Amsterdam Business School
The changing role of the Finance professional at a
middle-sized Dutch investment bank
A case study investigating changes in the roles and tasks of the Finance professional focusing on the driving force behind the change
Name: Sjoerd Swanenberg Student number: 10477292 Date: 18-01-2015
Paper: Final version Word count: 25,567
MSc Accountancy & Control, specialization Control
Abstract
Using institutional theory to interpret the changing role of the Finance professional in a middle- sized Dutch investment bank, this paper analyses the institutionalization of the changed role by conducting a single-case study. The paper focuses on the micro processes in a business unit within a period of five years directly after a centralization in 2008. The investigator conducted 15 interviews, analysed many documents and acted as a participant observant. The findings from these sources were linked to the Burns and Scapens model (Burns and Scapens, 2000).
In the preliminary study of this paper the implementation of a new IT system had been suggested as a possible driver. Drawing on the paper by Scapens and Jazayeri (2003), the case study was set up accordingly. During the course of the investigation, however, it became evident that the implementation of a new IT system could not be considered a driver for change.
The study unravels the role change within a business unit that underwent an organizational change. It provides insights into the direct observations of the management and staff of the business unit. By using institutional theory in combination with the Burns and Scapens model (’B&S model’), the findings are examined in order to establish how change was effectuated and to determine the driver behind this change.
The study has been conducted using a single-case study within an Anglo-Dutch banking system. It ranges a period of five years following directly after a centralization within a special institutional context. This context is within the organization as well as outside the organization (i.e. the credit crisis).
Overall the findings suggest that the changed role of the Finance professional has been institutionalized over a five year period and that these changes are a product of purposive actions by one particular actor. The findings, however, also suggest an important role for the circumstances as a catalyst in which the changes have occurred.
The paper begins with an introduction in which the research question emerges along with several other background questions used for the interviews. A more detailed description of the research method is discussed in chapter 2, where a thorough explanation is given for the use of a single-case study together with interviews and document analyses. The theoretical framework is addressed in chapter 3, exploiting institutional theory and the B&S model. In chapter 4 the case firm and the selected departments are described followed by the analysis of the interviews in chapter 5. The analysis of the documentation is discussed in chapter 6 and the findings are presented in chapter 7. Finally, Chapter 8 presents the conclusions and finishes with a
Statement of Originality
This document is written by student Sjoerd Swanenberg, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Contents
1.1 Motivation ... 8
1.2 Research question ... 9
1.3 Background questions ... 9
1.4 Contribution to current studies ... 10
1.5 Relevance ... 11
2 Research Method ... 12
2.1 Research strategy ... 12
2.1.1 Choosing a case study ... 12
2.1.2 Case study pitfalls ... 13
2.1.3 Choosing a single-case study ... 14
2.1.4 Quality of research designs ... 15
2.1.5 Seeking to generalise ... 16 2.2 Paradigm ... 17 2.3 Interviews ... 18 2.4 Documents ... 19 3 Literature review ... 21 3.1 Literature ... 21 3.2 Institutional Theory ... 23 3.3 Process of change ... 25
3.3.1 Revolutionary and Evolutionary change ... 25
3.3.2 Formal and informal change ... 26
3.4 Burns and Scapens model ... 26
4 Case description ... 29
4.2.1 Current situation ... 30
4.2.2 Product Control department ... 30
4.2.3 Regulatory Reporting department ... 31
4.2.4 Process of organizational change ... 31
5 Analysis of the interviews ... 35
5.1 Introduction ... 35
5.2 Analysis of the interviews ... 35
5.2.1 Situation Finance business unit in 2008... 36
5.2.2 Finance professionals’ role immediately after the centralization ... 37
5.2.3 Institutionalization of the new role (developments till 2013) ... 39
5.2.4 Participant observant ... 44 6 Analysis of documentation ... 46 6.1 Organization records ... 47 6.2 IT landscape ... 48 6.2.1 Regulatory Reporting ... 49 6.2.2 Product Control ... 52 6.3 Other records ... 53
6.3.1 Job application forms ... 53
6.3.2 Internal Control Framework ... 53
7 Findings ... 56
7.1 Transition to centralized organization ... 56
7.2 Transition in IT landscape ... 57
7.3 Transitions in control framework ... 60
7.4 Influence of the credit crisis ... 61
7.5 Transition of the Finance professional (through B&S model) ... 63
8 Conclusion ... 66
Literature ... 70
Appendix A. Interviewees, Finance professionals (FP) ... 72
Appendix B. Finance business unit before centralization (February ‘08) ... 74
Appendix C. Finance business unit after centralization (September ‘08) ... 75
Acknowledgements
I would like to thank the many people who have provided ideas, support and encouragement during this research. In particular I would like to thank my supervisor, D. Swagerman for his practical assistance.
Special thanks to my father who acted as a co-reader and as such helped me frequently with sentence build up or rephrases of my English grammar. His knowledge of scientific articles and research was very helpful for writing this paper.
Thanks for prof. J. Burns who was kind enough to respond to several emails in which he explained the working of the Burns and Scapens model. He also advised me on a couple of interesting articles, which were extremely valuable for my research. I would also like to thank the many participants in my research. Their interest and cooperation made this study possible.
Finally I would like to thank my wife, who had to endure 2 ½ years of studying in evenings and during the weekends. She encouraged me at times when it was hard to keep motivated. Her moral support and the love of our two kids helped me in succeeding to finish the research in time.
Introduction
1.1 Motivation
In the past two decades a substantial body of literature has emerged highlighting the changing role of the accountant as a result of different factors. In a number of studies these factors are linked to the implementation of Enterprise Resource Planning (ERP) systems (Granlund and Malmi, 2002; Scapens and Jazayeri, 2003); others describe the change from generally accepted practices (‘bean counting’) to business partner (Friedman and Lyne, 1997).
