Gordon Miller 1976 AOS

7/22/2019 Gordon Miller 1976 AOS

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Accounti ng, Organizations and Society, Vol. 1, No. 1, pp. 59-69. Pergamon Press, 1976. Printed in Great Britain

A CONTINGENCY FRAMEWORK FOR THE DESIGN OFACCOUNTING INFORMATION SYSTEMS*

LAWRENCE A. GORDON and DANNY MILLERMcGill University

AbstractMost of the research to date concerning the design of an accounting information system has taken arather narrow and inflexible view of accounting information. The primary intent of this paper is toprovide a broader and more adaptive framework for designing such systems. A contingency approach,which takes into account the environment, organizational attributes, and managerial decision makingstyles, is advocated. In this context, several hypotheses are offered concerning the requisites of anaccounting information system.

Problems of designing an accounting informationsystem (A.I.S.) have long received the attention ofmanagement accountants. For the most part, theefforts to date have been directed at searching forthe single most desirable method of generatingfinancial data to promote effective decisionmaking. On the other hand, little attention hasbeen given to the need for considering environ-mental, organizational, and decision making styleattributes in the design of an A.I.S. Also over-looked in much of the previous work is thecontingent nature of most decision making.Accordingly, this paper represents the results of aneffort to fill some of these gaps. Our objective is toprovide a framework for designing accountinginformation systems which consider the specificneeds of the organization. In order to accomplishthis objective, we have drawn on the literature oforganization theory, management policy, andaccounting so as to isolate the environmental,organizational, and decision making variableswhich have been shown to be critical toorganizational performance. We examine theimpact of these variables upon the requisites of the

accounting information system. The specificrelationships considered are indicated by the solidlines in Fig. 1 .i

Environment 1 AII

Declslonccounttng mformatmn 3 mokmgsystem - StyleI 2 -- III

Fig. 1.

The characteristics of the accounting informa-tion system, to which the environmental,organizational and decision making variables willbe related are: information load, centralization ofreporting, cost allocation methods (with referenceto both amount and timing), frequency of

*The authors wish to thank all the participants at the 1975 McGill Symposium entitled Behavioral Models andProcessing Accounting Information, for their comments on a draft paper which contained some of the initial thoughtsleading up to this manuscript. Subsequent comments on earlier versions of the paper by M. Bariff, J. Birnberg, H. Falk,W. Frank, D. Marshall, and an anonymous referee are also greatly appreciated.The relationships indicated by the dashed lines will not be discussed in this paper. However, we do not believe thatthis restriction will mitigate the thrust of the paper. Further work by the authors, now underway, does include explicitconsideration of these relationships.

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60 LAWRENCE A. GORDON and DANNY MI LL ER

reporting, method of reporting (e.g. statements,raw data, charts, pictures), time element ofinformation (e.g. ex ante vs ex post data),performance evaluation, measurement of events(e.g. financial vs nonfinancial data and external vsinternal data), and valuation methods (e.g.historical cost vs market value vs price leveladjusted information).

We will also briefly discuss the relationshipshypothesized in the literature among environ-mental, organizational, and decision style variables(links A, B, C in Fig. 1). Our discussion of theselatter relationships will highlight the non-randomnature of the required organization attributes anddecision making styles, given the nature of theenvironment.

In the third section of the paper we discussthree archetypes empirically derived by Miller(1975a) which characterize common clusteringsof environmental, organizational and decision styletraits. The thrust of this discussion is to relatethese archetypes to the A.I.S. requisites which wehypothesize to be effective under each circum-stance. The first archetype discussed is anadaptive firm, while the second and thirdportray running blind and stagnant bureau-cracy firms respectively. Implications are drawnabout the required features of the A.I.S. undereach circumstance. These archetypes are intendedto illustrate that different information systems arerequired according to each situation and that thesesystems should be designed employing a totalconception of the firm and its administrative tasks.However, it must be emphasized that we areattempting to provide a framew ork for analyzi ngthe needs of the A.I.S., rather than prescribing aunique system. In fact, due to the contingentnature of a well designed A.I.S., we believe that noone prescribed system could ever be effective in allcircumstances. On the other hand, we do offerseveral hypotheses on the A.I.S. characteristicswhich may be appropriate under certain condi-tions.

