Economic Transition, Strategy and The Evolution of Management Accounting Practices: The Case of India

Accounting, Organizations and Society 24 (1999) 379±412
www.elsevier.com/locate/aos
Economic transition, strategy and the evolution of

management accounting practices: the case of India
Shannon W. Anderson *, William N. Lanen
University of Michigan Business School, 701 Tappan Street, Ann Arbor, MI 48109-1234, USA
Abstract
Liberalization of the Indian economy in 1991 increased the intensity of international competition and changed the
internal information needs of Indian managers. This paper explores the evolution of a broad range of management
accounting practices in 14 ®rms using a contingency theory framework. Dierences in management accounting prac-
tices in 1996 are examined in relation to ®rms' experience in and exposure to world markets prior to liberalization and
as a function of contemporaneous dierences in competitive strategy. We ®nd evidence of changes associated with
shifts in the external environment. # 1999 Elsevier Science Ltd. All rights reserved.
Privatization, liberalization and deregulation petition and management accounting practices

are words that describe reactions to the worldwide and explores the potentially mediating eects of
failure of central planners to control production of ®rms' competitive strategies on this relation. We
goods and services while simultaneously meeting examine the impact of the 1991 liberalization of
competitive standards of ®rm performance. These the Indian economy on management accounting
economic and political reforms are associated with practices of 14 ®rms using a contingency theory
increased product and price competition, made framework. Dierences in competitive strategy are
possible by unconstrained input markets and considered as explanatory factors for dierences in
unfettered sales opportunities, and necessitated by management accounting practices that persist in
exposure to global competition. In the accounting 1996. A broad set of management accounting
literature, contingency theorists posit that the practices commonly covered by introductory texts
competitive environment is a determinant of the is examined, including: cost management; plan-
form that ®rms' management accounting practices ning and control; and, performance measurement
take and the intensity with which they are used. and evaluation. We provide evidence on changes
We examine the proposition that economic and in accounting practices and in qualitative dier-
political upheavals of the past decade are asso- ences in their application and in administrative
ciated with equally dramatic changes in ®rms' processes that surround their use.
management accounting practices. The paper makes three contributions to the
This study extends the empirical literature on accounting literature. First, in response to criti-
the contingent relationship between external com- cism in the contingency theory literature (e.g.
Young & Selto, 1991; Fisher 1995; Firth 1996), we
* Corresponding author. jointly consider a broad range of management
0361-3682/99/$ - see front matter # 1999 Elsevier Science Ltd. All rights reserved.
PII: S0361 -3 682(97)00060 -3
380 S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
accounting practices. Second, we contribute to a summarizes the results and discusses future
small but growing body of literature that com- research on international dierences in manage-
pares management accounting practices within ment accounting practices.
®rms over time (e.g. Hoque & Hopper, 1994; Firth
1996). Finally, within the context of a changing
external environment, we extend the larger body 1. Literature review and research question
of literature that examines cross-sectional dier-
ences in management accounting practices of ®rms Contingency theory hypothesizes that organiza-
that have dierent endogenous, organizational tional structure is a function of context, a context
contingencies. Speci®cally, we consider dierences that is simultaneously determined by the external
in competitive strategy and international outlook environment, history, and other organizational
as explanations for dierences in management factors. Researchers have interpreted 'organiza-
accounting practices that persist in 1996. tional structure' to include management account-
The paper is organized in ®ve sections. The next ing practices, the formal and informal information
section frames the research questions of this paper and decision-making methods that govern the
in relation to previous studies that examine man- allocation of organizational assets (e.g. Lawrence
agement accounting practices as contingencies of & Lorsch, 1967; Bruns & Waterhouse, 1975;
environmental context and ®rm strategy. We next Hayes, 1977; Ginzberg, 1980). The basic con-
provide a brief overview of the 1991 liberalization tingency model is depicted in Fig. 1. The model
of Indian markets. Following this we discuss the re¯ects a traditional theory of organizational
research sites, data collection methods and classi- structure, commonly referred to as the strategy±
®cation methods for grouping ®rms based on structure±performance paradigm, in which ®rm
contextual variables. Observations concerning strategy and structure are viewed as pro®t max-
changes to management accounting practices are imizing responses to exogenous factors (Chandler,
then discussed from three perspectives: changes 1962; Woodward, 1965; Perrow, 1967; Lawrence
that appear to be motivated by the 1991 economic & Lorsch, 1967). As in Simons (1990) and Fisher
liberalization; practices that appear to be related (1995), we model the strategies and management
to ®rms' experience in and exposure to global accounting practices of the ®rm in a dynamic set-
markets at the time of liberalization; and, prac- ting. Thus, management accounting practices are
tices that appear to be related to ®rms' competitive developed in conjunction with and evolve to ®t the
strategy in product markets. The ®nal section information needs of management, needs which
Fig. 1. Basic contingency framework

S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412 381
are tempered by the relative costs and bene®ts of 1985; Simons, 1987; Govindarajan, 1988; Dent,
information and which are in response to both 1990; Govindarajan & Fisher, 1990). Other endo-
recurring and unexpected decisions. genous factors that have been considered are
Contingency theory research has examined technology (Waterhouse & Tiessen, 1978; Ginz-
relations between a variety of endogenous and berg, 1980) and organizational culture (Thomas,
exogenous contextual factors and management 1989; O'Connor, 1995). Of the three broad areas
accounting practices. Two exogenous factors that of management accounting typically included in
have been examined in relation to ®rm-level introductory texts (planning and control, cost
management control practices are the nature of management, and performance appraisal), plan-
competition and environmental uncertainty ning and control and performance appraisal are
(Khandwalla, 1972; Govindarajan, 1984) and the subjects of most contingency research.
national culture (Gray, 1988; Skousen & Yang, In his review of the contingency literature,
1988; Perera, 1989; Frucot & Shearon, 1991; Fisher (1995) found few studies that simulta-
O'Connor, 1995). These studies typically use data neously considered multiple contingencies and
from many ®rms to examine cross-sectional dif- management control mechanisms, and most stu-
ferences in management accounting practices. dies used cross-sectional rather than time series
More recently, researchers have exploited dramatic analysis. He concluded that `Às [contingency
shifts in the external environment to study changes research] moves away from the study of correla-
in management accounting practices within ®rms tions to the examination of causal relationships, a
over time (Zhou 1988; Lanen & Larcker, 1992; time-series approach will be essential'' (p. 47) and
Groves, Hong, McMillan & Naughton 1994; Chow, that ``. . .management control systems cannot be
Chau & Gray, 1995; Pourjalai & Meek, 1995; studied in isolation . . .Future research should
Firth 1996; Garrod & McLeay 1996; Jaruga, 1996). examine the conditions under which control sys-
Consistent with the strategy±structure±performance tems are complementary or substitutable'' (pp. 44±
paradigm, the endogenous factor most commonly 45). Within the contingency framework illustrated
examined in relation to management accounting in Fig. 1, we explore three research questions using
practices is ®rm strategy (Govindarajan & Gupta, the research design depicted in Fig. 2. We ®rst
Fig. 2. Research design: number of cases by type

consider the impact of a shift in the exogenous requirements; prohibition of employee layos
environment Ð the enactment of major economic without government approval (which was not
reforms Ð on management accounting practices, given for ®nancial distress alone); import and
assuming that sample ®rms have similar initial export limitations; a corporate tax rate of 57.5%;
circumstances (e.g. similar strategies and ®rm-spe- limitations on foreign equity ownership; control of
ci®c capabilities). We then introduce dierences capital ¯ows through a nationalized ®nancial sec-
among the ®rms' endogenous capabilities and tor; and, widespread nationalization of ``priority''
focus on the in¯uence of the ®rm's `ìnternational industries that left 46% of gross investment assets
orientation'' at the time of liberalization on cur- and 34% of manufacturing assets in the public
rent management accounting practices. Finally, sector (LB, Exhibit 4). The policies re¯ected the
we examine dierences in ®rms' competitive stra- objective of Prime Minister Nehru in the 1950s of
tegies as a factor explaining dierences in man- a self-sucient India developed through judicious
agement accounting practices that persist in 1996.1 central planning and control. Although the poli-
cies prevented foreign domination of domestic
markets and reduced in¯ationary pressures and
2. Research setting foreign currency shortages, a predictable out-
come of suppressing entrepreneurial activity and
In 1991, the Indian government exhausted for- competition was poor product quality and dismal
eign currency reserves, provided in large part by industrial productivity.
loans from the International Monetary Fund In July 1991, newly elected Prime Minister Rao
(IMF), and was told that future loans would be responded to the IMF ultimatum with a ``State-
contingent on economic reform.2 The collapse of ment of Industrial Policy.'' The proposed changes
Soviet and Central European markets left few included: curtailment of industry licensing and
prospects for funding a growing trade imbalance agricultural subsidies; increases in permissible for-
and government debt that exceeded 50% of gross eign direct investment (up to 49% in most indus-
domestic product, so the government conceded. tries); reductions in the maximum tax rates for
Prior to 1991, government control of industry individuals and corporations (40 and 46%,
took several forms, including: extensive licensing respectively); reductions in maximum taris from
400 to 65% percent; and removal of import
1
restriction on raw materials and capital. Privati-
This study does not ®t the Fisher typology perfectly; how-
ever, we consider multiple contingencies and control mechan- zation of the large public sector, including ®nancial
isms, including non®nancial performance measures, the markets, was a key feature of the plan to encou-
absence of which Fisher notes as a critical failing of existing rage competition in all sectors. Although policies
research. We address a major criticism that Fisher levels aecting employee layos were not changed, the
against previous studies; speci®cally, we compare management
government recognized a need to consider rehabi-
accounting practices in two time periods that span a period of
dramatic change in the external environment; however, we do litation programs for displaced workers; thus the
not conduct longitudinal research per se; that is, the data are groundwork for labor policy changes was laid.
not gathered at two points in time. Like many studies that Rao's policies produced dramatic results in
employ time series research designs, we lack a proper control some economic sectors. By 1994, foreign partici-
sample (e.g. Indian ®rms that are completely unin¯uenced by
pation in the Indian Economy had increased dra-
Indian economic reforms). Thus, although we contribute to the
small body of research that has attempted to establish causal matically, as evidenced by an increase in the
relationships between various contingencies and management frequency of ®nancial and technical collaborations
accounting practices, much work remains. to 405 and 146%, respectively, of 1990 levels, and
2
This section draws on material presented in Lodge and an increase in the value of foreign investment
Bhasin's (1995) summary of political and economic changes in
involving technology agreements to almost 70
India in the 1990s and historical events that led to these chan-
ges (referred to hereafter as LB), as well as from a survey of times that of 1990 levels (LB, Exhibit 8). Foreign
India that appeared in the 21 January 1995 issue of The Econ- direct investment increased 10-fold and foreign
omist. portfolio investment increased 20-fold between
1992 and 1995 (LB, Table D). Bene®ts of foreign national context, questions arise as to the
investment and access to world input markets changes considered necessary, the motiva-
were realized primarily in the private sector. Fear tions and political processes involved, and the
of large scale layos caused Prime Minister Rao to implementation problems, both behavioral
postpone repeal of labor protections and to retain and technical . . .Accounting in a centrally
ownership of at least 51% of each state owned planned context is perceived as having pri-
enterprise. As a result, in 1995 state owned enter- marily a record-keeping function and is not
prises remained grossly inecient and plagued by decision-oriented or concerned with eciency
corruption (The Economist, 21 January 1995, at the enterprise level (p. 46).
pp. 16±20). Divestment of part of the public sector
was a means of ®nancing the de®cit, not a serious Claims of increased use of management
eort to improve productivity. The result of dra- accounting methods to support decision making in
matic policy changes in 1991 was that ``. . .between Central European countries are echoed by Jaruga
1991 and 1994, government de®cits were reduced, (1996) and Garrod and McLeay (1996). Changing
companies restructured, trade liberalized, foreign uses of accounting data that were introduced in
investment welcomed, and the centrally planned conjunction with economic reforms in China are
economic strategy, a hallmark of India since inde- supported by descriptions in Skousen and Yang
pendence in 1947, abandoned'' (LB p. 9). (1988), Zhou (1988) and Chow et. al. (1995) and
We expect changes in the Indian economy to by statistical evidence presented by Firth (1996).
aect two aspects of management accounting in We contribute to case study evidence that has
private sector ®rms. First, management account- emerged in other transitional economies, evidence
ing and control practices are an integral aspect of from a sample of Indian ®rms for which we have
organizational structure; thus we expect changes in information on accounting practices both before
the substance of management accounting practices and after trade liberalization.
to accompany other organizational changes. Sec-
ond, we expect existing management accounting
information to be used in qualitatively dierent 3. Research sample and classi®cation of ®rms by
ways. Hoque and Hopper (1994) document the international orientation and strategy
debilitating eects of political volatility and acute
economic problems in Bangladesh on ®rms' use of 3.1. Research sample and data collection
formal management control practices. Interviews
and observations from ®eld visits to a sub-sample This study uses ®eld-based research and stan-
of ®rms suggest that, before the economic reform, dardized data collection instruments to character-
Indian ®rms resembled those described by Hoque ize changes in management accounting practices
and Hopper. Speci®cally, many formal practices that accompanied 14 Indian ®rms' adaptation to a
were in place to satisfy exogenous demands for more open, market economy. The ®rms, all in the
information (e.g. state tax authorities) rather than private sector before and after economic reforms
endogenous management information needs. In a (see Appendix A), were subject to roughly the
discussion of accounting issues precipitated by the same treatment, a radical shift of the external
transition from planned to market economies of economic environment. Fig. 2 illustrates the basic
Central European countries, Gray and Roberts research design of the multiple, embedded case
(1991) write: studies of this study. The analysis proceeds in
three stages. We ®rst examine changes in manage-
. . .the increased reliance likely to be placed ment accounting practices following the 1991 lib-
upon pro®t as a measure of eciency pro- eralization. After considering the aggregate eects
vides scope for investigating the nature and of a changing environmental context, we explore
impact of changes in the accounting and dierences in initial ®rm capabilities, in particular,
control systems used. In a comparative inter- dierences in experience with and exposure to
Table 1
Survey respondent job titles
Survey part Survey focus Designated Number of survey Number of questions

