short and long translations

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Short and long translations: Management accounting calculations and

innovation management

Jan Mouritsen*, Allan Hansen, Carsten rts Hansen

Department for Operations Management, Copenhagen Business School, Solbjerg Plads 3, DK 2000 Frederiksberg, Denmark

a r t i c l e i n f o a b s t r a c t

Management accounting calculations relate innovation to the firm through translations

where both can change. Based on examples of the management of innovation from three

firms the study shows how management accounting calculations rather than describe

the properties of innovation add perspective to them mediating between innovation con-

cerns and firm-wide concerns. This mediation happens through short and long translations.

In short translations, management accounting calculations extend or reduce innovation

activities via a single calculation. In long translations innovation activities are problema-

tised via multiple calculations. When calculations challenge each other in long translations

they problematise not only what innovation should be, but also where it should be located

in time and space. In the three examples, calculations mobilised alternative propositions

about the relevance of technical artefacts and linked this to innovation strategy and sourc-

ing strategy in the firms inter-organisational relations. Tensions between calculations

associated with technological, organisational and environmental entities framed consider-

ations about the value of innovation to the firm strategically differently. All this happensbecause management accounting calculations are partial rather than total calculations of

firms affairs and value.

2009 Elsevier Ltd. All rights reserved.

Introduction

Management accounting calculations relate innovation

activity to the firm through two types of translations; a

short translation which helps extend or reduce innovation

activities in view of an actual or a possible performance

variance; or a long translation which develops competing

contexts for innovation and impacts firms innovationstrategies and sourcing arrangements. This conclusion,

which will be developed and justified later, adds weight

to theories of management accounting calculations which

see them as inscriptions that produce knowledge (Robson,

1992), create visibility (Cooper, 1992), mediate between

complementary resources (Miller & OLeary, 2007), and

identify objects and objectives to be managed (Chua,

1995; Hoskin & Macve, 1986; Miller, 2001; Preston, Coo-

per, & Coombs, 1992; Vaivio, 1999). Management account-

ing calculations are related to organisational practices

either in relation to individual managers localised, embed-

ded decision making (e.g., Boland & Pondy, 1983; Ahrens &

Chapman, 2004,2007), or in relation to change programs

that reach deep into the organisation to manage the labour

force and transform the firm (e.g., Ezzamel, Willmott, &Worthington, 2004; Ezzamel, Willmott, & Worthington,

2008; Miller & OLeary, 1994). We follow these ideas but

add one nuance suggesting that management accounting

calculations are not only mobilised by others they also

mobilise others. In this study, this means that accounting

calculations create contexts for something, and in this re-

search this something is innovation. The research question

is: how do management accounting calculations mobilise

innovation activities?

The central finding, which is based on the empirical

study of relations between management accounting

0361-3682/$ - see front matter 2009 Elsevier Ltd. All rights reserved.doi:10.1016/j.aos.2009.01.006

* Corresponding author.

E-mail addresses: [email protected] (J. Mouritsen), [email protected]

(A. Hansen), [email protected] (C.rts Hansen).

Accounting, Organizations and Society 34 (2009) 738754

Contents lists available at ScienceDirect

Accounting, Organizations and Society

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calculations and innovation in three firms, is that manage-

ment accounting calculations link innovation activities to

firm-wide concerns rather than describe and represent

innovation activities. The visibility, insight and knowledge

produced by management accounting calculations rarely

concern the details of innovation practices. It rarely creates

deeper knowledge about the intricacies of innovation

activities; it typically creates insight about links between

innovation and wider organisational concerns which are

mediated via short or long translations, where length re-

flects the number of elements taken into account. In short

translations innovation activities are mobilised by a single

calculation and related to a variance from a standard or

budget which will reduce or increase innovation activities

depending on whether the deviation is positive or nega-

tive. Short translations mediate between innovation activ-

ity and the costs and revenues of the firm.

Long translations have multiple calculations that create

tensions about the role of innovation. Here, calculations

challenge each other and develop organisational tensions

and dialogues beyond innovation activities. Long transla-

tions develop new possible versions not only of preferred

types of innovation activities, but also about their location

in time and space. They develop competing propositions

about the relevance of technical artefacts and link them

to innovation strategy and sourcing strategy in the firms

inter-organisational relations. The tensions within long

translations mobilise technological, organisational and

environmental entities by framing considerations about

the value of innovation to the firm strategically differently.

The remainder of this paper is structured as follows:

first we analyse central discussions about the role of

accounting calculations in innovation. Here, accounting

calculations are typically not accorded a constructive role,

but an emerging literature suggests a positive link between

management accounting calculations and innovation find-

ing that management accounting calculations are abun-

dant in innovative contexts. Yet, the literature is silent on

how the calculation influences elements of innovation.

Then the research strategy and methods are presented;

drawing on aspects of actor-network theory we trace rela-

tions between proposed management accounting calcula-

tions and innovation activities. The empirical section

presents three examples of translations between manage-

ment accounting calculations and innovation manage-

ment. Then the findings are discussed and finally

conclusions are provided.

Management accounting calculations and innovation

management

Often, management accounting calculations and associ-

ated management control systems have been understood to

hinder the development of innovation. The innovation

management literature usually denies a constructive influ-

ence of management control systems on product innova-

tion (Damanpour, 1991; Dougherty & Hardy, 1996;

Gerwin & Kolodny, 1992; Leonard-Barton, 1995; Tidd, Bes-

sant, & Pavitt, 1997; Verona, 1999). Formal control systems

constrain, or at best are irrelevant in, innovation and R&D

settings (Abernethy & Brownell, 1997; Birnberg, 1988;

Brownell, 1985; Hayes, 1977; Rockness & Shields, 1984;

Rockness & Shields, 1988). They are obstacles to creativity

and incapable of supporting innovation (Abernethy &

Stoelwinder, 1991; Amabile, Conti, Coon, Lasenby, &

Herron, 1996; Miles & Snow, 1978; Ouchi, 1977; Ouchi,

1979; Tushman & OReilly, 1997). Rationalisation is seen

as incompatible with the creativity required for innovation

(Burns & Stalker, 1961; Hall, 2001; Raelin, 1985).

However, increasingly it is proposed that management

control systems enable innovation (Clark & Fujimoto,

1991; Cooper & Kleinschmidt, 1987; Cooper & Slagmulder,

2004; Davila, 2000; Davila & Wouters, 2004; Hansen &

Jnsson, 2005; Ittner & Kogut, 1995; Ziger & Maidique,

1990). Management control systems can be enabling for

corporate activities (Ahrens & Chapman, 2004, 2007), and

Simons levers of control framework (1987, 1990, 1991,

1994, 1995) suggests that interactive use of management

control systems stimulates innovation (Bisbe & Otley,

2004; Widener, 2007). Here, formal management control

systems can under certain circumstances help firms

facing rapidly changing product or market conditions. For

example, Simons (1990, p. 141) suggests that

the prototypical prospector faces strategic uncertain-

ties owing to rapidly changing product or market condi-

tions; interactive management control systems such as

planning and budgeting are used to set agendas to

debate strategy and action plans in these rapidly chang-

ing conditions. Defenders, by contrast, use planning and

budgeting less intensively [because they] operate in a

relatively stable environment, many aspects of the busi-

ness that are important in terms of current competitive

advantage are highly controllable and managers need

only focus on strategic uncertainties often related to

product or technological changes that could underminecurrent low cost positions.

