Management Control Practice In An

Entrepreneurial Business:

Longitudinal Case Study

By

K.H.U.D.Nandana Kumara（Nandana Kumara Uluwatta）

(96/MSM/92)

A dissertation Submitted to the University of Sri Jayawardenepura

In partial fulfillment of the requirements for the degree of Masters of Science in Management

M.Sc. (Management) ProgramFaculty of Graduate Studies,

University of Sri Jayawardenepura,Nugegoda,Sri Lanka.

August 2002

1

Acknowledgement

The credit for my having been able to accomplish my task and complete this dissertation,

should go, without reservation to my supervisor,

Dr. Danture P. Wickramasinghe,

Dean, Faculty of Management and Finance of the University of Colombo,

Sri Lanka, And

Research Fellow, School of Accounting & Finance, University of Manchester, Manchester

M13 9PL

England,

for his unstinted support, valuable and systematic guidance & comments extended and

encouragement given me throughout the duration of this work, even sacrificing his leisure

time at home. I will be failing in my morale duty if I do not gratefully mention here that his

insistence on a research method at the very beginning of this exercise and the unfading

interest shown by him throughout the entire duration of my effort and above all his

admiration and appreciation of hard work where it deserved was a source of inspiration to

me which, made the preparation of this dissertation an enthusiastic and explorative

experience. Thanks to my untiring supervisor a humble feeling of self confidence and

accomplishment in my limited capacity run through me on completing this assignment

which, was a new challenge to me. For all these noble acts and numerous other kind

gestures on his part during the course this research, let me offer a BIG word of THANKS

with a sincere wish that he rise to the highest level of international academic recognition so

that his reservoir of knowledge would be an open source for those who are seeking

academic achievements to quench their thirst for knowledge.

I am also grateful to Mr. Predeep Randiwela, Head, Department of Commerce/ Acting

Dean Faculty of Management & Finance and Mr. Sarath Jayasinghe, Head, Department of

Management Studies of the University of Colombo, Sri Lanka, for their painstaking and

highly admirable contribution to the complete of this research with giving me

encouragement and instructions showing their human qualities and wide knowledge and

for valuable support extended at various stages.

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I must also extend my gratitude to Mr. Ramesh Sriskandaraja, Lecturer, Department of

Management Studies, University of Colombo, Sri Lanka for all the trouble taken and active

participatory support extended in getting computer support at all the stages of research.

I am grateful again to Mr. Pradeep Randiwela, Head, Department of Commerce, University

of Colombo, Sri Lanka and Vichitra Abeyasekara, English Teacher, Sripalee Maha

Vidyalaya, Horana, Sri Lanka who most kindly undertook the editing of this dissertation

and accomplishing it in time at the cost of all their other scheduled work.

I must also thank my colleagues of the faculty Mr.Gamini de Alwis, Dr.Karunarathna,

Mr.Saman Dassanayake, Mr.Gunapala Ranaweerage, Mrs.Thilaxi Kodagoda, Mr. Prabath

Jayasinghe,and Mr Jayakody , who were always supportive are remembered here with

gratitude.

Last but not the least my loving wife Renuka, my daughter Shashika and son Rashmika for

the immense sacrifices they made during this period for the sake of the preparation of this

dissertation. They were very understanding and bore all troubles and taxing as part of their

duty by me.

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Abstract

This study reports an intensive case study of a recently established food manufacturing

company in Sri Lanka. It examines how management control practices in a particular

manufacturing concern operates under environmental uncertainties stemmed from social

and cultural dimensions implicated in main organisational actors. To understand such

practices, the study has used theoretical and methodological lenses of Hopper and Powell

(1985), which explores fundamental philosophical assumptions of different schools of

thought in management. The empirical data collected through a qualitative naturalistic

research method was made iterated with broader sociologically informed post-positivistic

theories especially, interpretive theories. The findings implicate that management control

and accounting practices are quite different from the conventional wisdom due to the

attributes of personal characteristics, which were, constructed in particular society. The

story that has been told in this study is centred around the notion that the CEO has

accumulated power around himself towards maintaining power around himself. The

resultant characteristics in this mode of control are: centralised decision-making power of

CEO, limited internal information flow/reporting, arbitrary rewards, and reduced benefits.

The accounting system has been to preserve the family but its manifestation through short-

run physical budgets was a keystone in transmitting pressure upon line managers and

thence workers. Deriving from these empirical concerns, the study shed some light on the

ontological and epistemological positions in undertaking accounting research of this

nature. In particular, the study has found the researcher, the phenomena studied, the

context in which they are studied, and the research approach in use, to be intimately

interwined – this in marked contrast with the more orthodox scientific position that they

are detached. The study urges future qualitative field workers to exploit natural

experiments of different varieties.

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Table of Content

Page

Acknowledgement i

Abstract iii

Table of Content iv

List of Figures viii

Chapter One: Introduction 01-10

1.1 Background 01

1.2 The Research 02

1.3 Aims and Objectives 05

1.4 Significance of the Study 05

1.5 Scope of the study 08

1.6 Limitations of the Study 08

1.7 Structure of the Dissertation 10

Chapter Two: Towards a Theorisation of Management Control

Systems 11-48

2.1 Introduction 11

2.2 A Critical Look at Conventional theories in management control 11

2.2.1 Objectivism 13

2.2.2 Social Systems Theory 15

2.2.2.1 Accounting Dysfunctions 16

2.2.2.2 Psychological 'Theories 17

2.2.2.3 Social Psychological Theories 18

2.2.2.4 Structural Theories 20

2.2.2.5 Open System Theories 21

2.2.2.6 Contingency Theories 23

2.2.3 Pluralism 26

2.2.4 interpretive theories 30

2.2.5 Radical theories 35

2.3 A Framework for the present study 43

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Chapter Three: Methodology 49-74

3.1 Introduction 49

3.2 Problems of Orthodox Methodology 49

3.2.1 It is framed from the perspective of the organization 50

3.2.2 It treats the organization as effectively a closed system 50

3.2.3 It has a technical orientation 51

3.2.4 It is prescriptive 51

3.2.5 It is ahistorical 52

3.2.6 It is apolitical 52

3.2.7 It is rationalistic 53

3.2.8 It is functionalist 54

3.2.9 It is reductionist 54

3.2.10 It is positivist 55

3.2.11 It is problem-cantered 56

3.3 Towards a case study approach 57

3.3.1 Case and universe 59

3.3.2 Theory and case formulation 61

3.3.3 Making a case 62

3.4 Research Design and Procedure adopted 62

3.4.1 Unit of analysis and Justification 63

3.4.2 Research methods 65

3.4.2.1 Observations 66

3.4.2.2 Interviews 67

3.4.2.3 Documentation 68

3.4.3 Analysis 68

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3.4.3.1 Inductive data analysis 69

3.4.3.2 Analysis on-site 70

3.4.3.3 Running the data open 71

3.4.3.4 Focusing inductive analysis 72

3.4.3.5 Deepening the analysis 73

Chapter Four: Social and Organisational Context of the Study 75-108

4.1 Introduction 75

4.2 Sri Lankan Society and Business 75

4.2.1 Colonial Economic, Business System and

Society in Sri Lanka (before Independence) 76

4.2.2 Post- Independence (from 1948) 79

4.3 Company Background 84

4.3 Business Idea 854.4 Corporate Strategy 87

4.4.1 Strategic Business units 87

4.4.2 Product categories 88

4.4.3 Objectives, Strategies and Tactics 89

4.4 Organizational Structure and Controls 91

4.5.1 Organization Chart 91

4.5.2 Work Force 92

4.5.3 Nature of responsibilities 93

4.5.4 Incentives and Reactions 94

4.5.5 Decision Making Process 95

4.6 Budgeting and Planning 96

4.6.1 Budgets 96

4.6.2 Planning 97

4.7 Financial / Capital Structures 97

4.7.1 Initial Capital and Net Asset 97

4.7.2 Resource Allocation 98

4.8 Market 98

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4.8.1 Features of the product 99

4.8.2 Market Development 99

4.8.3 Distribution Network 99

4.8.4 Reaction for Competitor Activities 100

4.9 Costing Process and Material handling 102

4.9.1 Pricing 102

4.9.2 Material Handling 103

4.9.3 Changes to be introduced (Proposed changes) in Cost Accounting Statements 105

4.10 Summary 106

Chapter Five: Analysis of the Case 109-138

5.1 Introduction 109

5.2 Management Theories Vs. CEO Driven Management Control System 109

5.2.1 CEO’s Ideology 110

5.2.2 Hidden Authority & Organizational Capacity 111

5.2.3 Financial Authority and Corporate Strategy 113

5.2.4 Making Subordinates Unimportant. 114

5.3 Frequent Information Flows and Centralized Decisions 116

5.3.1 Internal Financial Reporting 116

5.3.2 Mindful Budgets in the “No Budget” Practice 118

5.3.3 Accounting As a Ceremonial practice and Representational Craft 123

5.4 Harmonization of the work force 124

5.4.1 Getting blue collars in the foreground 124

5.4.2 Employees are treated as work hoarse 125

5.5 Pragmatism over Techniques 127

5.5.1 Creating dummies in the Organization Structure 127

5.5.2 Dysfunctional Goals Vs. Unitary Goals 128

5.5.3 Eye on Environment 130

5.5.4 Foreseen social responsibilities 132

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5.5.5 Pricing by going prices 135

5.5.6 Ad – hoc Arrangements in Daily Operations 135

5.6 Summary 137

Chapter Six: General Summary and Conclusions 139-145

6.1 A General Summary 139

6.2 Conclusions 145

References 146- 165

List of Figures

Page

Figure 2.1 Accounting Schools and Sociological Paradigms 13

Figure 2.2 Management Accounting and Social System Theory 16

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CHAPTER ONE

Introduction

1.1 Background

This study attempts to review and understand management control

systems in practice in an uncertain context. A number of studies have

addressed the issue (Lowe and Machin, 1983 and A.J. Berry et al 1985).

However, there is little studies carried out extend these discussions

and beyond the Western context. The present study investigates the

nature of management control systems of a food manufacturing

company named Multi Food Products Limited (MFPL) in Sri Lanka. The

study focuses on the areas of financial and production control systems,

marketing strategies, man - power planning and organizational

structure in particular. It is intended to understand the ways in which

“control” operated in the company and to explore explanations of why

the system of control worked in the ways that they appeared to do.

At the outset, the dominating rationale of the control system has been

developed from neo-classical economic framework in which two

assumptions are salient: market equilibrium and rational economic

man (See. Scapens, 1996). Based on, this framework, firms are inclined

to satisfy customers through fulfilling their changing requirements.

The firm selected for the present research is a food manufacturing

company. This firm has also considered such an economic frame

towards satisfy customers. When reviewing the life styles in an average

Sri Lankan, it has changed drastically during last couple of decades. In

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spite of traditional paternal run household earning system in the

modern context, both husband and wife today generate the income

required to run a family. Hence, the life of an average household is

more industrious/ busier than in the past. As such their food patterns

have also affected as a result of this. Consequently, business entities

have capitalized on the opportunities available. Therefore, the food

processing companies have introduced instant food items to the

market, which are more popular among urban industrious consumers.

Soya related food items also introduced simultaneously with these

instant food items. Many companies introduced similar varieties of

Soya related products but many of them disappeared from the market

very soon. Given uncertain market conditions a new firm was able to

capitalize on the market opportunities better than other companies.

The study is based on this company called Multi Food Product Limited

(MFPL)1.

1.2 The Research

According to the information gathered through a tedious process of

interviews conducted with managers belonging to different sections of

the company, it was evident that a majority of them do not adopt a

systematic approach in management planning and control. The

interviews conducted specially with the CEO of the MFPL revealed that

the company practices management controls according to their own

personal view, and not according to the well - packed theoretical

framework. Therefore there is a problem whether there is a

disagreeable rapport between the theory and practice of management

planning and control or whether the theory and practices are

overlapping with each other or whether there is no relationship

between the theory and practice.

1 Certain names in this case have been disguised

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Organization seems to behave quite differently from the stereotypes

depicted in management textbooks in relation to their organization

structure, their relationship with the environment, their planning and

control and marketing strategies. These differences seem not only

quite comprehensive and coherent themselves but they also appeal

more or less rational and intelligent to the researcher himself.

Therefore, it seems with the area of the company studied. Hence,

rather than conventional approach that seek to understand an

organization in terms of pathology and deviations from some

abstracted and idealistic theoretical position, the researcher seeks to

understand and explore the rationales for practice offered by the

company involved in that practice.

This study does not represent a well-packaged theoretical statement of

the conclusions of the study. Instead, it represents the overlapping and

occasionally contradictory picture that emerged for the research team

as a result of their experiences. At least four broad observations

seemed to dominate. Firstly, financial planning and control systems did

not appear to be a dominant mode of organisational control in the

MPFL. Finance for investments may act as an overarching constraint at

the national level and affect the performance of company, but Finance

is marginal within the company studied. Thus planning seems to start

from physical production planning. The financial plans derived from the

physical exercise did not seem to be entirely articulated with the

production plan. Secondly, the MPFL seems-to have successfully

devised a set of loosely coupled control mechanisms so that one part of

the organisation was effectively insulated from disturbances occurring

elsewhere in the organisation. A third observation is that information,

which is conventionally seen to be important as a way of enhancing

visibility in an organisation, may itself be a source of uncertainty and

may be used and interpreted quite differently in situations where much

of the production process is invisible. And finally it appeared that

changes taking place in the organisation might reflect not so much the

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needs of internal organisational management, but instead represent

external pressures on the organisation to appear efficient and

responsive to apparent financial constraints.

Taken together, these observations seem to match the perspectives of

March and Olsen (1976), Weick (1979), Meyer and Rowan (1977) and

Burchell et al (1980). Organisations seem to behave quite differently

from the stereotypes depicted in management textbooks in relation to

their organisation structure, their relationship with their environment,

and their planning, control and information systems. These differences

seem not only quite comprehensive and coherent in themselves but

they also appear more or less rational and intelligent to the

participants themselves. And so it seems with the MFPL we studied.

Thus, rather than adopt a conventional approach that seeks to

understand an organisation in terms of pathology and deviations from

some abstracted and idealistic theoretical position, we seek an

understanding that explores the rationales for practice offered by the

participants involved in that practice. The danger with this approach is,

of course, that the understandings so offered represent little more than

the ideology of the status quo. It is exceedingly difficult for the

participants themselves to break out of their roles, perspectives and

institutional constraints. We therefore saw a major role of the

investigators as one that tested rationales and justifications and offered

alternative perspectives for the participants to consider. The research

itself reflects this tension between an attempt to understand

management control in action and an attempt to evaluate the

explanations of why current practices occur. In order to assist

interpretation of the study it therefore seems appropriate to preface a

more detailed statement of our observations with an outline of the

research methods used in the investigation and a sketch of the

background and organisational context of the study. However, this

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study attempts to understand how culture shapes the values and

meaning frames of organisational participants and provides them with

interpretive schema affect accounting and control practices in

organisations. This is achieved by focusing on fore generic issues:

(i) How do organizations initiate accounting and control systems?

(ii) How do such systems evolve over time?

(iii) What roles do they play in an organizational crisis?

(iv) How do organizational actions become disconnected from

such systems?

1.3 Aims and Objectives

The aims and objectives of any research project are largely determined

by how much is already known about the topic selected. Consequently,

the extent to which existing knowledge and understanding can be used

to develop hypotheses, which can be confirmed or refuted, must be

considered (Easterby-Smith et al., 1991; Patton, 1987). Before

establishing the aims and objectives of the substantive research

problem, a comprehensive review of existing literature pertaining to

firm’s management control was undertaken. Therefore, after careful

consideration of research problem, the following objectives of this

study are determined.

1. To examine the current state of the company’s

management control system

2. To identify the, constraints and limitations of applying

orthodox models when establishing management control

system in an uncertain context

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3. To explain the gap between real control practices and the

orthodox models.

1.4 Significance of the Study

It is now recognized that small firm and medium size firm research is at

too "young" a stage in its development to benefit from a positivist

research approach that encourages the use of quantitative methods of

scientific inquiry (Aldrich, 1992; Bygrave, 1989; Churchill and Lewis,

1986; Sexton, 1986). Consequently, a review of recent small and

medium firm literature reveals researchers' emerging preference for

phenomenological approaches to small and medium firm studies that

employ qualitative methods of collecting and analyzing empirical data.

While depth-interviews, participant observation and conversation, for

example, have become popular tools for collecting data rich in detail

about small firms (Holliday, 1992), few researchers provide detailed

accounts of the qualitative research process. Particularly, there is a

scarcity of literature available to offer advice on the inductive analysis

of qualitative data. While the emergent can in part, explain this gap in

small and medium firm literature, iterative nature of the qualitative

research process (Bechoffer, 1974; Gill and Johnson, 1991), it is

important that qualitative researchers make explicit the process

involved in their collection and analysis of data. By failing to do so,

small and medium size firm researchers employing qualitative methods

do little to encourage theory development or progress current

knowledge and understanding about small and medium firms. Relative

to other fields, small and medium size firms have only recently become

an area of academic interest. Particularly when considered alongside

the "queen" of science - physics - the infant nature of small and medium

size firms research is made apparent (Bygrave, 1989). This has

implications for the paradigm from which small and medium size firms

15

research should be approached (Sexton, 1986). Churchill and Lewis

(1986, p. 335) argue that as small firms research "is a field in which the

underlying concepts have not been adequately defined", the primary

concern of researchers should be theory development, not theory

testing. Similarly, Bygrave (1989, p. 23) contends that the emerging

nature of small firms research demands that a qualitative approach

that encourages the development of practical and theoretical

understanding and the generation of new and alternative theories and

concepts is appropriate. Specifically, researcher argues, that "at the

beginnings of a paradigm, inspired induction (or more likely

enlightened speculations) applied to exploratory, empirical research

may be more useful than deductive reasoning from them". Continuing,

he recommends that the "emphasis in an emerging paradigm should be

on empirical observations with exploratory, or preferably grounded

research, rather than testing hypotheses deduced from flimsy terms".

Churchill and Lewis (1986) go further and warn that without existing

theories grounded in empirical observations, the use of hypo-deductive

approaches to understanding small firms will restrict the generation of

knowledge about their processes, activities and outcomes. Also

impacting upon the selection of an appropriate research paradigm from

which to approach their scientific inquiry are the research "subjects"

involved in small and medium size firms. As small and medium size firm

research involves the study of human action and behaviour, it is

essentially concerned with the nature of reality in the social world. In

contrast to the natural world, the human "subjects" of the social world

possess the ability to think for themselves, comprehend their own

behaviour and have an opinion about the social world of which they are

a part (Bryman, 1988; Gill and Johnson, 1991; Laing, 1967; Schutz,

1967). Consequently, the study of small or medium size firms cannot be

approached from the exterior standpoint demanded by the positivist

approach (Gill and Johnson, 1991). Instead, researchers need to adopt

an approach that allows them to "get close" to participants, penetrate

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their internal logic and interpret their subjective understanding of

reality. Moreover, as the social world cannot be reduced to isolated

variables, such as space and mass, it must be observed in its totality.

Specific to small and medium size firms research, Churchill and Lewis

(1986, p. 384) argue that the reduction of the process of creating,

developing and growing small and medium size firms to individually

measurable variables, "unfortunately ignore(s) real problems in order

to fit neat packages". Others agree that by stripping small firm

problems of the context within which they occur naturally, the findings

produced by positivist approaches are generalisable only to the extent

that the conditions under which data are collected exist in the social

world (cf. Aldrich, 1992; Borch and Arthur, 1995; Brown and Butler,

1995).

Here the purpose of this case study is to obtain a better understanding

of management control system in practice and of the role and

functioning of management accounting in organizations, including the

pressures which accounting exerts and has exerted on it, and the

interest it serves and undermines, and to compare the claimed

potential of accounting with its practical achievements and

consequences. This study is principally concerned with “explanatory”

case study and its capacity to move away from managerialist notions of

accounting and to provide more challenging reflections on the nature

of management accounting knowledge and practice. As argued Hopper

and Powell (1985), accounting should no longer be studied in a mode

which divorced from its social context and which ignores the influence

of “ wider social and political collectivities” (p. 450).

1.5 Scope of the Study

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Four issues/research questions capture the emergence and evolution of

accounting and control practices over time in a dynamic setting is

explained in section 1.3 of this study. Control, as used here, refers to

all organisational arrangements, formal and informal, designed to

accomplish organisational objectives. It includes formal structure,

operational controls, rewards, budgeting, planning and other similar

activities. I am interested in examining organisational practices in area

such as strategic planning, organising, measuring performance, setting

incentives, rewarding and motivating participants. Since accounting is

a key element in mediating many of these activities, I am particularly

interested in what role it plays in control and the way in which the

larger cultural context mediates this role.

1.6 Limitations of the Study

The scope of the study confines to private sector organization related

to the food products. It is limited that to select different types of

companies related to the food products and different types of

organizations in the different industries. In addition to that the analysis

is limited to the management control in practice and the limited

number of theories such as Functional Approaches Interpretive

Approaches and Radical Theories are employed to analyse the case.

Moreover, limited number of people who are employing in the

organization is selected and interviewed when collecting data.

The adoption of any research approach and the use of all methods of

collecting and analysing data necessarily involve "trade-offs" (Patton,

1987). While the research outcomes generated have been only very

briefly described, the understanding of the contents of management

controls and the impact which these had on the development of case-

18

firms, which has been presented, demonstrate the value of the

qualitative approach used.

Specifically, the findings presented demonstrate that the adoption of a

qualitative approach and selection of the researcher as "instrument"

for data collection and analysis enabled the researcher to get "close" to

participants and develop with them trusting relationships which

allowed him to penetrate their realities and uncover issues of relevance

to understanding the substantive research problem.

However, in common with any other research project, this study was

also constrained by the methods chosen. These constraints can be

identified in two main areas. First, the grounded understanding of

management controls in which this research was interested that raw

data were the experiences and perceptions of those involved in these

practices. In collecting such data, it is possible that despite the

sampling strategy and tactics employed, respondents were not always

truthful. Second, the extent to which the findings to emerge from this

research can be generalised to the wider population of small and

medium firms is constrained.

The strictest confidentiality of data about marketing practices and

some financial highlights was effected thus some information which

were essential could not be obtained and the names in relation to the

marketing practices were withheld. The framework of the study is

limited only to the Management control systems in one selected firm in

Sri Lanka.

This study based on an empirical study, which examined in depth one

growing and successful small firm. A case study analytical approach

has been adopted, since it can shed more light on a dynamic and fast

moving situation. Cases usually tend towards qualitative analysis. They

19

are seen as a vehicle for in depth study and in this situation help us

understand the phenomena, since use is made of open-ended

interviews conducted over a period of 20 weeks. Lynch, (1994)

identified that case interviews help confirm the shape and spread of

key issues and assist in more precise hypothesis formulation. The

wealth of information provided however must be balanced against the

reduced number of people and cases studied. Clearly this increases

understanding of cases but reduces the generalisability (Patton, 1990).

1.7 Structure of the Dissertation

The thesis is divided into six main chapters including the current

chapter Chapter One. The Literature review and theorization of

management control systems are presented in Chapter two. This

chapter will look into orthodox models on organizational control and

specially a review of underling assumptions towards organizational and

social aspects of management accounting with special reference to the

management control. In this regard conventional theories such as

functional, interpretive and radical approaches are presented in this

chapter. Chapter three explains the methodology of the study. This

chapter discusses the problems of orthodox methodology, case study

approach and the research design or procedure adopted in this

research. Chapter four presents the Social and organizational context

of the study and Chapter five explain and develop and analyse the case

under investigation. These data have been analysed cross-sectionally

with the theoretical framework and the social and organizational

context of the study and build a model. The summary of the research,

conclusions, and commentaries are discussed in Chapter Six.

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CHAPTER TWO

21

Towards a Theorisation of Management

Control Systems

2.4 Introduction

In the previous chapter it was identified that this study is to work

management controls in an uncertain context emanated from a

particular social and organisational context. With a view of crystallizing

this theme, the present chapter attempts to review relevant literature.

In particular, the chapter begins with a systematic critique on

conventional theories of management controls and then it goes on to

typify social and political frameworks of management control systems.

Finally the chapter culminates in a framework concluding for

theorization of management controls in a context in which the

subsequent case was developed.

2.5 A Critical Look at Conventional Theories in

Management Control

Researchers into the management science should consider their own

values and beliefs concerning the nature of society and social sciences.

In order to assist people in this task, previous research into the

organisational and social aspects of accounting is reviewed and

grouped into various schools of thought within a basic sociological

framework devised by Burell and Morgan (1979).

22

The Burrell and Morgen’s framework is constructed from two

independent dimensions based on assumptions regarding the nature of

social science and the nature of society respectively. The social science

dimension is that consists of four distinct but related elements:

assumptions that, ontology, epistemology, human nature and

methodology.

Ontology concerns the nature of ‘reality’. Epistemology is concerned

with the nature of knowledge – what forms it takes and how it can be

obtained and transmitted. Human nature refers to the relationship

between human beings and their environment. These three sets have

direct methodological implications. If the social world is treated as the

same as the physical or natural world, then methods from the natural

sciences tend to be utilised to locate, explain and predict social

regularities and patterns – statistical techniques are often used to test

hypotheses and to analyse data collected by standard research

instruments, such as questionnaire and surveys. Alternatively, if the

subjective experiences of individuals and the creation of a social world

is stressed. Then methods that allow insight into an individual’s inner

world are emphasised – for example, participant observation and in-

depth interviews.

Although analytically distinct, there is often strong relationship

between the positions adopted on each continuum, and so Burrell and

Morgan integrate them with them within an “objective-subjective”

dimension – one end emphasising the objective nature of reality,

knowledge and human behaviour, the other stressing subjective

aspects.

23

The other major dimension defines two alternative and fundamentally

different approaches to society: one is concerned with regulation, order

and stability and sets out to explain why society tends to hold together;

the other focuses on the fundamental divisions of interest, conflicts and

unequal distributions of power that provides the potential for ‘radical

change’.

These two independent dimensions are combined to form four mutually

exclusive frames of reference: functionalists, interpretive, radical

humanist, and radical structuralist (see. Figure one). In order to do this

Burell and Morgan create a dichotomy between “objective” and

“subjective” approaches, even though the dimension relating to social

science assumptions was constructed as a continuum.

Figure 2.1 – Accounting Schools Sociological Paradigms

Radical Change

Radical Humanism Radical Radical Structuralism

Subjectivism Objectivism

Interpretive Functionalism

Pluralism

Interpretive Social System

theory

Objectivism

24

Regulation

(Adapted from Burrell and Morgan, 1979, pp. 29,30)

2.5.1 Objectivism

Burrell and Morgan locate Classical Management Theories, typified By

Taylor (1947) and Fayol (1949) in the most objective region of the

functional paradigm. The work espouses a scientific basis to

administration, based on beliefs that the organisational world

possesses the characteristics of the physical one. Thus, it is claimed,

administrative principles can be derived by systematic study of cause

and effect relationships. The behaviour of the employee is taken to be

passive and determinable by managerial manipulation of situational

variables.

The critique of Classical Management is well established. Simon (1943)

exposed its ‘principles' to be lacking in internal consistency or clear

definition. Its motivational base was soon recognised as simplistic

(Roethlisberger and Dickson, 1939). Much classic work lacks empirical

verification and may owe to managerial ideology than science (Perrow,

1979;Bendix, 1956)

Moreover much of conventional Management accounting is based on

this approach, standard costing, for example, is inextricably linked with

scientific Management (Solomons, 1968). 'Principles of Management’

stated by writers such as Fayol (1949) and Mooney (1947) provide

rationales for budgetary control, e.g. Welsch (1964). Indeed Fayol

specifically instances budgets as planning and control tools. More

recently closed systems theory and neo-classical economics have

provided complementary underpinnings to the approach. Closed

system permits the mechanistic analogy of thermostats to be exploited

and detailed in an accounting context, e.g. Shillinglaw (1977). Neo-

classical economics provides a basis for marginal costing and financial

25

management and reinforces notions of control based on assumptions of

economic man, and organisations with unitary goals headed by a single

decision-maker (e.g., Weston and Brigham, 1978). A more detailed

exposition and critique of the relationship between management

accounting and such, ‘traditional’ models of the firm are expounded by

Caplan (1971).

