A Field Study on the Acceptance and Use of a

New Accounting System

Jamshed J. Mistry
Suffolk University

Ranjani Krishnan
Michigan State University - Department of Accounting & Information Systems

V.G. Narayanan
Harvard Business School

A Field Study on the Acceptance and Use of a New Accounting System

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We thank our research partners for their participation. We appreciate the comments of
workshop participants at Michigan State University.

Abstract

This study examines the attitudes, use, and acceptance of a new accounting system in a
pharmaceutical corporation that switched from an Activity Based Costing System to the
Theory of Constraints System (TOC). Using structuration theory as a framework, we posit
that user responses and attitudes towards TOC are influenced not only by the technical
features of the system and the potential economic benefits, but also by the fit between TOC
and the existing structures of the users environment. When users interact with TOC on an
ongoing basis they form interpretations of the new system and based on such
interpretations, they exhibit actions with respect to the use of TOC ranging from
championship to rejection of the system. We explore cross sectional variations in the use of
the system and link such variations to the practical features of the new system as well as
the social structures of the users environments.

A Field Study on the Acceptance and Use of a New Accounting System

1. Introduction

This study examines the adaptation, acceptance, and use of a new accounting
system in a firm. It uses structuration theory and a practice lens to posit that organizational
users responses, attitudes, and use of a new accounting system are driven by the fit
between the system and the existing structure and agency of the users environment, as
well as the interactions between the users and the system on an ongoing basis. Such
interactions in turn are influenced by the users existing knowledge set, prior training,
professional norms, expectations, and beliefs related to the new system. Based on such
interactions, users form interpretations of the new system and exhibit a set of actions with
respect to the system. These actions range from championship of the new system to active
rejection of the system.
The practice perspective on structuration examines how people interact with a
system (such as a new technology or a new accounting system), and in the process of such
interactions, construct structures that shape their use of the system (Orlikowski 2000). This
perspective recognizes that it is not just the mere presence of the system (the material),
or the use of the system by humans (the social) that drives the outcomes from the
system. Rather it uses the notion of constitutive entanglement, i.e., the social and
material are inextricably linked. Through repeated interactions, people shape the rules and
resources, and are in turn shaped by them, which drives the outcomes.
Our analysis is based on a field study of a leading pharmaceutical company
headquartered in Asia. This company instituted a TOC system based on the principles of

Goldratt. The TOC system supplanted a standard costing and ABC accounting system and
was met with mixed response from the managers. The new system changed the focus of
the organization from cost minimization to a focus on maximizing throughput and
inventory turns. In addition, at the recommendation of the consultants who marketed the
new system, the firm also changed its performance measurement and incentive
compensation system for sales personnel from individual, ABC-based targets to divisional,
TOC based targets.
We conducted a series of field visits and interviews with key personnel and elicited
their views of the new system. There was variation in the responses of managers to the new
system as well as their use of the system. While some managers enthusiastically embraced
the new system, others were passive or resistant. We demonstrate that the acceptance and
use of each manager is based not only on the economic benefits of the new system but also
on their professional norms, interpretive schemes, and performance measurement systems.
Over a period of time as people engage in interactions with the TOC system, and as the
TOC system interacts with the existing accounting and control systems, as well as the
social norms of the user groups, cross sectional variations occur in the use of the TOC
system as well as attitudes towards the system.
We begin by documenting four types of responses to the TOC, i.e., active
resistance, resistance, acceptance, and championship, as well as identifying the drivers of
each type of response, and their implications for the acceptance of the TOC system.
Evidence from structured field interviews suggests that the primary drivers of a positive or
negative response to the system are changes to the performance measurement and incentive

system, power structure, and the match of the new system to the structure and professional
norms of each department.
Finally, we use field evidence to systematically document via empirical
illustrations that the same system is enacted in different ways in different departments and
that such differences arise as a result of the interaction between the TOC system with the
structure and agency of each department, notably, the structural properties of the social
systems, the facilities, the professional norms, interaction patterns, and codes of conduct,
and interpretive schemes of managers in the department. For example, the most active
resistance to the TOC system was exhibited by the HR and sales departments. The roots of
the resistance were however, different in each department. The resistance of HR arose
from skepticism about the data and technology driven nature of the TOC. Traditionally,
the HR department had a people orientation and a qualitative approach to problem solving,
and this structure emanated from as well as was reinforced by the professional norms of
the department which included a people based problem resolution, consultative processes,
and a non-blame culture. In addition, the performance measurement system in the firm
evaluated HR based on its ability to meet recruitment and retention goals, and the VP of
HR was concerned that the new culture would alienate people and lead to higher turnover.
The resistance to TOC in the sales department emerged from a different source, i.e.,
a change in the performance measurement system from individual bonuses to divisional
bonuses. This created a dissonance in the department, which had hitherto focused on
individual goals and targets, and placed pressures on their professional environment which
had traditionally emphasized goal orientation, individuality, and personal ambition.

In contrast to sales and HR, the TOC system was enthusiastically championed by
the Supply Chain and IT departments. The TOC system was a perfect fit with the
information intensive environment and the analysis orientation of the supply chain
department. In addition, the TOC system brought the performance measures that the
supply chain department had traditionally focused on, i.e., inventory turnover and
shortages, to the forefront of the firm. For the IT department, which had a preference for
objectivity, logic, and speed of information dissemination, the TOC system brought
perceived clarity in decision making, and emphasized decision making based on objective
data. Thus, consistent with structuration and practice theory, the acceptance and use of the
TOC system in each department was a function of three conditions, i.e., conventional
understandings and shared meanings (interpretive conditions), practical features of the
system (technological conditions), and social structures and norms (institutional
conditions).
This study contributes to the accounting literature by providing a nuanced
characterization of the factors that drive the acceptance, adoption, and attitudes to a new
accounting system. It provides field testing of a theory that has been underutilized by
accounting literature, i.e., structuration and practice theory. Structuration has been used by
extant research to study technology adoption in firms; its use in the context of an
accounting system enhances understanding of the agency as well as social factors driving
accounting system adoption and use.
The reminder of the paper is organized as follows. Section 2 discusses the theory
and research questions, and Section 3 describes our research setting and process of study.
Section 4 provides the insights from our field interviews. Section 5 concludes.