When environments are complex and dynamic firms

have management control systems which foster dialogue

and interaction about the development of products and

markets and the innovative pressure may be accommo-

dated via interactive use of management control system

(Bisbe & Otley, 2004).

Likewise, Davila (2000, p. 402) identifies uncertainty

and product strategy as drivers of management control

systems in new product development and he adds that a

broad definition of management control systems is neces-

sary to understand their role in relation to product devel-

opment (ibid., p. 404):

The study reinforces a broader definition of manage-

ment control systems to go beyond financial measures

and also include non-financial measures. . . This finding

suggests that researching management control systems

in new product development cannot be restricted to

traditional accounting measures, but needs to encom-

pass a broader set of measures. . . As the theory pre-

dicted, uncertainty and product strategy are related to

the design and use of management control systems.

Depending on the type of uncertainty facing managers

they will use different combinations of financial and

non-financial information. Like Simons, Davila emphasises

J. Mouritsen et al. / Accounting, Organizations and Society 34 (2009) 738754 739


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characteristics of the situation as drivers of management

accounting calculations. Simons and Davila forcefully argue

that management accounting calculations do not hinder

innovation. Indeed, they suggest that in innovative context

there may be many more calculations than in situations

where innovation is less prevalent. They demonstrate that

many calculations exist. Yet the analysis of how a control

agenda, such as interactive use of calculations or combina-

tion of financial and non-financial information, influences

decisions about innovation activities can be usefully ex-

tended. How does a calculation make a difference?

Robson (1992) argues that accounting calculations de-

velop visibility and create organisational time and space.

He analyses how accounting mobilises distant places and

makethem partsof managers world. Managementaccount-

ingcalculations provide a good dealof the knowledge that is

available for management (Cooper, 1992, 1997; Law, 1996).

This knowledge is an effect of procedures of inscription, i.e.,

procedures of how traces such as receipts and statistics are

put together and ends in a calculation (e.g., Briers & Chua,

2001; Chua, 1995; Miller & Rose, 1990). Focusing more on

theprocedure of makinga calculation than on its correspon-

dence with an underlying reality, Robson makes the man-

agement accounting calculation one proposition about the

financial affairs of the firm. So, organisation and market

may be brought forward and made visible by calculations

of, e.g., of revenues and development in profitability (Hines,

1988; Quattrone & Hopper, 2005), and the calculations im-

pose an agenda requiring a response (Miller, 2001). These

authors emphasise that a management accounting calcula-

tion is an inscription which develops visibility by

stating what belongs to the past, and of what the

future consists, by defining what comes before and

what comes after, by building up balanced sheets, bydrawing up chronologies, it imposes its own space

and time. It defines space and its organisation, sizes

and their measures, values and standards, the stakes

and rules of the game (Callon & Latour, 1981, p. 286).

By making things visible, the calculation prioritises

elements to be accounted for. Calculations influence

how different spaces and different times may be pro-

duced inside the networks built to mobilise, cumulate

and recombine the world (Latour, 1987). The calculation

is an actor. According to Latour any thing that modif[ies]

a state of affairs by making a difference is an actor (La-

tour, 2005, p. 71). No actor acts alone therefore the calcu-

lation is always part of a larger collective that acts

together with it. Actors are made to act by many others

(Latour, 2005, p. 46).

Approach and research strategy

The empirical domain is three small and medium sized

companies. We interviewed 2025 managers in each firm

each taking between 1.5 and 3 h. We explained managers

that we were interested in their efforts to control and ac-

count for innovation. We had a semi-structured question-

naire, but often the dialogue would quickly develop its

own momentum. We did not focus on the firms as ethno-

graphic (or cultural) entities, as Yin (1994) would recom-

mend, but rather on episodes of translation between

management accounting calculations and concerns for

technology. Our interviews were reflexive (Alvesson,

2003) or analytical (Kreiner & Mouritsen, 2005) which

acknowledges that our theoretical issues, which were pre-

sented to mangers explicitly, were the introduction to data

collection. This is not a claim to have researched three firms

in their totalities;the claim is to have researched how man-

agement calculations are related to decisions about innova-

tion (technology). Management accounting calculations are

likely used for many other purposes as well.

The three firms not only claimed to be innovative and

could all be characterised as HighTech companies. They

also all produced measurement technologies and systems

used in different industries but there were commonalities

in product technologies (such as a mechanism to receive

and record signals, a computer to manage the signals and

a screen to present the signals in a relevant form). Each

has been given a fictional name to preserve their anonym-

ity: SuitTech, HighTech and LeanTech. Through the analysis

it was possible to draw out two propositions about innova-

tion and two associated management accounting calcula-

tions in each example.

The analysis of the empirical material was organised to

identify translations between calculations and innovation

activities. Firstly, we identified propositions about causal

relationships between innovation and value creation med-

iated by calculations. We paid attention to how calculations

were accorded power to do things. Secondly, we noted how

the power attributed to calculations translated into pro-

posed effects on management of innovation activities

(reduction or extension of innovation activities). We traced

how a presentation of a calculation would propose to influ-

ence innovation activities. Thirdly, we then paid attention

to the time and space suggested to be informed by the cal-

culation and noted how changes in innovation activities

would transform into something else such as sourcing

strategies which turned out to be surprisingly important.

Last, we used Callons (1986) diagrammatic form to illus-

trate the movements around the calculations. His diagrams

show how entities are included in or excluded from an

explanation and they seek to identify the movement of

changing relations. Figs. 14, which will be presented later,

are outcomes of this analytical procedure.

Translations between management accounting

calculations and innovation activities

The empirical material was collected in three firms that all

invested in innovation and made this a priority. The concern

wasnot whether innovation wasuseful,but which innovation

should be conducted and how it should be organised. In all

firms there were many management accounting calculations

but not all were able to stand for or represent innovation. In

each of the firms certain calculations were accorded particu-

lar significance whenmanagers accountedfor innovationper-

formance. The following sections present how management

accounting calculations were mobilised to account for and

influence innovation activities.

740 J. Mouritsen et al. / Accounting, Organizations and Society 34 (2009) 738754


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Example 1: SuitTech the role of special and customised

components in innovation

SuitTech, a small HighTech firm, produced and sold

measurement systems to R&D departments and university

laboratories whose measurement problems varied consid-

erably. Some customers measured turbulence in wind tun-

nels; others measured water-currents when designing oil-

rigs, and yet other customers measured turbulence in

flames. These different measurement situations confronted

SuitTech with demand for product innovation. Its mission

statement emphasised its ability in providing solutions

and solving problems, and it singled out that customers

have depended on the quality and reliability of its prod-

ucts and services to solve their problems.

SuitTechs measurement systems were presented as un-

ique offerings. Each product was bent tightly around the

individual customer with extreme customisation. In order

to make a unique solution with precisely customised tech-

nical functionality, sales engineers could, in cooperation

with the customer, choose from special and customised

components delivered by a broad range of suppliers or

developed and produced by SuitTech itself. Finding special

and customised components along with developing and

producing unique components internally was suggested

to be a core competence of the firm.