In 2008 the middle-sized investment bank that constitutes the subject of the current thesis (the ‘case firm’) underwent a drastic change in its organizational structure. From a decentralised organization the case firm changed to a more centralised organization. Following this change, different departments needed to adjust, with the Finance department being one of the departments that were affected. In the organizational structure prior to 2008, each Strategic Business Unit (SBU) within the bank had his own small Finance department supporting it and each SBU had its own customised system. Finance faced an enormous challenge to integrate all different scattered small Finance departments and all different systems associated with them. In the last five years numerous changes have already been implemented, however, currently Finance is still undergoing changes. The present research will focus on the change of the Finance department over a five year period and the effects this change had on the role and tasks performed by the Finance professional.
Prior research focused specifically on the implementation of large integrated ERP systems and/or management accounting with corresponding internal controls (Scapens and Jazayeri, 2003; Wagle, 1998). This research will focus primarily on the situation at one particular bank and the change Finance department went through during the period between 2008 and 2013. . The research will not only focus on the change in the information architecture, but also on the change in the work environment for the employees in the Finance department and the drivers behind the change. Because of the change in the organizational structure of the case firm and the corresponding changes and adjustments to the Finance department this research can add to the known literature on changes in the roles of management accounting.
Building on a field study, four areas are highlighted:
• Describe the change in the IT landscape (e.g. informational architectural landscape)
• Describe the institutionalization of the new roles
The basis is formed by the changes in the architectural landscape. This is the starting point of the investigation described in this paper. Many of the people involved in 2008 still work at the case firm and are easily accessible for interviews. Documentation on the 2008 situation and beyond is at hand and can be used for this paper. The result of this change for the Finance department is investigated. It is assumed, based on the known literature that the role of the Finance professional has changed dramatically over the five years, but this investigation will provide the answers for this. Since the results of this micro-process are neither predictable nor generalizable, a detailed interpretive case study of management information implementation is needed to understand the complex impact on accountants.
1.2 Research question
In 2008 the case firm underwent a drastic organizational change from a decentralised to a more centralised bank with more or less all supporting departments being affected by this change. One of these supporting departments, Finance, is the subject of this investigation. The IT architecture of the Finance department underwent a number of changes (and this process is currently still ongoing). With these changes, one might assume that the role and tasks of the professional working at Finance did change as well. This assumption leads to the following research question:
How did the role and tasks of the Finance professional at the case firm change in response to the information architectural change during the period 2008-2013?
The main research question is answered by the combination of a literature review and a case study at the case firm.
1.3 Background questions
The research method is described in more detail in the next chapter. This study not only seeks answers to the primary research question but also addresses several other background questions directly associated with the primary research question. These questions are as follows:
- What is the role of the Finance professional in the period directly after the centralization? This question will shed light on the changes in the role of the Finance professional.
- What challenges did the department face directly after the centralization? This question will lead to probable drivers for change.
- What tasks did you spend most of your time on in the centralised organization from 2008 - 2013? This question will lead to follow up questions as to why they don’t spend much time on these things currently and will then lead to an understanding of the development in the IT landscape.
- Why did your role change, what made this happen? Again this will lead to a better understanding of the drivers for change.
- How is it possible that you work in a different way compared to five years ago? A direct question regarding IT development.
- Did the centralization affect your work? This question pertains to the structural interventions (Järvenpää, 2007) and the effects it has on the work.
- How was the department structured initially, what was the position of Finance within the case firm?
This question will lead to possible drivers for change.
Some of the follow-up questions will provide background information and some will lead to direct answers of the research question. Most of the above questions start with an interrogative word, meaning that they cannot be simply answered with yes or no. Each of those questions should have a factual answer; the investigator has tried to cover that aspect during the interviews. Because the scope of the study goes back as far as five to six years, the interviewee sometimes has a hard time remembering exactly what they did or thought at the time. Archival records such as organizational charts proved then to be helpful for the interviewee.
1.4 Contribution to current studies
This paper follows three different field studies. First the field study performed at Building Materials Inc. following a re-capitalization after a hostile takeover (Scapens and Jazayeri, 2003). As is the case in the Scapens and Jazayeri (2003) paper, a special event determines the start of the investigation. At the case firm it is the change in the organizational structure. There are however certain elements that are different. At the case firm there is a change to the existing IT landscape compared to the implementation of a new ERP environment at Building Materials Inc. Second, the methodology of a single - case study performed in a German manufacturing firm was followed (Goretzki et al., 2013). Focusing on the driving forces behind change, Goretzki et al. (2013) also analysed the institutionalization of the new role for management accountants. The final paper whose methodology was followed covers the attempt of one case company to change the management accounting culture in practise (Järvenpää, 2007). Although performed as a longitudinal case study, it is used as a background paper for this investigation. All three
will provide the views of the people currently working at Finance, as well as the views of people who have left the department during the five year period. Interviews form the basis for the investigation, for this helps to obtain additional evidence not directly available otherwise from questionnaires. It also gives a researcher the opportunity to explore more fully issues that are of particular importance to the interviewee.
1.5 Relevance
The relevance of this paper lies in the contribution in understanding the changes that the Finance department is going through, based on the changes made by the organization itself. The investigation will show the consequences (if any) to the roles and tasks of the Finance department. Most previous articles view the change in the role of the Finance professional from a more static approach. This study follows that same approach, where the period of change is investigated at one single moment in time.
Besides this, there are a lot research papers concerning ERP and the implementation of a fully integrated system at one or more different companies (Lee and Lee, 2000; Tarn et al., 2002; Wieder et al., 2006). Regarding the specific Best of Breed (BoB) strategy or adoption by a company few interesting papers are at hand. Although ERP software is still the dominant strategic platform for supporting company-wide business processes, there have been some discussions concerning the flexibility and ability to meet the requirements of specific companies (Hyvönen et al., 2009). As cost is one of the most important drivers that companies focus on, the immense costs involved in implementing a single vendor-based ERP system raised the need for a substitute approach. The BoB strategy has become a more generally adopted approach, but hasn’t been studied thoroughly.
The initial assumption that the changing role of the Finance professional was brought about uniquely by a concurrent change in the IT landscape did not allow for other factors to be taken into account. The present paper has opened an opportunity for the interviewees to address factors other than IT-related issues.
Finally, relevance can be found in the use of institutional theory in combination with the B&S model (Burns and Scapens, 2000), referred to in the remainder of the text as the ‘B&S model’ This will be discussed in chapter three, but mentioned before owing to its relevance. Institutionalization of the new role, means that the change can be defined in terms of the culture and work environment of the department investigated.
