The Role of Management Accounting

in Learning Organisations

Andrew Chew (PhD)                    Francis Kolo (MBA)

University of Technology Sydney

Broadway, NSW 2007

Australia

In a modern society with its fast pace of change and its concomitant uncertainty and the growth of 'virtual' organisations and service industry in a post-modern society, a key asset of organisations is their intellectual capital. Knowledge-based organisations need to acquire, create, transfer and maintain knowledge in order to survive. The paper evaluates the role that management accounting plays in learning organisations. Traditional management accounting does not contribute to organisational learning because it adopts a closed-systems approach that emphasises the maintenance of the status quo. Contemporary management accounting can promote organisational learning through the use of Porter's (1985) value chain analysis that emphasises the linkages across the entire value chain and activity-based accounting that focuses on processes. Kaplan and Norton's (1996) balanced scorecard can be used to provide shared vision among organisational members.

(Keywords: activity-based costing, activity-based management, balanced scorecard, collaborative or team learning, intellectual capital, learning organisations, knowledge management, management accounting, systemic thinking, value chain analysis, organisational learning)

1. Introduction

We live in a 'modern' world driven by the idea of progress with a fast pace of change and the resultant high levels of uncertainty (Toffler, 1970; Giddens, 1990). Not only do products now have shorter product life cycles, the world is also becoming increasingly more complex as consumers demand greater product variety. In a dynamic, complex and uncertain environment, firms can only survive if they are either able to adapt to or to lead change (Oliver and Roos, 2000). And survival depends on the ability of the firms to acquire, create, transfer and maintain knowledge. "In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge" (Nonaka, 1998, p. 22)

Modernity has given way to post-modernity (post-industrialism) where virtual firms such as Microsoft, CNN and News Corporation and service organisations are starting to dominate the business world. Businesses have traditionally been classified into manufacturing or service. In a post-modern society, there is a growth in firms that sell symbols - information and information systems, for example, Microsoft and other software companies; images, for example CNN and News Corporation and other media companies such as advertising companies and graphic designers; or knowledge, for example universities, management consultants and financial institutions selling financial derivatives. These virtual firms are knowledge-based firms central to the field of knowledge management and they should be distinguished from traditional service organisations such as hotels, airlines, restaurants and tourism. In Australia, a resource-rich country, where mining and resource companies used to dominate the top ten listed companies two decades ago[1], today BHP, a resource company formerly known as the Big Australian[2], ranks fourth and is only one of two resource companies on the top ten listed companies. The top ten is now dominated by service organisations such as National Australia Bank, News Corp Ltd and Telstra. A characteristic of these organisations that sets them apart from manufacturing organisations is the size of their intellectual capital (Guthrie et al, 1999).

Intellectual capital is part of a firm's intangible assets. Firms' intangible assets are not normally included in their balance sheets because of various accounting conventions. These accounting conventions include the cost concept that "values" assets at their acquisition costs and the period and expense recognition concepts that require the expensing of all period costs including expenditures such as research and development (R & D)[3] and training aimed at enhancing a firm's human competencies. The value of a firm's intellectual capital is a function of its expenditure on the development of its intellectual capital. However, unlike a firm's investment in physical capital, its investment in intellectual capital is not normally included in its balance sheet. From a financial accounting perspective, expenditures that are aimed at enhancing a firm's intellectual capital such as training and R & D is traditionally viewed as a "cost" - something to be minimised rather than optimised.  Under generally accepted accounting principles, only externally acquired intellectual capital[4], not those that are generated internally, are recognised in a firm's financial statement (AASB 1018). As a consequence, a knowledge-based company such as Intel has a market capitalisation of US $196 billion at 31 December 1998 more than eight times that of its shareholders' equity of US $23 billion as reported in its balance sheet (see table 1). The market capitalisation has almost doubled since 31 December 1996 when it was US $107 billion and more than four times that at 31 December 1995 when it was US $47 billion. And the gap between Intel's market capitalisation and book value is growing even further apart - it was US $90 billion and US $35 billion at the end of 1996 and 1995 respectively compared with $173 billion at 31 December 1998. The situation is similar for most knowledge-based companies (Grojer and Johanson, 1998)[5]. For knowledge-based organisations, the focus is on the management of intellectual capital, not the physical capital and knowledge-based organisations that leverage their intellectual capital to generate supernormal performance in the marketplace are progressively replacing traditional industrial age production technologies.

