Management Control Practice In An Entrepreneurial Business: Longitudinal Case Study

By

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

(96/MSM/92)
A dissertation Submitted to the University of Sri Jayawardenepura In partial fulfillment of the requirements for the degree of Masters of Science in Management

M.Sc. (Management) Program Faculty of Graduate Studies, University of Sri Jayawardenepura, Nugegoda, Sri Lanka.
August 2002

Acknowledgement
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The credit for my having been able to accomplish my task and complete this dissertation, should go, without reservation to my supervisor,

Dr. Danture P. Wickramasinghe,
Dean, Faculty of Management and Finance of the University of Colombo, Sri Lanka, And Research Fellow, School of Accounting & Finance, University of Manchester, Manchester M13 9PL England, for his unstinted support, valuable and systematic guidance & comments extended and encouragement given me throughout the duration of this work, even sacrificing his leisure time at home. I will be failing in my morale duty if I do not gratefully mention here that his insistence on a research method at the very beginning of this exercise and the unfading interest shown by him throughout the entire duration of my effort and above all his admiration and appreciation of hard work where it deserved was a source of inspiration to me which, made the preparation of this dissertation an enthusiastic and explorative experience. Thanks to my untiring supervisor a humble feeling of self confidence and accomplishment in my limited capacity run through me on completing this assignment which, was a new challenge to me. For all these noble acts and numerous other kind gestures on his part during the course this research, let me offer a BIG word of THANKS with a sincere wish that he rise to the highest level of international academic recognition so that his reservoir of knowledge would be an open source for those who are seeking academic achievements to quench their thirst for knowledge.

I am also grateful to Mr. Predeep Randiwela, Head, Department of Commerce/ Acting Dean Faculty of Management & Finance and Mr. Sarath Jayasinghe, Head, Department of Management Studies of the University of Colombo, Sri Lanka, for their painstaking and highly admirable contribution to the complete of this research with giving me encouragement and instructions showing their human qualities and wide knowledge and for valuable support extended at various stages.

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I must also extend my gratitude to Mr. Ramesh Sriskandaraja, Lecturer, Department of Management Studies, University of Colombo, Sri Lanka for all the trouble taken and active participatory support extended in getting computer support at all the stages of research. I am grateful again to Mr. Pradeep Randiwela, Head, Department of Commerce, University of Colombo, Sri Lanka and Vichitra Abeyasekara, English Teacher, Sripalee Maha Vidyalaya, Horana, Sri Lanka who most kindly undertook the editing of this dissertation and accomplishing it in time at the cost of all their other scheduled work. I must also thank my colleagues of the faculty Mr.Gamini de Alwis, Dr.Karunarathna, Mr.Saman Dassanayake, Mr.Gunapala Ranaweerage, Mrs.Thilaxi Kodagoda, Mr. Prabath Jayasinghe,and Mr Jayakody , who were always supportive are remembered here with gratitude. Last but not the least my loving wife Renuka, my daughter Shashika and son Rashmika for the immense sacrifices they made during this period for the sake of the preparation of this dissertation. They were very understanding and bore all troubles and taxing as part of their duty by me.

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Abstract
This study reports an intensive case study of a recently established food manufacturing company in Sri Lanka. It examines how management control practices in a particular manufacturing concern operates under environmental uncertainties stemmed from social and cultural dimensions implicated in main organisational actors. To understand such practices, the study has used theoretical and methodological lenses of Hopper and Powell (1985), which explores fundamental philosophical assumptions of different schools of thought in management. The empirical data collected through a qualitative naturalistic research method was made iterated with broader sociologically informed post-positivistic theories especially, interpretive theories. The findings implicate that management control and accounting practices are quite different from the conventional wisdom due to the attributes of personal characteristics, which were, constructed in particular society. The story that has been told in this study is centred around the notion that the CEO has accumulated power around himself towards maintaining power around himself. The resultant characteristics in this mode of control are: centralised decision-making power of CEO, limited internal information flow/reporting, arbitrary rewards, and reduced benefits. The accounting system has been to preserve the family but its manifestation through shortrun physical budgets was a keystone in transmitting pressure upon line managers and thence workers. Deriving from these empirical concerns, the study shed some light on the ontological and epistemological positions in undertaking accounting research of this nature. In particular, the study has found the researcher, the phenomena studied, the context in which they are studied, and the research approach in use, to be intimately interwined – this in marked contrast with the more orthodox scientific position that they are detached. The study urges future qualitative field workers to exploit natural experiments of different varieties.

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Table of Content
Page
Acknowledgement Abstract Table of Content List of Figures i iii iv viii

Chapter One: Introduction
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Background The Research Aims and Objectives Significance of the Study Scope of the study Limitations of the Study Structure of the Dissertation

01-10
01 02 05 05 08 08 10

Chapter Two: Towards a Theorisation of Management Control Systems
2.1 2.2 Introduction A Critical Look at Conventional theories in management control 2.2.1 2.2.2 Objectivism Social Systems Theory 2.2.2.1 Accounting Dysfunctions 2.2.2.2 Psychological 'Theories 2.2.2.3 Social Psychological Theories 2.2.2.4 Structural Theories 2.2.2.5 Open System Theories 2.2.2.6 Contingency Theories 2.2.3 2.2.4 2.2.5 2.3 Pluralism interpretive theories Radical theories

11-48
11 11 13 15 16 17 18 20 21 23 26 30 35 43 5

A Framework for the present study

Chapter Three: Methodology 3.1
3.2 Introduction Problems of Orthodox Methodology 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.2.8 3.2.9 It is framed from the perspective of the organization It treats the organization as effectively a closed system It has a technical orientation It is prescriptive It is ahistorical It is apolitical It is rationalistic It is functionalist It is reductionist

49-74
49 49 50 50 51 51 52 52 53 54 54 55 56 57 59 61 62 62 63 65 66 67 68 68

3.2.10 It is positivist 3.2.11 It is problem-cantered 3.3 Towards a case study approach 3.3.1 3.3.2 3.3.3 3.4 3.4.1 3.4.2 Case and universe Theory and case formulation Making a case Unit of analysis and Justification Research methods 3.4.2.1 Observations 3.4.2.2 Interviews 3.4.2.3 Documentation 3.4.3 Analysis

Research Design and Procedure adopted

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3.4.3.1 Inductive data analysis 3.4.3.2 Analysis on-site 3.4.3.3 Running the data open 3.4.3.4 Focusing inductive analysis 3.4.3.5 Deepening the analysis

69 70 71 72 73

Chapter Four: Social and Organisational Context of the Study 75-108
4.1 4.2 Introduction Sri Lankan Society and Business 4.2.1 4.2.2 4.3 4.3 4.4 Colonial Economic, Business System and Society in Sri Lanka (before Independence) Post- Independence (from 1948) Company Background Business Idea Corporate Strategy 4.4.1 4.4.2 4.4.3 4.4 4.5.1 4.5.2 4.5.3 4.5.4 4.5.5 4.6 4.6.1 4.6.2 4.7 4.7.1 4.7.2 4.8 Market 7 Strategic Business units Product categories Objectives, Strategies and Tactics Organization Chart Work Force Nature of responsibilities Incentives and Reactions Decision Making Process Budgets Planning 97 97 98 98 Initial Capital and Net Asset Resource Allocation 76 79 84 85 87 87 88 89 91 91 92 93 94 95 96 96 97 75 75

Organizational Structure and Controls

Budgeting and Planning

Financial / Capital Structures

4.8.1 4.8.2 4.8.3 4.8.4 4.9 4.9.1 4.9.2 4.9.3 4.10

Features of the product Market Development Distribution Network Reaction for Competitor Activities Pricing Material Handling Changes to be introduced (Proposed changes) in Cost Accounting Statements 105 99 99 100

99

Costing Process and Material handling 102

102 103

Summary

106

Chapter Five: Analysis of the Case
5.1 5.2 Introduction Management Theories Vs. CEO Driven Management Control System 5.2.1 5.2.2 5.2.3 5.2.4 5.3 5.3.1 5.3.2 5.3.3 5.4 5.4.1 5.4.2 5.5 5.5.1 5.5.2 5.5.3 5.5.4 CEO’s Ideology Hidden Authority & Organizational Capacity Financial Authority and Corporate Strategy Making Subordinates Unimportant. Internal Financial Reporting Mindful Budgets in the “No Budget” Practice

109-138
109 109 110 111 113 114 116 116 118 123 124 124 125 127 127 128 130 132

Frequent Information Flows and Centralized Decisions

Accounting As a Ceremonial practice and Representational Craft Getting blue collars in the foreground Employees are treated as work hoarse Creating dummies in the Organization Structure Dysfunctional Goals Vs. Unitary Goals Eye on Environment Foreseen social responsibilities

Harmonization of the work force

Pragmatism over Techniques

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5.5.5 5.5.6 5.6

Pricing by going prices Ad – hoc Arrangements in Daily Operations

135 135 137

Summary

Chapter Six: General Summary and Conclusions
6.1 6.2 A General Summary Conclusions

139-145
139 145

References

146- 165

List of Figures
Page Figure 2.1 Figure 2.2 Accounting Schools and Sociological Paradigms Management Accounting and Social System Theory 13 16

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CHAPTER ONE Introduction
1.1 Background
This study attempts to review and understand management control systems in practice in an uncertain context. A number of studies have addressed the issue (Lowe and Machin, 1983 and A.J. Berry et al 1985). However, there is little studies carried out extend these discussions and beyond the Western context. The present study investigates the nature of management control systems of a food manufacturing company named Multi Food Products Limited (MFPL) in Sri Lanka. The study focuses on the areas of financial and production control systems, marketing strategies, man - power planning and organizational structure in particular. It is intended to understand the ways in which “control” operated in the company and to explore explanations of why the system of control worked in the ways that they appeared to do. At the outset, the dominating rationale of the control system has been developed from neo-classical economic framework in which two assumptions are salient: market equilibrium and rational economic man (See. Scapens, 1996). Based on, this framework, firms are inclined to satisfy customers through fulfilling their changing requirements. The firm selected for the present research is a food manufacturing company. This firm has also considered such an economic frame towards satisfy customers. When reviewing the life styles in an average Sri Lankan, it has changed drastically during last couple of decades. In spite of traditional paternal run household earning system in the modern context, both husband and wife today generate the income required to run a family. Hence, the life of an average household is more industrious/ busier than in the past. As such their food patterns have also affected as a result of this. Consequently, business entities have capitalized on the opportunities available. Therefore, the food processing companies have introduced 10

instant food items to the market, which are more popular among urban industrious consumers. Soya related food items also introduced simultaneously with these instant food items. Many companies introduced similar varieties of Soya related products but many of them disappeared from the market very soon. Given uncertain market conditions a new firm was able to capitalize on the market opportunities better than other companies. The study is based on this company called Multi Food Product Limited (MFPL)1.

1.2 The Research
According to the information gathered through a tedious process of interviews conducted with managers belonging to different sections of the company, it was evident that a majority of them do not adopt a systematic approach in management planning and control. The interviews conducted specially with the CEO of the MFPL revealed that the company practices management controls according to their own personal view, and not according to the well - packed theoretical framework. Therefore there is a problem whether there is a disagreeable rapport between the theory and practice of management planning and control or whether the theory and practices are overlapping with each other or whether there is no relationship between the theory and practice.

Organization seems to behave quite differently from the stereotypes depicted in management textbooks in relation to their organization structure, their relationship with the environment, their planning and control and marketing strategies. These differences seem not only quite comprehensive and coherent themselves but they also appeal more or less rational and intelligent to the researcher himself. Therefore, it seems with the area of the company studied. Hence, rather than conventional approach that seek to understand an organization in terms of pathology and deviations from some abstracted and idealistic theoretical position, the researcher seeks to understand and explore the rationales for practice offered by the company involved in that practice.
1

Certain names in this case have been disguised

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This study does not represent a well-packaged theoretical statement of the conclusions of the study. Instead, it represents the overlapping and occasionally contradictory picture that emerged for the research team as a result of their experiences. At least four broad observations seemed to dominate. Firstly, financial planning and control systems did not appear to be a dominant mode of organisational control in the MPFL. Finance for investments may act as an overarching constraint at the national level and affect the performance of company, but Finance is marginal within the company studied. Thus planning seems to start from physical production planning. The financial plans derived from the physical exercise did not seem to be entirely articulated with the production plan. Secondly, the MPFL seems-to have successfully devised a set of loosely coupled control mechanisms so that one part of the organisation was effectively insulated from disturbances occurring elsewhere in the organisation. A third observation is that information, which is conventionally seen to be important as a way of enhancing visibility in an organisation, may itself be a source of uncertainty and may be used and interpreted quite differently in situations where much of the production process is invisible. And finally it appeared that changes taking place in the organisation might reflect not so much the needs of internal organisational management, but instead represent external pressures on the organisation to appear efficient and responsive to apparent financial constraints.

Taken together, these observations seem to match the perspectives of March and Olsen (1976), Weick (1979), Meyer and Rowan (1977) and Burchell et al (1980). Organisations seem to behave quite differently from the stereotypes depicted in management textbooks in relation to their organisation structure, their relationship with their environment, and their planning, control and information systems. These differences seem not only quite comprehensive and coherent in themselves but they also appear more or less rational and intelligent to the participants themselves. And so it seems with the MFPL we studied. Thus, rather than adopt a conventional approach that seeks to understand an organisation in terms of pathology and deviations from some abstracted and idealistic theoretical position, we seek an understanding that explores the rationales for practice offered

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by the participants involved in that practice. The danger with this approach is, of course, that the understandings so offered represent little more than the ideology of the status quo. It is exceedingly difficult for the participants themselves to break out of their roles, perspectives and institutional constraints. We therefore saw a major role of the investigators as one that tested rationales and justifications and offered alternative perspectives for the participants to consider. The research itself reflects this tension between an attempt to understand management control in action and an attempt to evaluate the explanations of why current practices occur. In order to assist interpretation of the study it therefore seems appropriate to preface a more detailed statement of our observations with an outline of the research methods used in the investigation and a sketch of the background and organisational context of the study. However, this study attempts to understand how culture shapes the values and meaning frames of organisational participants and provides them with interpretive schema affect accounting and control practices in organisations. This is achieved by focusing on fore generic issues: (i) (ii) (iii) (iv) How do organizations initiate accounting and control systems? How do such systems evolve over time? What roles do they play in an organizational crisis? How do organizational actions become disconnected from such systems?

1.3 Aims and Objectives
The aims and objectives of any research project are largely determined by how much is already known about the topic selected. Consequently, the extent to which existing knowledge and understanding can be used to develop hypotheses, which can be confirmed or refuted, must be considered (Easterby-Smith et al., 1991; Patton, 1987). Before establishing the aims and objectives of the substantive research problem, a comprehensive review of existing literature pertaining to firm’s management control was undertaken. Therefore, after careful consideration of research problem, the following objectives of this study are determined.

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1.

To examine the current state of the company’s management control system

2.

To identify the, constraints and limitations of applying orthodox models when establishing management control system in an uncertain context

3.

To explain the gap between real control practices and the orthodox models.

1.4 Significance of the Study
It is now recognized that small firm and medium size firm research is at too "young" a stage in its development to benefit from a positivist research approach that encourages the use of quantitative methods of scientific inquiry (Aldrich, 1992; Bygrave, 1989; Churchill and Lewis, 1986; Sexton, 1986). Consequently, a review of recent small and medium firm literature reveals researchers' emerging preference for phenomenological approaches to small and medium firm studies that employ qualitative methods of collecting and analyzing empirical data. While depth-interviews, participant observation and conversation, for example, have become popular tools for collecting data rich in detail about small firms (Holliday, 1992), few researchers provide detailed accounts of the qualitative research process. Particularly, there is a scarcity of literature available to offer advice on the inductive analysis of qualitative data. While the emergent can in part, explain this gap in small and medium firm literature, iterative nature of the qualitative research process (Bechoffer, 1974; Gill and Johnson, 1991), it is important that qualitative researchers make explicit the process involved in their collection and analysis of data. By failing to do so, small and medium size firm researchers employing qualitative methods do little to encourage theory development or progress current knowledge and understanding about small and medium firms. Relative to other fields, small and medium size firms have only recently become an area of academic interest. Particularly when considered alongside the "queen" of science - physics - the infant nature of small and medium size firms research is made apparent (Bygrave, 1989). This has implications for the paradigm from 14

which small and medium size firms research should be approached (Sexton, 1986). Churchill and Lewis (1986, p. 335) argue that as small firms research "is a field in which the underlying concepts have not been adequately defined", the primary concern of researchers should be theory development, not theory testing. Similarly, Bygrave (1989, p. 23) contends that the emerging nature of small firms research demands that a qualitative approach that encourages the development of practical and theoretical understanding and the generation of new and alternative theories and concepts is appropriate. Specifically, researcher argues, that "at the beginnings of a paradigm, inspired induction (or more likely enlightened speculations) applied to exploratory, empirical research may be more useful than deductive reasoning from them". Continuing, he recommends that the "emphasis in an emerging paradigm should be on empirical observations with exploratory, or preferably grounded research, rather than testing hypotheses deduced from flimsy terms". Churchill and Lewis (1986) go further and warn that without existing theories grounded in empirical observations, the use of hypo-deductive approaches to understanding small firms will restrict the generation of knowledge about their processes, activities and outcomes. Also impacting upon the selection of an appropriate research paradigm from which to approach their scientific inquiry are the research "subjects" involved in small and medium size firms. As small and medium size firm research involves the study of human action and behaviour, it is essentially concerned with the nature of reality in the social world. In contrast to the natural world, the human "subjects" of the social world possess the ability to think for themselves, comprehend their own behaviour and have an opinion about the social world of which they are a part (Bryman, 1988; Gill and Johnson, 1991; Laing, 1967; Schutz, 1967). Consequently, the study of small or medium size firms cannot be approached from the exterior standpoint demanded by the positivist approach (Gill and Johnson, 1991). Instead, researchers need to adopt an approach that allows them to "get close" to participants, penetrate their internal logic and interpret their subjective understanding of reality. Moreover, as the social world cannot be reduced to isolated variables, such as space and mass, it must be observed in its totality. Specific to small and medium size firms research, Churchill and Lewis (1986, p. 384) argue that the reduction of the process of creating, developing and growing small and medium size firms to individually measurable 15

variables, "unfortunately ignore(s) real problems in order to fit neat packages". Others agree that by stripping small firm problems of the context within which they occur naturally, the findings produced by positivist approaches are generalisable only to the extent that the conditions under which data are collected exist in the social world (cf. Aldrich, 1992; Borch and Arthur, 1995; Brown and Butler, 1995). Here the purpose of this case study is to obtain a better understanding of management control system in practice and of the role and functioning of management accounting in organizations, including the pressures which accounting exerts and has exerted on it, and the interest it serves and undermines, and to compare the claimed potential of accounting with its practical achievements and consequences. This study is principally concerned with “explanatory” case study and its capacity to move away from managerialist notions of accounting and to provide more challenging reflections on the nature of management accounting knowledge and practice. As argued Hopper and Powell (1985), accounting should no longer be studied in a mode which divorced from its social context and which ignores the influence of “ wider social and political collectivities” (p. 450).

1.5 Scope of the Study
Four issues/research questions capture the emergence and evolution of accounting and control practices over time in a dynamic setting is explained in section 1.3 of this study. Control, as used here, refers to all organisational arrangements, formal and informal, designed to accomplish organisational objectives. It includes formal structure, operational controls, rewards, budgeting, planning and other similar activities. I am interested in examining organisational practices in area such as strategic planning, organising, measuring performance, setting incentives, rewarding and motivating participants. Since accounting is a key element in mediating many of these activities, I am particularly interested in what role it plays in control and the way in which the larger cultural context mediates this role.

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1.6 Limitations of the Study
The scope of the study confines to private sector organization related to the food products. It is limited that to select different types of companies related to the food products and different types of organizations in the different industries. In addition to that the analysis is limited to the management control in practice and the limited number of theories such as Functional Approaches Interpretive Approaches and Radical Theories are employed to analyse the case. Moreover, limited number of people who are employing in the organization is selected and interviewed when collecting data. The adoption of any research approach and the use of all methods of collecting and analysing data necessarily involve "trade-offs" (Patton, 1987). While the research outcomes generated have been only very briefly described, the understanding of the contents of management controls and the impact which these had on the development of case-firms, which has been presented, demonstrate the value of the qualitative approach used. Specifically, the findings presented demonstrate that the adoption of a qualitative approach and selection of the researcher as "instrument" for data collection and analysis enabled the researcher to get "close" to participants and develop with them trusting relationships which allowed him to penetrate their realities and uncover issues of relevance to understanding the substantive research problem. However, in common with any other research project, this study was also constrained by the methods chosen. These constraints can be identified in two main areas. First, the grounded understanding of management controls in which this research was interested that raw data were the experiences and perceptions of those involved in these practices. In collecting such data, it is possible that despite the sampling strategy and tactics employed, respondents were not always truthful. Second, the extent to which the findings to emerge from this research can be generalised to the wider population of small and medium firms is constrained.

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The strictest confidentiality of data about marketing practices and some financial highlights was effected thus some information which were essential could not be obtained and the names in relation to the marketing practices were withheld. The framework of the study is limited only to the Management control systems in one selected firm in Sri Lanka. This study based on an empirical study, which examined in depth one growing and successful small firm. A case study analytical approach has been adopted, since it can shed more light on a dynamic and fast moving situation. Cases usually tend towards qualitative analysis. They are seen as a vehicle for in depth study and in this situation help us understand the phenomena, since use is made of open-ended interviews conducted over a period of 20 weeks. Lynch, (1994) identified that case interviews help confirm the shape and spread of key issues and assist in more precise hypothesis formulation. The wealth of information provided however must be balanced against the reduced number of people and cases studied. Clearly this increases understanding of cases but reduces the generalisability (Patton, 1990).

1.7 Structure of the Dissertation
The thesis is divided into six main chapters including the current chapter Chapter One. The Literature review and theorization of management control systems are presented in Chapter two. This chapter will look into orthodox models on organizational control and specially a review of underling assumptions towards organizational and social aspects of management accounting with special reference to the management control. In this regard conventional theories such as functional, interpretive and radical approaches are presented in this chapter. Chapter three explains the methodology of the study. This chapter discusses the problems of orthodox methodology, case study approach and the research design or procedure adopted in this research. Chapter four presents the Social and organizational context of the study and Chapter five explain and develop and analyse the case under investigation. These data have been analysed crosssectionally with the theoretical framework and the social and organizational

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context of the study and build a model. The summary of the research, conclusions, and commentaries are discussed in Chapter Six.

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CHAPTER TWO Towards a Theorisation of Management Control Systems
2.4 Introduction
In the previous chapter it was identified that this study is to work management controls in an uncertain context emanated from a particular social and organisational context. With a view of crystallizing this theme, the present chapter attempts to review relevant literature. In particular, the chapter begins with a systematic critique on conventional theories of management controls and then it goes on to typify social and political frameworks of management control systems. Finally the chapter culminates in a framework concluding for theorization of management controls in a context in which the subsequent case was developed.

2.5 A Critical Look at Conventional Theories in Management Control
Researchers into the management science should consider their own values and beliefs concerning the nature of society and social sciences. In order to assist people in this task, previous research into the organisational and social aspects of accounting is reviewed and grouped into various schools of thought within a basic sociological framework devised by Burell and Morgan (1979). The Burrell and Morgen’s framework is constructed from two independent dimensions based on assumptions regarding the nature of social science and the nature of society respectively. The social science dimension is that consists of four distinct but related elements: assumptions that, ontology, epistemology, human nature and methodology.

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Ontology concerns the nature of ‘reality’. Epistemology is concerned with the nature of knowledge – what forms it takes and how it can be obtained and transmitted. Human nature refers to the relationship between human beings and their environment. These three sets have direct methodological implications. If the social world is treated as the same as the physical or natural world, then methods from the natural sciences tend to be utilised to locate, explain and predict social regularities and patterns – statistical techniques are often used to test hypotheses and to analyse data collected by standard research instruments, such as questionnaire and surveys. Alternatively, if the subjective experiences of individuals and the creation of a social world is stressed. Then methods that allow insight into an individual’s inner world are emphasised – for example, participant observation and in-depth interviews. Although analytically distinct, there is often strong relationship between the positions adopted on each continuum, and so Burrell and Morgan integrate them with them within an “objective-subjective” dimension – one end emphasising the objective nature of reality, knowledge and human behaviour, the other stressing subjective aspects. The other major dimension defines two alternative and fundamentally different approaches to society: one is concerned with regulation, order and stability and sets out to explain why society tends to hold together; the other focuses on the fundamental divisions of interest, conflicts and unequal distributions of power that provides the potential for ‘radical change’. These two independent dimensions are combined to form four mutually exclusive frames of reference: functionalists, interpretive, radical humanist, and radical structuralist (see. Figure one). In order to do this Burell and Morgan create a dichotomy between “objective” and “subjective” approaches, even though the dimension relating to social science assumptions was constructed as a continuum.

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Figure 2.1 – Accounting Schools Sociological Paradigms Radical Change

Radical Humanism

Radical

Radical Structuralism

Subjectivism Interpretive Interpretive

Objectivism Functionalism Pluralism Social System theory Objectivism Regulation

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

2.5.1

Objectivism

Burrell and Morgan locate Classical Management Theories, typified By Taylor (1947) and Fayol (1949) in the most objective region of the functional paradigm. The work espouses a scientific basis to administration, based on beliefs that the organisational world possesses the characteristics of the physical one. Thus, it is claimed, administrative principles can be derived by systematic study of cause and effect relationships. The behaviour of the employee is taken to be passive and determinable by managerial manipulation of situational variables. The critique of Classical Management is well established. Simon (1943) exposed its ‘principles' to be lacking in internal consistency or clear definition. Its motivational base was soon recognised as simplistic (Roethlisberger and Dickson, 1939). Much classic work lacks empirical verification and may owe to managerial ideology than science (Perrow, 1979;Bendix, 1956)

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Moreover much of conventional Management accounting is based on this approach, standard costing, for example, is inextricably linked with scientific Management (Solomons, 1968). 'Principles of Management’ stated by writers such as Fayol (1949) and Mooney (1947) provide rationales for budgetary control, e.g. Welsch (1964). Indeed Fayol specifically instances budgets as planning and control tools. More recently closed systems theory and neo-classical economics have provided complementary underpinnings to the approach. Closed system permits the mechanistic analogy of thermostats to be exploited and detailed in an accounting context, e.g. Shillinglaw (1977). Neo-classical economics provides a basis for marginal costing and financial management and reinforces notions of control based on assumptions of economic man, and organisations with unitary goals headed by a single decision-maker (e.g., Weston and Brigham, 1978). A more detailed exposition and critique of the relationship between management accounting and such, ‘traditional’ models of the firm are expounded by Caplan (1971). Despite the criticisms of conventional management accounting and its theoretical props, by behavioura1 scientists in particular, such approaches persist. For example, Horngren (1977) defines his general approach to management accounting as designing formal controls "to provide goal congruence and incentive through the use of technical tools. Behavioural challenges are dismissed by stating, "this is not a book on organisations or on behavioural science, so we will not study alternative models here". The difficulty of maintaining such a position is illustrated by the fact that the remainder of the chapter involves itself with central behavioural issues, namely participation and standard setting. Much of conventiona1 accounting can be p1aced in the most objective and regulatory region of the functionalist paradigm. Organisations are treated as stable empirical phenomena that have, or should have, unitary goals, normally profit maximisation. Human nature is taken to be calculative and instrumentally rational, but essentially passive. Thus control accounting is depicted as stabilising and programming behaviour by allocating to positions sub-goals derived from the organisational goals, and monitoring performance by formal feedback. Compliance is reinforced by tying performance to economic reward structures. The only 23

significant changes envisaged are within a managerial conception of society, whereby organisational changes are instituted by key decision-makers at the apex of the organisation, and are restricted to adaptation to market threats and opportunities and represent movements towards economic optimality. Thus accounting information for decision-making is confined to economic evaluations to revel profit maximising alternatives. Throughout the ontology is realist, there is assumed to be a real state of economic affairs and organisational relationships, which the accounting system seeks to model.

