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Stability and change: aninstitutionalist study of

management accounting changeA.K. Siti-Nabiha

School of Management, University of Science Malaysia, Penang, Malaysia

Robert W. ScapensSchool of Accounting and Finance, University of Manchester, Manchester, UK

and The University of Groningen, Groningen, The Netherlands

AbstractPurpose This paper explores the relationship between stability and change within with theprocess of accounting change It focuses on the ceremonial way in which a new system of value-basedmanagement (VBM) was implemented and how the key performance indicators (KPIs) becamedecoupled from the day-to-day activities of the business, thereby creating a level of stability whichultimately contributed to accounting change.Design/methodology/approach It uses a longitudinal study of a company in which value-basedmanagement was imposed by its parent. It is informed by an institutionalist framework which drawson concepts from both old institutional economics (OIE) and new institutional sociology (NIS).Findings It shows that stability and change are not necessarily contradictory or opposing forces,but can be intertwined in an evolutionary process of change.Research limitations/implications Although there is accounting change within the case study,it is problematic to characterise it as either successful or unsuccessful change this has importantimplications for the way in which success is dened in studies of accounting change.Originality/value It is argued that in contrast to the normal assumption that decoupling is anorganisational response to external pressures, it is shown how decoupling can occur through theworking out of a complex and dynamic process of resistance to accounting change: a process whichsimultaneously involves both stability and change.Keywords Accounting, Change management, Value analysisPaper type Research paper

IntroductionEagle[1] is a gas processing company located in an East Asian country. Its mainactivities are processing and transmitting gas to various end users, but it alsoundertakes various gas utilisation projects, including building gas processing plantsand pipelines. In 1998 a system of value-based management (VBM) was imposed by itsparent company the state-owned national oil company. A brief description of NOCsVBM system is given in Appendix 1. As explained in that Appendix, at the core of thisVBM was a performance evaluation system which required Eagles managers toformulate key performance indicators (KPIs). These indicators were intended to beused for management control within Eagle, and to give its operations a more strategicorientation aimed at value maximisation. As well as being used by individual

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Funding by Universiti Utara Malaysia and University of Science Malaysia are gratefullyacknowledged.

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managers, the KPIs would be online in the Managing Directors computer and sent tothe parent company.

Even though there was much dissatisfaction with existing performance evaluations,there was considerable resistance to the new KPIs. From the outset, most of themanagers were uncomfortable with the notion of KPIs, and there was considerableanxiety and confusion regarding how the new system would be implemented and used.There were, for example, complaints that people were being treated as machines. Suchcomplaints, however, were never overtly voiced, instead they were informallyexpressed around the company. Nevertheless, even though the managers wereunhappy with the KPIs, they implemented the new system; since it was a directivefrom the parent company. Thus, at one level, this case is an example of successfulaccounting change the new system was introduced, KPIs were established, andmanagement reports are now routinely produced.

However, although the new system of KPIs was implemented, it was done inaccordance with the existing norms, values and practices within Eagle, and as a resultthere has been no effective implementation of a value maximising, strategicorientation. As such, the implementation of VBM has been largely ceremonial and hasnot had an impact on decision-making in the company. Thus, at another level, the caseillustrates resistance, and could be said to be an example of unsuccessful accountingchange. Consequently, in this paper we will discuss accounting change not only interms of the introduction of new techniques, methods and procedures, but also aschange in the day-to-day practices, activities, values and norms of the members of theorganisation. The paper contributes to the emerging literature on the nature andprocesses of, and resistance to, accounting change (Burns and Vaivio, 2001)[2].

In other studies of resistance to accounting change (Burns, 2000; Scapens andRoberts, 1993; Vamosi, 2000) the intended accounting change was unsuccessful in thesense that the new accounting systems and/or techniques were not ultimately

implemented. However, in Eagle, the new performance measurement system (PMS)using KPIs was implemented, but it did not have the intended effects on the ways inwhich managers within the company think about their operations. Nevertheless, it didpave the way for a new PMS in which KPIs are used for individual performanceevaluation. However, the KPIs used for this system are not the same as the KPIsrequired for VBM.

Thus, although VBM and, in particular, the new KPIs have not changed ways of thinking within Eagle, there has been accounting change. But at the same time, there isalso stability; i.e. in the values and norms which underpin the way Eagles managersthink about their day-to-day activities. In this paper we will explore this stability andchange within Eagle. In particular, we will focus on the ceremonial way in which theVBM system was implemented in Eagle, and how the KPIs became decoupled from theday-to-day activities of the business. This will enable us to study the processes throughwhich decoupling can occur.

Early institutionalists (Meyer and Rowan, 1977) argued that systems which areintroduced to secure the legitimacy of external constituencies can become decoupledfrom the internal operating systems (see also Weick, 1976). Although, as will bediscussed later, the simplistic nature of this argument has been questioned by laterwriters, there remains a view that decoupling is essentially an organisational responseto external (institutional) demands. However, as Scott (2001, p. 173) argues, that the

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nature of decoupling is an empirical question (see also Modell, 2003). In this paper wewill illustrate how decoupling can arise through the working out of resistance toaccounting change by the different groups within the organisation, rather than as aspecic organisational response to institutional demands, and how stability andchange can be intertwined in this process.

The paper is structured as follows. The next section will identify the theoreticalframework for our case study, and the subsequent section will outline the researchmethods. There are then ve sections which analyse the case. The rst examines theimposition of the new system. There is then a discussion of the existing institutionswithin Eagle, followed by an examination of resistance to the new VBM system.The case analysis continues with a discussion of stability and change, and then thereshaping of processes of change contrasting the KPIs in VBM and the PMS. Thenal two sections provide a discussion of the case and some conclusions.

Theoretical framework

In organisational studies, it has been claimed that the processual/contextualistperspective of Pettigrew (1995) and Dawson (2003) can provide rich understandings of the processes of change. From this perspective, processes of change are examinedwithin their historical and organisational context. For example, Dawson (2003, p. 7)emphasises the importance of studying the substance, politics and context of change.Similarly, Pettigrew (1995, p. 94) emphasises, rst, the importance of embeddednessand studying change in the context of interconnected levels of analysis; second,locating change in the past, present and future time; and third, the need to explore thecontext of action, how context is a product of action and vice-versa; and nally,acknowledging that causation is neither linear nor singular.

In studying accounting change in Eagle, we recognise the embeddedness of processes of change and explore both the time and organisational contexts of thechange. However, although the processual/contextualist perspective identies thegeneral approach to be taken, a theoretical framework is needed to focus the analysisand to address such questions as, why is there resistance to change, what forces are atwork, and how do new systems become embedded in the organisation. For thispurpose, we will use the framework set out in Burns and Scapens (2000), which drawsmainly from old institutional economics (OIE). This framework has similarities withthe processual/contextualist perspective in that a holistic, processual (evolutionary)and historical approach is used in studying change.

Burns and Scapens (2000, p. 8) argue that management accounting practices can beregarded as organisational routines and, as they are enacted and reproduced throughtime, they can become institutionalised (see also Scapens, 1994). An institution isdened as: the shared taken-for-granted assumptions which identify categories of human actors and their appropriate activities and relationships. The process of institutionalisation involves a dissociation of patterns of behaviour from theirparticular historical circumstances, so that routines take on a normative and factualquality, which obscures their relationship with particular interests (p.11). Institutionsare tacitly accepted as the way things are done in the organisation and, as such, arethe unconscious assumptions which underpin organisational behaviour. However,their origins are likely to reside in explicit choices taken to solve particular problems.When choices or solutions to problems continue to work over time, they come to be

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applied in a rule-like way, and subsequently become a routine activity (Schein, 1992;Scapens, 1994). Eventually, such routine behaviour can become unconsciouslytaken-for-granted; i.e. institutionalised.

Drawing on OIE (Tool, 1993; Bush, 1987; and Dugger, 1990), Burns andScapens (2000, pp. 20-1) suggest that accounting routines can be institutionalisedin a ceremonial or instrumental way. Ceremonially institutionalised accountingroutines are organisational rituals, which are used to preserve the status quo andthe power or interests of specic groups or individuals, rather than to aiddecision-making. In contrast, instrumentally institutionalised accounting routinesare used to make informed decisions. Whether accounting is institutionalisedceremonially or instrumentally depends on the wider institutional setting withinthe organisation; accounting routines both shape and are shaped by otherinstitutions. Hence, how management accounting is practised, how accountinginformation is used, and the role of accountants, depend on the institutions withinthe organisation.

