Title: Author(s): Citation:

Managers, budgets and organisational change: unbundling some of the paradoxes David Marginson, (Manchester School of Management, UMIST, UK), Stuart Ogden, (Manchester School of Management, UMIST, UK) David Marginson, Stuart Ogden, (2005) "Managers, budgets and organisational change: unbundling some of the paradoxes", Journal of Accounting & Organizational Change, Vol. 1 Iss: 1, pp.45 - 61 Budgets, Empowerment, Organisational change, RAPM Research paper 10.1108/18325910510635281 (Permanent URL) Emerald Group Publishing Limited The interplay between accounting and organisational change has been a topic of considerable interest in recent years. This paper is concerned with exploring the ways in which managers attitudes towards budgets may be influenced by processes of organisational change. Traditionally a high reliance on accounting measures of performance has generally been associated with provoking unfavourable reactions from managers on account of the pressure they experience to meet pre-determined budgetary targets, with concomitant dysfunctional consequences for the achievement of organisational objectives. In contrast the paper argues that processes of organisational change, particularly the increasing use of stretch targets and empowerment strategies, may be prompting a more positive disposition towards budgets amongst managers. Drawing on recent research evidence, and building on notions of psychological empowerment, the paper suggests that managers may value the existence of pre-determined budgetary targets as an empowerment facilitator in conditions of uncertainty. This possibility opens up new directions in behavioural accounting research.

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1. Introduction
The interplay between accounting and organisational change has been a topic of considerable research interest in recent years. It is generally accepted that changes in organisational structure or purpose may impact on the organisational use of accounting practices, prompting accounting to become what it was not (Hopwood, 1983). Organisational developments may also invoke re-evaluations of how best to align accounting with transformed organisational contexts through, for example, the creation of new centres of responsibility for costs and/or profits. At the same time, accounting has also come to be seen as capable of playing a more
* Address

for correspondence: Professor Stuart G. Ogden, Manchester School of Management, UMIST, PO Box 88, Manchester, M60 1QD, UK. Email: stuart.ogden@umist.ac.uk 46 Marginson and Ogden/Journal of Accounting & Organisational Change 1 (2005), 45-62

proactive role in processes of organisational change. This proactive role of accounting is made possible through its capacity to articulate changing organisational purposes and priorities, and to mobilise support for them (Hines, 1988; Hopwood, 1983, 1987; Loft, 1986; Miller and OLeary, 1987). Whether promoting the importance of particular kinds of costs or sources of profitability, accounting is able to draw attention to those aspects of organisational activity deemed important while rendering others invisible. Researchers have explored these capacities of accounting in studies of the private sector (Espeland and Hirsh, 1990; Jones, 1992), the public sector (Broadbent and Guthrie, 1992; Chua, 1995; Dent, 1991; Humphrey et al., 1993; Llewellyn, 1998) and in privatised organisations which have been transferred from one sector to the other (Ogden, 1995). While much of the attention given to this proactive role of accounting has focused on its capacity to create a domain of the economic where previously it was absent (Hopwood, 1990), it is equally appropriate to discuss its impact in terms of its capacity to intensify the importance of the domain of the economic where that has already been established. In situations where organisations already subject to market disciplines experience, for example, an increase in competitive conditions, accounting may still exhibit a capacity to influence organisational members perceptions of what is relevant and desirable as organisations seek to respond to the changed circumstances confronting them. This may extend to the ways in which accounting itself is perceived. Nowhere is this more apparent than in managers attitudes to budgetary targets. Traditionally, a high reliance on accounting measures of performance has generally been associated with provoking unfavourable reactions from managers on account of the pressure they experience to meet pre-determined budgetary targets, with concomitant dysfunctional consequences for the achievement of organisational objectives. More recent research suggests, however, that managers may view accounting measures of performance more positively than has been previously suggested, and regard them as providing a challenge (Dopson and Stewart, 1990; Storey et al., 1997; Wilkinson et al., 1997). Such an apparent transformation in managers attitudes may be explored by firstly reconsidering the ways in which previous research has conceptualised managers attitudes to budgets, particularly the degree of emphasis that has been given to the dysfunctional aspects of budgets. Secondly, it is important to consider the ways in which budgeting, and more particularly budgetary targets, have been harnessed to emphasise within contemporary organisations the need for improving performance and enhanced performance achievement. With increasingly integrated business planning and budgetary processes, budgetary targets have fused together ever more detailed market-based conceptualisations of relevant business activities into financial and non-financial performance indicators. Consequently, budgetary targets have come to provide a more comprehensive, and therefore more potent, means of measuring performance improvement and calculating performance achievement. This more intense use of budgetary targets has frequently been elaborated into what may be termed a performance culture through which organisations faced with increasingly competitive environments have hoped to forge new foundations for their economic success. The paper argues that a significant aspect of this assimilation of budgetary targets into a performance culture is the extent to which it has promoted a more positive orientation in managers perceptions of accounting measures of performance. In exploring these issues the next section reviews the ways in which the literature has traditionally addressed managers responses to budgetary targets and their implications for

organisational performance. This is followed by an analysis of how processes of contemporary

