Trust for Accounting and Accounting for Trust: discussion and evidence from the field
5) Trust for Accounting and Accounting for Trust: discussion and evidence from the field
According to the theoretical framework illustrated in the previous section, for change to happen, participants must take its rationales and, mostly, the connected future opportunities seriously. These conditions are required for overcoming the defensive strength of those psychological forces which biologically tend to prevent processes of individual learning and transformation. Being at the root of the constitution of both the subject (and her/his cognitive and behavioural characteristics) and social object (i.e., contextual institutions), organisational practices, among which are management accounting systems, have a fundamental part when individuals face a crisis and a consequent need for re-orientation. In particular, portrayed as rules – the formalised statements of procedures, roles – the network of social positions, and routines – the practices habitually in use, they play a pivotal role in supporting the ongoing constitution and redefinition of agency between the existing taken- for-granted assumptions and the new reality of everyday life (see Busco et al., 2000).
The reflective and constitutive role of accounting systems has long been debated within the literature (Hopwood, 1987/1990; Macintosh and Scapens, 1990). Depicted as playing a “powerful role in organisational and social affairs”, accounting practices have been described in their ability to “influence perceptions, change language and infuse dialogue, The reflective and constitutive role of accounting systems has long been debated within the literature (Hopwood, 1987/1990; Macintosh and Scapens, 1990). Depicted as playing a “powerful role in organisational and social affairs”, accounting practices have been described in their ability to “influence perceptions, change language and infuse dialogue,
“by moulding the patterns of organisational visibility, by extending the range of influence patterns within the organisation, by creating different patterns of interaction and interdependence and by enabling new forms of organisational segmentation to exist, accounting [is] seen as being able to play a positive role in both shifting the pre-conditions for organisational change and in influencing its outcomes, even including the possibilities for its own transformation”(1987, p. 228)
Among the recent contributions which seek to explore the role played by accounting systems within processes of organisational transformation, Ezzamel et al. (1999) provide a useful metaphor for introducing the contents of this section. Thus, synthesising the philosophy which inspired the process of renovation undertaken by the organisation object of their enquiry, the authors quote a published interview were the ‘burning platform theory of change’ is illustrated by the company CEO. In particular, he argues that:
“ … when the roustabouts are standing on the offshore oil rig and the foreman yells, ‘Jump into the water’, not only won’t they jump but they also won’t feel too kindly towards the foreman. There may be sharks in the water. They’ll jump only when they see themselves the flames shooting up from the platform … The leader’s job is to help everyone see that the platform is burning, whether the flames are apparent or not. The process of change begins when people decide to take the flames seriously and manage by fact, and that means the brutal understanding of reality” (published interview; Ezzamel et al., 1999, p. 39)
The above metaphor opens possibilities for illustrating the role of accounting when individuals face the need for a prompt change. As suggested by Ezzamel et al., accounting systems have the potential to serve leaders in managing the level of the flames, i.e. to act as disconfirming elements and “construct a powerful discourse that almost literally ‘sets the platform on fire’” (1999, p. 41). For this reason, “‘the burning platform’ metaphor is not simply facilitated by accounting rather, it is an accounting construction” (Ezzamel et al., 1999, p. 42; emphasis in the original). This is certainly a reasonable interpretation which emphasises how accounting and trust for change may act in a recursive mutually-reinforcing way (see section 5.2). Nevertheless, these processes can work in the opposite direction as well, whereas the learning loop takes a mutually-damaging direction (see section 5.1). Thus, management accounting systems are also likely to be swamped in their contents and respectability either when “ad hoc flames” are managed and turned down (i.e., they are met by resistance and distrust) or, in case of “real flames”, when they walk off organisational control (i.e., they threaten the organisation’s survival).
