Beruflich Dokumente
Kultur Dokumente
Entrepreneurial Business:
Longitudinal Case Study
By
K.H.U.D.Nandana Kumara
(Nandana Kumara Uluwatta)
(96/MSM/92)
A dissertation
Submitted to the University of Sri Jayawardenepura
In partial fulfillment of the requirements for the
degree of Masters of Science in Management
August 2002
Acknowledgement
1
The credit for my having been able to accomplish my task and complete this dissertation,
should go, without reservation to my supervisor,
Dr. Danture P. Wickramasinghe,
Dean, Faculty of Management and Finance of the University of Colombo,
Sri Lanka, And
Research Fellow, School of Accounting & Finance, University of Manchester, Manchester
M13 9PL
England,
for his unstinted support, valuable and systematic guidance & comments extended and
encouragement given me throughout the duration of this work, even sacrificing his leisure
time at home. I will be failing in my morale duty if I do not gratefully mention here that his
insistence on a research method at the very beginning of this exercise and the unfading
interest shown by him throughout the entire duration of my effort and above all his
admiration and appreciation of hard work where it deserved was a source of inspiration to
me which, made the preparation of this dissertation an enthusiastic and explorative
experience. Thanks to my untiring supervisor a humble feeling of self confidence and
accomplishment in my limited capacity run through me on completing this assignment
which, was a new challenge to me. For all these noble acts and numerous other kind
gestures on his part during the course this research, let me offer a BIG word of THANKS
with a sincere wish that he rise to the highest level of international academic recognition so
that his reservoir of knowledge would be an open source for those who are seeking
academic achievements to quench their thirst for knowledge.
2
I must also extend my gratitude to Mr. Ramesh Sriskandaraja, Lecturer, Department of
Management Studies, University of Colombo, Sri Lanka for all the trouble taken and active
participatory support extended in getting computer support at all the stages of research.
Last but not the least my loving wife Renuka, my daughter Shashika and son Rashmika for
the immense sacrifices they made during this period for the sake of the preparation of this
dissertation. They were very understanding and bore all troubles and taxing as part of their
duty by me.
3
Abstract
This study reports an intensive case study of a recently established food manufacturing
company in Sri Lanka. It examines how management control practices in a particular
manufacturing concern operates under environmental uncertainties stemmed from social
and cultural dimensions implicated in main organisational actors. To understand such
practices, the study has used theoretical and methodological lenses of Hopper and Powell
(1985), which explores fundamental philosophical assumptions of different schools of
thought in management. The empirical data collected through a qualitative naturalistic
research method was made iterated with broader sociologically informed post-positivistic
theories especially, interpretive theories. The findings implicate that management control
and accounting practices are quite different from the conventional wisdom due to the
attributes of personal characteristics, which were, constructed in particular society. The
story that has been told in this study is centred around the notion that the CEO has
accumulated power around himself towards maintaining power around himself. The
resultant characteristics in this mode of control are: centralised decision-making power of
CEO, limited internal information flow/reporting, arbitrary rewards, and reduced benefits.
The accounting system has been to preserve the family but its manifestation through short-
run physical budgets was a keystone in transmitting pressure upon line managers and
thence workers. Deriving from these empirical concerns, the study shed some light on the
ontological and epistemological positions in undertaking accounting research of this
nature. In particular, the study has found the researcher, the phenomena studied, the context
in which they are studied, and the research approach in use, to be intimately interwined –
this in marked contrast with the more orthodox scientific position that they are detached.
The study urges future qualitative field workers to exploit natural experiments of different
varieties.
4
Table of Content
Page
Acknowledgement i
Abstract iii
Table of Content iv
List of Figures viii
1.1 Background 01
1.2 The Research 02
1.3 Aims and Objectives 05
1.4 Significance of the Study 05
1.5 Scope of the study 08
1.6 Limitations of the Study 08
1.7 Structure of the Dissertation 10
2.1 Introduction 11
2.2 A Critical Look at Conventional theories in management control 11
2.2.1 Objectivism 13
2.2.2 Social Systems Theory 15
2.2.2.1 Accounting Dysfunctions 16
2.2.2.2 Psychological 'Theories 17
2.2.2.3 Social Psychological Theories 18
2.2.2.4 Structural Theories 20
2.2.2.5 Open System Theories 21
2.2.2.6 Contingency Theories 23
2.2.3 Pluralism 26
2.2.4 interpretive theories 30
2.2.5 Radical theories 35
2.3 A Framework for the present study 43
5
Chapter Three: Methodology 49-74
3.1 Introduction 49
3.2 Problems of Orthodox Methodology 49
3.2.1 It is framed from the perspective of the organization 50
3.2.2 It treats the organization as effectively a closed system 50
3.2.3 It has a technical orientation 51
3.2.4 It is prescriptive 51
3.2.5 It is ahistorical 52
3.2.6 It is apolitical 52
3.2.7 It is rationalistic 53
3.2.8 It is functionalist 54
3.2.9 It is reductionist 54
3.2.10 It is positivist 55
3.2.11 It is problem-cantered 56
3.3 Towards a case study approach 57
3.3.1 Case and universe 59
3.3.2 Theory and case formulation 61
3.3.3 Making a case 62
3.4 Research Design and Procedure adopted 62
3.4.1 Unit of analysis and Justification 63
3.4.2 Research methods 65
3.4.2.1 Observations 66
3.4.2.2 Interviews 67
3.4.2.3 Documentation 68
3.4.3 Analysis 68
6
3.4.3.1 Inductive data analysis 69
3.4.3.2 Analysis on-site 70
3.4.3.3 Running the data open 71
3.4.3.4 Focusing inductive analysis 72
3.4.3.5 Deepening the analysis 73
4.1 Introduction 75
4.2 Sri Lankan Society and Business 75
4.2.1 Colonial Economic, Business System and
Society in Sri Lanka (before Independence) 76
4.2.2 Post- Independence (from 1948) 79
4.3 Company Background 84
4.3 Business Idea 85
4.4 Corporate Strategy 87
4.4.1 Strategic Business units 87
4.4.2 Product categories 88
4.4.3 Objectives, Strategies and Tactics 89
4.4 Organizational Structure and Controls 91
4.5.1 Organization Chart 91
4.5.2 Work Force 92
4.5.3 Nature of responsibilities 93
4.5.4 Incentives and Reactions 94
4.5.5 Decision Making Process 95
4.6 Budgeting and Planning 96
4.6.1 Budgets 96
4.6.2 Planning 97
4.7 Financial / Capital Structures 97
4.7.1 Initial Capital and Net Asset 97
4.7.2 Resource Allocation 98
4.8 Market 98
7
4.8.1 Features of the product 99
4.8.2 Market Development 99
4.8.3 Distribution Network 99
4.8.4 Reaction for Competitor Activities 100
4.9 Costing Process and Material handling 102
4.9.1 Pricing 102
4.9.2 Material Handling 103
4.9.3 Changes to be introduced (Proposed changes) in
Cost Accounting Statements 105
4.10 Summary 106
8
5.5.5 Pricing by going prices 135
5.5.6 Ad – hoc Arrangements in Daily Operations 135
5.6 Summary 137
List of Figures
Page
Figure 2.1 Accounting Schools and Sociological Paradigms 13
Figure 2.2 Management Accounting and Social System Theory 16
9
CHAPTER ONE
Introduction
1.1 Background
At the outset, the dominating rationale of the control system has been developed
from neo-classical economic framework in which two assumptions are salient:
market equilibrium and rational economic man (See. Scapens, 1996). Based on,
this framework, firms are inclined to satisfy customers through fulfilling their
changing requirements.
The firm selected for the present research is a food manufacturing company. This
firm has also considered such an economic frame towards satisfy customers. When
reviewing the life styles in an average Sri Lankan, it has changed drastically during
last couple of decades. In spite of traditional paternal run household earning
system in the modern context, both husband and wife today generate the income
required to run a family. Hence, the life of an average household is more
industrious/ busier than in the past. As such their food patterns have also affected
as a result of this. Consequently, business entities have capitalized on the
opportunities available. Therefore, the food processing companies have introduced
10
instant food items to the market, which are more popular among urban
industrious consumers. Soya related food items also introduced simultaneously
with these instant food items. Many companies introduced similar varieties of
Soya related products but many of them disappeared from the market very soon.
Given uncertain market conditions a new firm was able to capitalize on the market
opportunities better than other companies. The study is based on this company
called Multi Food Product Limited (MFPL)1.
1
Certain names in this case have been disguised
11
This study does not represent a well-packaged theoretical statement of the
conclusions of the study. Instead, it represents the overlapping and occasionally
contradictory picture that emerged for the research team as a result of their
experiences. At least four broad observations seemed to dominate. Firstly,
financial planning and control systems did not appear to be a dominant mode of
organisational control in the MPFL. Finance for investments may act as an
overarching constraint at the national level and affect the performance of
company, but Finance is marginal within the company studied. Thus planning
seems to start from physical production planning. The financial plans derived from
the physical exercise did not seem to be entirely articulated with the production
plan. Secondly, the MPFL seems-to have successfully devised a set of loosely
coupled control mechanisms so that one part of the organisation was effectively
insulated from disturbances occurring elsewhere in the organisation. A third
observation is that information, which is conventionally seen to be important as a
way of enhancing visibility in an organisation, may itself be a source of uncertainty
and may be used and interpreted quite differently in situations where much of the
production process is invisible. And finally it appeared that changes taking place in
the organisation might reflect not so much the needs of internal organisational
management, but instead represent external pressures on the organisation to
appear efficient and responsive to apparent financial constraints.
Taken together, these observations seem to match the perspectives of March and
Olsen (1976), Weick (1979), Meyer and Rowan (1977) and Burchell et al (1980).
Organisations seem to behave quite differently from the stereotypes depicted in
management textbooks in relation to their organisation structure, their
relationship with their environment, and their planning, control and information
systems. These differences seem not only quite comprehensive and coherent in
themselves but they also appear more or less rational and intelligent to the
participants themselves. And so it seems with the MFPL we studied. Thus, rather
than adopt a conventional approach that seeks to understand an organisation in
terms of pathology and deviations from some abstracted and idealistic theoretical
position, we seek an understanding that explores the rationales for practice offered
12
by the participants involved in that practice. The danger with this approach is, of
course, that the understandings so offered represent little more than the ideology
of the status quo. It is exceedingly difficult for the participants themselves to break
out of their roles, perspectives and institutional constraints. We therefore saw a
major role of the investigators as one that tested rationales and justifications and
offered alternative perspectives for the participants to consider. The research itself
reflects this tension between an attempt to understand management control in
action and an attempt to evaluate the explanations of why current practices occur.
In order to assist interpretation of the study it therefore seems appropriate to
preface a more detailed statement of our observations with an outline of the
research methods used in the investigation and a sketch of the background and
organisational context of the study. However, this study attempts to understand
how culture shapes the values and meaning frames of organisational participants
and provides them with interpretive schema affect accounting and control
practices in organisations. This is achieved by focusing on fore generic issues:
The aims and objectives of any research project are largely determined by how
much is already known about the topic selected. Consequently, the extent to which
existing knowledge and understanding can be used to develop hypotheses, which
can be confirmed or refuted, must be considered (Easterby-Smith et al., 1991;
Patton, 1987). Before establishing the aims and objectives of the substantive
research problem, a comprehensive review of existing literature pertaining to
firm’s management control was undertaken. Therefore, after careful consideration
of research problem, the following objectives of this study are determined.
13
1. To examine the current state of the company’s management control
system
It is now recognized that small firm and medium size firm research is at too
"young" a stage in its development to benefit from a positivist research approach
that encourages the use of quantitative methods of scientific inquiry (Aldrich,
1992; Bygrave, 1989; Churchill and Lewis, 1986; Sexton, 1986). Consequently, a
review of recent small and medium firm literature reveals researchers' emerging
preference for phenomenological approaches to small and medium firm studies
that employ qualitative methods of collecting and analyzing empirical data. While
depth-interviews, participant observation and conversation, for example, have
become popular tools for collecting data rich in detail about small firms (Holliday,
1992), few researchers provide detailed accounts of the qualitative research
process. Particularly, there is a scarcity of literature available to offer advice on the
inductive analysis of qualitative data. While the emergent can in part, explain this
gap in small and medium firm literature, iterative nature of the qualitative
research process (Bechoffer, 1974; Gill and Johnson, 1991), it is important that
qualitative researchers make explicit the process involved in their collection and
analysis of data. By failing to do so, small and medium size firm researchers
employing qualitative methods do little to encourage theory development or
progress current knowledge and understanding about small and medium firms.
Relative to other fields, small and medium size firms have only recently become an
area of academic interest. Particularly when considered alongside the "queen" of
science - physics - the infant nature of small and medium size firms research is
made apparent (Bygrave, 1989). This has implications for the paradigm from
14
which small and medium size firms research should be approached (Sexton, 1986).
Churchill and Lewis (1986, p. 335) argue that as small firms research "is a field in
which the underlying concepts have not been adequately defined", the primary
concern of researchers should be theory development, not theory testing.
Similarly, Bygrave (1989, p. 23) contends that the emerging nature of small firms
research demands that a qualitative approach that encourages the development of
practical and theoretical understanding and the generation of new and alternative
theories and concepts is appropriate. Specifically, researcher argues, that "at the
beginnings of a paradigm, inspired induction (or more likely enlightened
speculations) applied to exploratory, empirical research may be more useful than
deductive reasoning from them". Continuing, he recommends that the "emphasis
in an emerging paradigm should be on empirical observations with exploratory, or
preferably grounded research, rather than testing hypotheses deduced from flimsy
terms". Churchill and Lewis (1986) go further and warn that without existing
theories grounded in empirical observations, the use of hypo-deductive approaches
to understanding small firms will restrict the generation of knowledge about their
processes, activities and outcomes. Also impacting upon the selection of an
appropriate research paradigm from which to approach their scientific inquiry are
the research "subjects" involved in small and medium size firms. As small and
medium size firm research involves the study of human action and behaviour, it is
essentially concerned with the nature of reality in the social world. In contrast to
the natural world, the human "subjects" of the social world possess the ability to
think for themselves, comprehend their own behaviour and have an opinion about
the social world of which they are a part (Bryman, 1988; Gill and Johnson, 1991;
Laing, 1967; Schutz, 1967). Consequently, the study of small or medium size firms
cannot be approached from the exterior standpoint demanded by the positivist
approach (Gill and Johnson, 1991). Instead, researchers need to adopt an approach
that allows them to "get close" to participants, penetrate their internal logic and
interpret their subjective understanding of reality. Moreover, as the social world
cannot be reduced to isolated variables, such as space and mass, it must be
observed in its totality. Specific to small and medium size firms research, Churchill
and Lewis (1986, p. 384) argue that the reduction of the process of creating,
developing and growing small and medium size firms to individually measurable
15
variables, "unfortunately ignore(s) real problems in order to fit neat packages".
Others agree that by stripping small firm problems of the context within which
they occur naturally, the findings produced by positivist approaches are
generalisable only to the extent that the conditions under which data are collected
exist in the social world (cf. Aldrich, 1992; Borch and Arthur, 1995; Brown and
Butler, 1995).
16
1.6 Limitations of the Study
The scope of the study confines to private sector organization related to the food
products. It is limited that to select different types of companies related to the food
products and different types of organizations in the different industries. In
addition to that the analysis is limited to the management control in practice and
the limited number of theories such as Functional Approaches Interpretive
Approaches and Radical Theories are employed to analyse the case. Moreover,
limited number of people who are employing in the organization is selected and
interviewed when collecting data.
The adoption of any research approach and the use of all methods of collecting and
analysing data necessarily involve "trade-offs" (Patton, 1987). While the research
outcomes generated have been only very briefly described, the understanding of
the contents of management controls and the impact which these had on the
development of case-firms, which has been presented, demonstrate the value of
the qualitative approach used.
However, in common with any other research project, this study was also
constrained by the methods chosen. These constraints can be identified in two
main areas. First, the grounded understanding of management controls in which
this research was interested that raw data were the experiences and perceptions of
those involved in these practices. In collecting such data, it is possible that despite
the sampling strategy and tactics employed, respondents were not always truthful.
Second, the extent to which the findings to emerge from this research can be
generalised to the wider population of small and medium firms is constrained.
17
The strictest confidentiality of data about marketing practices and some financial
highlights was effected thus some information which were essential could not be
obtained and the names in relation to the marketing practices were withheld. The
framework of the study is limited only to the Management control systems in one
selected firm in Sri Lanka.
This study based on an empirical study, which examined in depth one growing and
successful small firm. A case study analytical approach has been adopted, since it
can shed more light on a dynamic and fast moving situation. Cases usually tend
towards qualitative analysis. They are seen as a vehicle for in depth study and in
this situation help us understand the phenomena, since use is made of open-ended
interviews conducted over a period of 20 weeks. Lynch, (1994) identified that case
interviews help confirm the shape and spread of key issues and assist in more
precise hypothesis formulation. The wealth of information provided however must
be balanced against the reduced number of people and cases studied. Clearly this
increases understanding of cases but reduces the generalisability (Patton, 1990).
The thesis is divided into six main chapters including the current chapter Chapter
One. The Literature review and theorization of management control systems are
presented in Chapter two. This chapter will look into orthodox models on
organizational control and specially a review of underling assumptions towards
organizational and social aspects of management accounting with special reference
to the management control. In this regard conventional theories such as
functional, interpretive and radical approaches are presented in this chapter.
Chapter three explains the methodology of the study. This chapter discusses the
problems of orthodox methodology, case study approach and the research design
or procedure adopted in this research. Chapter four presents the Social and
organizational context of the study and Chapter five explain and develop and
analyse the case under investigation. These data have been analysed cross-
sectionally with the theoretical framework and the social and organizational
18
context of the study and build a model. The summary of the research, conclusions,
and commentaries are discussed in Chapter Six.
19
CHAPTER TWO
Towards a Theorisation of Management
Control Systems
2.4 Introduction
In the previous chapter it was identified that this study is to work management
controls in an uncertain context emanated from a particular social and
organisational context. With a view of crystallizing this theme, the present chapter
attempts to review relevant literature. In particular, the chapter begins with a
systematic critique on conventional theories of management controls and then it
goes on to typify social and political frameworks of management control systems.
Finally the chapter culminates in a framework concluding for theorization of
management controls in a context in which the subsequent case was developed.
Researchers into the management science should consider their own values and
beliefs concerning the nature of society and social sciences. In order to assist
people in this task, previous research into the organisational and social aspects of
accounting is reviewed and grouped into various schools of thought within a basic
sociological framework devised by Burell and Morgan (1979).
20
Ontology concerns the nature of ‘reality’. Epistemology is concerned with the
nature of knowledge – what forms it takes and how it can be obtained and
transmitted. Human nature refers to the relationship between human beings and
their environment. These three sets have direct methodological implications. If the
social world is treated as the same as the physical or natural world, then methods
from the natural sciences tend to be utilised to locate, explain and predict social
regularities and patterns – statistical techniques are often used to test hypotheses
and to analyse data collected by standard research instruments, such as
questionnaire and surveys. Alternatively, if the subjective experiences of
individuals and the creation of a social world is stressed. Then methods that allow
insight into an individual’s inner world are emphasised – for example, participant
observation and in-depth interviews.
The other major dimension defines two alternative and fundamentally different
approaches to society: one is concerned with regulation, order and stability and
sets out to explain why society tends to hold together; the other focuses on the
fundamental divisions of interest, conflicts and unequal distributions of power that
provides the potential for ‘radical change’.
These two independent dimensions are combined to form four mutually exclusive
frames of reference: functionalists, interpretive, radical humanist, and radical
structuralist (see. Figure one). In order to do this Burell and Morgan create a
dichotomy between “objective” and “subjective” approaches, even though the
dimension relating to social science assumptions was constructed as a continuum.
21
Figure 2.1 – Accounting Schools Sociological Paradigms
Radical Change
Subjectivism Objectivism
Interpretive Functionalism
Pluralism
Interpretive Social System theory
Objectivism
Regulation
(Adapted from Burrell and Morgan, 1979, pp. 29,30)
2.5.1 Objectivism
The critique of Classical Management is well established. Simon (1943) exposed its
‘principles' to be lacking in internal consistency or clear definition. Its motivational
base was soon recognised as simplistic (Roethlisberger and Dickson, 1939). Much
classic work lacks empirical verification and may owe to managerial ideology than
science (Perrow, 1979;Bendix, 1956)
22
Moreover much of conventional Management accounting is based on this
approach, standard costing, for example, is inextricably linked with scientific
Management (Solomons, 1968). 'Principles of Management’ stated by writers such
as Fayol (1949) and Mooney (1947) provide rationales for budgetary control, e.g.
