Managerial Discourse and The Link Between Theory and Practice From ROI To Value Based Management 2010 Management Accounting Research

Management Accounting Research 21 (2010) 95109
Contents lists available at ScienceDirect
Management Accounting Research

journal homepage: www.elsevier.com/locate/mar
Managerial discourse and the link between theory and practice:

From ROI to value-based management
Will Seal
Loughborough University Business School, Loughborough, Ashby Road, Loughborough LE11 3TU, UK
a r t i c l e
i n f o
Keywords:
Managerial knowledge
Critical discourse analysis
Return on investment
Value-based management
Strategic management accounting
a b s t r a c t
Building on Thrifts (2005) concept of the cultural circuit of capitalism using critical discourse analysis, the paper investigates the inuence of management accounting concepts
on practice. The paper proposes that the way that academic theories in management
accounting affect practice depends on the origin of the early texts, the extent to which
the texts become discourses and the relative institutional support for the discourse. The
approach is illustrated by focusing on three particular management accounting concepts:
return on investment (ROI), value-based management (VBM) and strategic management
accounting (SMA) and empirically contextualised through the case history of GEC/Marconi.
The paper explains that, whilst ROI and VBM have, to varying degrees, become part of managerial discourse, SMA has remained a loose collection of academic texts and has had a
negligible impact on managerial discourse and practice.
2010 Elsevier Ltd. All rights reserved.
1. Introduction
Given the huge volume of theories and concepts that
are routinely generated in the academy and elsewhere,
how and why are some concepts chosen by practitioners
while others are not? Academics may wish that practitioners would select management concepts on the basis
of academic criteria such as logical rigour and empirical validity. On their part, practitioners may hope (or at
least claim) that they have selected concepts on the basis
that they will increase their organizations efciency and
protability. Yet the best concepts from a practitioner
perspective may not be obvious. Businesses and their environments are so complex that links between the adoption
of a particular managerial concept and an improvement in
business performance are often difcult to establish (Thrift,
2005; Jessop, 2002). One consequence of such complexity is
that although many practising managers may have become
more knowing in terms of their business education and
E-mail address: w.b.seal@lboro.ac.uk.

1044-5005/$ see front matter 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.mar.2010.02.007
reading, they may also draw inspiration from management

gurus who offer them as much psychological re-assurance
and self-belief as hard practical knowledge (Thrift, 2005).
The paper mobilises discourse analysis, not to belittle
the importance of academic contributions or academic values, but rather to better understand how some theories (or
parts of theory) have apparently bridged the gap between
theory and practice (Scapens, 1994). It argues that the
dominant management accounting concepts used by practitioners are part of wider organizational and managerial
discourses (Barley and Kunda, 1992; Thrift, 2005; Phillips
et al., 2004). The basic premise of an organizational discourse perspective is that language and texts (including
some theoretical concepts) can be constitutive of organizational practice. Discourse is not just about talk1 ; it affects
the way managers frame their reality, ruling in some ways
of thinking and doing and ruling out others. The action orientation of discourse is emphasised in Thrifts denition of
discourse as: practically oriented orders bent to the task of
1
Not that talking is not a vital and time-consuming part of managerial
practice! See Bruns (1997).
96
W. Seal / Management Accounting Research 21 (2010) 95109
constructing more or less durable social networks which

are constantly redened in order to cope with the vagaries
of that task (2005, p. 48).
The production, dissemination and consumption of
managerial knowledge may be conceptualised as the cultural circuit of capitalism (Thrift, 2005). In the cultural
circuit of capitalism, management ideas ow between
institutionalized producers of managerial knowledge such
as business schools, management consultants and management gurus. This study elaborates the cultural circuit
of capitalism framework through the method of critical
discourse analysis (Fairclough, 1995, 2005; Phillips et al.,
2004). As will be argued in more detail later, Phillips et
al. (2004) propose that the inuence of particular organizational discourses (such as a management accounting
control system) depends on the origin of the early texts, the
extent to which the texts become discourses and the relative institutional support for the discourse.2 As will also
be shown later, the cultural circuit of capitalism is characterised by disjunctions and favours certain types of theory
over others.
On the premise that discourse analysis includes the
academic project itself within its analysis. . . (Phillips and
Hardy, 2002, p. 2), a further contribution of this paper is to
offer a fresh perspective on the apparent schism in management accounting research between doing good theory
and inuencing practice. The schism is expressed in the
laments that either much theoretically informed management accounting work is irrelevant to understanding or
guiding practice (see e.g., Johnson & Kaplans (1987) critique of agency theory) or, alternatively, that many of the
management accounting concepts that are discussed and
translated into action by practitioners are unsupported by
sound theory (see, e.g., Ittner and Larckers (2001) critique
of fashion-driven research). Indeed, as Malmi and Granlund
(2009) have argued, the management accounting literature seems to be divided into two streams. One stream is
academically respectable and based on theories borrowed
from other disciplines (especially economics). The other
stream, what might be termed Practice-oriented research
(Ryan, Scapens and Theobald, 2002) is applied and is . . .
reported in professional journals that are more likely to
be read by practitioners. . . (Ryan et al., 2002, pp. 9091).
However, practice-oriented research faces accusation that
it produces papers that are motivated purely by the fact
that a certain topic has received considerable attention in
the business press, with little effort to place the practice or
study within some broader theoretical context (Ittner and
Larcker, 2001, p. 356).
The schism between practice- and theory-driven
research may be healed in several ways. For example,
fresh attempts may be undertaken to re-evaluate and
re-cast management accounting theory and management
accounting research methods (Kasanen et al., 1993; Kaplan,
1998; Lukka and Mouritsen, 2002; Malmi and Granlund,
2009). Alternatively, this paper contends that some of the
2
The author is grateful to an anonymous referee for this succinct summary statement.
arguments in the management accounting academy3 could

be resolved through a better understanding of the processes by which management accounting knowledge is
produced, disseminated and operationalised. A model of
these processes is developed via a discursive perspective on
three particular management accounting concepts: return
on investment (ROI), value-based management (VBM) and
strategic management accounting (SMA). These three concepts are bracketed together because, in different and, in
often contrasting ways, they offer calculative techniques
that may be used to inuence long term business decisions
as well as suggesting metrics that can be used for evaluating corporate performance. The discursive analysis of ROI,
VBM and SMA is empirically and historically contextualised
through a longitudinal case study of a well known but now
defunct company called GEC.4
The paper is organized as follows. In section two, the
cultural circuit of capitalism is presented as a framework
for understanding the production and dissemination of
managerial knowledge. In section three, the framework is
critiqued and elaborated through critical discourse analysis. In the fourth section, the elaborated framework is
applied to an historical analysis of the symbiotic relationship between ROI and the divisionalised company. Section
ve introduces the case of GEC and the discourse of the
nancial control model. In the context of the rise and fall of
GEC, and with reference to the theoretical model, section
six discusses the relative impact of the three concepts: ROI,
VBM and SMA. The paper is concluded in section seven.
2. The Cultural Circuit of Capitalism and the
institutionalized production of managerial
knowledge
This section describes how the concept of the Cultural
Circuit of Capitalism (CCC) (Thrift, 2005) offers insights into
the production and consumption of managerial knowledge.
The CCC focuses on the exchange of ideas between three
institutionalized producers (and consumers) of managerial knowledge: business schools, management consultants
and management gurus. The section highlights that, as
Thrift (2005) observes, the CCC promotes a particular sort
of knowledge and a particular sort of practical theory.
The CCC is sustained by an interlocking set of institutions. One key institution is the business school which,
according to Thrift, has systematized and reproduced
existing knowledge and . . .synthesized academic knowledge and ingested it back into business (2005, p. 85). The
business school has also enabled new modes of interchange
of managerial knowledge based on the practical experience
of mature MBA students. A second key institution in the CCC
is management consultancy. Thrift (2005) argues that man-
3
The absence of a model that links theory and practice is not a peculiar
problem of the management accounting academy. Although it is beyond
the scope of this paper, it could be argued that disjunctions between the
nance academy and banking practitioners may have contributed to the
mis-use of derivative theory in the build up to the Credit crunch crisis.
4
Rather confusingly the acronym stands for General Electrical Company which is similar to the even better known and still functioning GE
of America.
Fig. 1. Institutions in the cultural circuit of capitalism (adapted from

