Management accounting for lateral organisations (part 1)

Management accounting for lateral organisations: How does the lateral orientation of modern organisations impact on the formation (technical practices and processes), role (the purpose and perception) and use (the way the information is used) of management accounting?

Abstract

The world is changing. With increasing technology, organisations and individuals are becoming more interconnected and networked than ever before. With calls for ‘management innovations’, and reflective movements in many aspects of personal and organisational life - towards a networked and holistic view of the world, this review seeks to explore the role of management accounting within a lateral dimension.

Adopting a broad contingency theory perspective, the review  suggests there is a need to explore the formation, use and role of management accounting empirically within ‘lateral’ organisations who seek to extract ‘magic’ or extraordinary performance through radical organisational structures and management styles. The structure of the review highlights the differing requirements of lateral organisations and how this conflicts with the traditionally hierarchical orientation of management accounting. Despite this conflict, the analysis suggests a number of accounting concepts which incorporate lateral dimensions, including aspects of; operations management, strategic management, the BSC and ABCM, and inter-organisational networks. Through the analysis and synthesis of these concepts, the review constructs a framework synthesising complementary aspects of management accounting for lateral organisations based on three sections; (i) balancing strategies and promoting integration; (ii) operational and structural decisions; and (iii) intra-organisational networks. A number of research areas are highlighted from the literature review and proposed in the interview schedule in Appendix A based on the three categories presented above. Through the structure, the analysis suggests that whilst the move to lateral organisations places a strain on management accounting, its hybrid ability allows it to adapt to this new environment.

1.    Introduction

1.1  An overview

Organisations continue to face an increasingly competitive environment. With the financial crisis, increased globalisation, rapid technological improvements, fickle customers, improved access to knowledge, and with the application of concepts such as TQM, the BSC, JIT, ABCM etc. becoming more common-place, the current organisational environment is more daunting than ever; for both existing and prospective organisations. This, however, poses new and exciting challenges which may provide new, or new ways of using and applying traditional, solutions.

With this increasingly competitive environment, organisations face increasing numbers of decisions on how to compete; and with increasingly drastic consequences should those decisions turn out to have been poor. Further, these decisions span the organisation’s structure and value-chain, from overall strategy at the top level, to specific production or management concerns at localised employee level.  There is increasing drive for employees, middle, and senior management to be aligned with organisational goals and strategy, intrinsically motivated and driven, efficient, innovative, and networked within the organisation. Increasingly, organisations are realising the value of their employees, and striving to extract the ‘magic’ (Sugarman, 2010) of extraordinary performance that comes from an aligned, intrinsically motivated, networked, innovative, multi-disciplinary and multi-functional workforce.

(Sanders, 2008) suggests, in his review of Hamel, G. and Breen, B. (2007). The Future of Management, Harvard Business Press, MA:USA, that “the traditional model of management spawned by 20th century industrialization is strategically misaligned with the demands of a 21st century global knowledge-based economy.” Hamel and Breen suggest that a systematic shift, a ‘management innovation’, is required, and that those organisations performing extraordinarily are adopting and employing radically different structures and management styles, which directly contest the prevailing logic of management. Management accounting (MA), particularly in its ‘traditional’ form; advanced costing techniques, budgets and variance analysis, performance measurement through financial incentives etc., could well be described as typifying what Hamel and Breen suggest as the ‘traditional model of management’ and being ‘strategically misaligned with modern demands’. This is not a new or isolated concern, and there have been repeated calls that MA may be an unsuitable tool for managing organisations (Johnson and Kaplan, 1991, Johnson, 2006, Mouritsen and Hansen, 2006, Shank, 2006, Anderson, 2007, Hansen and Mouritsen, 2007 etc.). This review hopes to suggest an empirical investigation into the practices and processes of MA within organisations embracing this ‘management innovation’ is required, and seeks to present some MA principles which have compatible dimensions towards this innovation.

Many of the benefits cited by Hamel and Breen are illustrated in ‘lateral’ organisations; they in fact explicitly mention “flat structures” as a characteristic of these organisations. These organisations have a number of characteristics, but a central aspect of this radical management culture and style is tied fundamentally to the lateral structure and conceptualisation of the organisation. Whilst a lateral structure alone does not necessarily provide all of the benefits proposed, it is one of the key aspects of aligning the organisation towards its goals. A lateral structure is cited as the basis for many of the benefits of these radical organisations, and promotes benefits from a number of  incorporated fields, including; human resources, organisational studies, management, production, marketing etc. (Chenhall, 2008). The next section defines in more detail a definition of a lateral organisation, its characteristics, and provides some examples. But before we explore the characteristics of these lateral organisations, it is worth noting the conflict between traditional MA and lateral organisations.

1.2 A comment on the conflict between lateral organisations and MA

Despite MA being developed as a tool to assist management (Johnson and Kaplan, 1991), there is a long tradition of resentment and resistance towards MA from various areas (Johnson and Kaplan, 1991, Armstrong and Jones, 1992, Bromwich and Bhimani, 1994, c.f. Pierce and O'Dea, 2003, Johnson, 2006, Shank, 2006, Anderson, 2007, Burns and Baldvinsdottir, 2007, Byrne and Pierce, 2007 etc.). MA has responded to these concerns by developing new techniques (the BSC/ABC etc.), by being more involved, integrated and strategic (a move to ‘consultant’ roles), and by exploring lateral dimensions (strategic accounting, inter-organisational networks etc.). Despite these innovations, a plethora of research literature exists which suggests that the hierarchical orientation of MA may be fundamentally incompatible with lateral organisations (Shank, 2006, Anderson, 2007, Hansen and Mouritsen, 2007, Chenhall, 2008 etc.). (Johnson, 2006) even comments that MA has no place at all within lateral, lean organisations since;

…the widespread use of accounting control systems to drive operations in businesses rests on an erroneous belief that financial or other quantitative targets can be used to explain, motivate, and control financial results in a business. Managing operations according to that belief has, I think, fatal consequences for any business.

(Johnson, 2006, p. 7)

Despite these concerns, there is still evidence of MA being used within lateral organisations. Hutchinson and Liao (2009) describe how MA is still used within lean Japanese manufacturing organisations (who are oft cited as exemplars of management innovations and radical thinking, particularly within the lateral domain). Thus there is a paradox.

The main purposes of this review are to seek to explore this paradox; to highlight that indeed there is a requirement for different formation, roles and uses of MA within lateral organisations, but to suggest that MA could be adapted and adopted into these organisations. Having built a case for the reasons as to why the MA system might be different under lateral organisations, the review then explores some of the accounting concepts which demonstrate lateral dimensions, comments on how these might be used within a lateral organisation and suggests a framework through which we can explore the formation and use of MA within lateral organisations empirically. Calls for further research in this area are presented, alongside some questions arising from the synthesis of the literature reviewed, and a need for empirical research in this area is presented alongside a draft interview schedule (Appendix A).

