Description
The U.K. Government’s belief in the innate ine6iciency of traditional public sector provision of goods and
services has inspired a number of initiatives which have resulted in management of public sector enterprises
being confronted by an increasingly cxxnmercial environment, tighter tinancial controls, increased
competition, and in some cases tmnst% to the private sector through privatization. This paper is concerned
with investi@ing the ways in which accounting and accounting information has contributed to and shaped
procures of organ&tional change in one area of the public sector, the ten Regional Water Authorities of
England and Wales. In the early 198Os, the Water Authorities were subject to m from new Government
financial controls and performance aims to become more efficient.
Pergamon Accounting &ganlsotfons andSociety, Vol. 20. No. 213. pp. 19.G218. 1995
Copyright 0 1995 Elsevicr Science Ud
Printed in Great Britain. All rights reserved
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TRANSFORMING FRAMEWORKS OF ACCOUNTABILITY:
THE CASE OF WATER PRIVATIZATION*
S. G. OGDEN
University of Leeds
Abstract
The U.K. Government’s belief in the innate ine6iciency of traditional public sector provision of goods and
services has inspired a number of initiatives which have resulted in management of public sector enterprises
being confronted by an increasingly cxxnmercial environment, tighter tinancial controls, increased
competition, and in some cases tmnst% to the private sector through privatization. This paper is concerned
with investi@ing the ways in which accounting and accounting information has contributed to and shaped
procures of organ&tional change in one area of the public sector, the ten Regional Water Authorities of
England and Wales. In the early 198Os, the Water Authorities were subject to m from new Government
financial controls and performance aims to become more e&cient. These pressures intensified when the
Government announced its intention to privatiae them in 1986, and continued up to 1989 when privatization
took effect. Since privatization the Water Authorities have been subject to “yardstick” competition under a
new regulatory framework, and comparative judgements by the fmancM markets. In considering these
changes, the PBper examines the constitutive role of accounting in articulating changing organizational
priorities, and in promoting lixst a vocab&uy of costs and subsequently a vocabulary of profits as languages
of organizational motive.
Ever since the 1967 White Paper (Cmnd 3437, of initiatives which have resulted in manage-
1967) introduced more formal criteria for ment being confronted by an increasingly
pricing and investment decisions, public sector commercial environment, tighter financial con-
industries in the United Kingdom have been trols, increased competition through deregula-
“steadily pushed towards behaving according to tion, and the possibility, if not the fact, of
commercial rather than social criteria” (White- privatization. As well as the privatization of the
head, 1988, p. 6). But since 1979 push has Water Authorities in 1989, other major state
turned to shove. Over the last decade the industries sold off have included British Telecom
Conservative Government has sought radical in 1984, British Gas in 1986, British Airways in
changes in the management of public enter- 1987, British Steel in 1988, and electricity
prises. Inspired by its belief in the innate distribution and generation in 1990 and 199 1.
inefficiency of traditional public sector provi- Even without privatization, elements of market
sion of goods and services, alarmed at increasing forces have been introduced into public sector
demands on the Exchequer to make good provision: for example, there are now rules
operating losses and to finance capital pro- requiring competitive tendering for a number
grammes, and determined to remedy the lack of services previously provided by Local Author-
of any efficiency checks on industries’ perform- ities and the National Health Service (NHS);
ance, the Government has introduced a number schools and colleges have been given new
l The author wishes to acknowledge helpful comments from the Workshop on Changing Notions of Accountability, London
School of Economics, and the European Institute for Advanced Studies in Managemmt Workshop on Accounting in its
Organizational and Social Contexts, University Carlos III, Madrid; and fmancial support born the Economic and Social
Research Council (Grant No. ROOO 234263).
193
194 S. G. OGDEN
responsibilities for managing their own budgets
and are expected to act as quasi autonomous
units; and proposals for the operation of internal
markets in the NHS are in the course of being
implemented.
What has been characteristic of many of these
reforms is the extent to which they have
“encouraged or required the reconstruction of
the institutions concerned along the lines
suggested by the model of ‘the commercial
enterprise’ - the privately owned firm or
company operating in a free market economy”
(Keat, 1991, p. 2). However idealized, the model
of the commercial enterprise has, according to
Keat ( 1991) taken on “paradigmatic status”.
This is manifest in various corporate reorganiza-
tions undertaken by public sector managements
to provide a sharper focus on financial perform-
ance, a new commercial orientation epitomized
by the “elevation” of the status of the client to
that of customer, and the extent to which
professional judgements by providers of goods
and services have lost their salience in decisions
about appropriate standards of provision. Greater
stress has been put on using “proven” private
sector management tools: introducing more
competition to the provision of goods and
services to lower costs and improve standards;
disaggregating formerly large monolithic units
to create more manageable corporate entities,
and to differentiate between providers and users
of goods and services in order to gain the alleged
efficiency advantages of use of contract or
franchise arrangements; and clearer definitions
of goals, targets and indicators of success (Hood,
1991). As a result, decision-making processes
about provision of services have become increa-
singly influenced by a preoccupation with
“economic results” at the expense of ‘social
benefits”. Amidst these changes is an all-
pervasive managerial concern with introducing
and operating more stringent forms of account-
ing controls over organizational activities. Initia-
tives in more cost-conscious resource manage-
ment, cost improvement programmes, perform-
ance indicators, delegated budgets, cost centres
and new management information systems have
all been variously deployed as managers have
tried to give effect to politically determined
notions of efficiency, cost effectiveness, value
for money, and greater financial accountability
(e.g. Gray & Jenkins, 1986; Fry, 1988; Clarke &
Cochrane, 1989; Dent, 1991; Humphrey &
Scapens, 1990; Humphrey, 1991; Broadbent et
aL, 1991). The National Health Service, for
example, has recently experienced corporate
reorganization, which involved removal of a tier
of the management structure, increased delega-
tion to local level, and the appointment of new
General Managers at all levels of the service;
external scrutinies of use of resources, cash
limits on spending and manpower limits imposed
by Government; the introduction of performance
indicators and new management information
systems to ensure data can be collected and
analysed to measure efficiency improvements;
and the introduction of an internal market
whereby users, such as District Health Author-
ities, set contracts with providing agencies such
as hospitals on a competitive basis (Broadbent
et al, 1991; Iapsley, 1991; Bevan, 1989).
Another example is provided by British Rail
which, in response to Government pressure for
efficiency improvements and reductions in its
public service grants, has initiated corporate
reorganization, introducing five business sectors
into its corporate structure to give greater
emphasis to the importance of economic results
and customers at the expense of the more
traditional conceptualization of the railway as a
social service underwritten by Government
(Dent, 1991).
These new emerging priorities in managing
the public sector have been accompanied by
the Government’s promotion of what it terms
an “enterprise culture” (Keat, 1991; Morris,
1991). The notion of enterprise provides a
potent language for articulating the Govem-
ment’s political mission in pursuing change in
the management of the public sector as it
links general political deliberations about the
need for changes in attitudes, values and
behaviour in individual and organizational acti-
vity with “specific programmes that simultan-
eously ‘probl emati ze’ organizational practices
in many different social locales, and provides
WATER PRIVATIZATION 195
rationales and guidelines for transforming them”
(Rose, 1992, p. 145). The culture of enterprise
is expected to inform behaviour once “the
market” is introduced into the territories of
public sector professionals. Thus, as Heelas &
Morris (1992, p. 5) example:
the Secretary of State for Education speaks of higher
education as an “industry”, where what matters is
attending to production to increase elliciency and
quality. The intention is that peoplewill have to exercise
initiatives; compete for “consumers”; cost their activities
and think of themselves as “producers”, if they are to
prosper, let alone retain their jobs.
Much of the public sector has similarly experi-
enced some if not all of these developments.
However, the diversity of the public sector
cautions against too many generalizations. More-
over, in investigating the ways in which account-
ing and accounting information contributes to
and shapes these processes of organizational
change, it is important to locate the forms and
roles accounting takes within the particular
organizational contexts in which they occur.
Consequently, it is appropriate to consider case
studies of particular public sector organizations
in order to evaluate the extent and significance
of change that has occurred. To that end, this
paper seeks to address the changes that have
occurred in the Water Industry over the last 10
years.
THE WATER INDUSTRY
198.3-1990: A BRIEF SURVEY
The ten Regional Water Authorities are a
product of a major reorganization of the Water
Industry in 1973. This concentrated functions
which had been previously exercised by 157
water undertakings, 29 River Authorities and
1393 sewage disposal authorities into nine
Regional Water Authorities in England (Anglia,
Northumbria, North West, Severn Trent, South-
em, South West, Thames, Wessex and Yorkshire)
and one in Wales (Welsh Water). They vary in
size from Thames, the largest with a turnover
in 1989 of &558 million and a workforce of
8977, to South West, the smallest with a
turnover in 1989 of s106.3 million and a
workforce of 1876.’ They are primarily con-
cerned with providing water supply and sewer-
age services.*
In 1989 the Water Authorities were privatized.
However, privatization is best regarded as part of
a continuing process of change that has affected
the industry over the decade of the 1980s rather
than a singular event. In the early 1980s
the Water Authorities were subject to increas-
ing pressures from new Government financial
controls and performance aims to become
“more efficient”. Once the Government publicly
announced its interest in privatizing them in
1985, and published its intention to do so in its
White Paper in 1986, these pressures intensified.
Like other privatized enterprises, the Water
Authorities were strongly encouraged to improve
their profitability and efficiency profiles to make
their successful flotation more viable (Aylen,
1988; Chambers, 1988; Rickard, 1988). They
had an extended opportunity to do so, as they
experienced an untypically prolonged period of
run-up to privatization, owing to a number of
technical and political difficulties the Govem-
ment encountered with its privatization pro-
posals (Ogden, 199 1).
The privatization of the Water Authorities in
1989 was part of a wider programme which has
since 1979 reduced the public trading sector to
around a third of its former size. Although policy
objectives for privatization have varied in
emphasis and have developed somewhat prag-
matically during the 1980s (Bishop & Kay, 1988;
Wiltshire, 1988; Veljanovski, 1987; Vickers &
’ In 1989 there were also 29 Statutory Water Companies supplying water, which were already privately owned. These
were reduced in number by mergers to 25 by 1992.
’ With privatization. a number of regulatory functions the Water Authorities had previously carried out such as pollution
control, flood protection, and land draining were transferred to a new public body. the National Rivers Authority.
196 S. G. OGDEN
Wright, 1989; Kay & Thompson, 1988) the
main public justification for pursuing privatiza-
tion has been the Government’s claim that it
will bring greater efficiency and improvements
in the production of goods and services through
more competition and easier access to capital
markets. This basis for policy has been informed
by the Government’s belief that private sector
provision of goods and services is intrinsically
more efficient than public sector provision.
Public sector industries, it is alleged, are less
efficient because they do not experience the
rigours of market forces, have no private
shareholders to satisfy, and face no threat of
bankruptcy owing to the State’s willingness or
obligation to pick up the bill for any losses.
Management in the public sector, with little
market incentive to improve performance, is
viewed as operating “bureaucracies and not
businesses” which leads to rigidity and ineffici-
ency, and an inability to respond effectively to
technological change or changes in consumer
demand (Moore, 1986). For example, the White
Paper on Water Privatization (Cmnd 9734,
1986) argued that the removal of Government
intervention and political interference in the
day-to-day management of enterprises would
improve management performance; access to
private capital markets would make it easier for
enterprises “to pursue effective investment
strategies for cutting costs and improving
standards of service”; and the financial markets
assessments of performance “will provide the
financial spur to improved performance”. It
concluded:
Private enterprise is both more flexible and readier to
pursue energetic and innovative approaches than the
public sector. The demands of the market will give
management and staff the impetus they need to secure
greater efficiency. Freeing the authorities from the
constraints imposed by state ownership will help them
to carry out their tasks with vigour and imagination (para.
38).
The Government’s case for privatization has,
not surprisingly, not gone uncontested. While
profit may be, as the White Paper alleged (Cmnd
9734, 1986, para. 78) “a more effective
incentive than Government controls”, consider-
able doubts were expressed by the trade unions
in the industry and a variety of environmental
and consumer groups about the appropriateness
of a profit-motivated privately owned industry
serving the financial interests of shareholders as
being the most suitable means of providing such
an essential commodity as water and maintain-
ing adequate safeguards against pollution (Ogden,
1991). More generally, difficulties in measuring
efficiency and productivity, and the problematic
nature of making comparisons between public
and private sector enterprises, have led to
debate about the Government’s claim that
private sector provision of goods and services
is necessarily better (Kay et aL, 1986; Utton,
1986; Vickers & Wright, 1989). Some academic
commentators have been especially critical over
the limited extent to which privatization has
actually promoted more competition (Heald 81
Steel, 1986; Bishop & Kay, 1988; Kay &
Thompson 1988; Vickers & Yarrow, 1988).
Opportunities to break up the old public sector
monopolies and create greater competition
have been largely ignored, not least because of
the influence of the Treasury and senior
management within the industries concerned.
The Treasury has been primarily concerned
with raising revenue from the sales of public
assets and was very aware that “monopolies are
worth more than competitive industries” (Kay
& Thompson, 1986). Senior management have
also opposed any restructuring of their indust-
ries. Although in the early phases of privatization
policy some chairmen of nationalized industries
were openly critical of the Government’s policy
(Thomas, 1986) they generally became support-
ive providing concessions from Government
were forthcoming in terms of competition, debt
write-off, and regulation (Hills, 1986; Utton,
1986; Heald, 1989; Vickers & Wright, 1989;
Mitchell, 1990).
In the Water industry, the chances of market
competition were in any case extremely limited,
a view shared unequivocally both within and
outside the industry (Littlechild, 1986; Harper,
1988). Nevertheless, although it did not entail
any significant developments in competitive
WATER PRIVATIZATION 197
market forces, privatization has brought into
operation a new economic regulatory frame-
work for the provision of water services which
provides considerable stimulus to achieve better
performance through the operation of the
pricing formula and “yardstick” competition.
The latter will allow the regulator, the Director
General of the Office of Water Services (Ofwat)
to use the performance achieved by the best
companies as the yardstick to assess the others
in reviewing the price formulae. Opportunities
for comparative judgements will also assist the
scrutiny of management performance by the
financial markets. In response to these impera-
tives management have sought and continue to
seek improvements in corporate performance.
Thus during the 1980s the Water Authorities
were subjected by Government to increased
scrutiny and rigorous demands to improve their
financial performance; to improve their effici-
ency and profitability in preparation for success-
ful flotation as privatized Water plcs; and to
submit themselves to yardstick competition and
comparative judgements by the financial markets.
The ways in which the Water Authorities adopted
new strategic postures as they responded to
these successive changes provide a fertile
research site for exploring the roles accounting
may play in processes of organizational change.
THE CONSTITUTIVE ROLE OF
ACCOUNTING IN PROCESSES OF
ORGANIZATIONAL CHANGE
If, as Day & Klein (1987, p. 2) argue,
accountability “is all about the construction of
an agreed language or currency of discourse
about conduct and performance, and the criteria
that should be used in assessing them” there is
little doubt that the framework for the account-
ability of the Water Authorities, as with much
of the public sector, was substantially trans-
formed in the 1980s. In considering the changes
experienced by the Water Authorities as they
responded firstly to the Government’s financial
controls and then to the demands of privatiza-
tion, the principal focus of this paper is to
examine the use of accounting information
and accounting systems to articulate changing
organizational priorities, and their role in
promoting first “costs” and subsequently “profits”
as vocabularies of motive.
The role of accounting in actively construct-
ing organizational purposes and in rendering
visible the issues, projects, and criteria which
accrue significance in the pursuit of those
purposes has been considered by a number of
authors (Hines, 1988; Nahapiet, 1989; Loft,
1988; Hopwood, 1983, 1987; Miller & O’Leary,
1987, 1990; Neimark & Tinker, 1986, Burchell
et al, 1980). In contrast to the received
orthodoxy where accounting is seen as a passive
and an essentially technical reflection of what
are assumed to be given and self-evident
economic imperatives, attention has been drawn
to the ways in which accounting may actively
constitute a highly partial view of organizational
reality. This serves to emphasize particular
organizational objectives at the expense of
others, and the means by which they may be
pursued. It also helps to shape the perceptions
of organizational members as to what is relevant
or desirable in the light of these objectives. This
pro-active capacity of accounting has been
elaborated in a variety of contexts (Ogden 81
Bougen, 1985; Loft, 1988; Miller & O’Leary,
1987; Boland & Pondy, 1983; Covaleski &
Dirsmith, 1986; Hopwood, 1987; Berry et al.,
1985) and has been a prominent feature of
recent studies of organizational change in the
private sector. Espeland & Hirsch (1990) for
example, in their case study of conglomerate
merger, illustrate the rhetorical power of
accounting as a symbolic system for legitimating
new corporate forms and practices, and Jones
(1992) has charted the changing perceptions
and use of accounting control systems to
improve efficiency following a management
buy-out. These themes have been central to
work which has explored the role of accounting
in recent public sector organizational reform,
particularly the impact of new forms of financial
control (Broadbent & Guthrie, 1992; Dent,
1991; Humphrey & Scapens, 1990; Humphrey,
199 1; Bourn & Ezzamel, 1986). The emergence
198 S. G. OGDEN
of a “new public management” in the public
sector entailed much clearer assignment of
responsibility for action to managers at all levels,
and much greater emphasis on explicit standards
and measures of performance, expressed wher-
ever possible in quantitative terms (Hood,
199 1). Within this process the role of account-
ing changed from its previous concern with
probity, compliance and control to one which
focused on efficiency, effectiveness and cost
savings.
In the case of Water, the constitutive role of
accounting in actively constructing organiza-
tional purposes and shaping new images of
the organization and its relationship with its
environment has been especially evident. In
response to new imperatives to cut costs and
improve financial performance senior managers
have sought to re-focus and improve the ways
in which the organization was governed and
controlled so that much greater salience was
given to the economic implications, particularly
in terms of costs, of management decision
making. Consequently, considerable organiza-
tional resources were devoted to developing
more elaborate management information systems:
developing planning and control mechanisms;
ensuring detailed specification of objectives;
generating more accurate assessment and alloca-
tion of costs to each unit of operational activity;
and introducing performance indicators and
output measures which could be used to
evaluate and compare achievements. Managers
were given new training in management skills
and were subjected to a much more numerate
and performance-based type of reporting and
accountability.
