Management Accounting Employee Motivation

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               ManageMent accounting –
               PerforMance evaluation
               Ian Herbert analyses the pros and cons of employee empowerment
               and discusses the role of the management accounting function.
               The idea of allowing workers to take more         most significant developments in management         Empowerment is primarily intended to
               responsibility for operational decisions seems    thinking over the past 20 years. The basic      make the organisation more responsive to
               to represent the very essence of the modern,      idea is that those on the front line are best   changing consumer needs and/or foster
               dynamic organisation. Tom Peters, the author      placed to understand changing customer/         employee-driven innovation. It is usually
               of bestselling business book In Search of         production requirements. They should,           accompanied by a flattening of the
               Excellence, put it this way: “If you don’t know   therefore, have the discretion to react         managerial hierarchy so that the scalar chain,
               where your people are today, that’s probably      accordingly. Other terms to describe this       and hence the communication time between
               a good sign. It means that they’re working        empowered approach include “participation”,     the bottom and the top of the organisation, is
               beyond functional walls.”                         “autonomy” and “entrepreneurship” (in the       shortened. But sometimes such delayering is
                   If a company’s management style moves         last case, people are encouraged to think       done simply to save cost – and
               away from top-down command and control            and act as though the business were their       empowerment can become abandonment.
               to bottom-up empowerment, there are               own). It contrasts with the traditional             Empowerment initiatives have been
               implications for organisational design,           command-and-control approach, whereby           applied widely, from car factories to doctor’s
               employee motivation, management control           senior managers are assumed to know best        surgeries. In essence, they seek to promote
               systems, operational risk and information         and their main task is to decide what to do     flexibility of thought and action among
               reporting systems. But, while this “wonder”       and tell their subordinates how to do it.       employees. Often this is an ideal to be
               approach may be appropriate in some                   Both approaches have pros and cons          worked towards, rather than an absolute
               situations, at other times managers might still   depending on, for example, the complexity       state. Most people enthuse about the notion.
               need to supervise and control workers more        and variability of local conditions/customer    Giving power to those who face the problems
               directly. Elements of these issues also appear    requirements; the competence of the             at the sharp end of the business feels right
               in papers P2 and P5.                              workforce; the ability of the company’s         intuitively. In my own research, a plant
                   Giving workers the authority to do their      information and control systems to retain       manager explained that “empowerment is like
               jobs in the way that’s most appropriate to        control; the risks of things going wrong; and   pulling 200 small levers rather than one big
               their local circumstances has been one of the     the overall strategic objectives.               one. It’s about the company trusting us.”
                                                                                                                     But it can mean different things to different
                Different empowerment styles                                                                     people – and there is scepticism. Another
                                                                                                                 manager in the same company told me: “I am
                Information-sharing      This mostly entails downward communication – eg, briefings,
                                                                                                                 empowered to solve any problem, as long as
                                         newsletters and business plans – but it includes upward and
                                                                                                                 I don’t spend any money doing it.” In other
                                         horizontal communication, involving information-sharing among
                                                                                                                 words, senior managers can use
                                         cross-functional teams.
                                                                                                                 empowerment as a convenient way of shifting
                Upward                   Employees have the power to refer problems to their managers            responsibility without a commensurate
                problem-solving          to tackle (this may involve being empowered to halt production).        increase in discretion over resources. Other
                                                                                                                 studies have raised questions about this
                Task autonomy            Employees take on wider responsibility for processes, usually as
                                                                                                                 issue. According to Adrian Wilkinson
                                         self-directed teams. This aids delayering and a reduction in
                                                                                                                 (“Empowerment theory and practice”,
                                         external inspection routines as peer pressure becomes the main
                                                                                                                 Personnel Review, Vol 27, No 1, 1998), most
                                         control mechanism.
                                                                                                                 empowerment initiatives “are purposefully
                Attitudinal shaping      Empowerment is seen as a psychological process where there is           designed not to give workers a very
                                         little change in work or organisational structures but employees        significant role in decision-making but rather
                                         learn to feel empowered (a state of mind) and become more               to enhance employee contribution to the
                                         confident in their interactions with customers.                         organisation”. He went on to suggest that the
GETTy IMAGEs




