ERP systems and management accounting change

European Accounting Review 2003, 12:1, 201-233

ERP systems and management accounting change: opportunities or impacts? A research note Robert W. Scapens University of Manchester and University of Groningen Mostafa Jazayeri Manchester Metropolitan University Manuscript first received: January 2001. Manuscript accepted: November 2002

ABSTRACT Enterprise resource planning (ERP) systems, such as SAP, have become widely used in recent years, especially in large companies. Although a considerable amount has been written about them in the professional accounting and computing literature, somewhat surprisingly comparatively little attention has been given to them in accounting research journals. However, the field studies which are beginning to appear suggest that ERP systems are having only a relatively moderate impact on the character of management accounting and the work of management accountants. However, it is argued in this paper that as such studies adopt a relatively 'static' approach, they do not explore the processes of management accounting change or study how opportunities are opened up by the implementation of ERP systems. The paper reports a longitudinal case study of the implementation of SAP in the European division of a large US multinational, in which management accounting change is viewed as an evolutionary process. In this case, although there were no fundamental changes in the nature of the management accounting infonnation used following the implementation of SAP, there were changes in the role of management accountants - in particular: (i) the elimination of routine jobs; (ii) line managers with accounting knowledge; (iii) more forwardlooking information; and (iv) a wider role for the management accountants. However, it is not claimed that SAP was the driver of these changes; rather it is argued that the characteristics of SAP (specifically, its integration, standardization, routinization and centralization) opened up certain opportunities and facilitated changes which were already taking place within the company. The paper ends with a call for further longitudinal case studies of the implementation of ERP systems to study how these

Address for correspondence Professor Robert W. Scapens, School of Accounting and Finance, University of Manchester, Manchester M13 9PL, UK. E-mail: [email protected] Copyright © 2003 European Accounting Association ISSN 0963-8180 print/1468-4497 online DOI: 10.1080/0963818031000087907 Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA

202 European Accounting Review characteristics facilitate and reinforce processes of management accounting change in other companies.

1. INTRODUCTION According to Alsop (1998) we are now in the age of 'networked computing'. He uses this term to distinguish the current phase in computing from the earlier phases of frrst, 'big computing', when centralized mainframe computers were the realm of the computer specialist, and then subsequently 'personal computing', when computing became a more decentralized and individual activity. The age of networked computing emerged when the computer industry developed ways of connecting PCs into larger systems using client-server technology, which paved the way for integrated information systems, and especially, enterprise resource planning (ERP) systems, such as SAP, Baan, Oracle and PeopleSoft. Although implementing ERP systems can be very expensive, and require large project teams, they have become widely used; initially in large companies (see Curran et al, 1998), and more recently also in medium-sized companies. Furthermore, developments in Internet technology have enabled ERP systems to he used for information sharing with suppliers and customers, and new ERP-based applications are emerging: for instance, salesforce automation, customer relationship management, data mining and supply-chain management systems (see Caldwell and Stein, 1998). A considerable amount has been written ahout ERP systems in the professional accounting and computing literature, but comparatively little attention has heen given to this phenomenon in accounting research joumais. This may seem somewhat surprising as such systems are claimed to have significant implications for accounting, and especially management accounting practices (for examples see Anastas, 1997; Wagle, 1998; Henson, 1997). An ERP system comprises a set of integrated applications modules, which span most business functions (including accounting). Each module accesses many different business processes, each of which is based on so-called industry best practice. All the modules are frilly integrated and users can access real-time information on all aspects of the husiness. However, the integration means that data entries in one part of the system can have consequences throughout the system. As a result it may be necessary to change ways of working, and especially the relationships between different functions. This means that business process re-engineering ofren accompanies the implementation of an ERP system. It has heen argued that ERP systems can be an important driver for corporate re-engineering, as they are structured around husiness processes, rather than functions (e.g. O'Connell, 1995). This, it is suggested, creates a tendency towards horizontal, rather than vertical, forms of integration, and to an increased need for team working and information sharing. Henson (1997) argues that such changes are likely to place new requirements on accountants and accounting systems, and Wagle (1998) believes that ERP systems will reduce the need for

ERP systems and management accounting change: a research note

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accounting personnel in both frnancial reporting and the provision of management information. However, Anastas (1997) claims that such systems will enhance the role of management accountants and frnancial managers, and that they will become advisers or internal consultants to other managers. He argues that ERP systems are likely to reduce the number of people in the frnance and accounting flinction, as line managers will have the facility and knowledge to manage their own costs and budgets. Nevertheless, according to Anastas, there will still be a need for at least some management accountants and financial managers to advise and support these managers. Such arguments about the impact of ERP systems on management accounting have appeared largely in professionally oriented accounting joumais, and rather less attention has been given to the subject in the academic accounting literature. However, Scapens et al. (1996a), in a study of the relationship between extemal reporting and management accounting, argued that advances in computer technology and the integration of operating control systems with management information systems, mean that managers can have online access to the information they need to control all aspects, including the costs, of their operations. Thus, as managers can access a great deal of information for both decision support and control, they do not need to wait for the periodic reports produced by management accountants. Although their study was not specifrcally concemed with ERP systems, the same line of reasoning could be used to suggest that the introduction of ERP systems might have important implications for the nature of management accounting, the role of the management accountant and his/her relationship with operating managers. However, some studies are now beginning to appear which have attempted to identify the impact of ERP systems on management accounting (Fahy and Lynch, 1999; Maccarone, 2000; Booth et al, 2000; Beretta, 2001; Granlund and Malmi, 2002). In general, these studies are frnding that ERP systems are having relatively limited impacts on management accounting and management accountants. For example, Granlund and Malmi (2002) conclude that 'ERPS, contrary to many expectations, seem to have had little impact on both the management accounting methods and managerial controls used'. However, a distinction needs to be made between the characteristics of management accounting and control systems on the one hand, and the work of management accountants on the other. Granlund and Malmi found only 'moderate' effects of ERP systems on management accounting and control system characteristics, and they advanced three possible reasons: (1) the time needed to fully implement ERP systems means that other impacts may be slow to emerge; (2) the complexity of ERP systems can hinder other sophisticated accounting developments; and (3) ERP systems may play a stabilizing role, reinforcing the existing management accounting routines. With respect to the frnal point, as we will discuss later, Scapens (1994) and Bums and Scapens (2000) view management accounting as organizational routines, and it is this view which informed the longitudinal case study of

204 European Accounting Review BM(Europe), part of which is described in this paper. We will look at management accounting as organizational routines, and will find that although the ERP system reduced the amount of routine work undertaken by accountants, it enhanced the routinization of accounting. Furthermore, although change did take place in BM(Europe)'s management accounting, it was an evolutionary rather than a revolutionary process (see Bums and Scapens, 2000; Nelson and Winter, 1982). More specifically, change took place as managers and accountants found ways of working with the new ERP system, and thereby modified their existing organizational routines. In relation to the work of management accountants, Granlund and Malmi's working hypothesis 'was that ERPS would give controllers [i.e. accountants] more time to devote to business support...'. They concluded that although this was the intention of the management accountants in all the firms they studied,' it had been achieved only in the firms in which ERP systems had been implemented for relatively longer periods of time. Consequently, they questioned whether there is a time lag in the impact of ERP systems on management accounting. Granlund and Malmi's study, and the other similar ERP studies mentioned above, were based largely on field surveys and, as such, they provide broad general insights into the way in which management accounting is affected by the implementation of ERP systems. In general, such studies appear to be seeking causal relationships - i.e. the impacts which introduction of ERP systems can be expected to have on management accounting. In this paper, however, we seek to explore the processes of change and to examine in more depth the nature of the changes in management accounting which have accompanied the implementation of an ERP system (specifically, SAP) within a specific organization. It is important to emphasize the use of the word 'accompanied' here. We are not necessarily claiming that the implementation of SAP was the driver of management accounting change in BM(Europe). It is very difficult to know what would have happened had SAP not been implemented, as changes in the management accounting practices of BM(Europe) were already taking place prior to the implementation of SAR The new ERP system could be said to have reinforced or facilitated the change, rather than being the change driver. Hence, there is not a clear causal relationship between the implementation of SAP and the changes in management accounting practices. In this paper we will describe the experiences of BM(Europe). It is part of a US-based multinational which has implemented SAP in all its operations throughout the world. Specifically, we will explore the implications of this worldwide ERP implementation for the 'local' operating companies and sites which comprise its European division, and examine the changes in management accounting at this level. However, it should be recognized at the outset that there have been no significant changes to the formal management accounting systems used in BM(Europe). The implementation of SAP has not led to the introduction of new, more sophisticated management accounting systems. In fact, it was intended that the SAP accounting modules should simply replace the


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existing accounting system with something very similar. However, there have been changes in the nature of the work undertaken by management accountants. As mentioned above, some writers believe that ERP systems will reduce the need for management accountants (Wagle, 1998). The object of this paper is to explore the way in which the implementation of SAP has contributed to the processes of management accounting change in BM(Europe).

