Week 1:
What do we pay attention to? Is it the common routine, or the unique things that happen once in a
lifetime? And what changes us? Is it the normal or the extraordinary? A toolkit of 60 years of theories
(1960-today) that you can select off when you encounter a particular situation
The majority of people within organizations are actually on their default settings/on their automatic
paths. As a controller it is your job to change that path and automatic setting. This his hard, because
how can you change something that people don’t see? You have to change the daily lives of people
that they are comfortable with.
Management accounting in organizations create a specific type of people; Comcast set such targets
that were impossible to reach, but their employees were dependent on these targets for their
payments. By this they created a certain type of behaviour and actions of their employees, that they
had to apologize for to the customers; apologize for the employees’ behaviour, that they created
themselves. They blame the control system, but you can’t actually do that!
There is a gap between what the system want the employees to do and how the employees
actually respond to the targets of the management accounting system
It is easy to design a system for all the different people, because we pursue that in a certain way
we are all the same
Economical rational: minimize the input, maximize the output. (1960/1970)
Economist perceive individuals as a group utility maximizing economic creatures; we know
everything, are able to calculate everything and are able to select the optimal life part out of
this. Based on this individuals define their behaviour. So to change people you need to know
how that calculations work and how you can influence it. They see states, or whole groups as
economical rational, and not the individual as a independent.
Accountants thought that change was a economically rational process; we always want to
calculate the optimal outcome; utility maximizing. When they wanted people to change,
they had to change that calculation that people are making to maximize their utility. They
consider people all to be the same; if they give the same incentives (bonus, money, free
rime, high grade) they know the outcome of the utility calculation that people make, and so
they can guide the human behaviour.
Eisenstadt (1958/1959): ‘Good rules are good when they are followed.’ The accounting system in the
organization is always good if it generates the proper behaviour. But if not, the rules are not
followed, the problem is with the design of the rules. The problem can’t be with the employees,
because they are economically rational robots.
If you act in a way that is different from expectations, it had nothing to do with you but with
the system; improve the system; rationality never become an issue.
The economic man (Herbert Simon, 1957): ‘This man is assumed to have knowledge of the relevant
aspects of his environment … He is assumed also to have a well-organized and stable system of
preferences, and a skill in computation that enables him to calculate, for the alternative courses of
action that available to him, which of these will permit him to reach the highest attainable point of his
preference scale.’
Rationality is not universal: everyone makes different calculations. You just simplify it till you have
the economically rational man.
,With economically rational, you typify behaviour of people and you can say things about them
without even knowing them. And you know exactly what to do in order to change people; bonus
From 1960s’/1970s’ people got disappointed in the potential of formal systems to influence
behaviour; managers and other people did not always respond and acting economically rational,
individually. The solution for this was the contingency theory
Contingency theory: something that can or can’t happen; keeps the options open. Different
organizations and situations need to have different incentives and control systems to get people to
do what you want them to do; there is no one system, it depends on the circumstances. This ideal
system depends on Contingency variables; variables that determine which control system is optimal.
There are quite a few contingency variables; uncertainty, technology, industry firm and unit
variables, strategy & mission, behaviour & output, etc. Resources started to write papers,
which were all the same; in this situation these variables are the most important for that
type of control system. Every setting is unique, so everything can be researched.
Hofer (1975): took 54 contingency variables, and put them into different combinations that would
lead to one optimal control system. He calculated 18 quadrillion possible control systems.
Problem with contingency theory; we end up with a perfect optimal system, theoretically. But where
are the people in here? We are after a system that actually changes the behaviour of people. This
theory only gives ideas about the perfect system. The assumption of behaviour of people is still very
much economically rational; the system would work on different people in the same conditions.
The problem with contingency theory is that nobody is going to use the perfect control system. The
theory doesn’t tell you why people refuse to use the optimal system, it assumes that people use it. The
Balances Score Card is never used; they assumed that a economically rational manager would use it
to improve the result, but they didn’t.
Organization as an interpretation system (end 1970’s): here is a form of learning; doing something,
seeing how well that works out, and if it is not working out we adjust our behaviour and try again
until we get a better result.
Textbooks that say that management accounting systems are formal systems for interpreting the
environment, are all about interpreting what is going on and improving what is necessary.
Inert: resistant to change; are we embracing the change or are we embracing the things that we
know and repeat that over and over again, even if we realize that this might not be the optimum, but
it just gives some kind of comfort? People are naturally inert from themselves!
o If a situation is routine enough, you can’t think about it. When it becomes less routine, you
become more aware of the situation and it becomes open for change
Institutional theory: doesn’t look at the level of individuals, but looks at the level of groups. It tries to
search for the overarching (formal and informal) structures that govern our lives. It looks at what
makes you functions as a group, even though you have never met. There are some underlying
structures that enable us as a group to function.
As soon as you start working at an organization, you see the structures and the overarching
governance of the group. When you enter those structures and become part of them, you
don’t recognize them anymore; taken for granted, routines, normal
, In order to change the rules you need to recognize them and need to know how to change them
Week 2:
Contingency theory doesn’t work because every time we let it work for large populations, but it
doesn’t work that well for the smaller groups. It views us as economically rational. However, a lot of
people don’t believe that what defines them is a set of optimization algorithms.
