Restructuring the management accounting function: A note on the effect of role involvement on innovativeness

Management Accounting Research 16 (2005) 157–177

Restructuring the management accounting function: A note on the effect of role involvement on innovativeness David Emsley ∗ Discipline of Accounting and Business Law, School of Business, University of Sydney, NSW 2006, Australia Received 26 June 2004; accepted 5 February 2005

Abstract This paper examines the effect of role involvement on management accountants’ innovativeness. Role involvement concerns the degree to which a management accountant has a business unit or functional (accounting) orientation and innovativeness is examined in terms of the number of, and effort devoted to, management accounting innovations as well as their radicalism. Empirical support for the relationship between role involvement and innovativeness is provided using data gathered from questionnaires and interviews. Crown Copyright © 2005 Published by Elsevier Ltd. All rights reserved. Keywords: Innovation; Innovativeness; Role involvement; Structure

1. Introduction Innovation is generally regarded as an important research topic because innovations are believed to enable organizations to successfully adapt to, and survive, volatile business environments (Rogers, 1995). Management accountants’ contribution to this innovation process is to ensure that managers are provided with information that continues to be relevant as business circumstances change. However, management accountants have been criticized for their inability to innovate (Kaplan and Johnson, 1987) and these perceptions continue to persist in light of the relatively low success rate in implementing ‘new’ management accounting innovations such as ABC and the balanced scorecard (Cobb ∗

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et al., 1992; Reeve, 1996; Chenhall and Langfield-Smith, 1998a; Lukka and Granlund, 2002). This lack of innovation was described by Kaplan (1986) as ‘accounting lag’ that needs to be minimized in order to keep management accounting relevant to the changing information needs of managers. However, at the time Kaplan (1986) coined the term ‘accounting lag’, there was little research about management accounting innovation and researchers have only turned their attention to this issue in recent years. This research into management accounting innovation has now matured into several different streams and this literature is reviewed in order to locate this study within that literature. Concurrent with the development of the management accounting innovation literature, researchers have also examined the changing roles of management accountants. Management accountants have long been known to have multiple roles, which have been described in terms of scorekeeping, attention directing and problem solving roles (Simon, 1954). Whereas the scorekeeping and attention directing roles typically focus on compliance reporting and control-type issues (respectively), the problem solving role focuses on providing business unit managers with relevant information for decision making (Friedman and Lyne, 1997). From the late 1980s, both the professional and academic literatures started to examine how these roles have been changing (Bromwich and Bhimani, 1989; Hiromoto, 1991; Scapens, 1991; Burns et al., 1996; Atkinson et al., 1997; Burns and Scapens, 2000a; Friedman and Lyne, 2001). A number of commentators have suggested that the problem solving role has become relatively more important as business unit managers have faced increasingly uncertain environments where new and different information is needed to manage those uncertainties (Granlund and Lukka, 1998). Where management accounting information has not kept pace with these uncertainties, the relevance of management accounting has been increasingly questioned by business unit managers (Murphy et al., 1995; Kaplan, 1986).1 To more closely meet the changing information needs of business unit managers, there have been calls for management accountants to spend less time working within the accounting function and more time working in business units with the users of management accounting information (Cooper, 1996; Evans and Ashworth, 1996). Such calls relate to management accountants’ role involvement and the degree to which they have a functional (accounting) or business unit orientation. While role involvement has not been explicitly measured in the management accounting literature, the characteristics associated with a business unit or functional (accounting) orientation have been observed in many case studies and this paper traces the evolution of role involvement from the organizational literature into the management accounting literature. Combining the role involvement and innovation literatures raises the possibility that management accountants’ role involvement and their innovativeness might be related. A theoretical framework is developed that seeks to not only explain why management accountants with a business unit orientation will not only introduce more innovations but also why they tend to be more radical (compared to management accountants who have a more functional (accounting) orientation). Two hypotheses emerge from this framework and evidence that supports these hypotheses is presented using data gathered from questionnaires and interviews. However, before the theoretical issues are developed, the management accounting innovation literature is reviewed in order to locate this study within the literature and to understand how it contributes to, and extends, that literature.

1 However, these changes are not necessarily universal and such changes have not been noted in the roles of Japanese management accountants for example (Hiromoto, 1991).