Welsch (1964). Indeed Fayol specifically instances budgets as planning and control
tools. More recently closed systems theory and neo-classical economics have
provided complementary underpinnings to the approach. Closed system permits
the mechanistic analogy of thermostats to be exploited and detailed in an
accounting context, e.g. Shillinglaw (1977). Neo-classical economics provides a
basis for marginal costing and financial management and reinforces notions of
control based on assumptions of economic man, and organisations with unitary
goals headed by a single decision-maker (e.g., Weston and Brigham, 1978). A more
detailed exposition and critique of the relationship between management
accounting and such, ‘traditional’ models of the firm are expounded by Caplan
(1971).
23
significant changes envisaged are within a managerial conception of society,
whereby organisational changes are instituted by key decision-makers at the apex
of the organisation, and are restricted to adaptation to market threats and
opportunities and represent movements towards economic optimality.
Probably because of the limitation of objectivism with respect to the social nature
of man and how extra-organisational factors hear or control, many accounting
studies have incorporated more complex models of motivation and organisational
design. Much of this work is derivative of organisation theory, which, in the 1960's
and 1970's tended to use social systems theory to view its subject. Open systems,
characterised by exchanges with the environment, were particularly influential.
Thus much management accounting research adopted a social systems approach,
albeit in many cases implicitly and rather selectively. Figure two below traces an
approximate chronological development of sub - schools within this social systems
approach to management accounting. This serves as the framework for the
subsequent examinations of this work.
Figure 2.2 – Management Accounting and Social System Theory
Psychological Studies
24
2.2.2.1 Accounting Dysfunctions – [Organisational Effectiveness
and Budgets]
Several early behavioural studies of accounting systems noted that unintended and
undesirable consequences often arose when conventional models were applied.
Argyris (1953) noted how managers used budgets as "needlers’ over subordinates.
Accountants were criticised for hierarchical punitive reporting and achieving
success through the failure of others. The ensuing tension and hostility between
Staff and line managers was held to be counter-productive to the fulfilment of
organisational goals. Ridgeway (1956) and Dearden (1961) both chronicled how
using accounting criteria as performance measures could reduce organisational
effectiveness. Dalton (1959), Rosen and Schneck (1967). Lowe and Shaw (1968),
and Schiff and Lewin (1968, 1970) all demonstrated how managerial bias and slack
could enter budgets. Dew and Gee (1973) found that many managers either did not
use accounting information received, or used it incorrectly. More recently Ashton
(1976) noted how dysfunctional consequences of accounting systems are
perpetuated and amplified by their feedback mechanisms.
These studies can be related to what Burrell and Morgan (pp. 184 - 189) term
organisational “ theories of bureaucratic dysfunctions”, and in particular to the
work of Selznick (1949), Gouldner (1954), and Merton (1968). Such theories
acknowledge that organisations themselves do not have goals but are composed of
individuals and groups striving towards different ends, “local” goals are often in
conflict and dysfunctional in the formally stated organisational goals. The works
point to the limits of bureaucratic control and illustrative how changes may occur
in the social systems. Unfortunately such considerations tended not to be
appreciated or explored by many of the accounting researchers. The awareness of
“behavioural Dysfunctions” merely spurred on their endeavours to refine
measurement to rectify such aberrations e.g. economic and mathematical
approaches to transfer pricing and divisional performance measurements
summarized in Abdelkhalid and Lusk (1974), or alternatively to advise that
“miscreants” be given a greater education in accountancy, e.g. Dew and Gee,
25
(1973). Thus the managerial definition of the enterprise was preserved.
Recognition of the divergence of goals within organisations, their significance to
change, and how accounting might recognise and assist this process was de -
emphasised.
Much of this work is now subsumed under the tit1e of Human intervention
processing approaches to accounting. Extensive reviews of this can be found in
Driver and Mock (1975), Moskowitz et al (1976), Snowball (1980), Nisbett Ross
(1980), Einhorn and Hogarlh (1981), Libby (1981) and Libby and Lewis (1977,
1982).
The essential thrust of the work is to determine what factors affect the quality of
individual decision making. Libby and Lewis classify the major variables into three
sets - inputs, process, and outputs. Input variables measure the properties of the
information, (e .g. type of measure, its reliability, method and order of
presentation, amount). Process variables seek to measure aspects of the decision-
maker, (e.g. numbers, personality. intelligence, commitment, decision rules used).
Output variables include the speed, quality and reliability of Judgements, and
Perceptions of their quality and of the information given.
The work adopts a functional frame of reference, for although people are viewed as
imperfect information processors, the processing is assumed to be systematic and
26
capable of revelation by scientific study. Decision-making is depicted
deterministically as an interaction between objective characteristics of the
information set and innate characteristics of the subjects. Ontologically the world
is taken to be prior to individual cognition, the problem is their imperfection in
perceiving it. Thus, according to Libby (1981) the options for improving accounting
decisions lie in either changing the way information is presented or educating the
decision-maker in better methods of processing information, or replacing him or
her with a model.
Despite the heated debate between objectivists and social psychologists over
participative methods, their approaches are very similar. The social psychologists
simply substitute “hedonistic” and complex man for the simpler models of Taylor,
27
(Burrell and Morgan, 1979}. Both view individuals as predictable and passive
respondents whose behaviour can be determined by external stimuli. Whereas
Taylorism advocates managerial manipulation of the workforce through economic
variables, the social psychologists emphasise job design and leadership style.
Whilst social psychologists recognise that human desires may conflict with those of
the organisation or other parties to it, in its advocacy of participative methods it
tends to assume that these are reconcilable. Little account is taken of possible
inequalities of power between parties to the participative process, or of the fact
that in some instances goal differences may be irreconcilable. Thus the approach is
often criticised for a pro-managerial and manipulative bias. e.g. Rose (1978).
Neither psychological nor social psychological theories have paid much attention
to how structures of organisations might affect the processes under scrutinity.
Whilst the pioneering study of Argyria (1953) concentrated on social psychological
variables it noted the significance of organisational ones such as the reporting
relationship of accountants. Shortly after, the classic study of comptrollers’
departments by Simon et al. (1954) focused on organisational issues such as the
roles of accountants and their relationship to structure, training and socialisation.
Despite the wide citation of this work little investigation of structure ensued in
accounting. That which did e.g. Benston (1963), Golembiewski, (1964), followed
the centralisation versus decentralisation debate instigated by Simon et al., and
tended to become an adjunct of the social psychological approach rather than a
sociological investigation of say institutional networks or occupational cultures.
28
associated accounting changes are crudely portrayed as inevitable coping
responses to new technology, the work is very functional, in that it emphasises how
individuals and organisations are constrained by an external world. However more
recent work comparing European and U .S .A. developments is less deterministic
(Chandler and Daeme, 1979). Variations between corporate structures and
accounting systems are ascribed to differences between political and managerial
values and not just the dictates of economic efficiency. Thus the possibility that
corporate controls are social creations subject to choices in acknowledged.
Much of the work discussed so far has adopted a 'closed systems' approach, seeing
control as achievable by regulating internal organisational variables, be they
psychological, social psychological, or structural. An ‘open systems’ approach on
the other hand regards organisations as organisms that process inputs from the
environment back as outputs. Its ecological orientation stresses the
interdependence between the organisation, its internal Sub-systems and the
environment. A further and illuminating discussion and critique of the differences
between open and closed systems can be found in Pondy and Mitroff (1978).
29
control' described it in input - output terms, e .g. external budget inputs included
plant technology, personalities of budgets, internal budget inputs embraced
participation and tightness of standards.
Typically, open systems accounting work does not confine itself to economic flows,
but extends to political, social and technological ones as is illustrated in Lowe and
Tinkers (1977) attempt to conceptually redefined the management accounting
problem. Central to this scheme are cybernetic notions of requisite variety, black
boxing, modelling and resolution levels (Ashby, 1956). Morgan (1982) claims that
cybernetics can be applied in two ways, either as technique or as epistemology.
Techniques applications that emphasise goal oriented behaviour and the design of
formal control systems on the lines of thermostats it is claimed, violate cybernetics
as an epistemology, which instead stresses learning and evolution by the avoidance
of undesirable and states. In an accounting context, it is significant that the
technique oriented cybernetic applications have tended to have difficulties in
incorporating behavioural aspects of the problem, e .g. Amey (1980). Hedberg and
Jonsonn (1978), and Hertog (1978) are examples of accounting studies in the
epistemological tradition of cybernetics I both examine how accounting systems
might be designed to provoke and facilitate organisational learning and hence shift
actions to less environmentally threatening states. Both criticise accounting
systems for being traditionally oriented towards stabilising organisations rather
than provoking change and adaptation.
30
Firstly, organisations and environments tend to be taken as objective, even
though experience in defining boundaries and key variables suggest
otherwise, i.e. they are subjective creations by the modeller.
Thirdly, by stressing the need for integration for the survival of the whole,
there is a presumption of a "functional unity" to organisations, which may
divert attention from issues of power and conflict. Consequently, as Otley
(1983) Points out, there can be a thin dividing line between when open
system and cybernetics is a method of analysis and when it becomes an
ideology for co-operation towards the status - quo.
What is now commonly termed “contingency theory” developed from the work of
Woodward (1965), Burns and Stalker (1962), the Aston School (Pugh and Hickson,
1976), and Lawrence and Lorsch (1967)? It seeks to provide a reconciliation and
synthesis of the conclusions emerging from a verity of organisational studies. The
work of industrial psychologists and the human relations school is combined with
open systems theory and that which empirically measures structural
characteristics of organisations. Its principal thesis is that different organisations
principles are appropriate under different environmental circumstances, and
within different parts of the organisation. Effective operation of enterprises is seen
as dependent upon there being a suitable match between its internal organisation
(including structures, styles of leadership and decision making), and the nature of
31
the demands placed upon it by its tasks, size, environment, and members wants.
Many researchers into management accounting have consciously adopted and
encouraged this approach, probably to explain otherwise contradictory
observations. Reinforcement may have come from pragmatic practitioners who
had always expressed suspicion at universal prescriptions not tailored to the
requirements of their firm. A small flood of studies seeking to establish which
contingent factors determined the form of accounting system ensued.
Khandwalla (1972), Bruno and Waterhouse (1975) and Waterhouse and Thopson
(1978) concentrated upon establishing relationships between the design and use of
management accounting systems and the size of an organisation, its technology, its
structure and/or its environment. Managerial decision-making styles were taken
into account by Gordon and Killer (1976), Caplan and Champoux (1978)
considered management styles and the "personality" of an organisation, Young
(1979) discussed organisational values and motivation, management aspiration for
profit growth were included as an important independent variable by Piper (1980),
Earl and Hopwood (1979) contended that different modes of organisation
decision-making predominated under various forms of uncertainty and that
different kinds of management information systems were therefore required
.Swieringa and Moncur ( 1972) and Rahman and McCosh ( 1976) were the only
ones, however, to pay much attention to attitudinal or personal factors .
The assumptions behind contingency theory are similar to those under- lying an
open systems approach - the key relationship between an organisation and its
environment can be understood in terms of the organisation’ s need to survive, and
the fact that there are certain functional imperatives for the various sub-systems.
Although the processual nature of organisations is emphasised, much of the
research cited has tended to use questionnaires to take snapshots of temporary
structural manifestations followed by detailed statistical analysis rather than
observing the processes first hand over time.
32
pattern. Otley (1980) notes four reservations about contingency theory in a
managerial accounting contexts first, the conceptualisation, definition and
measurement of key variables requires greater theoretical and empirical attention;
secondly, studies have tended to ignore theoretically and empirically the question
of how controls are related to effectiveness; thirdly, the prescriptions from
contingency theory are based on weak grounds e.g. correlation are often small
inconsistent, and rarely related to any effectiveness criteria; fourthly, the highly
connected nature of components in an organisational control package suggest that
management accounting and information systems cannot be studies in isolation
from their wider context.
More generally, Child (1972), Wood (1979), Schreyogg (1980), Cooper (1981), all
criticise contingency theory for paying insufficient attention to the discretion
possessed by key decision-makers and how values, beliefs and ideologies may
influence choices. Contingency theory tends to portray management in a technical
role, matching organisational design to the dictates of contingent factors. However
the presumed independent variables may not be so. As in the case of systems
theory, factors such as technology may be part of strategies of control. The small
and inconsistent correlation in contingency studies suggests that management may
have considerable latitude over such issues. Much of contingency theory appears a
theoretical: it purports to describe and measure practice. However correlation
established often become interpreted as causal and used to establish normative
models. Thus what is a slip into what should be? What might be is not addressed
.By emphasising technological determinism and neglecting how control systems
may be a product of social cultures, ideologies and power struggles, attention is
deflected from alternatives based on different values.
2.2.3 Pluralism
Industrial relation is an area where issues of power, conflict and sectional interests
are more overt and where presumptions of unitary organisational goals have been
seen as inappropriate. Some writers, especially Fox (1966) have advocated
pluralism as a more realistic approach to organisational control. Here
33
organisations are taken to be comprised of sectional groups with divergent and
often mutually in consistent goals. Common purpose exists only insofar as groups
are interdependent. Control is achieved by maintaining a network of rules and
regulations that permit bargaining between the groups. The aim being to contain
rather than eliminate conflict by negotiating courses of action which permit each
group maximum freedom consistent with the binding constraints laid down by
other groups. Thus organisations are seen as loose coalitions, often decisions are
taken sequentially to allow different criteria and hence different sectional ends to
be met; formal organisational goals may represent little more than means of
securing external legitimacy. A major variable determining outcomes is the
relative power of groups, and the concern of researchers is to explain and predict
such outcomes rather than prescribe them. The pluralist counterpart in decision
theory can be found in works such as Cyert and March (1963), Lindblom (1959),
Allison (1969). Despite not being extensively tapped by accounting researchers,
pluralism is potentially a source of fresh ideas and insights into management
accounting and it introduces many of the themes that are examined in the
subsequent alternative approaches. Firstly, pluralistic studies shed light on to the
issue of how accounts and accounting rules are initially created. Rather than
assuming that they are the product of objectively rational procedures based on a
value free and neutral perspective, as does much often-previous work discussed,
pluralism suggests they arise from sectional interests and are then mediated
through political processes. For example, Nahapiet (1981) observed that treasurers
from Areas of the National Health Service competing for funds put forward data
and criteria most favourable to their case. When extra funding was unexpectedly
made available it was mutually agreed that each would reformulate the past
records in the light of this future funding. Similarly Hope and Gray, (1982), noted
that recommendations to the Accounting Standards Committee stemmed from
sectional interests. Thus the aerospace industry sought and achieved provision for
capitalisation of development expenditure because of its effect on the profitability
of government contracts and despite its contradiction of stated accounting
principles.
Accounting may derive from sectional interests and be modified by bargaining and
negotiated consensus, but it is also integral to the relative strengths of the parties
34
to such processes, being an important power resource, namely information. This is
illustrated by studies such as Bariff and Galbraith (1978) and Bjorn-Anderson and
Pederson (1980), which explore and document how changes in information
systems affect power structures within companies. This being the case, then
organisationa1 participants may use positions as “gatekeepers”, to ration or
manipulate information to secure personal ends (Pettigrew, 1973). AS Dalton
(1959) colourfully describes, accountants are not immune from indulging in such
behaviour. The suggestion of pluralism is that managers use, seek and develop
accounting to bolster a perspective, i.e. as an "ammunition machine" rather than
treating it as providing answers through a single calculus (Earl and Hopwood
1979).
35
pluralist ideas.
Lastly, the scepticism of pluralism towards official statements offers insight into
the status and significance of accounting data emanating from meetings. Burchell
et al. (1980) note that accounting data often emerged from political processes and
decisions rather than preceding them. The suggestion is, as several writers have
argued, the accounting serves to reassure decision-makers and to legitimise their
actions, rather than reflecting an underlying reality. For example Mason (1990)
suggested that the main thesis of Burchell et al. was that accounting information
served to reduce perceived uncertainty and to abate and objectify anxiety. Similar
ideas underlie the works of Gambling (1977), Swanson (1978) and Chambers
(1980). Gambling saw accounting as a political process and compared it with
witchcraft in that both provided the "machinery to accommodate awkward facts in
a way which does not undermine fundamental beliefs of the culture" and which
does not expose the gaps in that culture’s knowledge. According to Swanson,
information systems should be recognised as having a, "significant capacity for the
encouragement of organisational delusion" - although there may be an "inner-
directed" rationale, the aim could be to make a show of "good information" to
higher management. Chambers discussed accounting and quasi-myths I he
suggested that it was often simpler to invent fictions than to establish a connection
between the input of certain information to a person and the output in the form of
a decision or action. Finally, Earl and Hopwood (1979), building on the decision
theories of Weick {1969), claim that in very uncertain situations management
information systems are used to retrospectively rationalise decisions and actions
already taken.
Such ideas overlap, and indeed often draw from, interpretative ideas on socially
created realities. Also recent pluralistic work often uses interpretative methods.
However pluralism tends to presume purposeful and self-interested behaviour
arising from a realist ontology, Bargaining arises due to different, but reconcilable,
objective interests rather than individuals seeking to create meaning through
social interaction. Whilst socially created accounting is recognised, it tends to be
seen as a deliberately manipulative act to seek external legitimation and to mask
underlying realities. Thus much of pluralism is underpinned by realist ontology.
36
However its ability to absorb within its approach interpretive ideas and methods
has led the writers to classify it as less objective than the functional approaches
such as objectivism and social system theory discussed previously.
Its position with regard to change in the classificatory framework is similar to that
of social systems theory with which it has many similarities. Both stress
interdependencies and neither elucidates any ideal and state. The maintenance of
negotiated consensus and prevention of any party seeking absolute achievement of
its ends in pluralism has similarities to systems notions of survival, the prevention
of system breakdown and negative entropy. The essential difference between
pluralism and other approaches examined so far is its focus on interests, conflict
and power. Whilst pluralism is perhaps less committed to normative designation
earlier approaches, and more to observing and understanding accounting in
action, it is unable or unwilling to pass judgement on the relative powers of parties
to negotiations or the ends each pursues. As such pluralism is part of the sociology
of regulation within' a broad framework of preserving the status quo.
From a functionalist viewpoint, people are seen as being constrained by the social
world they inhabit, and this world is perceived as being composed of external and
independent objects and relationships. Social constructs, such as organisations,
are often regarded as material things and so accorded the power of thought and
action; in fact it could be said that a purely structural or functional sociology is
endemically in danger of reifying social phenomena (Berger and Luckman, 1966, p,
208).
37
exist external to them.
Methodologies based on experimental designs and statistical surveys that treat the
social world as objective and measurable are not consistent with the philosophical
and theoretical underpinnings of such an approach. Qualitative methods are often
more appropriate for the study of how language and meanings evolve and are
modified, but the relationship is not quite so straightforward (Reichardt and Cook,
1980). The important thing is that the form of inquiry adapted in any investigation
should not be shaped simply by a commitment to particular research methods for
their own sake, but should be logically consistent and appropriate given the aims
of the research and the values and assumptions that lie behind it (Bulmer, 1979;
Morgan and Smircich 1980).
The relevance to practice of much of the functionalist academic research into the
organisational and social aspects of accounting has recently been questioned by a
number of authors, (e,g, Tricker 1979; Tomkins and Groves,1983; Bourne et al.,
1982). The 1977-1978 'Schism' Committee of the American Accounting Association,
for example, doubted whether many academics, let alone practitioters, fully
understood the articles published in “The Journal of Accounting Research” and
“The Accounting Review”. Bourn et.al. (1982) Suggested that researchers know
38
little about accounting in actual practice, how it interacts with other organisational
processes, and how it contributes to organisational effectiveness and adaptability.
There has thus arisen a cry from some corners for a more 'interpretive ' approach
whereby greater emphasis is given to the perceptions and explanations of the
participants themselves (Otley, 1978; Colville, 1981; Tomkins and Groves, 1983).
