Mark A. Covaleski

An institutional theory perspective on the DRG framework, case-mix accounting systems and health-care organizations

Abstract Case-mix accounting systems have been advanced as both reflecting the economic reality that underlies a hospitals various “product lines”, as defined by DRG prospective payment categories, and facilitating rational decision making regarding resource acquisition, deployment and use. This article uses the institutional perspective to extend this conceptualization of case-mix accounting systems. The institutional perspective proposes that many elements of organizational structure, like case-mix accounting systems, reflect as much a need to conform to societal expectations of acceptable practice as the technical imperative of fostering rationality. This article also extends institutional theory regarding the issues of power and decoupling by considering institutionalization to be an unfinished process in the health-care context, wherein the active agency of individuals and organizations is subjected to systematic examination. In this specific context, case-mix accounting may play a significant role in establishing and perpetuating — not merely supporting — the very social structure of legitimacy, and may consequently be considered an interest-oriented activity having the potential to penetrate and alter the internal operating processes of financially strained hospitals.

The use of budgetary symbols in the political arena: An historically informed field study☆

Abstract Within accounting, an emerging perspective has held that budgeting is complicit in the creation of a social reality. Seen in such terms, budgetary dialogue is one manner in which societal expectations are expressed, thereby transforming contemporary organizations. Further, it is argued that organizational practice must specifically embody and reproduce these societal expectations in order for the organization to exist. This paper describes a field study directed at assessing the usefulness of such a perspective on budgeting by examining the nature of the budgetary process between a major state university and its state government.

Informal communications, nonformal communications and mentoring in public accounting firms

Abstract Control is important within public accounting firms for a variety of reasons. Yet professional pronouncements are limited in providing guidance to auditors in the form of formally stated rules and requirements. The purpose of this article is to examine the non-formalized, non-rule oriented approaches employed in large public accounting firms to effect control. More specifically, it is directed towards understanding the possible roles of informal and nonformal communications and mentoring in managing public accounting firms. Based upon evidence gathered using a naturalistic, qualitative research methodology, it is concluded that: (1) informal communications exist in public accounting firms, play a limited role in informing organizational members of the politics and power within the organization, and are of some benefit to lower level individuals; and (2) nonformal communications and mentoring are involved with the performance of audit tasks, socialization of the individual firm, and instruction as to politics and power within the organization, and benefit the protege, mentor and firm, though at some cost. Implications of the study are also explored.

The budgetary process of power and politics

The traditional literature has long espoused the claim that budgeting facilitates and enables technically rational decision-making within organizations, and that good budgeting reflects organizational reality. In contrast, an emergent view reasons that budgeting systems may as much be constitutive of reality, that they are an integral part of the politics and power of organizational life and that they are used to legitimize action. The purpose of the paper is to consider the usefulness of the emergent theory in understanding budget-related behavior in six hospitals. More specifically, the complicity of budgeting in performing or not performing six management roles is examined. Based on intensive interviews with nursing managers, it is concluded that the emergent theory meaningfully describes much budget-related activity in the hospitals, but that double-reflexivity on the part of the researcher is necessary in order to understand both the merits and limitations in the emergent theory. Implications of the analysis and empirical inquiry are considered.

Structure and agency in an institutionalized setting: The application and social transformation of control in the Big Six

Abstract The study reported here drew upon select portions of institutional theory, the sociology of the professions, and structuration theory to analyze the exercise, resistance and transformation of control in Big 6 accounting firms. Its focus is on understanding the interplay between structural and social facets of these firms as shaped by the relative power of their administrative and practitioner agents. We examined these issues by means of an interpretive field study which found that the firms have implemented the formal, structural practice of management by objectives (MBO) as one element in an array of rationalizing strategies in the expectation that MBO would provide an integrated approach to effecting management control. We also found that mentoring has become an important social force shaping, and in turn being shaped by, the exercise of formal control. It is concluded that the structural and social processes of MBO and mentoring, while serving primarily the administrative and practitioner components of the firms, have become interpenetrated or mutually constitutive in actual practice, each serving a spectrum of interests, functions and purposes. Our results further suggest that, as ongoing processes, MBO and mentoring are infused with power and self-interest, and that they serve as instances of the constraints, media and outcomes of structural and social change within the Big 6 firms.

