Asian Review of Accounting

Management accounting practices and the turnaround process

Noor Hasniza Haron Ibrahim Kamal Abdul Rahman Malcolm Smith

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Noor Hasniza Haron Ibrahim Kamal Abdul Rahman Malcolm Smith, (2013),"Management accounting
practices and the turnaround process", Asian Review of Accounting, Vol. 21 Iss 2 pp. 100 - 112
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ARA
21,2

Management accounting practices

and the turnaround process
Noor Hasniza Haron and Ibrahim Kamal Abdul Rahman
Department of Business, Universiti Teknologi MARA,
Shah Alam, Malaysia, and

100
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Malcolm Smith
School of Accounting, Finance and Economics, Edith Cowan University,
Joondalup, Australia
Abstract
Purpose The paper aims to provide a longitudinal view of successful turnaround phases and of
how management accounting practices played a significant role in improving performance in
one company.
Design/methodology/approach The company provided internal documents to cover the period of
the study and permitted access to key individuals who were able to elaborate and clarify the motives
which underpinned the numbers reported and the strategies employed.
Findings The success of the corporate turnaround appeared to be attributable to an effective
leadership style that was able to motivate and support the employees whilst making strategic changes
to the organizations capital, financial well-being and operations.
Originality/value Recognition of the key factors in the turnaround process has implications for the
implementation of corporate recovery strategies elsewhere.
Keywords Turnarounds, Corporate recovery, Management accounting, Companies, Managers,
Accounting
Paper type Research paper

Asian Review of Accounting

Vol. 21 No. 2, 2013
pp. 100-112
r Emerald Group Publishing Limited
1321-7348
DOI 10.1108/ARA-01-2012-0001

Introduction
Changes in competition, technology and organizational structure all have important
implications for the nature of management accounting (e.g. Burns and Scapens, 2000;
Baldvinsdottir et al., 2010). Operating environments are becoming more competitive
and complex as a result of globalization and advances in technology, making it difficult
for all companies to remain competitive.
Issues of corporate recovery and the turnaround of companies in distress are not
new (e.g. Smith and Gunalan, 1996; Smith and Graves, 2005; Liou and Smith, 2007).
Companies such as IBM UK (Balgobin and Pandit, 2001), American Motors, Jeffery
Motors, Chrysler Corporation, Packard and Cadillac (Zimmerman, 1989) have
demonstrated their ability to achieve successful turnarounds in business performance.
However, there are companies that have not successfully managed the turnaround
process, notably Hudson Motor Corporation, International Harvester, Allis-Chalmers,
Kaizer-Frazer and Amer Motors/Renault (Zimmerman, 1989). Pandit (2000) highlighted
that a great number of firms suffering a significant decline in performance tend to fail
rather than to recover; Sudarsanam and Lai (2001) noted that similar recovery
strategies were implemented by both successful and non-successful turnaround
companies, though the former tended to look for growth and external solutions, rather
than fighting internal fires. Harker (1996) notes the high economic and social costs
resulting from failure, impacting not only the organizations themselves, but individuals
and governments, since, in the event of bankruptcy, people are unemployed, social

