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Bart Van Hoe / Institutionalization of the Strategy-Focused Organization I UNIVERSITEIT GENT FACULTEIT ECONOMIE EN BEDRIJFSKUNDE ACADEMIEJAAR 2007 – 2008 Institutionalization of the Strategy-Focused Organization Masterproef voorgedragen tot het bekomen van de graad van Master in de Toegepaste Economische Wetenschappen Bart Van Hoe onder leiding van Prof. Dr. W. Bruggeman

Transcript of Institutionalization of the Strategy-Focused Organization · ‘Strategy-Focused Organization’;...

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Bart Van Hoe / Institutionalization of the Strategy-Focused OrganizationI

UNIVERSITEIT GENT

FACULTEIT ECONOMIE EN BEDRIJFSKUNDEACADEMIEJAAR 2007 – 2008

Institutionalization of the Strategy-FocusedOrganization

Masterproef voorgedragen tot het bekomen van de graad van

Master in de Toegepaste Economische Wetenschappen

Bart Van Hoe

onder leiding van

Prof. Dr. W. Bruggeman

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Bart Van Hoe / Institutionalization of the Strategy-Focused OrganizationII

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UNIVERSITEIT GENT

FACULTEIT ECONOMIE EN BEDRIJFSKUNDEACADEMIEJAAR 2007 – 2008

Institutionalization of the Strategy-FocusedOrganization

Masterproef voorgedragen tot het bekomen van de graad van

Master in de Toegepaste Economische Wetenschappen

Bart Van Hoe

onder leiding van

Prof. Dr. W. Bruggeman

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Bart Van Hoe / Institutionalization of the Strategy-Focused OrganizationIV

PERMISSION

Ondergetekende verklaart dat de inhoud van deze masterproef mag geraadpleegd en/of

gereproduceerd worden, mits bronvermelding.

Bart Van Hoe

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ACKNOWLEDGEMENTS

The author recognizes and appreciates the guidance and direction from his promoter, Prof. dr.

W. Bruggeman. F. Gerardi and his colleagues from Jansen Afwerkingsbedrijf NV, P.

Denayer and his colleagues from Alpro Soya NV (Ghent HQ and site Wevelgem) and K.

Desmet from Möbius are thanked for their time and assistance to the research.

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ABSTRACT

This paper deals with the issue of management accounting change. Drawing on the

institutional framework of Burns and Scapens (2000) and literature (mainly Kaplan and

Norton) about the balanced scorecard (BSC) and the strategy-focused organization (SFO), this

research paper will investigate the change project in two organizations. General and cross-

case analysis will be performed to assess whether the SFO concept encounters less barriers for

change and will, eventually, become part of the institutions of the organization, as opposed to

the BSC concept. The findings support the argument that the SFO generates new institutions

and helps the company become more strategically focused. However, also the BSC initiates

new habits and routines, but more barriers and a slower reproduction process were found.

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CONTENTS

I. TABLE OF FIGURES ..................................................................................................... 1

II. INTRODUCTION ............................................................................................................ 2

III. PERFORMANCE MANAGEMENT ......................................................................... 2

III.1 Theoretical Evolution ................................................................................................. 2

a. From BSC to SFO ...................................................................................................... 3

b. Critical Overview ....................................................................................................... 6

III.2 Empirical Implementation Research ........................................................................ 8

IV. INSTITUTIONAL THEORY ................................................................................... 11

IV.1 Theoretical Evolution ............................................................................................... 11

IV.2 Empirical Implementation Research ...................................................................... 14

V. RESEARCH QUESTIONS and CASE DESIGN........................................................ 17

V.1 MA system................................................................................................................... 19

V.2 MA change .................................................................................................................. 20

VI. CASE RESEARCH .................................................................................................... 22

VI.1 Jansen Afwerkingsbedrijf NV ................................................................................. 22

VI.2 Alpro Soya NV .......................................................................................................... 25

VII. GENERAL ANALYSIS............................................................................................. 29

VII.1 MA system and change at Jansen .......................................................................... 29

VII.2 MA system and change at Alpro ............................................................................ 31

VIII. CROSS-CASE ANALYSIS ................................................................................... 33

IX. CONCLUSION........................................................................................................... 35

REFERENCES .................................................................................................................... VIII

EXHIBITS ............................................................................................................................... X

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I. TABLE OF FIGURES

Figure 1: Model of influencing factors (Kasurinen, 2002) ................................................... 9

Figure 2: Framework Burns and Scapens (2000)................................................................ 12

Figure 3: Case Design ............................................................................................................ 17

Figure 4: Research Indicators............................................................................................... 18

Figure 6: Jansen organisation chart ..................................................................................... 23

Figure 7: Alpro Soya organisation chart ............................................................................. 26

Figure 8: Alpro Soya cascading process............................................................................... 27

Figure 9: Burns et al. (2003); Successful Institutional Change.......................................... 31

Figure 10: BSC Model at Alpro ............................................................................................ 32

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II. INTRODUCTION

In the field of management control, performance measurement has received a lot of attention

the last fifteen years (Otley, 1999; Bruggeman et al., 2001; Niven, 2006). Measurement was

mainly focused on financial objectives, which often lead to dysfunctional behaviour.

Furthermore, there is little research on the change an organization goes through when altering

their performance measurement system or even becoming a strategy-focused organization.

This paper will integrate two, relatively recent, fields of study. First, the evolution of the

Balanced Scorecard (BSC) framework, and in a broader sense the Strategy-Focused

Organization (SFO), will be discussed (Kaplan and Norton, 2001). Second, Institutional

Theory [based on the Burns and Scapens (2000) framework] with its roots in Old Institutional

Economics and the Barley and Tolbert (1997) framework, will be expounded in the light of

Management Accounting (MA) change. This paper puts the change project (BSC and SFO)

of two organizations in the perspective of institutional theory and investigates whether any

differences arise.

How does an organization introduce Management Accounting change? Do they succeed?

Why (not)? And how does Institutional Theory contribute to this?

III. PERFORMANCE MANAGEMENT

III.1 Theoretical Evolution

“The goal of performance management is to motivate members of an organization to align

their activities with the organizational strategy, with the purpose of achieving its goals and

doing so in an effective and efficient manner; thus creating a ‘mental allegiance’ between the

employee and the company ideas. Control systems are to be organized so management

behaviour is consistent with the ‘intended strategy1’. Traditional ‘diagnostic’ control systems

will only measure performance of managers and compare it with company objectives”

(Bruggeman et al., 2001, p. 15).

1 Different from ‘realized strategy’, through ‘deliberate’ and ‘emergent’ strategies; Mintzberg, H., 1994. TheRise and Fall of Strategic Planning. New York: Prentice Hall

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According to Niven (2006, p. 2), three major changes have been going on the last fifteen years

in performance management (PM). First of all, corporate environment is changing rapidly

(globalization, new accounting techniques,…) and PM is still focused on measuring financial

performance. This was a transparent accounting practice for machine corporations, where

economies of scale prevailed, but is not consistent with today’s reality. It focuses on the past

and reinforces functional silos (instead of enforcing cross-functional teamwork). Financial-

driven measurement also stimulates short-term thinking (instead of long-term value creation),

which creates suboptimal results and dysfunctional behaviour. A second evolution is the

rising importance of intangible assets. These ‘soft’ assets (skills, human capital, culture,…)

are becoming increasingly prevalent in the value creating process. This, of course, has its

implications on measurement systems. Thirdly, there is the strategy implementation issue.

