The Effect of Discontinuous and Unpredictable Environmental Change on the Use of Management Accounting during Organizational Decline: A Field Study

Abstract

This paper investigates whether and how organizations use management accounting during decline. Based on interviews and observation in five private sector organizations and one in the public sector, I employ a theoretical lens distinguishing the continuity and predictability of environmental change. I find that members in organizations facing decline due to a discontinuous and unpredictable environmental change leverage management accounting during decline. In contrast, members in organizations facing decline due to a continuous and predictable environmental change question the truth and value of their management accounting practices and, as a result, do not change their use of management accounting to manage decline. For those organizations that do leverage management accounting to manage decline, I employ a theoretical lens based on theory and research relating to the process of organizational learning. I find that organizational members first engage in a comprehensive review of their management accounting systems and reports to convince themselves that they can be relied upon. Following this process, they use accounting to understand the past, develop metrics intended to reach all employees, and institute various forms of accountability to support the management of decline. These uses of management accounting align with the information processing, interpretation, and dissemination activities of organizational learning, which enables organizations to find a new language for understanding and managing decline. My findings contribute to research and practice.