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security costs increase and foreign exchange earnings decline. Bangopin and Pandit
(2001) highlighted that most of the turnaround literature has focussed on the content or
outer context (i.e. the financial numbers) while there has been a lack of focus on inner
context or the process of turnaround. They emphasize that for organizations to recover
in a competitive environment, their managers must understand the whole process
thoroughly. This process must necessarily embrace the role of management accounting,
but there has been no comprehensive analysis in the existing literature of management
accounting applications to corporate turnaround.
Thus this study seeks to develop a deeper understanding of the turnaround process
and of the role played by management accounting in facilitating effective recovery
from a distressed state. The turnaround framework proposed by Balgobin and Pandit
(2001) is used to explain the recovery process in conjunction with the NAfMA
framework for management accounting practices.
Background
Asian Airlines is a hypothetical construction of a national air-carrier that has been in
an extremely fragile financial position after five consecutive years of losses, between
1998 and 2002. However, a corporate turnaround exercise was able to reverse this
trend, producing profits for the three subsequent years, 2003-2005. Although further
losses were reported in 2006, these were on a much-reduced scale, and the airline had
been able to return to profitability since.
Literature
Turnaround processes
Given the frequency of corporate failure and declining global economic conditions, a
number of studies have reported on turnarounds effected to recover from financial
distress (e.g. ONeil, 1986; Balgobin and Pandit, 2001; Bruton et al., 2001; Smith
and Graves, 2005; Liou and Smith, 2007). Grinyer et al. (1990) and ONeil (1986),
among others, categorize the causes of decline and failure as being internal factors
(i.e. management or the company itself) and external factors (i.e. those beyond the
control of management). Different causes demand different strategies, and different
environmental contexts, different models, with management capacity, competitive
position, industry type and stage of development all being important (Pearce and
Robbins, 1993). ONeil (1986) identified a combination of four strategies necessary to
achieve a successful recovery: new/improved management; financial cut-backs;
growth; and restructuring of the organization. Pearce and Robbins (1993) highlighted
the importance of the retrenchment stage for the early stages of turnaround, but
Bruton et al. (2001) note the potential for differences in turnarounds conducted in
eastern settings, as opposed to western: the Chinese culture, and the prominence of
family ownership, will combine to make retrenchment of staff and replacement
of senior officers less viable short-term options.
Balgobin and Pandit (2001) identify five phases of the turnaround process, which
are not necessarily sequential: decline and crisis; triggers for change; recovery strategy
formulation; retrenchment and stabilization, and return to growth. The first phase
would be expected to indicate the causes and severity of the problems experienced by
the company, important since as Pearce and Robbins (1993) note, these will dictate the
appropriate strategic response and the likelihood of its success. Following Grinyer et al.
(1990), the second phase triggers of change will likely derive from intervention
factors: change of ownership, threats of change, a new CEO and/or management

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recognition of problems and opportunities. The leadership of the turnaround process

becomes essential here if an individual is going to be able to inspire a shared vision
in trying circumstances (Harker, 1996). The third phase of recovery strategy
formulation will involve the establishment of priorities to address key issues and use
available resources appropriately; commonly this will involve retrenchments in order
to provide stabilization, and a platform for growth and positive cash flows (Pearce and
Robbins, 1993), categorized as a fourth stage by Balgobin and Pandit (2001). The final,
fifth, stage incorporates a return to growth, with financially distressed organizations
regaining their strength. Not all will do so, some will remain distressed and will fail or
be acquired as an alternative to failure. Successful turnarounds will see this phase
as a means of prioritizing to ensure that long-term profitability is sustainable.
Management accounting practice
International Federation of Accountants (IFAC) (1998) view management accounting as
an integral part of the management process, which provides essential information
for controlling the current activities of a business, and planning future strategies. IFAC
(1998) reported a Management Accounting Best Practice Framework which has been
developed to provide a strategic tool for the achievement of value creation by
Malaysian organizations (Sulaiman et al., 2005). Following the IFAC (1998) guidelines,
best practice focusses on four inter-related characteristics: a distinctive managerial
function; utility of work outcomes; value of work processes and technologies and
capabilities required for function effectiveness. This motivated the Malaysian Institute
of Accountants (MIA) and The Chartered Institute of Management Accountants
(CIMA) to jointly instigate the National Award for Management Accounting (NAfMA)
in order to proactively promote management accounting as a strategic tool in a
competitive environment. The resulting NAfMA framework, endorsed by CIMA,
comprises: leadership, management accounting information, resource management,
customer/market focus, partnership management, value creation, business results and
corporate social responsibility (CSR).
Leadership. Leadership requires genuine determination and commitment from top
management (Grinyer et al., 1990; Gopinpath, 1991). For failure recognition to be
apparent, and for appropriate strategies to be formulated, then effective communication
between boardroom and shop-floor must exist. The NAfMA framework measures the
commitment and responsibility of top management in pursuing their vision.
Management accounting information. Appropriate strategies require sound
knowledge of performance, prospects and competitive position. Implementation
requires the MAIS to facilitate accurate monitoring of the impact of new strategies.
The NAfMA framework focusses on the accessibility, reliability and timeliness
of information.
Resource management. High-quality staff, with appropriate skills for each stage of
development are essential for successful turnaround. This necessitates the support,
transformation and growth of employees (Ow, 2005) and other intangible assets.
Thus the NAfMA framework focusses on overall career development within
organizations and embraces training, recognition, incentives and opportunities for
continuous improvement.
Customer/market focus. Sudarsanam and Lai (2001) emphasized the importance of
an external focus in successful turnarounds. This is exemplified by the need for a
comprehensive understanding of customers, markets and the business environment,
as well as having customer-oriented management practices (Grinyer et al., 1990).

