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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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The third section of this paper examines the critical organizational and sociological perspectives which provide an even more direct explanation of power and politics. Perhaps the most important attribute of critical perspectives is its attention to issues of conflict, domination and power – an attention motivated by a theoretical backdrop of capitalist social relations, and premised upon an irreducible conflict between capital and labor which ensures perpetual antagonistic relations between the classes. Despite theoretical differences within critical perspectives regarding the manner and form in which to conceptualize power, a common attribute is that they eschew a consensus view of society. These critical perspectives argue that functionalist and interpretive views of power stipulate that individual interests mesh into a harmony at the societal level which contrasts with the critical perspectives’ focus on presumed perpetual antagonistic relations between the classes. More specifically, whether through general equilibrium in economics (e.g., the functionalist concern for market value) or the public good in politics (the interpretive concerns for the negotiation and bargaining), the social interest is assumed to emerge from the interaction of individual interests. In sharp contrast, critical perspectives deal explicitly with the role that accounting plays in relation to issues of conflict, domination and power as defined by the presumed irreducible conflict between capital and labor (Cooper and Sherer 1984). Here we will confine our attention to two major research strands of the many critical

perspectives that have illuminated our understanding of managerial accounting:

labor process theory which is concerned with the extraction of surplus from laborers (e.g., Hopper et al. 1987; Hopper and Armstrong 1991), and the Foucaultian perspective which is concerned with the methods by which the actions of individuals are made visible and susceptible to discipline and control, thereby rendering the individual to be governed (e.g., Miller and O’Leary 1987; Walsh and Stewart 1993).

The fourth section of the paper offers concluding remarks in which we consider the relationship among the three dominant organizational and sociological perspectives considered in this paper, as well as their relationship to more orthodox, neoclassical, and social and organizational psychology perspectives of


managerial accounting with a focus on the issue as to whether these various perspectives can be meaningfully blended, or whether a ‘‘champion’’ perspective may emerge. This section also addresses issues pertaining to assessing the credibility of the field-based research methods commonly (but not necessarily) utilized in these alternative theoretical traditions.2 Finally, this section considers the unique contributions that the different organizational and sociological theories may make beyond those offered by more traditional approaches.

Contingency theory

Contingency theory has provided considerable inspiration to managerial accounting researchers through an elaboration of the basic theme that ‘‘tight’’ control systems should be used in centralized organizations faced with simple technology and stable task environments; ‘‘loose’’ control systems should be used in decentralized organizations, presumably faced with dynamic, complex task environments. Furthermore, a given means of control such as embedded in managerial accounting information can only be understood through reference to other control approaches used in organizations as well as their organizational/task environment context. For example, budgets may take on important meaning both for planning and control purposes for work processes or product lines which are more routine, standardized and predictable. However, in situations where the processes or product lines are less routine, less standardized and less predictable, the budgets may be generated but are subject to much revision and are of little use as a control benchmark (Swieringa and Moncur 1975). Contingency theory is essentially a theoretical perspective of organizational behavior that emphasizes how contingent factors such as technology and the task environment affected the design and functioning of organizations. For example, Thompson’s (1967) Organizations in Action attempted to link task environment and technological contingencies to various organizational arrangements, focusing particularly on the different mechanisms of coordination which were appropriate for more complex, dynamic technologies and task environmental conditions. Perrow’s (1967) theory of technology focused on the congruence between different types of technologies and organizational arrangements, emphasizing that more flexible, loosely-structured arrangements were more appropriate for organizations with non-routine technologies, while just the opposite type of organizational arrangements were more likely to fit routine technologies. Lawrence and Lorsch’s (1969) Organizations and Environment developed, in a related manner the fit between organizational arrangements, Our paper is primarily organized along theoretical traditions, thus cutting across methodological approaches including fieldwork, surveys, lab experiments, etc., without a particular intent to critique the use of these various methods. In this sense, our paper complements the recent work of Keating (1995) who examined management accounting research in terms of methodology – focusing exclusively on case research in managerial accounting with the intent of providing an in-depth review of case research as a methodology – without a particular concern to critique the theoretical traditions which motivate these research studies.


including mechanisms of social control and coordination, and environments of organizations.

The sociological tradition embedded in contingency theory developed during the 1960s through various ‘‘structural’’ approaches to organizational studies (Woodward 1965; Aiken and Hage 1966; Hage and Aiken 1967; Blau 1970, 1973;

Hickson 1966; Child 1972; Pugh et al. 1968). These studies suggested that organizations’ structures are contingent upon contextual factors which have been variously defined to include technology (Woodward 1965), dimensions of task environment (Burns and Stalker 1961), and organizational size (Pugh et al. 1969;

Blau 1970). These contextual factors are hypothesized to influence dimensions of structure including the degree of formalization, specialization, differentiation and bureaucratization. Discussions of social control and coordination were sometimes elicited to explain some of the observed relationships among structural properties, but, by and large, were not of a central importance.

