Accounting Essay: Numbers, Customers and Organizational Success

This essay critically examines the statement that 'Numbers are the only thing that an organization requires understanding their customers.' It explores the importance of accounting in customer understanding, analyzing various perspectives and methodologies. The literature review covers customer profitability, balanced scorecards, operational measures, economic perspectives, and sales growth. The discussion section compares and contrasts these techniques, highlighting the importance of considering multiple factors beyond just financial data. The conclusion emphasizes that while numbers are significant, they are not the sole determinant of customer understanding, and organizations should consider operational, economic, and internal business perspectives for a comprehensive view. The essay incorporates diverse viewpoints from various authors, providing a well-rounded analysis of the topic.

Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LITERATURE REVIEW................................................................................................................1
DISCUSSION..................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

“Numbers are the only things that an organisation requires understanding their
customers”
INTRODUCTION
Accounting is an important aspect of a business which helps to identify, record, measure,
classify, verify, summarize, interpret and communicate financial information. It plays vital role
in effective decision making of the organization. This essay critically reviews the statement
'Numbers is the only thing that an organization requires understanding their customer.' Views of
different authors have been critically analysed in the essay. In the end, a conclusion has been
derived based on the literature review conducted.
LITERATURE REVIEW
According to Robin and Susan, (2010), management accounting has become an important
aspect to find out customer value. Customer profitability is a vital tool where it can be assessed
that how much profit per customer or a group has been earned by the company in a specific time
period. It is an important step taken by the companies to assess whether they are able to satisfy
their customers or not. The companies are able to identify their most profitable customers and
with the help of it, they take decisions in order to promote profitable relationships. However, in
contrast to this, as per the views of Yu and et.al., (2013), market oriented businesses takes
relevant decisions based on the information received from profitability index. A higher index
shows that customers are satisfied with what is offered by the company and should continue with
it. Further, graphical representation of profitability index shows how much profit the company
has earned over the years. Decision making has major dependence on it.
According to Wu, (2012), another conventional approach of understanding the customer
is balanced scorecard method. It helps in connecting dots and creating big picture of different
strategic elements. The mission, vision, goals and objectives are used to assess, whether the
entity is able to serve its purpose or not. It can be achieved by measuring and monitoring
progress of the strategic targets prepared by different departments. Mapping the elements in such
a way that it helps in fulfilling the objectives of the company. However, in contrast to this, as per
the views of Kumar, Petersen and Leone, (2013), different operational measures helps in
managing and monitoring the current performance through customers. Operational measures
include, cycle time, defect rates, etc. It shows that there is equal role of operational measures in
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assessing the performance rather than just analysing financial measures. Relying on only one
aspect of the business can be fatal. Since, it becomes important to view and analyse different
aspects of conclusion rather than jumping to the conclusion directly.
According to Rowe, (2012), apart from financial perspective, economic perspective is
also included when an organization is considering numeric data. Fluctuation in buying power of
the customers, affect customer preferences. Moreover, fluctuations in interest rates, inflation and
deflation rates and currency exchange rates can significantly change demand and supply curve of
the firm. Hence, these are also significant aspect other than finance which can lead to loss of
customers.
According to Ibrahim, (2015), one of the important aspect of balanced scorecard is
financial perspective which is directly linked to customer perspective. The five main categories
of customer perspective are, time, quality, performance, service and cost. Lead time is another
aspect to measure the time that company requires meeting the needs of its customers. Higher lead
time may reduce the satisfaction level. In addition to this, another important aspect is the cost
price at which products are provided to customers. In contrast to this, as per the views of Ryals,
(2013), there are four main perspective of balanced scorecard which are, financial, customer,
internal business and innovation and learning. In order to judge the goals of new products,
enterprise can consider percentage of sales from those products. It helps in assessing the
satisfaction level in numbers. Preferred supplier for material can be evaluated through their key
accounts of purchase and ranking them based on the cost. Other important aspect is input made
in delivering the best in the form of technology and unit cost.
According to Holm, Kumar and Rohde, (2012), there are various other aspects apart from
customer profitability and balanced scorecard that can be used by the entity to create customer
understanding. Sales growth is one important aspect. Increase in sales over the quarter evaluates
the acceptance of products and services that are being made by the company. Another
characteristic is assessing growth in the cash flow of entity. An increase in it shows that there is
an increase in sales of the enterprise further reflecting position of the company through
customer's perspective. Another area to evaluate is through increased market share and Return on
Equity (ROE) of the enterprise. It reflects the level of satisfaction of customers regarding
products and services offered to them. Further, stock turnover ratio is important characteristic to
judge the customer perception. Higher stock turnover ratio shows that large number of customers
