www.bradford.ac.

uk/management
Managing Change and
challenges for the future
Week 22



Learning Outcomes
Appreciate management accounting change as cumulative,
complex, and interconnected processes over time
Be familiar with the basics of an institutional theoretical
perspective on management accounting change
Identify characteristics of successful and unsuccessful
change
Appreciate deep-set cultural and political aspects of change
Describe key considerations when implementing and
managing accounting change
Give an overview of some of the possible drivers and
challenges of management accounting in the future

2
Introduction
Change is all-pervading in and around organizations -
management accounting is no exception:
Considerable and ongoing change in the business environment
context within which MA operates
Changes in the role of management accountants
Changes in both the technical nature and the use of MA techniques
and systems

Design, implementation and ongoing management of change
have become a crucial part of the roles of todays
management accountants
3
What is Change, and Why the Concern At All?
We might consider change occurring at the following levels:

Environmental change
e.g. new policies or rules at the economy/society level, new and
emerging world orders, new technologies, or new social fads
Organizational change
e.g. mergers and acquisitions, alliances and networks amongst and
between organizations, outsourcing
Intra-organizational change
e.g. the implementation of new accounting techniques, redefining
departmental structures, staff re-skilling
Group/individuals change
e.g. the arrival and/or departure of staff, promotion, retirement
4
A framework for Understanding MA Change
An institutional theory of MA change:
Starts from a premise that MA constitutes a largely rules-based and
routinized feature of day-to-day organizational life
Such rules and routines augment stability and continuity over time in
organizational practice
Rules and routines embodied in MA practices help bring order to
organizations that otherwise could be far less organized given their
mixed/complex make-up

So, how does such order come about?
For most organizations, order is achieved through the inter-play of
rules, routines and shared assumptions within an organization about
the nature of its activities
We call these shared assumptions institutions
5
A framework for Understanding MA Change
Rules and Routines
Rules are necessary to co-ordinate and give coherence to the actions
of groups and/or individuals within an organization
Rule-based behaviour can result from an explicit assessment of the
available alternatives
There are different rules for what to do, when, and how
Selected rules are then repeatedly followed so as to avoid undertaking
such assessments on every occasion

By repeatedly following rules, organizational behaviour can become
programmatic or automatic
Premised in the tacit knowledge that people acquire through experience
When people just know what to do, when and how

At this stage, such rule-based behaviour can be described as a
routine

6
A framework for Understanding MA Change
Rules and Routines
7
The interaction between budgeting rules and routines, and its
influence on people's actions
A framework for Understanding MA Change -
Institutions
Institutions - defined as an organizations shared and taken-
for-granted assumptions
They are simply the way things are around here
e.g. Budgeting has become institutionalized in an organization when it
is a generally accepted and unquestioned way of doing things
Institutions form over time, with the ongoing re-enactment of
rules and routines
They are very often tacit assumptions which people just know as
being how we do things without necessarily being observed in
practice like rules or routines
So, institutions can be observed through the things that
people do within organizations
It is rules and routines which shape the actions per se
8
A framework for Understanding MA Change -
Institutions
9
The influence of
institutions on
actions through
rules and routines
A framework for Understanding MA Change -
Institutions
As MA rules and routines (e.g., budgeting) become more strongly
institutionalized, they also become harder to change
And they are rarely questioned, but assumed by all as the way things are
done
They become deep-set and ingrained aspects of an organization
People seldom look outside the bubble or investigate alternative business
ways

It is important to stress that an organizations rules, routines and
institutions should be understood as far as possible before engaging
in any change
The process of managing (MA) change should give due attention to the
existing rules, routines and institutions
MA change will likely stand a better chance of success when its technical
content and underlying philosophy complement (rather than conflict with)
existing MA rules, routines and institutionalized ways
Unsuccessful MA Change: Nasty Stuff Ltd
Nasty Stuff Ltd is a small specialist-chemicals manufacturer
Around 100 (mostly skilled) staff
Since its establishment, production became locked-in to a small number of
bespoke contracts with multinational customers

