Accounting Financial Management Adjusted Closing Prices Project

Financial Management_Chapter 5_Individual Activity submission
Dr. Nader Naifar
Learning outcome:
LO2: Calculate the return and risk of individual security
1. Instructions and guidelines (Read carefully)
Instructions
1. Insert your name and surname in the space provided above, as well as in the file name. Save the file as:
Yassine Shibani CH5 Individual Activity Submission.
2. Submit your assignment via Blackboard
3. Do not delete the plagiarism declaration or the assignment instructions and guidelines. They mus
PLEASE NOTE: Plagiarism cases will be investigated in line with the Terms and Conditions for Stud
IMPORTANT NOTICE: Please note that the due date for this assignment is 6 June 2023
Guidelines
1. There is 3 sheets in this workbook: Instructions, Historical data and Answers
2. Make sure that you have carefully read and fully understood each question before answering it. Answer
3. Answer the question in your own words. Do not copy any text from the slides, readings, or other sources
4. Enter your answers into the yellow blocks provided.
5. Use the information provided in the spreadsheet to perform calculations .
6. Use Excel formulas to show your calculations, as marks may be awarded for correct calculations even
then only include the final answers in the spreadsheet.
Plagiarism declaration:
1. I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that it is one’s o
2. This assignment is my own work.
3. I have not allowed, and will not allow, anyone to copy my work with the intention of passing it off
4. I acknowledge that copying someone else’s assignment (or part of it) is wrong, and declare that m
2. Mark allocation
Each question receives a mark allocation. However, you will only receive a final percentage mark and will n
there to show you the weighting and length of each question.
Question 1
Question 2
Question 3
TOTAL:
1
2
2
5
3. Questions
In this assignment, you will be asked to summarize the return distribution for each security by computi
data,” you will upload daily closing prices for NASDAQ-100 Index (NDX) and three stocks from the
2022 to 30 April 2023.
Q1: Using the historical data complete the answer sheet by filling in the cells where you are as
compute the daily returns using the closing prices.
Q2: Compute the average daily return for the NASDAQ-100 Index (NDX) and for each of the sto
standard deviation and the correlation coefficients.
Q3: Calculate the beta coefficients for the three stocks using all the historical data. Plot beta co
How to upload NASDAQ-100 index?
https://www.nasdaq.com/market-activity/index/ndx/historical
How to upload Historical prices of stock? https://www.nasdaq.com/market-activity/stocks/
Enter the sym
Distribution of Stocks by Student
Student ID
Stock 1
Stock 2
٤٣٨٠١٥٨٣٣
AMZN
PEP
٤٤٤٠٠٨٨٢٨
BKNG
AAPL
٤٤٤٠٠٨٧٤٩
COLM
ADBE
٤٣٨٠١٥٥٥
CROX
AMAT
٤٤٤٠٠٨٧٤٨
EA
AMD
Stock 3
COLM
AMAT
QCOM
NVDA
QCOM
٤٤٤٠٠٨٨٢٩
٤٣٣٠٤٢٠٨٣
٤٣٧٠٣٦١٠٦
٤٣٤٠٢٤٠٠٠
٤٤٤٠٠٨٧٤٢
٤٤٤٠٠٨٧٤١
٤٤٤٠٠٨٧٤٧
٤٤٤٠٠٨٨٣٢
٤٣٣٠٠٣٠٢١
٤٣٧٠٢٠٣٥٢
٤٤٤٠٠٨٨٣٠
٤٣١٠٤٩٠٠٥
٤٤٤٠١١٨١٨
٤٢٨٠٠٠٩٣٣
٤٣٥٠١٥٢١٧
٤٤٤٠٠٨٧٤٠
٤٤٤٠٠٨٧٤٦
٤٤٤٠٠٨٧٤٤
٤٣٤٠٢٠٦٢٩
٤٤٤٠٠٨٧٥٠
٤٤٤٠٠٨٨٣١
٤٤٤٠٠٨٧٤٥
EBAY
SBUX
TSLA
COKE
PEP
AAPL
ADBE
AMAT
AMD
GOOGL
INTC
META
MSFT
NVDA
QCOM
ZM
CSCO
TMUS
AAL
ADP
AEIS
AKAM
GOOGL
INTC
META
MSFT
AMZN
BKNG
COLM
CROX
EA
EBAY
SBUX
TSLA
COKE
PEP
AAPL
ADBE
AMAT
AMD
GOOGL
INTC
META
MSFT
ZM
CSCO
TMUS
AAL
ADP
AEIS
AKAM
COLM
AMAT
QCOM
NVDA
QCOM
ZM
AMZN
BKNG
COLM
CROX
EA
EBAY
SBUX
TSLA
COKE
ctivity submission
the file name. Save the file as: First name Surname CH5 Individual Activity Submission – e.g.
ns and guidelines. They must remain in your assignment when you submit.
erms and Conditions for Students.
6 June 2023
ers
n before answering it. Answer the question fully, but concisely, and as directly as possible.
des, readings, or other sources. The assignment must be your own work only.
ed for correct calculations even if the final answer is incorrect. Do not perform calculations manually and
Plagiarism declaration:
and pretend that it is one’s own.
the intention of passing it off as his or her own work.
t) is wrong, and declare that my assignments are my own work.
inal percentage mark and will not be given individual marks for each question. The mark allocation is
n for each security by computing historical average returns and volatility. In the Sheet ” Historical
) and three stocks from the NASDAQ market [ Based on Student ID] for the period from 30 April
n the cells where you are asked to based on your analysis (Yellow cells). You will need to
DX) and for each of the stocks. First, compute the arithmetic mean, the geometric mean, the
e historical data. Plot beta coefficients using scatter plot.
activity/index/ndx/historical
-activity/stocks/
Enter the symbol
of the stock
Select “Historical
Quotes”
“Historical
https://www.nasdaq.com/market-activity/index/ndx/historical
https://www.nasdaq.com/market-activity/stocks/
Date
Adjusted closing prices
NASDAQ-100 Index Stock 1
Stock 2
Stock 3
Name:………………………………………………………………
Stock 1:…………………………………………….
Stock 2:…………………………………………….
Stock 3:…………………………………………….
Question 1
Instruction: Please format return as “percentages” with three digits after the decimal point
NASDAQ-100 Index
Daily Returns
Stock 1
Stock 2
10/25/2022
10/24/2022
10/23/2022
10/20/2022
10/19/2022
10/18/2022
10/17/2022
11/23/2021
11/22/2021
11/21/2021
11/18/2021
11/17/2021
11/16/2021
11/15/2021
Question 2
Instruction: Please format return and standard deviation as “percentages” with three digits after the decima
NASDAQ-100 Index
Stock 1
Average daily return (Arithmetic)
Average daily return (geometric)
The standard deviation
NASDAQ-100 index NASDAQ-100 index
Vs Stock1
Vs Stock2
Pairs
Correlation
Question 3
Date
Stock 1
Return
Stock 2
er the decimal point
Stock 3
ges” with three digits after the decimal point
Stock 2
Stock 3
NASDAQ-100 index
Stock 1 Vs Stock 2
Vs Stock3
Return
Stock 3
Return
Tadawul Index
Return
Beta (Stock 2)
Figure beta coef
Beta (Stock 3)
Figure beta coef
Beta (Stock 1)
Figure beta coefficient (Stock 1)
Beta (Stock 2)
Figure beta coefficient (Stock 2)
Beta (Stock 3)
Figure beta coefficient (Stock 3)
For Dr. use
only
“Performance management and control is an important and rapidly-evolving field; this companion combines extensive literature surveys and stimulating new material to provide a
wide-ranging guide to recent developments that will be of great interest to students, practitioners, new researchers and established scholars looking for further insights.”
– Brian A Rutherford, Emeritus Professor of A
­ ccounting,
Kent Business School, University of Kent, UK
“This edited book is great reading for people who want to learn about the latest developments in performance management and control. The quality of the contributors to the book
is outstanding.”
– Antonio Dávila, Professor of Entrepreneurship and Accounting and
­Control, IESE Business School, University of Navarra, Spain
i
This page intentionally left blank
The Routledge Companion
to Performance Management
and Control
Performance management is key to the ongoing success of any organization, allowing it to
meet its strategic objectives by designing and implementing management control systems.
This book goes beyond the usual discussion of performance management in accounting
and finance, to consider strategic management, human behaviour and performance management in different countries and contexts. With a global mix of world-renowned researchers,
this book systematically covers the what, the who, the where and the why of performance
management and control (PMC) systems.
A comprehensive, state-of-the-art collection edited by a leading expert in the field, this
book is a vital resource for all scholars, students and researchers with an interest in business,
management and accounting.
Elaine Harris is Professor of Accounting and Management at the University of Roehampton,
London and Chair of the Management Control Association, UK.
Routledge Companions in Business, Management and
Accounting
Routledge Companions in Business, Management and Accounting are prestige reference
works providing an overview of a whole subject area or sub-discipline. These books survey
the state of the discipline including emerging and cutting edge areas. Providing a comprehensive, up to date, definitive work of reference, Routledge Companions can be cited as an
authoritative source on the subject.
A key aspect of these Routledge Companions is their international scope and relevance.
Edited by an array of highly regarded scholars, these volumes also benefit from teams of
contributors which reflect an international range of perspectives.
Individually, Routledge Companions in Business, Management and Accounting provide
an impactful one-stop-shop resource for each theme covered. Collectively, they represent
a comprehensive learning and research resource for researchers, postgraduate students and
practitioners.