As indicated initially, the aim of this paper is mainly theoretical. We build on earlier studies by Barley and Tolbert (1997) and Burns and Scapens (2000) to develop a framework for interpreting the intertwined constitution of accounting systems and feeling of trust for change within processes of individual learning. The objective is to offer some starting thoughts for making sense of the possible role of management accounting practices during phases of organisational transition and transformation. Conceptualised as organisational routines, accounting practices are likely to be implicated in the tension between habitualized and purposeful behaviour, tacit or rational choice, unconscious or conscious deliberation, which the individual experiences during processes of learning. By exploring the processes of As indicated initially, the aim of this paper is mainly theoretical. We build on earlier studies by Barley and Tolbert (1997) and Burns and Scapens (2000) to develop a framework for interpreting the intertwined constitution of accounting systems and feeling of trust for change within processes of individual learning. The objective is to offer some starting thoughts for making sense of the possible role of management accounting practices during phases of organisational transition and transformation. Conceptualised as organisational routines, accounting practices are likely to be implicated in the tension between habitualized and purposeful behaviour, tacit or rational choice, unconscious or conscious deliberation, which the individual experiences during processes of learning. By exploring the processes of
The described theoretical perspective is intended to inform future interpretative field studies. Nevertheless, in the next two sections we discuss the contents from two case studies to illustrate the essential characteristics of the framework. By using insights from the work of Vámosi (2000), the first case traces the changes which occurred in a Hungarian company (Budapest Chemical Works - BCW) as it was trying to move from government-ownership to a private- control. It describes how the tension between existing “cargoes-of-thoughts” and “the new reality of everyday life” can lead organisational members to develop feelings of trust/distrust for change, the role which accounting is able to play within processes of transition per se, as well as its wider re-constitution within the new organisational reality. The second case, which explores a major post-acquisition cultural change, shows how organisational transformation can be facilitated by the implementation of an organisational-wide system of performance measurement (see Busco et al., 2000). In particular, by emphasising the potential of systems of measurement to act as a language able to crystallise the rationales which underpin phases of transition and change, the case illustrates the role of management accounting in sustaining and giving direction to processes of learning and individual re-orientation.
5.1 Questioning the existing reality: when distrust turns the flames of change down In his account on BCW, Vámosi (2000) describes the way in which, together with other
contextual factors, participants’ perception of change is likely to affect processes of organisational transformation. After 125-years of history which made BCW the oldest chemical firm in Hungary, the company is presented as facing a phase of autonomous transition, by moving from government to private control. BCW was not taken over by any foreign company or investor, but was privatised and acquired by the existing management. Consequently, the process of transition was characterised by the attempt of BCW’s management to construct a new ‘organisational identity’ for securing the company survival with the new business environment.
As described by Vámosi, during the process of transition from command to market economy, BCW’s accounting systems were facing an important challenge. They were asked to refine themselves and re-conceptualise their raison d’être while sustaining the company’s new reality of everyday life. In such a context, the need to adapt to the different business environment, and, eventually, to co-operate with an American consulting firm, was clear to BCW’s top management: “if you are small and slapped in the face, well, then you will start thinking: how can I avoid to get slapped again? Perhaps I should learn to behave differently”, and again “we know how to deal with the market, but not how to control and manage” (the managing director; Vámosi, 2000, p. 46-47). Despite such degree of awareness displayed by the management, many employees within BCW were missing what Vámosi calls “seriousness and realism”, which is to be considered an essential element for questioning the existent reality and open possibility for a “real” change.
“The workers in production do still not believe that they may end up having problems, e.g. that the company may go bust. Such problems do not exist for them. Even when they are told that there are problems. It is a typical example of ‘Peter and the wolf’. When you say ‘the wolf is coming, the wolf is coming … ’, then people’s reaction is ‘yes, yes, we have heard that many times, but it never happens’. Even if people are told that we have a lot of unpaid bills, they just keep talking, they believe that everything will turn out well in the end” (technical/administrative employee; Vámosi, 2000, p. 45, emphasis added).
According to the learning framework portrayed in our paper, when disconfirming information are denied (like ‘Peter and the wolf’) or in other ways defended against, no “survival anxiety” is felt, and, generally, no change will consequently take place. In such situations, as indeed Vámosi recognises, cultural/psychological barriers act as defensive mechanisms which end up preventing learning. The uncertainties and complexities connected to the process of transition enhance actors’ nostalgic feelings for the past. Indeed, as suggested by an employee from the information and personnel department of BCW, “it is hard to say why, [but] you may reach a stage where you just wish that things will remain the same” (Vámosi, 2000, p. 52, emphasis added). The meanings and rationales of the new reality were not fully understood by the BCW employees who, in a certain way, were still constrained from and limited within previous institutions or ‘cargoes-of-thought’.
