Digital opportunity: Insights from Germany

Management accountants around the world are interested in the opportunities and challenges inherent in the digital age. But what does the digital age mean for management accounting practice? Empowerment of management accountants through better data, digital tools, and more efficient processes? Loss of influence towards other corporate functions? Replacement by algorithms?

These are some of the issues considered by Christoph Endenich, Ph.D., associate professor of management accounting and control at ESSEC Business School, Paris, in his CIMA-sponsored research. The project was built on comprehensive qualitative data from 26 interviews with management accounting experts conducted in Germany between early 2019 and early 2020. It also compared these interviews with a similar set of interviews with management accountants in France.

Endenich explained to FM the research findings and their significance for management accounting practice.

You talked to management accounting experts about a range of digital issues. What digital areas were they working on?

Christoph Endenich: The topics were very heterogeneous because I visited very different companies in terms of size, industry, business model, and digital maturity to get broad insights. However, we can narrow these topics down to four major areas:

• Data quality. Improving data quality becomes very important as management accountants are no longer exclusively focusing on proprietary accounting data, but increasingly use heterogeneous data from multiple sources within and beyond the company — and the reliability of this data cannot be taken for granted.

• Systems harmonisation. Particularly in those companies that have grown through mergers and acquisitions, their heterogeneous IT landscapes hinder process automation and lean processes. It is therefore a major issue for management accountants.

• More efficient budgeting and forecasting. As German companies traditionally have sophisticated and time-consuming budgeting processes, many companies engage in moving budgeting and forecasting towards more efficient and data-driven processes.

• Self-service reporting tools. Interviewees were involved in implementing self-service reporting tools for decision-makers at all levels in organisations.

What are the major takeaways for management accountants from your research?

Endenich: These four areas mentioned mean a lot of work for management accountants. But management accountants want to generate added value for their companies. This means their work does not stop with ensuring efficient processes and implementing new tools.

With self-service reporting, things have moved forward tremendously. But although these tools provide excellent support when it comes to standard-type questions, inquiries by decision-makers are regularly incredibly complex. In such situations, management accountants can "leverage" digital tools by using their business expertise to put data into perspective, provide context, and make proper judgements.

Moreover, not all management accountants make full use of the increasing variety of internal and external data evolving in the digital age and instead still rely heavily on internal accounting and management accounting data. In this context, engaging in cross-functional corporate teams can be very helpful to ensure access to data from multiple sources and gain an even better understanding of business processes.

Are there challenges in engaging with cross-functional teams?

Endenich: Yes — for many reasons. Language is the first problem. Accountants and IT, but also marketing, sales, and strategy people speak different "languages" so that mutual understanding needs to be built. And not only in terms of language but also when it comes to understanding the work processes, responsibilities, objectives, and challenges of other departments. Moreover, setting a clear objective that matters not only for the overall company but also for everyone involved in the cross-functional team is important.

Were resources an issue for the management accountants you interviewed?

Endenich: Yes. As management accountants become crucial points of contact for multifaceted requests in a digital context, resource restrictions become a challenge — particularly for those management accountants who are still heavily involved in data quality missions and systems harmonisation.

How can management accountants deal with these challenges?

Endenich: Obviously, management accountants can invest in efficiency and automate standard tasks to have more time available for value-adding activities. I mentioned previously more efficient budgeting and forecasting practices — an issue that is still very evident in Germany. But management accountants also need to set priorities when it comes to handling requests.

What can management accountants do to prioritise in this way?

Endenich: In some companies, business areas asking for management accounting expertise are required to flag their requests in terms of importance and urgency. The result: Sooner or later, all requests will be flagged red. What we need here is a more systematic cost/benefit analysis approach for requests.

I recommend a three-stage process:

• A short survey to be completed summarising the request, its associated costs, and expected benefits and impact.

• A systematic check by the management accountants concerned.
   
• A follow-up call or meeting.

If all steps are kept short and user-friendly, this will help in using scarce management accounting resources more efficiently and in line with corporate strategy. It can, moreover, foster dialogue and increase mutual understanding.

The follow-up call is also the time to tell internal clients what management accounting can reasonably achieve and what it cannot. This is why it is not recommended to fully automate the process although it would be technically feasible in many cases. If the process is equal for all requests, including for those of higher-level managers, it can also foster perceptions of fairness and motivate employees.

What were the surprises you found during the research?

Endenich: Given all the enthusiasm surrounding digitalisation, management accountants also have another role to play in their companies: reminding management that digital initiatives need to provide added value for the company instead of being an end in themselves. This becomes an important task for management accountants in the digital age.

Is there a next step for the research? A follow-on project?

Endenich: Many companies — those I visited included — want to and must become leaner and more innovative and entrepreneurial. One way to do so is to learn from startups. And I think this is also the case for management accountants. I am currently running different research projects to analyse how startups measure performance and attract investors in the absence of traditional accounting measures and how they set and follow up on objectives in virtual settings. Digital technologies clearly play an important role here.

— To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.