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The role of management accounting in servitisation Logo cima

  Andrea Tenucci, Teemu Laine |   Free |   CIMA |   Oct 2016 |   Thought leadership

This academic research report expores the potential role of management accounting in servitising manufacturing companies. Evidence from two case studies demonstrates that management accounting should play a more proactive role in servitsation (i.e. offering services jointly with product) as a major strategic initiative. Although services are becoming increasingly important for manufacturing companies, accounting and control functions have offered much less support in this area compared to traditional products.

Topics covered:
  • Management accounting: Technical: Cost accounting & management: Cost accounting, Advanced

5 Comments/Reflections

George Rose

George Rose Jan 2023

When offering a service either as an "add-on" to an existing physical product or a separate product it is important that the true cost of the service is understood. This provides excellent development opportunities for management accountants who are involved in costing methods of physically manufactured products (absorbtion, marginal) into understanding the cost of labour (hourly / day rates), the estimated time taken on a service and the overheads cost. A thorough understanding of this presented to managers involved in price setting reduces the risk of undercharging (thus impacting cashflow and profits) and overcharging (uncompetitive pricing). Whether this is decentralised or centralised will depend on the culture and nature of the organisation. Decentralised will help ensure a consistent approach which will protect the brand and image of the organisation, I would argue that if an organisation is new to the service element or is looking to substantially increase it's revenues through servitisation then a centralised approach would be more efficient and effective.

Working for the University of Nottingham in Research, this is very much a service we provide to funders / industry as we are providing / selling our expertise. Therefore the academic knowledge is the key selling point and is a substantial element of the cost of the service offering. We have a costing application where the full cost of the staff involved is known, so we are confident that we have a true understanding of the costs of the research we are offering. Any reduction in the profit margin will be as a result of the research taking longer than anticipated. in such instances we can investigate why the research took longer than planned. However, planning isn't always easy due to the bespoke nature of what we offer. This is why a centralised costing and reporting function is required with input fed-in from schools and faculties.

John Ekblom

John Ekblom Jul 2019

I found, whilst conducting cost accounting and activity based costing at my current company, that whilst the organization is primarily service-based, most of the revenue is transactional and comparable to manufacturing, like a "data factory". But in addition, many pure services are offered in the form of pre-sales efforts such as POCs, plus post-sales services such as varying levels of account management, free/chargeable consultancy.

The ABC analysis showed that those customers which benefit from a high degree of true-service support, did not result in higher prices, nor higher retention rates, and lower margins. This may have reflected the lack of awareness of the true cost of service support during contract negotiations with those customers.
Daniel Evans

Daniel Evans Sep 2018

With services increasingly becoming embedded with Tangible product offerings, this case study provides a valuable insight into the accounting of services as an 'add on' in a manufacturing organisation.
Michelle Weetman

Michelle Weetman Sep 2018

The Article Highlights the importance of monitoring service revenue and ensuring maxim value creation. 

My company often underestimates the value of additinal service , offten negaleting to charge for additional services.  contract scope creep needs to be monitored and reviewed.
Richard Straker

Richard Straker Jun 2018

Article highlights the need to monitor revenue and costs of providing the additional services. This can be a significant contribution to revenue and profit. We have spent significant time gaining the customers so it is very efficient to provide additional services to them.
In my company operations we often find ourselves providing additional services without remuneration - we need to monitor and report these additional services so we can discuss them with the customer and come to an agreement on their value. Contract scope creep is an issue we are constantly reviewing.