MANAGEMENT ACCOUNTING IN THE
DIGITAL ECONOMY


This page intentionally left blank


MANAGEMENT ACCOUNTING IN THE
DIGITAL ECONOMY

Edited by
Alnoor Bhimani


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CONTENTS
List of Contributors
List of Figures
List of Tables
1. Digitization and Accounting Change
Alnoor Bhimani
Part 1 The Transformation of Accounting and Management Controls
2. Dis-Integration through Integration: The Emergence of Accounting Information Networks

Franco Amigoni, Ariela Caglio, and Angelo Ditillo
3. Management Accounting for the Extended
Enterprise: Performance Management for Strategic Alliances and Networked Partners
Shannon W. Anderson and Karen L. Sedatole
4. Technology-Driven Integration, Automation, and Standar
dization of Business Processes: Implications for Accounting
Chris Chapman and Wai Fong Chua
5. Expenditures on Competitor Analysis and Information
Security: A Managerial Accounting Perspective
Lawrence A. Gordon and Martin P. Loeb
6. The Changing Role of Management Accounting and
Control Systems: Accounting for Knowledge Across Control Domains
Frank G. H. Hartmann and Eddy H. J. Vaassen

vii
xiv
xvi
1
13
15
36
74
95
112


vi

CONTENTS


Part 2 Reflections on Organizational Shifts
7. Management Accounting Inscriptions and the Post-Industrial Experience of Organizational Control
Paul Andon, Jane Baxter, and Wai Fong Chua
8. Operations, Purchase, and Sales in Hyperreality:
Implications for Management Control from the Perspective of Institutional Sociology
Salvador Carmona and Paolo Quattrone
9. Not for Profit—for Sale: Management Control in and of an Internet Start-Up Company
Jan Mouritsen and Kristian Kreiner
10. Management Accounting in the New Economy: The Rationale for
Irrational Controls
Leif Sjöblom
Part 3 Reshaping Accounting
11. Management Control and E-Logistics
Maurice Gosselin
12. Internet-Based Information Systems in the Not-for-Profit Sector
Hans-Ulrich Küpper
13. Paradoxes of Management and Control in a New Economy Firm
Kari Lukka and Markus Granlund
14. Management Accounting and the Knowledge Production Process
Hanno Roberts
Index

133
135
152
169
185
203
205
218

239
260
284


LIST OF CONTRIBUTORS
AMIGONI, Franco, is Full Professor of Management Accounting and Control Systems at Bocconi University and
Senior Lecturer at the Management Accounting and Control Department of SDA Bocconi School of Management.
From 1991 to 1996, he was the Dean of SDA Bocconi School of Management. He has published several papers on the
design of management control systems and the impact of information technologies on the evolution of accounting. His
research interests are in the fields of integrated performance measurement systems, innovations in management
accounting and corporate governance.
ANDERSON, Shannon, is an Associate Professor of Management at the Jesse H. Jones Graduate School of
Management of Rice University. Prior to joining the faculty at the Jones School she taught for 9 years at the University
of Michigan Business School. She earned a doctorate in Business Economics at Harvard University and a BSE in
Operations Research at Princeton University. Her research focuses on designing and implementing performance
measurement and cost control systems to support management decision-making and has been published in the
Accounting Review, Accounting, Organizations and Society, Accounting Horizons, Production and Operations Management, the
International Journal of Flexible Manufacturing Systems, and the Journal of Management Accounting Research. She is also co-author
of the book Implementing Management Innovations. Before returning to school to pursue her doctorate, Professor
Anderson worked as an engineer for General Motors Corporation. Professor Anderson is a member of the American
Accounting Association and INFORMS and currently serves as an Associate Editor of the Journal of Management
Accounting Research and Management Science and on the editorial boards of the Accounting Review, Management Accounting
Research, Accounting, Organizations and Societies, and Service Operations Management.
ANDON, Paul, M.Com. (Hons.) CA is a Lecturer from the School of Accounting at the University of New South
Wales, Sydney, Australia. Paul currently teaches undergraduate financial and management accounting. His main
research interests are in the areas of customer reporting/profitability, knowledge management and ‘new economy’
performance measurement. Prior to joining UNSW, Paul was employed at PricewaterhouseCoopers within their
Assurance and Business Advisory Services division, specializing in technology, communications, and entertainment
clients. Paul is an Associate of the