Captives business was so dominant - consistently earned ~ 80% of annual profits
But carried substantial risk - specialist plant/labour, and uncertainty over renewal of
contracts

Indeed, two major captive contracts were terminated without renewal
Led to a severe cash flow crisis
Hard lessons learned

Directors agreed to redress the dominance of captives work
New strategy targeted a 50/50 turnover split between captives and other products
Other products to be developed for a broader customer-base, multi-client work
50/50 split to be achieved within five years - ambitious target

Importantly, it was R&D which had responsibility for developing the new multi-client
products
11
Unsuccessful MA Change: Nasty Stuff Ltd
Unsuccessful MA Change: Nasty Stuff Ltd
In Nasty Stuff Ltd there were common assumptions (i.e., institutions)
about the nature of the business
Particularly concerning the importance of efficiencies, yields, working at (or
near to) full capacity

The Managing Director (MD) claimed that these assumptions underpinned
a results-orientation
Contribution-based information was used considerably in most management
reports

Material costs were especially high in relation to other costs
Over time, contribution information came to underpin much of the day-to-day
language used by the various managers to assess and convey performance in
their part of the organization
Marketing Manager, Operations Manager and the Chief Engineer all relied
heavily on contributions-based spreadsheets for day-to-day management of
their functions
Shift leaders and many operators just knew the contribution-earnings of
individual products
12
Unsuccessful MA Change: Nasty Stuff Ltd
Post-cash flow crisis, it was clear to MD that the
institutionalized business assumptions, encompassing a
results-orientation, and grounded in the recurrence of
contributions-based routines, had failed to penetrate R&D
He believed that R&D was internally focused on playful chemistry,
which R&Ds highly-qualified chemists generally characterized as
being slow and painstaking

The MD concluded that R&D was detached from the rest of
the business, and more concerned with chemistry for the
sake of chemistry, than in making money.

MD feared that absence of results-orientation in R&D could
hamper new multi-client products ambition

Unsuccessful MA Change: Nasty Stuff Ltd
MA change in R&D:
With the Chief Chemist, MD examined 3 years time-sheets,
showing:
Unsatisfactory time-utilization in R&D - e.g., only 60% of highly-qualified
staffs time was actually spent on research activity
No overtime had ever been worked in three years by R&D staff
Confirmed to MD an absence of results-orientation in R&D

Those products which R&D had spent time on, and which had
eventually reached the market(s), earned negligible contribution
earnings

MD introduced a new/simple system of accountability within R&D
new rules
Formalization of weekly time-sheets for individual research projects
Prioritization of new products which were to be brought to the market
by agreed dates
Unsuccessful MA Change: Nasty Stuff Ltd
MD and Chief Chemist also developed new contribution-based reports and new
reporting procedures (more new rules) for R&D
Intention to make R&D more results-oriented
Bring R&D more in line with the rest of the business

These new forms of accountability rather rapidly became routine practice
Collection of time sheet data, inputting data, producing reports, holding monthly meetings
with MD
But only really applied to the Chief Chemist

MD played a key role in this MA change implementation process, he mobilised:
Staff perceptions e.g., utilizing various management-level meetings to convince
others that change should take place within R&D
Resources e.g., drawing on the authority derived from his position as MD
Decision-making e.g., monthly performance meetings with C/Chemist

The apparent ease/speed with which the new accounting practices became routinized
within R&D was also helped by the initial enthusiasm for change of C/Chemist. He
accepted:
The necessity of new formalized time-sheets
Systems of accountability aligned with elsewhere in the organization
15
Unsuccessful MA Change: Nasty Stuff Ltd
However:
After two years, there had actually been little change in the general ways of
working within R&D