THE LINKS OF THE MODELA. The envi ronment of t he irm and the requisit esof the accounti ng i nformat ion system

The environment of an organization can becharacterized by at least the following three keydimensions: (1) dynamism, (2) heterogeneity, and(3) hostility. A discussion of each of these

dimensions and their relationships with theaccounting system follows.

Environmental dynamism. Some organizationssell their products in environments whereconsumer tastes are stable and predictable, thetechnology required to produce goods or renderservices remains the same (or almost the same) astime passes, and competitors tend to behave in apredictable fashion in terms of their product-market orientations. Other firms face much moredynamic environments. In these settings, consumertastes shift rapidly and unpredictably, newtechnologies and sources of supply often arise, andcompetitors introduce many radically newproducts. The same accounting informationsystem cannot serve the needs of both thesegroups of firms equally well. Thus, we propose thefollowing hypotheses: As environmentaldynamism increases, the effective A.I.S.:

(a) begins to incorporate more nonfinancialdata to provide managers with information oncompetitor actions, consumer tastes, and shiftingdemographic factors. Financial data alone will notprovide information which is sufficiently preciseto inform managers of important trends beforethey become crises.

(b) increases the frequency of reporting.Although Cook (1967) implies that an increase inthe frequency of feedback will in general increasemanagerial performance, it is our contention thatthe relationship between frequency of feedbackand performance becomes more crucial in adynamic environment than in an unchangingenvironment.

(c) makes greater use of forecast information,again to inform managers of trends and importantissues before they become difficult problems.

(d) is more conservative in the allocation ofexpenses; for example expense, rather thancapitalize, costs for such things as R D, so as tohelp inform managers of the additional riskassociated with projects having a long-term payoff.Thus we would tend to concur with the FASBsrecommendation (1974) to expense, rather thancapitalize, R D under these conditions. On theother hand, with a stable (unchanging) environ-ment, the wisdom of their recommendation seemsquestionable.

Envir onmental het erogenei t y. The environmentof an organization might be homogeneous in termsof the required product-market orientations,


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DESIGN OF ACCOUNTING INFORMATION SYSTEMS 6

consumer characteristics, production technologies,and raw materials markets. As pointed out byLawrence and Iorsch (1967) Thompson (1967)and Khandwalla (1972a), for some organizationsthe environment may be extremely diverse in theserespects. For example, a large conglomerate, suchas I.T.T., deals in very different markets, with verydifferent products and different required techno-logies - a heterogeneous environment. Wehypothesize that, as the level of environmentalheterogeneity increases, the effective A.I.S.:

(a) does more to tailor specific parts of thesystem to the sub-segments of the environment. Inother words, there is greater need for moredecentralized as opposed to centralized accountingsystems. Some divisions of a firm may require anelaborate A.I.S. to cope with a dynamic setting,whereas others may cope with a simple system ifthey operate in a stable environment.

(b) compartmentalizes information so that it ispossible for central management to assess theperformance of the separate divisions and thepersonnel responsible for them. Cost, profit andinvestment centers are some of the compartment-alization techniques available by which toaccumulate accounting information.

Environmental hostility. A dimension closelyrelated to environmental dynamism is that ofhostility (Hermann, 1969). Hostility results fromthreatening actions of competitors (e.g. cut-throatcompetition) or threatening shortages of scarceresources due to strikes, governmental regulationsor credit squeezes. We hypothesize that, ashostility increases, the effective AD.:

(a) provides more frequent reports to informmanagers of impending dangers.(b) provides substantial nonfinancial data tocharacterize the variables most sensitive to, andindicative of, threats in the environment. Aspointed out by Mintzberg (1975) one of theexisting impediments to managerial use of datagathered in formal information systems is that theinformation is too limited in scope. Presumablythis recommendation would tend to offset thisimpediment.(c) employs a fairly sophisticated costaccounting and control system. Khandwallasstudy (1972b), where he points out that thesophistication of a fums control system is highlycorrelated with the intensity of competition inthat firm, clearly shows that many fums havealready recognized this requisite of the A.I.S.

B . The organi zation and the requisites of theA.I.S.