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LIST OF CONTRIBUTORS

Institute of Chartered Accountants in Australia. He has published in the Australian Accounting Review and Pacific
Accounting Review.
BAXTER, Jane, Ph.D. FCPA is from the School of Accounting at the University of New South Wales, Sydney,
Australia. Jane teaches and researches in the area of management accounting. Jane has designed and teaches courses on
stakeholder value management, innovation and intangible resources. Her current research interests encompass
innovation, knowledge management, and the structuring of the accounting and finance function. Jane has published in
Behavioral Research in Accounting, Journal of Management Accounting Research, Pacific Accounting Review, Australian Accounting
Review and Accounting, Organizations and Society.
BHIMANI, Alnoor (Al), is a Reader in Accounting and Finance at the London School of Economics where he has
been teaching since 1988. He obtained an MBA from Cornell University (US) and a Ph.D. from the LSE and is also a
Certified Management Accountant (Canada). Al has co-authored a number of books, including Management Accounting:
Evolution not Revolution (CIMA 1989), Management Accounting: Pathways to Progress (CIMA 1994) and Management and Cost
Accounting (Pearson 2003). He has also edited Management Accounting: European Perspectives (OUP 1996). Al has written
numerous articles in scholarly journals and serves on the editorial board of several journals. He has undertaken
management accounting related fieldwork in a variety of global enterprises and has presented his research to corporate
executives and academic audiences in Europe, Asia, and North America.
CAGLIO, Ariela, Ph.D. in Economia Aziendale e Management at Bocconi University, is an Assistant Professor of
Management Accounting and Control Systems at Bocconi University and Lecturer at the Management Accounting and
Control Department of SDA Bocconi School of Management. She has published some contributions on the evolution
of the accounting profession, integrated information systems, and internet-based companies. Her research interests
relate to the impacts of information technologies on both the organization of accounting activities and accounting
system and management control of networked firms.
Salvador Carmona is a Professor of Accounting and Management Control at Instituto de Empresa. Salvador's
research interests are management acounting in high-tech environments and management accounting change from an

historical perspective. His papers have been published in journals such as Abacus; Accounting Historians Journal;
Accounting, Organizations and Society; the European Accounting Review; the European Journal of Operational Research; The
International Journal of Production Economics; Management Accounting Research; Management Learning; and The


LIST OF CONTRIBUTORS

ix

Scandinavian Journal of Management. He serves on the editorial board of several academic journals.
CHAPMAN, Chris, gained his doctorate from the London School of Economics and Political Science before moving
to the University of Oxford as a University Lecturer in Management Studies and Fellow in Accounting at Linacre
College. His research interests focus on the role of accounting and accountants in financial management and
performance evaluation. Emphasizing the social and organizational aspects of these processes he has published in
journals such as Accounting, Organizations and Society, Management Accounting Research, and European Accounting Review. Chris
sits on the editorial board of Accounting, Organizations and Society.
CHUA, Wai Fong, took up the headship of the School of Accounting at the University of New South Wales in 2000
where she has been a Professor since 1994. Prior to joining UNSW in 1985, Wai Fong taught at the University of
Sheffield (1981–1982) and Sydney University (1983–1985). She teaches and researches primarily in the area of
management accounting. Her current research projects include an examination of the role of financial and nonfinancial controls in the professional service firms and the operation of ‘digitized’ accounting technologies. Her other
research interests include the historical professionalization of accounting and accounting in the public sector. She has
published widely in international journals including The Accounting Review, Accounting, Organizations and Society,
Contemporary Accounting Research, Critical Perspectives on Accounting, and the Journal of Management Accounting Research. She is
on the editorial boards of several journals and on the Academic Board of the Institute of Chartered Accountants in
Australia.
DITILLO, Angelo, Ph.D. in Economia Aziendale e Management at Bocconi University, is an Assistant Professor of
Management Accounting and Control Systems at Bocconi University and Lecturer at the Management Accounting and
Control Department of SDA Bocconi School of Management. He has published papers on financial shared service
centres, transfer pricing, and knowledge-based organizations. His main research interests are in the area of
management accounting and control of knowledge-intensive firms, multinational corporations, and networks.

GORDON, Lawrence A., is the Ernst & Young Alumni Professor of Managerial Accounting and Information
Assurance, and the Director of the Ph.D. Programme at The Robert H. Smith School of Business, University of
Maryland, College Park. His Ph.D. is in Managerial Economics from Rensselaer Polytechnic Institute. He is the author
of more than seventy-five articles, published in such journals as The Accounting Review, Journal of Financial and Quantitative
Analysis, Accounting, Organizations and Society,


