Accepted Manuscript

Balancing risk and innovation: The role of institutional leadership

Bruce Gurd, Christine Helliar

PII: S0890-8389(16)30050-6
DOI: 10.1016/j.bar.2016.10.008
Reference: YBARE 739

To appear in: The British Accounting Review

Received Date: 5 January 2015

Revised Date: 28 October 2016
Accepted Date: 28 October 2016

Please cite this article as: Gurd, B., Helliar, C., Balancing risk and innovation: The role of institutional
leadership, The British Accounting Review (2016), doi: 10.1016/j.bar.2016.10.008.

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 ACCEPTED MANUSCRIPT

LOOKING FOR LEADERS: ‘BALANCING’ INNOVATION, RISK AND MANAGEMENT

CONTROL SYSTEMS

Bruce Gurd
University of South Australia
bruce.gurd@unisa.edu.au

Christine Helliar
University of South Australia

Acknowledgements: We acknowledge a grant from the Chartered Institute of Management

Accountants Australasian Centre of Excellence which funded this research. We also thank
participants at the 2014 EGOS Colloquium in Rotterdam, Critical Perspectives on Accounting
conference in Toronto and seminar attendees at Aston University and the University of South
Australia for helpful comments on this paper.
 ACCEPTED MANUSCRIPT
ABSTRACT
A tension exists in the literature as to the balance between risk management and innovation and the
link with management controls. The weight of the evidence from the two case studies presented
here is that product innovation has flourished with informal controls, including managing risk; the
company with the stronger risk management systems is a weak innovator. The most innovative
product innovator was very reluctant to allow formal risk management systems to flourish and
resisted management controls in the fear that they would diminish the focus on product innovation.
The ownership of risk systems and the operation of management controls in both organizations was
with the engineers, consistent with a dominant engineering logic. Management control systems
were limited as was the influence of accountants. The ultimate question of balance is between
formal and informal systems. Using the institutional work literature, the different attitudes to risk
and innovation can be explained through the role of key actors in both organizations. Specifically
we go back to the work of Selznick and its development in Kraatz’s (2009) idea of ‘leadership and
work’ to explore the position of a “statesperson” leading beyond the denotive manager. Zeta sought
a statesperson who would lead it to more transparent and formal approaches to risk, consistent with
a growing organization. Eta sought the leadership to move beyond its innovative moribund state
while preserving its systems.

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1. Introduction

Robert Kaplan, 2010 AAA Presidential Scholar, advanced questions for the accounting academy to
address: “How can companies introduce risk management without sacrificing their innovation and
risk-taking activities? What is the appropriate balance between innovation and risk management,
and how can this balance be maintained?” (Kaplan, 2011, p.373). We build on Selznick’s theory
(1949, 1957) and the institutional work paradigm, in which innovation can be an important
organizational values, either secure in the organization or “precarious” (Kraatz et al, 2010;
Selznick, 1957). On the other hand, risk management is one of the “mundane administrative
arrangements” (Selznick, 1957) capable of being supportive or subversive of the values.
Management control systems (MCS) are also part of these mundane administrative values.
Kaplan’s idea of “balance” is understood in this study as focusing on the work that leaders do to
maintain innovation values while providing sufficient risk focus and broader MCS to satisfy
internal needs and those of broader institutional forces.

There is an apparent conflict in the literature between risk management and innovation. Accepting
risk is the pathway to higher returns so that riskier radical innovations increase firm value more
than incremental (Sorescu and Spanjol, 2008); radical product innovations can create competitive
advantage through patent protection or the difficulty of imitation (Tirole 1988; Sorescu and
Spanjol, 2008). However, attempting to minimise risk in innovation may lead to small unimportant
innovations; ‘me-too’ copies rather than real innovation (Preston, 2002).

Bisbe and Otley (2004) identify three themes of research in relation to innovation and management
control systems, which apply equally to risk management systems. First, is the view that risk
management systems are inconsequential to innovation. Second is the “traditional view” (Davila,
Foster & Oyon, 2009) that formal systems could damage innovation. There is the “risk of control”
(Berry et al, 2005) where existing or potential innovators are stifled by risk management
procedures. Third is the research that suggests that innovation is the enhanced by risk management
with increased performance (Andersen 2008, 2009)1; a view that has had some acceptance by the
consulting community and professional bodies. In new product management, risk management may
need to stay at the level of simple heuristics (Blau et al, 2000; … ). The argument from a
management control perspective is that controls can rein in innovative exuberance (Miller and
Friesen, 1984).