The literature on organization theory is repletewith findings on the types of organizationalstructures required given the conditions in theenvironment. Woodward (1965) Lawrence andLorsch (1967) Bums and Stalker (1961)Thompson (1967) Perrow (1970) and a host ofothers, have pointed to the need for moresophisticated organizational devices as thedegree of environmental dynamism, heterogeneity,and hostility accelerate. Typical devices used byfirms to cope with these more complex environ-ments include uncertainty reduction mechanismssuch as decentralization, divisionalization,differentiation of organizational sub-units, andintegration of these diverse orientations viacommittees, rules and policies. We shall discussfive organizational attributes which derive fromincreased environmental dynamism, heterogeneity,and hostility, and focus upon the characteristics ofthe A.I.S. which are required for increasing levelsof these organizational traits. The attributes,which are intended to be illustrative rather thanexhaustive, are as follows: (1) decentralization,(2) differentiation, (3) integration, (4) bureau-cratization, and (5) resources.

Decentralization. As the administrative taskbecomes more complex, sub-tasks and responsibili-ties must be delegated to lower levels ofmanagement to ease the burden of decisionmaking. Thus increased environmental dynamism,heterogeneity and hostility must often beaccompanied by decentralization of power andresponsibilities. Such decentralization might takethe form of divisionalization and/or departmenta-lization. Under these conditions, the A.I.S. mayhave to become more sensitive and sophisticatedsince the progress of divisions must be monitoredat the top of the organization. There is anincreased requirement for formal controls toreplace informal controls. We hypothesize thatunder decentralization the effective A.I.S.:

(a) produces more explicit reports on theperformance of organizational sub-units (i.e. theaccounting system itself must becomedecentralized). As pointed out by Benston (1963)many have argued that this type of reportingsystem is not only the result of, but is in fact aprerequisite to, decentralization.

(b) develops substantial supporting informa-tion to enable sub-unit performance evaluation.


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For example, the development of a transfer pricingsystem will facilitate sub-unit profit evaluation.Other ways of facilitating performance evaluation,as pointed out by Abdel-Khalik Lusk (1974),include analysis of costs and measurement ofphysical units of output.(c) encompasses a sophisticated planning andcontrol system. Decentralized firms must carefullyconsider how they will allocate and control theirresources among divisions so that the maximumreturn is achieved without negating the potentialmotivational benefits to be derived fromdecentralization. In this regard, Godfrey (1971)has suggested a short run planning model for use ina decentralized firm, which recognizes the need forcorporate allocation of scarce resources and alsopromotes divisional autonomy.

Differentiation. Some firms have sub-unitswhich are quite similar to one another in terms oftheir modus operandi, time horizons, goalorientations, and the interpersonal habits of theirstaff. Others contain sub-units which are verydifferent in these respects. The later group of firmsis referred to as being highly differentiated(Lawrence Lorsch, 1967). Clearly theadministrative control tasks and internalcommunication of the organization become muchmore difficult if managers with differentorientations must come into contact with oneanother. Since they often perceive issues verydifferently (Lawrence Lorsch, 1967), wehypothesize that the effective A.I.S. can help meetthe challenge posed by these communication andcontrol problems by:

(a) providing the different sub-units with anA.I.S. suited particularly to their needs.Accordingly the accounting system should be of adecentralized nature. For example, WatsonBaumler (1975) discuss the role the A.I.S. can playin facilitating the requisite degree of differentia-tion among organizational units via theappropriate transfer pricing system.

(b) gathering data from sub-units in a mannersuch that executives can assess the relativeperformance of each sub-unit. To the extent thatunits are very different, data collected for the topmanagement must be chosen carefully so as not tomix apples with oranges. Also, care must betaken so as to prevent information overload fromoccurring. As discussed by many in the accounting

62 LAWRENCE A. GORDON and DANNY MILLERliterature (e.g. Miller Gordon, 1975; DriverMock, 1975; Revsine, 1970), more information isnot necessarily better than less.

Integration. As the level of organizationaldifferentiation increases, there is a greater need formore integrative devices to assure a consistent andcoordinated strategic effort and avoid inter-divisional conflict (Lawrence Lorsch, 1967).Khandwalla (1972a) lists an array of integrativedevices, such as: participative management,coordinative committees, explicit policies andgroup objectives. Thompson (1967) speaks ofvarious modes of interdepartmental coordination,such as rules and reciprocal feedback mechanisms,which become required as the degree ofenvironmental uncertainty (dynamism andhostility) increases. The A.I.S. can serve as apowerful coordinative device, particularly if thedegree of organizational differentiation is quitehigh. We postulate that under these conditions theeffective A.I.S.:

(a) incorporates plans and budgets whichrepresent overall corporate targets to which eachsub-unit must contribute. However, achieving goalcongruency (Bierman Dyckman, 1971) amongsub-units is easier said than done and thus thedifficulty of implementing this suggestion shouldnot be under-estimated.