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Customer relationships, prompt delivery and after sales service are thus important
factors addressed by a NAfMA focus on mechanisms which establish a market niche
and fulfill customer needs.
Partnership management. Grinyer et al. (1990) emphasize the importance of
management which incorporates good communications and good industrial relations.
The NAfMA framework thus embraces the organizations approach to managing
relationships with its stakeholders.
Value creation. Bourgignon (2005) emphasizes that value creation should not
solely be measured in terms of short-term accounting numbers. Rather it should be
seen as a long-term strategic tool embracing both customer and shareholder perspectives.
Thus the NAfMA framework measures value adding activities in a management
accounting context where the value can be perceived as financial or otherwise.
Business results. The company needs to measure performance effectively and to
take any appropriate corrective actions. The turnaround will only be successful and
sustainable if the goals of different stakeholders can be reconciled, so that strategies
can be aligned with objectives. From a NAfMA perspective, performance measurement
will measure the implications for business results of the implementation of
management accounting change.
CSR. CSR behavior dictates that open and transparent business practices are ethical
and respect the views of the community, employees, shareholders, other stakeholders
and the environment. A number of studies (e.g. Md Zabid and Saadiatul, 2002; Mostafa
et al., 2010) have linked CSR practices with long-term organizational benefits
associated with image, notably investor interest, market presence and ability to attract
talent. The NAfMA framework measures the contribution that CSR outcomes make to
the achievement of sustainable competitive advantage.
In the absence of a clear and comprehensive literature linking management
accounting techniques to corporate turnaround, this study adopts the NAfMA
framework as a tool to benchmark firm performance in the different phases of the
turnaround process.
Method
A case study approach is deemed appropriate as it enables chronology of decisions and
actions over the considered time periods to provide rich information from which
interpretations and relations can be drawn and developed (Harker, 1996). Furthermore,
this approach provides a distinct feature in that it allows a focus on real cases, so the
outcome of the investigation is largely beyond the control of the researcher (Yin, 2003).
This study has therefore been conducted using the step-by-step approach proposed by
Yin (2003) with data collected from both primary and secondary sources. At each of
the five stages of the Balgobin and Pandit (2001) turnaround process, the actions of the
company are examined and these are linked to its associated management accounting
practices through the NAfMA measurement tool.
The chronology of events prior to the turnaround process was generated from
secondary sources, both internal and external: annual reports, web sites, newspaper
articles and professional publications.
The detailed changes made to the management accounting information system
were gleaned from both secondary sources (in the form of written documentation in
support of the 2010 NAfMA Award scheme application) and primary sources, in the
form of e-mail exchanges, phone interviews and face-to-face interviews. Interviews
were conducted with key Asian Airlines personnel on changes to management

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accounting practices, though there were some areas that the respondents declined to
provide precise methodologies on the grounds of commercial sensitivity. In each case
respondents were advised of the questions to which answers would be sought, in
advance, via e-mail; post-survey checks were also conducted via e-mail, to confirm the
responses provided and to seek further clarification in areas of doubt.
Data gathered from all sources were documented and organized to simplify crossreferencing with different aspects of both the turnaround process and the NAfMA
management accounting framework.
Findings
Prior to turnaround (financial year 1997/1998-financial year 1999/2000)
Stage 1: decline and crisis. Privatization to stimulate development and encourage
further growth was a success in early years with recorded profit of $0.32 billion for
FY1995/1996 and $0.23 billion for FY1996/1997. However, in the period 1997/1998 to
1999/2000 performance deteriorated and recorded three consecutive years of losses.
An analyst commented that, although the revenue generated in the financial year 2007/
2008 for domestic and regional routes was low, at around $1 billion, the country
coverage was still high at between 70 and 80 percent, but these figures were far below
the yield of roughly $4 billion through serving between 20 and 30 percent of operations
to international destinations such as in Europe and USA.
An aircraft engineer highlighted the problem:
Domestic routes are less than 45 minutes long. A fully loaded Boeing 737 uses quite an
amount of fuel when it takes off against gravity. Just as it gets to cruise on optimal fuel
consumption, it is required to land again. Coupled with low fares this would definitely bleed
the airlines. That is why international routes are always profitable.