Kaplan and Norton (Niven, 2006, p. 10) recognize four barriers for strategy execution; Vision

(people have to understand strategy, grow accustomed), People (eliminate “meet-the-

numbers-or-else” culture), Resources (link strategy to budget) and Management (introduce

strategy in management meetings).

a. From BSC to SFO

The Balanced Scorecard (BSC) model was initiated from the growing consensus that

measuring performance only by financial criteria was insufficient to assess a company’s

performance and could lead to dysfunctional behaviour (Kaplan and Norton, 1992; Niven,

2006; Norreklit, 2000). Kaplan and Norton (1992) proposed a measurement system that

combined financial and non-financial measures. They ‘balanced’ indicators that show results

of actions already taken in the past (“lagging”) and indicators that show the performance

drivers of future results (“leading”). To achieve this equilibrium, organizations must link

these measures to the company strategy. This strategy (‘How will we achieve our long-term

goals?’) is divided into four perspectives; Customer – How do customers see us? (lead time,

quality, service), Internal Processes – What must we excel at? (core competences), Learning

and Growth – Can we continue to grow and create value? (innovation, employee learning),

Financial – How do we look to our shareholders? (NSV, EVA2). The goal is to generate

strategic objectives within these perspectives and link them to quantifiable measures. (see

Exhibit_1)

2 Net Shareholder Value, Economic Value Added

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In Kaplan and Norton (1993), the authors examine some cases (Apple, Rockwater) where

BSC has been adopted and they concluded that the BSC is most effective when it is used to

drive processes of change (mergers, technology,…), because it creates a shared consensus

about the goals and how to achieve them. So, implementing BSC is inherently connected

with a culture change.

They also realize that; “The real benefit of BSC implementation comes from making it your

cornerstone to run the company. It should be the core of the management system, not just a

measurement system.”(Kaplan and Norton, 1993, p. 147)

In Kaplan and Norton (1996) BSC evolves into a strategic management system. It replaces

traditional mgt. systems, that have problems closing the “strategy gap” (between development

and implementation, “Putting strategy into action”). Four management processes are

introduced; Translating the Vision (consensus about vision), Communicating and Linking

(communicate strategy throughout organization, link it to Business Unit and individual goals),

Business Planning (integrate budget plan, allocate resources, set short-term targets). These

processes form a single-loop system that implements strategy in an organization. In a

dynamic and changing, environment, however, a double-loop learning process is needed,

according to Kaplan and Norton. So, Feedback and Strategic Learning is the fourth

management process (see Exhibit_2). This is where the goodness-of-fit of the hypotheses

about strategy is evaluated.

Kaplan and Norton (2000) develop a template to create a BSC, by first mapping the

organization strategy (Strategy Map, see Exhibit_3). A strategy map enables a company to

explain the objectives, measures, targets and initiatives and their mutual coherence. It is built

top-down, starting with the desired outcomes (financial, customer in not-for-profit) and

looking upstream for the drivers of desired performance. The objectives formulated within

the four perspectives will be linked by cause-effect relationships. These are, of course,

hypotheses about desired future outcomes and must be tested, that is why the feedback-loop

(“strategic learning”) is needed. “The Strategy Map is a one page graphical representation of

what you must do well in each of the perspectives in order to successfully execute your

strategy.”(Niven, 2006, p. 99)

Kaplan and Norton warn for substitutes of the BSC that emerge from confined

implementation. Stakeholder Scorecards exist, when different constituents of an organization

define their goals (and targets) and measurement is built around them. There are, however, no

drivers of performance determined (how to achieve goals?). Key Performance Indicator

Scorecards emerge when a few measures are fixed, but no linkages with other objectives.

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After formulating and mapping objectives and linking them to measures, an organization

should start with Action Planning (Bruggeman et al., 2007); What concrete actions/initiatives

are we going to take, to meet the targets? Prioritize these actions according to strategic

importance and needed resources (link with Budget Planning).

When setting targets, prudence is necessary: “It is easy to set stretch targets that no manager

will be able to achieve; when assigning responsibility for performance, managers must also

receive the authority to acquire and allocate resources needed to perform”3(Heene, 2004,

p.94)

Bruggeman et al. (2007) makes clear that Value Based Management complements the BSC in

finding the right performance measures to contribute to stakeholder value-added. BSC helps

management to find drivers of shareholder value and maximize it. Implementing the

scorecard also contributes to the Principal-Agency problem by stimulating goal congruence in

the organization.

Also, the corporate scorecard must be cascaded through the organization. Each Strategic BU

creates its own BSC based on the company scorecard. And, finally, Incentive/Reward

systems can be linked with BSC measures (‘Balanced Paycheck’, cfr. Lipe and Salterio,

2000).

In their best-selling book, Kaplan and Norton (2001) explain the five principles of the

‘Strategy-Focused Organization’; Translate Strategy into Operational Terms (strategy map,

logical, comprehensive architecture for describing strategy), Align the Organization to

Strategy (goal congruence through the company), Make Strategy Everyone’s Everyday Job

(day-to-day awareness, top-down communication not direction, town-hall meetings), Make

Strategy a Continual Process – organizations have to shift from traditional tactical

management processes (budget/operating planning) to integration of tactics and strategy –

(double-loop learning, strategy meetings), Mobilize Change through Executive Leadership

(ownership, involvement, mobilize through sense of urgency, ‘burning platform’). BSC and

Strategy Maps can be used to complete the first principle, they help explain and quantify the

organizational strategy.

Strategy is about the road an organization takes to move from a present, known point in time

(current position in market) to a future, desired position (define long-term goals).

3 Sanchez, R. and Heene, A., 2004, The New Strategic Management, p. 94, System Design Principle 7.4

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The organization will formulate hypotheses about the road ahead (strategic level) and try to

predict the right course of action (tactical level). BSC and, especially, Strategy Maps help

building these hypotheses and the linkages (cause-effect relationships) between them.

Afterwards, everyone in the organization has to understand these hypotheses and the aspired

strategy and all the resources have to be aligned accordingly, to create a Strategy-Focused

Organization. For, intangible assets must be converted into tangible outcomes.

b. Critical Overview

Otley (1999) developed a framework for analyzing management control systems (issues

relating to objectives, strategy, attainment plan,…), with the main focus on managing

organizational performance. He discovered five issues that need to be addressed when

assessing a management system to control company performance;

• What are the key objectives and how is their achievement going to be evaluated? (goal

definition, goal attainment, acceptable outcomes)

• What strategies and plans have been adopted to achieve objectives and

processes/activities to implement these strategies?

• What level of performance does the organization achieve? (performance standards)

• Rewards/incentive programs

• Information flows (feedback/feed forward)

This framework is to be used as a descriptive evaluation/assessment tool for the features of an

overall control system. Otley evaluated the BSC in the light of this model and came to

following conclusions;

He views BSC as a stakeholder approach to measurement (shareholders and customers), but

there is an inherent lack of integration of other key stakeholders as suppliers and government.

The ‘balanced’ scorecard uses a rather ‘linear’ approach in mapping means-end relationships,

which is a simplification of reality. The topics of target setting and reward systems are not

thoroughly discussed, although Kaplan and Norton focus more attention to this subject in their

2001 publication, still it remains somewhat cloudy.

Otley concludes: To design a management control system the management accountant needs

a good understanding of the business’ operational activities and control systems need to

reflect the aims of the organization and its plans of how to achieve them. Also, external

context needs to be kept in mind (competitor analysis,…).

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Norreklit (2000)4 has some critical reflections on the BSC-model. “Causality is the

suggestion that certain events (effects, consequences) will only occur because certain other

events, which predate the first events, have occurred (causes)”5.

According to Norreklit this is not the case in the ‘cause-effect’ relationships between

measures in the strategy map Kaplan and Norton suggest. At most there is an interdependent

relationship between the measures of the four perspectives (e.g. ‘circular reasoning’ in

relationship customer value and company image). Also, not all stakeholders (government,

networks) are included and in this way the scorecard is ‘unbalanced’ (cfr. Otley). Another

flaw is the lack of continuous observation of competitors, technology advances,… (targets are

set only one time) which leads to a rigid and static model in which strategic uncertainty

becomes greater than it already is. Furthermore, it is argued that the BSC must create internal

commitment (motivation, responsibility), rather than just external commitment (rewards).

Top-down communication doesn’t stimulate this kind of commitment with the employees.

There has to be a process of interactivity (mgt. and employees must speak the same language),

in order to avoid dysfunctional behaviour (focus on rewards) and suboptimal performance

(short-term focus). Resistance to change is also partly rooted in top-down, imperative

guidance.