2. Theory and Hypotheses

Although managerial researchers agree that accounting and control systems have
technical, economic, behavioral, as well as social implications, there is limited research in
the extant analytical, archival, and experimental accounting literature of the study of social
implications. Accounting and control systems such as budgeting, cost allocation,
performance measurement, and incentive compensation systems have largely been studied
from a deterministic perspective, whereby it is posited that the economic or technical
characteristics of accounting systems interact with behavioral factors to cause outcomes. A
large body of research in this area has explored how accounting and control systems
should be designed, and how they influence the firm and the people who use them. The
economic based view considers the design of accounting and control systems so as to
motivate managers and minimize agency losses from hidden action or hidden information
(see see Lambert [2001] for a review), whereas the behavioral view focuses on departures
from the economic optimal arising from judgmental and cognitive limitations of decision
makers (see Luft and Shields [2003] for a review).
Recently, the information systems literature has used a structuration perspective
which examines the interaction between people, structures, and technologies, and
recommends using a recursive, practice oriented lens (Orlikowski 2000). Initially
conceptualized by Giddens (1979), structuation is defined as the process by which social
structures (whatever their source) are produced and reproduced in social life (DeSanctis
and Poole 1994: 128). Structuration considers human action as an essential element, and
focus is placed on human actions that embed structures (rules and resources) within a

system (such as a new technology) during the development phase, as well as the actions
involved in appropriating the structures at the time of the use of the system (Orlikowski
1992, 2000). The focus of structuration is on gaining a better understanding of the sociopolitical process by which structures are embedded within a system (Giddens (1979, 1984).
Adaptive Structuration Theory (AST) focuses on the variations that occur when
advanced systems are used (DeSanctis and Poole 1994). AST examines organizational
impacts of new systems arising from two sources. The first is the structural potential,
which in turn has two components, i.e.., structural features and spirit. Structural features
refer of the type of structures that are provided by the new system such as the specific
rules, resources, and capabilities. Spirit refers to the users interpretations about the values
and goals of the new system. The second factor driving variations in outcomes is
structures that emerge in the course of human interactions with the system. In the process
of interacting with the system, the users make judgments and decisions regarding the
extent of use of a system, its interaction with the other systems in place, and the extent to
which the system is consistently used over time. Desanctis and Poole (1994) refer to the
process by which a rule or a resource within a system is brought into action as
appropriation of the structure. These appropriations are not mechanistically chosen, but
rather selected by users and likely to have cross sectional and temporal variations within
and across user groups. The factors that influence a user groups appropriation of structures
include interaction patterns in user groups including leadership styles, the group members
knowledge and experience with the structure, members beliefs about the knowledge set of
other users, and the extent of intra-group agreement on how the structures should be
appropriated. For example, a user group could observe a similarity between a structure of a

new system and other structures of the same system or other pre-existing systems, which
can evoke positive or negative reactions.
A modified approach to structuration has been recommended in recent literature
which considers human actors involvement with a structure not as appropriation but rather
as enactment. This view, which is termed as the practice lens on structuration considers the
structures of a system not as embodied within the system but rather as emerging when
individuals interact with the technology and through such interactions shape and modify
the technology (Orlokowski 2000, 2002). Thus technology or accounting structures are not
independent, external, and waiting to be appropriated, but rather are constituted and reconstituted via human engagement with the system.
The practice perspective suggests that when people use a system, the interaction
between the structure and human agency drive the acceptance and use of the system. The
structural component of a system includes the properties of the system as developed by the
designers, and other structures that are enacted in the course of the use of the system via
interactions. Agency includes users interactions with the material aspects of the new
system as well as the influence of other existing systems, social norms and codes of
conduct, and users assumptions and knowledge about the system.
Structuration theory and accounting
Structuration theory has been used to examine the context of management
accounting within the social structures of an organization. Macintosh (1994) argues that
because the structuration framework relies on social theories that describe, explain, and
analyze the social world and practices involved in complex management accounting and
control systems, it enables a better understanding of the social context of management

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accounting. A comprehensive understanding of managerial accounting and control systems

requires us to create a more detailed analysis of such social practices. Structuration
facilitates such analyses via its incorporation of the social theories of signification and
communication, domination and power, and legitimacy and morality (Macintosh, 1994).
In contrast with other social theories, structuration includes both structures and
agency. Macintosh (1994) posits that by including these two concepts, structuration
combines the structuralist position (the abstract codes that guide our behavior) and the
existentialist humanist position (the actions of individuals as they interact with each other
in organizational settings). The result of this combination is a process where social systems
sometimes function to almost automatically reproduce the status quo, while at other times
they undergo radical change. This focus gives credence to the dynamics of history and
change, and the ability of both to influence social interaction in organizations. Thus, the
framework provides a more comprehensive analysis of management accounting and
control systems, and helps explain intricacies that are beyond the scope of most other
frameworks. The value of structuration goes beyond the financials of a company as it
enables organizations to not only communicate financial numbers, but also reveals the
social codes related to power and morality (Macintosh and Scapens (1990).
In his review of structuration theory and its implications for management
accounting research, Busco (2009) suggests that the theory conceptualizes a way of
making sense of social life in an organization. He argues that structuration is useful in
exploring how management accounting systems can be implicated in processes of learning
and culture change in an organization. Busco (2009) combines struturation theory with
Giddens (1991) more recent thoughts on modernity to identify how management

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accounting systems can be utilized as socially constructed objects of trust for the
processes of change. Although such a trust will not guarantee that change will occur or
occur in some desired direction, it might increase the possibility of replacing trust in the
predictability of routines with trust in the change process.
Structuration provides a useful theoretical lens to study the adaptation and use of a
new accounting system such as TOC. Figure 1 provides a theoretical framework for
understanding cross sectional variations in the extent of use and the patterns of use of a
new accounting system such as TOC using a structuration perspective. The structure of
TOC in practice refers to the enactment of the TOC system to daily managerial activities.
Structure includes rules, regulations, frequency of use, and patterns of TOC use (or nonuse) in accomplishing work activities. The overall structure of TOC use is influenced by
other structural sub-components such as culture, goals, and hierarchies. In enacting TOC
structures, individuals draw on existing measurement and control system, professional
norms, routines, and habits in their group or department, and their assumptions and
knowledge of past actions. We test the framework in figure 1 using field data. The next
section describes our field research setting.
3. Research Setting
The setting for our study is a publicly traded pharmaceutical company (BPharm)
located in Asia.1 BPharm produces and distributes pharmaceutical and proprietary drugs,
with 80% of sales generating from outside its home country. It employs over 10,000 staff,
of which about 20% are scientific staff and hold advanced degrees. In 2007, after a number

The name of the company has been disguised to preserve anonymity.

