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The Role of Management Accounting Practices in the
Transition from Linear to Circular Economy: A Delphi Study
Master Thesis Management Accounting & Control
Student
Luca Collard
S3444767
University of Groningen
Faculty of Economics and Business
MSc Management Accounting and Control
July 22, 2020
Supervisor
Dr. J.S. Gusc
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Acknowledgments
This thesis was the final step of completing my master’s degree in Business Administration at the University of Groningen. I have had an interest in sustainability for some time now. As such, when I needed to choose my thesis subject, circular economy caught my interest. During the writing process, I found great pleasure in reading the large quantity of literature, talking to respondents, and discussing the subject with friends and family. The writing of this thesis was a challenging and at the same time rewarding journey that taught me many valuable lessons.
I would like to take this opportunity to thank Joanna Gusc, my thesis supervisor, for her enthusiastic and inspiring feedback sessions during my thesis writing process. Without her guidance, motivation, time, knowledge, and suggestions I would not have been able to conduct the necessary research and develop this thesis. Thanks, are also due to Rob Wortelboer and Jacqueline Hofstede who have connected me to interesting participants for this research. Writing this thesis would not have been possible without all the respondents who made time in their busy schedules. Last, but by no means least, I would like to thank Jelani Maduro, Felice Zwietering, Myrthe Collard, and Cedrine Collard for all their contributions, suggestions, comments, and support. Even though the writing of this thesis drove me insane from time to time, they helped me back up again.
I am looking back at a wonderful period at the University of Groningen where l learned a lot and met wonderful people.
I hope you enjoy your reading. Luca Collard
3 Abstract
Based on performativity, this study investigates the role of management accounting in the transition from linear to circular economy. A circular economy is an economy in which resources do not have an ‘end-of-life’, but are kept in use. Moreover, no resources will be lost during product creation. Research shows that the transition towards circular economy is still in its infancy, especially on business level. Although firms are willing to change to circular business models, the actual adoption has nevertheless been slow. The aim of this paper is not only to contribute to the debate on factors hindering the transition but also to provide solutions which contribute to the implementation. Specifically, this paper summarizes the business-level barriers towards circular economy and explores the relationship between management accounting practices and those barriers. Drawing upon performativity theory, a model has been developed which visualises the found relationships during the transition process. The model has been analyses and assessed with the help of a three-round Delphi study among three types of experts. The results helped to clarify the practices of management accounting per step of implementation. This study provides insight for management accounting and their organizations in how their practices can be used to ease the transition towards circular innovations. Furthermore, the results are valuable insights for companies interested in implementing circular economy since they can use the developed model as a guideline.
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TABLE OF CONTENTS
1. INTRODUCTION ... 6
2. THEORETICAL BACKGROUD ... 9
2.1 MANAGEMENT ACCOUNTING ... 9
2.2 MANAGEMENT ACCOUNTING PRACTICES ... 9
2.3 CIRCULAR ECONOMY ON BUSINESS LEVEL ... 10
2.4 BARRIERS TO CIRCULAR ECONOMY IMPLEMENTATION ON BUSINESS LEVEL ... 12
2.4.1 Customer barriers ... 13
2.4.2 Institutional barriers ... 13
2.4.3 Managerial barriers ... 14
2.4.4 Organizational barriers ... 14
2.5 THE PERFORMATIVITY OF MA PRACTICES ... 15
3. THE CONCEPTUAL MODEL ... 15
3.1 THE 4I-FRAMEWORK ... 15
3.2 MODEL ON MA PRACTICES AND THE BARRIERS TO CBM TRANSITION ... 17
3.2.1 Phase 1: initiation ... 17 3.2.2 Phase 2: ideation ... 17 3.2.3 Phase 3: integration ... 18 3.2.4 Phase 4: implementation ... 18 4. METHODOLOGY ... 20 4.1 RESEARCH DESIGN ... 20 4.2 THE DELPHI METHOD ... 20
4.2.1 Identification of panel of experts ... 22
4.2.2 Delphi round one: questionnaires ... 23
4.2.3 Delphi round two interviews ... 24
4.2.4 Delphi round three final questionnaire ... 24
5. RESULTS ... 25 5.1 DELPHI ROUND 1 ... 25 5.1.1 Circular economy ... 25 5.1.2 Barriers ... 26 5.1.3 Management accounting... 28 5.2 DELPHI ROUND 2 ... 29 5.2.1 Circular economy ... 30 5.2.2 Barriers ... 31 5.2.3 Management accounting... 33 5.1 DELPHI ROUND 3 ... 35 5.1.1 Circular economy ... 36 5.1.2 Barriers ... 37 5.1.3 Management accounting... 39 5.2 THE FINAL MODEL ... 40
6. DISCUSSION & CONCLUSION ... 43
6.1 LIMITATIONS AND RECOMMENDATIONS ... 45
5 LIST OF FIGURES
Figure 1: The x-curve transition in pathways (Loorbach et al., 2017) ... 12
Figure 2: The 4I-framework - phases of the BMI process and their key challenges ... 16
Figure 3: 4I framework extended - conceptual model ... 19
Figure 4: Flowchart representing the Delphi study as applied in this research ... 21
Figure 5: Inverted triangle visualizing the barrier categories from most to least important ... 26
Figure 6: Influence of MA per barrier ... 29
Figure 7: Data progression Delphi round 1 to Delphi round 2 ... 30
Figure 8: Data progression Delphi round 2 to Delphi round 3 ... 36
Figure 9: Pie-chart showing the ways to communicate CE ... 39
Figure 10: Model on MA practices and the steps of implementing circular changes... 42
LIST OF TABLES Table 1: Framework of the CE barriers on business level ... 13
Table 2: Summary of the panel of experts ... 23
Table 3 MA tools and techniques mentioned by the panel of experts ... 28
Table 4: Measurement techniques for CE ... 34
LISTOFABBREVIATIONS
BMI Business Model Innovation
CBM Circular Business Model
CE Circular Economy
CIMA Charted Institute of Management Accountants
IMA Institute of Management Accountants
KPI Key Performance Indicator
LBM Linear Business Model
LCA Life Cycle Analysis
LE Linear Economy
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1. INTRODUCTION
Humanity is regarded as the demanding force on planet earth (Brugh aan de, 2019). The United Nations (2017) predicts that the global population will grow to almost 10 billion citizens by 2050. Consequently, the demand for resources and the amount of environmental damage are growing simultaneously (Nasrollahi, Hashemi, Bameri, & Mohamad Taghvaee, 2018). This causes environmental problems such as increased emissions, exhaustion, and climate change, jeopardizing life on planet earth (Geissdoerfer, Savaget, Bocken, & Hultink, 2017; Kalmykova, Sadagopan, & Rosado, 2018). To address these environmental problems, scholars have conducted considerable research on sustainability concepts (Kirchherr, Reike, & Hekkert, 2017). One of the sustainability concepts that has gained increasing interest among researchers since the last decade is Circular Economy (hereafter, CE) (Ghisellini, Cialani, & Ulgiati, 2016). The Ellen Macarthur Foundation (2013, p.07) defines CE as ‘an industrial system that is restorative and regenerative by intention and design’. CE provides an alternative to the current ‘take-make-dispose’ model, which is known as the Linear Economy (Henceforth, LE). The goal of CE is creating and enhancing sustainable product cycles that focus on reducing, reusing, and recycling. CE is frequently regarded as the concept that business can use to operationalize the much-discussed sustainable development and to minimize and manage waste as efficient and effective as possible (Agyemang et al., 2019; Kirchherr et al., 2017). However, the actual implementation of CE on business level still seems to be in its infancy (Kirchherr et al., 2018). Franklin-Johnson, Figge, and Canning (2016) even doubt if firms and their managers are aware of their vital role in realizing CE in industries.
