Management accountants and CFOs can play an important role in guiding companies through the strategic options available to cope with the COVID-19 pandemic.
A recent Statement on Management Accounting report, “
“Pretty much any company strategy going into 2020 probably at a minimum has to be revisited and probably altered to some extent just because, as you say, this is such an unprecedented event,” said Kip Krumwiede, director of research at the IMA, who co-authored the SMA report. “There’s not a lot of precedent or prior practice to fall back on, but it’s going to be even more essential that they have the right strategy as business resumes. They really need everyone involved, including the finance department. Our hope is that this report will help finance executives, controllers and analysts to contribute. Is this strategy still going to work here? What do we need to alter?”
The novel coronavirus pandemic is prompting companies around the world to adopt different ways of doing business. For example, the widespread use of remote work from home and Zoom meetings has become far more common than before the pandemic. Companies will need to innovate much more than that, though, with new products and services that will be needed for the rest of this year and beyond. “Many companies have learned to operate differently, but they haven’t yet learned to sell differently in this market because in many ways it’s a new ballgame,” said Krumwiede.
He believes management accounting needs to be more closely linked with corporate strategy. “More often than not, that’s not the case, but it really needs to be because the whole purpose of management accounting is to support management in the decision making of the company,” he said. “It’s not about producing financial reports for those outside the company generally. You might need to make operational, tactical and strategic types of decisions, so you need a lot of analysis to go with that. If management accounting isn’t supporting the company’s strategy, it’s not supporting the company very well.”
Many companies still see the accounting department as mainly a place for financial reporting, but that’s already changing, and is likely to evolve even more after the pandemic.
“That is increasingly being automated and my guess is there is even more automation of the traditional accounting functions during this COVID time and the following, because they've learned they can do that more efficiently and focus their time more on value-added analysis,” said Krumwiede. “If management accountants can really understand the business and the goals, and maybe even help the management team to articulate those objectives and goals — especially in smaller businesses that may not have those articulated so well — and then have the performance measures, the data information and analysis that helps support those decisions and as importantly to see whether they’re working or not.”
The report discusses various types of strategic and competitive analysis that companies can perform — some old and some new — and where accountants can play a role.
“I believe this SMA is really unique in that it puts all of the different strategy analysis and planning methods into one fairly concise source,” said Krumwiede. “I don’t think that these have even all been connected together before. We have the traditional ones like Porter’s Five Forces, SWOT [Strengths, Weaknesses, Opportunities and Threats] analysis and value chain analysis, etc. It’s not that those aren’t still helpful; they are. That’s why they’re tried and true and traditional. But there are also these fairly recent approaches that companies have found successful that can aid. For instance, the blue ocean strategy is all about how you’re in a market with a lot of competition, and maybe the product has become more commoditized, so the focus becomes on lowering the price. But there’s always some disruptive technology or a new product that comes along and makes the traditional market players obsolete. The blue ocean strategy probably isn’t something that a lot of companies think about, and surely not something that management accountants might recommend, but it's all about finding a whole new market space where there isn’t competition because you introduce the first product or service in that way. With the blue ocean strategy, you've got the whole ocean to work with and not have a lot of sharks chasing you.”
The competitive landscape already appears to be shrinking, with longtime businesses in retail and other industries filing for bankruptcy protection just a few months into the pandemic. Krumwiede believes accountants can help the companies where they work prepare for the economy that eventually emerges once the pandemic subsides.
“I think that, similar to post-World War II, there’s going to be a lot of pent up demand that all of a sudden will appear,” he said. “Businesses in large part have been shut down, and a lot of things you just can’t do. However, during this time, there’s already been all kinds of new disruptive innovations come into play. I think those are going to be really successful for the near future, and it’s really important that the company strategy fits in with the environment they find themselves, and they find themselves a little bit more obsolete because someone else has found a better way. For instance, Zoom has revolutionized how we meet with each other. I actually see my colleagues now a lot more during COVID than before because we're just doing a lot more conference calls. That’s going to have an impact on a lot of industries like airlines and hotels, as it already has. It somewhat depends on the industry about whether they’re going to find their whole market and traditional value proposition obsolete, whereas there’s also still a lot of opportunities to excel in this new situation.”
Accountants need to be more outspoken about how their companies can adjust to these drastic changes.
“It’s really important for management accountants to be able to speak the language of the business that they’re in so they can recognize opportunities and contribute to the conversations,” said Krumwiede. “Otherwise they’re just going to be left out of those conversations. We just recommend in this SMA to be articulate about different ways that the business can innovate and find new markets and review and refine strategies and analyze where the company is in the competitive life cycle, assessing the strategic risks, and even developing a strategy for the finance organization. It’s so beneficial for the management accounting tools and practices to be linked to the strategy of the business. Therefore it’s as important for the finance organization to develop a strategy for being able to do that.”