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of years of anemic growth in margins, BPharm employed a consulting group (CG) to assist
in improving performance.
After preliminary meetings with the top management, CG recommended two new
initiatives, one for Operations and the other for Product Development. Both initiatives
were based on the philosophy of the Theory of Constraints (TOC). The next sub-section
describes the basic principles of TOC, followed by the process of implementing TOC at
BPharm.
3.1 Theory of Constraints
The Theory of Constraints (TOC) is based on the principle that the strength of any
chain, process, or system is dependent upon its weakest link Goldratt (1989). TOC
focuses on three key performance measures: throughput, inventory, and operating expense.
Unlike traditional accounting systems which focus on production and therefore consider
inventory to be an asset until sold, TOC emphasizes on the rate at which the firm generates
income through sales, rather than through production. TOC is a significant departure from
absorption costing and defines inventory as the money invested in goods that the firm
intends to sell or material that the firm intends to convert into salable products. TOC does
not recognize the concept of value-added and overhead. TOC defines operating expense as
all funds that the firm expends on converting inventory into throughput. It argues that to
optimize, a company needs to decrease inventory or operating expenses and increase
throughput. Anything that may hinder a company from accomplishing this goal should be
considered a constraint.
A constraint may be external or internal. An internal constraint exists when the
market is demanding more from the system than it can provide. An external constraint is

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evident when the systems supply is more that the market can accommodate. TOC
recommends that the firm identify the root causes of the constraints and investigate ways
to remove the constraint.
3.2 Theory of Constraints at BPharm
In the spring of 2008, BPharm started implementing the TOC based on Consulting
Groups recommendations. The first program, i.e., Project Management focused on the
process of developing a drug and bringing it to market (R&D and New Product
Development). Senior management divided this process into three stages, i.e., development
stage, integration stage, and filing stage. The development phase included the development
of the drug in the lab, the bench scale, and the pilot test of the product. The integration
phase involved executing the exhibit batches in the manufacturing facility for conducting
bio-studies. In this stage, the drug was tested further on humans before it could be sent to
the Food and Drug Administration in the U.S. (for example) for approval. The filing stage
comprised of three parts: pivotal studies (bio studies on humans), stability studies (in lab)
and the preparation of the registration documents. The filing phase included the
preparation of the registration document and ended with the filing of the product with the
Food and Drug Administration in the U. S. or the European regulatory authorities. Finally,
in the last stage the drug was sent to the approving authority for approval.
Initially, the management team determined that the weakest link in the chain (i.e.,
the constraint) was integration as they had several projects in queue for integration. They
determined that their capacity was four projects per month or forty eight each year, as this
was the maximum that the manufacturing team could handle in the integration phase. As
one product moved out of this phase (leaves integration) another one could be put into the

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system (termed as the virtual drum). However, they subsequently found that the primary
uncertainty was in the development stage as it involved developing the drug prototype and
it was difficult to predict accurately the amount of time (cycle time) needed to develop a
new product. The development phase involved multiple loops of the bench scale, lab scale,
and a pilot bio-study. Each loop was termed an iteration and management determined
that each process took, on average two and a half iterations or seven and a half months (as
each iteration took an average of 3 months). Thus, management determined that the release
of projects should be controlled based on work in process in the development phase as this
was the weakest link in the chain. Finally, it was also determined that the number of
iterations that could be completed would determine the number of projects that could be
worked on in a given year.
In the area of new product development, CG placed higher emphasis on execution
as opposed to planning. CG advised BPharm that an emphasis on execution would enable
the company to finish the project on time, assure a smooth flow projects, reduce
multitasking, and enable early identification of problems so as to be able to take the
necessary corrective actions. Multitasking was especially problematic at BPharm; too
many projects were being executed simultaneously, which placed pressure on people and
resources. CG also recommended BPharm reduce the number of projects to lead to better
flow and throughput.
To manage the project portfolio, three metrics were tracked, Due Date Performance
(i.e., the project was finished on pre-determined due date), cycle time of projects from start
to finish, and throughput (i.e., number of projects completed per unit of time). A new
system was introduced to manage the product development process. This system (The

15

Critical Chain Project Management or CCPM), managed the distribution of workload and
set priorities for tasks. No other changes were made to the strategy or the structure of the
organization.
Another focus of the TOC was inventory management. Based on CGs
recommendations the following actions were implemented. First, inventory turns was
identified as the critical metric to be tracked on a daily basis. Second, the company moved
from a system of forecast based planning to consumption based planning. Thus, inventory
was not stocked based on forecasting, but rather based on replenishment, with buffers built
at various stages of the supply chain. The inventory levels in the buffers were tracked by
colors to facilitate replenishment. Black indicated zero inventory, red indicated that
replenishment was immediately required, yellow indicated that replacement would be
required soon, and green indicated that inventory was at a comfortable level. The inventory
status was required to be updated on a daily basis. The metrics tracked included Stock-out
%, Quality of Data Upload, Primary Sales, Secondary Sales, Inventory Turns, and Manual
Orders. In order to implement this initially, a number of distributors in the domestic
country were asked to computerize the inventory replenishment cycle by joining the
companys MYSAP system.
3.3 Field Data Collection
The author team conducted a series of structured in-depth interviews with BPharm
managers during the summer and fall of 2009. An additional set of interviews were
conducted in the summer of 2010, primary for clarification and collecting additional data
regarding the TOC program. The interviewees included: the Senior Vice President of
Human Resources (VP-HR), the Vice President of Information Technology (VP-IT), the

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Executive Vice President of R&D and Product Development (VPR&D), the Vice
President of Supply Chain Management (VP-Supply Chain), the Senior Director of Sales
(SD Sales), the Managing Director and Chief Operating Officer (MD- COO), and the
CFO. The objective of the interviews was to obtain information about the dynamics of the
TOC implementation in each department. We sought to obtain managers involvement in
the TOC process and their perceptions regarding the implications of the system for the firm
as well as their individual departments. The interviews, which lasted between 45 minutes
and two hours per interviewee, were recorded and transcribed by a professional
transcribing firm.
4. Evidence and Analyses
4.1 TOC in BPharm
Senior management of BPharm had exploratory meetings with Consulting Group in
early 2008. CG conducted a 10-day workshop the next month in with the senior
management group. Consistent with the tenets of TOC, Operations and Product
Development were identified as the critical areas of focus. During the workshops, BPharm
managers were appraised that TOC represents a significant departure from the existing
standard costing and conventional overhead allocation system in the firm because it does
not recognize the concept of overhead. Furthermore, unlike Activity Based Costing, TOC
does not recognize the importance of classifying costs into value added and non value
added. For optimal performance, TOC argues that it is critical to decrease inventory or
operating expenses and increase throughput. Any activity that hinders a company from
accomplishing this goal is labeled a constraint and the goal is to reduce these constraints.

