Innovation within the Financial Department:
Acceptance of the New Strategic Role of
Management Accounting
by
N.J. HAISMA
University of Groningen
Faculty of Economics and Business
MSc Business Administration
Strategy & Innovation
First supervisor: T.L.J. Broekhuizen
Second supervisor: W.A. Dolfsma
ABSTRACT
The emphasis of management accounting is becoming more strategic which gave rise to a new concept: strategic management accounting. The strategic accountant is involved in strategic decision making and is characterized by a high role involvement, increased interfunctional cooperation, and in the possession of technical, business and social skills.
The organization must deal with the liability of newness and get the new role accepted by the employees of the finance department and the rest of the organization. The organization must ensure that a clear social identity is created so that an in-group feeling is enhanced. The in-group helps the acceptance of the group by other groups and it creates an identity by which the members can identify themselves.
A conceptual model is provided which combines the factors culture, shared perception and communication together with two control variables (i.e. organization size and environmental uncertainty). Data from 102 respondents from organizations in the Netherlands were gathered and analyzed. Results demonstrate that the inclusion within the in-group is not advanced by certain type of culture. It is concluded that acceptance is a social process which is driven by perceptions and communication. In addition, the organization size has a negative influence on the acceptance. Furthermore, it is shown that the concepts communication and shared perceptions are interrelated.
TABLE OF CONTENT
1. INTRODUCTION ... 5
1.1 The evolution of management accounting ... 5
1.2 The fourth phase: strategic management accounting ... 6
1.3 Strategic management accounting: a management innovation ... 8
1.4 Legitimacy: acceptance of the innovation ... 8
1.5 Research question ... 9
2. LITERATURE REVIEW ... 11
2.1 The concept of strategic management accounting ... 11
2.2 Social identity theory ... 13
2.3 Conceptual model ... 15
2.3.1 Culture of the financial department ... 16
2.3.2 Shared perception of business issues ... 17
2.3.3 Communication between the departments ... 19
2.4 Acceptance of the new role ... 20
2.5 Control variables ... 21
3. METHODOLOGY ... 23
3.1 Research approach ... 23
3.2 Sample... 23
3.3 Measurement ... 26
3.3.1 Culture... 26
3.3.2 Shared perception... 28
3.3.3 Communication ... 28
3.3.4 Acceptance ... 29
3.3.5 Control variables ... 29
3.4 Data analysis ... 30
3.4.1 Descriptive statistics ... 30
3.4.2 Construct development ... 31
4. RESULTS ... 34
4.1 Correlation analysis ... 34
4.2 Regression analysis of the whole sample... 36
4.3 Mean comparison of the finance and non-finance group... 38
4.3.1 Shared perception: finance versus non-finance ... 38
4.3.2 Communication: finance versus non-finance ... 39
4.3.3 Environmental uncertainty: finance versus non-finance... 39
4.3.4 Acceptance: finance versus non-finance ... 40
4.4 Regression analysis per group: finance versus non-finance ... 41
4.4.1 Regression analysis of the finance group... 41
4.4.2 Regression analysis of the non-finance group ... 42
4.4.3 Comparison of the regression results of the two groups ... 42
5. CONCLUSION AND DISCUSSION... 44
5.1 Discussion of the results ... 44
5.2 Theoretical implications... 46
5.3 Limitations and future research ... 49
5.4 Conclusion ... 51
REFERENCES ... 53
1. INTRODUCTION
1.1 The evolution of management accounting
Management control is defined by Anthony (1965) as “the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.” The purpose of accounting is to guide an organization towards meeting its pre-defined objectives. It is about applying financial analysis to decision-making, linking budgets to specific goals, and providing information on the financial implications of business strategies. The nature of accounting and control is in contrast with the dynamic and unpredictable nature of innovation and creativity. Innovation is associated with taking advantage of unexpected opportunities and risk taking. Therefore, control has often been perceived as a hindrance to innovation efforts, which rely on intrinsic motivation, freedom, experimentation and flexibility (Davila et al., 2009).
In response to this contrast, the role of the accounting department is changing. In the last twenty years of twentieth century, management accounting has evolved from the traditional emphasis on financially oriented decision analysis and budgetary control, towards a more strategic approach with an emphasis on the identification, measurement, and management of the key financial and operational drivers of shareholder value (Ittner and Larcker, 2001).
The transition from the third to the fourth phase occurred because the possibilities of management accounting were not sufficiently utilized and there was a growing importance of other non-financial performance measures and value drivers. Strategic management accounting was needed to assist in meeting the global challenges in product markets, and to allow management accountants to focus on the firm’s value-added relative to competitors (Bromwich, 1990). In a period of increased global competition that demands goals of long-term sustainability and strategic positioning, the short term and internally-focused approach of accounting information cannot be maintained. The fourth phase represents a strategic approach which requires a more proactive attitude of the accountants instead of the previous passive role. This new role has an effect on the interaction and cooperation within the organization.
1.2 The fourth phase: strategic management accounting
The strategic emphasis of management accounting gave rise to a new concept: strategic management accounting. There is a need for accounting to help enterprises meet global challenges in product markets. For this to happen, management accounting must be ‘released from the factory floor’ to assist in meeting these challenges (Bromwich, 1990). Management accounting must additionally focus on the firm’s added value relative to its competitors, and on the monitoring of the firm’s long-term performance using strategic variables. Bromwich (1990) defines strategic management accounting as “the provision and analysis of financial information on the firm’s product markets and competitors’ costs and cost structures and the monitoring of the enterprise’s strategies and those of its competitors in these markets over a number of periods”. This definition suggests the accountant might play a more important role in strategic decisions and must include strategic information in their reports. Strategic management accounting is a management accounting perspective with a clear strategic emphasis which embraces a strong qualitative orientation and is closely associated with the marketing function (Roslender, 1995). Moreover, it implies that the organization must be structured in a way that the accounting and finance function can work closely with functions with similar concerns so that information can be easily shared (Bromwich, 1990). Strategic management accounting can thus be useful for organizations when accountants are willing and able to work with other departments such as production, marketing and sales (Roslender, 1995). Furthermore, by working closely with these departments, the strategic management accountant may help bring together these disciplines and create a sense of strategic purpose (Dixon and Smith, 1993).
with a functional orientation. When the focus is only on the accountant function, the accountant spends less time in other departments, shares less information and is less involved with other functions. An accountant with low role involvement thus indicates a high centrality and a functional orientation. Low centrality indicates a high level of interaction with users of management information. They spend less time in their department and have a have greater mutual understanding and empathy towards the management accounting information users. High role involvement thus indicates a low centrality and a business unit orientation. A functional orientation is characterized by the traditional accounting activities and a business unit orientation is characterized by the new strategic activities. Emsley (2005) discovered that accountants with a business unit orientation are associated with a greater level of innovativeness and more radical innovations than accountants with a functional orientation.