Mobilisation of sales performance and innovation through

specialised and customised components

To sales engineers, sales performance was an authori-

tative performance measure. The measure calculated the

actual gross revenue minus budgeted gross revenue for

each of the major technological areas quarterly. The bud-

get was set between the teams of engineers, the sales

manager and the CFO of the firm. Actual gross revenue

was an accumulated measures of all orders signed for at

given technological area in a given quarter. Thus, sales

performance was recognised in SuitTechs accounting sys-

tem when customers signed a contract and an order was

made. Before signing the contract, customers and sales

engineers had a long and intensive dialogue about cus-

tomer needs and technical characteristics; they developed

many different propositions about the measurement

problem at hand and about its targeted performance.

Therefore, an order symbolised the end of a prolonged

process of interaction where numerous propositions were

defined and considered; the characteristics of an eventual

order could not be predicted at the outset of the process

and it was therefore its effect rather than its precondition.

The calculation, sales performance, illustrated precisely

that a long process had been ended, which was observed

by a sales engineer:

You see the results of what we do in the sales mea-

sures. A customer never makes an order before we have

had serious discussions with him or her about the mea-

surement problem. And unless we can come up with

something convincing, we do not get the order.

Sales performance marked the end of a process of inter-

action. Together, sales engineers and customers assembled

the measurement system according to detailed require-

ments and specifications which were developed as part

of the process. In principle they could choose any combina-

tion of components such as optical receivers, lenses, chass-

es, lasers, etc. These could be sourced from a large network

of carefully selected suppliers. The sheer number of possi-

ble different components allowed huge flexibility in de-

sign, and made innovative solutions to the customers

measurement problems possible:

We can easily be in situations where we need a

1.3 mm lens instead of a 1 mm lens. If we let forego

the option to choose from many different items in the

design (and only use internally produced components)

I think SuitTech will create bad customer solutions

and thereby loose competitiveness.

Supplies of external components were used to refine

the customers solution and allowed SuitTech to be and

stay innovative. In SuitTech, innovation was negotiated

principally between sales engineer and customer and

when needed with the suppliers of special components.

Both were professionals and both knew the intricacies of

the technology. The process of selling, which involved

inventing the product, was time consuming. In principle,

it could go on for a long time because both sales engineer

and customer would always be able to invent or think

about new improved details. Therefore, the process of

developing an order was inspired and would not neces-

sarily stop: more time meant more detail and more quality.

How could such a process be stopped and transformed

into an order? When sales budgets were met and aspira-

tions achieved, the sales variance was modest and typically

unconnected to the process of developing and closing

orders. However, in situations where such aspirations were

not met, the sales variance transformed the network of

activities performed by sales engineers. Unfavourable

variance influenced sales engineers to redirect their efforts

from developing orders to closing orders within a short

period of time and they were thus persuaded to bracket

concerns about the products. Unfavourable variance ori-

ented them to cash flows away from leads; to budget-vari-

ances rather than to customisation; and to closing orders

more than to creating new and elegant combinations of

specialised components. Unfavourable variance recast

sales engineers interests and problematised the dilemmas

between SuitTechs and customers needs. The sales budget

problematised the interests of the firm compared with

those of customers and suppliers. Sales performance cre-

ated the tension between customisation and closing or-

ders. It defined a strategic uncertainty about the

innovation agenda in SuitTech. When sales performance

was favourable it extended technological innovation while

when unfavourable it reduced technological innovation.

Extending translations of innovation mobilising direct costs

Innovation was in many ways predicated on expansion

of the number of possible components that could be put

into a product. Sales performance framed sales engineers

experimentation with complex designs that prolonged

the sales process as only the best was tolerable. It

prevented much financial problematisation of the firms

innovation. A business controller noted the inferiority of



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cost in accounting for the firms sales performance in

SuitTech:

A performance measure that is very important for our

sales engineers is sales. What I as a management

accountant miss are indicators for direct cost. We quite

often debate this. I think this omission to a large extent

comes from the way we innovate. The focus on

constructing unique measurement systems to theindividual customer and producing to order make cost

indicators less relevant... but I think that we should

start considering these things as well. It is possible to

be aware of direct costs even if we are a bunch of

innovators.

This addition to sales performance of cost items devel-

oped a new type of tension in relation to the value of inno-

vation. The business controller contended:

It is the contribution margin and not sales that matters

when it comes to value creation. As a management

accountant I would say that it is a much more represen-

tative calculation of sales engineers value creation.

The contribution margin made revenues less direct cost

visible. Such inclusion of cost in performance was pro-

posed as a more relevant concern with value creation,

but it was also challenged. The sales manager explained:

As soon as we start to use contribution margin as a per-

formance measure some would probably be tempted by

the fact that they could increase performance by reduc-

ing direct costs. That is probably good in some situation

but I think that many engineers would probably also

start to apply cheaper components and new and less

efficient technology in order to reduce the costs which

would be a disaster for us. We do not compete on costs.We compete on the solution that we are able to come up

with for the customer! We sella differentiated product

a solution that the costumer is willing to pay for. We

should not be spending our time on reducing costs but

instead on finding the right solution.

Sales performance motivated a strategy of tight cus-

tomisation through liberal use of externally sourced special

and customised components but lurking closely in the

background was the proposition to reduce direct costs;

through such behaviour a whole new technology strategy

that included a focus more on programmable standard

components and software would become desirable. Adapt-able software programming and a narrower range of stan-

dard components presented an alternative to the large

variety of special components. Programmable component

development, which was an appendix to sales and not

obligatory to sales engineers, was used to create a bench-

mark for technology. The strong form of customer orienta-

tion did not favour conventional forms of planning and

control. The production manager emphasised that

Actual costs are always different from forecasts; in

particular direct costs depend upon specific measure-

ment problems that the customer has and these are

hard to forecast and there are no incentives to reduce

them for the sales engineers.

Thus, the commitment to customisation challenged con-

trol of direct cost as well as delivery time since the supply

situation often became complex and impossible to forecast

due to the use of specialised items sourced from external

suppliers. This concern was, however, only loosely coupled

to SuitTechs strategies as delivery time was proposed not

to be crucial to the customer.

As calculation, sales performance did not consider direct

costs. It did not propose standardisation and it did not

stress technological predictability and stability. It framed

the economics of the firm in relation to innovation activities

but it did not specify how innovation activities should be

organised because its focus was more external than internal

to innovation activities. Sales performance motivated

expansion of activities and propositions in innovation. A

sales engineer commented:

We are free to choose any special or customised com-

ponent that fulfils the customers need. Of course the

customer has to pay for it but we do not keep record

and set targets for these things. Reducing direct costs

is not a performance criterion. Actually, it is a bit of a

relief and it makes our job easier. It creates room for

innovation. You may say that it is critical to our

success.

Tensions related to the omission of direct cost in the

performance measure was raised by controller who

claimed that sales engineers should mind costs and reduce

the use of the special and customised components:

I do not want to be a pessimist. I think the sales engi-

neers do a great job. But is it more the fact that they

should keep in mind that the special components costs

us actually quite a bit in terms of direct costs and time.

So why dont we start to incorporate it in our perfor-

mance measure.

If they had knowledge of direct cost sales engineers

would perform innovation in new ways and ask questions

about the appropriateness of special and customised com-

ponents. They would reduce the use of such components

and substitute them with programmable standard compo-

nents. The production manager explained:

There are alternatives to special components. I mean,

we can go far by programmable standard components

and by the help of software programming from our soft-

ware engineers. Programmable components can never

replace special components totally but this is another

possible technological strategy.

