Economic transition, strategy and the evolution of management accounting practices

Description
Liberalization of the Indian economy in 1991 increased the intensity of international competition and changed the
internal information needs of Indian managers. This paper explores the evolution of a broad range of management
accounting practices in 14 ®rms using a contingency theory framework. Di€erences in management accounting prac-
tices in 1996 are examined in relation to ®rms' experience in and exposure to world markets prior to liberalization and
as a function of contemporaneous di€erences in competitive strategy. We ®nd evidence of changes associated with
shifts in the external environment.

Economic transition, strategy and the evolution of
management accounting practices: the case of India
Shannon W. Anderson *, William N. Lanen
University of Michigan Business School, 701 Tappan Street, Ann Arbor, MI 48109-1234, USA
Abstract
Liberalization of the Indian economy in 1991 increased the intensity of international competition and changed the
internal information needs of Indian managers. This paper explores the evolution of a broad range of management
accounting practices in 14 ®rms using a contingency theory framework. Di?erences in management accounting prac-
tices in 1996 are examined in relation to ®rms' experience in and exposure to world markets prior to liberalization and
as a function of contemporaneous di?erences in competitive strategy. We ®nd evidence of changes associated with
shifts in the external environment. # 1999 Elsevier Science Ltd. All rights reserved.
Privatization, liberalization and deregulation
are words that describe reactions to the worldwide
failure of central planners to control production of
goods and services while simultaneously meeting
competitive standards of ®rm performance. These
economic and political reforms are associated with
increased product and price competition, made
possible by unconstrained input markets and
unfettered sales opportunities, and necessitated by
exposure to global competition. In the accounting
literature, contingency theorists posit that the
competitive environment is a determinant of the
form that ®rms' management accounting practices
take and the intensity with which they are used.
We examine the proposition that economic and
political upheavals of the past decade are asso-
ciated with equally dramatic changes in ®rms'
management accounting practices.
This study extends the empirical literature on
the contingent relationship between external com-
petition and management accounting practices
and explores the potentially mediating e?ects of
®rms' competitive strategies on this relation. We
examine the impact of the 1991 liberalization of
the Indian economy on management accounting
practices of 14 ®rms using a contingency theory
framework. Di?erences in competitive strategy are
considered as explanatory factors for di?erences in
management accounting practices that persist in
1996. A broad set of management accounting
practices commonly covered by introductory texts
is examined, including: cost management; plan-
ning and control; and, performance measurement
and evaluation. We provide evidence on changes
in accounting practices and in qualitative di?er-
ences in their application and in administrative
processes that surround their use.
The paper makes three contributions to the
accounting literature. First, in response to criti-
cism in the contingency theory literature (e.g.
Young & Selto, 1991; Fisher 1995; Firth 1996), we
jointly consider a broad range of management
Accounting, Organizations and Society 24 (1999) 379±412
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PII: S0361-3682(97)00060-3
* Corresponding author.
accounting practices. Second, we contribute to a
small but growing body of literature that com-
pares management accounting practices within
®rms over time (e.g. Hoque & Hopper, 1994; Firth
1996). Finally, within the context of a changing
external environment, we extend the larger body
of literature that examines cross-sectional di?er-
ences in management accounting practices of ®rms
that have di?erent endogenous, organizational
contingencies. Speci®cally, we consider di?erences
in competitive strategy and international outlook
as explanations for di?erences in management
accounting practices that persist in 1996.
The paper is organized in ®ve sections. The next
section frames the research questions of this paper
in relation to previous studies that examine man-
agement accounting practices as contingencies of
environmental context and ®rm strategy. We next
provide a brief overview of the 1991 liberalization
of Indian markets. Following this we discuss the
research sites, data collection methods and classi-
®cation methods for grouping ®rms based on
contextual variables. Observations concerning
changes to management accounting practices are
then discussed from three perspectives: changes
that appear to be motivated by the 1991 economic
liberalization; practices that appear to be related
to ®rms' experience in and exposure to global
markets at the time of liberalization; and, prac-
tices that appear to be related to ®rms' competitive
strategy in product markets. The ®nal section
summarizes the results and discusses future
research on international di?erences in manage-
ment accounting practices.
1. Literature review and research question
Contingency theory hypothesizes that organiza-
tional structure is a function of context, a context
that is simultaneously determined by the external
environment, history, and other organizational
factors. Researchers have interpreted 'organiza-
tional structure' to include management account-
ing practices, the formal and informal information
and decision-making methods that govern the
allocation of organizational assets (e.g. Lawrence
& Lorsch, 1967; Bruns & Waterhouse, 1975;
Hayes, 1977; Ginzberg, 1980). The basic con-
tingency model is depicted in Fig. 1. The model
re¯ects a traditional theory of organizational
structure, commonly referred to as the strategy±
structure±performance paradigm, in which ®rm
strategy and structure are viewed as pro®t max-
imizing responses to exogenous factors (Chandler,
1962; Woodward, 1965; Perrow, 1967; Lawrence
& Lorsch, 1967). As in Simons (1990) and Fisher
(1995), we model the strategies and management
accounting practices of the ®rm in a dynamic set-
ting. Thus, management accounting practices are
developed in conjunction with and evolve to ®t the
information needs of management, needs which
Fig. 1. Basic contingency framework
380 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
are tempered by the relative costs and bene®ts of
information and which are in response to both
recurring and unexpected decisions.
Contingency theory research has examined
relations between a variety of endogenous and
exogenous contextual factors and management
accounting practices. Two exogenous factors that
have been examined in relation to ®rm-level
management control practices are the nature of
competition and environmental uncertainty
(Khandwalla, 1972; Govindarajan, 1984) and
national culture (Gray, 1988; Skousen & Yang,
1988; Perera, 1989; Frucot & Shearon, 1991;
O'Connor, 1995). These studies typically use data
from many ®rms to examine cross-sectional dif-
ferences in management accounting practices.
More recently, researchers have exploited dramatic
shifts in the external environment to study changes
in management accounting practices within ®rms
over time (Zhou 1988; Lanen & Larcker, 1992;
Groves, Hong, McMillan & Naughton 1994; Chow,
Chau & Gray, 1995; Pourjalai & Meek, 1995;
Firth 1996; Garrod &McLeay 1996; Jaruga, 1996).
Consistent with the strategy±structure±performance
paradigm, the endogenous factor most commonly
examined in relation to management accounting
practices is ®rm strategy (Govindarajan & Gupta,
1985; Simons, 1987; Govindarajan, 1988; Dent,
1990; Govindarajan & Fisher, 1990). Other endo-
genous factors that have been considered are
technology (Waterhouse & Tiessen, 1978; Ginz-
berg, 1980) and organizational culture (Thomas,
1989; O'Connor, 1995). Of the three broad areas
of management accounting typically included in
introductory texts (planning and control, cost
management, and performance appraisal), plan-
ning and control and performance appraisal are
the subjects of most contingency research.
In his review of the contingency literature,
Fisher (1995) found few studies that simulta-
neously considered multiple contingencies and
management control mechanisms, and most stu-
dies used cross-sectional rather than time series
analysis. He concluded that ``As [contingency
research] moves away from the study of correla-
tions to the examination of causal relationships, a
time-series approach will be essential'' (p. 47) and
that ``. . .management control systems cannot be
studied in isolation . . .Future research should
examine the conditions under which control sys-
tems are complementary or substitutable'' (pp. 44±
45). Within the contingency framework illustrated
in Fig. 1, we explore three research questions using
the research design depicted in Fig. 2. We ®rst
Fig. 2. Research design: number of cases by type
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 381
consider the impact of a shift in the exogenous
environment Ð the enactment of major economic
reforms Ð on management accounting practices,
assuming that sample ®rms have similar initial
circumstances (e.g. similar strategies and ®rm-spe-
ci®c capabilities). We then introduce di?erences
among the ®rms' endogenous capabilities and
focus on the in¯uence of the ®rm's ``international
orientation'' at the time of liberalization on cur-
rent management accounting practices. Finally,
we examine di?erences in ®rms' competitive stra-
tegies as a factor explaining di?erences in man-
agement accounting practices that persist in 1996.
1
2. Research setting
In 1991, the Indian government exhausted for-
eign currency reserves, provided in large part by
loans from the International Monetary Fund
(IMF), and was told that future loans would be
contingent on economic reform.
2
The collapse of
Soviet and Central European markets left few
prospects for funding a growing trade imbalance
and government debt that exceeded 50% of gross
domestic product, so the government conceded.
Prior to 1991, government control of industry
took several forms, including: extensive licensing
requirements; prohibition of employee layo?s
without government approval (which was not
given for ®nancial distress alone); import and
export limitations; a corporate tax rate of 57.5%;
limitations on foreign equity ownership; control of
capital ¯ows through a nationalized ®nancial sec-
tor; and, widespread nationalization of ``priority''
industries that left 46% of gross investment assets
and 34% of manufacturing assets in the public
sector (LB, Exhibit 4). The policies re¯ected the
objective of Prime Minister Nehru in the 1950s of
a self-sucient India developed through judicious
central planning and control. Although the poli-
cies prevented foreign domination of domestic
markets and reduced in¯ationary pressures and
foreign currency shortages, a predictable out-
come of suppressing entrepreneurial activity and
competition was poor product quality and dismal
industrial productivity.
In July 1991, newly elected Prime Minister Rao
responded to the IMF ultimatum with a ``State-
ment of Industrial Policy.'' The proposed changes
included: curtailment of industry licensing and
agricultural subsidies; increases in permissible for-
eign direct investment (up to 49% in most indus-
tries); reductions in the maximum tax rates for
individuals and corporations (40 and 46%,
respectively); reductions in maximum tari?s from
400 to 65% percent; and removal of import
restriction on raw materials and capital. Privati-
zation of the large public sector, including ®nancial
markets, was a key feature of the plan to encou-
rage competition in all sectors. Although policies
a?ecting employee layo?s were not changed, the
government recognized a need to consider rehabi-
litation programs for displaced workers; thus the
groundwork for labor policy changes was laid.
Rao's policies produced dramatic results in
some economic sectors. By 1994, foreign partici-
pation in the Indian Economy had increased dra-
matically, as evidenced by an increase in the
frequency of ®nancial and technical collaborations
to 405 and 146%, respectively, of 1990 levels, and
an increase in the value of foreign investment
involving technology agreements to almost 70
times that of 1990 levels (LB, Exhibit 8). Foreign
direct investment increased 10-fold and foreign
portfolio investment increased 20-fold between
1
This study does not ®t the Fisher typology perfectly; how-
ever, we consider multiple contingencies and control mechan-
isms, including non®nancial performance measures, the
absence of which Fisher notes as a critical failing of existing
research. We address a major criticism that Fisher levels
against previous studies; speci®cally, we compare management
accounting practices in two time periods that span a period of
dramatic change in the external environment; however, we do
not conduct longitudinal research per se; that is, the data are
not gathered at two points in time. Like many studies that
employ time series research designs, we lack a proper control
sample (e.g. Indian ®rms that are completely unin¯uenced by
Indian economic reforms). Thus, although we contribute to the
small body of research that has attempted to establish causal
relationships between various contingencies and management
accounting practices, much work remains.
2
This section draws on material presented in Lodge and
Bhasin's (1995) summary of political and economic changes in
India in the 1990s and historical events that led to these chan-
ges (referred to hereafter as LB), as well as from a survey of
India that appeared in the 21 January 1995 issue of The Econ-
omist.
382 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
1992 and 1995 (LB, Table D). Bene®ts of foreign
investment and access to world input markets
were realized primarily in the private sector. Fear
of large scale layo?s caused Prime Minister Rao to
postpone repeal of labor protections and to retain
ownership of at least 51% of each state owned
enterprise. As a result, in 1995 state owned enter-
prises remained grossly inecient and plagued by
corruption (The Economist, 21 January 1995,
pp. 16±20). Divestment of part of the public sector
was a means of ®nancing the de®cit, not a serious
e?ort to improve productivity. The result of dra-
matic policy changes in 1991 was that ``. . .between
1991 and 1994, government de®cits were reduced,
companies restructured, trade liberalized, foreign
investment welcomed, and the centrally planned
economic strategy, a hallmark of India since inde-
pendence in 1947, abandoned'' (LB p. 9).