“Under the old system [command economy] you did not have to think, there was no reason to think, everything was planned and decided by others. It functioned in another way than today, because the relevant ministries interfered. Contrary to today, where nobody comes to tell us that we have to produce 100,000 tons or where we have to sell the goods. And contrary to today, quality was not important then – neither in our products nor in the products from our suppliers. It was definitely easier to be a company then” (employee from the costs and accounts department; Vámosi, 2000, p. 48-49, emphasis added)
Although expressed in a respectful and moderate way, employees’ nostalgia for a stable and predictable working environment is tangible in Vámosi’s report. This was also caused by contingent factors since the transition took place in a period where BCW was facing enormous financial problems caused by a drop in turnover, large debt and unprofitable activities. By employing Schein’s terms, we may argue that the “new” organisational context was not characterised by sufficient psychological safety. Previously, we have discussed the need to balance the amount of threat produced by disconfirming sources to feel survival anxiety, with enough psychological security to overcome learning anxiety and become motivated to change. Due to a variety of contextual (endogenous and exogenous) reasons, such a psychological mechanism has failed to be implemented in BCW where, as a matter of fact, trust for change has not emerged.
“Liquidity and money problems are visible everywhere. All over the country – no matter where you go… And the consequences are many. They cannot for example invest in capacity, expand the product range or pay good employees well. There is scarcity of money everywhere. And the same situation applies to us” (employee in the export department; Vámosi, 2000, p. 53, emphasis added)
As previously emphasised, being at the root of the constitution of the context of interaction, organisational activities and practices play a key role in shaping the dynamics of change. Thus, along with other organisational systems, management accounting has a constitutive part in defining – through its continuous production and reproduction – the organisation’s identity and culture (see Dent, 1991; Catturi and Riccaboni, 1996; Burns and Scapens, 2000). By storing and carrying the assumptions and the values which characterise the individual’s stocks of knowledge, such systems of roles, rules and routines lie at the very heart of any process of learning and transformation. Ultimately, they display an innate potential to act as endogenous disconfirming sources, induce survival anxiety, create psychological safety, overcome learning anxiety and, mostly, to actively participate in the cognitive redefinition and sedimentation of the new organisational concepts and rationales. Nevertheless,, for accounting to enhance trust for change, trust for accounting is needed as well. Such a recursive relationship is not working for the good in BCW. Rather, the company’s liquidity problems have joined poor ‘position-practice’ of cash flow management in a ‘faulty’ circuit which contributes to define the company “as a clumsy actor under market economy, failing to master the basic disciplines in accounting” (Vámosi, 2000, p. 55). The following quotes are of considerable help in interpreting the described situation.
“I have never been in favour of the type of privatization that BCW went through. I would have preferred if we had been able to attract a financially strong company,
a company that could afford the necessary investments. Let alone that we cannot afford investments, but we are at a stage where we take one day at a time for cash flow reasons. In order to develop the company it is necessary to invest, but we cannot afford that. I have always had the opinion and dream that one day a large financially strong company would appear …” (production manager)
“In 1996, we have had constant problems with liquidity management… [a] result of our cash flow problems is that we can only afford to examine our present customers’ requirements and wishes – not those of potential, new customers. And I can neither see that we have improved our cash flow management or that our liquidity situation has improved. I hate to be a pessimist, but I would like to see BCW function well. It is an unfortunate situation to like your work and to want BCW to prosper while you are not quite convinced that the others have the ability and will to make BCW into a better and more competitive company. I am not sure that we have the necessary skills and will. I wouldn’t bet on BCW existing in five years” (manager; Vámosi, 2000, p. 55, emphasis added).
Perhaps not surprisingly, within a context where mistrust seems to be prevailing over trust, doubt over autonomy, guilt over initiative, management accounting systems have been trapped in such a ‘contradictory’ loop. Consequently, instead of reinforcing the need for a change, BCW’s accounting practices and, in particular, cash flow management, became an ‘emblem’ of failure to change. As suggested by Mendoza , “due to the fundamental, i.e., deeply ingrained and widespread character of habitual, routinized activities, and the intensive rules implicated in them”, organisational practices represent “the bases for the continuity of social reproduction across time-space” (1997, p. 272, emphasis in the original). Accordingly, within BCW’s evolutionary path, cash flow management has contributed to define and re- construct the new business environment although, unfortunately, in a “roundabout negative way” (Vámosi, 2000, p. 55). Indeed, in line with the ‘burning platform’ metaphor illustrated above, it is possible to affirm how, by turning the flames of change down, distrust has paradoxically burnt accounting potential for supporting the process of transition.