Any fare increase would require approval from government; thus the fare had only
been increased five times since 1974 with a last fare increase of 16 percent in 1992.
The economic crisis of 1997 increased the cost of purchasing new aircraft; in addition,
the economic crisis, the currency devaluation and tightened government fiscal policies
all impacted on business travel frequencies. Competition from foreign full service
carriers (FSCs) carriers such as Singapore Airlines and Thai Airways that were
already part of an international alliance (Star Alliance) and from low costs carriers
(LCCs) such as Air Asia also exerted pressure on Asian Airlines. Thus industry
observers were able to comment:
They (AirAsia) should be able to pull through because of the volume generated. Moreover,
unlike Asian Airlines which needs a passenger load factor of 70% to break even, AirAsia
only needs 56%.

Turnaround process (financial year 2000/2001-financial year 2010)

Stage 2: triggers for change. As the performance deteriorated, in December 2000 the
government sought to buy back a controlling stake in the airline and initiated
measures to restore profitability. The priorities were to repair the balance sheet, and
provide a stronger platform for operational restructuring in order that the company
might later emerge as an asset light organization. Eventually, the financial position
improved; however, in the financial year ended December 2005 further cash challenges
and a profit crisis arose. The restructuring exercise had only addressed the immediate
crisis, by rescuing the company from the brink of insolvency, and had not radically
improved performance, nor staunched the bleeding, and therefore, raised issues of
future performance. However, the airline had a variety of non-financial strengths: it

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was recognized as a global top tier brand, with a captive customer base,
strong technical skills, well-trained cabin crew and was among the most cost
competitive airlines in the region. When the airline reported losses in the first half of
FY2005, the Board quickly took action with the appointment of a new managing
director/chief executive officer (MD/CEO) charged with steering the airline away from
financial crisis.
Stage 3: recovery strategy formulation. A remarkable financial turnaround slowed
down negative effects and provided an avenue for strong operational turnaround;
further analysis resulted in the development of a three-year turnaround roadmap.
Regaining control of the finance was vital if the airline was to be able to focus on
the operational turnaround, so they decided to become wholly accountable for the
operations and to seek to manage the airline similar to that of a profit making entity by
prioritizing the profit and loss, and balance sheet. Cash issues were immediately
solved, and the turnaround plan was not only communicated to the employees but
shared with and disclosed to the stakeholders.
Prognosis was later to be made, and to improve these aspects P&L concepts were
introduced by focussing on increasing revenue and reducing costs. A staff survey was
reintroduced in 2005, expired collective agreements were negotiated, a performance
management system was implemented and a whistle-blower program initiated to
prevent fraud and to seek to build a culture of openness and transparency.
Stage 4: retrenchment and stabilization. Globally, many airlines that are in critical
phase around the world are radically restructuring, seizing all possible opportunities
and transforming their operations to survive. As part of the performance management
system, staff salaries were increased by between 3 and 5 percent, and a voluntary
separation scheme introduced. It was acknowledged that termination of unprofitable
routes was a must for company survival and that these actions could result in staff
redundancies. Given these factors, the responsible managers were locked away and
ordered to fix the routes to make them profitable! Given the urgency of the situation
immediate initiatives focussed on revenue/yield improvements, network improvement,
productivity improvement and cost reduction. Consistent with Bruton et al. (2001)
retrenchment did not feature strongly as a tool in the achievement of stabilization
at the airline.
Stage 5: return to growth (financial year 2007-financial year 2010). In February
2008, the airline announced that their turnaround had been accomplished one year
ahead of schedule, and that the new strategy had shifted to secure sustainable
profitability for the future. The airline reduced its operating expenses by more than
$665 million, $738 million, $936 million and $677 million in the years 2006, 2007, 2008
and 2009, respectively. Moving in line with the multiple numbers of projects that
had emerged during the restructuring initiatives, investments increased over these
years consistent with the multiple initiatives being undertaken: purchase of aircraft,
enterprise resource planning system, passenger services systems and other
expenditure projects.
Management accounting practices and the NAfMA framework
Leadership. Overall, the airline was found to possess capable top management,
supported by a motivated workforce, able to implement multiple strategic initiatives
and empowered by a clear strategic mission communicated across the organization.
The company fulfilled the local stock exchange listing requirement and followed the
guidelines of the appropriate Code on Corporate Governance, with directors appointed