39
the comments of some of the accountants in Rosenberg et al study (1982).
When they worked in the treasurer's department, accountings were perceived and
used as objective representations of the real situation. However when they were
moved to social services departments accountings become seen as flexible
measures to facilitate decision making and to bargain. Such seemingly
contradictory understandings between accounting as an objective unbiased source
of information on the one hand, and its malleability and variety of usages in action
on the other is a common research finding. For example Nahapiet (1981) and Berry
et al (1983) all illustrate how accounts and associated meetings are used to display
a facade of rationality to external bodies, despite being used for different purposes
within the organisations. Other studies (Meyer and Rowan, 1977; Dizsmith and
Jablonsky, 1979; Pingle, 1978; Gerwin, 1982), which claim that accounting is
created after decisions are made to legitimise them, rather than being an input
preceding rational calculation, question the assumptions of rationality that
underpin so much accounting work, and are suggestive of the applicability of
themes in interpretive approaches. Several inter-related insights into accounting
have already been made from an interpretive perspective, which are worthy of
further research. These include seeing accounting as a language, as myth and
ritual, as a means to negotiation, as learning, and as assisting change under
conditions of uncertainty.
40
accounting will increasingly provide a medium and forum for debate (Powell,
1983). Indeed, in two of the organisations investigated by Powell, accountants had
become responsible for all negotiations with trades union representatives.
If so, it might be argued that accounting system designers may have to pay greater
attention to the subjective models of clients and the processes whereby they are
created. Such approaches have already been adopted in practice by some
operations researchers. Checkland (1981) found that traditional or 'hard' systems
methodologies based on those of the natural sciences were inadequate for the
complexity of problems raised during consulting. His alternative “soft systems”
methodology was seen to be based "...not on any external ‘reality’, but on people's
perceptions of reality, on their mental processes rather than on the objects of those
processes”. Thus the ' soft systems' methodology concentrates upon presenting
back to subjects multiple models of subjective realities as a means of promoting
learning. Boland (1979) similarly argues for greater recognition of subjectivity by
accountants. He postulates that systems designers, trained in rational modelling
approaches, are often unaware that their model of reality is only one of many. He
too advocates that systems designers trace multiple subjective models of decision-
makers to precipitate debates and hence the creation of richer models. In addition
he advocates such exercises periodically on existing system as a means of
precipitating change. Dialectical inquiring systems advocated by Churchman
(1971) and Mitroff et al. (1972) are seen as particularly apt for such exercises. In
stressing subjective models and the creativity of conflict in challenging and
exposing organisational assumptions the methods overlap considerably, but not
entirely (Boland, 1981) with the organisational learning systems developed by
Argyris and Schon (1978). Several accounting writers have utilised decision
theories strongly influenced by interpretive approaches, to address the question of
designing accounting systems that promote change and creativity. For example,
Cooper et al (1981) claim that the seemingly non-rational decision behaviour
described by Weick (1969), and March and Olsen (1976) is typical in organisations
subject to great uncertainty. They claim however that such behaviour facilitates
play and experimentation and hence creativity and learning. Consequently they
advocate accounting systems, which promote rather than stifle such behaviour.
41
Similarly, Earl and Hopwood (1979) claim that in situations of high uncertainty
over means and ends accounting systems should be ‘ idea machines’ rather than
the 'rationalisation machines’, which they tend to be.
These approaches are stimulating, not least because they indicate how accounting
systems may promote change, albeit within a managerial conception of the term,
rather than being stabilisers. However assigning interpretive work to the particular
problems of coping with exceptional uncertainty carries the danger of prematurely
bringing structure and order into a more fundamental debate over the social
science assumptions appropriate to management accounting. Interpretive
theorists should argue that their approach is of universal rather than limited
applicability. It is important to consider not only when and how peoples’
perceptions change, or are desired to be changed, but also why common
perceptions exist and remain unchanged.
The work of Meyer and Rowan (1977) and Starbuck (1983) is relevant in this
context, structures, rules, plans, goals etc. are seen as myths and rituals which
reinforce the stability of behaviour within organisations and legitimise their action
externally. Boland (1982) utilises such ideas in an accounting context, arguing that
accounting is a ceremony or ritual played out to reinforce the myth that large
organisations are subject to external checks upon their societal effectiveness. Such
behaviour is seen as a consequence of the accounting profession trying to reconcile
conflicting ideological pressures placed upon it. However the myths spawned and
the associated technologies have produced a bias against reform. The work is
interesting in underlining the social creation of accounting, and how meanings
attached to it help maintain the status quo, but questions about which ideological
pressures are most significant, and whose purposes are served by such myth
creation and stabilisation are left unexplored. The work of the following radical
theorists is critical in that it extends the accounting problematic to such issues.
42
as natural and given. Its use of scientific methods to substantiate clams that it is
neutral and value free are questionable given the selective perception of observers,
the role of choice in problems investigated, and which language and models of
relationships are adopted. Whilst pluralist theories acknowledge the existence of
diverse and conflicting goals amongst parties, they tend not to pass judgement on
them, conflicts tend to be atomised to the individual and the group. Radical
theorists would suggest that by not questioning wider social relationships, such as
the distribution of power and class relationships, functional theory implicitly
accepts and indeed supports the status quo by reproducing ideology in the guise of
science.
43
dependent. There is no room for the notion of external casual influences (Burrell,
1979): accounting processes and institutions are not as much influenced by the
wider social, economic and political environments as 'inter-twined' with them
(Burchell et al., 1981), and cannot therefore be studied independently.
Burrell and Morgan divide theories of radical change into two sections (radical
structuralism and radical humanism). The former focuses on the fundamental
conflicts that are both a product of, and reflected in, industrial structures and
economic relationships, e.g. surplus value, class relationships, structures of
control, whilst the latter emphasises individual consciousness, alienation through
reification, and the way this is dominated by ideological influence, not least
through language. The difference between the two approaches is akin to that
between the functional and interpretive approaches. In other words radical
structuralism treats the social world as being composed of external objects and
relationships independent of any particular person, while radical humanism
emphasises individual perceptions and interpretations. A strict division between
these radical approaches reflects the view of those writers (e.g. Althusser, 1969)
who consider they’re to be a distinct epistemological break between the earlier and
later works of Marx on which the two strands of thought are based. However, other
writers (e.g. Gouldner, 1980; Mandell, 1968; Elson, 1980) maintain that there is a
complex tension between the objective and subjective areas throughout Marx's
work. Considerable effort has been made by some radical theorists to incorporate
both strands within a single philosophical framework, e.g.Giddens 1976; 1979;
Habermas (1974, 1976). The mutually exclusive division of radical theories by
Burrell and Morgdn carries the danger that concerns of radical structural analysis
are seen as incompatible or irreconcilable with those stressing consciousness,
rather than seeing both as dialectical aspects of the same reality. Consequently, as
outlined earlier, the subjective-objective dimension in Figure One is to be regarded
as continuous. .
44
accounting literature. Central to Marx’s attempts to understand capitalism is his
theory of value and the relationships between value, abstract labour and money
(Marx, 1972; Elson, 1990). Several recent writers, particularly radical economists
have sought to reconsider his conceptions and relate them to modern forms of
capitalist calculation (Cutler et al., 1977, 1978, 1979; Harris, 1978, 1979,
Thompson, 1978, 1980, Reatti, 1980). In other words attempts are being made to
link the principles of modern accounting to Marxist work on the fundamental
mechanisms of the appropriation of surplus value - the process by which some
would suggest that capitalism lays the seeds of its own destruction. Cutler (1978)
extends the analysis to embrace the role of various types of contemporary financial
institutions such as banks, finance companies and insurance companies.
45
perceived as being inherently and fundamentally harnessed to the unequal
distribution of political power and authority in a class divided society (Newman-
Price, 1983).
46
Similarly Clawson (1980) suggests that the elaborate bookkeeping and control
procedures recommended at the turn of the century were “not needed to determine
prices for competition with other capitalists, but rather for the purpose of class
struggles”.
Burrell and Morgan depict the central theme of Braverman's work as thus:
Braverman's work is deterministic and objective and thus shares many of the
methodological problems of functionalism. Particularly important is the lack of
regard paid to individual consciousness: subjection to inequities and degradation
does not automatically lead to an understanding of causation and actions to
prevent them. As the interpretive writers argue, consciousness is socially created.
Many radical theorists would agree, but would add that it is distorted and biased
towards the goals of dominant groups, particularly through language. In addition,
processes of reification mystify individual understanding of the world and allow
man to be dominated by creations of his own consciousness.
47
what is significant. Thus it may serve, through influencing the premises of
argument, to legitimise and promulgate the status quo. For example Cherns (1978)
argues that accounting helps create alienation and reinforces social segmentation
by reducing all evaluation to a. "cash nexus" of profitability. Thus incalculable
values such as loyalty or beauty become excluded from consideration, and values
consistent with capitalist objectives are promulgated through the dominance of
financial criteria. This is despite our knowledge that such measure does not
necessarily reflect an organisation's contribution to society. Thus the pursuit of
profit is often unquestionably accepted by many: despite its precise meaning being
unknown ( Sandilands, 1975).
The tension between accounting being presented as objective facts and its socially
created sources has been noted in earlier sections. Some accounting studies,
picking up such contradictions, have viewed accounting as an ideological
phenomenon that serves to mystify social relationships and reinforce unequal
power distributions. For example, Bougen and Ogden (1982) maintain that in
industrial relations the major purpose of accounting is to legitimise decisions
externally by providing what are purported to be objective calculations, but that
accounting rationales are biased towards managerial interests and their bargaining
positions.
As the former study suggests, investigation into the use of ideology can shed fresh
light on a historical understanding of accounting. For example, Merino and
Neimark (1981), through such a perspective, challenge the conventional rationale
that the disclosure provisions of the 1933 and 1934 united States Securities Acts
were an attempt to improve information to investors, instead they argue that the
legislation was intended as propaganda to respond to popular criticism of market
competition and security market manipulations. The theme of such studies is that
48
accounting measures alienate through subordinating behaviour to perceived
imperatives, which are in fact socially created, are malleable and serve specific
interests integral to the creation of alienation in the first place.
Laughlin (1983), recognising this, advocates the use of the critical methods of
Habermas to provide a better understanding of accounting as a language and to
provoke discourses leading to enlightenment.
Objectivism and Social Systems Theory have tried to show that the bulk of
49
organizational literature on management accounting has developed along similar
assumptions about the nature of social science and society. Contingency theory
thus represents a holistic apotheosis of the functional approach rather than a
major new departure.
Ontologically the work has a realistic and objective conception of reality. Societies,
organizations and control systems are seen to have an empirical existence
independent of any individual's cognition, and needs and goals have been imputed
to each. Thus problems of reification (imputed needs and goals to abstract entities)
tend to be discounted. The shifts from mechanical to organic analogies, and from
closed to open systems have not marked essentially different conceptions of
reality, but rather have reflected varying complexities of similar models.
Throughout, the implication is that optimal accounting control system can be
designed for any situation, given an ability to master its inherent complexity.
Epistemologically, the belief is that this will come from a single holistic model of
reality being constructed from "laws" established at different levels e.g.
environmental, organisational, individual. Methodologically the work is strongly
positivistic, the presumption being that if relationships between variables can be
established, then these can be elevated into natural laws governing the design of
accounting Systems. Research methods have been dominated by the use of
questionnaires and structured interviews with the resulting data being analysed by
complex statistical techniques to establish relationships. Little cognisance has been
paid to how selective perception of the researcher may bias results, or the
problems of establishing proof, or whether scientific method is apt for studying
human behaviour. Questions of individual understanding and meaning have
tended to be taken as non-problematical.
Within the paradigm the view taken of human nature shifts. Economically rational
man is replaced by complex man, who also seeks social and task satisfaction but
whose rationality is constrained by information processing constraints. However
throughout man's behaviour is seen as predictable, purposive and mainly
externally determined, and capable of being understood through systematic
investigation of attitudes and behaviour.
50
Thus the functionalist approaches are depicted as lying towards the objectivist
extremity of the Burrell and Morgan typology depicted in Figure One. Social
systems marks a slight shift towards subjectivism in recognising those individual
perceptions may vary from reality due to information processing limitations.
The social systems and objectivist approaches both stress regulation to achieve
order and equilibrium within a unitary and essentially managerial approach to
organisational effectiveness. Consequently they are located towards regulation in
the classificatory framework of figure one.
For traditional management accounting within the objectivist approach this may
now be widely accepted .It assumes that profit maximisation increases the welfare
of the participants and society, and that the task of the accounting control system
is to programme and monitor behaviour towards ouch ends. However, even if the
definitional and measurement problems of profit can be resolved, its use as an
effectiveness measure is questionable (Steers, 1977; Campbell 1977, Lowe and
Chua, 1983; A.A.A., 1971).
Systems theorists have tended to take survival as the criteria for organisational
effectiveness. However, large organisations tend to have low mortality rates
therefore surrogate measures of factors believed to lead to survival are often taken,
such as whether constituent systems have sufficient inducements to prevent the
system breaking down, or whether there are sufficient integrative mechanisms
(Price, 1968; Mahoney and Weitzel, 1969). But by emphasising the necessity for
harmonious and lasting integration of parts to maintain the functional whole,
systems-theory can lend itself to a pro - managerial definition of problems as
explained earlier.
51
individual and they rarely address questions of societal change. In Figure One,
social systems work is depicted as being less inclined to regulation than
objectivism, for it does address itself to the problems of adaptation, albeit within a
managerial conception. However the social and political forces creating such
changes are largely left unexplored.
Throughout, this chapter has assumed that organisation theory can contribute
much to management accounting. But any search for the theory of organisations
will be of no avail, for despite the predominance of functional approaches,
organisational work is characterised by a wide range of diverse and often
conflicting methodologies. However, when accounting research is grouped
according to its social science assumptions, functionalism reigns virtually absolute.
The failure of accounting research to question its methodological assumptions or
to examine related broader and social issues is puzzling, given that so much
relevant work in other disciplines impinges on topics normally considered within
the accounting domain.
52
towards certain rational ends. In short, accounting research by permitting central
assumptions to go unquestioned, may owe more to managerial ideology than any
social science methodology. The cost of sustaining powerful convention may be a
serious delimitation of the subject in analysing problems in either the social or
managerial arenas.
However the accounting scene is not entirely black. Recent work incorporating
pluralism, interpretive theories and radical approaches have permitted some are
questioning of accounting assumptions. This may mark two broad trends in
management accounting research. Firstly, an increasing interest in the dynamics
of change at both organisational and societal levels. Secondly, a growing querying
of the validity of scientific method for researching social questions. By
acknowledging the existence of conflicting ends within organisations and the
conflict they provoke, accounting research-using pluralism can contribute much to
re-assessing the role of accounting in organisational change and adaptation.
However such approaches have considerable limitations as a basis for prescription.
If problems are reduced to inter-group and inter-personal levels of analysis, and
major conflicts become viewed as 'dysfunctions' , then they may carry the danger
of begging the fundamental questions raised by radical analysis, namely how
accounting data, controls and institutions are related to power and the distribution
of resources within society.
53
It would be naive to expect that the "fresh" approaches to accounting research will
eventually constitute the single correct orthodoxy, or that they will be capable of
being slotted into functional work. Their potential and case for development rather
lies in the friction and debate which they can precipitate over questionable but
relatively unquestioned accounting assumptions. Employment and appreciation of
perspectives widely utilised elsewhere in the social sciences may enhance a more
productive dialogue between disciplines and factions. It may foster the
development of accounting knowledge in new areas and it may help prevent
invalid research.
54
CHAPTER THREE
Methodology
3.2 Introduction
Accounting case studies have become more prevalent as this literature has
developed. Nevertheless, we still feel that there is much that needs to be discussed
in this area of accounting research regarding the role and status of “explanatory”
case studies.
In particular, the accounting calls for studies of the intricate, day-to-day use of
accounting in contemporary organizations, suggestions that case studies have
failed to generate much “new” theory (see Otley and Berry, 1994), the lack of
references to prior case studies in developing theoretical reflections on accounting
practice and the repeated assertions about the benefits of case based research (for
55
example, see Covaleski and Dirsmith, 1990; Laughlin, 1995) are all indications that
the claimed potential of accounting case studies is still far from being realized.
There are many problems in orthodox Methodology and these problems can be
recognized as the characteristics of the traditional paradigm and those factors are
discussed as follows.
The implication is that, when the conventional literature considers the notion of
bias, it may or may not prescriptively state that there should be ways of reducing or
eliminating the bias; but whether or not this is made explicit, the implication is left
hanging in the air, by the very term used - "bias" - that it is undesirable. We can
understand further the implicit managerialism of the standard literature by
considering the topics that are the standard subject of research and of inclusion in
syllabuses and textbooks. These include, for instance, standard costing; and no
purpose of standard costing is envisaged except as a teleological tool: one to reduce
cost through indicating variances to be investigated.
The social and economic worlds are highly complex; and one aspect of that
56
complexity is the interaction of each element of the world with others. The
difference in approach that this causes can be seen in the method used to
introduce the subject of economics to new readers. Both individuals and
organizations interact with their environments, and it is only in that interaction
that they can be properly understood. A characteristic of conventional
management accounting is that it tends both to ignore the existence of the
environment of the organization, and to ignore the interaction among the various
elements of the organization. (We say "tends" here, because some parts of the
traditional paradigm have a greater tendency to this than others. Mathematical
modelling is very prone to it. Strategic management accounting is relatively free of
it.)
3.2.4 It is Prescriptive
57
can prescribe better methods of doing things. It is rare to find criticism of a
technique that is taught: and even where there is such criticism there is still a
prescription, namely, not to do what is being done/This raises a broader attribute
which is characteristic of most Western thought.
3.2.5 It is Ahistorical
There are many ways into analysis in social science. One distinction is between
cross-sectional and historical analysis. The first of these attempts to explain what
is found by reference to other features, either of the entity being investigated, or of
the environment of that entity. The second of these attempts to explain features
through their history: they are as they are because of previous developments. The
two are not, of course, wholly mutually exclusive, but there is a tendency in cross-
sectional analysis to ignore the historical, far more than the tendency in historical
analysis to ignore the context. There are many good examples of this in the
behavioural budgeting literature. Stedry's (1960) model, for instance, is closed
system but also ahistorical: it makes no attempt to explain people's choices as a
result of their previous experiences. The same may be said of Hofstede (1967),
Ronen and Livingstone (1975) and Hopwood (1974).
3.2.6It is Apolitical
58
than any other social phenomenon. There are perhaps two schools of thought here.
One is that accounting it self is politically engaged. The other is that accounting is
not in itself political, but that because political issues pervade the social world in
which accounting operates, it thereby becomes intertwined with the political.
Briefly, the first may be justified by pointing to the accountability dimension of
accounting, and arguing that accountability cannot be separated from hierarchy.
Hierarchy in turn implies a relationship of power, and power relations are by
definition political. The second may be justified by suggesting that accountability
relations are not necessarily linked to a rigid hierarchy: for instance, a manager in
a workers' co-operative, or a vicar in a church, may both be accountable to
(respectively) those they organize and their parishioners.
3.2.7 It is Rationalistic
There are many models of the nature of human action and judgments. The
economist's model is the extreme, which assumes rationality. Psychoanalytic
models are perhaps the opposite extreme and suggest the crucial significance of
the unconscious in affecting action. Traditional accounting models tend strongly
towards the economic view. Accounting is treated as the quintessence of rational
calculation. Those in control of the information use it rationally in making
resource allocation decisions: those subject to its surveillance make rational
decisions about their action based on their awareness of that surveillance (as, for
instance, where the budgetee attempts to keep expenditure within the prescribed
limits precisely because he or she supposes that rational decisions will be based on
the presence or absence of variances). It is, moreover, arguable that part at least of
the accounting literature on ambiguity and choice (contrast Dyckman,1981 with
Cooper, Hayes and Wolf, 1981, and March, 1987) still betrays a yearning for
rationality, while recognizing the difficulties of the model.