2
Research Method
In order to answer the primary and background questions, a case study at the case firm is conducted. The classic case study is described by Yin (2013) to consist of an in-depth inquiry into a specific and complex phenomenon (e.g. the case), set within its real world context. This case study is conducted in a real life setting. Within the confines of the case firm it was decided to change from a decentralised organization to a more centralised organization, which triggered a change in the IT landscape (BoB) landscape. Document analysis and interviews with relevant staff (those involved) form the basis of my case study as intended as the in-depth inquiry as defined by Yin (2013).
2.1 Research strategy
2.1.1 Choosing a case study
A case study is but one of several ways of doing social science research. Other ways include experiments, surveys, histories and the analysis of archival records. In general, case studies are the preferred strategy when “how” or “why” questions are being posed (Yin, 2003). Before deciding on the research strategy, the research question is set. In this paper this includes a ”how” question. The interviewer has little control over actual behavioural events, which is another condition to do a case study. Both these aspects contribute in deciding on conducting a case study. There is some overlap between histories and case study, but the latter adds two sources of evidence not included in the historian’s repertoire: direct observations of the events (persons as well as documents) and interviews of the persons involved. Both sources are included in this study and indicate that the case study is the appropriate way to conduct this particular investigation.
The literature on change management or the changing role of the Finance professional reveals that the case study is the preferred research strategy for this paper.
The essence of a case study is that it tries to expose a decision or set of decisions; why they were taken, how they were implemented and with what result (Yin, 2003). The description uses decisions as a subject, but this can be replaced by individuals, processes or institutions. This paper deals with all of these; the interviewees are the individuals, the workflow of the Finance business unit is considered to be the process and the case firm together with the Finance business unit can be seen as the institutions. In contrast to for instance an experiment, the case study is not performed in a controlled environment. The case study is a way of investigating an
empirical topic by following a set of pre-specified procedures, such as defining a research question, setting propositions, units of analysis (the subjects investigated) and the criteria for interpreting the findings. Important in all of this is that specific time boundaries are needed to define the beginning and the end of the case.
The case study performed at the case firm is identified as an interpretive case study. A classic case study which consist of an in-depth-inquiry into a specific phenomenon (the case), set within a real-world context (Yin, 2013). Other than with the use of a positive case study (descriptive), this case study uses the theory to explain the observations from the research. If this is done correctly it allows the theory to be used in other case studies, or else the theory will be altered or rejected. Conducting a case study means the use of theoretical generalization instead of statistical generalization, because no hypotheses are used as can be found in the positive case studies (Scapens, 1990). The use of a single-case within the case study makes it impossible to use regression; the term replication logic is preferred. Starting with the case study, theory is added, or adjusted if the theory doesn’t fit. The use of triangulation adds to the validity of the findings. In this case this means that multiple sources (fifteen interviewees) are used for the research, if all of the sources tell the same story, than this will converge to the truth and hence become more valid. The use of documentation also adds to the validity of the findings as documentation is also used in this investigation. Scapens (1990) also identifies certain weaknesses when it comes to performing an interpretive case study;
- The difficulty in setting boundaries; within the realm of a positive case study this would be the model.
- The social truth must be interpreted by the researcher, making it impossible to perform an objective case study.
- The limitations as to what can be said about the sources or situation within the case firm. These weaknesses are further specified in the following paragraph where it is described how these weaknesses are addressed in this paper.
2.1.2 Case study pitfalls
This paper has looked into the correct research strategy and concluded that a case study research is the correct way forward. Choosing a case study means that certain pitfalls should be addressed before continuing with the procedures. These concerns are dealt with in no particular order and it is discussed below how these pitfalls are addressed.
First the concern is raised regarding the biased view of the investigator and the influence on the direction of findings and conclusions. This concern is particularly relevant in this case, because the investigator is an active employee of the case firm itself. In order to suppress as much as possible any biased view of the investigator, the interviews were audio-recorded and the interviewees were asked to treat the investigator as a person from outside the case firm. The investigator also tried to steer the interview as little as possible and to keep the questions as open as possible to prevent a biased view. All documentation and transcripts are open for independent review, in an attempt to achieve impartiality instead of possible closed biased evidence.
The foregoing raises another concern, the alteration of case study material. Even though this may happen in case study teaching, it is strictly forbidden in case study research to deliberately alter evidence in order to demonstrate a point more effectively (Yin, 2013). The investigator has worked hard to report all evidence fairly.
A third pitfall is to try to use statistical generalization as the method of generalising the results of the case study. This can never work, because the cases are not sampling units and should not be chosen for this reason. The mode of generalization in the present case study is analytical generalization, in which a previously developed theory is used as a template against which to compare the empirical results of the case study (Yin, 2013). Generalization is discussed in the last paragraph of this chapter.
Another pitfall is the use of a single- case study. Single-case studies usually reflect fears about the uniqueness or created conditions surrounding the case. Yin (2003) claims that if a single-case study is being used, one should be prepared to make an extremely strong argument in justifying the selection for the case. This is done in Chapter 2.1.3.
A final pitfall is the dependency on a single key informant. To overcome this problem, the investigator should rely on other evidences as well. In this case this is done by including documentation that should back up the observations from this key informant.
2.1.3 Choosing a single-case study
One of the aforementioned pitfalls is the use of a single-case study. Why choose a single-case study when a multiple case study is deemed a better research strategy? This paragraph deals with the arguments that should justify this decision.
As an employee of the case firm, the investigator has ample access to numerous people and documents. There is already a relationship between the interviewer and interviewee which is
the investigation and are able to follow up on the interview more easily because of the accessibility of the investigator (he is always present at the same location). Because of the use of a case study, interviews are a vital part of the investigation. Time management for conducting fifteen interviews of more than an hour is crucial. Conducting interviews with “internal” interviewees gives that much more flexibility to the investigator as well as the interviewees. This flexibility is much appreciated and helps conducting a good interview. This case represents a unique case, namely a Finance department that centralises during the biggest crisis in the banking industry in recent history. Covering a Finance department in those circumstances is unique. Being able to access a phenomenon and having the opportunity to observe the unique situation not possible for an outsider means that conducting a single-case study is relevant. Such case is called the revelatory case (Yin, 2003).