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After an analysis of the existing processes via preliminary group interviews with
managers, Consulting Group identified inventory turns as the critical performance metric
to be tracked. Implementation began in early summer 2008, and in addition to inventory
turns the following performance measures were tracked on a daily basis: Stock-out percent,
Primary Sales (i.e. sales to stockists or distributors), Secondary Sales (sales by stockists to
the final customer which may be a hospital or a patient), and manual orders (orders not
generated by the on-line system designed by Consulting Group). The TOC implementation
was piloted in one state with 19 distributors (BPharm had a total of over 8,000
distributors). Over the next few months, the TOC was implemented for 1,100 distributors.
At the time of the interviews, TOC had been in place for over one year.
Examination of pre- and post-TOC operational and financial data provided the following
insights: (1) Number of projects completed increased significantly, (2) Number of days
sales outstanding decreased from about 200 to about 21, (3) Market share and revenues
remained relatively constant at about 2.5%, and (4) Profit before extraordinary items
remained relatively constant at about 20%. Interestingly however, managers had widely
varying views about the extent to which TOC was being used, the success of the TOC, and
the future of TOC. Some managers indicated that the TOC had been a success and brought
a huge improvement to important operational metrics, while other managers had opposite
views. The following sections analyze the cross sectional variations in how different
departments in BPharm enacted TOC. We link the differences in TOC practice to the
differences amongst departments in their structure with respect to rules, authority, and
orientation, and differences in agency such as performance measurement systems,
institutional factors such as professional norms, and interpretive schemes such as

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assumptions or knowledge that users draw upon when enacting the structures and systems
in practice.
4.2 Variations in Enactment of TOC
Our field interviews indicated mixed reactions to the TOC, with some departments
unequivocally supporting the system, others actively resisting the system, and some
departments passively accepting or opposing the system. Through our field interviews, we
were able to glean information about the drivers of the users attitudes towards the system
and observe the enacted TOC in practice.
4.2.1 CEO reactions: TOC as a means for aggressive growth
Interviews with the CEO demonstrated that he viewed TOC as a vehicle for
achieving a high level of growth for the firm. The CEO, who had been appointed in 2001,
was dynamic and goal oriented and his personality matched the lead consultant at CG. The
CEO was impressed by CGs claim that TOC was the only means of achieving the firms
growth targets. The strong technical orientation of TOC appealed CEO who had an
engineering degree and an MBA from premier institutions at the US. Under the CEOs
leadership BPharm witnessed remarkable growth via mergers, acquisitions, and joint
ventures, which transformed the company from a mid-sized pharmaceutical to a global
giant by 2009.
The CEO actively supported the TOC and agreed with its philosophy:
The focus is on improving the system as a whole. If you increase throughput
without increasing your operating expenditures, that will lead to better
results. TOC recommends that first, you must focus on what is constraining
the flow. Second, you choke the release of projects, otherwise that will clog
the system. Third, reduce multi-tasking because efficiency dramatically
slows down when people multitask.

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The CEO viewed the TOC as not only a means of achieving growth, but indeed of being
the only mechanism that would enable the company to grow. This is evidenced by his
response to the interviewers question regarding TOC vis a vis ABC:
I think that it [ABC] will lead to local optimization. If you see the entire
system as a whole, only then it will work. If you see each activity, cut it,
chop it, and see it in isolation, you will be misleading. You will be doing
improvement, no doubt, but you will improve something that will not impact
your bottom line.
The CEO viewed road-blocks to growth as constraints. He was of the opinion that any type
of restriction to growth was to be tackled immediately and aggressively, and as a result the
TOC system of color coding the inventory levels, and immediate attention to metrics was
consistent with his vision regarding the means for achieving growth. His focus was on the
efficiency of the system as a whole. He viewed the TOC as aligned with the organizing
structure of a growth oriented organization, and as supporting his role as providing the
essential leadership to enable the growth. He viewed the role of the performance
measurement and control system as providing an understanding and encouraging employee
effort towards system efficiency and system growth, rather than efficiency and growth of
individual areas. Because of his leadership orientation, he had a tournament model of
competition, where the primary goal was to get ahead.
In course of his interactions with the TOC several benefits of TOC became
immediately salient to the CEO. These included, a decrease in stockouts, a reduction in
project cycle time, and increase in the rate of project completion. As a result, the CEOs
belief in TOC was strengthened. TOCs highlighting of bottlenecks and focus on
eliminating constrains appealed to his professional norms and shaped his interpretation of
the system and his championship of the system (Figure 2).

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4.2.2 HR reactions: TOC hampering qualitative and people orientation

The human resources (HR) department was critical of TOC. Not only did they view
it as less than useful to their structures and practices in place, but they also regarded it as
contrary to HRs people orientation. The VP of HR was articulate in his criticism of TOC,
commenting: I would not have driven the change this way. He viewed the TOC as driven
by very very hard core logic based approach without an understanding of the qualitative
factors and the views of the people who use the system and are measured by it. He was
unimpressed by the lead consultant at CG, who he described as: a bull in a china shop
personality. His belief in the qualitative orientation of HR was reflected a number of
instances in his conversation:
A lot of issues that I seem to be picking up are more from a qualitative
sense as people talk to me.
In addition his people orientation was also apparent:
People are not speaking up when they need to speak up. We are
pretending to be the emperors new clothes. If [CEO and COO] are not
able to see the body language of people I think we should not call ourselves
a very perspective organization.
[During the meetings with the CG, our people were] totally switched off.
Not a word was said. I see it happening every time and question myself,
what does this silence mean?
We are talking about human beings, we are talking about emotions, we are
talking about vulnerability, sensitivities, and in my view, change is more
like an emotional process and less like a logical process, at least change of
the people kind.
The VP HR believed that CG had bullied the top management to buy into their
system, without an adequate understanding of its suitability. He sensed a rebellion in the
ranks however he felt that people would not speak up arising from respect for the CEO

