The Institutionalisation of Lean: The Role of the Controller

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The Institutionalisation of Lean:

The Role of the Controller

Martin de Vries Student number: 2208288 m.j.de.vries.13@student.rug.nl

University of Groningen

MSc Business Administration: Organizational and Management Control

Supervisor: Dr. M.P. van der Steen Co-assessor: Dr. R.C. Trapp

Submitted on January 23rd of 2017

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Abstract

This paper studies the influence of the controller the institutionalization process of lean in an organization. Two companies were researched by conducting six semi-structured interviews. The main finding was that the controller is able to influence and contribute to the

institutionalization process of lean by changing his/her role. Other findings are the ability of the controller to change role in a cognitive sense and that the good controllers are already quite lean. The findings of this study contribute to the literature by providing new insight in the role of the controller in the process of institutional change. Also, this study adds to the literature by investigating the role of the controller in the specific institutional realm that is lean.

Keywords

Controller, Lean, Lean Manufacturing, Lean Accounting, Institutional Theory, Institutional Change, Praxis, Agency, Management Accounting, The Netherlands, Case Study

Acknowledgements

I would like to thank dr. Martijn van der Steen for providing me with great supervision in the process of writing this paper. He has proven to be very valuable for conducting this study, as his quick and sharp feedback were crucial. Also, his efforts to point out certain pitfalls in my research were crucial for finishing this paper. I can say that my research skills have definitely improved. I would also like to thank the interviewees for willingness to devote time to

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1. INTRODUCTION

Many studies have been dedicated to conceptualizing accounting change, mostly employing institutional theory (Burns & Balvinsdottir, 2005; Goretzki, Strauss & Weber, 2013; Lukka, 2007; Sharma, Lawrence & Lowe, 2010; Taylor & Scapens, 2016; Yazdifar, Zaman,

Tsamenyi & Araskany, 2008). Institutional theory takes on the institutionalization of rules and routines, constituted by management accounting systems and practices (Burns & Scapens, 2000; Johansson & Siverbo, 2009; Siti-Nabiha & Scapens, 2005). Burns & Scapens’ (2000) institutional framework discusses the interplay of actions and institutions, emphasizing the influence of routines and institutions on management accounting change processes.

To understand an organization’s management accounting practices and the change process therein, the evolutionary view, consisting of random and systematic elements, is essential (Burns & Scapens, 2000; Johansson & Siverbo, 2009) Burns & Scapens (2000) propose that management accounting change is influenced by routines and institutions, making such change inherently path-dependent. An accurate understanding of organizational routines and institutions is required when managing management accounting change. In this sense, management accounting has an institutional underpinning, as management accounting behaviour is continuously interconnected with institutions, rules and routines (Burns & Scapens, 2000; Johansson & Siverbo 2009).

While there has been much attention for the evolutionary perspective of management

accounting change, the revolutionary view has barely been researched. Revolutionary change entails a complete, fundamental disruption to existing rules and routines, where evolutionary change is more incremental (Burns & Scapens, 2000). Such revolutionary changes mostly entail change in production methods and/or techniques. Kerremans, Theunisse & van

Overloop (1991) illustrate this claim by pointing out that a dynamic environment and rapidly changing production technologies significantly affect the required information and the type of control systems used. Horngren and Foster (1987) also identify the connection between accounting systems and production processes, claiming the physical production process is key in designing cost accounting systems and that if the former changes, the latter should change as well.

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4 themes are important in management accounting change. (Kerremans, et al. 1991; Odmark, 1954). Specifically, the role of the controller in change processes has been left out of account. Instead, the role of the controller was studied in a describing way (Burns & Baldvinsdottir, 2007; Brito & Oliveira, 2014; Järvenpäa, 2001; Linhardt & Sundqvist, 2004). For this study, it is necessary to elaborate on that role, as a basic understanding is fundamental.

Traditionally, the controller was as a bean-counting number-cruncher, who management information for decision making processes (Brito & Oliveira, 2014). They focus on traditional areas of costing, financial analysis and reporting (Parker, 2002; Pietrzak & Wnuk-Pel, 2015). As they were mainly counting, and reporting, the controllers were quite alienated from a company’s main activities (Brito & Oliveira, 2014). However, the controller can no longer be seen as just a bean counting watchdog. In fact, controllers are taking on much more strategic responsibilities, fulfilling roles that fall beyond traditional tasks. The stereotypical term for controller shifted from bean counter to business partner, as they become business-oriented and are required to possess pro-active management skills (Goretzki et al, 2013).

So, while formerly performing support tasks, the controller is being more involved in business strategy. This form of management accounting change is considered to be an institutional change, as the foundation of management accounting is largely routinized and rule-based (Burns & Baldvinsdottir, 2005). If the controller is to act more like a business partner and to think strategically, the question is raised if the controller plays a role in business change processes and if so, what that role may look like.

Motivated by this shortage of research on the interplay between the role the controller and institutional change, this paper studies how the controller influences the institutionalization process of lean. Lean is an approach that has gained popularity and entails a production method that fundamentally alters the way a company shapes its production (Krafcik, 1988; Womack, Jones & Roos, 1990). Lean aims to enlarge market competitiveness by increasing efficiency and lowering costs by eliminating waste in the production flow. Waste being any activity that does not add value for the customer (Belekoukias, Garza-Reyes & Kumar, 2014; Bhasin & Burcher, 2006; Jasti & Kodali, 2015). As controllers tracks financial and

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5 In an effort to explore the effect of the controller on the institutionalization process of lean, the research question of this study is:

‘’How can the controller influence the institutionalization process of lean in an organization?’’

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Figure 1. Seven types of waste

2. THEORETICAL BACKGROUND

This section outlines existing literature that concerns this study in order to get a clear

understanding of current knowledge. By conceptualizing lean, institutional theory and the role of the controller, a framework will be designed that links these concepts together.