All of these arguments serve as a rationale for the use of a single-case study. 2.1.4 Quality of research designs
A research design represents a logical set of statements. Because of this, the quality of any given design according to logical tests can be judged. Four tests have been used to establish the quality of any empirical social research.
• Construct validity: right criterion, most common?
• Internal validity: are the argumentations logical?
• External validity: generalizable, what can you do with the outcome?
• Reliability: Stabile, precise and accurate.
The construction has a very mainstream build up, but has been used for interpretive studies as well. When performing a case study, there should be a constructive build-up, for this helps in finding the answer to the research question and also to the question: are you measuring what it is that you want to measure?
The first test, construct validity, is to establish correct operational measures for the concepts being studied, which means that the investigator should prevent subjective judgments over the data that is collected. By using multiple sources of evidence or having key informants review the draft case reports, this can be prevented. The second test deals with the internal validity. The internal validity is only a concern for causal case studies, in which the investigator is trying to determine whether event x has led to event y (Yin, 2003). The internal validity is at stake, when an investigator incorrectly concludes there is a causal relationship, without taken into account a third event. Besides that, drawing conclusions on events which cannot be directly observed is
another issue for internal validity. Before doing that, the investigator should make sure that everything is airtight. A third test is the external validity. This deals with the problem of knowing whether or not a study’s findings are generalizable. Within case studies, the investigator is trying to generalise a particular set of results to some broader theory (Yin, 2003). The final test deals with reliability, which means that if another investigator would follow the same procedures, he would come to the same findings and conclusion. Dealing with reliability means that procedures and thinking must be well documented. Without such documentation, one could not even repeat one’s own work.
The investigator has worked hard to follow the tests to establish a certain quality of the conducted research. Construct validity has been described in paragraph 2.1.2 as part of the pitfalls and is also described in Chapter 6. By viewing change from different angles and not focussing on one driver only, the investigator has tried to work on the internal validity of the research. All conclusions that are drawn were observed. Observations came from different approaches which are described in full in Chapters 5 and 6. By using cross references during the interviews, the problem of internal validity is also addressed. Dealing with the external validity is somewhat more difficult as is highlighted in paragraph 2.1.5. The investigator is well aware of the problems arising from a single-case study when trying to generalize the findings. The final test, reliability, is dealt with within this paper. All interviews are transcribed and all documents investigated, used or not used in this paper, are available. With that a repetition of this investigation is possible.
2.1.5 Seeking to generalise
This chapter focusses on the external validity, the generalization of the outcome. Case study generalization is an effort to generalise from a small number of cases (here it is one) to a larger population of cases. The common quest is to establish a precise definition of the case being studied. This could be at the start or at the conclusion, with a retrospective definition of the broader population of relevant cases. This has some overlap with the conventional sampling procedure (Yin, 2013). The problem with this is that the case study selected usually doesn’t resemble any other case study performed. It becomes more difficult to select a potential population of cases. The one way to increase the number of cases to a significant level could ultimately mean sacrificing the in-depth and contextual nature of the insights inherent in using the case study method in the first place, thus deviating from the selected procedure which would make this case study more or less unique.
The theoretical or analytical generalization should aim to apply to other concrete situations and not just to contribute to abstract theory building. Shortcomings are easily identified in this, for it should not only remain a working hypothesis, implying that further study is needed (Yin, 2013). Helpful in this respect would be to link the analytical generalization to the related research literature and to identify overlaps as well as gaps. Even replication of the same findings by conducting a second or third case study can strengthen the generalization further. The ideal generalization may extend not only to other like cases but also apply to many different types of cases (Yin, 2013).
The most common and preferred use of generalization from case studies is in the form of making an analytical or conceptual generalization, rather than reaching for a numerical one. It should present an explanation for how an evaluated initiative or change produces its results, or no results. This explanation can be seen as a theory of sorts (Yin, 2013). This explanation, or theory, needs to be connected to the relevant literature. The findings should be used to identify gaps, overlap or weaknesses in that literature. By doing this, generalization from a single-case study can be interpreted with greater meaning and lead to a desired cumulative knowledge. Finally, the use of an in-depth-inquiry within a case in a real-world context limits the number of cases that could be studied. As such, this approach rules out the use of conventional numerical or sample-to-population generalization seen in quantitative research when using case study research.
2.2 Paradigm
The research is performed within a research paradigm which means that the constructs and their interrelationships can be dealt with from a functionalist, interpretive or critical research paradigm (Chua, 1986). The difference between the three has to do with different characteristics to constructs and relationships. For instance writing in an interpretive paradigm means that the BoB system of the case firm would have made for instance specific management accounting feasible, whilst other do not. Research within the functionalist paradigm treats the construct as objects influenced by humans, thus discovering the relationships. The final paradigm, critical, questions the goodness of BoB, meaning that BoB is considered a tool for capitalism to reinforce control over employees and resources (Rom and Rohde, 2007). This research has been performed within a functional paradigm.
2.3 Interviews
In order to find answers to the research question a number of interviews are required. For this specific research it has been decided to carry out one-to-one interviews instead of performing panel interviews or surveys. Although surveys are a possibility to gather information for this particular research, performing an interview provides a chance to get a better and deeper understanding of the process. Therefore it was decided to not perform surveys for this particular study. It would have been possible to perform panel interviews, putting multiple persons of one or more different departments in a room and interview them together. This would work as a workshop, hoping for a lively discussion with either different or consistent observations. The reason to abandon this approach has to do with the scope of the research. The number of interviewees is limited and there is no need to group employees together to gain more time. Openness of the interviewee is another reason not to go with the panel interview approach. People in general tend to be more outspoken when discussing their work in a bilateral setting. An example is that certain people tend to dominate meetings and they would therefore be expected to dominate these panel interviews as well, leaving little room for other opinions. One last reason to drop the panel interview approach is the possibility to better steer the interview in a bilateral setting.