2.2.2

Social Systems Theory

Probably because of the limitation of objectivism with respect to the social nature of man and how extra-organisational factors hear or control, many accounting studies have incorporated more complex models of motivation and organisational design. Much of this work is derivative of organisation theory, which, in the 1960's and 1970's tended to use social systems theory to view its subject. Open systems, characterised by exchanges with the environment, were particularly influential. Thus much management accounting research adopted a social systems approach, albeit in many cases implicitly and rather selectively. Figure two below traces an approximate chronological development of sub - schools within this social systems approach to management accounting. This serves as the framework for the subsequent examinations of this work. Figure 2.2 – Management Accounting and Social System Theory

Social Psychological Studies Accounting Dsyfunctions Psychological Studies Structural studies

Open System theory Contingency Theory

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2.2.2.1

Accounting Dysfunctions – [Organisational Effectiveness and Budgets]

Several early behavioural studies of accounting systems noted that unintended and undesirable consequences often arose when conventional models were applied. Argyris (1953) noted how managers used budgets as "needlers’ over subordinates. Accountants were criticised for hierarchical punitive reporting and achieving success through the failure of others. The ensuing tension and hostility between Staff and line managers was held to be counter-productive to the fulfilment of organisational goals. Ridgeway (1956) and Dearden (1961) both chronicled how using accounting criteria as performance measures could reduce organisational effectiveness. Dalton (1959), Rosen and Schneck (1967). Lowe and Shaw (1968), and Schiff and Lewin (1968, 1970) all demonstrated how managerial bias and slack could enter budgets. Dew and Gee (1973) found that many managers either did not use accounting information received, or used it incorrectly. More recently Ashton (1976) noted how dysfunctional consequences of accounting systems are perpetuated and amplified by their feedback mechanisms. These studies can be related to what Burrell and Morgan (pp. 184 - 189) term organisational “ theories of bureaucratic dysfunctions”, and in particular to the work of Selznick (1949), Gouldner (1954), and Merton (1968). Such theories acknowledge that organisations themselves do not have goals but are composed of individuals and groups striving towards different ends, “local” goals are often in conflict and dysfunctional in the formally stated organisational goals. The works point to the limits of bureaucratic control and illustrative how changes may occur in the social systems. Unfortunately such considerations tended not to be appreciated or explored by many of the accounting researchers. The awareness of “behavioural Dysfunctions” merely spurred on their endeavours to refine measurement to rectify such aberrations e.g. economic and mathematical approaches to transfer pricing and divisional performance measurements summarized in Abdelkhalid and Lusk (1974), or alternatively to advise that “miscreants” be given a greater education in accountancy, e.g. Dew and Gee, 25

(1973). Thus the managerial definition of the enterprise was preserved. Recognition of the divergence of goals within organisations, their significance to change, and how accounting might recognise and assist this process was de emphasised. 2.2.2.2Psychological 'Theories – [Decision Through Information Processing of Individuals]

Dysfunctional

consequences

can

also

occur

through

messages

being

misinterpreted or interpreted differently, A growing number of accounting researchers have examined the effect of alternative accounting techniques on management decisions by studying the information processing of individuals. .Early' laboratory experiments were conducted by Dyckman (1964) and Bruns (1965, 1968). Ijiri (1967) constructed a model emphasising the importance of lack of feedback, functional fixation. and an ill-structured environment for misinterpretation of information by the user. Much of this work is now subsumed under the tit1e of Human intervention processing approaches to accounting. Extensive reviews of this can be found in Driver and Mock (1975), Moskowitz et al (1976), Snowball (1980), Nisbett Ross (1980), Einhorn and Hogarlh (1981), Libby (1981) and Libby and Lewis (1977, 1982). The essential thrust of the work is to determine what factors affect the quality of individual decision making. Libby and Lewis classify the major variables into three sets - inputs, process, and outputs. Input variables measure the properties of the information, (e .g. type of measure, its reliability, method and order of presentation, amount). Process variables seek to measure aspects of the decisionmaker, (e.g. numbers, personality. intelligence, commitment, decision rules used). Output variables include the speed, quality and reliability of Judgements, and Perceptions of their quality and of the information given. The work adopts a functional frame of reference, for although people are viewed as imperfect information processors, the processing is assumed to be systematic and 26

capable

of

revelation

by

scientific

study.

Decision-making

is

depicted

deterministically as an interaction between objective characteristics of the information set and innate characteristics of the subjects. Ontologically the world is taken to be prior to individual cognition, the problem is their imperfection in perceiving it. Thus, according to Libby (1981) the options for improving accounting decisions lie in either changing the way information is presented or educating the decision-maker in better methods of processing information, or replacing him or her with a model. 2.2.2.3 Social Psychological Theories – [Motivation Rather Than Information Processing] Social Psychological approaches to management accounting are essentially complementary to human information processing ones. Both seek to reduce dysfunctional consequences of accounting systems by improving their design. Social psychologists however concentrate on motivation rather than information processing. Typically their research takes a defined budgetary variable like participation and relates it to social psychological factors such as interpersonal relationships between peers and supervisors. The assumption, which is questionable (Argyle 1972) is that greater morale or job satisfaction increases output. The most common budgetary variables studied include, participation over standard setting (Becker and Green, 1962; DeCoster and Fertakis, 1968; Dunbar, 1971; Onsi, 1973; Searfoss, 1976) perceived difficulty of standards (Stedry, 1962; stedry and Kay, 1964) and the use of budgets in performance evaluation (Hopwood, 1972. 1974). Lawler (1976) and Lawler and Rhode (1976) summarise such work linking it to the design of thermostat - like control systems, motivation, and dysfunctional behaviour. Accounting research in this “Human relations” tradition still flourishes e.g. Brownell (1982). Despite the heated debate between objectivists and social psychologists over participative methods, their approaches are very similar. The social psychologists simply substitute “hedonistic” and complex man for the simpler models of Taylor, 27

(Burrell and Morgan, 1979}. Both view individuals as predictable and passive respondents whose behaviour can be determined by external stimuli. Whereas Taylorism advocates managerial manipulation of the workforce through economic variables, the social psychologists emphasise job design and leadership style. Whilst social psychologists recognise that human desires may conflict with those of the organisation or other parties to it, in its advocacy of participative methods it tends to assume that these are reconcilable. Little account is taken of possible inequalities of power between parties to the participative process, or of the fact that in some instances goal differences may be irreconcilable. Thus the approach is often criticised for a pro-managerial and manipulative bias. e.g. Rose (1978). 2.2.2.4 Structural Theories – [Affects on Organisational Structure]

Neither psychological nor social psychological theories have paid much attention to how structures of organisations might affect the processes under scrutinity. Whilst the pioneering study of Argyria (1953) concentrated on social psychological variables it noted the significance of organisational ones such as the reporting relationship of accountants. Shortly after, the classic study of comptrollers’ departments by Simon et al. (1954) focused on organisational issues such as the roles of accountants and their relationship to structure, training and socialisation. Despite the wide citation of this work little investigation of structure ensued in accounting. That which did e.g. Benston (1963), Golembiewski, (1964), followed the centralisation versus decentralisation debate instigated by Simon et al., and tended to become an adjunct of the social psychological approach rather than a sociological investigation of say institutional networks or occupational cultures. The design of accounting control systems is central to Chandler's (1966) thesis on the Strategy and structure of industrial enterprises. Williamson’s theory of Markets and hierarchies (1975) has been unlisted to develop this approach further (Johnson, 1980; Chandler and Daems 1979). The work has much of value. Through historical analysis it illustrates how new forms of accounting controls, such" as responsibility accounting and capital based measures like R.O.I., were related to developments in capitalism, especially the emergence of large corporations and changes in their management controls. When corporate developments and

28

associated accounting changes are crudely portrayed as inevitable coping responses to new technology, the work is very functional, in that it emphasises how individuals and organisations are constrained by an external world. However more recent work comparing European and U .S .A. developments is less deterministic (Chandler and Daeme, 1979). Variations between corporate structures and accounting systems are ascribed to differences between political and managerial values and not just the dictates of economic efficiency. Thus the possibility that corporate controls are social creations subject to choices in acknowledged. Although accountants have noted problems associated with new corporate structures such as divisionalized organisations, their analysis has been almost exclusively conducted from a technical and Classical Economic viewpoint (Abdelkhalik and Lusk,1974). Alternative organisational approaches to the issue of transfer pricing (Watson and Paumler, 1975; Swieringa and Waterhouse, 1982) have shed fresh light on to the issue, but essentially from a managerial viewpoint. As will be examined later, little interest by accountants has been shown in radical interpretations of structural changes, which question whether the logic of efficiency was, and is, paramount in influencing accounting and corporate developments. 2.2.2.5 Open System Theories – [Environmental Influences to Organisations] Much of the work discussed so far has adopted a 'closed systems' approach, seeing control as achievable by regulating internal organisational variables, be they psychological, social psychological, or structural. An ‘open systems’ approach on the other hand regards organisations as organisms that process inputs from the environment back as outputs. Its ecological orientation stresses the interdependence between the organisation, its internal Sub-systems and the environment. A further and illuminating discussion and critique of the differences between open and closed systems can be found in Pondy and Mitroff (1978). Open systems provide a means of viewing and describing subjects of study. Argyris, for example, reformulated his 1953 study of accountants in open systems terms (Argyris, 1964) Hofstede (1968) when investigating "the ga1ne of budgetary 29

control' described it in input - output terms, e .g. external budget inputs included plant technology, personalities of budgets, internal budget inputs embraced participation and tightness of standards. An attraction of open system is its ability to relate different resolution levels of analysis and various disciplines. Thus Ansari (1977) used it because of its ability to combine and reconcile structural and social psychological work on budgets. Later, (Ansari, 1979), his analysis was extended to the design of budget reporting systems to facilitate managerial recognition environmental influences and inter departmental dependencies. Typically, open systems accounting work does not confine itself to economic flows, but extends to political, social and technological ones as is illustrated in Lowe and Tinkers (1977) attempt to conceptually redefined the management accounting problem. Central to this scheme are cybernetic notions of requisite variety, black boxing, modelling and resolution levels (Ashby, 1956). Morgan (1982) claims that cybernetics can be applied in two ways, either as technique or as epistemology. Techniques applications that emphasise goal oriented behaviour and the design of formal control systems on the lines of thermostats it is claimed, violate cybernetics as an epistemology, which instead stresses learning and evolution by the avoidance of undesirable and states. In an accounting context, it is significant that the technique oriented cybernetic applications have tended to have difficulties in incorporating behavioural aspects of the problem, e .g. Amey (1980). Hedberg and Jonsonn (1978), and Hertog (1978) are examples of accounting studies in the epistemological tradition of cybernetics I both examine how accounting systems might be designed to provoke and facilitate organisational learning and hence shift actions to less environmentally threatening states. Both criticise accounting systems for being traditionally oriented towards stabilising organisations rather than provoking change and adaptation. Whilst a biological analogy of organisations is not inevitable when open systems is used (Buckley, 1967; Checkland, 1981), accounting theorists in this school often assume so, with several consequences.

30

 Firstly, organisations and environments tend to be taken as objective, even though experience in defining boundaries and key variables suggest otherwise, i.e. they are subjective creations by the modeller.  Secondly, when control systems are described as determined by the variety in the environmental and organisational needs for survival, them is a strong assumption of "functional imperatives" which can deflect attention from the choices key decision-makers make regarding which environments are operated in, and what controls are employed.  Thirdly, by stressing the need for integration for the survival of the whole, there is a presumption of a "functional unity" to organisations, which may divert attention from issues of power and conflict. Consequently, as Otley (1983) Points out, there can be a thin dividing line between when open system and cybernetics is a method of analysis and when it becomes an ideology for co-operation towards the status - quo. 2.2.2.6 Contingency Theories – [Different Principles to Different Organisations Circumstances] under Different Organisational

What is now commonly termed “contingency theory” developed from the work of Woodward (1965), Burns and Stalker (1962), the Aston School (Pugh and Hickson, 1976), and Lawrence and Lorsch (1967)? It seeks to provide a reconciliation and synthesis of the conclusions emerging from a verity of organisational studies. The work of industrial psychologists and the human relations school is combined with open systems theory and that which empirically measures structural characteristics of organisations. Its principal thesis is that different organisations principles are appropriate under different environmental circumstances, and within different parts of the organisation. Effective operation of enterprises is seen as dependent upon there being a suitable match between its internal organisation (including structures, styles of leadership and decision making), and the nature of 31

the demands placed upon it by its tasks, size, environment, and members wants. Many researchers into management accounting have consciously adopted and encouraged this approach, probably to explain otherwise contradictory observations. Reinforcement may have come from pragmatic practitioners who had always expressed suspicion at universal prescriptions not tailored to the requirements of their firm. A small flood of studies seeking to establish which contingent factors determined the form of accounting system ensued. Khandwalla (1972), Bruno and Waterhouse (1975) and Waterhouse and Thopson (1978) concentrated upon establishing relationships between the design and use of management accounting systems and the size of an organisation, its technology, its structure and/or its environment. Managerial decision-making styles were taken into account by Gordon and Killer (1976), Caplan and Champoux (1978) considered management styles and the "personality" of an organisation, Young (1979) discussed organisational values and motivation, management aspiration for profit growth were included as an important independent variable by Piper (1980), Earl and Hopwood (1979) contended that different modes of organisation decision-making predominated under various forms of uncertainty and that different kinds of management information systems were therefore required .Swieringa and Moncur ( 1972) and Rahman and McCosh ( 1976) were the only ones, however, to pay much attention to attitudinal or personal factors . The assumptions behind contingency theory are similar to those under- lying an open systems approach - the key relationship between an organisation and its environment can be understood in terms of the organisation’ s need to survive, and the fact that there are certain functional imperatives for the various sub-systems. Although the processual nature of organisations is emphasised, much of the research cited has tended to use questionnaires to take snapshots of temporary structural manifestations followed by detailed statistical analysis rather than observing the processes first hand over time. Sadly, management accountants employing organisation theory have tended to glorify particular approaches at the very time when organisation theorists are tending to discard or substantially modify them. Contingency theory, falls into this 32

pattern. Otley (1980) notes four reservations about contingency theory in a managerial accounting contexts first, the conceptualisation, definition and measurement of key variables requires greater theoretical and empirical attention; secondly, studies have tended to ignore theoretically and empirically the question of how controls are related to effectiveness; thirdly, the prescriptions from contingency theory are based on weak grounds e.g. correlation are often small inconsistent, and rarely related to any effectiveness criteria; fourthly, the highly connected nature of components in an organisational control package suggest that management accounting and information systems cannot be studies in isolation from their wider context. More generally, Child (1972), Wood (1979), Schreyogg (1980), Cooper (1981), all criticise contingency theory for paying insufficient attention to the discretion possessed by key decision-makers and how values, beliefs and ideologies may influence choices. Contingency theory tends to portray management in a technical role, matching organisational design to the dictates of contingent factors. However the presumed independent variables may not be so. As in the case of systems theory, factors such as technology may be part of strategies of control. The small and inconsistent correlation in contingency studies suggests that management may have considerable latitude over such issues. Much of contingency theory appears a theoretical: it purports to describe and measure practice. However correlation established often become interpreted as causal and used to establish normative models. Thus what is a slip into what should be? What might be is not addressed .By emphasising technological determinism and neglecting how control systems may be a product of social cultures, ideologies and power struggles, attention is deflected from alternatives based on different values.

2.2.3

Pluralism

Industrial relation is an area where issues of power, conflict and sectional interests are more overt and where presumptions of unitary organisational goals have been seen as inappropriate. Some writers, especially Fox (1966) have advocated pluralism as a more realistic approach to organisational control. Here

33

organisations are taken to be comprised of sectional groups with divergent and often mutually in consistent goals. Common purpose exists only insofar as groups are interdependent. Control is achieved by maintaining a network of rules and regulations that permit bargaining between the groups. The aim being to contain rather than eliminate conflict by negotiating courses of action which permit each group maximum freedom consistent with the binding constraints laid down by other groups. Thus organisations are seen as loose coalitions, often decisions are taken sequentially to allow different criteria and hence different sectional ends to be met; formal organisational goals may represent little more than means of securing external legitimacy. A major variable determining outcomes is the relative power of groups, and the concern of researchers is to explain and predict such outcomes rather than prescribe them. The pluralist counterpart in decision theory can be found in works such as Cyert and March (1963), Lindblom (1959), Allison (1969). Despite not being extensively tapped by accounting researchers, pluralism is potentially a source of fresh ideas and insights into management accounting and it introduces many of the themes that are examined in the subsequent alternative approaches. Firstly, pluralistic studies shed light on to the issue of how accounts and accounting rules are initially created. Rather than assuming that they are the product of objectively rational procedures based on a value free and neutral perspective, as does much often-previous work discussed, pluralism suggests they arise from sectional interests and are then mediated through political processes. For example, Nahapiet (1981) observed that treasurers from Areas of the National Health Service competing for funds put forward data and criteria most favourable to their case. When extra funding was unexpectedly made available it was mutually agreed that each would reformulate the past records in the light of this future funding. Similarly Hope and Gray, (1982), noted that recommendations to the Accounting Standards Committee stemmed from sectional interests. Thus the aerospace industry sought and achieved provision for capitalisation of development expenditure because of its effect on the profitability of government contracts and despite its contradiction of stated accounting principles. Accounting may derive from sectional interests and be modified by bargaining and negotiated consensus, but it is also integral to the relative strengths of the parties 34

to such processes, being an important power resource, namely information. This is illustrated by studies such as Bariff and Galbraith (1978) and Bjorn-Anderson and Pederson (1980), which explore and document how changes in information systems affect power structures within companies. This being the case, then organisationa1 participants may use positions as “gatekeepers”, to ration or manipulate information to secure personal ends (Pettigrew, 1973). AS Dalton (1959) colourfully describes, accountants are not immune from indulging in such behaviour. The suggestion of pluralism is that managers use, seek and develop accounting to bolster a perspective, i.e. as an "ammunition machine" rather than treating it as providing answers through a single calculus (Earl and Hopwood 1979). If so, then budgetary control may principally be a means of instituting and promoting bargaining whereby participants can stake out claims, discover alternative claims and meanings to organisational events, enrich their understanding of the organisation, and secure a degree of consensus. (Nahapiet, 1981, Wildavsky, 1964,1975). Facilitating such processes by designing accounting systems that permit the creation of several perspectives, and which encourage learning through dialogue and dialectics may be preferable to refining systems that, as is often the case, purport to give a single version of the truth. Churchman (1971), Argyris and Schon (1978), Checkland (1981), and Machin (1981) all address to some degree, how such information systems might be created? Unofficial information systems may be important in this respect, as they indicate a desire by managers for information systems tailored to their viewpoint and Which might challenge official formal systems (Banbury and Nahapiet, 1979, Clancy and Collins, 1979). Pluralist notions applied to accounting are not limited to bargaining between managerial interests, but can and have been extended to industrial relations and financial reporting. Foley and Maunders (1977) advocate and analyse accounting reports that meet trades union and employee wants, and which serve the distinct inputs to bargaining within a pluralistic conception of control. In a sense, the corporate Report (A.S.C., 1975) in its advocacy of financial reporting for a disparate range of sectional interests, sometimes conflicting, has overtones of 35

pluralist ideas. Lastly, the scepticism of pluralism towards official statements offers insight into the status and significance of accounting data emanating from meetings. Burchell et al. (1980) note that accounting data often emerged from political processes and decisions rather than preceding them. The suggestion is, as several writers have argued, the accounting serves to reassure decision-makers and to legitimise their actions, rather than reflecting an underlying reality. For example Mason (1990) suggested that the main thesis of Burchell et al. was that accounting information served to reduce perceived uncertainty and to abate and objectify anxiety. Similar ideas underlie the works of Gambling (1977), Swanson (1978) and Chambers (1980). Gambling saw accounting as a political process and compared it with witchcraft in that both provided the "machinery to accommodate awkward facts in a way which does not undermine fundamental beliefs of the culture" and which does not expose the gaps in that culture’s knowledge. According to Swanson, information systems should be recognised as having a, "significant capacity for the encouragement of organisational delusion" - although there may be an "innerdirected" rationale, the aim could be to make a show of "good information" to higher management. Chambers discussed accounting and quasi-myths I he suggested that it was often simpler to invent fictions than to establish a connection between the input of certain information to a person and the output in the form of a decision or action. Finally, Earl and Hopwood (1979), building on the decision theories of Weick {1969), claim that in very uncertain situations management information systems are used to retrospectively rationalise decisions and actions already taken. Such ideas overlap, and indeed often draw from, interpretative ideas on socially created realities. Also recent pluralistic work often uses interpretative methods. However pluralism tends to presume purposeful and self-interested behaviour arising from a realist ontology, Bargaining arises due to different, but reconcilable, objective interests rather than individuals seeking to create meaning through social interaction. Whilst socially created accounting is recognised, it tends to be seen as a deliberately manipulative act to seek external legitimation and to mask underlying realities. Thus much of pluralism is underpinned by realist ontology. 36

However its ability to absorb within its approach interpretive ideas and methods has led the writers to classify it as less objective than the functional approaches such as objectivism and social system theory discussed previously. Its position with regard to change in the classificatory framework is similar to that of social systems theory with which it has many similarities. Both stress interdependencies and neither elucidates any ideal and state. The maintenance of negotiated consensus and prevention of any party seeking absolute achievement of its ends in pluralism has similarities to systems notions of survival, the prevention of system breakdown and negative entropy. The essential difference between pluralism and other approaches examined so far is its focus on interests, conflict and power. Whilst pluralism is perhaps less committed to normative designation earlier approaches, and more to observing and understanding accounting in action, it is unable or unwilling to pass judgement on the relative powers of parties to negotiations or the ends each pursues. As such pluralism is part of the sociology of regulation within' a broad framework of preserving the status quo.

2.2.4

Interpretive theories

From a functionalist viewpoint, people are seen as being constrained by the social world they inhabit, and this world is perceived as being composed of external and independent objects and relationships. Social constructs, such as organisations, are often regarded as material things and so accorded the power of thought and action; in fact it could be said that a purely structural or functional sociology is endemically in danger of reifying social phenomena (Berger and Luckman, 1966, p, 208). An interpretive approach on the other hand emphasises the essentially subjective nature of the social world and attempts, to understand it primarily from the frame of reference of those being studied, as Laing pointed out, 'persons are distinguished from things in that persons experience the world whereas things behave in the world' (1967), (p.53). The focus is on individual meaning and people's perceptions of "reality" rather than any independent “reality" that might

37

exist external to them. If reality is seen solely in term of individual consciousness (leading in the extreme case to solipsism and the denial that external objects of any sort have an independent reality) the problem becomes one of explaining the common sense belief of a real social world without reifying social phenomena, This hurdle is overcome by acknowledging that although our realisation of the world is unique, it is also at least to some extent an experience shared by others. It is suggested that understanding of the conduct of others is obtained through a process of interpretation, or "typification", rather than by direct observation - such "typifications" being continuously learnt, modified or re-affirmed throughout people's lives (Schutz, 1967). In other words people constantly create their social reality in interaction with others, It is the aim of an interpretive approach to analyse such social realities and the ways in which they are socially constructed and negotiated. Methodologies based on experimental designs and statistical surveys that treat the social world as objective and measurable are not consistent with the philosophical and theoretical underpinnings of such an approach. Qualitative methods are often more appropriate for the study of how language and meanings evolve and are modified, but the relationship is not quite so straightforward (Reichardt and Cook, 1980). The important thing is that the form of inquiry adapted in any investigation should not be shaped simply by a commitment to particular research methods for their own sake, but should be logically consistent and appropriate given the aims of the research and the values and assumptions that lie behind it (Bulmer, 1979; Morgan and Smircich 1980). The relevance to practice of much of the functionalist academic research into the organisational and social aspects of accounting has recently been questioned by a number of authors, (e,g, Tricker 1979; Tomkins and Groves,1983; Bourne et al., 1982). The 1977-1978 'Schism' Committee of the American Accounting Association, for example, doubted whether many academics, let alone practitioters, fully understood the articles published in “The Journal of Accounting Research” and “The Accounting Review”. Bourn et.al. (1982) Suggested that researchers know

38

little about accounting in actual practice, how it interacts with other organisational processes, and how it contributes to organisational effectiveness and adaptability. There has thus arisen a cry from some corners for a more 'interpretive ' approach whereby greater emphasis is given to the perceptions and explanations of the participants themselves (Otley, 1978; Colville, 1981; Tomkins and Groves, 1983). The suggestion is that by using ‘interpretive' research methods, to study how accounting meanings are socially generated and sustained, a better understanding of accounting will be obtained. In addition, by permitting research quest ions to emerge from the research process, rather than being predetermined at its outset, it is hoped that they will be more pertinent to the problems of the subjects. Unfortunately, except for the work of Rosenberg et al (1982), little empirical accounting research in this mode has been carried out. However research in other areas using interpretive methods may provide useful insights. For example, in the very different circumstances of a gynaecological examination Emerson (1970) noted how contradictory definitions of reality are found in most situations, and how unremitting effort is needed to negotiate and sustain a dominant definition. Similarly Silverman and Jones (1973), after observing staff selection interviews within a large organisation, suggested that the situation was characterised by multiple realities as people attempted to make sense of the situation. Both studies illustrate how dominant definitions of events are created inter- subjectively. It can be argued that accountings are similarly formed, thus the study of accounting processes whereby people try to make sense of its terms and create shared meanings may be worthy of research ( Ansari and McDonough, 1980). In a study of receptionists in a State Bureau of Public Assistance, Zimmerman (1971) noted how the meanings to the receptionists of various rules, policies and goals depend on the actual occasion of their use. It is possible that the meanings of various accounting terms and practices may also vary for individuals at different times and in different situations. The flexibility of accounting measures, for example as noted in terms of how value is calculated and the roles it is put to (Burchell et al., 1981) suggest the potential for viewing accounting in such a manner. Evidence of accounting meanings and purposes varying is contained in

39

the comments of some of the accountants in Rosenberg et al study (1982).

