THREE DIMENSIONS OF FORMAL AND INFORMAL FEEDBACK IN MANAGEMENT ACCOUNTING

HANNA PITKANEN & KARI LUKKA Department of Accounting & Finance, Turku School of Economic
Presented by: JAIZAH BINTI ABDUL JABAR

Objective of the study

To refresh and extend the discussion of formal and informal feedback in management accounting (MA). The discussion will cover the existence, dimensions and interplay between formal and informal feedback processes in MA. Research question: what kind of formal and informal feedback practices are there in MA and how they are related to each other?

Definition of feedback

Feedback can be defined as signal, mechanism and process which control the system within itself. Feedback may comprise any evaluative and corrective information about operations and performance or about work behavior. Feedback aims at motivating behavior towards a desired behavior
VARIANCE FEEDBACK ADJUSTMENT

View of the feedback as a loop between performance and goal

GOAL ACHIEVEMENT To keep the control entities within the intended paths of development

GOAL CONGRUENCE

To direct individual behavior towards organizational goals

GOAL REVISION

To learn and make changes as organizations and individuals seek to improve their performance

Dimension of formal and informal feedback

DIMENSION Source dimension dealing with pathways through which feedback flows FORMAL FEEDBACK Feedback provided through management accounting system (MAS) INFORMAL FEEDBACK Person-to-person feedback

Time dimension dealing with when certain flows of feedback operate

Rule dimension dealing with why certain flows of feedback are provided

Scheduled and planned Spontaneous feedback feedback

Obligatory feedback

Voluntary feedback

How managers acquire and use formal and informal feedback

Managers test their behaviour against standards using feedback sensed from the environment. According to Ashford et al. (2003), people are especially reluctant to give negative feedback informally, since spontaneous feedback given without a clear role mandate could violate social manners. If managers believe that employees are selfinterested, opportunistic, and ill-informed, they are unlikely to pursue much informal feedback from their subordinates. Managers are found to ask for feedback more actively from their superiors than from their peers or subordinates

Research methodology

Interview of 19 people which consist of senior and middle managers of Division Steelco located in Finland and also some seniors managers from the headquarters. Division Steelco is a steel product supplier. Interviews also supported by official disclosed materials as well as internal documents.

Introduction for feedback practices in Division Steelco

The new CEO encouraged to pay stronger attention to customer needs. Contribution margin, pricing and customer satisfaction became important. Strategy and business model changed:Formal accounting measure + Daily operative decisions requirement

Characteristics affecting the formal and informal feedback: a) Size of the company Flows of feedback may end up somewhere in the middle b) Culture The company may has good system but lack of discussion and face to face communication
The company changed their feedback culture to be more customer-oriented and outward looking.

Findings Source Dimension

Formal meeting which reports monthly performance considered as formal feedback. However, the feedback is considered insufficient. Therefore, the managers seek for the meetings which not only include discussion but also observation of peoples reactions and other non-verbal communications. The managers also found problems with formal feedback (SAP project) since it caused extra work. One way communications (e-mail) was only useful for informing, while management need interactive feedback channel (team meetings).

E-mail formalises feedback by storing and verifying messages while feedback given person-to-person travels with the persons involved. The research decided that formal or informal feedback can exist together.

Time Dimension

The company has pre-planned, regularly scheduled, and hierarchically reported monthly as controlling tools. (Master Plan) Another formal feedback practices producing coherence between organisational and individual goals are performance appraisal reviews, including face-to-face interviews. Besides regular reports, performance appraisal interviews, and meetings, a large amount of feedback mediates between managers spontaneously or in the moment. The features of being instant and irregular, unsystematic, or detached from the pre-planned official management schedules bring in features of informality, even if these reports are system-based or codified in explicit, numerical or verbal form.

Rule Dimension

The rule dimension was rather dominant in Division Steelco. This is due the history of its strongly hierarchical culture. Therefore, future challenges of feedback practices in Division Steelco were especially linked to informal, cultural issues. Even in cultures that are more hierarchical, formal reports alone do not bring balance to feedback. In Division Steelco, eventhough the information systems are improving and people receive plenty of system-based information, but still many suffer from not getting enough informal feedback.

Discussion

Source dimension - System based feedback is bound to and originates from accounting and other information system SAP system and CRM database - Interpersonal feedback given and received between people is more subjective and tacit. - Management group or team meeting - Interpersonal feedback allows the observing of a broader scale of feedback loops, such as non-verbal communication (gestures, facial expressions and body language).

Time Dimension
Regular feedback
is based on procedures for providing feed- back systematically in certain time periods E.g, monthly reports

Instant feedback
Instant practices allow faster responses to changes and assist in everyday management and real-time operative decisionmaking.

Rule Dimension Obligatory feedback

relates to hierarchical accountability relations between superiors and subordinates and is based on official operating procedures E.g, monthly performance reports for the headquarters

-- Voluntary feedback - requires an active attitude at the individual level

- Hence, it is connected to personal relations and networks, personal abilities, styles and preferences that offer and receive feedback

Conclusion

It is viewed that instead of treating formal and informal feedback as a strict dichotomy, in practice they are similar (continuum) This study indicated that there maybe two contradictory interpretations of formality depends. In our case, the rule dimension was surprisingly dominant in defining formal feedback, while the prior literature included clearer definitions of formal and informal feedback associated with source or time dimensions

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