Qualitative Research in Accounting & ManagementUnpacking the package: Management control in an environment of organisationalchangeMark Evans Basil Phillip Tucker

Article information:To cite this document:Mark Evans Basil Phillip Tucker , (2015),"Unpacking the package", Qualitative Research inAccounting & Management, Vol. 12 Iss 4 pp. 346 - 376Permanent link to this document:http://dx.doi.org/10.1108/QRAM-07-2015-0062

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Unpacking the packageManagement control in an environment of

organisational changeMark Evans and Basil Phillip Tucker

School of Commerce, University of South Australia, Adelaide, Australia

AbstractPurpose – The purpose of this paper is to explore the ways in which both formal and informal control,operating as a package, are implicated in responding to organisational change arising from theintroduction of the Australian Federal Government’s Clean Energy Act (2011).Design/methodology/approach – This investigation is based on a review of archival data, andsemi-structured interviews conducted with 15 staff at different hierarchical levels within an Australianrenewable energy company.Findings – Although formal management control systems and informal control both playedimportant roles in the organisation’s reorientation to organisational change, it was the latter form ofcontrol that predominated over the former. The influence of the prevailing organisational culture,however, was pivotal in orchestrating both formal and informal control efforts within this organisation.Originality/value – This study contributes to management control theory and practice in two ways:first, it provides much needed empirical evidence about the ways in which management controls act asa package; second, it offers insights into the relative importance of the components of a managementcontrol package in the context of a particular organisational change. In addition, it responds toLaughlin’s (1991) call for empirical “flesh” to be added to the skeletal framework he advocates to makethis conceptualisation of organisational change, “more meaningful”.

Keywords Organisational change, Management control, Informal control,Management control package, MCS

Paper type Research Paper

1. IntroductionThe pivotal role of management control in organisational change has beenwell-established in management accounting research. Studies that have directedattention to examining control under conditions of organisational change have beenbased in a diverse range of contexts including:

• strategic change (Simons, 1994);• market competition (Bromwich, 1990; Khandwalla, 1972);• environmental hostility (Otley, 1978);• mergers and restructures (Kober et al., 2003, 2007); and• environmental uncertainty (Chapman, 1998).

The ready co-operation of the staff of Enviros is gratefully acknowledged. In particular, the CEOmust be thanked for his ongoing assistance in gaining organisational access and securing relevantdata. The authors also thank Cheryl McWatters, Deryl Northcott, Christine Helliar, John Burns,Bill Nixon, Lee Parker and Aldonio Ferreira for their valuable comments and suggestions onprevious versions of the paper.

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/1176-6093.htm

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Received 22 January 2015Revised 18 August 2015Accepted 21 August 2015

Qualitative Research inAccounting & ManagementVol. 12 No. 4, 2015pp. 346-376© Emerald Group Publishing Limited1176-6093DOI 10.1108/QRAM-07-2015-0062

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Such research has primarily centred on investigating how formal management controlsystems (MCS) are implicated in responses to such change. However, often neglected inthis research is the influence of informal control in the overall control efforts in suchdynamic scenarios.

If the management control package of an organisation comprises “the complete set ofcontrol practices in place” (Grabner and Moers, 2013, p. 408 italics added), then the risksassociated with neglecting one or other of these elements in the control package are, bydefinition, likely to be considerable. Such risks include the potential for modelunder-specification (Chenhall, 2003), difficulties in attributing particular outcomes withparticular controls (Otley, 1980) and challenges in assessing the relative effectiveness ofparticular types of control (Merchant, 1985). Moreover, failing to view control as apackage as comprising both formal and informal elements makes it difficult to identifyhow findings may be integrated and assimilated; how they refute, complement or extendexisting theory; and how our knowledge of control in a context of organisational changehas advanced in a gradual progression with one study building on another. The need toview control as a package rather than isolated (formal) procedures, or as informalpractices, provides the overall motivation for this study, the central aim of which is toexplore the respective roles played by formal MCS and informal control in managingorganisational change. In so doing, it contributes to management control theory andpractice by providing much needed empirical evidence about the ways in whichmanagement control acts as a package, and in particular, in offering insights concerningthe relative importance of the components of a management control package in light oforganisational change.

To achieve this study’s aims, our investigation draws on interview and archival datafrom an Australian renewable energy company that faces changes in its operatingenvironment arising from the introduction of the Australian Federal Government’sClean Energy Act (2011), widely referred to as the “carbon tax”. A form of carbonpricing, the carbon tax is one of many potential public policy directions thatgovernments can impose in their efforts to reduce greenhouse gas emissions, caused bythe combustion of fossil fuels. At a macro-economic level, the introduction of the carbontax has been argued to represent one of the most significant structural economic reformsin Australia’s history (Tang and Luo, 2011); at an organisational level, it brings a needfor an increased attention on issues pertaining to compliance requirements andenvironmental liability in affected firms (Blacconiere and Northcut, 1997). Thus, thecarbon tax represents not only a potentially appreciable organisational change, but alsopossesses very real control ramifications in organisations participating in energymarkets. The current study explores the control practices of one organisation operatingin this market, and how these practices influence and are influenced by the change it hadexperienced as a consequence of the introduction of the carbon tax. As a consequence,the current study also responds to the call for research “to explore and gain insights intothe adequacy the role and functioning of accounting in the environmental andsustainability spheres” (Hopwood, 2009, p. 439), adding to the inventory of literature onthis topic as it engages in contexts of control and organisational change (Contrafatto andBurns, 2013).

To examine the nature of the change, and its repercussions, we utilise Laughlin’s(1991) model of organisational change to provide a means by which the nature andprocesses of any given organisational change may be conceptualised and, to an extent,

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diagnosed. Within this change context, control is examined through the use of Simons’(1995) levers of control (LOC) framework, as well as studies in the management controlliterature that have directed their attention, theoretically and empirically, to the role,form and nature of informal control (Berry et al., 2009; Chenhall, 2003; Langfield-Smith,1997; Malmi and Brown, 2008; Otley et al., 1995).

The remainder of this paper is structured as follows. The second section provides areview of the relevant management control literature around control packages, as wellas a summary of relevant prior literature that has considered the relationship betweenmanagement control and organisational change. Following this, an explanation of thedata collection and analysis procedures is provided to explain how the study wasconducted, and how the research was approached. Next, the case study organisation andthe participants involved, as well as an explanation of the organisational change isoutlined, followed by a presentation and discussion of the case findings. The finalsection presents the conclusions and limitations of the study, and suggests directions forfurther research.

2. Relevant prior literature2.1 Management control as a packageA common theme underlying reviews of the control literature published over the pasttwo decades (Otley et al., 1995; Langfield-Smith, 1997, 2005, 2007; Chenhall, 2003;Merchant and Otley, 2007; Berry et al., 2009) points to the need for control research toembrace a more holistic perspective incorporating both formal MCS as well as informalcontrol processes, collectively operating as a “package” (Otley, 1980, 1999). As Chenhallet al. (2010), observe, the essential difference between formal MCS and informal controlsis that the former are deliberately articulated controls, whereas the latter arecharacterised by less well-defined practices, social relationships, links or looseconnections between individuals that facilitate free-flowing open and flexiblecommunication and structures and decision processes.

The idea that formal MCS and informal control can and do work in tandemrecognises that control mechanisms may be formal, informal or a mixture of both (Otley,1980; Falkenberg and Herremans, 1995), and that different formal and informal controlconfigurations may be used simultaneously within an organisation, in differentcombinations, at different times and to different extents (Ferreira and Otley, 2009). Suchmultiple means of control may not only complement each other but also act assubstitutes (Abernethy and Chua, 1996), or potentially in opposition (Chenhall et al.,2010). Moreover, it has been argued that equal control of activities can be achieved eitherby informal control practices (Huikku, 2007) or by different formal control systemconfigurations (Gerdin, 2005). Together, these formal MCS and informal controlsrepresent the complete set of control practices in place, collectively reflecting theorganisation’s overall control environment. Just as firms do not rely on singular formalcontrol systems, but rather rely on a compendium of formal controls (Widener, 2014),managers can and do exercise control through reference to a broad framework ofcontrol, comprising formal procedures, and informal processes based on hierarchicaland horizontal social interaction (Frow et al., 2005).