1 However Andersen measures risk management by risk outcomes using external information and not the
presence of risk management tools

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The question that has evolved is not whether controls limit or damage innovation but which
controls and in what circumstances (Davila, Foster & Oyon, 2009). Simons (1987) showed that
prospectors do use controls, interactive controls, to manage opportunities. High product innovators
might use controls for “avoiding the risks of product innovation initiatives that are inconsistent with
the firm’s strategy, integrating micro-logics in a sensible macro framework, and being able to fine-
tune and redirect actions … in contexts where innovative ideas, initiatives and transactions
proliferate.” (Bisbe and Otley, 2004, p.710). This again locks in with the ‘restraining of
exuberance’ view of controls.

In calling for a review of ‘balance’ between risk management and innovation, Kaplan (2011) is
implicitly subscribing to belief that risk management may inhibit the creativity and innovation that
can create shareholder value. As an implicit proposition we start from the position that indeed it is
probable that highly innovative organizations will manage risk by using less formal systems.

The first aim of this paper is then to understand if there is a balance between risk management and
innovation, comparing both product and process innovations and technological and management
innovations (Damanpour & Aravind, 2011). Our second aim is to understand how risk management
and innovation are impacted by existing management controls. Third, the paper explores how
accountants are involved in both risk management and the innovation process. Given the changing
role of accountants and management controls in relation to risk (Collier et al, 2007; Soin and
Collier, 2013), there is ground to explore further the specific role both accountants and management
controls play in risk management and extend this to innovation.

The two case studies provide different insights. The first case, with the pseudonym Zeta, was a
highly innovative organization where there is an observable clash between formalized risk
management systems and innovation. The overwhelming logic was technological development.
Driven by a key leader, formal risk management systems have been marginalized in order to not
inhibit product innovation. Process innovation and managerial innovations were not welcome
because of the possibility that they might reduce the drive to maintain a world-leading product in a
small private Australian company. Accountants and accounting systems were of no consequence.
The challenge for the company was to compete in global markets and grow in size while
maintaining such informal control systems.

The second case, with the pseudonym Eta, is a firm which has a degree of complacency in terms of
innovation and the staff believed that it needs significant product innovation to stay in the market. It
has become risk averse. Accounting was marginalized in a strong engineering culture where

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engineers do the risk management, the budgeting and the cost control. Formalized, well-structured
risk management systems existed but only at a project level. Managerial innovation, where it
existed, had become driven by the MNC as it seeks more integration between its international
counterparts. There was a superficial contradiction between an informal approach to management
with the presence of very formalized systems and processes. Yet it is hard to conclude that the
formalized systems inhibit innovation. The innovation lethargy was seen in a comfortableness with
marketing and producing the same technology for many years with only incremental development.

The paper is structured as follows. Section 2 provides a review of the literature which relates to
innovation and risk management and the role of management controls and accountants. The
theoretical framework of institutional work is introduced. In the third section the research method
for collecting the case study data is explained. Section 4 discusses the case findings which are
followed by a Discussion and Conclusion which explores the logics in these cases and provides a
future research agenda.

2. Prior Research

2.1 Risk and Innovation

Within the conflicting definitions of innovation (e.g. Rowley et al, 2011; Oke, Burke & Meyers,
2007), Damanpour’s (1987, p.676) well-known definition is that an innovation is “the
implementation of an idea – whether pertaining to a device, system, process, policy, program, or
service – that is new to the organization at the time of adoption”. The “new to organization”
definition (see also Mol and Birkinshaw, 2009) encompasses the installation of a formal risk
management system as new to the organization but excludes a product that is never produced.

