Throughout the 1990s, effectively gaining competitive advantage and enhancing business performance have been the major challenges that the CEOs had to overcome under the context of intensified global competition (Porter 1996). According to Pike & Neale (1993), the three traditional roles of finance function in most organisations are financial accounting, corporate finance and management accounting. Despite the fact that these roles seem to cover the full range of the businesses activities, the internally-focused and past-oriented nature of them is crictised as non-strategic, which impede the ability of finance function to help business achieve competitive advantage or gain further market share (Hunger & Wheelen, 1996; Mintzberg, 1987a; Porter, 1996). Therefore, traditional finance departments are increasingly expected to engage in more value-added activities and be more proactive in supporting the organization's overall business strategies.
As a number of researches have proved that changes in the external environment of an organization trigger the change in the management accounting practices (Atkinson et al., 1997; Nanni, Dixon, & Vollman, 1992), it can be said that he major change in the role of finance function is that management accountants are becoming more actively involved in the decisions that run the business. This result is supported with the notion that the managers demand more management accounting information that assist them in the process of making decisions as well as measure and monitor performance progress against strategies. Therefore, a combination of clearly articulated strategies, flexible organizational designs and sophisticated accounting systems has been adopted as a way to achieve this goal.
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By responding to the demands of managers who need make to make timely and sound decisions, management accountants (MAs) are more and more expected to support managers in their decision-making process or act as 'business partners' (Siegel and Sorenson, 1999). Therefore, MAs are expected to show a high level of 'commercial awareness' (Burns, Scapens & Turley, 1996), a close involvement in and understand of the organization's business processes, and 'an ability to communicate in other managers' terms' (Burns & Yazdifar, 2001). Granlund and Lukka (1998) see the highest level of this evolution in 'a situation in which management accountants operate as true members of management teams and are able to act as change agents in organizations'.
Over the last two decades or so, academic literature has been flush with numerous studies of management accounting change, which have been conducted across a variety of business sectors and national context. Certain studies have investigated whether such change implementation is successful or not (e.g. Shields, 1995) while others (e.g. Malmi, 1997) raise an issue of whether such distinction between success and failure is possible. Models of change implementation have also been developed, based on empirical study (Vaivio., J., 1999b). Some other authors even have drawn theoretical insight from outside disciplines to conceptualize management accounting change (Burns and Scapens, 2000). Geographical and country-specific cultural aspects have been studied in regards of their effect on the path dependency of management accounting change (Granlund and Lukka, 1998a). However, no empirical study has been conducted to explore the effectiveness of transforming the traditional finance functions on the overall organizational performance. Neither does the literature sketch out what high quality business partnering model of leading organizations actually looks like. This study, therefore, contributes to the management accounting literature to examine if there is a link between the business partnering model and the performance of an organization. From that we can have a clearer picture of which the characteristics of finance functions that set the high performers apart. This is important because it will provide a survival kit for the successful reorientation of the entire finance organization with significant performance improvements in both finance and the entire company.
The rest of this paper is structured as follows. The next section summarizes the relevant prior literature from which the research hypotheses are developed. The research methodology is explained in Section 3. Section 4 contains the in-depth analysis of the data, which is followed by a discussion of the results and some concluding remarks.
Section 2: Literature review and hypotheses formulation
In this section, in light of the relevant literature, an effective business partnering model is presented to make way for the development of a number of hypotheses. The new multi-faced roles of finance have been suggested by literature to positively affect the effectiveness of finance functions and in turn the organizational performance, which results to a link between the adoption of these practices and the high performance of organization.
