MITRE: AN ORGANIZATION WHO CANNOT EXPLOIT ACCOUNTING


 


Introduction


            This paper discusses the relationship of accounting/ finance and engineering/ technology in the framework provided by Mitre Case Study.  To extend the discussion and support statements, the author also includes useful theories and concepts from project management as well as business strategies.  The purpose of such design is to show the implications of situating accounting/ finance within engineering/ technical context.  Specifically, it will illustrate how the latter can contribute to the analysis of the former and to provide valuable inputs for managerial decision-making. 


 


Three Relationships Cited


            Accounting and finance can explain the effects of intranet technology.  This helps auditing the progress and development of MII based on savings and productivity generated since its inception.  The extent of intranet benefits as a platform for records management, property management and information sharing is easily depicted by computing for reduction in operating costs, productivity improvement and cost avoidance.  Financial side of the audit is also tagged as “hard benefits” to emphasize the importance of quantitative figures in evaluating intranet performance.


 


            An organizational project is basically directed to exploit internal and external opportunities (2003).  Mitre Corp did just exactly as the same with the intranet system.  High level of innovation is one of the key to obtain sustainable competitive advantage ( 2003 ).  However, with competencies complying with four key criteria such as being valuable, costly-to-imitate, non-substitutable and rare, the project accelerates the already intrinsic element of every project which is risks.  This is where financial theory can explain why Mitre continued to pursue the project even confronting high level of risks.


 


            As much as Mitre wants to drop the project to avoid excessive risks, it is unlikely to do so because the general rule is that the higher (lower) risks post higher (lower) returns (1999).  With this, the basic theory of a firm which is to gain profit can speak for itself.  In the contrary, the financial side of the audit highlights efficiency rather than profitability.  Examples include savings of .6M in labor and material costs, another savings of .8M from improved staff productivity and further savings of .8M a year from clerical staff overheads (2000).  This situation is the symptom that Mitre audit is only able to measure (in numerical terms) cost-drivers.  As such, the overall effectiveness of the system in the perspective of its customers (like government agencies) is minimally explained.    


 


            The preceding statement signals one limitation of accounting/ finance to explain technological effects in terms of customer satisfaction especially in this case study.  Accounted soft benefits like increasing the knowledge base can imply that Mitre employees is in the position to offer a more dynamic and integrated approach to offer solution to their clients.  As employees are able to share experiences and knowledge to others (2000), intellectual capital is not only expanding but more importantly is evolving.  However, customer impacts of such occurrence are rarely mentioned while numerical elaboration pointed out that more and more employees are publishing technical information in the database (2000).


 


            To reconcile this bottleneck, the case study should have provided sales figures or might as well shows several financial ratios in which customer satisfaction is observable even in a proxy manner.  However, Mitre is funded by the Federal Government and operating under a not-for-profit environment.  According to Kermally (2003), not-for-profit organizations would like to satisfy consumer needs in order to satisfy the mandate set for them either by government or sponsors.  As such, this limitation may be intrinsic for Mitre and only cost-savings and absence of substantial customer complaints can be applied to measure intranet performance. 


 


            To confirm this, the case study was not able to numerically express (in financial terms) its admonition that the system also resulted to inter-project collaboration (2000) that can supposedly led to organizational cohesion.  There is no such financial account as teamwork and cooperation rate and this may also failed to be found within human resource records.  To aid this difficulty, the Innovation Team measures extent of collaboration by using relevant indicators such as the number of staffs that publish technical information, those who retrieve them and the level of data being collected in the central information base (2000).             


 


            Accounting/ finance can also provide planning framework on the extent or level of technology to be applied.  As a project, the system should provide a net benefit for the organization which is measurable by the amount of its cash flows.  Inability to have this outcome may induce supplier bargaining, introduction of a relatively simple technology or simply not proceed with its implementation.  However, project execution is delivered and positive results started to cover the cost of the project as the project already netted an ROI of .1M in cost efficiencies (2000).  But why not Mitre did not increase the capability of the intranet to include (for example) front- and back-office clients not merely its own organizational staffs to maximize benefits?


 


            In a different but relevant case study, Massachusetts Institute of Technology (MIT) and a software vendor NECX has created an e-procurement system that enables suppliers, MIT and end-users (students and faculty) to view and post information in the web-based platform (1999).  This made MIT not only efficient and competitive but also able to handle 30,000 suppliers and respond to customer queries faster.  However, Mitre’s project is bounded by financing constraints which are largely in fixed amounts.  Therefore, adapting a technology should be conservatively planned and superiorly executed.  Unlike private firms which can readily acquire capital, Mitre is a government-owned company which is exposed to restraints of bureaucracy.


 


            Network externality is a kind of network effect wherein the consumer of the service is affected, either positive or otherwise, by the changes in customer base who purchase the same service (2006).  Example of companies exploiting this technological principle is Google for its income-generating businesses such as AdWord and AdSense (2006).  This also provided the rationale why web-researching is free because this serves as motivation for users to utilize AdWord and AdSense.  In the contrary, Mitre caters only to a minimal level of customers in the name of some government agencies.  As such, cash flows from intensifying the level of technology will not be able to resort to the principle of network externality to maximize returns.  There is just no such thing as economies of scale in the nature of Mitre’s operations. 


 


            Lastly, accounting/ finance can support engineering or technical analysis.  This is vividly portrayed in the case study especially in auditing the improvement in productivity (which used average salary) and the reduction of employee turnover (which used savings on new-hire costs).  The intranet project has been able to provide evaluation feedbacks after completion and integration because of the help of financial accounts.  Project evaluation is an important aspect of project management because it grades the effectiveness of the project and assures fulfillment of project objectives (2003).  As the three primary considerations in a project are time, quality and cost, financial factors is a pre-requisite to project analysis.


 


            The banana curve clearly shows the trade-off between time and cost (2003).  When project time is reduced, the cost usually escalates while the reverse is likely true.  For a project initiated by a cost conservative entity like Mitre, the curve is very useful to obtain optimal returns from the project.  Project members can freely identify the project as a resource-constrained one which means that cost will be prioritized than the completion date.  In effect, the project design phase will use flexibility of task durations as allowance to seek the most cost-effective supplier (e.g. through several public auctions).  Project or task delays will be more preferred if this is the only way to minimize the associated costs.  Such strategy proved to be compatible with Mitre’s overall goals, structure and strategy.       


 


Conclusion


            As observed, the relationship between accounting/ finance and engineering/ technology is largely settled by the nature and goals of the organization.  Mitre is a not-for-profit company which limits the extent of which accounting/ finance considerations can contribute in designing and implementing technological projects such as the intranet system.  It is illustrated how financial accounts can induce larger technological change within the firm and even include other stakeholders.  This can lead to better performance and stakeholder satisfaction.  However, Mitre is operating within a very minimal environment where homogeneity of customers is typical.  In effect, accounting/ finance tools is less useful in the engineering/ technology analysis.  If any, political factors can pose greater impact to an agency’s project rather than other objective tools (e.g. financial accounts).            


 



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