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The Genesis of Management Accounting Practice : A Case Study in a High Technology Company

Hirofumi Asada1

Abstract

This paper examines the process of intra-organizational management accounting (MA)

change. I use a case study to provide evidence of a genetic process of a particular MA

practice in a Japanese high technology company. The use of an evolutionary framework

in this study can also help explain the way in which the genesis of new MA techniques

takes place. Looking at the history of the capital budgeting system in the company, I

show that calculative architecture, routine and practice play key roles in the MA change

process. I argue the essential roles of entrepreneurship to realize constitutive relations

between knowledge and action, and provide some conceptual settings for further

discussion.

Key words: MA Change, Genesis, Evolutionary Framework, Entrepreneurship

1 Research Fellow of the Japan Society for the Promotion of Science

Ph.D. Candidate, Graduate School of Economics, Kyoto University, Japan

e-mail: asada@pacioli.econ.kyoto-u.ac.jp

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1. Introduction: Enthusiasm in MA change study

Over the past few decades there have been many studies that have taken up

Hopwood’s (1987), concerns on accounting change. We can see a movement to this area

through special issues on Management Accounting Change in Management Accounting

Research as well as the formation of a new Journal on accounting and organization

change “Journal of Accounting and Organizational Change” as well as conferences such

as the “Global Accounting and Organizational Change Conference” Issues such as

“whether management accounting has not changed, has changed, or should change,

have all been discussed.” (Burns and Scapens, 2000, p.3) To a greater or less extent,

most of MA researches concerns change. Nowadays, researchers are becoming aware

that ‘Accounting is not a static phenomenon.’ (Hopwood, 1987, p.207).

At the same time, practitioners continue to be interested in change, because of

changing economic climate and other contexts. From their point of view, the direction of

change and how to manage change would be main concerns. Anyway, to respond these

needs, there are many books and consulting firms which focus on change in the world.

Since Hopwood’s (1987) call for more study of the accounting change process, this

academic enthusiasm was started. MA change research has focused on parts of the

process of MA change in various ways. There are many divergent theories to explain

changing in MA practices, for example, Institutional theory, Actor Network theory,

Diffusion theory etc. Despite this, we have no comprehensive framework to connect rich

understandings in these previous studies. Now seems to be that “time for systematizing

the analysis of management accounting change along some key dimensions” (Busco et

al., 2007, p.125).

The purpose of this paper is to examine the process of intra-organizational

management accounting (MA) change. In particular the paper aims to bridge the

criticism of traditional historical studies by using an evolutionary framework. The

paper is set out as follows. Section 2 provides a review of previous works on MA change

and describes research questions. In section 3, I introduce the evolutionary framework.

I narrate some MA change stories in my case company in sections 4 and 5. Finally, in

section 6, I present some conclusions.

2. Research Questions

2.1. What are MA change process and my focus?

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How do I understand MA change process comprehensively? This paper seeks to

examine and develop evolutionary framework to systematize fields of MA change study.

To connect various field of MA change study, by utilizing evolutionary framework, I

specify possible fields of MA change study from a view point of process.

There are many kinds of studies and theory used in previous studies. Some studies

examined the causal relations between external environment and organizational

variables which includes MA techniques based on contingency theory (Anderson, 1995;

Gosselin, 1997; Baines and Langfield-Smith, 2003). Other researchers argued that

particular changes in management accounting did not occur in response simply to one

individual originating factor, and that MA change is a complex process involving the

interaction of motivator, catalyst and facilitator (Innes and Mitchell, 1990). Successive

studies developed antecedent factor analysis (Cobb et al., 1995; Kasurinen, 2002). This

line of research affected other quantitative research based on survey research (Libby

and Waterhouse, 1996; Williams and Seaman, 2001, etc.). Many papers on the MA

change process have used “Institutional Framework” developed by Burns and Scapens

(2000). This framework used some perspectives which stem from New Institutional

Sociology (NIS), Old Institutional Economics, and Giddens’ (1984) structuration theory.

This framework originated from Barley and Tolbert’s (1997) work and their notion of

“script” to mobilize institutions. They explained the process of institutionalization

which provides homogeneity of practices in the context of accounting successfully. There

is also a stream of MA change studies which use Actor Network theory (see for example;

Chua, 1995; Briers and Chua, 2001; Dechow and Mouritsen, 2005; Jones and Dugdale,

2002). Their aim is to overcome the dichotomy between structure and agency to respond

to Latour’s call (2005) for a ‘flat sociology’ which changes the notion of the social (Busco

et al., 2007, p.130).

These studies provide rich explanations of the diffusion process of MA practice, in

particular those concerning the process of homogenization. These different “theories”

provides us with ways of understanding the MA change process. This papers aims to

take these different theories to develop a holistic understanding of the MA change

process. The evolutionary framework provides a framework for analyzing the MA

change as a process which includes the genetic process and replication process. At the

same time, the framework assumes the presence of a change agent, which is a

genealogical and ecological entity. To explain a genetic process of unique MA practice,

prior research didn’t provide adequate framework. An evolutionary framework

overcomes this by using a few conceptual devices. These include the notion of

calculative architecture which helps us to understand this genetic process of MA change.

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I aim to show that this ontological hypothesis will provide us with rich understandings

of change process.

As noted above, recent academic research in this area has used Burns and Scapens

(2001) framework to study MA change. These studies focus on the ‘stability’ and

‘diffusion’ process. This stream of studies stems from the work of DiMaggio and Powell

(1983) on new institutional sociology and the idea of isomorphism. In other words, the

process of generating heterogeneity of MA practice has not been well explored.

Lounsbury (2008) noted that;

While the early statement by Meyer and Rowan (1977) signaled the study of both homogeneity and

heterogeneity, research on the institutional sources of practice variation has only begun to be

developed. This is mainly because isomorphic homogeneity was emphasized in subsequent writings

such as in the seminal article by DiMaggio and Powell (1983) that focused scholarly attention on the

convergence of practices and organizational symbolic structures across organizational fields.

(Lounsbury, 2008, p.353)

These studies succeeded to some extent in explaining the replication process of MA

practice in an organization and between organizations. But they did not adequately

explore how a unique MA practice is generated? This is because they lack an analytical

tool for developing a genetic process of MA practice. In this paper I mobilize an

evolutionary framework and the notion of calculative architecture to overcome this

problem.

2.2. How can I understand supply-side issues?

Accounting change studies share many characteristics with historical studies as they

both deal with historical data to analyze how and why change occurs. Depending on

types of evidence these studies have collected, many of them tried to predict accounting

change in the future (for example, Libby and Waterhouse, 1996). But what is common

and different between historical and change studies is not well explored. As a result a

comprehensive understanding of MA change has not taken place. Before introducing an

integrative framework to understand MA change studies, it is necessary to define the

domain of MA change.

