Comparison And Contrast Between The Theoretical Lenses Accounting Essay


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Ivy University is one of the eight Ivy League institutions located in the Northeast district of the United States which have been known for its academic excellence and structure of private education. The authority structure of Ivy is said to be decentralised and the administration is responsible for supporting departments and to report financial status and meet regulatory concerns. The core source of income for these institutions are said to be grant money. From reading the case study further the university introduced Enterprise resource planning (ERP) in their process because of mismanagement of grant money. Further on this essay will discuss the difficulties faced during ERP implementation and the resistance for change in staff.

This case will be analysed from three different theoretical lenses, these theoretical lenses include Agency Theory, Contingency Theory and Institutional Theory. Further there will be comparison and contrast among these theories. The rationalization of how does each perspective can be interpreted differently in relation to the case will be evaluated in this essay.

Enterprise resource planning (ERP)

After increasing the complexity in organisation process, ERP has become famous among professional community. According to Rouse (2007) ERP is an industry term for the broad set of activities that helps a business manage the important parts of its business. ERP software are often being used in product planning, parts purchasing, inventories, interacting with suppliers, providing customer service, and tracking orders. ERP can also include application modules for the finance and human resources aspects of a business as well.

Functions of ERP (Rajesh, 2013)

Complete visibility into all the vital procedures across assorted departments of an association. (especially for senior management personnel)

A unified and single reporting system to analyze the statistics/ numbers/ status etc in real-time, across all the functions / departments.

ERP arrangements are extra safeguard as centralized protection strategies can be requested to them and all the deals transpiring via the ERP arrangements can be tracked.

ERP systems make it easier for order tracking, inventory tracking, revenue tracking, sales forecasting and related activities.

Automatic and consistent work-flow from one department / function to another to ensure smooth transition/ completion of processes.

Since same software is used across all departments - this can avoid individual departments having to buy and maintain their own software systems.

ERP and Ivy

In context of the case study, Enterprise Resource Planning Systems (ERP) is used in Ivy League university as a tool of control in financial performance. However the ERP was designed keeping in mind the interest of top management rather than the interest of lower management. The key area that was to redesign were financial management, human resources and payroll and grants and contracts administration.(Wagener,2011) The Socialmaterial perspective also known as the combination of technology and human work in organisation (Orlikowski & Scot 2008) was a theory used in case study to illustrate the relationship between ERP and staff of the university. The previous process was recognized as commitment accounting, where all the activities were managed through grant money. In this process Faculty support staffs (FSS) were responsible for regulating all inconsistency in the budget category .When ERP kicked in and people were forced to follow the new procedures, there was sudden change seen in the accounting practise, as result Socialmaterial broke apart and people in organisation started to resist the new practise instead of their existing practice. This difference between technology and human work in organisation had interrupted the staffs ability in managing and control, this disruption has additionally lead to setbacks in accountability as the staffs have poor understanding in the new arrangement and reasons them incapable to present their work properly. The configuration stage of ERP in this case study has clearly showed the concern of control and accountability where the faculty was required was spent in a manner preferred by the central accounting leadership not by the department itself. The ERP system had reduced their ability to manage and control their spending. The project people forced the staff to provide information on grant accounting in a way that they couldn't resist which meant more work for the faculty members. The inability of faculty to engage with the process clearly shows almost no control in the ERP environment. In Ivy, the ERP was mainly designed to adopt more proficient form of accounting instead of mirroring the existing practice. As result the staff highly criticised the practice which lead the project team to think again in the reconfiguration stage. The illustration of resistance and adjustment described in the case study clearly states the experiment with ERP at Ivy where faculty and the administration quickly decided to oppose the new method of accounting. There non-participation in the whole process undoubtedly defines the power and control of the people which led to reinstate the previous practice that was pulled out during the process. Moreover the analysis indicates on Wagner (2011) that in the condition where the practices of a powerful community are ignored in the ERP configuration, the result may be minimal which will eventually end up modifying the enforced practice.

Background to Theoretical Lenses

This section will give a concise background on the theories stated above and further comparison and contrast will be drawn.

