Managerial discourse and the link between theory and practice: From ROI to value-based management

Management Accounting Research 21 (2010) 95–109

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Managerial discourse and the link between theory and practice: From ROI to value-based management Will Seal Loughborough University Business School, Loughborough, Ashby Road, Loughborough LE11 3TU, UK

a r t i c l e

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Keywords: Managerial knowledge Critical discourse analysis Return on investment Value-based management Strategic management accounting

a b s t r a c t Building on Thrift’s (2005) concept of the cultural circuit of capitalism using critical discourse analysis, the paper investigates the influence of management accounting concepts on practice. The paper proposes that the way that academic theories in management accounting affect practice depends on the origin of the early texts, the extent to which the texts become discourses and the relative institutional support for the discourse. The approach is illustrated by focusing on three particular management accounting concepts: return on investment (ROI), value-based management (VBM) and strategic management accounting (SMA) and empirically contextualised through the case history of GEC/Marconi. The paper explains that, whilst ROI and VBM have, to varying degrees, become part of managerial discourse, SMA has remained a loose collection of academic texts and has had a negligible impact on managerial discourse and practice. © 2010 Elsevier Ltd. All rights reserved.

1. Introduction Given the huge volume of theories and concepts that are routinely generated in the academy and elsewhere, how and why are some concepts chosen by practitioners while others are not? Academics may wish that practitioners would select management concepts on the basis of academic criteria such as logical rigour and empirical validity. On their part, practitioners may hope (or at least claim) that they have selected concepts on the basis that they will increase their organizations’ efficiency and profitability. Yet the ‘best’ concepts from a practitioner perspective may not be obvious. Businesses and their environments are so complex that links between the adoption of a particular managerial concept and an improvement in business performance are often difficult to establish (Thrift, 2005; Jessop, 2002). One consequence of such complexity is that although many practising managers may have become more ‘knowing’ in terms of their business education and

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reading, they may also draw inspiration from management gurus who offer them as much psychological re-assurance and self-belief as ‘hard’ practical knowledge (Thrift, 2005). The paper mobilises discourse analysis, not to belittle the importance of academic contributions or academic values, but rather to better understand how some theories (or parts of theory) have apparently bridged the ‘gap’ between theory and practice (Scapens, 1994). It argues that the dominant management accounting concepts used by practitioners are part of wider organizational and managerial discourses (Barley and Kunda, 1992; Thrift, 2005; Phillips et al., 2004). The basic premise of an organizational discourse perspective is that language and texts (including some theoretical concepts) can be constitutive of organizational practice. Discourse is not ‘just about talk’1 ; it affects the way managers frame their reality, ruling in some ways of thinking and doing and ruling out others. The action orientation of discourse is emphasised in Thrift’s definition of discourse as: ‘practically oriented orders bent to the task of

1 Not that talking is not a vital and time-consuming part of managerial practice! See Bruns (1997).

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constructing more or less durable social networks’ which are ‘constantly redefined in order to cope with the vagaries of that task’ (2005, p. 48). The production, dissemination and consumption of managerial knowledge may be conceptualised as the cultural circuit of capitalism (Thrift, 2005). In the cultural circuit of capitalism, management ideas flow between institutionalized producers of managerial knowledge such as business schools, management consultants and management gurus. This study elaborates the cultural circuit of capitalism framework through the method of critical discourse analysis (Fairclough, 1995, 2005; Phillips et al., 2004). As will be argued in more detail later, Phillips et al. (2004) propose that the influence of particular organizational discourses (such as a management accounting control system) depends on the origin of the early texts, the extent to which the texts become discourses and the relative institutional support for the discourse.2 As will also be shown later, the cultural circuit of capitalism is characterised by disjunctions and favours certain types of theory over others. On the premise that discourse analysis ‘includes the academic project itself within its analysis. . .’ (Phillips and Hardy, 2002, p. 2), a further contribution of this paper is to offer a fresh perspective on the apparent schism in management accounting research between doing ‘good theory’ and influencing practice. The schism is expressed in the laments that either much theoretically informed management accounting work is irrelevant to understanding or guiding practice (see e.g., Johnson & Kaplan’s (1987) critique of agency theory) or, alternatively, that many of the management accounting concepts that are discussed and translated into action by practitioners are unsupported by sound theory (see, e.g., Ittner and Larcker’s (2001) critique of fashion-driven research). Indeed, as Malmi and Granlund (2009) have argued, the management accounting literature seems to be divided into two streams. One stream is academically respectable and based on theories borrowed from other disciplines (especially economics). The other stream, what might be termed ‘Practice-oriented research’ (Ryan, Scapens and Theobald, 2002) is applied and is ‘. . . reported in professional journals that are more likely to be read by practitioners. . .’ (Ryan et al., 2002, pp. 90–91). However, practice-oriented research faces accusation that it produces papers that ‘are motivated purely by the fact that a certain topic has received considerable attention in the business press, with little effort to place the practice or study within some broader theoretical context’ (Ittner and Larcker, 2001, p. 356). The schism between practice- and theory-driven research may be healed in several ways. For example, fresh attempts may be undertaken to re-evaluate and re-cast management accounting theory and management accounting research methods (Kasanen et al., 1993; Kaplan, 1998; Lukka and Mouritsen, 2002; Malmi and Granlund, 2009). Alternatively, this paper contends that some of the

2 The author is grateful to an anonymous referee for this succinct summary statement.

arguments in the management accounting academy3 could be resolved through a better understanding of the processes by which management accounting knowledge is produced, disseminated and operationalised. A model of these processes is developed via a discursive perspective on three particular management accounting concepts: return on investment (ROI), value-based management (VBM) and strategic management accounting (SMA). These three concepts are bracketed together because, in different and, in often contrasting ways, they offer calculative techniques that may be used to influence long term business decisions as well as suggesting metrics that can be used for evaluating corporate performance. The discursive analysis of ROI, VBM and SMA is empirically and historically contextualised through a longitudinal case study of a well known but now defunct company called GEC.4 The paper is organized as follows. In section two, the cultural circuit of capitalism is presented as a framework for understanding the production and dissemination of managerial knowledge. In section three, the framework is critiqued and elaborated through critical discourse analysis. In the fourth section, the elaborated framework is applied to an historical analysis of the symbiotic relationship between ROI and the divisionalised company. Section five introduces the case of GEC and the discourse of the financial control model. In the context of the rise and fall of GEC, and with reference to the theoretical model, section six discusses the relative impact of the three concepts: ROI, VBM and SMA. The paper is concluded in section seven. 2. The Cultural Circuit of Capitalism and the institutionalized production of managerial knowledge This section describes how the concept of the Cultural Circuit of Capitalism (CCC) (Thrift, 2005) offers insights into the production and consumption of managerial knowledge. The CCC focuses on the exchange of ideas between three institutionalized producers (and consumers) of managerial knowledge: business schools, management consultants and management gurus. The section highlights that, as Thrift (2005) observes, the CCC promotes a particular sort of knowledge and a particular sort of practical theory. The CCC is sustained by an interlocking set of institutions. One key institution is the business school which, according to Thrift, has ‘systematized and reproduced existing knowledge’ and . . .‘synthesized academic knowledge and ingested it back into business’ (2005, p. 85). The business school has also enabled new modes of interchange of managerial knowledge based on the practical experience of mature MBA students. A second key institution in the CCC is management consultancy. Thrift (2005) argues that man-

3 The absence of a model that links theory and practice is not a peculiar problem of the management accounting academy. Although it is beyond the scope of this paper, it could be argued that disjunctions between the finance academy and banking practitioners may have contributed to the mis-use of derivative theory in the build up to the “Credit crunch crisis”. 4 Rather confusingly the acronym stands for General Electrical Company which is similar to the even better known and still functioning GE of America.

