Developing an Organizational Perspective to Management Accounting

Abstract

Being asked to make a short speech as part of accepting the award inevitably leads to some introspection and reflection on major factors that have influenced one's career, be they events or individuals. Past recipients of the award have been very influential in putting management accounting on the map. Some have been instrumental in developing the way we think about management accounting and teach the subject; some have developed important perspectives such as information economics, combining economics with psychology, the importance of national culture, activity-based cost management, and balanced scorecards. The way these recipients developed their thoughts is well told in their acceptance speeches and collectively provides a wealth of ideas and a historical perspective on the development of our discipline.I commenced my studies in economics, and I maintain a keen interest in economic approaches to management accounting. However, early in my academic career, I was pressed into considering an organizational approach to management accounting, not because it was an easier option; rather it addressed the world of management accounting within which I found myself. In this address, I will share with you some personal reflections on the process of my discoveries in the area of organizational approaches to management accounting from the mid-1960s.The backdrop to this address is that research is something of a growth model. Stage 1: starting from a baseline of skills and knowledge gained at undergraduate studies; stage 2: progressing through refinement of skills with more graduate study; and stage 3: consolidating through work toward publications and other academic outputs. Stages 1 and 2 are somewhat planned and incremental, while stage 3 is more often associated with less ordered processes, often stumbling across potential research areas by way of reading and personal interactions. Research projects can be focused around existing ideas, sometimes being somewhat formulaic, sometimes highly innovative. Often ideas can be serendipitous and develop in unpredictable ways. The key is to recognize when there is a management accounting angle that will relate to an important organizational or social issue.I initially thought I would pursue a career in science; however, when it came time to enroll in an undergraduate degree, I selected economics. In the 1960s, economics degrees in Australia were focused on macro- and microeconomics with a strong orientation toward public policy. Macroeconomics examined the behavior of entire economies such as overall price levels, unemployment rates, inflation, and the like. Microeconomics studied the behavior of individual decision-making units, be they individual consumers or organizations, and typically how decisions by these units are coordinated by the market mechanism. While there are many crossovers in examining macro- and microeconomics and both are required to educate economists, most students developed a preference to specialize in either macro or micro issues. I had a preference for matters related to microeconomics.Microeconomics stressed the importance of prices, income, and quantity from the perspective of consumers. Consumer choice was examined by way of indifference curves and budget lines. Market mechanisms were studied mostly assuming perfect competition. Theories related to production functions and cost curves heralded a need to consider the nature of the technology of the firm. Costs were separated into marginal, average, and total costs. Fixed and variable behavior was defined, with the curious idea of marginal fixed costs flagging that costing was deserving of more attention. Marginal analysis and profit maximization required understanding cost behavior, and the various time lines on decisions. Economic profit was seen as cleverer than accounting profit as it included a charge for capital, a notion that sparked much debate later in accounting on issues such as residual income and shareholder value models. Looking back, contemporary management accounting had much to offer these traditional theories in microeconomics as it can unpick the nature of costs and their behavior depending on activity, time, and the nature of decisions involving costs.In some courses, malfunctioning market mechanisms were considered with the economics of environmental protection, including energy and natural resources, flagging an area that would be important in management accounting 30–40 years on. I found these particularly interesting, but public policy in the 1960s was not as focused on the environment as it is now. Other topics that received limited attention but enough to whet the appetite were the economics of poverty, inequality, and discrimination. This list of issues from basic microeconomics is only illustrative of topics, but there are strong echoes in this 1960s material of research agendas that have captured the attention of management accountants over the past 20 years.It was common in Australia during the 1960s, 1970s, and 1980s for individuals to go overseas to undertake graduate education, typically to the U.K. or U.S. However, in the mid-1960s, after completing my undergraduate degree, I was keen to enter the workforce and joined a bank as an economic researcher. I was involved in doing feasibility studies for client firms. After a couple of years, I decided to undertake a master's degree