Topic Overview

Having just been through my year review process I have been working on defining and outlining my research topic concisely, I thought it might be useful to outline the current version here; based on the executive summary from my year review report.

Contemporary business environments present contemporary business problems. Within these contemporary environments organizations face an increasing amount of uncertainty and competition with increasingly fickle customers. There is a strong need for speed in adapting, responding and maintaining flexibility whilst also encouraging innovation and entrepreneurial, value-adding activities. A tall order for a select number of people sitting on the Board and senior management team. Particularly if they adopt the traditional, bureaucratic Theory X assumption that employees are inherently lazy and value-destroying if left to their own devices.

Contrasting this, a variety of post-bureaucratic organizational characteristics have been cited as combating these contemporary problems. Often, these are based on a Theory Y philosophy which assumes employees are intrinsically motivated and can, and will, contribute effectively to the organization if encouraged to do so under the right circumstances.

The right circumstances. These have presented organizational theorists with over half a decade of research opportunity. Whilst the development of these occurred over some time, many organizational, and some accounting, researchers have been confident in continually noting that the traditional, hierarchical, control and command, bureaucratic philosophy typically associated with management accounting provides precisely the wrong circumstances. The role of management accounting information within this space is well documented and understood; plan with a budget, price using costing techniques, measure using variances and reward accordingly through an individual, financial reward system to promote motivation and minimise deviations in the aim of efficiency. However, the role of management accounting outside of this space is less documented, and certainly less well understood theoretically.

It is outside this space, and within the space of these right circumstances which this research focuses. The research topic seeks to develop an understanding of how we can explain different forms of management accounting in the real world, particularly within organizations displaying these alternative characteristics.

The organizational characteristics cited as encouraging these right circumstances take on different typologies, and draw on various forms of best practice from a number of philosophies including Lean Thinking, World Class Manufacturing, Matrix Organizations, Operations Management, Horizontal Organizations, Total Quality Management, Just In Time Management etc. The central aim of these philosophies is aligning organizational elements in mutually supportive ways whilst integrating and simplifying to encourage organizational success. These philosophies influence all aspects of the organization; its structure, processes, people, strategy and rewards which in turn influence employee behaviour, performance and the culture.

Conceptually, the management control system is the attribute which influences and directs these aspects. It can be defined as encompassing these aspects alongside any other organizational element which influences, directs or controls employee behaviour.

A “lateral” management control system has been proposed as encouraging these right circumstances. The organizational characteristics promoted under a lateral control system include flattened hierarchical structures and processes with integrated, multi-disciplinary, cross-functional team-work alongside a supportive and open culture with high levels of decentralisation, employee involvement and participation to encourage commitment, motivation, innovation and ownership. The overall strategy focuses on value delivery to the customer, elimination of any non-value adding activities, simplification, integration and continuous improvement.

Typically these control systems are biased against the application of management accounting. Its role is often criticised as conflicting with the ethos of lateral control systems and being incapable of integrating with informal control elements within a cohesive control system. Despite this, there are isolated examples of accounting being used within situations demonstrating lateral characteristics within traditional research, and more contemporary research is challenging this view. Recent research suggests that the management control system is a package of configured control elements which are interconnected and embedded, and inclusive of management accounting. Other research has highlighted that management accounting has a role to play within control systems designed to encourage innovation and entrepreneurial practices. However, there is still a lack of understanding about the relationships between the elements which make up the management control system, particularly within lateral control systems. This research seeks to add to theory and understanding within this sphere by exploring the relationships, compatibilities and coupling between elements of management accounting and other less formal control elements within a lateral control system.

The research is abductive in nature and thus the theoretical lens remains undetermined. However the research hopes to explore the behaviours enacted by accounting and control practices at an operational level and how these behaviours occur in practice and is thus predisposed to follow a route more aligned with institutional theory. Developments and additions to institutional theories continue to surface and include social network theories, actor network theory, loose coupling theory, complex systems theory etc. These are to be explored alongside more traditional theories and frameworks such as enabling and coercive uses of controls, or integrative liaison devices, or interactive use of control levers in order to gain insight into the role of management accounting and control processes in their contextualised settings.