2. BACKGROUND Following a re-capitalization after a hostile takeover bid in 1986, Building Materials Inc.^ (hereafter BM Inc.), a large US-based manufacturer of building materials, was left with negative shareholders' equity of $1 billion, $1.65 billion of long-term debt and a cost reduction programme which halted virtually all capital expenditure. As a result, over the next five years sales declined by $75 million to $2.8 billion. But in 1991 when the previous CEO retired, the newly appointed CEO decided 'to go for growth', and in the following years BM Inc. expanded rapidly through a mixture of internal growth and acquisition. By 1994 it was making a series of acquisitions. But as it was still highly geared it generally bought small, and then only acquisitions which could be profitable within a year. The biggest deal that year was the acquisition of the building materials division of a large British company. It was this acquisition which formed the basis of the European division of BM Inc. By the end of 1995, sales had increased from $2.8 billion to $3.6 billion and operating income was rising rapidly. To sustain growth at this level, BM Inc. needed a corporate information system and an information-oriented culture. However, across the company there were many separate and different information systems, most of which had come with the acquisitions. Specifically, it had more than 200 'legacy' systems - including eleven separate general ledger packages. Each system was dedicated to one or two tasks, such as stock control or invoicing. Interfacing, reconciling and maintaining these separate systems was difficult and expensive, and looking ahead, ensuring that these systems were all 'Year 2000' compatible was promising to be a very major problem.^ In 1994, the chief information officer, who had recently been recruited from a major computer company, estimated that the annual cost of maintaining these diverse legacy systems was $35 million, and fiirthermore they were unlikely to support his information strategy. So he proposed installing SAP, which was then seen as an immensely powerful but notoriously complex system, in much of BM Inc. in just eighteen months - the time normally needed for an installation in just one business unit. At that time, BM Inc. had eighty different manufacturing sites around the world. It also had a number of financial systems which did not communicate with each other or with the manufacturing systems, and they did not cope well with international currencies. However, having been through a period of acquisition, the senior management team now wanted to be able to operate the company globally. SAP offered them a corporate information system

206 European Accounting Review which would integrate the frnancial and other aspects of all its business processes throughout the world. BM Inc.'s selection of SAP has been well documented, especially in the professional accounting/computing literature,"* and its implementation has generally been portrayed as successful. Furthermore, quite a lot of information has been published by the company (through its senior managers and others) about the background, the decision to implement SAP and the corporate view of the implementation process. But what have not been documented nor subjected to academic scrutiny, however, are the implications of SAP for managers and accountants at the 'local' level - i.e. within the operating companies. This paper focuses on the implementation of SAP in the European division of BM Inc. and especially the parts of that division located in the UK. BM(Europe) was set up in 1994, following the acquisition of the building materials division of a large British company (mentioned earlier). The implementation of SAP at BM(Europe) began in 1995. At that time, the information systems were fragmented and proprietary. There was a mainframe computer and several local area networks running standalone systems. All the users claimed to be satisfred with their systems. The inventory controllers were happy with their perpetual inventory of frnished goods (which did not interface with the scheduling or accounting systems). The schedulers were happy with their 'to-do' list for manufacturing (which did not interface with purchasing for requirements planning). The production planners were happy with the job sheets they produced (which usually arrived afrer production had started). The operations staff were happy with their production reporting system (which did not tie to the accounting results at the end of the month). The MIS staff were happy with the payroll system they had created. Finally, the accountants were happy with their general ledger system (which took a month to close). However, none of these systems reported results which were consistent, and none of them contained totally accurate data. The factory accountant explained: We had individual systems designed for individual functions. And I suppose the integration part of it came at the end of the month when the accountants took the information they required out of each system and put them into the accounting system. . . . I mean, every function basically had its own system. And they were all in-house systems. And they were built specifically for individual departments, individual plants. There were three UK plants and we weren't using exactly the same systems. Furthermore, these individual systems were expensive to maintain, and to make matters worse, they promoted separate identities within the organization and discouraged teamwork. The factory accountant continued: The phrase 'we do it this way' was quite prevalent at the time. We thought of ourselves as three different plants. Three difFerent identities. In fact, at the time we were three different profit centres. The plants were profit centres. And the first thing that BM Inc. did when they came in was to create processes. The plants became the conversion process, non-profit centres. We were just cost centres. And it rolled on from there really.


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But replacing these 'legacy' systems within BM(Europe) with SAP involved several major problems: 1

The ability of SAP to meet the needs of the individual plants, each of which had their own business and operating philosophies. In the words of one plant leader: I think what we tried to implement was a global system. And it's on the assumption that everybody does business in the same way. But plant X^ is different from plant Y, And the European business is different from the American business. Possibly a global system doesn't fit because we don't work in a global market. And there are differences in markets and customers and so on,

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The need to transfer information from the many legacy systems to the new SAP system, and to integrate the different applications. As a plant leader explained: BM(Europe) is a multi-product business. It probably has the highest number of product lines of any of the operations of BM Inc, And it had a well-developed legacy system that was tailored to the requirements of that particular operation, ,,, We transferred that information from one system to the other, but the transfer wasn't complete. It didn't go successfully. Some of the data was corrupt. Some was missing altogether. Some of it was transferred to the wrong product. As a result there were huge problems with data integrity relating to making products,

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Resistance to change on the part of people who were nervous about their jobs. The SAP project leader explained: People who resisted are generally people who are nervous about their position and job. They're generally people who have got very good knowledge of how the organization operates now and, as such, the new element brings them back to square one, the same as everybody else, ,,, And some of them generally resist because they are nervous about how it is going to impact the customer, and whether it is going to be a better service or not, and they're truly concerned about productivity and about the end result,

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The complexity of the technical, business, and behavioural issues which are involved in SAP's implementation. As will be discussed later, SAP is a quite rigid system, which is organized around business processes, not individual functions. This demanded considerable change in the way BM(Europe) organizes its business.

Other problems arose due to the highly integrated nature of SAP, its implications for data integrity, and timing differences between the US and UK, As one UK manager explained: Now we're on a unified system, which uses one set of data, we've got problems. If you alter one, you affect the others. So it's understanding how large the system is, and how integrated it is, and what the knock-on effect of one change in data means to all the other processes - for financial people, sales people, production people, and so on,,,, We

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have all sorts of difficulties because the server is sitting in the US, and it works on US time. And there are all sorts of issues with time conversion and shift-log ends. For the corporate managers in the US the integrated nature of SAP offered significant attractions, with common systems throughout the company interconnecting with each other. But this integration can also create difficulties. As the SAP project leader in BM(Europe) noted: 'Both the beauty and the pain of SAP is that it doesn't really recognize organization boundaries.' The issue of organizational boundaries is very important in implementing SAP, especially as it is designed around business processes. This can require significant change in both structures and organizational culture. As a result, the implementation of SAP is much more than simply transferring data from the legacy systems into the new ERP system. As SAP is organized around business processes, rather than fiinctional areas, it is essential that business processes are at least reviewed before SAP is implemented, and decisions taken as to whether existing business processes need to be modified and, if so, when modification should take place; before, during or after the implementation. In addition, a major question, which must be addressed in any SAP implementation, is whether the generic SAP package can be configured to meet the business's needs or whether customization is necessary. Whereas configuration entails setting the parameters of the generic package, customization involves altering that package. A generic copy of SAP usually provides the starting point for customization. But there are special versions of SAP, called Industry Solutions, which have already been customized and preconfigured for particular industries. But most companies find that there are certain things which neither the generic version nor an Industry Solution will accomplish. There are two ways of handling such a problem: (i)

Writing extensions to SAP, using the in-built programming language to create new programs, screens, interfaces and other adaptations. However, there are potential drawbacks to customizing SAP in this way - for example, it can be difficult to implement new releases of SAP - and as a result the essential advantages of buying packaged software will be lost, as it becomes a customized solution.

Or: (ii)

Using SAP to provide a reasonably satisfactory system and, where necessary, interfacing it with another commercial package.

