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Behavioral and Organizational Issues in Management

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Behavioral and Organizational Issues in Management
Table of Contents
  1. Introduction
  2. Behavioral Issues in Management Accounting
  3. Organizational Issues in Management Accounting
  4. Opinion
  5. Conclusion
  6. References

Introduction

Management accounting involves the mechanisms for generating beneficial financial information about a company for use in the growth and development of its business. This information is assembled from the company’s undertakings on operative, tactical, and strategic levels. The key reason to collect such data is to help managers in making informed short-term, as well as well as long-term financial decisions. With the growth and complexity of modern organizations, research in behavioral and organizational issues, how they affect individual behavior, and/or how they relate to management of organizations has paved room for new ways of handling management accounting. This paper addresses these behavioral and organizational management accounting issues as they apply in management accounting.

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Behavioral Issues in Management Accounting

Behavioral research in management accounting has been on the rise in the recent years. This growth owes to the increasing complexity of modern organizations. The behavioral aspect of management accounting refers to the factors, which influence the decisions of people who are concerned with decision-making in the management accounting system. According to Chapman, Hopwood, and Shields, the integration of management accounting in organizational modules serves to give a clear distinction to employees concerning what acceptable behavior entails (54). This approach provides an avenue to boost behavior, which is considered appropriate. Therefore, understanding behavioral theory is relevant to the progress of management accounting philosophy and practice. As Sisaye asserts, the first attempt to study the relation between behavior and the budget-setting process emerged over sixty years ago when Argyris published The Impact of Budget on People (12). The study sought to address individual attitudes towards budgets and the process of setting budgets. Over the years, literature that seeks to examine aspects such as motivation, participation, and leadership in management accounting has been published in abundance.

Several disciplines address the concept of behavioral management accounting. Such disciplines include economics, sociology, organizational theory, political science, and psychology. Although the fields are interdependent, psychology plays the chief role. The subfields of psychology, which are most relevant to management accounting, include motivation, perception, and social psychology. Cognitive psychology focuses on human thinking. It has the largest influence on the psychological process. Motivation is concerned with behavior and the related psychological process. Social psychology focuses on how the individual mind and behavior are swayed by other people. Motivation and social psychology theories have had the greatest impact on the initial research works in behavioral management (Collier 20). The motivation psychology theory is applied to relate budget goal difficulties with individual performance. Social psychology theory is applied to examine the influence exercised by a superior finance official on the appraisal of subordinates. Cognitive psychological theory seeks to examine the effects of the accumulation of cost-variance impacts on the success of the associated decisions. These three psychological subfields contain several other theories that have contributed immensely to the research on behavioral issues in management accounting.

As asserted above, the most expansive issue that is considered in management accounting in relation to behavioral approach is the budgeting process. The budgeting process comprises the upshot of motivation, management style, budgetary participation, and budgetary slack. The budgetary process may affect a company’s performance subject to the high or low levels of participation. Budgetary participation upsurges performance as a product of motivation. The goal setting theory is mostly acceptable among the accounting models to survey employee motivation in organizations. The goal setting theory is related to the level of aspiration. According to this model, achievement is a progressive function of goal exertion (Hansen, Mowen, and Guan 41). Setting of specific goals diminishes performance discrepancies. Incentives have an effect on goal commitment, thereby indirectly influencing performance. The leadership style adopted in an organization has an impact on performance. For instance, goal-oriented leadership is associated with excellent performance.

The study by Hansen, Mowen, and Guan examines the role of budget pressure applied by superiors (42). The most preferred incentive to motivate individuals and/or induce more efforts is monetary in nature. However, individual perceptions and differentiations influence the direction of the decision maker. This observation indicates the importance of the cognitive characteristics when it comes to performance assessment and the reward scheme. Hansen, Mowen, and Guan postulate that incentive-based contracts increase the performance and motivation of workers (43). These types of contracts are ideal compared to flat compensations for multiple period tasks. The manner in which workers choose between two contracts that have the same expected payoffs but different framings of pay confirms the prospect theory, which agrees with the postulation of the social comparison theory. The social comparison hypothesis predicts that the evaluation of individual performance against the performances of others sways the effort applied on the allocated obligations. When making comparisons, mutual measures are given more consideration than distinctive measures, even in the presence of enticements and feedback. Hence, when mutual and distinctive considerations are present in a balance scorecard, the performance evaluations are influenced by the mutual considerations.