Agency Theory

Enterprise resource planning (ERP) systems are becoming rapidly crucial in order for large and medium sized organisations to run their operations. Therefore, organisation needs to understand the factors that drive successful ERP implementation, a product of the continuous interaction between the implementation consultants and client firms. Agency theory has been successfully utilized by distinct researchers in past to clarify relationship between two parties pursuing a common outcome (Basu and Ledger, 2004). Lambert (2001) describes agency theory as one of the most important theoretical paradigms in accounting research during the past 20 years, having at its roots the information economics literature. The basic agency model assumes two actors, the principal and the agent. The agent is hired by the principal to perform work on behalf of the principal. Cheo, Grover and Teng (1995) suggest that agency costs are determined by five factors; namely, outcome uncertainty risk aversion, programmability of the task delegated, outcome measurability and length of agency relationship.

Institutional Theory

Unlike agency theory, institutional theory is based on non-economic logics that drive human action. Institutional theories of organisations provide a rich, complex view of organisation. According to Zucker (1987) organisations are influenced by normative pressures, sometimes arising from external sources such as the state, other times arising from within the organisation itself. Under some conditions, these pressures lead the organisation to be guided by legitimated actions, from standard operating procedures to professional certification and state requirement, which often have the effect of directing attention away from task performance. DiMaggio and Powell (1983) argued that organisation exist in 'fields' of other similar organisations. Within the specific field, with passage of time, organisations become increasingly similar in terms of their structures, practices and even strategies. Institutional theory proposes that this similarity is result of combination of mimetic, coercive and normative processes. In public sectors like universities the normative and coercive pressures had lead many institution to adopt high technical processes in their strategies. The institutional theory can be give good results as the stakeholder plays an important role in determining legitimacy of an organisation, which gives more power in the operations of an organisation. Many other theories of organisation do not extend the same level of power to its stakeholders in which the stakeholders set the standards. (Tom Feinberg, 2009)

Contingency Theory

Contingency theories have played an important role in the development of management literature in the last few decades. The contingency theory of management accounting provides a major structure for the study of an organisation (Donaldson, 2001). It holds that the most effective organisational design where the structure fits the contingency. As Tosi and Slocum (1984) point out, contingency approaches are based on the assumptions that performance is a consequence of the fit between several organisational aspects such as strategy, structure, system, culture and environment characterises. This theory also suggests that the effectiveness of a decision procedure is dependent on the importance of decision quality and its acceptance, information received from the management and subordinates, and the likelihood that the subordinates will accept the decision.

Comparison and Contrast between the theoretical lenses

Agency theory also is similar to the information processing approaches to contingency theory (Chandler, 1962, Galbrath, 1973, Lawerence and Lorsch 1967). Both perspectives are information theories. They assume that individuals are restricted to be rational and the information is circulated is uneven throughout the organisation. These theories can be classified as efficiency theory as well because they use efficient processing of information as a norm for choosing various organisation standards. The difference between the two is in their focus. In contingency theory researchers are concerned with the optimal structuring of reporting relationships and decision-making responsibilities.(Galbrath, 1973, Lawerence and Lorsch 1967) whereas in agency theory they are concerned with the optimal structuring of control relationship resulting from these reporting and decision making pattern. By using the contingency theory it is matter of concern whether a firm is organised in divisional or matrix structure. On another hand agency theory matter of concern is whether managers within the chosen structure are compensated by performance incentives. On another hand Institutional theory suggests the implication of about the structure that fits or misfits the requirement of institutional environment. Institutional theory analyse the organisational design and its effect which is equivalent to contingency theory. The fit between structure and contingency maximizes the internal effectiveness of the organisation, that is, the ability to achieve the goals of the organisation, e.g., profitability of a business corporation (Child 1975;Donaldson, 1987; Hamilton and Shergill, 1992; Van de Ven and Drazin,1985). Thus, contingency fit leads to profitability, which, in turn, leads to higher dividends. In contrast, institutional fit maximizes conformity to the model of the organisation that is approved by the institutional environment, leading the organisation to be seen as legitimate (Parsons, 1961) and to receive external support, such as grants and loans (Meyer and Rowan, 1977;Meyer and Scott, 1983).