respondent questions (including multiple
part questions)
Part I Company descriptive statistics General Manager 74 255

or Vice-president
of Production Operations
Part II Survey of competitive strategy Chief Executive Ocer 30 209
Part III Survey of coast management General Manager or 29 164
practices Vice-president of Finance
Part IV Survey of planning and General Manager or 40 196
control practices Vice-president of Finance
Part V Survey of ®nancial and General Manager or 33 198
non®nancial performance Vice-president of Quality
measures and evaluation Assurance
practices
TOTAL 206 1022
international markets prior to economic liberal- the survey development and administration;
ization, and dierences in ®rm strategies as expla- Table 1 describes the content of the ®ve parts of
nations for variation in management accounting the survey). Second, personal interviews of top
practices that persists in 1996. managers and site visits to half of the ®rms were
Two data collection methods are employed. conducted.3 Because logistics demanded that we
First, an extensive, ®ve part survey of competitive visit sites before analyzing the survey data, our
strategy and management accounting practices knowledge of the visited companies undoubtedly
that includes qualitative and quantitative respon- in¯uenced our assessment of their competitive
ses to 206 objective and subjective questions was strategy. However, we believe this is a strength of
administered at the ®rms (Appendix B describes combining ®eld research with survey data. We
made every eort ex ante to include ®rms that had
3
All research methods are subject to limitations. Surveys are
a high likelihood of falling in each of the four
fraught with problems associated with measurement error and
bias, problems that may be exacerbated when the survey is quadrants of Fig. 2 in our site visits. Subsequent
written in the respondents' second language. (The issue of lan- classi®cation of the ®rms revealed that, although
guage is, perhaps, less important in the Indian context where we visited approximately equal numbers of ®rms
¯uency in English is common, especially among managers.) We of each strategy type and each international
cannot be certain that each respondent exercised care in com-
orientation, we did not visit a ®rm in the upper
pleting the survey, that each respondent was quali®ed to answer
the questions, or that item non-response is not symptomatic of right quadrant, a defender with an international
defensive behavior rather than carelessness or insucient orientation at the time of economic reform.
knowledge. Without access to a much larger set of survey Table 2, Panel A provides the classi®cation
responses we are unable to provide evidence on the extent to scheme of the 14 ®rms and identi®es ®rms that
which the surveyed ®rms represent the larger population of
received site visits. The following sections describe
®rms that were privately held both before and after privatiza-
tion. We use interview data to corroborate and extend the sur- how ®rms were classi®ed.
vey data for a portion of our sample. Although problems of
non-truthful reporting and subjective assessments are also pos- 3.2. Firm classi®cation: international orientation
sible in interview data, by using two types of data that were
collected from several individuals in the ®rm we mitigate some
We hypothesize that dierences in management
forms of measurement error. Time and travel expenses pre-
cluded visiting all 14 ®rms; consequently, we selected a subset accounting practices that persist in 1996 may
of ®rms that represent both strategy types and international re¯ect ®rm dierences in initial experience with
orientations. and exposure to international markets. Support
for this hypothesis is found in contingency the- dence for one or the other classi®cation made the
ories that relate organizational boundaries, core task reasonably straightforward in all but two
competencies and management practices to the cases. In two cases respondents failed to respond
historical sequence of decisions that ®rms take in to questions related to market share and sales. As
response to changing opportunity sets and a result, we were forced to categorize the ®rms on
resource endowments (Prahalad & Hamel, 1990; the basis of responses to a more limited set of
Leonard-Barton, 1992). questions, interactions with managers from the
Responses to seven survey questions are used to two ®rms and publicly available ®nancial data
assess ®rms' experience with and exposure to about the ®rms. The outcome was that one ®rm
international markets at the time of international was assigned to each classi®cation.
liberalization (Table 2, Panel B). The ®rst two
questions ask for the percentage of purchased 3.3. Firm classi®cation: competitive strategy
parts and raw materials, each as a fraction of total
direct material costs, provided by domestic sup- We use the typology developed by Miles and
pliers. The third and fourth questions ask for the Snow (1978) to distinguish ®rms' competitive
percentage of total sales that domestic sales com- strategies. Miles and Snow identi®ed three ideal
prise and the percent of total unit volume sold in organizational strategies (defenders, analyzers,
domestic markets. The ®fth question asks ®rms to and prospectors), the eectiveness of which is
assess the domestic and international market share determined by the ``. . .con®guration of contextual,
of the product that they produce which con- structural, and strategic factors'' (Doty, Glick &
tributes the greatest share of ®rm pro®ts. As part Huber, 1993, p. 1197). Although Miles and Snow
of the same question, ®rms are asked for the alternately describe analyzers as a unique hybrid
domestic and international market share of their form and as a blend of defender and prospector
nearest domestically-based and internationally- attributes, Doty et al. (1993) provide convincing
based competitors.4 The sixth and seventh ques- evidence that defenders and prospectors de®ne a
tions ask whether the ®rm is engaged in strategic continuum with analyzers as the mid-point. Con-
alliances with Western or with Japanese partners, sequently, like Simons (1987) we divide the ®rms
respectively. If a strategic alliance is reported, the in our sample into two groups: Defenders and
respondent is also asked to characterize the nature Prospectors. Following is a description of the
of the relationship as one of six types: shared dis- Miles and Snow typology:
tribution agreements; cross-branding agreements;
shared manufacturing; technology exchange The prospector . . .operates in an environment
agreements; licensing agreements; or joint ven- characterized by rapid and unpredictable
tures. We create a measure of `ìntensity of inter- changes. Prospectors adapt to this turbulent
national outreach'' as the sum of these binary environment by using high levels of environ-
variables. Table 2, Panel B provides evidence on mental scanning (Daft & Weick, 1984) to
the extent to which, on average, these measures identify opportunities for developing new
discriminate, in the manner predicted, between products or markets that are critical to their
®rms classi®ed as International or Domestic. success. Because of the rapid rate of product
Only one ®rm received a single rating (`Ìnter- development, ¯exible, nonroutine technolo-
national'') on each of the measures described gies are characteristically used. These tech-
above. Nonetheless, the preponderance of evi- nologies are typically associated with low
levels of specialization and moderate to high
4
Responses on ®rms' international market shares are exclu- levels of interdependence. Structurally, pro-
ded from Table 2, Panel B, because only six ®rms (respondents)
spectors are very organic, with low levels of
reported estimates of their and their competitors' international
market shares. Several respondents wrote that they did not formalization and specialization and high
have international market share information or that they did levels of decentralization. Prospectors also
not have reliable sources of data for competitors' market share. possess relatively few hierarchical levels.
386
S.W. Anderson, W.N. Lanen / Accounting, Organizations and Society 24 (1999) 379±412
Table 2
Sample strati®cation
Panel A: From classi®cations and industry
Firm ID number Industry Site visit and International (I) or Defender (D) or
management interviews domestic (D) prospector (P)
outlook in 1991
1 Electronics I D
2 Transportation equipment: machined parts V I P
3 Chemicals and fragrances V I P
4 Automotive parts: maching and assembly D D
5 Automotive parts: machining and assembly I D
6 Automotive parts: machining and assembly V I P
7 Foundary operations and part fabrication D D
8 Electronics I D
9 Transportation: automotive D P
10 Transportation: farm equipment V D D
11 Fasteners V D P
12 Textiles V D D
13 Electronics I D
14 Electronics V D P
Panel B: Pro®le of `Ìnternational'' and ``Domestic'' sub-samples along dimensions used to classify ®rms
1991 data International (N=7) Domestic (N=7)
Average percent of total direct materials costs represented by parts purchased from domestic suppliers 69% 98%
Average percent of total direct materials costs represented by raw materials purchased from domestic suppliers 55% 83%
Average percent sales in domestic markets 83% 97%
Average percent domestic unit volume 80% 97%
Average share of domestic market for product that generates most pro®t 45% 48%
Average share of domestic market of primary international competitor for product that generates most pro®t 13% 0%
Average share of domestic market of primary domestic competitor for product that generates most pro®t 33% 21%
Number of ®rms with alliances with Western partners, (for these ®rms, intensity of `ìnternational outreach'' max=6) 4 (3.75) 3 (1.0)
Number of ®rms with alliances with Japanese partners, (for these ®rms, intensity of `ìnternational outreach'', max=6) 3 (2.50) 1 (1.0)
Panel C: Pro®le of ``Defender'' and ``Prospector'' sub-samples along dimensions used to classify ®rms
1996 data Prospectors (N=6) Defenders (N=8)
Average summated score on competitive priorities related to Defender Strategy (Max=100) 35 41