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having a wide range of experience and qualifications, many having been with the
board for more than 15 years. New management brought in fresh ideas while those
with longevity had the expertise to enhance performance:
Top management understands how finance works and did a good job in managing the risks.
They are approachable and firm in making strategic decisions (Senior Accountant).

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106

The airlines mission and visions were clearly communicated across the organization,
and continuous education, development and training of capable leaders had been
initiated through a wide variety of schemes to ensure that all people were aligned and
heading in the same direction and toward the same goals.
Management accounting information. High-quality management accounting
information is essential to enable management to have deeper understanding of the
situations, identify any issues, make strategic decisions, monitor and adapt where
necessary in achieving the targeted objectives. All scheduled projects and initiatives
were aligned with the mission and visions, and relied on the availability, accessibility,
reliability and timeliness of management accounting information. Since the turnaround,
the quality of management accounting information had improved substantially: a
comprehensive system had been adopted in 2006 to replace the 20-year old accounting
system to provide more accurate, faster financial closing, improve staff productivity and
timeliness of information. Group Reporting, Control and Budget department reports
directly to a chief financial officer responsible for ensuring that the various reports
available are used by the relevant functions. Most reports were made available on a
yearly, monthly or quarterly basis, but others were circulated through e-mail to relevant
functions on a daily basis; a 5 percent allowance for discrepancies was acknowledged,
as it was noted that reporting on a daily basis might raise issues of the accuracy of
information. Moving forwards the airline was engaging in an enterprise resource
platform (ERP) solution to automating and streamlining a number of processes with a
common database, consistent with Burns and Scapens (2000).
Resource management. The airline had long recognized that effective resource
management and continuous improvement must be implemented to resolve people
issues. Increased staff motivation was sought by providing a safe, conducive working
environment, training, encouraging career development and recognizing and
rewarding people appropriately. Initiatives were pursued without compromising
safety or quality, and sought to help employees to reach their maximum potential as
individuals and teams. Frequent brainstorming, sharing sessions, boot camps, lab
participations and on-the-job training were provided. Job rotation was exercised within
the Finance department and across other functions to broaden the skills and
knowledge of participants; training courses with management accounting elements
were provided of the finance for non-finance employees type, since there was a
perceived need to have people from other functions who were financially literate (Burns
and Scapens, 2000). The performance measurement system anchored employees job
responsibilities against a structured method of performance tracking and evaluation,
designed to ensure behavior both consistent with the achievement of overall company
strategic goals, and their own personal satisfaction.
Customer/market focus. Ever since the initiation of turnaround strategies, the main
focus had been on improving the customer experience at all main customer touch
points: purchase; pre-embarkation; embarkation; in-flight and disembarkation.
Emphasis was placed on improving physical product and service offerings, in
establishing its market niche and fulfilling customers need and satisfactions.

