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Management accounting and

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DOI: 10.1108/18325910510635326

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Journal of Accounting & Organizational Change 1,2 (2005) 125-140

Management accounting and organisational

change: an institutional perspective

Mostafa Kamal Hassan

Assistant Professor in Accounting, Alexandria University, Faculty of Commerce,
Department of Accounting, El-Shatby, Alexander the Great Street, Alexandria, Egypt

Abstract: Purpose – The paper aims at understanding the potential role of

management accounting during a public hospital organisational change within a
developing country in transition, Egypt. Design/methodology/approach – The
paper is based on in-depth interviews, an analysis of documents, and direct
observations. It uses a framework informed by institutional theory together with
Giddens’ (1990) notion of ‘elements of system contradiction’ to analyse the
empirical findings. The paper draws on both DiMaggio and Powell’s (1983)
notion of coercive, mimic and normative isomorphic mechanisms to link a changing
hospital to the changes in the wider social and institutional context wherein
public hospitals operate, while exploring the interlinkages between these changes
and the hospital’s processes of accounting change and institutionalisation (Burns
and Scapens, 2000); and Giddens’ (1990) notion of ‘elements of system contra-
diction’ in order to evaluate the role of management accounting. Findings – The
paper concludes that both the institutional change and reform around management
accounting together with the changes in accounting systems are entrepreneurial
processes in order to trigger a public hospital to change. Research limitations/
implications – Although the empirical findings suggest resistance to management
accounting change within the case study, a full investigation and explanation of
such a resistance is an area of future research. Originality/value – In contrast
to the technical role of accounting, the paper shows how management accounting
is acted upon to disrupt the hospital’s micro institutions and routines, challenge
physicians’ professional and bureaucratic power and therefore engendering the
public hospital to change.

Keywords: Accounting; Egypt; Organizational change.

1. Introduction
The public sector, in most Western and European economies, has been subjected to increasing
demands for greater financial accountability, efficiency and effectiveness over the last two
decades (Hopwood, 1984; Chua and Degeling, 1993; Covaleski et al., 1993). Governments are

DOI: 10.1108/18325910510635326

Corresponding address: Dr Mostafa Kamal Hassan, Portsmouth Business School, University of Portsmouth, Portland
St., Richmond Building, PO1 3DE, UK, Tel: 0044 (0)23 9284 4795, Fax: 0044 (0)23 9284 4037, E-mail:
Mostafa.Hassan@port.ac.uk
126 Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140

implementing numerous market-based reforms, broadly known as New Public Management

(NPM) (Olson et al., 1998), with an aim to bring the public sector in line with the private
sector. This trend is also evident in developing countries (Sr, 2001). The paper describes
issues that fall under headings of cost management and management control systems with par-
ticular emphasis on cost control in public health organisations in a less developed country in
transition.
Although several studies investigate management accounting systems in manufacturing
settings (e.g. Bhimani, 1993; Anderson, 1995; Abernethy and Lillis, 1995; Alder et al., 2000;
Granlund, 2001), and others investigate the same systems in a state-owned manufacturing
environment (e.g. Alam, 1997; Lee, 2001), little is known about these systems in the non-
manufacturing public service in developing countries in transition. To date most studies in the
area of management accounting and public sector reform have been conducted in countries,
broadly known as Western and European, such as the U.K. (Broadbent et al., 1991; Laughlin
and Broadbent, 1993), New Zealand (Lawrence, 1999) and the U.S.A. (Dillard and Smith,
1999; Covaleski et al., 1993). Therefore, one of the motivations of the current paper is to
address this apparent research gap.
Furthermore, the role of management accounting wherein it operates has been to focus of
various studies. Although some studies investigate the technical role of management accounting
(e.g. Johnson, 1981; Kaplan, 1984; Johnson and Kaplan, 1987), the philosophical underpinnings
of these studies rule-out the rich understanding that can be obtained through drawing on social
and institutional theories (Broadbent and Guthrie, 1992, p.16). The technical perspective relies
on economic-based theories (Boland and Gordon, 1992, p.148) that see management accounting
as a set of techniques aiming at providing information in order to bring ‘better’ decision-making.
However, management accounting is more than just a set of techniques as it enables the com-
munication of a set of values and norms while communicating information for decision-
making processes.
Alternatively, other studies use institutional theory in order to provide a rich understanding of
the role of accounting systems in the society and organisations wherein these systems operate
(Lapsley, 1994; Abernethy and Chua, 1996; Hoque and Alam, 1999; Covaleski et al., 1993;
Scapens, 1994; Carpenter and Feroz, 1992, 2001). Although this paper shares the concerns of pre-
vious studies that have used institutional theory, it attempts to understand the role of management
accounting during a public sector reform in developing country in transition while exploring the
multiple interlinkages between an organisation’s accounting change and the wider social and
institutional forces that surround it as advocated by Burns and Vaivio (2001, p.393).
The paper is organised in the following fashion. After this introduction, section two presents
the theoretical framework. Section three discusses the research methods. Section four unpacks
institutional forces behind the Egyptian health care reform and management accounting
change. Section five explains the role of the public hospital’s processes of accounting change
and institutionalisation, before discussion and some conclusions are drawn.