Despite the criticisms of conventional management accounting and its

theoretical props, by behavioura1 scientists in particular, such

approaches persist. For example, Horngren (1977) defines his general

approach to management accounting as designing formal controls "to

provide goal congruence and incentive through the use of technical

tools. Behavioural challenges are dismissed by stating, "this is not a

book on organisations or on behavioural science, so we will not study

alternative models here". The difficulty of maintaining such a position

is illustrated by the fact that the remainder of the chapter involves

itself with central behavioural issues, namely participation and

standard setting.

Much of conventiona1 accounting can be p1aced in the most objective

and regulatory region of the functionalist paradigm. Organisations are

treated as stable empirical phenomena that have, or should have,

unitary goals, normally profit maximisation. Human nature is taken to

be calculative and instrumentally rational, but essentially passive. Thus

control accounting is depicted as stabilising and programming

behaviour by allocating to positions sub-goals derived from the

organisational goals, and monitoring performance by formal feedback.

Compliance is reinforced by tying performance to economic reward

structures. The only significant changes envisaged are within a

managerial conception of society, whereby organisational changes are

instituted by key decision-makers at the apex of the organisation, and

are restricted to adaptation to market threats and opportunities and

represent movements towards economic optimality.

26

Thus accounting information for decision-making is confined to

economic evaluations to revel profit maximising alternatives.

Throughout the ontology is realist, there is assumed to be a real state

of economic affairs and organisational relationships, which the

accounting system seeks to model.

2.2.2 Social Systems Theory

Probably because of the limitation of objectivism with respect to the

social nature of man and how extra-organisational factors hear or

control, many accounting studies have incorporated more complex

models of motivation and organisational design. Much of this work is

derivative of organisation theory, which, in the 1960's and 1970's

tended to use social systems theory to view its subject. Open systems,

characterised by exchanges with the environment, were particularly

influential. Thus much management accounting research adopted a

social systems approach, albeit in many cases implicitly and rather

selectively. Figure two below traces an approximate chronological

development of sub - schools within this social systems approach to

management accounting. This serves as the framework for the

subsequent examinations of this work.

Figure 2.2 – Management Accounting and Social System Theory

Social Psychological Open

System

Studies theory

Accounting Structural studies Contingency

Dsyfunctions Theory

Psychological Studies

27

2.2.2.1 Accounting Dysfunctions – [Organisational

Effectiveness and Budgets]

Several early behavioural studies of accounting systems noted that

unintended and undesirable consequences often arose when

conventional models were applied. Argyris (1953) noted how managers

used budgets as "needlers’ over subordinates. Accountants were

criticised for hierarchical punitive reporting and achieving success

through the failure of others. The ensuing tension and hostility

between Staff and line managers was held to be counter-productive to

the fulfilment of organisational goals. Ridgeway (1956) and Dearden

(1961) both chronicled how using accounting criteria as performance

measures could reduce organisational effectiveness. Dalton (1959),

Rosen and Schneck (1967). Lowe and Shaw (1968), and Schiff and

Lewin (1968, 1970) all demonstrated how managerial bias and slack

could enter budgets. Dew and Gee (1973) found that many managers

either did not use accounting information received, or used it

incorrectly. More recently Ashton (1976) noted how dysfunctional

consequences of accounting systems are perpetuated and amplified by

their feedback mechanisms.

These studies can be related to what Burrell and Morgan (pp. 184 -

189) term organisational “ theories of bureaucratic dysfunctions”, and

in particular to the work of Selznick (1949), Gouldner (1954), and

Merton (1968). Such theories acknowledge that organisations

themselves do not have goals but are composed of individuals and

groups striving towards different ends, “local” goals are often in

conflict and dysfunctional in the formally stated organisational goals.

The works point to the limits of bureaucratic control and illustrative

how changes may occur in the social systems. Unfortunately such

considerations tended not to be appreciated or explored by many of the

28

accounting researchers. The awareness of “behavioural Dysfunctions”

merely spurred on their endeavours to refine measurement to rectify

such aberrations e.g. economic and mathematical approaches to

transfer pricing and divisional performance measurements summarized

in Abdelkhalid and Lusk (1974), or alternatively to advise that

“miscreants” be given a greater education in accountancy, e.g. Dew

and Gee, (1973). Thus the managerial definition of the enterprise was

preserved. Recognition of the divergence of goals within organisations,

their significance to change, and how accounting might recognise and

assist this process was de - emphasised.

2.2.2.2 Psychological 'Theories – [Decision Through

Information Processing of Individuals]

Dysfunctional consequences can also occur through messages being

misinterpreted or interpreted differently, A growing number of

accounting researchers have examined the effect of alternative

accounting techniques on management decisions by studying the

information processing of individuals. .Early' laboratory experiments

were conducted by Dyckman (1964) and Bruns (1965, 1968). Ijiri

(1967) constructed a model emphasising the importance of lack of

feedback, functional fixation. and an ill-structured environment for

misinterpretation of information by the user.

Much of this work is now subsumed under the tit1e of Human

intervention processing approaches to accounting. Extensive reviews of

this can be found in Driver and Mock (1975), Moskowitz et al (1976),

Snowball (1980), Nisbett Ross (1980), Einhorn and Hogarlh (1981),

Libby (1981) and Libby and Lewis (1977, 1982).

The essential thrust of the work is to determine what factors affect the

quality of individual decision making. Libby and Lewis classify the

major variables into three sets - inputs, process, and outputs. Input

29

variables measure the properties of the information, (e .g. type of

measure, its reliability, method and order of presentation, amount).

Process variables seek to measure aspects of the decision-maker, (e.g.

numbers, personality. intelligence, commitment, decision rules used).

Output variables include the speed, quality and reliability of

Judgements, and Perceptions of their quality and of the information

given.

The work adopts a functional frame of reference, for although people

are viewed as imperfect information processors, the processing is

assumed to be systematic and capable of revelation by scientific study.

Decision-making is depicted deterministically as an interaction

between objective characteristics of the information set and innate

characteristics of the subjects. Ontologically the world is taken to be

prior to individual cognition, the problem is their imperfection in

perceiving it. Thus, according to Libby (1981) the options for improving

accounting decisions lie in either changing the way information is

presented or educating the decision-maker in better methods of

processing information, or replacing him or her with a model.

2.2.2.3 Social Psychological Theories – [Motivation Rather

Than Information Processing]

Social Psychological approaches to management accounting are

essentially complementary to human information processing ones. Both

seek to reduce dysfunctional consequences of accounting systems by

improving their design. Social psychologists however concentrate on

motivation rather than information processing. Typically their research

takes a defined budgetary variable like participation and relates it to

social psychological factors such as interpersonal relationships

between peers and supervisors. The assumption, which is questionable

(Argyle 1972) is that greater morale or job satisfaction increases

output.

30

The most common budgetary variables studied include, participation

over standard setting (Becker and Green, 1962; DeCoster and Fertakis,

1968; Dunbar, 1971; Onsi, 1973; Searfoss, 1976) perceived difficulty of

standards (Stedry, 1962; stedry and Kay, 1964) and the use of budgets

in performance evaluation (Hopwood, 1972. 1974). Lawler (1976) and

Lawler and Rhode (1976) summarise such work linking it to the design

of thermostat - like control systems, motivation, and dysfunctional

behaviour. Accounting research in this “Human relations” tradition still

flourishes e.g. Brownell (1982).

Despite the heated debate between objectivists and social

psychologists over participative methods, their approaches are very

similar. The social psychologists simply substitute “hedonistic” and

complex man for the simpler models of Taylor, (Burrell and Morgan,

1979}. Both view individuals as predictable and passive respondents

whose behaviour can be determined by external stimuli. Whereas

Taylorism advocates managerial manipulation of the workforce through

economic variables, the social psychologists emphasise job design and

leadership style. Whilst social psychologists recognise that human

desires may conflict with those of the organisation or other parties to

it, in its advocacy of participative methods it tends to assume that these

are reconcilable. Little account is taken of possible inequalities of

power between parties to the participative process, or of the fact that

in some instances goal differences may be irreconcilable. Thus the

approach is often criticised for a pro-managerial and manipulative bias.

e.g. Rose (1978).

2.2.2.4 Structural Theories – [Affects on Organisational

Structure]

Neither psychological nor social psychological theories have paid much

attention to how structures of organisations might affect the processes

31

under scrutinity. Whilst the pioneering study of Argyria (1953)

concentrated on social psychological variables it noted the significance

of organisational ones such as the reporting relationship of

accountants. Shortly after, the classic study of comptrollers’

departments by Simon et al. (1954) focused on organisational issues

such as the roles of accountants and their relationship to structure,

training and socialisation. Despite the wide citation of this work little

investigation of structure ensued in accounting. That which did e.g.

Benston (1963), Golembiewski, (1964), followed the centralisation

versus decentralisation debate instigated by Simon et al., and tended to

become an adjunct of the social psychological approach rather than a

sociological investigation of say institutional networks or occupational

cultures.

The design of accounting control systems is central to Chandler's

(1966) thesis on the Strategy and structure of industrial enterprises.

Williamson’s theory of Markets and hierarchies (1975) has been

unlisted to develop this approach further (Johnson, 1980; Chandler and

Daems 1979). The work has much of value. Through historical analysis

it illustrates how new forms of accounting controls, such" as

responsibility accounting and capital based measures like R.O.I., were

related to developments in capitalism, especially the emergence of

large corporations and changes in their management controls. When

corporate developments and associated accounting changes are

crudely portrayed as inevitable coping responses to new technology,

the work is very functional, in that it emphasises how individuals and

organisations are constrained by an external world. However more

recent work comparing European and U .S .A. developments is less

deterministic (Chandler and Daeme, 1979). Variations between

corporate structures and accounting systems are ascribed to

differences between political and managerial values and not just the

dictates of economic efficiency. Thus the possibility that corporate

controls are social creations subject to choices in acknowledged.

32

Although accountants have noted problems associated with new

corporate structures such as divisionalized organisations, their analysis

has been almost exclusively conducted from a technical and Classical

Economic viewpoint (Abdelkhalik and Lusk,1974). Alternative

organisational approaches to the issue of transfer pricing (Watson and

Paumler, 1975; Swieringa and Waterhouse, 1982) have shed fresh light

on to the issue, but essentially from a managerial viewpoint. As will be

examined later, little interest by accountants has been shown in radical

interpretations of structural changes, which question whether the logic

of efficiency was, and is, paramount in influencing accounting and

corporate developments.

2.2.2.5 Open System Theories – [Environmental Influences to

Organisations]

Much of the work discussed so far has adopted a 'closed systems'

approach, seeing control as achievable by regulating internal

organisational variables, be they psychological, social psychological, or

structural. An ‘open systems’ approach on the other hand regards

organisations as organisms that process inputs from the environment

back as outputs. Its ecological orientation stresses the interdependence

between the organisation, its internal Sub-systems and the

environment. A further and illuminating discussion and critique of the

differences between open and closed systems can be found in Pondy

and Mitroff (1978).

Open systems provide a means of viewing and describing subjects of

study. Argyris, for example, reformulated his 1953 study of accountants

in open systems terms (Argyris, 1964) Hofstede (1968) when

investigating "the ga1ne of budgetary control' described it in input -

output terms, e .g. external budget inputs included plant technology,

personalities of budgets, internal budget inputs embraced participation

and tightness of standards.

33

An attraction of open system is its ability to relate different resolution

levels of analysis and various disciplines. Thus Ansari (1977) used it

because of its ability to combine and reconcile structural and social

psychological work on budgets. Later, (Ansari, 1979), his analysis was

extended to the design of budget reporting systems to facilitate

managerial recognition environmental influences and inter

departmental dependencies.

Typically, open systems accounting work does not confine itself to

economic flows, but extends to political, social and technological ones

as is illustrated in Lowe and Tinkers (1977) attempt to conceptually

redefined the management accounting problem. Central to this scheme

are cybernetic notions of requisite variety, black boxing, modelling and

resolution levels (Ashby, 1956). Morgan (1982) claims that cybernetics

can be applied in two ways, either as technique or as epistemology.

Techniques applications that emphasise goal oriented behaviour and

the design of formal control systems on the lines of thermostats it is

claimed, violate cybernetics as an epistemology, which instead stresses

learning and evolution by the avoidance of undesirable and states. In

an accounting context, it is significant that the technique oriented

cybernetic applications have tended to have difficulties in incorporating

behavioural aspects of the problem, e .g. Amey (1980). Hedberg and

Jonsonn (1978), and Hertog (1978) are examples of accounting studies

in the epistemological tradition of cybernetics I both examine how

accounting systems might be designed to provoke and facilitate

organisational learning and hence shift actions to less environmentally

threatening states. Both criticise accounting systems for being

traditionally oriented towards stabilising organisations rather than

provoking change and adaptation.

Whilst a biological analogy of organisations is not inevitable when open

systems is used (Buckley, 1967; Checkland, 1981), accounting theorists

34

in this school often assume so, with several consequences.

Firstly, organisations and environments tend to be taken as

objective, even though experience in defining boundaries and key

variables suggest otherwise, i.e. they are subjective creations by

the modeller.

Secondly, when control systems are described as determined by

the variety in the environmental and organisational needs for

survival, them is a strong assumption of "functional imperatives"

which can deflect attention from the choices key decision-makers

make regarding which environments are operated in, and what

controls are employed.

Thirdly, by stressing the need for integration for the survival of

the whole, there is a presumption of a "functional unity" to

organisations, which may divert attention from issues of power

and conflict. Consequently, as Otley (1983) Points out, there can

be a thin dividing line between when open system and

cybernetics is a method of analysis and when it becomes an

ideology for co-operation towards the status - quo.

2.2.2.6 Contingency Theories – [Different Principles to

Different Organisations under Different

Organisational Circumstances]

What is now commonly termed “contingency theory” developed from

the work of Woodward (1965), Burns and Stalker (1962), the Aston

School (Pugh and Hickson, 1976), and Lawrence and Lorsch (1967)? It

seeks to provide a reconciliation and synthesis of the conclusions

emerging from a verity of organisational studies. The work of industrial

psychologists and the human relations school is combined with open

35

systems theory and that which empirically measures structural

characteristics of organisations. Its principal thesis is that different

organisations principles are appropriate under different environmental

circumstances, and within different parts of the organisation. Effective

operation of enterprises is seen as dependent upon there being a

suitable match between its internal organisation (including structures,

styles of leadership and decision making), and the nature of the

demands placed upon it by its tasks, size, environment, and members

wants. Many researchers into management accounting have

consciously adopted and encouraged this approach, probably to explain

otherwise contradictory observations. Reinforcement may have come

from pragmatic practitioners who had always expressed suspicion at

universal prescriptions not tailored to the requirements of their firm. A

small flood of studies seeking to establish which contingent factors

determined the form of accounting system ensued.

Khandwalla (1972), Bruno and Waterhouse (1975) and Waterhouse and

Thopson (1978) concentrated upon establishing relationships between

the design and use of management accounting systems and the size of

an organisation, its technology, its structure and/or its environment.

Managerial decision-making styles were taken into account by Gordon

and Killer (1976), Caplan and Champoux (1978) considered

management styles and the "personality" of an organisation, Young

(1979) discussed organisational values and motivation, management

aspiration for profit growth were included as an important independent

variable by Piper (1980), Earl and Hopwood (1979) contended that

different modes of organisation decision-making predominated under

various forms of uncertainty and that different kinds of management

information systems were therefore required .Swieringa and Moncur

( 1972) and Rahman and McCosh ( 1976) were the only ones, however,

to pay much attention to attitudinal or personal factors .

The assumptions behind contingency theory are similar to those under-

36

lying an open systems approach - the key relationship between an

organisation and its environment can be understood in terms of the

organisation’ s need to survive, and the fact that there are certain

functional imperatives for the various sub-systems. Although the

processual nature of organisations is emphasised, much of the research

cited has tended to use questionnaires to take snapshots of temporary

structural manifestations followed by detailed statistical analysis rather

than observing the processes first hand over time.

Sadly, management accountants employing organisation theory have

tended to glorify particular approaches at the very time when

organisation theorists are tending to discard or substantially modify

them. Contingency theory, falls into this pattern. Otley (1980) notes

four reservations about contingency theory in a managerial accounting

contexts first, the conceptualisation, definition and measurement of key

variables requires greater theoretical and empirical attention;

secondly, studies have tended to ignore theoretically and empirically

the question of how controls are related to effectiveness; thirdly, the

prescriptions from contingency theory are based on weak grounds e.g.

correlation are often small inconsistent, and rarely related to any

effectiveness criteria; fourthly, the highly connected nature of

components in an organisational control package suggest that

management accounting and information systems cannot be studies in

isolation from their wider context.

More generally, Child (1972), Wood (1979), Schreyogg (1980), Cooper

(1981), all criticise contingency theory for paying insufficient attention

to the discretion possessed by key decision-makers and how values,

beliefs and ideologies may influence choices. Contingency theory tends

to portray management in a technical role, matching organisational

design to the dictates of contingent factors. However the presumed

independent variables may not be so. As in the case of systems theory,

factors such as technology may be part of strategies of control. The

37

small and inconsistent correlation in contingency studies suggests that

management may have considerable latitude over such issues. Much of

contingency theory appears a theoretical: it purports to describe and

measure practice. However correlation established often become

interpreted as causal and used to establish normative models. Thus

what is a slip into what should be? What might be is not addressed .By

emphasising technological determinism and neglecting how control

systems may be a product of social cultures, ideologies and power

struggles, attention is deflected from alternatives based on different

values.

2.2.3 Pluralism

Industrial relation is an area where issues of power, conflict and

sectional interests are more overt and where presumptions of unitary

organisational goals have been seen as inappropriate. Some writers,

especially Fox (1966) have advocated pluralism as a more realistic

approach to organisational control. Here organisations are taken to be

comprised of sectional groups with divergent and often mutually in

consistent goals. Common purpose exists only insofar as groups are

interdependent. Control is achieved by maintaining a network of rules

and regulations that permit bargaining between the groups. The aim

being to contain rather than eliminate conflict by negotiating courses

of action which permit each group maximum freedom consistent with

the binding constraints laid down by other groups. Thus organisations

are seen as loose coalitions, often decisions are taken sequentially to

allow different criteria and hence different sectional ends to be met;

formal organisational goals may represent little more than means of

securing external legitimacy. A major variable determining outcomes

is the relative power of groups, and the concern of researchers is to

explain and predict such outcomes rather than prescribe them. The

pluralist counterpart in decision theory can be found in works such as

38

Cyert and March (1963), Lindblom (1959), Allison (1969). Despite not

being extensively tapped by accounting researchers, pluralism is

potentially a source of fresh ideas and insights into management

accounting and it introduces many of the themes that are examined in

the subsequent alternative approaches. Firstly, pluralistic studies shed

light on to the issue of how accounts and accounting rules are initially

created. Rather than assuming that they are the product of objectively

rational procedures based on a value free and neutral perspective, as

does much often-previous work discussed, pluralism suggests they

arise from sectional interests and are then mediated through political

processes. For example, Nahapiet (1981) observed that treasurers from

Areas of the National Health Service competing for funds put forward

data and criteria most favourable to their case. When extra funding

was unexpectedly made available it was mutually agreed that each

would reformulate the past records in the light of this future funding.

Similarly Hope and Gray, (1982), noted that recommendations to the

Accounting Standards Committee stemmed from sectional interests.

Thus the aerospace industry sought and achieved provision for

capitalisation of development expenditure because of its effect on the

profitability of government contracts and despite its contradiction of

stated accounting principles.

Accounting may derive from sectional interests and be modified by

bargaining and negotiated consensus, but it is also integral to the

relative strengths of the parties to such processes, being an important

power resource, namely information. This is illustrated by studies such

as Bariff and Galbraith (1978) and Bjorn-Anderson and Pederson

(1980), which explore and document how changes in information

systems affect power structures within companies. This being the case,

then organisationa1 participants may use positions as “gatekeepers”,

to ration or manipulate information to secure personal ends (Pettigrew,

1973). AS Dalton (1959) colourfully describes, accountants are not

immune from indulging in such behaviour. The suggestion of pluralism

39

is that managers use, seek and develop accounting to bolster a

perspective, i.e. as an "ammunition machine" rather than treating it as

providing answers through a single calculus (Earl and Hopwood 1979).

If so, then budgetary control may principally be a means of instituting

and promoting bargaining whereby participants can stake out claims,

discover alternative claims and meanings to organisational events,

enrich their understanding of the organisation, and secure a degree of

consensus. (Nahapiet, 1981, Wildavsky, 1964,1975). Facilitating such

processes by designing accounting systems that permit the creation of

several perspectives, and which encourage learning through dialogue

and dialectics may be preferable to refining systems that, as is often

the case, purport to give a single version of the truth. Churchman

(1971), Argyris and Schon (1978), Checkland (1981), and Machin

(1981) all address to some degree, how such information systems

might be created? Unofficial information systems may be important in

this respect, as they indicate a desire by managers for information

systems tailored to their viewpoint and Which might challenge official

formal systems (Banbury and Nahapiet, 1979, Clancy and Collins,

1979).

Pluralist notions applied to accounting are not limited to bargaining

between managerial interests, but can and have been extended to

industrial relations and financial reporting. Foley and Maunders (1977)

advocate and analyse accounting reports that meet trades union and

employee wants, and which serve the distinct inputs to bargaining

within a pluralistic conception of control. In a sense, the corporate

Report (A.S.C., 1975) in its advocacy of financial reporting for a

disparate range of sectional interests, sometimes conflicting, has

overtones of pluralist ideas.

Lastly, the scepticism of pluralism towards official statements offers

insight into the status and significance of accounting data emanating

40

from meetings. Burchell et al. (1980) note that accounting data often

emerged from political processes and decisions rather than preceding

them. The suggestion is, as several writers have argued, the

accounting serves to reassure decision-makers and to legitimise their

actions, rather than reflecting an underlying reality. For example

Mason (1990) suggested that the main thesis of Burchell et al. was that

accounting information served to reduce perceived uncertainty and to

abate and objectify anxiety. Similar ideas underlie the works of

Gambling (1977), Swanson (1978) and Chambers (1980). Gambling saw

accounting as a political process and compared it with witchcraft in

that both provided the "machinery to accommodate awkward facts in a

way which does not undermine fundamental beliefs of the culture" and

which does not expose the gaps in that culture’s knowledge. According

to Swanson, information systems should be recognised as having a,

"significant capacity for the encouragement of organisational delusion"

- although there may be an "inner-directed" rationale, the aim could be

to make a show of "good information" to higher management.

Chambers discussed accounting and quasi-myths I he suggested that it

was often simpler to invent fictions than to establish a connection

between the input of certain information to a person and the output in

the form of a decision or action. Finally, Earl and Hopwood (1979),

building on the decision theories of Weick {1969), claim that in very

uncertain situations management information systems are used to

retrospectively rationalise decisions and actions already taken.

Such ideas overlap, and indeed often draw from, interpretative ideas

on socially created realities. Also recent pluralistic work often uses

interpretative methods. However pluralism tends to presume

purposeful and self-interested behaviour arising from a realist

ontology, Bargaining arises due to different, but reconcilable, objective

interests rather than individuals seeking to create meaning through

social interaction. Whilst socially created accounting is recognised, it

41

tends to be seen as a deliberately manipulative act to seek external

legitimation and to mask underlying realities. Thus much of pluralism

is underpinned by realist ontology. However its ability to absorb within

its approach interpretive ideas and methods has led the writers to

classify it as less objective than the functional approaches such as

objectivism and social system theory discussed previously.

Its position with regard to change in the classificatory framework is

similar to that of social systems theory with which it has many

similarities. Both stress interdependencies and neither elucidates any

ideal and state. The maintenance of negotiated consensus and

prevention of any party seeking absolute achievement of its ends in

pluralism has similarities to systems notions of survival, the prevention

of system breakdown and negative entropy. The essential difference

between pluralism and other approaches examined so far is its focus on

interests, conflict and power. Whilst pluralism is perhaps less

committed to normative designation earlier approaches, and more to

observing and understanding accounting in action, it is unable or

unwilling to pass judgement on the relative powers of parties to

negotiations or the ends each pursues. As such pluralism is part of the

sociology of regulation within' a broad framework of preserving the

status quo.

2.2.4 Interpretive theories

From a functionalist viewpoint, people are seen as being constrained

by the social world they inhabit, and this world is perceived as being

composed of external and independent objects and relationships. Social

constructs, such as organisations, are often regarded as material

things and so accorded the power of thought and action; in fact it could

be said that a purely structural or functional sociology is endemically in

42

danger of reifying social phenomena (Berger and Luckman, 1966, p,

208).

An interpretive approach on the other hand emphasises the essentially

subjective nature of the social world and attempts, to understand it

primarily from the frame of reference of those being studied, as Laing

pointed out, 'persons are distinguished from things in that persons

experience the world whereas things behave in the world' (1967),

(p.53). The focus is on individual meaning and people's perceptions of

"reality" rather than any independent “reality" that might exist external

to them.

If reality is seen solely in term of individual consciousness (leading in

the extreme case to solipsism and the denial that external objects of

any sort have an independent reality) the problem becomes one of

explaining the common sense belief of a real social world without

reifying social phenomena, This hurdle is overcome by acknowledging

that although our realisation of the world is unique, it is also at least to

some extent an experience shared by others. It is suggested that

understanding of the conduct of others is obtained through a process of

interpretation, or "typification", rather than by direct observation -

such "typifications" being continuously learnt, modified or re-affirmed

throughout people's lives (Schutz, 1967). In other words people

constantly create their social reality in interaction with others, It is the

aim of an interpretive approach to analyse such social realities and the

ways in which they are socially constructed and negotiated.

Methodologies based on experimental designs and statistical surveys

that treat the social world as objective and measurable are not

consistent with the philosophical and theoretical underpinnings of such

an approach. Qualitative methods are often more appropriate for the

study of how language and meanings evolve and are modified, but the

relationship is not quite so straightforward (Reichardt and Cook, 1980).

43

The important thing is that the form of inquiry adapted in any

investigation should not be shaped simply by a commitment to

particular research methods for their own sake, but should be logically

consistent and appropriate given the aims of the research and the

values and assumptions that lie behind it (Bulmer, 1979; Morgan and

Smircich 1980).

The relevance to practice of much of the functionalist academic

research into the organisational and social aspects of accounting has

recently been questioned by a number of authors, (e,g, Tricker 1979;

Tomkins and Groves,1983; Bourne et al., 1982). The 1977-1978

'Schism' Committee of the American Accounting Association, for

example, doubted whether many academics, let alone practitioters,

fully understood the articles published in “The Journal of Accounting

Research” and “The Accounting Review”. Bourn et.al. (1982)

Suggested that researchers know little about accounting in actual

practice, how it interacts with other organisational processes, and how

it contributes to organisational effectiveness and adaptability. There

has thus arisen a cry from some corners for a more 'interpretive '

approach whereby greater emphasis is given to the perceptions and

explanations of the participants themselves (Otley, 1978; Colville,

1981; Tomkins and Groves, 1983).

The suggestion is that by using ‘interpretive' research methods, to

study how accounting meanings are socially generated and sustained, a

better understanding of accounting will be obtained. In addition, by

permitting research quest ions to emerge from the research process,

rather than being predetermined at its outset, it is hoped that they will

be more pertinent to the problems of the subjects.

Unfortunately, except for the work of Rosenberg et al (1982), little

empirical accounting research in this mode has been carried out.

However research in other areas using interpretive methods may

provide useful insights. For example, in the very different

44

circumstances of a gynaecological examination Emerson (1970) noted

how contradictory definitions of reality are found in most situations,

and how unremitting effort is needed to negotiate and sustain a

dominant definition. Similarly Silverman and Jones (1973), after

observing staff selection interviews within a large organisation,

suggested that the situation was characterised by multiple realities as

people attempted to make sense of the situation. Both studies illustrate

how dominant definitions of events are created inter- subjectively. It

can be argued that accountings are similarly formed, thus the study of

accounting processes whereby people try to make sense of its terms

and create shared meanings may be worthy of research ( Ansari and

McDonough, 1980).