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2. Literature review The literature on management accounting innovation has formed into several different streams of research, which have all contributed to a greater understanding of management accounting innovations, albeit from different perspectives (Gadamer, 1975). While most management accounting innovation studies take a demand-side perspective, the supplyside is important because it provides an alternative explanation for the relatively low implementation rate of ‘new’ management accounting innovations (Clarke et al., 1996). For example, Jones and Dugdale (2001) argued that certain high profile individuals have promoted the supply of management accounting innovations (such as ABC and the balanced scorecard) to exploit potential consulting opportunities rather than because there is any hard evidence that these innovations are efficacious (Lukka and Granlund, 2002). However, demand-side studies dominate the literature which assumes that innovations develop as a result of an organization’s demand for them and this literature can be split into process and content studies (Van de Ven and Rogers, 1988; Wolfe, 1994). Process studies typically use longitudinal case studies to examine ‘how’ and ‘why’ innovations develop and they often question the degree to which innovation is a rational process (where the benefits of management accounting innovations are readily perceived and eagerly adopted by organizations keen to improve their competitiveness). Various theories have been used to explain the development of innovations, for example, actor-network theory examines inter alia the interconnectiveness between actors (e.g. champions) and boundary objects (innovations) (Briers and Chua, 2001). Other studies have used institutional theory to explain innovation through its core constructs of coercive, mimetic and normative isomorphism (DiMaggio and Powell, 1983) and these constructs mirror Abrahamson’s (1991) framework of forced choice, fashion/fad and efficient-choice constructs. Although findings from these case studies cannot be generalized (Chenhall, 2003, p. 160), the case studies suggest that there are several different approaches to understanding the development of management accounting innovations. In contrast, the content studies often use cross-sectional surveys to evaluate the relationship between different explanatory factors and innovations. These studies believe that innovation is a broadly rational process whereby organizations consciously position themselves in order to enhance their level of innovation and, ultimately, their competitiveness and performance (Abrahamson, 1991, p. 592). Wolfe (1994) divides this research into the ‘diffusion of innovation’ research and the ‘organizational innovativeness’ research. Diffusion of innovation research examines the diffusion (or rate of adoption) of a single innovation through a population of organizations at either a national (Bjornenak, 1997; Malmi, 1999) or international level (Guilding et al., 2000; Clarke et al., 1996; Firth, 1996). The diffusion of the innovation is plotted over time and seeks to identify and contrast the early and late adopters. Organizational innovativeness research focuses on those explanatory variables that are associated with the adoption of innovations (regardless of whether organizations are early or late adopters) and these explanatory variables have been examined at an organisational level (Gosselin, 1997), a departmental level (McGowan and Klammer, 1997; Krumwiede, 1998; Williams and Seaman, 2001) and at the level of the individual innovation itself (Dunk, 1989; Shields, 1995). However, these explanatory variables have often been selected on the basis of their significance in the organizational literature rather than their importance in management accounting settings. This seems odd because Kaplan’s (1986) notion of accounting lag suggests that there is something distinc-

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tive about management accounting settings that systematically hinders management accounting innovation and this may go some way to explaining inconsistent findings between the organizational innovation and the management accounting innovation literature (Libby and Waterhouse, 1996; Williams and Seaman, 2001). Such inconsistency indicates that the theory that links these explanatory variables to management accounting innovations needs to be more closely tailored to management accounting settings. One way to identify explanatory variables that are likely to be important in management accounting settings is to reflect upon the findings of case studies. If a number of case studies point to the importance of a particular explanatory variable, then a study that specifically sets out to study that variable is probably warranted (Chapman, 1997; Harrison and McKinnon, 1999, p. 504). Moreover, such case studies can also help to explain how explanatory variables affect management accounting innovations. These relationships can subsequently be examined using cross-sectional survey research that: (i) develops more carefully the a priori theoretical relationship between the explanatory variable and innovations; (ii) develops the various constructs that make up the explanatory variable; (iii) gathers evidence to assess the significance of the relationship; and (iv) examines the degree to which the results can be generalized. This paper is located within this organizational innovativeness stream of research and the explanatory variable of role involvement will be examined for its effect on the level and radicalness of management accountants’ innovativeness.

3. Theory development The theory development section is comprised of three main parts. The first part differentiates the innovation research (which concerns individual innovations) from the innovativeness research (which deals with any and all innovations). The second part develops the role involvement of the management accountant as an explanatory variable by tracing its development through the organizational and management accounting literatures and defining it as the degree to which a management accountant has a business unit or a functional (accounting) orientation. The third part examines the theoretical relationship between a management accountant’s role involvement and innovativeness. 3.1. Innovativeness as a dependent variable Many innovation studies in management accounting settings focus on a single innovation as the unit of study, and Lukka and Granlund (2002) indicate that ABC is the single most studied innovation. In contrast, this study focuses on innovativeness as the unit of study, which examines the whole range of innovations management accountants might develop but, in order to understand innovativeness, it is necessary to discuss the concept of innovation first. Rogers (1995) defines an innovation as “an idea, practice or object that is perceived as new by an individual or other unit of adoption” and while this definition is commonly used (e.g. Gosselin, 1997; Malmi, 1999; Perera et al., 2002), it has two important consequences. First, the definition encompasses many different types of innovation including new products or services, production process technologies, new structures or administrative systems and new plans or programs relating to organisational members (Damanpour, 1991). Applied to management accounting settings, innovations include not just management accounting techniques but also changes to work practices (Barbera et al., 1999).