Average summated score on competitive priorities related to Prospector Strategy (Max=100) 65 60
Average agreement of importance of ``Defender'' product characteristics (1±5 scale) 3.6 4.5
Average agreement of importance of ``Prospector'' product characteristics (1±5 scale) 3.4 3.6
Average priority (0±100%) assigned to ``Defender'' improvement opportunities 50% 60%
Average priority (0±100%) assigned to ``Prospector'' improvement opportunities 50% 40%
Average importance of supplier selection (1±5 scale, average for response to 10 criteria for supplier selection) 4.3 3.7
Average response to: ``Cost reduction is the most important goal in this ®rm's manufacturing operations'' (1±5 scale) 3.50 4.63
Average percent ``®xed'' costs 47% 54%
Average R&D expense as a percent of revenues 2.4% 0.7%
Average Marketing & Distribution expense as a percent of revenues 6.0% 3.1%
Average percent increase in employment over 1991 level 43% 4%
Average percent increase in new product introductions over 1991 level 66% 46%
Average change in product life cycles 1991±1996 (years) ÿ1.7 ÿ1.0
Average annual inventory turns (average annual sales/average ®nished goods inventory) 48.0 72.7
387
The defender is a less dynamic form of orga- form a composite measure of defender and pro-
nization operating in an environment that is spector priorities for each ®rm by linking each
more stable and predictable than that of the competitive priority to a single competitive pro®le
prospector. This more stable environment and summing the elements of each pro®le. Second,
allows defenders to engage in less environ- we perform a principle components analysis on
mental scanning. . . The key to the defender's the responses and use ®rms' factor scores on two
success is a focus on eciency. Defenders signi®cant components that emerge and are con-
compete by producing low-cost goods or ser- sistent with the defender±prospector de®nitions.5
vices and obtain eciency by relying on rou- The second question used to assess competitive
tine technologies and economies of scale strategy, asks the manager to respond using a ®ve
gained from largeness [sic]. Defenders have point agree±disagree scale to the statement, ``The
much more mechanistic structures than pro- following features of our product are considered
spectors and achieve coordination through very important for our strategy.'' Nine product
formalization, centralization, specialization, characteristics that were believed to be related to
and vertical dierentiation. This bureau- the defender (e.g. price, conformance to speci®ca-
cratization tends to reduce the level of inter- tions) or prospector (e.g. style and aesthetic quali-
dependence in defenders (Doty et al. 1993, ties) strategies were included. Again, a summated
pp. 1225±1226). scale of characteristics associated with each strat-
egy pro®le was created and a principle compo-
In empirical tests of the Miles and Snow frame- nents analysis of responses was performed,
work, Doty et al. (1993) ®nd that the degree of yielding two related perspectives on ®rms' product
congruence between actual practices and ideal market strategies. The third question asks respon-
strategies explains 24% of variance in perfor- dents to identify the top three improvement prio-
mance. Using the same typology, Simons found rities for manufacturing from a list of 13
signi®cant dierences in the development and use possibilities (with the opportunity to include other
of management accounting data between high opportunities). Again, the list of opportunities was
performing ®rms with dierent competitive strate- constructed based on what one would expect to be
gies. We use this strategic typology as a con- priorities of a Defender (e.g. increased through-
tingency in the adaptation of management put) and a Prospector (e.g. shortened product
accounting practices because it has been demon- introduction cycle times). Responses were con-
strated to have external validity in several research verted into the percentage of points (out of 6)
settings. assigned to ``defender'' vs ``prospector'' opportu-
Our classi®cation of ®rms' ideal competitive nities. We also perform a principle components
strategies is based on subjective assessment that analysis on the responses. The ®nal question
weighs managers' responses to twelve questions which seeks relative assessments of the degree to
(Table 2, Panel C). Four questions ask for a rela- which ®rms are aligned with either the defender or
tive ranking of a list of factors, each of which is prospector strategy asks managers to identify the
expected to be more closely related to one of the relative frequency of use of ten factors in supplier
two strategies. The remaining questions are selection. Responses are based on a ®ve point scale
designed to assess strength of alignment with one that ranges from ``Never'' to `Àlmost Always.''
of the two competitive strategies, for example, the We found no signi®cant dierences between
importance of cost reduction (Defender) and the ``defenders'' and ``prospectors'' in the criteria for
frequency of new product introductions (Pro- selecting suppliers; however, there does appear to
spector). In the ®rst question, respondents are be a dierence in the overall importance that ®rms
asked to allocate 100 points over a list of 11 com- in each group place on supplier selection. Table 2,
petitive priorities (we also allow the respondent to
identify additional competitive priorities). We use 5
Results of the principle components analysis of the ®rst
responses to this question in two ways. First, we three questions are available from the authors upon request.
Panel C reports dierences in a summated scale of 3.4. The impact of Indian liberalization on selected
all supplier selection factors. research sites
The remaining questions are uniquely identi®ed
with either the Defender or Prospector strategy Before discussing the results of the surveys, it is
and, with one exception, the questions are inten- useful to consider examples of the impact liberal-
ded to elicit objectively veri®able data. Question ization on some of the participating ®rms. We
®ve is aligned with the defender strategy, and describe the types of ®rms represented by our
seeks agreement or disagreement to the proposi- research sites in each of the four quadrants depic-
tion that ``cost reduction is the most important ted in Fig. 2, the impact of reforms, and the strat-
objective of the ®rm.'' Questions six through eight egy and focus that results. There are two reasons
seek information about the ®rm's cost structure: for this. First, we want to provide a sense of the
the percent of costs considered ``®xed'', research issues facing managers in these ®rms and how the
and development costs as a percent of total rev- economic changes have been manifested in ®rms'
enues, and marketing and distribution expenses as strategies and management. Second, we want to
a percent of total revenues. Question nine assesses highlight some of the distinctive issues facing
the change in employment levels between 1991 and Indian ®rms, issues that may be less important in
1996 as a percentage of total employment. For other transitional economies.
classi®cation purposes, we assume that defenders
are more likely to pursue cost reduction through 3.5. Domestic/defender
employee layos or by sharply constraining
employment growth than are prospectors. Ques- The Domestic/Defender ®rms in our sample are
tions 10 through 12 focus on likely operational typically well established ®rms selling traditional,
dierences between defenders and prospectors: the industrial products. These ®rms, whether by
increase in new product introductions over 1991 choice or circumstance, have few prospects for
levels, change in the average product lifecycle, and competing in the international market. They tend
inventory management practices, as evidenced by to have relatively large market shares in the
the measure, inventory turns. In using these data domestic market. Many of these ®rms perceive a
for classi®cation purposes, we assume that pro- major threat from liberalization due to likely
spectors have increased their product line through competition from multinational ®rms in the
new product introductions and shortened product domestic product market. As a result of entry by
lifecycles, and that defenders are more likely to foreign ®rms, customers are becoming more
focus on eciencies and economies of scale indi- demanding, leading to changes in the type of
cated by high inventory turnover. information needed to manage the business.
No ®rm received a defender or prospector rat- As an example, one of the respondents in this
ing on each of the measures that arises from ana- classi®cation sells agricultural equipment. As a
lysis of the twelve questions (Table 2, Panel C). result of competition, its customers have become
Nonetheless, the preponderance of evidence for more demanding about quality and fuel eciency.
one or the other classi®cation made the task rea- The number of competitors has fallen by about
sonably straightforward in all but two cases. In 50% but price competition has increased. The
two cases the measures were split in such a way as organization's suppliers are all domestic and it
to suggest that the ®rms are probably best descri- sells less than 2% of its output abroad. The com-
bed as `Ànalyzers.'' Nonetheless, to retain parsi- pany is the leader (in sales) in all states in India
mony with an already small sample size, we and feels that its knowledge of the customer and
assigned the ®rms based on what appeared to be the market is a competitive advantage. Therefore,
the relative frequency with which the ®rm's strat- the company is focusing its eorts on maintaining
egy was aligned with the defender or prospector its customer base in its traditional products.
strategy. The outcome was that one ®rm was Managers of the organization stated that the
assigned to each classi®cation. major challenge is to reduce prices while improv-
ing quality. They have responded to the new eco- electronics assembly is typically labor intensive.
nomic environment by using reengineering eorts Thus these ®rms bene®t from reductions on
to improve quality and lower costs. As an exam- import taris on capital equipment while main-
ple, managers cited eorts to increase standardi- taining a cost advantage based on low labor
zation of component parts in related products. wages. Two of the ®rms in the quadrant have
partnerships with Western ®rms, one of these
3.6. Domestic/prospector ®rms and a third ®rm have partnerships with
Japanese ®rms. In no case has the business partner
Like the ®rms in the Domestic/Defender quad- taken an ownership stake in the Indian ®rm. All of
rant, ®rms in this category tended to have strong the partnerships re¯ect technology licensing
positions in their markets prior to liberalization. agreements or agreements to cross-distribute pro-
In discussions with the managers, one dierence is ducts. A distinctive competence of the Indian
that ®rms in this group viewed the changes in 1991 partner is managing the local labor force to
as increasing sales opportunities with domestic achieve quality production.
customers. One ®rm in this group, in the fastener
industry, felt the need for change as early as 1987, 3.8. International/prospector
prior to the liberalization. They began to focus on
pro®tability, value-added and sales productivity. Liberalization of the economy in 1991, rather
For this ®rm, the key aspect of competition is than being viewed as increasing competition for
process technology. One of the primary eects of these ®rms, instead oered the opportunity to
liberalization is that acquiring technology is now compete in world markets. Although ®rms in this
easier. Their strategy is to use technology to move quadrant are international, the reaction to the
into new product markets and expand their cus- international competition has been quite dierent.
tomer base domestically. The managers of the ®rm One ®rm in the sample is part of a Western, mul-
focus on performance measures dealing with cus- tinational ®rm. There was a complete turnover of
tomer satisfaction and market penetration, in managers in 1992. The impact of liberalization for
contrast to the measures of cost and productivity this ®rm is that domestic (Indian) competition has
mentioned by domestic/defender ®rms. become stronger. They also describe their custo-
mer base as changing since liberalization. As part
3.7. International/defender of the multinational, they must compete in the
region using policies (such as safety policies) dic-
Firms in this quadrant felt the impact of liber- tated by the parent.
alization primarily in terms of reduction of the While the ®rm described is classi®ed as interna-
import duties on imported parts and equipment. tional based on its relation to the multinational
Prior to liberalization, the government reserved ®rm, its market focus is India and the surrounding
heavy industry for the public sector and protected region. An interesting contrast is a second ®rm in
these industries with high taris and import quo- this quadrant that is a domestic Indian ®rm in
tas (The Economist, 21 January 1995, p. 4). These automotive products seeking (and ®nding) pro-
enterprises remain inecient by world standards; duct markets abroad. Exports currently account
however, with reductions in taris, ®rms now have for about 25% of sales and products are sold in 35
opportunities to acquire technologically superior countries. The primary eect of liberalization was
capital equipment and raw materials at lower reduction in bureaucracy that made possible a
costs. more rapid response to changing world markets.
Three of the four ®rms in our sample that ®t As an example, because imports are easier to
this category are electronics ®rms and the fourth obtain, it is now possible for the ®rm to plan more
produces small automotive components that are eectively for raw materials inventories.
controlled by complex electronics. Electronics This brief description of some of the ®rms in
component manufacture is capital intensive while our sample indicates a variety of responses to
liberalization brought about by both circumstance this stage of analysis, we are con®dent that we are
and choice. It is too early to determine whether not pooling a sample of ®rms for whom liberal-
these responses will be adequate to compete in a ization had no eect with a sample for which lib-
world market; however, all of the managers inter- eralization was a signi®cant environmental
viewed believed that liberalization was necessary change. After considering changes in management
and represented an opportunity for their ®rm to accounting practices that occurred between 1991
be more ¯exible in meeting competition. In the and 1996, we investigate the role of ®rm-speci®c
next section, we develop somewhat more systema- factors related to the international outlook of the
tic descriptions of how Indian ®rms with dierent ®rms in 1991 and dierences in competitive stra-
strategies and markets have adapted their manage- tegies in explaining dierences in management
ment accounting practices in response to liberal- accounting practices that persist in 1996.
ization.
4.1. Planning and control processes
4. Exploring changes in management accounting Before turning to speci®c planning and control
practices processes typically considered in management
accounting research, it is useful to place these
The analysis and results are presented in four processes in the larger context of strategic plan-
sections. The ®rst three are organized around ning. Speci®cally, we consider how answers to the
major areas of management accounting research: following questions have changed since 1991:
planning and control processes; evaluation and
performance measurement practices; and, cost . Who is involved in developing corporate
management methods. The fourth section exam- strategy?
ines the changing role of the accountant since . How widespread is understanding of corpo-
enactment of economic reforms. The ®rst three rate strategy?
sections present three perspectives on the impact . What information is used in strategic plan-
of environmental and organizational context on ning?
management accounting practices. We ®rst focus . What criteria are used to establish tactical
on changes in management accounting practices plans for achieving strategic objectives?
following the 1991 liberalization of the Indian
economy. For this portion of the analysis, we We then turn to planning and control practices
assume that economic liberalization created a dif- of management accounting to examine what prac-
ferent environmental context that required ®rms tices are used, the philosophy that guides their use,
to modify their competitive strategies and man- and who participates in shaping these practices.
agement accounting practices. Evidence that the
eect of liberalization was widespread is provided 4.2. Corporate strategy development
by top manager's assessments of the 1991 and
1996 competitive environments. On a scale of 1 Employee involvement and investor activism
(very competitive) to 5 (no competition), the aver- are popular themes in Western business commu-
age response in 1996 was 1.3 with a standard nities. With greater exposure to international
deviation of 0.48. This response represented an competition, we expect similar patterns of invol-
average increase of 1.5 over 1991 levels. All but vement to emerge in Indian ®rms following eco-
one ®rm reported an increase in the level of com- nomic reforms, although we recognize that Indian
petition, and this ®rm reported a uniformly high cultural norms of large power-distance between
level of competition (response=1) for both peri- managers and their subordinates and a tendency
ods. Thus, while subsequent analysis may distin- to value collectivism over individualism may tem-
guish dierences in response to liberalization per these changes (Hofstede, 1984). Conversely,
based on ®rm-speci®c factors that are omitted at we assume that government intervention, a wide-
spread feature of the pre-reform business environment, which would seem to accommodate
ment, will be reduced. Table 3 presents evidence increased demand for workers by MNCs, it has
on the stated involvement of employees at dier- record levels of illiteracy that sharply constrains
ent levels in the organizational hierarchy and the eective labor supply. MNCs, which can
across dierent functional areas in the develop- aord higher wages, attract this small pool of
ment of corporate strategy. The in¯uence of skilled workers. The increased importance of
external constituencies is also considered.6 human resource managers in the strategy devel-
Considering ®rst the pooled responses of all opment process may re¯ect a new priority of
®rms (columns labeled `ÀLL''), we see the antici- training and retaining skilled labor. This inter-
pated trend toward greater stated involvement of pretation is supported by survey evidence (unta-
all employees. The trend appears to re¯ect decen- bulated) of substantial increases in employee
tralization of strategy development; mid-level training hours at all levels of the organization
managers and line workers enjoyed proportio- since 1991.
nately greater gains than top management. These Decomposing the results, prospectors are more
results must be interpreted with caution because, likely to state that employees at all levels of the
as Hofstede (1984, pp. 82, 90) notes, in cultures hierarchy are involved in strategy development
with large power distance there is often ideological than defenders. Dierences in domestic and inter-
support for employee involvement and formal national ®rms are apparent only among senior
mechanisms for involvement frequently exist managers; senior managers of domestic ®rms are
despite little evidence of formal participation. more involved than those of internationally-orien-
However, since cultural norms typically are ted ®rms. A possible explanation, which emerged
viewed as immutable, the documented change in from interviews with top managers at several ®rms,
involvement is more likely to re¯ect substantive is that, internationally-oriented ®rms often have
dierences. signi®cant international business partnerships. Top
From a functional perspective, ®nance and managers of partner ®rms often play as great or
marketing play the greatest roles in strategy greater roles in strategy development for the, typi-
development, as might be expected in emerging cally smaller, Indian ®rm than do the local Indian
markets with scarce capital. However, since eco- managers.
nomic reforms, the planning and human resource From the functional perspective, while market-
management functions have had disproportionate ing remains a major contributor to strategy for
increases in their involvement in strategy setting. ®rms of all four pro®les, it has a substantially
The emergence of a strong planning function greater role for prospectors and for domestically-
seems a natural outcome of reforms aimed at giv- oriented ®rms. In the ®rst case, the results are
ing ®rms greater control of their destiny. The consistent with the presumed focus on new pro-
gains of human resource management seem per- ducts and niche markets of prospectors. In the
plexing initially. When asked to discuss the major latter case, we interpret the dierences in light of
eects of economic reforms however, one manager what we have observed in ®rms in Central Europe,
remarked on the labor shortages that his ®rm the Balkans, and Russia. In a planned economy
faced as a result of multi-national corporations there is little or no need for the marketing and
(MNCs) entering the domestic labor market. sales function. With economic reforms, this func-
Although, India has very high overall unemploy- tion requires disproportionate attention to ensure
the short-term survival of the ®rm. The fall of
6
A caveat in interpreting the results related to dierent communism and the consequent reduction in
levels of the organizational hierarchy is that the data re¯ect exports were a key factor in Indian economic
attitudes and opinions of top managers. Results must be inter-
reforms. Thus it is not surprising that ®rms that
preted with caution because top managers may be ill-informed
about actions of employees at lower levels of the organization had an orientation toward local markets in 1991
or constituencies outside the ®rm or may be inclined to willfully would make concerted eorts in the short run to
misrepresent either group's actions. introduce the perspective of marketing and sales
Table 3
Strategic planning: who is involved and what is their level of understanding?a
Average extent to which respondents Average change Average extent to which respondents Average change
agree that these groups are involved in since 1991, agree that these groups fully understand since 1991,
developing the strategic plan in 1996 no. ®rms (+/ 0/ÿ) the strategic plan in 1996 no. ®rms (+/ 0/ÿ)
(1=Strongly disagree, 5=Strongly agree) (1=Strongly disagree, 5=Strongly agree)
ALL Def. Pros. Dom. Int. ALL FIRMS ALL Def. Pros. Dom. Int. ALL FIRMS
HIERARCHY
Senior management 4.5 4.0 5.0 4.8 4.3 0.30 (3±6±1) 4.6 4.2 5.0 4.8 4.5 0.9 (7±3-0)
Middle management 3.7 3.4 4.0 3.8 3.7 0.9 (7±3±0) 3.7 3.6 3.8 4.0 3.5 1.10 (8±2±0)
First-line supervisors 2.2 2.0 2.4 2.3 2.2 0.50 (5±5±0) 2.7 2.6 2.8 3.0 2.5 0.70 (5±5±0)
Production employers 1.8 1.6 2.0 1.8 1.8 0.50 (5±5±0) 2.0 2.0 2.0 2.3 1.8 0.30 (2±8±0)
FUNCTION
Finance 4.2 4.2 4.2 4.0 4.3 0.30 (3±6±1)
Human resources 3.8 3.6 4.0 4.3 3.5 1.20 (7±3±0)
Management and sales 4.5 4.2 4.8 4.8 4.3 0.50 (4±6±0)
Operations 3.7 3.4 4.0 3.8 3.7 0.40 (4±6±0)
Planning 4.0 4.0 4.0 4.5 3.7 1.00 (7±3±0)
Research & Development 4.0 3.6 4.4 4.5 3.7 0.70 (6±4±0)
EXTERNAL VIEWS
Customers 3.6 3.6 3.6 3.3 3.8 0.40 (6±4±0) 2.9 3.3 2.6 2.8 3.0 0.80 (5±5±0)
Suppliers 2.7 3.0 2.4 2.5 2.8 0.36 94±6±0) 3.1 3.3 3.0 3.3 3.0 1.00 (6±4±0)
Investors/Owners 3.8 4.2 3.4 3.8 3.8 0.10 (1±8±1) 3.7 3.8 3.6 3.8 3.7 0.90 (6±4±0)
External consultants 3.2 3.0 3.4 3.8 2.8 0.60 (5±4-1)
Government agencies 2.3 2.4 2.2 2.5 2.2 ÿ0.30 (0±9±1)
a
Results that suggest meaningful dierences between practices of defenders and prospectors and between ®rms with domestic vs international orientation at the time of
economic reforms are shown in bold.
393
to the strategy process. One might predict that the are more likely to be used by defenders than by
involvement of marketing in strategy for domestic prospectors and by domestic rather than by inter-
®rms may drop after the historical handicaps of nationally-oriented ®rms.
the planned economy are remedied. A similar We ®nd little evidence that investors and owners
explanation and prediction may explain greater have increased their involvement in strategy
involvement of the planning function for domestic development since the advent of reforms; however,
®rms than for internationally-oriented ®rms. it appears that defenders involve these con-
Not surprisingly, managers of the R&D func- stituencies more, on average, than do prospectors.
tion are much more involved in strategy develop- Investor activism in developed economies has
ment for prospectors, whose strategy depends on coincided with technological advances in informa-
product and process innovation, than for defen- tion dissemination, with new trading mechanisms
ders. Perhaps less intuitive are apparent dier- that favor small investors, and with rules of trade
ences between domestic and internationally- that provide a market for corporate control.
oriented ®rms. As in the case of senior manage- India's ®nancial markets and information econ-
ment involvement, this may simply re¯ect the fact omy may not be suciently developed to support
that the substance of the involvement of many these changes. Perhaps more important however
internationally-oriented ®rms with international are signi®cant barriers to corporate takeovers. For
partners is often technology licensing or other example, The Companies Act restricts ®rm acqui-
technology-sharing arrangements. These partner- sition through a provision that allows the govern-
ships may obviate the need for involving local ment to block transactions that create `à change
R&D managers in strategy development. in the controlling interest of the company. . . [that]
Among external constituencies, customers and would be prejudicial to the interests of the com-
suppliers (including suppliers of intellectual capi- pany or to the public interest'' (The Economist, 21
tal: external consultants) are stated to be more January 1995, p. 19). In this regulatory climate it
involved in the strategy development process; is not surprising that investors have little role in
however, this involvement may be motivated by ®rms' strategies.
dierent factors. For example, it appears that We also ®nd no signi®cant reduction of gov-
international ®rms are more likely to involve key ernment in¯uence on strategy development.
customers in strategy development. Perhaps this Against the backdrop of increased involvement
re¯ects an overt attempt by internationally-orien- for virtually every other constituency and all
ted ®rms to ``customize'' their strategy to the employees, the static level of government involve-
Indian market. Firms with a defender strategy are ment stands out. Nonetheless, only one company
more likely to involve parts and materials suppli- indicated that government in¯uences on strategy
ers in strategy development. This is consistent with development had declined with economic reforms.
data on supplier selection criteria, used to form A possible explanation is our earlier observation
the strategic groups (Table 2, Panel C), which that a distinguishing factor in India's economic
showed that defenders place more importance on transition is the stability of political processes
the supplier selection process than do prospectors. throughout the liberalization.
In the Western business press, strategic sourcing Of course, involvement in strategy develop-
has become a popular part of the ``lean manu- ment is one thing; widespread understanding of
facturing'' paradigm. In India, we see supplier the strategic plan is often another thing alto-
selection as much more closely allied with achiev- gether. In an interesting twist on earlier results, we
ing low cost and high eciency. This is consistent ®nd the greatest gains in understanding strategy
with the infrastructure shortcomings of emerging occurred among senior and mid-level managers.
economies (e.g., no ®rms had adopted JIT and Similarly, investors and owners, with little change
none claimed it as a near-term objective) and with in strategy involvement, nonetheless are credited
the raw materials and parts shortages that typify with signi®cant increases in understanding. A
centrally planned economies. External consultants likely explanation of the latter result is intensi®ed
scrutiny that came with deregulation of ®nancial and satisfaction has become substantially more
markets as a part of the economic reforms. important since economic liberalization. This is
Another curious inversion of earlier results is the consistent with economists' view that customers
emergence of dierences between international are the benefactors of increased competition. The
and domestic ®rms' employees in understanding importance of various types of information diers
strategy despite few dierences in involvement in between defenders and prospectors. Prospectors
strategy development. Managers of domestically- are more attuned to performance measures such as
oriented ®rms claim greater levels of under- customer satisfaction and market share growth
standing of strategy at all levels of the organiza- and pay more attention to competitors' perfor-
tional hierarchy. Perhaps this is an artifact of the mance than do defenders. In their pursuit of e-
familiarity of all employees with the domestic ciency and low cost, defenders are more in¯uenced
market, and of India's historically insular eco- by data on internal improvement opportunities.
nomic policies. Domestic and internationally-oriented ®rms dier
We turn now from the people involved in strat- only in the importance placed on external agen-
egy to the information used to formulate strategy cies' quality assessments. This is consistent with
and tactics (Table 4). In Panel A we consider the the importance that all ®rms with signi®cant
relative importance of various types of informa- export activities place on attaining ISO 9000
tion on strategic planning. For the pooled sample, quality certi®cation. We found this to be even
we see that information on customer expectations more true in India, where managers believe they
Table 4
Data used in developing competitive strategy and tactical plansa
PANEL A: Information used in strategic planning
Types of data Average extent to which respondents Average change No. of ®rms
agree that these data are used in since 1991 reporting (increase,
the planning process 1996 no change, decrease)
(1=Strongly disagree, 5=Strongly agree)
ALL Def. Pros. Dom. Int. ALL
Market share growth 4.6 4.4 4.8 4.7 4.5 0.67 (6±5±0)
Measures of competitor performance 4.1 3.9 4.3 4.0 4.2 0.83 (8±4±0)
External agencies quality assessments 3.8 3.7 3.8 3.3 4.3 0.75 (6±6±0)
Customer satisfaction ratings 4.8 4.6 5.0 4.7 4.8 1.33 (9±3±0)
Customer expectations 3.8 3.8 3.7 3.8 3.7 1.25 (9±3±0)
Improvement ideas 3.9 4.2 3.7 4.0 3.9 0.58 (6±6±0)
PANEL B: Primary basis for selecting process improvement projects
Average extent to which respondents Average change No. of ®rms

