Relevance Regained

Thomas Johnson wrote this five years after Relevance Lost and reversed his own conclusion. Having argued with Robert Kaplan that management accounting needed better cost measurement, he now argues that the problem cannot be solved by accounting at all, and that activity-based costing, which followed from their earlier book, is a mistake.

His new position is that managing by financial results is the error, regardless of how accurate the results are. Accounting numbers are abstractions produced after the fact, and using them to direct operations means managers respond to consequences rather than to causes. He draws on the quality movement, particularly Deming, and on Toyota's practices, to argue that operations should be managed by observing and improving the processes themselves: reducing variation, removing waste, shortening cycle times and responding to customer demand directly. Financial results then follow.

He contrasts what he calls management by results with management by means, and argues that American companies adopted the first while the Japanese firms that outcompeted them used the second. The specific target is remote control management: executives directing organisations through financial targets communicated downward, without knowledge of the work. Johnson's argument has been influential in the lean accounting movement and overlaps with Maskell's practical work. Critics note that he does not explain how capital allocation decisions should be made without financial measures, and that the argument is stronger as a critique than as a system.