Budgeting as a means for control and loose coupling

Abstract Budgeting has been traditionally viewed as one means for achieving control over activities performed at middle and lower levels in the organization through an essentially downward flow of information. This paper proposes that the use of budgeting, particularly in the nursing services area where centralized control by a hospital administration may not be attainable, is more complex than this traditional definition would suggest. In such a setting, budgets may well be used as a negotiating tool with which middle level managers advocate the needs of the subunit to upper-level organizational members. Such a use of budgets would emphasize an upward flow of information which is, in turn, consistent with the image the organization wishes to portray to its environment.

Jurisdictional disputes over professional work: the institutionalization of the global knowledge expert☆

Abstract The purpose of this paper is to use the sociology of professions, institutional theory, and outsourcing literatures to examine the dramaturgy of exchange relations among the Big Five public accounting firms, the American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA), and the Securities Exchange Commission (SEC), as it concerns the outsourcing of internal audit services to international external audit firms. Toward this end, a latent content analysis of a variety of public and private documents is performed where we find that the transformation of the jurisdiction of internal auditing to be rife with conflict, characterized by a heated dramaturgy of exchange relations among the Big Five, the AICPA, the IIA, the SEC, and also the US Congress. Rhetorical ploys supporting this dramaturgy incorporated such key terms as: “world class services”, “global economy”, “market forces”, “commodification”, “monetization of professional services”, “knowledge experts”, “the knowledge millennium”, “leveraging knowledge”, “higher order platform of services”, “value chains”—all in addition to making more money. At issue is how the competing factions seek to re-institutionalize societal expectations of proper professional behavior to legitimate a transformation of jurisdictions, for example, to create the “knowledge expert” providing robust services in a global economy.

Internalization versus externalization of the internal audit function: an examination of professional and organizational imperatives

Abstract This paper examines the recent trend towards the outsourcing of internal audit services to the public accounting profession. Here we draw from two dominant literature perspectives (the sociology of professions literature and the outsourcing literature) to examine this clash between the public accounting profession and the internal auditing profession over the provision of internal audit services. Two major research propositions are postulated from which to consider these issues. These propositions concern themselves with the efforts of both the public accounting profession and the internal audit profession in this outsourcing debate. We examine these professions both in terms of volitional professional behavior (as espoused in the sociology of professions literature) and organizational arguments (inherent advantages and disadvantages of the externalization of work as typically espoused by the outsourcing literature).

Changes in the institutional environment and the institutions of governance: extending the contributions of transaction cost economics within the management control literature

Abstract Transaction cost economics (TCE) has been proposed as a useful approach for examining management control (MC) issues. The purpose of this paper is to explore the articulation of TCE and MC through the use of the work of early institutional economist John R. Commons. In keeping with Commons’ work, we incorporate institutional change as important to considerations of the viability of alternative forms of governance including various management control practices. Also consistent with Commons’ work, our paper elaborates upon the significance of the concepts of “asset specificity” and “opportunism” through an illustrative analysis of contemporary efforts to de-regulate the utilities industry in the State of California, and the related role of Enron Corporation in those de-regulatory efforts. This context provides a rich backdrop to highlight the joint articulation of TCE and MC issues.

The preservation and use of public resources: Transforming the immoral into the merely factual

This paper examines the rhetorical process by which an ensemble of calculative practices and techniques including accounting came to be adopted, developed and justified in the State of Wisconsin at the turn of the century under the Progressive leadership of Governor Robert M. La Follette. Toward this end, the authors use primary and secondary archival materials to explicate three rhetorical strategies—Shakespearean, formalist, and expertise—the governor employed. They find that the process of institutionalizing these calculative techniques was and is profoundly political and reflective of the relative power, both oven and covert, of organized interest groups. The paper concludes with implications derived from the analysis.