The importance of the creation and maintenance of intellectual capital in a post-industrial world would have accounted for the growing interest in developing greater understanding and competency in the management of firms' intellectual capital or knowledge management. Management accounting systems have been defined as management information systems that support management in planning and controlling organisational activities to achieve organisational goals (Kaplan and Atkinson, 1998; Horngren et al, 1999). One of the main objectives of knowledge-based organisations would be planning and control of their intellectual capitals. The main aim of the paper is to assess the role management accounting play in managing knowledge, particularly organisational learning (Cooper and Kaplan, 1999). The first part of the paper defines organisational learning and contrasts this with individual learning. It describes a learning model based on a theory of action and applies it to organisational learning. The second part evaluates the part management accounting play in knowledge creation within the context of the model discussed in the first section of the paper. This is followed by a discussion of future development of management accounting in learning organisation and a conclusion.

Table 1: Comparison of Intel's market capitalisation and book value

	Market value	Book Value	Difference between  Market and book value
31 December 1998	$196 billion	$23 billion	$173 billion
31 December 1997	$114 billion	$19 billion	$ 95 billion
31 December 1996	$107 billion	$17 billion	$ 90 billion
31 December 1995	$  47 billion	$12 billion	$ 35 billion

2. Learning Organisations

Learning occurs with the acquisition of new knowledge or ideas. Most organisational researchers link organisational learning with improved performance or value creation (Garvin, 1998; Sveiby[6]). This is not surprising as most of these studies are motivated by the desire to improve the management of firms' intellectual capital (Sveiby, 1997; Guthrie et al, 1999) and the conceptual roots of intellectual capital are the creation and use of knowledge with the intent of enhancing the firm's value - its intangible assets (Roos et al, 1998).

 Whilst new knowledge may lead to enhanced performance as measured conventionally, for example higher productivity, quality or functionality of products or new products which leads to higher revenues or lower costs, externalities such as pollution are normally not reflected in such measures. Within this narrow definition of learning organisations, knowledge is limited to knowledge with a commercial application. Thus, organisations with innovations that reduce say pollution would not be considered learning organisations unless such knowledge can reduce the cost of compliance with governmental regulations. Conversely, innovations that are, say, harmful to our environment would not viewed negatively. Why is such knowledge not treated as a deterioration of a firm's intellectual assets in the same way as, for instance, lost of morale or the departure of key personnel who take with them important organisational knowledge (Schön , 1983; Kaplan and Norton, 1996; Sveiby, 1997). Further, if learning is about value creation, then does it mean that not-for-profit organisations, such as universities and hospitals, do not learn? Yet universities and hospitals have been classified as knowledge-based organisations (Drucker, 1998).

The other misconception of learning is that it leads to behavioural changes (Garvin, 1998). A possible explanation for this requirement that learning leads to discernible behavioural changes is managers' request and requirements for tangible, measurable evidence of the impact on individual or organisational capabilities (Roth, 1996)[7]. Whilst the development of metrics for measuring progress in the development of intellectual capital is important to evaluating a firm's rate and level of learning (Garvin, 1998; Sveiby, 1997), and new knowledge or learning normally leads to behavioural change, learning is a cognitive process, not behavioural.

Only individuals can learn. Organisations can't. Therefore does it make sense to talk of organisational learning? The distinction between individual learning and organisational learning makes sense because there are situations where the individual has learned and the 'organisation' has not. This occurs either because the individual does not share the new idea with the other members of the organisation or the idea is rejected by them (Schön, 1983; Senge, 1992). Whilst it is true that only individuals can learn, all stocks of knowledge are social[8] (Giddens, 1984; Latour, 1988). The other reason for the distinction between individual learning and organisational learning is the institutionalisation of knowledge whereby it is produced and reproduced over time such that it transcends the individual (Giddens, 1984). Organisational learning occurs when individual knowledge is transformed in 'organisational' theory-in-use (Schön, 1983). A learning organisation is defined one that is skilful in managing the creation, acquisition, maintenance and dissemination (diffusion) of knowledge. The creation of environment that is conducive to learning is essential to organisational learning (Garvin, 1998). This includes making time available for learning, eg. reflection, thinking and analysis that may lead to new knowledge as well as providing the opportunities for learning, for example the use of learning forum and training in learning. Ultimately, whether individuals in organisations learn depends on the existence of an organisational learning culture - this is an organisation in which you cannot not learn because learning is so insinuated into the fabric of life (Senge, 1992).