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The airline had embarked on various process improvements and instituted changes
to products and services in order to offer passengers and freight operators greater
convenience of transportation and a more efficient traveling experience. For instance,
encouragement was made toward self-service technology (i.e. e-ticketing) that could be
expected to generate greater sales and become the preferred channel in the future.
Innovative products and services were produced to complement tactical marketing
techniques designed to attract customers attention and satisfy their needs. These
included: fare branding, continuously expanding the network, signing new code-share
agreements with other airlines and participation in various travel fairs.
Partnership management. As part of the thrust designed around winning
coalitions the airline recognized that the support from stakeholders was important
to the turnaround of the organization. The entire communication process was
revamped, and replaced by a structured channel of communications. Internal and
external communication channels were reviewed and enhanced to ensure that more
accurate, timely and concise information was delivered. Proactive engagement with all
stakeholders about the results, issues, plans and actions taken to increase stakeholders
understanding was initiated, and reflected the commitment toward the turnaround
process.
Value creation. Management accounting practices had improved substantially
during the turnaround process and had enhanced value creation in the company.
The initiatives increased people accountability and responsibility, and enhanced the
performance and added value to the organization:
Management accounting plays a crucial role in the company. The role is not limited to
financial reporting but helps to create value and integrate the best practice for operations.
Managers are able to analyze, highlight, monitor and make informed decisions
(Senior Accountant).

Internal control was enhanced through increased awareness among business units
of the importance of effective internal controls. Associated initiatives included the
whistle-blower program (providing an internal mechanism whereby employees could
raise their concerns about malpractice without fear of repercussions), and the
enterprise risk management program (to speed up the detection of critical risks and
prompt management to take immediate action to mitigate those risks).
Performance management/business results. The airline recognized the importance of
tracking performance regularly and monitoring the alignment of all initiatives.
Performance and business results were measured in terms of a balanced scorecardtype framework: financial, customer, operation, business growth and people, where
alignment with the financial perspective, and the companys mission to be a consistently
profitable airline, was recognized as the key goal. In terms of customer perspectives, these
aspects were driven by the CVP implementation, delivering a seamless, hassle free
experience and high level of serviceability to customers. While operation excellence
tracking was conducted to ensure the consistent delivery of a high level of quality service
to the customers, business growth perspectives measured the initiatives taken to
capitalize on the growth in air travel. Finally, people perspectives were in line with the
business focus to exploit the talents and capabilities of all employees, helping them to
reach their maximum potential both as individuals and as teams. The airline successfully
exceeded its target, reducing annual losses and reporting its first net profit in 3Q06, just
six months after the introduction of the turnaround initiative. The yield increased from
$0.205sen/RPK in FY2005 to $0.242sen/RPK in FY2006. After two years the airline

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reported a full year FY2007 net profit of $851 million, the highest profit in its corporate
history and one which significantly exceeded the $50 million target, with the yield
increasing to $0.27sen/RPK. The aggressive initiatives enabled the airline to generate
consistent momentum by recording profits of $244 million, $490 million and $234 million
in 2008, 2009 and 2010 respectively.
CSR. The airline recognized good ethics, integrity and transparency in their
business practices which covered three key areas, namely the workplace/resource
management, community and environment. The airline benefited from a strong and
dedicated culture of employee voluntarism with sufficient budgets allocated to the
initiatives. Many of the initiatives were not costly to implement; notably, the airline
embarked on a fund raising campaign to generate contributions from passengerson-board their aircraft especially through loose coins that were usually not accepted by
the currency exchange bureaux.
Discussion
The turnaround process
The turnaround phases used to explain the turnaround process at Asian Airlines were
largely consistent with those of Balgobin and Pandit (2001), with the second, third
and fourth stages overlapping to some extent. It was found that internal factors
and external factors were both apparent in the decline phase, and that relevant
parties played important roles in the second phase to initiate change. In the case of
Asian Airlines, government intervention bought back shares, and initiated the
restructure program; however, these initial actions were only sufficient to halt the
relative decline momentarily, so that a second descent subsequently occurred
(Grinyer et al. 1990). Recognizing the problems, further initiatives were taken to
turnaround the airline on the grounds that they still had a number of strengths
and competitive advantages. The outcome was consistent with Grinyer et al. (1990)
where multiple triggers were responsible rather than a single event; the most
important triggers were the injection of a new CEO and recognition of major
problems by management when actual or anticipated performance fell below
acceptable levels. It was important for top management to recognize the urgency
of the situation and the potential consequences of the problems faced by the
firm, so that they took the initiative early to institute change, gain control of
the turnaround strategy and achieved a lasting turnaround, all consistent with
Gopinath (1991).
The other two stages illustrated how the company was able to execute the
turnaround. At the crucial stage, distressed companies must take the necessary steps
to ensure their survival through a restructuring plan: external specialists and
management change had slowed the crisis and provided a platform for operational
turnaround. Once a stabilization of the company had been achieved the focus shifted to
long-term survival by improving the efficiency of its business operations. Management
gave full commitment, met various levels of staff to understand the situation,
devised the turnaround plan, gained control of the finance, managed the stakeholders
effectively and improved staff motivation. Following Grinyer et al. (1990) full
consultation with trade unions and the workforce, and positive salary adjustments
in line with industry standards and KPI-based performance measurement were
implemented to solve people issues. Restoration of a positive cash flow and focus
on the P&L concept helped to improve performance and lay the foundations for
subsequent sustainable turnaround.