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Fig. 1. Institutions in the cultural circuit of capitalism (adapted from Thrift, 2005).

agement consultants take knowledge gained from their clients and then sell that knowledge to others. Consultants have also created their own ‘campuses’ where they have synthesised academic knowledge which they package and sell to clients. A third institution, often overlapping with the business school and management consultant, the management guru responds especially to the performative nature of capitalistic management. As accomplished performers in their own right, management gurus usually combine some technical managerial knowledge with important psychological skills with which they reassure their managerial audiences. Without changing the conceptual integrity of the CCC, it would seem appropriate to add other institutionalized contributors to managerial knowledge, such as senior managers and professional bodies. The role of accounting bodies is particularly important for the production and legitimisation of accounting practices since even internal accounting concepts, such as ROI, may be subject to the codification norms of financial accounting (Llwellyn and Milne, 2007). Other contributors to managerial discourse include senior managers who, as will be shown later, may write articles that are intended not just for their immediate colleagues but also for audiences which span organizational and institutional boundaries (Sloan, 1965; Johnson and Kaplan, 1987). The CCC and the interchange of managerial concepts and practices between institutionalized producers may be represented diagrammatically in Fig. 1.

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procedures, organization charts, graphs, forms, and computer software with a third network specialising in the dissemination of ‘soft skills’ related to psychology and human resources. Thrift (2005) argues that apart from some finance theories5 , managers use relatively little economics which, arguably, is predominantly a theory of capitalism.6 Significantly, given the focus on ROI in this paper, Thrift (2005) specifically mentions the widespread use of return on capital employed. He also cites the balanced scorecard as a typical product of the interaction between the three networks. Although the CCC is a useful broad framework for contextualising the production and consumption of managerial knowledge, it could be argued that the concept may create a general impression that, as with Thrift’s (2005) example of the balanced scorecard, the flow of ideas between practitioners and the academy is smooth and unproblematic. Yet this somewhat Panglossian interpretation of the CCC is not one that Thrift would support, as he is at pains to stress ‘just how tentative, tendentious and uncertain the global capitalist “order” really is’ (2005, p. 75). Indeed, if ‘social theory now has a direct line to capitalism’ (Thrift, 2005, p. 33) then it is particular type of social theory that sees the world as in a state of flux, fragmented, decentred, transitory, and so on. The next section will present and discuss an analytical approach that recognizes the messy and complex aspects of contemporary capitalism. 3. Elaborating the CCC through critical discourse analysis If managerial discourse is a key link between theory and practice, then what sort of discursive analysis should be mobilised for organizational research (Alvesson and Karreman, 2000)? In this section it is argued that critical discourse analysis (Fairclough, 1995, 2005; Phillips et al., 2004) offers a productive way of elaborating on the basic concept of the CCC in order to further analyse the sort of theory that informs capitalist practice. 3.1. Critical discourse analysis: a space for agency and material action Earlier in this paper, the significance of managerial discourses was that they helped to frame managers’ reality and that discourses ‘do not just describe things; they do things’ (Hall, 2001, p. 72). Yet in critical discourse analysis (CDA, forthwith), there is space for agency and nondiscoursal action. According to Phillips, et al., discourses are ‘never completely cohesive and never able to determine social reality totally. . .(I)nstead, a substantial space exists within which agents can act self-interestedly . . .’ (2004,

2.1. Theories in capitalism If these institutions produce managerial knowledge then what sort of theories do they create? Distinguishing between theories in capitalism and theories of capitalism, Thrift (2005) argues that the former theories are essentially practical and derive from three main networks. One network is based on book-keeping, another on written

5 The role of option pricing models in the development of securitisation is a good if somewhat controversial example of theory affecting practice (see note 3). 6 This point about the theoretical thrust of economics has also been made in the accounting literature (see e.g. Klamer and McCloskey, 1992; Napier, 1996). The impact of economic theory on public policy discourse should not be underestimated as Keynes (1936) so famously noted.

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p. 637). Self-interested action is discoursal when actors seek to influence discourses that advance their particular interests (see e.g., Amernic and Craig, 2006). But, in CDA, not all action is discoursal and organizational reality is only partially socially constructed (Fairclough, 2005). The ontology of CDA is one of critical realism which is ‘moderately socially constructivist but rejects the tendency for the study of organization to be reduced to the study of discourse,. . .’ (Fairclough, 2005, p. 916). 3.2. What are texts? Discourses cannot be observed directly, they are accessed through the study of texts. Following Fairclough, this paper uses ‘the term “text” in a generalized sense (not just written text but also spoken interaction, multisemiotic televisual text, etc.) for the discoursal element of social events’ (2005, p. 925, original quotation marks). The paper also includes as “texts”, sets of accounts, budgets, financial ratios, and so on. Accounting texts (such as annual reports and academic papers) tend to be multi-semiotic with written language, numbers (in specified formats), mathematical symbols, diagrams and even photographs. In CDA, accounting numbers are seen not as representative of some spurious notion of economic reality but as texts that contribute to wider organizational and managerial discourses. Thus, although accounting numbers are socially constituted, they are located within a set of business “games” and have resonance and meaning in terms of winning and losing (Mouck, 2004).7 3.3. Action, institutionalization and hegemony Since ‘action affects discourse through the production of texts’ (Phillips et al., 2004, p. 640), and the key organizational actors in this study are managers, the focus of the paper is on a subgenre of the organizational discourse which may be termed the managerial discourse. Some of the texts in the managerial discourse are produced within organizations as practitioners seek to make sense of their organizational reality (Phillips et al., 2004). A rather more significant part of the managerial discourse, however, is produced across organizations as texts that are published in journals, read by practitioners and contributed to by a mixture of academics, senior managers, management consultants and management gurus (Barley and Kunda, 1992; Thrift, 2005). The relationship between action and discourse is recursive: action leads to the production of discourse and discourses affect managerial action by making ‘certain ways of thinking and acting possible, and others impossible or costly’ (Phillips et al., 2004, p. 638). Phillips et al. (2004) additionally stress the relationship between discourse and institutionalization. In their model, institutions

7 This theoretical and methodological approach to accounting numbers may be seen as responding to some recent criticisms of interpretive management accounting research in that it has neglected the role of economic and commercial logics in explanations of practice (Nørreklit et al., 2006; Ahrens and Chapman, 2007).

