Business Management: The Consistency between
Management Accounting and other Internal Discourses
Fábio Frezatti*
Full Professor
School of Economics, Business
Administration and Accountancy
University of São Paulo – Brazil
Av. Prof. Luciano Gualberto, 908
São Paulo, SP, Brazil, 05508-900.
E-mail: frezatti@usp.br
Phone: +55 (11) 3091 5820
David Carter
Reader in Accounting
University of Roehampton Business School
University of Roehampton
80 Roehampton Lane, London, SW15 5SL
Visiting Professor
School of Economics, Business
Administration and Accountancy
University of São Paulo – Brazil
E-mail: david.carter@roehampton.ac.uk
Phone: +44 (0) 20 8392 3454
Marcelo Barroso
PhD Student in Management Accounting
and Controllership
School of Economics, Business
Administration and Accountancy
University of São Paulo – Brazil
E-mail: marcelobarroso@usp.br
* Corresponding Author
1
Business Management: The Consistency between
Management Accounting and other Internal Discourses
ABSTRACT
Situated within discursive literature, this paper examines the construction of competing
articulations of the organisation. In particular, the paper acknowledges the fundamental
importance of the accounting discourse in the support, facilitation, enabling, and constraint
of competing discourse. An effective management accounting information system can
support, facilitate, enable, and constrain new business discourses. This paper examines the
discursive and organisational effects of an organisation abandoning management accounting
discourse. In this case study, we research how other organisational discourses (such as
entrepreneurship and growth), which are traditionally constructed with reference to
accounting and other artefacts, continued to be produced and sustained. The non-use and
non-availability of management accounting information created a vacuum that needed to be
filled. The lack of discursive counterpoints and counter-evidence provided by management
accounting created a vacuum of information, allowing powerful, proxy discourses to prevail
in the organisation, increasing risks to business management. The absence of management
accounting information requires that contingent discourses ‘fill in the discursive gap’.
Despite appearances, they are no substitute for accounting information. Thus, over time, the
entrepreneurial, growth and partners’ discourse loses credibility, without the corresponding
use of management accounting information and its associated discourse.
Key words: management accounting, business discourses, rhetoric, discursive gaps,
discursive proxies.
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INTRODUCTION
Organisations are a complex network of interconnected discourses. Sets of complimentary
and conflicting discourses operate within an organisation: including accounting, growth,
entrepreneurship, strategy, management, production, and sales, amongst others. We
concentrate on the construction of these discourses, particularly the use of discursive artefacts
to support, facilitate, enable, and constrain competing organisational discourses.
As Hines (1988, p. 257) indicates with respect to financial accounting, we argue that diverse
organisational discourses not only communicate reality but also construct reality. Laclau &
Mouffe (1987) explain discourse:
This totality which includes within itself the linguistic and the non-linguistic, is what we call
discourse … Every social configuration is meaningful … it establishes a system of relations
with other objects, and these relations are not given by the mere referential materiality of the
objects, but are, rather, socially constructed. The systematic set of relations is what we call
discourse (Laclau & Mouffe, 1987, p. 82) [emphasis in original].
Moreover, these discourses are constructed contextually (much broader than mere linguistic
processes): to understand discourse is to understand context.1
This paper is situated within the linguistic turn in social science research. The linguistic turn
goes beyond the ‘factual’, ‘objective’ presentation of accounting to see the products of
accounting – its figures, numbers, reports, judgments, and statements – as text; in this sense,
accountants are the authors of the text, auditors the critics, and users the readers (Macintosh,
Shearer, Thornton, & Welker, 2000, p. 23). This constitutes a shift from traditional
accounting focusing on its informational characteristic; here, accounting is a narrative
(Macintosh, 2002, p. 23). Moreover, the post-structuralist critique concentrates on
understanding how language and language games work to produce meaning, rather than the
structural linguistic focus on the reflection of meaning (Arnold, Hammond, & Oakes, 1994;
Macintosh, 2002; Macintosh et al., 2000).
1
Howarth & Stavrakakis (2000) emphasise the centrality of discourse:
At this lower level of abstraction, discourses are concrete systems of social relations and practices that are
intrinsically political, as their formation is an act of radical institution, which involves the construction of
antagonisms and the drawing of political frontiers between ‘insiders’ and ‘outsiders’. In addition, therefore,
they always involve the exercise of power, as their constitution involves the exclusion of certain
possibilities and a consequent structuring of the relations between different social agents. Moreover,
discourses are contingent and historical constructions, which are always vulnerable to those political forces
excluded in their production, as well as the dislocatory effects of events beyond their control (Howarth &
Stavrakakis, 2000, p. 3-4).
3
This does not reduce everything to discourse or deny the existence of objects:
The fact that every object is constituted as an object of discourse has nothing to do with whether
there is a world external to thought, or with the realism/idealism opposition. An earthquake or
the falling of a brick is an event that certainly exists, in the sense that it occurs here and now,
independently of my will. But whether their specificity as objects is constructed in terms of
‘natural phenomena’ or ‘expressions of the wrath of God’, depends upon the structuring of a
discursive field. What is denied is not that objects exist externally to thought, but rather different
assertions that they could constitute themselves as objects outside of any discursive conditions
of emergence (Laclau & Mouffe, 2001, p. 108).
