Managing Finance

Understanding management accounting practices: A

personal journey *

Robert W. Scapens *

a Manchester Accounting and Finance Group, Manchester Business School, Booth Street West,

Manchester M15 6PB, UK b

University of Groningen, Groningen, The Netherlands

Abstract

This paper reviews the changes which have taken place in management accounting research over

the last 35 years. It traces the author’s personal journey as a management accounting researcher and

emphasises the shift which has taken place in what it means to understand management accounting

practices. It argues that to make sense of diversity in management accounting practices we need to

understand the complex mish-mash of inter-related influences which shape practices in individual

organisations. It outlines the contribution which institutional theories can make to understanding this

mish-mash of complexity. In particular, it reviews the achievements of the Burns and Scapens

framework (2000) for studying management accounting change and describes some of its limitations

and extensions; viz., the interplay of internal and external institutions; the importance of trust in

accountants; the impact of circuits of power; and the need to study the role of agency in institutional

change. It concludes that research in recent years has provided a much clearer understanding of the

processes which shape management accounting practices; but the challenge for the future is to use

this theoretically informed understanding to provide relevant and useful insights for management

accounting practitioners.

q 2005 Elsevier Ltd. All rights reserved.

Keywords: Management accounting; Practices; Change; Institutional theory; Rules and routines

The British Accounting Review 38 (2006) 1–30

www.elsevier.com/locate/bar

0890-8389/$ - see front matter q 2005 Elsevier Ltd. All rights reserved.

doi:10.1016/j.bar.2005.10.002

* This paper is a revised and extended version of a plenary address given at the 2005 Annual Conference of the

British Accounting Association held at Heriot-Watt University, Edinburgh, Scotland, and was consequent on my

receiving the 2004 BAA Distinguished Academic Award. * Corresponding author. Address: Manchester Accounting and Finance Group, Manchester Business School,

Booth Street West, Manchester M15 6PB, UK. Tel.: C44 161 275 4020; fax: C44 161 275 4023.

E-mail address: [email protected].

R.W. Scapens / The British Accounting Review 38 (2006) 1–302

Although the title of this address refers to my personal journey, it has not been a solitary

one. I have worked with many people over the years, and I will mention a number of them

as we proceed. In particular, I will describe the work of some of the PhD students who

have been accompanying me in recent years—and who have been extending and critiquing

my work. Furthermore, as my journey has been along a fairly broad, well-trodden road,

this talk will reflect the broad changes in management accounting research which have

taken place during my academic career.

The other point to note about my title is:—and in a sense, this is my main theme—what

do we mean by understanding managing accounting practices? Different people can have

different ideas in mind when they talk about ‘understanding’; and this is not just semantics.

What we mean by the phrase ‘understanding management accounting practices’ has both

methodological and theoretical implications. This is something I want to explore in this

address.

I will start by briefly describing my personal journey: setting off in 1970, and the

changes which have taken place over the following three decades. This will lead to a

discussion of what I now mean by understanding management accounting practices. I will

then mention various types of institutional theory and describe how they can be helpful in

making sense of the complexity which characterises the development of management

accounting practices. Next, I will outline the framework which John Burns and I

developed drawing on old institutional economics (see Burns and Scapens, 2000). I will

use a couple of anecdotes to illustrate some the characteristics and implications of the

framework. Then, drawing on research undertaken by several of my recent PhD students, I

will discuss some limitations and extensions of that framework. Finally, I will conclude by

summarising the changes which have taken place in understanding management

accounting practices in the course of my personal journey, and indicate the implications

for case based research.

1. My journey

1.1. Setting off

After qualifying and working for 2 years as a chartered accountant, I joined the

University of Manchester in 1970, as a P.D. Leake Teaching Fellow—funded by the

Institute of Chartered Accountants in England and Wales (ICAEW). This was at a time

when accounting as a university subject in the UK (especially in England 1 ) was still in its

infancy, but beginning to grow. At that time, Bryan Carsberg was professor of accounting

in Manchester. He had been appointed in 1969, and was the first accounting professor in

Manchester. Previously, accounting had been taught in Manchester, but it was not

considered necessary to have a professor of accounting. However, in the late 1960s and

early 1970s the accountancy profession was moving towards graduate entry and as a result

1 There had been a longer tradition of accounting in a number of Scottish universities; and there were some

exceptions in England—notably at the London School of Economics.

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 3

it was becoming necessary to establish university departments of accounting. I was one of

a group of professionally qualified accountants who were recruited into academe at that

time.

Initially, my research was in the area of financial accounting. I was advised to do

research in financial reporting because, as I was told, ‘there wasn’t much to do in

management accounting’. It was believed that the interesting work had already been done.

All that remained was to refine, and possibly modify for more complex situations, the

many mathematical models that had been developed. There were models for most areas of

management accounting and there was a widely held view that such models could solve all

management accounting problems. At that time, at least in management accounting, we

thought we knew everything. But now looking back, it is clear that we had only a very

narrow conception of management accounting.

I will now talk briefly about some of the changes, which have occurred in management

accounting research over the subsequent years. I will start by saying a little more about

research in the 1970s, and then talk about the perception of a gap between theory and

practice which emerged in the early 1980s. Next, I will mention some of the new

perspectives that started to be used in the late 1980s and during the 1990s. I will do this by

referring to my own research, but will try to give an overview of the general nature of the

changes that were taking place. I will finish this part of the talk by summarising my

personal journey and mentioning the nature of my current research—which I discuss in

more detail later.

1.2. The 1970s

The 1970s was a time when much of the academic accounting world was thinking in

terms of marginal economic analysis and quantitative models, and researchers in

management accounting were adopting an economic approach to management decision

making and control; with many, both simple and complex, mathematical models which

were intended to prescribe what management accounting practitioners should do (for a

review see Scapens, 1984). At the time, the general feeling of academics, including

myself, was that all the relevant theory had been developed and we just needed to

communicate it to practitioners. We believed that once practitioners became aware of the

new models they would apply them in practice. So we saw the essential role of academics

as one of communicating marginal economic analysis to students and practitioners; but

particularly to students, as they would become the next generation of practitioners. In this

way, management accounting practitioners would eventually learn how to apply the new

economic models. The problem was that they never really did—I will return to this point

shortly.

At that time I followed the advice I was given and I did not initially get into

management accounting research. I started my research career in financial reporting and,

in particular, studying inflation accounting. I used an approach from investment theory

(Jorgenson, 1967; Brechling, 1975), and this led me to a concept of economic profit, which

was grounded in neoclassical economics (Scapens, 1978). I became increasingly interested

in management accounting; however, as my concept of economic profit had some of the

characteristics of residual income (see Scapens, 1979). When I realised that this was what I

R.W. Scapens / The British Accounting Review 38 (2006) 1–304

was looking at, I became interested in what had been written on the subject in the

management accounting literature, and began thinking about how economic profit might

be relevant in management accounting. Unfortunately, I concluded that my measure of

economic profit was not practical as a management accounting technique, as it required

very strong assumptions about the nature of investment behaviour; assumptions that were

unlikely to hold in practice. So, I thought the concept was useful as an analytical tool, but

there were specific problems that would constrain its use in practice (Scapens, 1979).

This conclusion comes back to haunt me from time to time—as my notion of

economic profit is conceptually very similar to the ideas of economic value-added,

which have proved popular in practice in recent years. These ideas have been very

profitable for consultants. I had similar ideas 30 years ago, but dismissed them as

impractical. This may have been a good thing academically, as it encouraged me into

new areas (as I will describe below), but in terms of opportunities for consulting income

I obviously lost out.

To summarise, in management accounting research the 1970s was an era of economic

oriented mathematical models. Researchers believed that they had developed the theory

and the management accounting techniques which practitioners should be using. But that

was about to change, particularly in the UK. Going into the 1980s, management

accounting researchers began to recognise that there was a gap between theory and

practice, and that research to describe practice was urgently needed.

1.3. The early 1980s

At the beginning of the new decade, in December 1980, a conference on management

accounting research was held at the Manchester Business School. 2

Several of the papers

presented at that conference reviewed various aspects of both management accounting

research and practice (see Cooper et al., 1983). Despite a general awareness of the

apparent gap between theory and practice, participants at the conference recognised that

researchers’ knowledge of management accounting practice was severely limited and

based largely on anecdotal evidence. Few researchers had systematic or in-depth

knowledge of management accounting practice; either from doing research in

organisations or from personal experience. Where researchers did have practical

experience, it was rather dated and quite limited in scope. Generally, it was recognised

that academic researchers lacked detailed knowledge of the prevailing management

accounting practices, and it was agreed that they needed to know more. It was from about

that time that researchers in the UK began to undertake research, first to describe, and later

to explain the nature of management accounting practice. Initially, researchers conducted

questionnaire surveys, next they undertook fieldwork, interviewing both managers and

management accountants, and more recently conducting in-depth longitudinal case

studies.

