accounting in organized anarchies: understanding and designing accounting systems in ambiguous...

Accounting, Organizationsand Society. Vol. 6, No. 3, pp. 175-191,198l. 0361-3682/81/030175-17/$02.00/O Printed in Great Britain. 0 1981 Pergamon Press Ltd.

ACCOUNTING IN ORGANIZED ANARCHIES: UNDERSTANDING AND DESIGNING ACCOUNTING SYSTEMS IN AMBIGUOUS SITUATIONS*

DAVID J. COOPER

University of East Anglia, England

DAVID HAYES

University of British Columbia, Canada

and

FRANK WOLF

Touche Ross Services (Sydney) and Macquarie University, Australia

Abstract

This paper explores the relationship between organizations in ambiguous situations, the technology of choice and the uses of internal accounting systems (systems of cost accumulation, performance evaluation and budgetary control). Accounting systems are examined in terms of the two elements of March’s technology of foolishness (Civilokonomen, May 1971, pp. 7-12). Relaxation of traditional prohibitions in choice behaviour against imitation, coercion and rationalization suggest that accounting systems might be understood both in terms of their impact on sustaining and influencing an organization’s culture and language and in terms of their ideological and legitimizing influence in maintaining systems of power and control in organizations. Allowing playfulness in the choice process suggests that accounting systems might be designed to facilitate creativity and innovation in organizations, insofar as these characteristics are appropriate in contributing to organizational effectiveness.

Recent approaches to the study of organization can be distinguished from more conventional ones in terms of the assumption of limited rationality rather than economic rationality as the basis of behaviour, anarchy rather than order as a description of organizational processes, and experimentation and apparent confusion rather than planned action as a description of the process of management. This depiction of organizations is both provocative and insightful. It provokes a re-examination of the assumptions that have been

taken as the received wisdom in organization theory and it provides a new way of approaching the study of organizations and the process of organizing which has profound implications for the role of information, the design of information systems and, of particular interest in this paper, the nature of accounting systems.

Organizations facing uncertain situations, where clarity of perception of cause-effect relationships and economic rationality (Thompson, 1967) cannot be taken for granted, provide a very

*The authors are indebted to Anthony Hopwood and Thomas Polesie for detailed comments and suggestions. Earlier versions of this paper were presented at the Annual Meeting, American Accounting Association, Honolulu (August 1979), the Workshop on Accounting in a Changing Social and Political Environment, Stockholm (October 1979) and Seminars at the University of Manchester (November 1979) and University of Bath (November 1980).

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176 DAVID J. COOPER, DAVID HAYES and FRANK WOLF

different context for examining, understanding and describing the role of internal accounting systems, both in terms of what their role is and what it should be. In this study we focus on the role of the budgetary process in what has been referred to as an “organized anarchy” (Cohen ef al., 1972).

Our consideration of the “anarchistic” approach to organization is not capricious, and not chosen because of its novelty in the literature. Rather, we see it as representative of much of the recent work in the area of organization theory which has questioned assumptions, descriptions and prescriptions of more traditional theory. Such an approach encompasses issues concerning language as a means of making sense of organization (Daft & Wiginton, 1979), organization as a negotiated outcome (Georgiou, 1973; Day & Day, 1977), management as a dynamic interactive process (Mintzberg, 1973), the nature of organizing processes (Weick, 1969, 1977~) and issues of organizational design in dynamic environments (Hedberg, et aL, 1976). These, and other, approaches have made substantive suggestions and modifications to traditional models of organization and organizational decision processes.

We begin by reviewing some of the literature which describes the de&ion process in organizations. We describe the characteristics of an organized anarchy and then consider how actions are effected within such a framework. We then attempt to explain, clarify and thereby understand the role of internal accounting systems, the budget and the budgetary process within the context of an organized anarchy. We conclude by indicating how accounting systems might be designed in this context in order that they may contribute towards organizational effectiveness.

THE CHOICE PROCESS IN ORGANIZATIONS

Traditionally, decision making in organizations has been investigated from an economic perspective. The decision maker has been accredited with “economic rationality”, which implies that he or she: (1) can always make a decision when confronted

with a range of alternatives; (2) is able to rank all the alternatives facing him

or her in order of preference in such a way that each alternative is either preferred,

equivalent, or inferior to any other; (3) has a transitive preference ordering; (4) selects that alternative which ranks highest in

the decision maker’s preference ordering; and (5) always makes the same decision when

confronted with the same set of alternatives (von Neumann & Morgenstem, 1947).

Using this model of decision making, several writers (e.g. Marschak & Radner, 1972; Arrow, 1974) have produced significant insights about choice and the co-ordination of decisions under conditions of risk and asymmetric information. However, such a framework presupposes that decisions can be made in a computational fashion, in a context within which goals are known and means-end relationships are clearly understood (Thompson, 1967). Such a view of the decision process was questioned by Simon and his colleagues (Simon, 1955; Cyert et al., 1956; March & Simon, 1958), who suggested that the economic rationality model was in need of substantial elaboration. In particular, it was argued that the model of economic rationality should be replaced by a model of bounded rationality which recognizes both a decision maker who has limited access to information and limited ability to process information, and a decision environment which is inherently complex and uncertain.

Cyert et al. (1956) suggested that an adequate description of how decision makers make choices in organizations would need to incorporate at least four features. Most decision makers (individuals and organizations) do not have well defined preferences; goals are normally multiple and potentially conflicting. A second feature is that most decision problems themselves are not well specified. Searching for significant problems to which attention should be directed may be an important characteristic of the decision process. Thirdly, in many decision contexts the set of alternative actions is not well specified; the search for action alternatives may need to be incorporated into a model of the decision process. And finally, in most decision contexts the set of possible outcomes is not well explicated; the search for consequences may also be an important aspect of the decision process.

