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Effects of organizational process change on responsibility accounting

and managers’ revelations of private knowledge
Article in Accounting Organizations and Society · February 2008

DOI: 10.1016/j.aos.2006.12.002
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ARTICLE IN PRESS
Accounting, Organizations and Society xxx (2007) xxx–xxx

www.elsevier.com/locate/aos
EVects of organizational process change on responsibility

accounting and managers’ revelations of private knowledge
a,¤
Casey Rowe , Jacob G. Birnberg b, Michael D. Shields c
a
W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA
b
Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260, USA
c
Broad Graduate School of Management, Michigan State University, East Lansing, MI 48823, USA
Abstract
We report the results of a nine-year Weld study that examines how responsibility accounting (RA) is used to manage
horizontal relationships among several responsibility center (RC) managers including those who work on committees or
cross-functional teams. We Wnd theory-consistent evidence that the goal-congruent design or redesign of accounting and
participation practices in general, and of RA in particular, depends on the magnitude, scope, and speed of organiza-
tional process change. When there is a change in the magnitude, scope, and speed of organizational process change, we
Wnd that the measurability of RC managers’ Wnancial performance can change, and we also Wnd that using RA to man-
age RC boundaries is an important mechanism for achieving goal-congruent behavior and avoiding dysfunctional
behavior. Moreover, we show that several accounting and participation practices (e.g., activity-based costing, open book
accounting, project budgeting, cross-functional teams) support RC boundary management that involves framing or
reframing RC boundaries so as to inXuence competitive or cooperative behavior among RC managers. Finally, this
study contributes by introducing a new research method to the accounting literature that is eVective in structuring and
interpreting longitudinal Weld data in relation to theoretical expectations.
© 2006 Elsevier Ltd. All rights reserved.
Introduction continuous improvement, stretch targets, restruc-

turing, and reengineering as well as new organiza-
Organizations are increasingly changing their tional structures such as Xat structures, autonomous
strategies and structures as they experiment with work teams, committees, and cross-functional teams
and implement organizational strategies such as (Abernethy & Lillis, 1995; Chenhall, 2006; Deni-
son, Hart, & Kahn, 1996; Kanter, 1989; Mohrman,
*
Corresponding author. Tel.: +1 480 965 6216; fax: +1 480 Cohen, & Mohrman, 1995; Scott & Tiessen, 1999;
965 8392. Siegel & Sorensen, 1999). We focus on responsibil-
E-mail address: [email protected] (C. Rowe). ity accounting (RA), which is a key mechanism for
0361-3682/$ - see front matter © 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2006.12.002
Please cite this article in press as: Rowe, C. et al., EVects of organizational process change on responsibility ...,
Accounting, Organizations and Society (2007), doi:10.1016/j.aos.2006.12.002
ARTICLE IN PRESS
2 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx
how management accounting interfaces with orga- to separably measure each individual RC man-
nizational strategies and structures (Anthony & ager’s Wnancial performance or to only inseparably
Govindarajan, 2001; Simons, 2000). A central measure the aggregate Wnancial performance of a
question is whether the design of accounting and group of RC managers who work jointly on a com-
participation practices in general, and RA in par- mon organizational process (Bushman et al., 1995;
ticular, are aligned (or realigned) to be consistent McNair, 1990; North, 1981; Rankin & Sayre, 2000;
with these changes in organizational strategies and Rowe, 2004). Few studies investigate control prob-
structures. If there is misalignment, then manage- lems that are associated with organizational con-
ment accounting can be a source of friction or texts in which it is not possible or desirable to
competitive disadvantage. However, there is little separately measure each RC’s performance (e.g.,
research on RA, such as factors that inXuence its distrust, social loaWng, free riding, and inequity)
design and eVects in the context of contemporary (Kachelmeier & Shehata, 1997; Rowe, 2004), for
changes in organizational strategies and structures example due to jointness or interdependence, which
towards more subunit interdependence and team- can be caused by changes in organizational strat-
based management. egy and/or structure (North, 1981; Teece, 1996).
RA is traditionally based on the assumption Motivating RC managers to have competitive
that responsibility-center (RC) managers are indi- or cooperative behavior can be critical to achieving
vidually accountable for an organizational subunit goal-congruent behavior (Demski, Fellingham,
such as a department or division (Horngren, Ijiri, & Sunder, 2002). In particular, whether moti-
Datar, & Foster, 2006; Merchant, 1985; Simon, vating competitive or cooperative behavior among
Guetzkow, Kozmetsky, & Tyndall, 1954). In con- RC managers increases or decreases organiza-
trast, recognizing contemporary strategic and tional performance can depend on the magnitude,
structural changes in organizations, we deWne RA scope, and speed of organizational process change
more broadly as including interdependent or joint (Bowditch & Buono, 2005; Hirshleifer, 1980;
activities in which groups of RC managers (e.g., North, 1981). Building on research by Rowe
committees, cross-functional teams) are jointly (2004), we use the social psychology theory of rela-
accountable for their aggregate performance (e.g., tional framing (Fiske, 1991; Haslam, 2004; Tetlock
Bushman, Indjejikian, & Smith, 1995; McNair, & McGraw, 2005) to explain how the design or
1990; Rowe, 2004; Scott & Tiessen, 1999). Thus, redesign of several accounting and participation
instead of focusing on RA principally as a mecha- practices support boundary management that
nism for managing individual RC managers verti- involves framing or reframing RC boundaries so
cally up and down an organizational hierarchy as to inXuence whether RC managers’ behavior is
(e.g., Demski & Sappington, 1989), we focus on RA competitive or cooperative.
as a mechanism for horizontally managing groups, We address the following research question:
teams, or committees of several functionally diVer- How do RC Wnancial performance measurability
entiated RC managers who work on a common and RC boundaries aVect RC managers’ revela-
organizational value chain or organizational pro- tions of private knowledge when central managers
cess (Hopwood, 1996; Ditillo, 2004; Rowe, 2004).1 alter their intended strategy of organizational pro-
We identify and examine relations between two cess change from continuous to discontinuous or
elements of RA that have typically been studied vice versa? In particular, we investigate how the
separately: the Wnancial measurability of RC per- magnitude, scope, and speed of organizational pro-
formance and RC boundaries. We consider RC cess change aVects RC measurability and RC
measurability to be an organization’s ability either boundaries. We also examine how RC measurabil-
ity and RC boundaries interactively inXuence man-
1
agers’ goal-congruent behavior, in particular their
We use the terms group and team interchangeably. In con-
trast, following Galbraith (1993) we use the term committee to
revelations of private knowledge about opportuni-
denote a special kind of group or team with relatively high ties to increase organizational performance (Anto-
authority in a hierarchy. nelli, 1995; Rowe, 2004; Teece, 1996).
ARTICLE IN PRESS
C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx 3
Central managers’ strategies for organizational achieving goal-congruent behavior and avoiding
process change can be classiWed as being continu- dysfunctional behavior when the measurability of
ous or discontinuous (Meyer, Goes, & Brooks, RC managers changes. As predicted, we Wnd evi-
1995; Romanelli & Tushman, 1994; Tushman & dence that RC measurability and RC boundaries
Romanelli, 1985; Weick & Quinn, 1999). The usual interactively aVect RC managers’ revelations of
strategy is continuous organizational process private knowledge that facilitates central managers
change in which the intent is to increase organiza- in realizing increased organizational performance
tional performance slowly and gradually (e.g., total from organizational process change. Finally, this
quality management, statistical process control). paper contributes to the accounting literature by
However, occasionally central managers’ pursue a using a new way to structure and interpret longitu-
strategy of discontinuous organizational process dinal Weld data in relation to theoretical expecta-
change in order to increase organizational perfor- tions.
mance rapidly and dramatically (e.g., reengineering, The remainder of this paper is organized as fol-
restructuring). For example, discontinuous organi- lows: Section 2 provides a review of literature that
zational process change is associated with eco- is pertinent to the development of the theoretical
nomic crises, regulatory changes, and/or a product model and Section 3 develops the model and its
lifecycle changes (Romanelli & Tushman, 1994). three expectations. Section 4 describes the research
Although discontinuous organizational process method and Section 5 presents evidence from the
change is more diYcult to achieve, it can generate Weld study with respect to the validity of the three
integrative (synergistic) gains and thus larger expectations. Section 6 concludes with a discussion
potential increases in organizational performance that summarizes this paper, identiWes evidence that
than the sum of smaller gains in organizational per- is consistent and inconsistent with the theoretical
formance arising from continuous organizational model, revises the initial theoretical model in light
process changes (Romanelli & Tushman, 1994). of inconsistent evidence, and Wnally identiWes limi-
We provide evidence on the research question tations and implications of this research.
with data from a nine-year longitudinal Weld study
of a large division of a US aerospace contractor. To
analyze these data we use a variance research Literature review
method to study changes in the causes and eVects of
RA over time (Langley, 1999; Van de Ven & Poole, This section Wrst reviews the literature on orga-
2005). We do this by dividing (later called temporal nizational process change, managers’ private
bracketing) the nine years of data into four time knowledge, and RA. The following section then
periods and then making two types of variance analyzes this literature as the basis for developing a
comparisons to provide evidence on how consistent model consisting of three expectations.
these data are with the expected levels of the four
variables in the theoretical model within each time Organizational process change
period and between adjacent time periods.
We contribute to the accounting literature by Many organizations can be viewed as contain-
developing a model and providing evidence on the ing several organizational processes (or intra-orga-
validity of the model concerning how the design or nizational value-chains) such as new product
redesign of several accounting and participation development or materials management. Each pro-
practices (e.g., activity-based costing, open book cess runs horizontally across (at least part of) an
accounting, project budgeting, and cross-func- organization and groups together related activities
tional teams) supports boundary management that from several functional RCs (e.g., accounting,
involves framing or reframing RC boundaries so design engineering, inventory control, manufactur-
as to inXuence competitive or cooperative behavior ing engineering, procurement, quality assurance,
among RC managers. We also show that boundary and transportation) (Horngren et al., 2006;
management is an important mechanism for McNair, 1995; Shank & Govindarajan, 1993).
ARTICLE IN PRESS
We examine organizational process change mance from integrative (synergistic) gains that
using the punctuated equilibrium model, which arise from interactions among RC managers (e.g.,
treats strategies for change as being dichotomous an RC manager makes changes in his or her RC
(Adler, 2001; Bartunek, 1993; Meyer et al., 1995; that may not increase his or her performance but
Mintzberg & Westley, 1992; Romanelli & Tush- they do increase the performance of other RC
man, 1994; Tushman & Romanelli, 1985; Weick & managers) (Romanelli & Tushman, 1994). The
Quinn, 1999). This model assumes that central punctuated equilibrium model predicts that fully
managers’ face a strategic choice between manag- realizing integrative gains from discontinuous
ing organizational process change as either a organizational process change is problematic due
loosely-coupled system (continuous change) or a to managerial resistance (e.g., an RC manager
tightly coupled system (discontinuous change). withholds or distorts his or her revelations of pri-
Continuous and discontinuous organizational pro- vate knowledge to avoid loosing resources).
cess change diVer in terms of (1) the number of RC
managers who must interact simultaneously to RC managers’ revelations of private knowledge
increase organizational performance and (2) the
need for trust and eVective communication among An organization’s ability to extract organiza-
RC managers who have diVerent professional tional beneWts from an organizational process
training and expertise (e.g., accounting, engineer- change can depend on motivating several function-
ing, legal, marketing) (Manley, 1999). The usual ally diVerentiated RC managers to accurately
strategy for most organizations is continuous orga- reveal private knowledge (Antonelli, 1995; Ditillo,
nizational process change (e.g., total quality man- 2004; North, 1981; Rowe, 2004; Teece, 1996).2
agement, statistical process control). However, Revealing private knowledge is costly to RC man-
occasionally central managers choose an intended agers but beneWcial to the organization, because it
strategy of discontinuous organizational process enables central managers to identify and eliminate
change (e.g., reengineering, restructuring) in resources that the RC managers could have other-
response to economic crises, regulatory changes, wise consumed (Antle & Eppen, 1985). The cost to
and/or product life cycle changes (Meyer et al., the RC managers not only includes costs of imple-
1995; Romanelli & Tushman, 1994). menting change but also includes costs related to
Continuous and discontinuous organizational giving up budgetary resources, losing power, and
process changes diVer in terms of magnitude, laying oV employees (BariV & Galbraith, 1978).
scope, and speed. Continuous organizational pro- Thus RC managers can have an incentive to distort
cess change is intended to increase organizational revelations of private knowledge, for example,
performance through small gradual improvements through biasing, Wltering, focusing, and withhold-
that are implemented within individual RCs. In ing (Birnberg, Turopolec, & Young, 1983).
contrast, discontinuous organizational process
change is intended to increase organizational per- RC measurability
formance through large fast improvements that are
implemented across several RCs (Galbraith, 1982, RC measurability describes an organization’s
1993; Mintzberg & Westley, 1992; Weick & Quinn, ability to either separably measure each RC man-
1999). Due to economies of scope, discontinuous ager’s Wnancial performance or only inseparably
change can create greater potential for increasing measure the Wnancial performance of several RC
organizational performance than continuous managers who work jointly on a common organi-
change. Both continuous and discontinuous orga- zational process (McNair, 1990; Merchant, 1985;
nizational process change can result in increases in Ouchi, 1980; Rockness & Shields, 1984). For
organizational performance that are the sum of
within-RC increases in performance. However,
only discontinuous organizational process change 2
We operationalize managers’ revelations of private knowl-
can result in increases in organizational perfor- edge by how revelations reduce expected division cost.
ARTICLE IN PRESS
example, activity-based costing (ABC) is one involves framing or reframing RC managers as

