Exploring a `non-financial' management accounting change

Management Accounting Research, 1999, 10, 409-437 Article No. mare.1999.0112 Available online at http://www.idealibrary.com on

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Exploring a ‘non-financial’ management accounting change Juhani Vaivio”

Many normative calls have appeared for including strategic non-financial measures into management accounting systems. This paper explores the emergence of nonfinancial measures in the organizational context of Lever Industrial-U.K., a serviceoriented British chemicals company. Tracing the mechanism of this management accounting change, the study identifies the dynamic forces which are driving it. The paper points at the systematization of non-financial measures as an essential phase of the change process. However, the paper also suggests that non-financial measures become a powerful vehicle for focusing interactive management control into the organization’s strategic uncertainties. This interactive ‘Focus Potential’ of non-financia1 measures goes beyond their diagnostic role as strategic controls. 0 1999 Academic Press Key words: non-financial measures; management accounting change; strategic control; interactive control systems.

1. Introduction The call for non-jinancial management accounting measures Many arguments have appeared for the use of non-financial measures in enterprise management. It has been claimed that financial measurements should be complemented with ‘new’ non-financial indicators and companies are being advised to erect multidimensional measurement systems. Representing one stream in the discussion about the relevance of management accounting (Johnson and Kaplan, 1987; Ezzamel, 1994; Roslender, 1996, pp. 5344535)) this call for non-financial measures brings change to current practices. Perhaps the most prominent of these arguments is presented under the concept of The Balanced Scorecard (Kaplan and Norton, 1992, 1993, 1996a,b; Butler et al., 1997; Silk, 1998). Kaplan and Norton state that ‘..the scorecard addresses a deficiency in traditional management systems: their inability to link a company’s longterm strategy with its short-term actions’ (Kaplan and Norton, 1 9 9 6 ~ )p. 7 5 ) . *Department of Accounting and Finance, Helsinki School of Economics, Runeberginkatu 22-24, 00 100 Helsinki, Finland. Received 12 December 1998; accepted 9 August 1999. 1044-5005/99/040409

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However, making management accounting oriented towards the fundamental drivers of performance has been an underlying theme in similar calls for non-financial ‘strategic control’ measures (Goold and Quinn, 1990; Nanni et al., 1990, p. 39; Bungay and Goold, 1991, p. 32; Goold, 1991). Total Quality Management has also stressed that non-financial measures should be integrated into management accounting systems. Other arguments for non-financial measures have been made within the concepts of World Class Manufacturing, Customer Satisfaction, and the ‘Japanization’ of management (Howell and Soucy, 1987; Hiromoto, 1988; Maskell, 1989; McNair et al., 1990; Smith, 1990a,b; Eccles, 1991; Lynch and Cross, 1994). Finally, non-financial cost drivers have been emphasized in Activity Based Costing (Greene and Flentow, 1990, p. 54; Ostrenga, 1990, pp. 46-47; Turney, 1991, p. 89). In contrast to normative calls and illustrative reports of The Balanced Scorecard (e.g. Maisel, 1992; Kaplan and Norton, 1993, 1996b; Hoffecker and Goldenberg, 1994)) evidence on non-financial measures is limited. Surveys have appeared, however, pointing towards the growing use of non-financial measures (Drury and Tayles, 1993; Lukka and Granlund, 1993; Bhimani, 1994; Dugdale, 1994; Chendall and Langfield-Smith, 1998; Stivers et al., 1998). Explaining French practice, Lebas (1994, 1996) reports the extensive use of the Tableau de Bord, a reporting system which also applies non-financial indicators. Some of the few field studies addressing non-financial measurement include Fisher (1992)) who describes its development in high technology manufacturing. Kaplan (1990) also visited manufacturing companies, reporting an increased reliance on operational, often ‘customer defined’ nonfinancial measures. With a similar ‘site-visit’ approach, Johnson (1990) depicts the measurement systems of companies which have combined financial and non-financial measures. More fragmented observations have also been reported, for instance by Turney and Anderson (1989)) Coates et al. (1992)) Euske et al. (1993) and McKinnon and Bruns (1993). Non-jinancial measurement as management accounting change This paper recognizes non-financial measurement as an important instance of management accounting change (Hopwood, 1987; Innes and Mitchell, 1990; Bhimani, 1993; Scapens and Roberts, 1993; Lapsley and Mitchell, 1994). Non-financial measurement is a powerful technology that may transform the role of management accounting. Non-financial measures could provide more penetrating control, going beyond the limits of aggregated financial measures (Hayes and Abernathy, 1980; Merchant, 1990). Measurement could include more tangible dimensions of performance. Control ‘by hard numbers’ could probe deeper into organizational niches. A new order could be crafted with non-financial measures. This paper does, however, acknowledge that more needs to be known about the emergence and development of non-financial measurement. Normative calls often present these measures in a functional and sanguine light, explaining little about the organizational processes introducing these practices. More intensive empirical work needs to balance prescriptive arguments, going further than the idealized imagery of ‘pioneering’ firms. The complexity of this management accounting change should be explored in sufficient depth. A first concern relates to the mechanism of this change. How do the underlying forces of change operate? Is this change a management-driven reform that could take

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a disruptive character? Or does the integration of non-financial measurement into management accounting systems represent a less radical form of change, following a complex, unlinear path of development? Smaller steps and unintended turns of events could gradually introduce non-financial measures as minor adjustments of practice (Hopwood, 1987). Hence, to explore the mechanism of this management accounting change there is a need to identify the forces of change in an empirical context, describe their dynamic workings, and examine their interlinkages in time. A deeper understanding of the internal logic that drives this organizationally embedded change process should be pursued. An important issue within the mechanism of change concerns the discovery and the functioning of an externally generated reform agenda, like Total Quality. If these commercialized programs are important sources of normative arguments ‘for’ nonfinancial measurement, how is their influence carried into an organization’s management accounting practices? (Miller and O’Leary, 1987, 1994a, b; Bhimani, 1993; Clark and Salaman, 1996; Ramsay, 1996.) We should develop our appreciation of how such an agenda is transmitted and interpreted, influencing practices of measurement. Many questions remain concerning the interplay of an external agenda with other forces of change and with the prevailing organizational conditions. The translation of these normative programs into practical initiatives of non-financial measurement has not been explored in detail. A second question in this change process concerns how emerging non-financial measurement becomes embedded within management processes. How is this change being implemented and in what management practices do the non-financial measurements become rooted? Going beyond normative claims of monitoring ‘strategic’ ends with non-financial indicators, it is essential to investigate how the introduced nonfinancial measures are being used by organizational actors and how they are reshap ing organizational reality. How is this management accounting change constituting new ways of seeing, thinking and acting within an empirical setting? (Hopwood, 1978, 1983, 1987; Roberts and Scapens, 1985)

The theoretical background of the study T o address the questions above, the paper takes a number of studies as a starting point. From these complementary studies, the present investigation seeks theoretical anchoring, as well as interpretive devices which assist in categorizing and conceptualizing the complex, unchartered phenomena of this management accounting change. However, this ‘loosely coupled’ theoretical background should not be taken as a fixed framework which is here being tested; it only provides an explicit basis for an interpretation of the particular events which are under study. With the transparency of its theoretical fundament, the study welcomes other perspectives and alternative explanations. The institutionalist framework of management accounting change (Scapens, 1994; Scapens et al., 1997; Burns, 1997; Burns and Scapens, 1998) provides concepts for exploring the mechanism of this change. It recognizes the institutionalized character of organizational life and conceives of accounting practices as routines which bring stability into action, normalize lines of responsibility, set boundaries and fix expectations. The micro-processes of change in management accounting can, however, also be addressed from the institutionalist perspective. The institutionalist framework conceptualizes change, distinguishing between its