Institutions, however, can act as a barrier to change; shaping what is perceived andthought by members of the organisation (Schein, 1992). Thus, institutions can shapeprocesses of change, and as such organisations can become locked-in to certaininstitutional patterns (David, 1994). Change which is not aligned with the existinginstitutions may be resisted and/or translated into practices which are consistent withthose institutions. This is not to say that institutions are inevitably barriers to change;institutions do change, although the process of institutional change is usuallyevolutionary and path dependent i.e. shaped by existing institutions.

Although Burns and Scapens framework focusses on internal institutions i.e. thetaken-for-granted assumptions within the organisation they acknowledge theimportance of external institutions, and the pressures for institutional change whichemanate from outside the organisation. Thus, although we use their framework to

understand the processes of change within Eagle, we cannot ignore the externalinuences to which Eagle is exposed and their effects on change processes within thecompany. For this purpose, we will draw on concepts, such as legitimation anddecoupling, which have been widely used in accounting studies (Covaleski andDirsmith, 1983; Ansari and Euske, 1987; Mezias, 1990 and Covaleski et al., 1993) thathave adopted the perspective of new institutional sociology (NIS) see also Scott(2001). Nevertheless, for our study we will retain the OIE perspective adopted by Burnsand Scapens (Scapens, 1994), as this perspective enables us to focus on changeprocesses within the organisation.

Accounting studies which have adopted an NIS perspective have tended to viewdecoupling as an organisational response to external pressure to implement newaccounting routines (Carruthers, 1995). It is argued that the organisation (or theorganisations key decision makers) attempts to secure legitimacy from externalconstituencies by implementing the new accounting routines, but at the same timedecouples them from day-to-day operations in order to maintain the technical efciencyof the organisation. This line of argument stems from the work of early NIS writers,such as Meyer and Rowan (1977) who argued that organisations tend to avoid thedysfunctions that could be created by imposing new institutional systems that aredesigned to secure external legitimacy, by decoupling them from internal technicalsystems. However, later work has questioned:

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(1) the simple dichotomy between institutional and technical systems (Scott andMyer, 1991);

(2) whether the technical can effectively be decoupled from the institutional(Powell, 1991); and

(3) the simplistic treatment of power and politics (Perrow, 1985, 1986).

Nevertheless, the notion of decoupling continues to inform organisational andespecially accounting studies of PMS (Collier, 2001; Johnsen, 1999; Modell, 2001)[3]. Butwhereas the early NIS writers saw decoupling as a largely given attribute of institutionalised organisations, more recent work has tended to suggest thatdecoupling requires some degree of resistance (Oliver, 1991 also Brignall and Modell,2000). However, little attention has been given to the processes though which thisdecoupling occurs within the organisation. In this paper we will explore how newaccounting routines were ceremonially implemented in terms of the existinginstitutions; thereby decoupling them from the day-to-day operations of the

business. Nevertheless, the ceremonial implementation did have consequences, andsubsequently facilitated instrumental change. This cannot be described as anorganisational response, however. It was not the original intention of organisationaldecision makers; rather it was the working out of a process of resistance to accountingchange.

The insights to be gained from using this institutional framework have somesimilarities with those obtained from other processual research into organisationalchange e.g. Molinsky (1999). But whereas Molinsky, for example, used the notion of dominant paradigms, other researchers studying processes of organisationaltransformation have used the concept of culture (Schein, 1992; Hassard and Shari,1989; Buchanan and Badham, 1999; Nicholson, 1993; Bhimani, 2003). The concept of culture in such work is similar to the notion of institutions in OIE. Schein, an inuentialwriter on cultural research, denes culture as:

A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid, and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems. (1992, p. 12: italics in original) [4]

However, culture is a concept with a wide range of meanings and we prefer the terminstitutions, as dened above, as it can be linked to the notion of managementaccounting practices as organisational routines. Furthermore, for purposes of thepresent paper this institutional framework, grounded in the writings of OIE, is usefulas it enables us to explore the notion of ceremonial change and to study the pathdependent nature of accounting change. In addition, it enables us to focus on the linksbetween stability and change.

In Eagle, we have case of accounting change imposed by the parent company, whichwas implemented in a ceremonial manner in order to present an image of rationalityand to preserve the stability of the existing institutional arrangements within thecompany. Thus, there is both stability and change this paper will explore how thetwo are intertwined in a mutually dependent relationship. This follows the work of Granlund (2001, 1998) which drew on Giddens structuration theory to explain stabilityin and around management accounting systems, and called for more analyses of the

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change and stability of management accounting practices, so that these contrary forcesand their interrelationship may be better understood (2001, p. 161).

Research methodsIn order to study stability and change in management accounting it is necessary toexamine these processes over a sufciently long period of time. Furthermore, asindicated above, a processual approach needs to explore both the historical andorganisational contexts. Thus, a longitudinal, interpretative case study of Eagle wasundertaken. This research involved 13 visits to the organisation over a period of veyears.

The initial phase of the research was conducted over a 6 months period from July toDecember 1998 (seven visits). Follow-up visits were made in 2000 (two visits) and alsofrom late 2001 to early 2003 (four visits). These research visits ranged from one to vedays in the organisation. Forty-eight interviews were conducted with 37 organisationalmembers (see Appendix 2), ranging from Vice President to clerk, at different

organisational levels and from different divisions. Essentially, the interviews wereundertaken at three levels: the parent company, Eagles headquarters, anddivisions/units within Eagle. Eight people were interviewed more than once. Most of the interviews lasted between 1.5 and 2 hours. Evidence from the interviews wasreinforced by documentary evidence, observations and informal conversations bothinside and outside the organisation. Various company briengs and trainingworkshops were also attended.

It is important to clarify that divisionalisation in Eagle is along functional lines.The company has six divisions: nance, transmission, plants, central utilities,commercial and project divisions. Only the plant, transmission and central utilitiesdivisions are not located at Eagles HQ, which is in the same building as its parentcompany. However, none of the divisions are evaluated as business units. The purpose

of divisionalisation is to provide authority to the divisions general manager (GM).Most of the interviews were undertaken in the plant division, and the discussions inthis paper relate primarily to the plant division, since it is the key division withinEagle. It has the largest number of staff and resistance to the KPIs was apparentlygreatest in this division. In addition, the plant division operates almost as aself-contained unit. As such, the persons quoted in this paper were from the plantdivision, unless otherwise stated.

The next section describes the imposition of the new VBM system by NOC. Latersections will then explore the prevailing institutions, the resistance to change, stabilityand change, and reshaping the change in Eagle.

Imposition of the new systemVBM was rst proposed in NOC in 1995 by a Western consulting rm, appointed toundertake a corporate review of the companys long-term direction, in the context of itsdeclared intention to operate overseas on a more strategically driven basis. VBM wasrecommended by the consultants as a tool to determine whether the companysactivities were being undertaken in a value-adding manner. In addition, they arguedthat economic-based earnings measurements could be used as a proxy for an openmarket valuation of NOC, which is not publicly quoted. VBM was subsequentlyintroduced in all NOC subsidiaries, including those set-up for a specic purpose; e.g. for

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inter-company transactions. It will be argued that the introduction of techniques, suchas VBM, and the use of Western consultants enable NOC to secure legitimacy in itssocio-political and economic environment. As will become clearer when we look at thecompanys history, the introduction of fashionable management techniques hasbecome an institutionalised activity in the company.

The NOC was established in the 1970s and given rights to explore and exploit thecountrys oil and gas reserves. It was the rst and only local, fully integrated oil andgas company in the country; previously oil exploration and production had beenundertaken by foreign-owned multinationals. As there was no local expertise or localtechnology, during its early years, 95 percent of NOCs workforce comprisedexpatriates, mainly from multinational oil companies. For a company with no priorexperience of the oil business and with the major challenge of proving that it was not agovernment department in another form (CEOs speech, May 1997[5]), it is notsurprising that NOC imitated the practices of established national and multinational oilcompanies. This was done by developing relationships with such companies andseconding staff to them.