Following the insights of the story reported by Vámosi is reasonable to assert how management accounting practices have been (although deficiently) constituted between “cargoes-of-thoughts” and “the new reality of everyday life”. The transition from command to market economy, from production-oriented rationales to a customer-oriented frame of reference has increased the number of aspects to co-ordinate. Ranging from marketing to costing, from quality assurance to cash management, the management tasks have become much more demanding. Thus, in spite of efficient ‘cargoes’ of technical and administrative capacity inherited from the previous situation, BCW was missing those management skills that were required to successfully face the new business reality.
The “psychological strength” of deeply-rooted mental models is evident in the case illustrated. The habits, perceptions, and rationales historically sedimented within BCW’s existent routines enables ‘position-practice’ incumbents to meet change by resistance. Being constantly ‘recalled’ within daily processes of interaction, those values, assumptions and habits which inform BCW’s organisational culture act as cognitive and behavioural obstacles towards the emergence of possible feeling of trust for change. They resist individual’s processes of learning at all levels. Thus, the difficulties experienced by top- management in abandoning existing “cargoes-of-thought” while coping with the new business environment are illustrated by Vámosi through the words of a technical/administrative employee who argued how “in the West, it might very well be a matter of routine – you have your thoroughly tested procedures – but here … here it is all The “psychological strength” of deeply-rooted mental models is evident in the case illustrated. The habits, perceptions, and rationales historically sedimented within BCW’s existent routines enables ‘position-practice’ incumbents to meet change by resistance. Being constantly ‘recalled’ within daily processes of interaction, those values, assumptions and habits which inform BCW’s organisational culture act as cognitive and behavioural obstacles towards the emergence of possible feeling of trust for change. They resist individual’s processes of learning at all levels. Thus, the difficulties experienced by top- management in abandoning existing “cargoes-of-thought” while coping with the new business environment are illustrated by Vámosi through the words of a technical/administrative employee who argued how “in the West, it might very well be a matter of routine – you have your thoroughly tested procedures – but here … here it is all
58, emphasis added). The constitution of organisational order between routinised and purposeful behaviours,
‘past’ and ‘present’ raisons d'être, pressures for stability and change, is daily accomplished by each individual while drawing on existing practices and activities. This process of knowledge recall involves management accounting systems as well. As suggested by Vámosi, “accounting practice is a target for change and an instrument (catalyst) in the process towards a new constitution and institutionalisation” (2000, p. 56, emphasis in the original). This process did not work properly in BCW were a diffuse sense of distrust for change has recursively influenced the social construction of accounting systems in “negative terms”. BCW’s employees failed to perceive accounting as a key instrument to face the anxieties of change. Rather, they identified those systems as part of the problem. This is not always the case. Thus, the potential of management accounting practices to act as an endogenous catalyst factor for enhancing feelings of ‘trust for change’, and actively shape processes of individual learning and organisational transformation, are extensively discussed in the following section, where the process of privatisation of an Italian mechanical company is explored.
5.2 Breaking and re-establishing the individual’s mental “truce”: the intertwined constitution of accounting and trust
Relying on the insights of an extensive longitudinal study, the case of Nuovo Pignone (NP) provides a useful description of the abilities of accounting systems to ‘unfreeze’, ‘change’ and ‘refreeze’ the individual’s stocks of knowledge, as embedded within mental models and organisational position-practice (see Busco et al., 2000). Established originally in 1842 as Pignone, the name-shift to Nuovo Pignone came into being in 1954 following acquisition by a state-owned holding company. Later, in 1994 NP was acquired by the US multinational, General Electric (GE). Kicked off in 1995, the case focuses on the integration of NP into the GE global organisation. Thus, although various programmes of organisational restructuring were implemented within the company, ranging from downsizing and delayering to boundaryless working and outsourcing, the process of integration grounded on a major change of NP’s understanding of measurement.
