Honey is a large marketing consultancy that provides a range of services including
developing marketing campaigns, designing web pages, managing media relations
and so on. There are approximately 300 professional staff working in departments
such as advertising and media relations and 600 support staff in areas such as
administration and information technology (IT). Honey operates from a large office
block in the centre of a major city.
In common with similar agencies, Honey is successful because it can offer clients an
integrated service for all of their marketing and public relations needs. Sometimes
those needs are related. For example, advertising staff may work alongside public
relations staff to ensure that a new product is advertised effectively and that any
positive press publicity, such as the consumers’ favourable reaction at the product’s
launch, can be maximised.
Honey has a traditional management accounting system. Each department has its own
detailed management accounts, which show financial transactions and chargeable
hours. Financial transactions include all revenue from billings invoiced to clients and
all costs. Included in the costs are substantial amounts for overheads associated with
the running costs of the office building and the business as a whole. Chargeable hours
are monitored for each member of staff. The hourly charge-out rate varies according
to the seniority of the staff member and is set so that all costs are recovered and a
healthy profit is charged on top. Any work undertaken for another department is
charged internally at the staff member’s full charge-out rate.
The media buying department of Honey buys and sells advertising space in
newspapers and airtime on radio and television. The department sells this space and
time to its clients at cost plus a mark-up and also makes it available at the same price
to other departments in Honey. This means that Honey can offer to plan and implement
a marketing campaign from the initial design all the way through to the publication or
broadcast of the finished advertisement.Honey’s board is concerned that the company’s traditional management accounting
system is encouraging dysfunctional behaviour and causing disputes between
managers. The following examples have been debated at recent board meetings:
• The public relations department is paying external web designers to design “blogs”
on behalf of clients rather than using the web designers from Honey’s web design
department. The web design business has seasonal peaks and troughs and there are
times when there is spare capacity, but the hourly rates charged by the web design
department are more expensive than those available from third parties.
• The staff coffee shop was closed to create additional work space. Since the closure
the space has been empty because none of Honey’s department heads wish to be
charged with the cost of additional overheads.
• Account executives within Honey are keen to earn as much profit for themselves
from each sale. Consequently, they are dealing directly with major broadcasters and
newspapers and are not using the media buying department. These individual deals
are taking away the bargaining power of the media buying department.
Honey’s board is keen to consider whether the implementation of lean manufacturing
and lean management accounting techniques might improve matters. In particular, the
following principles have been identified as being relevant to Honey:
• Honey should be managed through processes or value streams rather than
traditional departmental structures. The board believes that the two value streams are
the sale of professional services and the sale of media space.
• The consultancy should maximise the flow of services through the value streams
while eliminating waste.
• Lean management accounting should provide the value stream leader with
performance measurement information to both control and improve the value stream.
Required
(a)
(i) Advise Honey’s board on the differences between managing value streams and
managing departmental profits. (5 marks)

(ii) Recommend, stating reasons, the changes that Honey should make to its
management accounting systems and policies in order to improve the management of
the value streams. (10 marks)

(b) Advise Honey’s directors on the difficulties that are likely to be associated with
implementing the changes that a move towards lean management accounting will
create. Your advice should include recommendations as to how those difficulties might
best be dealt with.