Published titles in this series include:
The Routledge Companion to Contemporary Brand Management
Edited by Francesca Dall’Olmo Riley, Jaywant Singh and Charles Blankson
The Routledge Companion to Banking Regulation and Reform
Edited by Ismail Ertürk and Daniela Gabor
The Routledge Companion to the Makers of Modern Entrepreneurship
Edited by David B. Audretsch and Erik E. Lehmann
The Routledge Companion to Business History
Edited by Abe de Jong, Steven Toms, John Wilson and Emily Buchnea
The Routledge Companion to Qualitative Accounting Research
Edited by Zahirul Hoque, Lee D. Parker, Mark A. Covaleski and Kathryn Haynes
The Routledge Companion to Accounting and Risk
Edited by Margaret Woods and Philip Linsley
The Routledge Companion to Wellbeing at Work
Edited by Sir Cary L. Cooper and Michael P. Leiter
The Routledge Companion to Per formance Management and Control
Edited by Elaine Harris
The Routledge Companion
to Performance
Management and Control
Edited by Elaine Harris
First published 2018
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2018 selection and editorial matter, Elaine Harris; individual chapters,
the contributors
The right of Elaine Harris to be identified as the author of the editorial
material, and of the authors for their individual chapters, has been
asserted in accordance with sections 77 and 78 of the Copyright, Designs
and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other
means, now known or hereafter invented, including photocopying and
recording, or in any information storage or retrieval system, without
permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Harris, Elaine Pamela, editor.
Title: The Routledge companion to performance management
and control / edited by Elaine Harris. Description: Abingdon, Oxon;
New York, NY: Routledge, 2017. | Series: Routledge companions in
business, management and accounting |
Includes bibliographical references and index.
Identifiers: LCCN 2017004198 | ISBN 9781138913547 (hardback) |
ISBN 9781315691374 (ebook)
Subjects: LCSH: Performance—Management. | Performance technology.
Classification: LCC HF5549.5.P35 R68 2017 | DDC 658.3/12—dc23
LC record available at https://lccn.loc.gov/2017004198
ISBN: 978-1-138-91354-7 (hbk)
ISBN: 978-1-315-69137-4 (ebk)
Typeset in Bembo
by codeMantra
Contents
List of figures, tables, and appendices
List of contributors
1 Introduction to performance management and control
Elaine Harris
x
xiii
1
PART I
Design of performance management and control systems
11
2 Management control systems: theory and lessons from practice
David Dugdale
13
3 Kyocera’s use of amoeba ­management as a performance
management system: why it works?
Ralph W. Adler
39
4 Cost management and modular product design strategies
Marc Wouters and Frank Stadtherr
54
5 Composite measures in ­performance measurement
Paul Rouse and Julie Harrison
87
6 External influences on metrics – ­regulation and i­ndustry benchmarks
Liz Warren and Karen Brickman
106
7 The cloud and management accounting and control
Martin Quinn and Erik Strauss
124
8 Leveraging big data for ­organizational performance
management and control
Damminda Alahakoon and Piyumini Wijenayake
139
vii
Contents
PART II
People and management control
157
9 The role of the finance ­professional in performance
management and control
Pascal Nevries and Rick Payne
159
10 The role of strategic planning: a case study in UK higher education
Elaine Harris and Mark Ellul
179
11 Managing ambiguity: changes in the role of the chief risk
officer in the UK’s financial services sector
Anette Mikes and Maria Zhivitskaya
198
12 Behavioural issues in ­performance-management practices:
current status and future research
Xuan Thuy Mai and Zahirul Hoque
207
13 Accounting for the immaterial: the challenge for management
accounting
David Carter
236
14 The (ir)relevance of performance measurement to performance
management?
Lin Fitzgerald, Rhoda Brown, Ian Herbert, Ruth King and Laurie McAulay
258
15 Leadership and control
Craig Marsh
270
PART III
Performance Management and Control in different contexts
285
16 Theorising management accounting practices in less
developed countries
Chandana Alawattage, Danture Wickramasinghe and Shazhad Uddin
287
17 Performance measurement and supply chain management
Tony Mancini, Maria Argyropoulou and Rachel Argyropoulou
18 AirAsia: towards a ‘new world’ carrier strategy and
implications for performance management system design
Ralph Adler, Carolyn Stringer, Paul Shantapriyan and Georgia Birch
viii
306
319
Contents
19 Comparative insights into ­management control practices in
two Sri Lankan banks in the public and private sectors
Tharusha Gooneratne and Zahirul Hoque
20 Performance measurement in SMEs
Robin Jarvis
334
356
21 In search of hospitality: theoretical and practical issues in
performance measurement and management in hotels
Ruth Mattimoe and John Paul Tivnan
372
22 The role of performance ­management systems in non-­government
­organizations (NGOs)
Robert H. Chenhall, Matthew Hall and David Smith
397
23 Performance ­management in the public sector: the case of the
English ambulance service
Geoffrey Heath, James Radcliffe and Paresh Wankhade
417
24 Management control systems research in the public higher
education sector: current status and future research agenda
Chaturika Seneviratne and Zahirul Hoque
439
PART IV
PMC research: the lens through which PMC may be viewed
459
25 Researching ­performance management: an actor-reality perspective
Will Seal
461
26 The nature and ­practice of ­interpretive accounting research
Ivo De Loo and Alan Lowe
474
27 Research in performance ­management and control: the impact
of research and the measurement of impact
Jane Broadbent
492
28 PMC: entering a developing field
Tony Berry and Elaine Harris
501
Index
513
ix
List of figures, tables,
and appendices
Figures
1.1
2.1
5.1
5.2
5.3
5.4
5.5
5.6
8.1
8.2
8.3
9.1
9.2
10.1
10.2
14.1
14.2
14.3
16.1
17.1
17.2
18.1
19.1
19.2
21.1
21.2
21.3
23.1
23.2
x
PMC conceptual model
Household expenditure 2012–13, budgets 2012, 2013 and forecast 2014
Reflective and formative composite measures
A production process consuming inputs to produce outputs
Single input–output process
Two outputs and single input process
Constant and variable returns to scale
DEA and ABC interrelationships
Key components of organizational performance management analytics
Evolution of analytics, types of data and techniques
Organizational processes, traditional and new types of data and technology
solutions for big data
The design and use of performance management systems: an extended
framework for analysis
Typical career path in the finance function
Position of SP in the actor network
Balanced scorecard with 23 KPIs
The 4Cs operating model
Performance measures from the billing team signal station
Performance management as a set of relationships between performance
measures, people and processes
Elements in theorising accounting in LDCs
Distribution of reviewed papers by publishing year
Distribution of articles with respect to their topic
Emergence of a confrontation strategy due to the collapsing of an industry’s
competitive space
Observed reasons behind the fall of the Balanced Scorecard and the
rise of budgetary control
Budgets for external legitimacy: Bank Alpha
Cost structure in the hotel industry
Business diagnostic indicator
Occupancy and ARR trends
The balanced scorecard
National performance requirements for ambulance services
2
21
88
95
97
98
99
100
145
147
149
160
174
182
193
262
264
267
290
308
310
327
343
344
375
383
388
421
425
List of figures, tables, and appendices
23.3 List of ambulance clinical quality indicators
23.4 Quality indicators to be included in English Ambulance Service
Quality Accounts
23.5 Linking the levers
25.1 The construction of facts as a relation between the actor and the world
426
428
430
462
Tables
3.1
4.1
4.2
5.1
5.2
5.3
5.4
5.5
5.6
5.7
6.1
6.2
7.1
8.1
10.1
11.1
12.1
12.2
12.3
12.4
12.5
16.1
17.1
18.1
18.2
18.3
19.1
20.1
21.1
21.2
24.1
24.2
24.3
24.4
Hourly efficiency report illustration
Definitions used for this review
Effects of modularity on various kinds of costs
Universities A and B illustrative data
Basic approaches to composite measures for Table 5.1
Fixed weight composite measure using a matrix of performance measures
DEA results for the 24 GP practices
DEA scores by quartiles across unit- and batch-level activities
Benchmarking and target performance improvements for DMU 8
Example of directed improvement advice
Summary of case studies presented in this chapter
DNO performance snapshot for 2010–11
Cloud security issues (SaaS model) – based on Subashini and Kavitha (2011)
Evolution of corporate planning and reporting capabilities
for management control systems
Quinn’s management role analysis
The changing role of NEDs
Psychology theories used in behavioural research in PMS
Economic theories, Institutional theories, Sociology theories and other
theories used in behavioural research in PMS
Frequency distribution of behavioural research in PMS by data collection
techniques
Cross distribution of behavioural research in PMS by data collection
method and data analysis method
Theories and research methodologies
Theoretical trajectories of management accounting practices
Distribution of articles with regard to journals
Assessment of AirAsia’s financial performance
Operational performance measures for AirAsia
Sources of competitive advantage
Comparative findings of management control in Bank Alpha and Bank Omega
Enterprise size class analysis of key indicators, non-financial business
economy, EU-27, 2009
Overall performance measurements: Ireland hotel industry survey 2015
(based on the 2014 season)
Key highlights – all hotels
Distribution of the selected papers covered by the review across the journals
Distribution of topics
Distribution of research methods
Distribution of theories
46
62
64
89
90
92
101
102
103
103
107
120
128
148
186
203
210
212
212
214
215
300
309
323
324
325
339
358
386
387
441
442
445
447
xi
List of figures, tables, and appendices
26.1 Method choices in empirical papers in two leading accounting journals
(in 2012 and 2013)
26.2 Characteristics of the conventional view of the research interview
26.3 Characteristics of the research interview as a human encounter
26.4 Tenets of interpretive research
476
478
479
483
Appendices
3.1 Interview questions
51
12.1 Coverage of behavioural issues of PMS in MA textbook223
12.2 List of journals under review225
12.3 Distribution of behavioural research in PMS by journals227
12.4 
Frequency distribution of behavioural research in PMS by geographical location229
12.5 
Frequency distribution of behavioural research in PMS by research settings229
12.6 
Frequency distribution of behavioural research in PMS by level of analysis230
19.1 Interview questions
351
21.1 Definition and explanation of KPIs used by hotels
392
24.1 List of journals used452
28.1 Top tips for PhD students
510
28.2 Recommended reading in chronological order
511
xii
Contributors
Ralph W. Adler is Professor of Accounting and Director of the Centre for Organisational
Performance Measurement and Management at the University of Otago. His research interests are in performance management, strategic management accounting, organisational
effectiveness and business education. He is a Senior Associate Editor of Accounting Education
and the convenor of the Performance Measurement Association of Australasia.