2 Since that first conference there have been many others and they have evolved into what is now known as the

Management Accounting Research Group that meets twice a year—in London at the LSE in April and in

Birmingham at the Aston Business School in September.

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 5

So the 1980s was a time when UK researchers started studying management accounting

practices (as distinct from developing normative models) and such research essentially

adopted a positivist methodology. In my own research, I went from developing

mathematical models of economic profit, to using those models to study management

accounting practices. For example, I tried to explain why only some companies used

residual income, although the textbooks at that time portrayed it as the optimal way to

evaluate and monitor capital expenditure decisions. Many companies used return on

investment, while others used budgets as the basis for controlling their capital

expenditures. It appeared that there was a range of different management accounting

practices (in the area of capital expenditure), and I wanted to understand why there was

such a range of practices. I used my model of economic profit as the conceptual basis for

hypothesising which type of companies would use the different accounting practices. As

such, my interest was in explaining diversity of management accounting practices, and my

economic model was used to provide the theoretical basis for the explanation.

Together with an American colleague, Tim Sale, I did a questionnaire study which

resulted in a sample of 211 divisionalised UK companies from the Times 1000 and 205

divisionalised US companies from the Fortune 500 companies (see Scapens and Sale,

1985). Comparing the two samples, and using a variety of non-parametric techniques,

including correlational analysis, factor analysis and multidimensional scaling, we

investigated a number of hypotheses concerning the relationship between the use of

management accounting techniques and the extent of divisional autonomy. However, we

found absolutely nothing—i.e. we totally failed to locate the expected associations

between the management accounting methods used in divisionalised companies and the

extent of the autonomy given to the divisional managers.

We had large matrices of correlation coefficients, but very few were statistically

significant. The only really significant thing about the study was the lack of significant

correlations. One might have thought that, given the amount of data and the number of

variables, we would have found at least some significant correlations purely by chance.

But there were very few. However, the paper was published in The Accounting Review,

which does not usually publish papers that do not support their hypotheses. One of the

reviewers commented—and I think this may have persuaded the editor to publish the

paper—that the hypotheses were all very ‘commonsensical’, and it seemed very surprising

that they were not supported, despite the use of sophisticated statistical techniques.

We concluded the paper by noting the difficulties involved in trying to explain

management accounting practices with such questionnaire studies. Our post-questionnaire

interviews identified a number of issues: (1) management accounting techniques used in

practice are often not the ‘ideal’ ones, which might be expected—practice is never perfect;

(2) the development and use of management accounting techniques are dynamic and this is

difficult to capture in cross-sectional studies; and (3) the personalities and backgrounds of

key individuals can affect the choice of management accounting methods in practice.

In this research, we were using a form of contingency theory, underpinned by economic

modelling, to try to explain the diversity of management accounting practices. However,

the study was unable to explain the diversity of capital budgeting practices in

divisionalised organisations. Nevertheless, the diversity of management accounting

practices has remained the focus of my research over the subsequent years.

R.W. Scapens / The British Accounting Review 38 (2006) 1–306

My fundamental research question continues to be: why do we see such a diversity of

management accounting practices?

1.4. The Late 1980s and the 1990s

As we moved further into the 1980s and into the 1990s, a variety of theories and a

number of different methodological approaches started to be used to study management

accounting practices; extending the theoretical domain from economics into organis-

ational and social theory, and with interpretive work and critical perspectives being used

alongside more conventional accounting research. As such, this was a period when the

nature of management accounting research broadened quite considerably.

Following my unsuccessful attempts to use positive theory and economic modelling to

explain the diversity of management accounting practices, I turned to case studies and in-

depth interviews to investigate the role of accounting and accountability in the

organisational control of large companies. This research was funded by the Economic

and Social Research Council (ESRC) and I recruited John Roberts to the project. It was

John who introduced me to the structuration theory of Anthony Giddens (see 1984), which

he (John) had previously used in his PhD research into the organisational control of

workers in telephone call centres. In a paper in Accounting, Organizations and Society in

1985 (the same year as my paper with Tim Sale was published in The Accounting

Review 3 ), we charted the development of our thinking about what an organisational

understanding of accounting practices might involve (see Roberts and Scapens, 1985). We

draw a distinction between accounting systems and system of accountability—which I

later modified to distinguish rules and routines (see below).

We also referred to Giddens’ discussion of structures of signification (meaning),

legitimation (morality) and domination (power), which I subsequently developed in

management accounting papers with Norman Macintosh (Macintosh and Scapens, 1990;

see also Scapens and Macintosh, 1996). These papers emphasised the importance of

studying how management accounting systems develop over time and of understanding

the organisational and social context in which they are embedded. In a later paper, John

Roberts and I adopted a structuration theory perspective to try to understand a case of

resistance to management accounting change which we had studied as part of the ESRC

project (Scapens and Roberts, 1993). This case illustrated how organisational practices

generally, and management accounting practices in particular, evolve out of the interplay

of a disparate set of influences as well as the intentional actions of organisation members,

and that understanding management accounting change requires an understanding of

various organisational and historical contingencies (1993: 30).

At around the same time (i.e. the early 1990s) I was becoming increasingly concerned

at the continuing use of questionnaire surveys of management accounting practices.

3 Although published in the same year, these two papers represented a major transition in my research—the

research for The Accounting Review paper had been undertaken some 4 years earlier, but was published only in

1985 due to the inevitable delays in getting papers accepted and then published. However, the paper in

Accounting, Organizations and Society was published much more quickly and represented our thinking in

relation to the ESRC project which was undertaken in 1983–85.

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 7

These surveys, which gave only a somewhat superficial view of practices, continued to

argue that there was a gap between the theory and practice of management accounting. As

indicated earlier, I (and others) had written about the gap between management accounting

practices and economic theory some 10 years earlier (see Scapens et al., 1984). By the

1990s, I took the view that continuing to compare management accounting practices with

the textbook prescriptions of economic theory was no longer particularly helpful.

Furthermore, despite what had been acknowledged in the research literature, some of these

surveys still seemed to be portraying an approach based on economic theory as some sort

of ‘ideal’, against which management accounting practices could be assessed. My view

was (and continues to be) that we should be seeking to understand the nature of

management accounting practices, rather than comparing them with the conventional

prescriptions of economic theory. In my ‘Never Mind the Gap’ paper (Scapens, 1994), I

argued that we should be studying management accounting practice per se, rather than

comparing them to some theoretical ideal. I suggested using case study research methods

and proposed that institutional economics, which challenges some of the basic

assumptions of neoclassical economic theory, could provide a useful framework for

studying management accounting practice.

My research using Giddens structuration theory and my emerging interest in

institutional theory came together in 2000, in a paper which I published with John

Burns (see Burns and Scapens, 2000). This paper started from a structuration theory

perspective, but as Giddens’ approach does not incorporate historical time it is not

particularly helpful for exploring the process of change. We argued that an approach

drawing on the work on Barley and Tolbert (1997) and ‘old’ institutional economics could

provide a useful framework for studying management accounting change. Our paper was

underpinned by the ideas of structuration theory, and particularly Giddens’ notion of the

duality of structure. However, although our original paper contained an extended

discussion of structuration theory, the paper published had only limited references to

Giddens’ work—at the suggestion of the reviewers! I will discuss the Burns and Scapens

framework, and some extensions and limitations later. The point to highlight here is that

the focus of my research is now on understanding the processes of management

accounting change—how organisations come to have the management accounting

practices that they have. Thus, my research focus has moved away from simply exploring

the diversity of practices in the population, to one where I am interested in how the

management accounting practices of individual organisations emerge.

1.5. 2000 and beyond

In the late 1990s, John Burns and I conducted a research project for the Chartered

Institute of Management Accountants (CIMA) looking at resistance to management

accounting change. 4

The basic research question was: why have management accounting

practices been slow to change despite the rapidly changing technological and

organisational environment in recent decades? The project was prompted by CIMA’s

4 Funded jointly by CIMA and the ESRC.

R.W. Scapens / The British Accounting Review 38 (2006) 1–308

concerns over the criticisms that management accounting had ‘lost its relevance’ (Johnson

and Kaplan, 1987), and that the new ‘advanced’ management accounting techniques were

not being widely implemented. The focus of the research was on understanding the

complexities of the processes of management accounting change. Several longitudinal

case studies were undertaken to explore management accounting change in specific

organisations (see Burns et al., 2003). The Burns and Scapens framework was developed

as a way of making sense of these cases.