Cyert & March (1963) developed this model of bounded rationality in an organizational context. They portray an organization as a coalition of participants with disparate demands, changing foci of attention and limited capacity to attend to all the problems faced by participants. Cyert and

ACCOUNTING IN ORGANIZED ANARCHIES 177

March’s formulation of organizational choice emphasizes bargaining in goal formation, biases in the formation and communication of information, simple minded search strategies and institutional constraints (or stabilizers) on actions. As such, their approach is important both in emphasizing processes of organization and in moving the level of analysis from individuals to collectivities. Yet Cyert and March’s formulation, as well as the more recent developments by Williamson (1975) assumes that preferences are exogenous, stable and known with adequate precision to make decisions unambiguous. They address the process by which goals are formed and by which they may change, but the existence of a goal construct as an input for decision making remains a central tenet in their formulation of the organizational decision process. Further, models of bounded rationality pay little explicit attention to the technology whereby goals are converted into action.

More recent studies have examined the decision process when organizational goals are not well specified (Cohen et al, 1972; March & Olsen, 1976) and when technology for goal attainment is poorly understood (Weick, 1969; Hedberg et al., 1976). These recent approaches to choice situations in organizations explicitly recognize such elements as goal ambiguity (Cohen & March, 1974), political processes (Pettigrew, 1973; Pfeffer & Salancik, 1974), the desire for action rather than analysis (Mintzberg, 1973), and the problem of coping with uncertainty’ over consequences of actions and the value of outcomes (Allison, 1971; Wildavsky, 1974). The “garbage-can” model of decision processes within organizations provides a stark illustration of this approach, and a graphic depiction of an “organized anarchy”. According to March & Olsen (1976) the choice process in organizations can be viewed as a “somewhat fortuitous confluence” of four, relatively independent, streams within an organization.

Problems of many types, arising in the personal and organizational lives of people in and outside a particular organizational context.

Solutions which are somebody’s product; in other words, an answer looking for a question. It is suggested that frequently the question is not recognized until the solution is known.

Participants who come and go at various times in a particular choice situation. Variations in participation usually stem from sources extraneous to the specific decision context.

Choice opportunities, occasions when an organization is expected to produce behaviour that can be called a decision (signing of contracts, hiring and firing, etc.) (March & Olsen, 1976, pp. 26-27).

An important aspect of the garbage-can approach to organizational decision situations lies in the partial uncoupling of problems and choices. Unlike the economic rationality and bounded rationality models, problem solving is not viewed as the essence of decision making. Decisions are made when fortuitous confluences of streams of garbage occur, via three mutually exclusive and exhaustive processes with respect to any one choice. Decisions are made by resolution, where problems and solutions are matched and a problem is solved; by flight, where particular problems are avoided and may eventually be resolved as part of another choice; and by oversight, where problems are perceived as ancillary to another choice and so resolved with it.

The different patterns and flows of the various streams as they come together in the garbage-can will determine the contextual nature of each decision-situation, such that different contexts would only produce similar decisions by accident or chance. Simply put, the timing of arrival of components of the various streams will vary enormously, depending on such things as organizational structure, extraneous demands on people’s time and the perceived relative importance of the decision situation. An organization may be viewed as “. . . a collection of choices looking for problems, issues and feelings looking for decision situations . . . solutions looking for issues . . . and decision makers looking for work” (Cohen et al., 1972, p. 2).

The essence of such a depiction of organizational choice is ambiguity with respect to goals, uncertainty concerning technology and structure, and fluidity of participation. Such a characteriza- tion perhaps best fits educational, social and public organizations; but it may be true of any organization, in part, at least some of the time (Cohen et al., 1972, p. 1). In hostile environments, where for example there is competition in relation to inputs and/or outputs, an organization may be less able to sustain anarchical behaviour. In more benevolent situations and particularly when the organization has developed considerable slack, anarchical behaviour may be sustainable over long periods of time.

‘Uncertainty in this paper refers to ignorance about what we do not know, rather than the variability of outcomes which may be referred to as risk.


ACTIONS IN AN ORGANIZED ANARCHY

In the presence of ambiguity, the issue of how action can be effected is critical, for without such consideration this depiction of organization is pathological: undertaking sensible or intelligent action in the absence of well defmed goals becomes problematic.2

March (1971, 1978) suggests that what is required is a different orientation to the problem of choice and to the consideration of what is “sensible” or “intelligent” within the garbage-can framework. He calls the basis for action in ambiguous situations the “technology of foolishness”. This technology, which is derived from learning theory, has two elements. Firstly, it suggests a re-examination of prohibitions in the traditional theory of choice against imitation, coercion and rationalization. Secondly, it requires the suppression of imperatives towards consistency. March suggests we thereby allow playfulness in the choice process.

Imitation is really a process of observational learning or response stimulation (Bandura, 1969, 1970) whereby the decision maker seeks support for his or her actions on the basis of what has occurred in the past or what others might condone in the future. Thompson (1967) refers to imitation as a strategy to guide action in situations where bases for evaluation are unclear. For instance, he suggests that in the absence of clear performance standards, attempts are made to demonstrate historical improvement. Nystrom et al. (1976) view imitation as a reliable guide for day-to-day action; doing what has been done before provides an effective method for operating where circumstances are viewed as relatively unchanging. Standard operating procedures (Cyert & March, 1963) similarly act as a form of imitation, providing a set of guidelines and procedures for performing tasks, for handling information, for recording aspects of activity that are defined as important and for thinking about the future.

Standard operating procedures not only encourage imitative behaviour. They are also coercive since they represent rules of behaviour.

‘For example, records have a control effect “because they are being kept and the organization members presume that they are being kept for some purpose (or at least that their existence will induce some purpose for them)” (Cyert & March, 1963, p. 106). Coercion is a fact of organizational existence. It occurs trivially in the form of deadlines, and substantively in the very pattern of organization - its structure, process and form. Frost & Hayes (1979) propose an approach to organization where the role of power and political behaviours is treated explicitly. Working from Georgiou’s (1973) depiction of an organization as a market-place in which exchange agreements are negotiated, they studied situations within such a structure where power and political considerations are likely to dominate - for example, the negotiation of an agreement to provide resources or attempts to renegotiate previous resource sharing agreements. Power and coercion were not viewed emotively as good or bad,3 but rather as bases for fostering action, for ensuring things get done.