We expect changes in the Indian economy to
a?ect two aspects of management accounting in
private sector ®rms. First, management account-
ing and control practices are an integral aspect of
organizational structure; thus we expect changes in
the substance of management accounting practices
to accompany other organizational changes. Sec-
ond, we expect existing management accounting
information to be used in qualitatively di?erent
ways. Hoque and Hopper (1994) document the
debilitating e?ects of political volatility and acute
economic problems in Bangladesh on ®rms' use of
formal management control practices. Interviews
and observations from ®eld visits to a sub-sample
of ®rms suggest that, before the economic reform,
Indian ®rms resembled those described by Hoque
and Hopper. Speci®cally, many formal practices
were in place to satisfy exogenous demands for
information (e.g. state tax authorities) rather than
endogenous management information needs. In a
discussion of accounting issues precipitated by the
transition from planned to market economies of
Central European countries, Gray and Roberts
(1991) write:
. . .the increased reliance likely to be placed
upon pro®t as a measure of eciency pro-
vides scope for investigating the nature and
impact of changes in the accounting and
control systems used. In a comparative inter-
national context, questions arise as to the
changes considered necessary, the motiva-
tions and political processes involved, and the
implementation problems, both behavioral
and technical . . .Accounting in a centrally
planned context is perceived as having pri-
marily a record-keeping function and is not
decision-oriented or concerned with eciency
at the enterprise level (p. 46).
Claims of increased use of management
accounting methods to support decision making in
Central European countries are echoed by Jaruga
(1996) and Garrod and McLeay (1996). Changing
uses of accounting data that were introduced in
conjunction with economic reforms in China are
supported by descriptions in Skousen and Yang
(1988), Zhou (1988) and Chow et. al. (1995) and
by statistical evidence presented by Firth (1996).
We contribute to case study evidence that has
emerged in other transitional economies, evidence
from a sample of Indian ®rms for which we have
information on accounting practices both before
and after trade liberalization.
3. Research sample and classi®cation of ®rms by
international orientation and strategy
3.1. Research sample and data collection
This study uses ®eld-based research and stan-
dardized data collection instruments to character-
ize changes in management accounting practices
that accompanied 14 Indian ®rms' adaptation to a
more open, market economy. The ®rms, all in the
private sector before and after economic reforms
(see Appendix A), were subject to roughly the
same treatment, a radical shift of the external
economic environment. Fig. 2 illustrates the basic
research design of the multiple, embedded case
studies of this study. The analysis proceeds in
three stages. We ®rst examine changes in manage-
ment accounting practices following the 1991 lib-
eralization. After considering the aggregate e?ects
of a changing environmental context, we explore
di?erences in initial ®rm capabilities, in particular,
di?erences in experience with and exposure to
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 383
international markets prior to economic liberal-
ization, and di?erences in ®rm strategies as expla-
nations for variation in management accounting
practices that persists in 1996.
Two data collection methods are employed.
First, an extensive, ®ve part survey of competitive
strategy and management accounting practices
that includes qualitative and quantitative respon-
ses to 206 objective and subjective questions was
administered at the ®rms (Appendix B describes
the survey development and administration;
Table 1 describes the content of the ®ve parts of
the survey). Second, personal interviews of top
managers and site visits to half of the ®rms were
conducted.
3
Because logistics demanded that we
visit sites before analyzing the survey data, our
knowledge of the visited companies undoubtedly
in¯uenced our assessment of their competitive
strategy. However, we believe this is a strength of
combining ®eld research with survey data. We
made every e?ort ex ante to include ®rms that had
a high likelihood of falling in each of the four
quadrants of Fig. 2 in our site visits. Subsequent
classi®cation of the ®rms revealed that, although
we visited approximately equal numbers of ®rms
of each strategy type and each international
orientation, we did not visit a ®rm in the upper
right quadrant, a defender with an international
orientation at the time of economic reform.
Table 2, Panel A provides the classi®cation
scheme of the 14 ®rms and identi®es ®rms that
received site visits. The following sections describe
how ®rms were classi®ed.
3.2. Firm classi®cation: international orientation
We hypothesize that di?erences in management
accounting practices that persist in 1996 may
re¯ect ®rm di?erences in initial experience with
and exposure to international markets. Support
3
All research methods are subject to limitations. Surveys are
fraught with problems associated with measurement error and
bias, problems that may be exacerbated when the survey is
written in the respondents' second language. (The issue of lan-
guage is, perhaps, less important in the Indian context where
¯uency in English is common, especially among managers.) We
cannot be certain that each respondent exercised care in com-
pleting the survey, that each respondent was quali®ed to answer
the questions, or that item non-response is not symptomatic of
defensive behavior rather than carelessness or insucient
knowledge. Without access to a much larger set of survey
responses we are unable to provide evidence on the extent to
which the surveyed ®rms represent the larger population of
®rms that were privately held both before and after privatiza-
tion. We use interview data to corroborate and extend the sur-
vey data for a portion of our sample. Although problems of
non-truthful reporting and subjective assessments are also pos-
sible in interview data, by using two types of data that were
collected from several individuals in the ®rm we mitigate some
forms of measurement error. Time and travel expenses pre-
cluded visiting all 14 ®rms; consequently, we selected a subset
of ®rms that represent both strategy types and international
orientations.
Table 1
Survey respondent job titles
Survey part Survey focus Designated
respondent
Number of survey
questions
Number of questions
(including multiple
part questions)
Part I Company descriptive statistics General Manager
or Vice-president
of Production Operations
74 255
Part II Survey of competitive strategy Chief Executive Ocer 30 209
Part III Survey of coast management
practices
General Manager or
Vice-president of Finance
29 164
Part IV Survey of planning and
control practices
General Manager or
Vice-president of Finance
40 196
Part V Survey of ®nancial and
non®nancial performance
measures and evaluation
practices
General Manager or
Vice-president of Quality
Assurance
33 198
TOTAL 206 1022
384 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
for this hypothesis is found in contingency the-
ories that relate organizational boundaries, core
competencies and management practices to the
historical sequence of decisions that ®rms take in
response to changing opportunity sets and
resource endowments (Prahalad & Hamel, 1990;
Leonard-Barton, 1992).
Responses to seven survey questions are used to
assess ®rms' experience with and exposure to
international markets at the time of international
liberalization (Table 2, Panel B). The ®rst two
questions ask for the percentage of purchased
parts and raw materials, each as a fraction of total
direct material costs, provided by domestic sup-
pliers. The third and fourth questions ask for the
percentage of total sales that domestic sales com-
prise and the percent of total unit volume sold in
domestic markets. The ®fth question asks ®rms to
assess the domestic and international market share
of the product that they produce which con-
tributes the greatest share of ®rm pro®ts. As part
of the same question, ®rms are asked for the
domestic and international market share of their
nearest domestically-based and internationally-
based competitors.
4
The sixth and seventh ques-
tions ask whether the ®rm is engaged in strategic
alliances with Western or with Japanese partners,
respectively. If a strategic alliance is reported, the
respondent is also asked to characterize the nature
of the relationship as one of six types: shared dis-
tribution agreements; cross-branding agreements;
shared manufacturing; technology exchange
agreements; licensing agreements; or joint ven-
tures. We create a measure of ``intensity of inter-
national outreach'' as the sum of these binary
variables. Table 2, Panel B provides evidence on
the extent to which, on average, these measures
discriminate, in the manner predicted, between
®rms classi®ed as International or Domestic.
Only one ®rm received a single rating (``Inter-
national'') on each of the measures described
above. Nonetheless, the preponderance of evi-
dence for one or the other classi®cation made the
task reasonably straightforward in all but two
cases. In two cases respondents failed to respond
to questions related to market share and sales. As
a result, we were forced to categorize the ®rms on
the basis of responses to a more limited set of
questions, interactions with managers from the
two ®rms and publicly available ®nancial data
about the ®rms. The outcome was that one ®rm
was assigned to each classi®cation.
3.3. Firm classi®cation: competitive strategy
We use the typology developed by Miles and
Snow (1978) to distinguish ®rms' competitive
strategies. Miles and Snow identi®ed three ideal
organizational strategies (defenders, analyzers,
and prospectors), the e?ectiveness of which is
determined by the ``. . .con®guration of contextual,
structural, and strategic factors'' (Doty, Glick &
Huber, 1993, p. 1197). Although Miles and Snow
alternately describe analyzers as a unique hybrid
form and as a blend of defender and prospector
attributes, Doty et al. (1993) provide convincing
evidence that defenders and prospectors de®ne a
continuum with analyzers as the mid-point. Con-
sequently, like Simons (1987) we divide the ®rms
in our sample into two groups: Defenders and
Prospectors. Following is a description of the
Miles and Snow typology:
The prospector . . .operates in an environment
characterized by rapid and unpredictable
changes. Prospectors adapt to this turbulent
environment by using high levels of environ-
mental scanning (Daft & Weick, 1984) to
identify opportunities for developing new
products or markets that are critical to their
success. Because of the rapid rate of product
development, ¯exible, nonroutine technolo-
gies are characteristically used. These tech-
nologies are typically associated with low
levels of specialization and moderate to high
levels of interdependence. Structurally, pro-
spectors are very organic, with low levels of
formalization and specialization and high
levels of decentralization. Prospectors also
possess relatively few hierarchical levels.
4
Responses on ®rms' international market shares are exclu-
ded from Table 2, Panel B, because only six ®rms (respondents)
reported estimates of their and their competitors' international
market shares. Several respondents wrote that they did not
have international market share information or that they did
not have reliable sources of data for competitors' market share.
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 385
Table 2
Sample strati®cation
Panel A: From classi®cations and industry
Firm ID number Industry Site visit and
management interviews
International (I) or
domestic (D)
outlook in 1991
Defender (D) or
prospector (P)
1 Electronics I D
2 Transportation equipment: machined parts V I P
3 Chemicals and fragrances V I P
4 Automotive parts: maching and assembly D D
5 Automotive parts: machining and assembly I D
6 Automotive parts: machining and assembly V I P
7 Foundary operations and part fabrication D D
8 Electronics I D
9 Transportation: automotive D P
10 Transportation: farm equipment V D D
11 Fasteners V D P
12 Textiles V D D
13 Electronics I D
14 Electronics V D P
Panel B: Pro®le of ``International'' and ``Domestic'' sub-samples along dimensions used to classify ®rms
1991 data International (N=7) Domestic (N=7)
Average percent of total direct materials costs represented by parts purchased from domestic suppliers 69% 98%
Average percent of total direct materials costs represented by raw materials purchased from domestic suppliers 55% 83%
Average percent sales in domestic markets 83% 97%
Average percent domestic unit volume 80% 97%
Average share of domestic market for product that generates most pro®t 45% 48%
Average share of domestic market of primary international competitor for product that generates most pro®t 13% 0%
Average share of domestic market of primary domestic competitor for product that generates most pro®t 33% 21%
Number of ®rms with alliances with Western partners, (for these ®rms, intensity of ``international outreach'' max=6) 4 (3.75) 3 (1.0)
Number of ®rms with alliances with Japanese partners, (for these ®rms, intensity of ``international outreach'', max=6) 3 (2.50) 1 (1.0)
3
8
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Panel C: Pro®le of ``Defender'' and ``Prospector'' sub-samples along dimensions used to classify ®rms
1996 data Prospectors (N=6) Defenders (N=8)
Average summated score on competitive priorities related to Defender Strategy (Max=100) 35 41
Average summated score on competitive priorities related to Prospector Strategy (Max=100) 65 60
Average agreement of importance of ``Defender'' product characteristics (1±5 scale) 3.6 4.5
Average agreement of importance of ``Prospector'' product characteristics (1±5 scale) 3.4 3.6
Average priority (0±100%) assigned to ``Defender'' improvement opportunities 50% 60%
Average priority (0±100%) assigned to ``Prospector'' improvement opportunities 50% 40%
Average importance of supplier selection (1±5 scale, average for response to 10 criteria for supplier selection) 4.3 3.7
Average response to: ``Cost reduction is the most important goal in this ®rm's manufacturing operations'' (1±5 scale) 3.50 4.63
Average percent ``®xed'' costs 47% 54%
Average R&D expense as a percent of revenues 2.4% 0.7%
Average Marketing & Distribution expense as a percent of revenues 6.0% 3.1%
Average percent increase in employment over 1991 level 43% 4%
Average percent increase in new product introductions over 1991 level 66% 46%
Average change in product life cycles 1991±1996 (years) À1.7 À1.0
Average annual inventory turns (average annual sales/average ®nished goods inventory) 48.0 72.7
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±
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1
2
3
8
7
The defender is a less dynamic form of orga-
nization operating in an environment that is
more stable and predictable than that of the
prospector. This more stable environment
allows defenders to engage in less environ-
mental scanning. . . The key to the defender's
success is a focus on eciency. Defenders
compete by producing low-cost goods or ser-
vices and obtain eciency by relying on rou-
tine technologies and economies of scale
gained from largeness [sic]. Defenders have
much more mechanistic structures than pro-
spectors and achieve coordination through
formalization, centralization, specialization,
and vertical di?erentiation. This bureau-
cratization tends to reduce the level of inter-
dependence in defenders (Doty et al. 1993,
pp. 1225±1226).
