Overcoming Barriers to Change in Management Accounting Systems

Marilyn Waldron, University of Otago, Dunedin INTRODUCTION

Businesses face an increasingly competitive environment as technology continues to change and international markets are freer, thus creating a need for reengineering, restructuring and rethinking. This transformation process, or change management process, can be daunting with the accompanying uncertainty and possibility of failure. Managers continue to implement change since this change management process can prove beneficial to business organizations that face decline, stagnation or which have goals to improve efficiency and effectiveness in the face of a challenging environment. As the environment changes, Kotter (1995) suggests several of the increasing options businesses may select for general change management, include reengineering, right sizing, restructuring, cultural change and turnaround. More specifically, choices companies make for effective change include just in time manufacturing (JIT), flexiblemanufacturing systems (FMS), total quality management (TQM) and world-class manufacturing (WCM). Advanced manufacturing technology to support the general change management options include materials requirement planning II (MRP II), computer aided design/manufacturing (CAD/CAM) and management information systems (MIS). When business organizations faced with challenges embark on a change management path, they are faced with choices of which one the management methods, techniques and systems would be most effective. In addition, the management accounting system that collects applicable costs, supplies information to assist in the calculation of profits and provides managers with critical information for decision making must be assessed for appropriateness. As reported by Johnson and Kaplan in 1987, management accounting had been slow to respond to challenges in the increasingly competitive business environment. It lagged behind other management functions in development of cutting edge techniques. By the early 1990s, management accounting had progressed with development of new techniques labelled as advanced management accounting techniques (AMAT). These new techniques included activity based costing (ABC), life cycle costing (LCC), target cost planning (TCP), kaizen costing (KC), strategic management accounting (SMA), cost modelling (CM), throughput accounting, back flush costing and cost of quality reporting (COQ). This study focuses on the change management process with a focus on change in management accounting techniques. A study by Adler et al. (2000) reports adoption rates and initial reports of barriers to change in management accounting techniques. A resulting important question for implementation of the advanced management accounting techniques (AMATs) is Are there factors to assist a business in understanding how to overcome the barriers and successfully adopt advanced management accounting techniques in a highly competitive business environment? This present investigation provides an examination of the barriers to change and the methods utilized by business managers who persevered to overcome the barriers to adoption of management accounting change. An understanding of this process of overcoming the barriers can be adopted by others to lead to a more effective and successful process for businesses that engage in change.
BACKGROUND

Studies of the usage of advanced management accounting techniques (AMATs) in the U.S. and U.K. indicate that adoption has been less rapid than would have been expected (Bright et al., 1992; Colwyn et al., 1993; Szendi and Elmore, 1993; Innes and Mitchell, 1995; Chenhall and Langfield-Smith, 1998; Adler, 2000). Adler et al. (2000) reported that adoption of AMATs in New Zealand was similar to that of other countries. Their results indicated a slower adoption rate for AMATs and added that traditional methods continued to be utilized by a majority of organizations. These reflect a pattern similar to that established in other countries. Adler et al. (2000) provide insights beyond that of the earlier research in that in addition to adoption rates,

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their results report barriers to change. These barriers included costs of change (equipment, human resources time), lack of skills, management inertia, lack of relevant software, lack of information on advance techniques and fear of failure. As reported by Adler et al. (2000), the barriers affected the adoption of advanced management accounting techniques. In other words, if there were no barriers, the rates of adoption could be higher. Other described barriers, such as lack of relevant software, thus also could stifle the change process and prevent success once implementation commenced. This present research begins with a brief overview of the study, followed by a discussion of changes in manufacturing, changes in manufacturing and barriers to adoption of advanced management accounting techniques. Finally as an extension of prior research is presentation methods utilized to overcome the barriers to change. This provides lessons that may assist organizations in understanding factors important to success.
DESCRIPTION OF THE STUDY