Notions of power and coercion can also be used as rationalizations of actions, explaining ac post why what has been done was done. Rationaliza- tion can thereby be seen as a means of explicating and understanding goals (Weick, 1979; March, 1978). Although rationalization is traditionally viewed negatively in theories of choice, it may also provide a means of incorporating newly discovered goals into an existing value structure. Bateson has remarked that an “explorer can never know what he is exploring until it has been explored” (1973, p. 21). Action in organizational situations where goals and the causes of outcomes are ambiguous has no detailed blue prints, only rough guidelines. Previous action and structures which encourage or coerce particular behaviours provide such rough guidelines. In order more fully to understand goals, action must take place. Sequences of such actions enable actors to impute a rationale as a reason for acts. Weick (1969) refers to such ex post goal imputation as retrospective sense- making.

Relaxation of strictures against imitation, coercion and rationalization leads directly to the

*Notice we refer to action as “sensible” and “intelligent”. That is intentional, for we regard organizations and their participants as intendedly intelligent even if not intendedly rational in the narrow terms of rational economic man.

“The existence of power is viewed as neutral: it is a cause of action. The outcomes of acts of power will, of course, have value attached to them. The assessment of that value will depend on the perspective of the various parties in the power episode.


second element in a technology of foolishness: questioning the behavioural consistency demanded by economic rationality. Not requiring consistency in behaviour may be achieved by encouraging playfulness in the choice process in organizations, allowing intuition to guide action without sanction. The notion of encouraging playfulness is a widespread element in much recent research. Following from the notions of requisite variety (Ashby, 1956) and hierarchies of complexity (Boulding, 1956), it has been suggested that the study of language and culture are required for understanding complex situations such as behaviour in organizations (Pondy & Mitroff, 1978; Daft 8z Wiginton, 1979). For example, observation of managers’ preferences for face-to- face verbal communication rather than formal reporting systems can be understood because of the verbal and non-verbal complexities of such communication. Nuances of meaning can be more readily grasped, ideas more easily generated and understood and decisions rapidly effected in face-to-face communications. Huizinga (1949) has emphasized the function of play in generating ideas, facilitating learning and encouraging commitment in society. In an organizational context, Janis & Mann (1977) suggest emotional role playing as a form of organization action which has positive side-effects in choice situations. Wagner (1978) suggests the use of such play in “exploring alternative versions of the future” (p. 794). Organizational survival in ambiguous, dynamic environments may be enhanced by allowing play and intuitive actions a role in the choice process, even if this necessitates less emphasis on rationality and consistency (Hedberg et al., 1976). Similarly, Weick (1977b) argues that intentional complication of organization, via play, encourages organizational clumsiness. Clumsiness permits multiple and conflicting responses to changing circumstances, and as such provides a larger repertoire of behaviours to meet such circumstances. As Ashby argues (1956) creating this potential organizational variety may help to achieve organizational success and survival. The importance of play is that it forces rethinking and recombination of elements of behaviour into different patterns, thus potentially opening up different ways of looking at problems and

providing different approaches to their solution. All these arguments, suggestions and observa-

tions suggest that playfulness or intuition may have a substantial role in choice situations. It encourages experimentation, forcing individuals to rethink the premises of actions; it provides a relief from the strictures, controls and confines of much organizational activity, and it may directly or indirectly assist in better adaptation to current and future uncertainties. Critically, it incorporates flexibility as an element of organizational life, and allows decisions to be made for which no good reason exists.

To recap, we have attempted to illustrate the notion of organized anarchy and the means by which action can be affected within such a situation. We have argued that, where goals are ambiguous and technologies uncertain, the traditional economic model of rational choice is an incomplete description of action in organization. Consideration of action without “reason” and recognition of the benefits of imitation, coercion and rationalization suggests that a different kind of rationality and intelligent behaviour fits such circumstances. This behaviour is intelligent within its own framework. In the following sections, we examine the nature of internal accounting systems in terms of the traditional view, and then propose an alternative view which follows from the above discussion.

UNDERSTANDING ACCOUNTING PROCESSES IN ORGANIZATIONS

Internal accounting systems within large organizations can be understood in the context of the three models of the choice process previously outlined. Cost accumulation, financial reporting4 and budgetary systems can all be explained in relation to the rational model, the bounded rationality model and the garbage-can model. In this section we briefly review how accounting processes have been understood using the former two models and present a richer explanation of these processes using the garbage-can model.

A rational model view Most standard textbooks on management

accounting present a rational model view of the

4 Systems of divisional performance measurement and control may be included as part of the financial reporting system of large decentralized organizations. Swieringa (1980), using a similar analysis to our own, explains transfer pricing systems from the perspective of the three models of the choice process.


role, importance and functions of internal accounting systems. Cost accumulation systems provide score card information (Simon et al., 1954) which records and classifies “important” information in the organization so that assessments of the costs of activities can be made. Whilst there may be lively controversy about the usefulness of some of these assessments (e.g. absorption, direct or opportunity costing), cost accumulation systems produce information designed to be used in a variety of situations for inventory assessment, profit determination, and most notably in the present context, “optimal” price, output and investment decisions (Demski & Feltham, 1976).

Financial reporting systems such as responsibility accounting systems may be explained, from the rational model point of view, as a means of measuring, reporting and evaluating the performance of individuals, groups and sub-units of an organization. Such systems may be seen as supporting and reflecting the systems of authority

responsibility Gdl b’

within organizations o em rewski, 1964). To the extent that these

systems of authority, delegation and responsibility are indeed rational (Weber, 1947), the financial reporting systems can be seen as supporting these systems. Further, by identifying and classifying results as either controllable or uncontrollable, the financial reporting system provides guidelines for rational management (by identifying those variables that may be managed).

From the rational view, budgets can be understood as a master plan for action in ensuing periods of time. Explicit in such a model of budgeting is the notion of the budget as a quantitative expression of organizational goals (Ijiri, 1965; Gershefski, 1969). In its implementation, the standards and targets embodied in the budget are utilized as control devices to channel and co-ordinate action to lead (ideally) to the realization of the budgetary goals in terms of some financial representation of organizational fitness. To summarize this rational-model view, we quote from Horngren (1977, p. 125): When administered wisely, budgets (a) compel management planning, (b) provide definite expectations that are the best framework for judging subsequent performance, and (c) promote communication and co-ordination among the various segments of the organization.

