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AAAJ
18,1 Stability and change: an
institutionalist study of
management accounting change
44
A.K. Siti-Nabiha
School of Management, University of Science Malaysia, Penang, Malaysia
Robert W. Scapens
School of Accounting and Finance, University of Manchester, Manchester, UK
and The University of Groningen, Groningen, The Netherlands

Abstract
Purpose – This paper explores the relationship between “stability and change” within with the
process of accounting change It focuses on the ceremonial way in which a new system of value-based
management (VBM) was implemented and how the key performance indicators (KPIs) became
decoupled from the day-to-day activities of the business, thereby creating a level of stability which
ultimately contributed to accounting change.
Design/methodology/approach – It uses a longitudinal study of a company in which value-based
management was imposed by its parent. It is informed by an institutionalist framework which draws
on concepts from both old institutional economics (OIE) and new institutional sociology (NIS).
Findings – It shows that stability and change are not necessarily contradictory or opposing forces,
but can be intertwined in an evolutionary process of change.
Research limitations/implications – Although there is accounting change within the case study,
it is problematic to characterise it as either successful or unsuccessful change – this has important
implications for the way in which “success” is defined in studies of accounting change.
Originality/value – It is argued that in contrast to the normal assumption that decoupling is an
“organisational” response to external pressures, it is shown how decoupling can occur through the
working out of a complex and dynamic process of resistance to accounting change: a process which
simultaneously involves both stability and change.
Keywords Accounting, Change management, Value analysis
Paper type Research paper

Accounting, Auditing &
Accountability Journal
Vol. 18 No. 1, 2005
pp. 44-73
q Emerald Group Publishing Limited
0951-3574
DOI 10.1108/09513570510584656
Introduction
Eagle[1] is a gas processing company located in an East Asian country. Its main
activities are processing and transmitting gas to various end users, but it also
undertakes various gas utilisation projects, including building gas processing plants
and pipelines. In 1998 a system of value-based management (VBM) was imposed by its
parent company – the state-owned national oil company. A brief description of NOC’s
VBM system is given in Appendix 1. As explained in that Appendix, at the core of this
VBM was a performance evaluation system which required Eagle’s managers to
formulate key performance indicators (KPIs). These indicators were intended to be
used for management control within Eagle, and to give its operations a more strategic
orientation aimed at value maximisation. As well as being used by individual
Funding by Universiti Utara Malaysia and University of Science Malaysia are gratefully
acknowledged.
managers, the KPIs would be online in the Managing Director’s computer and sent to Stability and
the parent company. change
Even though there was much dissatisfaction with existing performance evaluations,
there was considerable resistance to the new KPIs. From the outset, most of the
managers were uncomfortable with the notion of KPIs, and there was considerable
anxiety and confusion regarding how the new system would be implemented and used.
There were, for example, complaints that people were being treated as machines. Such 45
complaints, however, were never overtly voiced, instead they were informally
expressed around the company. Nevertheless, even though the managers were
unhappy with the KPIs, they implemented the new system; since it was a directive
from the parent company. Thus, at one level, this case is an example of successful
accounting change – the new system was introduced, KPIs were established, and
management reports are now routinely produced.
However, although the new system of KPIs was implemented, it was done in
accordance with the existing norms, values and practices within Eagle, and as a result
there has been no effective implementation of a value maximising, strategic
orientation. As such, the implementation of VBM has been largely ceremonial and has
not had an impact on decision-making in the company. Thus, at another level, the case
illustrates resistance, and could be said to be an example of unsuccessful accounting
change. Consequently, in this paper we will discuss accounting change not only in
terms of the introduction of new techniques, methods and procedures, but also as
change in the day-to-day practices, activities, values and norms of the members of the
organisation. The paper contributes to the emerging literature on the nature and
processes of, and resistance to, accounting change (Burns and Vaivio, 2001)[2].
In other studies of resistance to accounting change (Burns, 2000; Scapens and
Roberts, 1993; Vámosi, 2000) the intended accounting change was “unsuccessful” in the
sense that the new accounting systems and/or techniques were not ultimately
implemented. However, in Eagle, the new performance measurement system (PMS)
using KPIs was implemented, but it did not have the intended effects on the ways in
which managers within the company think about their operations. Nevertheless, it did
pave the way for a new PMS in which KPIs are used for individual performance
evaluation. However, the KPIs used for this system are not the same as the KPIs
required for VBM.
Thus, although VBM and, in particular, the new KPIs have not changed ways of
thinking within Eagle, there has been accounting change. But at the same time, there is
also stability; i.e. in the values and norms which underpin the way Eagle’s managers
think about their day-to-day activities. In this paper we will explore this “stability and
change” within Eagle. In particular, we will focus on the ceremonial way in which the
VBM system was implemented in Eagle, and how the KPIs became decoupled from the
day-to-day activities of the business. This will enable us to study the processes through
which decoupling can occur.
Early institutionalists (Meyer and Rowan, 1977) argued that systems which are
introduced to secure the legitimacy of external constituencies can become decoupled
from the internal operating systems (see also Weick, 1976). Although, as will be
discussed later, the simplistic nature of this argument has been questioned by later
writers, there remains a view that decoupling is essentially an organisational response
to external (institutional) demands. However, as Scott (2001, p. 173) argues, that the
AAAJ nature of decoupling is an empirical question (see also Modell, 2003). In this paper we
18,1 will illustrate how decoupling can arise through the working out of resistance to
accounting change by the different groups within the organisation, rather than as a
specific organisational response to institutional demands, and how stability and
change can be intertwined in this process.
The paper is structured as follows. The next section will identify the theoretical
46 framework for our case study, and the subsequent section will outline the research
methods. There are then five sections which analyse the case. The first examines the
imposition of the new system. There is then a discussion of the existing institutions
within Eagle, followed by an examination of resistance to the new VBM system.
The case analysis continues with a discussion of stability and change, and then the
reshaping of processes of change – contrasting the KPIs in VBM and the PMS. The
final two sections provide a discussion of the case and some conclusions.