In empirical tests of the Miles and Snow frame-
work, Doty et al. (1993) ®nd that the degree of
congruence between actual practices and ideal
strategies explains 24% of variance in perfor-
mance. Using the same typology, Simons found
signi®cant di?erences in the development and use
of management accounting data between high
performing ®rms with di?erent competitive strate-
gies. We use this strategic typology as a con-
tingency in the adaptation of management
accounting practices because it has been demon-
strated to have external validity in several research
settings.
Our classi®cation of ®rms' ideal competitive
strategies is based on subjective assessment that
weighs managers' responses to twelve questions
(Table 2, Panel C). Four questions ask for a rela-
tive ranking of a list of factors, each of which is
expected to be more closely related to one of the
two strategies. The remaining questions are
designed to assess strength of alignment with one
of the two competitive strategies, for example, the
importance of cost reduction (Defender) and the
frequency of new product introductions (Pro-
spector). In the ®rst question, respondents are
asked to allocate 100 points over a list of 11 com-
petitive priorities (we also allow the respondent to
identify additional competitive priorities). We use
responses to this question in two ways. First, we
form a composite measure of defender and pro-
spector priorities for each ®rm by linking each
competitive priority to a single competitive pro®le
and summing the elements of each pro®le. Second,
we perform a principle components analysis on
the responses and use ®rms' factor scores on two
signi®cant components that emerge and are con-
sistent with the defender±prospector de®nitions.
5
The second question used to assess competitive
strategy, asks the manager to respond using a ®ve
point agree±disagree scale to the statement, ``The
following features of our product are considered
very important for our strategy.'' Nine product
characteristics that were believed to be related to
the defender (e.g. price, conformance to speci®ca-
tions) or prospector (e.g. style and aesthetic quali-
ties) strategies were included. Again, a summated
scale of characteristics associated with each strat-
egy pro®le was created and a principle compo-
nents analysis of responses was performed,
yielding two related perspectives on ®rms' product
market strategies. The third question asks respon-
dents to identify the top three improvement prio-
rities for manufacturing from a list of 13
possibilities (with the opportunity to include other
opportunities). Again, the list of opportunities was
constructed based on what one would expect to be
priorities of a Defender (e.g. increased through-
put) and a Prospector (e.g. shortened product
introduction cycle times). Responses were con-
verted into the percentage of points (out of 6)
assigned to ``defender'' vs ``prospector'' opportu-
nities. We also perform a principle components
analysis on the responses. The ®nal question
which seeks relative assessments of the degree to
which ®rms are aligned with either the defender or
prospector strategy asks managers to identify the
relative frequency of use of ten factors in supplier
selection. Responses are based on a ®ve point scale
that ranges from ``Never'' to ``Almost Always.''
We found no signi®cant di?erences between
``defenders'' and ``prospectors'' in the criteria for
selecting suppliers; however, there does appear to
be a di?erence in the overall importance that ®rms
in each group place on supplier selection. Table 2,
5
Results of the principle components analysis of the ®rst
three questions are available from the authors upon request.
388 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
Panel C reports di?erences in a summated scale of
all supplier selection factors.
The remaining questions are uniquely identi®ed
with either the Defender or Prospector strategy
and, with one exception, the questions are inten-
ded to elicit objectively veri®able data. Question
®ve is aligned with the defender strategy, and
seeks agreement or disagreement to the proposi-
tion that ``cost reduction is the most important
objective of the ®rm.'' Questions six through eight
seek information about the ®rm's cost structure:
the percent of costs considered ``®xed'', research
and development costs as a percent of total rev-
enues, and marketing and distribution expenses as
a percent of total revenues. Question nine assesses
the change in employment levels between 1991 and
1996 as a percentage of total employment. For
classi®cation purposes, we assume that defenders
are more likely to pursue cost reduction through
employee layo?s or by sharply constraining
employment growth than are prospectors. Ques-
tions 10 through 12 focus on likely operational
di?erences between defenders and prospectors: the
increase in new product introductions over 1991
levels, change in the average product lifecycle, and
inventory management practices, as evidenced by
the measure, inventory turns. In using these data
for classi®cation purposes, we assume that pro-
spectors have increased their product line through
new product introductions and shortened product
lifecycles, and that defenders are more likely to
focus on eciencies and economies of scale indi-
cated by high inventory turnover.
No ®rm received a defender or prospector rat-
ing on each of the measures that arises from ana-
lysis of the twelve questions (Table 2, Panel C).
Nonetheless, the preponderance of evidence for
one or the other classi®cation made the task rea-
sonably straightforward in all but two cases. In
two cases the measures were split in such a way as
to suggest that the ®rms are probably best descri-
bed as ``Analyzers.'' Nonetheless, to retain parsi-
mony with an already small sample size, we
assigned the ®rms based on what appeared to be
the relative frequency with which the ®rm's strat-
egy was aligned with the defender or prospector
strategy. The outcome was that one ®rm was
assigned to each classi®cation.
3.4. The impact of Indian liberalization on selected
research sites
Before discussing the results of the surveys, it is
useful to consider examples of the impact liberal-
ization on some of the participating ®rms. We
describe the types of ®rms represented by our
research sites in each of the four quadrants depic-
ted in Fig. 2, the impact of reforms, and the strat-
egy and focus that results. There are two reasons
for this. First, we want to provide a sense of the
issues facing managers in these ®rms and how the
economic changes have been manifested in ®rms'
strategies and management. Second, we want to
highlight some of the distinctive issues facing
Indian ®rms, issues that may be less important in
other transitional economies.
3.5. Domestic/defender
The Domestic/Defender ®rms in our sample are
typically well established ®rms selling traditional,
industrial products. These ®rms, whether by
choice or circumstance, have few prospects for
competing in the international market. They tend
to have relatively large market shares in the
domestic market. Many of these ®rms perceive a
major threat from liberalization due to likely
competition from multinational ®rms in the
domestic product market. As a result of entry by
foreign ®rms, customers are becoming more
demanding, leading to changes in the type of
information needed to manage the business.
As an example, one of the respondents in this
classi®cation sells agricultural equipment. As a
result of competition, its customers have become
more demanding about quality and fuel eciency.
The number of competitors has fallen by about
50% but price competition has increased. The
organization's suppliers are all domestic and it
sells less than 2% of its output abroad. The com-
pany is the leader (in sales) in all states in India
and feels that its knowledge of the customer and
the market is a competitive advantage. Therefore,
the company is focusing its e?orts on maintaining
its customer base in its traditional products.
Managers of the organization stated that the
major challenge is to reduce prices while improv-
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 389
ing quality. They have responded to the new eco-
nomic environment by using reengineering e?orts
to improve quality and lower costs. As an exam-
ple, managers cited e?orts to increase standardi-
zation of component parts in related products.
3.6. Domestic/prospector
Like the ®rms in the Domestic/Defender quad-
rant, ®rms in this category tended to have strong
positions in their markets prior to liberalization.
In discussions with the managers, one di?erence is
that ®rms in this group viewed the changes in 1991
as increasing sales opportunities with domestic
customers. One ®rm in this group, in the fastener
industry, felt the need for change as early as 1987,
prior to the liberalization. They began to focus on
pro®tability, value-added and sales productivity.
For this ®rm, the key aspect of competition is
process technology. One of the primary e?ects of
liberalization is that acquiring technology is now
easier. Their strategy is to use technology to move
into new product markets and expand their cus-
tomer base domestically. The managers of the ®rm
focus on performance measures dealing with cus-
tomer satisfaction and market penetration, in
contrast to the measures of cost and productivity
mentioned by domestic/defender ®rms.
3.7. International/defender
Firms in this quadrant felt the impact of liber-
alization primarily in terms of reduction of the
import duties on imported parts and equipment.
Prior to liberalization, the government reserved
heavy industry for the public sector and protected
these industries with high tari?s and import quo-
tas (The Economist, 21 January 1995, p. 4). These
enterprises remain inecient by world standards;
however, with reductions in tari?s, ®rms now have
opportunities to acquire technologically superior
capital equipment and raw materials at lower
costs.
Three of the four ®rms in our sample that ®t
this category are electronics ®rms and the fourth
produces small automotive components that are
controlled by complex electronics. Electronics
component manufacture is capital intensive while
electronics assembly is typically labor intensive.
Thus these ®rms bene®t from reductions on
import tari?s on capital equipment while main-
taining a cost advantage based on low labor
wages. Two of the ®rms in the quadrant have
partnerships with Western ®rms, one of these
®rms and a third ®rm have partnerships with
Japanese ®rms. In no case has the business partner
taken an ownership stake in the Indian ®rm. All of
the partnerships re¯ect technology licensing
agreements or agreements to cross-distribute pro-
ducts. A distinctive competence of the Indian
partner is managing the local labor force to
achieve quality production.
3.8. International/prospector
Liberalization of the economy in 1991, rather
than being viewed as increasing competition for
these ®rms, instead o?ered the opportunity to
compete in world markets. Although ®rms in this
quadrant are international, the reaction to the
international competition has been quite di?erent.
One ®rm in the sample is part of a Western, mul-
tinational ®rm. There was a complete turnover of
managers in 1992. The impact of liberalization for
this ®rm is that domestic (Indian) competition has
become stronger. They also describe their custo-
mer base as changing since liberalization. As part
of the multinational, they must compete in the
region using policies (such as safety policies) dic-
tated by the parent.
While the ®rm described is classi®ed as interna-
tional based on its relation to the multinational
®rm, its market focus is India and the surrounding
region. An interesting contrast is a second ®rm in
this quadrant that is a domestic Indian ®rm in
automotive products seeking (and ®nding) pro-
duct markets abroad. Exports currently account
for about 25% of sales and products are sold in 35
countries. The primary e?ect of liberalization was
reduction in bureaucracy that made possible a
more rapid response to changing world markets.
As an example, because imports are easier to
obtain, it is now possible for the ®rm to plan more
e?ectively for raw materials inventories.
This brief description of some of the ®rms in
our sample indicates a variety of responses to
390 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
liberalization brought about by both circumstance
and choice. It is too early to determine whether
these responses will be adequate to compete in a
world market; however, all of the managers inter-
viewed believed that liberalization was necessary
and represented an opportunity for their ®rm to
be more ¯exible in meeting competition. In the
next section, we develop somewhat more systema-
tic descriptions of how Indian ®rms with di?erent
strategies and markets have adapted their manage-
ment accounting practices in response to liberal-
ization.
4. Exploring changes in management accounting
practices
The analysis and results are presented in four
sections. The ®rst three are organized around
major areas of management accounting research:
planning and control processes; evaluation and
performance measurement practices; and, cost
management methods. The fourth section exam-
ines the changing role of the accountant since
enactment of economic reforms. The ®rst three
sections present three perspectives on the impact
of environmental and organizational context on
management accounting practices. We ®rst focus
on changes in management accounting practices
following the 1991 liberalization of the Indian
economy. For this portion of the analysis, we
assume that economic liberalization created a dif-
ferent environmental context that required ®rms
to modify their competitive strategies and man-
agement accounting practices. Evidence that the
e?ect of liberalization was widespread is provided
by top manager's assessments of the 1991 and
1996 competitive environments. On a scale of 1
(very competitive) to 5 (no competition), the aver-
age response in 1996 was 1.3 with a standard
deviation of 0.48. This response represented an
average increase of 1.5 over 1991 levels. All but
one ®rm reported an increase in the level of com-
petition, and this ®rm reported a uniformly high
level of competition (response=1) for both peri-
ods. Thus, while subsequent analysis may distin-
guish di?erences in response to liberalization
based on ®rm-speci®c factors that are omitted at
this stage of analysis, we are con®dent that we are
not pooling a sample of ®rms for whom liberal-
ization had no e?ect with a sample for which lib-
eralization was a signi®cant environmental
change. After considering changes in management
accounting practices that occurred between 1991
and 1996, we investigate the role of ®rm-speci®c
factors related to the international outlook of the
®rms in 1991 and di?erences in competitive stra-
tegies in explaining di?erences in management
accounting practices that persist in 1996.
4.1. Planning and control processes
Before turning to speci®c planning and control
processes typically considered in management
accounting research, it is useful to place these
processes in the larger context of strategic plan-
ning. Speci®cally, we consider how answers to the
following questions have changed since 1991:
. Who is involved in developing corporate
strategy?
. How widespread is understanding of corpo-
rate strategy?
. What information is used in strategic plan-
ning?
. What criteria are used to establish tactical
plans for achieving strategic objectives?
We then turn to planning and control practices
of management accounting to examine what prac-
tices are used, the philosophy that guides their use,
and who participates in shaping these practices.