Lipe and Salterio (2000) studied the limitations of the characteristic of the BSC to create

strategic alignment throughout the company by linking compensation and bonus systems to

the scorecard measures. They found that cognitive limitations of managerial decisions

prevent the company to fully exploit the information generated by BSC usage. After the

cascading of corporate scorecards through the different BU’s of the company, top

management (both corporate and BU) will have reached consensus about common measures

and measures that are unique for each BU. Previous research, however, showed that decision

makers, who are confronted with unique and common measures, will place more weight on

common measures (comparability). The experiment Lipe and Salterio (2000) executed shows

that for the evaluation of managers there will be a focus on common measures. This may

cause dysfunctional behaviour among employees, who will disregard the unique measures.

4 Norreklit, H., 2000, The Balance on the Balanced Scorecard – a critical analysis of some of its assumptions,Management Accounting Review, 11, p. 65 – 885 System Theory; Source: De Neve, J., guest lecturer at Strategic Management course (Heene, A.)

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Although the experiment was performed in the context of performance evaluation, when

compensation is linked with this evaluation, the BSC system will achieve only suboptimal

results, because of ‘unbalanced’ focus on common, usually more financial oriented or

‘lagging’, measures. If, however, the cognitive limitations of managers were to be

desintermediated and compensation directly linked with the common and unique measures,

this problem could be avoided. Kaplan and Norton give little explanation on this matter,

except to postpone the linkage of compensation to performance on measures until the

causality is tested and if so, link rewards to output measures.

Wong-On-Wing et al. (2007) performed a similar experiment to test another cognitive bias6 of

performance evaluators (top management). Previous research showed that differences in

evaluation style between supervisors (raters) and subordinates (ratees) could cause conflicts

and disagreements. BSC should be able to solve this problem due to the strategic alignment

and linkage between performance measures. Kaplan and Norton state that through evaluating

performance (on basis of measures) ‘strategic learning’ can be achieved, by testing the causal

linkages between measures. However, in a case of poor performance and potential conflict

between raters and ratees, raters may overlook the plausible ineffectiveness of strategy and

focus their attention on the ability and effort of the ratee, thus, compromising strategic

learning. The experiment shows that when top management is required to make an

assessment of the importance of strategy quality, the bias can be significantly reduced.

III.2 Empirical Implementation Research

Davis and Albright (2004) performed a quasi-experimental study in a US banking

organization to find out if “branches who have implemented BSC outperform similar

branches without BSC”. Within one organization they monitored four BSC-branches and five

non-BSC-branches and measured their performance on the basis of a composite financial

indicator (loan volume, loan yield,…). A significant increase in financial performance was

noticed in the BSC-branches and, more important, a significant positive difference between

BSC-branches and non-BSC-branches. However, some potential limitations have to be

clarified.

First, the study wasn’t able to test the causal linkages between the financial and non-financial

scorecard measures, which is important to prove the goodness-of-fit of the BSC as a system.

6 Actor-observer bias: “actors tend to view their behaviour as determined by situational factors, observers, onthe other hand, will attribute the same behaviour to actor’s disposition” (Wong-On-Wing, 2007, p. 367)

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Second, some of the increase in performance could be explained by Hawthorne effects (2-year

follow-up). And thirdly, the generalizability of the experiment is questionable, since the BSC

is (supposed to be) a unique system, customized to the company at hand.

In his paper, Kasurinen (2002), uses the model of “influencing factors” (based on Cobb et al.,

1995) to explain the different barriers (Confusers, Frustrators and Delayers) an organization7

can encounter when implementing a new MA system (here: the BSC). Of course, also

motivating factors can be present to stimulate the change process a company must go through

(Motivators, Catalysts and Facilitators), like competitive markets, poor performance or

having the appropriate resources (see Figure_1). Although in the case study the barriers were

too high to overcome and the BSC project was cancelled.

Figure 1: Model of influencing factors (Kasurinen, 2002)

7Here: a Finnish based, multinational, metals group (sales; € 3200 mio, personnel; 14.000), in which 100 hoursof interviews were conducted.

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Based on this paper, a link can be made between the implementation of the BSC (and SFO,

because this is also a new MA system) and institutional theory. For, Kasurinen suggests that

the implementation of a new MA system in an organization coincides with a change process.

And within institutional theory a framework is developed by Burns and Scapens (2000) that

conceptualizes MA change, when new MA practices are introduced. However, since the SFO

concept is broader than just performance measurement with the BSC, it could be that SFO

handles MA change in a broader sense than the BSC does, and that this facilitates the

integration of the SFO concept within the organization. This assumption will be further

developed when the research questions are addressed.

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IV. INSTITUTIONAL THEORY

IV.1 Theoretical Evolution

In this section a framework will be described that conceptualizes Management Accounting

change, more precisely the switch to a Strategy-Focused Organization or the usage of the

Balanced Scorecard as a performance measurement system. The model this paper draws upon

is that of Burns and Scapens (2000), which is based on Barley and Tolbert (1997).

In recent years, both the environment in which MA systems are practised (competitive

markets, IT) and MA practises themselves (ABC, BSC) have changed. There is little research

on MA change as a process and Neo-Classical Theory8 is more concerned with outcomes and

rational techniques, than change processes. Barley and Tolbert (1997), originally, generated

their framework on some basic ideas of Old Institutional Economics9. They conceptualize

change as a process (see Exhibit_4) and develop a model based on some notions of Giddens’

Structuration Theory10. They define ‘scripts’ as “recurrent, observable activities/patterns of

behaviour in a particular setting” (Barley and Tolbert, 1997, p. 98). These are enacted (they

can be replicated or revised) in the Realm of Action (e.g. human activities). Over time, these

scripts can become institutionalized (“they become just the way things are”) in the

Institutional Realm. Institutions are defined as “shared taken-for-granted assumptions which

identify categories of human actors and their activities/relationships”(Burns and Scapens,

2000, p.8).

Scapens (1994) links the notion of institutions to that of “habits”. “Habits are more or less

self-actualizing dispositions or tendencies to engage in previously adopted or acquired forms

of action” (Scapens, 1994, pp. 306). In this paper, the impulse was given to look at

management accounting practices from institutional theory and to develop an institutional

framework to conceptualize management accounting change in organizations.

Burns and Scapens (2000) use the Barley and Tolbert (1997) model to develop their

institutional framework (see Figure_2).

8 Supply and Demand equilibrium, Theory of the Firm9 dissertations.ub.rug.nl/FILES/faculties/management/2006/m.p.van.der.steen/c2.pdf“Institutions are key elements of an economy, the economy is an open, evolving system (subject to technologicaladvances), individuals are affected by institutions and cultural environment10 Agency/structure in social systems

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Scripts are replaced by Rules and Routines; rules are formalized procedures (e.g. MA

practises and techniques such as BSC) and needed to coordinate the actions of groups of

individuals. Routines are behaviour based on “tacit knowledge” (both rules as routines can be

first to emerge). This framework is based, essentially, on a duality between Actions and

Institutions; social structures (institutions) define and make possible the

interactions/relationships between actors (human activity), and because of these actions,

institutions are bound to change (cfr. Language/Speech metaphor11).

Figure 2: Framework Burns and Scapens (2000)

The first process involves existing institutions shaping/influencing rules and routines. The

second one entails the enactment of rules and routines (may be subject to resistance if they

challenge existing values, institutions) by actors. During the third process, human actors (e.g.

employees in an organization) will reproduce routines (with (un)conscious change). Finally,

the generally accepted rules and routines may become institutionalized.

11 For effective communication, speech (actions) must conform the structures of language (institutions); languageevolves through time through speech by actors

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So, eventually, institutions will represent “the way things are being done” and they will shape

or constrain upcoming rules and routines. What we see here is a ‘path dependent’12 process.

An example may clarify this conceptual model. Say, a multinational company (A), working

according to the principles of the SFO, acquires a smaller SME (B), which still uses

traditional budget and planning methods (existing institutions). Company A will require the

SME to adopt a BU BSC and new information flows (new, imposing rules), which will lead to

new accounting practises (new routines) in company B. These will be influenced by the

existing traditional culture (institutions) of the SME. Resistance to this MA change could

arise when the perceived contradictions between the new management system and the existing

rules and routines (and institutions) are too high. This may lead to reluctance to conform,

which in turn can infer failure of the change project.

