EVects of organizational process change on responsibility … · 2014. 12. 17. · nizational...

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Accounting, Organizations and Society 33 (2008) 164–198

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EVects of organizational process change on responsibilityaccounting and managers’ revelations of private knowledge

Casey Rowe a,¤, Jacob G. Birnberg b, Michael D. Shields c

a W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USAb Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260, USA

c Broad Graduate School of Management, Michigan State University, East Lansing, MI 48823, USA

Abstract

We report the results of a nine-year Weld study that examines how responsibility accounting (RA) is used to managehorizontal relationships among several responsibility center (RC) managers including those who work on committees orcross-functional teams. We Wnd theory-consistent evidence that the goal-congruent design or redesign of accounting andparticipation practices in general, and of RA in particular, depends on the magnitude, scope, and speed of organiza-tional process change. When there is a change in the magnitude, scope, and speed of organizational process change, weWnd that the measurability of RC managers’ Wnancial performance can change, and we also Wnd that using RA to man-age RC boundaries is an important mechanism for achieving goal-congruent behavior and avoiding dysfunctionalbehavior. Moreover, we show that several accounting and participation practices (e.g., activity-based costing, open bookaccounting, project budgeting, cross-functional teams) support RC boundary management that involves framing orreframing RC boundaries so as to inXuence competitive or cooperative behavior among RC managers. Finally, thisstudy contributes by introducing a new research method to the accounting literature that is eVective in structuring andinterpreting longitudinal Weld data in relation to theoretical expectations.© 2006 Elsevier Ltd. All rights reserved.

Introduction

Organizations are increasingly changing theirstrategies and structures as they experiment withand implement organizational strategies such as

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E-mail address: [email protected] (C. Rowe).

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continuous improvement, stretch targets, restruc-turing, and reengineering as well as new organiza-tional structures such as Xat structures, autonomouswork teams, committees, and cross-functional teams(Abernethy & Lillis, 1995; Chenhall, 2006; Deni-son, Hart, & Kahn, 1996; Kanter, 1989; Mohrman,Cohen, & Mohrman, 1995; Scott & Tiessen, 1999;Siegel & Sorensen, 1999). We focus on responsibil-ity accounting (RA), which is a key mechanism for

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C. Rowe et al. / Accounting, Organizations and Society 33 (2008) 164–198 165

how management accounting interfaces with orga-nizational strategies and structures (Anthony &Govindarajan, 2001; Simons, 2000). A centralquestion is whether the design of accounting andparticipation practices in general, and RA in par-ticular, are aligned (or realigned) to be consistentwith these changes in organizational strategies andstructures. If there is misalignment, then manage-ment accounting can be a source of friction orcompetitive disadvantage. However, there is littleresearch on RA, such as factors that inXuence itsdesign and eVects in the context of contemporarychanges in organizational strategies and structurestowards more subunit interdependence and team-based management.

RA is traditionally based on the assumptionthat responsibility-center (RC) managers are indi-vidually accountable for an organizational subunitsuch as a department or division (Horngren,Datar, & Foster, 2006; Merchant, 1985; Simon,Guetzkow, Kozmetsky, & Tyndall, 1954). In con-trast, recognizing contemporary strategic andstructural changes in organizations, we deWne RAmore broadly as including interdependent or jointactivities in which groups of RC managers (e.g.,committees, cross-functional teams) are jointlyaccountable for their aggregate performance (e.g.,Bushman, Indjejikian, & Smith, 1995; McNair,1990; Rowe, 2004; Scott & Tiessen, 1999). Thus,instead of focusing on RA principally as a mecha-nism for managing individual RC managers verti-cally up and down an organizational hierarchy(e.g., Demski & Sappington, 1989), we focus on RAas a mechanism for horizontally managing groups,teams, or committees of several functionally diVer-entiated RC managers who work on a commonorganizational value chain or organizational pro-cess (Hopwood, 1996; Ditillo, 2004; Rowe, 2004).1

We identify and examine relations between twoelements of RA that have typically been studiedseparately: the Wnancial measurability of RC per-formance and RC boundaries. We consider RCmeasurability to be an organization’s ability either

1 We use the terms group and team interchangeably. In con-trast, following Galbraith (1993) we use the term committee todenote a special kind of group or team with relatively highauthority in a hierarchy.

to separably measure each individual RC man-ager’s Wnancial performance or to only inseparablymeasure the aggregate Wnancial performance of agroup of RC managers who work jointly on a com-mon organizational process (Bushman et al., 1995;McNair, 1990; North, 1981; Rankin & Sayre, 2000;Rowe, 2004). Few studies investigate control prob-lems that are associated with organizational con-texts in which it is not possible or desirable toseparately measure each RC’s performance (e.g.,distrust, social loaWng, free riding, and inequity)(Kachelmeier & Shehata, 1997; Rowe, 2004), forexample due to jointness or interdependence, whichcan be caused by changes in organizational strat-egy and/or structure (North, 1981; Teece, 1996).

Motivating RC managers to have competitiveor cooperative behavior can be critical to achievinggoal-congruent behavior (Demski, Fellingham,Ijiri, & Sunder, 2002). In particular, whether moti-vating competitive or cooperative behavior amongRC managers increases or decreases organiza-tional performance can depend on the magnitude,scope, and speed of organizational process change(Bowditch & Buono, 2005; Hirshleifer, 1980;North, 1981). Building on research by Rowe(2004), we use the social psychology theory of rela-tional framing (Fiske, 1991; Haslam, 2004; Tetlock& McGraw, 2005) to explain how the design orredesign of several accounting and participationpractices support boundary management thatinvolves framing or reframing RC boundaries soas to inXuence whether RC managers’ behavior iscompetitive or cooperative.

We address the following research question:How do RC Wnancial performance measurabilityand RC boundaries aVect RC managers’ revela-tions of private knowledge when central managersalter their intended strategy of organizational pro-cess change from continuous to discontinuous orvice versa? In particular, we investigate how themagnitude, scope, and speed of organizational pro-cess change aVects RC measurability and RCboundaries. We also examine how RC measurabil-ity and RC boundaries interactively inXuence man-agers’ goal-congruent behavior, in particular theirrevelations of private knowledge about opportuni-ties to increase organizational performance (Anto-nelli, 1995; Rowe, 2004; Teece, 1996).

166 C. Rowe et al. / Accounting, Organizations and Society 33 (2008) 164–198

Central managers’ strategies for organizationalprocess change can be classiWed as being continu-ous or discontinuous (Meyer, Goes, & Brooks,1995; Romanelli & Tushman, 1994; Tushman &Romanelli, 1985; Weick & Quinn, 1999). The usualstrategy is continuous organizational processchange in which the intent is to increase organiza-tional performance slowly and gradually (e.g., totalquality management, statistical process control).However, occasionally central managers’ pursue astrategy of discontinuous organizational processchange in order to increase organizational perfor-mance rapidly and dramatically (e.g., reengineering,restructuring). For example, discontinuous organi-zational process change is associated with eco-nomic crises, regulatory changes, and/or a productlifecycle changes (Romanelli & Tushman, 1994).Although discontinuous organizational processchange is more diYcult to achieve, it can generateintegrative (synergistic) gains and thus largerpotential increases in organizational performancethan the sum of smaller gains in organizational per-formance arising from continuous organizationalprocess changes (Romanelli & Tushman, 1994).

We provide evidence on the research questionwith data from a nine-year longitudinal Weld studyof a large division of a US aerospace contractor. Toanalyze these data we use a variance researchmethod to study changes in the causes and eVects ofRA over time (Langley, 1999; Van de Ven & Poole,2005). We do this by dividing (later called temporalbracketing) the nine years of data into four timeperiods and then making two types of variancecomparisons to provide evidence on how consistentthese data are with the expected levels of the fourvariables in the theoretical model within each timeperiod and between adjacent time periods.

We contribute to the accounting literature bydeveloping a model and providing evidence on thevalidity of the model concerning how the design orredesign of several accounting and participationpractices (e.g., activity-based costing, open bookaccounting, project budgeting, and cross-func-tional teams) supports boundary management thatinvolves framing or reframing RC boundaries soas to inXuence competitive or cooperative behavioramong RC managers. We also show that boundarymanagement is an important mechanism for

achieving goal-congruent behavior and avoidingdysfunctional behavior when the measurability ofRC managers changes. As predicted, we Wnd evi-dence that RC measurability and RC boundariesinteractively aVect RC managers’ revelations ofprivate knowledge that facilitates central managersin realizing increased organizational performancefrom organizational process change. Finally, thispaper contributes to the accounting literature byusing a new way to structure and interpret longitu-dinal Weld data in relation to theoretical expecta-tions.

The remainder of this paper is organized as fol-lows: Section 2 provides a review of literature thatis pertinent to the development of the theoreticalmodel and Section 3 develops the model and itsthree expectations. Section 4 describes the researchmethod and Section 5 presents evidence from theWeld study with respect to the validity of the threeexpectations. Section 6 concludes with a discussionthat summarizes this paper, identiWes evidence thatis consistent and inconsistent with the theoreticalmodel, revises the initial theoretical model in lightof inconsistent evidence, and Wnally identiWes limi-tations and implications of this research.

Literature review

This section Wrst reviews the literature on orga-nizational process change, managers’ privateknowledge, and RA. The following section thenanalyzes this literature as the basis for developing amodel consisting of three expectations.

Organizational process change

Many organizations can be viewed as contain-ing several organizational processes (or intra-orga-nizational value-chains) such as new productdevelopment or materials management. Each pro-cess runs horizontally across (at least part of) anorganization and groups together related activitiesfrom several functional RCs (e.g., accounting,design engineering, inventory control, manufactur-ing engineering, procurement, quality assurance,and transportation) (Horngren et al., 2006;McNair, 1995; Shank & Govindarajan, 1993).


We examine organizational process changeusing the punctuated equilibrium model, whichtreats strategies for change as being dichotomous(Adler, 2001; Bartunek, 1993; Meyer et al., 1995;Mintzberg & Westley, 1992; Romanelli & Tush-man, 1994; Tushman & Romanelli, 1985; Weick &Quinn, 1999). This model assumes that centralmanagers’ face a strategic choice between manag-ing organizational process change as either aloosely-coupled system (continuous change) or atightly coupled system (discontinuous change).Continuous and discontinuous organizational pro-cess change diVer in terms of (1) the number of RCmanagers who must interact simultaneously toincrease organizational performance and (2) theneed for trust and eVective communication amongRC managers who have diVerent professionaltraining and expertise (e.g., accounting, engineer-ing, legal, marketing) (Manley, 1999). The usualstrategy for most organizations is continuous orga-nizational process change (e.g., total quality man-agement, statistical process control). However,occasionally central managers choose an intendedstrategy of discontinuous organizational processchange (e.g., reengineering, restructuring) inresponse to economic crises, regulatory changes,and/or product life cycle changes (Meyer et al.,1995; Romanelli & Tushman, 1994).

Continuous and discontinuous organizationalprocess changes diVer in terms of magnitude,scope, and speed. Continuous organizational pro-cess change is intended to increase organizationalperformance through small gradual improvementsthat are implemented within individual RCs. Incontrast, discontinuous organizational processchange is intended to increase organizational per-formance through large fast improvements that areimplemented across several RCs (Galbraith, 1982,1993; Mintzberg & Westley, 1992; Weick & Quinn,1999). Due to economies of scope, discontinuouschange can create greater potential for increasingorganizational performance than continuouschange. Both continuous and discontinuous orga-nizational process change can result in increases inorganizational performance that are the sum ofwithin-RC increases in performance. However,only discontinuous organizational process changecan result in increases in organizational perfor-

mance from integrative (synergistic) gains thatarise from interactions among RC managers (e.g.,an RC manager makes changes in his or her RCthat may not increase his or her performance butthey do increase the performance of other RCmanagers) (Romanelli & Tushman, 1994). Thepunctuated equilibrium model predicts that fullyrealizing integrative gains from discontinuousorganizational process change is problematic dueto managerial resistance (e.g., an RC managerwithholds or distorts his or her revelations of pri-vate knowledge to avoid loosing resources).

RC managers’ revelations of private knowledge

An organization’s ability to extract organiza-tional beneWts from an organizational processchange can depend on motivating several function-ally diVerentiated RC managers to accuratelyreveal private knowledge (Antonelli, 1995; Ditillo,2004; North, 1981; Rowe, 2004; Teece, 1996).2

Revealing private knowledge is costly to RC man-agers but beneWcial to the organization, because itenables central managers to identify and eliminateresources that the RC managers could have other-wise consumed (Antle & Eppen, 1985). The cost tothe RC managers not only includes costs of imple-menting change but also includes costs related togiving up budgetary resources, losing power, andlaying oV employees (BariV & Galbraith, 1978).Thus RC managers can have an incentive to distortrevelations of private knowledge, for example,through biasing, Wltering, focusing, and withhold-ing (Birnberg, Turopolec, & Young, 1983).

RC measurability

RC measurability describes an organization’sability to either separably measure each RC man-ager’s Wnancial performance or only inseparablymeasure the Wnancial performance of several RCmanagers who work jointly on a common organi-zational process (McNair, 1990; Merchant, 1985;Ouchi, 1980; Rockness & Shields, 1984). For

2 We operationalize managers’ revelations of private knowl-edge by how revelations reduce expected division cost.


example, activity-based costing (ABC) is onemeans of measuring the performance of an organi-zational process, consistent with inseparable mea-surability (McNair, 1990). Separate measurementof each RC manager’s performance is a fundamen-tal objective of RA as a means of motivating self-interested RC managers to have goal-congruentbehavior (Bushman et al., 1995; Rankin & Sayre,2000; Williamson, 1975).3 Economic theory, how-ever, recognizes that factors such as infrequenttransactions, task interdependency, and intangibleknowledge can cause the cost of separate measuresof individual RC performance to increase suchthat they are no longer cost eVective and thus arereplaced by inseparable RC measures (Alchian &Demsetz, 1972; Milgrom & Roberts, 1992; North,1981; Williamson, 1975).