Some writers make a distinction between organisational learning which is processual from learning organisations which is structural (Ang and Joseph, 1996). It is felt that such distinction is not meaningful since all social action are processes and so-called structural properties only exist in so far produced and reproduced over time (Giddens, 1984). Others distinguish between organisational learning and learning organisations in terms of learning by individuals and groups in the organisation and learning by the organisation as a total system (Schein[9]). From a systems theory perspective, this represents only different levels of resolution. It would appear that the distinction made between "the deeper dynamics of the learning organisation and the role of culture in those dynamics" (Schein⁸, p.2) and organisational learning or learning by individuals and groups is the central role that culture plays in learning organisations but not in organisational learning. However, culture (also called interpretive schemes and norms (Giddens, 1984), theory-in-use (Argyris and Schön, 1978; 1996), shared vision and mental models[10] (Senge, 1992) and cognitive schemas (Bougon, 1983)) is critical to all types of learning since it forms "the basis for its continuing capacity to learn." (Schein⁸, p.3) and theory-in-use is central to Argyris and Schön's (1978; 1996) work on organisational learning. Hence, this distinction between organisational learning and learning organisation is not considered useful either.

Whilst individual learning is differentiate from organisational learning, however, "new knowledge always begins with the individual. A brilliant researcher has a new insight that leads to a new patent. A middle manager's intuitive sense of market trends becomes the catalyst for an important new product concept." (Nonaka, 1998, p.26). What is described here is a creative process that relies on "highly subjective insights, intuitions and hunches" (ibid, p.24; see also Popper, 1958). Nonaka's (1998) proposal for a knowledge-creating organisation is the conversion of personal knowledge into organisational knowledge by transforming personal tacit knowledge into explicit knowledge that can be made available to others. This is an example of a diffusion of knowledge.

Tacit and explicit knowledge is similar to what Giddens (1984) calls practical and discursive consciousness. Individuals utilise interpretive schemes and norms[11] at the level of practical consciousness in the constitution of their day-to-day activities. These cognitive schemas are held at the level of practical consciousness in so far as they are drawn upon in a routinised, taken-for-granted manner in the enactment of daily activities. Seldom are they held at the level of discursive consciousness. Discursive consciousness means being able to put things into words (Giddens, 1984). The only difference between discursive and practical consciousness is between what can be said and what is characteristically simply done.

Learning occurs when there is new knowledge. It could be triggered by an experience of "surprise" - a phenomenon that triggers a change in planned action (Schön, 1983). Organisations have in-built inertia and thus, have to be "kicked" before they change (Laughlin, 1991). For example, a sudden drop in sales may bring about a change in pricing policy. If the response to the unanticipated events draws on existing repertoire of responses structured by existing interpretive schemes and norms, there is single-loop learning (Argyris and Schön, 1978; 1996). Examples of single-loop learning include standardised responses such as dropping selling price, increasing advertisement or cutting costs. Second loop learning only occurs if there is a change in existing cognitive schemas, for example, the strategies or the norms by which action is evaluated. If it is clear that standardised response is unlikely to correct the "error", the organisation may search further afield for a solution to the drop in sales. This may result in a change in cognitive schemas or second order learning (Argyris and Schön, 1978; 1996).

It can be seen that a perceived "surprise" may trigger individual learning. The search for new knowledge or idea or learning occurs because the individual perceives that s/he is no longer able to achieve her or his goals or objectives. The individual's inability to achieve her or his goals or objectives may be viewed as a conflict - a conflict between what s/he wants and what s/he is able to achieve. For the individual, the conflict normally arises because of a change in the environment or some personal experiences. Environmental change, for example, a drop in sales, may either cause a variance between actual achievement and plan, or present a new threat or opportunity, for example, the introduction of a new product by competitors, necessitating a response. Perceptions of a threat or opportunity, for example, may also arise from some personal experience or new knowledge about existing conditions. Learning or the search for new knowledge may be required to resolve the conflict.

