Adoption of Management Accounting Innovations by Ax and Greve - Assignment Example

Issues in Management Accounting 1. Explain why the authors are emphasising the role of compatibility as a link between organisational culture and management innovations. Ax and Greve (2017) are emphasising the role of compatibility as a link between organisational culture and management innovations because organisational culture is the cornerstone of all activities that organisations undertake, including innovations. Therefore, in order for an organisation to have management innovations, it must have a culture that supports creativity and innovations. In other words, the culture of an organisation must be compatible with innovativeness in order for the organisation to support management innovations. To illustrate the points stated above, there is need to look at how Ax and Greve (2017) have described organisational culture and linked the concept to the issue of innovation. The authors note that organisational culture has a significant impact on the manner in which the members of an organisation interpret social practices and objects, the goals to be developed, and the strategies that the members of an organisation adopt to create a linkage between the practices and objects and the goals to be achieved. In another study, Chongruksut (2009) defined organisational culture as the expectations and beliefs that are espoused in an organisation, which bring about norms that significantly shape the behaviour of individuals and groups in the organisation. Thus, it can be said that organisational culture is all about the beliefs and values that an organisation champions for. Ax and Greve (2017) emphasise that the notion of organisational culture is linked to management innovation. This point is illustrated in the authors’ assertion that an innovation is said to be attuned to an organisation’s culture when the beliefs and values that are required in order to effectively use the innovation are comparable to the shared beliefs and values of the members of the organisation. In this regard, compatibility refers to a connection between an organisation and an innovation and not merely an attribute of the firm alone. Specifically, Ax and Greve (2017) define compatible organisations as those firms whose organisational culture is similar to or related to the beliefs and values that are entrenched in the innovation that they intend to use or come up with. That is to say that for an organisation to be said to be compatible, its organisational culture and any innovation that it produces or uses must be closely related and playing a complementary role. This view is supported by Lai, Lin and Ong (2015), who argue for instance that when an organisation has an innovative organisational culture, the firm can visualise the business environment as well as customer needs. Further, Lai et al. (2015) suggest that an innovative culture can enable an organisation to establish the capabilities that are necessary to make it more competitive both at the present time and in the future. Ax and Greve (2017) also emphasise the significance of the compatibility between organisational culture and management innovations by noting that implementation of new practices occurs more easily and is more successful when an organisation has a culture that fits with the beliefs and values that are entrenched in administrative innovations. That is, for any innovation to be successful and to be easily adopted, it needs to be compatible with the beliefs and values that are entrenched in the entire organisation. 2. Describe the innovative roles played by economic and social considerations in adoption decision-making. According to Ax and Greve (2017), compatible organisations are motivated to adopt by the opportunities that are presented to attain certain gains. As such, the potential gains that firms are likely to derive by adopting an innovation play a key role in the decision-making process of firms. The gains that firms are likely to get by adopting innovations are social and economic gains. The economic motives of adopting an innovation include the innovation’s attributes such as relative advantage, compatibility, complexity, triability and observabilty (Ax & Greve, 2017). As explained by Ax and Greve (2017), relative advantage refers to the degree to which an innovation is believed to be superior to the concept that is supersedes. Compatibility refers to the extent to which innovation is believed to be consistent with the current values, previous experiences, and requirements of would-be adopters. Complexity implies the extent to which an innovation is thought to be considerably difficult to comprehend and utilise. Triability refers to the extent to which an innovation can be experimented upon. Lastly, observability refers to the extent to which the outcomes of an innovation are apparent to others (Ax & Greve, 2017). The social motives on the other hand include issues such as a firm adopting an innovation in order to distinguish itself from other organisations or maintain a higher status compared to other firms that it is competing with (Ax & Greve, 2017). Along the same line, early adopters of an innovation can use an economic argument such as an innovation being beneficial in terms of increasing the competitiveness of the firm while late adopters will reason that an innovation may be beneficial as a way of regaining lost competitiveness. On the other hand, non-adopters of an innovation may use a social argument (such as a perceived threat of losing legitimacy in the society) as a reason for adopting an innovation. Therefore, firms