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dimensions. For this enquiry, the institutionalist distinctions between (1) formal and informal change, as well as between (2) revolutionary and evolutionary change are essential. Formal change refers to the overt, ‘official’ and systemic aspects of a transformation. However, formal change should also be understood in terms of intentional change in management accounting practices, which is specifically planned and directed, and perhaps imposed top-down. In contrast, informal change denotes a shift in an organization’s underlying ‘way of thinking’, which stands apart from existing structures of formalization (Child, 1984, pp. 153- 154). Informal change, however, also suggests unintentional movement in management accounting practices. This takes place at a more tacit level, involves changes in other organizational aspects, and is not directed towards certain ends (Burns and Scapens, 1998, p. 18). On the other hand, acknowledging management accounting change as revolutionary suggests a fundamental disruption in routines, when new institutions are created within the organization. This is accompanied by a renegotiation of shared understandings. It can also be asserted that a revolutionary change requires exceptional circumstances and a comprehensive, disciplined organizational effort. Revolutionary change is often associated with difficulties and resistance (Scapens and Roberts, 1993). In contrast, evolutionary change is a less radical, incremental change process which gradually introduces minor shifts in existing practices. As a result, new management accounting techniques and procedures are accommodated more smoothly within existing institutionalized routines (Scapens, 1994, p. 3 16). Understanding the mechanism of change in management accounting practices may further be served by a classification presented by Innes and Mitchell (1990). Building on a field study, this interpretation categorizes forces of change into facilitators, motivators and catalysts. Facilitators are conditions conducive to management accounting change which are necessary but not sufficient in themselves for change to occur. Motivators are factors influencing observed changes in a general manner. Finally, a third set of factors directly associated with the timing of change are termed catalysts. In order to specifically study how an external change agenda is mediated into management accounting practices, this investigation has been informed by a number of studies. These have pointed towards the societal, institutional and programmatic origins of management accounting practices, stressing the linkages between ‘internal’ and ‘external’ forces of change (Miller and O’Leary, 1987, 1994a,b; Miller, 1991, 1994). This investigation has particularly been influenced by Bhimani’s historically grounded study of the socio-historical ‘conditioning’ influences of scientific management and statistical information on accounting changes at Renault (Bhimani, 1993). Illustrating how externally rooted factors influence internal cost accounting practices, Bhimani’s essay brings to the fore that modifications in management accounting routines are not solely the result of internal, functional requirements, nor are they the product of organizational actors exercising choices. Forms of accounting can emerge as a consequence of extra-organizational influences becoming interlinked with internal circumstances. Management accounting change reveals a lack of calculated design and the dynamics of accounting change do not seem to follow an anticipated, unidirectional path of advancement (Bhimani, 1993, pp. 34-37). In the exploration of how emergent non-financial measurements operate within management processes, it is essential to adopt an organizational perspective on this change (Burchell et al., 1980; Hopwood, 1983, 1986, 1987; Roberts and Scapens,

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1985). The study therefore recognizes that non-financial measures are not a merely functional management technology, but also an active element that restructures organizational reality. These measurements recreate organizational segmentation, shift patterns of responsibility, and forge dependencies. New visibility can be created. Some cues that may have gone unrecognized can now ‘make sense’ in the management process (Weick, 1995). The problematic can be redefined, and new solutions can be called for. Organizational action can be refocused. Hence, this study is sensitive to the constitutive potential of non-financial measurements. The investigation of how non-financial measures are embedded in management processes should also benefit from the concepts of diagnostic and interactive control systems (Simons, 1987, 1990, 1995; Langfield-Smith, 1997, pp. 223-224). As diagnostic systems, management accounting practices monitor the implementation of intended strategies ‘like the dials on the control panel of an airplane cockpit’ (Mintzberg, 1978; Simons, 1995, p. 81). Thus, non-financial measurements can be used for tracking progress towards strategic goals-in accordance with the normative claims for ‘strategic controls’ (Nanni et al., 1990; Bungay and Goold, 1991; Kaplan and Norton, 1992, 1993). However, it is also possible to use management accounting systems as interactive controls. These controls are the systems that management monitors personally, maintaining an active dialogue with the organization about emerging threats and opportunities. Hence, non-financial measurements could be mobilized as interactive controls, tracking the strategic uncertainties of the enterprise.

The case company and the methods of data collection The research questions are addressed within an explorative case-study that probes into the emergence of non-financial measurements at Lever Industrial-United Kingdom (LI-U.K.), a British chemicals company. In 1992-1993, when the empirical material was collected, LI-U.K. operated two ‘low tech’ plants. It had a turnover of approximately A70 million and employed 750 people. It was a small part of the Unilever structure, specializing in service-oriented cleaning products-in comprehensive ‘hygiene systems’. These systems were offered to industrial and public-sector customers. LI-U.K. combined a range of chemicals and disinfectants, as well as some cleaning equipment and accessories, with specialized service and technical know-how. These service and know-how elements formed the basis of its competitive strategy. They differentiated the company in a competitive market where it faced big international rivals as well as small local producers. The company was structured as a functional organization-with some unusual features, as will be explained (see Appendix A). The empirical observations on which this interpretation of events is based were collected during a period of almost 6 months in 1992-1993. In total, 42 field interviews were made at several organizational levels at LI-U.K. and at its mother company, Lever Industrial International. This amounted to more than 48 full interview hours (see Appendix B for details). The interviews were not tape recorded, but notes were taken; these were immediately transcribed after the interviews. Numerous sources of documentary material, such as corporate plans, internal memos and especially ‘non-financial’ performance reports, were examined. Also, informal conversations with informants were held, providing invaluable clues about how to orient the investigation and how to interpret the events. Visits were also made to several other Lever-Industrial units in Europe during 1992- 1993, where some

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interviews and informal conversations were held. These approaches to data collection and interpretation suggested a sufficient triangulation of the observations and helped to avoid the ‘Veranda Model’ of field research (McKinnon, 1988; Scapens, 1990). 2. The emergence of non-financial measures at LI-U.K.

This description and interpretation of events at LI-U.K. is divided into five sections, as follows. The first briefly points at early non-financial measures, which later provide a facilitator for a wider management accounting change. The second section introduces another facilitator, ‘private’ non-financial measures. The third section identifies two motivators and a catalyst, the other forces that drive the explored change. In the fourth section, the realization of a revolutionary ‘non-financial’ change is explained in detail. Finally, the fifth section describes how interactive non-financial measures are mobilized in the management process. The origins of a change facilitator: ‘ad hoc’ non-jinancial measures In 1969 LI-U.K. was separated from Lever Brothers, Unilever’s detergents business for home-consumers. Targeting the industrial and public-sector, LI-U.K. now stood as an independent unit. In the 1970s) however, LI-U.K. expanded. However, because of its still minor proportions, management processes remained informal. ‘It was management by instinct’, a manager explained. In those days, accounting took modest forms. As another manager recalled, ‘people just had a feeling about things’. ‘There was very little non-jinancial measurement. Most of it was jinancial’, a third manager explained. Some sporadic efforts were made from time to time. T h e manager continued: ‘People sometimes kept an eye on things like speed of delivery and split orders, but it was not systematic assessment and following. It was more ad hoc measurement than systematic monitoring’.

Because customers often had vulnerable production processes, precise delivery in a single truckload was critical. This potential problem-area had become an object of ‘ad hoc’ non-financial measurement. In the measures that were sometimes studied (speed of delivery and split orders), clear performance standards mattered. Another manager had this to tell: ‘Measurement of delivery performance was introduced to LI-U.K. by the Managing Director, at the time, George [G.], who asked me what could be an acceptable level for splits [split orders]. At my previous employer, Lever Brothers, it had been 5%, so this level was agreed on’.