As a result of the difficulties and consequences of customizing SAP, many companies, including BM Inc., have been content to implement a generic version of SAP, or an Industry Solution, and to interface it with a very limited number of other systems. The general policy of BM Inc. is to avoid customizing software


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packages, as this saves time and reduces costs. The head of European IT advanced the following reasons for this policy: Simplicity is one reason. Cost is another. Wefindthat bolting applications onto SAP is challenging technically and functionally. ... [But] we are just trying to be cautious that we don't customize SAP to a point where it can't be recognized and we become the proud owners of a unique application that we have to support. He went on to explain that customization can destroy one of the major benefits of purchasing packaged software - the ability to purchase support and new releases fi-om the vendors. He added: We are spending almost £20 million a year just to maintain our old computer systems not really enhance them, just fix them when they break. And that was a horrendous obligation for the company to bear. And we want to try to stay out of that track with SAP. Furthermore, the chief information officer in the US wanted SAP implemented as quickly as possible, using what he called 'good-enough re-engineering'. He argued that modifying any package is risky and makes it difficult to budget and to meet cost and time schedules. SAP was selected near the beginning of the process because it was a commercial 'off-the-shelf package which provided multilingual and multinational capabilities, real-time integrated information and support for all the core businesses. However, even though the decision was taken not to customize SAP, it was still necessary to construct separate tables of parameters for the European operations, as distinct from the US operations. But this was to reflect particular local features within the global system, not to restructure the package. As the head of European IT explained: There are certainly some things that are different here, relating to taxes and currencies and all those unique things. Language is another thing which is unique, where we have created some SAP tables so that the language and product descriptions, etc., are presented in non-English languages. But the IS resources we have in the region are really focused on trying to take the functionality that we have created globally and make it work in the region, as opposed to customizing it for the region. The decision not to customize SAP created some anguish in BM(Europe), and it emerged during our fieldwork that the emphasis on 'good-enough re-engineering', rather than 'optimal solutions', puts a lot of pressure on individuals at the local level, as they try to implement the global SAP system. As such, the case of BM(Europe) is one of SAP imposed on the 'local'division by decisions taken at corporate headquarters. However, this may not be untypical of many SAP and other ERPS implementations in large multinational and multidivisional companies. A major attraction of ERP systems is that they are 'enterprise-wide' and consequently offer corporate management the opportunity of managing their business through a single integrated information system.''

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3. RESEARCH METHODS The research described in this paper has arisen out of a longitudinal study of BM(Europe), This study began in 1993 when the company was still the building materials division of a large British company, A team of researchers has maintained regular contact with the company since that time, with regular discussions about the development of the company's management accounting systems. Various accounting and non-accounting staff have been interviewed over the years - many several times. These interviews typically lasted for about lj hours, were tape-recorded and later transcribed for subsequent analysis. The research focus on the SAP system emerged as its implementation became an important issue for the company. Those involved in, and affected by, the implementation of SAP at BM(Europe) were interviewed as the process was being undertaken, especially during 1996 and 1997, and during the post-implementation period of 1998 and 1999, Interviews were not held at the corporate level in the US, However, the SAP project leader for BM(Europe) spent a considerable time in the US in the early stages of the implementation and she has related her experiences of that process. Otherwise, we have had to rely on published information for the corporate dimension of the BM Inc, SAP 'story'. However, as our focus is on the 'local' implementation of a global ERP system, this provides sufficient detail for our interpretation of the experiences related to us by people in BM(Europe), The objective of the longitudinal study of BM(Europe) was to explore the processes of management accounting change. As argued in Bums et al. (2003), most survey-based research (including field surveys) into management accounting change tends to focus on the change outcomes (for examples see Shields, 1995; Shields and Young, 1989), In other words, they look for associations between inputs, including various contingent factors, and outputs, expressed in terms of the change(s) which has (have) taken place. These studies, which are seeking to identify the 'drivers' of management accounting change, tend to be rather static. Longitudinal studies of management accounting change, however, provide the opportunity to explore the processes of change - how the various factors interact in a given context to produce a trajectory of change - often in the form of an evolutionary process (see Bums and Scapens, 2000), The recent studies of the impact of ERP systems have also tended to look at the outcomes of the change process; more specifically, the impact of ERP systems on management accounting practices. As such, these studies view ERP systems as causal factors with the potential to shape management accounting practices - i,e, they see ERP systems as possible drivers of change. In this paper, we will discuss the case of BM(Europe) as a study of the (evolutionary) processes of change which took place in management accounting practices following the introduction of SAP, As mentioned above, some writers have argued that the implementation of ERP systems, such as SAP, will reduce the need for routine financial and management information provided by accountants (Wagle, 1998), while at the


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same time possibly enhancing the role of management accountants as advisers and internal consultants to other managers (Anastas, 1997). Here, we will explore the way in which the implementation of SAP in BM(Europe) has altered the work of management accountants within the company, but focusing on the processes of change rather than seeing the change as a necessary consequence of the implementation of SAP. In other words, we are not arguing that the changes are driven by the introduction of SAP; instead they will be viewed as part of an evolutionary change process in which the introduction of SAP was one of the elements which opened certain opportunities and supported (and reinforced) ongoing processes of change. Bums and Scapens (2000) argue that management accounting practices can be conceptualized as organizational routines that encode the existing institutions within the organization (see also Scapens, 1994). They draw a distinction between rules and routines, whereby rules are the formal procedure guides set out in organizational manuals and other similar documents, whereas routines are the practices which implement those rules on a day-to-day basis - i.e. how things are actually done. They then define institutions as the shared taken-for-granted assumptions which identify specific groups and their appropriate activities and relationships (see also Bums et al, 2003). In other words, institutions comprise the taken-for-granted assumptions which underpin the organizational rules and routines, and specifically in the present context, the management accounting practices. As such, institutions can both constrain and shape processes of change. In this respect. Bums and Scapens (2000) distinguish revolutionary and evolutionary change (see also Nelson and Winter, 1982). Revolutionary change occurs when there is a fundamental disruption of the prevailing mles and routines, and a consequent challenging and re-evaluation of the taken-for-granted assumptions which comprise the existing institutions. Such change probably requires major threats to the survival of the organization as a whole, and/or to particular sub-groups within the organization. For example, Busco et al. (2001) argue that such change can take place when there is a threat to what Giddens (1984) calls 'ontological security' or Schein (1992) labels 'psychological safety' of the organizational members. Evolutionary change, however, is incremental, with only minor disruptions to the existing routines and institutions. Such change builds on, adapts and modifies the existing routines in a process which draws on the prevailing institutions. As such, institutions shape the process of change, but at the same time they may themselves be modified in that process, although they are unlikely to be fundamentally challenged and re-evaluated. It is such an evolutionary process of change which we see in BM(Europe). In subsequent sections of the paper, we will first describe the process of implementing SAP in BM(Europe), and then identify some of the problems and issues which arose in that process. This is important for understanding how management accounting within BM(Europe) has changed following the introduction of SAP, as a number of the problems and issues which arose are related to

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the production and use of management accounting information and consequently they have had consequences for the work of the management accountants. In particular, we will discuss the integrated nature of SAP, the centralizing tendencies it promotes, and the shared services concept. Initially, the integrated nature of SAP led to a lack of confidence in the system, which was ultimately overcome hy increased cross-functional co-operation and teamwork. As we will also see, many of the routine aspects of accounting were centralized, and the shared services concept was introduced. Having described the implementation process, we will then look more closely at the changes which have taken place in the work of the management accountants in BM(Europe). Finally, we will discuss the nature of these changes and draw out the implications for researching ERP systems and management accounting change.

4. IMPLEMENTATION OF SAP Bancroft (1996) argued that implementing SAP is a difficult and complex task. Organizations must align their business processes with the SAP view of the world in order to exploit it fully. One of the first steps is to create a 'To Be' vision of the organization. Since SAP is a table-driven system, it is necessary to set up tahles which identify the basic elements in the company: for example, its customers, products, organization structure, legal entities, husiness units and distribution channels. The development team has to have a vision of how the organization will he run in the future - in enough detail to understand the implications for their work and to reach agreement on the future operating model. The process was described by BM(Europe)'s chief information officer in the following terms: The team went off and did the development work. What they actually did was they mapped out the model of the way we do business today - what we call the 'As Is' model. And they did that for each business unit across all the processes. Then the team came together and, through a series of trade-offs, they said: OK, here's what we think the best 'To Be' model for BM Inc. globally should be. They then came back to each business unit in all regions and walked the business leaders through that 'To Be' model. So there was an opportunity for some dialogue, questioning, answering and basically surfacing any show-stopper kind of issues. The teams took all that feedback back again to the central development team. And they iterated through their 'To Be' model one last time before arriving at a way of business that we would move forward with. According to Newkirk, at the time the partner in charge of the SAP practice at Andersen Consulting in Cleveland, 'you have to treat SAP as a husiness, rather than an IT, project. Success comes from having a very clear idea of how you want to run the husiness and then using SAP to enforce the way you've modelled it' (see Kock, 1996: 43). However, redesigning husiness processes is difficult enough, but the development team also has to ensure that those processes fit with SAP's own complex array of highly structured processes. Bancroft (1996)