2.1. Lean thinking

2.1.1 Lean

The term ‘lean manufacturing’ was introduced by Taiichi Ohno and originally brought into practice at Toyota Motor Company (Edwards, 1996). The public first became aware of the concept lean manufacturing through the book ‘The Machine that Changed the World’, a bestseller published in 1990 by Womack et al., (1990) about research that was conducted in the International Motor Vehicle Program at MIT. The large scale, five year long, five million dollar Program was primarily concerned with researching American and Japanese

manufacturing practices, studying major differences in automotive production processes (Liker, 1996; Samuel, Found & Williams, 2015).

Liker (1996) describes lean manufacturing as lean because less of everything is being used: human effort is halved, less manufacturing space is taken up, less investment in tools and product development time is halved, involving less engineering hours. Inventories are minimized and product variety will be improved as a result of continuous improvement and production flexibility. Basically, you are doing more with less (Liker, 1996; Motwani, 2003; Womack & Jones, 2003). Liker (1996, p. 481) defines lean manufacturing as follows: ‘’a philosophy that when implemented reduces the time

from customer order to delivery by eliminating sources of waste in the production flow’’. Toksoy (2014) mentioned five principles for guiding organizations to lean success: people involvement, built-in quality, standardization, short lead time and continuous improvement.

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7 Figure 2. Six reasons to change accounting in Lean Taiichi Ohno stated that these seven types of waste will appear in every company and that

more types of waste may be identified (Ohno, 2013; Osterman, 2015). Examples of other categories of waste include Liker’s (2004) mentioning of unutilized creativity of employees and Emiliani’s (1998) notion of repeated mistakes. However, Ohno (2013) found acting against waste more important than giving it a label.

2.1.2 Lean and accounting

Lean implies fundamentally altering how business processes are performed. This has

significant consequences for support functions like accounting and control, since the way of measuring performance differs for a lean organization. Accounting practices should be more efficient and part of business strategy (Kennedy & Brewer, 2006). Many firms recognize the need for lean accounting and control practices as the implementation process goes along, realizing standard cost accounting no longer makes sense (Fullerton, Kennedy & Widener, 2013; Kroll, 2004). Therefore, they tend to switch to accounting methods that better capture operational performance (Kroll, 2004).

Maskell (1996) identified shortcomings of traditional cost accounting in a lack of alignment with lean business strategy, cost distortions caused by inaccurate understanding of cost patterns, inflexible reports and that the links to financial accounting systems fall short. Also, Maskell (1996) states that traditional management

accounting does not have a fit with lean

manufacturing methods, since capital projects are often evaluated erroneously because of the emphasis on machine and labour efficiency, producing in large batches which results in inventory. Therefore,

managers are pressured to continue wasteful processes.

While standard costing has proven to be a perfectly useful for companies that focus on economies of scale, it tends to overproduce, resulting in inventories and reduced production flow, which is what lean thinking opposes (Maskell, Baggaley & Grasso, 2016). Full

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8 are being achieved (Maskell et al.,2016; Ruiz de Arbulo-López & Fortuny-Santos, 2010). In order for the accounting function to support lean business strategy, traditional cost accounting should be replaced by lean accounting methods (Maskell & Baggaley, 2006).

The discrepancy between lean thinking and traditional cost accounting methods impedes the lean transformation process. This creates a tension that can be explained as an institutional conflict, as institutionalized traditional cost accounting methods inherently conflict with the lean philosophy (Maskell et al., 2016). The notion of institutional conflict stems from institutional theory.

2.2 Institutional theory

This study follows the old institutional economics, as this study concerns institutions and the behaviour of individuals within organizations. External factors emphasized in new

institutional economics hold no value for this study (Brock, 2002; North, 1992; Williamson, 2000). The institutional framework provided by Burns and Scapens (2000) will be embraced as the theoretical foundation of this study.

2.2.1 The Old Institutional Economics

Old institutional economics places emphasis on the relations between technological and institutional factors and stresses that the market mechanism is not the only dominating institutional framework, as it is in constant interplay with other institutions (Johnson, 1987).

McNabb (2006, p.21) outlines Veblen’s view on the economy:

The system of related activities by which the people of any community get their living. This system embraces a body of knowledge and skills and a stock of physical equipment; it also embraces a complex network of personal relations reinforced by custom, ritual, sentiment, and dogma.

Stanfield and Wrenn (2005) elaborate on this, stating that ‘’the economic problem consists in

the frictional interaction of the technological and the social and the perpetual institutional adjustment or evolution required therein’’. In OIE, the individual is seen as a product of his or her cultural and institutional situation, determining the individual’s cognitive ability. Thus, they cannot simply create institutions (Dequech, 2002; Khalil, 1995). The framework

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9 2.2.2 Burns and Scapens’ Institutional Framework

Burns and Scapens (2000) proposed that management accounting systems and practices constitute organizational rules and routines, which change over time. They provided an institutional framework that depicts the interplay between actions and institutions and stresses the importance of organizational routines and institutions in shaping management accounting change. While much research on the topic of management accounting change has been conducted, the emphasis has been placed on management accounting change as an outcome, and not on the change process.

Management accounting is to been as a routine organizational practice, which may be institutionalized. By institutionalized, Burns and Scapens (2000) mean that management accounting can come to underpin the ways of doing things or how people think within an organization.

Management accounting practises can shape and be shaped by institutions. This paper supports Burns and Scapens (2000, p.8) definition of an institution, which is: ‘‘the shared taken-for-granted assumptions which identify categories of human actors and their

appropriate activities and relationship’’. Institutions thus influence human activity through producing and reproducing settled habits of thought and action. In turn, institutions can evolve through routinized activities of actors within the organization, creating a duality between human activity and the institutions structuring that activity (Burns & Scapens, 2000). Hodgson (1993) defined habits as more or less self-actualizing dispositions or tendencies to engage in previously adopted or acquired forms of action. Habits are on the individual level, in contrast to routines, which may encompass groups. Thus, routines reflect the thought and action patterns that these group habitually adopt. These routines play an important role in the interplay of actions and institutions (Burns & Scapens, 2000).