All interviewees must work or must have worked within the Finance department at any time during the period of investigation. The list contains current managers and employees at Finance as well as former employees, for not everybody who is currently working at the Finance department has been working there for the last five years. The reason for adding former employees is that it is necessary to get a better overview of the roles and tasks of the Finance department staff in the period 2008-2013. The list of interviewees is added as appendix A. The professionals to be interviewed will range from managers to professional support. Widening the range of decision makers will make the outcome more conclusive, meaning that if the focus would be solely reliant on the managers (Finance has six, which form the management team) the scope would become too narrow. During the interviews, the investigator will use cross references to challenge observations made by the interviewee. This will help addressing the problem of internal validity. The interviews will all be audio-taped and transcribed for subsequent analysis.
The interview questions aim at retrospectively exploring the development of the Finance profession within the case firm. The interviews were held in a regular working environment but
case firm. Several interviewees have their own room, but this wouldn’t prevent people from still entering. No interview was disturbed or broken off by a phone call or something else. Each interviewee was asked before the interview if they had no objections to be tape recorded. All but one (FP5) agreed to be tape recorded. The intention to tape record all of the interviews was to be able to listen more closely to the answers of the interviewee and to have a smoother interview. The one interview that wasn’t tape recorded didn’t go smooth and the notes from the interview have not been elaborated as extensively as in the case of the tape recorded interviews. Writing down as much as possible and trying to listen to the interviewee in combination with a smooth conversation didn’t quite work out in that one interview. There is always the possibility that people hold back on recorded interviews, but that is also true for non-recorded interviews and can thus be disregarded as a reason not to record the interview.
The background questions formulated in section 1.5 encapsulate the major question during the interview. These were quickly reviewed before each interview. They formed the structure of the inquiry and weren’t always asked as literal as written down in that chapter. Most of the interviewees were selected based on their current role and the time they worked at the Finance business unit. All but two are currently an employee of the case firm. The list was discussed during the pre-study of this paper together with FP8. He suggested adding FP15 in order to gain more insight into the IT landscape of the Finance business unit back in 2010. The aim was to have a balanced knowledge group with managers as well as workers included in the list of interviewees.
The type of interview chosen for this paper is the focused interview (Yin, 2003) in which a respondent is interviewed for a relatively short period of time – one hour. The interviews remained open ended and a conversational manner of inquiry was intended. This failed for the one interview that wasn’t tape recorded. Owing to the short period of time, however, a certain set of questions was asked directly.
2.4 Documents
Besides the interviews, available documents have been consulted. This is to prevent a focus on just one single source of evidence. The documents together with the interviews would converge to the same set of facts or findings (Yin, 2003). The documents will show the build-up of the Finance department during the investigated period. It will provide the facts needed to define the information architecture in 2008 as well as in 2013.
Document analysis refers to publicly available information which would help in identifying the work environment of the Finance department. On the other hand, available proprietary information cannot be disclosed in full because of the sensitivity of the information. The documents are discussed thoroughly in Chapter 6, Analysis of documentation.
3
Literature review
3.1 LiteratureFormulating the questions for the interviews means that some preparation is required. One way is to review the literature. This review is a means to an end and not and end in itself. The literature is used as guidance for the interviews and is not used to determine the answers about what is known on the topic. The literature review is to develop sharper and more insightful questions about the topic.
Previous studies have contributed to the description of the changing role of the management accountant. The studies differ in that they look at different factors that caused the change, or investigated the change process over a period in time (longitudinal study). But all the investigations pointed out towards the changing role of the Finance professional. The commonly used phrase is that of the transformation of bean-counter to business analyst.
Earlier studies investigated role changes of management accountants within the organization as a consequence of introducing new techniques (Friedman and Lyne, 1997) or specifically change as a consequence of introducing an IT system (Caglio, 2003; Scapens and Jazayeri, 2003). Friedman and Lyne (1997) investigated the implementation of activity-based techniques and concluded that management accounting information was shown signs of more usefulness. It even weakened the position of the original bean-counter image of management accounting going so far as predicting the death of the bean-counter with a more widespread introduction of activity-based techniques. Thus Friedman and Lyne (1997) clearly found evidence of a direct relation between implementation and the changing role of management accounting. Later on new studies appeared, focussing not only on a specific technique, but on a broader scale, implementation of a particular IT system. In their investigations Caglio (2003) as well as Scapens and Jazayeri (2003) focused on the implementation of an ERP system. Caglio (2003) found evidence that the new ERP system led to a change in the roles and expertise of the management accountants. The new IT system provided new tools and techniques leading to a new breed of accountants, the ‘hybrid accountant’. New developments in the IT landscape will inevitably lead to cross-hybridization between accounting positions and practices and the position and practices of the IT people. The conclusion of Scapens and Jazayeri (2003) is somewhat different to that of Caglio (2003) in that they conclude that although ERP systems open up opportunities within an organization, they would not go so far as to state that they are the actual driver of change. ERP systems open up the opportunity for management accountants to change their role. A field study by Granlund and
Malmi (2002) already concluded that ERP systems have a moderate to almost no effect on the management accounting methods or Controls. They found some changes in responsibilities or organizational structure, but too little to suggest any real change coming from the ERP system. They too, though, see the ERP system as an opportunity for change. Recent studies showed not only a change in the role of the management accountant, but demonstrated the emergence of the hybrid accountant. Although highlighted briefly by Caglio (2003), studies performed by Burns and Baldvinsdottir (2005) as well as Hyvönen et al. (2009) touch upon this new phenomenon in greater detail. In their study Burns and Baldvinsdottir (2005) didn’t investigate whether or not a change occurred, they saw the change as a given fact and continued towards understanding the when, how and why questions of the role change. They saw a reorientation of the case firm from being a functional orientation to one being modelled on process streams. The hybrid accountants were becoming more and more involved in wider, integrated business situations and decision making committees. Finance was undergoing a significant change in its functionality where the accountants were interacting with business managers. Of course hybrid accountants do need new skills and require knowledge of previously unfamiliar terrain of expertise, not everyone would welcome this change. Management accountants themselves can prefer to remain the bean-counter rather than to expand their expertise to a more business analyst or even a hybrid accountant (Burns and Baldvinsdottir, 2005). The rise of hybrid accountants means the decline of traditional accountants. In a more recent study performed by Hyvönen et al. (2009) at the Finnish Defence Forces they found similarities to the study from Burns and Baldvinsdottir (2005) where the hybridization of management accountants is not directly linked to changes in the IT infrastructure but more to the organizations’ institutional logics. The latter means that the willingness of management accountants to accept change to a more hybrid accountant is critical. One other observation from the investigation of Burns and Baldvinsdottir (2005) has great similarities to the most recent study performed by Goretzki et al. (2013). In the case firm (Burns and Baldvinsdottir, 2005), with the blessing of the Director, the openings created by the new process and the general shift towards change, the head of Finance pushed the creation of the hybrid accountant throughout. The creation of the new hybrid accountant or changing role of the management accountant was promoted and driven by the head of Finance. In his paper, Goretzki et al. (2013) investigates how a new actor of a firm can drive the institutionalization of a new role for management accountants. Like in the case of Burns and Baldvinsdottir (2005) it is a single actor (head of Finance in Burns; new CFO in Goretzki) who initiates the creation of a new management accountant (hybrid accountant in Burns; business partner in Goretzki).