agree that this is a basis for selecting since 1991 reporting (increase,
process improvements in 1996 no change, decrease)
Fewer customer complaints 4.7 4.6 4.8 4.6 4.8 0.58 (6±6±0)
Reduced process variation 4.5 4.5 4.5 4.7 4.3 1.25 (9±3±0)
Reduced costs 4.5 4.7 4.2 4.4 4.5 0.58 (6±5±1)
Fewer errors 4.4 4.3 4.5 4.3 4.5 0.75 (7±5±0)
Reduced cycle time 4.1 4.0 4.2 4.4 3.7 0.58 (6±5±1)
a
Results that suggest meaningful dierences between practices of defenders and prospectors and between ®rms with domestic vs
international orientation at the time of economic reforms are shown in bold.
must overcome the stigma of ``cheap labor but processes (Table 5). Panel A examines the extent
poor quality'' when they compete in world markets. to which ®rms employ standard procedures in
Turning from data used in planning processes to developing budgets and long-range plans. Hof-
data used to evaluate business process improve- stede (1984, p. 142) ®nds that as a group, Indians
ments, the greatest change is re¯ected in increased tolerate uncertainty well and do not invest in
priority of projects that reduce process variation. uncertainty avoidance mechanisms. To the extent
This is consistent with heightened attention to that budgeting and long-range planning are meant
quality as a result of increased competition. Inter- to reduce uncertainty, we might expect to ®nd
estingly, although internationally-oriented ®rms lower use of formalization of these practices
are more likely to use quality assessments of among Indian ®rms. This study cannot provide
external agencies in strategic planning, domestic evidence on use of these mechanisms relative to
®rms are more likely to select improvement pro- other cultures; nonetheless, we do ®nd that greater
jects that reduce process variation. Domestic ®rms self-determination brought about by economic
are also more likely to chose improvement projects reforms has increased the use of standard budget-
that reduce cycle time. Consistent with their clas- ing and planning procedures since 1991. Pre-
si®cation, defenders are more likely than pro- dictably, defenders place greater importance on
spectors to select improvement projects that cost data when preparing their budgets than do
reduce costs. prospectors. In contrast prospectors place greater
To summarize, it appears that there have been importance on long-range plansÐconsistent with
signi®cant changes in ®rms' strategic planning their strategic objectives of developing new mar-
processes in the wake of increased competition kets and products. The only marked dierence
brought about by economic reforms. Managers between budgeting practices of domestic versus
report that employees at all levels of the organi- internationally-oriented ®rms is the emphasis
zational hierarchy are more involved and have a placed on cost data. A possible explanation, in
greater understanding of the ®rm's strategy. Dif- light of the earlier discussion of the role of inter-
ferences among defenders and prospectors in who national partners in strategy development, is that
is involved and what data are employed are these partners provide ``deep pockets'' that loosen
remarkably consistent with the strategic objectives budget constraints.
that we impute to these classi®cations. Dierences In Panel B of Table 5 we consider the organiza-
between domestic and internationally-oriented tional, and indirectly, the national budgeting phi-
®rms seem to stem from the likely role of interna- losophy of Indian managers. Since 1991, there has
tional partners and the unique demands of selling been almost no change in management attitudes
in export markets, in the case of the latter and regarding the ideal degree of budget diculty or in
the familiarity of employees with Indian markets budget attainment. This result is consistent with
in the case of the former. We turn now to planning Hofstede's assertion that cultural values are lar-
and control processes within the management gely immutable. Nonetheless, approximately half
accounting framework, bearing in mind this of the respondents believe that their ®rms set more
changing context of strategic planning. realistic budgets today than they did in 1991. The
result resembles Hoque and Hopper's (1994) ®nd-
4.3. Management accounting practices ing that changes in economic circumstances aect
use rather than the existence of accounting prac-
Within management accounting research, plan- tices. Increased budget accuracy may be a result of
ning and control has typically been equated with increased involvement in and understanding of
budgeting processes. In this section we consider corporate strategy. Another plausible explanation
three aspects of budgeting: the use of standard for increased budget accuracy follows from
budgeting procedures, the ®rms' budgeting philo- reduced government intervention. In the absence
sophy, and involvement of managers at dierent of government intervention, ®rms have fewer
levels of the organizational hierarchy in budgeting incentives to manipulate budgets and to overspend
Table 5
Management accounting planning and control practicesa
PANEL A: Use of formal planning and control practices
Planning and control practice Average extent to which respondents agree Average change No. of ®rms
that these data are used in the planning process 1996 since 1991 reporting (increase,
(1=Strongly disagree, 5=Strongly agree) no change, decrease)
Standard procedures for developing annual budgets 4.2 4.0 4.3 4.3 4.0 0.92 (7±5±0)
Standard procedures for developing long-term plans 3.2 3.1 3.2 3.1 3.2 0.58 (6±6±0)
Use of cost data in developing budgets 4.4 4.7 4.0 4.6 4.2 0.58 (5±7±0)
Preparation of long-range budgets 3.4 3.0 3.8 3.3 3.5 0.73 95±6±0)
Standard procedures for budget and capital appropriation requests 3.9 3.9 4.0 3.9 4.0 0.42 (3±9±0)
PANEL B: Budget philosophy and attainment
Proposition Average extent to which respondents agree Average change No. of ®rms
with proposition in 1996 since 1991 reporting (increase,
(5=Strongly agree 1=Strongly disagree) no change, and decrease)
Budgets are generally met 3.5 3.1 3.8 3.7 3.2 0.08 (1±11±0)
Budgets are generally realistic 4.1 4.0 4.2 4.1 4.0 0.50 (6±6±0)
Budegt goals should be dicult to attain 3.1 3.0 3.2 3.3 2.8 0.08 (1±11±0)
PANEL C: Participation in establishing, reviewing and revising the budget
Average extent to which respondents agree Average change No. of ®rms

that these individuals participate in 1996a since 1991 reporting (increase,
(5=Strongly agree, 1=Strongly disagree) no change, and decrease)
Participation in setting budget