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LIST OF CONTRIBUTORS

Journal of Accounting and Public Policy, Decision Sciences, Journal of Business Finance and Accounting, Accounting and Business
Research, Managerial and Decision Economics, ACM Transactions on Information and System Security, Communications of the ACM,
and Management Accounting Research. Dr Gordon's current research emphasizes the importance of utilizing concepts
from managerial accounting and economics within an information-based economy. Dr Gordon also is the author of
several books, including Managerial Accounting: Concepts and Empirical Evidence. In addition, he is the Editor-in-Chief of
the Journal of Accounting and Public Policy and serves on the editorial boards of several other journals.
GOSSELIN, Maurice, is a Professor in the École de Comptabilité at Université Laval in Québec City, Canada.
Professor Gosselin has worked several years in practice as a Chartered Accountant and a Certified Management
Accountant before becoming a faculty member at Université Laval. He completed his doctoral degree at Boston
University in 1995. He has published several papers in academic journals, including Accounting, Organizations and Society.
His research and teaching interests are in the areas of cost management and performance measurement in
organizations operating in the digital economy.
GRANLUND, Markus, holds a Ph.D. in Economics and Business Administration and is currently an Acting
Professor of Information Systems Science at the Turku School of Economics and Business Administration, Finland.
His research interests cover a wide range of technical and behavioural issues in management accounting. His current
research concerns the effects of ERP-systems on management accounting practices, as well as management control
and information systems in new economy firms. He teaches on several MSc courses and executive programmes. He is
also collaborating on several joint projects with major Finnish companies. Dr Granlund has published numerous
articles in peer-reviewed accounting and management journals.

HARTMANN, Frank, is a Professor of Management Accounting at the Universiteit van Amsterdam and director of
the Amsterdam Graduate Business School. He holds an MSc in Business Economics from Erasmus University in
Rotterdam, and a Ph.D. from Maastricht University. He researches and publishes nationally and internationally on
management control, performance measurement, and the methodology of accounting research. He served and serves
on the editorial boards of various national and international journals. He is board member of the Dutch professional
institute of certified controllers that supervises graduate management accounting education in The Netherlands.
KREINER, Kristian, is a Professor of Organization at the Copenhagen Business School, Denmark. He studies how
things get organized and coordinated—by design and plan, and by accident and spontaneous action. The


LIST OF CONTRIBUTORS

xi

empirical focus of his research is on exotic organizations—knowledge-intensive, temporary, virtual and/or
community-based ones. His interests include project management, knowledge management, technology management,
product design and innovation. Kristian Kreiner is the editor of the Scandinavian Journal of Management.
KÜPPER, Hans-Ulrich, is the director of the Institute of Production Management and Management Accounting at
the Munich Business School (University of Munich). He also heads the Bavarian State Institute of Research and
Planning for Higher Education. He received his doctorate and ‘habilitation’ at the University of Tübingen. Later he
became a full professor at the universities of Essen, Darmstadt, and Frankfurt a/M. He is the author of several books
on production theory, scheduling, cost accounting and codetermination. He has also published in several German and
international journals—mainly in the areas of management accounting, controlling, university accounting, and business
ethics. He is co-editor of the fifth edition of the Handwörterbuch der Betriebswirtschaftslehre (Lexicon of Business
Economics) and of the Handwörterbuch Unternehmungsrechnung und Controlling (Lexicon of Accounting and Controlling).
LOEB, Martin P., Ph.D. (Northwestern University) is a Professor of Accounting and Information Assurance and a
Deloitte & Touche Faculty Fellow at the Robert H. Smith School of Business, University of Maryland, College Park.
His papers span several business disciplines and have been published in leading academic journals including The
Accounting Review, ACM Transactions on Information and System Security, American Economic Review, Contemporary Accounting
Research, Journal of Accounting Research, Journal of Law and Economics, Journal of Public Economics, Management Accounting

Research, and Management Science. He served on numerous editorial boards and is currently an editor of the Journal of
Accounting and Public Policy.
LUKKA, Kari, is a Professor of Accounting at the Turku School of Economics and Business Administration, Finland.
Kari's research interests and his international publication record cover a wide range of management accounting as well
as accounting theory and methodology topics. In addition to being the editor of European Accounting Review, he also acts
as a reviewer for several international journals. Kari is also a Professor at the European Institute for Advanced Studies
in Management (EIASM). He is a co-editor (with Professor Tom Groot) of the book Cases in Management Accounting:
Current Practices in European Companies (Prentice Hall 2000). He also runs and chairs a series of biennial research
conferences, jointly with Professor Michael Shields, entitled ‘New Directions in Management Accounting: Innovations
in practice and research’.


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LIST OF CONTRIBUTORS

Jan Mouritsen is professor of management control Copenhagen Business School, Denmark. His research is oriented
towards understanding the role of management technologies and management control in various organisational and
social contexts. He focuses on empirical research and attempts to develop new ways of understanding the role and
effects of numbers in organisations and society. He is intrested in translations and interpretations made of numbers
throughout the contexts they help to illuminate. His intrests include intellectual capital and knowledge management,
technology management, management control and operations management, new accounting and management control.
Jan Mouritsen is on the editorial boards of about 10 academic journals in the area of accounting, operations
management, IT and knowledge management, and he has published in journals including Accounting, Organizations and
Society, Management Accounting Research, Scandinavian Journal of Management, Accounting, Auditing and Accountability Journal and
Critical Perspectives on Accounting.
QUATTRONE, Paolo, is an Assistant Professor at the University Carlos III of Madrid, after having been Marie Curie
Research Fellow at the Manchester School of Accounting and Finance from 1998 to 2000. He has taught accounting and
business economics at the University of Catania (1997) and Palermo (1992–1996), where he earned his Ph.D. He has
been an academic visitor at the Graduate School of Economics at the University of Kyoto (2001) and at the Säid