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are making purchases. Inventory turnover ratio represents how many times the stock of the entity
has been sold and replaced in a particular period. However, in contrast to this, as per the views of
Shahin, Shabani Naftchali and Khazaei Pool, (2014), analysing sales growth and market share of
the company may not represent true and fair position of customers to the company. Sales growth
can be seen even if the customer wants to try the product for the first time. Further, increase in
the market share is also a traditional approach which do not represent customer perspective. The
increase and decrease may also get affected due to change in the setup of economy as well.
Hence, only these factor cannot be something on which over all functioning of the entity rely.
DISCUSSION
The techniques discussed in the literature review include customer profitability which is
evaluated by going through the data of each customer. It helps in assessing the past trend of
purchasing, amount of goods purchased and for what amount the purchases were made. Decision
tree can be used to make this analysis to evaluate that which factor is the most important which is
considered. These results can further be used in making changes in the present goods and taking
supplies from supplier accordingly.
Another important aspect discussed in literature review includes, the concept of balanced
scorecard. It suggests that different perspective related to customer satisfaction are used by the
companies which helps in making comparison of current customer decisions to that of the past.
The mission and objectives can easily be fulfilled through it (Using the Balanced Scorecard as a
Strategic Management System, 2007).
One author in the literature review has suggested that not only financial perspective but
operational perspective plays equivalent role in decision making. It includes, cycle time, defect
rates etc. Higher lead time shows that there is low customer satisfaction and vice versa. Its major
focus is on operational activities of the firm resulting in assessing the customer perspective for
purchasing (Wu, 2012).
The literature review suggests that there are some conventional methods that can be used
in fulfilling the aim of the company. It includes, assessing the range of stock turnover ratio.
Higher stock turnover ratio shows increased replacement of the stock due to higher sales and
vice versa. Moreover, judging the market share can also give a clear view of company's position
in the market. However, The other author has considered it as a traditional approach and hence, it
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is required for the companies who are opting for these methods to adopt for some modern
techniques of evaluating customer perspective (Oliver, 2014).
The literature review has critically analysed the statement 'Numbers is the only things
that an organisation requires understanding their customers’. It shows that the views of every
author are different and it depends upon the company that which one they want to adopt.
However, it can be ascertained that financial perspective is not the only way of looking towards
customer's preferences. The other perspective can be, operational perspectives, innovation and
learning, internal business perspective etc. Economic perspective also plays an important role in
delivering best to customers. A fall in the economy may also result in loss of the customer.
Further, currency rates, change in interest rates, fluctuation in inflation and deflation rate also
affects the system.
CONCLUSION
Based on the above essay, it can be concluded that Numbers is only one of significant
things that an organisation requires understanding their customers but it in only thing through
which perspective of the customers can be evaluated. Further, other significant aspect of
evaluation includes, operational perspectives, innovation and learning perspective, economic,
internal business perspective etc. Views of different authors have been compiled in order to
evaluate the topic critically. In the ends, it can be stated that different factors should be
considered by companies so that effective evaluation of various aspects can be made that can
help in understanding distinct perspective of customers well.
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REFERENCES
Books and journals
Holm, M., Kumar, V. and Rohde, C., 2012. Measuring customer profitability in complex
environments: an interdisciplinary contingency framework. Journal of the Academy of
Marketing Science. 40(3). pp.387-401.
Ibrahim, M., 2015. Investigating the use of the four perspectives of balanced score card (BSC) as
technique for assessing performance by Nigerian banks. Journal of accounting and
taxation. 7(4). p.62.
Kumar, V., Petersen, J. A. and Leone, R. P., 2013, May. Driving profitability by encouraging
customer referrals: who, when, and how. American Marketing Association.
Oliver, R. L., 2014. Satisfaction: A behavioral perspective on the consumer. Routledge.
Robin Roslender and Susan J. Hart, 2010, Taking the customer into account: Transcending the
construction of the customer through the promotion of self-accounting, Critical
Perspectives on Accounting. 21(8). Pages 739-753.
Rowe, G., 2012. Performance measurement. Introduction to Non-profit Management: Text and
Cases, p.129.
Ryals, L., 2013, May. Making customer relationship management work: the measurement and
profitable management of customer relationships. American Marketing Association.
Shahin, A., Shabani Naftchali, J. and Khazaei Pool, J., 2014. Developing a model for the
influence of perceived organizational climate on organizational citizenship behaviour
and organizational performance based on balanced score card. International Journal of
Productivity and Performance Management. 63(3). pp.290-307.
Wu, H. Y., 2012. Constructing a strategy map for banking institutions with key performance
indicators of the balanced scorecard. Evaluation and Program Planning. 35(3), pp.303-
320.
Yu, W. and et.al., 2013. The effects of supply chain integration on customer satisfaction and
financial performance: An organizational learning perspective. International Journal of
Production Economics. 146(1). pp.346-358.
Online
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Using the Balanced Scorecard as a Strategic Management System. 2007. [Online]. Available
through <https://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-
management-system>. [Accessed on 14th October 2017].
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