Thrift, 2005).
agement consultants take knowledge gained from their

clients and then sell that knowledge to others. Consultants
have also created their own campuses where they have
synthesised academic knowledge which they package and
sell to clients. A third institution, often overlapping with the
business school and management consultant, the management guru responds especially to the performative nature
of capitalistic management. As accomplished performers in
their own right, management gurus usually combine some
technical managerial knowledge with important psychological skills with which they reassure their managerial
audiences.
Without changing the conceptual integrity of the CCC,
it would seem appropriate to add other institutionalized
contributors to managerial knowledge, such as senior managers and professional bodies. The role of accounting bodies
is particularly important for the production and legitimisation of accounting practices since even internal accounting
concepts, such as ROI, may be subject to the codication
norms of nancial accounting (Llwellyn and Milne, 2007).
Other contributors to managerial discourse include senior
managers who, as will be shown later, may write articles
that are intended not just for their immediate colleagues
but also for audiences which span organizational and institutional boundaries (Sloan, 1965; Johnson and Kaplan,
1987). The CCC and the interchange of managerial concepts
and practices between institutionalized producers may be
represented diagrammatically in Fig. 1.
97
procedures, organization charts, graphs, forms, and computer software with a third network specialising in the
dissemination of soft skills related to psychology and
human resources. Thrift (2005) argues that apart from
some nance theories5 , managers use relatively little economics which, arguably, is predominantly a theory of
capitalism.6 Signicantly, given the focus on ROI in this
paper, Thrift (2005) specically mentions the widespread
use of return on capital employed. He also cites the balanced scorecard as a typical product of the interaction
between the three networks.
Although the CCC is a useful broad framework for
contextualising the production and consumption of managerial knowledge, it could be argued that the concept
may create a general impression that, as with Thrifts
(2005) example of the balanced scorecard, the ow of ideas
between practitioners and the academy is smooth and
unproblematic. Yet this somewhat Panglossian interpretation of the CCC is not one that Thrift would support, as he
is at pains to stress just how tentative, tendentious and
uncertain the global capitalist order really is (2005, p.
75). Indeed, if social theory now has a direct line to capitalism (Thrift, 2005, p. 33) then it is particular type of
social theory that sees the world as in a state of ux, fragmented, decentred, transitory, and so on. The next section
will present and discuss an analytical approach that recognizes the messy and complex aspects of contemporary
capitalism.
3. Elaborating the CCC through critical discourse
analysis
If managerial discourse is a key link between theory
and practice, then what sort of discursive analysis should
be mobilised for organizational research (Alvesson and
Karreman, 2000)? In this section it is argued that critical
discourse analysis (Fairclough, 1995, 2005; Phillips et al.,
2004) offers a productive way of elaborating on the basic
concept of the CCC in order to further analyse the sort of
theory that informs capitalist practice.
3.1. Critical discourse analysis: a space for agency and
material action
Earlier in this paper, the signicance of managerial
discourses was that they helped to frame managers reality and that discourses do not just describe things; they
do things (Hall, 2001, p. 72). Yet in critical discourse
analysis (CDA, forthwith), there is space for agency and nondiscoursal action. According to Phillips, et al., discourses are
never completely cohesive and never able to determine
social reality totally. . .(I)nstead, a substantial space exists
within which agents can act self-interestedly . . . (2004,
2.1. Theories in capitalism

If these institutions produce managerial knowledge
then what sort of theories do they create? Distinguishing
between theories in capitalism and theories of capitalism,
Thrift (2005) argues that the former theories are essentially practical and derive from three main networks. One
network is based on book-keeping, another on written
5
The role of option pricing models in the development of securitisation
is a good if somewhat controversial example of theory affecting practice
(see note 3).
6
This point about the theoretical thrust of economics has also been
made in the accounting literature (see e.g. Klamer and McCloskey, 1992;
Napier, 1996). The impact of economic theory on public policy discourse
should not be underestimated as Keynes (1936) so famously noted.
98
p. 637). Self-interested action is discoursal when actors

seek to inuence discourses that advance their particular
interests (see e.g., Amernic and Craig, 2006). But, in CDA,
not all action is discoursal and organizational reality is only
partially socially constructed (Fairclough, 2005). The ontology of CDA is one of critical realism which is moderately
socially constructivist but rejects the tendency for the study
of organization to be reduced to the study of discourse,. . .
(Fairclough, 2005, p. 916).
3.2. What are texts?
Discourses cannot be observed directly, they are
accessed through the study of texts. Following Fairclough,
this paper uses the term text in a generalized sense
(not just written text but also spoken interaction, multisemiotic televisual text, etc.) for the discoursal element of
social events (2005, p. 925, original quotation marks). The
paper also includes as texts, sets of accounts, budgets,
nancial ratios, and so on. Accounting texts (such as annual
reports and academic papers) tend to be multi-semiotic
with written language, numbers (in specied formats),
mathematical symbols, diagrams and even photographs.
In CDA, accounting numbers are seen not as representative of some spurious notion of economic reality but as
texts that contribute to wider organizational and managerial discourses. Thus, although accounting numbers are
socially constituted, they are located within a set of business games and have resonance and meaning in terms of
winning and losing (Mouck, 2004).7
3.3. Action, institutionalization and hegemony
Since action affects discourse through the production
of texts (Phillips et al., 2004, p. 640), and the key organizational actors in this study are managers, the focus of
the paper is on a subgenre of the organizational discourse
which may be termed the managerial discourse. Some of
the texts in the managerial discourse are produced within
organizations as practitioners seek to make sense of their
organizational reality (Phillips et al., 2004). A rather more
signicant part of the managerial discourse, however, is
produced across organizations as texts that are published
in journals, read by practitioners and contributed to by a
mixture of academics, senior managers, management consultants and management gurus (Barley and Kunda, 1992;
Thrift, 2005).
The relationship between action and discourse is recursive: action leads to the production of discourse and
discourses affect managerial action by making certain
ways of thinking and acting possible, and others impossible or costly (Phillips et al., 2004, p. 638). Phillips et al.
(2004) additionally stress the relationship between discourse and institutionalization. In their model, institutions
7
This theoretical and methodological approach to accounting numbers
may be seen as responding to some recent criticisms of interpretive management accounting research in that it has neglected the role of economic
and commercial logics in explanations of practice (Nrreklit et al., 2006;
Ahrens and Chapman, 2007).
are even more signicant in guiding behaviour as they

are self-regulating, socially constructed mechanisms that
enforce their application (Phillips et al., 2004, p. 638). In
this paper, it will be shown that management accounting
concepts have different degrees of institutionalization and
institutional support which helps to explain their relative
impact on practice. However, as will be seen from the case
study, it is possible for a collection of texts to become part
of the managerial discourse and inuence practice without
becoming institutionalized. If a particular discourse dominates managerial thinking and action then it may fairly be
described as being hegemonic (Fairclough, 2005).
3.4. Disjunctions in the CCC and Relevance Lost
Management texts may be produced in the academy,
become academic texts and become institutionalized
within the academy. Yet unless these texts become part of
the CCC, they may have little inuence on practice. In this
respect, managerial knowledge in the academy and managerial practice may become detached from one another.
In the language of management accounting researchers,
the academic discourse may lose relevance (Johnson
and Kaplan, 1987; Malmi and Granlund, 2009). Although
they do not use discourse analysis explicitly, Johnson and
Kaplans critique of management accounting is partly an
analysis of how managerial knowledge as reproduced in
business schools became detached from managerial practice. Their work describes how managerial practice is
inuenced by what managers learn in business schools and
can lead to an incorrect application of a technique such as
ROI (Johnson and Kaplan, 1987, ch. 8). Yet although Johnson
and Kaplan (1987) identied a good example of a disjunction in the CCC, their efciency-based theory (transaction
cost economics) is difcult to reconcile with their observations of inefcient applications of management accounting
concepts and irrelevant academic theories.
Johnson and Kaplans interpretation of the development
of management accounting in the 19th and early 20th
centuries is an example of what might be termed mainstream management accounting research. One of the main
sources of theoretical inspiration in mainstream accounting research is economics, a discipline in which academics
regard themselves as scientic researchers of an objective
economic reality (Ryan et al., 2002). The view on the relationship between theory and practice in economics would
seem to be an implicit assumption that academics provide a
supply of theoretical models and empirical research which
may or may not meet the demands of practitioners. In the
innovation literature, this viewpoint can be linked to the
rational efcient choice model in which managers choose
theories and practices that increase efciency of their operations (Abrahamson, 1991; Malmi, 1999). In the realist
view of theory and practice, there is no double hermeneutic in which social theories can change the behaviour of
the social actors that are the subjects of research (see e.g.,
Ghoshal, 2005). In mainstream economic ontology, theoretical texts are seen as representing an external reality
and not helping to create it.
It is beyond the scope of this paper to explore the various innovation theories beyond repeating the criticism
of the rational choice approach that organizations have

unclear goals and high uncertainty about the technical efciency of administrative technologies,. . . (Malmi, 1999, p.
652). Given space limitations, it is probably more productive to indicate research approaches in the management
accounting literature that are closely related to the discourse analysis in this paper. One such approach explores
the impacts of rhetoric (Nrreklit, 2003) and communication
(Ax and Bjrnenak, 2005). Noting the widespread adoption
of the balance scorecard, these papers argue that the implementation of particular management accounting concepts
is helped if the basic ideas are presented via an effective
rhetoric. As will be shown later, Norreklits (2003) distinction between convincing and persuasive arguments is
particularly pertinent when considering why apparently
theoretically convincing approaches (such as SMA) have
failed to persuade practitioners.
Although the secret of persuasion lies in the rhetoric
used by the proponents of an innovation, the secret of
acceptance lies in the interests of the potential audience
of senior management. In short, a practice may be convincing from an academic point of view but may clash
with the interests of senior managers. For example, if
there is a conict between the interests of managers and
suppliers of capital as is suggested in the corporate governance and agency literatures (Shleifer and Vishny, 1997),
then managers may prefer a metric that may be theoretically decient8 (such as ROI) over alternative, value-based
approaches. Even more subtly, they may adopt a valuebased approach but apply it in an incomplete, inconsistent
or rhetorical manner (Malmi and Ikheimo, 2003). One of
the contributions of rhetorical analysis is that it offers a
more nuanced interpretation of concepts such as ROI and
VBM by viewing them as innovation bundlespart technical specication and part rhetoric to promote the effects
of the techniques (Ax and Bjrnenak, 2005).
3.5. Locating the conceptual status of ROI, VBM and SMA
in the CCC
99
key nancial metric in VBM is residual income, then the