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argued that 'you don't want to get too far down the reengineering path without keeping [SAP]R/3 in mind'. As SAP can require major changes in ways of working, and involve intense planning, Kock (1996) argues that it can create massive upheaval and/or drift on pointlessly for years. BM Inc., in implementing SAP, had to maintain a balance between re-engineering the business and a rapid implementation, and between maintaining the legacy systems for as long as necessary and getting SAP up and running. As the BM(Europe) chief information officer explained: We have outsourced the operation and support of our legacy applications. So really that is off our plate. And our sole focus is in fact preparing the infrastructure to operate SAP and helping the businesses be prepared to deploy SAP. As indicated above, the implementation of SAP was not just a technical IT exercise, it involved major business redesign issues. In BM Inc. considerable work, drawing on expertise from all over the company (both geographically and the various business disciplines), went into the development phase of the SAP implementation. For almost two years, the leader of the SAP implementation team in BM(Europe), spent two to three weeks of each month in the corporate headquarters in the US, and the remaining time in European business units. She described her involvement in the following terms: In February of 1995,1 was asked to be project manager for the UK implementation. At the time, it wasn't seen as being something that would require a great amount of time. We were meant to be implemented within six months for the UK. There was a project team of six, with myself as project manager. However, I was expected to go to the States for three months, which is a significant time period. During that time the rest of the team was not expected to travel. That rapidly increased. We got a team, in the end, of about twenty. I had a fellow project manager who was based in another European plant and in the end, all the team travelled and for instance, myself, I spent about two years in the States - between two to three weeks out of four By the spring of 1995, the global project team numbered 250 and occupied three floors of BM Inc.'s ofifice tower at its corporate headquarters in the US. This team included members from all areas of the business and all the company's geographic regions. Centralizing the team in this way helped to maintain the global focus of the project and prevented any one fiinction or business unit from dominating the project development. It also meant that if major strategic issues emerged they could literally be referred 'upstairs' - i.e. to senior corporate managers. There was a group of about twenty people from BM(Europe) in the global project team. They brought the European perspective to the project development, and subsequently provided leadership during the SAP implementation in the individual European operating companies. The leadership provided by this group was backed-up by an ongoing commitment to staff training. Significant investments were made in both the initial and continuing training of most frontline employees to enable them to handle the demands of SAP. This training relied to a

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great extent on the use of so-called 'expert users'. The BM(Europe) chief information officer explained: ... When I said earlier that we had about 20 or 25 people going to America for two years to work on this project, those people came back and cross-pollinated or trained others who were here. I forget the number, but it's something like JOO people now who are considered to be champions or expert users... who are out there sitting next to others who may have a question. Nevertheless, there was a view in BM(Europe) that the training needed, in both business and computer literacy, may have been underestimated, especially for shop-floor personnel. A plant leader complained: The biggest problem we've had is getting people up to speed with the new technology. There have been huge problems in getting shopfloor-type people - I'm not wishing to be disrespectful because some of them are very good. But there are some older, less well-educated people in the company who are finding it difficult to work with new systems, with mouse-click technology, with Windows, and so on. The resources devoted to training and retraining are a major (and sometimes hidden) cost of installing SAP In BM(Europe) managers found that without proper retraining, most frontline employees could not handle the demands of the new system. As Newkirk (1996) points out, SAP transforms, for instance, orderentry clerks into 'business people' who require a clear view of how their data affect the rest of the company. However, the speed with which individuals become computer literate varied much more than the implementation team had expected. Some people become acclimatized very quickly, while others took considerable time to become proficient in the Windows-based PC environment. This created numerous problems in the early stages of running SAP, as mistakes and data-entry errors in one part of the system can produce significant problems elsewhere, as we will illustrate below. It is important to recognize that the integrated nature of SAP means that data are entered into the accounting system (i.e. SAP's accounting modules), not only by staff in the accounting function, but also (and mainly) by operating people in all parts of the business.

5. IMPLEMENTATION PROBLEMS AND ISSUES IN BM(EUROPE) In January 1996, twelve months after the project's initiation, SAP went live in BM(Europe). In an article in the US magazine for chief information officers, the BM(Europe) project leader explained: 'We fiipped the big switch on a weekend, expecting problems, but we came in on Monday and it was working brilliantly.' But by Tuesday, strange things began to happen. 'It was like a wave rolling through the system.' As employees began tentatively entering orders mistakes


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flowed and multiplied through the system. A BM(Europe) management accountant explained the type of problem which emerged: On day one, when we went live, someone on the plant got his commas and his full stops mixed up, and put a million rolls into stock, rather than a thousand. And that had an immediate impact on the balance sheet in the corporate headquarters. There was a million rolls of stock there. And it had an immediate impact on the supplies people they'd run out of everything that they needed on the plant. .. . That was on day one. So there was bound to be a lack of confidence in the integrity of the infonnation. SAP is a totally integrated information system which weaves together all the data from manufacturing, inventory, purchasing, accounting, sales, and so on (see Filipczak, 1997). As emphasized earlier, probably SAP's greatest advantage is the integration it provides across all business activities and processes. BM(Europe) was installing SAP to handle its order fiilfilment, manufacturing, inventory, distribution and financial accounting operations. The integration which BM(Europe) had hoped for in SAP had arrived - and it was overwhelming. The integrated data flowed so quickly through the system that there was little opportunity to track down mistakes before they showed up on everybody's screens. It was evident from our discussions within BM(Europe) that the integrated nature of SAP forced people within the individual functions to understand how other functions operate. Initially, accountants felt they were losing 'control' of what was happening in the business. As a production accountant explained: . . . The plant was producing rolls of product, but we didn't know how much they were producing. We didn't know how much it was costing. We were losing control of the business, because of the way we were actually operating this new system. And what we did - and it was quite by accident really, although it did work - was we started talking to each other, across functions. . . . One day I was in my office, and we just couldn't decide why we were getting this figure on the trial balance. And it just so happened that someone from the supply function came in at the same time and explained to us what was happening. And it was at that point that we thought that the only way to get control is to break down these functions. So we set up what we call the daily meeting. Again it was functional. We had someone from accounts, someone from production, someone fi'om supply, someone fi'om planning. And we sat down and talked to eaeh other about what was happening on a day-to-day basis. And we realized then that it wasn't a big issue. It was just acting as a process, rather than as a fiinction.

Communication and co-operation, especially across the traditional functional areas, became essential within BM(Europe) to understand SAP and to enable the accountants to regain control over what was happening in the business. Thus, SAP acted as a stimulus for a greater integration of finance and other areas of the business, and for accountants (and others) to look at the business as processes, rather than fiinctions. This reinforced the move to a more process-oriented

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organization, which had already been initiated by the corporate headquarters in the US. As a management accountant explained: From a works point of view, it focuses you on the business. It focuses everyone on the business rather than their own particular part of it. It makes you think across the business. It's quite easy to operate if you get things right. Your big problem is if something is wrong because obviously, if you put something in wrong, you're not only affecting yourself, you're affecting everybody who passes the plant really. And it can be very difficult to put something right. Majchrzak and Wang argue that focusing on processes, rather than functions, can lead to lower costs, shorter cycle times and greater customer satisfaction (1996: 99). When BM Inc. first acquired the building materials division of a British company, which was to become the core of BM(Europe), they introduced the concept of customer fulfilment processes. However, the effect of focusing on these processes was initially quite disappointing, largely because the existing functional structure was retained. But when SAP was being implemented the tensions between the process and the functional forms of organization had to be confronted. As one accountant pointed out: SAP is a process system, and fundamentally we were a functional organization, despite what we've said about processes and the like. And we were structured as a functional organization, and we put this process on the top of the fiinction - and it didn't work. . . . That's how I think it developed. . . . One of our problems was that we didn't understand what it wanted from us. In addition, problems were also encountered in aligning the SAP system with the existing practices and operating procedures. For example, a plant leader at one of the manufacturing sites commented, the day after SAP went live: . . . What we were doing previously was operating our legacy system to run a production schedule, sequence that schedule automatically into the correct running order for the most efficient manufacture on the line, and then recording the product that we've made. Also attached to that schedule were details of how to make the product, what ingredients were needed, how it should be packaged and so on. . . . That system also generated our production statistics - how mueh we made, how efficiently we made it, how long it was on the plant for, and so on. We changed all that at about 6 o'clock last night. [When SAP went live.] We essentially said we wanted what we had before. 'We want exactly the same thing in SAP as we had before.' But the constraints of SAP have meant that wasn't possible. So what we've ended up with is the best that SAP can give us. And what we found yesterday and today is that it is not adequate to allow us to operate the plant. We're having to do things manually again in order to get back to where we were. As indicated earlier, it was decided in the US (at the corporate headquarters) that SAP would not be customized to the needs of the individual businesses, such as the manufacturing sites and operating companies which comprise BM(Europe). It was decided at the outset that business processes would be integrated across all geographical regions, thereby ensuring global, corporate-wide consistency of information. In theory, at least, SAP is flexible and table entries can be made which would allow the various BM(Europe) sites to


