Management Accounting Virgin Money Case Study
Strategic Management Accounting
Strategic management accounting is making management accounting more strategic.
Some scalars argue that there is no single definition can explain what constitutes strategic management. However, strategic management accounting may include both financial and nonfinancial elements such as branding.
Virgin Money has used strategic management accounting practices in its decision making, resource planning, product planning and customer planning. Virgin Money has used the UK approach to strategic management accounting. This approach, as observed by is characterized by external orientation and monitoring of factors such as prices and costs. Virgin Money business model was based on offering investment products at a lower cost than its competitors, which made it more competitive than its competitors. Virgin Money future plan is to charge a fixed account fee to account holders in substitute for lower overdraft fees in an aim to differentiate itself from other players in the banking sector.
Strategic Cost Management
Strategic cost management as an accounting or finance problem. The management of costs is pursued in order to ensure competitive advantage and also pursue efficient utilization of funds. Therefore, strategic cost management has a direct impact on firms bottom-line.
Virgin Money strategic cost management is focused on product strategy and meeting customer needs. Since Virgin Money is a new entrant in the financial sector, it has quickly employed strategies to distance itself from past bad business practices in the financial sector. In the past, financial companies have been projected as uncaring, greedy, ruthless and all-for-profit firms Virgin Money has been able to cultivate an image of fair business practices and one that continually gives back to the community through corporate social responsibility (CSR) activities.
Virgin Money has embraced an approach that seeks to show fairness in how they price their banking and investment products. They seek to change the customer image of the banking industry through low pricing and support systems such as CSR activities. Therefore, Virgin Money’s business is built on trust and fairness to its customers.
Strategic Revenue Management
Strategic revenue management core focus is on profit rather than revenue. It therefore targets a particular product or customer base, or both. Strategic revenue management looks into aspects that maximize profits such as the products, customers and market segment. Thus, managerial decision is made on what aspects will constitute the highest return in term of profits to the firm after cost. It can be said that strategic revenue management is a profitability measurement instrument.
Virgin Money has used strategic revenue management to maximize profits. Virgin money targets a young customer base through the use of simple language in its website and the use of various calculation tools for its products such as loans and mortgages to attract this group. In addition, Virgin Money has selected a product mix that guarantees profits but which is also simple and competitive. Virgin Money has used various strategies such as mergers acquisitions and shares buy-backs in its strategies in order to increase its profits.
Responsibility centers seek to create small units of accountability, especially in large businesses, to facilitate performance evaluation. For instance, in such smaller units, managers could have the autonomy to make decisions such as setting the price and choosing suppliers without consulting the senior management.
Responsibility centers are divided into four as part to the management structure. First cost centers where managers are responsible managing cost control and no revenue generation. Second, revenue centers where managers are responsible for generating revenue with no management of costs. Third, profit centers where manager are responsible for cost control and revenue generation. Lastly, investment centers where managers are responsible for both profit centers and investment.
The principle of accountability is the basis for responsibility centers where one should only be accountable for what one controls. Thus, manager’s performance is evaluated on responsibility accorded to them in their responsibility centers. Virgin Money has responsibility centers throughout its business divisions. It has credit card and insurance division profit centers. Additionally, Virgin Money in Australia and South Africa function independently as investments centers.
Transfer pricing refers to the price at which goods and services are provided by one division to another in the same entity. Transfer pricing occurs in Virgin Money through the sourcing of products and services through its various divisions. This could be through credit, insurance policy and others. However, the price charged is often determined by the business division. Such conditions are used to determine the performance of various business divisions within the organization.
Non Financial Performance Measures
Non financial performance measures are used to determine the level of customer satisfaction and complaints level. Management accounting takes a holistic approach that embraces non financial performance measures as indicators of financial performances. Non financial performance measures have a direct correlation of the shareholder value both present and future stock performance. This is so due to the fact that there is a direct link between customer satisfaction and future firm’s performance. Currently, indicators show that non financial performance measures affect financial performance. However; issues of prioritizing performance and actually showing its impact are some of the problems by using such an instrument to measure performance.
Virgin Money being in the financial services sector has used non financial performance measures indictors to determine the steps the firm will take in terms of the short, medium and long-term strategy. Virgin Money strategy is fair business practices and one that continually gives back to the community through corporate social responsibility (CSR) activities. The strategy relies on non financial performance measures indictors to determine its success and is not profit seeking. Therefore, the use non financial performance measures indictors are critical in determining the firms past performance based on those variables.