Theoretical framework
In organisational studies, it has been claimed that the processual/contextualist
perspective of Pettigrew (1995) and Dawson (2003) can provide rich understandings of
the processes of change. From this perspective, processes of change are examined
within their historical and organisational context. For example, Dawson (2003, p. 7)
emphasises the importance of studying the substance, politics and context of change.
Similarly, Pettigrew (1995, p. 94) emphasises, first, the importance of embeddedness
and studying change in the context of interconnected levels of analysis; second,
locating change in the past, present and future time; and third, the need to explore the
context of action, how context is a product of action and vice-versa; and finally,
acknowledging that causation is neither linear nor singular.
In studying accounting change in Eagle, we recognise the embeddedness of
processes of change and explore both the time and organisational contexts of the
change. However, although the processual/contextualist perspective identifies the
general approach to be taken, a theoretical framework is needed to focus the analysis
and to address such questions as, why is there resistance to change, what forces are at
work, and how do new systems become embedded in the organisation. For this
purpose, we will use the framework set out in Burns and Scapens (2000), which draws
mainly from old institutional economics (OIE). This framework has similarities with
the processual/contextualist perspective in that a holistic, processual (evolutionary)
and historical approach is used in studying change.
Burns and Scapens (2000, p. 8) argue that management accounting practices can be
regarded as organisational routines and, as they are enacted and reproduced through
time, they can become institutionalised (see also Scapens, 1994). An institution is
defined as: “the shared taken-for-granted assumptions which identify categories of
human actors and their appropriate activities and relationships”. The process of
institutionalisation involves a dissociation of patterns of behaviour from their
particular historical circumstances, so that routines take on a normative and factual
quality, which obscures their relationship with particular interests (p.11). Institutions
are tacitly accepted as “the way things are done” in the organisation and, as such, are
the unconscious assumptions which underpin organisational behaviour. However,
their origins are likely to reside in explicit choices taken to solve particular problems.
When choices or solutions to problems continue to work over time, they come to be
applied in a rule-like way, and subsequently become a routine activity (Schein, 1992; Stability and
Scapens, 1994). Eventually, such routine behaviour can become unconsciously change
taken-for-granted; i.e. institutionalised.
Drawing on OIE (Tool, 1993; Bush, 1987; and Dugger, 1990), Burns and
Scapens (2000, pp. 20-1) suggest that accounting routines can be institutionalised
in a ceremonial or instrumental way. Ceremonially institutionalised accounting
routines are organisational rituals, which are used to preserve the status quo and 47
the power or interests of specific groups or individuals, rather than to aid
decision-making. In contrast, instrumentally institutionalised accounting routines
are used to make informed decisions. Whether accounting is institutionalised
ceremonially or instrumentally depends on the wider institutional setting within
the organisation; accounting routines both shape and are shaped by other
institutions. Hence, how management accounting is practised, how accounting
information is used, and the role of accountants, depend on the institutions within
the organisation.
Institutions, however, can act as a barrier to change; shaping what is perceived and
thought by members of the organisation (Schein, 1992). Thus, institutions can shape
processes of change, and as such organisations can become locked-in to certain
institutional patterns (David, 1994). Change which is not aligned with the existing
institutions may be resisted and/or translated into practices which are consistent with
those institutions. This is not to say that institutions are inevitably barriers to change;
institutions do change, although the process of institutional change is usually
evolutionary and path dependent – i.e. shaped by existing institutions.
Although Burns and Scapens’ framework focusses on internal institutions – i.e. the
taken-for-granted assumptions within the organisation – they acknowledge the
importance of external institutions, and the pressures for institutional change which
emanate from outside the organisation. Thus, although we use their framework to
understand the processes of change within Eagle, we cannot ignore the external
influences to which Eagle is exposed and their effects on change processes within the
company. For this purpose, we will draw on concepts, such as legitimation and
decoupling, which have been widely used in accounting studies (Covaleski and
Dirsmith, 1983; Ansari and Euske, 1987; Mezias, 1990 and Covaleski et al., 1993) that
have adopted the perspective of new institutional sociology (NIS) – see also Scott
(2001). Nevertheless, for our study we will retain the OIE perspective adopted by Burns
and Scapens (Scapens, 1994), as this perspective enables us to focus on change
processes within the organisation.
Accounting studies which have adopted an NIS perspective have tended to view
decoupling as an “organisational response” to external pressure to implement new
accounting routines (Carruthers, 1995). It is argued that the “organisation” (or the
organisation’s key decision makers) attempts to secure legitimacy from external
constituencies by implementing the new accounting routines, but at the same time
decouples them from day-to-day operations in order to maintain the technical efficiency
of the organisation. This line of argument stems from the work of early NIS writers,
such as Meyer and Rowan (1977) who argued that organisations tend to avoid the
dysfunctions that could be created by imposing new institutional systems that are
designed to secure external legitimacy, by decoupling them from internal technical
systems. However, later work has questioned:
AAAJ (1) the simple dichotomy between institutional and technical systems (Scott and
18,1 Myer, 1991);
(2) whether the technical can effectively be decoupled from the institutional
(Powell, 1991); and
(3) the simplistic treatment of power and politics (Perrow, 1985, 1986).
48 Nevertheless, the notion of decoupling continues to inform organisational and
especially accounting studies of PMS (Collier, 2001; Johnsen, 1999; Modell, 2001)[3]. But
whereas the early NIS writers saw decoupling as a largely given attribute of
institutionalised organisations, more recent work has tended to suggest that
decoupling requires some degree of resistance (Oliver, 1991 – also Brignall and Modell,
2000). However, little attention has been given to the processes though which this
decoupling occurs within the organisation. In this paper we will explore how new
accounting routines were ceremonially implemented in terms of the existing
institutions; thereby decoupling them from the day-to-day operations of the
business. Nevertheless, the ceremonial implementation did have consequences, and
subsequently facilitated instrumental change. This cannot be described as an
organisational response, however. It was not the original intention of organisational
decision makers; rather it was the working out of a process of resistance to accounting
change.
The insights to be gained from using this institutional framework have some
similarities with those obtained from other processual research into organisational
change – e.g. Molinsky (1999). But whereas Molinsky, for example, used the notion of
dominant paradigms, other researchers studying processes of organisational
transformation have used the concept of culture (Schein, 1992; Hassard and Sharifi,
1989; Buchanan and Badham, 1999; Nicholson, 1993; Bhimani, 2003). The concept of
culture in such work is similar to the notion of institutions in OIE. Schein, an influential
writer on cultural research, defines culture as:
A pattern of shared basic assumptions that the group learned as it solved its problems of
external adaptation and internal integration, that has worked well enough to be considered
valid, and therefore, to be taught to new members as the correct way to perceive, think, and feel
in relation to those problems. (1992, p. 12: italics in original)[4]
However, culture is a concept with a wide range of meanings and we prefer the term
institutions, as defined above, as it can be linked to the notion of management
accounting practices as organisational routines. Furthermore, for purposes of the
present paper this institutional framework, grounded in the writings of OIE, is useful
as it enables us to explore the notion of ceremonial change and to study the path
dependent nature of accounting change. In addition, it enables us to focus on the links
between stability and change.
In Eagle, we have case of accounting change imposed by the parent company, which
was implemented in a ceremonial manner in order to present an image of rationality
and to preserve the stability of the existing institutional arrangements within the
company. Thus, there is both stability and change – this paper will explore how the
two are intertwined in a mutually dependent relationship. This follows the work of
Granlund (2001, 1998) which drew on Gidden’s structuration theory to explain stability
in and around management accounting systems, and called for “more analyses of the
change and stability of management accounting practices, so that these contrary forces Stability and
and their interrelationship may be better understood” (2001, p. 161). change
Research methods
In order to study stability and change in management accounting it is necessary to
examine these processes over a sufficiently long period of time. Furthermore, as
indicated above, a processual approach needs to explore both the historical and 49
organisational contexts. Thus, a longitudinal, interpretative case study of Eagle was
undertaken. This research involved 13 visits to the organisation over a period of five
years.
The initial phase of the research was conducted over a 6 months period from July to
December 1998 (seven visits). Follow-up visits were made in 2000 (two visits) and also
from late 2001 to early 2003 (four visits). These research visits ranged from one to five
days in the organisation. Forty-eight interviews were conducted with 37 organisational
members (see Appendix 2), ranging from Vice President to clerk, at different
organisational levels and from different divisions. Essentially, the interviews were
undertaken at three levels: the parent company, Eagle’s headquarters, and
divisions/units within Eagle. Eight people were interviewed more than once. Most of
the interviews lasted between 1.5 and 2 hours. Evidence from the interviews was
reinforced by documentary evidence, observations and informal conversations both
inside and outside the organisation. Various company briefings and training
workshops were also attended.
It is important to clarify that “divisionalisation” in Eagle is along functional lines.
The company has six divisions: finance, transmission, plants, central utilities,
commercial and project divisions. Only the plant, transmission and central utilities
divisions are not located at Eagle’s HQ, which is in the same building as its parent
company. However, none of the divisions are evaluated as business units. The purpose
of divisionalisation is to provide authority to the division’s general manager (GM).
Most of the interviews were undertaken in the plant division, and the discussions in
this paper relate primarily to the plant division, since it is the key division within
Eagle. It has the largest number of staff and resistance to the KPIs was apparently
greatest in this division. In addition, the plant division operates almost as a
self-contained unit. As such, the persons quoted in this paper were from the plant
division, unless otherwise stated.
The next section describes the imposition of the new VBM system by NOC. Later
sections will then explore the prevailing institutions, the resistance to change, stability
and change, and reshaping the change in Eagle.