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have been analysed and divided into the following categories: customer, institutional, managerial, and organizational. First, the customer barriers keep firms from implementing circular business models, because a lack of insight into customer interest and demand creates uncertainty for firm performance. Besides, creating and improving customer awareness is not a straightforward process and requires organizational capabilities and enabling conditions (Ghisellini et al., 2016). Second, institutional barriers are caused by external forces surrounding the organization (Kalmykova et al., 2018). These barriers are most of the time not directly controllable by corporations but do influence their daily activities. Third, managerial barriers divided into employee and supplier barriers. A lack of clarity for employees and agreements with suppliers hinder the implementation of circular business models (CBM) (Govindan & Hasanagic, 2018; Tura et al., 2019). Finally, technological, and financial barriers constitute the subcategories of the last category: organizational barriers. Examples of technological and financial barriers are lacking technical skills and limited financial resources.
Many organizations are interested in implementing CE practices (Agyemang et al., 2019), but struggle with the implementation itself. They need to find a way to overcome the aforementioned barriers to move forward. More research is necessary on how businesses can overcome those barriers. Therefore, a deeper understanding and review of the role that management accounting (MA) plays in this transition is necessary. Overcoming barriers starts with making informed decisions and that is where I believe we need the skills of MA. The primary role of MA is assisting management in decision making, planning, organizing, and controlling with the help of both financial and non-financial practices (Jarvenpaa, 2007). As such, MA could be a valuable contributor to the transition towards CBM. However, the role of MA in changing from LE to CE is a research area that up to now remains unexplored. This paper aims to contribute to closing that particular literature gap. Hence, the research question addressed in this paper is:
How can MA enable firm’s transition from linear to circular business models?
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can remove (part of) the barriers deterring the change. Therefore, the research question of this study is divided into the following sub-questions:
1. What are the basic roles of MA? 2. What are MA practices?
3. What does CE on business level mean?
4. What are the barriers towards CE on business level?
5. What are the potential remedies of MA in overcoming these barriers?
My motivation for this study is that I believe that changing to an economy in which ‘we-values’ and ‘sharing’ are perceived as the most important starts at the individual level. Personal convictions and leadership can make or break the change to CE. I, as a future potential employee in the field of MA, want to learn how I can influence companies to move forward. Therefore, with this research, I hope to shed some light on the share that management accountants have in reaching towards CE.
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2. THEORETICAL BACKGROUD
This chapter first defines the developments in the role that MA occupies and their practices and tools. Thereafter, the concept of CE on business level is explained and the barriers hindering or shutting down the transition towards CBM are elaborated on.
2.1 Management accounting
MA is defined by The Institute of Management Accountants (IMA) as; ‘a profession that involves partnering in management decision-making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy’ (White & Clinton, 2015 p.5). In other words, MA consists of a set of practices that assist management in decision making, planning, organizing, and controlling (Otley, 2001). Many researchers have paid attention to the changing role of management accountants over the last two decades (Jarvenpaa, 2007). Most agree that a general shift can be observed from a traditional bean counter role to a more modern business-partner role (Granlund & Lukka, 1997; Horton & Wanderley, 2018; Jarvenpaa, 2007). The role of a management accountant as bean counter involves mainly bookkeeping, calculating figures, and composing reports without knowing the final purpose of those reports (Granlund & Lukka, 1997; Janin, 2017). This role is described as narrow and focused on one certain part of organizational operations. Researchers also refer to a bean counter as a ‘watchdog’ or ‘storekeeper’ (Jarvenpaa, 2007). By way of contrast, the role as business partner is much more extensive and primarily involves participating in strategic and operational decision-making, guiding operational managers, and involvement in creating and maintaining the organizational systems (Baldvinsdottir, Burns, Nørreklit, & Scapens, 2009; Granlund & Lukka, 1997; Horton & Wanderley, 2018). Moreover, a business partner is labelled as someone who is particularly interested in adding more value to their company’s management (Jarvenpaa, 2007).
2.2 Management accounting practices
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to act, and to develop new plans. Accounting practices carry knowledge through space and time and, thereby, give managers in an organization a shared language to make sense of organizational reality and to cope with uncertainties in the organizational field (Giovannoni, Maraghini, & Riccaboni, 2011). Moreover, with the help of their practices, MA can change the perceptions, language, and ideas of others to trigger important discussions, and influence how priorities, concerns, and possibilities for action are expressed (Hopwood, 1989). On top of that, over time these practices may become institutionalized, which means that they convert into widely accepted and taken for granted forms of control within an organization (Burns, 2000). As such, accounting practices are viewed as ways to coordinate and integrate organizational behaviour (Giovannoni, Maraghini, & Riccaboni, 2011). Moreover, these practices help to support the organization to establish competitive advantages in comparison with their direct competitors (Abdel-Kader & Luther, 2008).