means of measuring the performance of an organi- either individuals or members of a group, which
zational process, consistent with inseparable mea- then aVects their social motives (cooperation vs.
surability (McNair, 1990). Separate measurement competition) and behavior (Fiske, 1991; Haslam,
of each RC manager’s performance is a fundamen- 2004; Tetlock & McGraw, 2005).5
tal objective of RA as a means of motivating self- Relational framing theory relaxes the economic
interested RC managers to have goal-congruent assumption that individuals are strictly self-inter-
behavior (Bushman et al., 1995; Rankin & Sayre, ested (Fiske, 1991; Haslam, 2004). It views individ-
2000; Williamson, 1975).3 Economic theory, how- ual- versus group-oriented motivation as being
ever, recognizes that factors such as infrequent contingent on how individuals understand their
transactions, task interdependency, and intangible social situation or how their social situation is
knowledge can cause the cost of separate measures framed. The theory predicts that boundaries
of individual RC performance to increase such between individuals evoke an individual frame (“I”)
that they are no longer cost eVective and thus are and competitive self-interested behavior. In contrast,
replaced by inseparable RC measures (Alchian & the absence of boundaries between individuals
Demsetz, 1972; Milgrom & Roberts, 1992; North, evokes a group frame (“we”) and cooperative group-
1981; Williamson, 1975). interested behavior. In summary, relational framing
Inseparable RC measurability also has motiva- predicts that behavior depends on whether individu-
tional problems. These include free riding, social als believe they are in an “I” or “we” social situation.
loaWng, distrust, and conXict over an inequitable We distinguish between competitive and coopera-
distribution of rewards (Kramer, 1999; Latane, tive RC boundaries. Organizations typically rely on
Williams, & Harkins, 1979; North, 1981; Ouchi, what we refer to as competitive RC boundaries,
1980; Williamson, 1975).4 which divide the organization into several RCs
(Chenhall, 2006). Competitive RC boundaries6 rela-
RC boundaries tionally frame RC managers as separated individuals
because their design is based on hierarchical organi-
We deWne RC boundaries broadly as including zational structures with an individual manager
several accounting and participation practices responsible for each organizational subunit (e.g.,
(Table 1) that convey implicit (implied cognitive departments, divisions), which motivates competi-
frames) and/or explicit lines of demarcation (physi- tive self-interested managerial behavior. In contrast,
cal walls or organizational charts), which separate cooperative RC boundaries frame RC managers as
and/or group together the RC managers who work belonging to the same group, which motivates coop-
on a common organizational process. We use the erative group-interested managerial behavior.
social psychology theory of relational framing to Table 1 identiWes four types of RC boundaries
explain how the design or redesign of RC bound- that are implied by accounting and participation
aries supports boundary management that practices: organizational, communication, spatial,
3
Separable RC Wnancial performance measurability is as- 5
Relational framing diVers from valence framing which is
sumed in most research on budgeting, performance measure- more common in the accounting literature. Valence framing
ment, transfer pricing, and incentive compensation. from cognitive psychology focuses on the eVects of information
4
Free-riding occurs when one or more individuals beneWt that is presented such that the outcomes of actions have either a
from a joint eVort without contributing the costly inputs neces- positive or negative connotation (Haynes & Kachelmeier,
sary for the group to perform (North, 1981). Social loaWng aris- 1998). In contrast, relational framing from social psychology
es when individuals withhold their potential inputs to an equal focuses on how the frame through which people understand
degree (Latane et al., 1979). Distrust can block potential contri- their social situation explains and predicts their interpersonal
butions in diYcult to monitor social situations (Milgrom & behavior (Tetlock & McGraw, 2005).
6
Roberts, 1992). Inequity is a common byproduct of organiza- Competitive RC boundaries “ƒ tend to be determined by
tional process change (Cyert & March, 1963; Lewicki, Weiss, & the structures of trades and professions in the broader social
Lewin, 1992; Starbuck, Greve, & Hedberg, 1978). environment”. (March & Simon, 1958, p. 179).
ARTICLE IN PRESS
Table 1
Accounting and participation practices and competitive or cooperative responsibility-center (RC) boundariesa
RC boundaries Description Examples
Organizational Competitive RC boundary: Partitioning individual Traditional RA provides diVerent sets of
boundary: RC managers by using separate budgets, and separate accounting information to diVerent RC
Accounting accounting reports, unshared accounting information, managers (Pick, 1971; Kilmann, 1983; Rowe,
organizational and by referring to particular RC managers using 2004; Horngren et al., 2006). Labeling each RC
design diVerent titles or social categories on accounting manager as a separate entity (e.g., “Engineering”,
reports and other accounting information “Marketing”, etc.) (Pondy, 1964; Rowe, 2004;
Towry, 2003)
Cooperative RC boundary: Grouping RC managers Creating joint project budgets (Kachelmeier et al.,
together using consolidated budgets, shared accounting 1994) or bundled budgets (Miller & O’Leary, 1997).
reports and shared accounting information, and by Sharing process-level accounting information
referring to a cross-functional team of RC (Rowe, 2004), open book accounting (Mouritsen,
managers using no or a single title or social category Hansen, & Hansen, 2001), and labeling RC
on accounting reports and other accounting managers as members of a “group” or “cross-
information functional team” (Rowe, 2004; Towry, 2003)
Communication Competitive RC boundary: Designing accounting Using complex technical accounting
boundary: systems and accounting information using technical jargon in reporting accounting
Accounting accounting jargon that inhibits inter-RC information (e.g., Davidson et al., 1982)
system communication about the economic implications of
language competing initiatives (cf. Steiner, 1986)
Cooperative RC boundary: Designing accounting Translating technical accounting terminology (e.g.,

systems and accounting information using language accounting terms in the general ledger) into
that all RC managers understand and that facilitates language that all RC managers can understand,
inter-RC communication about the economic for example, by using ABC (Keys & Lefevre, 1995;
implications of initiatives (cf. Steiner, 1986) Cokins, 1997)
Spatial boundary: Competitive RC boundary: Physically distancing Distributed teams by arranging RC managers in
Participation RCmanagers and/or placing physical barriers diVerent rooms or diVerent facilities (Rowe, 2004)
proximity such as walls between them (Steiner, 1986; Kiesler &
Cummings, 2002)
Cooperative RC boundary: Physically bringing Integrative liaison devices (Abernethy & Lillis,
together RC managers in face-to-face proximity 1995). Collocating committees or cross-functional
(Kiesler & Cummings, 2002) teams of RC managers in a common meeting room
Rowe, 2004)
Temporal Competitive RC boundary: Having individual RC managers privately communicate their RCs’
boundary: RC managers communicate sequentially productive capabilities to a common superior, who
Participation in evaluating the economics of competing then coordinates their individual contributions
speed initiatives (Chow et al., 1994)
Cooperative RC boundary: Having a group of Assigning RC managers to negotiate joint plans for
RC managers communicate simultaneously in initiatives concurrently, for example, in a cross-
evaluating the overall economics of competing functional team (Meyerson et al., 1995)
initiatives
a
We focus on organizational contexts involving several RC managers from functionally diVerentiated RCs who work on a common
organizational process, intra-organizational value-chain, or initiative.
boundary, and temporal. In addition, Table 1 competitive or cooperative RC boundaries. For

describes and provides examples of several example, consistent with boundary management,
accounting and participation practices that imply competitive or cooperative RC boundaries are
ARTICLE IN PRESS
implied by providing diVerent sets of accounting Organizational process change and RC

information to diVerent RC managers or sharing measurability
process-level accounting information, using techni-
cal or plainspoken language in reporting account- The inverse relation between RC interdepen-
ing information, physically separating RC dence and separable RC measurability is well docu-
managers or having them meet face-to-face, having mented in the accounting literature (e.g., Bushman
managers participate through a common superior et al., 1995; Chenhall, 2006). The punctuated equi-
or having them participate concurrently. librium model assumes RC interdependence
depends on whether central managers choose a
strategy of continuous or discontinuous organiza-
Model development tional process change. Continuous organizational
process change can be planned and implemented in
Fig. 1 presents the model, which has four vari- a piecemeal fashion separately within RCs, because
ables and three expectations. Expectation one is there is low RC interdependence, consistent with a
that organizational process change (continuous or loosely coupled system (Weick & Quinn, 1999). In
discontinuous) inXuences whether RC measurabil- this context, RCs can be coordinated and managed
ity is separable or inseparable. Expectation two is as if they operate independently of each another
that organizational process change also aVects (Thompson, 1967). In contrast, discontinuous orga-
whether RC boundaries are competitive or cooper- nizational process change generates substantially
ative. Expectation three is that RC measurability higher RC interdependence than continuous orga-
and boundaries interactively inXuence RC manag- nizational process change, because of the magni-
ers’ revelations of private information that is nec- tude, scope, and speed of discontinuous change.
essary to change an organizational process in order Therefore it must be planned and implemented
to improve organizational performance. The concurrently across the organizational process (that
remainder of this section provides theoretical anal- is, across RCs), consistent with a tightly coupled
ysis to support each expectation. system (Weick & Quinn, 1999). In this context,
Organizational E1 Responsibility-Center
Process Change a Measurability b Responsibility-
• Continuous / • Separable / Inseparable E3 Center Managers’
Discontinuous Revelations of
E2 Private Knowledge
• Low / High
Responsibility-Center Boundaries
• Competitive / Cooperative
a The organizational process change is based on central managers’ strategic intent.

b Responsibility-center measurability is limited to measurability of financial performance.
c In this model each variable is dichotomized for expositional convenience.
Fig. 1. Theoretical model.c
ARTICLE IN PRESS
several RC managers are attempting to simulta- redesign RC boundaries appropriately. Competitive

neously negotiate interdependent organizational behavior among RC managers is goal congruent
initiatives instead of focusing on performance when organizational process change is continuous,
increases within each RC (Galbraith, 1982; Thomp- due to low RC interdependence, and therefore cen-
son, 1967). tral managers are expected to implement competi-
While separable RC measurability can be eVec- tive RC boundaries (Milgrom & Roberts, 1992;
tive for continuous organizational process change, North, 1981). In contrast, cooperative behavior
we predict that discontinuous organizational pro- among RC managers is goal congruent when orga-
cess can greatly increase the cost and reduce the fea- nizational process change is discontinuous, due to
sibility of separable RC measurability due to higher high RC interdependence, and therefore when this
interdependence among the RCs involved with the is central managers’ intended strategy, they are
discontinuous organizational process change.7 In expected to implement cooperative RC boundaries
consequence, separable RC measurability is not (Meyerson, Weick, & Kramer, 1995).
expected to be used during discontinuous change. Reframing is an important means of inXuenc-
Therefore, we expect that continuous (discontinu- ing competitive or cooperative behavior that
ous) organizational process change will inXuence aVects social behavior by introducing a new rela-
RC measurability to be separable (inseparable). tional frame of how people are related that Wts the
social situation as well as or even better than the
E1: When central managers shift their
previous relational frame (Watzlawick, Weak-
intended strategy of organizational process
land, & Fisch, 1974). Recall, however, that several
change from continuous to discontinuous
RA and participation practices frame or reframe
(discontinuous to continuous), RC measur-
the boundaries between RC managers (Table 1).
ability changes from separable to inseparable
Social psychology research Wnds that, when multi-
(inseparable to separable).
ple boundaries are present, reframing or changing
behavior can depend on redesigning (removing,
Organizational process change and RC boundaries
adding, moving) all of the boundaries so as to
construct a consistent frame (Ashforth, Kreiner,
Several theories support the prediction that the
& Fugate, 2000; Bartunek, 1993; Meyerson et al.,
need for competitive or cooperative behavior
1995; Rowe, 2004). For example, changing RC
among RC managers depends on whether central
managers’ behavior from competitive to coopera-
managers’ intended strategy is continuous or dis-
tive (or vice versa) is expected to depend on refra-
continuous organizational process change (Bow-
ming each of the four types of RC boundaries in
ditch & Buono, 2005; Hill, Hitt, & Hoskisson, 1992;
Table 1 from competitive to cooperative (or vice
Milgrom & Roberts, 1992; North, 1981). We expect
versa). We expect that when central managers
that central managers will choose the appropriate
shift their intended strategy of organizational pro-
design of RC boundaries based on their organiza-
cess change from continuous to discontinuous (or
tional process change strategy. When central man-
vice versa), each RC boundary will be reframed
agers change their strategy, they are expected to
from competitive to cooperative (cooperative to
competitive). Therefore we have the following
7 expectation:
In contrast to continuous organizational process change,
the non-routine nature of discontinuous organizational process
change also reduces the eVectiveness of separable RC measure- E2: When central managers shift their
ment due to increased reliance on special purpose expertise (ad intended strategy of organizational process
hoc private knowledge) from knowledge workers (Birnberg & change from continuous to discontinuous
Heiman-HoVman, 1993). In addition, the lack of repetitive so- (discontinuous to continuous), they replace
cial interaction among RC managers eVectively blocks them
from mutual monitoring of each other (as suggested by Towry,
all competitive RC boundaries with coopera-
2003) and it limits the value of reputation as a control mecha- tive RC boundaries (cooperative RC bound-
nism (North, 1990). aries with competitive RC boundaries).
ARTICLE IN PRESS
RC measurability, RC boundaries, and RC 1992). Moreover, disagreement surfaces among