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Management accounting and turnaround

The management accounting applications, as discussed within the NAfMA
framework, were perceived to be the key enablers in the airline turnaround
which will continue to support the recovery journey. Transformational leadership, with
realistic visions and mission, were clearly communicated across organizations
and complemented by a highly geared workforce. Good leaders must be able to lead,
manage, increase people motivation (Muczyk and Steel, 1998) and drive the company
to achieve positive performance. High reliability, availability, accessibility and
timeliness of the management accounting information, have facilitated detailed
analysis and reporting, enabling the airline to identify their problems, implement
specific initiatives, monitor progress and take corrective action, where necessary,
in order to achieve targeted corporate objectives. The importance of motivating
people, and maximizing their potential, necessitated a performance measurement
system which was well designed to achieve personal objectives, and aligned with
corporate objectives. Such motivation was able to improve productivity, increase
effectiveness, efficiency and working together to turn the company into a more
profitable organization.
Table I summarizes the management accounting practices undertaken to add value
to the organization in pursuit of a successful turnaround.
Overall, the company progressed from a distressed state to accomplish the general
turnaround phases prior to turning around the business performance. Effective
management accounting practices were able to add value and facilitate the turnaround
process. Table II highlights the management accounting techniques most employed in
the turnaround phase and their links to the NAfMA framework.

Management
accounting
practices
109

Conclusions
An understanding of the turnaround process and the role of management accounting
provides greater insight to the turning around of business performance and
enhancement of the effectiveness of strategic decision making. The knowledge of the
MAP

Added value

Leadership

Formulate strategy and plan. Lead, manage and drive the company
to ensure successful turnaround. Increase the confidence and
motivation of personnel
Provides the necessary tools and information for identifying
problems, formulating strategic plans, monitoring progress, and
making adjustments and taking corrective action where necessary
Increase motivation, improve productivity and increase efficiency
Meet customer needs and expectations. Maintain and strengthen
the existing market. Capture new markets, attract new customers
and boost demand
Obtain support from stakeholders. Increase public confidence
Added value to the company. Increase effectiveness and efficiency
of operations
Highly focused on turning around the company. Individual
objectives and corporate objectives aligned. Increased motivation
of people in the company
Create a good image. Provide opportunity for CSR growth
consistent with long-term profitability

Management accounting
information
Resource management
Customer/market focus
Partnership management
Value creation
Business results
Corporate social responsibility
(CSR)

Table I.
Management accounting
practices (MAP) added
value to the company

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21,2

Year

The phase

FY1997/1998FY1999/2000
FY2000/2001FY2006

Stage 1: decline and Not applicable

crisis
Stage2: triggers for Issues are triggered. Strength
change
and opportunities are
recognized. Initiate change.
Implement change of
management
Stage 3: recovery
Situational analysis: identify
strategy formulation issues; formulate plan to solve
them
Focus on human capital
Stage 4:
retrenchment and
stabilization
Reduce waste and increase
efficiency
Orientation for stabilization
and improved business results
Enhance support from
stakeholders
Stage 5: return to
Continuous improvement
growth
Long-term growth
Sustainability