latter can be presented as Wall Streets gift to management accounting (OHanlan and Peasnell, 1998). Yet both
ROI and VBM are more than just metrics. Malmi and
Granlund argue that VBM is not a theory of accounting practice but a theory of organizational performance,
including accounting-related issues as a mechanism of
explaining outcomes (2009, p. 605).
For reasons that will be explained later, the third concept of SMA is exceptionally hard to summarize and will not
always be found in management accounting textbooks. As
a very general working denition, SMA may be seen as the
process of provision and analysis of management accounting data about a business and its competitors for use in
developing and monitoring business strategy (Simmonds,
1981, p. 26). As will be elaborated later in the context of
the case study, it is also important to regard SMA as a
normative discourse that can potentially unify theoretical
insights from nance and strategic management (Tomkins
and Carr, 1996). In its essence, SMA is transdisciplinary in
its theoretical scope, drawing on general logics from management accounting, nance, economics, and behavioural
sciences as well as more specialised concepts from strategic management. SMA tends to rely on a broader set of
organizational outcomes than ROI and VBM with more
focus on generic strategies and market positioning logics. VBM and ROI are also transdisciplinary concepts. As
well as drawing on nance and accounting logics, VBM
may be seen as encapsulating implicit and explicit concepts from organizational and behavioural theory (Otley,
1999; Malmi and Granlund, 2009). Of the three concepts,
ROI seems to be the most focused on accounting logics.
Yet, as will be shown below, this particular accounting
metric has played a signicant historical role in the CCC
because it was associated with a wider organizational and
institutional developmentthe spread of the divisionalised
corporation.
4. ROI and the managerial discourse of the
divisionalised corporation
Texts on ROI, VBM and SMA usually combine a specication of technical characteristics with justicatory
arguments. In textbooks, ROI and VBM are concepts that
are usually found in chapters on measuring the performance of divisions that are investment centres (Drury,
2008; Bhimani et al., 2008; Seal et al., 2008). In the context of divisional performance measurement, ROI is argued
to be better than prot because it is a ratio that links the
amount of prot made in the division to a measure of capital employed. The argument for VBM9 is usually based on
the assumption that shareholder value is best measured
via residual income. The alleged theoretical superiority of
residual income over ROI is based on arguments drawn
from nance theory (Solomon, 1966). In particular, if the
In historical terms, ROI precedes SMA and VBM and,

especially in the VBM discourse, is presented as the awed
concept which can, and should, be replaced.10 It will be
shown that the impact of ROI on practice was signicantly
aided by being part of a wider managerial discourse that
linked strategy, structure and accounting metrics. By supporting the growth of the divisionalised corporation, it is
argued that the famous Du Pont ROI model linked organizational structure and management accounting into a single
discourse on the best way to enable and manage corporate expansion (Sloan, 1965; Chandler, 1962; Johnson and
Kaplan, 1987). In historical terms, the period begins in the
early part of the 20th century and ends with the fall of the
8
The alleged theoretical deciency of ROI is generally based on arguments from nance that value based measures such as residual income
are more easily equated with stock market related valuation models
(OHanlan & Peasnell, 1998).
9
See also the recent discussion on the theory status of VBM in Malmi
and Granlund (2009).
10
The alleged aws of ROI include the possibility that divisional managers using ROI will reject projects that corporate managers would accept.
Unlike with residual income (the preferred metric in VBM), there is no
explicit consideration of the cost of capital (see also footnote 8). These
sorts of criticisms may be found in management accounting textbooks
(e.g. Drury, 2008; Seal et al., 2008).
100
4.1. Historical and contingent factors in the relationship

between action and discourse
Fig. 2. Relationship between action, texts, discourse and institutions

(from Phillips et al., 2004).
Berlin Wall (Thrift, 2005). In terms of the CCC, Thrift coins

the term the Joshua discourse to characterise managerial
thinking in an era when the hierarchical and buttondowned (Thrift, 2005, p. 31) world of the divisionalised
corporation seemed congruent with the wider certainties
of the Cold War and rivalry between overt socialist and capitalist ideologies. This period was also an era when business
schools tended to follow rather than lead in the production
of managerial knowledge.
The development and diffusion of ROI may be interpreted by extending the work of Phillips et al. (2004).
Although they applied their approach to explain the spread
of the divisionalised corporation, Phillips et al. (2004) used
CDA to develop a general model of the relationship between
action, texts, discourse and institutions. Recognizing that
not all actions produce texts, not all texts produce discourses and not all discourses produce institutions, Phillips
et al. (2004) put forward propositions which suggest a
step by step progression from action to text; text to discourse; and discourse to institutions. Action that produces
text is closely related to organizational sense making which
involves the retrospective interpretation of actions and is
triggered by surprises, puzzles, or problems (Phillips et al.,
2004, p. 641). Phillips et al. (2004) propose that texts are
more likely to be widely disseminated if they have resulted
from sensemaking activity, if they enhance the organizations legitimacy and if they are produced by signicant
actors.
The next stage in the institutionalization process concerns the embedding of text in discourse. Those texts that
take the form of genres, which are recognizable, interpretable, and usable in other organizations and draw
on other texts within the discourse and on other wellestablished discourses (Phillips et al., 2004, p. 644) are
more likely to succeed here. Finally, in respect of the move
from discourse to institution, discourses that are more
coherent and structured and are supported by broader
discourse (Phillips et al., 2004, p. 645) are more likely
to produce institutions. The general relationship between
action, texts, institutions and discourse is summarized in
Fig. 2.
The relationship between action and discourse varies

over time and according to the complexity of the management task. Early texts, usually written by managers
themselves, often exhibit a sort of informal contingency
theory coupled with strong functionalist interpretations
of business. The managers relate how they faced specic
problems and crises and how their accounting techniques
(along with other practices) could be seen as solutions to
the problems (Sloan, 1965). As the texts become more formalised and institutionalized, the contingency approach
itself becomes institutionalized in the managerial discourse. For example, in management accounting textbooks
it is proposed that process costing ts certain process
driven industries whilst job costing ts others (Drury,
2008; Bhimani et al., 2008; Seal et al., 2008).
4.2. ROI and divisionalisation: contexts and texts
The business and organizational contexts for texts on
ROI were intimately associated with the development and
spread of the multi-divisional corporation. Citing the work
of Palmer et al. (1993), Phillips et al. (2004) argue that
a particular text by Chandler (1962) was central through
its inuence in elite business schools and hence on the
thinking of senior managers. Furthermore, although they
identied other isomorphic inuences such as the mimetic
pressures that derived from interlocking directorships,
Palmer et al. (1993) argued that most of what the directors knew about their own companies, and especially other
companies, would have come from texts such as organizational charts, reports, conversations, stories, and so forth
(Phillips et al., 2004, p. 639).11
Chandlers work was important but there were other
key contributors to managerial texts. The original managerial discourse of the divisionalised company story is
usually associated with the actions and writings of a few
key managers such as Sloan at General Motors (GM) and
Donaldson Brown at both GM and Du Pont (Chandler, 1962;
Sloan, 1965). The pioneers of the divisionalised company
had the prime motives of either wishing to grow the company or simply of trying to control companies that had for
different reasons become too large to control without some
form of decentralization (Johnson and Kaplan, 1987). Practices that began as innovations were reproduced within
the rm and institutionalized in the wider institutional
realm that was comprised of other rms in the industry,
investors, banks and professions. As they became established in leading rms, the practices become routinised and
disseminated through imitation, professional norms and
through the inuence of specialist practitioners of management innovations such as consultants. These actions were
further embedded through the production of a managerial
11
The inuence of texts may be corroborated and updated through eldwork from the case study in this paper where it was discovered that a key
role in the spread of value based management in GEC was a specially
prepared video that was shown throughout the company.
discourse that legitimised a new breed of diversied conglomerates, such as GEC, that emerged in the 1960s and
70s.
Strategy and structure (Chandler, 1962) was a key text
because it was so widely used in business schools. Chandler
(1962) focused on four rms that initially were conventionally managed by American standards but then went
beyond accepted practices in American industry (1962, p.
17). Chandler made the point that organizational innovations developed independently in each company as result
of company growth, complexity and chosen strategies.
Each company found that the old (institutionalized) practices of American industry were no longer adequate. For
example, General Motors (GM) faced a series of crises in the
1920s in areas such as liquidity, stock control, and volatile
demand. GM evolved a new structure of divisionalisation.
The new structures were supported by the introduction
of standardised accounting rules, standard costing based
on standard volumes and centralized cash controls as well
as the new ROI model (Sloan, 1965; Johnson and Kaplan,
1987).
4.3. Sloan and the constitutive role of management