From this post-structuralist ontology of the socially-discursive constitution of reality, we
recognise that there is organisational reality, comprising the organisation’s daily operations
and transactions; those days become months, months become years. The firm and its
performance, then, exist. However, as discourses are partial, no discourse is able to fully
represent the organisational reality: language, expression, interests, and politics, for example,
distort these discursive depictions. Consequently, organisational discourses constitute
competing articulations of an organisational reality; abstractions emphasizing particular
aspects. No definitive discursive articulation of the organisation exists: each attempt at
representation is merely ‘an attempt’; each attempt is partial; each attempt is not neutral; and
each attempt is rhetorical. This paper examines attempts by organisational discourses
(including entrepreneurial, growth, and accounting discourses) to represent the ‘reality’ of the
economic activities of a particular enterprise. Further, this paper examines what happens
when one of these discourses – the accounting discourse – is abandoned.
In the construction of ordinary discourses, the accounting discourse operates in a complex
manner. Accounting is a discourse in its own right, but further, it produces discursive
artefacts which support, facilitate, enable, and constrain other organisational discourses. For
example, subjects interacting around the budget construct particular discourses, but equally,
the budget becomes a discursive artefact which supports, facilitates, enables, and constrains
other organisational discourses. Accounting operates as a crucial organisational discourse. In
this case study, given the organisation abandoning the accounting discourse, what we study is
how other organisational discourses (such as entrepreneurship and growth), which are
traditionally constructed with reference to accounting and other discursive artefacts,
continued to be produced and sustained through invoking proxies for accounting artefacts.
4
We want to be cautious here: we are not reifying accounting within the organisation.
Undoubtedly, it is an important organisational artefact, but it cannot be a true representation
of the underlying economic reality due to its metaphorical, partial and stylised nature. As
Morgan (1988) states:
… accountants try to represent organizations and their activities in terms of numbers. This is
metaphorical. And like all use of metaphor, it gives but a partial and incomplete representation
of the reality to which the numbers relate. The numerical view … ignores those aspects of
organizational reality that are not quantifiable in this way (Morgan, 1988, p. 480).
Accounting is loosely based in reality, in the sense that it must reflect real events. However,
the ability to trace or identify that origin is immensely complex, if not impossible (Spence &
Carter, 2011; c.f. Macintosh et al., 2000). Accounting information is not ‘mere’ interpretation
though; accounting does represent something, but in a partial and impoverished fashion
(Spence & Carter, 2011, p. 310).
Hence, despite accepting that information is important: “... such accounting and information
systems simply are not ‘solutions’ to the ‘problems’ of managing the human organisations”
(Mirvis & Lawler III, 1983, p. 178). Information, in and of itself, does not solve problems but
provides the base for managers to interpret and ‘understand’ what is happening in the
organisation, to recognize opportunities, and to identify problems. In that sense, information
is something that has the potential to enhance management activities.2
Accounting discourse inherits these characteristics from accounting information: it is not
correct, comprehensive, nor does it provide the right answer. Moreover, its construction is
inherently contestable. As an example of inter-subjective objectivity, the effects of the
accounting discourse are real in that accounting is necessary in supporting, facilitating,
enabling, and constraining business discourses. Thus, the discourse of accounting appears
‘normalised’ and ‘objective’, because the underlying contestability and interpretation is
hidden from view upon its communication.
From the myriad of accounting artefacts, this paper focuses on management accounting
information systems (MAIS). We specify the informational characteristic of these systems,
for the case study in this paper examines the impact of a ‘lack’ of management accounting
information (MAI). Consequently, more than management accounting – “a collection of
practices such as budgeting or product costing” (Chenhall, 2003, p. 129) – or management
2
Information has the potential to enhance. Because information has to be interpreted, there is always a risk with
information. Sadly, the very best information can be misinterpreted, misunderstood or ignored by management.
Equally, very poor quality information can be the basis for major organisational strategic decisions. While
information has the potential to constrain interpretation, it has no ability to motivate how managers perceive or
use the information.
5
accounting systems – “the systematic use of management accounting to achieve some goal”
(Chenhall, 2003, p. 129) – we refer to the systematic use of management accounting
information to support decision-making within the organisation (Zimmerman, 2011).
Moving past the positivist (discursive) construction of this definition of management
accounting, we focus on the discursive characteristics of such information sets. That is, we
suggest that MAI, constituting a codified, metaphorical representation characteristic of
accounting generally (Llewellyn & Milne, 2007), represents a significant part of the
accounting discourse within the organisation. As part of the accounting discourse, MAIS
supports, facilitates, enables, and constrains other organisational discourses.
This paper analyses competing discourses about an organisation and, as such, it is an analysis
of rhetoric. There is a strong rhetorical tradition in accounting (Arrington & Francis, 1993;
Arrington & Schweiker, 1992; Hines, 1988, 1991, 1996). However, much of the focus of
rhetorical analysis is at the epistemological level (Arrington, 2004; Quattrone, 2000),
explaining ‘how’ accounting constructs, persuades and silences. We focus our rhetorical
study of discourses at the ontological level, concentrating on meaning and avoiding
epistemologically-bound discursive boundaries (Hviding, 2003).3
Thus, the gap we focus on in this study is expressed through the following research question:
What is the discursive impact of the absence of MAIS (in supporting, facilitating, enabling,
and constraining) organisational discourses? Given this, the next section introduces our
research approach, before discussing the specific elements of our case study.