The changing regimes of accountability expe-
rienced by the Water Authorities provide
illustration of what Miller (1989) has termed
the “transformative capacities” of the calculative
technologies of accounting. While generally it
has been argued that the development and
deployment of calculative technologies has
made more possible the government of social
and economic life (Foucault, 1979; Miller, 1989;
Miller & Rose, 1990; Rose, 1990; Miller &
O’Leary, 1987) it is their transformative capa-
cities which, Miller ( 1989) argues, “have enabled
decisive and fundamental changes to be made to
the ways in which individuals plan, evaluate and
reflect on their attitudes” (p. 2). In the Public
sector generally, and Water in particular, the
calculative technologies of accounting have, at
Government insistence, become increasingly
inserted into decision-making processes, replac-
ing alternative and less readily quantifiable
modes of evaluation. In Water, the professional
judgements of water engineers have become
less privileged as the Authorities were actively
urged to become more cost-conscious, and
subsequently profit-conscious. Accounting has
thus been deeply implicated in reconstituting
the objects of management decision making as
the Water Authorities were subjected to much
greater external scrutiny by Government over
their economic performance. The adoption of
more and more allegedly sophisticated methods
of calculation has enabled those charged with
responsibility for managing what were increas-
ingly deemed to be economic resources to
reformulate and reconstitute organizational acti-
vities in ways which give salience to their real
or implied economic rationale. The increased
emphasis attached to costs and cost reductions
to meet Government determined performance
aims resulted in greater management concentra-
tion on the calculation and comparison of costs
in pursuit of efficiency improvements. It also
served to promote cost consciousness as a
mobilizing organizational imperative. Being good
at achieving cost reductions became an organi-
iational objective that competed with the
predominantly engineering judgements about
standards of service that had previously pre-
vailed. The prospect of privatization gave further
momentum to the elaboration of the “vocabu-
lary of costs” (Miller, 1989) as an organizing
rationale for the development of Water Services.
With the accomplishment of privatization the
transformative capacities of accounting were
called upon again as the Water Authorities
sought to transform themselves from Public
Sector bodies to profit-making plcs. Accounting
was involved in generating a different economic
language of organizational motive, as a new
WATER PRIVATIZATION 199
vocabulary of profits was deployed to stimulate
further efforts to become more efficient and to
give effect to their new private sector status.
The acceptance of these successive account-
ing vocabularies and the changing organiza-
tional rationales they articulated, however, by
no means proceeded smoothly nor was easily
attained. Discontinuities in the processes of
change and resistances to their achievement
were evident. This was reflected in senior
management’s continuing efforts to transform
corporate culture from one based on engineer-
ing and operating demands, and notions of
public service to one based on business prior-
ities and customer needs. Examining manage-
ment attempts to change corporate culture
serves to highlight not only the contrast
between perceptions of the “old public sector
post” and the “new private sector future”, but
also the ways in which accounting has been
implicated in the management of the transition.
The remainder of the paper is taken up with a
more detailed examination of these developments
The empirical evidence is drawn from research
based on documentary evidence and interviews
with managers from six of the new Water plcs.
These will be referred to as Alpha, Beta, Gamma,
Delta, Pi and Omega Water. The first section of
the empirical evidence focuses on the effects of
the Government’s financial targets and perfor-
mance aims. The second section examines how
the vocabulary of costs permeated and subse-
quently helped reconstruct organizational ratio-
nales as the Water Authorities prepared for priva-
tization. The third section briefly looks at the new
vocabulary of profits deployed to give effect to
the Water Authorities’ new private sector status.
The final section considers some of the problems
and resistance encountered in these processes
of organizational change through an examination
of attempts to change corporate culture.
GOVERNMENT FINANCIAL TARGETS AND
PERFORMANCE AIMS 198@- 1989
Throughout this period the Water Authorities
were subject to a number of Government
financial controls: financial targets, external
financing limits and performance aims. The
financial target for each Water Authority was
calculated as a percentage rate of return on the
current net value of assets, and was intended to
specify the surplus to be achieved after charging
operating costs and current cost depreciation,
but before charging interest. These financial
targets were first applied in 1981/82. The
external financing limits specified the amount
of finance the Water Authorities could raise
externally by borrowing, and were applied from
1979/80. Performance aims were agreed follow-
ing initial discussions in 1980 with the Secretary
of State for each Water Authority for the period
1981/82-1983184, and were reassessed for
each subsequent three year period. These
performance aims defined targets for reductions
in operating costs in real terms (defined as total
costs before depreciation, exceptional items and
interest).
The development of performance aims is
particularly interesting. The Water Authorities
had begun to report annually a number of
performance ratios in response to the 1978
White Paper on Nationalised Industries (Cmnd
7131, 1978). The intention of the White Paper
was to provide direct measures of operating
efficiency and quality of service. and repre-
sented a further attempt to improve the control
framework under which Nationalised Industries
operated, a process which stretched back to the
1961 White Paper’s (Cmnd 1337,196l) specifi-
cation of financial targets and the 1967 White
Paper’s (Cmnd 3437, 1967) explicit guidelines
on pricing and investment criteria. The perform-
ance ratios reported by the Water Authorities
in 1979 included economic ratios which mea-
sured manpower numbers, capital expenditure,
and operational expenditure expressed in terms
of per head of population equivalent for each of
the main services: water supply, sewerage,
sewage treatment and disposal, and land drain-
age. The new Conservative Government, how-
ever, wished to introduce a much more rigorous
form of performance measurement, and decided
to set performance aims which would require
the Water Authorities to reduce costs. The
200 S. G. OGDEN
Government argued that performance aims
were a necessary complement to financial
targets and cash limits as, given the absence of
competition between Water Authorities, finan-
cial targets could be achieved simply through
raising prices and/or reducing standards of
service rather than through more effective
control over costs. Moreover, the Government
anticipated that performance aims would enable
direct comparisons to be made between Water
Authorities which would provide an added spur
to efficiency improvements. To this end the
government proposed that performance alms
should “be expressed in terms of real costs per
unit of output. Costs could be divided into
manpower costs, other operating costs and
financial costs, and targets would be set for each
of these for the three services: water supply,
sewerage and sewage treatment and disposal”
(Monopoly and Mergers Commission, 1981,
para. 2:35). However, the Water Authorities
resisted these proposals on the grounds that it
was not feasible to set aims in terms of unit
costs. The arguments were summarized by the
Monopolies and Mergers Commission (MMC)
as follows:
The industry argued that output could not bc measured
and that even if it could be measured its costs were
related much more to the size of the system than to the
throughput. As a compromise therefore it was agreed
that performance aims would be expressed in terms of
total expenditure, with background information on
movements in real unit costs measured by expenditure
per head of effective population. Under this measure
demands by industrial and commercial consumerswould
h converted into population equivdents. Aims would
be set for total manpower and other operating costs
(MMC, 1981, para. 236).
The result of this was that instead of enabling
comparisons between Water Authorities to be
made at the same time, the Government had to
be content with performance aims which were
only capable of comparing efficiency over time
within each Authority (Day & Klein, 1987).
The operation of these performance aims
nevertheless had a substantial impact on the
Water Authorities, both in terms of an efficiency
target to be met, and as a stimulus to develop
more precise forms of measurement of costs of
operational activities. Sevem Trent, for example,
viewed the introduction of performance aims as
follows: “Sevem Trent’s “elkiency monitor” is
its performance aims, agreed with Government
. . . It is an attempt to create within the industry
- an almost complete monopoly - similar
pressures for economy and efficiency as those
within private competitive industries . . . In
order to improve the efliciency of its operations
Sevem Trent has progressively been developing
detailed performance measures for evaluating
the actual performance of all the major
processes throughout the region and to assess
changes in levels of performance. This is
essential for management to judge whether a
particular process is being carried out as
efficiently as possible” (Annual Report 1982/83,
p. 23).
In addition to the financial controls and
performance aims set by Government, six of the
Water Authorities were investigated by the
MMC. Following a broadening of ifs terms of
reference under the 1980 Competition Act, the
Government used the MMC to inquire into the
efficiency of public bodies with a view to
ascertaining whether they could improve
their efficiency and therefore reduce their
costs. Typically, investigations concentrated on
financial control, information systems, planning
and control of investment, use of manpower,
and the effectiveness of manpower operations.
The first of these external audits for the Water
Authorities involved Severn Trent in 1981
(MMC, 198 1). The criticisms made in the report
give some indication of the agenda confronting
the Water Authorities in their attempts to
satisfy Government expectations of efficiency
improvements: the budgetary system was
deemed too slack, and management too slow
in incorporating appropriate performance
indicators in its budgetary system; insufficient
attention was given to the need to achieve
substantial savings in manpower costs; too
low a priority was accorded to cost saving
investment; weaknesses were identified in
investment appraisal methods and procedures
related to issues such as the use of economic
WATER PRlVATIZATlON 201
TABLE 1. Water Authorities and Government financial
controls
1983184 1988 1989
Yorkshire Water
Financial target
Specified rate of return 1.25% 1.7 % 1.85%
Actual rate of return 1.65% 2.39% 2.01%
External financing limit
Specified limit d30m 621.5m L15m
Actual limit E29.7m 623m L7.3m
Performance aims
Specified amount ti8.5m ;El19.9m L118.7m
Actual amount &68.7m 6118m &117.7m
(1979180 (1985186 (198516
prices) prices) prices)
Sevem Trent
Financial target
Specified rate of return
Actual rate of return
External financing limit
Specified limit
Actual limit
Performance aims
Specified amount
Actual amount
1.25% 1.95% 2.45%
1.62% 3.17 2.81%
Eb6.3m 62.4m’ 616.5m’
&66.3m 52.2m* E16.6m*
Si114.4m E196.2m E198.5m
M15.7m E194.4m 6194.4m
(1979180 (198586 (198586
orices) orices) orices)
l Net repayments.
Source: Annual Reports,
TABLE 2. Water Authorities and profit on ordinary activities
(after interest) in 6 millions 1985-1989
1985 1986 1987 1988 1989
Anglia
Northumbria
North West
Severn Trent
Southern
South West
Thames
Welsh
Wessex
Yorkshire
21 37 52 59 73
0.1 3 7.1 10.8 6.9
(26) (7) 9 25 44
(18) 39 52 97 98
22 36.9 47.3 59.3 65.1
20.6 23.9 28.1 33.5 38.1
(y92.8) 144 (3.5) 151 11.9 181 16.4 207 24.9
9.9 15 21.5 25 24.1
18 22 37 57 56
Source: Water Share Prospectus (November 1989).
techniques, adequacy of the database, and
evaluation of benefits; the level of capital
expenditure was not fully justified on economic
grounds; corporate planning procedures
required improvements; and the operating
divisions enjoyed too much autonomy so that
“Headquarters does not, and with the present
reporting procedure and lines of responsibility,
cannot control and monitor the operations of
the Divisions to the degree desirable for
efficiency and cost savings” (MMC, 198 1, para.
11: 165). Subsequent reports on Anglia, North
West, Yorkshire, Southern and Welsh Water
were consistently encouraging of management
to exploit to the full the scope for cost
improvements.
Prompted by such criticism and Government
demands for greater efficiency, the Water
Authorities were generally successful in meeting
the targets set by Government. For illustrative
purposes the examples of Yorkshire Water and
Sevem Trent may be considered. They achieved
all their set targets (Table 1). During the period
1984-1989 profits also increased for all the
Water Authorities (Table 2). Some caution is
necessary in interpreting these profit increases
since in part they were the result of Government’s
action in both increasing performance targets
and putting up prices by requiring a higher
current cost rate of return. Nonetheless they
also reflected improvements in efficiency, and
some of these are examined further below.
Perhaps the most significant event, however,
influencing the Authorities’ pursuit of Govern-
ment performance targets was the installation
of new boards brought about by the 1983 Water
Act.
The original boards of the Water Authorities,
set up in 1973, had consisted of members
appointed by the Secretary of State and members
appointed by Local Authorities who had
previously been responsible for many of the
water undertakings now operated by the Water
Authorities. In effect the Water Authorities were
“part nationalised industry, part local authority”
(Day & Klein, 1987, p. 145) with the result that
“the membership of each board was of a hybrid
nature expressing a tension between the desire
for a modicum of local accountability and the
requirements of technological expertise and
efficiency” (Sheldrake, 1988). The 1933 Water
Act replaced these with much smaller boards
with all members being appointed by the
Secretary of State. The role of consumer
representation, which previously was assumed
202
Background of
board members
S. G. OGDEN
TABLE 3. Composition of boards of privatised Water plcs
Board members
(excluding non-executive Non-executive
Chairmen directors) directors
Private Public Water Private Public Water Private Public Water
Date of appointment
to Board of Water
Authority plc
1974-1982 2 I 1 - 1 - 4 1 -
1982-1987 5 1 - 3 3 3 11 7 1
1987-1990 - - - 12 4 12 19 - -
Total IO 38 43
Source: Prospectus of Water Share Offers.
would be performed by the Local Authority
appointed board members, was now vested in
separate consumer consultative committees.
The purpose underlying the reconstitution of
the boards was unambiguously clear: it was
to make them “more business-like” (White
Paper, 1986). Harper (1988, p. 217) Managing
Director of Thames Water, commented that it
was done “with the overt purpose of bringing
a more commercial style of management to the
Water Authorities aimed largely at sharpening
their managerial efficiency and their reaction to
the needs of customers”. To this end a number
of new chairmen and board members were
brought in, with the majority being recruited
from the private sector. This process continued
up to privatization in 1989, and the extent of
this can be seen from Table 3. The backgrounds
of the 9 1 board members were 56 (61% ) from
the private sector, 18 (20% ) from the public
sector, and 17 ( 19% ) from the Water industry
itself The bulk of the non-executive directors
come from the private sector: 34 of 43 (79% ).
A majority (58% ) of board members excluding
chairmen were appointed in the period
1987-90: this was particularly marked amongst
executive board members (74% ).
In the case of Severn Trent, for example, the
board had consisted of 48 members: I6 were
appointed by the Secretary of State, four by
the Ministry of Agriculture, and 27 by Local
Authorities. This was reduced to 14 after 1983.
In the case of Yorkshire Water Authority, the
board had previously consisted of 28 members:
nine appointed by the Secretary of State for the
Environment; three appointed by the Ministry
of Agriculture, and 16 by Local Authorities. The
new board consisted of 13, all appointed by the
Secretary of State for the Environment. In setting
out what would now be regarded as the new
board’s “mission statement” the new Chairman
stated that “the new board has been charged
with conducting its affairs as much like a
business as possible” (Annual Report and
Accounts, 1983/84, p. 5). Although the board
wished to maintain standards of service to
the public, its main priorities in 1984 were
expressed in terms of “monitoring and
improvement of management performance”;
“containing its charges increases to within the
rate of inflation”; “improving efficiency”; and
“reducing operating costs” (Annual Report and
Accounts 1983/84,passim). The significance of
these changes was appreciated by the Monopoly
and Mergers Commission in its report on
Yorkshire Water. It observed that “the Authority
has been going through a period of great change
from an organisation orientated towards the
concept of administering a public service to one
which is in the business of providing water
services and where performance aims are a
partial surrogate for competition” (MMC, 1984,
para. 2:9). It also noted appreciatively that “the
Chairman has clearly given new impetus to the
Authority’s drive for greater efficiency, with the
support of a slimmed down Board which in
WATER PRIVATIZATION
203
composition reflects a greater emphasis on
relevant business experience than the old
Authority, and which sees one of its principal
roles as that of monitoring the performance of
the Executive” (MMC, 1984, para. 2:6).
VOCABULARIES OF COST: THE QUEST
FOR EFFICIENCY IMPROVEMENTS
Amongst all the Water Authorities there is a
constant reiteration throughout the period
1984-1989 of the importance of reducing
costs in management’s pursuit of efficiency
improvements. From this there emerges an
elaboration of a “vocabulary of cost” (Miller,
1989). This vocabulary of cost provided the
basis for an economic language of organizational
motive which subsequently informed the
construction of new operational concepts of
accountability, and performance measurement.
Priority objectives were seen in terms of
“reviews of operating costs”, “cost saving
investment programmes” and “close examina-
tion of the potential for further cost savings”.
Better management information systems, new
performance measures, cost base reviews, new
methods of budgeting, more rigorous business
planning, more efficient use of chemicals and
energy, the introduction of new technology and
reductions in manpower were all extolled
as a means of securing reductions in costs.
Achievements and measures of performance
were reported in terms of cost savings: for
example, at Delta Water the 1986 annual
report announced that the Authority’s “tight
management of costs has enabled us to pass
efficiency gains on to our customers”; that
“there will be a continuing reduction in
operating costs as we run the business
more economically”; and that “reductions in
manpower numbers and more efficient use of
manpower have been critical to our success in
reducing operating costs”. Subsequent reports
contained similar statements. Providing better
services was similarly translated into securing
greater organizational control over costs: at
Delta Water, for example, the objective was to
“provide an acceptable level of service for our
customers at the least possible cost” (Annual
Report, 1986). In Alpha Water one highlight of
the financial year for 1987 was reported as
“operating and manpower costs falling in
real terms”. It was also stated that “Further
reductions in operating costs is a realistic
expectation for our customers as we continue
to run the business more efficiently.” In 1989
the Chairman reported that “through increased
efficiency we have been able to contain the cost
effects of improving standards. Over the last five
years, we have reduced net operating costs by
over &8 million p.a. in real terms” (Annual
Report, 1989). The board’s strategy at Alpha
Water for achieving the targets set by Government
was summarized in a review of future plans in
1988. It stated that “Over the past 5 years we
have achieved a major shift in our organisational
culture to one that is now more responsive to
the business needs of modern water service
utility”, and that “our strategy is based
on reducing operating costs through the
introduction of new efficiency initiatives”
(Company Document). The means used to
pursue this were reflected in the commitment
to the following objectives: focusing on serving
customers; rigorous control of costs; achieving
“more for less” in capital investment; improved
management information and communication
systems; integrated business planning linking all
aspects and levels of the organization; encourag-
ing greater delegation and acceptance of
properly assessed responsibility and budgetary
control; restructuring to reflect changing needs
of the organization; and training of managers and
employees. Some illustrations of how these were
realized are given below.
Restructuring
Alpha Water had already begun before
1983 a reorganization of its finance function,
centralizing it at regional level. Shortly after the
appointment of the new board, a major
corporate reorganization took place, which
reduced the number of operating divisions from
8 to 5. The main aim of this reorganization was
to introduce better management information
204 S. G. OGDEN
systems and tighten up regional controls
of operations, thus limiting the considerable
autonomy divisions had previously enjoyed.
Planning and management contd
A number of initiatives revolving around the
introduction of business targets and monitoring
performance against them were taken to
improve the planning and management control
process. Under the umbrella of a new process
termed CRISP (Control of Resources and Initia-
tives in Systems and Planning), developed by a
senior management group, a number of priority
development areas were identified. These were:
levels of service; performance indicators/unit
costs; Cost Base Reviews; manpower reporting
and control systems; new approaches to revenue
budgeting; divisional planning; and capital
project development. The questions of levels of
service, performance indicators and unit costs
were considered by multi-disciplinary teams.