Comparison and Contrast of Agency, Contingency and Institutional theory

Table 1


Agency Theory


Contingency Theory

Institutional Theory

Self Interest



Goal conflict



Bounded rationality




Information asymmetry







Risk aversion


Information as a commodity


(Adapted from Thomas Clarke (2004) Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance, Pg.83)

Table 2



Agency Theory

Contingency Theory

Institutional Theory


Functionality of organisation of society



Moderately positive


Organisation make adaptive change

Moderately Positive




Manager further interest of their organisation




(Adapted from Lex Donaldson (1995) American Anti-Management Theories of Organisation, Pg. 26)

Interpretation of the case from each theoretical perspective

Agency theory

Agency theory can be applied to the Ivy case study in two very different ways. First the relationship between the Firm and ERP consultants can be viewed as principal-agent relationship, and the nature of agreement and its performance implication. Second the main reason to implement ERP in the process wholly depends of the top level management which act as agent to middle or lower level management.

Institutional theory

In relation to Ivy case study ERP systems represent institutional logics which act as a model for the performing of the organisation's activities. ERP systems are "important embodiment of institutional commitments and serve to preserve these rules by constraining the actions of human agents" (Gosain, 2004). ERP systems symbolize institutional logics of the organisation‟s activities, which enable some activities while denying legitimacy to others (Gosain, 2004). Moreover, Avgerou (2000) considers ERP system as an institution that justifies and enacts organisational change. An ERP system involves several assumptions about how organisational processes should work, however the fit to organisational needs is often lacking. ERP systems can be seen to represent a particular rationalized logic, structure or procedural focus. The principles associated with ERP systems are control and efficiency. These objectives are achieved through standardization, visibility, best practice and integration.

Contingency theory

An importance factor for the success of ERP implementation is that the organisation should choose an ERP system that is suitable for its needs. (Everdingen et al. 2000) It can be seen in the case study that the technological advancement in the field IT and structural dilemma in Ivy University forced them to introduce ERP in their process. The main benefit that they were expected was increase in fiduciary control and decrease in audit risk. As contingency management theory doesn't believe in single approach in managing an organisation and it approaches each organisation from a unique perspective correspondingly ERP is design keep in mind the organisation demands and conditions. In Ivy, the ERP project team designed the financial management module to improve the grant money spending. The time phased budgeting practice was an integral part of ERP system that was implemented. The shift in grant accounting practice reflects previous accounting methods and uncertainties due to large corporate scandal related to financial accounting.


The case of Ivy has a number of key theoretical and practical implications for understanding how accounting and information architecture are correlated. From a theoretical perspective, the essay demonstrates the applicability of the sociomateriality perspective of ERP system in relation to accounting and information system. The case study has shown that the ERP systems and their influence on management accounting practices while at the same time how its existing management accounting practices can influence the ERP system. It can be seen during the study when the faculty resists in changing in the accounting practise because the ERP reduces the amount of spending where staff feels less control over the process. This study when viewed from sociomaterial practice provides insight into existing literature that has reported on standardisation of the accounting practice in enterprise software. The theoretical explanation moved beyond the simple attribution of change to either human or technical agency.

As further analysing the case study from the functionalist prospective, there have been three theoretical lenses used to evaluate and interoperate the case study: Agency theory, Institutional theory and Contingency theory. Theories provide complex and comprehensive conceptual understandings of things that cannot be pinned down: how societies work, how organisations operate, why people interact in certain ways. Theories give researchers different "lenses" through which to look at complicated problems and social issues, focusing their attention on different aspects of the data and providing a framework within which to conduct their analysis. (BMJ, 2008)

By examining three different theories with respect to Ivy case it can concluded that there is comparison as well contrast among the three theories at different levels. Each theory provides an affluent ground to the case study in their individual manner. The Functionalist paradigm itself helps in explaining the ways in which the organisation of society works together to create social harmony and to maintain balance in organisation.

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