MANAGEMENT ACCOUNTING

Management Accounting



Management Accounting

Chandler's Argument

The concept of new form of management emerged with the work of Alfred Chandler who devised the concept of The Visible Hand. In this regards, he used eight propositions to replace Adam Smith's concept of The Invisible Hand. Chandler asserted that modern business is characterized by the use of a hierarchy of salaried professionals and senior executives, to oversee and coordinate the work of the units under their authority.

In addition, this modern business is "multidivisionnaire" and each division has its own administration that is headed by a manager (full-time employee) and has its own accounting, where each could theoretically function as an independent company (Chandler, 1977, p. 3). The modern business, according to Chandler, was the institutional response to the rapid pace of technological innovation and increasing consumer demand in the U.S. during the second half of the 19th century.

The author in The Visible Hand of Managers aims to examine the evolution of the organization and management of production and distribution in the United States. Chandler (1977) outlines a list of general proposals that represent many strong ideas he develops throughout the book. These general propositions are eight in number;

Modern business has multi divisions that replaced the traditional small business when administrative coordination yielded better results than the market coordination

The benefits of internalizing the activity of many business units into one was not possible before the creation of hierarchies of managers

The company appeared for the first time in history when the volume of economic activity reached a sufficient level when the administrative coordination became more efficient and profitable than market coordination.

The hierarchy of managers, once confirmed successful in its function of administrative coordination, became itself a source of permanence, power and continued growth for the company.

The careers of managers who ran these hierarchies employees have taken on a more technical and specialized areas.

Multidivisional business grew in size and diversity and their professional managers led to separate the ownership of these companies in their management.

Professional staff, faced with the need to take an administrative decision, tended to prefer the lines of action to promote stability and long-term growth of their business rather than those that would have maximized short-term profits.

The growth of big business and the dominance exerted on vital sectors of the economy have transformed the structure of these sectors and the economy as a whole.

Among the innovations in management, Chandler emphasizes in particular to those that appeared in accounting and statistics. A continual flow of information is now essential to exploit effectively the major areas of new activities, control through statistics quickly became both a "science and art" for senior and middle managers. This need for accurate accounting also revolutionized all the basic techniques of modern accounting. Centralized management led the business to standardize accounting procedures and statistics. By hiring and assigning staff supervision, they began to systematically evaluate the activities.

Chandler shows the analysis of Douglass North, developed in 1961 in The Economic Growth of the United States, 1790-1860, shows the essential role of ...