Such a strategy would also affect supplier-relations the

production manager suggested:

This would also imply that we have to think about our

suppliers in a different way. Currently, we spend a lot of

resources nursing the large network of suppliers deliv-

ering customised and special components. However, if

we used programmable standard components, we

would reduce this network and the resources we con-

sume in the purchasing department significantly. It is

a strategic cost, but remember the special and custom-

ised components are beneficial to us in many ways.



6/17

Sales performance privileged heterogeneity in compo-

nent selection. The visibility created by calculating costs

of special and customised components would encourage

a wholly different strategy for innovation. The alternative

would be to focus more on the components programmed

by SuitTech itself where variation was created by software

rather than by hardware:

We might challenge the way that we innovate today.

In fact, software is an alternative to the hardware deliv-

ered by suppliers.

The tension between the two strategies was to a large

extent created by the demarcation between performance

according to sales and direct costs. Direct costs problema-

tised the use of special and customised components and

proposed to influence inter-organisational relations.

If we focus more on the components that we can pro-

gramme ourselves we might change the way that we

are innovative today. This would also affect the way

we see our suppliers. They would rather deliver a rela-tively limited number of standard components. Now we

consider them all as one big supermarket. Lots of oppor-

tunities exist out there.

The perspective suggested by direct costs related new

elements to the translation of innovation. It required Suit-

Tech to upgrade its internal software competences to con-

vince sales engineers about the real relevance of

standardised programmable components for customisa-

tion. This challenge was mobilised by associations made

by direct costs and contribution margin which were in

stark contrast to the ideas of components and inter-organ-

isational relationships made by sales performance.

Example 2: HighTech: the concern with technological

superiority

HighTech produced and sold measurement systems

typically to the health sector (e.g., hospitals). Like SuitTech,

also HighTechs customers demanded high technology but

they shared industry where the measurement system had

to perform various but specific kinds of medico-technical

analyses. HighTechs innovation aimed to develop prod-

ucts ability to perform all relevant medico-technical anal-

yses. Technology development pushed the boundaries of

supplied technology to the point where HighTech knew

more about possible measurement tasks than customers

or users would normally do. HighTech saw itself as a mar-

ket-driving firm where customers would buy latest tech-

nology when it was made available to them.

Mobilisations of contribution margins and innovation through

technological superiority

The product contribution margin was standard vocabu-

lary in the new product development department of High-

Tech. The contribution margin subtracted expected direct

costs from expected sales and the targets set for direct

costs as well as sales prices became a measure that coordi-

nated and motivated actions taken in each development

project. The performance measure, however, paid little

attention to indirect costs which was suggested to have

created a significant room for innovation. A development

engineer explained:

There is not much focus on indirect costs in our

research projects and this is fortunate because it gives

us freedom to experiment. We are not as accountable

for the resources we spend on each project as we

could be. Before I came to HighTech I worked in adevelopment organisation where this was always

was an issue. Here, there are many more possibilities

and I think it is beneficial for the organisation as a

whole.

The development engineer referred to a concern in

HighTech whether product development project managers

were to be accountable for the indirect costs of the R&D

department carried out HighTech. The concern was

whether research resources should be reflected in product

profitability or not; would it be advisable to develop a

profit margin after indirect cost or maintain the focus on

the contribution margin accounting primarily for indirect

cost? Technological innovation was important to HighTech

that had a history of high quality products. It saw itself as a

market-maker that set the de facto standards of the indus-

try. HighTech emphasised application of new technology.

The director of research and development suggested this

very clearly:

We must develop the technology. It makes no sense to

us just to copy the products from our competitors. Our

mission is to develop the new products to the market

and we have to be the leading technological firm. This

is what gives us profit.

HighTech was committed to R&D and prided itself to be

able to see customer wants before customers were aware

of them. Product developers proposed that they knew

more about relevant uses of the measurement system than

customers and often customers simply accepted that High-

Techs latest product had to have better solutions than

what the customer would be able to think of. The individ-

ual product was not customised. It was standardised, but

as HighTech continuously set new standards for what a

measurement system could do, it created its own demand.

It was less a market-driven firm than a market-driving

firm, and HighTech experienced a high degree of technol-

ogy elasticity which connected technology development

with high growth in prices and revenues. HighTech pro-

posed its extensive investment in experimentation and

R&D in their development projects as a reason for this

capability.

HighTechs R&D organisation was separated in two: a

R&D department and a development organisation. The

R&D department carried out technology projects about

chemical fluids and electronics and was presented as a ser-

vice department for development projects. Technology

projects initiated to solve technological issues in one new

product development project could often produce knowl-

edge that could be used in a wide range of other develop-

ment projects. Individual technology projects produced

deep technological competences in chemical fluids as well

as electronics and not merely applications hereof to a



7/17

product line. The costs of R&D were not allocated to new

product development. The R&D director argued:

Many of the results we get from the technology pro-

jects are like public goods. They can be shared by

everyone, as it is a key towards our key competitive

advantages.

A new product development manager continued:

Often we take detours in the projects. It makes the pro-

jects much more expensive in total. But the things that

we learn provide us with the extra knowledge that is so

decisive to us if we want to keep our position on the

technological edge. Some may say that we are too care-

ful [in research] and spend too many resources in the

development projects. But we learn things that we can

use later in other projects. It is a delicate balance. But

it is a thing that I think that we are good at in

HighTech.

HighTechs innovation concerned learning in relation to

its technological bases in chemical fluids and electronics.

Innovation was for purposes beyond the products at hand.

The detours in technology projects created extra knowl-

edge that could be used in later projects.

New products were considered to produce additional

revenues which would by far outweigh additional direct

costs. Development engineers raised the contribution mar-

gin as a justification for complexity in product develop-

ment. Even if direct cost was part of the contributing

margin and some concern had to be mustered to manage

these costs, the contribution margin justified attention to

complex organisational development capabilities:

We are allowed to develop our key technological capa-

bilities: electronics and fluid chemicals. And cost con-

trol here is very difficult. But when it comes to direct

cost we all have a responsibility. Sometime we even

have to compromise design in order to keep direct cost

low. However, this is of less importance in regard to the

innovation lead we get from the development of our

key technological capabilities.

Sometimes infrequently direct cost could compro-

mise design but generally, product innovation was driven

by experimentation with new technologies and large in-

house development projects. Concerns with efficiency in

production processes were in large part exported to sub-

contractors, as suggested by the purchasing manager:

In our contracts we promise, e.g., to pay for a number

of spools but we will only cover the direct cost and not

any profits. If we need less that the number of spools

we only have to pay for the specific and direct cost of

the items. So, the subcontractor does not suffer a direct

loss but neither does he gain any profit. For example,

we do not pay for the copper-wire of the spool. It can

be used for other customers. We will only cover the

spool.

Product development was concerned with revenues and

production with cost. Inter-organisational relations mod-

elled this difference.

Extending translations of innovations mobilising indirect

cost

From time to time frustration about the cost conscious-

ness of the R&D department was aired. Controllers sug-

gested that they start focusing on the resources that

product development project consumed in the R&D

department. It seemed that product development projects

initiated many activities and incurred significant costs.

One controller stated: It is as if you can get technological

advice for free.

One way to direct more attention towards the cost-con-

sequences of technology development was to allocate the

costs of the technology projects of the R&D department

to the new development projects of the development

department. Different types of cost drivers were suggested,

e.g., number of requests made to the R&D department, or

man hours in the R&D department traceable to individual

new product development projects. The requested labora-

tory tests, experiments, etc. were central to solve the tech-

nological problems that emerged during the new product

development projects. This would make certain costs of

R&D visible for new product development managers who

could then economise R&D activities. This would have

important consequences as a controller argued:

To include a strict focus on indirect cost in our perfor-

mance measure would be to introduce an entirely new

idea about our business. Nevertheless, I think it is cru-

cial that we do this.