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10 deemed mutually acceptable (Scapens, 1994). Thus, by implementing certain rules, routines emerge. However, a two-way relationship exists between rules and routines. as routines can be formalized into rules or protocol. When translating rules and routines to management accounting, rules consist of the formal management accounting systems and routines are actual practises (Burns & Scapens, 2000).

Rules and routines play an important role in the interplay between actions and institutions. In contrast to rules and routines, institutions are not grounded in a specific historical context, they are just the actors’ perception of ‘how things are’.

Burns and Scapens (2000) provided the following framework for studying management accounting change (fig. 1):

Figure 3. Burns and Scapens’ (2000) institutional framework

This framework shows how institutions constrain but also shape action and how actions produce and reproduce institutions through their cumulative influence over time. The top of the figure represents the realm of institutions, whereas the lower part represents the realm of actions, with rules and routines acting as modalities to link both realms while also changing over time.

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11 processes of change. However, these change processes can still shape new routines, which may become institutionalized. Therefore, it is important to study the existing institutions when studying intentional change processes (Burns & Scapens, 2000).

2.2.3 Agency in Old Institutional Economics

OIE has been tremendously valuable over time in grasping management accounting change. However, an often mentioned problem of OIE is that its main focus seems to be on

institutional stability rather than change. Institutional theorists suggest that institutions are firmly rooted within taken-for-granted rules, routines and norms and are powerful to an extent that individuals in the organization automatically adapt to them. However, the question how these new institutions exactly come about and change remains unanswered in OIE (Seo & Creed, 2002). While the institutional framework of Burns and Scapens (2000) provides insight in the steps that such a change process takes, institutional theorists have yet to explain how this change process actually works in practice and how individuals act to initiate change. In other words, the concept of human agency has been left out in studying management accounting change, making the concept of management accounting change rather static (Burns & Baldvinsdottir, 2005; Englund & Gerdin, 2008; Johansson & Siverbo, 2009; Seo & Creed, 2002).

Englund and Gerdin (2008) support the claim that human agents may act in various ways within a given social structure, as they claim that, based on the assumption of a duality-relationship between social structure and action, structures should not be seen as constraining human action in a deterministic way. On the contrary, dependent on the particular context in terms of specific time-space characteristics, actors may draw upon a given set of structures in different ways. In combination, this means that when actors draw upon a set of general structures in a specific time-space context in a non-deterministic way, the relationship between structure and action is seldom of a one-tone character. Hence, it is often difficult to connect single situated actions to single pieces of social structures.

Johansson and Siverbo (2009) also recognize that OIE has failed to incorporate agency, claiming that actors act consciously, intentionally and with self-interest. They state that actors display agency rather than taking unreflective action, which can be explained by the

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12 Burns and Baldvinsdottir (2005) offer a solution to the absence of agency in OIE. They state that it is a major challenge for institutional theorists to further develop our understanding of when, why and how individual actors influence change in the institutional context in which they are embedded, and how groups of individuals come to realize the need for change, how they assess alternatives and subsequently take action to initiate change.

Following Seo and Creed (2002), they find an answer to the question how agency influences change in the notion of ‘praxis’. This concept will be elaborated on in the next section. As the concept of agency is useful for this study, it is important to first look at the role of the controller to understand how a controller shows agency.

2.3 The Role of the Controller

2.3.1 Tasks and Responsibilities

Many definitions exist for the controller. Hopwood (2008) states that the term ‘management accountant’ is naturally vague, as it may refer to someone who is situated entirely outside of the accounting profession. Sathe (1983) identified two major responsibilities of controlling: (1) to help management in decision-making processes and (2) ensure the accuracy of reported financial information pertaining to the relevant organizational unit and that internal control practices conform to corporate policies and procedures. Since the job description of controller can be defined in many ways, this study supports the rather broad definition suggested by Hilton (2002, p. 858): ‘’The top managerial and financial accountant in an organization. Supervises the accounting department and assists management at all levels in interpreting and using managerial accounting information.’’.

2.3.2 From Bean Counter to Business Partner

The role and reputation of the controller have changed considerably. Where the traditional job description of the controller entailed score keeping, attention directing, problem solving and corporate policing, the controller has taken on a rather strategic orientation (Brito & Oliveira, 2014; Burns & Baldvinsdottir, 2005). Key drivers given in current literature for this change in orientation include new management philosophies, organisational re-design, changing market conditions, increasing business complexity, system development, innovations in management techniques, HR developments, champions of change and general myths about benefits of change (Burns & Baldvinsdottir, 2005, Granlund & Lukka, 1997; Järvenpää, 2001).

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13 growing need to be more efficient, the controller can no longer be seen as ‘just one of the accountants’. Resource management is critical and much more strategy-based information is needed. Information management technology has adapted to this need, enabling firms to manage any kind of information. However, the needed information is more varied and of a larger quantity, requiring controllers to adapt and to step out of their traditional role (Brito & Oliveira, 2014). Next to providing information, the information now needs to be interpreted in order to advise management, thus making the controller into a facilitator of decision-making, fostering their involvement in building strategy or even management itself (Goretzki et al, 2013).

2.3.3 The Controller’s Agency

However, the ‘bean counter to business partner’ evolution is not simply a broadly carried trend (Burns & Baldvinsdottir, 2007). Although many companies strive to incorporate the controller in strategic issues, a specific reason for that evolution in role can be found in agency (Burns & Baldvinsdottir, 2005; Seo & Creed, 2002). As the controller has a specific role in the organization, he can practice agency within that role. By practicing such agency, the controller is able to change his role through his actions. Change in the role of the controller is thus not merely shaped by general developments and institutions (Burns & Baldvinsdottir, 2005). This form of agency is found in praxis.

