Management accounting change in small technology companies: towards a mathematical model of the technology firm

Abstract

The primary purpose of this paper is to explain management accounting (MA) change in 93 small Finnish technology firms in terms of their organizational characteristics and motivation patterns. Factor analysis identifies four motivation patterns among the companies. Hence four types of companies emerge called ‘change-oriented’, ‘stable and conservative’, ‘performance-contented’ and ‘discontent resourceless’ organizations. A mathematical model of the technology firm as an adaptive organism with a certain probability to survive, is constructed to obtain expectations for the differences in MA change between the identified types. The model shows that the MA systems (MASs), which help management in large organizations to identify directions for future action (for example, short-term budgeting) may be ineffective in small technology companies. The probability of the company’s survival is sensitive to the intensity of competition and cost efficiency. In an environment where an identified, innovative project cannot be undertaken with certainty, the length of the strategic planning period has a limited optimum level. Moreover, the four types of companies examined have significantly different motivation levels to change their MASs. The change-oriented company must improve its MASs remarkably to compensate for the large negative effect, especially, of high competition, whereas the stable and conservative company has little or no pressure for improvements in its MASs. The performance-contented company has no real motivation to change its MASs because there is no competition. But the discontent resourceless company, which functions in an atmosphere of high competition with shorter customer relationships, is compelled by its environment to adapt its MASs although it has, otherwise, low motivation for change and is acutely resource constrained. These expectations were supported by correlation and regression analyses applied to explore the relationship of the four types to MA change.