When they worked in the treasurer's department, accountings were perceived and used as objective representations of the real situation. However when they were moved to social services departments accountings become seen as flexible measures to facilitate decision making and to bargain. Such seemingly contradictory understandings between accounting as an objective unbiased source of information on the one hand, and its malleability and variety of usages in action on the other is a common research finding. For example Nahapiet (1981) and Berry et al (1983) all illustrate how accounts and associated meetings are used to display a facade of rationality to external bodies, despite being used for different purposes within the organisations. Other studies (Meyer and Rowan, 1977; Dizsmith and Jablonsky, 1979; Pingle, 1978; Gerwin, 1982), which claim that accounting is created after decisions are made to legitimise them, rather than being an input preceding rational calculation, question the assumptions of rationality that underpin so much accounting work, and are suggestive of the applicability of themes in interpretive approaches. Several inter-related insights into accounting have already been made from an interpretive perspective, which are worthy of further research. These include seeing accounting as a language, as myth and ritual, as a means to negotiation, as learning, and as assisting change under conditions of uncertainty. Interpretive work stresses the constant uncertainty confronting individuals seeking to make sense of the world they inhibit. Through language, they negotiate an understanding shared by others. Thus it may be, Cooper et al (1981), that accounting may be regarded as a "common language” for the discussion and resolution of contentious issues. Bourne et al. (1982) provide two case studies of accounting being so used. They noted that accounting language become a medium for calmer and more informed political debate, facilitating the exchange of views and the design of further investigative action. As accountants become more aware of the circumstances and perspectives of other areas of business, and as nonaccounting managers become more familiar with financial terms, it may be that

40

accounting will increasingly provide a medium and forum for debate (Powell, 1983). Indeed, in two of the organisations investigated by Powell, accountants had become responsible for all negotiations with trades union representatives. If so, it might be argued that accounting system designers may have to pay greater attention to the subjective models of clients and the processes whereby they are created. Such approaches have already been adopted in practice by some operations researchers. Checkland (1981) found that traditional or 'hard' systems methodologies based on those of the natural sciences were inadequate for the complexity of problems raised during consulting. His alternative “soft systems” methodology was seen to be based "...not on any external ‘reality’, but on people's perceptions of reality, on their mental processes rather than on the objects of those processes”. Thus the ' soft systems' methodology concentrates upon presenting back to subjects multiple models of subjective realities as a means of promoting learning. Boland (1979) similarly argues for greater recognition of subjectivity by accountants. He postulates that systems designers, trained in rational modelling approaches, are often unaware that their model of reality is only one of many. He too advocates that systems designers trace multiple subjective models of decisionmakers to precipitate debates and hence the creation of richer models. In addition he advocates such exercises periodically on existing system as a means of precipitating change. Dialectical inquiring systems advocated by Churchman (1971) and Mitroff et al. (1972) are seen as particularly apt for such exercises. In stressing subjective models and the creativity of conflict in challenging and exposing organisational assumptions the methods overlap considerably, but not entirely (Boland, 1981) with the organisational learning systems developed by Argyris and Schon (1978). Several accounting writers have utilised decision theories strongly influenced by interpretive approaches, to address the question of designing accounting systems that promote change and creativity. For example, Cooper et al (1981) claim that the seemingly non-rational decision behaviour described by Weick (1969), and March and Olsen (1976) is typical in organisations subject to great uncertainty. They claim however that such behaviour facilitates play and experimentation and hence creativity and learning. Consequently they advocate accounting systems, which promote rather than stifle such behaviour.

41

Similarly, Earl and Hopwood (1979) claim that in situations of high uncertainty over means and ends accounting systems should be ‘ idea machines’ rather than the 'rationalisation machines’, which they tend to be. These approaches are stimulating, not least because they indicate how accounting systems may promote change, albeit within a managerial conception of the term, rather than being stabilisers. However assigning interpretive work to the particular problems of coping with exceptional uncertainty carries the danger of prematurely bringing structure and order into a more fundamental debate over the social science assumptions appropriate to management accounting. Interpretive theorists should argue that their approach is of universal rather than limited applicability. It is important to consider not only when and how peoples’ perceptions change, or are desired to be changed, but also why common perceptions exist and remain unchanged. The work of Meyer and Rowan (1977) and Starbuck (1983) is relevant in this context, structures, rules, plans, goals etc. are seen as myths and rituals which reinforce the stability of behaviour within organisations and legitimise their action externally. Boland (1982) utilises such ideas in an accounting context, arguing that accounting is a ceremony or ritual played out to reinforce the myth that large organisations are subject to external checks upon their societal effectiveness. Such behaviour is seen as a consequence of the accounting profession trying to reconcile conflicting ideological pressures placed upon it. However the myths spawned and the associated technologies have produced a bias against reform. The work is interesting in underlining the social creation of accounting, and how meanings attached to it help maintain the status quo, but questions about which ideological pressures are most significant, and whose purposes are served by such myth creation and stabilisation are left unexplored. The work of the following radical theorists is critical in that it extends the accounting problematic to such issues.

2.2.5

Radical Theories

Insofar as functional theories address the problem of change, it tends to be from a managerial perspective, which traces the wider environment and nature of society

42

as natural and given. Its use of scientific methods to substantiate clams that it is neutral and value free are questionable given the selective perception of observers, the role of choice in problems investigated, and which language and models of relationships are adopted. Whilst pluralist theories acknowledge the existence of diverse and conflicting goals amongst parties, they tend not to pass judgement on them, conflicts tend to be atomised to the individual and the group. Radical theorists would suggest that by not questioning wider social relationships, such as the distribution of power and class relationships, functional theory implicitly accepts and indeed supports the status quo by reproducing ideology in the guise of science. Interpretive theories have been important in questioning the epistemological and ontological assumptions of functional work. By so doing fresh perspectives have been shed on accounting, not least on the subjectivity of its creation, despite its espousals of objectivism. Others share little consideration, however, is given to how wider social and political collectivities impinge upon the processes by which “common” sense understandings. In contrast to functional and interpretive approaches, radical theorists view society as being composed of contradictory elements and pervaded by systems of power that lead to inequalities and alienation in all aspects of life, they are concerned with developing an understanding of the social and economic world that also forms a critique of the status quo. Moreover, by accepting the dominant ideology and by not questioning the fundamental nature of capitalism, functionalists interpretive theorists are seen as helping sustain and legitimise the current social, economic and political order (Baritz,1960) thus traditional accounting theory is regarded as adopting a managerial frame of reference and as supporting the status quo (Cooper, 1983; Tinker et al. 1982). A theme central to all radical theories is that the nature and organising principle of a society as a whole is both reflected in and shaped by every aspect of that society. Consequently no single part of a capitalist society can be fully understood without comprehending capitalism in its entirety. It is not a question of whether double entry book-keeping stimulated the 'rationalistic pursuit of unlimited profits or vice versa (see.Yamey, 1949 and 1964; Winjum, 1971) - rather capitalism and accounting techniques are seen to be inter43

dependent. There is no room for the notion of external casual influences (Burrell, 1979): accounting processes and institutions are not as much influenced by the wider social, economic and political environments as 'inter-twined' with them (Burchell et al., 1981), and cannot therefore be studied independently. Burrell and Morgan divide theories of radical change into two sections (radical structuralism and radical humanism). The former focuses on the fundamental conflicts that are both a product of, and reflected in, industrial structures and economic relationships, e.g. surplus value, class relationships, structures of control, whilst the latter emphasises individual consciousness, alienation through reification, and the way this is dominated by ideological influence, not least through language. The difference between the two approaches is akin to that between the functional and interpretive approaches. In other words radical structuralism treats the social world as being composed of external objects and relationships independent of any particular person, while radical humanism emphasises individual perceptions and interpretations. A strict division between these radical approaches reflects the view of those writers (e.g. Althusser, 1969) who consider they’re to be a distinct epistemological break between the earlier and later works of Marx on which the two strands of thought are based. However, other writers (e.g. Gouldner, 1980; Mandell, 1968; Elson, 1980) maintain that there is a complex tension between the objective and subjective areas throughout Marx's work. Considerable effort has been made by some radical theorists to incorporate both strands within a single philosophical framework, e.g.Giddens 1976; 1979; Habermas (1974, 1976). The mutually exclusive division of radical theories by Burrell and Morgdn carries the danger that concerns of radical structural analysis are seen as incompatible or irreconcilable with those stressing consciousness, rather than seeing both as dialectical aspects of the same reality. Consequently, as outlined earlier, the subjective-objective dimension in Figure One is to be regarded as continuous. . Despite the burgeoning of Neo-Marxist economic and organisational analysis in the last decade, e.g. Clegq and Dunkerley, 1980; Braverman 1974, which often imposes directly on accounting issues, it hasreceived little attention in the

44

accounting literature. Central to Marx’s attempts to understand capitalism is his theory of value and the relationships between value, abstract labour and money (Marx, 1972; Elson, 1990). Several recent writers, particularly radical economists have sought to reconsider his conceptions and relate them to modern forms of capitalist calculation (Cutler et al., 1977, 1978, 1979; Harris, 1978, 1979, Thompson, 1978, 1980, Reatti, 1980). In other words attempts are being made to link the principles of modern accounting to Marxist work on the fundamental mechanisms of the appropriation of surplus value - the process by which some would suggest that capitalism lays the seeds of its own destruction. Cutler (1978) extends the analysis to embrace the role of various types of contemporary financial institutions such as banks, finance companies and insurance companies. An appreciation of how accounting to is related to broader social processes and structures can be derived from studies of the occupation of accountancy and its professional organisation. Johnson adopted a pluralistic perspective in his early study of professionalism, in which he made a plea for understanding professional occupations in terms of power relations in society (1972). Since he has adopted a more radical outlook, whereby professionalism is viewed as a process integral to the evolution of social classes and patterns of domination (1977). Similar points are made by Larson (1977) who, like Johnson, makes specific reference to the accounting profession. More recently Johnson (1980) has argued that work processes organised as accountancy were not conceived of having some functional significance for society generally, but rather they are viewed as functioning in relation to a specific and determining historical process: the appropriation of surplus value and the accumulation and concentration of capital. Such work reflects developments in an influential critical perspective of professions, which rather than seeing them in terms of an altruistic model stressing specialised skills, knowledge, and self regulation through common values and ethics, instead exposes professional notions of altruism, impartiality and ethical veracity as myths to legitimise professional autonomy and to sustain monopolies of knowledge which have common roots with the dominant ideology of capitalist society (Heraud, 1973, McKinley, 1973; Gyarmati, 1975). Thus professional self-regulation and the consequent mystification of knowledge is 45

perceived as being inherently and fundamentally harnessed to the unequal distribution of political power and authority in a class divided society (NewmanPrice, 1983). Sraverman (1974) similarly links accounting to the appropriation of surplus value and class relationships noting that, "as capitalism becomes more complex and develops into its monopoly stage, the accounting of value becomes more complex” p.302. His historical analysis of the detailed division of labour, Scientific Management, and hierarchical centralised organisation explicates them as devices for strengthening capitalist control over the means of production through lessening the power of craft labour, rather than as responses to competitive pressures, or adjustments stemming from new technologies. Accounting may be seen as integral to the control of labour processes and constituting a labour process in itself. With regard to the latter, detailed investigation of the labour process within accountancy may be a fruitful area of study, such a task has been undertaken for data processing areas, e.g. .Greenbaum (1979). However it is the post-Braverman debate regarding management controls which may be of greatest pertinence to accounting (Edwards, 1979; Goldman and Van Houten, 1977, 1979; Clawson, 1980 Marglin, 1974, Bruland, 1982; Gordon, 1976). Such work sees the fragmentation and system attestation of tasks, and subsequent deskilling of labour as integral to preventing or weakening labour resistance, but extends Braverman's thesis by noting that this is only one of several means of securing such control. Their elaboration of managerial strategies of control has many similarities, and indeed often draws from, the work of Chandler and others described earlier, but directly challenges claims that such changes were dictated by logics of efficiency. As was pointed out earlier, budgets, standard costing and divisionalised performance measures are integral to theories of corporate development (Hopper & Berry, 1983). Thus the rationale for the emergence of management susceptible to a similar challenge and re-examination from the perspective of radical theory. Some evidence for questioning whether accounting developments were essential to new technologies comes from Pollard (1972), who doubts whether the existence of large durable means of production necessarily requires the development of fixed-capital accounting. 46

Similarly Clawson (1980) suggests that the elaborate bookkeeping and control procedures recommended at the turn of the century were “not needed to determine prices for competition with other capitalists, but rather for the purpose of class struggles”. Burrell and Morgan depict the central theme of Braverman's work as thus: “The complexity of the division of labour under capitalism is regarded as requiring an immense amount of social control which lies beyond the capabilities of the public functions of the total society, The internal planning of such corporations becomes in effect, social planning to fill the large gaps in social control left by the state" p, 38l. The suggestion is that corporate planning is in effect social planning. Accounting is central to corporate planning. However, as has been argued, it has developed and been researched almost exclusively from the perspective of management and with little reference to its broader social implications. As Cooper (1983) notes, how accounting systems might serve better societies and better organisations is rarely addressed except according to criteria of managerial efficiency. Radical work is thus important in awakening such concerns and elaborating possible alternative criteria. Braverman's work is deterministic and objective and thus shares many of the methodological problems of functionalism. Particularly important is the lack of regard paid to individual consciousness: subjection to inequities and degradation does not automatically lead to an understanding of causation and actions to prevent them. As the interpretive writers argue, consciousness is socially created. Many radical theorists would agree, but would add that it is distorted and biased towards the goals of dominant groups, particularly through language. In addition, processes of reification mystify individual understanding of the world and allow man to be dominated by creations of his own consciousness. Roberts and Scapens (1983) describe Accounting as "the language of capitalism": if so then it may be central to the production of false consciousness. Underlying its terminology and expressions is a system of moral order and a determination of 47

what is significant. Thus it may serve, through influencing the premises of argument, to legitimise and promulgate the status quo. For example Cherns (1978) argues that accounting helps create alienation and reinforces social segmentation by reducing all evaluation to a. "cash nexus" of profitability. Thus incalculable values such as loyalty or beauty become excluded from consideration, and values consistent with capitalist objectives are promulgated through the dominance of financial criteria. This is despite our knowledge that such measure does not necessarily reflect an organisation's contribution to society. Thus the pursuit of profit is often unquestionably accepted by many: despite its precise meaning being unknown ( Sandilands, 1975). The tension between accounting being presented as objective facts and its socially created sources has been noted in earlier sections. Some accounting studies, picking up such contradictions, have viewed accounting as an ideological phenomenon that serves to mystify social relationships and reinforce unequal power distributions. For example, Bougen and Ogden (1982) maintain that in industrial relations the major purpose of accounting is to legitimise decisions externally by providing what are purported to be objective calculations, but that accounting rationales are biased towards managerial interests and their bargaining positions. Similarly, in a historical study of value added accounting in a societal context. Burchell et al (1979) suggest that such accounts are a "device for miss-representing reality" in that they are used to promote an aura of rationality to production to secure more harmonious co-operation in times of labour unrest.

As the former study suggests, investigation into the use of ideology can shed fresh light on a historical understanding of accounting. For example, Merino and Neimark (1981), through such a perspective, challenge the conventional rationale that the disclosure provisions of the 1933 and 1934 united States Securities Acts were an attempt to improve information to investors, instead they argue that the legislation was intended as propaganda to respond to popular criticism of market competition and security market manipulations. The theme of such studies is that 48

accounting measures alienate through subordinating behaviour to perceived imperatives, which are in fact socially created, are malleable and serve specific interests integral to the creation of alienation in the first place.

Laughlin (1983), recognising this, advocates the use of the critical methods of Habermas to provide a better understanding of accounting as a language and to provoke discourses leading to enlightenment. There is a paucity of explicitly accounting research adopting a radical perspective. If it is that most accounting practitioners are mainly interested in preserving the present economic system, then the only relevance a radical approach may have for them may lie in the insights it offers to further reinforce their techniques of control. However a vital question is whether changes in accounting practice, together with other pressures and agencies for change, can help bring about a more desirable form of society, as is postulated by Tomlinson (1982). Radical studies of accounting can assist such a debate through developing four interrelated areas. Firstly, an understanding of how and whether management accounting is biased towards managerial definitions and the resolution of managerial problems and if so, how and whether it is related to the alienation of the workforce. Secondly, an awareness of how meanings attributed to accounting language and concepts are developed, and an understanding of the ideological influences on this process and 1ts subsequent effects. Thirdly, a greater understand1ng of how accounting is related to societal power structures and political processes. Fourthly, an increase historical knowledge of how management accounting controls within organisations have developed in relation to the evolution of modern capitalism - taking into account social, political, and economic factors. Such work might form a base for developmental work on accounting systems, which are based on alternative values and are not exclusive to managerial interests.

2.6

A Framework for the Present Study

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

49

organizational literature on management accounting has developed along similar assumptions about the nature of social science and society. Contingency theory thus represents a holistic apotheosis of the functional approach rather than a major new departure. Ontologically the work has a realistic and objective conception of reality. Societies, organizations and control systems are seen to have an empirical existence independent of any individual's cognition, and needs and goals have been imputed to each. Thus problems of reification (imputed needs and goals to abstract entities) tend to be discounted. The shifts from mechanical to organic analogies, and from closed to open systems have not marked essentially different conceptions of reality, but rather have reflected varying complexities of similar models. Throughout, the implication is that optimal accounting control system can be designed for any situation, given an ability to master its inherent complexity. Epistemologically, the belief is that this will come from a single holistic model of reality being constructed from "laws" established at different levels e.g. environmental, organisational, individual. Methodologically the work is strongly positivistic, the presumption being that if relationships between variables can be established, then these can be elevated into natural laws governing the design of accounting Systems. Research methods have been dominated by the use of questionnaires and structured interviews with the resulting data being analysed by complex statistical techniques to establish relationships. Little cognisance has been paid to how selective perception of the researcher may bias results, or the problems of establishing proof, or whether scientific method is apt for studying human behaviour. Questions of individual understanding and meaning have tended to be taken as non-problematical. Within the paradigm the view taken of human nature shifts. Economically rational man is replaced by complex man, who also seeks social and task satisfaction but whose rationality is constrained by information processing constraints. However throughout man's behaviour is seen as predictable, purposive and mainly externally determined, and capable of being understood through systematic investigation of attitudes and behaviour. 50

Thus the functionalist approaches are depicted as lying towards the objectivist extremity of the Burrell and Morgan typology depicted in Figure One. Social systems marks a slight shift towards subjectivism in recognising those individual perceptions may vary from reality due to information processing limitations. The social systems and objectivist approaches both stress regulation to achieve order and equilibrium within a unitary and essentially managerial approach to organisational effectiveness. Consequently they are located towards regulation in the classificatory framework of figure one. For traditional management accounting within the objectivist approach this may now be widely accepted .It assumes that profit maximisation increases the welfare of the participants and society, and that the task of the accounting control system is to programme and monitor behaviour towards ouch ends. However, even if the definitional and measurement problems of profit can be resolved, its use as an effectiveness measure is questionable (Steers, 1977; Campbell 1977, Lowe and Chua, 1983; A.A.A., 1971). Systems theorists have tended to take survival as the criteria for organisational effectiveness. However, large organisations tend to have low mortality rates therefore surrogate measures of factors believed to lead to survival are often taken, such as whether constituent systems have sufficient inducements to prevent the system breaking down, or whether there are sufficient integrative mechanisms (Price, 1968; Mahoney and Weitzel, 1969). But by emphasising the necessity for harmonious and lasting integration of parts to maintain the functional whole, systems-theory can lend itself to a pro - managerial definition of problems as explained earlier. Neither of the above unitary approaches significantly addresses issues of power and conflict. Whilst they may claim to be objective and value free, by failing to examine alternative perspectives, they may in fact be merely reproducing dominant ideologies and reinforcing them by prescribing accounting systems designed upon such lines. The "quality of working life" writers (Mirvis and Macey, 1976) are possible exceptions, but their criteria of effectiveness are essentially 51

individual and they rarely address questions of societal change. In Figure One, social systems work is depicted as being less inclined to regulation than objectivism, for it does address itself to the problems of adaptation, albeit within a managerial conception. However the social and political forces creating such changes are largely left unexplored. Throughout, this chapter has assumed that organisation theory can contribute much to management accounting. But any search for the theory of organisations will be of no avail, for despite the predominance of functional approaches, organisational work is characterised by a wide range of diverse and often conflicting methodologies. However, when accounting research is grouped according to its social science assumptions, functionalism reigns virtually absolute. The failure of accounting research to question its methodological assumptions or to examine related broader and social issues is puzzling, given that so much relevant work in other disciplines impinges on topics normally considered within the accounting domain. Accounting researchers often defend the current position in terms of an academic division of labour. Accounting research is assumed to be concerned with developing managerial techniques and technologies. Abstract theorising and societal issues are seen as the province of others. However and such distinction is artificial and self - defeating. Not only can it lead to an impoverishment of understanding about accounting, its social science assumptions and its societal context, but also it can have repercussions upon the relevance and usefulness of accounting research within management. It is ironical, given the munagerialist bias of so much accounting research, and its reflection in leading textbooks, that 'advanced' techniques have had so little impact upon practice . Not unrelated to this is the growing realisation that there are few close research studies of accounting in action. Such a state of affairs may not be unconnected to the methodological assumptions underpinning orthodox work. For example its bias against “grounded theory” or its assumption that organisations are coherent units functioning to achieve specified goals; or that accounting information is provided to aid decision making; or that people act in a consistent and purposeful manner

52

towards certain rational ends. In short, accounting research by permitting central assumptions to go unquestioned, may owe more to managerial ideology than any social science methodology. The cost of sustaining powerful convention may be a serious delimitation of the subject in analysing problems in either the social or managerial arenas.

However the accounting scene is not entirely black. Recent work incorporating pluralism, interpretive theories and radical approaches have permitted some are questioning of accounting assumptions. This may mark two broad trends in management accounting research. Firstly, an increasing interest in the dynamics of change at both organisational and societal levels. Secondly, a growing querying of the validity of scientific method for researching social questions. By acknowledging the existence of conflicting ends within organisations and the conflict they provoke, accounting research-using pluralism can contribute much to re-assessing the role of accounting in organisational change and adaptation. However such approaches have considerable limitations as a basis for prescription. If problems are reduced to inter-group and inter-personal levels of analysis, and major conflicts become viewed as 'dysfunctions' , then they may carry the danger of begging the fundamental questions raised by radical analysis, namely how accounting data, controls and institutions are related to power and the distribution of resources within society. The growing interest in interpretive methods and case study research in accounting may, through inductive theory generation, direct greater attention to such issues. The hope is, as expressed by Driver and Mock (1977) when defending their “feedback modal" of research," …… that by using empirical research to build theory, theory will keep time with reality". However this paper has taken pains to indicate that such methods are frequently related to fundamental epistemological and ontological assumptions that have direct implications upon how one might conceive management accounting. For accounting researchers to employ such methods without seeking to address the more fundamental questions they address will not only misrepresent the intentions of their creators, but may also leave accounting research the poorer for having failed to question basic assumptions. 53

It would be naive to expect that the "fresh" approaches to accounting research will eventually constitute the single correct orthodoxy, or that they will be capable of being slotted into functional work. Their potential and case for development rather lies in the friction and debate which they can precipitate over questionable but relatively unquestioned accounting assumptions. Employment and appreciation of perspectives widely utilised elsewhere in the social sciences may enhance a more productive dialogue between disciplines and factions. It may foster the development of accounting knowledge in new areas and it may help prevent invalid research. However, most. importantly, the adoption of a particular approaches inextricably linked with certain values and beliefs about the nature of the social sciences and society. It is contended here that above all it is the intellectual duty of all academic researchers to acknowledge and substantiate such beliefs and to be aware of the implications they may have for their research.

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CHAPTER THREE Methodology
3.2

Introduction

Chapter one of this study attempts to examine management controls in an uncertain context emanated from a particular social and organizational context; and the chapter two dealt with crystallizing conventional theoretical studies in reviewing management control systems that are prevailed in organizations. This chapter will focus on identifying problems of orthodox methodology and attempts to making a case and in addition the chapter will address the issues related to data collection, analytical tools and methods of analysis.

3.3 Problems of Orthodox Methodology
Accounting case studies have become more prevalent as this literature has developed. Nevertheless, we still feel that there is much that needs to be discussed in this area of accounting research regarding the role and status of “explanatory” case studies. In particular, the accounting calls for studies of the intricate, day-to-day use of accounting in contemporary organizations, suggestions that case studies have failed to generate much “new” theory (see Otley and Berry, 1994), the lack of references to prior case studies in developing theoretical reflections on accounting practice and the repeated assertions about the benefits of case based research (for

55

example, see Covaleski and Dirsmith, 1990; Laughlin, 1995) are all indications that the claimed potential of accounting case studies is still far from being realized. There are many problems in orthodox Methodology and these problems can be recognized as the characteristics of the traditional paradigm and those factors are discussed as follows.

3.3.1

It is Framed from the Perspective of the Organization

As we have seen, the normal approach to management accounting is to acknowledge that it takes place within a business organization. The step that follows immediately from this is to suppose that, because management accounting takes place within the organization, therefore matters concerning management accounting should be considered from the point of view of the organization. Thus, when a feature is discussed, its nature is perceived managerial/organizational perspective (that is, the from within a of the perspectives

management as a whole and of the organization are treated as indistinguishable). The implication is that, when the conventional literature considers the notion of bias, it may or may not prescriptively state that there should be ways of reducing or eliminating the bias; but whether or not this is made explicit, the implication is left hanging in the air, by the very term used - "bias" - that it is undesirable. We can understand further the implicit managerialism of the standard literature by considering the topics that are the standard subject of research and of inclusion in syllabuses and textbooks. These include, for instance, standard costing; and no purpose of standard costing is envisaged except as a teleological tool: one to reduce cost through indicating variances to be investigated.

3.2.2

It Treats the Organization as Effectively a Closed System

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

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complexity is the interaction of each element of the world with others. The difference in approach that this causes can be seen in the method used to introduce the subject of economics to new readers. Both individuals and organizations interact with their environments, and it is only in that interaction that they can be properly understood. A characteristic of conventional management accounting is that it tends both to ignore the existence of the environment of the organization, and to ignore the interaction among the various elements of the organization. (We say "tends" here, because some parts of the traditional paradigm have a greater tendency to this than others. Mathematical modelling is very prone to it. Strategic management accounting is relatively free of it.)