2.3.4 Praxis

Praxis was originally suggested by Benson (1977) and further elaborated on by Seo and Creed (2002). Praxis is ‘’the free and creative reconstruction of social patterns on the basis of a reasoned analysis of both the limits and the potentials of present social form’’ (Seo & Creed, 2002, p. 230). It is a key concept in reconciling two seemingly incompatible properties of institutional theory: institutional embeddedness and transformational agency.

Benson (1977, p.5-6) stated that "people under some circumstances can become active agents reconstructing their own social relations and ultimately themselves".

Seo and Creed (2002) argue that incorporating the role of interests and individual agents into institutional theory could add to the shortcomings of OIE. However, this statement contradicts the assumption in OIE that actors and their interests are institutionally constructed

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14 This framework explains institutional change as an outcome of dynamic interactions between human praxis and institutional contradictions, where praxis is perceived to be a key driver of institutional change. Seo and Creed (2002) incorporated the concept of contradictions, which explains institutionally embedded agents might come to question the existing institutional context and subsequently try to change that institutional context. Contradictions can initiate institutional change, as agents identify the need or potential for change and subsequently put ideas into practice (Burns & Baldvinsdottir, 2005; Seo & Creed, 2002). Contradictions represent ruptures and inconsistencies within established institutions that can lead to conflict and tension. Such contradictions can make embedded individual actors realize the need for change (reflective moment) and drive them to initiate action (active moment)(Burns & Baldvinsdottir, 2005).

In this study the concept of praxis is underlined, as the role of the controller as an individual agent in a change process is researched. Following the concept of praxis, the controller might encounter contradictions when the organization attempts to institutionalize lean thinking, driving him to act as a change agent on a perceived need for change as some practices or processes may no longer make sense.

A modified version of the institutional framework of Burns and Scapens (2000) is suggested to depict how the controller can influence the institutionalization process of Lean by changing his own role.

2.4 Linking the pieces – Theoretical Framework

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15 Lean principles get encoded in rules and routines of the controller, influencing his role (arrow A). The existing routines will embody the prevailing institutional principles and in turn shape new rules, which subsequently lead to reformation of routines. The controller will then enact the routines and rules that encode the institutional principles (arrow B). In turn, enacting the role repeatedly leads to reproduction of those routines (arrow C). Subsequently, rules and routines that get reproduced over time may get institutionalized (arrow D). Those rules and routines become ‘the way things are’. These institutions then get encoded in the role again and the process will be repeated (Burns & Scapens, 2000).

However, as Burns and Scapens (2000) did not consider agency, there is a fifth arrow (E) for praxis. By analysing the limits and possibilities of his role and present social forms and freely practicing his role, the controller can act out agency and try to initiate change within the existing configurations (Burns & Baldvinsdottir, 2005). Thus, through praxis the controller can change his own role, which in turn can become institutionalized. When this happens, the controller actively influences the institutionalization process of Lean by continuously

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3. METHODOLOGY

This part of the paper elaborates on the applied research methods, explaining how the study was designed and how data was gathered and analysed.

3.1 Research Design

The specific research question this paper attempts to answer is: ‘’How can the controller influence the institutionalization process of lean in an organization?’’.

As there has been little to no research conducted on this topic, an open-minded attitude is in place. Therefore, qualitative data will be gathered. (Hancock, Windridge & Ockelford, 2007). The aim of conducting qualitative research was to gather as much information as possible from practitioners in an effort to develop more explanatory theory on the subject of the role of the controller in institutional change. This information was gathered by conducting interviews (Cooper & Morgan, 2008).

3.2 Data Collection

Multiple interviews were conducted at two separate companies, in which solely qualitative data was gathered. These companies practice lean, which made it likely that relevant patterns would be observable (Eisenhardt, 1989). The interviews were face-to-face, in-depth and semi-structured. The interviews concerned the respondent’s perception of the role and influence of the controller in a lean environment.

The average duration of the interviews was between 40 and 85 minutes. The interviews were audio-recorded and subsequently transcribed literally, making it possible to quickly scan for information. Also, the recording and transcribing makes the interviews less sensitive to research bias as they can be replicated if needed, thereby minimizing the influence of researchers (Edwards & Holland, 2013).While there was room for in-depth questioning and minor flexibility in questions, the interviews are still consistent and uniform to a great extent making them replicable and thus accounting for reliability (Golafshani, 2003).

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17 The interviews were conducted in Dutch, as the interviewers and the respondents speak Dutch as their first language, which makes it easier to communicate effectively.

At Company A, interviews were conducted with the assembly manager, an assistant controller and a controller. At Company B, interviews were conducted with the lean change agent, a business controller and a financial controller. All of these respondents should be able to

comment on the role of the controller, as they have some type of connection to the controllers.

Nr. Company Date Time Duration Gender Function Experience in

current firm

Educational background

1 B 2-12-16 08:30 01:07:40 F Business

Controller

Min. 12 Yrs Business Economy

2 B 2-12-16 10:00 01:25:13 M Assembly Manager 2,5 Yrs Precision Industry/Technique 3 B 2-12-16 11:30 00:40:32 F Assistant Controller 3 Yrs Business Administration 4 A 5-12-16 09:00 01:14:32 M Lean Change Agent 2 Yrs Business Information/Lean 5 A 5-12-16 10:30 01:20:50 F Business Controller 6 Yrs Financial Administration Management 6 A 14-12-16 - - F Financial Controller 1 Yr Accounting/Administra tion

Figure 5. Interview information (Note: Interviewee nr. 6 replied by e-mail)

3.3 Data Analysis

As stated earlier, the interviews were audio-recorded and transcribed literally. Subsequently, the transcripts were carefully analysed and compared with reviewed literature to identify how theoretical concepts translated to practice.