Business School at the University of Oxford (2002). His current research interests are: management control systems in
large organizations, accounting history, evolution of theories of knowledge, and the reform processes of universities.
ROBERTS, Hanno, is a Full Professor in Management Accounting and Control at the Norwegian School of
Management. He has an MBA from the Rotterdam School of Management and a Ph.D. from the University of
Maastricht. His main research interests are in the areas of Intellectual Capital, Management Accounting and Control of
the Knowledge-intensive Firm, and in Knowledge-based Value Creation. He teaches MBA candidates in Norway,
Germany, and Spain as well as holding visiting positions in Denmark, Finland, France, and Spain.
SEDATOLE, Karen, L., is an Assistant Professor of Accounting at the McCombs School of Business, The
University of Texas at Austin. Karen earned her BSE in computer engineering from Baylor University, her MBA from
The University of Texas at Austin, and her Ph.D. from The University of Michigan. Prior to her doctoral work, she
was a systems consultant, designing and implementing customized client information systems used in forecasting,
planning, and decision-making. Dr Sedatole's research interests are in management control systems, including issues
related to performance measurement and rewards. Her current research examines the use of non-financial


LIST OF CONTRIBUTORS

xiii

performance measures as leading indicators of financial performance, and the use of financial and non-financial
performance measures in managerial incentive contracts and inter-organizational settings.
SJÖBLOM, Leif, is a Professor of Accounting and Control at IMD in Switzerland. His areas of academic interest are
the restructuring of the telecommunications industry, performance measurement, cost management, and shareholder
value creation. He is co-director of IMD's flagship Programme for Executive Development (PED) for high potential
upper and mid-level managers from all over the world. Leif has previously worked in marketing and production in the
telecommunications industry. He received his Ph.D. from Stanford Business School. He is also a Certified
Management Accountant (CMA) and a Chartered Financial Analyst (CFA).
VAASSEN, Eddy H. J., is a Professor of Accounting Information Systems at Universiteit Maastricht. He is the
director of the Postgraduate Programme Registered Controller, the Executive Master of Finance and Control
Program, and the Maastricht Accounting Auditing and Information Management Research Center (MARC). Further,

he is a technical advisor of Deloitte & Touche and co-chair of the annual European Conference on Accounting
Information Systems. He has Dutch and international publications—including two textbooks—within the fields of
AIS, Accounting, Auditing, and Control. Eddy is a member of the editorial boards of the Journal of Digital Accounting
Research, the Journal of Emerging Technologies in Accounting, Global Perspectives on Accounting Education and the Journal of
Information Systems. He is also an ad hoc reviewer for The European Accounting Review and AAA monograph and the
International Journal of Accounting Information Systems.


LIST OF FIGURES
3.1.
3.2.
4.1.
5.1.
6.1.
9.1.
9.2.
9.3.
9.4.
9.5.
9.6.
9.7.
10.1.
10.2.
11.1.
11.2.
11.3.
12.1.
12.2.
12.3.
12.4.

12.5.
12.6.
12.7.
12.8.

The formation of collaborations through joint venture or strategic alliances, 1985–2000
The formation of collaborations through joint venture or strategic alliances, 1985–2000 by SIC codes
How TCP/IP relates to the earlier ISO seven Layer network model
Nash equilibrium for firm i's competitor analysis level of expenditures and firm j's information
security level of expenditures
Control environment (adapted from Vaassen 2002)
The rationalized evolution of E-firm (Anno 2000)
The development of corporate competencies, as defined by management
The E-Firm's Pizza identity—online pizzas for employees
Tools for managing E-Firm's resources
Arenas of competence
The evolution of E-Firm
The space of E-Firm (Anno 2001)
Typical leading indicators of revenue potential used by new economy companies
Four levers of control
Link between contextual settings and the characteristics of the digital economy
Contextual factors and the digital economy
Characteristics of management accounting systems in the digital economy
Types and examples of not-for-profit organizations
Determinants of information requirements (Küpper 2001b: 142)
Components of a data warehouse system (Source: Sinz et al. 2001)
Layer-based model of a university
Components of a financial accounting system for public universities (CA, changes of the assets;
ES, expense surplus)
Components of a performance statement for universities

Basic system of university expenses and revenues
Classification of university output measures

37
41
80
103
127
170
171
175
178
179
180
181
189
191
215
215
215
220
222
225
227
228
229
230
231