Intended results-orientation had not become instilled into R&Ds day-to-day
activities
There was no thinking in terms of making money (MD)
C/Chemist had acted as a buffer between his staff (in R&D) and the MDs broader
concerns
No delegation of the new accounting duties (rules, routines) within R&D
New forms of accountability were not passed down to other members of staff
within the department
C/Chemist undertook all the new rules and routines of accounting personally
R&D staff had no knowledge of why they were filling in time sheets

New accounting systems in R&D had not changed R&D chemists
institutionalized ways of thinking concerning what they did within the
organisation
Results-orientation not instilled within this department
Dominant routines and taken-for-granted assumptions in R&D still expressed in
terms of slow and painstaking chemistry
Unsuccessful MA Change: Nasty Stuff Ltd - SUMMARY
Difficulties of implementing MA change in an organizational setting where
new procedures (rules) challenge prevalent taken-for-granted
assumptions (institutions) concerning business activity
On the surface, the implemented changes appeared relatively simple - time-sheet
analysis is not exactly sophisticated management accounting!

On deeper reflection, the small changes implemented in R&D had radical
effects
Because the new contribution-based rules and routines, and intended results-
oriented ways of thinking were fundamentally different to chemistry-oriented
rules, routines and taken-for-granted assumptions in that department

If a results-orientation was to develop out from, or alongside the new
accounting rules, institutional change was also necessary in R&D
The dominant focus on chemistry for chemistrys sake needed replacing by
general assumptions of making money and a results-orientation
Such institutional change failed to materialize, and the change programme
eventually led to conflict, and ultimately failed
Successful MA change: Polyfoam
Polyfoam was one of the worlds largest producers of polymer foam
Company A (i.e., the case-study) is a wholly-owned subsidiary of Polyfoam

Co. As principal source of management information was the periodic
Business Performance Report
Provided an overall evaluation of each business area - including cumulative results,
current month/period results, available resources, capital expenditure, and an
operations review
The operations review was probably the most important document, and was designed
to provide in a simple two-page format the results and current state-of-play for the
business
Although annual budgets were prepared for each functional area, they
were not considered a management commitment
Regarded as an estimate of the likely profits
Failure to achieve the budget was not necessarily considered to be a reflection of poor
performance

However, during the 1990s (world recession) profitability declined
This incited reconsideration of management information systems, including MA systems
Successful MA change: Polyfoam
Successful MA change: Polyfoam
The recession put severe pressure on all of Polyfoams operating units
(including Co. A)
Suffered a major decline in demand for its products and incurred substantial
operating losses
Responded by combining certain production facilities and seeking various ways to
cut costs

Co. As management perceived their problems as stemming from significant
competitive pressures in both domestic and overseas markets, poor delivery
times, and a lack of quality products and Inadequate MA, and poor management
information systems in general

Senior management decided to purchase a fully integrated, computerised
management information system called Triton
Provided the database needed to track costs through to production, as well as to
facilitate the introduction of new software to better control the production
process
Integrated the financial and the manufacturing dimensions of the business
Total quality management (TQM), just-in-time (JIT), and statistical production
control (SPC) also implemented
19
Successful MA change: Polyfoam
However, despite these changes in the manufacturing systems
Profits failed to increase
Still not achieving international competitiveness

They had focused on the mechanics and technical aspects of their
new tools and techniques, rather than their substance (or the skills
required) to enable the company to become internationally
competitive
Attention to the control of operating costs, without due consideration of
what was required to be globally competitive, and without sensitivity
towards customer needs
Response too production-centred and insufficiently customer-focused

However, in time, it was acknowledged that change was needed in
the company's overriding (i.e., institutionalized) assumptions:
i.e. a shift from a production-orientation to a customer-orientation
Successful MA change: Polyfoam
Implementation of World Class Management

Recognition of a need to change taken-for-granted business ways
emerged alongside, and in part was due to, a growing awareness of the
WCM programme
CEO of Company A had attended a WCM training course offered by a regional
training agency
He immediately encouraged senior managers to do the same they were
impressed!
These senior managers embarked on a widespread training programme for
multiple staff