For the purpose of relating to innovation to risk management systems we have used conventional
innovation ideas (see Oke, Burke & Meyers, 2007) - product and process, radical (explorative) and
incremental (exploitative) (Ylinen & Gullkvist, 2013), and technological and managerial. In
relation to this last pair, technological innovations are well researched (Crossan and Apaydin, 2010)
and recently there has been more concentration on management or managerial innovations (e.g.,
Birkinshaw et al. 2008; Damanpour and Aravind, 2011; Mol and Birkinshaw, 2009; Battisti and
Iona, 2009; Volberda, 2013). They have the potential to improve organizational performance (Mol
and Birkinshaw, 2009; Walker et al., 2011) especially when combined with technological
innovation. Management innovations are defined by Damanpour and Aravind (2011, p.424) as
“new organizational structures, administrative systems, management practices, processes, and
techniques that could create value for the organization”. They are germane to this paper as they

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include new risk management, costing, financial and quality systems. Recent research has
suggested that the directionality is that management innovations increase technological innovations,
although this remains disputed (Battisti and Iona, 2009; Hollen et al, 2013; Volberda et al, 2013).

As Kaplan (2011) implies, the extant knowledge of the connection between innovation and risk
management is limited. There are very limited studies of risk management and innovation. Using
limited access to two firms Berglund (2007) found that boundary management was important where
many risks related to distributors, suppliers and even consumers. He did find that risk management
of existing processes may inhibit novel innovation and flexible business models so that new ideas
were not rapidly killed off.

In relation to management controls and innovation, the debate can be traced from the time of Burns
and Stalker (1961) with the idea that organic organizations with less controls would be more
effective innovators especially in turbulent environments. However, the idea that highly innovative
firms with prospector strategies might use controls to curb innovative excess (Miller and Friesen,
1982). This idea gave rise to Simons (1987) view that interactive controls might be more effective
with prospectors. Davila, Foster and Oyon (2009) propose a model of innovation and strategy with
the likely management control systems; predicated on structured processes of innovation.

Research into the connections between risk management systems and management control systems
have included studies of the connection between the balanced scorecard and ERM at Tesco
(Woods, 2007) and between the budget and ERM (Arnaboldi and Lapsley, 2011). While COSO
(2004) postulates that risk management should include the whole of the enterprise management; in
practice, there is not necessarily a connection between risk management systems and broader MCS.
In this paper we are not considering ERM – it does not feature in either case. The research included
investigating any linkage between existing risk management systems and the MCS – including
performance measures, budgetary control and human resource management systems.

This provides room for much more intensive cases where the interactions between risk, innovation
and the link with management controls are analysed in greater depth.

2.2. Institutional Leadership

Institutional leadership is the framework used to explore the role of leaders of these organisations in
balancing risk and innovation and setting the role of management control systems. Institutional
leadership draws from institutional work (Lawrence, Leca & Zilber, 2013), ‘the purposive action of
individuals and organizations aimed at creating, maintaining and disrupting institutions’ (Lawrence
& Suddaby, 2006, p. 215). Institutional work is now well recognised and has been drawn into the

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accounting literature (e.g. Chiwamit, Modell & Yang, 2014). As Zilber (2013) argues that there are
cases in which organisational logics should come to the fore and others in which actors should be
more prominent. The focus of this paper is on the leaders and hence we draw from institutional
leadership as developed by Kraatz (2009) and Golant, Sillince, Harvey & Maclean (2014). Kraatz
(2009) links institutional work with Selznick’s (1949, 1957) institutionalism, with his emphasis on
values, precarious or secure2,). Selznick traced the development of an administrative manager to
institutional leader by explaining how organizations are “infused with value beyond the technical
requirements at hand” (1957, p.17) and therefore the statesman’s [sic] or institutional leaders role in
values’ creation and maintenance. We use this sense of institutional creation and maintenance
through the “mundane administrative arrangements” (Selznick, 1957) including risk management
approaches. This is useful in our cases, especially the first, where the managers might strongly
support Selznick that “the question of whether a set of proposed administrative reforms endangers
the maintenance of desired values is always legitimate and necessary” (Selznick, 1957, p.141).

Golant et al (2014) sees leaders as balancing the past history and values of an organization with the
need to bring about change and appreciating the need to make changes in the future. Selznick
called the role of leaders in providing a path between the past and the present as ‘institutional
leadership’.