The research of Siegel and Sorensen (1999) revealed that more and more accountants are working in cross-functional teams and are becoming more involved in decision making. They state that their role was evolving from a traditional scorekeeping and controlling role towards a business partner and consultant. In their traditional role, accountants were outsiders to the central work, had little face-to-face communication with other departments, and were not participants in the decision making process. They were the support staff for the decision makers and produced budgets, expense reports, inventory cost reports and financial statements. Their new role as a business partner involved analyzing and interpreting information, more face-to-face contact and involvement in decision making.
This new strategic role implies that besides the technical skills, the importance of social and business skills are becoming more important. Coad (1996) proposed that the strategic management accountant requires high levels of intellectual, communication and interpersonal skills, and the ability to empathize with others, because their function will include a coaching and advisory role and they need to be able to negotiate and coordinate effectively across functional boundaries.
substantial understanding of accounting principles, and business skills. Fourthly, the work activities are changing. Accountants engage more in non-traditional activities such as strategic planning, internal consulting, process improvement, and performance evaluation. Furthermore, the work location of the accountants is changing from isolated departments to a location close to the operating departments.
In conclusion, the fourth phase of the evolution of management accounting introduced the concept of strategic management accounting. The concept implied a role for accountants in helping to provide information for strategic decision making and for the monitoring of strategies of the organization and its competitors. The strategic accountant is characterized by a high role involvement, increased interfunctional cooperation, and in the possession of technical, business and social skills.
1.3 Strategic management accounting: a management innovation
The concept of strategic management accounting can be characterized as a management innovation. Birkinshaw et al. (2008) define a management innovation as “the invention and implementation of a management practice, process, structure, or technique that is new to the state of the art and is intended to further organizational goals”. Management innovation represents a particular form of organizational change. The introduction of such an innovation creates ambiguity and uncertainty for the organization members. Ambiguity arises because employees do not have an understanding of the intended value of the innovation, and uncertainty develops due to the fear that the innovation will have negative consequences for the individual and/or the organization (Birkinshaw et al., 2008). In order to overcome the problems of ambiguity and uncertainty, the innovators need to come up with a strategy to build the legitimacy of the new practice to make it acceptable to the organization members.
1.4 Legitimacy: acceptance of the innovation
across industries. Furthermore, when they were implemented, these techniques were generally regarded by adopters as useful.
All the labels and names like strategic management accountant, brand management accountant and business partner say that the role of accountant is changing. However, this new role must be accepted by the employees of the finance department and the rest of the organization, and resistance to change must be overcome. A challenge for the changed financial department may thus be the relative lack of legitimacy within the organization as crucial stakeholders may not fully understand the nature of the new department’s responsibility and activities, and their conformity to established institutional rules may still be in question. Rao et al. (2008) stated that this is the result of the ‘liability of newness’. Rao et al. (2008) use this concept in respect to a new venture. They state that organizations which adopt strategies that give the new venture legitimacy gain the most from innovation. The liability entails skepticism of the potential stakeholders (in this case the other departments) which are concerned with the new role. One way to overcome the liability of newness is by acquiring legitimacy and by linking the legitimacy to the perceptions of the value of the new role (Rao et al., 2008).
1.5 Research question
This study is about the new strategic role of the financial department in medium enterprises. Medium enterprises contain between 50 and 250 employees. The research is focused on organizations which intend to implement a form of strategic management accounting and which already have implemented it. The financial department is comprised of the financial and management accounting activities. The focus is not on the accounting methods and systems but on the actors and their new role, and on their relations with the rest of the organization.
The goal of the paper is to research the factors which are essential for the acceptance of the new role of strategic accounting. The research question will be:
What factors influence the acceptance of the new strategic role of the financial department within medium organizations?
business issues and rules. The financial department and the rest of the organization must share the same perception in order to facilitate the acceptance of the new role and avoid role conflict. Thirdly, in order to create a shared perception, there is a need for increased communication. The departments must communicate more and effectively to ensure the sharing of information.
2. LITERATURE REVIEW
This chapter provides a review of the literature concerning the theories which are useful for this study. First, the concept of strategic management accounting will be described and characterized. Secondly, the social identity theory will be reviewed. This is the leading theory in this study and it connects the other factors. Thirdly, the conceptual model will be introduced and explained. Then the factors culture, shared perception and communication will be defined and the hypotheses will be formulated. The factors are followed by the discussion of the concept of acceptance. Finally, the control variables will be discussed.
2.1 The concept of strategic management accounting
Strategic management accounting entails that there is a role for accountants in helping to provide information for strategic decision making and for the monitoring of strategies. The development of strategic management accounting can be explained by the use of two economic theories (Bromwich, 1990). The first theory emphasizes the characteristics or attributes possessed by products. It suggests that information about a number of demand and cost factors belonging to the attributes possessed by a firm’s products and those of its actual and potential rivals is needed for optimal decision making. Accountants have a role to play in estimating the costs of product attributes and monitoring the performance of such attributes over time. This process would require accountants to analyze strategic information as well as cost information (Bromwich, 1990). The second theory is the theory of contestable markets, which suggests that a company needs to maintain its cost advantage over current and potential competitors to have a sustainable strategy. A sustainable strategy requires cost advantages over its rivals and which must be retained in the future. Accountants must therefore play an important role in strategy formulation and in monitoring of such strategies (Bromwich, 1990).