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To understand the background of the transformation and the way the paper is structured, a short travel into the history of management accounting is now presented. Since the 1980s, firms in all sectors of the economy were seen to undergo dramatic changes in the global economy including intensive competition, ever more demanding customers with diversified customer needs and shorter product life cycles, and the availability of advanced manufacturing technologies (Johnson, H. and Kaplan, R., 1987; Innes & Mitchell, 1990). Therefore, only an appropriate matching of strategy in response to the change in external factors can enhance organizational performance A report conducted by CIMA (year?) argues that in such a world where international markets give every firm much the same access to resources and where processes of each business areÂ converging on alike standards, the one real remaining differentiation tool rests on the decision-making function. As the customers are choosier and competitors react to customers' diversified demands in more and more sophisticated ways, firms may adopt differentiation strategy that underscores more customer-oriented and commercially oriented view. Financial information is just part of the picture because it fails to show long-term profitability causing the emergence of non-financial measures as a reaction to economic pressures (Granlund, M. and K, Lukka., 1998). Burns, J. et al. (1999) suggested that the partial nature of financial information still be accepted if MAs can interpret it in a broader context or stated in another way, they have to link the financial information to the non-financial measures. Following the customer-oriented focus, MAs are assuming the responsibility of serving their internal customers because great customer service depends on outstanding internal customer service. In this sense, they are said to act as 'business partners' (Burns, J. and Yazdifar, H., 2001) or 'business consultants' (Burns, J. and Vaivo, J., 2001). To better the decision making process, MAs need to understand the needs of the internal customers. This is a two-stage process in which the first step is deploying financial systems, structures and processes through which the the platform for the business partnering stage is formed, which is referred to as 'commercial finance' by Gould, S. and Fahy, M. (2006). Because MAs understand the whole financial impacts of functional decisions, they work with other business units (BU) managers in implementing the strategies made by the CEO rather than work in the finance silo separated from the rest of the business (Robinson, L., 1999). In this sense, thanks to the understanding of the whole value chain, MAs are encouraged to work on-the-field, increase emphasis toward business rather than spending the bulk of the time with clerical and routine accounting tasks. They are also referred to as 'hybrid accountants' who combine financial acumen and commercial awareness (Burns, J. et al., 1999). As a result, MAs build a close relationship between finance function and the rest of organization so they are acting as a change agent by increasing decision making process and further they can act as change leaders.
In short, the management accounting function is expected to complete its transformation from a transaction processing focus to a 'business partner' with a high decision support capability Gould, S. and Fahy, M. (2006) commented: "Business partnering model requires a clear understanding of customers, and it needs the right people to identify and use the appropriate techniques."
This transformation will be looked into details from the two perspectives:
From internally-focused to outward-looking and past-focused to forward looking or from cost orientation to business/customer orientation where the new roles and activities which MAs undertake will be considered.
From structures-focused to process-focused re-organization which is shown in the provision of core products and support services
A transformation from internal orientation to environmental (outward-looking) and from past-focused to long-term (forward-looking)
Changing roles and activities
There is little doubt that finance professionals play a pivotal value-adding role in managing and steering organizations through the ups and downs of the commercial world. Nonetheless, the technology advances may soon challenge the agreement about transaction processing. Thanks to those advances, transaction processing could be done in centralised shared service centres or decentralised virtual centres. Whether it is centralised or decentralised, it is likely that finance functions will contain the three roles: business leadership and partnering; transaction processing and technical and compliance. (ICCA, 2001)
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Traditionally, MAs were viewed to be concerned with number crunching and responsible for the overall functioning of the accounting or they were called 'bean counter' or a 'corporate cop'. While traditional roles and activities remain to take up the bulk of their time (Granlund and Lukka, 1998b), the trend is clear that less time is now devoted to score keeping and corporate policing. Technological developments have freed them up from the mechanical aspects of accounting therefore they allocate less time undertaking routine financial analysis, transaction processing or statutory reporting. Instead, they assume the tasks of analysing and interpreting information and are welcomed into the halls of management as 'business partner', sought after owing to their business acumen and the strategic aspects that they bring to the table (Burns, J. and Baldvinsdottir, G., 2005; Granlund, M. and Lukka, K., 1998a). MAs also spend time in forward-looking activities and engage in other non-traditional accounting activities such as strategic planning, internal consulting, process improvement, and performance evaluation (Siegel, G. and Sorenson, J., 1999). That is more time is now spent on business-integrated roles, incorporating tasks of strategy formulation, organisational redesign, change management (IMA, 1999). Among the most critical activities to the company's success that MAs are expected to perform in the future are long-term strategic planning, financial and economic analyses, customer and product profitability, computer systems and operations and process improvement (Siegel, G. and Sorenson, J., 1999).
