British Accounting Review (2001) 33, 243–261

doi:10.1006/bare.2001.0168, available online at http://www.idealibrary.com on

EXTENDING THE BOUNDARIES OF

MANAGEMENT ACCOUNTING RESEARCH:
DEVELOPING SYSTEMS FOR PERFORMANCE
MANAGEMENT
DAVID OTLEY
Lancaster University

INTRODUCTION

It will be my contention today that much management accounting research

has lost its way. In particular, I will argue that it has concentrated too much
on accounting and not enough on management. One of the consequences
of this misplaced emphasis is that much management accounting research
has become detached from real issues and problems facing managers in
organizations. For management accounting research to regain its relevance,
I will propose that it should widen its boundaries and become concerned
once again with the issues involved in designing and operating systems of
managing performance. In short, the sub-title of this address might well be
‘putting the management back into management accounting’.

MANAGEMENT ACCOUNTING PRACTICE

So, where shall we begin? I will first consider the practice of manage-
ment accounting and go back to the mid-1980s when it was becoming
recognized that the practice of management accounting, even within those
Anglo–American organizations where it had taken deepest root, was in
decline. There had been little by way of new developments in man-
agement accounting practices for decades. Not only was it argued that
management accounting was therefore becoming irrelevant to contempo-
rary organizations, but worse that it was often actually counter-productive
to good management decision-making. By using inadequate management

This paper is the text of a plenary address given to the 2nd Globalization Conference, jointly organized
by the American Accounting Association and the British Accounting Association on 15–17 July 2000 in
Cambridge, England.

0890–8389/01/030243+19 $35.00/0  2001 Academic Press

244 D. OTLEY

accounting data, managers were running a serious danger of taking inap-

propriate decisions. Worse, the use of inappropriate performance measures
in organizations encouraged junior managers to behave in stupid ways so as
to report apparently good performance. The use of management account-
ing information was thus inimical with good management practice. Or so
argued Johnson & Kaplan in their famous 1987 book ‘Relevance Lost: The
Rise and Fall of Management Accounting’.
It is interesting to note how each of the two authors responded to their own
highly influential critique. Johnson clearly gave up on accounting altogether,
and in his book ‘Relevance Re-gained’ moved towards emphasizing the
‘softer’ side of things, such as employee training and empowerment. Kaplan,
by contrast, has become a leader in the re-invention of management account-
ing practices, beginning with Activity-Based Costing (which spawned many
offspring, such as Activity-Based Budgeting, Activity-Based Cost Manage-
ment, and ultimately Activity-Based Management!). Perhaps it is in the
Cost Management process itself that the biggest adaptation has taken place.
Building on roots which had actually been developing over the previous
decade, one of the major contributions of the Cost Management movement
was to recognize that effective cost control could no longer take place if one
waited for cost accounting systems to produce the information required.
This was not a defect of the operation of the cost accounting system itself,
but a recognition that real-time cost control was out-dated in the context of a
manufacturing operation that involved relatively little direct labour expense
in contrast to a great deal of investment in plant, machinery and employee
skills. Under such conditions, cost management could only be effective if
it occurred at the planning stage of operations (product design, production
process planning etc.), before routine cost reports could be generated.
Kaplan’s work can be seen as part of a more general movement to change
practice which rejoiced in the title of Strategic Management Accounting.
Although the term was coined by Simmonds around 1980, he is the first to
admit that it was not taken seriously until the late 1980s. Perhaps this was, in
part at least, caused by the fact that there were very few specific techniques
that could be attributed to the label. It represents a change in emphasis
in the use and application of management accounting information, rather
than in very many specific new techniques. But the change in emphasis was
quite pronounced; management accounting was to develop its traditional
strengths with complementary emphases:
ž From historic to forward-looking
ž From control to planning
ž From internal to external (customers, competitors etc.)
ž From cost to value
ž From production to marketing
Now this clearly overstates the impact of SMA. Previous practice was not
quite as bad as the initial statement suggests, nor are the new practices
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 245
adequate to deliver all of the promise suggested. Nevertheless, SMA has
had a major impact on the thinking of practising management accountants.
In the UK, the Chartered Institute of Management Accountants (as the old
Institute of Cost and Works Accountants is now known), has enthusiastically
grasped the concept as a means of advancing the career prospects of its
members. As one of its past presidents (Michael Bromwich) put it in 1989,
it provided a means of ‘releasing the management accountant from the
factory floor’ and perhaps provided a route to the boardroom table. Clearly,
there is a deal of rhetoric surrounding the ideas encapsulated in the term,
but it does capture the essence of a significant movement in management
accounting practices.
This is nowhere more apparent than in the second major innovation to
come from Kaplan, this time in conjunction with management consultant
David Norton, the Balanced Scorecard. Introduced in the early 1990s as
a framework for performance measurement that included both financial
and non-financial elements, it had been developed by 1996 into an all-
encompassing framework for the practice of management. At this time,
it came into head-on conflict with another technique, Economic Value
Added, as developed by the Stern Stewart Corporation, which can be seen
as a re-assertion of more traditional accounting values. Nowhere is the
potential conflict between these two approaches seen more clearly than in
their attitude to strategy.
Business unit strategy is at the heart of the Balanced Scorecard.
Organizations are exhorted to focus on developing an appropriate strategy
(no doubt aimed, at least in part, at increasing shareholder value) and
to develop a set of measures, both leading and lagging that will reveal to
senior managers the effectiveness of its implementation. However, as I argue
elsewhere (Otley, 1999), the literature on the Balanced Scorecard has little
to say about target-setting, resource allocation, reward systems design, and
the separation of tactical and strategic feedback, despite the appearance
of boxes in diagrams containing all these items within the pages of the
1996 book. By contrast, EVA pays no explicit attention to strategy. The
central objective of a business organization is taken to be the generation
of shareholder value, but as no formulaic process can exist to develop
strategies which will achieve this objective, then this is a matter that is
left to the creativity of individual managers. However, adherence to this
objective is assured by close attention to each stage in the management
process. First, an adequate performance measure is required, and extant
financial accounting practice is to be ‘corrected’ by a series of adjustments
to figures produced by GAAPs, so that a more economically meaningful
measure is constructed. Next, the level of performance targets for the EVA
measure is addressed in some detail, and a system of performance-related
rewards devised that will help mitigate any inappropriate behaviour that the
imperfections in the measure might allow. Finally, feedback processes are
devised to update the targets each accounting period.
246 D. OTLEY