Damminda Alahakoon is Professor of Business Analytics and leads the Centre for Data
Analytics and Cognitive Computing at the Business School, La Trobe University, Australia.
His research interests are in data mining, machine learning, artificial intelligence, cognitive
computing and text analytics. His work laid the foundation for a Melbourne-based technology
start up called ‘Conscious Machines’.
Chandana Alawattage is a Senior Lecturer in accounting at the University of Aberdeen
and the Accounting and Finance Research and PhD Coordinator. He has a PhD in Management Control from Keele University. His research focuses on the way western managerial
discourses and calculative technologies implicate on the social and organisational reformations in less-developed countries.
Maria Argyropoulou is a Programme Director at Laureate Online Education ­International
and a member of adjunct faculty at the Hellenic Open University. She received her PhD
from Brunel Business School, UK. She is a consultant in Business Process Re-­engineering
and Information Systems specializing in Operations Management, Global Supply Chains and
International Trade.
Rachel Argyropoulou is a Lecturer at the Hellenic Army Academy. She has a PhD in
chemical engineering from the National Technical University of Athens, Greece. Her research interests focus on environmental chemistry, green supply chain and the production
of advanced materials. She has worked as a consultant in companies specialized in analysis,
inspection and certification of products.
Tony Berry began his career as an aeronautical engineer working on Concorde in the UK
and later in Seattle, where he began his management studies. He gained a PhD at Manchester
Business School. His research interests include management control, leadership and financial
management. He has had extensive academic and consultancy experience.
xiii
Contributors
Georgia Birch attended the University of Otago from where she received a Post Graduate
Diploma endorsed in Psychology. Georgia worked for 3 and a half years at Deloitte in the
audit division in Auckland where she qualified as a chartered accountant. In May 2016
Georgia moved to London for international work experience and is working as a finance
associate at Argent Group Europe.
Karen Brickman is a Senior Lecturer in the Business Faculty at the University of Greenwich. Her research is in the area of Management Control and Risk in the Financial Services Sector. Karen started her career as a Chartered Management Accountant (CIMA) at a
­London-based ­Investment Bank. She is also on the panel of reviewers of academic bids for
CIMA ad-hoc funding.
Jane Broadbent is Emerita Professor of Accounting at Royal Holloway University of
­ ondon. She trained as an accountant in the NHS, working mainly in management acL
counting, which informed her academic career and research interest in management control
in the Public Services. She has also written on issues relating to accounting and gender. As
a distinguished professor, she has worked nationally and internationally on a number of research assessment exercises.
Rhoda Brown is a Senior Lecturer in Financial Reporting at Loughborough University.
Her research interests are in performance management and measurement and earnings
management. She started her career with a Big4 accounting firm, is a member of the ICAEW
and her PhD (University of Warwick) was in the economic effects of accounting policy choice.
David Carter is an Associate Professor in Law and Associate Dean of Research in the
Faculty of Business, Government and Law at the University of Canberra, Australia. His
research focuses on three main pillars: the ontological politics of information, the nature
of governance and regulation and the discourses of capital. His research applies a range of
post-structural theory (including Laclau, Lazzarato and Hardt and Negri) to current social
problems in business, accounting and law.
Robert H. Chenhall is Emeritus Professor at Monash University. His research has focused
mainly on theory-based, empirical studies in management accounting employing organizational and behavioural frameworks. His research has included examining conditions in
which different types of management control systems are effective and how those systems
are implicated in strategic and organizational change using survey-based, case-based and
experimental approaches.
David Dugdale, Emeritus Professor of Management Accounting at the University of Bristol, received a lifetime achievement award from the British Accounting and Finance Association in 2014. His research interests include costing, investment appraisal, budgeting and
performance management and he continues to serve on CIMA’s Research Board.
Mark Ellul is the Registrar and formerly Head of and Director of Planning at the University
of Roehampton. Educated at the University of Sussex, he graduated with a degree in Physics
with Computational Physics. He has worked extensively in both FE and HE across London.
xiv
Contributors
Lin Fitzgerald is Emeritus Professor of Management Accounting at Loughborough University. Her research interests are in performance management in service businesses. She
qualified as a Chartered Management Accountant whilst working for British Telcomm
and has maintained strong links with the Chartered Institute of Management Accountants
(CIMA) throughout her career and continues to serve on both CIMA Council and the Research Board of CIMA.
Tharusha Gooneratne is Senior Lecturer in Accounting at the Faculty of Management
and Finance of the University of Colombo, Sri Lanka. She received her PhD degree from
La Trobe University. Her research interests include management accounting and control
systems.
Matthew Hall is Professor of Accounting at Monash University. His research interests
relate to management accounting and performance measurement, with a specific focus on
non-profits, social enterprise and the third sector. His work has been published in a variety
of leading journals in the accounting, management and non-profit fields.
Elaine Harris is Professor of Accounting and Management at Roehampton University, having also been the Director of the Business School from 2010 to 2014. She started her career in
accountancy practice and has held various management positions in higher education in the
last 30 years. She is chair of the Management Control Association and has published books
and papers on strategic investment appraisal and project risk. She is associate editor of the
British Accounting Review.
Julie Harrison is a Senior Lecturer in the Department of Accounting and Finance at the
­University of Auckland. Her research interests include performance measurement, data envelopment analysis, revenue management and transfer pricing. Prior to joining the ­University
she worked as a tax accountant and management accountant in New Zealand, Australia and
the United Kingdom.
Geoffrey Heath is a Fellow in Public Sector Accounting at Keele University, having been
a lecturer there and at Staffordshire University. Previously he worked in NHS finance, qualifying as a chartered management accountant. He has been engaged for many years in collaborative research and evaluation in the public sector.
Ian Herbert is Deputy Director of the Centre for Global Sourcing and Services at Loughborough University. His main research interest is the transformation of the finance function through new organisational forms, particularly, the way in which the digitalised
­k nowledge-based economy is creating challenges for the career paths of finance professionals.
Zahirul Hoque is Professor of Management Accounting/Public Sector and Executive
­Director of the Centre for Public Sector Governance, Accountability and Performance at
La Trobe University, Melbourne, Australia. He is also the Founding Editor-in-Chief of the
Journal of Accounting & Organizational Change. His research interests include management accounting, performance management, public sector accounting and interdisciplinary ­research
on management control.
xv
Contributors
Robin Jarvis is Professor of Accounting at Brunel University and Special Advisor to the
European Federation of Accountants and Auditors for SMEs. Robin was awarded the British
Accounting and Finance Association (BAFA) Lifetime Achievement Award in 2013. He is
a member of the IASB’s IFRS for SMEs Implementation Group and for 12 years was on the
EFRAG Supervisory Board.
Ruth King was, prior to retirement, Director of Programme Quality at Loughborough
­University and a lecturer in accounting and financial management. Her research interests are in
performance measurement, financial reporting, accounting education and corporate governance.
Ivo De Loo is Professor of Management Accounting and Control at Nyenrode Business
University, where he was previously Associate Professor of Research Methods and Methodology
and Associate Professor of Management Accounting and Control at the Open University of the
Netherlands. His research interests include management control as practice, the role of management accountants in organizations, management accounting discourse and research methodology.
Alan Lowe is Professor of Management Accounting at RMIT, Melbourne. He is also joint
Editor of the British Accounting Review. Alan’s research has included management controls,
ERP and internet reporting using case studies and interpretive methodology. Recent projects include due diligence in private equity, control systems in a food oil refinery, paradoxical forces in Government Audit and the study of consultants in an international recruitment
group based in The Netherlands and UK.
Xuan Thuy Mai is Lecturer in Accounting at the School of Accounting and Auditing of the
National Economics University, Vietnam and currently pursuing her PhD degree in Performance Management in the higher education sector at La Trobe University. She obtained her
master’s degree in accounting and finance from the University of Manchester. Her research
interests include behavioural issues in performance measurement.
Tony Mancini is the Director of Academic Affairs Operations at Laureate Online ­Education
International. He received an MBA from Concordia University in Montreal, Canada, where
he has since lectured in operations, project management and statistics. He held senior roles
in the telecoms industry in network services; corporate services and human resources. His
interests are in business forecasting, supply chain management, enterprise risk assessment,
process re-engineering and TQM.
Craig Marsh is Director of Lincoln International Business School and Pro Vice Chancellor
for International Partnerships at the University of Lincoln. He is a member of the Institute
of Directors with 30 years of experience in the military, the private sector, academia and
consulting. He has a PhD in management learning from Lancaster and his research interests
are in leadership.
Ruth Mattimoe lectures in Management Accounting at DCU Business School, ­Dublin.
Her PhD on hotel room rate pricing, under Professor Bob Scapens at Manchester, was
awarded a CIMA Research Foundation grant. Her research concerning real life issues
of ­decision-making and performance measurement in hotel and tourism firms has been
­supported by CIMA and Fáilte Ireland.
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Contributors
Laurie McAulay was, prior to retirement, a Reader in Management Accounting at Loughborough University with research interests in management control systems and performance
measurement; short-termism; climate change; management learning and information systems.
Anette Mikes is Professor of Accounting and Control at the University of Lausanne,
Switzerland. She researches risk management, man-made disasters and the role of risk
expertise and management control in settings in which multiple and conflicting objectives,
values and interests are at stake. Her research documentary on a man-made disaster (the Kursk
­Submarine Rescue Mission) won the Most Outstanding Short Film Award at the Global
Risk Forum in Davos in 2014.
Pascal Nevries is Professor and Head of Management Accounting and Control at ­K assel
University. Previously he held a similar position at Witten/Herdecke University and served
as Managing Director of the Center for Controlling and Management at WHU – Otto
Beisheim School of Management. His research focuses on controllership, performance
­measurement and management control systems.