2. Theoretical framework
From institutional theory perspective, two points should be clarified in order to explore the role of
management accounting. First, the legitimation processes through isomorphic mechanisms
(Meyer and Rowan, 1977; DiMaggio and Powell, 1983; Scott, 1995, p.35), and second the
Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140 127

processes of institutionalisation (Barley and Tolbert, 1997; Burns and Scapens, 2000). Both
explore the interlinkages between organisational management accounting change and the
wider social and institutional context wherein these systems operate.
The processes of isomorphism and/or legitimacy represent the central forces explaining why
several practices (like management accounting) are developed. DiMaggio and Powell (1983,
p.144) distinguish between competitive and institutional types of isomorphism. Competitive iso-
morphism represents the force of efficiency when there is one best, cheapest or most efficient way
for doing things (see also Carruthers, 1995, p.317; Greenwood and Hinings, 1996, p.1025).
Whereas institutional isomorphism includes the elaboration of rules, symbols and beliefs to which
individual organisation must conform to gain social legitimacy. DiMaggio and Powell (1983,
p.144) categorise these institutional requirements into coercive, mimetic and normative isomorphism.
Coercive isomorphism results from both formal and informal pressures exerted on organis-
ations by other organisations upon which they are dependent (DiMaggio and Powell, 1983,
p.150). These pressures are exerted through the need for resources, regulations, executive regu-
lations and laws. Coercive isomorphism is, also, illustrated by the influence of the state on the
organisations through the enactment of legislations. The Egyptian government passed numerous
laws that have direct influence on public hospitals as will be explained later in the paper.
Mimetic isomorphism is the force that drives organisations to mirror other organisations that
are, in effect, deemed to be both successful and worthy copying. Organisations have a desire to
adopt what is deemed to be ‘normal’, particularly where there is great uncertainty about what is
the correct way to behave (Scott, 1995, p.43). When organisations are not sure what to do, they
usually look to successful reference group and imitate what they do (DiMaggio and Powell, 1983,
p.151). The Egyptian health reform seems to adopt the NPM model in which public hospitals
operate in the name of cost efficiency while keeping their ‘public sector’ identity.
Normative isomorphism stems from professional organisations. Organisational members, who
are at the same time members in occupational/professional groups, are subject to pressure to
conform to a set of rules and norms developed by their groups. These norms and rules are elabo-
rated through the educational and professional training processes. The Egyptian health reform’s
training programmes and professional conferences influence the education of current and potential
public servants entrants, who eventually become active organisational members or change agents.
The consequence of these institutional pressures is the creation of institutional rules. Organis-
ations attempt to adopt these rules to obtain social legitimacy. In other words, organisations insti-
tutionalise these new rules into their lives through various practices such as management
accounting. ‘To institutionalise is to infuse beyond the technical requirement of the task on
hand’ (Scott, 1995, p.18) and management accounting is no exception. Although management
accounting is a group of techniques that help in decision-making processes, it also helps in build-
ing a new reality for organisations in transition (Meyers, 1998). Although the underlying drivers of
institutionalisation arise as a consequence of seeking social legitimacy and isomorphism
(DiMaggio and Powell, 1983; Meyer and Rowan, 1977), the processes of organisational change
per se is guided by the organisation micro activities, processes, and routines that may or may
not become accepted as ‘institutions’ (Barley and Tolbert, 1997; Burns and Scapens, 2000).
From institutional theory perspective, organisations interact with their wider environment in
ways perceived as acceptable to various constituents in that environment. In which case they may
adopt new accounting systems as tools for documenting institutional compliance or as means for
seeking external legitimation. Institutional theorists explanation centres on either the mythical
adoption or the effective use of new systems. The former whereby organisations adopt new
128 Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140