According to Luft (1997), there are three types of historical studies. The first two are

based on economics, while the third one is based on post modern social theory. Efficiency

based explanations represented by Chandler (1962, 1977, 1990), and Johnson and

Kaplan (1987) aim to explain the history of MA as a way of increasing economic

efficiency. Other theories such as the “class conflict” explanation used by Armstrong

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(1987), Hopper & Armstrong (1991) and Hopper et al., (1987) have also argued that the

allocation of resources is based on an economic explanation. However, Postmodern

Social Theory explanations (Hoskin and Macve, 1988; Miller and O'Leary, 1987 etc.)

tried to show how the supply of new management accounting devices can be explained

through a diffusion process. They use various social theories to produce insightful

explanations about MA change. These theories, though, are not adequate for a

comprehensive understanding of the MA change process.

At the same time, the lack of consideration for supply side explanation is seen as a

problem in organizational literatures about innovation diffusion. Rogers (1962) and

following researches provide a rich base of analysis for the diffusion of innovation, but

also have been criticized by some researchers that they place too much emphasis on the

demand side and not enough on the supply side institutions of diffusion (Brown, 1981).

Nowadays, MA change study shed light on supply side issues by various theoretical

perspectives and methods. We’ll make a brief review of papers which deal with such

problems in later section of this paper.

I understand this issue by transformation of MA techniques not in time and space.

Then I point out the importance of emergent change by a human actor. I also aim to

show that the nature of change, is non-linear, and path-dependent, with stability, by

analysis of this issue.

2.3. What is a ‘change’ of accounting?

Before examining these research questions above, we must consider what would be a

object of change. It is not so easy to answer this problem. In relation to the word

“genetic”, I assume that the old and new accounting practices can be identified clearly.

However existing conceptual devices are not adequate to distinguish these differences.

That is because they can’t adequately specify the location of a particular MA practice or

techniques in time and space (Quattrone and Hopper, 2001).

There are many rich evidences from survey research of MA change. Some of them use

questionnaire and ask the practitioner about the “change” which is occurred in a period.

More importantly, how the respondent recognized the “change”? They identified the

location of change but did not defined what the “change” mean? For example, does the

change of transfer price apply for the “change” in this case? How about alternation of

user of a management accounting system? Of course, we recognize there is a great

contribution of this research for change studies, but also there is serious problems

remaining in such types of research. Unfortunately, this is not a unique problem for

survey researches. When we researchers conduct case study researches, sometimes it is

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not clear what we regard as change.

This has the potential of miscommunication between researchers about change studies.

It seemed that we need to have theoretical framework to analyze this issue. For this

purpose, ‘MA practice’, ‘MA technique’ and ‘MA system’ is not enough to discuss

“changes”. We need to focus on more details of these items. This problem will be

examined in this paper. I explore the agency of replicators of organizational memory in

accounting context. Hereby I can overcome this problem.

3. Theoretical framework

The first use of evolution theory into management studies was carried out by Mead

(1899). After that, there were many divergent studies which use ‘evolution theory’ to

explain organizational phenomena, even in accounting (e.g. Littleton, 1933 etc.). And

there is no consensus about what is ‘evolutionary theory’. Therefore, we will start to

declare what is our own ‘evolutionary theory’2.

3.1. Evolutionary framework and perspectives

The process of evolution; Variation, Selection, and Retention

The early studies which introduce this perspective into organizational studies are

made by Campbell (1965). He noted about evolutionary wisdom that:

For an evolutionary process to take place, there need to be variations (as by mutation, trial, etc.),

stable aspects of the environment differentially selecting among such variations and a

retention-propagation system rigidly holding on to the selected variations. The variation and the

retention aspects are inherently at odds. Every new mutation represents a failure of reproduction of

a prior selected form. Too high a mutation rate jeopardizes the preservation of already achieved

adaptations. There arise in evolutionary systems, therefore, mechanisms for curbing the variation

rate. The more elaborate the achieved adaptation, the more likely are mutations to be deleterious,

and therefore the stronger the inhibitions on mutation. For this reason, we may expect to find great

strength in the preservation and propagation systems, which will lead to a perpetuation of

once-adaptive traits long after environmental shifts have removed their adaptedness. While this has

2 In this paper we propose a comprehensive framework to analyze the MA change process. This framework consists of a combination of different perspectives. A perspective simply means a way of thinking, but this word should be distinguished from theory, because some perspectives do not attribute to a particular theory. Also a theory can include many perspectives.

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been stated in biological form, a similar expectation would hold for the products of sociocultural

evolution.

This argument indicates that there are three distinct processes in evolution which is

variation, retention and selection, the applicability of evolutionary analogy into

socio-cultural phenomena. According to a survey of evolutionary research in

organizational studies (Baum and Singh, 1994), evolutionary process consists of three

parts, which are variation, selection and retention, and some researchers slightly

changed this idea (Aldrich and Ruef, 2006). The terminology about these three

components in evolution seems to vary depending on researchers. However, the most

important idea of this evolutionary process perspective is the separation between

genetic process (variation) and replication process (selection and retention). The

evolutionary framework assumed that there are different logics between genetic process

and replication process. In other words, there are different reasons to generate and

replicate a MA practice.

Variation Selection and Retention

(Figure 1; The process of evolution)

From these studies on organizational evolution studies, we can identify the first

perspective which concerns the process of evolution. The evolutionary process consists

of three different and continual processes. In an accounting context, we can regard

variation process as a genetic process of “new” MA practice. Selection and Retention

processes represents a constant retention of existing MA practice or an abandonment

(or natural disappearance) of a particular MA practice.

In a historical study, Miller and Napier (1993) put forward the focus on the outcomes of

the past, rather than origins of the present. This means that the emergence of

calculation cannot be reduced to the functions it subsequently comes to carry out (ibid.,

p.642). This concept is largely similar to the process perspective in the evolutionary

framework.

The Agency of evolution; ecological entity and genealogical entity

In order to explain an evolutionary process, two conceptual entities, ecological entity

and genealogical entity, are used (Eldredge, N. 1985; Baum and Singh, 1994). The

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genealogical entity means an agency of replication like DNA in human body. The

genealogical entities as hardware represent a storage device of organizational memory.

On the other hand genealogical entities as software represent knowledge in

organization itself. The ecological entity means an agency of interaction like human

body. It reduces knowledge to action field and leads to change. In that sense, it

represents MA practice in the context of accounting.

(Figure 3; The agency of evolution)

This dichotomy stems from biology and is a key player in the replication process.

However, coming free from the origin, we tolerate that there is an interrelation between

genealogical entity and ecological entity. Sometimes, genealogical entity is redefined by

ecological entity in relation to the contextual factors. And also we identify a hierarchical

structure of two entities which is described in following table.