Rick Payne is ICAEW’s expert on building effective finance functions, business partnering
and the role of the Chief Financial Officer. His current role includes building links between
academia and practice. He qualified as a chartered accountant with KPMG and then worked
in senior roles in the wholesale financial services sector.
Martin Quinn is Senior Lecturer and Head of Accounting at Dublin City University
­Business School. He has worked for over a decade in accounting roles. He joined academia
in 2006 and researches and publishes on accounting change, accounting and information
systems and accounting history.
James Radcliffe is a Fellow of Staffordshire University based in the Faculty of Health
Sciences. He has written on a variety of issues including British central government and
environmental politics. More recently his work has centred on health care management and
policy.
Paul Rouse is Professor of Management Accounting at the University of Auckland. His
research areas include performance and productivity measurement (with a focus on Data
Envelopment Analysis (DEA)), revenue and cost management, cost-benefit and evaluation
methods. Recent work has focused on primary and community healthcare involving case
mix for primary care and the use of DEA in setting Government funding for large, tertiary
hospitals. He is an Editor of Pacific Accounting Review.
Will Seal has held chairs at the universities of Essex, Birmingham and Southampton. He
is currently Professor of Accounting & Management at Loughborough University. He has
published extensively and his main research interests are the relationship between theory and
practice in management, strategic control, shared services and lean operations.
Chaturika Seneviratne is a Senior Lecturer in Accounting at the Faculty of Management Studies and Commerce of University of Sri Jayewardenepura, Sri Lanka and currently
­pursuing her PhD at La Trobe University. She is a merit holder and gold medalist in her
xvii
Contributors
MBA at University of Colombo. Her research interests include management accounting,
performance management and control systems.
Paul Shantapriyan is the Academic Advocate for ISACA at the University of Tasmania. He
has previously worked at the Universities of the South Pacific, New South Wales, Otago. He
is a certified SAP consultant in Strategic Enterprise Management and a Certified P
­ racticing
Accountant (CPA Australia). He is also a member of the International Society of Engineered
Asset Management.
David Smith is Professor of Management Accounting at the University of Queensland. His
research interests are in the area of management control systems, with a particular interest
in performance measurement and impact assessment in the NGO sector. He is currently a
member of the board of directors of the Accounting and Finance Association of Australia
and New Zealand (AFAANZ).
Frank Stadtherr is a PhD student and Research Assistant in the Department of Economics
and Management at the Karlsruhe Institute of Technology, Germany. His research interest is in cost management methods of modular product families. He aims to develop new
controlling instruments with a German car company to manage component costs during
product development.
Erik Strauss is Professor of Accounting and Control at Witten/Herdecke University. His
research interests are in management control systems, management accounting change, organizational routines. He is a member of the editorial board of Qualitative Research in Accounting and Management and Corporate Ownership and Control.
Carolyn Stringer is a Senior Lecturer in the Department of Accountancy and Finance
at the University of Otago. She is a Fellow of CPA Australia and a Chartered Accountant (NZICA). Her research examines performance management processes and involves
case studies, surveys and archival research. She is a founding member of the Centre for
­Organisational Performance Measurement and Management and Performance Measurement
Association Australasia.
John Paul Tivnan, BA (Accounting and Finance, DCU), MBS (Accounting, DCU),
­ hartered Tax Advisor, FCA, MICS (Chartered Shipbroker), is Senior Vice President and
C
Chief Financial Officer of Ardmore Shipping Corporation and a former Senior Tax Manager
in Ernst and Young, Dublin.
Shahzad Uddin is Professor of Accounting and the Director of Essex Accounting Centre.
Shahzad has published on management accounting, accounting and development issues, new
public management, corporate governance and corporate social responsibility in a wide variety of contexts including Greece, China, Japan, Indonesia, Sri Lanka, Bangladesh, Pakistan,
Mexico, Ghana and Uganda.
Paresh Wankhade is Professor of Leadership and Management at Edge Hill University
Business School, UK. He is also the Editor-In-Chief of the International Journal of Emergency
Services. His research and publications have focused on the analyses of strategic leadership,
xviii
Contributors
organisational culture, organisational change and interoperability within different emergency services settings.
Liz Warren is Director of Learning and Teaching at the Business School, University of
Greenwich, where she teaches management accounting and strategy. She gained her PhD at
Southampton and continues to research in the areas of decision making, control and regulatory change. Liz is a member of CIMA’s Expert Review Group.
Danture Wickramasinghe has been in academia over 33 years teaching and researching
management accounting. Presently, he is the chair in management accounting at Adam
Smith Business School, Glasgow. Among others, he has published in Critical Perspectives on
­Accounting, Auditing, Accountability Journal, Accounting and Business Research and Financial Management (UK).
Piyumini Wijenayake is a PhD student at the Business School, La Trobe University, Australia. Her PhD research is focused on the integration of multi-source data to build a holistic
view of a business situation for improved real-time decision making. She is collaborating
with the ICT Business Intelligence unit at La Trobe University to enhance its business intelligence tasks.
Marc Wouters is Professor of Management Accounting at the Karlsruhe Institute
of ­Technology, Germany and Visiting Professor at the University of Amsterdam,
the Netherlands. His research and teaching focuses on management accounting within the
context of operations, marketing, entrepreneurship and innovation, especially in companies
where technology plays an important role. His research is both quantitative and qualitative
and often with researchers from other fields.
Maria Zhivitskaya was awarded a PhD in Risk Management from the London School of
Economics in 2015. Her research focused on risk governance and oversight in UK financial
institutions since the global financial crisis. She then worked for Goldman Sachs in a risk
oversight role before joining Prudential plc.
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1
Introduction to performance
management and control
Elaine Harris
The objective of this book is to provide a reference work that offers students and r­ esearchers
an insight into the current scholarship in organisational performance management and control (PMC). As a companion volume, the book offers a collection of work from more than
50 authors in the field and includes a variety of different perspectives on this key area of
management. The aim of this chapter is to introduce the content of the book in terms of its
subject matter, to explain the rationale for the book and how it is structured, and to give a
brief taste of what each chapter contributes.
Defining performance management and control
In introducing the subject matter of the book’s content, the title and key terms will first
be defined in order to position the work in its academic domain. There are many possible
definitions of both performance management and management control as they relate to organisations. One might start with an organisation in mind, whether it is a business enterprise
with a profit motive or some other kind of organisation that perhaps has a social or educational motive, to define performance management as a practice that seeks to identify what the
organisation exists to do and to measure and control how effectively it does it. For the purpose of this book, performance management is defined as the design and implementation of
management control systems in organisations to ensure that the strategic objectives are met.
Performance management therefore relates to a critical management practice that usually
involves measurement of the key indicators of the organisational goals and achievements.
Management control may be more broadly defined to include all the systems and procedures
established and action taken by managers to ensure that the organisational goals are met.
This implies more than the measurement of target and actual performance, and extends to
the allocation of resources and the efficiency with which those resources are deployed in
pursuance of organisational goals. Where the prime motive of an organisation is concerned
with value creation defined in financial terms, it is clear that performance measurement is
likely to be seen as the responsibility of the accounting and finance function. However, in
other organisations, it may be that human resources are seen as being equally or more important to effective performance management, so management control may be focussed on
1
Elaine Harris
managing people and their behaviour. Thus, performance management can be focussed at an
individual level, where organisational members have their own specific objectives to achieve.
This perspective is examined in Chapter 15 on leadership and control.
The key to PMC therefore starts with understanding what the organisation seeks to do
(its strategic goals) and how it aims to deliver those goals (strategic plans) by utilising the
resources available to it (effective management). Management control is concerned with the
ways in which organisational managers encourage and motivate people in the organisation to
work towards common goals. It also deals with how the organisation is seen to perform by
a range of outside stakeholders such as providers of its finance, market regulators, consumers
of its goods and services, and suppliers of its bought in goods and services. Thus, enterprise
risk management and supply chain management (SCM) may be seen as part of management
control (see Chapters 11 and 17).
As can be seen in the final chapter, a body of literature on PMC has developed considerably over the last 50 or so years, that seeks to explain and possibly to enhance management
practice. Much of the research and scholarship in this period has been conducted in Business Schools, but there are overlaps with the social sciences, technology and engineering;
thus, the authors who have contributed to this book are not all from a single discipline or
background. Equally, they are not all academics. The authors include many academics who
gained practical experience in accounting and business before entering academia and some
non-academics who are and remain practitioners in organisations. This gives the book a
richer context and a more practical feel than either standard textbooks or academic journals
may have, with the aim of making it more accessible to a wider audience.
Structure of the book
The book is divided into four sections that take the reader through a logical set of questions
about the theory and practice of PMC and how the relevant body of literature has been
researched. The first section on the design of PMC systems deals with what gets measured
and how PMC systems are designed. The second section on people and management control
explores the human dimension of who gets involved in PMC and how they behave. The
third section on PMC in different contexts examines where PMC takes place in a variety
of ­countries, sectors and organisational settings and how these contexts shape PMC. The
last section aimed at researchers in PMC (especially those new to the subject matter or to
academia) is devoted to the matter of how research in PMC may be conducted, why it is
­important and what challenges the researcher may face along the way.
A
Systems
C
Context
B
People
D Lens
Figure 1.1 PMC conceptual model
2
Introduction to performance management and control
Figure 1.1 depicts the conceptual model underlying the book, which the structure follows. Some of the chapters could have been placed in more than one section as they shed
light on more than one question or dimension of PMC. However, they have been organised
into sections according to their focus. The first section focusses on performance management systems (PMS) design, the metrics, data and technologies that organisations need to
effectively measure and monitor performance. The second section illuminates the role of
people, the organisational actors and their formal and informal uses of PMS in management control. The third section explores a variety of alternative contexts for PMC through
case- and ­sector-based studies. The last section has an entirely different focus, and it aims to
help researchers entering or re-entering this academic field by examining some alternative
approaches to conducting PMC research, the lens through which the researcher may view
themselves and their evidence and what impact their research might have on PMC practice.
