Fordism and Post-Fordism - Research Paper Example

Fordism and Post-Fordism “As organisations move from operating under Fordist conditions to operating under Post-Fordist conditions, the focus of management accounting must change. It must relate to products in different ways and other aspects, such as customers and competitors, must be addressed.” 1. Preamble Economic approaches related to production, marketing and selling have been in constant evolution. This evolution can be seen as business’s natural response to changing focuses and emphases within the economic domains. Strategic management requires that businesses put greater emphasis on external factors in contrast to internal factors. This change represents a historical shift from the Fordist methods in business to the post-Fordist methods and beyond. This paper will attempt to analyse the role played by management accounting in this historical shift by looking into both Fordism and post-Fordism while trying to realise how changing business requirements have been addressed by management accounting over time. 2. Fordism Fordism refers to an economic and social system that bases itself exclusively on the ideas of Henry Ford’s model of mass production. The use of Fordism is not restricted to the economic domain alone but instead it has been applied to social as well as socio-economic systems too (Thompson, 2005). The essential side of Fordism relies on the fact that goods are produced cheaply in such a fashion that the people producing those goods are able to consume them. This facet of Fordism has made it popular in some Marxist circles as well. However, it has to be realised that the economic and social circumstances that favoured Fordism are now effectively over leading to a shift in Fordism. Some commentators call this shift post-Fordism though other disagree and contend that Fordism has been under constant evolution instead. De Grazia (2005) has defined Fordism as "the eponymous manufacturing system designed to spew out standardized, low-cost goods and afford its workers decent enough wages to buy them". In contrast to Grazia’s view, other commentators have described Fordism as an economic model for economic expansion that relies on mass production in order to create large volumes of standardised products using unskilled labour and specialised manufacturing equipment (Tolliday & Zeitlin, 1987). When these views are put in perspective of the manufacturing carried out by Henry Ford’s automobile plant at the turn of the twentieth century it becomes clear that both definitions are incomplete and tend to complement each other to produce a working definition. Hence, Fordism (for the purpose of this paper) is an economic process that allows the creation of standardised goods using unskilled labour and specialised manufacturing equipment such that the workers themselves are able to afford these goods. It must be realised at this point that Marxism, socialism and allied ideologies are distinct to Fordism in that Fordism still relies on a free market economy in order to thrive. The Marxist and socialist doctrines require that the control of businesses be relinquished to the government while there are no such stipulations in Fordism. Fordism has tended to rely on three major operating principles through its initial use at Henry Ford’s automobile manufacturing plant and then for its use in social and economic pathways. The fundamental operating principles are (Tolliday & Zeitlin, 1987): all products are standardised so that handmade craftsmanship is not required and is instead production is dealt with by machines; manufacturing relies on the utilisation of specialised tools and equipment to make assembly lines a reality. This indicates that low level and unskilled workers are able to operate sophisticated manufacturing equipment in order to man assembly lines. Moreover, the nature of tasks performed on the assembly lines are monotonous and require little creative thinking; the workers working on these assembly lines are paid wages that are sufficient for them to purchase the things they produce. These basic tenets of the Fordist model were propagated by the United States in the post World War Two period in order to promote policies that supported both mass production and mass consumption. In order to regulate the economy a host of Keynesian policies were implemented over time for demand management (Foner, 2006). Traditionally it is considered that European markets experienced Taylorism before Fordism was introduced to them but after the introduction of Fordism these markets stuck to Fordist ideals. Hence, the implementation of Fordism was not restricted to North American markets alone but rather to the markets of capitalist nations in general. These policies were able to produce relatively amazing growth in the post World War Two period but experienced stagnation throughout the sixties and the seventies (Maier, 1970). This stagnation led nations mired in Fordism to pursue other means to stimulate the economy in order to push profits up. One large reason for the initial success of the Fordist model was the protection available in the domestic markets in question that were provided with standardised goods for all and sundry (Burrows, et al., 1992). The later exposure of these markets to foreign products