This research hopes to contribute to debates in MCS and MA by exploring the relationships between elements of management accounting and other control elements within a lateral control system through application of in-depth analysis of case-study(ies). Particularly the research hopes to focus on the enactment of management accounting and control practices as "action" and the levels and types of coupling between both the control elements themselves and the rules and routines arising from those controls. Secondly, the research hopes to explore the relationship between operational and structural spaces within organizations and how the MCS can balance the conflicting demands of these two spaces in trying to promote "intrapreneurial" activities as well as ensuring efficiency and compliance to best practice. 

This review presents proposals to investigate case studies through semi-structured interviews, documentary analysis, participant observation and other visual observations. The benefits and traditions of case-study research within this field are presented and justified based on practical and theoretical considerations including the research questions, access, and prior literature. The proposed methodology of data collection includes gaining familiarity with the institutional setting, exploring the elements that make up the control system, identifying aspects of management accounting within the system, exploring the relationships between these elements, reviewing data for inconsistencies and triangulating against other data sources. Similarly, data analysis is based on identifying themes and similarities, exploring inconsistencies, reviewing, analysing and theorising in an iterative process. The theory building process will be abductive and initially seek to explore if current theories can sufficiently explain the relationships between these elements; particularly institutional theory, loose coupling, actor-network theory and other social network theories.

Year Review Abstract and Introduction

Having spent the last number of months further developing my topic by presenting my ideas at various locations and receiving valuable feedback, I have tried to synthesise a lot of my reading and thinking into a relatively concise document for the end of year review. The below is an extract and provides the abstract and introduction.

1.   Abstract

Contemporary organizations face increasingly hostile environmental circumstances. These circumstances include increased competition, increasingly fickle customers, extreme cost and price pressures and requirements for flexibility, responsiveness and adaptability. Post-bureaucratic organizations have been cited as combatting these attributes by promoting intrinsically motivated employees with high commitment, drive and loyalty, by encouraging innovation and problem solving through participation and inclusivity and by fostering a supportive and integrated culture focused on delivering customer value and continuous improvement. One example of a post-bureaucratic attempt to combat these clusters of interconnected environmental factors and to instil the suggested values in the workforce is the implementation of a “lateral” management control system (MCS).

A lateral MCS contests the logic of a traditional, or “hierarchical”, MCS and instead focuses on flexibility, innovation, integration and information sharing. It is suggested that formal controls are absent from a lateral control system since these mystify information, resist integration, prevent problem solving and provide dysfunctional incentives. Informal controls such as socialization and selection processes, the organizational structure and management philosophy instead prevail and are suggested as complementing the lateral control system. Accounting is often cited as a traditional formal control with little role to play within organizations displaying these characteristics.

Despite this traditional perception; noted as evident pre-1987 in Johnson and Kaplan’s Relevance Lost, the role of accounting within lateral control systems has been highlighted more recently to be compatible and capable of coupling with lateral control elements. Particularly, the more recent paradigmatic expansion of the definition of the MCS as being a configuration of a number of control elements within a “package” of both formal and informal controls highlights the potential contribution of management accounting (MA) within lateral organizations. Further, it highlights the potential contribution to an increased understanding of both MA and MCSs in practice.

This research seeks to explore this recent expansion in more detail. By investigating the core compatibilities between MA and elements of lateral MCSs, this research seeks to explain the relationships, compatibilities and coupling between MA and lateral MCS elements; which will assist in explaining the role of MA within lateral MCSs. Thus, this research will increase our understanding of the explanation of different forms of MA within the real world.