3.2.3

It has a Technical Orientation

It is best to begin here by defining what we mean by "technical”. Certain aspects of human society are concerned with the achievement of what we might with Habermas call "strategic" ends. Rather than being ends in themselves (such as the appreciation of the beauty of a painting) they are concerned with a means-endcalculus: what is good is that which is efficient. Indeed, it would be difficult to conceive of anyone supposing that "inefficiency" would be a good thing. Like the term "bias" that we discussed above, "efficiency" is a term that has emotive connotations. Yet it is one that leaves a great deal to be desired. Traditional management accounting has been designed, and is usually interpreted, in a way that is specifically geared towards evaluating only the technical efficiency of the process of producing something, rather than evaluating the totality. The purpose of the business organization is infrequently challenged: instead it is accepted as a vehicle for the production of goods or services of some kind.

3.2.4

It is Prescriptive

Given that we have already pointed to the managerialist orientation of management accounting, it will not be surprising that the rationale for it is that it 57

can prescribe better methods of doing things. It is rare to find criticism of a technique that is taught: and even where there is such criticism there is still a prescription, namely, not to do what is being done/This raises a broader attribute which is characteristic of most Western thought. The world is seen as voluntaristic: as manipulable by people so as to improve some aspect of life. There is, in short, a belief in progress. The world may be made better, and it may be improved by human action. Words such as "fate" or "destiny" have almost dropped out of our vocabulary. Management accounting has become taken-for-granted as part of the toolbox that can enable this process of improvement to take place.

3.2.5

It is Ahistorical

There are many ways into analysis in social science. One distinction is between cross-sectional and historical analysis. The first of these attempts to explain what is found by reference to other features, either of the entity being investigated, or of the environment of that entity. The second of these attempts to explain features through their history: they are as they are because of previous developments. The two are not, of course, wholly mutually exclusive, but there is a tendency in crosssectional analysis to ignore the historical, far more than the tendency in historical analysis to ignore the context. There are many good examples of this in the behavioural budgeting literature. Stedry's (1960) model, for instance, is closed system but also ahistorical: it makes no attempt to explain people's choices as a result of their previous experiences. The same may be said of Hofstede (1967), Ronen and Livingstone (1975) and Hopwood (1974).

3.2.6It is Apolitical
When we say that the traditional paradigm is "apolitical", we must not be misunderstood. We are not suggesting that traditional management accounting successfully avoids political issues in society: rather, we are suggesting that it implicitly claims to avoid these issues, whereas it is no more able to avoid them 58

than any other social phenomenon. There are perhaps two schools of thought here. One is that accounting it self is politically engaged. The other is that accounting is not in itself political, but that because political issues pervade the social world in which accounting operates, it thereby becomes intertwined with the political. Briefly, the first may be justified by pointing to the accountability dimension of accounting, and arguing that accountability cannot be separated from hierarchy. Hierarchy in turn implies a relationship of power, and power relations are by definition political. The second may be justified by suggesting that accountability relations are not necessarily linked to a rigid hierarchy: for instance, a manager in a workers' co-operative, or a vicar in a church, may both be accountable to (respectively) those they organize and their parishioners.

3.2.7

It is Rationalistic

There are many models of the nature of human action and judgments. The economist's model is the extreme, which assumes rationality. Psychoanalytic models are perhaps the opposite extreme and suggest the crucial significance of the unconscious in affecting action. Traditional accounting models tend strongly towards the economic view. Accounting is treated as the quintessence of rational calculation. Those in control of the information use it rationally in making resource allocation decisions: those subject to its surveillance make rational decisions about their action based on their awareness of that surveillance (as, for instance, where the budgetee attempts to keep expenditure within the prescribed limits precisely because he or she supposes that rational decisions will be based on the presence or absence of variances). It is, moreover, arguable that part at least of the accounting literature on ambiguity and choice (contrast Dyckman,1981 with Cooper, Hayes and Wolf, 1981, and March, 1987) still betrays a yearning for rationality, while recognizing the difficulties of the model.

3.2.8

It is Functionalist

A major problem for sociology and anthropology has been to account for the existence and persistence of particular institutions or phenomena. However, this 59

approach poses at least two problems. First, the historical record is often nonexistent, sketchy or unreliable. Second, even where we know what a phenomenon changed from, and what it changed into, we still do not know why it changed in (hat way and not some other). To explain this, we need some conception of "social fit": the institution changed the way it did because that suited the interlocking social institutions. However, this leads to a further implication: that the institution could not have changed any other way. Any other form is inconceivable because it would not mesh with those other institutions so well. This effectively leads to a theoretical situation where, it turns out, we can forget the past and concentrate on cross-sectional functional analysis. Put simply and, no doubt, outrageously oversimply: an institution is the way it is because that suits the rest of the social system. If for any reason it fails in future to suit the system, we shall find it adapts. Then under the new situation, we shall still have a functionalist explanation, that is, an explanation in terms of the function the institution serves in the context of the society in which it is found. Things are the way they are because they could not survive any other way.

3.2.9

It is Reductionist

The traditional accounting paradigm is reductionist in two ways. First, the only phenomena that are ultimately considered to be significant are economic phenomena. This is not, of course, to suggest that insights from other academic disciplines are not employed: increasingly, they are. Although the most traditional tools of cost accounting were just a set of logical protocols to calculate and control economic outcomes, later work that developed within the paradigm did indeed borrow from other disciplines, first statistical and mathematical, later psychological and social psychological. But these insights were used only as a means towards the end of rational economic calculation. If social psychology was used to understand budget-setting behaviour, it was because the quality of the budget process appeared to lead to better or worse attainment of economic targets. If classical statistical theory was bolted on to CVP analysis, it was because this improved economic decision-making. There is, of course, an alternative, which would acknowledge that our social world comprises other than economic levels 60

and economic indicators of satisfaction. This is entirely missing. Second, the traditional paradigm effectively supposes that social effects and social action can be reduced to individual effects and individual action. Much work is concerned with control over the individual on the supposition that optimising a function with respect to the individual manager will optimise the function for the organization as a whole. Similarly at the next level, it supposes that optimising a function for a particular organization will bring about further economic (and of course other) social welfare functions in society more generally.

3.2.10

It is Positivist

I use it here in the way described by Giddens, who suggests it has two characteristics: First, a conviction that all "knowledge", or all that is to count as knowledge, is capable of being expressed in terms which refer in an immediate way to some reality or aspects of reality that can be apprehended through the senses. Second a faith that the methods and logical structure of science, as epitomized in classical physics, can be applied to the study of social phenomena (Giddens, 1976, p. 130). The first of these beliefs means that the traditional accounting paradigm concerns itself only with phenomena those are in principle or in practice measurable. They are measurable because they are accessible to our senses: we can listen to opinions in an interview, read responses in a questionnaire, and observe the slope of a break-even chart. These phenomena can thus also be justified as relevant because they are real: nobody can accuse the positive analyst of supposing the existence of something that docs not exist. The second characteristic has led to a frequent requirement that traditional research should define variables with precision, measure them, and subject them to classical statistical tests. This leads to acceptance or rejection of hypotheses; it leads to associations of variables through regression models. Despite an acknowledgement that covariance does not in itself imply causality, it has also led to attempts to build causal models for organizational control (once again the behavioural budgeting literature provides many clear examples of this: so does 61

prescriptive transfer pricing theory). It is interesting to note that there was a brief flurry of research (Hayes, 1977) employing factor analysis. This was consistent with the second characteristic given here, but not with the first characteristic (since statistical factors are not perceivable by the senses). It is noteworthy that this method appears to have lost favour, perhaps for this reason.

3.2.11It is Problem-Cantered
The social world is a world of relationships, power, status, class, hierarchy, linguistic competence, symbol and myth. Its constituents are interactive and complex. The social, the political and the economic form a tightly woven web. Accounting phenomena are one part of this. They are of great interest in themselves, to be understood as part of our attempt to understand the social world in which we live, just the way chat economics, politics, sociology and anthropology are studied. However, traditional theory defines accounting phenomena solely in terms of problems to be solved. That accounting has traditionally tended to be optimistic in its view of human progress. It is founded on the supposition that it can, when applied judiciously, aid in the achievement of whatever is being sought. It will be noted, however, that this optimism concerning progress coexists with certain pessimism about the human character: accounting's existence is also necessitated by the supposition that people will not improve their behavior without the surveillance of an accounting system. A well-designed accounting system will help to rectify these failings by channelling people's energies into activities desirable to the organization.

3.3

Towards a Case Study Approach

In recent years, there have been repeated calls from accounting researchers for case studies of accounting in practice. Some of these calls have come from those who see case studies as necessary precursors to more elaborate, large sample hypothesis testing (Kaplan, 1986), but such calls have also come from those who

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want to develop theoretical explanations of accounting practices (e.g. Burchell et al., 1980; Hopper and Powell, 1985; Hopwood, 1983; Hopwood, 1987; Otiey and Berry, 1994; Scapens, 1990; Smith et al. 1988). Although the writings of Kaplan (e.g. 1984; 1986) have prompted a large number of case studies to support new management accounting techniques, these case studies have tended to be grounded in conventional managerialist concerns for the operational control of business organizations. Hopwood's comment quoted above, however, reflects rather different concerns (see also Cooper and Hopper, 1987). Here the purpose of case studies is to obtain a better understanding of accounting practice and of the role and actual functioning of accounting in organizations, including the pressures which accounting exerts and has exerted on it, and the interests it serves. This study is principally concerned with "explanatory" case study and its capacity to move away from managerialist notions of accounting and to provide more challenging reflections on the nature of accounting knowledge and practice. As argued by Hopper and Powell (1985), accounting should no longer be studied in a mode which is divorced from its social context and which ignores the influence of " wider social and political collectivities " (p. 450). They suggested a research programme, which would seek to enhance understanding of the relationship between accounting and these wider collectivities. Such a programme of work is, by its very nature, inter- disciplinary. In this respect, Hopwood (1983) noted how researchers from other disciplines had begun to identify a variety of interesting research avenues in the accounting domain: And sociologists too have started to recognize the research potential offered by the accounting craft, asking questions about how accounting might be related to the more general elaboration of calculative practices in modern society, the ways in which accounts have provided a powerful calculus for forging a new visibility which can facilitate specific modes of control within the business enterprise in particular, and the more legitimizing functions of the accounting craft (p. 303). These calls for a new agenda in accounting research have subsequently been met by a whole host of articles seeking to explain the political, social and economic 63

influences of accounting. Drawing on a wide range of social theorists, this literature has problematized the history of accounting, revealing its interested nature, challenging claims to an inherent accounting rationality and neutrality, providing alternative insights into the functions of accounting and offering new explanations of the forces giving motion to processes of accounting change (for reviews, see Arrington and Francis, 1989; Cooper and Hopper, 1987: Hopwood, 1987; Loft, 1991; Puxty, 1993; Roslender, 1990). This study examines, in depth, one growing and successful medium sized and small firm, dynamic and fast moving. The case here is seen as a vehicle for in depth study and in this situation helps me understand the phenomena, since use is made of open-ended interviews conducted over a period of 20 weeks. Lynch, (1994) identified that case interviews help confirm the shape and spread of key issues. This part addresses the question of how cases are construed in the research process -how methodological arguments are fashioned for the purpose of establishing the claim that case studies are related to broader classes of events. My argument is that cases are "made." by invoking theories, whether implicitly or explicitly, for justification or illumination, in advance of the research process or as its result. This interpretation supports a renewed appreciation for the role of case studies in social research and offers a fruitful strategy for developing theory. The argument derives from a research project in which my own understanding of what the case study was a "case of" shifted dramatically in the process of pursuing the study and explaining its results. The research, begun as a study of one thing, later proved to be a study of something quite different.

3.3.1

Case and Universe

When researchers speak of a "case" rather than a circumstance, instance, or event, they invest the study of a particular social setting with some sense of generality. An "instance" is just that and goes no further. A "case" implies a family; it alleges that the particular is a case of something else. Implicit in the idea of the case is a claim. The case is one point in a sampling frame and cases are made prepossessing by the universal characteristics, which they represent.

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Cases come wrapped in theories. They are cases because they embody causal processes operating in microcosm. At bottom, the logic of the case study is to demonstrate a causal argument about how general social forces take shape and produce results in specific settings. That demonstration, in turn, is intended to provide at least one anchor that steadies the ship of generalization until more anchors can be fixed for eventual boarding. Better that the case study makes modest claims about what may be on the line. In the logic of research, we endeavour to find fertile cases, measure their fundamental aspects, demonstrate causal connections among those elements, and suggest something about the potential generality of the results. These observations about the nature of cases seem straightforward. If they do not appear among the conventions of research methodology, that is only because our basic texts neglect to pursue the assumptions made in defence of the case study. The point is demonstrated by two reflections on the evolution of method. First, we should recall that terminology of cases and case studies appears with particular times and conditions. Second, we then note in the developing canon of research methodology a conspicuous effort to explain why the newly distinguished category of "cases" may impart valid scientific evidence. There is a question that where does the theory about the case come from? The answer implied by Lazarsfeld and Rosenberg, which is to say by methodological convention, is that "typologycal distinctions" are drawn from a fund of prior general knowledge. That is, cases can be referred to a type, embodied processes identified, and contrasts developed, all because we understand the principles of a well-organized universe. In actual research practice, of course, cases are chosen for all sorts of reasons, from convenience and familiarity to fascination and strategy. Once chosen, however, the case must be justified - shown to be a case of something important. In fact, as we begin to reflect on the state of general knowledge in social science, it is clear that much of what we know derives from classic case studies. Guttinan (1061) tells us what goes on in mental institutions, Sykes (1958) explains the operation of prisons, Whyte (1943) and Liebow (1967) reveal the attractions of street-corner gangs, and Thompson 65

(1971) makes food riots sensible. A Logic characterizes this process in which a different kind of universe is posited through generalization of the explanatory principles revealed in the case. The older universe, itself an expression of theory, is disaggregated and some of its elements combined with newly perceived phenomena in a universe reconstructed as the field of new explanations. It is a logic of robustness. The explanatory principles revealed in case studies are generalized because they can solve new problems, explore new terrain in re-specified endeavours analogous to Kuhn's scientific revolutions (1959).

3.3.2Theory and Case Formulation
No cases are sacred, however. If they are provocative in the first place, inviting models for further application, then they typically lead to conceptual and methodological modifications. Cases are reformulated in at least two ways. One grows directly out of a particular case tradition, while the other begins with a substantive problem and looks for adaptable case models. In practice, the strategies may be combined. In either form, the claim is that the case is about something other than what it was originally conceived to be about. It the new study` is convincing, it demonstrates a distinct and robust causal interpretation. Although the Kuhnian metaphor of paradigmatic scientific revolutions is often invoked to describe this kind of reformulation, in social science these shifts emerge in less abrupt or discontinuous ways. Now causal interpretations succeed because they supplant previous onesthey explain the old facts and more. The content and boundaries of cases are reconceived precisely in an effort to forge new generalizations that embrace and supersede earlier understandings. The second avenue of case reformulation adopts available models or fashions new ones to address distinct substantive problems. The old models do not fit because the new phenomenon is either a different kind of case or one that cuts across 66

conventional boundaries. Despite the sharply different departures taken by Paige (1975), the aims of reformulation are similar. First, the case is reconceived as an empirical instance of something new or previously misapprehended. Second, the new case is precisely made a case by defining it theoretically, by demonstrating its causal connections to a hypothesized general process. Third, the methods and evidence from cases as previously construed are incorporated into the new interpretation - indeed, the old cases may suggest the new idea. Finally, an argument is advanced for the greater scope of the new interpretation. The question of cases, their designation and reformulation, therefore is a theoretical matter. The processes of coming to grips with a particular empirical instance, of reflecting on what it is a case of, and contrasting it with other case models, are all practical steps toward constructing theoretical interpretations. And it is for that reason, paradoxically, that case studies arc likely to produce the best theory. As Stinchcombe (1978:21-2) observes, "if conceptual profundity depends on the deep building of analogies from one case to another, we are likely to find good theory in exactly the opposite place from where we have been taught to expect it. For it is likely to be those scholars who attempt to give a causal interpretation of a particular case who will be led to penetrate the deeper analogies between cases."

3.3.3Making a Case
As I began to construct these events from primary sources of the company, my initial impulse was to locate the rebellion within the appropriate case study tradition-to determine what it was a case of. Considering the available case models, it became clear that I had a case of something quite different, assuming it was a "case" at all or simply a unique historical event.

3.4

Research Design and Procedure Adopted

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Having selected a qualitative research paradigm to guide the explanatory study of the management control practices in an uncertain context, a flexible research design which would allow findings to "unfold, cascade and emerge" (Lincoln and Guba, 1986, p. 210) was developed. Characteristic of explanatory research conducted within a qualitative paradigm, the methodology was designed to allow the researcher to build rich descriptions of the context within which case-firms' management control systems were developed, created and maintained which "fitted and worked" participants' perspectives (Glaser and Strauss, 1967). As such, the design used to guide the collection and analysis of data had to be flexible enough to permit the researcher to uncover and explore issues which emerged as interesting and potentially capable of understanding the substantive research problem. However, as it is "impossible to embark upon research without some idea of what one is looking for" (Wolcott, 1994, p.157), decisions regarding the unit of analysis and the methods used to collect qualitative data were taken prior to the researcher's entry into the field.

3.4.1

Unit of Analysis and Justification

Patton (1987, p. 51) asserts that the key factor in selecting and making decisions about the appropriate unit of analysis is to decide "what unit it is that you want to be able to say something about". As this research was interested in the impact, which management control systems in practice of medium scale firms, medium size food processing company was selected as the unit of analysis and a grounded definition of "smallness" was used (Curran et al., 1993). In considering this firm to be involved it was decided that purposive rather than random sampling would be an effective way of selecting case-firm "rich" in data pertinent to understanding the research problem (Marshall and Rossman, 1995). While the logic of probabilistic sampling lies in "selecting a truly random and representative sample which will permit confident generalisations from the sample to a larger population" (Patton, 1987, p. 51), the logic of purposive sampling is suited to research with different aims. Its power lies in the selection of cases "rich" in information about the

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substantive research problem. As such, purposive sampling was suited to developing a comprehensive understanding of the management control systems of a medium size firm. To ensure that participating case-firm would be rich in data about the management control systems in which they were embedded, criterion-sampling tactics were used (Patton, 1987). It was decided that the following set of predetermined criteria would help the researcher, when in the field, make objective decisions about the firms he approached, so ensuring that a purposive sample of case-firms participated:
• • • • • •

Case-firm satisfied the grounded definition of a "smallness"; Case-firm were located within daily travelling distance of the researcher; Case-firm had been trading for a minimum of three years. Case- firm acquired the largest market share within short period of time Case-firm have link with the researcher. Case-firm produces instant food items which is in connection with the social responsibility

As well as satisfying the grounded definition of a "small" (in between small and medium size) food processing company, case-firms had to be located close to the researcher to enable him to visit them on a daily basis, for extended periods of time. Also, by stipulating that case-firms had to have been trading for a minimum of three years, the researcher had access to participants' understanding of the ways in which, over time, management control systems had impacted on the development of case-firm. Through the preliminary observations carried out by the researcher it was found that this company was able to capture the largest share of the market in Sri Lanka within a short life span (Established in 1997 and present market share is 60% of Soya Foods) Hence the researcher was interested to explore the management (Control) practices applied by said firm and to review whether such practices could be explained in the theoretical framework or the firm specific applications. The CEO was known to the researcher for a long period and such rapport was immensely useful to gather the required information for the

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study, where in Sri Lankan context companies are reluctant to divulge information – without such links it is very difficult to gather accurate and adequate information for this type of study. With the changes occurring in socio – economic environment of Sri Lanka the instant food items are becoming much more popular among, especially urban citizens. Therefore the researcher felt that the behaviour of instant food producing firm would be useful to generate new knowledge. The use of a sample was justified by the logic of replication sampling. As a sampling strategy that permits the researcher to spend lengthy periods of time with individual case, this sampling encourages the collection of data rich in detail about the substantive research problem. Consequently, the criteria used to assess the findings generated differ from those applied when using probabilistic sampling (Lincoln and Guba, 1986; Yin, 1994). While the value of the latter is judged by the degree to which they can be generalised to the wider population, the value of the understanding which emerges from the detailed study of a purposive sample of small firms is properly determined by the degree to which it "fits and works" with the perspectives of participants (Glaser and Strauss, 1967). Particular to this study, logic of replication sampling allowed the researcher to collect rich and detailed data about the management control systems in an uncertain context in the food processing company selected by the researcher were embedded.

3.4.2

Research Methods

The researcher's decision to use himself as the "instrument" for collecting data was influenced by the qualitative research approach adopted and the exploratory nature of the research. The subjective epistemology of the qualitative research paradigm views social reality as constructed by humans and maintains that if it is to be understood, the researcher cannot remain distant from and uninvolved in the social phenomenon in which they are interested. Instead, they must adopt a role, such as "researcher as instrument for data collection", which allows them to get close enough to social subjects to be able to discover, interpret and understand participants' perspectives of social reality. For this reason, the researcher decided

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that by collecting the data himself, he would be able to meet the aims and objectives of the research and develop a grounded understanding of management control systems of selected food processing company. The selection of methods that the "researcher as an instrument" used to collect data was also influenced by the qualitative approach and exploratory nature of the research question. Research conducted within the qualitative paradigm is characterised by its commitment to collecting data from the context in which social phenomena naturally occur and to generating an understanding, which is grounded in the perspectives of research participants (Bryman, 1988; Lofland, 1971; Marshall and Rossman, 1995; Miles and Huberman, 1994). This means that the methods used in qualitative research must allow the researcher to enter into the social world in which they are interested and to have an empathetic understanding of participants' experiences of the social phenomenon under investigation. The collection of social data, then, is best conducted in the environment in which social phenomena naturally occur and the methods used must be open and attentive to the internal logic of participants. Consequently, it was decided that data would be collected from participants in their natural environments. Specifically, data were collected on the participants' work premises and, outside of working hours, at neutral places of convenience suggested by participants. It was also important that the researcher did not impose his external logic on the behaviours that he was investigating. Instead, methods that allowed data to be collected from participants in their working environments, captured data rich in detail about the research problem and gave the researcher the flexibility to explore issues raised by participants were selected. Data were collected during depth, unstructured and semi-structured interviews with owners and staff conversations and participant observation. The method by which data were collected dictated the way in which they were recorded. While depth interviews were recorded on tape for later transcription, data collected during observations and conversations were not recorded until the researcher had left the field and his notes were written-up.

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3.4.2.1

Observations

Observations carried out to understand the environment of the organization. The techniques of observations were used throughout the period of data collection: the central focus of the observation was to understand the behavioural aspects of the CEO and other people in the organization. It is remarkable to state that the autocratic practices of the CEO’s interferences at every level of the organization was able to observed by the researcher through these observations. It was able to confirm therefore, some documented procedures were almost like dead letters. 3.4.2.2 Interviews

The principle research method used by the researcher, as agreed with the MFPL, is in-depth interview. A series of semi – structured interviews were conducted with CEO and some Top Rankers according to an interview schedule. These interviews consisted of discussions mainly about planning and control. All these interviews took a minimum of 1 hour, with some extending over three hours and into more informal surroundings. The researcher conducted interviews and he played three roles i.e. asking questions, record discussion and to observe and pick up potentially interested themes. Actually it was planned to interview key positions in the organization including the CEO. But whenever the researcher approached other than the CEO it was found that they were extremely reluctant to disclose any information about their role or company related data. Information gathered through the interviews with the CEO also confirmed that he intervened at top to bottom of the organizational work and the managers and other were merely limited to their designation in which they were not empowered to play any role that could independently operate by such positions. It was also observed that the CEO was not happy to see that researcher collect information from others in the organization. While interviews are going on the CEO took the researcher to the various important places, such as, factory, production units and so on in the organization and showed things and procedures that that he considered as important. The interviewing method was used because it helps gathering more information as well as it provides opportunities to cross72

examine such information while they are gathering. Interviews were planned to carry out with all divisional heads and others but it was not possible due to CEO’s displeasure regarding the same. 3.4.2.3 Documentation

In addition to above methods of data collection investigation was through the study of selected planning, control and financial documents related to the MFPL. The organizational chart was produced with the researcher and it was completely a different chart than that of existing structure. The documents that could be used as controlling devices for example the firm did not use Goods Return Notes. The documents that state the ingredients and their amounts used for the production mixture was not produced for the observation. When the CEO was interviewed he declined to disclose these information though the researcher assumed its confidentiality. During the period of data collection it was produced with a draft accounting system but existing system was not produced for the researchers observation.

3.4.3

Analysis

The method of descriptive analysis was used to understand the company’s management control systems. The quickest way to understand how company practices are done and to compare them with “established” practices and to examine alternative procedures/practices is only possible through a qualitative analysis. Further it was analysed the impact of these practices in to social and economic context. Social objective do not have the same relative values that firm has one objective may be highly prized in one circumstance, another in another circumstance. Because it is not rationale to quantify such complex management or social issues. Thus Quantitative analysis is not used because it is not provide room for comprehensive analysis. “Ideally, rational comprehensive analysis leaves out nothing important. But it is impossible to take everything important into 73

consideration, unless “important” is so narrowly defined that analysis is in fact quite limited. Limits on human intellectual capacities and on available information set definite limits to man’s capacity to be comprehensive” (Charles E. Lindblom – “ The science of Muddling Through”, American Society for Public Administration from public administration review 19, No 2, 1959 p.p. 79-88).

3.4.3.1

Inductive Data Analysis

The process of analysing the data collected for this study was characterised by the fact that it began as soon as the researcher started collecting data, it was ongoing and it was inductive. Lofland's (1971, p. 121) explanation that when undertaking qualitative research, "during the observation or interviewing phase, one is at the same time trying to make some kind of (abstract) sense ... of the raw reality one is encountering" is a fitting description of the overlapping activities of data collection, analysis and interpretation which occurred during this explanatory study of small firm networks. As soon as the researcher began the process of collecting data, he simultaneously engaged in analysing and interpreting the perspectives of those he was talking with and observing. This early and ongoing analysis was necessary for a number of reasons. By overlapping the phases of data collection and analysis, the researcher was able to "adjust (his) observation strategies, shifting some emphasis towards those experiences which (bore) upon the development of (his) understanding, and generally, to exercise control over (his) emerging ideas by virtually simultaneously `checking' or `testing' these ideas" (Marshall and Rossman, 1995, p. 103) with the collection of further data. Also, this concurrency of data collection and analysis suited the fluctuating and emergent nature of the management control being explored. On a practical level, the "sheer massive volumes of information" (Patton, 1987, p. 297), generated by the qualitative methods used, demanded that analysis was not delayed until the completion of the collection of primary data.