are even more significant in guiding behaviour as they are ‘self-regulating, socially constructed mechanisms that enforce their application’ (Phillips et al., 2004, p. 638). In this paper, it will be shown that management accounting concepts have different degrees of institutionalization and institutional support which helps to explain their relative impact on practice. However, as will be seen from the case study, it is possible for a collection of texts to become part of the managerial discourse and influence practice without becoming institutionalized. If a particular discourse dominates managerial thinking and action then it may fairly be described as being hegemonic (Fairclough, 2005). 3.4. Disjunctions in the CCC and “Relevance Lost” Management texts may be produced in the academy, become academic texts and become institutionalized within the academy. Yet unless these texts become part of the CCC, they may have little influence on practice. In this respect, managerial knowledge in the academy and managerial practice may become detached from one another. In the language of management accounting researchers, the academic discourse may lose “relevance” (Johnson and Kaplan, 1987; Malmi and Granlund, 2009). Although they do not use discourse analysis explicitly, Johnson and Kaplan’s critique of management accounting is partly an analysis of how managerial knowledge as reproduced in business schools became detached from managerial practice. Their work describes how managerial practice is influenced by what managers learn in business schools and can lead to an incorrect application of a technique such as ROI (Johnson and Kaplan, 1987, ch. 8). Yet although Johnson and Kaplan (1987) identified a good example of a disjunction in the CCC, their efficiency-based theory (transaction cost economics) is difficult to reconcile with their observations of inefficient applications of management accounting concepts and “irrelevant” academic theories. Johnson and Kaplan’s interpretation of the development of management accounting in the 19th and early 20th centuries is an example of what might be termed ‘mainstream’ management accounting research. One of the main sources of theoretical inspiration in mainstream accounting research is economics, a discipline in which academics regard themselves as scientific researchers of an objective economic reality (Ryan et al., 2002). The view on the relationship between theory and practice in economics would seem to be an implicit assumption that academics provide a supply of theoretical models and empirical research which may or may not meet the demands of practitioners. In the innovation literature, this viewpoint can be linked to the rational efficient choice model in which managers choose theories and practices that increase efficiency of their operations (Abrahamson, 1991; Malmi, 1999). In the realist view of theory and practice, there is no double hermeneutic in which social theories can change the behaviour of the social actors that are the subjects of research (see e.g., Ghoshal, 2005). In mainstream economic ontology, theoretical texts are seen as representing an external reality and not helping to create it. It is beyond the scope of this paper to explore the various innovation theories beyond repeating the criticism

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of the rational choice approach that ‘organizations have unclear goals and high uncertainty about the technical efficiency of administrative technologies,. . .’ (Malmi, 1999, p. 652). Given space limitations, it is probably more productive to indicate research approaches in the management accounting literature that are closely related to the discourse analysis in this paper. One such approach explores the impacts of rhetoric (Nørreklit, 2003) and communication (Ax and Bjørnenak, 2005). Noting the widespread adoption of the balance scorecard, these papers argue that the implementation of particular management accounting concepts is helped if the basic ideas are presented via an effective rhetoric. As will be shown later, Norreklit’s (2003) distinction between convincing and persuasive arguments is particularly pertinent when considering why apparently theoretically convincing approaches (such as SMA) have failed to persuade practitioners. Although the secret of persuasion lies in the rhetoric used by the proponents of an innovation, the secret of acceptance lies in the interests of the potential audience of senior management. In short, a practice may be convincing from an academic point of view but may clash with the interests of senior managers. For example, if there is a conflict between the interests of managers and suppliers of capital as is suggested in the corporate governance and agency literatures (Shleifer and Vishny, 1997), then managers may prefer a metric that may be theoretically deficient8 (such as ROI) over alternative, value-based approaches. Even more subtly, they may adopt a valuebased approach but apply it in an incomplete, inconsistent or rhetorical manner (Malmi and Ikäheimo, 2003). One of the contributions of rhetorical analysis is that it offers a more nuanced interpretation of concepts such as ROI and VBM by viewing them as innovation ‘bundles’—part technical specification and part rhetoric to promote the effects of the techniques (Ax and Bjørnenak, 2005). 3.5. Locating the conceptual status of ROI, VBM and SMA in the CCC

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key financial metric in VBM is residual income, then the latter can be presented as ‘Wall Street’s gift to management accounting’ (O’Hanlan and Peasnell, 1998). Yet both ROI and VBM are more than just metrics. Malmi and Granlund argue that VBM is ‘not a theory of accounting practice but a theory of organizational performance, including accounting-related issues as a mechanism of explaining outcomes’ (2009, p. 605). For reasons that will be explained later, the third concept of SMA is exceptionally hard to summarize and will not always be found in management accounting textbooks. As a very general working definition, SMA may be seen as the process of ‘provision and analysis of management accounting data about a business and its competitors for use in developing and monitoring business strategy’ (Simmonds, 1981, p. 26). As will be elaborated later in the context of the case study, it is also important to regard SMA as a normative discourse that can potentially unify theoretical insights from finance and strategic management (Tomkins and Carr, 1996). In its essence, SMA is transdisciplinary in its theoretical scope, drawing on general logics from management accounting, finance, economics, and behavioural sciences as well as more specialised concepts from strategic management. SMA tends to rely on a broader set of organizational outcomes than ROI and VBM with more focus on generic strategies and market positioning logics. VBM and ROI are also transdisciplinary concepts. As well as drawing on finance and accounting logics, VBM may be seen as encapsulating implicit and explicit concepts from organizational and behavioural theory (Otley, 1999; Malmi and Granlund, 2009). Of the three concepts, ROI seems to be the most focused on accounting logics. Yet, as will be shown below, this particular accounting metric has played a significant historical role in the CCC because it was associated with a wider organizational and institutional development—the spread of the divisionalised corporation. 4. ROI and the managerial discourse of the divisionalised corporation

Texts on ROI, VBM and SMA usually combine a specification of technical characteristics with justificatory arguments. In textbooks, ROI and VBM are concepts that are usually found in chapters on measuring the performance of divisions that are ‘investment centres’ (Drury, 2008; Bhimani et al., 2008; Seal et al., 2008). In the context of divisional performance measurement, ROI is argued to be ‘better’ than profit because it is a ratio that links the amount of profit made in the division to a measure of capital employed. The argument for VBM9 is usually based on the assumption that shareholder value is best measured via residual income. The alleged theoretical superiority of residual income over ROI is based on arguments drawn from finance theory (Solomon, 1966). In particular, if the

In historical terms, ROI precedes SMA and VBM and, especially in the VBM discourse, is presented as the flawed concept which can, and should, be replaced.10 It will be shown that the impact of ROI on practice was significantly aided by being part of a wider managerial discourse that linked strategy, structure and accounting metrics. By supporting the growth of the divisionalised corporation, it is argued that the famous Du Pont ROI model linked organizational structure and management accounting into a single discourse on the ‘best’ way to enable and manage corporate expansion (Sloan, 1965; Chandler, 1962; Johnson and Kaplan, 1987). In historical terms, the period begins in the early part of the 20th century and ends with the fall of the

8 The alleged theoretical deficiency of ROI is generally based on arguments from finance that value based measures such as residual income are more easily equated with stock market related valuation models (O’Hanlan & Peasnell, 1998). 9 See also the recent discussion on the theory status of VBM in Malmi and Granlund (2009).

10 The alleged flaws of ROI include the possibility that divisional managers using ROI will reject projects that corporate managers would accept. Unlike with residual income (the preferred metric in VBM), there is no explicit consideration of the cost of capital (see also footnote 8). These sorts of criticisms may be found in management accounting textbooks (e.g. Drury, 2008; Seal et al., 2008).

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4.1. Historical and contingent factors in the relationship between action and discourse

Fig. 2. Relationship between action, texts, discourse and institutions (from Phillips et al., 2004).