1.3  Definition of lateral organisations

There are many proponents of horizontal organisations, but a ‘horizontal organisation’, likewise a ‘vertical organisation’, is arguably a misnomer. Whilst organisations may be more or less horizontal or vertical, it is unlikely they will truly be either horizontal or vertical (ICAA, 1997, McCormack, 1997, Spector, 1999). The term ‘vertical organisation’ is broadly accepted as referring to a traditional tall hierarchy, with top-down control, prescriptive standards, and management layers increasing as size increases (Anonymous, 1999). A truly horizontal organisation is unachievable and potentially useless for most organisations (ICAA, 1997, Anand and Daft, 2007); thus the term ‘lateral’[1] is used to describe organisations which lean heavily towards a flatter structure but still employ some levels of (squat) hierarchies to structure and order the organisation (Galbraith, 2006, Chenhall, 2008). Further, the term is used here to suggest a true tendency to the ‘management innovation’ suggested above as required for the contemporary environment[2], and incorporating a number of the concepts outlined below.

One of the suggested reasons for the cited benefits of lateral organisations is that they are multi-faceted and draw on ‘best practice’ from a number of fields (Chenhall, 2008). Chenhall (2008, p. 517) suggests that Ostroff (1999), Schonenberger (1996), and Galbraith (2005) “distil the key elements of the HO” and summarises that a horizontal organisation;

…identifies specific value propositions with a customer-orientated focus and then develops process efficiency and continuous improvements, flattened structures with a team-based focus, human resource policies concerned with empowerment and a supportive and committed culture to help institutionalise change. The key distinguishing feature is to move away from traditional vertical, functional structures to lateral structures, processes and information to support the HO.

(Chenhall, 2008, p. 517)

Many of the same concepts are reflected in Hamel and Breen (2007) which Sanders (2008, p. 121) summarises. He suggests several characteristics of organisations illustrating ‘21st century management innovations’; (i) a strong purpose which will ‘excite the member’s passion and commitment’, (ii) the encouragement of trust through ‘open books’ and a ‘no secrets management philosophy’, which in turn promotes responsibility, autonomy and accountability, (iii) a strong community spirit based on teams, peer review and performance measurement, which prevents functional separation and tension, (iv) demonstration of an ‘overt aversion to bureaucracy’, instead preferring ‘flat structures’ built on a ‘network of interconnected teams’ promoting communication and interpersonal relations, and (v) a focus on innovation, promoting low-cost experimentation at all levels throughout the organisation.

Lateral organisations[3] are cited as having many benefits including promoting empowerment, autonomy, innovation, trust, intrinsic motivation, community spirit, information sharing, problem solving, business acumen, flexibility, adaptability, positive working environment, sustainability, efficiency, continuous improvement, a supportive culture etc. (McGregor, 1960, Deci and Ryan, 1980, Ouchi, 1980, Schonenberger, 1996, Anonymous, 1999, Ostroff, 1999, Galbraith, 2005, Mouritsen et al., 2005, Chenhall, 2008, Sanders, 2008 etc.).

The concept of a lateral conceptualisation of the people, departments, units and locations within the organisation, alongside an external conceptualisation of the organisation within the industry with respect to both supplier and customers, as holistic (Mouritsen et al., 2005), and in addition to a lateral structure, helps to create a strong purpose and drive for the organisation as the parts become interconnected and interact through this lateral conceptualisation – promoting the management innovation called for by Hamel and Breen (2007). These factors, of course, are interconnected and embedded, and are ‘mutually reinforcing’ (Chenhall, 2008). As McGregor (1960) pointed out, the management style is self-fulfilling – manage as if you expect employees need a carrot on the end of a stick, and they will probably fail to be engaged, motivated, interested, and thus perform poorly. Unfortunately the vice versa circumstance appears to be the exception, not the norm.

Lean manufacturing, world class manufacturing, operations management, total quality management, the Toyota Production System etc. are aspects of manufacturing which incorporate this lateral structure and conceptualisation, but the concept extends beyond manufacturing and into both product and service industries also; the BSC, delayered management hierarchies, employee-owned organisations, cooperatives and inter-organisational relationships also consider, and focus on, the value created from a lateral conceptualisation.

Examples of lateral organisations include; W L Gore and Associates, Tullis Russell Papermakers, Clansman Dynamics, John Lewis Partnership, Mountain Equipment Cooperative, Google, IBM, General Motors, and a large number of the some four hundred worker cooperatives in the UK alone[4].

This paper defines lateral organisations by drawing on multiple concepts within the literature which encapsulate compatible organisational characteristics. Defining what a lateral organisation is, and is not, is difficult as the characteristics are mostly on a spectrum, and not isolated or individual elements. It could well be described as falling into the category of ‘you know it when you see it’. However, a laterally structured and conceptualised organisation would be expected to demonstrate a tendency towards most of the following three characteristics in seeking to obtain ‘magic’ or extraordinary performance[5];

-        A lateral organisational structure; a delayered management structure (with a squat hierarchy); a network of interconnected, independent, autonomous and empowered multi-functional and multi-tasking departments, units, and individuals – largely built on a network of teams in which peer review and assessment are central; where high levels of face-to-face communication; a strong community spirit; highly integrated and participative processes, teams and systems; overlapping accountabilities between these processes, teams and systems; a focus on team responsibility and reward; strong lateral flows of information and little top-down control; highly flexible and adaptable; are promoted which emphasise the promotion of trust and accountability.

-        Lateral ownership; a strong community spirit; little definition or titles of roles - multi-functioning, rotation of responsibilities and multi-tasking are promoted; intrinsic motivation is encouraged; trust and accountability are also promoted.

-        A lateral Management style; a holistic and interconnected approach to management; an encouraging and supportive culture; a network conceptualisation and understanding of the organisation, industry, product, processes etc.; an open, honest and participative style involving front-line employees in change and strategy decision making; a team focus on processes, responsibility, and reward with performance measured on operational and process, not functional, measures; high levels of communication, cooperation and collaboration; little top-down control; a strong and simple strategy – with a customer focus, continuous improvement, and efficiency being understood and worked towards; a flexible, supportive and adaptable environment; experimentation and innovation; trust, accountability and commitment are all encouraged an promoted.

This review uses the term ‘lateral organisation’ to suggest an organisation which truly seeks to promote the above concepts and does so through a lateral organisational structure with squat levels of hierarchies. Notice it is more than merely having a flattened structure, and combines aspects of management style and culture, organisational structure, and organisational ownership.

                  In summary, HO…management initiatives…provide an integrated approach to management that operates within a structural form…that will deliver value to its customers…(through) a cross-functional, integrated approach….(which) operates ‘horizontally’ using structures where teams, not individuals, are responsible for delivering customer value and in ways that ensure continuous performance improvement within a culture of employee empowerment, responsibility and well being.

(Chenhall, 2008, p. 525)

1.4 Overview of structure

The remainder of this review is set out under five subsequent sections; (2.) Different MA systems under different theories, (3.) Lateral organisations and their impact on MA systems, (4.) Accounting concepts incorporating lateral dimensions, (5.) How accounting might be used within lateral organisations and some research questions, and (6.) Concluding remarks. The structure aims to clarify the purposes of the review, as set out in section 1.1, by highlighting the rationale behind the proposition to empirically investigate MA within lateral organisations. Sections 2 and 3 highlight how contingency theory and the characteristics of lateral organisations’ suggest that the lateral structure of the organisation will impact on the MA system. They also highlight how accounting is perceived as conflicting with this lateral orientation, as well as proposing that accounting information is still required; despite some calls that it is not. Contrasting this last point, sections 4 and 5 propose some suggestions of accounting concepts which incorporate lateral dimensions, and how these might be used in a lateral organisation; providing a framework for what one might expect to find in an empirical study.

