Customer profitability has been ranked as one of the most prominent features within current general management and has become increasingly important for companies today. To be successful, a company needs to formulate and implement a strategy that reveals the truth about its customers, i.e. highlight the activities that add value and those that do not. When that is done, value added activities can be maximized and non-value added activities minimized. However, most companies today fail to measure customer profitability and therefore they are not as competitive as they could be.
The reason behind the failure is that there is usually very little information about profitability of customers when the accounting management systems are designed in order to analyze product profitability. Today’s business is not only about executives managing a portfolio of products, there is a clear need for managing a portfolio of customers. When the management is able to identify revenues, costs and profit by individual customer or customer group, better decisions are to be made in the long term
Management accounting changes that are consistent with the existing routines and institutions are more likely to be completed than those that are not. The emerging routines will indirectly be influenced by the meanings and norms that are embedded in the existing routines and institutions. In addition, the powers of individuals will also play an important role as well as cost control and a concern for economic efficiency. Nelson (1995) describes the process of institutionalizing, i.e. the emerging routines become widely accepted in the organization and are a feature of the management control system. When this has occurred, the emerged routines represent definitions of behavior and relations between various groups within an organization.
A management accounting change like this, when the routines are influencing the activities within an organization, the change is characterized as evolutionary. This category of changes all involves movement over time, random elements, systematic mechanisms, and existing institutions. To sum up, to be able to change the existing management accounting system entails a deep understanding of the context of an organization, i.e. the existing routines and institutions. It is not only the formal systems that are important, habits of organizational members and taken-for-granted assumptions are also playing major roles