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Planning And Control In Inter Organisational Settings Notes

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Lecture 4: Planning and Control in Inter-Organisational Settings Topics

* Contingency theory in management accounting

* Open-book accounting

* Networked organisations

Reading

Contingency Theory in Management Accounting Introduction to contingency theory (K&K)
* Has its origins in explaining the structure of organizations by particular circumstances (Lawrence and Lorsch, 1967)
* MA developed it to explain the shape of MA systems in organizations (Waterhouse and Tiessen 1978, Otley 1980, Fisher 1998, Chenhall 2003)

* Management control systems do not develop and operate independently of the organisation
* Instead: "Many of the changes and improvements in management accounting are related to contingencies in the external environment and internal structure, strategy and culture of companies" (Dekker, 2003)

* Traditional contingency theory focuses on:
* Direct causal links between strategy, structure and performance
* Differentiates between exogenous environmental and endogenous firm-specific factors

Key Points

* Contingency theory

* Networked organisations

* Functions of inter-organisational MCS

* Open-book accounting

* Advantages of open-book accounting

* Factors affecting open-book accounting

* Trust and IOMCS

* Four stages of IOMCS (Tomkins) Definitions

* Coordination = Distribution (geographical and technological) combines with increased interconnectedness calls for frequent, detailed and relevant exchange of information

* Monitoring = Measurement and performance assessment

* Open-Book Accounting = Where organisations that maintain commercial contacts also share cost information

* Trust = "The willingness of a party to be vulnerable to the actions of another party on the expectation that the other party will perform a particular action which is important to the trusting party" - (Velez et al, 2008)

*

* If networks are perceived as specific entities that consist of several firms, a new perspective emerges
* Involving context factors that are neither firm-specific nor environmental, but instead network -specific
* i.e. type of network coordination, the trust among the network members, or their difference in size
* These factors impact MA practices within networks Networked Organisations
* Organisations maintain network of close, enduring connections
* We need to take into account the effect of these connections on organisational behaviour, costs and performance
* e.g. they create close connections with their suppliers to:
* Share information
* Take part in product development Functions of Inter-Organisational MCS
* Monitoring = Measurement and performance assessment
* Intended to reduce opportunism and promote goal congruence
* Coordination = Distribution (geographical and technological) combines with increased interconnectedness calls for frequent, detailed and relevant exchange of information
* Intended to assist learning
* Which function is more likely to diminish trust?
* Monitoring:
* It sends a signal that partners may behave opportunistically and [?] need monitoring
* Paradox is that increased monitoring may bring about more opportunistic behaviour
* [?] is it can be a cycle Open-book Accounting

* One way in which organisations collaborate

* Open-Book Accounting = Where organisations that maintain commercial contacts also share cost information
* This allows them to use it as part of their cost management
* It is a means of improving the cost efficiency of supply chains
* Also a tool for building trust into customer-supplier relationships Introduction to open-book accounting
* Many manufacturing companies have developed close cooperative relationships with their key suppliers and buyers in recent years
? Reduces vertical integration
? Allows concentration on core competencies
? Enhances competitiveness
? Early involvement of major suppliers in product development
? More comprehensive sharing of information (McIvor, 2001)
* Organisational boundaries of individual firms have increasingly become blurred (K&K)
? Leading to emergence of manufacturing networks
? Provide a platform for inter-organizational cost management (Cooper and Yoshikawa 1994, Cooper and Slagmulder 1998 and 1999, Cullen et al. 1999, Mouritsen et al. 2001, Kajuter 2002, Kulmala et al 2002)

Advantages of open-book accounting
* Collaborative efforts create additional opportunities for cost reduction
? Cost reduction arise through collaborative efforts of network members
? However, such opportunities require transparency of cost structures
* Therefore open-book accounting plays a key role in inter-organizational cost management (Lamming 1993, Cooper and Slagmulder 1999, Mouritsen et al 2001, Kulmala 2002)
* Outsourcing may cause information asymmetry between the buyer and supplier (Cooper and Slagmulder, 2004)
? Buyer may ask for specifications that unnecessarily increase the costs of the supplier
? Buyer may not know to what degree each component contributes to the overall cost
# [?] open book accounting can help
? Product engineers at the buyer and supplier may work together to identify changes to the specifications which lower overall costs

Course Notes Page 8

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