Division of group managers 4.3 4.3 4.3 4.4 4.2 0.92 (7±5±0)
Plant managers 4.2 4.4 4.0 4.4 4.0 0.58 (7±5±0)
Participation in budget reviews
Division or group managers 4.2 4.3 4.2 4.3 4.2 0.58 (7±5±0)
Plant managers 4.2 4.3 4.0 4.4 3.8 0.58 (7±5±0)
Job titles Number of ®rms reporting participation of these No. of ®rms

individuals in formal budget revisions in 1996b reporting (increase,
no change, and decrease)
Chief Executive Ocer 10 (1±10±0)

Senior corporate managers 10 (3±8±0)
Plant managers 10 (2±9±0)
Plant sta 6 (2±9±0)
a
Results that suggest meaningful dierences between practices of defenders and prospectors and between ®rms with domestic vs international orientation at the time of economic reforms are
shown in bold.
b
No dierences between defenders and prospectors or between domestic and international ®lms were observed.
397
as a means of altering allocations of government- of plant managers in budget setting and budget
controlled resources. reviews, although we oer no explanation, other
Dierences among the four ®rm pro®les emerge than possible capital constraints, for this dierence.
for two of the propositions. Prospectors claim To summarize, budgeting processes appear to
greater success in meeting budgets than do defen- have changed in ways that are consistent with
ders; a surprising result in light of defenders' changes in the broader strategy development pro-
attention to cost control. Similarly, domestic ®rms cesses. Firms report greater use of standard pro-
claim greater success than do internationally- cedures for developing budgets and long-range
oriented ®rms. As observed above, this may plans and greater employee involvement through-
simply re¯ect more binding capital constraints on out the cycle of budget setting and revision. We
domestic ®rms, who lack ties to wealthy interna- ®nd dierences in budget attainment and the bud-
tional partners. A second dierence is found geting philosophy that appear to be related to
between domestic ®rms, who agree more strongly ®rm-speci®c contingencies. Consistent with dier-
with the proposition that budgets should be ences in strategic objectives, we ®nd dierences
dicult than do their internationally-oriented between defenders and prospectors in the relative
counterparts. We have no economic explanation importance of cost information to the budgeting
for why this dierence in attitudes exists. Certainly process. We also ®nd dierences in the importance
contingencies related to national culture may be a placed on long-range planning.
factor. As we discuss in the conclusion, this result
hints at an opportunity for future research on the 4.4. Evaluation and performance measurement
joint eects of strategy and national culture on practices
management accounting practices.
Researchers typically introduce the moderating The survey instrument gathers data on two
variable, ``budget participation,'' in analyses of the aspects of performance measurement and evalua-
relation between budget diculty and budget tion: organizational performance measurement
attainment. In Table 5, Panel C we examine the practices and individual performance measure-
extent to which managers at the divisional and the ment, evaluation and compensation practices.
plant level participate in setting, revising and Many ®rms were reluctant to provide information
reviewing budgets. In the pooled results, we see a about individual evaluations. We provide limited
high level of participation at both organizational evidence on individual performance evaluation
levels, with moderate increases in participation since using responses from six ®rms who replied to the
1991. If we equate Division Managers with Senior questions. The remaining discussion focuses on
Management and Plant Managers with Middle organizational performance.
Management, we can compare involvement in
strategy development (Table 3) with involvement 4.5. Individual performance evaluation and
in budgeting. Not surprisingly, divisional man- compensation
agers are slightly less involved in budgeting than
in strategy formation, while plant managers are Only six ®rms completed the portion of the
considerably more involved in budgeting than in survey related to individual performance evalua-
strategy formation. With one exception, defenders tion and compensation. Non-response may be
and prospectors involve the same people with the explained by two aspects of Indian culture and
same intensity of involvement in all aspects of societal norms. First, as Hofstede (1984) docu-
budgeting. Defenders involve plant managers at ments, Indians value collectivism over individual-
the budget setting stage more than do prospectors. ism. Second, Gandhi's message of using asceticism
Presumably, this re¯ects defenders' priority of cost to throw o economic domination has a created a
management as well as the realization that plant national perspective on materialism. More
managers are the ®rst line of cost control. recently, Indians' tendency to portray themselves
Domestic ®rms demonstrate greater involvement as being of humble ®nancial means has been rein-
forced by high tax rates and a desire to avoid parallels concepts in the popular business press. In
scrutiny by tax authorities (The Economist, 21 particular, we are interested in the extent to which
January 1995, p. 4) Together these contextual fac- a broad set of organizational performance mea-
tors suggest that questions related to individual sures are used, and whether these measures repre-
managers are likely to be viewed as threatening or sent internal and external perspectives as well as
inappropriate. ®nancial and non®nancial perspectives on organi-
The response of ®rms that completed this sec- zational performance.
tion of the survey is suggestive of changes one The upper portion of Table 7 assesses the extent
would expect to accompany deregulation and to which ®rms collect a variety of organizational
heightened competition. Because of the reduced performance measures. In a related question, we
sample we do not consider dierences as a func- asked the extent to which ®rms use the same data.
tion of strategic pro®les. In Table 6 we present We do not tabulate the results of the second
evidence on the use of explicit quantitative mea- question, because the relationships over time and
sures to evaluate and compensate individuals or between dierent ®rm pro®les were identical, with
groups. The interesting contrast that emerges from one exception that is discussed below. All of the
this table is the extent to which quantitative mea- measures enjoy a high level of use in 1996; how-
sures have emerged as an appropriate basis for ever two stand out as gaining in importance since
evaluation of managers. Although it appears that economic reforms: customer satisfaction and on-
quantitative measures are possibly more common time delivery to customers. This is consistent with
among managers than among plant-level workers evidence on increased customer in¯uence on strat-
and sta, each ®rm that claimed to use such mea- egy development and suggests a pattern of re-
sures introduced them since 1991. In contrast, no orienting managerial systems to supply managers
®rm has changed its methods of evaluating plant with information relevant to the new competitive
workers and sta. environment.
Defenders appear to take greater pains to mea-
4.6. Organizational performance measurement and sure both their own and their suppliers' quality,
evaluation and to assess on-time delivery to customers than
do prospectors. Again, as in the strategy develop-
The design of organizational performance mea- ment process, sourcing decisions appear to be dri-
sures has gained increased popularity among U.S. ven more by eciency and cost considerations
management accounting researchers and practi- than by strategic considerations. Notably missing
tioners in recent years (e.g. Kaplan & Norton, is a distinction between defenders and prospectors
1992). We purposely avoid Western business jar- on the collection of product costing data. This is
gon in wording survey questions; however, we the sole exception, mentioned earlier, to common
seek answers to questions, the substance of which patterns of variation noted between the survey
Table 6
Individual performance measurement and evaluation
Job title Percent of ®rms reporting use No. of ®rms reporting

of explicit quantitative performance (increase, no change,
measures to evaluate individual or group, 1996a and decrease)
Production workers 38 (0±6±0)

Plant sta 13 (0±6±0)
Plant management 50 (3±3±0)
Corporate sta managers 33 (2±4±0)
Senior corporate managers 50 (3±3±0)
Chief Executive Oce 50 (3±3±0)
a
No dierence between defenders and prospectors or between domestic and international ®rms were observed.
Table 7
Organizational performance measurement and evaluation
Organizational performance Average extent to which respondents agree Average change No. of ®rms
measures that these measures are collected in 1996A since 1991 reporting (increase,
(5=Strongly agree, 1+Strongly disagree) no change, decrease)
Employee attitudes and morale 3.5 3.6 3.3 3.5 3.4 0.83 (7±4±1)
Customer satisfaction 3.8 3.8 3.7 3.8 3.7 1.25 (9±3±0)
Competitor's performance 3.8 3.7 4.0 4.2 3.6 0.58 (5±7±0)
Supplier quality 4.0 4.2 3.8 4.2 3.9 0.75 (9±2±1)
On time delivery to customers 4.0 4.2 3.8 4.0 4.0 1.42 (9±3±0)
Unit product costs 4.1 4.1 4.0 4.3 3.9 0.83 (7±4±1)
Product quality failures 4.1 4.3 3.8 4.0 4.1 0.75 (7±5±0)
Number of ®rms reporting use of quantitative No. of ®rms

performance measures in 1996b reporting (increase,
no change, decrease)
Customer satisfaction 9 (5±6±0)

Manufacturing productivity 9 (2±10±0)
On time delivery to customers 10 (4±7±0)
a
Results that suggest meaningful dierences between practices of defenders and prospectors and between ®rms with domestic versus
b
No dierences between defenders and prospectors or between domestic and international ®rms were observed.
question about data use as opposed to data col- economic hardship. A second plausible explana-
lection. In this case, defenders and prospectors tion for dierences between domestic and inter-
were observed to be similar in their data collection nationally-oriented ®rms returns to the de®nition
practices but dierent in their use of cost data. of international ®rms as those with more interna-
Predictably, defenders make more intense use of tional partners. It is possible that internationally-
cost data (score=4.1) than do prospectors oriented ®rms use benchmarking data with the
(score=3.6). same intensity as domestic ®rms; however, by vir-
Domestic and internationally-oriented ®rms tue of their relationships with partners, they may
dier in their collection and use of competitor rely on internally acquired data on partners' per-
benchmarking data and product cost data. formance rather than on competitors' perfor-
Domestic ®rms place greater emphasis on both mance. Unfortunately we did not anticipate this
performance measures than do internationally- explanation in our survey design and consequently
oriented ®rms. The former result is consistent with are unable to examine this possibility explicitly.
casual evidence from interactions with 45 senior The lower portion of Table 7 provides evidence
managers of these ®rms in a two-day seminar on on the extent to which ®rms construct quantitative
performance measurement practices. Managers of measures of customer satisfaction and on-time
domestic ®rms were especially curious about busi- delivery, the two measures that appeared to gain
ness practices in Western and Japanese ®rms. We most in popularity between 1991 and 1996 (upper
attribute this curiosity, in part, to the commonly portion of table). We benchmark these responses
voiced expectation that international competition against what, in our experience, is the single most
will increase when remaining pockets of political common non®nancial measure of manufacturing
turbulence dissipate and as international ®rms ®rms: productivity. As expected, manufacturing
begin to trust the Indian government to resist the productivity is, and has always been, widely used.
temptation to nationalize their assets in times of Consistent with earlier results, customer satisfaction
and on-time delivery have gained in popularity. A . Does the ®rm use the cost classi®cations:
surprise was the extent to which ®rms capture ®xed, variable, controllable, uncontrollable?
customer satisfaction in quantitative measures.
In summary, changes in Indian ®rms' organiza- Although we included these questions in the
tional performance measures mirror changes that survey for completeness, the results are, in our
have emerged in Western ®rms. Firms are incor- opinion, uninteresting. We found no signi®cant
porating more external perspectives in evaluating changes in these aspects of cost management
®rm performance and these measures appear to between 1991 and 1996. Moreover, we found few
have attained parity with the traditional measure dierences among ®rms with dierent pro®les, and
of manufacturing productivity. Many non®nancial those that did emerge had no obvious interpreta-
measures are considered as important as cost tion based on distinctions between the pro®les.
information in evaluating organizational perfor- Consequently, we focus in this section on what we
mance; although predictably, when data use rather believe to be interesting questions related to the
than data collection is assessed, defenders report use of cost data rather than on the set of cost
that cost and quality performance measures are techniques employed. Speci®cally, we consider the
most used by managers. questions:
4.7. Cost management methods . Who receives information on manufacturing

costs?
As might be expected in light of the inecient . At what level of aggregation is cost informa-
pre-reform era, cost management, in particular, tion typically presented?
cost reduction is an important objective of all . What are the primary uses of cost informa-
®rms. On a ®ve point scale, where 5 represents tion?
strong agreement with the proposition that ``cost . Where do cost reduction ideas typically ori-
reductions in manufacturing are important to the ginate?
future of the company'', the average response is
4.79 with a standard deviation of only 0.43. When Table 8, Panel A presents evidence about which
responses to the same assertion for 1996 and 1991 managers receive cost information. As in the dis-
are compared, the average change is 1.07. When cussion of budgeting practices, it is useful to con-
the assertion is modi®ed to solicit opinions on sider these responses against the backdrop of a
whether cost reduction is the most important goal, more decentralized strategic planning process. We
the average response drops to 4.14 with a standard see a similar pattern of increased stated involve-
deviation of 1.03. (The latter question was used as ment of middle managers and a particular
a basis for grouping the ®rms into defender and emphasis on increasing marketing managers'
prospector strategies.) In summary, cost reduction awareness of product costs. As before, we inter-
has become substantially more important to all pret the latter result as a distinguishing feature of
®rms in the wake of international trade liberal- emerging economies faced with a legacy of central
ization. planning.
Most surveys of cost management practices in In Panel B, we consider the level of aggregation
the academic literature focus on technical aspects of cost data. A popular trend in cost management
of cost systems. For example, questions that are in the U.S. is aggregating costs for business pro-
commonly considered are: cesses (or, in common parlance `àctivities'').
Although we purposely avoided the language of
. Is process or product costing used? activity-based costing in the survey, we sought
. Are product costs based on historical or information about the extent to which accoun-
actual costs? tants recast cost data to provide costs of dierent
. If transfer pricing is employed, what is the ``cost objects''. The evidence of Panel B suggests
basis of the transfer price? that few Indian ®rms have adopted the `àctivity''
Table 8
Cost information: who receives it and in what form?
PANEL A: Dissemination of cost information
Job title Percent of ®rms reporting provision No. of ®rms reporting (increase,
of manufacturing costs to this person in 1996a no change, decrease)
Plant production manager 82 (4±7±0)