managers’ revelations of private knowledge managers when total organizational cost is reduced
(Cyert & March, 1963; Hirschman, 1970).
Table 2 presents the expected interaction Consistent with this explanation, competitive
between RC measurability and RC boundaries on behavior can be a primary obstacle to discontinu-
RC managers’ type of behavior and the levels of ous organizational process change and the
their revelations of private knowledge. Separable improvement of organizational performance (Der-
RC measurability and competitive RC boundaries touzos, Lester, & Solow, 1989). For example, Dyk-
frames RC managers as being independent, which man, Davis, and Smigh (1991, p. 10) report that the
is consistent with a market-like relationship process of planning a new international electronic
(Baker, Gibbons, & Murphy, 2001). In this context, mail system “ƒ was fraught with organizational
competitive managerial behavior complements ‘turf wars’ as it lead to conXict between diVerent
separable RC measurability which motivates RC subsidiaries of an international company, as well
managers to reveal private knowledge much like as conXict between diVerent departments – all of
competition and self-interest complement a system whom were trying to control the implementation
of private property rights in a market economy and the ongoing management of the technology.”
(North, 1981). Consistent with a competitive mar- Denison et al. (1996) and Joyce, McGee, and Slo-
ket, experimental evidence indicates that in this cum (1997) also Wnd that competitive behavior can
context competitive behavior increases individual lead to managerial conXict, resistance, and low per-
performance (Frederickson, 1992; Ghosh, 2000; formance in cross-functional teams. Finally, Rowe
Rankin & Sayre, 2000; Young, Fisher, & Lind- (2004) provides experimental evidence that when
quist, 1993). Thus, in this context, we expect that RC measurability is inseparable, competitive com-
RC managers’ revelations of private knowledge pared to cooperative RC boundaries leads to sig-
will be at high levels. niWcantly lower group-level performance due to
In the context of inseparable RC measurability free riding and distrust. Thus, when RC measur-
and competitive RC boundaries, conXict is expected ability is inseparable, competitive managerial
among RC managers, which causes them to have behavior can be dysfunctional.
low levels of revelations of private knowledge. Inseparable RC measurability also means that
When competitive self-interest is salient due to com- horizontal inequities are likely to arise among RCs
petitive RC boundaries, an RC manager has no rea- involved in a process change (e.g., some RC manag-
son to contribute his or her private knowledge to ers must sacriWce more than others to achieve favor-
help increase organizational performance – unless it able group and/or organizational performance)
increases his or her individual performance. Con- (Ouchi, 1980). Indeed, horizontal inequities are a
tributing casts him or her in the role of the common source of conXict during discontinuous
“sucker”, while others free-ride (Hirshleifer, 1980; organizational process change (Lewicki et al., 1992;
Messick & Brewer, 1983; Milgrom & Roberts, Starbuck et al., 1978). In particular, competitive RC
Table 2
Expected eVects of responsibility-center measurability and responsibility-center boundaries on the type of managerial behavior and the
levels of responsibility-center managers’ revelations of private knowledge
Responsibility-center boundaries Responsibility-center measurabilitya
Separable Inseparable
Competitive (1) Market-like (2) ConXict
High Low
Cooperative (3) Collusion (4) Communal sharing
Low High
a
Responsibility-center measurability is limited to measurability of Wnancial performance.
ARTICLE IN PRESS
boundaries are expected to increase interpersonal with discontinuous organizational process change
conXict among RC managers due to their beliefs (Fiske, 1991). Thus, in this context, we expect that
that horizontal inequities exist and therefore to revelations of RC managers’ private knowledge
motivate them to withhold private knowledge. will be at high levels.
Thus, when RC measurability is inseparable and The above analysis as summarized in Table 2
RC boundaries are competitive, we expect that reve- provides the basis for predicting that RC measur-
lations of RC managers’ private knowledge will be ability and boundaries have the following disordi-
at low levels due to conXict. nal interactive eVect on RC managers’ revelations
In the context of separable RC measurability of private knowledge:
and cooperative RC boundaries, RC managers are
E3: When RC measurability is separable
expected to collude, which causes low levels of rev-
(inseparable) and RC boundaries are com-
elations of private knowledge (e.g., all managers
petitive (cooperative), RC managers’ revela-
conspire to withhold private knowledge). Collu-
tions of private knowledge will be at high
sion arises because separable RC measurability is
levels and otherwise their revelations will be
vulnerable to unsanctioned cooperative manage-
at low levels.
rial behavior – group-oriented behavior that is
intended to restrict potential performance, to the
determent of the organization. Several studies pro- Research method
vide evidence that separable RC measurability and
cooperative behavior can lead to collusion within Our research strategy uses two methods called
organizations (Becker & Green, 1962; Roy, 1952; temporal bracketing and variance (Langley, 1999).
Towry, 2003; Yoon, 1987; Zhang, 2006). Thus, in Temporal bracketing divides the time length of a
this context we expect that revelations of RC man- Weld study into time periods in which there are
agers’ private knowledge will be at low levels due continuities of events within each time period and
to collusion. discontinuities of events between time periods. We
Finally, in the context of inseparable RC mea- use temporal bracketing to form four time periods
surability and cooperative RC boundaries, RC based on the intended organizational process
managers’ behavior is expected to be characterized change (continuous or discontinuous) and/or the
by communal sharing (Fiske, 1991) among RC change in RC boundaries (for all four types of RA
managers and thus to result in high levels of revela- and participation practices in Table 1). As Langley
tions of RC managers’ private knowledge. Cooper- (1999) notes, each time period can then be used to
ative managerial behavior is necessary when RCs make comparisons of organizational process
are no longer independent due to unmeasured change between time periods.
externalities (Hirshleifer, 1980; Milgrom & Rob- With the variance (also called synthetic)
erts, 1992; North, 1981). For example, cooperation research method “original process data are trans-
is needed to understand RC interdependencies and formed from stories comprised of ‘events’ to ‘vari-
identify integrative performance gains, thereby ables’ that synthesize their critical components”
avoiding suboptimal organizational performance. (Langley, 1999, p. 704; Van de Ven & Poole, 2005).
However, when RC measurability is inseparable, it Variance-method studies of organizational pro-
is foolish for RC managers to contribute private cess change investigate by causal analysis how
knowledge unless a critical mass of other RC man- change in the independent variable cause change
agers can be trusted to cooperate by revealing pri- in the dependent variable. We use temporal brac-
vate knowledge (Messick & Brewer, 1983). keting and variance to make two types of compar-
Moreover, cooperative RC boundaries also are isons and provide evidence on how consistent the
expected to motivate the group of RC managers to data are with the three expectations: (1) within
perform by having a standard of justice that each time period we compare the realized and
emphasizes communal sharing even when con- expected levels of the four variables and (2)
fronted by horizontal inequities that are associated between adjacent time periods we compare the
ARTICLE IN PRESS
realized and predicted changes in the levels of the starting with an academic study of interesting
four variables. accounting and organizational process change ini-
All research methods have strengths and weak- tiatives at the focal division for credit toward a MS
nesses (Birnberg, Shields, & Young, 1990). Langley degree in Accounting.8 This individual was well
(1999) evaluates the variance method for studying positioned to gather documents pertinent to
organizational process change using three criteria accounting and organizational process change ini-
proposed by Thorngate (1976) and Weick (1979), tiatives in real-time as his position was to work
which are accuracy (closeness of the theory to the “What ever is the current hot topic ƒ special pro-
data), generality (the potential range of situations jects, as assigned, that identify and implement pro-
to which the theory can be applicable), and sim- cess improvements”.9 The third author was an
plicity (the number of elements and/or relation- outsider who supervised the independent research
ships in the theory). The variance method is low on by the Wrst author beginning in year four and he
accuracy but high on generality and simplicity, also acted as an unpaid observer during the devel-
with temporal bracketing being medium on these opment of the accounting initiative to reframe RC
three criteria. boundaries from competitive to cooperative that
Financial crises like in the focal division demarcates periods 2 and 3. We also had access to
(described in Results section) are diYcult to pre- about 9500 pages of mostly proprietary documents
dict (and thus for researchers to have access to for this division that were collected in real-time,
before and during) and therefore researchers typi- including a rich set of documents that detail
cally conduct retrospective analysis of known dis- accounting changes, organizational process change
continuous organizational process changes using initiatives, special studies by external consultants,
archival documentation. Real-time participant interviews, surveys, chronologies of accounting
observer collection of data are less common, but information used by RC managers, and written
important due to the evidence it can provide (Van correspondence from within several teams (Table
de Ven & Poole, 2005; Young, 1999). We use both 3). Finally, we supplement the data with publicly
retrospective archival analysis and real-time par- available archival documents from news papers,
ticipant observation as the basis for data collection journals, and books.
because they enable us to analyze the validity and Participant observation has costs including the
reliability of the data through triangulation (Eisen- lack of control over the research context, the possi-
hardt, 1989). For example, we examine and recon- bility of unintentionally inXuencing observed
cile inconsistent observations in order to increase behavior, and the potential for researcher bias. We
convergent validity. designed the study to reduce potential researcher
The Weld data are contemporaneously collected bias. Participant observation provides several ben-
during a nine-year longitudinal Weld study of a eWts. One is that it enabled us to observe manage-
large division of a US aerospace contactor. These rial conXict and resistance that is often
data are from three types of sources: participant unobservable when a discontinuous organizational
observation, real-time collection of documents, process change is examined retrospectively (Ger-
and archival documents. Use of participant obser- sick, 1991). Having two participants in diVerent
vation to collect data in real-time has the advan- observer roles increased convergent validity
tage of gaining the trust of employees in the because the two observers provide a check on each
organization and hence access to information that
would be unavailable to outsiders (Anderson,
8
1995; Young, 1999). Wallerstein, Duran, Minkler, and Foley (2005) deWne insider
When doing this Weld study, the Wrst author was outsiders as people who are both insiders because of their exist-
ing relationships within an organization and also outsiders, due
a full-time employee insider who became a partici-
to other reasons such as educational attainment.
pant observer at the beginning of the nine-year 9
“Performance appraisal for Casey Rowe: General Dynam-
period and then an insider outsider from the begin- ics Convair Division Accounting Functional Department”,
ning of year four through the middle of year nine, internal Convair report (January 4, 1989), p. 1.
12
Table 3
Summary of the data
Period 1 Period 2 Period 3 Period 4
Participant • Proposed approximately • Interviewed approximately 15 RC • Participated in ten meetings • Participated in Wve
observation and ten continuous organiza- managers who were proposing on the Material Management continuous
interviews – Wrst tional process change organizational process changes (as process cross-functional team organizational process
author initiatives (as the the third-party Wnance liaison for (as the team leader and change initiatives in the
procurement RC the advanced cruise missile accounting RC representative) accounting RC
manager of the cruise product-line) • Participated ten months full- • Conducted semi-
missile product-line) • Acted as liaison to central- time on the fabrication process structured interviews
management, ABC/ACMS steering cross-functional team and with Wve key central
committee, and external consultants conducted 23 two-hour interviews managers regarding
• Conducted approximately 60 with RC managers in the process the accounting and
three-hour interviews with • Participated in Wve meetings on organizational process
various RC managers as part of the general services process changes that took
ABC/ACMS development team reengineering cross-functional place at Convair
• Conducted division training team (as the accounting RC
seminars on ABC and other representative)
accounting changes
Unpaid external • Met with Finance personnel,

observer – third attended division meetings,
author supervised an academic
independent study by
the Wrst author, and
observed the development
of the ABC/ACMS model
ARTICLE IN PRESS
for ten months