                                                                                                                 term “empowerment” could cover a range of
                Self-management          This should involve the erosion of divisions between managers
                                                                                                                 styles (see panel).
                                         and workers. Decisions, rules and authority would no longer be
                                                                                                                     Empowerment may involve flexibility in what
                                         set by the few for the many.
                                                                                                                 workers do and how they do it, as long as the



44             financial management
                                                                                                                                   PAPER P1
                                                                                    (ALSO OF INTEREST TO P2 AND P5 CANDIDATES)




output criteria are met. But there may also be         is distributed and the emphasis of control is on   In the case of the airline, it would not be
times when strong central control is required –        self-monitoring by workers. For example, the       helpful to highlight to managers how much
for example, when the organisation has to              format of accounting information, the style of     the aircrew might have cost the company by
produce cheaper goods than the compeitition            communication and the objectives of the            upgrading unhappy passengers if other
or when a regulatory regime demands                    management accounting control system will          factors are not balanced against that cost or
conformity to set procedures. In many                  probably differ if the recipients are junior       at least linked to it. Perhaps the flight was
industries both approaches might exist, which          managers and workers who want detailed             delayed by maintenance problems. Perhaps
can be confusing. In these circumstances the           information that’s relevant to their individual    the catering budget had been reduced by
manager’s job is to guide employees so that            areas in real time, rather than senior managers,   central management and there weren’t
they can work within what at times might seem          who prefer summary information aggregated          enough meals on board. Management
conflicting demands for both flexibility and           across the organisation.                           accountants have to be able to see the
control. On an airliner, for example, the crew             Management accountants need to                 issues behind the numbers and be careful in
may have considerable discretion over how              appreciate that these different requirements       the way that they present information.
they deal with passengers during a flight. This        are likely to co-exist. They also have to be           Rodney Coyte (The Role of Management
may range from upgrading a disgruntled                 sensitive when designing accounting and            Accounting in the Emerging Approach to
passenger to first-class accommodation right           control systems, since the information they        Teamwork, IFAC, 1995) suggested that
up to making an emergency landing – which              produce needs to be tailored to the recipient.     management accountants can help to develop
could cost tens of thousands of pounds.                                                                   self-directed work teams by providing
Considerable authority may be given to the                                                                “resource consciousness” including:
aircrew, but overall responsibility still rests with                                                      n More timely measures and different
the airline’s directors. In other aspects, the                                                                communication media, together with the
crew has little discretion over what they do, as                                                              interpersonal skills needed to aid the
the industry is strictly regulated. If the manual                                                             transfer of key performance information to
states “follow this procedure”, then that must                                                                front-line employees.
be done, no matter if individual crew members                                                             n The facilitation of direct data collection and
see a better way of doing it.                                                                                 its use by operations managers and staff,
    Changing from a top-down, bureaucratic                                                                    rather than responses to requests for
regime to an empowered organisation is likely                                                                 information. (Note that improvements in
to have significant implications for the style                                                                enterprise resource planning systems
and processes of management control. Less                                                                     since the mid-nineties have greatly helped
direct supervision should be necessary, but                                                                   operational employees to take ownership
the unleashing of entrepreneurial flair might                                                                 of their data.)
expose the company to excessive risk or                                                                       Robert simons (“Control in an age of
compromise its operational integrity.                                                                     empowerment”, Harvard Business Review,
    Changes in the management control regime                                                              March-April 1995) proposed that the senior
will have implications for management                                                                     managers in an empowered organisation
accounting, which has tended to develop as                                                                 should seek to retain control using four tools:
an instrument of the vertical,                                                                                         diagnostic control systems (detailed
command-and-control style of                                                                                             operational performance data);
management – ie, reporting                                                                                                 interactive control systems
upwards to a small                                                                                                          (strategic monitoring); boundary
number of senior                                                                                                             systems (limits to
managers rather than                                                                                                          empowerment); and belief
downwards to a larger                                                                                                         systems (core values/culture).
number of junior                                                                                                               Management accountants
managers and workers.                                                                                                           have a particular role to play
Indeed, both the method                                                                                                          in designing diagnostic
and the outlook of the                                                                                                            systems and boundary
management accounting                                                                                                             parameters through the
function are likely to be                                                                                                         budgeting and capital
different under an                                                                                                                 appraisal processes.
empowered system,                                                                                                                  While such systems might
where decision-making                                                                                                              seem to reflect the