Berlin Wall (Thrift, 2005). In terms of the CCC, Thrift coins the term the ‘Joshua’ discourse to characterise managerial thinking in an era when the hierarchical and ‘buttondowned’ (Thrift, 2005, p. 31) world of the divisionalised corporation seemed congruent with the wider certainties of the Cold War and rivalry between overt socialist and capitalist ideologies. This period was also an era when business schools tended to follow rather than lead in the production of managerial knowledge. The development and diffusion of ROI may be interpreted by extending the work of Phillips et al. (2004). Although they applied their approach to explain the spread of the divisionalised corporation, Phillips et al. (2004) used CDA to develop a general model of the relationship between action, texts, discourse and institutions. Recognizing that not all actions produce texts, not all texts produce discourses and not all discourses produce institutions, Phillips et al. (2004) put forward propositions which suggest a step by step progression from action to text; text to discourse; and discourse to institutions. Action that produces text is closely related to organizational sense making which ‘involves the retrospective interpretation of actions’ and is ‘triggered by surprises, puzzles, or problems’ (Phillips et al., 2004, p. 641). Phillips et al. (2004) propose that texts are more likely to be widely disseminated if they have resulted from sensemaking activity, if they enhance the organization’s legitimacy and if they are produced by significant actors. The next stage in the institutionalization process concerns the embedding of text in discourse. Those texts that ‘take the form of genres, which are recognizable, interpretable, and usable in other organizations’ and ‘draw on other texts within the discourse and on other wellestablished discourses’ (Phillips et al., 2004, p. 644) are more likely to succeed here. Finally, in respect of the move from discourse to institution, discourses ‘that are more coherent and structured’ and ‘are supported by broader discourse’ (Phillips et al., 2004, p. 645) are more likely to produce institutions. The general relationship between action, texts, institutions and discourse is summarized in Fig. 2.

The relationship between action and discourse varies over time and according to the complexity of the management task. Early texts, usually written by managers themselves, often exhibit a sort of informal contingency theory coupled with strong functionalist interpretations of business. The managers relate how they faced specific problems and crises and how their accounting techniques (along with other practices) could be seen as solutions to the problems (Sloan, 1965). As the texts become more formalised and institutionalized, the contingency approach itself becomes institutionalized in the managerial discourse. For example, in management accounting textbooks it is proposed that process costing ‘fits’ certain process driven industries whilst job costing ‘fits’ others (Drury, 2008; Bhimani et al., 2008; Seal et al., 2008). 4.2. ROI and divisionalisation: contexts and texts The business and organizational contexts for texts on ROI were intimately associated with the development and spread of the multi-divisional corporation. Citing the work of Palmer et al. (1993), Phillips et al. (2004) argue that a particular text by Chandler (1962) was central through its influence in elite business schools and hence on the thinking of senior managers. Furthermore, although they identified other isomorphic influences such as the mimetic pressures that derived from interlocking directorships, Palmer et al. (1993) argued that most of what the directors ‘knew about their own companies, and especially other companies, would have come from texts such as organizational charts, reports, conversations, stories, and so forth’ (Phillips et al., 2004, p. 639).11 Chandlers’ work was important but there were other key contributors to managerial texts. The original managerial discourse of the divisionalised company story is usually associated with the actions and writings of a few key managers such as Sloan at General Motors (GM) and Donaldson Brown at both GM and Du Pont (Chandler, 1962; Sloan, 1965). The pioneers of the divisionalised company had the prime motives of either wishing to grow the company or simply of trying to control companies that had for different reasons become too large to control without some form of decentralization (Johnson and Kaplan, 1987). Practices that began as innovations were reproduced within the firm and institutionalized in the wider institutional realm that was comprised of other firms in the industry, investors, banks and professions. As they became established in leading firms, the practices become routinised and disseminated through imitation, professional norms and through the influence of specialist practitioners of management innovations such as consultants. These actions were further embedded through the production of a managerial

11 The influence of texts may be corroborated and updated through fieldwork from the case study in this paper where it was discovered that a key role in the spread of value based management in GEC was a specially prepared video that was shown throughout the company.

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discourse that legitimised a new breed of diversified conglomerates, such as GEC, that emerged in the 1960s and 70s. Strategy and structure (Chandler, 1962) was a key text because it was so widely used in business schools. Chandler (1962) focused on four firms that initially were conventionally managed by American standards but then ‘went beyond accepted practices in American industry’ (1962, p. 17). Chandler made the point that organizational innovations developed independently in each company as result of company growth, complexity and chosen strategies. Each company found that the old (institutionalized) practices of American industry were no longer adequate. For example, General Motors (GM) faced a series of crises in the 1920s in areas such as liquidity, stock control, and volatile demand. GM evolved a new structure of divisionalisation. The new structures were supported by the introduction of standardised accounting rules, standard costing based on standard volumes and centralized cash controls as well as the new ROI model (Sloan, 1965; Johnson and Kaplan, 1987).

4.3. Sloan and the constitutive role of management accounting concepts Although he did not use the term, Sloan (1965) had his own version of ‘organizational sensemaking’ as he described the challenges and solutions developed in his time at GM. Sloan (1965) was unambiguous about the key role of the principle of rate of return (ROI) and how the practices had been brought in by executives from Du Pont. Sloan (1965) also described how the interaction between texts and practice had influenced the financial discourse in the early part of the 20th century. He explained that: The specific forms of financial control in General Motors were introduced in good part by Donaldson Brown, who came to General Motors from the du Pont Company at the beginning of 1921, and Albert Bradley, his young associate who came to General Motors in 1919 and who was to succeed me as chairman of the board. Their contributions to financial thought have long been recognized. They wrote papers on the subject which are classics of the 1920s, and at the same time put their concepts into practice in General Motors. (Sloan, 1965, p. 116). Sloan’s (1965) work shows that although practicing managers tend to rationalise their decisions on a contingency basis, they also recognize the influence of texts and may even exhibit an ontologically sophisticated view on the relationship between texts and practice. For example, Sloan (1965) used the imagery of “the rules of the game” when talking about business. In respect to ROI, Sloan argued that: . . .I imagine that every businessman evaluates profits in terms of his total investment. It is a rule of the game so to speak (1965, p. 140, emphasis added). Since in discourse analysis, it is argued that managers construct their organizational reality from accounts, orga-

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nizational charts, sales graphs and so on, it can be seen that such texts do not simply represent reality, they help to shape it (Phillips and Hardy, 2002). The constitutive nature of management accounting rules and routines in the coordination of the firm means that the divisionalised corporation is defined and enabled through the availability and capability of management accounting procedures and concepts. Indeed, the forms of organizational decentralization are often expressed in terms of accounting concepts such as “cost centre”, “profit centre” and “investment centre” (Seal et al., 2008). Writing in an accounting journal some years after the initial publication of Strategy and Structure (Chandler, 1962), Chandler and Daems explained the key link between ROI and divisionalisation as follows: At General Motors and du Pont, as became true at other enterprises adopting the new multidivisional form, the top line executives were relieved of all day-to-day operating responsibility. These tasks were left to the division managers and their line department executives. Assisted by a large financial and advisory staff (organised along functional lines), the general executives concentrated on monitoring divisional performance in terms of rate of return on investment (using Donaldson Brown’s formula) and market share’ (1979, p. 14). Chandler and Daems (1979) acknowledged the importance of an emerging managerial discourse in spreading what they call ‘modern’ techniques. As Chandler and Daems put it: (Modern methods of administrative coordination and allocation) . . . have become the standard operating procedures in most modern business enterprises in Europe as well as the United States to carry out the fundamental economic functions of the modern firm: coordination, monitoring and allocation. And so they have become the standard subjects taught at business schools on both continents (1979, p. 17).