Costing would problematise technology projects and new

product development managers would ask questions about

HighTechs knowledge banks and look for technological solu-

tions elsewhere. A development engineer commented:

Currently, we do not use suppliers much when itcomes to our technology development. But it is defi-

nitely an option that we should consider in order to

become more cost efficient in our development pro-

cesses. And if we start costing technology requests

things will change.

In particular in the area of chemical fluids possibilities

for finding external support, and external partners were

considered to be promising while for electronics this

would be difficult. This was noteworthy, because techno-

logical development at HighTech was largely considered

a combination of capabilities in electronics and chemical

fluids.We have unique capabilities in HighTech that combine

electronics and chemical fluids. We cannot get that

from the outside. They are too specialised.

The possible external sourcing of innovation in fluids

suggested that relations between the two technological

areas were to be cultivated in new ways and the R&D

departments technological capabilities would change and

perhaps even diminish. Costing technology projects would

focus too narrowly and hinder corporate-wide value crea-

tion the director of R&D argued:

I am sceptical towards the idea of costing our technol-

ogy activities. Technology development is something



8/17

that emerges gradually and it may involve external

partners. When we start costing one alternative [i.e.,

the internal technology requests], we should also think

about the cost of the other alternative [i.e., external

technology requests]. But I am not sure what the real

costs for HighTech are if we start sub-contracting tech-

nology development.

The suggested real costs were different from account-ing costs. In particular he was concerned whether the con-

nections between chemical fluids and electronics could be

upheld in a situation where, because of costing, the focus

would be on narrow product line effects rather than corpo-

rate-wide effects across time and space.

Example 3: LeanTech: the challenge of hardware modules and

software programs

Aiming to develop, produce and market high quality

products for audio and video transmission, LeanTech had

developed a customer base across telecommunication

companies and radio- and television stations all over theworld. The past 5 years sharp growth in revenues was ex-

plained by the firms innovation activities. All LeanTechs

products were customised and historically one central

challenge had been to integrate software and hardware

in a connected offer to the single, individualised customer.

Through design and sales work its development- and sales-

efforts had focused on expanding markets through cus-

tomisation and a flexible product program. The resulting

growth and expansion had made LeanTech outsource a

large part of its production capacity to selected suppliers

that had invested in advanced production technology. In

this inter-organisational relation an open book arrange-

ment had provided time and cost information about theproductions processes of the subcontractors.

Mobilisation of activity-based costing and innovation through

sharing components, modularisation and digitalisation

Design for manufacturability was considered an ele-

ment in LeanTechs competitive success and use of com-

mon component for modularisation and use digital and

software solutions to customisation problems in product

innovation made manufacturing effective. Together these

elements problematised the relationship between hard-

ware and software components in innovation activities.

An activity-based costing calculation visualised eco-

nomic effects of complexity of engineers design for manu-facturability initiatives. Historically, designers had paid

attention primarily to direct cost, but the activity-based

costing calculation focused differently:

The number of set-up had grown by more than 150%

and the machines do not run full time and we had too

much waste in process time. To meet the market condi-

tions we simply have to enable the use of common

components that can be used within and across

modules.

This imperative to use common components challenged

designers because the implication was to reduce number

of components.

We were confronted with very high resistance from

the development engineers when we started to talk

about preferred types. In the development department,

they have lots of technical arguments for using many

different components but with the open book, we could

show the time- and cost-consequences of using many

different components. As a result, we have been able

to make the development engineers reconsider the

design and perform some creativity in their design work

to reduce the variation of components.

A large number of different components proposed many

set-up operations in the production process, machines had

to be stopped and the labour force had to switch manually

between types of components thus increasing time con-

sumption and cost. Information about set-up-time and

mounting costs in the production process motivated a

reduction in component selection from 15,000 to 5000

components. Focusing on process- and production-aspects

the role of engineers innovation was to reduce technolog-

ical features and components of the products. And in addi-

tion to sharing components yet another activity modularisation was proposed as a way to improve the

manufacturability of the product. The logistics manager

explained:

By modularisation we pack more potential functional-

ities into fewer modules and thereby get a fast reaction

to customer orders and eliminate non-value-added

time. The market condition is that we have to produce

as quickly as possible, and by being production innova-

tive we can produce everything within 23 weeks.

Modularisation developed a limited number of possible

product configurations which would make the production

and assembly process more predictable. In particular, theconcern with modularisation opened a new innovation

ambition where the distinction between software and

hardware gained new significance.

Historically, LeanTech was concerned with designing

and assembling analogue devices but modularisation

pushed customisation into digitalisation. Hardware and

software could be distinguished and introduce a principle

of technology development and production taking into

consideration predictability in production and creativity

in development. Software programming could provide

innovation for customers; various types of software could

be implemented on largely the same hardware platform.

Customisation could be a question of digitalisation (soft-ware) that could quickly be configured according to cus-

tomer needs; and the development work and supplies of

software modules could be outsourced more freely to a

pool of independent software suppliers in LeanTechs sup-

ply chain.

Activity-based costing dramatised certain conse-

quences of digital rather than analogue technology related

to design for manufacturability, as explained by the logis-

tics manager:

There is simply a potential in software that we have to

exploit. If we do this we can increase our productivity

and we can deliver very quickly. In principle, we would

be able to deliver within just a few weeks irrespective of



9/17

what the customer wants because our production is

geared towards it. It does create a set of advantages to

orient ourselves more to software; we can see that from

our accounting statements.

Activity-based costing expanded the use of digital soft-

ware solutions and technology because it presented ana-

logue solutions as costly compared with the digital

solutions.

Translation of innovation mobilising cost of capital

Yet the activity-based costing calculation could be

challenged by its disregard for capital costs and depre-

ciation that accrued from three types of events: increase

in the average cost per unit on inventory, increase in

waiting time for critical components, and increase in R&D

costs.

Firstly, the value of inventoried components and mod-

ules increased since, although reduced in total numbers

due to digitalisation and modularisation, the average cost

per unit increased. Since all modules and components

had to be combinable with all other components and mod-ules, they had to have more capabilities and functions. In

software, suppliers had to put new resources into pre-pro-

gramming the software of modules and in hardware a

broader variety of functions required more expensive com-

ponents. Secondly, some of the components were critical

components that could be difficult to source and unex-

pected waiting time could occur. This risk was partly re-

lated to critical components being so special that only a

small number of suppliers would be able to deliver them,

or as the logistic manager explained:

Of course the hardware modules we now produce

result in more expensive inventories and if for example

Motorola designs a new product and use some of the

same components as us it also creates extra costs in

sourcing and delays but we are not making any calcu-

lations on those costs.

Such increase in inventory costs and risk of waiting

time in the supply of these components, due in part to

new surprising competitors, were not taken into account

by activity-based costing, and inventory cost was suddenly

a challenge. In some situations, modularisation and digita-

lisation could increase cost.