Key • Strategic planning and • Strategic planning documents • Strategic planning and policy • Strategic planning and
documentation & policy documents • Accounting reports and system documents policy documents
interviewsa • Budgets, accounting reports, documentation • Internal memos, chronologies • Budgets, accounting
and accounting system • Detailed notes from external of accounting information used reports, and accounting
documentation consultants’ interviews with 31 in cross-functional teams, copies system documentation
• Internal memos and central managers in support of of presentations made, and minutes • Internal memos and
C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx
email correspondence a process benchmarking initiative from cross-functional team and e-mail correspondence
• Publicly available news • Presentations by external consultants steering committee meetings • Publicly available news
articles, journal articles, • Presentations and notes from • Presentations by external consultants articles, journal articles,
and annual reports central managers in steering • Publicly available news and annual reports
committee meetings articles, journal articles,
• Training materials and annual reports
• Publicly available news articles,
journal articles, and annual reports
a
Most of the documentation was collected in real-time, rather than archivally.
ARTICLE IN PRESS
other’s understanding of events and the transfor- 1994. Table 4 presents a time-line along with key
mation of events to levels of variables. Multiple environmental events and organizational process
observers also reduce premature-closure bias when change initiatives in each of the four time periods.
understanding of events diVer (Birnberg et al., Changes in central managers’ strategy for continu-
1990; Eisenhardt, 1989). The Wrst author’s insider- ous or discontinuous organizational process
outsider status helped to avoid the demand-eVect change demarcate periods 1 and 2 and periods 3
bias in which interviewees tell researchers what and 4. Periods 2 and 3 are demarcated based on the
they believe the researchers want to hear (Young, change from competitive to cooperative RC
1999). Long-term participant observation also is boundaries. In order to create an audit trail, the
helpful in mitigating observer bias (McKinnon, Weld data are organized by headings that corre-
1988) and diminishing retrospective bias that can spond to the four variables in the model within
be associated with archival data (Van de Ven, each of the four time periods (Table 4). Finally, at
1992). Finally, although we are limited to a single the end of each period, the evidence presented in
division, the multifaceted nature of theory and that period is summarized and related to the three
research method (within-period predictions by expectations. Table 5 provides a summary of the
between-period predictions by four variables each results for the level of each variable within each
with two or three levels) exert a strong disciplining time period.
force that sharply limits the potential for bias
because only a narrow and theoretically predeWned The Convair division
pattern of results could be consistent with the three
expectations (Ahrens & Chapman, 2006; Camp- Beginning in 1935 General Dynamics’ Convair
bell, 1988). Division developed and manufactured commer-
cial and military aerospace products in southern
California. Due to the cyclical nature of both
Results defense spending and demand for commercial air-
craft Convair historically experienced several
We bracketed the Weld data into four time peri- “boom and bust” cycles. For example, following
ods over the nine-year period between 1986 and World War II Convair’s revenues fell from
Table 4
Periods, dates, environment, and organizational process change initiatives
Dates Period 1 Period 2 Period 3 Period 4
January 1986 –October 1989 November 1989 –July 1991 August 1991 –December 1992 January 1993 –
December 1994
Environment • Industry reforms • End of Cold War • Sale of Convair’s
• Cyclical decline in defense product-lines
commercial aircraft sales • Corporate oYce
declares Convair a
discontinued operation
Organizational • >200 initiatives • McKinsey & Co. process • Material Management • ⯝50 initiatives
process change benchmarking process initiative
initiatives • Four training programs • Fabrication process
(Conway, Battelle, etc.) initiative
• 174 process action teams • Seven process
• ABC/ACMS model reengineering initiatives
• Two new ABC models
to support latter two
initiatives
ARTICLE IN PRESS
Table 5
Summary of results: levels of variables in each period
Variables in model Period 1 Period 2 Period 3 Period 4
a
Organizational process change Continuous Discontinuous Discontinuous Continuous
Responsibility-center measurabilityb Separable Inseparable Inseparable Separable
Responsibility-center boundaries Competitive Competitive Cooperative Competitive
Revelations of private knowledgec Low $7M to $18M/year Low »$0M/year High $41.9M/year Not available
a
The organizational process change is based on central managers’ strategic intent.
b
Responsibility-center measurability is limited to measurability of Wnancial performance.
c
We operationalize managers’ revelations of private knowledge by how revelations reduce expected division cost.
$644M to $13M.10 Later, several other boom and sion’s sales, and a commercial aircraft structures
bust cycles occurred at Convair.11 These busts product line.13
were memorable. Longtime Convair employees
recalled out-of-work “engineers pumping gas” in Period 1 (January 1986 – October 1989)
the early 1960s following the end of a major
defense program and when division sales dramat- Background
ically declined after the Viet Nam war. Later, In response to taxpayer concerns about waste,
when President Reagan’s defense build-up fraud, and abuse in the defense industry, reforms
peaked in 1986, Convair’s annual revenues had shifted risk and up-front investment from the gov-
reached $1B for the Wrst time. However, another ernment to contractors, thus reducing contractors’
bust was about to occur due to the end of the cash Xows and leading them to having low stock
Cold War and the cyclical decline in commercial prices relative to other industries.14 Between 1985
aircraft sales. and 1987, 35% of Convair’s contracts were
In 1986 the Convair division was organized as changed from cost plus to Wxed price contracts.15
a matrix structure consisting of three product In addition, the 1984 Competition in Contracting
lines by 15 functional departments (e.g., Con- Act broke up Convair’s monopoly on its two
tracts & Estimating, Engineering, Finance, Legal, cruise missile product lines. Convair lost several
Program Development, Operations) with approx- competitive bids on defense contracts under Wxed
imately 200 functionally based RCs that were price contracts.16 The lost bids were attributed to
cost centers.12 For example, the Engineering
department was divided into 28 RCs including 13
The standard Cruise Missile Line produced “ƒ a lightweight
Advanced Systems, Special Programs, Systems
winged aluminum missile which ƒ [would] ƒ cruise for more than
Engineering, and Test & Evaluation. The product 1500 nautical miles at very low altitudes to avoid radar detection
lines included two military cruise missile lines and strike targets with pinpoint accuracy” (General Dynamics an-
(standard and advanced cruise missiles), together nual report, 1975, p. 5). The Advanced Line produced a cruise
accounting for approximately 60% of the divi- missile that was designed to evade radar detection and to Xy for a
longer range. The commercial aircraft structures line manufac-
tured the central body section of the MD-11 wide-body jet air-
craft (consisting of the passenger compartment section).
14
E. White, “Risky defense industry attracts bidders – consoli-
dation grows as the stakes get higher”. Wall Street Journal
10
At this time the Convair division was known as the Consoli- (November 17, 1986), p. 1.
15
dated division (Markusen & Yudken, 1992). “Advanced cost management system project brieWng”,
11
G. Johnson, “Bracing for an economic nose-dive Wrm was internal Convair document prepared jointly by Convair and
key to rise of San Diego’s middle class”. Los Angeles Times external consultants from Deloitte & Touche (November 1990).
16
(May 17, 1992), p. 1. “Firms wage contract price war – McDonnell cuts missile
12
“Convair standard practices manual: Organizational costs to beat GenDyn”. The San Diego Union-Tribune (May 10,
description”, internal Convair document (June 12, 1986). 1987), p. 1.
ARTICLE IN PRESS
high bid prices, which arose from high costs. As a labor costs, two small focused factories were
result, Convair’s central managers changed their constructed in neighboring low-wage areas: El Cen-
cost management strategy from “spend everything tro, California and Tijuana, Mexico.21 These facto-
the customer has to spend ƒ [to] ƒ become lean ries consolidated several Convair RCs including
and mean”.17 assembly, inventory management, manufacturing
engineering, painting, quality assurance, and test
Organizational process change into close proximity within a small facility for
General Dynamics corporate management pre- the Wrst time. Due in part to union pressures,
dicted that government plans to reduce the defense central managers were careful to state that these
budget would take place slowly: new facilities would only achieve small-scale pro-
duction:
“The indications are that such change will be
undertaken through a gradual and rational The El Centro plant’s “ƒ work force will
process ƒ The government has projected that eventually number about 100. [Similarly, the
defense spending levels will decline at an Tijuana plant’s] work force will gradually
annual rate of about two percent (in real build up to about 100”.22
terms) over the next several years”.18
A computer publishing pilot initiative showed
In response to pressures from the corporate that integrating several separate tasks including
oYce, Convair’s central managers attempted to binding, distribution, graphic design, printing, and
reduce costs by orchestrating many continuous writing could reduce costs at Convair.23 Other
organizational process change programs. In excess small-scale organizational process change initia-
of 200 initiatives were active within RCs that were tives at Convair included a paperless factory sys-
treated as separate entities based on Convair’s tra- tem,24 an advanced machining system pilot
ditional RA system (discussed next).19 Many of initiative,25 and a pilot study of distributed com-
these initiatives did not survive competitive selec- puter systems.26
tion by central managers. For example, the opera-
tions RC’s Material Inventory Control On-line
System initiative was selected over the Wnance RC’s RC measurability
initiative to create the Convair On-line Integrated The Department of Defense’s Cost/Schedule
Management System. In many instances central Control Criteria (C/SCSC) mandated a set of
managers coordinated initiatives from individual management controls that Convair was required
RCs to create broader organizational process-level to implement and maintain.27 These criteria
initiatives. For example, central managers coordi-
nated a limited-scale concurrent engineering pilot
initiative, which demonstrated that previously sepa- 21
“GenDyn to open two assembly plants: New facilities in El
rated RCs including circuit design, manufacturing Centro, Tijuana established to trim production costs”. The San
planning, mass properties analysis, mechanical Diego Union-Tribune (March 11, 1989), p. 3.
22
design, packaging, producibility analysis, require- “General Dynamics Convair Division, division notice no.
ments deWnition, and stress analysis could be inte- 89-11”, internal Convair memo (March 10, 1989), p. 1.
23
Doebler, P. D. (1991). Process management: Going with the
grated to reduce total costs.20 In order to reduce
Xow. Computer Publishing Magazine, 6, 44–55.
24
McGonagle, J. M. (1984). Megabytes of assembly aids. Pro-
duction Engineering, 31, 82–86.
25
“Advanced machining” General Dynamics World internal
17
Interview with Convair controller (June 23, 1994). corporate newsletter (May 1988).
18 26
“General Dynamics 1988 shareholder report”, corporate Bozman, J. S. (1991). A ‘framework’ for diversity. Computer-
annual report, p. 2. world, 25, 43.
19 27
Interview with division planning director (March 14, 1994). Fleming, Q. W. (1988). Cost/schedule control systems crite-
20
McKinnis, C. (1991). Convair goes concurrent. Computer- ria: The management guide to C/SCSC. Chicago, Il: Probus
Aided Engineering, 10, 18–27. Publishing.
ARTICLE IN PRESS
required a traditional approach to RA in which RC boundaries