Although these early practices of ‘ad hoc’ non-financial measurements were still modest, they would gain more significance as events unfolded. These ‘ad hoc’ measures would later facilitate a wider “on-Financial’ management accounting change. Another facilitator of change: ‘private’ non-jinancial measures The mid-1980s brought LI-U.K. into a different phase of development. LI-U.K. embarked on a strategy of growth through acquisitions, developing its concept of

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specialized service knowledge. Cleanaglass, a specialist in glass washing, was bought in 1986. The more important acquisition of Solan, a successful producer of hygiene solutions for the food industry, soon followed. In 1987, LI-U.K. got hold of another industrial business, Sterling Industrial. It added the Agri-profiled Dextar to its operations in 1988, aiming at the farming sector. Important organizational events followed the acquisitions. As the know-how and the service elements of these businesses were far more valuable than their material resources, there was no reason to integrate these smaller units into the company too aggressively. Conformism was not required. Of the incidents that followed, one stands supreme-shaping the way in which non-financial management accounting practices evolved. The company became infused with ‘Total Quality’, the most fashionable program of organizational improvement in the 1980s. Ideals, concepts for reframing ways of thinking, as well as some new practices of non-financial measurement were injected into LI-U.K. These measurements within the Total Quality agenda would, with the ‘ad hoc’ non-financial measures, later introduce an essential facilitator for the more fundamental ‘NonFinancial’ management accounting change that was to occur. Initially, Total Quality had a firm footing at Solan; its Managing Director was described rather bluntly as ‘a crazy of TQ’. With Solan, Total Quality would be transmitted into the new entity. Solan’s approach had emphasized the discourse of ‘Customer Orientation’, which in practical terms mostly meant effective communication with customers. In some functional areas Solan was highly responsive; this was especially apparent in the critical delivery function. As an interviewed manager recalled, Solan could promise order-day delivery. This impressed LI-U.K.’s management. If Solan had achieved such remarkable results with Total Quality, why could these innovative practices not be brought into LI-U.K., to produce results within the entire company? With Solan as a reference, Total Quality was introduced-not as mere words, but as an agenda that had produced concrete results in a key functional area. Total Quality implanted an extensive management program into LI-U.K., which stood now as a much stronger unit. However, it was also a more complex entity. This complexity suggested a more solid linkage between the transplanted agenda and the organization. With the new Managing Director’s personal involvement, the company embraced an imagery for bringing coherence into its culture. Total Quality became a harmonizing mechanism. As several interviewees recalled, top management’s intention was that Total Quality would introduce integrating organizational initiatives. As a manager later described, it was driven with ‘enormous momentum’. Talk of Total Quality was at first injected into management vocabulary, becoming a relay for connecting the agenda to the organization (Brunsson, 1989). With a conceptual battery, Total Quality would creep into operational procedures. A transformation was sought in some practices vis-2-vis The Customer, the key pillar of T Q . Linking Total Quality into LI-U.K. also required education, and a number of initiatives were thus taken. Consultants arranged training sessions. A manager explained that ‘TQ-teams’ were formed. ‘TQ-meetings’ addressed issues that concerned The Customer. A manager recalled: ‘Barry H. [LI-U.K.’s Managing Director] was much influenced by Graham W.’s [Solan’s previous owner’s] Customer oriented approach. And as a consequence of

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T o p management wanted The Customer to become a source of change. Practical aspects about the business would now be critically evaluated in The Customer’s name, especially in ‘TQ meetings’. As the interview-evidence further suggested) new questions were asked. A re-examination of current practices followed-especially in the activities directly connected with The Customer’s satisfaction. An important organizational innovation was also to link The Customer into information flows and market-related management processes, as the ‘Sales Correspondent function’ was carried over from Solan into LI-U.K. This specialized function would act as a mediating cell between customers, salesmen) service functions and LI-U.K.’s production unit. The co-ordinating role of the Sales Correspondents was documented in an internal manual as follows: ‘The role of the Sales Correspondents is (1) to receive and progress all customer orders, enquiries, and complaints to a known end (2) to promote effective communication links between Lever Industrial, its Customers, its agents, and field based personnel in any given market (3) mainly to act as the central point of contact for all external and internal customers to ensure an effective service to all concerned’.

Handling dozens of calls each day, the Sales Correspondent ‘girls’ would now listen to The Customer) processing orders and responding to The Customer’s enquiries and complaints. However, instead of just replicating these practices) management elaborated them. A categorizing ‘complaints log’ was introduced. The Sales Correspondents would now record in writing on a standardized notesheet The Customer’s most important questions. Next, a change would sweep across the modest practices of non-financial measurement. New measurements-supporting Total Quality-were required by the Managing Director) by then a keen enthusiast of the agenda. He became the central agent of the events that followed. Non-financial measurements were to be rapidly extended by a wide effort. But as it appeared) this intended change in measurement practices was not realized in a systematic way. In a service manager’s words, LI-U.K. ‘started to tackle black holes by internal measurements’. Issues that The Customer had been questioning became objects of measurement. For instance) measures were introduced to assess how the company’s engineers performed whilst installing technical accessories. How many contracts remained uncompleted and how long it took to respond to breakdown calls became targets of non-financial measurement. Furthermore) the abundance of words that flowed from the Sales Correspondents soon presented a cognitive problem. Senior management felt that the ‘complaints logs’ needed to be summarized with some measurements. A manager recalled the effort producing ‘enormous piles of paper’, continuing: ‘There were too many words. Often exact words of customers, who were quoted for their perceptions of Lever Industrial’. Another manager explained: ‘Barry H. [the Managing Director] noticed that a lot of information was coming in from customers through the Sales Correspondents. He wanted records of these conversations, and these often long reports were presented to the T Q steering committee. It took a lot of time, and I suggested that we would somehow categorize these things. We had to find some elements that repeated themselves and asked what

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were the really important things, and did we have any standards. We started getting some measures of complaints for example, but these were still very rudimentary. We also proceeded to ask questions about production efficiency’.

Traditional management accounting was not to accommodate for these new non-financial measures that were intended consequences of Total Quality. T h e routine budgeting system continued as usual; no attempt was made to incorporate non-financial measures into it. Hence, the Field Engineering Manager for example recalled in a critical tone that the non-financial measures remained dispersed ‘pockets of monitoring which were not focused enough’. One of the central turns of this narrative was, however, that these non-financial measurements, isolated from ‘official’ accounting, did not have a significant impact on organizational reality. The measurements would not generate concrete action. Established ways of operating persisted. The intended change in measurement practice failed to produce effects. T h e operationally significant matters were unaffected by the non-financial measurements which were applied, in a interviewee’s words, ‘for the Managing Director’. This turn of events can be traced to a number of factors. First, as the field-evidence suggested, the intended change of measurement practice was not realized in a systematic way. It was not a co-ordinated initiative, but an impulsive move of the Managing Director. Second, the TQ-measures were regarded as the Managing Director’s ‘private’ property; the measures seem to have mattered to him. ‘Everybody would go andpresent hisjigures’ [to Barry H.], a manager observed, explaining how the Managing Director studied the measurements and identified emerging problems. However, despite this interest he would not get involved with these concerns. It seems that no regular mechanism was coupling the ‘private’ measurements with the management process. Third, these measurements were not circulated widely in a systematic format. They were not regularly connected to organizational events. Occasionally the Managing Director would take up some measures with the TQ steering committee and some board members, but there is no evidence of the measurements building any shared meaning. ‘ N o t so many people knew about somebody else’s jigures’, a manager complained. Thus, many interviewees stressed that the non-financial measures served mostly the ‘private’ needs of the Managing Director. However, they had no impact upon daily tasks. ‘The measurements were not generating much action. Nothing happened.. . The company was better at identifying problems than solving them’, the Field Engineering Manager recalled. Another manager had a similar view: ‘There was a lot of input, but not much output’. The benefits of the intended but unsystematic change in measurement practices failed to materialize. Other forces of change, both intended and unintended, were necessary for making non-financial measurement more significant.

