Critical Analysis of a Research Paper

Towards an integrated contingency framework for MAS sophistication

Case studies on the scope of accounting instruments in Dutch power and gas companies

By Sandra Tillema

Title

The title suggests that the article will give guidance towards a contingency framework for MAS sophistication. The Contingency framework states that there is no one right way to manage an organisation, so the part “towards integrated [...] framework” with the word “contingency” seems like a paradox. We feel that we might not have chosen this article if we were looking at the title only because it seemingly contradicts itself.

The group agreed that the title is quite long. We have analysed it by defining the main words of which we used the Macmillan Dictionary (2002) (See appendix B).

After understanding the words and theory explanation, the title became quite easy to understand.

Abstract and Introduction

We feel that the abstract provides concise and simple information. It is a good explanation and expansion of the title. We have chosen this article because it can be easily understood. The abstract states that many companies are being convinced to implement newly developed management accounting systems and also comments on its inappropriateness. The author states the reason for this is due to the contingency theory perspective. She also highlights that this article is based on the cases of two power and gas companies.

The introduction is interesting and very informative. It lays out very clearly what the author will discuss by dividing the article into sections and also talks about the ‘sophisticated’ techniques such as ABC. She also identifies that the causes and criticism of MAS sophistication is due to the methodology of research undertaken in previous years like the cross sectional survey method. With this mind, Tillema (2005) says that she will try to overcome the weaknesses by using different approaches of research.

This article relates to Management Accounting Systems and its instruments, contingency theory and two case companies. It is divided into 5 main sections, which helps with the reading because it is very long.

The author is an academic staff member of the Faculty of Economics at the University of Groningen, from which she graduated. She is an assistant professor in finance and management accounting and is involved in the university’s management accounting and finance courses. Her main focus for researches is a wide area of management accounting (University of Groningen, no date).

We think that she knows the topic very well considering she teaches Management Accounting at the University. The research that she undertakes is convincingly reliable which we think is highly significant and logical as her main focus is on management accounting.

Critical Analysis

We believe that the main issue of this article is the inappropriate implementation of the MAS without taking into account the contingency theory. The author mentions that researchers found out that the introduction of sophisticated accounting techniques was often unsuccessful due to the lack of consideration of various contingent variables. It seems that managers want to find the best way to make their specific company successful when implementing new MAS’s. We agreed that the sophisticated techniques are dependent on the environment in which they are used and this is where contingency theory becomes very important. We think that the article highlights the problem really well and feel it is a good pointer in dealing with the contingency framework and the scope of accounting information.

Every business may introduce different accounting techniques at various levels of sophistication. Hence the need for contingent approaches i.e. what suits the organisation? This paper identifies the contingent factors for the sophistication of accounting instruments in two Dutch companies.

In addition, the author tries to answer three questions: “Which contingency factors influence the scope of accounting instruments? […] How these contingency factors interact with each other and with the various characteristic of organisations and their environment? […] Which mechanisms explain the scope of accounting instruments?” We think that the author writes the article answering the three questions whilst explaining her findings which she summarises really well.

The author’s intention is to improve awareness about contingency theory by describing its factors with reference to the two case studies. We think that the target audience are all people interested in management accounting as well as students.

Research
We think that the author has provided a research framework in a positive way because it is highly detailed and could be helpful in guiding further research. This framework was planned in three stages.

In the first stage, the author used the two largest Dutch power and gas companies to support her study. Here, she mentioned that her main reason were changes in the scope of accounting instruments in a short period of time within the companies. The change of accounting instruments used occurred respectively with regard to the company’s structures.

In the second stage, she collected data through interviews. The data were then compared for verification to the data from document analysis which we think is a better research method compared to sending postal questionnaires. The process of the interview was well carried out in the sense that the accountant of a specific department was interviewed before the managing director of that department.

The final stage was data analysis which was done in two stages: the first was within-case analysis and the second cross-case analysis. Each within-case analysis started by sorting out the case company’s past, current and future accounting instrument regarding their scope. We all agreed that the method used for the research was efficient and substantial.

Results

The result from the empirical research indicates that nine contingency factors have a direct influence on the scope of accounting instruments. The author relates the existence of contingency factors (appendix C) with different level of the organisation (beyond-organisation, organisation and sub-units, operating task, accounting tasks).

Beyond the organisational level, the author revealed that regulations, accounting innovations and trends will influence the scope of accounting instruments used by organisations. She supported this assertion by defining the adoption of management accounting techniques such as balance score card, the economic value added activity and shareholders’ value. However, we feel that it would have been very helpful if the author tells us in this paper the effects of the adoption of these instruments on the performance of those Dutch companies and support them with some financial data.

The author relates the two Dutch companies with willingness or potential willingness to embrace broader accounting instruments by their shift from a more focus on “implicit non financial measure” (Tillema, 2005) to a more financial performance related behaviour. Here we feel that the author is trying to convince us that the change of a company financial objective should always be followed by its shift to the accounting instruments used. We can justify this statement on the basis of the two case studies.

At the operating task level, the author defined the visibility of financial consequences of the operating task as a factor that influences the scope of accounting instruments. This is because it gives detailed information on the cost incurred with the activities of those companies.