Imposition of the new system

VBM was first proposed in NOC in 1995 by a Western consulting firm, appointed to
undertake a corporate review of the company’s long-term direction, in the context of its
declared intention to operate overseas on a more strategically driven basis. VBM was
recommended by the consultants as a tool to determine whether the company’s
activities were being undertaken in a value-adding manner. In addition, they argued
that economic-based earnings measurements could be used as a proxy for an open
market valuation of NOC, which is not publicly quoted. VBM was subsequently
introduced in all NOC subsidiaries, including those set-up for a specific purpose; e.g. for
AAAJ inter-company transactions. It will be argued that the introduction of techniques, such
18,1 as VBM, and the use of Western consultants enable NOC to secure legitimacy in its
socio-political and economic environment. As will become clearer when we look at the
company’s history, the introduction of “fashionable” management techniques has
become an institutionalised activity in the company.
The NOC was established in the 1970s and given rights to explore and exploit the
50 country’s oil and gas reserves. It was the first and only local, fully integrated oil and
gas company in the country; previously oil exploration and production had been
undertaken by foreign-owned multinationals. As there was no local expertise or local
technology, during its early years, 95 percent of NOC’s workforce comprised
expatriates, mainly from multinational oil companies. For a company with no prior
experience of the oil business and with the major challenge of proving that it was not a
government department in another form (CEO’s speech, May 1997[5]), it is not
surprising that NOC imitated the practices of established national and multinational oil
companies. This was done by developing relationships with such companies and
seconding staff to them.
In addition to acquiring technical skills and technological know-how, NOC also
implemented fashionable management techniques, usually of Western origin and
introduced by Western consultants. It seems likely that in part, at least, such actions
were (and continue to be) attempts by the company to gain legitimacy from its wider
environment; that is, from the government, the public and its partners and allies. By
implementing fashionable management techniques, the company presents an image of
being modern and well managed. As Meyer and Rowan (1991) argue, engaging the
services of consultants can provide both internal and external legitimacy for an
organisation. For NOC, the introduction of new management fashions, and the use of
Western consultants, can be seen as part of the company’s image building process.
Such image building is important for NOC, since being wholly owned by the
government, its image is not only crucial for survival in the highly competitive world
oil markets, but it also ensures that the government does not interfere in its affairs, as
in principle, there is always the possibility of government intervention.
Although NOC was created as a purely commercial entity, its management is quite
aware that being government-owned means that its strategy and direction have to be
in line with government policy. The CEO is quoted as saying that “we have to think
commercially, but we get involved in the nation building process too”[6]. To date, the
government’s influence on the company has largely been exercised through the
appointment of the NOC chairmen. Although in the 1980s it was believed that the
government influenced the appointment of all top management, in the 1990s there does
not seem to have been any major government interference in the company’s operations.
As NOC’s CEO said in a speech in June 1997, one of the lessons learnt by the company
over the years has been the need to manage the relationship with the government
through consultation and constructive engagement.
Therefore, it can be argued that NOC has to demonstrate to the government, and
also to the general public, that it is well managed. But besides securing legitimacy from
the government, legitimacy in the eyes of its partners is also important, since NOC has
established alliances with multinational and other national oil companies in both its
domestic and international business. NOC’s CEO said (in May, 1997) “we also needed to
win acceptance from the multinationals by venturing abroad”.
 From the above discussion, it seems reasonable to conclude that new management Stability and
techniques are introduced into NOC in order to gain legitimacy, but this is not to deny change
that there may also be instrumental reasons for the introduction of such techniques.
The introduction of VBM, by Western consultants, can be seen as a continuation of
NOC’s image building process. Nevertheless, the possibility that the introduction of
VBM was based on the company’s search for efficiency cannot be easily dismissed. As
argued by Granlund and Lukka (1998), a firm may adopt a new technique in its search 51
for efficiency, although it may also do it for other (institutional) reasons. In Eagle, there
seems to have been a deliberate effort to inculcate a financial mindset in the employees,
as the Eagle GM Finance observed:
Those who do not understand accounting struggle during management committee meetings;
not only in [Eagle], but also in other subsidiaries. They have to learn to present the numbers;
they have to know the numbers. Some of them may be accounting literate. But, if you know
the numbers, normally there is no problem. Many of the engineers have a technical mindset.
Sooner or later when you reach senior management, you have to stand there to explain the
numbers.
For this reason, the parent company has a compulsory training programme for all its
executives and managers, which includes commercial awareness courses[7].
Previously, even though so-called “business training” was available, technical
managers requested and/or received training only in areas specifically related to their
work. Consequently, it could be argued that the implementation of VBM in NOC was,
in part, the result of its search for efficiency, as well as a continuation of its practice of
introducing (fashionable) management techniques and learning from other
“successful” companies.
The VBM system, just like earlier management concepts and techniques, was
imposed on all NOC’s subsidiaries. In 1998 Eagle was the second subsidiary to
implement VBM. However, within Eagle there did not seem to be any recognition of a
need to change its systems of accountability and performance evaluation, at least not in
this way. Nevertheless, staff within Eagle knew they had to accept it, whether they
liked it or not, since it was a directive of the parent company.
Imposition by the parent is not new within NOC. Most of the subsidiaries’ policies
and procedures are dictated by the parent company. In addition, staff are rotated
among the different subsidiaries; with the movement of managers being subject to
approval by the parent. Hence, the parent company maintains very strong control over
its subsidiaries. Consequently, a directive from the parent is seen as something that has
to be implemented. This is illustrated by the following comment of a manager at the
parent company:
There is no NIH [not implemented here] syndrome. So, I mean, if you give me an initiative, of
course, I will grumble, but I will still do it no matter what. If I don’t do it, then there is the
implication that at the end of the day I won’t get promotion, I won’t get the merit. I won’t get,
you know, things like that.
As a result, Eagle’s managers took all the necessary steps to formulate their KPIs.
They then sent them to Eagle’s HQ, and subsequently Eagle’s KPIs were sent to the
parent company. All the “rules” associated with the new system were followed, but the
values underpinning Eagle’s activities, as we shall see, remained substantially
unchanged.
AAAJ VBM’s potential impact in Eagle could have been quite revolutionary[8]. VBM in
18,1 general and the KPIs system in particular were designed to change the way in which
decision-making is undertaken in Eagle, and to facilitate other changes, including the
way managers think about their activities (see Appendix 1). The new system was
intended to promote a financial orientation, such that managers consider the impact of
their decisions on the value of the company. As the GM Finance commented:
52 Under the VBM system everybody has to understand that we have to add value. Adding
value means that we have to translate our activities into a dollar sign. Everything we do must
be reflected in the dollar sign. We have to quantify.
Thus, managers should be conscious of the financial implications of their decisions. As
one manager noted, “Now the focus is more on dollars and cents. The performance
indicators must support our bottom line, our profit.” The managers had to translate
their activities into specific performance measures (KPIs), which could be collected,
monitored and ultimately sent to HQ, where they would be available online. With this
system, the performance of divisions, departments and even individual employees
would become more transparent, and thus more amenable to control in financial terms.
But the norms and values, and the financially oriented ways of thinking, which are
at the heart of VBM, were in conflict with the existing institutions within Eagle, which
could be characterised by a predominately production orientation. As we shall see
below, this orientation had permeated the organisation and had impacted other
organisational activities, as well as the roles and responsibilities of managers. Within
Eagle, there was a general absence of financial targets, accountants had a very
traditional bookkeeping role, and budgets were used in a ceremonial way. Potentially,
the implementation of VBM would require managers and other employees to undertake
new activities, to take decisions in new ways, and to adopt new ways of thinking about
their jobs. These changes in the way decisions were made could have led to other
changes in the organisation, and as such could have represented a revolutionary
change for the company. However, this did not happen, as will be explained below.

The prevailing institutions in Eagle

While VBM was explained to employees in the language of finance, within Eagle a
production orientation provides the basis for managers’ decision making and shapes
the common goals of the company. This production orientation is taken-for-granted,
and defines the way things are done in Eagle. Even though the stated objective of the
plant division is to operate the plant in an efficient, safe and reliable manner, reliability
and safety normally take precedence over efficiency. Actions needed to ensure plant
reliability are almost always undertaken, even if very costly. The concern for plant
reliability is widespread in Eagle, even amongst accounting personnel, as illustrated by
the following comment of the Chief Accountant (at the Plant Division):
Our policy is normally . . . [to] go first for safety. Second is reliability and then the third one
is efficiency. So, cost is normally part of efficiency, because the first priority is safety and then
reliability. Sometimes, even though cost is high, we still have to process the gas to maintain
reliability to the customers.
This concern for plant reliability has fostered a production orientation. Even during
the Asian economic crisis in the late 1990s, when the country’s currency suffered
a major devaluation, “essential” equipment was still bought or sent for repair.
This significantly increased costs, as most equipment and spare parts are imported. It Stability and
was justified on the grounds that plant reliability and safety could not to be change
jeopardised. This contrasted with the parent company’s cost reduction measures,
which were imposed on all its subsidiaries, including Eagle, during the economic crisis.
These included among other things, cutting almost all overseas staff training, the
voluntary redundancy of non-executive, non-technical staff, and a withdrawal of salary
increments for all executives in 1998. 53
The production orientation in Eagle has been reinforced over the years by the
influence of the company’s external and internal environments and, in particular, by its
monopolistic position. The high development costs involved in building the plant and
setting up the transmission lines provide a major barrier to entry. The gas coming from
offshore belongs to the parent company, which has the sole right to exploit the
country’s gas reserves. As such, there is no pressure for Eagle to maintain market
share or to reduce costs. Even though Eagle’s performance has been benchmarked
against other gas production companies, the information has not really been used for
cost reduction purposes. Furthermore, Eagle does not have a marketing function per se.
Customers request the supply of gas from the parent company. However, decisions to
supply gas to specific customers are taken by Eagle.
As the company’s revenue is derived almost entirely from throughput fees received
from NOC, plant reliability is more important than the efficiency of operations.
Demand is relatively stable, and the selling price to the external customers is regulated
by the government and subsidised in part by NOC[9]. These factors have reinforced
Eagle’s production orientation, which has probably existed since the years following
its formation in 1983, when the main emphasis was building the plants and setting up
the pipelines – both of which were important infrastructure projects for the country as
a whole.
The continuation of this production orientation is due in part to the absence of any
major external shocks, which might have challenged the commonly held assumptions
within the company. There is research to suggest that major external events can lead to
the questioning of previously held assumptions (Burns, 2000; Schein, 1999, 2003;
Harris, 1994). However, even the Asian economic crisis did not appear to have an
impact on the production orientation within Eagle. Although there was an awareness
of the need to be more cost conscious, the economic crisis did not have a significant
effect on the demand for gas. A major reason was that the economic crisis meant that
gas became a cheaper alternative relative to other sources of power. Furthermore,
about 70 percent of Eagle’s customers[10] are power generating companies and the rest
are mainly industrial users, and the demand for gas has been increasing as a result of
the government’s policy of balancing energy sources used for power generation.
The production orientation has permeated the company and has influenced most of
its activities. In particular, it has had an impact on the way budgets and budget-based
information are used. Budgets are routinely used in Eagle as a means of obtaining the
resources needed for the planned activities. They are prepared from the bottom up and
there are budget reviews at various levels. The procedures set out in the budget
guidelines are strictly followed, and personnel at most levels are involved in budget
preparation. But even though much time and effort are devoted to preparing the
budgets, they are not used for planning and control, or even seen as targets. This is
illustrated in a comment of the former Plant GM:
AAAJ I told them that even though we have budgeted for a certain amount, if we don’t need to spend
it, then don’t spend it. But, if the item had not been budgeted for and we do need to spend it,
18,1 then we will spend it.
The current Plant GM also commented that “the budget is not an issue here”. Using
budgets in this way ensures that production reliability can be maintained; even in
budgeting safety is the priority. Given such an approach to budgeting, it is
54 unsurprising that budget information is not widely used within Eagle. Variance
reports are not discussed in plant management meetings – the accountants only
present a report if there are major variances. Thus, although variance reports are
prepared to comply with Eagle’s procedures, and sent to Eagle’s HQ, they are not used
to evaluate the performance of managers, divisions or departments. Hence, there is
very little financial knowledge and only limited financial control within Eagle.
Given this lack of financial control, Eagle’s accountants play a very traditional
bookkeeping role. They compile budgets and reports for submission to Eagle’s HQ, but
they do not actively provide inputs for management decision-making. This seems
somewhat typical of an organisation with a predominately production orientation. For
example, Jagd (1995) observed that in such organisations success in production terms
constitutes the principal aim of all business activity; accounting is regarded as an
instrument to secure production and is not allowed to interfere with the production
process. In Eagle an important task for the accountants is to assist managers to secure
the funds needed for their production activities. As the Chief Accountant explained:
So far there have been two or three times when they didn’t have a budget and came to me. I
assisted them . . . . So, what are the problems? Maybe previously when they didn’t have a
budget, they asked finance and finance said that there was no budget. I told them that this is
not the approach. We will assist you. If the thing is not in the budget, but it is critical and you
really have to do it, then, why should you worry since it is in our limit of authority? If there is
an emergency, you can go ahead; you don’t need to ask for approval. You can explain it later.
There is a conscious effort on the part of the accountants to improve the budgeting
process, but the improvements are largely cosmetic, and appear to be concerned with
ensuring a smooth flow of work, from the preparation of the budget to the “monitoring”
of the results – i.e. producing the variance report for Eagle’s HQ. Hence, modifications
have been made over the years, but the budgets are still used primarily as a tool to
obtain resources.
The implementation of the new KPIs has been the responsibility of the accountants.
The GM Finance is the “custodian” of the VBM system, and it is co-ordinated by the
Management Accountant at Eagle’s HQ. In the plant division, the primary
co-ordinators are the Chief Accountant and the Production Planning Manager.
Nevertheless, it is the Chief Accountant who is the most visible member of the VBM
co-ordination team, and it has been his job to explain to managers how to construct the
KPIs. However, it is the individual managers who select their indicators, and set their
own targets.