To optimally perform these practices, MA adopts all kinds of accounting tools. These tools refer to various types of systems, techniques, and analytical approaches improving the management discipline (Armitage, Webb, & Glynn, 2016). When applied correctly, they enhance the ability of management to better implement their practices to meet their business objectives in line with the strategy of the company (Sulaiman, Nazli Nik Ahmad, & Alwi, 2004). In other words, they predict and explain accounting practices (Malmi & Granlund, 2009). MA can choose which tool to apply from over a hundred tools, and the tools applied are often used holistically. However, despite these many choices, most management accountants adopt at least one tool applicable to each of the following four categories: (1) decision and supporting tools that assist them in decision making and that support them in pursuing the company’s strategy. (2) Performance measurement and evaluation tools which help management to calculate, manage, and reward performance. (3) Planning and budgeting tools to plan and control organizational activities. (4) Costing tools which have everything to do with the costs of a product or service (Garg, Ghosh, Hudick, & Nowacki, 2003; Ross & Kovachev, 2009).
2.3 Circular economy on business level
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defined as ‘an industrial economy that is restorative and regenerative by intention and design’ (Ellen MacArthur Foundation, 2013, p.07). In other words, an economy in which resources do not have an ‘end-of-life’ but are reduced, reused, or recycled (Kirchherr et al., 2017). Geng & Doberstein (2008) argued that CE implementation can only be successful when it occurs at three different levels. First, the macro-level which highlights the entire industry and society. Second, the meso-level which consists of inter-firm collaboration through industrial cooperation. Third, the micro-level (business micro-level) which is composed of organizations or/and individual customers. This research focuses on the latter as it investigates what role an individual management accountant plays in the transition from LBM to CBM.
Although CE is regarded as the better alternative to LE, the product cycle of the contemporary business systems still seems to be mainly linear. Companies that follow a linear product cycle create, use, and then dispose products without considering the environmental consequences of this process (Jawahir & Bradley, 2016; Kalmykova et al., 2018). As such, the business models of these companies are judged as unsustainable because they mainly focus on the efficient allocation of resources and ignore the limited and exhaustive nature of these resources (Ghisellini et al., 2016). In contrast, organizations that operate circular focus on reducing their ecological footprint by recovering their used materials and assets (Laubscher & Marinelli, 2014). They reduce the environmental impact of their products and services through the implementation of CBM. A circular model allows organizations, with the help of their stakeholders, to reconsider and/or change their value-creating processes and to limit their negative impact. The emphasis should be placed on innovations that provide value for the efficient use of resources. This will extend the lifespan of these resources and therefore enable economic, environmental, and social benefits (Frishammar & Parida, 2019). Moreover, these CBM could lead to an increase in profits and price reductions for customers (Werning & Spinler, 2020). It is striking that such promising models have not been implemented everywhere by everyone.
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learning, costs reductions, and diffusion (Haxeltine et al., 2017). This model helps to visualize the current position of CE in the transition process. Ghisellini et al. 2016 and Kirrcherr et al. 2018, state that the actual transition of CE on business level has just started and still seems to be in the experimentation/optimization phase. Several studies have investigated the reasons for the limited progress in the actual transition from LE to CE. What became clear from those papers is that an x-number of barriers hinders the implementation process. These barriers are summarized and discussed next within this chapter.
Figure 1: The x-curve transition in pathways (Loorbach et al., 2017)
2.4 Barriers to circular economy implementation on business level
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Table 1: Framework of the CE barriers on business level
2.4.1 Customer barriers
Customer participation is an important building block to successfully implement circular economy (Govindan & Hasanagic, 2018). Customer awareness is necessary to receive valuable feedback on the adopted strategies and policies (Ghisellini et al., 2016). Besides, more awareness will lead to an increase of interest in circular products which will, at the same time, increase the market share for circularity (Govindan & Hasanagic, 2018). However, the lack of customer interest hinders the implementation of CE by businesses themselves. The delivered product should be valuable for the customer throughout their lifetime. Products with a longer lifetime horizon could become old-fashioned before they are unusable.
2.4.2 Institutional barriers
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policies that are obligatory and clarify the uncertainties about legislation to create valuable feedback for organizations (Ghisellini et al., 2016).
2.4.3 Managerial barriers
The managerial category consists of two subcategories: employee and supplier. First, the involvement of employees to implement changes in organizations is of great importance: without their participation, innovations cannot be implemented (Govindan & Hasanagic, 2018; Rizos et al., 2016). Research showed that many individuals have no clear understanding of CE (Agyemang et al., 2019). Employees need to get familiar with the concept before they can become a valuable promoter of CE. The lack of knowledge in the skills and capabilities of employees hinders implementation (Tura et al., 2019). Second, supplier barriers also form a hurdle towards the transition. The adoptions of sustainable initiatives that require large supplier involvement are hardly successful (Rizos et al., 2016). For example, it can be difficult for organizations to stimulate their suppliers to support their circular models when this leads to higher transaction costs, higher rates, or potential costs deteriorating their competitiveness (Ellen Macarthur Foundation, 2013). 2.4.4 Organizational barriers
When looking from the organizational perspective two outstanding subcategories of barriers are frequently mentioned. First, the technological perspective of CE is not thought out well enough (Jawahir & Bradley, 2016). Extending the lifetime of products requires new and/or improved technologies (Jawahir & Bradley, 2016). However, the developments of these technological aspects are frequently left undefined due to a great lack of technological knowledge, educated personnel, and the existence of technological solutions (de Jesus & Mendonça, 2018; Rizos et al., 2016). Second, financial barriers, such as high initial investment costs (Mura, Longo, & Zanni, 2020), limited funding (Rizos et al., 2016), and unclear market demands and financial benefits, also obstruct the CE implementation. Research by Araujo Galvão et al., (2018) showed that financial barriers are most frequently identified as major challenges for CE implementation. Only newly developed circular business models that are financially attractive will be able to surpass the old LBM (Rizos et al., 2016).