This research reports the experiences of leading manufacturing firms in the change management process in New Zealand. New Zealand businesses operate in a highly competitive environment, which exerts pressures on them for efficiency and effectiveness. The survey that was sent to business organizations with the purpose being to collect information from management accountants in order to provide (1) an overview of general and management accounting change, (2) a discussion of the barriers faced in the change process and (3) an examination of methods to overcome the barriers to change in management accounting systems. A survey was mailed to management accountants at manufacturing sites in New Zealand, who were employed in a cross section of leading business organizations. The sample contained businesses from New Zealands list of the top 500 and supplemented with leading exporters in New Zealand. The choice of leading and exporting businesses occurred in an effort to collect information from those organizations that operated in a highly competitive environment and also were viewed as relatively successful. This type of business organization would be more likely to have pressures to change in order to remain viable and competitive. Replies were received from one hundred ninety management accountants. Tests performed to examine nonrespondent bias occurred with examination of early versus late respondents. This statistical analysis yielded no differences between groups. The distribution of sample manufacturing organizations consisted of firms in a broad range of industries including wood products ((13.2%), chemicals and petroleum (5.3%), metal machinery and equipment (13.2%), other manufacturing (13.2%), slaughtering and meat processing (3.2%), chemicals, fertilizers and minerals (6.8%), basic mineral and metal products (2.6%) beverage and tobacco (3.2%), wearing apparel and footwear (2.1%), food (6.3%) and other (6.8%). The total sales of the organizations in the sample ranged from under $250,000 to over $100,000,000. A small number of organizations had total sales under $249,000 (2.6%), while a larger portion (50%) of the organizations had total sales between $250,000 and $24,999,999. Approximately 53.4% of the companies described their sales as above $5,000,000. Thirty seven percent of the responding organizations sales were reported as over $25,000,000 and 13.2% of these reported sales over $100,000,000.
Changes in Manufacturing From the sample of 190 business organizations, 37 implemented some type of change in manufacturing. Nine companies made changes in manufacturing technology, including a change in critical parts stocking, addition of a manufacturing work order system, change to process-based manufacturing and addition of MRP I and/or II. Sixteen companies changed the types of information being provided in relation to manufacturing. Other changes in manufacturing included change related to new manufacturing software, changes related to ISO requirements, movement of responsibility for computer projects from accounting to manufacturing, and the manufacturing function becoming responsible for initiating and recording purchases, rather than marketing.

In the respondents discussion of manufacturing change, there is evidence to confirm that manufacturing changes occur in conjunction with change in management accounting systems. Seven of the companies reported they were specifically integrating the functions of accounting and manufacturing, although specific details were not reported. The types of specific changes reported included: adjustments to accounts related to operations, implementation of software to integrate manufacturing with financial control, a match of accounting with Total

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Quality Management (TQM) and lean manufacturing, integration of Total Quality Management with general manufacturing and general change in presentation of information to provide more meaningful data for the operations department. In addition, nine organizations implemented changes in information monitoring, such as tracking of products, process, actual run times, key production factors, daily manufacturing records, stock and customer trends.
Change in Management Accounting Thirty three (17.4%) of the organizations reported they had implemented major changes in their accounting systems, which included eleven that changed to an advanced management accounting technique. The advanced management accounting techniques reported as implemented included activity-based costing, activity-based management, value-added accounting, cost of quality reporting, economic value-added accounting and back flush costing. The other major changes to traditional management accounting techniques included implementation of standard costing, job costing, actual costing, process costing, and accrual accounting.

This adoption rate reflects that reported in studies of adoption in other countries and the earlier study in New Zealand by Adler et al. (2000). These results include evidence that not all organizations rush to change to advanced management accounting techniques, but continue to utilize traditional management accounting techniques. In addition, eighty three (44%) of the organizations reported no change had occurred in their management accounting system. Choi (1995) indicates that both major and minor changes are important to organization change. In making comparisons with previous studies, the results in the present research must be interpreted correctly. The present research collected additional information related to an organizations change, which would not fit into the category of major change, but would fit into the category of minor change. The respondents reported implementation of changes that could be categorized as minor in that the changes were not changes to AMATs or to traditional management accounting systems. These reported changes included costing changes such as:
improved product cost information (general, stock valuation, budgeting, added key performance indicators), incremental changes in report format (product reports, segment reporting, responsibility centres, decrease in detail), changes in report timing with increased frequency in some cases, integration of systems (invoices with financial systems) and general policy of continuous change.