A bounded rationality view The bounded rationality model of decision

making has been recognized as having two major

implications for understanding (and designing) accounting systems within organizations. Cost accumulation systems and financial reporting systems may be seen as important parts of the stabilization mechanisms of large organizations (Cyert & March, 1963). Although the emphasis on understanding accounting systems shifts from a concern with the outputs of the systems to a concern with the processes and uses of these systems, models of bounded rationality emphasize consistent behaviour and procedural rationality. The process of cost accumulation and the day to day uses of fmancial reporting systems helps to ensure that individuals within organizations recognize the importance of costs and recognize that financial performance is a significant element in any appraisal (Hayes, 1977).

There have been a large number of studies of the process of budgeting. The detailed field studies of Argyris (1952), Pondy (1964), Wildavsky (1974) and Lowe & Shaw (1968) all indicate the importance of the process of budgeting and estimation in organization. These studies suggest that budgeting is an intendedly rational process but focus attention on biases in estimation and the communication of budget numbers in a hierarchy (Williamson, 1975; Berry & Otley, 1975). Similarly Bonini (1963), Crecine (1967), Gerwin (1969) and Lin (1978) have simulated budgeting strategies, taking explicit account of incre- mentalism, simplified search procedures, multiple objectives and satisficing behaviour. Pondy’s analysis of the resource allocation process (1970) emphasizes the significance of multiple objectives and communication in organizations. The focus on the process of budgeting has also drawn attention to some wider organizational purposes of the activity. For example, Livingstone (1973), drawing on the work of Lawrence & Lorsch (1967) and Thompson (1967) outlines how the process of budgeting facilitates the integration and co- ordination of diverse organizational activities.

A garbage-can view Yet whilst these views of accounting systems

undoubtedly help to explain and understand the purposes and uses of these systems, the garbage- can model serves to highlight other aspects of these systems. The garbage-can view may be particularly appropriate to organizations in situations of ambiguity - about goals, technologies, participants and environment. In these circumstances we may view accounting systems as means


of facilitating action through the technology of foolishness.

Rationalization of actions, 01 making sense of what has been done, is a key tenet of the technology of foolishness. As March (197 1) suggests:

. . . it seems to me perfectly obvious that a description that assumes goals come first and action comes later is frequently radically wrong. Human choice behaviour is at least as much a process for discovering goals as for acting on them (p. 9).

Weick (1969), following Schutz (1967) and other phenomenological sociologists, maintains that the sequence whereby actions precede goals may well be a more accurate portrayal of organizational functioning than the more traditional goal-action paradigm. Weick notes that the traditional framework obscures the idea that consensus is impossible unless there is something tangible around which consensus can occur; that “something tangible” may well be completed actions. So, past actions are made to appear sensible to the decision maker and to those whom he is accountable by retrospectively creating goal statements consistent with them. He argues that . . . goals are tied more closely to actual activities than has been realized, and that they are better understood as summaries of previous action. Much of the organization’s work does not seem to be directed towards goal attainment. Instead, it can be understood more readily as actions with a primitive orderliness, this orderliness being enhanced retrospectively when members review what has come to pass as a result of the actions. weick, 1969, p. 37; emphasis in original.)

Thus, if goals are discovered through action, and we make sense of actions retrospectively, the notion of a budget as a quantified statement about future preferences (the foundation of the conventional wisdom) simply does not hold. Rather, as part of the rationalization process of retrospective goal discovery, it appears that by performing the budget process - forecasting, developing standards and evaluating results - an organization may be discovering its goals.

The budget process may be interpreted as a means for justifying past actions and making them appear sensible to both the actor and others. Bower (1970), for example, discovered that the major use of capital budgeting procedures is to justify investment decisions already made, rather than simply providing information prior to the taking of a particular decision. Similarly, Dirsmith & Jablonsky (1979) and Covaleski & Dirsmith (1980) suggest, from their studies of budgetary

systems in the governmental and health sectors, that systems such as PPBS, MB0 and budgets are used in large part to provide an appearance of rationality and a legitimation for activities. This tendency seems to be especially prevalent in resource scarce environments. Earl & Hopwood (1981) and Burchell et al. (1980) cite numerous instances in which managers utilize accounting data as ex post justification rather than an informational input. Similarly, Pringle (1978) describes the origin and evolution of cost-benefit analysis as being primarily oriented towards justification of action rather than as input. Wildavsky’s (1976) review of a pollution control study similarly indicates that the forecast data was used for rationalization purposes rather than selection of an action alternative.

Systems of cost accumulation and financial reporting may also help to create an organizational history and resolve uncertainty about the past. The record keeping function is an important element of any organization, and accounting system which record and report the results of activities provide an authoritative means of explaining the past and thereby providing a guide for the future. Such observations have led to the suggestion that sophisticated accounting systems may, rather than aiding efficiency itself, instead provide a dramatization of efficiency, maintaining a rational facade and thus providing a respectable identity for an organization (Becker & Neuhauser, 1975; Meyer 8z Rowan, 1977). In general the processes associated with accounting in organizations may be interpreted as a way of facilitating and understanding what has happened in the past and attaching meaning to previous actions. Future actions may then be justified by the same explanations which had helped to make sense of previous action. The rituals of accounting may provide the legitimation for continuing current organizational activities.

Imitation and coercion, other elements of the technology of foolishness, also provide vehicles for understanding the role of accounting systems in organizations. We shall treat both elements together for purposes of our analysis. Concomitant with the idea of retrospectively making sense of action is the process by which such sense-making occurs. Discussion of this process provides a lead into the imitative and coercive roles of accounting systems. Weick (1969, 1979) argues that individuals and groups selec- tively attend to external stimuli. Since differences


in perception of such stimuli are in part dependent on individual experiences and current pre- occupations, the problem of organizing becomes, in part, one of developing a shared reality, obtaining commonality in understanding. individual’s perceptions of the world, the way they “bracket” or “punctuate” their stream of experiences, leads them to develop maps of inter-relationships between phenomena, linkages of cause and effect. In trying to make sense of and organize their experiences, such cause-maps are constructed and imposed on their perceived world in an attempt to remove uncertainties and ambiguities. Within an organizational context different cause-maps may be held by different individuals, and so the derivation of a common map, or set of cause-effect beliefs, is problematic. Bougon et al. (1977) for example, in a study of the members of a jazz orchestra, discovered that different members had different cause-maps for variables such as rehearsal time and the role of the conductor and how they related to final performance.

