Cultural Implications of Planning Element of Management Accounting - Literature review Example

Cultural Implications of Planning Element of Management Accounting Name: Lecturer: Course: Date: [WORDS 2013] Cultural implications of planning elements of management accounting Introduction The modern-day business environment is becoming ever more unpredictable and volatile. At the same time, business management is becoming equally erratic. More specifically, the heightened competition has emerged as an underlying threat to the survival of business. This has called for strategic planning to achieve organizational efficiency (Frezatti et al. 2009). For a business to be managed efficiently and to be able to achieve efficacy, certain elements of accounting such as management control systems that incorporate management accounting has to be used. The element of planning is an integral mechanism for designing strategies and provision of pertinent information for strategic planning and budgeting. Such actions denote the processes of management accounting, which is defined as a system designed for measuring and presenting financial and operational measures, to guide the management action, motivate desirable behaviours and to help create cultural values, suitable for achieving strategic objectives (Bell et al. 2011). Accordingly, the planning element of management accounting has a range of implications on the business. This essay argues that the planning function supports and creates a set of shared beliefs, values, mindsets and subcultures within an organisation. Termination old and adoption of new philosophies The planning function of management accounting may require termination of some organisational philosophies and adoption of those that integrate well with the planning. Implementation of planning elements such as Enterprise Resource Planning (ERP) system in management accounting is associated with cultural implications, such as managerial accounting (Spathis & Constantinides 2004). The planning element can therefore create new culture and orders that lead to new organisational solutions. In a study of cultural implication of ERP on organisational strategies, Jarvenpaa (n.d.) established that planning functions affect management philosophies, which are often under continual development process, as well as, often intimately related to each other. Some commentators have also suggested that the planning can dramatically affect the management process (Spathis & Constantinides 2004; Bell et al. 2011; Zaglago et al. 2013). For instance, the traditional concepts of management control that distinguish this concept from the strategic planning and operational control has been criticised for its narrowness in the modern business, due to the modern-day management philosophies and the environmental shifts, including such concepts of total quality management (TQM), benchmarking, business process orientation, lean-thinking philosophy and activity-based management. This reasoning is based on cultural relativism theory in management accounting, which hypothesizes that individuals from different cultures use and create management accounting practices and concepts that affect organisational cultures, in turn dictating the structures and frameworks that an organization adopts (Riahi-Belkaoui 2002).Hence, it should be argued that since the planning elements of management accounting covers components of operational control and strategic planning, implementing management planning forces managers to continually realign the strategy to match the organisational environment. This may require terminating some organisational philosophies and adopting those that integrate well with the planning (Zaglago et al. 2013). Change cognition and perceptions The planning function changes cognition and perceptions within the organisation. The planning function supports and creates behavioural attributes within the organisation. Bell et al. (2011) defined behavioural attributes as the ways in which measurement affects behaviour. There are ranges of ways in which the planning function of management accounting affects people’s behaviour within the organisation. For instance, it changes cognition and perceptions when it manages to make things visible. Bell et al. (2011) pointed out that this is possible when, what is measured by the management accounting to implement a change in organisational planning is given an air of precision and significance. For instance, the organisation focuses and attends to the measures. In addition, they begin to give greater weight to the new ideas and new understanding, resulting from the planning measurement. Since the ideas are assumed to have greater significance, they are prioritised. A case in point is when the environmental costs are measured and their existence is highlighted. This makes them visible to the organisation’s management. As a consequence, a change in attitudes ensues. However, while accounting measures can indicate cultural dimensions, such as the organisational mindsets, this is to a limited extent. Bell et al. (2011) argued that mindsets depict the collective worldviews that prevail the thinking of people within the organisation. An analysis by Bell et al. (2011) concluded that while accounting measures that are consistent