Genealogical entity A Genealogical entity B

Ecological entity a Ecological entity b

Context α Context β

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(Figure 2; Ecological and genealogical entities (Baum and Singh, 1994, p.10) )

The epistemological nature of evolution

Evolutionary framework focuses cumulative (or genealogical) evolution. This is a

remarkable contrast with original contingency theory which focuses static relations

between organizational agency and environment. And such a nature of evolution is

called path-dependence. But, in MA change study, it is not well examined why MA

change has such nature. The word evolution sometimes is used by comparison with

revolution which means rapid, radical and dramatic change (Burns and Vaivio, 2001).

Such a usage of the dichotomy of evolution and revolution relate to this nature. Because,

in general, cumulative change seems to be gradual and small changes in appearance.

I can point out that the nature of critique for the teleology, which sometime means

equilibrium analysis in neo-classical economics, is also very important character in

evolutionary approach. This means researches focus not only linear change process but

also random change process. This idea is not a unique attribute of evolutionary

approach. There are some researches which share this perspective (Quattrone and

Hopper, 2001; Andon et al. 2007, etc.). And also, in historical studies, the applicability of

the notion of "progress" was increasingly questioned in the 1960s and 1970s. This is also

distinctiveness of the new accounting history and accounting change in contrast to

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traditional historical studies (Miller et al., 1991, p.399).

3.2. The Types of change

By using the evolutionary framework, I will provide a heuristic taxonomy of MA

change studies to reveal the comparative position of this paper. Sawabe (2007) provide

fundamental ideas for this typology. By institutionary evolution perspective he divided

MA researches into three categories which are (1) identification and replication process

of replicator, (2) action and interaction of MA technique, (3) formulation process of

replicator. I’ll try to change his rough sketch into more sophisticated and concrete

descriptions in following sections. Also we will add new areas of MA change study to the

prior research.

3.2.1. Agency and change

The first taxonomy is introduced by the concept of agency in evolutionary framework.

There are four distinct areas of MA change study.

Type 1-1; Stability study: temporal replication of genealogical entity

This type of study deals with why and how an MA practice is replicated and is

abandoned. If the genealogical entity is successfully replicated, we can see the stability

of the MA practice. Researches on stability of accounting practice have been explored

mainly by using institutional theory (for example, Granlund, 2001; Siti-Nabiha and

Scapens, 2005).

On the other hand, if it fails to replicate, we can identify the abandonment of a

particular MA practice. But if some MA practice is abandoned and the function of it is

necessary to operate a organization, it is likely to be substituted by another MA practice.

That’s why this issue often involves issues of implementation (Type 2).

Furthermore, we have to emphasize that if we can’t identify the change in superficial

aspect of accounting technique, there is a potential of change in a genealogical entity.

Even if there is no changes in the calculation (for example, EVA, NPV etc.), emergent

usages of these accounting techniques would provide new accounting routines. This

possibility requires in-depth investigation for researchers.

Type 1-2; Diffusion study: spatial replication of genealogical entity

Second type of change study examines the process of diffusion between organizations.

Diffusion studies traces paths on which particular MA practices is carried. For example,

the diffusion of BSC, ABC and other MA practices has been explored in this area. Using

Actor Network Theory, some other researchers explored the diffusion process of ABC

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(Briers and Chua, 2001; Jones and Dugdale, 2002).

Bjørnenak (1997) examined the factors which influence the implementation of ABC in

Norway. In this paper, the determinant of MA change is examined from two different

perspectives which are ‘demand perspective’ and ‘market and infrastructure

perspective’. What’s interesting is that it explored not only demand side but also supply

side of MA change.

Malmi (1999) explain what drives innovation diffusion in MA during its various phases

based on Abrahamson (1991). He identified four perspectives with potential to explain

the diffusion of accounting innovations which are the efficient-choice, forced selection,

fad and fashion perspectives. And this paper conclude that efficient choice may explain

the earliest adoptions, whereas fashion-setting organizations exert considerable

influence in the take-off stage, and diffusion is explained both by mimetic behavior and

efficient-choice.

Type 1-3; Implementation study: ontogenesis, formulation of genealogical entity

This type of change concerns the formulation process of MA. How do ecological entities

(come about) from the genealogical entities. Especially, the studies of implementation of

a particular accounting technique in a company fall under this categories. This type of

study is easy to be combined with diffusion type. Because a implementation of an

accounting technique in a company is a result of diffusion of it in a population. But it is

unnecessary to be replicated completely in implementation process. In few cases, it

would lead to an innovation. Implementation studies mainly concerns the motivation or

the antecedent of change, for example, external environment, internal politics and so on.

Functional studies tend to focus on socio-economic factors as a motor of change.

Innes and Mitchell (1990) examined mixed influence from external environment and

internal environment on management accounting change and provided new analytical

model which included three factors of change. Using a case of change in management

accounting reports in a bank, Cobb et al. (1995) developed this model and added a

element of barriers to the framework. In addition, Kasurinen (2002) divided the barriers

into three subcategories, titled confusers, frustrators and delayers. These analysis are

mainly based on contingency theory perspective in the sense that they focus on static

relations between environment and MA practice. We can point out that these studies

share same domain with stability studies, because the barrier would be a source of

stability.

Libby and Waterhouse (1996) generated evidence on the extent and determinants of

management accounting and control systems change by multiple regression of

medium-sized Canadian makers. They provided a list of management accounting

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systems which 23 systems included, and asked respondents whether change had

occurred in any of these systems during the period of 1991-1993. After that, these

systems were divided into five main types: planning, controlling, costing, directing and

decision making. They concluded that organizational capacity which was measured by

number of existing systems at the end of the test period was the best predictor of MA

change. Using Hofsted’s (1980, 1982) framework on national culture, Williams and

Seaman (2001) applied this model to firms in the Singaporean manufacturing sector.

Sulaiman and Mitchell (2005) explored the forms which management accounting

change has taken in manufacturing companies. y utilizing a simple typology of

management accounting system change, derived from the existing research literature,

consisting of addition, replacement, output modification, operational modification and

reduction. This classification is combined with information on the incidence, location,

importance and success of management accounting changes. On the other hand,

Williams and Seaman (2002) hypothesized that MA changes don’t have an influence on

performance directly, and examined the indirect effect of MA and control systems

change on departmental performance by a cross-sectional sample of Singaporean firms.

Shields (1995) analyzed behavioral variables which are associated with ABC success

by Shields and Young’s (1989, 1994) model which is a comprehensive theoretical model

about the implementation of cost management systems.

Type 1-4; Innovation study: phylogenesis, variation, change of genealogical entity

This change process concerns the genetic process of “new” MA practice. Whether new

or not is judged by whether a genealogical entity has changed or not. Therefore a new

practice for a company is not necessarily ‘new’ in this context. This type of change study

explores why the unique MA practice. There do not seem to be many studies in this area,

because most of prior research did not have enough conceptual devices to treat this

issue. And also this paper focuses on this type of study.

However, then I need to specify the object of change. Because whether can we

categorize it into genealogical entity or not depends on our focus. In general, such a

genealogical entity has hierarchical structure (Baum and Singh, 1994). If that is valid, a

genealogical entity in a level would not be a genealogical entity in other levels. Then I

should specify the level of analysis.