4.2. Corporate strategy development
Employee involvement and investor activism
are popular themes in Western business commu-
nities. With greater exposure to international
competition, we expect similar patterns of invol-
vement to emerge in Indian ®rms following eco-
nomic reforms, although we recognize that Indian
cultural norms of large power-distance between
managers and their subordinates and a tendency
to value collectivism over individualism may tem-
per these changes (Hofstede, 1984). Conversely,
we assume that government intervention, a wide-
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 391
spread feature of the pre-reform business environ-
ment, will be reduced. Table 3 presents evidence
on the stated involvement of employees at di?er-
ent levels in the organizational hierarchy and
across di?erent functional areas in the develop-
ment of corporate strategy. The in¯uence of
external constituencies is also considered.
6
Considering ®rst the pooled responses of all
®rms (columns labeled ``ALL''), we see the antici-
pated trend toward greater stated involvement of
all employees. The trend appears to re¯ect decen-
tralization of strategy development; mid-level
managers and line workers enjoyed proportio-
nately greater gains than top management. These
results must be interpreted with caution because,
as Hofstede (1984, pp. 82, 90) notes, in cultures
with large power distance there is often ideological
support for employee involvement and formal
mechanisms for involvement frequently exist
despite little evidence of formal participation.
However, since cultural norms typically are
viewed as immutable, the documented change in
involvement is more likely to re¯ect substantive
di?erences.
From a functional perspective, ®nance and
marketing play the greatest roles in strategy
development, as might be expected in emerging
markets with scarce capital. However, since eco-
nomic reforms, the planning and human resource
management functions have had disproportionate
increases in their involvement in strategy setting.
The emergence of a strong planning function
seems a natural outcome of reforms aimed at giv-
ing ®rms greater control of their destiny. The
gains of human resource management seem per-
plexing initially. When asked to discuss the major
e?ects of economic reforms however, one manager
remarked on the labor shortages that his ®rm
faced as a result of multi-national corporations
(MNCs) entering the domestic labor market.
Although, India has very high overall unemploy-
ment, which would seem to accommodate
increased demand for workers by MNCs, it has
record levels of illiteracy that sharply constrains
the e?ective labor supply. MNCs, which can
a?ord higher wages, attract this small pool of
skilled workers. The increased importance of
human resource managers in the strategy devel-
opment process may re¯ect a new priority of
training and retaining skilled labor. This inter-
pretation is supported by survey evidence (unta-
bulated) of substantial increases in employee
training hours at all levels of the organization
since 1991.
Decomposing the results, prospectors are more
likely to state that employees at all levels of the
hierarchy are involved in strategy development
than defenders. Di?erences in domestic and inter-
national ®rms are apparent only among senior
managers; senior managers of domestic ®rms are
more involved than those of internationally-orien-
ted ®rms. A possible explanation, which emerged
from interviews with top managers at several ®rms,
is that, internationally-oriented ®rms often have
signi®cant international business partnerships. Top
managers of partner ®rms often play as great or
greater roles in strategy development for the, typi-
cally smaller, Indian ®rm than do the local Indian
managers.
From the functional perspective, while market-
ing remains a major contributor to strategy for
®rms of all four pro®les, it has a substantially
greater role for prospectors and for domestically-
oriented ®rms. In the ®rst case, the results are
consistent with the presumed focus on new pro-
ducts and niche markets of prospectors. In the
latter case, we interpret the di?erences in light of
what we have observed in ®rms in Central Europe,
the Balkans, and Russia. In a planned economy
there is little or no need for the marketing and
sales function. With economic reforms, this func-
tion requires disproportionate attention to ensure
the short-term survival of the ®rm. The fall of
communism and the consequent reduction in
exports were a key factor in Indian economic
reforms. Thus it is not surprising that ®rms that
had an orientation toward local markets in 1991
would make concerted e?orts in the short run to
introduce the perspective of marketing and sales
6
A caveat in interpreting the results related to di?erent
levels of the organizational hierarchy is that the data re¯ect
attitudes and opinions of top managers. Results must be inter-
preted with caution because top managers may be ill-informed
about actions of employees at lower levels of the organization
or constituencies outside the ®rm or may be inclined to willfully
misrepresent either group's actions.
392 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
Table 3
Strategic planning: who is involved and what is their level of understanding?
a
Average extent to which respondents
agree that these groups are involved in
developing the strategic plan in 1996
(1=Strongly disagree, 5=Strongly agree)
Average change
since 1991,
no. ®rms (+/ 0/À)
Average extent to which respondents
agree that these groups fully understand
the strategic plan in 1996
(1=Strongly disagree, 5=Strongly agree)
Average change
since 1991,
no. ®rms (+/ 0/À)
ALL Def. Pros. Dom. Int. ALL FIRMS ALL Def. Pros. Dom. Int. ALL FIRMS
HIERARCHY
Senior management 4.5 4.0 5.0 4.8 4.3 0.30 (3±6±1) 4.6 4.2 5.0 4.8 4.5 0.9 (7±3-0)
Middle management 3.7 3.4 4.0 3.8 3.7 0.9 (7±3±0) 3.7 3.6 3.8 4.0 3.5 1.10 (8±2±0)
First-line supervisors 2.2 2.0 2.4 2.3 2.2 0.50 (5±5±0) 2.7 2.6 2.8 3.0 2.5 0.70 (5±5±0)
Production employers 1.8 1.6 2.0 1.8 1.8 0.50 (5±5±0) 2.0 2.0 2.0 2.3 1.8 0.30 (2±8±0)
FUNCTION
Finance 4.2 4.2 4.2 4.0 4.3 0.30 (3±6±1)
Human resources 3.8 3.6 4.0 4.3 3.5 1.20 (7±3±0)
Management and sales 4.5 4.2 4.8 4.8 4.3 0.50 (4±6±0)
Operations 3.7 3.4 4.0 3.8 3.7 0.40 (4±6±0)
Planning 4.0 4.0 4.0 4.5 3.7 1.00 (7±3±0)
Research & Development 4.0 3.6 4.4 4.5 3.7 0.70 (6±4±0)
EXTERNAL VIEWS
Customers 3.6 3.6 3.6 3.3 3.8 0.40 (6±4±0) 2.9 3.3 2.6 2.8 3.0 0.80 (5±5±0)
Suppliers 2.7 3.0 2.4 2.5 2.8 0.36 94±6±0) 3.1 3.3 3.0 3.3 3.0 1.00 (6±4±0)
Investors/Owners 3.8 4.2 3.4 3.8 3.8 0.10 (1±8±1) 3.7 3.8 3.6 3.8 3.7 0.90 (6±4±0)
External consultants 3.2 3.0 3.4 3.8 2.8 0.60 (5±4-1)
Government agencies 2.3 2.4 2.2 2.5 2.2 À0.30 (0±9±1)
a
Results that suggest meaningful di?erences between practices of defenders and prospectors and between ®rms with domestic vs international orientation at the time of
economic reforms are shown in bold.
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3
to the strategy process. One might predict that the
involvement of marketing in strategy for domestic
®rms may drop after the historical handicaps of
the planned economy are remedied. A similar
explanation and prediction may explain greater
involvement of the planning function for domestic
®rms than for internationally-oriented ®rms.
Not surprisingly, managers of the R&D func-
tion are much more involved in strategy develop-
ment for prospectors, whose strategy depends on
product and process innovation, than for defen-
ders. Perhaps less intuitive are apparent di?er-
ences between domestic and internationally-
oriented ®rms. As in the case of senior manage-
ment involvement, this may simply re¯ect the fact
that the substance of the involvement of many
internationally-oriented ®rms with international
partners is often technology licensing or other
technology-sharing arrangements. These partner-
ships may obviate the need for involving local
R&D managers in strategy development.
Among external constituencies, customers and
suppliers (including suppliers of intellectual capi-
tal: external consultants) are stated to be more
involved in the strategy development process;
however, this involvement may be motivated by
di?erent factors. For example, it appears that
international ®rms are more likely to involve key
customers in strategy development. Perhaps this
re¯ects an overt attempt by internationally-orien-
ted ®rms to ``customize'' their strategy to the
Indian market. Firms with a defender strategy are
more likely to involve parts and materials suppli-
ers in strategy development. This is consistent with
data on supplier selection criteria, used to form
the strategic groups (Table 2, Panel C), which
showed that defenders place more importance on
the supplier selection process than do prospectors.
In the Western business press, strategic sourcing
has become a popular part of the ``lean manu-
facturing'' paradigm. In India, we see supplier
selection as much more closely allied with achiev-
ing low cost and high eciency. This is consistent
with the infrastructure shortcomings of emerging
economies (e.g., no ®rms had adopted JIT and
none claimed it as a near-term objective) and with
the raw materials and parts shortages that typify
centrally planned economies. External consultants
are more likely to be used by defenders than by
prospectors and by domestic rather than by inter-
nationally-oriented ®rms.
We ®nd little evidence that investors and owners
have increased their involvement in strategy
development since the advent of reforms; however,
it appears that defenders involve these con-
stituencies more, on average, than do prospectors.
Investor activism in developed economies has
coincided with technological advances in informa-
tion dissemination, with new trading mechanisms
that favor small investors, and with rules of trade
that provide a market for corporate control.
India's ®nancial markets and information econ-
omy may not be suciently developed to support
these changes. Perhaps more important however
are signi®cant barriers to corporate takeovers. For
example, The Companies Act restricts ®rm acqui-
sition through a provision that allows the govern-
ment to block transactions that create ``a change
in the controlling interest of the company. . . [that]
would be prejudicial to the interests of the com-
pany or to the public interest'' (The Economist, 21
January 1995, p. 19). In this regulatory climate it
is not surprising that investors have little role in
®rms' strategies.
We also ®nd no signi®cant reduction of gov-
ernment in¯uence on strategy development.
Against the backdrop of increased involvement
for virtually every other constituency and all
employees, the static level of government involve-
ment stands out. Nonetheless, only one company
indicated that government in¯uences on strategy
development had declined with economic reforms.
A possible explanation is our earlier observation
that a distinguishing factor in India's economic
transition is the stability of political processes
throughout the liberalization.
Of course, involvement in strategy develop-
ment is one thing; widespread understanding of
the strategic plan is often another thing alto-
gether. In an interesting twist on earlier results, we
®nd the greatest gains in understanding strategy
occurred among senior and mid-level managers.
Similarly, investors and owners, with little change
in strategy involvement, nonetheless are credited
with signi®cant increases in understanding. A
likely explanation of the latter result is intensi®ed
394 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
scrutiny that came with deregulation of ®nancial
markets as a part of the economic reforms.
Another curious inversion of earlier results is the
emergence of di?erences between international
and domestic ®rms' employees in understanding
strategy despite few di?erences in involvement in
strategy development. Managers of domestically-
oriented ®rms claim greater levels of under-
standing of strategy at all levels of the organiza-
tional hierarchy. Perhaps this is an artifact of the
familiarity of all employees with the domestic
market, and of India's historically insular eco-
nomic policies.
We turn now from the people involved in strat-
egy to the information used to formulate strategy
and tactics (Table 4). In Panel A we consider the
relative importance of various types of informa-
tion on strategic planning. For the pooled sample,
we see that information on customer expectations
and satisfaction has become substantially more
important since economic liberalization. This is
consistent with economists' view that customers
are the benefactors of increased competition. The
importance of various types of information di?ers
between defenders and prospectors. Prospectors
are more attuned to performance measures such as
customer satisfaction and market share growth
and pay more attention to competitors' perfor-
mance than do defenders. In their pursuit of e-
ciency and low cost, defenders are more in¯uenced
by data on internal improvement opportunities.
Domestic and internationally-oriented ®rms di?er
only in the importance placed on external agen-
cies' quality assessments. This is consistent with
the importance that all ®rms with signi®cant
export activities place on attaining ISO 9000
quality certi®cation. We found this to be even
more true in India, where managers believe they
Table 4
Data used in developing competitive strategy and tactical plans
a
PANEL A: Information used in strategic planning
Types of data Average extent to which respondents
agree that these data are used in
the planning process 1996
(1=Strongly disagree, 5=Strongly agree)
Average change
since 1991
No. of ®rms
reporting (increase,
no change, decrease)
ALL Def. Pros. Dom. Int. ALL
Market share growth 4.6 4.4 4.8 4.7 4.5 0.67 (6±5±0)
Measures of competitor performance 4.1 3.9 4.3 4.0 4.2 0.83 (8±4±0)
External agencies quality assessments 3.8 3.7 3.8 3.3 4.3 0.75 (6±6±0)
Customer satisfaction ratings 4.8 4.6 5.0 4.7 4.8 1.33 (9±3±0)
Customer expectations 3.8 3.8 3.7 3.8 3.7 1.25 (9±3±0)
Improvement ideas 3.9 4.2 3.7 4.0 3.9 0.58 (6±6±0)
PANEL B: Primary basis for selecting process improvement projects
Average extent to which respondents
agree that this is a basis for selecting
process improvements in 1996
Average change
since 1991
No. of ®rms
reporting (increase,
no change, decrease)
ALL Def. Pros. Dom. Int. ALL
Fewer customer complaints 4.7 4.6 4.8 4.6 4.8 0.58 (6±6±0)
Reduced process variation 4.5 4.5 4.5 4.7 4.3 1.25 (9±3±0)
Reduced costs 4.5 4.7 4.2 4.4 4.5 0.58 (6±5±1)
Fewer errors 4.4 4.3 4.5 4.3 4.5 0.75 (7±5±0)
Reduced cycle time 4.1 4.0 4.2 4.4 3.7 0.58 (6±5±1)
a
Results that suggest meaningful di?erences between practices of defenders and prospectors and between ®rms with domestic vs
international orientation at the time of economic reforms are shown in bold.