3.2.8 It is Functionalist
A major problem for sociology and anthropology has been to account for the
existence and persistence of particular institutions or phenomena. However, this
59
approach poses at least two problems. First, the historical record is often non-
existent, sketchy or unreliable. Second, even where we know what a phenomenon
changed from, and what it changed into, we still do not know why it changed in
(hat way and not some other). To explain this, we need some conception of "social
fit": the institution changed the way it did because that suited the interlocking
social institutions. However, this leads to a further implication: that the institution
could not have changed any other way. Any other form is inconceivable because it
would not mesh with those other institutions so well. This effectively leads to a
theoretical situation where, it turns out, we can forget the past and concentrate on
cross-sectional functional analysis. Put simply and, no doubt, outrageously over-
simply: an institution is the way it is because that suits the rest of the social
system. If for any reason it fails in future to suit the system, we shall find it adapts.
Then under the new situation, we shall still have a functionalist explanation, that
is, an explanation in terms of the function the institution serves in the context of
the society in which it is found. Things are the way they are because they could not
survive any other way.
3.2.9 It is Reductionist
The traditional accounting paradigm is reductionist in two ways. First, the only
phenomena that are ultimately considered to be significant are economic
phenomena. This is not, of course, to suggest that insights from other academic
disciplines are not employed: increasingly, they are. Although the most traditional
tools of cost accounting were just a set of logical protocols to calculate and control
economic outcomes, later work that developed within the paradigm did indeed
borrow from other disciplines, first statistical and mathematical, later
psychological and social psychological. But these insights were used only as a
means towards the end of rational economic calculation. If social psychology was
used to understand budget-setting behaviour, it was because the quality of the
budget process appeared to lead to better or worse attainment of economic targets.
If classical statistical theory was bolted on to CVP analysis, it was because this
improved economic decision-making. There is, of course, an alternative, which
would acknowledge that our social world comprises other than economic levels
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and economic indicators of satisfaction. This is entirely missing.
Second, the traditional paradigm effectively supposes that social effects and social
action can be reduced to individual effects and individual action. Much work is
concerned with control over the individual on the supposition that optimising a
function with respect to the individual manager will optimise the function for the
organization as a whole. Similarly at the next level, it supposes that optimising a
function for a particular organization will bring about further economic (and of
course other) social welfare functions in society more generally.
3.2.10 It is Positivist
I use it here in the way described by Giddens, who suggests it has two
characteristics: First, a conviction that all "knowledge", or all that is to count as
knowledge, is capable of being expressed in terms which refer in an immediate way
to some reality or aspects of reality that can be apprehended through the senses.
Second a faith that the methods and logical structure of science, as epitomized in
classical physics, can be applied to the study of social phenomena (Giddens, 1976,
p. 130). The first of these beliefs means that the traditional accounting paradigm
concerns itself only with phenomena those are in principle or in practice
measurable. They are measurable because they are accessible to our senses: we can
listen to opinions in an interview, read responses in a questionnaire, and observe
the slope of a break-even chart. These phenomena can thus also be justified as
relevant because they are real: nobody can accuse the positive analyst of supposing
the existence of something that docs not exist.
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prescriptive transfer pricing theory). It is interesting to note that there was a brief
flurry of research (Hayes, 1977) employing factor analysis. This was consistent
with the second characteristic given here, but not with the first characteristic
(since statistical factors are not perceivable by the senses). It is noteworthy that
this method appears to have lost favour, perhaps for this reason.
3.2.11It is Problem-Cantered
In recent years, there have been repeated calls from accounting researchers for
case studies of accounting in practice. Some of these calls have come from those
who see case studies as necessary precursors to more elaborate, large sample
hypothesis testing (Kaplan, 1986), but such calls have also come from those who
62
want to develop theoretical explanations of accounting practices (e.g. Burchell et
al., 1980; Hopper and Powell, 1985; Hopwood, 1983; Hopwood, 1987; Otiey and
Berry, 1994; Scapens, 1990; Smith et al. 1988). Although the writings of Kaplan
(e.g. 1984; 1986) have prompted a large number of case studies to support new
management accounting techniques, these case studies have tended to be
grounded in conventional managerialist concerns for the operational control of
business organizations. Hopwood's comment quoted above, however, reflects
rather different concerns (see also Cooper and Hopper, 1987). Here the purpose of
case studies is to obtain a better understanding of accounting practice and of the
role and actual functioning of accounting in organizations, including the pressures
which accounting exerts and has exerted on it, and the interests it serves. This
study is principally concerned with "explanatory" case study and its capacity to
move away from managerialist notions of accounting and to provide more
challenging reflections on the nature of accounting knowledge and practice. As
argued by Hopper and Powell (1985), accounting should no longer be studied in a
mode which is divorced from its social context and which ignores the influence of "
wider social and political collectivities " (p. 450). They suggested a research
programme, which would seek to enhance understanding of the relationship
between accounting and these wider collectivities. Such a programme of work is,
by its very nature, inter- disciplinary. In this respect, Hopwood (1983) noted how
researchers from other disciplines had begun to identify a variety of interesting
research avenues in the accounting domain:
And sociologists too have started to recognize the research potential offered by
the accounting craft, asking questions about how accounting might be related
to the more general elaboration of calculative practices in modern society, the
ways in which accounts have provided a powerful calculus for forging a new
visibility which can facilitate specific modes of control within the business
enterprise in particular, and the more legitimizing functions of the accounting
craft (p. 303).
These calls for a new agenda in accounting research have subsequently been met
by a whole host of articles seeking to explain the political, social and economic
63
influences of accounting. Drawing on a wide range of social theorists, this
literature has problematized the history of accounting, revealing its interested
nature, challenging claims to an inherent accounting rationality and neutrality,
providing alternative insights into the functions of accounting and offering new
explanations of the forces giving motion to processes of accounting change (for
reviews, see Arrington and Francis, 1989; Cooper and Hopper, 1987: Hopwood,
1987; Loft, 1991; Puxty, 1993; Roslender, 1990).
This study examines, in depth, one growing and successful medium sized and
small firm, dynamic and fast moving. The case here is seen as a vehicle for in
depth study and in this situation helps me understand the phenomena, since use is
made of open-ended interviews conducted over a period of 20 weeks. Lynch,
(1994) identified that case interviews help confirm the shape and spread of key
issues. This part addresses the question of how cases are construed in the research
process -how methodological arguments are fashioned for the purpose of
establishing the claim that case studies are related to broader classes of events. My
argument is that cases are "made." by invoking theories, whether implicitly or
explicitly, for justification or illumination, in advance of the research process or as
its result. This interpretation supports a renewed appreciation for the role of case
studies in social research and offers a fruitful strategy for developing theory. The
argument derives from a research project in which my own understanding of what
the case study was a "case of" shifted dramatically in the process of pursuing the
study and explaining its results. The research, begun as a study of one thing, later
proved to be a study of something quite different.
64
Cases come wrapped in theories. They are cases because they embody causal
processes operating in microcosm. At bottom, the logic of the case study is to
demonstrate a causal argument about how general social forces take shape and
produce results in specific settings. That demonstration, in turn, is intended to
provide at least one anchor that steadies the ship of generalization until more
anchors can be fixed for eventual boarding. Better that the case study makes
modest claims about what may be on the line. In the logic of research, we
endeavour to find fertile cases, measure their fundamental aspects, demonstrate
causal connections among those elements, and suggest something about the
potential generality of the results.
These observations about the nature of cases seem straightforward. If they do not
appear among the conventions of research methodology, that is only because our
basic texts neglect to pursue the assumptions made in defence of the case study.
The point is demonstrated by two reflections on the evolution of method. First, we
should recall that terminology of cases and case studies appears with particular
times and conditions.
65
(1971) makes food riots sensible.
No cases are sacred, however. If they are provocative in the first place, inviting
models for further application, then they typically lead to conceptual and
methodological modifications. Cases are reformulated in at least two ways. One
grows directly out of a particular case tradition, while the other begins with a
substantive problem and looks for adaptable case models. In practice, the
strategies may be combined.
In either form, the claim is that the case is about something other than what it was
originally conceived to be about. It the new study` is convincing, it demonstrates a
distinct and robust causal interpretation. Although the Kuhnian metaphor of
paradigmatic scientific revolutions is often invoked to describe this kind of
reformulation, in social science these shifts emerge in less abrupt or discontinuous
ways. Now causal interpretations succeed because they supplant previous ones-
they explain the old facts and more. The content and boundaries of cases are
reconceived precisely in an effort to forge new generalizations that embrace and
supersede earlier understandings.
The second avenue of case reformulation adopts available models or fashions new
ones to address distinct substantive problems. The old models do not fit because
the new phenomenon is either a different kind of case or one that cuts across
66
conventional boundaries.
Despite the sharply different departures taken by Paige (1975), the aims of
reformulation are similar. First, the case is reconceived as an empirical instance of
something new or previously misapprehended. Second, the new case is precisely
made a case by defining it theoretically, by demonstrating its causal connections to
a hypothesized general process. Third, the methods and evidence from cases as
previously construed are incorporated into the new interpretation - indeed, the old
cases may suggest the new idea. Finally, an argument is advanced for the greater
scope of the new interpretation. The question of cases, their designation and
reformulation, therefore is a theoretical matter. The processes of coming to grips
with a particular empirical instance, of reflecting on what it is a case of, and
contrasting it with other case models, are all practical steps toward constructing
theoretical interpretations. And it is for that reason, paradoxically, that case
studies arc likely to produce the best theory. As Stinchcombe (1978:21-2) observes,
"if conceptual profundity depends on the deep building of analogies from one case
to another, we are likely to find good theory in exactly the opposite place from
where we have been taught to expect it. For it is likely to be those scholars who
attempt to give a causal interpretation of a particular case who will be led to
penetrate the deeper analogies between cases."
3.3.3Making a Case
67
Having selected a qualitative research paradigm to guide the explanatory study of
the management control practices in an uncertain context, a flexible research
design which would allow findings to "unfold, cascade and emerge" (Lincoln and
Guba, 1986, p. 210) was developed. Characteristic of explanatory research
conducted within a qualitative paradigm, the methodology was designed to allow
the researcher to build rich descriptions of the context within which case-firms'
management control systems were developed, created and maintained which
"fitted and worked" participants' perspectives (Glaser and Strauss, 1967).
As such, the design used to guide the collection and analysis of data had to be
flexible enough to permit the researcher to uncover and explore issues which
emerged as interesting and potentially capable of understanding the substantive
research problem. However, as it is "impossible to embark upon research without
some idea of what one is looking for" (Wolcott, 1994, p.157), decisions regarding
the unit of analysis and the methods used to collect qualitative data were taken
prior to the researcher's entry into the field.
Patton (1987, p. 51) asserts that the key factor in selecting and making decisions
about the appropriate unit of analysis is to decide "what unit it is that you want to
be able to say something about". As this research was interested in the impact,
which management control systems in practice of medium scale firms, medium
size food processing company was selected as the unit of analysis and a grounded
definition of "smallness" was used (Curran et al., 1993). In considering this firm to
be involved it was decided that purposive rather than random sampling would be
an effective way of selecting case-firm "rich" in data pertinent to understanding the
research problem (Marshall and Rossman, 1995). While the logic of probabilistic
sampling lies in "selecting a truly random and representative sample which will
permit confident generalisations from the sample to a larger population" (Patton,
1987, p. 51), the logic of purposive sampling is suited to research with different
aims. Its power lies in the selection of cases "rich" in information about the
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substantive research problem. As such, purposive sampling was suited to
developing a comprehensive understanding of the management control systems of
a medium size firm.
As well as satisfying the grounded definition of a "small" (in between small and
medium size) food processing company, case-firms had to be located close to the
researcher to enable him to visit them on a daily basis, for extended periods of
time. Also, by stipulating that case-firms had to have been trading for a minimum
of three years, the researcher had access to participants' understanding of the ways
in which, over time, management control systems had impacted on the
development of case-firm. Through the preliminary observations carried out by
the researcher it was found that this company was able to capture the largest share
of the market in Sri Lanka within a short life span (Established in 1997 and present
market share is 60% of Soya Foods) Hence the researcher was interested to
explore the management (Control) practices applied by said firm and to review
whether such practices could be explained in the theoretical framework or the firm
specific applications. The CEO was known to the researcher for a long period and
such rapport was immensely useful to gather the required information for the
69
study, where in Sri Lankan context companies are reluctant to divulge information
– without such links it is very difficult to gather accurate and adequate
information for this type of study. With the changes occurring in socio – economic
environment of Sri Lanka the instant food items are becoming much more popular
among, especially urban citizens. Therefore the researcher felt that the behaviour
of instant food producing firm would be useful to generate new knowledge.
The researcher's decision to use himself as the "instrument" for collecting data was
influenced by the qualitative research approach adopted and the exploratory
nature of the research. The subjective epistemology of the qualitative research
paradigm views social reality as constructed by humans and maintains that if it is
to be understood, the researcher cannot remain distant from and uninvolved in the
social phenomenon in which they are interested. Instead, they must adopt a role,
such as "researcher as instrument for data collection", which allows them to get
close enough to social subjects to be able to discover, interpret and understand
participants' perspectives of social reality. For this reason, the researcher decided
70
that by collecting the data himself, he would be able to meet the aims and
objectives of the research and develop a grounded understanding of management
control systems of selected food processing company.
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3.4.2.1 Observations
The principle research method used by the researcher, as agreed with the MFPL, is
in-depth interview. A series of semi – structured interviews were conducted with
CEO and some Top Rankers according to an interview schedule. These interviews
consisted of discussions mainly about planning and control. All these interviews
took a minimum of 1 hour, with some extending over three hours and into more
informal surroundings. The researcher conducted interviews and he played three
roles i.e. asking questions, record discussion and to observe and pick up
potentially interested themes. Actually it was planned to interview key positions in
the organization including the CEO.
But whenever the researcher approached other than the CEO it was found that
they were extremely reluctant to disclose any information about their role or
company related data. Information gathered through the interviews with the CEO
also confirmed that he intervened at top to bottom of the organizational work and
the managers and other were merely limited to their designation in which they
were not empowered to play any role that could independently operate by such
positions. It was also observed that the CEO was not happy to see that researcher
collect information from others in the organization. While interviews are going on
the CEO took the researcher to the various important places, such as, factory,
production units and so on in the organization and showed things and procedures
that that he considered as important. The interviewing method was used because it
helps gathering more information as well as it provides opportunities to cross-
72
examine such information while they are gathering. Interviews were planned to
carry out with all divisional heads and others but it was not possible due to CEO’s
displeasure regarding the same.
3.4.2.3 Documentation
3.4.3 Analysis
Thus Quantitative analysis is not used because it is not provide room for
comprehensive analysis. “Ideally, rational comprehensive analysis leaves out
nothing important. But it is impossible to take everything important into
73
consideration, unless “important” is so narrowly defined that analysis is in fact
quite limited. Limits on human intellectual capacities and on available information
set definite limits to man’s capacity to be comprehensive” (Charles E. Lindblom –
“ The science of Muddling Through”, American Society for Public Administration
from public administration review 19, No 2, 1959 p.p. 79-88).
The process of analysing the data collected for this study was characterised by the
fact that it began as soon as the researcher started collecting data, it was ongoing
and it was inductive. Lofland's (1971, p. 121) explanation that when undertaking
qualitative research, "during the observation or interviewing phase, one is at the
same time trying to make some kind of (abstract) sense ... of the raw reality one is
encountering" is a fitting description of the overlapping activities of data
collection, analysis and interpretation which occurred during this explanatory
study of small firm networks. As soon as the researcher began the process of
collecting data, he simultaneously engaged in analysing and interpreting the
perspectives of those he was talking with and observing.
This early and ongoing analysis was necessary for a number of reasons. By
overlapping the phases of data collection and analysis, the researcher was able to
"adjust (his) observation strategies, shifting some emphasis towards those
experiences which (bore) upon the development of (his) understanding, and
generally, to exercise control over (his) emerging ideas by virtually simultaneously
`checking' or `testing' these ideas" (Marshall and Rossman, 1995, p. 103) with the
collection of further data. Also, this concurrency of data collection and analysis
suited the fluctuating and emergent nature of the management control being
explored. On a practical level, the "sheer massive volumes of information" (Patton,
1987, p. 297), generated by the qualitative methods used, demanded that analysis
was not delayed until the completion of the collection of primary data.
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As the aim of the research was to generate a comprehensive understanding of the
research problem, "rather than forcing the data within logical-deductively derived
assumptions and categories" (Jones, 1985, p. 25), it was important that data were
inductively analysed. By organising and structuring data according to the issues
and topics which participants identified as being important to understanding
management controls in an uncertain context, a grounded understanding which
"derived from the concepts and categories which social actors used to interpret and
understand their worlds" (Jones, 1985, p. 25) was acquired. The inductive analysis
of data was guided by the literature on grounded theory (Easterby-Smith et al.,
1991; Glaser and Strauss, 1967; Lofland, 1971; Marshall and Rossman, 1995;
Strauss and Corbin, 1990). This literature recommends that the inductive analysis
of qualitative data involves: the reading and re-reading of transcripts and field
notes (Easterby-Smith et al., 1991); the use of codes to bring order, structure and
meaning to raw data (Strauss and Corbin, 1990); the constant comparison of the
codes and categories which emerge with subsequent data collected and also with
concepts suggested by the literature (Glaser and Strauss, 1967) and, the search for
relationships among emerging categories of data (Marshall and Rossman, 1995).
There are, however, no "formulas or cookbook recipes" (Yin, 1994, p.102) to advise
on the "correct" or "best" way of inductively analysing qualitative data. Specific to
qualitative studies of the small or medium size firm, when reporting on the
outcomes of their work, few researchers detail the exact procedures and scheduling
of activities involved in their inductive analysis of qualitative data.
This first phase in inductive analysis occurred while in the field. The early
collection of data was guided by the researcher's pre-understanding (Gummesson,
1991) of food manufacturing company and the aim of "exploring the impact that
the management control in which small or medium size firms are embedded have
upon their development". At this stage, depth interviews were kept open to the
75
collection of interesting responses and perspectives around which further data
collection could focus.
The tape recording of interviews allowed the researcher to make written as well as
mental notes of any analysis he made during interviews. This also permitted him
to identify particular responses to probe further during that interview or at a later
date.
The first was to familiarise the researcher with the data (Easterby-Smith et al.,
1991) and the second was to start the process of structuring and organising the
data into meaningful units. The familiarity created by reading and re-reading
transcripts and field notes heightened the researcher's awareness of the "patterns,
themes and categories" (Patton, 1987, p. 150) of meanings existing in the data and
focused her attention on these. The purpose of running the data open at this stage
in analysis was to take the data apart and then piece them together in a number of
ways, each of which was potentially important to understanding the research
problem (Strauss and Corbin, 1990). By making several copies of the transcripts
and field notes collected so far, the researcher attached "open" codes, to those
sections containing data, which appeared to be important for understanding the
impact, which management controls have on the development of selected
company. These sections were then pulled together into meaningful units, around
which the collection of further data was planned to establish whether these units
were in fact important to understanding the research problem. In this way, some
chunks of data were coded in a variety of ways, others were discarded on the
76
grounds that they were not relevant to the study and, as a whole, and the data
collected so far were reduced to a more manageable level.
A second activity carried out at this stage was the writing of memos. These written
notes were referred to at later stages of analysis to remind the researcher of the
reasons why certain chunks of data were coded in particular ways and pulled
together into organised, meaningful units. These memos additionally reminded the
researcher of the logic of the interpretations that he had made at this early stage in
his analysis.
This process of focused data collection and constant comparison of coded sections
of data continued until coded sections became saturated, that is, no new patterns
or themes emerged. At this stage, analysis moved from open codes to focus on
77
"core" codes and categories of codes central to understanding the substantive
topic, around which deeper analysis and interpretation concentrated.
Having grouped homogeneous slices of data into core categories and organised
coded data into a meaningful structure, the analysis was deepened by interpreting
the relationships between core categories and seeking to explain why these
relationships existed. By interpreting the structure that had emerged and re-
evaluating relationships between categories of data, a cohesive integration of
categories, which provided an understanding of management control systems,
which "fitted" and "worked" with the data, emerged from this deeper analysis. In
interpreting, re-evaluating and conceptualising relationships between categories of
data, the constant comparative method of analysis was used once again. During
this stage, the researcher engaged in the prolonged and systematic search for
similarities and differences between the slices of data contained within different
categories and between core categories and concepts and theories existing in the
literature.