What I have found fascinating over the past five years has been the
movement from head-to-head competition in the mid-1990s when the
proponents of EVA dismissed Balanced Scorecard approaches as being
mechanisms that distracted line managers and ‘took their eye off the ball’,
and proponents of the Balanced Scorecard claimed that the technique
was not a stakeholder model, but clearly designed to generate shareholder
value, albeit with little empirical evidence to back either statement. This
conflict has been clearly influenced by the ‘Value-Based’ movement which
has become increasingly influential over the past decade, with each set of
management consultants marketing their own variant (invariably containing
the letter ‘V’ in their TLA). But, more recently, a more collaborative
attitude has prevailed, with Stern Stewart recognising the value of Balanced
Scorecard type approaches at lower management levels where profit centres
cannot sensibly be established, and EVA figuring as a major performance
measure in the Financial box of the Balanced Scorecard.
The point of this brief summary has been to indicate that management
accounting practices have changed radically over the past fifteen or so years.
Indeed, one could argue that many of the developments are not strictly
‘management accounting’ as the underlying techniques are often not well-
specified and many of the performance measures are of a non-financial
nature. But, by contrast to more traditional accounting techniques, these
developments appear to have been of considerable use in practice and, at
the very least, have preserved the role and career prospects of management
accountants within Anglo-Saxon organizations. But what of management
accounting research? How has it adapted to the changing world within
which the management accountant appears to live?

MANAGEMENT ACCOUNTING RESEARCH

My brief answer to that question is, ‘Not very well’. I get the feeling that
much current management accounting research is becoming sterile. This
is evident is a number of different ways. First, there is a distinct lack of
any management accounting research. The major journals, especially in the
USA, are becoming increasingly concerned about their lack of submissions,
certainly submissions of ‘good’ quality. Why this should be is clearly a
matter for debate, but one element lies in the lack of PhD students pursuing
management accounting topics, which is a cause for concern in itself.
Another element may lie in the standards of what has been termed ‘rigour’
in the methods used by management accounting researchers. I will return to
this point later, but will suggest for the moment that there may be a conflict
between rigour and relevance that is particularly pronounced in this field.
We need to be careful that we do not drive out work that strives to connect
with real organizations and their practices, in a misguided attempt to apply
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 247
standards of scientific rigour that are inappropriate. In promoting excessive
‘rigour’, we may be hastening the onset of ‘rigor mortis’.
Second, our practices of reporting appear to be moving in an unhelpful
direction. For example, in every article I read, the statistical significance of
the results is clearly stated. Of course, there is nothing wrong with that, but
in many cases it is difficult or impossible to deduce what the substantive
significance of the results is. That is, the size of the effect observed is
sometimes not reported or presented in an obscure fashion. It seems that
a small effect that is statistically significant is valued more highly than a
potentially major effect which, for reasons of sample size or variability, does
not reach conventional levels of statistical significance. Even more significant
is our apparent attitude to replication. Replication is the foundation of what
I will term ‘hard’ science. In the ‘hard’ sciences, just because an effect is
reported which has attained conventional levels of statistical significance is
not the end of the story. It is not regarded as a ‘fact’ until other scientists
have successfully replicated the result, and probably gone on to investigate
the limits of its applicability. Not so in management accounting research;
we rarely, if ever, replicate previous work, and findings of a single small
sample study become the ‘facts’ with which we work.
Let me give an example from the area in which I have worked, that
of studying the impact of Reliance on Accounting Performance Measures
[RAPM]. This is the area which Alan Dunk and the late Peter Brownell
rather generously described in 1991 as ‘the only organized critical mass of
empirical work in management accounting at present’. Excellent reviews of
the work conducted on this topic can be found in Briers & Hirst (1990) and
Hartmann (2000). The outstanding feature of the work reviewed by both
these authors is that virtually none of it has ever been replicated. Even when
something approaching a replication is examined, it is invariably found that
other features of the research are simultaneously changed, most often the
measurement instruments used to measure the underlying variables. Not
that I have anything against the development of measurement instruments,
but it would not be too onerous a task, in many cases, for both an old and
new instrument to be used together, so that results could be compared more
closely. In my own study with Raili Pollanen (2000), where we replicated
five previous studies using identical measurement instruments to the original
authors, our results were very mixed. Some findings were replicated, but
most were different to the original studies. But the real significance of this
study, I believe, lies not in its results but in its methods; it is the first
replication in over 20 years of work.
There are two possible conclusions that can be drawn from this evidence.
If we adopt the methodological approaches of the ‘hard’ sciences, our work
is deficient. It is sometimes argued that our journals are reluctant to publish
‘mere’ replications. I cannot judge how true such a statement is, as I am
not aware of any such work actually being undertaken and rejected, but
it would be remarkable if those journals that most aspire to following the
248 D. OTLEY