(b) presents information to managers ofsub-units on some vital matters or parametersconcerning other units. Such information shouldhelp to encourage joint problem solving among themanagers of separate units, which in turn can serveto foster invaluable inter-unit informal com-munication.

Bureaucratization. Bureaucratization refers tothe extent to which organizational activities arestructured, programmed, specialized, and narrowlyprescribed. Formal rules abound and traditionalmodes of operation severely limit the individualdiscretion of lower level managers in highlybureaucratic settings.* Argyris (1964), BurnsStalker (196 l), Bennis (1966), among others, haveindicated some dysfunctional side effects ofbureaucratization, such as insensitivity to the needto change strategies and employee dissatisfaction.These are particularly severe in dynamic environ-ments in which individual initiative at lower levelsis very much required to prompt the organization

Pugh era/. (1963) have denoted this situation as structuring of activities.


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DESIGN OF ACCOUNTING INFORMATION SYSTEMS 63

to adjust to its external context. We hypothesizethat some of the ill effects of bureaucratizationcan be countered by an effective A.I.S. as follows:

(a) the A.I.S. can provide upper level managerswith financial and nonfinancial information on theexternal environment. This type of informationmay indicate important trends requiring moreflexible and situational organizational responses.Specifically, the information presented can tosome extent alert the executives and motivatethem to eliminate some dysfunctional bureaucratictraditions or rules. The A.I.S. can act as a changeagent.

(b) the A.I.S. can provide price level adjustedand/or market value statements, as well as forecaststatements, to inform managers of conditionswhich require the departure from traditionalmodes of operation. Unlike many proponents ofmarket value accounting (see, e.g. Romano, 1975)and price level adjusted statements (e.g. AICPA,1969) we believe that the virtues of thesevaluation methods depend on the specificorganizational traits of the firm in question.

Resources. While some firms have an abundanceof slack resources such as managerial expertise,technocratic skills, and financial and materialresources, others may experience grave shortages.We hypothesize that the effective A.I.S. can helpmanagers to cope with these shortages as follows:

(a) if managerial expertise is known to bedeficient in any area, the accounting system can beused to provide data which could better informmanagers about things they otherwise would nothave been able to fully understand. For example,if a new manager is unfamiliar with the behavior-ofhis customers, the A.I.S. should be particularlythorough and informative in terms of theinformation which it provides to this managerabout market characteristics and buyer purchasingpatterns. Recent efforts in the area of humanresource accounting (see, e.g. Flamholtz, 1974)may eventually go a long way in helping to isolatethose areas where managerial expertise is, in fact,deficient.

(b) if technocratic expertise is lacking, then theA.I.S. could provide more detailed costinginformation such as quantity and cost variances,percentage of total costs due to scrap or poorquality, and number of units rejected because of

production flaws. Such statistics would help toinform managers about the areas where productionmethods could be improved.

(c) scarcities in material and fmancial resourcesmay also be reflected in the A.I.S. Such resourcescould be carefully monitored by the informationsystem through sophisticated costing techniques,profit plans, resource allocation plans, resourceutilization forecasts, and key indicators of theconditions prevailing in the financial markets.C. The de ion mak i ng sty l e of executi ves andt he requisit e of t he A.I .S.

The deci ion making style which an executiveemploys to i djust his organizations orientation tothe needs the environment is critical to the wellbeing of the enterprise. For example, where theenvironment is dynamic, decision makers aresometimes required to be more proactive in theirdecision making (Ackoff, 1969). Perrow (1970)and Thompson (1967) claim that decision makingmust become more sensitive and adaptive toexternal requirements under these circumstances.Thompson Tuden (1959) and Wheelright (1970)argue that a simpler, less analytical, more short runoriented type of decision making will tend to takeplace where environments are dynamic andheterogeneous. Organizational attributes alsodetermine the types of decision styles needed.Normann (1971) and Allison (1971) indicate howstructuring of activities reduces adaptiveness andinnovativeness. Cyert March (1963) indicatehow decentralization might result in lessintegrated, more bargaining oriented, decisionstyles.