Resistance to change
As described above, the use of fashionable management techniques is an
institutionalised activity within Eagle, and coping with the introduction of new
systems is nothing new to its managers. However, they are concerned that there are too
many initiatives and that employees need time to adapt to different concepts when new Stability and
programmes are initiated. Furthermore, at the start of the VBM implementation there change
was considerable anxiety and confusion regarding how the KPIs would be used. With
such a new system, there are no routines to predict the actions of either superiors or
subordinates. The taken-for-granted ways of doing things show organisational
members how others within the organisation can be expected to behave, and this
provides predictions about their behaviour (Scapens, 1994). As such, institutions are a 55
source of information and they give stability and coherence to organisational activity.
This does not mean that there is no conflict in the organisation. Conflict can still exist,
both manifest and hidden. However, manifest conflict normally follows predictable
paths and is consistent with ongoing routines (Nelson and Winter, 1982, p. 110;
Scapens, 1994). In Eagle, even though the employees were dissatisfied with the existing
evaluation system, they knew how they were evaluated and past experience enabled
everyone to predict the actions of their superiors and subordinates.
Despite the confusion and anxiety about the KPIs, there was resigned acceptance
that the new system had to be implemented, since it was a directive from NOC.
Directives from the parent have to be implemented, and consequently are not overtly
questioned. But, when the new KPIs were being introduced, staff complained that they
were being treated as machines, since “everything was to have a standard”. The
Management Accountant at Eagle’s HQ said the resistance level was very high,
especially in the plant division. In general, however, the complaints were made
informally; although some concerns were expressed at the presentations and briefings
on KPIs and VBM. Nevertheless, complaints were not formally raised, since it is not the
norm for employees overtly to criticise company policy[11]. As the GM Finance
commented, part of the new culture within NOC was to encourage teamwork, which he
saw as the ability to work together and not to take part in negative criticism. He
continued:
All the senior management must be good team players because we consider their ability to be
a team player in their promotion. Even if you are good technically, but you are not a good
team player, then, you would not be promoted. . . I feel that for the last five or six years, this
has been one aspect that top management has taken into consideration. The culture before
that was very different. But they are slowly instilling the new culture that team work is
crucial. This means that there should no longer be any negative remarks. If you make a
negative remark, then you will get..[ pause ] Well, you can criticise, you can speak your mind,
but it is the way you approach it.
Such behavioural norms were also evident when Eagle changed its organisational
structure a few years earlier. In 1995 a new Managing Director was appointed and he
initiated a realignment of Eagle’s organisational structure to establish clear lines of
responsibility, with some departments merged to become divisions. During this period
there was considerable anxiety amongst the employees about their jobs. Many were
unhappy and there was much grumbling about the changes. Nevertheless, these
complaints were not raised formally. However, the management was aware of the
unhappiness and the Managing Director provided briefings to the staff in an attempt to
calm their fears. Given such norms, it is not surprising that there was no overt or
formal resistance to the new KPIs. Nevertheless, there was resentment, but it was not
openly expressed.
AAAJ As well as formal and overt resistance due to competing interests, Burns and
18,1 Scapens (2000) argue that resistance may also be due to the inability of the members of
the organisation to implement the new system, or to conflict between the values
implied in the new system and the existing institutions[12]. The resistance in Eagle can
be traced to both of these additional factors. Prior to the implementation of the new
KPIs, the managers had no experience of constructing indicators of their performance.
56 Consequently, they had difficulty in translating their activities into performance
measures and in setting targets. In addition, there was a feeling that indicators,
especially financially oriented indicators, could not fully reflect the complexity of their
roles and activities. More specifically, they lacked knowledge about how to relate
indicators (and targets) to the financial performance of the company. Such indicators
had never been used before. As Nelson and Winter (1982) pointed out, it can be difficult
to create new routines, where none existed before.
In this case, the formulation of KPIs required new capabilities. In Eagle, even
though business training was available, most managers, especially technical
managers, had thus far only received training directly related to their work. As
Nelson (1994) argued, organisational innovation may be more difficult than
technological innovation, and the use of indicators to monitor and subsequently to
reward performance was a major organisational innovation in Eagle. Under the
company’s previous PMS, all employees had been evaluated individually based on
their assigned activities. However, with the new VBM system, managers were to be
held responsible for their department’s or their section’s performance. In addition, there
was a lack of infrastructure to support the implementation of the new system.
Managers needed to collect data for KPIs monthly, and at the time of the initial
implementation, much of this data collection was done manually – consuming
considerable time and effort. But it was Burns and Scapens’ third category of
resistance arising from mental allegiance to specific ways of thinking and doing
things[12], which probably represented the strongest form of resistance in Eagle. In
essence, there was a change in the formal procedures and new routines were
introduced, but in the process the KPIs system became decoupled from day-to-day
practices within the company. And once it became clear that the new system was to be
applied in a way that did not challenge the existing institutions within the company, it
became accepted and there was a reduction in anxiety. The next section discusses how
change occurred through the internalisation of KPIs in the organisational activities;
and how stability was ensured due to the fact that the prevailing production
orientation remained intact despite these changes.

