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.
[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.
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