In a study of receptionists in a State Bureau of Public Assistance,

Zimmerman (1971) noted how the meanings to the receptionists of

various rules, policies and goals depend on the actual occasion of their

use. It is possible that the meanings of various accounting terms and

practices may also vary for individuals at different times and in

different situations. The flexibility of accounting measures, for example

as noted in terms of how value is calculated and the roles it is put to

(Burchell et al., 1981) suggest the potential for viewing accounting in

such a manner. Evidence of accounting meanings and purposes varying

is contained in the comments of some of the accountants in Rosenberg

et al study (1982).

When they worked in the treasurer's department, accountings were

perceived and used as objective representations of the real situation.

However when they were moved to social services departments

accountings become seen as flexible measures to facilitate decision

making and to bargain. Such seemingly contradictory understandings

between accounting as an objective unbiased source of information on

the one hand, and its malleability and variety of usages in action on the

45

other is a common research finding. For example Nahapiet (1981) and

Berry et al (1983) all illustrate how accounts and associated meetings

are used to display a facade of rationality to external bodies, despite

being used for different purposes within the organisations. Other

studies (Meyer and Rowan, 1977; Dizsmith and Jablonsky, 1979;

Pingle, 1978; Gerwin, 1982), which claim that accounting is created

after decisions are made to legitimise them, rather than being an input

preceding rational calculation, question the assumptions of rationality

that underpin so much accounting work, and are suggestive of the

applicability of themes in interpretive approaches. Several inter-related

insights into accounting have already been made from an interpretive

perspective, which are worthy of further research. These include

seeing accounting as a language, as myth and ritual, as a means to

negotiation, as learning, and as assisting change under conditions of

uncertainty.

Interpretive work stresses the constant uncertainty confronting

individuals seeking to make sense of the world they inhibit. Through

language, they negotiate an understanding shared by others. Thus it

may be, Cooper et al (1981), that accounting may be regarded as a

"common language” for the discussion and resolution of contentious

issues. Bourne et al. (1982) provide two case studies of accounting

being so used. They noted that accounting language become a medium

for calmer and more informed political debate, facilitating the

exchange of views and the design of further investigative action. As

accountants become more aware of the circumstances and

perspectives of other areas of business, and as non-accounting

managers become more familiar with financial terms, it may be that

accounting will increasingly provide a medium and forum for debate

(Powell, 1983). Indeed, in two of the organisations investigated by

Powell, accountants had become responsible for all negotiations with

trades union representatives.

46

If so, it might be argued that accounting system designers may have to

pay greater attention to the subjective models of clients and the

processes whereby they are created. Such approaches have already

been adopted in practice by some operations researchers. Checkland

(1981) found that traditional or 'hard' systems methodologies based on

those of the natural sciences were inadequate for the complexity of

problems raised during consulting. His alternative “soft systems”

methodology was seen to be based "...not on any external ‘reality’, but

on people's perceptions of reality, on their mental processes rather

than on the objects of those processes”. Thus the ' soft systems'

methodology concentrates upon presenting back to subjects multiple

models of subjective realities as a means of promoting learning. Boland

(1979) similarly argues for greater recognition of subjectivity by

accountants. He postulates that systems designers, trained in rational

modelling approaches, are often unaware that their model of reality is

only one of many. He too advocates that systems designers trace

multiple subjective models of decision-makers to precipitate debates

and hence the creation of richer models. In addition he advocates such

exercises periodically on existing system as a means of precipitating

change. Dialectical inquiring systems advocated by Churchman (1971)

and Mitroff et al. (1972) are seen as particularly apt for such exercises.

In stressing subjective models and the creativity of conflict in

challenging and exposing organisational assumptions the methods

overlap considerably, but not entirely (Boland, 1981) with the

organisational learning systems developed by Argyris and Schon

(1978). Several accounting writers have utilised decision theories

strongly influenced by interpretive approaches, to address the question

of designing accounting systems that promote change and creativity.

For example, Cooper et al (1981) claim that the seemingly non-rational

decision behaviour described by Weick (1969), and March and Olsen

(1976) is typical in organisations subject to great uncertainty. They

claim however that such behaviour facilitates play and experimentation

47

and hence creativity and learning. Consequently they advocate

accounting systems, which promote rather than stifle such behaviour.

Similarly, Earl and Hopwood (1979) claim that in situations of high

uncertainty over means and ends accounting systems should be ‘ idea

machines’ rather than the 'rationalisation machines’, which they tend

to be.

These approaches are stimulating, not least because they indicate how

accounting systems may promote change, albeit within a managerial

conception of the term, rather than being stabilisers. However

assigning interpretive work to the particular problems of coping with

exceptional uncertainty carries the danger of prematurely bringing

structure and order into a more fundamental debate over the social

science assumptions appropriate to management accounting.

Interpretive theorists should argue that their approach is of universal

rather than limited applicability. It is important to consider not only

when and how peoples’ perceptions change, or are desired to be

changed, but also why common perceptions exist and remain

unchanged.

The work of Meyer and Rowan (1977) and Starbuck (1983) is relevant

in this context, structures, rules, plans, goals etc. are seen as myths

and rituals which reinforce the stability of behaviour within

organisations and legitimise their action externally. Boland (1982)

utilises such ideas in an accounting context, arguing that accounting is

a ceremony or ritual played out to reinforce the myth that large

organisations are subject to external checks upon their societal

effectiveness. Such behaviour is seen as a consequence of the

accounting profession trying to reconcile conflicting ideological

pressures placed upon it. However the myths spawned and the

associated technologies have produced a bias against reform. The work

is interesting in underlining the social creation of accounting, and how

meanings attached to it help maintain the status quo, but questions

48

about which ideological pressures are most significant, and whose

purposes are served by such myth creation and stabilisation are left

unexplored. The work of the following radical theorists is critical in

that it extends the accounting problematic to such issues.

2.2.5 Radical Theories

Insofar as functional theories address the problem of change, it tends

to be from a managerial perspective, which traces the wider

environment and nature of society as natural and given. Its use of

scientific methods to substantiate clams that it is neutral and value free

are questionable given the selective perception of observers, the role of

choice in problems investigated, and which language and models of

relationships are adopted. Whilst pluralist theories acknowledge the

existence of diverse and conflicting goals amongst parties, they tend

not to pass judgement on them, conflicts tend to be atomised to the

individual and the group. Radical theorists would suggest that by not

questioning wider social relationships, such as the distribution of

power and class relationships, functional theory implicitly accepts and

indeed supports the status quo by reproducing ideology in the guise of

science.

Interpretive theories have been important in questioning the

epistemological and ontological assumptions of functional work. By so

doing fresh perspectives have been shed on accounting, not least on

the subjectivity of its creation, despite its espousals of objectivism.

Others share little consideration, however, is given to how wider social

and political collectivities impinge upon the processes by which

“common” sense understandings.

In contrast to functional and interpretive approaches, radical theorists

view society as being composed of contradictory elements and

pervaded by systems of power that lead to inequalities and alienation

in all aspects of life, they are concerned with developing an

49

understanding of the social and economic world that also forms a

critique of the status quo. Moreover, by accepting the dominant

ideology and by not questioning the fundamental nature of capitalism,

functionalists interpretive theorists are seen as helping sustain and

legitimise the current social, economic and political order (Baritz,1960)

thus traditional accounting theory is regarded as adopting a

managerial frame of reference and as supporting the status quo

(Cooper, 1983; Tinker et al. 1982). A theme central to all radical

theories is that the nature and organising principle of a society as a

whole is both reflected in and shaped by every aspect of that society.

Consequently no single part of a capitalist society can be fully

understood without comprehending capitalism in its entirety. It is not a

question of whether double entry book-keeping stimulated the

'rationalistic pursuit of unlimited profits or vice versa (see.Yamey, 1949

and 1964; Winjum, 1971) - rather capitalism and accounting techniques

are seen to be inter-dependent. There is no room for the notion of

external casual influences (Burrell, 1979): accounting processes and

institutions are not as much influenced by the wider social, economic

and political environments as 'inter-twined' with them (Burchell et al.,

1981), and cannot therefore be studied independently.

Burrell and Morgan divide theories of radical change into two sections

(radical structuralism and radical humanism). The former focuses on

the fundamental conflicts that are both a product of, and reflected in,

industrial structures and economic relationships, e.g. surplus value,

class relationships, structures of control, whilst the latter emphasises

individual consciousness, alienation through reification, and the way

this is dominated by ideological influence, not least through language.

The difference between the two approaches is akin to that between the

functional and interpretive approaches. In other words radical

structuralism treats the social world as being composed of external

objects and relationships independent of any particular person, while

50

radical humanism emphasises individual perceptions and

interpretations. A strict division between these radical approaches

reflects the view of those writers (e.g. Althusser, 1969) who consider

they’re to be a distinct epistemological break between the earlier and

later works of Marx on which the two strands of thought are based.

However, other writers (e.g. Gouldner, 1980; Mandell, 1968; Elson,

1980) maintain that there is a complex tension between the objective

and subjective areas throughout Marx's work. Considerable effort has

been made by some radical theorists to incorporate both strands within

a single philosophical framework, e.g.Giddens 1976; 1979; Habermas

(1974, 1976). The mutually exclusive division of radical theories by

Burrell and Morgdn carries the danger that concerns of radical

structural analysis are seen as incompatible or irreconcilable with

those stressing consciousness, rather than seeing both as dialectical

aspects of the same reality. Consequently, as outlined earlier, the

subjective-objective dimension in Figure One is to be regarded as

continuous. .

Despite the burgeoning of Neo-Marxist economic and organisational

analysis in the last decade, e.g. Clegq and Dunkerley, 1980; Braverman

1974, which often imposes directly on accounting issues, it hasreceived

little attention in the accounting literature. Central to Marx’s attempts

to understand capitalism is his theory of value and the relationships

between value, abstract labour and money (Marx, 1972; Elson, 1990).

Several recent writers, particularly radical economists have sought to

reconsider his conceptions and relate them to modern forms of

capitalist calculation (Cutler et al., 1977, 1978, 1979; Harris, 1978,

1979, Thompson, 1978, 1980, Reatti, 1980). In other words attempts

are being made to link the principles of modern accounting to Marxist

work on the fundamental mechanisms of the appropriation of surplus

value - the process by which some would suggest that capitalism lays

the seeds of its own destruction. Cutler (1978) extends the analysis to

51

embrace the role of various types of contemporary financial institutions

such as banks, finance companies and insurance companies.

An appreciation of how accounting to is related to broader social

processes and structures can be derived from studies of the occupation

of accountancy and its professional organisation. Johnson adopted a

pluralistic perspective in his early study of professionalism, in which he

made a plea for understanding professional occupations in terms of

power relations in society (1972). Since he has adopted a more radical

outlook, whereby professionalism is viewed as a process integral to the

evolution of social classes and patterns of domination (1977). Similar

points are made by Larson (1977) who, like Johnson, makes specific

reference to the accounting profession. More recently Johnson (1980)

has argued that work processes organised as accountancy were not

conceived of having some functional significance for society generally,

but rather they are viewed as functioning in relation to a specific and

determining historical process: the appropriation of surplus value and

the accumulation and concentration of capital. Such work reflects

developments in an influential critical perspective of professions, which

rather than seeing them in terms of an altruistic model stressing

specialised skills, knowledge, and self regulation through common

values and ethics, instead exposes professional notions of altruism,

impartiality and ethical veracity as myths to legitimise professional

autonomy and to sustain monopolies of knowledge which have common

roots with the dominant ideology of capitalist society (Heraud, 1973,

McKinley, 1973; Gyarmati, 1975).

Thus professional self-regulation and the consequent mystification of

knowledge is perceived as being inherently and fundamentally

harnessed to the unequal distribution of political power and authority

in a class divided society (Newman-Price, 1983).

Sraverman (1974) similarly links accounting to the appropriation of

surplus value and class relationships noting that, "as capitalism

52

becomes more complex and develops into its monopoly stage, the

accounting of value becomes more complex” p.302. His historical

analysis of the detailed division of labour, Scientific Management, and

hierarchical centralised organisation explicates them as devices for

strengthening capitalist control over the means of production through

lessening the power of craft labour, rather than as responses to

competitive pressures, or adjustments stemming from new

technologies. Accounting may be seen as integral to the control of

labour processes and constituting a labour process in itself. With

regard to the latter, detailed investigation of the labour process within

accountancy may be a fruitful area of study, such a task has been

undertaken for data processing areas, e.g. .Greenbaum (1979).

However it is the post-Braverman debate regarding management

controls which may be of greatest pertinence to accounting (Edwards,

1979; Goldman and Van Houten, 1977, 1979; Clawson, 1980 Marglin,

1974, Bruland, 1982; Gordon, 1976). Such work sees the fragmentation

and system attestation of tasks, and subsequent deskilling of labour as

integral to preventing or weakening labour resistance, but extends

Braverman's thesis by noting that this is only one of several means of

securing such control. Their elaboration of managerial strategies of

control has many similarities, and indeed often draws from, the work of

Chandler and others described earlier, but directly challenges claims

that such changes were dictated by logics of efficiency. As was pointed

out earlier, budgets, standard costing and divisionalised performance

measures are integral to theories of corporate development (Hopper &

Berry, 1983). Thus the rationale for the emergence of management

susceptible to a similar challenge and re-examination from the

perspective of radical theory. Some evidence for questioning whether

accounting developments were essential to new technologies comes

from Pollard (1972), who doubts whether the existence of large durable

means of production necessarily requires the development of fixed-

capital accounting.

53

Similarly Clawson (1980) suggests that the elaborate bookkeeping and

control procedures recommended at the turn of the century were “not

needed to determine prices for competition with other capitalists, but

rather for the purpose of class struggles”.

Burrell and Morgan depict the central theme of Braverman's work as

thus:

“The complexity of the division of labour under capitalism is regarded

as requiring an immense amount of social control which lies beyond the

capabilities of the public functions of the total society, The internal

planning of such corporations becomes in effect, social planning to fill

the large gaps in social control left by the state" p, 38l.

The suggestion is that corporate planning is in effect social planning.

Accounting is central to corporate planning. However, as has been

argued, it has developed and been researched almost exclusively from

the perspective of management and with little reference to its broader

social implications. As Cooper (1983) notes, how accounting systems

might serve better societies and better organisations is rarely

addressed except according to criteria of managerial efficiency. Radical

work is thus important in awakening such concerns and elaborating

possible alternative criteria.

Braverman's work is deterministic and objective and thus shares many

of the methodological problems of functionalism. Particularly important

is the lack of regard paid to individual consciousness: subjection to

inequities and degradation does not automatically lead to an

understanding of causation and actions to prevent them. As the

interpretive writers argue, consciousness is socially created. Many

radical theorists would agree, but would add that it is distorted and

biased towards the goals of dominant groups, particularly through

language. In addition, processes of reification mystify individual

understanding of the world and allow man to be dominated by

54

creations of his own consciousness.

Roberts and Scapens (1983) describe Accounting as "the language of

capitalism": if so then it may be central to the production of false

consciousness. Underlying its terminology and expressions is a system

of moral order and a determination of what is significant. Thus it may

serve, through influencing the premises of argument, to legitimise and

promulgate the status quo. For example Cherns (1978) argues that

accounting helps create alienation and reinforces social segmentation

by reducing all evaluation to a. "cash nexus" of profitability. Thus

incalculable values such as loyalty or beauty become excluded from

consideration, and values consistent with capitalist objectives are

promulgated through the dominance of financial criteria. This is

despite our knowledge that such measure does not necessarily reflect

an organisation's contribution to society. Thus the pursuit of profit is

often unquestionably accepted by many: despite its precise meaning

being unknown ( Sandilands, 1975).

The tension between accounting being presented as objective facts and

its socially created sources has been noted in earlier sections. Some

accounting studies, picking up such contradictions, have viewed

accounting as an ideological phenomenon that serves to mystify social

relationships and reinforce unequal power distributions. For example,

Bougen and Ogden (1982) maintain that in industrial relations the

major purpose of accounting is to legitimise decisions externally by

providing what are purported to be objective calculations, but that

accounting rationales are biased towards managerial interests and

their bargaining positions.

Similarly, in a historical study of value added accounting in a societal

context. Burchell et al (1979) suggest that such accounts are a "device

for miss-representing reality" in that they are used to promote an aura

55

of rationality to production to secure more harmonious co-operation in

times of labour unrest.

As the former study suggests, investigation into the use of ideology can

shed fresh light on a historical understanding of accounting. For

example, Merino and Neimark (1981), through such a perspective,

challenge the conventional rationale that the disclosure provisions of

the 1933 and 1934 united States Securities Acts were an attempt to

improve information to investors, instead they argue that the

legislation was intended as propaganda to respond to popular criticism

of market competition and security market manipulations. The theme

of such studies is that accounting measures alienate through

subordinating behaviour to perceived imperatives, which are in fact

socially created, are malleable and serve specific interests integral to

the creation of alienation in the first place.

Laughlin (1983), recognising this, advocates the use of the critical

methods of Habermas to provide a better understanding of accounting

as a language and to provoke discourses leading to enlightenment.

There is a paucity of explicitly accounting research adopting a radical

perspective. If it is that most accounting practitioners are mainly

interested in preserving the present economic system, then the only

relevance a radical approach may have for them may lie in the insights

it offers to further reinforce their techniques of control. However a

vital question is whether changes in accounting practice, together with

other pressures and agencies for change, can help bring about a more

desirable form of society, as is postulated by Tomlinson (1982). Radical

studies of accounting can assist such a debate through developing four

inter-related areas. Firstly, an understanding of how and whether

management accounting is biased towards managerial definitions and

the resolution of managerial problems and if so, how and whether it is

56

related to the alienation of the workforce. Secondly, an awareness of

how meanings attributed to accounting language and concepts are

developed, and an understanding of the ideological influences on this

process and 1ts subsequent effects. Thirdly, a greater understand1ng

of how accounting is related to societal power structures and political

processes. Fourthly, an increase historical knowledge of how

management accounting controls within organisations have developed

in relation to the evolution of modern capitalism - taking into account

social, political, and economic factors. Such work might form a base for

developmental work on accounting systems, which are based on

alternative values and are not exclusive to managerial interests.

2.6 A Framework for the Present Study

Objectivism and Social Systems Theory have tried to show that the bulk

of organizational literature on management accounting has developed

along similar assumptions about the nature of social science and

society. Contingency theory thus represents a holistic apotheosis of the

functional approach rather than a major new departure.

Ontologically the work has a realistic and objective conception of

reality. Societies, organizations and control systems are seen to have

an empirical existence independent of any individual's cognition, and

needs and goals have been imputed to each. Thus problems of

reification (imputed needs and goals to abstract entities) tend to be

discounted. The shifts from mechanical to organic analogies, and from

closed to open systems have not marked essentially different

conceptions of reality, but rather have reflected varying complexities of

similar models. Throughout, the implication is that optimal accounting

control system can be designed for any situation, given an ability to

master its inherent complexity.

Epistemologically, the belief is that this will come from a single holistic

57

model of reality being constructed from "laws" established at different

levels e.g. environmental, organisational, individual. Methodologically

the work is strongly positivistic, the presumption being that if

relationships between variables can be established, then these can be

elevated into natural laws governing the design of accounting Systems.

Research methods have been dominated by the use of questionnaires

and structured interviews with the resulting data being analysed by

complex statistical techniques to establish relationships. Little

cognisance has been paid to how selective perception of the researcher

may bias results, or the problems of establishing proof, or whether

scientific method is apt for studying human behaviour. Questions of

individual understanding and meaning have tended to be taken as non-

problematical.

Within the paradigm the view taken of human nature shifts.

Economically rational man is replaced by complex man, who also seeks

social and task satisfaction but whose rationality is constrained by

information processing constraints. However throughout man's

behaviour is seen as predictable, purposive and mainly externally

determined, and capable of being understood through systematic

investigation of attitudes and behaviour.

Thus the functionalist approaches are depicted as lying towards the

objectivist extremity of the Burrell and Morgan typology depicted in

Figure One. Social systems marks a slight shift towards subjectivism in

recognising those individual perceptions may vary from reality due to

information processing limitations.

The social systems and objectivist approaches both stress regulation to

achieve order and equilibrium within a unitary and essentially

managerial approach to organisational effectiveness. Consequently

they are located towards regulation in the classificatory framework of

figure one.

58

For traditional management accounting within the objectivist approach

this may now be widely accepted .It assumes that profit maximisation

increases the welfare of the participants and society, and that the task

of the accounting control system is to programme and monitor

behaviour towards ouch ends. However, even if the definitional and

measurement problems of profit can be resolved, its use as an

effectiveness measure is questionable (Steers, 1977; Campbell 1977,

Lowe and Chua, 1983; A.A.A., 1971).

Systems theorists have tended to take survival as the criteria for

organisational effectiveness. However, large organisations tend to have

low mortality rates therefore surrogate measures of factors believed to

lead to survival are often taken, such as whether constituent systems

have sufficient inducements to prevent the system breaking down, or

whether there are sufficient integrative mechanisms (Price, 1968;

Mahoney and Weitzel, 1969). But by emphasising the necessity for

harmonious and lasting integration of parts to maintain the functional

whole, systems-theory can lend itself to a pro - managerial definition of

problems as explained earlier.

Neither of the above unitary approaches significantly addresses issues

of power and conflict. Whilst they may claim to be objective and value

free, by failing to examine alternative perspectives, they may in fact be

merely reproducing dominant ideologies and reinforcing them by

prescribing accounting systems designed upon such lines. The "quality

of working life" writers (Mirvis and Macey, 1976) are possible

exceptions, but their criteria of effectiveness are essentially individual

and they rarely address questions of societal change. In Figure One,

social systems work is depicted as being less inclined to regulation

than objectivism, for it does address itself to the problems of

adaptation, albeit within a managerial conception. However the social

and political forces creating such changes are largely left unexplored.

59

Throughout, this chapter has assumed that organisation theory can

contribute much to management accounting. But any search for the

theory of organisations will be of no avail, for despite the

predominance of functional approaches, organisational work is

characterised by a wide range of diverse and often conflicting

methodologies. However, when accounting research is grouped

according to its social science assumptions, functionalism reigns

virtually absolute. The failure of accounting research to question its

methodological assumptions or to examine related broader and social

issues is puzzling, given that so much relevant work in other disciplines

impinges on topics normally considered within the accounting domain.

Accounting researchers often defend the current position in terms of

an academic division of labour. Accounting research is assumed to be

concerned with developing managerial techniques and technologies.

Abstract theorising and societal issues are seen as the province of

others. However and such distinction is artificial and self - defeating.

Not only can it lead to an impoverishment of understanding about

accounting, its social science assumptions and its societal context, but

also it can have repercussions upon the relevance and usefulness of

accounting research within management. It is ironical, given the

munagerialist bias of so much accounting research, and its reflection in

leading textbooks, that 'advanced' techniques have had so little impact

upon practice . Not unrelated to this is the growing realisation that

there are few close research studies of accounting in action. Such a

state of affairs may not be unconnected to the methodological

assumptions underpinning orthodox work. For example its bias against

“grounded theory” or its assumption that organisations are coherent

units functioning to achieve specified goals; or that accounting

information is provided to aid decision making; or that people act in a

consistent and purposeful manner towards certain rational ends. In

short, accounting research by permitting central assumptions to go

60

unquestioned, may owe more to managerial ideology than any social

science methodology. The cost of sustaining powerful convention may

be a serious delimitation of the subject in analysing problems in either

the social or managerial arenas.

However the accounting scene is not entirely black. Recent work

incorporating pluralism, interpretive theories and radical approaches

have permitted some are questioning of accounting assumptions. This

may mark two broad trends in management accounting research.

Firstly, an increasing interest in the dynamics of change at both

organisational and societal levels. Secondly, a growing querying of the

validity of scientific method for researching social questions. By

acknowledging the existence of conflicting ends within organisations

and the conflict they provoke, accounting research-using pluralism can

contribute much to re-assessing the role of accounting in

organisational change and adaptation. However such approaches have

considerable limitations as a basis for prescription. If problems are

reduced to inter-group and inter-personal levels of analysis, and major

conflicts become viewed as 'dysfunctions' , then they may carry the

danger of begging the fundamental questions raised by radical

analysis, namely how accounting data, controls and institutions are

related to power and the distribution of resources within society.

The growing interest in interpretive methods and case study research

in accounting may, through inductive theory generation, direct greater

attention to such issues. The hope is, as expressed by Driver and Mock

(1977) when defending their “feedback modal" of research," …… that

by using empirical research to build theory, theory will keep time with

reality". However this paper has taken pains to indicate that such

methods are frequently related to fundamental epistemological and

ontological assumptions that have direct implications upon how one

might conceive management accounting. For accounting researchers to

61

employ such methods without seeking to address the more

fundamental questions they address will not only misrepresent the

intentions of their creators, but may also leave accounting research the

poorer for having failed to question basic assumptions.

It would be naive to expect that the "fresh" approaches to accounting

research will eventually constitute the single correct orthodoxy, or that

they will be capable of being slotted into functional work. Their

potential and case for development rather lies in the friction and

debate which they can precipitate over questionable but relatively

unquestioned accounting assumptions. Employment and appreciation

of perspectives widely utilised elsewhere in the social sciences may

enhance a more productive dialogue between disciplines and factions.

It may foster the development of accounting knowledge in new areas

and it may help prevent invalid research.

However, most. importantly, the adoption of a particular approaches

inextricably linked with certain values and beliefs about the nature of

the social sciences and society. It is contended here that above all it is

the intellectual duty of all academic researchers to acknowledge and

substantiate such beliefs and to be aware of the implications they may

have for their research.

62

CHAPTER THREE

Methodology

3.2 Introduction

Chapter one of this study attempts to examine management controls in

an uncertain context emanated from a particular social and

organizational context; and the chapter two dealt with crystallizing

conventional theoretical studies in reviewing management control

systems that are prevailed in organizations. This chapter will focus on

identifying problems of orthodox methodology and attempts to making

a case and in addition the chapter will address the issues related to

data collection, analytical tools and methods of analysis.

3.3 Problems of Orthodox Methodology

63

Accounting case studies have become more prevalent as this literature

has developed. Nevertheless, we still feel that there is much that needs

to be discussed in this area of accounting research regarding the role

and status of “explanatory” case studies.

In particular, the accounting calls for studies of the intricate, day-to-

day use of accounting in contemporary organizations, suggestions that

case studies have failed to generate much “new” theory (see Otley and

Berry, 1994), the lack of references to prior case studies in developing

theoretical reflections on accounting practice and the repeated

assertions about the benefits of case based research (for example, see

Covaleski and Dirsmith, 1990; Laughlin, 1995) are all indications that

the claimed potential of accounting case studies is still far from being

realized. There are many problems in orthodox Methodology and these

problems can be recognized as the characteristics of the traditional

paradigm and those factors are discussed as follows.

3.3.1 It is Framed from the Perspective of the

Organization

As we have seen, the normal approach to management accounting is to

acknowledge that it takes place within a business organization. The

step that follows immediately from this is to suppose that, because

management accounting takes place within the organization, therefore

matters concerning management accounting should be considered

from the point of view of the organization. Thus, when a feature is

discussed, its nature is perceived from within a

managerial/organizational perspective (that is, the perspectives of the

management as a whole and of the organization are treated as

indistinguishable).

The implication is that, when the conventional literature considers the

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notion of bias, it may or may not prescriptively state that there should

be ways of reducing or eliminating the bias; but whether or not this is

made explicit, the implication is left hanging in the air, by the very

term used - "bias" - that it is undesirable. We can understand further

the implicit managerialism of the standard literature by considering the

topics that are the standard subject of research and of inclusion in

syllabuses and textbooks. These include, for instance, standard costing;

and no purpose of standard costing is envisaged except as a

teleological tool: one to reduce cost through indicating variances to be

investigated.

3.2.2 It Treats the Organization as Effectively a

Closed System

The social and economic worlds are highly complex; and one aspect of

that complexity is the interaction of each element of the world with

others. The difference in approach that this causes can be seen in the

method used to introduce the subject of economics to new readers.

Both individuals and organizations interact with their environments,

and it is only in that interaction that they can be properly understood.

A characteristic of conventional management accounting is that it

tends both to ignore the existence of the environment of the

organization, and to ignore the interaction among the various elements

of the organization. (We say "tends" here, because some parts of the

traditional paradigm have a greater tendency to this than others.

Mathematical modelling is very prone to it. Strategic management

accounting is relatively free of it.)

