2.3 The effectiveness of MCSs
2.3.2 Organisational outcomes
Although there is a long established view that MCSs may help or hinder organisational change (Kloot, 1997), the studies empirically examining the association between MCSs and organisational change are limited, particularly in the public sector, and the findings of such studies are inconsistent. Ford and Greer (2005) found that while control systems focusing on monitoring outcomes were associated with successful organisational change, behaviour- based controls did not influence the success of organisational change. Similarly, while examining the association between strategic control and financial control with strategic change and incremental change, Li et al. (2005) found that although both strategic control and financial control resulted in strategic change, financial control negatively impacted incremental change. Similarly, while in a theoretical study Dervitsiotis (1998) noted the role of TQM in promoting both revolutionary (drastic) and incremental changes, in a review of previous studies, Andersen (2000) noted that Strategic Planning constrains change, and Soin et al. (2002) reported no relationship between ABC and organisational change in a case study of a UK-based multinational bank.
27
In the context of the public sector, Kober et al. (2007) found that using MCSs interactively promoted strategic change in the case organisation. Similarly, Naranjo-Gil and Hartmann (2007) investigated the association between top management teams, the interactive use of MCSs, and the broadness of MCSs (information) with strategic change in a survey of Spanish public hospitals. They found that both the interactive use of MCSs and the broadness of MCSs were associated with strategic change, and that the interactive use of MCSs mediated the relationship between top management teams and strategic change.
Given the limited studies examining the association between MCSs and organisational change in the public sector, and the inconsistent findings in previous studies, this thesis aims to provide further evidence by examining the relationship between three aspects of MCSs (management accounting practices, the approaches to using MCSs and MCS characteristics) and organisational change. Specifically, Paper One focuses on the association between the adoption of management accounting practices with organisational change and Paper Three focuses on the association between the interactive and diagnostic use of MCSs, MCS characteristics, and organisational capabilities with organisational change.
2.3.2.2 Organisational performance
A number of previous studies have examined the association between various aspects of MCSs with organisational performance, although the findings of such studies have revealed mixed findings. With respect to management accounting practices, Peel and Bridge (1998) found a positive association between long-term budgeting and performance. However, alternatively Pike (1984) found that the degree of Capital Budgeting sophistication was negatively associated with corporate performance.
28
Ittner et al. (2002) examined the association between Activity Based Costing with both the operational and financial performance of manufacturing firms in a survey of manufacturing firms in the US. The study found a positive association between Activity Based Costing and operational performance (i.e. quality level, and improvements in quality and cycle time), but the relationship between Activity‐Based Costing with financial performance was indirect, through quality and cycle time. In addition, a study by Maiga and Jacobs (2008) found that the extent of Activity Based Costing use was positively associated with the three dimensions of performance including cost improvement, quality improvement and cycle-time improvement. Moreover, in a longitudinal study examining the impact of ABC on firm performance over three years, Kennedy and Affleck-Graves (2001) found that ABC adopters outperformed non-adopters by around 27%. However, while examining the effect of the announcement of the adoption of ABC systems on economic benefit (stock market return), Gordon and Silvester (1999) found no association between the installation of ABC and the stock market reaction in US companies.
Similarly, in a survey of hypercompetitive industries Gómez-Gras and Verdú-Jover (2005) reported that there was no association between Total Quality Management (TQM) with performance. Alternatively, Chenhall (1997) found that higher performance was recorded when TQM programmes were combined with manufacturing performance measures, and Samson and Terziovski (1999) found that most TQM practices were related to operational performance. Furthermore, in a survey of US companies, Maiga and Jacobs (2004) examined the effect of four Benchmarking measures on organisational performance, and the study found that three of the Benchmarking measures had a positive effect on organisational performance.
In a survey of manufacturing companies in Australia, Perera et al. (1997) investigated the relationship between a customer-focused strategy and the emphasis on non-financial
29
(operation-based) measures, and whether the emphasis on such measures lead to enhanced performance. Although evidence of the association between the customer-focused strategy and the emphasis on non-financial performance measures was found, no relationship was found between the latter and organisational performance. Conversely, Ittner et al. (2003) found that making extensive use of a broad set of financial and non-financial measures was associated with higher stock market returns. Likewise, Baines and Langfield-Smith (2003) reported that a change in the non-financial management accounting information provided lead to an increase in organisational performance.
Hence, the review in relation to the association between management accounting practices and organisational performance indicates mixed findings, with both positive and negative associations reported. Accordingly, Paper One aims to provide an empirical insight into the relationship between management accounting practices and organisational performance, albeit from a different perspective. Specifically, while the existing studies have commonly examined individual management accounting practices in isolation (independently), there is a long held view that management accounting practices operate as a package, and hence using them in such a manner might enhance their effectiveness (Malmi and Brown, 2008).
For instance, in a survey of New Zealand manufacturing companies, Adler et al. (2000) found that even though using contemporary management accounting practices individually was not associated with sales, using such practices in combination was associated with increased sales. Similarly, in a case study examining the role of integrated cost management techniques on cost reduction, Cooper and Slagmulder (2006) found that the case organisation (Olympus Optical) integrated five internal cost management practices, which yielded a cost reduction. Consequently, given the limited studies that examine the effect of using management accounting practices as a package, Paper One attempts to extend the literature
30
by examining the effect of using a package of traditional and a package of contemporary practices on organisational change and organisational performance.
In addition to management accounting practices, previous studies have also related other aspects of MCSs to organisational performance. For instance, in a survey of manufacturing companies in Australia, Dunk (2011) found that the manner in which the budget is used either as a planning (interactive) or control (diagnostic) mechanism led to a positive and negative impact on organisational performance respectively. Also, Abernethy and Brownell (1999) investigated the role of the manner of using MCSs (budgeting) in moderating the relationship between strategic change and organisational performance. Their study found that of the organisations that were undergoing strategic change, those that were using their MCS (budgeting) interactively recorded higher performance. Alternatively, while examining the association between the interactive and diagnostic styles of using project MCSs in a survey of project managers, Sakka et al. (2013) found a positive association between the diagnostic use of MCSs with performance, but no association in respect to the interactive use of MCS with performance. Given the inconsistent findings of these studies, and the relatively few studies which have considered the relationship between the interactive and diagnostic use of MCSs and organisational performance in the context of the public sector, Paper Three seeks to further explore this relationship.
With respect to MCS characteristics, while examining the effect of MCS characteristics on organisational performance, Mia (2000) found that the broadness of MCS information enhanced performance. Similarly, Gerdin (2005) found that the broadness of MCS information positively affected the performance of subunits. However, in a survey of Chinese executives, Li et al. (2010) found no association between the formality of control and performance. Furthermore, while Kallunki and Silvola (2008) found that the formality
31
of MCSs positively influenced financial performance, it had no significant relationship with non-financial performance.
In a review of MCS-strategy studies, Langfield-Smith (1997) reported that the tightness of budget goals was negatively associated with financial performance in large defender company. Similarly, Choe (1998) examined the influence of contextual factors, namely task uncertainty and organisational structure, on organisational performance. The study found that aggregated and timely information was positively associated with performance under conditions of high task uncertainty. The study also found that broad scope, timely and aggregated information had a positive effect in a less structured organisation; and higher performance was achieved when narrow scope and disaggregated information were used in mechanistic organisations. While these studies on the relationship between MCS characteristics and organisational performance report mixed findings, they predominantly focused on the private sector context. Hence, Paper Three aims to contribute to the literature by examining the association between MCS characteristics (the scope of MCS information, the formality of MCSs and the tightness of MCSs) and organisational performance in the public sector.