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As the aim of the research was to generate a comprehensive understanding of the research problem, "rather than forcing the data within logical-deductively derived assumptions and categories" (Jones, 1985, p. 25), it was important that data were inductively analysed. By organising and structuring data according to the issues and topics which participants identified as being important to understanding management controls in an uncertain context, a grounded understanding which "derived from the concepts and categories which social actors used to interpret and understand their worlds" (Jones, 1985, p. 25) was acquired. The inductive analysis of data was guided by the literature on grounded theory (Easterby-Smith et al., 1991; Glaser and Strauss, 1967; Lofland, 1971; Marshall and Rossman, 1995; Strauss and Corbin, 1990). This literature recommends that the inductive analysis of qualitative data involves: the reading and re-reading of transcripts and field notes (Easterby-Smith et al., 1991); the use of codes to bring order, structure and meaning to raw data (Strauss and Corbin, 1990); the constant comparison of the codes and categories which emerge with subsequent data collected and also with concepts suggested by the literature (Glaser and Strauss, 1967) and, the search for relationships among emerging categories of data (Marshall and Rossman, 1995). There are, however, no "formulas or cookbook recipes" (Yin, 1994, p.102) to advise on the "correct" or "best" way of inductively analysing qualitative data. Specific to qualitative studies of the small or medium size firm, when reporting on the outcomes of their work, few researchers detail the exact procedures and scheduling of activities involved in their inductive analysis of qualitative data.

3.4.3.2

Analysis On-Site

This first phase in inductive analysis occurred while in the field. The early collection of data was guided by the researcher's pre-understanding (Gummesson, 1991) of food manufacturing company and the aim of "exploring the impact that the management control in which small or medium size firms are embedded have upon their development". At this stage, depth interviews were kept open to the

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collection of interesting responses and perspectives around which further data collection could focus. The tape recording of interviews allowed the researcher to make written as well as mental notes of any analysis he made during interviews. This also permitted him to identify particular responses to probe further during that interview or at a later date.

3.4.3.3

Running the Data Open

Immediately after depth interviews and observations were transcribed and recorded, any analysis made was typed onto the transcript or written into the field notes. This second stage in inductive analysis involved reading and re-reading the transcripts and field notes made so far. This served two related purposes. The first was to familiarise the researcher with the data (Easterby-Smith et al., 1991) and the second was to start the process of structuring and organising the data into meaningful units. The familiarity created by reading and re-reading transcripts and field notes heightened the researcher's awareness of the "patterns, themes and categories" (Patton, 1987, p. 150) of meanings existing in the data and focused her attention on these. The purpose of running the data open at this stage in analysis was to take the data apart and then piece them together in a number of ways, each of which was potentially important to understanding the research problem (Strauss and Corbin, 1990). By making several copies of the transcripts and field notes collected so far, the researcher attached "open" codes, to those sections containing data, which appeared to be important for understanding the impact, which management controls have on the development of selected company. These sections were then pulled together into meaningful units, around which the collection of further data was planned to establish whether these units were in fact important to understanding the research problem. In this way, some chunks of data were coded in a variety of ways, others were discarded on the

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grounds that they were not relevant to the study and, as a whole, and the data collected so far were reduced to a more manageable level. A second activity carried out at this stage was the writing of memos. These written notes were referred to at later stages of analysis to remind the researcher of the reasons why certain chunks of data were coded in particular ways and pulled together into organised, meaningful units. These memos additionally reminded the researcher of the logic of the interpretations that he had made at this early stage in his analysis.

3.4.3.4

Focusing Inductive Analysis

Analysis became focused on issues central to understanding the research problem by concentrating the collection of additional data around open codes and constantly comparing these data with previously coded sections. The method of analysis used during this stage is called the "constant comparative method" (Glaser and Strauss, 1967). This method involved the researcher repeating the process of reading and re-reading transcripts and field notes and constantly comparing the data collected during this phase with sections labelled with open codes during previous analysis. By systematically comparing the similarities and differences between sections of coded data, some codes were disregarded as irrelevant to the study, others were expanded upon and additional codes emerged. Coded sections were then pulled together into different categories or "families" of codes. Included in each category were "slices of data" (Glaser and Strauss, 1967) exhibiting an "internal homogeneity" which held them together in a meaningful way (Patton, 1987). As the categories used exhibited "external heterogeneity", they provided a structure to the sections of coded data meaningful to understanding management controls in practice. This process of focused data collection and constant comparison of coded sections of data continued until coded sections became saturated, that is, no new patterns or themes emerged. At this stage, analysis moved from open codes to focus on

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"core" codes and categories of codes central to understanding the substantive topic, around which deeper analysis and interpretation concentrated.

3.4.3.5

Deepening the Analysis

Having grouped homogeneous slices of data into core categories and organised coded data into a meaningful structure, the analysis was deepened by interpreting the relationships between core categories and seeking to explain why these relationships existed. By interpreting the structure that had emerged and reevaluating relationships between categories of data, a cohesive integration of categories, which provided an understanding of management control systems, which "fitted" and "worked" with the data, emerged from this deeper analysis. In interpreting, re-evaluating and conceptualising relationships between categories of data, the constant comparative method of analysis was used once again. During this stage, the researcher engaged in the prolonged and systematic search for similarities and differences between the slices of data contained within different categories and between core categories and concepts and theories existing in the literature. The purpose of these comparisons was to understand the meaning and nature of these relationships and resulted in some categories being disregarded on the grounds that, when analysed more closely, they did not fit and work with the understanding that was emerging. This systematic comparison of categories with relevant concepts in the management control systems literature was important for two reasons. First, comparisons between existing concepts and theories with the relationships that had emerged between categories of empirical data were useful in re-evaluating the reasons why these relationships existed. Second, comparisons with the concepts and theories used in relevant management control literature revealed the extent to which the understanding of management control which emerged from this in-depth, qualitative study had contributed to current knowledge and understanding of the substantive area.

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CHAPTER FOUR Social and Organisational Context of the Study
4.2 Introduction
Chapter one discusses the background factors of the research theme: Management control practices in an uncertain context, the chapter two reviewed the literature, the chapter three discusses the methodology applied in this study and the aim of this chapter is to explain the social and organizational context of the study. This chapter begins with inter-disciplinary nature of societal and organizational environment and then it goes on to the issues emanated from the social and organizational context It will be seen that the multidisciplinary nature of management accounting and consequent variety of theories subsumed under its heading, makes the fact that they tend to stem from similar perspectives towards society and the social sciences. In any research, it is suggested that individual values, philosophical assumptions, theoretical backing and research methods, social and political influences, organizational climate should all be related to each other and to the aims of the research. (Dyckman et.al; 1978)

4.5 Sri Lankan Society and Business
Businesses in any country are facing different types of societal and environmental problems such as Economical and Commercial, Social and Cultural, Political and 79

Legal, Technological, and Natural. This part discusses mainly about the impact of the changes in the government policy towards economy and businesses in Sri Lanka.

4.2.1

Colonial Economic, Business System and Society in Sri Lanka (before Independence)

Business orientation in Sri Lanka started with the base of wealth and accumulation. Plantation agriculture, beginning with the cultivation of coffee in the 1830s, and it bring about a complete capitalist transformation. All the same, there were perceivable changes in economic and social life, which were significant in comparisons with relative stagnation that had existed before. As plantation agriculture itself changed from one crop to another – coffee, tea, rubber, spices and coconut. The bourgeoisie, which originated in colonial times, has continued to dominate the economic, social, and political life of Sri Lanka. They invested in urban property, built residences, ran their businesses, or engaged in professions. British community controlled and directed the economy through local head offices of the plantation companies, mercantile houses and banks. (Bertolacci, 1817; Beckford, 1983) Although lacking in much manufacturing industry, there was a relatively developed infrastructure of other amenities serving mainly the affluent residents, both expatriate and Sri Lankan. Colombo the capital of Sri Lanka and “High Class Society” with its prestigious schools, clubs, and large retail shops, along with political, social and economics are situated around the Colombo. Apart from the residential commercial and administrative charters of Colombo, it was also the centre of the working class of skilled and unskilled workers employed in both the government and private sectors along with an expanding petty bourgeoisie – all typical of a colonial economy. (Venden, 1953; Jayasekara, 1970; Wright and Arnold, 1907) In Sri Lanka, capitalism developed in a society whose traditional structures and 80

values, including ethnic and caste loyalties, underwent change. Feudal structures and attitudes were thus not totally swept away but continued to pervade society. The persistence of primordial forces in certain spheres of individual or social life was in contrast to countries with a more developed capitalism where the universalising and homogenizing influence of capital led to dissolution of many of the ideologies, rituals and superstitions of the past. As in many colonies, the Sri Lankan bourgeoisie was the product of a specific colonial form of capitalist production. In Sri Lanka, although individuals made much wealth, the bourgeoisie, as a class did not develop any serious antagonism to the colonial rulers and it remained satisfied with political concessions and limited constitutional reforms (Snodgrass, 1966; Pridham and Charles, 1849; Amarasinghe and Ranjith 1999; de Silva,1982). Apart from the tariff and credit structures that discouraged any type of independent industrial activity, Sri Lankan traders were stunted by European domination of the mercantile sector, and in the 19th century by the intervention of the Indian export – import merchants. In spite, there arose a class of local merchant capitalists in the 19th century, which profited both directly and indirectly from the development of plantation system. They were dependent for their prosperity and survival on the British rulers of the country, who provided them not only with opportunities for accumulation through liquor trade, but also provided access to foreign markets for their plantation crops and graphite. Monopolistic conditions and the system of state-sponsored franchises for the sale of liquor gave the initial impetus to the large, quick fortunes made by local merchants. In Sri Lanka, however, the “ great fortunes” and “ primitive accumulation” of the indigenous bourgeoisie arose from the arrack industry while the profits that were earned in the liquor trade were reinvested in plantation and consumed in lavish expenditures. Sri Lanka, however, was neither wholly capitalist nor feudal, but continued within it elements of both. While the economic changes from the time of Dutch rule began releasing the economy and society from the traditions of the past, there was an incompleteness about this process of change, making the development of capitalism, even to this day, very much of an “ unfinished business” (Arasaratnam, 1958; Boxer,1965). 81

The economic activity of the Sri Lankan bourgeoisies during the 19th century, and even latter, was hardly entrepreneurial. The bourgeoisies was essentially a class whose interests were overwhelmingly of a mercantile and rentier nature. Rentier income is associated with windfall gains, dividends from income through appreciation of the value of assets, control of scarce resources, or monopoly conditions which give large profits without much effort. Furthermore, in the case of the arrack rents, the investment was also very much self-financing. Moreover, the profits were invested in land-ownership, a classic source of rentier income based on absentee ownership and management. In income enhancing factors of this kind, those benefiting from them played a passive role, as contrasted with activities where product improve their prospects by bringing potential opportunities to life; these include exploring new markets, introducing new products or adopting innovations in production leading to a rise in productivity and a lowering of costs, which are the dynamics of capitalist production ( de Silva and Gabriel, 1895; Jayawardana 1972,1985, 1986, 1992). If the changes in the material base of the colonial economy were hardly expressive of capitalist entrepreneurship, at the level of ideology some of the ghosts of the old order survived to haunt people’s minds, constraining their outlook and behaviour. While colonialism with its creation of new occupations, shook the foundations of caste society, the type of capitalism that emerged recorded the question of who was ‘high’ and ‘low’ in society. Caste, which was traditionally based on occupation and hierarchy, became less linked with occupation as people moved to new areas of economic activity that employed persons of diverse castes ( Pfaffenbergerand Bryan, 1982; Roberts and Michael, 1982). Moreover, the ending of compulsory labour in 1833, and changes in the castebased division of society, rid caste of much of its economic substance. In precapitalist society, important landowners were inevitably of ‘high’ caste and those of ‘Low’ caste were relatively poor. Class struggle between labour and capital started in 1890 with the first strike of Colombo Printers and formed the first trade union, composed of printers of all castes and ethnicities. The social aspirations of newrich persons produced some dissension and rivalry between them and the old rich, 82

who were conservative. The new rich, through not advocating radical changes in politics and in the structure of society, were raising issues that were pertinent to educated Sri Lankans as a whole. However, when last part of 19th century caste based and property based professional organizations and businesses were seem to be the active players in the country. The practice, from 1833 to 1911, of the Governor nominating the representatives of ethnic groups to the legislatures, led to the legitimisation by the rulers of ethnic stratifications in colonial society. This was affected to circulate businesses around Mudaliyar’s family2 (Tampoe and Manel 1997) At the bottom of the social scale were the marginalized poor in scattered forms of self-employment, and workers on plantation and manufacturing enterprises located in and around Colombo. The so-called caste struggles of the late 19 th century had already given way to the reality of sharpening class conflicts when the Colombo working – class began to organize irrespective of caste and ethnicity, into trade unions, and strikes for its demands in a militant way, especially in the 1920s. By the late 1930s and 1940s, struggle between labour and capital increased, with strikes and trade union action being led by the country’s Left parties3, which in 1947 had significant success at the elections. The above situation is highly influenced to development, stagnation and decline of business society in Sri Lanka.

4.2.2

Post- Independence (from 1948)

When Sri Lanka, achieved independence in 1948, it had practiced limited self-rule based on universal franchise since 1931. Levels of literacy and educational achievement were high. The transition from colonial rule and been peaceful. There was a smoothly functioning export economy that provided commodities urgently demanded by the world market. Productivity was low and population was growing rapidly. Existing economic structure would be unable to support the growing population at
2 3

Mudaliyar is one how appointed as representative legislation activities from colonial society. Lanka Sama Samaja Party (LSSP) and Communist Party.

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its current standard. According to the Tresidder 1960,(pp.168-169), “Most thoughtful Ceylonese today agree with friendly foreign observers that the success of Ceylon’s development projects and her credit standing among the free nations of the world depend upon early settlement of commercial quarrels and firm control of extremist elements.” But Sri lanka’s economic and business development has not been the disaster that one might have expected to result from its inability to settle communal disputes and the wild policy swings that accompanied changes of government throughout the first three decades of independence.

1.

From 1948 to 1956 (Economic populism with an open economy period), Sri

Lankan government provides wide range of direct benefits to a large segment of the population. For a brief time after independence, the from commodity exports afforded by the boom markets of the post-World War II and Korean War periods made these benefits appear affordable. Medium sized businesses are developed very smartly and slowly. 2. From 1956 to 1965 (Economic populism with economic controls), most of

private owned businesses such as transport trade, converted into government owned business organizations by nationalizing. These businesses are taken under to Public Corporations and as a result of it growing government expenditure were not matched by increases in revenue, the budget deficit got out of hand. In the early 1960s, the supply of foreign exchange gave out and the government unwilling to devalue, imposed increasingly stringent and distorting direct controls on international trade and payments. The level of foreign exchange reserves declined every year the MEP4 was in office. Nevertheless, there was economic growth during this period. Although “ the growth mechanism in this period is not clear” (Bruton et al 1992, p.77) 3. From 1965 to 1970 (Limited Liberalization), the rightward political shift

brought renewed foreign help through an aid consortium in which the United

4

Mahajana Eksath Peramuna.

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States participated. An IMF5 standby agreement, and short-term credits from Western banks. The new government undertook limited, cautions liberalization. In November 1967, the rupee value was devalued and a trade liberalization package was introduced. The latter introduced the FEEC6 scheme, which permitted exporters of non – traditional items to receive a more favorable exchange rate on their overseas sales and also allowed previously banned “nonessential” imports to enter the country at a higher exchange rate than was applied “essential” items. The new government also promoted rice production, with emphasis on the massive Mahaweli River Irrigation Scheme. This was favorably affected to development of domestic businesses specially in the area of agriculture. 4 From 1970 to 1977 (Resumption of the Controlled Economy), after

controlling the economy, economic and business conditions had begun to worsen and unemployment was rising (Kiribanda, 1997). In 1971 a Paddy Marketing Board was set up to serve as sole purchaser of paddy from the farmers and Business Undertakings Acquisition Act was passed. In 1973 the first oil shock hit, dramatically raising the cost of imported petroleum and fertilizer, and later of rice, wheat and sugar. There were some increases in aid flows, but discussions with the IMF about a possible standby arrangement broke down, reportedly because the government would not accede to IMF demands for reductions in welfare subsidies. 5. From 1977 to 1983 (Policy Reform period), all the barriers to liberal

economic policies that had been insurmountable in the past seem to have vanished by 1977. The new government enacted sweeping political and economic reforms. Its economic reforms were encouragement of import substitution industries, tax incentives to foreign investors, establishing a first Investment Promotion Zone/Free Trade Zone, eliminate of most price controls, introduction of food subsidies, improves incentives for agricultural producers, ending of FEEC system, restrictions to foreign capital investments, foreign banks were permitted to open branches in Sri Lanka, Establishment of Export Development Board. Three lead projects were conceived and highly publicized: the Greater Colombo Economic
5 6

International Monitory Fund Foreign Exchange Entitlement Cirtificate

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Commission, which would organize and operate export processing zones; the Accelerated Mahaweli Development Project, which would try to complete what had been thought of as a thirty – years project in five or six years; and the Public Sector Housing Program which aimed to construct 100,000 urban and one million rural dwellings. In addition, a new administrative capital and parliament building were to be constructed and transportation, communication, and power infrastructure were to be improved. The public investment program created employment and purchasing power, although most of its benefits would appear in the longer run if at all. Introduction of new Companies Act In 1982 is encouraged to expansion of different types of companies. During these five years, Sri Lanka was thus one of Asia’s high-performing economies. The effect of liberalization and accelerated economic growth on poverty and inequality have been hotly debated. Bhalla and Glewwe (1986) argued that inequality fell after 1977, but a chorus of critics ( e.g. Ravallion and Jayasuriya 1988; Anand and Kanbur 1991) asserted that both poverty and enequality had actually increased. 6. From 1983 – 1989, Start of Civil War created many difficulties and

distractions for economic development. The guerrilla war started in 1983 LTTE7 and meanwhile radical Sinhalese insurgency unsettled the south with sporadic acts of terrorism until 1990. These wars were badly affected to business organizations of Sri Lanka and new businesses were not stablished due to risky situations prevailing the country. 7. From 1989 – 1994, Crafted a Second round of policy reforms contributed

to pickup in economic growth in the early 1990s. The reform package included tariff reductions; rupee devolution; tax reforms aimed at stimulating the capital market and improving tax compliance; further liberalization of financial and commodity markets; and liberalization of exchange controls on the current account of the balance of payments (Dunham and Kelegama 1995). Other emphases were privatisation and peoplization (encouragement of individual share ownership), export promotion (the 1990s were dubbed ‘The Decade of Exports’), and poverty alleviation. For the first time in Sri Lankan history, the change of
7

Liberation Tigers of Tamil Eelam

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government in 1994 did not lead to changes in economic policy and Open economic policies introduced in 1977 continues after 1994 too. As the result of the policies introduced in the 1977, the company Act 1982 was enacted. It was one of the key factors to establish limited companies. Simultaneously, the open economic policies led many people to abandon domestic agricultural activities and moved them towards other industries. As a result their life style became busier than it was earlier. The time spent at home became lesser and lesser. Consequently, they were facing difficulties in preparation of all their three meals (breakfast, lunch and dinner) themselves. Gradually they were used to buy prepared meals from outside places and processed food items became more and more popular. Many instant food items came into Sri Lanken market as a result of these changes in consumer preference. In early 1990s, instant food processing industries were mushrooming. These companies were merely catering for the existing market demand by them. In fact, many of these companies did not projected towards future market and related strategies. The MFPL of Sri Lanka was an exception having analysed the existing market environment and the CEO, the founder established the MFPL in 1997. The MFPL launched its’ products after carefully reviving the weaknesses of the existing firms. The firm could realize the salient weaknesses of distribution system of existing firms in particular and the products were not widely distributed in remote areas.

4.3 Company Background
The firm produces and market consumer food items mainly Soya meat which is an instant food item used as a substitute for meat based products. The instant food items are becoming popular in Sri Lanka after the Socio Cultural Changes occurring since last three decades. The increases of urban population growth rate, changing life styles and consumer taste have provided new opportunities for business firms like MFPL. In addition to that the liberalized economic policies introduced in late 1970’s opened up the market opportunities for private enterprises. More concessions and tax rebates were introduced to encourage such private entities to improve the socio economic conditions of the country under the 87

said policies. MFPL was founded in January 1997 as a private limited company. The company is operating only within the local market. At present the company has become the largest market shareholder mainly in Soya based products in Sri Lanka. This largest market share acquired by the MFPL, due to lacy and inefficient competitive nature of the Lanso Company Limited (LCL)8. The CEO of the company is an MBA9 graduate who completed his masters' degree in 1996. While he was reading for his MBA he opted to study the LCL Company and its market, which was producing and distributing Soya based products in Sri Lanka. This company was the largest market shareholder by then. It is said to be the target market of this company were vegetarian consumers. With compared to the total market this segment is a very small percentage of the whole market. These preliminary studies have led the CEO of the MFPL to invest in the similar trade and started the business as a re-packeting of the Soya10 TVP11 and raw TVP has been purchased from the above mentioned leading firm named LCL. But the target market was not only the vegetarians but also who preferred other nonvegetarian taste of the same products. Capital investment for this firm has been sourced from private funds of the founding Board of Directors. Originally, the firm started re-picketing TVP that are purchased from LCL. LCL imported 200 Mt. of TVP from India annually. MFPL purchased 80 Mt. of TVP from LCL and distributed in the same market adding some value for the same such as double laminated packaging and introduced natural flavored ingredients.

4.6 Business Idea
According to CEO of the company, the CEO had bone a small conventional village and was schooling to a near by small town. The way to school and back had facilitated with a Volkswagen Car, which was owned to his father. They were a
8

This company was the main competitor of Soya Market (dominated about 70% of the market) and three years after introduction of MFPL, it was shut down and the Manta Ltd acquires it. 9 Masters of Business Administration 10 As Specialists, Soya is the High Protein contend food. This is free from cholesterol. For human body, standard level of cholesterol is required to keep risk free levels on High Density Lipid (HDL) and Low Density Lipid (LDL). To keep control on these levels Soya consumption is required 11 Textured Vegetable Protein

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well-off family in that village. He believes that, if someone had no wealth it was impossible to run a business. He had gained the exposure from his father. Since he was rich enough and he had repaired old cars and sold them by means of business. Since his childhood he had been dreaming to make more money through whatever the opportunities available. Further he states that miraculously he was selected to the university. He did not expected because he had not worked hard. According to him it was a “big chance”. Despite, the current job he is involved with was assumed, due to his degree and he condemns the degree saying it has no value in this society. In fact, he was able to get this present employment because of his degree. Non-degree holders cannot apply for such a job. Through that, legally as well as illegally he earns nearly Rs. 200,000 monthly. He started his own (MFPL) with this money. Now he does not care much now for his job because he owns an established company where he is the CEO. The researcher knows the CEO from his school age. In fact, being able to get his job by means of his degree and because of his job he was able to establish and develop current (MFPL) company and the researcher wonders about his disgrace towards his degree and employment. Initially having earned enough money, the CEO had planned to sell imported vehicles. He now engaged in this vehicle deal as a part-time means to generate more money. He completed an MBA in a Sri Lankan university in 1993/1995 and did a market research on a company called LCL as a partial fulfilment of this MBA program. Having exposure and findings, he used these to capitalize in his own business. said:
“ After finishing this research you should not start a firm which competes mine… Yet I am not afraid of because beggars like you, how much you earn, cannot really compete with mine… Therefore, I am not scared to provide you with any sort of information”

When the researcher was collecting

information from the MFPL the CEO was little reluctant to give information and

However, one of the employees of MFPL, MBA colleagues of CEO at the same university, had helped him to develop this idea of business in CEO’s mind. With the assistance of the relationships that he has with his employment, CEO import

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necessary machinery and equipments for his company. In addition, one of his brother-in-laws an expert in food processing technology, who is having a degree in the discipline. Further, CEO says that he was able to make his business a success due to the fact that, most people in Sri Lanka are lazy as then do not like to prepare their own meals to provide marvellous opportunity for MFPL. The central task of business leaders is to maximize profit in the organization. But at the heart of creating sustainable value to earn profit lies the leader’s ability to innovate and implement new solutions faster than their competitors. CEO states that, “I believe that killing competitors are the new technology to compete with competition. Because my idea is that if needed to kill the competitor to achieve business success, do not hesitate to kill them. It is very difficult to run the business according to the Buddhist philosophy; because leaders have always had to be able to take decisions in turbulent environments.”

4.4 Corporate Strategy
In 1997, MFPL was a Soya based products oriented company with diversified interests in consumer markets as re-packeters. Operations were organized into four Strategic Business Units (SBUs). These groups were not based on such typical organization categories as product line or types of customers served. Given this operational structure consisting with four SBUs depicted in Exhibit 1, the various groups within MFPL were all natural customers for each other. Moreover, the development of any new product or service to be marketed by MFPL was likely to require the coordinated, cooperative effort of most, if not all, of the four groups.

4.4.1

Strategic Business Units

There are 4 SBUs, but which are not functioning as SBUs in reality. These SBUs are designated as (1) MFP marketing services (Pvt.) Ltd. (2) MFP distributors (Pvt.) Ltd. (3) MFP nutria foods (Pvt.) Ltd. and (4) MFP herbal remedies (Pvt.) Ltd. The function of MFP Marketing services has been identified as Research

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&Development Manufactures all items existing at present in the name of MFP Product line is as Soya Meat, String Hopper Flower, Noodles, Y drink, Salt, Curry Collections, Som flavor, Vinegar and Purchasing materials required for the production. Functions of MFP Distributors has been identified as Distribution of the MFPL’s produced all items would be the main responsibility of MFP distributors, Advertising the products and services, sales promotion, and awareness campaign for customers retails and middlemen and whole sellers. Develop good relationship among supply claim managers of the distribution charnel. Functions of MFP neuter foods are to produce Soya “Nuggets” only for internal purpose. This seed/ Nugget is not supplied to any other re–packetor or distributor as it is since the company want to eliminate competitor to expose in to their market. Product categories coming under Herbal Remedies are still at experimental stages. Market testing activities have been introduced for two certain products. It also intended to develop a good will / reputation among customers by producing a herbal related products and so as such impression would be used to exploit the market opportunities through/for Soya products.

4.4.2

Product Categories

Initially MPFL started their business as a re - packeter of Soya related products. After wards in the latter period of 1998, they started producing Soya themselves from which they were able to obtain the economics of production transportation etc. Except Soya meat the company also produces, string hopper flour, noodles, Y drink, salt, curry collection, Som flour, vinegar as well. Soya meet is the main product, which generates the largest profits to the firm (CEO stated). However, there was no way to identify the unit cost of production. Company calculates profit through total batch expenditure against total selling revenue. However, the estimation of the unit profit is not accurate. To do it in an acceptable way many other expenditure items also to be considered. A system has not identified in this regard. The company as new product development strategy has introduced the market with a jelly. This product also is in its initial stage. Originally company thought 91

that the product should go to the market in two forms such as dry jelly and chilled jelly the dry jelly (Non refrigerated) was designed for the rural remote areas where cooling facilities were not available. But company experienced that the product is not moving. Hence all customers irrespective of their dwelling place preferred the refrigerated jelly. But rural areas where low income customer segments and recorded poor sales of both items. Accordingly CEO has decided not to supply that product to the market. When questioned, whether that decision is not irrational? CEO stated, “If a product is not successful at market, I can feel it. Therefore, before experiencing a loss I would stop that product”

4.4.3

Objectives, Strategies and Tactics

The primary reason that MFPL had developed as a company was to invest their own funds in their own firm. The CEO states that,
“ Today’s strategic issues are quality, flexibility and competitiveness. In fact, your product needs not to be a real quality one. But if you can convince the consumer you can be success. Competitiveness is the main issue for the success. Therefore, you should be able to eliminate your competitors or weaken them. I mean “flexibility” is something like using “cats paw”. We pretend that workers are looked after well and consumers are convinced that they are treated as “god”. Otherwise, a company cannot be a success. Retention of consumers for short - run is very close to flexibility”

According to the CEO the Main objective of the firm is to survive. They want to achieve a “Sustainable Survival” operating business to capitalize on market operations, which is the most crucial issue here. Their main objective is achieved through eliminating/ or weakening competitors rather than caring for social responsibility. Through such exercise they want to increase their net assets. This kind of objective is not in black and white in our company. Their corporate objective is supported by a set of Business Objectives such as: (1) (2) Identify the areas of business expansion Capitalize on business operations 92

(3) (4)

Continuous appraisal/ assessment of market of market changes and trends and Achieving steady growth rate in a competitive environment.