As for systems of measurement, the cultural background of NP was so totally different to GE that a massive process of cognitive and practical redefinition was required. Whereas NP had no widespread tradition of performance measurement, GE’s management and organisational style relied extensively on such systems of control and communication. Before the acquisition, NP was a stated-owned and largely bureaucratic company that had to produce budgets and various reports for both head office and the state bureaucracy. Used mainly for ceremonial purposes these systems were not integrated into the management processes of NP. Although, such situation did not impede NP in being reasonably profitable, due largely to excellent products and production systems, following the acquisition by GE, significant changes took place. There were two major components of organisational change within NP: the first was the re-design of the company’s systems of accountability, and the second was the subsequent implementation of the Six Sigma Initiative, a new measurement-based quality programme. Importantly, intensive and extensive training programmes supplemented them both.
Breaking the individual’s mental truce – GE is often portrayed as a massive global business and community, which is funded on a common organisational language and widely-shared cultural values. Consequently, in line with its well-oiled procedure of integration, at the time of the acquisition the “GE Way” was applied very aggressively throughout the company. “We knew the world was going to change. And the world has changed totally!” affirmed a finance Breaking the individual’s mental truce – GE is often portrayed as a massive global business and community, which is funded on a common organisational language and widely-shared cultural values. Consequently, in line with its well-oiled procedure of integration, at the time of the acquisition the “GE Way” was applied very aggressively throughout the company. “We knew the world was going to change. And the world has changed totally!” affirmed a finance
An interesting example concerns human resource management. Talking to a meeting of GE operating managers, the CEO categorised managers and employees as follows: A players, who subscribe to the company’s values and who have to be kept and rewarded; B players, who still deserve to be trusted because they have the potential to improve their skills and productivity; and C Players, who do not subscribe to the company’s values and, without remorse, deserve to be fired. “It wasn’t a normal change, it was a shock! An earthquake in our daily way to think and behave … from a rather relaxed system mainly based on egalitarian principles, we suddenly faced the ‘A,B,C ranking theory’. I am not arguing it was right before, I am not arguing that at all, but it was scary” was the spontaneous comment of a “B” ranked engineer.
When he was asked to illustrate NP’s systems of control before GE’s arrival, a management accountant emphasised how “there were no pressures for financial improvements. No particular information were required … The tools were there, the data were there, but they didn’t look so interesting or ‘burning’ as now”. “I still have doubts that anyone bothered to read those documents carefully”, he continued. Curiously, the change of perspective, which took place in NP, suddenly materialised in interviewing a business analyst who, while nervously consulting his calendar, affirmed that:
‘GE’s headquarters need numbers to show to Wall Street. Consequently, we need to be fast, reliable and, indeed, profitable. If not, the week after tough inquirers start to cross the Atlantic …’.
Facing the anxieties of change by “wearing the hat of finance” – In contrast to the case of BCW, NP’s employees were not left alone in facing the anxieties (i.e., the flames) of change. They were provided with a series of devices presented as key instruments for learning and coping successfully with the new business reality. Eventually, the accounting and measurement language was one of those. “We are building up the necessary kit-for-survival, aren’t we?” commented a project engineer right at the end of a financial fundamentals training session. Thus, while experiencing the anxieties of change (i.e., the flames), they were also learning a new vocabulary and set of practices to exorcise the fears and the doubts connected to the redefined organisational context.
Redesigning the systems of accountability involved major extensions to the company’s financial systems, and a re-structuring of the accounting and finance function. The latter comprised both restructuring the department responsible for the traditional processes of cost accounting and establishing a new department responsible for the financial planning and analysis of NP as a whole. In addition, a new group of Finance Managers was created. They were located in the individual divisions and responsible for supervising budgeting and reporting at the operating level, as well as providing financial support to operating managers. As such, they were able to assist managers to cope with the new systems of accountability.