However, the framework was offered only as a starting point for researchers interested

in studying management accounting change. We recognised that it would need to be

extended and refined through further case-based research. Later, I will talk about some

case studies which my PhD students have undertaken using this framework and some of

the limitations and extensions they have identified.

More generally, as we enter the twenty-first century, management accounting

researchers are adopting a broad range of methodological and theoretical perspectives.

The methodological diversity includes interpretive and critical research, alongside more

traditional functionalist and positivist research; in addition, a variety of research methods

continue to be used—including surveys, fieldwork and case studies—as well as

quantitative work and also some analytical work; especially at the interface between

finance and management accounting. There is also considerable theoretical diversity—

with researchers drawing on disciplines as wide ranging as economics, organisation

theory, sociology, social theory, politics, and social anthropology; and using many

different theoretical approaches: economic theory, contingency theory, institutional

theory, actor network theory, labour process theory, political economy, Foucault’s

genealogy, Derrida’s deconstructionism, and so on (for a review see Baxter and Chua,

2003).

This broad-based, theoretically informed research has undoubtedly provided

management accounting researchers with deeper insights into the nature of management

accounting, but without having major impacts on practice. Some of the so-called

‘advanced’ techniques developed in the US, such as ABC and Balanced Scorecard

(BSC), have certainly had an impact on practice. But much of the more theoretically

informed research, which appears in the major international research journals, has had

only a relatively limited impact on management accounting practice. The challenge for

management accounting researchers (including myself) is to explore the implications for

management accounting practices and for management accounting practitioners of these

recent theoretical advances. This is not to suggest that we need to develop new

fashionable techniques to compete with ABC and the like; rather I am arguing that

management accounting researchers need to give more attention to exploring the

practical relevance of their theoretical work. This will not be easy, and I will not

provide such practical insights in this talk, but I think it is an important challenge for

the future.

Before describing in more detail some recent research, which uses institutional theory

to study management accounting change, I will summarise my personal journey and then

say a few words about what I now mean by understanding management accounting

practices.

Table 1

My personal journey

Methodology Theory Practical dimensions

1970s Modelling Economic What managers should do?

1980s Positivism Contingency What do managers do?

1990s Interpretivism Structuration Making sense of practice

2000s Pluralism/Pragmatism Institutional Helping practitioners

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 9

1.6. Summary

Table 1 summarises my personal journey, but as I said earlier it also reflects the broad

trends in management accounting research over the past 35 years. 5

In the 1970s, in

common with other management accounting researchers, I was using mathematical

modelling grounded in economics; whereas in the 1980s my research adopted the

conventional positivist methodology and drew on a contingency approach; then in the

1990s my research was more interpretive and I was using structuration theory, while others

were using a broad range of different theoretical approaches, and some were doing more

critical work. Today (in the 2000s) a broad range of methodological and theoretical

approaches continue to be used in management accounting research. Personally, I am

using institutional theory to try to understand processes of management accounting

change, but I recognise the need to promote pluralism and to adopt a more pragmatic

stance to try to make theoretically informed management accounting research more

relevant to management accounting practitioners.

The final column in Table 1 summarises the ‘practical’ dimensions of management

accounting research over the last 35 years. In the 1970s, I was seeking, along with other

management accounting researchers, to develop mathematical models which could be

used to tell managers and management accountants what they should do. Then in the

1980s, I (we) started asking what do managers do, while in the 1990s other management

accounting researchers and I were trying to make sense of management accounting

practice. Today, I am continuing my research into processes of management accounting

change, and other researchers are seeking to gain deeper insights into various aspects of

management accounting practice. But as I just mentioned, the challenge for current (and

future) work is to use the theoretical perspectives which we have developed to provide

insights that are relevant and helpful for practitioners. As these practical dimensions

indicate, there has been a substantial change in the focus of management accounting

research over the last 35 years.

In terms of methodology there has been a change from the use of mathematical models

to prescribe ‘optimal practices’, through statistical generalisation to explain the diversity

of observed practices, using a combination of economic reasoning and contingency theory

5 The dates indicated in Table 1, and in the earlier discussion, are very approximate and intended only to

capture the essence of the changes which have been taking place in management accounting research over recent

decades.

R.W. Scapens / The British Accounting Review 38 (2006) 1–3010

to do the explaining, to an approach which focuses on understanding the specific practices

of individual organisations. For example, in my own research I am now interested in why

specific organisations have their particular management accounting practices; in other

words, why they do what they do. As such, over the years (at least since the 1980s) my

research has been concerned with understanding management accounting practices. But

whereas in the era of statistical/positivist research the focus was on trying to understand, in

the sense of explaining diversity in the population; my research is now seeking to

understand why specific organisations have their particular management accounting

practices. While the earlier approach was rather static, using cross-sectional surveys, to

understand diversity in the population; the more recent approach is more process-oriented,

and uses longitudinal case studies, to understand how management accounting practices

evolve. As such, there has been a shift in the meaning of understanding. Next, I would like

to elaborate a little on what it now means to ‘understand management accounting

practices’.

2. Understanding management accounting practices

In the early days, when I had just started doing case study research, there was one

comment which a manager made that has stuck with me ever since. As I mentioned earlier,

in the mid-1980s John Roberts and I were studying the role of accounting and

accountability in the organisational control of large companies. In one of the companies

we were studying, a large UK-based multinational, a management accountant described

how practices had developed in his part of the company; a relatively small operating unit

located in North Wales. He said:

6 Thi

‘Well it is, you see, how things evolve. I suppose in the academic world it’s all clear

cut, but it isn’t really, you know. When you come down here, it’s all a hell of a big

mish-mash, all inter-related influences. It’s not clear cut and logical. It looks

completely illogical, but that’s how it happens. And I’m sure we’re no different from

any other outfit. And you’ll go back and say ‘What a load of idiots!’ But that’s how it

happens.’ 6

This brought home to me that there is great complexity and lots of ‘things going on’ in

any organisation which, when looked at from the outside, may appear illogical. But it is

this mish-mash of inter-related influences that shape management accounting practices,

and thus in studying management accounting change we need to understand this mish-

mash. Clearly, there are broad economic, social and organisational trends that affect the

way in which companies and their individual practices emerge. But in addition, there will

also be unique factors, relating to the specific organisation, which shape its management

accounting practices. To understand these practices, we need to study the interplay of the

broad systematic trends and the unique idiosyncratic factors—i.e. the mish-mash of

s comment was cited in Roberts and Scapens (1993; p. 1).

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 11

inter-related influences. Here, institutional theory can help us understand management

accounting practices.

In recent years, various types of institutional theory have been used to gain insights into

organisational (and management accounting) change. These include: new institutional

economics (NIE), which is concerned with the structures used to govern economic

transactions; new institutional sociology (NIS), which is concerned with the institutions in

the organisational environment that shape organisational structures and systems; and old

institutional economics (OIE), which is concerned with the institutions that shape the

actions and thoughts of individual human agents.

Whereas NIE extends the traditional economic approach and applies the assumptions of

economic rationality and markets to the governance of organisations, OIE starts from a

rejection of the neo-classical economic core and seeks to explain the behaviour of

economic agents in terms of rules, routines and institutions. NIS, however, starts by

questioning why organisations look similar; and what are the pressures and processes

which shape organisations? It might be helpful if I briefly outline the nature of these three

types of institutional theory.

2.1. New institutional economics (NIE)

NIE uses economic reasoning to explain diversity in forms of institutional

arrangements. For example, transaction cost economics seeks to explain the differences

in markets and hierarchies (Williamson, 1975; see also Williamson, 1985). It adopts a

rational economic approach, starting from assumptions of bounded rationality and

opportunism, to explain why transactions are organised in particular ways and why firms

have hierarchical structures. Others have used similar economic reasoning to explain the

management control systems used in different types of organisations (see for instance,

Meer-Kooistra and Vosselman, 2000; and Specklé, 2001).