Note should be taken that reported changes were often made related in response to requirements in other functional areas, such as marketing or operations. For example, one organization was changing the accounting system to complement marketing through simplification. This was expected to result in a faster quotation process, while another organization added quoting modules. Several other changes in accounting were described as in response to changes in manufacturing.
Barriers to Change As reported by Adler et al. (2000), costs of change were reported as a major barrier to implementation of new management accounting techniques. In the results of this present study, the respondents also reported barriers existed in two forms of cost. These included cost of time and financial factors, as constraints in the change process.

A variety of other problems were reported as barriers to change by respondents in the implementation of change to management accounting. These other problem included: problems in the continued lack of usefulness of the new costing allocations, differing requirement for costs related to tax purposes and other management purposes, difficulty in assessing who would be assigned the responsibility for change, lack of trust in results, improper testing of the new systems, problems related to the timing of the change and general problems in coordination of change. Respondents reported other major barriers they experienced in the face of change in the management accounting systems, which related to manufacturing and other functions of the business organization. Choi (1995) stresses the critical nature of coordination of change activities in the overall organization, since no change occurs in isolation. In this case respondents reported two problem areas.

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First, the respondents reported a lack of understanding existed in operations for the new information, thus implementation was complicated. Second, the respondents reported reluctance in the manufacturing function to cooperate with the change process. Other reported barriers provide more specific information that also relate to interactions with other functions of the business. These included the development of reports that did not consider plant user requirements, difficulty in coordination with manufacturing inefficiency occurring due to the time required for change and problems occurring with the accounting/engineering interface. Reger et al. (1994) discuss the difficulty of general organizational change with a major problem being resistance to change. The results of the present study confirm that resistance to change in several forms existed as a major problem. Management accountants reported that employees exhibited the resistance in a variety of ways such as:
fear of change, difficulty in changing, fear of new technology, lack of belief in the changes, lack of patience for the benefits of change, concern for job security and opposition to new tasks.

This reported resistance to change occurred for not only the line employees, but also for employees at the management level. Barriers existed also at a relatively significant level related to information technology. When problems occurred with software, some organizations experienced a lack of support from vendors. Other general problems reported related to information systems included provision of redundant information, lack of a specific change management processes for technology, basic technical problems and deficiency in testing the system changes prior to final implementation.

Overcoming the Barriers to Change in Management Accounting

Richardson et al. (1996) and Choi (1995) note continued management support as a critical facet of successful implementation in the process of change. In other words, this facet of change in the form of perseverance is a characteristic of successful change in a business organization. The responding management accountants reported perseverance as a key and continuing factor in the change process. Reports of perseverance occurred in a general manner as respondents stated they persevered. Others responded specifically as to how they persevered by implementing adjustments to the change process when it appeared unsuccessful. Comments from the respondents indicated reported adjustments occurred in the original plan related to:
obtaining assistance from outside parties (chartered accountants, consultants and computer experts), making resource changes through the head office or changing staff responsibilities, decreasing the sophistication of the planned system, implementing supplementary changes in the collection and recording of data, formalising procedures, instigating quality assurance programs, simply set(ting) . . . . deadlines and keep . . . them and continuous modifications.

Problems were also reported related to human resources. In order to overcome the barriers to change experienced by personnel, the responding management accountants reported that communication and training were the two major factors. Communication methods took various forms including:
regular reporting, more meetings, building morale, persuasion, teamwork and training.

The training consisted of assisting employees in understanding the benefits of change, training for new tasks and the compilation of training manuals. Teamwork was described as important at each stage of the process of change including design and implementation. Other actions to overcome barriers to change entailed a special human resource unit developed for implementation, staff changes, constant decision making, implementation of financial incentives and the addition of workplace flexibility (such as overtime and performing other tasks when they were critical or when available time existed). One company reported an interesting observation where they perceived the

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change became unsuccessful, as the speed of the change decreased. This might indicate the importance of maintaining momentum in the change process. Respondents presented several issues that indicated prevention of problems was a useful factor in successful implementation of change. Prevention included:
Proper planning (such as revision of report forms to provide useful information). Implementation of change in the off-season. Choice of software is critical, so choose carefully (ask present users about effectiveness and support from supplier; comparisons of accounting packages; team work to develop and\or improve software). Work closely with support people (suppliers, consultants and technicians). Make improvements in documentation to expedite the process more effectively. Implement adjustments at the company level for unsolved problems. Obtain increased financial resources.