As is the case in the last mentioned paper, Järvenpää (2007) examines how a case company is trying to change its management accounting culture in practise, this again is an example of an actor (e.g. organization) driven change. The article examines how the management accountant can add value to the business in a way that is very management orientated. Järvenpää (2007) too sees the release of routine work through the implementation of a new ERP system and draws on the institutional theory to consider the micro-perspective. This shows many similarities to Goretzki et al. (2013) and Burns and Baldvinsdottir (2005), both authors use similar theories to understand the change investigated in their case studies. Järvenpää (2007) also finds a change towards a more business orientated role, but linked to cultural interventions. He showed the purposeful or unintentional (not considered in studies such as Goretzki et al., 2013) efforts to change the management accounting function in such a way that it would act in a more business oriented way. These formal and informal interventions are used to describe the institutionalization of the new role within the case company. As an example, structural intervention is considered a formal intervention and means an organizational change or structure change of the department. Another formal intervention is the systems intervention; here the author finds evidence such as the development of ERP systems or simplified reporting systems. A last informal intervention is storytelling, which deals with real stories that go through the organization about the heroic controllers in sub-units and the need for change. All of which contributes to the role change of the management accountant.
The literature shows different approaches with different outcomes but also reveals many similarities. The bean-counting role of the management accountant (Friedman and Lyne, 1997; Goretzki et al. 2013) is changing, even diminishing. But views differ as to what extent the role has changed, ranging from the controller as navigator (Goretzki et al., 2013) via a new hybrid accountant (Hyvönen et al., 2009; Burns and Baldvinsdottir 2005) to a business partner (Scapens and Jazayeri, 2003). Factors or causes which triggered the change are also discussed widely. Different approaches within these studies are investigated, ranging from the introduction of new techniques such as activity-based technique (Friedman and Lyne, 1997; Soin et al., 2002), implementation of various new systems, mainly ERP (Granlund and Malmi, 2002 ; Caglio, 2003). Other studies expose a particular actor as a driver for change (Goretzki et al., 2013; Burns and Baldvinsdottir, 2005).
3.2 Institutional Theory
Although this investigation is done at a certain moment in time, it still explores the process of change over a certain period between 2008 and 2013. It is possible to investigate the various
factors and how they interact in a given context to produce a trajectory of change in the form of an evolutionary process following the B&S model. Implementation of, for instance, a new information architecture can be seen as either a factor for change or as the only cause for change. On the one hand it is considered as a causal factor with the potential to shape management accounting practices (Scapens and Jazayeri, 2003) as opposed to seeing the implementation as an evolutionary process of change which took place in management accounting practices after the introduction of a system.
The Finance professional change is being examined by studying the organizational rules and routines within Finance systems and practices (Burns and Scapens, 2000), which is further explained in this paragraph. The Finance profession is considered as a routine, institutionalized in an organization. Institutional theory concentrates on patterns and configurations that persist, meaning that claims on organization change must be based on changes in rules and routines or that new patterns of behaviour are reproduced (Soin et al., 2002).
Institutionalized means that over time, the Finance profession (or any other routine) can support the taken-for-granted way of thinking or doing things within the organization. So, if the emerging routines become widely accepted in the organization, than it can be said that they have become institutionalized.
Institution is a way of thought or action of some influence and unchanged state, which is embedded in the habits of a group or the customs of people (Burns and Scapens, 2000). As such institutions can be regarded as imposing form and social coherence upon human activity, through the production of settled habits of thought and action. Another definition given in the literature is; the shared taken-for-granted assumptions which identify categories of human actors and their appropriate activities and relationships (Scapens and Jazayeri, 2003).
With the introduction of action in the institutional theory, the theory opens the possibility to trace the pathway of change, how change has tracked its way through the organization, as well as to trace the timings of change (Soin et al., 2002).
Finance (Management accounting) is regarded as a routine, simply stated this means that Finance (Management accounting) is defined as a way in which things are actually done. Whereas the rules are defined as the formally recognised way in which things should be done, set out for instance in an accounting manual. So in short this means that rules are formalized statements of procedures and routines are the procedures actually in use. In the context of this paper, rules are
practices actually in use. Finance routines are part of a broader set of routines within the organization (such as budgeting procedures, timetables). The accounting routines will become the taken-for-granted way of doing things and thus become institutionalized within the organization.
Rules are always previously formulated in a manual of some sort but they can change. So imposing, for example, a new budgeting procedure (because of a newly acquired company), could lead to changes in the previously written down rules. The new rules are then implemented with or without some resistance. In the end the rules are established and through their implementation, institutionalized routines will emerge.
Sometimes routines become rules, when for instance certain routines are seen as work that has to be formalized. If certain routines cannot be afforded to be lost once key staff leaves the organization this would be a good reason for routines to be written down in manuals.
It is important to understand these concepts in order to understand the working of institutional theory and the B&S model.
When a new rule is introduced, e.g. Finance system (Business Objects1
), these procedures must work alongside organizational routines that are already in place. And the new routines will be shaped and influenced by the existing institutions (the taken-for-granted assumptions).