RC measurability and RC boundaries were based In addition to separate measurement of each
on Convair’s functional hierarchy.28 For example, RC manager’s performance, the Department of
C/SCSC required Convair’s RC managers to be Defense C/SCSC required individual accounting
held separably accountable in their “one respon- reports for each RC manager and a separate RC
sible organizational element” for their cost bud- budget for each RC.27 RC managers received
get performance.29 Each RC manager was accounting information and performance reports
obligated to submit a written variance analysis for their own RC only; information about other
for signiWcant variances which was reviewed by RCs was not shared.31 These same competitive RC
upper management in the functional hierarchy boundaries also were used to measure and report
and then reported to the military customer in a the results of the various continuous organiza-
“cost performance report”.30 In addition, the tional process changes that were underway.32 Also
government C/SCSC also mandated that RC consistent with a competitive RC boundary, sepa-
managers attend the monthly Division Review rate functional labels were printed on the RC man-
meeting and be prepared to explain performance ager’s reports to uniquely identify the recipient
deviations relative to their own RC’s cost bud- (e.g., Procurement, Failure Analysis, Systems Engi-
get.27 neering).
RC managers and their employees were given Convair’s internal accounting system was com-
strong incentives to contribute to continuous plex and only the Wnance and estimating RCs had
organizational process changes under Convair’s the expertise and authority to “price” expected
“Good Ideas Program”.19 Individual RC manag- cost savings for proposed organizational process
ers who proposed Good Ideas were required to changes. For example, pricing involved identifying
carefully document task changes and quantify appropriate cost allocations from the division’s 19
the amount of expected cost and budget savings overhead cost pools.33 This required signiWcant
in their RC. Like other organizational process division-speciWc accounting knowledge to accom-
changes, proposals for Good Ideas Xowed bot- plish. Finding costs also was particularly challeng-
tom-up from individual RC managers and were ing. For example, Convair’s job order cost system
ratiWed by central managers based on the pro- divided costs into 183 direct cost elements, 217
posal’s relative merits. The RC managers were indirect cost elements, and 55,609 active work
paid a ten percent bonus (up to $10,000) for doc- orders.33 The technical jargon and complexity
umented cost savings. In addition to receiving incorporated in Convair’s accounting system eVec-
the bonus, RC managers received public recogni- tively blocked RC managers from engaging in real-
tion for their Good Idea in the Convair Weekly time negotiations regarding the expected economic
Log newsletter. Central managers then coordi- eVects of competing initiatives.
nated the Good Ideas from the various func- In their day-to-day work, RC managers were
tional RCs. physically separated from each other by oYce
walls and geographic distance between the many
buildings within the division. RC managers also
28
C/SCSC reporting also required the ability to report by both were physically separated during budget negotia-
function and product-line, consistent with Convair’s matrix
tions. Convair implemented the C/SCSC by having
organization structure. However, Convair downplayed the
product-line aligned dimension, instead following “ƒthe nor- individual RC managers separately meet with a
mal practice in industry ƒ to manage contracts by functional
organizational structure”. (Fleming, 1988, p. 233).
29 31
Fleming, Q. W. (1988). Cost/schedule control systems crite- “Convair integrated management system procurement man-
ria: The management guide to C/SCSC. Chicago, Il: Probus ager report” internal Convair document (December 1985).
32
Publishing, p. 35. “Manufacturing strategic plan benchmark performance
30
Fleming, Q. W. (1988). Cost/schedule control systems crite- summary”, Convair interoYce memorandum (March 15, 1990).
33
ria: The management guide to C/SCSC. Chicago, Il: Probus “An overview of Convair accounting”, internal Convair
Publishing, p. 233. document (May 16, 1990).
ARTICLE IN PRESS
superior manager for budget negotiations in the between-period comparisons were made because
superior manager’s oYce. This separate sequential period 1 was the initial period.
approach also was employed in negotiating budget
adjustments when RC managers put forth pro- Period 2 (November 1989 – July 1991)
posed initiatives. Thus, throughout period 1, RC
boundaries were competitive. The following evidence details the economic
crisis at Convair, a new strategy to develop
RC managers’ revelations of private knowledge discontinuous organizational process changes, and
Convair used resource allocation practices to several unsuccessful eVorts to replace compe-
motivate RC managers to reveal their private titive RC boundaries with cooperative RC bound-
knowledge. RC managers were forced to carefully aries.
document expected changes in cost budgets before
a process change was evaluated by central manag- Background
ers. This involved RC managers revealing private In November 1989 an economic crisis shook
knowledge and promising to produce cost savings Convair when the Cold War ended with the former
if a process change was implemented.34 Expected Soviet Union. The news media immediately char-
cost savings from continuous organizational pro- acterized this event as a catastrophe for defense
cess changes ranged from approximately $7M per contractors: “The unthinkable is now becoming a
year during the Wrst half of period 1 to approxi- real possibility ƒ [with] ƒ massive defense cuts in
mately $18M per year during the second half of the cards.”36 Within a year the General Dynamics
period 1, which was at a low level relative to the CEO publicly declared that the defense market had
value of revelations in period 3.35 “fundamentally changed”.37
Shortly after this historic event the Department
Summary of Defense reduced its demand for cruise missiles
The levels of the four variables were continu- by 50%.38 A winner-take-all competition was to be
ous organizational process change, separable RC held in which the low-priced bidder would win all
measurability, competitive RC boundaries, and, of the future cruise missile production contracts.
relative to other periods, low levels of RC manag- Based on the unfavorable outcome of several
ers’ revelations of private knowledge (Table 5). In recent competitive bids,16 central managers
comparing the realized levels of these variables to believed Convair’s costs were signiWcantly higher
their expected levels in the model (Fig. 1 and than its only competitor.39 Further compounding
Table 2), three of these four levels in period 1 this economic crisis was a greater than 50%
were consistent with the three expectations. Con- decrease in commercial aircraft sales.40
tinuous organizational process change was Four months after the fall of the Berlin Wall
related to separable measurement (E1) and com- and the symbolic end of the Cold War, McKinsey
petitive RC boundaries (E2). However, we found & Co. was hired to conduct a process benchmark-
only low levels of RC managers’ revelations of ing study. A process was deWned as “a logical,
private knowledge. We found no support for E3
in period 1. Thus, with the exception of lower lev- 36
Wartzman, R., “Defense Firms Gird for End of Cold War –
els of RC managers’ revelations of private knowl- Prospect of Peace Has Industry Bracing for Shakeout”. Wall
edge than expected in period 1, this within-period Street Journal (November 29, 1989), p. 1.
37
evidence was consistent with the model. No “General Dynamics denies sale rumors – Speculation about
local units runs rampant after Anders’ comments” The San Di-
ego Union-Tribune (November 1, 1991), p. 1.
38
“Advanced cruise missile encounters rough air”. The San
34
Interview with a manufacturing engineering RC manager Diego Union-Tribune (December 8, 1990), p. 1.
39
(August 20, 1994). Interview with Controller (June 23, 1994).
35 40
Interview with a division planning director (March 14, Ellis, J. “Plane makers see the ground coming up fast”. Busi-
1994). ness Week (November 9, 1992), pp. 70–73.
ARTICLE IN PRESS
cross-functional linkage of activities which crosses “A lot of decisions were being made on the
departmental and usually functional bound- wrong data. We never knew if a lot of deci-
aries”.41 Before these consultants completed their sions were not being made because of the
study, process-level accounting information was lack of the right data. [The ABC/ACMS
not available at Convair. McKinsey & Co. spent model] was an attempt to improve decisions
Wve weeks constructing Convair’s processes and recognizing that accounting data were inXu-
identifying which of Convair’s processes had the encing decisions”.39
greatest potential for reducing costs to world-class
This model was to provide “an activity-view of
standards.42
the enterprise”.47 The Convair Division General
Following McKinsey & Co.’s study, all
Manager assigned a steering committee com-
employees participated in several training pro-
posed of central managers to oversee the develop-
grams conducted by consultants from the Battelle
ment and implementation of the ABC/ACMS
Memorial Institute, Conway Quality Inc., and the
model. In November 1990, the cost management
American Samurai Institute. This training pro-
initiatives (CMI) department was formed to
vided RC managers and employees with the
develop the ABC/ACMS model along with exter-
knowledge to eVectively participate on cross-
nal consultants from Deloitte and Touche.48 A
functional teams that were needed because “sys-
10-member cross-functional team was assigned
tems usually overlap departmental boundaries”.43
the task of attempting to collect RC managers’
These teams were to “follow the money ƒ [in
private knowledge needed to construct the new
order to] ƒ eliminate waste”.44 After completing
ABC/ACMS model. During the six-week devel-
the training programs, 174 process action teams
opment period the CMI team conducted three
composed of RC managers and employees
rounds of structured interviews with 161 RC
worked to identify opportunities for major cost
managers spanning all 11 division vice president’s
reductions at Convair.45
areas of responsibility.49 This model identiWed
At the end of period 2 the advanced cost man-
600 unique activities and approximately 150 cost
agement system (ACMS) was initiated by a “smart
drivers. The ABC/ACMS model was completed
accountant who was ahead of the game in present-
June 15, 1991, marking the end of period 2. The
ing solutions” using ABC concepts (hereafter
information from the ABC/ACMS model was not
referred to as the ABC/ACMS model).46 Accord-
shared with RC managers until the beginning of
ing to the Accounting Director who initiated the
period 3.
ABC/ACMS model:
Organizational process change
41
“Advanced cost management system (ACMS) survey #3”, McKinsey & Co.’s Wnal report concluded that,
internal Convair document prepared jointly by Convair and “There is signiWcant value – $235 million conser-
external consultants from Deloitte and Touche (April 19, 1991), vatively estimated – as a result of improving
p. 3. performance in the short term to close the world-
42
“Perspectives and recommendations emerging from the
benchmarking process: Review with Convair General Man-
ager”, internal Convair document prepared by external consul-
47
tants from McKinsey & Co., Inc., (June 14, 1990). “Advanced cost management system project brieWng”,
43
“Conway handbook”, internal Convair training material internal Convair document prepared jointly by Convair and
prepared and presented by Conway Quality, Inc., (October 13, external consultants from Deloitte and Touche (November
1990), p. 4. 1990), p. 15.
44 48
“Conway handbook”, internal Convair training material “Advanced cost management system (ACMS) steering com-
prepared and presented by Conway Quality, Inc. (October 13, mittee meeting #1”, internal Convair document prepared joint-
1990), p. 4. ly by Convair and external consultants from Deloitte and
45
“Process action teams: Purpose, owner, and function”, inter- Touche (May 10, 1991).
49
nal Convair document (October 21, 1991). “ACMS steering committee meeting #2”, internal Convair
46
Interview with a director of planning conducted by McKin- document prepared jointly by Convair and external consultants
sey & Co., Inc. (June 14, 1990), p. 16. from Deloitte and Touche (May 24, 1991).
ARTICLE IN PRESS
class gap”.50 This unfavorable gap was attributed ACMS data to support these cost objectives was a
to poor performance in Convair’s Material Man- “must-have within in 0–6 months”.54
agement, Fabrication, and Management pro-
cesses.51 The gap was substantial as it equaled RC measurability
approximately 50% of Convair’s controllable Convair’s General Manager announced his
costs (after eliminating the cost of purchased strategy to “shift emphasis from individual output
materials which were assumed to be Wxed).39 to the productivity of cross-functional teams”.55
According to McKinsey & Co., achieving the For example, each of the 174 process action teams
$235M in cost savings and closing Convair’s unfa- submitted only a single report that documented
vorable gap would require a “One-time step func- their team’s plan without identifying the contribu-
tion improvement to meet market discontinuities”.52 tions that each RC manager had made.45 A process
Other consultants were hired to validate McKin- action team was now treated as the smallest
sey & Co.’s recommendations. According to the accountable unit within the division.
Controller: Early in the development of the ABC/ACMS
model the steering committee assigned a compen-
“All of the studies (McKinsey & Co., E&Y,
sation committee the task of evaluating new per-
Bain, etc.) said basically the same thing. To
formance-contingent incentives in order to
get larger potential cost savings required
motivate RC managers to contribute to discontin-
cross-functional organization. This was very
uous organizational process changes.56 However,
diYcult and dramatic”.39
the compensation committee concluded that, due
Consistent with a strategy of discontinuous to the Xuid nature of the cross-functional task, cre-
organizational process change, we Wnd evidence ating new incentives was not advisable. The com-
that central managers intended to rapidly pursue pensation committee recommended removing,
large-scale organizational process change. Early in rather than creating, performance-contingent
the development of the ABC/ACMS model, the incentives.39 As a result, for example, the Good
ABC/ACMS steering committee directed the Ideas program was canceled (see period one).
development team to “accelerate the eVort”.53
They also cast votes to guide the development of RC boundaries
the ABC/ACMS model and at least four of the Wve In the process benchmarking study that took
steering committee members voted that current place, McKinsey & Co. Wrst recast some of Conv-
accounting data and process were “poor” for stra- air’s accounting information around cooperative
tegic make/buy, facility rationalization, cost fore- RC boundaries based on interviewing central man-
casting, and cost improvement and that new ABC/
54
“ACMS steering committee meeting #3”, internal Convair
document prepared jointly by Convair and external consultants
50
“Perspectives and recommendations emerging from the from Deloitte & Touche (June 12, 1991), pp. 15 and 23.
55
benchmarking process: Review with Convair General Man- “Convair total quality management plan”, internal Convair
ager”, internal Convair document prepared by external consul- document (January 17, 1991), p. 44.
56
tants from McKinsey & Co., Inc., (June 14, 1990), p. 13. The ABC/ACMS steering committee expressed their interest
51
“Perspectives and recommendations emerging from the in performance-contingent incentives at the time a new incen-
benchmarking process: Review with Convair General Man- tive plan had been implemented for the top 25 corporate and
ager”, internal Convair document prepared by external consul- divisional managers. On May 1, 1991, General dynamics share-
tants from McKinsey & Co., Inc. (June 14, 1990). holders had ratiWed an incentive plan in which the “top 25” cor-
52
“Perspectives and recommendations emerging from the porate and divisional managers received a bonus equal to their
benchmarking process: Review with Convair General Man- base salary each time General Dynamics stock increased by $10
ager”, internal Convair document prepared by external consul- for a minimum of ten days (Dial & Murphy, 1994). The “top
tants from McKinsey & Co., Inc. (June 14, 1990), p. 14. 25” included Convair’s General Manager and Controller. The
53
“ACMS steering committee meeting #2”, internal Convair Wrst bonus occurred in less than three months. The board of
document prepared jointly by Convair and external consultants directors elected to cancel the “top 25” incentive plan Wve
from Deloitte and Touche (May 24, 1991), p. 1. months later, after the second round of bonuses.
ARTICLE IN PRESS
agers and then using this information to create an The ABC/ACMS steering committee approved
innovative accounting model that produced several a plan to incorporate 35 processes into the ABC/
new organizational processes.51 The organizational ACMS model (e.g., Material Management, Fabri-
processes were conceptualized as cutting horizon- cation, Obtain New Business, Develop Conceptual
tally across the division by combining activities Design, Develop & Verify Products, Provide Prod-
from several RCs. For example, the Material Man- uct Support, and Manage and Support the Divi-
agement process was found to combine parts of pre- sion).60 The Accounting Director explained that
viously separated RCs including engineering, the processes in the ABC/ACMS model “were
procurement, estimating, accounting, quality assur- structured around what we were trying to inXu-
ance, and operations. Other organizational pro- ence. I was experimenting. I was not sure what the
cesses included fabrication, aircraft assembly, and right level of implementation was”.39
general management.51 The process benchmarking One of the Wrst applications of the ABC/ACMS
reports were used by Convair’s central managers for model the steering committee commissioned was
strategic planning purposes; however, this informa- to examine the process-wide “cost of collecting
tion was not shared with RC managers in period 2. cost”.60 The analysis found that “the number of
Rather, with a few exceptions discussed below, com- work orders drive 62% of cost”. This revelation
petitive RC boundaries from period 1 remained. stirred a dialogue among the steering committee
In 1989 Convair began to use cooperative RC members who expressed that reducing work orders
boundaries on a limited basis. The training pro- would be a simple task.61
grams all RC managers attended espoused cooper-
ative boundaries. For example, the TQM training RC managers’ revelations of private knowledge
program materials stated “All work is part of a The Finance RC Manager conWded in the Wrst
process”.57 Building on this theme several ABC author that he was aware of opportunities to sub-
pilot projects constructed process-level accounting stantially streamline the workload in Wnance as a
reports that grouped together activities from many result of reduced Department of Defense C/SCSC
RCs. This information was shared with the RC accounting reporting requirements (see period 1)
managers who were involved in the process. For caused by the division’s changes from cost plus to
example, the Commercial Aircraft Assembly pro- Wxed-price contracts. He also speculated that addi-
cess pilot initiative grouped activities from various tional opportunities existed for process improve-
quality assurance, industrial engineering, and man- ment and cost reduction in other parts of the
ufacturing engineering RCs that were previously Financial Management process, including the
treated as being distinct departments.58 Addition- Wnance, estimating, and contracts RCs. However,
ally, 21 of the 174 process action teams were orga- the Finance Manager did not publicly reveal these
nized as cross-functional teams with cooperative opportunities. His behavior was strategic. He
RC boundaries (they met in face-to-face meetings explained that he was reluctant to cooperate
where negotiations were conducted in real-time).59 because he expected other RC managers to with-
hold private information. Thus it would be foolish
for him to make a sacriWce when he expected that
57
“Conway handbook”, internal Convair Division document others would free ride. The Controller explained:
produced by Conway Quality, Inc. (October 13, 1990).
58
“ACMS steering committee meeting #1”, internal Convair “People are adverse to change – everybody at
document prepared jointly by Convair and external consultants all levels. This has to be addressed at an
from Deloitte and Touche (May 10, 1991).
59
The title “process action team” turned out to be a misno-
mer. A total of 153 process action teams (88% of the total) were
60
composed of functional managers and employees from the “ACMS steering committee meeting #3”, internal Convair
same responsibility center. These teams were formed within RC document prepared jointly by Convair and external consultants
boundaries, consistent with a competitive RC boundary. “Pro- from Deloitte and Touche (June 12, 1991).
cess action teams: Purpose, owner, and function”, internal 61
“ACMS steering committee meeting #3”, Weld notes (June
Convair document (October 21, 1991). 12, 1991).
ARTICLE IN PRESS
individual level. Change creates anxiety. “It is crucial that Convair unify all the major
People don’t know how they will Wt in after improvement initiatives and/or projects in a
the transition. Culture and individual willing- coordinated eVort to achieve divisional per-
ness to change is a huge constraint”.39 formance improvement. Without doing so,
the current state of aVairs at the division will
The Research & Engineering Vice President
continue to undermine proposed changes
provided similar insights:
and substantially increase the risk of project-
“Functional rivalry is a big problem in goal failure and increase costs”.65
setting ƒ Middle management will have a
Like McKinsey & Co. and Ernst & Young, the
great deal of diYculty relinquishing decision
training programs pointed to RC managers as the
making authority to a multi-disciplinary
key source of information about initiatives and
design team”.62
their eVects:
McKinsey & Co. documented conXict among
“Asking for ideas from the people who do
functional vice presidents who favored competing
the work can result in signiWcant improve-
pet projects. In McKinsey & Co.’s interviews, each
ments ƒ the people are the experts, they are
functional vice president only expressed an inter-
the ones doing the work. They may not have
est in an organizational process change that prom-
the authority to Wx problems, but they can
ised to extend his or her functions inXuence in the
see where the problems are. And many of
division while minimizing his or her function’s
then will have good suggestions for how
future budget cuts. For example, the Research &
those problems can be corrected”.66
Engineering Vice President hoped to implement
concurrent engineering (expected to produce cost However, none of the 174 process action team’s
savings in quality assurance, and operations) revealed any useful information about discontinu-
while the Operations Vice President wanted to ous process improvements or the potential for large
adopt continuous Xow manufacturing (expected cost reductions.67 Although accounting personnel
cost savings in several engineering RCs). The con- interviewed several of the process action team
Xicting agendas reXected the vice presidents’ self- members, no one was willing to identify and quan-
interest and stiXed progress in adopting discontin- tify potential cost savings. By the end of period 2,
uous organizational process change. Moreover, none of these teams had produced any measurable
realizing expected cost savings from accelerated cost reductions and the teams were disbanded.68
organizational process change initiatives had
stalled. For example, in an interview, a planning 65
“Integrated management system process value analysis re-
RC manager told McKinsey & Co. that “Disman- port”, internal Convair document prepared by external consul-
tling bureaucracy after moving facilities oV-site is tants from Ernst & Young, (May 7, 1990) quoted in “Advanced
virtually impossible”.63 Similarly, the Controller cost management system (ACMS) steering committee meeting
remarked “only a small fraction of budgeted over- #3”, internal Convair document prepared jointly by Convair
and external consultants from Deloitte and Touche (September
head cost savings had been realized when parts
5, 1991), p. 12.
were outsourced”.64 Acknowledging the conXict 66
“Conway handbook”, internal Convair Division document
external consultants from Ernst & Young con- produced by Conway Quality, Inc. (October 13, 1990), p. 5.
67
cluded that: Interview with the Vice President of Operations (June 9, 1992).
68
As previously mentioned, although most of the process ac-
tion teams had purely competitive RC boundaries, 21 of these
teams (12%) had a mixture of both competitive and cooperative
62
Interview with Research & Engineering Vice President con- RC boundaries. Like the other process action teams that were
ducted by McKinsey & Co., Inc. (June 14, 1990), p. 27. structured using competitive boundaries, these mixed-boundary
63
Interview with a planning director conducted by McKinsey teams did not reveal any private knowledge. “Process action
& Co., Inc. (June 14, 1990), p. 19. teams: Purpose, owner, and function”, internal Convair docu-
64
Interview with Controller conducted by McKinsey & Co., ment (October 21, 1991). Interview with division planning direc-
Inc. (June 14, 1990), p. 18. tor (March 14, 1994).
ARTICLE IN PRESS
Finally, early in development of the ABC/ improvement programs is achieved only when the
ACMS model, external consultants lead the ABC/ front-line workers, supervisors, and support per-
ACMS steering committee toward a less conten- sonnel are empowered to identify and solve prob-
tious strategy. The ABC/ACMS model was to be lems”.69 The consultants from Deloitte & Touche
constructed by asking RC managers only for the explained that “Once activities are known we can
knowledge that was needed to reframe RC bound- ask fundamental questions about these activities
aries. Unlike the private information needed to and the resources they consume”.70 Their previous
extract organizational beneWts from a process clients had used ABC “to develop a business pro-
change, private knowledge that RC managers were cess view of the enterprise ƒ [based on this
Wrst asked to provide did not commit them to giv- they] ƒ identiWed and evaluated improvement
ing up budgetary resources. Rather information opportunities in cross-functional teams ƒ [and]
was elicited for the purpose of reframing RC ƒ developed actionable cost reduction opportuni-
boundaries to create the cooperative context that ties based on structured analysis”.49 Similarly a
would be used to motivate RC managers to reveal pilot initiative commissioned by the ABC/ACMS
their more sensitive information in period 3. steering committee to focus on reducing material
and procurement cost concluded that “because
Summary material cost is driven by [functional] organiza-
The levels of the four variables were discontin- tions outside procurement, a cross-functional team
uous organizational process change, inseparable is required for process improvement”.71 In addi-
RC measurability, competitive RC boundaries, tion, this same pilot initiative concluded that “the
and low RC managers’ revelations of private Material Management process team will initiate
knowledge (Table 5). This within-period evidence actions to produce near term results”.71 In the sec-
in comparison to the model (Fig. 1 and Table 2) ond ABC/ACMS steering committee meeting the
was consistent with the relationships in E1 and consultants from Deloitte & Touche further
E3 (cell 2 in Table 2), however, this evidence was explained:
inconsistent with E2 because cooperative RC
“Cross-functional analysis ƒ reXects an
boundaries for all four types of RC and participa-
enterprise-wide view of managing the
tion practices did not exist during this entire
business ƒ [This] ƒ prevents silo-oriented
period. Considering between-period evidence, the
improvement initiatives ƒ [and it] ƒ allows
changes in the levels of the variables between
for optimizing performance of the entire
periods 1 and 2 supported E1 and E3 but not E2
business, not local optimums ƒ [through]
(Table 5).
streamlining cross-functional processes”.72
Period 3 (August 1991 – December 1992)
Background and organizational process change