Institutional Theory (end 1980’s): meso theory that doesn’t show individuals as economically
rational. There are multiple flavors of institutional theory that explain and predict a little bit on how
employees are going to respond to particular changes and how you can manipulate that response.
accountants were particularly interested in:
New Institutional Economy (NIE); economic in nature
New Institutional Sociology (NIS); sociological in nature
Old Institutional Economy (OIE); the newest institutional theory
New Institutional Economy (transaction costs economics): asks how an organization
needs to organize to minimize the costs of transacting (decrease the opportunity to
commit fraud) to operate as efficiently as possible. Every transaction is expensive; it
costs money, not necessarily as a cash amount, but incurring risks for the
organization. The way to transact and minimize these costs is by imposing controls;
the better the controls in an organization, the lower the cost of transacting.
o Individuals are being seen as economically rational; managers scanning the
environment where there is all sorts of competition going on, where only the
most efficient form (minimized transaction costs) will survive. These
managers try to constantly improve; evaluate the design of the organization,
looking at what works well and what doesn’t need some improvement. these
managers have a clear understanding of all the alternative designs
People can be opportunistic, and they will when they have the chance; they will do whatever they
can do to improve their own utility curve (stealing, lying). So you have to control them with a control
system. It is about organizational design, and how we can design our organization in line with, and
control, our individuals, which are rational beings.
Change in NIE: change is necessary to survive, so change is about organizational reconstruction;
changing the organizational form so it fits the market better than before (reorganizing). NIE is about
adjusting the structure to reconnect to the efficiency objectives
NIE a banded the idea of utility maximization and economically rationally man a little bit, because
they knew that we needed to be aware of the fact that not everyone can calculate all the alternatives
and figure out the best one. So, the optimalizing individual became a satisfying individual; we chose
the alternative that is good enough for us at that point within the boundaries that you have.
Problem: the way of looking at people; not economically rational, but still optimizing and try to
calculate the alternatives. There is an issue with the efficiency as the primary motivation of change;
there are a lot of organizations that are not efficient, but still survive; hospital, schools, Rabobank,
water boards. Efficiency is not the only motivation that concerns decision makers!
Sometimes the environment want something different from you than simply being efficient.
NIE ignores them; it comes all down to efficiency and become as efficient as possible
New Institutional Sociology (NIS): what drives an organization, what motivates the managers in an
organization, are the expectations of the environment; employees, government, institutions, central
What do we pay attention to? Is it the common routine, or the unique things that happen once in a
lifetime? And what changes us? Is it the normal or the extraordinary? A toolkit of 60 years of theories
(1960-today) that you can select off when you encounter a particular situation
The majority of people within organizations are actually on their default settings/on their automatic
paths. As a controller it is your job to change that path and automatic setting. This his hard, because
how can you change something that people don’t see? You have to change the daily lives of people
that they are comfortable with.
Management accounting in organizations create a specific type of people; Comcast set such targets
that were impossible to reach, but their employees were dependent on these targets for their
payments. By this they created a certain type of behaviour and actions of their employees, that they
had to apologize for to the customers; apologize for the employees’ behaviour, that they created
themselves. They blame the control system, but you can’t actually do that!
There is a gap between what the system want the employees to do and how the employees
actually respond to the targets of the management accounting system
It is easy to design a system for all the different people, because we pursue that in a certain way
we are all the same
Economical rational: minimize the input, maximize the output. (1960/1970)
Economist perceive individuals as a group utility maximizing economic creatures; we know
everything, are able to calculate everything and are able to select the optimal life part out of
this. Based on this individuals define their behaviour. So to change people you need to know
how that calculations work and how you can influence it. They see states, or whole groups as
economical rational, and not the individual as a independent.
Accountants thought that change was a economically rational process; we always want to
calculate the optimal outcome; utility maximizing. When they wanted people to change,
they had to change that calculation that people are making to maximize their utility. They
consider people all to be the same; if they give the same incentives (bonus, money, free
rime, high grade) they know the outcome of the utility calculation that people make, and so
they can guide the human behaviour.
Eisenstadt (1958/1959): ‘Good rules are good when they are followed.’ The accounting system in the
organization is always good if it generates the proper behaviour. But if not, the rules are not
followed, the problem is with the design of the rules. The problem can’t be with the employees,
because they are economically rational robots.
If you act in a way that is different from expectations, it had nothing to do with you but with
the system; improve the system; rationality never become an issue.
The economic man (Herbert Simon, 1957): ‘This man is assumed to have knowledge of the relevant
aspects of his environment … He is assumed also to have a well-organized and stable system of
preferences, and a skill in computation that enables him to calculate, for the alternative courses of
action that available to him, which of these will permit him to reach the highest attainable point of his
preference scale.’
Rationality is not universal: everyone makes different calculations. You just simplify it till you have
the economically rational man.