Although such work can provide useful insights, I have some reservations about this type

of research, and particularly about the underlying economic assumptions. Personally, I get

worried about explanations of managerial behaviour, which are grounded in bounded

rationality and opportunism, and particularly about the notion of self interest with guile

(Williamson, 1985, p. 47) which underpins the assumed economic rationality. It seems to me

that it was such behaviour that was behind some of the recent major business collapses; with

some individuals seeking to maximise their own self interest, and using guile to circumvent

the rules which normally govern accepted business behaviour. For example, managers in

Enron appear to have searched for accounting techniques which could be used to engineer

profits and to maximise their own interests at the expense of the shareholders (Benston and

Hartgraves, 2002). 7

Economists may argue that people do not necessarily behave in the way

that is assumed in their economic models, but they assert that businesses as a whole can be

assumed to act as though they did. However, constantly portraying businesses in terms of

individuals maximising their own self interest is quite likely to become a self-fulfilling

prophesy; especially when such behaviour is constantly depicted as the norm in accounting

7 See also the other papers on Enron in the Special Issue of the Journal of Accounting and Public Policy

(Summer 2002).

R.W. Scapens / The British Accounting Review 38 (2006) 1–3012

courses at business schools across the US and other Western capitalist countries. But now

everyone is concerned that some managers are acting as though they were part of a rational

economic model—and giving little thought to the wider social and ethical issues.

Nevertheless, NIE has drawn attention to some of the economic factors that shape

organisational structures, their control systems, and management accounting practices.

Although the early work using TCE was more concerned with explaining the historical

emergence of firms and their management accounting systems (see for example, Johnson,

1983), more recent work has attempted to use transaction cost reasoning to explain

diversity in management control and accounting systems (e.g. Specklé, 2001). For

example, in situations where there is uncertainty, high levels of asset specificity and

frequent transactions, business relationships are likely to be conducted in a hierarchy;

whereas if there is little uncertainty, few specific assets, and relatively infrequent

transactions, they are likely to be conducted though the market. Between these two

extremes there may be hybrid structures, such as joint ventures, strategic alliances, supply

chains and so on, which provide alternative governance structures and have their own

forms of control and needs for management accounting systems. Recent management

accounting research has become particularly interested in studying these new

organisational forms. The studies applying NIE to management control in such

organisations have pointed to the need to understand the use of management accounting

in lateral, as well as vertical, relationships (Vosselman, 2002; see also Meer-Kooistra and

Scapens, 2004) and to combine the elements of TCE with more trust-based considerations

(Meer-Kooistra and Vosselman, 2000)—I will return to the issue of trust later.

To summarise, NIE can draw attention to the economic factors which help to shape the

structure of organisations and their management accounting practices. As such, it can

helpful be in understanding certain aspects of the mish-mash of inter-related influences.

However, economic factors are only part of these inter-related influences; we need to look

beyond economics to get a fuller understanding. It is here that NIS can be helpful.

2.2. New institutional sociology (NIS)

As indicated earlier, NIS seeks to explain why organisations in particular fields appear

to be similar. The early research which applied institutional theory to organisations was

largely concerned with not-for-profit and public sector organisations, such as schools,

hospitals and other governmental organisations. These early NIS theorists distinguished

between technical and institutional environments, and argued that they each place different

pressures on the organisation (see Meyer and Rowan, 1977). The former relate to the need

to achieve technical efficiency in the operations of the organisation, whereas the latter

relate to the need to embrace the rules, social norms and expectations of others outside the

organisation. In this respect, organisations have to appear legitimate to their broader

constituencies and stakeholders to secure the resources they need for their continued

survival. To gain this legitimacy organisations have to be seen to conform to what is

expected of them (DiMaggio and Powell, 1983).

Once again this approach has provided some useful insights, but it is also not without its

problems. The early studies tended to dichotomise the technical environment on the one

hand, and the institutional environment on the other. Such a dichotomy is, however, quite

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 13

problematic. More recent writers have recognised that there are many inter-related aspects

of organisational behaviour and they can have both institutional and technical elements

(Powell, 1991; see also Greenwood and Hinnings, 1996). For example, the implementation

of ABC may be driven by technical concerns to achieve the most appropriate allocation of

overheads for economic decision making, but it may also be driven by the desire to conform

to external expectations and to appear to be adopting the modern techniques which are used

by other well known organisations. In actual situations, it may be very difficult to

disentangle these two types of organisational conformance. Nevertheless, NIS has been

very useful in drawing attention to the need to recognise the way in which organisations tend

to conform to what they perceive as the expectations of their broader environment.

In explaining this conformance NIS has focussed attention on different types of

isomorphism—coercive, mimetic and normative; isomorphism is the process through

which one organisation tends to resemble others in the same field (DiMaggio and Powell,

1991, p. 66). Coercive isomorphism occurs due to political and regulative influences;

mimetic isomorphism when organisations seek to copy the practices of other successful

organisations; and normative isomorphism when the norms of society and professional

bodies influence the practices of organisations. This approach to explaining organisational

conformity has been used by management accounting researchers to study the ‘non-

rational’ and sometimes ceremonial use of accounting information, especially in the public

sector. Such research relies on another concept from NIS: viz. loose coupling. This occurs

when accounting practices which are introduced to meet institutional requirements are used

in a ceremonial way: i.e. separate from the control systems used to manage the technical

core of the organisation (see Meyer and Rowan, 1977). Examples of the use of NIS to study

management accounting practices include the work of Covaleski and Dirsmith (1983),

(1988), who studied public sector budgeting and case-mix accounting in hospitals in the US

(see also Covaleski et al., 1993); Modell (2001, 2003) who used NIS to study new public

management in Norwegian health care and in the Swedish university sector (see also

Brignall and Modell, 2000, who contrasted public sector reforms in the UK and Sweden);

and Collier (2001) who studied local financial management in a British police force.

Taken together, NIE and NIS indicate the various external pressures, both economic

and institutional, which can have an impact on the way organisations are structured and

governed. NIE and NIS can help us understand the nature of the external pressures on

organisations; but not all organisations will conform to these pressures and some may be

more susceptible to certain pressures rather than to others. If we want to explain the

accounting practices of individual organisations, we have to look within these

organisations. In addition to the external pressures, there are internal pressures and

constraints that are part of the mish-mash of inter-related influences mentioned earlier.

Whereas in NIE and NIS institutions are given, and assumed to apply pressure from

outside the organisation, OIE enables us to look more closely at institutions within the

organisation, and to focus on the internal pressures and constraints that shape management

accounting practices. 8

Burns and Scapens (2000) used OIE to develop a framework for

8 It should be noted that recent work in NIS also looks at actions and pressures within organisations (see Oliver,

1991; Powell, 1991; and Greenwood and Hinnings, 1996).

R.W. Scapens / The British Accounting Review 38 (2006) 1–3014

studying management accounting change; but before discussing that framework, I will

make a few general remarks about OIE per se.

2.3. Old institutional economics (OIE)

If we want to understand what shapes management accounting practices in individual

organisations, it is not sufficient to stay at the level of NIE and NIS. Those approaches look

to the broader external environment and explore how it impinges on organisations. To get

a fuller understanding of the mish-mash of inter-related influences it is essential to go

inside the organisation and to study how management accounting practices are shaped

within the organisation. This is the reason for my interest in studying management

accounting change. I want to try to understand how the management accounting practices

of individual organisations evolve. For this purpose, I have found the insights of OIE

particularly helpful.

Initially, it is important to contrast old and new institutional economics. OIE starts from

a position which questions some of the basic assumptions of neoclassical economics.

Instead of simply assuming bounded rationality and opportunism, it seeks to explain why

people appear to be opportunistic, and why we see particular types of economic behaviour.

It recognises that behaviour within economic systems (and organisations) can become

institutionalised: i.e. embedded in and shaped by institutions. Whilst there is no generally

agreed definition of an institution, my preferred definition was set out as long ago as the

1930s in an Encyclopaedia of the Social Sciences: an institution is ‘a way of thought or

action of some prevalence and permanence, which is embedded in the habits of a group or

the customs of people’ (Hamilton, 1932; see Hodgson, 1993b).

(Old) institutional economics has its origins in the work of the early American

institutionalists, such as Veblen and Commons (see Langlois, 1989), who critiqued the

impact that large corporations were having on social democracy in the US at the beginning

of the twentieth century. They saw economics as a process of social provision, which is

subject to multiple and cumulative causation, rather a series of static equilibria. To them

human beings are a cultural product, and accordingly economics requires anthropological

and evolutionary dimensions. More recently, amid growing concerns about the ability of

neoclassical economics to address contemporary economic problems, there has been a

resurgence of interest in institutional economics, often combined with other perspectives,

such as the behavioural economics of Herbert Simon (e.g. 1955, 1959) and the

evolutionary economics of Nelson and Winter (see 1982).