LIST OF CONTRIBUTORS

12.9. Classification and examples of university performance measures
12.10. The architecture of the data warehouse system of universities (Sinz 2001: 10)
12.11. Important steps within an analysis of information demand
14.1. Strategic resources (Løwendahl 1997: 87, Fig. 8)
14.2. Classification framework for intangible assets (Haskins et al. 1993: 455)
14.3. Intellectual capital (adapted from Bontis 1998)
14.4. Intellectual capital, value creation, and the knowledge production process
14.5. The integrated management model of Telenor (Brenna 2001)
14.6. ‘The house’—the intellectual capital reporting model of Telenor (Brenna 2001)
14.7. The knowledge conversion process of Nonaka et al. (2000) and its relationship with
intellectual capital
14.8. The knowledge production process as a set of gear wheels (Nordic Industrial Fund 2000: 59)

xv
232
234
236
261
262
264
271
273
273
275
279


LIST OF TABLES

3.1.

Characteristics of the activities of strategic alliance partners for collaborations that were first
announced during the period, 1985–2000
4.1. A selected glossary of ERP-type technologies, adapted from Manchester (2000b)
6.1. Characteristics of traditional and ‘new’ organizations
6.2. The cybernetic control model and its extension
6.3. Three frameworks for control
6.4. Knowledge-based framework for control
10.1. Levers of control in the old and new economies
10.2. The risk exposure metrics for new economy companies

42
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116
120
121
129
193
194


1 Digitization and Accounting Change
Alnoor Bhimani
There is mounting evidence that the deployment of digital technologies by organizations not only affects the
economics of operational and managerial processes but also mobilizes extensive social and organizational effects.
Digitization impacts the form, substance, and provenance of internal accounting information with attendant
consequences on the behaviour and actions of organizational participants and on the functioning of enterprises more
widely. Knowledge about the influence of the deployment of digital technologies on management accounting thinking,
processes, and practices is starting to take shape. This book explores some of the issues that are coming to light.

Developing an understanding of what is signified by the notion of a ‘digital economy’ holds possibilities for explicating
the rationale for action pursued in its name. Even refutation of the concept has consequences tied to what is negated.
The term ‘digital economy’ has been used to capture different significances and has been applied interchangeably with
other terms which themselves vary in meaning depending on context. Where it has been written about, the term digital
economy is associated with economic changes entailing computer-based information exchanges. The term ‘new
economy’ has also been used to suggest this and sometimes, to include an array of other changes in the nature and
functioning of the economy and related social structures and processes. Industrial transformation is regarded as
profound in writings about the new economy though there is still ‘no consensus as to whether the new economy exists,
what it implies and how it differs from the old economy’ (Holmberg et al. 2002: 12). Similarly, economic conceptions of
the transformation from the physical assets and products associated with agriculture, mining, and manufacturing to the
realization of intangible products are central to writings about the ‘information economy’, the ‘knowledge economy’,
the ‘experience economy’, and the ‘network economy’ (Bernstein 1998; Cooper 1983; Gilmore and Pine 1999;
Jussawalla and Lamberton 1988; Katz 1986; Kling 1990; Kupier 2002; Liebowitz 2002; Robinson 1986; Schement
1990; Stalder 2002; Teece 2002). This is so even though widely varying arguments often underpin explanations of this
transformation (Castells 1997, 2000, 2001; Christensen 1997).


2

DIGITIZATION AND ACCOUNTING CHANGE

Commentators addressing specific features of the digital economy have tended to be partial in their use of the term.
For instance, in his popularization of the term, Tapscott (1996) focuses on the role of information technology in
organizations and proprietary commercial networks to highlight the promise of the internet in fostering electronic
commerce. A more developed characterization is provided by Margherio et al. (1998) in The Emerging Digital Economy
report published by the US Department of Commerce. In this and in an updated report by Henry (1999), the emphasis
is on systems and services which utilize the internet. Brynjolfsson and Kahin (2002: 2) see the digital economy as ‘the
largely unrealised transformation of all sectors of the economy by the computer-enabled digitization of information’.
This view accords with Kling and Lamb's (2002: 297) assertion that ‘we should not conceptualise a digital economy in
ways that make the Internet central by definition’. As such, they see the digital economy as ‘including goods or services

whose development, sale, or provision is critically dependent upon digital technologies’. Other writings use the term
digital economy to connote exchange between physical structures and conceptual planes of reference via digital coding
(OECD 1998; Schmid 2001).
In the context of addressing management accounting issues, the view that is taken of the digital economy needs to be
specific enough as to enable concerns germane to the discipline to be addressed whilst also remaining sufficiently
general as not to preclude possibilities which remain nascent still. For the purposes of this and chapters that follow, it is
proposed that the digital economy be regarded as signifying digital interrelationships and dependencies between
emerging communication and information technologies, data transfers along predefined channels and emerging
platforms, and related contingencies within and across institutional and organizational entities. Such a
conceptualization permits social, political, and economic preconditions, effects, and consequences to be explored.
It also posits sufficient ground for taking account of contemporary management accounting concerns without
delimiting boundaries of possible change. With this view of the digital economy, it is now possible to turn to some
substantive issues of concern in the field of management accounting.