There is widespread literature that advocates the view that MAs should get involved in the decision support and providing advice throughout the business. This is because MAs are said to be the well-equipped organisational members to provide information that is important to the strategic decision making, and that they would be desirable participants in this process (Kaplan, 1995). Indeed, MAs have access to financial and cost information that is resulting from intimate understanding of the underlying technologies, markets, and the organization' strategy (Kaplan, 1995). BÅ‘er (1996) anticipated that MAs would take part in the strategy formulation process so he suggested that MAs would play a focal role in orienting their organisation towards the future.
However, there is little consensus about the relationship between MAs' engaging in these new roles and the organizational performance. Indeed, literature only suggests that accountants' involvement in a broad set of decision-making processes might contribute to the strategic effectiveness. Byrne & Pierce (2007) showed that MAs' involvement in business processes has reinforced the effectiveness of management control and might have influence on performance through the improved decision making and enhancement in planning and control. The strategic decision making process contains both the strategy development and strategy implementation stage and the engagement of MAs in those stages has the potential to enhance strategic effectiveness by provide important strategic information (Langfield-Smith, 2005). Byrne and Pierce (2007) studied the association between a wide range of antecedents, characteristics and consequences of the roles of MAs and discovered that MAs have the potential to influence performance and information quality and that the greater the participation of the MA, the more likely they are to have a positive impact on these outcomes. Granlund and Lukka (1998b) studied the changing role of MAs in the Finland and suggested that they contribute to the strategic effectiveness by focusing their attention as well as actions towards the future and acted on real-time information. Kaplan (1995) expected that at the micro-level, the strategic effectiveness would be enhanced because MA would get involvement in strategic processes - such as the strategy development and implementation. In contrast, Granlund and Lukka (1998a) argued that management accounting systems still primarily generate enhancing operational rather than strategic effectiveness, at the mirco-level. According to Otley (2001), effectiveness is concerned with the provision of desired outcomes whereas strategic effectiveness relates to the organizational performance towards the achievement of their own strategic objectives. The following hypothesis is therefore formed:
Hypothesis 1: In high-performing organizations, finance functions assume more activities that associated with the decision making process.
As argued above, in order to act as business partners, MAs need to deploy financial systems, structures and processes that provide the platform for the business partnering process. Business partnering roles primarily consists of supporting in business management and performance management which provides information and framework for the strategic decisions can be made (ICCA, 2001). Information technology advances such as enterprise resource planning systems (ERP), e-commerce and the internet have significantly changed the way information is collected, measured, analyzed and communicated not only within but also between organizations (Atkinson et al., 1997). Such broad change suggests a necessity for management accounting to change, too. Although to date, a number of academic evidence have demonstrated the remaining popularity of traditional management accounting practices such as budgeting (Ezzamel et al., 1995), it seems also that those techniques are currently being used together with the new and alleged 'advanced' techniques for example continuous planning and forecasting, activity-based management, balanced scorecard, value-based management and management reporting and analysis (Scapens et al., 1996; ICCA, 2001). Advanced management accounting techniques can aid finance personnel to more easily concentrate on differentiation priorities, such as quality, delivery and customer service, compared to the traditional financially-based accounting techniques, as they emphasize the customer-oriented focus or the need to satisfy customer needs. For example, activity-based management, which is not only an improved version of product costing for traditional standard costing, but can also be used for strategic cost management, or to maintain and improve customer value. Balanced scorecard - 'a set of measures that gives top managers a fast but comprehensive view of the business' (Kaplan and Norton, 1992) not only consists of financial measures that convey the results of actions already done but incorporate operational measures which are the drivers of future financial performance such as customer satisfaction, internal process, and the organization's innovation and improvement activities. Continuous planning and forecasting are replacing traditional annual planning and budgeting as key fundamentals in monitoring and managing an organization. Traditional annual planning and budgeting are deemed normally arduous, time consuming task producing dubious data, rather than something that is of any particular use that managers can deploy in a fast changing environment. Moreover, traditional planning and budgeting techniques are too inflexible for the present business environment. Consequently, leading organizations are suggested to employ a more continuous, flexible, business-planning tool by replacing the rigid budgeting with continuous planning and forecasting. This ensures that a controlled mechanism is ready to review and modify strategy as circumstances change, and because business strategies are considered on a regular basis it guarantees that all decision makers have access to any information they need; how, where and when they need it. The end result is a far more forward-looking and agile organization which is able to adapt to constantly changing market conditions (ICCA, 2001).