This more recent work recognises a duality between action (human activity) and the

institutions which structure that activity (cf. Giddens, 1984). It explores the way in which

habits, rules and routines can structure economic activity, and how they evolve through

time (Hodgson, 1993a). Adopting an OIE perspective we can study management

accounting as the rules and routines which shape organisational activity; and by studying

how rules and routines evolve we can better understand management accounting change.

This was the motivation for the framework that John Burns and I developed in our paper in

Management Accounting Research in 2000.

Institutions

Routines

Rules

time

Actions

Fig. 1.

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 15

3. The Burns and Scapens framework

This framework, which is set out in Fig. 1, 9

draws on the ideas of OIE described

above. 10

At the top of the figure there are the institutions which comprise the ways of

thinking and the underlying assumptions that condition how people behave; and at the

bottom there are the actions that are carried out over time by the individual organisational

actors. Rules and routines link these actions to the institutions. The rules and routines

encode the institutions: i.e. they reflect the taken-for-granted assumptions of people in the

organisation. Furthermore, it is the rules and routines, which shape the actions that people

take. On an ongoing basis, the actions follow the rules and routines; although these actions

may lead to changes in these rules and routines. In other words, there may be changes in

the rules, and especially in the routines, as people adapt to new situations. So as the

organisation moves through time, the rules and routines can be modified relatively

quickly, as the actors repeatedly undertake their actions. But institutions, the taken-for-

granted ways of thinking, tend to be much slower to change, as they are somewhat

abstracted from day-to-day activity.

As there is a direct linkage between the rules and routines and the day-to-day actions,

the links are indicated by solid lines—repeated quite quickly. But at the institutional level

the connection is subtler and abstract—so the link is portrayed by dotted lines (although as

institutions can have very significant effects in shaping the rules and routines, these lines

are quite thick). Also, as institutions can be slow to change, only one pair of lines is

shown—indicating that the day-to-day actions and the emerging rules and routines may be

quite slow to become institutionalised—as will be discussed below.

Central to this framework is the notion that management accounting practices are part

of the organisational rules and routines, which enable organisational members to make

sense of their actions and the actions of others. Furthermore, if they are widely shared and

9 This is a modified version of the figure in Burns and Scapens (2000, p. 9).

10 The framework per se cannot be described as an OIE framework. It is similar to, and also draws on the work

of, Barley and Tolbert (1997) who come from an NIS perspective. As such there are considerable overlaps in

current thinking in NIS and OIE.

R.W. Scapens / The British Accounting Review 38 (2006) 1–3016

underpinned by accepted meanings they reduce the potential for conflict in the

organisation. Finally, together the rules and routines comprise the organisational know-

how. Over time individuals will leave the organisation and new individuals will replace

them. These new individuals have to learn how things are done in the organisation. Thus,

the organisational know-how is not bound up in the individuals per se, they come and go,

but it is comprised in the organisation’s rules and routines.

3.1. Routinisation and institutionalisation

Fig. 1 and the above explanation provide a brief overview of the framework, but a

couple of anecdotes may help to illustrate some important issues and implications. They

are not related to accounting—they are simply amusing stories which appeared along with

jokes and other similar stories in the magazine of the Altrincham advanced motorists. 11

Despite their origins, I feel these anecdotes capture the essence of the issues concerning

routinisation and institutionalisation, which are at the heart of the Burns and Scapens

framework. The first anecdote is about conditioning monkeys (see Box 1). It illustrates

how routines can develop and then over time become taken-for-granted: i.e.

institutionalised. Such institutionalised routines are dissociated from the historical

circumstances which gave rise to them. They are simply the ways things are done. As

individuals come and go these taken-for-granted assumptions are passed on. In the

Box 1: Conditioning monkeys Start with a cage containing five monkeys. Inside the cage, hang a banana on a string and place a set of stairs under it. Before long a monkey goes to the stairs and starts to climb towards the banana. As soon as he touches the stairs, spray all the other monkeys with cold water. After a while, another monkey makes an attempt with the same result. All the other monkeys are sprayed with cold water. Pretty soon, when another monkey tries to climb the stairs, the other monkeys will try to prevent it. Now, put away the cold water. Remove one monkey from the cage and replace it with the new one. The new monkey sees the banana and wants to climb the stairs. To his surprise and horror, all the other monkeys attack him. After another attempt and attack, he knows that if he tries to climb the stairs, he will be assaulted. Next, remove another of the original five monkeys and replace it with a new one. The newcomer goes to the stairs and is attacked. The previous newcomer takes part in the punishment with enthusiasm! Likewise, replace a third monkey with the new one, then a fourth, and then a fifth. Every time the newest monkey takes to the stairs, he is attacked. Most of the monkeys that are beating him have no idea why they are not permitted to climb the stairs or why they are participating in the beating of the newest monkey. After replacing all the original monkeys, none of the remaining monkeys have ever been sprayed with cold water. Nevertheless, no monkey ever again approaches the stairs to try for the banana. Why not? Because as far as they know that’s what has always been done around here.

11 I suspect they have appeared in many other similar places—this type of anecdote seems to be very widely

circulated.

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 17

anecdote, none of the later monkeys were ever sprayed with water; they just know that you

do not let anyone go up those steps. Institutionalisation is an interesting concept and one

that is relevant, not just to monkeys, but also to businesses. The punch-line of the story

was: and that, my friends, is how company policy begins.

Thus, institutions are the routines which have become dissociated from their historical

roots—i.e. over time they have become taken-for-granted. This emphasises the role of

history and recognises that how we behave is constructed over time. Although institutions

are dissociated from their historical antecedents, it does not mean that history is

unimportant: in understanding current behaviour history is very important. Change is

likely to be evolutionary, and path dependent, as the existing routines are likely to create

inertia which can limit the possibilities for change. This leads us to the notion of lock-in,

which has been explored by a number of writers in OIE.

3.2. Lock-in-history is important

Lock-in occurs when current actions are constrained by past actions; here another

anecdote could be helpful. Again it is not an accounting example: it relates to the building

of the Space Shuttle (see Box 2).

This rather lengthy story (and long history) provides an excellent illustration of how

decisions and choices made in the past can influence what we do today. This may not

represent an absolute constraint—in the sense that nothing else is possible. For instance,

the designers of the space shuttle could have found other ways of transporting the SRBs, or

Box 2: Building the Shuttle When you see a Space Shuttle sitting on its launch pad there are two big booster rockets attached to the sides of the main fuel tank. These are solid rocket boosters (SRBs). They are made by Thiokol at its factory in Utah. The engineers who designed these SRBs would have preferred to have made them a bit fatter; but they were constrained due to the size of two horses’ backsides in Imperial Rome. What does the size of horses backsides in Imperial Rome have to do with booster rockets? Two horses were used to pull Roman war chariots. As the Roman army spread across Europe (including England) they built the first roads; and these roads have been used ever since. These Roman war chariots made ruts in the roads. Since the chariots were made for Imperial Rome, they were all alike in the matter of wheel spacing. Consequently, the ruts in English roads had a fairly standard spacing. The builders of other wagons continued to use the same wheel spacing because if they tried to use any other spacing the wagon wheels would break on some of the old Roman roads. So, throughout the mediaeval period this wheel spacing was used. When, during the Industrial Revolution, trucks had to be built for the new railways, the old wagon jigs and tools were used and this meant that the new trucks had the same wheel spacing. This became the standard gauge for railways: 4 feet 81⁄2 inches. And when English expatriates built the US railroads they continued to use this gauge. Now we come back to the SRBs. They had to be shipped by rail from the factory to the launch site. The railway happened to run through a tunnel in the mountains. The SRBs had to fit through this tunnel. The tunnel is slightly wider than the railway track, and the track as we know is about as wide as two horses backsides.

R.W. Scapens / The British Accounting Review 38 (2006) 1–3018

they could have re-excavated the railway tunnels and made them bigger. But these options

would have involved substantial additional costs. So, specific options today may be

limited by previous actions; certain options may be just too costly or too difficult because

of actions taken in the past. Another example used in the economics literature is the

QWERTY typewriter (David, 1985). Attempts to introduce alternative keyboards, which

would be more suitable for the computer age, have proved unsuccessful because of the

problems of retraining everyone who has become familiar with the QWERTY keyboard

that was designed in the era of manual typewriters. As a result, where we find ourselves

today, and what we can feasibly do now, can be (and often is) constrained by where we

have come from in the past. As a result past decisions can be important, as they can lock us

into particular courses of action.