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The second, and more important, consequence of the definition is that an innovation can be recognized as an innovation anywhere along its development path from the initial idea to the point where it is fully implemented (Tuopela and Partanen, 2002, p. 9). Tying down innovations to a more precise point on this continuum is difficult because, although researchers have identified a large number of incremental stages in the innovation process, “these stage distinctions are not clear cut” (Krumwiede, 1998, p. 247). Other difficulties arise because not all innovations necessarily go through the same stages or in the same order and can even be in more than one stage at any one time. Consequently, without being able to define the moment when an idea becomes an innovation, the definition of an innovation reverts to the origin of the innovation, which is the idea itself. While this definition is less problematic for research that examines a single innovation such as ABC (where the objective is simply to demonstrate that the phenomenon being studied is an innovation), it becomes more problematic when examining the concept of innovativeness because innovativeness is concerned with the full range of innovations developed, each of which can be at a different point on the continuum from initial idea to being fully implemented. If these differences are not taken into account, a management accountant who has several ideas but implements none of them could be classified as more innovative than a management accountant who progresses a single innovation to implementation. This seems counterintuitive and consequently this paper views innovativeness both in terms of the number of innovations (an outcome measure) as well as the effort devoted to innovating (an input measure). Despite these issues, there are three reasons why it is important to study innovativeness (as opposed to a single innovation). First, innovativeness gives a more complete reflection of the degree to which a management accountant is innovating than can be determined by studying any single innovation and this is appropriate where the theory examines what predisposes management accountants to innovate more generally. Second, while much might be known about a single innovation, say ABC, it does not follow that ABC is representative of innovations more generally. Factors that are important to ABC may not be important to other innovations but, as the number of innovations studied increases, the influence of explanatory variables relevant to any single innovation decreases, enabling generalizations to be more easily made (Tornatszky and Klein, 1982; Damanpour, 1991, p. 562). Third, innovativeness embraces a range of innovations that then enables them to be categorized. Categorizing innovations is important because it opens up the possibility that explanatory variables, such as role involvement, affect different innovations in different ways (Burns and Scapens, 2000a). This contingency-type approach might be expected given the prevalence of contingency theory elsewhere in the management accounting literature (Chenhall, 2003) but these relationships have yet to be explored to any great extent. One category of innovation that has long been seen as important in the management literature is that of radical and non-radical innovations (Zaltman et al., 1973) and the radicalism of innovations has started to attract the attention of management accounting researchers (e.g. Soin et al., 2002). Radicalism reflects how different an innovation is to existing practice (Gopalakrishnan and Damanpour, 1997) and radicalism is examined using Kirton’s typology (Kirton, 1976, 1984). Radical innovations represent new management accounting techniques or practices that are characterized by a desire to ‘do things differently’ (such as introducing customer profitability analysis for the first time) whereas non-radical innovations represent changes to existing management accounting techniques or practices that are characterized by a desire to ‘do things better’ (for example, making improvements to an already established system of variance analysis).

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3.2. Role involvement as an explanatory variable The second part of the theory section examines the development of role involvement as an explanatory variable. The multiple roles of management accountants (scorekeeping, attention directing and problem solving) have long been recognized (Simon, 1954), as has their potential for conflict (Hopper, 1981). While the term role involvement was initially introduced in the organizational literature by Kwon and Zmud (1987), the conditions that presaged the development of role involvement in management accounting settings began to be documented in case studies that noted a move away from functional to business unit structures (Dent, 1991; Cobb et al., 1995, p. 171). The term role involvement was first applied in management accounting settings by Anderson (1995, p. 31) who defined it as the “centrality of the management accountant’s job, authority and responsibility to the comptroller’s department” where high (low) centrality reflects management accountants with a functional (business unit) orientation. In Anderson’s (1995, p. 31) case study of ABC at General Motors, she observed that a business unit orientation provided “strong micro foundations” for innovation to develop and flourish at the “local level” where a high level of interaction with users of management accounting information can take place. More recent case study research (Friedman and Lyne, 1997; Chenhall and Langfield-Smith, 1998b; Tuopela and Partanen, 2002) supports Anderson’s (1995) findings and suggests that management accountants whose role involvement is orientated towards the business unit will spend more time within the business unit and will have a greater mutual understanding and empathy towards the information needs of business unit managers. This situation is increasingly likely where management accountants formally report to business unit managers who may also evaluate their performance. These characteristics are reflected in the degree to which a management accountant has a business unit or functional (accounting) orientation but while these case studies have often witnessed the concept of role involvement they have not always labelled it as such, consequently, the cumulative evidence indicating the importance of role involvement has probably been understated.2 3.3. Role involvement’s effect on innovativeness The final part of the theory section describes the theoretical relationships between role involvement and the innovativeness of management accountants. Role involvement is expected to affect innovativeness in terms of: (i) knowledge about the appropriateness of innovations; (ii) acceptance of the innovations by business unit managers; and (iii) incentives to innovate. The first and second aspects of role involvement affect the ability of management accountants to innovate while the third affects their motivation to innovate. Each of these aspects of role involvement are now discussed in turn. 3.3.1. Knowledge about the appropriateness of innovations To successfully innovate, the management accountant needs to be aware of an innovation as well as understanding its appropriateness to a business unit manager’s needs. However, “awareness” and “appro2 Note that role involvement is different to McGowan and Klammer’s (1997) “user involvement” in at least three ways. (i) User involvement examines the degree to which users (i.e. business unit managers) were involved in developing the innovation rather than management accountants. (ii) User involvement was only examined in terms of developing one innovation (ABC) rather than a range of innovations. (iii) User involvement examines the effect on users’ satisfaction with ABC implementation rather than the likelihood of developing innovations.