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and other top managers. One primary concern he had with the TOC was its focus on hard
metrics designed by the consultants, instead of more holistic and people-oriented goals
such as recruitment and retention. The metrics put in place by TOC were completely
different from his goals as well as his operating style and as a result he was open in his
rejection of the metrics as: sheer nonsense and absolute drudgery.
In the course of the implementation of the TOC, the VP HR perceived that TOC
was hindering his retention goals.
In doing this we have gone to other extremes almost like a mercenary. For
example, I have started losing people in my research organization. One
very senior person who left recently was telling me, and again he was very
guarded, that my worry is that in this company I think people have enjoyed
freedom of speech, I suddenly feel people are not speaking up, which is a
far more disastrous consequence even beyond just TOC. People are just
not wanting to speak up.
Silence could be acquiescence, silence could be indifference and my worry
is if this goes on it will be like this guy who left said [omitted name] my
fear is you will still lose some more scientists.
HRs rejection of TOC was not only driven by their disagreement with the goals
and metrics that were the focus of the system, but also because the process of TOC
implementation was not based on participation and consultation. Not only was HR not
involved at any stage in the TOC implementation process, but in the opinion of the VP HR,
others in the organization were also not involved. Anyone who expressed skepticism was
not given a careful assessment and instead a few people pushed the system through. The
VP commented, I dont think you know you can build and institutionalize a change
process by fatwa.
In summary, in their practice of TOC, HR people based their non-use on the fact
that the TOC was ill suited with their qualitative orientation and people orientation, which

22

were the structures in place in HR. In addition, the metrics proposed by TOC were
misaligned with HRs metrics of recruitment and retention. As a result, the TOC-based
metrics were not tracked by HR. Institutionally, TOC was not a fit for the consultative
norms and practices in place in other HR systems. This lead to the interpretation that TOC
could change things for the worse and lead to poor buy in of the system (Figure 3).
4.2.3 Sales Reactions: TOC as shifting the planning and control system
We interviewed the Vice President in charge of Branded Formulations, the Senior
Director of Marketing, as well as sales managers from the sales department. Our interviews
with the Senior Director of Marketing at BPharm revealed that the pharmaceutical industry
market in Asia where BPharm operated has some unique features. First, the market was
very fragmented. For example, there was only about a 4% difference in market share of the
company with the largest market share and the company which was the 15th in terms of
market share. Second, prices were regulated by the government, and as a result the
pharmaceutical firms competed on discounts provided to stockists. The stockists usually
waited until the end of the accounting period to place orders because they could negotiate
large discounts. Finally, a large part of the business was based on the personal relationship
between the sales representative and the stockist.
BPharm had a sales force of 2,500, including managers and sales representatives.
Before the TOC was introduced, the primary roles of the sales department were to generate
new customer relationships, to generate prescription demand, and stock replenishment. The
stock replenishment function was based on ex ante planning and forecasting, in which the
entire sales force participated. Sales representatives had targets for the territories that they
operated in, and were compensated based on sales relative to individual targets. About

23

20% of their total compensation was based on individual commissions based on meeting
territory targets.
The TOC introduced three significant changes to the sales function. First, the
incentive structure for the sales representatives was changed from individual incentives to
divisional incentives. Second, the basis of incentives was changed from primary sales
(sales to stockists) to secondary sales (sales by stockists). Finally, sales representatives
were no longer responsible for the stock replenishment function, but only responsible for
generating sales demand. These changes caused the sales force to react negatively to the
TOC as discussed below.
After the TOC, all the sales representatives in a particular division were paid the
same percentage incentive based on whether the divisional targets were met. Therefore, a
sales representative could be doing an excellent job managing customer relationships and
meeting targets, however, the division may be trailing behind and as a result the sales
representative would not obtain any incentives. The VP HR argued that change in
incentive system from individual incentives to group incentives was causing a higher
turnover amongst the sales representatives than earlier.
The other change to the incentive system i.e., the commission based on secondary
sales, as opposed to primary sales also caused considerable confusion and a lack of buy-in.
The Senior Director of Sales remarked on the reactions of the sales representatives:
So I have my own anxiety whether my prescription is getting sold or not,
and because of this fellows [stockists] mistake of not providing the
material in time and in right quantity, I should not be held responsible for
falling short of my secondary sales quota.

24

Our interviews revealed that the sales division was even more skeptical about the
other change introduced by the TOC whereby the sales representatives were no longer
responsible for stock procurement but only for prescription generation. Stock procurement
was fully automated and based on the level of consumption and position of buffer stocks.
The sales representatives viewed this change as a loss of control over an important aspect
of their work. This was evidenced several times in the course of our study:
11 months back a rep was generating prescriptions with his right hand and
with his left hand he was procuring the stocks for that, so he had control on
both. Now today youve told him, that you not only have your right hand to
generate prescriptions, you now also have your left hand to generate
prescriptions so please put more effort there and trust somebody else to get
that. Now it is the trust which is difficult for people to immediately come
to You have lost control, so youre anxious So currently we are trying
to bring down the anxiety level and trying to bring in much more trust
between the prescription side and the demand fulfillment side. (Senior
Manager, Global Analytics Team).
So now were saying that trust somebody else to do that job as well or
better than what you used to do, so you put more time and devote more
attention on prescription generation. That is something youre changing - a
habit. Youre changing a habit of focusing only on one side of the job,
which is your core job. And youre changing another habit which is trusting
somebody else to do a very good job. And unfortunately if you look at the
history of last 2 3 years, there have been some cases in which supplies
have been really messed up. Only a few cases, but unfortunately people tend
to only remember exceptions (Senior Director, Sales).