3.3. Evolution and revolution

As the above anecdote illustrates, history is important. Hence, we can think of

accounting and other organisational practices as essentially evolutionary. But this does not

mean that revolutionary change is not possible. One of my PhD students, Cristiano Busco,

studied the acquisition in 1994 of an Italian company, Nuovo Pignone (NP), by the US

multinational, General Electric (GE) (Busco, 2003; see also Busco et al., 2002, 2006). NP

was a very bureaucratic Italian company, part of a State-owned group, called ENI; it was

sold to GE as part of the Italian government’s policy of privatisation. A couple of years

earlier, 20 of ENIs top executives, including its chairman, had been arrested for

corruption; and the chairman later committed suicide in prison. So when GE acquired NP,

it was clear to everyone that there were going to be major changes. GE is renowned for its

financially-orientated, numbers-driven approach to management, which emphasises both

integrity and cash generation. But NP had little history of financial management. In the

past, it had had a typical public sector approach to management, with little attention given

to cash generation and management by financial numbers. However, within about three

years NP had been integrated into the GE world-wide organisation and was being managed

in the ‘GE Way’. This could be considered to be a quite revolutionary change.

The experience of NP suggests that revolutionary change is possible. In that case, there

was widespread recognition within the company that, following the acquisition by GE,

things were going to be very different. It was accepted that the existing ways of doing and

thinking in the company were going to have to change. It was recognised (although not

necessarily in these terms) that the prevailing institutions (the taken-for-granted ways of

thinking) would not be acceptable to GE. Thus, there was a collective mindset that change

would take place. As such, although everyone was very anxious, they recognised that

change was inevitable and they looked for ways of coping with it.

Reorganisation of the finance function helped in a practical way to meet the demands

for financial information which GE imposed on NP—new finance managers were

introduced and extensive training was given. But one of the things which appeared

particularly important in enabling existing managers to cope with the demands of the GE

Way was the introduction of Six Sigma; a quality improvement programme. The term Six

Sigma is taken from statistics; 95% of observations are contained within two standard

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 19

errors (two sigma) of the mean of a normal distribution. With three standard errors (three

sigma) there are 99.8% of the observations—an error rate of 2 per 1000; while at six sigma

the error rate of 3.4 per million—virtually perfect. The Six Sigma programme, which was

introduced in NP soon after its acquisition by GE, is concerned with achieving such high

levels of quality.

Although administratively NP was a very bureaucratic organisation, in engineering

terms it was generally recognised as being top class. The quality of its products was

acknowledged in international markets. This was why GE wanted to acquire it; in

engineering terms NP had good technology and good products, and as such it was a

potential competitor of GE. Thus, the Six Sigma programme was compatible with, and

reinforced, the prevailing ways of thinking within NP. It built on to their ‘quality-oriented’

view of the world. But one of the essential elements in the Six Sigma programme is that all

quality improvement projects have to be expressed in quantitative terms and their financial

consequences evaluated. Then the outcomes of the projects can be monitored and

evaluated to demonstrate both the improvement in quality and the financial gains arising

there from. Thus, Six Sigma brought the techniques of financial measurement and a

financial orientation into NP; although such things were new to the organisation, they were

expressed in terms which everyone understood—i.e. in terms of quality. Thus, Six Sigma

linked the changes taking place in NP to the prevailing ways of thinking and doing (i.e. the

prevailing institutions).

4. Stability and change

In the case of NP, we can see both evolution and revolution. There was a quite

revolutionary change, but within it there were also evolutionary processes building on the

existing quality-oriented ways of thinking. Thus, there were certain elements of stability

within the process of change. So it is important not to regard stability and change as

mutually exclusive—there can be elements of stability within change; and change may be

necessary if things are to remain stable. 12

Stability and change were also features of

another study; again by one of my PhD students. Siti-Nabiha Abdul-Khalid conducted a

case study of a South East Asian oil company (Siti-Nabiha, 2000; Siti-Nabiha and

Scapens, 2005). This company introduced value-based management in the late 1990s. The

case study focused on the division responsible for the production and transmission of

natural gas. The division was very profitable and a considerable cash generator, as it held a

monopoly position in an expanding market. Its main constraint was the capacity of the

transmission pipelines; consequently, the division’s three main objectives were safety,

reliability and efficiency—with efficiency, especially in cost terms, a distant third. It

produced budgets and financial reports, but they played only a minor role in management

control, which focussed instead on maximising capacity usage. Thus, although budgets

12 In Burns and Scapens (2000) we referred to an Italian novel by Giuseppe di Lampedusa, in which there is a

famous quote: ‘If we want things to stay as they are, things will have to change.’ (Lampedusa, 1958 [1996, p. 21]).

R.W. Scapens / The British Accounting Review 38 (2006) 1–3020

were produced they had a largely ceremonial role. Initially, value-based management

reports were also produced in a ceremonial way. So everything remained relatively stable.

Value-based management was an initiative of senior management, which was imposed

on the gas division. It was one of a number of management initiatives that had been

promoted in the preceding years; seemingly to demonstrate that the company was

comparable to and could compete with the multinational oil companies. But there was

little change within the gas division. Although it introduced the key performance

indicators (KPIs) required for value-based management, they were not used for

management purposes. However, not implementing the new system was not considered

an option, as it was imposed by corporate headquarters. The gas division simply regarded

it as something that had to be done; but not something that was needed to manage the

division. Eventually, the preparation of the KPIs was delegated to the General Manager’s

secretary, who communicated the information directly to headquarters.

Thus, initially this appeared to be a case of stability and resistance to change—with the

imposed new system being implemented ceremonially, and having no impact on the

processes of management or the thinking of managers. However, over the following three

to four years, some of the ideas of value-based management started to be used in the

division; but not in the way that the corporate headquarters had intended. Managers in the

gas division began to develop their own KPIs, which they used for their own purposes; to

support their own view of the division’s performance. As such, they adapted value-based

management to achieve the objectives that they had for their organisation. This was quite

different to the intentions of the senior managers at headquarters. They had introduced

value-based management to emphasise shareholder value and the need to cut costs and

generate cash. In the gas division, however, the emerging system of KPIs had a more

production orientation. Although there were some financial and cost-based KPIs, the

primary focus of the emerging system was on issues of production and transmission

reliability and safety. Thus, despite the apparent stability and resistance to the new system

imposed by headquarters, there was change; but not the change that the system designers

had expected. As such, there was both stability and change.

4.1. Summary: achievements

To summarise, the Burns and Scapens framework emphasises that management

accounting change is a continuous process and it draws attention to the relationship

between actions, rules and routines, and the underlying taken-for-granted assumptions in

the organisation. Whereas NIS takes institutions as given, and outside the organisation, the

Burns and Scapens framework is concerned with internal institutions; how they emerge

and how they shape current actions—including processes of change. This notion of

internal institutions has certain similarities with the concept of corporate culture in the

organisation literature (see Busco et al., 2002). The recognition that existing ways of

thinking within an organisation can have an important influence on processes of

management accounting change has implications for the management of change (Burns et

al., 2003). Attempts to introduce new management accounting systems and techniques,

without careful consideration of the prevailing institutions within the organisation, is

likely to encounter resistance. Furthermore, the prevailing institutions are likely to shape

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 21

the character and content of the change process. This was referred to above as path

dependency, which can lead to organisations becoming locked-in to certain courses of

action; as in the booster rockets for the space shuttle.

The notion of management accounting change as a continuous process, rather than a

discrete movement from one position to another, has implications for what we mean by

successful implementation. The introduction of value-based management in the gas

division of the South East Asian oil company mentioned above might be considered

successful as the instructions of headquarters to implement value-based management were

followed; VBM was successfully implemented—but only ceremonially. The new system

did not have an impact on ways of thinking within the gas division; as such VBM was

unsuccessful in introducing a culture of shareholder value. However, a new system of KPIs

was eventually implemented and used within the gas division. So there was management

accounting change; but not what the designers of the VBM system at corporate

headquarters had in mind. Thus, in assessing the success of a management accounting

change great care has to be taken; the perspectives of the various groups in the

organisation have to be considered (cf. Malmi, 1997). Furthermore, as change is an

ongoing process, something that is considered successful/unsuccessful at one time may

evolve into something else as time proceeds. Thus, management accounting change has to

be seen as a complex ongoing evolutionary process; but as the Nuovo Pignone case

illustrated, the change can have quite revolutionary dimensions if the prevailing ways of

thinking in the organisation are challenged. Nevertheless, even in the NP case there was

stability in the production orientation of the business.

