Robert Chenhall, Monash University
Approach
* Meaning of horizontal accounting (HA):
o What does HA look like: practices
o How does HA work: processes
* Theoretical perspectives that provide research opportunities:
o A value chain perspective (ABC)
o A strategic perspective (SCM)
o An organizational structural perspective
o An operations management perspective
o A human resource management perspective
(Not consider relevant areas related to economics, marketing, IT, psychology and sociology)
* Conclusions
What is horizontal accounting within organizations?
* Accounting that assists in managing the efficiency and effectiveness of the value chain that exists within the organization.
Management Accounting (horizontal & vertical)
Horizontal accounting (entire value chain)
Horizontal accounting within the organization
Top management
Suppliers
Productive processes
Customers
* What does horizontal accounting look like?
o Practices: any management accounting practice that assists in managing the lateral dimension of the value chain
+ Strategic control: business modelling that shows how facets of the value chain interconnect to provide opportunities for strategic advantage.
# integrated MCS: e.g. balanced scorecards, target costing, financial planning, ABCM.
+ Operational control: practices that direct operations and provide timely feedback for immediate correction and information for improvements.
# horizontal budgeting
# lean accounting
# integrated cost management
# non-financial measures (e.g. quality, reliability, throughput time, manufacturing measures, productivity measures (input/output)
# summary costs
# factory displays & charts
+ Personnel control: practices to evaluate the performance of individuals at levels of divisions, teams, individual employees and which may form part of reward & compensation
# Divisions:
* financials and balanced scorecard type systems
# Teams:
* team maturity indexes, organizational climate surveys, team output measures
# Shop floor individuals
* non-financials
* qualitative & subjective measures
* 360 degree evaluations
o Processes (use): the way in which practices are used to assist in managing the lateral dimension of the value chain
+ Diagnostic use: used mainly for operational control
# Operational controls (action plans nested within strategy)
# Signalling and communicating strategy down to the value chain
# Providing boundary spanning information & help develop networks across the value chain
# Provide rhetoric and language for value chain management
+ Interactive use: used mainly for operational improvements & strategic control
# Identify problems & opportunities within the value chain
# Identify emerging issues that can address uncertainties and generate innovation related to the value chain
# Acquire information for personnel control
+ Use management accounting practices in conjunction with other controls (combinations or packages of controls)
# Combine formal practices with informal control, personal, clan, self control, professional control
* diagnostic and interactive
* formal controls and organic processes
* coercive and enabling
Theoretical perspectives that provide research opportunities
* A value chain perspective
o The internal value chain has long been recognized as:
+ processes that involve the means to convert inputs into outputs
# virtual organizations may manage the process without physical involvement in the transformation processes.
+ provides the basis to develop competitive advantage
o Activity-based costing was a response to managing the ‘value chain’
* ABC, ABCM research opportunities
o Surveys keep track of adoption and use
+ limited (& declining) interest in ABCM in the academic literature (both practice studies and theory-based research)
+ need an interesting angle if studying ABCM
# use as an example of:
* how MCS are diffused
* how do MCS assist/hinder change
* how MCS influence managers’ judgement
* how MCS relate to broader management initiatives related to strategy, work place improvements, innovation
o The ABC implementation literature
+ Large number of studies that have looked at technical and organizational/behavioral factors that influence effective implementation.
# Interesting broad findings
# Need for more insightful studies of processes and how they work through time.
# Useful research findings to transfer to studying implementation of other MCS
* e.g. performance measurement, budgetary systems
# Need to study effects of ABC together with other changes taking place within the organization
* how to disentangle effects of ABC from other change initiatives?
* A Strategy Perspective
o Strategic Cost Management (SCM) developed to move management accounting to a strategic approach
+ Consider the whole business strategically & how internal processes relate to strategy
o ABCM or SCM?
+ ABCM is part of SCM
# Other parts: e.g. value chain analysis, competitor costing, target costing, total cost of ownership, cost of quality, life cycle costing
o Research orientation used to study SCM
+ Many practice-based studies and prescriptions
+ Few theory-based empirical studies to identify what SCM is and how it works
# Mainly consider parts of SCM (e.g. ABCM, competitor costing, life cycles)
* Is SCM still an interesting area?
o NO: see John Shank’s chapter in Bhimani (2006).