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priateness” are separate issues and role involvement is only argued to be important for understanding the appropriateness of innovations for business unit managers’ needs. Management accountants with a business unit orientation are more likely to know whether an innovation is appropriate or not because they work alongside and/or report to business unit managers. This proximity to, and contact with, business unit managers means that these management accountants will be more familiar with the sort of decisions business unit managers make, more likely to understand the information that is of most value to making those decisions, consequently, they are more likely to know which innovations are appropriate for producing that information. As these innovations need to reflect changing business unit needs, management accountants with a business unit orientation are less likely to be constrained by functional (accounting) dictates and consequently the innovations are also more likely to be viewed as radical (relative to existing practice). In contrast, the opposite is more likely to be true for management accountants with a functional orientation who work closely with, and/or report to, the accounting function. They will be less familiar about business unit decisions and the information that is valuable in making those decisions, consequently, they are less likely to design and implement innovations that produce information relevant to business unit managers. Expressed another way, management accountants with a functional orientation are less likely to perceive differences between business unit managers’ needs, consequently, they tend to present standard or “vanilla” solutions to business unit managers when a more radical or bespoke approach is required (Anderson, 1995, p. 37). 3.3.2. Acceptance of innovations by business unit managers Knowledge about the appropriateness of a management accounting innovation is likely to be a necessary but insufficient step to initiating innovations. The second way role involvement affects the development of innovations concerns the degree to which management accounting innovations are accepted by business unit managers. Innovations initiated by management accountants with a business unit orientation are more likely to be accepted because they can reduce business unit managers’ perceived uncertainty about the benefits of the innovations as well as lessen their resistance to innovations. The perceived uncertainty surrounding the benefits of management accounting innovations is likely to be relatively high because they are administrative innovations whose benefits are difficult to demonstrate and observe ex ante, at least relative to technical innovations (Dunk, 1989). For example, the benefit of a technical innovation that makes a machine run faster is probably easier to demonstrate than the improvement to decision making as a result of implementing an administrative innovation such as ABC. Consequently, to be confident that the claimed benefits of a management accounting innovation will materialize, the business unit manager needs to spend time becoming familiar with the information generated by the innovation in order to appreciate its usefulness. However, the business unit manager can short-cut this process if s/he can trust the management accountant’s opinion about the benefits and costs of an innovation and this trust is more likely where the management accountant has a business unit orientation because trust will have developed as a result of working together in the past. This situation is especially relevant for radical innovations whose benefits are often harder to demonstrate ex ante and greater resources are needed to implement them. In contrast, less trust is likely to exist between a business unit manager and a management accountant with a functional (accounting) orientation, consequently, the business unit manager will be less certain about the benefits of the innovation and will be less likely to accept it as a result.

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With regards to minimising the level of resistance to the innovation, social identify theory (Janis, 1982; Tajfels, 1978) indicates that management accountants with a business unit orientation will become a member of the “in” group (i.e. the business unit) and, consequently, will find it less difficult to get their views accepted within the business unit than management accountants with a functional orientation who will be viewed as members of an “out” group. In the former case the management accountant tends to be viewed as “one of us but different to us” compared to the latter case where the management accountant is viewed as “one of them”. This situation is especially relevant for radical innovations where the departure from existing methods is larger and a greater faith in the management accountant is necessary (both in terms of the innovation’s benefits to the business unit and any potential downside that might accrue to the business unit as a result of implementing the innovation). 3.3.3. Incentives to innovate The third way a management accountant’s role involvement affects the development of innovations is through their incentives to innovate. Incentives include a management accountant’s rewards and future prospects but also includes the enhanced job satisfaction that comes from greater job enrichment (Argyris and Kaplan, 1994). These incentives are likely to be largely determined by the management accountant’s superior who, for management accountants with a business unit orientation, is likely to be the business unit manager. In such situations, incentives are more likely to be geared to the achievement of business unit goals where the management accountant will aim to produce information that is geared towards achieving these goals and, as such, will be less likely to be constrained by conventions of functional accounting; moreover, in order to meet the various needs of the business unit, innovations are likely to be radical compared to existing practice. For management accountants who are functionally orientated, their superiors will be accountants who are more likely to align management accountants’ incentives with the achievement of functional goals (such as managing cash flows and compliance reporting) than business unit goals. In such situations, there is less incentive and motivation for them to pursue innovations designed to achieve business unit managers’ goals. This situation is especially likely if management accountants with a functional orientation have to invest considerable time and effort to convince the business unit manager of the innovation’s benefits or if pursuing those innovations threatens the achievement of functional goals. These arguments all lead to the expectation that the role involvement of management accountants will be associated with their innovativeness and this is formally stated in the following two hypotheses. Management accountants with a business unit orientation will be more innovative (H1 ) and more likely to develop radical innovations (H2 ) than management accountants with a functional (accounting) orientation. These hypotheses are now empirically examined and the next section of the paper deals with the sampling, data collection and data analysis that was undertaken to test these hypotheses. The paper concludes by discussing the results and how the study contributes to the literature as well as examining the limitations of the study and ideas for future research. 4. Method This section is split into two parts. The first part describes the data collection process that outlines the sampling process, the scales used to measure the variables as well as the hybrid use of questionnaires