The review hopes to highlight that factors such as the contingent variable of organisational structure, and the differing requirements and culture of lateral organisations, propose that there is a need to empirically explore the formation, role and use of MA systems in lateral organisations. The paper concludes by synthesising the above literature, and building on the research questions through the analysis to call for some empirical investigation into the formation, role and use of MA within lateral organisations – finally suggesting a draft interview schedule (Appendix A).

2      Different MA systems under different theories

Different theories have been applied to explain why MA systems take on various forms. The differing theories propose different focuses, formations and uses for the MA systems under different organisational settings and structures. The traditional neo-classic view of agency theory suggests that there are factors which push the MA system to an equilibrium, and under this school of thought the processes of change is not of interest; merely what the equilibrium solution should be. Markets and hierarchies theory extends this somewhat, but is still largely prescriptive about what form the MA system should take. Contingency theory, the most recent of the theories, suggests that there is in fact no universal best system; and that performance is promoted through ‘matching’ the contextual factors impacting on the organisation with the MA system. The following sections provide a basic overview of each of these three theories with respect to MA systems, and highlight that MA systems take on many different forms.

2.1 Agency theory

Agency theory focuses on the principal-agent problem; that agents (with delegated responsibility and power) may not act in the best interests of the principal (the owner of the assets for which the agent is acting) (Jensen and Meckling, 1976, Tiessen and Waterhouse, 1983, Ezzamel and Hart, 1987 etc.). The problem is concerned with aligning the agent’s interests with the best interests of the principal. Agency theory suggests the organisation is;

…perceived as a nexus of contracts regulating exchange relationships among interested parties who are the suppliers of different factors of production and the users of the firm's output (Jensen and Meckling, 1976). The purpose of such contractual relationships is to bring the conflicting interests of different parties into equilibrium.

(Ezzamel and Hart, 1987 p. 262)

Agency theory considers ‘incomplete contracting’ (Baiman and Rajan, 2002) which leads to a focus on two considerations; (i) information asymmetry and (ii) opportunistic behaviour, for which the MA system must act to prevent. (Ezzamel and Hart, 1987 p. 264) suggests that control, under an agency theory perspective, is exercised under three conditions; decision hierarchies, mutual monitoring systems, and boards of directors. These measures of control are, respectively; formal and based on hierarchies to ‘diffuse’ decision making across a number of agents; informal and based on the economic principle of rational, utility functioning agents who seek to maximise wealth in the next ‘rental of their labour’ through positive, and positively perceived, current performance; and a formal and independent board with enough power to enforce unbiased hire, fire and reward decisions.

From a MA perspective, agency theory, being based in economic and finance theory (Jensen and Meckling, 1976), suggests that; “an observed managerial accounting technique represents an equilibrium solution to the contracting process between a principal and one or more agents (Baiman 1982).” (Brown et al., 2009 133 p. 319 emphasis added)

Thus, an agency theory perspective of the organisation leads to a MA system; based on top-down monitoring and control; where control is provided by extensive standards of budgetary variance analysis; where decisions are made at higher levels; where there is little autonomy or empowerment for employees; and the MA system is rigid, routinized, mostly formal and ‘highly structured’ (Tiessen and Waterhouse p. 256). This ‘style’ of MA has many similarities to the ‘mechanistic’ controls described by (Chenhall, 2003 p. 131), and which influence the management ‘culture’. However, as (Ezzamel and Hart, 1987 p. 267) highlight, whilst agency theory may be beneficial in circumstances where “technology is routine and the environment is predictable”, there are many situations, for example where information and decisions are required to be highly localised, where a complementary perspective is required; namely, markets and hierarchies theory.[6]

2.2 Markets and hierarchies theory

A second widely used theory in MA research is the markets and hierarchies theory which builds on elements of agency theory[7] and addresses the closing point of the previous section. Within markets and hierarchies theory, losses of control arise where information impactedness and bounded rationality occur. Information impactedness suggests that it is difficult to ascertain all relevant information about a decision in a cost efficient manner because of uncertainty, the threat of opportunism, and bounded rationality itself. Bounded rationality is concerned with the fact that the rationality of decision makers is limited by the information they have available, and the cognitive limitations of their minds[8]. Thus, (Tiessen and Waterhouse, 1983) suggests that hierarchies replace markets when the costs of contracting through contracts becomes too high. They comment on an internal labour market being a situation in which information impactedness occurs, and in which the hierarchical form of control, through rules and procedures, becomes a more efficient control mechanism.

(Ezzamel and Hart, 1987 p. 265) also comment that control loss originates under different circumstances for markets and hierarchies theory (greater organisation size, and greater geographic, product, and market diversity) compared to agency theory (greater costs of information as information becomes more specific as organisational complexity increases).

Thus, a markets and hierarchies theory perspective of the organisation “advocates allocating strategic decisions to top-level managers and operating decision to divisional managers” (Ezzamel and Hart, 1987 p.265) and proposes that there should be different control mechanisms for markets as opposed to hierarchies within organisations. Accounting is involved in both orientations through “such techniques as internal audit, reward structures and resource allocation schemes” (Ibid., p. 265) and again adopts a rather ‘traditional’ form.

2.3 Contingency theory

Contingency theory has been more recently, and widely applied to MA research. It was developed in organisational studies research and combines agency theory and markets and hierarchies theory, and extends them to consider the impact of contextual, or contingent, factors[9].

The focus of contingency theory is to promote optimum organisational performance by ‘matching’ the contextual and contingent characteristics organisations face with their MA systems (Lawrence and Lorsch, 1967);

                  Hence, for example, an increase in size, especially in terms of numbers employed, should be accompanied by an increase in specialization; or, to mention another example, an increase in environmental uncertainty should be ’matched’ by decentralization, especially when the organization is to achieve a ’high’ performance.

(Tayeb, 1987 p.241)

(Otley, 1980) suggested, in his seminal review, that contingent variables which influenced the MA system included; technology (Woodward, 1965), organisational structure (Child, 1972), and environmental factors. He also suggested that contingency theory should not just be an excuse for different contingencies creating different systems – that there should be some collective predictive power of the theory, and concluded by extending the theory to include; other factors, intervening factors, contingency factors, and the organisational control package (Otley, 1980 p. 421). (Tiessen and Waterhouse, 1983) developed the theory further by incorporating both agency theory and markets and hierarchies theory, and concluded that contingent variables interact and are interconnected, and are ultimately constituted by; environment, technology, structure and size.

Contingency theory has been subject to much testing and revisions within MA research (Tayeb, 1987; Dent, 1990; Fisher, 1995; Galunic & Eisenhardt, 1994; Langfield- Smith, 1997; Gerdin, 2004, 2005 etc.). Two noteworthy concepts, with respect to this paper, are (i) the same MA system can be used in different ways (Ansari and Euske, 1987, Tayeb, 1987, Ittner and Larcker, 2001), and (ii) different MA systems can be used in the same ways - the concept of equifinality (Gerdin, 2005). These concepts highlight why we might, prima facie, find ‘generic’ MA systems (Lillis, 2002, Hansen and Mouritsen, 2007), and also suggest the intricacies and interconnected nature of these factors; making exploration of MA systems an interesting, challenging, and changing field.