This paper draws on the findings stated by Burns and Scapens (2000) where Finance systems and practises can be seen as organizational rules and routines. They draw a distinction between rules and routines. Institutions are consists of the taken-for-granted assumptions which underpin the organizational rules and routines, and specifically in the present context, the management accounting practices. As such, institutions can both constrain and shape processes of change.
3.3 Process of change
In respect of the process of change, the B&S model distinguishes revolutionary and evolutionary change (see also Nelson and Winter, 1982) as well as formal and informal change.
3.3.1 Revolutionary and Evolutionary change
The view of the institutional theory is that change is path-dependent, meaning that the outcomes of the change process are dependent on the starting point (Burns and Scapens, 2000). Change
1 Business Objects is a business intelligence tool that was introduced in 2010 to the Finance department. It is a
can be either evolutionary or revolutionary. When investigating revolutionary change, there seems to be a fundamental disruption of the existing rules and routines within the department. This goes hand in hand with a consequent challenging of the taken-for-granted assumptions which encompass the existing institutions. Such change probably requires major threats to the survival of particular sub-groups within the organization or the organization as a whole (Burns and Scapens, 2000). The term revolutionary is not related to the actual content of the change, such as the content of the changed information system, but to the potential impact of the change on the existing institutions (Nelson and Winter, 1982).
Evolutionary change on the other hand is gradual, with only small changes or disruptions to the existing routines and rules. Such change builds on, adapts and modifies the existing routines in a process which draws on the prevailing institutions. As such, institutions shape the process of change, but at the same time they may themselves be modified in that process, although they are unlikely to be fundamentally challenged and re-evaluated as would be the case in a revolutionary change (Scapens and Jazayeri, 2003).
3.3.2 Formal and informal change
Formal change occurs usually through the introduction of new rules or through the action of a powerful group. Informal change occurs at a more taken-for-granted level, as new routines adapt over time to changing operating conditions. Formal Finance change like the implementation of new Finance systems is more straightforward than attempting to change the way of thinking at a certain department.
3.4 Burns and Scapens model
In their article Conceptualizing management accounting change: an institutional framework Burns and Scapens (2000) set out to create a framework through which observations and findings from case studied regarding management accounting change can be explained. The model should be seen as a lens through which observations of this thesis should be interpreted and is visualized below (Figure 1).
Figure 1. The Burns and Scapens Model; the process of institutionalization
Within this framework, institutions constrain and shape actions at a specific moment in time and those actions produce and reproduce institutions through their cumulative influence over time. The institutional realm and the realm of action (ongoing in a cumulative process of change through time) are linked by the rules and routines of the organization.
The arrows a and d represent the actions at a specific moment in time whilst the arrows b and c represent the cumulative influence over time. The first process (a) entails the encoding of institutional principles into rules and routines. In other words, the routines in the organization will incorporate the ruling institutional principles and will shape new rules which in turn will lead to the development of ongoing routines. The second process (b) shows the establishment (enacting) of routines and rules (incorporated by the institutional principles) by the actors. This establishment could be a conscious choice, or a more take-for-granted decision. There could be resistance, and depending on the powers at hand, this could persist for some time. But in the end change can take place. The third process (c) shows the repetitive behaviour of the actors and this repeated behaviour leads to a reproduction of the routines. Again this could happen consciously or unconsciously. Conscious reproduction happens when the actors are able to question the existing rules and routines, whereas unintended change may also occur. For instance; when existing rules and routines are not clearly understood by the actors, those actors would ask themselves: “Do changes become incorporated into new rules and routines or are these just one-offs?” (Soin et al., 2002). The final process (d) illustrates the institutionalization of rules and
routines which have been reproduced through the behaviour of the actors. The rules and routines become the way the things are, they become institutionalized. These will then be encoded into the existing rules and routines and will form new rules and so on and so on. The authors state that encoding and institutionalization are ongoing processes rather than distinctive identifiable movements. The whole process is shaped by the reigning institutions. They exist no matter what change an actor imposes, encoding and institutionalization will shape the process of change (Burns and Scapens, 2000).
4
Case description
4.1 The case firmThe case firm is a privately held investment bank headquartered in the Hague, the Netherlands, with offices in London, Frankfurt and Brussels. In 1945, the case firm was founded to provide finance for the rebuild of the Netherlands after World War Two. Currently, the case firm offers advisory, financing and co-investing services. Financing is done through for example, corporate lending, structured finance and project finance. The case firm was listed on the Dutch stock exchange from 1986 until 1999, when it was acquired by two of Europe’s largest pension funds. That started the evolution from a long-term lending bank to an enterprising bank offering advisory, financing and co-investing. In 2005 a consortium of international financial institutions and investors purchased all of the outstanding equity interest of the bank, giving birth to the case firm in its current form (http://www.case firm.com/)
During the first years after the purchase of the consortium, the bank was organised to support growth. An SBU organization was set up, with separate supporting departments per each SBU. The bank operated in a decentralised structure. Before 2005, the bank had been exposed to some major events such as the millennium bug and the introduction of the EURO, but in 2006 the biggest change for the bank was externally imposed by the introduction of the International Financial Reporting Standards (IFRS). Eventually this caused a lot of problems and headaches at the Finance departments in the sense that the different Finance departments had difficulties in understanding the figures and closing the books in time.
In 2008 the case firm centralised the organization with the transition continuing over a number of years. Currently the bank has two business pillars, Corporate Banking and Consumer Banking in which most of its core business is performed. In Corporate Banking the expertise spans debt and equity mezzanine, mergers & acquisition, advisory and leveraged finance. There is expert knowledge in the following sectors; oil & gas services, shipping & intermodal, technology and media & services. Consumer banking offers straightforward, transparent products. These include residential mortgages and savings deposits via internet savings in the Netherlands, Germany and Belgium. In Germany, the case firm also offers brokerage activities.
4.2 The Finance business unit
4.2.1 Current situation
The case study is performed within the scope of the Finance business unit of the case firm. Finance is responsible for internal and external reporting on the financial position and results of the case firm.
Figure 2. The Finance business unit 01 September 2013
Finance currently consists of the departments Product Control, Financial Control, Management Control and Policies & Internal Control. The business unit is visualised in the organizational chart above (Figure 2).