3. Method and Case Introduction

Given the limited prior research an exploratory approach was used of two case studies in the same
industry. As a result of confidentiality agreements the pseudonyms of Zeta and Eta are used; not
even the industry can be revealed. The research included documenting the extent of the risk
management system and the key management control systems with connections to risk management
by collecting documentation and interviewing key staff. Then interviews were conducted, using a
standard protocol, of between 40 and 80 minutes. The interview protocol had general questions

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which has seen some recent resurgence (Besharov & Karuna, 2012; Glynn & Rafaelli, 2013; Kraatz, 2009; Kraatz et
al, 2010; Loundsbury & Hirsch, 1996; Washington, Boal, & Davis, 2008

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concerning the organisational culture and future challenges as well as more precise questions about
the risk management processes and the role of accountants and accounting.

The range of 15 interviewees at Zeta included the key staff responsible for risk and a breadth across
functions and down the organization. At Eta the focus was on a specific project and the project
managers involved with the accounting staff, a group of about 12. The interviews were transcribed
and read to seek for the main themes which was followed by the use of NVivo 10 to code for key
themes using some existing themes from the prior literature as well as in vivo themes (Richards, ).
A feedback report was delivered to both organizations with the view of receiving some validation
of our general conclusions as well as offering some visible return for staff investment.

4. Results

4.1 Comparing the Cases

Zeta was a privately held company; its shareholders being the original entrepreneurs that founded it
and a multinational company (MNC) holding a large but minority shareholding. Eta was an
Australian subsidiary of an MNC. The companies were in the same industry and had the Australian
government as a significant customer. At the time of the interviews the Australian government was
cutting back substantially on spending to solve a substantial budget deficit. Both viewed
themselves as engineering companies but with a very different focus. The nature of the main
customer, the Australian government, produced an environment in which value for money was the
key principle of purchasing. In this case, the Australian government had taken a more long term
view and invested in long-term technological advances.

Interviewees from both companies had a belief that the market could be expanded into Asia and
that the Australia government and other western governments would start to increase their
purchases as economic conditions improved. Engineering excellence was a dominant logic in these
cases but understood in different ways. For Zeta it was a whole of system design with technological
innovation as its core; for Eta it was primarily process innovation at an engineering level, with
some focus on technological improvement. Eta had successfully diversified into areas that were
outside of its core product group using the technology from the MNC.

Zeta cannot be understood without understanding the “socially integrating myths” (Selznick, 1957,
p. ); the story of the small group of men involved in its formation, of which the Technical Director
remained the long-term hands-on contributor and a dominant, perhaps domineering, force. The
myth of a small innovative start-up trying to provide capability in Australia as good as the rest of
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the world and almost serendipitously building a piece of technology which ensured its claim to be
world-class. The historical context of Eta is its formation of a subsidiary of a MNC that came into
existence in Australia to deliver a single product to, at that stage, the Australian government. This
product had been developed in the parent company internationally, and the historic myth had
created a confidence in building on the past. Over time the Australian subsidiary had built its own
culture but was also dependent on shifts in culture of the international parent.

Both organizations seemed to be having a shift in focus to more emphasis on financial returns. The
staff at Eta believed that the shift in focus to shorter term financial returns in the last five years was
the result of a change in ownership from private to public, the reality is that this is not the case.
The poor operating margins in the GFC and post-GFC period were the likely stimulus for a massive
restructuring of the MNC including a more integrated corporate structure. For Zeta, short-term
profit has not been important; although there is a prevailing belief that there will be more pressure
from the minority MNC shareholder in the future for better financial returns with greater demands
for more profit in the future. As one manager expressed his concern about the pressure that might
come on the Australian operation: “Who knows what’s in the wings there, I don’t know. It’s a
concern to me anyway, because you got this well big multi-national world, big … company that’s
in number of markets and it might be small bickies to them, but they don’t like to lose … so see
what happens”.

Both Zeta and Eta provided desirable work-places with both talking of cases where people left, only
to return. Zeta aimed for, and appeared to provide, a family friendly environment with a positive
climate. This is drawn from its history as a small company which has tried to keep its smallness
while it grew. The Eta had an impressive “campus style” building with a central cafeteria which
was a hub of employees across the organization mingling and building friendships. The parent
MNC ran very informally and this had impacted on the culture of the Australian subsidiary.

Eta had, just before the interviews, been through a round of redundancies, for only the third time in
its 30 year history which had provided the “shock” to complacency. Three large projects were
winding up around the same time and management had made a pre-emptive reduction using both
voluntary and forced redundancies.