5-year plan, plus a 1-page strategy for each business area, were
developed
1-page strategy outlined each area managers vision for their business

Implementation of WCM met minimal resistance
Had a remarkable impact on business performance - increased profits
Performance improved over a range of indicators

21
Successful MA change: Polyfoam
Conscious effort made to secure employee involvement in the change
programme
Utilise employees skills in meeting customers requirements, and ensure
employees attitudes were customer-focused
Incentives were changed from individual- to group-based, and a weekly
Competitive Edge Report was produced to provide the non-financial and financial
measures required to control production

Post-implementation, Co. As managers:
Focused more on actual costs and actual trends rather than standard costs
Made greater use of non-financial measures
Became pseudo-accountants, doing their own local analyses

The information flow tended to run from production to accounting, rather
than vice-versa
So-called Competitive Edge Reports were used for controlling operations,
although the Business Performance Reports continued to be used for reporting
purposes and for management control by senior managers

Number of people in Accounting (function) declined considerably
Financial Controller described his new role as consultant to production managers
Successful MA change: Polyfoam
23
Important steps taken by managers for successful change:
Successful MA change: Polyfoam
The process of change in Polyfoam can regarded as evolutionary

As changes failed to improve profitability, the need for a more customer-
centred production culture was recognized
External stimulus in the form of a government incentive programme

It builds on, and extends, existing and prevalent ways of thinking

This need to change the existing institutional base was recognised before
new WCM systems
When the new rules and routines were introduced, the institutions were
already changing in a manner that was compatible with the underlying
assumptions of WCM
This 2
nd
stage of the change involved institutional change, which had
begun before the new rules and routines were introduced
New (WCM) rules and routines were perceived as being in support of the
new (customer-centred production) institutions
Implementing Management Accounting Change
We can now summarize some of the key
messages from both case studies
Institutions matter
Breaking the Bubble
Institutional change
25
Implementing MA Change: Institutions Matter
A clear message from both case studies is that institutions matter

The prospect of successful change implementation is likely to be
enhanced if the new MA systems are compatible with existing taken-for-
granted assumptions in an organization

Both case studies convey that MA change is complex and multi-
dimensional, requires careful planning and thoughtful implementation,
and extends significantly beyond the purely technical focus
Too much focus on technical aspects of change can create mechanical
routines, with little or no accompanying change in dominant taken-for-
granted business assumptions
Acceptance and ownership of new systems (rules) will likely not be achieved
through an overly technical change programme
26
Implementing MA Change: Breaking the Bubble
Important to question an organizations existing/settled assumptions before any
significant changes to MA systems are made
Sometimes, change demands breaking the bubble of taken-for-granted
assumptions - not easy to do!

In respect of breaking the bubble, change leaders should:
Identify as far as possible the existing institutions within an organizational
setting
Assess the extent to which new MA systems require institutional change
Recognize institutional differences between organizations and different
organizational units
Recognize institutional differences between individual departments of the
same organization

Might be sensible for the change leaders to employ an outsider to break the
bubble
27
Implementing MA Change: Institutional Change
Once an organizations taken-for-granted assumptions have been identified, how
do we go about managing institutional change?
Good communication, education and training are paramount (e.g. Polyfoam)
Communicate the nature and purpose of any MA change, to all relevant parts
of an organization
Where necessary, explain and openly discuss the importance of changing
organizational norms and unquestioned ways
Training in new procedures (and assumptions) should be both extensive and
intensive

Mechanical implementation of a new MA system is unlikely to change embedded
ways of thinking (e.g. Nasty Stuff Ltd)
MA change should be accompanied by clear explanations of why such change
is taking place
This should encompass everyone who is involved in, or either directly or
indirectly affected by the process of change
28
Things to Consider When Implementing MA
Change

29