Jones et al. (1993) indicate from their findings that a greater focus exists as a requirement on the social relations between accountants and other managers. Nanni et al. (1992) in a case study approach support this view and indicate that some firms established integrated teams as a tool for effective and successful implementation. The results of this present study confirm the importance of the relationships between management accountants and other members of the organization for successful change. The respondents in the present research provide evidence that cross-functional teams prompted more effective change management. Examination of reasons for change displays a pattern where changes in accounting occurred in response to a functional need of other departments. For example as noted earlier, changes were made in management accounting in response to a need in marketing. More specifically, quoting modules were added to simplify and meet the need for speedier quotations. Responding management accountants in the present research noted a relational problem exhibited in the engineering/accounting interface. Jones et al. (1993) noted a similar problem with the engineering/accounting interface, which caused fragmented decision making for advanced manufacturing technology (AMT). They pointed to the effectiveness of Japanese team management in contrast to the problems in UK firms. In the UK management accountants were isolated from the engineering function both by space and information. Other findings from the present research provide evidence to support the concept of usefulness for an interface between functional areas of the firm. The reports of the survey respondents indicated there was a lack of knowledge about management accounting and/or management systems by other employees. An interface with management accountants could effectively provide an understanding of the management accounting system and assist in overcoming this barrier. The survey results maintain this idea of the usefulness of cross-functional teams, especially with the inclusion of employees from functional departments that would be affected by the change. As an example, in the area of information systems, involvement of the organizations employees with the developers of the software was reported as an effective method of assisting in the process of overcoming problems of inadequate software. The human resource area exhibited the greatest requirement for cross-functional teams with manufacturing. Integration of accounting with manufacturing in general was evident as a method to overcome barriers as reported in the management accountants responses. For example, the respondents reported that in working jointly, more effective costing systems were developed. One adjustment was to allow manufacturing to formulate a quick response and for manufacturing to receive information in real terms, rather than in accounting terms. In a review of a survey implemented by Fry et al. (1995), the role of management accounting in the development of strategy was discussed. An important finding was that
the plant accountant who takes a more active role in the management of the plant by directly querying managers about variances will have the greatest potential for influencing the behaviour and types of decisions these managers make. (p. 29).

The results of the present survey confirm that problems result from a lack of understanding of accounting variances by operations management, lack of understanding by line management of the change process in management accounting and the resulting impacts at plant level. For example, one specific problem reported was lack of consideration for plant user requirements by accountants in report development. Respondents reported the barrier was overcome through utilization of methods that included basic communication with the production manager and continued guidance of manufacturing personnel over a two-month period (e. g. personnel changed actions and began to ask questions about accounting information). Once more, teamwork and perseverance were key factors in successful implementation.

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SUMMARY
Todays business organizations face a challenging and competitive environment with continual change. Relatively new methods of management, technology and management accounting are available to assist in the creation of more efficient and effective business operations. Understanding barriers to change and ways to overcome these barriers presents a critical issue for management in the process of change. This present study focused on changes in management accounting and reported the (1) types changes in management accounting, (2) barriers related to this change in management accounting and (3) methods of overcoming the barriers to change. The responding business organizations reported changes in their management accounting systems ranging from major changes in management accounting techniques to more minor changes, such as changing the timing of reports. The level of change reported by respondents was similar to that in previous research in other countries. Advanced management accounting methods were being adopted to some extent, but traditional methods remained in use. Reported barriers to successful change included high costs, resistance to change, fear of change, lack of belief in the change, concern for job security and opposition to new tasks. Respondents reported a range of methods to overcome the various barriers. Although there were reported costs of time and financial costs, change was successfully implemented when the organizations communicated appropriately and trained employees. Problematic interrelationships between different staff functions also posed a barrier to successful change. These relationships included those between marketing, engineering, management, manufacturing and accounting. To overcome this type of barrier, adjustments such as formal team work were implemented in relationships between these functions. Richardson et al. (1996), Choi (1995) and Reger et al. (1994) note that continued support of change is critical for successful implementation. Respondents confirmed this contention and reported that perseverance was a key factor in successful change. In addition, overcoming barriers occurred through the simple problem prevention. Through proper planning, organizations prevented problems and thus experienced greater success in the change process.

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