We shah focus on the ability of the A.I.S. toinfluence the following six dimensions of decisionmaking styles: (1) analysis, (2) time horizons,(3) multiplexity, (4) adaptiveness, (5) proactivity,and (6) consciousness or explicitness of strategiesand objectives. In other words, we shall examinethe manner in which the A.I.S. may eventuallychange a managers style of decision makingbehavior (Hofstedt Kinard, 1970).3

Anal ysis of decisions. The executives of someorganizations spend a great deal of time and effortstudying their environment and the problems andopportunities which confront the organization.Other managers tend to make seat of the pants

Hopwood 1974) discusses a relationship of another direction - i.e., the manner in which leadership climate, anotherdimension of decision making style, influences the way managers use accounting information in performanceevaluation.


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64 LAWRENCE A. GORDON and DANNY MI LL ER

decisions on the basis of their intuition, scarcelyregarding the objective characteristics of thesituation. Although Mock et al. (1972) suggestthat the payoffs from analytical decisionmaking will in general exceed those accruing toseat of the pants executives, it is our contentionthat such payoffs will depend on a host ofenvironmental and organizational variables. Forexample, under an extremely stable environment,the incremental costs associated with an analyticalrather than seat of the pants approach todecision making may well be more than theincremental benefits derived. On the other hand,where environmental dynamism and hostility aresubstantial, a more analytical approach to decisionmaking may become necessary for survival(although difficult to implement). In the lattercase, we hypothesize that the effective A.I.S.:(a) provides substantial non financial data onkey operating trends.

(b) provides a graphical presentation ofinformation which compares actual with fore-casted (budgeted) figures and clearly indicateshistorical trends. This type of presentation maystimulate managers to further explore key issues.

(c) stores adequately detailed financialinformation so that indepth analysis can beperformed where deemed appropriate.

Decision t ime horizons (futuri t y). Managersconcerned only with day-today operating mattersneglect to consider the long-term repercussions oftheir immediate decisions. It may be crucial to giveserious attention to the long-term implications ofdecisions. Certain environmental and organiza-tional conditions (e.g. a relatively stable environ-ment, where certain key material resources aresteadily being depleted) increase the feasibility andneed for managers to take a long-term approach todecision making. Under such conditions, toprovoke executives to look into the future, wehypothesize that the effective A.I.S.:

(a) presents trends, as well as data points.(b) provides forecasts of expected events and

financial variables which are critical to theoperating performance of the firm. The recent(February, 1973) decision by the SEC in the U.S.to permit the tiling of forecasted earningsstatements should have interesting implicationstowards fostering the generation of this type ofinformation.

(c) presents information on objective settingprocedures which force managers to think more

about goals, programs, and the future of theorganization.

M ult i plex decision ma?cing. Some corporateexecutives consider very few factors in makingstrategic decisions. For example, a manager maybegin to introduce a new product on the basis offorecasted market demand, neglecting to examinesuch things as detailed estimates of product costs,production methods, and staff requirements.Other managers adopt a much more multiplexapproach. In some environments, such as oneswhich are extremely heterogeneous and/ordynamic, a multiplex decision making orientationis probably not feasible. On the other hand, in amoderately dynamic and heterogeneous environ-ment, multiplex decision orientation may be bothfeasible and desirable. Assuming the lattersituation exists, the effective A.I.S. may be able tofoster multiplexity by:

(a) providing both financial and nonfinancialdata.

(b) supplying top level executives withinformation which pertains to a number offunctions (e.g. marketing, finance, production) inthe organization.

(c) allowing only the very crucial facts toappear on centralized reports, since, in order toprevent information overload, there is a need tosacrifice depth and detail for breadth.

(d) providing sub-unit heads with information,financial and non-financial, on the activities ofother sub-units.

Adaptiveness. As dynamism increases, there is agreater need to track what competitors are doingand how consumers are behaving. Some corporatemanagers are quite adaptive to changes in theorganizations environment, while others are not.The A.I.S. can be an extremely vital vehicle inpromoting adaptiveness to external factors andinternal needs. We hypothesize that, in promotingadaptiveness, an effective A.I.S. will:

(a) supply managers with information on whatis going on in the external environment. Examplesinclude information on the market share of thefirms various products, and reports of customerattitude surveys.

(b) increase the frequency of reporting so as toprovide information or critical conditions beforethey become problems.

c) highlight cost and budget variances andpoint to situations in which things are not goingsmoothly.