accounting concepts
Although he did not use the term, Sloan (1965) had
his own version of organizational sensemaking as he
described the challenges and solutions developed in his
time at GM. Sloan (1965) was unambiguous about the key
role of the principle of rate of return (ROI) and how the
practices had been brought in by executives from Du Pont.
Sloan (1965) also described how the interaction between
texts and practice had inuenced the nancial discourse in
the early part of the 20th century. He explained that:
The specic forms of nancial control in General Motors
were introduced in good part by Donaldson Brown, who
came to General Motors from the du Pont Company at
the beginning of 1921, and Albert Bradley, his young
associate who came to General Motors in 1919 and
who was to succeed me as chairman of the board. Their
contributions to nancial thought have long been recognized. They wrote papers on the subject which are
classics of the 1920s, and at the same time put their
concepts into practice in General Motors. (Sloan, 1965,
p. 116).
Sloans (1965) work shows that although practicing
managers tend to rationalise their decisions on a contingency basis, they also recognize the inuence of texts and
may even exhibit an ontologically sophisticated view on
the relationship between texts and practice. For example, Sloan (1965) used the imagery of the rules of the
game when talking about business. In respect to ROI, Sloan
argued that:
. . .I imagine that every businessman evaluates prots in
terms of his total investment. It is a rule of the game so
to speak (1965, p. 140, emphasis added).
Since in discourse analysis, it is argued that managers
construct their organizational reality from accounts, orga-
101
nizational charts, sales graphs and so on, it can be seen

that such texts do not simply represent reality, they help
to shape it (Phillips and Hardy, 2002). The constitutive
nature of management accounting rules and routines in
the coordination of the rm means that the divisionalised
corporation is dened and enabled through the availability
and capability of management accounting procedures and
concepts. Indeed, the forms of organizational decentralization are often expressed in terms of accounting concepts
such as cost centre, prot centre and investment centre (Seal et al., 2008).
Writing in an accounting journal some years after
the initial publication of Strategy and Structure (Chandler,
1962), Chandler and Daems explained the key link between
ROI and divisionalisation as follows:
At General Motors and du Pont, as became true at other
enterprises adopting the new multidivisional form, the
top line executives were relieved of all day-to-day
operating responsibility. These tasks were left to the
division managers and their line department executives.
Assisted by a large nancial and advisory staff (organised along functional lines), the general executives
concentrated on monitoring divisional performance in
terms of rate of return on investment (using Donaldson
Browns formula) and market share (1979, p. 14).
Chandler and Daems (1979) acknowledged the importance of an emerging managerial discourse in spreading
what they call modern techniques. As Chandler and Daems
put it:
(Modern methods of administrative coordination and
allocation) . . . have become the standard operating procedures in most modern business enterprises in Europe
as well as the United States to carry out the fundamental
economic functions of the modern rm: coordination,
monitoring and allocation. And so they have become
the standard subjects taught at business schools on both
continents (1979, p. 17).
4.4. The institutionalization of the nancial control style

Chandler and Daems (1979) were in effect announcing
the institutionalization of both ROI and the divisionalised
company. At the level of the company, the techniques
of administration associated with divisionalisation and
ROI became standard operating procedures or in institutional parlance, routinised (Burns and Scapens, 2000). At
the level of academic institutions, the divisionalised company and its associated control techniques were taught as
representative of good practice and modernity. Furthermore, an elaboration on the discourse of the expansion of
the divisionalised company the diversied conglomerate
was also proposed as a desirable organizational form.
This organizational form had its own specic discourse
or rhetoric based around the expansion into unrelated
industries. Such unrelated expansion avoided anti-trust
regulation but was enabled through a particular type of
nancial control style (Fligstein, 1991; Goold and Campbell,
1987).
102
4.5. Changes in the wider managerial discourse: the

de-institutionalization of the conglomerate and criticisms
of ROI
In CDA, the relationship between changes in material
conditions and discourses can work in both directions.
Just as organizational forms such as the conglomerate
and practices such as ROI can become institutionalized via discourse (Phillips et al., 2004); the opposite
process of de-institutionalization can be modelled using
the same elements of action, text and discourse. Thus
by the 1980s and 90s, the strategic managerial discourse swung against the conglomerate structure (Davis
et al., 1994). Suggestions that the multi-divisional company or M-form had become an organizational fossil
(Hoskisson et al., 1993) were related to arguments that
emphasised a search for core competencies (Prahalad
and Hamel, 1990) and proposed networked rather than
hierarchical organizational structures (Thrift, 2005). This
period also saw the revival of interest in forms of
residual income such as Economic Value Added (EVA)
as part of a wider call for VBM (Ittner and Larcker,
2001).
Some of the criticisms of the conglomerate could be
traced to theoretical developments in the academic discourse. In particular, the Modigliani-Miller revolution in
nance with its advocacy of the homemade alternative in gearing and dividends had long provided an
implicit criticism of corporate diversication. The corollary of these views was that value may be created by
demerging unrelated businesses and subcontracting noncore activities (Davis et al., 1994). Indeed, the challenge
for modern nance theory is not in explaining the fashion for focus that emerged in US and UK capital markets
in the 1990s but rather in explaining why conglomerates
ever had value in nancial markets that were supposed to
provide investors with opportunities for low cost diversication (Levy and Sarnat, 1970). In the related accounting
literature, criticisms of ROI were emerging along with suggestions for the adoption of residual income (Solomon,
1966).
Overall, it seemed that discourses in the nance and
strategy literatures were beginning to de-legitimise
the conglomerate form of organization (Davis et
al., 1994). For example, Baker (1992) hypothesised
that the rise and fall of the diversied conglomeration could be explained as a market error induced
by a self-serving managerial discourse. As he put
it:
One possible explanation of these facts is that the market value increases that accompanied the acquisitions
of the 1960s and early 1970s were the result of the
capital markets misunderstanding of the effects of conglomeration. Such a hypothesis supposes that during
the 1960s and 1970s investors were fooled into accepting the arguments of managers (and many management
theorists) that centralized decision-making and capital
allocation would lead to synergies which would make
the whole worth more than the sum of the parts (Baker,
1992, p. 1111).
4.6. The impact on the managerial discourse of material

and regulatory changes
Economic and regulatory changes may be seen as events
which play a particularly signicant role in CDA interpretations of organizational change. According to Fairclough:
. . ., events (and therefore texts) are points of articulation and tension between two causal forces: social
practices and, through their mediation, social structures; and the agency of the social actors who speak,
write, compose, read, listen to, interpret them. (2005, p.
925).
The decline of the conglomerate and of the nancial
control style was prompted by a convergence of economic and regulatory events. Baker (1992) argued that
as the availability of managerial expertise and capital
increased in 1980s, the advantages of the conglomerate as a mini capital market became less signicant and
a bust-up strategy became an efcient option. At the
same time, a more relaxed attitude in US anti-trust policy made acquisitions in the same industry much easier.
The 1980s saw the rise of the bust-up hostile take-over in
the US (Jensen, 1986). Bhagat et al., argued that (B)y and
large, hostile takeovers represent the de-conglomeration
of American business and a return to corporate specialization (1990, p. 2). They concluded that the main buyers
of the dismembered pieces of conglomerates were strategic buyers and that hostile takeovers . . .are not typically
a reection of change in the internal organization of the
rm. . . (1990, p. 57). The relaxation of anti-trust regulation meant that diversication was no longer the only route
available for growth-minded predators that could capture
shareholder value through the simple exercise of market
power.
The next section picks up the relationship between
social practice and discourse as the varying fortunes of ROI,
VBM and SMA are traced in an historical account of GEC. The
GEC case illustrates the international scope of the CCC and
the way that managerial knowledge is transferred across
national boundaries and across organizations and institutions. It also covers a period when the hegemony of ROI
was questioned in the emergent discourses of VBM and
SMA.
5. GEC: a case study in relation between
organizational change and managerial discourses
Expanding through acquisitions in the 1960s and 70s,
GEC adopted a divisional structure and a nancial control style which seemed to imitate the American pioneers
of divisionalisation. GEC followed a similar pattern to the
US model in that the action and texts that produced and
sustained the structures and control mechanisms of the
company were legitimised in the wider institutional sphere
and by the prevailing discourse on strategy and structure.
During the 1980s and 90s, however, the structure and
management style of GEC were criticized through new discourses on organizational structure and nancial strategy
that led it to change its strategy, structure and management
control system.
5.1. Accounting ratios and control routines in GEC

Just as the early days of divisionalisation in the US were
associated with a few pioneering individuals so the business style of GEC was developed and sustained by an inner
circle comprising Arnold Weinstock, Kenneth Bond and
David Lewis. While the growth of GEC may sometimes have
seemed haphazard and opportunistic, there was nothing
haphazard about what Aris (1998) dubbed the Weinstock
system. Aris describes the impact of Weinstock as follows:
In time, the Weinstock system with its hard-driving
emphasis on managerial accountability and quantiable
performance would become legendary. It should be said
that this system did not come into being overnight: it
took several years of trial and error for it to be rened,
but by the mid-1960s, the main elements of what was,
for many, a new and thoroughly alarming system of
management were in place and in force (1998, p. 39).
Weinstock was a graduate of the LSE with training in
statistics. He was dismissive of the emerging craze for
using management consultants and employing MBAs (Aris,
1998). He did, however, send one of his top nance managers to the US to learn about the use of nancial ratios. The
resulting Powell report became the basis for GECs monthly
internal reporting system. Brummer and Cowe described
the introduction of ratio analysis as follows:
On the basis of the information that Powell brought
back, Weinstock and Bond built seven key ratios by
which their operating companies would be measured:
return on capital, return on sales, sales as a multiple of
capital employed, xed assets and stocks, as well as sales
and prot per employee (1999, p. 98).
GEC applied a management style based on a small and
spartan head ofce that sought to control a large number of generally unrelated business units (sometimes as
many as 140). Never designed to t a particular productmarket environment, Goold and Campbell (1987) classied
GEC as managing diversity through a nancial control style.
According to Goold and Campbell (1987), the nancial control style of management creates stand-alone companies,
and does not formally intervene in the companies strategies but monitors results through nancial targets. GEC
seems to t the model perfectly because while strategy was
the responsibility of the various investment centres, Weinstock monitored their nancial performance frequently
and often personally. In GECs case, the nancial links
between the centre and the business units were particularly tight. The approach was constraining rather than
encouraging. Goold and Campbell put it thus:
Lord Weinstock sees his role as acting as a constraint
on business management rather than as encouraging
them to be bold. As Derek Roberts explained, Weinstock would say that if you come to him with a project
and he says to you No, dont go ahead with that one,
and you go away and never raise the subject again, them
your project cant have been very important.. . .. (1987,
p. 118).
103
Business units had to submit a monthly report, which