The Burns and Scapens framework, set out in Fig. 1, provides a useful basis for

studying such stability and change in management accounting practices. However, this

framework has been used largely to study stability and resistance to change, and rather less

to study institutional change (the case of Nuovo Pignone is an exception). Also, as the

framework focuses on institutions within the organisation, it gives less attention to the

external institutions (which are the focus of NIS). However, when John Burns and I

developed our framework, we explicitly recognised that there are both internal and

external influences on management accounting practices (2000, p. 12). In our paper, we

focussed on the internal institutions, as other researchers (using NIS) were exploring the

nature and impact of external institutions, while little attention had been given to the

internal institutions. Nevertheless, in any study of management accounting change it is

important to recognise that external institutions can be important in shaping management

accounting practices. In addition, there are other issues, not explicitly captured in the

Burns and Scapens framework, which have been explored in the work of my PhD students.

In particular, issues of trust, power and agency have been identified as important in

understanding management accounting practices.

5. Extensions and limitations

In this section, I will describe the work of some recent PhD students who have

examined management accounting change in different countries, using the Burns and

Scapens framework. I will start with a study, which explored the interaction of external

R.W. Scapens / The British Accounting Review 38 (2006) 1–3022

and internal institutions in shaping management accounting practices. This study

identified trust as one of the issues which needs to be considered in studying management

accounting change. The next study will look more explicitly at issues of trust—using the

case study of Nuovo Pignone mentioned earlier. I will then turn to issues of power. John

Burns discussed some of these issues in his 2001 paper in Accounting, Auditing and

Accountability Journal, drawing on insights from the Burns and Scapens framework.

Here, I will refer to a study which also explored power, but in so doing identified an

important limitation of the Burns and Scapens framework. Finally, I will outline some

current work which focuses on issues of agency and processes of institutionalisation. This

is an area which has largely been overlooked in recent studies of management accounting

change.

5.1. External and internal institutions

One of my PhD students, Nor Aziah Abu Kasim, studied a public utility in Malaysia

which was going through a process of massive organisational change (see Nor-Aziah,

2004a,b). Under pressure from the government, it had first to commercialise, then

corporatise, and finally quite recently it was privatised. The study focussed primarily on

the period of corporatisation, and explored the internal tensions created because of conflict

between the internal and external institutions. There were inescapable external pressures

and these had major impacts within the organisation, and led to serious internal conflicts

that revolved around a lack of trust in the accountants.

A major problem in the process of corporatisation was the introduction of new

accounting systems, including systems of budgetary control. But the operating managers

had little trust in the accountants. Previously, when the organisation was a government

department there had been no significant role for accountants. However, when it was

commercialised it had become necessary to produce financial accounts, and a new cadre of

accountants had been employed; but they were largely new graduates with little

commercial experience. As a result, these accountants had relatively low status in the

organisation, and were not perceived as financial experts—rather they were seen as

unnecessary meddlers in the day-to-day operations of the business. Furthermore, in setting

up the new system to produce the financial accounts during the process of

commercialisation, the accountants had deliberately distanced themselves from the day-

to-day operations of the business, as they did not trust the operating managers to provide

them with reliable information. Consequently, the new financial accounting system was

quite separate from the operations of the business.

One of the external institutional pressures on the organisation came from the regulator

who was calling for high levels of service delivery, and this conflicted with the pressures

from managers at head office who were calling for cost reductions. The regulator had a

major impact, however, which was enhanced by political considerations; such as criticisms

from politicians when service levels were not maintained. These external institutions

created problems for the operating managers and they instituted a policy of completing each

day’s work by the end of that day; thereby leaving no outstanding work on the ‘floor’—this

was known as the clear floor policy. The manager at each location was responsible for

executing the local clear floor policy, and this represented each manager’s key target. As a

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 23

result, ways of working were developed that sometimes involved overtime working, and

this inevitably had cost consequences. But the operating managers were not unduly

concerned about costs and resented the accountants’ attempts to hold them accountable for

their costs. For them, the accountants got in the way of the clear floor policy.

Consequently, the operating managers saw the accountants as outsiders with little

knowledge or understanding of the business, and in whom they had little trust. This meant

that the accountants and their accounting systems were treated with distrust when it came

to the introduction of budgetary control during the corporatisation process. This notion of

trust (and distrust) in accounting systems and in accountants is very interesting. Although

the concept of trust has been well researched in the organisational literature, it is relatively

under-researched in the management accounting literature. The discussion of trust which

is in the accounting literature has primarily focussed on new organisational forms (the

hybrid structures mentioned earlier—e.g. see Meer-Kooistra and Vosselman, 2000;

Langfield-Smith and Smith, 2003), although there are some other studies of accounting for

trust (see Tomkins, 2001; Johansson and Baldvinsdottir, 2003). This seems a particularly

fruitful direction in which to develop thinking on management accounting change. I will

return to the concept of trust in a moment.

An important conclusion of this Malaysian case study is that, although the NIS

literature tends to portray loose coupling as an organisational response to external

pressures, it can also be the outcome of tensions within the organisation as the external

pressures generate internal conflict. In this case, the lack of trust in the accountants caused

the managers to distance themselves from the use of accounting. Here, the loose coupling

was as much a consequence of the lack of trust in accountants, as it was an organisational

response to protect the technical core of the organisation from the demands of the external

institutions. Thus, there were interactions between the internal and external institutions,

which together were important in shaping the management accounting practices of this

Malaysian organisation.

5.2. Trust

Although this research in Malaysia focussed on the linkages between internal and

external institutions, it identified trust as an important issue. The research in Nuovo

Pignone, mentioned earlier, also explored the issue of trust (Busco, 2003; see also Busco

et al., 2002, Busco et al., 2006). But in that case the role of trust was very different.

Whereas there was a lack of trust in accountants in the Malaysian study just mentioned,

in the NP case trust in accountants did emerge and accounting came to be seen as an

‘expert system’. Within NP managers and others in the company recognised that

accounting is a pervasive feature within GE, and more specifically they perceived

accounting as something that modern corporations do. It is a reflection of modernity—in

Giddens sense of the term (1990). Giddens argues that expert systems are a feature of

modernity; we all have to trust expert systems and to put faith in experts. For example,

when we travel, say by aeroplane, we put our faith, indeed our lives, in the hands of a

vast array of expert systems and the experts who design and implement those systems.

We trust both the systems and those individuals. If we did not have trust in expert

systems modernity would not be possible.

R.W. Scapens / The British Accounting Review 38 (2006) 1–3024

Following its acquisition by GE, people in NP faced a crisis and they did not know what

was going to happen. They had considerable anxiety about the future and what the GE

acquisition would mean for NP and for them individually. However, GE has a well-

developed and extensive programme of integration for its acquisitions. In NP a massive

amount of training was provided in all aspects of the GE Way. In relation to accounting, a

new cadre of well qualified finance managers were appointed to work alongside and to

support the operational managers. These finance managers were perceived as the people

who could help and support managers; they were recognised as experts who could deal

with the accounting and financial problems that had to be faced. Over time, as they

continued to provide solutions to these problems and to enable managers to meet the

demands placed on them by GE, trust was built in the accounting systems and in the

accountants who came to be seen as trusted access points to these expert systems.

So, whereas in the previous Malaysian case there was a lack of trust in accountants and

this led to resistance to new accounting systems, in the NP case it was the building of trust

which facilitated the process of change and the introduction of new accounting systems.

Thus, trust in accounting and in accountants would appear to be important in the shaping

of management accounting practices and consequently trust is an issue which needs to be

explored in studying management accounting change.

5.3. Power

The third PhD study I want to mention focuses on the issue of power. This study is

particularly relevant here, as it points to a limitation of the Burns and Scapens framework.

Earlier, I portrayed institutions as taken-for-granted ways of thinking and doing: i.e.

assumptions which underpin day-to-day activity, and which can be traced back to past

actions and choices, but which have become dissociated from their historical antecedents.

João Ribeiro studied a Portuguese company that was introducing an enterprise resource

planning (ERP) system (Ribeiro, 2003; Ribeiro and Scapens, 2004). Although this

research started from the perspective of the Burns and Scapens framework, it questioned

the notion that taken-for-granted assumptions are essentially below the surface at a

cognitive level. In this Portuguese company there were severe constraints on how people

behaved; and lots of institutionalised behaviour. But the constraints were not at a cognitive

level. The assumptions about how to behave were not below the surface; in some taken-

for-granted fashion. Rather, they were quite explicit and very much out in the open;

everybody knew what they were doing, and more importantly they knew why.

The company was very large public company; but it was run by a powerful family. The

senior member of the family (referred to as the Group Leader 13

) had placed family

members and other confidants into key positions throughout the company, so he could

control what was happening in the business. As a result, the rules and routines in the

organisation were held in place, not by taken-for-granted assumptions, but by circuits of

power (Clegg, 1989). This questions the notion that rules and routines are underpinned by

institutions that are largely unquestioned assumptions, located at a cognitive level—i.e.

