Management must accomplish its objectives by working through people. Presidents of companies like Good Vibrations could not possibly execute all of their company’s strategies alone; they must rely on other people. This is done by creating an organizational structure that permits effective decentralization.

Decentralization

DecentralizationThe delegation of decision-making authority throughout an organization by providing managers at various operating levels with the authority to make key decisions relating to their area of responsibility. is the delegation of decision-making authority throughout an organization by providing managers with the authority to make decisions relating to their area of responsibility. Some organizations are more decentralized than others. Because of Good Vibrations’ geographic dispersion and the peculiarities of local markets, the company is highly decentralized.

Good Vibrations’ president (also called chief executive officer or CEO) sets the broad strategy for the company and makes major strategic decisions such as opening stores in new markets, but much of the remaining decision-making authority is delegated to managers on various levels throughout the organization. These levels are as follows: The company has a number of retail stores, each of which has a store manager as well as a separate manager for each section such as international rock and classical/jazz. In addition, the company has support departments such as a central Purchasing Department and a Personnel Department. The organizational structure of the company is depicted in Exhibit 1–3.

EXHIBIT 1–3 Organization Chart, Good Vibrations, Inc. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0072834943/0072834943_001_00007.jpg','popWin', 'width=698,height=518,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>

The arrangement of boxes shown in Exhibit 1–3 is called an organization chartA visual diagram of a company’s organizational structure that depicts formal lines of reporting, communication, and responsibility between managers.. The purpose of an organization chart is to show how responsibility is divided among managers and to show formal lines of reporting and communication, or chain of command. Each box depicts an area of management responsibility, and the lines between the boxes show the lines of formal authority between managers. The chart tells us, for example, that the store managers are responsible to the operations vice president. In turn, the latter is responsible to the company president, who in turn is responsible to the board of directors. Following the lines of authority and communication on the organization chart, we can see that the manager of the Hong Kong store would ordinarily report to the operations vice president rather than directly to the president of the company.

Informal relationships and channels of communication often develop outside the formal reporting relationships on the organization chart as a result of personal contacts between managers. The informal structure does not appear on the organization chart, but it is often vital to effective operations.

Line and Staff Relationships

An organization chart also depicts line and staff positions in an organization. A person in a lineA position in an organization that is directly related to the achievement of the organization’s basic objectives. position is directly involved in achieving the basic objectives of the organization. A person in a staffA position in an organization that is only indirectly related to the achievement of the organization’s basic objectives. Such positions provide service or assistance to line positions or to other staff positions. position, by contrast, is only indirectly involved in achieving those basic objectives. Staff positions support or provide assistance to line positions or other parts of the organization, but they do not have direct authority over line positions. Refer again to the organization chart in Exhibit 1–3. Since the basic objective of Good Vibrations is to sell recorded music at a profit, those managers whose areas of responsibility are directly related to the sales effort occupy line positions. These positions, which are shown in a darker color in the exhibit, include the managers of the various music departments in each store, the store managers, the operations vice president, and members of top management.

By contrast, the manager of the central Purchasing Department occupies a staff position, since the only function of the Purchasing Department is to support and serve the line departments by doing their purchasing for them. However, both line and staff managers have authority over the employees in their own departments.

The Chief Financial Officer

As previously mentioned, in the United States the manager of the accounting department is often known as the controller. The controller in turn reports to the Chief Financial Officer( CFO ). The Chief Financial OfficerThe member of the top management team who is responsible for providing timely and relevant data to support planning and control activities and for preparing financial statements for external users. An effective CFO is a key member of the top management team whose advice is sought in all major decisions. is the member of the top management team who is responsible for providing timely and relevant data to support planning and control activities and for preparing financial statements for external users. An effective CFO is considered a key member of the top management team whose advice is sought in all major decisions. The CFO is a highly paid professional who has command over the technical details of accounting and finance, who can provide leadership to other professionals in his or her department, who can analyze new and evolving situations, who can communicate technical data to others in a simple and clear manner, and who is able to work well with top managers from other disciplines.

It should be noted that few of the people who are trained as accountants and who work under the Chief Financial Officer in either the treasurer’s office or the controller’s office think of themselves as accountants. If asked, they are likely to identify themselves as working in finance. Management accounting is not about debits and credits or recording journal entries, although some knowledge of that is necessary. Management accounting is about helping managers to pursue the organization’s goals. A recent report states that:

Growing numbers of management accountants spend the bulk of their time as internal consultants or business analysts within their companies. Technological advances have liberated them from the mechanical aspects of accounting. They spend less time preparing standardized reports and more time analyzing and interpreting information. Many have moved from the isolation of accounting departments to be physically positioned in the operating departments with which they work. Management accountants work on cross-functional teams, have extensive face-to-face communications with people throughout their organizations, and are actively involved in decision making. . . . They are trusted advisors.²

IN BUSINESS

WHAT DOES IT TAKE? A controller at McDonald’s describes the characteristics needed by its most successful management accountants as follows: [I]t’s a given that you know your accounting cold. You’re expected to know the tax implications of proposed courses of action. You need to understand cost flows and information flows. You have to be very comfortable with technology and be an expert in the company’s business and accounting software. You have to be a generalist. You need a working knowledge of what people do in marketing, engineering, human resources, and other departments. You need to understand how the processes, departments, and functions work together to run the business. You’ll be expected to contribute ideas at planning meetings, so you have to see the big picture, keep a focus on the bottom line, and think strategically. Source: Gary Siegel, James E. Sorensen, and Sandra B. Richtermeyer, “Becoming a Business Partner: Part 2,” Strategic Finance, October 2003, pp. 37–41. Used with permission from the Institute of Management Accountants (IMA), Montvale, N.J., USA, www.imanet.org.

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0072834943/0072834943_001_00003.jpg','popWin', 'width=99,height=119,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>