It is fairly well-established that formal MCS and informal controls are likely tocombine with each other, and that their interactions affect organisational outcomes(Abernethy and Brownell, 1999). It is, however, often difficult to separate the influence of

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formal MCS and informal controls. Indeed, although formal MCS both shape and areshaped by informal controls (Burns and Scapens, 2000), the notion of a control packageacknowledges that formal and informal controls often work loosely together withoutmanagement being necessarily fully aware of their combined effect (Pfister, 2014).Moreover, as Linsley and Linsley (2014) argue, the relationship between both the designand use of formal accounting-based controls will also be impacted by the strength of theinformal dynamics and processes prevailing within the organisation. Thus, in viewingcontrol as a package, the relationship between formal MCS and informal control may beseen to be symbiotic and often entangled (Frow et al., 2005).

Although extricating the relative influence of formal and informal control can beproblematic for researchers (Nixon and Burns, 2005), the potential risks of controlstudies that do not acknowledge or incorporate the effects of both formal and informalcontrol have been well-documented. Focusing exclusively on formal controls could leadto an under-specification of an organisation’s control system (Otley, 1980), a pointsubsequently reinforced by Chenhall (2003, p. 131):

A difficulty in studying specific elements of MCS in isolation from other organisationalcontrols is the potential for serious model under-specification. Thus, if specific controls aresystematically linked with other organisational controls, studies that exclude or do not controlfor these elements within the research method may report spurious findings.

Such under-specification makes it difficult to identify how findings are linked and howthe studies refute, complement or extend existing theory. Moreover, studies which fail toincorporate the links between various MCS and informal control processes implicitlyassume that management control practices can be examined independently (Grabnerand Moers, 2013). Such a reductionist approach is likely to lead to erroneous conclusions(Fisher, 1995).

However, in spite of these cautions and their implications for management controlresearch, the ways in which control operates as a package is a topic that remainsempirically underexplored. As Malmi and Brown (2008, p. 287) observe:

[…] the idea of management control systems (MCS) operating as a package has existed for over30 years […]. Despite this there has been little explicit theorising or empirical research on thetopic.

2.2 Management control and organisational changeThe ways in which control may facilitate or impede organisational change processesunder conditions of change has been the topic of some empirical consideration, with anumber of studies providing useful insights into the ways in which management controlis implicated in various organisational change settings. These setting include, forexample:

• strategic change (Abernethy and Brownell, 1999);• mergers and restructures (Kober et al., 2003, 2007);• environmental uncertainty (Parker, 2001, 2002);• financial pressures (Norris and O’Dwyer, 2004);• increasing competitive environments (Baines and Langfield-Smith, 2003);• commercialisation (Tyrrall and Parker, 2005);

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• entrepreneurial environments (Collier, 2005);• start-up firms (Strauss et al., 2013);• public sector reform (Batac and Carassus, 2009); and• lean manufacturing environments (Fullerton et al., 2013).

In addition to research that has examined organisational change in terms of formal MCS,some studies, albeit to a lesser extent, have investigated the ways in which informalcontrol processes are embedded in the change process (Tyrrall and Parker, 2005; Batacand Carassus, 2009; Parker, 2001, 2002; Collier, 2005). Nevertheless, despite thecontention that control is designed to ensure that organisations adapt to changes in theirenvironment (Lowe, 1971), rarely has the “package” of both formal MCS and informalcontrol, and its influence on organisational change been overtly investigated within thesame study. Although some studies have noted the inter-relationship between formalMCS and informal control in managing and responding to organisational change(Parker, 2001, 2002; Kober et al., 2003, 2007; Norris and O’Dwyer, 2004), the gap in ourknowledge of how organisational change may be assisted or hindered by the formal andinformal components comprising a control package remains an under-researched area(Baines and Langfield-Smith, 2003; Collier, 2005). It is towards informing this gap thatthis research seeks to contribute.

3. Conceptual frameworks3.1 Management controlThe LOC framework (Simons, 1995), has provided a rich description of and considerableinsights into the use of control in a variety of diverse settings and contexts[1]. Predicatedon the argument that it is not the design, configuration or mix of controls available toorganisations that are important, but how those particular controls are used, the LOCframework argues that management control could be understood as a combination offour control systems or “levers of control”: beliefs systems, boundary systems,diagnostic control systems (DCS) and interactive control systems (ICS) thatsimultaneously operate both individually and interactively, but for different purposeswithin organisations. Beliefs systems are used to enhance core values related tobusiness strategy and to inspire the search for new opportunities in line with thesevalues. Boundary systems reduce risks by setting limits to strategically undesirablebehaviours. DCS communicate and monitor critical success factors. ICS are used toidentify strategic uncertainties and develop strategic responses to a changingenvironment.

The LOC framework, however, describes “the formal, information-based routinesand procedures managers use to maintain or alter patterns in organisational activities”(Simons, 1995, p. 5, italics added). Simons states that the role played by informal controlmechanisms are, “[…] excluded from this analysis” (Simons, 1987, p. 358), yet it has longbeen recognised in the management control literature that formal MCS are only part ofa broader set of organisational controls (Abernethy and Chua, 1996; Marginson, 1999;Collier, 2005; Merchant and Van der Stede, 2006).

The combination of formal with informal controls has been identified as central tounderstanding how management control operates to achieve desired organisationaloutcomes (Chenhall and Morris, 1995; Simons, 1995; Ahrens and Chapman, 2004; Henri,2006; Widener, 2007), and consistent with the notion of management control operating

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as a package, the effectiveness of formal controls may be dependent on the extent andeffectiveness of informal controls that are also in place (Otley, 1980; Flamholtz, 1983;Langfield-Smith, 2007), making the inclusion of informal control an intrinsic componentof management control investigation.

Integrating the concept of informal control within empirical control research,however, is somewhat problematic due to the diffuse and inherently nebulous nature ofsuch means of control. Unlike formal MCS, an accepted, established and definitiveunderstanding of informal control is surprisingly absent in the management controlliterature, and operationalising this form of control remains a challenge. Insofar as thecurrent study is concerned, we use a provisional definition of informal control as:

The non-formalised information-based routines, procedures and practices that collectivelygenerate and transmit information through vertical and lateral interpersonal relationshipsprevailing within an organisation, to influence, maintain, or alter patterns in organisationalactivities (Tucker, 2011, p. 10).

Tucker does not purport to provide a conclusive understanding of informal control.Rather, his portrayal of this construct is based on a number of the common attributesthat have been used to describe this form of controls in previous empirical andtheoretical investigations (Berry et al., 2009; Chenhall, 2003; Langfield-Smith, 1997;Malmi and Brown, 2008; Otley et al., 1995). With its emphasis on non-formalisation andinterpersonal relationships, without inference as to why such practices may bepreferred, and obvious attempt to build on and extend Simons’ definition of formal MCS,it provides, for the purposes of this study, a “working understanding” of how informalcontrol may be conceptualised.

3.2 Organisational changeThe area of organisational change has been extensively researched in the academicliterature. With in excess of 109,300 Google Scholar citations on the subject (based on thesearch terms, “organisational change” and “accounting” and “organisational change”and accounting”), a comprehensive review of this literature is far beyond the scope ofthis investigation. Although considerable accounting research has engaged with theorganisational change literature in seeking to understand how accounting mayinfluence, and be influenced by various aspects of organisational change within avariety of contexts, and from diverse methodological perspectives (Abernethy andBrownell, 1999; Burns and Scapens, 2000; Burns and Vaivio, 2001; Baines andLangfield-Smith, 2003; Broadbent and Laughlin, 2005; Chenhall and Euske, 2007), adetailed appraisal of such research is not necessarily relevant for the purposes of thecurrent study. As our primary concern in this enquiry relates to the response to change,a framework that permits the conceptualisation of the nature and extent oforganisational change, and the pathway invoked by this change, in a relativelyunrestricted way, is of foremost priority.