model of the ‘hard’ sciences are also those which are most reluctant to
publish replication work! Of course, there is alternative view that can be
taken of this evidence. That is that our subject matter is not amenable to
the methods of the ‘hard’ sciences; our ‘facts’ are social ‘facts’ generated by
the perceptions and attitudes of the participants themselves, and coloured
by the social and cultural context within which they are set. Further, these
conditions change (quite rapidly) over time, and the methods used to study
such social phenomena therefore need to be different to those used in the
‘hard’ sciences.
I would tend towards the latter position, but am happy to hear a
debate on the issue. What worries me is that we seem to have taken
an extant position for quite the wrong reasons. An emphasis on ‘rigour’
and statistical significance has tended to lead us towards studying a very
restricted set of issues. The areas most suited to the ‘hard’ science approach
are those which focus on individual behaviour isolated from its social
and organizational context (i.e. psychological, individualistic approaches or
agency theory models). The methods most easily applied are those of the
laboratory experiment and arms-length questionnaire survey. We train our
PhD students in these methods, because it is the quickest and most reliable
way of obtaining the qualification, and they continue to adopt the approach
in which they were trained so as to make the necessary progress along
their tenure track. Finally, this is the work that is published in our journals
because this is the sort of work our journals have submitted to them! So,
if there is any element of truth in this line of argument, is it surprising
that much management accounting research has failed to address issues
of current relevance and concern to organizations which are attempting to
grapple with the problems of adapting to the modern business (and public)
environment?
No doubt I overstate the case. Not all management accounting
research has the characteristics I describe. But I do believe that much
management accounting research has lost its relevance, in much the same
way as management accounting practice became disconnected from real
organizational issues two decades ago. How then can we make management
accounting research more relevant?

PERFORMANCE MANAGEMENT

Rather than attempting to give a global answer to this question (which

would be presumptuous, and beyond my competence), I will restrict my
attention to just one line of enquiry, that of performance management. Why
do I choose this focus, apart from the fact that it is an area in which I have
been personally interested for many years?
First, it has been the focus of many of the ‘new’ techniques of management
accounting that have been developed over the past twenty years. Even
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 249
Activity-Based Costing, which was initially sold on the basis of being
a ‘more accurate method of product costing’ and thus appears to be a
technical improvement to traditional cost accounting practice, proved to
be more far-reaching in its consequences. Many of the benefits of ABC
implementations have resulted not from better knowledge of product costs,
useful though that may have been, but in developing better methods
of overhead cost management and business process improvement. ABC
opened the door into Activity-Based Cost Management [ABCM] and
even Activity-Based Management [ABM] [true by definition]. Strategic
Management Accounting [SMA] focussed attention upon parties external
to the organization, most notably customers and competitors, so that
operations could be effectively adapted to meet customer requirements
in a way that equalled or exceeded that provided by competitors. The
Balanced Scorecard is a means of measuring organizational performance
along a variety of dimensions, so that an organization might ensure that
it is implementing its strategic intent. And the latest popular technique,
Economic Value Added [EVA], although in some ways just an adaptation of
a well-known (although little used) accounting measure (Residual Income),
gains its value from incorporating the measure into a much wider philosophy
of performance management (in this case, designed to deliver shareholder
value). Thus, I think it can be fairly argued that much of the thrust of the
‘new’ management accounting has been centrally concerned with the issues
of measuring and managing organizational performance.
Second, despite the more recent attention devoted to it, performance
management has been a central focus of management accounting over the
years. Even Simon et al. (1954) defined the three functions of management
accounting information as:

ž Decision-making (What should I do?)

ž Attention-directing (What should I pay attention to?)
ž Scorecard (How well am I doing?)

