Changing product and market landscapes – effects on costs
Bromwich & Bhimani wrote a interesting short book in 2010 called “Management Accounting – retrospect and prospect” (see cimapublishing.com). In the book, they give a number of examples from modern business that makes us think about management accounting techniques. For example, what exactly does a company like Facebook or LinkedIn actually do? Do they offer products, services or what? Changing technologies, business markets and new ways of making/delivering products often causes changes to management accounting. For example recently I read that amazon.com now sells more e-books than paper books. Taking this e-book example, it is easy to visualise a shift in product costs. Arguably, an e-book has almost no variable costs. Instead the vast majority of costs are probably fixed – costs of running a data centre for example. This new way of doing business changes the information management accountants need and how that same information is collated and analysed. I have no idea what publishers or distributors like amazon.com do in their management accounting functions, but it is not too hard to think about how basic techniques like breakeven (CVP) analysis would change due to the changing cost structure.
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This is definitely a good example. If I had read it yesterday, I’d have included it in my yesterday’s class – right on the topic! I’ll provide this link to my students by email, anyway.
I am actually wondering whether Amazon has use for a BE analysis, given that they make most of their profits in the “long tail” rather than a few individual top sellers
http://hbr.org/2008/07/should-you-invest-in-the-long-tail/ar/1
I reckon there is need for completely new instruments – question is: incremental (probably preferable from a cost-point of view), or brand new from scratch (including – again probably – some ground theory, but also more costly).
Gerhard, you’re probably right that amazon.com may not use BE/CVP analysis. I was just using it as an example of a “traditional” technique that might not be so useful (in it’s standard form) to companies where the word “product” is not as easy to define and/or the costs of same are difficult to ascertain. Bromwich and Bhimani mention in their text that revenue analysis may be far more important than cost analysis in many “modern” businesses.
I absolutely agree, Martin – I also was just trying to point out that there is certainly a need for new approaches to MA, and that includes academic research and teaching them to our students in otherwise “standardised” management accounting syllabi. I am currently looking for topics within MA for my research agenda – maybe we could have a discussion about this? I would love to leverage your expertise in my quest for exciting new questions in MA!
Btw I reserved the Bromwich/Bhimani book from our library, looking forward to reading it soon!