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operate in a possibly 'infinite' number of different ways. However, this detail flexibility can be constrained by a structural inflexibility (see Scapens et al., 1998). Within BM Inc. the centralized and highly structured approach, which was taken to the implementation of SAP, was based on a notion of business processes and functions which was not entirely appropriate for all, or for even any, of the BM(Europe) manufacturing sites. As a result, the SAP system developed for BM Inc. (globally) was too rigid and too complex to meet folly the specific needs of the European division. Furthermore, interviews in BM(Europe) indicated very clearly that the re-engineering task was very difficult, and as SAP was involved, the difficulty was compounded by the complexity of the software and a lack of consulting expertise. Within BM(Europe) there was no comprehensive and explicitly managed plan for the organizational and operational changes associated with SAP. There was only limited pre-planning (or re-engineering) of BM(Europe) activities, operations and processes prior to the implementation of SAP. It was assumed that through the implementation and use of SAP, people would change the way in which they think and act. As a plant leader stated: I think the way we've deployed the system has been that we've left people tofindout. We haven't put any rigid rules in place to say, 'You, as engineers, must look at this financial report to see iiow much you're spending.' That's not been delivered to me as a way of doing things. It's something that we've found ourselves, by working together. So there's no delivered rigid structurefi'oma book. It's going out andfindingout what's in the system and use it for yourself, which arguably is not the best way of doing it. Nobody has sat down at a higher level and thought 'Well, how can we exploit this?' Thus, the people using SAP have had to change the way they work together and to modify their working practices to adapt to the requirements of the new SAP system. In particular, as a result of the integrated nature of SAP and its process-oriented structure, teamwork has become much more important in BM(Europe), and the role of managers or 'leaders' has become much more complex. Traditionally, their roles were focused on meeting the goals which had been set for their fonctional area. But now these leaders have to develop a network of co-operative relationships, which means that they must leam how to identify shared goals, share information, reach consensus and promote the trust necessary for developing and sustaining such relationships. The change from a fonctional to an integrated organization has been a major undertaking at BM(Europe). However, it has been more evolutionary than formally planned with everyone involved in the process learning by experiment and experience. Consequently, it is still incomplete and may take years to implement and sustain. But a new, more process-oriented organization is emerging. The BM(Europe) financial director explained: ... The whole purpose in life for the plant is to manufacture the best quality at the lowest cost for the customer requirement. And that is led by the customer fiilfilment process. That has become a European process. And that's the biggest change we've seen

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here in the last few months. Indeed, in the last two weeks, we've announced some major changes in organization in that area. What we've announced is that we will centrahze all of our customer fulfilment for Europe in the UK. .. .We're now having teams of people. So you'll have someone from procurement, the cost analyst is part of the team. There's someone from production. So you're getting teams of three or four people who can actually bring their own expertise and see the thing through. So that's what we're doing. Although SAP can enhance infonnation sharing and teamwork, it also raises the possibility of greater centralization of information processing activities. The networking of computers and the standardization of much routine infonnation processing means that these tasks can be centralized at locations quite separate for the other day-to-day activities of the business.^ For example, BM(Europe) has established a 'Global Shared Services Centre', at a location in the north of England, with responsibility for a wide range of information processing activities, including invoicing and accounts receivable and payable for all the European business units. This is a location quite separate from the company's operating sites. The Global Shared Services leader explained. The [location] was selected because it met our requirements with reference to having an available workforce skilled with multi-lingual capabilities, attractive compensation base, and direct support fi-om government and the economic development sector. We are expanding strongly into Europe and this will be an important facility for us. One accountant described how shared services in BM(Europe) is changing the accounting fijnction: I think the major change is centralization. We're centralizing everything. Shared services was the first one. I think, as I said before, we will go to a sort of bookkeeping centre of excellence. The shared services approach is one way of centralizing non-core, support fiinctions, at a location removed fi-om the businesses to which the services are provided. This, it is claimed, combines the advantages of both centralization and decentralization, without the disadvantages of either (King, 1998; Shah, 1998). King (1998) argued that by consolidating specific operations in one location, while at the same time developing a strong customer orientation, shared services can provide higher quality services at a lower cost. Such an approach has become feasible for BM(Europe), and for BM Inc. more generally, due to the implementation of SAP and the globalization of the business. Shared services allow the company to deal with different business and geographic requirements and to streamline organizational processes. As one management accountant explained: From our own point of view, as all the European plants go live on SAP... we're going to end up with centres of excellence. We've already got the accounts payable and the accounts receivables in one location, serving the whole of Europe. Shared services are different to the traditional notion of a centralized organization in that shared services are an internal form of 'outsourcing', with the focus being on the provision of services to internal customers - i.e. the individual


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business units (Jarman, 1998). However, it can then be a relatively easy step to the more normal forms of 'external' outsourcing. Enabled by integrated SAP applications, and motivated in the 1990s by increased competition and globalization (and in Europe, by the introduction of the euro), the trend in the company has been to use shared services to support people-intensive areas, such as human resources, finance, materials management and production planning. As noted by one BM Inc. manager: ... What SAP has enabled us to do, especially where we've got it across all parts of the business, is to centralize things like planning which we couldn't easily do with the legacy systems. ... The plant's worldwide production is planned in one city in America. The experiences of BM(Europe) have revealed that SAP can change the nature of some jobs, create new ones and cause some old ones to disappear. In addition, it can change the 'relative importance' of certain jobs and departments. This applies to all areas/flinctions of the business, including accounting and accountants. It also encourages team working - with IS staff and accountants working alongside business managers (see also Gamer, 1995). In the next section we will look more closely at how accounting activities in BM(Europe) changed following the implementation of SAP.

6. SAP AND MANAGEMENT ACCOUNTING There have undoubtedly been changes in management accounting within BM(Europe) following the implementation of SAP. For BM Inc. as a whole, SAP has substantially improved and standardized the global flow infonnation, while at the same time it has centralized, at corporate headquarters in the US, the design and control of that infonnation. This standardized information processing is consistent with a hierarchical (command-and-control) form of organization (Davenport, 1998), and leaves little room for the local control of information systems - such as in BM(Europe). As a consequence, although SAP is used for routine infonnation processing, it is not apparently used as a major source of management information within BM(Europe) - cf. Fahy and Lynch (1999). It is used for financial reports and management information at corporate headquarters, but otherwise it appears to be used primarily in the 'bottom half of the company. In other words, it is mainly managers at the plant level and below, right down to the shop floor, who use SAP extensively in their everyday work. For instance, plant personnel put information into SAP, and check schedules and production orders on SAP, while order and invoice clerks routinely use SAP in their work. Also, plant managers use SAP to monitor production output. But beyond that level, managers tend not to use SAP as their source of infonnation. The management accountant explained: There's a certain level of manager that uses SAP very widely. I'd say at plant manager level. Above that, the senior managers... are still looking at reports to be drawn out of SAP and presented to them. ... But what they're still doing, after four years, is still

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pulling reports down out of SAP, or still pulling infonnation down out of SAP, and preparing reports outside on spreadsheets. One of the reasons that managers cite for not using SAP is that it can be very difficult to obtain good quality reports from SAP. 'Queries' can be input, but a real-time query takes a long time to set up. Eurthermore, the regular reports are co-ordinated and produced from the centre - i.e. the corporate headquarters in the US. Thus, it may not be possible for individual managers to specify exactly what they want, and then to get it, unless they go through corporate headquarters. But corporate headquarters will only produce reports which are needed across the whole company, or at least for substantial sections thereof As a result, in BM(Europe), SAP provides managers with a variety of financial and production statistics and management information, but it does not provide all the reports which are needed, especially by more senior managers. Consequently, spreadsheets are used to organize and report information which is downloaded from SAP. As a management accountant explained: Systems tend to be judged on what you get out of them. And the reporting [within SAP] is poor, from an accounting point of view - certainly a cost accounting point of view. You don't want all the detail... SAP is particularly pedantic in the way it does everything. He continued: We now produce what we call the red book. It's a report that's produced outside SAP. Perhaps one of the things I should say is that the amount of work that was involved in the US in getting SAP running meant that some things had to be left till later. And one of the things that they left till later was reporting. And so the reports that we're getting out of SAP are still being developed. However, at the operating level the management accounting infonnation provided by SAP is generally quite similar to the information which was produced by the legacy systems - but it is now available much more quickly and efficiently, and operating managers can access information themselves, rather than waiting for the accounting reports. At this level, the 'historical information' provided by accountants' reports is becoming less relevant as SAP is making real-time information more available. This is illustrated by budgeting process in BM(Europe), which now has a more forward-looking emphasis. Rather than being a 'static' or fixed plan for the whole of the coming year, budgets in BM(Europe) are used in a more dynamic and fiexible way. They still set the initial framework for the year, but they may be revised, modified and changed as the year progresses through a process of ongoing forecasting. As a result management reports focus less on comparisons with the budget, and more on comparisons with the forecasts. As the managing director explained: ... The forecasting process is probably one of the keyfinancialprocesses that we have in the business, because we do a plan - as you know - but the plan is history: we're managing the business on forecasts. We're forward looking all the time. That's the key role.