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and follow-up telephone/face-to-face interviews to collect the data. This hybrid method was adopted to resolve uncertainties, validate responses as well as to gather additional qualitative data, and this type of method has long been used in this type of research (see Ettlie et al., 1984; Foster and Swenson, 1997; McGowan and Klammer, 1997). The second part of this section describes the data analysis used to test the hypotheses. 4.1. Sample Fifty companies located in Dublin, Ireland were randomly selected from the commercial directory Kompass that included a broad cross-section of industries such as banking, brewing, computing, construction, electronics, hotels, insurance, newspapers and retail. Randomising the sample was important for controlling potentially confounding factors (at least for those variables not correlated with role involvement). Sampling was restricted to medium-large companies (i.e. more than 400 employees), partly to control for size, but also to increase the likelihood that a management accounting position would exist within the company. To gain a high response rate, the techniques suggested by Dillman (2000) were followed including: (i) initial personal contact with selected respondents to promote participation; (ii) a short questionnaire that could be answered without the need to seek additional information; (iii) promise of feedback and confidentiality; and (iv) multiple e-mail, fax and telephone follow-ups. A questionnaire was used to measure the explanatory variables of role involvement and perceived environmental uncertainty (a measured control variable), and the questionnaire plus the follow-up interviews were used to measure the dependent variable of innovativeness as well as categorizing innovations as radical and non-radical. In order to make contact with a management accountant with sufficient authority to initiate innovations, each company was telephoned to obtain the name and extension number of the most senior management accountant.3 A letter was sent to the management accountant explaining the purpose of the study and a couple of days later, s/he was telephoned to ask whether s/he would be prepared to take part in the study. Thirty-eight management accountants in the 50 companies approached agreed to participate and the questionnaire was then e-mailed, faxed or mailed. Thirty-three questionnaires were returned resulting in a 66% response rate (of the 50 originally approached). Thereafter arrangements were made to either visit or telephone the management accountant for a follow up interview. All the management accountants who returned a questionnaire were subsequently interviewed which lasted between 20 and 85 min. 4.2. Measures 4.2.1. Management accounting innovativeness The number and radicalness of management accounting innovations as well as the amount of effort devoted to them were measured using the questionnaire in Appendix A that was developed using a 3

The objective was to make contact with management accountants with the authority and wherewithal to make innovations and to avoid being referred to junior management accountants. While it was a fairly straightforward process to make contact with a senior management accountant, organizations varied markedly in how the management accountants were structured. In some organizations a senior management accountant was in charge of a team of management accountants within the accounting department but in many others there was no single senior management accountant but a number of equally senior management accountants who were spread across different business units. Consequently, contact was made with senior management accountants even though there might not always be a single most senior one.

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method similar to Bigoness and Perreault (1981). The questionnaire is also broadly consistent with the scale developed by Libby and Waterhouse (1996) that has subsequently been used by Williams and Seaman (2001). However, improvements were made to the Libby and Waterhouse (1996) scale, largely as a result of suggestions made by them. For example, the number of innovations identified increased from 22 to 30 as a consequence of breaking down the broad innovation of “strategic planning” into its constituent parts such as value chain analysis and competitor costing. The questionnaire asked management accountants about the changes to management accounting practices that they had initiated over the previous 2 years. It was important to only include innovations the management accountant had initiated because those were the only ones that could be associated with the role involvement of the management accountant. Other innovations might have been imposed on the management accountant (for example, by a parent company or the Finance Director) but they were excluded because they would be imposed on the management accountant regardless of their role involvement. Two years was thought to be appropriate to ensure that only non-trivial innovations would be recalled. The respondent was presented with a list of management accounting practices that had been obtained from recent surveys of practice (Chenhall and Langfield-Smith, 1998a; Barbera et al., 1999) and these included traditional techniques (e.g. budgeting), and more contemporary techniques (e.g. balanced scorecard) as well as changes to working practices. There was also a blank space on the questionnaire for the respondent to include other innovations that they had initiated (and about 10% of respondents used this option). Next to each innovation there were three boxes to indicate the amount of effort that they had devoted to the innovation (“A lot”; “Medium” and “A little”). This was designed to provide a measure of the amount of effort devoted to each innovation and addresses the need identified by Libby and Waterhouse (1996) to account for the significance of innovations. To score innovativeness, each of the innovations that had been ticked/checked was scored three, two and one depending on whether “A lot”, “Medium” or “A little” effort had been expended and the scores summed. Consequently, innovativeness was a function of both outcomes (number of innovations) and inputs (effort devoted to each innovation) with a high (low) score representing a high (low) level of innovativeness. After the respondents returned their questionnaires, arrangements were made to interview them. To guard against researcher bias in interpretation, respondents’ answers to the role involvement questionnaire (which were also collected prior to the interviews) were set aside so that the interviews were conducted without the researcher being aware of the respondents’ role involvement profiles. Additionally, the time lag between the questionnaire returns and interviews also helped guard against common method bias and demand characteristics. Although that lag was typically only a week, the many activities that would have intervened for the respondents in their busy work environments would have minimized their recollection of their responses to the questionnaire items. During the interviews, management accountants were asked to describe how each of the innovations was initiated in order to only include innovations that they had initiated and to exclude those that had been imposed on them from elsewhere (if there was any doubt, the researcher asked the respondent whether the innovation would have occurred without their initiation). The interviews were then used to classify innovations as radical or non-radical and this process was necessarily a subjective interpretation by the interviewer of the respondent’s perceptions and statements. To help provide consistency in classification, a three-stage interview protocol was used. First, the respondent was asked to talk freely about each innovation. In many instances, this free-flow discussion allowed a relatively clear indication of whether the respondent saw the change as something new to, or different from, their previous management accounting practices (and, hence, classified as a radical innovation), or