Inseparable RC measurability also has motiva-tional problems. These include free riding, socialloaWng, distrust, and conXict over an inequitabledistribution of rewards (Kramer, 1999; Latane,Williams, & Harkins, 1979; North, 1981; Ouchi,1980; Williamson, 1975).4

RC boundaries

We deWne RC boundaries broadly as includingseveral accounting and participation practices(Table 1) that convey implicit (implied cognitiveframes) and/or explicit lines of demarcation (physi-cal walls or organizational charts), which separateand/or group together the RC managers who workon a common organizational process. We use thesocial psychology theory of relational framing toexplain how the design or redesign of RC bound-aries supports boundary management that

3 Separable RC Wnancial performance measurability is as-sumed in most research on budgeting, performance measure-ment, transfer pricing, and incentive compensation.

4 Free-riding occurs when one or more individuals beneWtfrom a joint eVort without contributing the costly inputs neces-sary for the group to perform (North, 1981). Social loaWng aris-es when individuals withhold their potential inputs to an equaldegree (Latane et al., 1979). Distrust can block potential contri-butions in diYcult to monitor social situations (Milgrom &Roberts, 1992). Inequity is a common byproduct of organiza-tional process change (Cyert & March, 1963; Lewicki, Weiss, &Lewin, 1992; Starbuck, Greve, & Hedberg, 1978).

involves framing or reframing RC managers aseither individuals or members of a group, whichthen aVects their social motives (cooperation vs.competition) and behavior (Fiske, 1991; Haslam,2004; Tetlock & McGraw, 2005).5

Relational framing theory relaxes the economicassumption that individuals are strictly self-inter-ested (Fiske, 1991; Haslam, 2004). It views individ-ual- versus group-oriented motivation as beingcontingent on how individuals understand theirsocial situation or how their social situation isframed. The theory predicts that boundariesbetween individuals evoke an individual frame (“I”)and competitive self-interested behavior. In contrast,the absence of boundaries between individualsevokes a group frame (“we”) and cooperative group-interested behavior. In summary, relational framingpredicts that behavior depends on whether individu-als believe they are in an “I” or “we” social situation.

We distinguish between competitive and coopera-tive RC boundaries. Organizations typically rely onwhat we refer to as competitive RC boundaries,which divide the organization into several RCs(Chenhall, 2006). Competitive RC boundaries6 rela-tionally frame RC managers as separated individualsbecause their design is based on hierarchical organi-zational structures with an individual managerresponsible for each organizational subunit (e.g.,departments, divisions), which motivates competi-tive self-interested managerial behavior. In contrast,cooperative RC boundaries frame RC managers asbelonging to the same group, which motivates coop-erative group-interested managerial behavior.

Table 1 identiWes four types of RC boundariesthat are implied by accounting and participationpractices: organizational, communication, spatial,

5 Relational framing diVers from valence framing which ismore common in the accounting literature. Valence framingfrom cognitive psychology focuses on the eVects of informationthat is presented such that the outcomes of actions have either apositive or negative connotation (Haynes & Kachelmeier,1998). In contrast, relational framing from social psychologyfocuses on how the frame through which people understandtheir social situation explains and predicts their interpersonalbehavior (Tetlock & McGraw, 2005).

6 Competitive RC boundaries “ƒ tend to be determined bythe structures of trades and professions in the broader socialenvironment”. (March & Simon, 1958, p. 179).


boundary, and temporal. In addition, Table 1describes and provides examples of severalaccounting and participation practices that imply

competitive or cooperative RC boundaries. Forexample, consistent with boundary management,competitive or cooperative RC boundaries are

Table 1Accounting and participation practices and competitive or cooperative responsibility-center (RC) boundariesa

a We focus on organizational contexts involving several RC managers from functionally diVerentiated RCs who work on a commonorganizational process, intra-organizational value-chain, or initiative.

RC boundaries Description Examples

Organizationalboundary:Accountingorganizationaldesign

Competitive RC boundary: Partitioning individualRC managers by using separate budgets, and separateaccounting reports, unshared accounting information,and by referring to particular RC managers usingdiVerent titles or social categories on accountingreports and other accounting information

Traditional RA provides diVerent sets ofaccounting information to diVerent RCmanagers (Pick, 1971; Kilmann, 1983; Rowe,2004; Horngren et al., 2006). Labeling each RCmanager as a separate entity (e.g., “Engineering”, “Marketing”, etc.) (Pondy, 1964; Rowe, 2004;Towry, 2003)

Cooperative RC boundary: Grouping RC managerstogether using consolidated budgets, shared accountingreports and shared accounting information, and byreferring to a cross-functional team of RCmanagers using no or a single title or social categoryon accounting reports and other accountinginformation

Creating joint project budgets (Kachelmeier et al.,1994) or bundled budgets (Miller & O’Leary, 1997).Sharing process-level accounting information(Rowe, 2004), open book accounting (Mouritsen,Hansen, & Hansen, 2001), and labeling RCmanagers as members of a “group” or “cross-functional team” (Rowe, 2004; Towry, 2003)

Communicationboundary:Accountingsystemlanguage

Competitive RC boundary: Designing accountingsystems and accounting information using technicalaccounting jargon that inhibits inter-RCcommunication about the economic implications ofcompeting initiatives (cf. Steiner, 1986)

Using complex technical accountingjargon in reporting accountinginformation (e.g., Davidson et al., 1982)

Cooperative RC boundary: Designing accountingsystems and accounting information using languagethat all RC managers understand and that facilitatesinter-RC communication about the economicimplications of initiatives (cf. Steiner, 1986)

Translating technical accounting terminology (e.g.,accounting terms in the general ledger) intolanguage that all RC managers can understand,for example, by using ABC (Keys & Lefevre, 1995;Cokins, 1997)

Spatial boundary:Participationproximity

Competitive RC boundary: Physically distancingRCmanagers and/or placing physical barrierssuch as walls between them (Steiner, 1986; Kiesler &Cummings, 2002)

Distributed teams by arranging RC managers indiVerent rooms or diVerent facilities (Rowe, 2004)

Cooperative RC boundary: Physically bringingtogether RC managers in face-to-face proximity(Kiesler & Cummings, 2002)

Integrative liaison devices (Abernethy & Lillis,1995). Collocating committees or cross-functionalteams of RC managers in a common meeting roomRowe, 2004)

Temporalboundary:Participationspeed

Competitive RC boundary: Having individualRC managers communicate sequentiallyin evaluating the economics of competinginitiatives

RC managers privately communicate their RCs’productive capabilities to a common superior, whothen coordinates their individual contributions(Chow et al., 1994)

Cooperative RC boundary: Having a group ofRC managers communicate simultaneously inevaluating the overall economics of competing initiatives

Assigning RC managers to negotiate joint plans forinitiatives concurrently, for example, in a cross-functional team (Meyerson et al., 1995)


implied by providing diVerent sets of accountinginformation to diVerent RC managers or sharingprocess-level accounting information, using techni-cal or plainspoken language in reporting account-ing information, physically separating RCmanagers or having them meet face-to-face, havingmanagers participate through a common superioror having them participate concurrently.

Model development

Fig. 1 presents the model, which has four vari-ables and three expectations. Expectation one isthat organizational process change (continuous ordiscontinuous) inXuences whether RC measurabil-ity is separable or inseparable. Expectation two isthat organizational process change also aVectswhether RC boundaries are competitive or cooper-ative. Expectation three is that RC measurabilityand boundaries interactively inXuence RC manag-ers’ revelations of private information that is nec-essary to change an organizational process in orderto improve organizational performance. Theremainder of this section provides theoretical anal-ysis to support each expectation.

Organizational process change and RC measurability

The inverse relation between RC interdepen-dence and separable RC measurability is well docu-mented in the accounting literature (e.g., Bushmanet al., 1995; Chenhall, 2006). The punctuated equi-librium model assumes RC interdependencedepends on whether central managers choose astrategy of continuous or discontinuous organiza-tional process change. Continuous organizationalprocess change can be planned and implemented ina piecemeal fashion separately within RCs, becausethere is low RC interdependence, consistent with aloosely coupled system (Weick & Quinn, 1999). Inthis context, RCs can be coordinated and managedas if they operate independently of each another(Thompson, 1967). In contrast, discontinuous orga-nizational process change generates substantiallyhigher RC interdependence than continuous orga-nizational process change, because of the magni-tude, scope, and speed of discontinuous change.Therefore it must be planned and implementedconcurrently across the organizational process (thatis, across RCs), consistent with a tightly coupledsystem (Weick & Quinn, 1999). In this context,

Fig. 1. Theoretical model.c

OrganizationalProcess Change a

• Continuous /Discontinuous

Responsibility-Center Measurability b

• Separable / InseparableResponsibility-Center Managers’Revelations ofPrivate Knowledge• Low / High

Responsibility-Center Boundaries

E1

E3

E2

a The organizational process change is based on central managers’ strategic intent.b Responsibility-center measurability is limited to measurability of financial performance.

• Competitive / Cooperative

a

b

In this model each variable is dichotomized for expositional convenience.c


several RC managers are attempting to simulta-neously negotiate interdependent organizationalinitiatives instead of focusing on performanceincreases within each RC (Galbraith, 1982; Thomp-son, 1967).

While separable RC measurability can be eVec-tive for continuous organizational process change,we predict that discontinuous organizational pro-cess can greatly increase the cost and reduce the fea-sibility of separable RC measurability due to higherinterdependence among the RCs involved with thediscontinuous organizational process change.7 Inconsequence, separable RC measurability is notexpected to be used during discontinuous change.Therefore, we expect that continuous (discontinu-ous) organizational process change will inXuenceRC measurability to be separable (inseparable).

E1: When central managers shift theirintended strategy of organizational processchange from continuous to discontinuous(discontinuous to continuous), RC measur-ability changes from separable to inseparable(inseparable to separable).

Organizational process change and RC boundaries

Several theories support the prediction that theneed for competitive or cooperative behavioramong RC managers depends on whether centralmanagers’ intended strategy is continuous or dis-continuous organizational process change (Bow-ditch & Buono, 2005; Hill, Hitt, & Hoskisson, 1992;Milgrom & Roberts, 1992; North, 1981). We expectthat central managers will choose the appropriatedesign of RC boundaries based on their organiza-tional process change strategy. When central man-agers change their strategy, they are expected to

7 In contrast to continuous organizational process change,the non-routine nature of discontinuous organizational processchange also reduces the eVectiveness of separable RC measure-ment due to increased reliance on special purpose expertise (adhoc private knowledge) from knowledge workers (Birnberg &Heiman-HoVman, 1993). In addition, the lack of repetitive so-cial interaction among RC managers eVectively blocks themfrom mutual monitoring of each other (as suggested by Towry,2003) and it limits the value of reputation as a control mecha-nism (North, 1990).

redesign RC boundaries appropriately. Competitivebehavior among RC managers is goal congruentwhen organizational process change is continuous,due to low RC interdependence, and therefore cen-tral managers are expected to implement competi-tive RC boundaries (Milgrom & Roberts, 1992;North, 1981). In contrast, cooperative behavioramong RC managers is goal congruent when orga-nizational process change is discontinuous, due tohigh RC interdependence, and therefore when thisis central managers’ intended strategy, they areexpected to implement cooperative RC boundaries(Meyerson, Weick, & Kramer, 1995).

Reframing is an important means of inXuenc-ing competitive or cooperative behavior thataVects social behavior by introducing a new rela-tional frame of how people are related that Wts thesocial situation as well as or even better than theprevious relational frame (Watzlawick, Weak-land, & Fisch, 1974). Recall, however, that severalRA and participation practices frame or reframethe boundaries between RC managers (Table 1).Social psychology research Wnds that, when multi-ple boundaries are present, reframing or changingbehavior can depend on redesigning (removing,adding, moving) all of the boundaries so as toconstruct a consistent frame (Ashforth, Kreiner,& Fugate, 2000; Bartunek, 1993; Meyerson et al.,1995; Rowe, 2004). For example, changing RCmanagers’ behavior from competitive to coopera-tive (or vice versa) is expected to depend on refra-ming each of the four types of RC boundaries inTable 1 from competitive to cooperative (or viceversa). We expect that when central managersshift their intended strategy of organizational pro-cess change from continuous to discontinuous (orvice versa), each RC boundary will be reframedfrom competitive to cooperative (cooperative tocompetitive). Therefore we have the followingexpectation:

E2: When central managers shift theirintended strategy of organizational processchange from continuous to discontinuous(discontinuous to continuous), they replaceall competitive RC boundaries with coopera-tive RC boundaries (cooperative RC bound-aries with competitive RC boundaries).


RC measurability, RC boundaries, and RC managers’ revelations of private knowledge

Table 2 presents the expected interactionbetween RC measurability and RC boundaries onRC managers’ type of behavior and the levels oftheir revelations of private knowledge. SeparableRC measurability and competitive RC boundariesframes RC managers as being independent, whichis consistent with a market-like relationship(Baker, Gibbons, & Murphy, 2001). In this context,competitive managerial behavior complementsseparable RC measurability which motivates RCmanagers to reveal private knowledge much likecompetition and self-interest complement a systemof private property rights in a market economy(North, 1981). Consistent with a competitive mar-ket, experimental evidence indicates that in thiscontext competitive behavior increases individualperformance (Frederickson, 1992; Ghosh, 2000;Rankin & Sayre, 2000; Young, Fisher, & Lind-quist, 1993). Thus, in this context, we expect thatRC managers’ revelations of private knowledgewill be at high levels.