Two motivators and a catalyst for the ‘non-jinancial’ management accounting change The company’s expansion culminated in 1989, changing again the course of events. LI-U.K. merged with Jeyes Hygiene-a specialist in floorcare. Jeyes Hygiene had likewise experimented with a Total Quality-inspired, ‘Customer centered’ agenda, put forth under an ‘ O u r Service at Your’s’ campaign. The Jeyes experience fit well into the Total Quality agenda that had been transplanted into LI-U.K., reinforcing its linkage with the organization.

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The merger marked the beginning of a turbulent period, and this temporarily lifted Total Quality into the background. As the gathered evidence strongly suggested) a much more problematic era commenced. Restructuring and rationalization was to be carried out. Differences in the cultures of the companies required considerable management time. These recollections serve to illustrate the pressing problems: ‘It is much easier to merge with somebody who is 10% of your size. The process of integration was not a modest one. We had to integrate product ranges and sales forces. Anyone who has experience of such things knows that rationalizing product ranges is not easy’ (Managing Director Brian L.). ‘It meant a blending of two different companies with very different strengths. Jeyes was strong in the public sector business and LI-U.K. more on the private side. The product range profile was also partly different. There was an increase in complexity’ (Corporate Marketing Manager).

A reshuffle also took place in the top management) affecting also the more comprehensive “on-Financial’ management accounting change, as will soon be described. As a result of the drastic Unilever reaction to his enthusiastic management style, Barry H . had to leave LI-U.K. The Total Quality effort was suspended. Its future now looked uncertain. Barry H. was replaced by Brian L., the Managing Director of Jeyes Hygiene. Furthermore) an influential Controller function-a ‘Commercial Director’ position-was created in the Managing Director’s immediate proximity. Chris S . became the powerful Commercial Director. A key agent was introduced into the organization) for Chris S . would give another direction to events. He would refocus the change in non-financial measurement practices. The Commercial Director also acted as Deputy Chairman and served as a link to the parent organization) Lever Industrial International. Chris S . was clearly the ‘Unilever Man’ at the top of LI-U.K. The role of the Commercial Director in the new organization was central and somewhat unusual, for his formal position was enhanced by yet another arrangement. Strategically important service functions were placed under his authority. Distribution) Customer Services and Field Engineering now reported directly to the Commercial Director. This was, a manager explained) a consequence of conditions that followed the merger. It was necessary to place these strategically critical service resources under a relatively ‘impartial director’. Commercial management represented neither the ‘old’ LI-U.K., nor the ‘old’ Jeyes Hygiene. Giving an enlarged role to the Commercial Director seemed to solve a potential organizational conflict. ‘It was important to avoidfriction’, another manager explained. With the Commercial Director’s positioning in the new structure) as will soon be explained more fully, a strong motivator (Innes and Mitchell) 1990) emerged for further developing the practices of non-financial measurement. This motivator can be traced to the ambiguity in the Commercial Director’s structural position. Being directly responsible for unfamiliar organizational segments) Commercial Management faced a difficult management situation. The Commercial Director had to fully grasp how the complex service units under his authority functioned and what the operational issues were that needed to be addressed. How could visibility be gained into these essential service functions of the ‘hygiene systems’ concept? Questions such as what was going on in Customer Service, how the

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engineers performed in the field, and how the delivery logistics were operating) were beyond the traditional financial expertise of Commercial Management. How could these strategically critical terrains be understood and managed? In which ways could influence be extended into these operational areas? In the midst of the turbulence that followed the merger, pressures for gaining more understanding and for extending influence into novel segments grew within Commercial Management. As a consequence) the Commercial Director felt an acute interest in non-financial measures. Again, these practices were subject to intended change. Because of the structural rearrangements) organizational confusion was, however, inevitable. Areas of responsibility were redrawn and modes of communication and co-operation were redefined. Much was now in a state of flux. Uncertainty increased. The integration caused much anxiety in many parts of the organization-for instance in the Customer Service function where managers felt their jobs were on the line. As yet another manager observed) the merger ‘meant a total insecurity in the business and frightened most people’. Hence, besides the Commercial Director’s acute organizational interest) another motivator for reconsidering management accounting practices now emerged. This force of change was not intended by any actor, but was caused by the disturbances of the integration process. The problems of the restructuring affected the company’s reputation in the market. Frictions appeared in the logistics of the ‘hygiene systems’, eroding the foundations of LI-U.K.’s competitive positioning. Financial results failed to meet projections. A budget review, summing up the events of 1990, stated the following: ‘Volume losses have been higher than expected, with the integration of sales forces and distribution networks. The withdrawal of Jeyes household brands exacerbated the uncertainty already present in the customer base. Management time in supervising integration, and staff disruption related to the many recent acquisitions has been underestimated. In consequence, core business suffered’.

Customer relations deteriorated dramatically) as unanticipated operational problems surfaced. As many of the interviewees emphasized) overall ‘Customer Service’ suffered) undermining the company’s competitive strategy. Probably because of the emphasis that Total Quality had given to The Customer) these frictions became recognized. Senior management noticed that especially delivery and invoicing were not performing well. Products were missing from the customer-tailored ‘packages’ that LI-U.K. had normally supplied with precision. Delays were frequent. Puzzled customers queried incorrect invoices. A manager admitted: ‘ W e were a bit of a mess, not giving customers the sort of service they wanted’. Another manager had this to say about the conditions that now prevailed: ‘The merger created a lot of problems and dissatisjied Customers, so something had to be done about Customer Satisfaction’. Therefore) it seems that in addition to the Commercial Director’s organizational purposes, the problems with The Customer-eroding the strategy of differentiation by superior comprehensive service-became a second motivator for the change that was soon to consolidate non-financial measurement. Moreover) these difficulties with The Customer were aggravated by uncertainty in general economic and competitive conditions) suggesting that these external forces became the main catalyst for the coming “on Financial’ change in management accounting practices. The full brunt

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of the U.K. recession hit in 1990. The implications for LI-U.K. were documented later by a budget review along these lines: ‘The effects on business are reduced growth rates, a squeeze on profit margins through high interests rates and wage costs, and increased uncertainty for medium term economic conditions. The general market situation is disappointing and shows little sign of recovery. Overall profitability indicators have been weakened by the volume and margin difficulties but cost savings and careful asset management have protected underlying profitability’.

A sense of crisis mounted in 1991. In the difficult macroeconomic conditions) competition increased. LI-U.K. was targeted by big international rivals. The service elements of the business) now under Commercial authority) became increasingly the foremost asset that differentiated the products in the market. A Sales Manager recalled: ‘Competition in LI-U. K. ’s business intensi3ed because the market place shrank as a result of the U.K. recession’. A budget forecast for 1991 further noted: ‘Competition has increased as growth slows and as customer (end user and reseller) acquisitions concentrate purchasing power’. These combining forces of change would not produce anything revolutionary in the financially oriented accounting practices. The unification of financial reporting continued) and a harmonized Unilever practice was required. Formalized financial calculus was extended over the idiosyncrasies of Jeyes. The monitoring of some cost categories was also essential in this operating environment. The synergy effect of the merger was to produce cost savings. Despite the influence of the motivators and despite the catalyst which also contributed to the coming “on-Financial’ change in measurement practices) the non-financial measurements were at first not a priority of the new top management. For some time, LI-U.K.’s top management was preoccupied only with the present crisis. The ‘private’ measurements) closely identified with the previous Managing Director) were not studied by top management any longer. However, a number of the measurements continued uninterrupted. Overall, having lost much of its stability in the restructuring) LI-U.K. was heading towards a gloomy future.