METHODOLOGICAL APPROACH
This paper is grounded in post-structural ontology. Consequently, in order to ‘understand’ the
positions of our research subjects and consider the implications of power structures, we use
interpretive tools to inform our post-structuralist intervention, consistent with Gioia & Pitre
(1990). This perspective, methodologically, helps us to understand the way managers and
executives construct organisational discourses, the way they use MAIS or other artefacts in
rhetorically constructing organisational discourses as ‘knowledge’. We situate this research
3
Rhetoric operates ontologically as hegemonic interventions. What this means is that discourses and discursive
artefacts operate as different rhetorical tropes – ways of expressing, construing and capturing meaning. A MAI
discursive artefact can operate metonymically: by which a “particular group takes up demands articulated by
contiguous groups … or extends one set of demands into adjacent spheres”. For example, the ‘budget’ may
represent strategic direction or an instrument of discipline and control.
Equally, MAI can operate metaphorically: the “creation of meaningful totalities via the disarticulation and
replacement of previously existing formation” (Griggs & Howarth, 2005, p. 11). For example, the Balanced
Scorecard represents the totality of the organisation, through different organisational dimensions.
In all of this, social meanings are contextual, relational and contingent.
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within an organisation that, for a time (approximately two years) produced no internal MAI.4
The case study approach is appropriate for complex problems requiring in-depth study (Yin,
2003). Howarth & Torfing (2005) provide insight into the ‘legitimate and illegitimate’
employment of research methods for discursive analysis:
… a fully fledged analysis would have to describe and analyse the array of micro- and macropractices – both ‘linguistic’ and ‘non-linguistic’ – that produced such divisions and conflicts, in
which the textual analysis constitutes an internal component of the wider enterprise. In short, the
narrow textual analysis of official documents … constitutes only one aspect of a fully fledged
discursive analysis. It needs always to be supplemented with in-depth interviews, thick
descriptions of practices and institutions, historical reconstructions of phenomena drawing on a
range of empirical data, and so forth (Howarth & Torfing, 2005, p. 342).
The company formally authorized the research, which guaranteed confidentiality for itself
and its employees. Thus, specific accounting information will not be presented in the paper.
The company
This Brazilian company produces industrial components predominantly for the automobile
industry:

The company is growing, and anticipates publicly listing in the near-future. The
company wants to transition from a small to a medium-sized company;

Current changes within the company include changes to geographic location,
strategies, technologies and introducing new managers;

The company used to produce management accounting reports; since September
2009, the company abandoned these reports; and

The company experienced unfavourable external accounting results for the 2009-2010
and 2010-2011; despite this, management discourse concentrates on growth and
success.
The company has more than 50 years of experience in the Brazilian market, mirroring the
growth of the Brazilian automobile industry. Within the parts-supplying industry, there are
significant barriers to entry due to the rigours of achieving and maintaining accreditation in
the concentrated, oligopolistic Brazilian automobile industry. In addition, the industry values
long-term relationships, so ‘new entrants’ struggle to gain traction. Cost and product margin
control is fundamental to the maintenance of long-term profitability. Therefore, this would
normally necessitate structured, up-to-date MAI, in combination with a solid planning
system.
4
They did produce limited external financial reporting, as they were considering the possibility of becoming
public in the near future. Under Brazilian law nonetheless, as a privately-held company they were not compelled
to produce such information.
7
In 2007, two investors purchased the company, adopting an aggressive modernization and
growth policy. Initially, a short-term strategy motivated the purchase and the new business
strategy – either to selling the company to a strategic investor or to floating it – but there has
been some change in this position. For this company in particular, growth relates to its longterm survival. The market liberalisation of the Brazilian automobile industry since 1990 has
been providing growth opportunities, as did the changes in the automobile industry from
developed to developing countries. There is an expectation that new manufacturers will enter
Brazil, broadening the company’s business potential. However, production-chain pressures
are demanding, regarding completion, safety, and design.
Consequently, while the company perceives opportunities to grow, they must enhance the
organisation’s structure with investment in people, systems, and equipment. The extent of
this investment is more than the company was prepared for, both in organisational and in
financial terms. Two controlling partners participate in daily management of the company,
with approximately 280 employees. The two partners, calling themselves ‘directors,’ share
the company presidency, with the following management structure as depicted in Figure 1.
Board of Directors
Purchasers
Director 1
Sales 1
Director 2
Finance
Human
Sales 2
Accounting
Production
IT
Maintenance
Development
Costs
Special Projects
Figure 1. Organisational structure.
8
Recent organisational changes influencing discourses include:

The purchase of a company in a new industrial segment, with a production process
different from what the company is accustomed to.

The company shifted the production facilities from the capital (extended capital area)
to the interior of the State.

There were significant personnel changes such as new managers for operations,
marketing, and sales (accounting never received a senior manager).

The company is in a challenging financial position, reporting large losses and a large
debt. What our analysis indicates is that artefacts such as increased billing were
interpreted to represent growth, but the financial position undermines this.