13 This name was made-up by João Ribeiro.

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 25

below the surface of everyday discourse and dissociated from their historical origins. In

this case, the rules and routines were held in place by the powerful position of the Group

Leader—a position which was explicitly acknowledged, but not openly challenged;

although it was widely discussed. Thus, attempts to introduce new systems, which

challenged existing rules and routines, were caught up in a power struggle.

The case study focussed on the introduction of an ERP system, which was part of an

attempt to introduce greater management control over the production activities of a

particular segment of the business. However, the production manager of this segment was

a confidant of the Group Leader, and was initially able to resist the attempts to make his

production activities transparent and more financially accountable. The study followed the

strategic moves of the various actors as they sought, on the one side, to bring about

management accounting change and, on the other, to resist it.

The case illustrates that rules and routines can be kept in place by the explicit use of

power, as well as by taken-for-granted assumptions. It also explored the ways in which the

organisational actors coped with this situation, and the strategic moves they were able to

make in order to overcome the resistance of powerful people at different points in the

organisation. Thus, in this case it was important to study the role of the individual actors

and, particularly, those actors who were in a position to challenge the existing circuits of

power. In this study, João Ribeiro combined insights from actor network theory and the

circuits of power to study the strategic actions of the various actors in this Portuguese

company. As such, the study identified an important limitation of the Burns and Scapens

framework. However, it does not necessarily mean the framework does not have its uses,

but it does indicate that it is necessary for management accounting researchers to be aware

of the circuits of power.

5.4. Agency

This brings me on to the role of agency. As I mentioned earlier, the Burns and Scapens

framework has been useful in trying to understand stability; why accounting systems are

slow to change; why there is resistance to change; and how institutions shape rules and

routines. But to date, it has been rather less useful (or just less used) in studying how

institutional change comes about. This is a particularly difficult issue for institutional

theory. If the actions of organisational actors are constrained by institutions, i.e. their taken

for granted assumptions, how do they come to recognise the need to change, and how do

they recognise the opportunities and alternatives for change? Referring to the work of

Barley and Tolbert (which, as indicated earlier, is similar to the Burns and Scapens

framework), Seo and Creed (2002) pointed out that an important theoretical dilemma is

left unresolved: when and how do actors actually decide to revise their rules and routines,

if their actions and thoughts are constrained by existing institutions?

In the Nuovo Pignone case, there was a massive external impetus for change—the

acquisition of NP by GE—and this led everyone in the organisation to see change as

inevitable. But can change come from within the organisation? Such change did

eventually take place in the Portuguese company researched by João Ribeiro. But in that

case the existing rules and routines were held in place, not by taken-for-granted

assumptions, but by circuits of power. They were not below the surface, at a cognitive

R.W. Scapens / The British Accounting Review 38 (2006) 1–3026

level; rather they were explicit, although they could not be overtly challenged.

Nevertheless, various strategic moves were taken by individual actors as they tried to

overcome resistance to the new ERP system.

So the question remains. Where existing rules and routines are underpinned by taken-

for-granted ways of thinking, how do actors come to recognise that they need to change

those ways of thinking? This is an interesting and important topic on which one of my PhD

students in the Netherlands, Martijn van der Steen at the University of Groningen, is

currently working. He is studying how actors within a Dutch bank came to recognise cues

and issues which prompted them to change the way they think about the activities of their

bank. He is exploring the way in which cognitive processes of cue recognition interact

with scripted and unscripted behaviours to bring issues, such as the need for greater

accountability, to the surface, thereby making them more likely to prompt change. Such

work has great potential to help our understanding of processes of institutional change.

Seo and Creed (2002) point out that there can be various types of contradictions within

apparently stable and long standing institutions and, drawing on Benson (1977), they

explore the linkages between such institutional contradictions and human praxis. These

institutional contradictions can contain the seeds of institutional change. Seo and Creed

point to the role of change agents and intellectual elites in bringing about institutional

change. These are individuals or groups who can mobilise wider (including external)

institutional logics and meanings to create an awareness of institutional contradictions

and, thereby, define a new organisation reality that will help other organisational actors to

recognise the need for institutional change. One of my Manchester PhD students, Chun Lei

Yang, is studying such a change agent in a Chinese social services agency, which is having

to cope with contradictory pressures for budgetary reform. This work is exploiting the

ideas of dialectics, which informed Benson’s work; but placing it within a Chinese

perspective on dialectics. This research also has considerable potential to extend our

understanding of institutional change.

These two pieces of ongoing PhD research indicate ways in which it is possible to study

the question raised a few moments ago: If existing rules and routines are underpinned by

taken-for-granted ways of thinking, how do actors come to recognise that they need to

change those ways of thinking? This is an important, but to date, relatively neglected area.

Institutional approaches, such as the Burns and Scapens framework, have been useful in

studying resistance to change, but until recently little explicit attention has been given to

the role of agency. But this is beginning to change; we are now starting to learn how

institutional change can come about as a result of external pressures, external and internal

cues, and institutional contradictions.

5.5. Implications

When John Burns and I developed our framework we acknowledged that it was just a

starting point and would need to be developed and extended through further research. The

recent research of my PhD students has added important new insights. It has emphasised

and explored the interactions between internal and external institutions; drawn attention to

the importance of trust in processes of change; critiqued the notion that rules and routines

are held in place by taken-for-granted assumptions and pointed out that they can also be

R.W. Scapens / The British Accounting Review 38 (2006) 1–30 27

underpinned by circuits of power; and finally they have recognised the importance of

studying the role of agency in processes of institutional change.

Together these studies are giving us deeper insights into processes of management

accounting change, and I now believe I have a much clearer understanding of why there is

diversity in management accounting practices and how the management accounting

practices of individual organisations evolve. At one level there are broad systematic

pressures shaping management accounting practices; these pressures come from both

economic considerations and legitimacy considerations (as explained by NIE and NIS). As

organisations seek to be technically efficient, various economic pressures shape the nature

of their management accounting practices; but they are also shaped by their attempts to

conform to the expectations of their various stakeholders. But in addition to these external

pressures, there are internal pressures for and constraints on management accounting

practices. Management accounting change in organisations has to be seen as an

evolutionary, path dependent process in which existing ways of thinking (institutions),

circuits of power and trust in accountants can all have an impact on the way in which the

actors within the organisation respond to external institutional and economic pressures. It

is this complex ‘mish-mash’ of inter-related influences which shapes management

accounting practices and explains the diversity we see in the practices of individual

companies.

6. Summary

To finish, I would like to summarise my personal journey trying to understand

management accounting practices. From a starting point at which I was working with

mathematical models and seeking to explore the extent to which they could be used to

explain the diversity of practices in the population, I have moved to a position where I am

studying the management accounting practices of individual organisations and seeking to

explain how they are shaped and how they change (or are resistant to change). In the

course of this journey there has been a change in the meaning of ‘understanding’; from

explaining the diversity of practices in a population, to making sense of the practices in

individual companies. This change is reflected in the shift in my research methods—from

quantitative survey work to qualitative case studies.

In survey research, the aim is to explain diversity in the population: i.e. the extent to

which the diversity of accounting practices can be explained by certain variables which are

hypothesised to have some theoretical relevance. But in my case study research, the

purpose is to understand how accounting practices which are in use have emerged in

specific organisations. For this purpose, the organisations do not have to be representative

of some population; simply organisations in which management accounting practices are

changing. I want to understand the processes through which these practices change, and

how they are shaped by the broad external influences as well as the systematic and more

idiosyncratic internal influences. By focussing on the internal influences, it is possible to

explore how institutionalised ways of thinking and existing rules and routines shape

management accounting change. However, it is also necessary to look at issues of trust,

R.W. Scapens / The British Accounting Review 38 (2006) 1–3028

power and agency. By so doing, we can better understand the mish-mash of inter-related

influences through which management accounting practices evolve.

From the 1970s, when the mathematical economic models were supposed to tell

practitioners how to do their management accounting, and the 1980s when management

researchers began to realise that we had little real understanding of management

accounting practice, to today when we have a much better understanding of the complexity

of the processes which shape management accounting practices, we have come a long

way. But it has taken a long time; and the research has followed practice—with researchers

seeking to understand and theorise what practitioners do and how practices evolve. The

challenge for the future is to use this theoretically informed understanding to provide

insights which are relevant and useful for practitioners; for management accounting

research to have more of an impact on practice.

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