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organisational change aimed at improving competitive performance have influenced managers perceptions of accounting based performance measures and controls. The next section considers the ways in which managers perceptions of budgetary controls may be influenced by their experience of empowerment. A final section offers some concluding comments.

2. Review of the extant literature

It has been an enduring assumption in accounting literature that managers dislike budgets. This view has dominated research on the organisational and behavioural effects of budgeting since Argyriss (1952) influential study identified how the use of budgets could impact on the behaviour of budget responsible managers in ways which may be regarded as dysfunctional to the overall achievement of the organisations objectives. While some researchers, such as Hofstede (1968) and Milani (1975), explored the possibilities for ameliorating the negative reactions managers experienced to budgetary pressures through encouraging managers participation in budget setting processes, others, notably Hopwood (1972) and Otley (1978), focused on the ways budgets were used to control and evaluate managers performance. Hopwood (1972) argued that, given the number of inherent problems associated with the deployment of accounting information for purposes of evaluating managers performance, the strict use of budget standards in what he called a budget constrained supervisory style was likely to lead to problems in managing subordinate managers, with dysfunctional consequences for the achievement of corporate goals. Although Otleys (1978) research findings essentially contradicted those of Hopwood, he did not reject the notion that reliance on accounting performance measures (RAPM) could result in dysfunctional effects. Rather, as he had studied the effects of RAPM in the context of an enterprise organised into profit-centres in contrast to the cost-centre based organisation used by Hopwood, he concluded that the extent to which the use of RAPM caused dysfunctional effects was dependent on the context of their use. These pioneering studies about the dysfunctional aspects of RAPM have spawned a considerable literature (see reviews by Brownell, 1982; Kren and Liao, 1988; Shields and Shields, 1998; Hartmann, 2000; Otley and Pollanen, 2000). This literature has sought to elaborate upon the basic premises of the arguments involved, and to develop more sophisticated methods of statistical analysis to determine the conditions under which RAPM is likely to be more, or less, dysfunctional. However, despite the volume of literature that has accumulated, progress towards answering these research questions first raised in the 1970s has been somewhat limited (Otley and Fakiolas, 2000; Otley and Pollanen, 2000). Hartmann (2000), in his comprehensive review of the RAPM literature, invokes a number of critical assessments (Otley, 1980; Briers and Hirst, 1990; Lindsay, 1995; Young, 1996; Chapman, 1997) in pointing to problems with the meaning and measurement of the RAPM construct; the use of methods for data collection and data analysis; the use, or rather abuse, of contingency theory; and limitations in the theoretical development of the issues involved in RAPM. In terms of the latter, Hartmann argues that the emphasis on the negative aspects of RAPM, particularly the concern with role conflict and factors such as job-related tension, has unduly limited the scope of RAPM studies. Hartmann (2000, p.474) consequently suggests that more account should be taken of the functional aspects of RAPM, and that the need for budgetary controls should be considered as well as their feasibility. However, any attempt to reassess the appropriateness of RAPM in terms of its functional aspects should also include a re-evaluation of its dysfunctional aspects.
48 Marginson and Ogden/Journal of Accounting & Organisational Change 1 (2005), 45-62

The dysfunctional aspects of RAPM may be differentiated in terms of the problems associated with the internal logic of APM on the one hand and their effects on managers on the other. While there are undoubtedly limitations associated with APM as performance measures, they may have been unduly exaggerated because of their alleged impact on managers behaviour. Moreover, when viewed from contemporary perspectives of performance management informed by empowerment initiatives and cultures of performance, their significance may be seen as far less of a threat to effective performance management than that originally suggested by Hopwood. As regards the functional aspects of RAPM it is important to take account not only of the purposes it is employed to serve, but also the ways in which managers subject to RAPM may find it useful. In both areas attention needs to be given to the contexts in which RAPM now operates, particularly the impact of the development of cultures of performance and empowerment strategies on managers perceptions of RAPM. Recent evidence suggests that when RAPM is applied rigorously it is generally not only accepted, but also welcomed by managers (Storey et al., 1997). However, even where RAPM is not applied

vigorously, managers may still value the achievement of budgetary targets as functional. This may be explained in terms of the extent to which achieving their budgets may offer managers a degree of security in the face of uncertainties they may experience about what is required of them, particularly uncertainties about their role that may be brought about by empowerment initiatives.