15 2.5 The performativity of MA practices
Research conducted in the last two decades claims that the calculative practices of MA can be used as an engine to transform the environment in which they operate (Mackenzie, 2006; Revellino & Mouritsen, 2015). This means that accounting is not regarded as purely technical practice (bean counter), but as a practice which can influence the behaviour of individuals by linking responsibility and calculations (business partner) (Miller, 2001). Performativity has frequently been used as a theoretical lens in the field of sociology of finance (Mackenzie, 2006). Mackenzie (2006) was the first to use performativity to explain the metaphor ‘calculative practices as an engine’ in the field of accounting. He described that people are lured into action with the help of available information retrieved from financial and non-financial models. These models should, therefore, be understood as tools that can influence the world, because they cause people to behave in a certain way (Revellino & Mouritsen, 2015). Describing accounting as a calculative practice through the performative lens thus means that the accounting practices can be used to make individuals act and react. Moreover, these individuals are not only directed but also learn how to act on oneself and the action of others (Vosselman, 2014). As such, accounting can create powerful individuals who use the provided accounting scripts to organise their lives. Accounting can simplify complex processes by translating this process into financial figures, which at the same time allow for the possibility to compare (Miller, 2001). Especially with innovations, the calculative practices of accounting can function as a building block to simplify the composition of the innovation (Mackenzie, 2006). Most importantly, in their research Revellino and Mouritsen (2015) found that MA not only creates and applies calculations for innovations but essentially also links the activities of innovations to larger business concerns. They can use financial- and non-financial information in combination with knowledge and insights to provide useful directives.
Based on the literature above, I propose a model in which the practices of MA can remove (part of) the barriers hindering the implementation of CBM on business level. This model is further explained and elaborated on in the next chapter.
3. The conceptual model
3.1 The 4I-framework16
case studies, which demonstrates the four phases of business model innovation (BMI), called the 4I-framework (figure 2). The four phases are initiation, ideation, integration, and implementation. First, in the initiation phase organizations focus on understanding the needs of the players in their ecosystem and monitor these players. Second, the ideation phase focuses on transformation opportunities to generate new potential business models. Third, in the integration phase, the new business models are developed. Fourth, in the final phase, the organization implements its newly developed business model. Iteration exists between the aforementioned phases, which means that companies go back-and-forth through the phases when necessary. The challenges related to these four phases are also highlighted in the framework. This framework is a guideline for managers and structures the innovation process of implementing new business models. When using this framework, management will be able to gather the right people, knowledge, and tools to create an understanding of the challenges identified.
The 4I-framework is used as a starting point for the development of the model in this study. First, the four phases are adjusted to the innovation of a CBM. Second, the barriers towards CE, identified in chapter 2.4, are linked to the four phases of the framework. Third, the accounting practices of MA and their tools/techniques are related to the barriers. These relationships are further explained below.
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3.2 Model on MA practices and the barriers to CBM transition 3.2.1 Phase 1: initiation
The initiation phase is the starting phase in which the company should create an understanding and monitor the environment of the firm (Frankenberger et al., 2013). The environment of the firm consists of all players who directly influence operations such as, customers, suppliers, and competitors. One category of barriers to CE that is directly related to the initiation phase is the customer category. As stated before, a lack of customer awareness is a major barrier for circular transition (Ghisellini et al., 2016; Govindan & Hasanagic, 2018; Kirchherr et al., 2018). Customer awareness is necessary to create an understanding of the corresponding customer needs. An increase in customer awareness can be achieved with the help of (online) advertising, branding, and customer engagement (Harjoto & Laksmana, 2018; Loureiro & Lopes, 2019). Although this seems to be the responsibility of the marketing department, accounting also plays a major role within this process. MA could extend their calculative abilities to the marketing department by creating an information system with for example calculations on customer profiles, behaviour, and consumption (Revellino & Mouritsen, 2015). This information can be used to create marketing plans. As such, the calculative practices of MA could be extended to other departments and give those departments the ability to calculate.
3.2.2 Phase 2: ideation
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or data available to implement these technologies (Tura et al., 2019). These barriers cannot be solved by MA directly, but they can ensure that steps are being taken against these barriers. For example, they can go looking for the right people within their network who do have the necessary technological know-how. The information gathered can be used to produce knowledge with the help of the calculative practices of MA. These practices can again be used to nudge people within the company to become calculative and to add to the newly developed technologies. In this way, the calculative practices can enable relationships between accounting and technology. This ensures that, based on these calculations, new staff or existing staff can operate the new technology with newly achieved knowledge (Rizos et al., 2016). Second, institutional barriers should also be solved for the successful implementation of CBM. Clear and stable regulatory frameworks are a focal point for companies’ management to move away from LBM (Ellen Macarthur Foundation, 2013). This task, creating those frameworks, should be performed by the government. However, MA can ensure that the existing laws and regulations are formulated and explained to management.
3.2.3 Phase 3: integration
In the integration phase, the company combines the ideas elaborated on in phase 2 into a circular business model and prepares for implementation. Two important aspects that need to be thought out in this phase are the collaboration with suppliers and how to obtain the necessary resources. Involving suppliers forms the first barrier to circularity in the ideation phase. MA information is often used to support inter-firm collaboration (Caglio & Ditillo, 2012). New products or resources might be necessary to create a circular product or service or to produce circularly (Svensson & Funck, 2019). It might happen that suppliers cannot offer those resources and should outsource or use expensive processes to provide a product or service. In this situation, MA can provide their calculative practices, based on non-financial and financial information retrieved from for example costing tools, to their suppliers to find solutions for these problems (Cooper & Slagmulder, 2004). The calculative practices of MA can help to simplify the difficulties in the production process and, on top of that, weigh up alternatives to find the best solution (Mackenzie, 2006). Considering these alternatives, MA can investigate the necessary resources for successfully implementing the CBM and identify which alternative will suit most.
3.2.4 Phase 4: implementation
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circular concept and are therefore more reluctant towards change. The calculative practices of MA can act as an engine in persuading employees to change in line with the new CBM (Miller, 2001; Revellino & Mouritsen, 2015; Vosselman, 2014). Employees will find it harder to resist new implementations when their performance is measured and evaluated based on these implementations. As such, MA practices in combination with performance evaluation and assessment tools, such as the balanced scorecard, will lure employees into change. Moreover, these calculations indirectly also create an understanding of circularity because they provide information on how to perform. This provides a starting point for employees to act in line with the changes towards circularity.