The concept of strategic management accounting can be characterized as a management innovation. Birkinshaw et al. (2008) define management innovation as “the invention and implementation of a management practice, process, structure, or technique that is new to the state of the art and is intended to further organizational goals”. The management innovation process has four phases (Birkinshaw et al., 2008). The first phase is motivation, which is concerned with the facilitating factors and circumstances that lead individuals to consider developing their own management innovation. The second phase is the invention, which entails an initial act of experimentation out of which hypothetical management practices emerge. The third phase is the implementation of the management innovation. This step involves the technical process of establishing the value of the new management innovation in practice. The final phase incorporates theorization and labeling which is a social process whereby individuals inside and outside the organization make sense of and validate the management innovation in order to build its legitimacy. This study is focused on the third phase and fourth of the innovation process. The implementation phase involves overcoming potential resistance to the innovation and growing internal acceptance (Birkinshaw et al., 2008). This phase involves the two activities trial and
error and reflective experimenting. In the activity trial and error, progress is achieved by monitoring and
making adjustments against the original concept. By reflective experimenting, the progress is evaluated by an internal change agent who has experience in implementing innovations. The organizational context is also important for the implementation. The organizational context contains the reactions of employees. Thus, the innovator must try out the new practice and evaluate its progress against the original idea (trial and error), evaluate the conceptual validity (reflective experimenting), and evaluate the reactions of other employees (organizational context). An important concept in this phase is the implementation capability of an organization. The implementation capability is defined as “the ability to manage the transition process associated with implementing new management practices” (Harder, 2011). The implementation capability can assist in overcoming resistance to change and is therefore a necessary requirement for management innovation success. The implementation capability consists of the (managerial) cognitive abilities (e.g. decision making, learning, perception) and organizational resources (e.g. routines, procedures, power structures) (Harder, 2011).
2.2 Social identity theory
The introduction of a management innovation creates ambiguity and uncertainty for the organization members. The organization must deal with the liability of newness and get the new role accepted by the employees of the finance department and the rest of the organization. In the last phases of the innovation process, where overcoming potential resistance to change and growing internal acceptance is important, the social identity theory is useful. A social identity facilitates the acceptance of groups by others, and it creates an identity by which members can identify themselves.
Social identity theory concerns the belongingness of people to groups. It implies that employees identify themselves with a certain group, such as the finance or marketing department, and that they develop a favorable bias to their own group (Ashfort and Mael, 1989). This identification is defined as “the perception of oneness with or belongingness to a group, involving direct or vicarious experience of its successes and failures.” Identification stimulates employees to “engage in, and derive satisfaction from, activities congruent with the identity, to view him or herself as an exemplar of the group, and to reinforce factors conventionally associated with group formation (e.g. interaction)” (Ashfort and Mael, 1989). Stets and Burke (2000) define a social group as “a set of individuals who hold a common social identification or view themselves as members of the same category”. They state that “people who are similar to the self are categorized with the self and are labeled the in-group; persons who differ from the self are categorized as the out-group.” People in the in-group develop a preference for their group and accept more from that group. Ashfort and Mael (1989) have demonstrated that an in-group favoritism is generated by assigning an individual to a group. Their laboratory studies demonstrated that random assignment of individuals to groups led to discrimination against out-groups and increased intragroup cooperation and cohesion.
Team identification can create a feeling oneness with the team that stimulates individuals to perceive the team’s goals, interests, and norms as their own (Ashfort and Mael, 1989). This feeling of oneness motivates team members to behave in team-typical ways to promote their social identity as team members. In other words, identification causes individuals to perceive themselves in terms of the characteristics they share with other members of their in-group (i.e. their shared social identity) (Ashfort and Mael, 1989). The more one identifies with the group, the more likely the member acts in accordance with the group’s beliefs, norms and values.
with stronger team identification engage in more citizenship behaviors that facilitate the team in fulfilling its integrative function in the organization (Janssen en Huang, 2008).
Social identity theory indicates that management accountants with a high role involvement (labeled as a business unit orientation) will become a member of the in-group and will find it less difficult to get their views accepted within the business unit (Emsley, 2005). High role involvement is characterized by a low centrality of the accountant’s job, authority and responsibility to the finance department, a high level of interaction, a greater mutual understanding and empathy towards the users of the accounting information. Adversely, management accountants with a low role involvement (labeled as a functional orientation) will be more easily viewed as members of an out-group. In the first case the management accountant regarded as “one of us but different to us”. In the latter case, management accountants are regarded as “one of them” (Emsley, 2005).
These results suggest that in order to advance the acceptance of the new role, the finance department must develop a social identity to increase the in-group feeling. Moreover, Smidts et al. (2001) indicate that adequate information of the personal role in an organization is positively related to the identification with that role. This means that an employee of the finance department can identify with his new role when he gets appropriate information about that new role. The relationship is mediated by the communication climate of the organization (Smidts et al., 2001). An open communication climate helps employees identify themselves with their new roles and helps increase the feeling of being part of the ‘in-group’ and increases their self-worth. Increased communication frequency can facilitate the creation of a social identity because it is possible via communication to point out who you are and is it possible to learn who the others are. The identity of the strategic management accountant can be shared and understood by other departments in the organization by communicating more often. Moreover, employees cooperate better when they hold similar views of what is happening and what is needed (Oosterhuis, 2009). Enforcing a shared perception of the business issues will ensure similarity and consensus between the departments which will facilitate acceptance of the group (i.e. the finance department with its new role) by the other departments. Shared perceptions enable people to cooperate better and help improve the effectivity of communication (Dougherty, 1992).
2.3 Conceptual model
It is proposed that there are three factors which influence the acceptance of the management innovation. These factors are depicted in a conceptual model (see figure 1). It is hypothesized that (1) a culture which includes an explorer style of orientation to change, an external manner of processing, and a person-oriented way of deciding, (2) a shared perception of the business issues, and (3) increased communication between the departments have a positive relation with the acceptance of the new strategic role of the accounting function. The first concept is about the preferences and capabilities of the finance department itself. The second is about the attitude of the finance department towards the rest of the organization. The third concept is about the behavior concerning the other departments. The model also shows that the communication between the financial department and the rest of the organization has an impact on the shared perception. Furthermore, the shared perception has an influence on the effectivity of the communication. Finally, the control variables organization size and environmental uncertainty are incorporated in the model.