Change and stability

As mentioned earlier, within Eagle there was no recognition of a specific need to
change the system of accountability and performance evaluation. VBM and especially
the new KPIs were put in place simply because they were imposed by the parent
company. However, there was resistance, despite the fact that organisational members
accepted the legitimacy of the parent company’s imposition of its policies and
procedures. Consequently, not implementing the new system was not seen as an
option, but as already explained, the values underlying the new system conflicted with
the existing norms and values in the company.
 In Eagle, data on the divisional KPIs are collected and transmitted to the HQ, where Stability and
reports are prepared and subsequently forwarded to the parent company. The KPIs are change
also available to managers in an “online” information system. Hence, the routines
associated with the new system have been implemented, but nevertheless there has
been little change in the underlying values within the company.
Existing institutions, which are widely and deeply embedded in an organisation, act
as a filter of what is seen and what is thought about by organisational members. As 57
institutions exist prior to a change, they can shape processes of change. In Eagle’s case,
the way KPIs are used was influenced by the existing institutions. First, financial
information was not used in managers’ decision processes and was rarely discussed in
management meetings. More specifically, financial targets were not seen as
commitments and financial information, such as variance reports, was not
considered useful by managers. Furthermore, individual departments were not
rewarded/penalised on the basis of their performance relative to the budgets; they
simply had to provide explanations for differences. When the KPIs were introduced,
they tended to be used in the same way as other financial information, and
consequently were not regarded as important. Second, the ultimate aim of performance
indicators in the plant division continued to be the maintenance of production
reliability. As a result, production-based indicators are at least as important as
financial targets.
Third, even when targets are used, contingencies are taken into consideration and,
in some cases, “buffers” are included into the targets to allow for uncontrollable factors.
Furthermore, in monitoring performance indicators, unplanned activities are taken into
account. Finally, the managers do not consider KPIs as fully reflective of their
performance. As one manager explained, “My performance is based on my KPIs. But
my KPIs cannot reflect everything”. Consequently, there has been some
modification[13] of the KPIs used in Eagle, and this has made it more acceptable
and reduced employee resentment. For example, early in the implementation process,
some managers formulated two sets of indicators – an informal set, which was used
for performance evaluation and rewards, and another set for the VBM system. The
former subsequently became formalised following the introduction of a new PMS,
which was introduced in NOC by another Western consultant during 1998 and
formally implemented in Eagle in 1999.
An integral part of this new PMS system is the use of KPIs[14], and as such, the new
system is similar to VBM. This fact is recognised in NOC’s PMS manual, where it is
stated that “the new PMS has actually been in existence in NOC since 1995”. This is
further illustrated by a comment of the Management Accountant at Eagle’s HQ, who is
the VBM coordinator in Eagle:
KPIs were introduced during the implementation of VBM. Now, we have performance
appraisal in which we have task lists and under each task list we need to have KPIs – and in
a way these KPIs must be synchronised with the VBM KPIs. Actually, when we have
identified the KPIs for the VBM system we have automatically identified the KPIs for the
department. So, when we consolidate our KPIs for PMS they should support the departmental
VBM KPIs.
Nevertheless, these two systems, and their respective KPIs, are generally regarded as
quite separate, even though one of the declared intentions of the PMS was “to align
individual staff performance to add value to the performance of the organisation”
AAAJ (NOC’s PMS manual). As the Human Resource Manager at the Plant Division
18,1 explained: “VBM KPIs are used to monitor business performance and the PMS KPI are
required to monitor individual performance”. Therefore, there are two sets of KPIs: the
VBM KPIs reported in the online information system and the KPIs used for staff
evaluation. In many cases these two sets of KPIs are quite different.
Nevertheless, what we are seeing is the routinisation of KPIs in the day-to-day
58 activities of Eagle. Reports containing KPIs are prepared and sent to the parent
company, and even made available online. Thus, there is a level of conformity to the
VBM system, while resistance is camouflaged with a façade of acquiescence. It is the
rules of the new system which are followed, not the underlying values.
The implementation of VBM has not effectively changed the way in which
managers conduct their day-to-day activities and the way they make their decisions. In
Eagle’s case, a change in the basis of managers’ decision-making, from a production
orientation to a financial orientation, requires a major change in ways of thinking, and
this has not occurred. Such a “ceremonial” implementation of the new system, without
change in the underlying ways of thinking, can be characterised as passive resistance.
Schein (1992) argued that existing norms and values that have proved to be useful and
effective can lead to a rejection of changes which are in conflict with them. In this case,
Eagle has been very successful in the past[15] and, hence, there was no apparent
incentive to change. As already mentioned, even a severe economic crisis did not lead
to pressure for change.
Given that the VBM KPIs are not seen as essential targets within Eagle, it is not
surprising that the online information system is not widely used internally.
Furthermore, the information available on the system is not regularly updated,
especially at times when the person responsible is involved in other duties – such as
the preparation of budgets. Generally, the online system is perceived as too rigid and
the information is not up-to-date. Another complaint is that the explanations for
deviations from the “targets” are only available for the most recent KPI data. This
creates much confusion, as the system is not regularly updated there are frequently
differences between the explanations and the KPI data.
Nevertheless, despite these questions over of the usefulness of the online
information, the KPI data continues to be collected and compiled monthly, since the
rules associated with the new system have to be followed, otherwise there would be
unwelcome questioning by the parent company. However, in the plant division, the
finance department, which was initially responsible for compiling the departmental
KPIs, subsequently passed the task to the GM’s secretary. As a result there is little
monthly reporting of departmental KPIs, and what is undertaken is not seriously
monitored. It is only the divisional KPIs which are regularly reported to the HQ. This
creates no real problems as the departmental KPIs are not used in decision-making, nor
are they discussed in management meetings.
Despite this “passive resistance” to the VBM KPIs, the concept of KPIs and
performance targets have become internalised within Eagle, but as part of the
operationalisation of the company’s strategy and for its staff evaluation through the
new PMS. These “operational” KPIs are reported, monitored and actively discussed in
management meetings. Furthermore, in the plant division, there is an online system,
which contains information concerning the various strategic action plans, the
associated KPIs and their targets, and explanations for variances between the target
and the realised KPIs. This system was developed by the IT department, at the request Stability and
of Eagle’s MD, and is available throughout Eagle, but not beyond. The strategic action change
plans and their implementation are widely discussed and monitored using KPIs.
However, the use of these operational KPIs within Eagle is quite separate from the
VBM KPIs which are used throughout NOC, including Eagle. As will be explained
below, the use of KPIs to operationalise strategic planning through the new PMS in
Eagle perpetuates and reinforces the existing institutions within the organisation. As 59
we discussed earlier, the VMB KPIs were decoupled from day-to-day activities in order
to avoid disrupting the existing production orientation within Eagle – i.e. to maintain
stability. However, with the introduction of the new PMS and the operational KPIs,
accounting change has taken place, but in a reshaped form that does not threaten the
stability of the existing institutions.