                                                                                                                                          financial management 45
>studynotes                                                                                                                   PAPER P1
                                                                                  (ALSO OF INTEREST TO P2 AND P5 CANDIDATES)




 exaM Practice                                       changed a lot in the past year. The new           for example, when a big rush job was
                                                     machines are much better than the old             coming through. We wanted the
 Try the following question to test your             labour-intensive methods, but it’s not quite      maintenance team to check the machines
 understanding. The answer will appear in            as simple as pressing a button. To make           over, as they had been playing up a bit, and
 the students’ section of CIMA’s web site            best use of the machines they have to be          for the stores team to do its quality checking
 (http://snipurl.com/26gdx).                         maintained and programmed properly.               on the materials ahead of the normal
     sherwin, a company that makes a range           We’ve had to alter the physical layout and        schedule. Neither thing happened because,
 of pet accessories, has recently installed          workflow around the machines to ensure            by the time the three departmental
 new equipment, which has proved                     that there are no hold-ups. Also, we’re now       supervisors (ours and theirs) had held a
 successful in reducing the size of the direct       running two shifts, which means that the          meeting and then cleared things with the
 workforce. But customers are still                  operators are left on their own for four hours    production director, the job had started.
 complaining about product quality and               before I start at 10am and four hours after I     In the end we had just enough materials
 delivery problems. As a result, two further         finish at 6pm. If they have a problem, they       ready, but only because the machines did in
 initiatives – total quality management (TQM)        have to stop until they can get hold of me or     fact break down. The problem is that one
 and just-in-time production (JIT) – have            another senior manager.                           part of the company can’t talk to another
 since been introduced. While the remaining              Kieran Patel, machine operator, said:         part without going up and down through the
 workforce accepts the need to modernise             “The quality is much better from the new          supervisors and sticking to petty
 and has embraced the spirit of both TQM             machines, but we’re getting a lot of pressure     bureaucratic procedures.”
 and JIT, there have been few improvements.          from management to change the way we do                In response to these comments, south
     Fred south, sherwin’s founder and chief         things, partly through the JIT and TQM            said: “It’s all nonsense, of course. I’m always
 executive, is frustrated and has asked a            systems but also through the need to swap         telling everybody that as long as they stick
 friend, Linna ye, a management consultant,          product lines quickly. The extra business we      to the rules they have total authority to sort
 to have exploratory discussions with some           have with the supermarkets is good, but           things out. Everyone is well informed: we
 of the managers and workers. she has                they keep changing their minds about which        publish a company newsletter online every
 chosen the following extracts of                    colour is best and even which products            fortnight and produce summary accounts
 conversations to reflect their views.               should be sold. There’s a lot of frustration in   twice a year. I want them to see how low our
     Dave Bizet, production director, said:          the plant at the moment.”                         profits are and how much we need to get
 “The new machines are very fast, but setting            Dave smith, machine operator, said: “I        our act together. People are empowered
 them up needs great care. One slip and              was recruited recently as part of the second      here and they can’t say the directors don’t
 materials worth thousands of pounds might           shift. It’s OK here, but there are a lot of       trust them. If anybody tells you otherwise, I
 be wasted. We’ve had to tighten up the              problems. No one seems quite sure what            want their name!”
 control system and put a stop to a lot of           they should be doing. It is a bit like how it          you are required to:
 sloppy thinking. ‘Right first time, all the time’   was at my previous firm. The managers say         A Identify the likely causes of the friction
 is what I say – and my people know that I           that we should use our initiative, but when            in the working relationships at sherwin
 mean it. Otherwise, they would simply run           we do they say we should have asked them               (15 marks).
 the business to suit themselves.”                   first. They don’t seem to know what they          B Advise the directors on how a better
     Michelle Auberg, supervisor, dog                want. And it’s just as bad for those in the            culture of empowered working might be
 grooming products, said: “Things have               middle: the supervisors. Take the other day,           adopted (ten marks).




centralised, bureaucratic approach,                   P1 further reading
participative planning sets out a framework
within which workers can then work on their           H Davis and F Militello, The Empowered Organization: Redefining
own without constantly having to seek
authorisation from above.
                                                      the Roles and Practices of Finance, Financial Executives Research
                                                      Foundation, 1994.
Ian Herbert is a lecturer in accounting and           P Adler, “Time-and-motion regained”, Harvard Business Review,
financial management at Loughborough                  January-February 1993.
University Business School.



                                                                                                                                     financial management 47

				
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