An additional issue that arose after the TOC was implemented was that as a result
of separating the procurement and the prescription generation function, and tying
replenishment to consumption, sales representatives were no longer forecasting.
Previously, forecasting was a means of communication of information from the field up to
the organizational chain. In addition, a problem was that not all customers could come on
board with TOC because of lack of IT infrastructure. The Senior Director of Marketing

25

was of the opinion that the TOC was implemented in a hurry and as a result, a fullfledged pilot was not conducted. Such a pilot would have revealed problems in the field
such as the customers lack of IT infrastructure. Therefore the sales representatives were
facing a challenge as commented by the Senior Director of Marketing:
If there are a large number of customers who are not on TOC and if theyre
into a forecasting habit, their habits are not changed, theyll continue to
place orders at the end of the month.
Finally, sales representatives were concerned that the TOC was not resulting in an
increase in sales revenue or margins. The Manager of the Corporate Analytical team
commented:
During the initial stages of our project, we had a different expectation. We
thought that the result would be immediately striking our eyes. Now we
have such mixed results, like in some pockets we can see very good results,
and improvements and in some pockets you see downward trend.
Because we know the outcome is not there, so were trying to redefine what
the problem is. Where are we going wrong? CG is trying to tell us where we
went wrong but sometimes they come up with requirements which I find a
bit impractical. For example expecting 100% discipline from all
distributors who are in TOC is very very impractical.
In summary, the sales department viewed the TOC as introducing a major change
in the performance measurement and incentive system, as well as reducing the
controllability of a key aspect of their task. Over time, the TOC did not manifest in an
improvement to their departments performance because of implementation difficulties. As
they interacted with the TOC, they perceived problems with it, especially with regard to
the expectations imposed by TOC over the behavior of their distributors and customers.
This lead to a resistance of the system, which increased over time as problems emerged in
the field during implementation (Figure 4).

26

4.2.4 R&D Reactions: TOC as reducing multitasking and improving completion rates
The R&D department at BPharm handled the development of new products and
formulations. There were 4 R&D heads, including one each for North America, Europe,
the rest of the world, and one for formulation development. Each head managed from 25 to
40 projects at any point in time. Each project manager was allocated a certain number of
projects to manage and coordinate with other functional departments. The focus of the
performance measurement system was on fulfilling process control protocols and
completing projects. The R&D employees were not compensated based on their individual
performance, but rather paid a bonus based on the overall performance of the organization.
The R&D department had a team orientation and a culture of managing issues by debate
and discussion.
The R&D department was one of the focus points for the TOC. Because timeliness
could have a huge impact on the market share of the project, the CCPM that was
introduced as a part of the TOC was helpful in keeping the momentum of projects moving
forward. CCPM played three key roles in improving the efficiency of the R&D
department controlling the release of projects, managing priorities, and timely support
for issue resolution. The Executive VP of R&D (EVP-R&D) viewed CCPM as very useful
in improving the completion rates for projects and increasing efficiency of processes by
reducing multitasking. There was a significant improvement in the rate of project
completion, measured by the department as due date completion. This was an important
metric and tracked weekly as well as followed closely by all the employees in the
department. The EVP-R&D commented that as TOC was implemented, the due date
completion metric showed steady improvement: a 25% improvement was observed

27

immediately on implementation, and by the end of the year the improvement in this metric
was about 55%. He also observed an overall increase in productivity due to reduction of
multitasking, and as a result of the combination of the two factors, the EVP-R&D
perceived an increase in employee satisfaction:
Now that we are controlling the release of the projects, whatever project we
start, goes through the completion phase much faster. So we are able to see
the completion of the project much faster in this environment compared to
the past and that creates better satisfaction.
At the same time however, the EVP-R&D was cautious about the success of TOC
and felt that not all the employees had changed their thinking as a result of the TOC:
There is still lot of work that needs to be done in the implementation. What
we have implemented is essentially the procedures, but in terms of the
peoples mindset, a lot of work needs to be done. Habits have to be
changed. All of us have the habit that the more things we do, we see
ourselves as a much better individual than doing one thing at a time. I dont
know whether its a habit or a culture all around, we see people preferring
to do many things at the same time, rather than trying to focus on one thing
at a time. So we need to build a culture of avoiding multitasking, working
really only with the priorities, and in supporting or resolving the issues and
finding the right solutions to issues that block the flow of the projects. So a
lot of work needs to be done in terms of people management processes.
However, the EVP-R&D was clear that the TOC was beneficial for his department
and confident that the change in mindset would occur and that he would facilitate the
process.
In summary, TOC was successfully implemented and enjoyed a high buy-in in the
R&D department. TOC was a good fit with the quantitative, individualistic, and task
orientation of the R&D department. Important R&D metrics like due-date completion and
number of projects completed became salient. In addition, as TOC was implemented and
users interacted with it, the R&D department was able to observe immediate improvements

28

to efficiency. Not only were these efficiencies highly visible (such as due date
performance) but over time as people interacted with the TOC, these efficiencies further
increased. While on the one hand the TOC improved efficiencies in an important metric,
on the other hand it did not cause any disruptions to the performance measurement system
or to the power structure within the department. Because R&D was one of the focus points
of the TOC, it bought higher visibility to the R&D department from the organization as a
whole. As a result, R&D was supportive of TOC and was interested in facilitating its
success (Figure 5).
4.2.5 Supply Chain Reactions: TOC as reducing improving efficiency and transparency
Supply chain at BPharm was responsible for planning, sourcing, and logistics.
Before the TOC was implemented, supply chain used a monthly planning cycle, which
resulted in a forecast. Stocks were replenished based on the forecasted demand versus
current stocks. Inventory management had been a huge task for supply chain because some
areas had inventory shortages (which resulted in lost sales) while other areas had excess
inventory (and associated carrying costs). Moreover, the production departments also used
their own forecasting and as a result priorities across departments differed. The supply
chain department entire focus was on management of inventory and speed of inventory
turns was an important performance metric. Inaccuracies in demand forecasting were
manifested in the form of excess inventory or inventory shortages. In addition, supply
chain had an information intensive orientation and speed of information dissemination was
of the essence.
The TOC changed the planning process from production based on forecasted
demand to production based on consumption. Forecasting was no longer critical; rather