will make a decision to adopt a given innovation based on the benefits that they stand to gain from using that innovation. In regard to economic benefits, firms will look at the advantage that they stand to gain over their competitors, whether the innovation is aligned with the beliefs and values of the organisation, whether the innovation is easy to use, whether the innovation can tested and whether its results are discernible. In regard to the social dimension, firms will look at whether adopting an innovation puts in them in a better position in the society in terms of how the firm will be viewed by both its competitors and other stakeholders such as customers. This means that a firm is likely to innovate or adopt an innovation by looking at the role that the innovation will play in regard to social and economic benefits. In a discussion of the factors that influence innovation, Scott, Plotnikoff, Karunamuni, Bize and Rodgers (2008) note that social prestige, economic profitability and ease of use are some of the factors that firms consider when making decisions to adopt innovations. This can be likened to the social and economic factors discussed by Ax and Greve (2017). 3. Critically analyse the relevance of the proposed hypotheses in the study. Ax and Greve (2017) state three hypotheses. The first one is that the firms that adopt an innovation earliest are compatible firms, and that as the diffusion of the innovation advances, the share of compatible adopters reduces. The second hypothesis is that compatibility is positively related with the perceived chance of making gains on the resolution to implement an innovation. The third hypothesis is that incompatibility is positively related with the magnitude of competition to affect the decision to take on an innovation. In regard to the first hypothesis, there is no doubt that those organisations that have organisational cultures that support innovation will be the first ones to adopt any kind of innovation. As argued by Ax and Greve (2017), compatible firms are more likely to adopt an innovation at an early stage because they are more confident in implementing a new practice when it corresponds with or is aligned with the firms’ values and beliefs. A related point is discussed by Lin (2007), who argues cites Lloyds TSB as one of the organisations that implemented many new practices in a short time so as to improve their performance. Lin (2007) attributes the success at Lloyds TSB to the fact that the company had an organisational culture that was welcoming to change and that all members of staff of the organisation were committed to achieving the objectives that had been set. In particular, one of the reasons that make compatible organisations adopt innovation early is that such organisations are usually more able than incompatible firms to evaluate the impacts that an innovation is likely to have (Ax & Greve, 2017). In this context, incompatible firms are defined as those organisations whose culture and the beliefs and values that are espoused by a given innovation are not similar (Ax & Greve, 2017). With respect to the second hypothesis, it is also true that organisations are compatible when they have an opportunity to gain from an innovation that they implement. In other words, in the context of any organisation, an innovation is only viable if it presents an opportunity for the organisation to gain value by implementing the innovation (von Hippel, 2017). The gains can be in terms of an increased competitive advantage over rivals, a better standing in the society, or increased profitability as noted by Scott et al. (2008). For instance, in the review by Ax and Greve (2017), it is argued that the degree of competition in the business environment is an important determinant of whether firms adopt innovation. Similarly, it has been suggested that stiffer competition is related with a higher likelihood of adopting innovations (Ax & Greve, 2017). Lastly, in relation to the third hypothesis, it can be argued that incompatible firms will still adopt an innovation if they deem doing so to be very necessary. Ordinarily, as implied by Ax and Greve (2017), incompatible firms have a low likelihood of adopting innovation because their cultures may not be aligned with the beliefs and values that are associated with the new practice. However, circumstances such as high competition may cause an incompatible organisation to adopt an innovation for fear that it will lose out if it ignores the innovation. References Ax, C., & Greve, J. (2017). Adoption of management accounting innovations: Organizational culture compatibility and perceived outcomes. Management Accounting Research, 34, 59–74. Chongruksut, W. (2009). Organizational culture and the use of management accounting innovations in Thailand. RU International Journal, 3(1), 113-126. Fitzgerald, L. (2007). Performance measurement. In Issues in management accounting (3rd Ed.). (pp. 223-244). Essex, England: Pearson Education Limited. Lai, J-Y., Lin, C-T., & Ong, C-S. (2015). Factors driving value creation in online B2B banking. In Banking, finance, and accounting: Concepts, methodologies, tools, and applications (pp. 159-179). Hershey, PA: Business Science Reference. Scott, S. D., Plotnikoff, R. C., Karunamuni, N., Bize, R., & Rodgers, W. (2008). Factors influencing the adoption of an innovation: An examination of the uptake of the Canadian Heart Health Kit (HHK). Implementation Science, 3(41). Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2567341/pdf/1748-5908-3-41.pdf von Hippel, E. (2017). Free innovation. Cambridge, Massachusetts: The MIT Press. Read More