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«Paul M. Collier Aston Business School, Aston University Accounting for Managers Accounting for Managers: Interpreting accounting information for ...»

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an imperfect reflection of management models of control. Hofstede (1968) offers an early survey of the behavioural approach to budgetary control. He explores how the role of budgets has been viewed in accounting theory, in motivation theory, and from the perspective of systems theory. Finally, the brief overview of research into control in complex organizations by Merchant and Simons (1986) takes a broad view of what constitutes control, as does the present paper. It differs, however, in also paying attention to agency theory literature and psychologist research both omitted from consideration here.1 It will be argued that one of the unintended consequences of Anthony’s (1965) seminal work is that management control has primarily been developed in an accounting-based framework which has been unnecessarily restrictive. Although radical theorists have studied control processes more extensively, their attention has been focused much more on the exercise of power and its consequences than on the role of control systems as a means of organizational survival. This is an important area, but one which is outside the remit set for this review which is in closer alignment with Mills (1970) who argued for the place of management control as a central management discipline. He suggested that it was a more appropriate integrating discipline for general management courses than the tradition of using business policy or corporate strategy courses. ‘Control’ is itself a highly ambiguous term as evidenced by the difficulty of translating it into many European languages and the list of ‘57 varieties’ in its connotations given by Rathe (1960). Given this diversity some attention will be paid to matters of definition and the establishment of appropriate boundaries for this review.

Anthony’s (1965) classic definition of management control was ‘the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.’ He saw management control as being sandwiched between the processes of strategic planning and operational control; these processes being super-imposed upon an organizational hierarchy to indicate the respective managerial levels at which they operate.

Strategic planning is concerned with setting goals and objectives for the whole organization over the long term. By contrast, operational control is concerned with the activity of ensuring that immediate tasks are carried out. Management control is the process that links the two. Global goals are broken down into sub-goals for parts of the organization; statements of future intent are given more substantive content; long-term goals are solidified into shorter term goals. The process of management control is designed to ensure that the day-to-day tasks performed by all participants in the organization come together in a coordinated set of actions The authors recognize that this provides a narrow focus for the review, but space restraints preclude the possibility of providing a more comprehensive survey. Our choice has been, therefore, to restrict the survey to one which focuses on the literature which sees management control as a practical activity of managers. See pages S32–S33 for a discussion of the boundaries of our survey.


which lead to overall goal specification and attainment. This can be seen primarily as the planning and coordination function of management control. The other side of the management control coin is its monitoring and feedback function. Regular observations and reports on actual achievement are used to ensure that planned actions are indeed achieving desired results.

It may be argued that Anthony’s approach is too restrictive in that it assumes away important problems (see Lowe and Puxty, 1989 for further discussion of these issues). The first problem is concerned with problems of defining strategies, goals and objectives. Such procedures are typically complex and ill-defined, with strategies being produced as much by accident as by design. It is clear that Anthony was aware of the problems of ambiguity and uncertainty when he located these issues in the domain of strategy, but he then avoided their further consideration. The second problem concerns the methods used to control the production (or service delivery) processes, which are highly dependent upon the specific technology in use and which are widely divergent. Anthony conveniently relegates these issues to the realm of operational control. Finally, his textbooks concentrate upon planning and control through accounting rationales and contain little or no discussion of social-psychological or behavioural issues, despite his highlighting the importance of the latter. Anthony’s approach can, thus, be seen as a preliminary ground-clearing exercise, whereby he limits the extent of the problem he sets out to study. In a complex field this was probably a very sensible first step, however, it greatly narrowed the scope of the topic.

A broader view of management control is suggested by Lowe (1971) in a more

comprehensive definition:

‘A system of organizational information seeking and gathering, accountability and feedback designed to ensure that the enterprise adapts to changes in its substantive environment and that the work behaviour of its employees is measured by reference to a set of operational sub-goals (which conform with overall objectives) so that the discrepancy between the two can be reconciled and corrected for.’ This stresses the role of a management control system (MCS) as a broad set of control mechanisms designed to assist organizations to regulate themselves, whereas Anthony’s definition is more specific and limited to a narrower sub-set of control activities. Machin (1983) continues this line of thought in his critical review of management control systems as a specialist subject of academic study.

He explores each of the terms ‘management’, ‘control’ and ‘system’, defining a

research focus:

‘Those formal, systematically developed, organization-wide, data-handling systems which are designed to facilitate management control which ‘‘is the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.’’ ’ Machin notes that such a definition has the merit of leaving scope for academics to disagree violently whilst still perceiving themselves to be studying the same


thing! Further, Machin argues that research in MCSs, led, as it was, by qualified accountants, made the research questions ‘virtually immune from philosophical analysis’, a critique also reflected in Hofstede’s (1978) criticism of the ‘poverty of management control philosophy’, – the narrow, accounting focus which had become so prevalent.