meant that the Fordist approach to production and consumption could not stand up to more customised products that were ready to deal with segmented markets (Jessop, 1992). In addition an inherent flaw in the Fordism model was its excessive reliance on internal variables or factors for control of the market. If the basic tenants of the Fordist model are analysed they can be seen as depending on labour, machinery, equipment, standards and other such things that are all under the internal control of businesses. As a consequence of using this model, businesses were not able to account for external factors that stemmed from the nature of the market such as consumer demands and external competition. The failure of the Fordist model to sustain economic growth meant that businesses and regulators alike had to look for fresh and innovative options in order to stimulate economic growth. Following the stagnation of Fordism, businesses and regulators did not use a singular approach to stimulate economic growth. Instead, a number of different innovative methods were introduced in order to move beyond Fordism. These methods are collectively labelled as post-Fordism and their focus relies on where the Fordist model had been lacking – external factors and flexibility. 3. Post-Fordism The period after Fordism in Western economies is better known as Post-Fordism but has also been labelled as N eo-Fordism. While Post-Fordism implies that economies mired in the Fordist tradition were able to leave behind all of the Fordism structure, the term Neo-Fordism implies that certain elements of Fordism still persist in economies previously under the influence of Fordism. However, broadly put together then term Post-Fordism is in dominant use as Neo-Fordism is still under academic debate (Boyer, 2000). The Post-Fordist period has been characterised by a number of different attributes some of which are older than others. However there is no single consensus on or an all encompassing definition that can be attached to Post-Fordism to fully delineate it. Simply put Post-Fordism can be seen as a move away from Fordism that follows the demise of the Fordist tradition closely. The Post-Fordist economies can be characterised by a number of common traits such as the extensive use of information technologies and the move towards service industries in contrast to manufacturing industries. Furthermore, the Post-Fordist economies tend to segregate the overall market into segments where targeted manufacturing, marketing and retail is carried out. This segregation has also been labelled as niche markets and these smaller markets shift away from the mass consumption model to a pattern of consumption based on the characteristics of each niche market (Lotz, 2007). The characteristics of niche markets are generally determined by observing consumers and their responses closely while the Fordist approach relied heavily on social class to delineate market characteristics. Hence, it has also been argued that the Post-Fordist era is a reflection of economies of scope (Teece, 1980) (Faulkner, 2002). There is also the belief that the Post-Fordist economy encourages greater feminisation of the workforce (Witz, 1990). Additionally there is a rising tendency for specialisation within the workforce so that only specialised people perform specialised jobs rather than unskilled labour performing repetitive tasks on an assembly line. As the labour force becomes more and more specialised there is a move from blue-collar workers to white-collar workers in the economy as white-collar workers begin to dominate. This is also reflective of the shift in the economy from manufacturing enterprises to service enterprises. The Post-Fordist approach to economy had the major effect of redefining the traditional methods of looking at consumption and production. The Fordist economic model led to first a slowing market and then to a saturated market which promoted a slowdown of mass consumption. Consequently, varied products began to hit the market in order to break free from the stagnation of the Fordist mass consumption model. This in turn led to an increase in living standards (Milani, 2000) that further accelerated the growth of a Post-Fordist economy. The changing attitudes to mass consumption meant that the market’s perspective on production changed altogether. Consumers were now being seen as distinct groups that were grouped together only by common demands rather than being viewed as one large group alone. This led to the creation of production facilities that were more flexible because small batch production was required. Similarly, the areas of marketing and retailing assumed new dimensions as well because targeted marketing and associated retailing was required for small batch production operations (Kumar, 1995). Overall business tended to shift away from the mass market towards niche markets such as luxury goods markets, customised products markets as well as positional goods markets (Milani, 2000). Consequently, production activities evolved from homogenous models to non-standardised models that were far more distinct and differentiated. As a result of these changes the economies of scale were replaced by economies of scope (Kumar, 1995). Moreover these changes also had the distinct effect of reducing the