One perspective that has been frequently used to provide coherent insights into notonly the change process, but also its likely ramifications for control is Laughlin’s (1991)model of organisational change. Laughlin’s conceptual approach is premised on thenotion that understanding organisational change can be achieved by tracing theprocess, track or pathway that a change takes through an organisation. Laughlinclassifies organisational responses to change (or disturbances), as either first order, orsecond order, where each change type has various implications on an organisation’s

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interpretive schemes, design archetypes and sub-systems, which in turn explains theextent of the change facing the organisation:

Interpretive schemes operate as shared fundamental (though often implicit) assumptionsabout why events happen as they do and how people are to act in different situations […]sub-systems are tangible elements such as buildings, behaviours, machines, persons, etc. Thedesign archetypes (intangible structures, information systems, etc.) guide and providecoherence to the organisation through a series of underlying values that make up theinterpretive schemes (metaphors, beliefs, values, rules, mission statements) which operate asshared fundamental assumptions about the functioning of the other elements of theorganisation (Laughlin, 1991, pp. 211-212).

The relationship between interpretive schemes, design archetypes and sub-systems isdepicted in Figure 1.

An organisation’s interpretive schemes, design archetype and sub-systems are atany point in time at some sort of equilibrium, and “it is only an environmentaldisturbance which will shift the inert characteristics of the organisation” (Laughlin,1991, p. 213). That is, organisations have a tendency to maintain their existing controlsystems and processes, unless compelled to change that state by exogenous eventsimpressed on them (Tucker, 2013).

First-order changes are caused by disturbances that may “involve shifts in thesub-systems’ elements and changes in the design archetype” (Laughlin, 1991, p. 214);

Figure 1.The relationshipbetween interpretiveschemes, designarchetypes andsub-systems

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however, they do not affect interpretive schemes[2]. In contrast, disturbances of a secondorder involve shifts in both the subsystems elements, as well as changes to both thedesign archetype and interpretive schemes. As suggested by Laughlin (1991), the neteffect of such changes to the organisational inertia may be manifested in one of fouralternative paths: “rebuttal”, “reorientation” (first-order or morphostatic changes),“colonisation” or “evolution” (second-order or morphogenetic changes). Thecharacteristics of morphostatic and morphogenetic change as described by Laughlin arepresented in Table I.

Laughlin’s models of change have been applied in a number of empiricalinvestigations (Broadbent, 1992; Slack and Hinings, 1994; Gray et al., 1995; Kikulis et al.,1995; Richardson et al., 1996; Larrinaga-Gonzalez et al., 2001; Mir and Rahaman, 2007;Tyrrall and Parker, 2005; Fraser, 2012; Contrafatto and Burns, 2013). Common to each ofthese studies is the use of Laughlin’s framework to conceptualise how an organisation’scontrol practices and procedures respond to change. In view of its emphasis on theramifications of change, rather than the nature of the change itself, Laughlin’sframework is adopted in this study as a means by which organisational change, or morecorrectly, the effects of organisational change, may be meaningfully understood.

Although Simons’ (1995) LOC framework and Laughlin’s (1991) framework oforganisational responses to change derive from quite different methodologicalpositions, our decision to use these particular standpoints is based on the argument thatthe principal phenomena of interest (organisational change and management control), inthe context of the current study, represent quite different objects of inquiry. On the onehand, our investigation of organisational change seeks to identify what has occurredwithin the organisation. On the other hand, our examination of management control isintend to unpack how formal and informal components of the management controlpackage have been enacted in response to the organisational change. The phenomenaare independent at the conceptual level, thereby requiring their depiction, analysis and

Table I.Alternate responses

to organisationalchange

Type of organisational change Characteristics of the change response

First orderRebuttal The change cannot be rebutted

Involves minor changes, primarily in the design archetypesChange may revert once the disturbance has been rebutted

Reorientation Affect both the design archetype and sub-systemsThe change has to be accepted and internalised into the workingsof the organisation, but in such a way that the real heart of theorganisation is basically unaffected

Second orderColonisation Change initially leads to change in design archetype, then to both

the subsystems and interpretive schemesForms a new underlying ethos for the organisation as a whole

Evolution Involves major shifts in the interpretive schemes, but assumesthat it is chosen and accepted by all the organisationalparticipants freely and without coercion

Source: Adapted from Laughlin (1991)

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interpretation in fundamentally different ways (Covaleski et al., 1996). Far from anattempt to “mix oil and water”, methodological pluralism is applied in the current studyin a spirit of combining different research traditions in ways that bypassepistemological and ontological positions (Malina et al., 2011) in favour of painting acredible, trustworthy picture of events or phenomena (Hoque et al., 2013) occurring orwitnessed in a particular context (De Loo and Lowe, 2012).

4. Study design and methodsA case study method was used in this study because of its propensity to provide the richunderstanding and contextually informed view of the processes and relationshipsimplicit in both organisational change and the control implications of such change(Ahrens and Chapman, 2007; Malmi and Brown, 2008; Otley, 1999).

4.1 Research site and contextThe organisation selected for this study, Enviros[3], is one of Australia’s leading carbonabatement and renewable energy companies. Enviros is a privately owned and operatedorganisation. Its primary purpose is the capture and extraction of landfill gas fromwaste management facilities across Australia, utilising this gas to generate and exportelectricity to the national grid. In the year 2000, Holding Corp Ltd[4] became a majorshareholder of Enviros. At the time of the study, Enviros employed over 100 employeesacross all states in Australia.

4.2 The nature of the exogenous change impacting upon EnvirosThe emergence of global warming and carbon emissions as a topic of public debate hasput social and environmental accountability research in the international spotlight, andbegun to attract the attention of an increasing number of researchers, journals andfunding bodies (Schaltegger and Burritt, 2010). However, in addition to its relativelyrecent status as an area of accounting research interest, environmental sustainability,and in particular, the corporate role in greenhouse gas emissions, has become a priorityfor policymakers around the world, including Australia. The importance afforded to thisconcern has been the development of numerous strategies to reduce national carbonfootprints assuming prominence in the Australian public policy debate (Akter andBennett, 2011), in an effort to mitigate the purported effects of climate change.

The carbon tax was an emissions trading scheme that put a price on Australia’scarbon pollution, requiring organisations to pay pre-set price per ton on carbonemissions that exceeded a certain threshold. Prior to the introduction of the carbon tax,Enviros created its carbon credits under the New South Wales Greenhouse GasAbatement Scheme (NSW GGAS), which was introduced on the 1st of January, 2003.Under this scheme, the NSW state government issued New South Wales GreenhouseGas Abatement Certificates (NGAC) and Greenhouse-Friendly (GHF) credits, whichwere types of carbon credit that could be on-sold to organisations that had exceededtheir carbon emission thresholds. When the Australian Government passed the CarbonFarming Initiative (CFI) in August 2011, the NGAC and GHF credits were no longervalid or necessary, as the CFI provided brought with it its own carbon credit, theAustralian Carbon Credit Unit (ACCU).

Although the carbon tax and the CFI were two separate schemes, when the carbontax was implemented, it created an increased market for the trading of carbon credits,and the credits that Enviros now earned were the ACCUs. Enviros created carbon

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credits by converting methane gas from landfills into a renewable energy source, andaccordingly, were eligible to receive ACCUs for their operations. To avoid unduetaxation, organisations could purchase the carbon credits from Enviros, or employ themto construct a renewable energy facility to convert gases on site.