At neither organization was product innovation especially risky at that time although there have
been periods of greater risk. Risk is effectively limited because the Australian government
underwrites losses.

Understanding Risk Management

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Zeta was an organization resistant to formalized risk management processes. At an organizational
level there was a general awareness of risk and the risks that affected the business. Since most of
the sales activity was project based there was some level of risk processes; risk management
through the tender stage and then through delivery. Yet much of this was driven by Australian

government contracts where there is purchasing policies which require a level of risk adherence. In
the tender stage the organization reluctantly ticked the boxes; there had even been resistance to
complying with the Australian government’s requirements for Work, Health & Safety evaluation.

Nevertheless, risk was neither understood nor measured in conventional ways. Senior engineering
staff held that risks of projects and was ‘just work’; it was issues or problems waiting to be solved.
Risk was something intuitively handled. Risk registers may make some of this work more visible
but the work just needed to be done. On the other hand, there was a consensus of the major risks at
an organizational level. Most cryptically it was put by one interviewee that ‘we grow too fast or too
slowly’. Too fast was to be challenged by the incapability of the flat organisation under the
Technical Director to be able to handle the level of work with informal systems, let alone finding
the human, physical and financial resources to expand. Growing too slowly was to be unable to find
the international markets to expand and face falling purchases from the Australian government – a
recipe for bankruptcy.

At Eta there were no corporate level or organizational wide risk management systems; an ERM
system had been discarded more than a decade ago. As with Zeta, as sales related to projects, most
of the risk management occurred in project steering groups. Eta had reasonably well-developed risk
mapping at a project level. They were using a series of Excel spreadsheets in a structured form not
only to meet the needs of the local government customers but also the MNC parent. There was
some difference as to whether the approach to risk was tick box conformity with a risk model.
There was evidence that at steering committee meetings for each project did meet monthly and
there was some solid targeted questioning about the state of the risks. “Management reserve”
created at the start of the project could only be released in exceptional circumstances where a risk
which had arisen could not be mitigated any further. There was concern from Project Managers that
although they managed project risk, “management reserve” was used to bolster profits and keep the
MNC parent happy.

Product Innovation and Risk

The boldest technological innovator was Zeta. Although its major product innovation was in 2005 it
had successfully refined this innovation across the market place. All staff seemed to have a great

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sense of pride in the technological advancement of its product solutions. An engineer suggested that
the most important thing about the company was “producing impressive, impressive technology.
It’s being innovative”. A perceived risk was not only to be “ahead of the pack” in terms of
technology but perceived to be ahead of the pack – a small Australian company up against strong
international competition from MNCs.

Product innovation started off almost serendipitously; picking up sub-contracted work from other
suppliers who could not complete projects or as a response direct contact from customers who were
not getting the delivery they wanted. This kicked off a spirit of creativity which led to a specific
product that had been world class and become the platform of future development. The original
owners believe that they could build superior technology than what was available to Australian
buyers. The hub of innovation was around the Technical Director who personally sanctioned or
destroyed each development according to a mental model of the way forward. Part of the
acculturation for young engineers was: “Learning that other people above you like to make – need
to make decisions about … the direction of a piece of technology”. Yet many were bewildered not
knowing why a particular suggestion for development had been vetoed by the Technical Director.
The Technical Director was focused on a holistic approach to development where whole systems
were delivered and was scathing of the US approach of breaking a project into parts which when
put together were suboptimal. In terms of the institutional work perspective, the TD was a person
who had framed the organization around a particular set of values and had worked hard to instill
this across the organization.

The concentration of so much of the innovation in the Technical Director was acknowledged
widely, and even by himself, as a key risk of the business: “he lives and breathes this business, he
founded the company and, and is this brilliant guy. He’s the source of 99% of the good
technological ideas and indeed many of the business ideas”. At the same time he was getting older
and there was a fear that growth would put even greater stress on this individual in a very flat
organization. Delays to get an appointment were already three weeks; safely protected by his
Executive Assistant!