systems to comply with their constituents, but not necessarily use them in decision-making pro-
cesses (Meyer and Rowan, 1977; Mouristen, 1994; Burns and Scapens, 2000), whereas the latter
refers to the actual use of these systems in various decision-making situations.
However, there is a possibility that the new systems are myths but effectively used to attain
other social, and probably hidden, objectives. To this, Giddens’ (1990) notion of ‘elements of
system contradiction’ contributes to understand the role of new management accounting
systems. Giddens (1990, p.304) describes two contrasting types of social changes that are of par-
ticular interest in understanding the role of new management accounting systems. Incremental
change whereby old systems are reproduced and changed from one given state to another.
These processes of social change is unplanned and not the result of any conscious attempt to
pursue a particular interest. This type of change does not match with the case presented in this
paper. The Egyptian reforming government designed and planned the health sector reform.
Several legislations together with training programmes and conferences planned the change.
In contrast, Giddens (1990, p.306) suggests sudden and discontinuous change in which
routinised and institutionalised systems can be drastically disrupted. It is a way of effecting
wider transformation processes through introducing a ‘system contradictions’. It involves the
mobilisation of particular members to pursue a particular change. Governments may introduce
new contradictory elements in order to disrupt the institutionalised systems, codes and routines
and thus mobilise the required change as the case of the current paper.

3. Research methods
The research reported is a qualitative case study grounded in the Egyptian context. The study was
undertaken at a time when some public hospitals had undergone several profound changes that
took place over a period of four years as a result number of crises. In the empirical section,
the paper examines and analyses the crises that engendered the Egyptian public health reform
and hospital change. The case study method is an appropriate approach to explaining and under-
standing the complex socio-political context of a public health sector in a developing country in
transition (Yin, 1994). The data collection methods included interviews, documentary evidence
and direct observation.
A series of semi-structured interviews was carried out to explore how interviewees, a
reformed public hospital’s physicians, accountants and administrators, thought about their
roles as well as the role of management accounting during the Egyptian health reform. Each inter-
view lasted about 50 minutes on average and was conducted during the normal working hours.
Interview sessions were somehow interrupted by normal work requirements. Where possible
notes were taken during interview sessions. These notes were then written up in details soon
afterwards. The study of documents such as financial regulations, materials of training pro-
grammes, accounting systems’ manuals, published materials and other financial documents pro-
vided a means to triangulate the finding from interviewees and direct observation. Documentary
evidence was provided by some interviewees and had been used to illustrate their work.
The empirical work was conducted during a period of six months within a single hospital.
During this period, the author visited the reformed hospital on a regular basis. The period was
divided into three phases: one month exploratory phase in which the author got permission for
the fieldwork from the hospital manager, four months in-depth interviews phase where the
author visited the hospital on a daily basis to understand the transformation of the hospital’s
Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140 129

institutional context and the implications for management accounting and hospital change, and
finally one month follow-up phase in which the author refined the insights obtained during the
fieldwork. There were interviews with 13 physicians and 14 accountants and administrators.