The resulting reports enabled the development
of unit cost measures so that one operating
unit could be compared with another. Where
differences were found, procedures were
triggered for setting up a Cost Base Review, thus
facilitating the identification of opportunities for
cost reduction. These new performance and
cost measures were also used to establish a more
rigorously programmed planning process at
divisional level providing output and input
target. for operating management. An annual
performance review was introduced to establish
current performance levels, and operating unit
plans were prepared to set target performances
for the next financial year. This entailed
delegation of planning and controlling budget
and performance targets to 250 budget respon-
sible managers. The revised planning process
now enabled measures of operational activity to
be targeted on a more controlled basis. Equally,
improved reporting and monitoring systems
enabled more scrutiny of the levels of service
actually provided and the associated capital
manpower and revenue implications.
These initiatives also contributed to improving
the effectiveness of the investment programme.
The Authority grouped related areas of activity
within the major services into 20 key areas. For
each area target standards, indicating the stan-
dards the Authority “intended” to achieve, and
minimum internal operating standards, indicating
standards currently attainable with existing
resources, were determined. The di.Eerence
between the two enabled the cost of the
additional resources required to be identified
more accurately. The impact of these initiatives
was celebrated, for example, in the 1987 Annual
Report in terms of “a new style of management
fashioned by discipline of business planning”; a
“sharper assessment of priorities against defined
and published service standards and service
deficiencies”; and “a change in operational style
which has encouraged greater delegation and
acceptance of properly assessed risW.
Manpower savings
The most important of the cost reduction
initiatives was the system of Cost Based Reviews.
Once these had identified potential cost
reductions, action plans were formulated to
achieve them. They covered a variety of areas,
but there was little doubt that from the
perspective of meeting performance aims on
operating costs the main source of cost savings
lay in reductions in manpower (see Table 4).
New or revised bonus schemes which entailed
reductions in manning levels at works and
depots were introduced. Productivity agree-
ments under the umbrella title of Management
of Change Agreements secured unions’ agree-
ment to more efficient use of resources in
the areas of working methods and practice,
frequencies of operation, standards of service,
and manning levels. The introduction of new
computer-based technology in the field of
pumping, water treatment and sludge recycling
enabled further manpower savings, as did the
regional telemetry scheme which introduced
remote monitoring and control facilities to over
1000 operational sites across the Authority.
There was also an increase in the use made of
contractors. There was a policy commitment to
use contractors where this proved to be the
most efficient method of working, and to do so
even where there was no clear evidence of a
WATER PRIVATIZATION 205
TABLE 4. Performance aims data showing importance of manpower costs
Operating expenditure
relevant to performance
controls 1982l83 19831’84 1985B6 1986ftV 1987 1988 1989
Manpower costs 49,457 49,934 51,577 52,337 53,991 56,900
Hired and contracted
services 8602 8552 10,408 10,978 13,231 11,895 16,200
Other costs 57.89 1 55.619 58,654 62,282 63.299 61,909 71,100
Total 115,950 114.105 120,639 123,938 128,867 127,795 144,200
Manpower costs as % of
total 42.7% 43.8% 42.8% 40.9% 40.6% 42.2% 39.5%
Hired and contracted
services as % of total 7.4% 7.5% 8.6% 8.9% 10.3% 9.3% 11.2%
Source: Annual Reports.
cost differential in order to keep the numbers
of permanent employees employed by the
Authority as low as possible. Steps had been
taken to improve management information so
that tbe cost performance of direct labour acti-
vities could be systematically compared with
contractors’ costs, and to review areas of activity
where contractors had not been previously
used. As one manager commented: “we are now
in a better position to do that. I think under the
local government type of accounting systems
that we had it was almost impossible to come
out with genuine job costs” (interview).
The cumulative effects of these attempts to
cut manpower resulted in a 20% reduction in
manpower between 1984 and 1989. These
reductions were highlighted in successive
annual reports as evidence of success in securing
cost reductions: for example, in the 1989 Annual
Report the Chairman said in referring to cost
reductions that “a significant contribution to this
has been in manpower savings. We now employ
around 20% fewer people than in 1984.” This
was the product not only of the efficiency drive
into the cost base of the organization, but also
of changes in management attitudes which
reflected the impact of the vocabulary of costs
on their perceptions of what was now “organiza-
tionally” important. The follpwing comments of
a senior operations manager are Mustrative:
There was a much more integrated and co-ordinated
business planning process introduced with the new
Chairmao, a whole new focus in terms of the business.
We had a Chairman’s Conference as an annual event
where they reviewed the performance of the previous
year and looked at the challenges of the future. At the
first one the new Director of Water Services stood up
and said “I’ll be setting targets for you managers to agree
and then achieve and primarily they will all he head-
count based” and then he mentioned some astronomic
-
ar that time perceived as an astronomic figure -
several hundred bodies fo come out in the fvst year. We
all came out and said “crackers”, “terrible”, “no way”,
“how can you lose that number of people”, “the service
will collapse? But within a year we were focusing on
not just manpower head counts as such. hut where can
we improve service. where can we improve efficiency,
what needs to be done? We become a very very focused
organisation (interview).
Similar developments occurred in the other
Water Authorities. In Pi Water, for example, the
board had instigated as part of the corporate
planning process a series of key issue studies.
These initially focused on issues such as
performance measurement, new technology
and management information. They were
extended to focus explicitly on cost reduction
strategies, which involved re-assessing the
frequency with which operational tasks were
undertaken, revenue saving investment, and
energy use. At Beta Water cost savings were
targeted through a series of action plans
involving the introduction of new technology
and capital investment. Budget Base Reviews
were introduced “as a way of comprehensively
examining the budget base by setting out a
programme to examine different major areas of
206 S. G. OGDEN
expenditure over a number of years” (Corporate
Plan, 1986). Improvement to systems for
capital investment planning and monitoring the
capital programme were made. Corporate
reorganization was also undertaken, accom-
panied by a wide ranging review of the
management structure to improve performance.
At Gamma Water achieving service objectives
at least cost, reducing manpower and operating
costs, and developing techniques for assessing
and monitoring cost effectiveness were all stated
as principal objectives. In its 1985 business plan
Gamma Water stated that it “is committed to
developing systems and procedures to ensure
it operates as an efficient business and is able to
define and monitor effectively its performance”.
To this end a new management information and
control system was introduced to improve
performance measurement, and control com-
parison. The Integrated Business Information
System, as it was called, offered 225 measures
of effectiveness in achieving objectives, and
163 measures of efficiency in terms of how
economically objectives are being met. In its
1987 document “Operating Costs: Problems and
Plans” the major sources of cost reductions
were identified as “the drive for manpower
efficiency”, “the introduction of new technology”,
and the “successful implementation of a new
customer accounts system”. Manpower efficiency
was to be achieved through more effective unit
business plans, regional reviews on specific
subjects, and local reviews by divisions or
departments, including productivity payment
systems. Central to this was the “Measures
To Improve Operational Efficiency” initiative
(MTIOE). Its objectives, agreed with the unions,
were to achieve an initial plan for manpower
reduction and create an environment for
continually increasing labour efficiency. MTIOE
measures accounted for 56% of planned savings
in performance aim related operating costs for
1987188, 50% for 1988189 and 33% in 1989190.
All the Water Authorities secured substantial
manpower reductions, as shown in Table 5. It
was inevitable that the major burden of meeting
the Government’s performance aims would fall
on achieving savings in labour costs, as they
TABLE 5. Changes in manpnwer in the Water Authorities
1985-39B9
1985 1989 % Change
Anglia 5684
Northumbria 1812
North West 7991
Sevem Trent 9264
Southern 3358
South West 2054
Thames 10,748
Welsh 4793
Wessex 2014
Yorkshire 5851
5098
1434
7561
7757
3122
1876
B977
4196
1844
4B63
10
21
5
16
9
17
13
8
17
Total 53,569 46,728 13
constituted the largest element in controllable
operational costs. At Alpha Water management
decided that half of the cost reduction required
to meet performance aims agreed with the
Department of the Environment would be met
by reducing manpower. The Annual Report and
accounts for Delta Water in 1983184 drew
attention to the fact that “manpower costs
account for some 45% of our operating costs
- over three times as much as any other single
element. Reductions in numbers are therefore
a crucial factor in reducing overall costs.” One
major way in which the Authorities were
encouraged to save labour costs was to increase
the use of contractors. Contractors had always
been used for capital works schemes, and to
supplement the direct labour force to even out
peaks in activity on work such as mains laying,
repair and maintenance. But, as Davidson ( 1990,
p. 534) demonstrates in her study of “Albion”
Water, the use of contractors in the 1980s
increased and was extended to other areas:
during the period 1983-1989, Albion Water’s
expenditure on hired and contracted services
as a proportion of expenditure on all manpower
rose from 21.5% to 34%. This, Davidson ( 1990,
p. 533) argues, served a dual function: “Not only
did Albion cut costs by getting some services
cheaper from outside firms, it also made other
groups of direct labour feel more exposed and
vulnerable, and so more ready to acquiesce to
cuts in manning levels and other cost cutting
‘work rationalisations’.” This experience is by
WATER PRlVATlZATlON
207
no means unique to AIbion Water: similar
developments occurred in other Water
Authorities. A senior manager at Gamma
Water, for example, discussing productivity
improvements over recent years, commented:
We have increased the use of contractors quite
significantly and with our own in-house workforce
we have been able to get through changes in working
practices, particularly in mains and service laying which
has enabled the in-house workforce to become more
competitive What we have said is: look we can’t
continue in-house activities if those in-house activities
are demonstrably more expensive than contractors. So
we have used that comparison to make sure that we’ve
introduced changes in working practices which have
certainly improved our cost levels to the extent that
certainly in most of our divisions now we are cheaper,
and we can be demonstrated to be cheaper and more
effective than contractors.
This echoes Alpha Water’s use of contractors,
and comparisons with their costs, to achieve
cost reductions noted above. It is a marked
departure from previous practice, as typified
in Sevem Trent’s account of its policy on
contractors in I980 (MMC, 1981). This was
informed by the need to maintain an adequate
level of in-house labour to cater for operational
needs in times of emergencies such as floods,
mains bursts or power failures. From day to day
“this necessary labour force is employed in
carrying out many tasks which might otherwise
be put out to contract. It is this level of
operational need which dictates the relation-
ship between ‘in-house’ and bought-in services
rather than economic expendiency” (MMC,
198 1, para. 11: 130, emphasis added),
VOCABULARIES OF “PROFIT”:
PRIVATIZATION AND NEW IMPERATIVES
FOR CORPORATE PERFORMANCE
During the pre-privatization period manage-
ment saw cost reductions as a key performance
indicator and corporate objective, all of which
was articulated through a vocabulary of costs.
With privatization the Water Authorities had to
transform themselves from public sector
bodies concerned with containing costs to
private sector plcs pursuing profitability.
The Government had already celebrated the
potential of the Water Authorities to be
successful private sector enterprises in its 1986
White Paper on privatization: they were
hailed in terms of their “improved financial
performance”, and their transformation into
“ten modern businesses”; and were deemed
“capable of standing independently as com-
mercially viable entities” (White Paper, 1986,
paras 38,35). But it was only when privatization
became effective in 1989 that the Water
Authorities themselves felt able to re-formulate
their objectives in terms of the private sector
vocabulary of profitability. At Delta Water the
objective of providing customers “with a good
level of service at least possible cost” became a
commitment to securing “profitable efficiency”
(Annual Reports, 1986, 1989). In its 1990
report, the chairman’s statement announced
that “A high level of profitability is essential to
the business in order to help finance our large
investment programme. Our charges for water
supply are the lowest of the ten privatixd
companies, and for all services, the second
lowest - yet we achieved the bigbest water
sector pre-tax profit” (p. 2, emphasis added).
At Alpha Water the strategic aim “to achieve
performance aims set by Government”
(Corporate Plan 1988/89) has been @aced
with “to increase profits annually” in line with
specific targets over the next 5 years (Corporate
Plan, 1990/91). Accounting controls and
measures were now used to promote profit-
ability explicitly, as epitomized by the replace-
ment of cost centres by profit centres. The
comments of senior managers are indicative of
the changes involved. The Personnel Director
at Alpha Water, for example, said:
What you had before was a performance aims regime
which was a cost cutting exercise. What you have been
doing in the past you’ve got to do a lot better for a lot
less money. And we had one task master, which was the
Government. We had to make those cost savings and
demonstrate that we were doing it. The attitude now is
“we are in the big world now”: we are competing and
therefore our policies must be geared tn being able to
survive in the big world.
At Delta Water similar sentiments were
expressed, as the interview extract illustrates:
asked about the significance of privatization the
manager replied:
Senior Manager: It’s important because it’s started to re-
focus the objectives of the business.
S: In terms of re-focusing on the objectives, in terms of
projecting yourselves as a viable successful private
company, how important is profit now?
Senior Manager: It’s important. I mean let’s not be
apologetic. We are in the business of showing a healthy
growth in profit. 90% of our employees are also
shareholders, so presumably they don’t totally object to
that either.
At Beta Water, a senior manager commented as
follows:
The focus of what the business is doing now is very
different to the focus it had as a public authority We
are spending more time than ever in examining precisely
what we do as a business, what are our core activities
which relate to that part of the industry which is covered
by the regulatory framework. And we are looking at
other things like the opportunity for commercial
development and so on where the priorities are
more to do with profit and looking at sbareholders’needs
It’s a whole new risk taking, profit making
entrepreneurial Ravour to what we are trying to do, and
far more attention to controlling costs and going for
maximum efficiency and flexibility. There was some of
that before. but the whole base of it has raised
considerably over the last 12 months.
The impetus provided by privatization,
however, for achieving these new objectives
flows largely from the new regulatory frame-
work rather than directly from the unfettered
operation of market forces. In the Water
Industry the chances of market competition
were extremely limited. Littlechild (1986) in
his assessment of the need for regulation after
privatization, acknowledged that the Water
Industry was largely a natural monopoly and
that although there was the possibility of
competition in the capital market, competition
2og S. G. OGDEN
was not an alternative to regulation, Within
the industry the prospects for competition
subsequent to privatization were viewed
unequivocally. Roy Watts (1987), Chairman of
Thames Water, and a keen supporter of privatiza-
tion, argued that competition was “neither
practical nor economically realistic”. W. R
Harper ( 1988) managing director of Thames
Water, stated that “The services of water supply,
sewerage and sewage disposal are clearly
monopoly services, and there is no prospect of
creating any form of mainstream alternative
provision in order to secure the benefits of
competition for the consumer and the public at
large. The Water Industry privatization cannot
be about producing a competitive environment”
(p. 78). The only scope that has emerged so far
has been in activities outside the core provision
ofwater services. All the newly privatized Water
companies have set up subsidiary companies to
promote non-core commercial activity. To date,
this has largely been confined to consultancy on
water engineering issues, tourist activities,
waste management and plumbing services.
Although they may expand, these activities
currently only account for a minor part of their
overall business.
However, despite the lack of market competi-
tion, the new economic regulatory framework
has the potential to provide considerable
stimulus to improve economic performance.
Economic regulation will be the responsibility
of the Director General of the Office of Water
Services who is charged with ensuring that the
Water plcs are able to finance their operations
by earning “reasonable” returns on their capital,
promoting efficiency and protecting customers
with respect to prices. Like British Telecom and
Gas, the principal form of control is price
regulation. Charges for water services will be
controlled by the Director General on a similar
basis to other regulated privatized utilities,
except that in the case of Water the formula is
RPI plus K formula.3 The K factor, which is
assessed separately for each Water plc on the
’ In the first instance the K factors were set by the Government and were announced in August 1989.
WATER PIUVATIWTION 209
basis of investment requirements, operating
costs and revenues, and an efficiency target, is
set for ten years, but was subject to a major
review after the first five years in 1994.
This pricing formula provides incentives to
management to reduce costs as a means of
enhancing profitability. Unlike Gas and Telecom,
management will experience further pressures
to be ‘efficient, as the Director General has the
opportunity to make comparisons between
the 10 Water plcs, and the 25 Water-only
companies. The opportunity for comparative
judgements about performance will enable the
regulator to operate “yardstick” competition,
whereby each company’s allowed price increase
under the K formula is related not to its own
costs, but rather to the costs achieved by
the most efficient companies in the industry
(Littlechild, 1986; Kay & Vickers, 1988; Cowan,
1994). Despite technical difficulties in opera-
tionalizing the econometric modelling required
for this “yardstick’ competition, and the
problems in measuring outputs and costs
particularly in the light of the variety of
geographical differences between the Water
plcs (Price, 1993) Ohvat worked towards
having to have a system of comparative competi-
tion ready for its fust major review of the K
factors in 1994. Under this procedure no single
company will have any incentive to hold back
on improving performance for fear it will
jeopardize the prices and profits allowed to it
in the future. On the contrary, failure to maintain
comparable efficiency to the rest of the industry
will have definite adverse consequences, not only
from the Director General, but also Tom financial
markets, which will no doubt also take full
advantage of the opportunities for comparative
judgements about management performance.
Thus the limited basis for previous comparisons
which was confined to assessments over time of
the same company have now been elaborated
to enable comparisons between companies at
the same time. The comments from a senior
operations manager at Alpha Water succinctly
summarize the issues confronting managers:
’ Her Majesty’s Inspectorate of Pollution.
We were already operating very much in our commercial
mode, we were looking at making assets sweat, we were
looking at customer service standards, and we were
looking very closely at our operating costs but I think
once the Director General gets his feet under the table
he will be looking at comparative competition and then
the pressure wig start to come on the companies. Why
can X do sludge disposal at half the price they do it in
Y. There might be very good technical reasons why that
is, but the question wig be asked and if there isn’t a
satisfactory answer then at the next K review they’ll look
at your operating costs, so instead of 14% year on year
efficiency it might be 3%.
The incentives to pursue profitability, however,
will be tempered by constraints emanating
from elsewhere in the regulatory regime. The
Director General is also responsible for :t wide
range of measures of standards of service and
customer care; the Secretary of State for
Environment has responsibility for regulating
drinking water quality; Her Majesty’s Inspector-ate
of Pollution has responsibility for monitoring
sewage sludge disposal; and the National Rivers
Authority is now responsible for environmental
regulation including the management of water
resources and control of water pollution as well
as duties in respect of flood defence, fisheries,
recreation and navigation. In addition, Water
plcs are subject to regulations originating from
EEC directives and legislation. Although it is
difficult at this early stage to assess the rigour
of this new regulatory regime, Water plcs are
likely to be politically sensitive to the threat of
intervention from the regulatory agencies, since
environmental and quality of service provision
issues were the focus of major controversy in
the privatization of the Water Authorities
(Ogden, 1991). Moreover, failures to comply
with regulatory standards may well be viewed
as management incompetence. As one senior
manager at Delta put it:
You can’t say you are a successful water business if you
are getting a bad go from the Director General; if you
have got HMIP’ writing bad reports about you; if you’ve
got NRA prosecuting you there are mechanisms out
there that could be painful to our business if we got it
too badly wrong in those sort of areas.
