‘It's a Very Foreign Discipline’: the Genesis of Expenses Control in a Mutual Life Insurance Company
| DOI | http://doi.org/10.1111/j.1467-8551.1993.tb00157.x |
| Date | 01 March 1993 |
| Published date | 01 March 1993 |
British
Journal
ofklmagement,
Vol.
4,l-18
(1993)
Expenses
of
‘It’s a Very Foreign Discipline’: the Genesis
Control in a Mutual Life Insurance
N
company
David
Knights
and
Hugh Willmott*
Manchester School of Management,
PO Box 88
UMIST,
Manchester M60
1
QD
SUMMARY
This paper is drawn from
an
intensive case study of Pensco
-
a mutual life insurance
company in the South of England. The original objective of the research was to examine
corporate strategy as an aspect of management control.
As
the research proceeded,
it became clear that a new system of budgeting and expenses control was a crucial
element of the transformation of the company from its ‘sleepy’ paternalistic traditions
into an aggressive, competitive financial services company. The paper contextualizes
the development of budgeting and expenses control in Pensco within changes in the
British economy. These are associated with the rise of the New Right, transformations
in the financial services sector relating to deregulation and the establishment of
a
new
regulatory framework. The argument of the paper is that budgeting and accounting
control in this company has a complex genealogy revolving around a number of conditions
coinciding at a particular point
in
time.
Our
case study material also reveals a variety
of tensions, contradictions and resistances to the new management regime that placed
considerable obstacles in the way of an effective implementation of the new accounting
and management controls.
1.
Introduction
This paper presents findings drawn from a recently
undertaken intensive field study of Pensco, a
mutual life insu;ance company in the United King-
dom
(UK).
Its specific focus is upon new develop-
ments in the philosophy and systems of
management control that form an integral part
of
changes in the economic culture of the company.
We relate these developments to broader changes
in the industry that have been stimulated by econ-
omic deregulation and shifts in the Competitive
*
We gratefully acknowledge the English Institute of
Chartered Accountants in England and Wales and the
Economic and Social Research Council
who
provided
financial support
for
this study. Also the Management
Control Association under its chairman David Otley is
acknowledged for its moral
support
throughout this
study. Wc also thank Roland Munro for
his
helpful com-
ments.
nature of international financial markets.
A
tra-
dition of paternalism both in Pensco and the indus-
try as a whole (Kerfoot and Knights, 1991, 1992;
Knights and Morgan, 1990; Knights and Willmott,
1987a, 1992) has been mdermined by these compe-
titive pressures, resulting in a higher value being
placed upon individual performance and accounta-
bility
-
for example, in terms
of
a contribution to
‘value-added’ or a reduction in unit costs (Knights
and Willmott, 1990). These changes could be seen
as symptomatic of a broader shift to the ‘right’
in world politics and
a
restoration
of
market princi-
ples as the major framework in guiding govern-
ments in their management
of
modern economies.
Encouraging management to be more dynamic and
entrepreneurial (Gamble, 1988; Hall, 1988; Keat
and Abercrombie, 1990) has,
of
course, been a con-
cern of governments over several years but the
impetus for change has accelerated because
of
the
growth and popularity of the New Right and the
1045-3 17219310 10001-1
8$14.00
0
1993
by John Wiley
&
Sons,
Ltd.
Received
August
1992
Revised
17
November
1992
2
D.
Knights
and
H.
Willmott
intensification of international competition. We are
not suggesting that dynamics of industrial
or
com-
mercial sectors are directly
or
solely determined
by marked changes in government policy
or
the
internationalization of the contemporary economy.
Much more important for the
UK
life industry,
for example, was the competitive success of aggress-
ive new entrants into their markets some
30
years
ago (Knights and Willmott, 1987b) and the even-
tual tendency for the industry to introduce imitative
unit-linked products. Nonetheless, the commodifi-
cation of financial services has been further
boosted, legitimized and reinforced by the increas-
ingly entrepreneurial climate of the last decade.
Changes in management practice at the time of
this research, then, must be situated within the his-
torical development of the social and economic for-
mation of the
UK
economy, and the organization
of sectors within it (Child and Smith, 1987).
Accordingly, the first of the paper’s three main sec-
tions provides an examination of the socioecono-
mic, sectoral and company context that was the
background against which budgetary controls were
introduced at Pensco. Consideration of the context
sets the scene for our analysis of how a management
regime founded upon paternalistic, consensus-
oriented philosophies of control was replaced by
the application of ‘commercial’ and ‘professional’
criteria for shaping the strategy and securing cor-
porate performance. The second section documents
the introduction of new systems of expenses and
budgetary control and the employment of manage-
ment consultants to adapt the information techno-
logy software to the special circumstances
of
the
company. It is clear from this account that expenses
and budgetary control were imposed on a reluctant
Pensco management. Aspects of managerial resis-
tance to change are taken up in the final section
where we examine some of the tensions and contra-
dictions of mutuality and growth, and explore the
problems of deep-seated cultural values that
impeded the introduction and application of the
new control systems. Some details of our collection
of data are presented in an Appendix.
Overall, the purpose of the paper is to contribute
to knowledge of the organization and development
of a neglected, yet economically important, sector
of British industry; to provide a detailed, contex-
tual analysis of the material and ideological con-
ditions that supported increased attention to the
control of expenses; and, more generally, to appre-
ciate how changes in management control at
Pensco are symptomatic of trends
in
the
UK
econ-
omy in favour of market relations and entrepre-
neurial activity, which have been stimulated by
international competition and supported by New
Right ideologies and neo-Conservative govern-
ments. Essentially the paper revolves around two
arguments. First that Pensco is attracted to,
or
being pushed towards, a more ‘professional’ and
cost conscious mode of management by competi-
tive pressures in the marketplace. These develop-
ments, we argue, represent conditions leading to
the adoption of unit-linked products, which, in par-
ticular, provide further justification for controlling
expenses through a new information technology
(IT)-based accounting system. The second argu-
ment concerns
our
observation of the difficulties
Pensco experienced in instituting the new system
of expenses control; it demonstrates that such
changes meet with considerable resistance when
they conflict with a paternalistic management cul-
ture in which financial (as opposed to actuarial)
discipline is foreign to the activities of the organiza-
tion and the industry of which
it
is a part (see chief
executive quote later). The following section pro-
vides material to support
our
first argument, while
the subsequent section gives an account of the
problems surrounding the imposition of the disci-
pline of expenses control.
2.
Contextualizing Expenses Control
(i)
The
Politico-Economic
Context
From the mid 1970s, the British economy has exper-
ienced a significant shift in the balance between
‘market’ and ‘statist’ modes of economic organiza-
tion and regulation. Monetarist policies first
adopted, as an expedient, by a Labour adminis-
tration became a central pillar
of
the Thatcher
government. The economy was squeezed to ‘shake
out’ businesses that could not survive without overt
or
covert forms of state subsidy
-
a policy that
was rhetorically expressed as ‘rolling back the his-
tory of a century of socialism’
so
as to allow the
market to generate wealth and allocate resources
more efficiently.
Of particular relevance for this paper, the
Thatcher government supported an expansion of
the service industry, especially financial services,
in the expectation that growth in this sector would
deliver increasing volumes of invisible exports
whilst ‘soaking up’ some of the unemployment
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