Their performance measures mainly considers about financial factors such as, sales value, profits, growth of assets and cost. In addition, we attempt to project the market and the product mix, to establish technical goals, and to identify obstacles or boundaries limiting the business. CEO states,
“According to the theory corporate objectives are defined as responsibilities to employees, shareowners, community and society as a whole. But I think keeping too much emphasis on those things hinder the development of a business. You can keep these as mere corporate objectives only. Finally, we attempt to look at ourselves in a mirror and criticise the overall objective. We carefully evaluate the competition, the threats and contingencies we might have to meet, market shifts we might anticipate, and attempt to evaluate what we must make happen in order to achieve success of the objectives.”

The ranking of mentioned key factors, then, provides a priority list for future management attention. We expect the objective to be challenging enough, even shocking enough, to force a radical rethinking of the strategies and tactics. At the next level in the goal structure is the strategy statement. The strategy describes in detail the environment of the business opportunity to be pursued in support of the objective. Normally, there will be several strategies supporting each objective. Altogether, we had more than 10 strategies operating in 1997. For example, if we had an objective to achieve certain goals in the Soya Market, we might have one strategy involving distribution network, one involving material application, and perhaps another for safety systems introduced for Soya packets. The strategy looks ahead over a number of years, normally from one to three, and intermediate checkpoints are defined along the way providing milestones against which to judge progress. Progress measurement is an element of a strategy not included at the objective level. Finally the contribution of the strategy to the over-all objective is defined in quantitative measures. 93

Next in the goal hierarchy is the Tactical Action Program (TAP). (Examples are given in Exhibit) A TAP is a detailed action plan of the steps necessary to reach the major long-range checkpoints defined by the strategies. It normally in short term, covering 2 to 4 months of effort. For each planned tactic, a responsible individual is designated, a start and finish schedule is established, and the required resources are finished. Below the tactical level, each TAP is broken down into individual work centers, which we managed by means of individual oriented management techniques.

4.7 Organizational Structure and Controls
Organization structure and control emphasizes on the meaning of company’s organizational chart, consistence and recruitment of workforce, nature of responsibilities of employees, incentive schemes introduced and the qualitative characteristics of decision-making process.

4.5.1

Organization Chart

As per the organization chart of the company, there is a General manager position. But this position is not filled. Instead one of the directors is acting for the same. His acting position also limited to a nominal and the CEO, in fact, intervene the activities directly. More over, there are 3 DGM positions, namely: DGM Operations, DGM - Finance & Administration, DGM - Purchasing MIS & Supplier committee. All these positions are kept vacant purposely and actually the Director acting for GM directly looks after the responsibilities of these DGM’s . In these cases also the CEO directly intervene the activities. There are 225 positions according to the Organization Chart. 160 of these positions operate under DGM - Operations. But all these people are responsible to the CEO directly. The balance 65 people are operating under DGM - Finance and Purchasing MIS… CEO’s idea is that the company should emphasis much on operations rather than clerical work. However only a few of these positions are 94

filled yet. Accordingly Operations, Finance & Administrations, Purchasing and MIS 62.62% (97/160), 66.67%(32/48), and 58.82% (10/17) are vacant respectively. Average 60% of the total positions in the organization chart are kept vacant.

4.5.2

Work Force

At the very beginning the profile of the work force of the company was as - 03 directors, 08 miner employees and1 supervisor. At the beginning of the business operations, the supervisor also was sent to the field for distributing the company’s products. Directors also played the role of the supervisor or other production related miner work or so on. Today, in addition to the three directors and CEO, there are two (02) middle managers, Ten (10) first line managers, forty (40) lower level managers and three hundred and seventy four (374) non-managerial workers. According to the organizational chart it is represented managerial workers and 13 non-managerial workers only. (The CEO has developed this Organizational Chart) The three directors have had experience and exposure in different areas of business operations, which are very crucial for the operation of the currant activities of the MFPL. For instance, one of the directors is an expert in food processing activities and related trade. Another is an expert in import related business activities (the raw TVP for the business is imported from India), while the other has have got hands on information and understanding about the market structure and the nature of role players in the TVP related products and the market. Actually he was an another main food producer. These three members of the board of directors are the people who invested their private funds on the business as the investment capital. One of the directors left the company after 6 months stay with the MFPL. The position was filled with another and meanwhile one of the existing was designated as the CEO of the company while serving and chairing the Board meeting.

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Originally the tasks and the work/job has been delegated among various positions and people but later on some of the assigned jobs were taken over by the CEO, after observing how the work has been performed.

4.5.3

Nature of responsibilities

One person is responsible for many jobs that are done in the organization. Typically, functions are not developed in this Staff and Function organization structure. Here, the organization structure showing something entirely different. It is shows the relationship between strategic mode and operating mode within the same organization. One of the functions of the manager set strategies for identifying TAP’s and combine them with existing strategic plan. Often these managers are responsible for operating these strategies as well. For instance, managers who identified a Production TAP should show the results to CEO practically. This may not be approved in the Strategic Plan. (Dominant role in the strategy) Nearly always, the strategy or tactic manager also will have an operating role to play. In most cases does the Strategy manager or Tactic manager have that job as his full time assignment. Divisional managers should identify their own objectives and push it them to CEO. Since there are no divisional managers in practice in this company this is also done by the CEO. Thus, at MFPL, our managers are given dual responsibility for both strategies and operations. Their future in the company (survival) will be decided on the success of both activities. In recent years, we have deliberately tried to create an environment in which it becomes natural for distinguish between their operating and strategic modes. Last I mislead you, let me re - emphasis that we are talking about two modes within the same organization, and not about two distinct organizational structures. In fact, in the majority of cases, the execution of both modes is through a single manager. There are a number of reasons why we have chosen to develop the second, or strategic mode, within the organization. First, the strategic mode gives us a 96

mechanism for large-scale opportunities, or those requiring combinations of resources not found in a single unit. Second, it gives us a mechanism for planning and controlling our investments for the future, and for making sure that we do achieve the desired balance of priorities between short-term and long-term activities.

4.5.4

Incentives and Reactions

Majority, almost all, employees in the company is said to be young and unskilled. CEO says that, such people will not try to overwrite company practices and comparatively stay with the company for a longer period of time. Also he believes that, such people would work harder than others. When recruiting the people, customarily the vacancies are advertised in National newspapers, but selection is mainly based on personal contacts, and among known people. The CEO justifies such a selection stating that the controlling measures are easy to carry out when known people are sleeted through the known channels. There is no specific duty hours or working hour for the employees. If an assignment is given simultaneously a dead line or target completion day or time also will be given. The job should be completed within such period/s. The vacant positions in the organizational chart are kept as it is by the design. The CEO says that it is a motivational factor for the people below such vacant positions to work harder to promote to such positions. Except production workers, others are entitling for fixed salary. All the managerial level employees are also recruited on temporary and/or under probation for low salary scales. As an example, Accounting Executive is paid with RS.4000 per month at the beginning. But, production employees are paid salaries according to the piece rate system. Starting with the immediate supervisor, individuals are rank-ordered on the basis of their relative performance and contribution, and an adjustment base salary12 is recommended. The ranks are combined at successive levels of the organization until the department level is reached. The department manager identified “bench
12

Meaning of base salary is that the differentiated piece rates decided on different type of products and departments

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mark” people among those on his department. Bench mark are those people judge as having made equal contributions, even though they are in different functions and job grades. Incentives are given only to the marketing, production managers and the supervisors (Key Personnel Analysis -KPA). This KPA system created competitiveness among production supervisor and production manager within the organization to become Operations controller13 for that they worked hard. “ As a practical matter”, one manager said,
“KPA is not as much as a zero-sum game as it sounds like. The system does force us to examine performance at the very lowest levels in the organization and attempt to identify people who have done a superlative job. As the ranking process moves up the hierarchy, however, only a very few people from the lower levels manage to survive the screening. The informal test that each of us uses in identifying our key personnel is, who is contributing most to the success of the business? The net effect of the process is that almost all of the managers in the higher ranks participate in the incentive pool. It would be a rare event, for example, for a MIS manager not to receive a incentive. Most unfortunate thing is few managers are not entitle for incentives such as managers in the finance division ”.

In CEO’s point of view that, above marketing and production people should look after the marketing and production work and they will monitor the people to work hard when the incentives are given to such people. Also it employs a little money on such issues.

4.5.5

Decision Making Process

Even though there is a hierarchical organizational structure and the procedures, the decision making power seems to centralized in the hands of the CEO. In other words even though the board of directors are agreed on a certain decision the CEO may change the same without getting their consent or overwrite the same. Also the technically approved matters such as the designer recommended and approved decisions also overwritten by the CEO as he wishes. Therefore, it seems that the

13

According to the organization chart Operations controller post is vacant.

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sole authority of the decision making power lies in the hand of CEO, and other procedures appeared to be seen as mere policies or guidelines for the company.

4.6 Budgeting and Planning
The company does not maintain formal budgets or plans. Some accountants have marked their own short-term targets as advises given by the CEO. In the company’s point of view, there is no use of preparing budgets or plans for such a small size company and they are arguing that of preparing budgets increases the cost to the organization. On the other hand, as an active company they don’t have much enough time to prepare and implement budgets.

4.6.1

Budgets

CEO is the man who is keeping all the resource requirements for organizational activities in his mind. Actually they prepare some draft budgets for different types of purposes, but all those budgets are not available as a documentary source. All the facts and data are kept in the mind of the CEO. Other higher rankers and operational employees don’t remember the above-mentioned data and facts. According to the CEO, these types of data not recorded to keep some facts and figures such as material usage, production mix etc. in secret. CEO commented that:
“We really have two budgets for the year, one for Production Department and the other for Marketing Department. But all the budgets are drafts and flexible, prepared by me. I know what is happening in the market (Raw material market and Finished goods market). Factors relating to other factors are also keeping in my mind. I know that what are the required changes and how to update it. Therefore, we are not maintaining formal budgets, as explained in the theory.”

4.6.2

Planning
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The company does not prepare plans, because CEO making all the decisions related to the company. If I ask from any type of the worker in the company about the plan, they have different types of plans, but not written, not formal, not structured and consisting with some ideas/ opinions/ orders given by the CEO. As you have gathered by now, CEO continued;
“We are not very enthusiastic around here for elaborate methodological approaches to planning. Speaking philosophically, it seems to me there is a major problem of injecting methodology into a human organization. The literature abounds with elegant solutions to well-formulated problems. However, very few well-formulated problems appear in strategic business management. Even fewer businessmen are prepared to accept someone else’s strategic model as a guide to their own behaviour. In our organization, we do not try to apply others’ strategic models to our business whether they are successful operating planning approaches. In strategy, style is everything, and planning approaches must deal with style variations effectively, or fail.”

He further commented:
“At MFPL, we have proceeded on the premise that long-range planning can be imbedded successfully within the primary operating organization. Our commitment to accomplish this has first priority on matters of organization development and culture, rather than on matters of pure planning methodology.”

4.7 Financial / Capital Structures
Capital is the main factor, which decides the authoritative power of the CEO. Capital introduce by the CEO is his own. Then, no one can influence to the organization based on capital other than the CEO.

4.7.1

Initial Capital and Net Asset

Initially the 3-founding directors formulated RS. 500,000 capital investment of the firm. Originally, required machineries for the operations have been leased out and the one of the directors on a rental free basis has provided the business

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premise. The company was able to increase the investment capital up to Rs. 3mn within first three months of the business operations. Up to this stage the main type of the business was re-packaging of TVP and distribution of the same Island wide except North and the North Eastern parts of the Island.

4.7.2

Resource Allocation

In 1997, MFPL created a Resource Allocation Committee (RAC) to make strategic resource allocations, and review strategic activities. This RAC has 03 permanent members including CEO, Managing Director and Marketing Director. In 1997 the committee was met about 20 times a year for a full day. The agenda for each meeting normally is settled beforehand and includes a rigorous re-examination of at least one business objective or consideration of a major new business opportunity. Topics discussed are: (1) the appropriateness of the objective in light of current information; (2) progress in the strategic development of the objective; (3) any actions, which should be taken at the corporate level to accelerate or otherwise modify the strategic programs for that objective. Besides this, managers of key strategies and tactics frequently meet with RAC for progress reviews, or when initiation of new programs is under consideration. But, CEO told that, “everyday the committee ends up without new idea, other than the idea forwarded by the CEO and therefore, consuming time and cost is very unnecessary for these types of committee meetings.” Again, CEO states that, they do not have resource allocation plan for each department. After careful personal evaluation, he decides departmental resource requirements.

4.8 Market
Soya market in Sri Lanka is very popular now. During last ten years, number of manufacturers, marketers, repacketors were developed. This was happened due to busy and lazy life style of the people. Most of competitors didn’t try to advertise or

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distribute properly and some have shut down their companies due to loss leading quality.

4.8.1

Features of the product

LCL product had a salient weakness, which was not realized or was not taken into consideration by its management. That was a kind of bad taste, which was not preferred by the customers. The MFPL was able to identify this failure and reacted toward getting the advantages of the opportunity. As a result the MFPL could capture the market within three months operation in the business. Therefore, the company’s Investment capital could be increased Rs. 500,00.00 to Rs. 3mn within the first three months The Company introduced the TVP with natural flavour and non-vegetarian ingredients

4.8.2

Market Development

At very beginning 80mt out of the total of 200mt of TVP imported by the LCL Company was purchased by the MFPL and used them as the raw material in the manufacturing process. The both companies made an agreement to abide by to provide and buy 80mt annually. The other players, including LCL, shared the balance 120mt in the total market. Many of them operated as re-packeters and distributed the products to the local market.

4.8.3

Distribution Network

The LCL distributed its product only to the selected geographical locations and only for leading sellers in those areas. MFPL adopted a completely different approach to select its channel members and sellers. For instance, MFPL distributed its product throughout the Island except North and the North Eastern Provinces, due to prevailing Civil war of these two areas. In order to develop the distribution channel MFPL appointed agents on unconditional basis. That is in many cases when a company appoints its agents they ask for an initial deposit

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from the agent. But MFPL appointed agents without such initial deposit or other conditions, which hinder the operation of the distribution activities. Also the MFPL provided the sellers with unlimited credit facilities to expand the distribution of MFPL’s items/goods. In fact, MFPL was able to introduce such systems since their capital investment does not induce any interest to be paid to outside funding agents. In other words, investment capital was consisted with private funds of the board of directors. The company’s policy for the dealers and sellers was favorable for the existing market features. For instance, No need to emphasize that such a dealers or sellers would be glad to accept such policy since many of the Sri Lankan small scale sellers find difficult to afford for such initial deposits or unconditional credit facilities would definitely enhance the business strength of such small sellers. Some sellers, of course have misused the opportunity provided for them and as such some amount of credit granted still remain unpaid. Yet this strategy enhanced the strength of the company’s distribution channel. Hence, the company could easily develop a wide spreaded distribution network throughout the Island. Distribution channel has specifically found rural areas since fish products (fresh fish) distribution is not widely spreaded or available in those areas. Sales agents have been appointed for areas and every provincial town except north and Eastern Provinces. Goods are been distributed regularly. But the company had experienced in some areas sales are recorded only about 25% of the total distribution to the particular sales agent. Yet regular supply/distribution is maintained. CEO says the When the customers wants to buy the product it should be available to hem/ has at their close proximity. Hence the product should be available in the market without any shortage.

4.8.4

Reaction for Competitor Activities

MFPL was able to identify the competitor reaction toward their business operations and strategies. For instance, from the sellers of the products of MFPL, the company found that the competitor has taken some steps to cripple their production by not providing the agreed TVP for the MFPL, since LCL was the only supplier of TVP to MFPL. The MFPL was able to understand the LCL’s behavior in 103

advance. Therefore, they had orders and imported a buffer stock of TVP. Once the LCL denied supplying the agreed amount of 80mt of TVP, the MFPL produced their items utilizing the Buffer stock and distributed to the market. Meanwhile, the LCL Company increases their production and released them to the market. By the time the consumers were attracted to the MFPL’s and hence, at the end there were huge bulks of LCL’s items in the market, which could not dispose. Then afterwards, the MFPL Company started importing raw TVP from India directly and completely deviated from LCL. Originally nugget is purchased farm LCL and later it was imported from India. With the importation of nugget from India, company could save 15% of the cost of purchasing. At percent the company produces Nugget it self. As a result 10% of further cost reduction has been experienced. This Soya Nugget is said to the comparatively smaller then that of other substitute available in the market, the label is not preferred by the consumes. Therefore, CEO says that this nugget in not givens to external bodies or agents as a strategic measures. With the introduction of in houses production, Nugget rather then outsourcing the dwellers in the factory are complained about the noise generated by the machineries when production process were going on. In order to dilute the pressures from such residents the CEO recruited the relations or family members of such dwellers to the factory as production employees or any others. Hence he says the pressures from sorrowing dwellers were eliminated. The costs of mercenaries imported for nugget production were recovered within initial two (02) years period and hence the company generates profits. CEO believes that the industry may not exist as it is for longest period yet lifetimes of machineries have been estimated approximately for 10 years. Therefore ECO says the machineries should be utilized with full capacity at present to exploit market opportunities available now. The Soya Nugget is also supplied / distributed to the retailers in bulk from in order to cater for the low-income groups at a comparatively lower price than normally picketed MFPL products. Because the lowers income group could be attracted with 104

such practices and it would help further extension of market share of the company. Once the expected demand is met the company intends to introduce them with pocketed product at a later stage. The product is available in seventeen (17) different flavours in which prices are slightly different. It also available with deferent weights, in order to cater for the affordability of different costumes segments, yet pricing has not been based on any costing strategy. Instead market price is determined according to the price of substitute products that are supplied to the market by the competitors or on arbitrary basis

4.9 Costing Process and Material handling
In MFPL, there are no generally accepted costing procedures, methods, and

practices. Actually they are not maintaining even single page for to record costing information. The CEO considered that the costing information is the very secret information rather than other information. However, the CEO maintains all the costing data in his mind and he personally handles material to avoid racket and errors occurring when others involve into transactions.

4.9.1

Pricing

Up to now the pricing of the product of MFPL has been based on market price of the competitor’s product in the market. The goods or items produced are not separated in to department wise or human resource is not allocated according to the nature of production or items produced. In other words workers are rotated and production is carried out as required by the each item/s. Different items are produced in the same premises and as a result space problems are spires. Worker is, in fact, become all rounder at the end. Any trade union activity may cause serious adverse results as well. But, CEO believes that, by training people as all rounder, their idling time could be minimized and training people as all rounder can improve the production. Also if a worker is absent another could easily carry out his or her work.

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4.9.2

Material Handling

In addition to the Supply Department Stores, instead of purchasing from the central stores, the production department directly handles procurement of raw material. This is specifically experienced when bulk purchases are done. (e.g. chilly, and spices). The unit or the department who purchases the items directly prepares GRN. Returned goods and items are re-use in the manufacturing process as raw materials. It is found that no records will be maintained in returned goods or items concerned. When inquired from the CEO he says that, record keeping in these items will further delay the production process, and it may result in creating idling time of machineries or some workers as well. Hence, once the goods are returned or defectives are identified the will be used in the production process as soon as possible. Further he says, that if these items are not used at once it may be lead to steal them or misuse by the employees. In addition, keeping defectives or returned goods/items for some times in the factory premises also implies kind of displaying the company’s weaknesses hence better to dispatch them as soon as possible. If the packaging is defective, such items will be sent back to the production department to re-pack. Therefore, computing cost per unit is said to be cumbersome. Items will not be released until such time dispatch notes are issued. This controlling measure has implemented in order to minimize malpractice. Existing stores maintain bin cards, which uses only as a store controlling measure. In other words it is used to supervise the storekeeper’s work. These bin card records are not taken into account when items or raw materials are purchased. GRNs are issued without a proper mechanism. For instance, GRNs may not issue at the time when goods are received but it will be issued after 2 or 3 days later when these goods are reached at the machines. Surprisingly, the GRN card will be recorded as per the invoice received but not accordance with the amount of goods actually received. It is also observed that, malpractice may occur as a result of this GRN system. CEO says that he cannot withhold the production until such times the GRNs are issued; instead the market should be supplied with the goods in right 106

time. Further, if the GRNs are not properly implemented, the cost or damage incurred in this regard will be comparatively very law with compared to the damage that could be taken place as a result of the goods are not supplied to the market in right time. Location of the material stores is not closer to the production departments. This has created many difficulties according to the people in the production department. But CEO says that he wants to keep this distance to avoid some kinds of malpractice that could be possible when departments’ ant the stores are located very closely. Production supervisors say that, production process is interrupted very often as a result of this distance between stores and the production units. Material obsolescence are very often occurred due to the fact that improper inventory system. In fact, different kinds of raw materials and items are stored in the same place or the bin without any classification or grading system. This has experienced as result of lack of spaces to maintain a proper storing facilities. CEO argues that developing the store facilities make an additional cost which does not generate any profit in turn but if the same amount of money is spent on manufacturing activities that will bring a profit to the company in turn. Storekeeper complains that he is not in a position to do his job properly since unauthorized people interfere in to his job. For instance, without proper authentication or documents production unit may consume the items in the store for an urgent manufacturing work. Hence proper management of stores is impossible.

4.9.3

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

It is proposed to introduce the following devices to the practice in order to manage cost concerns. Such as, 1. 2. Introduction of wages control ledges (WCL) Introduction of Batch card (BC) 107

3.

Introduction of Return Goods Report (RGR)

These “new” methods are proposed mainly because, existing practices does not help to measure unit cost of business operation. More Specifically with the introduction of WCL it is intended to be achieved the following objectives. To calculate direct incentives for production workers. In fact, the present practice of the MFPL is that the wages are implemented as a “piece rate” System. Workers are not provided with any others incentives than this. The company as a system, which cannot control the cost in terms of EPF concerned for instance, if an employee earns RS, has identified this System. 15,000 through the said system the MFPL has to pay EPF for Rs. 15,000. With the proposed new system it is intended to introduce a basic salary structure, which is supplemented with incentive scheme. Thus the EPF would be applied only to the Basic salary. The company intended to introduce a very low Basic salary structure as a cost controlling measure. In addition, it is proposed to introduce an incentive for the attendance of the employees. Hence, it will work as in device to motivate workers for regular attendance. Moreover, it is also expected to measure the actual Numbers of units produces though WCL since the incentives are to be bared on the number of units produced by the employee too. The management of MFPL is expected to measure the performance of each production divisions through this system as well. At present production is carried out through rotation of workers, in which separation of division or departments of production is not possible/visible. The company also intends to identify the wage cost ratio per unit on departmental basic and it will be needed as a controlling measure in future bruises operations. This proposal also implies that an employee should produce a minimum given number of units in order to claim for the basic salary and beyond which incentives are applied. The CEO intends to identify wages output ratio, which may use as a controlling device.

4.10

Summary

This chapter has discussed an influence of social and organizational culture on rise 108

and development of food processing companies in Sri Lanka with special attention to the MFPL. Business orientation in Sri Lanka started with the base of wealth and accumulation. Before independence Plantation agriculture brings about a complete capitalist transformation. In Sri Lanka, capitalism developed in a society whose traditional structures and values, including ethnic and caste loyalties, underwent change. Furthermore, in the case of the arrack rents, the investment was also very much self-financing. At the bottom of the social scale were the marginalized poor in scattered forms of self-employment, and workers on plantation and manufacturing enterprises located in and around Colombo. The above situation is highly influenced to development, stagnation and decline of business society in Sri Lanka before independence. When Sri Lanka, achieved independence in 1948, it had practiced limited self-rule based on universal franchise since 1931. There was a smoothly functioning export economy that provided commodities urgently demanded by the world market. Productivity was low and population was growing rapidly. Existing economic structure would be unable to support the growing population at its current standard. From 1948 to 1956, period of Economic populism with an open economy, Sri Lankan government provides wide range of direct benefits to a large segment of the population. This was influenced to reduce the in home agricultural products. From 1956 to 1965, Economic populism with economic controls, most of private owned businesses such as transport trade, converted into government owned business organizations by nationalizing. This situation encourages government owned businesses and discourages private owned businesses. From 1965 to 1970, limited liberalization the rightward political shift and trade liberalization package was introduced. Agricultural productions were promoted. From 1970 to 1977, under the Controlled Economy, economic and business conditions had begun to worsen and unemployment was rising. This period is directed towards development of agricultural businesses and reduces imported consumption of goods. From 1977 to 1983, Policy Reform period with the open economy damages to the plantation sector and in addition production sector activities reduce and service sector activities were expanded. These economic reforms became an encouragement for imports and foreign investors. Introduction 109

of new Companies Act In 1982 helps in encouraging an expansion of different types of companies. From 1983 – 1989, Start of Civil War created many difficulties and destructions for economic development especially in the agricultural food product areas. From 1989 –1994, Crafted a Second round of policy reforms contributed to pickup in economic growth in the early 1990s. The reform package included tariff reductions; rupee devolution; tax reforms aimed at stimulating the capital market and improving tax compliance; further liberalization of financial and commodity markets; and liberalization of exchange controls on the current account of the balance of payments. Other emphases were privatisation and peoplisation (encouragement of individual share ownership), export promotion, and poverty alleviation. These economic policies are operating consistently up to now too. However, from 1977, the open economic policies led many people to abandon domestic agricultural activities and moved them towards other industries and removed from their traditional and cultural norms and value systems. People started to concentrate only on finding an office employment using the political influence. This malpractice in politics directed towards the destruction of the total life style and people became very busy and indolent than it was before. The time spent at home became lesser and lesser. Gradually they were used to buy prepared meals. As a result of it instant and just-in-time food industries became more and more popular. The MFPL of Sri Lanka was an exception having analysed the existing market environment and the CEO, the founder established the MFPL in 1997. The company is operating only within the local market. At present the company has become the largest market shareholder mainly in Soya based products in Sri Lanka. CEO of the company is the in charge for all the activities of the company. He has gained his exposure from his family background, government employment and education he acquired from the University first degree and Postgraduate degree. The strategy is not to care about the social responsibility and to care only about the business success through profit maximization. For this purpose he follows strategic issues such as quality, flexibility and competitiveness. The main objective of the firm is to survive. According to the CEO of the company he doesn’t apply standard models to run the business organization and informal 110

management control systems, which are occupied, and all these plans are in the mind of the CEO. Now a days the CEO is going to introduce some formal control systems to this organization after the discussions with the researcher.