3.2.3 It has a Technical Orientation

It is best to begin here by defining what we mean by "technical”.

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Certain aspects of human society are concerned with the achievement

of what we might with Habermas call "strategic" ends. Rather than

being ends in themselves (such as the appreciation of the beauty of a

painting) they are concerned with a means-end-calculus: what is good

is that which is efficient. Indeed, it would be difficult to conceive of

anyone supposing that "inefficiency" would be a good thing. Like the

term "bias" that we discussed above, "efficiency" is a term that has

emotive connotations. Yet it is one that leaves a great deal to be

desired.

Traditional management accounting has been designed, and is usually

interpreted, in a way that is specifically geared towards evaluating only

the technical efficiency of the process of producing something, rather

than evaluating the totality. The purpose of the business organization is

infrequently challenged: instead it is accepted as a vehicle for the

production of goods or services of some kind.

3.2.4 It is Prescriptive

Given that we have already pointed to the managerialist orientation of

management accounting, it will not be surprising that the rationale for

it is that it can prescribe better methods of doing things. It is rare to

find criticism of a technique that is taught: and even where there is

such criticism there is still a prescription, namely, not to do what is

being done/This raises a broader attribute which is characteristic of

most Western thought.

The world is seen as voluntaristic: as manipulable by people so as to

improve some aspect of life. There is, in short, a belief in progress. The

world may be made better, and it may be improved by human action.

Words such as "fate" or "destiny" have almost dropped out of our

vocabulary. Management accounting has become taken-for-granted as

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part of the toolbox that can enable this process of improvement to take

place.

3.2.5 It is Ahistorical

There are many ways into analysis in social science. One distinction is

between cross-sectional and historical analysis. The first of these

attempts to explain what is found by reference to other features, either

of the entity being investigated, or of the environment of that entity.

The second of these attempts to explain features through their history:

they are as they are because of previous developments. The two are

not, of course, wholly mutually exclusive, but there is a tendency in

cross-sectional analysis to ignore the historical, far more than the

tendency in historical analysis to ignore the context. There are many

good examples of this in the behavioural budgeting literature. Stedry's

(1960) model, for instance, is closed system but also ahistorical: it

makes no attempt to explain people's choices as a result of their

previous experiences. The same may be said of Hofstede (1967), Ronen

and Livingstone (1975) and Hopwood (1974).

3.2.6 It is Apolitical

When we say that the traditional paradigm is "apolitical", we must not

be misunderstood. We are not suggesting that traditional management

accounting successfully avoids political issues in society: rather, we are

suggesting that it implicitly claims to avoid these issues, whereas it is

no more able to avoid them than any other social phenomenon. There

are perhaps two schools of thought here. One is that accounting it self

is politically engaged. The other is that accounting is not in itself

political, but that because political issues pervade the social world in

which accounting operates, it thereby becomes intertwined with the

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political. Briefly, the first may be justified by pointing to the

accountability dimension of accounting, and arguing that

accountability cannot be separated from hierarchy. Hierarchy in turn

implies a relationship of power, and power relations are by definition

political. The second may be justified by suggesting that accountability

relations are not necessarily linked to a rigid hierarchy: for instance, a

manager in a workers' co-operative, or a vicar in a church, may both be

accountable to (respectively) those they organize and their

parishioners.

3.2.7 It is Rationalistic

There are many models of the nature of human action and judgments.

The economist's model is the extreme, which assumes rationality.

Psychoanalytic models are perhaps the opposite extreme and suggest

the crucial significance of the unconscious in affecting action.

Traditional accounting models tend strongly towards the economic

view. Accounting is treated as the quintessence of rational calculation.

Those in control of the information use it rationally in making resource

allocation decisions: those subject to its surveillance make rational

decisions about their action based on their awareness of that

surveillance (as, for instance, where the budgetee attempts to keep

expenditure within the prescribed limits precisely because he or she

supposes that rational decisions will be based on the presence or

absence of variances). It is, moreover, arguable that part at least of the

accounting literature on ambiguity and choice (contrast Dyckman,1981

with Cooper, Hayes and Wolf, 1981, and March, 1987) still betrays a

yearning for rationality, while recognizing the difficulties of the model.

3.2.8 It is Functionalist

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A major problem for sociology and anthropology has been to account

for the existence and persistence of particular institutions or

phenomena. However, this approach poses at least two problems. First,

the historical record is often non-existent, sketchy or unreliable.

Second, even where we know what a phenomenon changed from, and

what it changed into, we still do not know why it changed in (hat way

and not some other). To explain this, we need some conception of

"social fit": the institution changed the way it did because that suited

the interlocking social institutions. However, this leads to a further

implication: that the institution could not have changed any other way.

Any other form is inconceivable because it would not mesh with those

other institutions so well. This effectively leads to a theoretical

situation where, it turns out, we can forget the past and concentrate on

cross-sectional functional analysis. Put simply and, no doubt,

outrageously over-simply: an institution is the way it is because that

suits the rest of the social system. If for any reason it fails in future to

suit the system, we shall find it adapts. Then under the new situation,

we shall still have a functionalist explanation, that is, an explanation in

terms of the function the institution serves in the context of the society

in which it is found. Things are the way they are because they could not

survive any other way.

3.2.9 It is Reductionist

The traditional accounting paradigm is reductionist in two ways. First,

the only phenomena that are ultimately considered to be significant are

economic phenomena. This is not, of course, to suggest that insights

from other academic disciplines are not employed: increasingly, they

are. Although the most traditional tools of cost accounting were just a

set of logical protocols to calculate and control economic outcomes,

later work that developed within the paradigm did indeed borrow from

other disciplines, first statistical and mathematical, later psychological

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and social psychological. But these insights were used only as a means

towards the end of rational economic calculation. If social psychology

was used to understand budget-setting behaviour, it was because the

quality of the budget process appeared to lead to better or worse

attainment of economic targets. If classical statistical theory was

bolted on to CVP analysis, it was because this improved economic

decision-making. There is, of course, an alternative, which would

acknowledge that our social world comprises other than economic

levels and economic indicators of satisfaction. This is entirely missing.

Second, the traditional paradigm effectively supposes that social

effects and social action can be reduced to individual effects and

individual action. Much work is concerned with control over the

individual on the supposition that optimising a function with respect to

the individual manager will optimise the function for the organization

as a whole. Similarly at the next level, it supposes that optimising a

function for a particular organization will bring about further economic

(and of course other) social welfare functions in society more

generally.

3.2.10 It is Positivist

I use it here in the way described by Giddens, who suggests it has two

characteristics: First, a conviction that all "knowledge", or all that is to

count as knowledge, is capable of being expressed in terms which refer

in an immediate way to some reality or aspects of reality that can be

apprehended through the senses. Second a faith that the methods and

logical structure of science, as epitomized in classical physics, can be

applied to the study of social phenomena (Giddens, 1976, p. 130). The

first of these beliefs means that the traditional accounting paradigm

concerns itself only with phenomena those are in principle or in

practice measurable. They are measurable because they are accessible

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to our senses: we can listen to opinions in an interview, read responses

in a questionnaire, and observe the slope of a break-even chart. These

phenomena can thus also be justified as relevant because they are real:

nobody can accuse the positive analyst of supposing the existence of

something that docs not exist.

The second characteristic has led to a frequent requirement that

traditional research should define variables with precision, measure

them, and subject them to classical statistical tests. This leads to

acceptance or rejection of hypotheses; it leads to associations of

variables through regression models. Despite an acknowledgement that

covariance does not in itself imply causality, it has also led to attempts

to build causal models for organizational control (once again the

behavioural budgeting literature provides many clear examples of this:

so does prescriptive transfer pricing theory). It is interesting to note

that there was a brief flurry of research (Hayes, 1977) employing factor

analysis. This was consistent with the second characteristic given here,

but not with the first characteristic (since statistical factors are not

perceivable by the senses). It is noteworthy that this method appears to

have lost favour, perhaps for this reason.

3.2.11 It is Problem-Cantered

The social world is a world of relationships, power, status, class,

hierarchy, linguistic competence, symbol and myth. Its constituents are

interactive and complex. The social, the political and the economic

form a tightly woven web. Accounting phenomena are one part of this.

They are of great interest in themselves, to be understood as part of

our attempt to understand the social world in which we live, just the

way chat economics, politics, sociology and anthropology are studied.

However, traditional theory defines accounting phenomena solely in

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terms of problems to be solved. That accounting has traditionally

tended to be optimistic in its view of human progress. It is founded on

the supposition that it can, when applied judiciously, aid in the

achievement of whatever is being sought. It will be noted, however,

that this optimism concerning progress coexists with certain pessimism

about the human character: accounting's existence is also necessitated

by the supposition that people will not improve their behavior without

the surveillance of an accounting system. A well-designed accounting

system will help to rectify these failings by channelling people's

energies into activities desirable to the organization.

3.3 Towards a Case Study Approach

In recent years, there have been repeated calls from accounting

researchers for case studies of accounting in practice. Some of these

calls have come from those who see case studies as necessary

precursors to more elaborate, large sample hypothesis testing (Kaplan,

1986), but such calls have also come from those who want to develop

theoretical explanations of accounting practices (e.g. Burchell et al.,

1980; Hopper and Powell, 1985; Hopwood, 1983; Hopwood, 1987;

Otiey and Berry, 1994; Scapens, 1990; Smith et al. 1988). Although the

writings of Kaplan (e.g. 1984; 1986) have prompted a large number of

case studies to support new management accounting techniques, these

case studies have tended to be grounded in conventional managerialist

concerns for the operational control of business organizations.

Hopwood's comment quoted above, however, reflects rather different

concerns (see also Cooper and Hopper, 1987). Here the purpose of

case studies is to obtain a better understanding of accounting practice

and of the role and actual functioning of accounting in organizations,

including the pressures which accounting exerts and has exerted on it,

and the interests it serves. This study is principally concerned with

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"explanatory" case study and its capacity to move away from

managerialist notions of accounting and to provide more challenging

reflections on the nature of accounting knowledge and practice. As

argued by Hopper and Powell (1985), accounting should no longer be

studied in a mode which is divorced from its social context and which

ignores the influence of " wider social and political collectivities " (p.

450). They suggested a research programme, which would seek to

enhance understanding of the relationship between accounting and

these wider collectivities. Such a programme of work is, by its very

nature, inter- disciplinary. In this respect, Hopwood (1983) noted how

researchers from other disciplines had begun to identify a variety of

interesting research avenues in the accounting domain:

And sociologists too have started to recognize the research

potential offered by the accounting craft, asking questions about

how accounting might be related to the more general elaboration of

calculative practices in modern society, the ways in which accounts

have provided a powerful calculus for forging a new visibility which

can facilitate specific modes of control within the business

enterprise in particular, and the more legitimizing functions of the

accounting craft (p. 303).

These calls for a new agenda in accounting research have subsequently

been met by a whole host of articles seeking to explain the political,

social and economic influences of accounting. Drawing on a wide range

of social theorists, this literature has problematized the history of

accounting, revealing its interested nature, challenging claims to an

inherent accounting rationality and neutrality, providing alternative

insights into the functions of accounting and offering new explanations

of the forces giving motion to processes of accounting change (for

reviews, see Arrington and Francis, 1989; Cooper and Hopper, 1987:

Hopwood, 1987; Loft, 1991; Puxty, 1993; Roslender, 1990).

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This study examines, in depth, one growing and successful medium

sized and small firm, dynamic and fast moving. The case here is seen

as a vehicle for in depth study and in this situation helps me

understand the phenomena, since use is made of open-ended

interviews conducted over a period of 20 weeks. Lynch, (1994)

identified that case interviews help confirm the shape and spread of

key issues. This part addresses the question of how cases are

construed in the research process -how methodological arguments are

fashioned for the purpose of establishing the claim that case studies

are related to broader classes of events. My argument is that cases are

"made." by invoking theories, whether implicitly or explicitly, for

justification or illumination, in advance of the research process or as

its result. This interpretation supports a renewed appreciation for the

role of case studies in social research and offers a fruitful strategy for

developing theory. The argument derives from a research project in

which my own understanding of what the case study was a "case of"

shifted dramatically in the process of pursuing the study and

explaining its results. The research, begun as a study of one thing,

later proved to be a study of something quite different.

3.3.1 Case and Universe

When researchers speak of a "case" rather than a circumstance,

instance, or event, they invest the study of a particular social setting

with some sense of generality. An "instance" is just that and goes no

further. A "case" implies a family; it alleges that the particular is a case

of something else. Implicit in the idea of the case is a claim. The case is

one point in a sampling frame and cases are made prepossessing by

the universal characteristics, which they represent.

Cases come wrapped in theories. They are cases because they embody

causal processes operating in microcosm. At bottom, the logic of the

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case study is to demonstrate a causal argument about how general

social forces take shape and produce results in specific settings. That

demonstration, in turn, is intended to provide at least one anchor that

steadies the ship of generalization until more anchors can be fixed for

eventual boarding. Better that the case study makes modest claims

about what may be on the line. In the logic of research, we endeavour

to find fertile cases, measure their fundamental aspects, demonstrate

causal connections among those elements, and suggest something

about the potential generality of the results.

These observations about the nature of cases seem straightforward. If

they do not appear among the conventions of research methodology,

that is only because our basic texts neglect to pursue the assumptions

made in defence of the case study. The point is demonstrated by two

reflections on the evolution of method. First, we should recall that

terminology of cases and case studies appears with particular times

and conditions.

Second, we then note in the developing canon of research methodology

a conspicuous effort to explain why the newly distinguished category of

"cases" may impart valid scientific evidence. There is a question that

where does the theory about the case come from? The answer implied

by Lazarsfeld and Rosenberg, which is to say by methodological

convention, is that "typologycal distinctions" are drawn from a fund of

prior general knowledge. That is, cases can be referred to a type,

embodied processes identified, and contrasts developed, all because

we understand the principles of a well-organized universe. In actual

research practice, of course, cases are chosen for all sorts of reasons,

from convenience and familiarity to fascination and strategy. Once

chosen, however, the case must be justified - shown to be a case of

something important. In fact, as we begin to reflect on the state of

general knowledge in social science, it is clear that much of what we

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know derives from classic case studies. Guttinan (1061) tells us what

goes on in mental institutions, Sykes (1958) explains the operation of

prisons, Whyte (1943) and Liebow (1967) reveal the attractions of

street-corner gangs, and Thompson (1971) makes food riots sensible.

A Logic characterizes this process in which a different kind of universe

is posited through generalization of the explanatory principles revealed

in the case. The older universe, itself an expression of theory, is

disaggregated and some of its elements combined with newly

perceived phenomena in a universe reconstructed as the field of new

explanations. It is a logic of robustness. The explanatory principles

revealed in case studies are generalized because they can solve new

problems, explore new terrain in re-specified endeavours analogous to

Kuhn's scientific revolutions (1959).

3.3.2 Theory and Case Formulation

No cases are sacred, however. If they are provocative in the first place,

inviting models for further application, then they typically lead to

conceptual and methodological modifications. Cases are reformulated

in at least two ways. One grows directly out of a particular case

tradition, while the other begins with a substantive problem and looks

for adaptable case models. In practice, the strategies may be

combined.

In either form, the claim is that the case is about something other than

what it was originally conceived to be about. It the new study` is

convincing, it demonstrates a distinct and robust causal interpretation.

Although the Kuhnian metaphor of paradigmatic scientific revolutions

is often invoked to describe this kind of reformulation, in social science

these shifts emerge in less abrupt or discontinuous ways. Now causal

interpretations succeed because they supplant previous ones-they

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explain the old facts and more. The content and boundaries of cases

are reconceived precisely in an effort to forge new generalizations that

embrace and supersede earlier understandings.

The second avenue of case reformulation adopts available models or

fashions new ones to address distinct substantive problems. The old

models do not fit because the new phenomenon is either a different

kind of case or one that cuts across conventional boundaries.

Despite the sharply different departures taken by Paige (1975), the

aims of reformulation are similar. First, the case is reconceived as an

empirical instance of something new or previously misapprehended.

Second, the new case is precisely made a case by defining it

theoretically, by demonstrating its causal connections to a

hypothesized general process. Third, the methods and evidence from

cases as previously construed are incorporated into the new

interpretation - indeed, the old cases may suggest the new idea.

Finally, an argument is advanced for the greater scope of the new

interpretation. The question of cases, their designation and

reformulation, therefore is a theoretical matter. The processes of

coming to grips with a particular empirical instance, of reflecting on

what it is a case of, and contrasting it with other case models, are all

practical steps toward constructing theoretical interpretations. And it

is for that reason, paradoxically, that case studies arc likely to produce

the best theory. As Stinchcombe (1978:21-2) observes, "if conceptual

profundity depends on the deep building of analogies from one case to

another, we are likely to find good theory in exactly the opposite place

from where we have been taught to expect it. For it is likely to be those

scholars who attempt to give a causal interpretation of a particular

case who will be led to penetrate the deeper analogies between cases."

3.3.3 Making a Case

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As I began to construct these events from primary sources of the

company, my initial impulse was to locate the rebellion within the

appropriate case study tradition-to determine what it was a case of.

Considering the available case models, it became clear that I had a

case of something quite different, assuming it was a "case" at all or

simply a unique historical event.

3.4 Research Design and Procedure Adopted

Having selected a qualitative research paradigm to guide the

explanatory study of the management control practices in an uncertain

context, a flexible research design which would allow findings to

"unfold, cascade and emerge" (Lincoln and Guba, 1986, p. 210) was

developed. Characteristic of explanatory research conducted within a

qualitative paradigm, the methodology was designed to allow the

researcher to build rich descriptions of the context within which case-

firms' management control systems were developed, created and

maintained which "fitted and worked" participants' perspectives

(Glaser and Strauss, 1967).

As such, the design used to guide the collection and analysis of data

had to be flexible enough to permit the researcher to uncover and

explore issues which emerged as interesting and potentially capable of

understanding the substantive research problem. However, as it is

"impossible to embark upon research without some idea of what one is

looking for" (Wolcott, 1994, p.157), decisions regarding the unit of

analysis and the methods used to collect qualitative data were taken

prior to the researcher's entry into the field.

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3.4.1 Unit of Analysis and Justification

Patton (1987, p. 51) asserts that the key factor in selecting and making

decisions about the appropriate unit of analysis is to decide "what unit

it is that you want to be able to say something about". As this research

was interested in the impact, which management control systems in

practice of medium scale firms, medium size food processing company

was selected as the unit of analysis and a grounded definition of

"smallness" was used (Curran et al., 1993). In considering this firm to

be involved it was decided that purposive rather than random sampling

would be an effective way of selecting case-firm "rich" in data pertinent

to understanding the research problem (Marshall and Rossman, 1995).

While the logic of probabilistic sampling lies in "selecting a truly

random and representative sample which will permit confident

generalisations from the sample to a larger population" (Patton, 1987,

p. 51), the logic of purposive sampling is suited to research with

different aims. Its power lies in the selection of cases "rich" in

information about the substantive research problem. As such,

purposive sampling was suited to developing a comprehensive

understanding of the management control systems of a medium size

firm.

To ensure that participating case-firm would be rich in data about the

management control systems in which they were embedded, criterion-

sampling tactics were used (Patton, 1987). It was decided that the

following set of pre-determined criteria would help the researcher,

when in the field, make objective decisions about the firms he

approached, so ensuring that a purposive sample of case-firms

participated:

Case-firm satisfied the grounded definition of a "smallness";

Case-firm were located within daily travelling distance of the

researcher;

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Case-firm had been trading for a minimum of three years.

Case- firm acquired the largest market share within short period

of time

Case-firm have link with the researcher.

Case-firm produces instant food items which is in connection with

the social responsibility

As well as satisfying the grounded definition of a "small" (in between

small and medium size) food processing company, case-firms had to be

located close to the researcher to enable him to visit them on a daily

basis, for extended periods of time. Also, by stipulating that case-firms

had to have been trading for a minimum of three years, the researcher

had access to participants' understanding of the ways in which, over

time, management control systems had impacted on the development

of case-firm. Through the preliminary observations carried out by the

researcher it was found that this company was able to capture the

largest share of the market in Sri Lanka within a short life span

(Established in 1997 and present market share is 60% of Soya Foods)

Hence the researcher was interested to explore the management

(Control) practices applied by said firm and to review whether such

practices could be explained in the theoretical framework or the firm

specific applications. The CEO was known to the researcher for a long

period and such rapport was immensely useful to gather the required

information for the study, where in Sri Lankan context companies are

reluctant to divulge information – without such links it is very difficult

to gather accurate and adequate information for this type of study.

With the changes occurring in socio – economic environment of Sri

Lanka the instant food items are becoming much more popular among,

especially urban citizens. Therefore the researcher felt that the

behaviour of instant food producing firm would be useful to generate

new knowledge.

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The use of a sample was justified by the logic of replication sampling.

As a sampling strategy that permits the researcher to spend lengthy

periods of time with individual case, this sampling encourages the

collection of data rich in detail about the substantive research problem.

Consequently, the criteria used to assess the findings generated differ

from those applied when using probabilistic sampling (Lincoln and

Guba, 1986; Yin, 1994). While the value of the latter is judged by the

degree to which they can be generalised to the wider population, the

value of the understanding which emerges from the detailed study of a

purposive sample of small firms is properly determined by the degree

to which it "fits and works" with the perspectives of participants

(Glaser and Strauss, 1967). Particular to this study, logic of replication

sampling allowed the researcher to collect rich and detailed data about

the management control systems in an uncertain context in the food

processing company selected by the researcher were embedded.

3.4.2 Research Methods

The researcher's decision to use himself as the "instrument" for

collecting data was influenced by the qualitative research approach

adopted and the exploratory nature of the research. The subjective

epistemology of the qualitative research paradigm views social reality

as constructed by humans and maintains that if it is to be understood,

the researcher cannot remain distant from and uninvolved in the social

phenomenon in which they are interested. Instead, they must adopt a

role, such as "researcher as instrument for data collection", which

allows them to get close enough to social subjects to be able to

discover, interpret and understand participants' perspectives of social

reality. For this reason, the researcher decided that by collecting the

data himself, he would be able to meet the aims and objectives of the

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research and develop a grounded understanding of management

control systems of selected food processing company.

The selection of methods that the "researcher as an instrument" used

to collect data was also influenced by the qualitative approach and

exploratory nature of the research question. Research conducted

within the qualitative paradigm is characterised by its commitment to

collecting data from the context in which social phenomena naturally

occur and to generating an understanding, which is grounded in the

perspectives of research participants (Bryman, 1988; Lofland, 1971;

Marshall and Rossman, 1995; Miles and Huberman, 1994). This means

that the methods used in qualitative research must allow the

researcher to enter into the social world in which they are interested

and to have an empathetic understanding of participants' experiences

of the social phenomenon under investigation. The collection of social

data, then, is best conducted in the environment in which social

phenomena naturally occur and the methods used must be open and

attentive to the internal logic of participants.

Consequently, it was decided that data would be collected from

participants in their natural environments. Specifically, data were

collected on the participants' work premises and, outside of working

hours, at neutral places of convenience suggested by participants. It

was also important that the researcher did not impose his external

logic on the behaviours that he was investigating. Instead, methods

that allowed data to be collected from participants in their working

environments, captured data rich in detail about the research problem

and gave the researcher the flexibility to explore issues raised by

participants were selected. Data were collected during depth,

unstructured and semi-structured interviews with owners and staff

conversations and participant observation. The method by which data

were collected dictated the way in which they were recorded. While

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depth interviews were recorded on tape for later transcription, data

collected during observations and conversations were not recorded

until the researcher had left the field and his notes were written-up.

3.4.2.1 Observations

Observations carried out to understand the environment of the

organization. The techniques of observations were used throughout the

period of data collection: the central focus of the observation was to

understand the behavioural aspects of the CEO and other people in the

organization. It is remarkable to state that the autocratic practices of

the CEO’s interferences at every level of the organization was able to

observed by the researcher through these observations. It was able to

confirm therefore, some documented procedures were almost like dead

letters.

3.4.2.2 Interviews

The principle research method used by the researcher, as agreed with

the MFPL, is in-depth interview. A series of semi – structured

interviews were conducted with CEO and some Top Rankers according

to an interview schedule. These interviews consisted of discussions

mainly about planning and control. All these interviews took a

minimum of 1 hour, with some extending over three hours and into

more informal surroundings. The researcher conducted interviews and

he played three roles i.e. asking questions, record discussion and to

observe and pick up potentially interested themes. Actually it was

planned to interview key positions in the organization including the

CEO.

But whenever the researcher approached other than the CEO it was

found that they were extremely reluctant to disclose any information

about their role or company related data. Information gathered

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through the interviews with the CEO also confirmed that he intervened

at top to bottom of the organizational work and the managers and

other were merely limited to their designation in which they were not

empowered to play any role that could independently operate by such

positions. It was also observed that the CEO was not happy to see that

researcher collect information from others in the organization. While

interviews are going on the CEO took the researcher to the various

important places, such as, factory, production units and so on in the

organization and showed things and procedures that that he

considered as important. The interviewing method was used because it

helps gathering more information as well as it provides opportunities

to cross-examine such information while they are gathering. Interviews

were planned to carry out with all divisional heads and others but it

was not possible due to CEO’s displeasure regarding the same.

3.4.2.3 Documentation

In addition to above methods of data collection investigation was

through the study of selected planning, control and financial

documents related to the MFPL. The organizational chart was

produced with the researcher and it was completely a different chart

than that of existing structure. The documents that could be used as

controlling devices for example the firm did not use Goods Return

Notes. The documents that state the ingredients and their amounts

used for the production mixture was not produced for the observation.

When the CEO was interviewed he declined to disclose these

information though the researcher assumed its confidentiality. During

the period of data collection it was produced with a draft accounting

system but existing system was not produced for the researchers

observation.

3.4.3 Analysis

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The method of descriptive analysis was used to understand the

company’s management control systems. The quickest way to

understand how company practices are done and to compare them with

“established” practices and to examine alternative

procedures/practices is only possible through a qualitative analysis.

Further it was analysed the impact of these practices in to social and

economic context. Social objective do not have the same relative values

that firm has one objective may be highly prized in one circumstance,

another in another circumstance. Because it is not rationale to

quantify such complex management or social issues.

Thus Quantitative analysis is not used because it is not provide room

for comprehensive analysis. “Ideally, rational comprehensive analysis

leaves out nothing important. But it is impossible to take everything

important into consideration, unless “important” is so narrowly defined

that analysis is in fact quite limited. Limits on human intellectual

capacities and on available information set definite limits to man’s

capacity to be comprehensive” (Charles E. Lindblom – “ The science of

Muddling Through”, American Society for Public Administration from

public administration review 19, No 2, 1959 p.p. 79-88).

3.4.3.1 Inductive Data Analysis

The process of analysing the data collected for this study was

characterised by the fact that it began as soon as the researcher

started collecting data, it was ongoing and it was inductive. Lofland's

(1971, p. 121) explanation that when undertaking qualitative research,

"during the observation or interviewing phase, one is at the same time

trying to make some kind of (abstract) sense ... of the raw reality one is

85

encountering" is a fitting description of the overlapping activities of

data collection, analysis and interpretation which occurred during this

explanatory study of small firm networks. As soon as the researcher

began the process of collecting data, he simultaneously engaged in

analysing and interpreting the perspectives of those he was talking

with and observing.

This early and ongoing analysis was necessary for a number of reasons.

By overlapping the phases of data collection and analysis, the

researcher was able to "adjust (his) observation strategies, shifting

some emphasis towards those experiences which (bore) upon the

development of (his) understanding, and generally, to exercise control

over (his) emerging ideas by virtually simultaneously `checking' or

`testing' these ideas" (Marshall and Rossman, 1995, p. 103) with the

collection of further data. Also, this concurrency of data collection and

analysis suited the fluctuating and emergent nature of the management

control being explored. On a practical level, the "sheer massive

volumes of information" (Patton, 1987, p. 297), generated by the

qualitative methods used, demanded that analysis was not delayed

until the completion of the collection of primary data.