A Matter of Trust
History may or may not repeat itself, but the basis for change is often repetitive. Within management accounting
writings, exhortations for change have been prevalent for some time. Two decades ago, Kaplan (1983) called for a
‘new’ management accounting predicated on an understanding of business processes as a departure from the mere
reporting of enterprise activities based on often erroneous assumptions about their nature. The debate evolved into
exhortations for accountants to enhance their understanding of the processes


ALNOOR BHIMANI

3

involved in the manufacture of goods and the delivery of services, and to explore the physical flow of resources vis-a-vis
economic accounts of enterprise activities. Ultimately, the argument was for providing accountings that could be seen
as more closely representing organizational realities so as to abet managerial endeavours (Cooper and Kaplan 1987;
Kaplan, 1984, 1985; Kaplan and Norton 2001. Accounting thinkers subsequently documented novel internal

accounting techniques such as backflush accounting, activity-based costing, target cost management, quality costing,
and renewed approaches to measuring performance (see Ansari 1997; Brinker 1996; Bromwich and Bhimani 1994;
Yoshikawa et al. 1993).
The extent to which reliance can be placed upon accounting information by managers is resurfacing as an issue in
debates concerning the relevance of management accounting as digitization within organizations becomes more
significant (Boiney 2000; Chandra 2001; Sutton 2000). As enterprises become increasingly concerned with the
generation and the processing of digitized information relating to the production and delivery of physical and digital
products and services, the challenge will be to sustain sufficient credence in the monitoring, measurement, and
assessment of these altering organizational activities (Bhimani, 2003). Trust is core in this regard. If it can be claimed
that ‘trust is becoming the most important asset in the digital economy’ (Colvin 2002: 25) then what comprises trust in
internal accountings will likely see transformations. Novel accounting concerns centring around faith in numbers
(Kaplan 1986) will once again emerge and contemporary control systems will no doubt continue to face calls for
reforms. Accounting measures will seek to engender trust in contexts where what is bought, sold, or produced never
assumes physical form. Although service products have always evidenced such characterization, the means by which
they are delivered have not ordinarily defied desired transparency nor the potential for observation in the same way as
digital processes. Counting based on observation or observations enabling evaluations to be made are not always
amenable to operationalization in contexts where digital rather than physical transactions underpin enterprise activities.
Digital processes often evade physical verification, and established modes of enumeration and evaluation will therefore
likely come under question.
How far accounting information can be trusted is not subject merely to the development of more rational forms of
capturing the economic consequences of organizational activities resting on digital processes. Human interpretations of
the significance of deploying digital technologies and their representation in economic terms is also a relevant issue.
Alterations in the capture and reporting of information as well as the changing nature of the product that is to be
reported upon within digitized organizational contexts will likely have behavioural implications worthy of study.
Behavioural accounting research which has traditionally documented similarities and variations in the uses and impacts
of accounting information on individuals will raise new concerns, questions, and issues. At the individual level,
digitization will affect the type


4


DIGITIZATION AND ACCOUNTING CHANGE

of accounting information being reported as well as the manner in which it is used and the resulting consequences.
The accounting literature on the behaviour of groups of individuals indicates the existence of differences and variety
which distinguishes some groups from others in dealing with accounting information. This research suggests that we
cannot predict the behaviour of groups, organizations, or markets by considering average behaviour or even the range
of behaviours of the ensemble of members (Carley 2002; Epstein and Axtell 1997; Wellman et al1996). Enterprise
activities are influenced by structure, culture, and the experiences of groups of organizational members (Kauffman
1993). How the nature of trust evolves in contexts where modes of information generation and exchange alter will be
affected both by technical and social factors. The permeation of new digital technologies across different industrial
contexts will mobilize different meanings and allegiances and bring about a diversity of reactions and consequences
across different organizations. Management accounting will thereby undoubtedly continue to be shaped by forces of
change which include technical, behavioural, and organizational dimensions.

Rethinking the Management Accountant
Emerging organizational systems of managing knowledge and, in particular, financially oriented information systems
are viewed as loosening their structural rigidities to allow alternative conceptions of resource flows and transactions to
be reported (Kaplan and Norton 2000; Mouritsen et al. 2001). In digitized information reporting contexts, hypertext
based accounting reports can enhance this trend by, for instance, further allowing linkages and connections relating to
different segments of the organization and constructions of networked views of organizational affairs to be
represented (Liebowitz 2002). This renders possible the creation of more individualized styles of managing, which rest
on the customizability of information that is both financial and non-economic. Accounting information systems may
thus increasingly forgo standardization and instead stress high particularity in configurations of economic and related
data (Granlund and Mouritsen 2003; Hedberg and Jönsson 1978; Scapens and Jazayeri 2003). The role of the
management accountant may come to be predicated upon customizable information generation potential as well as the
ready production of information profiles to trigger more creative managerial responses (Boiney 2000; Sutton 2000).
Management accounting systems may, in some instances, become enablers of novel information production and
providers of newly synthesized information reports to prod non-standard managerial reactions. In such contexts,
comparative monitoring issues will surface.