CHAPTER FIVE Analysis of the Case
5.2 Introduction
MFPL was a mix of automated and non-automated production with most products produced continuously. The main products were made in two separate production departments: MFP nutria foods and MFP herbal remedies. The researcher chose to work in the MFP nutria foods Division, as it was the largest production department in MFPL. Nine kinds of food items (Soya Meat, String Hopper Flower, Noodles, Y Drink, Salt, Curry collections, Som flavor, and Vinegar) were made in separate plants in this division. Out of nine kinds of products Soya Meat, String Hopper Flower and Noodles are fast moving items and others slow moving. Among above main three products Soya meat is the dominant product possibly because its production was quicker.

5.2 Management

Theories

Vs.

CEO

Driven

Management Control System
Classical Management Theories, espouses a “scientific basis to administration”, based on beliefs that the organisational world possesses the characteristics of the physical one. Thus, it is claimed, administrative principles can be derived by systematic study of cause and effect relationships. Open system theory discusses the exchanges with the environment. Contingency theory tends to portray “management in a technical role”, matching organisational design to the dictates of contingent factors of survival. Interpretive theories emphasize the ‘reality’ rather 111

than any ‘independent reality’. However the presumed independent variables may not be so. Structural theories discusses that the influence of corporate structures and accounting systems to create variations on economic efficiency. As in the case of systems theory, factors such as “technology” may be part of strategies of control.

5.2.1

CEO’s Ideology

According to the interpretive work of Meyer at el (1977) is relevant in this context, structures, rules, plans, goals etc. are seen as myths and rituals which reinforce the stability of behaviour within organizations and legitimise their action externally. CEO14 of the company is always trying to explain that management theories are not applied in the practice and he commented:
“I think we are the only firm/ company who become the market leader within a very short period of time. I have no idea about to what extent the so-called theories were useful in this regard. I believe that leaders in commercial and public–sector organizations should understand and address the challenges of dynamic environment and adapt in company’s activities accordingly today’s fast– moving environment with the help of complexity15 thinking.”

Above statement of CEO is relevant to the Interpretive Theories. It is proved that the theory supported to the practice, but practitioners in the business field don’t know that whether they are following theories. They are commenting that they found the way of managing the organization. Open Systems Theory under the Social Systems Theory is characterized by exchanges with the environment, were particularly influential. Open System Theories regards organisations as organisms that process inputs from the environment back as outputs. Its ecological orientation stresses the interdependence between the organisation, its internal Sub-systems and the environment. Open system theory considers, organizations and environments tend to be taken as objective, when control systems are described as determined by the
14 15

Chief Executive Officer Complexity is a term used to refer to a collection of scientific disciplines, all of which are concerned with finding patterns among collections of behavior or phenomena – Managing Complexity, Robin Wood, 2001, p.1

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variety in the environmental and organizational needs for survival, by stressing the need for integration for the survival of the whole, there is a presumption of a "functional unity" to organizations, which may divert attention from issues of power and conflict. As CEO commented:
“However, I managed the business in line with the environment factors, closely observing the directions of these elements, introducing changes timely. I believe these are the main factors of our success. For example, when we recruit people as our employees, we critically evaluate their suitability for the company. But we never hesitate to kick them out if needed.”

Therefore, it endorses, here, once again what open theory explains. The assumptions behind contingency theory are similar to those under- lying an open systems approach - the key relationship between an organization and its environment can be understood in terms of the organization’ s need to survive, and the fact that there are certain functional imperatives for the various sub-systems. As CEO commented:
“In addition to that I would like to say that, irrespective of the board of director’s decisions we might implement the activities if there are viable for the existing market conditions. The board of directors also works with the ordinary workers in achieving expected goals. Our main aim is to survive in the existing market.”

The CEO follows a system of this nature in order to ensure the company’s survival, which explains very clear in the systems approach.

5.2.2

Hidden Authority & Organizational Capacity

An interpretive approach emphasizes the essentially subjective “nature of the social world” and attempts, to understand it primarily from the frame of reference of those being studied, as Laing (1967) pointed out, 'persons are distinguished from things in that persons experience the world whereas things behave in the 113

world’. The focus is on individual meaning and people's perceptions of "reality" rather than any independent “reality" that might exist external to them. CEO doesn’t believe staff in the organization. He can realize that he also started this business from collecting data from LCL and after starting the LCL sold to another company due to insolvency. CEO said, If the required data are available and Director acting for GM wishes, you may receive them” when researcher told him about the need of data. But the following day contacted the Director acting for GM, CEO received the phone and says, “ If you need to collect some information, you should meet me” and then researcher reminds him what he said the other day. He responded:
“When GM (acting) is present, I should not disgrace him. I should give him the due recognition. It is not nice to let down him. That’s why I told you that way. But if you need any information you should come to me. Because I’m the CEO, I’m the person who decides whether to give you the information or not.”

To achieve major long - range checkpoints defined by the strategies, though there is a Tactical Action Program (TAP), CEO overwrite it. In this regard CEO commented:
“The preset goals/objectives will be a base for a strategy, but according to the latest market conditions I alter all the action plans immediately if it is required. These TAP are delegated and assigned to different action centres. But I personally monitor these and alter it requires.”

Since the many positions are kept vacant in the organizational chart. CEO commented:
“It provides more liberty/ freedom to work as I wish. Many senior level positions such as DGMOperations, DGM - Finance and Administration, DGM - MIS and Supplies Committee etc. are kept vacant, cost of maintaining such positions are not appeared to be seen. I have nominally, assigned acting GM many responsibilities and jobs. But, I personally intervene his work too. I grace him since it is not nice (theoretically) demoralize him.”

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According to the all above, it is understood that CEO of the company well understood the nature of social world, and what the real meaning of reality explained as interpretive theories.

5.2.3

Financial Authority and Corporate Strategy

Structural theories say that variations between corporate structures and accounting systems are ascribed to differences between political and managerial values and not just the dictates of economic efficiency. Thus, the possibility that corporate controls are social creations subject to choices in acknowledged. Although accountants have noted problems associated with new corporate structures such as divisionalized organizations, their analysis has been almost exclusively conducted from a technical and Classical Economic viewpoint. Little interest by accountants has been shown in radical interpretations of structural changes, which question whether the logic of efficiency was, and is, paramount in influencing accounting and corporate developments. CEO always talking about his capital share to the company and his personnel wealth very proudly and as his power of justice. CEO who belongs 65% share capital, chair the board of directors and monitor and interfere the work of board of directors and final decisions are taken only by the CEO. Therefore, the board of directors is nominally take decisions and responsible for certain jobs. CEO commented:
“Employees of the company know that I have enough wealth. Therefore, if the company runs on bankrupts the employees are the people who affect most. I purposely have let workers to know about this. I am taking final decisions in all the areas of business activities, because I have 65% share capital of the company. If any failure occurs I am the person who face the largest risk. Therefore, I can overwrite any decision taken by the Board of Directors.”

According to the above statement, the managerial value is developed based on the financial capability of the CEO. But according to the theory that variations between corporate structures and accounting systems are ascribed to differences between political and managerial values and not just the dictates of economic efficiency. Moreover CEO says, 115

“I believe that investing money is better than saving them. The risk of investment cannot be avoided. But through investment we may be able to provide people with jobs. If I can do the same for my relations, friends and village mates, I would be able to context for the general election. Politicians can earn money and expand their businesses. I do not want to have many businesses at the beginning. Instead, I want this business to be very strong and steady with different products in the same production line. Thus, I would be able to compensate one’s loss from another product.”

On the other hand CEO develops the corporate structure based on four SBUs, but which are not functioning as SBUs in reality. And also accounting systems design according to the perception of CEO on the basis of situational factors. He commented:
“Corporate structures and accounting systems are developed according to the organization culture. To escape from tax liability, I design the SBUs. Actually all the SBUs are under the same roof. Same batch of workers are doing all the activities related to the SBUs. Corporate controls are in my hand. I the man who solve problems associated with new corporate structure.”

5.2.4

Making Subordinates Unimportant.

Contingency Theories seeks to provide a reconciliation and synthesis of the conclusions emerging from a verity of organizational studies. The work of industrial psychologists and the human relations school is combined with open systems theory and that which empirically measures structural characteristics of organizations. Its principal thesis is that different organizations principles are appropriate under different environmental circumstances, and within different parts of the organization. Effective operation of enterprises is seen as dependent upon there being a suitable match between its internal organization (including structures, styles of leadership and decision making), and the nature of the demands placed upon it by its tasks, size, environment, and members wants. CEO says,
“No one in the organization is competent in performing any task properly. He has developed such an image. CEO comments negatively on what ever work they perform.”

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CEO’s idea is to say that subordinates are not important since they are not in a position to perform a proper work. When I was collecting information, one of the workers brought to CEO some noodle product for his verification. The CEO then fired the worker in front of the researcher too and advised him to destroy the product. Later on CEO accompanied me to the production section and advice the worker to change the ingredients combination and tested and approved the production. He asked me to test the product too. I tested it and comments saying “very good”. In fact I was not aware whether it was good or bad. The CEO does not respect their qualifications but they should prove it practically. Another occasion, a designer came to CEO to get his verifications and comments for the packet he designed. He was not satisfied with the designed because it was big for the amount of noodles to be packaged. Hence, he pointed out the extra cost incurred in this regard and instructed to reduce the size in to a manageable size. Then it would save material cost, printing cost, storage cost and defective cost that would incur as a result of loose packet. Under the contingency theory also emphasizes that different organizations principles are appropriate under different environmental circumstances, and within different parts of the organization. But, CEO thinks that subordinates are not important since they are not in a position to perform a proper work. Only CEO the man who is capable to do anything perfect. This is actually a disagreeable rapport between the theory and the practice.

5.3 Frequent Information Flows and Centralized Decisions
According to the conventional literature, accounting provides management with financial information for decision-making and control. Budgetary control is depicted as crucial to delegated management within central control. Budgets are seen as a rational and iterative process of forward planning, coordination and targeting, evaluating and rewarding performance. Such accounting was hardly found in this case study.

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According to the studies under Interpretive Theories noted that accounting language become a medium for calmer and more informed political debate, facilitating the exchange of views and the design of further investigative action.

As accountants become more aware of the circumstances and perspectives of other areas of business, and as non-accounting managers become more familiar with financial terms, it may be that accounting will increasingly provide a medium and forum for debate. Indeed, in two of the organizations investigated by Powell, accountants had become responsible for all negotiations with trades union representatives.

5.3.1

Internal Financial Reporting

Pluralist notions applied to accounting are not limited to bargaining between managerial interests, but can and have been extended to industrial relations and financial reporting. Psychological Theories is subsumed under the title of Human intervention processing approaches to accounting. The essential thrust of the work is to determine what factors affect the quality of individual decision making. Libby and Lewis classify the major variables into three sets - inputs, process, and outputs. Input variables measure the properties of the information. Process variables seek to measure aspects of the decision-maker. Output variables include the speed, quality and reliability of Judgments, and Perceptions of their quality and of the information given. MPFL retained the external reporting system but its internal financial reporting systems changed enormously. One newly appointed accountant reported:
“ We have to send a daily report regarding cash and other transactions to the CEO and the MD of the company. The Managing Director (MD) receives these daily reports for their clear understanding about the financial condition of the company. New computerized systems speeded up the supply of internal information to directors. However, no external reports have been published. Auditors are our friends. Audited financial statements are presented only to the Inland Revenue Department only for the tax purpose.”

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Accounting information tended to be the preserve of the three directors. One accountant remarked:
“We record the bills or memo's which are signed by MD or CEO. All departmental expenditures and income have to be signed by these two directors. Sometimes, without the signature of CEO those bills cannot be recorded. Otherwise we refer the bills back.”

According to Swanson, information systems should be recognised as having a, "significant capacity for the encouragement of organizational delusion" - although there may be an "inner-directed" rationale, the aim could be to make a show of "good information" to higher management. Chambers discussed accounting and quasi-myths. I he suggested that it was often simpler to invent fictions than to establish a connection between the input of certain information to a person and the output in the form of a decision or action. Finally, Earl and Hopwood, building on the decision theories of Weick, claim that in very uncertain situations management information systems are used to retrospectively rationalise decisions and actions already taken. The Directors became the repository of all financial information, which was processed according to their instructions. MD (acting) Finance remarked:
“We have two systems for accounting information. Two sets of accounts are prepared. One is prepared personally by the MD (He is a Chartered Accountant) and it is informal which is a restricted area only usable with the permission of CEO. The other system is external reporting, which is for other shareholders, the bank, the Tax Authority.”

Interpretive work stresses the constant uncertainty confronting individuals seeking to make sense of the world they inhibit. Through language, they negotiate an understanding shared by others. Thus it may be, that accounting may be regarded as a "common language” for the discussion and resolution of contentious issues. Again, MD admitted:
“We are private limited company. All the directors are friends and CEO is the active director of the company. Power is cantered on CEO. We have to maintain many informal systems as CEO wish. And in addition, you know, business is competitive. You can't maintain all of them in a straightforward way.”

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One employee commented:
“Some informal transactions are kept in the IOU fund account for irregular payments to bribery of government and tax officials. These transactions were usually shown under other headings in the annual reports. However accounting record are prepared by different parties for different periods.”

One senior accountant commented:
“I don't know what the real transactions were in the IOU fund. It was alleged by some individual that sometimes the heads of transactions were changed to evade tax such as increasing the amount of tax exempted items.”

Accounting reports for publication are prepared in this company as a ceremonial practice. But internal daily reports are prepared based on actual figures with the instruction of CEO. Internal accounting statements with financial information is used to decision-making purpose. Rather than using accounting information as a cornerstone of rational delegated management there were perceptions within the company that the owner-managers used the systems to enable them to show flawless reports to other external users interested to the organization.

5.3.2

Mindful Budgets in the “No Budget” Practice

In pluralism, by facilitating processes such as budgets by designing accounting systems that permit the creation of several perspectives, and which encourage learning through dialogue and dialectics may be preferable to refining systems that, as is often the case, purport to give a single version of the truth. As CEO states:
“I don’t care about accounting records and principles. I know everything about this company personally. I just prepare accounting report for tax purposes. But I intended to introduce a kind of costing system. Then I would be able to compute the margin of each product.”16

Argyris noted how managers used budgets as "needlers’ over subordinates.
16

In May 3rd 2001,Researcher personally interviewed CEO of the company at the Factory Premises. When CEO supervising the Factory, he express these ideas.

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Accountants were criticised for hierarchical punitive reporting and achieving success through the failure of others. The ensuing tension and hostility between Staff and line managers was held to be counter-productive to the fulfilment of organisational goals. Ridgeway and Dearden both chronicled how using accounting criteria as performance measures could reduce organisational effectiveness. Dalton, Rosen and Schneck, Lowe and Shaw, and Schiff and Lewin all demonstrated how managerial bias and slack could enter budgets. Dew and Gee found that many managers either did not use accounting information received, or used it incorrectly. More recently Ashton noted how dysfunctional consequences of accounting systems are perpetuated and amplified by their feedback mechanisms. According to the pluralistic studies, then budgetary control may principally be a means of instituting and promoting bargaining whereby participants can stake out claims, discover alternative claims and meanings to organisational events, enrich their understanding of the organisation, and secure a degree of consensus. However, accounting in MFPL now changing eventually, though not necessarily according to the expectations of policy makers or development economists. Much of conventional management accounting is based on functional approach, is inextricably linked with scientific Management. Indeed Fayol specifically instances budgets as planning and control tools. Neo-classical economics provides a basis for marginal costing and financial management and reinforces notions of control based on assumptions of economic man, and organizations with unitary goals headed by a single decision-maker. Despite the criticisms of conventional management accounting and its theoretical props, by behavioura1 scientists in particular, such approaches persist. Horngren defines his general approach to management accounting as designing formal controls "to provide goal congruence and incentive through the use of technical tools. Very recently i.e. from end of year 2001, the new management accountant is appointed and he was delegated to authority to establish the budgetary control system. Cost information was collected through accounting systems and the CEO’s personal contacts but the research revealed no professional cost accountant or associated systems dedicated to providing cost information to managers outside of the family. Managers had little idea whether the organization was running profitably. Budgets in the normal sense of routinised regular downward financial reporting disappeared. 121

However, physical budgets and quotas were passed down to production managers who transmitted their messages (and pressures) to first line managers (foremen and supervisors). As will be described later, this gave rise to a series of informal practices by junior managers with the shop floor to achieve budget, often with the tacit approval of production managers. Now the management emphasized market trends in making budgets rather than a production orientation as previously. Budgets and all other conventional controlling devices are not prepared but those will be registered only in the CEO’s mind. Production and sales budgets are nominally prepared but a “mindful budget” is implemented. Therefore, the MFPL’s practice further endorses the researchers previous findings in this regard. As one marketing official commented:
“Accounting information comes through late although it is correct. But we prepare our sales budget on the basis of sales force indicators and market trends, which is very dynamic.”

A new marketing function was established to gather sales forecasts emanating from the field. These formed the basis of the production budget. The budget committee consisted of four members: CEO, MD, Production Manager and Marketing manager. The annual budget expressed in physical terms was reviewed occasionally after the personal observations of CEO. CEO often following telephone conversations with production and marketing managers reshuffled the physical budget continually. He would then informally arrange a meeting with marketing officials and production managers to fix revised targets or change product lines. The production managers rarely influenced these decisions: they were only there to execute CEO's commands. As a production manager remarked:
“Initially we made a production plan on the basis of yearly and monthly budgets as fixed at the beginning of the year and at the beginning of the month. Now we revise targets as new information comes through. In this case CEO plays the vital role.”

Cost reduction the main language of managers who in turn relayed this message to the shop floor. Redundancy programmes were the main source of cost reductions 122

aided by cuts to benefits and allowances. Top management used physical budget figures to evaluate the performance of production managers. Production managers had to report any deviations from budget to CEO who usually wanted to see a reasonable cause for deviations. Although the feedback systems were improved in terms of accuracy and speed they were essentially ad hoc with arbitrary imposed targets upon managers. The budgetary controls disciplined production managers not because of any accepted logic and reasonableness of accounting numbers or their reinforcement by lucrative reward systems but because of power relations within the enterprise. Top management specially the CEO, who were also the owners, were the final authority on recruitment, punishments, promotions, dismissals and all other company matters including budget targets and performance appraisal. Production managers realized their targets by controlling supervisors who in turn had to wrest with the problem of securing worker effort. Reporting systems for supervisors and foremen were introduced recently. Each day they submitted their logbook to the production manager, which contained shift information such as volume of production, working hours of machines, causes of stoppages, the number of casual workers worked, and wastage. However, the volume of production was what mattered. As a supervisor commented:
“Certainly managers are interested in the volume of production. As long as the volume of production is right they have nothing to say.”

The CEO was proud of how his system of logbooks had increased the visibility of operations. He commented:
“I personally developed this reporting system. By the virtue of this system, I can understand what went on during the shift. There is no scope for supervisors and foremen to conceal the fact. And the quality of products also can be maintained with specific targets.”

He under-rated the powers of human agency and ingenuity. Foremen and workers tried hard to not report some incidents. For instance, one day a foreman became very angry with a casual worker and threatened to fire him for insubordination. Nevertheless, he did not report this at the end of the shift to DCC: there was an informal understanding between worker sand their immediate bosses to work 123

things out within the shop floor. Open systems provide a means of viewing and describing "the ga1ne of budgetary control' described it in input (External and Internal) - output terms. An attraction of open system is its ability to relate different resolution levels of analysis and various disciplines. Thus Ansari used it because of its ability to combine and reconcile structural and social psychological work on budgets. Later, his analysis was extended to the design of budget reporting systems to facilitate managerial recognition environmental influences and inter departmental dependencies. As production manager revealed:
“Presently we don't have to face any serious problems from the part of workers. The deviations of production budgets are mainly due to raw material shortage or machinery breakdown.”

However, accounting controls came to play a vital role in a despotic and ad hoc form of family-based controls over managers and thence supervisors and workers though the budgets were. The accounting department and the information it supplied became an untouchable area for all managers outside the family of owners. Nevertheless, despite accounting numbers being rarely revealed, they were used to justify changes as they passed downward.

5.3.3

Accounting

As

a

Ceremonial

practice

and

Representational Craft
Boland argued that accounting is a ceremony or ritual played out to reinforce the myth that large organizations are subject to external checks upon their societal effectiveness. Such behaviour is seen as a consequence of the accounting profession trying to reconcile conflicting ideological pressures placed upon it. However the myths spawned and the associated technologies have produced a bias against reform. The work is interesting in underlining the social creation of accounting, and how meanings attached to it help maintain the status quo, but questions about which ideological pressures are most significant, and whose purposes are served by such myth creation and stabilization are left unexplored.

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CEO commented:
“I do not think about presenting past transactions and events. But for the purpose of providing requested information to parties such as Banks, Banks, Inland Revenue Department, and Other Government Agencies, financial statements are prepared. Actually according to my idea, there is no value of providing these statements to outsiders, because we don’t have benefit from it.”

This organization prepares financial statements as a ceremonial practice. In addition, the auditors are also their friends. Therefore we cant expect true and fair view from those financial statements.

5.4 Harmonization of the Work Force
Classical Management theories suppose that the behaviour of the employee is taken to be passive and determinable by managerial manipulation of situational variables. Taylorism advocates managerial manipulation of the workforce through economic variables; the social psychologists emphasize job design and leadership style. Social psychologists recognize that human desires may conflict with those of the organisation or other parties to it, in its advocacy of participative methods it tends to assume that these are reconcilable. Interpretive theory suggested that understanding of the conduct of others is obtained through a process of interpretation, or "typification", rather than by direct observation - such "typifications" being continuously learnt, modified or re-affirmed throughout people's lives.

5.4.1

Getting Blue Collars in the Foreground

Management theories suppose that the behaviour of the employee is taken to be passive and determinable by managerial manipulation of situational variables. Whereas CEO identified everyone including CEO, within organization perform blue-collar jobs, because they are working hard in the organisation. CEO’s view is that,

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“White collars as a mischief. It is to protect their incapability or rationalize their laciness to do hand work. They always think that the manager’s world as world of words. Theoretically white collar managers like to work with telephones, documents and decision-making committees. Everyone in the organization should carry out whatever the work without any discrimination. Any layers within jobs hinder the morale and efficiency of worker. I believe the work of a person should be able to measure quantitatively to do so. They should involve in production work. Managers are important. Helpers are also equally important. If needed a manager should perform the helper’s work too. Because, they earn higher than helpers. I myself do this kind of work. It is common to all.”

CEO vies that in his company there is no white-collar jobs.
“I think ‘white collar job’ people cannot or do not like to work hard. Because their attire get dirt. Therefore, I don’t want to recruit any white-collar workers to the company and I treat all the higher rankers also as hard workers and not as white collars. Hence, positions is/are kept vacant in the company’s organization chart can be treated as white collar jobs.”

He commented again:
“I work in a Government organization too. I do a white collar job their as defined in the theory. Also I know that I myself and others are not doing a fair job for the salary are receive. I do not allow my company workers to be like that. Not much clerical work is needed. These formalities are maintained just to satisfy the requirement of the rules and regulations. Otherwise we need only people to work means “work” it does not imply spend time keeping records.”

According to the statements of CEO, it is very difficult to determine the behaviour of employees and position of the employee is not an important factor to work hard. He accepts those who are work hard as white collars. So call theories are not influenced to this employees category.

5.4.2

Employees are Treated as Work Hoarse

Social psychologists recognize that employee desires may conflict with those of the organisation or other parties to it; in its advocacy of participative methods it tends to assume that these are reconcilable. Interpretive theory suggested that understanding of the conduct of others is obtained through a process of

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interpretation, or "typification", rather than by direct observation - such "typifications" being continuously learnt, modified or re-affirmed throughout people's lives. CEO is very strict in labour management. No worker can idle his/ her time. Every minites they have to work. CEO’s view in this regard “ we can’t pondle workers. If they are not well they should see their doctor. When they are here they should work. I have given them enough freedom. But it does not mean that they can spend their time unproductive. I don’t like the people who try to cheat me. If I found some one guilty immediately I send (sack) them home. I want this organization to generate very big profits. As CEO commented:
“We have not left any room for trade union activities or do not allow them to time to talk about gossips or unwanted things while working. Yet they can discuss anything related to the production or any other directly with me. Even though I’m full time employed in another organization, I spend more hours here. Generally I stay in the factory even late nights. Usually I go home after 12.00 midnights. My employees also follow me.”

One of the workers says,
“ I worked in a similar manufacturing organization before, I joined here at the request of the CEO. He gave me 15% higher salary than previous company and a car. My job was to plan the production. But here I have to plan and implement the same and show results finally. I have no any prescribed working hours. Sometimes I work entire 24 hours till job is finished. CEO also works that way. Therefore, I like to work like that. Normally CEO work here till midnight or may be 2.00 a.m. in the following day morning and spend at least about 18 hours more here. He never spends his time idling. He works throughout the period that stays here. Therefore, we also follow him. In fact, my workload with compared to previous place, is about 4 times higher. But I am getting experience and exposure.”

In fact, the responsibilities and the duties of the work force was not limited to the given task or the job itself, but carried out whatever the work to be done in order to run the business smoothly. One person is responsible for many jobs that are done in the organization. CEO says he can get the maximum output by doing so, and help minimize the cost of operations. In addition, when there are vacancies in the higher level of the organization, CEO says, people are motivated to such vacancies. As an example, the person recruited as Accounts Executive works in the Costing 127

department as well as financial department. Simultaneously he performs the task of Assistant Financial Accountant and the Assistant Management Accountant. Further he commented;
“ I do not worry about even if senior Board of directors leave the company. I can do all these things. These so-called managers and Board of directors are there only nominally. One of the founding directors, who had experience in instant string hopper flower, vinegar production etc. He was a owner of a big company. He wanted to resign. I released him. He runs his business today but he can not be a real competitor for our company because they don’t have the dedication and commitment that I have. Now we are the leading player of such items too. Any worker, irrespective of the level, can resign at any time. Also we do not hesitate to kick them out at any time if we need to do so.”

5.5 Pragmatism over Techniques
According to the Chandler design of accounting control systems is central to the Strategy and structure of industrial enterprises and Williamson’s theory of Markets and hierarchies has been unlisted to develop this approach further. Theory discusses that the strategy (Goals, Objectives, Opportunities, Treats, Strength, Weaknesses etc.) and the structure established in the organization is important to the organizational management control.