Acceptance of the new role
Culture of the finance department: - Orientation to change - Manner of processing - Ways of deciding Shared perception of business issues Communication between departments Organization size Environmental uncertainty Control variables H1 H2a H3 H2b + + + + + +
2.3.1 Culture of the financial department
When the financial department undergoes the transformation towards a strategic partner with a business orientation, the employees must have both the ability and the willingness to transform to that role. The financial department can be regarded as a group which has a certain culture. A clear identifiable culture is necessary to create an in-group feeling instead of an out-group feeling. A culture can help establish the identity of the new financial department. This culture can be characterized by the department’s problem solving style. Esposito and Roehm (2004) define problem-solving styles as “consistent individual differences in the ways people prefer to deal with new ideas, manage change, and respond effectively to complex, open-ended opportunities and challenges”. These styles are natural individual preferences that can support communication and productivity when they are understood (Esposito and Roehm, 2004).
In order to facilitate the acceptance of new tasks, activities and responsibilities, it is useful to understand which problem solving style is necessary for this acceptance and execution of the strategic role. The VIEW tool is an assessment of problem solving styles and change management preferences. The tool is proven to be both reliable and valid for the assessment of an individual’s style of problem solving and change management (Selby et al., 2004). VIEW assesses three dimensions of problem-solving style (Selby et al., 2004). The first dimension is orientation to change (OC). OC involves how people prefer to manage change or solve problems when responding to novelty, structure, and authority. The two styles that define the OC dimension are explorer and developer. People with a well-defined explorer preference tend to seek out novelty and generate many new and original options. They are often spontaneous, flexible and individualistic. Well-defined developers prefer to look for a few workable, realistic solutions that grow from a methodical, careful, and efficient approach to tasks and challenges. They like gradual, incremental change that results in an improvement of the current situation. In order to facilitate the acceptance of the new role of finance and help create the feeling of an in-group, it is hypothesized that an explorer style is more suitable. This is because the change is radical and employees with that style are more open to change.
open and interact more with others. This style also assists the execution of the new role because the strategic management accountant role requires more interaction and cooperation with other employees. An external style will thus enhance the creation of an in-group.
The third dimension is ways of deciding. This dimension assesses what people prefer to focus on when making decisions: people or tasks. The two styles of this dimension are person and task. Individuals with a well-defined person style first consider the impact of problems, choices and decisions on people. They emphasize harmony and positive relationships throughout the problem solving process. People who have a well-defined task style look first to standards, and quality of outcomes. They prefer to approach problems and change with an emphasis on rigor and objective analysis. To help in creating the feeling of an in-group, a person style is preferred due to the emphasis on empathy and interaction.
In conclusion, culture is a factor which should be taken into consideration in order to acquire legitimacy. The finance department must have a clear team identity and culture so it is understandable what the new activities are, and what their goals are. It is hypothesized that if the financial department incorporates more members with an explorer style of orientation to change, an external manner of processing, and a person-oriented way of deciding, the acceptance of the strategic role will be advanced. People with these characteristics tend to be more open to (radical) change, engage more in interaction and information sharing, and emphasize interaction and empathy. The acceptance of the strategic role is a social process and these traits facilitate that. Moreover, individuals with these characteristics have the ability to identify themselves more strongly with their team and engage in more citizenship behaviors toward other team members. This leads to the first hypothesis:
H1: a finance department with a culture which includes an explorer style of orientation to change, an external manner of processing, and a person-oriented way of deciding positively influences the acceptance of the new strategic role of finance.
2.3.2 Shared perception of business issues
The different departments must have a shared perception of the various business rules, aspects, issues and expectations within the organization. Shared perceptions affect the speed, flexibility and implementation of the management innovation.
department because they have a certain degree of ambiguity which means that it is hard to observe the responsibilities and the criteria for judging them are complex.
Oosterhuis (2009) discovered that employees cooperate better when they hold similar views of what is happening and what is needed. A shared understanding of the team’s environment and task strategies has a positive effect on cooperation within a team (Klimoski and Mohammed, 1994; Oosterhuis, 2009). Shared perceptions enable people to coordinate their work more easily and to make better decisions in a more efficient manner. Shared perceptions affect the speed, flexibility and implementation of a decision, facilitate problem definition, and the generation and evaluation of ideas.
The research of Kozlowski and Ilgen (2006) demonstrates similar results. They state that team effectiveness will improve if team members have a shared understanding of the task, team, equipment, and situation. They use the concept of a ‘team mental model’ to refer to the knowledge structures or information held in common. A shared mental model has a positive influence on communication processes and performance of a team (Kozlowski and Ilgen, 2006). The influence of shared mental models is stronger when the task conditions are new, what suggests that team mental models can facilitate team members in adapting to the unexpected and unknown (Marks et al., 2000).
In conclusion, there must be consensus about the various business issues of the organization. The financial department and the rest of the organization must share the same perception of the various business aspects in order to facilitate the acceptance of the new role and avoid role conflict. The second hypothesis is therefore:
H2a: a shared perception of the business issues positively influences the acceptance of new strategic role of finance.
Shared perceptions influence and shape communication. Different positions in an organization can create different perceptions which prevent the employees from sharing information. Different departments have different thought worlds (i.e. mental models) in which they filter and interpret information about certain attributes. Only when a shared perception is created, can the communication be effective (Dougherty, 1992). Increased communication is therefore only useful when both parties recognize the importance for communication (Oosterhuis, 2009). This leads to a second hypothesis:
2.3.3 Communication between the departments
Communication has a direct link with the acceptance of the role of strategic management accountant. Harder (2011) concluded that rich and plentiful communication flows support the implementation processes of management innovations. The two parties, the finance department and the rest of the organization, communicate at a certain frequency in order to coordinate their activities. Two aspects of communication are the content of the communication and the medium that is used (Oosterhuis, 2009). The content of communication measures the quality of the communication patterns and it is about the relevance of the information that is being transmitted. The medium that is being used varies from e-mail to face-to-face contact.
Results of the study of Allen et al. (2007) demonstrated that employees are more open towards organizational change when they perceive that they received qualitative change communication. This study only incorporates communication that involves the sharing of information about the change. In other words, employees who indicated they received high quality change communication demonstrated a more positive attitude towards the change. Moreover, the provision of information is important in facilitating the acceptance of change by employees (Allen et al., 2007). It must be noted that the quality of the information is critical in influencing their openness to change, and not the provision itself.
