Experiencing Change in German Controlling

Management Accounting in a Globalizing World

Robert Luther, T Colwyn Jones, Astrid Saxl

• Publisher: CIMA Publishing
• Year: 2009
• ISBN:
  9781856179089
• Topic: Business
• Subtopic: Accounting
• Index: Business

"Controlling" is the German term for "Management Accounting". This book explores the unique characteristics of German management accounting as opposed to the the management of companies in other countries. It contains unique research taking three different German companies as case studies. It explores the influence of national characteristics and globalization on the ways businesses are run.

- Contains three separate in-depth case studies of actual German businesses

- The only book of its kind to explore thedistinctive qualities ofGerman management accounting

Chapter 1. Introduction, Research Frame and Methods

This report considers contemporary practices of German ‘Controlling’ – a term which is usually translated into English as ‘management accounting’, although we shall note some detailed differences in meaning and conventional use of these terms between Germany and UK. In particular, we explore the extent to which contemporary Controlling¹ represents a distinctive, specifically German, contribution to the management of companies or, conversely, the extent to which it demonstrates more generic international practices. Our exploration proceeds by examining the experiences and interpretations of those closely involved in these practices – Controllers and managers in three German manufacturing companies. We investigate the management accounting systems of these companies and their relationship with the companies’ competitive strategies, organizational structures, computerized information systems and external reporting. The report aims to provide a resource for CIMA members and other UK management accountants who have connections with German companies and/or wish to learn from German practices, and also to contribute to academic debate on the influence of national characteristics and processes of globalization on the development of management accounting.

¹We follow the German practice of capitalizing this term.

The approach underlying the project is that accounting, like any socio-technical practice, is constantly undergoing change under the influence of diverse forces. In the last few decades, such changes are perceived as becoming more rapid and more widespread. US developments in accounting theory and practice have been identified as a key source of accounting innovation and as carrying the potential for hegemonic influence in a ‘globalized’ world. At the same time, some accounting researchers have pointed to the persistence of distinctively national ‘styles’ of accounting that resist homogenization into a single accounting form.

The case studies focus on the experiences and perceptions of those who are intimately concerned with the production and consumption of manufacturing accounts. These individuals are placed not only in a nexus of national, global and regional forces, but also in the specific contexts of their own organizations, positions and personal experiences. Thus the research seeks to understand change in manufacturing accounting not via macro-level generalizations, but through exploring the enactment and meaning of change at the micro-level of the organization.

The intention has been to explore contemporary accounting practices through investigating the format, content and use of accounting information within manufacturing companies and analysing the forces promoting change; then, from this, identifying convergent and divergent tendencies and highlighting innovative practices. More specifically, our objectives are to identify and analyse:

■ accounting practices with particular emphasis on information for costing, control, decision making and performance measurement;

■ the perceptions of producers and users of accounting information on changing requirements and the forces promoting change;

■ the influence of financial accounting practices and computer information systems;

■ change and innovation in practices, and the role of change agents with special attention to management consultancies;

■ the influence of specific organizational factors with special attention to the companies’ productive systems and markets;

■ the influence of national factors in terms of history and tradition, and in contemporary contexts – economic, legal, political, social and cultural;

■ the influence of EU regulations, economic management and systems of governance, and of global accounting change.

Previous Literature

In this section we briefly outline some of the main themes from bodies of literature that we have found helpful in framing our research.

English-Language Cross-National Comparative Studies of Management Accounting in Europe

Hopwood has commented that ‘In Europe there is a relatively limited consciousness of past traditions and achievements, and the potential that these might have for casting light on the complex problems which face management accountants trying to re-couple their practices to changing business conditions and organizational forms. Ideas about management in Europe seemingly remain diverse, fragmented, and poorly articulated’ (1996, p. vii). European management accounting research² has largely been restricted to observations across two countries; examples include Carr et al. (1994), Ahrens (1997) and Appleyard and Pallett (2000). Other broader European studies, such as Bhimani (1996), have not sought an integrated analysis, or have had limited empirical grounding (e.g. Granlund and Lukka, 1998 and Shields, 1998).

²A review of European management accounting research is provided in Bhimani (2002).

Making comparisons between Germany and the UK, Scherrer (1996) and Ahrens and Chapman (2000), take the view that academics, informed by economic theory, have been more influential in the development of the German management accounting body of knowledge than have practitioners. This is partly attributed to a greater gulf between university education (strongly informed by economic theory) and practice, than in the UK. This is supported by Scherrer’s (1996) comment that ‘The limited use of activity-based costing and target costing in practice contrasts with the widespread, controversial coverage which these topics attract in the business studies literature’ (p. 104). Schildbach (1997), noting that activity-based costing (ABC) was actually deployed by few enterprises³, commented that ‘According to German traditions, new systems of cost accounting are regarded (by practitioners) with scepticism’ (p. 274). This gulf, and practical conservatism, is further illustrated by marginal costing and contribution margins being stressed in theoretical research despite the reported dominance, in practice, of full costing which was promoted by the writings of Schmalenbach (1934)⁴ and regulations introduced in 1938⁵.