In this paper, I focus on MA practices in headquarter as the object of change. I then

clearly distinguish MA practices from MA systems, techniques, and processes. The

concept of practice includes structural aspect of MA, and also timeline. And practice

concerns both of a technique and system (as a set of techniques). I recognize the

difficulty of bounding between these two items. But we will apply the separation by

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practitioners.

3.3.2. Process of change

The second taxonomy shows how I can categorize previous studies in the process of

change which consists of pre-change, change and post-change. Most of studies written

above are categorized in pre-change and change study. And it is difficult to categorize

particular paper into single area, because most of them concern more than two

processes.

Type2-1; Pre-change study

In evolutionary framework this study is regarded as a study of the environment in

which variation take place. Studies on antecedent of MA change are categorized in this

area. They assume that a change is an even as a result of some factors. Contingency

theory is one of the most popular theories of the studies. They examine causal relation

between internal and external organizational factors and particular MA practice.

Studies on supply and demand side of MA are also categorized in this type of study.

Supply side study explores how and why particular MA knowledge becomes available to

be used. Therefore diffusion study which explores spatial replication of genealogical

entity is a kind of pre-change study in this taxonomy. On the other hand, Demand side

study explores what is the reason particular MA knowledge is used.

Type2-2; Change study

This type of study deals with changes directly and examines how changes from ‘old’ to

‘new’ MA practice have happened. In the word of evolutionary framework, this process

represents variation process. Implementation study and innovation study are

categorized in this area.

Type 2-3; Post-change study: Retention, Consequence of Change

From a standpoint of evolutionary process, post-change study represents selection and

retention process after variation. Stability study which explores retention and

abandonment of MA is categorized in this area.

Sometimes, MA change studies include examination of results of implementation and

innovation. Such a constitutive aspect of MA is also very important part of MA change

process study. For example, Baines and Langfield-Smith (2003) explored the

relationships between the changing competitive environment and organizational

variables as a result of MA change by using structural equation modeling. These studies

would provide evidences for next change (variation) of MA practice. Because changes of

context would have potential for further changes of MA practice.

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3.3.3. Motor of change

In the evolutionary framework, what makes a variation of genealogical entity is not

presumed. There are many complementary perspectives to explain what causes the

change. Most of researches presume some motors of change implicitly or explicitly.

Nevertheless this issue has never been well explored.

Then, we have some complementary work in organizational change study. Van de Ven

and Poole (1995) give us very suggestive taxonomy for this issue. They reviewed

interdisciplinary literatures to identify alternative theories used to explain processes of

change in the social, biological, and physical science. And they concluded that there are

four basic perspectives which are life-cycle, teleology, dialectics, and evolution.

Type3-1; Life-cycle

In “life-cycle” perspective, change is caused by a prefigured program or rule which is

regulated by nature, logic or institutions (Van de Ven and Poole, 1995). A typical

example of this perspective is “the Marxian idea that history is progressing - whether

'deterministically' or not - through a series of stages, from 'primitive communism',

through classical antiquity, feudalism and capitalism, to socialism and communism in

the future.” (Hodgson, 1993, p.41). Hodgson labels this type of ‘evolution’ as

‘developmental’.

Type3-2; Evolution

The “evolution” perspectives assumed population scarcity, competition or

commensalism as a generating force (Van de Ven and Poole, 1995). But we need to

recognize that there are two different way of thinking concerning their ‘evolution’. First

type, which stems from economics, focuses on technological efficiency and regards a

change as a consequence of pursuit for it. The other focuses on institutional factor and

regards change as a consequence of an institutional isomorphic process (DiMaggio and

Powell, 1983). The perspective, which takes both competition and institution into

account, is called ‘two-stage dissemination model of change’ (Greenwood and Hinings,

1996).

Type3-3; Dialectic

The “dialectic” explains change as a result of conflict and confrontation between

opposing forces, interests or classes (Van de Ven and Poole, 1995). For example, Cooper

et.al. (1996) explored change of organizational archetype by utilizing geographical

analogy of ‘sedimentation’. They described oscillation of organizational archetype

between two opposing forces. Seo and Creed (2002) combined dialectical perspective

with institutional theory. They introduced four ‘source of institutional contradiction’ to

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resolve paradox of embedded agency in the structure-agency dichotomy. There are many

studies which utilize dialectics in organizational study (for example, Greenwood et al.,

2002; Greenwood and Hinings, 2006). However there are not many studies specialized

in accounting change study.

Type3-4; Teleology

In “teleology” perspective, goal enactment which is consensus on means, cooperation or

symbiuosism play a crucial role in a change process (Van de Ven and Poole, 1995).

They argued that this approach underlies functionalism (Merton, 1968), decision

making (March and Simon, 1958), voluntarism (Parsons, 1951), social construction

(Berger and Luckmann, 1966), adaptive learning (March and Olsen, 1976) and other

theories which presume an organizational entity proceeds toward a goal. In general,

‘evolutionary’ study is skeptical for this perspective.

3.3.4. Categorization of this paper

As noted above, this paper seeks to explore innovation process of MA by utilizing case

of a large manufacturing company in Japan. This study deals with supply side issue and

change process. Hence, pre-change and change process would be main fields of this

paper. Concerning motors, this paper examines all of possibility. This issue closely

related to the role of managers. Life-cycle perspective and teleology perspective regard

that there is no significant impact of human actor on change process, because change

process is predetermined (by God). Other two perspectives accept potential possibilities

which human actor affect a change.

4. Research Design

4.1. Research Site

Murata Manufacturing Company, Ltd (MMC) is a maker of condensers and other

electronic parts. On consolidated basis, it generated sales of US $6,317 million from its

74 subsidiaries with 34,067 employees (as of March 31, 2008). MMC has a unique

management system called Murata Matrix Management (MMM). MMC was founded in

1944 as a small factory making condensers in Kyoto. After World War II, they grew

steadily and are now recognized in Japan for their original management system.

4.2. Research method and limitation

I use single case study method to explore the above research questions. The

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investigation was conducted mainly by interviewing practitioners including the former

CFO. I used the first few non-structured interviews to understand MMC’s management

system. The following interviews were then conducted using semi-structured interviews

to explore the changing in the firms management systems. I also communicated with

the firm via email and received some information. To confirm the accuracy of the

description and protect company secrets, I sent all final interview drafts to MMC.

Date Locat ion In te rviewee Hou rs

1 2005.11.24 Fukui Murata Manufacturing Co., Ltd.

Former CFO and Corporate auditor of the subsidiary

Manager, Accounting and Planing Department, Headquarter

Manager, Planing Department of Production, Fukui

3.5

2 2006.5.14Murata Manufacturing Co., Ltd.

Head Office

Former CFO

Manager, Accounting and Planing Department, Headquarter1

3 2006.6.22Murata Manufacturing Co., Ltd.