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 395
must overcome the stigma of ``cheap labor but
poor quality'' when they compete in world markets.
Turning from data used in planning processes to
data used to evaluate business process improve-
ments, the greatest change is re¯ected in increased
priority of projects that reduce process variation.
This is consistent with heightened attention to
quality as a result of increased competition. Inter-
estingly, although internationally-oriented ®rms
are more likely to use quality assessments of
external agencies in strategic planning, domestic
®rms are more likely to select improvement pro-
jects that reduce process variation. Domestic ®rms
are also more likely to chose improvement projects
that reduce cycle time. Consistent with their clas-
si®cation, defenders are more likely than pro-
spectors to select improvement projects that
reduce costs.
To summarize, it appears that there have been
signi®cant changes in ®rms' strategic planning
processes in the wake of increased competition
brought about by economic reforms. Managers
report that employees at all levels of the organi-
zational hierarchy are more involved and have a
greater understanding of the ®rm's strategy. Dif-
ferences among defenders and prospectors in who
is involved and what data are employed are
remarkably consistent with the strategic objectives
that we impute to these classi®cations. Di?erences
between domestic and internationally-oriented
®rms seem to stem from the likely role of interna-
tional partners and the unique demands of selling
in export markets, in the case of the latter and
the familiarity of employees with Indian markets
in the case of the former. We turn now to planning
and control processes within the management
accounting framework, bearing in mind this
changing context of strategic planning.
4.3. Management accounting practices
Within management accounting research, plan-
ning and control has typically been equated with
budgeting processes. In this section we consider
three aspects of budgeting: the use of standard
budgeting procedures, the ®rms' budgeting philo-
sophy, and involvement of managers at di?erent
levels of the organizational hierarchy in budgeting
processes (Table 5). Panel A examines the extent
to which ®rms employ standard procedures in
developing budgets and long-range plans. Hof-
stede (1984, p. 142) ®nds that as a group, Indians
tolerate uncertainty well and do not invest in
uncertainty avoidance mechanisms. To the extent
that budgeting and long-range planning are meant
to reduce uncertainty, we might expect to ®nd
lower use of formalization of these practices
among Indian ®rms. This study cannot provide
evidence on use of these mechanisms relative to
other cultures; nonetheless, we do ®nd that greater
self-determination brought about by economic
reforms has increased the use of standard budget-
ing and planning procedures since 1991. Pre-
dictably, defenders place greater importance on
cost data when preparing their budgets than do
prospectors. In contrast prospectors place greater
importance on long-range plansÐconsistent with
their strategic objectives of developing new mar-
kets and products. The only marked di?erence
between budgeting practices of domestic versus
internationally-oriented ®rms is the emphasis
placed on cost data. A possible explanation, in
light of the earlier discussion of the role of inter-
national partners in strategy development, is that
these partners provide ``deep pockets'' that loosen
budget constraints.
In Panel B of Table 5 we consider the organiza-
tional, and indirectly, the national budgeting phi-
losophy of Indian managers. Since 1991, there has
been almost no change in management attitudes
regarding the ideal degree of budget diculty or in
budget attainment. This result is consistent with
Hofstede's assertion that cultural values are lar-
gely immutable. Nonetheless, approximately half
of the respondents believe that their ®rms set more
realistic budgets today than they did in 1991. The
result resembles Hoque and Hopper's (1994) ®nd-
ing that changes in economic circumstances a?ect
use rather than the existence of accounting prac-
tices. Increased budget accuracy may be a result of
increased involvement in and understanding of
corporate strategy. Another plausible explanation
for increased budget accuracy follows from
reduced government intervention. In the absence
of government intervention, ®rms have fewer
incentives to manipulate budgets and to overspend
396 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
Table 5
Management accounting planning and control practices
a
PANEL A: Use of formal planning and control practices
Planning and control practice Average extent to which respondents agree
that these data are used in the planning process 1996
(1=Strongly disagree, 5=Strongly agree)
Average change
since 1991
No. of ®rms
reporting (increase,
no change, decrease)
ALL Def. Pros. Dom. Int. ALL
Standard procedures for developing annual budgets 4.2 4.0 4.3 4.3 4.0 0.92 (7±5±0)
Standard procedures for developing long-term plans 3.2 3.1 3.2 3.1 3.2 0.58 (6±6±0)
Use of cost data in developing budgets 4.4 4.7 4.0 4.6 4.2 0.58 (5±7±0)
Preparation of long-range budgets 3.4 3.0 3.8 3.3 3.5 0.73 95±6±0)
Standard procedures for budget and capital appropriation requests 3.9 3.9 4.0 3.9 4.0 0.42 (3±9±0)
PANEL B: Budget philosophy and attainment
Proposition Average extent to which respondents agree
with proposition in 1996
(5=Strongly agree 1=Strongly disagree)
Average change
since 1991
No. of ®rms
reporting (increase,
no change, and decrease)
ALL Def. Pros. Dom. Int. ALL
Budgets are generally met 3.5 3.1 3.8 3.7 3.2 0.08 (1±11±0)
Budgets are generally realistic 4.1 4.0 4.2 4.1 4.0 0.50 (6±6±0)
Budegt goals should be dicult to attain 3.1 3.0 3.2 3.3 2.8 0.08 (1±11±0)
PANEL C: Participation in establishing, reviewing and revising the budget
Average extent to which respondents agree
that these individuals participate in 1996
a
(5=Strongly agree, 1=Strongly disagree)
Average change
since 1991
No. of ®rms
reporting (increase,
no change, and decrease)
ALL Def. Pros. Dom. Int. ALL
Participation in setting budget
Division of group managers 4.3 4.3 4.3 4.4 4.2 0.92 (7±5±0)
Plant managers 4.2 4.4 4.0 4.4 4.0 0.58 (7±5±0)
Participation in budget reviews
Division or group managers 4.2 4.3 4.2 4.3 4.2 0.58 (7±5±0)
Plant managers 4.2 4.3 4.0 4.4 3.8 0.58 (7±5±0)
Job titles Number of ®rms reporting participation of these
individuals in formal budget revisions in 1996
b
No. of ®rms
reporting (increase,
no change, and decrease)
Chief Executive Ocer 10 (1±10±0)
Senior corporate managers 10 (3±8±0)
Plant managers 10 (2±9±0)
Plant sta? 6 (2±9±0)
a
Results that suggest meaningful di?erences between practices of defenders and prospectors and between ®rms with domestic vs international orientation at the time of economic reforms are
shown in bold.
b
No di?erences between defenders and prospectors or between domestic and international ®lms were observed.
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as a means of altering allocations of government-
controlled resources.
Di?erences among the four ®rm pro®les emerge
for two of the propositions. Prospectors claim
greater success in meeting budgets than do defen-
ders; a surprising result in light of defenders'
attention to cost control. Similarly, domestic ®rms
claim greater success than do internationally-
oriented ®rms. As observed above, this may
simply re¯ect more binding capital constraints on
domestic ®rms, who lack ties to wealthy interna-
tional partners. A second di?erence is found
between domestic ®rms, who agree more strongly
with the proposition that budgets should be
dicult than do their internationally-oriented
counterparts. We have no economic explanation
for why this di?erence in attitudes exists. Certainly
contingencies related to national culture may be a
factor. As we discuss in the conclusion, this result
hints at an opportunity for future research on the
joint e?ects of strategy and national culture on
management accounting practices.
Researchers typically introduce the moderating
variable, ``budget participation,'' in analyses of the
relation between budget diculty and budget
attainment. In Table 5, Panel C we examine the
extent to which managers at the divisional and the
plant level participate in setting, revising and
reviewing budgets. In the pooled results, we see a
high level of participation at both organizational
levels, with moderate increases in participation since
1991. If we equate Division Managers with Senior
Management and Plant Managers with Middle
Management, we can compare involvement in
strategy development (Table 3) with involvement
in budgeting. Not surprisingly, divisional man-
agers are slightly less involved in budgeting than
in strategy formation, while plant managers are
considerably more involved in budgeting than in
strategy formation. With one exception, defenders
and prospectors involve the same people with the
same intensity of involvement in all aspects of
budgeting. Defenders involve plant managers at
the budget setting stage more than do prospectors.
Presumably, this re¯ects defenders' priority of cost
management as well as the realization that plant
managers are the ®rst line of cost control.
Domestic ®rms demonstrate greater involvement
of plant managers in budget setting and budget
reviews, although we o?er no explanation, other
than possible capital constraints, for this di?erence.
To summarize, budgeting processes appear to
have changed in ways that are consistent with
changes in the broader strategy development pro-
cesses. Firms report greater use of standard pro-
cedures for developing budgets and long-range
plans and greater employee involvement through-
out the cycle of budget setting and revision. We
®nd di?erences in budget attainment and the bud-
geting philosophy that appear to be related to
®rm-speci®c contingencies. Consistent with di?er-
ences in strategic objectives, we ®nd di?erences
between defenders and prospectors in the relative
importance of cost information to the budgeting
process. We also ®nd di?erences in the importance
placed on long-range planning.
4.4. Evaluation and performance measurement
practices
The survey instrument gathers data on two
aspects of performance measurement and evalua-
tion: organizational performance measurement
practices and individual performance measure-
ment, evaluation and compensation practices.
Many ®rms were reluctant to provide information
about individual evaluations. We provide limited
evidence on individual performance evaluation
using responses from six ®rms who replied to the
questions. The remaining discussion focuses on
organizational performance.
4.5. Individual performance evaluation and
compensation
Only six ®rms completed the portion of the
survey related to individual performance evalua-
tion and compensation. Non-response may be
explained by two aspects of Indian culture and
societal norms. First, as Hofstede (1984) docu-
ments, Indians value collectivism over individual-
ism. Second, Gandhi's message of using asceticism
to throw o? economic domination has a created a
national perspective on materialism. More
recently, Indians' tendency to portray themselves
as being of humble ®nancial means has been rein-
398 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
forced by high tax rates and a desire to avoid
scrutiny by tax authorities (The Economist, 21
January 1995, p. 4) Together these contextual fac-
tors suggest that questions related to individual
managers are likely to be viewed as threatening or
inappropriate.
The response of ®rms that completed this sec-
tion of the survey is suggestive of changes one
would expect to accompany deregulation and
heightened competition. Because of the reduced
sample we do not consider di?erences as a func-
tion of strategic pro®les. In Table 6 we present
evidence on the use of explicit quantitative mea-
sures to evaluate and compensate individuals or
groups. The interesting contrast that emerges from
this table is the extent to which quantitative mea-
sures have emerged as an appropriate basis for
evaluation of managers. Although it appears that
quantitative measures are possibly more common
among managers than among plant-level workers
and sta?, each ®rm that claimed to use such mea-
sures introduced them since 1991. In contrast, no
®rm has changed its methods of evaluating plant
workers and sta?.
4.6. Organizational performance measurement and
evaluation
The design of organizational performance mea-
sures has gained increased popularity among U.S.
management accounting researchers and practi-
tioners in recent years (e.g. Kaplan & Norton,
1992). We purposely avoid Western business jar-
gon in wording survey questions; however, we
seek answers to questions, the substance of which
parallels concepts in the popular business press. In
particular, we are interested in the extent to which
a broad set of organizational performance mea-
sures are used, and whether these measures repre-
sent internal and external perspectives as well as
®nancial and non®nancial perspectives on organi-
zational performance.
The upper portion of Table 7 assesses the extent
to which ®rms collect a variety of organizational
performance measures. In a related question, we
asked the extent to which ®rms use the same data.
We do not tabulate the results of the second
question, because the relationships over time and
between di?erent ®rm pro®les were identical, with
one exception that is discussed below. All of the
measures enjoy a high level of use in 1996; how-
ever two stand out as gaining in importance since
economic reforms: customer satisfaction and on-
time delivery to customers. This is consistent with
evidence on increased customer in¯uence on strat-
egy development and suggests a pattern of re-
orienting managerial systems to supply managers
with information relevant to the new competitive
environment.
