Robert Kaplan, Thomas Johnson : The Rise and Fall of Management Accounting

Résumé du document

Many modern enterprises use managerial accounting techniques and financial control to aid in accounting-based decision and to increase the efficiency of resource allocation as well as to generally better manage organizational activities. Nevertheless an increasing number of businesses can make little use of their management information because it is simply distorted, too heavy a read for the available time, and often focusing too much on inputs such as labor, which is of less strategic importance in today's economy. Second there is the extreme focus on product costing which doesn't take into consideration the interaction between resources, materials and other factors for different products. Third problem of too much management accounting information is short-termism and treating many cash outlays as only expenses, when they often lead to future profits. Kaplan and Johnson, in Relevance Lost. The Rise and Fall of Management Accounting, both develop a new perspective of the history of management accounting and explore the possible design of innovative performance management systems for manufacturing and service companies that face intense competition and rapid technological change.
Time has become crucial in today's quick and demanding global economy, if one is to control costs, measure and improve productivity and to devise improved production processes. There is also both the need to perform accurate product costing to face other products' competition and to evaluate managerial motivation and success. More than that, accurate management accounting should be both an information and circular communication tool within the company. Appropriate management information may not be a guarantee for economic success but the lack of it is surely a big an unnecessary risk to take. An optimistic fact is that the technology to report on the business is as performant and complex as the business itself. So technological progress and change is growing at a similar pace as economic innovation these past years.

Extraits

[...] More generally, the accounting system was used to measure and control each department in a very sophisticated way. Manufacturing was the biggest one (high explosives, smokeless gunpowder, and black blasting powder). There was the works cost report and profit and loss sheet. Mill cost was further analyzed in a separate monthly report. Issues like transfer pricing were already debated at length. Marketing reports existed also, for the sales department. Sales orders and invoices were summed up in primary sales accounting reports as well as daily sales reports. [...]

[...] But other countries like Japan or Germany adopted a philosophy of zero defects which proved of course an unattainable target to reach but nevertheless produced significant results and for sure led to reductions of defects levels over relatively short periods of time. Any batch where a defect would be noticed was returned to the manufacturer. There was a new phenomenon: total management costs decreased with the number of defects So there was no “optimal” percentage of failures to be accepted. US companies, if they wanted to remained world leaders in their branch, realized that they needed to improve quality as an important source of competitiveness and profits. [...]

[...] Then the department tried to get the minimum purchasing price. For that it hesitated between buying or simply controlling sources of raw materials. To evaluate the best solution they again used ROI. Du Pont had indeed a genuine formula relationship of factors affecting ROI. The formula factors ROI into the product of the sales turnover ratio (sales divided by investment) and the operating ratio (net earnings divided by sales). But Du Pont executives didn't run the company numbers”. Only top management used this information. [...]

[...] One of his favorite dicta was: watch the costs and the profits will take care of themselves”. He had listings of all direct costs used for each unit to control his business. And he kept himself informed about the performances of his competitors in the same area. But he didn't compute asset depreciation, forecasts or return on investment. Alfred Chandler's masterly survey Visible Hand : The Managerial Revolution in American Business') showed that 19th century US railroad companies kept huge for the time cost information systems running. [...]

[...] But they are not the only indicator of managerial performance. Knowledge, innovative academics and managers, say Kaplan and Johnson, should help design new tools for this new economy. In the 19th century, companies started exchanging production parts not externally on established markets, but internally, in a centralized way. Textile, iron, and steel, distribution were leading branches in this trend. Specialization towards a single activity within each of these industries increased. At the same time, there was an increased linkage between different activities, because organizations wanted to be able to control a maximum of production stages. [...]