In addition, managers at all levels were given intensive training in the new systems. They were encouraged to think in financial terms. The language of measurement became an important instrument for interpreting processes of learning and coping with the need for a prompt change. An interesting example concerns sales managers, who together with the other sales personnel were encouraged to consider their customers as financial entities. ‘Financial solution selling will be a strategic weapon in our sales arsenal’, declares an internal booklet, which continues:
“[as] sales and sales support professionals, you “wear many hats” and possess many skills that keep our corporation at the sales and support forefront … Now, “[as] sales and sales support professionals, you “wear many hats” and possess many skills that keep our corporation at the sales and support forefront … Now,
As anticipated above, the “GE way”, and the new organizational credo which it entailed, were supported and reinforced by an extensive programme of training. This was intended to provide participants with a series of devices (i.e. weapons) able to broaden their knowledge and skills (sales arsenal). Within the company, the situation was quite clear to everybody, there was no room for ambiguity. The differences with the previous business scenario were tangible. As pointed out by an accounting manager, using a naval metaphor:
“To be a bureaucratic state-ship we were adequately equipped, armed enough. The question was that we didn’t need to shoot, nobody asked us to find our limits, there were no wars to do”
When GE took over, the “war” begun and a common enemy to shoot at, i.e. the market competitors, was found. The stories and the rhetoric embodied within the GE way had a powerful impact on the established rationales of individuals. Their purpose was to create enough survival anxiety or guilt to disrupt the certainties embedded within the previous cargoes-of-thought. Along with that, continuous ‘waves’ of communication and training were designed to promote an emerging sense of “safety” for allowing change to occur. “If you’re relatively new to finance, RELAX – it’s not that difficult or complicated to get started. No, you don’t have to be a CPA or financial wizard to use some of the fundamentals of finance in selling” declares the selling booklet in its introduction.
These processes were rooted in and supported by the diffusion of a new organisational language which, by empowering individuals at work, stimulated the emergence of feelings of trust for change. Grounded on practices, such cognitive experiences were crucial for overcoming the ‘learning anxiety’ experienced by agents as arising from the existing organisational routines. Eventually, by ‘wearing the hat of finance’, individuals experienced the possibility to successfully meet the anxieties connected to the processes of change. As argued by a NP’s salesman, “such an approach was new for us, it was very different from the past, but it was convincing … at the end it enhanced feelings trust for the future under the new ownership”.
Re-establishing the truce: the crystallising potential of successful experiences – Nevertheless, it was probably the Six Sigma initiative which played the major role in bringing about change in NP. Six Sigma is a quality improvement philosophy, which has had a major impact on a number of large businesses over the past decade. It comprises a range of tools, techniques and processes for achieving tight quality targets 6 , including defining, measuring,
analysing, improving, and controlling support operations as well as productive operations. In applying the Six-Sigma methodology, various labels (i.e., champions, master black-belt, black-belt, green belt) were attached to the individuals involved, which collectively were referred to as a “new warrior class”. However, the systems which were needed for a successful implementation of Six-Sigma required the measurement of a vast array of both
6 “Sigma” is a measure of the number of mistakes per million discreet operations – with six sigma representing only 3.4 mistakes per million.
financial and non-financial factors, integrated into a holistic system of performance measurement and accountability – something which had not traditionally been a strength of NP.
The integration of financial and non-financial measures requires the development of corporate-wide information systems. Being grounded in a quality-based philosophy, the process of change has been able to extend the culture of measurement to all parts of NP. As
a result, managers in NP are now able to communicate with other GE managers, wherever they are located, by using financial terms and the language of Six Sigma. “By empowering engineers with financial systems of accountability they [NP management] didn’t create new figures, they didn’t reproduce accountants. On the contrary, they have infused operating roles with a broader view of the business. They created a minimum common base of knowledge to talk about contents, without losing any time arguing about meanings” (NP’s project manager).
Successful experiences enabled to crystallise (or refreeze) the new business reality within agents’ cognitive schemes. Systems of measurement and accountability played a pivotal role in this process. They were perceived as the sources of a new organisational identity, as devices for achieving and retaining a new state of psychological safety and security. “The sharing of these measures allowed our outcomes to be understood and appreciated world- wide” was the enthusiastic comment (while waving a folder containing Six-sigma training material) of an engineer a few months after his project had been awarded as the best Six- sigma project of the year within GE power systems. Thus, although local management’s conduct was initially regarded by union leaders as opportunistic behaviour and a betrayal “by someone who has suddenly lost his memory due to being well paid!”(a trade union note), trust for change has been increasingly shared within NP where, as a matter of fact, the accounting vocabulary is continuously drawn upon within the day-to-day flow of activities.
This new language symbolises a totally re-defined organizational culture 7 . Furthermore, being employed organisational-wide to communicate stories of success experienced within
the GE environment, accounting and measurement systems represent a key device for managing the anxieties which arise during processes of individual learning and organisational transformation.