need for regulation and decreasing the focus of production by nation state. Consequently the emerging economic order saw the materialization of global markets that were ruled by corporations that catered to the tastes of consumers from differentiated socio-economic backgrounds. The changes in mass production and consumption also meant that mass marketing means were superseded by flexible specialisation means. The overwhelming focus of businesses and corporations shifted from command to communication as market competition forced businesses to look for new avenues to sell (Jessop, 1995). The patterns of workers employed and associated with businesses began to change as well which in turn led to changes in modes of consumption as well. Workers changed from generalised fixed employment models to specialised employment models especially related to marketing, franchising, subcontracting and freelancing leading to a new generation of self employed and home working class (Baca, 2004). A related development was the change in education and educational business models that began to offer more specialised modes of education in contrast to the previous generalised modes of education (Amin, 1994). 4. Moving between Fordism and Post-Fordism It has been argued that the move from Fordism to Post-Fordism is over stated as per historical perspectives. Instead it is argued that Post-Fordism especially Neo-Fordism is merely an evolution of Fordism and nothing else. However, it must be kept in mind that the fundamental values that define both Fordism and Post-Fordism are diametrically opposed and produce entirely different methods of operating businesses. However, this does not indicate that they are somehow totally incompatible but instead that the difference between both is large. Moreover, there has been too much of a focus on Post-Fordism thus providing a biased perception of the phenomenon. This has also contributed to intensifying the debate between Fordism and Post-Fordism. 5. Management Accounting Traditionally management accounting has been essential to delineating much required information to a firm’s management in order for them to make decisions that are far more informed. The timely and well-stewarded provision of such information is the only guarantee that management will be able to steer the organisation to more competitive roles. Moreover, appropriately served information through management accountancy practices has the potential to appraise the management of market realities that would otherwise go unnoticed. This is all the more important for businesses that must be plugged in to markets at all times such as businesses producing, marketing or retailing technological products like smart phones. Unlike the Fordist era, companies cannot wait around for a few years in order to change their product portfolios but must instead change at the notice of a few weeks merely to survive (Clinton & Van der Merwe, 2006). One of the more recent examples of near Fordist operations resulting in failure for a business stems from Nokia’s operations. Although Nokia’s operations reflect the basic Post-Fordist strategies but broadly speaking Nokia stuck to mass produced phones without specialising in particular types of mobile contact devices such as smart phones, gaming devices, music devices and the like. The mass consumption and mass marketing model used by Nokia since the late twentieth century and since the early twenty first century led to Nokia’s demise in the face of competition from relative new comers such as Apple, HTC, Samsung, HP, Acer and the like. The competition flexibly adapted to new market demands for more when it was deemed that Nokia was the industry’s standard. Consequently Nokia had to adapt to newer markets and newer demands but the initial inertia was enough to take Nokia out of the smart phone market segment altogether. The lack of reflective management accounting may also have led to Nokia’s ouster from its traditional strongholds. The discussion presented below looks at a few aspects of management accounting that have become distinguished in the Post-Fordism era in response to changing market demands and conditions. 5.1. Life Cycle Analysis The life cycle analysis technique allows managers to discern various kinds of impacts related to a product’s total life from production to being discarded. Typically a product’s life cycle will consist of raw material extraction, raw material processing, production or manufacturing, retailing, usage, maintenance (if applicable) and final disposal. Typically a life cycle analysis allows managers to look into these stages separately and to broaden their approach to the product and its possible use. For example, using life cycle analysis a manager could discern the total energy being spent on each stage product processing stage. This energy tabulation could be used to lower the cost of the product by targeting the more energy consuming processes. Alternatively for products using expensive and reusable components, management accounting information could be used to discover methods to encourage consumers to recycle. The increase in recycling could be used to support reuse of certain components that would again aid in reducing the product’s overall price. This approach to looking at product lives is markedly different