Why is managerial accounting important? – Philosophy “Profitability improvement4 Amoeba under managerial accounting “

This time, Inamori* spoke about the above motto in his book : Practical Accounting -Business Administration and Accounting -. What Inamori said is quoted with “”.

 “Amoeba management is the representation of my management philosophy, and the management accounting report ` profitability per hour ‘ is based on accounting principles derived from my management philosophy. For this reason, the profitability per hour system, unlike a company’s financial statements, uses an extremely simple format that compiles numbers accumulated through a `one-to-one’ correspondence between goods and money transactions. For each amoeba, the hourly profit is the result of their work compiled into numbers that indicate the profit they have created.”

 Here, Mr. Inamori demonstrated the different approach to explain “profitability per hour”, in relation to managerial accounting. He highlighted the following three points.

Let me elaborate one by one.

1 Interpretation of monthly financial statements

 “At Kyocera, the monthly financial statement links the hourly profit and the company’s financial status. The monthly financial statement connects the added value per hour, coming from the hourly profit calculation to the company’s profit. It specifically shows how much each division financially contributes to the company in terms of profits. It is distributed to the company’s business divisions at the beginning of every month.”

→I think it is very important to understand profitability and the company’s income and expenditure in a timely manner. Such monthly analysis and review allow us to reconfirm our philosophy and to understand our goals and status quo.

2 Understand how managerial accounting works

“Hourly profitability reports are produced by a department called business management, but monthly financial statements are prepared by the accounting department, and profits are calculated by recording personnel costs that do not appear in hourly profitability as expenses. In this monthly financial report, the production-based profitability of the manufacturing amoeba and the sales-based profitability of the sales amoeba are combined for each business division. Moreover, the production profit for the product inventory is deducted to calculate the “sales-based” profit used in the company’s financial statements. The processes, at the end of the day, are converted into business results. Although there are some changes and adjustments, the monthly financial statements are basically created based on a database that aggregates the transactions and activities of each amoeba on a “one-to-one” basis. Monthly financial reports express the same facts as the hourly profitability. At the end of the fiscal year, the company’s financial statements are created by adding `financial adjustment,’ which mainly involves the end-of-period evaluation of each inventory and work in progress assessed at the year end.”

 → By checking numbers through the above mentioned approaches, everyone can feel that as if they are doing actual management. They can understand what is included in hourly profitability, what is not, and what is ultimately necessary to generate profit. It is often said in the Kyocera Philosophy that each person can be a top management and each staff member can feel the difficulties in management while enjoying pursuing managerial goals. Therefore, I believe that the link between management accounting and financial accounting is very important.

3 Keep driving you to the goals

“The essence of amoeba management is that all amoeba members can accurately understand where they are in real time, and immediately take the necessary actions by encouraging each other to achieve their goals. An amoeba must set its own annual master plan and monthly profit plan as clear goals, and therefore they can always be fully aware of their achievement at the end of each month. Planning process and checking the achievement are quite important. `Planning’ or `Goal setting” are sort of missions or visions raised by the top management. Thus, I don’t think we can easily change those goals depending on environmental change. Goals are something that we should aim for together with our amoeba friends until the end, no matter how the conditions change.”

→ If you set a goal and take no action, you will never achieve it. It is important to always keep the goals embedded in your subconscious mind, check your directions and actions while confirming the status. So that you can run with the PDCA cycle. If everyone in amoeba could follow this cycle, I believe we can be a strong company. 

* Mr. Kazuo Inamori, the founder of Kyocera, KDDI (one of the top tele communication companies in Japan) and the top of revitalization project of JAL. As a well-known Japanese entrepreneur, he has been sharing his experiences and management know-how with managements of small to middle companies in Japan.

Further queries or doubts, please email to ytomizuka@abrilsjp.com

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