³Although ‘The differences between full costs derived from flexible standard costing and from ABC have also turned out to be rather small’ (Schildbach, 1997, p. 275).

⁴Schmalenbach propounded a complex system that incorporated all costs despite the fact that, according to Schildbach (1997, p. 262), he saw the main purpose of management accounting as being to support business decisions.

⁵See Scherrer (1996, p. 100).

In some of the writings it is difficult to distinguish whether the practices being referred to are normative theories or descriptions of actual practice; nevertheless, at the outset of this project we got the impression that accounting in Germany is more standardized or ‘rule-based’ than in the UK. However, perhaps because of the lower profile of accounting numbers-driven management, the influence of Taylorist labour-commodification strategies are reported as being less pervasive than in the UK or US (Jones, 1995; Lane, 1989).

From the prior comparative literature on management accounting in continental Europe, a number of themes emerged as distinctive relative to the American-dominated ‘international’ paradigm.

■ First, the concept of incorporating, for some purposes, imputed (as well as actual) costs of financing (and sometimes administrative and R&D expenditure) into product costs. Furthermore, Scherrer (1996) indicates that depreciation overheads are generally based on fixed asset replacement costs despite the fact that product costs calculated on this basis have to be corrected to historical cost for financial accounting purposes.

■ Secondly, continental procedures relating to costing contracts with public authorities appear to be relatively formalized. Whereas in the UK accounting for work done, say for the Ministry of Defence, would be governed by a specific contract, in Germany this would be in terms of a statutory instrument (Scherrer, 1996, p. 108).

■ Thirdly, the relatively lower importance of any professional body to represent management accountants, their narrower role and their relatively closer links with engineering (Sheridan, 1995) ⁶.

⁶In France, Lebas (1996) suggests that capital budgeting was completely outside the sphere of interest of accountants.

■ Fourthly, a lower status and more specialized role for management accountants than in Britain. Thorp and Kipfer (1991), referring to France, wrote ‘the accounting and management functions are compartmentalized. Accounting deals with historic matters, management accounting with planning for the future. Accounting is concerned with precision, management wants analyses and approximation … management accounting has been given over to management/cost controllers (controleurs de gestion)’ (p. 35). By contrast, as noted by various scholars (Bhimani, 1996; Carr and Tomkins, 1998) the management of British companies is characterized by a strong financial orientation.

■ Finally, the traditionally lower emphasis placed on private equity shareholders relative to banks as providers of capital, and the more collaborative and higher profile relationship with employees and their representatives.

Innovation, Diffusion and Dispersal of Management Accounting

A central theme of Johnson and Kaplan’s (1987)Relevance Lost was that the rules governing financial accounting have been a major influence on management accounting, especially in connection with absorption costing. This was one of the spurs to their development of ABC which companies now purport to use on a widespread basis. The extent to which, and manner that, ABC is actually used is perhaps less clear than indicated by large-scale surveys. In this respect, Kilger’s⁷ assertion that many in Germany apply the term ABC to their long-standing multicost driver overhead allocation bases made German comparisons particularly interesting.

⁷As reported on p. 327 of Schildbach (1997).

In 1995 Sheridan took the view that since the financial accounts in continental Europe were more driven by legal and tax criteria than by decision usefulness, investors would not be so naïve as to rely on the reported figures when evaluating a company, and that the real figures were shown in the management accounts. More broadly, Malmi (1999) takes issue with the idea that management accounting innovations are manifestations of rational assessments that the decision-benefits exceed the costs. He examined the adoption of ABC and proposes that the driving force behind the diffusion of a particular practice changes through its ‘life cycle’. Rational ‘efficient-choice’ may be a strong explanatory variable in the early stages but fashion setting organizations exert a dominant influence in the ‘take-off’ stage. His paper also points to the influence of supply-side institutions as agents of the diffusion of what Hopwood (1999) has called ‘packaged management knowledge’.

The actions and interpretations of the principal actors in the promotion of ABC are explored further in Jones and Dugdale (2002). ABC has meant different things to different people and this vagueness of understanding has allowed the concept to be disembedded and translated into a global fashion amenable to various further mutations. Jones and Dugdale also identify the way that ABC, as with other accounting practices, was adopted in English-speaking countries in a wider role of ‘signification, legitimation and domination’ in the downsizing and delayering rhetoric and practices of the 1990s.

Turning to the question of geographical dispersion, the importance of the extent to which management practices are transferable across national boundaries, in this era of increasing globalization of business, is stressed by Chow et al. (1996). The influences of professional organizations, international accounting firms and multinational companies on the spread of accounting practices have been s...

Table of contents

• Cover image
• Table of Contents
• Copyright
• Executive Summary
• Chapter 1. Introduction, Research Frame and Methods
• Chapter 2. The German Context
• Chapter 3. Case Study of CarAccessories
• Chapter 4. Case Study of PowerComponents
• Chapter 5. Case Study of StorageSolutions
• Chapter 6. Discussion
• Appendix. Organizational, Societal and Global Contexts of Accounting
• References
• Index