The remainder of this chapter introduces the content and highlights of each contribution.
Introduction to the chapters
Part I: Design of performance management and control systems
Dugdale (Chapter 2) introduces us to management control theory before comparing PMC
in action in three case organisations in manufacturing, insurance and banking. He illustrates
organisational objectives, strategies and key success factors, targets and key performance
indicators (KPIs), cost control and the role of company culture and structure (decentralisation), incentives and motivation. This chapter could have been positioned in Section 3, but
the focus here is on PMC design, and he provides a gentle introduction to both the theory
and lessons for practice, ideal for the non-expert reader to get a feel for the subject of PMC.
He “suggests that there is scope for integration of contemporary performance management
insights with established organisation theory” (page 36).
The focus of enquiry for Adler (Chapter 3) is on the fourth of eight functional questions
posed by Ferreira and Otley (2009) in PMS design introduced by Dugdale (“What is the
organisation structure and how does it affect the strategy and control?”). Adler presents an
interesting case study of a Japanese manufacturing company using what is termed “amoeba”
management, which is based on breaking the organisation down into very small operational
units for management control purposes. He shows how this “radically decentralised organisation structure” has been operationalised to address the challenges in the competitive
environment. Adler used Simons’ three levers of beliefs, diagnostic and interactive controls
(Simons, 1995) to analyse the case evidence and found that the belief systems were the key
to Kyocera’s success in making amoeba management work.
Wouters and Stadherr (Chapter 4), by contrast, take us on a detailed journey through the
design of a cost management system in the motor vehicle industry, where a product modularity strategy is adopted to improve financial performance. Their case study demonstrates
that a modular design strategy goes beyond target costing and is more far-reaching than
simply having a product portfolio that shares common components, having implications for
all aspects and functions of the business. They position their case in relation to the literature
on new product development and demonstrate how both innovation and accountability can
improve when modularity is fully embraced.
Rouse and Harrison (Chapter 5) explain the issues that need to be addressed when composite measures are used to combine multiple measures of performance into indices for internal or external benchmarking purposes. They explain how reflective or formative metrics
3
Elaine Harris
may be collected from a number of decision-making units and how fixed or free weights
may be applied to incorporate them into a single measure. They illustrate the construction of
composite measures with reference to their research in the healthcare sector. They acknow­
ledge the mistrust of some league tables such as those used to publish university rankings
and recommend “that any such measure is accompanied by a careful explanation of how it is
compiled and the rationale for the weighting systems employed” (page 104).
Warren and Brickman (Chapter 6) continue on a theme of industry benchmarks by considering the external influences on metrics used in PMC systems in regulated industries.
They analyse five case studies drawn from the financial services and utilities sectors, both
heavily regulated in the UK. They consider the design of PMS in each case and show the
benefits (for example the learning value) and issues (such as stifling innovation) involved in
external benchmarking. They conclude that when using external data sources in designing internal PMS, it is important “to ensure that a system is flexible enough to withstand
change” (page 121).
Quinn and Strauss (Chapter 7) consider the (largely enabling) role information techno­
logy has played in the development of PMS and the actual and potential impact it has
had on PMC with the growing use of cloud technologies in organisations and society.
They explore the advantages and challenges for managers and accountants working with
cloud ­technologies and identify risks (not least issues of data security) that arise from using
cloud technologies in the design and operation of PMS.
Leading on from the issues identified by Quinn and Strauss, Alahakoon and Wijenayake
(Chapter 8) pick up on the management challenges of working with so much data availability in the design of PMS and consider how organisations can make the best use of ‘big
data’. An extension to maturity models in PMS is presented. They also give a flavour of the
current research going on in the data analytics field and the development of a dynamic form
of Self-Organising Map (SOM) to help organisations harness data analytics technologies to
gain competitive advantage.
Part II: People and management control
Nevries and Payne (Chapter 9) explore the changing role of the financial professional in
PMC. First, they use the Ferreira and Otley (2009) framework (see Figure 9.1, page 160) to
analyse the role of finance professionals (those working in the finance function of organisations). Then, they consider the factors that drive successful finance departments, from both a
personnel profile perspective (knowledge, skills and behaviours) and a relational perspective
(trust and collaboration). A typical career path is presented, and country-specific differences
are considered. They conclude that more research is needed on the changing role of finance
professionals (especially in light of the challenges of managing ‘big data’) and that the future
success of those embarking on careers in finance in organisations depends on effective collaboration and co-creation across domains.
Harris and Ellul (Chapter 10) use a case study in higher education to illustrate how another kind of (non-financially qualified) professional, the strategic planner, might take up
the challenges of managing ‘big data’ (see Chapter 8) in contributing to the organisation’s
PMC. This study also used the Ferreira and Otley (2009) framework (see Figure 9.1, page
160) to analyse professional practice, but from the shared experience of two organisational
members, one professionally qualified in accounting (though working as an academic manager, not in the finance function) and the other not. Whilst they found that the role of the
Director of Planning was expanding and becoming more strategic in a highly competitive
4
Introduction to performance management and control
environment, it was not taking over the work previously undertaken in the finance function.
Rather, the two departments (finance and planning) were seen as operating side by side in a
complementary way.
Mikes and Zhivitskaya (Chapter 11) respond to Berry et al.’s (2009) call for more research
on risk management as an essential part of management control with their focus on enterprise risk management and the management of ambiguity as part of PMC. They explore the
developing role of the chief risk officer (CRO) in the UK financial services industry. They
make a case for how the development of CROs may contribute (given the financial crisis and
the damage to the reputation of banks and other providers of financial services in society) to
a greater sense of control being exercised more professionally in this sector.
Mai and Hoque (Chapter 12) provide a useful analysis of performance management research that has focussed on the behavioural aspects in their literature review. The review
covers the period from 1992 to 2015, contributing to the literature on PMS by assessing the
behavioural causes and consequences of PMS. They examine the link between the theories underlying such research, especially those drawn from psychology, and methodological
­issues in the literature surveyed. There are useful indications of gaps in our knowledge and
potential for future research in this field. They also provide some salient warnings about the
potential pitfalls of qualitative studies in behavioural PMS research.
Carter (Chapter 13) identifies the key challenges that managing in organisations employing
‘knowledge workers’ provides for management accounting by examining two case studies. One
case analyses research management practice in higher education, and the other looks at billing
practices in professional law and accountancy firms. He provides a critique of current practice,
largely based on management accounting techniques that were originally designed to control
manufacturing operations and involve mainly numeric measures. In the contexts of these two
cases, Carter illustrates how adopting a PMS that counts inputs (6-minute time slots) or outputs
(numbers of publications in a time period) may lead to game-playing and mistrust and stifle creativity. Carter considers options for identifying new approaches to managing what he calls ‘the
immaterial’ in organisations where intellectual capital is more important than financial capital.
Fitzgerald et al. (Chapter 14) explore the role of a company-wide mantra named the
‘4Cs’ (Compliance; Cycle Time; Customer Service; and Cash) of PMC in their case study
of Network Rail. The mantra of the 4Cs provides a common vocabulary for organisational
members to align their actions and decisions to the corporate strategy. Like Adler, they focus
on the interactive controls and the role of values and beliefs. However, unlike Adler’s case of
decentralisation, Fitzgerald et al.’s study takes place within the context of an organisation that
has centralised its financial shared services function in an attempt to make cost savings. The
case study highlights the use of visual aids to remind people about key elements of the PMS.
Marsh (Chapter 15) draws on his professional experience as a ‘scholar practitioner’ to illustrate the two issues that appear as the seventh and eighth questions in Ferreira and Otley’s
(2009) framework (see Figure 9.1, page 160), namely the evaluation of individual and group
performance against target measures and the consequences (rewards and penalties) of such
evaluation. Marsh provides two distinct and competing organisational narratives to suggest
that performance appraisal systems based on the traditional precepts of performance ratings
and performance-related pay are perhaps outmoded. The staff in the second scenario were at
the same time ‘agency’ staff and ‘educational professionals’ who took pride in their work, so
one could see how a policy of ‘engagement’ and the use of a customer-focussed ‘dashboard’
might be effective in this context. It is worth noting here the contrast between the PMC
practice presented by Marsh and the immaterial labour example of academic staff management presented by Carter (Chapter 13) in a public-sector environment.
5
Elaine Harris
Part III: PMC in different contexts
Alawattage et al. (Chapter 16) take us on a journey through the critical accounting literature
of the past few decades to enhance our understanding of management accounting practices
in less-developed countries (LDCs). They focus on how (popular) theorisation has changed
over time. They identify key authors (who I will call the 4Hs) who influenced their work
in the 2000s and subsequent scholars, Hopwood’s work on behavioural accounting in the
1970s, Hofstede’s work on culture in the 1980s, Hopper’s work on the political economic
context of LDCs, and Hoque’s case study work in Bangladesh in the 1990s. They also note
Hopper’s role in the Berry et al. (1985) project in the National Coal Mines as an important influence on Hopper’s subsequent work with Alawattage et al. in developing a critical
theorisation of accounting and control in LDCs. This review chapter sets the scene for the
chapters that follow in this section, though perhaps less in a theoretical sense and more from
a methodological viewpoint, as we see a tradition of case studies becoming more popular in
management accounting to explore the differences between PMC studied in different geographical contexts and varying business sectors.
Mancini et al. (Chapter 17) provide a literature review of performance measurement
frameworks (PMF) in use according to the SCM papers published since 2010. They begin by
introducing key developments in PMFs in the 1990s, the performance pyramid (Lynch and
Cross, 1991), balanced scorecard (Kaplan and Norton, 1992), the results and determinants
matrix (Fitzgerald et al., 1991), and the frameworks specific to SCM (SCOR and GSCF).
They update a study conducted in 2000–2011 by analysing 27 journal articles and identify
which systems and frameworks work best along multi-echelon supply chains and across national boundaries.