This period was critical in the division’s 69
Perspectives and recommendations emerging from the
response to the economic crisis it faced. Central benchmarking process: Review with Convair General Man-
managers maintained its strategic goal of quickly ager,” internal Convair document prepared by external consul-
tants from McKinsey & Co., Inc., (June 14, 1990), p. 49.
achieving large cost reductions through discontin- 70
“Advanced cost management system project brieWng”,
uous organizational process change. Up to this internal Convair document prepared jointly by Convair and
point there was “no clear picture of anticipated external consultants from Deloitte and Touche (November
beneWts from cost reduction initiatives”.58 The Vice 1990), p. 18.
71
President of Operations asked “How do we get the “ACMS steering committee meeting #4”, internal Convair
document prepared jointly by Convair and external consultants
cost out? What elements do we have a chance of
from Deloitte and Touche (September 5, 1991), p. 7.
inXuencing? What are the enablers that will allow 72
“ACMS steering committee meeting #2”, internal Convair
us to eliminate cost?”67 According to McKinsey & document prepared jointly by Convair and external consultants
Co. “80% of the potential in major productivity from Deloitte and Touche (May 24, 1991), p. 44.
ARTICLE IN PRESS
Period 3 marked the Wrst time that cooperative initiatives and develop process improvement
RC boundaries were implemented consistently at plans. Results from this analysis will determine
Convair. In response, RC managers began to coop- how we proceed with other Convair business
eratively reveal their private knowledge about dra- processes using [ABC/]ACMS”’.75
matic cost savings that were expected from
Accordingly, the Material Management process
discontinuous organizational process changes. The
cross-functional team was created by physically
period-3 initiatives were managed by central manag-
bringing together RC managers (or their represen-
ers in steering committees and they were planned by
tatives) from accounting (the Wrst author), engi-
cross-functional teams.73 The cross-functional teams
neering, inventory control, procurement, and
were composed of RC managers who were collec-
product-line management. Based on the ABC/
tively responsible for devising technical and Wnancial
ACMS model, the newly created Material Man-
changes for an entire organizational process.
agement process spanned Wve vice presidents’ func-
In January 1991, the Convair Division General
tional areas of responsibility, incorporating 55
Manager had announced his strategy to promote “A
activities, 71 cost drivers, and $63M in cost, of
signiWcant thrust toward improved quality, produc-
which 60% was non-value-added.76 In the team’s
tivity, and reduced costs including group dynamics,
Wrst meeting they clariWed their charter:
teamwork, work cells, openness to new ideas, and
mutual trust”.74 Later, in October 1991, the ABC/ “The expectations expressed by the [ABC/]
ACMS Steering Committee announced its decision ACMS and the Material Management process
to begin using the ABC/ACMS model to support steering committees were discussed as they
the Wrst discontinuous organizational process change relate to our team. They can be summarized as
initiative in the Material Management process: follows: select near-term, high-potential Mate-
rial Management process improvement(s)
“In today’s defense environment coupled with
using the [ABC/]ACMS model”.77
the increasing pressure on Wnancial perfor-
mance, investment restrictions and reductions, In the second meeting the team members
we are confronted with critical decisions to expressed that:
manage our business. Many of these decisions
“The high level of support from the Material
will have far reaching impacts ƒ As the steer-
Management process steering committee
ing committee for [the ABC/ACMS] project,
combined with the new [ABC/]ACMS model
we have decided to expand its role. We have
capabilities gives our team a unique opportu-
directedƒ[the Material Management process
nity to produce signiWcant and urgently
steering committee]ƒto implement the [ABC/
needed change”.78
]ACMS as follows: ‘An [ABC/]ACMS-based
process value analysis will be performed for the
RC measurability
Material Management process. A cross-func-
The Material Management process cross-func-
tional team will be assigned to understand the
tional team was asked to negotiate plans for rapid
division’s Material Management process from
requirement generation by engineering to
installing [materials in] the product. This team 75
“ACMS deployment”, internal Convair memo (October 30,
will establish a current baseline, identify appro- 1991), p. 1.
76
priate improvement initiatives, evaluate current “Material Management process cross-functional team rec-
ommendations to the Material Management process steering
committee”, internal Convair document (January 29, 1992).
73 77
Galbraith (1993) refers to the use of a (cross-functional) “Minutes of meeting #1, Material Management process
committee and cross-functional team as a parallel organization team”, Convair interoYce memorandum (October 31, 1991), p.
structure in which the cross-functional team reports to the 2.
78
(cross-functional) committee. “Minutes of meeting #2, Material Management process
74
“Convair total quality management plan”, internal Convair team”. Convair interoYce memorandum, (November 5, 1991),
document (January 17, 1991), p. 3. p. 2.
ARTICLE IN PRESS
cost reductions through intensive lateral negotia- At the beginning of period 3 competitive RC
tions with team members (various RC managers) boundaries were deemphasized and replaced by
who had functionally diVerentiated private knowl- cooperative RC boundaries. For example, on July
edge about the Material Management process. 26, 1991, the Wrst set of ABC/ACMS reports was
Team members were specialists in diVerent func- distributed to all Convair supervision. The cover
tional parts of the process they worked on, so page stated that the “[ABC/]ACMS now provides
requiring that team members monitor each other a framework needed to help us meet the challenges
within these teams was not feasible. Consistent and critical decisions facing us today”.80 The next
with the team concept, no eVort was made to mea- four pages were devoted to tables and Wgures dis-
sure how much each RC manager contributed to playing accounting information organized using
the initiative and the cross-functional team was predominantly cooperative RC boundaries. Only
held accountable as a group. The inseparable one small Wgure (1/4th of a page) depicted a com-
nature of this initiative was reinforced by requiring petitive RC boundary by reporting separate
the team to present a single report to the steering accounting information for each RC manager.
committee detailing plans for discontinuous orga- This Wgure was displayed in the upper right-hand
nizational process changes and large rapid cost corner of the Wrst report, as a point of departure.
reductions. Inter-RC negotiations, externalities The remaining 3.75 pages of the accounting reports
among the RC managers who participated in the (94%) were devoted to the new organizational pro-
cross-functional team, and the discontinuous cess accounting and organizational design that
nature of the organizational process change cre- implied cooperative RC boundaries by grouping
ated a control environment in which separable RC the RC managers who worked on a common pro-
measurability was too costly and thus only insepa- cess together. Consistent with the new boundaries,
rable RC measurability was economically feasible. discussion about RC manager’s individual budget-
ary performance was eliminated from the agenda
RC boundaries in the monthly Division Review meeting.19
The majority of the time spent creating the None of the members of the Material Manage-
ABC/ACMS model was devoted to translating the ment team had worked in close proximity before.
specialized jargon in Convair’s accounting system The team members participated in the context of
into language that was easily understood by all of face-to-face meetings for the Wrst time in period 3.
the RC managers across organizational pro- Team members evaluated competing initiatives
cesses.60 For example, based on one interview, sev- and conducted simultaneous negotiations in order
eral technical accounting classiWcations (indirect to arrive at a plan for discontinuous organizational
accounts 6111, 6387, 6391, and direct labor code process change in the Material Management pro-
25) were consolidated under an activity called cess.
“tracking and resolving material shortages”. In As the basis for developing their plan, the
addition technical language in reports from Conv- Material Management team members selected
air’s integrated management system was simpliWed reports from the ABC/ACMS model with cooper-
so as to be consistent with a cooperative RC ative as opposed to competitive ABC/ACMS
boundary.79 boundaries. Although RC managers were used to
receiving performance reports that focused exclu-
sively on their own RC, cross-functional team
79
Recall that Convair integrated management system reports members requested predominantly group-level
were based on the Department of Defense’s Cost/Schedule performance reports from the ABC/ACMS model
Control Criteria (C/SCSC) (discussed in period 1). These crite- that aggregated RC information for the entire
ria and reports used rather technical accounting language, con-
sistent with a competitive RC boundary. For example, the
technical nature of the language mandated by C/SCSC was dis-
80
cussed in: Grskovich, D. L. (1991) “What is C/SCSC? In english “ACMS deployment”, internal Convair memo (July 26,
please!” National Contract Management Journal, 23, 25–32. 1991), p. 1.
ARTICLE IN PRESS
Material Management process. Of the 34 reports viously been shared with RC managers. The newly
the Material Management team used, 30 (88%) shared strategic information provided to the Mate-
were designed using group-level or cooperative rial Management process team modeled the Conv-
RC boundaries. The competitively organized RC air division as a single entity, absent competitive
information (12% of the reports) was used only in RC boundaries.
the team’s early explorations to validate the The Material Management process cross-func-
group-level accounting information in the ABC/ tional team’s Wnal report that was presented to the
ACMS model.81 Moreover, functional RC titles Material Management process steering committee
(e.g., “receiving inspection”, “material control”, constructed Wgures that emphasized the openness
“automated warehouse”) that were used to iden- and connections among the various activities
tify a particular RC manager on accounting within the Material Management process. This
reports previously were not displayed on the pro- report contained only two small Wgures (40% of a
cess-level reports the team used as the basis for single page) that were designed using competitive
negotiating process changes. RC boundaries. The remainder of the 16-page
Consistent with cooperative RC boundaries, the report (97.5% of the pages in the report) was
ABC/ACMS model provided accounting informa- devoted to Wgures and tables that reXected cooper-
tion using simpliWed accounting language that all ative RC boundaries.76 Once again, accounting
RC managers understood instead of the technical information designed using competitive RC
accounting jargon and myriad of codes (cost codes, boundaries was used only brieXy in the team’s Wnal
overhead account numbers, technical concepts report as an introductory segue to the cooperative
such as overhead allocations) that were used previ- process-level accounting information on which the
ously. The new accounting model helped to make team designed their Wnal report.
accounting information about activities from other
RCs in the Material Management process more RC managers’ revelations of private knowledge
accessible by eliminating the accounting jargon In stark contrast to period 2, in period 3 manag-
and codes and substituting plainspoken language ers involved in the Material Management process
for technical terms. This more accessible account- cross-functional team members openly revealed
ing language was said to be appropriate because private knowledge about a high level of cost sav-
“cost is cost to the customer”.82 In the ABC/ ings expected from implementing speciWc discon-
ACMS model, cost information was stated in sim- tinuous organizational process changes. The plan
ple, direct language. As a result, there was no need this team presented to the Material Management
for an accountant to translate accounting jargon, steering committee revealed, in total, the Material
cost codes, and complex overhead cost allocations Management process teams’ proposed initiatives
for RC managers across the organizational pro- were expected to reduce the total cost of the pro-
cess. Rather, the ABC/ACMS model enabled the cess by approximately 30%.76
RC managers on each cross-functional team to Contributing private knowledge about potential
debate costs directly consistent with a cooperative cost savings was costly to the RC managers
RC boundary. because it constituted a promise to take a substan-
Also consistent with cooperative RC bound- tial budget cut if the discontinuous organizational
aries, central managers opened the books and process change were implemented. Revealing this
began giving cross-functional team members full knowledge, however, also often illuminated other
access to strategic planning information for the unintended ways of reducing costs. For example, in
division as a whole. This information had not pre- developing one planned initiative, the Procurement
RC manager revealed that his RC had 15 clerks
81 who manually input purchase order data. This
Chronological compilation of accounting reports used by
the Material Management process cross-functional team, inter-
work could easily be eliminated independently of
nal Convair notebook (September 1991 – January 1992). the initiative, for example using Convair’s elec-
82
Participant observation, Weld notes (May 1991). tronic data interchange capability.
ARTICLE IN PRESS
Although the Material Management cross-func- one initiative he volunteered that several managers
tional team members ultimately choose to act in his RC had purposely distorted revelations of
cooperatively, conXict was apparent in the team’s private knowledge used to construct the ABC/
early meetings. For example, over several meetings ACMS model. According to the Procurement RC
the Engineering RC manager remained adamant manager this was done in order to avoid cost man-
that the team should sponsor his RC’s pet initia- agement pressures.86
tive to create an engineering material request sys- On January 29, 1992 the Material Management
tem. However, the Engineering RC manager could cross-functional team presented its plan for dis-
not identify signiWcant cost savings using the ABC/ continuous organizational process change to the
ACMS model. He eventually relented to pressure Material Management process steering committee.
from other team members and agreed to support The team identiWed $22.9M in expected cost sav-
other initiatives that promised larger, quicker cost ings from expanding a JIT pilot initiative and from
savings. the new initiative to reengineer the requirements
The Material Management cross-functional generation process.
team members acted in a way that was consistent Also consistent with the notion of communal
with communal sharing, as evidenced by the sharing, Material Management process team mem-
achievement of consensus on three important bers volunteered private knowledge despite their
issues. First, after investigating the 38 initiatives awareness of substantial horizontal inequities.
and pilot projects that were in early stages of devel- Through cross-functional negotiations, it had
opment, the Material Management process team become apparent that expected cost reductions
members reached an agreement that expanding a from the proposed Material Management process
just-in-time (JIT) operations pilot initiative to the changes would be uneven across the RCs in the
entire Material Management process held the larg- process. The RCs that supported the front-end of
est potential to reduce organizational process the process (engineering and material control)
costs.83 Second, members reached a consensus that were anticipated to win new status and little in the
a new discontinuous organizational process way of cost cuts, while RCs that supported the
change to reduce material shortage-related costs down-stream part of the organizational process
by reengineering the various activities involved in were expected to take heavy budget cuts (procure-
the requirements generation process to eliminate ment, quality assurance, and inventory manage-
bill of materials errors held the largest potential for ment).87
additional cost savings.84 Third, the team agreed The ABC/ACMS and the Material Manage-
that larger cost reductions were possible for (1) ment process steering committees were pleased
and (2) above if the boundaries of the Material with the outcome of the Material Management
Management process were expanded to incorpo- process change.88 For the Wrst time, RC managers
rate an additional $14.3M in activities from two had publicly revealed private knowledge about the
adjacent organizational processes (bringing the potential for large budget and cost reductions if
total value of the costs in the organizational pro- carefully documented discontinuous organiza-
cess to $77.3M).85
Further evidence of cooperation was provided 86
SpeciWcally, costs associated with resolving material short-
by the procurement RC manager. While analyzing
ages were purposely hidden by labeling the associated activity
“constraint resolution”. Moreover, this activity was rated as be-
ing 100% “value added” when it was known to be entirely non-
83
“Minutes of Meeting #5, Material Management process value-added by RC management. Participant observation, Weld
team”, Convair interoYce memorandum, (November 5, 1991). notes (November 1991).
84 87
“Minutes of Meeting #6, Material Management process “Minutes of Meeting #8, Material Management process
team”, Convair interoYce memorandum, (November 22, 1991). team”, Convair interoYce memorandum (December 5, 1991).
85 88
“InteroYce Memorandum, Minutes of Meeting #6, Mate- Interviews with the Vice President of Operations (April 2,
rial Management process team”, internal Convair document 1993), a division planning director (March 14, 1994), and the
(November 22, 1991). Controller (May 16, 1994).
ARTICLE IN PRESS
tional process changes were implemented. After ing in aggressively pursuing cost reduction
plans for discontinuous organizational process targets ƒ [despite] ƒ members’ incentive to ‘pro-
change in the Material Management process were tect’ home departments”.91
ratiWed by central managers, the steering commit-
tees, and the cross-functional teams were dis- Summary
banded. The levels of the four variables in the model
In addition to the results reported above for the were discontinuous organizational process change,
discontinuous organizational process change in the inseparable RC measurement, cooperative RC
Material Management process, we also have data boundaries, and a high level of RC managers’ reve-
that are consistent with the model (Fig. 1 and lations of private knowledge (Table 5). The levels
Table 2) for eight additional cross-functional of these variables in period 3 were consistent with
teams and associated steering committees charged the model (Fig. 1 and Table 2). That is, discontinu-
with discontinuous changes in six other organiza- ous change was associated with inseparable RC
tional processes during period 3 (Fabrication, Inte- measurability and cooperative RC boundaries,
grated Product Development, Imperial Valley consistent with E1 and E2. The inseparable RC
Facility, Assembly, General Services, and Product measurability, cooperative RC boundaries, and the
Assurance).89 Like the Material Management pro- high levels of RC managers’ revelations of private
cess, each of the additional processes combined knowledge were consistent with E3 and Table 2.
activities from preexisting RCs in ways that Considering between-period evidence, the changes
departed from Convair’s functional hierarchy. Fol- in the levels of the four variables between periods 2
lowing the Material Management process team, and 3 were consistent with the model (Fig. 1 and
two new ABC cost models were constructed to Table 2).
support the subsequent cross-functional teams. Also consistent with E3, we Wnd evidence that
Like the previous ABC/ACMS model, the new redesigning RC boundaries successfully changed
ABC models required gathering relatively innocu- or reframed RC managers’ behavior. Although we
ous private knowledge. This information was then found competition (period 1) or conXict (period 2)
used, in part, to reframe RC boundaries from com- between RC managers, after all RA and participa-
petitive to cooperative. tion practices were changed to imply cooperative
In June 1992, both Cruise Missile product lines RC boundaries in period 3, RC managers selected
were sold.90 Therefore, the remaining eVorts to accounting reports structured using cooperative
reduce total costs by discontinuous organizational RC boundaries. In addition, all of the period 3
process change contemplated a division that was teams produced joint reports for the central man-
approximately 60 percent smaller. Consistent with agers in the steering committee predominantly
communal sharing the additional cross-functional based on cooperative RC boundaries. This evi-
teams cooperated by identifying an additional dence indicated that RC managers’ frame changed
$19M in expected cost savings. For example, exter- from competitive to cooperative. Also, consistent
nal consultants from Bain observed seven (of with cooperation, and speciWcally communal shar-
eight) of the additional cross-functional teams. The ing (Table 2), we Wnd that in all period-3 discontin-
consultants concluded that cross-functional team uous organizational process change initiatives,
members actively cooperated: “Task force mem- team members choose to voluntarily contribute
bers have individually borne the risk of participat- private knowledge despite costs of contributing
that were inequitably shared among team mem-
bers.
89
Results for the additional eight period-3 cross-functional
teams and discontinuous organizational process changes are
available from the Wrst author upon request. 91
“Business reduction challenge: First steering committee
90
“Hughes buys GenDyn missiles unit – $450 million deal meeting”, internal Convair document prepared by external con-
leaves those at Convair unsure of future”. The San Diego sultants from Bain (November 13, 1992) (November 13, 1992),
Union-Tribune (May 11, 1992), p. 1. p. 3.
ARTICLE IN PRESS
Period 4 (January 1993 – December 1994) motivate improvement, measure relative perfor-
mance between competing cells, and identify the
Background and organizational process change factors creating success”.96
At the beginning of period 4 the General Dynam-
ics Board of Directors announced Convair was no RC boundaries
longer a core business and it was reclassiWed as a At the beginning of period 4 the ABC cost mod-
discontinued operation.92 As the result of this deci- els that supported cooperative RC boundaries
sion Convair’s central managers ended their strat- were abandoned. Process-level accounting reports
egy of discontinuous organizational process change. and division-level strategic planning information
Convair’s Controller explained that “Change were no longer shared with RC managers. The
requires some type of investment – time or money. Finance RC resumed production of accounting
A risk Corporate was not willing to take. How big a information with competitive RC boundaries
change is possible without investment?”93 using the accounting system that had been
Central managers returned to a strategy of con- designed to support the C/SCSC that was man-
tinuous organizational process change. For exam- dated by the Department of Defense (see period 1).
ple, one continuous organizational process change The practice of simultaneously planning expected
was planned and executed within the manufactur- cost savings from initiatives through face-to-face
ing planning RC to improve the quality of blue- cross-functional team meetings also was discontin-
prints from McDonnell Douglas (the customer for ued in favor of sequential participation that
Convair’s remaining commercial aircraft product- involved meetings between a single RC manager
line).94 Another initiative was developed by the and the Product-Line Vice President. In imple-
Finance RC to simplify the cost accounting system menting cellular manufacturing, competitive RC
by eliminating unnecessary work orders and boundaries were constructed between each fabrica-
accounts. An additional Finance initiative devel- tion cell.97 For example, each cell received its own
oped improved performance measures for the new accounting report and detailed accounting infor-
Fabrication process cells (planned and approved in mation about other cells was not shared, and the
period 3).95 Each of these initiatives was small in employees within each cell were physically sepa-
scope within RCs, they were developed and imple- rated from employees in other cells.
mented gradually, and they were not expected to
generate large cost savings.93 RC managers’ revelations of private knowledge
Revelations of these RC managers’ private
RC measurability knowledge were not available to us in period 4,
Central managers’ emphasis shifted from team because the division was declared a discontinued
accountability to holding RC managers individu- operation, and eVorts devoted to continuous orga-
ally accountable for their performance. For exam- nizational process changes were redirected to shut-
ple, in developing performance measures for the ting down the division before the expected cost
new manufacturing cells (see period 3) the Opera- savings were documented. Finally, on July 1, 1994
tions Vice President’s goal was to “drive account- General Dynamics announced that Convair would
ability to the lowest level ƒ [to] ƒ foster ownership, close its doors in 1996, after more than 60 years of
continuous operation.98
92
“General Dynamics 1992 shareholder report” Corporate an-
nual report.
93 96
Interview with controller (May 16, 1994). Interviews with the Vice President of Operations (June 9,
94
“Convair teams with McDonnell Douglas”, internal Conv- 1992 and April 2, 1993).
97
air newsletter (December 5, 1993). “Performance and productivity measurement for cellular
95
Data for this period-3 initiative were not reported but is avail- manufacturing: Development of a methodology & framework”
able from the authors on request. Improving performance mea- internal Convair document (March 24, 1993).
98
sures for manufacturing cells were proposed in “Assignments & “1900 Convair jobs to be lost”. The San Diego Union-Tri-
responsibilities”, Convair interoYce memorandum (April 1, 1993). bune (July 1, 1994), p. 1.
ARTICLE IN PRESS
Summary tation in the magnitude, scope, and speed of orga-

