Understanding Management Accounting Techniques in the Context of Organizational Change: As Strategic Business Partners with a Responsibility to Improve Operations, Management Accountants Must Identify Techniques That Support Incremental Change and Help Transform Their Firm

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EXECUTIVE SUMMARY Driven by the need for organizational change, management accounting techniques have developed and proliferated at an unprecedented rate in the last few decades. Some critics, however, have charged that the changes are a "reinvention of the wheel" every few years. To put these issues in perspective, let's look at a framework created to illustrate the distinctive nature of these techniques in an organizational change context. The framework considers such factors as user resistance and organizational culture that can influence the applicability and implementation success of the techniques.

After tracing the history of management accounting beginning in 1850, accounting scholar Robert S. Kaplan comments, "Despite considerable change in the nature of organizations and the dimensions of competition during the past 60 years, there has been little innovation in the design and implementation of cost accounting and management control systems." (1) All the practices employed by companies and described in management accounting textbooks had apparently been developed by 1925, despite major changes in the nature and operations of organizations. To develop the field of managerial accounting, Kaplan and others encouraged academics to conduct field research and case studies "to describe and document the innovative practices that seem to work for successful companies." (2)

The pendulum swung in the other direction over the next decade as a plethora of new "techniques" in the management accounting area, for example, activity-based costing (ABC), Just-in-Time (JIT), and total quality management (TQM), subsequently found their way into general acceptance. Critics assert, however, that these management accounting techniques overlap and amount to "reinventing the wheel" every few years. (3) The objective here is to assimilate into one framework several factors that influence the application of management accounting techniques in organizations using types or levels of organizational changes categorized by N. Venkataraman. (4) The underlying goal for the framework is designed to reveal the distinctiveness of each technique in the organizational change context. Specifically, is there a systematic approach to applying change techniques and anticipating issues we may encounter in the change process? The application of this framework is illustrated using detailed case studies.

DEVELOPING THE FRAMEWORK

In the new environment created by the power of computing and the displacement of traditional accounting tasks, companies are looking to their financial experts to "act as business partners with operations managers" by providing information to support decision making. (5) Accountants are increasingly involved in strategic management through the development and implementation of new accounting models integrating financial and nonfinancial information. (6) If the substance of the techniques overlaps, accountants need to clarify these overlapping areas to show how they may apply to support different strategic purposes.

Fundamental to organizational strategy is organizational transformation and change. Organizational transformation and change is an ongoing process, and accountants need to see their role in supporting such change. Firms continue to frame their strategy to respond to rapid changes created by globalization and technology. From a strategic purpose, therefore, firms are in a constant state of transformation and seldom reach a state of equilibrium. The nature of internal change and the techniques applied, however, will vary based on such factors as the nature of the change and influential factors internal to the organization.

There are a variety of change responses available to a firm that can be classified as either incrementally focused on efficiency or radically focused with the intent to enhance capability. (7) These influential factors internal to the firm can either constrain or enable the implementation of the techniques. In some instances, the techniques themselves can influence the internal factors. In sum, there are three factors in the framework:

* The nature of change,

* Influential factors, and

* Distinctive elements of change techniques.

VENKATARAMAN'S ORGANIZATIONAL CHANGE LEVELS

Venkataraman classifies IT-induced business transformation strategies for change into five levels based on desired levels of benefits. (8) The levels of change (hereafter VCL) hinge on the business process or, more specifically, the purpose and extent of business process redesign. If the purpose is to rectify current deficiencies and increase efficiency, it involves incremental changes to current business processes at two possible levels, namely localized exploitation and internal integration. If the purpose is to enhance capabilities, it involves fundamental changes to the business processes that are possible at three levels, namely business process reengineering (BPR), business network, and scope redefinition. Table 1 illustrates these change levels.

Localized exploitation describes decentralized decisions made by functional, operational managers to deploy "isolated systems" influencing an activity such as a customer order entry system.

Internal integration involves integration of business activities to streamline organizational processes. This level addresses the question of interdependence of organizational roles across functional lines. For example, when CAD/CAM is …