In organisations, in addition to personal conflicts, interpersonal conflicts may arise from interactions between organisational members.[12] Some of these conflicts may arise because of differences in interpretive schemes and norms (Giddens, 1984; Leonard and Strauss, 1998). These differences arise due to the different life experiences (Jones, 1983), professional training (Tinker, 1970; Dearborn and Simon, 1958), or personality types (Leonard and Strauss, 1998) as well as differences in role expectations. An usual way of understanding these differences is to attribute them to the different social positioning of individuals in time and space (Giddens, 1984; Chew 1993). For instance, production personnel would normally have some engineering training that structures their interpretive schemes and norms and therefore what they see as problems, issues and solutions (Cohen, March and Olsen, 1972). The role in which they are cast in organisations not only carries with it certain role expectations and obligations. It also exposes them to experiences that are different to those of personnel in other departments such as marketing or research and development, who in turn will have different professional training in marketing and scientific research (Lawrence and Lorsch, 1967).

Interactions between production and sales are likely to give rise to conflicts. For instance, production personnel prefer relatively stable production runs in order to use the equipment more efficiently whereas sales would prefer to be able to change production in order to meet customers' demand. Conflicts may result in the energies of individual organisational members working at cross-purposes (Senge, 1992). Sometimes conflicts lead to defensive reasoning or routines which are habitual ways of interacting that protect others and us from threat or embarrassment (Argyris, 1998). Defensive reasoning includes putting the blame on others, i.e. looking for the cause of "error" in someone else, to one side winning, to "smoothing over" differences or the internalisation of conflicting values. These defensive routines prevent us from learning.

Whilst conflicts may become destructive, however, innovation takes place when different ideas and ways of processing information collide (Leonard and Strauss, 1998; and Cohen, March and Olsen, 1972). It is through the harnessing of the potential inherent in conflict, a process Leonard and Strauss (1998) calls creative grating, that organisational learning takes place. To overcome this problem, Leonard and Strauss (1998) propose creating whole-brained team in organisations by staffing organisations with different personality types, eg. left-brained and right-brained  personnel, to foster innovations. Human has a tendency to hire and reward individuals who are similar to themselves due to the tendency of social systems towards stability. However, this tendency would stifle innovation and reduces the capacity to generate the requisite variety to respond to environmental uncertainty and change (Ashby, 1956). However, rather than the use of psychological tests to provide organisational variety, as this provides individualistic responses (cf. Leonard and Strauss, 1998), organisational survival depends on providing responses to environmental disturbances. This suggest a systemic approach (Senge,1992; Flood, 1999).

A systemic approach focuses on the interconnections between the various parts of the organisation as well as the relation of the organisation with its environment. What is considered a part of a system and what is the environment is only a matter of different levels of resolution (Boulding, 1956). Further the development of new organisational forms such as joint venture, which involves inter-organisational collaboration, obscures organisational boundary (Rura-Polley and Clegg, 1999). A systemic or holistic approach involves seeing the organisation as a whole. Organisational learning therefore involves integration or alignment of the various parts of the organisation, sometimes called team learning (Senge, 1992) or collaborative learning (Rura-Polley and Clegg, 1999). The integration or alignment of the various parts of the organisation will reduce the amount of wasted energies that result from different parts of the organisations working at cross-purposes. Collaborative learning occurs only if there is trust and trust is built through dialogue (Senge, 1992; Giddens, 1987).

Dialogue involves the free flow (from the Greek word 'dia' meaning through) of meanings (from the Greek word 'logos') or ideas. Ideas will only flow freely if all participants "suspend" their assumptions, as it were, hanging them in front of them, constantly accessible to questioning and observation. It means being aware of our assumptions and holding them up for examination. This cannot be done if we are defending our assumptions (Senge, 1992). Thus, defensive reasoning, which inhibits learning, can be overcome through the use of dialogue. In the next section, we intend to engage in a dialogue with the assumptions underlying management accounting and through this, learn to learn.

3. Management Accounting

The origin of management accounting is cost accounting[13] (Kaplan and Atkinson, 1998; Armstrong, 1987). The reason for tracing management accounting origins is justified because of the institutionalisation of accounting practices whereby such practices are produced and reproduced over time[14] (Scott, 1995). For instance, one of the main reasons for the collection of cost data is for profit determination. The accounting technique that was developed around the turn of the century for costing purposes continues to be applied in most firms for profit determination. As these data are readily available since all corporations have to prepare financial statements, they continued to be used for management accounting purposes, resulting in the perpetuation of these systems.