Thirdly, it was cumbersome to make components plug-

and-play because they were changed over time and more

recent components had to integrate with older compo-nents. For example, software applications were not only

designed by different software-programmers but also at

different periods of time by different project teams at dif-

ferent suppliers, and therefore a substantial amount of cus-

tomisation work was needed in LeanTech. One process of

additional customisation concerned the challenge of

changing needs; another was a result of the number of

changes that were made. Both increased the workload of

changes to software, as it was explained:

Often there is already a long history of patches and

bilateral interfaces resulting in spaghetti of intercon-

nected applications, which is time consuming and a

expensive to maintain. But this is a discussion whether

these costs relate to re-engineering cost of the product

portfolio or if they are development costs that also

relates to future products.

Software tended to grow bigger and become more com-

plex because the easiest way to add a new feature or fit

two or more functionalities and packages was to add a

new code. At the same time the aging of the software pack-

ages fastened and then it became increasingly complicatedto make it work with other packages. As a consequence the

time when new software had to be developed was moved

ahead. This, together with the fact that the modularisation

had postponed the product differentiation to a point closer

to the customer, put pressure on the programmers in Lean-

Tech to add new features quickly for connecting different

software packages.

Because of postponed customisation the priority of soft-

ware work was often to make customisation work and de-

liver to the customer. Making documentation and review

of changes and new features were not prioritised. The re-

sult was that a single delivery could exist in different ver-

sions, each with subtly different structures and based onslightly different design concepts and assumptions. To

avoid this and accumulate the specific knowledge that fu-

ture deliveries could benefit from, changes and new fea-

tures had to be studied and documented. A team of

software engineers would review the codes in different

versions and the differences recorded and then agree on

the proper structure that all future changes had to be based

on. This made LeanTech suggest that software changes

were costly and that future changes could only be designed

consistently if the programmers work was based on prop-

er documentation of the design and code. Not doing so

would reduce the durability of software. In other words,

the frequent changes speeded up the aging of the softwareand the work to review and document became more diffi-

cult and time consuming as the size of the software in-

creased. The logistics manager explained:

Our software packages are growing bigger and this

weight gain is caused by our fragmented supply of soft-

ware from internal and external programmers. In most

of our work on software we dont know the original

design concept and the changes we make will be incon-

sistent with the original concept; in fact they will

degrade the original concept and speed up the aging

of the software, and software that has been repeatedly

modified in this way becomes substantially moreexpensive to change and update.

Complexity increased investments in R&D activities

which increased depreciation charges by what was sug-

gested to be 5060%.

Concerns with cost of capital and depreciation would

not only economise R&D but also encourage its substitu-

tion towards larger, standardised software packages which

in turn would impact inter-organisational relations. In-

stead of several suppliers of software the innovation

potentially could be based on market standards from major

suppliers instead of own design and programming and

externally delivered software packages. The logistics man-

ager explained:



10/17

We have the option to use software suppliers that offer

a broad variety of functionalities in one integrated soft-

ware package with standard interfaces. Our R&D activi-

ties should not be reinventing the wheel. By substitute

many of our current software packages with larger and

well-designed software packages we can slow the aging

of our software and minimise the modifications and

documentations work we need to make ourselves.

By using standardised software packages with more

functionality LeanTechs programmers could meet specific

customer needs by adding switches and create systems

that appeared to be different by various functionalities

but were only small variations on one basic software pack-

age. The software package would last longer before modi-

fications were needed and its maintenance costs would be

much lower. The perspective suggested by capital cost and

depreciation charges required LeanTech to upgrade the use

of external software suppliers to fewer, large suppliers

with standardised software packages.

Innovation, inter-organisational relations and

management accounting calculations

Short and long translations

The main observation from the empirical account is that

management accounting calculations do not calculate

innovation activities per se but they mediate it. They hardly

make the innovation more transparent because they do not

model it; rather they mediate betweeninnovation activities

and firm-wide concerns and influence the intensity and

direction of innovation activities. Management accounting

calculations add a new perspective to innovation activities.

This happens in short translations where innovation

activities are related to revenues, contribution margins

and ABC margins, or in larger translations where innovation

activities are linked with sourcing strategies and changes in

the competencies of firms through competing calculations.

Management accounting calculations rarely become

meaningful and powerful by an appeal to their definitional

correctness but only by connections with concerns devel-

oped when they participate in mediating multiple actual

and potential intra- and inter-organisational spaces and

times. Table 1 presents and recounts the systems of innova-

tion at stake in the three examples.

Table 1 shows that the management accounting calcu-

lation speaks for much more than it describes. The surprise

arising from the three examples is that the management

accounting calculation is able to problematise not only

innovation activities but also central strategic properties

of the firm such as its boundaries and capabilities.

The short translation

The primary quality of management accounting calcula-

tions in relation to innovation activities is hardly that they

describe innovation activities and make them increasingly

transparent. Sales performance is not the same as choices

about components in SuitTech, but it extends the probabil-

ity that sales engineers will use external components. Con-

tribution margin is not the same as electronic components

and chemical fluids, but it extends development engineers

experimentation in HighTech. An ABC margin is not the

same as complex components in LeanTech but it helps

sales engineers to be interested in a limited set of preferred

components.

The short translation links the innovation to the firm by

problematising when the innovation activity is in excess

and has departed from its contribution to making the firm

viable. In SuitTech, sales performance only intervenes when

there is a shortfall which happens when sales engineers in-

vest excessive time in assembling a customised product.

When sales variance is unfavourable, attention is directed

to finalise ordersratherthanto produce leads. There is a lim-

it to the time a sales engineer can spend combining compo-

nents into a product. Sales performance re-frames sales

engineers attention towards closing orders when it is in

jeopardy.Sales performancethus translatesa complex ques-

tion of technology into a simple question of time.

A parallel movement can be found in HighTech where

the contribution margin justifies new technology in inno-

vation projects and thus encourages developers to experi-

ment. The contribution margin helps to explain whether

in fact R&D is able to translate into increasing prices far be-

yond the limited direct cost added from innovation. The

R&D activity has to develop a market response in demand

and in price increase. There is a constraint to innovation,

however, as the technology has to have applicability in

an existing product range. While the contribution margin

expands innovation by emphasising R&D innovation as a

general drive towards increasing prices, it also reduces

innovation by insisting that technology development, over

a time period, be integrated with technological capabilities

of existing product ranges.

In LeanTech the short ABC calculation reduces the num-

ber of components that sales people can muster and use in

a particular product thus reducing the elements in innova-

tion arrangement. The calculation also increases the use of

more powerful components thus substituting analogue

solutions by digital solutions because it presents costs of

flexibility.

These three examples of short translations illustrate

how a management accounting calculation can work on

innovation even if it does not directly represent innovation

activities. There is an indirect link between management

accounting calculations and specific innovation activities,

which starts from adding perspective and context to inno-

vation. It stipulates a context for innovation that requires it

to be profitable.

Thus, as has been proposed also by others (e.g., Ahrens &

Chapman, 2004, 2007; Boland & Pondy, 1983) management

accounting calculations do influence situated decisions and

managers do use such information in managing R&D pro-

jects (Nixon, 1998). Yet, many decisions in innovation are

interesting not only in R&D settings since their effects

spread to manufacturing and sales and therefore, manage-

ment accounting calculations help to make the effects of

innovation economic (Davila & Wouters, 2004; Hansen &

Jnsson, 2005; Jnsson & Grnlund, 1988). The usefulness

of management accounting calculations is paradoxical be-

cause they are not inherently connected to the activities

they help organise. In all examples, the calculation requires



11/17


12/17

help because its tension is difficult to appreciate without

mediation: economise time (in SuitTech), develop markets

though new technology (in HighTech), and make manufac-

turable solutions (in LeanTech). The calculation connects

the innovation activity to other concerns.