As the aim of the research was to generate a comprehensive

understanding of the research problem, "rather than forcing the data

within logical-deductively derived assumptions and categories" (Jones,

1985, p. 25), it was important that data were inductively analysed. By

organising and structuring data according to the issues and topics

which participants identified as being important to understanding

management controls in an uncertain context, a grounded

understanding which "derived from the concepts and categories which

social actors used to interpret and understand their worlds" (Jones,

1985, p. 25) was acquired. The inductive analysis of data was guided by

the literature on grounded theory (Easterby-Smith et al., 1991; Glaser

86

and Strauss, 1967; Lofland, 1971; Marshall and Rossman, 1995;

Strauss and Corbin, 1990). This literature recommends that the

inductive analysis of qualitative data involves: the reading and re-

reading of transcripts and field notes (Easterby-Smith et al., 1991); the

use of codes to bring order, structure and meaning to raw data

(Strauss and Corbin, 1990); the constant comparison of the codes and

categories which emerge with subsequent data collected and also with

concepts suggested by the literature (Glaser and Strauss, 1967) and,

the search for relationships among emerging categories of data

(Marshall and Rossman, 1995).

There are, however, no "formulas or cookbook recipes" (Yin, 1994,

p.102) to advise on the "correct" or "best" way of inductively analysing

qualitative data. Specific to qualitative studies of the small or medium

size firm, when reporting on the outcomes of their work, few

researchers detail the exact procedures and scheduling of activities

involved in their inductive analysis of qualitative data.

3.4.3.2 Analysis On-Site

This first phase in inductive analysis occurred while in the field. The

early collection of data was guided by the researcher's pre-

understanding (Gummesson, 1991) of food manufacturing company and

the aim of "exploring the impact that the management control in which

small or medium size firms are embedded have upon their

development". At this stage, depth interviews were kept open to the

collection of interesting responses and perspectives around which

further data collection could focus.

The tape recording of interviews allowed the researcher to make

written as well as mental notes of any analysis he made during

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interviews. This also permitted him to identify particular responses to

probe further during that interview or at a later date.

3.4.3.3 Running the Data Open

Immediately after depth interviews and observations were transcribed

and recorded, any analysis made was typed onto the transcript or

written into the field notes. This second stage in inductive analysis

involved reading and re-reading the transcripts and field notes made so

far. This served two related purposes.

The first was to familiarise the researcher with the data (Easterby-

Smith et al., 1991) and the second was to start the process of

structuring and organising the data into meaningful units. The

familiarity created by reading and re-reading transcripts and field

notes heightened the researcher's awareness of the "patterns, themes

and categories" (Patton, 1987, p. 150) of meanings existing in the data

and focused her attention on these. The purpose of running the data

open at this stage in analysis was to take the data apart and then piece

them together in a number of ways, each of which was potentially

important to understanding the research problem (Strauss and Corbin,

1990). By making several copies of the transcripts and field notes

collected so far, the researcher attached "open" codes, to those

sections containing data, which appeared to be important for

understanding the impact, which management controls have on the

development of selected company. These sections were then pulled

together into meaningful units, around which the collection of further

data was planned to establish whether these units were in fact

important to understanding the research problem. In this way, some

chunks of data were coded in a variety of ways, others were discarded

on the grounds that they were not relevant to the study and, as a

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whole, and the data collected so far were reduced to a more

manageable level.

A second activity carried out at this stage was the writing of memos.

These written notes were referred to at later stages of analysis to

remind the researcher of the reasons why certain chunks of data were

coded in particular ways and pulled together into organised,

meaningful units. These memos additionally reminded the researcher

of the logic of the interpretations that he had made at this early stage

in his analysis.

3.4.3.4 Focusing Inductive Analysis

Analysis became focused on issues central to understanding the

research problem by concentrating the collection of additional data

around open codes and constantly comparing these data with

previously coded sections. The method of analysis used during this

stage is called the "constant comparative method" (Glaser and Strauss,

1967). This method involved the researcher repeating the process of

reading and re-reading transcripts and field notes and constantly

comparing the data collected during this phase with sections labelled

with open codes during previous analysis. By systematically comparing

the similarities and differences between sections of coded data, some

codes were disregarded as irrelevant to the study, others were

expanded upon and additional codes emerged. Coded sections were

then pulled together into different categories or "families" of codes.

Included in each category were "slices of data" (Glaser and Strauss,

1967) exhibiting an "internal homogeneity" which held them together

in a meaningful way (Patton, 1987). As the categories used exhibited

"external heterogeneity", they provided a structure to the sections of

coded data meaningful to understanding management controls in

practice.

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This process of focused data collection and constant comparison of

coded sections of data continued until coded sections became

saturated, that is, no new patterns or themes emerged. At this stage,

analysis moved from open codes to focus on "core" codes and

categories of codes central to understanding the substantive topic,

around which deeper analysis and interpretation concentrated.

3.4.3.5 Deepening the Analysis

Having grouped homogeneous slices of data into core categories and

organised coded data into a meaningful structure, the analysis was

deepened by interpreting the relationships between core categories

and seeking to explain why these relationships existed. By interpreting

the structure that had emerged and re-evaluating relationships

between categories of data, a cohesive integration of categories, which

provided an understanding of management control systems, which

"fitted" and "worked" with the data, emerged from this deeper analysis.

In interpreting, re-evaluating and conceptualising relationships

between categories of data, the constant comparative method of

analysis was used once again. During this stage, the researcher

engaged in the prolonged and systematic search for similarities and

differences between the slices of data contained within different

categories and between core categories and concepts and theories

existing in the literature.

The purpose of these comparisons was to understand the meaning and

nature of these relationships and resulted in some categories being

disregarded on the grounds that, when analysed more closely, they did

not fit and work with the understanding that was emerging. This

systematic comparison of categories with relevant concepts in the

management control systems literature was important for two reasons.

90

First, comparisons between existing concepts and theories with the

relationships that had emerged between categories of empirical data

were useful in re-evaluating the reasons why these relationships

existed. Second, comparisons with the concepts and theories used in

relevant management control literature revealed the extent to which

the understanding of management control which emerged from this in-

depth, qualitative study had contributed to current knowledge and

understanding of the substantive area.

CHAPTER FOUR

Social and Organisational Context of the

Study

4.2 Introduction

Chapter one discusses the background factors of the research theme:

Management control practices in an uncertain context, the chapter two

reviewed the literature, the chapter three discusses the methodology

applied in this study and the aim of this chapter is to explain the social

and organizational context of the study.

This chapter begins with inter-disciplinary nature of societal and

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organizational environment and then it goes on to the issues emanated

from the social and organizational context It will be seen that the

multidisciplinary nature of management accounting and consequent

variety of theories subsumed under its heading, makes the fact that

they tend to stem from similar perspectives towards society and the

social sciences. In any research, it is suggested that individual values,

philosophical assumptions, theoretical backing and research methods,

social and political influences, organizational climate should all be

related to each other and to the aims of the research. (Dyckman et.al;

1978)

4.5 Sri Lankan Society and Business

Businesses in any country are facing different types of societal and

environmental problems such as Economical and Commercial, Social

and Cultural, Political and Legal, Technological, and Natural. This part

discusses mainly about the impact of the changes in the government

policy towards economy and businesses in Sri Lanka.

4.2.1 Colonial Economic, Business System and

Society in Sri Lanka (before Independence)

Business orientation in Sri Lanka started with the base of wealth and

accumulation. Plantation agriculture, beginning with the cultivation of

coffee in the 1830s, and it bring about a complete capitalist

transformation. All the same, there were perceivable changes in

economic and social life, which were significant in comparisons with

relative stagnation that had existed before. As plantation agriculture

itself changed from one crop to another – coffee, tea, rubber, spices

and coconut. The bourgeoisie, which originated in colonial times, has

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continued to dominate the economic, social, and political life of Sri

Lanka. They invested in urban property, built residences, ran their

businesses, or engaged in professions. British community controlled

and directed the economy through local head offices of the plantation

companies, mercantile houses and banks. (Bertolacci, 1817; Beckford,

1983)

Although lacking in much manufacturing industry, there was a

relatively developed infrastructure of other amenities serving mainly

the affluent residents, both expatriate and Sri Lankan. Colombo the

capital of Sri Lanka and “High Class Society” with its prestigious

schools, clubs, and large retail shops, along with political, social and

economics are situated around the Colombo. Apart from the residential

commercial and administrative charters of Colombo, it was also the

centre of the working class of skilled and unskilled workers employed

in both the government and private sectors along with an expanding

petty bourgeoisie – all typical of a colonial economy. (Venden, 1953;

Jayasekara, 1970; Wright and Arnold, 1907)

In Sri Lanka, capitalism developed in a society whose traditional

structures and values, including ethnic and caste loyalties, underwent

change. Feudal structures and attitudes were thus not totally swept

away but continued to pervade society. The persistence of primordial

forces in certain spheres of individual or social life was in contrast to

countries with a more developed capitalism where the universalising

and homogenizing influence of capital led to dissolution of many of the

ideologies, rituals and superstitions of the past. As in many colonies,

the Sri Lankan bourgeoisie was the product of a specific colonial form

of capitalist production. In Sri Lanka, although individuals made much

wealth, the bourgeoisie, as a class did not develop any serious

antagonism to the colonial rulers and it remained satisfied with

political concessions and limited constitutional reforms (Snodgrass,

93

1966; Pridham and Charles, 1849; Amarasinghe and Ranjith 1999; de

Silva,1982).

Apart from the tariff and credit structures that discouraged any type of

independent industrial activity, Sri Lankan traders were stunted by

European domination of the mercantile sector, and in the 19th century

by the intervention of the Indian export – import merchants. In spite,

there arose a class of local merchant capitalists in the 19 th century,

which profited both directly and indirectly from the development of

plantation system. They were dependent for their prosperity and

survival on the British rulers of the country, who provided them not

only with opportunities for accumulation through liquor trade, but also

provided access to foreign markets for their plantation crops and

graphite. Monopolistic conditions and the system of state-sponsored

franchises for the sale of liquor gave the initial impetus to the large,

quick fortunes made by local merchants. In Sri Lanka, however, the “

great fortunes” and “ primitive accumulation” of the indigenous

bourgeoisie arose from the arrack industry while the profits that were

earned in the liquor trade were reinvested in plantation and consumed

in lavish expenditures. Sri Lanka, however, was neither wholly

capitalist nor feudal, but continued within it elements of both. While

the economic changes from the time of Dutch rule began releasing the

economy and society from the traditions of the past, there was an

incompleteness about this process of change, making the development

of capitalism, even to this day, very much of an “ unfinished business”

(Arasaratnam, 1958; Boxer,1965).

The economic activity of the Sri Lankan bourgeoisies during the 19th

century, and even latter, was hardly entrepreneurial. The bourgeoisies

was essentially a class whose interests were overwhelmingly of a

mercantile and rentier nature. Rentier income is associated with

windfall gains, dividends from income through appreciation of the

94

value of assets, control of scarce resources, or monopoly conditions

which give large profits without much effort. Furthermore, in the case

of the arrack rents, the investment was also very much self-financing.

Moreover, the profits were invested in land-ownership, a classic source

of rentier income based on absentee ownership and management. In

income enhancing factors of this kind, those benefiting from them

played a passive role, as contrasted with activities where product

improve their prospects by bringing potential opportunities to life;

these include exploring new markets, introducing new products or

adopting innovations in production leading to a rise in productivity and

a lowering of costs, which are the dynamics of capitalist production

( de Silva and Gabriel, 1895; Jayawardana 1972,1985, 1986, 1992). If

the changes in the material base of the colonial economy were hardly

expressive of capitalist entrepreneurship, at the level of ideology some

of the ghosts of the old order survived to haunt people’s minds,

constraining their outlook and behaviour. While colonialism with its

creation of new occupations, shook the foundations of caste society, the

type of capitalism that emerged recorded the question of who was

‘high’ and ‘low’ in society. Caste, which was traditionally based on

occupation and hierarchy, became less linked with occupation as

people moved to new areas of economic activity that employed persons

of diverse castes ( Pfaffenbergerand Bryan, 1982; Roberts and Michael,

1982).

Moreover, the ending of compulsory labour in 1833, and changes in the

caste-based division of society, rid caste of much of its economic

substance. In pre-capitalist society, important landowners were

inevitably of ‘high’ caste and those of ‘Low’ caste were relatively poor.

Class struggle between labour and capital started in 1890 with the first

strike of Colombo Printers and formed the first trade union, composed

of printers of all castes and ethnicities. The social aspirations of new-

rich persons produced some dissension and rivalry between them and

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the old rich, who were conservative. The new rich, through not

advocating radical changes in politics and in the structure of society,

were raising issues that were pertinent to educated Sri Lankans as a

whole. However, when last part of 19th century caste based and

property based professional organizations and businesses were seem to

be the active players in the country. The practice, from 1833 to 1911,

of the Governor nominating the representatives of ethnic groups to the

legislatures, led to the legitimisation by the rulers of ethnic

stratifications in colonial society. This was affected to circulate

businesses around Mudaliyar’s family2 (Tampoe and Manel 1997)

At the bottom of the social scale were the marginalized poor in

scattered forms of self-employment, and workers on plantation and

manufacturing enterprises located in and around Colombo. The so-

called caste struggles of the late 19th century had already given way to

the reality of sharpening class conflicts when the Colombo working –

class began to organize irrespective of caste and ethnicity, into trade

unions, and strikes for its demands in a militant way, especially in the

1920s. By the late 1930s and 1940s, struggle between labour and

capital increased, with strikes and trade union action being led by the

country’s Left parties3, which in 1947 had significant success at the

elections. The above situation is highly influenced to development,

stagnation and decline of business society in Sri Lanka.

4.2.2 Post- Independence (from 1948)

When Sri Lanka, achieved independence in 1948, it had practiced

limited self-rule based on universal franchise since 1931. Levels of

literacy and educational achievement were high. The transition from

colonial rule and been peaceful. There was a smoothly functioning

2 Mudaliyar is one how appointed as representative legislation activities from colonial society. 3 Lanka Sama Samaja Party (LSSP) and Communist Party.

96

export economy that provided commodities urgently demanded by the

world market. Productivity was low and population was growing

rapidly.

Existing economic structure would be unable to support the growing

population at its current standard. According to the Tresidder 1960,

(pp.168-169), “Most thoughtful Ceylonese today agree with friendly

foreign observers that the success of Ceylon’s development projects

and her credit standing among the free nations of the world depend

upon early settlement of commercial quarrels and firm control of

extremist elements.” But Sri lanka’s economic and business

development has not been the disaster that one might have expected to

result from its inability to settle communal disputes and the wild policy

swings that accompanied changes of government throughout the first

three decades of independence.

1. From 1948 to 1956 (Economic populism with an open economy

period), Sri Lankan government provides wide range of direct benefits

to a large segment of the population. For a brief time after

independence, the from commodity exports afforded by the boom

markets of the post-World War II and Korean War periods made these

benefits appear affordable. Medium sized businesses are developed

very smartly and slowly.

2. From 1956 to 1965 (Economic populism with economic controls),

most of private owned businesses such as transport trade, converted

into government owned business organizations by nationalizing. These

businesses are taken under to Public Corporations and as a result of it

growing government expenditure were not matched by increases in

revenue, the budget deficit got out of hand. In the early 1960s, the

supply of foreign exchange gave out and the government unwilling to

97

devalue, imposed increasingly stringent and distorting direct controls

on international trade and payments. The level of foreign exchange

reserves declined every year the MEP4 was in office. Nevertheless,

there was economic growth during this period. Although “ the growth

mechanism in this period is not clear” (Bruton et al 1992, p.77)

3. From 1965 to 1970 (Limited Liberalization), the rightward

political shift brought renewed foreign help through an aid consortium

in which the United States participated. An IMF5 standby agreement,

and short-term credits from Western banks. The new government

undertook limited, cautions liberalization. In November 1967, the

rupee value was devalued and a trade liberalization package was

introduced. The latter introduced the FEEC6 scheme, which permitted

exporters of non – traditional items to receive a more favorable

exchange rate on their overseas sales and also allowed previously

banned “nonessential” imports to enter the country at a higher

exchange rate than was applied “essential” items. The new government

also promoted rice production, with emphasis on the massive Mahaweli

River Irrigation Scheme. This was favorably affected to development of

domestic businesses specially in the area of agriculture.

4 From 1970 to 1977 (Resumption of the Controlled Economy),

after controlling the economy, economic and business conditions had

begun to worsen and unemployment was rising (Kiribanda, 1997). In

1971 a Paddy Marketing Board was set up to serve as sole purchaser of

paddy from the farmers and Business Undertakings Acquisition Act was

passed. In 1973 the first oil shock hit, dramatically raising the cost of

imported petroleum and fertilizer, and later of rice, wheat and sugar.

There were some increases in aid flows, but discussions with the IMF

about a possible standby arrangement broke down, reportedly because

4 Mahajana Eksath Peramuna.5 International Monitory Fund6 Foreign Exchange Entitlement Cirtificate

98

the government would not accede to IMF demands for reductions in

welfare subsidies.

5. From 1977 to 1983 (Policy Reform period), all the barriers to

liberal economic policies that had been insurmountable in the past

seem to have vanished by 1977. The new government enacted

sweeping political and economic reforms. Its economic reforms were

encouragement of import substitution industries, tax incentives to

foreign investors, establishing a first Investment Promotion Zone/Free

Trade Zone, eliminate of most price controls, introduction of food

subsidies, improves incentives for agricultural producers, ending of

FEEC system, restrictions to foreign capital investments, foreign banks

were permitted to open branches in Sri Lanka, Establishment of Export

Development Board. Three lead projects were conceived and highly

publicized: the Greater Colombo Economic Commission, which would

organize and operate export processing zones; the Accelerated

Mahaweli Development Project, which would try to complete what had

been thought of as a thirty – years project in five or six years; and the

Public Sector Housing Program which aimed to construct 100,000

urban and one million rural dwellings. In addition, a new

administrative capital and parliament building were to be constructed

and transportation, communication, and power infrastructure were to

be improved. The public investment program created employment and

purchasing power, although most of its benefits would appear in the

longer run if at all. Introduction of new Companies Act In 1982 is

encouraged to expansion of different types of companies. During these

five years, Sri Lanka was thus one of Asia’s high-performing

economies. The effect of liberalization and accelerated economic

growth on poverty and inequality have been hotly debated. Bhalla and

Glewwe (1986) argued that inequality fell after 1977, but a chorus of

critics ( e.g. Ravallion and Jayasuriya 1988; Anand and Kanbur 1991)

asserted that both poverty and enequality had actually increased.

99

6. From 1983 – 1989, Start of Civil War created many difficulties

and distractions for economic development. The guerrilla war started

in 1983 LTTE7 and meanwhile radical Sinhalese insurgency unsettled

the south with sporadic acts of terrorism until 1990. These wars were

badly affected to business organizations of Sri Lanka and new

businesses were not stablished due to risky situations prevailing the

country.

7. From 1989 – 1994, Crafted a Second round of policy reforms

contributed to pickup in economic growth in the early 1990s. The

reform package included tariff reductions; rupee devolution; tax

reforms aimed at stimulating the capital market and improving tax

compliance; further liberalization of financial and commodity markets;

and liberalization of exchange controls on the current account of the

balance of payments (Dunham and Kelegama 1995). Other emphases

were privatisation and peoplization (encouragement of individual share

ownership), export promotion (the 1990s were dubbed ‘The Decade of

Exports’), and poverty alleviation. For the first time in Sri Lankan

history, the change of government in 1994 did not lead to changes in

economic policy and Open economic policies introduced in 1977

continues after 1994 too.

As the result of the policies introduced in the 1977, the company Act

1982 was enacted. It was one of the key factors to establish limited

companies. Simultaneously, the open economic policies led many

people to abandon domestic agricultural activities and moved them

towards other industries. As a result their life style became busier than

it was earlier. The time spent at home became lesser and lesser.

Consequently, they were facing difficulties in preparation of all their

three meals (breakfast, lunch and dinner) themselves. Gradually they

7 Liberation Tigers of Tamil Eelam

100

were used to buy prepared meals from outside places and processed

food items became more and more popular. Many instant food items

came into Sri Lanken market as a result of these changes in consumer

preference. In early 1990s, instant food processing industries were

mushrooming. These companies were merely catering for the existing

market demand by them. In fact, many of these companies did not

projected towards future market and related strategies. The MFPL of

Sri Lanka was an exception having analysed the existing market

environment and the CEO, the founder established the MFPL in 1997.

The MFPL launched its’ products after carefully reviving the

weaknesses of the existing firms. The firm could realize the salient

weaknesses of distribution system of existing firms in particular and

the products were not widely distributed in remote areas.

4.3 Company Background

The firm produces and market consumer food items mainly Soya meat

which is an instant food item used as a substitute for meat based

products. The instant food items are becoming popular in Sri Lanka

after the Socio Cultural Changes occurring since last three decades.

The increases of urban population growth rate, changing life styles and

consumer taste have provided new opportunities for business firms like

MFPL. In addition to that the liberalized economic policies introduced

in late 1970’s opened up the market opportunities for private

enterprises. More concessions and tax rebates were introduced to

encourage such private entities to improve the socio economic

conditions of the country under the said policies. MFPL was founded in

January 1997 as a private limited company. The company is operating

only within the local market. At present the company has become the

largest market shareholder mainly in Soya based products in Sri Lanka.

101

This largest market share acquired by the MFPL, due to lacy and

inefficient competitive nature of the Lanso Company Limited (LCL)8.

The CEO of the company is an MBA9 graduate who completed his

masters' degree in 1996. While he was reading for his MBA he opted to

study the LCL Company and its market, which was producing and

distributing Soya based products in Sri Lanka. This company was the

largest market shareholder by then. It is said to be the target market of

this company were vegetarian consumers. With compared to the total

market this segment is a very small percentage of the whole market.

These preliminary studies have led the CEO of the MFPL to invest in

the similar trade and started the business as a re-packeting of the

Soya10 TVP11 and raw TVP has been purchased from the above

mentioned leading firm named LCL. But the target market was not only

the vegetarians but also who preferred other non-vegetarian taste of

the same products. Capital investment for this firm has been sourced

from private funds of the founding Board of Directors.

Originally, the firm started re-picketing TVP that are purchased from

LCL. LCL imported 200 Mt. of TVP from India annually. MFPL

purchased 80 Mt. of TVP from LCL and distributed in the same market

adding some value for the same such as double laminated packaging

and introduced natural flavored ingredients.

4.6 Business Idea

According to CEO of the company, the CEO had bone a small

conventional village and was schooling to a near by small town. The

8 This company was the main competitor of Soya Market (dominated about 70% of the market) and three years after introduction of MFPL, it was shut down and the Manta Ltd acquires it. 9 Masters of Business Administration10 As Specialists, Soya is the High Protein contend food. This is free from cholesterol. For human body, standard level of cholesterol is required to keep risk free levels on High Density Lipid (HDL) and Low Density Lipid (LDL). To keep control on these levels Soya consumption is required 11 Textured Vegetable Protein

102

way to school and back had facilitated with a Volkswagen Car, which

was owned to his father. They were a well-off family in that village. He

believes that, if someone had no wealth it was impossible to run a

business. He had gained the exposure from his father. Since he was

rich enough and he had repaired old cars and sold them by means of

business. Since his childhood he had been dreaming to make more

money through whatever the opportunities available. Further he states

that miraculously he was selected to the university. He did not

expected because he had not worked hard. According to him it was a

“big chance”. Despite, the current job he is involved with was assumed,

due to his degree and he condemns the degree saying it has no value in

this society. In fact, he was able to get this present employment

because of his degree. Non-degree holders cannot apply for such a job.

Through that, legally as well as illegally he earns nearly Rs. 200,000

monthly. He started his own (MFPL) with this money. Now he does not

care much now for his job because he owns an established company

where he is the CEO.

The researcher knows the CEO from his school age. In fact, being able

to get his job by means of his degree and because of his job he was

able to establish and develop current (MFPL) company and the

researcher wonders about his disgrace towards his degree and

employment. Initially having earned enough money, the CEO had

planned to sell imported vehicles. He now engaged in this vehicle deal

as a part-time means to generate more money. He completed an MBA

in a Sri Lankan university in 1993/1995 and did a market research on a

company called LCL as a partial fulfilment of this MBA program.

Having exposure and findings, he used these to capitalize in his own

business. When the researcher was collecting information from the

MFPL the CEO was little reluctant to give information and said:

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“ After finishing this research you should not start a firm which competes mine… Yet I am not

afraid of because beggars like you, how much you earn, cannot really compete with mine…

Therefore, I am not scared to provide you with any sort of information”

However, one of the employees of MFPL, MBA colleagues of CEO at

the same university, had helped him to develop this idea of business in

CEO’s mind. With the assistance of the relationships that he has with

his employment, CEO import necessary machinery and equipments for

his company. In addition, one of his brother-in-laws an expert in food

processing technology, who is having a degree in the discipline.

Further, CEO says that he was able to make his business a success due

to the fact that, most people in Sri Lanka are lazy as then do not like to

prepare their own meals to provide marvellous opportunity for MFPL.

The central task of business leaders is to maximize profit in the

organization. But at the heart of creating sustainable value to earn

profit lies the leader’s ability to innovate and implement new solutions

faster than their competitors. CEO states that, “I believe that killing

competitors are the new technology to compete with competition.

Because my idea is that if needed to kill the competitor to achieve

business success, do not hesitate to kill them. It is very difficult to run

the business according to the Buddhist philosophy; because leaders

have always had to be able to take decisions in turbulent

environments.”

4.4 Corporate Strategy

In 1997, MFPL was a Soya based products oriented company with

diversified interests in consumer markets as re-packeters. Operations

were organized into four Strategic Business Units (SBUs). These

groups were not based on such typical organization categories as

product line or types of customers served. Given this operational

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structure consisting with four SBUs depicted in Exhibit 1, the various

groups within MFPL were all natural customers for each other.

Moreover, the development of any new product or service to be

marketed by MFPL was likely to require the coordinated, cooperative

effort of most, if not all, of the four groups.

4.4.1 Strategic Business Units

There are 4 SBUs, but which are not functioning as SBUs in reality.

These SBUs are designated as (1) MFP marketing services (Pvt.) Ltd.

(2) MFP distributors (Pvt.) Ltd. (3) MFP nutria foods (Pvt.) Ltd. and (4)

MFP herbal remedies (Pvt.) Ltd. The function of MFP Marketing

services has been identified as Research &Development Manufactures

all items existing at present in the name of MFP Product line is as Soya

Meat, String Hopper Flower, Noodles, Y drink, Salt, Curry Collections,

Som flavor, Vinegar and Purchasing materials required for the

production. Functions of MFP Distributors has been identified as

Distribution of the MFPL’s produced all items would be the main

responsibility of MFP distributors, Advertising the products and

services, sales promotion, and awareness campaign for customers

retails and middlemen and whole sellers. Develop good relationship

among supply claim managers of the distribution charnel. Functions of

MFP neuter foods are to produce Soya “Nuggets” only for internal

purpose. This seed/ Nugget is not supplied to any other re–packetor or

distributor as it is since the company want to eliminate competitor to

expose in to their market. Product categories coming under Herbal

Remedies are still at experimental stages. Market testing activities

have been introduced for two certain products. It also intended to

develop a good will / reputation among customers by producing a

herbal related products and so as such impression would be used to

exploit the market opportunities through/for Soya products.

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4.4.2 Product Categories

Initially MPFL started their business as a re - packeter of Soya related

products. After wards in the latter period of 1998, they started

producing Soya themselves from which they were able to obtain the

economics of production transportation etc. Except Soya meat the

company also produces, string hopper flour, noodles, Y drink, salt,

curry collection, Som flour, vinegar as well. Soya meet is the main

product, which generates the largest profits to the firm (CEO stated).

However, there was no way to identify the unit cost of production.

Company calculates profit through total batch expenditure against total

selling revenue. However, the estimation of the unit profit is not

accurate. To do it in an acceptable way many other expenditure items

also to be considered. A system has not identified in this regard.

The company as new product development strategy has introduced the

market with a jelly. This product also is in its initial stage. Originally

company thought that the product should go to the market in two

forms such as dry jelly and chilled jelly the dry jelly (Non refrigerated)

was designed for the rural remote areas where cooling facilities were

not available. But company experienced that the product is not moving.