The process of arriving at a common world-view or cause map may be one of domination or negotiation as individuals and groups struggle to form a basis for understanding and controlling the organization. The common world view that may be produced by accounting systems has at least two aspects. Accounting systems encourage imitation and coercion by defining the problematic (by choosing which variables are measured and reported) and they help to fashion solutions (by choosing which variables are treated as controllable). Of course the way accounting systems are used is highly significant (Hopwood, 1973; Otley, 1978), but nevertheless the structure and elements of an accounting system help to create the appropriate and acceptable ways of acting, organizing and talking about issues in organizations. Accounting systems are a significant component of the power system in an organization (Bariff & Galbraith, 1978). To recognise the significance of this statement it is important to recognise the dimensions of power (Lukes, 1974).

Power is not just overt behavour forcing or coercing others to comply with a particular individual or way of doing things. It also has a latent or unobservable aspect, such as the ability to control agendas and issues (Lukes 1974; Bachrach & Baratz, 1962; Wrong, 1979; Clegg, 1979). For example, Crenson (1971) describes the case of the introduction of pollution control

ordinances in two neighbouring cities: Gary, Indiana and East Chicago. The former is dominated by U.S. Steel, whereas the latter has a number of steel producers. Pollution control ordinances were introducted in East Chicago in 1949, whereas they were never an issue in Gary until 1962. Not that U.S. Steel fought against them; nor did they have high level employees in civic positions. Rather, it was perceived by those in office that U.S. Steel would incur additional costs from such ordinances and thus would not be in favour of them. It was the aura of dominance over civic issues that U.S. Steel had from their central position as the major employer in the town that ensured that issues of civic politics would never hurt the company. Thus, U.S. Steel exercised significant power by their latent ability to control such issues and effectively prevent unfavourable ones from arising.

Analogously, internal accounting systems by what they measure, how they measure and who they report to can effectively delimit the kind of issues addressed and the ways in which they are addressed. They reflect the status quo, the appropriate and acceptable ways of doing things and talking about issues. Accountants, through cost accumulation, fmancial reporting and budgetary systems, help to define and elaborate an organization’s view of its own ambiguous problems. “Costs” and “spoilage” are to be minimized: overheads are to be allocated; transfer prices and departmental profits are to be determined; variances are to be investigated. The terminology of accounting deflects attention from alternative conceptualizations of organizational activity and alternative cause-maps of organizational performance. Accountants and accounting systems typically do not account for individuals to be fulftied, alienation to be minimized, environmental needs to be determined or surpluses to be distributed.

There is increasing evidence about the role of budgets and accounting systems as reflections of power and as tools in internal disputes. Pfeffer & Salancik (1974), for example, argued that university budget allocations can be understood in terms of the relative power of departments, such power deriving from research reputations and ability to generate external funds. Wildavsky (1974) cites numerous examples of the political aspects of budgeting at the governmental level, many of which have ready parallels within both public and business organizations. For example, he


cites situations where successful arguments for funding are based on ignorance of sunk costs, and where combining budget estimates enables “pet projects” to be slipped through the review process. Frost & Hayes (1979) outline the case of an individual who is an “expert” at political uses of accounting systems in an educational institution:

If a system is introduced and I don’t want to carry it out, I can tie it up from the purchase order end, the shipping end, the receiving end, the supplier end. It’s tight knots from that point of view as far as once the item finally arrived, if, it did . . . I can just keep on going; the unit comes in, it’s not approved, has to go back, comes in again. You know you can use that type of thing - budget, transfer, many different ways . . . (Frost & Hayes, 1979, p. 266).

And, in a slightly broader context, Wildavsky (1978) discusses a tactic known as “swamping”, where “. . . social case workers swamp the centre by challenging each and every allegation of error in procedure, knowing that these will take a long time to process, and that in the meantime their error rates will be kept artificially low. (pp. 80-81.)

FURTHER INTERPRETATION OF A GARBAGE-CAN VIEW

Taken together, the imitative, rationalization and coercive aspects of accounting systems help to provide the minimal stability required for individuals to act in at least a loosely coupled fashion. And by focusing on these aspects of accounting systems it is possible to suggest at least two, possibly novel, explanations of their impact in organizations: accounting as language and accounting as legitimation.

Accounting as language It is trite to observe that “accounting is the

language of business” but that observation suggests a significant role of accounting as a language designed to create and sustain an organizations’ culture. Organizations are, in Boulding’s terms (1956), social systems. They are a collection of “individuals” who create a sense of social order, shared culture, a history, a future and a value system. Organizations have a sense of conscious- ness, an image of themselves. To create and sustain that image, they develop a coding scheme or language @aft & Wiginton, 1979). Accounting would seem to represent a significant part of the

official language. This view does not focus on the existence of communication in organizations but rather on the existence and continuity of shared definitions of organizational reality and the organization’s situation (Berger & Luckman, 1967). The suggestion is that order may be achieved in organizations not only by formal rules but also by an elaborate system of shared meanings: an organizational culture and its accounting language. Culture provides an interpretation of their own situation for organizational participants and impels them to action. And in the process of organizing their activities, organizational participants represent, enact and thereby create their situation and purposes. This representation of reality provides a set of beliefs about the way an organization works, its effectiveness, its goals, the use and distribution of power and the appropriate means of managing the system (Pettigrew, 1979). Accounting facilitates the negotiation of a shared reality by providing the various actors with a common language and framework for such negotiations. The boundaries of negotiation, the language in which it is discussed, and the set of phenomena to be incorporated into negotiation are ah provided by the existence of accounting and budgetary systems in organizations. Further, flexibility in interpretation is enhanced by the ambiguities of accounting methods, so providing grounds for agreement and disagreement within the negotiating process. By not being precise, the language enables multiple interpretation and broader bases for the negotiation of a common set of beliefs.