Thus, introducing MA change is much more than just selecting the most rational/optimal

technique or practise. It’s a path-dependent process and requires a thorough understanding of

the existing rules, routines and institutions of an organization. This means; knowledge about

the formal systems, but also about the habits, the taken-for-granted assumptions in day-to-day

activities. Further, Burns and Scapens (2000) provide some dichotomies, prominent in Old

Institutional Economics literature. First of all, they distinguished formal and informal change.

Informal change occurs at a more tacit level, while formal change is an intervention in the

formalized accounting procedures. It is suggested that top-down MA change will have a

direct impact on the formal systems, but only an indirect influence on the informal routines,

who underpin the accounting practises. A bottom-up approach is more likely to have

influence on the informal systems. The difference between instrumental and ceremonial

behaviour is also discerned; the latter emerges from a hierarchical value system, where

existing power structures want to be preserved and can only allow regressive change13. The

former exists in a ‘best-in-class culture’, where only the best available knowledge and

technology survives and stimulates progressive change.

Finally, possible circumstances for resistance to change are identified. Competing interests

can be source of implementation barriers. Also, a lack of knowledge or experience

(capabilities) or a “mental allegiance” with current organizational practices can prevent

institutionalization of new ways of thinking and doing.

12 “The notion that a firm’s future capability development will be constrained to follow a trajectory that islargely determined by its past capability development”Source: Sanchez, R. and Heene, A., 2004, The New Strategic Management, p. 4213 Dominant power structures (e.g. group of powerful people) restrict institutional change to maintain theirinfluence

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IV.2 Empirical Implementation Research

In Busco et al. (2006) the case of the General Electric – Nuovo Pignone (GE – NP) take-over

is discussed and used to develop a model for organizational change (and individual

(un)learning). They argue that when MA systems are embedded in the “trusted rationales”14,

they provide a sense of safety during times of crisis. When they are only used as “ad hoc

measures”, they become a source of conflict during the crisis.

Members of an organization have to reflect critically on experiences15 and classify events

(new routines and rules) as disconfirming (challenging the taken-for-granted assumptions).

The next step is raising sufficient “survival anxiety”16. After overcoming this anxiety,

cognitive redefinition and sedimentation of new experiences follows and new MA systems

can be adopted. This process is also referred to as “cultural unfreezing and refreezing”17. In

the GE-NP case, NP was transformed from a bureaucratic, state-owned company with no

measurement culture at all, to a competitive oriented, (non) financial measurement focused

business. Financial reporting systems were restructured and the Six Sigma18 quality

improvement programme was implemented.

The authors conclude that organizational change can be facilitated by the implementation of a

MA system (e.g. performance measurement with BSC) and “Accounting for Trust” and

“Trust for Accounting” must be created. The first refers to MA systems as a source of trust

(MA system for dealing with business reality). The latter is referring to MA systems as an

object of trust (to be trusted, need to prove their ability to facilitate change processes).

Lukka (2007) studied a Finland based, multinational group. The global company suffered

from a lack of coordination and standardisation; multiple BU’s using multiple reporting

systems. There was also a sense of goal ambiguity; goals were an endogenous element in the

decision making process. Over time, employees started developing systems (routines) that

were decoupled from the official accounting rules. Rising problems were solved on an ad hoc

basis. This ‘coexistence of change and stability’ is also mentioned in the Burns and Scapens

(2000) framework.

14 “way of doing things” (cfr. Institutions)15 Experiential Learning16 ‘knowing the environment is changing and realizing personal lack of knowledge, but willing to learn’17 Lewin’s change management model (model for institutionalisation of new MA system)18 “The word is a statistical term that measures how far a given process deviates from perfection. The centralidea behind Six Sigma is that if you can measure how many "defects" you have in a process, you cansystematically figure out how to eliminate them and get as close to "zero defects" as possible. Six Sigma haschanged the DNA of GE — it is now the way we work — in everything we do and in every product we design.” –Source: www.ge.com/sixsigma

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Rules remain stable, as the routines cope with daily problems and exhibit an inherent

flexibility. Of course, this formal stability, through informal flexibility, was a good short-

term solution but may cause problems, for in the long run the company will keep postponing

functional adaptations.

The paper concludes with the observation that, in order to thoroughly understand MA change

in organizations, researchers must be familiar with the formal (rules) and informal (routines)

systems and their interplay within the company.

Burns et al. (2003) summarize, in their report, some of the case studies they have conducted

and draw upon Burns and Scapens (2000) to indicate that MA change is not just a rational

choice of the optimal reporting system. Some cultural and behavioural issues must be

addressed in this context. They highlight some difficulties inherent with MA change and

discuss some successful19 and unsuccessful20 implementation projects. The report also

contributes to the theoretical development of the conceptual framework by defining three

important characteristics of rules, routines and institutions; first of all they help members of a

company cope with the organizational complexity (task specification, understanding).

Second, they comprise a large part of the organizational know-how (that is not coupled to

individual knowledge). And third, if rules, routines and institutions are widely spread and

accepted in the organization, this reduces the potential for conflicts.

Finally, Burns et al. (2003) give some suggestions of how to cope with and manage MA

change. First, the taken-for-granted assumptions (institutions), existing within the

organization, can have a direct and important impact on the success or failure of a change

project. Compatibility of the new system with the existing institutions is helpful (but not

necessary), and sometimes “bursting the bubble”21 is necessary.

Secondly, good communication, education and both extensive (everyone) and intensive (in-

depth) training are needed. It is also important to emphasize that MA change deals with the

“ways of thinking” about new systems, and not just their mechanical implementation.

19 ‘Ferac Plastics’; language of accounting was accepted, ‘Polymer Case’; culture change through mgt. support,communication, involvement and training, ‘GE – NP’; cfr. Busco et al. (2006)20 ‘Omega Plc.’; resistance because of incompatible business perceptions, ‘RetailCo’; introduction of EVArevealed contradictory assumptions between sales and accounting staff21 Challenging the existing assumptions before implementation of a new MA system

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To conclude, some questions are suggested when dealing with MA change; “What are a

company’s taken-for-granted assumptions?”, “Where do they come from?”, “How are they

enforced and reproduced?”, “Who are the powerful groups (dominant coalition)?”, “Are the

existing assumptions compatible with the new MA systems?”.

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V. RESEARCH QUESTIONS and CASE DESIGN

Implicitly, Kaplan and Norton suggest, in chapter 1 of their book (2001), that the BSC is

“necessary but not sufficient” (Kaplan and Norton, 2001, p. 26) to successfully implement and

execute strategy. A culture change (hence; institutional MA change) is needed to align the

organization around the strategy and to focus on it. And this can be achieved by conforming

to their 5 principles.

In this paper, two case studies (Alpro NV and Jansen NV) will investigate two research

questions, so four research situations will arise (see Figure_3).

Figure 3: Case Design

How does the BSC and SFO affect the institutions of an organization (institutional

change)? This will be analyzed with the Burns and Scapens (2000) framework. And,

secondly, how do the institutions of an organization affect the implementation process of

the BSC and SFO (barriers for change)? This will be analyzed by the barriers for change

Kasurinen (2002) and Burns and Scapens (2000) suggest.

For the two research questions, a list of indicators, drawn from institutional theory, will be set

up (see Figure_4). These indicators will then be compared over the two cases (Jansen and

Alpro).

BSC

SFO

Companyinstitutions atAlpro NV

Companyinstitutions atJansen NV

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Figure 4: Research Indicators

It is expected that the SFO concept will initiate organizational change and, with a minimum of

barriers, will alter the institutions of the company; this is because the SFO handles the change

project of a company in a broader sense than just the integration of a new performance

measurement system (as the BSC). On the other hand, it is expected that the BSC will

encounter much barriers for change and will not be able to become institutionalized.

The case studies will be organised as followed. A qualitative research will be carried out by

means of semi-structured22 interviews, for which two separate interviewing guides will be

used (see Exhibit_6). The interview consists of two parts; assessment of the MA system and

assessment of MA change. The data collected by these interviews will be used for general

and cross-case analysis. In the general analysis, the practical model from the companies will

be compared with the theoretical models, summarized in V.1, and the change process will be

assessed, on the basis of Soin et al. (2003), summarized in V.2. In the cross-case analysis, the

indicators for institutional change and barriers for change will be discussed and compared

over the two companies.