As seen in the timeline of Australia’s carbon pricing history presented in Figure 2, thelegislative developments and successive policy amendments have provided challengesfor organisations such as Enviros that operate under a business model thatis necessarily policy-sensitive. This variable policy environment has, in turn, seenEnviros subject to appreciable organisational change, particularly in terms of thecontrols necessary to ensure compliance with government policy and legislativerequirements. The introduction of the carbon tax had the potential to cause a significantdisruption – in Laughlin’s terms, a disturbance, kick or jolt to Enviros’ establishedbusiness and control practices. The ramifications of these changes and the ways inwhich Enviros’ formal MCS and informal control processes were implicated in theirmanagement form the basis of the current investigation.

4.3 Data sourcesData were collected from both primary sources, in the form of semi-structuredinterviews, and secondary sources, through a review of archival documentation. Thestudy commenced with a review of archival materials, including:

• a Strategic Growth Options Paper;• the organisation’s Financial Framework Management Strategy;• government policy statements;• sustainability reports;• company newsletters;• website pages; and• articles.

Australia ratifies the Kyoto Protocol

(International agreement on

climate change)

New South Wales Greenhouse Gas

Abatement Scheme introduced.

This was the world’s first mandatory emission

management scheme.

Organizational change period

January 1st2003 23rd August, 2011 July 1st 2012

NSW GGAS ended, Carbon Tax Begins.

State based scheme replaced by Australia’s first national carbon

pricing scheme, the Clean Energy Act 2011 (the Carbon Tax).

Carbon Farming Initiative (CFI) Introduced.

Australian Labour government introduced CFI to create

carbon credits from landfill based and waste industry

actions that reduce emissions

December 2007 17th July 2014

Carbon Tax Repealed

Nov 13 2013

Prime Minister Abbott introduces legislation into

Federal Parliament to repeal the carbon tax

Figure 2.Carbon policy in

Australia – a timelineof major events

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An assessment of the annual reports of Holding Corp Ltd (the major single owner) for thefinancial years ending 30/6/2012 and 30/6/2013 also formed part of the archival review,providing an initial understanding of how Enviros was affected by the change ingovernment policy. A summary of the archival data used can be found in Appendix 1.

In the interviews, a semi-structured interview format was used which was organisedaround specific themes, but which permitted the interviewer the freedom to follow therespondent’s train of thought and to explore tangential areas that might arise in thediscussions (Kvale and Brinkmann, 2009; Rubin and Rubin, 2012). Follow-up and probequestions were used when we felt the need for clarification, examples, further detail orelaborations of interviewees’ initial responses (Bailey, 2007). Rich additionalinformation and understandings were gleaned from following up the interviewees’course of conversation with such qualitative interview probe questions (Ling andHorrocks, 2010). The broad purpose of the interviews was to gain insights into how theintroduction of the carbon tax affected Enviros, and the control procedures used tomanage the change resulting from this legislation. Participants selected for interviewsranged from senior executives to operational employees. The length of employment ofinterviewees ranged from 2 years to 18 years, and framing of the questions took intoaccount the expected knowledge and experience of individual respondents. A copy ofthe interview guide used is presented in Appendix 2.

Having developed in conjunction with the commercial manager, a list of employeesmost qualified to discuss the control procedures in response to the policy andoperational changes as a result of the carbon tax, employees were emailed with aninvitation to participate in the study, and to follow-up by phone if required. In total, 15interviews were conducted. Interviews were recorded and transcribed in full within twodays of the interview. The duration of interviews, ranged from 23 to 42 minutes, with anaverage of 34 minutes. Information about interviewees, including their position title,duration of interview and length of time in current position, is included in Appendix 3.

4.4 Data analysisIn common with other forms of data analyses, the process we used involved datareduction or summarisation, classification and interpretation. The interview data wereanalysed with the aid of the software package, NVivo7. This enabled a meaningful andsystematic identification of patterns in the data (Bisbe et al., 2007) and the rapid retrievalof specific quotes based on various search criteria (Lillis and Mundy, 2005), and helpedto prevent the selective choice of data in developing the study’s findings (Abernethy andBrownell, 1999). The coding of transcripts was undertaken by the researchers to ensureconsistency and uniformity in interpretation of the transcripts. Several checks were putin place to promote research trustworthiness, namely, those to establish “credibility”,“confirmability” and “dependability” (Lincoln and Guba, 1985). Credibility waspromoted through peer debriefing, where the researchers discussed the coding processin an effort to understand the significance of the themes and patterns emerging from theinterviews. The transcripts with their coded results were returned to the intervieweesfor checking and verification, so as to ensure confirmability of the data (Lincoln andGuba, 1985). Dependability was fostered by the verbatim transcription of interviews,and the maintenance of adequate records of contacts, interview dates, times and venues(Gelman and Basbøll, 2014).

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5. FindingsThis section presents the evidence from the interviews, following the two broad themespursued in this investigation, namely, the nature and extent of the organisationalchange experienced by Enviros as a result of the introduction of the carbon tax, and theways in which Enviros’ control processes responded to this change.

5.1 The nature and extent of the organisational changeThe overall disruption to Enviros as a consequence of the introduction of the carbon taxon Enviros’ operations overall was perceived by all interviewees to be relativelyminimal:

We had organisational change forced upon us because of the carbon tax. The core businessactivity of Enviros has not really changed; Enviros is still aiming to be Australia’s leadingrenewable energy company (Commercial Manager).

Nevertheless, some parts of the company were significantly affected by the introductionof this legislation:

I’d say the majority of the people in the company haven’t been affected at all as they are busydoing day-to-day work, but as far as a corporate side that (the Commercial Manager) and I lookafter, the effects that have been huge (CFO).

The introduction of the carbon tax meant that organisations would have to either reducetheir total emissions, or purchase carbon offset units from renewable energy companiessuch as Enviros to avoid taxes levied under the act. These organisations could alsoemploy renewable energy companies to design and install a waste management facilityat their production site to reduce their greenhouse gas emissions, thereby providingcompanies such as Enviros with opportunities to provide additional services to theirexisting customers, and to (potentially) expand their existing customer base. AlthoughEnviros’ customer base was not anticipated to change appreciably, it was envisagedthat current customers would now be more inclined to purchase carbon credits fromEnviros to avoid the imposition of a carbon tax:

The commodities we produced did change; we no longer created NGACs or GreenhouseFriendly carbon credits, but now created Australian Carbon Credit Units (ACCUs) under theCarbon Farming Initiative (CFI) which we were able to sell to liable entities under the carbontax (Commercial Manager).

The creation of ACCU certificates certainly had positive outcomes for Enviros, byproviding them with an expanded revenue base generated through the trading of carboncredits:

Obviously it’s a positive thing for Enviros (the introduction of the CFI and carbon tax), it’s apart of our generation of carbon credits that we can sell on the market to other entities that havea carbon liability (Management Accountant).

In addition to these financial benefits, another consequence of the introduction of thecarbon tax was that of a minor organisational re-structuring accompanied by amodification of the duties and responsibilities of some staff. Enviros’ Chief GenerationsOfficer explained the role of these new organisational arrangements:

We do have a lot of things put in place over the last couple of years that we didn’t have inregard to being able to monitor these things […] we’ve put some things in place in the last

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couple years because of the carbon tax, to ensure we are compliant across the whole company(Chief Generations Officer).

Unsurprisingly, the introduction of the carbon tax did invoke feelings of uncertaintyamong some employees:

Definitely there was a bit of stress – there’s always going to be a bit of strain and apprehensionsurrounding changes. So I guess in that way it would have strained relationships a bit moreand made people more anxious in general (Chief Financial Officer).

In response, management endeavoured to ensure that employees were well-informedabout how the change would affect them, and to allay fears about future operations anddirections of the company:

I think there was a phase where people were worried about their jobs, and as senior managerswe actually made a very focused effort to get around to all the individual groups to talk aboutwhat was happening (Commercial Manager).