4. The Egyptian health sector: institutional context

in transition
In the early 1990s Egypt started a gradual program of economic adjustment and privatisation. The
programme was designed to: restore fiscal balance, reorient both external and internal prices to
more realistic levels, and liberalise the Egyptian economy (McDermott, 1988; Messallam, 1998).
During that time, political and economic institutions were concerned about the cost of social
policies. These institutions questioned and investigated various proposals aimed at containing
the cost of meeting public goals such as the quality of: public health service, public education
and public transportation. Despite the economic adjustment programme, the Egyptian govern-
ment and people recognised that the performance of public health sector is less than adequate
(Rannan-Eliya et al., 1998, p.1).
In assessing the Egyptian public health system, the reforming government of Egypt realised
that there was a gross imbalance between the very comprehensive set of services that the govern-
ment aimed to deliver and the financial resources available. This under-financing situation
resulted in low salaries, lack of supplies and thus sub-standard services. The lower quality of
public health service together with the lack of real access to get such a free service had led to
a situation where private providers deliver health service on a fee paying basis (Berman et al.,
1997, p.11). People with low-income levels have to accept either the poor quality service or
pay a private provider. Most seem to have accepted the latter solution even though they are
entitled to free health service (Berman et al., 1997, p.1).
In an attempt to change this situation, the Ministry of Health and Population (MOHP) took the
responsibility to re-organise the Egyptian health service delivery in the lines of efficiency, quality
and equity improvements. Public health reform became Egypt’s national requirement in order to
offer health service with better quality at affordable prices. The reform aimed at providing a
significant level of benefits to the population while fairly distributing the cost of public health
services according to beneficiaries’ ability to pay. This philosophy is shown in the following:

‘The reform has been designed to respond to the shortage in public funding and
resources for health services in Egypt, to enhance the quality, availability, affordabi-
lity and sustainability of health services in Egypt.’ (Windows into CRHP, 1993, p.1)

The reform aimed at establishing a mechanism to finance public hospitals while improving
the quality, availability and continuity of free health service in Egypt. This mechanism meant
finding sources of private finance in addition to the available public funding in order to
deliver an acceptable public health service. The Egyptian reform can be seen as an institutional
development, or as Lapsley (2001a, p.83) argues a rationalisation movement, to improve both the
operation efficiency and the health service’s quality in the line with international movements of
health reform carried out in other European countries (e.g. Olson et al., 1998).
Similar to these countries, the Egyptian reform is a part of New Public Management (NPM) in
which public sectors start to incorporate private sector philosophy in order to effectively manage
130 Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140

and economically deliver their services (Hood, 1995; Sinclair, 1995). The Egyptian reform aimed
at developing the public health sector’ systems, or as Ellis et al. (1994, p.183) argue changing the
identity of the public health service providers to become increasingly infused with the language
of private business, cost sharing and economics.
Despite being Egypt’s national requirement, the lack of both financial resources and expertise
meant that Egypt could not develop and deliver such a reform alone. Therefore, various inter-
national agencies, namely the World Bank, the International Monetary Fund (IMF) and
USAID together with their consultants firms provided Egypt with the necessary intellectual
and monetary support. These agencies recommended the development of better management,
accounting and accountability systems to bring the improvements required in the efficiency of
the Egyptian health service delivery (CRHP, 1993).
In 1994, the Egyptian government passed Decree 304 initiating the health care reform. The
reform required changing the manner in which public hospitals operate in Egypt. It allowed
public hospitals to use their facilities to deliver ‘for-fee-service’ or at least recover part of the
service’s costs. It emphasised management autonomy, more realistic prices, while improving
the quality of the health service. Against the background of ‘free health service’ to all citizens,
the reformed public hospitals are to deliver the health service for fee, to make customers who
have ability to pay share in the health service’s costs. Furthermore, hospitals are to manage
their financial resources according to market needs. The Decree states:

‘[Market is] the basic guideline of hospital operations, thus all the decisions
should be in response to market needs. . . . Also, the hospitals’ organisational
structure should be designed to direct all the organisational elements (i.e.
members, resources and activities) towards satisfying customer needs.’ (Executive
Regulations of Decree 304 of 1994)

At the same time, the reformed hospitals are to guarantee the availability of health service for
poor people who cannot afford the service’s cost. In this way, the reformed hospitals match the
social and commercial demands through management autonomy and market competition sup-
ported by the necessary accounting and accountability systems. The idea is to bring financial
resources from delivering the service to customers who have ‘ability to pay’ in order to subsidise
the costs of services delivered to citizens who are ‘less fortune’.
Although, the Egyptian reform is best described as a reaction to the old style of public admin-
istration in Egypt (Glynn and Perkins, 1997, p.65), it had to challenge and encourage public hospi-
tal staff to accept private sector practices. Therefore, the MOHP in collaboration with international
agencies and consultants organised training programmes and conferences aimed at clarifying issues
such as health quality control, reducing public expenditures, establishing a relationship between
input and output, securing other source of finance via ‘cost sharing’, ‘fee for services’ and the
‘satisfaction of customers’ (CRHP, 1997). They also aimed at shifting public hospitals’ image
from being ‘health care institutions’ to be ‘multi-products organisations’ that face different custo-
mers with various choices. They reinforced the private sector philosophy as follows:

