- Hardcover: 269 pages
- Publisher: Harvard Business School Press; First Edition edition (October 1987)
- Language: English
- ISBN-10: 0875841384
- ISBN-13: 978-0875841380
- Product Dimensions: 9.5 x 6.4 x 1.1 inches
- Shipping Weight: 1.5 pounds
- Average Customer Review: 11 customer reviews
- Amazon Best Sellers Rank: #480,912 in Books (See Top 100 in Books)
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Relevance Lost: The Rise and Fall of Management Accounting First Edition Edition
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About the Author
H. Thomas Johnson is a professor of management accounting.
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In the 1920's at General Motors they have been experimenting with using variances to measure how well they are doing in their manufacturing. In to the picture is a man named Alfred Sloan, he is one of the most brilliant thinkers in management. With implementing variances GM was able to have a uniform way to impose standards to its managers. With this system, GM's growth became remunerative.
Then there came a period as the authors put it when relevance was lost. Financial accounting accounted for the bulk of the innovations in accounting leaving behind management accounting. This is like the "dark ages" of cost accounting when companies and academics did not innovate methods and processes to advance management accounting. There were a number of reasons for this, first is the requirement imposed in companies to generate financial statements for the stakeholders of the companies. Second, the cost of putting together the necessary information was prohibitive. Technology has not yet grown mature enough to allow managers to go through the trouble of compiling the information needed to make the decisions.
The beauty of this book is that it traces beginnings of topics that are familiar to us now. Topics like variances, discounted cash flow analysis, return on investment, sunk cost, and even just-in-time inventory systems. The next evolution of management accounting is to be led by academicians according to the authors. In this stage of the life of management accounting arose discounted cash flow analysis. This is a step ahead of the return on investment method. This is also a time when economist started to innovate management accounting further. The concept of sunk cost is introduced by economist in the London School of Economics. Innovations also arose by way of the field of operations research. Operations research deals primarily of mathematics. And about this time management accounting was taking hold as a discipline of its own. Along with discounted cash flow analysis, opportunity cost is introduces as well as agency theory and residual income. Residual income is interesting in that it was a step backward in the innovations of theories. Even though, GM started using this instead of the return-on-investment measure. The driving force of this period of the growth of management accounting is the need to have better decision making. This is why economics along with operations research contributed to the growth of management accounting.
Next up, management accounting in its evolved form before 1980 falls short. Management accountants make a couple of theoretical mistakes. They are no longer providing managers of the critical information needed to make decisions. Management accounting has become obsolete in a sense. The next development is what happened after 1980. Because of bitter and growing competition because of global forces and deregulation there needed to be more changes. In this period arose what is now called total quality management, and its progeny just-in-time systems. Manufacturers needed to control their work-in-process inventory. Meaning the Japanese where beating Americans by having zero inventory. This led to changes in management accounting systems throughout the United States.
The first is Scientific Management in Action: Taylorism at Watertown
and the Second is The World's Newest Profession: Management Consulting in the 20th Century.
If you liked either one of those books, you'll enjoy Relevance Lost; inversely if you liked Relevance Lost you'll like those two.