The research questions focus firstly on exploring the configuration of the elements of a lateral MCS; what elements are evident, how are they configured and why? Identification, or lack thereof, of MA within this control system forms the secondary research area. Followed up by asking what is the form, role and purpose of those identified elements; why are they evident? The tertiary research question asks which aspects of these elements are compatible with the characteristics of a lateral MCS? Subsequent questions focus on the existence of tight or loose coupling between elements, and finally relationships between them and explanations for these relationships.

Data to answer the research questions are proposed as being provided through an in-depth case study within organizations demonstrating lateral organizational characteristics. More detailed proposals for research design, structure and methodology alongside a brief literature review are presented below.

2.  Introduction and overview

2.i. Topic summary and motivation

With increasingly competitive environments many organizations are adopting post-bureaucratic characteristics in an attempt to foster flexibility, responsiveness, employee commitment and ultimately, increased organizational performance. Indeed, there are calls that these organizational characteristics will become necessary for organizations to survive in contemporary environments (Johnson, 2006, Hamel and Breen, 2007). Contingency theory demonstrates that the form of an organization and its systems are indeed contingent upon the environmental context; typically the structure, strategy, level of environmental uncertainty and level of interdependence (Otley, 1980, Chenhall, 2003, Pugh, 2007). More recent contingency research highlights that these contingencies are not independent and in fact act in interconnected clusters (Tillema, 2005). Thus the contingent factors cannot be isolated, instead the clusters of contingent variables are interconnected and simultaneously act upon the form to influence it; and identifiable types of form develop to combat these clusters of contingencies (Gordon and Miller, 1976, Miles and Snow, 1978, Ouchi 1977, Tillema, 2005, Pugh, 2007). For example; relatively high environmental uncertainty, volatility, intra-organizational interdependence, differentiation strategies etc. are suggested as being linked to a post-bureaucratic and more informal control system (Ouchi, 1977, Chenhall, 2003) in an attempt to promote the aforementioned characteristics.

One holistic attempt to encourage these characteristics is the adoption of a more informal or “lateral” MCS. This directs employee behaviour to be more inclusive, integrated, holistic, committed and driven. Further it promotes information sharing, problem solving, responsiveness and continuous improvement (Schonberger, 1986). Informal control elements such as socialization and selection processes, ethos, culture etc. – i.e. behavioural and social controls rather than outcome controls (Malmi and Brown, 2008) – often dominate.

Typically the role of MA is suggested as contesting and being incompatible with these lateral control elements. However, more recent research has highlighted that control systems operate as a “package” of configured control elements which are interconnected and embedded (Kennedy and Widener, 2008, Malmi and Brown, 2008). Further, research has highlighted that MA forms a part of this control package even within lateral control systems (Malmi and Brown, 2008, Davila et al. 2009, Chenhall et al., 2011).

By exploring the compatibilities, relations and coupling between these elements this research hopes to extend understanding and theory of MA itself and of MCSs operating as a package. The motivation for this research lies in increasing understanding of the role and relevance of MA in contemporary environmental settings, and in extending our understanding of how we can explain differing forms of MA in the real world.

2.ii. Importance and contributions

With increasingly competitive and volatile market conditions, the need for organizations to be flexible is fundamental (Johnson, 2006, Hamel and Breen, 2007). Lateral control systems assist in delivering this flexibility and are thus becoming more popular in practice (Hamel and Breen, 2007). Understanding the role of MA within these organizations is therefore a central concern for both research and practice. This is reflected in the repeated calls from prior research to increase our understanding of the role of MA within lateral dimensions (Chapman, 1997, Langfield-Smith, 1997, Chenhall and Langfield-Smith, 1998, Ittner and Larcker, 2001, Chenhall, 2003 2008, Gerdin, 2005, Hansen and Mouritsen, 2007b, Davila et al., 2009, Chenhall et al., 2011 etc.)

