The Actors and the Actor-Based Method
Falconer Mitchell and Hanne Nørreklit
Introduction
Pragmatic constructivism implies that the production and use of performance measures for the construction of functioning practice require a reflective actor interacting with the practice context. Conceptual models are vehicles for the actor’s reflection and analysis, and methodology is the linking tool between theory and practice. If performance management concepts are to be useful to practice, then they must be articulated together with a methodology apparatus that practitioners can use in their construction of functioning activities.
Standard textbooks (Anthony and Govindarajan 2007; Kaplan and Atkinson 2015) within the area of performance management propose a set of practical performance measurement tools that will aid decision making and performance evaluation in an organization through formalized and systematic processes. But these texts neither take into account the individuals’ perceptions and thinking of factual possibilities nor their emotions, intuition, and values (Vaivio 2008). Mainly employees are perceived as a component in a system that has the role of serving the interests of the whole system, that is, the company. In the following, we conceptualize the actors and a method to include them in performance management activities.
The Actors’ Way of Reasoning
Human beings are complex, creative, reflective, and adaptive. However, they are driven by fairly consistent intentional values and ways of reasoning that they apply when constructing their relationship with the world. Thus, one force influencing the individual actor’s or group of actors’ action in creating reality constructions is their intentional values (von Wright 1983; NØrreklit et al. 2007, 2010). The individual actor’s or group of actors’ intentional values can be scrutinized through the wishes and wants they express for themselves and others when planning and evaluating actions and reality constructions.
Another force influencing the individual’s action is their way of reasoning (NØrreklit et al. 2007; Cetina 2001; Trenca and NØrreklit 2017), which shapes the relationship between the actor’s intentionality and the actor’s interaction with the world. It is related to the actor’s perception and understanding of the reality construction he or she has created and the course of actions that the person considers are required to initiate a change from an existing situation to another situation that the person intends to happen. The changes are constructed through a set of more or less implicit principles and methods according to which one set of values and possibility-loaded facts leads to another set of values and possibility-loaded facts through the experience of a set of specific courses of action. Actors construct the system of applied methods through analysis and reflection on their situation where existing methods can enter as vehicles for the actor’s reflection and analysis (NØrreklit et al. 2016). In order to function according to intention, the actor’s way of reasoning about action methods should facilitate the creation of construct causality through the integration of facts, possibilities, values, and communication. Coordinating with other actors’ intentional values and reasoning is a particular aspect of an actor’s way of reasoning.
Exhibit 4.1 provides examples of actors’ different values and ways of reasoning within a fast-growing company. The examples illustrate that the organizational managers are motivated by different intentional values and that they apply different ways of reasoning for the course of actions that they consider are required in the company to create a successful outcome. The president’s values and way of reasoning are dominated by growth and optimism with only little concern for profit and consolidation. The sales manager’s values and way of reasoning are characterized by an aggressive marketing policy, where pricing is made according to short-term profit considerations; that is, only variable costs are taken into consideration. The accountant is influenced by order and stability, where pricing is based on a full-cost calculation.
Examples of a firm’s different actors’ way of reasoning
President and owner [MA in fine arts and sculpture]: I want the company to be big. I want to make a big and fast turnover. I use the philosophy “Buy low, sell high, collect the money early and pay later.” I make the customers pay in advance. This way we finance our growth. One can use accountants for administrating figures, taxes, etc. We need them for cash flow budgets and cost calculations. One has to know the product costs. But otherwise, accountants are so depressing to talk to. They always think the worst will happen. The sales manager and I have a lot of fun together. He is optimistic and has ideas, but he’s “tough”—he has no feelings.
Manager of sales and marketing [MA in sales and marketing]: I will not say no to an order because of the price. A full-cost theory is ridiculous. We will take an order if it covers more than variable costs. Competition is tough, and it is important to be in front. I have raised my salesmen to adapt solutions to the customers’ needs. Our engineering department is not good enough at adapting to the customers’ needs. They make too many mistakes and lack control. The organization must be more efficient in order to keep up with the sales department.
Manager of production [MA in engineering]: The customers run the firm, and the sales department thinks too shortsightedly. We have too many urgent orders required by the sales department. And it is impossible to use the sales forecast because it is too unreliable; so I make my own sales forecast. The situation in the engineering department is chaotic for the reason that they cannot stand the pressure from the sales department. I think the firm must appoint a chief engineer who will prioritize orders and projects and improve planning.
Manager of engineering [MA in technical engineering]: The sales department tells us what they want, and then we try to do it. If the sales department changes priorities, which happens often, then we follow sales in changing our priorities too. The sales department gets angry if we do not supply what they want. I like to follow the new technological development, but I do not like to manage. So I would like the firm to get a new manager for the engineering department.
Head accountant [MA in accounting]: We must cover all our costs when we price a product. I would like to be able to stop the operations of the company for some weeks just to organize and coordinate the activities properly. We have problems all over the company. I use most of my time putting water on the fire.