In the context of inseparable RC measurabilityand competitive RC boundaries, conXict is expectedamong RC managers, which causes them to havelow levels of revelations of private knowledge.When competitive self-interest is salient due to com-petitive RC boundaries, an RC manager has no rea-son to contribute his or her private knowledge tohelp increase organizational performance – unless itincreases his or her individual performance. Con-tributing casts him or her in the role of the“sucker”, while others free-ride (Hirshleifer, 1980;Messick & Brewer, 1983; Milgrom & Roberts,

1992). Moreover, disagreement surfaces amongmanagers when total organizational cost is reduced(Cyert & March, 1963; Hirschman, 1970).

Consistent with this explanation, competitivebehavior can be a primary obstacle to discontinu-ous organizational process change and theimprovement of organizational performance (Der-touzos, Lester, & Solow, 1989). For example, Dyk-man, Davis, and Smigh (1991, p. 10) report that theprocess of planning a new international electronicmail system “ƒ was fraught with organizational‘turf wars’ as it lead to conXict between diVerentsubsidiaries of an international company, as wellas conXict between diVerent departments – all ofwhom were trying to control the implementationand the ongoing management of the technology.”Denison et al. (1996) and Joyce, McGee, and Slo-cum (1997) also Wnd that competitive behavior canlead to managerial conXict, resistance, and low per-formance in cross-functional teams. Finally, Rowe(2004) provides experimental evidence that whenRC measurability is inseparable, competitive com-pared to cooperative RC boundaries leads to sig-niWcantly lower group-level performance due tofree riding and distrust. Thus, when RC measur-ability is inseparable, competitive managerialbehavior can be dysfunctional.

Inseparable RC measurability also means thathorizontal inequities are likely to arise among RCsinvolved in a process change (e.g., some RC manag-ers must sacriWce more than others to achieve favor-able group and/or organizational performance)(Ouchi, 1980). Indeed, horizontal inequities are acommon source of conXict during discontinuousorganizational process change (Lewicki et al., 1992;Starbuck et al., 1978). In particular, competitive RC

Table 2Expected eVects of responsibility-center measurability and responsibility-center boundaries on the type of managerial behavior and thelevels of responsibility-center managers’ revelations of private knowledge

a Responsibility-center measurability is limited to measurability of Wnancial performance.

Responsibility-center boundaries Responsibility-center measurabilitya

Separable Inseparable

Competitive (1) Market-like (2) ConXictHigh Low

Cooperative (3) Collusion (4) Communal sharingLow High


boundaries are expected to increase interpersonalconXict among RC managers due to their beliefsthat horizontal inequities exist and therefore tomotivate them to withhold private knowledge.Thus, when RC measurability is inseparable andRC boundaries are competitive, we expect that reve-lations of RC managers’ private knowledge will beat low levels due to conXict.

In the context of separable RC measurabilityand cooperative RC boundaries, RC managers areexpected to collude, which causes low levels of rev-elations of private knowledge (e.g., all managersconspire to withhold private knowledge). Collu-sion arises because separable RC measurability isvulnerable to unsanctioned cooperative manage-rial behavior – group-oriented behavior that isintended to restrict potential performance, to thedeterment of the organization. Several studies pro-vide evidence that separable RC measurability andcooperative behavior can lead to collusion withinorganizations (Becker & Green, 1962; Roy, 1952;Towry, 2003; Yoon, 1987; Zhang, 2006). Thus, inthis context we expect that revelations of RC man-agers’ private knowledge will be at low levels dueto collusion.

Finally, in the context of inseparable RC mea-surability and cooperative RC boundaries, RCmanagers’ behavior is expected to be characterizedby communal sharing (Fiske, 1991) among RCmanagers and thus to result in high levels of revela-tions of RC managers’ private knowledge. Cooper-ative managerial behavior is necessary when RCsare no longer independent due to unmeasuredexternalities (Hirshleifer, 1980; Milgrom & Rob-erts, 1992; North, 1981). For example, cooperationis needed to understand RC interdependencies andidentify integrative performance gains, therebyavoiding suboptimal organizational performance.However, when RC measurability is inseparable, itis foolish for RC managers to contribute privateknowledge unless a critical mass of other RC man-agers can be trusted to cooperate by revealing pri-vate knowledge (Messick & Brewer, 1983).Moreover, cooperative RC boundaries also areexpected to motivate the group of RC managers toperform by having a standard of justice thatemphasizes communal sharing even when con-fronted by horizontal inequities that are associated

with discontinuous organizational process change(Fiske, 1991). Thus, in this context, we expect thatrevelations of RC managers’ private knowledgewill be at high levels.

The above analysis as summarized in Table 2provides the basis for predicting that RC measur-ability and boundaries have the following disordi-nal interactive eVect on RC managers’ revelationsof private knowledge:

E3: When RC measurability is separable(inseparable) and RC boundaries are com-petitive (cooperative), RC managers’ revela-tions of private knowledge will be at highlevels and otherwise their revelations will beat low levels.

Research method

Our research strategy uses two methods calledtemporal bracketing and variance (Langley, 1999).Temporal bracketing divides the time length of aWeld study into time periods in which there arecontinuities of events within each time period anddiscontinuities of events between time periods. Weuse temporal bracketing to form four time periodsbased on the intended organizational processchange (continuous or discontinuous) and/or thechange in RC boundaries (for all four types of RAand participation practices in Table 1). As Langley(1999) notes, each time period can then be used tomake comparisons of organizational processchange between time periods.

With the variance (also called synthetic)research method “original process data are trans-formed from stories comprised of ‘events’ to ‘vari-ables’ that synthesize their critical components”(Langley, 1999, p. 704; Van de Ven & Poole, 2005).Variance-method studies of organizational pro-cess change investigate by causal analysis howchange in the independent variable cause changein the dependent variable. We use temporal brac-keting and variance to make two types of compar-isons and provide evidence on how consistent thedata are with the three expectations: (1) withineach time period we compare the realized andexpected levels of the four variables and (2)between adjacent time periods we compare the


realized and predicted changes in the levels of thefour variables.

All research methods have strengths and weak-nesses (Birnberg, Shields, & Young, 1990). Langley(1999) evaluates the variance method for studyingorganizational process change using three criteriaproposed by Thorngate (1976) and Weick (1979),which are accuracy (closeness of the theory to thedata), generality (the potential range of situationsto which the theory can be applicable), and sim-plicity (the number of elements and/or relation-ships in the theory). The variance method is low onaccuracy but high on generality and simplicity,with temporal bracketing being medium on thesethree criteria.

Financial crises like in the focal division(described in Results section) are diYcult to pre-dict (and thus for researchers to have access tobefore and during) and therefore researchers typi-cally conduct retrospective analysis of known dis-continuous organizational process changes usingarchival documentation. Real-time participantobserver collection of data are less common, butimportant due to the evidence it can provide (Vande Ven & Poole, 2005; Young, 1999). We use bothretrospective archival analysis and real-time par-ticipant observation as the basis for data collectionbecause they enable us to analyze the validity andreliability of the data through triangulation (Eisen-hardt, 1989). For example, we examine and recon-cile inconsistent observations in order to increaseconvergent validity.

The Weld data are contemporaneously collectedduring a nine-year longitudinal Weld study of alarge division of a US aerospace contactor. Thesedata are from three types of sources: participantobservation, real-time collection of documents,and archival documents. Use of participant obser-vation to collect data in real-time has the advan-tage of gaining the trust of employees in theorganization and hence access to information thatwould be unavailable to outsiders (Anderson,1995; Young, 1999).

When doing this Weld study, the Wrst author wasa full-time employee insider who became a partici-pant observer at the beginning of the nine-yearperiod and then an insider outsider from the begin-ning of year four through the middle of year nine,

starting with an academic study of interestingaccounting and organizational process change ini-tiatives at the focal division for credit toward a MSdegree in Accounting.8 This individual was wellpositioned to gather documents pertinent toaccounting and organizational process change ini-tiatives in real-time as his position was to work“What ever is the current hot topic ƒ special pro-jects, as assigned, that identify and implement pro-cess improvements”.9 The third author was anoutsider who supervised the independent researchby the Wrst author beginning in year four and healso acted as an unpaid observer during the devel-opment of the accounting initiative to reframe RCboundaries from competitive to cooperative thatdemarcates periods 2 and 3. We also had access toabout 9500 pages of mostly proprietary documentsfor this division that were collected in real-time,including a rich set of documents that detailaccounting changes, organizational process changeinitiatives, special studies by external consultants,interviews, surveys, chronologies of accountinginformation used by RC managers, and writtencorrespondence from within several teams (Table3). Finally, we supplement the data with publiclyavailable archival documents from news papers,journals, and books.

Participant observation has costs including thelack of control over the research context, the possi-bility of unintentionally inXuencing observedbehavior, and the potential for researcher bias. Wedesigned the study to reduce potential researcherbias. Participant observation provides several ben-eWts. One is that it enabled us to observe manage-rial conXict and resistance that is oftenunobservable when a discontinuous organizationalprocess change is examined retrospectively (Ger-sick, 1991). Having two participants in diVerentobserver roles increased convergent validitybecause the two observers provide a check on each

8 Wallerstein, Duran, Minkler, and Foley (2005) deWne insideroutsiders as people who are both insiders because of their exist-ing relationships within an organization and also outsiders, dueto other reasons such as educational attainment.

9 “Performance appraisal for Casey Rowe: General Dynam-ics Convair Division Accounting Functional Department”,internal Convair report (January 4, 1989), p. 1.


Tab

le 3

Sum

mar

y of

the

dat

a

aM

ost

of t

he d

ocum

enta

tion

was

col

lect

ed in

rea

l-ti

me,

rat

her

than

arc

hiva

lly.

Per

iod

1P

erio

d 2

Per

iod

3P

erio

d 4

Par

tici

pant

obse

rvat

ion

and

inte

rvie

ws

– W

rst

auth

or

• P

ropo

sed

appr

oxim

atel

yte

n co

ntin

uous

org

aniz

a-ti

onal

pro

cess

cha

nge

init

iati

ves

(as

the

proc

urem

ent R

Cm

anag

er o

f the

cru

ise

mis

sile

pro

duct

-lin

e)

• In

terv

iew

ed a

ppro

xim

atel

y 15

RC

man

ager

s w

ho w

ere

prop

osin

gor

gani

zati

onal

pro

cess

cha

nges

(as

the

thir

d-pa

rty W

nanc

e lia

ison

for

the

adva

nced

cru

ise

mis

sile

prod

uct-

line)

• A

cted

as

liais

on t

o ce

ntra

l-m

anag

emen

t, A

BC

/AC

MS

stee

ring

com

mit

tee,

and

ext

erna

l con

sult

ants

• C

ondu

cted

app

roxi

mat

ely

60th

ree-

hour

inte

rvie

ws

wit

hva

riou

s R

C m

anag

ers

as p

art

ofA

BC

/AC

MS

deve

lopm

ent

team

• C

ondu

cted

div

isio

n tr

aini

ngse

min

ars

on A

BC

and

oth

erac

coun

ting

cha

nges

• P

arti

cipa

ted

in t

en m

eeti

ngs

on t

he M

ater

ial M

anag

emen

tpr

oces

s cr

oss-

func

tion

al t

eam

(as

the

team

lead

er a

ndac

coun

ting

RC

rep

rese

ntat

ive)

• P

arti

cipa

ted

ten

mon

ths

full-

tim

e on

the

fab

rica

tion

pro

cess

cros

s-fu

ncti

onal

tea

m a

ndco

nduc

ted

23 t

wo-

hour

inte

rvie

ws

wit

h R

C m

anag

ers

in th

e pr

oces

s•

Par

tici

pate

d in

Wve

mee

ting

s on

the

gene

ral s

ervi

ces

proc

ess

reen

gine

erin

g cr

oss-

func

tion

alte

am (

as t

he a

ccou

ntin

g R

Cre

pres

enta

tive

)

• P

arti

cipa

ted

in W

veco

ntin

uous

orga

niza

tion

al p

roce

ssch

ange

init

iati

ves

in t

heac

coun

ting

RC

• C

ondu

cted

sem

i-st

ruct

ured

inte

rvie

ws

wit

h W

ve k

ey c

entr

alm

anag

ers

rega

rdin

gth

e ac

coun

ting

and

orga

niza

tion

al p

roce

ssch

ange

s th

at t

ook

plac

e at

Con

vair

Unp

aid

exte

rnal

obse

rver

– th

ird

auth

or

• M

et w

ith

Fin

ance

per

sonn

el,

atte

nded

div

isio

n m

eeti

ngs,

supe

rvis

ed a

n ac

adem

icin

depe

nden

t st

udy

byth

e W

rst

auth

or, a

ndob

serv

ed t

he d

evel

opm

ent

of t

he A

BC

/AC

MS

mod

elfo

r te

n m

onth

s

Key do

cum

enta

tion

&in

terv

iew

sa

• St

rate

gic

plan

ning

and

polic

y do

cum

ents

• B

udge

ts, a

ccou

ntin

g re

port

s,an

d ac

coun

ting

sys

tem

docu

men

tati

on•

Inte

rnal

mem

os a

ndem

ail c

orre

spon

denc

e•

Pub

licly

ava

ilabl

e ne

ws

arti

cles

, jou

rnal

art

icle

s,an

d an

nual

rep

orts

• St

rate

gic

plan

ning

doc

umen

ts•

Acc

ount

ing

repo

rts

and

syst

emdo

cum

enta

tion

• D

etai

led

note

s fr

om e

xter

nal

cons

ulta

nts’