3. Budget constrained styles of supervision and the dysfunctional effects of RAPM revisited
The dysfunctional aspects of RAPM as originally specified by Hopwood (1972) are associated with the supervisory use of budgets in a budget-constrained way to evaluate managerial performance. Hopwoods (1972, p.157) starting point was to identify a number of problems associated with accounting measures of performance when they were used for evaluation purposes. He argued that they were essentially flawed because, firstly, accounting measures did not encompass all the dimensions of managerial performance that might be considered relevant to performance evaluation. Secondly, accounting measures themselves were not particularly accurate, and provided only approximations of the complexity of an organisations cost function. Thirdly, accounting measures only reported outcomes, and therefore took no account of the managerial effort that had been required to achieve them. Fourthly, that accounting measures generally applied only to the short term, and consequently ignored any of the longerterm considerations that may be relevant to the evaluation of managers performance. While there was some awareness of these problems, Hopwood thought that insufficient account was taken of these limitations, and as a consequence accounting controls were not always used in an appropriate manner (p.159) when managers performance was evaluated. This was particularly evident when they were used in what Hopwood termed a budget constrained way, whereby managers are assessed primarily on whether or not they achieved their budgetary targets. The effects of this on managers led to problems such as job related tension, negative attitudes to their jobs and relations with their supervisors, poor relations with the managers peers, and manipulation of data and reporting procedures in attempts to achieve targets. However, although these problems have become closely associated with budget-constrained styles of supervision it is by no means always the case. Otley (1978), who analysed the effects
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of RAPM in a profit centred environment, found that the exercise of a rigid budgetary control style did not lead to increased levels of budget-related tensions. In particular, budget responsible managers did not appear to experience increased levels of stress from the operation of a budget constrained style of supervision. A close reading of Hopwoods analysis suggests that, even in the context of Hopwoods study, these problems are by no means an inevitable consequence of the use of a budget-constrained style of supervision. Rather, the problems arise only when budget responsible managers complain about the use of the budget constrained style of supervision. The objections to the budget constrained style of supervision managers may make, Hopwood argues, arise out of disagreement and conflict between the subordinate and his supervisor over the dimensions, and their values, on which the job is described and evaluated (Hopwood, 1972, p.161). In particular, the cost centre head will on the one hand not gain recognition for his accomplishments on dimensions which he views as important and relevant but which are not reflected in the accounting data, and on the other might be evaluated on dimensions which he genuinely considers to be irrelevant (Hopwood, 1972, p.161). Thus, the extent to which the use of the budget-constrained style becomes problematic depends on how far managers find objection to its use, rather than any inherent feature of its design. Consequently, it is only likely to be a source of conflict, tension and anxiety where a manager sees its use as unjust, to use Hopwoods term (1972, p.161). The importance of managers reactions as the precipitating cause of problems with RAPM is mirrored in the controversies surrounding the application of the controllability principle. It has long been an accepted principle of budgeting that managers should only be made responsible for those costs, revenues and investment that managers are able to influence. Equally it has been argued that failure to observe this controllability principle will create problems with RAPM as a means of evaluation of managerial performance. Managers may feel RAPM is unfair, or unwarranted, if their performance results, and hence their performance evaluation, are influenced by a potential array of arbitrary events and influences over which they have no control. This is deemed to be particularly likely in the context of the use of budget constrained styles of supervision. Hopwood (1972), for example, argued that managers experience of tension and anxiety is likely to increase if they find, in their attempts to improve their performance in terms of budget criteria, some of the costs involved are beyond their control. On

