Institutional Logics, ICT and Stability of Management Accounting

Abstract

The purpose of this paper is to study the institutional logics of how and why two case units in the Finnish Defence Forces have reacted differently to external pressures originating from the State Audit Office to change their management accounting systems. The situation is made complex due to the fact that in military organisations, accountants’ tasks have traditionally consisted of bookkeeping and financial reporting, while management accounting tasks especially (e.g. planning and control) have been performed predominantly by military personnel, who can be called hybrid accountants. The data for this study consists of project memos and interviews with people involved in designing and implementing enterprise-resource-planning (ERP)-linked cost accounting and reporting systems. In the case unit where management accounting and control had become institutionalised as a part of the uniformed officer's professional sphere, various resistance strategies (i.e. compromise strategy/pacifying tactics, avoidance strategy/buffering tactics and defiance strategy/dismissing tactics) were adopted. However, where this was not the case, the response was acquiescence. Despite the differences in responses to institutional pressure, the outcome for management accounting was the same. In the first case, demands for change were resisted, and in the second case, the old management accounting system was transferred into new information and communication technology (ICT) infrastructure without any significant change in content.

Acknowledgements

We would like to thank Salme Näsi, João Ribeiro and the parallel session participants of the 27th EAA Annual Conference, Prague (April 2004), the EIASM International Conference on Accounting, Auditing and Management in Public Sector Reforms, Oslo (October 2004), the 29th EAA Annual Conference, Dublin (March 2006), the 5th EIASM Conference on New Directions in Management Accounting, Brussels (December 2006) and the reviewers and the editor Salvador Carmona for their useful comments on earlier versions of the paper. Financial support was provided by the Scientific Advisory Board for Defence (MATINE) and Foundation for Economic Education (Liikesivistysrahasto).

Notes

A more detailed description of the project and its aims will be presented in Section 4.

Approximately the same time as our study took place, the Defence Forces also initiated other ERP implementation projects that were more closely linked with actual military operations. Information about these other projects was, however, classified as confidential and is not dealt with in our study.

Such separation between financial and management accounting functions is not rare in private sector enterprises either. However, in such enterprises these positions are typically filled by professionally trained accountants.

The term ‘hybrid accountant’ is not used by the members of our case organisation, but is our interpretation of military personnel involved in management accounting functions.

For instance, the professional body of public accountants (auditors) was established in Finland in 1911, and since 1924 the authorisation of certified public accountants has been the responsibility of the Chamber of Commerce.

No accounting courses are taught in the National Defence College. We checked this by going through the curriculum for several years, and also received confirmation from the school's commander.

The number of project workers varied during the implementation project. In addition to FDF's own personnel, the workforce included external process consultants and technical consultants. Total labour hours were divided as follows: 47% FDF staff, 12% process consultants and 41% technical consultants.

The artillery metaphor employed in the Prologue exemplifies this. The new system was not intended so much to ‘hit the target’ as it was to create a uniform process, which could eventually be improved.

Such integration was not yet possible in 2006, as the current policy prevented integrating Defence Forces’ information systems to outside systems. Thus, Defence Forces’ payments were separate from the government's finances in the State Treasury, and Defence Forces’ procurement systems had no links with those of private suppliers.

The term ‘activity’ was used in the organisation instead of the term ‘cost centre’. The current number of activities (cost centres) in use is 70.

For instance, in 2006 the State Treasury arranged a seminar on activity-based costing implementation that was a part of the government's productivity programme. An announcement for the seminar stated ‘Cost efficiency and productivity are not achieved by one-eyed cost cutting, but one needs to increase the efficiency of processes and ways of actions, and even to question the current ways of operation. Activity-based costing is the key to achieving change and in implementing the governments’ productivity programs. It links performing activities to the organization's goals. ABC is a calculation method that provides information on activities, resources and services provided and what actions really take place in the organisation. Activity-based costing is also the solution to improved allocation of overhead costs.’

Annual reports of the State Audit Office (years 1996–2005).

Business Warehouse (BW) is just SAP AG's name for Data Warehouse (i.e. a database that contains data from most or all of an organisation's operational applications, and this data is made consistent).

Originally the Financial Division operated under the Ministry of Defence, from which it was transferred in 1994 to the Logistics Staff and finally, in 2001, to the Operations Staff. The original purpose behind this organisational change was to improve communication between the units – this promise was not fulfilled.

This change concerned the financial special officers only, while all the other special officers (e.g. technical, medical and ecclesiastical) remained.