The role of management accounting information in performance evaluation

became a central focus of much management accounting research, initially
focussed around the area of budgetary control. Indeed, much accounting
practice can be seen a method of reporting on the financial performance
of an enterprise; the move from ‘measurement’ to ‘management’ is a small
but important one, however. I come across many organizations who have
no shortage of performance measures, accounting and other, but are still
lacking the connection between the measures and subsequent management
action.
Clearly, much of my approach derives from the pioneering work
undertaken by Robert Anthony stemming from his initial work on
Management Control Systems (1965). This work has been very influential,
but I have two problems with it in our current context. One concerns the
250 D. OTLEY

language used. All three words are problematic! Control has always been
a word with a multitude of meanings and connotations. Back in 1957,
Rathe catalogued 57 varieties of meaning for it, ranging from ‘dominate’
(perhaps the Anglo-Saxon usage) through to ‘feedback’ (perhaps the French
connotation). When combined with ‘management’ a range of possibilities
come to mind, ranging from the domination of the management class over
the workers (at the Marxist end of the spectrum) through to the adaptation
of organizational activities to meet environmental exigencies (from a systems
theory approach). Lastly, the term ‘system’ is probably too strong, implying
a degree of co-ordination and integration that is likely lacking in most
real organizations. Back in 1980, I recollect heading a box in a diagram I
was constructing as the ‘organizational control system’ which I eventually
changed to the ‘organizational control package’ as being more descriptive
of the extant state of affairs! I have recently taken to enquiring from my
MBA students what they believe the content of my option on management
control systems is likely to contain; the three terms most often mentioned
are ‘quantitative’, ‘accounting’ and ‘boring’. When offered the alternatives
of ‘strategy implementation’ of ‘performance management’ their interest
increased significantly. Perhaps, Bob Simons has got it about right in the
title of his new text (2000): ‘Performance Measurement: Designing Control
Systems for Implementing Strategy’. I would only add that I believe we need
to look beyond ‘measurement’ to the use of the information in decision-
making and control, so would personally have preferred to use ‘performance
management’.
My second concern with Anthony’s approach is more fundamental. One
of the clear purposes of his original work and textbook was to focus on
the use made of management accounting (and other) information, and
to emphasise the behavioural dimension of management control. Indeed,
he cites social psychology as an underlying core discipline. Despite this
intention, however, it has never received the prominence it deserves. I
believe this largely stems from Anthony’s deliberate intent to avoid the areas
of strategic planning and operational control, which he deliberately uses to
define the area of management control. Undoubtedly, this was a reasonable
limitation as he began his endeavour, and avoided a number of troublesome
issues. However, by seeking a set of universal control practices, defined in
isolation from both strategic intent and from operational practices, it now
seems rather inevitable that the approach led to an excessive concentration
on traditional management accounting practices. This is too narrow a
focus, for reason which I have explored in greater depth elsewhere (Otley,
1994). For my purpose performance management provides an umbrella
under which we can study the more formal processes that organizations
use in attempting to implement their strategic intent, and to adapt to the
circumstances in which they have to operate.
The hostage to fortune that the term ‘performance management’ contains,
however, lies in the word ‘performance’ which also seems to have a wide
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 251
variety of connotations to different audiences. My anticipation is that to
an accounting audience it may imply only financial performance, whether
measured as profitability, EVA, or the generation of shareholder value. This
is too narrow a view for my purposes and it is worth spending a little time
developing the idea of ‘performance’ before turning to its management.

THE CONCEPT OF PERFORMANCE

The word ‘performance’ is something of a weasel word in that it appears to

mean very different things to different people. Thus we use it quite freely,
apparently understanding its meaning, but actually often using it to cover
a lack of shared understanding. I will consider it only in the context of the
performance of a business or public sector organization. In this context, it
is the public sector that, I think, gives us a useful start in their use of the
three ‘E’s’ of performance, namely:
ž Effectiveness [delivering desired outputs, and even outcomes]
ž Efficiency [using as few inputs as possible to obtain
these outputs]
ž Economy [buying inputs as cheaply as possible]
Thus, different aspects of performance encompass the production of
outputs, the conversion of inputs into outputs, and the procurement of
inputs. Of course, from an accounting point of view, in a commercial
organization, all of these aspects of performance can be represented in
financial terms. Results can be represented by sales revenue, inputs of all
kinds can be represented by their costs (including the cost of various types
of capital), and a measure of overall performance constructed that will look
remarkably like EVA. As EVA is benchmarked on a value of zero, this raises
the question as to who gets any excess EVA that is produced, or its converse,
who bears any losses that may be incurred. The strict legal answer is the
shareholders, in both cases. But a pause for reflection indicates that this
is, at best, a short-term answer. In an unprofitable enterprise, actions will
inevitably be taken that will impact customers, suppliers and employees,
as well as shareholders. In an enterprise that is successful in generating
shareholder value, it seems almost inevitable that some of this value will
be appropriated by the same groups. So, even with a strict legal definition
of ownership rights, it is not at all clear who the residual beneficiaries of
either surplus or deficit actually are. This issue is clearly linked to issues of
corporate governance, and I would flag this as a major area for research,
although not one that I will develop further today, although I should mention
the recent book by Epstein & Birchard (2000) which sets out these issues in
an interesting way.
A more fruitful approach than a strictly financial emphasis lies, I believe,
in a stakeholder framework. The operation of an enterprise depends upon
252 D. OTLEY