There was a well understood division of the organization into “the Engineers” and “the Rest”; the
engineers being the group that did the leading edge thinking around the Technical Director. There
was an understanding by both sides that “the Engineers” were a “protected species” and “privileged
class”. Nothing was to intrude into the Engineers innovation space, not even needed details for the
production process. The Engineers had little time for risk management, even if demanded by its
customers; as such a system could intrude into the development processes and reduce the leading

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edge innovation. A government customer has been sent away “battered and bruised”; unable to
explain the need to impose more sophisticated approaches to risk management. The CEO was
comfortable with this informal approach to risk and no project had lost significant money for 15
years.

The “Rest” wanted some serious management innovations including a more formalized risk
management system and an ERP system to reduce the paper recording and create a framework to
hold the operation together. The previous attempt to choose and implement an ERP system had
come unstuck as the Technical Director had stopped the change. The desire to create freedom in
the innovation space created situations where even a modest systems improvement could be vetoed:
“It’s too much process and too much red tape and it’s going to stifle innovation”. As one manager
sardonically commented: “Let’s ignore risk because innovation is risky within its nature”.

Even manufacturing issues were not allowed to stand in the way of innovation. Staff were
concerned unless the focus on innovation created another risk by not delivering product to
customers on time. Manufacturing staff had trouble getting support from engineers working on
innovative new products. Engineers were concerned that they might get “caught” wasting
innovation time on solving production issues.

The staff at Eta saw it as more risk averse and conservative; “ultra conservative” was a common
description. To some extent this was the result of resting on its laurels in having a brilliant
technological innovation, imported from its MNC parent, which it had developed, marketed and
delivered for 15 years. While many of the interviewees claimed to be interested in technological
innovation there was a clear belief that this has happened at the fringes of the organization. Some
blamed the MNC parent for favouring projects at headquarters but an interviewee with activity in
the international space saw this as an excuse. While at Zeta, innovation was at the core of daily
activity, at Eta Research and Development is a completely separate division and bids for projects
need to be made on an annual basis. The staff at Eta saw their focus as more D than R, for how can
you claim to be serious about research, they said, when no research project is allowed to fail?

Risk and Management Innovation

While there is discussion of the link between technological innovation and management innovation;
there is no observable link in either of these cases. Management innovations go ahead in Eta
because the culture favours it, at Zeta there is resistance to any management innovations.
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The reluctance with which Zeta refused to allow more formalized risk management systems is seen
in their general approach to management innovations. Management innovations are seen as an
impediment to technological innovation; people claim they are too busy with technological change
to spend time looking at managerial innovations. The culture is resistant to change: “They don’t
like change. That is one of the big things. This is the weirdest thing, you’ll bring in the grandest
idea that it is a real no-brainer and you will have people lining up to tell you why it won’t work”.
This is partially explained by a very stable workforce: “there is a significant number of long
standing employees who have never seen anything else, who [say] ‘Why do we need to change?’”.
In this climate, without clear change agents, there is an inability to get what is viewed as “essential”
change happening.

The counterpoint to a risk taking culture to technological innovations was a risk averse approach to
management innovations which might stifle or inhibit the product development ideas of the
Engineers. There was deeply scarred organizational memory of a cross-functional team developing
a plan for an ERP implementation had been stymied in the end by the Technical Director, the leader
of the Engineers. While a business process improvement team was working up another proposal
for an ERP this was seen as continuing to be problematic. Staff were trying to second-guess the
attitude of the Technical Director to another move. Even the accounting system was a problem;
there was evidence that it had much more capability than had been used, but the dominant
engineering logic did not allow for a more powerful, and possibly “intrusive” accounting system.
Meanwhile staff ran around with manual time sheets and Excel spreadsheets proliferated without
any ability to manage data.

Eta’s management innovations were largely driven by the MNC head office. While systems, like
the risk register and risk management system, had been developed by the Australian operation there
were many new systems being developed at Head Office for the more integrated architecture.

Risk and Management Control Systems

Zeta had no link between risk and MCS; the formal MCS were very poor and were deliberately
designed not to include risk. There was not any formal performance measurement system; indeed,
one of the most senior managers strongly believed that Zeta needed to work out what good
performance meant. He could not see what risk management could mean if there were no agreed
parameters for what was good performance. Some senior managers were concerned about the level
of accountability. Job descriptions focused on process rather than outcomes. They were not held to
account for budget variances and the budgets themselves were not handled seriously.

