Management Control in a Business Network: New Challenges for Accounting

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Adjunct Professor, Fachhochschule Worms, Germany; Adjunct Instructor, Goizueta Business School, Emory University, USA; Director (Retired) of BASF Aktiengesellschaft, Ludwigshafen, Germany. e-mail: rbardy@t–, Tel. + 49 621 41 61 76

Modern enterprises thrive on connectivity. In an environment of highly interconnected business we must look at management accounting as an activity that provides concepts to coordinate partially independent management systems as well as highly interdependent systems. There is a mutual influence between accounting and organisation. Horngren et al. have shown that management accounting is an instrument to influence the behavior of managers in a way that it enhances the attainment of organisational objectives (Horngren, Bhimani, Foster and Datar, 2005). So, management accounting apparently has to be customised, the need for which has been analysed in the contexts of departmental interdependence (Gerdin, 2005), supply chains (Knight and Harland 2005) and the Internet (Sheehan 2005). Scarce sources are available, however, for accountants who look to develop new skills and techniques when their companies partner a business network (Håkansson and Lind, 2004). This paper considers from where accountants may derive guidance for this work, and how accountants’ work can support the objectives of a network.

The needs to customise are manifold, and consisting of two directions, as follows: 1. Traditional reporting and budgeting need to be adapted to reflect varying input and output; standards of performance need to be created which measure and verify the contribution to common business processes; and, adequate process standards need to be elaborated. Further, the accountants will need to devise new costing and billing procedures that satisfy the requirements of diverse network partners, and they will also need to establish profit-sharing rules and appropriate investment incentives. 2. The methods and instruments of management accounting in a business network need to comply with the conditions of an environment, where respective partners have diverging business objectives, mutual trust is needed (but distrust will possibly prevail at the outset), and bargaining power will be exploited over all sorts of issues. Co-ordination will be of the utmost importance, as will openness, a willingness to share risks, and rewards. The objective is to gain competitive advantage, resulting in better business performance than would be achieved by the firms individually.

What has been enumerated here comes very close to the definition of a business network , defining elements for which include: combining diverse business objectives, gaining competitive advantage that would not be achieved individually, mutual trust and co-ordination, restricted membership; specific business objectives, and sharing risks and rewards (Rosenfeld, 1995).

Neither of the two directions (above) are clearly visible in the literature, an example of where the gap between accountancy practitioners and academics is painstakingly felt (Pearce, 2004). One reason for this may be the way that management accounting knowledge is delivered – i.e., too “regulated”, too casuistic, and/or overly focused on reporting requirements (Spender, 2005). A different reason may be the way that research is conducted – i.e., too case-specific, too much oriented towards output factors such as ‘value’ and ‘performance’, and less focussed on input-like methods and techniques. When input in management accounting relates to data and instruments, then it suggests that a look at traditional instruments will help to find the appropriate direction. Traditional management accounting, it is argued, has much to offer in terms of developing methods of decision-support and of management control in business networks. This paper explores...
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