What is the ‘New Economy’?

• Some people suggest there is no new economy

  • Because the fundamentals of economics haven’t changed

• Idea of “iPod economy”

  • Individualism with technology

• Rise of the internet economy

  • Management accounting was inadequate

  • Required changes in how we visualise data

  • Others argue we can still use traditional methods e.g. Transfer pricing

Strategy Structure Accounting

• Throughout history, strategy requirements have fed organizational structure and in turn fed accounting requirements

• However, with the internet age, structure has broken down and therefore we cannot always rely on historic methods

Accounting Prior to the Industrial Revolution

• Merchants approached craftsmen and sold crafts to nobility

• Problem: Merchants did not own the factors of production

• Problem: Backward sloping labour demand curve

  • Market set the price, so merchants could not influence price and therefore increase their wealth easily

• Accounting used for record-keeping

Rise of the Modern Firm

• Merchants bought factories and hired labour

• Industrial revolution was more than just technology

• Parcelling the artisan crafts into simple tasks that cheap labour could complete

  • Social changes

  • Young people “employed” and exploited

• Accounting used to set standards

  • i.e. cost accounting

• Bhimani – ‘Made invisible hand of market, visible through accounting’

1900’s

• Merchants/employers became richer

• Rise of new firm structures

  • CEO/owners, with many divisions such as operations, marketing and distribution

• Increasing complexity

• Accounting became a tool for management

  • Budgets

  • Calculative tools

  • Strategy

World War I

• War effort

• War profiteering

  • Firms charged extortionate prices for munitions etc.

• Employers realised they could do more than crafts

• Development of multi-divisional organisations

• Multi-nationals

• Requirement for master budgets and transfer pricing

1960’s

• Rise of matrix organisations

• People and projects

• Individuals on project-by-project basis

1980’s

• Strategic business units

  • Porter

1995

• Internet

• How do companies like Amazon use accounting?

• S-S-A structure breaks down

• Complex structure between internet and real-life

  • Operating in a different world

Evidence of the ‘new economy’?

• Dot-com boom

  • Mary Meeker (Morgan Stanley research analyst)

    • Published ‘The Internet Report’

    • Well received technology analyst

    • Involved with Netscape IPO

    • Changed our notion of the internet

• Origination of value has changed

  • Sometimes no revenue or profit, yet valued by the markets

• Internet reached...

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