Data collection
Various research methods were employed to collect the empirical data, including:
(i) Discourse analysis: Company Website
The site presents information about the company, particularly how the organisation
presents itself to external users, its history, its mission, beliefs and values. The
information focuses on historical evolution, product lines and information about the
organisation’s availability.
(ii) Documentary analysis: Management report and management reporting meetings until
September 2009
Until September 2009, a detailed management accounting report was presented at
monthly meetings highlighting results to managers and directors. Many interviewees
emphasised that this was healthy and transparent, as financial income was
disseminated. This reporting process stopped in September 2009.5
The management reports included monthly financial information such as an income
statement and a balance sheet, and operational information such as billing and
indebtedness levels. Meeting agendas indicated themes such as operationalising the
budget and setting production standards.
5
We want to stress, then, that the disappearance of the management report and the monthly meeting were not
motivated by a desire to hide information.
9
These documents provided valuable organisational information, as discourse analysis
acknowledges that text is a subjective discourse within the socially constructed
understanding of reality (Derrida, 1976, p. 158). Also:
Documents, as the sedimentations of social practices, have the potential to inform and
structure the decisions which people make on a daily and longer-term basis; they also
constitute particular readings of social events (May, 1997, p. 157-8).
(iii) Interviews
Table 1 lists the schedule of interviewees: we interviewed two groups within the
organisation, including: (i) the partners; and (ii) senior managers, including managers,
supervisors and analysts. The interviews were focused, in nature, which provided
interviewers the opportunity to speak freely, enhancing the potential for richer, more
informative material (Fontana & Frey, 2000, p. 652). Some interviews were recorded,
while in others, both researchers took written notes.
Focused interviews encourage flexibility and meaning (Pahl, 1995, p. 197) conveying
greater qualitative depth by allowing:
interviewees to talk about the subject in terms of their own frames of reference. By this, I
mean drawing upon ideas and meanings with which they are familiar. This allows the
meanings that individuals attribute to events and relationships to be understood on their
own terms (May, 1997, p. 113).
Table 1. Interviewee list.
Description
Function
P1
Partner 1 responsible for administration and purchases
Partner 2 responsible for marketing, production and
logistics
Assistant
Treasurer
Buyer
IT analyst
Sales manager – area 1
Sales manager – area 2
HR coordinator
Accounting coordinator
P2
S3
S4
S5
S6
S7
S8
S9
S10
Time in the Organisation6
Joined before 09/2009
Joined before 09/2009
Joined before 09/2009
Joined before 09/2009
Joined before 09/2009
Joined before 09/2009
Joined after 09/2009
Joined after 09/2009
Joined after 09/2009
Joined after 09/2009
This combination of data collecting methods, focusing on the ontological construction of
discourses and of discursive artefacts, identified three discourses: the discourse of the beliefs
of the partners, the discourse of entrepreneurship, and the discourse of accounting. We
discuss the construction of these discourses in turn.
6
September 2009 is a crucial date as this was when the two partners purchased the company and begun to
manage the day-to-day operations.
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THE DISCOURSES
Figure 2 depicts the organisational discourses identified in the research and illustrates the
interrelationships between them: Partners’ Beliefs, Entrepreneurship, and Accounting.
The discourse of the partners’ beliefs derives from the company’s lifecycle stage (Lester,
Parnell, & Carraher, 2003), in which the partners’ way of thinking permeates throughout the
organisation. Characteristic of this is that the partners decide on business strategy and employ
this discourse without negotiation. In analysing the partners’ discourse, we identify two core
components: first, the importance of intuition in strategic and operational decisions; and
second, the partners’ focus on their mutual relationship of trust.
The two partners share an office at the company’s administrative building, where they run
daily organisational issues, either together or at least close to each other. This joint action
combines talent and optimizes time. In decision-making, they act intuitively, predominantly
with regard to employment and trust. Miller & Friesen (1984) associate intuitive behaviour
with initial stages of the organisational lifecycle:
An intuitive rather than an analytical mode of decision-making prevails. For example the ownermanager makes almost all the key decisions, based in large part upon his intuitions about the
situation … Also, a relatively small number of factors and opinions is taken into account in
making decisions … (Miller & Friesen, 1984, p. 1170).
The two partners are dedicated to the company, as it is the most important ‘thing’ in their
lives. Trust and confidence, then, is constructed in relation to results, not only between
themselves, but also in relation to the managers and employees:
Partner 2: Everything I do is focused on results. I always trust the subordinates. The day I
don’t trust them, they won’t work with me. Either they offer results or not.
...
Partners’ Beliefs
Entrepreneurship
Accounting
Intuition
Competitive
Advantage
Growth
Trust
Life Project
Focus on
Results
Accounting
Information
Figure 2. The relationship between the different organisational discourses.
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Partner 1: Trust in people is fundamental … We don’t want to give anyone a chance to act with
disloyalty. I stopped developing my legal consulting firm to dedicate myself 100%.
Parallel to the partners’ discourse, the discourse of entrepreneurship creates and maintains
the ‘team’ within the organisation. There are four components important to constructing the
discourse of entrepreneurship: first, there is a focus on competitive advantage to solidify and
improve market position; this links to the second overarching focus on growth; third, a ‘life
project’ is sold to employees to engender loyalty; and finally, there is a focus on results
(especially a non-dependence on accounting artefacts).
