The Effect of Discontinuous and Unpredictable Environmental Change on Management Accounting During Organizational Crisis: A Field Study*

Abstract

This study investigates whether and how organizations change their use of management accounting during crisis. The study is important because organizations regularly face significant challenges such as crisis during which the role of management accounting is not well understood. Based on interviews and observation in five private sector organizations and one in the public sector, I find that executives in organizations facing crisis due to a discontinuous and unpredictable environmental change leverage management accounting during the crisis. In contrast, executives in organizations facing crisis due to a continuous and predictable environmental change question the truth and value of their management accounting practices and, as a result, do not change their use of management accounting to manage the crisis. For those organizations that do leverage management accounting, I rely on conceptual and empirical insights from the literature examining the decision-facilitating role of informal management accounting to examine how they adapt or develop new management accounting tools and practices to manage crisis. I find that executives first engage in a comprehensive review of their management accounting systems and reports to convince themselves that they can be relied on. Following this process, they leverage accounting to understand the past, develop metrics intended to reach all employees, and institute various forms of accountability to support the management of crisis. The use of these informal management accounting tools and practices enables organizations to develop a new language for understanding and managing crisis. The primary contribution of my study is that it conceptualizes and theorizes informal management accounting tools and practices as a mechanism that facilitates response to crisis. These tools and practices are low-cost and easy to implement, which are favorable given the challenges associated with crisis.