the co-operation of disparate groups of people, most notably providers of

capital, providers of labour, customers and suppliers, whose relationships
are managed differently in different economic systems. In addition, there
are also impacts of organizational activity that may be the concern of
national governments, local communities and pressure groups of various
kinds. Finally, there is the role of managers, who may be both owners and
employees, and whose task it is to construct feasible patterns of activity
that will satisfy the desires of all the interested participants. Keeping
each stakeholder group ‘on board’ to support the implementation of
a specific plan of action is a central managerial activity. One of the
most clearly stakeholder-oriented techniques currently on offer is the
Balanced Scorecard, where at least two stakeholder groups are explicitly
mentioned (providers of finance and customers) and one is implicitly
lurking is either the business process box or the being trained innovation
and learning box (employees). Suppliers are notable by their absence,
although many BS implementations actually specifically identify them,
together with impacts on the wider community (such as pollution and
other environmental issues, impact on local economies, and relationships
with government agencies). The BS approach can thus be seen as being
guided by a concern for sustainability of operations, albeit in a restricted
sense. However, having drawn such an interpretation, it is incumbent
upon me to mention the denial of being a stakeholder approach made by
Kaplan & Norton in the Introduction to their 1996 book. Here they claim
that the BS is not a stakeholder approach, but is designed to increase
shareholder value. Not only are these two statements not necessarily
in opposition, it seems almost self-evident that the BS is a stakeholder
approach and can be fruitfully developed down this track. However, in a
US context, it appears that when in competition with EVA, it is necessary
to make such statements. By contrast, I would argue that its ability to
deal with the different dimensions of performance, including dealing with
stakeholders having partially conflicting interests, is a major strength of the
BS approach.
By making such a claim, I do not mean to suggest that issues of resolving
potential conflicts between stakeholders are unimportant; clearly they are
not, and the ways in which accommodations are reached and the relative
power of each stakeholder group will differ between cultures, countries and
industries. Reaching such accommodations is, in itself, a major managerial
task. But I would also assert that the objectives of even a commercial
enterprise operating in a market economy cannot be reduced to the purely
financial, even when glorified in terms such as generating shareholder
value. This is clearly a controversial statement to some, and I am not
intending to present the full case for it here; I will content myself by
observing that most of us here are consumers, employees and shareholders
(even if only through our pension arrangements), and that the purposes
of economic organizations include meeting our needs in each of those
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 253
roles. What is necessary for my argument is to assert that ‘performance’ is
inherently multi-dimensional; different aspects of performance are relevant
to different stakeholders. Further, effectiveness can be assessed only in
terms of objectives and strategy; it is unlikely that there will be common
measures of effectiveness across organizations having different objectives
and strategies, unless at the very basic level of survival.
As an aside, it may be worth mentioning that I have taken an essentially
‘Profit & Loss Account’ approach to effectiveness, treating it as a flow
measured over a defined time period. There is perhaps also a ‘Balance
Sheet’ aspect as well, relating to the state and capability of an organization
at a point in time. Perhaps better referred to as ‘Capability’, representing
a potential to perform in future periods, this is also a relevant variable to
monitor in terms of assessing the sustainability of an organization’s pattern
of activity. This is closely connected with the issue of extracting increasing
efficiencies from organizational activities at the expense of adaptability.
Many organizations have made great strides in becoming more efficient;
however, some have done so at the expense of losing much of their adaptive
capacity and are now significantly more exposed to the risk of changes in
their environment which they have failed to predict.

BUDGETARY CONTROL: ANOTHER ROUTE IN

Another, and seemingly more direct, route into this area is that adopted
by the literature on budgetary control. I would choose as a starting point
Chris Argyris’s, 1952 article on ‘The Impact of Budgets on People’, which
was interestingly followed nearly two decades later by Schiff & Lewin’s
1970 piece entitled ‘The Impact of People on Budgets’. These two articles
neatly encapsulate the, essentially behavioural, work being done in this
period, albeit of a universalistic flavour. This is well summarised in Geert
Hofstede’s 1968 classic book, ‘The Game of Budget Control’.
Much of this work, and indeed much of the later, more contingent,
work which followed it essentially made the assumption that the budgetary
control system was the main integrative control system in most business
organizations. The implementation of a business plan could be monitored
and controlled by using the financial implications of that plan (the budget)
as a performance standard, and the actual revenues and costs as the main
measures of results. Although a uni-dimensional representation of a more
complex reality, budgetary control appeared to work reasonably satisfac-
torily in a relatively stable environment with well-codified business plans.
However, more recently, increasing problems became evident. Hopwood
had noted as early as 1972 the problems of short-termism that over-rigorous
emphasis on budgetary targets could engender. I was recently reminded by
Frank Hartmann of a comment Clive Emmanuel and I made in our 1985
text, namely that budgetary control was most feasible where it was least
254 D. OTLEY