would be analysed by Weinstock. The format was rigid.
The rst page contained a number of gures such as the
ratio of sales and prot to capital employed, debtors ratios
and a cumulative record of sales per employee. Subsequent pages would include further details of signicance
to a nancial accounting perspective such as a breakdown
of provisions and capital employed. In the latter analysis,
cash was identied as negative fundingthe property of
the parent rather than the subsidiary! There was relatively
little emphasis on prot and loss and no attempt to consolidate results until the year-end. Every month, Weinstock
would scrutinize the nancial gures and mark them like
a school teacher10 percent return on sales? Could do
better (Bennett, p. 2, 1996).
In short, accounting ratios were a central part of GECs
routines of management and internal reporting.
The pioneering practices of divisionalised companies
such as Dupont and General Motors (including the use of
ROI) were common knowledge in Britain by the end of
the 1960s as were the more recent examples of growth
through acquisition by companies such as Litton industries
The expansion of GEC may have been aided by UK government policy but the management style was derived partly
from the imitation of US methods and partly from principles derived from Weinstocks earlier business experience
in the boom and bust cycles of the UK TV and radio industry which had taught him the survival value of careful cash
management. Indeed, over time, the company accumulated
an infamous cash mountain as well as a reputation for a
lack of organic growth (Goold and Campbell, 1987; Manley
and Lloyd, 1989).
Weinstocks career and the growth of GEC illustrate the
importance of understanding the interplay between action,
institutional forces and managerial discourse. GECs management style was widely admired in the 1960s and 70s
as reecting just the sort of modern and disciplined traits
that British industry had previously lacked. The role of
myth and symbolism was extremely important in explaining Weinstocks emergence as the dominant gure in the
British electrical industry. In the late 1960s, Weinstock was
a key gure of contemporary British mythology and a
symbol of industrial efciency (Jones and Marriott, 1970,
p. 224). Thus although there was substance in the reporting routines that Weinstock introduced, their power was
embellished beyond the connes of the company by their
association with the mythological aura that surrounded
Weinstock for at least two decades.
In short, the managerial rhetoric associated with Weinstock was at least as inuential as the substance of the
Weinstock system in persuading key external actors such
as investors and government. Thus, polishing its reputation for parsimony and tight nancial control, the company
could obscure a lack of organic growth through acquisitions. As with US conglomerates in the 1960s and 70s,
anti-trust problems could be avoided as long as the acquisitions were not in related industries or were disguised as
joint ventures (as with Siemens and Plessey). But, with a
new stock market climate in the 1990s making life much
more difcult for the conglomerate, demerger and strategic focus became more fashionable and the Weinstock
104
Fig. 3. GEC/Marconi against the FTAllshare index.

As explained later the company changed its name from GEC to Marconi. The down loaded chart referred to the companys new name.
approach seemed out of step with a new managerial discourse.

5.2. Specic criticisms of GEC in the managerial discourse
GEC had long been the target of more specic criticisms of its management style (Foster, 1989). Aris (1998)
pointed out that while the company could milk the cosy
cost-plus relationships in defence and telecoms through
tight accounting controls, this form of management was
roundly criticized in the more competitive consumer electronics sector. Aris (1998) quotes a widely publicized report
by the management consultants McKinsey that is an excellent example of the change in business rhetoric that had
been so inuential in the US. McKinsey stated that:
In terms of organisational evolution, many UK electronics companies have structures and management
processes which were state of the art for the management of diversied portfolios in the late 1960s and
the early 1970s, but which worked against the development of successful international businesses. Each have
lean corporate centres primarily playing the role of a
nancial holding company, monitoring nancial performance tightly but providing very limited planning and
strategy formulation support (Aris, 1998, p. 164165).
One of the reasons that GEC could resist changing its
structure and processes was that although its stock market performance was sometimes lacklustre, it could not be
described as catastrophic. Its early growth and rewards had
been spectacular and even Weinstocks critics were unsure
about the overall verdict on his era (Lorenz, 1996). Indeed,
in the 1990s, the company actually performed pretty much
as nance theory would predict for a diversied company
with returns that matched its particular (low) risk prole. As can be seen in Fig. 3, GEC approximately tracked
the FT All share index in the period before the change of
management and strategy in 1996.
If the change of strategy at GEC was not forced by stock
market failure, then there must have been other factors in
the institutional realm and, even more importantly, in the
emerging critique of the conglomerate. Indeed, one spe-
cic question in the managerial discourse challenged not

just GEC but other nancial control companies: what value
does the centre add? (Goold and Campbell, 1987). For if
product-market strategy planning and implementation is
delegated to the business unit, then all the centre seems to
offer is an internal capital allocation role. Whilst the nance
discourse in the early days of the divisionalised company
might argue that an internal capital market might operate
more efciently than the external market, the emergent
view (supported by nance theory) was that the external
capital market was at least as efcient as internal allocation
and that the centre did not add any value. Furthermore,
investors might prefer to take the homemade alternative
and construct their own portfolios through investment in
stand alone businesses rather than pay corporate managers
to do the same job!
5.3. The Simpson-Mayo era: new managers enact the
new managerial discourse
Although GECs institutional supports were weakened
through the privatization and de-regulation of the UK telecoms and electricity generating sectors in the 1980s, it was
only in 1996 that the company began to change its structures, processes and strategies (Aris, 1998). In common
with other well known British conglomerates such as Hanson and BTR, GEC faced a crisis of succession as Weinstock,
the creator and driving force behind the company, worked
on until he was 72. The dismantling of the Weinstock
control system nally came about when a new managing
director (George Simpson) and a new senior management
team took over in 1996.
Responding to fashionable calls to tie managerial performance to the stock market, Simpson was initially
awarded an extremely generous contract based on phantom options that rewarded share price uctuation rather
than genuine growth. Pressure from institutional shareholders nally produced a scheme that was tighter but
similarly linked to GECs stock market performance (Cave,
1996, p. 23; Laurance, 1996, p. 7). Interestingly, one of
Simpson rst changes was to ditch Weinstocks nancial ratio system (Observer, 1996, p. 21) and introduce
105
an EVA form of value-based management. These changes

in nancial control systems accompanied a new strategy
that rapidly moved the company away from its diversied structure. GEC now had a new business rhetoric that
simultaneously espoused shareholder value and industrial
focus.
The new rhetoric for GEC was completely consistent
with the twin managerial discourses of VBM and industry focus. The call for industry focus can be found in both
nancial and strategic management discourses and was
supported by powerful institutions such as the nancial
communities in New York and London (Wall Street and The
City). In particular, the strategic managerial discourse of the
1990s not only criticized the conglomerate but even questioned the M-form (Bettis, 1991). Rather than seeing the
corporation as a collection of businesses, the quest was for
it to identify and nurture its core competences (Prahalad
and Hamel, 1990). George Simpson instigated a new management ethos of GEC to be no. 1 or no. 2 in the world in
particular industries with a specic focus on the telecommunications industry. As a symbol of the new focus, GEC
changed its name to Marconi, a name reminiscent of the
pioneer of radio and already used by its telecommunications division.
The new strategic direction involved different ways of
working. In particular, the old source of expansion through
largely unrelated acquisition had been abandoned. The
company was seeking organic growth and acquisitions that
would enhance its market and technological capability.
Acquisitions were intended to be integrated to fully exploit
cross-selling and technological synergies. Other changes
included a policy of globalization, with acquisitions in
Europe, North America and the AsiaPacic region combined with a greater integration of acquisitions. Financial
reports that were sent to the group nance ofce were
arrayed in a matrix structure so that items such as sales,
prot and loss, and so on, could be viewed from both product and regional perspectives. The company introduced
more outsourcing, with a new emphasis on process and
multi-functional teams in supply chain management. As
well as VBM, the company encouraged a greater diversity
in reporting and decision-making innovations. In particular, non-nancial performance indicators were reported
directly to the nance group by a specially designated Performance Improvement function.
The GEC debacle illustrates very neatly a number of

themes in this paper. A key associate of Simpson and former nance director of GEC, John Mayo published a series
of articles in the Financial Times in which he reected on
his role in the debacle. Mayo effectively argued that GECs
new strategy was entirely a response to shareholder preferences. As he put it:
5.4. Postscript on GEC: the tension between nancialand product-market strategies
The timeline of these developments may be traced in