+ Why has SCM lost its impact? Did it ever have an impact?
o Early enthusiasm in the 1980-1990s
+ Simmonds (1981): early links to strategy which was emerging as a way to link management disciplines
+ Kaplan & Johnson (1987) & Johnson (1992): showed the difficulties of MA & the need for a business related approach
+ Shank (1989): saw SCM as the way of the future
+ Cooper & Kaplan (1988); Shank & Govindarjan (1993) popularized ABCM as part of SCM
+ Bromwich and Bhimani (1994): was management accounting really irrelevant?
# Authors sympathetic to SCM, SCM did not take off like ABC.
* Clarifying ideas in the mid-1990
o Did the construct & theorizing of SCM ever get developed ?
+ Atttempts to consolidate and define SCM
# Considerable variation on its meaning, benefits and outcomes (Lord, 1996; Tomkins & Carr, 1996; Roslender & Hart, 2001, Anderson, 2006)
# Little carefully constructed research to refine construct of SCM and examine why it might have worked, and if not, why not?
+ SCM is a practice-defined construct
# The SCM construct is elusive and has evolved through time
* It is a generic approach with a marketing, strategy focus
* SCM can be applied to managing various functions (e.g. suppliers, customers, cost management, risk management) (see Anderson, 2006)
o Is SCM still relevant? Research opportunities
+ The essence of SCM is done by others
# Other disciplines are defining themselves ‘strategically’
* operations management, IT, HRM, strategists
. we need to understand these approaches
+ A strategic approach is more sophisticated than that used in most SCM research
# Does the rational approach to strategy as considered under SCM lack relevance?
* strategic problems cannot be objectively defined, they are open to interpretation from many different angles
* strategic problems are wicked problems
(interconnected, complicated, uncertain, ambiguous, conflicting)
# Strategy involves intended rationality but may involve high levels of subjectivity and complex behavioural responses
* take an approach that examine both the content of rational approaches and processes of behavioural responses
o Strategy as process as well as the prescriptive content (see Chenhall’s chapter in Chapman [2005]).
+ A process view starts to look at the dynamics of how SCM works (rational & behavioral) & implications for the value chain
# link MCS to the dynamics of these processes
* what are the dynamic relationships between strategic position, resources, value chain and outcomes?
* how is, and how should, strategy be formulated & implemented?
* who is involved in the strategy process and how do individual differences have effects?
* Some ways of studying aspects of strategy that have implications for the internal value chain & horizontal accounting
o The content of strategy
+ Conceptualizing strategy
# Conceptualize more specifically than archetypes (e.g. defenders-prospectors, build-harvest, cost-differentiation)
# Specific strategic priorities (e.g. quality, service, reliability, etc)
* shows clearer links to value chain
+ Hard and soft aspects of strategy as content
# Hard = relatively concrete, comprehensible, tangible
# Soft = relatively indefinite, elusive, intangible
o Hard aspects of strategic content
# Resource based view (competencies, capabilities, innovation capabilities) (Barney, 1991)
# Digitization: internet-enabled commerce relationship, digitalising business relationships (Bhimani, 2003; Sanchez et al 2006)
# Governance & enterprise risk management: examining governance and risk within the internal value chain (Collier et al, 2007)
# Globalization: convergence or diversity
(Drori et al, 2006)
o Soft aspects of strategic content
# Tangibles and intangibles (good progress in MCS research)
# Intellectual capital, knowledge-based organizations (good progress in MCS research)
# Exploration (pursuit of new knowledge) & exploitation (past knowledge).
* Consider together or do they follow each other ? (Gupta, Smith.& Shalley, 2006)
# Innovation/creativity and their linkages
* Some MCS research on innovation
* Not much on creativity
* How does creativity link to innovation?
(getting from creativity to innovation [von Oetinger, 2004])
* The process of strategy
+ Dynamics of strategic fit
# Modelling the dynamics of changes in strategic fit (Zajac, Kraatz & Bresser, 2000)
+ Organizational dynamics:
# Organizational inheritance (group think, strategic drift: constraints on new strategies) or managerial initiative (proactive role of managers on strategy)
# Chaos or control (predictable, unpredictability)
+ Organizational learning & unlearning (Huber, 1991)
+ Dynamic capabilities (Teece et al, 1997; Winter 2003)
# resource development and renewal ( c.f. resource- based view that is a static approach)
# evolution of the knowledge base
+ Change processes
# continuous or discontinuous
# revolutionary or evolutionary
# rational or unpredictable
# incremental or comprehensive
* role of MCS as move between different modes
+ Strategic decision speed
# speed of decision making (Baum, & Wally, 2003)
# presumptive adaptation (fast or gradual) (Gabriel & Jensen, 2006)
# the dynamic resource-based view, or capability lifecycles (Helfat & Peteraf 2003)
(more…)
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