Planning And Control In Inter Organisational Settings Notes

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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