Coad (1996) proposed that the strategic management accountant requires social skills in order to communicate, share information and cooperate with other departments. Communication, consequentially, is necessary to create the shared perception of the strategic role of finance. Communication can assist in creating more openness and trust. Communication is strongly related to positive outcomes such as trust, commitment, satisfaction, and performance in buyer-supplier relations (Oosterhuis, 2009). Moreover, by communicating, it can be explained why the new role is necessary.
In order to facilitate the sharing of information, there is a certain degree of communication openness required (Breen et al., 2005). Communication openness promotes learning how others represent their experience, perceptions, knowledge, and information, so the team can develop a collective understanding of the problem at hand. Communication can have a positive influence on the creation of actionable knowledge and the speed at which it is developed. This can consequentially produce a sustainable competitive advantage for an organization (Breen et al., 2005).
communication to be effective, both parties must have a similar understanding of the issues they communicate about (Padgett and Wolosin, 1980).
Communication facilitates the interaction between departments. Interdepartmental interaction is defined as “the information exchange process between departments”, whereas interdepartmental collaboration is defined as “a process in which departments work together with mutual understanding, common vision and shared resources to achieve collective goals” (Kahn and Mentzer, 1998). In their research, Kahn and Mentzer (1998) found a strong positive relation between collaboration and performance (i.e. product development performance, department performance and firm performance), but no significant relation between interaction and performance. This means that interaction alone does not have a significant impact on performance; interaction is necessary but not sufficient. In fact, too much interaction will be harmful (Kahn and Mentzer, 1998).
Ellinger et al. (2000) discovered similar results. They demonstrated that collaboration and information exchange is positively related to the perceived effectiveness of the relationship between marketing and logistics departments. They discovered that activities like sharing ideas, information, and resources, working together as a team to achieve goals, and developing a mutual understanding of responsibilities positively influences effective interdepartmental relations. However, the relationship between information exchange and perceived effectiveness was not significant. Information exchange is only helpful when the users find the information valuable and are motivated to use it. Moreover, increasing the frequency of contact is negatively related to effective interdepartmental relations. The users perceive the relation as unproductive and inefficient unless they find the information useful. The results of this study indicate that the content and quality of communication is more important than the frequency of communication (Ellinger et al., 2000).
In conclusion, in order to facilitate the acceptance of the new role and help create a shared perception, there is a need for communication openness. The departments must communicate more and effectively to ensure the sharing of information. The third hypothesis will thus be:
H3: increased communication between the departments positively influences the acceptance of the new strategic role of finance.
2.4 Acceptance of the new role
legitimacy. Aldrich and Fiol (1994) mentioned two forms of legitimacy which must be acquired in order for the innovation to be taken for granted and fully understood. Cognitive legitimacy refers to the spread of knowledge about a new activity. Cognitive legitimacy can be assessed by measuring the level of public knowledge about a new activity (Aldrich and Fiol, 1994). The highest form of cognitive legitimacy is achieved when a new product, process, or service is taken for granted. In this study, cognitive legitimacy is about the extent to which the members of the organization know what the management innovation is about and what the consequences for their tasks are. Sociopolitical legitimacy refers to the process by which key stakeholders or key opinion leaders accept a venture as appropriate and right, given existing norms and laws (Aldrich and Fiol, 1994). Sociopolitical legitimacy is measured by the degree of approval and appropriation among the organization members; whether they think it is right for the organization. When both forms are acquired, the liability of newness of the management innovation will be overcome. Cognitive legitimacy can be pursued by showing that management innovation is a necessary solution to a specific and novel challenge the organization is facing. Sociopolitical legitimacy is pursued by mentioning how the innovation builds on previous changes the company has been through and/or that the organization has a tradition of trying out new ideas (Birkinshaw et al., 2008).
2.5 Control variables
Control variables may influence the acceptance of the new strategic role of accounting. Control variables help predict the effects of the independent variables (Becker, 2005). They control for heterogeneity of the main variables and are incorporated to check if they alter the relationships. Two control variables are incorporated in this study: organization size and environmental uncertainty.
The second control variable is environmental uncertainty. Environmental uncertainty is composed of the following elements: “(1) a lack of information regarding the environmental factors associated with a given decision-making situation, (2) not knowing the outcome of a specific decision in terms of how much the organization would lose if the decision were incorrect, and (3) an inability to assign probabilities with any degree of confidence with regard to how environmental factors are going to affect the success or failure of the decision unit in performing its function” (Duncan, 1972).
The environmental uncertainty can be characterized with the help of three elements: demand uncertainty, technological turbulence and competitive intensity (Zhou et al., 2005). These elements represent the influence of customers, technology and competition in the market. Demand uncertainty is defined as “the instability of consumer preferences and expectations” (Zhou et al., 2005). In a stable market, the consumer preferences remain unchanged and there is no need for firms to modify their products drastically to satisfy customers. In an unstable market, consumer preferences are uncertain and change quickly which means that the identification of the changing consumer needs becomes increasingly difficult. Technological turbulence is defined as “the rate of technological advances within an industry (Zhou et al., 2005). Fast technological advances significantly shorten the life cycle of existing products, weaken the competitive advantage of incumbents, and create opportunities for others. Competitive
intensity is defined as “the degree of competition that a firm faces within its industry (Zhou et al, 2005).
Intense competition is characterized by severe price wars, heavy advertising, diverse product alternatives, and added services.
3. METHODOLOGY
3.1 Research approach
This thesis is a descriptive research because it is concerned with learning why certain variables produce changes in another (Cooper and Schindler, 2006). A descriptive study is necessary to discover associations among the variables.
Data are collected through a survey. The goal of a survey is to derive comparable data across subsets of the chosen sample so that similarities and differences can be found (Cooper and Schindler, 2006). The type of survey that is being used is a administered survey. The advantages of the self-administered survey are: the possibility to use incentives to increase the response rate, it is the lowest cost option for a survey, it is a rapid data collection method, it requires minimal staff, it allows participants time to think about the questions, and it is perceived as more anonymous (Cooper and Schindler, 2006). The data will be gathered through the use of online questionnaires. The questionnaires will provide the information on which the theory can be tested.