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4. ANALYSIS

This section provides the analysis of the interviews. Company A and B will be discussed separately, after which there will be a concluding part in which the companies are compared.

4.1 Company A

Company A implemented lean because of unsatisfied customers, as the company did not ‘’adhere to their statutory duties’’. The company provides topographic maps of the Netherlands to the Ministry of Infrastructure and Environment each two years, but it took them four to six years. In 2011 the decision was made to go lean as the head of the department recognized that it could improve their processes.

The focus, according to the lean agent, is on ‘’changing behaviour and attitude’’ and ‘’encouraging employees to think’’. The main aim was improving output efficiency, which meant that lean principally was encoded in the rules and routines of the departments that provided the actual maps. For instance, the company eliminated the fieldwork department and started using 360-degree photos, which meant a two-year improvement in actuality. Another example of lean encoding is visualization of information, as the lean change agent argued:

‘’. . . that is one of the most important things in lean, you have to make it visible. Try to visualize everything on a strategic, tactic and operational level in such a way that you can see where the problems lie at the moment, using actual information of which everyone is aware at all time’’.

However, while the company foresaw advantages in implementing lean in product-oriented departments, lean was not considered to be for the financial function. This entailed a certain imbalance in role change, as the controlling department did not embody the lean principles and was generally not involved in the lean process. As lean thinking and traditional

accounting principles generally seem to be mismatching concepts, this imbalance could generate tension. Thus, the controllers would still adhere to existing rules and routines, which did not embody lean principles: ‘’Lean is still specifically meant for the production-part only’’.

The rules for controllers are their traditional tasks: ‘’We basically have standards . . . I need to provide a planning, I need to provide a forecast, a prognosis and a quarterly

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19 which implicates that they were still the stereotypical ‘watchdog’ type of controller when lean was implemented.

However, as lean principles were encoded in other departments, the controllers inevitably came to experience the changes that those departments underwent as they enacted their daily routines. This meant that the controllers steadily noticed small changes in their routines: ‘’It has become much more transparent. It used to be like a black box, I saw the information in hours but I could never grasp what we weren’t doing.’’.

So, because other departments changed their processes as a consequence of encoded lean principles, the routines of the controllers steadily underwent small changes as well, as they have to adjust their practices (routines) in order to perform their job. If the controllers do not adjust their routines, they might not be able to perform their routines. This is a situation in which the controllers could have been resistant to change, as the combination of lean thinking and traditional accounting methods generally isn’t successful.

However, the controllers encouraged the fact that their routines changed, as it benefitted them. One controller mentions how the controller department did no longer have to perform certain tasks as ‘’Everybody now takes their responsibilities and makes everything visual . . . I don’t have to pull as much to acquire data, which is very pleasant’’.

Thus, while lean thinking was not implemented in controlling and the role of the controller did not embody lean principles, the controllers noticed small changes in their routines due to the general developments in the institutionalization of lean thinking. In other words, the controllers continuously make minor adjustments to their routines as they adapt to the

changes in other processes. A good example is how other departments now visualize as much information as they can, resulting in the controllers actively using the information boards: ‘’You can see here: what are we delivering? How is our progress? What is up with quality? So it just becomes much more transparent’’.

By enacting and reproducing their changing routines, their role changes and starts to have a better fit with the institutional realm of lean thinking. Such minor role adjustment is

accounted for in institutional theory, as it states how individuals always tend to change their role a little bit due to prevailing institutions. Thus, by adjusting their role to fit the lean

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20 controller.

This means that there might be some sort of fundamental common ground between the traditional controller and lean thinking. In practicing the traditional routines, the controller already keeps track of business processes: ‘’ . . . as a controller you need to have a justification, you just need input from the business . . . in order to get a feeling in the process.’’.

Thus, the controller already has a lot of knowledge of the processes and the results they yield. Since the introduction of lean thinking in business processes requires visualization of

information, the controller gains more insight in operational data. Next to that, a controller stated how she makes visits to the production department: ‘’Especially the visits to the production site is very important to me, as you keep some sort of feeling. If that’s not there, then there are only flat numbers and you have no clue what it is about.’’. So, where the controller used to rely on flat financial data, she can now see where such information originates and subsequently gain a better understanding of available data: ‘’. . . you can ask more questions, you start to live it more and you can give more full-fledged advice’’. Because of their neutral position, the controllers have no attachment to certain routines or preferences regarding business processes, yet do possess a lot of knowledge of those

processes. This means that the controllers, simply in performing their traditional tasks, should be very competent in objectively identifying waste and possibilities for improvement. One controller specifically states how she shows externals that ‘’a whole new world opens up for you, you can remove so much waste from your processes . . . it’s very simple, just take a look at your process.’’.

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21 involved in the implementation process – ‘’. . . the way we implemented it, it was not

important at all . . . The way it went has worked out just fine.’’ - they still managed to contribute to the institutionalization of lean. It could therefore be quite beneficial to involve the controller in the transition process to lean.

However, the role of the controllers did not solely change because of minor developmental adjustments. In fact, the controller can change their role by themselves. As the controller keeps enacting and reproducing her role, she continuously analyses processes. For example, the controller stated:

‘’We have an annual meeting with the financial column . . . and for that we had mapped out the complete planning process. This is how it was, with all these steps, and if we completely dismantle it, this is how it could be . . . purely the process, how it actually works.’’

By conducting such analyses, the controller thus inevitably will encounter inefficiencies (contradictions), which may also affect their own efficiency. This is where praxis emerges in the reflective stage, as the controller may critique the existing process patterns and

subsequently search for alternatives. An example of the reflective stage of praxis is mentioned by a controller:

‘’. . . did we actually deliver the product? That became a little hard to answer. Was it of the quality you meant? Well, you could not really measure that. There were information streams, but those were just scraped together.’’