Where the management accountant acts as a provider of the means for creating information profiles of organizational
affairs, the manager's knowledge of the technology through which this is undertaken will not be paramount. Relying


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on the knowledge of other people can have effects which are considered as contributing purposefully to one's
deployment of that knowledge. In this regard, one might suggest that to a level, ‘ignorance is efficient’ (Leadbeater
2000: 87) as far as accounting information users are concerned. But this will likely not be so for accounting
information providers. What will matter will be the credibility of the management accountant in enabling information
reconfigurations. This will require both an appreciation of technical information issues as well as adherence and
commitment to reporting that which is deemed to faithfully represent organizational reality.
The rise of digitization which may in part occlude the transparency of organizational affairs, will impact on pressures to
portray management accounting work as being technically and internally legitimate. This will prove particularly
pertinent in the near future given that, in the recent past, the accountant's credibility in public accounting functions has
been tarnished. Just as consumers rely on brands to guide their choices as product diversity and complexity grow, and
as barriers to entry in many markets drop, so the linkage between the managerial task and the know-how of internal
accountants will be shaped by the credibility which management accounting can engender within enterprises. The
management accountant will need to project not simply traditional professionalism but the constitution of a digitally
cognizant person. One which appeals to digital spaces in representations of managerial tasks and which combines
simulation with traditional reality as well as corporate legitimacy (Jones 1997; Turkle 1997).

New Contingencies
Commentators on long term economic changes suggest that bureaucratic hierarchies are, in many contexts, being
replaced by networks (Kauffman and Walden 2001; Stalder 2002). Moreover, organizations which invest in the
digitization of product development, production and delivery, and in networks enabling resource allocation,
coordination, and monitoring tend also to become more knowledge intensive (Nonaka and Takeuchi 1995; Stewart,
2001). In such contexts, knowledge becomes increasingly embedded and embodied in practices and experiences. But

virtuality begets physicality. Structures of physical assets and the level of social interaction which emerge as a matter of
course in traditional production contexts have to be created in knowledge intensive and digitally coordinated
organizational platforms. This may in part be to signal the magnitude of the enterprise's economic significance as well
as to create a work environment supportive of network continuity (Holmberg et al. 2002). The role of accounting alters
in such contexts. Accounting for space utilization takes different connotations where production activities and
operational processes assume alternative significances. Notions of cost management and financial control approaches
will likely be affected by emerging meanings of economic effectiveness.


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As the use of digital technologies and particularly of broadband access connections become more evident, work and
play, the professional and the personal, office and home become desegmented. Physical boundaries are reshaped when
digital connectivities are created and virtual spaces formed. Such alterations will affect prescriptive and actual
management accounting systems designs in terms of cost management pursuits, and planning and control structures,
and will generate both intended and unanticipated roles and contingencies relating to accounting information.
Scholars in management accounting have in the past shown much interest in the structural contingencies between
management accounting systems characteristics and contextual level variables such as strategy, technology, size, form,
and market uncertainty (Chapman 1997; Dent 1990; Gordon and Miller 1976; Hopwood 1989; Langfield-Smith 1997;
Otley 1980). The digitization of organizational endeavours including the deployment of electronic technologies in the
development, production and delivery of digital and physical products is inherently associated with many such
organizational and environmental variables. Information technology permits new organizational forms and practices
to emerge (Grover and Segars 1999). Organizational spaces which are deindividualized in bureaucratic industrial
organizations can undergo ‘reterritorialization’ within new organizational structures (Salzer-Mörling 2002: 121).
Structure may cease to lag strategy (Earl 2000; Lucking-Reiley and Spulber 2001) and technology may become both the
basis and the product of accounting information content and form (Clark 1998). Size is often no longer physically
measurable let alone a measure of information intensity or structure (Means and Schneider 2000) whilst market
uncertainty and risk can become generic to systems design rather than elements of differentiation (Kauffman and

Walden 2001). Possibly, such changes arise because the emergence of digital networks ‘imply a lesser need for formal
structure than the mechanical age with its factory paradigm and characteristic corporate hierarchies’ (Rowland 1999:
341).
What is becoming clear is that in contexts where the contingencies between cost objects, structures of information
capture, and the attributes of economic engagements submerge, decouple, or become reformulated, the basis for
information systems design reflect changed notions of balance. Ultimately, certain features of management accounting
systems may come to transcend past conceptualizations of rational linkages and appropriate novel contingencies in
predicating formulations of organizational reality.