3.2 Sample
Target population
The target population of this research consists of employees from medium enterprises (50 to 250 employees) which have a clearly identifiable financial/accounting department with clearly defined tasks and responsibilities, and are located in the Netherlands. This study sets the minimum number of employees at 50 to ensure that the organization has a distinct finance department. In order to get a clear picture of the shared perceptions, four employees of every organization must fill in the questionnaires: two employees of the finance department and two employees of other departments.
The research is focused on organizations which intend to implement a form of strategic management accounting and on organizations which already implemented it. This means that there will be a greater variance of acceptance since not every organization has implemented it yet. The financial department is comprised of the financial and management accounting activities.
Sampling frame
directory that lists firms in a specific region or industry. ORBIS is a statistical database that contains corporate information of 75 million companies worldwide. The sampling frame is composed by using the following three criteria: region (Dutch provinces Drenthe, Friesland, Groningen), number of employees (a minimum of 50 and a maximum of 250), and type of company (privately held company).
However, there may be some extent of variation between the defined population and the population implied by the sampling frame. To reduce the sampling frame error, all the selected organizations are screened with respect to the proposed characteristics (i.e. organization size, number of financial employees) that are described in the methodology section. This is necessary to ensure that the organizations satisfy the criteria for the target population (Malhotra, 2009).
Sampling technique
The organizations are selected from the sampling frame using quota sampling until the required sample size is reached. Quota sampling is a nonprobability sampling technique, which consists of two stages (Malhotra, 2009). The first stage includes developing control categories or quotas of population elements. The relevant control characteristics are developed so that the composition of the sample is the same as the composition of the population with respect to the characteristics of interest. The second stage includes selecting the respondents based on personal judgment of the researcher. The only requirement of the selection is that the elements fit the control characteristics.
Sampling size
Response rate and respondent characteristics
In order to improve the response rate, the respondents are sent an e-mail notifying them of the intended survey which reduces the surprise and uncertainty concerning the research. The first e-mail provides the organization with information about the purpose of the research and explains what the organization will get in return when they participate. Secondly, by motivating the respondents to participate in the survey their interest and involvement will be increased. By explaining the necessity, importance and benefits of the survey, the motivation will be enhanced. Thirdly, incentives are included in the survey. The organizations can carry out the VIEW assessment free of charge and receive the results and feedback in the form of a report. Lastly, a well-designed questionnaire will provide the image of a qualitative survey. The use of the reliable and valid VIEW tool will enhance the quality of the survey, and the connection with the University of Groningen will assure a high standard research.
In total, 126 organizations were contacted to participate in the study of which 24 reacted positively. The response rate is therefore 19%. Four employees of each organization participated in the research but because four additional finance employees and two non-finance employees also filled in the questionnaires, the total amount is 102 respondents (52 finance employees and 50 non-finance employees).
The organizations vary in sizes in terms of the total amount of employees. The lowest number of employees is 54 and the highest number is 250. The average number of employees is 140. A pie chart is created to acquire a clear picture of the distribution of the organizations according to their size (see figure 2). The 24 organizations are allocated into four categories: organizations with 50 to 99 employees, with 100 to 149 employees, with 150 to 199 employees, and 200 to 250 employees. The pie chart demonstrates that the sample is quite evenly distributed.
3.3 Measurement
Two different questionnaires are being used in this study: one questionnaire for the employees of the finance department and one for the employees of other departments. The questionnaire for the finance employees assesses all three independent variables (culture, shared perception and communication), the dependent variable (acceptance), and one control variable (environmental uncertainty). The questionnaire of the non-finance employees assesses only two independent variables (shared perception and communication), the dependent (acceptance), and one control variable (environmental uncertainty). The non-finance employees do not carry out the VIEW assessment because only the culture of the finance department is being measured. The control variable ‘organization size’ is not to be answered by the respondents but is asked from the CEO of the company because he/she will have the most reliable information about this.
A balanced, multidimensional rating scale is used for this study. A 5-point Likert scale consisting of statements that express either a favorable or an unfavorable attitude toward the object of interest will be composed. The numbers indicate the agreement with the proposed statement, with 1 being strong disagreement and 5 being strong agreement. The advantages of the Likert scale are that it is easy and quick to construct and it is more reliable and provides a greater volume of data than other scales. The Likert scale produces interval data.
3.3.1 Culture
Only the finance employees are asked to fill in the VIEW tool to assess the culture because the culture of the finance department is deemed important for the acceptance of the new role of finance. The finance employees must implement the new role so their problem solving style is important to measure.
intends to measure. Each item has two statements and which are written so that they both represent positive expressions of a well-established behavioral preference. Both options represent choices that are balanced in terms of social desirability. By doing this, the respondent’s motivation to provide responses they perceived as “socially desirable,” is reduced (Selby et al., 2004). The current edition of VIEW consists of 34 items (Selby et al., 2004). Items are measured on a scale from 1 to 7. The items are divided among the three dimensions:
18 items for the dimension orientation to change (OC). The possible scores on the OC dimension range from 18 to 126, with a theoretical mean of 72. A score below the average signifies an
explorer style and a score above average signifies a developer style.
8 items for manner of processing (MP). The possible scores on the MP dimension can range from 8 to 56, with a theoretical mean of 32. A score below the average implies an external style and a score above average implies an internal style.
8 items for ways of deciding (WD). The possible scores on the WD dimension can range from 8 to 56, with a theoretical mean of 32. A score below the average means a person-oriented style and a score above average means a task-oriented style.
The most recent master database for VIEW includes 27,548 respondents (Treffinger, 2010). The mean and standard deviation of the total database and of the sample for each of the dimensions are depicted in table 1. Statistic Dimension Database mean Database standard deviation Sample mean Sample standard deviation
t value Sig. (2-tailed)
Orientation to change 74.2 15 77.7 10.4 1,6818 ,0926 Manner of processing 29.3 9.1 31 7 1,3463 ,1781 Ways of deciding 35.3 8.4 35.7 5.6 0,3432 ,7314 Table 1 Descriptive statistics of VIEW dimensions
3.3.2 Shared perception
The shared perception of the various business rules, aspects, issues and expectations within the organization are measured by establishing if the employees in the different departments hold similar views of what is happening and what is needed in the organization. The business issues on which the shared perception will be assessed are:
The goals and strategies of the organization (i.e. strategic consensus).