needed and vice-versa. More recently, Bunce et al. (1995) have made a most
cogent critique of the usefulness of budgeting as a means of management
control in contemporary organizations, due mainly to the increased rate of
change most organizations now have to cope with.
The somewhat depressing conclusion for management accounting
researchers is that, having put in much work coming to a fuller understanding
of how budgetary control systems are deployed in practice, and the impact
of different patterns of use of such systems, organizations are giving up
budgetary as a primary means of effecting overall control and are having
to resort to other techniques. It is not clear what those techniques should
be. Despite Kaplan and Norton’s claims in some of the more ambitious
diagrams in their 1996 book, the BS does not completely replace all other
control techniques. The challenge is perhaps how to combine some of
the new approaches with the more tried and tested schemes of yesteryear.
However, there is also good news, I believe. The various approaches to
studying budgetary control systems can often be adapted to study the use
and impact of the newer techniques without too much difficulty. Moreover,
many of the fundamental issues remain unchanged. Performance measures
concentrate attention on the short-term; how can adequate weight be placed
on longer-term aspects? What is measured gets done; how do we control
important aspects of performance that are more difficult to measure? How
should targets be set to maximise their motivational potential? How can
the multiple purposes served by any performance management system be
resolved?
However, I cannot leave this topic without a passing reference to reward
systems. Clearly, motivation is affected by rewards, both financial and non-
financial. Much work in the US has been based on studying the impact of
performance-related financial rewards, and a deal has been learned about
the effect of such systems on managerial behaviour. We are now seeing
many of the same systems being applied in the UK and in continental
Europe, but it is not clear that they impact in the same way. In the
UK, performance-related pay for middle managers is a relatively recent
phenomenon; in the late 1980s virtually no middle managers received any
such remuneration; a fixed salary was all but universal. Today, around
two-thirds of such managers receive some element of PRR, although the
amounts of money involved are typically much smaller than in the US.
However, there is evidence that such schemes work differently here; one
potential reason is the secrecy surrounding pay in the UK compared with
the relative openness with regard to pay in the US. In one scheme we
monitored here, many managers who had received above average bonuses
for their area of work, believed that they had received below average bonuses.
This was possible because there was no public information concerning the
size of bonus payments other than an overall company average figure.
Thus rewards are clearly an area where cultural differences are of great
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 255
significance, and where research results are not easily transferable across
national boundaries.
My conclusions are therefore quite stark. Management accounting
research has, in a number of respects, lost touch with management account-
ing practices. Where contact has remained, it has been more at the level
of accounting techniques, rather than at the level of managerial uses of
management accounting and other information. In short, we need to put
the ‘management’ back into ‘management accounting’. Moreover, organi-
zational needs have changed. Whereas previously much reliance was placed
on systems of budgetary control to act as the foundation stone for systems
of overall management control, the budgetary control system can no longer
meet the pressures being put upon it. Organizations have been developing
other ‘systems’ of performance management, and management accoun-
tants have been changing their role into performance measurement experts.
This clearly affects the subject matter of relevant management accounting
research. What I will finally argue is that it also affects the practice and
methodology of management accounting research.

IMPLICATIONS FOR RESEARCH

So far, I have argued that management accounting research is not as closely

connected with management accounting practice as might be desirable. In
particular, there are control practices being developed academics, consul-
tants and practitioners, and which are being implemented in organizations
that we have yet to study in any depth. I believe that this is true across
a whole range of management accounting topics, but I will concentrate
upon the area that has traditionally been described as management control
systems, although my preference is now to describe this as the area of
performance management packages. Clearly, this topic encompasses not
only traditional and ‘new’ management accounting, but casts its net into a
wider range of control practices that may well extend beyond the boundaries
of management accounting as traditionally defined. However, accounting
measures and non-financial performance measures are increasingly being
integrated in real-world control practices, so it would be foolish to maintain
an artificial distinction that no longer represents the reality of practice.
How, then, might we best study the operation of performance manage-
ment and control systems? I should make it clear at this point that I do
not wish to be prescriptively narrow; there is undoubtedly scope for the
deployment of a wide range of research methods, all of which have the
potential to throw some light on this topic. Nevertheless, I would also wish
to argue that the methods which seem to me most likely to give some
of the necessary insight are those which have been relatively neglected. I
will therefore concentrate on these methods in order to redress the bal-
ance which I see as unhelpful in current research. My general position on
256 D. OTLEY