Head Office

Manager, Accounting and Planing Department, Headquarter

Staff, Accounting and Planing Department, Headquarter2

4 2006.6.26Murata Manufacturing Co., Ltd.

Head Office

Manager, Accounting and Planing Department, Headquarter

Staff, Accounting and Planing Department, Headquarter3

5 2006.6.29Murata Manufacturing Co., Ltd.

Head Office

Manager, Accounting and Planing Department, Headquarter

Staff, Accounting and Planing Department, Headquarter3

6 2006.7.6Murata Manufacturing Co., Ltd.

Head Office

Manager, Accounting and Planing Department, Headquarter

Staff, Accounting and Planing Department, Headquarter3

7 2006.7.13Murata Manufacturing Co., Ltd.

Head Office

Manager, Accounting and Planing Department, Headquarter

Staff, Accounting and Planing Department, Headquarter2

8 2006.10.4Murata Manufacturing Co., Ltd.

Head OfficeManager, Accounting and Planing Department, Headquarter 2

9 2006.11.6Murata Manufacturing Co., Ltd.

Head Office

Former CFO

Manager, Accounting and Planing Department, Headquarter

Staff, Accounting and Planing Department, Headquarter

2

10 2006.11.20Murata Manufacturing Co., Ltd.

Yokaichi Plant

Manager, Accounting and Planing Department, Headquarter

Manager, Plant Administration, Yokaichi Plant3

11 2006.11.21 Fukui Murata Manufacturing Co., Ltd.Senior Manager, Accounting Department, Headquarter

Manager, Accounting Department, Fukui3.5

12 2006.12.7 Murata Electronics Singapore（Pte.）Ltd. Assistant General Manager, Finance & Accounting, Singapore 1.5

13 2006.12.19Murata Manufacturing Co., Ltd.

Head OfficeFormer CFO 1.5

Total - - - 31

(Table 1; Interview schedule)

I also had access to internal data which included the company magazine which was

first published in 1976. Izumitani (2001) which was written by the former CFO of MMC

provided us rich information about management systems and the establishment of such

system in MMC. MMC (1995) which is MMC’s history book was also helpful for

understanding the context the firm operated in.

In usual, it is quite difficult to set up triangulation on investigations because of

accessibility. Also in this paper, triangulation on interviewees is not adequate.

Interviewee is almost exclusive to managers and staffs in accounting department. Most

of internal information on which we rely has bias because it is produced by MMC itself.

In order to avoid fatal misunderstandings, I tried to complement such evidences by

other evidence from various resources.

5. Case description and findings

17

Here we have very interesting case evidence about the change process of MA practice.

MMC has always faced capital budgeting problems. This was because they continued to

expand their businesses at a rapid rate and thus were always short of funds. As a

consequence, they have changed capital budgeting systems in response to

organizational context. The changes that took place in the capital budgeting system can

be seen through three stages.

5.1. Stage1: performance measurement system

MMC was established in 1944 as a small factory in Kyoto, and started to grow through

the boom in radio sales from 1947 to the early 1950’s. It produced titanium condensers

which were an important radio component. In 1951, with increasing demand of

electronic parts MMC build a new factory in Fukui. After that they expand their

business and built a number of plants throughout Japan.

To manage these subsidiaries, top management in headquarter used an independent

accounting system which is called Dokusan system in Japanese. The system allows

managers of subsidiaries strong authority to decide their operational work. And they

assumed responsibility for the profit of their plants. That is because MMC headquarter

has not enough resources, for instance number of managers and functional staffs, to

manage many workers in geographically dispersed employees. They thought that even

if managers did not have enough ability to manage big company, they can well manage

their small business unit. This independent management style influence later

management systems.

In 1954, after special procurement boom of Korean War (1950-1953), MMC faced a

financial difficulty under the deflation-led recession. MMC cut down the size of their

employees. Such experiences changed the concept of management to “Scientific

Management” and top management came to attach importance to “stability”. After that,

as the market of black-and-white TV and transistor radio grew, MMC expanded their

business smoothly. An expansion of production scale and increasing variety of product

increase complexity of production process. And this complexity pushed up the number of

processes in a product line. In 1959, in order to manage lengthened processes, process

income accounting was implemented. This technique is to manage a part of process

precisely and timely by separating a process into many small profit management units.

What’s interesting is that originally there was no capital budgeting system in MMC till

1960’s, despite it was already big that there were more than 4,000 employees in MMC.

One of the reasons seem to be that Japanese company raised fund from their main bank.

MMC also did not have enough fund and they depended on liability from main bank at

18

that time. They could not decide about their new business autonomously. Most of big

capital investment proposal was assessed by main bank. Main bank substantially has

decision-making authority (Kazusa, 2003).

0

5000

10000

15000

20000

25000

30000

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

系列1

(Figure 4; Number of employees in MMC Group)

Top management focused mainly on product development and operational

management. The situation led to implantation of transfer price, and income

management system. This income management system produced a base of capital

budgeting system in future. Especially, to manage by separating company into small

unit stem from the luck of administrative power in pioneer days.

And during this period, budgetary control system, internal charge system and

estimating cost accounting were also implemented to manage “scientifically”. This was

strongly lead by a officer who are a brother of founder and have deep interested in

management. Internal charge system means that headquarter charges interest cost on

cost centers. The reason of implementation of internal charge system seems to be that

MMC had not enough cash at that time. After World War Two, in Japan, the priority

production system which intended to allocate money for a particular industry was

implemented and that is because MMC could not raise funds enough for expanding

their business. And at that time, most of companies depends on bank for their fund

because direct finance market was not well established. That’s why managers had

strong concerns on quite expensive interest cost.

So it was necessary and most important topic of management to manage cash tightly for

capital investment and inventory investment. Estimating cost accounting was used for

determining prices of products. At that time, managers decided prices of products by

accumulating estimated cost and necessary profit.

19

5.2. Stage2: ex post assessment system (pure income system)

In early 1970’s, remarkable increasing market of color television involved increasing

demand for ceramic condenser, because 2-3 times condensers are needed for color TV

compared with black-and-white TV. To enhance production, MMC construct many

factories as a subsidiary in Hokuriku and Sanin region. This geographical expansion of

production seeks to raise fund which was allocated for the provinces from government

and taking cooperative funds from regional private banks. Low labor cost was also a one

of the reasons. As a result of such expansion and enhancement of production, complexity

of managing subsidiaries became a subject of discussion. Each subsidiaries used to be a

business unit and manager in headquarter was only monitoring the performance of

these unit. But the situation had been changed, and different factory came to produces

same products. Then top management recognized necessity of managing not by

subsidiaries, but by business units beyond the boundaries of legal corporations.