the basis of these arguments, the import of the controllability principle is that RAPM is only appropriate under circumstances where clear-cut lines of responsibility can be drawn. However, while it may be desirable to ensure a manager is only made responsible for those costs revenues and investment that the manager is able to control, there are clearly difficulties in applying the controllability principle in practice (Choudhury, 1986; Merchant, 1998). This is particularly true of complex organisations where the possibility of singling out individual responsibilities is severely limited (Hirst, 1983; Merchant, 1987). Hopwood (1972, p.158) himself acknowledged that this is a difficult, if not impossible, task. The empirical evidence clearly indicates that the principle of controllability is more honoured in the breach than its observance. Otley (1994, p.290), for example, observed that in practice managers are commonly held accountable for a much wider variety of consequences than the controllability principle permits. In view of this evidence it can be argued that the real import of the limited feasibility of applying the controllability principle in RAPM is not so much a question of whether the principle is compromised or not, but how much does it matter when it is. This depends largely on the reactions of those budget responsible managers affected by breaches of the controllability principle.
50 Marginson and Ogden/Journal of Accounting & Organisational Change 1 (2005), 45-62

4. RAPM and cultures of performance

If the dysfunctional effects of applying RAPM are largely dependent on managers reactions to RAPM rather than any inherent aspect of RAPM itself, or how it is used, attempts to alleviate their impact may be focused on changing managers attitudes and need not necessarily depend on changes to RAPM. This has been evident in the increased emphasis that has recently been given to developing within organisations cultures of performance and empowerment strategies. With increasing international competitive pressures companies have had to prioritise achieving performance improvements. Characteristic of corporate responses to these pressures has been the attention given to directing, monitoring and motivating managers to perform more efficiently and effectively in the management of organisational resources. Targets have replaced activities, and emphasis has been given to quality initiatives and notions of continuous improvement as companies have sought to become more performance and market oriented. The setting of demanding performance targets for managers has also involved the mobilisation of a whole panoply of cultural initiatives aimed at persuading managers of the strategic need for such targets, and obtaining their support and commitment to achieving them (Barney, 1986; Deal and Kennedy, 1982; Denison, 1984; Kantor, 1989; Pettigrew and Whipp, 1991; Schein, 1985; Tichy, 1983). In this context, success has been exclusively assessed on the basis of financial results, and bottom line considerations have been paramount. Together these developments have elevated achieving performance targets, particularly financial targets, to the defining attribute of the good manager! In many instances these changes have been supplemented by empowerment strategies. Although definitions of empowerment may vary considerably (Bartunek and Spreitzer, 2001; Wilkinson, 1998), mainstream notions of empowerment have been concerned in one form or another with the delegation of decision making power to subordinate managers. This stands in contrast to what were termed bureaucratic modes of managing, which sought to achieve organisational goals by ensuring managers complied with set procedures and roles designed by senior managers. Empowerment, on the other hand, is expected to contribute to improving corporate performance by encouraging risk taking and innovation (Thomas and Velthouse, 1990), and by unlocking managers creativity, energy, and expertise (Fulop, 1991; Kantor, 1982, 1983). While much has been made of these liberating effects (Peters, 1987, 1992), it is this potential to improve corporate performance that is of most concern to those senior managers with responsibility for introducing empowerment (Lawler, 1986; Manz and Sims, 1980; Eccles, 1993; Hardy and Leiba-OSullivan, 1998). Expectations that performance targets will be stretched and become more challenging have been integral to the processes of empowerment (Argyris, 1998; Peters, 1987; Walton, 1990). While the increased discretion managers have for managing organisational activities together with the removal of bureaucratic modes of control by senior managers through rules and procedures provides the means, there is little doubt that the end to be served is to leave empowered managers with greater responsibility for achieving performance improvements (Ogden, 2003). The extent to which empowered managers are expected to incur greater accountability for achieving set performance targets is explicitly reflected in some of the definitions of empowerment. Graham and Bennet (1992), for example, define empowerment as the process of giving an employee the right to take executive decisions within specified limits, but requiring