research methods is that there are not ‘good’ or ‘poor’ research methods of
themselves, but rather that it is a matter of ‘horses for courses’ and that it is
research problems that need to be matched with appropriate methods.
Thus, if we wish to study the operation of systems as complex as systems
of organizational performance management, we need to deploy research
methods that are capable of picking up a wide range of organizational
phenomena. Control practices are pervasive across a wide range of
organizational activities and it would be foolish to assume that particular
control techniques can be easily associated with performance outcomes.
For example, we know some deal about budgetary control practices and
their deployment, such that we might well be able to hypothesize about the
likely effects of different practices in a given set of circumstances. But I also
know that I can point to organizations in the same industry, with similar
characteristics including generally good performance, some of which make
extensive use of budgetary control techniques and others which make little
or no use of them. Arguably, the latter deploy other control mechanisms
that ‘fill the gap’ not now filled by budgetary control. But if I focussed
solely on the study of budgetary controls, I would be unlikely to pick
this up.
My preference for research method is now becoming clear. In my view,
intensive, field-based methods are much more likely to pick up on the
wide variety of control mechanisms deployed by organizations in practice
and to ground theoretical development firmly in empirically observed
practice. This is not to uncritically accept all practice as appropriate,
but to carefully document the observed effects of different practices in
different circumstances. What would hopefully emerge from such work is
inductively generated theory that could be subjected to further testing and
development.
Now this agenda could be developed from a variety of epistemological
points of view, although again this is a debate in which I do not wish to
become too embroiled today. Suffice it to say that it is not inconsistent with
the model of scientific development implicit in most extant accounting
research, that is, what I have described as the ‘hard’ science model.
However, it also sits happily with more interpretative approaches to theory
development and understanding of organizational activities that are more
generally found in the social sciences. I think we have a lot to learn from
organizational theorists, sociologists and anthropologists, in addition to
what we have taken on board from psychologists and social psychologists.
Indeed, some of my more critical theory oriented colleagues might believe
they are witnessing my conversion to their point of view! Let me make it
clear that I have no doubt that critical approaches can give us a great deal
of insight into organizational activities. My main reservation about much
‘critical’ work is that it sometimes tends to regard organizational behaviour
only as an interesting phenomenon that shows the falsity of the simplistic
assumptions made in practices they would regard as ‘managerialist’. In my
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 257
view they pay too little attention to the issue of designing organizations
as sustainable entities which need to reach accommodations with a wide
range of interested parties in order to survive. This is probably seen as a
‘functionalist’ stance, but I would argue that the integration of these two
points of view might well yield some important insights.
But the reasons why we do not engage in the type of work that I am
suggesting are generally not theoretical or epistemological, but practical.
There are considerable pressures, particularly on young researchers, to
publish or perish, both in the US and the UK. And here, even traditional
management accounting research is at a disadvantage because of the lack
of publicly available data. The availability of large databases for research in
finance, and to some extent in financial accounting, may make management
accounting researchers feel disadvantaged because we generally have to
collect our own data. There is thus a tendency to choose those research
methods that allow this data to be obtained as easily as possible, leading
us into the realm of experiments and arms-length mail surveys (despite the
increasingly poor response rates associated with the latter). Perhaps we also
yearn for a degree of generalisability that is probably unrealistic. But this
approach leads us into a self-defeating loop; our data is both small-scale and
superficial. A more whole-hearted embrace of more intensive studies would
turn the issue into an advantage, in that we could use the very rich data that
more intensive studies generate to yield much more insightful theories.
But this leads us directly into the issue of research training. Here I part
company with the often expressed view of my late friend and colleague, Peter
Brownell. Peter’s later position (for his training was basically experimental
and psychological) was that he saw the benefits that could be obtained
from a more field-based set of research methods, but that PhD students
should first be trained in more rigorous methods (as he saw them), and only
more established academics could afford the luxury of dabbling in the more
esoteric methods. Tempting though that argument may be, it is unlikely to
be too successful. Having trained a researcher in one set of methods, is it
not likely that they will see their comparative advantage in continuing to do
more of what they are already good at? I would argue that the seeds of better
management accounting research have to be sown in more appropriate
research training for our PhD students.
I sometimes encounter the argument that it is impossible to train students
in inductive methods and for them to conduct empirical fieldwork of an
intensive and longitudinal nature within the normal three year timespan
of doctoral training. I would dispute this. Although I agree that if we
precede fieldwork with a year or more of coursework, and try to confine
the empirical data collection to a short, often six month, period, then
this rules out field-based work. But by making a relatively early start into
negotiating organizational access, and running coursework in parallel with
fieldwork, it is quite feasible to complete an inductive PhD within a three
year period. I have supervised students who have successfully done this,
258 D. OTLEY