Virtual Possibilities
The ubiquity of digital technologies across an increasing array of organizational functions is in growing evidence. If the
impact of advances in information technology are so significant that it can be proclaimed that ‘the first


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ten years of the twenty-first century will be the digital decade’ (Bill Gates at the February 2002 World Economic
Forum) then with little doubt, organizational and managerial effects will follow. Management accounting processes and
thinking will undoubtedly come under considerable influence also. The chapters that follow are intended to liven the
debate surrounding the many possible consequences.
The chapters in the book are divided into three parts. Part 1 brings together chapters which discuss accounting and
management control systems and wider structural shifts connected with the advent of digital technologies. Chapter 2
by Amigoni, Caglio, and Ditillo argue that many large firms have increasingly downsized and have become ‘vertically
disaggregated’ leading to the emergence of flat and horizontal corporations, networks, and virtual organizations.
Concurrently, information flow structures have been redesigned which provide some stability to novel combinations of
market versus hierarchical organizational features. They suggest that where accounting information complexity is low,
organizational integration is achieved by accounting information networks which exhibit a high degree of centrality.
Conversely, high complexity results in integration achieved via a distributed accounting information network. Their

research posits a framework through which to understand the manner in which emerging organizational structures
combine with new accounting forms which may otherwise be deemed to be isolated phenomena.
In Chapter 3, Anderson and Sedatole argue that technological advances, deregulation, and changing competitive forces
have altered what has traditionally been regarded as firm boundaries. Different collaborative forms between firms have
implications for defining the contours of entities for performance measurement and management control purposes.
They posit that different modes of management accounting accompany the emergence of hybrid organizational forms.
Concerned also with the transformation of control systems, Chapman and Chua suggest in Chapter 4 that
contemporary technologies disturb existing ways of organizing and affect the nature of relationships between
managers. Traditional forms of management controls may become more intense but technologies which intensify
processes of organizational virtualization will likewise raise questions concerning the easy applicability of traditional
ideas of control.
Chapter 5 by Gordon and Loeb develops a game theoretic model of a market shared by two rivals to shed light on how
expenditures on competitor analysis affect and are influenced by expenditures on information security. They posit
wider term implications of security based information economy issues for the future of management accounting and
warn that for management accounting to survive in the twenty-first century, the field will have to stake its claim in the
present information-wired economy.
Chapter 6 concludes Part 1 with a discussion by Hartmann and Vaassen who argue that the digital economy has
enabled new types of organizations to emerge, which have different control needs. Characteristic of the new demands


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being made on control are increased flexibility and the growing significance of knowledge as a production factor. They
suggest ways in which new organizational forms can adapt their management accounting systems to enable more
‘integrated’ organizational control. Key to this adaptation is the recognition that due regard must be placed on
knowledge, communication, and altered information needs.
Part 2 of the book brings together commentaries on more organizationally focused shifts in the face of digitization
trends in the economy. Andon, Baxter, and Chua in Chapter 7 examine altered accounting controls in a post-industrial

organizational context. They argue that accounting control has become a more digitized process leading to
disembedded and intensified forms of control. They discuss a field study which illustrates this transformation. In
Chapter 8, Carmona and Quattrone draw upon a ‘new institutional sociology’ frame of reference to study
organizational changes and shifts in the management control system of an internet company. Their investigation
reveals the role of a control system in shaping efforts to move the company toward e-business operations. Their study
reflects on the comingling of technical, enterprise-specific and wider institutional factors in alterations in the internal
functioning of an organization and its efforts to engage in e-business. Similarly, Mouritsen and Kreiner explore changes
within an internet company in Chapter 9. They focus on the mobilization of management controls in the development
of the company's growth and consider how this and other forms of institutionalization are not driven purely by a logic
of operational efficiency or the search for profits. They depict how controls can be regarded as communicating the
sellable proposition that organizational competencies can be linked and integrated into a rational and transferable
whole.
Chapter 10 by Sjöblom documents case studies which suggest that a wide level ‘new economy’ mindset influenced
organizational notions of the virtues of control. He suggests that over optimistic market size estimates for products
that could be sold on the internet, the perception that companies had to compete in a market ‘race’ for the number one
position, and inflated valuations driven by ambitious future revenue expectations—were factors that worked against
prudent financial management in the companies investigated.
Part 3 of the book is a collection of chapters which consider forms of accounting transformations which may be
pursued in specific contexts both in terms of practice and as concepts. In Chapter 11, Gosselin makes the argument
that e-logistics will significantly impact management control systems and that this will mobilize further important
adaptations. Gosselin identifies potential contingencies between altered logistical variables and control characteristics.
In Chapter 12, Küpper argues that not-for-profit organizations have specific information systems structure
requirements which can be met by information and internet technologies. He identifies technical requisites seen as
appropriate in bringing about the effective design and use of information systems in not-for-profit organizations.