This time, Inamori* spoke about the above motto in his book : Practical Accounting -Business Administration and Accounting -. What Inamori said is quoted with “”.
“Daily managerial accounting process must be `accurate, clear, and prompt.’ Whatever is incurred must be immediately recognized as income or expense for the amoeba. This is also a practice of the principle of `one-to-one correspondence.’”
Here, Mr. Inamori talks about the amoeba’s “profitability per hour”, in respect to the following three points.
1 Immediate awareness of revenue and expenses
2 Cultivate gratitude among amoebas
3 Coherence of managerial and financial accounting
Let me elaborate one by one.
1 Immediate awareness of revenue and expenses
“Naturally, Ameba keeps track of the individual details and cumulative total of production and shipment outcomes on a daily basis, and this is verified by the next morning’s daily sales & production report. At the same time, an ameba always keeps track of material costs and payment expenses. This is verified using electronic systems such as daily expense reports that are distributed to everyone in the following morning. As a result, each amoeba can grasp the overall picture of the actual management status using compiled numbers. Similarly, members can focus on macroscopic analysis, each figure and number occurring in their amoeba.”
→It is difficult to establish such a system that allows us to capture production and accounting figures over-night. However, when activities are based on such a system, on-site staff can immediately understand what the revenue is and how much it costs. They can always think about figures and numbers. Creating such a system looks difficult, but I think everything starts with thinking about how to make something difficult possible. Our company is in the service industry, but we have been thinking everyday how much time we spend on this work and have been recording. We would like to establish a system to thoroughly record minute-by-minute work hours without any delay or failures.
2 Cultivate gratitude among amoebas
“In this way, amoeba management basically allows each amoeba to directly manage and take responsibility for expenses that affect the amoeba’s profitability. For example, in a factory, indirect costs occur, specifically, administrative department, human resources, and materials procurement. Those departments provide services to the other operational amoeba. The cost for those indirect functions must be split and burdened as administrative expenses by each amoeba, upon its understanding and agreement. As a result, members of the back-office departments spontaneously understand that they are supported by other amoeba’s profits, and they naturally strive to cut costs as much as possible and provide services to other amoeba more efficiently. ”
→I think this is another great thing about amoeba management. We must understand no one can survive alone. We count on other people’s help and support. In an organization like a company, this mindset is very important. When people overestimate their performance and become arrogant, it may be the time they start failing in their work and lives. I realized that it is very important to install both the amoeba and philosophy as if they were the two wheels of a car.
3 Coherence of managerial and financial accounting
“In fact, Kyocera has implemented a sort of an ‘internal transferred expenses’ to the departments that are responsible for bearing certain expenses…..Management accounting reports and financial statements are considered to be independent of each other. However, since both are intended to accurately demonstrate the actual state of management, there must be consistency between the contents of the reports developed under two different purposes. In fact, in Kyocera, there is a clear consistency between the hourly profit, which is a management accounting report, and the financial statements disclosed externally. For this reason, each amoeba can recognize that its own performance is directly linked to the performance of the company as a whole. Therefore, in the management policy issued by the president at the beginning of each fiscal year, target figures for the company based on financial statements are closely linked to the performance targets for each division based on hourly profit and are announced.”
→Even though the purposes are different, both managerial and financial accounting figures should be perfectly compatible. I feel that there are some points to be improved in our company in terms of managerial accounting. To increase productivity within the company, I would like to use a managerial accounting approach and look carefully into the monthly accounting and management status.
To summarize, the hourly profitability system is a system that allows each amoeba to immediately and accurately grasp the company’s expenses and profits, fosters a sense of gratitude toward other departments, and serves as the basis for financial accounting processes.
* 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.
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Further queries or doubts, please email to ytomizuka@abrilsjp.com
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