Adler et al. (Chapter 18) present a case study of AirAsia, a low-cost airline established in
Malaysia, and the effect on the design of their PMS of following a hybrid strategy of cost
leadership and differentiation. From prior research based on contingency theory, they argue
that strategy is a key determinant of PMS design. The case study gives an insight into how
one player in the highly competitive world of the airline industry adopted a PMS to fit their
‘new world’ carrier strategy. They point to the trendy and informal culture of the company
and its use of social media as part of the ‘people’s airline’ image it sought to foster. They
found that the collaborative culture, flat organisational structure, team-based incentives and
interactive planning systems combined to enable AirAsia to perform well (as shown by operational performance measures for 2008–2012) despite tough competition.
Gooneratne and Hoque (Chapter 19) present a comparative analysis of two banks under different types of ownership (public and private) in their case study of management control systems. They adopt an actor network theory approach to examine the extensive interview data
they collected from a cross section of organisational members. Their cross-case comparison
presented in Table 19.1 (page 339) showing the internal actors, external forces, use of management control information and future direction shows that despite the difference in ownership
and need for external legitimacy of the state-owned bank, both banks rely on traditional budgetary control mechanisms rather than balanced scorecards or more innovative PMS.
Jarvis (Chapter 20) examines the literature on PMS in small and medium size entities
(SMEs), using a European Commission definition (employees, turnover and balance sheet
value) of an SME. He notes the neglect of SMEs in performance management textbooks
and research. Other authors in this volume have pointed out the need to align PMS with
organisational strategies, and case study researchers tend to examine PMC practice in the
specific context of the organisation being studied. Thus, the context and strategic goals of
6
Introduction to performance management and control
SMEs (personal motives of owner–managers) that may be more concerned with survival and
sustainability than growth and profitability would be expected to shape their PM practice.
Jarvis found that a typical performance measure revealed in a grounded theory-based study
of micro-entities was the concept of ‘busyness’ – an interesting yardstick.
Mattimoe and Tivnan’s study (Chapter 21) on PMC in hotel management is set in the
economically important hospitality industry in Ireland. The chapter provides an extensive
review of generic and industry-specific literature enriched by empirical evidence from a
small-scale survey. They find that in theory, there are numerous measures and several sources
of external benchmarking data that hotels can use in their PMS. However, it seems likely
that only the large hotel chains use multiple measures in more sophisticated dashboards.
They found that a small number of mainly revenue-based performance measures are actually used by the sample of small- and medium-sized hotels that responded to their survey.
­Measures such as average room rate and occupancy (a measure of ‘busyness’) were monitored
on a daily basis.
Chenhall et al. (Chapter 22) consider the design of PMS in non-governmental organisations (NGOs) where the organisational goals are typically non-financial, i.e. humanitarian
or social welfare objectives, and may be ambiguous or conflicting. The size and structure
of NGOs varies, but they share common factors such as the need to preserve social capital
and the mobilisation of volunteer workers, which bring different challenges to the design of
PMS. The chapter explores how these challenges might be met by NGOs, drawing on two
specific case organisations studied by Chenhall et al. in Australia and the UK. The key to
success for PMS in NGOs appears to be an acknowledgement and respect for the plurality of
personal values and beliefs of the people who are vital to the effectiveness of the programmes
and the ability to demonstrate effective use of resources to funders and donors.
Heath et al. (Chapter 23) also examine PMS in a social welfare–oriented organisation,
but in the English ambulance service (public sector) where performance measurement is a
critical element of new public management and governance. The changing role of the paramedic in the ambulance service, especially the emergency care practitioners, has impacted
on how services are delivered and therefore how outcomes should be measured. Heath et al.
employ Simons’ levers of control in their analysis of the new PMS. The adoption of a ‘topdown’ dashboard in the service at a time when ‘quality accounts’ are demanding ‘bottom-up’
reporting to be scrutinised by the National Audit Office has produced interesting results.
Seneviratne and Hoque (Chapter 24) present the results of a structured literature review of
research on management control systems in public-sector universities. They analyse a total of 48
relevant papers published in 18 accounting and management journals from the commencement
of those journals (mostly after 2000) up to 2015. They also list in Appendix 24.1 (page 452) a
further 13 journals that might have been expected to publish such articles, but did not. Of the
48 papers, they highlight 20 that were focussed on performance (systems generally, balanced
scorecard specifically or appraisal schemes). More than half of all papers were based on qualitative research, but less than half identified any explicit theory. They conclude that these papers
have made a significant contribution to management accounting literature, but identify growing
potential for further studies (e.g. building on the university case study in Chapter 10).
Part IV: PMC research: the lens through which PMC may be viewed
This section is not intended to cover the full range of possible methodologies that may be
used to research PMC as there are sufficient research methods texts available that already do
7
Elaine Harris
that job, some extremely well. In the specific fields of accounting (Humphrey and Lee, 2004)
and management (Thorpe and Holt, 2008), there are contributions from some of the authors
of chapters in this volume. It is not the editor’s intention to advocate particular research
approaches. However, in compiling this volume, the opportunity has been taken to include
two chapters by experienced researchers that provide a thoughtful explanation of how PMC
research may be conducted in a qualitative paradigm. They offer insights into how the ‘story’
may be told and what the respective roles of interviewees and researchers are in collecting
and presenting fieldwork evidence. It is hoped that these two chapters will encourage future
researchers to be more reflexive on their own as well as their participants’ practice.
Seal (Chapter 25) makes a case for adopting an actor-reality perspective (ARP) to bridge
the theory practice gap in management control research. ARP, a conceptual framework
based on facts, values, logics and communication, is differentiated from actor network theory
(ANT) as the actors are all human, where ANT has both human and non-human ‘actants’.
ARP operationalises a different form of constructivism, recognising organisational members
as knowledgeable individuals who can sense ‘what works’ and provide a pragmatic narrative.
Seal offers an illustration of using an ARP research design, arguing how this leads to a richer
picture of Simons’ (1995) levers of control at work in the hospitality industry than might
otherwise have been found.
De Loo and Lowe (Chapter 26) deal with the role of the researcher in interpretive research and use two recent papers as examples where the authors appear to see the results
they report from their interviews quite differently. In one, De Loo and Lowe argue that the
authors portray their interpretation of the evidence from interviews as if it were objective
and may be expected to represent the interviewees’ views and narrative (implicitly assuming
the researcher to be neutral). In the second example, they find that the authors deal more
explicitly with how they interpreted the interviews and acknowledge their own role in the
interpretation of the evidence. This provides a useful lesson for (would be) interpretive researchers. The penultimate chapter (27) by Broadbent also offers a view of some of the problems of conducting research on PMC and argues for a relational approach to research that
may actually help organisations to improve their practice. In this way, Broadbent argues that
research should have a positive impact on the practices studied, rather than simply making
observations or generating theories for an academic audience. She then turns her attention
to the transactional approach taken in the way that research is assessed in the UK research
excellence framework (REF) and finds this measurement of impact to be dysfunctional as a
PMS in terms of the unintended consequences it has produced.
Finally, Berry and Harris (Chapter 28) summarise the key milestones in the developing
field of PMC research, presenting references to some seminal work in chronological order
(Appendix 28.2, page 511). They then offer tips and advice for researchers embarking on new
journeys of discovery, from their own and their Management Control Association (MCA)1
colleagues’ experience of working in this field.
Note
1 www.managementcontrolassociation.ac.uk
References
Berry, A. J., Capps, T., Cooper, D., Ferguson, P., Hopper, T. and Lowe, E. A. (1985) Management
control in an area of the NCB: rationales of accounting practices in a public enterprise. Accounting,
Organizations and Society 10 (1), 3–28.
8
Introduction to performance management and control
Berry, A. J., Coad, A. F., Harris, E. P., Otley, D. T. and Stringer, C. (2009) Emerging themes in management control: a review of recent literature. The British Accounting Review 41, 2–20.
Ferreira, A. and Otley, D. A. (2009) The design and use of management control systems: an extended
framework for analysis. Management Accounting Research 20, 263–282.
Fitzgerald, L., Johnston, R., Brignall, T. J., Silvestro, R. and Voss, C. (1991) Performance Measurement in
Service Businesses, London: The Chartered Institute of Management Accountants.
Humphrey, C. and Lee, B. (Eds.) (2004) The Real Life Guide to Accounting Research: A Behind-the-Scenes
View of Using Qualitative Research Methods, Kiddlington: Elsevier.
Kaplan, R. S. and Norton, D. P. (1992) The balanced scorecard: measures that drive performance.
Harvard Business Review 70 (1) ( January–February), 71–79.
Lynch, R. L. and Cross, K. F. (1991) Measure Up – The Essential Guide to Measuring Business Performance,
London: Mandarin.
Simons, R. (1995) Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic
­Renewal, Boston, MA: Harvard Business School Press.
Thorpe, R. and Holt, R. (Eds.) (2008) The Sage Dictionary of Qualitative Management Research, London:
Sage.
9
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Part I
Design of performance
management and control systems
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2
Management control systems
Theory and lessons from practice
David Dugdale
Introduction
This chapter begins with a review of contemporary theoretical contributions to management
control theory. The specific aim is to show that overall goals and strategy, linked to performance measurement and target-setting, with further linking to rewards and incentives, permeate much of the management control literature. Three case studies are then described and
their implications for theory discussed. In these cases, senior managers have consciously chosen not to set operational targets, and there are no incentives based on short-term operational
performance. To some extent, the strategic concerns of senior managers are “decoupled”
from the operating concerns of middle managers. It is concluded that for some companies,
theory overemphasises the importance of linking organisational vision and goals through
strategy and planning to the setting of targets, performance evaluation and incentives.
Berry et al. (2009: 6) identified that “three models of integrated performance management systems [that] have emerged in the literature: strategic performance measurement systems (SPMS) like Kaplan and Norton’s balanced scorecard; Simons’ levers of control; and
Ferreira and Otley’s performance management and control framework” (see Figure 9.1).