Defenders appear to take greater pains to mea-
sure both their own and their suppliers' quality,
and to assess on-time delivery to customers than
do prospectors. Again, as in the strategy develop-
ment process, sourcing decisions appear to be dri-
ven more by eciency and cost considerations
than by strategic considerations. Notably missing
is a distinction between defenders and prospectors
on the collection of product costing data. This is
the sole exception, mentioned earlier, to common
patterns of variation noted between the survey
Table 6
Individual performance measurement and evaluation
Job title Percent of ®rms reporting use
of explicit quantitative performance
measures to evaluate individual or group, 1996
a
No. of ®rms reporting
(increase, no change,
and decrease)
Production workers 38 (0±6±0)
Plant sta? 13 (0±6±0)
Plant management 50 (3±3±0)
Corporate sta? managers 33 (2±4±0)
Senior corporate managers 50 (3±3±0)
Chief Executive Oce 50 (3±3±0)
a
No di?erence between defenders and prospectors or between domestic and international ®rms were observed.
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 399
question about data use as opposed to data col-
lection. In this case, defenders and prospectors
were observed to be similar in their data collection
practices but di?erent in their use of cost data.
Predictably, defenders make more intense use of
cost data (score=4.1) than do prospectors
(score=3.6).
Domestic and internationally-oriented ®rms
di?er in their collection and use of competitor
benchmarking data and product cost data.
Domestic ®rms place greater emphasis on both
performance measures than do internationally-
oriented ®rms. The former result is consistent with
casual evidence from interactions with 45 senior
managers of these ®rms in a two-day seminar on
performance measurement practices. Managers of
domestic ®rms were especially curious about busi-
ness practices in Western and Japanese ®rms. We
attribute this curiosity, in part, to the commonly
voiced expectation that international competition
will increase when remaining pockets of political
turbulence dissipate and as international ®rms
begin to trust the Indian government to resist the
temptation to nationalize their assets in times of
economic hardship. A second plausible explana-
tion for di?erences between domestic and inter-
nationally-oriented ®rms returns to the de®nition
of international ®rms as those with more interna-
tional partners. It is possible that internationally-
oriented ®rms use benchmarking data with the
same intensity as domestic ®rms; however, by vir-
tue of their relationships with partners, they may
rely on internally acquired data on partners' per-
formance rather than on competitors' perfor-
mance. Unfortunately we did not anticipate this
explanation in our survey design and consequently
are unable to examine this possibility explicitly.
The lower portion of Table 7 provides evidence
on the extent to which ®rms construct quantitative
measures of customer satisfaction and on-time
delivery, the two measures that appeared to gain
most in popularity between 1991 and 1996 (upper
portion of table). We benchmark these responses
against what, in our experience, is the single most
common non®nancial measure of manufacturing
®rms: productivity. As expected, manufacturing
productivity is, and has always been, widely used.
Consistent with earlier results, customer satisfaction
Table 7
Organizational performance measurement and evaluation
Organizational performance
measures
Average extent to which respondents agree
that these measures are collected in 1996
A
(5=Strongly agree, 1+Strongly disagree)
Average change
since 1991
No. of ®rms
reporting (increase,
no change, decrease)
ALL Def. Pros. Dom. Int. ALL
Employee attitudes and morale 3.5 3.6 3.3 3.5 3.4 0.83 (7±4±1)
Customer satisfaction 3.8 3.8 3.7 3.8 3.7 1.25 (9±3±0)
Competitor's performance 3.8 3.7 4.0 4.2 3.6 0.58 (5±7±0)
Supplier quality 4.0 4.2 3.8 4.2 3.9 0.75 (9±2±1)
On time delivery to customers 4.0 4.2 3.8 4.0 4.0 1.42 (9±3±0)
Unit product costs 4.1 4.1 4.0 4.3 3.9 0.83 (7±4±1)
Product quality failures 4.1 4.3 3.8 4.0 4.1 0.75 (7±5±0)
Number of ®rms reporting use of quantitative
performance measures in 1996
b
No. of ®rms
reporting (increase,
no change, decrease)
Customer satisfaction 9 (5±6±0)
Manufacturing productivity 9 (2±10±0)
On time delivery to customers 10 (4±7±0)
a
Results that suggest meaningful di?erences between practices of defenders and prospectors and between ®rms with domestic versus
international orientation at the time of economic reforms are shown in bold.
b
No di?erences between defenders and prospectors or between domestic and international ®rms were observed.
400 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
and on-time delivery have gained in popularity. A
surprise was the extent to which ®rms capture
customer satisfaction in quantitative measures.
In summary, changes in Indian ®rms' organiza-
tional performance measures mirror changes that
have emerged in Western ®rms. Firms are incor-
porating more external perspectives in evaluating
®rm performance and these measures appear to
have attained parity with the traditional measure
of manufacturing productivity. Many non®nancial
measures are considered as important as cost
information in evaluating organizational perfor-
mance; although predictably, when data use rather
than data collection is assessed, defenders report
that cost and quality performance measures are
most used by managers.
4.7. Cost management methods
As might be expected in light of the inecient
pre-reform era, cost management, in particular,
cost reduction is an important objective of all
®rms. On a ®ve point scale, where 5 represents
strong agreement with the proposition that ``cost
reductions in manufacturing are important to the
future of the company'', the average response is
4.79 with a standard deviation of only 0.43. When
responses to the same assertion for 1996 and 1991
are compared, the average change is 1.07. When
the assertion is modi®ed to solicit opinions on
whether cost reduction is the most important goal,
the average response drops to 4.14 with a standard
deviation of 1.03. (The latter question was used as
a basis for grouping the ®rms into defender and
prospector strategies.) In summary, cost reduction
has become substantially more important to all
®rms in the wake of international trade liberal-
ization.
Most surveys of cost management practices in
the academic literature focus on technical aspects
of cost systems. For example, questions that are
commonly considered are:
. Is process or product costing used?
. Are product costs based on historical or
actual costs?
. If transfer pricing is employed, what is the
basis of the transfer price?
. Does the ®rm use the cost classi®cations:
®xed, variable, controllable, uncontrollable?
Although we included these questions in the
survey for completeness, the results are, in our
opinion, uninteresting. We found no signi®cant
changes in these aspects of cost management
between 1991 and 1996. Moreover, we found few
di?erences among ®rms with di?erent pro®les, and
those that did emerge had no obvious interpreta-
tion based on distinctions between the pro®les.
Consequently, we focus in this section on what we
believe to be interesting questions related to the
use of cost data rather than on the set of cost
techniques employed. Speci®cally, we consider the
questions:
. Who receives information on manufacturing
costs?
. At what level of aggregation is cost informa-
tion typically presented?
. What are the primary uses of cost informa-
tion?
. Where do cost reduction ideas typically ori-
ginate?
Table 8, Panel A presents evidence about which
managers receive cost information. As in the dis-
cussion of budgeting practices, it is useful to con-
sider these responses against the backdrop of a
more decentralized strategic planning process. We
see a similar pattern of increased stated involve-
ment of middle managers and a particular
emphasis on increasing marketing managers'
awareness of product costs. As before, we inter-
pret the latter result as a distinguishing feature of
emerging economies faced with a legacy of central
planning.
In Panel B, we consider the level of aggregation
of cost data. A popular trend in cost management
in the U.S. is aggregating costs for business pro-
cesses (or, in common parlance ``activities'').
Although we purposely avoided the language of
activity-based costing in the survey, we sought
information about the extent to which accoun-
tants recast cost data to provide costs of di?erent
``cost objects''. The evidence of Panel B suggests
that few Indian ®rms have adopted the ``activity''
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 401
approach to costing. Nonetheless, it appears that
costs are being presented in a more disaggregate
form, as evidenced by the increased use of depart-
mental and detailed product-level costing.
We turn now to the question of how cost infor-
mation is used by the ®rm (Table 9). Consistent
with the previous table in which `departments'
increased in relevance as costing objects, the single
biggest change since 1991 is the use of cost data to
evaluate the performance of production areas. The
uses are presented in order of frequency of use to
highlight the overall message of this table; namely
that cost data are used primarily to a?ect new
business (e.g. quoting and pricing, planning and
forecasting) and new ways of doing business (e.g.
identifying improvement opportunities). They are
used much less frequently as performance eva-
luation mechanisms, and when they are used in
this manner it is to evaluate large production
groups rather than support groups or individuals.
Table 10 presents information about where
ideas for cost reduction originate, in order of
intensity of use. This ordering highlights the rela-
tive importance of external sources: customers and
competitors; as compared with internal sources:
employees. Customer visits and competitor
benchmarking have increased most dramatically
since 1991. Not surprising, in light of poor tele-
communications in India, although customer visits
are considered most useful, toll free customer ser-
vice lines are rarely used.
An unusual result of Tables 8 and 9, which is
conspicuous only by omission, is a failure to ®nd
meaningful di?erences between defenders and
prospectors in the provision and use of cost data.
In light of the prominent role that cost reduction
plays in defenders' strategies (borne out in Table 4,
Panel B), we expected to ®nd qualitative di?er-
ences in the way that cost data are used. Our
expectations of di?erences are ful®lled, but in an
unexpected way when we examine sources of ideas
for cost reduction (Table 10). We expected defen-
ders to make more intensive use of sources of cost
reduction ideas and are surprised by results to the
contrary. Prospectors make more intensive use of
methods to generate customer ideas for cost
reduction, including visits, surveys, and the use of
warranties. They are also more likely to get ideas
Table 8
Cost information: who receives it and in what form?
PANEL A: Dissemination of cost information
Job title Percent of ®rms reporting provision
of manufacturing costs to this person in 1996
a
No. of ®rms reporting (increase,
no change, decrease)
Plant production manager 82 (4±7±0)
Plant manager 91 (5±6±0)
Division manager 73 (1±10±0)
Marketing manager 82 (5±6±0)
Product manager 45 (2±9±0)
Chief ®nancial ocer 70 (1±10±0)
Chief Executive Ocer 100 (0±11±0)
PANEL B: Aggregation of costs for reporting purposes
Level of aggregation Percent of ®rms reporting costs at
this level in 1996
No. of ®rms reporting (increase,
no change, decrease)
Product 73 (5±6±0)
Process 45 (3±8±0)
Department 91 (6±5±0)
Plant 73 (3±8±0)
Firm 73 (2±8±1)
a
No di?erences between defenders and prospectors or between domestic and international ®rms were observed.
402 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
from external consultants. We might have inter-
preted these results as re¯ecting a penchant for
prospectors to ``prospect'' for new ideas outside
the ®rm (often termed ``environmental scanning'');
however, we ®nd that prospectors are also more
likely to survey employees for ideas. In a para-
doxical result, it appears that prospectors are pur-
suing cost reduction with greater intensity than
defenders despite their claims that cost reduction
is not the most important goal of the ®rm. One
might speculate that this does not bode well for
the long-term survival of ®rms in this category.
We had no expectations of di?erences between
domestic versus internationally-oriented ®rms;
however, it appears that the domestic ®rms make
more intensive use of virtually every source of cost
reduction ideas. They are considerably more likely
than internationally-oriented ®rms to engage in
Table 10
Sources of cost reduction ideas
Sources of cost reduction
opportunities
Average extent to which respondents
agree that this approach is used in 1996
a
(5-Strongly agree, 1=Strongly disagree)
Average change in
use since 1991
No. of ®rms
reporting (increase,
no change, decrease)
ALL Def. Pros. Dom. Int. ALL
Customer visits 4.5 4.3 4.8 4.9 4.2 0.75 (7±5±0)
Customer phone surveys 3.9 3.4 4.3 4.0 3.7 0.50 (5±7±0)
Competitor benchmarking 3.7 3.6 3.8 3.7 3.7 1.00 (9±5±0)
Employee suggestion program 3.6 3.6 3.5 3.7 3.4 0.50 (6±7±1)
Problem solving teams 3.6 3.5 3.7 3.7 3.4 0.57 (6±8±0)
Outside consultants 3.2 3.0 3.5 3.7 2.7 0.29 (4±9±1)
Customer mail surveys 3.0 3.0 3.0 3.4 2.5 0.42 (5±7±0)
Customer suggestions 3.0 2.9 3.2 3.1 2.9 0.50 (3±11±0)
Product warranties 2.8 2.5 3.2 3.0 2.7 0.42 (3±8±0)
Employee survey 2.8 2.6 3.0 3.1 2.4 0.43 (3±11±0)
Employee interviews 2.5 2.6 2.5 2.8 2.3 0.23 (3±9±1)
Toll-free customer service 2.0 2.1 1.8 2.3 1.7 0 (0±11±0)
a
Results that suggest meaningful di?erences between practices of defenders and prospectors and between ®rms with domestic versus
international orientation at the time of economic reforms are shown in bold.