In October 1974, MMC started to reconstruct organizational structures which included

management accounting systems. MMC implemented product line organization system

and assume the manager authority to manage a consistent business process from R&D

to marketing. It also meant that functional staffs in factory came to be under the

command of business unit manager. But factory manager remained to have a authority

to manage production line. Because it was trouble to move power from local factory

manager to business unit manager in headquarter. After this restructuring, MMC

headquarter tried to integrate regulation over subsidiaries. But it was also difficult

problem especially in big influential subsidiaries. For example, former CFO (and

Vice-president) Hiroshi Izumitani was seconded to a subsidiary in Fukui during

1977-79 to reform such attitude and integrate divergent procedures and regulations.

While a long history of independent management system, it became to difficult to

control factory manager. However, this new organizational structure was gradually

accepted. At the beginning of 1980’s, integration of functional staff organization had

been completed. Functional staffs move to subsidiaries from headquarters or vice versa

frequently, this rotations enables central coordination by headquarters. Then the

original form of MMM was constructed.

Matrix organization has been separated by two dimension which are product line

organization (PO) and geographical organization (GO). PO consists of few strategic

business units (SBU) which include product units. And the head of PO has a strong and

consistent decision-making authority to control overall business processes which

include R&D, production and marketing. They assume responsibility and accountability

for the total performance of the SBU.

20

(Figure 5; Conceptual organization chart about PO)

The production process is separated into just about main three processes, which are

material, ceramic and process. In MMC, product units are regarded as a profit center.

And three main process included in a product unit also calculate their profit by using

transfer prices. These transfer prices are mainly reflect the market price, and are

decided by the negotiation between units and coordination by functional staff. Business

units calculate their profit by a formulated form (see figure 5). These profits which are

calculated in each unit will be used for measuring their performance by being compared

to their budget. And the performance reflects on a bonus.

GO mainly consists of local factories as a profit center. The managers of GO accept

responsibility and accountability for the productivity of factory lines and effective

operation of the factory. For example, if they have unused or leftover space in the factory,

they attract new product lines which the enhancement of production is required from

PO. As a result, from the point of view of lower management in a factory, they belong to

both chains of command in PO and GO. A unique character of this matrix organization

is that this structure has constancy, which is different from project organization.

Headquarters staff organization, which includes accounting, personnel affairs, general

coordination affairs and information system department etc., located at just beneath

CEO. The staffs control functional staffs in branches and subsidiaries. They also play a

role of coordination of horizontal coordination between managers of PO and GO, or

vertical coordination between headquarter and subsidiaries. They don’t command

directory, but coordinate conflicts between these organizations. In addition, staff

department is regard as a cost center.

After the implementation of internal charge system in 1960’s, the nature of operating

income had drastically changed. The profit means a profit which interest cost is

deducted, in other words, residual income. At that time, they didn’t consider capital cost

because capital/asset ratio was quite low and capital cost didn’t have much impact. But

21

in late 1970’s, they changed calculation method of interest cost and took capital cost into

account.

In 1960’s, mentioned above, there isn’t necessity to have capital budgeting system and

it was not used as a tool of capital budgeting. But in early 1970’s, they got almost

satisfactory funds and their situation was dramatically changed. That was because

MMC launched stock exchange in Osaka and Tokyo in 1969, and also Singapore in 1976,

Luxembourg in 1977, Frankfurt in 1978. This satisfaction was recognized by top

manager as a welcome but somewhat problematic phenomena (presidential policy

announcement in 1973, from corporate magazine, 1977). Financial satisfaction and

breaking away from the dependence on main bank lead to demand for autonomous

decision making system. Top management considered that it was in danger of losing

disciplined investment after getting relief from bank’s assessment process. Then this

“residual” income management system came to be used as a tool for decision-making.

In early 1970’s, “trichotomy of cost” was implemented under this context. This unique

accounting technique separated cost into three categories “variable costs”, “process

costs” and “indirect costs”. Variable costs were defined in the same way we define them

today. Process cost defined as a cost which is in semi-proportion to outputs and accrues

accompanying with process. Indirect cost means a fixed cost except of process cost.

Variable cost and process cost are called “pure cost”, and then the notion of pure profit

(=sales – pure cost) was generated (see Figure X; calculation of business unit profit).

The purpose of this trichotomy was to compare an increment of process cost with

decrement of variable cost as a result of a investment. They used this pure income to

judge the profitability of investments.

Sales based on prduction volume 100

Variable cost 20

Marginal profit 80Semi-fixed cost 15

Interest cost on process 5

Pure income 60Fixed cost 10

Sales and Administrative cost 5

Other interest cost 5

Operating income 40

(Figure 6; Simplified calculation form of business unit profit)

In the electronic industry in Japan, after World War II, capital intensification went on

increasingly. So, it was necessary to analyze efficiency of investment by comparing

decrement of labor cost and increment of equipment cost. In addition, their

22

management philosophy “manage scientifically” seems to have an influence on this

unique technique. Until current system has been established in late 1980’s, this pure

income system plays a key role in capital budgeting in MMC.

5.3. Stage3: capital budgeting system in late

From late 1970’s, MMC started to full-scale globalization of production and marketing.

Many subsidiaries are established or purchased in diverse countries, for example

Singapore (1972), U.S. (1973), Taiwan(1978), Brasil (1986), Mexico(1987), Thailand

(1988), Malaysia (1993). MMC had a policy about production in foreign countries, which

was “Produce only in where the market exists”. That is because MMC did not try to

produce in where only there are cheap labor powers. This starting overseas operation

mainly responded to needs of parts supply from makers which started operation in

response to inviting from local government. During 1980’s, MMC continue to grow up,

and consolidated sales in 1899 became 4.5 times compared to 1890. After Plaza Accord

in 1985, Japanese Yen increasing rapidly, many Japanese makers move their factory

abroad. Accordingly MMC expand their business worldwide. MMC developed a new

type of oscillation device which was made of ceramic. Ceramic oscillation device could be

cheaper than the device which was made of crystal. And this device is necessary for

electronic equipment which a computer is loaded. This new product accelerates the

growth of MMC. While this period, composition of electronic devices had been advanced

increasingly with the times. As a result, MMC reorganized business unit frequently.

In late 1980s, major part of current system has been formed. This capital budgeting

system is well established compared to prior system. The process of capital budgeting

system consists of three sub-processes which are budgeting, RINGI and post-audit.

(Figure 7; process of capital budgeting)

In budgeting process, capital investment proposal is examined based on given

conditions. Then, 4 types of measurement below are compared to standards and

determine whether it would be accepted or not. This technique is called “Net

Investment Analysis” (Kazusa and Asada, 2007). All of these measures are calculated

based on “Net Return from Investment (NRI)” which means increment pure income.

(Concerning big investment cases, sometimes it causes increase of administration cost.

Budgeting RINGI Post-audit

23

Then the increment administration cost will be taken into account.)

1. Return on Investment (%);

Yearly NRI/ Investment × 100

2. Payback Period (month);

Investment / ( Monthly NRI + Monthly increment depreciation )

3. Increment Return on Asset (times);

Yearly NRI / ( Investment + Increment liquid assets )

4. Investment Effectiveness (%);

Yearly NRI × Years of depreciation / Investment × 100

Of course, not only such quantitative measures, but also other qualitative conditions

about business strategy are taken into account.