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whether the change was a refinement, revision or improvement to an existing practice (and classified as a non-radical innovation). The following comment from a respondent is an example of a change classified as radical. “We have just introduced a new CRM (Customer Relationship Management) plus integrated financial system as a result of ERP (Enterprise Resource Planning) and as a result we have been able to calculate customer profitability for the first time.” Where the initial discussion did not allow a clear determination, the respondent was provided with the example of activity-based costing (ABC), a commonly known but still relatively recent practice. Respondents were told that ABC could be a recent introduction to an organization, radically altering the organization’s previous costing systems and practices; alternatively, ABC could have been in place for some time but recent changes may have been made, say, to the activity drivers. This example allowed respondents to consider each innovation in a similar context and, hence, allowed the innovations to be classified as radical (a new practice) or non-radical (refinement of an existing practice). Finally, if further clarification was required, the respondent was asked directly to what degree (“a lot” or “a little”) they considered the change to be radically different from what had been done before (this final step was only required once). The radical and non-radical innovations were scored by separating the radical and non-radical innovations and scoring them as before. The score of the radical innovations was subtracted from the non-radical innovations that produced a positive (negative) figure for respondents whose radical innovations were greater (less) than their non-radical innovations. 4.2.2. Role involvement of the management accountant Role involvement was measured using the characteristics that had been noted from the literature as differentiating management accountants with a business unit orientation from those having a functional (accounting) orientation (Sathe, 1978; Hopper, 1981; Anderson, 1995; Cobb et al., 1995; Burns et al., 1996; Burns and Scapens, 2000b; Chenhall and Langfield-Smith, 1998b; Tuopela and Partanen, 2002). These characteristics were previously used in the theory section to describe the effect of role involvement on innovativeness where management accountants with a business unit orientation were characterized as having a high level of interaction with users of management accounting information business units. This interaction is more likely to occur where the management accountant’s work is derived from the business unit that, in turn, is likely to involve lengthy periods of time with staff from the business unit. These working relationships are also likely to be enhanced and strengthened where the management accountant: (i) empathizes with the goals of the business unit (which may be expressed in terms of the priority they give to work for the business unit); and (ii) reports to, and whose performance is evaluated by, business unit managers. Consequently, role involvement of the management accountant was measured by developing the six questions in Appendix B. Six questions better capture the different constructs of the variable than single question measures (cf. McGowan and Klammer, 1997) and reflected the characteristics identified above. The six questions were reduced from an original eight using a factor analysis where the six items all loaded on a single factor with an eigenvalue greater than one. In addition, the six-item scale was tested for reliability by calculating the Cronbach α which at 0.89 is at an acceptable level. The six items were measured using a 5-point Likert type scale.

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4.2.3. Perceived environmental uncertainty (PEU) Potential confounds that could not be identified ex ante were controlled by randomizing the sample but randomization cannot control confounding factors which are correlated to the explanatory variable of role involvement (Brownell, 1995). Perceived environmental uncertainty (PEU) was identified ex ante as a variable that was not only likely to affect role involvement but also the level of innovation, consequently, PEU was controlled directly by measuring it using a seven-item, 5-point Likert type scale that was derived from Duncan (1972) and is similar to those used in other management accounting studies (e.g. Gordon and Narayanan, 1984; Govindarajan, 1984). Respondents were asked about the level of predictability associated with: customers, suppliers, competitors, the labour market, the socio-political environment, technological uncertainties and a final question asked about overall perceived uncertainty. 4.3. Data analysis and results The data analysis and results section presents the descriptive statistics, correlation matrix and regression analysis that are used to formally test the hypotheses. The results are also discussed in light of comments made by respondents during some of the interviews. The descriptive statistics are given in Table 1 and the correlation matrix is in Table 2 below. The descriptive statistics in Table 1 suggest that the data range was sufficient on each variable to test the hypotheses. The total innovativeness score was relatively high but is partially explained by the fact Table 1 Descriptive statistics Variables

Total innovativeness Radical innovativeness Non-radical innovativeness Radical to non-radical innovativeness Perceived environmental uncertainty Role involvement

Mean

16.70 8.73 7.97 0.76 18.45 1.95

Standard deviation

8.39 5.88 4.36 6.06 4.473 0.70

Theoretical range

Actual range

Min

Max

Min

Max

0 0 0 0 7 1.00

N/A N/A N/A N/A 35 5.00

1 0 0 −11 10 1.00

41 20 23 19 27 4.33

Table 2 Correlation matrix Variables

Radical innovativeness

Non-radical innovativeness

Radical to non-radical innovativeness

Perceived environmental uncertainty

Role involvement

Total innovativeness Radical innovativeness Non-radical innovativeness Radical to non-radical innovativeness Perceived environmental uncertainty

0.87**

0.75** 0.33

0.31 0.73** −0.40*

0.28 0.42* −0.02 0.43*

0.41* 0.59** −0.01 0.58** 0.19

∗ ∗∗

Significant at the 5% level. Significant at the 1% level.