Hence all customers irrespective of their dwelling place preferred the

refrigerated jelly. But rural areas where low income customer

segments and recorded poor sales of both items. Accordingly CEO has

decided not to supply that product to the market. When questioned,

whether that decision is not irrational? CEO stated, “If a product is not

successful at market, I can feel it. Therefore, before experiencing a loss

I would stop that product”

4.4.3 Objectives, Strategies and Tactics

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The primary reason that MFPL had developed as a company was to

invest their own funds in their own firm. The CEO states that,

“ Today’s strategic issues are quality, flexibility and competitiveness. In fact, your product needs

not to be a real quality one. But if you can convince the consumer you can be success.

Competitiveness is the main issue for the success. Therefore, you should be able to eliminate your

competitors or weaken them. I mean “flexibility” is something like using “cats paw”. We pretend

that workers are looked after well and consumers are convinced that they are treated as “god”.

Otherwise, a company cannot be a success. Retention of consumers for short - run is very close to

flexibility”

According to the CEO the Main objective of the firm is to survive. They

want to achieve a “Sustainable Survival” operating business to

capitalize on market operations, which is the most crucial issue here.

Their main objective is achieved through eliminating/ or weakening

competitors rather than caring for social responsibility. Through such

exercise they want to increase their net assets. This kind of objective is

not in black and white in our company. Their corporate objective is

supported by a set of Business Objectives such as:

(1) Identify the areas of business expansion

(2) Capitalize on business operations

(3) Continuous appraisal/ assessment of market of market

changes and trends and

(4) Achieving steady growth rate in a competitive environment.

Their performance measures mainly considers about financial factors

such as, sales value, profits, growth of assets and cost. In addition, we

attempt to project the market and the product mix, to establish

technical goals, and to identify obstacles or boundaries limiting the

business.

CEO states,

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“According to the theory corporate objectives are defined as responsibilities to employees,

shareowners, community and society as a whole. But I think keeping too much emphasis on those

things hinder the development of a business. You can keep these as mere corporate objectives only.

Finally, we attempt to look at ourselves in a mirror and criticise the overall objective. We carefully

evaluate the competition, the threats and contingencies we might have to meet, market shifts we

might anticipate, and attempt to evaluate what we must make happen in order to achieve success of

the objectives.”

The ranking of mentioned key factors, then, provides a priority list for

future management attention. We expect the objective to be

challenging enough, even shocking enough, to force a radical

rethinking of the strategies and tactics. At the next level in the goal

structure is the strategy statement. The strategy describes in detail the

environment of the business opportunity to be pursued in support of

the objective. Normally, there will be several strategies supporting

each objective. Altogether, we had more than 10 strategies operating

in 1997. For example, if we had an objective to achieve certain goals in

the Soya Market, we might have one strategy involving distribution

network, one involving material application, and perhaps another for

safety systems introduced for Soya packets. The strategy looks ahead

over a number of years, normally from one to three, and intermediate

checkpoints are defined along the way providing milestones against

which to judge progress. Progress measurement is an element of a

strategy not included at the objective level. Finally the contribution of

the strategy to the over-all objective is defined in quantitative

measures.

Next in the goal hierarchy is the Tactical Action Program (TAP).

(Examples are given in Exhibit) A TAP is a detailed action plan of the

steps necessary to reach the major long-range checkpoints defined by

the strategies. It normally in short term, covering 2 to 4 months of

effort. For each planned tactic, a responsible individual is designated, a

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start and finish schedule is established, and the required resources are

finished. Below the tactical level, each TAP is broken down into

individual work centers, which we managed by means of individual

oriented management techniques.

4.7 Organizational Structure and Controls

Organization structure and control emphasizes on the meaning of

company’s organizational chart, consistence and recruitment of

workforce, nature of responsibilities of employees, incentive schemes

introduced and the qualitative characteristics of decision-making

process.

4.5.1 Organization Chart

As per the organization chart of the company, there is a General

manager position. But this position is not filled. Instead one of the

directors is acting for the same. His acting position also limited to a

nominal and the CEO, in fact, intervene the activities directly. More

over, there are 3 DGM positions, namely: DGM - Operations, DGM -

Finance & Administration, DGM - Purchasing MIS & Supplier

committee. All these positions are kept vacant purposely and actually

the Director acting for GM directly looks after the responsibilities of

these DGM’s . In these cases also the CEO directly intervene the

activities.

There are 225 positions according to the Organization Chart. 160 of

these positions operate under DGM - Operations. But all these people

are responsible to the CEO directly. The balance 65 people are

operating under DGM - Finance and Purchasing MIS… CEO’s idea is

that the company should emphasis much on operations rather than

clerical work. However only a few of these positions are filled yet.

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Accordingly Operations, Finance & Administrations, Purchasing and

MIS 62.62% (97/160), 66.67%(32/48), and 58.82% (10/17) are vacant

respectively. Average 60% of the total positions in the organization

chart are kept vacant.

4.5.2 Work Force

At the very beginning the profile of the work force of the company was

as - 03 directors, 08 miner employees and1 supervisor. At the

beginning of the business operations, the supervisor also was sent to

the field for distributing the company’s products. Directors also played

the role of the supervisor or other production related miner work or so

on.

Today, in addition to the three directors and CEO, there are two (02)

middle managers, Ten (10) first line managers, forty (40) lower level

managers and three hundred and seventy four (374) non-managerial

workers. According to the organizational chart it is represented

managerial workers and 13 non-managerial workers only. (The CEO

has developed this Organizational Chart)

The three directors have had experience and exposure in different

areas of business operations, which are very crucial for the operation

of the currant activities of the MFPL. For instance, one of the directors

is an expert in food processing activities and related trade. Another is

an expert in import related business activities (the raw TVP for the

business is imported from India), while the other has have got hands on

information and understanding about the market structure and the

nature of role players in the TVP related products and the market.

Actually he was an another main food producer. These three members

of the board of directors are the people who invested their private

funds on the business as the investment capital. One of the directors

left the company after 6 months stay with the MFPL. The position was

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filled with another and meanwhile one of the existing was designated

as the CEO of the company while serving and chairing the Board

meeting.

Originally the tasks and the work/job has been delegated among

various positions and people but later on some of the assigned jobs

were taken over by the CEO, after observing how the work has been

performed.

4.5.3 Nature of responsibilities

One person is responsible for many jobs that are done in the

organization. Typically, functions are not developed in this Staff and

Function organization structure. Here, the organization structure

showing something entirely different. It is shows the relationship

between strategic mode and operating mode within the same

organization. One of the functions of the manager set strategies for

identifying TAP’s and combine them with existing strategic plan. Often

these managers are responsible for operating these strategies as well.

For instance, managers who identified a Production TAP should show

the results to CEO practically. This may not be approved in the

Strategic Plan. (Dominant role in the strategy) Nearly always, the

strategy or tactic manager also will have an operating role to play. In

most cases does the Strategy manager or Tactic manager have that job

as his full time assignment. Divisional managers should identify their

own objectives and push it them to CEO. Since there are no divisional

managers in practice in this company this is also done by the CEO.

Thus, at MFPL, our managers are given dual responsibility for both

strategies and operations. Their future in the company (survival) will

be decided on the success of both activities. In recent years, we have

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deliberately tried to create an environment in which it becomes natural

for distinguish between their operating and strategic modes. Last I

mislead you, let me re - emphasis that we are talking about two modes

within the same organization, and not about two distinct organizational

structures. In fact, in the majority of cases, the execution of both

modes is through a single manager.

There are a number of reasons why we have chosen to develop the

second, or strategic mode, within the organization. First, the strategic

mode gives us a mechanism for large-scale opportunities, or those

requiring combinations of resources not found in a single unit. Second,

it gives us a mechanism for planning and controlling our investments

for the future, and for making sure that we do achieve the desired

balance of priorities between short-term and long-term activities.

4.5.4 Incentives and Reactions

Majority, almost all, employees in the company is said to be young and

unskilled. CEO says that, such people will not try to overwrite company

practices and comparatively stay with the company for a longer period

of time. Also he believes that, such people would work harder than

others. When recruiting the people, customarily the vacancies are

advertised in National newspapers, but selection is mainly based on

personal contacts, and among known people. The CEO justifies such a

selection stating that the controlling measures are easy to carry out

when known people are sleeted through the known channels.

There is no specific duty hours or working hour for the employees. If an

assignment is given simultaneously a dead line or target completion

day or time also will be given. The job should be completed within such

period/s.

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The vacant positions in the organizational chart are kept as it is by the

design. The CEO says that it is a motivational factor for the people

below such vacant positions to work harder to promote to such

positions. Except production workers, others are entitling for fixed

salary. All the managerial level employees are also recruited on

temporary and/or under probation for low salary scales. As an example,

Accounting Executive is paid with RS.4000 per month at the beginning.

But, production employees are paid salaries according to the piece rate

system. Starting with the immediate supervisor, individuals are rank-

ordered on the basis of their relative performance and contribution,

and an adjustment base salary12 is recommended. The ranks are

combined at successive levels of the organization until the department

level is reached. The department manager identified “bench mark”

people among those on his department. Bench mark are those people

judge as having made equal contributions, even though they are in

different functions and job grades. Incentives are given only to the

marketing, production managers and the supervisors (Key Personnel

Analysis -KPA).

This KPA system created competitiveness among production supervisor

and production manager within the organization to become Operations

controller13 for that they worked hard. “ As a practical matter”, one

manager said,

“KPA is not as much as a zero-sum game as it sounds like. The system does force us to examine

performance at the very lowest levels in the organization and attempt to identify people who have

done a superlative job. As the ranking process moves up the hierarchy, however, only a very few

people from the lower levels manage to survive the screening. The informal test that each of us uses

in identifying our key personnel is, who is contributing most to the success of the business? The net

effect of the process is that almost all of the managers in the higher ranks participate in the incentive

pool. It would be a rare event, for example, for a MIS manager not to receive a incentive. Most

12 Meaning of base salary is that the differentiated piece rates decided on different type of products and departments13 According to the organization chart Operations controller post is vacant.

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unfortunate thing is few managers are not entitle for incentives such as managers in the finance

division ”.

In CEO’s point of view that, above marketing and production people

should look after the marketing and production work and they will

monitor the people to work hard when the incentives are given to such

people. Also it employs a little money on such issues.

4.5.5 Decision Making Process

Even though there is a hierarchical organizational structure and the

procedures, the decision making power seems to centralized in the

hands of the CEO. In other words even though the board of directors

are agreed on a certain decision the CEO may change the same without

getting their consent or overwrite the same. Also the technically

approved matters such as the designer recommended and approved

decisions also overwritten by the CEO as he wishes. Therefore, it

seems that the sole authority of the decision making power lies in the

hand of CEO, and other procedures appeared to be seen as mere

policies or guidelines for the company.

4.6 Budgeting and Planning

The company does not maintain formal budgets or plans. Some

accountants have marked their own short-term targets as advises given

by the CEO. In the company’s point of view, there is no use of

preparing budgets or plans for such a small size company and they are

arguing that of preparing budgets increases the cost to the

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organization. On the other hand, as an active company they don’t have

much enough time to prepare and implement budgets.

4.6.1 Budgets

CEO is the man who is keeping all the resource requirements for

organizational activities in his mind. Actually they prepare some draft

budgets for different types of purposes, but all those budgets are not

available as a documentary source. All the facts and data are kept in

the mind of the CEO. Other higher rankers and operational employees

don’t remember the above-mentioned data and facts. According to the

CEO, these types of data not recorded to keep some facts and figures

such as material usage, production mix etc. in secret. CEO commented

that:

“We really have two budgets for the year, one for Production Department and the other for

Marketing Department. But all the budgets are drafts and flexible, prepared by me. I know what is

happening in the market (Raw material market and Finished goods market). Factors relating to other

factors are also keeping in my mind. I know that what are the required changes and how to update it.

Therefore, we are not maintaining formal budgets, as explained in the theory.”

4.6.2 Planning

The company does not prepare plans, because CEO making all the

decisions related to the company. If I ask from any type of the worker

in the company about the plan, they have different types of plans, but

not written, not formal, not structured and consisting with some ideas/

opinions/ orders given by the CEO. As you have gathered by now, CEO

continued;

“We are not very enthusiastic around here for elaborate methodological approaches to planning.

Speaking philosophically, it seems to me there is a major problem of injecting methodology into a

human organization. The literature abounds with elegant solutions to well-formulated problems.

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However, very few well-formulated problems appear in strategic business management. Even fewer

businessmen are prepared to accept someone else’s strategic model as a guide to their own

behaviour. In our organization, we do not try to apply others’ strategic models to our business

whether they are successful operating planning approaches. In strategy, style is everything, and

planning approaches must deal with style variations effectively, or fail.”

He further commented:

“At MFPL, we have proceeded on the premise that long-range planning can be imbedded

successfully within the primary operating organization. Our commitment to accomplish this has first

priority on matters of organization development and culture, rather than on matters of pure planning

methodology.”

4.7 Financial / Capital Structures

Capital is the main factor, which decides the authoritative power of the

CEO. Capital introduce by the CEO is his own. Then, no one can

influence to the organization based on capital other than the CEO.

4.7.1 Initial Capital and Net Asset

Initially the 3-founding directors formulated RS. 500,000 capital

investment of the firm. Originally, required machineries for the

operations have been leased out and the one of the directors on a

rental free basis has provided the business premise. The company was

able to increase the investment capital up to Rs. 3mn within first three

months of the business operations. Up to this stage the main type of

the business was re-packaging of TVP and distribution of the same

Island wide except North and the North Eastern parts of the Island.

4.7.2 Resource Allocation

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In 1997, MFPL created a Resource Allocation Committee (RAC) to

make strategic resource allocations, and review strategic activities.

This RAC has 03 permanent members including CEO, Managing

Director and Marketing Director. In 1997 the committee was met about

20 times a year for a full day. The agenda for each meeting normally is

settled beforehand and includes a rigorous re-examination of at least

one business objective or consideration of a major new business

opportunity. Topics discussed are: (1) the appropriateness of the

objective in light of current information; (2) progress in the strategic

development of the objective; (3) any actions, which should be taken at

the corporate level to accelerate or otherwise modify the strategic

programs for that objective.

Besides this, managers of key strategies and tactics frequently meet

with RAC for progress reviews, or when initiation of new programs is

under consideration. But, CEO told that, “everyday the committee ends

up without new idea, other than the idea forwarded by the CEO and

therefore, consuming time and cost is very unnecessary for these types

of committee meetings.” Again, CEO states that, they do not have

resource allocation plan for each department. After careful personal

evaluation, he decides departmental resource requirements.

4.8 Market

Soya market in Sri Lanka is very popular now. During last ten years,

number of manufacturers, marketers, repacketors were developed.

This was happened due to busy and lazy life style of the people. Most of

competitors didn’t try to advertise or distribute properly and some

have shut down their companies due to loss leading quality.

4.8.1 Features of the product

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LCL product had a salient weakness, which was not realized or was not

taken into consideration by its management. That was a kind of bad

taste, which was not preferred by the customers. The MFPL was able

to identify this failure and reacted toward getting the advantages of the

opportunity. As a result the MFPL could capture the market within

three months operation in the business. Therefore, the company’s

Investment capital could be increased Rs. 500,00.00 to Rs. 3mn within

the first three months The Company introduced the TVP with natural

flavour and non-vegetarian ingredients

4.8.2 Market Development

At very beginning 80mt out of the total of 200mt of TVP imported by

the LCL Company was purchased by the MFPL and used them as the

raw material in the manufacturing process. The both companies made

an agreement to abide by to provide and buy 80mt annually. The other

players, including LCL, shared the balance 120mt in the total market.

Many of them operated as re-packeters and distributed the products to

the local market.

4.8.3 Distribution Network

The LCL distributed its product only to the selected geographical

locations and only for leading sellers in those areas. MFPL adopted a

completely different approach to select its channel members and

sellers. For instance, MFPL distributed its product throughout the

Island except North and the North Eastern Provinces, due to prevailing

Civil war of these two areas. In order to develop the distribution

channel MFPL appointed agents on unconditional basis. That is in

many cases when a company appoints its agents they ask for an initial

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deposit from the agent. But MFPL appointed agents without such initial

deposit or other conditions, which hinder the operation of the

distribution activities. Also the MFPL provided the sellers with

unlimited credit facilities to expand the distribution of MFPL’s

items/goods. In fact, MFPL was able to introduce such systems since

their capital investment does not induce any interest to be paid to

outside funding agents. In other words, investment capital was

consisted with private funds of the board of directors. The company’s

policy for the dealers and sellers was favorable for the existing market

features. For instance, No need to emphasize that such a dealers or

sellers would be glad to accept such policy since many of the Sri

Lankan small scale sellers find difficult to afford for such initial

deposits or unconditional credit facilities would definitely enhance the

business strength of such small sellers. Some sellers, of course have

misused the opportunity provided for them and as such some amount of

credit granted still remain unpaid. Yet this strategy enhanced the

strength of the company’s distribution channel. Hence, the company

could easily develop a wide spreaded distribution network throughout

the Island. Distribution channel has specifically found rural areas since

fish products (fresh fish) distribution is not widely spreaded or

available in those areas. Sales agents have been appointed for areas

and every provincial town except north and Eastern Provinces. Goods

are been distributed regularly. But the company had experienced in

some areas sales are recorded only about 25% of the total distribution

to the particular sales agent. Yet regular supply/distribution is

maintained. CEO says the When the customers wants to buy the

product it should be available to hem/ has at their close proximity.

Hence the product should be available in the market without any

shortage.

4.8.4 Reaction for Competitor Activities

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MFPL was able to identify the competitor reaction toward their

business operations and strategies. For instance, from the sellers of the

products of MFPL, the company found that the competitor has taken

some steps to cripple their production by not providing the agreed TVP

for the MFPL, since LCL was the only supplier of TVP to MFPL. The

MFPL was able to understand the LCL’s behavior in advance.

Therefore, they had orders and imported a buffer stock of TVP. Once

the LCL denied supplying the agreed amount of 80mt of TVP, the MFPL

produced their items utilizing the Buffer stock and distributed to the

market. Meanwhile, the LCL Company increases their production and

released them to the market. By the time the consumers were attracted

to the MFPL’s and hence, at the end there were huge bulks of LCL’s

items in the market, which could not dispose. Then afterwards, the

MFPL Company started importing raw TVP from India directly and

completely deviated from LCL.

Originally nugget is purchased farm LCL and later it was imported

from India. With the importation of nugget from India, company could

save 15% of the cost of purchasing. At percent the company produces

Nugget it self. As a result 10% of further cost reduction has been

experienced. This Soya Nugget is said to the comparatively smaller

then that of other substitute available in the market, the label is not

preferred by the consumes. Therefore, CEO says that this nugget in not

givens to external bodies or agents as a strategic measures. With the

introduction of in houses production, Nugget rather then outsourcing

the dwellers in the factory are complained about the noise generated

by the machineries when production process were going on. In order to

dilute the pressures from such residents the CEO recruited the

relations or family members of such dwellers to the factory as

production employees or any others. Hence he says the pressures from

sorrowing dwellers were eliminated.

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The costs of mercenaries imported for nugget production were

recovered within initial two (02) years period and hence the company

generates profits. CEO believes that the industry may not exist as it is

for longest period yet lifetimes of machineries have been estimated

approximately for 10 years. Therefore ECO says the machineries

should be utilized with full capacity at present to exploit market

opportunities available now.

The Soya Nugget is also supplied / distributed to the retailers in bulk

from in order to cater for the low-income groups at a comparatively

lower price than normally picketed MFPL products. Because the lowers

income group could be attracted with such practices and it would help

further extension of market share of the company. Once the expected

demand is met the company intends to introduce them with pocketed

product at a later stage. The product is available in seventeen (17)

different flavours in which prices are slightly different. It also available

with deferent weights, in order to cater for the affordability of different

costumes segments, yet pricing has not been based on any costing

strategy. Instead market price is determined according to the price of

substitute products that are supplied to the market by the competitors

or on arbitrary basis

4.9 Costing Process and Material handling

In MFPL, there are no generally accepted costing procedures,

methods, and practices. Actually they are not maintaining even single

page for to record costing information. The CEO considered that the

costing information is the very secret information rather than other

information. However, the CEO maintains all the costing data in his

mind and he personally handles material to avoid racket and errors

occurring when others involve into transactions.

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4.9.1 Pricing

Up to now the pricing of the product of MFPL has been based on

market price of the competitor’s product in the market. The goods or

items produced are not separated in to department wise or human

resource is not allocated according to the nature of production or items

produced. In other words workers are rotated and production is carried

out as required by the each item/s.

Different items are produced in the same premises and as a result

space problems are spires. Worker is, in fact, become all rounder at

the end. Any trade union activity may cause serious adverse results as

well. But, CEO believes that, by training people as all rounder, their

idling time could be minimized and training people as all rounder can

improve the production. Also if a worker is absent another could easily

carry out his or her work.

4.9.2 Material Handling

In addition to the Supply Department Stores, instead of purchasing

from the central stores, the production department directly handles

procurement of raw material. This is specifically experienced when

bulk purchases are done. (e.g. chilly, and spices). The unit or the

department who purchases the items directly prepares GRN. Returned

goods and items are re-use in the manufacturing process as raw

materials. It is found that no records will be maintained in returned

goods or items concerned. When inquired from the CEO he says that,

record keeping in these items will further delay the production process,

and it may result in creating idling time of machineries or some

workers as well. Hence, once the goods are returned or defectives are

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identified the will be used in the production process as soon as

possible. Further he says, that if these items are not used at once it

may be lead to steal them or misuse by the employees. In addition,

keeping defectives or returned goods/items for some times in the

factory premises also implies kind of displaying the company’s

weaknesses hence better to dispatch them as soon as possible. If the

packaging is defective, such items will be sent back to the production

department to re-pack. Therefore, computing cost per unit is said to be

cumbersome. Items will not be released until such time dispatch notes

are issued. This controlling measure has implemented in order to

minimize malpractice.

Existing stores maintain bin cards, which uses only as a store

controlling measure. In other words it is used to supervise the

storekeeper’s work. These bin card records are not taken into account

when items or raw materials are purchased.

GRNs are issued without a proper mechanism. For instance, GRNs may

not issue at the time when goods are received but it will be issued after

2 or 3 days later when these goods are reached at the machines.

Surprisingly, the GRN card will be recorded as per the invoice received

but not accordance with the amount of goods actually received. It is

also observed that, malpractice may occur as a result of this GRN

system. CEO says that he cannot withhold the production until such

times the GRNs are issued; instead the market should be supplied with

the goods in right time. Further, if the GRNs are not properly

implemented, the cost or damage incurred in this regard will be

comparatively very law with compared to the damage that could be

taken place as a result of the goods are not supplied to the market in

right time.

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Location of the material stores is not closer to the production

departments. This has created many difficulties according to the people

in the production department. But CEO says that he wants to keep this

distance to avoid some kinds of malpractice that could be possible

when departments’ ant the stores are located very closely. Production

supervisors say that, production process is interrupted very often as a

result of this distance between stores and the production units.

Material obsolescence are very often occurred due to the fact that

improper inventory system. In fact, different kinds of raw materials and

items are stored in the same place or the bin without any classification

or grading system. This has experienced as result of lack of spaces to

maintain a proper storing facilities. CEO argues that developing the

store facilities make an additional cost which does not generate any

profit in turn but if the same amount of money is spent on

manufacturing activities that will bring a profit to the company in turn.

Storekeeper complains that he is not in a position to do his job properly

since unauthorized people interfere in to his job. For instance, without

proper authentication or documents production unit may consume the

items in the store for an urgent manufacturing work. Hence proper

management of stores is impossible.

4.9.3 Changes to be introduced (Proposed changes)

in Cost Accounting Statements

It is proposed to introduce the following devices to the practice in

order to manage cost concerns. Such as,

1. Introduction of wages control ledges (WCL)

2. Introduction of Batch card (BC)

3. Introduction of Return Goods Report (RGR)

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These “new” methods are proposed mainly because, existing practices

does not help to measure unit cost of business operation. More

Specifically with the introduction of WCL it is intended to be achieved

the following objectives.

To calculate direct incentives for production workers. In fact, the

present practice of the MFPL is that the wages are implemented as a

“piece rate” System. Workers are not provided with any others

incentives than this. The company as a system, which cannot control

the cost in terms of EPF concerned for instance, if an employee earns

RS, has identified this System. 15,000 through the said system the

MFPL has to pay EPF for Rs. 15,000. With the proposed new system it

is intended to introduce a basic salary structure, which is

supplemented with incentive scheme. Thus the EPF would be applied

only to the Basic salary. The company intended to introduce a very low

Basic salary structure as a cost controlling measure. In addition, it is

proposed to introduce an incentive for the attendance of the

employees. Hence, it will work as in device to motivate workers for

regular attendance. Moreover, it is also expected to measure the actual

Numbers of units produces though WCL since the incentives are to be

bared on the number of units produced by the employee too.

The management of MFPL is expected to measure the performance of

each production divisions through this system as well. At present

production is carried out through rotation of workers, in which

separation of division or departments of production is not

possible/visible. The company also intends to identify the wage cost

ratio per unit on departmental basic and it will be needed as a

controlling measure in future bruises operations. This proposal also

implies that an employee should produce a minimum given number of

units in order to claim for the basic salary and beyond which incentives

are applied. The CEO intends to identify wages output ratio, which may

use as a controlling device.

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4.10 Summary

This chapter has discussed an influence of social and organizational

culture on rise and development of food processing companies in Sri

Lanka with special attention to the MFPL. Business orientation in Sri

Lanka started with the base of wealth and accumulation. Before

independence Plantation agriculture brings about a complete capitalist

transformation. In Sri Lanka, capitalism developed in a society whose

traditional structures and values, including ethnic and caste loyalties,

underwent change. Furthermore, in the case of the arrack rents, the

investment was also very much self-financing. At the bottom of the

social scale were the marginalized poor in scattered forms of self-

employment, and workers on plantation and manufacturing enterprises

located in and around Colombo. The above situation is highly

influenced to development, stagnation and decline of business society

in Sri Lanka before independence.

When Sri Lanka, achieved independence in 1948, it had practiced

limited self-rule based on universal franchise since 1931. There was a

smoothly functioning export economy that provided commodities

urgently demanded by the world market. Productivity was low and

population was growing rapidly. Existing economic structure would be

unable to support the growing population at its current standard. From

1948 to 1956, period of Economic populism with an open economy, Sri

Lankan government provides wide range of direct benefits to a large

segment of the population. This was influenced to reduce the in home

agricultural products. From 1956 to 1965, Economic populism with

economic controls, most of private owned businesses such as transport

trade, converted into government owned business organizations by

nationalizing. This situation encourages government owned businesses

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and discourages private owned businesses. From 1965 to 1970, limited

liberalization the rightward political shift and trade liberalization

package was introduced. Agricultural productions were promoted.

From 1970 to 1977, under the Controlled Economy, economic and

business conditions had begun to worsen and unemployment was

rising. This period is directed towards development of agricultural

businesses and reduces imported consumption of goods. From 1977 to

1983, Policy Reform period with the open economy damages to the

plantation sector and in addition production sector activities reduce

and service sector activities were expanded. These economic reforms

became an encouragement for imports and foreign investors.

Introduction of new Companies Act In 1982 helps in encouraging an

expansion of different types of companies.

From 1983 – 1989, Start of Civil War created many difficulties and

destructions for economic development especially in the agricultural

food product areas. From 1989 –1994, Crafted a Second round of policy

reforms contributed to pickup in economic growth in the early 1990s.

The reform package included tariff reductions; rupee devolution; tax

reforms aimed at stimulating the capital market and improving tax

compliance; further liberalization of financial and commodity markets;

and liberalization of exchange controls on the current account of the

balance of payments. Other emphases were privatisation and

peoplisation (encouragement of individual share ownership), export

promotion, and poverty alleviation. These economic policies are

operating consistently up to now too. However, from 1977, the open

economic policies led many people to abandon domestic agricultural

activities and moved them towards other industries and removed from

their traditional and cultural norms and value systems. People started

to concentrate only on finding an office employment using the political

influence. This malpractice in politics directed towards the destruction

of the total life style and people became very busy and indolent than it

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was before. The time spent at home became lesser and lesser.

Gradually they were used to buy prepared meals. As a result of it

instant and just-in-time food industries became more and more

popular. The MFPL of Sri Lanka was an exception having analysed the

existing market environment and the CEO, the founder established the

MFPL in 1997. The company is operating only within the local market.

