Strategic management accounting. B : the solution (40)

Explains how strategy dynamics and digital-twin business models completely satisfy the needs of strategic management accounting.

The second of two posts summarising a substantial paper "Living Business Models for Strategic Management Accounting "

Get the full paper here.

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The Part A post explained:

the full range of support that leaders need for their strategic management tasks,
the demanding requirements this places on accountants for the SMA analysis they offer, notably the wide range of non-financial factors and topics, and the fast time-clock on which they manage strategic issues (weeks, not quarters)
an example of a digital-twin, dynamic business model for a simple business that can fulfil those needs

"Digital-twin" dynamic business models can meet ALL of these needs.

GIFs showing a range of success cases for dynamic business models. - turning round a failing investment company- fighting off a competitive threat in pharmaceuticals- cutting staff turnover in aerospace- rebuilding sales in bulk chemicals- growing an equipment dealership business in a falling market

In case you don't know about just what digital-twin dynamic business models can do, here's a few success cases. (Share this with your accountant friends - GIFs may take a second to load.)

All these are cases that truly "strategic" management accounting should be helping with,
... but all need accountants to have mastery over the non-financial business system.

GIF of a working dynamic business model for a consumer-tech product launch over 60 months [shows about 20% of the full model]. 2 scenarios [a] limited marketing spend and normal price -v- higher marketing spend and lower price

And in case you don't know what such a model looks like, here's an animation of a dynamic business model actually working (It models a big initiative for a consumer-tech firm to launch a new product, and shows about 20% of the full model).

How do we get there?

The full paper goes on to show:

why standard strategy methods and frameworks cannot achieve what SMA needs
how the rigorous theory behind dynamic business models offers a reliable, practical process for building them - easily within reach of accounting professionals
why those models are so powerful for meeting leaders' strategic management needs

... and also gives free access to the working model.

Here is the 4-step process that gets you to a reliable model

This process matches exactly the underlying theory of how business systems work. The paper explains exactly what we mean by "resource-stocks", how we quantify them (and all other items!), and how we formulate the relationships in the model:

shows the 4-step process for building a dynamic business model1.Time-chart the desired outcomes (including their history)2. Find, specify, quantify the resource-stocks, decisions, and external factors driving those outcomes3. Quantify the rate of gains and losses causing those resource-stocks to grow or decline4. Find, specify, quantify the resource-stocks, decisions, and external factors causing those gains and losses... and repeat steps 3 and 4 for any new resource-stocks found

This should crack the challenge of how to provide truly strategic management accounting.

simple image of a 'cloud' of the previously unknown working business system, with arrow pointing to the financial results that management accountants otherwise focus on.

And it is a solution that any accounting professional should be able to adopt - it is not technically complicated and is easier, faster and more transparent than anything possible with spreadsheets.

The solution should enable accountants to push back behind the financials, right into the guts of the business system that generates those results. And they can do that with principles they already know well, but applied to business factors in their own terms (customers, staff, service quality ...).

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Categories: : business models, business performance, strategy