Contingency theory helps explain the interaction and relationship between accounting systems and their contextual environment (Reid and Smith, 2000, Cadez and Guilding, 2008), and why MA systems are different within different environments. However, (Chenhall, 2003, andTillema, 2005) heavily critique contingency theory in MA research and comment that the cross-sectional, quantitative research methodology employed in much contingency research fails to capture the interconnected relationship, and even the correct weightings or relative importance, of the contingent variables. (Tillema, 2005) describes how a broad contingency perspective can still be useful in analysing differences in MA systems; she summarises how six levels of analysis; beyond-organisational level, organisational level, subunit level, individual level, operating-task level, and accounting-task level, provide a better focus for examining the impact of contingent variables upon the breadth of scope of the MA system. Her analysis explores in more detail the interconnectedness and social creation of the contingent variables and how they have different impacts at different levels, something that is emulated in this study by the differentiation of different levels of MA within an organisation[10].

(Chenhall, 2003 p. 161) proposes that research (such as Tillema, 2005) exploring the contemporary contingencies which impact on MA systems, the interconnected relationships between contingencies, the concept of equifinality (Gerdin, 2005), and research integrating the sociological aspects of MA systems, is fundamental. In line with these calls, (Abdel-Kader and Luther, 2008) explore ten contemporary contingent variables, which they sub-categorise into; external characteristics, organisational characteristics, and manufacturing or processing characteristics. They find some support for certain contingent variables, and little support for others. Their results suggest that the level of sophistication[11] of the MA system is strongly explained by environmental uncertainty, customer power, decentralisation, size, AMT, TQM and JIT factors, but little explanatory power is provided by competitive strategy, processing system complexity and product perishability factors. Further, they comment on the interconnected nature of the contingent variables and propose that MA sophistication is linked to; a highly uncertain environment, powerful customers, decentralisation, a relatively large size, and the employment of AMT/TQM and JIT – which clearly links to a lateral conceptualisation.

Recent contingency studies (Chenhall, 2003, Gerdin, 2005, Abdel-Kader and Luther, 2008) also comment explicitly on the contingencies of lateral conceptualisation through team-based work, lateral thinking in manufacturing, and lateral thinking in holistic approaches to management (TQM/the BSC etc.). respectively. They discuss how other contingent variables might interact with a lateral focus, and discuss this lateral conceptualisation as a contingent variable itself; however, they all comment that this is an area which requires further research.

As highlighted in the critiques of contingency theory (Otley, 1980, Tiessen and Waterhouse, 1983) there is an inherent problem in quantifying what terms mean and what they do, and do not, encompass – for example, what differentiates a risky and volatile external environment from a stable and risk-free environment? The black and whites are relatively clear, but most organisations actually operate somewhere in the grey; and thus there are conflicts and contradictions within aspects of contingency theory, and this further complicates development of the theory {Malmi and Granlund, 2009].

(Chenhall, 2003 102 p. 143-147) provides a list of propositions for the MA system under different contingent variables, and a number of conflicts are observable {Malmi and Granlund, 2009]; particularly between technology sophistication, concepts such as TQM, and decentralisation promoting both traditional and informal, flexible MA systems.

However, with reference to the general principles of lateral conceptualisation of the organisation, recent studies propose that the MA system should have the following characteristics for lateral or ‘organic’ organisations; a combination with interpersonal interactions, less traditional forms, less developed process controls, broad scope information concerned with integration, informal, non-financial measures, participation etc. (Chenhall, 2003 p. 138-155, Gerdin, 2005 p. 102-106, Abdel-Kader and Luther, 2008).

(Chenhall, 2003 p. 148) and (Gerdin, 2005 p. 105-106) both comment on the need to explore the lateral aspects of organisations as a contingent variable, especially the interconnected and embedded nature of the systems with regards to other functional areas. Whilst the use of MA within laterally conceptualised organisations is still strongly contested (Johnson, 1992, 2005; Kaplan, 1983; c.f. Chenhall, 2008 etc.). and many organisations have not adopted lateral MA innovations (Shank, 2005), there are calls to explore this relationship in more detail (Mouritsen and Hansen, 2006), and evidence that this is not the case in practice (Hutchinson and Liao, 2009) given the impact of contextual factors (Tilemma, 2005 p. 102).

2.4 Summary

This study adopts a broad contingency perspective with respect to exploring the impact on the MA system of the lateral conceptualisation of the organisation. Given the focus on MA system formation and use under modern, lateral conceptualisation, the interconnectedness of these issues and the concept of equifinality, contingency theory is deemed the most applicable. Given these concerns, and the repeated calls in the literature to explore the impact of lateral conceptualisation as a contingent variable (Chenhall, 2003, Gerdin, 2005, Mouritsen and Hansen, 2006, Hansen and Mouritsen, 2007, Abdel-Kader and Luther, 2008), this paper seeks to explore how MA might be impacted by the contextual factor of lateral conceptualisation of the organisation, and the associated shifts in culture, management structure, style and strategy as a result of this. The review hopes to illustrate that there is a requirement for empirical analysis of MA under lateral organisations on the basis of the differing requirements, culture, and structure of lateral organisations.

Whilst contingency theorists have suggested that organisational structure has important impacts on MA systems, most empirical analysis has focused on traditional and hierarchical organisations and there has been little research into laterally orientated organisations (despite continued calls in the literature; (Chenhall, 2003, Gerdin, 2005, Mouritsen and Hansen, 2006, Hansen and Mouritsen, 2007, Abdel-Kader and Luther, 2008). Furthermore, the following section will highlight a number of differences between lateral and hierarchical organisations with respect to MA, and highlight some issues in the use of MA within lateral organisations. The following section seeks to bridge some of these conflicts and tensions and will draw upon literature from operations management and lean manufacturing/accounting, strategic cost/MA, the BSC/ABCM, and inter-organisational relationships and networks specifically, in the hope of demonstrating that many accounting concepts do have lateral dimensions, and could interact coherently with a lateral organisation. After comparing this literature, the paper seeks to draw out some potential ways in which MA might be formed and used under even within the most extreme forms of lateral conceptualisation; which (Johnson, 2006) suggests is impossible.

3. Lateral organisations and their impact on MA systems

3.1 Lateral organisations

As highlighted above, in section 1.2, lateral organisations are those who lean towards horizontal tendencies, and strive to achieve extraordinary performance through a number of ‘best practice’ principles. The key principles are a mutually reinforcing set of characteristics based on a strategy and structure of processes, people, and skills which promote; a customer focus; integration; multi-skilled, multi-functional teams; employee participation and involvement; and a supportive culture promoting continuous improvement through empowerment, autonomy and responsibility.

McCormack (1997, p. 24) comments that “[t]he advantages of horizontality are obvious…people are more accountable, they perform better and the company prospers.” There are many advocates of lateral and horizontal organisations (Schonenberger, 1996, Ostroff, 1999, Galbraith, 2005, 2006, Johnson, 2006 etc.) who cite many benefits of a horizontal structure (as highlighted in section 1.2). The proposed benefits are reflected in the increasing numbers of cooperatives, partnerships, strategic alliances and other forms of lateral working within the contemporary business environment.

The purpose of this paper is not to advocate that a lateral structure is the best way to organise every organisation (Anand and Daft, 2007). It merely hopes to; (i) highlight some reasons for the growing popularity of lateral organisations[12], (ii) to suggest the different requirements of MA within these lateral organisations, (iii) to comment on the on-going relevance of MA to these contemporary organisations, despite a traditional conflict between hierarchically orientated accounting information, and lateral organisational structure (Johnson, 2006, Mouritsen and Hansen, 2006, Chenhall, 2008 etc.), and (iv) to suggest the need for an empirical investigation into these issues in more detail.