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The environmental awareness and searching of opportunities and state of competitors was the role
of the Technical Director who used his networks in the industry, both locally and internationally, to
keep abreast of the competitive landscape and the opportunities coming up. Marketing people also
fed into this process.

Risk and Accountants

Given the prevailing engineering logics it is not surprising that accounting and accountants were
marginalized. At Zeta, the accountants had no role of any significance. They were simply the
“bean counters”; there was almost hostility to the idea that the finance team might be business
advisors who could contribute to business success. While many agreed that the finance team was
over-worked, there was a strong attitude that there should not be more resources or a greater role.
This was the result of the overwhelming innovation culture but was compounded by the lack of
focus on financial outcomes by this unlisted company. As long as the company was cash flow
positive and broke even there was no goal of profit maximization. Long term development and long
term financial returns possibly mattered but not annual profit. It was also affected by the CEO
being a qualified accountant and controlling an overview of the financial aspects at board level and
effectively quietening any push for greater accounting involvement.

Eta had shifted to a prevailing logic of financial returns. However, the Australian accounting staff
were not that important; they were physically and functionally removed from many activities. They
were still involved in risk scrutiny and budgeting but the shift to financial outcomes had been met
by engineers taking on “accounting” functions like budgetary feedback processes.

Discussion

Using the institutional work perspective brings the role of the actors to the fore. Both cases provide
powerful stories of actors in ‘maintaining’ organisations (Lawrence & Suddaby, 2006; Lawrence,
Suddaby & Leca, 2006). Both organizations need leadership (Selznick, 1957) to build innovation,
as a value, and manage risk, as part of the “mundane administrative arrangements”, at the same
time.

Neither set of actors in Zeta or Eta saw themselves as powerful, and while they are not ‘cultural
dopes’ there are a range of institutional forces (Lawrence, Suddaby and Leca, 2009). Both face
external actors in the customers with whom they had tried to build long-term relationships, a
customer in government who was largely supportive. Both faced external actors in the MNCs that

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had a shareholding – a dormant, but potentially worrying, parent in the case of Zeta and a pro-
active, increasingly less benign, parent in the case of Eta.

Where the organizations differ is the behaviour of the internal actors. The paradox of embedded
agency could be resolved in Zeta through the working through of issues between the incoming CEO
who brought with him hopes of change, perhaps a statesperson, and the Technical Director who,
despite his awareness of its unworkability values the old approach and a mental map of how the
organization should work. Within Kraatz’ (2009) conception of leadership in institutional work,
then both these players are more than aware of the political role to negotiate a way forward. In the
view of the ‘Rest’ this must be as much in formalizing the loose overgrown ‘small firm’ so that it
can transform into a larger firm.

Kraatz (2009), in building on Selznick (1957), sees one of the roles of the leader as reinforcing
values through symbolism. In the case of Zeta there is no need to reinforce the symbolism around
innovation and world class products; this is firmly shared in the myths and symbols of the firm. The
concern that Selznick had that leaders may make mundane decisions while not sufficiently aware of
the implications for precarious values is not apparent at Zeta. Indeed, an incoming CEO would need
to demonstrate significant “social skills” (Fligstein, 2001) to develop meaning around innovation
and move to structures and practices which were more formal in keeping with the needs of a
growing organization as well as customer expectations. The value at risk would be the family
culture.

Kraatz (2009) see a second role (‘Sight 2’) of the work of a denotive leader to create formal
structures to stop a particular constintuency from taking over seems from the evidence to be
important institutional work. Our interviews indicate that there is a strong feeling against systems,
at times almost irrational, and a leader will act as an ‘architect creating structures that grant various
constituencies sufficient influence to secure their support, while simultaneously limiting their
power over the whole organization’ (Kraatz, 2009, p.76). The prospect of an incoming CEO trying
to create a picture of coherence in a greatly divided organization (Kraatz’ Sight 4) is a huge
challenge; the language of the “Engineers” and “the Rest” with their somewhat different agendas
creates a role not just for the CEO but to create a workable coalition amongst “the Rest” that can
show some leadership themselves.