Hypothesis 2: Top performing organizations have finance functions that deploy more advanced management accounting practices.
Information is one of the most important competitive advantages that firms can use in today's constantly changing market conditions (Mangaliso, 1995). From the 'Relevance lost', Johnson and Kaplan (1987) crictised that management accounting had lost its relevance because of inappropriate information provision, which caused negative influence on company' profitability. As argued above, consumers nowadays can obtain information about the products and services without national boundaries restrictions thereby they value product and services by non-financial operating performance indicators. With the customer-orientation philosophy, non-financial measures can be seen as an effective tool organization can use to respond to economic pressures (Granlund, M. and K, Lukka., 1998). It has been discussed that the sole dependence on financial performance information will not necessarily create better financial results, because such measures only show the results of past activities. Non-financial measures, in contrast, can tell the drivers that show the future financial performance. These measures are connected to topics such as customer satisfaction, the quality of overall productions, product quality, quality of processes and the firm performance in regards of time and productivity (Banker et al., 1993; Perera et al., 1997). Traditionally non-financial measures have been acquired in the operating functions of the firm such as productivity and various cycle times in manufacturing logistics, market share and customer complaints in marketing; and recently by the quality function people with different types of quality measures. The increased use of non-financial information places a significant impact on MAs' roles. This demonstrates a shift of MAs' focus from feed-backward to real time, feed-forward orientation which stresses the importance of forecast over actual against budgets comparisons (Granlund and Lukka, 1997). MAs are therefore expected to collect, analyse and report non-financial information in a form that satisfied the information needs of business managers. During the last few years this issue has moved to the idea as to what would be the adequate role of management accountants in this respect. Burns and Baldvinsdottir (2007) stressed the role of MAs in relating monthly management accounts to the wider information spectrum. That is to say they had to link the wider perspective of a business, which is expressed in performance measures, with the narrower financial data in management accounts. Although most prior researches have been in favour of a positive association between the increased dependence on non-financial measures and organizational performance, the relationship is of vague nature. Mia and Clarke (1999) claimed an indirect connection between the competition intensity in the market and business unit's performance with the greater use of management accounting information. Davila (2000) and Chong and Chong (1997) found that the increased use of non-financial information for business units and performance were positively linked. However, Perera et al. (1997) established that the use of non-financial measure had nothing to do with the performance of an organization under a customer-oriented manufacturing strategy. Improved performance has resulted in firms that use flexible manufacturing, and which also place greater reliance on non-financial manufacturing measures (Abernethy & Lillis, 1995; Sim & Killough, 1998). Because information is now acknowledged as one of the most dominant tools that can significantly affect the corporations' wealth, the management accounting system is expected to deliver up-to-date information that can assist managers to make well-grounded and informed decisions, and to motivate end-users of that information to strive for organizational change (Horngren, 1995). Failure to depend on on proper accounting information may cause resource management to be ineffective and a gradual decline in corporate performance. The third hypothesis is as follows:
Hypothesis 3: In top performers, MAs are seen to more engage in the activity of collect, analyse and report non-financial information
A transformation from functional-/structure-focused to process-/product-focused
Through provisions of core products
In the late 1980s, many firms adopted a customer orientation in which MAs were meant to service their internal customers. Siegel and Sorenson (1999) emphasised this role by giving an example that if a business manager asked for a financial information, MA would provide it even if they know more proper information would be demanded for an ideal business solution. The MAs' role has transformed from being a business advisor to a 'business partner' where MA is an equal participant of the decision-making team. They have the right and also the responsibility to inform a line manager the reason why specific types of information might or might not be desired for a decision, and is expected to make recommendations on how to better the quality of that decision. In order to perform this business partnering role MAs have moved from working in the finance silo which is isolated from the rest of the business to be physically situated in the operating business units with which they work. This tendency is a response to the continuous debates of customer orientation and of the need to replace the functional or departmental approaches of management with the process-oriented one. Working across the business and flexible communication over functional and departmental borders is nowadays regarded as one of the key success factors (Majchrzak and Wang, 1996). Indeed, MAs now work on cross-departmental teams and have extensive face-to-face interactions with non-accounting people across the organization.