At present the company has become the largest market shareholder

mainly in Soya based products in Sri Lanka. CEO of the company is the

in charge for all the activities of the company. He has gained his

exposure from his family background, government employment and

education he acquired from the University first degree and

Postgraduate degree. The strategy is not to care about the social

responsibility and to care only about the business success through

profit maximization. For this purpose he follows strategic issues such

as quality, flexibility and competitiveness. The main objective of the

firm is to survive. According to the CEO of the company he doesn’t

apply standard models to run the business organization and informal

management control systems, which are occupied, and all these plans

are in the mind of the CEO. Now a days the CEO is going to introduce

some formal control systems to this organization after the discussions

with the researcher.

CHAPTER FIVE

Analysis of the Case

5.2 Introduction

MFPL was a mix of automated and non-automated production with

most products produced continuously. The main products were made in

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two separate production departments: MFP nutria foods and MFP

herbal remedies. The researcher chose to work in the MFP nutria foods

Division, as it was the largest production department in MFPL. Nine

kinds of food items (Soya Meat, String Hopper Flower, Noodles, Y

Drink, Salt, Curry collections, Som flavor, and Vinegar) were made in

separate plants in this division. Out of nine kinds of products Soya

Meat, String Hopper Flower and Noodles are fast moving items and

others slow moving. Among above main three products Soya meat is

the dominant product possibly because its production was quicker.

5.2 Management Theories Vs. CEO Driven

Management Control System

Classical Management Theories, espouses a “scientific basis to

administration”, based on beliefs that the organisational world

possesses the characteristics of the physical one. Thus, it is claimed,

administrative principles can be derived by systematic study of cause

and effect relationships. Open system theory discusses the exchanges

with the environment. Contingency theory tends to portray

“management in a technical role”, matching organisational design to

the dictates of contingent factors of survival. Interpretive theories

emphasize the ‘reality’ rather than any ‘independent reality’. However

the presumed independent variables may not be so. Structural theories

discusses that the influence of corporate structures and accounting

systems to create variations on economic efficiency. As in the case of

systems theory, factors such as “technology” may be part of strategies

of control.

5.2.1 CEO’s Ideology

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According to the interpretive work of Meyer at el (1977) is relevant in

this context, structures, rules, plans, goals etc. are seen as myths and

rituals which reinforce the stability of behaviour within organizations

and legitimise their action externally. CEO14 of the company is always

trying to explain that management theories are not applied in the

practice and he commented:

“I think we are the only firm/ company who become the market leader within a very short period of

time. I have no idea about to what extent the so-called theories were useful in this regard. I believe

that leaders in commercial and public–sector organizations should understand and address the

challenges of dynamic environment and adapt in company’s activities accordingly today’s fast–

moving environment with the help of complexity15 thinking.”

Above statement of CEO is relevant to the Interpretive Theories. It is

proved that the theory supported to the practice, but practitioners in

the business field don’t know that whether they are following theories.

They are commenting that they found the way of managing the

organization.

Open Systems Theory under the Social Systems Theory is

characterized by exchanges with the environment, were particularly

influential. Open System Theories regards organisations as organisms

that process inputs from the environment back as outputs. Its

ecological orientation stresses the interdependence between the

organisation, its internal Sub-systems and the environment. Open

system theory considers, organizations and environments tend to be

taken as objective, when control systems are described as determined

by the variety in the environmental and organizational needs for

survival, by stressing the need for integration for the survival of the

whole, there is a presumption of a "functional unity" to organizations,

which may divert attention from issues of power and conflict. 14 Chief Executive Officer15 Complexity is a term used to refer to a collection of scientific disciplines, all of which are concerned with finding patterns among collections of behavior or phenomena – Managing Complexity, Robin Wood, 2001, p.1

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As CEO commented:

“However, I managed the business in line with the environment factors, closely observing the

directions of these elements, introducing changes timely. I believe these are the main factors of our

success. For example, when we recruit people as our employees, we critically evaluate their

suitability for the company. But we never hesitate to kick them out if needed.”

Therefore, it endorses, here, once again what open theory explains.

The assumptions behind contingency theory are similar to those under-

lying an open systems approach - the key relationship between an

organization and its environment can be understood in terms of the

organization’ s need to survive, and the fact that there are certain

functional imperatives for the various sub-systems. As CEO

commented:

“In addition to that I would like to say that, irrespective of the board of director’s decisions we

might implement the activities if there are viable for the existing market conditions. The board of

directors also works with the ordinary workers in achieving expected goals. Our main aim is to

survive in the existing market.”

The CEO follows a system of this nature in order to ensure the

company’s survival, which explains very clear in the systems approach.

5.2.2 Hidden Authority & Organizational

Capacity

An interpretive approach emphasizes the essentially subjective “nature

of the social world” and attempts, to understand it primarily from the

frame of reference of those being studied, as Laing (1967) pointed out,

'persons are distinguished from things in that persons experience the

world whereas things behave in the world’. The focus is on individual

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meaning and people's perceptions of "reality" rather than any

independent “reality" that might exist external to them. CEO doesn’t

believe staff in the organization. He can realize that he also started this

business from collecting data from LCL and after starting the LCL sold

to another company due to insolvency.

CEO said, If the required data are available and Director acting for GM

wishes, you may receive them” when researcher told him about the

need of data. But the following day contacted the Director acting for

GM, CEO received the phone and says, “ If you need to collect some

information, you should meet me” and then researcher reminds him

what he said the other day.

He responded:

“When GM (acting) is present, I should not disgrace him. I should give him the due recognition. It is

not nice to let down him. That’s why I told you that way. But if you need any information you

should come to me. Because I’m the CEO, I’m the person who decides whether to give you the

information or not.”

To achieve major long - range checkpoints defined by the strategies,

though there is a Tactical Action Program (TAP), CEO overwrite it.

In this regard CEO commented:

“The preset goals/objectives will be a base for a strategy, but according to the latest market

conditions I alter all the action plans immediately if it is required. These TAP are delegated and

assigned to different action centres. But I personally monitor these and alter it requires.”

Since the many positions are kept vacant in the organizational chart.

CEO commented:

“It provides more liberty/ freedom to work as I wish. Many senior level positions such as DGM-

Operations, DGM - Finance and Administration, DGM - MIS and Supplies Committee etc. are kept

vacant, cost of maintaining such positions are not appeared to be seen. I have nominally, assigned

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acting GM many responsibilities and jobs. But, I personally intervene his work too. I grace him

since it is not nice (theoretically) demoralize him.”

According to the all above, it is understood that CEO of the company

well understood the nature of social world, and what the real meaning

of reality explained as interpretive theories.

5.2.3 Financial Authority and Corporate

Strategy

Structural theories say that variations between corporate structures

and accounting systems are ascribed to differences between political

and managerial values and not just the dictates of economic efficiency.

Thus, the possibility that corporate controls are social creations subject

to choices in acknowledged. Although accountants have noted

problems associated with new corporate structures such as

divisionalized organizations, their analysis has been almost exclusively

conducted from a technical and Classical Economic viewpoint. Little

interest by accountants has been shown in radical interpretations of

structural changes, which question whether the logic of efficiency was,

and is, paramount in influencing accounting and corporate

developments. CEO always talking about his capital share to the

company and his personnel wealth very proudly and as his power of

justice. CEO who belongs 65% share capital, chair the board of

directors and monitor and interfere the work of board of directors and

final decisions are taken only by the CEO. Therefore, the board of

directors is nominally take decisions and responsible for certain jobs.

CEO commented:

“Employees of the company know that I have enough wealth. Therefore, if the company runs on

bankrupts the employees are the people who affect most. I purposely have let workers to know

about this. I am taking final decisions in all the areas of business activities, because I have 65%

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share capital of the company. If any failure occurs I am the person who face the largest risk.

Therefore, I can overwrite any decision taken by the Board of Directors.”

According to the above statement, the managerial value is developed

based on the financial capability of the CEO. But according to the

theory that variations between corporate structures and accounting

systems are ascribed to differences between political and managerial

values and not just the dictates of economic efficiency. Moreover CEO

says,

“I believe that investing money is better than saving them. The risk of investment cannot be

avoided. But through investment we may be able to provide people with jobs. If I can do the same

for my relations, friends and village mates, I would be able to context for the general election.

Politicians can earn money and expand their businesses. I do not want to have many businesses at

the beginning. Instead, I want this business to be very strong and steady with different products in

the same production line. Thus, I would be able to compensate one’s loss from another product.”

On the other hand CEO develops the corporate structure based on four

SBUs, but which are not functioning as SBUs in reality. And also

accounting systems design according to the perception of CEO on the

basis of situational factors. He commented:

“Corporate structures and accounting systems are developed according to the organization culture.

To escape from tax liability, I design the SBUs. Actually all the SBUs are under the same roof.

Same batch of workers are doing all the activities related to the SBUs. Corporate controls are in my

hand. I the man who solve problems associated with new corporate structure.”

5.2.4 Making Subordinates Unimportant.

Contingency Theories seeks to provide a reconciliation and synthesis of

the conclusions emerging from a verity of organizational studies. The

work of industrial psychologists and the human relations school is

combined with open systems theory and that which empirically

measures structural characteristics of organizations. Its principal

thesis is that different organizations principles are appropriate under

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different environmental circumstances, and within different parts of the

organization. Effective operation of enterprises is seen as dependent

upon there being a suitable match between its internal organization

(including structures, styles of leadership and decision making), and

the nature of the demands placed upon it by its tasks, size,

environment, and members wants. CEO says,

“No one in the organization is competent in performing any task properly. He has developed such an

image. CEO comments negatively on what ever work they perform.”

CEO’s idea is to say that subordinates are not important since they are

not in a position to perform a proper work. When I was collecting

information, one of the workers brought to CEO some noodle product

for his verification. The CEO then fired the worker in front of the

researcher too and advised him to destroy the product. Later on CEO

accompanied me to the production section and advice the worker to

change the ingredients combination and tested and approved the

production. He asked me to test the product too. I tested it and

comments saying “very good”. In fact I was not aware whether it was

good or bad. The CEO does not respect their qualifications but they

should prove it practically. Another occasion, a designer came to CEO

to get his verifications and comments for the packet he designed. He

was not satisfied with the designed because it was big for the amount

of noodles to be packaged. Hence, he pointed out the extra cost

incurred in this regard and instructed to reduce the size in to a

manageable size. Then it would save material cost, printing cost,

storage cost and defective cost that would incur as a result of loose

packet.

Under the contingency theory also emphasizes that different

organizations principles are appropriate under different environmental

circumstances, and within different parts of the organization. But, CEO

thinks that subordinates are not important since they are not in a

135

position to perform a proper work. Only CEO the man who is capable to

do anything perfect. This is actually a disagreeable rapport between

the theory and the practice.

5.3 Frequent Information Flows and Centralized

Decisions

According to the conventional literature, accounting provides

management with financial information for decision-making and

control. Budgetary control is depicted as crucial to delegated

management within central control. Budgets are seen as a rational and

iterative process of forward planning, coordination and targeting,

evaluating and rewarding performance. Such accounting was hardly

found in this case study.

According to the studies under Interpretive Theories noted that

accounting language become a medium for calmer and more informed

political debate, facilitating the exchange of views and the design of

further investigative action.

As accountants become more aware of the circumstances and

perspectives of other areas of business, and as non-accounting

managers become more familiar with financial terms, it may be that

accounting will increasingly provide a medium and forum for debate.

Indeed, in two of the organizations investigated by Powell, accountants

had become responsible for all negotiations with trades union

representatives.

5.3.1 Internal Financial Reporting

136

Pluralist notions applied to accounting are not limited to bargaining

between managerial interests, but can and have been extended to

industrial relations and financial reporting. Psychological Theories is

subsumed under the title of Human intervention processing approaches

to accounting. The essential thrust of the work is to determine what

factors affect the quality of individual decision making. Libby and Lewis

classify the major variables into three sets - inputs, process, and

outputs. Input variables measure the properties of the information.

Process variables seek to measure aspects of the decision-maker.

Output variables include the speed, quality and reliability of

Judgments, and Perceptions of their quality and of the information

given. MPFL retained the external reporting system but its internal

financial reporting systems changed enormously. One newly appointed

accountant reported:

“ We have to send a daily report regarding cash and other transactions to the CEO and the MD of

the company. The Managing Director (MD) receives these daily reports for their clear

understanding about the financial condition of the company. New computerized systems speeded up

the supply of internal information to directors. However, no external reports have been published.

Auditors are our friends. Audited financial statements are presented only to the Inland Revenue

Department only for the tax purpose.”

Accounting information tended to be the preserve of the three

directors. One accountant remarked:

“We record the bills or memo's which are signed by MD or CEO. All departmental expenditures and

income have to be signed by these two directors. Sometimes, without the signature of CEO those

bills cannot be recorded. Otherwise we refer the bills back.”

According to Swanson, information systems should be recognised as

having a, "significant capacity for the encouragement of organizational

delusion" - although there may be an "inner-directed" rationale, the aim

could be to make a show of "good information" to higher management.

Chambers discussed accounting and quasi-myths. I he suggested that it

was often simpler to invent fictions than to establish a connection

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between the input of certain information to a person and the output in

the form of a decision or action. Finally, Earl and Hopwood, building on

the decision theories of Weick, claim that in very uncertain situations

management information systems are used to retrospectively

rationalise decisions and actions already taken. The Directors became

the repository of all financial information, which was processed

according to their instructions. MD (acting) Finance remarked:

“We have two systems for accounting information. Two sets of accounts are prepared. One is

prepared personally by the MD (He is a Chartered Accountant) and it is informal which is a

restricted area only usable with the permission of CEO. The other system is external reporting,

which is for other shareholders, the bank, the Tax Authority.”

Interpretive work stresses the constant uncertainty confronting

individuals seeking to make sense of the world they inhibit. Through

language, they negotiate an understanding shared by others. Thus it

may be, that accounting may be regarded as a "common language” for

the discussion and resolution of contentious issues. Again, MD

admitted:

“We are private limited company. All the directors are friends and CEO is the active director of the

company. Power is cantered on CEO. We have to maintain many informal systems as CEO wish.

And in addition, you know, business is competitive. You can't maintain all of them in a

straightforward way.”

One employee commented:

“Some informal transactions are kept in the IOU fund account for irregular payments to bribery of

government and tax officials. These transactions were usually shown under other headings in the

annual reports. However accounting record are prepared by different parties for different periods.”

One senior accountant commented:

“I don't know what the real transactions were in the IOU fund. It was alleged by some individual

that sometimes the heads of transactions were changed to evade tax such as increasing the amount

of tax exempted items.”

138

Accounting reports for publication are prepared in this company as a

ceremonial practice. But internal daily reports are prepared based on

actual figures with the instruction of CEO. Internal accounting

statements with financial information is used to decision-making

purpose. Rather than using accounting information as a cornerstone of

rational delegated management there were perceptions within the

company that the owner-managers used the systems to enable them to

show flawless reports to other external users interested to the

organization.

5.3.2 Mindful Budgets in the “No Budget”

Practice

In pluralism, by facilitating processes such as budgets by designing

accounting systems that permit the creation of several perspectives,

and which encourage learning through dialogue and dialectics may be

preferable to refining systems that, as is often the case, purport to give

a single version of the truth.

As CEO states:

“I don’t care about accounting records and principles. I know everything about this company

personally. I just prepare accounting report for tax purposes. But I intended to introduce a kind of

costing system. Then I would be able to compute the margin of each product.”16

Argyris noted how managers used budgets as "needlers’ over

subordinates. Accountants were criticised for hierarchical punitive

reporting and achieving success through the failure of others. The

ensuing tension and hostility between Staff and line managers was held

to be counter-productive to the fulfilment of organisational goals.

Ridgeway and Dearden both chronicled how using accounting criteria

as performance measures could reduce organisational effectiveness.

16 In May 3rd 2001,Researcher personally interviewed CEO of the company at the Factory Premises. When CEO supervising the Factory, he express these ideas.

139

Dalton, Rosen and Schneck, Lowe and Shaw, and Schiff and Lewin all

demonstrated how managerial bias and slack could enter budgets. Dew

and Gee found that many managers either did not use accounting

information received, or used it incorrectly. More recently Ashton

noted how dysfunctional consequences of accounting systems are

perpetuated and amplified by their feedback mechanisms.

According to the pluralistic studies, then budgetary control may

principally be a means of instituting and promoting bargaining

whereby participants can stake out claims, discover alternative claims

and meanings to organisational events, enrich their understanding of

the organisation, and secure a degree of consensus.

However, accounting in MFPL now changing eventually, though not necessarily according

to the expectations of policy makers or development economists. Much of conventional

management accounting is based on functional approach, is inextricably linked with

scientific Management. Indeed Fayol specifically instances budgets as planning and

control tools. Neo-classical economics provides a basis for marginal costing and financial

management and reinforces notions of control based on assumptions of economic man, and

organizations with unitary goals headed by a single decision-maker. Despite the criticisms

of conventional management accounting and its theoretical props, by behavioura1

scientists in particular, such approaches persist. Horngren defines his general approach to

management accounting as designing formal controls "to provide goal congruence and

incentive through the use of technical tools. Very recently i.e. from end of year

2001, the new management accountant is appointed and he was

delegated to authority to establish the budgetary control system. Cost

information was collected through accounting systems and the CEO’s

personal contacts but the research revealed no professional cost

accountant or associated systems dedicated to providing cost

information to managers outside of the family. Managers had little idea

whether the organization was running profitably. Budgets in the

normal sense of routinised regular downward financial reporting

disappeared.

140

However, physical budgets and quotas were passed down to production

managers who transmitted their messages (and pressures) to first line

managers (foremen and supervisors). As will be described later, this

gave rise to a series of informal practices by junior managers with the

shop floor to achieve budget, often with the tacit approval of

production managers.

Now the management emphasized market trends in making budgets

rather than a production orientation as previously. Budgets and all

other conventional controlling devices are not prepared but those will

be registered only in the CEO’s mind. Production and sales budgets are

nominally prepared but a “mindful budget” is implemented. Therefore,

the MFPL’s practice further endorses the researchers previous findings

in this regard. As one marketing official commented:

“Accounting information comes through late although it is correct. But we prepare our sales budget

on the basis of sales force indicators and market trends, which is very dynamic.”

A new marketing function was established to gather sales forecasts

emanating from the field. These formed the basis of the production

budget. The budget committee consisted of four members: CEO, MD,

Production Manager and Marketing manager. The annual budget

expressed in physical terms was reviewed occasionally after the

personal observations of CEO. CEO often following telephone

conversations with production and marketing managers reshuffled the

physical budget continually. He would then informally arrange a

meeting with marketing officials and production managers to fix

revised targets or change product lines. The production managers

rarely influenced these decisions: they were only there to execute

CEO's commands.

As a production manager remarked:

141

“Initially we made a production plan on the basis of yearly and monthly budgets as fixed at the

beginning of the year and at the beginning of the month. Now we revise targets as new information

comes through. In this case CEO plays the vital role.”

Cost reduction the main language of managers who in turn relayed this

message to the shop floor. Redundancy programmes were the main

source of cost reductions aided by cuts to benefits and allowances. Top

management used physical budget figures to evaluate the performance

of production managers. Production managers had to report any

deviations from budget to CEO who usually wanted to see a reasonable

cause for deviations. Although the feedback systems were improved in

terms of accuracy and speed they were essentially ad hoc with

arbitrary imposed targets upon managers. The budgetary controls

disciplined production managers not because of any accepted logic and

reasonableness of accounting numbers or their reinforcement by

lucrative reward systems but because of power relations within the

enterprise. Top management specially the CEO, who were also the

owners, were the final authority on recruitment, punishments,

promotions, dismissals and all other company matters including budget

targets and performance appraisal. Production managers realized their

targets by controlling supervisors who in turn had to wrest with the

problem of securing worker effort. Reporting systems for supervisors

and foremen were introduced recently. Each day they submitted their

logbook to the production manager, which contained shift information

such as volume of production, working hours of machines, causes of

stoppages, the number of casual workers worked, and wastage.

However, the volume of production was what mattered. As a supervisor

commented:

“Certainly managers are interested in the volume of production. As long as the volume of

production is right they have nothing to say.”

The CEO was proud of how his system of logbooks had increased the

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visibility of operations. He commented:

“I personally developed this reporting system. By the virtue of this system, I can understand what

went on during the shift. There is no scope for supervisors and foremen to conceal the fact. And the

quality of products also can be maintained with specific targets.”

He under-rated the powers of human agency and ingenuity. Foremen

and workers tried hard to not report some incidents. For instance, one

day a foreman became very angry with a casual worker and threatened

to fire him for insubordination. Nevertheless, he did not report this at

the end of the shift to DCC: there was an informal understanding

between worker sand their immediate bosses to work things out within

the shop floor. Open systems provide a means of viewing and

describing "the ga1ne of budgetary control' described it in input

(External and Internal) - output terms. An attraction of open system is

its ability to relate different resolution levels of analysis and various

disciplines. Thus Ansari used it because of its ability to combine and

reconcile structural and social psychological work on budgets. Later,

his analysis was extended to the design of budget reporting systems to

facilitate managerial recognition environmental influences and inter

departmental dependencies.

As production manager revealed:

“Presently we don't have to face any serious problems from the part of workers. The deviations of

production budgets are mainly due to raw material shortage or machinery breakdown.”

However, accounting controls came to play a vital role in a despotic

and ad hoc form of family-based controls over managers and thence

supervisors and workers though the budgets were. The accounting

department and the information it supplied became an untouchable

area for all managers outside the family of owners. Nevertheless,

despite accounting numbers being rarely revealed, they were used to

justify changes as they passed downward.

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5.3.3 Accounting As a Ceremonial practice and

Representational Craft

Boland argued that accounting is a ceremony or ritual played out to

reinforce the myth that large organizations are subject to external

checks upon their societal effectiveness. Such behaviour is seen as a

consequence of the accounting profession trying to reconcile

conflicting ideological pressures placed upon it. However the myths

spawned and the associated technologies have produced a bias against

reform. The work is interesting in underlining the social creation of

accounting, and how meanings attached to it help maintain the status

quo, but questions about which ideological pressures are most

significant, and whose purposes are served by such myth creation and

stabilization are left unexplored.

CEO commented:

“I do not think about presenting past transactions and events. But for the purpose of providing

requested information to parties such as Banks, Banks, Inland Revenue Department, and Other

Government Agencies, financial statements are prepared. Actually according to my idea, there is no

value of providing these statements to outsiders, because we don’t have benefit from it.”

This organization prepares financial statements as a ceremonial

practice. In addition, the auditors are also their friends. Therefore we

cant expect true and fair view from those financial statements.

5.4 Harmonization of the Work Force

Classical Management theories suppose that the behaviour of the

employee is taken to be passive and determinable by managerial

manipulation of situational variables. Taylorism advocates managerial

manipulation of the workforce through economic variables; the social

psychologists emphasize job design and leadership style. Social

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psychologists recognize that human desires may conflict with those of

the organisation or other parties to it, in its advocacy of participative

methods it tends to assume that these are reconcilable. Interpretive

theory suggested that understanding of the conduct of others is

obtained through a process of interpretation, or "typification", rather

than by direct observation - such "typifications" being continuously

learnt, modified or re-affirmed throughout people's lives.

5.4.1 Getting Blue Collars in the Foreground

Management theories suppose that the behaviour of the employee is

taken to be passive and determinable by managerial manipulation of

situational variables. Whereas CEO identified everyone including CEO,

within organization perform blue-collar jobs, because they are working

hard in the organisation. CEO’s view is that,

“White collars as a mischief. It is to protect their incapability or rationalize their laciness to do

hand work. They always think that the manager’s world as world of words. Theoretically white

collar managers like to work with telephones, documents and decision-making committees.

Everyone in the organization should carry out whatever the work without any discrimination. Any

layers within jobs hinder the morale and efficiency of worker. I believe the work of a person should

be able to measure quantitatively to do so. They should involve in production work. Managers are

important. Helpers are also equally important. If needed a manager should perform the helper’s

work too. Because, they earn higher than helpers. I myself do this kind of work. It is common to

all.”

CEO vies that in his company there is no white-collar jobs.

“I think ‘white collar job’ people cannot or do not like to work hard. Because their attire get dirt.

Therefore, I don’t want to recruit any white-collar workers to the company and I treat all the higher

rankers also as hard workers and not as white collars. Hence, positions is/are kept vacant in the

company’s organization chart can be treated as white collar jobs.”

He commented again:

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“I work in a Government organization too. I do a white collar job their as defined in the theory. Also

I know that I myself and others are not doing a fair job for the salary are receive. I do not allow my

company workers to be like that. Not much clerical work is needed. These formalities are

maintained just to satisfy the requirement of the rules and regulations. Otherwise we need only

people to work means “work” it does not imply spend time keeping records.”

According to the statements of CEO, it is very difficult to determine

the behaviour of employees and position of the employee is not an

important factor to work hard. He accepts those who are work hard as

white collars. So call theories are not influenced to this employees

category.

5.4.2 Employees are Treated as Work Hoarse

Social psychologists recognize that employee desires may conflict with

those of the organisation or other parties to it; in its advocacy of

participative methods it tends to assume that these are reconcilable.

Interpretive theory suggested that understanding of the conduct of

others is obtained through a process of interpretation, or "typification",

rather than by direct observation - such "typifications" being

continuously learnt, modified or re-affirmed throughout people's lives.

CEO is very strict in labour management. No worker can idle his/ her

time. Every minites they have to work. CEO’s view in this regard “ we

can’t pondle workers. If they are not well they should see their doctor.

When they are here they should work. I have given them enough

freedom. But it does not mean that they can spend their time

unproductive. I don’t like the people who try to cheat me. If I found

some one guilty immediately I send (sack) them home. I want this

organization to generate very big profits.

As CEO commented:

“We have not left any room for trade union activities or do not allow them to time to talk about

gossips or unwanted things while working. Yet they can discuss anything related to the production

or any other directly with me. Even though I’m full time employed in another organization, I spend

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more hours here. Generally I stay in the factory even late nights. Usually I go home after 12.00

midnights. My employees also follow me.”

One of the workers says,

“ I worked in a similar manufacturing organization before, I joined here at the request of the CEO.

He gave me 15% higher salary than previous company and a car. My job was to plan the production.

But here I have to plan and implement the same and show results finally. I have no any prescribed

working hours. Sometimes I work entire 24 hours till job is finished. CEO also works that way.

Therefore, I like to work like that. Normally CEO work here till midnight or may be 2.00 a.m. in the

following day morning and spend at least about 18 hours more here. He never spends his time

idling. He works throughout the period that stays here. Therefore, we also follow him. In fact, my

workload with compared to previous place, is about 4 times higher. But I am getting experience and

exposure.”

In fact, the responsibilities and the duties of the work force was not

limited to the given task or the job itself, but carried out whatever the

work to be done in order to run the business smoothly. One person is

responsible for many jobs that are done in the organization. CEO says

he can get the maximum output by doing so, and help minimize the

cost of operations. In addition, when there are vacancies in the higher

level of the organization, CEO says, people are motivated to such

vacancies. As an example, the person recruited as Accounts Executive

works in the Costing department as well as financial department.

Simultaneously he performs the task of Assistant Financial Accountant

and the Assistant Management Accountant. Further he commented;

“ I do not worry about even if senior Board of directors leave the company. I can do all these things.

These so-called managers and Board of directors are there only nominally. One of the founding

directors, who had experience in instant string hopper flower, vinegar production etc. He was a

owner of a big company. He wanted to resign. I released him. He runs his business today but he can

not be a real competitor for our company because they don’t have the dedication and commitment

that I have. Now we are the leading player of such items too. Any worker, irrespective of the level,

can resign at any time. Also we do not hesitate to kick them out at any time if we need to do so.”

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5.5 Pragmatism over Techniques

According to the Chandler design of accounting control systems is

central to the Strategy and structure of industrial enterprises and

Williamson’s theory of Markets and hierarchies has been unlisted to

develop this approach further. Theory discusses that the strategy

(Goals, Objectives, Opportunities, Treats, Strength, Weaknesses etc.)

and the structure established in the organization is important to the

organizational management control.

