Management Accounting in an Amoeba Management Profit Center Setting

John Martin August 2, 2011 Accounting 521 Term Project Management Accounting in an Amoeba Management Profit Center Setting Introduction A profit center is a when a responsibility center’s performance is measured in terms of a profit. Both departmental revenue and costs are accounted for. The resulting profit (or loss) directly affects the bottom line of a company’s overall financial performance. Any department, division, business unit, etc. within an organization’s structure can be designated, structured and accounted for as a profit center. Peter Drucker originally created the term profit center in the 1940’s. The idea was that the manager would treat the department much like his own business with an entrepreneurial spirit akin to the company philosophy while hopefully taking into account the long term viability of the department when making decisions. Some companies have gone so far to create micro-profit centers. In the spirit of promoting empowerment to lower level employees as well as to develop future managers, companies create large numbers of small work groups or “amoebas”. These 10 person groups may be in charge of a step in the manufacturing process and are required to sell their product internally to another department. These inexperienced employees are acting as managers of their own entrepreneur spirited company. An example is technology company Kyocera Corporation in Japan. Its divisions frequently divide into amoebas expected to trade both internally and externally. Separate amoeba counts have been as high as 800 across all divisions. In this paper I will address the following: a. How much autonomy should a corporation grant its amoebas?

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b. What kind of data should be measured and shared within the amoeba work group and for what purposes? c. How transparent should management accounting data from one amoeba be for other amoebas within the same company and for what purposes? d. How do management accounting practices influence company culture?

References: Adler, Ralph W. and Toshiro Hiromoto. 2009. Amoeba Management: Lessons From Kyocera On How To Promote Organization Growth, Profitability, Integration, and Coordinated Action. Department of Accountancy, University of Otago, New Zealand and Graduate School of Commerce and Management, Hitotsubashi University. http://www.pma.otago.ac.nz/pma-cd/papers/1039.pdf Anthony, Robert N. and Vijay Govindarajan. 2007. Management Control Systems. 12th Edition. McGraw-Hill/Irwin, New York. Page 188. Cawood, Joe and Ben Jerome. 2011. “W.L. Gore - Competing Values”. LIR826. http://lir826.blogspot.com/2011/04/wl-gore-competing-values.html Kennon, Joshua. 2010. “Profit Center: A Basic Understanding of the Business Term Profit Center”. About.com Guide. http://beginnersinvest.about.com/od/investingglossary/a/profit_center.htm Kyocera Corporation. 2010. “Practicing the Amoeba Management System”. Kyocera CSR Report 2010. http://global.kyocera.com/ecology/report/pdf2010/18_21.pdf Miya, Hiroshi. 1998. Japanese Micro-profit Center: A Case Study of the Amoeba System at the Kyocera Corporation. Gakushuin University, Faculty of Economics, Tokyo. http://projekt-synergie.com/data/12_seminarniprace8.pdf Trunecek, Prof. Ing. Jan, CSc.2007. The Amoeba Management System. University of Economics, Faculty of Business Administration, Prague. http://projekt-synergie.com/data/12_seminarniprace8.pdf 8