Using an Accounting-Based Management Control System for Cultural Change

34 Pages Posted: 13 Jan 2006

See all articles by James Thomas Mackey

James Thomas Mackey

California State University, Sacramento

Hugh Pforsich

California State University, Sacramento - College of Business Administration

Date Written: January 11, 2005

Abstract

Despite the well documented advantages of Continuous Improvement (CI) management, implementation failures are discouragingly high (Jazayeri & Hopper 1999). The most significant reason for failure in becoming a CI organization is cultural resistance (Irani et al. 2003), due in part to insufficient trust (Chenhall and Langfield-Smith 2003). When employment contracts fail, employees will resist changes perceived to threaten their welfare. This paper uses an innovative action research approach (Kaplan, 1998) to design and implement a Management Control System (MCS) that will reduce this problem. Unfortunately, a single theoretical perspective (information economics, agency theory, or learning theory) will not provide sufficient insights for implementation, since each theory assumes away critical application issues covered by the other theories (Covaleski et al. 2003). Drawing from several theoretical sources for this research, an MCS designed to support both the implementation and management of CI cultures is developed and applied in an American factory. A Continuous Improvement Accounting Information System (CI-AIS) is merged with an MCS using suggestions from 1) information economics (adaptive feedback), 2) agency theory (to reduce agency risk and shirking through management of uncertainty, economic loss, and group participation), and 3) constructivist learning theory (incremental formative assessment, collaboration, and repetition to learn a new culture). The proposed MCS is composed of an in-process budgeting system that facilitates the following four actions leading to the successful management of Continuous Improvement initiatives: 1) prioritizing problems, 2) analyzing the root cause of problems, 3) strategically designing change activities for improvement, and 4) validating subsequent changes to align with accounting-based performance contracts.

Keywords: Management Accounting, Continuous improvement, cultural change

JEL Classification: M14, M41, M54

Suggested Citation

Mackey, James Thomas and Pforsich, Hugh, Using an Accounting-Based Management Control System for Cultural Change (January 11, 2005). Available at SSRN: https://ssrn.com/abstract=875475 or http://dx.doi.org/10.2139/ssrn.875475

James Thomas Mackey (Contact Author)

California State University, Sacramento ( email )

Sacramento, CA 95819-6081
United States

Hugh Pforsich

California State University, Sacramento - College of Business Administration ( email )

School of Business Administration
Sacramento, CA 95819-6081

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