210 S. G. OGDEN
Compliance with regulatory standards is
seen as strategically important in projecting a
company’s professional competence and tech-
nical expertise, both of which are essential to
overall financial success. Quality issues are seen
as an important competitive arena (Foster, 1992;
Ofwat, 1991) and failure to do well on the
appropriate performance indicators is likely
to have adverse effects on the City’s and
the Director General’s judgements about mana-
gerial effectiveness with the attendant implica-
tions for K setting and share price. Consequently,
all the plcs have introduced some form of total
quality management initiative. Quality issues
have also been prioritized in employee training
programmes and have been at the centre of new
bonus schemes where bonus payments are
geared to achieving quality standards as defined
by regulators. Quality is no longer a matter of
engineering judgement, but is now a business
objective, a fact reflected in numerous mission
statements, business plans, and customer aware-
ness programmes. Quality issues are also being
integrated with accounting systems. At Alpha
Water, for example, management have empha-
sized the need for close monitoring of perfor-
mance to ensure specified levels of service are
met and have determined that regulatory
standards are to be used consistently in the
planning process so that targets for operational
performance measures may be based on regula-
tory requirements wherever possible.
The regulatory framework also has profound
implications for the capital programme. The
long-term objectives set for achieving the
required levels of service essentially determine
the future investment programme. To meet
these objectives each Water plc prepared an
investment programme, which then formed a
key criterion for the setting of the K factor in
the pricing formula by the Director General
of Ofwat. Some of the objectives such as
the requirements on bacteriological issues,
treatment and distribution standards, com-
pliance with sewage works discharge consents,
the European Community’s directives on bathing
water and disposal of sewage sludge to agri-
cultural land, and river quality objectives are
statutorily prescribed and are regarded there-
fore as mandatory. While other objectives may
be discretionary, once they have been declared
as part of the capital programme and therefore
counted in the assessment of the K factor, the
company is committed to achieving them. All
the companies are required to carry out their
declared capital programmes and to give reasons
for any departure from them. The capital
programmes formulated in 1989 provide the
basis for the first five years of investment
expenditure. They can only be changed as a
result of an agreed adjustment in K by the
Director General either as part of a full periodic
review, or as part of an Interim Determination
of K, which may occur at any time to take
account of certain defined increases in costs,
such as those incurred in the compliance with
legislation unforeseen at the time of the periodic
review.5 The declared capital programme is thus
the reference against which a company’s
actual capital programme performance will be
measured. Any differences between out-turn
expenditure and the investment programme
will have to be explained to the Director
General. Companies are also very aware that
their management of the capital programmes
will be closely scrutinized by the City. In view
of this, management in all the Water plcs now
attach high priority to completing agreed
programmes of work on time and to cost. To
this end, various initiatives have been instigated
to improve monitoring and reporting on
physical and financial progress. Clearly, all these
pressures stemming from the Director General’s
yardstick competition on costs, meeting quality
standards, and delivering the capital programme
on time will necessarily involve management
in further elaboration of their accounting
information systems.
WATER PRIVATIZATION 211
THE SHOCK OF THE NEW?:
PRIVATIZATION AND THE
TRANSFORMATION OF CORPORATE
CULTURE
The pro-active role of accounting in shaping
organizational change was also apparent in
senior managers’ attempts to change corporate
cultures in ways which supported the achieve-
ment of new organizational purposes. Although
Dent (1990) in his review of the literature
on strategic change, indicates that generally
strategic re-orientations appear to happen in-
frequently, with much strategic decision making
amounting to little more than elaboration or
refinement of existing strategies, there is little
doubt that the proposals for privatization
officially announced in 1986 and their realiza-
tion in 1989 necessarily involved the Water
Authorities in processes of strategic change. In
particular, the transfer to the private sector
through privatization and the new imperative of
profitability would constitute a profound trans-
formation of organizational rationale. Although
the new more commercially oriented boards
appointed by the Secretary of State in 1983 had
deliberately given a much greater emphasis to
running the Water Authorities as businesses, this
development was manifestly intensified with the
preparations for privatization. One aspect of this
is related in the extent to which senior
corporate management have been conscious of
the need to reconstitute corporate culture in
ways which are commensurate with the new
reality confronting the Water plcs. In seeking
to foster in managers and employees new
values of customer care, innovation, flexibility,
enterprise and competitiveness, corporate
management have sought a shift in the Water
Authority culture from one based exclusively
on engineering and operating demands and
notions of public service to one which gives
greater salience to business priorities and
customer needs.
The public sector culture revolved around
engineering and operating imperatives with a
strong emphasis on maintaining high standards
of service provision to the public. Its origins in
the water industry may be found in the latter
part of the nineteenth century when water
services were taken into public ownership and
came to be viewed as one of a number of
necessary services to be provided by municipal
Local Government authorities. In 1973 when
the industry was reorganized, the organizational
logic underpinning the geographical boundaries
of the new Water Authorities was that of
integrated river basin management, an engineer-
ing concept based on the notion that one
Authority should control one or more natural
river systems so that they could control all the
water services provision within each river
catchment area. These arrangements “have
largely been regarded as a technical operational
and scientific success” (Harper, 1988). The
commitment to the engineering concept of
integrated river basin management is reflected
in the response of the Water Authorities to
the Government’s White Paper proposals for
privatization (White Paper, 1986). While they
“were dissatisfied with aspects of the current
financial framework within which they have to
work’ and “were looking for greater managerial
freedom” they stated that they “would be most
strongly opposed to changes which put at
risk the benefits embodied in the 1974
reorganization of the industry . . The Water
Authorities believe it is vital to preserve the
principle and practice of overall river basin
Management” (Water Authorities Association,
1985).
Despite the changes in the board structure of
the Water Authorities in 1983 there was still
some reluctance to endorse the Government’s
privatization proposals when they were first
announced in 1985. While some chairmen were
enthusiastic advocates such as Thames’ Sir Roy
Watts, others like George Mann of North West
were opposed (Water Rulletin, 10 May 1985).
Len Hill, Chairman of South West, said he
“was not convinced on privatisation” and was
concerned that “the proposals would lead to
diminution of the service” (Water Bulletin, 17
May 1985). Such concerns were by no means
confined to senior personnel, and many middle
managers were sceptical of the rationale for
212 S. G. OGDEN
privatization articulated by Government. Harper
noted that until recently water services were
seen within the industry as essentially “part of
the local portfolio of community provisions
funded by the local property tax from the rates”
and that “there are still many people who
believe there is something wrong if such
services are provided ‘at a profit”’ (Harper,
1988, p. 224). Moreover, there were criticisms
that the Water Authorities’ effectiveness in
achieving efficiency improvements and cost
reductions had not been matched as regards
provision of services. Herrington ( 1989), for
example, quotes the following extract tiom an
internal report to the Board of Anglian Water.
The lower operating costs have produced no detectable
benefits for customers in terms of charges and have
reduced service levels. Service levels are important. It
is easy to save money be ceasing to do things. . . Possibly
too much effort has gone into simply reducing costs
without a proper assessment of the impact on the service
provided we have not considered service levels
explicitly enough.
Outside the industry, critics were sceptical of
the Water Authorities’ capacity to improve
standards, given the effect of the Government’s
tight financial controls and what the Financial
Times (28 July 1986) described as their
“punishing financial targets”. Rees & Synnot
(1988) for example, argued that despite the
general acknowledgement of the need for
extensive replacement and rehabilitation of
sewers and mains, the fiscal control imposed on
the Water Authorities “has meant that they have
largely been forced into a crisis management
approach, dealing with little more than self-
evident points of failure”, and that “This is now
beginning to result in reductions in service
and environmental quality standards’ (pp.
185-186).
There is little doubt that investment levels
were squeezed, and that the Water Authorities
were unable to undertake the number of capital
projects they thought desirable, a situation
reflected in the large capital spending profiles
of the new Water plcs for the 1990s (see Water
Share Prospectus, 1989). The effects of the
financial constraints on the capital programmes
of the Water Authorities had irked management
within the industry, and for many were an
influential factor in securing their support for
the privatization proposal. Not only would they
be free of Government financial controls, but
they would also be better placed to finance the
large capital programmes the industry required.
The Government, determined to make privatiza-
tion politically successful, restructured the
finances of the Water Authorities prior to
flotation by writing off most of the industry’s
borrowings (54.9 billion out of a total of 65.3
billion); by providing a cash injection, known
as the “green dowry”, of 61572 million; and by
setting the initial values of the K Eactors to be
used in the pricing formula on the generous
side. These provisions were publicly welcomed
by the Water Authorities: for example, the
Chairman’s statement in Sevem Trent’s Annual
Report 1989190 stated that “The greatest benefit
of privatisation is that for the first time, we have
the resources we need to meet the quality and
service standards required . . . Privatisation has
provided the finance, lacking for the past 70
years to meet in the future, obligations to our
customers, to Government, to the European
Community and to our own high quality
standards” (p. 8). However, despite these
perceived benefits, there were still those in the
industry who had doubts about some aspects of
the legitimacy of privatization. These tensions
are reflected in the following comments of a
senior manager at Alpha Water:
I think that many people who were in fact very
apprehensive and thought it was wrong, they partially
changed their minds, and I use the word partially. They
have changed their minds as far as the fact that they now
feel that the organisation is generally freer to deal with
substantial infrastructure problems. They may, however,
still have a problem in deciding their attitude to the
customer shareholder interests, which every company
has to face up to.
The need to change attitudes was not just
confined to motivating organizational members’
commitment to the company’s new private
sector status. The persistent traces of a public
WATER PRIVATIZATION
213
sector culture now deemed obsolete were
perceived as constraints on successfully achiev-
ing new organizational goals. At Alpha Water
another senior manager commented:
Yes, there are people who have grown up in the industry
whose approach was service, but I would think these
days, I think we’ve made the adjustment from Local
Government. We are probably half way there to that
adjustment to a private company. . There is much more
flexibility in the attitudes of our employees than you’d
get within Local Government. It’s less rigid and less of
a bureaucracy, but we have still got them.
However, the intention was not to jettison
wholescale all the elements that informed the
old public sector culture, but rather to instil the
new importance of cost effectiveness and
profitability while retaining the previous
commitment to required engineering standards.
At Delta Water, a senior manager described the
issues in the following way:
I suppose that in some senses as a nationalised industry
we tended to trade on service to the community. We
have a lot of people historically who felt very strongly
that they were in Water to provide the community with
a first class water service, and there is absolutely nothing
wrong with that. What we have to do is harness and re-
direct a little towards a new ethos without rubbishing
that. I mean the last thing we want to do is turn people
off. But we do actuaily want our people to identify with
where our business is driving. And part of where our
business is driving is measurement of results. And
measurement of results is expressed in profit and yield
and all these good City things.
A similar perspective was evident in these
comments from a senior manager at Beta Water.
He began by describing the “public sector ethic”
as follows:
I think it’s service to the community without particularly
having regard to the cost implications of that. It’s doing
things because they are perceived to be the right things
to do with not too much regard for how that is costed,
and really seeing the focus of responsibility for finance
at Government level. We have got to put together what
we think is right. . the tirst thing we should be doing is
getting the service ri@, and within the private sector that
we are now in, with our own responsibility for hmdmg
and so on, we have got to consider both the service
element and the financial element. what it’s going to cost.
The attempt by corporate management to
transform corporate culture was marked in the
first instance by changes in language as well
as substance. Even before privatization the
language of the private sector was imported to
construct a new version of organizational reality:
the Water Authority was increasingly referred
to as “the business”; the objectives of the
Authority underwent successive transforma-
tions from a concept of public service and
obligation, to one of efficiency and cost savings,
to finally one of profit; consumers of water
services were referred to as customers and no
longer as rate payers or the public. The following
extract from field notes is illustrative:
S: Did you call it “the business” before?
Senior Manager at Delta Water: Yes, we started calling
it the business between ‘83 and ‘89.
S: Because it’s not a very kind public sector word is it?
Senior Manager: Our Chief Executive - two removed
I can’t tell you the exact time, but 1 can tell you that
I sat at a meeting that I had arranged which he had
agreed to come and speak to for an hour, and he actually
started talking about “the Water Business” and
everybody sort of looked, and so certainly in Delta Water
we have inceasingiy talked about “our business” over
the last two or three years. And we have also increasingly
talked about customers rather than consumers because
again that has a dieerent ring about it.
Changing management philosophy and man-
agement style has been a priority concern. This
again pre-dates privatization. Alpha Water’s
corporate plan for 1987-1991 stated for
example that “Traditionally, former manage-
ments had been more concerned with technical
excellence. The new Board inherited a staffwho
were highly professional and dedicated, but who
had received little training in management
skills.” To remedy this, and to make progress in
improving the efficiency and effectiveness of the
organization, the plan stated that the board was
committed “to the training in management skills
of all levels of management” and reported that
1200 managers had received at least four to
seven days’ training in each year during the last
214 S. G. OGDEN
two years, It concluded that “there is already
strong evidence that this investment has
increased the commitment of all levels of
management towards achieving the aims
and budgets set out in this plan” (company
document). Similar developments occurred in
other Water plcs. For instance at Omega Water
all managers were given a weeks course which
a senior manager described as “about business,
about the position of the company in terms of
how a good business should be run . . . dealing
with problems about generating profit, motivat-
ing people, that type of thing” (interview).
There have also been occasional seminars for
the senior management group. The most recent
of these involved “having an analyst there
showing them how to read profit and loss
accounts and balance sheets . . . A lot of them
did not have a clue . . . they had just not been
brought up in that kind of environment”
(interview).
Seen from the other side, an engineering
manager at Alpha Water said:
1 think because the bulk of our level of service
improvements will be delivered through capital invest-
ment it is still very much an engineering intensified
organisation In terms of managerial decision making,
it’s still the same people by and large from a point of
view of disciplines and background. But I think what has
changed is the impact that accountants now have on the
business, and I don’t mean that in a derisory way because
we work very closely together, but certainly there is a
lot more rigorous examination in terms of expenditure
requirements, and that’s right that it should be thus. I
think managers now have to be competent in areas that
before there was no need There is a lot more
accountability now than there ever was.
Since privatization several plcs have also intro-
duced performance-related pay for managers
with set targets related to profitability and return
on capital as a way of reinforcing the new
organizational objectives. Pay systems for
employees have also changed. The need
to improve profitability and meet changing
customer needs were cited as the main reasons
for changes in the payment system at Alpha
Water. Instead of the Local Government style of
differentiated pay scales and their associated
demarcations, flexibility was now defined as
critical to the financial success of the company.
To this end moves were in progress towards
harmonization of conditions of employment and
single status for manual and non-manual stafI,
fewer grades, better training and a greater
emphasis on team working. A more explicit
attempt to reconstitute the basis for employee
commitment from “public service” to business
priorities has been the introduction of a
profit-sharing scheme. Four other plcs have
also introduced profit-sharing schemes for all
employees.
Consultation arrangements were seen as
another critical arena for confronting employees
with the implications for the company of the
new market environment of the private sector.
In place of the formal bureaucratic Whitley
consultative arrangements so characteristic of
public sector industrial relations (Fogarty, 1986;
Clegg, 1979) management at Alpha Water
introduced a more presentational style with the
emphasis on briefing employees about “matters
such as business plans” and “progress towards
targets” (company document), and used off-site
seminars to make presentations on aspects of
the Business plan for the company such as
capital investment and customer care. Other
Water plcs have pursued similar initiatives.
CONCLUSION
The study has addressed some of the ways in
which accounting has been instrumental in
processes of organizational change in the
Water Industry. It has focused on how the
transformative capacities of accounting have
been deployed in redefining organizational
objectives, changing the meanings ascribed
to organizational activities, and reshaping
perceptions of what are critical issues. This
constitutes an important element in understand-
ing how, in the Public Sector, effect has been
given to changing political definitions of what
is appropriate in determining the level and
quality of goods and services, and how transition
to full private sector status may be accomplished.
WATER PRIVATIZATION 215
The constitutive role of accounting in actively
constructing organizational purposes has been
evident in the extent to which accounting has
been implicated in reflecting and reinforcing
successive new strategic postures adopted by
the Water plcs. The paper has shown how the
elaboration of a vocabulary of costs was integral
to management’s articulation of new organiza-
tional imperatives as they sought to respond to
increasingly demanding Government financial
controls and performance aims. The vocabulary
of costs also provided a legitimation for new
organizational initiatives designed to improve
efficiency which accorded with the wider
political and economic climate surrounding the
Water Authorities. The Government’s political
and economic antagonism to the alleged
inefficiency of public sector provision of goods
and services created a new agenda for the
management of public sector enterprises
and insistent demands for demonstrations of
tangible improvements in financial performance
and cost effectiveness. The vocabulary of costs
informed both the construction of new internal
operational measures of performance and
management accountability, and a new set of
criteria for measuring and reporting achievements
that was in alignment with the Government’s
prevailing economic rhetoric. The extent to
which the vocabulary of costs provided an
incentive for action and organizational motive
deepened with the Government’s announce-
ment of its decision to privatize the Water
Authorities in 1986. The demands on manage-
ment to achieve further improvements in cost
effectiveness intensified as the Government
sought to ensure their successful flotation as
private sector plcs. Management devoted
more resources to the development of the
technologies of calculation and employed them
ever more rigorously in identifying and investi-
gating costs. Cost comparisons between different
internal providers, between internal providers
and contractors, and with the other Water
Authorities “put accounting numbers on every-
body’s agenda”, as one manager put it.
The transformative capacities of accounting
were deployed again in the elaboration of a new
economic language of organizational motive
based on a vocabulary of profits, as management
sought to give effect to their new private sector
status. The need to satisfy shareholders and the
scrutiny of the financial markets meant that corpo
rate objectives once more required reformulating.
Improvements in corporate performance will
now be measured primarily in terms of profit-
ability. In translating the need to be profitable into
incentives for organizational action, the vocabu-
lary of profits has begun to inform changes in
managerial planning, control and information
systems, and changes in the reward system and
hence the motivational basis for securing
improvements in managerial and employee
performance. Improving service standards in
accordance with declared capital programmes,
meeting required quality standards over a wide
range of activities specified by a number of
regulatory agencies, and competing effectively
on costs within the economic regulatory frame-
work of yardstick competition operated by the
Director General of Ofwat, are all now seen
primarily in terms of business objectives and
their implications for corporate profitability.
While the above discussion has focused on
the involvement of accounting in processes of
strategic change in the Public Sector, further
analysis of the transformative capacities of
accounting needs to be extended to other
organizational territories in order to provide
more understanding of their role in the
conceptual invention of new ways of managing
established activities.