The controlling department thus realized that the process of obtaining certain information was inefficient. Subsequently, an alternative was sought, as a controller explained:

‘’We had a colleague, who has been occupied for almost a year with obtaining more insight in which reports were being made in the production department . . . she was my intermediary, she was more into the production aspect . . . Because she retired, we placed someone from administration in here to keep a feeling with how everything is put into the system . . . as being someone with a financial background.’’

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22 moment of praxis, as the controlling department took action to keep the quality of information streams sustained. Thus, by acting out their own agency and showing praxis, the quality of information is improved, which is a lean standard. This way, the controllers thus contributed to further institutionalization of lean by proactively taking action to improve their routines and by doing so, changing their role.

This does happen without reason, as Company A encourages employees to actively change their processes. The lean change agent explains:

‘’. . . it’s not just about the tools, but also about behaviour and attitude and because you keep stimulating the employees to think with behavioural components, the change will inevitably happen within the organization . . . they should go and experiment and share their results with their colleagues as soon as possible.’’.

The controllers realize this:

‘’. . . you need to get the freedom as an employee to change the process actively, by yourself . . . people began to see that they would get a lot of freedom , you can think along . . . it’s a real relief if you see what you are permitted to do (i.e. because of lean)’’

So by getting the freedom to change their own processes and incorporating it in their role, which they continuously enact and reproduce, the controllers’ new role is being

institutionalized. In this new role, the controllers significantly and directly support the further institutionalization process of lean thinking within the organization and, as this role gets more embedded over time, practicing lean thinking becomes inevitable for the company.

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23 controller has not yet started with learning about lean accounting. However, as this is an intention to change the rules and routines within controlling, it has to be seen as cognitive praxis that will further shape lean institutionalization in the future, as lean accounting is seen as a necessary step in guiding a company to lean success.

4.2 Company B

Company B implemented lean thinking in 2012 for several reasons. The first reason was, according to the assembly manager, that ‘’It was a big mess’’. Another reason was growth: ‘’The moment you start to grow, your processes become more and more important.’’. A third reason for going lean was to ‘’. . . get a better understanding of what is happening, where the waste is at.’’. In short, management acknowledged that business processes needed

improvement to keep up with company growth. Lean principles were encoded in rules and routines of the production, logistics and assembly department and a special lean-team was established. An example is the emphasis on employee development. The assembly manager explains:

‘’ . . . that valuable asset, the employees, is in there (e.g. in the lean foundation). A lot of effort is put in that, really a lot, I have never seen it that professional in any other company. We have our own trainer, who is occupied with that full-time . . . it’s really valuable, how that’s being done.’’.

Other examples are: ‘’. . . the elimination of waste, continuous improvement, but also how you manage your information provision . . . Also the means of communication we use, but also standardisation in consultation structures.’’. The company made sure that employees have the right tools at their disposal, thus eliminating waste of unnecessary movement. Also, attention was being directed on safety issues, as the assembly manager states: ‘’We make various strolls that have to do with lean, to maintain orderliness but also to secure safety.’’. An example of rule change is the introduction of safety-paths by drawing lines on the floor.

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24 ‘’People know things change now and then, and some people you have to approach

differently when change is imminent . . . you have to talk them through the process and give them the idea that it’s their own idea, in order to create acceptance . . . some people get insecure, you just have to approach them differently.’’.

The tasks of controllers thus remained the same. Such tasks entailed project management and analysis, reporting and consolidation. However, while lean thinking was not implemented in controlling, interviewees do mention how controlling makes a significant contribution to lean. The assembly manager states:

‘’They have made reports really insightful. They provided a single source of transparent data, they provided a measuring method of which we can say that it’s right . . we have made a significant step forward, which reduces waste . . . They (e.g. the controllers) have made a great contribution in that respect.’’.

The controllers identified their contribution to lean in ‘’. . . making painful areas visible. So that people start to think how certain things are possible and why certain steps are in their process. Should they alter their process?’’.

So, while lean was not implemented in the financial function and while controllers state that their tasks have not changed, the controllers do contribute to lean processes in the

organization. This seems illogical, as literature states that traditional controlling and lean thinking do not fit. However, a controller interestingly mentions how she has always been efficient:

‘’I don’t even know when it exactly started, lean. It is - maybe I shouldn’t say it - just a fashionable word. I have always been busy improving the process and I have always been very lazy . . . within Finance, I have always been doing it his way.’’.

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25 population by automating and altering our processes.’’. This consideration was made in the stadium of developing the controlling function, several years before lean was implemented. It literally translates to ‘’doing more with less’’ (or in this case with doing more with the same), which is what lean is about. Also, the controller explains how – before lean - controlling already installed dedicated, accessible data directories with a uniform structure. So, without attributing their practices to lean thinking, the controllers have always been practicing lean to an extent. One controller comments on the perception of lean within the finance function when it was implemented: ‘’People did not realize that we already have done lean quite a lot. They see lean as physical: the lines on the floor, everything needs to be on a spot… ‘’.

Thus, the financial professionals seemed to regard lean as not for them. This could mean two things: either a lot of financial professionals did not know what lean exactly entails, or they did know what lean means but they did not ascribe their practices to lean. As the controllers understand their contribution to lean processes, the latter seems likely, meaning that

controllers identify their efforts to improve as part of their function as controller and not as part of lean.

This supports the proposition of a possible fundamental common ground between traditional controlling and lean thinking, as the controllers are lean in their routines, yet do not identify themselves as lean but rather as efficient controllers. It also explains why controllers in Company B did not show resistance: since they already were quite lean, they did not notice much change and thus had no reason to object it.