Efforts undertaken by management included formal measures, primarily throughseminars and workshops, and the publication of a weekly electronic update to allemployees on the carbon tax and the initiatives planned by Enviros in response. Theseformal efforts, however, were also supplemented by more informal means:

We made a point of chatting to people informally and keeping them up to speed about whatwas happening and what we were doing about it (Communications and HR coordinator).

In summary then, the introduction of the carbon tax, although not significantly alteringthe nature of Enviros’ business, did involve changes to Enviros primarily in relation tothe market opportunities and expanded opportunities for revenue growth. Envirosmanagement also recognised a need to manage apprehension and concern of staffarising through the organisational restructuring and communication program thatoccurred as a direct response to the change. These efforts in effect preserved theinterpretive schemes within those parts of the organisation most affected by theintroduction of the carbon tax, and had the effect of ensuring that the ramifications ofthe disturbance were restricted to changes to the design archetypes. The changes alsohad definite control implications in the organisation, and it is towards a deeperconsideration of the ways in which Enviros’ formal and informal controls responded tothese changes that our attention now turns.

5.2 The role of formal MCS in responding to the changeThe different ways in which diagnostic, beliefs, boundary and interactive systems wereimplicated in the change process at Enviros are described as follows.

5.2.1 Diagnostic control systems. The diagnostic use of control was central inEnviros’ efforts to ensure compliance with the regulatory requirements of the carbon taxlegislation:

There are a lot of external controls that are put on us through the audit process andmethodologies and the ways we must do things. […] there are two different sides to the coinhere – our own controls versus controls that are imposed upon us externally as well (CFO).

Under the CFI, Enviros had to alter a number of its projects to be able to create ACCUs,as distinct from the carbon credits required under the previous legislation. Thistransition was expensive and time-consuming. It involved changing data collection

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processes, meeting new compliance criteria and modifying operational functions (suchas certifying the calibration and metering of componentry more regularly). Importantly,the introduction of the carbon tax brought with it, an obligation under the act forincreased auditing of Enviros’ operations by external auditors:

Under the previous scheme we still had audits, but the requirements of the carbon taxlegislation were a lot more stringent. The audit requirements are now a lot higher and theyhappen every time we claim ACCUs (Commercial Manager).

As part of the compliance process, all spreadsheets which determined the number ofACCUs to be created at each site had to be recreated to comply with the new rules andregulations of the CFI. This process was described as “very intense” (Communicationsand HR Manager), involving several complex formulas which took considerable time todevelop:

The spreadsheets are quite complicated, with lots of formulas used to determine the number ofACCUs to be created for each site. These spreadsheets will need to be replaced/changed whenthe Emissions Reduction Fund is implemented. Hence, there is a lot of detailed work involved[…] (Communications and HR Manager).

Prior to external auditing, these changes and the reports and audit trail generated werediscussed between the managers responsible for these particular areas (Gas Manager,Engineering General Manager, Construction Manager, Operations General Managerand the CFO) to understand variances, and ensure the accuracy of the reports generated.The focus on monitoring and correcting deviations from pre-set standards ofperformance represents a traditional role of MCS used in a diagnostic fashion; however,the expanded reliable revenue source and a greater market for the trading of carboncredits through the creation of ACCU certificates also necessitated the use of control ina diagnostic manner:

It has been financially very positive and beneficial to us, because we were selling NGACs fromanywhere from $5-$15, and suddenly we’re getting $23 for the ACCUs (Corporate Counsel andCompany Secretary).

Despite the changes introduced in response to the new legislation, the staff interviewedgenerally believed that the transition and associated changes to the diagnostic role ofMCS was a relatively easy and undisruptive one, due to the fact that Enviros wasalready in the carbon market, and the perception that the current budgeting andforecasting procedure was fairly robust and thorough:

Fundamentally, everything we already had in place, so we could address procedurally whatwas required. That was certainly a distinct strategy; we didn’t want to change what we did –what this new scheme needed was to as much as possible fit how we already did business(Environmental and Compliance Officer).

5.2.2 Boundary systems. The effect of boundary systems augmented that of thefeedback information flows that were facilitated by the diagnostic use of control. Oneparticularly evident boundary control frequently conveyed in the interviews as a“nonnegotiable” related to how the organisation traded ACCUs. Enviros employeessigning the contract for the sale of ACCU were expressly prevented to transfer thecredits. The transfer of credits was the responsibility of the Commercial Manager, and

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this separation of duties was designed to prevent potential fraudulence, and also actedas a means of validation:

When we trade ACCUs, I will sign the contract but I will not transfer the credits. There isalways that separation otherwise it gets very easy for fraud to occur (Commercial Manager).

A second boundary control resulted from the fact that the ACCUs created were nowdeemed a financial instrument. Because Enviros was now eligible to participate in thetrading of ACCUs, they had to obtain an Australian Financial Services License, andcomply with the Anti-Money Laundering and Counter-Terrorism Financing Act (2006):

The carbon credits actually became a financial product, which was then regulated - so youneed an Australian Financial Services License to be able to trade them, talk about them, andgive advice on them. We had to make sure that employees had that proper training (BusinessDevelopment Manager).

Consequently, to demonstrate compliance with the Act, Enviros was particularly carefulto ensure that only those individuals who had received this training were permitted todiscuss the trading of ACCUs with actual or potential customers. In so doing, theorganisation sought to minimise, if not entirely avoid, exposure to legal risks in this areaof the business. Noticeably, apart from these two instances, there was little evidence ofboundary control designed to constrain or limit behaviour of employees specifically inrelation to the introduction of the carbon tax.

5.2.3 Interactive control systems. Over the change period, the CEO made numerousvisits to managers and employees across the company in various states, to discuss theimplications of the carbon tax for the business. The primary purpose of these visits wasto resolve anxiety in employees who were uncertain about what it meant for thedirection of the company in light of the introduction of the carbon tax, and theconsiderable political debate on this issue and resultant media attention it had attractedin Australia:

The CEO and our lawyer went and spoke to all the groups to explain what had happened andthat jobs were quite secure (Financial Controller).

In addition to providing a mechanism to allay the fears and concerns of employees, thesevisits represented a vehicle for the exchange of information concerning theopportunities and threats encountering the organisation in positioning itself to respondto the new legislation.

The budgeting process also acted in an interactive fashion. In addition to thetraditional and diagnostic-oriented exception reporting through discussions ofvariances, the budgeting of revenues associated with ACCUs involved a continualexchange between the senior management team and lower levels of management, aswell as interactions within various levels of management across functions:

We budget every year and then there’s also a forecast that goes out as well. The whole financegroup get involved and drive the process, but there are also a lot of regular team meetings withregard to that too (Commercial Manager).

This interaction involved not only participation between subordinates and superiors inthe budget setting process, but also an ongoing dialogue between organisationalmembers across hierarchical levels, as to why budget variances occurred, how thesystem could be adapted and whether any action might be taken in response to these

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variances. It is this on-going dialogue that differentiated the interactive from thediagnostic use of budgets. More than a performance report or forecast, the budgetingsystem became a means to facilitate a means by which the organisation was able toadapt and re-engineer their processes in response to the change in their operatingenvironment, and in so doing, provided a vehicle for organisational learning, integral tothe interactive use of MCS (Kloot, 1997).

5.2.4 Beliefs systems. Of all the formal control mechanisms in place at Enviros, thebeliefs system was most prominent in facilitating the organisation’s response to changeresulting from the introduction of the carbon tax.

The formal manifestations of Enviros’ corporate values, purpose and direction wereembodied in and brought to the attention of managers and employees in two ways. First,Enviros’ senior management group developed a document, The Three Pillarsframework, which articulated the company’s overall vision, values and strategy theyseek to uphold.

