Purpose – The purpose of this paper is to explore open book accounting with fixed returns in the context of an outsourcing implementation. We look to identify circumstances in which open book accounting with fixed returns takes place, how failures can be avoided and what kinds of benefits can be achieved by the accounting method.
Design/methodology/approach – This paper is based on a case study involving a builders’ merchant in a wood manufacturer in the UK. The builders’ merchant has recently outsourced part of its production to the wood manufacturer, using open book accounting with fixed returns. Interviews have been conducted with multiple people from both parties in the agreement.
Findings – It was found that open book accounting with fixed returns can exist despite low initial competence trust, and that only one party has to see a benefit of using open book accounting. Failures in the implementation of open book accounting may be avoided by promoting understanding of the agreement among the people involved, and by making thorough calculations of the supplier’s costs. The benefits of open book accounting with fixed returns identified in this paper are cost savings, closer cooperation and interorganizational learning, lock-in effects, and decreased supplier risk.
Originality/Value – This paper provides the first study of open book accounting where the parties have agreed to fix the returns of the supplier and where the agreement was made as a result of an outsourcing decision. It adds to the developing literature on open book accounting, in particular, and on interorganizational cost management, in general.