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that almost all respondents ticked the first three boxes in Appendix A implying that month and yearend accounting as well as budgeting are still important and evolving tasks for management accountants (regardless of their role involvement). In terms of the correlation matrix in Table 2, the significant correlations between total innovativeness and (i) radical innovativeness (r = 0.87); and (ii) non-radical innovativeness (r = 0.75) were expected because total innovativeness is made up of these two components. Of greater interest is the correlation between radical and non-radical innovativeness which at r = 0.33 is positive but not significant at the 5% level and suggests that, while management accountants initiate both radical and non-radical innovations, there is a tendency to either initiate radical or non-radical innovations (or vice versa). The correlations between perceived environmental uncertainty (PEU) and the different classifications of innovations indicates that PEU is more positively correlated to radical innovations (r = 0.42) than nonradical innovations (r = −0.02). This is consistent with the notion that organizations need to make greater adjustments where PEU is high. This was borne out in some of the comments made by respondents as the following quotes indicate: “The volumes and complexity of demand have increased massively over the last five years such that we are faced with very different problems today. Everyone knows and accepts that we need to do things very differently (to before) and the only issue is what should be done.” “We are growing at 25% per annum and no one expects things to stay the same and the sort of things I am doing now are very different to what I was doing even last year.” The final correlations in Table 2 concern the hypothesized relationships between role involvement and the dependent variables: total innovativeness (hypothesis 1) and radical to non-radical innovations (hypothesis 2). These relationships were in the hypothesized direction and significant for both (i) total innovativeness (r = 0.41); and (ii) the radical to non-radical innovations (r = 0.58). However, it is interesting to note that the correlation is much stronger between role involvement and radical innovations (r = 0.59) than non-radical innovations (r = −0.01). This finding is consistent with the theory that the business unit manager needs to have confidence in the management accountant’s ability when implementing more radical innovations and such confidence can exist where the management accountant has a business unit orientation and works closely with and/or reports to the business unit manager. In contrast, role involvement is less important for developing non-radical innovations (especially those with a compliance flavour to them such as month and year-end accounting) perhaps because management accountants (regardless of their role involvement) have greater ability to unilaterally make changes to existing techniques. While the correlations were consistent with the hypotheses, the correlations were not used to formally test the hypotheses because the relationship between the dependent variables and role involvement needed to take account of the effect of perceived environmental uncertainty (PEU). In other words, it was necessary to examine whether role involvement had any explanatory power after the effect of PEU had been taken into account. Consequently, regressions for each of the two dependent variables were run where PEU (X1 ) was the first explanatory variable in the regression equation and role involvement (X2 ) the second explanatory variable. The hypotheses were formally tested using the following regression equation: Y1,2 = a + b1 X1 + b2 X2 + e

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where Y1 is the total innovativeness; Y2 , radical to non-radical innovativeness; X1 , perceived environmental uncertainty and X2 , role involvement. The assumptions underpinning regression analysis of normality, homoscedasticity and linearity were met by examining the relevant residual plots and plots of residuals against fitted values. The regression output in Tables 3 and 4 tests both hypotheses: total innovativeness (H1 ) and radical to non-radical innovations (H2 ). Hypothesis 1 can be tested by examining the t-statistic and corresponding p-value for role involvement (X2 ) in the regression output in Table 3. These statistics are significant at the 5% level (p = 0.034) and provide support for hypothesis 1 that management accountants with a business unit orientation are more innovative than management accountants with a functional (accounting) orientation. Hypothesis 2 can be tested by examining the t-statistic and corresponding p-value for role involvement (X2 ) in the regression output in Table 4. These statistics are significant at the 1% level (p = 0.001) and provide support for hypothesis 2 that management accountants with a business unit orientation will initiate relatively more radical (than non-radical) innovations compared to management accountants with a functional (accounting) orientation. Comments by the management accountants with a business unit orientation often supported this finding, for example: “Over the last few years, the company has been reorganized and my functional (accounting) boss is thousands of miles away and he more or less leaves me alone so long as I do the bits and pieces he needs. So I do very little traditional accounting and most of my time is spent in operations where I get involved in a whole heap of different things” These results are now discussed in the conclusion section along with their contribution to the literature. Thereafter, a number of limitations are outlined together with some ideas for future research and the paper ends with some concluding comments.

Table 3 Regressions to test hypotheses 1 Variable

Coefficient

Value

Standard error

t-statistic

p-value

Constant PEU (X1 ) Role involvement (X2 )

a b1 b2

0.628 0.406 4.395

6.418 0.310 1.977

0.098 1.310 2.223

0.923 0.200 0.034

H1: Regression of PEU and role involvement on total innovativeness. R2 = 21.1%; adjusted R2 = 15.8%; F ratio = 4.006; p = 0.029. Table 4 Regressions to test hypothesis 2 Variable

Coefficient

Value

Standard error

t-statistic

p-value

Constant PEU (X1 ) Role involvement (X2 )

a b1 b2

−16.259 0.445 4.513

3.893 0.188 1.199

−4.176 2.366 3.763

0.000 0.025 0.001

H2: Regression of PEU and role involvement on radical to non-radical innovativeness. R2 = 44.3%, adjusted R2 = 40.6%; F ratio = 11.942; p = 0.000.