‘The more structured approach’: a revolutiona y management accounting change The mechanism of a change process often defies linear patterns. An organization can turn back to past experiments) reinterpret them, and endow them with new meaning. Thus, Commercial Management soon re-examined the aborted Total Quality program. A new potential was discovered in this agenda. The notion of The Customer was reconsidered. The operational problems) which appeared to put LI-U.K.’s competitive position in jeopardy) became the surface where a new linkage between Total Quality and the organization was to be forged. A mission statement for 1991 announced: ‘Customer care concepts will be used as a means of building a n internal culture as well as promoting our competitive edge’. The re-examination of Total Quality was also driven by Total Quality’s rise inside the Unilever hierarchy. Total Quality had become a wide improvement agenda within Unilever, with The Customer being acknowledged as a Unilever concern. This was documented) for instance) in these illustrative lines of an internal TQ-manual, ‘The Delighted Customer’:

Exploring a ‘Non-Financial’ Management Accounting Change

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‘Our customers today are satisfied with our products and services. But tomorrow this may not be good enough. T o attract and retain their custom, we have to go beyond customer satisfaction and do something special ...we have to delight ....Without a very clear idea of our customers’ current and emerging needs, we simply cannot have a thriving organization. If we can learn how to use those customer requirements to drive all the activities of our business, then we can expect to prosper’.

It has to be emphasized that Total Quality was adopted in the beginning of the 1990s by several Unilever units in the U.K., like Elida Gibbs in Personal Products. This could be directly observed in Unilever’s internal TQ meeting, held in September 1992 at Unilever House, London. A number of companies presented their Total Quality achievements and their attempts to measure TQ progress. Moreover, as could be observed during visits to other Lever-Industrial units in France, Germany, the Netherlands and Italy, Total Quality had become a central management concern in these units in the late 1980s and the beginning of the 1990s) with modest attempts at measurement accompanying these efforts. Against this corporate background, the concept of The Customer offered top management at LI-U.K. a valuable medium for addressing the frictions that were the consequence of the merger. The Customer represented a familiar notion that could be remobilized. Again, internal processes would be critically observed from The Customer’s perspective. However, this remobilization of The Customer was different than what the earlier enthusiastic experiences had suggested. The Customer was rediscovered in the middle of a crisis. T o p management recognized that time was running out. Hence, a strategic mission statement for 199 1 stressed Total Quality. It declared that The Customer was, again, ‘fundamental to the business’. It considered ways of making Total Quality more ‘operational’. Recognizing the growing operatie nal problems, the budget proposal described ‘Customer Focus’ as ‘ a n important aid to integration’, further stating: ‘Based on earlier LI experience with TQ, a more structured approach under a steering committee is required in order to focus attention on key issues. Other lessons learnt are that high visibility in the company and thorough follow-up of T Q activities are essential ingredients to a successful and sustained long-term Quality improvement program’ (emph. added).

‘The More Structured Approach’ to Total Quality would revolutionize management accounting practices. Commercial Management now showed renewed interest in the ‘private’ non-financial measures. These measures became facilitators of the coming more comprehensive and more systematic “on-Financial’ management accounting change. As will be shown, the company’s financially oriented management accounting reports-which included such familiar measures as gross profits, indirect costs, selling costs, distribution costs and profit contributions from the business units-would have to accommodate a management report that regularly presented a set of systematized non-financial measures. As has been noted, an important motivator for this intended change was that the measures of ‘The More Structured Approach’ now served the acute purposes of Commercial Management. An urgent need to understand and control the functioning of the strategically critical service units called for non-financial indicators of performance. However, from a ‘private’ mode, this measurement was to develop into

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a systematized) public and much more focused technology which played an active role in the everyday management process, as will be described. In ‘The More Structured Approach’, the non-financial measurements of the Commercial Director allowed a detailed) systematic inspection of key aspects in performance ‘by numbers’. They opened up Commercial visibility into the critical service functions. These ‘new’ non-financial measurements also became coupled with the management processes that tackled the acute operational problems-these unintended problems being the other motivator behind the change. This materialized from the beginning of 199 1, when financially-based management accounting was complemented by ‘The Customer Service S u m m ay ’-the systematic practice of nonfinancial measurement. ‘The Customer Service Surnmay’ (the CSS) became established as a company-wide management report, produced each month. In a compact format that applied graphics) the summary presented a dozen formalized ‘Customer-focused’ non-financial measures. The CSS regularly monitored product quality, delivery and stocks, field engineering) invoicing accuracy) complaints from The Customer) as well new business opportunities that The Customer offered. The CSS also traced trend develop ment in the measurements. As many managers stressed) the CSS was very much a Commercial initiative. It represented intended) purposefully directed change. In many comments) the Commercial Director was referred to as the ‘owner’ of the CSS. In an illustrative recollection, a manager observed: “Chris S. [the Commercial Director] was the organ-grinder who was saying ‘Why don’t we do this or that’, listing problems and so on. The Customer Service Summary was his brainchild”.

The company’s Chief Accountant also pointed out: ‘There was a n overall Commercial responsibility over the CSS’. The strong Commercial influence was present from the outset of the change, and the Commercial Director himself admitted having ‘driven through’ the CSS. The CSS represents the formal “on-Financial’ change that finally systematized non-financial measurement. In contrast to the ‘private’ measurements) this transformation appears to have been more co-ordinated and carefully executed. The Commercial Director led the crafting of the report by forming a ‘design team’, consisting of half a dozen functional managers from distribution) credit control, customer services and customer information) field engineering) logistics and quality control. As the Field Engineering Manager explained) the team had to find ‘something realistic, acceptable and meaningful’ that would focus on the strategically critical elements that mattered to The Customer and would initiate concrete action. The Logistics Manager observed that the idea behind the measurement was that ‘ i f y o u analyze y o u can identify problems in depth and take actions’. As another manager recalled) a ‘3shbone chart’ became the fixing medium, pointing at the gaps in performance that explained The Customer’s dissatisfaction (see Appendix C). This underperformance threatened LI-U.K.’s competitive position. A new segmentation of operations) and a new analysis of what was strategically problematic) was carried out with reference to The Customer. As the Customer Information Manager observed) the CSS was ‘ a way of turning strategy into reality’. The Commercial Director

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explained: ‘The philosophy behind the CSS was strategic, but there was no mechanistic link to strategy’. The ‘fishbone’ became the device for connecting The Customer with the management of strategic uncertainties, indicating six ‘failures’: (1) a service ‘failure’ in field engineering, (2) a product ‘failure’ relating to product quality, ( 3 ) a delivery ‘failure’ causing late deliveries, (4) a ‘failure’ to invoice correctly, (5) a ‘failure’ in responding to complaints, and (6) a ‘failure’ in responding to enquiries that could result in new business opportunities. These terrains of performance were now problematized. With the ‘$fishbone’, a concrete move was made to direct organizational attention towards these concerns. The Commercial Director’s memo, dated March 199 1, introduced ‘The Customer Service Summay ’ along these lines: ‘The use and handling of this summary should be sensitively managed. For example, we should attempt to view it in a positive light, pointing up areas for increased management attention, rather than allocating blame’ (emph. added).

