Development of management accounting theories and practices

This paper is concerned with the development of management accounting theories and practices
and their inter-relationships. Specifically it deals with the rise of ‘activity-based’ accounting and
management. We trace this development from US manufacturing in the early 1980s, through its first
theoretical formulation, successive extensions and amendments to this theory, to its application in
UK business in the 1990s. In the course of this journey various activity-based costing practices were
identified and branded as ABC. As its originators reflected on this new accounting, and as more and
more people became interested in it, ABC spawned a number of other theories and practices - such
as ABB, ABC/M, ABM, Activity Accounting, Total Cost Accounting. This is “the ABC bandwagon”. The
bandwagon was constructed in a world which Giddens (1990) likens to a runaway engine of
enormous power that we try to drive but fear may rush out of control at any moment. This is “the
juggernaut of modernity”.

Faced with the complexity and risks of the modern world people must trust in abstract systems of
knowledge, whilst at the same time recognizing that knowledge can never be guaranteed, and thus
is not ultimately trustworthy. The technologies of accounting perpetually undermine themselves and
require constant support and reaffirmation. ABC was a response to global challenges to US
manufacturing, and to a crisis of confidence in “traditional accounting” as means of informing
managers’ actions. It was advanced as a more trustworthy form of knowledge relevant to modern
conditions. However, even as this new form of accounting was being implemented in practice, the
basic principles of ABC underwent transformation which undermined its early claims. Yet, at the
same time, these claims were being used to promote its implementation in new sites. Our discussion
is structured as follows. We begin by laying out an analytical framework for examining the ABC
phenomenon drawing on the work of Anthony Giddens. We then explore the origins of ABC in case
studies of mid-1980s US manufacturing practices, their exposition as ABC by Cooper, Kaplan and
Johnson in 1987-89, and the subsequent popularization and dissemination of ABC. Finally we trace
the development of second-wave ABC ideas in 1989- 92, demonstrating their rapid and fundamental
transformation. We conclude that the development of ABC is classic example of the power and
simultaneous fragility of expert systems in modernity. ANALYTICAL FRAMEWORK Our exploration of
the development of ABC draws on Giddens’ (1990) analysis of modernity. In accounting research
interest in Giddens’ work has generally been in his development of ‘structuration theory’ which
attempts to replace the dualisms of agency and structure with the ‘duality of structure’ (Macintosh
& Scapens, 1990; Boland, 1993; Dirsmith et al. 1997). Macintosh offers a succinct summary of the
main points: structuration theory is concerned with the interplay of agents’ actions and social
structures 2 in the production, reproduction, and regulation of any social order. Structures, existing
in virtual time and space, and drawn upon by agents as they act and interact in specific timespace
settings are themselves the outcome of those actions and interactions (1994:172). Giddens does not
accord priority to either structures or action. Instead he suggests we should study social practices
that both socialize (constitute) individuals as actors, and realize (embody) structures. The production
and reproduction of society are seen as a skilled performance of its members who draw upon both
practical and discursive consciousness. The former refers to our knowledgability about the world in a
taken-for-granted way: the latter to our reflexive monitoring of action. ‘Systems’ are patterns of
relationships that are structured and restructured in social practices: therefore systems have
structures, but are not structures themselves. The three central structures in systems are
‘signification’, ‘legitimation’, and ‘domination’. Signification creates meaning in social interaction,
domination produces power, and legitimation provides for a system’s morality. These three layers,
while separable in the abstract for analytical purposes, are intimately entwined in reality (Macintosh,
1994:172). This general theoretical framework is the foundation for Giddens’ substantive sociology
of modernity. It is this latter sociology on which we draw for this paper. The Nature of Modernity
Giddens argues that the: dynamism of modernity derives from the separation of time and space and
their recombination ... the disembedding of social systems ... and the reflexive ordering and
reordering of social relations’ (1990:16-7, emphasis in original). Let us consider each of these in turn
before constructing a framework for research. Time and Space. For the majority of people in the pre-
modern world time and place were firmly linked: we might characterize this as a concrete when-
where. In modernity, time and space become separated and abstract. Time becomes standardized
through the mechanical clock and universal calendar: space by uniform measurements and official
maps. The separation of time and space involves standardization which ‘empties’ them of the
necessity for a particular local physical setting for time-space that now becomes global. This
‘distantiated’ time and space can now be recombined through ‘time-space ordering devices’ (such as
railway timetables). Giddens refers to this process as ‘disembedding’ which means ‘the "lifting out"
of social relations from local contexts and their restructuring across almost indefinite spans of time-
space’ (1990:21).