both in conducting conventional research and in conducting a type of

‘action research’ that involved being associated with the implementation
of a management accounting innovation. The major issues with this type
of work are, I think, most importantly those of riskiness and ‘back end
loading’.
Field-based PhDs are undoubtedly subject to more risk than the more
controlled alternatives of experiments or surveys. In particular, it is often
time-consuming to negotiate research access into real organizations, and
such access may not be maintained over the hoped-for time period.
Contingency plans are therefore required, and it may be better to think in
terms of work involving a small number of organizations rather than just one.
There are also issues of confidentiality and clearance to publish, although
in practice I have not found that these lead to insuperable problems. The
timescale of most academic research is still considerably longer than causes
an issue for most organizations, especially when a degree of anonymity is
possible. More pressing is the ‘back end loaded’ nature of inductive work.
By this I mean that the output of inductive research is essentially new
theoretical insights and/or hypotheses. By contrast hypothetico–deductive
work is front-end loaded. That is, the hard work occurs during the research
design and the construction of measurement instruments, generally in the
first year or two of the project. Data analysis and the drawing of conclusions
is relatively routine. In inductive work, the real crunch point occurs when
the vast amount of data that has been collected has to be synthesized into
insights and conclusions. This is at least as stressful for the supervisor
as for the student, for there is little one can do to help at this point;
the student is far more familiar with the data than you can ever be, and
can only be guided and supported as they seek to elucidate connections
and develop explanatory frameworks to codify their observations. We need
to develop more ways of supporting our students in dealing with these
issues.
A final issue is the supposed reluctance of journal editors to publish
field-based case studies in comparison with other types of work. I am not
sure how great a problem this is, although it may be more pronounced in the
US than in the UK and Europe. During the ten years I was general Editor
of the British Journal of Management, the most common type of question
I was asked usually involved an accusation of bias against certain types or
topics of research. Upon enquiring on what evidence such an accusation was
based, it was usually asserted that I had shown such bias by not publishing
any of the type of work cited. Almost invariably, I was able to respond that I
had not published anything because no-one had submitted anything of that
type! Although I think we have some way to go in establishing appropriate
norms and standards for the conduct of field-based and inductive work,
there does not now seem to be a great shortage of journals willing to publish
work of this type. Indeed, the situation I alluded to earlier with regard to
 EXTENDING THE BOUNDARIES OF MANAGEMENT ACCOUNTING RESEARCH 259
the shortage of submissions to management accounting journals in the US,
may go some way to resolving this perceived problem.
I do not wish to minimise the potential problems involved in developing
alternative approaches to research. But there are models available in many
of the social science disciplines which surround accounting. What I find
most compelling is the sterility that will overwhelm us if we do not make
some such changes, and study management accounting and control systems
in the context within which they operate.

CONCLUSIONS

My theme today has been the changing and widening role of management
accounting within organizations, both public and private. I have argued that
whereas the context and use of accounting and other control techniques has
changed radically in the last decade, research in management accounting has
tended to remain rather traditional in both the areas it chooses to study and
the methods that are deployed. Some of my comments may have seemed
critical, and indeed they are, but the situation is not one that is beyond
remedy. Indeed, it might fairly be argued that there is now a considerable
amount of work of the type that I have proposed already being conducted.
There is, and probably more so in Europe than in the USA. My plea is that
this type of work should be encouraged and developed, rather than being
regarded as the esoteric interest of a small minority.
The study of management accounting, I have argued, has (perhaps
unwittingly) concentrated upon accounting. It is time we redressed the
balance and put the management back into management accounting. I
believe that this is an opportune moment to become involved in such studies.
The interest amongst real organizations in understanding and developing
their systems of performance management has never been greater. One only
has to look at the huge enthusiasm with which techniques such as EVA
and the Balanced Scorecard have been seized upon and implemented in
organizations, initially in the US (for both these techniques were developed
in a US context), but more recently in Europe. As an aside, I would
also urge a degree of caution here, in assuming that these techniques will
work in similar ways on the two sides of the Atlantic. For example, EVA
recommends the linking of managerial pay to performance; because of the
greater openness in the US concerning pay compared with the secrecy that
surrounds the topic in the UK, and even more so in continental Europe,
care has to be taken to ensure that performance management systems are
adapted to local circumstances. From a research point of view, this extends
the topics that can usefully be studied, and cross-cultural comparisons form
a fertile ground for studies of these topics. The rapid pace of change also
makes longitudinal studies more feasible; organizations are implementing
a great number of changes with some rapidity, so the researcher is likely
260 D. OTLEY

to find many opportunities for longitudinal field studies and even action
research.
Accounting systems are often implicated in the wider processes of
organizational change, providing both a vehicle through which some changes
can be promoted but also a potential rigidity and barrier to change.
Increasingly organizations appear to be recognising the importance of
performance measurement systems as both a tool which can be mobilised in
support of more wide-ranging changes, and as a mechanism which must be
adapted if other change initiatives are to be successful. So there are important
connections to be made with those who study the processes of change
management within organizations. Equally, performance management
systems can be seen as a major plank in the process of implementing
strategic intent. I still find it strange that those involved with the study of
strategy pay so much attention to strategy formation, and relatively little to
the processes involved in making the strategy become real. So links with
those who study corporate strategy might well provide a fruitful two-way
interaction.
I have tried to give some indication of both the topics and the methods
that might be built upon in re-vitalising the study of management accounting
and its more general extension into the realm of performance management
more generally. Accounting has long been described as the language of
business, and those who speak this language can often gain privileged
access into key areas of organizations to study how it is deployed in
attempting to adapt organizational practices to the needs of a rapidly
changing environment. I therefore believe that as management accounting
researchers we have a wealth of exciting opportunities open to us; let us
seize these opportunities enthusiastically to make a real contribution to the
study of vital organizational issues.

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