The Three Pillars framework, as mentioned below, which is available to allemployees via the Company website, underpinned an overarching belief system thatrepresents the core values of Enviros, designed to influence the behaviour ofemployees:

(1) Vision: Enhance and grow a world-class renewable energy company. Our visionis unchanging. We aspire to be the best.

(2) Values: Maintain a culture promoting safety, integrity, fairness and trust. Ourshared values are timeless. These are the core principles distinguishing ourculture.

(3) Strategy: Focus on people, continuous improvement and excellence. Ourstrategy is progressive. We are performance-driven to achieve sustainablesuccess (Source: Enviros company website).

One interviewee explained the considerable significance of these core values in guidingthe change agenda:

We have our vision, values and strategy that pretty much guide employees and signal wherewe are going, what we value, and what we strive to achieve (Communications and HRCoordinator).

The core values as articulated in the Three Pillars framework were reinforced in theorganisation’s Financial Management Framework Strategy document (see below),which outlined the responsibilities and expectations underlying the organisation’sapproach to formal control.

An important part of financial control requires managers to take both financial andnon-financial responsibility for the performance of the areas for which they areaccountable.

To successfully facilitate, this there must be:• a culture of ownership of the corporate performance;• a supportive reporting framework and system which provides managers with the

information they require to enable them to monitor their business unitperformance and report against; and

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• a structure/process whereby managers are held accountable for the performanceof their areas and are required to regularly report performance against abenchmark, i.e. budget/forecast, business plan, strategic proposal, etc.

As with the Three Pillars Framework, the Financial Management Framework Strategyconstitutes a type of beliefs systems insofar as it expresses, in a formal fashion, theorganisation’s core values, broad purposes and strategic directions that seniormanagement seeks to communicate formally and reinforce to organisational members.

As they are typically, and quite deliberately articulated in broad, value-laden terms,beliefs systems may arguably be criticised as representing little more than “motherhoodstatements” or tokenistic platitudes. If, metaphorically speaking, “the proof of thepudding is in the eating”, then the formal communication of core beliefs of fundamentalimportance to the organisation is important only insofar as it is acted upon. Thesignificance of the beliefs system can be evaluated in terms of not only how it served toreinforce the organisation’s basic values and direction in general, but also its influence inguiding the organisation’s response to the introduction of the carbon tax. This influencewas most overtly seen in the informal control processes evident at Enviros, and it istowards an account of how this form of control operated that our attention now turns.

5.3 The role of informal control in responding to the changeDespite the above evidence illustrating the roles of formal MCS, it was the informalcontrol processes at Enviros that were most influential in responding to the changeassociated with the introduction of the carbon tax. The designation of “informal control”included informal meetings between managers and between employees and managers,open channels of communication, ease of informal access to the senior managementgroup, consensus and participative decision-making, tolerance of mistakes andconsequent learning and sharing of lessons about preparing for and positioning theorganisation to respond to the introduction of the carbon tax. These practices, not basedon formal procedures, are more aptly described as informal processes. Consistent withTucker’s (2011) arguments, they represent non-formalised, information-based routines,procedures and practices, and collectively generate and transmit information throughvertical and lateral interpersonal relationships prevailing within the organisation. Asshown above, a number of, what we have labelled, informal practices were raisedrepeatedly in the interviews as means by which employees were able to, in the words ofthe Commercial Manager, “manage beyond the formal controls to get things done”(Figure 3).

Clearly, a simple count of the number of times particular descriptor terms are raisedin interviews does not provide compelling evidence of the presence or absence of aparticular phenomenon. However, these terms do reflect a general theme that ranthroughout our discussions; the pre-eminence of informal means of control in the overallcontrol package of the organisation. To contextually situate this general theme, werecount the voices of interviewees in relation to these aspects of informal control.

Informal meetings were commonplace, particularly as they related to resolving orclarifying issues surrounding Enviros’ strategy in responding to the carbon taxlegislation:

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Problems that arise are usually solved pretty quickly from informal discussions. […] 99 percent of the time problems are solved pretty quickly and easily (Business DevelopmentManager).

Such informal meetings occurred between employees at the same level, but also betweenlevels, and did not necessarily follow the reporting relationships shown on the officialorganisational chart:

Down through the senior manager level, all managers are very good at effective listening. It’sa consultative decision-making process; there is no real structure to it, it’s just constantinteraction and communication, and it’s on a very personal basis. It’s not authoritarian, it’svery collaborative and I think that works well (Engineering General Manager).

The common practice of “internal networking” (Chief Project Officer) reflected the openchannels of communication prevalent within the organisation:

There is that interaction where you get senior management that will quite happily talk andliaise with people all throughout the business on a very informal level. Doors are always open(Engineering General Manager).

The emphasis placed on collaboration and a team approach to problem-solving wasinstrumental in fostering such informal communication:

We like to have management involvement and have people feeling free to talk to managementwith a lot of dialogue between and a lot of talking. […] we’re not sitting in some ivory tower(CFO).

The downside of such informal approaches to problem-solving, however, was alsorecognised:

We’ve got a saying that as senior managers if someone is acting in the best interest of theCompany and they make a mistake, they will be supported by senior management. So weencourage people to try and make the right decision – at times we have been caught out (ChiefProjects Officer).

Nevertheless, the tolerance of potential mistakes was seen as a “cost of learning” –another aspect of the organisational culture that was prominent throughout theorganisation, and fostered by the senior management group, and especially the CEO:

Informal Control Characteristic

No.

of t

imes

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by

part

icip

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0

2

4

6

8

10

12

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Informal mee�ngs Open channels of communica�on

Ease of informal access to the senior management group

Consensus and par�cipa�ve

decision making,

Tolerance of mistakes

Learning and sharing of lessons

Figure 3.Informal control

characteristicsdescribed byinterviewees

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What we are not about in this organisation is finger pointers when we are wrong […]. I’d rathersomeone have enough courage to walk in to the office and say they’ve made a mistake. If theycome in a month later and they’ve made the same mistake then we’ve got an issue, but as longas we learn from them, we try to move on as soon as we can (CEO).

Individually and collectively, these informal practices were consistent with, andsupportive of, the formal MCS described above. On the evidence presented through theinterviews, however, it was quite apparent that while the formal MCS assisted incommunication and matters of compliance, managers and staff exhibited a definitepredilection to a control style characterised by informality and face-to-face contact. Itwas within the context of this informal control regime that formal MCS were used.

6. DiscussionIn this section, we first interpret, through the lens of Laughlin’s (1991) model oforganisational change, the nature and extent of the change to which Enviros wassubject. We then proceed to consider the respective roles of formal MCS and informalcontrol process and their combined influence in this specific change context.

6.1 The nature and the extent of the changeThe introduction of the carbon tax clearly represented what Laughlin might term, an“environmental disturbance”, “jolt” or “kick”, and one in which rebuttal was notpossible. Quite literally, the carbon tax represented a “rule of law” for the organisation,and as key player in the renewable energy market, one which had the potential toappreciably affect the organisation.

Although Enviros’ design archetypes were changed to some extent, the sub-systems,as with the interpretive schemes, remained largely untouched. Thus, in terms ofLaughlin’s framework, despite the potential to change the fundamental nature of thebusiness, the organisation was able to absorb the disturbance represented by theintroduction of the carbon tax, and as such, the change pathway undertaken representedone of reorientation.

Enviros’ response to the change represented by the introduction of the carbon taxresonates with the findings of prior empirical investigations that have demonstrated thepropensity for organisations to pursue reorientation pathways in particular changecontexts. These contexts include those in which the jolt cannot be successfully rejected(Larrinaga-Gonzalez et al., 2001). For example:

• in organisations in which the comparative strength of interpretive schemes ishigh (Tyrrall and Parker, 2005);

• where operations and accountability are primarily focused on compliance (Mirand Rahaman, 2007); and

• where not all systems will necessarily have to respond to the disturbance(Broadbent, 1992).