3.1. Traditional Management Accounting

The development of cost accounting can be traced to attempts to control the labour process (Hopper and Armstrong, 1991). In the 19^th Century, most owner-managers relied on internal contracting as "it largely eliminated the need for them to be conversant with the production process (important so long as craft workers still possessed the "secret knowledge of production")" (Hopper and Armstrong, 1991, p.415-416). Control was achieved through the use of market forces of supply and demand. With the decline in internal contracting around the end of the 19^th Century, Taylor's Scientific Management movement provided the means of removing the obstacle to control presented by craft skills. This involves the redesign, fragmentation and simplification of work so that production (cost) standards can be established. "With the advent of efficiency experts, the emphasis (of costing systems) shifted to control" (Wells, 1978, p.53, quoted in Hopper and Armstrong, 1991).

Control continues to play a major role of management accounting information in organisations. Two such roles are score keeping and attention directing (Simon et al, 1954). In its score-keeping role, management accounting information (MAS), such as budgeting and standard costing and variance analysis, is used by superordinate managers to evaluate the performance of subordinate managers in organisations. MAS also helps managers to properly focus their attention. As managers are busy people who have limited information-processing capacity, the use of a technique such as management by exception helps managers in controlling organisational activities.[15]

Cost management systems grew out of the need to control the labour processes in factories. Traditional management accounting focuses only on the measurement of manufacturing costs. In the control of production which tends to operate in a fairly stable environment (Lawrence and Lorsch, 1967), the ensuing control systems are mechanistic (Burns and Stalker, 1961; Morgan, 1986) emphasising efficiency. A mechanistic system uses a closed systems approach. Traditional management accounting adopts a closed systems approach. It only starts monitoring the costs of products when it enters manufacturing and stops when the manufacturing process is complete. Product costs as conventionally measured do not take into account the cost of selling and after sales service costs. Safety stocks are held to buffer the organisation for external environmental uncertainty such as fluctuation in demand or supply lead-time (Thompson, 1967). Management accounting that adopts such an approach uses feedback control that emphasises maintaining the status quo. Standard costing and variance analysis is an example of such systems. Every time actual performance deviates from the standard, a cybernetic feedback control system is activated that attempts to pull the system back on course. The maintenance of the status quo means that there is no new knowledge and therefore no learning. Such organisational maintenance has been called zero-order learning (Schön, 1983). The other problem noted is that budgets tend to be used as pressure devices (Argyris, 1952). Every time performance improves, the budget is made tighter. A similar problem was noted in the use of piecework in the place of time rates to give incentives to workers to increase outputs. "In practice, however, managements invariably undermined their own logic of incentives by cutting rates whenever workers' earnings rose to a level which they considered acceptable. This tactic caused many industrial disputes until workers learnt to defend themselves against rate cutting by restricting output (a practice recognised as 'systematic soldiering')" (Hopper and Armstrong, 1991, p.419). The use of cybernetic feedback control systems results in "closed loop" learning (Argyris, 1998).

At around the same time as the Scientific Management movement, another accounting innovation attributable to Du Pont for controlling large organisations is the use of responsibility accounting to control decentralised operations. In a sense Scientific Management and responsibility accounting uses the same technology to deal with organisational complexity. It is the fragmentation of larger wholes into smaller units so that they can be more easily managed. This is similar to a standard scientific technique known as abstraction. Some positivists even go so far as to argue that the simpler the theory, the more powerful is the theory (Friedman, 1953). The basis of responsibility accounting system is the designation of each sub-unit of the organisation as a particular responsibility centre. A responsibility centre is a sub-unit in an organisation whose manager is held accountable for the sub-unit's activities. One of the advantages of decentralisation is that managers will become more motivated to perform their tasks when they are given more discretion in making decisions (Kaplan and Atkinson, 1998; Horngren, Foster and Datar, 1999). However, the emphasis on the autonomy of the responsibility manager and the evaluation of individual sub-units' performance is likely to lead to fragmentation within the organisation. The evaluation of each sub-unit as a separate entity is likely to lead to conflict since each responsibility manager will be competing with other managers for scarce resources. In the simplest type of interdependencies, pooled interdependencies (Thompson, 1964), managers could be competing for limited investment funds. In sequential interdependencies, for example where a sub-unit sells intermediate products to other sub-units, conflict is likely to arise in what is commonly described as a transfer pricing problem (Kaplan and Atkinson, 1998; Horngren, Foster and Datar, 1999). These transfer pricing problems are zero-sum games which gives rise to defensive reasoning discussed earlier.

