From Manufacture to Mindfacture

From Manufacture to Mindfacture

DOI: 10.4018/978-1-4666-7369-4.ch003
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Abstract

In this chapter, the authors observe the historical shift from man-made to mind-made. They show how the common sense of inherited legacies shaped the attempts to account for how value is added in a product-oriented view that pushes products to market. They show how legacy thinking creates havoc when the focus shifts from things to concerns and accounting practices lose touch with reality. As the world becomes more complex, the need to view the world in a holistic way is assumed. The authors show how a U.S. manufacturing company deals with its own legacies and those created by government practices and legislation. As the world accelerates, human interaction requires increased and more rapid interaction, through relationship building and ever-expanding networks.
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Introduction

Value Added

The economy of the 21st century has been characterized as a knowledge economy. This characterization corresponds to the metamorphosis of value where it has evolved from a conception of products or services (1800-1950) to personalized services (1950-1990); then, to quality of the relationship (1990-2005) and finally to quality of the relationship and, additionally, quality of experience. In synthesis, the generation of wealth has come to be dominated more and more by the world of intangibles, the world of varied skills and competences (Savage, 1990).

To understand where we are today requires having a better understanding of where we come from, where our common sense was created, and what are the legacies we have inherited, both enormously resistant to change. Relational networks are not new. In fact, they have been responsible for some of the most profound changes in our inherited cultures. As we have seen, relational networks have a long history in occidental culture from the colleges mentioned by Plutarch, legislated centuries later by Marcus Aurelius, to the artificial, magisterial and later guilds, some of them originating before, others after the fall of Roman Empire. What is important to note is, that despite the discontinuity occasioned by the Gothic invasions of Rome, these kinds of relational networks were not interrupted: both notary records and legislation, especially contracts, reveal these sources of wealth, their relational structures and evolution.

Furthermore, what lies in the background of the early industrial revolution and sets the stage for scientific management are the practices of early guilds and these are related to the emergence of contracted versus slave or family labor and the concept of piecework and pay for piecework (Epstein, 1991). These practices establish not only the legal spaces, but the management and early accounting practices that recognize the processes of value added and how to manage them internally in the business and through guilds and associations to ensure individual and city competitiveness.

Moving from slave or family labor to pay for piecework and discrete applications of labor, synchronizes with the predominant view of the world as essentially atomistic, cause and effect, and summative: an obviousness essential to the industrial revolution. Guilds were not only important for developing the notions of pay for piecework and wages for discrete additions of value added, but also helped in developing the notions of value added through competences, from those of an apprentice to those of a master or ‘virtuoso’. It is no surprise that some of the world’s finest instruments derive from guilds and many of their secrets are still undiscovered.

The early Industrial Era, influenced by military organizations, especially and by the tactical genius of Frederick the Great in particular, lent incipient industrial organizations the kind of steep hierarchies that are particularly successful in the sequential management of value added, in the case of product creation, tasks and value adding steps that can be observed, accounted for and rewarded by wages. Labor, then, is the source of value.

Some years away, in the later Industrial Age, as industry is automated capital is required, and the utilization of installed capacity becomes a necessity. As labor becomes more involved in operational excellence, in its many shapes and forms and for the reliability of equipment use and maintenance, it becomes less clear how value is being added and how accounting creates notions such as “cost centers”, attempting to obviate, if not the individual contribution to value, at least a general functional interpretation.

As the world changes and product quality is no longer a clear differentiator, services begin to acquire importance and the focus shifts from products to customers. Once the customer is recognized as the determinant of value, there emerges a need to create a relationship with the customer, to bring him or her into the relational network. Finally, as knowledge, skills and competences, managed in relational networks with customers become recognized as key in the creation and diffusion of value, the aesthetic aspects of relational networking become more important in the creation of a customer experience (Savage, 1990).

Given those circumstances, management accounting has become increasingly obsolete in this emerging design of value creation, and concepts such as “shareholder value” anchored in mistaken interpretations of how value is created in the 21st century, beginning to put organizations at risk.

This chapter affirms that as knowledge, competences, end-to-end business processes, client/supplier teams working on the design and creation of value, emerge as the essential elements of value creation and diffusion, everything traditional about creative value inherited from the past tends not only to add less value but to contribute to greater waste. We are witnessing a situation in which assets from the past become liabilities and past liabilities become assets, that is, what creates wealth becomes inverted. Organizations that don’t understand that the deep structure and code for competitiveness have shifted (a true paradigm shift) run the risk of extinction. We affirm that the changes mentioned in the two preceding chapters can only point to a profound transformation in the generation of wealth, knowledge and their communities, a revolution in reciprocity that announces the passage from Manufacture to Mindfacture.

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