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doc_255080962.pdf
The U.K. Government’s belief in the innate ine6iciency of traditional public sector provision of goods and
services has inspired a number of initiatives which have resulted in management of public sector enterprises
being confronted by an increasingly cxxnmercial environment, tighter tinancial controls, increased
competition, and in some cases tmnst% to the private sector through privatization. This paper is concerned
with investi@ing the ways in which accounting and accounting information has contributed to and shaped
procures of organ&tional change in one area of the public sector, the ten Regional Water Authorities of
England and Wales. In the early 198Os, the Water Authorities were subject to m from new Government
financial controls and performance aims to become more efficient.
Pergamon Accounting &ganlsotfons andSociety, Vol. 20. No. 213. pp. 19.G218. 1995
Copyright 0 1995 Elsevicr Science Ud
Printed in Great Britain. All rights reserved
0361~36B2/95 19.50+0.00
TRANSFORMING FRAMEWORKS OF ACCOUNTABILITY:
THE CASE OF WATER PRIVATIZATION*
S. G. OGDEN
University of Leeds
Abstract
The U.K. Government’s belief in the innate ine6iciency of traditional public sector provision of goods and
services has inspired a number of initiatives which have resulted in management of public sector enterprises
being confronted by an increasingly cxxnmercial environment, tighter tinancial controls, increased
competition, and in some cases tmnst% to the private sector through privatization. This paper is concerned
with investi@ing the ways in which accounting and accounting information has contributed to and shaped
procures of organ&tional change in one area of the public sector, the ten Regional Water Authorities of
England and Wales. In the early 198Os, the Water Authorities were subject to m from new Government
financial controls and performance aims to become more e&cient. These pressures intensified when the
Government announced its intention to privatiae them in 1986, and continued up to 1989 when privatization
took effect. Since privatization the Water Authorities have been subject to “yardstick” competition under a
new regulatory framework, and comparative judgements by the fmancM markets. In considering these
changes, the PBper examines the constitutive role of accounting in articulating changing organizational
priorities, and in promoting lixst a vocab&uy of costs and subsequently a vocabulary of profits as languages
of organizational motive.
Ever since the 1967 White Paper (Cmnd 3437, of initiatives which have resulted in manage-
1967) introduced more formal criteria for ment being confronted by an increasingly
pricing and investment decisions, public sector commercial environment, tighter financial con-
industries in the United Kingdom have been trols, increased competition through deregula-
“steadily pushed towards behaving according to tion, and the possibility, if not the fact, of
commercial rather than social criteria” (White- privatization. As well as the privatization of the
head, 1988, p. 6). But since 1979 push has Water Authorities in 1989, other major state
turned to shove. Over the last decade the industries sold off have included British Telecom
Conservative Government has sought radical in 1984, British Gas in 1986, British Airways in
changes in the management of public enter- 1987, British Steel in 1988, and electricity
prises. Inspired by its belief in the innate distribution and generation in 1990 and 199 1.
inefficiency of traditional public sector provi- Even without privatization, elements of market
sion of goods and services, alarmed at increasing forces have been introduced into public sector
demands on the Exchequer to make good provision: for example, there are now rules
operating losses and to finance capital pro- requiring competitive tendering for a number
grammes, and determined to remedy the lack of services previously provided by Local Author-
of any efficiency checks on industries’ perform- ities and the National Health Service (NHS);
ance, the Government has introduced a number schools and colleges have been given new
l The author wishes to acknowledge helpful comments from the Workshop on Changing Notions of Accountability, London
School of Economics, and the European Institute for Advanced Studies in Managemmt Workshop on Accounting in its
Organizational and Social Contexts, University Carlos III, Madrid; and fmancial support born the Economic and Social
Research Council (Grant No. ROOO 234263).
193
194 S. G. OGDEN
responsibilities for managing their own budgets
and are expected to act as quasi autonomous
units; and proposals for the operation of internal
markets in the NHS are in the course of being
implemented.
What has been characteristic of many of these
reforms is the extent to which they have
“encouraged or required the reconstruction of
the institutions concerned along the lines
suggested by the model of ‘the commercial
enterprise’ - the privately owned firm or
company operating in a free market economy”
(Keat, 1991, p. 2). However idealized, the model
of the commercial enterprise has, according to
Keat ( 1991) taken on “paradigmatic status”.
This is manifest in various corporate reorganiza-
tions undertaken by public sector managements
to provide a sharper focus on financial perform-
ance, a new commercial orientation epitomized
by the “elevation” of the status of the client to
that of customer, and the extent to which
professional judgements by providers of goods
and services have lost their salience in decisions
about appropriate standards of provision. Greater
stress has been put on using “proven” private
sector management tools: introducing more
competition to the provision of goods and
services to lower costs and improve standards;
disaggregating formerly large monolithic units
to create more manageable corporate entities,
and to differentiate between providers and users
of goods and services in order to gain the alleged
efficiency advantages of use of contract or
franchise arrangements; and clearer definitions
of goals, targets and indicators of success (Hood,
1991). As a result, decision-making processes
about provision of services have become increa-
singly influenced by a preoccupation with
“economic results” at the expense of ‘social
benefits”. Amidst these changes is an all-
pervasive managerial concern with introducing
and operating more stringent forms of account-
ing controls over organizational activities. Initia-
tives in more cost-conscious resource manage-
ment, cost improvement programmes, perform-
ance indicators, delegated budgets, cost centres
and new management information systems have
all been variously deployed as managers have
tried to give effect to politically determined
notions of efficiency, cost effectiveness, value
for money, and greater financial accountability
(e.g. Gray & Jenkins, 1986; Fry, 1988; Clarke &
Cochrane, 1989; Dent, 1991; Humphrey &
Scapens, 1990; Humphrey, 1991; Broadbent et
aL, 1991). The National Health Service, for
example, has recently experienced corporate
reorganization, which involved removal of a tier
of the management structure, increased delega-
tion to local level, and the appointment of new
General Managers at all levels of the service;
external scrutinies of use of resources, cash
limits on spending and manpower limits imposed
by Government; the introduction of performance
indicators and new management information
systems to ensure data can be collected and
analysed to measure efficiency improvements;
and the introduction of an internal market
whereby users, such as District Health Author-
ities, set contracts with providing agencies such
as hospitals on a competitive basis (Broadbent
et al, 1991; Iapsley, 1991; Bevan, 1989).
Another example is provided by British Rail
which, in response to Government pressure for
efficiency improvements and reductions in its
public service grants, has initiated corporate
reorganization, introducing five business sectors
into its corporate structure to give greater
emphasis to the importance of economic results
and customers at the expense of the more
traditional conceptualization of the railway as a
social service underwritten by Government
(Dent, 1991).
These new emerging priorities in managing
the public sector have been accompanied by
the Government’s promotion of what it terms
an “enterprise culture” (Keat, 1991; Morris,
1991). The notion of enterprise provides a
potent language for articulating the Govem-
ment’s political mission in pursuing change in
the management of the public sector as it
links general political deliberations about the
need for changes in attitudes, values and
behaviour in individual and organizational acti-
vity with “specific programmes that simultan-
eously ‘probl emati ze’ organizational practices
in many different social locales, and provides
WATER PRIVATIZATION 195
rationales and guidelines for transforming them”
(Rose, 1992, p. 145). The culture of enterprise
is expected to inform behaviour once “the
market” is introduced into the territories of
public sector professionals. Thus, as Heelas &
Morris (1992, p. 5) example:
the Secretary of State for Education speaks of higher
education as an “industry”, where what matters is
attending to production to increase elliciency and
quality. The intention is that peoplewill have to exercise
initiatives; compete for “consumers”; cost their activities
and think of themselves as “producers”, if they are to
prosper, let alone retain their jobs.
Much of the public sector has similarly experi-
enced some if not all of these developments.
However, the diversity of the public sector
cautions against too many generalizations. More-
over, in investigating the ways in which account-
ing and accounting information contributes to
and shapes these processes of organizational
change, it is important to locate the forms and
roles accounting takes within the particular
organizational contexts in which they occur.
Consequently, it is appropriate to consider case
studies of particular public sector organizations
in order to evaluate the extent and significance
of change that has occurred. To that end, this
paper seeks to address the changes that have
occurred in the Water Industry over the last 10
years.
THE WATER INDUSTRY
198.3-1990: A BRIEF SURVEY
The ten Regional Water Authorities are a
product of a major reorganization of the Water
Industry in 1973. This concentrated functions
which had been previously exercised by 157
water undertakings, 29 River Authorities and
1393 sewage disposal authorities into nine
Regional Water Authorities in England (Anglia,
Northumbria, North West, Severn Trent, South-
em, South West, Thames, Wessex and Yorkshire)
and one in Wales (Welsh Water). They vary in
size from Thames, the largest with a turnover
in 1989 of &558 million and a workforce of
8977, to South West, the smallest with a
turnover in 1989 of s106.3 million and a
workforce of 1876.’ They are primarily con-
cerned with providing water supply and sewer-
age services.*
In 1989 the Water Authorities were privatized.
However, privatization is best regarded as part of
a continuing process of change that has affected
the industry over the decade of the 1980s rather
than a singular event. In the early 1980s
the Water Authorities were subject to increas-
ing pressures from new Government financial
controls and performance aims to become
“more efficient”. Once the Government publicly
announced its interest in privatizing them in
1985, and published its intention to do so in its
White Paper in 1986, these pressures intensified.
Like other privatized enterprises, the Water
Authorities were strongly encouraged to improve
their profitability and efficiency profiles to make
their successful flotation more viable (Aylen,
1988; Chambers, 1988; Rickard, 1988). They
had an extended opportunity to do so, as they
experienced an untypically prolonged period of
run-up to privatization, owing to a number of
technical and political difficulties the Govem-
ment encountered with its privatization pro-
posals (Ogden, 199 1).
The privatization of the Water Authorities in
1989 was part of a wider programme which has
since 1979 reduced the public trading sector to
around a third of its former size. Although policy
objectives for privatization have varied in
emphasis and have developed somewhat prag-
matically during the 1980s (Bishop & Kay, 1988;
Wiltshire, 1988; Veljanovski, 1987; Vickers &
’ In 1989 there were also 29 Statutory Water Companies supplying water, which were already privately owned. These
were reduced in number by mergers to 25 by 1992.
’ With privatization. a number of regulatory functions the Water Authorities had previously carried out such as pollution
control, flood protection, and land draining were transferred to a new public body. the National Rivers Authority.
196 S. G. OGDEN
Wright, 1989; Kay & Thompson, 1988) the
main public justification for pursuing privatiza-
tion has been the Government’s claim that it
will bring greater efficiency and improvements
in the production of goods and services through
more competition and easier access to capital
markets. This basis for policy has been informed
by the Government’s belief that private sector
provision of goods and services is intrinsically
more efficient than public sector provision.
Public sector industries, it is alleged, are less
efficient because they do not experience the
rigours of market forces, have no private
shareholders to satisfy, and face no threat of
bankruptcy owing to the State’s willingness or
obligation to pick up the bill for any losses.
Management in the public sector, with little
market incentive to improve performance, is
viewed as operating “bureaucracies and not
businesses” which leads to rigidity and ineffici-
ency, and an inability to respond effectively to
technological change or changes in consumer
demand (Moore, 1986). For example, the White
Paper on Water Privatization (Cmnd 9734,
1986) argued that the removal of Government
intervention and political interference in the
day-to-day management of enterprises would
improve management performance; access to
private capital markets would make it easier for
enterprises “to pursue effective investment
strategies for cutting costs and improving
standards of service”; and the financial markets
assessments of performance “will provide the
financial spur to improved performance”. It
concluded:
Private enterprise is both more flexible and readier to
pursue energetic and innovative approaches than the
public sector. The demands of the market will give
management and staff the impetus they need to secure
greater efficiency. Freeing the authorities from the
constraints imposed by state ownership will help them
to carry out their tasks with vigour and imagination (para.
38).
The Government’s case for privatization has,
not surprisingly, not gone uncontested. While
profit may be, as the White Paper alleged (Cmnd
9734, 1986, para. 78) “a more effective
incentive than Government controls”, consider-
able doubts were expressed by the trade unions
in the industry and a variety of environmental
and consumer groups about the appropriateness
of a profit-motivated privately owned industry
serving the financial interests of shareholders as
being the most suitable means of providing such
an essential commodity as water and maintain-
ing adequate safeguards against pollution (Ogden,
1991). More generally, difficulties in measuring
efficiency and productivity, and the problematic
nature of making comparisons between public
and private sector enterprises, have led to
debate about the Government’s claim that
private sector provision of goods and services
is necessarily better (Kay et aL, 1986; Utton,
1986; Vickers & Wright, 1989). Some academic
commentators have been especially critical over
the limited extent to which privatization has
actually promoted more competition (Heald 81
Steel, 1986; Bishop & Kay, 1988; Kay &
Thompson 1988; Vickers & Yarrow, 1988).
Opportunities to break up the old public sector
monopolies and create greater competition
have been largely ignored, not least because of
the influence of the Treasury and senior
management within the industries concerned.
The Treasury has been primarily concerned
with raising revenue from the sales of public
assets and was very aware that “monopolies are
worth more than competitive industries” (Kay
& Thompson, 1986). Senior management have
also opposed any restructuring of their indust-
ries. Although in the early phases of privatization
policy some chairmen of nationalized industries
were openly critical of the Government’s policy
(Thomas, 1986) they generally became support-
ive providing concessions from Government
were forthcoming in terms of competition, debt
write-off, and regulation (Hills, 1986; Utton,
1986; Heald, 1989; Vickers & Wright, 1989;
Mitchell, 1990).
In the Water industry, the chances of market
competition were in any case extremely limited,
a view shared unequivocally both within and
outside the industry (Littlechild, 1986; Harper,
1988). Nevertheless, although it did not entail
any significant developments in competitive
WATER PRIVATIZATION 197
market forces, privatization has brought into
operation a new economic regulatory frame-
work for the provision of water services which
provides considerable stimulus to achieve better
performance through the operation of the
pricing formula and “yardstick” competition.
The latter will allow the regulator, the Director
General of the Office of Water Services (Ofwat)
to use the performance achieved by the best
companies as the yardstick to assess the others
in reviewing the price formulae. Opportunities
for comparative judgements will also assist the
scrutiny of management performance by the
financial markets. In response to these impera-
tives management have sought and continue to
seek improvements in corporate performance.
Thus during the 1980s the Water Authorities
were subjected by Government to increased
scrutiny and rigorous demands to improve their
financial performance; to improve their effici-
ency and profitability in preparation for success-
ful flotation as privatized Water plcs; and to
submit themselves to yardstick competition and
comparative judgements by the financial markets.
The ways in which the Water Authorities adopted
new strategic postures as they responded to
these successive changes provide a fertile
research site for exploring the roles accounting
may play in processes of organizational change.
THE CONSTITUTIVE ROLE OF
ACCOUNTING IN PROCESSES OF
ORGANIZATIONAL CHANGE
If, as Day & Klein (1987, p. 2) argue,
accountability “is all about the construction of
an agreed language or currency of discourse
about conduct and performance, and the criteria
that should be used in assessing them” there is
little doubt that the framework for the account-
ability of the Water Authorities, as with much
of the public sector, was substantially trans-
formed in the 1980s. In considering the changes
experienced by the Water Authorities as they
responded firstly to the Government’s financial
controls and then to the demands of privatiza-
tion, the principal focus of this paper is to
examine the use of accounting information
and accounting systems to articulate changing
organizational priorities, and their role in
promoting first “costs” and subsequently “profits”
as vocabularies of motive.
The role of accounting in actively construct-
ing organizational purposes and in rendering
visible the issues, projects, and criteria which
accrue significance in the pursuit of those
purposes has been considered by a number of
authors (Hines, 1988; Nahapiet, 1989; Loft,
1988; Hopwood, 1983, 1987; Miller & O’Leary,
1987, 1990; Neimark & Tinker, 1986, Burchell
et al, 1980). In contrast to the received
orthodoxy where accounting is seen as a passive
and an essentially technical reflection of what
are assumed to be given and self-evident
economic imperatives, attention has been drawn
to the ways in which accounting may actively
constitute a highly partial view of organizational
reality. This serves to emphasize particular
organizational objectives at the expense of
others, and the means by which they may be
pursued. It also helps to shape the perceptions
of organizational members as to what is relevant
or desirable in the light of these objectives. This
pro-active capacity of accounting has been
elaborated in a variety of contexts (Ogden 81
Bougen, 1985; Loft, 1988; Miller & O’Leary,
1987; Boland & Pondy, 1983; Covaleski &
Dirsmith, 1986; Hopwood, 1987; Berry et al.,
1985) and has been a prominent feature of
recent studies of organizational change in the
private sector. Espeland & Hirsch (1990) for
example, in their case study of conglomerate
merger, illustrate the rhetorical power of
accounting as a symbolic system for legitimating
new corporate forms and practices, and Jones
(1992) has charted the changing perceptions
and use of accounting control systems to
improve efficiency following a management
buy-out. These themes have been central to
work which has explored the role of accounting
in recent public sector organizational reform,
particularly the impact of new forms of financial
control (Broadbent & Guthrie, 1992; Dent,
1991; Humphrey & Scapens, 1990; Humphrey,
199 1; Bourn & Ezzamel, 1986). The emergence
198 S. G. OGDEN
of a “new public management” in the public
sector entailed much clearer assignment of
responsibility for action to managers at all levels,
and much greater emphasis on explicit standards
and measures of performance, expressed wher-
ever possible in quantitative terms (Hood,
199 1). Within this process the role of account-
ing changed from its previous concern with
probity, compliance and control to one which
focused on efficiency, effectiveness and cost
savings.
In the case of Water, the constitutive role of
accounting in actively constructing organiza-
tional purposes and shaping new images of
the organization and its relationship with its
environment has been especially evident. In
response to new imperatives to cut costs and
improve financial performance senior managers
have sought to re-focus and improve the ways
in which the organization was governed and
controlled so that much greater salience was
given to the economic implications, particularly
in terms of costs, of management decision
making. Consequently, considerable organiza-
tional resources were devoted to developing
more elaborate management information systems:
developing planning and control mechanisms;
ensuring detailed specification of objectives;
generating more accurate assessment and alloca-
tion of costs to each unit of operational activity;
and introducing performance indicators and
output measures which could be used to
evaluate and compare achievements. Managers
were given new training in management skills
and were subjected to a much more numerate
and performance-based type of reporting and
accountability.