According to Hansen, Mowen, and Guan, the different management accounting issues that can be studied using behavioral perception suggest broad and different implications on the practice of administration accounting (47). The findings on budgeting process and the consequences of participation, motivation, goal achievement difficulties, and role should give significant insights on how to design the best technique according to the psychological requirements of the individual and the finest fit for the company. Reasoning from the studied relation between behavior and management accounting may also be extended to performance assessment systems and incentive disbursement arrangements. These should include both the hypothetical optimum and the perceptions of the individual. Application of these findings makes it easier to anticipate the knowledge of the biasness pertaining to individuals and correct them using such measures since the appropriate costing systems and reports must be organized to avoid any psychological influence that can happen during the analysis procedure.

Organizational Issues in Management Accounting

The use of management accounting techniques can aid an organization to accomplish priorities such as superiority, delivery, and consumer service. Organizations can gain a competitive edge by adopting techniques, which are specifically tailored to support their business strategies. Organizational change in management accounting can be a major influence on the performance of a business. A study by Heidmann indicates a relationship between performance and organizational or structural change (32). Low financial profits are a key reason for an organization to change its management accounting and internal organizational structure to improve financial returns. Similarly, organizations, which implement specifically tailored techniques that are congruent with their environmental and organizational factors, are likely to perform better. Giannoccaro conducts research on the role of management accounting, organizational change, and performance assessment (19). This research recommends the adoption of unique techniques and contextual variables of the organization to determine its performance.

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Heidmann hypothesizes that combination of structural and situational factors may have a greater impact on the performance when compared to any of these factors acting in isolation (16). The study by Giannoccaro reveals that organizations are adopting team-based structures, which have resulted in increased organizational performance (16). An increase in the application of team-based structures has led to a greater need for easily accessible and pertinent data to gauge organizations’ operations. Organizational design such as increasing employee participation in defining and generating their work group objectives escalates organizational performance. This observation is a clear indication of the connection between organizational strategy and performance. As organizations grow in terms of employees and activities, there arises a growing necessity of formal reporting and objective performance assessment. Clear strategies and priorities are necessary to guarantee high organizational performance. Organizations should have apt organizational structures to sustain strategic priorities. Therefore, organizational structure and strategic priorities are crucial to organizational performance.

Organizational change in management accounting systems may be either a result or a cause of performance. Numerous characteristics constitute an organization. For instance, the external setting such as technology, business environment, and industries interact with internal organizational characteristics such as strategies, structures, and processes to enhance performance. Due to the dynamic nature of the environment, markets have become more competitive. Competition arises principally because of improved quality and reduced product price. Organizations respond to these changes by adopting organizational strategies and priorities, which are more oriented towards consumer satisfaction. To compete favorably, most organizations have incorporated advanced technology into their accounting structures. Collier concludes that adopting superior manufacturing technology such as computer-integrated manufacturing and the just-in-time systems can increase quality, productivity, and flexibility while reducing the operations cost (25). The customary approach to organizational change in management accounting suggests that organizational structures influence an organization’s learning capacity and the ability to adapt to the external changing surroundings. As Sisaye confirms, organizational structural arrangement can be transformed effectively through either accumulative or drastic adaptive strategic adjustment (23). Research by Sisaye shows that changes in the business setting can cause modifications in organizational and management accounting practices. However, this research has indicated that to realize full organizational configuration and effectiveness, all organizational elements such as policy, people, structures, and culture have to be reformed concurrently (Sisaye 31).

Opinion

Globalization has to a greatly altered the immediate environment in which organizations operate. There has been an increase in uncertainty in business due to market and industry competition, which has become extremely intense and advanced, thanks to the central role of technology. These factors have necessitated the need for organizations to review their existing accounting design and strategies. Organizations have realized that human factors are crucial to every system and hence the need to influence and harness all individuals in a system towards realizing the primary aims of a system. Consequently, the major role of management accountants involves inspiring human behavior to be in harmony with the objectives of the organization. Management accounting has been studied as a mechanical instrument. The application of management accounting techniques entails training, inducement, and intelligent elucidation. Therefore, there is a need for management accounting professionals to design and guide the use of suitable techniques and procedures by individuals within an organization to accomplish the planned goals. The consideration of management accounting professionals are not confined only to what techniques to apply but also how to motivate behaviors of individuals within the organizations towards utilizing the techniques to achieve goal harmonization.