4.4. The institutionalization of the financial control style Chandler and Daems (1979) were in effect announcing the institutionalization of both ROI and the divisionalised company. At the level of the company, the techniques of administration associated with divisionalisation and ROI became standard operating procedures or in institutional parlance, routinised (Burns and Scapens, 2000). At the level of academic institutions, the divisionalised company and its associated control techniques were taught as representative of good practice and modernity. Furthermore, an elaboration on the discourse of the expansion of the divisionalised company – the diversified conglomerate – was also proposed as a desirable organizational form. This organizational form had its own specific discourse or rhetoric based around the expansion into unrelated industries. Such unrelated expansion avoided anti-trust regulation but was enabled through a particular type of financial control style (Fligstein, 1991; Goold and Campbell, 1987).

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4.5. Changes in the wider managerial discourse: the de-institutionalization of the conglomerate and criticisms of ROI In CDA, the relationship between changes in material conditions and discourses can work in both directions. Just as organizational forms such as the conglomerate and practices such as ROI can become institutionalized via discourse (Phillips et al., 2004); the opposite process of de-institutionalization can be modelled using the same elements of action, text and discourse. Thus by the 1980s and 90s, the strategic managerial discourse swung against the conglomerate structure (Davis et al., 1994). Suggestions that the multi-divisional company or M-form had become an “organizational fossil” (Hoskisson et al., 1993) were related to arguments that emphasised a search for “core competencies” (Prahalad and Hamel, 1990) and proposed networked rather than hierarchical organizational structures (Thrift, 2005). This period also saw the revival of interest in forms of residual income such as Economic Value Added (EVA) as part of a wider call for VBM (Ittner and Larcker, 2001). Some of the criticisms of the conglomerate could be traced to theoretical developments in the academic discourse. In particular, the Modigliani-Miller revolution in finance with its advocacy of the “homemade alternative” in gearing and dividends had long provided an implicit criticism of corporate diversification. The corollary of these views was that value may be created by demerging unrelated businesses and subcontracting noncore activities (Davis et al., 1994). Indeed, the challenge for modern finance theory is not in explaining the fashion for focus that emerged in US and UK capital markets in the 1990s but rather in explaining why conglomerates ever had value in financial markets that were supposed to provide investors with opportunities for low cost diversification (Levy and Sarnat, 1970). In the related accounting literature, criticisms of ROI were emerging along with suggestions for the adoption of residual income (Solomon, 1966). Overall, it seemed that discourses in the finance and strategy literatures were beginning to de-legitimise the conglomerate form of organization (Davis et al., 1994). For example, Baker (1992) hypothesised that the rise and fall of the diversified conglomeration could be explained as a “market error” induced by a self-serving managerial discourse. As he put it: One possible explanation of these facts is that the market value increases that accompanied the acquisitions of the 1960s and early 1970s were the result of the capital market’s misunderstanding of the effects of conglomeration. Such a hypothesis supposes that during the 1960s and 1970s investors were fooled into accepting the arguments of managers (and many management theorists) that centralized decision-making and capital allocation would lead to synergies which would make the whole worth more than the sum of the parts (Baker, 1992, p. 1111).

4.6. The impact on the managerial discourse of material and regulatory changes Economic and regulatory changes may be seen as events which play a particularly significant role in CDA interpretations of organizational change. According to Fairclough: . . ., events (and therefore texts) are points of articulation and tension between two causal forces: social practices and, through their mediation, social structures; and the agency of the social actors who speak, write, compose, read, listen to, interpret them. (2005, p. 925). The decline of the conglomerate and of the financial control style was prompted by a convergence of economic and regulatory events. Baker (1992) argued that as the availability of managerial expertise and capital increased in 1980s, the advantages of the conglomerate as a mini capital market became less significant and a “bust-up” strategy became an efficient option. At the same time, a more relaxed attitude in US anti-trust policy made acquisitions in the same industry much easier. The 1980s saw the rise of the bust-up hostile take-over in the US (Jensen, 1986). Bhagat et al., argued that ‘(B)y and large, hostile takeovers represent the de-conglomeration of American business and a return to corporate specialization’ (1990, p. 2). They concluded that the main buyers of the dismembered pieces of conglomerates were strategic buyers and that hostile takeovers ‘. . .are not typically a reflection of change in the internal organization of the firm. . .’ (1990, p. 57). The relaxation of anti-trust regulation meant that diversification was no longer the only route available for growth-minded predators that could capture shareholder value through the simple exercise of market power. The next section picks up the relationship between social practice and discourse as the varying fortunes of ROI, VBM and SMA are traced in an historical account of GEC. The GEC case illustrates the international scope of the CCC and the way that managerial knowledge is transferred across national boundaries and across organizations and institutions. It also covers a period when the hegemony of ROI was questioned in the emergent discourses of VBM and SMA. 5. GEC: a case study in relation between organizational change and managerial discourses Expanding through acquisitions in the 1960s and 70s, GEC adopted a divisional structure and a financial control style which seemed to imitate the American pioneers of divisionalisation. GEC followed a similar pattern to the US model in that the action and texts that produced and sustained the structures and control mechanisms of the company were legitimised in the wider institutional sphere and by the prevailing discourse on strategy and structure. During the 1980s and 90s, however, the structure and management style of GEC were criticized through new discourses on organizational structure and financial strategy that led it to change its strategy, structure and management control system.

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5.1. Accounting ratios and control routines in GEC Just as the early days of divisionalisation in the US were associated with a few pioneering individuals so the business style of GEC was developed and sustained by an inner circle comprising Arnold Weinstock, Kenneth Bond and David Lewis. While the growth of GEC may sometimes have seemed haphazard and opportunistic, there was nothing haphazard about what Aris (1998) dubbed the ‘Weinstock system’. Aris describes the impact of Weinstock as follows: In time, the ‘Weinstock system’ with its hard-driving emphasis on managerial accountability and quantifiable performance would become legendary. It should be said that this ‘system’ did not come into being overnight: it took several years of trial and error for it to be refined, but by the mid-1960s, the main elements of what was, for many, a new and thoroughly alarming system of management were in place and in force (1998, p. 39). Weinstock was a graduate of the LSE with training in statistics. He was dismissive of the emerging craze for using management consultants and employing MBAs (Aris, 1998). He did, however, send one of his top finance managers to the US to learn about the use of financial ratios. The resulting Powell report became the basis for GEC’s monthly internal reporting system. Brummer and Cowe described the introduction of ratio analysis as follows: On the basis of the information that Powell brought back, Weinstock and Bond built seven key ratios by which their operating companies would be measured: return on capital, return on sales, sales as a multiple of capital employed, fixed assets and stocks, as well as sales and profit per employee (1999, p. 98). GEC applied a management style based on a small and spartan head office that sought to control a large number of generally unrelated business units (sometimes as many as 140). Never designed to fit a particular productmarket environment, Goold and Campbell (1987) classified GEC as managing diversity through a financial control style. According to Goold and Campbell (1987), the financial control style of management creates stand-alone companies, and does not formally intervene in the companies’ strategies but monitors results through financial targets. GEC seems to fit the model perfectly because while strategy was the responsibility of the various investment centres, Weinstock monitored their financial performance frequently and often personally. In GEC’s case, the financial links between the centre and the business units were particularly tight. The approach was constraining rather than encouraging. Goold and Campbell put it thus: Lord Weinstock sees his role as acting as a constraint on business management rather than as encouraging them to be bold. As Derek Roberts explained, ‘Weinstock would say that if you come to him with a project and he says to you “No, don’t go ahead with that one”, and you go away and never raise the subject again, them your project can’t have been very important.’. . .. (1987, p. 118).

