charged with the cost of additional overheads. • Account executives within H are keen to earn as much profit for themselves from each sale. Consequently, they are dealing directly with major broadcasters and newspapers and are not using the media buying department. These individual deals are taking away the bargaining power of the media buying department. H’s board is keen to consider whether the implementation of lean manufacturing and lean management accounting techniques might improve matters. In particular, the following principles have been identified as being relevant to H:

• Honey should be managed through processes or value streams rather than traditional departmental structures. The board believes that the two value streams are the sale of professional services and the sale of media space.

• The consultancy should maximise the flow of services through the value streams while eliminating waste

. • Lean management accounting should provide the value stream leader with performance measurement information to both control and improve the value stream.

Required - DETAILED ANSWERS!.

(a) (i) Advise Honey’s board on the differences between managing value streams and managing departmental profits.

(ii) Recommend, stating reasons, the changes that H should make to its management accounting systems and policies in order to improve the management of the value streams. , PLEASE NOTE ANSWERS SHOULD BE IN DETAIL

(b) Advise H’s directors on the difficulties that are likely to be associated with implementing the changes that a move towards lean management accounting will create. Your advice should include recommendations as to how those difficulties might best be dealt with. , PLEASE NOTE ANSWERS SHOULD BE IN DETAIL

Answer 1

Answer a) :

Answer i) :

Value stream is various advances that happen in the middle of to give an item or administration that a client needs or wants. Lean organizations compose their activities and accounting around value streams. Therefore, it is all middle person ventures from getting client request to conveying that request.

While a non-lean or conventional accounting process depends on office structure. This uses all inside money related investigation which incorporates departmental cost, productivity examination.

In this manner, as per the case, it follows conventional management accounting which records every office independently, including overhead charges, every hour rate, and so on.

Answer ii) :

Nectar Consultancy should change its accounting practices to lean accounting which depends on a value stream framework. It very well may be viewed as a benefit focal point of lean business. Along these lines, all money related data is centered around the benefit place. Each cost and productivity ought to be identified with the value stream and not office savvy accounting.

This would help in decreasing the opposition to bring down overhead charges and individuals may move to a region coffeehouse.Furthermore, website architecture work ought to be doled out to the inside staff in a manner that is less expensive than redistributing it. The equivalent is with media space.

Since along these lines of accounting gives an exhaustive image of the whole association, reducing expenses, or dispensing with squander won't be troublesome.

The mediator steps in the value stream can be useful to know, where the greatest costs are happening or steps to decrease that.In this way, management should change its accounting style and make the procedure increasingly all encompassing

Answer b :

Lean reasoning may require association by all workers. Notwithstanding, numerous representatives in an organization are responsive and just follow orders, which turns into a test in executing it.Subsequently, workers must be prepared and inspired to assist them with getting proactive.

Fundamental things like accounting are hard to adjust. A great deal of disarray may come which may make this procedure pointless. A couple of organizations may understand that it isn't for them. Therefore, each organization must understand it first, persuade its staff about it and then advancement.

Individuals may come up short on the inspiration to embrace it as in the conventional manner they had the option to diminish the expense for themselves and increment profits, keeping generally speaking productivity in question however here the contribution would be significantly more and it would reflect in focal benefit. To inspire individuals, impetuses can be given in the present moment until it turns into a training.

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