29

speed of replenishment was of the essence. This removed an important element of

uncertainty and errors for the supply chain department. In addition, other departments now
had to align with the supply chain department, which contributed to an increase in the
power of the supply chain department. The VP of Supply Chain (VP-SC) remarked:
We used to have our own priorities, every function and department used to
have their own priorities of production or procurement kind of things.
Today everything is governed by the consumption so everybody sees the
same priority.
The TOC system brought a high level of visibility to the supply chain department. The
metrics that were routinely tracked by supply chain, i.e., stock movement, sales movement
etc., were now in the forefront of measurement of performance of the entire firm. VP-SC
remarked:
Today you have total visibility end to end of the system if you open the
system, anybody who is authorized can see the system end-to-end.
Further, he remarked that inventory performance was now considered a joint
responsibility, and supply chain was no longer help completely accountable for shortages.
Production departments now had to look at consumption and plan accordingly:
When there are issues and when there are shortages there is a law there is a
faster response, a collective response, where everybody knows that, you
know, the moment the stock becomes zero it becomes black. So one of the
objectives what we take is, how to eliminate those blacks from the system.
So everybody looks at blacks, you know in the chain. Everybody tries to see
what part, what help he can do. Since it is visible and then it is faster,
otherwise if it is not visible than people have to push. Somebody some
planning guy and some supply chain guy has to push somebody to get it
done. So that became much easier.
When questioned about the lack of tangible financial results from the TOC system,
the VP-SC was convinced that the benefits from TOC will eventually accrue for BPharm
because the focus was now on the important metric, i.e., inventory:

30

The revenue increase will be so substantial that whatever benefits we used

to get with activity based costing will be very minimal compared to that.
You cannot focus on all of the things.
In summary, TOC increased the visibility of the supply chain department and
brought the departmental metrics to the forefront of the organization. At the same time it
diffused the responsibilities of stock outs and excess stocks from the supply chain
department to the organization as a whole. Finally, TOC system was information intensive
and as users interacted with it, it increased the speed of information dissemination, which
was consistent with the culture of the supply chain department. As a result, supply chain
was highly supportive of the system and championed it in the rest of the organization
(Figure 6).
4.2.6 IT: TOC as reducing improving speed and transfer of data
Obtaining and disseminating demand and supply information from the distributors
in a timely and efficient manger was one of the primary goals of the IT department at
BPharm. The IT department had an objective and data-intensive focus, and speed and
relevance of data transfer was of the essence. The TOC system had two benefits for IT.
First, it increased the speed of transfer of data, which greatly reduced information
dissemination lead times. The Executive VP of IT (EVP-IT) remarked:
The manufacturing constitutes a significant lead time of the total supply
chain lead time till we sell it to the customers. With [TOC] we know there
can be tremendous gain in actually shrinking lead times and I am trying to
put a lot of stress on reducing lead times to some ridiculously low level so
that its difficult for others to really match the service. Our inventory is in
our SAP. So when our [Location Omitted] warehouse sells to the customer,
it allows for automatic buffer management system. So that integrates with
SAP. If the buffer is changed, it flows into SAP and generates process
orders. So the whole drudgery of data processing is out so people have to
only obey what is coming there. Purchase people have to only open the

31

computer and see in morning, what orders to place. There is no forecast, no

hassle. Get the order and get them in the lead time which is promised.
The second benefit of TOC for the IT department was that it increased the visibility
of IT performance. As a result, there was clarity and objectivity in decision making, which
was consistent with the objective mind-set of the IT department. The Vice President of
Formulations and TechOps remarked:
You can see the result at the end, you know stock outs have come down,
visibility has improved. Of course that exposes a lot of things which we
were not knowing before and it has brought a lot of clarity in decision
making even on the shop floor as well as even the management of
operations. Earlier you know many decisions were absolutely subjective,
you know there is some launch and somebody will say why dont you invest
this. There is no commitment from anywhere. With strategist artistry and
the strong logic build behind is allows us you know in a very transparent
fashion, take decisions.
Finally, IT was convinced that the success of the TOC was dependent on the
expertise of IT. The IT department spent effort on integrating TOC with other systems in
the organization. As a result, from being a service function, IT became a function which
was at the forefront of the organization, and the contribution of IT to the success of the
system became very salient. The Vice President of Formulations and TechOps remarked:
The IT infrastructure is very critical. [SVP-IT] made that comment right at
the beginning: no IT without IT. Without IT I dont think we would have
been able to implement with the speed with which we did.
Therefore, the TOC system was highly championed by the IT department because it
was a good fit to the information intensive and objective orientation of the department, it
increased the salience of the IT function to the rest of the organization, and it increased the
speed of response to issues that arose in the field during implementation (Figure 7).
5.0 Conclusions

32

A new managerial accounting system that emphasizes a different set of measures

from the status quo system is a major change for any organization. The managerial
accounting system can change the way performance is measured and rewarded, it can
change the manner in which decisions are made, and it can shift the focus of the
organization to a new direction. As a result of a new managerial accounting system, power
structures can be altered in the firm, and work processes may change towards greater or
lower efficiency. In this field study of an Asian pharmaceutical firm, we examine the
introduction, use and acceptance, of a TOC-based accounting system that replaced an
Activity Based Costing and Standard Costing system. We use structuration theory to
demonstrate that employees responses, attitudes, and use of a new accounting system are
influenced by how the system fits into the users knowledge sets, training, professional
norms, expectations, and beliefs related to the new system. In addition, as users interact
with the system they either form new interpretations of the new system or confirm their
existing beliefs about the system. As a result, users make conclusions regarding their
acceptance of the system, which can include a high buy-in and championship of the new
system on the one end, to active rejection of the system on the other end.
The structuration framework, although relatively underused in accounting, enables
us to obtain a deeper understanding of management accounting practices (Baxter and Chua
2003, Coad and Herbert 2009). Structuration recognizes that organizational systems
(including accounting and control systems) do not just include the material aspects, but
also include social aspects. Such social systems in turn both enable and constrain human
agency (Coad and Herbert 2010). The systems that emerge as a result of the interactions

33

between the social and material aspects can be different from the original and can drive
users reactions to the system.
Our field interviews suggest that consistent with the practice perspective on
structuration, when users interact with an accounting system they construct structures that
shape their use of the system, which drives the outcomes from the system including usage
and acceptance of the system. We document variation in users responses to the new
system as well as their use of the system based not only on the economic benefits of the
new system but also on users professional norms, interpretive schemes, and existing
performance measurement systems.
Like any field study, our study is also subject to problems such as researcher bias
and generalizability. Regarding researcher bias, it is possible that our interpretation of the
results was limited, and that we ignored other factors, although this risk is present in all
types of methods. Although the field environment provides an opportunity to explore
qualitative and behavioral issues in great depth than other methods, we do not presume that
our results generalize to other settings. However, by using a field study, we are able to
provide a richer characterization of the factors that drive the acceptance, adoption, and
attitudes to a new accounting system. Furthermore, the application of structuration theory
can generalize to other settings where new accounting system is introduced.