Plant manager 91 (5±6±0)
Division manager 73 (1±10±0)
Marketing manager 82 (5±6±0)
Product manager 45 (2±9±0)
Chief ®nancial ocer 70 (1±10±0)
Chief Executive Ocer 100 (0±11±0)
PANEL B: Aggregation of costs for reporting purposes
Level of aggregation Percent of ®rms reporting costs at No. of ®rms reporting (increase,
this level in 1996 no change, decrease)
Product 73 (5±6±0)
Process 45 (3±8±0)
Department 91 (6±5±0)
Plant 73 (3±8±0)
Firm 73 (2±8±1)
a
approach to costing. Nonetheless, it appears that competitors; as compared with internal sources:
costs are being presented in a more disaggregate employees. Customer visits and competitor
form, as evidenced by the increased use of depart- benchmarking have increased most dramatically
mental and detailed product-level costing. since 1991. Not surprising, in light of poor tele-
We turn now to the question of how cost infor- communications in India, although customer visits
mation is used by the ®rm (Table 9). Consistent are considered most useful, toll free customer ser-
with the previous table in which `departments' vice lines are rarely used.
increased in relevance as costing objects, the single An unusual result of Tables 8 and 9, which is
biggest change since 1991 is the use of cost data to conspicuous only by omission, is a failure to ®nd
evaluate the performance of production areas. The meaningful dierences between defenders and
uses are presented in order of frequency of use to prospectors in the provision and use of cost data.
highlight the overall message of this table; namely In light of the prominent role that cost reduction
that cost data are used primarily to aect new plays in defenders' strategies (borne out in Table 4,
business (e.g. quoting and pricing, planning and Panel B), we expected to ®nd qualitative dier-
forecasting) and new ways of doing business (e.g. ences in the way that cost data are used. Our
identifying improvement opportunities). They are expectations of dierences are ful®lled, but in an
used much less frequently as performance eva- unexpected way when we examine sources of ideas
luation mechanisms, and when they are used in for cost reduction (Table 10). We expected defen-
this manner it is to evaluate large production ders to make more intensive use of sources of cost
groups rather than support groups or individuals. reduction ideas and are surprised by results to the
Table 10 presents information about where contrary. Prospectors make more intensive use of
ideas for cost reduction originate, in order of methods to generate customer ideas for cost
intensity of use. This ordering highlights the rela- reduction, including visits, surveys, and the use of
tive importance of external sources: customers and warranties. They are also more likely to get ideas
Table 9
Uses of cost data
Use of cost information Percent of ®rms reporting use No. of ®rms reporting
of cost data for these (increase, no change,
purposes in 1996a and decrease)
Quoting new business 100 (0±14±0)

Evaluating investment projects 100 (2±12±0)
Developing business plans and forecasts 100 (1±13±0)
Basis for product pricing 93 (0±14±0)
Identifying improvement opportunities 86 (2±12±0)
In¯uencing new product designs 86 (1±13±0)
Determining whether to outsource production process 79 (2±12±0)
Evaluating the performance of production areas 71 (4±10±0)
Determining whether to make or buy components 71 (2±12±0)
Evaluating the performance of individual managers 43 (2±12±0)
Evaluating the performance of Support activities 20 (2±12±0)
a
Table 10
Sources of cost reduction ideas
Sources of cost reduction Average extent to which respondents Average change in No. of ®rms
opportunities agree that this approach is used in 1996a use since 1991 reporting (increase,
(5-Strongly agree, 1=Strongly disagree) no change, decrease)
Customer visits 4.5 4.3 4.8 4.9 4.2 0.75 (7±5±0)

Customer phone surveys 3.9 3.4 4.3 4.0 3.7 0.50 (5±7±0)
Competitor benchmarking 3.7 3.6 3.8 3.7 3.7 1.00 (9±5±0)
Employee suggestion program 3.6 3.6 3.5 3.7 3.4 0.50 (6±7±1)
Problem solving teams 3.6 3.5 3.7 3.7 3.4 0.57 (6±8±0)
Outside consultants 3.2 3.0 3.5 3.7 2.7 0.29 (4±9±1)
Customer mail surveys 3.0 3.0 3.0 3.4 2.5 0.42 (5±7±0)
Customer suggestions 3.0 2.9 3.2 3.1 2.9 0.50 (3±11±0)
Product warranties 2.8 2.5 3.2 3.0 2.7 0.42 (3±8±0)
Employee survey 2.8 2.6 3.0 3.1 2.4 0.43 (3±11±0)
Employee interviews 2.5 2.6 2.5 2.8 2.3 0.23 (3±9±1)
Toll-free customer service 2.0 2.1 1.8 2.3 1.7 0 (0±11±0)
a
Results that suggest meaningful dierences between practices of defenders and prospectors and between ®rms with domestic versus
from external consultants. We might have inter- is not the most important goal of the ®rm. One
preted these results as re¯ecting a penchant for might speculate that this does not bode well for
prospectors to ``prospect'' for new ideas outside the long-term survival of ®rms in this category.
the ®rm (often termed `ènvironmental scanning''); We had no expectations of dierences between
however, we ®nd that prospectors are also more domestic versus internationally-oriented ®rms;
likely to survey employees for ideas. In a para- however, it appears that the domestic ®rms make
doxical result, it appears that prospectors are pur- more intensive use of virtually every source of cost
suing cost reduction with greater intensity than reduction ideas. They are considerably more likely
defenders despite their claims that cost reduction than internationally-oriented ®rms to engage in
employee surveys and interviews, and to seek cus- emerge between domestic ®rms, which provide a
tomers' thoughts through visits, mail surveys, and high level of access, and internationally-oriented
even toll-free service lines. The domestic ®rms are ®rms, which do not. These dierences are mir-
also more likely to engage and use the suggestions rored in the ultimate use of cost data. Inter-
of external consultants. nationally-oriented ®rms are considerable less
In summary, changes in the dissemination of likely than domestic ®rms to report that cost data
cost data mirror broad trends toward increased are used in decision-making. Echoing earlier
stated involvement of managers at all levels of the results, respondents typically attribute the great-
organization. Cost data are presented in more est use of cost data to the head of marketing.
disaggregate forms that are more amenable to This is consistent with evidence of Table 9 that
analysis and action. Firms are also scanning the costs are used primarily in the context of new
internal and external environment more aggres- business rather than in performance evaluation
sively for ideas for cost reduction. Consistent with and control.
earlier results, customers are gaining power and In earlier sections we present evidence that ®rms
voice with the advent of economic reforms. altered their management accounting practices in
response to the changing economic environment.
4.8. The changing role of accountants in Table 12, which examines how the work of
organizations accountants has changed since 1991, is a ®tting
summary of this research. The chief ®nancial o-
The previous sections have examined how man- cer of each ®rm was asked to assign 100 points to
agement accounting practices have changed in six types of work typically performed by corporate
Indian ®rms since the enactment of economic accountants based on the demands that these
reforms. In this section we consider how attitudes tasks placed on accounting resources in 1991 and
about accounting data have changed and how the in 1996. Although changes in resources devoted to
work of accountants has changed. A basic each task are small, on average 7% more resour-
assumption of the previous sections is that man- ces are being devoted to internal, management
agement accounting provides useful information. accounting practices in 1996 than in 1991. These
We did not want to preclude the possibility that resources have been diverted from what have
managers of these ®rms do not share our assump- typically been classi®ed as ®nancial accounting
tion. Consequently, in Table 11 we present evi- tasks: external reporting, auditing, and tax
dence on the quality of ®rms' accounting and accounting. Although our data suggest a realign-
information systems (seemingly a prerequisite to ment of priorities of the accounting department
usefulness), employees' and managers' access to toward management accounting issues, quotes
data from the accounting system (a prerequisite to from top managers at three ®rms suggest that
use), and the in¯uence of accounting data on these changes are a small start toward a profound
decisions, their actual use. re-conceptualization of the role of accountants.
Respondents agree that their information sys-
tems, including product costing systems, are rea- Today the responsibility of accounting is to
sonably accurate and believe that this is more provide timely information support to oper-
true in 1996 than in 1991; however there are ating management for decision support. To
marked dierences among ®rms of dierent pro- meet these needs, accounting experts with
®les. Prospectors and domestic ®rms are con- backgrounds in engineering and economics
sistently more likely to view their information will have to be considered.
systems as accurate and presumably as useful.
Turning to the issue of access, there is con- We don't need bookkeepers, we need man-
siderably greater dissemination of cost data to agement accountants with business acumen. . .
managers than to production workers for all who communicate well and can in¯uence line
®rms. Dramatic dierences in access to data managers.
Table 11
Attitudes about the use and usefulness of accounting dataa
Proposition Average agreement with proposition Average change No. of ®rms reporting
(5=Strongly agree, 1=Strongly disagree) since 1991 (increase, no change,
decrease)
Information system data integrity

The ®rm's information systems provide accurate data 3.7 3.4 4.2 4.0 3.4 0.57 (8±5±1)
The ®rm's information systems contain many data errors (Reversed) 3.4 3.0 4.0 3.9 3.0 0.21 (4±9±1)
The ®rm's product costing systems provide accurate data 3.6 3.6 3.7 4.0 3.3 0.64 (5±9±0)
Access to cost data
Ocial communications in this company frequently contain information about 3.6 3.5 3.8 3.7 3.6 0.86 (7±7±0)
cost reduction goals and achievements
Accountants often meet with corporate managers to discuss cost issues 3.3 3.3 3.3 3.6 3.0 0.27 (3±8±0)
Accountants often meet with manufacturing managers to discuss cost issues 3.4 3.3 3.5 3.9 2.8 0.58 (5±7±0)
Generally all employees have access to cost data 2.6 2.9 2.2 3.0 2.1 0.29 (3±10±1)
Production workers have access to cost data 1.9 1.8 2.0 2.1 1.6 0.00 (0±14±0)
Production workers are aware of the cost of products they produce 2.1 2.0 2.3 2.4 1.9 0.07 (1±13±0)
In¯uence of cost data on decisions
The ®rm collects data and creates reports that aren't used (Reversed) 3.1 3.0 3.2 3.2 3.0 0.07 (2±11±1)
Managers' decisions are in¯uenced by accounting and cost information 3.5 3.5 3.5 4.0 3.0 0.57 (7±6±1)
Corporate managers routinely ask for data on product costs 3.4 3.4 3.3 3.3 3.4 0.07 (5±6±3)
The head of marketing routinely asks for data on product costs 3.8 3.6 4.0 4.1 3.4 0.07 (3±10±1)
Plant managers use data on product costs to make operating decisions 3.3 3.0 3.7 3.7 2.9 0.29 (4±10±0)
Production supervisors use data on product costs to make operating decisions 2.6 2.5 2.7 2.9 2.3 0.07 (1±13±0)
a
Results that suggest meaningful dierences between practices of defenders and prospectors and between ®rms with domestic versus international orientation at the
time of economic reforms are shown in bold.
405
Table 12
The changing role of accountants: deployment of accounting resources to common accounting tasks
Tasks Average percent of accounting Average change No. of ®rms reporting

resources deployed, by task, since 1991 (increase, no change,
in 1996a and decrease)
External reporting (®nancial accounting) 29 ÿ3 (3±1±7)