Competitive advantage
The company’s flexible, vertical production develops client loyalty due to the ability to meet
customer demands. The company argues that this flexibility and comprehensibility gives
them a competitive advantage. However, it is expensive individually calibrating each
production run. Without MAI to consider sales-mix and provide accurate, detailed costing,
this discourse is not monitored. The competitive advantage discourse should be
demonstrable; the company should provide determinative information that their production
flexibility generates profit (and not only revenue). Revenue does not necessarily lead to
profit, as well as increasing revenue does not necessarily increase profit due to the associated
increase in expenses. The competitive advantage discourse reinforces the growth discourse:
these discourses mutually support and stimulate each other:
Manager 6: Some factors exist in the company which are unique in the market. Being able to
attend to clients not only by manufacturing the part, but also by assembling it in different
injectors is very relevant in the market. Besides, we have physical space for new production
areas. Our most direct competitors do not have these properties.
Growth
Growth is a fundamental discourse in the business and it is non-negotiable in the partners’
discourse. Everything is done towards growth, even without considering short-, medium-, or
long-term financial implications:
Manager 5: Billing has increased a lot and the company doubled its billing in a short time
period.
However, management literature cautions against unchecked growth. In growth, monitoring
and control are vital, but it can be measured, in part, without MAI, as increasing billing
reinforces the discourse of growth. However, increased billing does not necessarily represent
increased income (Rosanas & Velilla, 2005). Too many companies fail due to unsustainable
growing and to improper information control (Hill, Kelley, Agle, Hitt, & Hoskisson, 1992;
12
Reinstein & McMillan, 2004). The optimistic discourse of growth is accompanied by
structural motivations. Thus, the discourse of growth enables the company to bring in,
motivate and maintain relevant professionals to help with continued growth development. In
contingency terms, the discourse of growth provides the organisation with the stimulus and
opportunity to grow. Effective management accounting reports could enhance the detection
of potential problems and result in implementing effective solutions.
The life project
To engender long-term commitment to the organisation, it is important that new management
identify with the life project discourse (Chao, O’Leary-Kelly, Wolf, Klein, & Gardner, 1994;
Chatman, 1991; Kristof, 1996; Meglino, Ravlin, & Adkins, 1989): “Precisely in this context,
organisational identification and loyalty are crucial concepts” (Rosanas & Velilla, 2005, p.
90). The life project discourse ‘fills’ a significant void (Howarth & Stavrakakis, 2000),
operating hegemonically representing different meanings for people. For example, new
management rhetorically recognise different signifiers: professional evolution, the image of a
winner, or that this company provides opportunities denied to them at another organisation.
What is important is that the reward comes in the future (the long-term), while the work,
commitment, and challenge happens now:7
Partner 2: We brought in an excellent commercial manager who only came because of the life
project. He believed in our project. He gave up gaining more money and came here.
This promise of a ‘future to come’ is essential in creating an organisational culture where
short-to-medium term struggle and sacrifice are acceptable given the promise of future
rewards.
Focus on Results
In discussing priorities and results, the partners talk not of financial results, instead referring
to day-to-day operations. This is potentially concerning as it renders them hostage to daily
routine, decreasing strategic focus. The partners’ references to results are vague, and there
are significant voids, providing space for multiple interpretations (Howarth & Stavrakakis,
2000). Verifying results is important feedback to management and reinforces their
relationship with the life-project of the company. A broad objective allows flexibility in
In a way, this corresponds with Weber’s traditional Protestant work ethic. Work hard now, suffer now, in the
name of future rewards (Weber, 2002).
7
13
interpreting results. While acknowledging the need for strategic focus, Partner 2 argues that
“The priority today is the company’s result” (emphasis added).
In the management’s operational daily meeting, there is a list of items for discussion,
regarding short-term operational actions; if something is on the list, it has to be discussed.
This list orders priorities (it substitutes for strategy) and is the most powerful artefact inside
the organisation. The daily meeting reinforces the focus on results; management’s credibility
can change abruptly depending on whether and how short-term and immediate targets are
achieved. The partners emphasise the importance of the list:
Partner 2: Every day, freight control, billing and whatever happened yesterday, is happening
today and will happen tomorrow come in. Based on that information, I make the main decisions.
Every day, we hold a meeting starting at 8.30 a.m., when we get on the key-issues list. What is
important gets on the list, even if it is going to happen one month later.
Partner 1: Through this meeting, one sector charges the other, which can answer back right
away. It is the company’s thermometer, every day the key-issues list is updated. It’s an one-hour
meeting and it takes place every day. That is where actions are triggered and charged.
The partners recognise the importance of strategic decisions, but they are not confident in
management to delegate them. They manage short-term, operational issues and exert much
control over this. They would like to act strategically, moving away from daily tactical and
operational decisions, but it depends on the evolution of managers:
Partner 1: I like to act at the strategic level but I had to focus on the frontline and solve
problems in the factory and even with the clients. As soon as there is somebody who can
develop the necessary activities, I am going to spend more time on the company’s strategy.
Thus, measurement is an important discourse and set of artefacts within the organisation.
What is more interesting, in this case study, is that the MAI discourse did not provide these
artefacts for the organisation.
The accounting discourse
As discussed above, the company used to produce a comprehensive management accounting
report for the monthly reporting meeting. However, during 2009, this monthly meeting
stopped happening, and, in its place, the daily operational meeting emerged recently.
