Accounting "gets real" in dealing with virtual manufacturing

Purpose - Of relatively recent origin is the virtual organisation where companies are able to marshal the necessary competencies from a range of independent external agents through the strategic use of outsourcing mechanisms. The paper discusses the challenge of accounting for intellectual capital (IC) and intangible assets and presents a financial analysis and background of companies exhibiting different levels of virtuality, from traditional manufacturing to virtual manufacturing. Design/methodology/approach - This paper is based on the interaction of the researchers with three companies examining their positions on the continuum from traditional to virtual manufacturing. Case studies of the companies and some key financial results for a period of years are presented in order to explore implications and inform strategic decisions. Findings - It concludes that conventional financial reporting for IC and intangibles has limited scope. This is elaborated through contrasts in a number of conventional accounting measures and some others, less conventional, to highlight the implications of the intellectual capital employed. The results are reported and implications of these discussed in the context of the companies whose background and activities are briefly outlined. Practical implications - The measurement and management of the intangible assets and intellectual capital of organisations has been the focus of recent research in accounting and finance. This has applied to the corporate reporting of financial results involving its impact on the balance sheet, managerial accounting concerned with decisions and the internal use of various financial and non-financial performance measures and finance where market values of companies have been shown to differ significantly from their book values as shown in published accounts. Originality/value - The content will be of interest to academics studying issues surrounding the reporting and decision making concerning intellectual capital and intangibles. Additionally, managers and consultants whose companies are engaged in outsourcing and or virtual/semi-virtual manufacturing should find the results informative.