Internal auditing 10 ÿ3 (2±5±4)
Tax accounting 12 ÿ1 (1±4±6)
Cost accounting 19 +1 (6±2±3)
Consulting service to other departments 14 +2 (6±1±4)
Information systems management 16 +4 (8±3±0)
a
The Accounting Department should take a in developing corporate strategies, the greatest
proactive role in pricing, managing inventory increase in involvement since 1991 has been for
levels, make/buy decisions and capital invest- managers in planning and human resource man-
ment analysis. agement functions. There is no evidence that
external stakeholders have become more involved
When we heard these words, we realized that we in setting corporate strategy; however, they are
had heard similar words spoken by managers in credited with greater understanding of the ®rm's
the U.S. and Japan. Since 1990, we have also strategy. Considering the relative importance of
heard them spoken by managers in Poland and various types of information as inputs to strategic
Romania. In short, with increased global compe- planning, information on customer expectations
tition, it appears that management accounting and satisfaction has gained in importance. As
practices are gaining importance and changing in inputs to business process improvement Ð and the
substance. A major challenge for ®rms and projects aimed at addressing customer complaints
accounting educators is ensuring that accountants Ð internal information on process variation (e.g.
with the requisite skills are available to meet the quality measures) has become most useful for
demands of the new environment. prioritizing improvement eorts. Within this con-
text of a new strategic planning process, we ®nd
that although the existence of budgeting processes
5. Conclusion pre-dates reform, managers believe that their
budgets are more realistic and meaningful today
This study presents a broad overview of changes than in 1991. Firms reports greater use of stan-
in management accounting practices that appear dard procedures for developing budgets and
to be associated with the economic reforms that greater involvement of employs in all stages of
took place in India in 1991. Considering ®rst budget setting and revision. We posit that
planning and control processes, we present evi- increased budget accuracy follows from these
dence that the planning process has become more budgeting process changes as well as the pre-
decentralized, that strategic objectives are more viously described changes to broader strategic
widely understood, and that the critical informa- planning processes. Turning to individual and
tion inputs for strategy formulation have changed organizational performance evaluation, we pro-
with the reforms. Managers report greater invol- vide limited evidence that management perfor-
vement in and understanding of the strategic plan mance evaluations are increasingly based on
by employees throughout the corporate hierarchy. quantitative measures. Organizational perfor-
Although managers with functional responsi- mance measures have been expanded to include
bilities in ®nance and marketing are most involved more external perspectives (e.g. customer satisfac-
tion). These measures are quanti®ed and have point. Western ®rms typically view supplier part-
attained parity with traditional measures of man- nerships as a means of dierentiating the ®rm, and
ufacturing productivity in the overall evaluation thus are more likely to use this approach if they
of the ®rm. As in the case of budgeting and plan- are ``prospectors'' and more likely to seek a large
ning processes, we ®nd that the existence of formal number of low cost suppliers if they are ``defen-
cost systems pre-dates reform; however the sub- ders''. In contrast, as a result of unreliable trans-
stance of cost management processes has changed. portation infrastructure, defenders are more likely
Although ®rms have not adopted `àctivity-based to seek supplier partnerships in India. This dier-
costing'' methods, since 1991 they have begun to ence is re¯ected in management accounting prac-
evaluate cost data in more disaggregate forms (e.g. tice in the involvement of suppliers in planning
department costs and detailed product or compo- and control practices and in organizational per-
nent costs). Managers also report that cost data formance measures. Another example is the
are being used primarily to aect new business meaning of `ìnternational'' in the Indian context.
(e.g. quoting, pricing, planning) and identify pro- While a Western ®rm may be considered to have
cess improvement opportunities. Prior to reform an international orientation if it sells abroad, in
cost data were used primarily to evaluate produc- early studies of emerging markets it is more
tion employees. meaningful to consider the `ìnternationalization''
The results are remarkably consistent with the of the ®rm, which typically occurs through alli-
basic premise of contingency theory, that changes ances with international partners. Inter-
in the external environment prompt changes in nationalization in¯uences management accounting
organizational strategy and structure, including in the Indian ®rm both through managerial
those elements of structure represented by man- expertise provided by international partners
agement accounting practices. The results are also (which reduces the need for in-house expertise and
consistent with the nature of changes associated removes some decisions from local managers) and
with reforms in emerging economies. For example, through a restructuring of organizational con-
we discover several changes in management straints (e.g. capital constraints become less bind-
accounting practices that re¯ect the importance of ing while political and regulatory constraints
marketing and sales and human resource manage- become more binding). Although do not explicitly
ment in ®rms that previously had little need for study Indian culture as a contingency that aects
either function. Consistent with Gray and management accounting practices (because we
Roberts' (1991) hypothesis, we also ®nd that lack non-Indian research sites) many of our results
Indian ®rms are reconceptualizing the function of re¯ect the pro®le of Indian cultural values devel-
accounting from bookkeeping and creating data oped in Hofstede (1984).
to ensure compliance with external regulations to This study is exploratory, aimed at providing
an internal, managerial function. As a result of descriptive evidence on changes in management
increased competition, the customer has gained accounting practices following economic reforms
prominence in planning and control processes and and contingent upon ®rm strategies and interna-
in organizational performance measurement. In tional orientation at the time of reform. Based on
summary, for all of the management accounting our review of the literature and limitations of this
processes, we see an overall increase in the use of study, we consider three avenues to be most pro-
fact-based decision making and increased demand mising for future inquiry: (1) integration of strat-
for data that, in Western ®rms, are provided by egy-based and culture-based tests of contingency
management accountants. theory; (2) use of panel data as a means of distin-
The speci®c management accounting processes guishing contextual and cultural determinants of
and the data used dier as a function of ®rm management accounting practices; and (3) con-
strategy and international orientation; however, sideration of a broad set of management account-
these contingencies take on unique meaning in ing practices as well as practices from other
emerging economies. Two examples illustrate this disciplines as a means of developing an organiza-
tional systems perspective. We brie¯y discuss these vs privately held ®rms in a controlled economy),
research opportunities. the strategy of the local ®rm following reform, and
This study considers two contingencies that the integration of the ®rm with world markets
have been related to management accounting other than those re¯ected in international part-
practices in the literature, competitive strategies nerships will aect the degree to which management
and national culture. Notably absent are studies accounting practices change to accommodate
that combine these research questions.7 An intri- international dierences between the partners'
guing issue that emerged when we discovered the management accounting practices.
extent to which Indian ®rms have entered into An enduring debate in ®elds as diverse as
strategic alliances with international partners is genetics, education, and organizational studies is
the role these partnerships play in the evolution of the extent to which individual and organizational
management accounting practices.8 Although responses to stimuli are determined by ``culture''
sample size limitations restrict our investigation of vs ``context.'' In the management accounting lit-
these issues, dierences between the national cul- erature, previous studies that examine manage-
ture of the international partner and the Indian ment accounting implications of national culture
®rm and the role that the partnership plays in the employ cross-sectional comparisons of similar
international partner's global network suggest ®rms or of international divisions of a single ®rm.
testable hypotheses about the nature of manage- The choice of similar research sites is intended to
ment accounting change following the formation control for ``context,'' so that dierences may be
of such a relationship. Firth (1996) provides pre- attributed solely to culture. Conversely, studies
liminary evidence of a relation between changes in that aim to focus on contextual factors, such as
management accounting techniques used by Chi- competitive strategy, use cross-sectional compar-
nese state-owned enterprises (SOEs) before and isons of ®rms with similar ``cultures.'' To our
after entering into a joint venture and the practices knowledge, these two factors have not been con-
used by the foreign partner. He further documents sidered simultaneously. In the introduction, we
a relation between the degree of change and the suggest that the results of this study are pertinent
similarity between the national culture of the for- for countries that have undergone dramatic eco-
eign and the Chinese ®rm. Anand and Delios nomic transition, for example, the countries of
(1996) document dierences in the degree of Central Europe and the former Soviet Union. Par-
transfer of management skills between Japanese allels between the shifting contexts encountered by
joint ventures in China and India and attribute ®rms in these countries suggests a cross-sectional,
these dierences to the strategic intent of the longitudinal research design in which management
Japanese ®rm in entering the partnership. Com- accounting practices in ®rms from countries with
bining results of our study with those of Firth and very dierent cultures (e.g. India and Poland) are
Anand and Delios, we hypothesize that the nature compared before and after shifts in environmental
of the partnership, speci®cally, the extent to which context. Such a study would provide the ®rst com-
partners form long-lived attachments (e.g. joint parative evidence on the in¯uence of context and
ventures) vs brief, market-based transactions (e.g. culture on management accounting practices.
technology licensing), the degree of control exer- Finally, and most ambitious of all, we consider
cised by the state prior to liberalization (e.g. SOE opportunities to develop a broader, conceptualiza-
tion of the determinants of management practices,
7
Child and Markoczy (1993) combine contextual variables of which management accounting practices are a
related to strategic alliances and national culture of joint ven- small piece. Empirical tests of contingency theory
ture partners to examine contingencies in managerial behavior. have typically focused on determinants of a nar-
8
Gray and Roberts (1991) raise a related question about
row set of management accounting practices; for
international joint ventures. He asks whether dierences in
accounting practices give advantage to one or the other partner example, preparation of and performance to bud-
in an East±West joint venture and to what extent accounting gets. This study has attempted to take a broader
dierences are a source of disagreement between partners. view of management accounting practices as a
means of detecting patterns of change. Clearly We are indebted to managers of the participating
greater understanding of both individual practices ®rms and to our colleagues, Ted Snyder and C. K.
and macroscopic relationships among practices is Prahalad at the University of Michigan and to S.
needed. However we found very little of the latter Ramachander, V. Narayanan, and R. Stevenage
in the extant literature. We were more successful of the Academy of Management Excellence for
when we broadened our search to include other helping us gain access to research sites. Comments
management disciplines. For example, in the ®eld from Trevor Hopper, Anthony Hopwood, Peter
of operations management we found several stu- Miller, Neale O'Connor, and other participants in
dies that attempt to characterize international dif- the 1996 AOS Conference on Comparative Man-
ferences in manufacturing practices, broadly agement Accounting and an anonymous referee
de®ned (e.g. DeMeyer, Nakane, Miller & Ferdows, were especially helpful.
1989; Womack, Jones & Roos, 1990; Vastag &
Whybark, 1994). Ironically, it was Mueller's (1967)
examination of similarities and dierences in broad Appendix A:
characterizations of accounting practices that opened
the sub-discipline of international accounting. Research sample
However, Mueller and those who subsequently
contributed to this research stream focused on The research was planned in cooperation with
dierences in ®nancial accounting practices. This the Academy of Management Excellence (ACME),
suggests a parallel study of international manage- an Indian consortium of companies that gather
ment accounting practices, and, perhaps more regularly for management research brie®ngs and
radically, a multi-disciplinary study that considers symposia on topics of general management inter-
management accounting practices jointly with est. In 1995, we approached ACME adminis-
practices in the ®elds of operations management, trators with a proposal to assess management
marketing, or, less radically, ®nancial accounting. accounting practices in Indian ®rms, the results of
We describe three avenues for research in inter- which would be presented in a management semi-
national management accounting that most intri- nar (delivered in Bangalore, India in August
gue us after a brief interaction with a select group 1996). It was agreed from the outset that we would
of Indian ®rms. What is clear to us, after spending have complete freedom in designing the survey
more than 25 weeks between 1993 and 1996 in and in publishing the results of our research.
®rms in emerging and transitional economies is ACME contributed a research associate who
that ®rms in these countries represent an unpar- assisted us with cultural aspects of the survey
alleled opportunity to study the evolution of design and administered the survey pre-test. An
management accounting practices in a relatively Indian academic who is aliated with ACME
short time period. The changes required of ®rms accompanied our ®eld visits and was present dur-
faced, often for the ®rst time, with pro®t objec- ing all management interviews. Although the sur-
tives, the need to attract and retain skilled vey and interviews were comfortably conducted in
employees and the opportunity to choose invest- English, the inclusion of a native professional
ments and suppliers have direct implications for academic and research associate was invaluable in
all aspects of management accounting. early stages of survey design.
The targeted research population was 30 manu-
facturing members of the ACME consortium.
Acknowledgements Although ACME members include ®rms in service
industries, we limited the sample to manufacturing
The William Davidson Institute at the Uni- ®rms to permit us to develop a more detailed
versity of Michigan Business School and the survey. ACME members share two features.
Academy of Management Excellence in Madras, First, none were state-owned enterprises prior to
India provided ®nancial support for this research. enactment of economic reforms. Thus, we do not
consider ®rms for which privatization resulted the project, the survey was mailed to the 30 man-
from liberalization. Second, ACME ®rms tend to ufacturing ®rms in spring 1996. Each survey was
be professionally managed, often by a cadre of accompanied by a letter of introduction from
Indian managers who have studied at home or ACME, a statement of research purpose from the
abroad in leading management programs. As a authors, and instructions concerning the ideal
result of these and other dierences that cause respondent (job responsibilities) for each part of
®rms to seek ACME membership, it is reasonable the survey. Approximately 2 weeks after mailing
to surmise that, from the population of mid-sized the survey the research associate contacted the
to large ®rms in the private sector, ACME ®rms person to whom the survey was mailed. At that
have a greater than average probability of sur- time approximately half of the ®rms stated that
viving the heightened international competition they would not participate in the study; 14 ®rms
brought about by liberalization. In excluding agreed to complete the survey and host a visit if
previously state-owned enterprises as well as requested. Reasons oered by those who declined
smaller, typically family-owned ®rms, we have included: the survey would require too much time
attempted to focus on ®rms with developed to complete; they were not suciently interested in
managerial practices and competitive strengths the topic to participate in the study and the sub-
from which to negotiate the dicult transition to sequent management brie®ng; and they did not
an open economy. This is an appropriate sample wish to divulge the information requested, oers
for our research objective of studying the evolu- of con®dentiality notwithstanding.
tion of management accounting practices. The Each of the ®ve survey parts addressed a dier-
excluded population would more appropriately ent aspect of the research and was to be completed
be used to study the emergence of managerial by a survey respondent with job-related knowl-
practices (e.g. Firth, 1996) or the consequences of edge of the questions. (See Table 1 for a brief
failure thereof. description of each survey part.) So, for example,
the CEO or President was asked to complete the
section of the survey dealing with competitive
Appendix B: priorities, while the Chief Financial Ocer was
asked to complete the section related to cost
Survey design and administration management practices. In total, 1042 questions
were asked, with respondents reporting that they
A ®ve-part survey was designed to collect stan- spent 90 minutes, on average, completing a section
dardized information on ®rms' competitive strat- of approximately 200 questions. We recommended
egy and management accounting practices.9 In fall that respondents consult colleagues with greater
1995, the survey was pre-tested by three ®rms that expertise and refer to relevant archival records
were selected based on industry and size dier- when they were unsure of responses. At the end of
ences as well as their perceived receptivity to par- each survey we asked for the job titles of collea-
ticipating in the study. In light of the small target gues who participated signi®cantly in the comple-
population and even smaller pre-test group, the tion of the survey section. Typically one to three
intent of the pre-test was simply to identify people, other than the designated respondent,
ambiguous or poorly worded questions. A contributed to each survey section. Multiple sur-
research assistant from ACME was on site to vey respondents reduce the potential in¯uence of
administer the pre-test and interview survey measurement error and individual bias on our
respondents. The survey was revised based on results and attempts to address the concern that
feedback from the pre-test. Following a pre- we may have `àssigned'' certain survey questions
liminary telephone call to request involvement in to the wrong individual, depending upon the
®rms' organization structure and assignment of
9
A copy of the survey instrument is available from the job responsibilities. There was no repetition of
authors upon request. questions across survey sections; however, by
design there was considerable overlap. Thus, for taken place or were planned. In addition to the
example, the operations manager was asked to companies, we met with reporters and editors at a
rank order manufacturing improvement opportu- major business newspaper based in Madras and
nities for the future and the response was used in with two directors at the Bombay oces of a ``Big
conjunction with data from the competitive strat- 6'' accounting ®rm. These meetings were intended
egy survey to identify the ®rm as a Defender or to further enrich our understanding of the Indian
Prospector. A limitation of our survey approach business environment.
as it relates to some survey questions is that the
respondents were all members of management.
References
Some questions ask managers to assess the extent
to which information use, actions and perfor- Anand, J., & Delios, A. (1996). Competing globally: how
mance of workers and mid-level-managers has Japanese MNCs have matched goals and strategies in India
changed since economic reforms. Managers are and China. Columbia Journal of World Business, fall, 50±62.
likely to be less well-informed in these cases and Bruns, W., & Waterhouse, J. (1975). Budgetary control and
organizational structure. Journal of Accounting Research, 19,
the error in response may be systematically biased
177±203.
if they have a stake in subordinates' behaviors. In Chandler, A. D. (1962). Strategy and structure. Cambridge,
the results that follow, we highlight this issue as it MA: M.I.T. Press.
arises. An alternative research design that would Child, J., & Markoczy, L. (1993). Host-country managerial
also survey line workers and mid-level managers behavior and learning in Chinese and Hungarian joint ven-
tures. Journal of Management Studies, 30 (4), 611±631.
would have required surveys in a multiplicity of
Chow, L. M., Chau, C. K., & Gray, S. J. (1995). Accounting
Indian dialects and most probably would have reforms in China: cultural constraints on implementation
reduced our sample size further as managers per- and development. Accounting and Business Research, 26 (1),
ceived the cost of participation in the study to be 29±49.
too great. Daft, R. L., & Weick, K. E. (1984). Toward a model of orga-
nizations as interpretation systems. Academy of Management
After the survey instrument was distributed, site
Review, 9, 284±295.
visits were made to nine companies over a period DeMeyer, A., Nakane, J., Miller, J., & Ferdows, K. (1989).
of six days. The companies visited are located in Flexibility: the next competitive battle, the manufacturing
Bombay and Madras, India, and represent a cross futures survey. Strategic Management Journal, 10, 135±144.
section of industries. The meetings had two pur- Dent, J. (1990). Strategy, organization and control: some pos-
sibilities for accounting research. Accounting, Organizations
poses: (1) to collect surveys from ®rms that had
and Society, 15 (1), 3±25.
verbally agreed to participate in the study and to Doty D. H., Glick, W. H., & Huber, G. P. (1993). Fit, equi®n-
encourage completion of the survey if needed; and ality, and organizational eectiveness: a test of two con®g-
(2) to gain a richer understanding of the impact of urational theories. Academy of Management Journal, 36(6),
the 1991 economic liberalization on the ®rms. Of 1196±1250.
Firth, M. (1996). The diusion of managerial accounting proce-
the nine companies visited, seven returned sub-
dures in the People's Republic of China and the in¯uence of
stantially complete surveys and are included in foreign partnered joint ventures. Accounting, Organizations and
our analysis. Typically, meetings with companies Society, 21 (7/8), 629±654.
lasted one to three hours and involved from one Fisher, J. (1995). Contingency-based research on management
to six managers. In all, 32 managers of nine com- control systems: categorization by level of complexity. Jour-
nal of Accounting Literature, 14, 24±53.
panies were interviewed. Where there were multi-
Frucot, V., & Shearon, W. T. (1991). Budgetary participation,
ple managers, the meetings were as a group. In locus of control, and Mexican managerial performance and
general, the managers were heads of corporate job satisfaction. The Accounting Review, 66 (1), 80±99.
functional areas (e.g. Executive Director of Sales) Garrod, N., & McLeay, S. (1996). The accounting implications
or of major operating groups. The meetings were of political and economic reform in Central Europe. In N.
Garrod, & S. McLeay, (Eds.) Accounting in transition (pp. 1±
open-ended, broad-based based discussions of two
11). New York: Routledge.
questions: (1) how did economic liberalization Ginzberg, M. (1980). An organizational contingencies view of
aect the organization; and (2) what changes in accounting and information systems implementation.
management accounting and control practices had Accounting, Organizations and Society, 5 (6), 369±382.
Govindarajan, V. (1984). Appropriateness of accounting data Miles, R., & Snow, C. (1978). Organizational strategy, structure
in performance evaluation: an empirical examination of and process. New York: McGraw-Hill.
environmental uncertainty as an intervening variable. Mueller, G. G. (1967). International accounting. New York:
Accounting, Organizations and Society, 9 (2), 125±136. Macmillan.
Govindarajan, V. (1988). A contingency approach to strategy O'Connor, N. (1995). The in¯uence of organizational culture
implementation at the business-unit level: integrating on the usefulness of budget participation by Singaporean-
administrative mechanisms with strategy. Academy of Man- Chinese managers. Accounting, Organizations and Society, 20
agement Journal, 31 (12), 28±53. (5), 383±403.
Govindarajan, V., & Fisher, J. (1990). Impact of output versus Perera, M. H. B. (1989). Towards a framework to analyze the
behavior control and resource sharing on performance: impact of culture on accounting. International Journal of
strategy as a mediating variable. Academy of Management Accounting, 24 (1), 42±56.
Journal, 33 (6), 259±285.. Perrow, C. (1967). A framework for the comparative analysis
Govindarajan, V., & Gupta, A. (1985). Linking control systems of organizations. American Sociological Review, 56 (1),
to business unit strategy: impact on performance. Account- 194±208.
ing, Organizations and Society, 10 (1), 51±66. Pourjalali, H., & Meek, G. (1995). Accounting and culture: the
Gray, S. J. (1988). Towards a theory of cultural in¯uence on case of Iran. Research in Accounting in Emerging Economies,
the development of accounting systems internationally. 3, 3±17.
ABACUS, 24 (1), 1±15. Prahalad, C. K., & Hamel, G. (1990). The core competence of
Gray, S. J., & Roberts, C. B. (1991). East±West accounting the corporation. Harvard Business Review, 3, 79±91.
issues: a new agenda. Accounting Horizons, 2, 42±50. Simons, R. (1987). Accounting control systems and business
Groves, T., Hong, Y., McMillan, J., & Naughton, B. (1994). strategy: an empirical analysis. Accounting, Organizations
Autonomy and incentives in Chinese state enterprises. The and Society, 12 (4), 357±374.
Quarterly Journal of Economics, 109 (1), 183±209. Simons, R. (1990). The role of management control systems in
Hayes, D. (1977). The contingency theory of management creating competitive advantage: new perspectives. Account-
accounting. The Accounting Review, 52 (1), 22±39. ing, Organizations and Society, 15 (1), 127±143.
Hofstede, G. (1984) Culture's consequences. London, Sage Skousen, C. R., & Yang, J. (1988). Western management
Publications. accounting and the economic reforms of China. Accounting,
Hoque, Z., & Hopper, T. (1994). Rationality, accounting and Organizations and Society, 13 (2), 201±206.
politics: a case study of management control in a Banglade- Suvey of India (1995, 21 January). The Economist, 3±30.
shi jute mill. Management Accounting Research, 5, 5±30. Thomas, A. (1989). The eects of organisational culture on
Jaruga, A. (1996). Accounting in socialist countries: the begin- choices of accounting methods. Accounting and Business
nings of reform. In N. Garrod & S. McLeay (Eds.) Account- Review, 19 (76), 363±378.
ing in transition (pp. 12±27). New York: Routledge. Vastag, G., & Whybark, D. C. (1994). American and European
Kaplan, R. S., & Norton, D. (1992). The balanced scorecardÐ manufacturing practices: an analytical framework and
measures that drive performance. Harvard Business Review, comparisons. Journal of Operations Management, 12 (1), 1±
70 (1), 71±79. 11.
Khandwalla, P. N. (1972). The eect of dierent types of com- Waterhouse, J., & Tiessen, P. (1978). A contingency framework
petition on the use of management controls. Journal of for management accounting systems research. Accounting,
Accounting Research, 20 (3), 275±285. Organizations and Society, 3 (3), 65±76.
Lanen, W. N., & Larcker, D. (1992). Executive compensation Womack, J. P, Jones, D. T., & Roos, D. (1990). The machine
contract adoption in the electric utility industry. Journal of that changed the world. New York: Harper Collins.
Accounting Research, 30 (1), 70±93. Woodward, J. (1965). Industrial organization: theory and prac-
Lawrence, P. R., & Lorsch, J. W. (1967). Organization and tice. Oxford: Oxford University Press.
environment. Boston, MA: Harvard Business School Press. Young, S. M., & Selto, F. H. (1991). New manufacturing
Leonard-Barton, D. (1992). Core capabilities and core rigid- practices and cost management: a review of the literature and
ities: a paradox in managing new product development. directions for research. Journal of Accounting Literature, 10,
Strategic Management Journal, (13), 111±125. 265±298.
Lodge, G. C., & Bhasin, A. (1995). India in the 1990's. Zhou, Z. H. (1988). Chinese accounting systems and practices.
Harvard Business School Case Study ]9-795-119. Accounting, Organizations and Society, 13 (2), 207±224.