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110

Table II.
Turnaround phases and
management accounting
practice

FY2007-2009

Techniques employed

NAfMA framework
Not applicable
Leadership

Management accounting
information
Resource management
Customer/market focus
Business results
Partnership management
Value creation
CSR

turnaround phases, when integrated with relevant management accounting practices,

provides opportunities for the company to add value and to develop a competitive
advantage. A company in distress is therefore able to respond appropriately
to unfavorable circumstances, and poor business performance, and to find ways to
turnaround and achieve continuous profitability and growth. The earlier that
potential failure is recognized, and appropriate action taken, the better are the chances
of a turnaround (Gopinath, 1991). Multiple triggers of change such as government
intervention, change in management, recognition of problems and perception of new
opportunities were found to initiate the changes that influenced the outcome of the
turnaround process. Had the airline taken the wrong turn during this critical period,
then the company faced the real possibility of insolvency.
Management accounting practices adopted, according to the NAfMA framework,
facilitated the turnaround of the company from a distressed state to a return to
profitable growth. Strategic leadership facilitated by comprehensive management
accounting information, centering on resource management, customer/market focus
and partnership management, enabled the airline to achieve a turnaround. Following
Grinyer et al. (1990), management commitment for change was extended to various
levels of the organization, so that the importance of people should not be undervalued.
It was also vitally important to have an information system that met the needs of the
various users, so as to provide different information for different purposes (Burns and
Scapens, 2000); the availability of financial information at all levels of the organization
allowed a successful turnaround strategy to be devised. Following Gopinath (1991)
appropriate attention was paid to the formulation of an immediate strategy, together
with the management of the transition to a long-term growth strategy, after the failure
has been stemmed. The importance of accounting and finance knowledge among the

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personnel was another important key element in this process; there was a need for
individuals within various areas to understand costs, variances, accounting reports
and other financial sources. Following the suggestions of Burns and Scapens (2000) the
accountants needed to evolve, and to develop a deep understanding of the business, so
that they recognized the implications of actions throughout the business. This
necessitated a renewed emphasis on training, notably finance courses for non finance
employees, and mechanisms (e.g. job rotations and cross-functional teamwork) to
ensure a pipeline of resources for high efficiency in the workplace.
The airline industry faces an even more challenging future, with a tougher operating
environment. As further highlighted by Burns and Scapens (2000), rather than just
seeking to earn a profit in the current period, the company must have a more strategic
focus, leading to the use of an appropriate range of performance indicators. Continuous
innovations in the workplace have enabled the company to mitigate the issues and strive
to achieve best practice for organizations. CSR, once conducted, can also help to create a
good corporate image for the airline and provide the benefits of sustainability.
Limitations and suggestions for future research
The results of the case study are based on findings for one airline and are therefore
difficult to generalize to other settings. However, the research is not focussed on general
issues and challenges, but rather on the turnaround process and successful
management accounting practices; these will have implications for other settings.
Some of the data and information collected were highly classified and could not be
disclosed fully, or have been adapted, in this paper; none of the interview respondents
permitted verbatim copies of proceedings to be made, limiting opportunities for
subsequent content analysis of responses. Some information was hard to validate,
not only due to the sensitivity and confidentiality, but also because of changes to key
personnel. In this respect the findings were limited in the manner suggested by
Moores and Yuen (2001). Furthermore, defining the exact time period for each
of the turnaround stages was problematic, as observed by Liou and Smith (2007),
Smith and Graves (2005) and Sudarsanam and Lai (2001); accounting measurements
might have been subject to accounting manipulation, so that there was a possibility
of a time lag between improvement in competitiveness of the crisis, and the
subsequent profit improvement (Pandit, 2000). Therefore, in determining the
time period for each stage, the researcher has incorporated both personal
observation and the advice of management and external parties. Given these
limitations, the findings of the analysis should be treated with caution with respect
to applications in new case study sites and new countries. For future research,
it might be beneficial to adopt a longitudinal approach to participant observation in
order to examine more directly the stages of the development of management
accounting practices.
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Corresponding author
Malcolm Smith can be contacted at: malcolm.smith@ecu.edu.au
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