Summary
Drawing on the scholarly perspectives of James R. Beniger and Alfred D. Chandler, we examine a long-term process of firm-specific learning at the American Telephone and Telegraph Company (AT&T). Extensive archival records reveal the firm's efforts to improve its informational resources for market planning, capital budgeting and production scheduling in the 1920s. These initiatives were meant to minimise the likelihood of a repetition of the financial crisis that nearly drove AT&T into bankruptcy in 1906-07. The informational innovation was costly as it required specialised human capital, the identification of suitable metrics corresponding to underlying business processes and the integration of these metrics within the elements of a complex firm. Such a transformation developed more reliable forecasting of future demand for telecommunication services. Central to this process was the adaptation of new econometric methodologies for predicting business cycle fluctuations and the integration of these findings into operational plans. Reforms of this sort helped to quantify risk and reduce internal asymmetries that threatened to undermine the smooth, integrative management of AT&T's corporate headquarters unit, its regional operating subsidiaries and Western Electric, its captive manufacturing arm. Our study contributes to a deeper understanding of the historical evolution of management accounting by studying firm-specific learning to combat external uncertainties and internal information asymmetries in the coordination and control of a giant business enterprise.
See the full content of this document
Extract
Integrating Accounting and Statistics: Forecasting, Budgeting and Production Planning at the American Telephone and Telegraph Company During the 1920s
1. Introduction
The American Telephone and Telegraph Company (AT&T)1 is an example of the giant enterprises that dominated US industry early in the 20th century. Such enterprises confronted a common challenge of being able to assess and control risk about future business conditions. In this study, we examine two aspects of the problem. The first entails forecasting future economic conditions to minimise sub-optimal planning. William Durant's loss of control of General Motors to DuPont interests in 1921 exposed the consequence of a failure to create such critical capabilities. Durant's firm became insolvent because of an inability to gather timely information about a recession-induced build up of dealer inventories and the need to cut back automobile production (Chandler, 1977: ch. 3; 1990: 206). The second involves effective channels of communication to eliminate internal informational asymmetries that could impede efficient management. One example is that of Samuel Insull's loss of control over his electric utility empire after 1929 because of an inability to maintain a balance between firm finance and consumer energy requirements (McDonald, 1962: 274-304). The collapse of Penn Central half a century later, because of a failure to integrate the computerised information systems of the New York Central and the Pennsylvania Railroads, presents another example of this problem (Daughen and Binzen, 1971; Salsbury, 1982).Our paper focuses on how AT&T, after a nearfatal episode of financial stringency in 1906-07, addressed these problems relating to risk assessment and internal information asymmetry by strengthening its capabilities for data analysis and communication. It explains how the firm incorporated new quantitative techniques and extended internal communication linkages to integrate three vital, interdependent functional activities: market forecasting, capital budgeting and production planning. We illustrate how these new communication linkages and quantitative management techniques unified the activities of the regional operating companies, AT&T's comptroller's department and Western Electric by the 1920s.In our study of AT&T, we draw upon and amplify the analytical approaches developed in the separate works of James R. Beniger and Alfred D. Chandler which we discuss more fully in the following section. Beniger's ideas in The Control Revolution explain how information and communication control produced purposive, goal-directed action in complex social entities (Beniger, 1985). We also draw on the taxonomy of firm-specific knowledge developed by Chandler in his last major works, The Electronic Century (Chandler, 2001) and Shaping the Industrial Century (Chandler, 2005) dealing with the dynamics of the global electronics and chemical industries. Specifically we utilise Chandler's notion of an 'integrated learning base' to explain how businesses institutionalise past learning about best management practices and then apply this knowledge in responding to the changing challenges of the market place.Our analysis of AT&T's experience takes us to the 1920s, the decade that saw the emergence of a highly sophisticated information system as a longterm process that had begun in the late 19th century. In the decade of the 1920s there was massive business expansion and prosperity, which fuelled advances in management accounting practices. The rate of informational innovation naturally slowed in the US after the economic contraction following the Great Depre...See the full content of this document
Sponsored links