Contemporary research has reiterated earlier concerns regarding a lack of understanding about how the MCS operates in practice (Fisher, 1995). Gerdin (2005) notes specifically that lateral control systems and the role of MA within them provides a fruitful area for further research given a lack of theoretical and empirical understanding. Chenhall (2003, 2006, 2008, 2012) and Hansen and Mouritsen (2006, 2007a, 2007b) echo these calls. Further gaps in current understanding have been highlighted in more recent research; particularly in the configuration of elements within a MCS and the relationships and compatibilities between these elements within a lateral control system (Kennedy and Widener, 2008, Malmi and Brown, 2008, Davila et al., 2009, Chenhall et al., 2011).

Reflecting on these calls for empirical and practical understanding also highlight gaps in our theoretical knowledge. Chenhall (2003, p. 131) notes that there is a risk of “serious model under specification” presenting “spurious findings” without proper understanding of the entire control system and its interrelated relationships. This echoes Fisher’s (1998) concerns and is presented as a potential reason for the lack of conclusive and cohesive evidence on the relationships between contingent variables and the MCS in research (Chenhall, 2003). Particularly given contemporary research highlighting the “package” of configured control elements which make up a MCS, the threat of model under specification remains. For example, Malmi and Brown (2008) highlight that prior contingency research finding a failed implementation of a MA practice may have concluded that the failure was due to incompatibility between the contingent factor(s) and the MA element. However, given the lack of understanding about the relationships between elements of the package of MCSs, the failure could in fact have been due to incompatibility between the MA element and the existing configuration of controls within the MCS; rather than the underlying contingent factor. Tucker (2010) responds tentatively to these calls by proposing a social network theory framework based on a “small-worlds perspective”[1] which he argues allows conceptualisation of the informal aspects of a MCS, but there is little attempt at integrating this framework into a broader MCS theory[2].

Chenhall (2006, 2012) suggests that increasing our understanding in these areas develops understanding of MA and MCS theory, and proposes that the findings are incorporated into contingency theory to develop a comprehensive and cohesive theory of MA and MCS. Further calls for research in this area are also noted by (Ittner and Larcker, 2001, Langfield-Smith, 2007, Malmi and Brown, 2008, Davila et al., 2009, Malmi and Granlund, 2009, Chenhall et al., 2011, Chenhall, 2012, Parker, 2012) and hint at the potential contributions and importance of this research.

2.iii. Research questions and purpose

The purpose of the research, in addition to the above, is to assist in explaining the different forms that MA adopts in the real world; particularly how the characteristics of lateral MCSs influence MA and the role of MA within these settings. Further, the research hopes to explore complementarities[3] (Milgrom and Roberts, 1995) between elements of a lateral MCS with the aim of developing a more comprehensive theory of MA and MCSs.

Contingency research has shown that the context influences the form of MA and MCS, and that one cluster of interrelated contingent factors is combatted by a lateral control system. Further, more recent research has shown that the MCS is a package of embedded and configured elements and that studying MCS elements in isolation is arbitrary and risks model under specification. The specific research questions seek to address these points by exploring the role of MA within a package of lateral control elements; particularly what elements of MA are compatible, complementary and couple tightly with what elements of the lateral MCS?

The first research question seeks to explore what elements make up a lateral MCS package under Malmi and Brown’s (2008) framework of five groups of controls; planning, cybernetic, reward and compensation, administrative and cultural. Secondly the research will seek to explore how the elements are configured; i.e. in what way are they configured and how do they interact? The third research question focuses on identifying elements of MA within this configuration. The fourth, and main question then seeks to explore why these elements are made up in such a configuration; exploring the relationships in terms of compatibilities, complementarities and levels of coupling between the elements. The final aim hopes to implement the findings into current understanding and theory about MA and MCSs to extend and contribute to current knowledge.

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[1] The “small-worlds phenomena” is colloquially known as the “six degrees of separation” where one person can be connected to any other person through less than seven “connections” with other people.

[2] Also see Chenhall et al. (2011) for another application of Social Network Theory.

[3] The concept of complementarities suggests that increasing one complementary component leads to both increased performance of other components and increased overall performance.