Consequently, significant, strategic questions were dealt with at a daily meeting and
increasingly, the partners were solving tactical and operational issues:
Interviewer: Do you have management information to support the discussion of results?
Partner 1: No. Today, we do not have information on the financial results. Right now, in fact,
we don’t even have the financial result of last year [financial statements made in April for the
previous financial year].
Interviewer: Don’t you feel that this information is missing?
Partner 1: Yes. Also because, in the past, we had both the information and monthly discussions.
Interviewer: And what happened?
14
Partner 1: We went through so many changes and the priorities gradually changed. It was better
to respond to current crisis priorities than to discuss past results. Thus, we stopped producing the
reports and holding the meetings. After all, we moved to another city, changed our focus and
changed the company, as the current owners bought a new company and merged it … each
month we discussed the financial results and even the planned results. Many challenges and
projects came up and we stopped looking at monthly management information.
Interviewer: Why did you stop using monthly financial results?
Partner 1: In the end, so many things happened and the reports were left behind, they were not
that urgent. At some point, we stopped producing and presenting the figures.
We are not stating that the company’s problems derive from the absence of accounting
information. Nonetheless, this absence enhanced problems and delayed understanding and
possible solving actions. The partners blamed one executive for the disappearance of the
management reports:
Partner 2: We need to recover some procedures we lost in the rush. As a result of pressure and
rush, we did not forget about, but we postponed the report, nor did we put it aside. We delegated
it to a person who should do the work we used to do. We delegated and, at the end of the year,
we lost the information. The guy we trusted did not manage to produce the information but lost
it.
...
His subordinate no longer worked for him, but against him. He started to embrace everything
and lost procedures, we lost vital information. On the 10th of the following month at the latest,
we used to present all results for the previous month per product, per area. We used to operate
the 80/20 system and what happened? What action was taken? Immediatelly. It was a very
pretty reporting and discussing model. He set up the model and was not able to feed it from the
accounting system.
The lack of MAI is related to the lack of an integrated monitoring system for change. As ERP
(Enterprise Resource Planning system) is an expensive investment, the partners preferred to
invest in increased capacity and postpone investment in management control, due to the
complexity of changing systems and the company’s current instability. Moreover, they
actually started to discontinue the former system before buying a new one:
Partner 1: When things are calm, you can maintain your team and let things move on naturally.
Partner 2: It was very easy when we had money. We paid everything. Information was easy.
When things became turbulent it changed. When things became more intense he lost his
information source. The information system no longer gave him what he needed. There was an
important mistake. We have a system... it is manual but work very well. The guy who developed
it, an IT consultant, did it in a very interesting way.
...
Partner 1: We went for a new ERP system and, after 6-8 months, the controller manager gave
up what he was doing and lost information.
Partner 2: We did not implement the new ERP and had no information either. How are we
going to feed the ERP? We were going to start when we perceived the situation and stopped
everything. We’ve got a promise that we’re going to do again, starting next July 1 st, the monthly
meeting to discuss the results …8
Partner 1: We want to share everything. The company is transparent and everything must be
informed and commented on. Until some months ago, each month, we presented the financial
results to the managers.
8
Note that the monthly meeting has not started again.
15
The consequence of the lack of accounting information resulted in rambling, confusing and
contradictory responses. The lack of the management accounting report provided managers
with a modicum of ‘false’ comfort: Things are ‘under control’ when you do not see
contradictory artefacts:
Interviewer: How is business going?
Partner 1: Very well. We are selling more than last year. We expect a more than 20% growth in
sales.
Interviewer: And income?
Partner 1: Better too.
Interviewer: How much?
Partner 1: I don’t have an exact figure, but better.
After financial results for the year were actually determined, the company reported a large loss,
much larger than the year before:
Manager 1: The income is not as bad as you saw yesterday. Some adjustments were made today
and the income improved a little, although the loss continues. The cause of these problems is
that, with some many projects going on in the company, we prioritized time and gave up
discussing results. Thus, we did not understand various events that changed the company and
did not adjust accounting. Some errors could have been detected but were not. We changed
people in the result determination and various procedures were changed without integration. The
change in financial rules surprised us and we treated various expenses inappropriately.
…
Reality is important. If growing the way we had dreamt is impossible, we’ll do what’s possible.
We’ll adjust accounting and return to the monthly meeting.
...
Interviewer: What is your product’s margin?
Manager 5: 25%
Interviewer: That’s a lot! That’s a high margin!
Manager 1: He’s talking about net profit.
Interviewer: So the percentage is even higher?
Manager 5: It isn’t net profit but gross revenues.
Interviewer: Are you talking about price less cost? If yes, it’s even higher.
Manager 5: No, I’m talking about gross profit.
When asked about the financial losses, the lack of the management accounting reporting
system was mentioned:
Partner 2: For each improvement, we had information about x Reais [the Brazilian currency] of
payback. We had a kaizen program calculated in terms of costs.
…
We worked with targets, outputs and effective actions. Without results we lost the sense of
direction. We acted without knowing the result. We know that it’s positive but we don’t know to
what extent. We will gain this perspective again as from July [NB: this did not occur]. The
manager responsible for the management report did not follow the new accounting and costing
approach, didn’t get updated. He emphasises only technical procedures. Forms of interpretation
today are different as a result of the IFRS, for example.