These, together with Stern Stewart’s economic value added (EVA), another theoretical contribution that has been taken seriously by major companies, are reviewed in the next section.
It will be shown that a top-down approach to control and performance management is a
theme that runs through all four performance management frameworks.
The Ferreira and Otley framework (see Figure 9.1) was useful in guiding interviews in
the case companies and the three cases are set out below under headings loosely drawn from
this framework. The chapter provides a comparative analysis of the three cases showing that
although the three companies pay attention to overall aims, strategies and key success factors,
they do not translate these into detailed performance targets. In the discussion and conclusion, it is argued that the performance frameworks discussed in the chapter understate the
importance of social and cultural controls and fail to recognise that it can be advantageous
to decouple strategic and operational control systems.
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David Dugdale
Management control theory
Historical context
Textbooks have often compared management control systems with mechanical models such
as heating systems that control temperature by activating and deactivating a boiler in response to comparison between measured temperature and a preset, desired temperature
level. This is feedback control where comparison between actual results is compared to
preset plans and standards and deviations result in corrective action. This treatment of control can be traced back at least to the development of standard costing and budgeting in the
early twentieth century, and these techniques have been widely adopted. Feedback control
implies measurement–comparison–action, and this principle remains at the centre of much
management control theory.
Strategic performance management
Strategic performance management systems, the best-known being the balanced scorecard,
emerged as a response to perceived shortcomings in budget-based control systems. Budgeting had been criticised because a “budget-constrained” style can lead to unfortunate
managerial behaviour and, in addition, overemphasis on financial performance became a
major theme in the 1990s. Johnson and Kaplan (1987) had already called for more emphasis on forward-looking, non-financial measures, and Kaplan and Norton’s (1992) balanced
scorecard introduced three non-financial dimensions of performance: customers, internal
processes, and learning and growth, that “balanced” the financial dimension. Kaplan and
Norton (1992) set out a template that linked vision and strategy to actions in each of the
dimensions through the identification of objectives, measures, targets and initiatives.
Kaplan and Norton (1996a) recommend that the vision and mission should be translated
into “an integrated set of objectives and measures” (p. 4) with “ambitious goals” that guide
resource allocation and priorities so as to further long-term strategic objectives. Feedback
and learning then encourage “strategic learning” across all four dimensions of the scorecard.
The development of the balanced scorecard follows in the tradition of feedback control but
includes non-financial as well as financial measures and emphasises the importance of leading indicators such as market share and product innovation as well as lagging indicators such
as financial results.
Subsequently, Kaplan and Norton (1996b, 2001, 2004) concentrated on the use of
“strategy maps” in formulating a balanced scorecard and the importance of aligning and
focusing resources on strategic priorities. They now emphasised the linkages between
improving internal processes so as to meet customer needs more effectively and so deliver
improved financial performance. However, this did not diminish the emphasis on identifying (strategy-driven) measures and setting targets for these. Strategy should be cascaded
and disseminated from the corporate level, and “When individuals can construct their
own Balanced Scorecards, then we have produced the clearest mechanism for aligning
individual objectives to business unit and corporate objectives” (Kaplan and Norton, 2001:
244). Rewards and incentives receive little attention, although Kaplan and Norton report
that companies they studied had either linked scorecard performance to rewards or were
planning to do so. They concluded that “When all the individuals understand how their
pay is linked to achieving strategic objectives … strategy truly becomes everyone’s day
job” (pp. 270–271).
14
Management control systems
The balanced scorecard emerged from a year-long study of companies that were concerned to expand their performance reporting beyond the traditional emphasis on finance.
This brief review shows how the balanced scorecard achieves this. It is taken for granted that
strategy should drive operational measures and targets, that dissemination should be driven
down through the organisation and the cycle of feedback control be completed by reporting
versus targets.
The balanced scorecard is not the only strategic performance management system, and
following its success, other models were also proposed such as the performance prism (Neely
et al., 2002). The performance prism expands the number of stakeholders to include, amongst
others, employees, suppliers and regulators, and considers the development of strategies to
not only meet their needs but also to ensure that they contribute to the organisation. Stakeholder contributions are to be transformed through organisational capabilities, processes and
strategies into stakeholder satisfaction. Identifying the right measures is a key theme, and
the “Measures Definition Template” (p. 35) lists the characteristics that should be considered for each measure: purpose, relates to, metric/formula, target level(s), frequency, source
of data, who measures, who acts on the data (owner), and what do they do. Measurement,
target-setting and feedback control are again central, and the authors set out to show how
these principles can be applied to the management of relationships with investors, customers,
employees, suppliers, regulators and the community.
Economic value added
If the balanced scorecard and its derivatives emphasise the importance of expanding the
scope of performance management to include non-financial measures, Stern Stewart pursued a very different course in resurrecting the residual income measure as “economic value
added”, a single, clear (financial) measure that, they claimed, would align the interests of
managers with those of shareholders. They argued that the first duty of a company is to create value for its shareholders, and in so doing, it would also serve wider society. The EVA
calculation is more comprehensive than other financial metrics such as the price/earnings
ratio and, mathematically, is consistent with the net present value calculation recommended
for the appraisal of investment opportunities.
Stern Stewart marketed EVA as much more than a metric for evaluating businesses and
guiding investment decisions: “EVA1 must be coupled with a powerful change to management processes, including planning, portfolio management, strategic and tactical decision
making, and compensation strategy” (Pettit, 2001). The aim is to cascade the use of EVA
throughout the organisation so that all business units and profit centres are working towards
the maximisation of EVA. The feedback loop is closed by linking managers’ compensation
to performance:
Targets for compensation systems need to be derived from the long-term strategy and
should not be renegotiated annually. The overall goal for each compensation system
must be participation in true value creation; for example, measured by improvement
in economic profit. Targets should be set in a top-down manner for each division and
annual targets should be derived from the company’s long-term target.
(Bischof et al., 2010: 6)
The use of a “bonus bank” is intended to ensure that gaming is minimised and bonuses
are linked to long-term economic performance. This is achieved by basing the bonus on
15
David Dugdale
comparison of EVA achieved versus target but paying out only a portion of any abnormal
bonus in the year it is “earned”. If there is poor performance, a negative bonus reduces the
balance carried forward.
EVA systems are very different from the scorecard systems discussed in the previous
­section, but they again illustrate the importance of defining measures, setting targets, comparing performance to target and, especially, linking rewards to performance through a
sophisticated remuneration scheme. Although the EVA system is intended to cascade targets
throughout the organisation, Bischof et al. (2010) caution against embedding these in annual
budgets. Instead, they recommend that the incentive target should be linked to the longterm organisational EVA target. Managers can then agree on budget stretch targets without
these having an unfortunate impact on subsequent bonus payments.
Simons’ levers of control
Another theoretical contribution that has had considerable impact is Simons’ (1995) “Levers
of Control”. Based on a 10-year study of control systems in many US businesses, Simons was
surprised to find that “the most innovative companies used their profit planning and control
systems more intensively than did their less innovative counterparts” (p. ix). He concluded
that successful organisations had achieved balance between four modes of control which he
characterised as diagnostic, interactive, boundary and beliefs systems.
Diagnostic systems “are the backbone of traditional management control … Three
features distinguish diagnostic control systems: (1) the ability to measure the outputs of a
process, (2) the existence of predetermined standards against which actual results can be
compared, and (3) the ability to correct deviations from standards” (p. 59).
Interactive systems “provide frameworks, or agendas, for debate, and motivate information gathering outside of routine channels”. Simons goes on to explain that an interactive
system is “not a unique type of control system: many types of control systems can be used interactively by senior managers” (p. 96). Interactive systems are needed when businesses face
competitive environments, and it is important to stimulate new ideas and experimentation
throughout the organisation.
Boundary systems “delineate the acceptable domain of activity for organizational participants” (p. 39). Simons sees boundary systems as defining (and preventing) unacceptable
behaviours such as accepting valuable gifts or contravening accounting standards.2 Operational boundaries become especially important when there is high uncertainty and/or high
performance pressure. Strategic boundaries can also be important and are “usually imposed
when excessive search behaviour and experimentation have risked dissipating the firm’s resources” (p. 48). Boundary systems are important in balancing both diagnostic systems that
can generate performance pressure and interactive systems that can stimulate (excessive)
search and experimentation.
Beliefs systems provide “basic values, purpose, and direction for the organization” (p. 34).
Simons tends to equate beliefs systems with formal vision and mission statements that senior
managers communicate formally and systematically throughout the organisation.
Simons himself emphasised that interactive “systems” are actually uses of the control
system, and Tessier and Otley (2012) continued the analysis by pointing out that diagnostic
and interactive “systems” are uses, boundary “systems” are a purpose and beliefs systems are a
type of control system. This leads Tessier and Otley to reframe Simons’ analysis differentiating purpose into performance and compliance; use into strategic and operational issues; and
type into social and technical controls. Simons’ classification has the merit of having been
16
Management control systems
inductively derived by the study of how managers actually use their “levers of control”, but
Tessier and Otley force a more rigorous conceptualisation of Simons’ ideas.
Tessier and Otley draw attention to two types of management control, and organisation
theory has long recognised a major distinction between technical and social controls. Technical
systems are linked to “scientific” management emphasising process analysis, specialisation,
standardisation, clear job descriptions and lines of authority. This contrasts with the “human
relations” school that relies on human interaction for coordination and control. Pugh (2007)
refers to the dilemma of organisation theory because “organizers” and “behaviouralists” are
both right: while organisation is necessary, it can lead to rigidity and apathy, and although
interpersonal coordination and control can be highly motivating, it may be inefficient.
Simons’ diagnostic and beliefs systems are readily categorised as technical and social systems, respectively (though organisational theory sees “social controls” as more wide-ranging,
including social norms, culture and shared values as well as top-management-driven vision
and mission statements). Both technical, diagnostic systems and social, beliefs systems can
be used interactively to foster interaction and communication. Similarly, both technical and
social control systems can be used to set boundaries: technical systems can make acceptable/
unacceptable behaviour more explicit (for example through budgetary and authorisation
limits), while social controls can help to shape a culture that is acceptable to wider society.