As noted earlier, conflict as discussed is not necessarily bad. In fact, conflicts are needed for learning - "one of the most reliable indicators of a team that is continually learning is the visible conflicts of ideas. In great teams, conflict becomes productive." (Senge, 1992, p.249). A learning organisation needs to adopt a systemic approach that requires the collaboration between various parts of the system. The fragmentation of organisations through the establishment of autonomous sub-units results in wasted energies. An example that highlights this clearly is the comparison of western approach to problem solving involving experts to Japanese team learning. There is a documented case of a western firm that took a competitor's engine apart to find out why its competitor was more cost-efficient. One of their most significant findings was that the competitor's engine was held together by three sets of nuts and bolts of the same size whereas theirs was developed by three separate teams that use different size nuts and bolts. This meant that the engines developed by the western firm requires three different size wrenches to put together, resulting in time wasted in switching wrenches. With the commodification of time in modern society, this represents wasted resources and higher costs. This highlights the importance of team learning.

The final aspects of traditional management accounting that this section is going to examine is the use of management accounting for decisions making (Simon et al, 1954)[16] such as pricing or product mix. Management accounting information not only helps managers control organisational activities through feedback information that is used for attention directing and score-keeping, it is also for planning (decision making). However, decision making is not the same as learning. In decision making, managers apply extant models and techniques to solve standard problems such as product mix or pricing. Given the institutionalisation of accounting practices whereby existing accounting techniques are produced and reproduced, traditional accounting methods are not conducive to a learning environment.

This section looks at the limitations of traditional management accounting in the development of learning organisations (cf. Johnson and Kaplan, 1987). They are the use of closed systems approach that emphasises the maintenance of social order or stability (i.e. the status quo) and the fragmentation of organisations into autonomous sub-units that prevents collaborative learning. Whilst traditional management accounting systems may be an impediment to learning, they are nevertheless still important diagnostic tools in organisations (Simons, 1995; Kaplan and Atkinson, 1998; Chenhall and Langfield-Smith, 1998). Organisations are systems that must maintain homeostasis in order to survive and diagnostic tools are important to the maintenance of homeostasis in organisations. To use an organism metaphor (Morgan, 1986), an organism such as a human body will not survive unless it can maintain various key functions, such as blood pressure or body temperature within critical limits. An organisation likewise has to do the same, eg. controlling its cash flows in order to remain solvent. Thus learning organisations must balance this tension between organising and learning much in the same way that systems have to maintain a balance between Yin and Yang in Chinese Taoist philosophy in order to remain healthy. The next section looks at contemporary management accounting systems that adopt an open systems approach to promote team learning.

3.3       Contemporary Management Accounting and Organisational Learning

The focus of what is called contemporary management accounting (Atkinson et al, 1997) is still largely the management of costs - activity-based costing, activity-based management, kaizen costing, target costing and life-cycle costing. This is because "competitive advantage in the market place ultimately derives from providing better customer value for equivalent cost (i.e. differentiation) or equivalent customer value for a lower cost (i.e. low cost)" (Shank and Govindarajan, 1993, p.50). However, rather than production driven, contemporary management accounting has taken on a customer-focus (Atkinson et al, 1997), thus giving it an external rather than an internal focus since "each firm must be understood in the context of the overall chain of value-creating activities of which it is only a part." (ibid, p.48).

The idea of a learning organisation was first popularised by Senge (1992). Central to Senge’s (1992) model on learning organisation is systemic thinking which he calls the fifth discipline, the title of his book. Porter’s (1985) value chain adopted in strategic cost management (Shank and Govindarajan, 1993; Atkinson et al, 1997) represents a systemic approach. Whereas traditional management accounting adopts a closed systems approach that focuses only on manufacturing costs, a value chain focuses on the entire sequence of activities that add value to a product. The problem with traditional management accounting that focuses only on internal production is that it starts too late - when raw material enters the production processes and ends too soon - when raw material has been converted into finished goods (Shank and Govindarajan, 1993).

One of the basic ideas behind the use of a value chain analysis in management accounting is to develop linkages with suppliers and/or customers. Sveiby[17] provides several examples of companies that have exploited their linkages with customers such as gaining information and knowledge from customers, and offering customers additional knowledge. However, the development of linkages with customers is only one side of the coin - there is also the need to develop linkages with suppliers. Toyota is a company that has successfully exploited its linkage with both customers - this led to the introduction of Lexus - and suppliers - Just-In-Time (JIT) purchasing. Whilst the development of linkages with suppliers and/or customers gives firms an external focus, the value chain also recognises the potential accruing from exploiting linkages among value activities across business units (Shank and Govindarajan, 1993). Life cycle costing highlights the linkages between the various processes (departments) in an organisation from R & D, design, production, marketing and distribution and after-sales service. For example, a product that is designed quickly and carelessly, with little investment in design costs, may have significantly higher marketing and after-sales service costs later in the life cycle. Further, although the costs incurred at the design stage may account for only a very small percentage of the total costs over the entire product life cycle, design stage decisions commit a firm to a given production, marketing, and service plan.