3.2 Different requirements for MAS

Given the different characteristics and focus of lateral organisations (integration, team focus, cross-functional and multi-tasking, real-time information, empowerment, autonomy, responsibility, operational and process measures rather than functional, participation and collective decision making etc.), it is perhaps unsurprising to see a conflict with traditional MA practices and processes, which are typically perceived as slow, unhelpful for operational decision making, complicating and mystifying matters, creating tensions and conflicts between departments etc. (Schonenberger, 1996, c.f Pierce and O’Dea, 2003, Johnson, 2006, Mouritsen and Hansen, 2006, Shank, 2006, c.f. Burns and Baldvinsdottir, 2007 etc.).

Concerns within lateral organisations that relate to MA include; (i) the requirement for continuing financial control (ICAA, 1997, Chenhall and Langfield-Smith, 1998, Hutchinson and Liao, 2009) to promote empowerment and the formation of teams (Bennett, 2002), and to measure organisational competitiveness and success (Chenhall, 2008), (ii) performance measurement focused on operational and internal aspects (rather than intra-process, functional or external aspects) based on teams (not individuals) and inclusive of non-financial information (Spector, 1999, Ittner and Larcker, 2001, Chenhall, 2008, Griffith and Neely, 2008, Esben Rahbek Gjerdrum and Sudzina, 2012) sustained by top-level support (Tung et al., 2011), (iii) promotion of the alignment and cooperation of teams and products to a customer focus and promoting a culture of information sharing and trust (Galbraith, 2005, Chenhall, 2008, Baird et al., 2011), (iv) a balanced strategy incorporating financial and non-financial measures to promote organisational success (Chenhall and Langfield-Smith, 1998), and (v) the institutionalisation and hybrid ability of MA (Miller et al., 2008, Modell, 2012) and how MA can be used to facilitate organisational change (Spector, 1999, Burns and Scapens, 2000).

There are many ways in which MA information can be useful in lateral organisations, particularly if MA is used under a supportive and inclusive culture (Tomkins, 2001, Bennett, 2002, Kraus and Lind, 2007, Hutchinson and Liao, 2009) throughout multiple levels of the organisation, including; balanced strategies and measures, integration of teams and products, performance measurement, incentivisation, promoting alignment and cooperation, and assisting in institutionalised change. Often, the roles of MA within these areas are replaced by other fields in lateral organisations (such as HR – Ostroff, 1999), but the following sections hope to demonstrate that there are a number of MA practices and processes which incorporate lateral dimensions, and that these could be used for the above ends under the correct circumstances. The closing sections hope to highlight that there are aspects of MA which incorporate lateral dimensions, and that an empirical study into this area would contribute to the field of MA research.

Management accounting for lateral organisations (part 2)

4.    Accounting concepts incorporating lateral dimensions

Chenhall (2008, p. 522 emphasis added) suggests that “[t]he key to horizontal accounting is the intent to incorporate accounting thinking into organizational change programs that are based on aligning work and structural arrangements laterally”. This section hopes to address this statement in a wider consideration than Chenhall (2008) considered appropriate (based on his consideration of how much of the value chain various strategic MA practices considered), given the ‘surprising’ forms MA can take (Mouritsen and Hansen, 2006, Hutchinson and Liao, 2009). It seeks to explore MA practices which “images the firm and its entities as ‘no islands’ but connected relations, a network.” (Mouritsen and Hansen, 2006 p. 268)

Thus, this section highlights various MA practices and processes which incorporate lateral dimensions in different operational considerations, and the perceptions of their conflicting nature, in the following order; (4.1) Operations management, (4.2) Strategic management, (4.3) The BSC and ABCM, and (4.4) Inter-organisational networks.

4.1 Operations Management

The conflict between the traditionally perceived hierarchical orientation of MA and the lateral orientation of both operations management and lean manufacturing are commented on repeatedly in both the accounting and operations literature (Chenhall and Langfield-Smith, 1998, Johnson, 2006, Mouritsen and Hansen, 2006, Hansen and Mouritsen, 2007, Hutchinson and Liao, 2009 etc.). Mouritsen and Hansen (2006, p. 272) comment on Scheonberger’s  “monumental and fundamental” critique of accounting, which “ridicules” MA for misrepresenting, mystifying and distorting information, and creating problems rather than solutions. Hutchinson and Liao (2009, p. 28) comment that “[a]ny derivation of capacity accounting is fundamentally incompatible with lean management.” Johnson (2006) comments in a similar vein, and suggests that accounting information can be “fatal” to modern manufacturing organisations, and goes as far as to suggest that it should not be used at all within the operations of manufacturing organisations. Further, he comments that accounting encapsulates a way of thinking which is fundamentally incorrect for organisational management, and suggests that we need to move away from even trying to develop accounting solutions to organisational problems (Ibid., p. 7-8, Hamel and Breen, 2007). Hansen and Mouritsen (2007) summarise the conflict between the lateral conceptualisation of operations management and the hierarchical orientation of management and suggest;

Accounting calculations are presented as enemies of quality, flexibility and even cost reduction because they mystify the affairs of the firm. Instead, non-financial operating data and empowered, competent and self-managing employees are advocated, as they can identify how to improve the business.

(Hansen and Mouritsen, 2007 p. 22)

Despite these criticisms, there are still reasonable amounts of opportunism towards MA within lateral organisations. (Chenhall and Langfield-Smith, 1998 p. 369) perhaps highlights the best example of why some financial control and MA is required; they muse about a situation within their case study where a manufacturing department were achieving 100% of producing their orders in full, and on time by actually going out to external retailers and purchasing their own product rather than manufacturing it! Their case studies highlight how an interactive, integrated and supportive culture is needed to change the MA system to be supportive and integrated, but that it can be done; based on improving the social and interpersonal skills of accountants, and creating a supportive integration between functional areas. Hutchinson and Liao (2009) comment that MA is used beneficially in lateral Japanese manufacturing organisations, by accepting that accounting is not the way to manage the organisation. They suggest that Japanese management accountants are more integrated with the rest of the organisation, and that dichotomies and separation of roles are uncommon. Further, they comment that MA is ‘surprisingly simplistic and traditional’ and that the organisational culture encourages MA to be “subservient to corporate strategy, not independent of it.” (Ibid., p. 34) This links back to the concept of equifinality proposed by (Gerdin, 2005) and highlights again the possibility of the same system being used in very different ways under different management styles or organisational/national cultures (Ansari and Euske, 1987, Tayeb, 1987).