The levels of the variables within period 4 were nizational process change. Managing competition
continuous organizational process change, separa- or cooperation among RC managers can be critical
ble RC measurement, and competitive RC bound- to achieving goal-congruent behavior (Demski
aries; the levels of RC managers’ revelations of et al., 2002). We use the social psychology theory of
private knowledge were not available to us in relational framing (Tetlock & McGraw, 2005) to
period 4 (Table 5). The levels of the Wrst three vari- explain how managing RC boundaries by design-
ables in period 4 were consistent with the model in ing or redesigning accounting and participation
Fig. 1 and E1 and E2. Because the levels of revela- practices can frame or reframe RC managers as
tions of RC managers’ revelations of private individuals or as the members of a group and
knowledge were not available, period 4 did not thereby inXuence whether their behavior is com-
provide evidence on E3. Changes in the levels of petitive or cooperative.
the variables between periods 3 and 4 were consis- We develop a theoretical model that consists of
tent with the model (Fig. 1 and Table 2) and E1 four variables and three expectations (Fig. 1 and
and E2; no between-period evidence was available Table 2). To provide evidence on the validity of
on E3 because of the lack of information available this model, we compare the three expectations and
on RC managers’ revelations of private knowledge data from the nine-year longitudinal Weld study.
in period 4. We facilitate these comparisons by dividing the
longitudinal data into four time periods, which are
demarcated based on changes in central managers’
Discussion strategy of organizational process change (contin-
uous to discontinuous or vice versa) and/or
This section has four parts: summary of this changes in RC boundaries (cooperative to compet-
paper, evidence that is consistent and inconsistent itive or vice versa). We then make within- and
with the theoretical model, revision of the initial between-period comparisons of the realized and
model based on inconsistent evidence, and Wnally expected levels of the four variables in the three
limitations and implications of this research. expectations consistent with the variance research
method. Overall, these within- and between-period
Summary comparisons provide support for the three expec-
tations, although they also reveal instances in
RA is a key mechanism for how management which the data and model are inconsistent (Fig. 1,
accounting interfaces with organizational strate- Tables 2 and 5). Below we summarize within- and
gies and structures. This paper provides theory- between-period comparisons that identify evidence
based evidence on how the design of accounting that is consistent and inconsistent with the model,
and participation practices in general, and the with the inconsistent evidence being used to revise
measurability of RC performance and RC bound- the theoretical model.
aries in particular, are inXuenced by central man-
agers’ intended strategy for the magnitude, scope, Consistent and inconsistent evidence
and speed of intended organizational process
change. It also provides theory-consistent evidence Consistent with the Wrst expectation (E1), we
on how RC measurability and RC boundaries Wnd that when organizational process change is
interactively aVect RC manager’s revelations of continuous (discontinuous), RC Wnancial perfor-
private knowledge that are needed to increase mance measurability is separable (inseparable).
organizational performance. This relation was found both within and between
We investigate how the design and redesign of the four periods of Weld evidence we present. The
several accounting and participation practices sup- consistency of evidence and the second expectation
port boundary management strategies to achieve (E2), that continuous (discontinuous) organiza-
goal-congruent behavior during strategic reorien- tional process change prompts central managers to
ARTICLE IN PRESS
adopt a coherently aligned set of competitive accounting practices (e.g., ABC, open book
(cooperative) RC boundaries, depends on the time accounting, project budgets) inXuence competitive
period. Within-period evidence for periods 1, 3, or cooperative managerial behavior is not promi-
and 4 is consistent with E2; however, the evidence nent in management accounting literature such as
is inconsistent with E2 in period 2. We believe that in textbooks, practice publications, or scholarly lit-
this inconsistency is due to the failure of central erature. Although discontinuous organizational
managers to manage or reframe RC boundaries process change has become increasingly common,
from competitive to cooperative in period 2 when it remains a non-routine event within any particu-
the magnitude, scope, and speed of organizational lar organization (Meyer et al., 1995). Within the
process change shifts from continuous to discon- focal division we examine, only the consultants
tinuous. The result of central managers not chang- had routine experience managing RC boundaries
ing RC boundaries is low instead of high levels of in connection with discontinuous organizational
RC managers’ revelations of private knowledge. process change. For example, central and RC man-
Regarding the third expectation (E3), we have no agers at Convair had most of their experience with
evidence in one period, we Wnd evidence that is continuous as opposed to discontinuous organiza-
inconsistent with E3 in one period, and we present tional process change. Second, based on the funda-
evidence that is consistent with E3 in two periods. mental attribution error (Ross & Nisbett, 1991),
central managers can have a biased understanding
Revision of model of the eVect that managing organizational factors,
such as RC boundaries, have on subordinate man-
Although most of the Weld data provides sup- agers’ behavior. For example, Rowe (2004) pro-
port for the theoretical model (Fig. 1 and Table 2), vides theory-based evidence that individuals who
the inconsistent results for E2 in period 2 (dis- assume the role of designers of management con-
cussed above) enable us to identify an omitted var- trol systems underestimate how powerfully RC
iable. The original model assumes that central boundaries inXuence cooperation and trust among
managers would understand the value of managing cross-functional teams of individuals who assume
RC boundaries to be compatible with organiza- the role of RC managers.
tional process change. Instead, the external consul-
tants provided the impetus for realigning the RC Limitations and implications
boundaries. We asked central managers in inter-
views after the Weld study what role they believed The analysis and evidence presented have limi-
accounting played in connection with the organi- tations. As already discussed, the Fig. 1 model has
zational process changes. They did not mention a at least one omitted variable that caused us to
concept remotely similar to that of boundary man- revise it as shown in Fig. 2. In addition, there could
agement so as to inXuence competitive or coopera- be other omitted variables related to the causes,
tive managerial behavior. Thus, our assumption design, and eVects of RA. The model also assumes
about central managers’ understanding of RC unidirectional causal relations when there may be
boundaries proved to be incorrect. We acknowl- bidirectional causal relations between these vari-
edge this omitted variable by revising the model to ables and linear relations when the relations may
incorporate a new variable: knowledge of bound- be nonlinear. Empirical limitations include evi-
ary management, as shown in Fig. 2. The revised dence that is limited to one organization and the
model shows that organizational process change data that are available to us. In particular, no evi-
and knowledge of boundary management inXu- dence is available to examine the expectation that
ence RC boundaries. separable RC measurability and cooperative RC
Several factors can explain why central manag- boundaries leads to undesirable collusive behavior
ers have low knowledge of boundary management. among RC managers (E3 and cell 3 in Table 2). A
First, central managers may simply lack the rele- potential theoretical and/or empirical limitation of
vant education and/or experience. The notion that this research study is treating each variable as hav-
ARTICLE IN PRESS
Organizational Responsibility-Center
Process Change a Measurability b Responsibility-
• Continuous / • Separable / Inseparable Center Managers’
Discontinuous Revelations of
Private Knowledge
• Low / High
Knowledge of the Causes and