that person to assume full responsibility for his or her actions. Moreover, the accountability that accompanies empowerment tends to leave managers with little defence if things go wrong.
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The enhanced discretion managers acquire through empowerment, and the responsibilities that implies, makes excuses for failing to meet performance targets difficult to sustain. There is little doubt that this is intentional. Colling and Ferner (1992), for example, found that one of the functions of empowerment for senior managers is to remove excuses from line managers. Wilkinson et al. (1997), drawing on Munros discussion of accountability, illustrate how accountability is placed on empowered managers in ways which give them no allowable excuses for missing targets they are expected to achieve. This is exemplified in the bald imperative: Its your problem now, you deal with it. The implications for managers of this unforgiving exclusive focus on performance results may be further underlined by revisiting the bureaucratic modes of managing empowerment was expected to replace. Here, the accountability exercised over managers largely revolved around ensuring compliance with pre-determined rules and procedures. In so far as this required definition of the role a manager was expected to perform, along with a detailed job specification incorporating clearly delineated boundaries of authority and scope for action, it externalised the impact of uncertainties on managers performance. Reforming and revising bureaucratic procedures and roles in the light of the impact of previously experienced uncertainties merely served to exacerbate the problems of how uncertainty should be accommodated in any evaluation of managerial performance. In contrast empowerment, with its explicit focus on performance results, not only accepts the presence of uncertainty, but also incorporates it by overtly assigning responsibility for dealing with it to the empowered manager. Within this reconceptualisation of responsibility, dealing with uncertainty is seen as part of the challenges and the stretched targets empowered managers are expected to meet. As a result uncertainty, and its consequences for managing performance, is internalised within the system of accountability exercised over managers. While this may entail breaches of the controllability principle, and incompleteness, or in some cases irrelevance, of using RAPM for evaluation purposes, these imperfections in RAPM, even if acknowledged, are not expected to detract from the empowered managers accountability for achieving set targets. Consequently, for managers to express concern, let alone complain, about RAPM and the significance attached to it is no longer an issue about some unfortunate, or even unjust, side-effects of its operation: rather it is to question the whole basis of managerial accountability, and its links with how corporate success is now assessed. Not surprisingly, those managers who do so, or are believed to be uncomfortable with new regimes of target focused performance assessment, are likely to find their careers prematurely terminated either through dismissal, or more usually through early retirement or voluntary redundancy (Wilkinson et al., 1997; Ogden and Anderson, 1999). The relocation of responsibility for performance with subordinate managers frees senior managers to concentrate on determining what performance targets are appropriate and monitoring progress towards their achievement. The exercise of this accountability at a distance over empowered managers is largely exercised through accounting controls and measures of performance, with budgetary controls to the fore (Ezzamel et al., 1997). Accounting measures of performance focus on the measurement of outcomes thus leaving considerable operational discretion and autonomy to line managers as to how best to achieve pre-defined performance targets. Moreover, APM are attention directing, providing managers with clear unambiguous instructions as to what is required, as well as indicating how it will be assessed (Hopwood, 1983; Ogden, 1995; Roberts and Scapens, 1985). The sophistication of contemporary budgetary controls allow for much greater rigour in the specification of targets to be achieved and more intense scrutiny of managers performance in achieving them. It also allows the exercise of
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accountability by senior managers to become a much more proactive activity, designed and intended to be used as a means of pressuring line managers to achieve more demanding performance targets. In the light of these developments it may be expected that the potential for budgetconstrained styles to generate dysfunctional effects is considerable. However, this is not borne out by recent empirical evidence. Wilkinson et al. (1997) found evidence of managers being enthusiastic about empowerment initiatives, notwithstanding the increased accountability they experienced. The enthusiasm for empowerment initiatives was echoed by managers in the privatised water industry (Ogden and Anderson, 1999). They welcomed the autonomy they now enjoyed, and the challenges that brought in terms of what they were now expected to achieve.

Dopson and Stewart (1990) also found that the majority of managers they interviewed appreciated the extent to which their jobs had become more challenging and enjoyed the additional responsibilities they had acquired. Although their performance was much more visible to superiors on account of new computerised information systems, managers felt that they now had their own clear area of responsibility and more legitimacy to take decisions within the area of which they were responsible and accountable (Dopson and Stewart, 1990, p.18). In these studies there is evidence that while managers are aware they are subject to greater accountability, they nevertheless positively embraced the challenge of meeting the new performance targets they were now expected to achieve. These findings are bourne out in one of the few recent studies of managers to confront these issues directly. Storey et al. (1997, p.174) found that managers were in no doubt that their targets were more tightly defined and that work pressures had increased through a more rapid pace of work and tighter schedules. Nevertheless, they found that managers accepted the need for close control. Storey et al. (1997, p.174) quote one manager typically commenting that he was assessed against weekly sales targets, but he had no problems with this, having entered the job with his eyes open; he also felt that he was highly paid, and expected to have to show that he was earning his salary. Managers generally felt positive about the sense of strong direction from the top, as expressed in the detailed specification and tightness of their performance targets, and welcomed the sense of certainty and mission this communicated. Contrary to the expectations associated with the dysfunctional aspects of RAPM, the degree of close monitoring and evaluation of performance was positively endorsed. Storey et al. (1997, pp.201202) found that tight evaluation was linked to a favourable view of the system of evaluation and that managers were most likely to be strongly motivated when they felt that their companies closely evaluated their activities. Storey et al. (1997, p.203) explain the degree of satisfaction expressed by managers as the result of their belief that companies with demanding targets may appear to know where they are going and what they want from their managers. This was reflected in the fact that being successful in terms of achieving the centrally determined targets that were specified for their business unit was felt by managers to be the most important factor which motivated them. This suggests that the certainty created by the combination of clear goals and well-specified objectives, and a performance evaluation system that is tightly focused on how successfully those objectives have been achieved is not only welcomed by managers but provides a basis for accommodating whatever uncertainties they may encounter in pursuit of those objectives.
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5. Managers commitment to budgetary targets and their experience of empowerment