Mouritsen and Hansen (2006) suggest that whilst the aforementioned perception of MA as conflicting with modern manufacturing requirements is supported by survey analysis, they suggest that the changing role and scope of MA is better captured through case-study analysis. They suggest that in case-study analysis, MA has been extended both within, and beyond, the organisation and that “roles of accounting have been identified that add not only to the operations management literature but also significantly to the body of MA knowledge.” (Ibid., p. 283) They suggest that these ‘profound roles’ of MA are more conceptual (Miller and O'Leary, 1994, Miller et al. 2008), and argue that through the separation of executional decisions (at employee/operational level) and structural decisions[13] (at upper management/strategy level), accounting can significantly contribute to lateral organisations. They suggest that executional decisions are one-dimensional (e.g. less waste, less time, higher quality), and that non-accounting measures and incentives may be more appropriate in these circumstances to encourage innovation, team-work, information sharing etc. However, they argue that structural decisions create the ‘manufacturing space’ in which these one-dimensional decisions can be made (Mouritsen and Dechow, 2001); structural decisions such as, should the factory be built in location A, B, or C, how many machines should we employ, how many staff shall we have, how much shall we invest into R&D etc., must be decided before executional decisions; less waste, higher quality, higher productivity etc., can be made. Thus, they suggest that accounting calculations are ‘invisible’ to operations management because these decisions are made before the factory exists (Miller and O’Leary, 1994, Mouritsen and Dechow, 2001). They also suggest however, that accounting is still used in some instances within the factory; perhaps because managers to do not fully trust non-financial information (and rightly so in light of the anecdote of Chenhall and Langfield-Smith, 1998), or that accounting takes on forms ‘beyond expectations’; which could mean both advanced technical or conceptual uses, or even simplistic uses (such as in Hutchinson and Liao, 2009).

The above literature highlights that MA may have at least three roles within laterally structured and lean manufacturing organisations; (i) the ability to assist in multi-dimensional decisions at a structural level, (ii) the ability to create the space for executional level decisions to be made on a uni-dimensional level, and (iii) the ability to assist in monitoring and decision making, even at an executional level, if the culture and environment is inclusive and supportive of integration between different approaches to decision making.

4.2  Strategic Management

Shank (2006) echoes many of the concerns for MA that were raised some 25 years ago in relation to losing relevance for management (Johnson and Kaplan, 1991). He suggests that; “[t]here is very little emotional energy left for strategic accounting transformation after all the [regulatory] requirements are met.” (Shank, 2006, p. 362) He paints a fairly negative picture for MA, and particularly strategic MA, and suggests that most academics and practitioners prefer the simpler world of MA in comparison to the embedded, holistic and interconnected world of strategic accounting (Ibid., p. 356)

He suggests that a lack of integration between management accountants and other functional areas is a major problem (supported by Chenhall and Langfield-Smith, 1998, Lord, 2007 etc.), and again comments on a focus on executional level costs within MA, whilst commenting that developments in structural costing have largely been advanced by scholars outside MA (Anderson, 2007), such as in areas of organisational structure. Shank comments on the need to move away from ‘functional silos’ and to integrate into strategic and holistic thinking, not just in accounting, but within other functional areas as well, and also outside the limited functional boundaries of the organisation (Kraus and Lind, 2007). Northcott and Alkaraan (2007) suggest some possible solutions to this integration problem through actual integration with other areas and by including non-financial measurements; they show how strategic management can incorporate a number of functional areas and help them to communicate; suggesting that this allows for a more balanced, and therefore inclusive, approach.

Anderson (2007) also uses the Shank and Govindarajan (1993) distinction between executional costs and structural costs, and again suggests that MA has overly focused on executional cost management (Shank, 2006), despite it being more relevant to structural decisions (Mouritsen and Hansen, 2006, Hansen and Mouritsen, 2007). She suggests that there has been a lack of research focusing on structural decision making within MA, and hints that executional focused research out with MA has often taken for granted the structural cost decisions which create the space in which executional decisions can be uni-dimensional; i.e. the structure of the factory itself. She argues that “much of what constitutes modern cost management is found in the choices about organizational strategy and structure” (Ibid., 484) since much of the cost of production is committed pre-production (Hansen and Mouritsen, 2007 p. 743). She comments that there has been little MA research focusing on these decisions within this structural space[14].

Again, the Miller et al. (2008) concept of the hybrid ability of MA relates to strategic management and supports Northcott and Alkaraan (2007) on hybrid practices being formed from interaction with a number of different areas of expertise, and this having benefits in terms of communication, inclusivity, balanced measurement, team-building etc. Extending this view, (Modell, 2012) suggests that strategy has an institutionalisation effect, which could further the move to lateral conceptualisation of the organisation; as the strategy changes, the mode of logic of the employees and managers changes (given the potential for strategy changes to institutionalise). Thus, it could be suggested that explicit strategy changes involving the MA system could be employed as a tool to institutionalise a move to lateral conceptualisation of the organisation and its environment. However, as (Modell, 2012) highlights, institutionalisation is difficult to control and unintended consequences can occur. Burns and Baldvinsdottir (2007) comment optimistically on the role of accountants becoming more integrated and involved with other function areas, and how the discourse of accounting is permeating into other function areas without being overtly resisted (Miller et al. 2008, Kaplan and Porter, 2011, Kurunmäki and Miller, 2011). Their findings support (Pierce and O'Dea, 2003, and Byrne and Pierce, 2007) on the move of management accountants from ‘bean counters’ to ‘consultants’ and hints at their move to a more lateral and holistic conceptualisation of the organisation.

The hybrid ability of MA means there are many ways in which MA can be used to enhance a holistic view of the organisation, through enabling; integration between processes, departments and teams; being holistic in its approach; communicating across areas and teams, particularly into spaces in which it has been resisted; including financial and non-financial information to promote balanced decision making; integrating and encouraging inclusivity through participatory involvement in MA process developments; assisting in structural decision making, and in creating the executional space; and an ability to effect and assist in institutionalised change programs.

4.3  The BSC and ABCM

One of the first MA innovations which embraced the lateral conceptualisation of the organisation was the Balanced Scorecard (BSC) (Kaplan and Norton, 1992 etc.). Norreklit and Mitchell (2007, p. 175) confirm the difficulty of implementing balanced and correctly aligned measures, since “the outputs from performance measurement systems are notorious for the capacity to mislead and confuse the user and to produce unintended and often dysfunctional consequences”. Lee and Yang (2011) comment that integrated measures are more prevalent in ‘organic’ (which is similar to lateral organisations here) compared to ‘mechanistic’ organisations, and that under higher competition, there is a positive relationship between organisational performance and the level of integration and sophistication of the performance measurement system (the BSC). They also find that integration (Shank, 2006, Lord, 2007 etc.). is more relevant to mechanistic organisations than to organic ones. But adoptions of new and innovative performance measurement systems require organic structures, which conflicts with the hierarchical requirement for their effective implementation and utilisation; thus, hybrid forms of organisation are best suited to develop and implement innovative performance measurement systems (Miller et al., 2008, Lee and Yang, 2011). 

(Chenhall, 2008) comments, on a theoretical level, on how innovations within MA, such as the BSC and ABCM, are complementary to ‘horizontal organisations’. He comments that there has been little supplementary innovations or uptake from MA within horizontal organisations, despite the holistic and lateral attempts included in the BSC and ABCM. He proposes that the reasons for this conflict are that accounting numbers continue to be difficult to understand (Johnson, 2006), that management accountants are not perceived as strategic (Anderson, 2007), that MA is not relevant to operational decision making (Johnson and Kaplan, 1991), and that there is a continuing conflict between the hierarchical orientation of MA and its lack of integration (Shank, 2006, Lord, 2007) with other function areas. He also comments on advocates of the horizontal organisation seeing little use for accounting. But there is little empirical support of the propositions and little consideration of Mouritsen and Hansen’s (2006) thoughts on the benefits of differentiating between executional and structural decisions. He also focuses narrowly on the concepts of the BSC and ABCM, which may not be broad enough given the relevance to structural decisions (Mouritsen and Hansen, 2006) and evidence that accounting may be used in a ‘surprisingly’ simplistic manner in lateral manufacturing organisations (Hutchinson and Liao, 2009).