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DESIGN OF ACCOUNTING INFORMATION SYSTEMS 65hoactivity. Proactivity is defined as the

tendency to be ahead of competitors in takingcertain actions. Its opposite is reactiveness inwhich decisions are only made upon provocation.Many managers tend to be overly conservative intheir approach to decision making. They introducenew products or embark upon programs toexecute technological innovations in the produc-tion process only when they have very clearevidence that they are in trouble. The absence ofproactivity is especially serious in dynamicenvironments where it is extremely easy to fallbehind the competition. To promote a proactivedecision making style, we hypothesize that theeffective A.I.S.:4

(a) includes information on the activities ofcompeting firms. Information should be suppliedon new product introductions and technologicalinnovations being implemented in the industry.While this is hardly a standard sort of informationfor an A.I.S., it is likely to pay off handsomely inmaking managers more aware of the need forchange.

(b) reports product demand forecasts (trans-lated into forecasted revenues) and the long-runprospects for the costs of production. Suchforecasts should help executives to think in termsof promising new markets and technologies whichmight be exploited before the old ones becomeuneconomical.

Consciousness of strategies. Lindblom (1968)describes a type of decision making which isdisjointed. That is, organizational decisions aremade more or less independently. It is difficultunder this mode to ensure that the actions oforganizational sub-units are congruent with overallorganizational objectives. Executives tend tomaximize short term objectives and parochialinterests at the expense of strategic goals and longterm plans. In an environment characterized byheterogeneity, an explicit and conscious concep-tion of decision making is difficult to achieve butis most desirable. In an effort to facilitate such anorientation towards decision making, the effectiveA.I.S.:

(a) incorporates a system of targets andobjectives which must be met by each department.Targets relating to costs and profits, quality

control, customer satisfaction and market shareare all potential candidates. The objective settingprocess may be a participative one, withinformation coming from all relevent departments.

(b) compares actual results with targeted orbudgeted objectives so that the performance oforganizational sub-units can be appraised in lightof overall organizational objectives.

ARCHETYPAL ORGANIZATIONS ANDREQUISITE QUALITIES OF THE A.I.S.

By now it should be clear that an accountinginformation system should be designed in light ofthe contextual variables surrounding the specificorganization. Our discussion thus far was intendedto generate some conceptual anchor points andrelated hypotheses which might provide a basis forfuture research and which eventually designersmight use as examples in the design of their ownsystems. We did not attempt to prescribe apanacea system. Instead, we have been trying toestablish the point that a contingency approachmust be taken in designing an organizations A.I.S.

In this section we discuss three archetypalfirms discovered by Miller (1975a) which representtypical agglomerations of environmental,organizational, and decision style traits. The threearchetypes are (1) adaptive, (2) running blind, and(3) stagnant bureaucracy. We then relate thesearchetypes to the A.I.S. requisites which wehypothesize to be effective under each circum-stance.

Based on Millers analysis of the cases, i t seemsthat envir onmental, organi zational , and. dectii onstyle traits are not distri buted randomly butactuall y cluster together to form commonlyoccurring confiigurations. Thus, rather than havingto worry about an unmanageable number ofpermutations of the variables discussed in theprevious section, it appears that the designer of anA.I.S. may have only to focus on a few selectvariables from which a host of peripheral factorsgenerally follow. Our emphasis here is not,however, on the derivation of the archetypes(since this is discussed at length in Miller, 1975);but rather with the generation of hypothesesconcerning the requisites of the A.I.S. given theexistence of such archetypes.

4Although our discussion has been concerned with the impact that the A.I.S. can have on a given decision making style,it should be apparent that this relationship is like a two edged sword. For example, Sorter er 01. (19641, have providedevidence showing how a corporations conservative management can unfavorably affect that part of the accountingsystem related to depreciation policy.


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66 LAWRENCE A. GORDON and DANNY MILLERA. The adapti ve ir m

Several of the cases studied involved firmswhose environments have been quite dynamic fora substantial length of time while heterogeneity isonly moderate. In these firms, there existssubstantial decentralization of authority, moderateto low differentiation and more than adequateintegration. Managerial, technocratic, and financialresources are quite abundant. Decision makingstyles are characterized by great multiplexity,substantial analysis of strategic issues, an adaptiveand responsive orientation to important trends inthe environment, and an explicit and well definedstrategy. Executives tend to be quite innovativeand proactive, in that they seize upon oppor-tunities in their environment rather than waitinguntil they are in trouble before they act. Theperformance level in these firms is high. A largepart of the apparent success of these adaptivefirms seems to be due to the type of informationand intelligence systems which they employ.