Table 9
Uses of cost data
Use of cost information Percent of ®rms reporting use
of cost data for these
purposes in 1996
a
No. of ®rms reporting
(increase, no change,
and decrease)
Quoting new business 100 (0±14±0)
Evaluating investment projects 100 (2±12±0)
Developing business plans and forecasts 100 (1±13±0)
Basis for product pricing 93 (0±14±0)
Identifying improvement opportunities 86 (2±12±0)
In¯uencing new product designs 86 (1±13±0)
Determining whether to outsource production process 79 (2±12±0)
Evaluating the performance of production areas 71 (4±10±0)
Determining whether to make or buy components 71 (2±12±0)
Evaluating the performance of individual managers 43 (2±12±0)
Evaluating the performance of Support activities 20 (2±12±0)
a
No di?erences between defenders and prospectors or between domestic and international ®rms were observed.
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 403
employee surveys and interviews, and to seek cus-
tomers' thoughts through visits, mail surveys, and
even toll-free service lines. The domestic ®rms are
also more likely to engage and use the suggestions
of external consultants.
In summary, changes in the dissemination of
cost data mirror broad trends toward increased
stated involvement of managers at all levels of the
organization. Cost data are presented in more
disaggregate forms that are more amenable to
analysis and action. Firms are also scanning the
internal and external environment more aggres-
sively for ideas for cost reduction. Consistent with
earlier results, customers are gaining power and
voice with the advent of economic reforms.
4.8. The changing role of accountants in
organizations
The previous sections have examined how man-
agement accounting practices have changed in
Indian ®rms since the enactment of economic
reforms. In this section we consider how attitudes
about accounting data have changed and how the
work of accountants has changed. A basic
assumption of the previous sections is that man-
agement accounting provides useful information.
We did not want to preclude the possibility that
managers of these ®rms do not share our assump-
tion. Consequently, in Table 11 we present evi-
dence on the quality of ®rms' accounting and
information systems (seemingly a prerequisite to
usefulness), employees' and managers' access to
data from the accounting system (a prerequisite to
use), and the in¯uence of accounting data on
decisions, their actual use.
Respondents agree that their information sys-
tems, including product costing systems, are rea-
sonably accurate and believe that this is more
true in 1996 than in 1991; however there are
marked di?erences among ®rms of di?erent pro-
®les. Prospectors and domestic ®rms are con-
sistently more likely to view their information
systems as accurate and presumably as useful.
Turning to the issue of access, there is con-
siderably greater dissemination of cost data to
managers than to production workers for all
®rms. Dramatic di?erences in access to data
emerge between domestic ®rms, which provide a
high level of access, and internationally-oriented
®rms, which do not. These di?erences are mir-
rored in the ultimate use of cost data. Inter-
nationally-oriented ®rms are considerable less
likely than domestic ®rms to report that cost data
are used in decision-making. Echoing earlier
results, respondents typically attribute the great-
est use of cost data to the head of marketing.
This is consistent with evidence of Table 9 that
costs are used primarily in the context of new
business rather than in performance evaluation
and control.
In earlier sections we present evidence that ®rms
altered their management accounting practices in
response to the changing economic environment.
Table 12, which examines how the work of
accountants has changed since 1991, is a ®tting
summary of this research. The chief ®nancial o-
cer of each ®rm was asked to assign 100 points to
six types of work typically performed by corporate
accountants based on the demands that these
tasks placed on accounting resources in 1991 and
in 1996. Although changes in resources devoted to
each task are small, on average 7% more resour-
ces are being devoted to internal, management
accounting practices in 1996 than in 1991. These
resources have been diverted from what have
typically been classi®ed as ®nancial accounting
tasks: external reporting, auditing, and tax
accounting. Although our data suggest a realign-
ment of priorities of the accounting department
toward management accounting issues, quotes
from top managers at three ®rms suggest that
these changes are a small start toward a profound
re-conceptualization of the role of accountants.
Today the responsibility of accounting is to
provide timely information support to oper-
ating management for decision support. To
meet these needs, accounting experts with
backgrounds in engineering and economics
will have to be considered.
We don't need bookkeepers, we need man-
agement accountants with business acumen. . .
who communicate well and can in¯uence line
managers.
404 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
Table 11
Attitudes about the use and usefulness of accounting data
a
Proposition Average agreement with proposition
(5=Strongly agree, 1=Strongly disagree)
Average change
since 1991
No. of ®rms reporting
(increase, no change,
decrease)
ALL Def. Pros. Dom. Int. ALL
Information system data integrity
The ®rm's information systems provide accurate data 3.7 3.4 4.2 4.0 3.4 0.57 (8±5±1)
The ®rm's information systems contain many data errors (Reversed) 3.4 3.0 4.0 3.9 3.0 0.21 (4±9±1)
The ®rm's product costing systems provide accurate data 3.6 3.6 3.7 4.0 3.3 0.64 (5±9±0)
Access to cost data
Ocial communications in this company frequently contain information about
cost reduction goals and achievements
3.6 3.5 3.8 3.7 3.6 0.86 (7±7±0)
Accountants often meet with corporate managers to discuss cost issues 3.3 3.3 3.3 3.6 3.0 0.27 (3±8±0)
Accountants often meet with manufacturing managers to discuss cost issues 3.4 3.3 3.5 3.9 2.8 0.58 (5±7±0)
Generally all employees have access to cost data 2.6 2.9 2.2 3.0 2.1 0.29 (3±10±1)
Production workers have access to cost data 1.9 1.8 2.0 2.1 1.6 0.00 (0±14±0)
Production workers are aware of the cost of products they produce 2.1 2.0 2.3 2.4 1.9 0.07 (1±13±0)
In¯uence of cost data on decisions
The ®rm collects data and creates reports that aren't used (Reversed) 3.1 3.0 3.2 3.2 3.0 0.07 (2±11±1)
Managers' decisions are in¯uenced by accounting and cost information 3.5 3.5 3.5 4.0 3.0 0.57 (7±6±1)
Corporate managers routinely ask for data on product costs 3.4 3.4 3.3 3.3 3.4 0.07 (5±6±3)
The head of marketing routinely asks for data on product costs 3.8 3.6 4.0 4.1 3.4 0.07 (3±10±1)
Plant managers use data on product costs to make operating decisions 3.3 3.0 3.7 3.7 2.9 0.29 (4±10±0)
Production supervisors use data on product costs to make operating decisions 2.6 2.5 2.7 2.9 2.3 0.07 (1±13±0)
a
Results that suggest meaningful di?erences between practices of defenders and prospectors and between ®rms with domestic versus international orientation at the
time of economic reforms are shown in bold.
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The Accounting Department should take a
proactive role in pricing, managing inventory
levels, make/buy decisions and capital invest-
ment analysis.
When we heard these words, we realized that we
had heard similar words spoken by managers in
the U.S. and Japan. Since 1990, we have also
heard them spoken by managers in Poland and
Romania. In short, with increased global compe-
tition, it appears that management accounting
practices are gaining importance and changing in
substance. A major challenge for ®rms and
accounting educators is ensuring that accountants
with the requisite skills are available to meet the
demands of the new environment.
5. Conclusion
This study presents a broad overview of changes
in management accounting practices that appear
to be associated with the economic reforms that
took place in India in 1991. Considering ®rst
planning and control processes, we present evi-
dence that the planning process has become more
decentralized, that strategic objectives are more
widely understood, and that the critical informa-
tion inputs for strategy formulation have changed
with the reforms. Managers report greater invol-
vement in and understanding of the strategic plan
by employees throughout the corporate hierarchy.
Although managers with functional responsi-
bilities in ®nance and marketing are most involved
in developing corporate strategies, the greatest
increase in involvement since 1991 has been for
managers in planning and human resource man-
agement functions. There is no evidence that
external stakeholders have become more involved
in setting corporate strategy; however, they are
credited with greater understanding of the ®rm's
strategy. Considering the relative importance of
various types of information as inputs to strategic
planning, information on customer expectations
and satisfaction has gained in importance. As
inputs to business process improvement Ð and the
projects aimed at addressing customer complaints
Ð internal information on process variation (e.g.
quality measures) has become most useful for
prioritizing improvement e?orts. Within this con-
text of a new strategic planning process, we ®nd
that although the existence of budgeting processes
pre-dates reform, managers believe that their
budgets are more realistic and meaningful today
than in 1991. Firms reports greater use of stan-
dard procedures for developing budgets and
greater involvement of employs in all stages of
budget setting and revision. We posit that
increased budget accuracy follows from these
budgeting process changes as well as the pre-
viously described changes to broader strategic
planning processes. Turning to individual and
organizational performance evaluation, we pro-
vide limited evidence that management perfor-
mance evaluations are increasingly based on
quantitative measures. Organizational perfor-
mance measures have been expanded to include
more external perspectives (e.g. customer satisfac-
Table 12
The changing role of accountants: deployment of accounting resources to common accounting tasks
Tasks Average percent of accounting
resources deployed, by task,
in 1996
a
Average change
since 1991
No. of ®rms reporting
(increase, no change,
and decrease)
External reporting (®nancial accounting) 29 À3 (3±1±7)
Internal auditing 10 À3 (2±5±4)
Tax accounting 12 À1 (1±4±6)
Cost accounting 19 +1 (6±2±3)
Consulting service to other departments 14 +2 (6±1±4)
Information systems management 16 +4 (8±3±0)
a
No di?erences between defenders and prospectors or between domestic and international ®rms were observed.
406 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
tion). These measures are quanti®ed and have
attained parity with traditional measures of man-
ufacturing productivity in the overall evaluation
of the ®rm. As in the case of budgeting and plan-
ning processes, we ®nd that the existence of formal
cost systems pre-dates reform; however the sub-
stance of cost management processes has changed.
Although ®rms have not adopted ``activity-based
costing'' methods, since 1991 they have begun to
evaluate cost data in more disaggregate forms (e.g.
department costs and detailed product or compo-
nent costs). Managers also report that cost data
are being used primarily to a?ect new business
(e.g. quoting, pricing, planning) and identify pro-
cess improvement opportunities. Prior to reform
cost data were used primarily to evaluate produc-
tion employees.
The results are remarkably consistent with the
basic premise of contingency theory, that changes
in the external environment prompt changes in
organizational strategy and structure, including
those elements of structure represented by man-
agement accounting practices. The results are also
consistent with the nature of changes associated
with reforms in emerging economies. For example,
we discover several changes in management
accounting practices that re¯ect the importance of
marketing and sales and human resource manage-
ment in ®rms that previously had little need for
either function. Consistent with Gray and
Roberts' (1991) hypothesis, we also ®nd that
Indian ®rms are reconceptualizing the function of
accounting from bookkeeping and creating data
to ensure compliance with external regulations to
an internal, managerial function. As a result of
increased competition, the customer has gained
prominence in planning and control processes and
in organizational performance measurement. In
summary, for all of the management accounting
processes, we see an overall increase in the use of
fact-based decision making and increased demand
for data that, in Western ®rms, are provided by
management accountants.
The speci®c management accounting processes
and the data used di?er as a function of ®rm
strategy and international orientation; however,
these contingencies take on unique meaning in
emerging economies. Two examples illustrate this
point. Western ®rms typically view supplier part-
nerships as a means of di?erentiating the ®rm, and
thus are more likely to use this approach if they
are ``prospectors'' and more likely to seek a large
number of low cost suppliers if they are ``defen-
ders''. In contrast, as a result of unreliable trans-
portation infrastructure, defenders are more likely
to seek supplier partnerships in India. This di?er-
ence is re¯ected in management accounting prac-
tice in the involvement of suppliers in planning
and control practices and in organizational per-
formance measures. Another example is the
meaning of ``international'' in the Indian context.
While a Western ®rm may be considered to have
an international orientation if it sells abroad, in
early studies of emerging markets it is more
meaningful to consider the ``internationalization''
of the ®rm, which typically occurs through alli-
ances with international partners. Inter-
nationalization in¯uences management accounting
in the Indian ®rm both through managerial
expertise provided by international partners
(which reduces the need for in-house expertise and
removes some decisions from local managers) and
through a restructuring of organizational con-
straints (e.g. capital constraints become less bind-
ing while political and regulatory constraints
become more binding). Although do not explicitly
study Indian culture as a contingency that a?ects
management accounting practices (because we
lack non-Indian research sites) many of our results
re¯ect the pro®le of Indian cultural values devel-
oped in Hofstede (1984).