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Business units had to submit a monthly report, which would be analysed by Weinstock. The format was rigid. The first page contained a number of figures such as the ratio of sales and profit to capital employed, debtors ratios and a cumulative record of sales per employee. Subsequent pages would include further details of significance to a financial accounting perspective such as a breakdown of provisions and capital employed. In the latter analysis, cash was identified as negative funding—the property of the parent rather than the subsidiary! There was relatively little emphasis on profit and loss and no attempt to consolidate results until the year-end. Every month, Weinstock would scrutinize the financial figures and ‘mark them like a school teacher—“10 percent return on sales? Could do better”’ (Bennett, p. 2, 1996). In short, accounting ratios were a central part of GEC’s routines of management and internal reporting. The pioneering practices of divisionalised companies such as Dupont and General Motors (including the use of ROI) were common knowledge in Britain by the end of the 1960s as were the more recent examples of growth through acquisition by companies such as Litton industries The expansion of GEC may have been aided by UK government policy but the management style was derived partly from the imitation of US methods and partly from principles derived from Weinstock’s earlier business experience in the boom and bust cycles of the UK TV and radio industry which had taught him the survival value of careful cash management. Indeed, over time, the company accumulated an infamous “cash mountain” as well as a reputation for a lack of organic growth (Goold and Campbell, 1987; Manley and Lloyd, 1989). Weinstock’s career and the growth of GEC illustrate the importance of understanding the interplay between action, institutional forces and managerial discourse. GEC’s management style was widely admired in the 1960s and 70s as reflecting just the sort of modern and disciplined traits that British industry had previously lacked. The role of myth and symbolism was extremely important in explaining Weinstock’s emergence as the dominant figure in the British electrical industry. In the late 1960s, Weinstock was ‘a key figure of contemporary British mythology’ and ‘a symbol of industrial efficiency’ (Jones and Marriott, 1970, p. 224). Thus although there was substance in the reporting routines that Weinstock introduced, their power was embellished beyond the confines of the company by their association with the mythological aura that surrounded Weinstock for at least two decades. In short, the managerial rhetoric associated with Weinstock was at least as influential as the substance of the Weinstock system in persuading key external actors such as investors and government. Thus, polishing its reputation for parsimony and tight financial control, the company could obscure a lack of organic growth through acquisitions. As with US conglomerates in the 1960s and 70s, anti-trust problems could be avoided as long as the acquisitions were not in related industries or were disguised as joint ventures (as with Siemens and Plessey). But, with a new stock market climate in the 1990s making life much more difficult for the conglomerate, demerger and strategic focus became more fashionable and the Weinstock

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Fig. 3. GEC/Marconi against the FTAllshare index. As explained later the company changed its name from GEC to Marconi. The down loaded chart referred to the company’s new name.

approach seemed out of step with a new managerial discourse. 5.2. Specific criticisms of GEC in the managerial discourse GEC had long been the target of more specific criticisms of its management style (Foster, 1989). Aris (1998) pointed out that while the company could milk the cosy “cost-plus” relationships in defence and telecoms through tight accounting controls, this form of management was roundly criticized in the more competitive consumer electronics sector. Aris (1998) quotes a widely publicized report by the management consultants McKinsey that is an excellent example of the change in business rhetoric that had been so influential in the US. McKinsey stated that: In terms of organisational evolution, many UK electronics companies have structures and management processes which were “state of the art” for the management of diversified portfolios in the late 1960s and the early 1970s, but which worked against the development of successful international businesses. Each have lean corporate centres primarily playing the role of a financial holding company, monitoring financial performance tightly but providing very limited planning and strategy formulation support (Aris, 1998, p. 164–165). One of the reasons that GEC could resist changing its structure and processes was that although its stock market performance was sometimes lacklustre, it could not be described as catastrophic. Its early growth and rewards had been spectacular and even Weinstock’s critics were unsure about the overall verdict on his era (Lorenz, 1996). Indeed, in the 1990s, the company actually performed pretty much as finance theory would predict for a diversified company with returns that matched its particular (low) risk profile. As can be seen in Fig. 3, GEC approximately tracked the FT All share index in the period before the change of management and strategy in 1996. If the change of strategy at GEC was not forced by stock market failure, then there must have been other factors in the institutional realm and, even more importantly, in the emerging critique of the conglomerate. Indeed, one spe-

cific question in the managerial discourse challenged not just GEC but other financial control companies: what value does the centre add? (Goold and Campbell, 1987). For if product-market strategy planning and implementation is delegated to the business unit, then all the centre seems to offer is an internal capital allocation role. Whilst the finance discourse in the early days of the divisionalised company might argue that an internal capital market might operate more efficiently than the external market, the emergent view (supported by finance theory) was that the external capital market was at least as efficient as internal allocation and that the centre did not add any value. Furthermore, investors might prefer to take the “homemade alternative” and construct their own portfolios through investment in stand alone businesses rather than pay corporate managers to do the same job! 5.3. The Simpson-Mayo era: new managers enact the new managerial discourse Although GEC’s institutional supports were weakened through the privatization and de-regulation of the UK telecoms and electricity generating sectors in the 1980s, it was only in 1996 that the company began to change its structures, processes and strategies (Aris, 1998). In common with other well known British conglomerates such as Hanson and BTR, GEC faced a crisis of succession as Weinstock, the creator and driving force behind the company, worked on until he was 72. The dismantling of the Weinstock control system finally came about when a new managing director (George Simpson) and a new senior management team took over in 1996. Responding to fashionable calls to tie managerial performance to the stock market, Simpson was initially awarded an extremely generous contract based on “phantom options” that rewarded share price fluctuation rather than genuine growth. Pressure from institutional shareholders finally produced a scheme that was tighter but similarly linked to GEC’s stock market performance (Cave, 1996, p. 23; Laurance, 1996, p. 7). Interestingly, one of Simpson first changes was to ditch Weinstock’s financial ratio system (Observer, 1996, p. 21) and introduce

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an EVA form of value-based management. These changes in financial control systems accompanied a new strategy that rapidly moved the company away from its diversified structure. GEC now had a new business rhetoric that simultaneously espoused shareholder value and industrial focus. The new rhetoric for GEC was completely consistent with the twin managerial discourses of VBM and industry focus. The call for industry focus can be found in both financial and strategic management discourses and was supported by powerful institutions such as the financial communities in New York and London (Wall Street and The City). In particular, the strategic managerial discourse of the 1990s not only criticized the conglomerate but even questioned the M-form (Bettis, 1991). Rather than seeing the corporation as a collection of businesses, the quest was for it to identify and nurture its “core competences” (Prahalad and Hamel, 1990). George Simpson instigated a new management ethos of ‘GEC to be no. 1 or no. 2 in the world in particular industries’ with a specific focus on the telecommunications industry. As a symbol of the new focus, GEC changed its name to Marconi, a name reminiscent of the pioneer of radio and already used by its telecommunications division. The new strategic direction involved different ways of working. In particular, the old source of expansion through largely unrelated acquisition had been abandoned. The company was seeking organic growth and acquisitions that would enhance its market and technological capability. Acquisitions were intended to be integrated to fully exploit cross-selling and technological synergies. Other changes included a policy of globalization, with acquisitions in Europe, North America and the Asia–Pacific region combined with a greater integration of acquisitions. Financial reports that were sent to the group finance office were arrayed in a matrix structure so that items such as sales, profit and loss, and so on, could be viewed from both product and regional perspectives. The company introduced more outsourcing, with a new emphasis on process and multi-functional teams in supply chain management. As well as VBM, the company encouraged a greater diversity in reporting and decision-making innovations. In particular, non-financial performance indicators were reported directly to the finance group by a specially designated Performance Improvement function.