inte

rvie

ws

wit

h 31

cent

ral m

anag

ers

in s

uppo

rt o

fa

proc

ess

benc

hmar

king

init

iati

ve•

Pre

sent

atio

ns b

y ex

tern

al c

onsu

ltan

ts•

Pre

sent

atio

ns a

nd n

otes

fro

mce

ntra

l man

ager

s in

ste

erin

gco

mm

itte

e m

eeti

ngs

• T

rain

ing

mat

eria

ls•

Pub

licly

ava

ilabl

e ne

ws

arti

cles

,jo

urna

l art

icle

s, a

nd a

nnua

l rep

orts

• St

rate

gic

plan

ning

and

pol

icy

docu

men

ts•

Inte

rnal

mem

os, c

hron

olog

ies

of a

ccou

ntin

g in

form

atio

n us

edin

cro

ss-f

unct

iona

l tea

ms,

cop

ies

of p

rese

ntat

ions

mad

e, a

nd m

inut

esfr

om c

ross

-fun

ctio

nal t

eam

and

stee

ring

com

mit

tee

mee

ting

s•

Pre

sent

atio

ns b

y ex

tern

al c

onsu

ltan

ts•

Pub

licly

ava

ilabl

e ne

ws

arti

cles

, jou

rnal

art

icle

s,an

d an

nual

rep

orts

• St

rate

gic

plan

ning

and

polic

y do

cum

ents

• B

udge

ts, a

ccou

ntin

gre

port

s, a

nd a

ccou

ntin

gsy

stem

doc

umen

tati

on•

Inte

rnal

mem

os a

nde-

mai

l cor

resp

onde

nce

• P

ublic

ly a

vaila

ble

new

sar

ticl

es, j

ourn

al a

rtic

les,

and

annu

al r

epor

ts


other’s understanding of events and the transfor-mation of events to levels of variables. Multipleobservers also reduce premature-closure bias whenunderstanding of events diVer (Birnberg et al.,1990; Eisenhardt, 1989). The Wrst author’s insider-outsider status helped to avoid the demand-eVectbias in which interviewees tell researchers whatthey believe the researchers want to hear (Young,1999). Long-term participant observation also ishelpful in mitigating observer bias (McKinnon,1988) and diminishing retrospective bias that canbe associated with archival data (Van de Ven,1992). Finally, although we are limited to a singledivision, the multifaceted nature of theory andresearch method (within-period predictions bybetween-period predictions by four variables eachwith two or three levels) exert a strong discipliningforce that sharply limits the potential for biasbecause only a narrow and theoretically predeWnedpattern of results could be consistent with the threeexpectations (Ahrens & Chapman, 2006; Camp-bell, 1988).

Results

We bracketed the Weld data into four time peri-ods over the nine-year period between 1986 and

1994. Table 4 presents a time-line along with keyenvironmental events and organizational processchange initiatives in each of the four time periods.Changes in central managers’ strategy for continu-ous or discontinuous organizational processchange demarcate periods 1 and 2 and periods 3and 4. Periods 2 and 3 are demarcated based on thechange from competitive to cooperative RCboundaries. In order to create an audit trail, theWeld data are organized by headings that corre-spond to the four variables in the model withineach of the four time periods (Table 4). Finally, atthe end of each period, the evidence presented inthat period is summarized and related to the threeexpectations. Table 5 provides a summary of theresults for the level of each variable within eachtime period.

The Convair division

Beginning in 1935 General Dynamics’ ConvairDivision developed and manufactured commer-cial and military aerospace products in southernCalifornia. Due to the cyclical nature of bothdefense spending and demand for commercial air-craft Convair historically experienced several“boom and bust” cycles. For example, followingWorld War II Convair’s revenues fell from

Table 4Periods, dates, environment, and organizational process change initiatives

Dates Period 1 Period 2 Period 3 Period 4

January 1986 –October 1989 November 1989 –July 1991 August 1991 –December 1992 January 1993 –December 1994

Environment • Industry reforms • End of Cold War• Cyclical decline in

commercial aircraft sales

• Sale of Convair’sdefense product-lines

• Corporate oYcedeclares Convair adiscontinued operation

Organizationalprocess changeinitiatives

• >200 initiatives • McKinsey & Co. processbenchmarking

• Four training programs(Conway, Battelle, etc.)

• 174 process action teams• ABC/ACMS model

• Material Managementprocess initiative

• Fabrication processinitiative

• Seven processreengineering initiatives

• Two new ABC modelsto support latter twoinitiatives

• �50 initiatives


$644M to $13M.10 Later, several other boom andbust cycles occurred at Convair.11 These bustswere memorable. Longtime Convair employeesrecalled out-of-work “engineers pumping gas” inthe early 1960s following the end of a majordefense program and when division sales dramat-ically declined after the Viet Nam war. Later,when President Reagan’s defense build-uppeaked in 1986, Convair’s annual revenues hadreached $1B for the Wrst time. However, anotherbust was about to occur due to the end of theCold War and the cyclical decline in commercialaircraft sales.

In 1986 the Convair division was organized asa matrix structure consisting of three productlines by 15 functional departments (e.g., Con-tracts & Estimating, Engineering, Finance, Legal,Program Development, Operations) with approx-imately 200 functionally based RCs that werecost centers.12 For example, the Engineeringdepartment was divided into 28 RCs includingAdvanced Systems, Special Programs, SystemsEngineering, and Test & Evaluation. The productlines included two military cruise missile lines(standard and advanced cruise missiles), togetheraccounting for approximately 60% of the divi-

10 At this time the Convair division was known as the Consoli-dated division (Markusen & Yudken, 1992).11 G. Johnson, “Bracing for an economic nose-dive Wrm was

key to rise of San Diego’s middle class”. Los Angeles Times(May 17, 1992), p. 1.12 “Convair standard practices manual: Organizational

description”, internal Convair document (June 12, 1986).

sion’s sales, and a commercial aircraft structuresproduct line.13

Period 1 (January 1986 – October 1989)

BackgroundIn response to taxpayer concerns about waste,

fraud, and abuse in the defense industry, reformsshifted risk and up-front investment from the gov-ernment to contractors, thus reducing contractors’cash Xows and leading them to having low stockprices relative to other industries.14 Between 1985and 1987, 35% of Convair’s contracts werechanged from cost plus to Wxed price contracts.15

In addition, the 1984 Competition in ContractingAct broke up Convair’s monopoly on its twocruise missile product lines. Convair lost severalcompetitive bids on defense contracts under Wxedprice contracts.16 The lost bids were attributed to

13 The standard Cruise Missile Line produced “ƒ a lightweightwinged aluminum missile whichƒ [would]ƒcruise for more than1500 nautical miles at very low altitudes to avoid radar detectionand strike targets with pinpoint accuracy” (General Dynamics an-nual report, 1975, p. 5). The Advanced Line produced a cruisemissile that was designed to evade radar detection and to Xy for alonger range. The commercial aircraft structures line manufac-tured the central body section of the MD-11 wide-body jet air-craft (consisting of the passenger compartment section).14 E. White, “Risky defense industry attracts bidders – consoli-

dation grows as the stakes get higher”. Wall Street Journal(November 17, 1986), p. 1.15 “Advanced cost management system project brieWng”,

internal Convair document prepared jointly by Convair andexternal consultants from Deloitte & Touche (November 1990).16 “Firms wage contract price war – McDonnell cuts missile

costs to beat GenDyn”. The San Diego Union-Tribune (May 10,1987), p. 1.

Table 5Summary of results: levels of variables in each period

a The organizational process change is based on central managers’ strategic intent.b Responsibility-center measurability is limited to measurability of Wnancial performance.c We operationalize manager’s revelations of private knowledge by how revelations reduce expected division cost.

Variables in model Period 1 Period 2 Period 3 Period 4

Organizational process changea Continuous Discontinuous Discontinuous ContinuousResponsibility-center measurabilityb Separable Inseparable Inseparable SeparableResponsibility-center boundaries Competitive Competitive Cooperative CompetitiveRevelations of private knowledgec Low $7M to $18M/year Low »$0M/year High $41.9M/year Not available


high bid prices, which arose from high costs. As aresult, Convair’s central managers changed theircost management strategy from “spend everythingthe customer has to spendƒ [to] ƒ become leanand mean”.17

Organizational process changeGeneral Dynamics corporate management pre-

dicted that government plans to reduce the defensebudget would take place slowly:

“The indications are that such change will beundertaken through a gradual and rationalprocessƒ The government has projected thatdefense spending levels will decline at anannual rate of about two percent (in realterms) over the next several years”.18

In response to pressures from the corporateoYce, Convair’s central managers attempted toreduce costs by orchestrating many continuousorganizational process change programs. In excessof 200 initiatives were active within RCs that weretreated as separate entities based on Convair’s tra-ditional RA system (discussed next).19 Many ofthese initiatives did not survive competitive selec-tion by central managers. For example, the opera-tions RC’s Material Inventory Control On-lineSystem initiative was selected over the Wnance RC’sinitiative to create the Convair On-line IntegratedManagement System. In many instances centralmanagers coordinated initiatives from individualRCs to create broader organizational process-levelinitiatives. For example, central managers coordi-nated a limited-scale concurrent engineering pilotinitiative, which demonstrated that previously sepa-rated RCs including circuit design, manufacturingplanning, mass properties analysis, mechanicaldesign, packaging, producibility analysis, require-ments deWnition, and stress analysis could be inte-grated to reduce total costs.20 In order to reduce

17 Interview with Convair controller (June 23, 1994).18 “General Dynamics 1988 shareholder report”, corporate

annual report, p. 2.19 Interview with division planning director (March 14, 1994).20 McKinnis, C. (1991). Convair goes concurrent. Computer-

Aided Engineering, 10, 18–27.

labor costs, two small focused factories wereconstructed in neighboring low-wage areas: El Cen-tro, California and Tijuana, Mexico.21 These facto-ries consolidated several Convair RCs includingassembly, inventory management, manufacturingengineering, painting, quality assurance, and testinto close proximity within a small facility forthe Wrst time. Due in part to union pressures,central managers were careful to state that thesenew facilities would only achieve small-scale pro-duction:

The El Centro plant’s “ƒ work force willeventually number about 100. [Similarly, theTijuana plant’s] work force will graduallybuild up to about 100”.22

A computer publishing pilot initiative showedthat integrating several separate tasks includingbinding, distribution, graphic design, printing, andwriting could reduce costs at Convair.23 Othersmall-scale organizational process change initia-tives at Convair included a paperless factory sys-tem,24 an advanced machining system pilotinitiative,25 and a pilot study of distributed com-puter systems.26

RC measurabilityThe Department of Defense’s Cost/Schedule

Control Criteria (C/SCSC) mandated a set ofmanagement controls that Convair was requiredto implement and maintain.27 These criteria

21 “GenDyn to open two assembly plants: New facilities in ElCentro, Tijuana established to trim production costs”. The SanDiego Union-Tribune (March 11, 1989), p. 3.22 “General Dynamics Convair Division, division notice no.

89-11”, internal Convair memo (March 10, 1989), p. 1.23 Doebler, P. D. (1991). Process management: Going with theXow. Computer Publishing Magazine, 6, 44–55.24 McGonagle, J. M. (1984). Megabytes of assembly aids. Pro-

duction Engineering, 31, 82–86.25 “Advanced machining” General Dynamics World internal

corporate newsletter (May 1988).26 Bozman, J. S. (1991). A ‘framework’ for diversity. Computer-

world, 25, 43.27 Fleming, Q. W. (1988). Cost/schedule control systems crite-

ria: The management guide to C/SCSC. Chicago, Il: ProbusPublishing.


required a traditional approach to RA in whichRC measurability and RC boundaries were basedon Convair’s functional hierarchy.28 For example,C/SCSC required Convair’s RC managers to beheld separably accountable in their “one respon-sible organizational element” for their cost bud-get performance.29 Each RC manager wasobligated to submit a written variance analysisfor signiWcant variances which was reviewed byupper management in the functional hierarchyand then reported to the military customer in a“cost performance report”.30 In addition, thegovernment C/SCSC also mandated that RCmanagers attend the monthly Division Reviewmeeting and be prepared to explain performancedeviations relative to their own RC’s cost bud-get.27

RC managers and their employees were givenstrong incentives to contribute to continuousorganizational process changes under Convair’s“Good Ideas Program”.19 Individual RC manag-ers who proposed Good Ideas were required tocarefully document task changes and quantifythe amount of expected cost and budget savingsin their RC. Like other organizational processchanges, proposals for Good Ideas Xowed bot-tom-up from individual RC managers and wereratiWed by central managers based on the pro-posal’s relative merits. The RC managers werepaid a ten percent bonus (up to $10,000) for doc-umented cost savings. In addition to receivingthe bonus, RC managers received public recogni-tion for their Good Idea in the Convair WeeklyLog newsletter. Central managers then coordi-nated the Good Ideas from the various func-tional RCs.

28 C/SCSC reporting also required the ability to report by bothfunction and product-line, consistent with Convair’s matrixorganization structure. However, Convair downplayed theproduct-line aligned dimension, instead following “ƒthe nor-mal practice in industry ƒ to manage contracts by functionalorganizational structure”. (Fleming, 1988, p. 233).29 Fleming, Q. W. (1988). Cost/schedule control systems crite-

ria: The management guide to C/SCSC. Chicago, Il: ProbusPublishing, p. 35.30 Fleming, Q. W. (1988). Cost/schedule control systems crite-

ria: The management guide to C/SCSC. Chicago, Il: ProbusPublishing, p. 233.

RC boundariesIn addition to separate measurement of each

RC manager’s performance, the Department ofDefense C/SCSC required individual accountingreports for each RC manager and a separate RCbudget for each RC.27 RC managers receivedaccounting information and performance reportsfor their own RC only; information about otherRCs was not shared.31 These same competitive RCboundaries also were used to measure and reportthe results of the various continuous organiza-tional process changes that were underway.32 Alsoconsistent with a competitive RC boundary, sepa-rate functional labels were printed on the RC man-ager’s reports to uniquely identify the recipient(e.g., Procurement, Failure Analysis, Systems Engi-neering).