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By the expression 'the plan is history', the managing director was indicating that the budget, which is set prior to the beginning of the year, reflects a view at a particular point in time, but as time passes this view can change. Thus, the original plan (i.e. the budget) is time-dependent, and as time passes it becomes an historical statement, and new plans (i.e. updated forecasts) are needed. As another BM(Europe) manager explained, the availability of up-to-date information fi-om the SAP system enables individual managers (and their staffs) to produce better forecasts: I think the forecasting is better, because of the culture we've adopted since we got SAP. By that, I'm tiiinking in terms of non-accountants knowing their own spend, knowing their own budgets, controlling their own budgets far more than they ever did in the past. And because they're in control of what they're doing at the time, they're also in control of what they think they're going to do in the future. He added: And that's not because of the accountants. That's because of the individual cost owners, and because the plant managers are imposing that culture on them. So someone who, two or three years ago, had never even thought about a budget or a forecast, is now controlling his own spend in the same way presumably that he controls his spend at home. It has changed the culture in that way. And that, in turn, has improved the forecast. So I suppose there is an indirect link to SAP there. As forecasts are produced for the coming months, there can be monthly comparisons of actual outcomes against the most recent forecast. In this way, revisions to the budget are impounded into the forecasts as the year progresses. However, this is not a simple numerical exercise - revisions to the budget and each new forecast have to be flilly explained and justified. Thus, variations fi^om the original budget are discussed by the management team, and where appropriate approved, before they occur. The actual outcomes can then he expected to be very close to these forecasts. In this way, although the budget is used as a general framework for the year, management is looking forward through the forecasts not backwards to the budget. Nevertheless, as mentioned earlier, there have been no fundamental changes in the character of the management accounting information used in BM(Europe), and no new 'sophisticated' management accounting systems or techniques have been introduced following the implementation of SAP. The more forward-looking emphasis described above represents a change in the way the budget is used, rather than a change in the characteristics of the management accounting information. However, there have been changes in the work of the management accountants and others within the company's accounting fianction. For example, all the company's accounts-receivable and accounts-payable processing is now centralized, and this has had a major effect on the number of people within the accounting function. As one manager worryingly observed: From our own point of view... we're going to end up with centres of excellence. We've already got the accounts payable and the accounts receivable at one location serving

222 European Accounting Review the whole of Europe. I would think we'll have a bookkeeping centre of excellence there shortly. I think my own opinion really is that at the moment the accountants here are here because not everybody is on SAP, and there's a bit of consolidation to do. But obviously, when we're all on SAP, the consolidation goes as well. Several changes in the accounting function have accompanied the implementation of SAP. First, many of the jobs which were previously done by cost clerks and other accounting personnel are no longer necessary - they are now either done by SAP itself, or are centralized in a shared services centre. In general, BM(Europe)'s management accountants believe that the implementation of SAP is 'positive' for the business, but not necessarily for management accountants. One management accountant explained: It's positive news for the business. And 1 think, as a management accountant,... that SAP is the way forward. But purely from a management accounting point of view, what you're losing is your skills - the simple skills, the basic skills, the variance analysis type skills. He added: We do standard costing and actual costing in SAP. The actual costing - we have no input at all. That's all done automatically. The standard costing - we input the overhead recovery rates which are calculated offline. But having done that, we just leave it to SAP. SAP does all the standard cost calculating. And we've become very much analysts, rather than management accountants, as we used to b e . . . . So it is a worry, I think, as we go forward. At this point in time you've still got the experience of legacy systems, where accountants were accountants. Second, line managers are increasingly taking more responsibility for the financial aspects of their own activities, and as a result accountants are responsible for the systems, but not for the contents of the final reports. Furthermore, fewer people are needed in the management accounting function as individual managers and their business units have direct knowledge of their costs and budgets through the SAP system. As one accountant explained: We've tried to pass some of the traditional accounting responsibilities down to other people. We've developed things like cost owners, who are expected to interrogate their own costs and forecast their own costs. That's the right thing to do really. Traditionally, the works accountants put budgets together for them and put forecasts together for them. Now, all we're doing is collecting those numbers from them. . . . . . . They [the cost owners] are also responsible for going into the accounts and having a look at how much they've spent, and what they expect to spend. So it doesn't come as a shock at the end of the month when they used to get the old cost statements on their desks: 'What did I spend that on?' They're far more in control of their own costs. And it has made bookkeepers, if you like, out of everyone. They do know how to go into a set of accounts and pull their own costs down. 1 suppose that's a good thing.

Thus, knowledge of accounting has moved out of the management accounting function and into the rest of the organization, with individual managers increasingly responsible for much of the 'management accounting' in their own areas of activity. In particular, cost management is a managerial responsibility, not an


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accounting activity. Furthermore, the information needed for cost management is likely to be readily accessible at the operating level, through the SAP system, and under the control of operating managers. Such managers may perform a number of the management accounting tasks themselves, or have their own staff to do them - for example, preparing budgets, explaining variances, producing forecasts, and so on. As the BM(Europe) financial director explained: ... in terms of educating or facilitating the line managers who have budget responsibility... I think we've successfially taught them to go in and to review their own cost statements live within SAP. So we don't issue paper any more; we encourage them to do it. We know that there's a number of them who are doing it regularly, on a weekly or monthly basis - going in and reviewing their own cost centres. That's great, because previouslyfinancestaff would have spent a long time gathering the data and checking them and then issuing it in paper format. So that's all gone out of the window now. Third, as described earlier, there is now a more forward-looking emphasis in the use of management accounting information. This was facilitated by the availability of cost and other accounting information on the desks of individual managers, and by their increased levels of financial responsibility. Finally, the above changes have created both the need and the space for management accountants to play a more creative role within management teams. The financial director continued: ... I think it's almost changed the roles of thefinancepersonnel, particularly those in the works environment. Their jobs are completely diiferent in SAP, than they were before. Thosefinancepeople are very much part of the works teams. In this context, it is important to examine the role of the management accountant. No longer are the management accountants simply concerned with measuring and providing reports on business performance. Within BM(Europe) such information is largely available on the managers' computers (although, as mentioned above, the reports available within SAP may not be particularly 'user-fiiendly'). Nevertheless, there is an important role for the management accountant in interpreting the various indicators of performance and showing how they relate to each other. In particular, the management accountant should be able to integrate understandings of operating performance, financial results and strategic developments. Such an integrative role, within the SAP environment, has potentially put management accountants in BM(Europe) in the position of 'internal consultants' or analysts, who assist managers to create strategies and to take operating decisions. But to be effective as internal consultants, management accountants need consulting skills, especially communication and interpersonal skills, and a much broader knowledge of the business than would be required for a recordkeeping role. In BM Inc., generally, titles such as plant analyst or consultant (rather than plant accountant or controller) are used to emphasize their role in supporting managers in the process of understanding and developing the busi-

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ness. Eurthermore, such analysts may not have a record-keeping role in the future, that could be taken over by the shared service centre. One BM(Europe) management accountant explained: There are so many automatic accounting entries now that I would say that, five years down the line, even putting a joumal entry in would be a new experience for some. Our plant analysts - the way it's been designed in the US - plant analysts aren't going to be allowed to put joumal entries in. They will e-mail a bookkeeping centre, if you like, and they'll put the entry in. The move from record-keeper to internal consultant requires that individuals develop new skills. In a sense, the management accountant has to become a sales person and a change agent, rather than a reporter - i.e. someone who can sell the idea of what can be done with the infonnation, and then make things happen (see Anastas, 1997). In BM(Europe) cross-fiinetional teams are increasingly used to manage operations. Thus, decision-making often involves interaction with a variety of managers, with different backgrounds and ideas. This means that management accountants have to take a wider view of the business and to be able to link cost and financial infonnation to the strategic development of the business. As such, management accountants need new techniques and approaches, but most importantly they need to adopt new ways of thinking (see Scapens, 1999). This shifr in thinking not only affects management accountants at a more senior level, who are directly involved in the management teams, but it also has implications for the training of new management accountants. A management accountant in BM(Europe) explained the situation as follows: We've actually got a trainee downstairs... who has just done part one [of his examinations]. And whereas when I did my Cost and Management, I went to technical college and I came here and 1 did exactly the same thing for [the company], as I was doing at technical college. He's going to technical college and seeing something he's never going to see in BM Inc. or at anywhere where there's SAP. And I don't know. It's a bit like leaming a subject that he's never going to use. . . . So it's a worry. I think it's something that CIMA has really got to face up to.