The purpose of these comparisons was to understand the meaning and nature of
these relationships and resulted in some categories being disregarded on the
grounds that, when analysed more closely, they did not fit and work with the
understanding that was emerging. This systematic comparison of categories with
relevant concepts in the management control systems literature was important for
two reasons. First, comparisons between existing concepts and theories with the
relationships that had emerged between categories of empirical data were useful in
re-evaluating the reasons why these relationships existed. Second, comparisons
with the concepts and theories used in relevant management control literature
revealed the extent to which the understanding of management control which
emerged from this in-depth, qualitative study had contributed to current
knowledge and understanding of the substantive area.
78
CHAPTER FOUR
Social and Organisational Context of the Study
4.2 Introduction
Chapter one discusses the background factors of the research theme: Management
control practices in an uncertain context, the chapter two reviewed the literature,
the chapter three discusses the methodology applied in this study and the aim of
this chapter is to explain the social and organizational context of the study.
Businesses in any country are facing different types of societal and environmental
problems such as Economical and Commercial, Social and Cultural, Political and
79
Legal, Technological, and Natural. This part discusses mainly about the impact of
the changes in the government policy towards economy and businesses in Sri
Lanka.
Business orientation in Sri Lanka started with the base of wealth and
accumulation. Plantation agriculture, beginning with the cultivation of coffee in
the 1830s, and it bring about a complete capitalist transformation. All the same,
there were perceivable changes in economic and social life, which were significant
in comparisons with relative stagnation that had existed before. As plantation
agriculture itself changed from one crop to another – coffee, tea, rubber, spices
and coconut. The bourgeoisie, which originated in colonial times, has continued to
dominate the economic, social, and political life of Sri Lanka. They invested in
urban property, built residences, ran their businesses, or engaged in professions.
British community controlled and directed the economy through local head offices
of the plantation companies, mercantile houses and banks. (Bertolacci, 1817;
Beckford, 1983)
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values, including ethnic and caste loyalties, underwent change. Feudal structures
and attitudes were thus not totally swept away but continued to pervade society.
The persistence of primordial forces in certain spheres of individual or social life
was in contrast to countries with a more developed capitalism where the
universalising and homogenizing influence of capital led to dissolution of many of
the ideologies, rituals and superstitions of the past. As in many colonies, the Sri
Lankan bourgeoisie was the product of a specific colonial form of capitalist
production. In Sri Lanka, although individuals made much wealth, the bourgeoisie,
as a class did not develop any serious antagonism to the colonial rulers and it
remained satisfied with political concessions and limited constitutional reforms
(Snodgrass, 1966; Pridham and Charles, 1849; Amarasinghe and Ranjith 1999; de
Silva,1982).
Apart from the tariff and credit structures that discouraged any type of
independent industrial activity, Sri Lankan traders were stunted by European
domination of the mercantile sector, and in the 19th century by the intervention of
the Indian export – import merchants. In spite, there arose a class of local
merchant capitalists in the 19th century, which profited both directly and indirectly
from the development of plantation system. They were dependent for their
prosperity and survival on the British rulers of the country, who provided them not
only with opportunities for accumulation through liquor trade, but also provided
access to foreign markets for their plantation crops and graphite. Monopolistic
conditions and the system of state-sponsored franchises for the sale of liquor gave
the initial impetus to the large, quick fortunes made by local merchants. In Sri
Lanka, however, the “ great fortunes” and “ primitive accumulation” of the
indigenous bourgeoisie arose from the arrack industry while the profits that were
earned in the liquor trade were reinvested in plantation and consumed in lavish
expenditures. Sri Lanka, however, was neither wholly capitalist nor feudal, but
continued within it elements of both. While the economic changes from the time of
Dutch rule began releasing the economy and society from the traditions of the
past, there was an incompleteness about this process of change, making the
development of capitalism, even to this day, very much of an “ unfinished
business” (Arasaratnam, 1958; Boxer,1965).
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The economic activity of the Sri Lankan bourgeoisies during the 19th century, and
even latter, was hardly entrepreneurial. The bourgeoisies was essentially a class
whose interests were overwhelmingly of a mercantile and rentier nature. Rentier
income is associated with windfall gains, dividends from income through
appreciation of the value of assets, control of scarce resources, or monopoly
conditions which give large profits without much effort. Furthermore, in the case
of the arrack rents, the investment was also very much self-financing. Moreover,
the profits were invested in land-ownership, a classic source of rentier income
based on absentee ownership and management. In income enhancing factors of
this kind, those benefiting from them played a passive role, as contrasted with
activities where product improve their prospects by bringing potential
opportunities to life; these include exploring new markets, introducing new
products or adopting innovations in production leading to a rise in productivity
and a lowering of costs, which are the dynamics of capitalist production ( de Silva
and Gabriel, 1895; Jayawardana 1972,1985, 1986, 1992). If the changes in the
material base of the colonial economy were hardly expressive of capitalist
entrepreneurship, at the level of ideology some of the ghosts of the old order
survived to haunt people’s minds, constraining their outlook and behaviour. While
colonialism with its creation of new occupations, shook the foundations of caste
society, the type of capitalism that emerged recorded the question of who was
‘high’ and ‘low’ in society. Caste, which was traditionally based on occupation and
hierarchy, became less linked with occupation as people moved to new areas of
economic activity that employed persons of diverse castes ( Pfaffenbergerand
Bryan, 1982; Roberts and Michael, 1982).
Moreover, the ending of compulsory labour in 1833, and changes in the caste-
based division of society, rid caste of much of its economic substance. In pre-
capitalist society, important landowners were inevitably of ‘high’ caste and those of
‘Low’ caste were relatively poor. Class struggle between labour and capital started
in 1890 with the first strike of Colombo Printers and formed the first trade union,
composed of printers of all castes and ethnicities. The social aspirations of new-
rich persons produced some dissension and rivalry between them and the old rich,
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who were conservative. The new rich, through not advocating radical changes in
politics and in the structure of society, were raising issues that were pertinent to
educated Sri Lankans as a whole. However, when last part of 19th century caste
based and property based professional organizations and businesses were seem to
be the active players in the country. The practice, from 1833 to 1911, of the
Governor nominating the representatives of ethnic groups to the legislatures, led
to the legitimisation by the rulers of ethnic stratifications in colonial society. This
was affected to circulate businesses around Mudaliyar’s family2 (Tampoe and
Manel 1997)
At the bottom of the social scale were the marginalized poor in scattered forms of
self-employment, and workers on plantation and manufacturing enterprises
located in and around Colombo. The so-called caste struggles of the late 19 th
century had already given way to the reality of sharpening class conflicts when the
Colombo working – class began to organize irrespective of caste and ethnicity, into
trade unions, and strikes for its demands in a militant way, especially in the 1920s.
By the late 1930s and 1940s, struggle between labour and capital increased, with
strikes and trade union action being led by the country’s Left parties3, which in
1947 had significant success at the elections. The above situation is highly
influenced to development, stagnation and decline of business society in Sri Lanka.
When Sri Lanka, achieved independence in 1948, it had practiced limited self-rule
based on universal franchise since 1931. Levels of literacy and educational
achievement were high. The transition from colonial rule and been peaceful. There
was a smoothly functioning export economy that provided commodities urgently
demanded by the world market. Productivity was low and population was growing
rapidly.
2
Mudaliyar is one how appointed as representative legislation activities from colonial society.
3
Lanka Sama Samaja Party (LSSP) and Communist Party.
83
its current standard. According to the Tresidder 1960,(pp.168-169), “Most
thoughtful Ceylonese today agree with friendly foreign observers that the success
of Ceylon’s development projects and her credit standing among the free nations of
the world depend upon early settlement of commercial quarrels and firm control of
extremist elements.” But Sri lanka’s economic and business development has not
been the disaster that one might have expected to result from its inability to settle
communal disputes and the wild policy swings that accompanied changes of
government throughout the first three decades of independence.
1. From 1948 to 1956 (Economic populism with an open economy period), Sri
Lankan government provides wide range of direct benefits to a large segment of
the population. For a brief time after independence, the from commodity exports
afforded by the boom markets of the post-World War II and Korean War periods
made these benefits appear affordable. Medium sized businesses are developed
very smartly and slowly.
4
Mahajana Eksath Peramuna.
84
States participated. An IMF5 standby agreement, and short-term credits from
Western banks. The new government undertook limited, cautions liberalization. In
November 1967, the rupee value was devalued and a trade liberalization package
was introduced. The latter introduced the FEEC6 scheme, which permitted
exporters of non – traditional items to receive a more favorable exchange rate on
their overseas sales and also allowed previously banned “nonessential” imports to
enter the country at a higher exchange rate than was applied “essential” items. The
new government also promoted rice production, with emphasis on the massive
Mahaweli River Irrigation Scheme. This was favorably affected to development of
domestic businesses specially in the area of agriculture.
5. From 1977 to 1983 (Policy Reform period), all the barriers to liberal
economic policies that had been insurmountable in the past seem to have vanished
by 1977. The new government enacted sweeping political and economic reforms.
Its economic reforms were encouragement of import substitution industries, tax
incentives to foreign investors, establishing a first Investment Promotion
Zone/Free Trade Zone, eliminate of most price controls, introduction of food
subsidies, improves incentives for agricultural producers, ending of FEEC system,
restrictions to foreign capital investments, foreign banks were permitted to open
branches in Sri Lanka, Establishment of Export Development Board. Three lead
projects were conceived and highly publicized: the Greater Colombo Economic
5
International Monitory Fund
6
Foreign Exchange Entitlement Cirtificate
85
Commission, which would organize and operate export processing zones; the
Accelerated Mahaweli Development Project, which would try to complete what had
been thought of as a thirty – years project in five or six years; and the Public Sector
Housing Program which aimed to construct 100,000 urban and one million rural
dwellings. In addition, a new administrative capital and parliament building were
to be constructed and transportation, communication, and power infrastructure
were to be improved. The public investment program created employment and
purchasing power, although most of its benefits would appear in the longer run if
at all. Introduction of new Companies Act In 1982 is encouraged to expansion of
different types of companies. During these five years, Sri Lanka was thus one of
Asia’s high-performing economies. The effect of liberalization and accelerated
economic growth on poverty and inequality have been hotly debated. Bhalla and
Glewwe (1986) argued that inequality fell after 1977, but a chorus of critics ( e.g.
Ravallion and Jayasuriya 1988; Anand and Kanbur 1991) asserted that both
poverty and enequality had actually increased.
6. From 1983 – 1989, Start of Civil War created many difficulties and
distractions for economic development. The guerrilla war started in 1983 LTTE7
and meanwhile radical Sinhalese insurgency unsettled the south with sporadic acts
of terrorism until 1990. These wars were badly affected to business organizations
of Sri Lanka and new businesses were not stablished due to risky situations
prevailing the country.
7
Liberation Tigers of Tamil Eelam
86
government in 1994 did not lead to changes in economic policy and Open
economic policies introduced in 1977 continues after 1994 too.
As the result of the policies introduced in the 1977, the company Act 1982 was
enacted. It was one of the key factors to establish limited companies.
Simultaneously, the open economic policies led many people to abandon domestic
agricultural activities and moved them towards other industries. As a result their
life style became busier than it was earlier. The time spent at home became lesser
and lesser. Consequently, they were facing difficulties in preparation of all their
three meals (breakfast, lunch and dinner) themselves. Gradually they were used to
buy prepared meals from outside places and processed food items became more
and more popular. Many instant food items came into Sri Lanken market as a
result of these changes in consumer preference. In early 1990s, instant food
processing industries were mushrooming. These companies were merely catering
for the existing market demand by them. In fact, many of these companies did not
projected towards future market and related strategies. The MFPL of Sri Lanka
was an exception having analysed the existing market environment and the CEO,
the founder established the MFPL in 1997. The MFPL launched its’ products after
carefully reviving the weaknesses of the existing firms. The firm could realize the
salient weaknesses of distribution system of existing firms in particular and the
products were not widely distributed in remote areas.
The firm produces and market consumer food items mainly Soya meat which is an
instant food item used as a substitute for meat based products. The instant food
items are becoming popular in Sri Lanka after the Socio Cultural Changes
occurring since last three decades. The increases of urban population growth rate,
changing life styles and consumer taste have provided new opportunities for
business firms like MFPL. In addition to that the liberalized economic policies
introduced in late 1970’s opened up the market opportunities for private
enterprises. More concessions and tax rebates were introduced to encourage such
private entities to improve the socio economic conditions of the country under the
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said policies. MFPL was founded in January 1997 as a private limited company.
The company is operating only within the local market. At present the company
has become the largest market shareholder mainly in Soya based products in Sri
Lanka. This largest market share acquired by the MFPL, due to lacy and inefficient
competitive nature of the Lanso Company Limited (LCL)8.
The CEO of the company is an MBA9 graduate who completed his masters' degree
in 1996. While he was reading for his MBA he opted to study the LCL Company
and its market, which was producing and distributing Soya based products in Sri
Lanka. This company was the largest market shareholder by then. It is said to be
the target market of this company were vegetarian consumers. With compared to
the total market this segment is a very small percentage of the whole market.
These preliminary studies have led the CEO of the MFPL to invest in the similar
trade and started the business as a re-packeting of the Soya10 TVP11 and raw TVP
has been purchased from the above mentioned leading firm named LCL. But the
target market was not only the vegetarians but also who preferred other non-
vegetarian taste of the same products. Capital investment for this firm has been
sourced from private funds of the founding Board of Directors.
Originally, the firm started re-picketing TVP that are purchased from LCL. LCL
imported 200 Mt. of TVP from India annually. MFPL purchased 80 Mt. of TVP
from LCL and distributed in the same market adding some value for the same
such as double laminated packaging and introduced natural flavored ingredients.
According to CEO of the company, the CEO had bone a small conventional village
and was schooling to a near by small town. The way to school and back had
facilitated with a Volkswagen Car, which was owned to his father. They were a
8
This company was the main competitor of Soya Market (dominated about 70% of the market) and three
years after introduction of MFPL, it was shut down and the Manta Ltd acquires it.
9
Masters of Business Administration
10
As Specialists, Soya is the High Protein contend food. This is free from cholesterol. For human body,
standard level of cholesterol is required to keep risk free levels on High Density Lipid (HDL) and Low
Density Lipid (LDL). To keep control on these levels Soya consumption is required
11
Textured Vegetable Protein
88
well-off family in that village. He believes that, if someone had no wealth it was
impossible to run a business. He had gained the exposure from his father. Since he
was rich enough and he had repaired old cars and sold them by means of business.
Since his childhood he had been dreaming to make more money through whatever
the opportunities available. Further he states that miraculously he was selected to
the university. He did not expected because he had not worked hard. According to
him it was a “big chance”. Despite, the current job he is involved with was
assumed, due to his degree and he condemns the degree saying it has no value in
this society. In fact, he was able to get this present employment because of his
degree. Non-degree holders cannot apply for such a job. Through that, legally as
well as illegally he earns nearly Rs. 200,000 monthly. He started his own (MFPL)
with this money. Now he does not care much now for his job because he owns an
established company where he is the CEO.
The researcher knows the CEO from his school age. In fact, being able to get his
job by means of his degree and because of his job he was able to establish and
develop current (MFPL) company and the researcher wonders about his disgrace
towards his degree and employment. Initially having earned enough money, the
CEO had planned to sell imported vehicles. He now engaged in this vehicle deal as
a part-time means to generate more money. He completed an MBA in a Sri Lankan
university in 1993/1995 and did a market research on a company called LCL as a
partial fulfilment of this MBA program. Having exposure and findings, he used
these to capitalize in his own business. When the researcher was collecting
information from the MFPL the CEO was little reluctant to give information and
said:
“ After finishing this research you should not start a firm which competes mine… Yet I am not
afraid of because beggars like you, how much you earn, cannot really compete with mine…
Therefore, I am not scared to provide you with any sort of information”
However, one of the employees of MFPL, MBA colleagues of CEO at the same
university, had helped him to develop this idea of business in CEO’s mind. With
the assistance of the relationships that he has with his employment, CEO import
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necessary machinery and equipments for his company. In addition, one of his
brother-in-laws an expert in food processing technology, who is having a degree in
the discipline. Further, CEO says that he was able to make his business a success
due to the fact that, most people in Sri Lanka are lazy as then do not like to prepare
their own meals to provide marvellous opportunity for MFPL.
The central task of business leaders is to maximize profit in the organization. But
at the heart of creating sustainable value to earn profit lies the leader’s ability to
innovate and implement new solutions faster than their competitors. CEO states
that, “I believe that killing competitors are the new technology to compete with
competition. Because my idea is that if needed to kill the competitor to achieve
business success, do not hesitate to kill them. It is very difficult to run the business
according to the Buddhist philosophy; because leaders have always had to be able
to take decisions in turbulent environments.”
In 1997, MFPL was a Soya based products oriented company with diversified
interests in consumer markets as re-packeters. Operations were organized into
four Strategic Business Units (SBUs). These groups were not based on such typical
organization categories as product line or types of customers served. Given this
operational structure consisting with four SBUs depicted in Exhibit 1, the various
groups within MFPL were all natural customers for each other. Moreover, the
development of any new product or service to be marketed by MFPL was likely to
require the coordinated, cooperative effort of most, if not all, of the four groups.
There are 4 SBUs, but which are not functioning as SBUs in reality. These SBUs
are designated as (1) MFP marketing services (Pvt.) Ltd. (2) MFP distributors
(Pvt.) Ltd. (3) MFP nutria foods (Pvt.) Ltd. and (4) MFP herbal remedies (Pvt.)
Ltd. The function of MFP Marketing services has been identified as Research
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&Development Manufactures all items existing at present in the name of MFP
Product line is as Soya Meat, String Hopper Flower, Noodles, Y drink, Salt, Curry
Collections, Som flavor, Vinegar and Purchasing materials required for the
production. Functions of MFP Distributors has been identified as Distribution of
the MFPL’s produced all items would be the main responsibility of MFP
distributors, Advertising the products and services, sales promotion, and
awareness campaign for customers retails and middlemen and whole sellers.
Develop good relationship among supply claim managers of the distribution
charnel. Functions of MFP neuter foods are to produce Soya “Nuggets” only for
internal purpose. This seed/ Nugget is not supplied to any other re–packetor or
distributor as it is since the company want to eliminate competitor to expose in to
their market. Product categories coming under Herbal Remedies are still at
experimental stages. Market testing activities have been introduced for two certain
products. It also intended to develop a good will / reputation among customers by
producing a herbal related products and so as such impression would be used to
exploit the market opportunities through/for Soya products.
The company as new product development strategy has introduced the market
with a jelly. This product also is in its initial stage. Originally company thought
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that the product should go to the market in two forms such as dry jelly and chilled
jelly the dry jelly (Non refrigerated) was designed for the rural remote areas where
cooling facilities were not available. But company experienced that the product is
not moving.
Hence all customers irrespective of their dwelling place preferred the refrigerated
jelly. But rural areas where low income customer segments and recorded poor
sales of both items. Accordingly CEO has decided not to supply that product to the
market. When questioned, whether that decision is not irrational? CEO stated, “If
a product is not successful at market, I can feel it. Therefore, before experiencing a
loss I would stop that product”
The primary reason that MFPL had developed as a company was to invest their
own funds in their own firm. The CEO states that,
“ Today’s strategic issues are quality, flexibility and competitiveness. In fact, your product needs not
to be a real quality one. But if you can convince the consumer you can be success. Competitiveness
is the main issue for the success. Therefore, you should be able to eliminate your competitors or
weaken them. I mean “flexibility” is something like using “cats paw”. We pretend that workers are
looked after well and consumers are convinced that they are treated as “god”. Otherwise, a company
cannot be a success. Retention of consumers for short - run is very close to flexibility”
According to the CEO the Main objective of the firm is to survive. They want to
achieve a “Sustainable Survival” operating business to capitalize on market
operations, which is the most crucial issue here. Their main objective is achieved
through eliminating/ or weakening competitors rather than caring for social
responsibility. Through such exercise they want to increase their net assets. This
kind of objective is not in black and white in our company. Their corporate
objective is supported by a set of Business Objectives such as:
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(3) Continuous appraisal/ assessment of market of market changes and
trends and
(4) Achieving steady growth rate in a competitive environment.
Their performance measures mainly considers about financial factors such as,
sales value, profits, growth of assets and cost. In addition, we attempt to project
the market and the product mix, to establish technical goals, and to identify
obstacles or boundaries limiting the business.
CEO states,
the objectives.”