Convair’s internal accounting system was com-plex and only the Wnance and estimating RCs hadthe expertise and authority to “price” expectedcost savings for proposed organizational processchanges. For example, pricing involved identifyingappropriate cost allocations from the division’s 19overhead cost pools.33 This required signiWcantdivision-speciWc accounting knowledge to accom-plish. Finding costs also was particularly challeng-ing. For example, Convair’s job order cost systemdivided costs into 183 direct cost elements, 217indirect cost elements, and 55,609 active workorders.33 The technical jargon and complexityincorporated in Convair’s accounting system eVec-tively blocked RC managers from engaging in real-time negotiations regarding the expected economiceVects of competing initiatives.

In their day-to-day work, RC managers werephysically separated from each other by oYcewalls and geographic distance between the manybuildings within the division. RC managers alsowere physically separated during budget negotia-tions. Convair implemented the C/SCSC by havingindividual RC managers separately meet with a

31 “Convair integrated management system procurement man-ager report” internal Convair document (December 1985).32 “Manufacturing strategic plan benchmark performance

summary”, Convair interoYce memorandum (March 15, 1990).33 “An overview of Convair accounting”, internal Convair

document (May 16, 1990).


superior manager for budget negotiations in thesuperior manager’s oYce. This separate sequentialapproach also was employed in negotiating budgetadjustments when RC managers put forth pro-posed initiatives. Thus, throughout period 1, RCboundaries were competitive.

RC managers’ revelations of private knowledgeConvair used resource allocation practices to

motivate RC managers to reveal their privateknowledge. RC managers were forced to carefullydocument expected changes in cost budgets beforea process change was evaluated by central manag-ers. This involved RC managers revealing privateknowledge and promising to produce cost savingsif a process change was implemented.34 Expectedcost savings from continuous organizational pro-cess changes ranged from approximately $7M peryear during the Wrst half of period 1 to approxi-mately $18M per year during the second half ofperiod 1, which was at a low level relative to thevalue of revelations in period 3.35

SummaryThe levels of the four variables were continu-

ous organizational process change, separable RCmeasurability, competitive RC boundaries, and,relative to other periods, low levels of RC manag-ers’ revelations of private knowledge (Table 5). Incomparing the realized levels of these variables totheir expected levels in the model (Fig. 1 andTable 2), three of these four levels in period 1were consistent with the three expectations. Con-tinuous organizational process change wasrelated to separable measurement (E1) and com-petitive RC boundaries (E2). However, we foundonly low levels of RC managers’ revelations ofprivate knowledge. We found no support for E3in period 1. Thus, with the exception of lower lev-els of RC managers’ revelations of private knowl-edge than expected in period 1, this within-periodevidence was consistent with the model. No

34 Interview with a manufacturing engineering RC manager(August 20, 1994).35 Interview with a division planning director (March 14,

1994).

between-period comparisons were made becauseperiod 1 was the initial period.

Period 2 (November 1989 – July 1991)

The following evidence details the economiccrisis at Convair, a new strategy to developdiscontinuous organizational process changes, andseveral unsuccessful eVorts to replace compe-titive RC boundaries with cooperative RC bound-aries.

BackgroundIn November 1989 an economic crisis shook

Convair when the Cold War ended with the formerSoviet Union. The news media immediately char-acterized this event as a catastrophe for defensecontractors: “The unthinkable is now becoming areal possibility ƒ[with] ƒ massive defense cuts inthe cards.”36 Within a year the General DynamicsCEO publicly declared that the defense market had“fundamentally changed”.37

Shortly after this historic event the Departmentof Defense reduced its demand for cruise missilesby 50%.38 A winner-take-all competition was to beheld in which the low-priced bidder would win allof the future cruise missile production contracts.Based on the unfavorable outcome of severalrecent competitive bids,16 central managersbelieved Convair’s costs were signiWcantly higherthan its only competitor.39 Further compoundingthis economic crisis was a greater than 50%decrease in commercial aircraft sales.40

Four months after the fall of the Berlin Walland the symbolic end of the Cold War, McKinsey& Co. was hired to conduct a process benchmark-ing study. A process was deWned as “a logical,

36 Wartzman, R., “Defense Firms Gird for End of Cold War –Prospect of Peace Has Industry Bracing for Shakeout”. WallStreet Journal (November 29, 1989), p. 1.37 “General Dynamics denies sale rumors – Speculation about

local units runs rampant after Anders’ comments” The San Di-ego Union-Tribune (November 1, 1991), p. 1.38 “Advanced cruise missile encounters rough air”. The San

Diego Union-Tribune (December 8, 1990), p. 1.39 Interview with Controller (June 23, 1994).40 Ellis, J. “Plane makers see the ground coming up fast”. Busi-

ness Week (November 9, 1992), pp. 70–73.


cross-functional linkage of activities which crossesdepartmental and usually functional bound-aries”.41 Before these consultants completed theirstudy, process-level accounting information wasnot available at Convair. McKinsey & Co. spentWve weeks constructing Convair’s processes andidentifying which of Convair’s processes had thegreatest potential for reducing costs to world-classstandards.42

Following McKinsey & Co.’s study, allemployees participated in several training pro-grams conducted by consultants from the BattelleMemorial Institute, Conway Quality Inc., and theAmerican Samurai Institute. This training pro-vided RC managers and employees with theknowledge to eVectively participate on cross-functional teams that were needed because “sys-tems usually overlap departmental boundaries”.43

These teams were to “follow the money ƒ [inorder to] ƒ eliminate waste”.44 After completingthe training programs, 174 process action teamscomposed of RC managers and employeesworked to identify opportunities for major costreductions at Convair.45

At the end of period 2 the advanced cost man-agement system (ACMS) was initiated by a “smartaccountant who was ahead of the game in present-ing solutions” using ABC concepts (hereafterreferred to as the ABC/ACMS model).46 Accord-ing to the Accounting Director who initiated theABC/ACMS model:

41 “Advanced cost management system (ACMS) survey #3”,internal Convair document prepared jointly by Convair andexternal consultants from Deloitte and Touche (April 19, 1991),p. 3.42 “Perspectives and recommendations emerging from the

benchmarking process: Review with Convair General Man-ager”, internal Convair document prepared by external consul-tants from McKinsey & Co., Inc., (June 14, 1990).43 “Conway handbook”, internal Convair training material

prepared and presented by Conway Quality, Inc., (October 13,1990), p. 4.44 “Conway handbook”, internal Convair training material

prepared and presented by Conway Quality, Inc. (October 13,1990), p. 4.45 “Process action teams: Purpose, owner, and function”, inter-

nal Convair document (October 21, 1991).46 Interview with a director of planning conducted by McKin-

sey & Co., Inc. (June 14, 1990), p. 16.

“A lot of decisions were being made on thewrong data. We never knew if a lot of deci-sions were not being made because of thelack of the right data. [The ABC/ACMSmodel] was an attempt to improve decisionsrecognizing that accounting data were inXu-encing decisions”.39

This model was to provide “an activity-view ofthe enterprise”.47 The Convair Division GeneralManager assigned a steering committee com-posed of central managers to oversee the develop-ment and implementation of the ABC/ACMSmodel. In November 1990, the cost managementinitiatives (CMI) department was formed todevelop the ABC/ACMS model along with exter-nal consultants from Deloitte and Touche.48 A10-member cross-functional team was assignedthe task of attempting to collect RC managers’private knowledge needed to construct the newABC/ACMS model. During the six-week devel-opment period the CMI team conducted threerounds of structured interviews with 161 RCmanagers spanning all 11 division vice president’sareas of responsibility.49 This model identiWed600 unique activities and approximately 150 costdrivers. The ABC/ACMS model was completedJune 15, 1991, marking the end of period 2. Theinformation from the ABC/ACMS model was notshared with RC managers until the beginning ofperiod 3.

Organizational process changeMcKinsey & Co.’s Wnal report concluded that,

“There is signiWcant value – $235 million conser-vatively estimated – as a result of improvingperformance in the short term to close the world-

47 “Advanced cost management system project brieWng”,internal Convair document prepared jointly by Convair andexternal consultants from Deloitte and Touche (November1990), p. 15.48 “Advanced cost management system (ACMS) steering com-

mittee meeting #1”, internal Convair document prepared joint-ly by Convair and external consultants from Deloitte andTouche (May 10, 1991).49 “ACMS steering committee meeting #2”, internal Convair

document prepared jointly by Convair and external consultantsfrom Deloitte and Touche (May 24, 1991).


class gap”.50 This unfavorable gap was attributedto poor performance in Convair’s Material Man-agement, Fabrication, and Management pro-cesses.51 The gap was substantial as it equaledapproximately 50% of Convair’s controllablecosts (after eliminating the cost of purchasedmaterials which were assumed to be Wxed).39

According to McKinsey & Co., achieving the$235M in cost savings and closing Convair’s unfa-vorable gap would require a “One-time step func-tion improvement to meet market discontinuities”.52

Other consultants were hired to validate McKin-sey & Co.’s recommendations. According to theController:

“All of the studies (McKinsey & Co., E&Y,Bain, etc.) said basically the same thing. Toget larger potential cost savings requiredcross-functional organization. This was verydiYcult and dramatic”.39

Consistent with a strategy of discontinuousorganizational process change, we Wnd evidencethat central managers intended to rapidly pursuelarge-scale organizational process change. Early inthe development of the ABC/ACMS model, theABC/ACMS steering committee directed thedevelopment team to “accelerate the eVort”.53

They also cast votes to guide the development ofthe ABC/ACMS model and at least four of the Wvesteering committee members voted that currentaccounting data and process were “poor” for stra-tegic make/buy, facility rationalization, cost fore-casting, and cost improvement and that new ABC/

50 “Perspectives and recommendations emerging from thebenchmarking process: Review with Convair General Man-ager”, internal Convair document prepared by external consul-tants from McKinsey & Co., Inc., (June 14, 1990), p. 13.51 “Perspectives and recommendations emerging from the

benchmarking process: Review with Convair General Man-ager”, internal Convair document prepared by external consul-tants from McKinsey & Co., Inc. (June 14, 1990).52 “Perspectives and recommendations emerging from the

benchmarking process: Review with Convair General Man-ager”, internal Convair document prepared by external consul-tants from McKinsey & Co., Inc. (June 14, 1990), p. 14.53 “ACMS steering committee meeting #2”, internal Convair

document prepared jointly by Convair and external consultantsfrom Deloitte and Touche (May 24, 1991), p. 1.

ACMS data to support these cost objectives was a“must-have within in 0–6 months”.54

RC measurabilityConvair’s General Manager announced his

strategy to “shift emphasis from individual outputto the productivity of cross-functional teams”.55

For example, each of the 174 process action teamssubmitted only a single report that documentedtheir team’s plan without identifying the contribu-tions that each RC manager had made.45 A processaction team was now treated as the smallestaccountable unit within the division.

Early in the development of the ABC/ACMSmodel the steering committee assigned a compen-sation committee the task of evaluating new per-formance-contingent incentives in order tomotivate RC managers to contribute to discontin-uous organizational process changes.56 However,the compensation committee concluded that, dueto the Xuid nature of the cross-functional task, cre-ating new incentives was not advisable. The com-pensation committee recommended removing,rather than creating, performance-contingentincentives.39 As a result, for example, the GoodIdeas program was canceled (see period one).

RC boundariesIn the process benchmarking study that took

place, McKinsey & Co. Wrst recast some of Conv-air’s accounting information around cooperativeRC boundaries based on interviewing central man-

54 “ACMS steering committee meeting #3”, internal Convairdocument prepared jointly by Convair and external consultantsfrom Deloitte & Touche (June 12, 1991), pp. 15 and 23.55 “Convair total quality management plan”, internal Convair

document (January 17, 1991), p. 44.56 The ABC/ACMS steering committee expressed their interest

in performance-contingent incentives at the time a new incen-tive plan had been implemented for the top 25 corporate anddivisional managers. On May 1, 1991, General dynamics share-holders had ratiWed an incentive plan in which the “top 25” cor-porate and divisional managers received a bonus equal to theirbase salary each time General Dynamics stock increased by $10for a minimum of ten days (Dial & Murphy, 1994). The “top25” included Convair’s General Manager and Controller. TheWrst bonus occurred in less than three months. The board ofdirectors elected to cancel the “top 25” incentive plan Wvemonths later, after the second round of bonuses.


agers and then using this information to create aninnovative accounting model that produced severalnew organizational processes.51 The organizationalprocesses were conceptualized as cutting horizon-tally across the division by combining activitiesfrom several RCs. For example, the Material Man-agement process was found to combine parts of pre-viously separated RCs including engineering,procurement, estimating, accounting, quality assur-ance, and operations. Other organizational pro-cesses included fabrication, aircraft assembly, andgeneral management.51 The process benchmarkingreports were used by Convair’s central managers forstrategic planning purposes; however, this informa-tion was not shared with RC managers in period 2.Rather, with a few exceptions discussed below, com-petitive RC boundaries from period 1 remained.

In 1989 Convair began to use cooperative RCboundaries on a limited basis. The training pro-grams all RC managers attended espoused cooper-ative boundaries. For example, the TQM trainingprogram materials stated “All work is part of aprocess”.57 Building on this theme several ABCpilot projects constructed process-level accountingreports that grouped together activities from manyRCs. This information was shared with the RCmanagers who were involved in the process. Forexample, the Commercial Aircraft Assembly pro-cess pilot initiative grouped activities from variousquality assurance, industrial engineering, and man-ufacturing engineering RCs that were previouslytreated as being distinct departments.58 Addition-ally, 21 of the 174 process action teams were orga-nized as cross-functional teams with cooperativeRC boundaries (they met in face-to-face meetingswhere negotiations were conducted in real-time).59

57 “Conway handbook”, internal Convair Division documentproduced by Conway Quality, Inc. (October 13, 1990).58 “ACMS steering committee meeting #1”, internal Convair

document prepared jointly by Convair and external consultantsfrom Deloitte and Touche (May 10, 1991).59 The title “process action team” turned out to be a misno-

mer. A total of 153 process action teams (88% of the total) werecomposed of functional managers and employees from thesame responsibility center. These teams were formed within RCboundaries, consistent with a competitive RC boundary. “Pro-cess action teams: Purpose, owner, and function”, internalConvair document (October 21, 1991).