In addition to acquiring technical skills and technological know-how, NOC alsoimplemented fashionable management techniques, usually of Western origin andintroduced by Western consultants. It seems likely that in part, at least, such actionswere (and continue to be) attempts by the company to gain legitimacy from its widerenvironment; that is, from the government, the public and its partners and allies. Byimplementing fashionable management techniques, the company presents an image of being modern and well managed. As Meyer and Rowan (1991) argue, engaging theservices of consultants can provide both internal and external legitimacy for anorganisation. For NOC, the introduction of new management fashions, and the use of Western consultants, can be seen as part of the companys image building process.Such image building is important for NOC, since being wholly owned by the

government, its image is not only crucial for survival in the highly competitive worldoil markets, but it also ensures that the government does not interfere in its affairs, asin principle, there is always the possibility of government intervention.

Although NOC was created as a purely commercial entity, its management is quiteaware that being government-owned means that its strategy and direction have to bein line with government policy. The CEO is quoted as saying that we have to thinkcommercially, but we get involved in the nation building process too[6]. To date, thegovernments inuence on the company has largely been exercised through theappointment of the NOC chairmen. Although in the 1980s it was believed that thegovernment inuenced the appointment of all top management, in the 1990s there doesnot seem to have been any major government interference in the companys operations.As NOCs CEO said in a speech in June 1997, one of the lessons learnt by the companyover the years has been the need to manage the relationship with the governmentthrough consultation and constructive engagement.

Therefore, it can be argued that NOC has to demonstrate to the government, andalso to the general public, that it is well managed. But besides securing legitimacy fromthe government, legitimacy in the eyes of its partners is also important, since NOC hasestablished alliances with multinational and other national oil companies in both itsdomestic and international business. NOCs CEO said (in May, 1997) we also needed towin acceptance from the multinationals by venturing abroad.

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From the above discussion, it seems reasonable to conclude that new managementtechniques are introduced into NOC in order to gain legitimacy, but this is not to denythat there may also be instrumental reasons for the introduction of such techniques.The introduction of VBM, by Western consultants, can be seen as a continuation of NOCs image building process. Nevertheless, the possibility that the introduction of VBM was based on the companys search for efciency cannot be easily dismissed. Asargued by Granlund and Lukka (1998), a rm may adopt a new technique in its searchfor efciency, although it may also do it for other (institutional) reasons. In Eagle, thereseems to have been a deliberate effort to inculcate a nancial mindset in the employees,as the Eagle GM Finance observed:

Those who do not understand accounting struggle during management committee meetings;not only in [Eagle], but also in other subsidiaries. They have to learn to present the numbers;they have to know the numbers. Some of them may be accounting literate. But, if you knowthe numbers, normally there is no problem. Many of the engineers have a technical mindset.Sooner or later when you reach senior management, you have to stand there to explain thenumbers.

For this reason, the parent company has a compulsory training programme for all itsexecutives and managers, which includes commercial awareness courses[7].Previously, even though so-called business training was available, technicalmanagers requested and/or received training only in areas specically related to theirwork. Consequently, it could be argued that the implementation of VBM in NOC was,in part, the result of its search for efciency, as well as a continuation of its practice of introducing (fashionable) management techniques and learning from othersuccessful companies.

The VBM system, just like earlier management concepts and techniques, wasimposed on all NOCs subsidiaries. In 1998 Eagle was the second subsidiary toimplement VBM. However, within Eagle there did not seem to be any recognition of aneed to change its systems of accountability and performance evaluation, at least not inthis way. Nevertheless, staff within Eagle knew they had to accept it, whether theyliked it or not, since it was a directive of the parent company.

Imposition by the parent is not new within NOC. Most of the subsidiaries policiesand procedures are dictated by the parent company. In addition, staff are rotatedamong the different subsidiaries; with the movement of managers being subject toapproval by the parent. Hence, the parent company maintains very strong control overits subsidiaries. Consequently, a directive from the parent is seen as something that hasto be implemented. This is illustrated by the following comment of a manager at theparent company:

There is no NIH [not implemented here] syndrome. So, I mean, if you give me an initiative, of

course, I will grumble, but I will still do it no matter what. If I dont do it, then there is theimplication that at the end of the day I wont get promotion, I wont get the merit. I wont get,you know, things like that.

As a result, Eagles managers took all the necessary steps to formulate their KPIs.They then sent them to Eagles HQ, and subsequently Eagles KPIs were sent to theparent company. All the rules associated with the new system were followed, but thevalues underpinning Eagles activities, as we shall see, remained substantiallyunchanged.

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VBMs potential impact in Eagle could have been quite revolutionary[8]. VBM ingeneral and the KPIs system in particular were designed to change the way in whichdecision-making is undertaken in Eagle, and to facilitate other changes, including theway managers think about their activities (see Appendix 1). The new system wasintended to promote a nancial orientation, such that managers consider the impact of their decisions on the value of the company. As the GM Finance commented:

Under the VBM system everybody has to understand that we have to add value. Addingvalue means that we have to translate our activities into a dollar sign. Everything we do mustbe reected in the dollar sign. We have to quantify.

Thus, managers should be conscious of the nancial implications of their decisions. Asone manager noted, Now the focus is more on dollars and cents. The performanceindicators must support our bottom line, our prot. The managers had to translatetheir activities into specic performance measures (KPIs), which could be collected,monitored and ultimately sent to HQ, where they would be available online. With thissystem, the performance of divisions, departments and even individual employeeswould become more transparent, and thus more amenable to control in nancial terms.

But the norms and values, and the nancially oriented ways of thinking, which areat the heart of VBM, were in conict with the existing institutions within Eagle, whichcould be characterised by a predominately production orientation. As we shall seebelow, this orientation had permeated the organisation and had impacted otherorganisational activities, as well as the roles and responsibilities of managers. WithinEagle, there was a general absence of nancial targets, accountants had a verytraditional bookkeeping role, and budgets were used in a ceremonial way. Potentially,the implementation of VBM would require managers and other employees to undertakenew activities, to take decisions in new ways, and to adopt new ways of thinking abouttheir jobs. These changes in the way decisions were made could have led to otherchanges in the organisation, and as such could have represented a revolutionarychange for the company. However, this did not happen, as will be explained below.

The prevailing institutions in EagleWhile VBM was explained to employees in the language of nance, within Eagle aproduction orientation provides the basis for managers decision making and shapesthe common goals of the company. This production orientation is taken-for-granted,and denes the way things are done in Eagle. Even though the stated objective of theplant division is to operate the plant in an efcient, safe and reliable manner, reliabilityand safety normally take precedence over efciency. Actions needed to ensure plantreliability are almost always undertaken, even if very costly. The concern for plantreliability is widespread in Eagle, even amongst accounting personnel, as illustrated by

the following comment of the Chief Accountant (at the Plant Division):Our policy is normally . . . [to] go rst for safety. Second is reliability and then the third oneis efciency. So, cost is normally part of efciency, because the rst priority is safety and thenreliability. Sometimes, even though cost is high, we still have to process the gas to maintainreliability to the customers.

This concern for plant reliability has fostered a production orientation. Even duringthe Asian economic crisis in the late 1990s, when the countrys currency suffereda major devaluation, essential equipment was still bought or sent for repair.

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This signicantly increased costs, as most equipment and spare parts are imported. Itwas justied on the grounds that plant reliability and safety could not to be jeopardised. This contrasted with the parent companys cost reduction measures,which were imposed on all its subsidiaries, including Eagle, during the economic crisis.These included among other things, cutting almost all overseas staff training, thevoluntary redundancy of non-executive, non-technical staff, and a withdrawal of salaryincrements for all executives in 1998.

The production orientation in Eagle has been reinforced over the years by theinuence of the companys external and internal environments and, in particular, by itsmonopolistic position. The high development costs involved in building the plant andsetting up the transmission lines provide a major barrier to entry. The gas coming fromoffshore belongs to the parent company, which has the sole right to exploit thecountrys gas reserves. As such, there is no pressure for Eagle to maintain marketshare or to reduce costs. Even though Eagles performance has been benchmarkedagainst other gas production companies, the information has not really been used forcost reduction purposes. Furthermore, Eagle does not have a marketing function per se.Customers request the supply of gas from the parent company. However, decisions tosupply gas to specic customers are taken by Eagle.