Ritual, magic and myths are some of the means by which organizational cultures are sustained. Ritual may provide a sense of identity and reinforce what is valued. The budgeting cycle and the reporting cycle may be seen as having ritualistic elements. The magical properties of accounting systems have been discussed by Gambling (1977) and the analogy of accountants as priests has been suggested by Cleverley (1971). By possessing specialist skills and language as well as arcane knowledge, the accountant and accounting systems may be regarded as mystical, cosmological and charismatic. Although there may be heretical individuals in organizations who challenge the authority of the accounting systems, the vast majority of individuals accept their own inability to master the specialized knowledge, language and skills. Finally, myth helps to label what is acceptable and unacceptable by anchoring

184 DAVID J. COOPER DAVID HAYES and FRANK WOLF

actions to the past and to explanations of past events. By explaining and reconciling “contradic- tions between values and actual behaviour and legitimate established leadership systems faced with environmental threats” (Pettigrew, 1979, p. 576), myths justify and sustain specific values in organizations.

Accounting as legitimation Understanding accounting in an organized

anarchy highlights not only the linguistic and cultural aspects of accounting systems but also the legitimizing aspects of these systems. The relationship between accounting systems and economic rationality may be rather tenuous. Whilst Hom- gren (1977, p. 125) sees budgets as providing a discipline that brings planning to the forefront as a key management responsibility, Weick (1969, p. 102) argues that actions are not made understandable through plans, but rather by projecting those actions in the future perfect tense - thinking of the acts as if they had already been accomplished. As he suggests, it is “. . . the reflective glance, not the plan per se, that permits the act to be accomplished in an orderly way”. (Weick, 1969, p. 102; emphasis in original.)

As for the activity of planning, exhorted by many as worthwhile in and of itself (Homgren, 1977, for example), Weick (1969) suggests that it may be wasteful due to the unpredictability of the future. Indeed, Grinyer & Norburn (1975) found no positive correlation between financial performance of firms and internal consensus on objectives, or clearly defined roles, or formal planning procedures. However, they did find a positive correlation with reliance on informal communication, and the diversity of information used in internal performance assessment. Similarly, Cohen & March (1974) argue that planning is a pretext under which a number of valuable activities take place, but forecasting the future is not one of them. They suggest that plans are symbols, in that by announcing a plan to do something, actual circumstances may be disguised and paid less heed to. Further, they suggest plans are advertisements, which show an organization at its best; planning is also viewed as a game, a way of testing commitments of people to programmes they espouse. Finally, they argue that planning provides an excuse for interaction among diverse groups, which may have positive benefits concem- mg current activities. In a similar vein, Weick (1969) argues that if, instead of trying to predict

future contingencies, managers took actions which could then be made sense of retrospectively, “ . there is a greater likelihood that efficiency would improve.” (Weick, 1969, p. 102.)

Weick, Cohen and March have their own cognitive and social explanations for budgeting and planning. Brown (1978), however, takes their analyses further by emphasizing the ideological and legitimizing elements of planning and budgeting systems. He argues that:

the organization plan, for example, can be seen not as a set of instructions for what will take place, but rather as an ideological device that functions to build constituency, to define the limits of ‘responsible opinion’ and in general to impose the plamrer’s or manager’s definition of reality upon discourse and conduct within and around the organization . . . Even if the organizational plan is taken seriously as a set of instructions for future action, it is readily reinterpretable as a vocabulary for covering the difficulties that will unfold as attempts are made to follow it. That is, in actual practice the plan of action produces problems, the responses to which are then reconceptualized as the ‘solution’ or achievement of the organization’s ‘goals’. (Brown, 1978, pp. 369-370).

Brown’s analysis is revealing because it identifies that budgeting has implications within and around the organization. Organizations may possess budgeting as well as other internal accounting systems not for the direct internal benefits but because of the benefits that accrue from its environment. These systems may be adopted ceremonially in order to convince the environment of the legitimacy and rationality of organizational activities. Organizations without formal accounting systems are vulnerable to claims that they are negligent, irrational, illegitimate and even unnecessary. Meyer & Rowan’s discussion (1977, p. 350) of the use of professional economists would also seem to apply to accountants and accounting systems:

Though no one may read, understand or believe them, econometric analyses help legitimate the organization’s plans in the eyes of investors, customers and internal participants. Such analyses can also provide rational accountings after failures occur: managers whose plans have failed can demonstrate to investors, stockholders and supervisors that procedures were prudent and that decisions were made by rational means.

Indeed, Stinchcombe has suggested (1965) that organizational design (and presumably the accounting procedures associated with the design) reflects the view of appropriate and legitimate structure at the time the organization was created. Organizations may then fossilize these structures; systems that were regarded as rational and


legitimate at the time the organization was created considerable literature prescribing “playtulness” tend to continue even after new systems are and in this section we will consider how regarded as legitimate. accounting systems might encourage such

-By adopting a garbage-can view of accounting systems, we recognise that these systems may stabilize organizations and facilitate more or less coherent action through their rationalization, imitative and coercive roles. In addition, these roles highlight other potential functions of accounting systems: providing language, symbols, rituals, myths and magic that help sustain an organization’s culture. These myths and rituals may provide significant benefits both by imposing a particular view of the organization and its world and by legitimizing the organization’s activities to its constituents.

DESIGNING ACCOUNTING SYSTEMS IN ORGANIZED ANARCHIES

The technology of foolishness was suggested by March (1971) in order to explain how decisions occur and what decision makers do in organized anarchies. In our discussion of accounting systems in organized anarchies we have drawn upon one aspect of the technology of foolishness, namely the relaxation of strictures against imitation, coercion and rationalization. The imitative, coercive and rationalization aspects of budgets emphasize the use of accounting systems as a shared language in the culture of an organization and the role of accounting systems in legitimizing activities. There is, of course, a design or normative element that could be included in the description of how accounting systems seem to be used in imitation, coercion and rationalization. Cooper (1981) has, for example, argued that accountants (and accounting systems) have ultimately to address the issue of appropriate accounting languages and the link between accounting systems, power in organizations and organizational performance (and how performance is conceptualized).