Effect of Responsibility-
Center Boundaries c
• Low / High
Responsibility-Center Boundaries
• Competitive / Cooperative
a The rate of organizational process change is based on central managers’ strategic intent.
b Responsibility-center measurability is limited to measurabilityy of financial performance.
c Knowledge of the causes and effects of responsibility-center boundaries is an omitted variable in the Fig. 1 model.
d In this model each variable is dichotomized for expositional convenience.
Fig. 2. Revised theoretical model.d
ing two discrete levels. For example, RA bound- speed of organizational process change. Related,
aries are operationalized as having two levels changing from continuous to discontinuous (or
(competitive and cooperative). Research could vice versa) organizational process change has
operationalize this and other variables with more implications for whether RC managers’ perfor-
levels or as continuums. Such operationalization mance can or should be measured separately for
could facilitate investigating relations that are cur- each RC manager or in the aggregate for all of the
vilinear and/or complex interactions (Luft & RC managers who are involved with the organiza-
Shields, 2003). Finally, replication is an important tional process change. A possible implication of
means of reducing bias in Weld-based research this paper is that realizing integrative (synergistic)
(Eisenhardt, 1989). We have used multiple gains from discontinuous organizational process
researchers, multiple methods, and multiple obser- change can depend on motivating managers who
vations. However, the data are limited to a single are accustom to competing instead to cooperate.
organization and therefore we lack replication However, we Wnd that successfully changing mana-
across organizations. Thus, additional research is gerial behavior depends on coherence and consis-
desirable in order to further examine the validity of tency in the design or redesign of the following
the model and evidence. four types of RC boundaries: organizational, com-
This paper contributes to the literature con- munication, spatial, and temporal (Fig. 1). Finally,
cerned with RA by presenting theory-based evi- the Weld data highlights that ABC is an important
dence that when properly designed or redesigned, part of an eVective boundary management strat-
accounting and participation practices can be used egy, particularly for designing and redesigning
to inXuence RC managers’ behavior and commu- communication and organizational RC bound-
nication. We also show that the goal-congruent aries.
design or redesign of accounting and participation This paper also contributes to the accounting
practices depends on the magnitude, scope, and literature by introducing the variance (or syn-
ARTICLE IN PRESS
thetic) and temporal bracketing research methods Acknowledgements

to analyze longitudinal Weld data. We provide evi-
dence on the usefulness of these research methods We thank Chris Chapman, Kathleen Carley,
in helping to interpret, structure, and relate com- David Cooper, Harry Evans, Steve Kaplan, Neal
plex Weld data to theoretical expectations. O’Connor, Derek Oler, Kenny Reynolds and
Discontinuous organizational process change is workshop participants at University of Alberta,
interesting, in part, because it has the potential for Arizona State University, Indiana University, and
large gains or losses in organizational performance the 2006 Management Accounting Section Mid-
(Romanelli & Tushman, 1994). This paper helps year Meeting. We also gratefully thank the two
identify how RA can be used in managing several anonymous reviewers for their constructive sug-
RCs when, as part of committees and cross-func- gestions for improving this paper.
tional teams, RC managers are asked to contribute
to discontinuous organizational process change. In
contrast, much management accounting research References
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Effects of organizational process change on responsibility accounting

Article in Accounting Organizations and Society · February 2008

Casey M. Rowe Jacob G. Birnberg

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michael d shields View project

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Accounting, Organizations and Society xxx (2007) xxx–xxx

EVects of organizational process change on responsibility

Introduction continuous improvement, stretch targets, restruc-

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4 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx

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example, activity-based costing (ABC) is one involves framing or reframing RC managers as

6 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx

Cooperative RC boundary: Designing accounting Translating technical accounting terminology (e.g.,

boundary, and temporal. In addition, Table 1 competitive or cooperative RC boundaries. For

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implied by providing diVerent sets of accounting Organizational process change and RC

a The organizational process change is based on central managers’ strategic intent.

Fig. 1. Theoretical model.c

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several RC managers are attempting to simulta- redesign RC boundaries appropriately. Competitive

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RC measurability, RC boundaries, and RC 1992). Moreover, disagreement surfaces among

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Unpaid external • Met with Finance personnel,

for ten months

Accounting, Organizations and Society (2007), doi:10.1016/j.aos.2006.12.002

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16 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx

required a traditional approach to RA in which RC boundaries

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22 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx

Background and organizational process change

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26 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx

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28 C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx

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Summary tation in the magnitude, scope, and speed of orga-

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C. Rowe et al. / Accounting, Organizations and Society xxx (2007) xxx–xxx 31

Knowledge of the Causes and

Fig. 2. Revised theoretical model.d

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thetic) and temporal bracketing research methods Acknowledgements

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