The changing regimes of accountability expe-
rienced by the Water Authorities provide
illustration of what Miller (1989) has termed
the “transformative capacities” of the calculative
technologies of accounting. While generally it
has been argued that the development and
deployment of calculative technologies has
made more possible the government of social
and economic life (Foucault, 1979; Miller, 1989;
Miller & Rose, 1990; Rose, 1990; Miller &
O’Leary, 1987) it is their transformative capa-
cities which, Miller ( 1989) argues, “have enabled
decisive and fundamental changes to be made to
the ways in which individuals plan, evaluate and
reflect on their attitudes” (p. 2). In the Public
sector generally, and Water in particular, the
calculative technologies of accounting have, at
Government insistence, become increasingly
inserted into decision-making processes, replac-
ing alternative and less readily quantifiable
modes of evaluation. In Water, the professional
judgements of water engineers have become
less privileged as the Authorities were actively
urged to become more cost-conscious, and
subsequently profit-conscious. Accounting has
thus been deeply implicated in reconstituting
the objects of management decision making as
the Water Authorities were subjected to much
greater external scrutiny by Government over
their economic performance. The adoption of
more and more allegedly sophisticated methods
of calculation has enabled those charged with
responsibility for managing what were increas-
ingly deemed to be economic resources to
reformulate and reconstitute organizational acti-
vities in ways which give salience to their real
or implied economic rationale. The increased
emphasis attached to costs and cost reductions
to meet Government determined performance
aims resulted in greater management concentra-
tion on the calculation and comparison of costs
in pursuit of efficiency improvements. It also
served to promote cost consciousness as a
mobilizing organizational imperative. Being good
at achieving cost reductions became an organi-
iational objective that competed with the
predominantly engineering judgements about
standards of service that had previously pre-
vailed. The prospect of privatization gave further
momentum to the elaboration of the “vocabu-
lary of costs” (Miller, 1989) as an organizing
rationale for the development of Water Services.
With the accomplishment of privatization the
transformative capacities of accounting were
called upon again as the Water Authorities
sought to transform themselves from Public
Sector bodies to profit-making plcs. Accounting
was involved in generating a different economic
language of organizational motive, as a new
WATER PRIVATIZATION 199
vocabulary of profits was deployed to stimulate
further efforts to become more efficient and to
give effect to their new private sector status.
The acceptance of these successive account-
ing vocabularies and the changing organiza-
tional rationales they articulated, however, by
no means proceeded smoothly nor was easily
attained. Discontinuities in the processes of
change and resistances to their achievement
were evident. This was reflected in senior
management’s continuing efforts to transform
corporate culture from one based on engineer-
ing and operating demands, and notions of
public service to one based on business prior-
ities and customer needs. Examining manage-
ment attempts to change corporate culture
serves to highlight not only the contrast
between perceptions of the “old public sector
post” and the “new private sector future”, but
also the ways in which accounting has been
implicated in the management of the transition.
The remainder of the paper is taken up with a
more detailed examination of these developments
The empirical evidence is drawn from research
based on documentary evidence and interviews
with managers from six of the new Water plcs.
These will be referred to as Alpha, Beta, Gamma,
Delta, Pi and Omega Water. The first section of
the empirical evidence focuses on the effects of
the Government’s financial targets and perfor-
mance aims. The second section examines how
the vocabulary of costs permeated and subse-
quently helped reconstruct organizational ratio-
nales as the Water Authorities prepared for priva-
tization. The third section briefly looks at the new
vocabulary of profits deployed to give effect to
the Water Authorities’ new private sector status.
The final section considers some of the problems
and resistance encountered in these processes
of organizational change through an examination
of attempts to change corporate culture.
GOVERNMENT FINANCIAL TARGETS AND
PERFORMANCE AIMS 198@- 1989
Throughout this period the Water Authorities
were subject to a number of Government
financial controls: financial targets, external
financing limits and performance aims. The
financial target for each Water Authority was
calculated as a percentage rate of return on the
current net value of assets, and was intended to
specify the surplus to be achieved after charging
operating costs and current cost depreciation,
but before charging interest. These financial
targets were first applied in 1981/82. The
external financing limits specified the amount
of finance the Water Authorities could raise
externally by borrowing, and were applied from
1979/80. Performance aims were agreed follow-
ing initial discussions in 1980 with the Secretary
of State for each Water Authority for the period
1981/82-1983184, and were reassessed for
each subsequent three year period. These
performance aims defined targets for reductions
in operating costs in real terms (defined as total
costs before depreciation, exceptional items and
interest).
The development of performance aims is
particularly interesting. The Water Authorities
had begun to report annually a number of
performance ratios in response to the 1978
White Paper on Nationalised Industries (Cmnd
7131, 1978). The intention of the White Paper
was to provide direct measures of operating
efficiency and quality of service. and repre-
sented a further attempt to improve the control
framework under which Nationalised Industries
operated, a process which stretched back to the
1961 White Paper’s (Cmnd 1337,196l) specifi-
cation of financial targets and the 1967 White
Paper’s (Cmnd 3437, 1967) explicit guidelines
on pricing and investment criteria. The perform-
ance ratios reported by the Water Authorities
in 1979 included economic ratios which mea-
sured manpower numbers, capital expenditure,
and operational expenditure expressed in terms
of per head of population equivalent for each of
the main services: water supply, sewerage,
sewage treatment and disposal, and land drain-
age. The new Conservative Government, how-
ever, wished to introduce a much more rigorous
form of performance measurement, and decided
to set performance aims which would require
the Water Authorities to reduce costs. The
200 S. G. OGDEN
Government argued that performance aims
were a necessary complement to financial
targets and cash limits as, given the absence of
competition between Water Authorities, finan-
cial targets could be achieved simply through
raising prices and/or reducing standards of
service rather than through more effective
control over costs. Moreover, the Government
anticipated that performance aims would enable
direct comparisons to be made between Water
Authorities which would provide an added spur
to efficiency improvements. To this end the
government proposed that performance alms
should “be expressed in terms of real costs per
unit of output. Costs could be divided into
manpower costs, other operating costs and
financial costs, and targets would be set for each
of these for the three services: water supply,
sewerage and sewage treatment and disposal”
(Monopoly and Mergers Commission, 1981,
para. 2:35). However, the Water Authorities
resisted these proposals on the grounds that it
was not feasible to set aims in terms of unit
costs. The arguments were summarized by the
Monopolies and Mergers Commission (MMC)
as follows:
The industry argued that output could not bc measured
and that even if it could be measured its costs were
related much more to the size of the system than to the
throughput. As a compromise therefore it was agreed
that performance aims would be expressed in terms of
total expenditure, with background information on
movements in real unit costs measured by expenditure
per head of effective population. Under this measure
demands by industrial and commercial consumerswould
h converted into population equivdents. Aims would
be set for total manpower and other operating costs
(MMC, 1981, para. 236).
The result of this was that instead of enabling
comparisons between Water Authorities to be
made at the same time, the Government had to
be content with performance aims which were
only capable of comparing efficiency over time
within each Authority (Day & Klein, 1987).
The operation of these performance aims
nevertheless had a substantial impact on the
Water Authorities, both in terms of an efficiency
target to be met, and as a stimulus to develop
more precise forms of measurement of costs of
operational activities. Sevem Trent, for example,
viewed the introduction of performance aims as
follows: “Sevem Trent’s “elkiency monitor” is
its performance aims, agreed with Government
. . . It is an attempt to create within the industry
- an almost complete monopoly - similar
pressures for economy and efficiency as those
within private competitive industries . . . In
order to improve the efliciency of its operations
Sevem Trent has progressively been developing
detailed performance measures for evaluating
the actual performance of all the major
processes throughout the region and to assess
changes in levels of performance. This is
essential for management to judge whether a
particular process is being carried out as
efficiently as possible” (Annual Report 1982/83,
p. 23).
In addition to the financial controls and
performance aims set by Government, six of the
Water Authorities were investigated by the
MMC. Following a broadening of ifs terms of
reference under the 1980 Competition Act, the
Government used the MMC to inquire into the
efficiency of public bodies with a view to
ascertaining whether they could improve
their efficiency and therefore reduce their
costs. Typically, investigations concentrated on
financial control, information systems, planning
and control of investment, use of manpower,
and the effectiveness of manpower operations.
The first of these external audits for the Water
Authorities involved Severn Trent in 1981
(MMC, 198 1). The criticisms made in the report
give some indication of the agenda confronting
the Water Authorities in their attempts to
satisfy Government expectations of efficiency
improvements: the budgetary system was
deemed too slack, and management too slow
in incorporating appropriate performance
indicators in its budgetary system; insufficient
attention was given to the need to achieve
substantial savings in manpower costs; too
low a priority was accorded to cost saving
investment; weaknesses were identified in
investment appraisal methods and procedures
related to issues such as the use of economic
WATER PRlVATIZATlON 201
TABLE 1. Water Authorities and Government financial
controls
1983184 1988 1989
Yorkshire Water
Financial target
Specified rate of return 1.25% 1.7 % 1.85%
Actual rate of return 1.65% 2.39% 2.01%
External financing limit
Specified limit d30m 621.5m L15m
Actual limit E29.7m 623m L7.3m
Performance aims
Specified amount ti8.5m ;El19.9m L118.7m
Actual amount &68.7m 6118m &117.7m
(1979180 (1985186 (198516
prices) prices) prices)
Sevem Trent
Financial target
Specified rate of return
Actual rate of return
External financing limit
Specified limit
Actual limit
Performance aims
Specified amount
Actual amount
1.25% 1.95% 2.45%
1.62% 3.17 2.81%
Eb6.3m 62.4m’ 616.5m’
&66.3m 52.2m* E16.6m*
Si114.4m E196.2m E198.5m
M15.7m E194.4m 6194.4m
(1979180 (198586 (198586
orices) orices) orices)
l Net repayments.
Source: Annual Reports,
TABLE 2. Water Authorities and profit on ordinary activities
(after interest) in 6 millions 1985-1989
1985 1986 1987 1988 1989
Anglia
Northumbria
North West
Severn Trent
Southern
South West
Thames
Welsh
Wessex
Yorkshire
21 37 52 59 73
0.1 3 7.1 10.8 6.9
(26) (7) 9 25 44
(18) 39 52 97 98
22 36.9 47.3 59.3 65.1
20.6 23.9 28.1 33.5 38.1
(y92.8) 144 (3.5) 151 11.9 181 16.4 207 24.9
9.9 15 21.5 25 24.1
18 22 37 57 56
Source: Water Share Prospectus (November 1989).
techniques, adequacy of the database, and
evaluation of benefits; the level of capital
expenditure was not fully justified on economic
grounds; corporate planning procedures
required improvements; and the operating
divisions enjoyed too much autonomy so that
“Headquarters does not, and with the present
reporting procedure and lines of responsibility,
cannot control and monitor the operations of
the Divisions to the degree desirable for
efficiency and cost savings” (MMC, 198 1, para.
11: 165). Subsequent reports on Anglia, North
West, Yorkshire, Southern and Welsh Water
were consistently encouraging of management
to exploit to the full the scope for cost
improvements.
Prompted by such criticism and Government
demands for greater efficiency, the Water
Authorities were generally successful in meeting
the targets set by Government. For illustrative
purposes the examples of Yorkshire Water and
Sevem Trent may be considered. They achieved
all their set targets (Table 1). During the period
1984-1989 profits also increased for all the
Water Authorities (Table 2). Some caution is
necessary in interpreting these profit increases
since in part they were the result of Government’s
action in both increasing performance targets
and putting up prices by requiring a higher
current cost rate of return. Nonetheless they
also reflected improvements in efficiency, and
some of these are examined further below.
Perhaps the most significant event, however,
influencing the Authorities’ pursuit of Govern-
ment performance targets was the installation
of new boards brought about by the 1983 Water
Act.
The original boards of the Water Authorities,
set up in 1973, had consisted of members
appointed by the Secretary of State and members
appointed by Local Authorities who had
previously been responsible for many of the
water undertakings now operated by the Water
Authorities. In effect the Water Authorities were
“part nationalised industry, part local authority”
(Day & Klein, 1987, p. 145) with the result that
“the membership of each board was of a hybrid
nature expressing a tension between the desire
for a modicum of local accountability and the
requirements of technological expertise and
efficiency” (Sheldrake, 1988). The 1933 Water
Act replaced these with much smaller boards
with all members being appointed by the
Secretary of State. The role of consumer
representation, which previously was assumed
202
Background of
board members
S. G. OGDEN
TABLE 3. Composition of boards of privatised Water plcs
Board members
(excluding non-executive Non-executive
Chairmen directors) directors
Private Public Water Private Public Water Private Public Water
Date of appointment
to Board of Water
Authority plc
1974-1982 2 I 1 - 1 - 4 1 -
1982-1987 5 1 - 3 3 3 11 7 1
1987-1990 - - - 12 4 12 19 - -
Total IO 38 43
Source: Prospectus of Water Share Offers.
would be performed by the Local Authority
appointed board members, was now vested in
separate consumer consultative committees.
The purpose underlying the reconstitution of
the boards was unambiguously clear: it was
to make them “more business-like” (White
Paper, 1986). Harper (1988, p. 217) Managing
Director of Thames Water, commented that it
was done “with the overt purpose of bringing
a more commercial style of management to the
Water Authorities aimed largely at sharpening
their managerial efficiency and their reaction to
the needs of customers”. To this end a number
of new chairmen and board members were
brought in, with the majority being recruited
from the private sector. This process continued
up to privatization in 1989, and the extent of
this can be seen from Table 3. The backgrounds
of the 9 1 board members were 56 (61% ) from
the private sector, 18 (20% ) from the public
sector, and 17 ( 19% ) from the Water industry
itself The bulk of the non-executive directors
come from the private sector: 34 of 43 (79% ).
A majority (58% ) of board members excluding
chairmen were appointed in the period
1987-90: this was particularly marked amongst
executive board members (74% ).
In the case of Severn Trent, for example, the
board had consisted of 48 members: I6 were
appointed by the Secretary of State, four by
the Ministry of Agriculture, and 27 by Local
Authorities. This was reduced to 14 after 1983.
In the case of Yorkshire Water Authority, the
board had previously consisted of 28 members:
nine appointed by the Secretary of State for the
Environment; three appointed by the Ministry
of Agriculture, and 16 by Local Authorities. The
new board consisted of 13, all appointed by the
Secretary of State for the Environment. In setting
out what would now be regarded as the new
board’s “mission statement” the new Chairman
stated that “the new board has been charged
with conducting its affairs as much like a
business as possible” (Annual Report and
Accounts, 1983/84, p. 5). Although the board
wished to maintain standards of service to
the public, its main priorities in 1984 were
expressed in terms of “monitoring and
improvement of management performance”;
“containing its charges increases to within the
rate of inflation”; “improving efficiency”; and
“reducing operating costs” (Annual Report and
Accounts 1983/84,passim). The significance of
these changes was appreciated by the Monopoly
and Mergers Commission in its report on
Yorkshire Water. It observed that “the Authority
has been going through a period of great change
from an organisation orientated towards the
concept of administering a public service to one
which is in the business of providing water
services and where performance aims are a
partial surrogate for competition” (MMC, 1984,
para. 2:9). It also noted appreciatively that “the
Chairman has clearly given new impetus to the
Authority’s drive for greater efficiency, with the
support of a slimmed down Board which in
WATER PRIVATIZATION
203
composition reflects a greater emphasis on
relevant business experience than the old
Authority, and which sees one of its principal
roles as that of monitoring the performance of
the Executive” (MMC, 1984, para. 2:6).
VOCABULARIES OF COST: THE QUEST
FOR EFFICIENCY IMPROVEMENTS
Amongst all the Water Authorities there is a
constant reiteration throughout the period
1984-1989 of the importance of reducing
costs in management’s pursuit of efficiency
improvements. From this there emerges an
elaboration of a “vocabulary of cost” (Miller,
1989). This vocabulary of cost provided the
basis for an economic language of organizational
motive which subsequently informed the
construction of new operational concepts of
accountability, and performance measurement.
Priority objectives were seen in terms of
“reviews of operating costs”, “cost saving
investment programmes” and “close examina-
tion of the potential for further cost savings”.
Better management information systems, new
performance measures, cost base reviews, new
methods of budgeting, more rigorous business
planning, more efficient use of chemicals and
energy, the introduction of new technology and
reductions in manpower were all extolled
as a means of securing reductions in costs.
Achievements and measures of performance
were reported in terms of cost savings: for
example, at Delta Water the 1986 annual
report announced that the Authority’s “tight
management of costs has enabled us to pass
efficiency gains on to our customers”; that
“there will be a continuing reduction in
operating costs as we run the business
more economically”; and that “reductions in
manpower numbers and more efficient use of
manpower have been critical to our success in
reducing operating costs”. Subsequent reports
contained similar statements. Providing better
services was similarly translated into securing
greater organizational control over costs: at
Delta Water, for example, the objective was to
“provide an acceptable level of service for our
customers at the least possible cost” (Annual
Report, 1986). In Alpha Water one highlight of
the financial year for 1987 was reported as
“operating and manpower costs falling in
real terms”. It was also stated that “Further
reductions in operating costs is a realistic
expectation for our customers as we continue
to run the business more efficiently.” In 1989
the Chairman reported that “through increased
efficiency we have been able to contain the cost
effects of improving standards. Over the last five
years, we have reduced net operating costs by
over &8 million p.a. in real terms” (Annual
Report, 1989). The board’s strategy at Alpha
Water for achieving the targets set by Government
was summarized in a review of future plans in
1988. It stated that “Over the past 5 years we
have achieved a major shift in our organisational
culture to one that is now more responsive to
the business needs of modern water service
utility”, and that “our strategy is based
on reducing operating costs through the
introduction of new efficiency initiatives”
(Company Document). The means used to
pursue this were reflected in the commitment
to the following objectives: focusing on serving
customers; rigorous control of costs; achieving
“more for less” in capital investment; improved
management information and communication
systems; integrated business planning linking all
aspects and levels of the organization; encourag-
ing greater delegation and acceptance of
properly assessed responsibility and budgetary
control; restructuring to reflect changing needs
of the organization; and training of managers and
employees. Some illustrations of how these were
realized are given below.
Restructuring
Alpha Water had already begun before
1983 a reorganization of its finance function,
centralizing it at regional level. Shortly after the
appointment of the new board, a major
corporate reorganization took place, which
reduced the number of operating divisions from
8 to 5. The main aim of this reorganization was
to introduce better management information
204 S. G. OGDEN
systems and tighten up regional controls
of operations, thus limiting the considerable
autonomy divisions had previously enjoyed.
Planning and management contd
A number of initiatives revolving around the
introduction of business targets and monitoring
performance against them were taken to
improve the planning and management control
process. Under the umbrella of a new process
termed CRISP (Control of Resources and Initia-
tives in Systems and Planning), developed by a
senior management group, a number of priority
development areas were identified. These were:
levels of service; performance indicators/unit
costs; Cost Base Reviews; manpower reporting
and control systems; new approaches to revenue
budgeting; divisional planning; and capital
project development. The questions of levels of
service, performance indicators and unit costs
were considered by multi-disciplinary teams.