As Heidmann reveals, management accounting is founded on behavioral grounds whose foremost aim is to stimulate the behavior of individuals towards the preferred accounting course (28). On the other hand, research on the impact of organizational change in management accounting reveals that organizational and structural adjustments are directly proportional to performance. While constantly updating their operational and structural designs, organizations have had to adapt to the different characteristics that make up the cognitive composition of individuals to enhance their performance. In fact, management accounting requires a good grasp of organizational and structural issues that affect the organization, as well as a proper understanding of behavioral models, especially how they relate to management accounting practices. As firms strive to fit in the prevailing environment of cutthroat competition and advanced technology, sustaining and improving the current performance has become critical for them. Some management accountants appear to exhibit a complete lack of alertness to behavioral considerations in favor of sophisticated managerial techniques and strategies. While management accounting is rapidly shifting towards the era of increased technical expertise and sophisticated strategies, accountants cannot afford to ignore the behavioral considerations applied in the use of these techniques. The more powerful and sophisticated the techniques and structures adopted by an organization, the more management accountants fail to understand and/or incorporate behavioral aspects in their operations.

Although there is a strong and direct relationship between organizational modification and performance, the success of the techniques adopted in reforming the organizational structure is subject to the setting and context in which the techniques are operated. Abdel-Kader and Luther submit that firms that are confronted with pronounced uncertainty tend to require decentralized structures and sophisticated management accounting systems (7). According to Chenhall, decentralized businesses tend to implement changes in their management accounting systems to connect numerous undertakings across the organization (518). This position is amid a raging debate on whether centralized or decentralized structures are the most prominent in designing management accounting systems. The role of management accounting in the structural change of organizations is not only to deliver cost data but also to provide a service that empowers employees to make the best decision for the organization in the light of the prevailing circumstances. Therefore, modification of an organization’s structure will result in adjusted employer-employee expectations. Management accounting in an organization makes it to be seen as both a component and product of organizational structure and hence performance.

Conclusion

In the quest for competitive advantage, organizations may implement structural changes, which are in line with their predetermined goals and objectives. This process has been necessitated by the numerous changing factors such as environment and the advancing technology. As discussed above, studies indicate a proportional relation between organizational change and performance. However, management accounting professionals should not overlook the implications of behavioral considerations in an organization. A balanced application of well-thought structural change together with techniques to customize individual behavior to be in line with the organization’s objectives may produce the optimum result. When making decisions, organizations’ leaders should way between these two aspects to apply them prudently.

References

Abdel-Kader, Magdy, and Robert Luther. “The impact of firm characteristics on management accounting practices.” British Accounting Review 40.1(2008): 2-27. Print.

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Chapman, Christopher, Anthony Hopwood, and Michael Shields. Handbook of Management Accounting Research, Amsterdam, The Netherlands: Elsevier Science, 2011. Print.

Chenhall, Robert. “Accounting for the Horizontal Organization: A review Essay.” Accounting, Organizations and Society 33.5(2008): 517-550. Print.

Collier, Paul. Accounting for Managers: Interpreting Accounting Information for Decision Making, Aston University: Aston Business School, 2015. Print.

Giannoccaro, Ilaria. Behavioral Issues in Operations Management: New Trends in Design, Management and Methodology, New York, NY: Springer, 2013. Print.

Hansen, Don, Maryane Mowen, and Liming Guan. Cost Management: Accounting and Control, Nashville, Tennessee: South-Western College Publisher, 2007. Print.

Heidmann, Marcus. The Role of Management Accounting Systems in Strategic Sense-Making, Germany: Gabler Verlag, 2008. Print.

Sisaye, Seleshi. The Ecology of Management Accounting and Control Systems: Implications for Managing Teams and Work Groups in Complex Organizations, Westport, Connecticut: Praeger, 2006. Print.

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