The ranking of mentioned key factors, then, provides a priority list for future
management attention. We expect the objective to be challenging enough, even
shocking enough, to force a radical rethinking of the strategies and tactics. At the
next level in the goal structure is the strategy statement. The strategy describes in
detail the environment of the business opportunity to be pursued in support of the
objective. Normally, there will be several strategies supporting each objective.
Altogether, we had more than 10 strategies operating in 1997. For example, if we
had an objective to achieve certain goals in the Soya Market, we might have one
strategy involving distribution network, one involving material application, and
perhaps another for safety systems introduced for Soya packets. The strategy looks
ahead over a number of years, normally from one to three, and intermediate
checkpoints are defined along the way providing milestones against which to judge
progress. Progress measurement is an element of a strategy not included at the
objective level. Finally the contribution of the strategy to the over-all objective is
defined in quantitative measures.
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Next in the goal hierarchy is the Tactical Action Program (TAP). (Examples are
given in Exhibit) A TAP is a detailed action plan of the steps necessary to reach the
major long-range checkpoints defined by the strategies. It normally in short term,
covering 2 to 4 months of effort. For each planned tactic, a responsible individual
is designated, a start and finish schedule is established, and the required resources
are finished. Below the tactical level, each TAP is broken down into individual
work centers, which we managed by means of individual oriented management
techniques.
As per the organization chart of the company, there is a General manager position.
But this position is not filled. Instead one of the directors is acting for the same.
His acting position also limited to a nominal and the CEO, in fact, intervene the
activities directly. More over, there are 3 DGM positions, namely: DGM -
Operations, DGM - Finance & Administration, DGM - Purchasing MIS & Supplier
committee. All these positions are kept vacant purposely and actually the Director
acting for GM directly looks after the responsibilities of these DGM’s . In these
cases also the CEO directly intervene the activities.
There are 225 positions according to the Organization Chart. 160 of these positions
operate under DGM - Operations. But all these people are responsible to the CEO
directly. The balance 65 people are operating under DGM - Finance and
Purchasing MIS… CEO’s idea is that the company should emphasis much on
operations rather than clerical work. However only a few of these positions are
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filled yet. Accordingly Operations, Finance & Administrations, Purchasing and
MIS 62.62% (97/160), 66.67%(32/48), and 58.82% (10/17) are vacant
respectively. Average 60% of the total positions in the organization chart are kept
vacant.
4.5.2 Work Force
At the very beginning the profile of the work force of the company was as - 03
directors, 08 miner employees and1 supervisor. At the beginning of the business
operations, the supervisor also was sent to the field for distributing the company’s
products. Directors also played the role of the supervisor or other production
related miner work or so on.
Today, in addition to the three directors and CEO, there are two (02) middle
managers, Ten (10) first line managers, forty (40) lower level managers and three
hundred and seventy four (374) non-managerial workers. According to the
organizational chart it is represented managerial workers and 13 non-managerial
workers only. (The CEO has developed this Organizational Chart)
The three directors have had experience and exposure in different areas of
business operations, which are very crucial for the operation of the currant
activities of the MFPL. For instance, one of the directors is an expert in food
processing activities and related trade. Another is an expert in import related
business activities (the raw TVP for the business is imported from India), while the
other has have got hands on information and understanding about the market
structure and the nature of role players in the TVP related products and the
market. Actually he was an another main food producer. These three members of
the board of directors are the people who invested their private funds on the
business as the investment capital. One of the directors left the company after 6
months stay with the MFPL. The position was filled with another and meanwhile
one of the existing was designated as the CEO of the company while serving and
chairing the Board meeting.
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Originally the tasks and the work/job has been delegated among various positions
and people but later on some of the assigned jobs were taken over by the CEO,
after observing how the work has been performed.
One person is responsible for many jobs that are done in the organization.
Typically, functions are not developed in this Staff and Function organization
structure. Here, the organization structure showing something entirely different. It
is shows the relationship between strategic mode and operating mode within the
same organization. One of the functions of the manager set strategies for
identifying TAP’s and combine them with existing strategic plan. Often these
managers are responsible for operating these strategies as well. For instance,
managers who identified a Production TAP should show the results to CEO
practically. This may not be approved in the Strategic Plan. (Dominant role in the
strategy) Nearly always, the strategy or tactic manager also will have an operating
role to play. In most cases does the Strategy manager or Tactic manager have that
job as his full time assignment. Divisional managers should identify their own
objectives and push it them to CEO. Since there are no divisional managers in
practice in this company this is also done by the CEO.
Thus, at MFPL, our managers are given dual responsibility for both strategies and
operations. Their future in the company (survival) will be decided on the success of
both activities. In recent years, we have deliberately tried to create an environment
in which it becomes natural for distinguish between their operating and strategic
modes. Last I mislead you, let me re - emphasis that we are talking about two
modes within the same organization, and not about two distinct organizational
structures. In fact, in the majority of cases, the execution of both modes is through
a single manager.
There are a number of reasons why we have chosen to develop the second, or
strategic mode, within the organization. First, the strategic mode gives us a
96
mechanism for large-scale opportunities, or those requiring combinations of
resources not found in a single unit. Second, it gives us a mechanism for planning
and controlling our investments for the future, and for making sure that we do
achieve the desired balance of priorities between short-term and long-term
activities.
4.5.4 Incentives and Reactions
Majority, almost all, employees in the company is said to be young and unskilled.
CEO says that, such people will not try to overwrite company practices and
comparatively stay with the company for a longer period of time. Also he believes
that, such people would work harder than others. When recruiting the people,
customarily the vacancies are advertised in National newspapers, but selection is
mainly based on personal contacts, and among known people. The CEO justifies
such a selection stating that the controlling measures are easy to carry out when
known people are sleeted through the known channels.
The vacant positions in the organizational chart are kept as it is by the design. The
CEO says that it is a motivational factor for the people below such vacant positions
to work harder to promote to such positions. Except production workers, others
are entitling for fixed salary. All the managerial level employees are also recruited
on temporary and/or under probation for low salary scales. As an example,
Accounting Executive is paid with RS.4000 per month at the beginning. But,
production employees are paid salaries according to the piece rate system. Starting
with the immediate supervisor, individuals are rank-ordered on the basis of their
relative performance and contribution, and an adjustment base salary12 is
recommended. The ranks are combined at successive levels of the organization
until the department level is reached. The department manager identified “bench
12
Meaning of base salary is that the differentiated piece rates decided on different type of products and
departments
97
mark” people among those on his department. Bench mark are those people judge
as having made equal contributions, even though they are in different functions
and job grades. Incentives are given only to the marketing, production managers
and the supervisors (Key Personnel Analysis -KPA).
“KPA is not as much as a zero-sum game as it sounds like. The system does force us to examine
performance at the very lowest levels in the organization and attempt to identify people who have
done a superlative job. As the ranking process moves up the hierarchy, however, only a very few
people from the lower levels manage to survive the screening. The informal test that each of us uses
in identifying our key personnel is, who is contributing most to the success of the business? The net
effect of the process is that almost all of the managers in the higher ranks participate in the incentive
pool. It would be a rare event, for example, for a MIS manager not to receive a incentive. Most
unfortunate thing is few managers are not entitle for incentives such as managers in the finance
division ”.
In CEO’s point of view that, above marketing and production people should look
after the marketing and production work and they will monitor the people to work
hard when the incentives are given to such people. Also it employs a little money
on such issues.
13
According to the organization chart Operations controller post is vacant.
98
sole authority of the decision making power lies in the hand of CEO, and other
procedures appeared to be seen as mere policies or guidelines for the company.
The company does not maintain formal budgets or plans. Some accountants have
marked their own short-term targets as advises given by the CEO. In the
company’s point of view, there is no use of preparing budgets or plans for such a
small size company and they are arguing that of preparing budgets increases the
cost to the organization. On the other hand, as an active company they don’t have
much enough time to prepare and implement budgets.
4.6.1 Budgets
CEO is the man who is keeping all the resource requirements for organizational
activities in his mind. Actually they prepare some draft budgets for different types
of purposes, but all those budgets are not available as a documentary source. All
the facts and data are kept in the mind of the CEO. Other higher rankers and
operational employees don’t remember the above-mentioned data and facts.
According to the CEO, these types of data not recorded to keep some facts and
figures such as material usage, production mix etc. in secret. CEO commented
that:
“We really have two budgets for the year, one for Production Department and the other for
Marketing Department. But all the budgets are drafts and flexible, prepared by me. I know what is
happening in the market (Raw material market and Finished goods market). Factors relating to other
factors are also keeping in my mind. I know that what are the required changes and how to update it.
Therefore, we are not maintaining formal budgets, as explained in the theory.”
4.6.2 Planning
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The company does not prepare plans, because CEO making all the decisions
related to the company. If I ask from any type of the worker in the company about
the plan, they have different types of plans, but not written, not formal, not
structured and consisting with some ideas/ opinions/ orders given by the CEO. As
you have gathered by now, CEO continued;
“We are not very enthusiastic around here for elaborate methodological approaches to planning.
Speaking philosophically, it seems to me there is a major problem of injecting methodology into a
human organization. The literature abounds with elegant solutions to well-formulated problems.
However, very few well-formulated problems appear in strategic business management. Even fewer
businessmen are prepared to accept someone else’s strategic model as a guide to their own
behaviour. In our organization, we do not try to apply others’ strategic models to our business
whether they are successful operating planning approaches. In strategy, style is everything, and
planning approaches must deal with style variations effectively, or fail.”
He further commented:
“At MFPL, we have proceeded on the premise that long-range planning can be imbedded
successfully within the primary operating organization. Our commitment to accomplish this has first
priority on matters of organization development and culture, rather than on matters of pure planning
methodology.”
Capital is the main factor, which decides the authoritative power of the CEO.
Capital introduce by the CEO is his own. Then, no one can influence to the
organization based on capital other than the CEO.
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premise. The company was able to increase the investment capital up to Rs. 3mn
within first three months of the business operations. Up to this stage the main type
of the business was re-packaging of TVP and distribution of the same Island wide
except North and the North Eastern parts of the Island.
Besides this, managers of key strategies and tactics frequently meet with RAC for
progress reviews, or when initiation of new programs is under consideration. But,
CEO told that, “everyday the committee ends up without new idea, other than the
idea forwarded by the CEO and therefore, consuming time and cost is very
unnecessary for these types of committee meetings.” Again, CEO states that, they
do not have resource allocation plan for each department. After careful personal
evaluation, he decides departmental resource requirements.
4.8 Market
Soya market in Sri Lanka is very popular now. During last ten years, number of
manufacturers, marketers, repacketors were developed. This was happened due to
busy and lazy life style of the people. Most of competitors didn’t try to advertise or
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distribute properly and some have shut down their companies due to loss leading
quality.
LCL product had a salient weakness, which was not realized or was not taken into
consideration by its management. That was a kind of bad taste, which was not
preferred by the customers. The MFPL was able to identify this failure and reacted
toward getting the advantages of the opportunity. As a result the MFPL could
capture the market within three months operation in the business. Therefore, the
company’s Investment capital could be increased Rs. 500,00.00 to Rs. 3mn within
the first three months The Company introduced the TVP with natural flavour and
non-vegetarian ingredients
At very beginning 80mt out of the total of 200mt of TVP imported by the LCL
Company was purchased by the MFPL and used them as the raw material in the
manufacturing process. The both companies made an agreement to abide by to
provide and buy 80mt annually. The other players, including LCL, shared the
balance 120mt in the total market. Many of them operated as re-packeters and
distributed the products to the local market.
The LCL distributed its product only to the selected geographical locations and
only for leading sellers in those areas. MFPL adopted a completely different
approach to select its channel members and sellers. For instance, MFPL
distributed its product throughout the Island except North and the North Eastern
Provinces, due to prevailing Civil war of these two areas. In order to develop the
distribution channel MFPL appointed agents on unconditional basis. That is in
many cases when a company appoints its agents they ask for an initial deposit
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from the agent. But MFPL appointed agents without such initial deposit or other
conditions, which hinder the operation of the distribution activities. Also the
MFPL provided the sellers with unlimited credit facilities to expand the
distribution of MFPL’s items/goods. In fact, MFPL was able to introduce such
systems since their capital investment does not induce any interest to be paid to
outside funding agents. In other words, investment capital was consisted with
private funds of the board of directors. The company’s policy for the dealers and
sellers was favorable for the existing market features. For instance, No need to
emphasize that such a dealers or sellers would be glad to accept such policy since
many of the Sri Lankan small scale sellers find difficult to afford for such initial
deposits or unconditional credit facilities would definitely enhance the business
strength of such small sellers. Some sellers, of course have misused the
opportunity provided for them and as such some amount of credit granted still
remain unpaid. Yet this strategy enhanced the strength of the company’s
distribution channel. Hence, the company could easily develop a wide spreaded
distribution network throughout the Island. Distribution channel has specifically
found rural areas since fish products (fresh fish) distribution is not widely
spreaded or available in those areas. Sales agents have been appointed for areas
and every provincial town except north and Eastern Provinces. Goods are been
distributed regularly. But the company had experienced in some areas sales are
recorded only about 25% of the total distribution to the particular sales agent. Yet
regular supply/distribution is maintained. CEO says the When the customers
wants to buy the product it should be available to hem/ has at their close
proximity. Hence the product should be available in the market without any
shortage.
MFPL was able to identify the competitor reaction toward their business
operations and strategies. For instance, from the sellers of the products of MFPL,
the company found that the competitor has taken some steps to cripple their
production by not providing the agreed TVP for the MFPL, since LCL was the only
supplier of TVP to MFPL. The MFPL was able to understand the LCL’s behavior in
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advance. Therefore, they had orders and imported a buffer stock of TVP. Once the
LCL denied supplying the agreed amount of 80mt of TVP, the MFPL produced
their items utilizing the Buffer stock and distributed to the market. Meanwhile, the
LCL Company increases their production and released them to the market. By the
time the consumers were attracted to the MFPL’s and hence, at the end there were
huge bulks of LCL’s items in the market, which could not dispose. Then
afterwards, the MFPL Company started importing raw TVP from India directly
and completely deviated from LCL.
Originally nugget is purchased farm LCL and later it was imported from India.
With the importation of nugget from India, company could save 15% of the cost of
purchasing. At percent the company produces Nugget it self. As a result 10% of
further cost reduction has been experienced. This Soya Nugget is said to the
comparatively smaller then that of other substitute available in the market, the
label is not preferred by the consumes. Therefore, CEO says that this nugget in not
givens to external bodies or agents as a strategic measures. With the introduction
of in houses production, Nugget rather then outsourcing the dwellers in the factory
are complained about the noise generated by the machineries when production
process were going on. In order to dilute the pressures from such residents the
CEO recruited the relations or family members of such dwellers to the factory as
production employees or any others. Hence he says the pressures from sorrowing
dwellers were eliminated.
The costs of mercenaries imported for nugget production were recovered within
initial two (02) years period and hence the company generates profits. CEO
believes that the industry may not exist as it is for longest period yet lifetimes of
machineries have been estimated approximately for 10 years. Therefore ECO says
the machineries should be utilized with full capacity at present to exploit market
opportunities available now.
The Soya Nugget is also supplied / distributed to the retailers in bulk from in order
to cater for the low-income groups at a comparatively lower price than normally
picketed MFPL products. Because the lowers income group could be attracted with
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such practices and it would help further extension of market share of the company.
Once the expected demand is met the company intends to introduce them with
pocketed product at a later stage. The product is available in seventeen (17)
different flavours in which prices are slightly different. It also available with
deferent weights, in order to cater for the affordability of different costumes
segments, yet pricing has not been based on any costing strategy. Instead market
price is determined according to the price of substitute products that are supplied
to the market by the competitors or on arbitrary basis
4.9.1 Pricing
Up to now the pricing of the product of MFPL has been based on market price of
the competitor’s product in the market. The goods or items produced are not
separated in to department wise or human resource is not allocated according to
the nature of production or items produced. In other words workers are rotated
and production is carried out as required by the each item/s.
Different items are produced in the same premises and as a result space problems
are spires. Worker is, in fact, become all rounder at the end. Any trade union
activity may cause serious adverse results as well. But, CEO believes that, by
training people as all rounder, their idling time could be minimized and training
people as all rounder can improve the production. Also if a worker is absent
another could easily carry out his or her work.
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4.9.2 Material Handling
Existing stores maintain bin cards, which uses only as a store controlling measure.
In other words it is used to supervise the storekeeper’s work. These bin card
records are not taken into account when items or raw materials are purchased.
GRNs are issued without a proper mechanism. For instance, GRNs may not issue
at the time when goods are received but it will be issued after 2 or 3 days later
when these goods are reached at the machines. Surprisingly, the GRN card will be
recorded as per the invoice received but not accordance with the amount of goods
actually received. It is also observed that, malpractice may occur as a result of this
GRN system. CEO says that he cannot withhold the production until such times
the GRNs are issued; instead the market should be supplied with the goods in right
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time. Further, if the GRNs are not properly implemented, the cost or damage
incurred in this regard will be comparatively very law with compared to the
damage that could be taken place as a result of the goods are not supplied to the
market in right time.
Location of the material stores is not closer to the production departments. This
has created many difficulties according to the people in the production
department. But CEO says that he wants to keep this distance to avoid some kinds
of malpractice that could be possible when departments’ ant the stores are located
very closely. Production supervisors say that, production process is interrupted
very often as a result of this distance between stores and the production units.
Material obsolescence are very often occurred due to the fact that improper
inventory system. In fact, different kinds of raw materials and items are stored in
the same place or the bin without any classification or grading system. This has
experienced as result of lack of spaces to maintain a proper storing facilities. CEO
argues that developing the store facilities make an additional cost which does not
generate any profit in turn but if the same amount of money is spent on
manufacturing activities that will bring a profit to the company in turn.
Storekeeper complains that he is not in a position to do his job properly since
unauthorized people interfere in to his job. For instance, without proper
authentication or documents production unit may consume the items in the store
for an urgent manufacturing work. Hence proper management of stores is
impossible.
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3. Introduction of Return Goods Report (RGR)
These “new” methods are proposed mainly because, existing practices does not
help to measure unit cost of business operation. More Specifically with the
introduction of WCL it is intended to be achieved the following objectives.
To calculate direct incentives for production workers. In fact, the present practice
of the MFPL is that the wages are implemented as a “piece rate” System. Workers
are not provided with any others incentives than this. The company as a system,
which cannot control the cost in terms of EPF concerned for instance, if an
employee earns RS, has identified this System. 15,000 through the said system the
MFPL has to pay EPF for Rs. 15,000. With the proposed new system it is intended
to introduce a basic salary structure, which is supplemented with incentive
scheme. Thus the EPF would be applied only to the Basic salary. The company
intended to introduce a very low Basic salary structure as a cost controlling
measure. In addition, it is proposed to introduce an incentive for the attendance of
the employees. Hence, it will work as in device to motivate workers for regular
attendance. Moreover, it is also expected to measure the actual Numbers of units
produces though WCL since the incentives are to be bared on the number of units
produced by the employee too.
4.10 Summary
This chapter has discussed an influence of social and organizational culture on rise
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and development of food processing companies in Sri Lanka with special attention
to the MFPL. Business orientation in Sri Lanka started with the base of wealth and
accumulation. Before independence Plantation agriculture brings about a complete
capitalist transformation. In Sri Lanka, capitalism developed in a society whose
traditional structures and values, including ethnic and caste loyalties, underwent
change. Furthermore, in the case of the arrack rents, the investment was also very
much self-financing. At the bottom of the social scale were the marginalized poor
in scattered forms of self-employment, and workers on plantation and
manufacturing enterprises located in and around Colombo. The above situation is
highly influenced to development, stagnation and decline of business society in Sri
Lanka before independence.
When Sri Lanka, achieved independence in 1948, it had practiced limited self-rule
based on universal franchise since 1931. There was a smoothly functioning export
economy that provided commodities urgently demanded by the world market.
Productivity was low and population was growing rapidly. Existing economic
structure would be unable to support the growing population at its current
standard. From 1948 to 1956, period of Economic populism with an open
economy, Sri Lankan government provides wide range of direct benefits to a large
segment of the population. This was influenced to reduce the in home agricultural
products. From 1956 to 1965, Economic populism with economic controls, most of
private owned businesses such as transport trade, converted into government
owned business organizations by nationalizing. This situation encourages
government owned businesses and discourages private owned businesses. From
1965 to 1970, limited liberalization the rightward political shift and trade
liberalization package was introduced. Agricultural productions were promoted.