Concepts such as the BSC and ABCM demonstrate hybrid and holistic dimensions of MA innovations and suggest that MA could be used in a multitude of ways within a lateral organisation, through; balancing financial and non-financial information into a formalised measurement tool; integrating areas, processes, and teams to a common focus; promoting a formalised measurement tool to promote trust, fairness, and accountability; promoting a common understanding of organisational goals and how activities link to these goals etc.

4.4 Inter-organisational Networks

Another area of MA which supports a lateral conceptualisation of the organisation is the inter-organisational network literature. The lateral conceptualisation of organisations and their environments is clearly central to inter-organisational control. (Hopwood, 1996) provided the impetus for exploring the MA practices and processes which are evident throughout the management of laterally connected organisations through network and supply-chain analysis. A plethora of research has come from this and explored open-book accounting (Mouritsen et al., 2001, Kajüter and Kulmala, 2005, Windolph and Moeller, 2012), information exchanges (Baiman and Rajan, 2002, Caglio and Ditillo, 2012), value and supply chain analysis (Anderson, 2007, Fayard et al., 2012), overlapping accountabilities (Hakansson and Lind, 2004, Kajuter and Kulmala, 2005), trust (Tomkins, 2001, Jakobsen, 2010, Kroeger, 2012), control system characteristics (Dekker, 2004, Kraus and Lind, 2007), dyadic networks (Dekker, 2004, Hakansson and Lind, 2004), interconnected and embedded networks (Tomkins, 2001, Kajuter, 2005, Mouritsen and Thrane, 2005, Caglio and Ditillo, 2012) etc. 

The inter-organisational network literature is one of the few areas in which the role of MA within a laterally structured and conceived network of organisations is viewed positively and as providing support to the network, despite a strongly lateral structure. Kraus and Lind (2007) and Caglio and Ditillo (2008) summarise the literature on inter-organisational relationships and controls, and highlight that the aspects of MA which are found to be useful for decision-making and control within inter-organisational networks range from conceptual levels of building trust (Tomkins, 2001, Kroeger, 2012), and ‘mapping’  the network (Kajüter and Kulmala, 2005), to social, behavioural and outcome specific controls such as creating overlapping accountabilities (Hakansson and Lind, 2004, Kajuter and Kulmala, 2005), and open-book accounting (Carr and Ng, 1995).

Caglio and Ditillo (2008) comment on the need to focus on the interconnected and embedded nature of inter-organisational relationships and for future research to explore this. They comment that firm-level factors are important and influence the amount of information sharing, which continues the importance of a contingency perspective. (Jakobsen, 2012) comments on the need for honesty and transparency within inter-organisational relationships, especially relating to costing information and supports suggestions as to the importance of trust (Tomkins, 2001, Kroeger, 2012).

The key principle of MA within inter-organisational relationships is to consider the holistic, embedded and interconnected nature of the environment in which the organisation operates. Within this network, accounting can be used beneficially in a number of ways (as highlighted above) to enhance the performance of the network, facilitate information sharing, reveal compatibilities, and create the rules and space for the network to function (Miller and O’Leary, 1994, Mouritsen and Dechow, 2001, Mouritsen and Hansen, 2006 etc.), which suggests a number of ways that MA could be used within a lateral organisation, particularly given the focus of lateral organisations on the interconnected and embedded nature of the team-based units within the network of their organisation; an intra-organisational network.

5.    How accounting might be used within lateral organisations and subsequent research questions

From the above studies it is clear that despite concerns as to the relevance and applicability of MA to the lateral focus of many contemporary organisations (Chenhall and Langfield-Smith, 1998, Johnson, 2006, Mouritsen and Hansen, 2006, Shank, 2006, Anderson, 2007, Hansen and Mouritsen, 2007, Hutchinson and Liao, 2009 etc.), there are many areas where MA has lateral dimensions.

The key areas from the preceding section are summarised and aligned within three sub-categories which are reviewed in the following order;

(i)              balancing strategies and promoting integration (hybrid nature of MA; balancing financial and non-financial information; integrating processes, teams and areas; facilitating communication; enhancing participation and involvement of employees; assisting in institutionalised change programs etc.),

(ii)            (ii) operational and structural decisions (structural decisions themselves; how structural decisions create the executional space for operational decision;, executional decisions themselves etc.) and,

(iii)           (iii) ­intra-organisational networks (holistic, interconnected and embedded considerations; formalise and create spaces prior to their existence; use at structural and executional level; facilitate information sharing and promote trust etc.)

These categories suggest the need for, and provide a framework under which we might analyse, an empirical investigation of the formation, role and use of MA within lateral organisations. These categories capture the five areas in which lateral organisations have concerns related to MA, as outlined in section 3.2 and summarised at the end of sections 4.1-4.4. This section summarises and aligns the relevant information from the previous sections and presents some research questions based on this synthesis.

5.1 Balancing strategies and promoting integration

Despite concerns (Shank, 2006, Lord, 2007 etc.), it has been suggested that MA and management accountants can have a beneficial role in increasing balanced and integrated processes, departments and teams (Northcott and Alkaraan, 2007). Accounting has the ability to both integrate (Miller et al. 2008) and promote integration (Shank, 2006, Lord, 2007, Northcott and Alkaraan, 2007, Lee and Yang, 2011). (Northcott and Alkaraan (2007) suggest that actual balance and integration with other units is possible from the MA function, and that it has many positive outcomes. They comment that MA has the ability to interact and integrate with other functional processes to create a balanced decision making process and to promote a culture of communication, inclusivity and information sharing through participation and involvement. Proponents of the BSC comment on its ability to integrate and balance financial and non-financial information, to identify cause and effect relationships, and to clarify strategy. Lee and Yang (2011) support this view and comment on increased amounts of integrated and balanced performance indicators within organic organisations’ BSCs, and suggest that MA has a role in supporting this integration. Chenhall and Langfield-Smith (1998) and Hutchinson and Liao (2009) highlight the importance of the organisational culture in determining how involved, balanced and integrated the MA system is, and suggest that under a supportive, inclusive and involving management culture, MA can be used to assist in integrating processes, functional areas and teams, as well as creating balanced strategies.

Miller et al. (2008) highlight the ability of MA to hybridise, which can again increase its ability to integrate and promote integration. Kurunmäki and Miller (2011) highlight that accounting information can be implemented into areas in which it is traditionally resisted (i.e. public health care) focusing on its integration, hybridisation and balancing abilities, and perhaps hint towards how it can be used as a tool to implement and support institutionalised change (Modell, 2012)[15].

Balancing and aligning strategy, and integrating processes, functional areas and teams remain challenging areas for MA research (Shank, 2006, Lord, Norreklit and Mitchell, 2007). Exploring the balance between, and integration of, financial and non-financial information in MA systems within lateral organisations, the reasons for these choices, and any perceived, or real, compatibility issues is an interesting topic (Hansen and Mouritsen, 2007, Lee and Yang, 2011). Further, investigating how MA is used, and indeed if it is, to integrate processes, functional areas and teams at an executional level, and whether or not there is a relationship with the above point (integration), would also prove fruitful (Hutchinson and Liao, 2009). Any integration between executional and structural dimensions and the impact of, and implications for, MA within this context is also a largely under-researched area (Anderson, 2007). Finally, investigating the level of integration at both structural and executional levels, and exploring the impact of lateral structures and conceptualisation, on the MA system would also prove insightful (Shank, 2006, Hansen and Mouritsen, 2007, Hutchinson and Liao, 2009, Kurunmäki and Miller, 2011).