The GEC debacle illustrates very neatly a number of themes in this paper. A key associate of Simpson and former finance director of GEC, John Mayo published a series of articles in the Financial Times in which he reflected on his role in the debacle. Mayo effectively argued that GEC’s new strategy was entirely a response to shareholder preferences. As he put it:

5.4. Postscript on GEC: the tension between financialand product-market strategies

The timeline of these developments may be traced in Fig. 4 which links general relationships between action, texts and institutions in the evolution of divisionalisation with specific events and discoursal action at GEC/Marconi.

From a share price that peaked at over £12 in 2000, a series of profit warnings culminated in huge losses and a collapse in the share price to a few pence in 2002. GEC/Marconi became the biggest corporate failure the UK economy had ever known. However, the difference between Marconi and many other high-tech bubble companies was its transformation from a cash-rich conglomerate as GEC to a company that was effectively controlled by its debt and bond-holders and whose future survival as an independent manufacturing company ended with the acquisition of the rump of its factories by Ericsson in 2003.

Shareholders rightly wanted three things. First, the unwinding of the poison pill joint ventures, one effect of which was to protect management from unwanted takeovers. Second, they wanted focus, so they could allocate their funds according to sectors. However, this means that a company’s share price performance can often be dictated by the market’s view of the sector rather than the company’s own performance. . . Thirdly, investors wanted the business to invest the cash pile it held, as cash cannot earn the cost of capital (Mayo, 2002, p. 18). By “shareholders”, Mayo meant financial institutions based in and around the City of London. In response to Mayo’s self-valedictory analysis, Kay was quite scathing, putting it as follows: Successful businesses are more effective than their competitors in delivering goods and services that their customers want. They add value if their superior delivery enables them to command a premium price: or if they design their operations in such a way that they meet these needs at lower cost. The job of the corporate executive is to achieve these objectives. These points seem so basic to any understanding of business that one feels embarrassed at writing them down. If they are worth repeating, it is as a reminder to those who have been reading John Mayo’s account of his stewardship of Marconi in recent issues of the Financial Times (Kay, 2002, p. 13). These exchanges signify far more than a spat in the financial press. As Kay himself opined: Perhaps we shall move into an age in which senior executives again understand that managing companies is not about mergers, acquisitions and disposals, but about running operating businesses well. And that corporate strategy is about matching the capabilities of the business to the needs of its customers (2002, p. 13).

5.5. Incoherence at GEC and in the wider managerial discourse The case of GEC/Marconi illustrates not just a change from conglomerate to focus and from ROI to VBM but also traits of organizational incoherence which can be linked to a wider fragmentation of managerial discourse in the CCC. Unlike in its earlier days of divisionalisation when the discourse of the M-form and financial control via ROI were

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In the next section, the paper moves on to a discussion and comparison of the impact of the three key management accounting concepts: ROI, VBM and SMA. Each concept is informed by different relationships between academic and practitioner texts, discourses and institutions. Furthermore, the paper argues that the relative status of these approaches on the spectrum of action, text, discourse and institution helps to explain their differing impacts on practice. 6. Discussion: discourses, theories and the impacts of ROI, EVA and SMA on practice

Fig. 4. Action, text and discourse in the evolution of the divisionalised company.

closely linked (Sloan, 1965), the strategy discourse and the financial discourse became uncoupled from each other. Indeed, despite its adoption of VBM, GEC itself followed a disastrous strategy that ended with massive destruction of shareholder value. In the case of GEC, the disjunction between financial and corporate strategies can actually be traced in accounts of boardroom disagreements and the ex post analysis of the company’s collapse (Mayo, 2002; Kay, 2002). It can also be argued that the demise of GEC is not just a part of the story of the dotcom bubble. GEC’s failure can be linked to a specific problem that, as the stand-alone company that it had become, GEC was under a much greater pressure to get its product/market strategy correct than it was when it was a diversified conglomerate. In terms of managerial discourse, the single sector company’s strategy is more product- than finance-led. Unlike the diversified company, the focused company cannot just base its strategy on managing a portfolio of products in different industries and employ financial metrics such as ROI or residual income12 as a way of coping with the product variety (Fligstein, 1991; Goold and Campbell, 1987). It is not that financial metrics may not be necessary—it is rather that if they are not linked to an appropriate productmarket strategy they might, as in GEC’s case, prove to be an insufficient guide to managerial action. As the company failed, the ultimate inability of GEC to integrate strategic and financial logics seemed to suggest that some form of SMA could have helped managers understand the threats and opportunities. Management accounting researchers have suggested that SMA offers a potential unification between accounting and business strategy (Simmonds, 1981; Bromwich, 1990; Tomkins and Carr, 1996; Shank, 1989).

12 A version of residual income (such as EVA) is usually seen to be the key metric in a value based strategy approach.

The managerial discourse of GEC/Marconi includes a role for two specific management accounting concepts: ROI and VBM. A third management accounting approach, SMA, could be seen as ‘the dog that did not bark’—an approach that potentially just might have flagged up the strategic difficulties on the telecom industry. In this section of the paper, the discussion of the relative impact of these techniques on GEC is broadened out to review their wider significance in the CCC (Thrift, 2005). The relative status of ROI, VBM and SMA may be shown schematically in Table 1. Each approach is compared in terms of action, text, discourse and institutionalization. The final column then assesses the relative influence on practice. It should be stressed that the aim of the table is not to present a definitive empirical position on the use of these techniques but rather to illustrate how the CDA approach can be used to assess whether a particular concept can be seen as constituting a discourse and has been institutionalized in the CCC. 6.1. ROI The table suggests that the influence of ROI on practice has been institutionalized—that it is so prevalent that it is ‘taken-for granted’. More critically, we might even elaborate on Johnson and Kaplan (1987) who argued that the institutionalization of ROI in business schools detached it from its originally, productive role in organizational sensemaking. As well as becoming embedded in the dominant managerial discourse of the divisionalised company, the concept of ROI could be also be related to a wider financial accounting discourse of ratio analysis, which was codified and legitimised by the wider institutions of financial reporting (Llwellyn and Milne, 2007). The use of ROI and other financial ratios at GEC was not unique because the company was one organization at the confluence of the factors that contributed to the institutional and organizational embedding of ROI. ROI was consistent with the organization form and strategy at GEC. At a more general and abstract level, ROI began and spread at a time when the managerial discourse of capitalism emphasised order and control (Thrift, 2005). GEC was only unusual in that it was relatively late in moving away from the conglomerate form given the wider de-institutionalization of that structure (Davis et al., 1994). The late change in GEC was not due to a failure of the new managerial discourse of focus but rather because of the absence of financial crisis at GEC and the pro-

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Table 1 Comparisons of ROI, VBM and SMA. Management accounting technique

Source of text/action

Part of managerial discourse?