Such diverse opinions leave a number of issues to be clarified. First, is the meaning of the term ‘control’. In this review we will include within the definition of control both the ideas of informational feedback and the implementation of corrective actions. Equally, we explicitly exclude the exercise of power for its own sake, restricting ourselves to those activities undertaken by managers which have the intention of furthering organizational objectives (at least, insofar as perceived by managers). We are, thus, primarily concerned with the exercise of legitimate authority rather than power. This is no doubt a controversial position, but gives the review a clear managerial focus.

There is also a distinction to be drawn between management control and financial control, which is of some importance given the accounting domination of the subject in recent years. Financial control is clearly concerned with the management of the finance function within organizations. As such it is one business function amongst many, and comprises but one facet of the wider practice of management control. On the other hand, management control can be defined as a general management function concerned with the achievement of overall organizational aims and objectives. Financial information is thus used in practice to serve two interrelated functions. First, it is clearly used in a financial control role, where its function is to monitor financial flows; that is, it is concerned with looking after the money. Second, it is also often used as a surrogate measure for other aspects of organizational performance. That is, management control is concerned with looking after the overall business with money being used as a convenient measure of a variety of other more complex dimensions, not as an end in itself.

Having set some boundaries, the next section of the paper will provide a brief account of the main themes that have formed the starting point for the development of the field. Whilst well known, these roots cannot be ignored as their influence is reflected in work which continues today. There follows a review of the literature that has evolved over the last 20 years both as a continuation of and as a reaction against those roots, using a heuristic map provided by Scott (1981). Finally, we will suggest possible themes for future development.

The starting points

–  –  –

managerial thought is well rehearsed. Less well known, but providing an excellent example of the classical management theorists, is the contribution of Mary Parker Follett, described by Parker (1986) as providing almost all of the ideas of modern control theory. Follett saw that the manager controlled not single elements but complex interrelationships and argued that the basis for control lay in self-regulating, self-directing individuals and groups who recognized common interests and objectives. It may be that Follett was an idealist in her search for unity in organizations for she sought a control that was ‘fact control’ not ‘man control’, and ‘correlated control’ rather than ‘superimposed control’.

Further she saw coordination as the reciprocal relating of all factors in a setting that involved direct contact of all people concerned. The application of these ‘fundamental principles of organisation’ was the control activity itself, for the whole point of her principles was to ensure predictable performance for the organization.

Scientific management, another important root of management control, is frequently associated with the work of F. W. Taylor (Miller and O’Leary, 1987), although there were earlier contributors to this movement. For example, Babbage (1832) was concerned with improving manufacture and systems and analysed operations, the skills involved, the expense of each process and suggested paths for improvement. In 1874 Fink (see Wren, 1994) developed a cost accounting system that used information flows, classification of costs and statistical control devices;

innovations which led directly to 20th century processes of management control.

What seems to characterize these theorists is an attention to real problems, a scientific approach which centred upon understanding and conceptual analysis, and a wish to solve problems. Their contribution to management control lay in their attention to authority and accountability, an awareness of the need for analytical and budgetary models for control, forging the link between cost and operational activities, and the separation of cost accounting from financial accounting, with the former being a precursor of management accounting and control. However, these practical theorists may have pursued rationality of economic action and the search for universal solutions too far, although their ideas are still current and form the basis for much work in the field, many being echoed in the work of Robert Anthony. The ideas of the common purpose of social organizations along with a concern for the relationship between effectiveness and efficiency foreshadow the concept of autopoeis (the view that systems can have a ‘life of their own’) developed by cyberneticians. These will be examined in the next section.

Evolution of the management control literature As previously noted, Parker (1986) argued that developments in accounting control have followed and lagged developments in management theory. Developments


in management control seem to have followed a similar pattern, so we use the schema suggested by Scott (1981) for categorizing developments in organization theory as a framework for organizing this part of our review. We would argue that systems thinking has had an important influence on the development of MCSs and Scott’s schema is based on a systems approach, so it is to this we now turn.

Cybernetics and systems theory Organizational theory in general and management control research in particular have been influenced considerably by cybernetics (the science of communication and control (Weiner, 1948). These insights have been extended in the holistic standpoint taken by general systems theory and the ‘soft systems’ approach (Checkland, 1981). Its central contribution has been in the systemic approach it adopts, causing attention to be paid to the overall control of the organization, in contrast to the systematic approach dominant in accounting control, which has often assumed that the multiplication of ‘controls’ will lead inexorably to overall ‘control’, a view roundly routed by Drucker (1964). Cybernetics and systems theory have developed in such an interlinked manner that it is difficult to draw a meaningful dividing line between them (for a fuller survey see Otley, 1983), although a simple distinction would be to suggest that cybernetics is concerned with closed systems, whereas systems theory specifically involves a more open perspective.

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