Economic Transition, Strategy and The Evolution of Management Accounting Practices: The Case of India

Uploaded by

Copyright:

Available Formats

Economic Transition, Strategy and The Evolution of Management Accounting Practices: The Case of India

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Economic Transition, Strategy and The Evolution of Management Accounting Practices: The Case of India

Uploaded by

Copyright:

Available Formats

Accounting, Organizations and Society 24 (1999) 379±412

Economic transition, strategy and the evolution of

Privatization, liberalization and deregulation petition and management accounting practices

Fig. 1. Basic contingency framework

Fig. 2. Research design: number of cases by type

Survey part Survey focus Designated Number of survey Number of questions

Part I Company descriptive statistics General Manager 74 255

Panel A: From classi®cations and industry

1991 data International (N=7) Domestic (N=7)

1996 data Prospectors (N=6) Defenders (N=8)

Average summated score on competitive priorities related to Defender Strategy (Max=100) 35 41

PANEL A: Information used in strategic planning

ALL Def. Pros. Dom. Int. ALL

PANEL B: Primary basis for selecting process improvement projects

Average extent to which respondents Average change No. of ®rms

ALL Def. Pros. Dom. Int. ALL

ALL Def. Pros. Dom. Int. ALL

PANEL B: Budget philosophy and attainment

ALL Def. Pros. Dom. Int. ALL

PANEL C: Participation in establishing, reviewing and revising the budget

Average extent to which respondents agree Average change No. of ®rms

ALL Def. Pros. Dom. Int. ALL

Participation in setting budget

Job titles Number of ®rms reporting participation of these No. of ®rms

Chief Executive Ocer 10 (1±10±0)

Job title Percent of ®rms reporting use No. of ®rms reporting

Production workers 38 (0±6±0)

ALL Def. Pros. Dom. Int. ALL

Number of ®rms reporting use of quantitative No. of ®rms

Customer satisfaction 9 (5±6±0)

4.7. Cost management methods . Who receives information on manufacturing

PANEL A: Dissemination of cost information

Plant production manager 82 (4±7±0)

PANEL B: Aggregation of costs for reporting purposes

Quoting new business 100 (0±14±0)

ALL Def. Pros. Dom. Int. ALL

Customer visits 4.5 4.3 4.8 4.9 4.2 0.75 (7±5±0)

ALL Def. Pros. Dom. Int. ALL

Information system data integrity

Tasks Average percent of accounting Average change No. of ®rms reporting

External reporting (®nancial accounting) 29 ÿ3 (3±1±7)

You might also like

Chief Executive Ocer 10 (1±10±0)