Institutionalized?

Impact on practice?

Return on Investment (ROI) Economic Value Added (EVA) Strategic Management Accounting

Organizational sensemaking Academy/consultants Academy

Yes Yes No

Yes No No

High Moderate Negligible

longed dominance of Weinstock. Once Weinstock retired, the new managerial team of Simpson and Mayo were quick to focus the company and introduce VBM. As noted earlier (Fairclough, 1995), CDA allows space for the impact of human agency and interests especially when there were powerful organizational players such as Weinstock. 6.2. VBM In academic texts residual income and ROI are presented as competing divisional performance metrics. Yet, in contrast to ROI, residual income emerged as an academic text in the 1960s (Solomon, 1966) but then failed to penetrate the wider managerial discourse until its transformation into VBM and promotion by management consultants several decades later as EVA (Otley, 1999). In short, residual income remained as a theory, as an academic text, but did not affect practice until, with some changes, it became part of the managerial discourse. Whilst the role of consultants is important, the resurgence of residual income could also be traced to the growing influence of finance theory which affected discourses about modes of divisionalisation (e.g., M-form v conglomerate) as well as specific financial metrics. In GEC, the new management team understood that the City liked strategically focused, ‘free play’ companies and that it also liked the rhetoric of shareholder value which was associated with VBM (O’Hanlan and Peasnell, 1998). In terms of the Phillips et al. (2004) model, the managerial discourses that influenced management change at GEC were legitimised by wider institutions. 6.3. SMA SMA supports Kay’s critique (2002) of GEC that the company’s new strategic position had not been fully analysed by senior managers. GEC de-diversified (as suggested by management and finance theories) but then neglected to anticipate the action of competitors apart from hoping (at least according to Mayo) that they could be taken over! In short, the most ineffective approach of the three management accounting concepts in terms of practical impact has to be SMA. For an approach that might, in principle, have “saved GEC/Marconi”, there is little evidence of it as an organizational sensemaking device, as a managerial discourse and certainly no evidence of institutionalization. A case finding which reports a lack of impact of SMA is not particularly surprising and confirms other survey and case study research (Guilding et al., 2000; Roslender and Hart, 2003). Yet the lack of impact of SMA cannot be presented in terms of a powerful academic discourse inexplicably rejected by practitioners. Indeed, it is plausible to argue that SMA ‘failed’ as an academic discourse before it could influence the wider managerial discourse.

Even an early and prominent advocate of SMA [although he preferred the term, strategic cost management (SCM)], Shank (2007) argued that there was an ‘unravelling of the pieces’ associated with the SCM/SMA literature suggesting a collection of isolated texts rather than evidence of an emerging discourse. As Shank put it: By 2000, there was a fifteen-year history of great ‘beginnings’, ‘pilot’ projects, and ‘cameo’ appearances for SCM, but not much more. It has been a great topic on the lecture circuit and in cost management symposia. In military parlance, ‘it briefs well’! But the topics had not been gaining traction in mainstream academe or in the corporate world. . .(2007, p. 359). In a similarly pessimistic review, Langfield-Smith (2008) made much of the difficulty in agreeing a definition of SMA. If a broad definition is accepted which sees SMA as a collection of well-known techniques such as net present value, activity-based costing and the balanced scorecard then it might be argued that these practices have had some impact on practice. But if a narrow definition is adopted which seeks an explicit link between management accounting tools and strategic management concepts (Langfield-Smith, 2008) then the practice of SMA seems to have languished. In this paper, the narrower definition seems more appropriate since whilst GEC did adopt many managerial innovations in performance management and supply chain management, its ultimate collapse could be attributed to faulty strategic positioning. With some critics suggesting that SMA is just ‘a figment of academic imagination’ (Lord, 1996, p. 364), it might be argued that SMA has not achieved much respectability even within the academy. Strong theoretically-based proposals for SMA in individual texts (see, e.g. Bromwich, 1990) have not developed into either a coherent normative SMA discourse or contributed much to the managerial discourse. Yet the apparent incoherence of the SMA discourse must be put into the context of the fragmentation and disarray of the wider strategic management discourse in which an apparently settled relationship between strategy and structure (Chandler, 1962) has been replaced by criticism and neglect (Whittington, 2002). Indeed, the absence of research on strategy and structure and the process of strategising have led to the recent establishment of a new journal and website in order to try and revive this research agenda (Whittington, 2003). 7. Conclusions In this paper, it is assumed that managerial discourse links academic theory and practice through the interplay between action, text, and institutions. Some managerial action generates texts which become part of wider dis-

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courses. These discourses are legitimised by specialist institutional producers of managerial texts such as business schools and management consultants. Thus senior managers, business schools, management consultants and management gurus all contribute to the production of managerial discourse. The paper has argued that managerial discourses have changed as capitalism has become more reflexive or ‘knowing’ with an increasing role in the CCC for some academic theories. The changing nature of the managerial discourse helps to explain changes in the application of management accounting concepts such as ROI, VBM and SMA. Tracing the particular managerial discourse of the divisionalised company, it is argued that for many years there was a tight link between corporate strategy, corporate structure and ROI. ROI made sense to organizational members, was part of the managerial discourse, and was institutionalized, and therefore had a considerable impact on managerial practice in the diversified conglomerate organization. The managerial discourse changed with criticisms of the conglomerate form and the espousal of alternative metrics related to VBM such as residual income. VBM did become part of the managerial discourse in that it was supported by some academic texts, by some senior organizational members and by some in the financial community. However, VBM has not achieved the level of acceptance or the impact on practice of ROI in its heyday. Lastly, SMA was a concept produced by academics which has not become part of the managerial discourse, has never been institutionalized and, at least so far, has had a negligible impact on practice. More generally, although it has been argued that managerial discourse links theory and practice through the interplay between actions and texts, the transfer of concepts from theory to practice and from practice to theory is a far from seamless process. Whilst academic theories may feed into the managerial discourse by linking up with other texts in wider organizational discourses, the discursive basis of such links may not usually be the criteria of validity and rigour that generally legitimises research in the academy. Thus, the influence of managerial practice on academic theory may be weakened because legitimised research methods and knowledge claims in the academy may hinder appropriate forms of investigation and theory production. These tendencies have long been noted in the management accounting literature in the “relevance lost” discourse. Similarly, the transfer of theoretical concepts from the academy to practice may either fail to take place or theory may be applied in a partial or rhetorical manner. CDA shows how power, self-interest and rhetoric can affect the acceptance or rejection of managerial theories. In the particular instances in this paper, a strong intellectual case for SMA has not led to its acceptance in the mainstream managerial discourse with a corresponding reluctance of managers to practise its techniques and realise its potential capacity to re-unite financial- and product-market strategies. With respect to VBM, although the influence on practice has been more significant than with SMA, the application of the concept has been partial. The rhetoric of shareholder wealth espoused by VBM has been embraced more enthusiastically than the detailed technology of revised accounting met-

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