The responsibilities and tasks of the different departments.
The performance of the organization. Organizational performance is comprised of the financial performance (e.g. growth, profitability) and product market performance (e.g. sales, market share) (Richard et al., 2009).
The developments in the market. The market developments involve the threats and opportunities concerning existing and potential customers, current and potential competitors, suppliers, and substitutes (Porter, 2008).
The perception of the respondent will be measured by the use of several statements. Each statement expresses the degree of agreement on a business issue. A 5-point Likert scale is used, with 1 being strong disagreement and 5 being strong agreement with the statement. To assess the shared perception, both the members of the finance department and the employees of other departments are asked to fill in the questionnaire.
3.3.3 Communication
Communication is an attribute with low ambiguity because both parties know the frequency of communication about certain subjects and the medium that is used (Oosterhuis, 2009). Therefore, there will be no difference in the perception of the communication frequency in the relationship. Three items are used to measure communication:
The content of communication (strategic issues or operational issues).
The communication medium and the frequency if using different media (face-to-face, telephone, e-mail).
The frequency of communication.
computer-to-computer links. This is done by a 5-point Likert scale in which a score of 1 means ‘never’ and a score of 5 means ‘daily’. In order to measure the communication frequency, respondents must indicate the frequency with which the finance department communicates with other departments. This is also done by a 5-point Likert scale in which a score of 1 means ‘never’ and a score of 5 means ‘daily’. To assess the influence of communication, both the members of the finance department and the employees of other departments are asked to fill in the questionnaire.
3.3.4 Acceptance
The degree to which the management innovation is accepted is measured via the concept of legitimacy based on the research of Aldrich and Fiol (1994). Three items are used to measure acceptance:
Cognitive legitimacy: the degree of the knowledge of strategic management accounting and the extent to which the members of the organization know what the management innovation is about and what the consequences for their tasks are.
Sociopolitical legitimacy1: the degree of approval and appropriation among the organization members; whether they think it is right for the organization.
Sociopolitical legitimacy2: the extent to which the employees want or desire the new role of strategic management accounting in their organization; the degree to which they see the added value of the management innovation.A 5-point Likert scale will be used to indicate the cognitive legitimacy, with a score of 1 meaning ‘no knowledge’ and a score of 5 meaning ‘full knowledge’. A 5-point Likert scale will be used to measure the sociopolitical legitimacy, with a score of 1 meaning ‘no approval and appreciation’ and a score of 5 meaning ‘full approval and appreciation’. Both financial and non-financial employees fill in these questions.
3.3.5 Control variables
The control variable organization size is measured by the number of employees that work in an organization.
The control variable environmental uncertainty is measured by the three elements of market force from the research of Zhou et al. (2005). The three elements of market force describe the degree of environmental uncertainty:
Demand uncertainty: the instability of consumer preferences and expectations.
Competitive intensity: the degree of competition that a firm faces within its industry.
Environmental uncertainty is measured by the extent to which the employees perceive that these three elements are present. A 5-point Likert scale will be used and a score of 1 means that there is a ‘limited degree of the market force present in the industry’, a score of 5 means a ‘high degree of the market force present’. Both financial and non-financial employees answer these statements.
3.4 Data analysis
Before the statistical tests are conducted, descriptive statistics are presented in order to summarize the dataset and to get some insight into the scores of the respondents. Secondly, new variables are created to carry out the regression analysis after checking them with reliability analyses and a factor analysis. Thirdly, correlation analyses are conducted in order to examine if there is a relationship between the constructs and between the variables within the individual constructs. Fourthly, a regression analysis will be carried out for the whole sample (102 respondents) in order to assess the importance of the variables of acceptance. Fifthly, the means of the finance and the non-finance group for the different items are compared. A mean comparison for the variable ‘culture’ will not be conducted because only the finance group filled in that questionnaire. Finally, a regression analysis will be carried out for each of the two groups to find out if there is a difference between the relationships for the two groups. The results of the correlation analyses, mean comparisons and regression analyses are discussed in chapter 4.
3.4.1 Descriptive statistics
Descriptive statistics of the individual variables of the constructs: number of respondents, minimum score, maximum score, mean and standard deviation. Table 2 demonstrates that 52 respondents have a financial function because they have filled in the questionnaire about the construct ‘culture’. This means that 50 respondents have a non-financial function.
Statistic
Variable and items
N Minimum Maximum Mean Std. Deviation Culture Orientation to change 52 41,00 97,00 77,7308 10,40195 Manner of processing 52 16,00 44,00 31,0000 6,97053 Ways of deciding 52 21,00 47,00 35,7308 5,56289 Shared perception
Perception strategy & goals 102 1,00 5,00 3,2549 1,11414 Perception tasks & responsibilities 102 1,00 5,00 3,1863 ,89808 Perception performance 102 1,00 5,00 3,1961 1,05342 Perception market developments 102 1,00 5,00 3,2353 1,08250
Communication Communication content 102 1,00 5,00 3,3922 1,19534 Communication medium 102 2,00 5,00 4,3039 ,86504 Communication frequency 102 2,00 5,00 3,7451 1,11414 Environmental uncertainty Demand uncertainty 102 1,00 5,00 3,5098 1,08769 Technological turbulence 102 1,00 5,00 2,9804 ,86723 Competitive intensity 102 3,00 5,00 4,1961 ,68994 Acceptance Sociopolitical legitimacy1 102 2,00 5,00 3,6863 ,86723 Cognitive legitimacy 102 1,00 5,00 3,1275 1,04996 Sociopolitical legitimacy2 102 2,00 5,00 3,7647 ,84638 Table 2 Descriptive statistics of the 16 variables
3.4.2 Construct development
Composite scores are constructed for each construct in order to perform the regression analysis. By computing new variables, the different items of the variables are allocated into one construct. The new variable consists of the means of the items. New variables are thus created for the constructs ‘communication’, ‘Shared perception’, ‘culture’, ‘uncertainty’ and ‘acceptance’. These variables will be used for the regression analysis.