from the approach used under Fordism. The Fordism approach to product life cycles was concerned merely with product life at the manufacturing facility. The wider impacts of the product’s life were never considered and instead it was considered that a narrow and focused approach would be better to handle product life cycle (Baumann & Tillman, 2004). In recent years, the scope of life cycle assessment for social and environmental purposes has been gaining centre stage in contrast to economic life cycle assessment (Horne, 2009). Life cycle analysis has also allowed managers to look into product lives in a manner that allows the prediction of product death. Generally products are heavily sought after during their initial introduction to the market when targeted marketing efforts draw the interests of the concerned niche market. Once the product takes off the product’s demand increases until its sales come to a mature stage where the product’s sales become nearly constant. The prolonged stage of maturity is not a sign that the product is doing well but is rather indicative that the product may begin to see decline as soon as competition enters the niche market. Consequently management accounting allows managers to discern these changes before hand and to adapt their production and retailing strategies along with marketing needs and requirements. In contrast to this approach, the Fordism model saw the maturity stage as the hallmark of a product’s success (Gaines & Stodolsky, 2010). 5.2. Customer Profitability Analysis Profit was and is the basic contention behind commercial enterprise but views towards profit have changed over time significantly. Fordism believed in generating profit from all possible market areas without need for segmentation which in turn led to mass marketing and consumption. However, it was not figured if servicing certain groups of customers cost more than servicing certain other groups of customers. The difference lay in the approach to calculate the profit gained from customers. Fordism relied on calculating the difference between costs and revenues to discern profit while the Post-Fordism approach relies on calculating profit from the difference in revenues and costs associated with customer relationships. Two things become clear at this point – one that profitability analysis for both approaches is different and two that the approach to customers is altogether different in both approaches. Fordism relies on a transactional relationship with the customer while Post-Fordism relies on building a long-term relationship with customers (Kaplan & Narayanan, 2001). Recently such relationships have been built and bolstered using information technology means such as the accomplishments of Apple Inc. in building a successful market following. Using customer profitability analysis it has been seen that a small proportion of a business’s customers usually account for most of its profits and vice versa. Hence, it is logical for businesses to concentrate on their best customers more (Haenlein & Kaplan, 2009). It has been argued that the Post-Fordism approach tends to replace the previous customers altogether in order to create a new customer base. However, this may not necessarily be true as Post-Fordism merely convinces managers to go beyond the existing classification and explore the matter in more detail. Post-Fordism relies on market segmentation that allows the exploration of market segments where products can be sold with greater ease. In this sense, Post-Fordism adds to the previous concept and does not replace it as there are certain previous classifications still in use while new market identities are also incorporated. 5.3. Competitor Analysis Competitor analysis has also gained strength as a core business enhancing mechanism in the Post-Fordism era. Previously competitor strength was gauged from any piece of information that became available. However, in recent years there has been a serious move to “know thy enemy” in great detail by scanning their strategies to gauge their strengths and weaknesses. The lack of a robust competitor analysis has been cited as a means of developing a potential blind spot that could leave a business high and dry in the face of competition (Fleisher & Bensoussan, 2003). 6. Conclusion The move from Fordism to Post-Fordism / Neo-Fordism is undeniable as per changing work practices within a global environment. The mass production cum mass consumption model has been replaced by more creative and flexible ways of thinking, producing and selling. In order to live up to the challenges of the current markets, it is necessary for businesses to adapt themselves accordingly. Management accounting is an undeniable tool in this regard as it provides a unique window into market demands and needs with which managers can decide a more realistic line of action. Previous practices such as budgeting, standard costing, marginal costing and the like have now been replaced by more flexible approaches. The change witnessed between Fordism and Post-Fordism is undeniable though there is no conflict between both and instead a symbiotic relationship can be seen to exist. 7. Bibliography Amin, A., 1994. Post-fordism: A Reader. London: Blackwell Publishing. Baca, G., 2004. 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