‘The paradigm shift in health system’

‘Health care as an industry may be a new concept for the community at large but
not for entrepreneur who invests in health care delivery systems and thinks in
terms of product, market and client.’ (Emphasis is not added in original CRHP
Bulletin, 1997, p.4, 8)
Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140 131

In September 1995, the first national conference on quality of health service in Egypt was
organised. The conference introduced concepts such as ‘quality management in health care’
and ‘standard performance’ to physicians working in public hospitals (Rafeh and Gadalla,
1996). In Egypt, there were few mechanisms in place to encourage physicians to accept
formal standard procedures. Therefore, decision-making processes are often directed towards
professional autonomy and ability to control in the name of serving patients’ needs (Abernethy,
1996). In this regard, the reform attempted to manage and control the medical practices through
approaches such as ‘quality control’ and ‘standard procedures’ with an aim to prevent the misuse
of economic resources in the name of professional needs (Knowles and Hotchkiss, 1996, p.21).
The abovementioned institutional forces created the need to standardise medical practices,
improve efficiency and contain the public health costs. The Egyptian government attempted to
redefine the role of public hospitals through imposing market mechanism and changing the estab-
lished health care system traditions. The dominant view is that private sector philosophy is better
and leads to the improvements thought. Therefore, management accounting practices emerged
as a management tool that fits with the previous mentioned forces. Management accounting
techniques were acted upon to introduce the reform principles within the reformed hospitals.
The following section explains the role of management accounting during a hospital change.

5. Management accounting: approaching a reformed hospital

The desire to transform the Egyptian public health system to be a business-like sector required the
transplantation of managerial habits and routines within the reformed public hospitals. Refor-
mers had to change public hospitals’ organisational institutions, or as Scapens (1994, p.306)
argues the ‘way of thought or action of some prevalence which is embedded in the habits of a
group or customs of people’. The problem was that hospitals include more than one institution,
each is deeply layered within a particular group, namely, physicians and administrators (Thorne,
2002, p.20). Nevertheless, both groups are public servants and have accepted public sector
traditions as a mode that governs their day-to-day activities. The following sub-sections
discuss the implications of the pre-reform budgetary system to the hospital’s routines and how
new management accounting systems are acted upon to trigger the hospital to change.

5.1. The hospital’s budgetary system and routines

In the pre-reform era, there was a lack of concern about the need for accurate and reliable per-
formance information. The only mechanism used since the establishment of the Egyptian public
health sector is a budgetary system as a part of the Egyptian uniform accounting system. In the
absence of any other mechanism, the state allocates resources to different public hospitals
without any feedback or evaluation of the hospitals’ results and operations (Rannan-Eliya
et al., 1998, p.2). This system emphasised the financial control and organised exclusively accord-
ing to hospitals’ uses of resources. In this case, key hospital inputs are salaries, supplies and
funding for capital investment, which come under three headings known as chapters or
‘Babs’. Chapter (or ‘bab’) one comprises all salaries and wages, benefits and allowances for gov-
ernmental employees. Chapter two comprises non-salaries, recurrent expenditures such as com-
modities’ requirements including materials, etc, services requirements including expendable
132 Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140

supplies and maintenance expenses, advertising, subscriptions to medical journal, etc. Chapter
three consists of capital purchases and investments.
This system established a tradition in which less concern about both costs and standard
procedures is a norm. Physicians can take whatever decisions provided that these decisions are
professionally justifiable and do not breach the financial executive regulations. A doctor said:

‘Doctors are cost conscious as they practise the profession in their private prac-
tices. However if you want to constrain them they will circumvent and give you a
lot of reasons to explain why they behave as they do.’ (A doctor)

Although the budgetary system separates accountants’ job from physicians’ decisions, both
have little incentive to control costs. They realise that cost reduction would have reduced the hos-
pital centrally allocated fund since budget allocation is based on past allocation and the expected
change in the population number. This led to a situation in which accounting became a tool in
order to secure financial resources. A doctor said:

‘Doctors have the intellectual abilities to learn and to do anything to run hospital
operations even these finance† matters, but our major duty is to treat and cure
patients.’ (A doctor)

The hospital operated as a bureaucratic organisation where physicians being responsible for the
core activities whereas accountants were considered as secondary. The internal reporting system,
costing system and responsibility accounting are not existed, or as one of the accountants says:

‘Management accounting has never been an issue for doctors.’ (An Accountant)

Physicians had the rights to do their job without clear accountability since they are concerned
with patients and ‘saving lives’. They take decisions regarding the use of the budget’s resources
but to the limit granted by financial laws and regulations. Accountants prepare the paper work
supporting physicians’ decisions. The budgetary system had established these routines that
have been taken for granted as the hospital’s templates in which things are being done and
accepted.
In addition to the budgetary system, the hospital legal framework permitted the ability to have
a separate financial account (Hassouna and Ali, 1996, p.13). This account represents a fund
whose revenue shall be used to improve medical services. The fund’s resources consisted of rev-
enues derived from delivering health services for nominal fee. Expenditures out of the forgoing
revenues shall be under the hospital’s manager (a physician) and financial manager (an accoun-
tant) authorisation based on rules stated in the uniform accounting system. Any surplus is
allocated between improving the health service quality and increasing the employees’ bounces
reserves according to certain ratios.
In this case, the cost of service does not include certain itemised costs financed by the state
such as doctors’ fees and salaries, investments related costs such as depreciation. However,
service fees include the cost of medical materials purchased specifically for that service plus a
tiny contribution margin, if any. Citizens, in fact, use all the hospital facilities free of charge
with the exception of certain types of materials required to ensure treatment at the proper time.

†
For some hospital members, ‘finance’ is an interchangeable term for accounting and budgetary control.
Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140 133

5.2. The new management accounting systems

In order to permeate and trigger public hospitals to change, the reform introduced managerial
accounting techniques aimed at discussing and defining health problems in terms of cost
centres, product costing, standard clinical episode and clinical performance measures. Physicians
disliked these systems arguing that it is inappropriate to standardise and simplify clinical pro-
cesses in such managerial procedures. They claimed that standard measurements are not accurate
indicators of their performance, instead, proper measurements are those related to patients’
happiness. A doctor said:

‘The fact in understanding the quality of our services is the existence of any com-
plaint or dissatisfaction from our patients concerning our medical practice not on
how long it takes. The duration of time needed to perform any medical service is
beyond any control or standard as it depends on the type of patient you have. For
example, if the standard states that the delivery process should be between 6-8
hours, does this mean 5 or 9 hours for a delivery is abnormal? There are numerous
factors that affect the duration of time outside a hospital team’s control.’ (A doctor)

In order to find out the hospital’s health services’ cost with an aim to charge the hospital’s
customers who have ability to pay, the reform introduced a centre-based costing system (Cost
Accounting System: Functional Design, 1994, p.2-6). The system redefined the hospital’s clinics
into different cost centres. The idea was to trace the state’s budget allocation (salaries, medical
requirements and other funding) to each clinic in order to calculate each clinic’s service full costs.
Physicians had mixed responses towards the new costing systems. One physician argues that the
reform’s full costing system is not suitable for a public hospital, s/he explained:

‘The costing system is difficult to use in a public hospital such as ours. Despite the
reform processes, the hospital provides its services for poor people who do not
have the ability to pay, even to pay for the necessary medical materials.’ (A doctor)

Another physician expressed the following opinion:

‘It is a very good system. I think most doctors follow its logic in their private
practices.’ (A doctor)

Similarly, accountants had the same mixed responses. They understood the reasons behind the
need of a new costing system, but they found it difficult to apply in a public hospital. An accoun-
tant said:

‘The core of the costing system is to allow the determination of the exact cost of
each type of service we offer. Better service and competitive price will bring
customers.’ (An accountant)

Another accountant expressed:

‘It is difficult to calculate total costs per service for each centre. We are a public
hospital working in a competitive environment.’ (An accountant)

Moreover, when the new cost system was put in operation, the hospital’s staff started to
question their hospital’s identity whether to be a ‘public’ or ‘private’ hospital. Being a public
134 Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140

hospital, the manager was unable to make decisions aiming at managing costs. The former hos-
pital manager, who is now a surgical consultant, said:

‘If you ask about cost accounting and my view then ask about authority – respon-
sibility equality to implement such procedures. I cannot make decisions, such as
reducing staff number, in order to reduce costs.’ (A doctor: the former manager
of the hospital)

In the same vein, an accountant said:

‘Are we socialist where we have public organisations or are we capitalist where

we can execute private sector ideas.’ (An accountant: head of costing section)

The hospital’s physicians and accountants did not only question their hospital’s identity, but
also they questioned their status within the hospital. The costing reports showed that the hospital
offers most of health services at high cost. Accountants prepare these reports that were acted upon
to investigate clinical managers’ decisions. Doctors did not welcome this change. The change
was in conflict with the autonomy they had in the pre-reform era. In this regard, one doctor said:

‘We make the hospital’s reputation, make patients come to our hospital and thus
make the hospital makes revenues not huge costs.” (A doctor)

Costing system together with an internal reporting mechanism supported accountants’ mediation
in some of physicians’ decisions. The cost accounting reports, produced by an accounting depart-
ment, are acted upon to discuss some clinical issues such as: type of medial materials used, profitable
services and duration of clinical episode. Accountants’ explanation is not welcomed, as it is not as
important as saving patients’ live. Nevertheless, the same explanation is acceptable if it comes from
one of the physicians. The hospital’s chief accountant and financial controller said:

‘Doctors never accept my explanation or the explanation of any member of my

department but they accept the explanation provided by one of their group.’
(Chief Accountant)

Being a public hospital, wherein physicians always have the ultimate decisions, some clinical
managers (doctors) did like the idea of clinics’ full costing system. The system shows a situation
in which some clinics had little profit while others had big losses. Consequently, physicians hold
accountants, instead of the costing system, the responsibility of these situations. One accountant said:

‘Doctors cannot accept that they generate no revenues and there is loss because of
costing rules. Although we (referring to costing section) are not responsible for
that, we are being blamed.’ (Cost accountant)

6. Discussion
The hospital members are engaging in a gradual process to change their daily routines. The rou-
tines-based budgetary system has not disappeared but the new management accounting system
attempts to inject, or as institutionalists argue ‘institutionalise’, a new sense and possibly to
Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140 135

establish new routines-based costing systems. Given the timeframe of this paper, the new systems
have attempted to trigger a hospital to change through infusing the reform principles into the
hospital’s day-to-day activities.
The new systems are to challenge the reformed hospital’s micro institutions: first, the hospi-
tal’s ‘public’ identity whereby public servants look to the state as only provider of free public
health services, second, physicians’ ‘professional autonomy’ whereby they can use the hospital’s
resources in whatever way in the name of saving patients’ lives. In other words, the new manage-
ment accounting systems are acted upon in order to put the government’s reform agenda in
operation within the reformed hospital.
Management accounting-based reform is acted upon to challenge physicians’ professional
and bureaucratic power. In the name of efficiency, waste minimisation and quality improvement,
the reformers introduced new accounting systems with an implicit aim to control physicians’
practices within the hospital. This implicit aim is hidden behind management accounting techni-
cal aims instead of being explicitly known and thus resisted (see also, Chua and Degeling, 1993;
Covaleski et al., 1993). Although the empirical findings suggest a resistance to accounting
change, a full investigation and explanation of such a resistance is an area of further research.
The current paper does not intend to go beyond exploring the role of management accounting
during the reform processes.
The empirical findings suggest also that public servants can welcome the new systems pro-
vided that their hospital’s institutions are radically changed. For example, physicians and accoun-
tants find it difficult to use the new costing system in their ‘public’ hospital. However, the same
groups accept the same systems either in their private practices or in private sector hospitals. Yet
both groups raised concerns about the hospital’s ability to make individual decisions in the light
of the reform-based responsibilities. This raises the question of ‘to what extent the hospital’s
institutional environment, upon which the hospital’s members act, has changed’. This question
is out of this paper scope and can be an area of further research.
Drawing on the institutional theory, the paper has explored issues that would not have been
discovered. Against Kaplan (1984) and Johnson and Kaplan (1987) claim that there is a simple
cause-effect relationship between management accounting and its environment, implying that
changes in organisations’ environment have to, and will, facilitate accounting change wherein
strategic systems emerge. The empirical findings provide two contrasting points: first, despite
the change in the hospital’s environment and the emergence of new management accounting
systems, these systems are not easily accepted within the hospital; second, the new systems
included full costing, standard costing, and simple internal reporting systems that Johnson and
Kaplan (1987) claim to be ‘obsolete’ in today’s environment. However, they have been difficult
to implement similar to what they claim strategic systems such as Activity Based Costing.
In the same vein, Libby and Waterhouse (1996) suggest that organisational members’ prior
knowledge about new systems is an essential component to mobilise the acceptance of these
systems. In the light of this study, Libby and Waterhouse’s suggestion seems problematic since
the hospital’s members have had prior knowledge of recovering health service’s cost. In pre-
reform era, the legal framework allowed the hospital’s members to offer some health services for
nominal fees and recover, only, the cost of medical materials, yet they find it difficult to accept
the idea of recovering the services’ full cost given the particularities of their hospital’s social context.
Although institutional has provided wider insights, it suggests that the quest of social legiti-
macy is the key to understand the role of accounting systems wherein these systems become as
tools to document the compliance with institutional requirements. The theory also suggests that if
136 Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140