5.5.1

Creating Dummies in the Organization Structure

Structural Theories have paid much attention to how structures of organizations might affect the processes under scrutinity. Whilst the pioneering study of Argyria concentrated on social psychological variables it noted the significance of organizational ones such as the reporting relationship of accountants. Simon focused on organizational issues such as the roles of accountants and their relationship to structure, training and socialization. An organization structure developed by the CEO is in effect in the MFPL. According to the organization structure, as usual, there are numbers of positions within organization for different kind of “defined” jobs and responsibilities. But, CEO believes that any worker within organization should not limit their work or responsibility to such defined

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task, hence every one has to take the responsibility and attend to any kind of job at any time, if it is to be done. Therefore, according to CEO’s view,
“ This organization structure is a nominal chart. It is there to show an outsiders, but I don’t want to implement it.” The letter of appointment, therefore, also “formally” illustrate the job and the responsibility of a person recruited but he/she never be limited to such job responsibilities but for any kind of work at any day of the work at any time. This is more important to the organization to be a success. Many positions within the organization structure is kept vacant, the available people carry out the jobs and responsibilities once I assign some one to carry out the work that is enough. We do not stick into organizational chart or any other traditional management principles.”

Structural Theories emphasizes organizational structure consisting with, social psychological variables, which are effecting to the structure, the reporting relationship of accountants, training and socialization. But the structure developed in this company is not showing any relationship or the actual overall structure of the organization. This is nominal chart with dummies and prepared only to representational requirement.

5.5.2

Dysfunctional Goals Vs. Unitary Goals

Much of conventiona1 theories treat organizations as stable empirical phenomena that have, or should have, unitary goals, normally profit maximization. Bureaucratic dysfunctions acknowledge that organizations themselves do not have goals but are composed of individuals and groups striving towards different ends, “local” goals are often in conflict and dysfunctional in the formally stated organizational goals. According to the Accounting Dysfunctions of Social Systems Theory, the managerial definition of the enterprise was preserved. Recognition of the divergence of goals within organisations, their significance to change, and how accounting might recognize and assist this process was de-emphasized. But CEO Commented:
“As a production oriented business organization we are facing to the very risky, unstable and complex environment. Specially, the political environment is highly influenced to each of organizations very badly. Therefore, with my experience, I know wary well that the unitary goals are not adequate to run the business. That is why; I am searching for different types of income sources. I

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have negative thinks about the future. Anything can happen any time. Because I decided not to resign from my permanent job and not to stop my car sale on the other hand.”

Conventiona1 theories explain that organizations have unitary goals. Bureaucratic dysfunctions explain that groups motivated towards “local” goals rather than moving towards formally stated organizational goals. But in this company, there are no formally stated goals, no groups are motivated towards to different ends or different goals and the CEO has authority to set or change goals related to the company activities. Fox have advocated pluralism as a more realistic approach to organizational control. Here organisations are taken to be comprised of sectional groups with divergent and often mutually in consistent goals. Common purpose exists only insofar as groups are interdependent. Control is achieved by maintaining a network of rules and regulations that permit bargaining between the groups. The aim being to contain rather than eliminate conflict by negotiating courses of action which permit each group maximum freedom consistent with the binding constraints laid down by other groups. CEO states that,
“Formal or informal groups within the organization are extremely prohibited. Trade union activities are also prohibited. Even though there is a hierarchical structure and the procedures, the decision making power in hands of me. I appointed SBU groups nominally only to show some structural changes to outsiders and acquire some advantages from tax calculations. Those groups are actually engaging with group activities.”

Pluralism explains organizations are taken to be comprised of interdependent sectional groups with different and often mutually in consistent goals. But in this company groups, freedom to group behaviour and group decision-making is really prohibited. CEO is taking all troubles on his shoulders.

5.5.3

Eye on Environment

Conventional theory says, human nature is taken to be calculative and instrumentally rational, but essentially passive. The only significant changes envisaged are within a managerial conception of society, whereby organizational changes are instituted by key decision-makers at the apex of the organization, and 130

are restricted to adaptation to market threats and opportunities and represent movements towards economic optimality. LCL was catering its product only to the vegetarian-customers, and the advertisement campaign focused only the same target. This advertisement has telecast or broadcasted only on Poya Days. This day has been decided according to the Buddhists discourse that they should refrain from eating any meat or should refrain from killing any living being. The product of LCL Company said to be flavored with artificial ingredients. Natural flavor orientation plays a vital role since early 1990s in Sri Lankan context. As such MFPL has decided to introduce their products with natural flavors. It is said to be that if the TVP products were not packeted properly it would be ruined/destroyed by (gulla) Veevee, a king of food worm. The double laminated packet introduced by the MFPL was a sustainable solution for this problem and it was useful for preserving the quality of the food as well. CEO’s view is that
“The high protein content of TVP would provide customers with not only the required nutritional value for customers but also cholesterol free nature of product protects them from other cholesterolrelated diseases. This much of high protein can not acquire from other foods for this type of low price.”

Again CEO states that.
“Though the majority of Sri Lankans are Buddhists. I have understood that they are not real Buddhists. They are Buddhists because their birth certificates say their religion is Buddhism. Major supplier and competitor of Soya at very beginning have thought that our customers are real Buddhists and accordingly they planed their promotional campaigns. They openly prefer to pretend they are non carnivorous. But secretly they prefer to eat meat. Therefore, our promotional activities geared to address this issue. We produce vegetarian products with natural flavor of chicken, beef, pork, prawns etc. etc. Many of these Buddhists prefer to buy packeted such stuffs rather than waiting at a beef stall to fresh beef or meat. Many people want to pretend they are Buddhists who does not eat meat. Indeed in consumption they behave other way round.” 17

17

CEO’s idea and experience about Buddhists and vegetarians

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Further, CEO commented:
“ We advertise our product contains equal weight of nutritional value of meat, fish or other stuffs. People believe it and our sales increases. Sri Lanken consumers are preferred to be westernised. Therefore, we can easily mislead them if we are tactful enough. We package our products in Colourful Bright Packets. We use at least five or six bright colours. Other look of the product is very important to our customers. We use double laminated packet to prevent our product from “Gulla” impact/effect. We realized that through our market experience, we ones check single laminated competitor products 90% of them were affected with “Gulla” infection. Therefore, we use double laminated package to prevent this infections because it is really a relied measure. Now people know our competitor’s products are inferior in quality with compared to ours.”

The company had identified that their noodle was not a fast mooing item in the market. Hence a advertisement companies launched through TV sponsoring a TV Telecast program. The participants for this program is chosen among those who send the prescribed coupon inched in the noodle packet. After introducing this method the company has realized the noodle has became very fast mooing item in the market. CEO says
“The consumers has to he treated with the “dogs principle” (not as God). In his words a dog will wag its tail and be friendly with you if you offer the dog with a bone. The customers, therefore, should be given with some kind of “bone” then s/he would be attracted. He termed this as a “Strategic window”.

According to all above, it is understood that the CEO follows a system of this nature in order to ensure the company’s survival and he act as key single decision maker at the apex of the organization, and are restricted to adaptation to market threats and opportunities and represent movements towards economic optimality, which explains very clearly in the conventional theories.

5.5.4

Foreseen Social Responsibilities

Contingency theory, found that the managerial decision-making styles depend on the "personality" of an organization. In addition some authors discussed 132

organizational values and motivation, management aspiration for profit growth were included as an important independent variables, and supposed that different modes of organization decision-making predominated under various forms of uncertainty and that different kinds of management information systems were therefore required. There is a minimal concern towards the social responsibility in MFPL. CEO’s view is that:
“Personality of our organization is to earn profits anyhow. If the company wants to maximize profit, through organizational growth, such responsibilities hinder the way to achieve such goals. If the business is to survive consideration on social responsibility is a shield. Those concepts are good for the westerners, who live in USA or other developed countries. We live in Sri Lanka. We should think about Sri Lanken context. Who cares about social issues when operating a business in Sri Lanka? For example, we informed our customers through our media campaign/ advertisement that our product does not produce using Technology of genetically modification before objections raised about Technology of genetically modification. Now people believe that we are the only company who produce Soya without Technology of genetically modification. In fact, we import Soya from India. Generally Technology of genetically modification is used in producing Soya. We are not going to tell the truth to the customer. In other words businesses is really a racket. I believe that consuming a small percentage of Technology of genetically modification processed product does not make any adverse effect. Anyway, that has not scientifically proved yet.”

According to the psychological theories, people are viewed as imperfect information processors; the processing is assumed to be systematic and capable of revelation by scientific study. Decision-making is depicted deterministically as an interaction between objective characteristics of the information set and innate characteristics of the subjects. Ontologically the world is taken to be prior to individual cognition, the problem is their imperfection in perceiving it. Thus, according to Libby the options for improving accounting decisions lie in either changing the way information is presented or educating the decision-maker in better methods of processing information, or replacing him or her with a model. Further he states,
“Our label information may mislead the consumers, but consumers are not aware of this. And also these ingredients do not make any dangerous adverse impact on their lives. Therefore, it is nothing

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to worry. How about the air pollution which cause as a result of automobiles and what extent it affect our lives? We are not much worried about it. Then why should I worry about a slight adverse impact creates as my business to society?”

Commenting Again;
“ We attempt to look at ourselves in a mirror and critique the overall objective. We carefully evaluate the competition, the threats and contingencies we might have to meet, market shifts we might anticipate, and attempt to evaluate what we must make happen in order to achieve success of the objectives. For example, we informed our customers through our media campaign/ advertisement that our product does not produce using Technology of genetically modification before objections raised about Technology of genetically modification. Now people believe that we are the only company who produce Soya without. In fact, we import Soya from India. Generally Technology of genetically modification is used in producing Soya. We are not going to tell the truth to the customer. In other words businesses is really a racket. I believe that consuming a small percentage of Technology of genetically modification-processed product does not make any adverse effect. Anyway, that has not scientifically proved yet. However, we were able to capitalize on this rumour and treat too.”

Again CEO commented:
“Our Soya nugget is comparatively smaller than our competitors. We have done it purposely. Many consumers are quantity conscious. Therefore, it is better to give them smaller 20 pieces than 10 big pieces of same weight. That attracts consumers. We have experienced it. Our consumers prefer it. According to their response they like to buy our Soya product because it has many nuggets. In fact, our packet also contain the same weight our competitors. We intended to introduce herbal related products to the market as well. We want our customer to convince that we are social friendly organization who cares about customers’ health. That image will help us to market out Soya product. Thus, people will believe/trust us. We can promote our products easily. We are not worried about the minority groups of consumers at all. Our products are for the people who are with us. From this segment we can maximize our profit.”

CEO of the company further commented:
“Many consumers, are in Sri Lanka do not have refrigerators, specially who are residing in remote areas. We tried to introduce our “jelly”. But these remote area/rural area consumers are not aware about the same and they are not affordable. Since there earning capacity is very low. (Many rural

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communities is under poverty level) We realized it and immediately stopped “Jelly” production. Under this type of situations we don’t worry about small percentage of consumers.”

Further, CEO commented their secret in business success as follows:
“We react immediately and very effectively to our competitors. Initially we bought much market release of LCL products and re marketed them with our trademark. LCL thought that their products are fast moving. Therefore, they increased production and supplied to the market with huge bulks assuming that consumers demand is very high for LCL products. We stopped buying their products from the market and released our own production to the market at the same time. Then what happened are our product moved fast and the heap of LCL products remained unsold in the market. We continued our normal targets and meanwhile LCL’s product was outdated and got “Gulla” infections. Many consumers perceived that LCL’s products are lower in quality. That is how we improve the market image regarding the quality.”

At present LCL Company has been sold to MBL. But we offered the Biggest bid for the tender. They did not sell it to us since we were the biggest competitors. Now we are planning to produce substitutes for MBL’s products also. In future we will buy the MBL. We can create an environment to do so. We have recruited some of the best of MBL’s to our company at present too. Decision making process of the company is comply with Contingency theory because its styles depend on the "personality" of an organization. According to the values and motivation of the organization the Profit Maximization Objective is considering rather than going for Social Responsibility. As Psychological Theories explains, people are viewed as imperfect information processors. It is true in this study, because the company people cheating customers giving imperfect information about genetically modified foods.

5.5.5

Pricing by Going Prices

Clawson suggests that the elaborate bookkeeping and control procedures recommended at the turn of the century were “not needed to determine prices for competition with other capitalists, but rather for the purpose of class struggles”. CEO commented:

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“The company prices its products based on going prices in the market. On going price/s are observed and the products are priced on that basis when setting prices of goods of MFPL. Therefore, MFPL does not concern about any cost factors, profit factors or other pricing objectives for this regard. CEO’s prime concern is to recover whatever the amount / cost that could be claimed. This is due to the fact that he always tries to minimize the potential loss. CEO’s practice of going price as a tool to penetrate market and expand product/ market through such a policy. At the same time to avoid new entrants to the market.”

According to the statements of CEO it is clear that, prices of their goods is determined based on competition, and not for the purpose of class struggle.

5.5.6

Ad – hoc Arrangements in Daily Operations

Radical theorists view society as being composed of contradictory elements and pervaded by systems of power that lead to inequalities and alienation in all aspects of life, they are concerned with developing an understanding of the social and economic world that also forms a critique of the status quo. A theme central to all radical theories is that the nature and organizing principle of a society, as a whole is both reflected in and shaped by every aspect of that society. One Employer commented:
“ Sometimes CEO wants me to do some other duties beyond my area. But he request very politely to do so. I am not hesitated to do whatever he asks. One day he wants me to do a spy job. He had a suspicion on one of the delivery vans. He wanted me to follow and spy what they do. His suspicion is correct. On the way the two subordinates who was on delivery work, handed over some parcels/goods to a neighboring house. I was able to catch them as CEO suspected. Immediately they were sacked. He summoned a meeting at all workers with board of directors and divulge what happened and handed over the letters of terminating of work publicity.”

The former focuses on the fundamental conflicts that are both a product of, and reflected in, industrial structures and economic relationships, e.g. surplus value, class relationships, structures of control, whilst the latter emphasizes individual consciousness, alienation through reification, and the way this is dominated by ideological influence, not least through language. The difference between the two approaches is akin to that between the functional and interpretive approaches. In 136

other words radical structuralism treats the social world as being composed of external objects and relationships independent of any particular person, while radical humanism emphasizes individual perceptions and interpretations. CEO of the company intervene whatever the work he found important and leads people to attend accordingly. He interacts employees to follow up distribution staff irrespective of their job /profile and monitor distribution work, and report malpractices. In addition, accounts executive has been instructed to attend to develop a cost accounting system. It proves that whether there is no position to do some activity, the CEO can create the position in a jiffy to achieve organizational targets. A roster system where workers are assigned to different tasks and moving them from and among different production activities was very common at the MFPL. Return items are used as reproduction of the item but no records are maintained. Everyone has to attend to urgent work that arises, irrespective of his or her level or responsibility in the organization. No specific schedule to start work and finish them. All workers should attend to the work at any time and work until the job is done. Production process stops at any moment if the product is not selling fast enough or not moving rapidly. Market research will not be carried out in this regard. That will be totally up to CEO’s decision. CEO believes that just by allowing hired managers to get the things done will not be effective and efficient in a really competitive setting. Therefore, he won’t allow his board of directors to depend on subordinate managers and he himself does not depend on any other within the organization. He and other board of directors are the shareowners of the entire business entity in which he bears the biggest percentage (65%) of the share. Therefore, he says;
“Just allowing hired people to handle business is risky hence he himself wants to monitor the entire work within organization. He wants his board of directors follow him and he does not want to adhere into any rules and regulations to take actions if it really valid.”

He personally interferes into the works of others and override their decisions at any time and he commented again:

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“I look at this organization as my own. Therefore, I cannot leave the organization to be inefficient and make unnecessary loss. Instead interfere the work of others and monitor in order to minimize mismanagement.”

All radical theories are that the nature and organizing principle of a society, as a whole is both reflected in and shaped by every aspect of that society and forms a critique of a status – quo. Fundamental conflicts are the creations of ideological influences. But this company follows an ad hoc arrangement in their daily activities rather than considering for theories explained early.

5.7 Summary
This chapter aimed at analysing the data collected from MFPL. The qualitative ethnographic rich accounts demonstrate that “One Man Show” has become a reality in managing many facets of organizational and social life in this firm. The explicitly in this regard is that CEO is the main actor in every control arrangement. The social and organizational eligibility for these arrangements has centred around the CEO from an economic and financial power: CEO has 65% shares and more than 50% of staff consisting with family members and family friends of the CEO. This study has addressed this issue with a view to understanding management and accounting control practices within an uncertain context stemmed from the influence of societal and individual culture. It attempts to understand how culture shapes the values and meaning frames of organizational participants and provides them with interpretive schemes for processing experiences. In turn, the study illustrates how such interpretive schema affect accounting and control practices in organizations. This is achieved by focusing on four generic issues: (1) How do organizations initiate accounting and control systems? (2) How do such systems evolve over time? (3) What roles do they play in an organizational crisis? And (4) How does organizational action become disconnected from such systems? In asking these questions, I intended to make sense of my field experience. To do so, I have been inclined to be critical of functional theories of management accounting such contingency theory or systemic theories (See Hopper and Powell, 138

1985) and tended to take more sociologically informed theories such as interpretive and radical theories. In particular, I was impressed by radical theories where culture plays a dominant role (See, Wickramasinghe and Hopper, 2000). In line with these theoretical thoughts, the empirics have been built certain patterns (Strauss, and Glaser, 1967): (1) CEO Driven Management Control System (2) Frequent Information Flows and Centralized Decisions (3) Harmonization of the work force (4) Pragmatism over Techniques, I discovered that social and organizational context also has interesting implications for understanding the limitations of traditional theories of control. This chapter has given rise to elaborate substantial evidence for enlightening these patterns towards a theoretical understanding: a kind of culture of people in a specific organizational setting has been predominant creating different organizational outcomes. The next chapter deals with these in details towards culminating in a conclusion.

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CHAPTER SIX General Summary and Conclusions
6.1 A General Summary
This study aimed at understanding a particular management control practices in a specific context operating in an uncertain context. The fundamental questions being posed were: (i) how do organizations initiate accounting and control systems? (ii) how do such systems evolve over time? (iii) what roles do they play in an organizational crisis? and (iv) how do organizational actions become disconnected from such systems? These questions are meant for ‘telling a story’ (Ramstad, 1986) about a kind of management control system in which accounting controls play a major role. To pursue this exercise, accounting has been viewed as social and institutional practice, Hopwood, and Miller, 1996). This implicates that though accounting, at its surface, is seen as a technical activity, it has to be processed in a social and organizational context in which real accounting naturally emerge with unexpected outcomes. These outcomes are quite different from what is seen from a technical perspective (Hopper and Powell, 1985). The story that has been told in the name of a dissertation is for justifying this reality about accounting and management control practices. According to the story I have told, it has been always clear that the CEO manages the business observing closely the environmental changes and influences to the 140

business and keeps the full authority on all the activities of the organization. This is natural: according to interpretive approach, 'persons are distinguished from things in that persons experience the world whereas things behave in the world’. This replicates the validity of existence of subjective “nature of the social world”. Organization chart, design by the CEO is keeping many positions vacant to motivate people to go higher ranks. This is somewhat unorthodox but it can be justifiable as CEO has 65% share capital and it represents the Financial Authority of the CEO. Corporate Plan is also prepared based on that strength and he is proud about his personal financial strength. He spreads his power throughout the company based on this. And he believe that the investments rather than savings. SBU’s are established and managed considering situational factors. CEO considers subordinates are unimportant as they are not in a position to perform a proper work and he thinks that he is the man who is capable to do anything perfect. The second set of insights focuses on the Frequent Information Flows and Centralized Decisions. This is done through Internal Financial Reporting, Mindful Budgets in the “No Budget” Practice and Accounting as a Ceremonial Practice and Representational Craft. According to the conventional wisdom, accounting provides management with financial information for decision-making and control. Budgetary control is depicted as crucial to delegated management within central control. Budgets are seen as a rational and iterative process of forward planning, coordination and targeting, evaluating and rewarding performance. Such accounting was hardly found in this case study. Daily reports are regarding cash and other transactions are prepared only for internal purposes and all the documents signed by the MD or CEO. External reports are prepared nominally only for tax purposes as a ceremonial practice. These reports are consisted with incorrect figures. Interpretive work considers accounting as a "common language”. However, this firm considers accounting as a “secret language”. As CEO’s advices, there are some illegal and informal transactions are also taken place. There are no formal written budgets. All the budgets are Mindful. My third piece of empirics focused on the ‘harmonization of the work force’. One of the salient features in this regard is that ‘keeping blue collars in the foreground 141

and employees are treated as working hoarse. According to the CEO, those who are working hardly is considered as Blue Collar workers so he recruits only Blue Colors. He argues that the kind of behavior of employees cannot be measured. Moreover, trade union activities are prohibited at MFPL. Employees must work until CEO asks them to stop working. No worker can idle his/her time. In addition, the responsibilities and the duties of the work force was not limited to the given task or the job itself, but carried out whatever the work to be done in order to run the business smoothly. My forth attempt focuses on pragmatism over techniques. This is seen in terms of a number of scenarios: ‘creating dummies in the organization structure, dysfunctional goals versus unitary goals, eye on environment, foreseen social responsibilities, pricing by going prices and ad-hoc arrangements in daily operations. However, the organizational structure of MFPL designed as a nominal structure. The flow in this structure cannot be seen in the practice. So, the organization chart is merely nominal with dummies and prepared only to representational requirement. Moreover, MFPL does not have unitary goals as they are confronted with substantial uncertainties in an unstable environment. So, profit maximization is seen as a supplementary requirement in a series of goals.

6.2 Conclusions
The context in this regard has been defined as uncertain. Contingency-like management theories (Woodward, 1958, Gordon and Miller, 1976, Khandawalla, 1975) have viewed ‘contexts’ as a set of contingent factors such as environment, technology, and culture. They have failed to understand that these ‘factors’ are a part of the organization itself as social and organizational arrangements are always coming together through unlimited interactions as a complex web of socio-political and cultural phenomena. Contingency theorists have mistakenly understood these factors as separately quantifiable variables for measuring and establishing statistical relationships. The present study has realized that this is a game played with artificial data.

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Keeping this ontological position in the mind, I went on to take a post-positivistic epistemology for exploring the social and organizational reality on management and accounting controls. Several implications emerge from our experience with qualitative methods beyond those discussed in the preceding chapters. To begin with for exploring the emergent view that accounting is complicit in the social construction of reality, one can find there are a number of interpretive approaches that offer a strong potential for providing different insights into the interrelationships among accounting, organizations and society. These approaches help one pursue the phenomenon of interest, even though some compel awareness that their application joins the researcher as researcher and as subject party to the social construction and the alteration of a social reality. I think that one should employ a number of differing perspectives, possibly in dialectic tension with one another. I also believe that it is premature either to dismiss any perspectives or to advance any single approach as clearly superior (compare Willmott, 1983; Chua, 1986a, b). Moreover, researchers engaged in doing as opposed to talking about field work (Argyris, 1977); tend to be silent about their underlying assumptions. As Willmott (1983) suggested, empiricists may only be informed by rather than be contained within the various perspectives. Thus, I highly recommend doing qualitative field research, regardless of its type, over merely talking about field research. In accordance with the preceding discussions, and in some contrast to the previous accounting discourse (Tomkings & Groves, 1983; Willmott, 1983; Chua, 1986a, 1986b), I found it problematic to adopt a specific ontological stence a priory and then conduct an empirical study. I believe that the ontological and epistemological assumptions with which a researcher can function effectively emerge from, or at least interact with the act of doing research. Here, though, the implication that qualitative research involves fewer ontological commitments is by no means certain. The philosophy of science literature usefully warns the researcher of the differing and shifting forces that influence research so that field workers should reflect on their work and come to terms with their emerging assumptions (see, for examples, Campbell, 1970, 1984, 1986b).

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Perhaps most importantly, we have found the researcher, the phenomena studied, the context in which they are studied, and the research approach in use, to be intimately intertwined- this in marked contrast with the more orthodox scientific position that they are dictated. I believe that this condition should not be tacitly ignored, nor overtly suppressed, nor be thought of as being solvable by some new research design modification. It inheres in the conduct of research, and a researcher must recognize his or her own potentially active role in the research setting and continually self-reflect upon it (perhaps surprisingly, see Friedman, 1953, p. 40; Einstein & Infeld, 1983, p. 6). In part, we have tried to do this by double–looping ourselves, and seeing ourselves as at least temporary members of the social context being studied. It is important to make the warning here, that constructive reflexivity is very delicately balance with crippling self – doubt. Based on my reading of the literature and my applications of qualitative research methods, it appears that interpretive techniques use similar data collection methods; thus, underlying assumptions may come to dominate the thinking of the researcher primarily at the analysis stage of research. Ironically, a survey of the literature on qualitative methods (Sieber, 1973; Miles, 1979) reveals that relatively little guidance exists on conducting analyses and interpreting data. Thus, I believe that substantial work is needed in this area by accounting researchers that is directed at establishing a social system of belief change (Campbell, 1986b), wherein a socially constructed concept of scientific validity is developed with respect to the product of analysis and interpretation (Campbell, 1986b). Consequently, currently lacking such research protocols, dialectic tension and reflexivity appear to offer meaningful approaches to data analysis. These approaches encouraged us to use and contrast several concepts – for example, qualitative vs. quantitative data, traditional vs. emergent theories, and superiors vs. subordinates – as a way of exploring different facets of accounting in organization and society. I recommend this general approach to future field researchers. I do not, however, recommend or condone efforts to routinize or program such approaches to analysis. I also recommend that researchers of different philosophical presumptions undertake field studies; we believe that a 144

dialectic tension among researchers has an excellent potential for forecasting innovation. Despite my attempts to study what subjects say, what they say they do, and what they do, qualitative field research is predominantly driven by words. This focus on words is, of course, in addition to a focus on numbers in accounting research. I recommend that researchers concentrate their efforts on studying the role of rhetoric in the research act, in the organizational contexts studied, and in communicating the results of the research to subjects and through the review process, to the academic community (compare, Manning, 1979; Whyte, 1986; McCloskey, 1983).

The forgoing implications lead me to conclude that use of accounting in organizations and society may be conceived of as a conventional process, and the interpretive research act may be treated similarly. Thus, rhetorical analysis should be one element of the interpretive approach. Donnellon reasoned that one can usefully apply a rhetorical or linguistic analysis to the study of contemporary organizations for these five reasons: (1) organizational actors use words to make inferences about the goals being pursued; (2) they make these inferences with reference to the organizational context in which they occur, the social context, the interact ional context, and previous interactions; (3) besides making inferences about goals, actors (CEO in this case) also make inferences about the people with whom they are dealing; (4) communication behaviour is multi-functional, and observes of what occurs in the interaction should recognize that outcomes other than the strict transference of information generally occur when people interact; and (5) conventional behaviour in organizations helps serve the technical function, and it also produces interpersonal and symbolic effects that can influence the substance of the interaction (1987, pp. 42-43). Thus, a concern for rhetoric and language is consistent with many aspects of the emergent perspective and with the aphorism used in virtually all elementary accounting courses: ‘Accounting is the language of businesses’.

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