The resulting reports enabled the development
of unit cost measures so that one operating
unit could be compared with another. Where
differences were found, procedures were
triggered for setting up a Cost Base Review, thus
facilitating the identification of opportunities for
cost reduction. These new performance and
cost measures were also used to establish a more
rigorously programmed planning process at
divisional level providing output and input
target. for operating management. An annual
performance review was introduced to establish
current performance levels, and operating unit
plans were prepared to set target performances
for the next financial year. This entailed
delegation of planning and controlling budget
and performance targets to 250 budget respon-
sible managers. The revised planning process
now enabled measures of operational activity to
be targeted on a more controlled basis. Equally,
improved reporting and monitoring systems
enabled more scrutiny of the levels of service
actually provided and the associated capital
manpower and revenue implications.
These initiatives also contributed to improving
the effectiveness of the investment programme.
The Authority grouped related areas of activity
within the major services into 20 key areas. For
each area target standards, indicating the stan-
dards the Authority “intended” to achieve, and
minimum internal operating standards, indicating
standards currently attainable with existing
resources, were determined. The di.Eerence
between the two enabled the cost of the
additional resources required to be identified
more accurately. The impact of these initiatives
was celebrated, for example, in the 1987 Annual
Report in terms of “a new style of management
fashioned by discipline of business planning”; a
“sharper assessment of priorities against defined
and published service standards and service
deficiencies”; and “a change in operational style
which has encouraged greater delegation and
acceptance of properly assessed risW.
Manpower savings
The most important of the cost reduction
initiatives was the system of Cost Based Reviews.
Once these had identified potential cost
reductions, action plans were formulated to
achieve them. They covered a variety of areas,
but there was little doubt that from the
perspective of meeting performance aims on
operating costs the main source of cost savings
lay in reductions in manpower (see Table 4).
New or revised bonus schemes which entailed
reductions in manning levels at works and
depots were introduced. Productivity agree-
ments under the umbrella title of Management
of Change Agreements secured unions’ agree-
ment to more efficient use of resources in
the areas of working methods and practice,
frequencies of operation, standards of service,
and manning levels. The introduction of new
computer-based technology in the field of
pumping, water treatment and sludge recycling
enabled further manpower savings, as did the
regional telemetry scheme which introduced
remote monitoring and control facilities to over
1000 operational sites across the Authority.
There was also an increase in the use made of
contractors. There was a policy commitment to
use contractors where this proved to be the
most efficient method of working, and to do so
even where there was no clear evidence of a
WATER PRIVATIZATION 205
TABLE 4. Performance aims data showing importance of manpower costs
Operating expenditure
relevant to performance
controls 1982l83 19831’84 1985B6 1986ftV 1987 1988 1989
Manpower costs 49,457 49,934 51,577 52,337 53,991 56,900
Hired and contracted
services 8602 8552 10,408 10,978 13,231 11,895 16,200
Other costs 57.89 1 55.619 58,654 62,282 63.299 61,909 71,100
Total 115,950 114.105 120,639 123,938 128,867 127,795 144,200
Manpower costs as % of
total 42.7% 43.8% 42.8% 40.9% 40.6% 42.2% 39.5%
Hired and contracted
services as % of total 7.4% 7.5% 8.6% 8.9% 10.3% 9.3% 11.2%
Source: Annual Reports.
cost differential in order to keep the numbers
of permanent employees employed by the
Authority as low as possible. Steps had been
taken to improve management information so
that tbe cost performance of direct labour acti-
vities could be systematically compared with
contractors’ costs, and to review areas of activity
where contractors had not been previously
used. As one manager commented: “we are now
in a better position to do that. I think under the
local government type of accounting systems
that we had it was almost impossible to come
out with genuine job costs” (interview).
The cumulative effects of these attempts to
cut manpower resulted in a 20% reduction in
manpower between 1984 and 1989. These
reductions were highlighted in successive
annual reports as evidence of success in securing
cost reductions: for example, in the 1989 Annual
Report the Chairman said in referring to cost
reductions that “a significant contribution to this
has been in manpower savings. We now employ
around 20% fewer people than in 1984.” This
was the product not only of the efficiency drive
into the cost base of the organization, but also
of changes in management attitudes which
reflected the impact of the vocabulary of costs
on their perceptions of what was now “organiza-
tionally” important. The follpwing comments of
a senior operations manager are Mustrative:
There was a much more integrated and co-ordinated
business planning process introduced with the new
Chairmao, a whole new focus in terms of the business.
We had a Chairman’s Conference as an annual event
where they reviewed the performance of the previous
year and looked at the challenges of the future. At the
first one the new Director of Water Services stood up
and said “I’ll be setting targets for you managers to agree
and then achieve and primarily they will all he head-
count based” and then he mentioned some astronomic
-
ar that time perceived as an astronomic figure -
several hundred bodies fo come out in the fvst year. We
all came out and said “crackers”, “terrible”, “no way”,
“how can you lose that number of people”, “the service
will collapse? But within a year we were focusing on
not just manpower head counts as such. hut where can
we improve service. where can we improve efficiency,
what needs to be done? We become a very very focused
organisation (interview).
Similar developments occurred in the other
Water Authorities. In Pi Water, for example, the
board had instigated as part of the corporate
planning process a series of key issue studies.
These initially focused on issues such as
performance measurement, new technology
and management information. They were
extended to focus explicitly on cost reduction
strategies, which involved re-assessing the
frequency with which operational tasks were
undertaken, revenue saving investment, and
energy use. At Beta Water cost savings were
targeted through a series of action plans
involving the introduction of new technology
and capital investment. Budget Base Reviews
were introduced “as a way of comprehensively
examining the budget base by setting out a
programme to examine different major areas of
206 S. G. OGDEN
expenditure over a number of years” (Corporate
Plan, 1986). Improvement to systems for
capital investment planning and monitoring the
capital programme were made. Corporate
reorganization was also undertaken, accom-
panied by a wide ranging review of the
management structure to improve performance.
At Gamma Water achieving service objectives
at least cost, reducing manpower and operating
costs, and developing techniques for assessing
and monitoring cost effectiveness were all stated
as principal objectives. In its 1985 business plan
Gamma Water stated that it “is committed to
developing systems and procedures to ensure
it operates as an efficient business and is able to
define and monitor effectively its performance”.
To this end a new management information and
control system was introduced to improve
performance measurement, and control com-
parison. The Integrated Business Information
System, as it was called, offered 225 measures
of effectiveness in achieving objectives, and
163 measures of efficiency in terms of how
economically objectives are being met. In its
1987 document “Operating Costs: Problems and
Plans” the major sources of cost reductions
were identified as “the drive for manpower
efficiency”, “the introduction of new technology”,
and the “successful implementation of a new
customer accounts system”. Manpower efficiency
was to be achieved through more effective unit
business plans, regional reviews on specific
subjects, and local reviews by divisions or
departments, including productivity payment
systems. Central to this was the “Measures
To Improve Operational Efficiency” initiative
(MTIOE). Its objectives, agreed with the unions,
were to achieve an initial plan for manpower
reduction and create an environment for
continually increasing labour efficiency. MTIOE
measures accounted for 56% of planned savings
in performance aim related operating costs for
1987188, 50% for 1988189 and 33% in 1989190.
All the Water Authorities secured substantial
manpower reductions, as shown in Table 5. It
was inevitable that the major burden of meeting
the Government’s performance aims would fall
on achieving savings in labour costs, as they
TABLE 5. Changes in manpnwer in the Water Authorities
1985-39B9
1985 1989 % Change
Anglia 5684
Northumbria 1812
North West 7991
Sevem Trent 9264
Southern 3358
South West 2054
Thames 10,748
Welsh 4793
Wessex 2014
Yorkshire 5851
5098
1434
7561
7757
3122
1876
B977
4196
1844
4B63
10
21
5
16
9
17
13
8
17
Total 53,569 46,728 13
constituted the largest element in controllable
operational costs. At Alpha Water management
decided that half of the cost reduction required
to meet performance aims agreed with the
Department of the Environment would be met
by reducing manpower. The Annual Report and
accounts for Delta Water in 1983184 drew
attention to the fact that “manpower costs
account for some 45% of our operating costs
- over three times as much as any other single
element. Reductions in numbers are therefore
a crucial factor in reducing overall costs.” One
major way in which the Authorities were
encouraged to save labour costs was to increase
the use of contractors. Contractors had always
been used for capital works schemes, and to
supplement the direct labour force to even out
peaks in activity on work such as mains laying,
repair and maintenance. But, as Davidson ( 1990,
p. 534) demonstrates in her study of “Albion”
Water, the use of contractors in the 1980s
increased and was extended to other areas:
during the period 1983-1989, Albion Water’s
expenditure on hired and contracted services
as a proportion of expenditure on all manpower
rose from 21.5% to 34%. This, Davidson ( 1990,
p. 533) argues, served a dual function: “Not only
did Albion cut costs by getting some services
cheaper from outside firms, it also made other
groups of direct labour feel more exposed and
vulnerable, and so more ready to acquiesce to
cuts in manning levels and other cost cutting
‘work rationalisations’.” This experience is by
WATER PRlVATlZATlON
207
no means unique to AIbion Water: similar
developments occurred in other Water
Authorities. A senior manager at Gamma
Water, for example, discussing productivity
improvements over recent years, commented:
We have increased the use of contractors quite
significantly and with our own in-house workforce
we have been able to get through changes in working
practices, particularly in mains and service laying which
has enabled the in-house workforce to become more
competitive What we have said is: look we can’t
continue in-house activities if those in-house activities
are demonstrably more expensive than contractors. So
we have used that comparison to make sure that we’ve
introduced changes in working practices which have
certainly improved our cost levels to the extent that
certainly in most of our divisions now we are cheaper,
and we can be demonstrated to be cheaper and more
effective than contractors.
This echoes Alpha Water’s use of contractors,
and comparisons with their costs, to achieve
cost reductions noted above. It is a marked
departure from previous practice, as typified
in Sevem Trent’s account of its policy on
contractors in I980 (MMC, 1981). This was
informed by the need to maintain an adequate
level of in-house labour to cater for operational
needs in times of emergencies such as floods,
mains bursts or power failures. From day to day
“this necessary labour force is employed in
carrying out many tasks which might otherwise
be put out to contract. It is this level of
operational need which dictates the relation-
ship between ‘in-house’ and bought-in services
rather than economic expendiency” (MMC,
198 1, para. 11: 130, emphasis added),
VOCABULARIES OF “PROFIT”:
PRIVATIZATION AND NEW IMPERATIVES
FOR CORPORATE PERFORMANCE
During the pre-privatization period manage-
ment saw cost reductions as a key performance
indicator and corporate objective, all of which
was articulated through a vocabulary of costs.
With privatization the Water Authorities had to
transform themselves from public sector
bodies concerned with containing costs to
private sector plcs pursuing profitability.
The Government had already celebrated the
potential of the Water Authorities to be
successful private sector enterprises in its 1986
White Paper on privatization: they were
hailed in terms of their “improved financial
performance”, and their transformation into
“ten modern businesses”; and were deemed
“capable of standing independently as com-
mercially viable entities” (White Paper, 1986,
paras 38,35). But it was only when privatization
became effective in 1989 that the Water
Authorities themselves felt able to re-formulate
their objectives in terms of the private sector
vocabulary of profitability. At Delta Water the
objective of providing customers “with a good
level of service at least possible cost” became a
commitment to securing “profitable efficiency”
(Annual Reports, 1986, 1989). In its 1990
report, the chairman’s statement announced
that “A high level of profitability is essential to
the business in order to help finance our large
investment programme. Our charges for water
supply are the lowest of the ten privatixd
companies, and for all services, the second
lowest - yet we achieved the bigbest water
sector pre-tax profit” (p. 2, emphasis added).
At Alpha Water the strategic aim “to achieve
performance aims set by Government”
(Corporate Plan 1988/89) has been @aced
with “to increase profits annually” in line with
specific targets over the next 5 years (Corporate
Plan, 1990/91). Accounting controls and
measures were now used to promote profit-
ability explicitly, as epitomized by the replace-
ment of cost centres by profit centres. The
comments of senior managers are indicative of
the changes involved. The Personnel Director
at Alpha Water, for example, said:
What you had before was a performance aims regime
which was a cost cutting exercise. What you have been
doing in the past you’ve got to do a lot better for a lot
less money. And we had one task master, which was the
Government. We had to make those cost savings and
demonstrate that we were doing it. The attitude now is
“we are in the big world now”: we are competing and
therefore our policies must be geared tn being able to
survive in the big world.
At Delta Water similar sentiments were
expressed, as the interview extract illustrates:
asked about the significance of privatization the
manager replied:
Senior Manager: It’s important because it’s started to re-
focus the objectives of the business.
S: In terms of re-focusing on the objectives, in terms of
projecting yourselves as a viable successful private
company, how important is profit now?
Senior Manager: It’s important. I mean let’s not be
apologetic. We are in the business of showing a healthy
growth in profit. 90% of our employees are also
shareholders, so presumably they don’t totally object to
that either.
At Beta Water, a senior manager commented as
follows:
The focus of what the business is doing now is very
different to the focus it had as a public authority We
are spending more time than ever in examining precisely
what we do as a business, what are our core activities
which relate to that part of the industry which is covered
by the regulatory framework. And we are looking at
other things like the opportunity for commercial
development and so on where the priorities are
more to do with profit and looking at sbareholders’needs
It’s a whole new risk taking, profit making
entrepreneurial Ravour to what we are trying to do, and
far more attention to controlling costs and going for
maximum efficiency and flexibility. There was some of
that before. but the whole base of it has raised
considerably over the last 12 months.
The impetus provided by privatization,
however, for achieving these new objectives
flows largely from the new regulatory frame-
work rather than directly from the unfettered
operation of market forces. In the Water
Industry the chances of market competition
were extremely limited. Littlechild (1986) in
his assessment of the need for regulation after
privatization, acknowledged that the Water
Industry was largely a natural monopoly and
that although there was the possibility of
competition in the capital market, competition
2og S. G. OGDEN
was not an alternative to regulation, Within
the industry the prospects for competition
subsequent to privatization were viewed
unequivocally. Roy Watts (1987), Chairman of
Thames Water, and a keen supporter of privatiza-
tion, argued that competition was “neither
practical nor economically realistic”. W. R
Harper ( 1988) managing director of Thames
Water, stated that “The services of water supply,
sewerage and sewage disposal are clearly
monopoly services, and there is no prospect of
creating any form of mainstream alternative
provision in order to secure the benefits of
competition for the consumer and the public at
large. The Water Industry privatization cannot
be about producing a competitive environment”
(p. 78). The only scope that has emerged so far
has been in activities outside the core provision
ofwater services. All the newly privatized Water
companies have set up subsidiary companies to
promote non-core commercial activity. To date,
this has largely been confined to consultancy on
water engineering issues, tourist activities,
waste management and plumbing services.
Although they may expand, these activities
currently only account for a minor part of their
overall business.
However, despite the lack of market competi-
tion, the new economic regulatory framework
has the potential to provide considerable
stimulus to improve economic performance.
Economic regulation will be the responsibility
of the Director General of the Office of Water
Services who is charged with ensuring that the
Water plcs are able to finance their operations
by earning “reasonable” returns on their capital,
promoting efficiency and protecting customers
with respect to prices. Like British Telecom and
Gas, the principal form of control is price
regulation. Charges for water services will be
controlled by the Director General on a similar
basis to other regulated privatized utilities,
except that in the case of Water the formula is
RPI plus K formula.3 The K factor, which is
assessed separately for each Water plc on the
’ In the first instance the K factors were set by the Government and were announced in August 1989.
WATER PIUVATIWTION 209
basis of investment requirements, operating
costs and revenues, and an efficiency target, is
set for ten years, but was subject to a major
review after the first five years in 1994.
This pricing formula provides incentives to
management to reduce costs as a means of
enhancing profitability. Unlike Gas and Telecom,
management will experience further pressures
to be ‘efficient, as the Director General has the
opportunity to make comparisons between
the 10 Water plcs, and the 25 Water-only
companies. The opportunity for comparative
judgements about performance will enable the
regulator to operate “yardstick” competition,
whereby each company’s allowed price increase
under the K formula is related not to its own
costs, but rather to the costs achieved by
the most efficient companies in the industry
(Littlechild, 1986; Kay & Vickers, 1988; Cowan,
1994). Despite technical difficulties in opera-
tionalizing the econometric modelling required
for this “yardstick’ competition, and the
problems in measuring outputs and costs
particularly in the light of the variety of
geographical differences between the Water
plcs (Price, 1993) Ohvat worked towards
having to have a system of comparative competi-
tion ready for its fust major review of the K
factors in 1994. Under this procedure no single
company will have any incentive to hold back
on improving performance for fear it will
jeopardize the prices and profits allowed to it
in the future. On the contrary, failure to maintain
comparable efficiency to the rest of the industry
will have definite adverse consequences, not only
from the Director General, but also Tom financial
markets, which will no doubt also take full
advantage of the opportunities for comparative
judgements about management performance.
Thus the limited basis for previous comparisons
which was confined to assessments over time of
the same company have now been elaborated
to enable comparisons between companies at
the same time. The comments from a senior
operations manager at Alpha Water succinctly
summarize the issues confronting managers:
’ Her Majesty’s Inspectorate of Pollution.
We were already operating very much in our commercial
mode, we were looking at making assets sweat, we were
looking at customer service standards, and we were
looking very closely at our operating costs but I think
once the Director General gets his feet under the table
he will be looking at comparative competition and then
the pressure wig start to come on the companies. Why
can X do sludge disposal at half the price they do it in
Y. There might be very good technical reasons why that
is, but the question wig be asked and if there isn’t a
satisfactory answer then at the next K review they’ll look
at your operating costs, so instead of 14% year on year
efficiency it might be 3%.
The incentives to pursue profitability, however,
will be tempered by constraints emanating
from elsewhere in the regulatory regime. The
Director General is also responsible for :t wide
range of measures of standards of service and
customer care; the Secretary of State for
Environment has responsibility for regulating
drinking water quality; Her Majesty’s Inspector-ate
of Pollution has responsibility for monitoring
sewage sludge disposal; and the National Rivers
Authority is now responsible for environmental
regulation including the management of water
resources and control of water pollution as well
as duties in respect of flood defence, fisheries,
recreation and navigation. In addition, Water
plcs are subject to regulations originating from
EEC directives and legislation. Although it is
difficult at this early stage to assess the rigour
of this new regulatory regime, Water plcs are
likely to be politically sensitive to the threat of
intervention from the regulatory agencies, since
environmental and quality of service provision
issues were the focus of major controversy in
the privatization of the Water Authorities
(Ogden, 1991). Moreover, failures to comply
with regulatory standards may well be viewed
as management incompetence. As one senior
manager at Delta put it:
You can’t say you are a successful water business if you
are getting a bad go from the Director General; if you
have got HMIP’ writing bad reports about you; if you’ve
got NRA prosecuting you there are mechanisms out
there that could be painful to our business if we got it
too badly wrong in those sort of areas.