Most of accounting innovations come from the interaction of the value chain concept with activity-based costing (ABC) and activity-based management (ABM). Whilst the contribution of a value chain analysis to organisational learning comes from the idea of building linkages across the entire value chain critical to concept of collaborative learning, activity-based costing and management focuses on activities or processes rather than outcomes typical in traditional management accounting. By focusing on outcomes, traditional management accounting is dealing only with symptoms and not the causes (see Senge, 1992). Learning only comes from understanding processes involved in producing an action or outcome. "Thinking in terms of processes of change rather than "snapshots" is another (rule for finding high leverage changes)" (Senge, 1992, p.65). Leverage is seeing where actions and changes in structures, eg. product or process design or supplier/customer-relationship, can lead to enduring improvements. An example is the understanding of cost of (poor) quality whereby improvement in work processes and the product quality could lead to the reduction in reworks, quality inspection, customers' complaints, warranty costs, increased customers' loyalty and advertising and sales promotion costs. Product quality is also critical to JIT production and purchasing. Further the signing of long-term contracts with suppliers and the investment in EDI technology that links the firm's computer systems to the suppliers' significantly reduces purchasing costs. Purchase orders are done automatically by the computer as part of production scheduling, thus eliminates the necessity of raising stock requisition and the placing of purchase orders by the purchasing department. Without the elimination of individual purchase order costs, purchasing costs would have been very high particularly when the firm orders in smaller, more frequent batches associated with JIT technology. The idea of entering into longer contracts with customers may also significantly reduces production costs if it turns non-stocked items into stocked items since non-stocked items are more costly to processed (Cooper and Kaplan, 1999). Analysis of customers' profitability using ABC allows firms to re-structure its relationship with customers or its customer-mix. The redesign of product and processes and the re-structuring of external relationship is only made possible through an understanding of activities and activity drivers.

An example of high leverage changes is Analog Devices' half-life systems (see Garvin, 1998). The half-life system is part of a quality improvement program that seeks to reduce the number of defects by half within a specified period of time. Defect is defined as any measurable quantity that is in need of improvement, eg. errors, rework, yield loss. In attempting to reduce defects, Analog Devices applied the 80:20 rule - this is the idea that 20% of causes are responsible for 80% of the defects. By focusing on the relatively small number of causes responsible for 50% of the problem, Analog Devices was able to leverage organisational learning.

As discussed above, central to the development of a learning organisation is systemic thinking inherent in the value chain concept and the focus on processes in ABC and ABM. Central to organisational learning is collaborative or team learning (Senge, 1992). However, collaborative learning cannot take place unless there is shared vision, "it's the capacity to hold a shared picture of the future we seek to create." (Senge, 1992, p.9). Accounting plays an important role in organisations and society (Hopwood, 1983) because of its impact on human behaviour (Argyris, 1952) and also because it helps to construct reality (Hines, 1988). Accounting communicates to organisational members what is important and what is of lesser importance. It tells people what to do, and what not to do (Hopwood, 1983). Therefore, an accounting system such as Kaplan and Norton's (1996) balanced scorecard can be mobilised to create a shared vision in knowledge-based organisations. Fundamental to the development of the balanced scorecard is the idea that "the ability of a company to mobilise and exploit its intangible or invisible assets has become far more decisive than investing in and managing physical, tangible assets. Intangible assets enable an organisation to:

·         Develop customer relationships that retain loyalty of existing customers and enable new customer segments and market areas to be served effectively and efficiently

·         Introduce innovative products and services desired by targeted customer segments

·         Produce customized high-quality products and services at low cost and with short lead times

·         Mobilize employee skills and motivations for continuous improvements in process capabilities, quality, and response times

·         Deploy information technology, data bases, and systems" (Kaplan and Atkinson, 1998, p.367)