From 1970 to 1977, under the Controlled Economy, economic and business
conditions had begun to worsen and unemployment was rising. This period is
directed towards development of agricultural businesses and reduces imported
consumption of goods. From 1977 to 1983, Policy Reform period with the open
economy damages to the plantation sector and in addition production sector
activities reduce and service sector activities were expanded. These economic
reforms became an encouragement for imports and foreign investors. Introduction
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of new Companies Act In 1982 helps in encouraging an expansion of different
types of companies.
From 1983 – 1989, Start of Civil War created many difficulties and destructions for
economic development especially in the agricultural food product areas. From
1989 –1994, Crafted a Second round of policy reforms contributed to pickup in
economic growth in the early 1990s. The reform package included tariff
reductions; rupee devolution; tax reforms aimed at stimulating the capital market
and improving tax compliance; further liberalization of financial and commodity
markets; and liberalization of exchange controls on the current account of the
balance of payments. Other emphases were privatisation and peoplisation
(encouragement of individual share ownership), export promotion, and poverty
alleviation. These economic policies are operating consistently up to now too.
However, from 1977, the open economic policies led many people to abandon
domestic agricultural activities and moved them towards other industries and
removed from their traditional and cultural norms and value systems. People
started to concentrate only on finding an office employment using the political
influence. This malpractice in politics directed towards the destruction of the total
life style and people became very busy and indolent than it was before. The time
spent at home became lesser and lesser. Gradually they were used to buy prepared
meals. As a result of it instant and just-in-time food industries became more and
more popular. The MFPL of Sri Lanka was an exception having analysed the
existing market environment and the CEO, the founder established the MFPL in
1997. The company is operating only within the local market. At present the
company has become the largest market shareholder mainly in Soya based
products in Sri Lanka. CEO of the company is the in charge for all the activities of
the company. He has gained his exposure from his family background, government
employment and education he acquired from the University first degree and
Postgraduate degree. The strategy is not to care about the social responsibility and
to care only about the business success through profit maximization. For this
purpose he follows strategic issues such as quality, flexibility and competitiveness.
The main objective of the firm is to survive. According to the CEO of the company
he doesn’t apply standard models to run the business organization and informal
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management control systems, which are occupied, and all these plans are in the
mind of the CEO. Now a days the CEO is going to introduce some formal control
systems to this organization after the discussions with the researcher.
CHAPTER FIVE
Analysis of the Case
5.2 Introduction
MFPL was a mix of automated and non-automated production with most products
produced continuously. The main products were made in two separate production
departments: MFP nutria foods and MFP herbal remedies. The researcher chose to
work in the MFP nutria foods Division, as it was the largest production department
in MFPL. Nine kinds of food items (Soya Meat, String Hopper Flower, Noodles, Y
Drink, Salt, Curry collections, Som flavor, and Vinegar) were made in separate
plants in this division. Out of nine kinds of products Soya Meat, String Hopper
Flower and Noodles are fast moving items and others slow moving. Among above
main three products Soya meat is the dominant product possibly because its
production was quicker.
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than any ‘independent reality’. However the presumed independent variables may
not be so. Structural theories discusses that the influence of corporate structures
and accounting systems to create variations on economic efficiency. As in the case
of systems theory, factors such as “technology” may be part of strategies of control.
“I think we are the only firm/ company who become the market leader within a very short period of
time. I have no idea about to what extent the so-called theories were useful in this regard. I believe
that leaders in commercial and public–sector organizations should understand and address the
challenges of dynamic environment and adapt in company’s activities accordingly today’s fast–
moving environment with the help of complexity15 thinking.”
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variety in the environmental and organizational needs for survival, by stressing the
need for integration for the survival of the whole, there is a presumption of a
"functional unity" to organizations, which may divert attention from issues of
power and conflict.
As CEO commented:
“However, I managed the business in line with the environment factors, closely observing the
directions of these elements, introducing changes timely. I believe these are the main factors of our
success. For example, when we recruit people as our employees, we critically evaluate their
suitability for the company. But we never hesitate to kick them out if needed.”
The assumptions behind contingency theory are similar to those under- lying an
open systems approach - the key relationship between an organization and its
environment can be understood in terms of the organization’ s need to survive, and
the fact that there are certain functional imperatives for the various sub-systems.
As CEO commented:
“In addition to that I would like to say that, irrespective of the board of director’s decisions we
might implement the activities if there are viable for the existing market conditions. The board of
directors also works with the ordinary workers in achieving expected goals. Our main aim is to
survive in the existing market.”
The CEO follows a system of this nature in order to ensure the company’s survival,
which explains very clear in the systems approach.
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world’. The focus is on individual meaning and people's perceptions of "reality"
rather than any independent “reality" that might exist external to them. CEO
doesn’t believe staff in the organization. He can realize that he also started this
business from collecting data from LCL and after starting the LCL sold to another
company due to insolvency.
CEO said, If the required data are available and Director acting for GM wishes, you
may receive them” when researcher told him about the need of data. But the
following day contacted the Director acting for GM, CEO received the phone and
says, “ If you need to collect some information, you should meet me” and then
researcher reminds him what he said the other day.
He responded:
“When GM (acting) is present, I should not disgrace him. I should give him the due recognition. It is
not nice to let down him. That’s why I told you that way. But if you need any information you
should come to me. Because I’m the CEO, I’m the person who decides whether to give you the
information or not.”
To achieve major long - range checkpoints defined by the strategies, though there
is a Tactical Action Program (TAP), CEO overwrite it.
“The preset goals/objectives will be a base for a strategy, but according to the latest market
conditions I alter all the action plans immediately if it is required. These TAP are delegated and
assigned to different action centres. But I personally monitor these and alter it requires.”
Since the many positions are kept vacant in the organizational chart. CEO
commented:
“It provides more liberty/ freedom to work as I wish. Many senior level positions such as DGM-
Operations, DGM - Finance and Administration, DGM - MIS and Supplies Committee etc. are kept
vacant, cost of maintaining such positions are not appeared to be seen. I have nominally, assigned
acting GM many responsibilities and jobs. But, I personally intervene his work too. I grace him
since it is not nice (theoretically) demoralize him.”
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According to the all above, it is understood that CEO of the company well
understood the nature of social world, and what the real meaning of reality
explained as interpretive theories.
“Employees of the company know that I have enough wealth. Therefore, if the company runs on
bankrupts the employees are the people who affect most. I purposely have let workers to know
about this. I am taking final decisions in all the areas of business activities, because I have 65%
share capital of the company. If any failure occurs I am the person who face the largest risk.
Therefore, I can overwrite any decision taken by the Board of Directors.”
According to the above statement, the managerial value is developed based on the
financial capability of the CEO. But according to the theory that variations between
corporate structures and accounting systems are ascribed to differences between
political and managerial values and not just the dictates of economic efficiency.
Moreover CEO says,
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“I believe that investing money is better than saving them. The risk of investment cannot be
avoided. But through investment we may be able to provide people with jobs. If I can do the same
for my relations, friends and village mates, I would be able to context for the general election.
Politicians can earn money and expand their businesses. I do not want to have many businesses at
the beginning. Instead, I want this business to be very strong and steady with different products in
the same production line. Thus, I would be able to compensate one’s loss from another product.”
On the other hand CEO develops the corporate structure based on four SBUs, but
which are not functioning as SBUs in reality. And also accounting systems design
according to the perception of CEO on the basis of situational factors. He
commented:
“Corporate structures and accounting systems are developed according to the organization culture.
To escape from tax liability, I design the SBUs. Actually all the SBUs are under the same roof. Same
batch of workers are doing all the activities related to the SBUs. Corporate controls are in my hand.
I the man who solve problems associated with new corporate structure.”
“No one in the organization is competent in performing any task properly. He has developed such an
image. CEO comments negatively on what ever work they perform.”
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CEO’s idea is to say that subordinates are not important since they are not in a
position to perform a proper work. When I was collecting information, one of the
workers brought to CEO some noodle product for his verification. The CEO then
fired the worker in front of the researcher too and advised him to destroy the
product. Later on CEO accompanied me to the production section and advice the
worker to change the ingredients combination and tested and approved the
production. He asked me to test the product too. I tested it and comments saying
“very good”. In fact I was not aware whether it was good or bad. The CEO does not
respect their qualifications but they should prove it practically. Another occasion, a
designer came to CEO to get his verifications and comments for the packet he
designed. He was not satisfied with the designed because it was big for the amount
of noodles to be packaged. Hence, he pointed out the extra cost incurred in this
regard and instructed to reduce the size in to a manageable size. Then it would
save material cost, printing cost, storage cost and defective cost that would incur as
a result of loose packet.
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According to the studies under Interpretive Theories noted that accounting
language become a medium for calmer and more informed political debate,
facilitating the exchange of views and the design of further investigative action.
“ We have to send a daily report regarding cash and other transactions to the CEO and the MD of the
company. The Managing Director (MD) receives these daily reports for their clear understanding
about the financial condition of the company. New computerized systems speeded up the supply of
internal information to directors. However, no external reports have been published. Auditors are
our friends. Audited financial statements are presented only to the Inland Revenue Department only
for the tax purpose.”
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Accounting information tended to be the preserve of the three directors. One
accountant remarked:
“We record the bills or memo's which are signed by MD or CEO. All departmental expenditures and
income have to be signed by these two directors. Sometimes, without the signature of CEO those
bills cannot be recorded. Otherwise we refer the bills back.”
According to Swanson, information systems should be recognised as having a,
"significant capacity for the encouragement of organizational delusion" - although
there may be an "inner-directed" rationale, the aim could be to make a show of
"good information" to higher management. Chambers discussed accounting and
quasi-myths. I he suggested that it was often simpler to invent fictions than to
establish a connection between the input of certain information to a person and
the output in the form of a decision or action. Finally, Earl and Hopwood, building
on the decision theories of Weick, claim that in very uncertain situations
management information systems are used to retrospectively rationalise decisions
and actions already taken. The Directors became the repository of all financial
information, which was processed according to their instructions. MD (acting)
Finance remarked:
“We have two systems for accounting information. Two sets of accounts are prepared. One is
prepared personally by the MD (He is a Chartered Accountant) and it is informal which is a
restricted area only usable with the permission of CEO. The other system is external reporting,
which is for other shareholders, the bank, the Tax Authority.”
“We are private limited company. All the directors are friends and CEO is the active director of the
company. Power is cantered on CEO. We have to maintain many informal systems as CEO wish.
And in addition, you know, business is competitive. You can't maintain all of them in a
straightforward way.”
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One employee commented:
“Some informal transactions are kept in the IOU fund account for irregular payments to bribery of
government and tax officials. These transactions were usually shown under other headings in the
annual reports. However accounting record are prepared by different parties for different periods.”
“I don't know what the real transactions were in the IOU fund. It was alleged by some individual
that sometimes the heads of transactions were changed to evade tax such as increasing the amount
of tax exempted items.”
“I don’t care about accounting records and principles. I know everything about this company
personally. I just prepare accounting report for tax purposes. But I intended to introduce a kind of
costing system. Then I would be able to compute the margin of each product.”16
16
In May 3rd 2001,Researcher personally interviewed CEO of the company at the Factory Premises. When
CEO supervising the Factory, he express these ideas.
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Accountants were criticised for hierarchical punitive reporting and achieving
success through the failure of others. The ensuing tension and hostility between
Staff and line managers was held to be counter-productive to the fulfilment of
organisational goals. Ridgeway and Dearden both chronicled how using
accounting criteria as performance measures could reduce organisational
effectiveness. Dalton, Rosen and Schneck, Lowe and Shaw, and Schiff and Lewin
all demonstrated how managerial bias and slack could enter budgets. Dew and Gee
found that many managers either did not use accounting information received, or
used it incorrectly. More recently Ashton noted how dysfunctional consequences of
accounting systems are perpetuated and amplified by their feedback mechanisms.
However, accounting in MFPL now changing eventually, though not necessarily according
to the expectations of policy makers or development economists. Much of conventional
management accounting is based on functional approach, is inextricably linked with
scientific Management. Indeed Fayol specifically instances budgets as planning and
control tools. Neo-classical economics provides a basis for marginal costing and financial
management and reinforces notions of control based on assumptions of economic man, and
organizations with unitary goals headed by a single decision-maker. Despite the criticisms
of conventional management accounting and its theoretical props, by behavioura1
scientists in particular, such approaches persist. Horngren defines his general approach to
management accounting as designing formal controls "to provide goal congruence and
incentive through the use of technical tools. Very recently i.e. from end of year 2001,
the new management accountant is appointed and he was delegated to authority to
establish the budgetary control system. Cost information was collected through
accounting systems and the CEO’s personal contacts but the research revealed no
professional cost accountant or associated systems dedicated to providing cost
information to managers outside of the family. Managers had little idea whether
the organization was running profitably. Budgets in the normal sense of routinised
regular downward financial reporting disappeared.
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However, physical budgets and quotas were passed down to production managers
who transmitted their messages (and pressures) to first line managers (foremen
and supervisors). As will be described later, this gave rise to a series of informal
practices by junior managers with the shop floor to achieve budget, often with the
tacit approval of production managers.
Now the management emphasized market trends in making budgets rather than a
production orientation as previously. Budgets and all other conventional
controlling devices are not prepared but those will be registered only in the CEO’s
mind. Production and sales budgets are nominally prepared but a “mindful
budget” is implemented. Therefore, the MFPL’s practice further endorses the
researchers previous findings in this regard. As one marketing official commented:
“Accounting information comes through late although it is correct. But we prepare our sales budget
on the basis of sales force indicators and market trends, which is very dynamic.”
“Initially we made a production plan on the basis of yearly and monthly budgets as fixed at the
beginning of the year and at the beginning of the month. Now we revise targets as new information
comes through. In this case CEO plays the vital role.”
Cost reduction the main language of managers who in turn relayed this message to
the shop floor. Redundancy programmes were the main source of cost reductions
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aided by cuts to benefits and allowances. Top management used physical budget
figures to evaluate the performance of production managers. Production managers
had to report any deviations from budget to CEO who usually wanted to see a
reasonable cause for deviations. Although the feedback systems were improved in
terms of accuracy and speed they were essentially ad hoc with arbitrary imposed
targets upon managers. The budgetary controls disciplined production managers
not because of any accepted logic and reasonableness of accounting numbers or
their reinforcement by lucrative reward systems but because of power relations
within the enterprise. Top management specially the CEO, who were also the
owners, were the final authority on recruitment, punishments, promotions,
dismissals and all other company matters including budget targets and
performance appraisal. Production managers realized their targets by controlling
supervisors who in turn had to wrest with the problem of securing worker effort.
Reporting systems for supervisors and foremen were introduced recently. Each
day they submitted their logbook to the production manager, which contained shift
information such as volume of production, working hours of machines, causes of
stoppages, the number of casual workers worked, and wastage. However, the
volume of production was what mattered. As a supervisor commented:
“Certainly managers are interested in the volume of production. As long as the volume of
production is right they have nothing to say.”
The CEO was proud of how his system of logbooks had increased the visibility of
operations. He commented:
“I personally developed this reporting system. By the virtue of this system, I can understand what
went on during the shift. There is no scope for supervisors and foremen to conceal the fact. And the
quality of products also can be maintained with specific targets.”
He under-rated the powers of human agency and ingenuity. Foremen and workers
tried hard to not report some incidents. For instance, one day a foreman became
very angry with a casual worker and threatened to fire him for insubordination.
Nevertheless, he did not report this at the end of the shift to DCC: there was an
informal understanding between worker sand their immediate bosses to work
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things out within the shop floor. Open systems provide a means of viewing and
describing "the ga1ne of budgetary control' described it in input (External and
Internal) - output terms. An attraction of open system is its ability to relate
different resolution levels of analysis and various disciplines. Thus Ansari used it
because of its ability to combine and reconcile structural and social psychological
work on budgets. Later, his analysis was extended to the design of budget
reporting systems to facilitate managerial recognition environmental influences
and inter departmental dependencies.
“Presently we don't have to face any serious problems from the part of workers. The deviations of
production budgets are mainly due to raw material shortage or machinery breakdown.”
However, accounting controls came to play a vital role in a despotic and ad hoc
form of family-based controls over managers and thence supervisors and workers
though the budgets were. The accounting department and the information it
supplied became an untouchable area for all managers outside the family of
owners. Nevertheless, despite accounting numbers being rarely revealed, they
were used to justify changes as they passed downward.
Boland argued that accounting is a ceremony or ritual played out to reinforce the
myth that large organizations are subject to external checks upon their societal
effectiveness. Such behaviour is seen as a consequence of the accounting
profession trying to reconcile conflicting ideological pressures placed upon it.
However the myths spawned and the associated technologies have produced a bias
against reform. The work is interesting in underlining the social creation of
accounting, and how meanings attached to it help maintain the status quo, but
questions about which ideological pressures are most significant, and whose
purposes are served by such myth creation and stabilization are left unexplored.
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CEO commented:
“I do not think about presenting past transactions and events. But for the purpose of providing
requested information to parties such as Banks, Banks, Inland Revenue Department, and Other
Government Agencies, financial statements are prepared. Actually according to my idea, there is no
value of providing these statements to outsiders, because we don’t have benefit from it.”
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“White collars as a mischief. It is to protect their incapability or rationalize their laciness to do
hand work. They always think that the manager’s world as world of words. Theoretically white
collar managers like to work with telephones, documents and decision-making committees.
Everyone in the organization should carry out whatever the work without any discrimination. Any
layers within jobs hinder the morale and efficiency of worker. I believe the work of a person should
be able to measure quantitatively to do so. They should involve in production work. Managers are
important. Helpers are also equally important. If needed a manager should perform the helper’s
work too. Because, they earn higher than helpers. I myself do this kind of work. It is common to
all.”
“I think ‘white collar job’ people cannot or do not like to work hard. Because their attire get dirt.
Therefore, I don’t want to recruit any white-collar workers to the company and I treat all the higher
rankers also as hard workers and not as white collars. Hence, positions is/are kept vacant in the
company’s organization chart can be treated as white collar jobs.”
He commented again:
“I work in a Government organization too. I do a white collar job their as defined in the theory. Also
I know that I myself and others are not doing a fair job for the salary are receive. I do not allow my
company workers to be like that. Not much clerical work is needed. These formalities are
maintained just to satisfy the requirement of the rules and regulations. Otherwise we need only
people to work means “work” it does not imply spend time keeping records.”
Social psychologists recognize that employee desires may conflict with those of the
organisation or other parties to it; in its advocacy of participative methods it tends
to assume that these are reconcilable. Interpretive theory suggested that
understanding of the conduct of others is obtained through a process of
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interpretation, or "typification", rather than by direct observation - such
"typifications" being continuously learnt, modified or re-affirmed throughout
people's lives. CEO is very strict in labour management. No worker can idle his/
her time. Every minites they have to work. CEO’s view in this regard “ we can’t
pondle workers. If they are not well they should see their doctor. When they are
here they should work. I have given them enough freedom. But it does not mean
that they can spend their time unproductive. I don’t like the people who try to
cheat me. If I found some one guilty immediately I send (sack) them home. I want
this organization to generate very big profits.
As CEO commented:
“We have not left any room for trade union activities or do not allow them to time to talk about
gossips or unwanted things while working. Yet they can discuss anything related to the production
or any other directly with me. Even though I’m full time employed in another organization, I spend
more hours here. Generally I stay in the factory even late nights. Usually I go home after 12.00
midnights. My employees also follow me.”
“ I worked in a similar manufacturing organization before, I joined here at the request of the CEO.
He gave me 15% higher salary than previous company and a car. My job was to plan the production.
But here I have to plan and implement the same and show results finally. I have no any prescribed
working hours. Sometimes I work entire 24 hours till job is finished. CEO also works that way.
Therefore, I like to work like that. Normally CEO work here till midnight or may be 2.00 a.m. in the
following day morning and spend at least about 18 hours more here. He never spends his time
idling. He works throughout the period that stays here. Therefore, we also follow him. In fact, my
workload with compared to previous place, is about 4 times higher. But I am getting experience and
exposure.”