A short translation relates the calculation with changes

in innovators conduct but it does not question the innova-

tion strategy. It is short when it economises innovation

through influencing the time, resources and orientation of

innovators. It bends the innovation to its context by presen-

tation of financial effects in revenues, in contribution mar-

gins and gross margin. A relevant management accounting

calculation is specific and therefore partial, and its mobili-

sation requires support from others such as the order man-

ager (in SuitTech), the new product development manager

(in HighTech) and the production engineers (in LeanTech).

The long translation

In addition to the short translation, there are also long

translations generated by competing calculations. These

translations become longer because they develop complex

problematisation of the role of innovation in the firm

strategic consequences beyond the firm by taken many

more entities into account. The tension between calcula-

tions is important, and it can be illustrated generally as

in Fig. 1.

Fig. 1 illustrates that the stake in innovation manage-

ment is a struggle over with technological artefacts. Each

management accounting calculation defines some rules

in this struggle which proposes not only different compo-

sitions of technological artefacts but also different innova-

tion strategies and sourcing arrangements. Specifically, the

maps of the translations show connections between man-

agement accounting calculations, technological artefacts,

innovation strategy, and (inter-) organisational relations.1

Secondly it illustrates that there are competing calculations

which propose decisions about innovation and (inter-) orga-

nisation differently. Thirdly, there are two arrows one bold

and one dotted. The bold arrow identifies a dominant pro-

cess of translation while a dotted arrow identifies a compet-

ing calculation which requires a different settlement of

innovation and (inter-) organisation. This work on the

boundary of the firm may be central in the management of

innovation in a period of time when firms strategies change

much faster than they can develop their competencies (Cas-

tells, 2000; Parolini, 1999). Figs. 24 show the application of

Fig. 1 on the three examples.

Fig. 2 illustrates the production of tensions between the

two calculations in SuitTech (sales and direct costs) over

the amount of special components that sales engineers

can legitimately take into consideration. The two calcula-

tions guide this decision differently. Sales performance ex-

pands the number of possible components because it

makes revenue considerations more important than cost

considerations and develops innovation through combina-

tion of components arriving from an extended space. Thus,

mobilising this calculation, engineers focus on customisa-

tion of products through combination of components and

the inter-organisational relation is a large, well-assorted

and heterogeneous inventory. Adding the direct cost to

the picture makes problematisation of this relation possi-

ble. When direct cost is mobilised, managers identify a ten-

sion between resources and efforts invested in designing

an order. Innovation through combination of special com-

ponents appears to be costly, and including direct cost in

the performance measures economises innovation activi-

ties by shifting attention to programmable components

that are more readily available and whose variation can

be guaranteed by software flexibility rather than by hard-

ware components. Innovation is here to a large extent met

by software programming. Inter-organisational relations

are then proposed to be an inventory of a limited range

of standard components that can be supplied steadily

and predictably. The more standardised the set of possible

components the more amenable innovation is to control

through a form of standard cost system.

Fig. 3 illustrates that, in HighTech, the struggle is

whether a large R&D department which takes pride in

developing general knowledge and not only product spe-

cific knowledge is appropriate. The contribution margin

approach sees the costs of the R&D department as a period

costs and allows it to develop its own distinctions and

Technological artefacts

Calculation 2Calculation 1

AlternativeInter-organisational

relation

AlternativeInnovation strategy

Innovation strategy

Inter-organisationalrelation

Fig. 1. Elements in the analysis of the role of management accounting calculations in long translations.

1

These elements are clearly the ones identified in our research. Inprinciple, there could have been others.



13/17


14/17

outsourcing of R&D initiatives possible and thus develops a

new inter-organisational R&D agenda.

Fig. 4 illustrates, in LeanTech, a struggle over the use

of exotic components or general standard software. The

ABC margin motivates a limited range of complex, some-

times exotic, expensive components; cost of capital and

depreciation charges, in contrast, reduce complexity of compo-

nents and draw on standard software packages. These prop-

ositions reach into the inter-organisational space because

exotic and specialised components require concerned and

intensive interaction with suppliers about the components

performance while the use of standard software packages

requires that the firm interacts with large suppliers who

can develop the technologies of their application largely

by themselves as they define the industry standard.

The tensions arising in the three examples of proposed

transformation are minimalist. When the three examples

draw new possible calculations into play they pay atten-

tion only to those parts hereof that will make its proposi-

tions different from the existing arrangement. It is likely,

however, that if the cost strategy would gain power in Suit-

Tech and HighTech managers would also quickly concern

themselves with revenues. Rather than seeing the oppos-

ing calculations as suggestions of effective management

control systems, they are much more problematising de-

vices which challenge dominating arrangements by high-

lighting the special features they problematise.

Management accounting calculations in tension

The three examples illustrate that innovation strategy

can be an effect of management accounting calculations.

The tensions between calculations are important because

they frame decision making, risk management and strate-

gic uncertainty by adding sequences of proposed effects.

The short and long translations both create contexts for

innovation activities but there are differences. The short

translation develops immediacy between innovation activ-

ities and economic effects. In the long translation some of

the power of a calculation derives from its tensions with

other calculations over the appropriate way in which to

make innovation a productive resource for the firm. The

tension is that there is not one but at least two ways in

which choices over technological components can be

made. The calculations provide these justifications which

are inside the process of translation rather than outside

it. The management accounting calculation does not judge

the relative merits of different propositions about innova-

tion; the management accounting calculation is part of

the proposition that it mediates.

If managers do not follow the calculation, they have to

produce another calculation to make their point. In order

to combat one calculation another one is needed. Calcula-

tions play a role in the development of new propositions of

the relevance, power, effects and character innovation in

relation to firm strategies. In LeanTech the ABC calculation

is able to rally interest only becauseit is possible to calculate

thecostof huge inventories.The problem of heterogeneity of

components is not visible before it has been made a calcula-

tion. If someone would claim, say, that innovation should be

more efficient, another voice wouldimmediately say show

me what you mean and then the calculation has to emerge.

Mere cognitive interpretation of innovation is not collec-

tively actionable; innovation has to be inscribed and made

acalculationbeforeitcanbeactedon.Thisisthecontextthat

the calculation develops and makes possible. Even people

who are inside an innovation such as the R&D Director in

HighTech have to step out and mobilise the management

accounting calculation when they want to say something

to justify innovation. Standing out is a movement, but not

a movement from oneplaceto another.It is a movement into

a calculation where some effects can be proposed, surveyed

and compared. Mere mental interpretation is not enough. A

calculation is stronger.

The calculation requires a network of practices and

commitments to operate; it will not operate on its own.

Any particular economic category performs differently

across the three examples. For example, in LeanTech be-

cause of cost and time calculations it is possible to propose

an integrated, lean supply chain governed from one place.