The balanced scorecard is one of several alternative models for measuring and managing a firm's intellectual capital (Guthrie et al, 1999). The others, as such Sveiby's (1997) intangible asset monitor, are developed mainly for financial reporting purpose. Developed along the line of a balance sheet, the intangible asset monitor attempts to list the stocks of a firm's intangible assets, such as design rights ('patents), trade secrets ('copyrights') and service marks ('trademark'), human resources, such as employees education and vocational qualification. The balanced scorecard, on the other hand, is performance measurement system developed more as more along the line of a flow statement like a profit and loss or cash flow statement[18]. It translates a firm's mission and strategy into objectives and measures, organised into four perspectives: financial, customer, internal business process, and learning and growth. The basic assumption underlying the balanced scorecard is that the primary objective of the organisation is to provide a satisfactory return to shareholders (the financial perspective) and this can only be achieved if the firm continues to meet the needs of customers (the customer perspective). The ability to continue to meet customers' needs depends upon the ability of the firm to innovate and/or improve its products and services and/or the processes involves in their production (the internal process perspective) and this in turn depends on competencies of its employees (learning and growth perspective). Thus, the balanced scorecard attempts to measure not only the intellectual capital of the firm in its learning and growth perspective but also the benefits arising from leveraging intellectual capital, such as improvement and innovation in the firms' internal processes and products, and greater customers' satisfaction and financial performance. Further, through the linkage of the balanced scorecard to a firm's mission and strategy, it may be able to help organisations to create a shared vision.

The balanced scorecard provides a broad spectrum of perspectives and can be tailored to a firm's strategy and objectives. It incorporates the critical success factors needed to give the firm a competitive advantage as well as areas of performance that require improvement. The financial perspective is the traditional accounting measure of providing value to shareholders. The customer perspective focuses on providing customer satisfaction, customer retention, new customer acquisition, customer profitability and market and accounting share in targeted segments. The internal business process perspective highlights the internal processes, such as innovation, production and aftersale service, that will have the greatest impact on customer satisfaction and achieving the organisation's financial objectives. Finally, the learning and growth perspective focuses on the development of human competencies, systems, and procedures that are required to deliver value to customers and shareholders. The financial, customer and internal business process objective will typically reveal gaps between the existing capabilities of people, systems, and procedures and what will be required to achieve competitive advantage. To close these gaps, firms must invest in human competencies, enhancing information technology and systems, and aligning organisational procedures and routines.

In using the balanced scorecard to provide a shared vision and to aid organisational learning, it is important that we avoid some of the pitfalls in traditional use of management accounting information. It should not be used as a pressure device (Argyris, 1952) nor put people in failure as is typical in variance reports since this will produce defensive routines and reasoning (Argyris, 1998). Accountability and control over experimentations should be maintained without stifling creativity by unduly penalising employees for failures (Garvin, 1998).

4.         Conclusion

Contemporary management accounting systems such as value chain, activity-based accounting and balanced scorecard can be employed to provide a shared vision and systemic thinking to manage organisational processes and to foster organisational learning. Whilst there has been much documented accounting innovations arising from the activity-based management of the entire value (see for instance Cooper and Kaplan, 1999; Sveiby[19], McMillan, 1990), much of the research is carried out under the aegis of what is known as quantitative approach to management accounting. This type of research typically ignore the social contexts in which accounting takes place (Hopwood, 1983). For organisational learning to take place, there need be collaborative or team learning (Senge, 1992). Whilst there has been some studies which looks at the role that accounting plays in new organisational forms that involves inter-organisational collaboration (Cuganesan, 1997), they do not have as their main focus the impact that accounting systems have on organisational learning.  Future research could look at how accounting can contribute to collaborative or team learning. Whilst benchmarking may be viewed as a form of collaborative learning, accounting studies of benchmarking have treated it merely as technical tool for gathering information. It has not examined the conditions necessary for collaborative learning, such as the effects of management accounting control systems on defensive reasoning and the facilitation of dialogue and engendering of trust.

Senge's (1992) five disciplines include shared vision and mental model that are cultural properties of a social group and the culture is basis on which learning is built (Schein[20]). However, culture comprise both interpretive schemes and norms (Giddens, 1984). Shared vision and mental model are part of an individual's interpretive schemes. However, in social interactions, individuals draw on both their interpretive schemes and norms and also resources - which is a part of power structure in society, and organisational learning arises from interpersonal conflicts arising from the clash of interpretive schemes and norms, resolved through political means. Therefore, the understanding of learning in organisations needs to consider not only the interpretive schemes but also norms and power. Exploring the interaction of interpretive schemes, norms and resources in learning organisations would provide a better understanding of factors affecting learning in organisations.

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