Fig. 4 which links general relationships between action,
texts and institutions in the evolution of divisionalisation
with specic events and discoursal action at GEC/Marconi.
From a share price that peaked at over 12 in 2000,

a series of prot warnings culminated in huge losses
and a collapse in the share price to a few pence in
2002. GEC/Marconi became the biggest corporate failure
the UK economy had ever known. However, the difference between Marconi and many other high-tech bubble
companies was its transformation from a cash-rich conglomerate as GEC to a company that was effectively
controlled by its debt and bond-holders and whose future
survival as an independent manufacturing company ended
with the acquisition of the rump of its factories by Ericsson
in 2003.
Shareholders rightly wanted three things. First, the

unwinding of the poison pill joint ventures, one effect
of which was to protect management from unwanted
takeovers. Second, they wanted focus, so they could
allocate their funds according to sectors. However, this
means that a companys share price performance can
often be dictated by the markets view of the sector
rather than the companys own performance. . .
Thirdly, investors wanted the business to invest the cash
pile it held, as cash cannot earn the cost of capital (Mayo,
2002, p. 18).
By shareholders, Mayo meant nancial institutions
based in and around the City of London. In response to
Mayos self-valedictory analysis, Kay was quite scathing,
putting it as follows:
Successful businesses are more effective than their competitors in delivering goods and services that their
customers want. They add value if their superior delivery enables them to command a premium price: or if
they design their operations in such a way that they
meet these needs at lower cost. The job of the corporate
executive is to achieve these objectives. These points
seem so basic to any understanding of business that
one feels embarrassed at writing them down. If they are
worth repeating, it is as a reminder to those who have
been reading John Mayos account of his stewardship
of Marconi in recent issues of the Financial Times (Kay,
2002, p. 13).
These exchanges signify far more than a spat in the
nancial press. As Kay himself opined:
Perhaps we shall move into an age in which senior executives again understand that managing companies is
not about mergers, acquisitions and disposals, but about
running operating businesses well. And that corporate
strategy is about matching the capabilities of the business to the needs of its customers (2002, p. 13).
5.5. Incoherence at GEC and in the wider managerial

discourse
The case of GEC/Marconi illustrates not just a change
from conglomerate to focus and from ROI to VBM but also
traits of organizational incoherence which can be linked to
a wider fragmentation of managerial discourse in the CCC.
Unlike in its earlier days of divisionalisation when the discourse of the M-form and nancial control via ROI were
106
In the next section, the paper moves on to a discussion

and comparison of the impact of the three key management
accounting concepts: ROI, VBM and SMA. Each concept
is informed by different relationships between academic
and practitioner texts, discourses and institutions. Furthermore, the paper argues that the relative status of these
approaches on the spectrum of action, text, discourse and
institution helps to explain their differing impacts on practice.
6. Discussion: discourses, theories and the impacts
of ROI, EVA and SMA on practice
Fig. 4. Action, text and discourse in the evolution of the divisionalised

company.
closely linked (Sloan, 1965), the strategy discourse and

the nancial discourse became uncoupled from each other.
Indeed, despite its adoption of VBM, GEC itself followed a
disastrous strategy that ended with massive destruction
of shareholder value. In the case of GEC, the disjunction
between nancial and corporate strategies can actually be
traced in accounts of boardroom disagreements and the
ex post analysis of the companys collapse (Mayo, 2002;
Kay, 2002). It can also be argued that the demise of GEC
is not just a part of the story of the dotcom bubble. GECs
failure can be linked to a specic problem that, as the
stand-alone company that it had become, GEC was under
a much greater pressure to get its product/market strategy
correct than it was when it was a diversied conglomerate.
In terms of managerial discourse, the single sector companys strategy is more product- than nance-led. Unlike
the diversied company, the focused company cannot just
base its strategy on managing a portfolio of products in
different industries and employ nancial metrics such as
ROI or residual income12 as a way of coping with the product variety (Fligstein, 1991; Goold and Campbell, 1987).
It is not that nancial metrics may not be necessaryit is
rather that if they are not linked to an appropriate productmarket strategy they might, as in GECs case, prove to be an
insufcient guide to managerial action.
As the company failed, the ultimate inability of GEC
to integrate strategic and nancial logics seemed to suggest that some form of SMA could have helped managers
understand the threats and opportunities. Management
accounting researchers have suggested that SMA offers
a potential unication between accounting and business
strategy (Simmonds, 1981; Bromwich, 1990; Tomkins and
Carr, 1996; Shank, 1989).
12
A version of residual income (such as EVA) is usually seen to be the
key metric in a value based strategy approach.
The managerial discourse of GEC/Marconi includes a

role for two specic management accounting concepts:
ROI and VBM. A third management accounting approach,
SMA, could be seen as the dog that did not barkan
approach that potentially just might have agged up the
strategic difculties on the telecom industry. In this section of the paper, the discussion of the relative impact of
these techniques on GEC is broadened out to review their
wider signicance in the CCC (Thrift, 2005). The relative
status of ROI, VBM and SMA may be shown schematically
in Table 1. Each approach is compared in terms of action,
text, discourse and institutionalization. The nal column
then assesses the relative inuence on practice. It should
be stressed that the aim of the table is not to present a
denitive empirical position on the use of these techniques
but rather to illustrate how the CDA approach can be used
to assess whether a particular concept can be seen as constituting a discourse and has been institutionalized in the
CCC.
6.1. ROI
The table suggests that the inuence of ROI on practice
has been institutionalizedthat it is so prevalent that it is
taken-for granted. More critically, we might even elaborate on Johnson and Kaplan (1987) who argued that the
institutionalization of ROI in business schools detached it
from its originally, productive role in organizational sensemaking. As well as becoming embedded in the dominant
managerial discourse of the divisionalised company, the
concept of ROI could be also be related to a wider nancial
accounting discourse of ratio analysis, which was codied and legitimised by the wider institutions of nancial
reporting (Llwellyn and Milne, 2007).
The use of ROI and other nancial ratios at GEC was
not unique because the company was one organization at
the conuence of the factors that contributed to the institutional and organizational embedding of ROI. ROI was
consistent with the organization form and strategy at GEC.
At a more general and abstract level, ROI began and spread
at a time when the managerial discourse of capitalism
emphasised order and control (Thrift, 2005).
GEC was only unusual in that it was relatively late
in moving away from the conglomerate form given the
wider de-institutionalization of that structure (Davis et
al., 1994). The late change in GEC was not due to a failure of the new managerial discourse of focus but rather
because of the absence of nancial crisis at GEC and the pro-
107
Table 1
Comparisons of ROI, VBM and SMA.
Management accounting technique
Source of text/action
Part of managerial discourse?
Institutionalized?
Impact on practice?
Return on Investment (ROI)

Economic Value Added (EVA)
Strategic Management Accounting
Organizational sensemaking
Academy/consultants
Academy
Yes
Yes
No
Yes
No
No
High
Moderate
Negligible
longed dominance of Weinstock. Once Weinstock retired,

the new managerial team of Simpson and Mayo were quick
to focus the company and introduce VBM. As noted earlier (Fairclough, 1995), CDA allows space for the impact of
human agency and interests especially when there were
powerful organizational players such as Weinstock.
6.2. VBM
In academic texts residual income and ROI are presented
as competing divisional performance metrics. Yet, in contrast to ROI, residual income emerged as an academic text
in the 1960s (Solomon, 1966) but then failed to penetrate
the wider managerial discourse until its transformation
into VBM and promotion by management consultants several decades later as EVA (Otley, 1999). In short, residual
income remained as a theory, as an academic text, but
did not affect practice until, with some changes, it became
part of the managerial discourse. Whilst the role of consultants is important, the resurgence of residual income could
also be traced to the growing inuence of nance theory
which affected discourses about modes of divisionalisation
(e.g., M-form v conglomerate) as well as specic nancial
metrics. In GEC, the new management team understood
that the City liked strategically focused, free play companies and that it also liked the rhetoric of shareholder value
which was associated with VBM (OHanlan and Peasnell,
1998). In terms of the Phillips et al. (2004) model, the managerial discourses that inuenced management change at
GEC were legitimised by wider institutions.
6.3. SMA
SMA supports Kays critique (2002) of GEC that the companys new strategic position had not been fully analysed
by senior managers. GEC de-diversied (as suggested by
management and nance theories) but then neglected to
anticipate the action of competitors apart from hoping (at
least according to Mayo) that they could be taken over!
In short, the most ineffective approach of the three management accounting concepts in terms of practical impact
has to be SMA. For an approach that might, in principle,
have saved GEC/Marconi, there is little evidence of it as an
organizational sensemaking device, as a managerial discourse
and certainly no evidence of institutionalization.
A case nding which reports a lack of impact of SMA
is not particularly surprising and conrms other survey
and case study research (Guilding et al., 2000; Roslender
and Hart, 2003). Yet the lack of impact of SMA cannot
be presented in terms of a powerful academic discourse
inexplicably rejected by practitioners. Indeed, it is plausible to argue that SMA failed as an academic discourse
before it could inuence the wider managerial discourse.
Even an early and prominent advocate of SMA [although

