Reflection and critique of OCF

Question 1

What is Merchant and Van der Stede’s framework based on? What assumption this?

Answer 1

• The framework presumes an implicit economics-based model by conceptualising the choice of control systems as an outcome of cost-benefit trade-offs.

Assumptions
• Homo Economicus
• Superiors (principals) and subordinates (agents) are both self-interested and have diverging interests and objectives (agency theory)
• Subordinates are effort and risk adverse
• MCS’s can be reduced to a question of implicit (implied) or explicit (directly stated) contracting.
• Costs and benefits are easily conceptualised and (in principal) are measurable.

Question 2

Under the economics-based approach how does on chose an MCS?

Answer 2

• Where superiors have imperfect information about subordinate’s actions, the former has two basic options: (1) contracts based on behaviour (actions) of the sub and monitor compliance OR (2) contracts based on outcomes (results) of subs actions and design rewards compensating for the risk shift to subordinate.
• Compare direct costs of 1 and 2
• Choose least costly alternative subject to contextual constraints.

Question 3

What are the limitations of the economics based model?

Answer 3

• Presumes that organisational members work in a social vacuum and always act on their self-interests. P/C controls, trust? Everyone is lazy, self-interested, why make friends? Social relations to smooth things over
• Organisational history, political and cultural context and individual psychology differences do not matter. (Specificity). Reflects dominoes of economics in North American business schools. Does not hold as MC travels across the globe, Asia?
• Reduces the choice of control systems to a matter of (explicit, implicit) economic calculation.
• The process of changing control systems is largely “black boxed” study static states. Two states of economic equilibrium. What goes on inside the change process?
• Economic theories are self-fulfilling, they do not reflect the world they are a force behind them! The more we use the model, the more people are indoctrinated towards them. This can reinforce rather than mitigate dysfunctional attitudes and behaviour. (Excuse). Incentives contributing to the financial crisis, bonus schemes enforcing excessive risks with other people’s money!

Question 4

What is the illusion and management control?

Answer 4

• Dermer and Lucas 1986
• Based on managerial rational (Shareholders) - Unirationality
• Ignores that organisations are constituted by multiple stakeholders with their own rationality and competing demands (Multirationality).
• Lack of awareness towards political dimensions of control and the actors involved
• Narrow minded, simplistic with view of only shareholders, is control really there?
• Public sector – new public management private sector to public sector “imitation” forces illusion of management control.
• Managers are so narrow minded they think they are in control! When they don’t understand what is really going on.
• Important: Unless managers recognise multiple rationality control may prove illusive. (Conflicts between stakeholders).
• Argument relevant now due to technologies available! Sophisticated systems managers trust in believing they can see performance. Managers believe transparency and control, leading managers to believe they know more than they do.

Question 5

Is it possible or desirable to uphold the illusion of managerial of control?

Answer 5

• Easy to uphold management control
• Allowing every stakeholder to have a voice, completely full democracy? Decision making optimal? Anarchy?
• Is there a need to uphold illusion of control in order to get things done?
• Streamlining people’s views to force action. Paradoxically in crisis. Radical action needed or bankruptcy. IBM layoffs and expertise employed. (Ignoring stakeholder groups!)
• “Never waste a good crisis” there is a need for rapid actions, there’s only 1 way to do it!
• It is dangerous to expose the illusion of management control as it can destabilise organisations and lead to disruptive conflicts and power struggles.
• May lead to loss of direction and ambiguity. Illusion of management control allows a lid on a can of worms.

Question 6

Since the illusion of managerial control is a consequence of EBA to MCS. What are the alternatives to study MCS?

Answer 6

• There are multiple rationalities from stakeholders
• Chua 1986 Alternative Paradigms
• Rationalist/ Functionalist – EBA, assumes equilibrium, little change.
• Interpretive – examine multi-rationale of approaches. Different dimensions of social reality. (sit back and observe)
• Critical – tricks! Takes the side of the powerful, observe. (Intervene on the part of under presented party) activist instead of researcher.

Question 7

What can be concluded about the EBA?

Answer 7

• Much traditional textbook thinking on management accounting takes the rationalist/functionalist approach for granted.
• This may enforce (Dermer and Lucas 1986) “illusion of managerial control” rather than compelling students and managers to question whose interests are being served by MCS? (Chua 1986)
• A more intelligent way to design MCS is to acknowledge the existence of multiple rationalities and the role of power in organisations
• Interpretive and critical paradigms may be useful in this regard (Chua 1986).

Question 8

Mainstream Accounting

Answer 8

Economics based approach
conflict presumed to be dysfunctional, managers remove through controls
unirationality

Question 9

Interpretative Paradigm

Answer 9

understanding the role of language, interpretation and the social science
accounting as a lived experience rather than a generalisation
dysfunctional behaviour is not discussed as no priority is given to one goal
Subjective and highly ambiguous (multiple interpretations)

Question 10

Critical Paradigm

Answer 10

activists instead of researchers

personnel controls are unobtrusive and do not give rise to power struggles