Account Theory, Decision-Oriented, and Action-Oriented Approaches - Case Study Example

Running Head: Accounting Theory Accounting Theory [Institute’s Accounting Theory Introduction Being a big business in today’s world requires a company to maintain prestige, a strong and constant cash flow, and loyal customers. It also means holding a very strong reputation, which can easily be brought down to shame with a single incident. Large corporations have a responsibility to ensure that they fulfill their promises of quality and confidence. While large businesses have thousands of customers, dissatisfying one customer or not fulfilling customers’ expectations can significantly affect the reputation of a company. Companies rely upon word of mouth, and after building a reputation that has prevailed for years, one incident can change the perception of their customers forever (Ouchi, 1981, p. 82). Once a company makes a mistake, they will take numerous actions to compensate the customer or let the public know their viewpoint regarding the incident. Some mistakes are forgivable and only affect the company’s short-term sales while other mistakes may even cause the company to file bankruptcy or go out of business (Ohmae, 1982, pp. 45-48). Accidents that cause death, injury, or serious mistreatment of customers may result in a boycott of the company’s products, as well (Schendel, 1979, p. 45). Smaller mistakes such as faulty products or malfunctioning goods may only result in the company having to replace the products and refund the customer (Barney, 1986, p. 1236). Discussion Japan is a market with very high context culture and very strict standards of adherence to cultural practices. The Japanese are not sympathetic towards other cultures and do not allow international companies to take advantage of using different social norms when they conduct business in Japan. Japanese customers expect extremely high quality standards and do not tolerate even slight deviances from those standards. It is mandatory to please Japanese customers and mistakes are not easily forgiven. Operating in this rigid environment was the renowned company, Schindler Elevators. The company was established by Robert Schindler in 1875 in Germany. Little by little, the company grew and expanded into other areas such as Asia, Africa, and the Middle East. Today, Schindler is the world’s leading supplier of escalators and elevators and is responsible for making some of the world’s best transport systems. It is also responsible for transporting approximately 700 million people daily (Schindler, 2006; Fink, 1986, pp. 76-79). However, Schindler Elevators is seriously suffering from decreasing market share and sales in Japan and it is even unable to find employees in the Japanese market because of an accident that occurred with one of its elevators. Schindler’s bad reputation also caused it to lose service contracts. The accident that got Schindler into trouble occurred in 2006 in Minato Ward, Tokyo. A 16-year old boy was getting off a Schindler elevator with his bicycle while the doors were ajar. The elevator began to move upwards and the boy was crushed between the doorframes and died instantly. The Japanese were outraged. Immediately following the accident, Schindler gave a press conference. While Schindler sympathised with the victim’s family, the company also maintained that there was no fault in the quality standards of the elevator and it asserted that the company was very particular about its safety standards. This press conference was followed by a series of additional press conferences in which Schindler explained the accident but did not apologize to the victim’s family or meet them. The Japanese expected an immediate and complete apology, but it took nine days for the Schindler Company to apologize after the accident, and the Japanese did not consider it a full apology (Japan Times, 2009). The public perception was that the company was arrogant and lacked high quality standards and a sense of responsibility. The Japanese are not used to companies that do not perceive responsibility as an essential part of their business; they are also not prone to forgiving mistakes easily and expect a company to either show extreme sorrow at their actions or suffer the consequences (Schindler, 2006). Even though Schindler did not believe the accident was its fault, the Japanese considered it responsible. The public expected Schindler to apologise for the inconvenience and tragedy caused by one of its elevators. However, Schindler did not perceive the situation in that manner and did not sense the urgency of the crisis. Hence, they were late in responding adequately and suffered immense losses in the Japanese market (Schindler, 2006). Schindler aimed to resolve the conflict with information releases and press conferences. However, even these were organised too late to appease the Japanese market, which expected the company to respond immediately and provide all relevant information regarding the incident. Unfortunately, for Schindler, the manager initially expressed a secretive attitude that emitted an aura of no comment (Schindler, 2006). Schindler had to stop selling elevators in the Japanese market and focus on escalators. For a while, this was the only feasible solution as the company was unable to make economies of scale in the Japanese market and only a small amount of products was being sold (Schindler, 2006). Analysis In times of crisis, companies must use accounting theories to deal with and manage such situations effectively. Management accounting theories include methods that enable the organisation to develop methods or plans to solve the managerial issue. Companies systematically follow the scientific and mathematical procedure of problem solving to find a feasible solution (Malmi and Granlund, 2009, pp. 75-81). In the Schindler scenario, the constructive approach to problem solving was applied; the company used diagrams or models to determine the number of elevators being sold in Japan and concluded that the quantity of elevators was not enough for the company to continue in this field (Nerreklit and Israelson, 2006, pp. 45-50). The constructive research approach emphasises the creation of models, diagrams, and tables, as well as the analysis of other data to determine the best path to adopt. The constructive approach consists of the following four phases: “identifying the problem, gathering relevant data relating to the problem, the innovation of a solution, and then application of the solution” (Malmi and Granland, 2009, pp. 89-96). The constructivist approach is a normative approach, which is closely linked with the decision-oriented and action-oriented approach. Other accounting theory research approaches include the conceptual approach, the nomothetical approach, and the action and decision-oriented approaches. However, the constructivist approach is scarcely used nowadays, as it is a non-scientific method of finding solutions. Some companies do apply it, as it is a systematic procedure for finding the solution to a prevailing problem. It is not considered a descriptive approach, which could clearly describe all elements of the problem. However, it does aim to identify all problem areas and find feasible solutions according to the alternatives provided and the data available (Quattrone and Hopper, 2001, pp. 85-90). Accounting theory is used as a discipline for management research to solve problems that occur in a company’s accounting methods. However, accounting theory is also applied to managerial issues and is used to devise models and provide appropriate solutions through the analysis of numbers. Hence, a company uses its accounts and financial statements to devise solutions and find feasible alternatives to the problem (Vernon, 1986, pp. 20-25). Another theory for this scenario is legitimacy theory. In the late 1970s, Dowling and Pfeffer proposed the legitimacy theory, “the relationship between an enterprise’ social ethics and those of society in general” (Eade and O’Byrne, 2005, p. 111). Application of the legitimacy concept to the Schindler case indicates that the incident forced the company to rethink its strategies and processes due to their legitimacy being at stake. In particular, a disparity between the company’s published vision and Japanese social practices had caused the incident. According to legitimacy theory, there is a sequence of steps that allows an organization to repair the legitimacy, “normalizing the accounts, demonstration of company values, reformation of strategies, and lastly, maintenance of quality and confidence” (Eade and O’Byrne, 2005, pp. 115-123). In the Schindler case, the company first went through the first phase by rejecting the claim that the company was responsible for the elevator incident. Subsequently, the company initiated various releases and reviews to indicate that it was concerned about the incident; however, the Japanese society rejected the releases. After the rejection of the press releases, the company went a step further to repair its legitimacy by carrying out research, which led to the decision to close down its operations in Japan. This move was made in an effort to repair its legitimacy; however, it does not seem to be an effective solution, as the company could have implemented better repairing. Conclusion Of the accounting approaches used, the most popular are the decision-oriented and action-oriented approaches that are based upon taking immediate action in a crisis. Of these, the constructivist approach seeks to devise a solution and then implement it accordingly (Vernon, 1986, pp. 53-54). In the Schindler case, the company methodologically devised the solution of pulling out of the elevator market in Japan, as it was not feasible to continue due to the low number of orders Schindler was receiving. However, it is still debatable as to whether this was the best alternative, even if it was not the most economically feasible one, as it still did not improve the company’s reputation (Pascall, 2008, pp. 2-4). References Barney, J. (1986). “Strategic factor markets: Expectations, luck, and business strategy.” Management Science. Vol. 32, no. 10, pp. 1236. Eade, John & O’Byrne, Darren J. (2005). Global Ethics and Civil Society. London: Ashgate Publishing Limited. Fink, S. (1986). Crisis Management; Planning for the Inevitable. New York: American Management Association. Kyodo News. (2009). Schindler Chief denies Guilt in Elevator Death. Tokyo: Japan Times Malmi, T. and Granlund, M. (2009). “In search of management accounting theory.” European Accounting Review. Vol. 18, no. 3, pp. 75-81. Schindler. (2006). “Tokyo Accident Press Release.” Fatal Accident in Tokyo Japan. Tokyo: Media Relations. Nerreklit, L., Nerreklit, H., and Israelson, P. (2006). “The validity of management control Topoi: Towards constructivist pragmatism.” Management Accounting Research. Vol. 17, no. 1, pp. 45-50. Ohmae, K. (1982). The Mind of a Strategist; the Art of Japanese Business. London: McGraw-Hill Publications Ouchi, W. (1981). “Theory Z: How American business can meet the Japanese challenge.” Business Horizons. Vol. 24, no. 6, p. 82. Pascall, K. (2008). Schindler Elevators and the Challenges of the Japanese Market. St. Gallen: University of St. Gallen. Quattrone, P. and Hopper, T. (2001). “What does organizational change mean?” Management Accounting Research. Vol. 12, no. 4, pp. 85-90. Schendel, D. (1979). Strategic Management: A New View of Business Policy and Planning. New York: Little Brown. Vernon, K. (1986). Accounting Theory. London: Wiley. Read More