22 Questions will be used as interviewing guide

Institutional change

Encoding – existing institutions influence and shape new rules/routines

Enacting – putting new rules/routines into action

Reproducing – repeating enacted behaviour

Institutionalization – rules/routines become “the way things are”

New habits

Barriers for change

Confusers – uncertainty, complexity of the project

Frustrators – existing culture

Delayers – lack of resources, information systems

Competing interests

Lack of capabilities

Mental allegiance with former practices

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V.1 MA system

The most recent version of the SFO model is illustrated by Exhibit_5, drawn from

publications in the Balanced Scorecard Report;

• Leaders need to mobilize 6 competencies in order to successfully initiate change. Top

leadership sponsorship means that top executives need to be actively involved and

participate in the project.

To gain overall support, the ‘burning platform’ should be identified and communicated

(Why is change needed and how is SFO going to stimulate change?).

Also, a clear vision and strategy are necessary. New management behaviour will

emerge and a program manager can be appointed.

• A strategy map provides a clear view on the company’s strategy and objectives across

the 4 perspectives. The BSC organizes these objectives in measures and performance

drivers and articulates the strategic targets, followed by actions and initiatives.

Accountability is the last step; people need to account for outcomes.

• The key issue in the third principle is to create synergies between the strategic BU’s.

The corporate role must be clearly defined and the corporate scorecards cascaded to the

BU’s. Alignment between Corporate HQ, SBU’s, Support Units and External partners

is important.

• The fourth principle focuses on the Human Resource (HR) system design within a SFO.

Communication and education programs create strategic awareness and goal

congruence; installation of appropriate incentive systems and competence development

are key.

• The BSC Collaborative has identified 7 management systems crucial for making

strategy a continual process. Strategy review meetings to assess and evaluate strategic

performance, integration of planning and budgeting for strategic resource allocation and

HR and IT planning linked with strategy, are a few of them.

The BSC model is represented by following structure;

StrategyMap

Measures(scorecard)

Targets Actions Accounta-bilities

Figure 5: BSC model

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First, vision, goals and strategy are defined and outlined in a Strategy Map. This is the

starting point to make a scorecard; from the strategic indicators in the Strategy Map,

quantifiable measures are derived and (stretch) targets are attached to these measures. Then,

actions/initiatives must be formulated to achieve these targets and drive better performance.

Finally, accountabilities are established. Who will be responsible for what measure and, more

importantly, who will be evaluated on which performance?

Both models will be explicated in the questionnaire to test the resemblance with the applied

model in the practise cases.

V.2 MA change

To test for institutional MA change the assessment model of Soin et al. (2002)23 will be used

as guide. In their paper institutional change is modelled, on the basis of some questions.

• What is being changed or left unchanged? Pointing out changes in routines, that already

existed, or new patterns of behaviour that emerge and are being reproduced.

• Pathways / timing of change? Is there a one-time change in inputs or processes that are

reproduced?

• Evolutionary process of MA change. Change is path-dependent (satisficing behaviour,

organizational resistance, …). Here the change process is described.

A second set of questions, based on this model, will be used in the questionnaire to evaluate

MA change in the BSC case and the SFO case.

An explanatory case research (Scapens, 1990) methodology will be used to conduct this

study. The practise cases will attempt to explain the implications of these accounting

practises (BSC or SFO) in the light of institutional theory. No statistical generalisations will

be made, but the research questions can be investigated in order to create a better

understanding of BSC and SFO in an organizational context. Scapens (p. 274, 1990) suggests

some steps in performing an explanatory case research, which can be used as a guideline in

the execution of this case study.

23 The paper uses Institutional Theory to investigate MA change in a case study, where ABC has beenimplemented

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The Preparation can be situated under Institutional Theory (explaining the theoretical model).

Collection / Assessment of evidence consists of interviews and documentation. Afterwards,

the themes and patterns that emerge should be explained by institutional theory. Also,

weaknesses and problems24 will be addressed.

In the next sections the two cases will be discussed (VI. Case Research), a general analysis

of the MA system and change project will be outlined (VII. General Analysis) and the

research questions will be addressed (VIII. Cross-functional Analysis). And, finally,

conclusions about the institutionalization issue in the two case companies are made (IX.

Conclusions).

24 Historical boundaries, interpretation / objectivity, confidential information (Scapens, 1990, pp. 276-277)

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VI. CASE RESEARCH

Two similar business situations were chosen to execute case research. These are production

environments with several BU’s, where a new performance management system (one BSC

and one SFO) was, recently, implemented. Formerly mentioned interviewing guides were

used to conduct interviews with several (4-5) people involved in the implementation process.

Following sections (VI.1 and VI.2) will describe the organization, briefly, and the process of

MA change it went through.

VI.1 Jansen Afwerkingsbedrijf NV

Jansen Afwerkingsbedrijf NV is a Belgian market leader in interior finishing and together

with other subsidiaries of Jansen Holding mainly active in the construction market. It is a

company of 200 employees with a yearly turn-over of about € 30 million. I talked to the chief

operating officer (COO) of the company and to some of the BU managers and heads of

support services about the switch to SFO the organisation made one year ago. During the first

interview, with the COO, the SFO model, as a MA system, in Jansen was discussed and also

their motivation to start with the implementation of Kaplan and Norton’s concept.

It all started in the beginning of 2007, when a member of the family Jansen became CEO of

the company and wanted a clear and transparent vision on the current situation and the future

prospects of the organisation. Who are we? What services/products do we provide? And

what is the direction we want to go to? There were no explicit financial motives for the SFO

adoption; revenue and profit were good, but some direction was needed to keep growing and

working in a dynamic market. Before, every division stood on its own, had its own goals,

objectives and problems, so a more open and interdivisional approach was needed.

The first step in the process was the creation of a vision and mission statement (see

Exhibit_7), to determine the long term goals and ambitions of the organisation. With the

professional support of a consultancy firm (B&M Consulting), a Dominant Coalition was

formed with people from all divisions (product groups and support divisions). The

organisation chart of the company was fundamentally restructured to create a bigger customer

focus (see Figure_6); four BU’s were formed, next to the support divisions.

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The Dominant Coalition developed a corporate Strategy Map, representing the core business

of Jansen and their key success factors. This “corporate SFO meeting” meets quarterly to

discuss the progress of the strategic success factors and these are adjusted or new factors are

formulated, if necessary (double-loop process). Attached to these strategic objectives, are

targets and actions/initiatives, for which a responsible person or group of persons is

appointed. Frequently, cross-functional teams are formed, from both BU’s and support

divisions, to achieve strategic objectives. Follow-up is assured by timetables and progress

reports.

Figure 6: Jansen organisation chart

The second step in the SFO implementation process was the formation of ‘divisional strategic

meetings’. These are meetings within each division, lead by the person attending the

corporate SFO meetings, where the corporate strategy (represented by ‘Corporate Strategy

Map’) and corporate measures (represented by ‘Corporate Balanced Scorecard’) are translated

into specific divisional strategy and measures, because each division has its own

characteristics and special needs. All decisions, actions/initiatives and other agenda points of

these meetings are summarized and made publicly available for every division, so

collaborations and joint projects can arise.

Chief OperatingOfficer (COO)

BUFinishing

BURetail

BUAll-ininterior

BUIndustrialFinishing

Support Services(dispatching, purchasing,administrative,warehouse, …department)

Quality, Safety

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The final step for SFO implementation is keeping the strategy development and execution

process dynamic. Divisional managers must motivate their people to achieve high

performance on previously set targets and think of possible improvements to this strategy to

make their work more efficient and effective.