7. DISCUSSION The specific characteristics of SAP that have contributed to the changes in management accounting within BM(Europe), which were described above, are summarized in Table 1. Integration is a central feature of ERP systems, and of SAP in particular. As we saw in the case, integration was a major issue within BM(Europe), and at first it threatened to be overwhelming. As the production accountant quoted earlier said: 'We were losing control of the business' - they did not know what was being produced or how much it was costing. Consequently, the accountants and managers within BM(Europe) had to leam to work with SAP This led to more team working and greater cross-fijnctional communication and co-operation.


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Table 1 SAP and changes in management accounting in BM(Europe) Characteristics of SAP (1) Integration (2) Standardization (3) Routinization (4) Centralization Changes in management accounting (1) The elimination of routine jobs (2) Line managers with accounting knowledge (3) More forward-looking information (4) A wider role for the management accountant

The SAP system implemented in BM(Europe) was designed in, and imposed from, the corporate headquarters in the US. Although staff from the European division had been involved in the system design process, it was a standardized SAP system which was implemented throughout BM Inc., including BM(Europe). In particular, the decision not to customize SAP was an important factor leading to its standardization. Eurthermore, as was generally recognized within BM(Europe), SAP works best with standardized activities and processes. Nevertheless, it was this aspect of SAP which gave them most concern, as the standardized system was not entirely compatible with their specific requirements, and in a number of respects it was not asfianctionalas the legacy systems which it replaced. Much routine accounting and other information processing activities within BM(Europe) are now undertaken within SAP. Eor example, when the factory produces an order for a customer, SAP automatically adjusts the stock records, produces the delivery documentation, raises the invoice and makes the entries in the sales ledger. There is no longer any need for staff within the accounting function to make the necessary entries in the accounting records. Furthermore, the implementation of SAP encourages the routinization of activities so that they can be incorporated within the system. In discussing centralization it is important to consider both the cenfralization of systems design and confrol, and the centralization of other support activities (such as transactions processing and financial accounting). The latter will be discussed below in connection with the specialization issue. The former refers to a tendency towards the re-emergence of large/centralized IT functions reminiscent of the 'big computing' era mentioned at the start of this paper (see Alsop, 1998). In a large multinational enterprise, such as BM Inc., the desire for a global information system means that control over information processing has to be centralized, at least the control over the design, structure and format of the system. If each division and/or operating company were allowed to customize, or even modify the system to their own requirements, the benefits of a global system could be damaged. In BM(Europe) the structure of the SAP system was decided at the

226 European Accounting Review corporate headquarters and, as mentioned earlier, if new reports are required from the system they have to be designed and constructed in the US, Earlier we mentioned the tendency towards greater specialization in support services within BM(Europe) and, in particular, the setting up of shared services facilities. These developments were described to us during our fieldwork within the company, which came to an end in 2000, However, subsequently certain events took place which shed further light on this tendency towards specialization. In the late 1990s the stock market price of BM Inc, came under some pressure. We were aware of this pressure during our fieldwork, but at that time there was no direct effect on BM(Europe), other than an emphasis on improving cash flows. But the financial concerns in the US ultimately led to the sale of several European sites within BM(Europe), leaving only the UK company which had originally been acquired in 1994, Thus, the European shared services facility was no longer needed and the specialist centre was closed. Its activities were returned to the major UK manufacturing site and now, on a much smaller scale, it continues to provide these services for the UK operations. As a result, many of the fears which were being expressed during our fieldwork were overtaken by events in the US, and this meant that an extension of the shared services concept was no longer viable. Thus, although SAP may make shared services feasible, at least in the information processing and accounting areas, there may be economicscale effects (see also Beretta et al., 2000; Eahy et al., 2000), Whereas shared services were economically justified for the operations of BM(Europe), when the scale of its operations was reduced shared services were no longer viable. Although these characteristics of SAP have not led to the introduction of new, more sophisticated management accounting techniques, there have been changes in the work of the management accountants within BM(Europe), Table 1 summarizes four changes which have taken place. These changes clearly accompanied the introduction of SAP, but were they driven by the implementation of SAP? Some of the accountants in BM(Europe) seemed to believe so. For example, the financial director quoted in the previous section said: '[the management accountants'] jobs are completely different in SAP than they were before', SAP has certainly facilitated the change; but was it the driver of change? This is actually quite a difficult question to answer, BM Inc. introduced the notion of business processes soon after it had taken over the UK division of the British company in 1994, Bums and Baldvinsdottir (1999) described several changes in management accounting, which followed fi-om the use of 'process ways of working' in a large (UK) pharmaceuticals company that they called Stam pic; including a greater involvement of accounting and accountants in the management of the individual business processes, more forward-looking management accounting information and a decentring of accounting knowledge as individual managers took greater responsibility for their own cost planning and control. To some extent at least, such changes were already happening within BM(Europe), and SAP simply reinforced and facilitated the new process ways of working. As SAP is built around business


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processes, team working and greater cross-functional co-operation make it much easier to understand what is happening within the system. As indicated earlier, this was the solution which the accountants within BM(Europe) found when they felt they were 'losing control'. But had BM(Europe) not already been working with business processes, it is not clear whether SAP would have had the same impact within the company. Some changes may have occurred, but not necessarily all of them, and not necessarily to the same extent. We will now consider in turn each of the four changes indicated in Table 1. (1) The elimination of routine jobs. In BM(Europe), the integrated nature of SAP has meant that jobs previously done by cost clerks and other accounting personnel can now be computerized. As operating personnel enter data into the system the appropriate accounting entries are generated automatically. This is clearly an inherent feature of ERP systems, which seek to integrate the various aspects of the business into a single information system. Thus, many routine accounting tasks are no longer undertaken by staff in the accounting fiinction, and as a result the size of the accounting function has declined. However, many types of accounting software which are now available can also have this effect; it is not exclusively a feature of ERP systems (see also Scapens et al., 1996b; Bums and Baldvinsdottir, 1999). (2) Line managers with accounting knowledge. As indicated earlier, line managers within BM(Europe) are increasingly taking more responsibility for the financial aspects of their own activities. This may seem to conflict with Granlund and Malmi (2002) who found that 'management accounting tasks do not seem to be devolving to non-accountants'. However, they asked nonaccountants whether they perform management accounting tasks, and found that most answered: 'No'. However, the point to emphasize is that if managers really do have responsibility for their budgets, variances and forecasts, they are likely to regard them as their tasks, rather than management accounting tasks. The managers within BM(Europe) considered it their job to monitor their own budgets, to explain their variances and to produce their forecasts - possibly with the help of management accountants. Traditionally, these tasks would probably have been considered management accounting tasks. But this is no longer the case - they are now management tasks. Once again, although this devolution of responsibilities has been facilitated by the implementation of SAP, it had been initiated by the new 'US' management team following the acquisition of the UK company by BM Inc. Furthermore, in a study of external reporting and management decision-making, Scapens et al. (1996b) found evidence of what they termed a 'decentring of accounting knowledge', which they attributed to 'the increasing use of information technology at all levels in the companies studied' (p. 30), but not necessarily ERP systems. Rather, they suggested that it was due to the availability of cost and financial infonnation on managers' desks, facilitated by the use of networked personal computers. Thus, although ERP systems may take such developments to another level, it is difficult to conclude that SAP was the primary driver of this management accounting change in BM(Europe).