Other instances in which external jolts cannot be readily or easily be dismissed havebeen observed in situations in which the explicit purpose of the response to the changeis to reinforce the equilibrium of the company, based on conventional business concernsof economic efficiency (Gray et al., 1995), and most recently, where broaderorganisational impact and influences have been brought about by the development of(and changes to) social and environmental reporting practices (Contrafatto and Burns,

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2013). As illustrated in the preceding section, all of these contexts were shown to beapplicable at Enviros.

In essence then, the organisation’s response to the introduction of the carbon tax wasessentially one of internalising the problem, but in such a way that it did not radicallyaffect the central core of the organisation. Rather, the disturbance was steered andguided primarily by the prevailing interpretive schemes of the organisation, but withchanges to the design archetypes in the form of formal control processes, alsocontributing to Enviros’ response to the change.

6.2 The role of the control package in reorientationReorientation pathways can be likened to what Broadbent and Laughlin, (2005, p. 17)metaphorically describe as, “punching a sponge”. Indeed, the analogy of “punching asponge” closely reflects how control processes were implicated in responding to theintroduction of the carbon tax. Design archetypes represent a particular object ofmanagerial concern in effecting organisational change (Tyrrall and Parker, 2005), andas summarised in Table II, the influence of design archetypes in the organisation’s

Table II.Relative influence of

the designarchetypes and

interpretive schemesin guiding the control

processes used byEnviros

Predominant influencein terms of Laughlin’sframework

Form of controlused How used to manage change

Design archetypes Diagnostic Used on an exception basis to monitoredprogress towards the achievement ofspecified (budget-related) goals

Boundary Directed behaviour according to selectplans, strategies and policies

Interpretive schemes Beliefs Delineated the acceptable domain ofactivity for organisational participants,in terms of positive ideals deemed bythe Senior Management Group to beimportant

Interactive Facilitated ongoing (two-way)communication about the carbon taxbetween top management, middlemanagement and staff

Informal processes Loose structures and opencommunication encouraged free flow ofinformation throughout the organisationFlexibility to encourage adaptivedecision-making and to fosterinteractions within the organisation,characterised by informal access to allmanagers, consensus and participativedecision-making, tolerance of mistakes,consequent learning and sharing ofinformation between employees acrosshierarchical levelsMission and vision implicitly definedand reinforced organisational culture

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response to change was displayed in the diagnostic and boundary uses of formal MCS(relating principally to internal policy, budgetary or financial reporting) to ensurecompliance through the creation of specialised (accounting or administrative) workgroups. In this way, the design archetypes through the use of such diagnostic andboundary systems played the role of mechanisms that served to “absorb the shock” ofthe introduction of the carbon tax.

Although as Laughlin (1991, p. 217) notes: “any interpretive scheme […] [may accept]a number of different design archetypes without the coherence of organisational lifebeing substantially challenged”, this is not to say that the interpretive schemesprevailing within the organisation played a passive, insular role in responding to thechange. Our evidence indicates quite the contrary. As shown in Table II, the influence ofEnviros’ interpretive schemes was evident in the interactive uses of control, beliefssystems and the informal control processes. Indeed, both formal and informal controlpractices were largely driven by and derived from the interpretive schemes. At the heartof the use of these controls were the underlying value and belief structure of theorganisation’s culture, which stressed a sense of common purpose based on the ideals ofopenness, ownership of performance and collaboration.

6.3 Culture as a common denominator between formal and informal control?The pivotal role played by culture in management control has been repeatedly observedin the management control literature in relation to both formal MCS as well as informalcontrol processes. Indeed, as Ferreira and Otley (2009, p. 267) explicitly assert, “culturepervades the entire control system”. However, empirical studies that unpack therelationship between formal MCS and organisational culture are sparse (Henri, 2006;Bhimani, 2003), with culture typically regarded as a contingent variable that mayinfluence the role and function of an organisation’s MCS (Ferreira and Otley, 2009; Henri,2006). In addition to the influence that culture may have on control, however, the use offormal MCS also contributes to the overall culture and ethos of the organisation. Thus,the relationship between organisational culture and formal control may be seen asrecursive (Scheytt and Soin, 2005). If we adopt the broad conceptualisation of control as,“the foundation of shared values and assumptions prevailing within an organisation”(Merchant and Otley, 2007, p. 797), then the role of beliefs systems as a manifestation oforganisational culture becomes crucial.

Central to Simons’ beliefs system are the mission and vision statements andstatement of values that senior management wish to communicate formally andreinforce systematically to organisational members. However, there is considerableevidence that such beliefs systems may not be effective unless strongly supported byalternative mechanisms (Marginson, 2002). For example, top management mayimplement a beliefs system (vision, mission and values) reinforced by management intheir daily interaction with employees, specifically intended to encourage certainbehaviour, but the behaviours actually exhibited by employees may, in reality, differfrom those communicated by the beliefs system (Tuomela, 2005). In short, what isbroadcast and proclaimed by the beliefs system may be decoupled from the reality ofhow employees behave and how the organisational culture may manifest in practice.The propensity for such decoupling is important. Although formal vision and missionstatements project an image of rationality, reinforce an organisation’s efforts to producecohesion and can outwardly and consistently present appearances of professionalism

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(Parker, 2007), it has also been argued that they can also be symbolic window-dressingthat largely represent exercises in image management (Grant, 2003), with little or noimpact on the processes of management (Scapens, 2006), or the thinking of managers(Langfield-Smith, 2007).

At Enviros, it was difficult to discern any evidence whatsoever that suggested suchdecoupling[5]. In the majority of interviews, the beliefs system as articulated in theThree Pillars framework, Financial Management Framework Strategy or the StrategicGrowth Options Paper was repeatedly stressed in our interviews as significant inguiding the behaviour of staff, irrespective of their level in the organisation, in theirformal and informal relationships, interactions and problem-solving efforts. Theinformal control processes within the organisation were repeatedly reported asconsistent with the norms, core values and tenets of the organisation as articulated inEnviros’ corporate documentation. The primacy of the organisation’s beliefs systems inorchestrating formal and informal control efforts therefore reflected what might quiteappropriately regarded as a “strong” culture. This finding provides empirical supportfor the contention that organisational culture can represent means rather than merepremises of control (Merchant and Van der Stede, 2006), particularly in contexts ofchange (Sandelin, 2008).

6.4 The predominance of informal controlThe findings of the current study add to the growing management control research thathas documented a predominance of informal control processes over formal MCS in arange of quite diverse contexts and settings (Marginson, 1999, 2002; Parker, 2001, 2002;Norris and O’Dwyer, 2004; Collier, 2005).

As with these studies, the current investigation illustrates that although formal MCSand informal control operate simultaneously, the latter form of control oftenpredominates over the former by virtue of the propensity for social interaction,self-regulation and orchestration (Håkansson and Lind, 2004; Mouritsen and Thrane,2006). This finding is consistent with prior research that has concluded that inenvironments of uncertainty, as is the case at Enviros, informal controls assume asignificant profile (Cooper, 1981; Granlund and Taipaleenmäki, 2005). Indeed, thepre-eminence of informal control and its role in managing and orchestrating changeresonates with the contention of Otley and Soin (2014), who note the necessity oforganisational change to be accompanied by a change in formal MCS. However, as Otleyand Soin suggest, in environments characterised by change – whether they stem frominternal or external changes– it is likely that formal control, “may be always catching upwith the changes that surround it” (Otley and Soin, 2014, p. 7). This, they argue, is due tothe unavoidable time-lags inherent in updating formal control systems. Such time-lagswere identified in the efforts of the organisation to adapt to the changes necessitated bythe introduction of the carbon tax. They also provide a potential explanation for thedominance of informal control processes over the formal MCS at Enviros; althoughformal MCS were developed (and subsequently successful) in response to theintroduction of the carbon tax, the heterogeneous and distinctive organisational culturewas found to be instrumental in painting the “big picture” of how control is enacted byproviding a backdrop whereby the “pixels” of formal MCS were given greater resolutionby the subtle, yet more pervasive and foundational influence of informal control.