When I talked to the divisional managers, some interesting issues about institutional change

came up. The Head Purchasing and Calculation explained that before SFO, every department

worked according to ISO norms and procedures, but without any steering. Now, they also

have to work conform ISO norms, but decisions and actions from all departments are aligned

with corporate strategy. For example, before, teams of technicians had to fill in request

forms to take material to a construction site and be able to report where the material was all

the time, which brought a lot of extra paperwork for the technicians and for the warehouse

manager. Now, every team has its own, fully equipped, truck and they are responsible for

their own material. This initiative was taken in the divisional warehouse meeting in the light

of the demand from the corporate SFO meeting for higher efficiency and less paperwork.

With implementing the SFO no explicit changes were made, initially, in the evaluation and

reward systems, but the BU manager of All-in Interior confided me that people, who were

committed and participated actively in the process of SFO implementation, will be rewarded

for that. But no specific reward system was linked with Balanced Scorecard measures and

targets in the early stages of implementation.

Initially, people were quite sceptical towards the new SFO approach; due to high growth

numbers, work load was already high and extra meetings and paperwork were not welcome.

This is why “drivers” were appointed; people committed to the success of the SFO program

(mostly department heads), who had to motivate their people to think and act with strategy in

mind.

The BU manager of Retail concluded that indeed many things had changed since the SFO

implementation; people started thinking in terms of strategy, actions/initiatives for

improvement of working processes were suggested, cross-functional teams were formed to

create synergies between divisions and a new Human Resource department arose to assess

better evaluation and compensation methods in accordance with the changes.

Another new principle that originated in the SFO program was “Account Management”.

Owing to the development of the vision, mission and strategy, the Dominant Coalition

discovered that a more external focus was needed to respond to market evolutions and meet

customer needs.

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Before, divisions were more concerned about managing their department, making sure their

products and services were produced or delivered on time and all administrative work was

completed. Now, higher efficiency and effectiveness are possible through alignment of

working processes with customer needs. For example; customization through synergies

between divisions, better collaboration between BU’s and Support Services, …

When the managers are asked about the impact of the SFO adoption, they speak of a

“professionalization” of the working environment, a refinement in working processes and an

enhancement of the services provided by the Support Departments. There was no “culture

shock” involved.

VI.2 Alpro Soya NV

Alpro Soya is one of four BU’s of Group Vandemoortele. The Group generates a yearly

revenue of about € 1 billion, divided more or less equally over three revenue-generating BU’s

(Alpro, Dow and Lipids). Alpro employs more than 760 people and has production (and

commercial) sites in Belgium, the UK, France and Germany. Alpro has a very centralized

organizational structure. All departments (Marketing, Sales, …) displayed on the

organization chart (see Figure_7) are centralized at the corporate HQ in Ghent and their

directions are sent to the local production and commercial sites. In this way, a matrix

structure is used for the reporting lines from local plants to corporate HQ. Functional teams

within local plants report to their plant manager for operational matters and to the corporate

functional departments for directions.

I interviewed the corporate Finance and Accounting (F&A) director of Alpro about the form

and substance of the Balanced Scorecard (BSC) in the organization. First of all, the motive

for starting with the BSC was the high organic growth of the firm (doubling of revenue in the

last 6 years). Alpro already had a mission, vision and strategic plan, but the measurement of

progress was mainly financial (P&L based). They were looking for a more ‘balanced’

performance measurement of the company goals.

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Figure 7: Alpro Soya organisation chart

The first step was a revision of the strategic plan (5 year plan), which is a yearly meeting

about sales volumes, capacity planning, brand awareness, customer value added, …(both

internal as external factors). This resulted in the OGSM plan (Objectives Goals Strategy

Measure), with a quantitative (what do we want to achieve?) and a qualitative part (how are

we going to achieve it?). The objectives determined at the OGSM meeting were called “Top

critical success factors” and divided into three domains, the PPP (People, Planet, Profit).

Secondly, the Top success factors are cascaded throughout the organization (see Figure_8).

One objective can be influenced by many departments and these departments have to break

down the objective into smaller performance indicators and link these indicators with concrete

measures. For example, one OGSM objective is “To create a lean and agile value chain”.

This, however, affects many departments. Production plants must monitor inventory and

scrap levels, Planning and Sales must be aligned with this and Customer Service should build

in flexibility.

Group Vandemoortele

Lipids(butter,oils,…)

Dow(frozenfoods,…)

Alpro Soya(soyproducts)

Metro(in-externaltransport)

Marketing

Finance &Accounting

SalesSupplyChain

Localproduction andcommercialsites

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Together with the yearly OGSM meeting, a Budget meeting is planned to link the

actions/initiatives to the budget.

Figure 8: Alpro Soya cascading process

The third step is the Performance Management Programme (PMP) meeting, where the

progress on the different objectives is evaluated. A variable part of managers’ remuneration

is linked with BSC measures.

The goal of this BSC project was to discover all (non) financial indicators that ultimately

affect the net sales and to anticipate their performance by means of action plans. Alpro

wanted to expose the cause-effect relationships between these indicators and influence them

positively. All stakeholders were involved in this process. Suppliers, customers,

shareholders, … were asked to participate in Alpro’s PPP mission.

The Head of Central Supply Chain Office (CSCO) told me about the several year process of

the BSC implementation. In the early stages of the BSC project, some resistance was

encountered. Work load of the divisions increased significantly; first of all, “key critical

performance indicators”, who influence the “Top critical success factors” (determined at

OGSM meeting), had to be defined and, secondly, information systems were to be created to

gather all the necessary data to monitor these performance indicators.

OGSMLT Objectives in PPP

F&A Division Sales Division

F&A inproductionplant 1

F&A inproductionplant 2

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At every indicator, “current performance”, “root causes” and “improvement plan” is attached

to know how the indicator evolves, where problems are rooted and how actions/initiatives can

be coupled to improve performance. These indicators are broken down and cascaded through

the company. The site manager of Wevelgem explained, for example, that the evaluation of

team leaders at the production site is based on “one-to-one” meetings about the performance

indicators, and the attached improvement plan, of that person (Personal Scorecard).

“The biggest changes that were made after 2-3 years of BSC usage were; a drive for

continuous performance improvement (through reporting of performance indicators), higher

transparency of department activities and their performance, cooperation between

departments and prioritizing (only limited number of “key critical performance indicators”

are intensively monitored, which automatically creates a focus on core business)”. (Head of

CSCO)

Initially, many conflicts arose about definition and allocation of indicators; departments and

teams within these departments had to define (broken down) indicators that contribute to and

are based on the “Top critical success factors”, that were determined at the OGSM meeting.

In the start-up of the project a “Process manager” was appointed to facilitate the

implementation process and create alignment between divisions in terms of contribution of

their “key critical performance indicators” to the “Top critical success factors”. Also, his

support was needed to help people generate all the data necessary for monitoring the different

indicators.

Another important issue was the creation of ownership; making people responsible for certain

performance indicators. The site manager Wevelgem sensed, in that respect, an uprising of

positive competition between teams at the production site. Teams were now more focused on

achieving certain targets on indicators and were more motivated by the knowledge that they

were working towards specific goals (e.g. reduction of scrap, optimization of inventory, …).

Whereas, before the BSC project, teams were working independently with less balanced goals

and no alignment with goals from other departments.

“I have the feeling that with the implementation of the BSC, not only the goals and ambitions

of the top management became more balanced, but also the attitude of my production teams;

eco indicators, scrap levels, safety and quality levels, … are now all factors taken into

account by production workers”. (Site manager Wevelgem)

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Finally, every year all indicators are evaluated or adjusted and predictions are made about

their evolution the next year (trends on commodity market, labour market, …). In this way,

the budgeting exercise is linked to the performance indicators. For, improvement plans,

containing actions/initiatives to optimize certain indicators, are then linked to a budget.

Important at these meetings is to stimulate people to achieve high performance with a

minimum of resources (human or financial capital), and thus avoiding “budget slack”.