Figure 3: 4I framework extended - conceptual model
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only represents the barriers found during the phases of transition in the business model change process and the solution to these barriers driven by the calculative practices of MA. Moreover, when the CBM is successfully implemented and the most important bottlenecks are solved it will move the firm towards stabilization. To validate the model, it will be presented to a panel of experts adopting a Delphi study. This panel will be asked to give their opinion about the definitions and relationships which will hopefully lead to new insights, potential limitations, and this together gives the possibility to improve the model. The Delphi study is further explained in the following chapter.
4. METHODOLOGY
4.1 Research designThis research aims to enrich the literature on circular economy by providing a model on the beneficial contribution of MA in the transition from LBM to CBM. This research is a qualitative study since qualitative studies are considered to be suitable for exploratory research, in which a phenomenon is not completely thought out in the literature (Patton, 2002). Although CE, is a relatively well-understood concept, CE research on business level has been scarce (Kirchherr et al., 2018). Moreover, the role of MA in implementing CE has not been researched before. Qualitative research knows several methodologies, such as interviews, focus groups, participant observations, and data analysis (Verleye, 2019). This research problem requires a research methodology typically intended to provide judgments or opinions on a specific topic instead of producing a quantifiable result. Specifically, it needs the opinion of practitioners and experts in the field of MA and CE. Because of this, a Delphi study is applied. The Delphi method is used to verify the found relationships between MA practices, their tools, and the barriers towards CBM implementation. This method is considered as an appropriate research design to describe, discover, and gain insight into a specific research area (Hasson, Keeney, & McKenna, 2000). Moreover, Delphi studies have been used by researchers in sustainability research before. For example, Manoliadis, Tsolas, and Nakou (2006) used this methodology to identify potential drivers of sustainable change in the construction industry. Hence, this methodology seems suitable for this research. The Delphi method is described in more detail below.
4.2 The Delphi Method
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health services, but is now also increasingly applied in many other research areas (Hasson et al., 2000). There is not one blueprint for conducting a Delphi study. The techniques and tools applied in a Delphi study often differ because researchers adopt the study in such a way that it will lead to the most reliable answer to their research question(s) (Aengenheyster et al., 2017). Generally, Delphi studies share four main characteristics; first, a group of experts is composed. Second, throughout the execution of the study, the experts remain unknown to each other. Third, the data gathered is analysed, summarized, and utilized as controlled feedback. Fourth, group communication is used to collect feedback and to achieve consensus among the experts (Worrell, Di Gangi, & Bush, 2013). Later variants of the Delphi technique do not necessarily search for consensus among the group of experts (characteristic 3), but use the technique to structure group communication (Hasson et al., 2000; Landeta, 2006). The anonymity of the panel of experts is an important advantage of the Delphi technique because it prohibits the opinion of a single expert to dominate the process. Moreover, the iteration process ensures that the panel of experts considers their answers more carefully leading to more rational results. In this paper, the Delphi study was adapted in such a way that it fitted the study circumstances. Specifically, I organized three Delphi rounds; the first and third rounds consisted of online questionnaires and the second round of interviews. The conceptual model has been improved after the third round. The Delphi method as applied in this research is reflected schematically in figure 4. One can see clearly in this figure how the process of feedback and re-using information works, and how this gradually works towards the final model. The steps are explained more in detail below.
22 4.2.1 Identification of panel of experts
The right panel of experts is an important aspect of any Delphi study (Worrell et al., 2013). The selected expert should possess a certain level of knowledge that contributes to the study. In this study knowledge about MA and/or CE was necessary to gather valuable feedback to improve the model. Therefore, for someone to be considered an expert he/she had to meet at least one of the following criteria to participate in the present Delphi study:
(1) Experts should study in the field of management accounting or controlling.
(2) Experts should have done a study in the field of management accounting or controlling. (3) Experts should have experience with implementing CE.
Depending on which criterium the experts met, they were classified in the following subgroups which together formed the panel of experts:
(1) Students (2) Professionals (3) Practitioners
To find experts that met the first criterium I invited students from my master thesis group. These experts were all master students in the field of MA and control or controlling and accounting. They were classified as student in the panel of experts. A total of six students have participated in this research. The student group was created because they are all future potential employees in the field of MA or controlling and it was therefore interesting to see how much knowledge they already had. Besides, the iteration process of the Delphi methodology ensured that the students acquired new knowledge or changed opinions. The network of EY Groningen1 was used to find experts that met
the second criterium. One of the associate partners in the field of Climate Change & Sustainability Services selected several participants valuable for this research out of which five eventually participated. These experts were part of the professionals subgroup in the panel of experts. This subgroup was created because these professionals are experienced in advising companies about risks and opportunities related to climate change and sustainability. Moreover, because of their accountancy background, they could share their experiences about the current adoption of CE and the associated role of MA. YNOVA Innovation Platform (YNOVA)2 was used to find participants
satisfying the third criterium. YNOVA is a platform specialized in LEAN, Smart & Circular Entrepreneurship, and the associated leadership. Therefore, YNOVA has a large network consisting
1https://www.ey.com/nl_nl
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of entrepreneurs and partners experienced with implementing CE. Together with the director of YNOVA, I prepared an invitation for potential experts which was sent via email. In the end, about ten contacts responded out of which seven eventually participated in this research. These seven experts were part of the practitioners subgroup in the panel of experts. The practitioners subgroup has been developed because these experts have all experience with implementing CE and thus faced barriers and drivers throughout that process. As such, they could provide detailed feedback about the implementation process.
The panel consisted of a total of 20 experts (table 2). Although it is often stated that minor sample sizes might affect the robustness of a study, most Delphi studies utilize an average of 20 experts (Hasson et al., 2000; Patton, 2002). The reliability of the study will not increase when extra participants are added if the current amount of experts already demonstrates a deep understanding of the subject (Worrell et al., 2013). Furthermore, the issue of availability also justifies the choice for selecting these experts as it has been hard to find experts available and motivated to participate in this particular research.
Table 2: Summary of the panel of experts
4.2.2 Delphi round one: questionnaires
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towards the found barriers, without restrictions. This round helped to create an understanding of the current knowledge on CE and their opinion about the role of MA on business level. Moreover, it helped to identify and gather more information on the found barriers in relationship with MA practices. All the responses were grouped, analysed, and summarized and, thereafter, used as input for the interviews in the second Delphi round. More specifically, overlaps in information were eliminated, definitions were combined, and the abundance in information was organized to enable evaluation. This ensured that the experts interviewed in the second Delphi round could validate the grouped answers of the first Delphi round.