The ABC/ACMS steering committee approveda plan to incorporate 35 processes into the ABC/ACMS model (e.g., Material Management, Fabri-cation, Obtain New Business, Develop ConceptualDesign, Develop & Verify Products, Provide Prod-uct Support, and Manage and Support the Divi-sion).60 The Accounting Director explained thatthe processes in the ABC/ACMS model “werestructured around what we were trying to inXu-ence. I was experimenting. I was not sure what theright level of implementation was”.39

One of the Wrst applications of the ABC/ACMSmodel the steering committee commissioned wasto examine the process-wide “cost of collectingcost”.60 The analysis found that “the number ofwork orders drive 62% of cost”. This revelationstirred a dialogue among the steering committeemembers who expressed that reducing work orderswould be a simple task.61

RC managers’ revelations of private knowledgeThe Finance RC Manager conWded in the Wrst

author that he was aware of opportunities to sub-stantially streamline the workload in Wnance as aresult of reduced Department of Defense C/SCSCaccounting reporting requirements (see period 1)caused by the division’s changes from cost plus toWxed-price contracts. He also speculated that addi-tional opportunities existed for process improve-ment and cost reduction in other parts of theFinancial Management process, including theWnance, estimating, and contracts RCs. However,the Finance Manager did not publicly reveal theseopportunities. His behavior was strategic. Heexplained that he was reluctant to cooperatebecause he expected other RC managers to with-hold private information. Thus it would be foolishfor him to make a sacriWce when he expected thatothers would free ride. The Controller explained:

“People are adverse to change – everybody atall levels. This has to be addressed at an

60 “ACMS steering committee meeting #3”, internal Convairdocument prepared jointly by Convair and external consultantsfrom Deloitte and Touche (June 12, 1991).61 “ACMS steering committee meeting #3”, Weld notes (June

12, 1991).


individual level. Change creates anxiety.People don’t know how they will Wt in afterthe transition. Culture and individual willing-ness to change is a huge constraint”.39

The Research & Engineering Vice Presidentprovided similar insights:

“Functional rivalry is a big problem in goalsetting ƒ Middle management will have agreat deal of diYculty relinquishing decisionmaking authority to a multi-disciplinarydesign team”.62

McKinsey & Co. documented conXict amongfunctional vice presidents who favored competingpet projects. In McKinsey & Co.’s interviews, eachfunctional vice president only expressed an inter-est in an organizational process change that prom-ised to extend his or her functions inXuence in thedivision while minimizing his or her function’sfuture budget cuts. For example, the Research &Engineering Vice President hoped to implementconcurrent engineering (expected to produce costsavings in quality assurance, and operations)while the Operations Vice President wanted toadopt continuous Xow manufacturing (expectedcost savings in several engineering RCs). The con-Xicting agendas reXected the vice presidents’ self-interest and stiXed progress in adopting discontin-uous organizational process change. Moreover,realizing expected cost savings from acceleratedorganizational process change initiatives hadstalled. For example, in an interview, a planningRC manager told McKinsey & Co. that “Disman-tling bureaucracy after moving facilities oV-site isvirtually impossible”.63 Similarly, the Controllerremarked “only a small fraction of budgeted over-head cost savings had been realized when partswere outsourced”.64 Acknowledging the conXictexternal consultants from Ernst & Young con-cluded that:

62 Interview with Research & Engineering Vice President con-ducted by McKinsey & Co., Inc. (June 14, 1990), p. 27.63 Interview with a planning director conducted by McKinsey

& Co., Inc. (June 14, 1990), p. 19.64 Interview with Controller conducted by McKinsey & Co.,

Inc. (June 14, 1990), p. 18.

“It is crucial that Convair unify all the majorimprovement initiatives and/or projects in acoordinated eVort to achieve divisional per-formance improvement. Without doing so,the current state of aVairs at the division willcontinue to undermine proposed changesand substantially increase the risk of project-failure and increase costs”.65

Like McKinsey & Co. and Ernst & Young, thetraining programs pointed to RC managers as thekey source of information about initiatives andtheir eVects:

“Asking for ideas from the people who dothe work can result in signiWcant improve-mentsƒ the people are the experts, they arethe ones doing the work. They may not havethe authority to Wx problems, but they cansee where the problems are. And many ofthen will have good suggestions for howthose problems can be corrected”.66

However, none of the 174 process action team’srevealed any useful information about discontinu-ous process improvements or the potential for largecost reductions.67 Although accounting personnelinterviewed several of the process action teammembers, no one was willing to identify and quan-tify potential cost savings. By the end of period 2,none of these teams had produced any measurablecost reductions and the teams were disbanded.68

65 “Integrated management system process value analysis re-port”, internal Convair document prepared by external consul-tants from Ernst & Young, (May 7, 1990) quoted in “Advancedcost management system (ACMS) steering committee meeting#3”, internal Convair document prepared jointly by Convairand external consultants from Deloitte and Touche (September5, 1991), p. 12.66 “Conway handbook”, internal Convair Division document

produced by Conway Quality, Inc. (October 13, 1990), p. 5.67 Interview with the Vice President of Operations (June 9, 1992).68 As previously mentioned, although most of the process ac-

tion teams had purely competitive RC boundaries, 21 of theseteams (12%) had a mixture of both competitive and cooperativeRC boundaries. Like the other process action teams that werestructured using competitive boundaries, these mixed-boundaryteams did not reveal any private knowledge. “Process actionteams: Purpose, owner, and function”, internal Convair docu-ment (October 21, 1991). Interview with division planning direc-tor (March 14, 1994).


Finally, early in development of the ABC/ACMS model, external consultants lead the ABC/ACMS steering committee toward a less conten-tious strategy. The ABC/ACMS model was to beconstructed by asking RC managers only for theknowledge that was needed to reframe RC bound-aries. Unlike the private information needed toextract organizational beneWts from a processchange, private knowledge that RC managers wereWrst asked to provide did not commit them to giv-ing up budgetary resources. Rather informationwas elicited for the purpose of reframing RCboundaries to create the cooperative context thatwould be used to motivate RC managers to revealtheir more sensitive information in period 3.

SummaryThe levels of the four variables were discontin-

uous organizational process change, inseparableRC measurability, competitive RC boundaries,and low RC managers’ revelations of privateknowledge (Table 5). This within-period evidencein comparison to the model (Fig. 1 and Table 2)was consistent with the relationships in E1 andE3 (cell 2 in Table 2), however, this evidence wasinconsistent with E2 because cooperative RCboundaries for all four types of RC and participa-tion practices did not exist during this entireperiod. Considering between-period evidence, thechanges in the levels of the variables betweenperiods 1 and 2 supported E1 and E3 but not E2(Table 5).

Period 3 (August 1991 – December 1992)

Background and organizational process changeThis period was critical in the division’s

response to the economic crisis it faced. Centralmanagers maintained its strategic goal of quicklyachieving large cost reductions through discontin-uous organizational process change. Up to thispoint there was “no clear picture of anticipatedbeneWts from cost reduction initiatives”.58 The VicePresident of Operations asked “How do we get thecost out? What elements do we have a chance ofinXuencing? What are the enablers that will allowus to eliminate cost?”67 According to McKinsey &Co. “80% of the potential in major productivity

improvement programs is achieved only when thefront-line workers, supervisors, and support per-sonnel are empowered to identify and solve prob-lems”.69 The consultants from Deloitte & Toucheexplained that “Once activities are known we canask fundamental questions about these activitiesand the resources they consume”.70 Their previousclients had used ABC “to develop a business pro-cess view of the enterprise ƒ[based on thisthey] ƒ identiWed and evaluated improvementopportunities in cross-functional teams ƒ[and]ƒ developed actionable cost reduction opportuni-ties based on structured analysis”.49 Similarly apilot initiative commissioned by the ABC/ACMSsteering committee to focus on reducing materialand procurement cost concluded that “becausematerial cost is driven by [functional] organiza-tions outside procurement, a cross-functional teamis required for process improvement”.71 In addi-tion, this same pilot initiative concluded that “theMaterial Management process team will initiateactions to produce near term results”.71 In the sec-ond ABC/ACMS steering committee meeting theconsultants from Deloitte & Touche furtherexplained:

“Cross-functional analysis ƒreXects anenterprise-wide view of managing thebusiness ƒ[This] ƒ prevents silo-orientedimprovement initiativesƒ [and it] ƒallowsfor optimizing performance of the entirebusiness, not local optimumsƒ [through]streamlining cross-functional processes”.72

69 Perspectives and recommendations emerging from thebenchmarking process: Review with Convair General Man-ager,” internal Convair document prepared by external consul-tants from McKinsey & Co., Inc., (June 14, 1990), p. 49.70 “Advanced cost management system project brieWng”,

internal Convair document prepared jointly by Convair andexternal consultants from Deloitte and Touche (November1990), p. 18.71 “ACMS steering committee meeting #4”, internal Convair

document prepared jointly by Convair and external consultantsfrom Deloitte and Touche (September 5, 1991), p. 7.72 “ACMS steering committee meeting #2”, internal Convair

document prepared jointly by Convair and external consultantsfrom Deloitte and Touche (May 24, 1991), p. 44.


Period 3 marked the Wrst time that cooperativeRC boundaries were implemented consistently atConvair. In response, RC managers began to coop-eratively reveal their private knowledge about dra-matic cost savings that were expected fromdiscontinuous organizational process changes. Theperiod-3 initiatives were managed by central manag-ers in steering committees and they were planned bycross-functional teams.73 The cross-functional teamswere composed of RC managers who were collec-tively responsible for devising technical and Wnancialchanges for an entire organizational process.

In January 1991, the Convair Division GeneralManager had announced his strategy to promote “AsigniWcant thrust toward improved quality, produc-tivity, and reduced costs including group dynamics,teamwork, work cells, openness to new ideas, andmutual trust”.74 Later, in October 1991, the ABC/ACMS Steering Committee announced its decisionto begin using the ABC/ACMS model to supportthe Wrst discontinuous organizational process changeinitiative in the Material Management process:

“In today’s defense environment coupled withthe increasing pressure on Wnancial perfor-mance, investment restrictions and reductions,we are confronted with critical decisions tomanage our business. Many of these decisionswill have far reaching impacts ƒ As the steer-ing committee for [the ABC/ACMS] project,we have decided to expand its role. We havedirectedƒ[the Material Management processsteering committee]ƒto implement the [ABC/]ACMS as follows: ‘An [ABC/]ACMS-basedprocess value analysis will be performed for theMaterial Management process. A cross-func-tional team will be assigned to understand thedivision’s Material Management process fromrequirement generation by engineering toinstalling [materials in] the product. This teamwill establish a current baseline, identify appro-priate improvement initiatives, evaluate current

73 Galbraith (1993) refers to the use of a (cross-functional)committee and cross-functional team as a parallel organizationstructure in which the cross-functional team reports to the(cross-functional) committee.74 “Convair total quality management plan”, internal Convair

document (January 17, 1991), p. 3.

initiatives and develop process improvementplans. Results from this analysis will determinehow we proceed with other Convair businessprocesses using [ABC/]ACMS”’.75

Accordingly, the Material Management processcross-functional team was created by physicallybringing together RC managers (or their represen-tatives) from accounting (the Wrst author), engi-neering, inventory control, procurement, andproduct-line management. Based on the ABC/ACMS model, the newly created Material Man-agement process spanned Wve vice presidents’ func-tional areas of responsibility, incorporating 55activities, 71 cost drivers, and $63M in cost, ofwhich 60% was non-value-added.76 In the team’sWrst meeting they clariWed their charter:

“The expectations expressed by the [ABC/]ACMS and the Material Management processsteering committees were discussed as theyrelate to our team. They can be summarized asfollows: select near-term, high-potential Mate-rial Management process improvement(s)using the [ABC/]ACMS model”.77

In the second meeting the team membersexpressed that:

“The high level of support from the MaterialManagement process steering committeecombined with the new [ABC/]ACMS modelcapabilities gives our team a unique opportu-nity to produce signiWcant and urgentlyneeded change”.78

RC measurabilityThe Material Management process cross-func-

tional team was asked to negotiate plans for rapid

75 “ACMS deployment”, internal Convair memo (October 30,1991), p. 1.76 “Material Management process cross-functional team rec-

ommendations to the Material Management process steeringcommittee”, internal Convair document (January 29, 1992).77 “Minutes of meeting #1, Material Management process

team”, Convair interoYce memorandum (October 31, 1991), p.2.78 “Minutes of meeting #2, Material Management process

team”. Convair interoYce memorandum, (November 5, 1991),p. 2.


cost reductions through intensive lateral negotia-tions with team members (various RC managers)who had functionally diVerentiated private knowl-edge about the Material Management process.Team members were specialists in diVerent func-tional parts of the process they worked on, sorequiring that team members monitor each otherwithin these teams was not feasible. Consistentwith the team concept, no eVort was made to mea-sure how much each RC manager contributed tothe initiative and the cross-functional team washeld accountable as a group. The inseparablenature of this initiative was reinforced by requiringthe team to present a single report to the steeringcommittee detailing plans for discontinuous orga-nizational process changes and large rapid costreductions. Inter-RC negotiations, externalitiesamong the RC managers who participated in thecross-functional team, and the discontinuousnature of the organizational process change cre-ated a control environment in which separable RCmeasurability was too costly and thus only insepa-rable RC measurability was economically feasible.