Reshaping the change: KPIs for PMS

Eagle’s main strategic thrust since it was set up in 1983 has been building gas pipelines
and processing plants, which are deemed crucial infrastructure development projects
for the country. Hence, the progress and completion of these projects have to be closely
monitored. Over the years this has been done largely through annual strategic action
plans, and was reinforced in 1999 when the new PMS was implemented. Through this
new system individual performance is evaluated, based on routine tasks and current
year work plans, which are derived from the broader company/departmental strategic
action plans and the operational KPIs. In this way, the operational KPIs are translated
into the individual KPIs, which are then used for staff evaluation[16].
The new PMS links the concept of target KPIs to the existing institutions within
Eagle; while the financial orientation underlying the VBM system is not a feature of the
new routines. The production orientation, which has characterised the mindset of most
members of the organisation over the years, remains substantially intact and has been
reinforced by the new system. Whereas the fundamental character of the VBM system
ultimately resides in the financial logic of business activities, Eagle is a “hybrid”
organisation which combines business activities with the pursuit of national economic
development.
In the application of the PMS, considerable emphasis is given to job training for
those employees who are not performing satisfactorily at present. Skills development
and job training continue to be a major concern in Eagle, and within NOC more
generally. The reasons for poor perform are carefully analysed to identify individual
training needs. Oil and gas is a very capital intensive and technologically advanced
business and, as such, it is not surprising that human resource development is
regarded as a crucial activity for NOC. This can be further illustrated if we look again
at the company’s history. At the time NOC was set up, the country had no petroleum
engineers, and hence it initially had to rely on foreign expatriates. However, it soon
established a programme to enhance the skills of its local employees so that ultimately
they would hold key positions. Thus, training and acquiring of new skills became an
essential feature of organisational life. As the President of NOC put it: “skill
development cannot be sacrificed for the sake of the bottom line.” (CEO speech, May
1997[17])
Given this history, it is quite understandable that the inclination within Eagle is to
give job training to employees who do not perform satisfactorily, rather than seeking to
AAAJ discipline them in some way. NOC’s policy is to provide a minimum of eight training
18,1 days to every employee each year. Within Eagle, the plant division normally exceeds
this target, and even during the Asian economic crisis technical skills training
continued to be provided. Furthermore, NOC does not have a “hire and fire” policy, and
there has only ever been very minimal retrenchment. In general, the government
frowns upon major retrenchment and, being a state-owned company, the values of
60 NOC reflect, to a very large extent, the values of the government.
The hybrid nature of Eagle (and NOC more generally) is also reflected in the
“long-term perspective” which is taken within the organisation. For example, even
when there is a need to reduce costs, the long-term continuity of production, and
especially issues of safety and reliability, are not comprised. As mentioned earlier,
about 70 percent of the Eagle’s output is used for power generation, and disruptions in
supply would have serious consequences for the country. As the current Plant GM
explained: “We have . . . a critical industry for the nation. If these gas plants are not
able to operate because there is no budget, there will be serious implications.” This long
term perspective in Eagle (and NOC) is similar to Dent (1991) observation about Euro
Rail in which the concept of time appeared infinite. He found that due to such a long
term perspective it was very difficult to incorporate an accounting concept of time into
the railway culture.
As NOC straddles the commercial and public sectors, it is not surprising that plant
reliability and continuity of supply are such major concerns. As explained by a
manager in the plant division, the material resources needed to maintain the plant and
to ensure safety have to be available: “Safety is. . . just like our CEO says, there is no
question about it, if it is required to do it, then do it. Whether there is budget or no
budget for it, just do it!”[18].
Despite being state-owned, NOC has considerable financial independence, and this
enables it to take a longer view, as it does not have to rely on the government for its
financial resources. This long-term orientation is reflected in the values underlying the
new PMS, which evaluates not only whether the work has been done, but also how it
has been done. As the GM of Human Resources at NOC explained: “. . . we look at how
we achieve [results] because we wouldn’t want someone to achieve results by killing
everyone else in the company”. Although probably not intended, this comment has two
interpretations – the literal: safe operations are crucial in this business and staff could
be killed if safety is compromised; and the metaphorical: too much pressure can
excessively stress (i.e. “kill”) members of staff. Such concern for avoiding excessive
stress seemed to be just as important as the safety issues, as the Management
Accountant at Eagle’s HQ explained:
To meet all your KPIs, you can kill half of your staff. I can kill my staff. I can make sure my
staff work. . . just to enlarge my ego. I’ve got some target and then I want to increase that
target by 10 percent; then I threaten them and all that. But, I might not be a good boss. Maybe,
I’ve a good staff. The company might say: “Great, he produced the results”. In the long run,
I might be causing more damage . . . . in five years, if you looked at the effect [on the staff].
Such attitudes, together with the policy of minimal retrenchment, has meant that
morale and atmosphere in Eagle are important and have generally been very good.
This has had an impact on the implementation and use of the new PMS, which does not
penalise individuals for results which are beyond their control. As the current GM of
plant division commented: “we have to be fair”.
 Thus, KPIs are now used within Eagle for operational performance evaluation, and Stability and
reasons for not achieving targets are open to discussion. While these PMS KPIs change
continue to reflect a production orientation, it is clear that the VBM system has not
changed the existing mindset, or instilled a more financial-orientation. As the HQ
Management Accountant explained in relation to VBM:
I think it was not effective. We have briefed them about the cost drivers and all those things.
But, I guess, it just stays with finance people and planning people or maybe at the 61
management level, but not at the operator’s level, engineers level. We still cannot penetrate to
those levels.
The VBM system has not resulted in greater cost awareness or any significant
changes in the way managers take decisions and conduct day-to-day activities.
However, recently a number of external factors (external to Eagle), in particular a
reduction in throughput fees and NOC President’s 2003 policy address (see below),
have had an impact on the perceived need to reduce costs. As explained earlier,
Eagle receives the bulk of its income in throughput fees, which are renegotiated
with NOC every 5 years. However, in 2000 there was a substantial reduction in
these fees.
Since its formation, Eagle has obtained much of the finance for its extensive
construction programme in these throughput fees. But by 2000, nearly all the major
projects had been completed and Eagle was considered fully operational. So the parent
company, in an effort to encourage Eagle to be more cost effective, reduced the
throughput fees. In response, Eagle set the target of a 20 percent cost reduction in 5
years time, and the finance division conducted a cost awareness survey, as a result of
which it was decided to establish a cost awareness programme throughout Eagle. The
survey also indicated that the briefings which had been given about the VBM system
had not been effective and a new training programme was needed. The Management
Accountant at Eagle’s HQ stated:
We have been trying to reduce cost, to minimise cost, to be cost effective, but in all
those things we cannot get through to the operation level. We, as the support function,
are more sensitive to these cost elements. But those at Projects and Plants – it is
difficult to make them understand . . . . Okay, if you do this it will have an impact on
cost and at the end of the day, your bottom line will be affected. We wanted to provide
them with this appreciation.
The other factor, which prompted Eagle’s costs awareness programme, was a policy
address given by the NOC President in early 2003. This required all operating units to
achieve a 30 percent cost reduction over the next 5 years. The response within Eagle,
however, once again reflected its production mindset. They plan to increase plant
reliability and safety in order to reduce shutdowns and thereby ensure that a higher
volume of gas is processed. Such a plan is quite feasible, as Eagle faces no problems in
selling all the gas it produces. Other cost reduction measures include increasing the
efficiency of procurement through economies of scale, undertaking preventive
maintenance, and installing further safety mechanisms so that the plant shutdown
needed for major maintenance is only necessary every 4 years instead of three.
However, undertaking all these preventive maintenance and safety measures will
increase costs – but it is argued that it is an investment which will be recouped in later
years. The arguments are illustrated by the following comments:
AAAJ If the plants are not reliable, the costs will be much higher. If you don’t produce, you don’t get
much revenue and you have to spend more money in preparing the plants because they are
18,1 not reliable. The more reliable you are, the more cost efficient you will be . . . . Now we are
trying to improve our cost by being more efficient. There are many ways to do this. First, get
your reliability up. When the plant is not reliable, you will see a lot of flaring. So, you lose
there. And then we have to spend so that the plants will be more reliable. So, basically we
need to be more reliable (The current GM of the Plant Division).
62
Initially, to increase reliability will lead to an increase in cost. However, in the longer-term, we
will be saving cost. We can have cheap plants now, and a cheap operation, but the plants
would not be reliable and thus, we will be spending more money (Senior MA at Eagle’s HQ).
Such views clearly reflect the long term orientation which was mentioned earlier.