RINGI process is an ordinary process of budgetary control in Japan. When they

execute budget, lower managers write RINGI upon given format to explain the validity

and effectiveness by using detailed and latest information about the proposal. As a

general rule, the total quantity of proposals needs to be appropriated in budget. And

then RINGI is sent to higher level managers to invite comment. Up to appropriate level

of manager who has enough authority for the decision making, it will be continued and

approved at last. Of course, sometimes managers reject and send back it to improve the

plan. This process complements the weakness of rough budget and also enables sharing

information vertically.

In Japan, it is very unique to have post-audit system. Managers of particular

investment proposal obligated to report the performance in a period. And then, if actual

achievement is lower than target results, they have to make and show a plan to improve

it. This process will continue until achieving expected results. Post-audit system

intends not only to follow up the achievement, but also to prevent easy planning. This

system enables managers to focus on unfavorable variances. As a result, they can

manage limited investment easily.

6. Implication and Conclusion

6.1. Changes of Calculative Architectures

Through a part of case description I saw a change process of MA systems and practice.

MMC implemented independent accounting system which includes transfer price, pure

income system which includes internal charge system, matrix management system and

24

capital budgeting system which is interrelated with pure income system in turn. The

motivations of implementation at that time were rational. And each MA systems are

tightly coupled with socio-economic context and also related to organizational context.

The most interesting point of this case evidence is in changing aspect of calculation of a

particular technique. Now I term it a “calculative architecture”. These words simply

represent a calculation and a combination of calculations as an objective reality. For

example, calculative architecture of pure income system can be explained by elements of

sales, variable cost, process cost, and interest cost etc. and its sequence.

In this case, the calculative architecture of capital budgeting system has been

gradually changed in response to contingent factors or the context at each time. For

example, the calculative architecture of pure income system has been fabricated

through the emergence of independent accounting system, income management system

and internal charge system. It would never appear without former system and

calculative architecture. Because the nature of pure income, which is a variation of

residual income and divisional profit, was crucially important to transform it for capital

budgeting field. And the change of routine from ex-post assessment to ex-ante

assessment would never have been caused without this pure income.

(Figure 8; A process of phylogenesis)

Then, important implication from case evidence is that calculative architecture works

as a genealogical entity. Prior researches in organizational change studies tend to

regard routine as an exclusive genealogical entity (McKelvey, 1982; Nelson and Winter

1982). But what would be routines are not well examined. In accounting change studies,

Burns and Scapens (2001) defined “rules” and “routines” as “the formally recognized

Calculative

Architecture

Routine A

Realm of Action

Ex post assessment (Performance measurement)

Realm of Action

Ex ante assessment (Capital Budgeting)

Calculative

Architecture

Routine B

Motor of Change

25

way in which ‘things should be done’. ” and “the way in which ‘things are actually done’”

(p.6). And they also noted that;

In the context of management accounting, rules comprise the formal management accounting

systems, as they are set out in the procedure manuals; whereas routines are the accounting

practices actually in use. Clearly, there will be a relationship between rules and routines, but it is

important not to confuse the two. Management accounting practices in use may not actually

replicate the systems set out in the procedure manuals.

I can interpret this paragraph based on evolutionary framework that routines can be

regarded as a genealogical entity, but rules cannot, because MA practices in use may not

replicate in it. I would like to argue that a calculative architecture also plays a key role

to replicate MA practice and there is a mutually constitutive relation between way of

use and object of use. In addition, it would be a source of path-dependent nature of MA

change in the phylogenetic process.

Then I need to slightly modify these core concepts to explain our argument clearly.

Sometimes, routine includes both way and object of use, but I argue that this separation

is crucially important for an analysis of emergent MA practice. Then, routine was

defined as knowledge and practice in Burns and Scapens (2000). But I should

distinguish the aspect of knowledge from ‘practice in use’. Because routinized

knowledge is modified through the use in practice.

Way of use Object of UsePurpose (function), procedure,

applicable contextInstrument

Calculative Architecture

Practice

RuleKnowledge

in Recognition

Action

Knowledgein Use

Routine

(Table 3; Rules, Routines and Calculative Architecture)

Quattrone and Hopper (2001) raised question about the teleological change story, using

analogy of drifting boat (p.426). However, the authors also recognized the purposeful

activity of practitioners. In addition, practitioners are not completely free in the ocean

which is fulfilled by uncertainty, because they have a small boat and oars. They must

try to respond to contingent factors by using these existing instruments sometimes in

an unpredictable way. And Miller and Napier (1993) noted that;

26

We need to disturb the self-evidence of existing calculative practices, and to be attentive to the

changes in meaning that have accompanied their emergence. We need to see contemporary

accountancy as nothing other than an assemblage of disparate components that has been put

together in piecemeal fashion. (Miller and Napier, 1993, p.644)

These two literatures imply the possibilities of change in the meanings or functions of

calculations in relation to the change of the context. I can explain such a process more

clearly by utilizing the conceptual settings described above. Furthermore, what kinds of

genealogical entities would be crucial in any situations are also problematic. I can deal

with these problems in evolutionary framework by using notion of calculative

architecture. I can say that calculative architecture plays a key role in phylogenetic

process. In this case, the nature of the identified change in ontogenetic process was

“non-linear” and “ex-post rational”. Because such innovation is not planed in advance,

and the function is emerged after long time passed.

Then what is MA practice which means the object of change here became problematic.

Because I can’t specify what can be treated as a change without specifying it. This issue

involves a lot of problems about time and space horizontally and vertically.

That concerns levels of analysis, in other words hierarchy (Baum and Singh, 1994). In

this case, we mainly focus on the MA practices and systems in headquarter. Actually,

MMC consists of many other brunches and subsidiaries. There may be many alternative

way of use of a particular MA technique. The described MA practice in MMC is only

local practice in headquarter. And also a particular MA practice connects with other one,

such a mulitiered nature of accounting makes it increasingly difficult to analyze. As a

consequence, it is not so easy to identify ‘new’ and ‘old’ MA practice and these differences.

Even in historical studies, “the absence of an invariant object” has been seen as

problematic issue (Miller and Napier, 1993).

This problem concerns the nature of change. Quattrone and Hopper (2001) argue that

very little is known about “(w)hat the concept of change means, whether it can be

conceptualized independently from its process and how these factors relate to the

practice of accounting” (p.404). This proposition somehow stems from the lack of

consideration about the object of change and observability of the object. For example,

institution and routine have been a main object of change study, but we are not sure

about how we can observe or identify it.

In this case, I identified the changes of calculative architecture after transplanting it

into another realm of action. At the same time, this transplantation led a change of a

routine. Now I specify these genealogical entities as an object of MA practice change.