5.2 Operational and Structural decisions

Mouritsen and Hansen (2006) comment that MA is ‘invisible’ to operations management since it does not operate within the operational, or executional, space. They comment that it is invisible in this space because it is more concerned with creating this space at a structural level where multi-dimensional decisions are required to be made.

MA has a clear role in structural decision making (Mouritsen and Hansen, 2006), despite this being an under-researched area (Anderson, 2007, Hansen and Mouritsen, 2007). There is much scope for relevant and interesting research into the way MA is used to inform structural decisions; both the structural decisions themselves, and in exploring how MA is involved in creating the spaces in which executional decisions can be made on a uni-dimensional level. Anderson (2007) highlights that the structural decisions which create the executional space, and which involve MA, are often taken for granted by those exploring executional operational decisions, and there is a pressing need to explore how MA is implicated with structural decision making, in terms of; how information is used to inform structural cost decisions and how this impacts on the executional space, how integrated these two spaces are through MA, and how MA is used to conceptualise and create the executional space for operational, uni-dimensional decision making.

Johnson (2006) comments that MA should not be used at all on an executional level, and suggests it can be ‘fatal’ to organisational success despite MAs focus on developing costing techniques at these levels of decisions (Shank, 2006, Anderson, 2007). Despite this, there is evidence that MA is still used at an executional level since there may be a lack of trust towards purely non-financial information (Chenhall and Langfield-Smith, 1998, Hansen and Mouritsen, 2007). Further, recent evidence suggests that MA can be used at an executional level in a simplistic form, under a supportive and open culture where MA is seen as integrated with other paradigms of decision making, and is a ‘servant’, not a ‘master’ of production (Hutchinson and Liao, 2009).

There are a large number of areas in which an empirical investigation into the operational and structural dimensions of lateral organisations, and their impact on the MA system, would prove insightful. Particularly, exploring how MA is implicated in integrating the structural and executional levels, or whether these two dimensions are kept separate (Mouritsen and Hansen, 2006, Hutchinson and Liao, 2009) is largely unexplored. Further interest lies in exploring MA at an executional level within lateral organisations, since there is conflicting commentary on this topic (Johnson, 2006, Hutchinson and Liao, 2009); the formation and use of MA with respect to the culture of the organisation would prove particularly insightful (Cooper and Slagmulder, 2004, Mouritsen and Hansen, 2006, Hansen and Mouritsen, 2009, Hutchinson and Liao, 2009). Finally, the role of MA within lateral organisations would also explore some conflicting commentary in the literature and give insights into some of the above; exploring how much role definition and multi-tasking are evident, and the level of frequency with which roles change might provide insights into the perception of MA within lateral organisations and perhaps hint at why it might be used as a ‘servant’, rather than as a ‘master’ (Pierce and O’Dea, 2003, Burns and Baldvinsdottir, 2007, Byrne and Pierce; 2007, Hutchinson and Liao, 2009).

5.3 Intra-organisational networks

Given the lateral structure and conceptualisation of lateral organisations, the inter-organisational relationship literature – which focuses on many of the same principles – provides a number of interesting propositions as to the potential formation, role and use of MA within lateral organisations. The inter-organisational relationship literature has shown that accounting can be used to encourage trust within a lateral network (Tomkins, 2001, Jakobsen, 2010, Kroeger, 2012) through information sharing (Mouritsen et al., 2001, Kraus and Lind, 2007, Caglio and Ditillo, 2012), overlapping accountabilities (Hakansson and Lind, 2004, Kajuter and Kulmala, 2005), that it can be used at executional and operational level through OBA, life-cycle costing, target costing etc. (Carr and Ng, 1995, Cooper and Slagmulder, 2004, Kajuter and Kulmala, 2005, Windolph, 2012), and to involve and integrate non-financial information (Dekker, 2004, Mouritsen and Thrane, 2005, Hansen and Mouritsen, 2007).

The concept of intra-organisational networks remains an interesting research area, certainly within organisations engaged in a number of inter-organisational relationships, but perhaps more so in lateral organisations specifically employing a network view intra-organisation. Exploring whether the lateral organisation itself is viewed, by the members, as an interconnected and embedded network would provide an interesting starting to explore how the MA system within the organisation responds to these requirements; whether or not there is any cross-over of techniques from the inter-organisational control literature (such as accounting being used to encourage trust between departments by sharing accounting information, using overlapping accountabilities between departments (Hakansson and Lind, 2004, Kajuter and Kulmala, 2005), any evidence of executional level controls such as in Cooper and Slagmulder (2004), the use of gradings and non-financial information (Mouritsen, 2001, Caglio, 2012), how MA is used to map the network (Miller and O’Leary, 1994, Mouritsen and Dechow, 2001, Kajuter and Kulmala, 2005, Mouritsen and Hansen, 2006), how MA is used in controlling interconnected and embedded networks of actors (Caglio and Ditillo, 2008) etc.), would all be interesting areas. Comparison between intra and inter-organisational MA, with regards to formation and use, would provide further interest and highlight any practices being used intra-organisation which have similarities, or differences, to inter-organisational controls, and reasons for these differences could be commented on.

6.    Conclusions

6.1 Overview and Closing remarks

The lateral dimension is becoming more popular in a wide variety of areas, practices and concepts. Many organisations are moving towards this lateral dimension in the face of increasing competitive pressure and hope to incentivise, motivate, empower and encourage employees to be innovative, problem solving, networked and to share information – to encourage a ‘management innovation’. Despite criticism of the incompatibility between MA and this lateral dimension, this review has shown that there are a number of areas in which MA incorporates lateral dimensions, and proposed ways in which MA could be used, and some related issues, under this conceptualisation.

The above review has highlighted some of the diverse ways in which MA could be used within a lateral organisation, the impact of contingent and contextual factors on the MA system, and has suggested a number of avenues for potential future research. A number of scholars have called for more research on the lateral dimension of MA within a number of different fields, and this paper hopes to have synthesised a number of these calls and suggested ways in which MA might continue to be relevant to modern organisations’ adopting a lateral dimension and focus, whilst also suggesting other potential avenues to explore, and a need to explore this phenomenon empirically.

This review hopes to have illustrated the pressing need for an empirical study investigating the formation, use and role of MA within lateral organisations. It has been show that there are different MA systems for different organisational structures and requirements, and that lateral organisations have different requirements to traditionally structured organisations in a number of ways (sections 2 and 3). Further, the traditional conflict between MA and lateral dimensions has been explored and commented on to show that there are many aspects of MA which incorporate lateral dimensions (section 4). Finally, the review has built a framework to suggest what we might expect the formation, use and role of MA to be in lateral organisations given a review of accounting concepts which incorporate lateral dimensions (section 5). These sections together seek to highlight the need to explore the highlighted issues through an empirical study addressing the three issues raised in sections 5.1-5.3, and expanded upon into a preliminary draft interview schedule in Appendix A below.