As the companys revenue is derived almost entirely from throughput fees receivedfrom NOC, plant reliability is more important than the efciency of operations.Demand is relatively stable, and the selling price to the external customers is regulatedby the government and subsidised in part by NOC[9]. These factors have reinforcedEagles production orientation, which has probably existed since the years followingits formation in 1983, when the main emphasis was building the plants and setting upthe pipelines both of which were important infrastructure projects for the country asa whole.

The continuation of this production orientation is due in part to the absence of any

major external shocks, which might have challenged the commonly held assumptionswithin the company. There is research to suggest that major external events can lead tothe questioning of previously held assumptions (Burns, 2000; Schein, 1999, 2003;Harris, 1994). However, even the Asian economic crisis did not appear to have animpact on the production orientation within Eagle. Although there was an awarenessof the need to be more cost conscious, the economic crisis did not have a signicanteffect on the demand for gas. A major reason was that the economic crisis meant thatgas became a cheaper alternative relative to other sources of power. Furthermore,about 70 percent of Eagles customers[10] are power generating companies and the restare mainly industrial users, and the demand for gas has been increasing as a result of the governments policy of balancing energy sources used for power generation.

The production orientation has permeated the company and has inuenced most of its activities. In particular, it has had an impact on the way budgets and budget-basedinformation are used. Budgets are routinely used in Eagle as a means of obtaining theresources needed for the planned activities. They are prepared from the bottom up andthere are budget reviews at various levels. The procedures set out in the budgetguidelines are strictly followed, and personnel at most levels are involved in budgetpreparation. But even though much time and effort are devoted to preparing thebudgets, they are not used for planning and control, or even seen as targets. This isillustrated in a comment of the former Plant GM:

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I told them that even though we have budgeted for a certain amount, if we dont need to spendit, then dont spend it. But, if the item had not been budgeted for and we do need to spend it,then we will spend it.

The current Plant GM also commented that the budget is not an issue here. Usingbudgets in this way ensures that production reliability can be maintained; even inbudgeting safety is the priority. Given such an approach to budgeting, it isunsurprising that budget information is not widely used within Eagle. Variancereports are not discussed in plant management meetings the accountants onlypresent a report if there are major variances. Thus, although variance reports areprepared to comply with Eagles procedures, and sent to Eagles HQ, they are not usedto evaluate the performance of managers, divisions or departments. Hence, there isvery little nancial knowledge and only limited nancial control within Eagle.

Given this lack of nancial control, Eagles accountants play a very traditionalbookkeeping role. They compile budgets and reports for submission to Eagles HQ, butthey do not actively provide inputs for management decision-making. This seems

somewhat typical of an organisation with a predominately production orientation. Forexample, Jagd (1995) observed that in such organisations success in production termsconstitutes the principal aim of all business activity; accounting is regarded as aninstrument to secure production and is not allowed to interfere with the productionprocess. In Eagle an important task for the accountants is to assist managers to securethe funds needed for their production activities. As the Chief Accountant explained:

So far there have been two or three times when they didnt have a budget and came to me. Iassisted them . . .. So, what are the problems? Maybe previously when they didnt have abudget, they asked nance and nance said that there was no budget. I told them that this isnot the approach. We will assist you. If the thing is not in the budget, but it is critical and youreally have to do it, then, why should you worry since it is in our limit of authority? If there isan emergency, you can go ahead; you dont need to ask for approval. You can explain it later.

There is a conscious effort on the part of the accountants to improve the budgetingprocess, but the improvements are largely cosmetic, and appear to be concerned withensuring a smooth ow of work, from the preparation of the budget to the monitoringof the results i.e. producing the variance report for Eagles HQ. Hence, modicationshave been made over the years, but the budgets are still used primarily as a tool toobtain resources.

The implementation of the new KPIs has been the responsibility of the accountants.The GM Finance is the custodian of the VBM system, and it is co-ordinated by theManagement Accountant at Eagles HQ. In the plant division, the primaryco-ordinators are the Chief Accountant and the Production Planning Manager.Nevertheless, it is the Chief Accountant who is the most visible member of the VBM

co-ordination team, and it has been his job to explain to managers how to construct theKPIs. However, it is the individual managers who select their indicators, and set theirown targets.

Resistance to changeAs described above, the use of fashionable management techniques is aninstitutionalised activity within Eagle, and coping with the introduction of newsystems is nothing new to its managers. However, they are concerned that there are too

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many initiatives and that employees need time to adapt to different concepts when newprogrammes are initiated. Furthermore, at the start of the VBM implementation therewas considerable anxiety and confusion regarding how the KPIs would be used. Withsuch a new system, there are no routines to predict the actions of either superiors orsubordinates. The taken-for-granted ways of doing things show organisationalmembers how others within the organisation can be expected to behave, and thisprovides predictions about their behaviour (Scapens, 1994). As such, institutions are asource of information and they give stability and coherence to organisational activity.This does not mean that there is no conict in the organisation. Conict can still exist,both manifest and hidden. However, manifest conict normally follows predictablepaths and is consistent with ongoing routines (Nelson and Winter, 1982, p. 110;Scapens, 1994). In Eagle, even though the employees were dissatised with the existingevaluation system, they knew how they were evaluated and past experience enabledeveryone to predict the actions of their superiors and subordinates.

Despite the confusion and anxiety about the KPIs, there was resigned acceptance

that the new system had to be implemented, since it was a directive from NOC.Directives from the parent have to be implemented, and consequently are not overtlyquestioned. But, when the new KPIs were being introduced, staff complained that theywere being treated as machines, since everything was to have a standard. TheManagement Accountant at Eagles HQ said the resistance level was very high,especially in the plant division. In general, however, the complaints were madeinformally; although some concerns were expressed at the presentations and briengson KPIs and VBM. Nevertheless, complaints were not formally raised, since it is not thenorm for employees overtly to criticise company policy[11]. As the GM Financecommented, part of the new culture within NOC was to encourage teamwork, which hesaw as the ability to work together and not to take part in negative criticism. Hecontinued:

All the senior management must be good team players because we consider their ability to bea team player in their promotion. Even if you are good technically, but you are not a goodteam player, then, you would not be promoted . . . I feel that for the last ve or six years, thishas been one aspect that top management has taken into consideration. The culture beforethat was very different. But they are slowly instilling the new culture that team work iscrucial. This means that there should no longer be any negative remarks. If you make anegative remark, then you will get..[ pause ] Well, you can criticise, you can speak your mind,but it is the way you approach it.

Such behavioural norms were also evident when Eagle changed its organisationalstructure a few years earlier. In 1995 a new Managing Director was appointed and heinitiated a realignment of Eagles organisational structure to establish clear lines of responsibility, with some departments merged to become divisions. During this periodthere was considerable anxiety amongst the employees about their jobs. Many wereunhappy and there was much grumbling about the changes. Nevertheless, thesecomplaints were not raised formally. However, the management was aware of theunhappiness and the Managing Director provided briengs to the staff in an attempt tocalm their fears. Given such norms, it is not surprising that there was no overt orformal resistance to the new KPIs. Nevertheless, there was resentment, but it was notopenly expressed.

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As well as formal and overt resistance due to competing interests, Burns andScapens (2000) argue that resistance may also be due to the inability of the members of the organisation to implement the new system, or to conict between the valuesimplied in the new system and the existing institutions[12]. The resistance in Eagle canbe traced to both of these additional factors. Prior to the implementation of the newKPIs, the managers had no experience of constructing indicators of their performance.Consequently, they had difculty in translating their activities into performancemeasures and in setting targets. In addition, there was a feeling that indicators,especially nancially oriented indicators, could not fully reect the complexity of theirroles and activities. More specically, they lacked knowledge about how to relateindicators (and targets) to the nancial performance of the company. Such indicatorshad never been used before. As Nelson and Winter (1982) pointed out, it can be difcultto create new routines, where none existed before.