4.2.3 Delphi round two interviews
Data in the second Delphi round was collected by conducting six semi-structured interviews. This technique was chosen to gain a deeper understanding of the relationship between the calculative practices of MA and the transition towards CBM. Besides, there was the opportunity to collect additional information that might have been missed otherwise. Within this second Delphi round, interviewees were selected from the panel of experts based on the criteria that they were labelled as practitioners. To make the interviews run smoothly, to create structure, and to avoid an information overflow negatively influencing the efficiency of the interviews, a protocol was created which can found in appendix 2. The protocol has been presented with two peer students in the thesis workgroup. The feedback about the structure, content, and difficulty of the interview protocol was resolved before the actual interviews were held.
6 interviews were carried out with the 7 practitioners from the panel of experts. All interviews were conducted in June 2020 via Microsoft Teams or telephone and lasted approximately one hour. For confidentiality, the names and the companies of the interviewees remain anonymous. As soon as the interviews were conducted, they were transcribed and made anonymous. The transcripts were analysed from which the final questionnaire of Delphi round 3 was developed.
4.2.4 Delphi round three final questionnaire
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5. RESULTS
As discussed earlier, the Delphi study had the aim of validating the found relationships visualized in the model on MA practices and CE (figure3). This chapter presents the analyses of the data that has been gathered with the help of the three-round Delphi study. To structure this research three themes are used in each round of data collection: circular economy, barriers, and management accounting. The first theme, circular economy, focuses on CE in general. Second, barriers, aimed at examining whether the found barriers constitute an obstacle and, if so, in what way. The final theme discusses the current role of MA and how their practices can play a role in implementing CE. These three themes are also used as subheadings to structure the evaluation of the data gathered in each Delphi round.
5.1 Delphi round 1
In the first Delphi round, questions were answered by the panel of experts using a questionnaire. This round helped to gather data about the current understanding of CE, the barriers hindering CE implementation, and the role of MA in the transition process.
5.1.1 Circular economy
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All three quotes address a particularly important point being that self-consciousness among the business students is present, but the actual transition on the individual level is left to be desired. The professionals answer this statement in most cases from an organizational perspective. They describe what kind of applications can be implemented, that business models should be changed and that CE is a great opportunity that does not lead to turnover yet. The answers of the subgroup practitioners give the impression that they are most involved in the actual transition. They describe CE as the future state of the economy and that they are trying to create as many closed resource chains as possible.
5.1.2 Barriers
During the literature research, the most important categories of barriers hindering CE implementation on business level were identified as customer, financial, institutional, managerial, and technological. During this round, the panel of experts ranked the categories from most to least important and defined them in their own words supported with examples. This is visualized in figure 4.
Figure 5: Inverted triangle visualizing the barrier categories from most to least important
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The other group described institutional barriers as the habits of people related to buying, using, and abandoning products. Deeply rooted habits make implementing changes more difficult because people attach value to those habits:
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Fifth, when looking at the managerial barriers, a division in two groups emerged. First, panellists argued that management should be supported and motivated by the organization to implement circular changes. Second, respondents argued that management itself forms a barrier, because it does not possess the necessary knowledge or because simply does not want to change:
5.1.3 Management accounting
The panel of experts was asked to define the role of MA in organizations. They all were aware that MA gathers, calculates, analyses, controls, and structures financial and non-financial data for advice, planning, and control purposes. Furthermore, they stated that MA helps the management of the organization in making informed decisions:
When looking at the used tools and techniques, many different answers were given. Table 3 lists the tools/techniques most frequently mentioned. Some respondents claimed that the tools and techniques used highly depend on the project that is discussed. As such, they believed that MA uses many different tools and techniques to gain the necessary insights applicable to the project.
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The panel of experts was also asked to describe the role MA could play in the transition from linear to CE. All respondents agreed that MA can play a role, but the definition of what that role entails differed between the experts. Most stated that MA can provide the necessary insight by using both financial and non-financial information. Some believed that they may enable circular implementations by providing measurement techniques, convincing management, and overcoming the barriers. However, not everyone agreed to the latter. The panel of experts was asked to rate the influence of MA per category of barriers. They could assign a score from zero to a hundred in which zero meant no influence and a hundred a lot of influence. The results suggest that financial barriers can be most affected by MA, followed by managerial barriers, institutional barriers, technological barriers, and lastly customer barriers (figure 6). As with the question about the tools and techniques, many different answers were given on the tools and techniques that could help in overcoming the barriers.
Figure 6: Influence of MA per barrier
5.2 Delphi round 2
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Figure 7: Data progression Delphi round 1 to Delphi round 2
5.2.1 Circular economy
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The respondents talked about closing chains, resource circles, integrated economy, the six values3,
and the 10R model4 when they were asked about CE. However, what yet again becomes clear from
the interviews is that not one definition of CE exists. Organizations, individuals, and institutions all use their own views and descriptions. The experts agreed that this is exactly what makes it difficult to indicate how circular an organization is or to compare their degree of circularity to other organizations. Now, companies label themselves as circular based on their own definitions which can give a distorted picture of reality. The experts believe that to counter this, companies should clearly state how they define CE in for example their strategy, mission, vision, philosophy, or policies. This ensures that companies are transparent about their circular practices which will create trust and confidence in the concept. The experts were also asked whether they believe the economy will eventually become 100% circular. The opinions about this subject were divided. Some suggested that 100% should be the goal and can be achieved only when every individual participates, and changes are implemented step-by-step. On the other hand, some did not believe that a 100% CE is possible. They argued that today it is simply not feasible, but they do believe that nearly achieving 100% will almost have the same influence. In the interviews, the panellists were asked to explain whether they believed the difference between the professional definition and personal attitudes of the student subgroup comes from. They believed that the mindset of most individuals is still focused on LE and that this will gradually change over time.