,With economically rational, you typify behaviour of people and you can say things about them
without even knowing them. And you know exactly what to do in order to change people; bonus
From 1960s’/1970s’ people got disappointed in the potential of formal systems to influence
behaviour; managers and other people did not always respond and acting economically rational,
individually. The solution for this was the contingency theory
Contingency theory: something that can or can’t happen; keeps the options open. Different
organizations and situations need to have different incentives and control systems to get people to
do what you want them to do; there is no one system, it depends on the circumstances. This ideal
system depends on Contingency variables; variables that determine which control system is optimal.
There are quite a few contingency variables; uncertainty, technology, industry firm and unit
variables, strategy & mission, behaviour & output, etc. Resources started to write papers,
which were all the same; in this situation these variables are the most important for that
type of control system. Every setting is unique, so everything can be researched.
Hofer (1975): took 54 contingency variables, and put them into different combinations that would
lead to one optimal control system. He calculated 18 quadrillion possible control systems.
Problem with contingency theory; we end up with a perfect optimal system, theoretically. But where
are the people in here? We are after a system that actually changes the behaviour of people. This
theory only gives ideas about the perfect system. The assumption of behaviour of people is still very
much economically rational; the system would work on different people in the same conditions.
The problem with contingency theory is that nobody is going to use the perfect control system. The
theory doesn’t tell you why people refuse to use the optimal system, it assumes that people use it. The
Balances Score Card is never used; they assumed that a economically rational manager would use it
to improve the result, but they didn’t.
Organization as an interpretation system (end 1970’s): here is a form of learning; doing something,
seeing how well that works out, and if it is not working out we adjust our behaviour and try again
until we get a better result.
Textbooks that say that management accounting systems are formal systems for interpreting the
environment, are all about interpreting what is going on and improving what is necessary.
Inert: resistant to change; are we embracing the change or are we embracing the things that we
know and repeat that over and over again, even if we realize that this might not be the optimum, but
it just gives some kind of comfort? People are naturally inert from themselves!
o If a situation is routine enough, you can’t think about it. When it becomes less routine, you
become more aware of the situation and it becomes open for change
Institutional theory: doesn’t look at the level of individuals, but looks at the level of groups. It tries to
search for the overarching (formal and informal) structures that govern our lives. It looks at what
makes you functions as a group, even though you have never met. There are some underlying
structures that enable us as a group to function.
As soon as you start working at an organization, you see the structures and the overarching
governance of the group. When you enter those structures and become part of them, you
don’t recognize them anymore; taken for granted, routines, normal
, In order to change the rules you need to recognize them and need to know how to change them
Week 2:
Contingency theory doesn’t work because every time we let it work for large populations, but it
doesn’t work that well for the smaller groups. It views us as economically rational. However, a lot of
people don’t believe that what defines them is a set of optimization algorithms.
Institutional Theory (end 1980’s): meso theory that doesn’t show individuals as economically
rational. There are multiple flavors of institutional theory that explain and predict a little bit on how
employees are going to respond to particular changes and how you can manipulate that response.
accountants were particularly interested in:
New Institutional Economy (NIE); economic in nature
New Institutional Sociology (NIS); sociological in nature
Old Institutional Economy (OIE); the newest institutional theory
New Institutional Economy (transaction costs economics): asks how an organization
needs to organize to minimize the costs of transacting (decrease the opportunity to
commit fraud) to operate as efficiently as possible. Every transaction is expensive; it
costs money, not necessarily as a cash amount, but incurring risks for the
organization. The way to transact and minimize these costs is by imposing controls;
the better the controls in an organization, the lower the cost of transacting.
o Individuals are being seen as economically rational; managers scanning the
environment where there is all sorts of competition going on, where only the
most efficient form (minimized transaction costs) will survive. These
managers try to constantly improve; evaluate the design of the organization,
looking at what works well and what doesn’t need some improvement. these
managers have a clear understanding of all the alternative designs
People can be opportunistic, and they will when they have the chance; they will do whatever they
can do to improve their own utility curve (stealing, lying). So you have to control them with a control
system. It is about organizational design, and how we can design our organization in line with, and
control, our individuals, which are rational beings.
Change in NIE: change is necessary to survive, so change is about organizational reconstruction;
changing the organizational form so it fits the market better than before (reorganizing). NIE is about
adjusting the structure to reconnect to the efficiency objectives
NIE a banded the idea of utility maximization and economically rationally man a little bit, because
they knew that we needed to be aware of the fact that not everyone can calculate all the alternatives
and figure out the best one. So, the optimalizing individual became a satisfying individual; we chose
the alternative that is good enough for us at that point within the boundaries that you have.
Problem: the way of looking at people; not economically rational, but still optimizing and try to
calculate the alternatives. There is an issue with the efficiency as the primary motivation of change;
there are a lot of organizations that are not efficient, but still survive; hospital, schools, Rabobank,
water boards. Efficiency is not the only motivation that concerns decision makers!
Sometimes the environment want something different from you than simply being efficient.
NIE ignores them; it comes all down to efficiency and become as efficient as possible
New Institutional Sociology (NIS): what drives an organization, what motivates the managers in an
organization, are the expectations of the environment; employees, government, institutions, central