With regard to the complexity of operating tasks, the author thinks that it may, in certain circumstance, be subjective to influence the scope of accounting instruments. For instance cost-benefit analysis may imply the use of average or broad accounting instruments whereas restricting costs or expenditures may imply the use of narrow accounting instruments (Tillema, 2005). In addition, we understand from the case that in the dynamic environment, acceptable forecast of the future financial situation requires investigations of the financial consequences on the possible future market circumstances. Another example is that the case companies introduced several broad scope instruments since their environments have become far more dynamic. This was due to the liberalisation of the energy market and the introduction of external telecommunications products.

At the accounting task level, the empirical research revealed two factors as direct consequences of the type of accounting instruments used in the companies’ accounting instruments. These factors are: the significance of accounting instruments and the clarity of accounting instruments. According to the author one of the case companies’ that is concerned with only energy supply experienced low cost in its decision making which was done in a low frequency base using narrow accounting instruments. Moreover the author related the use of this narrow accounting instrument in the event of uncertainty of financial consequences of a decision.

The author informs us only about some facts related to the case companies. It would be better to have some practical examples on the financial performance of the companies. It would support managers when making decisions in the future.

Conclusion and Discussion

We think that the conclusion is pretty much straight to the point defining outcomes of the research. She answers well, in our opinion, all three questions from the introduction. She says that scope of accounting instruments is influenced by many of the contingency factors and there are few factors, which communicate with institutional context of these instruments.

The author recognised that the other research methods used in other case studies i.e. (cross sectional) are considered as inadequate by academics but has produced one consistent variable (dynamism of the environment). We think this is an important factor as other research has proved this to be a common factor including the comparison article by Abdel-Kadera and Luther (2008)

This article based on two case studies shown “the relationship between a known contingency factor and the scope of MAS” (Tillema, 2005).

As a group, we thought this article has been written with precision having carried out extensive research and taken into consideration other factors like the mindset of managers and accountants with personal face to face interviews.

The author suggests areas of improvement and also gives own recommendations on her article. She suggests how her research paper could be improved by investigating whether the contingency framework developed in this paper is useful in explaining the scope of the accounting instruments of organisations that were not included in the empirical research. We could not agree more with this statement because by doing so, it enriches the article and adds more substance to it. Evidently, this has been carried out in the comparison article; here they carry out the research on the food and drinks Industry.

Another suggestion she makes is to find contingency factors at the individual level of analysis.

Overall, a very good article, it covers a lot of factors and explains the points concisely based on extensive research and case studies about the sophistication of MAS in relation to contingency theory. Not only does the article do this well but the author also recommends ways in which it could be better understood.

Comparison to another article

‘The Impact of Firm Characteristics on Management Accounting Practices: A UK-based Empirical Analysis’ by Abdel-Kadera and Luther (2008) is the article we have chosen for comparison.

This article was chosen because the topics are similar. It attempts to explain why firms adopt different management accounting techniques, particularly in the UK. The article by Tillema (2005) has also been referenced in support to their article because it explains same issues in relation to the contingency theory and management accounting sophistication. It is a more recent version compared to the article by Tillema (2005) and also looks at a different type of manufacturing industry.

This article uses empirical research meaning the data is based on experiments and observation as well as interviews much like Tillema (2005) did. However, we think there is a weakness in the way the research was conducted. Much of the empirical data was done through postal questionnaires and a limited number of face to face interviews were carried out (Abdel-Kadera and Luther, 2008). Whereas Tillema research methodology is more efficient and gives a better view on the various aspects of difference in management accounting practises; it is precise and more accurate.

Both articles come to a conclusion that difference arise in management accounting practises and MA sophistication because of the external environment and operating activities. Abdel-Kadera and Luther go further by stating that customer power, decentralisation and size also affect the accounting practices. (Appendix A)

We feel that the article by Tillema is very evident and well researched. It has an edge over this article and that is why she has been referenced extensively. We also think that both articles have a common conclusion with slight differences and additions being made in this article.

Appendix A

Appendix B

Towards: nearer to a particular result used for showing how a process is developing in a way that will produce a particular result

Integrated: combining things, people, or ideas of different types in one effective unit, group, or system

Sophistication: the quality of knowing and understanding a lot about a complicated subject

Scope: the things that a particular activity, organisation or subject deals with

Appendix C

Contingency factors:

1. Accounting innovations and trends,

2. regulations,

3. importance of financial objectives,

4. interaction between organization and organizational parts,

5. the visibility of operating task,

6. the complexity of operating task,

7. the dynamism of the environments,

8. the significances of financial consequences,

9. and the clarity of financial consequences

References

Abdel-Kadera and Luther (2008), The Impact of Firm Characteristics on Management Accounting Practices: A UK-based Empirical Analysis, The British Accounting Review (40) 2–27.

Contingency theory, (no date), [on line] Available at: [Accessed on 18th November 2009].

Kaplan, R.S. (1986), Accounting lag: The obsolescence of Cost Accounting Systems. Harvard Business School Press, Boston.

Macmillan, (2002), English Dictionary for Advanced Learners.

Tillema, (2005), Towards an integrated contingency framework for MAS sophistication, Case studies on the scope of accounting instruments in Dutch power and gas companies, Management Accounting Research, Vol. 16, pp 101-129.

University of Groningen, (no date), Staff profile, [online], Available at: [Accessed on 18th November 2009].