There is a second element in the technology of foolishness, namely the allowance for “playfulness”. This element of the technology of foolishness has not been discussed in the previous section, which dealt with understanding accounting processes. The explanation is simple: currently there seem to be few accounting systems that encourage playfulness, creativity or experimentation. There is now, however, a

behaviour-in an organizational context. Of course there is a normative element in these suggestions; the implication is that playful, creative and experimental behaviour will help anarchic organizations adapt and survive in their ambiguous and rapidly changing environments (Nystrom & Starbuck, 1977).

There are a number of prescriptions and depictions in the literature concerning playfulness. March (197 1) provides a series of aphorisms which may facilitate playful action, as do Hedberg et al. (1976) in their prescriptions for organizational self-design. In similar vein, Weick (19773) provides a depiction of characteristics of effective organizations consistent with the notions of intuitive behaviour or playfulness. To the extent feasible, we discuss the overlaps and similarities between such prescriptions and depictions within the framework outlined by March (1971). He suggests that playful action can be facilitated by: (1) Treating goals as hypotheses. Where goals are

not stable or unambiguous, treating them as hypotheses may enable the discovery of new values. Similarly, Hedberg et al. (1976) suggests that by having minimal faith in goals, organizations can be more prepared for rapid change and perhaps more capable of dealing with it. Action also provides a basis for goal discernment in the organizing framework of Weick (1979).

(2) Treating intuition as real. Allowing behaviour for which no “good” reason exists may lead to positive results, and intuitive or playrul behaviour encouraged without sanction may facilitate such results. McCall (1977) suggests that play may be performed by analogy, or even making up a song, poem or joke about a particular decision problem as a way of freeing the mind from traditional thought patterns. Weick (19773) suggests that effective organizations may be clumsy; forcing playful inefficiencies into choice situations opens new arenas for analysis and comparison.

(3) Treating hypocrisy as transitory. Attempts to avoid hypocritical behaviour (discrepancies between actions and stated goals) constrains an organization’s ability to take actions unjustifiable on the basis of stated, pre- established goals. Experimentation and change can be encouraged by treating such situations

DAVID J. COOPER, DAVID HAYES and FRANK WOLF 186

(4)

(5)

as transitory. Similarly, Weick (19773) argues that hypocrisy may be characteristic of successful organizations and Hedberg et al. (1976) call for minimal rationality and consensus with respect to behaviours. All such arguments are geared to encouraging individuals to take chances and do things differently without penalty, in the prospect that novelty may lead to substantial rewards.

Treating memory as an enemy. This may lead to creative solutions to decision problems, and warns against the stifling effects that standard approaches and imitation may have. Weick (1977b) suggests that organizations which “ . . . disbelieve what they know and believe what they doubt retain both stability and flexibility” (19773, p. 22). In similar vein, Hedberg et al. (1976) prescribe minimal contentment with the status quo as a characteristic leading to adaptability and flexibility in responses.

Treating experience as a theory. By altering interpretive concepts and adopting alternative frames of reference, events already experienced can form the basis for new learning experiences. This suggests a continual process of reexamination of past behaviours and their outcomes, perhaps by different individuals and groups. Weick (1977b) pushes such an idea further by suggesting that “ . . . unaccountable interludes of super- stitious, random activity break the constraints of memory, render adversaries more uncertain (and more persuasible?), and supply rove1 displays of prior actions that can be punctuated in novel ways, thereby allowing the organization to learn more about itself.” (p. 22, parenthesis in original.)

The totality of these suggestions, combined with others such as minimizing affluence and consistency in behaviours (Hedberg et al. 1976), or condoning “monsters” and “octopoidal” structures (Weick, 19773), along with the suggestions for playfulness advanced by McCall (1977), Janis & Mann (1977) and others, provide a rich set of prescriptions for behaviour in ambiguous situations. But what about budgeting and accounting systems? Is there a role for playfulness either in the processes of accounting systems or in the use of accounting systems?

We may tentatively outline two possibilities not only for prescribing playful accounting systems,

but also for providing a description of how accounting systems may have a role in a technology of foolishness. Firstly, accounting systems can facilitate commitment and satis- faction. By reducing the emphasis on performance evaluation in accounting systems, Hofstede (1968, p. 81) suggests that the gamelike qualities possible in budgetary control systems can improve individual motivation and facilitate self- actualization. Game spirit was positively associated with budget attitudes when there was a sense of team co-operation against an external antagonist (e.g. competitor and cost increase). Further, our earlier discussion of accounting as a language suggested that accounting systems can facilitate the internalization of values. Ouchi (1979) has suggested that clans (which have many similarities to organized anarchies) rely on internalization of values to achieve the commitment of participants.

Moreover, accounting systems may also facilitate creativity, innovation and experimentation. Zaltman et al. (1973) and Duncan (1976), following the suggestions of Wilson (1966), argue that the initiation of innovations and the stimulation for creativity seems to be associated with ambiguity and high complexity, low formalization and decentralization. Accounting information systems should, in order to facilitate such initiation, encourage the processing of large volumes of data (as potential information). One way of obtaining large volumes of potentially relevant data is to scan the environment, searching for new possibilities and alternative ways of carrying out organizational activities (Aguilar, 1967; Wile&y, 1967; Keegan, 1974). In order to stimulate creativity by the suspension of evaluation, organizations may find it worthwhile to utilize and encourage informal information systems which have greater potential to provide thick description (Gee&, 1973) and multiple meanings than do formal systems (Clancy & Collins, 1979). A third way that accounting systems can facilitate innovations is by their being experimental and perhaps even semi-confusing (Hedberg & Jonsson, 1978). Ambiguous information systems, by reporting uncertainties, inconsistencies and ambiguities, would sensitize managers to the need and potential for change. Producing such sensitivity seems to be essential to achieve creative and innovative individuals and organizations (Steiner, 1965; Hage & Dewar, 1973). Dialectical information systems (Church- man, 1971) would seem to offer the same


potential for encouraging alternative and conflicting views of the world. In addition, they also offer the means to resolve these views in order to facilitate eventual action.