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5. Conclusion 5.1. Discussion and contribution This study brought together the innovation literature with the literature associated with the changing roles of the management accountant in order to examine the potential relationship between the role involvement of management accountants and their innovativeness. A measure for role involvement was developed from case studies that have observed (but not measured) role involvement and data were collected about management accountants’ role involvement as well as their innovativeness from a sample of management accountants. The results support the hypotheses that, compared to a management accountant with a functional (accounting) orientation, a management accountant with a business unit orientation is not only associated with a greater level of innovativeness but is also associated with more radical innovations. The strength of these results reflect recent case study research that re-organizing the management accounting function might have much wider consequences than the introduction of any single innovation (Chenhall and Langfield-Smith, 1998b; Tuopela and Partanen, 2002). That is, role involvement might release and direct the energies of the management accountant to become more involved in, and learn about, the business unit thereby leading to a variety of future innovations. These results also display some consistency with innovation studies that have used different theoretical frameworks. Although drawing links between different theoretical frameworks is problematic, a number of researchers have nevertheless argued that it is important to make the attempt in order to become: (i) exposed to alternative viewpoints that might inform future research; and (ii) establishing bridging points between frameworks that might consolidate the literature (Chapman, 1997; Atkinson et al., 1997; Lukka and Granlund, 2002; Merchant et al., 2003; Otley, 2003). With regards role involvement, one such alternative theoretical framework is actor-network theory (ANT) which views accounting change as the outcome of the many and varied interconnections between management accounting actors and business unit actors. Over time, ANT suggests that such interconnections serve to fabricate and construct the reality of the innovation (e.g. Briers and Chua, 2001) and this current study suggests that such interconnectivity is more likely to happen where the role involvement of a management accountant has a business unit orientation. While role involvement does not describe the detail of such interconnectivity (because each situation will be unique), the theory section of this paper outlines why role involvement might systematically increase the chance that such interconnectivity occurs and a greater level of innovativeness might result. Some of the interview material in this study also hints at this interconnectivity and one respondent, a management accountant whose role involvement was heavily slanted towards a business unit orientation, talked about the number of new ideas that circulated in his organization. “As an organization we are changing rapidly and new ideas are popping off all the time and its all pretty intensive. We tend to spend a lot of time in shortish bursts on solutions to specific problems . . . not that we fully implement many of these things but we develop them so that they can become part of our armory to use as and when necessary and then we move on.” However, the contribution of this study also needs to be viewed in light of the study’s limitations and these are discussed next.

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5.2. Limitations and future research There are several limitations associated with this study that need to be borne in mind when assessing the results. The first limitation concerns the ability to identify causality between variables. This study is cross-sectional so cannot identify the direction of causality between variables but can only indicate an association between the variables. Although it is not possible to determine whether role involvement affected innovativeness (as the theory suggested) or vice versa, the interviews were helpful in suggesting that causality could run both ways. For example, in the process of developing one particular innovation, the management accountant might become more closely involved with the business unit and the perceived benefits of this interaction might subsequently lead to a more permanent arrangement from which other innovations might emerge and this view is consistent with one of the respondents who commented that: “Traditionally we have run our own show (in accounting) but we had to get together (with operations) when the ERP system was being implemented because it affected us all. We actually got on pretty well and so have continued to work together (after the ERP system was put in place) so much so that we now spend about half our time down there (in operations) and are currently looking to recruit another (management accountant) to cope with the extra work that is being generated.” The second limitation concerns the relatively small sample size that was a consequence of the time intensive nature of the data collection process (where data were collected in two phases: questionnaire and interviews) as well as the effort expended to secure a relatively high response rate (66%). While a larger sample size would have been desirable, it was large enough to produce significant results and was representative to the extent that it was random and included a variety of industries. Third, this study only measured innovations initiated by the management accountant because the research question only theorised about innovations that were associated with the role involvement of the management accountant. Management accounting innovations imposed on the management accountant from other sources were excluded, for example, innovations that were initiated from the parent company or the Finance Director. Consequently, conclusions cannot be made about management accounting innovations as a whole but are limited to those initiated by the management accountant. The fourth limitation is that the study did not measure the effect of innovations on organizational performance but implicitly assumed that innovativeness is efficacious to performance. While establishing a link to performance is problematic because of the difficulty in identifying and isolating the effect of management accounting innovations on profitability (Chenhall, 2003, p. 134), it is nevertheless important to bear in mind that management accounting innovativeness may ultimately only be a valued outcome in terms of its contribution to organizational performance. Finally, there are some practical limitations. Management accountants with a business unit orientation might be positively associated with innovativeness and this might suggest that they better fulfil the problem solving role and are more relevant and useful to business unit managers. However, there may be trade-offs because management accountants with a business unit orientation may be regarded as less independent and/or capable with regards the scorekeeping and attention directing roles than management accountants with a functional (accounting) orientation. However, despite these limitations, this paper has sought to contribute to the literature by examining the effect of management accountants’ role involvement on their (i) level of innovativeness and (ii) the radicalness of innovations. While support for the hypotheses was found, these results need to be evaluated in light of the limitations, which moderate the contribution but also provide areas for future research to explore.

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Acknowledgements My thanks to the reviewers and Frank Verbeeten for their constructive comments as well as to participants at the following events: research seminars at Macquarie University and University of Auckland; the 2002 EAISM Management Accounting Innovations Conference and the 2003 UNSW Management Accounting Research Conference.

Appendix A. Measure of innovativeness

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Appendix B. Measure of role involvement

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