“This BSC project really helped pointing all noses in the same direction” (Head of Sales)

VII. GENERAL ANALYSIS

VII.1 MA system and change at Jansen

The SFO model used in Jansen conforms for the greater part with the most recent version of

Kaplan and Norton’s 5 principles. The project was initiated by the top leadership of the firm,

with the demand for a clear vision and strategy for the organization. A program manager, the

“corporate driver” (here: the COO), was appointed, who chaired the corporate SFO meetings,

co-chaired the divisional SFO meetings and kept the SFO concept alive. No financial

“burning platform” was present, but a clear definition of vision, long term goals and strategy

was needed (Principle 1). When the dominant coalition was formed, a Strategy Map was

drawn up and specific measures were attached. Afterwards, people or committees were made

responsible for achieving the targets, linked to the scorecard measures. The accountability

perspective is not fully developed yet, for Jansen still compensates people according to former

systems (Principle 2). This could cause dysfunctional behaviour. First of all, when no

compensation is linked with scorecard measures, people might not be motivated to perform

accordingly. Secondly, linking compensation with measures is sensitive to cognitive bias

(Lipe and Salterio, 2000, Wong-on-Wing et al., 2007). BU specific measures must be taken

into account and evaluation must take place with “strategic learning” in mind, i.e. poor

performance may be caused by poor strategy.

Next, a cascading process began, to align the different BU’s and Support Services with the

corporate strategy. The divisional SFO meetings adjusted and refined the corporate Strategy

Map and Scorecard to their specific needs and business situations. Also, synergies between

divisions were made possible through the availability of reports from SFO meetings and the

formation of cross functional teams (Principle 3).

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Jansen is now starting up an HR department, to communicate better to their employees, the

purpose and goals of the SFO project and to adapt the evaluation and compensation systems

to the SFO concept. In this way, goal congruence can be maximized (Principle 4). Making

strategy a continual process (Principle 5) is very important, also for Jansen. The COO was

given the task to keep strategy alive and up-to-date. In the SFO meetings (corporate as well

as divisional) the performance, not only from employees but also from the strategy is

evaluated. Does strategy still match market reality (adding or deleting strategic success

factors)? Budgeting is linked with strategy, in the sense that money is made available at SFO

meetings for strategic projects. “Strategic learning” is made possible through consistently

evaluating the performance measures on there progress and goodness-of-fit.

“If I have to make one observation about the SFO project, it would be that the daily

functioning of my department has become more strategically focused, we check our actions

with the charter and make sure we’re doing the right things with the departmental SFO

decisions in mind” (Head of Purchasing and Calculation).

The biggest structural change was the formation of four BU’s with a higher customer focus.

Also, the dominant coalition, that discusses the company strategy in quarterly meetings was a

significant change. The formal ISO norms and procedures were kept to guarantee quality and

safety, but working processes are under constant questioning to improve efficiency and

effectiveness.

Burns, Ezzamel and Scapens (2003) studied many companies, who implemented a new MA

system, from the viewpoint of the Burns and Scapens (2000) framework and noticed a

recurring pattern in the successive steps of implementation within these organizations, where

institutionalization of new rules/routines succeeded.

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Figure 9: Burns et al. (2003); Successful Institutional Change

If we compare the implementation of SFO in Jansen with the “Process of successful

institutional change” of Burns et al. (2003), a high resemblance is found, apart from the

slightly different timing (first ST and LT targets were determined at corporate level, where

after they were cascaded and adapted in departments and empowerment/ownership is

developed), and the reward system that is not fully developed.

VII.2 MA system and change at Alpro

The MA model of Alpro is almost identical to the BSC model suggested by Kaplan and

Norton and by much BSC literature, except for some small modifications (see Figure_10).

The original Vision and Strategy was developed at the first OGSM meeting in the format of

an objectives tree, that was broken down from the “Top critical success factors” (no

traditional division in financial, customer, internal processes and development, but PPP) to

“Key critical performance indicators”, which become more specific and concrete within each

department. Here, specifications to these indicators are outlined and adapted to their

situation.

Step 1: Securing Top Management Support

Step 2: Formation of Powerful Steering Committee

Step 3: Creating a Vision

Step 4: Communicating Vision throughout Business

Step 5: Developing Sense of Ownership

Step 6: Agreeing Short-run Targets to Achieve Long-run Goals

Step 7: Recognition of Workers’ Contributions to a ContinuousImprovement Programme

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Next, targets are linked with these indicators (on the basis of industry benchmarks) and the

progress of performance is followed. For every indicator, “owners” are appointed. They are

responsible for this indicator and need to formulate improvement plans. Also, evaluation and

remuneration are coupled with the indicators (“one-to-one meetings” and on a higher level the

PMP meeting).

Less developed at Alpro is the “strategic learning process”; the head of the Sales Department

told me that corporate goals and objectives are yearly determined and revised by the top

executive board and cascaded down the organization. Departments, then, have to generate

performance indicators to meet these goals. In this way, the “strategic learning” takes a rigid

form, whereas at Jansen this is more flexible (with quarterly corporate SFO meetings).

Figure 10: BSC Model at Alpro

The BSC project conforms for the larger part with Burns et al. (2003), the “Process of

successful institutional change”. Although the steering committee consists of the top level

management team, their support was present and Vision/Strategy were redefined at the

OGSM meeting. Also, they are not that much involved in the lower level treatment of the

scorecard, as within Jansen, which is a weakness. The cascading process communicated the

OGSM principles throughout the organization and owners of performance indicators were

appointed. “Continuous performance improvement” is one of the organizational changes

Alpro went through. Because of the follow-up of specific indicators and internal competition

between production teams this change was achieved.

Finally, both the Head of CSCO and the plant manager of Wevelgem notice a significant

change in working processes over the implementation period (2-3 years). More direction was

given to this growing organization.

OGSMTop criticalsuccess factors

Key criticalperformanceindicators

Performancelevel (target)and root causesof indicator

ImprovementPlan

Ownership ofindicators(one-to-one,PMP review)

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Strategy was clearly outlined and, although it took some time, the objectives were broken

down and cascaded through the whole of the company. People started working more

strategically focused and a momentum for profound organizational change was initiated.

VIII. CROSS-CASE ANALYSIS

At Jansen, in terms of barriers for change, the complexity of the SFO concept was the biggest

obstruction (Confuser). An extensive workshop for the dominant coalition and several weeks

of communicating the SFO principles were needed to align all employees. And still, in some

interviews it became clear that people have problems with terms like critical success factors,

strategic learning, … The existing culture was a growth oriented one, but divisions were

mainly focused on themselves, which had to be changed (Frustrator). There was certainly no

lack of resources during the implementation (no Delayers); many people were motivated to

assist in the SFO project. No resistance was encountered in the openly reporting of SFO

meetings and the new MA system was perceived as a bottom-up process (no Competing

interests). And although people were sceptical towards the project, initially, they were

quickly found motivated to devote a large part of their time to internalize and implement the

SFO (no lack of capabilities). The Mental allegiance with former practices was quickly

abandoned, for these were highly administrative and inefficient.

New habits at Jansen were the corporate and departmental SFO meetings, evaluation of

scorecard measures, performance reports, … These were influenced by existing institutions

(Encoding); ISO norms have remained intact and maintained an atmosphere of high quality

products and services. Also, the notion of continuous growth was adopted in the Strategy

Map of the company, made concrete by the indicator “percentage of revenue growth”. Most

of these rules/routines were put into action at the beginning of the project (Enacting) and the

evaluation and remuneration (HR) of scorecard measures will soon be enacted. Few problems

were encountered during this process. The Reproduction of enacted behaviour has been going

on for a while, which is proven by some strategic initiatives that have been taken (e.g. new

truck system). Eventually, some new habits have already been institutionalized; the SFO

meetings are now common practices and also the strategic initiatives (of individuals or cross

functional working groups) and their follow-up are now “the way things are”.

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At Alpro, more barriers for change occurred. It took a long time before all the right

indicators were chosen and aligned with each other (Confuser). The right information

systems weren’t available to create the necessary data flows (Delayer). And the highly

centralized structure had created a culture, where strategy development and adjustment

(“strategic learning”) were very distant from the lower level management.

Since the performance of, for example, production workers used to be based mainly on “hours

worked”, while now this is based on a balanced set of measures, this caused some competing

interests at first (fear for loss of control). By time, people became motivated to perform better

on their indicators and generate improvement plans. Now, all employees, from management

to production workers, manage their performance indicators, so Lack of capabilities is no

longer a barrier. Many former practices (mental allegiance), like the P&L based performance

evaluation, have been completely replaced by scorecard principles and the general consensus

was that this was the right step.