5.2.2 Barriers
The findings of the barriers, taken from the data collected in the first Delphi round, have been presented to the experts during the interviews. When looking at the institutional barrier, it can be noted that most respondents did not consider the laws and regulations as a barrier. Some mentioned that because CE is not uniformly defined it will also be difficult to create applicable laws and regulations. Moreover, they also believed that it very much depends on which industry you are
3World Economic Forum. (2019). The Global Risks Report. 1–114. http://wef.ch/risks2019
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looking at. For example, the food industry must follow many more rules compared to the manufacturing industry. However, most respondents were able to implement circular solutions without facing institutional barriers or they were able to overcome those barriers along the way. Some even saw opportunities in unclear or unavailable laws and regulations:
On the other hand, some did state that when regulations are difficult to understand companies can be reluctant to implement changes. Besides, they mentioned that when the government would establish fixed targets, they could cause organizations to not take any steps further when those targets are achieved. To conclude, laws and regulations may provide direction, but should not stunt innovation. Do people need to adjust their habits before CE can successfully be implemented? Yes, but some respondents believed that habits will gradually change over time. Creating awareness, experiencing circular products or services, and education were all factors mentioned that will positively influence that change. As such, this does not have to be a barrier to implementing CE either. Similar opinions emerged in the field of the company’s action concerning CE-uninterested suppliers. The panel believed that eventually, all companies will implement circular changes because they otherwise might lose customers, market share, or stakeholders:
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circular changes. More importantly, more than once panellists mentioned that collaboration can also partially solve financial barriers. By working together, companies can create a greater financial support base and will also have a greater impact on the market. As such, collaboration is a potential driver. Organizations should look for solutions together, implement those solutions together, and achieve behavioural change together. This might enable parties to collaborate with parties they did not collaborate with before. Furthermore, the experts also mentioned collaboration as a driver, because they believe that together you can have a greater impact, come up with better solutions, and stimulate each other. However, two conditions for organizations working together are that they should be transparent and share the same vision/goals concerning CE.
Regarding technological solutions for circular economy, most experts suggested that companies must look at their business processes to observe where technological changes can or should be implemented. More importantly, almost all experts agreed that changes should not be implemented all at once. Organizations should not strive to become completely circular from one day to another. The panel of experts believed that a step-by-step process could form an important driver for implementing CE. This ensures that not all eggs are put in one basket and changes can be implemented when necessary:
5.2.3 Management accounting
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Table 4: Measurement techniques for CE
Two panellists did try to express the circularity of their company although no specific calculations could prove this:
As such, most experts find it important that more standards and measurements will be developed which ensures that companies can be compared, risks can be assessed more easily, and the internal communication goes more easily. MA can ensure that both elements will be created, but this must be done in collaboration with all other managers. Moreover, some believed that more attention should be paid to CE in annual reports.
Second, almost every expert argues that it is important for companies to clearly define their strategy and/or goals concerning CE:
Without clearly expressing what CE means and how it is measured, stakeholders will not be able to judge whether a company is circular, and if they keep their promises. The experts were afraid that this could lead to companies being accused of green washing5. This means that stakeholder’s
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question whether organizations are as circular as they claim. Fourth, convincing other parties to implement circular changes is not necessarily easier with calculations. Only if you can clearly show them where and how more profit can be made. However, most practitioners did comment that the level of circularity of companies depends on that of their suppliers:
Finally, most experts believed that CE in the Netherlands is still in its infancy. The panel agreed that more companies should collaborate and experiment to realize changes on a larger scale. Striking is that the panel indicated that implementing a CBM will take years and step-by-step implementation is necessary to avoid financial exhaustion. Besides, this allows for continuous analysis of the outcomes which ensures that changes can be implemented more easily when necessary.
5.1 Delphi round 3
During the final Delphi round, round 3, final questionnaires were sent to the panel of experts. The data of Delphi round 2 has been analysed and the most important results are used to create the questions of the final questionnaire (figure 8). Moreover, this questionnaire was used to resolve final ambiguities before evaluating and adjusting the model developed in chapter 3. In the end, 16 experts from the panel of experts have completed the final questionnaire of round 3.
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Figure 8: Data progression Delphi round 2 to Delphi round 3
5.1.1 Circular economy
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Second, it will help to remove ambiguity, confusion, and misunderstanding. Everyone will know what you, as a company or individual, are talking about and it will thus create a certain level of understanding. Third, some of the panellist believed that it would help to get everyone on the same page. Besides, especially within projects or single organizations, one definition will help to make sure that everyone involves knows based on which foundation decisions are being made. The final reason mentioned is that one definition will make the implementation of CE easier. However, there were also some experts disagreeing with drawing up one definition. The main reason for disagreeing is that they believed it will take away innovative opportunities:
Besides, it will be difficult to unify such a broad concept and to not leave certain details behind. The panel was then asked if they thought a 100% circular economy would be achievable. Only three experts stated that it would be possible, but in the long run, after many years of technological and behavioural change. The major part of the panel did not believe a 100% circular economy would be achievable. Mostly because at some point new resources must be should be added that do not come from a closed resource chain. Moreover, some experts mentioned that certain resources that are currently part of a closed resource chain cannot always be used indefinitely. It was also mentioned that some products cannot be created in a circular way, such as hygiene products. Finally, some believed that there will always be individuals who are not willing to cooperate preventing a 100% circular economy from happening. An important point to mention is that, although it will not be achievable, the pursuit should still be a 100% circular economy. This ensures that companies continue to improve themselves.
5.1.2 Barriers
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Some did mention that it can enable creativity and innovations, but most agreed that laws and regulations are needed to provide clarity, incentives, and security:
When looking at the habits of customers, almost the entire panel of experts did agree that habits will eventually change simultaneously with the market. First, customers are believed to be ready for new products. Second, customers are becoming more and more aware of sustainability. Third, customers generally do what others do. However, the market must take the first step in creating more circular products and thus increasing the availability of circular products:
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The panel of experts had to indicate whether they agreed or disagreed with the following statement: ‘’ A company must communicates concretely what circularity means to them and how this is being calculated’’. The results from the questionnaire showed that consensus existed among the panel of experts regarding this statement. The experts agreed that communicating what CE means will provide clarity to stakeholders. Moreover, in this way stakeholders will have the possibility to judge for themselves whether a company is circular or not:
The panel of experts was also asked in what way companies should communicate their definition and measurement of CE (figure 9). The results show that most experts think this should be communicated via a company’s annual report followed by their website and some mentioned that new circular reporting should be created. This will also ensure that the circularity of companies can more easily be compared. Moreover, tools and measurement techniques to compare companies in the same industry can function as a driver for other stakeholders to implement CE.