Performance management in a firm is about coordinating management decisions and actions in an economically sustainable way. If the organizational managers are not economically minded, then the management accountant must try to influence their values and way of reasoning through performance management. It demands that the managers accept and understand the values and reasoning embedded in the performance management system. The understanding must be reciprocal, however. Not only must the managers understand the performance management system, but the system must also understand the managers, and, hence, the management accountant must understand the managers’ values and ways of reasoning in respect to doing business and the often highly specialized functional activities. To make all of the functional areas of the firm work together in the construction of functioning activities, it is necessary to have a method for creating and developing the organizational actors’ mutual understanding of each other’s values and way of reasoning. The actor-based method can be used as the tool.
The Actor-Based Method
Consistent with pragmatic constructivism, the actor-based method assumes that people alternate between interacting and reflecting (Arbnor and Bjerke 2008). The actor-based method consists of four phases—(1) preunderstanding, (2) understanding, (3) diagnosis, and (4) postunderstanding—that the actor should follow during a research process or when constructing knowledge in more general terms, for instance, as management accountants in an organization. The actor-based method is open for a number of methodological procedures. For instance, in order to solve matter-of-fact questions (Arbnor and Bjerke 2008) various quantitative and qualitative methods may be applied. However, an individual’s grasping the human practice behind the numbers and conceptualizing their own life condition is evident within the actor-based method. In the following, we describe the method from the perspective of a management accountant considering the construction of a performance management system. Also in the chapters to follow, the actor-based method will continue underline discussions.
Preunderstanding
In the preunderstanding phase, the management accountant gathers factual information about the situation in the company, objectives, structures, people, challenges and strengths, and performance management problems through the view of the initiating manager. This should enable an understanding of the manager’s view of the company’s goals and strategies and motivations and goals for performance management. From this background, managers and management accountants make a preliminary determination of the performance management problem to be solved and the results to be achieved. The task is preliminary because what in the beginning seems to be one kind of problem may turn out to be a totally different one after more information is collected and analyzed. This is different from a method based on objectivity (a perspective frequently adopted by accountants). Also, at this stage, it enables a preunderstanding of the conceptual models that might be relevant for solving the tasks.
Understanding
In the process of understanding, the management accountant gets to know each relevant employee’s intentional values, professional skills and tasks, relationship and cooperation with other functions and employees, perception of the performance management problem, and thoughts about the system to be used to solve the problem. This is ascertained through a series of dialogues. Dialogue, rather than a questionnaire, is used to reveal this because it can avoid precategorized patterns of thinking. Dialogue is a dynamic and reflective process of conversation between two or more persons. In the dialogue, information flows on several levels and concepts of reality get reflected and are developed.
Throughout the overall process of understanding, management accountants review these dialogues and other material and summarize their understanding and interpretation of the actors’ intentional values and model governing their thinking and action. They search for important and meaningful concepts and structures in the demands and requirements they have for the performance management system. The employees’ demands and hopes for the system form the basis of their idea of a performance management system, which is then presented to the employees. Employees and the management accountant discuss and comment on the system idea using dialogue, through which the employees’ knowledge and understanding of the system idea develops. Furthermore, their engagement with and the possibility for developing and using the system are evaluated. Managers are continuously presented with various types of information on development in the project, including that of system idea, problems, possibilities, and development, in the formulation of management control and accounting tasks.
Diagnosis
In the diagnosis phase, problems are identified. Reviewing the collected documents and the related dialogue, management accountants search for an understanding of the performance measurement task and, if necessary, continue to work theoretically in pursuit of an appropriate system. They form an overview of the task of constructing the system by identifying system possibilities using their factual ascertainment of the work situation and evaluating resource demands and employees’ understanding and acceptance of the system. Furthermore, the application of the system idea together with its ability to solve management control tasks and problems is evaluated. This leads to an evaluation of the system development task that is required to overcome problems and gaps. The diagnoses are discussed with the managers, and the system development procedures are tested and evaluated by the employees involved. Here, communication using appropriate language to influence and agree or disagree with actors’ thinking patterns plays a critical role.
Postunderstanding
In the postunderstanding phase, the system is developed and implemented. Simultaneously, feedback from participating employees is collected and the system is tested to see if it is working. The results of the method depend on the management accountant’s technical skills and ability to minimize the gap between the expected results and the pragmatic results through an experience-based learning process.
Conclusions
Drawing on pragmatic constructivism, we argue that methodology is the linking tool between performance measurement models and organizational practice. If performance management concepts are to be useful to practice, they must articulate together with an actor-based method that practitioners can use in their construction and use of performance measurement systems.
Overall, the actor-based approach involves interactive and reflective processes that help achieve a higher diagnostic certainty about the performance management system’s abilities to facilitate construct causality. An integrated part of the pragmatic constructivist way of applying the actor-based method lies in the interplay between proactive truth and pragmatic truth. This forms the basis of the learning process that aims to diminish the truth gap; that is, it is expected that the ex-ante pragmatic constructivist–based diagnoses will become more accurate with experience. The focus on the integration of the four dimensions of the reality construction is at the core of a pragmatic constructivist way of applying the actor-based method. Thereby, it differs from a radical social constructivist approach, which focuses mainly on the dimension of communication.
Discussion Questions
- Following conventional thinking on performance management, what are the main methodological steps to follow in the design and implementation of performance measurement systems? What are the perceptions of management and employees in this model you have proposed? What are the strengths and weaknesses of conventional approach?
- Drawing on the actor-based approach, you are asked to design and implement a performance measurement system for an organization. How would you proceed? What are the challenges of the approach?