It is apparent from the examples quoted above that managers response to RAPM and a budgetconstrained style of supervision is not what the traditional literature might predict. Rather than being stressed by such conditions, these managers value the certainty about what is required of them, which is provided by the clarity, and specificity of the goals they are set. There is also support for the use made of budget constrained styles of supervision specifically because they concentrate on evaluating how successful managers have been in achieving their predetermined targets and goals. The two processes are evidently linked, and may be regarded as mutually reinforcing in the context of performance-focused companies. Viewed from this perspective, the absence of such clarity and specificity and the recommendation that companies should consider adopting a more relaxed supervisory style with regard to APM, as envisaged by Hopwoods (1972) notion of a profit conscious style of supervision, may paradoxically cause more problems than it solves. Hopwood (1972, pp.160, 168) argued that the profit conscious style, with its emphasis on evaluation of managers ability to increase the general effectiveness of his units operations in relation to the long run purposes of the organisation, would be valued by managers because of its perceived fairness, and the extent to which it was less unjust than the budget constrained style of supervision. However, these considerations do not seem to be prominent in the preferences of the managers discussed above. At a more generalised level, such positive endorsements of budget-constrained styles of supervision by managers may be partly understood by the intensity of the accountabilities they experience coupled with the acceptance of their appropriateness. However, the impact of accountabilities has to be set alongside the motivational aspects of managers commitment, particularly the positive effects of having clear goals specified in terms of budgetary targets. While budgetary targets have always been deemed capable of providing a motivational impetus

to managers performance (Locke and Latham, 1990; Tosi et al., 1994), they have rarely featured so prominently, or been so strongly endorsed, as in the accounts of managers experience reported by the studies quoted above (Dopson and Stewart, 1990; Storey et al., 1997). One explanation for this may be found by exploring the interface between managers appreciation of the certainty and clarity provided by budgetary targets and their experience of empowerment. Such a relationship at first sight seems likely to provoke a clash of opposites, since the rigidity associated with the operation of budget constrained styles of supervision is not particularly conducive to encouraging managers to utilise creatively the increased discretion associated with empowerment initiatives. However, the motivational support managers draw from the clarity and certainty of budgetary targets may in fact operate in ways which enhance their experience of empowerment and help them to cope with some of the unwelcome side effects empowerment initiatives may produce. In exploring these issues it is firstly helpful to draw a distinction between different notions of empowerment (Liden and Arad, 1996; Menon, 2001; Siegall and Gardner, 2000; Spreitzer, 1995; Wall et al., 2002). While empowerment is usually associated with a set of managerial practices largely concerned with devolving decision-making to subordinate managers in order to provide them with more autonomy and control over their work, a considerable body of research has focused on understanding, and conceptualising, what has come to be termed psychological empowerment. Psychological empowerment is seen as a distinct concept, which is concerned with the internal processes of the individual being empowered (Menon, 2001,
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p.154). In particular it is identified with the increased task motivation that may result from an individuals positive orientation to his or her work role, and the conditions that are deemed necessary for enhancing such intrinsic motivation (Conger and Kanungo, 1988; Thomas and Velthouse, 1990; Spreitzer, 1995). Four factors have been shown to comprise the psychological side of empowerment. These are impact, competence, meaningfulness and selfdetermination (Thomas and Velthouse, 1990; Spreitzer, 1995). Impact refers to a persons perceptions of being able to make a difference in terms of accomplishing the purpose of a particular task. Competence is about self-efficacy, which refers to a persons belief in her or his ability to perform successfully a particular task or activity. Meaningfulness involves a persons intrinsic caring about a given task. Self-determination involves a persons sense of choice in initiating and regulating actions, such as making decisions about work methods and effort. All four components are deemed important in contributing to a persons sense of empowerment (Spreitzer, 1996). Moreover, as Spreitzer et al. (1997) have argued, a person must experience all four in order for the organisation to achieve desired performance improvements. These four dimensions of psychological empowerment appear to be shaped by, and can be influenced through, the organisational environment. Siegall and Gardner (2000) suggest that organisational factors such as communication with the supervisor, general relations with the company, teamwork and concern for performance will prove instrumental in creating an environment which the manager will view as conducive to empowerment. Low role ambiguity, strong socio-political support, access to information and a participative climate have also been associated with perceptions of greater empowerment (Spreitzer, 1996). It follows, therefore, that an absence of these factors will reduce the capacity for the manager to feel psychologically empowered. For example, poor communication and poor general relations with the company may reduce the impact he or she feels able to make (because of poor relations, the manager is reluctant to make a difference); limit the managers feeling of competence (s/he is unable to confirm that s/he is doing the task well); dilute his or her intrinsic concern for the task (poor relations with the company have soured job satisfaction); and compromise the degree of choice he or she may exercise (s/he may not understand fully what their goals are, and how they contribute to the organisations success and therefore be unable to make informed choices as to how best to achieve them). However, the presence of clear budgetary goals and clear instructions to meet these goals may serve to counter or compensate for the absence of one or more of these contextual factors, thus restoring the managers sense of empowerment. A sense of impact may result from achieving budgetary targets as they are seen as organisationally important (Merchant, 1998). Competence may be demonstrated by the level of success achieved in meeting budgetary targets. Meaningfulness may be experienced through the commitment shown and intrinsic concern felt by the manager for the achievement of budgetary targets. Selfdetermination may be enhanced by the choices a manager has to make in pursuing budgetary targets and from the sense of independent responsibility he or she acquires for achieving them