Finally, the team would establish the appropriate measurements. These formalized, regularly presented measures would lock the organization’s attention deeper into the ‘failures’ on the ‘$fishbone’. With these systematic non-financial measures, The Customer would gain a permanent foothold in the management process. A more stable, formalized link was instituted between the ideal of The Customer, strategic uncertainties, and the practical management of critical operational segments. Speaking of this comprehensive “on-Financial’ change, the Commercial Director emphasized that ‘..the measures came from Customers’, but in practice the measures of the CSS originated from three sources (see Appendices D and E). Facilitating factors had an important role in this part of the change process: the rediscovered TQ-measures now served as a basis for the systematization of nonfinancial measurement. The commercial Director had urged, after Barry H.’s withdrawal, ‘..to keep measuring. Do not lose important data’. Hence, the ‘private’ TQ-measures were now elaborated. Field Engineering’s performance was captured by uncompleted contracts and breakdown response. Information was distilled from the ‘complaints logs’ of Sales correspondents; received complaints were picked for monitoring, as were product quality complaints. Because the Sales correspondents kept enquiry records, a measure of ‘business opportunities’ was developed. ‘We also wanted to measure something positive’, the Commercial Director explained. Moreover, the few ‘ad hoc’ non-financial measurements of the early days were also re-examined. Thus, these local operational measures acted as secondary facilitators of the studied change, becoming systematized within the CSS. Local measures of delivery and stock-drop size and delivery time, and orders without stock restraint-became ‘officially’ recognized as belonging to the CSS. The Managing Director commented on the design of the CSS: “The CSS contains some local information that generations of managers have been keeping. The information has been there. The difference is that previously it was not considered as important. It was not presented widely and made public. And it was not collected in a systematic way. Now we say ‘Hey, this is actually important”’ (emph. added).

But the design team would also invent some novel measures. Tracking product quality in manufacturing, the proportion of delivered machines requiring service

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would serve as a suitable monitor. An engineer held this view: ‘It was really a stab in the dark f o r getting a measure of how things were looking. It was an entirely new concept for us’. Furthermore, since a computerized query management system supplied data about invoice queries, incorrect invoicing would be monitored regularly; received and resolved invoice queries would be measured. With these innovative measures, the formalization and systematization of non-financial measurement was now realized, completing the design phase of the change. This intended change can be interpreted as being revolutionary. Systematized non-financial measures became an integral part of the management process, as will be discussed below.

Focusing interactive control with non-jinancial measures Exploring how the CSS was de facto used reveals that it was far from being a merely reflective instrument. The measurements of the CSS were active, organizationally constitutive elements-producing real changes in the management process. The constitutive potential of the measures was realized within an organizational ceremony -in ‘The Customer Service Meeting’. These monthly meetings were held regularly, endowing the “on-Financial’ management accounting change with its collective context. The meetings involved key functional managers and some expert staff, comprising approximately twenty managers. They were chaired by the Commercial Director. His memo (March 1991) introduced the CSS as follows: ‘The summary is prepared at the Customer Service Meeting which convenes on a monthly basis and is chaired by me. The meeting assesses the raw information from the previous month, follows up on agreed actions and identifies new actions for the current month’.

The ‘CustomerService Meetings’ functioned as the platform where the now systematized, regularly traced and publicly reported non-financial measurements became organizationally enacted. Here, the measures became coupled with the management process-in contrast to the ‘private’ diagnostics of the previous Managing Director that remained detached from the organization’s real workings. With the new breed of non-financial measures, the organization would perceive the operationally relevant in a certain way. In the ‘Customer Service Meetings’, a particular mode of interaction between Commercial Management and the functional managers was established. Moreover, a formal procedure was introduced for channelling action into pathways that were sustained by non-financial measurements. In practice, the Commercial Director would first examine the compiled measurements with the Customer Information Manager, who prepared the data. The Commercial Manager would then identify a handful of ‘Key Issues’, which reflected strategically important uncertainties and represented ‘failures’ vis-2-vis The Customer. These issues, in the Commercial Director’s interpretation, emerged foremost from the measurements. The selected ‘Key Issues’ would fix the agenda of the meetings, narrowing their focus and giving them a direction. Consequently, the meetings would agree on ‘Actions’ that addressed the ‘Key Issues’. Finally, the measurements, the focused ‘KeyIssues’, the elaborated ‘Actions’,as well the names of the managers who were held responsible for the ‘Actions’,were compressed into the monthly CSS. This report was then distributed widely, to approximately 50 senior managers.

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The ‘Customer Service Meetings’ became the encounter that extended Commercial influence into the strategically critical service functions) as was intended by the Commercial Director. A formal mechanism now gave him access to the intricacies of ‘Customer Service’. This involvement was followed by appropriate intervention. A manager commented: ‘The Customer Service meetings were very much Commercially led meetings. It was the Commercial people trying to raise Quality’.

With the systematized non-financial measures) the Commercial Director would structure the ‘CustomerService Meetings’. He would focus interactive control of events with precision. By examining the measures before the meetings) the Commercial Director would first screen the strategic uncertainty areas of LI-U.K.-the ‘failures’ vis-2-vis The Customer. The measurements of ‘Customer Service’ provided an overview of these uncertainties. The Commercial Director would then interpret the non-financial data in light of the business’s rapidly moving contingencies. He would identify urgent problem-areas that took priority. He would define the ‘KeyIssues’ of the meetings) justifying these problems to the organization with the documented) systematic measurements. With ‘KeyIssues’ a particular order was created using new management accounting technology. The measures created clarity by exposing a set of ‘Key Issues’. A manager had this to say about the prevailing new order: ‘The meetings went through in an orderly fashion. We always started the discussion from the measures, went through them, asked questions, and decided about the action part’.

Another manager commented about the measurements which problematized ‘Key Issues’: ‘The measures made your mistakes appear’. The Commercial Director could now impose a specific way of recognizing the problematic. As a manager observed) the measures behind the ‘Key Issues’ were ‘informationf o r identifying, in a diagnostic sense, where a particular problem lies’. Hence, ‘what mattered’ in Customer Service would be noticed selectively. The non-financial measures created the ‘hard’ facts which reduced ambiguity. They would lead organizational attention into certain conduits-towards the Commercially predefined problems that took on a sense of urgency. Unobtrusively, some other operational ‘issues’ could be marginalized. Or they would pre-emptively be excluded from consideration. Instead of addressing other matters, organizational attention would be channelled into narrower) preconstructed alleys. The complexity of Customer Service became manageable by a handful of focused ‘Key Issues’. In Field Engineering) for instance) the Commercial Director pointed urgently at the performance of some business units, with the problematized ‘Key Issues’ below: ‘Industrial and Leisure and Food and Bever. Hygiene breakdown response fell below target’ [May 19921. ‘Response in Industrial and Leisure and Laundries is below target’ [July 19921.

In customer complaints, for example, these ‘KeyIssues’ that Commercial management had decided to problematize showed other areas of concern:

426

J. Vaivio ‘Particular concern during February expressed against stock shortages (44), distribution errors (1 18>,processing errors (92), product quality (32), and equipment problems (18)’ [February 19911. ‘Distribution and product quality complaints increased during October’ [October 19911.

The measures of delivery performance) product quality, received invoice queries and stock availability also focused on poorly performing functions and tasks. They constituted urgent ‘Key Issues’ that needed to be immediately addressed in the meetings) as shown below: ‘Quality complaints highest this year, mainly in Industrial and Leisure’ [September 19921. ‘Invoice queries have increased in July due mainly to price and damages’ uuly 19921. ‘56% of queries in July relate to price discrepancies in Contracts, Industrial and Leisure, and Promotional areas’ uuly 199 11. ‘Food and Beverage Hygiene remains below our delivery target at 85%’ [September 19921.