Individuals designing accounting informationsystems for the above described firms haveapparently done their jobs fairly well. The maininformation system characteristics which arehypothesized to be effective for such firms are:6

(a) a capacity for gathering information on theexternal environment. Environmental dynamismmakes this a particularly important feature toincorporate into the A.I.S. in firms of this sort.

(b) the collection of non-financial, as well asfinancial,inflationary info;r;r;son (e.g. ipn~fotionide;rnewtechnological ideas, and consumer taste trends):Again, environmental dynamism increases theimportance of nonfinancial information in track-ing the environment.

(c) a uniform accounting system from onesub-unit to another. Since differentiation is low inthese firms, the same type of information systemcan be used across the firms divisions. Acentralized, rather than decentralized, A.I.S. seemsmore appropriate.(d) the internal flow of information acrossdepartments (laterally) and levels of authority(vertically) should take place in an unimpeded,timely, and informative fashion. This is importantdue to environmental dynamism and is feasible

because of moderate heterogeneity and lowerdifferentiation.

(e) data analysis presented to top managementshould be of a low level of detail. Becausedecentralization has been operating successfullyand resources are plentiful, top level executivesneed not be overly concerned with the minutia oflower level operating matters.

(f) the array of information provided tomanagers should be quite broad. This type ofinformation can be effective since managers inthese firms tend to be multiplex, adaptive, andanalytically inclined. These sorts of executives willthemselves seek more information (which theA.I.S. can store but not distribute) if and whenthey feel it is needed.B The running bli nd irm

Several of the cases studied involved firms inheterogeneous markets whose environmentschange markedly over a relatively short period oftime. The tremendous dynamism and hetero-geneity in some of these firms was created by theactions of competitors. In others, it came aboutbecause executives have rapidly acquired newfirms in very different types of markets. Theorganization structure of these companies is ratherpeculiar. Power is tightly centralized in the handsof a few top level executives. Organizationaldifferentiation is, however, extremely high becauseof the manifest differences among departments,divisions, and subsidiaries. Furthermore, thevarious orientations are not easily reconciledthrough integrative devices. Separate and some-times conflicting objectives seem to be pursued bythe various organizational sub-units.

The decision making styles of the managers ofthese firms are characterized by low multiplexity,intuitive rather than analytical decision making,and an insensitivity to conditions in theenvironment. Perhaps most notably, managers inthese firms are quite entrepreneurial - they areproactive and take substantial risks. For example,new product lines, which require a radically newor different type of technology are oftenintroduced with little indepth analysis. Also, largenew subsidiaries are often acquired in businesseswhich are strange to the old entity.

5Performance ratings were based on growth in revenues and profits, and return on invested capital.6Accounting information system characteristics were not measured by Miller (1975) in his analysis of cases. We arehypothesizing these attributes in the light of the environmental, organizational, and strategy making attributes of thefirm.


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may help provide some idea of the firms growthpotential.

(e) forecasted statements should also focusmanagements attention on upcoming changes inthe organizations environment.

CONCLUSIONMost of the research to date concerning the

design of an accounting information system(A.I.S.) has taken a rather narrow and inflexibleview of accounting information. The primaryintent of this paper has been to provide a broaderand more adaptive framework for designing suchsystems. A contingency approach, which takesinto account the environment, organizationalattributes, and managerial decision making styleswas advocated. In this context, several hypotheseswere offered concerning the requisites of theA.I.S.

In the process of describing our framework, wehave tried to integrate a small portion of theexisting accounting and related literature. Withrespect to the accounting literature, one thing

Which became apparent is the fragmentary natureof the research to date. This point was also notedby Hofstedt Kinard (1970, p. 45). Hopefully,this paper will help to provide an overallframework for integrating this literature and moreimportantly, for coordinating future research.Indeed one logical extension of our work is thefurther development and testing of the hypothesessuggested.

A secondary outgrowth of this paper has beenour suggestions that in some circumstances theA.I.S. could act as an agent of change to facilitateorganizational performance. In other words, itseems possible for a custom designed A.I.S. toimprove poorly functioning organizations byproviding information most relevant to the keyorganizational problems and opportunities.

Furthermore, we discussed three archetypalfirms which represent typical agglomerations ofenvironmental, organizational, and decision styleattributes and we hypothesized the requisites ofthe A.I.S. under several of these commonconditions. These archetypes reinforced our pointthat a contingency approach must be taken indesigning accounting information systems.

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