210 S. G. OGDEN
Compliance with regulatory standards is
seen as strategically important in projecting a
company’s professional competence and tech-
nical expertise, both of which are essential to
overall financial success. Quality issues are seen
as an important competitive arena (Foster, 1992;
Ofwat, 1991) and failure to do well on the
appropriate performance indicators is likely
to have adverse effects on the City’s and
the Director General’s judgements about mana-
gerial effectiveness with the attendant implica-
tions for K setting and share price. Consequently,
all the plcs have introduced some form of total
quality management initiative. Quality issues
have also been prioritized in employee training
programmes and have been at the centre of new
bonus schemes where bonus payments are
geared to achieving quality standards as defined
by regulators. Quality is no longer a matter of
engineering judgement, but is now a business
objective, a fact reflected in numerous mission
statements, business plans, and customer aware-
ness programmes. Quality issues are also being
integrated with accounting systems. At Alpha
Water, for example, management have empha-
sized the need for close monitoring of perfor-
mance to ensure specified levels of service are
met and have determined that regulatory
standards are to be used consistently in the
planning process so that targets for operational
performance measures may be based on regula-
tory requirements wherever possible.
The regulatory framework also has profound
implications for the capital programme. The
long-term objectives set for achieving the
required levels of service essentially determine
the future investment programme. To meet
these objectives each Water plc prepared an
investment programme, which then formed a
key criterion for the setting of the K factor in
the pricing formula by the Director General
of Ofwat. Some of the objectives such as
the requirements on bacteriological issues,
treatment and distribution standards, com-
pliance with sewage works discharge consents,
the European Community’s directives on bathing
water and disposal of sewage sludge to agri-
cultural land, and river quality objectives are
statutorily prescribed and are regarded there-
fore as mandatory. While other objectives may
be discretionary, once they have been declared
as part of the capital programme and therefore
counted in the assessment of the K factor, the
company is committed to achieving them. All
the companies are required to carry out their
declared capital programmes and to give reasons
for any departure from them. The capital
programmes formulated in 1989 provide the
basis for the first five years of investment
expenditure. They can only be changed as a
result of an agreed adjustment in K by the
Director General either as part of a full periodic
review, or as part of an Interim Determination
of K, which may occur at any time to take
account of certain defined increases in costs,
such as those incurred in the compliance with
legislation unforeseen at the time of the periodic
review.5 The declared capital programme is thus
the reference against which a company’s
actual capital programme performance will be
measured. Any differences between out-turn
expenditure and the investment programme
will have to be explained to the Director
General. Companies are also very aware that
their management of the capital programmes
will be closely scrutinized by the City. In view
of this, management in all the Water plcs now
attach high priority to completing agreed
programmes of work on time and to cost. To
this end, various initiatives have been instigated
to improve monitoring and reporting on
physical and financial progress. Clearly, all these
pressures stemming from the Director General’s
yardstick competition on costs, meeting quality
standards, and delivering the capital programme
on time will necessarily involve management
in further elaboration of their accounting
information systems.
WATER PRIVATIZATION 211
THE SHOCK OF THE NEW?:
PRIVATIZATION AND THE
TRANSFORMATION OF CORPORATE
CULTURE
The pro-active role of accounting in shaping
organizational change was also apparent in
senior managers’ attempts to change corporate
cultures in ways which supported the achieve-
ment of new organizational purposes. Although
Dent (1990) in his review of the literature
on strategic change, indicates that generally
strategic re-orientations appear to happen in-
frequently, with much strategic decision making
amounting to little more than elaboration or
refinement of existing strategies, there is little
doubt that the proposals for privatization
officially announced in 1986 and their realiza-
tion in 1989 necessarily involved the Water
Authorities in processes of strategic change. In
particular, the transfer to the private sector
through privatization and the new imperative of
profitability would constitute a profound trans-
formation of organizational rationale. Although
the new more commercially oriented boards
appointed by the Secretary of State in 1983 had
deliberately given a much greater emphasis to
running the Water Authorities as businesses, this
development was manifestly intensified with the
preparations for privatization. One aspect of this
is related in the extent to which senior
corporate management have been conscious of
the need to reconstitute corporate culture in
ways which are commensurate with the new
reality confronting the Water plcs. In seeking
to foster in managers and employees new
values of customer care, innovation, flexibility,
enterprise and competitiveness, corporate
management have sought a shift in the Water
Authority culture from one based exclusively
on engineering and operating demands and
notions of public service to one which gives
greater salience to business priorities and
customer needs.
The public sector culture revolved around
engineering and operating imperatives with a
strong emphasis on maintaining high standards
of service provision to the public. Its origins in
the water industry may be found in the latter
part of the nineteenth century when water
services were taken into public ownership and
came to be viewed as one of a number of
necessary services to be provided by municipal
Local Government authorities. In 1973 when
the industry was reorganized, the organizational
logic underpinning the geographical boundaries
of the new Water Authorities was that of
integrated river basin management, an engineer-
ing concept based on the notion that one
Authority should control one or more natural
river systems so that they could control all the
water services provision within each river
catchment area. These arrangements “have
largely been regarded as a technical operational
and scientific success” (Harper, 1988). The
commitment to the engineering concept of
integrated river basin management is reflected
in the response of the Water Authorities to
the Government’s White Paper proposals for
privatization (White Paper, 1986). While they
“were dissatisfied with aspects of the current
financial framework within which they have to
work’ and “were looking for greater managerial
freedom” they stated that they “would be most
strongly opposed to changes which put at
risk the benefits embodied in the 1974
reorganization of the industry . . The Water
Authorities believe it is vital to preserve the
principle and practice of overall river basin
Management” (Water Authorities Association,
1985).
Despite the changes in the board structure of
the Water Authorities in 1983 there was still
some reluctance to endorse the Government’s
privatization proposals when they were first
announced in 1985. While some chairmen were
enthusiastic advocates such as Thames’ Sir Roy
Watts, others like George Mann of North West
were opposed (Water Rulletin, 10 May 1985).
Len Hill, Chairman of South West, said he
“was not convinced on privatisation” and was
concerned that “the proposals would lead to
diminution of the service” (Water Bulletin, 17
May 1985). Such concerns were by no means
confined to senior personnel, and many middle
managers were sceptical of the rationale for
212 S. G. OGDEN
privatization articulated by Government. Harper
noted that until recently water services were
seen within the industry as essentially “part of
the local portfolio of community provisions
funded by the local property tax from the rates”
and that “there are still many people who
believe there is something wrong if such
services are provided ‘at a profit”’ (Harper,
1988, p. 224). Moreover, there were criticisms
that the Water Authorities’ effectiveness in
achieving efficiency improvements and cost
reductions had not been matched as regards
provision of services. Herrington ( 1989), for
example, quotes the following extract tiom an
internal report to the Board of Anglian Water.
The lower operating costs have produced no detectable
benefits for customers in terms of charges and have
reduced service levels. Service levels are important. It
is easy to save money be ceasing to do things. . . Possibly
too much effort has gone into simply reducing costs
without a proper assessment of the impact on the service
provided we have not considered service levels
explicitly enough.
Outside the industry, critics were sceptical of
the Water Authorities’ capacity to improve
standards, given the effect of the Government’s
tight financial controls and what the Financial
Times (28 July 1986) described as their
“punishing financial targets”. Rees & Synnot
(1988) for example, argued that despite the
general acknowledgement of the need for
extensive replacement and rehabilitation of
sewers and mains, the fiscal control imposed on
the Water Authorities “has meant that they have
largely been forced into a crisis management
approach, dealing with little more than self-
evident points of failure”, and that “This is now
beginning to result in reductions in service
and environmental quality standards’ (pp.
185-186).
There is little doubt that investment levels
were squeezed, and that the Water Authorities
were unable to undertake the number of capital
projects they thought desirable, a situation
reflected in the large capital spending profiles
of the new Water plcs for the 1990s (see Water
Share Prospectus, 1989). The effects of the
financial constraints on the capital programmes
of the Water Authorities had irked management
within the industry, and for many were an
influential factor in securing their support for
the privatization proposal. Not only would they
be free of Government financial controls, but
they would also be better placed to finance the
large capital programmes the industry required.
The Government, determined to make privatiza-
tion politically successful, restructured the
finances of the Water Authorities prior to
flotation by writing off most of the industry’s
borrowings (54.9 billion out of a total of 65.3
billion); by providing a cash injection, known
as the “green dowry”, of 61572 million; and by
setting the initial values of the K Eactors to be
used in the pricing formula on the generous
side. These provisions were publicly welcomed
by the Water Authorities: for example, the
Chairman’s statement in Sevem Trent’s Annual
Report 1989190 stated that “The greatest benefit
of privatisation is that for the first time, we have
the resources we need to meet the quality and
service standards required . . . Privatisation has
provided the finance, lacking for the past 70
years to meet in the future, obligations to our
customers, to Government, to the European
Community and to our own high quality
standards” (p. 8). However, despite these
perceived benefits, there were still those in the
industry who had doubts about some aspects of
the legitimacy of privatization. These tensions
are reflected in the following comments of a
senior manager at Alpha Water:
I think that many people who were in fact very
apprehensive and thought it was wrong, they partially
changed their minds, and I use the word partially. They
have changed their minds as far as the fact that they now
feel that the organisation is generally freer to deal with
substantial infrastructure problems. They may, however,
still have a problem in deciding their attitude to the
customer shareholder interests, which every company
has to face up to.
The need to change attitudes was not just
confined to motivating organizational members’
commitment to the company’s new private
sector status. The persistent traces of a public
WATER PRIVATIZATION
213
sector culture now deemed obsolete were
perceived as constraints on successfully achiev-
ing new organizational goals. At Alpha Water
another senior manager commented:
Yes, there are people who have grown up in the industry
whose approach was service, but I would think these
days, I think we’ve made the adjustment from Local
Government. We are probably half way there to that
adjustment to a private company. . There is much more
flexibility in the attitudes of our employees than you’d
get within Local Government. It’s less rigid and less of
a bureaucracy, but we have still got them.
However, the intention was not to jettison
wholescale all the elements that informed the
old public sector culture, but rather to instil the
new importance of cost effectiveness and
profitability while retaining the previous
commitment to required engineering standards.
At Delta Water, a senior manager described the
issues in the following way:
I suppose that in some senses as a nationalised industry
we tended to trade on service to the community. We
have a lot of people historically who felt very strongly
that they were in Water to provide the community with
a first class water service, and there is absolutely nothing
wrong with that. What we have to do is harness and re-
direct a little towards a new ethos without rubbishing
that. I mean the last thing we want to do is turn people
off. But we do actuaily want our people to identify with
where our business is driving. And part of where our
business is driving is measurement of results. And
measurement of results is expressed in profit and yield
and all these good City things.
A similar perspective was evident in these
comments from a senior manager at Beta Water.
He began by describing the “public sector ethic”
as follows:
I think it’s service to the community without particularly
having regard to the cost implications of that. It’s doing
things because they are perceived to be the right things
to do with not too much regard for how that is costed,
and really seeing the focus of responsibility for finance
at Government level. We have got to put together what
we think is right. . the tirst thing we should be doing is
getting the service ri@, and within the private sector that
we are now in, with our own responsibility for hmdmg
and so on, we have got to consider both the service
element and the financial element. what it’s going to cost.
The attempt by corporate management to
transform corporate culture was marked in the
first instance by changes in language as well
as substance. Even before privatization the
language of the private sector was imported to
construct a new version of organizational reality:
the Water Authority was increasingly referred
to as “the business”; the objectives of the
Authority underwent successive transforma-
tions from a concept of public service and
obligation, to one of efficiency and cost savings,
to finally one of profit; consumers of water
services were referred to as customers and no
longer as rate payers or the public. The following
extract from field notes is illustrative:
S: Did you call it “the business” before?
Senior Manager at Delta Water: Yes, we started calling
it the business between ‘83 and ‘89.
S: Because it’s not a very kind public sector word is it?
Senior Manager: Our Chief Executive - two removed
I can’t tell you the exact time, but 1 can tell you that
I sat at a meeting that I had arranged which he had
agreed to come and speak to for an hour, and he actually
started talking about “the Water Business” and
everybody sort of looked, and so certainly in Delta Water
we have inceasingiy talked about “our business” over
the last two or three years. And we have also increasingly
talked about customers rather than consumers because
again that has a dieerent ring about it.
Changing management philosophy and man-
agement style has been a priority concern. This
again pre-dates privatization. Alpha Water’s
corporate plan for 1987-1991 stated for
example that “Traditionally, former manage-
ments had been more concerned with technical
excellence. The new Board inherited a staffwho
were highly professional and dedicated, but who
had received little training in management
skills.” To remedy this, and to make progress in
improving the efficiency and effectiveness of the
organization, the plan stated that the board was
committed “to the training in management skills
of all levels of management” and reported that
1200 managers had received at least four to
seven days’ training in each year during the last
214 S. G. OGDEN
two years, It concluded that “there is already
strong evidence that this investment has
increased the commitment of all levels of
management towards achieving the aims
and budgets set out in this plan” (company
document). Similar developments occurred in
other Water plcs. For instance at Omega Water
all managers were given a weeks course which
a senior manager described as “about business,
about the position of the company in terms of
how a good business should be run . . . dealing
with problems about generating profit, motivat-
ing people, that type of thing” (interview).
There have also been occasional seminars for
the senior management group. The most recent
of these involved “having an analyst there
showing them how to read profit and loss
accounts and balance sheets . . . A lot of them
did not have a clue . . . they had just not been
brought up in that kind of environment”
(interview).
Seen from the other side, an engineering
manager at Alpha Water said:
1 think because the bulk of our level of service
improvements will be delivered through capital invest-
ment it is still very much an engineering intensified
organisation In terms of managerial decision making,
it’s still the same people by and large from a point of
view of disciplines and background. But I think what has
changed is the impact that accountants now have on the
business, and I don’t mean that in a derisory way because
we work very closely together, but certainly there is a
lot more rigorous examination in terms of expenditure
requirements, and that’s right that it should be thus. I
think managers now have to be competent in areas that
before there was no need There is a lot more
accountability now than there ever was.
Since privatization several plcs have also intro-
duced performance-related pay for managers
with set targets related to profitability and return
on capital as a way of reinforcing the new
organizational objectives. Pay systems for
employees have also changed. The need
to improve profitability and meet changing
customer needs were cited as the main reasons
for changes in the payment system at Alpha
Water. Instead of the Local Government style of
differentiated pay scales and their associated
demarcations, flexibility was now defined as
critical to the financial success of the company.
To this end moves were in progress towards
harmonization of conditions of employment and
single status for manual and non-manual stafI,
fewer grades, better training and a greater
emphasis on team working. A more explicit
attempt to reconstitute the basis for employee
commitment from “public service” to business
priorities has been the introduction of a
profit-sharing scheme. Four other plcs have
also introduced profit-sharing schemes for all
employees.
Consultation arrangements were seen as
another critical arena for confronting employees
with the implications for the company of the
new market environment of the private sector.
In place of the formal bureaucratic Whitley
consultative arrangements so characteristic of
public sector industrial relations (Fogarty, 1986;
Clegg, 1979) management at Alpha Water
introduced a more presentational style with the
emphasis on briefing employees about “matters
such as business plans” and “progress towards
targets” (company document), and used off-site
seminars to make presentations on aspects of
the Business plan for the company such as
capital investment and customer care. Other
Water plcs have pursued similar initiatives.
CONCLUSION
The study has addressed some of the ways in
which accounting has been instrumental in
processes of organizational change in the
Water Industry. It has focused on how the
transformative capacities of accounting have
been deployed in redefining organizational
objectives, changing the meanings ascribed
to organizational activities, and reshaping
perceptions of what are critical issues. This
constitutes an important element in understand-
ing how, in the Public Sector, effect has been
given to changing political definitions of what
is appropriate in determining the level and
quality of goods and services, and how transition
to full private sector status may be accomplished.
WATER PRIVATIZATION 215
The constitutive role of accounting in actively
constructing organizational purposes has been
evident in the extent to which accounting has
been implicated in reflecting and reinforcing
successive new strategic postures adopted by
the Water plcs. The paper has shown how the
elaboration of a vocabulary of costs was integral
to management’s articulation of new organiza-
tional imperatives as they sought to respond to
increasingly demanding Government financial
controls and performance aims. The vocabulary
of costs also provided a legitimation for new
organizational initiatives designed to improve
efficiency which accorded with the wider
political and economic climate surrounding the
Water Authorities. The Government’s political
and economic antagonism to the alleged
inefficiency of public sector provision of goods
and services created a new agenda for the
management of public sector enterprises
and insistent demands for demonstrations of
tangible improvements in financial performance
and cost effectiveness. The vocabulary of costs
informed both the construction of new internal
operational measures of performance and
management accountability, and a new set of
criteria for measuring and reporting achievements
that was in alignment with the Government’s
prevailing economic rhetoric. The extent to
which the vocabulary of costs provided an
incentive for action and organizational motive
deepened with the Government’s announce-
ment of its decision to privatize the Water
Authorities in 1986. The demands on manage-
ment to achieve further improvements in cost
effectiveness intensified as the Government
sought to ensure their successful flotation as
private sector plcs. Management devoted
more resources to the development of the
technologies of calculation and employed them
ever more rigorously in identifying and investi-
gating costs. Cost comparisons between different
internal providers, between internal providers
and contractors, and with the other Water
Authorities “put accounting numbers on every-
body’s agenda”, as one manager put it.
The transformative capacities of accounting
were deployed again in the elaboration of a new
economic language of organizational motive
based on a vocabulary of profits, as management
sought to give effect to their new private sector
status. The need to satisfy shareholders and the
scrutiny of the financial markets meant that corpo
rate objectives once more required reformulating.
Improvements in corporate performance will
now be measured primarily in terms of profit-
ability. In translating the need to be profitable into
incentives for organizational action, the vocabu-
lary of profits has begun to inform changes in
managerial planning, control and information
systems, and changes in the reward system and
hence the motivational basis for securing
improvements in managerial and employee
performance. Improving service standards in
accordance with declared capital programmes,
meeting required quality standards over a wide
range of activities specified by a number of
regulatory agencies, and competing effectively
on costs within the economic regulatory frame-
work of yardstick competition operated by the
Director General of Ofwat, are all now seen
primarily in terms of business objectives and
their implications for corporate profitability.
While the above discussion has focused on
the involvement of accounting in processes of
strategic change in the Public Sector, further
analysis of the transformative capacities of
accounting needs to be extended to other
organizational territories in order to provide
more understanding of their role in the
conceptual invention of new ways of managing
established activities.
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