H Thomas Johnson, Professor of Accounting, Portland State University, has spent his career outlining the failure of conventional management accounting practices to aid organisational improvement whilst outlining new approaches. Johnson and Kaplan’s 1987 book ‘Relevance Lost: the Rise and Fall of Management Accounting’ started by saying:
‘Corporate management accounting systems are inadequate for today’s environment. In this time of rapid technological change, vigorous global and domestic competition, and enormously expanding information processing capabilities, management accounting systems are not providing useful, timely information for the process control, product costing and performance evaluation activities of managers.’
The book went on to describe the historical context for the obsolescence of existing systems of management accounting. The conventions of double entry book-keeping meant it was theoretically possible to break-even or even make a profit by putting a lot of things into finished goods stock rather than actually selling anything to customers. Standard costing was one technique which had evolved alongside FW Taylor’s ‘scientific management’ in the early twentieth century (Kaplan and Johnson 1987). This technique’s supposed strength was that it allowed mass producers to calculate the optimal levels of production in their factories.
However, it increased the pressure on organisations to target improvement against an internal view of costs, not value to the end customer. The idea of creating a unit cost and targeting improvements became the ‘de facto’ purpose of many an internal accounts/finance team’s work. The detrimental effects of imposing these targets are the same as where any other arbitrary specifications are imposed.
In summary, Johnson showed that accounting methods developed in mass production manufacturing were based on creating economies of scale in order to reduce unit costs. Reviewing the book, Peter Senge said that ‘corporate managers had become like baseball managers trying to coach their teams by looking at the scoreboard’ (in the preface to Johnson and Bröms 2000).