RC boundariesThe majority of the time spent creating the

ABC/ACMS model was devoted to translating thespecialized jargon in Convair’s accounting systeminto language that was easily understood by all ofthe RC managers across organizational pro-cesses.60 For example, based on one interview, sev-eral technical accounting classiWcations (indirectaccounts 6111, 6387, 6391, and direct labor code25) were consolidated under an activity called“tracking and resolving material shortages”. Inaddition technical language in reports from Conv-air’s integrated management system was simpliWedso as to be consistent with a cooperative RCboundary.79

79 Recall that Convair integrated management system reportswere based on the Department of Defense’s Cost/ScheduleControl Criteria (C/SCSC) (discussed in period 1). These crite-ria and reports used rather technical accounting language, con-sistent with a competitive RC boundary. For example, thetechnical nature of the language mandated by C/SCSC was dis-cussed in: Grskovich, D. L. (1991) “What is C/SCSC? In englishplease!” National Contract Management Journal, 23, 25–32.

At the beginning of period 3 competitive RCboundaries were deemphasized and replaced bycooperative RC boundaries. For example, on July26, 1991, the Wrst set of ABC/ACMS reports wasdistributed to all Convair supervision. The coverpage stated that the “[ABC/]ACMS now providesa framework needed to help us meet the challengesand critical decisions facing us today”.80 The nextfour pages were devoted to tables and Wgures dis-playing accounting information organized usingpredominantly cooperative RC boundaries. Onlyone small Wgure (1/4th of a page) depicted a com-petitive RC boundary by reporting separateaccounting information for each RC manager.This Wgure was displayed in the upper right-handcorner of the Wrst report, as a point of departure.The remaining 3.75 pages of the accounting reports(94%) were devoted to the new organizational pro-cess accounting and organizational design thatimplied cooperative RC boundaries by groupingthe RC managers who worked on a common pro-cess together. Consistent with the new boundaries,discussion about RC manager’s individual budget-ary performance was eliminated from the agendain the monthly Division Review meeting.19

None of the members of the Material Manage-ment team had worked in close proximity before.The team members participated in the context offace-to-face meetings for the Wrst time in period 3.Team members evaluated competing initiativesand conducted simultaneous negotiations in orderto arrive at a plan for discontinuous organizationalprocess change in the Material Management pro-cess.

As the basis for developing their plan, theMaterial Management team members selectedreports from the ABC/ACMS model with cooper-ative as opposed to competitive ABC/ACMSboundaries. Although RC managers were used toreceiving performance reports that focused exclu-sively on their own RC, cross-functional teammembers requested predominantly group-levelperformance reports from the ABC/ACMS modelthat aggregated RC information for the entire

80 “ACMS deployment”, internal Convair memo (July 26,1991), p. 1.


Material Management process. Of the 34 reportsthe Material Management team used, 30 (88%)were designed using group-level or cooperativeRC boundaries. The competitively organized RCinformation (12% of the reports) was used only inthe team’s early explorations to validate thegroup-level accounting information in the ABC/ACMS model.81 Moreover, functional RC titles(e.g., “receiving inspection”, “material control”,“automated warehouse”) that were used to iden-tify a particular RC manager on accountingreports previously were not displayed on the pro-cess-level reports the team used as the basis fornegotiating process changes.

Consistent with cooperative RC boundaries, theABC/ACMS model provided accounting informa-tion using simpliWed accounting language that allRC managers understood instead of the technicalaccounting jargon and myriad of codes (cost codes,overhead account numbers, technical conceptssuch as overhead allocations) that were used previ-ously. The new accounting model helped to makeaccounting information about activities from otherRCs in the Material Management process moreaccessible by eliminating the accounting jargonand codes and substituting plainspoken languagefor technical terms. This more accessible account-ing language was said to be appropriate because“cost is cost to the customer”.82 In the ABC/ACMS model, cost information was stated in sim-ple, direct language. As a result, there was no needfor an accountant to translate accounting jargon,cost codes, and complex overhead cost allocationsfor RC managers across the organizational pro-cess. Rather, the ABC/ACMS model enabled theRC managers on each cross-functional team todebate costs directly consistent with a cooperativeRC boundary.

Also consistent with cooperative RC bound-aries, central managers opened the books andbegan giving cross-functional team members fullaccess to strategic planning information for thedivision as a whole. This information had not pre-

81 Chronological compilation of accounting reports used bythe Material Management process cross-functional team, inter-nal Convair notebook (September 1991 – January 1992).82 Participant observation, Weld notes (May 1991).

viously been shared with RC managers. The newlyshared strategic information provided to the Mate-rial Management process team modeled the Conv-air division as a single entity, absent competitiveRC boundaries.

The Material Management process cross-func-tional team’s Wnal report that was presented to theMaterial Management process steering committeeconstructed Wgures that emphasized the opennessand connections among the various activitieswithin the Material Management process. Thisreport contained only two small Wgures (40% of asingle page) that were designed using competitiveRC boundaries. The remainder of the 16-pagereport (97.5% of the pages in the report) wasdevoted to Wgures and tables that reXected cooper-ative RC boundaries.76 Once again, accountinginformation designed using competitive RCboundaries was used only brieXy in the team’s Wnalreport as an introductory segue to the cooperativeprocess-level accounting information on which theteam designed their Wnal report.

RC managers’ revelations of private knowledgeIn stark contrast to period 2, in period 3 manag-

ers involved in the Material Management processcross-functional team members openly revealedprivate knowledge about a high level of cost sav-ings expected from implementing speciWc discon-tinuous organizational process changes. The planthis team presented to the Material Managementsteering committee revealed, in total, the MaterialManagement process teams’ proposed initiativeswere expected to reduce the total cost of the pro-cess by approximately 30%.76

Contributing private knowledge about potentialcost savings was costly to the RC managersbecause it constituted a promise to take a substan-tial budget cut if the discontinuous organizationalprocess change were implemented. Revealing thisknowledge, however, also often illuminated otherunintended ways of reducing costs. For example, indeveloping one planned initiative, the ProcurementRC manager revealed that his RC had 15 clerkswho manually input purchase order data. Thiswork could easily be eliminated independently ofthe initiative, for example using Convair’s elec-tronic data interchange capability.


Although the Material Management cross-func-tional team members ultimately choose to actcooperatively, conXict was apparent in the team’searly meetings. For example, over several meetingsthe Engineering RC manager remained adamantthat the team should sponsor his RC’s pet initia-tive to create an engineering material request sys-tem. However, the Engineering RC manager couldnot identify signiWcant cost savings using the ABC/ACMS model. He eventually relented to pressurefrom other team members and agreed to supportother initiatives that promised larger, quicker costsavings.

The Material Management cross-functionalteam members acted in a way that was consistentwith communal sharing, as evidenced by theachievement of consensus on three importantissues. First, after investigating the 38 initiativesand pilot projects that were in early stages of devel-opment, the Material Management process teammembers reached an agreement that expanding ajust-in-time (JIT) operations pilot initiative to theentire Material Management process held the larg-est potential to reduce organizational processcosts.83 Second, members reached a consensus thata new discontinuous organizational processchange to reduce material shortage-related costsby reengineering the various activities involved inthe requirements generation process to eliminatebill of materials errors held the largest potential foradditional cost savings.84 Third, the team agreedthat larger cost reductions were possible for (1)and (2) above if the boundaries of the MaterialManagement process were expanded to incorpo-rate an additional $14.3M in activities from twoadjacent organizational processes (bringing thetotal value of the costs in the organizational pro-cess to $77.3M).85

Further evidence of cooperation was providedby the procurement RC manager. While analyzing

83 “Minutes of Meeting #5, Material Management processteam”, Convair interoYce memorandum, (November 5, 1991).84 “Minutes of Meeting #6, Material Management process

team”, Convair interoYce memorandum, (November 22, 1991).85 “InteroYce Memorandum, Minutes of Meeting #6, Mate-

rial Management process team”, internal Convair document(November 22, 1991).

one initiative he volunteered that several managersin his RC had purposely distorted revelations ofprivate knowledge used to construct the ABC/ACMS model. According to the Procurement RCmanager this was done in order to avoid cost man-agement pressures.86

On January 29, 1992 the Material Managementcross-functional team presented its plan for dis-continuous organizational process change to theMaterial Management process steering committee.The team identiWed $22.9M in expected cost sav-ings from expanding a JIT pilot initiative and fromthe new initiative to reengineer the requirementsgeneration process.

Also consistent with the notion of communalsharing, Material Management process team mem-bers volunteered private knowledge despite theirawareness of substantial horizontal inequities.Through cross-functional negotiations, it hadbecome apparent that expected cost reductionsfrom the proposed Material Management processchanges would be uneven across the RCs in theprocess. The RCs that supported the front-end ofthe process (engineering and material control)were anticipated to win new status and little in theway of cost cuts, while RCs that supported thedown-stream part of the organizational processwere expected to take heavy budget cuts (procure-ment, quality assurance, and inventory manage-ment).87

The ABC/ACMS and the Material Manage-ment process steering committees were pleasedwith the outcome of the Material Managementprocess change.88 For the Wrst time, RC managershad publicly revealed private knowledge about thepotential for large budget and cost reductions ifcarefully documented discontinuous organiza-

86 SpeciWcally, costs associated with resolving material short-ages were purposely hidden by labeling the associated activity“constraint resolution”. Moreover, this activity was rated as be-ing 100% “value added” when it was known to be entirely non-value-added by RC management. Participant observation, Weldnotes (November 1991).87 “Minutes of Meeting #8, Material Management process

team”, Convair interoYce memorandum (December 5, 1991).88 Interviews with the Vice President of Operations (April 2,

1993), a division planning director (March 14, 1994), and theController (May 16, 1994).


tional process changes were implemented. Afterplans for discontinuous organizational processchange in the Material Management process wereratiWed by central managers, the steering commit-tees, and the cross-functional teams were dis-banded.

In addition to the results reported above for thediscontinuous organizational process change in theMaterial Management process, we also have datathat are consistent with the model (Fig. 1 andTable 2) for eight additional cross-functionalteams and associated steering committees chargedwith discontinuous changes in six other organiza-tional processes during period 3 (Fabrication, Inte-grated Product Development, Imperial ValleyFacility, Assembly, General Services, and ProductAssurance).89 Like the Material Management pro-cess, each of the additional processes combinedactivities from preexisting RCs in ways thatdeparted from Convair’s functional hierarchy. Fol-lowing the Material Management process team,two new ABC cost models were constructed tosupport the subsequent cross-functional teams.Like the previous ABC/ACMS model, the newABC models required gathering relatively innocu-ous private knowledge. This information was thenused, in part, to reframe RC boundaries from com-petitive to cooperative.

In June 1992, both Cruise Missile product lineswere sold.90 Therefore, the remaining eVorts toreduce total costs by discontinuous organizationalprocess change contemplated a division that wasapproximately 60 percent smaller. Consistent withcommunal sharing the additional cross-functionalteams cooperated by identifying an additional$19M in expected cost savings. For example, exter-nal consultants from Bain observed seven (ofeight) of the additional cross-functional teams. Theconsultants concluded that cross-functional teammembers actively cooperated: “Task force mem-bers have individually borne the risk of participat-

89 Results for the additional eight period-3 cross-functionalteams and discontinuous organizational process changes areavailable from the Wrst author upon request.90 “Hughes buys GenDyn missiles unit – $450 million deal

leaves those at Convair unsure of future”. The San DiegoUnion-Tribune (May 11, 1992), p. 1.

ing in aggressively pursuing cost reductiontargets ƒ[despite] ƒ members’ incentive to ‘pro-tect’ home departments”.91

SummaryThe levels of the four variables in the model

were discontinuous organizational process change,inseparable RC measurement, cooperative RCboundaries, and a high level of RC managers’ reve-lations of private knowledge (Table 5). The levelsof these variables in period 3 were consistent withthe model (Fig. 1 and Table 2). That is, discontinu-ous change was associated with inseparable RCmeasurability and cooperative RC boundaries,consistent with E1 and E2. The inseparable RCmeasurability, cooperative RC boundaries, and thehigh levels of RC managers’ revelations of privateknowledge were consistent with E3 and Table 2.Considering between-period evidence, the changesin the levels of the four variables between periods 2and 3 were consistent with the model (Fig. 1 andTable 2).

Also consistent with E3, we Wnd evidence thatredesigning RC boundaries successfully changedor reframed RC managers’ behavior. Although wefound competition (period 1) or conXict (period 2)between RC managers, after all RA and participa-tion practices were changed to imply cooperativeRC boundaries in period 3, RC managers selectedaccounting reports structured using cooperativeRC boundaries. In addition, all of the period 3teams produced joint reports for the central man-agers in the steering committee predominantlybased on cooperative RC boundaries. This evi-dence indicated that RC managers’ frame changedfrom competitive to cooperative. Also, consistentwith cooperation, and speciWcally communal shar-ing (Table 2), we Wnd that in all period-3 discontin-uous organizational process change initiatives,team members choose to voluntarily contributeprivate knowledge despite costs of contributingthat were inequitably shared among team mem-bers.

91 “Business reduction challenge: First steering committeemeeting”, internal Convair document prepared by external con-sultants from Bain (November 13, 1992) (November 13, 1992),p. 3.