In this case, the formulation of KPIs required new capabilities. In Eagle, eventhough business training was available, most managers, especially technicalmanagers, had thus far only received training directly related to their work. AsNelson (1994) argued, organisational innovation may be more difcult thantechnological innovation, and the use of indicators to monitor and subsequently toreward performance was a major organisational innovation in Eagle. Under thecompanys previous PMS, all employees had been evaluated individually based ontheir assigned activities. However, with the new VBM system, managers were to beheld responsible for their departments or their sections performance. In addition, therewas a lack of infrastructure to support the implementation of the new system.Managers needed to collect data for KPIs monthly, and at the time of the initialimplementation, much of this data collection was done manually consumingconsiderable time and effort. But it was Burns and Scapens third category of resistance arising from mental allegiance to specic ways of thinking and doing

things[12], which probably represented the strongest form of resistance in Eagle. Inessence, there was a change in the formal procedures and new routines wereintroduced, but in the process the KPIs system became decoupled from day-to-daypractices within the company. And once it became clear that the new system was to beapplied in a way that did not challenge the existing institutions within the company, itbecame accepted and there was a reduction in anxiety. The next section discusses howchange occurred through the internalisation of KPIs in the organisational activities;and how stability was ensured due to the fact that the prevailing productionorientation remained intact despite these changes.

Change and stabilityAs mentioned earlier, within Eagle there was no recognition of a specic need tochange the system of accountability and performance evaluation. VBM and especiallythe new KPIs were put in place simply because they were imposed by the parentcompany. However, there was resistance, despite the fact that organisational membersaccepted the legitimacy of the parent companys imposition of its policies andprocedures. Consequently, not implementing the new system was not seen as anoption, but as already explained, the values underlying the new system conicted withthe existing norms and values in the company.

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In Eagle, data on the divisional KPIs are collected and transmitted to the HQ, wherereports are prepared and subsequently forwarded to the parent company. The KPIs arealso available to managers in an online information system. Hence, the routinesassociated with the new system have been implemented, but nevertheless there hasbeen little change in the underlying values within the company.

Existing institutions, which are widely and deeply embedded in an organisation, actas a lter of what is seen and what is thought about by organisational members. Asinstitutions exist prior to a change, they can shape processes of change. In Eagles case,the way KPIs are used was inuenced by the existing institutions. First, nancialinformation was not used in managers decision processes and was rarely discussed inmanagement meetings. More specically, nancial targets were not seen ascommitments and nancial information, such as variance reports, was notconsidered useful by managers. Furthermore, individual departments were notrewarded/penalised on the basis of their performance relative to the budgets; theysimply had to provide explanations for differences. When the KPIs were introduced,they tended to be used in the same way as other nancial information, andconsequently were not regarded as important. Second, the ultimate aim of performanceindicators in the plant division continued to be the maintenance of productionreliability. As a result, production-based indicators are at least as important asnancial targets.

Third, even when targets are used, contingencies are taken into consideration and,in some cases, buffers are included into the targets to allow for uncontrollable factors.Furthermore, in monitoring performance indicators, unplanned activities are taken intoaccount. Finally, the managers do not consider KPIs as fully reective of theirperformance. As one manager explained, My performance is based on my KPIs. Butmy KPIs cannot reect everything. Consequently, there has been somemodication[13] of the KPIs used in Eagle, and this has made it more acceptable

and reduced employee resentment. For example, early in the implementation process,some managers formulated two sets of indicators an informal set, which was usedfor performance evaluation and rewards, and another set for the VBM system. Theformer subsequently became formalised following the introduction of a new PMS,which was introduced in NOC by another Western consultant during 1998 andformally implemented in Eagle in 1999.

An integral part of this new PMS system is the use of KPIs[14], and as such, the newsystem is similar to VBM. This fact is recognised in NOCs PMS manual, where it isstated that the new PMS has actually been in existence in NOC since 1995. This isfurther illustrated by a comment of the Management Accountant at Eagles HQ, who isthe VBM coordinator in Eagle:

KPIs were introduced during the implementation of VBM. Now, we have performanceappraisal in which we have task lists and under each task list we need to have KPIs and ina way these KPIs must be synchronised with the VBM KPIs. Actually, when we haveidentied the KPIs for the VBM system we have automatically identied the KPIs for thedepartment. So, when we consolidate our KPIs for PMS they should support the departmentalVBM KPIs.

Nevertheless, these two systems, and their respective KPIs, are generally regarded asquite separate, even though one of the declared intentions of the PMS was to alignindividual staff performance to add value to the performance of the organisation

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(NOCs PMS manual). As the Human Resource Manager at the Plant Divisionexplained: VBM KPIs are used to monitor business performance and the PMS KPI arerequired to monitor individual performance. Therefore, there are two sets of KPIs: theVBM KPIs reported in the online information system and the KPIs used for staff evaluation. In many cases these two sets of KPIs are quite different.

Nevertheless, what we are seeing is the routinisation of KPIs in the day-to-dayactivities of Eagle. Reports containing KPIs are prepared and sent to the parentcompany, and even made available online. Thus, there is a level of conformity to theVBM system, while resistance is camouaged with a facade of acquiescence. It is therules of the new system which are followed, not the underlying values.

The implementation of VBM has not effectively changed the way in whichmanagers conduct their day-to-day activities and the way they make their decisions. InEagles case, a change in the basis of managers decision-making, from a productionorientation to a nancial orientation, requires a major change in ways of thinking, andthis has not occurred. Such a ceremonial implementation of the new system, withoutchange in the underlying ways of thinking, can be characterised as passive resistance.Schein (1992) argued that existing norms and values that have proved to be useful andeffective can lead to a rejection of changes which are in conict with them. In this case,Eagle has been very successful in the past[15] and, hence, there was no apparentincentive to change. As already mentioned, even a severe economic crisis did not leadto pressure for change.

Given that the VBM KPIs are not seen as essential targets within Eagle, it is notsurprising that the online information system is not widely used internally.Furthermore, the information available on the system is not regularly updated,especially at times when the person responsible is involved in other duties such asthe preparation of budgets. Generally, the online system is perceived as too rigid andthe information is not up-to-date. Another complaint is that the explanations for

deviations from the targets are only available for the most recent KPI data. Thiscreates much confusion, as the system is not regularly updated there are frequentlydifferences between the explanations and the KPI data.

Nevertheless, despite these questions over of the usefulness of the onlineinformation, the KPI data continues to be collected and compiled monthly, since therules associated with the new system have to be followed, otherwise there would beunwelcome questioning by the parent company. However, in the plant division, thenance department, which was initially responsible for compiling the departmentalKPIs, subsequently passed the task to the GMs secretary. As a result there is littlemonthly reporting of departmental KPIs, and what is undertaken is not seriouslymonitored. It is only the divisional KPIs which are regularly reported to the HQ. Thiscreates no real problems as the departmental KPIs are not used in decision-making, norare they discussed in management meetings.

Despite this passive resistance to the VBM KPIs, the concept of KPIs andperformance targets have become internalised within Eagle, but as part of theoperationalisation of the companys strategy and for its staff evaluation through thenew PMS. These operational KPIs are reported, monitored and actively discussed inmanagement meetings. Furthermore, in the plant division, there is an online system,which contains information concerning the various strategic action plans, theassociated KPIs and their targets, and explanations for variances between the target

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and the realised KPIs. This system was developed by the IT department, at the requestof Eagles MD, and is available throughout Eagle, but not beyond. The strategic actionplans and their implementation are widely discussed and monitored using KPIs.However, the use of these operational KPIs within Eagle is quite separate from theVBM KPIs which are used throughout NOC, including Eagle. As will be explainedbelow, the use of KPIs to operationalise strategic planning through the new PMS inEagle perpetuates and reinforces the existing institutions within the organisation. Aswe discussed earlier, the VMB KPIs were decoupled from day-to-day activities in orderto avoid disrupting the existing production orientation within Eagle i.e. to maintainstability. However, with the introduction of the new PMS and the operational KPIs,accounting change has taken place, but in a reshaped form that does not threaten thestability of the existing institutions.

Reshaping the change: KPIs for PMSEagles main strategic thrust since it was set up in 1983 has been building gas pipelines

and processing plants, which are deemed crucial infrastructure development projectsfor the country. Hence, the progress and completion of these projects have to be closelymonitored. Over the years this has been done largely through annual strategic actionplans, and was reinforced in 1999 when the new PMS was implemented. Through thisnew system individual performance is evaluated, based on routine tasks and currentyear work plans, which are derived from the broader company/departmental strategicaction plans and the operational KPIs. In this way, the operational KPIs are translatedinto the individual KPIs, which are then used for staff evaluation[16].

