The Value of Accounting Transparency for Partners and Suppliers

TOTAL OR PARTIAL DISCLOSURE OF COST ACCOUNTING INFORMATION GOES UNDER THE NAME OF OPEN BOOK ACCOUNTING (OBA). A STUDY OF 180 COMPANIES SHOWS THAT BEING AN OPEN BOOK HELPS BUSINESS PERFORMANCE

by Ariela Caglio, Dept. of Accounting, Bocconi
Translated by Alex Foti



Historically, the opportunities for better synchronization of the value chain have occupied an important role in the decision-making processes of companies, which aim to reap the potential for improvement of business performance through a closer coordination of strategies and operations across various corporate functions. In recent times, the heightened reactivity of the individual company to the competitive environment and its main stakeholders, and the corresponding expanded vision of the role of the company, also consequence of the massive recourse to digital technology, have generated an increased interest in the value chain understood as an organizational network based on stable relations of collaboration between firms. This attention derives from the awareness that competitive advantage is conquered and maintained by a group of companies collectively, rather than by a single company individually.
 
Companies have therefore adapted to the new management scenario, in which not only customers count, but also the entire chain of suppliers, potential partners and competing companies, upstream and downstream, with which cooperative relations can be activated. So, rather than a chain, one should speak of a network of companies, a set of stable links between business interlocutors that intervene at different stages of the value chain, according to a unitary organizational model constituted by the collaborative relationships between legally autonomous entities and the careful planning of operations, from compliance with specific standards and common rules, to the continuous and systemic exchange of management information.
 
The total or partial disclosure of private management accounting information – both economic and financial (cost structures) and industrial and logistical (e.g. saturation of production capacity, product handling times, time-to-market, delivery times) – within these networks it is denoted as Open Book Accounting (OBA). Usually, actors who are outside the company’s boundaries have no access to proprietary company information, especially information on costs, since such information is considered highly sensitive and is therefore kept confidential. There is thus an understandable reluctance on the part of companies to switch to OBA: transparency towards their counterparts could trigger opportunistic behavior and get a better bargain in negotiations over business terms, thus biasing an equitable sharing of the profits jointly created jointly, or to secure knowledge specific for the partner.

So what are the incentives for companies to adopt OBA? Our, survey conducted on about 180 European companies operating in various industries, from automotive to retail, has shown that as penetration of OBA increases, as measured by the frequency and extent of information exchanges between partners, corporate performance increases, both in financial and industrial terms. The survey also indicated that the sharing of cost information plays a crucial role, since appraising costs enables the economic assessment of common strategies, investments and current operations, thus enabling prompt intervention of all the players along the value chain.
 
The results of our analysis suggest, in fact, that when OBA is used to share not only information on operations but also on costs, the correlation between the adoption of OBA and company performance is strongly positive. Moreover, the correlation is more significant, the more the company is inclined to adopt long-term planning in the management of relations with partner firms, and is strengthened by progress in the reliability of the costing systems used to support of the exchange of management information. Finally, the survey’s findings suggest that OBA improves both the individual performance of companies, as well as the overall business partnership. In conclusion, far from being a problem, being an open book for your partners brings benefits to the whole value chain.