with the collective mindset are likely to be accepted, the financial measure of quality may not be accepted in some organisations, such as a hospital with established mindset that quality healthcare is immeasurable. This shows that to some extent, the planning function of management accounting has limited implications on changing the mindset of employees. Assimilation of foreign cultures The planning function of management accounting may mismatch with the local cultures resulting to assimilation of foreign cultures. Due to globalisation, management accounting approaches used globally have to be adapted to fit the local culture and prevalent norms. In such circumstances, it is likely that the planning systems intended for management accounting, such as ERP may not fit the cultures of a host country, which are reflected in the organisation (Fatimee et al. 2014). Srivastava and Gips (2009) noted that implementing the planning function through an ERP, within a global environment, signifies a major cultural change for a business, since cultural and national borders have to be crossed. Hence, an organisation may have to localise the foreign culture -- or integrate the foreign culture in its business operations – to ensure effective application of the planning system. The degree of clash, embedded in the planning function of management accounting within an organisation’s culture, were identified by Zaglago et al. (2013) who found that implementing planning elements of management accounting, such as ERP, in a global environment, may cause cultural clash with the internal organisational culture that reflect the societal or national cultures. According to Zaglago et al. (2013), when the ERP system that has been developed in a Western country is applied for planning, in a country whose cultures differ significantly, cultural clashes may result. This may cause unsuccessful implementation of the ERP system for management accounting, unless localization of the system is performed (Caglio & Newman 1999). In another study, Rasmy et al (2005) also found that implementation of foreign ERP system caused cultural clash in Egypt, where the organisational and national cultures clashed. Srivastava and Gips (2009) also provided evidence suggesting that the change component of planning function of management accounting faces cultural conflicts when implementing a Western-styled one in China. These resulted to double-layered acculturation. This perspective is based on Hofstede’s theories of five cultural dimensions, namely Power Distance, individualism, uncertainty, masculinity and long- and short-term orientation (Srivastava & Gips 2009). The theory argues that different cultures have different ways of doing things, hence business in different countries have their different ways of doing things due to different local requirements and business processes, resulting from local and national differences. Under such circumstances, some studies have provided empirical evidence that to escape the cultural conflicts, the local firms may need to transform their cultures by assimilating foreign management practices in order to be able to localise the management accounting solutions (Srivastava & Gips 2009; Bell et al. 2011). Motivates organisational behaviours and values The planning function also motivates organisational behaviours and values. Organisational behaviours and values are used in interpreting the meaning of accounting measures (Bell et al. 2011). Once management accounting measures behaviour, the results signal desirable behaviours. Bell et al. (2011) suggests that people will often tend to effect behaviour change in response to those measures. For instance, when management accounting measures the percentage of deliveries made on time, the company’s procurement manager selects suppliers who have a good track record in making deliveries in the strategic plans, so as to ensure efficiency. Hence, if the accounting measures relate to the values and beliefs that are considered to be important by the employees, then the measure are likely to be more accepted as a basis for actions. If the management believes that meeting budgets shows that the employees are hardworking, disciplined and responsible, then they will focus on achieving the budget. Accounting measures can also indicate cultural dimensions, such as the organisational values. Bell et al. (2011) describes organisational values as a special case of cultural dimension that reflect the focus and image of a certain organisation. It is believed that the financial measure may have limited impact on organisational value in organisations whose culture is based on traditions (Bell et al. 2011). According to Bell et al. (2011), such organisations may not accept accounting measures that encourage egalitarian work and change in their planning strategies. This perspective is based on Classical Management Theories of accounting, which promotes the idea that an organisational world espouses the features of a physical world. In which case, administrative principles can be developed by systematically studying the cause and effect correlations (Hopper & Powell 1985). Hence, an employee's behaviour is perceived to be passive and depend on the situational variables, the management can manipulate. Therefore, since