The new PMS links the concept of target KPIs to the existing institutions withinEagle; while the nancial orientation underlying the VBM system is not a feature of thenew routines. The production orientation, which has characterised the mindset of mostmembers of the organisation over the years, remains substantially intact and has beenreinforced by the new system. Whereas the fundamental character of the VBM systemultimately resides in the nancial logic of business activities, Eagle is a hybridorganisation which combines business activities with the pursuit of national economicdevelopment.

In the application of the PMS, considerable emphasis is given to job training forthose employees who are not performing satisfactorily at present. Skills developmentand job training continue to be a major concern in Eagle, and within NOC moregenerally. The reasons for poor perform are carefully analysed to identify individualtraining needs. Oil and gas is a very capital intensive and technologically advancedbusiness and, as such, it is not surprising that human resource development isregarded as a crucial activity for NOC. This can be further illustrated if we look againat the companys history. At the time NOC was set up, the country had no petroleumengineers, and hence it initially had to rely on foreign expatriates. However, it soonestablished a programme to enhance the skills of its local employees so that ultimatelythey would hold key positions. Thus, training and acquiring of new skills became anessential feature of organisational life. As the President of NOC put it: skilldevelopment cannot be sacriced for the sake of the bottom line. (CEO speech, May1997[17])

Given this history, it is quite understandable that the inclination within Eagle is togive job training to employees who do not perform satisfactorily, rather than seeking to

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discipline them in some way. NOCs policy is to provide a minimum of eight trainingdays to every employee each year. Within Eagle, the plant division normally exceedsthis target, and even during the Asian economic crisis technical skills trainingcontinued to be provided. Furthermore, NOC does not have a hire and re policy, andthere has only ever been very minimal retrenchment. In general, the governmentfrowns upon major retrenchment and, being a state-owned company, the values of NOC reect, to a very large extent, the values of the government.

The hybrid nature of Eagle (and NOC more generally) is also reected in thelong-term perspective which is taken within the organisation. For example, evenwhen there is a need to reduce costs, the long-term continuity of production, andespecially issues of safety and reliability, are not comprised. As mentioned earlier,about 70 percent of the Eagles output is used for power generation, and disruptions insupply would have serious consequences for the country. As the current Plant GMexplained: We have . . . a critical industry for the nation. If these gas plants are notable to operate because there is no budget, there will be serious implications. This longterm perspective in Eagle (and NOC) is similar to Dent (1991) observation about EuroRail in which the concept of time appeared innite. He found that due to such a longterm perspective it was very difcult to incorporate an accounting concept of time intothe railway culture.

As NOC straddles the commercial and public sectors, it is not surprising that plantreliability and continuity of supply are such major concerns. As explained by amanager in the plant division, the material resources needed to maintain the plant andto ensure safety have to be available: Safety is . . . just like our CEO says, there is noquestion about it, if it is required to do it, then do it. Whether there is budget or nobudget for it, just do it![18].

Despite being state-owned, NOC has considerable nancial independence, and thisenables it to take a longer view, as it does not have to rely on the government for itsnancial resources. This long-term orientation is reected in the values underlying thenew PMS, which evaluates not only whether the work has been done, but also how ithas been done. As the GM of Human Resources at NOC explained: . . . we look at howwe achieve [results] because we wouldnt want someone to achieve results by killingeveryone else in the company. Although probably not intended, this comment has twointerpretations the literal: safe operations are crucial in this business and staff couldbe killed if safety is compromised; and the metaphorical: too much pressure canexcessively stress (i.e. kill) members of staff. Such concern for avoiding excessivestress seemed to be just as important as the safety issues, as the ManagementAccountant at Eagles HQ explained:

To meet all your KPIs, you can kill half of your staff. I can kill my staff. I can make sure mystaff work . . . just to enlarge my ego. Ive got some target and then I want to increase thattarget by 10 percent; then I threaten them and all that. But, I might not be a good boss. Maybe,Ive a good staff. The company might say: Great, he produced the results. In the long run,I might be causing more damage . . . . in ve years, if you looked at the effect [on the staff].

Such attitudes, together with the policy of minimal retrenchment, has meant thatmorale and atmosphere in Eagle are important and have generally been very good.This has had an impact on the implementation and use of the new PMS, which does notpenalise individuals for results which are beyond their control. As the current GM of plant division commented: we have to be fair.

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Thus, KPIs are now used within Eagle for operational performance evaluation, andreasons for not achieving targets are open to discussion. While these PMS KPIscontinue to reect a production orientation, it is clear that the VBM system has notchanged the existing mindset, or instilled a more nancial-orientation. As the HQManagement Accountant explained in relation to VBM:

I think it was not effective. We have briefed them about the cost drivers and all those things.But, I guess, it just stays with nance people and planning people or maybe at themanagement level, but not at the operators level, engineers level. We still cannot penetrate tothose levels.

The VBM system has not resulted in greater cost awareness or any signicantchanges in the way managers take decisions and conduct day-to-day activities.However, recently a number of external factors (external to Eagle), in particular areduction in throughput fees and NOC Presidents 2003 policy address (see below),have had an impact on the perceived need to reduce costs. As explained earlier,Eagle receives the bulk of its income in throughput fees, which are renegotiatedwith NOC every 5 years. However, in 2000 there was a substantial reduction inthese fees.

Since its formation, Eagle has obtained much of the nance for its extensiveconstruction programme in these throughput fees. But by 2000, nearly all the majorprojects had been completed and Eagle was considered fully operational. So the parentcompany, in an effort to encourage Eagle to be more cost effective, reduced thethroughput fees. In response, Eagle set the target of a 20 percent cost reduction in 5years time, and the nance division conducted a cost awareness survey, as a result of which it was decided to establish a cost awareness programme throughout Eagle. Thesurvey also indicated that the briengs which had been given about the VBM systemhad not been effective and a new training programme was needed. The ManagementAccountant at Eagles HQ stated:

We have been trying to reduce cost, to minimise cost, to be cost effective, but in allthose things we cannot get through to the operation level. We, as the support function,are more sensitive to these cost elements. But those at Projects and Plants it isdifcult to make them understand . . .. Okay, if you do this it will have an impact oncost and at the end of the day, your bottom line will be affected. We wanted to providethem with this appreciation.

The other factor, which prompted Eagles costs awareness programme, was a policyaddress given by the NOC President in early 2003. This required all operating units toachieve a 30 percent cost reduction over the next 5 years. The response within Eagle,however, once again reected its production mindset. They plan to increase plantreliability and safety in order to reduce shutdowns and thereby ensure that a highervolume of gas is processed. Such a plan is quite feasible, as Eagle faces no problems inselling all the gas it produces. Other cost reduction measures include increasing theefciency of procurement through economies of scale, undertaking preventivemaintenance, and installing further safety mechanisms so that the plant shutdownneeded for major maintenance is only necessary every 4 years instead of three.However, undertaking all these preventive maintenance and safety measures willincrease costs but it is argued that it is an investment which will be recouped in lateryears. The arguments are illustrated by the following comments:

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If the plants are not reliable, the costs will be much higher. If you dont produce, you dont getmuch revenue and you have to spend more money in preparing the plants because they arenot reliable. The more reliable you are, the more cost efcient you will be . . .. Now we aretrying to improve our cost by being more efcient. There are many ways to do this. First, get

your reliability up. When the plant is not reliable, you will see a lot of aring. So, you losethere. And then we have to spend so that the plants will be more reliable. So, basically weneed to be more reliable (The current GM of the Plant Division).

Initially, to increase reliability will lead to an increase in cost. However, in the longer-term, wewill be saving cost. We can have cheap plants now, and a cheap operation, but the plantswould not be reliable and thus, we will be spending more money (Senior MA at Eagles HQ).

Such views clearly reect the long term orientation which was mentioned earlier.

DiscussionTo summarise, in Eagle we see an organisation in which accounting change has taken

place and new accounting procedures (rules) are now being used. The process of accounting change began when NOC imposed VBM on all its subsidiaries, includingEagle. Although many in the company were initially concerned and anxious about thenature and effects of the new rules associated with VBM, they were implemented asthey were a directive of the parent company. However, the way in which they wereimplemented and ultimately became routinised was largely ceremonial and shaped bythe existing norms and values within the company. This was achieved by decouplingthe new rules and the emerging routines from the day-to-day operational activities.However, through this process the accounting change was itself reshaped and newaccounting routines emerged which further embedded the existing norms and values.