The Ferreira and Otley framework
The Ferreira and Otley (2009) performance management framework (see Figure 9.1) can be
traced to Otley’s (1999) framework that comprised five key questions relating to (1) organisational objectives and their evaluation; (2) strategies, plans and activities and how they are
assessed and measured; (3) performance targets for the areas raised in (1) and (2); (4) rewards
and penalties for achievement or failure to achieve the targets; and (5) feedback and feedforward loops so that the organisation can learn from experience and adapt behaviour in the
light of that experience.
Otley (1999) “tested” the framework against three control systems: budgeting, the balanced scorecard and EVA. He concluded that none of these provide a comprehensive performance management system. Budgetary control concentrates only on financial objectives,
does not consider links between means and ends, and does not explicitly consider rewards
(although bonuses are often linked to budget-based targets). EVA has just a single financial
objective, and it does not consider the link between means and ends, although appropriate
incentive schemes are central to the method. The balanced scorecard considers both financial
and non-financial performance measures that emerge from strategy but does not address how
targets should be set or rewards structured.
Otley’s analysis implicitly presumes that a management control system “should” address
all the relevant issues: objectives, strategies, targets, feedback and rewards/penalties. While
budgeting, EVA and the balanced scorecard provide valuable insights, none delivers a comprehensive system of control.
Otley found the framework useful when investigating performance management systems
and, with Ferreira, developed it further, expanding the number of questions to 12 (Ferreira
and Otley, 2009, see Figure 9.1). There are eight functional questions:
1
2
3
What is the vision and mission and how is it communicated?
What are the organisation’s key success factors?
What strategies and plans and associated processes and activities are adopted?
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David Dugdale
4
5
6
7
8
What is the organisation structure and how does it affect strategy and the control?
What key performance indicators are derived from objectives and strategy?
What target performance is required in each of the above areas?
How is individual, group and organisational performance evaluated, what formal and
informal information is used for this and with what consequences?
What rewards and penalties follow from meeting or failing to meet performance targets?
Broadbent and Laughlin (2009) pointed out that four of these questions (1, 2, 5, and 6) relate
to ends and four relate to means (3, 4, 7, and 8). In addition to these eight functional questions, there are four further questions that concentrate on characteristics of the control system: feedback and feedforward information flows, uses of the system, how rapidly it changes
and strength of the links between system components.
Collier (2005) used a longitudinal study of management control in an entrepreneurial
organisation to evaluate the Simons and Ferreira and Otley frameworks (see Figure 9.1) and
found Simons’ framework more useful because social controls and boundary systems were
important in his case. The Ferreira and Otley framework was “less helpful”, although useful
in drawing attention to the use of the performance management system, changes over time,
and the strength and coherence of links in the performance management system. For Collier,
“both Simons, and Ferreira and Otley … pay too little attention to belief systems or, more
precisely to socio-ideological (Ditillo, 2004) forms of control” (p. 337).
Ferreira and Otley (2009) responded to Collier’s comments on an earlier draft of their
framework by pointing out that the framework explicitly considers vision, mission, key
success factors, strategies, plans and organisation structure, and these, “at the very least,
influence belief systems, boundary systems or both” (p. 277). They add that as Collier’s
study focused on understanding the relationships between formal and informal controls,
his conclusions were not unexpected. Ferreira and Otley nevertheless acknowledge that the
framework may give the impression that its focus is on diagnostic and interactive systems
(rather than on beliefs and boundary systems). While the framework can, no doubt, be used
to uncover both formal and informal management controls, the Ferreira and Otley framework suggests rational, administrative control that links success factors through strategy and
structure to performance targets, evaluation and rewards/penalties.
Discussion of contemporary control theory
This overview demonstrates the importance, in contemporary theory, of linking strategy to
performance measurement and target-setting and, often, to rewards and incentives. Feedback control against targets is fundamental to budgeting and standard costing systems; targets
for performance measures in each of the key dimensions are the means of converting strategy
to performance in the balanced scorecard and the performance prism; the EVA target devolved throughout the organisation and linked to an incentive scheme is the essence of the
Stern Stewart recommendation; and the Ferreira and Otley framework explicitly looks for
links and feedback between strategy, performance measures, targets and rewards.
Simons’ four “levers” of control is broader and explicitly recognises social control through
the introduction of beliefs systems. However, the assumption that beliefs can be cascaded
by senior managers using devices such as mission statements underplays the role of culture,
social norms and peer pressure as informal controls. To some extent, Simons meets this
criticism with his “interactive systems” that provide for communication throughout the
organisation, although, even here, he tends to take a senior management perspective: “Some
18
Management control systems
managers term these systems their ‘personal hot buttons’ … [to] … focus attention and force
dialogue throughout the organization” (p. 96).
These performance management frameworks have widened the scope of management
control considerably, both “horizontally” to include much more than just financial measures
and “vertically” to link strategy through to operational performance and rewards. However,
the emphasis is often on the importance of rational links, “stretch” targets and alignment of
rewards with performance against these targets. In the following sections, three cases will
be reviewed and some conclusions drawn about possible deficiencies in the “target-driven”
management style that is endemic in much management control literature. First, however, it
is acknowledged that theorists are well aware of the problems that control systems can create.
Control and dysfunctional behaviour
Neely et al. (2002) provide examples of the ways that measures and targets can lead to unfortunate behaviour. For example, one airline traced delays to (1) the gate (all passengers not
checked in on time), (2) baggage handling (all bags not loaded on time), (3) cabin cleaning
(failure to clean the aircraft on time), (4) flight attendants (failure to seat all passengers
on time) and so on. The consequence was miscoding of delays due to the weather, air
traffic control and external factors in general, while, paradoxically, there was less focus on
the customer, as one employee observed: “Here … the ultimate goal is not the customers.
It’s the report card. You spend so much time filling out delay forms and fighting over a
delay” (p. 43). Another example is drawn from the drinks industry. Glenmorangie, a whisky
distiller, provided performance-related bonus incentives based on pushing products into the
market. Unfortunately, the measure used was shipments to its local distributor, and its sales
manager was therefore incentivised to ship as much as possible to the distributor. Senior management eventually discovered: “16,000 12-bottle cases of whisky … languishing undrunk
in the distributor’s warehouse” (p. 116).
A key aim of Stern Stewart’s EVA is to overcome the problems associated with accounting-­
based measures such as earnings per share. Erhbar3 (1998: 67) refers to the “cult of earnings
per share” and cites ConAgra as a company that concentrated on this measure, even boasting
in its 1997 annual report that “17 consecutive years of earnings per share growth at a compound rate better than 14% is unequalled by any major food company in the United States,
and probably anywhere in the world. [However] … ConAgra had to fiddle the numbers to
create the illusion of steadily increasing earnings”. The fine print of the accounts disclosed
the omission of a number of charges in the calculation of earnings per share. Erhbar goes on
to note that there can be more substantive consequences. In a nice echo of the Glenmorangie
example, he refers to the “common practice of … trade loading or channel stuffing. This
refers to shipping unwanted merchandise to distributors and wholesalers near the end of
a quarter in order to bolster reported sales and earnings, even though the final demand
for the goods isn’t there” (p. 68). Erhbar’s examples highlight degrees of culpability from
“fiddling” the accounting numbers as at ConAgra, to “channel stuffing” to, in extreme
cases, outright fraud, for example: “A disk-drive manufacturer called Miniscribe filed for
bankruptcy in 1990 after directors discovered that the company had literally been shipping
bricks to ­d istributors” (p. 68).
Otley (2003) recounted his early experiences working in the UK National Coal Board
where managers would report production as being on budget throughout the week (thus
avoiding awkward questions) with a “correcting” report at the end of the week. Also, if there
was overproduction, there was a temptation to “hold back” some coal in the mine so as to
19
David Dugdale
make it easier to meet the target in the following week. Another example related to the optimum size of the transport fleet where calculations had indicated that a reduction in the size
of the fleet from 60 to 50 vehicles was desirable. This was resisted by the transport manager,
but it was only later discovered that this was probably motivated by the remuneration system:
management of 55 vehicles or more meant a higher salary scale.
Simons (1995) discusses the difficulty, in diagnostic systems, of finding satisfactory measures. He noted that subjective measures need a high degree of trust, while objective measures run into different problems: an incomplete measure such as the number of sales calls
per day can lead to dysfunctional behaviour as calls are maximised but large, important
customers are ignored while a more “complete” measure such as earnings or economic profit
subsumes so much activity that it is unlikely to be responsive to individual efforts or actions.
Three cases
Introduction
In this section, three cases will be described, all based on existing literature/presentations
supplemented by interviews. The cases are drawn from a wider study that takes “Beyond
Budgeting” as its theme and the interviews were undertaken by the author and a PhD student, Tauheed Ali. A modified version of the Ferreira and Otley framework (see Figure 9.1)
was used to guide the interviews, and this framework therefore provides a common template
for description of the cases. The cases are described individually, and then a further section
provides a comparative cross-case analysis.
The examples were chosen because, in each case, managers expressed significant doubts
about the use of targets to drive behaviour and generally felt that target-based incentive payments are counterproductive. In the previous section, it was concluded that although there
was awareness of the dysfunctional behaviour targets and associated incentives could generate, there were nevertheless sound reasons for translating strategy into operational targets. In
these cases, we will see that managers have consciously chosen not to create localised targets,
preferring, instead, to decouple (to some extent) the strategic choices of senior managers
from the operational concerns of middle and junior managers.
Case study 1 Manufacturing
Introduction
The first case is based on the book Only Trends Matter (Willcox, 2013) and an interview with the author (Willcox, 2014). The major theme of the book is that management accounting information, usually based on comparison of revenues and costs with
budgeted month and year-to-date figures, is not as helpful as it might be. Willcox,
a qualified accountant and CEO of a medium-sized enginee…

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