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To find out whether MA is deemed responsible for creating those tools the following statement has been presented to the panel: ‘’MA must ensure that circularity is measurable within companies’’. Although most panellists agreed to this statement it was mentioned several times that not only MA should play a role in this. As stated before, the involvement of top management is very important for distributing CE throughout the organization:
5.2 The final model
This part presents and discusses the final model (figure 10) which replaces the conceptual model developed after the literature review (figure 3). What became clear from the three-round Delphi study is that CBM are seldom implemented at once. Especially since CE is still in its infancy in many industries. Instead, most companies experiment with small circular implementations and adjustments to minimalize (financial) risks. The improved model has, therefore, been divided into eight different steps instead of four phases. The steps show the process of implementing circular changes instead of an entire CBM at once. However, step 2 up to step 8 is an ongoing process which means that after each implementation new goals can be formulated, or new ideas can be generated until gradually LBM are replaced by CBM. Moreover, the practices that MA should apply during each of the eight steps are formulated in more detail compared to the conceptual model. In the conceptual model, it was proposed that the found business level barriers would appear separately per phase. However, the Delphi study indicated that most companies come across these barriers in an unphased manner. Meaning, the kind of barrier and the time of occurrence differs depending on the type of company and the occurring step (see figure 10). Moreover, no relationships were found between specific MA tools/techniques and barriers. As such, the practices adopted by MA alone cannot ensure that the barriers encountered are resolved, but their practices help to make the process run more smoothly. Moreover, they can provide tools that enable management to move forward and to make the right decisions regarding the barriers.
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management accountable. The outcomes are best documented in annual reports, websites, or new circular reports.
The second step is to formulate goals/strategy. The results showed that predefined goals will make it easier to involve stakeholders and to get them on the same track. MA can ensure that they are in line with the definition and are transferred into observable objectives and/or targets. Budgets and forecasts can, for example, be used to assess the expected future outcome of the goals.
The third step, initiation, is still about creating an understanding of the environment. However, as several experts mentioned, collaboration will make the implementation easier. Therefore, this step concerns that the right stakeholders are found to collaborate with. MA can provide additional measurements and help to determine which requirements stakeholders must meet to ensure that the most suitable stakeholders are collaborated with.
The ideation step is about generating ideas together with the stakeholders from step 3. MA can assist in this step by providing (non-) financial information concerning each idea, to help assess which once are most likely to succeed.
During step 5, management integrates these ideas into one single innovation and prepares for implementation. The findings show that clear communication from management to the rest of the company is necessary. Moreover, they must always set the right tone and support the innovation. MA can help to simplify the complex innovations by translating the innovation into financial reports and figures, which at the same time allow for the possibility to assess performance. Their practices can then be used to make employees act and react to ensure that they are integrated into the process.
The next step is to experiment with the innovation. MA should closely monitor the results and intervene when those results deviate.
During step 7, the experimentation step is evaluated. Management should discuss whether the experiment succeeded. MA can use their practices to convince management of whether they should continue the implementation. They can use their results from step 6 as a motivating force.
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6. DISCUSSION & CONCLUSION
This research started by analysing the current literature on the concept of CE. It can be concluded that the research on CE has grown significantly over the last couple of years. This research aimed to contribute to that existing body of literature, by exploring what role MA practices can play in the transition from LBM to CBM, and which barriers could be removed by MA. To the best of my knowledge, no research conducted looked at these relationships. This section summarises the key findings of this research by answering the sub-questions and the research question as presented in the introduction of this study. Furthermore, limitations, implications, and suggestions for further research are discussed.
Question 1: What are the basic roles of MA? From the three-round Delphi study it became clear that the role of MA consists of an extensive range of responsibilities. Depending on the organization, MA does not only deliver financial and non-financial information but also provides management with advice to contribute to decision making. This corresponds with the findings from the literature which showed that, throughout the years, the role of MA has changed from a bean counter role to a more involved business partner role (Baldvinsdottir et al., 2009; Granlund & Lukka, 1997). MA fulfilling the role of business partner tries to add more value to the company’s management (Jarvenpaa, 2007).
Question 2: What are MA practices? According to Roberts and Scapens (1985), MA practices are the production and reproduction of meanings. These meanings result from the interpretation of financial and non-financial information. The findings of this research show that the practices applied by MA can convince others to implement changes. More specifically, when management is interested in implementing CE, the practices of MA can be used as motivation to encourage the contribution of other stakeholders. Furthermore, their calculative practices can be used to respond to individuals and intervene in their lives to ensure that they behave according to the organizational goals/objectives. In this way, MA can ensure that the implementation of CE becomes easier (Miller, 2001).
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clarify how they interpret the term CE to prevent them from being accused of greenwashing (Kopnina, 2019) .
Question 4: What are the barriers towards CE on business level? After analysing the literature on CE, it became clear that many researchers have paid attention to the barriers hindering the implementation of CE. However, most did not specify which barriers specifically apply to the business level. This research, therefore, analysed and divided the barriers into four categories applicable to business level: customer, managerial, organizational, and institutional. The results showed that most experts agree to those categories. Moreover, no new barriers emerged from the Delphi study. One outstanding difference between the literature study and the results is that in addition to ‘laws and regulations’, institutional barriers were also defined as the ‘habits’ of individuals. That is, institutions are not seen as actual agencies but as the taken-for-granted assumptions which cause individuals to behave in a certain way (Scapens & Burns, 2000). That behaviour is equal to the habits of individuals. As such, either the institutions or habits of individuals need to change before CE can successfully be implemented. This sort of matches the findings of the customer barrier which describes the willingness of customers to change.
Question 5: What are the potential remedies of MA in overcoming these barriers? As became clear from the Delphi study, MA is not in the possession of practices that can cause the barriers to disappear. First, it depends on the company and the changes implemented in which barriers are encountered. However, MA can use their practices to assist management in acting and to develop plans to avoid the barriers from stopping the implementation process. Moreover, they can develop or use existing tools/techniques to provide guidance, clarity, and to convince management to follow a certain path (Hopwood, 1989). MA can also cause other stakeholders to behave in a certain way by simplifying the processes or creating performance assessments based on both financial and non-financial figures. In that way, the practices of management accounting provide directives for the company. To conclude, MA practices can only encounter barriers hindering the implementation process of circular innovations with the help of management or other stakeholders.
Finally, the main research question will now be answered:
‘’How can MA enable firm’s transition from linear to circular business models?’’