5.5.1 Creating Dummies in the Organization

Structure

Structural Theories have paid much attention to how structures of

organizations might affect the processes under scrutinity. Whilst the

pioneering study of Argyria concentrated on social psychological

variables it noted the significance of organizational ones such as the

reporting relationship of accountants. Simon focused on organizational

issues such as the roles of accountants and their relationship to

structure, training and socialization. An organization structure

developed by the CEO is in effect in the MFPL. According to the

organization structure, as usual, there are numbers of positions within

organization for different kind of “defined” jobs and responsibilities.

But, CEO believes that any worker within organization should not limit

their work or responsibility to such defined task, hence every one has

to take the responsibility and attend to any kind of job at any time, if it

is to be done. Therefore, according to CEO’s view,

“ This organization structure is a nominal chart. It is there to show an outsiders, but I don’t want to

implement it.” The letter of appointment, therefore, also “formally” illustrate the job and the

responsibility of a person recruited but he/she never be limited to such job responsibilities but for

any kind of work at any day of the work at any time. This is more important to the organization to

be a success. Many positions within the organization structure is kept vacant, the available people

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carry out the jobs and responsibilities once I assign some one to carry out the work that is enough.

We do not stick into organizational chart or any other traditional management principles.”

Structural Theories emphasizes organizational structure consisting

with, social psychological variables, which are effecting to the

structure, the reporting relationship of accountants, training and

socialization. But the structure developed in this company is not

showing any relationship or the actual overall structure of the

organization. This is nominal chart with dummies and prepared only to

representational requirement.

5.5.2 Dysfunctional Goals Vs. Unitary Goals

Much of conventiona1 theories treat organizations as stable empirical

phenomena that have, or should have, unitary goals, normally profit

maximization. Bureaucratic dysfunctions acknowledge that

organizations themselves do not have goals but are composed of

individuals and groups striving towards different ends, “local” goals are

often in conflict and dysfunctional in the formally stated organizational

goals. According to the Accounting Dysfunctions of Social Systems

Theory, the managerial definition of the enterprise was preserved.

Recognition of the divergence of goals within organisations, their

significance to change, and how accounting might recognize and assist

this process was de-emphasized. But CEO Commented:

“As a production oriented business organization we are facing to the very risky, unstable and

complex environment. Specially, the political environment is highly influenced to each of

organizations very badly. Therefore, with my experience, I know wary well that the unitary goals

are not adequate to run the business. That is why; I am searching for different types of income

sources. I have negative thinks about the future. Anything can happen any time. Because I decided

not to resign from my permanent job and not to stop my car sale on the other hand.”

Conventiona1 theories explain that organizations have unitary goals.

Bureaucratic dysfunctions explain that groups motivated towards

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“local” goals rather than moving towards formally stated organizational

goals. But in this company, there are no formally stated goals, no

groups are motivated towards to different ends or different goals and

the CEO has authority to set or change goals related to the company

activities. Fox have advocated pluralism as a more realistic approach to

organizational control. Here organisations are taken to be comprised of

sectional groups with divergent and often mutually in consistent goals.

Common purpose exists only insofar as groups are interdependent.

Control is achieved by maintaining a network of rules and regulations

that permit bargaining between the groups. The aim being to contain

rather than eliminate conflict by negotiating courses of action which

permit each group maximum freedom consistent with the binding

constraints laid down by other groups. CEO states that,

“Formal or informal groups within the organization are extremely prohibited. Trade union activities

are also prohibited. Even though there is a hierarchical structure and the procedures, the decision

making power in hands of me. I appointed SBU groups nominally only to show some structural

changes to outsiders and acquire some advantages from tax calculations. Those groups are actually

engaging with group activities.”

Pluralism explains organizations are taken to be comprised of

interdependent sectional groups with different and often mutually in

consistent goals. But in this company groups, freedom to group

behaviour and group decision-making is really prohibited. CEO is

taking all troubles on his shoulders.

5.5.3 Eye on Environment

Conventional theory says, human nature is taken to be calculative and

instrumentally rational, but essentially passive. The only significant

changes envisaged are within a managerial conception of society,

whereby organizational changes are instituted by key decision-makers

at the apex of the organization, and are restricted to adaptation to

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market threats and opportunities and represent movements towards

economic optimality.

LCL was catering its product only to the vegetarian-customers, and the

advertisement campaign focused only the same target. This

advertisement has telecast or broadcasted only on Poya Days. This day

has been decided according to the Buddhists discourse that they should

refrain from eating any meat or should refrain from killing any living

being. The product of LCL Company said to be flavored with artificial

ingredients.

Natural flavor orientation plays a vital role since early 1990s in Sri

Lankan context. As such MFPL has decided to introduce their products

with natural flavors. It is said to be that if the TVP products were not

packeted properly it would be ruined/destroyed by (gulla) Veevee, a

king of food worm. The double laminated packet introduced by the

MFPL was a sustainable solution for this problem and it was useful for

preserving the quality of the food as well. CEO’s view is that

“The high protein content of TVP would provide customers with not only the required nutritional

value for customers but also cholesterol free nature of product protects them from other cholesterol-

related diseases. This much of high protein can not acquire from other foods for this type of low

price.”

Again CEO states that.

“Though the majority of Sri Lankans are Buddhists. I have understood that they are not real

Buddhists. They are Buddhists because their birth certificates say their religion is Buddhism. Major

supplier and competitor of Soya at very beginning have thought that our customers are real

Buddhists and accordingly they planed their promotional campaigns. They openly prefer to pretend

they are non carnivorous. But secretly they prefer to eat meat. Therefore, our promotional activities

geared to address this issue. We produce vegetarian products with natural flavor of chicken, beef,

pork, prawns etc. etc. Many of these Buddhists prefer to buy packeted such stuffs rather than

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waiting at a beef stall to fresh beef or meat. Many people want to pretend they are Buddhists who

does not eat meat. Indeed in consumption they behave other way round.” 17

Further, CEO commented:

“ We advertise our product contains equal weight of nutritional value of meat, fish or other stuffs.

People believe it and our sales increases. Sri Lanken consumers are preferred to be westernised.

Therefore, we can easily mislead them if we are tactful enough. We package our products in

Colourful Bright Packets. We use at least five or six bright colours. Other look of the product is very

important to our customers. We use double laminated packet to prevent our product from “Gulla”

impact/effect. We realized that through our market experience, we ones check single laminated

competitor products 90% of them were affected with “Gulla” infection. Therefore, we use double

laminated package to prevent this infections because it is really a relied measure. Now people know

our competitor’s products are inferior in quality with compared to ours.”

The company had identified that their noodle was not a fast mooing

item in the market. Hence a advertisement companies launched

through TV sponsoring a TV Telecast program. The participants for this

program is chosen among those who send the prescribed coupon

inched in the noodle packet. After introducing this method the

company has realized the noodle has became very fast mooing item in

the market.

CEO says

“The consumers has to he treated with the “dogs principle” (not as God). In his words a dog will

wag its tail and be friendly with you if you offer the dog with a bone. The customers, therefore,

should be given with some kind of “bone” then s/he would be attracted. He termed this as a

“Strategic window”.

According to all above, it is understood that the CEO follows a system

of this nature in order to ensure the company’s survival and he act as

key single decision maker at the apex of the organization, and are

restricted to adaptation to market threats and opportunities and

represent movements towards economic optimality, which explains

very clearly in the conventional theories.

17 CEO’s idea and experience about Buddhists and vegetarians

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5.5.4 Foreseen Social Responsibilities

Contingency theory, found that the managerial decision-making styles

depend on the "personality" of an organization. In addition some

authors discussed organizational values and motivation, management

aspiration for profit growth were included as an important independent

variables, and supposed that different modes of organization decision-

making predominated under various forms of uncertainty and that

different kinds of management information systems were therefore

required. There is a minimal concern towards the social responsibility

in MFPL.

CEO’s view is that:

“Personality of our organization is to earn profits anyhow. If the company wants to maximize profit,

through organizational growth, such responsibilities hinder the way to achieve such goals. If the

business is to survive consideration on social responsibility is a shield. Those concepts are good for

the westerners, who live in USA or other developed countries. We live in Sri Lanka. We should

think about Sri Lanken context. Who cares about social issues when operating a business in Sri

Lanka? For example, we informed our customers through our media campaign/ advertisement that

our product does not produce using Technology of genetically modification before objections raised

about Technology of genetically modification. Now people believe that we are the only company

who produce Soya without Technology of genetically modification. In fact, we import Soya from

India. Generally Technology of genetically modification is used in producing Soya. We are not

going to tell the truth to the customer. In other words businesses is really a racket. I believe that

consuming a small percentage of Technology of genetically modification processed product does

not make any adverse effect. Anyway, that has not scientifically proved yet.”

According to the psychological theories, people are viewed as

imperfect information processors; the processing is assumed to be

systematic and capable of revelation by scientific study. Decision-

making is depicted deterministically as an interaction between

objective characteristics of the information set and innate

characteristics of the subjects. Ontologically the world is taken to be

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prior to individual cognition, the problem is their imperfection in

perceiving it. Thus, according to Libby the options for improving

accounting decisions lie in either changing the way information is

presented or educating the decision-maker in better methods of

processing information, or replacing him or her with a model. Further

he states,

“Our label information may mislead the consumers, but consumers are not aware of this. And also

these ingredients do not make any dangerous adverse impact on their lives. Therefore, it is nothing

to worry. How about the air pollution which cause as a result of automobiles and what extent it

affect our lives? We are not much worried about it. Then why should I worry about a slight adverse

impact creates as my business to society?”

Commenting Again;

“ We attempt to look at ourselves in a mirror and critique the overall objective. We carefully

evaluate the competition, the threats and contingencies we might have to meet, market shifts we

might anticipate, and attempt to evaluate what we must make happen in order to achieve success of

the objectives. For example, we informed our customers through our media campaign/

advertisement that our product does not produce using Technology of genetically modification

before objections raised about Technology of genetically modification. Now people believe that we

are the only company who produce Soya without. In fact, we import Soya from India. Generally

Technology of genetically modification is used in producing Soya. We are not going to tell the truth

to the customer. In other words businesses is really a racket. I believe that consuming a small

percentage of Technology of genetically modification-processed product does not make any adverse

effect. Anyway, that has not scientifically proved yet. However, we were able to capitalize on this

rumour and treat too.”

Again CEO commented:

“Our Soya nugget is comparatively smaller than our competitors. We have done it purposely. Many

consumers are quantity conscious. Therefore, it is better to give them smaller 20 pieces than 10 big

pieces of same weight. That attracts consumers. We have experienced it. Our consumers prefer it.

According to their response they like to buy our Soya product because it has many nuggets. In fact,

our packet also contain the same weight our competitors. We intended to introduce herbal related

products to the market as well. We want our customer to convince that we are social friendly

organization who cares about customers’ health. That image will help us to market out Soya

product. Thus, people will believe/trust us. We can promote our products easily. We are not worried

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about the minority groups of consumers at all. Our products are for the people who are with us.

From this segment we can maximize our profit.”

CEO of the company further commented:

“Many consumers, are in Sri Lanka do not have refrigerators, specially who are residing in remote

areas. We tried to introduce our “jelly”. But these remote area/rural area consumers are not aware

about the same and they are not affordable. Since there earning capacity is very low. (Many rural

communities is under poverty level) We realized it and immediately stopped “Jelly” production.

Under this type of situations we don’t worry about small percentage of consumers.”

Further, CEO commented their secret in business success as follows:

“We react immediately and very effectively to our competitors. Initially we bought much market

release of LCL products and re marketed them with our trademark. LCL thought that their products

are fast moving. Therefore, they increased production and supplied to the market with huge bulks

assuming that consumers demand is very high for LCL products. We stopped buying their products

from the market and released our own production to the market at the same time. Then what

happened are our product moved fast and the heap of LCL products remained unsold in the market.

We continued our normal targets and meanwhile LCL’s product was outdated and got “Gulla”

infections. Many consumers perceived that LCL’s products are lower in quality. That is how we

improve the market image regarding the quality.”

At present LCL Company has been sold to MBL. But we offered the

Biggest bid for the tender. They did not sell it to us since we were the

biggest competitors. Now we are planning to produce substitutes for

MBL’s products also. In future we will buy the MBL. We can create an

environment to do so. We have recruited some of the best of MBL’s to

our company at present too.

Decision making process of the company is comply with Contingency

theory because its styles depend on the "personality" of an

organization. According to the values and motivation of the

organization the Profit Maximization Objective is considering rather

than going for Social Responsibility. As Psychological Theories

explains, people are viewed as imperfect information processors. It is

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true in this study, because the company people cheating customers

giving imperfect information about genetically modified foods.

5.5.5 Pricing by Going Prices

Clawson suggests that the elaborate bookkeeping and control

procedures recommended at the turn of the century were “not needed

to determine prices for competition with other capitalists, but rather

for the purpose of class struggles”. CEO commented:

“The company prices its products based on going prices in the market. On going price/s are

observed and the products are priced on that basis when setting prices of goods of MFPL. Therefore,

MFPL does not concern about any cost factors, profit factors or other pricing objectives for this

regard. CEO’s prime concern is to recover whatever the amount / cost that could be claimed. This is

due to the fact that he always tries to minimize the potential loss. CEO’s practice of going price as a

tool to penetrate market and expand product/ market through such a policy. At the same time to

avoid new entrants to the market.”

According to the statements of CEO it is clear that, prices of their

goods is determined based on competition, and not for the purpose of

class struggle.

5.5.6 Ad – hoc Arrangements in Daily

Operations

Radical theorists view society as being composed of contradictory

elements and pervaded by systems of power that lead to inequalities

and alienation in all aspects of life, they are concerned with developing

an understanding of the social and economic world that also forms a

critique of the status quo. A theme central to all radical theories is that

the nature and organizing principle of a society, as a whole is both

reflected in and shaped by every aspect of that society. One Employer

commented:

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“ Sometimes CEO wants me to do some other duties beyond my area. But he request very politely to

do so. I am not hesitated to do whatever he asks. One day he wants me to do a spy job. He had a

suspicion on one of the delivery vans. He wanted me to follow and spy what they do. His suspicion

is correct. On the way the two subordinates who was on delivery work, handed over some

parcels/goods to a neighboring house. I was able to catch them as CEO suspected. Immediately they

were sacked. He summoned a meeting at all workers with board of directors and divulge what

happened and handed over the letters of terminating of work publicity.”

The former focuses on the fundamental conflicts that are both a

product of, and reflected in, industrial structures and economic

relationships, e.g. surplus value, class relationships, structures of

control, whilst the latter emphasizes individual consciousness,

alienation through reification, and the way this is dominated by

ideological influence, not least through language. The difference

between the two approaches is akin to that between the functional and

interpretive approaches. In other words radical structuralism treats the

social world as being composed of external objects and relationships

independent of any particular person, while radical humanism

emphasizes individual perceptions and interpretations.

CEO of the company intervene whatever the work he found important

and leads people to attend accordingly. He interacts employees to

follow up distribution staff irrespective of their job /profile and monitor

distribution work, and report malpractices. In addition, accounts

executive has been instructed to attend to develop a cost accounting

system. It proves that whether there is no position to do some activity,

the CEO can create the position in a jiffy to achieve organizational

targets. A roster system where workers are assigned to different tasks

and moving them from and among different production activities was

very common at the MFPL. Return items are used as reproduction of

the item but no records are maintained. Everyone has to attend to

urgent work that arises, irrespective of his or her level or responsibility

in the organization. No specific schedule to start work and finish them.

All workers should attend to the work at any time and work until the

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job is done. Production process stops at any moment if the product is

not selling fast enough or not moving rapidly. Market research will not

be carried out in this regard. That will be totally up to CEO’s decision.

CEO believes that just by allowing hired managers to get the things

done will not be effective and efficient in a really competitive setting.

Therefore, he won’t allow his board of directors to depend on

subordinate managers and he himself does not depend on any other

within the organization. He and other board of directors are the

shareowners of the entire business entity in which he bears the biggest

percentage (65%) of the share. Therefore, he says;

“Just allowing hired people to handle business is risky hence he himself wants to monitor the entire

work within organization. He wants his board of directors follow him and he does not want to

adhere into any rules and regulations to take actions if it really valid.”

He personally interferes into the works of others and override their

decisions at any time and he commented again:

“I look at this organization as my own. Therefore, I cannot leave the organization to be inefficient

and make unnecessary loss. Instead interfere the work of others and monitor in order to minimize

mismanagement.”

All radical theories are that the nature and organizing principle of a

society, as a whole is both reflected in and shaped by every aspect of

that society and forms a critique of a status – quo. Fundamental

conflicts are the creations of ideological influences. But this company

follows an ad hoc arrangement in their daily activities rather than

considering for theories explained early.

5.7 Summary

This chapter aimed at analysing the data collected from MFPL. The

qualitative ethnographic rich accounts demonstrate that “One Man

Show” has become a reality in managing many facets of organizational

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and social life in this firm. The explicitly in this regard is that CEO is

the main actor in every control arrangement. The social and

organizational eligibility for these arrangements has centred around

the CEO from an economic and financial power: CEO has 65% shares

and more than 50% of staff consisting with family members and family

friends of the CEO.

This study has addressed this issue with a view to understanding

management and accounting control practices within an uncertain

context stemmed from the influence of societal and individual culture.

It attempts to understand how culture shapes the values and meaning

frames of organizational participants and provides them with

interpretive schemes for processing experiences. In turn, the study

illustrates how such interpretive schema affect accounting and control

practices in organizations. This is achieved by focusing on four generic

issues: (1) How do organizations initiate accounting and control

systems? (2) How do such systems evolve over time? (3) What roles do

they play in an organizational crisis? And (4) How does organizational

action become disconnected from such systems?

In asking these questions, I intended to make sense of my field

experience. To do so, I have been inclined to be critical of functional

theories of management accounting such contingency theory or

systemic theories (See Hopper and Powell, 1985) and tended to take

more sociologically informed theories such as interpretive and radical

theories. In particular, I was impressed by radical theories where

culture plays a dominant role (See, Wickramasinghe and Hopper,

2000). In line with these theoretical thoughts, the empirics have

been built certain patterns (Strauss, and Glaser, 1967): (1) CEO Driven

Management Control System (2) Frequent Information Flows and

Centralized Decisions (3) Harmonization of the work force (4)

Pragmatism over Techniques, I discovered that social and

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organizational context also has interesting implications for

understanding the limitations of traditional theories of control. This

chapter has given rise to elaborate substantial evidence for

enlightening these patterns towards a theoretical understanding: a

kind of culture of people in a specific organizational setting has been

predominant creating different organizational outcomes. The next

chapter deals with these in details towards culminating in a conclusion.

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CHAPTER SIX

General Summary and Conclusions

6.1 A General Summary

This study aimed at understanding a particular management control

practices in a specific context operating in an uncertain context. The

fundamental questions being posed were: (i) how do organizations

initiate accounting and control systems? (ii) how do such systems

evolve over time? (iii) what roles do they play in an organizational

crisis? and (iv) how do organizational actions become disconnected

from such systems? These questions are meant for ‘telling a story’

(Ramstad, 1986) about a kind of management control system in which

accounting controls play a major role. To pursue this exercise,

accounting has been viewed as social and institutional practice,

Hopwood, and Miller, 1996). This implicates that though accounting, at

its surface, is seen as a technical activity, it has to be processed in a

social and organizational context in which real accounting naturally

emerge with unexpected outcomes. These outcomes are quite different

from what is seen from a technical perspective (Hopper and Powell,

1985). The story that has been told in the name of a dissertation is for

justifying this reality about accounting and management control

practices.

161

According to the story I have told, it has been always clear that the

CEO manages the business observing closely the environmental

changes and influences to the business and keeps the full authority on

all the activities of the organization. This is natural: according to

interpretive approach, 'persons are distinguished from things in that

persons experience the world whereas things behave in the world’.

This replicates the validity of existence of subjective “nature of the

social world”. Organization chart, design by the CEO is keeping many

positions vacant to motivate people to go higher ranks. This is

somewhat unorthodox but it can be justifiable as CEO has 65% share

capital and it represents the Financial Authority of the CEO. Corporate

Plan is also prepared based on that strength and he is proud about his

personal financial strength. He spreads his power throughout the

company based on this. And he believe that the investments rather

than savings. SBU’s are established and managed considering

situational factors. CEO considers subordinates are unimportant as

they are not in a position to perform a proper work and he thinks that

he is the man who is capable to do anything perfect.

The second set of insights focuses on the Frequent Information Flows

and Centralized Decisions. This is done through Internal Financial

Reporting, Mindful Budgets in the “No Budget” Practice and

Accounting as a Ceremonial Practice and Representational Craft.

According to the conventional wisdom, accounting provides

management with financial information for decision-making and

control. Budgetary control is depicted as crucial to delegated

management within central control. Budgets are seen as a rational and

iterative process of forward planning, coordination and targeting,

evaluating and rewarding performance. Such accounting was hardly

found in this case study. Daily reports are regarding cash and other

transactions are prepared only for internal purposes and all the

documents signed by the MD or CEO. External reports are prepared

162

nominally only for tax purposes as a ceremonial practice. These reports

are consisted with incorrect figures. Interpretive work considers

accounting as a "common language”. However, this firm considers

accounting as a “secret language”. As CEO’s advices, there are some

illegal and informal transactions are also taken place. There are no

formal written budgets. All the budgets are Mindful.

My third piece of empirics focused on the ‘harmonization of the work

force’. One of the salient features in this regard is that ‘keeping blue

collars in the foreground and employees are treated as working hoarse.

According to the CEO, those who are working hardly is considered as

Blue Collar workers so he recruits only Blue Colors. He argues that the

kind of behavior of employees cannot be measured. Moreover, trade

union activities are prohibited at MFPL. Employees must work until

CEO asks them to stop working. No worker can idle his/her time. In

addition, the responsibilities and the duties of the work force was not

limited to the given task or the job itself, but carried out whatever the

work to be done in order to run the business smoothly.

My forth attempt focuses on pragmatism over techniques. This is seen

in terms of a number of scenarios: ‘creating dummies in the

organization structure, dysfunctional goals versus unitary goals, eye on

environment, foreseen social responsibilities, pricing by going prices

and ad-hoc arrangements in daily operations. However, the

organizational structure of MFPL designed as a nominal structure. The

flow in this structure cannot be seen in the practice. So, the

organization chart is merely nominal with dummies and prepared only

to representational requirement. Moreover, MFPL does not have

unitary goals as they are confronted with substantial uncertainties in

an unstable environment. So, profit maximization is seen as a

supplementary requirement in a series of goals.

163

6.2 Conclusions

The context in this regard has been defined as uncertain. Contingency-

like management theories (Woodward, 1958, Gordon and Miller, 1976,

Khandawalla, 1975) have viewed ‘contexts’ as a set of contingent

factors such as environment, technology, and culture. They have failed

to understand that these ‘factors’ are a part of the organization itself as

social and organizational arrangements are always coming together

through unlimited interactions as a complex web of socio-political and

cultural phenomena. Contingency theorists have mistakenly understood

these factors as separately quantifiable variables for measuring and

establishing statistical relationships. The present study has realized

that this is a game played with artificial data.

Keeping this ontological position in the mind, I went on to take a post-

positivistic epistemology for exploring the social and organizational

reality on management and accounting controls. Several implications

emerge from our experience with qualitative methods beyond those

discussed in the preceding chapters. To begin with for exploring the

emergent view that accounting is complicit in the social construction of

reality, one can find there are a number of interpretive approaches that

offer a strong potential for providing different insights into the

interrelationships among accounting, organizations and society. These

approaches help one pursue the phenomenon of interest, even though

some compel awareness that their application joins the researcher as

researcher and as subject party to the social construction and the

alteration of a social reality. I think that one should employ a number of

differing perspectives, possibly in dialectic tension with one another. I

also believe that it is premature either to dismiss any perspectives or to

advance any single approach as clearly superior (compare Willmott,

1983; Chua, 1986a, b). Moreover, researchers engaged in doing as

164

opposed to talking about field work (Argyris, 1977); tend to be silent

about their underlying assumptions. As Willmott (1983) suggested,

empiricists may only be informed by rather than be contained within

the various perspectives. Thus, I highly recommend doing qualitative

field research, regardless of its type, over merely talking about field

research.

In accordance with the preceding discussions, and in some contrast to

the previous accounting discourse (Tomkings & Groves, 1983;

Willmott, 1983; Chua, 1986a, 1986b), I found it problematic to adopt a

specific ontological stence a priory and then conduct an empirical

study. I believe that the ontological and epistemological assumptions

with which a researcher can function effectively emerge from, or at

least interact with the act of doing research. Here, though, the

implication that qualitative research involves fewer ontological

commitments is by no means certain. The philosophy of science

literature usefully warns the researcher of the differing and shifting

forces that influence research so that field workers should reflect on

their work and come to terms with their emerging assumptions (see,

for examples, Campbell, 1970, 1984, 1986b).

Perhaps most importantly, we have found the researcher, the

phenomena studied, the context in which they are studied, and the

research approach in use, to be intimately intertwined- this in marked

contrast with the more orthodox scientific position that they are

dictated. I believe that this condition should not be tacitly ignored, nor

overtly suppressed, nor be thought of as being solvable by some new

research design modification. It inheres in the conduct of research, and

a researcher must recognize his or her own potentially active role in

the research setting and continually self-reflect upon it (perhaps

surprisingly, see Friedman, 1953, p. 40; Einstein & Infeld, 1983, p. 6).

In part, we have tried to do this by double–looping ourselves, and

165

seeing ourselves as at least temporary members of the social context

being studied. It is important to make the warning here, that

constructive reflexivity is very delicately balance with crippling self –

doubt.

Based on my reading of the literature and my applications of qualitative

research methods, it appears that interpretive techniques use similar

data collection methods; thus, underlying assumptions may come to

dominate the thinking of the researcher primarily at the analysis stage

of research. Ironically, a survey of the literature on qualitative methods

(Sieber, 1973; Miles, 1979) reveals that relatively little guidance exists

on conducting analyses and interpreting data. Thus, I believe that

substantial work is needed in this area by accounting researchers that

is directed at establishing a social system of belief change (Campbell,

1986b), wherein a socially constructed concept of scientific validity is

developed with respect to the product of analysis and interpretation

(Campbell, 1986b).

Consequently, currently lacking such research protocols, dialectic

tension and reflexivity appear to offer meaningful approaches to data

analysis. These approaches encouraged us to use and contrast several

concepts – for example, qualitative vs. quantitative data, traditional vs.

emergent theories, and superiors vs. subordinates – as a way of

exploring different facets of accounting in organization and society. I

recommend this general approach to future field researchers. I do not,

however, recommend or condone efforts to routinize or program such

approaches to analysis. I also recommend that researchers of different

philosophical presumptions undertake field studies; we believe that a

dialectic tension among researchers has an excellent potential for

forecasting innovation.

166

Despite my attempts to study what subjects say, what they say they do,

and what they do, qualitative field research is predominantly driven by

words. This focus on words is, of course, in addition to a focus on

numbers in accounting research. I recommend that researchers

concentrate their efforts on studying the role of rhetoric in the

research act, in the organizational contexts studied, and in

communicating the results of the research to subjects and through the

review process, to the academic community (compare, Manning, 1979;

Whyte, 1986; McCloskey, 1983).

The forgoing implications lead me to conclude that use of accounting in

organizations and society may be conceived of as a conventional

process, and the interpretive research act may be treated similarly.

Thus, rhetorical analysis should be one element of the interpretive

approach. Donnellon reasoned that one can usefully apply a rhetorical

or linguistic analysis to the study of contemporary organizations for

these five reasons: (1) organizational actors use words to make

inferences about the goals being pursued; (2) they make these

inferences with reference to the organizational context in which they

occur, the social context, the interact ional context, and previous

interactions; (3) besides making inferences about goals, actors (CEO in

this case) also make inferences about the people with whom they are

dealing; (4) communication behaviour is multi-functional, and observes

of what occurs in the interaction should recognize that outcomes other

than the strict transference of information generally occur when people

interact; and (5) conventional behaviour in organizations helps serve

the technical function, and it also produces interpersonal and symbolic

effects that can influence the substance of the interaction (1987, pp.

42-43). Thus, a concern for rhetoric and language is consistent with

many aspects of the emergent perspective and with the aphorism used

in virtually all elementary accounting courses: ‘Accounting is the

language of businesses’.

167

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