This study is exploratory, aimed at providing
descriptive evidence on changes in management
accounting practices following economic reforms
and contingent upon ®rm strategies and interna-
tional orientation at the time of reform. Based on
our review of the literature and limitations of this
study, we consider three avenues to be most pro-
mising for future inquiry: (1) integration of strat-
egy-based and culture-based tests of contingency
theory; (2) use of panel data as a means of distin-
guishing contextual and cultural determinants of
management accounting practices; and (3) con-
sideration of a broad set of management account-
ing practices as well as practices from other
disciplines as a means of developing an organiza-
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 407
tional systems perspective. We brie¯y discuss these
research opportunities.
This study considers two contingencies that
have been related to management accounting
practices in the literature, competitive strategies
and national culture. Notably absent are studies
that combine these research questions.
7
An intri-
guing issue that emerged when we discovered the
extent to which Indian ®rms have entered into
strategic alliances with international partners is
the role these partnerships play in the evolution of
management accounting practices.
8
Although
sample size limitations restrict our investigation of
these issues, di?erences between the national cul-
ture of the international partner and the Indian
®rm and the role that the partnership plays in the
international partner's global network suggest
testable hypotheses about the nature of manage-
ment accounting change following the formation
of such a relationship. Firth (1996) provides pre-
liminary evidence of a relation between changes in
management accounting techniques used by Chi-
nese state-owned enterprises (SOEs) before and
after entering into a joint venture and the practices
used by the foreign partner. He further documents
a relation between the degree of change and the
similarity between the national culture of the for-
eign and the Chinese ®rm. Anand and Delios
(1996) document di?erences in the degree of
transfer of management skills between Japanese
joint ventures in China and India and attribute
these di?erences to the strategic intent of the
Japanese ®rm in entering the partnership. Com-
bining results of our study with those of Firth and
Anand and Delios, we hypothesize that the nature
of the partnership, speci®cally, the extent to which
partners form long-lived attachments (e.g. joint
ventures) vs brief, market-based transactions (e.g.
technology licensing), the degree of control exer-
cised by the state prior to liberalization (e.g. SOE
vs privately held ®rms in a controlled economy),
the strategy of the local ®rm following reform, and
the integration of the ®rm with world markets
other than those re¯ected in international part-
nerships will a?ect the degree to which management
accounting practices change to accommodate
international di?erences between the partners'
management accounting practices.
An enduring debate in ®elds as diverse as
genetics, education, and organizational studies is
the extent to which individual and organizational
responses to stimuli are determined by ``culture''
vs ``context.'' In the management accounting lit-
erature, previous studies that examine manage-
ment accounting implications of national culture
employ cross-sectional comparisons of similar
®rms or of international divisions of a single ®rm.
The choice of similar research sites is intended to
control for ``context,'' so that di?erences may be
attributed solely to culture. Conversely, studies
that aim to focus on contextual factors, such as
competitive strategy, use cross-sectional compar-
isons of ®rms with similar ``cultures.'' To our
knowledge, these two factors have not been con-
sidered simultaneously. In the introduction, we
suggest that the results of this study are pertinent
for countries that have undergone dramatic eco-
nomic transition, for example, the countries of
Central Europe and the former Soviet Union. Par-
allels between the shifting contexts encountered by
®rms in these countries suggests a cross-sectional,
longitudinal research design in which management
accounting practices in ®rms from countries with
very di?erent cultures (e.g. India and Poland) are
compared before and after shifts in environmental
context. Such a study would provide the ®rst com-
parative evidence on the in¯uence of context and
culture on management accounting practices.
Finally, and most ambitious of all, we consider
opportunities to develop a broader, conceptualiza-
tion of the determinants of management practices,
of which management accounting practices are a
small piece. Empirical tests of contingency theory
have typically focused on determinants of a nar-
row set of management accounting practices; for
example, preparation of and performance to bud-
gets. This study has attempted to take a broader
view of management accounting practices as a
7
Child and Markoczy (1993) combine contextual variables
related to strategic alliances and national culture of joint ven-
ture partners to examine contingencies in managerial behavior.
8
Gray and Roberts (1991) raise a related question about
international joint ventures. He asks whether di?erences in
accounting practices give advantage to one or the other partner
in an East±West joint venture and to what extent accounting
di?erences are a source of disagreement between partners.
408 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
means of detecting patterns of change. Clearly
greater understanding of both individual practices
and macroscopic relationships among practices is
needed. However we found very little of the latter
in the extant literature. We were more successful
when we broadened our search to include other
management disciplines. For example, in the ®eld
of operations management we found several stu-
dies that attempt to characterize international dif-
ferences in manufacturing practices, broadly
de®ned (e.g. DeMeyer, Nakane, Miller & Ferdows,
1989; Womack, Jones & Roos, 1990; Vastag &
Whybark, 1994). Ironically, it was Mueller's (1967)
examination of similarities and di?erences in broad
characterizations of accounting practices that opened
the sub-discipline of international accounting.
However, Mueller and those who subsequently
contributed to this research stream focused on
di?erences in ®nancial accounting practices. This
suggests a parallel study of international manage-
ment accounting practices, and, perhaps more
radically, a multi-disciplinary study that considers
management accounting practices jointly with
practices in the ®elds of operations management,
marketing, or, less radically, ®nancial accounting.
We describe three avenues for research in inter-
national management accounting that most intri-
gue us after a brief interaction with a select group
of Indian ®rms. What is clear to us, after spending
more than 25 weeks between 1993 and 1996 in
®rms in emerging and transitional economies is
that ®rms in these countries represent an unpar-
alleled opportunity to study the evolution of
management accounting practices in a relatively
short time period. The changes required of ®rms
faced, often for the ®rst time, with pro®t objec-
tives, the need to attract and retain skilled
employees and the opportunity to choose invest-
ments and suppliers have direct implications for
all aspects of management accounting.
Acknowledgements
The William Davidson Institute at the Uni-
versity of Michigan Business School and the
Academy of Management Excellence in Madras,
India provided ®nancial support for this research.
We are indebted to managers of the participating
®rms and to our colleagues, Ted Snyder and C. K.
Prahalad at the University of Michigan and to S.
Ramachander, V. Narayanan, and R. Stevenage
of the Academy of Management Excellence for
helping us gain access to research sites. Comments
from Trevor Hopper, Anthony Hopwood, Peter
Miller, Neale O'Connor, and other participants in
the 1996 AOS Conference on Comparative Man-
agement Accounting and an anonymous referee
were especially helpful.
Appendix A:
Research sample
The research was planned in cooperation with
the Academy of Management Excellence (ACME),
an Indian consortium of companies that gather
regularly for management research brie®ngs and
symposia on topics of general management inter-
est. In 1995, we approached ACME adminis-
trators with a proposal to assess management
accounting practices in Indian ®rms, the results of
which would be presented in a management semi-
nar (delivered in Bangalore, India in August
1996). It was agreed from the outset that we would
have complete freedom in designing the survey
and in publishing the results of our research.
ACME contributed a research associate who
assisted us with cultural aspects of the survey
design and administered the survey pre-test. An
Indian academic who is aliated with ACME
accompanied our ®eld visits and was present dur-
ing all management interviews. Although the sur-
vey and interviews were comfortably conducted in
English, the inclusion of a native professional
academic and research associate was invaluable in
early stages of survey design.
The targeted research population was 30 manu-
facturing members of the ACME consortium.
Although ACME members include ®rms in service
industries, we limited the sample to manufacturing
®rms to permit us to develop a more detailed
survey. ACME members share two features.
First, none were state-owned enterprises prior to
enactment of economic reforms. Thus, we do not
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 409
consider ®rms for which privatization resulted
from liberalization. Second, ACME ®rms tend to
be professionally managed, often by a cadre of
Indian managers who have studied at home or
abroad in leading management programs. As a
result of these and other di?erences that cause
®rms to seek ACME membership, it is reasonable
to surmise that, from the population of mid-sized
to large ®rms in the private sector, ACME ®rms
have a greater than average probability of sur-
viving the heightened international competition
brought about by liberalization. In excluding
previously state-owned enterprises as well as
smaller, typically family-owned ®rms, we have
attempted to focus on ®rms with developed
managerial practices and competitive strengths
from which to negotiate the dicult transition to
an open economy. This is an appropriate sample
for our research objective of studying the evolu-
tion of management accounting practices. The
excluded population would more appropriately
be used to study the emergence of managerial
practices (e.g. Firth, 1996) or the consequences of
failure thereof.
Appendix B:
Survey design and administration
A ®ve-part survey was designed to collect stan-
dardized information on ®rms' competitive strat-
egy and management accounting practices.
9
In fall
1995, the survey was pre-tested by three ®rms that
were selected based on industry and size di?er-
ences as well as their perceived receptivity to par-
ticipating in the study. In light of the small target
population and even smaller pre-test group, the
intent of the pre-test was simply to identify
ambiguous or poorly worded questions. A
research assistant from ACME was on site to
administer the pre-test and interview survey
respondents. The survey was revised based on
feedback from the pre-test. Following a pre-
liminary telephone call to request involvement in
the project, the survey was mailed to the 30 man-
ufacturing ®rms in spring 1996. Each survey was
accompanied by a letter of introduction from
ACME, a statement of research purpose from the
authors, and instructions concerning the ideal
respondent (job responsibilities) for each part of
the survey. Approximately 2 weeks after mailing
the survey the research associate contacted the
person to whom the survey was mailed. At that
time approximately half of the ®rms stated that
they would not participate in the study; 14 ®rms
agreed to complete the survey and host a visit if
requested. Reasons o?ered by those who declined
included: the survey would require too much time
to complete; they were not suciently interested in
the topic to participate in the study and the sub-
sequent management brie®ng; and they did not
wish to divulge the information requested, o?ers
of con®dentiality notwithstanding.
Each of the ®ve survey parts addressed a di?er-
ent aspect of the research and was to be completed
by a survey respondent with job-related knowl-
edge of the questions. (See Table 1 for a brief
description of each survey part.) So, for example,
the CEO or President was asked to complete the
section of the survey dealing with competitive
priorities, while the Chief Financial Ocer was
asked to complete the section related to cost
management practices. In total, 1042 questions
were asked, with respondents reporting that they
spent 90 minutes, on average, completing a section
of approximately 200 questions. We recommended
that respondents consult colleagues with greater
expertise and refer to relevant archival records
when they were unsure of responses. At the end of
each survey we asked for the job titles of collea-
gues who participated signi®cantly in the comple-
tion of the survey section. Typically one to three
people, other than the designated respondent,
contributed to each survey section. Multiple sur-
vey respondents reduce the potential in¯uence of
measurement error and individual bias on our
results and attempts to address the concern that
we may have ``assigned'' certain survey questions
to the wrong individual, depending upon the
®rms' organization structure and assignment of
job responsibilities. There was no repetition of
questions across survey sections; however, by
9
A copy of the survey instrument is available from the
authors upon request.
410 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
design there was considerable overlap. Thus, for
example, the operations manager was asked to
rank order manufacturing improvement opportu-
nities for the future and the response was used in
conjunction with data from the competitive strat-
egy survey to identify the ®rm as a Defender or
Prospector. A limitation of our survey approach
as it relates to some survey questions is that the
respondents were all members of management.
Some questions ask managers to assess the extent
to which information use, actions and perfor-
mance of workers and mid-level-managers has
changed since economic reforms. Managers are
likely to be less well-informed in these cases and
the error in response may be systematically biased
if they have a stake in subordinates' behaviors. In
the results that follow, we highlight this issue as it
arises. An alternative research design that would
also survey line workers and mid-level managers
would have required surveys in a multiplicity of
Indian dialects and most probably would have
reduced our sample size further as managers per-
ceived the cost of participation in the study to be
too great.
After the survey instrument was distributed, site
visits were made to nine companies over a period
of six days. The companies visited are located in
Bombay and Madras, India, and represent a cross
section of industries. The meetings had two pur-
poses: (1) to collect surveys from ®rms that had
verbally agreed to participate in the study and to
encourage completion of the survey if needed; and
(2) to gain a richer understanding of the impact of
the 1991 economic liberalization on the ®rms. Of
the nine companies visited, seven returned sub-
stantially complete surveys and are included in
our analysis. Typically, meetings with companies
lasted one to three hours and involved from one
to six managers. In all, 32 managers of nine com-
panies were interviewed. Where there were multi-
ple managers, the meetings were as a group. In
general, the managers were heads of corporate
functional areas (e.g. Executive Director of Sales)
or of major operating groups. The meetings were
open-ended, broad-based based discussions of two
questions: (1) how did economic liberalization
a?ect the organization; and (2) what changes in
management accounting and control practices had
taken place or were planned. In addition to the
companies, we met with reporters and editors at a
major business newspaper based in Madras and
with two directors at the Bombay oces of a ``Big
6'' accounting ®rm. These meetings were intended
to further enrich our understanding of the Indian
business environment.
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