Cross-functional teams are formed for a particular purpose, such as to develop a new product, or enhance work processes and they are said to improve the communication, coordination and cohesion (Narver and Slater, 1990). It is the integration and collaboration of a number of functional parts in an organization, with members of the team come from different areas of the business which allows a wide range of different expertise, skills and viewpoints to be brought to the project. This vision can be maintained by a commercial partnering model that incorporates the key internal customers of finance such as human resources, research and development and IT and marketing. The implementation of such teams is related with flatter organizational design and the greater autonomy of lower-level managers and personnel (Chenhall & Langfield-Smith, 1998b; Otley, 1994). This shift from centralized decision making and hierarchical controls towards the allocation of more empowerment to lower levels of business is ensure innovative and quick responses in complex and dynamic environment. It has been said that the adoption of team-based structures helps organizations not only to increase the flexibility and speed of a response, but also to enhance the quality of that response (Cohen, 1993). A team structure that allows finance - business unit partnerships enables finance professionals to gain a deep understanding of value drivers which help them rely their decisions on latent value and closely manage the outcomes of their decisions. Finance directors who master excellent technical and operational skills - are deployed to each business unit to help identify value-generating opportunities. And thanks to their understanding of the commercial perspectives of operating the business, their finance activities can be more successfully linked to the organizational imperatives. By being active in evaluating business issues, communicating across functional hierarchies and management levels, the more accurate, relevant and timely information is brought about (Brouthers & Roozen, 1999; Coad, 1996). By encouraging a partner relationship with all the functions in the business and acting as a vital part of the organizational decision-making processes, MAs are expected to provide a unique aspect and generate more value-added activities, which thereby facilitating improved performance (Scott & Tiessen, 1999; Wooldridge & Floyd, 1990).
The link between cross-functional participation and performance has been the main theme of extant management accounting empirical literature; although budgetary participation and job performance received attention of the majority of work (Chong & Johnson, 2007; Lau & Lim, 2002; Nouri & Parker, 1998; Parker & Kyj, 2006). Prior studies considering involvement in strategic decision-making and organizational performance are scarce and somewhat conflicting. In increasingly competitive and uncertain market contexts, the adoption of inter-departmental teams help to ensure a quick and appropriate organization's response to environmental developments, thereby enhancing performance (Baines & Langfield-Smith, 2003; Scott & Tiessen, 1999). Scott & Tiessen (1999) found that inter-functional involvement has an indirect positive influence the performance of teams through the usage of more sophisticated performance measures. In contrast, Chenhall and Langfield-Smith (2003) conducted a case-study work and concluded that team-based initiatives did not seem to improve organizational performance. In fact, despite the importance of cross-departmental work, only 20% of the MAs in the survey conducted by ICCA (2001) work exclusively in business units or divide their time between operating departments and finance department. In contrast, 80% of the respondents surveyed said that they still work in their traditional location. As the prior empirical work regarding the effect of cross-functional participation on organizational performance is somewhat scarce, the following forth hypothesis has been mainly drawn from what seems to be the conventional view:
Hypothesis 4: In top performers, MAs are decentralized and being parts of operating departments
In order to play business partnering role and work in cross-functional team across the business, modern business oriented management accountants are required to have a good understanding of how a business functions as well as the ability to communicate finance's vision and strategy to the rest of the organization. MA's ability to build effective business and social relationships with managers is important to gain trust from management, which then increases their likelihood of gaining access to supporting resources, of becoming involved in the evaluation of various options for the strategic direction at business unit and corporate levels, and in taking part in the choice of strategic methods. Burns and Baldvinsdottir (2007) agreed with this idea by noting that although the technical accounting skills such as stewardship and control remain fundamentally important; there is a growing emphasis on the new sets of skills especially a broad business understanding.
