Breaking Through the Barrier to the Third Wave

Breaking through the barrier to `the third wave' Jeremy Hope and Robin Fraser argue that the management accounting model that has served companies well in the second wave (the industrial age) must be changed if companies are to compete successfully in the third wave (the information age). They believe that the primary barrier to change is the budgeting system. They support their argument with evidence from highly successful Scandinavian companies that have completely abandoned budgeting. They also outline the further research that CAM-I is now undertaking internationally to develop a guide to help companies break through this barrier. Much has already been said and written about how traditional management accounting fails to support hard-pressed managers in today's highly competitive world. But simply adopting new techniques such as activity-based costing and the balanced scorecard will not bring the expected benefits if they do not fit well with the chosen management structure and style. Accounting systems invariably mirror the existing management structure and, as this structure evolves, so should the accounting model. The problem is that, as firms try to adopt more flexible and responsive management approaches to focus on the customer, they often fail to support these changes by adapting the old accounting systems that were designed for a different competitive era. Indeed, many of these firms are finding (often too late) that the second wave economic model that stressed volume, scale and the recovery of fixed costs, doesn't sit well in the competitive climate of the third wave, where innovation, service, quality, speed and knowledgesharing are the defining factors. Moreover, the key competitive constraint is no longer land, labour or capital. It is, and will increasingly be, knowledge or intellectual capital (including competent managers, skilled knowledge workers, effective systems, loyal customers and strong brands). Financial capital is now a commodity bought...