the systems are not suitable, organisations still adopt them in order to comply with their constitu-
ents but not necessarily act upon these systems in decision-making. Although this cosmetic, or as
institutionalists argue mythical, adoption provides wider insight, a deeper investigation would
also suggest that these systems are acted upon by organisational constituents to fulfil some
hidden objectives as explained earlier.
In this capacity, the paper benefits from Giddens’ (1990, p.306) notion of ‘elements of system
contradiction’ to understand the role of management accounting. In assessing the management
accounting change-based Egyptian health care reform, there was a need to disrupt the public
health sector’s institutions. In the attempt to reform public hospitals to take the language of
private business, cost sharing, waste minimising, control physicians and also challenge the
concept of ‘welfare state’, the role of management accounting can be understood. The reformers
acted upon management accounting systems to disrupt and permeate the hospital’s routines and
thus mobilises the hospital to change.
Within the reformed hospital, the hospital’s members are looking critically about the future of
their hospital. The empirical findings have shown a negotiation process in which ‘public sector’
traditions are disrupted and challenged. The new accounting systems introduced such a disrup-
tion with an aim to both engender the replacement of old traditions and, at the same time,
achieve other traditions, but not necessarily the ‘private sector’ ones. Such new traditions are
yet to be discovered through future research.

7. Conclusion
Although the paper has aimed at investigating the role of management accounting within the
changing hospital, this role was not independent from the broader environment outside the hos-
pital. Consequently, the analysis has looked beyond the boundaries of the reformed hospital and
considered more general interests, which are grounded in the institutional context of the transi-
tional Egyptian health sector. Given the empirical finding presented earlier, it can be concluded
that the processes of institutional reform and accounting change are to institutionalise new public
sector behaviour or, as Richardson and Cullen (2000, p.355) call entrepreneurial norms.
Management accounting systems are acted upon to infuse entrepreneurial norms within the
reformed hospital, disrupt the hospital’s micro routines and encourage the hospital’s members
to enter a dialogue concerning the new practices (like accounting) they disagree. The hospital’s
members are in a negotiation process or, as Oliver (1991, p.152) says compromise, with their insti-
tutional constituents concerning the future of their public hospital. The accounting change-based
reform raised concerns about a possible privatisation of the hospital. The Egyptian health reform is
an institutional development of various developments to mobilise a wider social change.
The empirical focus of this paper is on discovering the potential role of management account-
ing during the Egyptian health care reform. However, the scope and scale of changes observed in
and around (Granlund, 2001) the new management accounting systems seem to be of great
significance, and suggest that they are part of a wider modernisation policies (Lapsley, 2001b)
wherein the Egyptian government passed various legislations in order to move to, as Broadbent
and Laughlin (2005, p.77) argue, something ‘better’. The issue of the Egyptian modernisation
policies and practices is an area of further research where Laughlin (1991) organisational
change typologies can be used in order to understand how management accounting is embedded
in various forms of organisational change.
Hassan/Journal of Accounting & Organizational Change 1,2 (2005), 125-140 137

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