A factor analysis is used to reduce the number of variables to a manageable level (Malhotra, 2009). The factor analysis is used to check if the chosen number of variables is appropriate. The results of the factor analysis are shown in Appendix B. The factor analysis identified seven factors of which three factors had a clean fit. The items of ‘culture’, ‘shared perception and ‘acceptance’ are allocated into a construct.
The Cronbach’s alpha for the constructs ‘culture’, ‘communication’ and ‘environmental uncertainty’ are low but the items are still used in one construct because there is a need for multi-item scales. The low coefficients are expected because the measurement scales are more formative in nature. For formative constructs, it is not assumed that they are all caused by a single underlying construct but it is assumed that the measures all have an impact on a single construct (Jarvis et al., 2003). The direction of causality comes from the indicators to the latent construct and the indicators jointly determine the conceptual and empirical meaning of a construct (Jarvis et al., 2003). There is no reason to expect that the measures of formative constructs are correlated and internal consistency is not implied. The items of a formative measure do not need to be interchangeable and do not need to have the same content which means that they do need to share a common theme (Jarvis et al., 2003).
The three dimensions of culture (orientation to change, manner of processing and ways of deciding) form the three items, but each dimension is also composed of several items. Table 3 demonstrates that the Cronbach’s alpha of each individual dimension has a value above 0.60. The internal consistency coefficient drops when the three dimensions are taken together. Nevertheless, the construct ‘culture’ is of a formative nature and its three items are jointly used for the measurement. Moreover, the factor analysis demonstrated that the three items had a clean fit in one factor.
A correlation analysis of the construct ‘communication’ (see Appendix C) shows that the items ‘communication medium’ and ‘communication frequency’ are correlated but both items do not correlate with ‘communication content’. Content is a different aspect of communication and the measurement differs from the other two. However, it is decided to use all three items because the construct is of a formative nature and all three are important aspects of communication. Dropping one item from the measurement model may alter the meaning of the construct.
Variable Items Author Cronbach’s alpha
Culture
- Orientation to change (18 items) - Manner of processing (8 items) - Ways of deciding (8 items)
Selby et al., 2004 0.88 0.85 0.84 Overall: 0.370 Shared perception
- Goals and strategies - Responsibilities and tasks - Organizational performance - Market developments self-made 0.828 Communication - Communication content - Communication medium - Communication frequency Oosterhuis, 2009 0.367 Acceptance - Knowledge (cognitive legitimacy) - Desirability (sociopolitical legitimacy)
- Approval and appreciation (sociopolitical legitimacy)
Aldrich and Fiol, 1994 0.777
Uncertainty
- Demand uncertainty - Technological turbulence - Competitive intensity
Zhou et al, 2005 0.372
Table 3 Variables and their items
4. RESULTS
Several statistical tests are conducted in order to draw conclusions about the dataset. Firstly, correlation analyses are conducted in order to examine if there is a relationship between the constructs and between the variables within the individual constructs. Secondly, a regression analysis will be carried out for the whole sample (102 respondents) in order to assess the importance of the variables of acceptance. Thirdly, the means of the finance and the non-finance group for the different items are compared after which a regression analysis for each of the two groups is carried out to find out if there is a difference between the relationships for the two groups.
4.1 Correlation analysis
A correlation analysis is conducted in order to examine the associations between the constructs. The correlation is measured by the Pearson correlation coefficient and falls between the value 0.00 (no correlation) and 1.00 (perfect correlation). The significance level is set at 0.05 (p < 0.05). A strong correlation is found with a value of 0.70 or higher, a moderate correlation is found with a value between 0.30 and 0.70, and a weak correlation is found with a value lower than 0.30. The results of the correlation analysis are depicted in table 4.
Culture Perception
Communi-cation Uncertainty
Organization
size Acceptance Culture Pearson Correlation 1,000 -,154 -,072 -,025 -,097 -,068
Sig. (2-tailed) ,122 ,471 ,801 ,330 ,497 N 102,000 102 102 102 102 102 Shared Perception Pearson Correlation -,154 1,000 ,413** -,087 ,063 ,324** Sig. (2-tailed) ,122 ,000 ,385 ,532 ,001 N 102 102,000 102 102 102 102 Communica-tion Pearson Correlation -,072 ,413** 1,000 -,091 ,129 ,371** Sig. (2-tailed) ,471 ,000 ,365 ,197 ,000 N 102 102 102,000 102 102 102 Uncertainty Pearson Correlation -,025 -,087 -,091 1,000 -,095 ,016 Sig. (2-tailed) ,801 ,385 ,365 ,343 ,876 N 102 102 102 102,000 102 102 Organization size Pearson Correlation -,097 ,063 ,129 -,095 1,000 -,146 Sig. (2-tailed) ,330 ,532 ,197 ,343 ,142 N 102 102 102 102 102,000 102 Acceptance Pearson Correlation -,068 ,324** ,371** ,016 -,146 1,000
Sig. (2-tailed) ,497 ,001 ,000 ,876 ,142
N 102 102 102 102 102 102,000 **= significant at a 1% significance level (p < 0.01)
4.2 Regression analysis of the whole sample
The regression analysis is used to analyze the associative relationships between a dependent variable and independent variables and to test the hypotheses (Malhotra, 2009). It can be determined if there is a relationship (independent variables explain a significant variation in the dependent variable), and it can be determined how strong that relationship is (how much of the variation in the dependent variable can be explained by the independent variables. In this research, the dependent variable is ‘the acceptance of the strategic role of accounting’ and the independent variables are ‘the culture of the financial department‘, ‘the shared perception of strategy, goals, tasks, responsibilities, performance, and market developments’, ‘communication content, medium and frequency’, ‘organization size’, and ‘uncertainty of demand, technology and competition’.
First, it must be determined how much of the variance in the independent variable is explained by the independent variables. The R square measures the strength of the association which varies between 0 and 1. The adjusted R square takes into account the existence of multiple independent variables. The coefficient has a value of 0.174 which means that 17.4% of the variance in acceptance is explained by the independents.
Subsequently, it is necessary to determine if the estimated regression model is overall significant. The results of the F-test test for significance show that the null hypothesis ‘there is no relationship’ can be rejected because the p-value is 0.000 (p < 0.05). The regression model is therefore significant.