he preferred the term, strategic cost management (SCM)],
Shank (2007) argued that there was an unravelling of the
pieces associated with the SCM/SMA literature suggesting a collection of isolated texts rather than evidence of an
emerging discourse. As Shank put it:
By 2000, there was a fteen-year history of great beginnings, pilot projects, and cameo appearances for SCM,
but not much more. It has been a great topic on the
lecture circuit and in cost management symposia. In
military parlance, it briefs well! But the topics had not
been gaining traction in mainstream academe or in the
corporate world. . .(2007, p. 359).
In a similarly pessimistic review, Langeld-Smith
(2008) made much of the difculty in agreeing a denition of SMA. If a broad denition is accepted which sees
SMA as a collection of well-known techniques such as
net present value, activity-based costing and the balanced
scorecard then it might be argued that these practices have
had some impact on practice. But if a narrow denition
is adopted which seeks an explicit link between management accounting tools and strategic management concepts
(Langeld-Smith, 2008) then the practice of SMA seems
to have languished. In this paper, the narrower denition
seems more appropriate since whilst GEC did adopt many
managerial innovations in performance management and
supply chain management, its ultimate collapse could be
attributed to faulty strategic positioning.
With some critics suggesting that SMA is just a gment
of academic imagination (Lord, 1996, p. 364), it might be
argued that SMA has not achieved much respectability even
within the academy. Strong theoretically-based proposals
for SMA in individual texts (see, e.g. Bromwich, 1990) have
not developed into either a coherent normative SMA discourse or contributed much to the managerial discourse.
Yet the apparent incoherence of the SMA discourse
must be put into the context of the fragmentation and
disarray of the wider strategic management discourse in
which an apparently settled relationship between strategy
and structure (Chandler, 1962) has been replaced by criticism and neglect (Whittington, 2002). Indeed, the absence
of research on strategy and structure and the process of
strategising have led to the recent establishment of a new
journal and website in order to try and revive this research
agenda (Whittington, 2003).
7. Conclusions
In this paper, it is assumed that managerial discourse
links academic theory and practice through the interplay
between action, text, and institutions. Some managerial
action generates texts which become part of wider dis-
108
courses. These discourses are legitimised by specialist

institutional producers of managerial texts such as business schools and management consultants. Thus senior
managers, business schools, management consultants and
management gurus all contribute to the production of managerial discourse. The paper has argued that managerial
discourses have changed as capitalism has become more
reexive or knowing with an increasing role in the CCC
for some academic theories.
The changing nature of the managerial discourse helps
to explain changes in the application of management
accounting concepts such as ROI, VBM and SMA. Tracing
the particular managerial discourse of the divisionalised
company, it is argued that for many years there was a tight
link between corporate strategy, corporate structure and
ROI. ROI made sense to organizational members, was part
of the managerial discourse, and was institutionalized, and
therefore had a considerable impact on managerial practice
in the diversied conglomerate organization. The managerial discourse changed with criticisms of the conglomerate
form and the espousal of alternative metrics related to
VBM such as residual income. VBM did become part of the
managerial discourse in that it was supported by some academic texts, by some senior organizational members and
by some in the nancial community. However, VBM has not
achieved the level of acceptance or the impact on practice
of ROI in its heyday. Lastly, SMA was a concept produced
by academics which has not become part of the managerial
discourse, has never been institutionalized and, at least so
far, has had a negligible impact on practice.
More generally, although it has been argued that managerial discourse links theory and practice through the
interplay between actions and texts, the transfer of concepts from theory to practice and from practice to theory
is a far from seamless process. Whilst academic theories
may feed into the managerial discourse by linking up with
other texts in wider organizational discourses, the discursive basis of such links may not usually be the criteria of
validity and rigour that generally legitimises research in
the academy. Thus, the inuence of managerial practice
on academic theory may be weakened because legitimised
research methods and knowledge claims in the academy
may hinder appropriate forms of investigation and theory
production. These tendencies have long been noted in the
management accounting literature in the relevance lost
discourse.
Similarly, the transfer of theoretical concepts from the
academy to practice may either fail to take place or theory
may be applied in a partial or rhetorical manner. CDA shows
how power, self-interest and rhetoric can affect the acceptance or rejection of managerial theories. In the particular
instances in this paper, a strong intellectual case for SMA
has not led to its acceptance in the mainstream managerial discourse with a corresponding reluctance of managers
to practise its techniques and realise its potential capacity
to re-unite nancial- and product-market strategies. With
respect to VBM, although the inuence on practice has been
more signicant than with SMA, the application of the concept has been partial. The rhetoric of shareholder wealth
espoused by VBM has been embraced more enthusiastically
than the detailed technology of revised accounting met-
rics and carefully designed remuneration packages which

reward long- and medium- rather than short-term performance.
A key implication of this paper is that by analysing the
general processes of managerial knowledge production,
the management accounting academy can develop a better understanding of its particular role in the production
and consumption of managerial discourse. Senior managers may continue to reject academic concepts because in
some way they threaten their interests or they may recklessly adopt theoretical concepts with little understanding
of the risks. Yet both self-interested and reckless practice
can best be exposed and challenged by an academy that
adopts a posture of constructive, yet critical engagement.
Constructive engagement means that academics understand
practitioners problems and respect the role that practitioners can play in managerial knowledge production.
Critical engagement means that academics nurture their
own norms and standards which enable them to stand back
and reect on managerial practices.
Acknowledgements
I would like to thank Laurie Cohen, James Guthrie,
Markus Milne, Hattie Duguid and especially two anonymous reviewers for their helpful comments.
References
Ahrens, T., Chapman, C., 2007. Management accounting as practice.
Accounting, Organizations and Society 32, 127.
Abrahamson, E., 1991. Managerial Fads and Fashions: The Diffusion
and Rejection of Innovations. Academy of Management Review 16,
586612.
Alvesson, M., Karreman, D., 2000. Varieties of discourse: on the study
of organizations through discourse analysis. Human Relations 53,
11251149.
Amernic, J., Craig, R., 2006. CEO Speak. McGill-Queens University Press,
Montreal.
Aris, S., 1998. Arnold Weinstock and The Making of GEC. Aurum Press,
London.
Ax, C., Bjrnenak, T., 2005. Bundling and diffusion of management
accounting innovationsthe case of the balanced scorecard in Sweden. Management Accounting Research 16, 120.
Baker, G.P., 1992. Beatrice: a study in the creation and destruction of value.
Journal of Finance 47, 10811119.
Barley, S., Kunda, G., 1992. Design and devotion: surges of rational and normative ideologies of control in managerial discourse. Administrative
Science Quarterly 37, 363399.
Bennett, N., December 8, 1996. EC Car Boot Sale. Sunday Telegraph, p. 2,
p. 2.
Bettis, R.A., 1991. Strategic management and the straitjacket: an editorial
essay. Organization Science 2, 315319.
Bhagat, S., Shleifer, A., Vishny, R., 1990. Hostile takeovers in the 1980s:
the return to corporate specialization. In: Baily, M.N., Winston, C.
(Eds.), Brookings Papers on Economic Activity: Microeconomics 1990.
Brookings Institution, Washington, pp. 184.
Bhimani, A., Horngren, C., Datar, S., Foster, G., 2008. Management and Cost
Accounting, 4th Edition. Prentice Hall, Harlow.
Bromwich, M., 1990. The case for strategic management accounting: the
role of accounting information for strategy in competitive markets.
Accounting, Organizations and Society 15, 2746.
Brummer, A., Cowe, R., 1998. Weinstock: The Life and Times of Britains
Premier Industrialist. Harper Collins, London.
Bruns, S., 1997. Managers Lives. Harvard Business School Press, Cambridge, M.A.
Burns, J., Scapens, R., 2000. Conceptualising management accounting change: An institutional framework. Management Accounting
Research 11, 325.
Cave, A., 1996. GEC tightens pay conditions for Simpson. The Daily Telegraph, September 3, p. 23.