the behaviour of the employees is perceived to be instrumentally rational and calculative yet in actual fact passive, management accounting is used by the management to stabilise and program desirable behaviour by monitoring performance (Hopper & Powell 1985). Change in organisational attitudes, beliefs, and aspirations The planning function also contributes to change in organisational attitudes, beliefs, and aspirations. This is since evaluative measures have the propensity to impact the change in attitudes and levels of aspirations. For instance, a time standard designed for performing a task creates a target that employees are expected to attain with considerable level of effort. Once employees succeed in these efforts, the management may review their levels of aspiration, hence motivating them further. Bell et al. (2011) pointed out that motivating the employees under such circumstances leads to better organisational performance. Accounting measures can indicate cultural dimensions, such as ethical values and beliefs, which are applied in deciding and interpreting whether an action is meaningful. Frezatti et al. (2009) suggested that fiscal prudence is strongly significant in many cultures. On the other hand, integrity and honesty are strongly promoted for organisational efficiency. Hence, measures that are consistent with these ethical values and beliefs are likely to offer good grounds for action than those that conflict the ethical values and beliefs. A factor for sub-culture diversity The planning element of management planning cause sub-culture diversity. The sub-cultural diversities reflect the differences between the levels of expertise, tasks and the accomplishment of activities within the organisation, which result from using ERP for planning in management accounting (Aernoudts et al. 2005). In assessing the cultural effects of the planning function of management accounting in organisational context, Kalbasi (2007) found that because of these consequent differences, an organisation’s culture will not constitute an aggregate of the different subcultures within the organisation. In another study that explored the subculture differences, as a consequence of diversities between members of the organisation, De Long and Fahey (2000) established that such sub-culture differences may hinder cross-functional collaboration and managing of corporate-wide projects. These show that while planning functions, such as ERP may improve the efficiencies and effect culture change in one department of the organisation, similar changes will not reflect in other department, resulting to differences in levels of understanding and cultural norms between departments (Rasmy et al. 2005). These may affect the management of initiatives that require collaboration between departments. Conclusion To conclude, planning function of the management accounting supports and creates a set of shared beliefs, values, mindsets and subcultures within an organisation. Implementing the planning constitutes an extensive cultural change for an organization. First, the planning function of management accounting may require termination of some organisational philosophies and adoption of those that integrate well with the planning function. It also changes cognition and perceptions within the organisation. Next, it may mismatch with the local cultures, resulting to assimilation of foreign cultures. The planning function also motivates organisational behaviours and values. Further, it contributes to changes in organisational attitudes, beliefs, and aspirations. Lastly, the planning element of management accounting causes sub-culture diversity, which delay cross-functional collaboration and managing of corporate-wide projects. References Aernoudts, R, Boom, T, Vosselman, E & Pijl, G 2005, Management Accounting Change and ERP, an Assessment of Research. Munich Personal RePEc Archive Bell, J, Ansari, Klammer, T, Lawrence, C 2011, Strategy and Management Accounting. Houghton: Houghton Mifflin Company Caglio, A &Newman, M 1999, "Implementing Enterprise Resource Planning Systems: Implications for Management Accounting", ICIS 1999 Proceedings. Paper 38. De Long, D & Fahey, L 2000) Diagnosing cultural barriers to knowledge management. Executive-Ada Then Briercliff-, vol. 14 no. 4, pp.113-127. Fatimee, S, Shah, M & Hussain, S 2014, "Impact of Enterprise Resource Planning Implementation on Supply Chain Efficiencies: A Case of Telecom Sector," J. Basic. Appl. Sci. Res., vol. 4 no. 4, pp.20-30 Frezatti, F, Aguiar, A, Guerreiro, R & Gouvea, M 2009, "Does management accounting play role in planning process?" Journal of Business Research, doi:10.1016/j.jbusres.2009.11.008 Hopper, T & Powell, A 1985, "Making Sense of Research into the Organisational and Social Aspects of Management Accounting: A Review of Its Underlying Assumptions," Journal of Management Studies vol. 22 no. 5, pp. 421-447 Järvenpää, M n.d., Management Accounting and Strategy. Functional and Institutional Perspectives; A Case Study, viewed 6 May 2014, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.201.9278&rep=rep1&type=pdf Kalbasi, H. (2007) Assessing ERP implementation critical success factors. Master Thesis, Lulela University of Technology. 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