Discussion
To summarise, in Eagle we see an organisation in which accounting change has taken
place and new accounting procedures (rules) are now being used. The process of
accounting change began when NOC imposed VBM on all its subsidiaries, including
Eagle. Although many in the company were initially concerned and anxious about the
nature and effects of the new rules associated with VBM, they were implemented as
they were a directive of the parent company. However, the way in which they were
implemented and ultimately became routinised was largely ceremonial and shaped by
the existing norms and values within the company. This was achieved by decoupling
the new rules and the emerging routines from the day-to-day operational activities.
However, through this process the accounting change was itself reshaped and new
accounting routines emerged which further embedded the existing norms and values.
In Eagle, the prevailing institutions, or taken-for-granted assumption, were
expressed in terms of a production orientation, encoded in the existing rules and
routines. As a result, accounting was seen as an instrument for securing the means of
production, rather than a mechanism for achieving financial control. The accounting
rules and routines were enacted in a way which enabled managers to pursue the twin
goals of safety and reliability. When VBM was imposed by the parent company there
was uncertainty and anxiety because its underlying assumptions did not align with the
existing institutions. However, although new rules were enacted to implement VBM,
they became decoupled from the operational activities and thereby produced and then,
through repeated use over time, reproduced routines which enabled VBM to be
accommodated within the existing institutions. In other words, it was institutionalised
ceremonially. Although new rules were enacted, they were decoupled from the
productive activities of the business, thereby subverting the “proclaimed intentions” of
VBM – i.e. to give the operations of Eagle a more strategic orientation aimed at value
maximisation (see Appendix 1).
The resistance to VBM, and especially to the new KPIs, despite being passive and
hidden by a façade of acquiescence, could be regarded as being deliberate and, thus the
decoupling was an intentional response of the operating managers. Nevertheless, it
would be wrong to argue that such decoupling was an “organisational response”. The
key decision makers in Eagle (i.e. senior managers at the HQ – especially the senior
finance managers) argued that VBM was needed to ensure that all managers
understood the financial implications of their decisions. Their intention was to
incorporate VBM into the operational activities of the business; it was the operational Stability and
managers who decoupled it from their day-to-day activities. change
As argued above, NOC imposed VBM on Eagle, and its other subsidiaries, as part of
its image building process. But it is difficult to see VBM simply as a means of gaining
legitimacy from external constituents. To senior mangers in NOC, and also within
Eagle, VBM offered a means of enhancing the economic (financial) efficiency of their
business, as well as demonstrating that it is a modern and well managed business. 63
Thus, in relation to the implementation of VBM, there is no clear distinction between
the need to secure legitimacy and the search for efficiency. As mentioned earlier, NIS
writers have questioned the simple dichotomy between the institutional (securing
legitimacy) and the technical (seeking efficiency). The interdependency of legitimacy
and efficiency is clearly an issue in Eagle. Whereas, issues of legitimacy may have been
important in NOC’s decisions to impose of VBM on its subsidiaries, issues of efficiency
cannot be easily dismissed. However, as NOC has not explicitly questioned the
ceremonial use of VBM in Eagle, it may be suspected that issues of legitimation were
more important for NOC, than issues of efficiency – at least insofar as Eagle is
concerned.
As we saw above, however, within Eagle the senior managers and especially the
senior finance managers argued that VBM was needed to bring a more financial
orientation to the operations of the business. Thus, they saw the implementation of the
new KPIs as a means of enhancing the efficiency of the business. In the terms used in
NIS, it could be argued that the accountants in Eagle had accepted the rationale of
VBM through normative isomorphism – i.e. conforming to the standards and values of
the profession. Nevertheless, for them the implementation of VBM was an issue of
economic efficiency, rather than primarily a matter of securing legitimacy. But for
operating managers, conforming to the directive of the parent was the primary issue.
Thus, in this case the implementation of VBM involved issues of both legitimation and
efficiency.
At the senior management level, the intention was to implement VBM to enhance
economic efficiency, rather than to secure legitimacy. But there was resistance (albeit
passive resistance) from the operating managers, as the assumptions underpinning the
new system did not align with the existing institutions within the company. Thus, the
decoupling we see in Eagle is not per se an organisational response to external
institutional pressures. Rather, it is the result of the working out of complex internal
processes of resistance to change – in this case, change which challenged the existing
institutions within the organisation.
The case study illustrates the way in which the institutions (within the organisation)
can shape processes change and potentially subvert its proclaimed intentions. In Eagle,
the new system of KPIs was decoupled from the more production oriented internal
practices and this ensured a level of stability in the organisation. If Eagle changed with
every new initiative from the parent company, there would be little stability to its
organisational life. If there had been continuous reopening of previously held
arrangements and assumptions, it would have been difficult for organisational
members to continue with their day-to-day activities. As such, the resistance to change,
which was achieved through a decoupling of the imposed formal procedures from the
day-to-day productive activities, could be seen as essential for Eagle. As Kahn (1982)
AAAJ and also Schön (1963) have argued, an organisation that is devoid of resistance to
18,1 change would not be an organisation at all.
Scapens and Roberts (1993) case study of an “agreed” accounting change, Burns
(2000) study of the imposition of change, and Molinsky’s (1999) study of the failure of
planned change programmes, all illustrate the evolutionary paths followed by
processes of change. The study by Klien et al. (1989) also showed change following an
64 evolutionary path. In that case, new technology, which potentially could have made
practices more efficient, was not fully implemented because of the way in which the
dominant norms and values in the organisation influenced the change process.
This does not mean, however, that revolutionary change is impossible; it is always
possible for ways of thinking (i.e. institutions) to change, and to change quite
fundamentally. A case study by Busco et al. (2002) provides an example of a more
revolutionary change in a previously state-owned Italian company, following its
acquisition by a US multinational. In that case there were specific actions and events,
both internal and external to the organisation, which directly challenged the existing
ways of thinking. This caused members of the organisation to question their
previously taken-for granted assumptions – this process created considerable
uncertainty and anxiety within the company. The new systems of accounting and
accountability, which were then introduced, came to be seen as a way of coping with
this uncertainty and anxiety.
In terms of the institutional framework, in this Italian company the
taken-for-granted assumption, which were encoded into the existing rules and
routines, were themselves questioned. This questioning at the institutional level was
very unsettling for members of the organisation, as the certitudes of the past were
taken away and new institutions had to be created. The new accounting systems
became a means of coping with the process of institutional change. In Eagle, however,
the new accounting systems were intended as a way promoting change in ways of
thinking – namely, to instil a greater financial awareness. But as there was no
questioning of the existing institutions, these new accounting systems were interpreted
in terms of the existing norms and values of the organisational members.
Dent (1991) also discussed a process of institutional change – although he referred
to it as cultural change. It is interesting to note that in Euro Rail, Dent described a
process in which the new accounting systems helped to create the new organisational
reality, but they were not intended to be the driver of change, as in Eagle. There were
various forces both inside and outside Euro Rail which were challenging the existing
institutions, and accounting systems became part of the process of coping with the
institutional change. A similar situation was reported by Jazayeri and Hopper (1999) in
a case study of the introduction of the techniques of “World Class Manufacturing”.
As argued above, however, existing institutions act as a filter for what is perceived
and what is thought about by the members of an organisation – as happened in Eagle.
Hence, change will be shaped, to some extent at least, by the existing institutions, and
as such it will follow a path dependent process. Even in the case of the revolutionary
change reported by Busco et al. (2002), and also the studies of Dent (1991) and Jazayeri
and Hopper (1999), the existing institutions (specifically a production orientation) had
an impact on the way in which institutional change came about. Thus, there can be
institutional change, even revolutionary change; but it will be channelled in specific
and particular ways. Such change could be regressive, whereby it preserves the status
quo, but it can also be progressive; that is, it can lead to greater instrumental value Stability and
(Tool, 1993; Bush, 1987). change
In Eagle’s case it could be argued that there is both regressive and progressive
change. The implementation of the VBM KPIs was resisted by the operational
managers and its ceremonial implementation decoupled the KPIs from the day-to-day
activities of the operational managers. However, in view of the uncertainties
surrounding the new KPIs and the concerns about their use for performance 65
evaluation, the managers began informally formulating an alternative set of KPIs for
purposes of performance evaluation. These “alternative” KPIs were subsequently
incorporated into the new PMS. As far as the operational objectives of Eagle are
concerned, the introduction of these new PMS KPIs could be regarded as a progressive
accounting change – in other words, as an instrumental change which routinises the
use of KPIs to secure the reliability, safety and also efficiency of the plant operations.
Use of these KPIs was not resisted, as they were produced by the operations managers
themselves and embedded the existing norms and values (i.e. institutions) within
Eagle. This finding is similar to Bhimani (2003), who found that the degree of
alignment between the organisational culture and the norms and values embedded
within a new management accounting system significantly influenced the system’s
perceived success.
An interesting aspect of the resistance to the change which was encountered within
Eagle was that is was never made explicit. Criticisms of the new KPIs were not
expressed in formal arenas; rather they were passed informally around the company.
Nevertheless, the senior managers within Eagle were aware of the criticisms and did
their best to calm the fears which were raised. But perhaps it was because the
criticisms could not be raised in formal discussions that they were more difficult to
counteract. As pointed out above, it may be difficult to deal with informal resistance
because it lacks a specific focus or location which can be addressed by appropriate
managerial action. A similar (but reverse) conclusion could be taken from the case of
Euro Rail described by Dent (1991). In that case there was no formal programme of
change to be resisted. Changes did take place, but they evolved as a result of, and to
cope with, the pressures exerted by the government through the appointment of
outsiders to managerial positions. That was a case in which there was no significant
resistance to the largely unsystematic, unplanned and informal change. As such there
was no immediate and obvious focus for the resistance. This suggests that informal
change may be more difficult to resist, than formal programmes of change.
As argued in Burns and Scapens (2000), informal change occurs at a more tacit level,
as individuals adapt to changing conditions. In Eagle, the informal (“alternative”) KPIs
emerged as operating managers responded to the uncertainties of the new VBM KPIs.
This informal change enabled managers to experience and to recognise the usefulness
of KPIs. Thus, when the PMS built on their informal KPIs, the new system of
performance measurement was not resisted. This is in contrast to the introduction of
the VBM KPIs, which represented formal change without change in the underlying
ways of thinking. The introduction of VBM could have been quite revolutionary, as the
underlying financial orientation challenges the existing ways of thinking in Eagle. In
this context, revolutionary change is not necessarily the introduction of major new
techniques, (i.e. relating to the content of the new system), rather it relates to the impact
AAAJ of the new system on the existing institutions. Thus, in this sense the change in Eagle
18,1 has been evolutionary, and despite the resistance there has been accounting change.
In view of the position of Eagle within NOC, and the general acceptance of directives
from the parent company, it is not surprising that accounting change has taken place.
VBM has been implemented, although ceremonially. To have done otherwise would
have created unacceptable tensions between and Eagle and NOC. Consequently, some
66 form of change was inevitable, but the way in which the change was accomplished
preserved the existing institutions within Eagle. By implementing VBM ceremonially,
the stability of Eagle’s production orientation was maintained. So here, ceremonial
change was necessary to preserve stability, as without this ceremonial change, the
production orientation would probably have been challenged through further and
probably more intrusive interference by the parent company.
This stability, however, facilitated the introduction of the new PMS, which built on
the informal change which was already taking place. Thus, the stability which was
created by the ceremonial implementation of the VBM KPIs, itself contributed to
accounting change – the new PMS and the associated KPIs. In Eagle we see a process
in which accounting change (VBM KPIs) imposed by the parent company was resisted
at the plant level in order to maintain the stability of the existing institutions, but this
stability allowed the reshaped accounting change to emerge (PMS KPIs). Thus, in the
case we see how stability and change are mutually dependent. Ceremonial change was
necessary in response to the imposition of VBM, in order to maintain the stability of the
existing institutions; while the stability thereby created was conducive to the
implementation of new KPIs for the PMS.
Finally, before concluding it is perhaps worth pointing out that the case highlights
the potential problems of seeking to classify particular episodes of accounting change
as either successful or unsuccessful. There has been accounting change in Eagle, but it
is problematic to categorise it as an example of either successful or unsuccessful
accounting change. VBM has been implemented, but only ceremonially, whereas the
use of KPIs for the PMS has been implemented instrumentally. This problem has
important implications for the way in which “success” is defined in studies of
accounting change.
In quantitative studies of accounting change successful implementation has
generally been measured indirectly by such variables as the nature and stage of
adoption and/or by managers’ perceptions of its success. But as observed by Shields
(1995), such definitions of success are problematic. In particular, different managers
may have different perceptions. For example, Malmi (1997) presented an interesting
illustration of two cases of accounting change – one apparently successful and the
other apparently unsuccessful. He then disclosed that they are the same company, but
viewed from different perspectives: head office and an operating unit. The problem of
defining and measuring success of a change implementation has been widely discussed
in the information systems (IS) literature, where there have been numerous studies of
new systems implementation. For example, DeLone and McLean (1992) reviewed 100
empirical studies during the 1980s and identified six different, but interdependent
constructs of IS success, ranging from improving system quality to organisational
impact. In this paper, we have avoided labelling the accounting change as either
successful or unsuccessful, and focussed instead on the unfolding, evolutionary
process of change in Eagle.
Conclusions Stability and
This paper has adopted a processual/contextualist perspective, informed by the change
institutionalist framework of Burns and Scapens (2000), to study management
accounting change. It examined the accounting change which took place in Eagle over
a period of 5 years, from 1998 to 2003. Despite the imposition of VBM by the parent
company, with the proclaimed intention of focussing business activities on creating
value, accounting change in Eagle during that period has been evolutionary and path 67
dependent, and a production orientation has largely been preserved. However, the
period has witnessed both stability and change, and we have seen how these two
apparently contradictory forces can become intertwined.
VBM was imposed on all NOC’s subsidiaries and, for Eagle, not implementing VBM
was not an option; the policies and procedures of the parent had to be followed. To
have done otherwise would have created instability in the relationship with NOC.
However, the financial orientation which underpinned VBM conflicted with the
prevailing production orientation within Eagle. Thus, in order preserve stability in the
norms and values within Eagle, whilst also maintaining stability in the relationship
with NOC, VBM was implemented in a ceremonial manner: the rules and procedures of
VBM were applied and the necessary KPIs were produced and reported to the parent,
but without affecting the activities and decisions taken within Eagle. Thus, there was
change – albeit ceremonial change. For things to stay the way they where, there had to
be changed [19]. Thus, we see that change can be necessary to maintain stability.
But this very stability created the conditions which made instrumental change
possible: specifically, the introduction of the PMS KPIs. The requirement to produce
the KPI for VBM, which conflicted with the prevailing production orientation, led to the
use of “alternative” KPIs for performance measurement. These were then formalised in
the new PMS, which integrated strategic planning, informed by the production
orientation, with the day-to-day management of the business. Here, we see that
stability can facilitate change.
The particular feature of the Burns and Scapens’ framework, which made it
especially suitable for understanding process of change in Eagle, is that it focusses
attention on institutions within the firm. Nevertheless, the impact of external
institutions cannot be ignored in seeking to understand management accounting
change. It is the interaction of internal and external institutions that shape
management accounting change within specific organisations. In the case of Eagle we
saw the impact of external institutions (including the government, other multinational
oil companies, Western consultants and so on) on NOC and, through NOC, on Eagle.
Here, the concepts of legitimation and decoupling from NIS were helpful in
understanding the processes at work within Eagle. However, in contrast to the normal
assumption of accounting research informed by NIS that decoupling is an
organisational response to external pressures, in this case we saw that decoupling
can be the working out of a complex and dynamic process of resistance to accounting
change. A process which, as mentioned above, involves both stability and change.
Notes
1. The names of the company and its parent have been disguised for reasons of confidentiality.
2. The paper by Burns and Vaivio (2001) is an editorial to a special issue of Management
Accounting Research on the subject of management accounting change – see also other
papers in the same issue.
AAAJ 3. Following Orton and Weick (1990), such writers tend to use the broader term of
loose-coupling. However, in this paper we prefer the notion of decoupling, in the sense
18,1 defined by Orton and Weick – i.e. “distinctiveness without responsiveness” (p. 205).
Nevertheless, we still seek to describe a dynamic process – the process by which systems
can become decoupled.
4. Bhimani (2003, p. 526), drawing on the work of Zammuto and Krakower (1991), uses a rather
68 broader, but nevertheless somewhat similar concept which defines organisational culture as
“the patterns of values and ideas in organisations that shape human behaviour and its
artefacts”.
5. The reference to the speech by NOC’s CEO cannot be disclosed as it would compromise
confidentiality.
6. The CEO’s remark was reported in a local newspaper (18 August 1999).
7. NOC has a subsidiary which provides training, and this subsidiary has licenses from
consulting firms to provide specific courses and programmes. At present, attending these
courses/programmes is required for promotion.
8. Revolutionary change involves a fundamental disruption to existing routines and
institutions, whereas evolutionary change is incremental with only minor disruption to
existing routines and institutions (Burns and Scapens, 2000, 19 – 20). This distinction
between evolutionary and revolutionary change follows Nelson and Winter (1982). This can
be contrasted with the terms radical and revolutionary used by Greenwood and Hinings
(1996). Radical change involves “busting loose from an existing ‘orientation’ and the
transformation of the organisation” – while the opposite is convergent change which implies
a “fine tuning of the existing orientation” (p. 1024). Radical (or convergent) change that is
made slowly and incrementally they would describe as evolutionary, whereas if the change
was made quickly and affected much of the organisation at the same time they would
describe it as revolutionary. Here, our use of the term revolutionary would be equivalent to
“radical revolutionary change” in Greenwood and Hinnings’ terms.
9. In recent years the selling price of gas for electricity generation has not covered the total
production and processing costs, but the shortfall has been subsidised by NOC at the
instigation of the government in order to meet national objectives for the exploitation of gas
and for the generation of electricity.
10. Some are also subsidiaries of NOC.
11. It could be speculated that such norms and values may reflect the national culture. However,
this issue needs further investigation.
12. The three sources of resistance identified by Burns and Scapens (2000, p.17) are: formal and
overt resistance due to competing interests; resistance due to the actors not having the
capacity or knowledge to implement the change; and resistance arising from mental
allegiance to specific ways of thinking and doing in the organisation.
13. Some might call this a subversion of the system.
14. Before the introduction of VBM and PMS employees did not have indicators or targets for
their performance.
15. Here again, the term successful is not unproblematic. However, Eagle has been successful in
completing all its projects, with minimal accidents. Furthermore, the plant is now managed
and run by the locals. In financial terms, too, Eagle has been successful; it continues to report
profits due to the throughput fees paid by NOC.
16. Hence, the staff continues to be evaluated on the basis of their assigned activities. But now
KPIs are an integral part of the evaluation system. Targets are set in terms of KPIs and their
achievement is evaluated.
17. As indicated earlier, references to speeches by NOC’s CEO cannot be disclosed, as it would Stability and
compromise confidentiality.
change
18. As a result of an accident in 2002, the plant division installed an entirely new safety system,
although the costs of the system were not budgeted for that year. Furthermore there was a
very substantial increase in the budget for safety-related expenditure in the following year.
19. Cf the words quoted by Burns and Scapens (2000) from the novel by di Lampedusa.
69