228 European Accounting Review (3) More forward-looking information. Although new more sophisticated management accounting techniques have not been introduced into BM(Europe) following the implementation of SAP, there has been change in the use of management accounting information, in particular with forecasts giving a more forward-looking emphasis. Although budgets continue to provide the initial plan for the year, the use of forecasts within BM(Europe) has some sympathy with CAMi's 'Beyond Budgeting' project (see Hope and Fraser, 1997). But again, although SAP facilitates the use of forecasts, it is not necessarily the driver of change. Hope and Fraser, for instance, do not link the Beyond Budgeting project to any particular type of computer technology. Scapens et al (1996b) also found evidence of the use of rolling forecasts in their case studies. Although they linked the use of rolling forecasts to a decentring of accounting knowledge and to the availability of information on managers' personal computers, they did not see an explicit link with the introduction of ERP systems. In fact, much of their casework predated the recent advent of and explosion in the use ERP systems (in particular, the R/3 version of SAP). It is also worth re-emphasizing the point made earlier conceming the managerial levels which use the SAP system in BM(Europe). As was pointed out, SAP tends to be used directly only by lower-level managers, while information has to be extracted from the SAP system and analysed, for example in spreadsheets, to provide the information needed by more senior managers. Fahy and Lynch (1999) also found that whereas ERP systems can improve transaction processing and transaction-based data, they do not provide strategic information for senior management. However, we must be careful here. Although SAP did not provide strategic information for senior managers within BM(Europe), it provides information to the senior managers of BM Inc. about their global operations. Such information clearly has strategic value for them. Nevertheless, at the end of our fieldwork, within BM(Europe) it was recognized that the implementation of SAP had not significantly affected the information used by their senior management. After four years of what was generally regarded as a successfiil implementation, 'operating' managers had learned to work with SAP, had modified their ways of working and established new organizational routines. However, in essence, all that had been achieved was the replacement of the legacy systems with SAP. Some of the senior managers intended to look for ways of exploiting the information available within SAP - but that was for the future! (4) A wider role for the management accountant. The routinization/ computerization of many traditional accounting tasks means that there is, in principle at least, space for management accountants to provide more direct support to business managers. Within BM(Europe) management accountants are frequently members of cross-functional management teams and task forces. Furthermore, as managers have greater responsibility for the financial aspects of their operations, they need the support of management accountants. But to be able to help managers interpret the various financial and non-financial information with which they are faced and to assess both the operating and strategic


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consequences of alternative courses of action, management accountants need a broad-based knowledge of the business, rather than a technical understanding of accounting. Whereas previously accountants (including management accountants) were the providers of information and fhe 'controllers' of the business, with a somewhat independent and objective role, they are now much more involved in the management team, wifh a direct role in the day-to-day running of the business (see Scapens, 1999). As the final quote in the previous section suggests, the professional management accounting bodies need fo ensure that management accountants are trained for this broader role. As far as SAP is concerned, the experience in BM(Europe) indicates that managers needed the support of management accountants, initially in understanding the information provided by the SAP system and then in utilizing fhe infonnation for management purposes. However, it is not obvious that it was SAP which was driving the management accounting change in the company. Within BM(Europe) we observed a widening of the role of the management accountants, and at the same time a reduction in the size of the accounting fiinction. But this was part of the broader changes which were already taking place within the company; in particular the increasing emphasis that was being given to the management of business processes. The implementation of SAP, however, did play an important role in reinforcing and facilitating the team-working and crossfunctional integration which were necessary for the management of business processes.

8. IMPLICATIONS FOR RESEARCH In BM(Europe) we see the implementation of SAP as part of an evolutionary process of change. SAP was introduced to replace a large number of legacy systems with a global information system, and the system design process had inputs from all parts of the business. Furthermore, a process-based form of organization was introduced into BM(Europe) following its purchase by BM Inc. Although initially the fianctional structure had been retained, there were business processes which cut across traditional fiincfional responsibilities. This sometimes created tensions which senior managers had to resolve. However, the integrated nature of SAP encouraged greater cross-flinctional co-operation and teamworking which built on the emerging process-based organizational structure. In essence, SAP was building on and supplementing the prevailing organizational routines, and thereby providing a way of resolving conflicts which were arising therein. SAP facilitated incremental changes to the existing ways of working (i.e. evolutionary change), rather than fundamentally challenging them (i.e. revolutionary change). This study of BM(Europe) is a case study of largely successful change - the new systems were implemented and are actually being used within the company. This may be contrasted with case studies of resistance to change, where the implementation of the new systems proved unsuccessful (for example, see

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Scapens and Roberts, 1993; Bums, 2000). Although these cases are not implementations of ERP systems, they do highlight the difficulties that can arise when the new systems challenge the prevailing routines and institutions. This suggests it would be very useful for fiiture research to study cases of the implementation of ERP systems in companies with, for instance, a strong flinctionally-oriented organizational structure. From the evidence of other cases of unsuccessful change it may be expected that conflicts might arise in such implementations. This could lead to quite different outcomes to those observed in the case of BM(Europe). Such a finding would be in line with the view in institutional theory that change is path-dependent - in other words, the outcomes of the change process are dependent on the starting point (see Bums and Scapens, 2000). Thus, to explain the outcomes of implementing ERP systems, we need to study the processes of change and to be sensitive to the evolutionary and pathdependent nature of those processes. Studies which simply seek to identify the 'impact of ERP systems' through surveys of the outcomes of the implementation process are not going to be able to address the nature and complexities of the change process. Longitudinal cases of the implementation of ERP systems are needed for that purpose. Nevertheless, such 'impact' studies may give an indication of the opportunities which ERP systems open up within organizations, but it would be inappropriate to think of ERP systems as necessarily the drivers of the change. For example, the studies of Granlund and Malmi (2002), Fahy and Lynch (1999), Maccarone (2000), Booth et al. (2000) and Beretta (2001) identify a number of management accounting changes which followed the implementation of ERP systems - some similar to those we observed in BM(Europe) and others somewhat different. In BM(Europe), although there was little change in the management accounting systems/techniques in use following the implementation of SAP, there were changes in the role of the management accountants. But we cannot conclude that these changes represent 'the impact of ERP systems on management accounting'. Although the implementation of SAP in BM(Europe) appears to have facilitated changes in management accounting, the company was already changing. It had already started making managers more responsible for their financial performance and it was giving greater emphasis to business processes. Nevertheless, neither of these changes was very extensive prior to the implementation of SAP, and a largely functional orientation was retained. The process orientation upon which SAP is built encouraged managers and accountants to think in process terms, and it made it easier for managers to be held accountable for their financial performance. As a result, we saw line managers with accounting knowledge using more forward-looking management information. While we can say that SAP facilitated these changes, we cannot conclude that they were the result of the implementation of SAP So rather than asking what impact ERP systems have on management accounting, we should seek to identify the opportunities which are opened up by their implementation. Four such opportunities were identified in Table 1. More longitudinal case studies are needed to explore these opportunities


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in other companies, to add other opportunities to the list, and to study how they are facilitated by the particular characteristics of ERP systems. But we are not arguing that ERP systems are drivers of management accounting change; the potential may be there, but the processes of change will be inherently evolutionary and path-dependent. Thus, in researching ERP systems and management accounting change, we need to study processes of change through longitudinal case research, rather than seeking to identify the 'impacts of ERP systems',

NOTES 1 Including those which had only implemented the accounting modules, 2 Not the company's real name - which has been changed to preserve confidentiality, 3 Many large companies, which had grown through acquisitions in the late 1980s and early 1990s, were also likely to have had large numbers of such legacy systems. In the mid-1990s the potential costs of maintaining and ensuring Y2K capability of these systems could have looked quite prohibitive. This may, in part, explain the exceptional growth of ERP systems in large companies at that time. An ERP system seemingly offered many attractions to corporate managers, and at the same time side-stepped the Y2K problem. In BM Inc. much of the cost savings attributed to the introduction of SAP came from the replacement of these legacy systems, 4 In view of the need to maintain confidentiality, it is not possible to cite the specific references to these sources, 5 Some minor changes have been made to the quotes to disguise the identity of the company, 6 However, in the course of our other fieldwork and in conversations with other researchers in the area, we have become aware of companies which have implemented an ERP system in only part of the business, and indeed of companies which have different ERP systems in different parts of their business - for example, some divisions using SAP and others using Baan, Such companies would seem to be interesting subjects for further research as they appear to be sacrificing the major benefit of implementing an ERP system, 7 In recent years there have being increasing numbers of companies which have been centralizing, and even outsourcing, their information processing. Geography and physical distance are seemingly no barrier to such developments, and India has become a major location for such activities, with Ireland also gaining ground in recent years, 8 It should be pointed out that in a recent paper which also explored the implementation of ERP systems, Quattrone and Hopper (2001) go even further, and question whether it is meaningful to talk about organizational change at all. Coming fi'om a rather different direction, Quattrone and Hopper draw on the sociology of translation and constructivism to argue that the concept of organizational change should be replaced by the notion 'drift'. Nevertheless, their work also points to the importance of understanding the processes which produce this 'drift'.

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