through the operation of responsibility accounting (Ezzamel and Hart, 1987). In essence, the very fact of having something to aim at combined with the certainty of being assessed as to how successful you have been in pursuing it may contribute to a managers feeling empowered. This capacity for budgets to act as a broad surrogate for the type of contextual variables that have been associated with psychological empowerment makes it a potentially ideal empowerment facilitator. Perhaps the most potent example of this functional role is the extent to which budgets may counteract the effects of any role ambiguity managers may experience. Spreitzers (1996) results indicated that low role ambiguity was the contextual factor with the
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strongest relationship with empowerment perceptions by her sample of middle managers. Role ambiguity may arise where an individual is unsure about the expectations of himself or herself that others may have. Spreitzer (1996, p.487) elaborates this as follows: According to role theory, every position in a formal organizational structure should have a clear set of responsibilities in order for management to provide appropriate guidance and direction and to ultimately hold subordinates accountable for their performance (Rizzo, House and Lirtzman, 1970). If people do not know the extent of their authority and what is expected of them, they will hesitate to act (that is, lack self-determination) and thus feel unable to make a difference (that is, lack impact) (Sawyer, 1992). Moreover, the boundaries of decision authority must be clear so that individuals can feel confident (that is, competent) about their decisions, rather than fearful about potential repercussions for decisions made under ambiguous authority (Conger and Kanungo, 1988). More specifically, clear task requirements and low levels of uncertainty are purported to be related to feelings of competency (Gist and Mitchell, 1992) because individuals understand what needs to be done. Consequently, where role ambiguity is present it may undermine managers perceptions of empowerment. However, where this occurs, budgets, and more specifically budgetary targets, may provide an ample source of compensation. The clear goals, tasks and lines of responsibility that are seen as key factors for empowerment (Spreitzer, 1996) are also quintessential characteristics of RAPM. The very mechanistic credentials of budgetary control which have for so long been viewed somewhat disparagingly may be an important support in enabling managers in contemporary organisational settings to experience psychological empowerment. The need for this role of budgeting to counter role ambiguity may become all the more important in circumstances where empowerment itself, albeit inadvertently, may contribute to the presence of role ambiguity. Although Spreitzer (1996) argues strongly that empowerment requires low role ambiguity, empowerment may paradoxically be implicated in creating the opposite. Spreitzer (1996, pp.485, 487) herself argues managers who have supervisors with wide spans of control with limited supervision of subordinates decision making, and experience organisational environments characterised by decentralised decision making are likely to have enhanced experiences of empowerment. However, while both factors are deemed to be part of the opportunity structure that will promote empowerment, in contrast with excessive bureaucratic constraints which may create passive mind-sets in managers, they may also contribute to uncertainty and produce role ambiguity. More generally, it has been argued that empowerment initiatives concerned with providing managers with more discretion in decision making require a degree of operational uncertainty if managers motivated to act in an empowered way are to have an opportunity to do so (Wall et al., 2002). The presence of such uncertainty may, however, also contribute to role ambiguity by blurring the lines of responsibility within an organisation and creating a lack of clarity about what is required. As Wall et al., observe (2002, p.163): Ironically, high levels of operational uncertainty may interact with empowerment practices to reduce perceived empowerment, since role ambiguity has been hypothesised to constrain empowerment cognitions, particularly the efficacy component (Spreitzer, 1996). Those managers who experience such role ambiguity may invoke coping strategies in an attempt to regain clarity and structure to the role (Kahn et al., 1964; King and King, 1990). Committing to meeting their pre-determined budgetary targets provides
56 Marginson and Ogden/Journal of Accounting & Organisational Change 1 (2005), 45-62