The organisational values neither the information system nor information itself. This suggests
that Morgan’s (1988) subjective construction of reality is not only limited to technical
perspectives, but includes justifications for non-control of accounting, production, and
inventories. The entrepreneurial and growth discourses cover over potential claims of
management naivety or ignorance despite these approaches having the potential to impede
company performance. Consequently, the discourses of entrepreneurship, growth,
16
competitive advantage, life project, and focus on results and of the partners’ beliefs were
unsupported by the accounting discourse. This discursive gap demonstrates the risk of
strategic decision-making when there is no information to support, challenge, or question
these discourses. It demonstrates the problem, further, of creating an unsubstantiated
entrepreneurial discourse, as well as the risk of focusing on day-to-day operational matters,
without having an overall set of strategic objectives supported by the accounting discourse of
accounting. Information, in this context, is gold.
Given the lack of a concrete MAIS and the discursive gaps, this presented an opportunity for
reflection on the usefulness of MAI. Given the set of changes to the company (including the
purchase of the company; new production processes; and the change in production facilities,
amongst others), it faces various challenges, particularly with respect to liquidity due to
growing indebtedness. There is a limited financial discourse within the company, but it is not
a practical ‘reality’ for all managers. The entrepreneurial discourse constitutes a discourse for
everyone, but the financial discourse is relevant to only a few organisational members. In
both the discourse of entrepreneurship and of the partners’ beliefs, they contend that there has
been sufficient information in recent past, but the current financial results and analysis fail to
verify all that was said during the interviews.
CASE STUDY - DISCUSSION
The company presents an optimistic discourse: due to the partners’ intuition and trust, the
company has strong, unified leadership. In combination with the discourse of
entrepreneurship, the macro-view is that the company’s competitive advantage gives the
company strong impetus for success given its increasing competitive advantage (Covaleski,
Dirsmith, & Samuel, 2003) and its continued market growth; the future will be good for
current members of the company, despite moments of great challenge that requires personal
and professional effort to achieve the company’s life project so as to achieve future rewards
(3-5 years) (Rosanas & Velilla, 2005). For these expectations to materialise there is a focus
on results. Consequently, accounting results constitute an ‘objective’ source that verifies
these discourses. Accounting should be a necessary component in the construction of these
discourses. Underlying most of the organisational discourse is recourse to an accounting
discourse that is absent. For example, competitive advantage might be demonstrable from a
production perspective, due to the vertical integration of production technologies, but
whether there is a ‘real’ competitive advantage is perfected by accounting information. That
is, this organisation proffers one side of a multi-dimensional discourse through artefacts such
17
as integrated production possibilities: they do have the accounting information available to
support their claims. Similarly, they claim growth and they point to increases in orders and
sales, but growth is measurable in accounting numbers as well. In this case, increased
productive capability, increased orders, and increased sales resulted in a marked increase in
the fiscal loss of the year. As suggested at the beginning of the paper, while discourses have
the ability to read situations in unique way and offer differing interpretations, this is not
hyper-reality. You cannot create something out of nothing. Many of the discourses of
entrepreneurship were simply not supported by accounting information. Discourses work
together to construct the picture and in this case study, the discourses were working in
opposite directions.
The relative importance of intuition derives from the organisational requirements of focusing
on day-to-day operations, which depends on the entity’s information systems and
organisational structure. What is noteworthy is that, due to the lack of information confirming
outputs and results, the concept of output and results mean different things within different
discursive constructions: punctual delivery, billing, a visit to a client that does not take place,
etc. In these conditions, a set of operational and non-monetary activities are proxies for nonexistent financial results. Accounting has a simple, metaphoric measure of output and results.
What is crucial here is that partner’s intuitive management and its associated discourses
construct an environment that generates these alternative operational and non-monetary
proxies for outputs and results, and further, renders them ‘acceptable’ (Miller & Friesen,
1984). These operational and non-monetary proxies are the only guide the organisation has
during the period when accounting information was not available. As Hines (1991) argues in
relation to financial accounting “[l]egitimacy is achieved by tapping into this central
proposition because accounts generated around this proposition are perceived as ‘normal’ ”
(p. 328). This is the same phenomenon in action here. The discourse of the partners’ beliefs
and entrepreneurship discursively construct the conditions in which these operational and
non-monetary proxies for outputs and results are both necessary (information is evidence and
evidence is proof) and convincing (‘we are growing’, ‘we have a competitive advantage’, ‘we
are moving in the right direction’). These measures work together. This construction of
legitimacy is dangerous if we do not question information that we are presented with.
The partners are concerned with the company’s current economic performance, and daily
management is continuously tense. Management accounting reports, discursively, represent
the needle on a set of scales: it supports, facilitates, enables, and constrains organisational
actions. The absence of accounting information for two years creates a void in the
18
organisation. However, this absence resulted in the construction of an alternative optimistic
discourse of entrepreneurship driven by the partners; negative financial results may discredit
the discourse of the life project, weaken trust, and potentially result in employees exiting the
organisation.