Not all functionalist theories of organizations developed during this period presented such static images of organizations. Contingency frameworks, for example, drew directly from these sociological functionalist theories of organization structure, while also using March and Simon’s (1958) organizational decision-making perspective. March and Simon (1958) developed a complex macro-perspective of organizations that viewed them as flexible, loosely-coupled systems in which human choice and voluntarism, and hence unpredictability, were major characteristics. The very essence of this decision-making perspective held that decision-makers in organizations are unlikely in most circumstances to have the information they need and want, and therefore, that many if not most decisions are made under conditions of uncertainty. In short, the primary concern of the organizational decision-making perspective is for the treatment of the problematic ‘‘boundedly rational’’ person which, in turn, is the core legacy passed onto contingency theory as it seeks to provide insight as to this boundedly rational decision-maker in relation to the various contingent contextual factors (technology, environment, etc.) as suggested by the sociological structural perspectives.

March and Simon’s (1958) depiction of the organizational decision-maker under such conditions of uncertainty was influenced by an earlier organizational theory tradition: the ‘‘human relations’’ approach to organizational analysis as developed in the work of Mayo (1933) and more concretely articulated by Barnard’s (1938) seminal work, The Functions of the Executive. Perhaps the fundamental insight of this human relations approach in terms of its contribution to the organizational decision-making of March and Simon (1958), and eventually the contingency theory perspective, was that social and psychological attitudes were significant factors to be considered in the design of production processes and its related control systems. The human relations approach, in turn, extended the early scientific management work of Frederick W. Taylor was concerned with the rationalization of work in order to maximize efficiency and productivity and, hence, profits. Scientific management ushered in the monitoring of the individual worker, but ultimately contributed to the monitoring of work units within organizations as well. The fascinating issue which the human relations perspective brought forth (as compared to earlier scientific management work) and pervades through contingency


theory was the depiction of corporations existing in a tentative equilibrium which is inherently fragile, short lived and ever subject to a complex of personal, social, physical and biological destructive forces (Miller and O’Leary 1989). As Miller and O’Leary (1989) argued, it was axiomatic for the human relations perspective that all organizations are founded on self-interest and a contractual principle; this is the core reason that they are so fragile. This characterization of the organizations founded on self-interest and contractual principles becomes a major thrust of the organizational decision-making perspective as articulated in the work of March and Simon (1958) but also in the related work of Simon (1957) and the later work of Cyert and March (1963) and March and Olsen (1976).

In summary, March and Simon (1958) and the organizational decision-making perspective started with an image of human behavior and individual decisionmaking that was considerably more complex than the human relations perspective that had preceded them, but nonetheless, reflected a common concern for the managing of the organization. In turn, contingency theory blended the insights on human behavior and individual decision-making as depicted in March and Simon’s (1958) organizational decision-making perspective with the sociological functionalist concerns regarding the impact of such structural factors as environment, size, technology, etc., on organizational behavior. Important in this lineage of work were issues of organizational control and coordination which are so germane to managerial accounting research.

Traditional management accounting research which has been based in the contingency literature (as well as its predecessors – organizational decisionmaking, human relations and scientific management) suggests that managerial accounting information should reflect and promote rationality in decision-making.

Accordingly, management accounting information used by managers serves as a quantitative expressions of organizational goals and are used to support rational decision-making (Ijiri 1965). The prescriptive character of managerial accounting information espoused by this traditional school of thought is essentially internal and downward and also prescriptive in character (Anthony 1965), thus reflecting the strong scientific management heritage, albeit later becoming more complex when sociological and psychological as well as structural factors are brought in.3 Caplan (1971, 13) identifies scientific management as providing the basis for the ‘‘Traditional Management Accounting of the Firm’’ where the accounting system is assumed to be neutral and rational as it serves as ‘‘... a control device which permits management to identify and correct undesirable performance.’’ In contrast, entitling the human relations tradition as ‘‘The Modern Organizational Theory Model,’’ Caplan (1971, 43) defined management accounting issues coming from this perspective as being concerned with social and psychological factors as stated in his terms, the ‘‘... the interaction of the accounting technique of the individual to be controlled.’’ Both of these functionalist perspectives are precursors to contingency theory and reflect work in managerial accounting research much earlier than contingency theory. For example, the human relations tradition is the intellectual basis for the classic work of Argyris (1952) who found that budgetee participation in the budgetary process tends to foster fuller and more robust control over budgetees. He suggested that genuine participation in the budget process as a remedy to negative budget attitudes at lower levels (also see Hopwood (1973) as to the importance of budgetary participation in the behavioral attitudes of employees). Through this initial work of Argyris (1952)


Among the earliest managerial accounting research which adopted a contingency perspective was Hofstede’s (1967) classic field work which found that economic, technological and sociological considerations have a significant impact on the way budgeting systems function, concluding that managers used budgetary information in difficult economic environments to pressure workers; but in more lucrative environments, the budget was used more in a problem solving mode.

Golembiewski (1964) was also among the earliest to explicitly examine various aspects of organizational structure in relationship to the use of budgets. In this tradition, Hayes (1977) investigated the appropriateness of management accounting systems for measuring the effectiveness of different departments in large industrial organizations, finding that contingency factors proved to be the major predictors of effectiveness for production departments. Extending this theme, Hirst (1981,

1983) examined external control factors such as environmental uncertainty and their impact on the reliance on accounting measures of performance.

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