34

References
Baxter, J., Chua,W.F. 2003. Alternative management accounting research whence and
whither. Accounting Organization, and Society 28: 97126.
Busco, C. 2009. Giddens structuration theory and its implications for management
accounting research. Journal of Management and Governance 13: 249-260.
DeSanctis, G., and M. S. Poole. 1994. Capturing the complexity in advanced technology
use: Adaptive structuration theory. Organization Science 5(2): 121-147.
Giddens, A. 1979. Central Problems in Social Theory: Action, Structure and Contradiction
in Social Analysis. Macmillan, London.
Giddens, A. 1984. The Constitution of Society. Cambridge, Policy Press, London.
Giddens, A. 1991. Modernity and self identity: Self and society in the late modern age.
Cambridge: Policy Press, London.
Goldratt, E. 1989. The Goal: a process of ongoing improvement. 2nd Edition: MA: North
River Press.
Lambert, R. 2001. Contracting theory and accounting. Journal of Accounting and
Economics 32: 3-87.
Luft, J., and M. Shields. 2003. Mapping management accounting: graphics and guidelines
for theory-consistent empirical research. Accounting, Organizations and Society
28: 169-249.
Macintosh, N.B. 1994. Management Accounting and Control Systems An organizational
and Behavioral approach. New York: John Wiley and Sons.
Macintosh, N.B. and R. W. Scapens. 1990. Structuration Theory in Management
Accounting. Accounting, Organizations and Society, 15(5): 455-477.

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Orlikowski, W. J. 1992. The duality of technology: Rethinking the concept of technology

in organizations. Organization Science 3(3): 398-427.
Orlikowski, W.J. 2000. Using technology and constituting structures: A practice lens for
studying technology in organizations. Organization Science 11(4): 404-428.
Orlikowski, W.J.. 2002. Knowing in practice: Enacting a collective capability in
distributed organizing. Organization Science 13(3): 249-274.

36

Table 1
Types of Responses, Drivers, and Implications

Type of
Response

Interest in
Success of
the System
None

Performance
Measurement
and Incentives
Substantial
Change

Power
Structure

Process
Consequences

Structural
Consequences

Substantial
alteration

Resist change

Low

Substantial
change

Some
alteration

Acceptance High
(R&D)

No Change

Some
alteration

Champions
(IT, supply
chain)
CEO

Very high

Some change

Substantial
alteration

Very High

Potential for
change

Change
based on
potential
outcomes

Change in
emphasis of
existing
processes
Change in
emphasis of
existing
processes
Increased
process
efficiency
Increased
process
efficiency
None

Active
Resistance
(HR, Sales)
Resistance
(CFO)

Do not support
change

Support
change
Highly support
change
Highly support
change

37

Figure 1
Enactment of TOC in Practice

S
t
r
u
c
t
u
r
e

A
g
e
n
c
y

TOC in Practice
Other structures
Interacting with
TOC
Focus of PM and
Control System

Professional Norms

Interpretive Schemes

Poor buy-in
Buy-inand
andattempt
understanding
at understanding
of systemsystem

38

Figure 2
Enactment of TOC in Practice - CEO

S
t
r
u
c
t
u
r
e

A
g
e
n
c
y

Growth atmosphere
Leadership
TOC in Practice
Other structures
Interacting with
TOC
Focus of PM and
Control System
-

System Efficiency
System Growth

Professional Norms

Interpretive Schemes

Tournament model
Getting ahead

TOC helps zoom

in on bottleneck
TOC eliminates
constraints

Poor buy-in
High
andchampionship
attempt at understanding
of system system

39

Figure 3
Enactment of TOC in Practice HR
S
t
r
u
c
t
u
r
e

A
g
e
n
c
y

Qualitative Orientation
People Orientation
TOC in Practice

Focus of PM and
Control System
-

Recruitment goals
Retention goals

Professional Norms

Interpretive Schemes

People based problem

resolution
Consultative processes
Non-blame culture

Skepticism toward
a single measure
System can change
things for the
worse

Poor buy-in and attempt at understanding system

40

Figure 4
Enactment of TOC in Practice Sales
S
t
r
u
c
t
u
r
e

A
g
e
n
c
y

Target Orientation
Individual Orientation
TOC in Practice

Focus of PM and
Control System
-

Individual targets
Extensive ex-ante
planning
Control over
procurement and
sales

Professional Norms
-

Goal orientation
Emphasis on
Individuality
Ambitious culture

Interpretive Schemes
-

Skepticism toward
a group measure
Skepticism toward
a capped bonus
Loss of control on
key aspect of task

Poor buy-in and attempt at understanding system

41

Figure 5
Enactment of TOC in Practice R&D
S
t
r
u
c
t
u
r
e

A
g
e
n
c
y

Task Orientation
Deadline Orientation
TOC in Practice

Focus of PM and
Control System

Professional Norms
-

Work-flow controls
Clearly defined
individual priorities

Issue based support

resolution
Single task focus (not
multi-task)

Interpretive Schemes
-

TOC viewed as a
tool for reducing
multitasking and
improving
completion rates

High buy-in and aim to understanding system

42

Figure 6
Enactment of TOC in Practice Supply Chain
S
t
r
u
c
t
u
r
e

Information Orientation
Planning Orientation
TOC in Practice

Focus of PM and
Control System
A
g
e
n
c
y

Professional Norms
-

Inventory shortages
Inventory turns
Speed

Information intensive
environment
Analysis orientation

Interpretive Schemes
-

TOC viewed as a
tool for improving
efficiency and
transparency

High buy-in and aim to understanding system

43

Figure 7
Enactment of TOC in Practice IT
S
t
r
u
c
t
u
r
e

Logic Orientation
Objective Orientation
TOC in Practice

Focus of PM and
Control System
A
g
e
n
c
y

Professional Norms
-

Speed of
information
dissemination
Buffer management

Clarity in decision
making
Decision making
based on objective
data

Interpretive Schemes
-

TOC viewed as a
tool for improving
speed and transfer
of data

High buy-in and aim to understanding system

44