4.2.2 Product Control department
The changing role of the Finance professional is investigated within two departments, Product Control (PC) and Regulatory Reporting (RR). Product Control supports the following business units of the case firm:
• Treasury – responsible for funding, interest and currency risk management, investment portfolio, derivatives sales and trading
• Consumer Banking – mortgages, savings, securitizations
• Corporate Banking – corporate lending, leveraged finance, private equity and fund management CFO Head of Finance Product Control Treasury Corporate Banking Consumer Banking Management
Control Financial Control
Financial Reporting Regulatory Reporting Accounts Payable Corporate Tax Policies
Product Control is responsible for ensuring that the financial reporting of the case firm adequately reflects the underlying economic performance of the business, with daily, monthly and quarterly reporting cycles. The team supplies information to various departments within the case firm, such as management, front office, risk management and other finance areas.
4.2.3 Regulatory Reporting department
As part of Financial Control, the Regulatory Reporting team is responsible for preparing all regulatory reporting to the Dutch Central Bank (De Nederlandsche Bank, DNB) and other (European) regulators. Regulatory Reporting of the case firm provides reporting of Capital Ratios (including Risk Weighted Assets), Liquidity and various (financial) information on a monthly, quarterly, semi-annual and annual basis. Alignment with all supporting applications and responsible departments within the case firm is key in this process. All reporting is fully compliant with relevant regulation and based on reporting templates distributed by the regulators. Different departments within the case firm, like Risk Management and Asset & Liability Management, make use of regulatory data to inform relevant stakeholders.
4.2.4 Process of organizational change
The investigation is conducted as a qualitative research. Within qualitative research it is customary to use quotes from the interviews to illustrate facts. Throughout the next Chapters, there is multiple use of quotes to highlight observations, to illustrate facts and to show cross references.
Historically, the case firm as well as the Finance business unit was decentralised.
…” Before 2008 we had group Finance and some more small Finance teams. Or as the organization would call it, group Finance and “others”” (FP8)
…” I worked as CFO for Finance Financial Markets in the period 2006 – 2008. The case firm wanted to grow and the role of the CFO per strategic business units (SBU) was to have some sort of control within the SBU.” (FP14)
…” Before the centralization, the CFO’s per SBU all sat in with the management Team of the business. What they did was decide what was best for them and then handed over the decisions to group Finance. Under the assumption, let Finance figure it out for themselves. They (… group Finance) didn’t stand a chance because they were not involved in the decision making and had less staff then the SBU’s as well.” (FP13)
From 2008 Finance underwent a change process. Highlights from the interviews will serve as information guidance for a deeper understanding of that process, illustrating the decisions and reasons for the changes in organization of the Finance business unit.
The process of change started back in 2007 but took shape in 2008 after the business unit was centralised. The former head of the Finance business unit explains;
…” When the CEO asked me to head the Finance business unit back in 2007, I told him that I would only accept the position, if I would get the power to control. This meant that I wanted to centralize or else I wouldn’t take the job. I wanted all of the decentralised Finance team leads to report directly to me, this centralization took place in 2008.” (FP13)
Starting from 2008 onwards it should be made clear that the world was in financial-economic turmoil, affecting the case firm as well. Also, toxic investments penetrated the bank and a failed take-over as well as a failed IPO meant that the bank was in distress. Evidently something needed to be done and Finance was not immune to this. One answer to this was to centralize the business unit, but that was not all. There were issues with the quality of information and control and it was the crisis that definitely exposed the problems. Finance was producing unreliable figures (i.e. poor data quality) and not regarded as a department that was making a useful contribution to the organization.
As two respondents say:
…” Looking at the situation in 2008 there wasn’t time to sit back and analyse the organizational distress and discuss with everybody how to continue. In times of crisis there is no use for a democratic approach, so the head of Finance drew a new organization chart, discussed this with some influential managers and that was it, Finance was centralised.” (FP10)
…” Before 2008, the priorities for the decentralised Finance teams were much different. You were not allowed to be a brake on the growth mentality. It came down to control to facilitate growth. My manager told me that he respected Finance, but he didn’t want me to hold back the transactions or growth initiatives under any circumstances. After 2008 this changed, control had to be better.” (FP14)
In 2010 the dust had settled after the 2008 events and it was time for the second phase of centralization. The department was in a better shape, and control over the data was regained. In 2010 management felt that the department was ready to progress further. So this time the head
of Finance asked his two most senior managers within the management team to draw up the next phase of centralization. This was discussed within the management team and communicated with the rest of the department and was seen by some respondents as a more drastic change than the one in 2008:
…” We knew there were problems in 2008, so a change was inevitable and the centralization didn’t come as a surprise. The next step in 2010 stirred up the employees of Finance. Teams were reshuffled, team leads lost their team and all of the teams were put on the same floor. This was the start of a change in mentality and mindset, although this wasn’t seen at that time. There was a lot of resistance; nobody knew what was going on.” (FP11)
…” In 2010 I was asked by the head of the business unit to lead the next reorganization together with FP8 (current head of the business unit). We just had the credit crisis and the thought was centralization and cost cutting, growth was out of the picture. We drew up some pictures and ended up with a functional organization, strategy drives structure. What is the strategy of the business unit and which organization structure fits with that thought?” (FP14)
The 2010 the organization chart was updated and centralised even further in 2013, when the organization was flattened and responsibilities shifted from management only towards both management and employees.
In all these changes Regulatory Reporting (RR) remained a steady department. Its sole purpose was and is to report to DNB. Its position within the bank in 2008 was very low profile.
…” Regulatory reporting was seen as a necessity. Because of DNB we must have such a department, however, nobody paid much attention. In the beginning, focus within Finance was on IFRS and all the developments there. It is only after 2009 that changes in regulations from Basel and DNB were recognised and this did put Regulatory Reporting more and more in the spotlight.” (FP12)
…” RR was a reporting team for which no one at the bank had any interest for. In essence it was very isolated and seen as the parking lot of the business unit. This view has changed drastically. Currently the board (Raad van Bestuur) intervenes with the reports that RR sends out. The board is being challenged directly by DNB. And when that happens, you know that RR will become important within the organization.” (FP13)