Chandler, A., 1962. Strategy and Structure. MIT Press, Cambridge, Mass.
Chandler, A., Daems, H., 1979. Administrative coordination, allocation and
monitoring; a comparative analysis of the emergence of accounting
and organization in the U.S.A and Europe. Accounting, Organizations
and Society 4, 320.
Davis, G., Diekmann, K., Tinsley, C., 1994. The decline and fall of the
conglomerate rm in the 1980s: the deinstitutionalisation of an
organisational form. American Sociological Review 59, 547570.
Drury, C., 2008. Management and Cost Accounting, 7th Edition. South
Western, London.
Fairclough, N., 1995. Critical Discourse Analysis: The Critical Study of Language. Longman, London.
Fairclough, N., 2005. Peripheral vision: discourse analysis in organization
studies: the case for critical realism. Organization Studies 26, 915939.
Fligstein, N., 1991. The structural transformation of American industry: an institutionalist account of the causes of diversication in the
largest rms, 1919-1979. In: Powell, W.W., DiMaggio, P.J. (Eds.), The
New Institutionalism in Organisational Analysis. University of Chicago
Press, Chicago.
Foster, A., 1989. How bad is GEC? Management Today, 4046.
Ghoshal, S., 2005. Bad management theories are destroying good management practices. Academy of Management Learning and Education
4, 7591.
Goold, M., Campbell, A., 1987. Strategies and Styles: The Role of the Centre
in Managing Diversied Corporations. Blackwell, Oxford.
Guilding, C., Cravens, K., Tayles, M., 2000. Strategic management accounting: an international study. Management Accounting Research 11,
113135.
Hall, S., 2001. Foucault: power, knowledge and discourse. In: Wetherell,
M., Taylor, S., Yates, S.J. (Eds.), Discourse Theory and Practice: A Reader.
Sage, London, pp. 7281.
Hoskisson, R.E., Hill, C.W., Hicheon, K., 1993. The multidivisional structure:
organizational fossil or source of value? Journal of Management 19,
269298.
Ittner, C., Larcker, D., 2001. Assessing empirical research in managerial accounting: a value-based management perspective. Journal of
Accounting and Economics 32, 349410.
Jensen, M., 1986. Agency Costs of Free Cash Flow, Corporate Finance, and
Takeovers. American Economic Review 76, 323329.
Jessop, B., 2002. The Future of the Capitalist State. Polity Press, Cambridge.
Johnson, H., Kaplan, R., 1987. Relevance Lost: The Rise and Fall of Management Accounting. Harvard University Press, Boston.
Jones, R., Marriott, O., 1970. Anatomy of a Merger: A History of GEC, AEI
and English Electric. Jonathan Cape, London.
Kaplan, R.S., 1998. Creating new management practice through Innovation Action Research. Journal of Management Accounting Research
10, 89118.
Kasanen, E., Lukka, K., Siitonen, A., 1993. The constructive approach in
management accounting research. Journal of Management Accounting Research 5, 243264.
Kay, J., 29 January 2002. Vital Item is Missing. Financial Times, p. 18.
Keynes, J.M., 1936. The General Theory of Employment, Interest and
Money. Macmillan, London.
Klamer, A., McCloskey, D., 1992. Accounting as the master metaphor of
Economics. European Accounting Review 1, 145160.
Langeld-Smith, K., 2008. Strategic management accounting: how far
have we come in 25 years? Accounting, Auditing and Accountability
Journal 21, 204228.
Laurance, B., September 1, 1996. See-saw Simpson, Phantom of the
Options. Observer, p. 7.
Levy, H., Sarnat, M., 1970. The uneasy case for conglomerate mergers.
Journal of Finance 25, 795802.
Llwellyn, S., Milne, M., 2007. Accounting as codied discourse. Accounting,
Auditing and Accountability Journal 20, 805824.
Lord, B., 1996. Strategic management accounting: the Emperors new
clothes? Management Accounting Research 7, 347366.
Lorenz, A., October 1996. Time to Unpick GEC. Management Today, London, pp. 4449.
Lukka, K., Mouritsen, J., 2002. Homogeneity or heterogeneity of research in
management accounting? European Accounting Review 11, 805811.
Malmi, T., 1999. Activity-based costing diffusion across organizations: an
exploratory empirical analysis of Finnish rms. Accounting, Organization and Society 24, 649672.
109
Malmi, T., Granlund, M., 2009. In search of management accounting theory. European Accounting Review 18, 597620.
Malmi, T., Ikheimo, S., 2003. Value Based Management practicessome
evidence from the eld. Management Accounting Research 14,
235254.
Manley, J., Lloyd, T., 1989. A deal too far? Financial Weekly (April), 2429.
Mayo, J., 18 January 2002. Exploding Some Marconi Myths. Financial
Times, p. 13.
Mouck, T., 2004. Institutional reality, nancial reporting and the rules
of the game. Accounting, Organizations and Society 29, 525
541.
Napier, C., 1996. Accounting and the absence of a business economics
tradition in the United Kingdom. European Accounting Review 5,
449481.
Nrreklit, H., 2003. The balanced scorecard: what is the score? A rhetorical analysis of the balanced scorecard. Accounting, Organizations and
Society 28, 591619.
Nrreklit, L., Nrreklit, H., Israelsen, P., 2006. The validity of management control topoi. Towards constructivist pragmatism. Management
Accounting Research 17, 4271.
Observer, 1996. November 11, p. 21.
OHanlan, J., Peasnell, K., 1998. Wall Streets contribution to management
accounting: the Stern Stewart EVA nancial management system.
Management Accounting Research 9, 421444.
Otley, D., 1999. Performance management: a framework for management control systems research. Management Accounting Research 10,
363382.
Palmer, D., Jennings, P., Zhou, X., 1993. Late adoption of the multidivisional form by large U.S. corporations: institutional, political,
and economic accounts. Administrative Science Quarterly 38, 100
131.
Phillips, N., Hardy, C., 2002. Discourse Analysis: Investigating Processes
of Social Construction. Sage University Papers Series on Qualitative
Research 50. Sage, Thousand Oaks.
Phillips, N., Lawrence, T., Hardy, C., 2004. Discourse and institutions.
Academy of Management Review 29, 635652.
Prahalad, C., Hamel, G., 1990. The core competence of the corporation.
Harvard Business Review (MayJune), 7991.
Roslender, R., Hart, S., 2003. In search of strategic management accounting: theoretical and eld study perspectives. Management Accounting
Research 14, 255279.
Ryan, R., Scapens, R., Theobald, M., 2002. Research Method and Methodology in Finance and Accounting, 2nd Edition. Thomson, London.
Scapens, R.W., 1994. Never mind the gap: towards an institutional
perspective on management accounting practice. Management
Accounting Research 5, 301321.
Seal, W., Garrison, R., Noreen, E., 2008. Management Accounting, 3rd Edition. McGraw-Hill, London.
Shank, J., 2007. Strategic cost management: upsizing, downsizing, and
right (?) sizing. In: Alnoor Bhimani (Ed.), Chapter in Contemporary
Issues in Management Accounting. Oxford University Press, Oxford,
pp. 355379.
Shank, J., 1989. Strategic cost management: new wine, or just new bottles?
Journal of Management Accounting Research (Fall), 4765.
Shleifer, A., Vishny, R., 1997. A survey of corporate governance. Journal of
Finance 52, 737783.
Simmonds, K., 1981. Strategic management accounting. Management
Accounting (CIMA) (April), 2629.
Sloan, A., 1965. My Years with General Motors. Sidgwick and Jackson,
London.
Solomon, E., 1966. Return of Investment: The Relation of Book Yields
to True Yield, in Research in Accounting Measurement. American
Accounting Association, Chicago.
Thrift, N., 2005. Knowing Capitalism. Sage, London.
Tomkins, C., Carr, C., 1996. Reections on the papers in this issue and a
commentary on the state of strategic management accounting. Management Accounting Research 7, 271280.
Whittington, R., 2002. Corporate structure: from policy to practice.
In: Pettigrew, A., Thomas, H., Whittington, R. (Eds.), Chapter in
Handbook of Strategy and Management. Sage, London, pp. 113
138.
Whittington, R., 2003. The work of strategizing and organizing: for a practice perspective. Strategic Organization 1, 117125.

Managerial Discourse and The Link Between Theory and Practice From ROI To Value Based Management 2010 Management Accounting Research

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Managerial Discourse and The Link Between Theory and Practice From ROI To Value Based Management 2010 Management Accounting Research

Загружено:

Авторское право:

Доступные форматы

Management Accounting Research 21 (2010) 95109

Contents lists available at ScienceDirect

Management Accounting Research

Managerial discourse and the link between theory and practice:

E-mail address: w.b.seal@lboro.ac.uk.

reading, they may also draw inspiration from management

W. Seal / Management Accounting Research 21 (2010) 95109

constructing more or less durable social networks which

arguments in the management accounting academy3 could

W. Seal / Management Accounting Research 21 (2010) 95109

Fig. 1. Institutions in the cultural circuit of capitalism (adapted from

agement consultants take knowledge gained from their

2.1. Theories in capitalism

W. Seal / Management Accounting Research 21 (2010) 95109

p. 637). Self-interested action is discoursal when actors

are even more signicant in guiding behaviour as they

W. Seal / Management Accounting Research 21 (2010) 95109

of the rational choice approach that organizations have

key nancial metric in VBM is residual income, then the

In historical terms, ROI precedes SMA and VBM and,

W. Seal / Management Accounting Research 21 (2010) 95109

4.1. Historical and contingent factors in the relationship

Fig. 2. Relationship between action, texts, discourse and institutions

Berlin Wall (Thrift, 2005). In terms of the CCC, Thrift coins

The relationship between action and discourse varies

W. Seal / Management Accounting Research 21 (2010) 95109

4.3. Sloan and the constitutive role of management

nizational charts, sales graphs and so on, it can be seen

4.4. The institutionalization of the nancial control style

W. Seal / Management Accounting Research 21 (2010) 95109

4.5. Changes in the wider managerial discourse: the

4.6. The impact on the managerial discourse of material

W. Seal / Management Accounting Research 21 (2010) 95109

5.1. Accounting ratios and control routines in GEC

Business units had to submit a monthly report, which

W. Seal / Management Accounting Research 21 (2010) 95109

Fig. 3. GEC/Marconi against the FTAllshare index.

approach seemed out of step with a new managerial discourse.

cic question in the managerial discourse challenged not

W. Seal / Management Accounting Research 21 (2010) 95109

an EVA form of value-based management. These changes

The GEC debacle illustrates very neatly a number of

5.4. Postscript on GEC: the tension between nancialand product-market strategies

The timeline of these developments may be traced in

From a share price that peaked at over 12 in 2000,

Shareholders rightly wanted three things. First, the

5.5. Incoherence at GEC and in the wider managerial

W. Seal / Management Accounting Research 21 (2010) 95109

In the next section, the paper moves on to a discussion

Fig. 4. Action, text and discourse in the evolution of the divisionalised

closely linked (Sloan, 1965), the strategy discourse and

The managerial discourse of GEC/Marconi includes a

W. Seal / Management Accounting Research 21 (2010) 95109

Part of managerial discourse?

Return on Investment (ROI)

longed dominance of Weinstock. Once Weinstock retired,

Even an early and prominent advocate of SMA [although

W. Seal / Management Accounting Research 21 (2010) 95109

courses. These discourses are legitimised by specialist

rics and carefully designed remuneration packages which

W. Seal / Management Accounting Research 21 (2010) 95109

Вам также может понравиться