In Eagle, the prevailing institutions, or taken-for-granted assumption, wereexpressed in terms of a production orientation, encoded in the existing rules and

routines. As a result, accounting was seen as an instrument for securing the means of production, rather than a mechanism for achieving nancial control. The accountingrules and routines were enacted in a way which enabled managers to pursue the twingoals of safety and reliability. When VBM was imposed by the parent company therewas uncertainty and anxiety because its underlying assumptions did not align with theexisting institutions. However, although new rules were enacted to implement VBM,they became decoupled from the operational activities and thereby produced and then,through repeated use over time, reproduced routines which enabled VBM to beaccommodated within the existing institutions. In other words, it was institutionalisedceremonially. Although new rules were enacted, they were decoupled from theproductive activities of the business, thereby subverting the proclaimed intentions of VBM i.e. to give the operations of Eagle a more strategic orientation aimed at valuemaximisation (see Appendix 1).

The resistance to VBM, and especially to the new KPIs, despite being passive andhidden by a facade of acquiescence, could be regarded as being deliberate and, thus thedecoupling was an intentional response of the operating managers. Nevertheless, itwould be wrong to argue that such decoupling was an organisational response. Thekey decision makers in Eagle (i.e. senior managers at the HQ especially the seniornance managers) argued that VBM was needed to ensure that all managersunderstood the nancial implications of their decisions. Their intention was to

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incorporate VBM into the operational activities of the business; it was the operationalmanagers who decoupled it from their day-to-day activities.

As argued above, NOC imposed VBM on Eagle, and its other subsidiaries, as part of its image building process. But it is difcult to see VBM simply as a means of gaininglegitimacy from external constituents. To senior mangers in NOC, and also withinEagle, VBM offered a means of enhancing the economic (nancial) efciency of theirbusiness, as well as demonstrating that it is a modern and well managed business.Thus, in relation to the implementation of VBM, there is no clear distinction betweenthe need to secure legitimacy and the search for efciency. As mentioned earlier, NISwriters have questioned the simple dichotomy between the institutional (securinglegitimacy) and the technical (seeking efciency). The interdependency of legitimacyand efciency is clearly an issue in Eagle. Whereas, issues of legitimacy may have beenimportant in NOCs decisions to impose of VBM on its subsidiaries, issues of efciencycannot be easily dismissed. However, as NOC has not explicitly questioned theceremonial use of VBM in Eagle, it may be suspected that issues of legitimation were

more important for NOC, than issues of efciency at least insofar as Eagle isconcerned.As we saw above, however, within Eagle the senior managers and especially the

senior nance managers argued that VBM was needed to bring a more nancialorientation to the operations of the business. Thus, they saw the implementation of thenew KPIs as a means of enhancing the efciency of the business. In the terms used inNIS, it could be argued that the accountants in Eagle had accepted the rationale of VBM through normative isomorphism i.e. conforming to the standards and values of the profession. Nevertheless, for them the implementation of VBM was an issue of economic efciency, rather than primarily a matter of securing legitimacy. But foroperating managers, conforming to the directive of the parent was the primary issue.Thus, in this case the implementation of VBM involved issues of both legitimation andefciency.

At the senior management level, the intention was to implement VBM to enhanceeconomic efciency, rather than to secure legitimacy. But there was resistance (albeitpassive resistance) from the operating managers, as the assumptions underpinning thenew system did not align with the existing institutions within the company. Thus, thedecoupling we see in Eagle is not per se an organisational response to external institutional pressures. Rather, it is the result of the working out of complex internalprocesses of resistance to change in this case, change which challenged the existinginstitutions within the organisation.

The case study illustrates the way in which the institutions ( within the organisation)can shape processes change and potentially subvert its proclaimed intentions. In Eagle,the new system of KPIs was decoupled from the more production oriented internalpractices and this ensured a level of stability in the organisation. If Eagle changed withevery new initiative from the parent company, there would be little stability to itsorganisational life. If there had been continuous reopening of previously heldarrangements and assumptions, it would have been difcult for organisationalmembers to continue with their day-to-day activities. As such, the resistance to change,which was achieved through a decoupling of the imposed formal procedures from theday-to-day productive activities, could be seen as essential for Eagle. As Kahn (1982)

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and also Scho n (1963) have argued, an organisation that is devoid of resistance tochange would not be an organisation at all.

Scapens and Roberts (1993) case study of an agreed accounting change, Burns(2000) study of the imposition of change, and Molinskys (1999) study of the failure of planned change programmes, all illustrate the evolutionary paths followed byprocesses of change. The study by Klien et al. (1989) also showed change following anevolutionary path. In that case, new technology, which potentially could have madepractices more efcient, was not fully implemented because of the way in which thedominant norms and values in the organisation inuenced the change process.

This does not mean, however, that revolutionary change is impossible; it is alwayspossible for ways of thinking (i.e. institutions) to change, and to change quitefundamentally. A case study by Busco et al. (2002) provides an example of a morerevolutionary change in a previously state-owned Italian company, following itsacquisition by a US multinational. In that case there were specic actions and events,both internal and external to the organisation, which directly challenged the existingways of thinking. This caused members of the organisation to question theirpreviously taken-for granted assumptions this process created considerableuncertainty and anxiety within the company. The new systems of accounting andaccountability, which were then introduced, came to be seen as a way of coping withthis uncertainty and anxiety.

In terms of the institutional framework, in this Italian company thetaken-for-granted assumption, which were encoded into the existing rules androutines, were themselves questioned. This questioning at the institutional level wasvery unsettling for members of the organisation, as the certitudes of the past weretaken away and new institutions had to be created. The new accounting systemsbecame a means of coping with the process of institutional change. In Eagle, however,the new accounting systems were intended as a way promoting change in ways of

thinking namely, to instil a greater nancial awareness. But as there was noquestioning of the existing institutions, these new accounting systems were interpretedin terms of the existing norms and values of the organisational members.

Dent (1991) also discussed a process of institutional change although he referredto it as cultural change. It is interesting to note that in Euro Rail, Dent described aprocess in which the new accounting systems helped to create the new organisationalreality, but they were not intended to be the driver of change, as in Eagle. There werevarious forces both inside and outside Euro Rail which were challenging the existinginstitutions, and accounting systems became part of the process of coping with theinstitutional change. A similar situation was reported by Jazayeri and Hopper (1999) ina case study of the introduction of the techniques of World Class Manufacturing.

As argued above, however, existing institutions act as a lter for what is perceivedand what is thought about by the members of an organisation as happened in Eagle.Hence, change will be shaped, to some extent at least, by the existing institutions, andas such it will follow a path dependent process. Even in the case of the revolutionarychange reported by Busco et al. (2002), and also the studies of Dent (1991) and Jazayeriand Hopper (1999), the existing institutions (specically a production orientation) hadan impact on the way in which institutional change came about. Thus, there can beinstitutional change, even revolutionary change; but it will be channelled in specicand particular ways. Such change could be regressive, whereby it preserves the status

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quo, but it can also be progressive; that is, it can lead to greater instrumental value(Tool, 1993; Bush, 1987).

In Eagles case it could be argued that there is both regressive and progressivechange. The implementation of the VBM KPIs was resisted by the operationalmanagers and its ceremonial implementation decoupled the KPIs from the day-to-dayactivities of the operational managers. However, in view of the uncertaintiessurrounding the new KPIs and the concerns about their use for performanceevaluation, the managers began informally formulating an alternative set of KPIs forpurposes of performance evaluation. These alternative KPIs were subsequentlyincorporated into the new PMS. As far as the operational objectives of Eagle areconcerned, the introduction of these new PMS KPIs could be regarded as a progressiveaccounting change in other words, as an instrumental change which routinises theuse of KPIs to secure the reliability, safety and also efciency of the plant operations.Use of these KPIs was not resisted, as they were produced by the operations managersthemselves and embedded the existing norms and values (i.e. institutions) within

Eagle. This nding is similar to Bhimani (2003), who found that the degree of alignment between the organisational culture and the norms and values embeddedwithin a new management accounting system signicantly inuenced the systemsperceived success.