Calculative architecture has remarkable superiority in observability compare to

27

routines or practice. And then evolutionary framework as an interface endows to make

it work by constructing the field of integration with other knowledge.

6.2. Roles of human actors

Routine and calculative architecture are both developed to respond to multiple

contingency. In general, the instrumental aspect of calculation is emphasized, that is

why rational choice of such a management device occupied main stream of change study.

But this linear change is only one of possibilities. Clearly there is an interrelation

between those two components. In the case described above, calculative architecture

constitutes routines of MA practice in the change of context.

Cooper et al. (1996) explored the change of organizational archetype by using the

geological metaphor of sedimentation based on Greenwood and Hinings (1988) and

other their works. They emphasized dialectical aspect of change rather than linear

change, and some of dialectical oscillations of organizational archetype are also

mentioned in our description. Obviously, the point of view of calculative architecture has

shared similar focus with their studies of organizational archetypes. Miller and Napier

(1993) also supports our genealogical view of calculation by the explanation of

emergence of calculation and change of the meaning in the social context. I believe that

the evolutionary frame work would be a platform for the study of accounting change

process in a company.

However, this constitutive aspect of calculative architecture depends on managers

which facilitate these combinations between routine, calculative architecture and

context. I need to emphasize the role of human actor in change process. Even if there is

a mutually constitutive relation between two genealogical entities, it is never made

manifest without some actions by human actors. In that sense, human actor like a

manager is essential element of MA change process.

28

(Figure 9: The relations between agents, entrepreneurship and context)

Despite the crucial importance of human actor’s work in change process, the role of it

has not been well explored. Some studies on institutional entrepreneurship examined

roles of entrepreneur in institutional change processes (Greenwood and Suddaby, 2006).

But this idea is criticized because of basic problem which is called the ‘paradox of

embedded agency’ (Seo and Creed, 2002, p.223) which means impossibility of explaining

endogenous institutional change. To avoid the problems, I carefully exclude the concept

of institution and structure-agency dichotomy. Moreover, studies on institutional

entrepreneurship only mentioned ‘institutional change’ and did not mention ‘accounting

change’. There are a lot of MA changes without institutional change.

And then, I would like to start new discussion about styles of entrepreneurship. Here, I

suppose some heuristic typology of styles of entrepreneurship along with change

processes. There are three types of manager’s role as follows; Pre-change controller who

identify and specify the demand for management, or supply some knowledge as

solutions; Implementer who implement and diffuse innovations in space and time;

Post-change controller who identify the new function or adverse function of the

solutions, discard unnecessary items or put it into another area. It should be

emphasized that, as described above, managers or CFO seems to play nonuniform roles

in MA change process.

Practice

Routine &

Architecture

Organizational Context

Entrepreneurship

Management

Entrepreneurship

29

(Figure 10: The styles of entrepreneurship)

In the analysis of this case, former vice-president who is a brother of founder had a

strong interest in management system and technique. He acted as a pre-change

controller of internal charge system and other techniques especially in the change

process of capital budgeting. In his papers in corporate magazine, he analyzed

competitive environment and introduce various techniques to improve management.

The style of pre-change controller is to interpret organizational context and find a ‘new’

routine and architecture.

On the other hand, the former CFO played a key role as not only an implementer, but

also a post-change controller. He managed practices of accounting techniques to fulfill

expected functions of ‘new’ techniques. The style of implementer is to fabricate given

routine and architecture. At the same time, he managed after change process, at last,

wrote a book about management practice in MMC when he was CFO, which is used as a

text book in internal education in MMC. The style of post-change controller is to

reinterpret ‘new’ routine and architecture and to diffuse or abandon it.

More interestingly, capital ownership system which was carried by him was discarded

in few years, because of an adverse effect which is pointed out by former CFO as a

post-change controller. Of course, MMC has a nature of Japanese company, and their

process of decision making is not hierarchical necessarily. Hence, many people

committed each event and came into play as various types of players.

By the idea of institutional entrepreneurship, institutional framework provides

complementary explanations for evolutionary framework through human actor’s

recognition. As is the case with previous researches, a radical change in the context

induced institutional change. After the oil crisis in 1973, the president and founder of

MMC announced new policy for managers which emphasize shift for pursuing capital

efficiency from simple enhancement of business presidential policy announcement in

1973, from corporate magazine, 1977). This also seemed to prepare for the listing on

security market in Singapore. 2 years later from this announcement, in 1975, the senior

manager of accounting department made a statement that they intended to change

their role from ex-post calculation for directing management (manager’s policy

Pre-change controller Implementer Post-change controller

30

announcement in 1975, from corporate magazine, 1977).

This change in conception of control (Fligstein, 1990) affects later change in MA

practice via cognitive perspective of manager as a pre-change and post-change controller.

Existing techniques tended to be related to capital efficiency and used as a device of

increasing capital efficiency. But I point out that there is a big time difference between

the change in the conception of control and the formulation of capital budgeting system.

6.3. Contributions and further research

The contribution of this paper is to better understand MA change process by the

notion of calculative architecture as a genealogical entity in evolutionary framework.

We tried to reveal the potentials of evolutionary framework as a comprehensive

framework of change explanation. This framework is developed for especially explaining

the ‘process’ of MA change. In addition, we need to focus on accounting specific features,

for example calculative architecture, to understand MA change process.

And one of the most important characters of it is non-adaption of structure-agency

dichotomy. In a sense, our focus is very local and we never assume the structure which

constraints agencies. I prefer to use the flat relations in a web of actors. Hereby, we

avoid fruitless dispute about identification of structure and the relation of these two

entities. And we believe this rejection of the dichotomy would not be a fatal lack of

explanations. Because I think we can treat this issue more clearly from the viewpoint of

entrepreneurship.

And also this paper provides heuristic taxonomy of types of change by utilizing few

perspectives in evolutionary framework. This typology is not exhaustive completely, but

it would be a useful starting point of discussion. It endows to reveal the poor area of MA

change process study. Furthermore, this taxonomy assists to connect the scattered

researches in various areas and hopefully provide integrative knowledge for increasing

development.

The rough sketch of role of human actor also provides a one of research possibilities for

further research. I argue that we need to connect studies on entrepreneurship and

accounting change. From case evidence, I found that multiple entrepreneur affected MA

change and they played nonuniform roles at different time processes. Then this multiple

players and multiple roles provided the nature of MA change, which was called

non-liner or non-teleological. However I have not had enough understanding on this

issue. We need to discuss styles of entrepreneurship along with MA change process

more and more.

31

Acknowledgement

I am really grateful for Murata Manufacturing Company and Hiroshi Izumitani,

Hideaki Yuri, Keiji Hariyama, and other associate participants for interviews. Also, I

would like to thank Chris Akroyd (University of Auckland), Stephen Jollands

(University of Auckland), Yasuyuki Kazusa (Fukui prefectural university), and Okihiro

Maruta (Kyushu University), Norio Sawabe (Kyoto University) for their useful

comments on early version of this paper.

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