Period 4 (January 1993 – December 1994)

Background and organizational process changeAt the beginning of period 4 the General Dynam-

ics Board of Directors announced Convair was nolonger a core business and it was reclassiWed as adiscontinued operation.92 As the result of this deci-sion Convair’s central managers ended their strat-egy of discontinuous organizational process change.Convair’s Controller explained that “Changerequires some type of investment – time or money.A risk Corporate was not willing to take. How big achange is possible without investment?”93

Central managers returned to a strategy of con-tinuous organizational process change. For exam-ple, one continuous organizational process changewas planned and executed within the manufactur-ing planning RC to improve the quality of blue-prints from McDonnell Douglas (the customer forConvair’s remaining commercial aircraft product-line).94 Another initiative was developed by theFinance RC to simplify the cost accounting systemby eliminating unnecessary work orders andaccounts. An additional Finance initiative devel-oped improved performance measures for the newFabrication process cells (planned and approved inperiod 3).95 Each of these initiatives was small inscope within RCs, they were developed and imple-mented gradually, and they were not expected togenerate large cost savings.93

RC measurabilityCentral managers’ emphasis shifted from team

accountability to holding RC managers individu-ally accountable for their performance. For exam-ple, in developing performance measures for thenew manufacturing cells (see period 3) the Opera-tions Vice President’s goal was to “drive account-ability to the lowest level ƒ[to]ƒfoster ownership,

92 “General Dynamics 1992 shareholder report” Corporate an-nual report.93 Interview with controller (May 16, 1994).94 “Convair teams with McDonnell Douglas”, internal Conv-

air newsletter (December 5, 1993).95 Data for this period-3 initiative were not reported but is avail-

able from the authors on request. Improving performance mea-sures for manufacturing cells were proposed in “Assignments &responsibilities”, Convair interoYce memorandum (April 1, 1993).

motivate improvement, measure relative perfor-mance between competing cells, and identify thefactors creating success”.96

RC boundariesAt the beginning of period 4 the ABC cost mod-

els that supported cooperative RC boundarieswere abandoned. Process-level accounting reportsand division-level strategic planning informationwere no longer shared with RC managers. TheFinance RC resumed production of accountinginformation with competitive RC boundariesusing the accounting system that had beendesigned to support the C/SCSC that was man-dated by the Department of Defense (see period 1).The practice of simultaneously planning expectedcost savings from initiatives through face-to-facecross-functional team meetings also was discontin-ued in favor of sequential participation thatinvolved meetings between a single RC managerand the Product-Line Vice President. In imple-menting cellular manufacturing, competitive RCboundaries were constructed between each fabrica-tion cell.97 For example, each cell received its ownaccounting report and detailed accounting infor-mation about other cells was not shared, and theemployees within each cell were physically sepa-rated from employees in other cells.

RC managers’ revelations of private knowledgeRevelations of these RC managers’ private

knowledge were not available to us in period 4,because the division was declared a discontinuedoperation, and eVorts devoted to continuous orga-nizational process changes were redirected to shut-ting down the division before the expected costsavings were documented. Finally, on July 1, 1994General Dynamics announced that Convair wouldclose its doors in 1996, after more than 60 years ofcontinuous operation.98

96 Interviews with the Vice President of Operations (June 9,1992 and April 2, 1993).97 “Performance and productivity measurement for cellular

manufacturing: Development of a methodology & framework”internal Convair document (March 24, 1993).98 “1900 Convair jobs to be lost”. The San Diego Union-Tri-

bune (July 1, 1994), p. 1.


SummaryThe levels of the variables within period 4 were

continuous organizational process change, separa-ble RC measurement, and competitive RC bound-aries; the levels of RC managers’ revelations ofprivate knowledge were not available to us inperiod 4 (Table 5). The levels of the Wrst three vari-ables in period 4 were consistent with the model inFig. 1 and E1 and E2. Because the levels of revela-tions of RC managers’ revelations of privateknowledge were not available, period 4 did notprovide evidence on E3. Changes in the levels ofthe variables between periods 3 and 4 were consis-tent with the model (Fig. 1 and Table 2) and E1and E2; no between-period evidence was availableon E3 because of the lack of information availableon RC managers’ revelations of private knowledgein period 4.

Discussion

This section has four parts: summary of thispaper, evidence that is consistent and inconsistentwith the theoretical model, revision of the initialmodel based on inconsistent evidence, and Wnallylimitations and implications of this research.

Summary

RA is a key mechanism for how managementaccounting interfaces with organizational strate-gies and structures. This paper provides theory-based evidence on how the design of accountingand participation practices in general, and themeasurability of RC performance and RC bound-aries in particular, are inXuenced by central man-agers’ intended strategy for the magnitude, scope,and speed of intended organizational processchange. It also provides theory-consistent evidenceon how RC measurability and RC boundariesinteractively aVect RC manager’s revelations ofprivate knowledge that are needed to increaseorganizational performance.

We investigate how the design and redesign ofseveral accounting and participation practices sup-port boundary management strategies to achievegoal-congruent behavior during strategic reorien-

tation in the magnitude, scope, and speed of orga-nizational process change. Managing competitionor cooperation among RC managers can be criticalto achieving goal-congruent behavior (Demskiet al., 2002). We use the social psychology theory ofrelational framing (Tetlock & McGraw, 2005) toexplain how managing RC boundaries by design-ing or redesigning accounting and participationpractices can frame or reframe RC managers asindividuals or as the members of a group andthereby inXuence whether their behavior is com-petitive or cooperative.

We develop a theoretical model that consists offour variables and three expectations (Fig. 1 andTable 2). To provide evidence on the validity ofthis model, we compare the three expectations anddata from the nine-year longitudinal Weld study.We facilitate these comparisons by dividing thelongitudinal data into four time periods, which aredemarcated based on changes in central managers’strategy of organizational process change (contin-uous to discontinuous or vice versa) and/orchanges in RC boundaries (cooperative to compet-itive or vice versa). We then make within- andbetween-period comparisons of the realized andexpected levels of the four variables in the threeexpectations consistent with the variance researchmethod. Overall, these within- and between-periodcomparisons provide support for the three expec-tations, although they also reveal instances inwhich the data and model are inconsistent (Fig. 1,Tables 2 and 5). Below we summarize within- andbetween-period comparisons that identify evidencethat is consistent and inconsistent with the model,with the inconsistent evidence being used to revisethe theoretical model.

Consistent and inconsistent evidence

Consistent with the Wrst expectation (E1), weWnd that when organizational process change iscontinuous (discontinuous), RC Wnancial perfor-mance measurability is separable (inseparable).This relation was found both within and betweenthe four periods of Weld evidence we present. Theconsistency of evidence and the second expectation(E2), that continuous (discontinuous) organiza-tional process change prompts central managers to


adopt a coherently aligned set of competitive(cooperative) RC boundaries, depends on the timeperiod. Within-period evidence for periods 1, 3,and 4 is consistent with E2; however, the evidenceis inconsistent with E2 in period 2. We believe thatthis inconsistency is due to the failure of centralmanagers to manage or reframe RC boundariesfrom competitive to cooperative in period 2 whenthe magnitude, scope, and speed of organizationalprocess change shifts from continuous to discon-tinuous. The result of central managers not chang-ing RC boundaries is low instead of high levels ofRC managers’ revelations of private knowledge.Regarding the third expectation (E3), we have noevidence in one period, we Wnd evidence that isinconsistent with E3 in one period, and we presentevidence that is consistent with E3 in two periods.

Revision of model

Although most of the Weld data provides sup-port for the theoretical model (Fig. 1 and Table 2),the inconsistent results for E2 in period 2 (dis-cussed above) enable us to identify an omitted var-iable. The original model assumes that centralmanagers would understand the value of managingRC boundaries to be compatible with organiza-tional process change. Instead, the external consul-tants provided the impetus for realigning the RCboundaries. We asked central managers in inter-views after the Weld study what role they believedaccounting played in connection with the organi-zational process changes. They did not mention aconcept remotely similar to that of boundary man-agement so as to inXuence competitive or coopera-tive managerial behavior. Thus, our assumptionabout central managers’ understanding of RCboundaries proved to be incorrect. We acknowl-edge this omitted variable by revising the model toincorporate a new variable: knowledge of bound-ary management, as shown in Fig. 2. The revisedmodel shows that organizational process changeand knowledge of boundary management inXu-ence RC boundaries.

Several factors can explain why central manag-ers have low knowledge of boundary management.First, central managers may simply lack the rele-vant education and/or experience. The notion that

accounting practices (e.g., ABC, open bookaccounting, project budgets) inXuence competitiveor cooperative managerial behavior is not promi-nent in management accounting literature such asin textbooks, practice publications, or scholarly lit-erature. Although discontinuous organizationalprocess change has become increasingly common,it remains a non-routine event within any particu-lar organization (Meyer et al., 1995). Within thefocal division we examine, only the consultantshad routine experience managing RC boundariesin connection with discontinuous organizationalprocess change. For example, central and RC man-agers at Convair had most of their experience withcontinuous as opposed to discontinuous organiza-tional process change. Second, based on the funda-mental attribution error (Ross & Nisbett, 1991),central managers can have a biased understandingof the eVect that managing organizational factors,such as RC boundaries, have on subordinate man-agers’ behavior. For example, Rowe (2004) pro-vides theory-based evidence that individuals whoassume the role of designers of management con-trol systems underestimate how powerfully RCboundaries inXuence cooperation and trust amongcross-functional teams of individuals who assumethe role of RC managers.

Limitations and implications

The analysis and evidence presented have limi-tations. As already discussed, the Fig. 1 model hasat least one omitted variable that caused us torevise it as shown in Fig. 2. In addition, there couldbe other omitted variables related to the causes,design, and eVects of RA. The model also assumesunidirectional causal relations when there may bebidirectional causal relations between these vari-ables and linear relations when the relations maybe nonlinear. Empirical limitations include evi-dence that is limited to one organization and thedata that are available to us. In particular, no evi-dence is available to examine the expectation thatseparable RC measurability and cooperative RCboundaries leads to undesirable collusive behavioramong RC managers (E3 and cell 3 in Table 2). Apotential theoretical and/or empirical limitationof this research study is treating each variable as


having two discrete levels. For example, RAboundaries are operationalized as having two lev-els (competitive and cooperative). Research couldoperationalize this and other variables with morelevels or as continuums. Such operationalizationcould facilitate investigating relations that arecurvilinear and/or complex interactions (Luft &Shields, 2003). Finally, replication is an importantmeans of reducing bias in Weld-based research(Eisenhardt, 1989). We have used multipleresearchers, multiple methods, and multiple obser-vations. However, the data are limited to a singleorganization and therefore we lack replicationacross organizations. Thus, additional research isdesirable in order to further examine the validity ofthe model and evidence.

This paper contributes to the literature con-cerned with RA by presenting theory-based evi-dence that when properly designed or redesigned,accounting and participation practices can be usedto inXuence RC managers’ behavior and commu-nication. We also show that the goal-congruentdesign or redesign of accounting and participationpractices depends on the magnitude, scope, and

speed of organizational process change. Related,changing from continuous to discontinuous (orvice versa) organizational process change hasimplications for whether RC managers’ perfor-mance can or should be measured separately foreach RC manager or in the aggregate for all of theRC managers who are involved with the organiza-tional process change. A possible implication ofthis paper is that realizing integrative (synergistic)gains from discontinuous organizational processchange can depend on motivating managers whoare accustom to competing instead to cooperate.However, we Wnd that successfully changing mana-gerial behavior depends on coherence and consis-tency in the design or redesign of the followingfour types of RC boundaries: organizational, com-munication, spatial, and temporal (Fig. 1). Finally,the Weld data highlights that ABC is an importantpart of an eVective boundary management strat-egy, particularly for designing and redesigningcommunication and organizational RC bound-aries.

This paper also contributes to the accountingliterature by introducing the variance (or syn-

Fig. 2. Revised theoretical model.d

OrganizationalProcess Change a

• Continuous /Discontinuous

Responsibility-Center Measurability b

• Separable / InseparableResponsibility-Center Managers’Revelations of Private Knowledge• Low / High

Responsibility-Center Boundaries

Knowledge of the Causes andEffect of Responsibility-Center Boundaries c

• Low / High

a The rate of organizational process change is based on central managers’ strategic intent.b Responsibility-center measurability is limited to measurability of financial performance.c Knowledge of the causes and effects of responsibility-center boundaries is an omitted variable in the Fig. 1 model.

• Competitive / Cooperative

a

b y c

In this model each variable is dichotomized for expositional convenience.d


thetic) and temporal bracketing research methodsto analyze longitudinal Weld data. We provide evi-dence on the usefulness of these research methodsin helping to interpret, structure, and relate com-plex Weld data to theoretical expectations.

Discontinuous organizational process change isinteresting, in part, because it has the potential forlarge gains or losses in organizational performance(Romanelli & Tushman, 1994). This paper helpsidentify how RA can be used in managing severalRCs when, as part of committees and cross-func-tional teams, RC managers are asked to contributeto discontinuous organizational process change. Incontrast, much management accounting researchfocuses on continuous organizational processchange and individuals or teams from a single pro-fession, functional area, or responsibility center(e.g., Davila, 2000; Rockness & Shields, 1984;Towry, 2003; Young et al., 1993). While this is aneconomically important context in which organi-zations usually operate, organizations increasinglyare adopting intended strategies of discontinuousorganizational process change (Meyer et al., 1995;Romanelli & Tushman, 1994).

Thus, an important contribution of our paper isto provide theory and evidence on how accountingand participation practices in general, and RA inparticular, can be used to make managing organi-zational process change more successful. Forexample, this paper highlights how accounting andparticipation practices can be used to manage RCboundaries and thereby inXuence managerialbehavior when there are changes in the rate ofintended organizational process change. We hopethe theory and evidence will motivate additionalresearch on the design and eVects of managementaccounting when intended organizational processchange is continuous or discontinuous and howmanagement accounting changes as the magni-tude, scope, and speed of intended organizationalprocess changes. Of particular interest would beresearch that identiWes how management account-ing practices such as RA, budgeting, ABC, andperformance measurement interact with organiza-tional process change to aVect the behavior andcommunication of individual and groups (commit-tees and teams) of managers and thus inXuenceorganizational performance.

Acknowledgements

We thank Chris Chapman, Kathleen Carley,David Cooper, Harry Evans, Steve Kaplan, NealO’Connor, Derek Oler, Kenny Reynolds andworkshop participants at University of Alberta,Arizona State University, Indiana University, andthe 2006 Management Accounting Section Mid-year Meeting. We also gratefully thank the twoanonymous reviewers for their constructive sug-gestions for improving this paper.

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