Hypothesis 5: In top performers, MAs have concrete understanding of the business and how it operates
Through provisions of support services
Traditionally, MAs were not members in the decision making process. Instead, they functioned as support staff to provide support services for the decision makers and were often communicated about the decisions after-the-fact. They spend the bulk of their time in the mechanical parts of accounting. They use manual process to sum and balance pages of multi-column paper spread sheets. By assuming the task of preparing budgets, checking expense reports, generating inventory reports, and producing standardized financial statements, they were the bean counters, the scorekeepers, the corporate cops of organization. By fulfilling such traditional accounting role, they were referred as the financial records keeper or the historians of the organization. The change of management accounting now placed a minimum focus on day to day accounting tasks although these activities remain fundamentally important (Burns and Baldvinsdottir, 2007). There is a growing concern that more time should be released so that MAs can focus on strategic analysis, decision support and other value-added activities. One way of doing this is through restructuring of finance function by centralizing transaction processing into shared services centres or business process outsource. This demonstrates the centralization of traditional accounting activities in the organizations. Although the use of sourcing activities are seen more of an efficiency engine, it should be viewed, within the scope of this study, as a tool to release the time of MAs so that they can concentrate more on analysing, interpreting information and acting as business partners
A shared service centre is defined as 'The concentration of company resources performing like activities, typically spread across the organization, in order to service multiple internal parties at lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value' (Schulman, Dunleavy, Harmer and Lusk 1999). Another argument is that 'Shared services is a collaborative strategy in which a subset of existing business functions are concentrated in a new, semi-autonomous business unit that has a management structure designed to promote efficiency, value generation, cost savings and improved service for internal customers of the parent corporation, like a business competing in the open market' (Bergeron 2003). When share services delivers are executed correctly, the cost is reduced and the service to the businesses is improved owing to the use of processes standardization and producing a service culture in the centre. The processes that are repetitive and transaction-based such as payroll, accounts payable, fixed assets, general ledgers, accounts receivable, general ledger and cash are the ones that are ideally appropriate to be conducted in shared services centres. Such processes could be standardised in an organisation because they are basically the same no matter what the sector and location. But there are more than just cost advantage of shared service centres. It is together with other support tools like information technology, can be seen to release the time of MAs so that they can concentrate on analysing, interpreting information and acting as business partners. There is little agreement in regards of whether some other processes, such as management reporting could be carried out in shared service centres or not. Some emphasize that standard reports and variance analysis can be standardized in a shared services centres. KPMG (2006) supported this view by forecasting that routine management reporting will be a particular growth area in the use of shared service centres, as organizations pursue the improvement of management information quality. Others oppose this idea by arguing that such processes must be conducted in business units to guarantee the staff has the ownership of the issues and therefore increase the commitment to the achievement of such processes. Even though the adoption of shared services centres is predicted to rise considerably, predominantly in the area of transaction processing, routine management reporting, regulatory compliance processes and investment management, the use of shared service centres is also increasing for less standardized processes like business performance analysis signifying the greater confidence as well as sophistication in the model of shared services (KPMG, 2006). Shared service models have become broadly accepted as an efficiency engine without the risks related with business process outsourcing. General, the great advantage of shared service model when compared with out-sourcing is that it should be possible to enhance efficiency and effectiveness of the delivery of service while at the same time there is no loss of control or dependency that are side effects of business process outsourcing model.
To the contrary, business process outsourcing model for finance are said to be in its early stage and less widespread than other support functions such as information technology. Nevertheless, it still represents an emerging tool for standardize routine processing (KPMG, 2006). Business process outsourcing is not a new concept and many business functions nowadays are outsourced. Typical examples comprise of payroll processing, human resources, information technology, property management and services and tax compliance. Some organizations have also outsourced all of their transaction processing, bookkeeping and accounting. Business process outsourcing enables the business to concentrate on its strategic issues by releasing resources from non-core activities. The efficiency gained would cut down the costs and raise profitability so that more funds can be reinvested in core and value-added activities. The future expectation is that the trend in outsourcing will continue to gain foothold and more energy will be saved because the time finance people will spend on transactional or control activities would decrease considerably (Danko, 2009).
Hypothesis 6: In top performers, more routine accounting activities are centralised into shared servicew centres or business process outsourcing