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72
Appendix 1. Value based management in NOC (and Eagle)
Value based management (VBM) is a management process and philosophy that focusses
business activities on creating value: i.e. maximising economic earnings. The system
of VBM introduced in NOC seeks to integrate the following management processes:
strategic planning, portfolio management, resource allocation, performance measurement
and reporting, and executive compensation. This integration is portrayed visually in
Figure A1.
At the heart of NOC’s VBM system is the use of KPIs for each of these management
processes, coupled with performance targets for all the KPIs. Since the aim of VBM is to give the
company’s operations a more strategic orientation aimed at value maximisation, the metrics that
are used reflect and support the company’s strategic goals, and strategic performance is
monitored through the KPIs, which are reported monthly and are available online. As such, VBM
is intended to provide the link between financial performance and strategic decision-making, and
subsequently to provide an input into the resource allocation process. This, in turn, will affect
portfolio management, as the monthly reporting of KPIs provides early warning of which
businesses need particular attention, and indicates how each contributes to the value creation of
the whole organisation.
The KPIs are intended to translate strategic plans into specific initiatives, and to allocate
responsibilities to a person, team or group that will then be responsible for achieving the targets
for those initiatives. As a result, all executives in NOC are expected to have a set of KPIs and
their compensation will ultimately be based on achieving the performance targets for each of the
KPIs – thereby connecting day-to-day activities and decisions to the overall financial
performance of the company.

Figure A1.
Outline of NOC’s VBM
system
 Appendix 2
Interviews at the parent company (NOC) Interview at Eagle’s HQ Interview at the plant division

Vice-President GM finance GM plant – first*

GM – corporate development GM corporate commercial division (old)** GM plant – second*
GM – planning and resource allocation GM corporate commercial division (new)** GM plant – third*
GM – IT Senior Manager – human resource Plant manager
GM – human resource division management and administration Maintenance manager
Senior manager – planning and resource Manager – planning Manager – accounting department (chief
allocation Manager – commercial accountant)
Senior Manager – organisational design Manager – human resource planning Manager – management accounting and
Manager – safety and health Senior Executive – training budgeting
Manager – project support services Manager – fund management
Manager – project and system planning Manager – production planning
Senior Manager – management accounting and Junior Executive – plant accountant
financial reporting (senior management Junior Executive – production planning
accountant) Manager – IT department (old)**
Senior Executive – management accounting Manager – IT department (new)**
and budgeting (HQ management accountant) Manager – materials services department
Senior Executive – financial accounting Manager – human resource department
Clerk – planning department
Notes:
The job titles stated here refer to the position of the respondents at the time of the interviews. However, due to NOC’s (and Eagle) practice of job
rotation, there were changes in the positions of some those interviewed in that later phases of the research. However, their new positions are not
stated, as this is not of particular relevance to the case findings
*During the fieldwork, i.e. in the period 1998 to 2003, the GM of Eagle’s Plant Division changed three times; again due to job rotation. The previous
two GMs were transferred to different subsidiaries within NOC. All the three people that hold the GM post over that period were interviewed
**This is also due to changes in the job position

Details of the interviews

change
Stability and

Table AI.
73