in financial management at Southampton University in the U.K. This was my formal introduction to more advanced ideas in finance, financial and management accounting. The area of financial accounting was heavy with theoretical debate on the meaning of income and asset valuation, with theories of finance being articulated and refined. Management accounting was pragmatic and practice oriented with the principles and practices being articulated in well-crafted books published out of both the U.S. and the U.K. In the main, theories were borrowed from financial accounting and finance to consider issues such as valuation, income, and discounted cash flows. There were some spirited debates on issues related to measuring income within divisionalized organizations and the transfer pricing issues that this might generate.Also, management accounting academics provided scholarly accounts on the application of operations research techniques to management accounting issues, such as linear programming and simulation. This generated much excitement but did not seem ever to fulfill its full promise. One suspects that the changes envisaged by the techniques were never accompanied by considering people and implementation issues in innovations driven by formal model building. In the 1990s, management accountants would address these implementation issues, in some depth, when considering changes accompanying the introduction of activity-based accounting and performance measurement systems such as balanced scorecards.On completing my master's degree, I accepted an appointment at Sheffield University. This opened up a new world of management accounting thinking, for me, being led at that time by Tony Lowe and Tony Tinker. While my background and predilections led me to study management accounting from a traditional economics approach, the Sheffield school was developing a much more sociological and critical orientation. More generally, these ideas were being advanced in the U.K. by scholars such as Anthony Hopwood, Wai Fong Chua, David Cooper, and others. While my background and orientation constrained my motivation to embrace these ideas fully at this time, the approach did open my mind to examining the assumptions behind many of the economic theories I had learned in my economics degree and graduate finance courses.My curiosity to examine economic theories with modified assumptions can be traced back to my work on feasibility studies and business plans for firms while working at the bank. Assumptions of rational behavior and perfect knowledge did not fit the business folk with whom I worked in both large- and medium-sized client organizations. While I knew that there were works in economics that had developed theories with assumptions that were flexible and realistic, I had not studied these in depth. My growing awareness that organizational context and individual behavior could be captured in solid economic theories derived from work on the behavioral theory of the firm (e.g., Simons 1947; Lindblom 1959; Cyert and March 1963), from economists who examined the behavioral ramifications of growth models (e.g., Penrose 1959; Marris 1964) and the ideas of Williamson (1975) on differences between market and non-market decision making, management, and service provision. These works had theoretical elegance combining economic and behavioral theories and resonated with my state of mind at this stage. Consideration of these works can still provide insights related to management accounting research and organizations, as can more recent work that focuses on economics and psychology.At about the same time, I became aware of another line of research that was examining diversified firms. The work of the business historian Chandler (1962) examined how divisionalized organizational structures were a response to growing diversification in U.S. firms. There followed a series of studies that examined this association between strategy and structure in the U.S. (Rumelt 1974), U.K. (Shannon 1973), France and Germany (Dyas and Thanheiser 1976), and Japan (Suzuki 1980). This was my introduction to the idea that an administrative arrangement might develop to suit a type of strategy. These studies followed an approach that was emerging known as contingency theories, or more correctly, organizational theories following contingency frameworks.More comprehensive contingency approaches were developed and articulated in the U.S. by Lawrence and Lorsch (1967), Thompson (1967), Perrow (1967), Galbraith (1973); in the U.K., Woodward (1958), Burns and Stalker (1961), the Aston school lead by Pugh and associates (Pugh et al. 1963); and later in Australia by Donaldson (1987). I found that these works combined interesting theories that context mattered when considering administrative change, and the ideas were embedded in practice. These works had a profound impact on the study of organizations and still provide important insights relevant to contemporary settings. Systems theory was also popular in some quarters but perhaps became overly complicated when applications were considered (Bertalanffi 1968). However, the seeds of configuration approaches can be seen in this thinking and important ideas, such as equifinality, are relevant to recognizing that different management control systems (MCS) can suit similar contexts.Around 1973, I returned to Australia, taking up a position at Macquarie University. 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