As Figure 2 illustrates, the discourse of entrepreneurship comprises four components: (i)
competitive advantage; (ii) growth; (iii) life project; and (iv) a focus on results. The
competitive advantage discourse is fundamental for the entire discursive construction,
including vertical production capacity, technological specialization, and flexibility. However,
there is little management accounting evidence of this advantage. The discourse is
constructed through other measures of outputs and results. The financial results for the year,
though, do not translate these ‘advantages’ into profit. External discourses, such as client
feedback, do praise the company’s flexible production structure, which is rare in this sector.
This feedback does provide some discursive confirmation for the discourse of competitive
advantage. This productive flexibility allows the company to respond to ‘unexpected’
demands and to provide vertically-integrated production. In addition, the potential to expand
production adds a further variable to the construction of the competitive advantage discourse,
reinforced due to the industries barriers to entrants. However, all of these elements do not
constitute competitive advantage if the accounting figures do not support this. Standard
management accounting suggests that product mix and production costs are two core
components of effective management control. Thus, the construction of the competitive
advantage discourse is one-sided and lacks concrete accounting support.
In turn, the discourse of competitive advantage sanctions the associated discourse of growth.
To some extent, past growth reinforces this discourse, which demonstrates that the company
has growth exceeding the industries average growth rates. Clients perceive the company as a
‘winner’, and thus, this sustains this optimistic discursive structure of competitive advantage
and growth. Sadly, the accounting discourse cannot provide reassurance with increasing
operating revenue and profit. Financial results within management accounting play a vital
role in validating and sustaining discourses. The constructed operational and non-monetary
proxies are necessary, but they are not sufficient to sustain the discourses. One consequence
of the growth discourse is the need for new investment, which requires financial resources
that the company does not have.
In combination with the discourses of growth and competitive advantage (which are outward
focused), there is a need for internal organisational discourses to capture the imagination of
managers and employees. Consequently, we see the discourse of the life project. This is both
19
a collective discourse – the overall direction of the company – and an individual discourse –
where each individual fits within the project and their potential rewards. Managers are
promised that, if they dedicate themselves to the company, commit to its mission and targets,
then in the future they will receive financial rewards such as increased remuneration, personal
rewards such as promotion or industry/business kudos because they participated in the
company’s success. The company has expressed a desire to list publicly, which would
enhance the company’s prestige, raising the comparative value of the management team. As
stated above, this is akin to the traditional Protestant work ethic: today’s suffering and stress
will be rewarded in the future.
The final cog in the entrepreneurship discourse is the focus on results. Despite the importance
of financial results, they are unknown, as the MAIS does not exist. Consequently, the
discursive focus on results does not follow the traditional economic logic of revenue less
expenses equals profit, but rather, it operates through operational and non-monetary proxies
(billing, trucks released, indebtedness balance, problems solved at the client). These proxies
are short-term and do not provide adequate approximations of economic results (margins and
profits) or financial resources (cash). These proxies may indicate trends, but they do not
identify timing. We are not saying that this information is not important. It is certainly an
important element in the construction of the discourse of entrepreneurship, but it is only one
element. Accounting information is a vital component. The non-availability of accounting
information means that the company does not know what is happening. Thus, ‘results’ mean
different things within different discourses based on operational and non-monetary proxies.
However, without the support of accounting figures, the discourse is empty.
This discussion illustrates that intuition can be wrong (the partners predicted financial
success, but a large loss ensued). It also demonstrates the benefit of perspective and longterm strategies. Information is vital. Would the return of financial and MAI result in the
decreasing use of intuition? We would argue focus their intuition attention on longer-term
strategic objectives, where information is not readily available. Their reliance on intuition, in
part, is due to the lack of accounting information. It illustrates the risk of ‘false’ comfort
through relying on alternative non-accounting proxies and from not having MAI to support,
facilitate, enable, and constrain organisational discourse. In the short term, the nonavailability of accounting information is convenient for the set of discourses as other
measures are invoked as substitute proxies. However, in the medium- to long-term, it creates
problems and the discourses are undermined, leading to disorganisation and deterioration.
20
FINAL COMMENTS
An interesting psychological question is what convinces people to act in a certain manner.
Predictive models like economic rationalism are too simplistic in this sense. While
psychology may give insight into individual choices, these are magnified by the
organisational. Organisational tensions emerge when opportunities present themselves, such
as growth opportunities and risk. The organisation responds to the opportunity, but there is a
multiplicity of perspectives underpinning this decision. One thing an organisation will try to
do is promote a consistent internal discourse. Information helps in this process. As growth
opportunities are not necessarily harmonized or organized, MAI provides a vital reference
point, in the short-, medium- and long-terms. It reinforces questions, refutes, or requires
additional discourses.
MAIS enhances planning, control, and decision-making, but it requires interpretation. This is
where management intuition steps in: MAIS does not guarantee that the right decision will be
made. However, without appropriate information, intuition is a game of chance: the
equivalent of a game of Russian roulette; at least with accounting information, you
potentially have some idea of what chamber the bullet is in. This power is not always
perceived in organisations. Information is necessary for decision-making at all levels and all
decisions in the organisation. What this paper illustrates is that when one component in the
information process is missing (accounting), intuition is important, but equally, the thirst for
information is not satisfied until we conjure up information proxies. This case study
illustrates the risk that when intuition and management is detached from accounting
information, this endangers the organisation, limiting its ability to perceive and confirm
‘problems’.
21
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