In fact, the responsibilities and the duties of the work force was not limited to the
given task or the job itself, but carried out whatever the work to be done in order to
run the business smoothly. One person is responsible for many jobs that are done
in the organization. CEO says he can get the maximum output by doing so, and
help minimize the cost of operations. In addition, when there are vacancies in the
higher level of the organization, CEO says, people are motivated to such vacancies.
As an example, the person recruited as Accounts Executive works in the Costing
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department as well as financial department. Simultaneously he performs the task
of Assistant Financial Accountant and the Assistant Management Accountant.
Further he commented;
“ I do not worry about even if senior Board of directors leave the company. I can do all these things.
These so-called managers and Board of directors are there only nominally. One of the founding
directors, who had experience in instant string hopper flower, vinegar production etc. He was a
owner of a big company. He wanted to resign. I released him. He runs his business today but he can
not be a real competitor for our company because they don’t have the dedication and commitment
that I have. Now we are the leading player of such items too. Any worker, irrespective of the level,
can resign at any time. Also we do not hesitate to kick them out at any time if we need to do so.”
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task, hence every one has to take the responsibility and attend to any kind of job at
any time, if it is to be done. Therefore, according to CEO’s view,
“ This organization structure is a nominal chart. It is there to show an outsiders, but I don’t want to
implement it.” The letter of appointment, therefore, also “formally” illustrate the job and the
responsibility of a person recruited but he/she never be limited to such job responsibilities but for
any kind of work at any day of the work at any time. This is more important to the organization to
be a success. Many positions within the organization structure is kept vacant, the available people
carry out the jobs and responsibilities once I assign some one to carry out the work that is enough.
We do not stick into organizational chart or any other traditional management principles.”
“As a production oriented business organization we are facing to the very risky, unstable and
complex environment. Specially, the political environment is highly influenced to each of
organizations very badly. Therefore, with my experience, I know wary well that the unitary goals are
not adequate to run the business. That is why; I am searching for different types of income sources. I
129
have negative thinks about the future. Anything can happen any time. Because I decided not to
resign from my permanent job and not to stop my car sale on the other hand.”
“Formal or informal groups within the organization are extremely prohibited. Trade union activities
are also prohibited. Even though there is a hierarchical structure and the procedures, the decision
making power in hands of me. I appointed SBU groups nominally only to show some structural
changes to outsiders and acquire some advantages from tax calculations. Those groups are actually
engaging with group activities.”
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are restricted to adaptation to market threats and opportunities and represent
movements towards economic optimality.
LCL was catering its product only to the vegetarian-customers, and the
advertisement campaign focused only the same target. This advertisement has
telecast or broadcasted only on Poya Days. This day has been decided according to
the Buddhists discourse that they should refrain from eating any meat or should
refrain from killing any living being. The product of LCL Company said to be
flavored with artificial ingredients.
Natural flavor orientation plays a vital role since early 1990s in Sri Lankan context.
As such MFPL has decided to introduce their products with natural flavors. It is
said to be that if the TVP products were not packeted properly it would be
ruined/destroyed by (gulla) Veevee, a king of food worm. The double laminated
packet introduced by the MFPL was a sustainable solution for this problem and it
was useful for preserving the quality of the food as well. CEO’s view is that
“The high protein content of TVP would provide customers with not only the required nutritional
value for customers but also cholesterol free nature of product protects them from other cholesterol-
related diseases. This much of high protein can not acquire from other foods for this type of low
price.”
“Though the majority of Sri Lankans are Buddhists. I have understood that they are not real
Buddhists. They are Buddhists because their birth certificates say their religion is Buddhism. Major
supplier and competitor of Soya at very beginning have thought that our customers are real
Buddhists and accordingly they planed their promotional campaigns. They openly prefer to pretend
they are non carnivorous. But secretly they prefer to eat meat. Therefore, our promotional activities
geared to address this issue. We produce vegetarian products with natural flavor of chicken, beef,
pork, prawns etc. etc. Many of these Buddhists prefer to buy packeted such stuffs rather than
waiting at a beef stall to fresh beef or meat. Many people want to pretend they are Buddhists who
does not eat meat. Indeed in consumption they behave other way round.” 17
17
CEO’s idea and experience about Buddhists and vegetarians
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Further, CEO commented:
“ We advertise our product contains equal weight of nutritional value of meat, fish or other stuffs.
People believe it and our sales increases. Sri Lanken consumers are preferred to be westernised.
Therefore, we can easily mislead them if we are tactful enough. We package our products in
Colourful Bright Packets. We use at least five or six bright colours. Other look of the product is very
important to our customers. We use double laminated packet to prevent our product from “Gulla”
impact/effect. We realized that through our market experience, we ones check single laminated
competitor products 90% of them were affected with “Gulla” infection. Therefore, we use double
laminated package to prevent this infections because it is really a relied measure. Now people know
our competitor’s products are inferior in quality with compared to ours.”
The company had identified that their noodle was not a fast mooing item in the
market. Hence a advertisement companies launched through TV sponsoring a TV
Telecast program. The participants for this program is chosen among those who
send the prescribed coupon inched in the noodle packet. After introducing this
method the company has realized the noodle has became very fast mooing item in
the market.
CEO says
“The consumers has to he treated with the “dogs principle” (not as God). In his words a dog will
wag its tail and be friendly with you if you offer the dog with a bone. The customers, therefore,
should be given with some kind of “bone” then s/he would be attracted. He termed this as a
“Strategic window”.
According to all above, it is understood that the CEO follows a system of this
nature in order to ensure the company’s survival and he act as key single decision
maker at the apex of the organization, and are restricted to adaptation to market
threats and opportunities and represent movements towards economic optimality,
which explains very clearly in the conventional theories.
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organizational values and motivation, management aspiration for profit growth
were included as an important independent variables, and supposed that different
modes of organization decision-making predominated under various forms of
uncertainty and that different kinds of management information systems were
therefore required. There is a minimal concern towards the social responsibility in
MFPL.
“Personality of our organization is to earn profits anyhow. If the company wants to maximize profit,
through organizational growth, such responsibilities hinder the way to achieve such goals. If the
business is to survive consideration on social responsibility is a shield. Those concepts are good for
the westerners, who live in USA or other developed countries. We live in Sri Lanka. We should
think about Sri Lanken context. Who cares about social issues when operating a business in Sri
Lanka? For example, we informed our customers through our media campaign/ advertisement that
our product does not produce using Technology of genetically modification before objections raised
about Technology of genetically modification. Now people believe that we are the only company
who produce Soya without Technology of genetically modification. In fact, we import Soya from
India. Generally Technology of genetically modification is used in producing Soya. We are not
going to tell the truth to the customer. In other words businesses is really a racket. I believe that
consuming a small percentage of Technology of genetically modification processed product does not
make any adverse effect. Anyway, that has not scientifically proved yet.”
“Our label information may mislead the consumers, but consumers are not aware of this. And also
these ingredients do not make any dangerous adverse impact on their lives. Therefore, it is nothing
133
to worry. How about the air pollution which cause as a result of automobiles and what extent it
affect our lives? We are not much worried about it. Then why should I worry about a slight adverse
impact creates as my business to society?”
Commenting Again;
“ We attempt to look at ourselves in a mirror and critique the overall objective. We carefully
evaluate the competition, the threats and contingencies we might have to meet, market shifts we
might anticipate, and attempt to evaluate what we must make happen in order to achieve success of
the objectives. For example, we informed our customers through our media campaign/
advertisement that our product does not produce using Technology of genetically modification
before objections raised about Technology of genetically modification. Now people believe that we
are the only company who produce Soya without. In fact, we import Soya from India. Generally
Technology of genetically modification is used in producing Soya. We are not going to tell the truth
to the customer. In other words businesses is really a racket. I believe that consuming a small
percentage of Technology of genetically modification-processed product does not make any adverse
effect. Anyway, that has not scientifically proved yet. However, we were able to capitalize on this
rumour and treat too.”
“Our Soya nugget is comparatively smaller than our competitors. We have done it purposely. Many
consumers are quantity conscious. Therefore, it is better to give them smaller 20 pieces than 10 big
pieces of same weight. That attracts consumers. We have experienced it. Our consumers prefer it.
According to their response they like to buy our Soya product because it has many nuggets. In fact,
our packet also contain the same weight our competitors. We intended to introduce herbal related
products to the market as well. We want our customer to convince that we are social friendly
organization who cares about customers’ health. That image will help us to market out Soya product.
Thus, people will believe/trust us. We can promote our products easily. We are not worried about the
minority groups of consumers at all. Our products are for the people who are with us. From this
segment we can maximize our profit.”
“Many consumers, are in Sri Lanka do not have refrigerators, specially who are residing in remote
areas. We tried to introduce our “jelly”. But these remote area/rural area consumers are not aware
about the same and they are not affordable. Since there earning capacity is very low. (Many rural
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communities is under poverty level) We realized it and immediately stopped “Jelly” production.
Under this type of situations we don’t worry about small percentage of consumers.”
“We react immediately and very effectively to our competitors. Initially we bought much market
release of LCL products and re marketed them with our trademark. LCL thought that their products
are fast moving. Therefore, they increased production and supplied to the market with huge bulks
assuming that consumers demand is very high for LCL products. We stopped buying their products
from the market and released our own production to the market at the same time. Then what
happened are our product moved fast and the heap of LCL products remained unsold in the market.
We continued our normal targets and meanwhile LCL’s product was outdated and got “Gulla”
infections. Many consumers perceived that LCL’s products are lower in quality. That is how we
improve the market image regarding the quality.”
At present LCL Company has been sold to MBL. But we offered the Biggest bid for
the tender. They did not sell it to us since we were the biggest competitors. Now we
are planning to produce substitutes for MBL’s products also. In future we will buy
the MBL. We can create an environment to do so. We have recruited some of the
best of MBL’s to our company at present too.
135
“The company prices its products based on going prices in the market. On going price/s are
observed and the products are priced on that basis when setting prices of goods of MFPL. Therefore,
MFPL does not concern about any cost factors, profit factors or other pricing objectives for this
regard. CEO’s prime concern is to recover whatever the amount / cost that could be claimed. This is
due to the fact that he always tries to minimize the potential loss. CEO’s practice of going price as a
tool to penetrate market and expand product/ market through such a policy. At the same time to
avoid new entrants to the market.”
“ Sometimes CEO wants me to do some other duties beyond my area. But he request very politely to
do so. I am not hesitated to do whatever he asks. One day he wants me to do a spy job. He had a
suspicion on one of the delivery vans. He wanted me to follow and spy what they do. His suspicion
is correct. On the way the two subordinates who was on delivery work, handed over some
parcels/goods to a neighboring house. I was able to catch them as CEO suspected. Immediately they
were sacked. He summoned a meeting at all workers with board of directors and divulge what
happened and handed over the letters of terminating of work publicity.”
The former focuses on the fundamental conflicts that are both a product of, and
reflected in, industrial structures and economic relationships, e.g. surplus value,
class relationships, structures of control, whilst the latter emphasizes individual
consciousness, alienation through reification, and the way this is dominated by
ideological influence, not least through language. The difference between the two
approaches is akin to that between the functional and interpretive approaches. In
136
other words radical structuralism treats the social world as being composed of
external objects and relationships independent of any particular person, while
radical humanism emphasizes individual perceptions and interpretations.
CEO of the company intervene whatever the work he found important and leads
people to attend accordingly. He interacts employees to follow up distribution staff
irrespective of their job /profile and monitor distribution work, and report
malpractices. In addition, accounts executive has been instructed to attend to
develop a cost accounting system. It proves that whether there is no position to do
some activity, the CEO can create the position in a jiffy to achieve organizational
targets. A roster system where workers are assigned to different tasks and moving
them from and among different production activities was very common at the
MFPL. Return items are used as reproduction of the item but no records are
maintained. Everyone has to attend to urgent work that arises, irrespective of his
or her level or responsibility in the organization. No specific schedule to start work
and finish them. All workers should attend to the work at any time and work until
the job is done. Production process stops at any moment if the product is not
selling fast enough or not moving rapidly. Market research will not be carried out
in this regard. That will be totally up to CEO’s decision.
CEO believes that just by allowing hired managers to get the things done will not
be effective and efficient in a really competitive setting. Therefore, he won’t allow
his board of directors to depend on subordinate managers and he himself does not
depend on any other within the organization. He and other board of directors are
the shareowners of the entire business entity in which he bears the biggest
percentage (65%) of the share. Therefore, he says;
“Just allowing hired people to handle business is risky hence he himself wants to monitor the entire
work within organization. He wants his board of directors follow him and he does not want to
adhere into any rules and regulations to take actions if it really valid.”
He personally interferes into the works of others and override their decisions at
any time and he commented again:
137
“I look at this organization as my own. Therefore, I cannot leave the organization to be inefficient
and make unnecessary loss. Instead interfere the work of others and monitor in order to minimize
mismanagement.”
All radical theories are that the nature and organizing principle of a society, as a
whole is both reflected in and shaped by every aspect of that society and forms a
critique of a status – quo. Fundamental conflicts are the creations of ideological
influences. But this company follows an ad hoc arrangement in their daily
activities rather than considering for theories explained early.
5.7 Summary
This chapter aimed at analysing the data collected from MFPL. The qualitative
ethnographic rich accounts demonstrate that “One Man Show” has become a
reality in managing many facets of organizational and social life in this firm. The
explicitly in this regard is that CEO is the main actor in every control arrangement.
The social and organizational eligibility for these arrangements has centred around
the CEO from an economic and financial power: CEO has 65% shares and more
than 50% of staff consisting with family members and family friends of the CEO.
This study has addressed this issue with a view to understanding management and
accounting control practices within an uncertain context stemmed from the
influence of societal and individual culture. It attempts to understand how culture
shapes the values and meaning frames of organizational participants and provides
them with interpretive schemes for processing experiences. In turn, the study
illustrates how such interpretive schema affect accounting and control practices in
organizations. This is achieved by focusing on four generic issues: (1) How do
organizations initiate accounting and control systems? (2) How do such systems
evolve over time? (3) What roles do they play in an organizational crisis? And (4)
How does organizational action become disconnected from such systems?
138
1985) and tended to take more sociologically informed theories such as
interpretive and radical theories. In particular, I was impressed by radical theories
where culture plays a dominant role (See, Wickramasinghe and Hopper, 2000). In
line with these theoretical thoughts, the empirics have been built certain patterns
(Strauss, and Glaser, 1967): (1) CEO Driven Management Control System (2)
Frequent Information Flows and Centralized Decisions (3) Harmonization of the
work force (4) Pragmatism over Techniques, I discovered that social and
organizational context also has interesting implications for understanding the
limitations of traditional theories of control. This chapter has given rise to
elaborate substantial evidence for enlightening these patterns towards a
theoretical understanding: a kind of culture of people in a specific organizational
setting has been predominant creating different organizational outcomes. The next
chapter deals with these in details towards culminating in a conclusion.
139
CHAPTER SIX
General Summary and Conclusions
According to the story I have told, it has been always clear that the CEO manages
the business observing closely the environmental changes and influences to the
140
business and keeps the full authority on all the activities of the organization. This
is natural: according to interpretive approach, 'persons are distinguished from
things in that persons experience the world whereas things behave in the world’.
This replicates the validity of existence of subjective “nature of the social world”.
Organization chart, design by the CEO is keeping many positions vacant to
motivate people to go higher ranks. This is somewhat unorthodox but it can be
justifiable as CEO has 65% share capital and it represents the Financial Authority
of the CEO. Corporate Plan is also prepared based on that strength and he is proud
about his personal financial strength. He spreads his power throughout the
company based on this. And he believe that the investments rather than savings.
SBU’s are established and managed considering situational factors. CEO considers
subordinates are unimportant as they are not in a position to perform a proper
work and he thinks that he is the man who is capable to do anything perfect.
The second set of insights focuses on the Frequent Information Flows and
Centralized Decisions. This is done through Internal Financial Reporting, Mindful
Budgets in the “No Budget” Practice and Accounting as a Ceremonial Practice and
Representational Craft. According to the conventional wisdom, accounting
provides management with financial information for decision-making and control.
Budgetary control is depicted as crucial to delegated management within central
control. Budgets are seen as a rational and iterative process of forward planning,
coordination and targeting, evaluating and rewarding performance. Such
accounting was hardly found in this case study. Daily reports are regarding cash
and other transactions are prepared only for internal purposes and all the
documents signed by the MD or CEO. External reports are prepared nominally
only for tax purposes as a ceremonial practice. These reports are consisted with
incorrect figures. Interpretive work considers accounting as a "common language”.
However, this firm considers accounting as a “secret language”. As CEO’s advices,
there are some illegal and informal transactions are also taken place. There are no
formal written budgets. All the budgets are Mindful.
My third piece of empirics focused on the ‘harmonization of the work force’. One of
the salient features in this regard is that ‘keeping blue collars in the foreground
141
and employees are treated as working hoarse. According to the CEO, those who are
working hardly is considered as Blue Collar workers so he recruits only Blue
Colors. He argues that the kind of behavior of employees cannot be measured.
Moreover, trade union activities are prohibited at MFPL. Employees must work
until CEO asks them to stop working. No worker can idle his/her time. In addition,
the responsibilities and the duties of the work force was not limited to the given
task or the job itself, but carried out whatever the work to be done in order to run
the business smoothly.
6.2 Conclusions
142
Keeping this ontological position in the mind, I went on to take a post-positivistic
epistemology for exploring the social and organizational reality on management
and accounting controls. Several implications emerge from our experience with
qualitative methods beyond those discussed in the preceding chapters. To begin
with for exploring the emergent view that accounting is complicit in the social
construction of reality, one can find there are a number of interpretive approaches
that offer a strong potential for providing different insights into the
interrelationships among accounting, organizations and society. These approaches
help one pursue the phenomenon of interest, even though some compel awareness
that their application joins the researcher as researcher and as subject party to the
social construction and the alteration of a social reality. I think that one should
employ a number of differing perspectives, possibly in dialectic tension with one
another. I also believe that it is premature either to dismiss any perspectives or to
advance any single approach as clearly superior (compare Willmott, 1983; Chua,
1986a, b). Moreover, researchers engaged in doing as opposed to talking about
field work (Argyris, 1977); tend to be silent about their underlying assumptions. As
Willmott (1983) suggested, empiricists may only be informed by rather than be
contained within the various perspectives. Thus, I highly recommend doing
qualitative field research, regardless of its type, over merely talking about field
research.
In accordance with the preceding discussions, and in some contrast to the previous
accounting discourse (Tomkings & Groves, 1983; Willmott, 1983; Chua, 1986a,
1986b), I found it problematic to adopt a specific ontological stence a priory and
then conduct an empirical study. I believe that the ontological and epistemological
assumptions with which a researcher can function effectively emerge from, or at
least interact with the act of doing research. Here, though, the implication that
qualitative research involves fewer ontological commitments is by no means
certain. The philosophy of science literature usefully warns the researcher of the
differing and shifting forces that influence research so that field workers should
reflect on their work and come to terms with their emerging assumptions (see, for
examples, Campbell, 1970, 1984, 1986b).
143
Perhaps most importantly, we have found the researcher, the phenomena studied,
the context in which they are studied, and the research approach in use, to be
intimately intertwined- this in marked contrast with the more orthodox scientific
position that they are dictated. I believe that this condition should not be tacitly
ignored, nor overtly suppressed, nor be thought of as being solvable by some new
research design modification. It inheres in the conduct of research, and a
researcher must recognize his or her own potentially active role in the research
setting and continually self-reflect upon it (perhaps surprisingly, see Friedman,
1953, p. 40; Einstein & Infeld, 1983, p. 6). In part, we have tried to do this by
double–looping ourselves, and seeing ourselves as at least temporary members of
the social context being studied. It is important to make the warning here, that
constructive reflexivity is very delicately balance with crippling self – doubt.
144
dialectic tension among researchers has an excellent potential for forecasting
innovation.
Despite my attempts to study what subjects say, what they say they do, and what
they do, qualitative field research is predominantly driven by words. This focus on
words is, of course, in addition to a focus on numbers in accounting research. I
recommend that researchers concentrate their efforts on studying the role of
rhetoric in the research act, in the organizational contexts studied, and in
communicating the results of the research to subjects and through the review
process, to the academic community (compare, Manning, 1979; Whyte, 1986;
McCloskey, 1983).
145
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