Because the problematized ‘Key Issues’ called for instant solutions, the Commercial Director now gained access to the operational processes that were critical to competitive advantage. The management accounting change that systematized nonfinancial measures would be followed by initiatives) decisions and action-programs that targeted key operational areas. It can be asserted that this change of measurement practices carried interactive control with precision into specific niches of the organization. The Commercial Director could influence the most minute forms of action within the context of ‘Customer Service Meetings’. Addressing the ‘Key Issues’, the Commercial Director would communicate to the functional managers his view on ‘Customer Service’ performance. He would often criticize ways of operating in the service functions) exposing weaknesses and inefficiencies in these processes. The functional managers would then present their own, sometimes conflicting interpretations and counter-arguments regarding the ‘Key Issues’. The Commercial Director would listen to the range of opinions that were presented. Sometimes this discussion would turn into debate. The Commercial Director himself admitted: ‘There was a lot of emotion in the meetings’.. However, this intense interaction resulted in shared operational knowledge between the participants. Detailed market intelligence) technical know-how and experience relating to the competitive risks would merge-bridging the boundaries between the functional units and technical expertise. This information sharing served the organization’s learning needs. A more comprehensive understanding of the ‘Key Issues’ in their acute decision-context emerged. But the interactive role of the Commercial Director was also central to what followed. The Commercial Director would shape remedial activities to address the ‘Key Issues’. In the meetings he would participate in the assembly of appropriate ‘Actions’. By interactively challenging current ways of operating) he would question the premises of this focused action. A re-evaluation of traditional responses was forced upon the organization. Further analysis of critical processes was often pursued. The Commercial Director would suggest more efficient ways of responding to the shared problems. With the ‘Actions’ that became coupled with specific ‘Key Issues’, new organizational initiatives would be launched. New forms of functional co-oper-

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427

ation would be forged, with the Commercial Director’s active involvement. This is illustrated in the documented ‘Actions’ which are shown below: ‘Look for more responsive sourcing. Identify strategic materials to be held in stock‘ [April 19921. ‘Organize pricing training. Present the next meeting with reasons for continued pricing errors’ [July 19911. ‘Arrange meeting to discuss how complaints can be reduced with CMG, RB, and PVPT’ [July 19921. ‘Review method of manufacture for Horizon Liquid Starch’ [March 19911. ‘Produce report to analyze damages by product’ Uanuary 19921.

Moreover, the Commercial Director would assist in the preparation of new operating procedures and routines for alleviating the focused problems, as in the ‘Actions’ below: ‘Examine procedures and responsibilities for installation of machines and equipment’ [October 199 11. ‘Review the marketing protocol that alerts the pricing administrators of changes to packs’ [October 19921.

The Commercial Director’s focused interactive control of strategic uncertainties was thus realized during the ‘Customer Service Meetings’pwith the “on-Financial’ management accounting change. The management process was forced into a framework, into predefined alleys that the Commercial Director had constructed with the new measurement. First, the ‘Key Issues’ focused Commercial involvement on essential organizational targets. After this, the crafting of ‘Actions’ became the regular channel that carried Commercial intervention into the functional units, and especially into the critical service activities. Consequently, the discretion of functional managers was limited. In the preparation of the ‘Actions’, unacceptable proposals could be rejected. Initiatives which did not fit in the company’s strategic priorities or which contradicted other management policies would unobtrusively become derailed. Unsuitable action-plans could be marginalized as not being the kind of ‘Key Issues’ that took organizational priority. Furthermore, in the ‘Customer Service Meetings’ the Commercial Director’s interactive control of the management process introduced a new ‘public’ form of commitment. A new accountability was imposed on the involved agents. Individual accountability, documented in the CSS, was now linked to the non-financial measurements and to the problematized issues that were focused. Managers and staff experts were given systematically reported assignments. Thus, The Commercial Director introduced more transparent individual responsibility, as illustrated in these examples of ‘Actions’ in the CSS: ‘Investigate code recognition causing loading errors with C.M.’ [February 199 11. ‘Invite Graham F. to next meeting to discuss chemical throughput consequent on installation’ [July 19921.

But the non-financial measurements, as the Marketing Manager observed, ‘put people on the spot and created a monitoring track’. Another manager admitted that this “on-Financial’ change in measurement practices, and the ‘public’ responsibility that followed, was not always positive: ‘Lots of blame was laid on somebody’s door’, he complained.

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J. Vaivio Managing Director’s “private” TQ-measures

“Ad hoc”-measures

The CSS: interactive measures

in CS meetings.

I

I

I

1970

1980

1990

Independence

Growth

Acquisitions; Solan 1986 BARRY H.

Merger with Jeyes H. 1989 COMMERCIAL DlRECTOR

Total Quality Figure 1. A summary of events at LI-U.K. 1969-1992.

3. Conclusion The study gives a detailed account of how a “on-Financial’ management accounting change emerges in an organizational context. The course of the traced events at LI-U.K. is illustrated in the summarizing figure (Figure 1). The conclusions which can be derived from this interpretation of events are of course subject to the limitations of the method. Also, the particular empirical context may have influenced the studied micro-processes of change in such a way as to guard against generalizations across organizational settings. Nevertheless, the study provides a number of insights for conceptual development and further empirical investigation in this specific terrain of accounting research. Seeking an understanding of the change process, the study suggests conclusions concerning its mechanism. As has been described, Total Quality was an essential element in the logic of this particular change. The studied change at LI-U.K. did not take place within an extraorganizational void. Again, change within an organization was not impervious to ongoing external changes. Representing wider extraorganizational forces, normatively charged ideals and recommendations on what kind of transformations should be realized in enterprise contexts, Total Quality influenced events by creating organizational conditions that were favourable for a ‘Non-Financial’ management accounting change. However, two specific observations are noteworthy, contributing to a more detailed appreciation of how these extraorganizational influences become interlinked with organizational circumstances and become connected to management accounting change (Miller and O’Leary, 1987, 1994a,b; Bhimani, 1993). First, Total Quality’s transmission and its effects on practices of measurement were assisted by available reference points. LI-U.K. was affected by the experience of both Solan and Jeyes Hygiene. However, the ‘internal’ reference points within Unilever and the Lever Industrial organization in Europe later played a role as intraorganizational ‘benchmarks’, especially with their explicit attempts at ‘TQ measurement’. These reference points reinforced the agenda’s credibility, pointing at

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practical management initiatives that were produced in its name within the same industrial context. A second issue relates to the evolution and remobilization of Total Quality. After its initial transmission and expansion, the agenda became almost extinguished-without producing a revolutionary management accounting change. It remained in a ‘dormant’ state, however, and was then rediscovered and reinterpreted by a new key agent. Remobilized Total Quality then became a medium that served specific organizational interests and contributed to a revolutionary change. Hence, Total Quality’s influence on practices of measurement was unlinear and much more complex than what normative literature often suggests. This complexity is also present in the observation that Total Quality alone did not produce the “on-Financial’ management accounting change. Instead of an intended and disruptive reform driven by Total Quality, several interconnected forces of change gathered. These forces included both formal and informal elements, and comprised other drivers of change. The typology of Innes and Mitchell (1990) provided a useful framework for categorizing these forces. Thus, motivating factors could be identified. These combined with facilitating conditions and a final catalyst. It should be emphasized that a management interest in a more penetrating visibility into critical functions was a key motivator of the change. This interest appeared as a consequence of structural solutions. Also, it is important to recognize that ‘private’ Total Quality measurements and local ‘ad hoc’ non-financial measures acted as facilitators behind the more fundamental change. A more significant ‘non-financial’ accounting system was erected on the basis of earlier, somewhat marginal measurements. But the most essential point within the mechanism of the investigated change concerns the Systematization of non-financial measurement. The systematization of non-financial measures into a regular and ‘public’ reporting format represented a culminating instance of the explored events. Systematization integrated the measurements into the company’s management process and turned them into organizationally constitutive artifacts. This observation could add a new dimension to the institutionalist framework of management accounting change (Scapens, 1994; Scapens et al., 1997; Burns, 1997; Burns and Scapens, 1998). Within the institutionalist framework, management accounting change is currently conceptualized as being intended or unintended (formal/informal), evolutionary or revolutionary. This study, however, suggests that change can also be conceived along the systematic and unsystematic dimension. In the explored setting, revolutionary change in management accounting routines was associated with an intended and systematic organizational initiative. The study illustrated the systematization of non-financial measurement at LI-U.K. as a disciplined and intended effort, which was driven by a key actor. It was embedded into the uncertainties eroding competitive positioning. It proceeded into the identification, analysis and articulation of strategically critical activities. Moreover, systematization meant meticulous consideration of appropriate non-financial measures. The selection and design of the measures was a co-operative instance that involved functional expertise. What was also characteristic of this systematic effort was the regular monitoring of the measures in a format that communicated them to the organization; a ‘public’ element reinforced the measurements. Most importantly, systematization established a formal organizational relay-the CS meetings-between the non-financial measurements, their enactment and organizational action.