As in Company A, this means that the controller could be helpful in facilitating lean change processes, as their role inherently corresponds with lean thinking. The assembly manager seems to be aware of this possibility, as he sees a role for the controller in creating support and enthusiasm for lean change:

‘’You could reach that, in my opinion, by consulting the controller when you look at the processes, what do they see in the numbers, where do we see problems, how do you make it measurable and transparent … and then proceed to start.’’.

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26 they do not think that their tasks have changed as they already unknowingly adjusted to lean. However, they have steadily evolved their role as a consequence of the implementation of lean as well, by changing their routines and enacting and reproducing those changing routines.

One controller mentions how the reporting routines change:

‘’As a controller you can make analyses more easily. You can constantly optimize further: where are the painful areas. Because we see the top layer of those areas, but you want to go a layer deeper when you have solved those, which helps a lot.’’.

So the controllers actively try to dig deeper into processes to improve them, which they previously could not. Also, their reports are more specified regarding inventories, as lean rejects inventories. The controllers also changed their reports in terms of understandability, which is another valued concept in lean thinking: ‘’ . . . it has to be readable for everyone, for every layman . . . if they affect the shop floor, they get to see them and something will be done with it.’’.

Next to sharing understandable information with other departments, the controllers visit other departments to learn about the processes. Due to heavy workload, a new assistant controller has been hired specifically to inspect and map processes. These are small changes that controllers have made over time as a consequence of encoded lean principles in other

departments, as a deeper understanding of processes is needed, which the controllers can help to acquire.

The assembly manager also mentions a change of role enactment of controllers: ‘’You can see that the interaction with the rest of the organization is emerging, that it is being sought . . . They are being seen more in the organization, more visible but also more part of the processes.’’. Thus, the divide between assembly/production and controlling is fading, as controllers become more visible as they need to see the processes more in order to keep their own routines up to date. If they are required to contribute to improvement, a deeper

understanding of process is essential;.

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27 controlling, in which control is essential to the lean process. As one controller explains:

‘’They trust your data . . . you sense that, if I once do not provide a report, they will be in doubt . . . They also come to us with questions . . . That is a sign for me that I’m doing good work, I made you realize the importance.’’.

This shows that the organization relies on data that controlling provides, emphasizing the importance of control for the process.

However, the role change of the controller was not just a consequence of adjustment to lean processes. The controllers themselves have also changed their role by showing praxis. A controller mentioned one specific example of how she introduced change to project information management and accessibility:

‘’Our focus was solely on loss-projects, as soon as they became unprofitable, they had to be reported . . . Late 2014 I started to emphasize the importance of intermediate evaluation of our financial position, the estimated result . . . We steadily started with a print, a pdf, and room for comments to be made, that’s it. Now I have a model for that, quite simple, so that people automatically have the numbers from the system . . . That document was initiated last summer and now it is widely accepted . . .’’

So by doing this, the controllers created a way for other departments to look at the status of their projects while they progressed and provided some key figures for evaluation, as they realized that a different way of evaluation was needed.

The assembly manager also gives an example of how controlling initiated change as they saw inefficiencies in how projects were managed:

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28 management (reflective moment of praxis). They subsequently acted on this by introducing alternative ways of managing projects (active moment of praxis). Thus, by enacting their agency and showing praxis, the controllers changed their own role, as controlling became more important for project management. In fact, the new way of project management became institutionalized, as the controller states how their document now has become ‘’widely

accepted’’. As this new protocol has proven to be efficient and to improve business processes in a sense that waste of excess processing is reduced, the controllers have contributed to the further institutionalization of lean within the organization.

The controllers can show praxis as the institutional context allows them to do so. Controllers are expected to think along and to point out possible improvements and waste, thus they inevitably will encounter processes that contradict that context. Thus, by realizing contradictions as they enact their role and next to that, the fact that the controllers were already quite lean, they can accurately judge processes and contribute to improving them.

However, next one controller also shows praxis in a cognitive way. She mentions the following on projects:

‘’I knew the project numbers. I don’t look at the project description. I also know exactly which issue relates to which number, but concerning that, I need to walk through the factory a little more often, but I do not have time for it.’’.

Thus, by realizing her knowledge of project content is not optimal, she intends to visit the factory more often to extent that knowledge. So, the reflective moment of praxis can be found in that realization. However, the active moment of praxis cannot take place yet due to

shortage of time. The intention is central, as it hints to future role change. This role change will contribute to the further institutionalization of lean, as the controller will get a better understanding of projects and thus will be able to provide more information on their actual content.

4.3 Concluding the Analysis

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29 controller behaviour is lean behaviour (to an extent). This means that there is a fundamental common ground between the role of the controller and the ideas of lean thinking. The

controller has a lot of knowledge of process data, as gathering such information is a large part of the job. As processes become lean, more information (specifically operational data)

becomes visible, which extends their process knowledge. Therefore, the controller is more able to accurately judge where waste is located and where there are possibilities to improve, which makes it possible for the controllers to perform their job better. Thus, as controllers adapt to lean processes to adequately perform their job, they are better able to give advice because of lean, but also towards lean as their knowledge improves. This means that the controller contributes to the institutionalization of lean thinking purely by enacting the traditional role. Also, as controllers have the knowledge needed for process improvement, they could be important in implementing lean, by pointing out waste and improvement possibilities in an early stage.