An interesting aspect of the resistance to the change which was encountered withinEagle was that is was never made explicit. Criticisms of the new KPIs were notexpressed in formal arenas; rather they were passed informally around the company.Nevertheless, the senior managers within Eagle were aware of the criticisms and didtheir best to calm the fears which were raised. But perhaps it was because thecriticisms could not be raised in formal discussions that they were more difcult tocounteract. As pointed out above, it may be difcult to deal with informal resistancebecause it lacks a specic focus or location which can be addressed by appropriatemanagerial action. A similar (but reverse) conclusion could be taken from the case of Euro Rail described by Dent (1991). In that case there was no formal programme of change to be resisted. Changes did take place, but they evolved as a result of, and tocope with, the pressures exerted by the government through the appointment of outsiders to managerial positions. That was a case in which there was no signicantresistance to the largely unsystematic, unplanned and informal change. As such therewas no immediate and obvious focus for the resistance. This suggests that informalchange may be more difcult to resist, than formal programmes of change.

As argued in Burns and Scapens (2000), informal change occurs at a more tacit level,as individuals adapt to changing conditions. In Eagle, the informal (alternative) KPIsemerged as operating managers responded to the uncertainties of the new VBM KPIs.This informal change enabled managers to experience and to recognise the usefulnessof KPIs. Thus, when the PMS built on their informal KPIs, the new system of performance measurement was not resisted. This is in contrast to the introduction of the VBM KPIs, which represented formal change without change in the underlyingways of thinking. The introduction of VBM could have been quite revolutionary, as theunderlying nancial orientation challenges the existing ways of thinking in Eagle. Inthis context, revolutionary change is not necessarily the introduction of major newtechniques, (i.e. relating to the content of the new system), rather it relates to the impact

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of the new system on the existing institutions. Thus, in this sense the change in Eaglehas been evolutionary, and despite the resistance there has been accounting change.

In view of the position of Eagle within NOC, and the general acceptance of directivesfrom the parent company, it is not surprising that accounting change has taken place.VBM has been implemented, although ceremonially. To have done otherwise wouldhave created unacceptable tensions between and Eagle and NOC. Consequently, someform of change was inevitable, but the way in which the change was accomplishedpreserved the existing institutions within Eagle. By implementing VBM ceremonially,the stability of Eagles production orientation was maintained. So here, ceremonialchange was necessary to preserve stability, as without this ceremonial change, theproduction orientation would probably have been challenged through further andprobably more intrusive interference by the parent company.

This stability, however, facilitated the introduction of the new PMS, which built onthe informal change which was already taking place. Thus, the stability which wascreated by the ceremonial implementation of the VBM KPIs, itself contributed toaccounting change the new PMS and the associated KPIs. In Eagle we see a processin which accounting change (VBM KPIs) imposed by the parent company was resistedat the plant level in order to maintain the stability of the existing institutions, but thisstability allowed the reshaped accounting change to emerge (PMS KPIs). Thus, in thecase we see how stability and change are mutually dependent. Ceremonial change wasnecessary in response to the imposition of VBM, in order to maintain the stability of theexisting institutions; while the stability thereby created was conducive to theimplementation of new KPIs for the PMS.

Finally, before concluding it is perhaps worth pointing out that the case highlightsthe potential problems of seeking to classify particular episodes of accounting changeas either successful or unsuccessful. There has been accounting change in Eagle, but itis problematic to categorise it as an example of either successful or unsuccessful

accounting change. VBM has been implemented, but only ceremonially, whereas theuse of KPIs for the PMS has been implemented instrumentally. This problem hasimportant implications for the way in which success is dened in studies of accounting change.

In quantitative studies of accounting change successful implementation hasgenerally been measured indirectly by such variables as the nature and stage of adoption and/or by managers perceptions of its success. But as observed by Shields(1995), such denitions of success are problematic. In particular, different managersmay have different perceptions. For example, Malmi (1997) presented an interestingillustration of two cases of accounting change one apparently successful and theother apparently unsuccessful. He then disclosed that they are the same company, butviewed from different perspectives: head ofce and an operating unit. The problem of dening and measuring success of a change implementation has been widely discussedin the information systems (IS) literature, where there have been numerous studies of new systems implementation. For example, DeLone and McLean (1992) reviewed 100empirical studies during the 1980s and identied six different, but interdependentconstructs of IS success, ranging from improving system quality to organisationalimpact. In this paper, we have avoided labelling the accounting change as eithersuccessful or unsuccessful, and focussed instead on the unfolding, evolutionaryprocess of change in Eagle.

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ConclusionsThis paper has adopted a processual/contextualist perspective, informed by theinstitutionalist framework of Burns and Scapens (2000), to study managementaccounting change. It examined the accounting change which took place in Eagle overa period of 5 years, from 1998 to 2003. Despite the imposition of VBM by the parentcompany, with the proclaimed intention of focussing business activities on creatingvalue, accounting change in Eagle during that period has been evolutionary and pathdependent, and a production orientation has largely been preserved. However, theperiod has witnessed both stability and change, and we have seen how these twoapparently contradictory forces can become intertwined.

VBM was imposed on all NOCs subsidiaries and, for Eagle, not implementing VBMwas not an option; the policies and procedures of the parent had to be followed. Tohave done otherwise would have created instability in the relationship with NOC.However, the nancial orientation which underpinned VBM conicted with theprevailing production orientation within Eagle. Thus, in order preserve stability in thenorms and values within Eagle, whilst also maintaining stability in the relationshipwith NOC, VBM was implemented in a ceremonial manner: the rules and procedures of VBM were applied and the necessary KPIs were produced and reported to the parent,but without affecting the activities and decisions taken within Eagle. Thus, there waschange albeit ceremonial change. For things to stay the way they where, there had tobe changed [19]. Thus, we see that change can be necessary to maintain stability.

But this very stability created the conditions which made instrumental changepossible: specically, the introduction of the PMS KPIs. The requirement to producethe KPI for VBM, which conicted with the prevailing production orientation, led to theuse of alternative KPIs for performance measurement. These were then formalised inthe new PMS, which integrated strategic planning, informed by the productionorientation, with the day-to-day management of the business. Here, we see that

stability can facilitate change.The particular feature of the Burns and Scapens framework, which made itespecially suitable for understanding process of change in Eagle, is that it focussesattention on institutions within the rm. Nevertheless, the impact of externalinstitutions cannot be ignored in seeking to understand management accountingchange. It is the interaction of internal and external institutions that shapemanagement accounting change within specic organisations. In the case of Eagle wesaw the impact of external institutions (including the government, other multinationaloil companies, Western consultants and so on) on NOC and, through NOC, on Eagle.Here, the concepts of legitimation and decoupling from NIS were helpful inunderstanding the processes at work within Eagle. However, in contrast to the normalassumption of accounting research informed by NIS that decoupling is an

organisational response to external pressures, in this case we saw that decouplingcan be the working out of a complex and dynamic process of resistance to accountingchange. A process which, as mentioned above, involves both stability and change.Notes

1. The names of the company and its parent have been disguised for reasons of condentiality.2. The paper by Burns and Vaivio (2001) is an editorial to a special issue of Management

Accounting Research on the subject of management accounting change see also otherpapers in the same issue.

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3. Following Orton and Weick (1990), such writers tend to use the broader term of loose-coupling. However, in this paper we prefer the notion of decoupling, in the sensedened by Orton and Weick i.e. distinctiveness without responsiveness (p. 205).Nevertheless, we still seek to describe a dynamic process the process by which systems

can become decoupled.4. Bhimani (2003, p. 526), drawing on the work of Zammuto and Krakower (1991), uses a rather

broader, but nevertheless somewhat similar concept which denes organisational culture asthe patterns of values and ideas in organisations that shape human behaviour and itsartefacts.

5. The reference to the speech by NOCs CEO cannot be disclosed as it would compromisecondentiality.

6. The CEOs remark was reported in a local newspaper (18 August 1999).7. NOC has a subsidiary which provides training, and this subsidiary has licenses from

consulting rms to provide specic courses and programmes. At present, attending thesecourses/programmes is required for promotion.

8. Revolutionary change involves a fundamental disruption to existing routines andinstitutions, whereas evolutionary change is incremental with only minor disruption toexisting routines and institutions (Burns and Scapens, 2000, 19 20). This distinctionbetween evolutionary and revolutionary change follows Nelson and Winter (1982). This canbe contrasted with the terms radical and revolutionary used by Greenwood and Hinings(1996). Radical change involves busting loose from an existing orient

stability and

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