Duncan (1976) further argues that the second stage of the innovative process, namely the implementation of ideas, requires a structure that is different and conflicts with that required for initiation of innovation. Higher formality, centralization and lower complexity are required in order to encourage the adoption of innovations. Accounting systems, to the extent that they emphasize formality, evaluation, scheduling and planning, are likely to facilitate adoption by reducing tension and conflict (Radnor & Neal, 1973). But perhaps the most important conclusion to emerge from studies of innovation and creativity is that there is a need for the organization to switch from one mode of organizing to another. This conclusion suggests that accounting systems should be seen as multiple and these multiple systems must also be ambidextrous.

But although we offer these tentative possibilities for playful accounting systems, we should admit to our ambivalence about such prescriptions. On the one hand, the possibilities for encouraging reconsideration of budgetary methods, types of reports and uses of such reports would seem to be a substantial positive benefit to organizations. Further, if formal planning systems are unrelated to financial performance (Grinyer & Norbum, 1975), then such a loosening up of the process may be effective in a cost-benefit sense, leading to less resources being expended on such systems. On the other hand, as we have argued in earlier sections of this paper, an important role of budgetary systems (and accounting systems) is that of providing constancy in organizations: controlling options available and providing a basis for the rationalization of action. Such a stabilizing force is important, yet the impact of play within the process may lead to organizational instability. It would seem, however, that if playfulness were to be encouraged in other contexts, the potential budgetary impact would need to be considered. For example, accounting methods of evaluation would have to be suspended, else the creativity at the core of calls of playfulness would be stifled. Finally, we are left with the question that appears to reach to the heart of the playfulness issue: What are the effects when play becomes institutionalized and, therefore, serious?

CONCLUDING REMARKS

There has been constant reference in this paper to the notion of organizational effectiveness. We imply in the preceding pages that organizations require adaptability, flexibility and the ability to create variety in order to survive in changing, variated environments. In contrast to this flexibility, the organization requires a technology for maintaining some consistency and intelligent behaviour. In terms of effectiveness we wish to emphasize that organizations characterized by ambiguous goals, unclear technology and fluid participation need not be pathological. Maintain- ing ambiguity is a means to maintain not only the participation of the diverse members of the organization but also a steady flow of alternative participants who can identify with the organization.

Before concluding, it should be recognized that these issues of effectiveness and the concern for prescription are themselves ambiguous and problematic. It may be worthwhile to raise some general issues about design in organized anarchies (Cohen & March, 1974; Argyris, 1976). A fundamental feature of organized anarchies is that goals are unknown, changing, contested and/or ambiguous; goals are seen to be the result of action rather than a determinant. Without a pre-existing goal structure, can there be prescription and design? The answer for Cohen & March (1974), Nystrom & Starbuck (1977) and Weick (1977b) would seem to be affirmative. For example, Cohen & March discuss design as a means to encourage actions that lead to interesting individuals, organizations and societies (Cohen & March, 1974, p. 229). “Interesting” seems to mean “learning what tasks are worth doing” (Cohen, 1976, p. 376). Nystrom & Starbuck suggest that “prescription can contribute greatly to a science which sees organizations as flexible, adaptable systems. [and] For organizations to fit effectively into their environments” (1977, p. 2). In short, then, design seems to be central but criteria for design are themselves ambiguous. Currently, criteria are imposed by designers and leaders in organizations. Yet through design can emerge learning and evolution.

A second issue relating to design is whether we design accounting systems to reflect organizations as they seem to be (e.g. anarchical) or try to design accounting systems to reflect the designer’s criteria. To adopt the former position is to accept


and reimpose the status quo. For example, Pfeffer (1977) suggests that dominant elites in organizations should manage perceptions and cognitions for their own purposes. Cohen and March suggest “eight tactical rules for use by those who seek to influence the course of decisions” (1974, p. 207). Such strategies may be regarded as Machiavellian, deceitful and ultimately dysfunctional (Argyris, 1976). Yet we may adopt the alternative position where design “is an enormous liberation of the intellectual spirit, for it challenges this spirit in an unbounded speculation about possibilities” (Churchman, 197 1, p. 13).

These general problems of systems design are not resolved but should be considered by any responsible designer (Boland, 1979) and handled sensitively. In this paper we have considered how accounting systems can be understood and how they might be designed in an organized anarchy. By focusing on how sensible action is and how it may be effected in ambiguous situations we have suggested how the technology of foolishness has its descriptive and prescriptive components.

Internal accounting systems embody many of the elements in a technology of foolishness. On the one hand, internal accounting systems (cost accumulation systems, internal reporting and evluation systems and budgeting systems) provide the minimal consistency necessary for organization survival. These are the coercive, imitative and rationalization roles of accounting systems. On the other hand we prescribe that these same systems must provide sufficient creativity and range of interpretation in order to allow ambiguity of goals and diversity of meaning in explaining past events and predicting future events. This is the playful

aspect of accounting systems. Taking the framework of an organized anarchy,

characterized by ambiguous goals and uncertain technology, we have argued that accounting systems represent an ex post rationalization of actions, rather than an ex ante statement of organizational goals. Further, we have described accounting processes in terms of their imitative and coercive nature, and argued that budgets in particular, and accounting systems in general, provide a basis for the rationalization of behaviour, rather than a decisional input. Finally, in considering the sanctioning of intuitive behaviour in organizations, we have presented some possibilities with the intent of fostering debate and further research. The methodology of such research is an issue of substantive importance in itself, and one we have not addressed within this paper..

We have reason to believe that the argument is generalizable beyond organized anarchies and the technology of foolishness. For the role of an accounting systems as creator and follower of organizational history, as definer of the organization itself, and as a critical cohesive force which both holds an organization together and guides its activities is, we think, generalizable across organizational settings. Although our focus for purposes of exposition has been on organizations facing situations of ambiguity, the description and explanation of the role of internal accounting systems may be applicable to most organizational settings. The anarchistic framework has provided a means for exposition, for it forces a reanalysis and reconception of the role of these systems.

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