Another finding is cognitive role change. Prior to researching the organizations, it was assumed that role change is a practical phenomenon, explained by historical events or as a result of evolutionary development. However, as in both organizations controllers have shown how they plan to change their role in the future, it seems that role change can also take an intentional form that is part of the current process of role change.. However, both controllers have not yet initiated action to carry out these intentions. Thus, as controllers aspire to change their role, but yet have to initiate action to do so, this form of role change has a cognitive nature. These specific examples enable controllers to contribute to the institutionalization of lean, as lean accounting as well as improved process knowledge are valued concepts within lean, thus ensuring a better fit between controlling and operations. However, as the intentions currently are not or cannot be realized, valuable lean improvements are not being

implemented. The controllers claim that they are too busy to realize their intentions, which sparks the suggestion that the controllers might be occupied with tasks that contribute less to lean than their intended role change would. In this case, organizations or controllers would have to identify such tasks and find a way to realize those intentions instead of performing less valuable tasks, so that control can contribute to lean institutionalization more

significantly.

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30 lean thinking becomes the inevitable institutional context. While lean principles were not encoded into controlling in the researched organizations, the controllers nevertheless

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5. DISCUSSION

The analysis yielded three findings: that a good controller is already quite lean; that role change may take a cognitive form; and that the controller supports lean institutionalization by changing his/her role. These findings will be compared with the literature review.

5.1 Good controllers are lean

Current literature suggests that traditional accounting and controlling methods do not correspond with lean thinking. Fullerton et al. (2013) and Kroll (2004) claim that standard cost accounting does not make sense when lean is implemented and that traditional methods should be abandoned in for lean accounting and control practices. This implies that traditional controlling and controlling in a lean organization are two totally different things and that the traditional controller would be of no use in a lean organization.

However, this study disagrees with the literature as it shows that traditional controllers function very well in lean organizations. The studied controllers adapted surprisingly easy to lean processes and became important in the further institutionalization of lean thinking while still performing their traditional role.

This observation sparked the suspicion that traditional management accounting and lean thinking do have a fit and in fact share a fundamental common ground. This common ground is found in the emphasis on process information quality. As lean processes require controllers to steadily adjust their routines in order to get the necessary data to perform their job, the controller is already contributing to lean by just being a good controller. This means that there is a minor overlap between traditional role of controllers and the ideas of lean thinking that facilitates the transition process.

Maskell et al. (2016) stated how there is a discrepancy between traditional cost accounting methods and lean thinking, which impedes the transformation process. Following the

common ground proposition, this study disagrees with this suggestion. In fact, the controllers have shown to contribute to the lean transformation process while still adhering to traditional costing methods.

5.2 Cognitive role change

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32 explaining intentional role change of controllers. However, this study has shown that

individual agents also change their role in a cognitive way. This means that the reflective moment of praxis has taken place, thus there is an awareness of a need for change, but that the active moment of praxis has not happened yet. In this study, the controllers have pointed out their intentions to change their role in the future to better fit the lean organization.

In the case of the intention of a controller to educate herself about lean accounting, it can be stated that there is no contradiction that ignites the agent’s desire for change. However, the controller indicates how she thinks that the financial function might have to undergo lean change eventually and that lean accounting might provide a better fit in such a situation. This means that while there is no current contradiction, the controller suspects a possible

contradiction in the future on which she intends to act upon. Thus, there is an intention to contribute to the further institutionalization of lean by becoming a lean accountant. As this intended role change can be perceived as a form of praxis when the active moment has taken place, this concept can be classified as cognitive praxis. This phenomenon is not mentioned in current literature and thus adds to the research of Burns and Baldvinsdottir (2005) and Seo and Creed (2002).

5.3 The controller supporting lean institutionalization

This study has shown that controllers were able to support lean institutionalization in their organization by enacting their role, but also by showing praxis as a consequence of their human agency. By doing so, the controllers managed to institutionalize their new role in such a way that lean became the ‘inevitable paradigm’ in the organization. This means that this role depends on lean processes, but that the lean processes also need the controller in the newly assumed role.

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33 able to influence significantly to institutional change by changing their role, but also managed to institutionalize their new role in such a way that it fostered further institutional change.

The research question of this study is: ‘’How can the controller influence the institutionalization process of lean in an organization?’’.

It can be stated that in this study controllers have shown that they can influence the

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34

6. CONCLUSION

This paper intends to add to management accounting change literature by answering the following research question: ‘’How can the controller influence the institutionalization process of lean in an organization?’’. It can be concluded that the controller is able to

influence the institutionalization process of lean by being able to change his role. This section concludes the research dedicated to answering the research question.

6.1 Theoretical and managerial implications

This study holds two theoretical implications. Firstly, the role of the controller in institutional change has been subject to little to no research. This study suggests that controllers can have an influence on such a change process by being able to change their role. Secondly, this study shows how the controller can influence institutional change in the specific institutional realm of lean thinking. This adds to current research on lean thinking as well as research on

management accounting in a lean organization.

There are two managerial implications. Firstly, this study enables organizations to better grasp the role of the controller in a process of institutional change. The controllers can have a great influence on such a process, which makes it possible for organizations to involve controllers in facilitating lean change. Secondly, this study explains to organizations how controllers might already be lean to an extent. This means that the transition to lean accounting and control can possibly be made quite effectively, as there already is a fundamental overlap between traditional controlling and lean thinking.

6.2 Limitations

Although this research was carefully prepared, certain limitations are acknowledged. While two separate companies were researched, only six interviews were conducted, of which five were in-depth and usable. A third company was to be researched, but this plan was cancelled as the company indicated that the individuals that were relevant for this study were not available. Thus, while good insight was gained, this study depends on a small amount of interviews. Next to that, these are both Dutch companies that were studied by Dutch

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6.3 Directions for future research

While there has been much attention for the profession of controlling and institutional theory as separate subjects, the role of the controller in the process of institutional change has barely been researched, if at all. This study provides initial insights, however, the scope of this study is rather small. Therefore, a clear direction for future research is the development of more qualitative information on the role of the controller in institutional change.

Next to that, there is still a considerable amount of ambiguity on what the role of the controller exactly entails. If a universal, unambiguous definition of the profession of controller and a clear definition of the corresponding tasks were to be established, future research on the role of the controller will be more generalizable.

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