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Here the study suggests further insights into how the non-financial measures became integrated with the management process. It appears as if the systematized non-financial measures became a vehicle of focused interactive control. Instead of monitoring the non-financial measures merely as diagnostic ‘strategic controls’, the enactment of the measurements involved top management personally with key operational processes. The measures maintained a structured dialogue between top management and the organization, setting narrow boundaries for this interaction. With the assistance of the measures, the organizational search for relevant knowledge, the emergence of new solutions, as well as the crafting of initiatives and action-plans were forced into tolerable limits. Hence, it seems that non-financial measurements focused top management’s interactive control over specific targets. They guided interactive control with precision over the most minute objects that took strategic relevance. This penetrating ‘Focus Potential’ of non-financial measures must be emphasized. Further research is needed, however, before assertions can be made about non-financial measurements having an advantage over other management systems, such as human development programs and project management systems, that top management may consider for interactive control (Simons, 1990, 1991). The ‘Focus Potential’ of non-financial measures should also be examined vis-2-vis traditional financial measures. Systematized and highly focused non-financial measures made problems, management processes, and organizational routines visible at LI-U.K. which were not captured by conventional financial measurements. Going beyond financial information, non-financial measures could connect managers regularly to operational issues which take on strategic significance. In terms of strategic management, the interactive ‘Focus Potential’ of non-financial measures, probing into operational mechanisms, would complement traditional financial indicators. T h e emerging detail that has strategic potential can be systematically scanned and elaborated with the assistance of focused non-financial indicators. How non-financial measures were used interactively suggests a direction for further research-standing in some contrast to pronouncements which have introduced these measures as reflective, diagnostic instruments. In many normative arguments, nonfinancial measures assist the effective communication and ‘translation’ of the intended strategy that has been formulated by management, bearing the traces of strategic management’s Design School (Mintzberg, 1978, 1990; Simons, 199 1; Kaplan and Norton, 1992, p. 73, 1993 p. 134, 1996b, p. 55, p. 77). It seems, however, that non-financial measures are more than merely diagnostic tools. This study suggests that instead of being limited to a diagnostic purpose that serves the ‘implementation’ of an intended strategy, non-financial measures may have a more active and constitutive role to play in the management process. Further investigation should probe deeper into how systematized non-financial measurements-by sharply focusing interactive control-serve the discovery of a strategy’s emergent elements. Acknowledgements: The author is grateful for the valuable comments and suggestions of Bob Scapens, Teemu Malmi, Eero Kasanen, Kalervo Virtanen, John Burns, Kari Lukka, Michel Lebas, Jan Mouritsen, Taru Lehtonen and two anonymous reviewers on earlier versions of the paper.

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Appendix B: Interviews Person interviewed

Date

Duration (min)

Marketing Services Manager LII Marketing Services Manager LII Marketing Services Manager LII Marketing Services Manager LII Controller LII Commercial Accountant LI-U.K. Chairman/Managing Director LI-U.K. Sales and Marketing Director LI-U.K. Personnel Director LI-U.K. Technical Director LI-U.K. Marketing Services Manager LII Customer Info Manager LI-U.K. Commercial Accountant LI-U.K. Distribution and Cust. Serv. Manager LI-U.K. Cust. Engineering Serv. Manager LI-U.K. Quality Manager LI-U.K. Commercial Director LI-U.K. Chief Accountant LI-U.K. Sales Manager 4 and 5 LI-U.K.

23.1 0.1992 3.11.1992 9.11.1992 18.11.1992 24.11.1992 25.11.1992 25.11.1992 27.11.1992 27.11.1992 27.11.1992 5.1.1993 6.1.1993 14.1.1993 14.1.1993 18.1.1993 18.1.1993 20.1.1993 20.1.1993 1.3.1993

140 90 120 60 60 60 60 30 70 45 30 100 45 90 100 70 60 45 75

Customer Engineering Serv. Manager LI-U.K. Sales Correspondents’Team Leader LI-U.K. Sales Manager I LI-U.K. Sales and Marketing Director LI-U.K. Sales Manager 2 LI-U.K. Corporate Marketing Manager LI-U.K. Logistics Manager LI-U.K. Senior Technical Manager LI-U.K. Customer Services Manager LI-U.K. Customer Info Manager LI-U.K. Sales Manager 3 LI-U.K. Credit Control Manager LI-U.K. Distribution and Cust. Serv. Manager LI-U.K. Design Engineer LI-U.K. Chairman/Managing Director LI-U.K. Chief Accountant LI-U.K. Commercial Director LI-U.K. Marketing Services Manager LII Technical Director LI-U.K. Controller LII

4.3.1993 4.3.1993 4.3.1993 9.3.1993 10.3.1993 10.3.1993 10.3.1993 12.3.1993 12.3.1993 16.3.1993 18.3.1993 18.3.1993 18.3.1993 19.3.1993 23.3.1993 23.3.1993 23.3.1993 25.3.1993 1.4.1993 15.4.1993

75 120 70 60 70 80 70 70 90 130 80 60 30 75 60 45 70 120 45 45

Commercial Director LI-U.K. Marketing Services Manager LII (Telephone) Customer Care Manager LI-U.K. (Telephone)

7.7.1995 15.8.1995 17.8.1995

60 30 20

Exploring a ‘Non-Financial’ Management Accounting Change Appendix C: “The Fishbone” - OUR CUSTOMERS SHALL ENJOY TOTAL SATISFACTION

SERVICE FAILURE

OUTSIDE SERVICE SPEC.

PERFORMANCE

QUALITY FAILURE

I I1 1

OPPORTUNITY NOT PURSUED

ZQTmTI RESPOND TO

DISSATISFIED CUSTOMER

COMPLAINTS NOT RESOLVED

FAILURETO RESPOND TO COMPLAINTS

I

FAILURE TO INVOICE CORRECTLY

Appendix D: The Measures of ‘The Customer Service Summary’ Product Quality * Number of quality complaints * Proportion of serviced cleaning machines Delivery and Stocks * Average drop size * Number of Deliveries out of Specifications * Orders without stock restraint % Field Engineering Service * Number of Jobs not Completed * Breakdown Response % Invoicing * Number of Invoice Queries Recorded/Resolved Customer Complaints * Number of Total Customer Complaints/per Sales Operation New Business Opportunities * Total of Received Business Enquiries/per Sales Operation

433

434

J. Vaivio Appendix E: The Development of Non-Financial Measurement at LI-U.K. THE CUSTOMER SERVICE SUMMARY “AD HOP-MEASURES

“PRIVATE “ TQ-MEASURES MEASURES

-

+

‘PlUVATE” TQ-MEASURES

delivery speed

+

split orders

-

business opportunities product quality (machines) invoicing

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