In HighTech, also because of time and cost information it is

possible to contemplate outsourcing of R&D and in Suit-

Tech again because of cost information it is possible to con-

ceive of in sourcing of many production tasks. Likewise,

indirect cost can be proposed to drive value (HighTech)

and to destroy value (LeanTech). The calculations do not

determine their impact; they gain power in interaction

with the development of the entities they engage. Even if

some parts of the accounting calculation are strengthened,

it flows over in new ways; even if, for example, ABC calcu-

lations reduced production costs in SuitTech, it opened a

new space for increased cost of capital and depreciation

charges. Therefore, calculations gain strength not because

they are inherently good or reasonable but only by their

outside found in the activities and strategies it participates

in shaping and developing. This point extends questions

about the completeness of calculations (e.g., Lawler,

1983; Simons, 1995, p. 76-7) which suggests that the con-

tribution margin is more complete than sales performance,

and ABC margin is more complete than contribution mar-

gin. But the three examples show that completeness is

not a property of the calculation. It is useful to substitute

concerns about completeness with the relational qualities

of the whole network which constitutes the power of the

calculation. Sales performance, contribution margin and

ABC margin are powerful because they can motivate ac-

tions to be performed by innovators. This translation,

rather than represent the innovation choices, creates a

context for innovation activities to occur.2

2 The management accountants in the three firms claimed that their

extensions of the calculations were more complete than other calculations.

Direct cost was added to a sales figure in SuitTech, indirect cost was added

to contribution margin in HighTech and cost of capital was added to

Activity Based Costing in LeanTech. Accountants proposition to add

completeness in calculation is, however, a stylistic and formalistic concern

with the mathematics of inscription. Inscription is not a copy of the world

but only a particular ordering of the revenues and costs accumulated in the

accounting system; for the inscription to work, the world of innovation

activity and management has to be added and therefore even if more

complete stylistically and formally, they can be less complete in the world

of activity and strategy. The power of the calculation derives from itsintertwinement with action.



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Management accounting calculations as context for

innovation and sourcing arrangements

Research which suggests a constructive role for man-

agement accounting calculations in developing innovation

observes that managers develop dialogue about calculations

in the pursuit of innovation (e.g., Davila, 2000; Hansen &

Jnsson, 2005; Jnsson & Grnlund, 1988; Nixon, 1998; Si-

mons, 1987; Simons, 1990). The addition proposed by the

three examples is that the calculations do not only work

by moving closer to innovation and by looking more care-

fully at details of innovation practices. It may be that inter-

active use, or use of multiple financial and non-financial

calculations, focus attention to certain ways of seeing the

firm through more details and more interactions, and the

corollary probably is that managers know more about the

details of affairs and develop a unitary interpretation of

the demands of complex markets. The three examples

show, in contrast, that the important link is the movement

of innovation away from its place into diverging concerns

about the sourcing and strategy.

Like Hkansson and Lind (2004) and Miller and OLeary

(2007, 2005) the three examples illustrate that innovation

activities are often inter-organisational and that mediating

technologies help firms enrol others in this accomplish-

ment. The calculations are involved in coordinating the

firms inter-organisational field by extending existing con-

figurations of actors and interests into alternative possible

configurations. As Miller and OLeary point out, markets,

knowledge and actors are co-produced in the development

of innovation activities: markets, science and organisation

are co-produced via mediating technologies. In the three

examples, management accounting technologies mediate

the development of firm boundaries, capabilities and mar-

ket requirements.

Management accounting calculations mobilise the envi-

ronment and a variety of propositions are added that make

up not only existing environments and but also possible

ones. The three examples illustrate how the composition

of the environment is in process. It may be that Simons

(1990, p. 142) concerned question How do managers

identify strategic uncertainties? can be addressed by the

three examples. The solution appears simple change

the role of the calculation in the system of explanation

and the environment emerges as an effect of the analysis.

More particularly, this means that it is possible to contem-

plate and prepare for the environment through calcula-

tions. Perhaps this is why Simons (1987) prospectors use

a lot of information. They are prospectors exactly because

they have become knowledgeable about many aspects of

the environment which is then used to design and cultivate

the prospecting abilities. The tensions between calcula-

tions produce this opportunity. The three examples illus-

trate that management accounting calculation can be

mobilised to extend strategy in addition to implement

strategy. In effect management calculations can command

much more than they calculate.

Even if the calculation produces visibility, it is not pri-

marily about the contours of the objects it proposes to

manage. Rather than making a claim to increase visibility

more and more into details of organisational spaces (e.g.,

Ezzamel et al., 2004; Ezzamel et al., 2008), the manage-

ment accounting calculation may also gain by relating

the economy to other entities such as innovation and envi-

ronment. In this optic, sales performance speaks for the

firm and identifies the difference between firm, suppliers

and customers in SuitTech. Contribution margin speaks

for the role of technology in developing markets in High-

Tech. ABC margins speak to reduce the cost of production

complexity developed by innovative arrangements in

LeanTech. They all relate concerns about innovation and

inter-organisational relations to concerns of other situa-

tions and events in the firm and beyond. It transports con-

cerns about innovation by relating them to other concerns

such as production within the firm more than to the indi-

vidual concern of the innovation situation. The manage-

ment accounting calculation is strong because it helps to

develop context (see also Mouritsen, 1999).

Conclusions

A management accounting calculation does not de-

scribe or represent innovation and sourcing activities in

any detail, but it adds perspective to them and relates

them to the firm. In effect the management accounting cal-

culation is part of a relationship between economy, inno-

vation and environment. The management accounting

calculation speaks for the firm and puts pressure on inno-

vation to account for its contribution in this respect.

Based on examples from three firms, management

accounting calculations sales performance, contribution

margin, and ABC margin are mobilised in relation to

innovation and in turn, surprisingly, in relation to sourcing

and strategy. The management accounting calculation

works by extending or reducing the number of entities that

innovation can take into account, less by describing the

dimensions of innovation and inter-organisational design

and more by adding perspective to them. This mechanism

is stronger when a calculation is challenged by another

one. This is when there is maximum pressure on innova-

tion activities to show their strategic significance. The ten-

sions between calculations bend organisational activities

such as innovation to considerations such as growth, pro-

ductivity, profitability, and liquidity.

Management accounting calculations mediate and

mobilise innovation through short and long translations.

Short translations exist when management accounting cal-

culations encourage extension or reduction of innovation

activities when it proposes performance to be adequate or

inadequate. Long translations mobilise at least two calcula-

tions to problematise the role of innovation for corporate

purposes differently. Management accounting calculations

challenge each other and develop organisational struggles

not only about the role of innovation, but also about its

location in time and space technologically, organisationally

and environmentally. The process of developing relations

is, paradoxically, dependent on the management account-

ing calculation being partial because then it presents

tensions. The calculation can never be total.

Management accounting calculations can motivate

very long sequences of translation as they are associated

with strategic propositions about technology and the

boundaries of the firm. One of the possible effects of such



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translations is that the firms strategy for managing inno-

vation can undergo drastic reformulation. Another effect

of translation is that management accounting calculations

may create surprising effects very far from their presumed

outcomes. When new calculations come into existence

they reach into new situations that, in turn, influence the

role of the calculation.

Generally, the management accounting calculation

holds certain characteristics of innovation in place by

showing their broader justification. Sometimes the man-

agement accounting calculation shows this as a short

translation where the calculation is tightly coupled to deci-

sions regulating the innovation activity. In other situations,

however, the management accounting calculation enter-

tains a long translation though interaction with other cal-

culations where many new elements from whole systems

of innovation are taken into account. Challenging a certain

innovation system, opponents mobilise other management

accounting calculations that draw other consequences of

innovation. Innovation is thus not developed merely be-

cause of good innovative ideas; innovation has to pass

the test of management accounting calculations before it

can be heard, and the challenge is a whole system of inno-

vation and sourcing that is given corporate relevance

short and long translations

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