As business environments have become increasingly dynamic and competitive, it has become increasingly important for managers to develop coherent, internally and logically consistent business strategies and to have tools and models which provide useful information to support strategic decision-making, planning and control. In response to these needs, there have been many important developments, in both management accounting research and practice, that focus on the use of accounting data and related information regarding strategy and operations for these purposes.
Some of the most important developments in strategic planning and control have been: (i) the balanced scorecard, a comprehensive set of performance measures designed to assist managers in implementing competitive strategies and monitoring performance with respect to them (see Kaplan and Norton 2000), (ii) strategic variance/profitability analysisi, systems which decompose measures of budgeted versus actual net income into variances which managers can relate logically to a firm's or strategic business unit's (SBU's) mission and business strategy and therefore use to analyze performance from a strategic perspective (Shank and Govindarajan 1993; Simons 2000), (iii) profit-linked performance measurement systems, models which decompose measures of changes in profitability over time into measures of changes in constructs such as productivity and price recovery, which can be logically linked to a firm's/SBU's mission and business strategy and analyzed from those perspectives (American Productivity Center (APC; now the American Productivity and Quality Center) 1981; Banker, Chang and Majumdar 1993; Banker, Datar and Kaplan 1989; Banker and Johnston 1989), and (iv) levers of control, a comprehensive framework for organizing and employing management control systems to promote strategic objectives (see Simons 2000).
This paper: (i) discusses characteristics management accounting information systems should have to be useful for strategic planning and control, in the context of Porter's (1980, 1985, 1991, 1996) strategy framework (Section 2), (ii) briefly introduces strategic variance analysis (Section 3), and (iii) provides a more substantial introduction to profit-linked performance measurement systems, so we can show how two models are specified and used in some detail (Section 4).
Since the balanced score card is widely discussed elsewhere, and Simons (2000) framework encompasses all management control systems and focuses on how managers should integrate and use the systems, we just mention them here. Section 4 shows how the measures in the Banker and Johnston (1989) and Banker, Chang and Majumdar (1993) multi-product, multi-period modelsi can be related to Porter's framework, critical success factors, and strategic operating choice variables (cost and revenue drivers), drawing on an analysis of U.S. airlines following deregulation. It also discusses ways the models can be used for strategic planning, control and cost management.