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7. Concluding commentsThis paper set out to explore the respective roles played by formal MCS and informal controlin managing organisational change. Our findings indicate that formal MCS and informalcontrol played complementary roles in the organisation’s response to change. Formal MCSprovided a means by which compliance with the carbon tax could be achieved, but it wasinformal control that enabled Enviros to, in the words of one of our informants, “get thingsdone”. Change environments such as the one within which Enviros is operating arecharacterised by a high degree of ambiguity and uncertainty (Otley and Soin, 2014). Thisenvironment was counteracted with a culture that encourages and genuinely valuesparticipation, co-ordination and open communication across geographic, hierarchical andfunctional boundaries, and this culture has provided both the genesis and evolution forformal MCS, but more markedly, informal control within the organisation.

The primary theoretical contributions offered by this study relate to a deeperunderstanding and articulation of one setting under which formal MCS and informal controlprocesses combine in a complementary way to manage organisational change, the centralityof informal control in this process and the principal influence of organisational culture onboth formal and informal components of the overall control configuration of an organisation.Our study provides a local example of “empirical flesh” that Laughlin (1991, p. 210) calls forto make the more invariant skeletal model he advances, “more meaningful”.

As with all research, the current study is subject to limitations. First, the study requiredEnviros’ managers and employees to recall the management controls and their influenceover a period spanning several years. Such a retrospective approach exposes this studysubject to various kinds of recall biases due to the possibility of ex post rationalisation, andthis could represent a threat to the integrity of the data. Second, the nature of theinvestigation may have encouraged participants to present a more rational and idealisedcharacterisation of management control procedures than may actually exist. Although ourdata collection protocols attempted to minimise this risk, it is possible that a social desirabilitybias may have distorted our findings, suggesting a need for caution in interpretation.

Despite these limitations, the findings of this study suggest avenues for further enquiry.This investigation provides empirical evidence about the ways in which formal MCS andinformal control processes implicated in the management of organisational change. InEnviros, the nature of the change experienced was one of reorientation. However, it isnecessarily silent on the ways in which formal MCS and informal control processes areimplicated in organisations that have undertaken change pathways of rebuttal, colonisationor evolution. Further research that compares and contrasts the operation of managementcontrol packages under these quite different change pathways would provide additionalinsights into the operation of management control as a package, and in so doing, furthercontribute to further theory development in this area.

A second opportunity for further research is the exploration of how management controlpackages are configured in large organisations. How the control package is constituted atdifferent organisational levels in such contexts would also serve to refine and developmanagement control theory, as would investigations that examine how control packagesrelate to each other across organisational units, and at different organisational levels.

Finally, the question of why informal control appears so influential in organisation’scontrol constructions, perhaps leading to a more robust and accepted conceptualisationof informal control, would appear to be a topic worthy of empirical investigation, andone which is arguably long overdue.

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Notes1. For example, the relationship between MCS and strategy (Marginson, 1999, 2002; Kober et al.,

2003, 2007); the effect on product innovation (Bisbe and Otley, 2004); budgetary control andstrategic adaptation (Frow et al., 2005); management control practices in new economyfirms (Granlund and Taipaleenmäki, 2005); the introduction and use of performancemeasurement systems (Tuomela, 2005; Henri, 2006); the effect of top management teamheterogeneity on strategic change (Naranjo-Gil and Hartmann, 2007); in response tostrategic risk and uncertainty Widener (2007); the creation of dynamic tension Mundy(2010); and relation between leadership styles and use of the planning and control system(Abernethy et al., 2010).

2. It should be stressed that numerous scholars have drawn attention to the different labelsattributed to the phenomena labelled by Laughlin (1991 as “interpretive schemes”. Theseinclude, “ideology” (Brunsson, 1985), “cognitive schemata” (Bartunek, 1984) and “culture”(Smircich, 1983). Following Mir and Rahaman (2007) and Tyrrall and Parker (2005), we usethese terms interchangeably in this paper.

3. For confidentiality purposes, the pseudonym Enviros is used to identify the case organisation.

4. A pseudonym used for confidentiality reasons.

5. Although readers adopting a more critical epistemology may find this claim dubious, in spiteof our best efforts, we found (surprisingly) no evidence in our discussions that contradictedthis assertion. We return to this point in the limitations section of this paper.

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Further readingBruns, W.J. and Waterhouse, J.H. (1975), “Budgetary control and organizational structure”,

Journal of Accounting Research, Autumn, pp. 177-203.Tessier, S. and Otley, D.T. (2012), “From management controls to the management of controls”,

Accounting, Auditing & Accountability Journal, Vol. 25 No. 5, pp. 776-805.

Appendix 1. Summary of archival dataStrategic Growth Options PaperThis paper, written in December 2011, provided a summary of Enviros’ future growthopportunities and their proposed strategy.

Financial Management Framework StrategyThis paper details Enviros’ Financial Management Framework (FMF), including proposed FMFstrategy and the elements of that strategy, corporate governance discussions and the growthissues facing the organisation.

Emissions from Landfill Facilities Fact SheetThis paper, provided by the Australian Government, explains landfill emissions and carbonpricing, and how they might apply to local governments and other operators. This paper wasuseful in gauging a preliminary understanding of what the carbon tax is about. It discussed whichcompanies will be liable under the carbon price, how to measure and report landfill emissions andinformation about the CFI and the Renewable Energy Target.

2012 and 2013 Holding Corp Ltd. Annual ReportThe financial reports of Holding Corp Ltd. from 2012 and 2013 provided information aboutEnviros’ financial performance, and the information they disclosed about the carbon tax.

Holding Corp Ltd. 2013 Sustainability ReportThis report provided information about Enviros and the carbon tax.

Enviros Renewable Energy Target Review – September 2012This document was sent from Enviros to the “Climate Change Authority” of the AustralianFederal Government. The paper outlines the organisation’s responses to a host of questionsregarding the Renewable Energy Target.

Organisational chartThis was a basic organisational chart outlining employees, positions and reporting relationships.

Enviros “eNews” company newslettersThis company document, published monthly, reports on all aspects of the business, includingsafety reports, strategic plans, site performance and company goals and objectives.

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Appendix 2. Interview questions – areas of inquiry1. Could you tell me a little bit about your role and how long you have been at the

organisation?2. What is the carbon tax? What does it mean for the organisation? How does it affect your

position?3. What were the implications/effects of the introduction of the carbon tax on the

organisation? Who was affected by it? How were they affected? What did the introductionof the carbon tax mean for everyday processes, procedures, operations, what people did/do/will do? Can you provide examples?

4. What is the organisation’s position on the current legislation? How does the organisationmanage the uncertainties surrounding the future of the carbon tax, and the potential“Direct Action Plan” that is set to take over?

Appendix 3

Corresponding authorBasil Phillip Tucker can be contacted at: basil.tucker@unisa.edu.au

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Table AI.Participantinformation

Position title Date interviewedDuration of

interview (minutes)Participant tenure ofemployment (year)

Chief Executive Officer 4 August 2014 42 18Corporate Administration Manager 4 August 2014 36 4Chief Project Officer 4 August 2014 23 16Management Accountant 4 August 2014 38 2Environmental and ApprovalsOfficer 4 August 2014 28 2Business Development Manager 7 August 2014 36 3Compliance and DocumentationCoordinator 7 August 2014 33 2Corporate Counsel and CompanySecretary 7 August 2014 25 2Financial Controller 7 August 2014 38 18Chief Generation Officer 7 August 2014 39 16Environmental and ComplianceGeneral Manager 8 August 2014 41 6Communications and HumanResource Coordinator 8 August 2014 31 6Engineering General Manager 8 August 2014 37 2Commercial Manager 8 August 2014 41 5Chief Financial Officer 15 August 2014 24 12

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