The BSC project at Alpro initiated many new habits; the yearly OGSM meeting and related

PMP meeting, also the fact that agendas are now based on scorecard indicators and the “one-

to-one” performance reviews, linked to indicators and improvement plans, were new. An

existing institution, which influenced the BSC project (Encoding) was the concept of

“sustainable development”. This motivated the executive team to use the “Triple Bottom

Line” as a classification of the company strategy. The Enacting and Reproducing of enacted

behaviour and practices represented a long process, involving trial-and-error. The right

indicators had to be found, information systems installed and different departments had to

become aligned to work towards the same Top critical success factors. So, the reproduction

process involved much “conscious change” (Burns and Scapens, 2000, p. 10) and adaptations

to the BSC model. When we look at the processes of cascading the indicators down the

organization and linking them with improvement plans, “root causes” and performance

evaluation, it can be said that this is a set of routines that has become Institutionalized.

Because the performance of workers and efficiency of working processes have increased

significantly.

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IX. CONCLUSION

In this paper the implementation of a new MA system in two similar organizations (one BSC

and one SFO) was investigated. Literature research suggested that the SFO concept handles

this change project in a broader sense and will initiate institutional change, hence the link with

institutional theory. The MA system and change process were analyzed for their resemblance

with theoretical models and next, the research questions were discussed. A list of indicators,

based on institutional theory, representing organizational barriers for change and factors of

institutional change, were applied on the data collected from eight interviews (four at Alpro

and four at Jansen).

Possible weaknesses of this case study are; researcher bias (interviewer must interpret case

study results) and the fact that interviewees may hold back confidential information. Also,

although the two business situations were similar (both production environments), there were

some substantial differences (different products/services, different organizational structure,

firm size), which could have an impact on case results. And finally, the generalizability of the

case research is limited, owing to the lack of more research subjects.

General analysis of the implementation process shows that the two projects (BSC at Alpro

and SFO at Jansen) are very similar to the “Successful institutional change” process (Burns et

al., 2003) and are, in this viewpoint, likely to become institutionalized. The accounting

models (MA system) also conform for the greater part with the suggested theoretical models

(BSC and SFO) from Kaplan and Norton.

The cross case research reveals that Alpro encountered higher barriers for change, mostly due

to the existing organizational culture (more competing interests initially) and lack of

appropriate information systems, while SFO at Jansen deals with this problem through the

SFO meetings, where performance indicators are discussed and strategy is questioned. The

reproduction of new habits was also more hesitative at Alpro and more adaptations had to be

made. But although implementation of the new MA system at Alpro is slower (BSC had

already been implemented for 2-3 years, against only one year at Jansen) and encounters more

barriers (both structural as behavioural), at both companies new habits and new “ways of

thinking and doing” become institutionalized, embedded in the daily working processes. This

slow institutionalization at Alpro is due to formerly mentioned high barriers and the laborious

enacting and reproducing processes.

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Another observation from this cross-case analysis is that SFO initiates the “strategic learning

process”, which was absent at both companies before the change project, but is now one of

the new routines at Jansen (corporate SFO meeting), while Alpro still struggles with this

strategic flexibility. Also, the SFO concept helped Jansen to cope with strategy development,

definition of concrete indicators, the cascading of these indicators throughout the organization

and creating alignment (and cooperation) between the different BU’s and Support Divisions,

which were difficult issues at Alpro.

In conclusion, it can be said that in both case companies new habits and routines became

institutionalized, but SFO handles MA change in a broader sense, by facilitating the strategy

development (and adjustment) and quantification process and by creating synergies between

BU’s. More research, with a higher amount of case subjects (both national as international)

and a standardised interviewing guide, is required to increase the validity and to further refine

the findings.

Bart Van Hoe

20/05/2008

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LIPE, M.G. and SALTERIO, S.E., 2000, The Balanced Scorecard: Judgemental Effects ofCommon and Unique Performance Measures, The Accounting Review, vol. 75, No.3, pp. 283-298

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EXHIBITS

Exhibit_1Translating Strategic Objectives into Quantifiable Measures

Source: HBR, Kaplan and Norton (1996)

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Exhibit_2Double-Loop Learning Process

Source: Accounting Horizons, Kaplan and Norton (2001 b)

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Exhibit_3Strategy Map

Source: Kaplan and Norton (2001)

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Exhibit_4Model of Institutionalization [Barley and Tolbert (1997)]

Source: Organisation Studies, Barley and Tolbert (1997)

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Exhibit_5Revised SFO model [Norton and Russell (2004)]

Source: BSC Report, Norton and Russell (2004)

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Exhibit_6Interviewing Guides BSC and SFO Case

BSC Case (Alpro NV):

• Started with Goals, Vision, Strategy defining in Strategy Map?• Quantifiable measures in BSC? 4 perspectives? How many measures?• Targets attached? How are targets defined (benchmarking, …)?• Actions / initiatives linked with measures?• Accountabilities determined? (Who is responsible for what measure and is there

evaluation / remuneration on this basis?)

• What are the company’s taken-for-granted assumptions, institutions,organizational culture? (Burns et al., 2003)

• What are the roots of these assumptions? Dominant coalition? (Burns et al., 2003)• What is being changed / left unchanged? (measurement of performance,

remuneration, new rules, new routines, new behaviour, …) (Soin et al., 2002)• One off change in inputs or process of change? (How did management introduce

change?) (Soin et al., 2002)• Description of the change process. (resistance to change, satisficing behaviour, …)

(Soin et al., 2002)• Classification of change; (Soin et al., 2002)

Ø (In)FormalFormal rules, procedures that were changed or informal routines, habits?

Ø (R)EvolutionaryBased on former values, beliefs or ‘culture shock’?

Ø (Re)(Pro)gressiveNew power structures, changes in dominant coalition?

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SFO Case (Jansen NV):

• Commitment of leadership? Clearly defined Vision and Strategy? Need forchange articulated? Program manager appointed?

• Development of Strategy Map, scorecard? Targets established? Initiatives /actions? Accountabilities?

• Cascaded scorecards to BU’s (alignment BU with corporate scorecard)? Allsubdivisions are aligned with corporate scorecard?

• ‘Strategic awareness’ (communication, education)? Appropriate incentive system(compensation, remuneration, …)? Competence development (education,expertise)?

• BSC reporting (measures) and evaluation meetings? Strategy review meetings(adapting, modifying strategy)? Planning, budgeting linked with strategy?

• What are the company’s taken-for-granted assumptions, institutions,organizational culture? (Burns et al., 2003)

• What are the roots of these assumptions? Dominant coalition? (Burns et al., 2003)• What is being changed / left unchanged? (measurement of performance,

remuneration, new rules, new routines, new behaviour, …) (Soin et al., 2002)• One off change in inputs or process of change? (How did management introduce

change?) (Soin et al., 2002)• Description of the change process. (resistance to change, satisficing behaviour, …)

(Soin et al., 2002)• Classification of change; (Soin et al., 2002)

Ø (In)FormalFormal rules, procedures that were changed or informal routines, habits?

Ø (R)EvolutionaryBased on former values, beliefs or ‘culture shock’?

Ø (Re)(Pro)gressiveNew power structures, changes in dominant coalition?

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Exhibit_7Jansen Afwerkingsbedrijf Charter

Source: Jansen Charter (24.01.2008)

Jansen Afwerkingsbedrijf Charter:

Mission;• To take care of a professional project execution with the best

quality and service, for a correct price, as a reliable partner for ourcustomers in the finishing of buildings and constructions, withmaximal involvement

• To create a safe and pleasant working environment, whereemployees can develop optimally and be appreciated for thereperformance, as a reliable, respectful and correct employer with aclear vision

• A professional, reliable and respectful partner for oursubcontractors and suppliers

• Ensure an excellent return for our shareholders

Ambition;• We want to be the most transparent, progressive and professional

organisation with high added value and strong image• We want to be the reference and most important leader with a

progressive approach in the construction sector• We want to be the best employer, with the best people

Values;Reliability, involvement, loyalty, correctness, respect and pleasure

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