This is particularly evident in the way modern rationalised organisations connect the local and the
global. Disembedding Institutions. Giddens argues that the scope of ‘time-space distantiation’ is
greatly extended by the development of disembedding institutions. He identifies two key
mechanisms in this process. First there is the development of symbolic tokens, in particular - money.
Modern money exists both as cash and coins in everyday transactions and as disembedded symbolic
token. It is a mode of deferral in time and implies a space between individuals and their possessions.
Thus it is ‘a means of bracketing time-space by coupling instaneity and deferral, presence and
absence’ (1990:25). The second important disembedding mechanism is the development of expert
systems, described as ‘systems of technical accomplishment or professional expertise that organise
large areas of the material and social environments in which we live today ... An expert system
disembeds by ... providing "guarantees" of expectations across distantiated time-space’ (1990:27).
The layperson has little direct access to the knowledge that is inherent in such abstract systems and
so the 3 plausibility of these guarantees rests upon faith in ‘the authenticity of the expert knowledge
which they apply’ (1990:28). Giddens argues that: In conditions of modernity, larger and larger
numbers of people live in circumstances in which disembedded institutions, linking local practices
with globalised social relationships, organise major aspects of day-to-day life (1990:79). This
everyday organization involves reembedding which is ‘the reappropriation of disembedded social
relations so as to pin them down (however partially or transitorily) to local conditions of time and
space’ (1990:79). Reflexivity. Giddens argues that modernity generates new forms of reflexivity. In
early modernity social change appeared as a move from tradition to reason. So, for example, Weber
(1922) identified rationality as the defining feature of modern society. At first this seemed to
promise the replacement of the certainties of traditional knowledge with new certainties of science.
However, as modernity developed, it became clear that modern reflexivity subverts reason: the
rational questioning of all things leads to questioning the assumptions on which the questions rest.
In the constant monitoring of behaviour and contexts, of thought and action, all knowledge becomes
unstable. Whereas some have identified this as the post-modern move, for Giddens it is the working
through of the modern (‘radicalised modernity’) as it comes to understand itself. In modernity
knowledge is always provisional, contestable, and open to differing understandings. Since reflexivity
becomes the basis for system reproduction, the instability of knowledge produces an unstable
world. Given that the knowledge of expert systems cannot be guaranteed, why then do people
continue to trust in them? Giddens argues that we make a ‘bargain with modernity’ (1990:90). We
are socialized to trust so that as we learn science we also learn a respect for science as reliable
knowledge. This spills over into respect for other forms of technical knowledge. This respect exists in
conjunction with scepticism so that attitudes are ambivalent - a balance of respect and scepticism. In
the modern world there is no escape from expert systems and ‘attitudes of trust towards abstract
systems are usually incorporated into the continuity of day-to-day activities and are to a large extent
enforced by the intrinsic circumstances of daily life’ (1990:90). Thus we have a predisposition to
trust, which is constantly being undermined, but lack of alternatives means we make pragmatic
compromises that are woven into our routines. ounting and Modernity: an Analytical Framework
Drawing together these aspects of modernity we now construct an analytical framework for study of
the development of accounting theory and practice. Accounting can be seen as a social practice that
constructs information: concrete things and events are recreated as abstract values and exchanges.
In the modern corporation such accounting information conditions the possibilities of ‘acting at a
distance’ through its ‘centres of calculation’ (Latour, 1987). Accounting provides the mechanisms by
which information on the local (e.g. operating units) is communicated to the global (eg. head office)
where it constitutes a means to act back into the local (Johnson & Kaplan, 1987). In this process,
accounting information is emptied of local (tacit) knowledge and changes its meaning (Armstrong,
1987a).

The resulting ‘management by the numbers’ involves particular recombinations of time and space.
The power of accounting as a disembedding mechanism rests to a considerable extent on its ability
to re-present other forms of data and calculation in terms of money as pure information - thus 4
linking itself to modernity’s most potent symbolic token. Miller argues: ‘Whilst accounting shares
with other means of quantification such as statistics the ability to translate qualities into quantities,
it does so largely by translating these qualitative differences into financial values which need no
further referent’ (1994:2). Accounting, then, claims to provide the ultimate translation - the bottom
line. Accounting is not only a mechanism of disembedding: it is an institution which is itself
disembedded and reembedded recursively. In the process of disembedding the nature of accounting
changes. The act of disembedding involves a reflexivity which mediates between concrete practices
and abstracted theory. Accounting also changes as it is reembedded in local contexts where there it
may meet with consent, mediation and/or resistance as it encounters reflexive monitoring in local
contexts. In part, this is signalled by the long-running discussion of ‘the gap between theory and
practice’ (Edwards & Emmanuel, 1990). The usual assumption is that the “gap” is created by
“theory” taking a lead which “practice” is slow to follow. In our analysis, what is taken to be leading
and following (or what is prior and subsequent) is a function of the point at which we cut into the
cycle. If the dissemination of new accounting techniques is studied then it appears that theory leads
practice:

if learning from field research or personal experience is investigated then it seems that practice
informs theory. In our approach theories and practices are seen as socially constructed in recursive
cycles of disembedding and reembedding in which each influences the other (see Figure 1). FIGURE 1
ABOUT HERE In our discussion of ABC which follows there is a major disembedding-reembedding
cycle which takes activity-based theories and practices from the local contexts of particular US
manufacturing plants, through their globalized abstraction as ABC, and inserts them in new and
diverse local contexts. Within this are minor cycles in which reflexive monitoring of contexts and
actions continually reforms these theories and practices at both global and local level. THE ORIGINS
OF ABC There are two main strands in the development of accounting theories and practices. The
first, which is more familiar to academics, flows through the work of Bob Kaplan, Tom Johnson,
Robin Cooper, and their associates who brought “ABC” to global attention. For convenience (with
some apology to Johnson) we label this “the Harvard approach”. The second, less well known, is “the
CAM-I approach”, mostly represented through the work of Jim Brimson,