A brief history of double entry book-keeping #6
Posted by Christie Malry on March 16, 2010 at 12:06 am
Episode 6 starts with the issue of employee costs, which Jolyon Jenkins portrays as "a headache for any manager." However, it's all in a day's work for a management accountant, and this episode focuses on the development of the discipline.
David Oldroyd (Newcastle University) says that the idea of holding agents accountable is old. For example, when managing medieval estates, the manager would have to account for the costs he had incurred. However by the 18th Century, more modern forms of cost accounting were starting to be developed.
There are two main sources. The first is the books of Wedgwood Pottery, run by the imposing figure of Josiah Wedgwood, who could be considered the "grandfather" of cost accounting. Trevor Boyns (Cardiff University) describes Wedgwood's 1772 crisis. Wedgwood couldn't sell all their stocks, which were starting to back up in the warehouse. What should they do - cut back production and lay off workers? Reduce price? But if so, by how much? Josiah Wedgwood analysed the costs of his production and found that there were indeed some areas where they could reduce the price yet still be profitable. Having got the 'bug' for cost analysis, he then went on to use this sort of information again.
The second company is Boulton & Watt. Steven Toms (University of York) explains. Boulton & Watt was a factory-based manufacturing company, and found it needed better accounting methods. It also needed to deal with the cultural shift of managing the workforce. There were lots of people who were working in factories for the first time, and many family units working in factories. Boulton & Watt developed a form of cost accounting to manage them, so it could determine (1) how long it should take to complete a particular task, (2) how to price that task fairly in order to work out a profit margin, and (3) the level of bonuses to pay to staff for beating targets. Trevor Boyns sees this as evidence of using cost information to make management decisions.
However, Keith Hoskin (University of Warwick) isn't sure. It's not clear to him that the industrial revolution is a managerial revolution. There is cost control for product & labour. And there are cost-based contracts to ensure you make a profit. Although businesses are managing profitability better, they're not actually doing management with accounting.
Hoskin cites the example of the Springfield Armory in the US. Hoskin subscribes to Michel Foucault's view of management being power exercised through surveillance. Management isn't just cost control, it's perpetual surveillance and appraisal. Under this measure you don't see proper use of management acctg in Britain in the 18th century; it began in the US. Indeed, Hoskin goes further to suggest that the US's strength is derived from its development of management accounting practices, which took it from a sleepy micro-industrial state to global superpower in less than a century.