a plausible and potentially rewarding coping strategy (Marginson and Ogden, forthcoming). Budgets offer a ready-made structure and certainty which may be easily embraced by managers anxious to reduce role ambiguity (Hofstede, 1968; Macintosh, 1995; Ronen and Livingstone, 1975). In the light of these considerations, it may be argued that the development of organisational initiatives to create more empowered managers, and to enhance managers perceptions of

empowerment in pursuit of performance improvements, may help to explain managers more positive attitude towards budgetary control in contemporary organisational circumstances. Budgets can serve an important role in facilitating psychological empowerment, and in providing a coping strategy against the experience of role ambiguity.

6. Concluding remarks
The arguments presented above provide a plausible explanation for managers apparent liking for RAPM and budget constrained styles of supervision as suggested by recent empirical research. Managers operating in contemporary organisational settings may be more positively disposed towards budgets because they view the mechanistic control mechanisms they involve as functional. They are seen as providing goal clarity and a degree of stability in organisational environments which can often be affected by high levels of uncertainty and instability, especially where organisations face highly competitive and fast changing conditions. Budgets may act as an anchor or focal point and provide the basis for a coping strategy to counter the experience of role ambiguity. Moreover, the achievement of clearly defined performance targets will provide managers with a sense of impact on and commitment to organisational objectives as well as demonstrating an acceptable degree of managerial competence, all of which may enhance their feelings of empowerment. These functional roles that budgets may play in managers work experiences have received relatively little attention to date, and are largely absent from considerations of organisational change (Marginson and Ogden, forthcoming). This perspective on budgets certainly provides a marked contrast with the rather negative view of budgets that has long underpinned the RAPM literature. This is not to say that accounting controls no longer have the potential to create dysfunctional side effects as managers look towards budgets for stability and certainty in contemporary organisational circumstances. Although Hopwoods (1972) original findings about the impact of RAPM on managers may never have been universal in their applicability, they nevertheless continue to merit consideration in any assessment of the behavioural effects of budgets on managers practices. The dysfunctional consequences of budgets described by Hopwood may retain a sufficient presence as to exercise considerable influence over the achievement of organisational objectives. Nevertheless, these considerations now need to be set alongside the ways in which managers may positively value budgets. Paradoxically, however, this positive appreciation of budgets may well generate a new set of budget related issues which may prove as problematic as those identified by Hopwood. While budgetary control exercised through the setting and achievement of budgetary targets remains an organisational imperative, organisations faced with fast moving hyper-competitive environments may have to increasingly encourage their managers to operate with the flexibilities advocated by the supporters of empowerment initiatives if they are to survive. This need for flexibility may extend to the budget, as managers are obliged (or even encouraged) to consider forgoing initial budgetary
Marginson and Ogden/Journal of Accounting & Organisational Change 1 (2005), 45-62 57

targets in order to take advantage of unanticipated opportunities as events unfold. These flexibilities, however, may create degrees of uncertainty that may prove unwelcome to managers, and thus provoke a rigid commitment to predetermined budgetary targets that is inimical to the operation of the desired flexibilities. Consequently, we may still arrive at a budgetary problematic, but one that is distinctly different from that which previously prevailed in the RAPM literature. Rather than focus exclusively on the negative effects of the imposition of budget constrained styles of supervision on managers, researchers now need to also consider the effects of managers positive disposition towards budgets in conditions of organisational uncertainty, and their implications for attempts to introduce more flexible ways of managing.

References
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