The development of accounting in Europe in the era of scientific management: the Italian engineering conglomerate, Ansaldo, 1918-1940.(Report)

Abstract: Utilizing archival materials, this paper examines the case of the Genoa-based firm, Ansaldo, which, by the early decades of the 20th century, had emerged as a major force in the inter-related fields of engineering, shipbuilding, and metal and steel manufacture in Italy. Following financial problems immediately after World War I and during the 1920s, the company was subsequently taken under the umbrella of the Italian State's financial holding unit, the Institute for Industrial Reconstruction (IRI), in the 1930s. Utilizing Lewin's theory of change as a framework for investigating change in management accounting, the paper examines the internal and external factors influencing the development of cost/management accounting at the company. These are also examined against the background of the development of scientific management, both in Italy and elsewhere.

INTRODUCTION

It has recently been stated that management accounting is "not simply a technical activity but a set of practices that produce and reproduce not just organizational life but also social and economic life at a more macro level." Thus, it is appropriate to "fully understand management accounting," that one should "examine its social, economic and political context and recognize the role of power and conflict" [Cooper and Hopper, 2007, p. 208]. This is not to deny the need to examine events and factors at play within an individual context, but rather to emphasize that individual organizations do not exist in a vacuum, and that changes in accounting for managerial purposes will be influenced by factors both internal and external to the organization. This is particularly the case in relation to the focus of this study, the Italian engineering conglomerate Ansaldo during the period between the two world wars.

The interwar years were a period when scientific management began to come of age, not only in America but also in Europe. While there has been much research on the development of scientific management in different countries [Nelson, 1980, 1992; Moutet, 1992], the relationship between the growth of a scientific approach to management and the development of cost and management accounting is little understood. In the American context, Chandler [1977, 1990] has pointed to the growth of large, multidivisional M-form corporations between the wars with the development of managerial hierarchies and accounting techniques such as standard costing and budgeting. While Chandler has suggested that it was the growth of the former which gave rise to the latter, Johnson and Kaplan [1987, p. 21] argue that the link was possibly the other way around, that the development of these accounting techniques may have made possible the growth of the large, M-form corporation. In work relating to the Dowlais Iron Company in the mid-19th century, Boyns and Edwards [1997] have suggested that the relationship between the emergence of large firms and the development of cost/management accounting may have been the result of a symbiotic, rather than a causal, relationship [see also, Alford, 1976].

A key element in the link between the growth of large businesses and developments in accounting in the early 20th century would therefore appear to be the development of a more scientific approach to business management. Thus, accounting historians have seen the early decades of the 20th century as a crucial period for the advancement of cost accounting, not the least due to the development of costing systems, the use of more scientific methods of overhead allocation, and the introduction of standard costing and budgeting [Solomons, 1952; Garner, 1954; Sowell, 1973; Chatfield, 1977; Epstein, 1978]. While budgeting and standard costing have been seen as an essentially American phenomenon [Wells, 1978; Locke, 1984; Johnson and Kaplan, 1987], the extent of their adoption in the U.S. is not known with any degree of accuracy. Indeed, Fleischman [2000] has questioned the extent of the adoption of scientific management by 1920, suggesting that even by 1940 its use in the U.S. was limited.

In Europe, research into the links between scientific management and the development of cost/management accounting has generated a somewhat confused picture. In Britain, Loft [1986, 1990] has suggested that, in the 1920s, scientific management reinforced the positive impact of World War I on costing systems in British firms. However, the extent to which scientific management was adopted in Britain in the interwar period is still far from being known with any degree of accuracy, though there was clearly an increasing emphasis on the use of piecework systems and, from the mid-1920s, the Bedaux system [Littler, 1982; Whitston, 1996, 1997; Smith and Boyns, 2005]. Nevertheless, examples do exist of companies adopting either standard costing or budgeting [Boyns, 1998a, b] or both, sometimes in conjunction with the adoption of scientific management, such as the case of Hans Renold Ltd. [Boyns et al., 2000; Boyns, 2003]. The adoption of standard costing and budgetary control in the interwar years, however, was patchy with no clear link emerging as to company size or ownership/governance structure [see Quail, 1996, 1997; Boyns et al., 2000] or industrial sector. Boyns et al. [2004] found some limited evidence of a growing interest in standard costing in the British chemical industry before World War II, while in the iron and steel industry, Edwards et al. [2002, 2003] found a reluctance to adopt such techniques among most, though not all, companies before the 1950s and 1960s. In the engineering industry in the west of Scotland, evidence suggests a similar reticence [see McKinstry, 1999; Fleming et al., 2000].

In France, despite the interest shown in scientific management by vehicle manufacturers such as Louis Renault and Marius Berliet, standard costing failed to be implemented in any French business before World War II, though an increasing number adopted budgeting from the mid-1920s [Berland, 1999; Berland and Boyns, 2002]. According to Zimnovitch [1997], the failure of standard costing to appear in France until the late 1950s and early 1960s, in part reflects the attitudes of French accountants. Concerned as they were during the interwar years to secure professional status for themselves, French accountants favored the prix de revient method--full costing based on the integration of costing within the financial accounting system--thereby effectively establishing a barrier to the implementation of standard costing which was depicted as a "non-accounting" method. It is possible that similar forces were at work in Germany where Coenenberg and Schoenfeld [1990, p. 97] have noted that, during the period 1900-1933, internal and external accounting within firms was coming to be viewed as part of a single, unified system.