With Eta, the interviewees shared a belief that Eta is starting to find a direction in a broader range
of products and markets. In the view of some, its cosy ultra-conservative happy environment is not
one that would enable survival. There was a perception of failure of innovation leaders to bring

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about change. In that sense, none of the values that were deeply embedded – people-oriented The
detailed project risk management systems masked an organization that had not faced its own most
critical risk – there may be no long-term reason for the parent MNC to operate in Australia. The
CEO was trying to bring about a broadening of products to diminish risk but the possibility of this
CEO taking the role of “statesman” was limited given that he was reaching the end of his tenure.
The leader’s role was not to bridge disparate constituencies but to create movement towards more
innovation through the communication of the need for change and the voice of the MNC parent
pushing for greater profitability.

Accountants as actors are marginalized in both cases. While management accounting researchers
may look for evidence of the pro-active role of management accountants as business advisors (e.g.
Järvenpää, 2007) this is not the case here. Within the engineering excellence logics of both
companies, there was no role for accountants to provide leadership. For Zeta, accountants did not
have a role in institutional work because they were not engaged in the main game of the
organization. At Eta the institutional work of accountants had been subsumed by engineers.

Our results stand in stark contrast to the view of a dominant accounting logic (Broadbent, 2002;
Broadbent, Gill and Laughlin, 2008); our sample of two firms with a dominant engineering logic
provides a different story about accounting and risk management. Consistent with the idea that
accounting logics can be pushed by those other than accountants (Broadbent et al, 2008) there is
evidence in Eta that accounting logics were important even with the dominant engineering logic.
Zeta is just one case of organizations where accounting logics have not entered at all into the daily
experience.

These cases provide evidence of risk management processes being managed by people far from the
accounting function (Power, 2007; Woods, 2007; Soin and Collier, 2013). In these firms with
strong engineering logics it is engineers who are the risk managers, the cost controllers and the
budgeters. In such “outcomes driven” organizations risk management is not a high priority in
contrast to Power (2007, p. ) “Risk management is no longer a private matter for experts, but is
increasingly publicly certifiable and visible because of its role in defining organisational virtue and
legitimacy”.

We return to accounting and risk management system as part of Selnick’s ‘mundane administrative
arrangements’ and whether changes to these arrangements might endanger the values. At Zeta the
concern there was almost deep suspicion, by some, that innovations in mundane arrangements of
risk systems might endanger the values of creativity and excellence and the small firm ideals.

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While such a difference was not evident in Eta, there was an overconfidence in administrative
arrangements that gave a false sense of security about the future of the organization.

Conclusions

Superficially, there is no evidence here of ‘balance’ within organizations. On one hand we have
Zeta with its highly innovative culture and minimizing of formal risk management; on the other,
Eta, the ultraconservative, non-innovator, with the well developed project risk management
systems. Both organizations have levels of dissatisfaction with their current directions and desire to
change. While Zeta staff respect the innovation leadership, especially concentrated in a founder of
the business, they see the current approach as unsustainable. The informal control systems,
including risk, worked well for a small growing organization were no longer suitable for a rapidly
changing organization. Risks were covered off but some feared that these risks were ignored. To be
a competitor in the international market place needs refined risk and a firm architecture that is not
in the head of one person. A CEO, as Selnick’s statesperson, could undertake the institutional work
to maintain some values while bringing in mundane arrangements that conducive to operating in a
larger institutional field.

At Eta the staff were looking for a statesperson to energize innovation. While project risk was
methodically covered off they look for direction to cover off the larger risks – risks that they just
would not exist in the future. The current CEO was playing this part. It is still not possible to say
that the risk management approach was stifling innovation; it seemed that innovation was largely
moribund because of a comfortable organizational life.

While accountants might see themselves as important in the innovation and risk space, in the cases
presented here they are somewhat irrelevant. Their tasks in budgeting and cost control had been
largely taken by the engineers within the dominant engineering logics. Professional accounting
bodies and academics might look for the accountant as one of those statespeople to provide
leadership in applying the information in strategic control systems, including risk. In these cases
they have no presence in that space.

Two case studies do not provide the basis of answering Kaplan’s question. In particular there is
room to pursue these cases to become the richer longitudinal analyses done by Selznick. Sufficient
to say, balance between innovation and risk is not a necessary question. The more pertinent
balance may be between formal and informal approaches to managing risk and allowing leadership

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in innovation to persist whatever the specific form of the risk management approach. A clear
agenda for future work exists.

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ABSTRACT

Using the concept of institutional leadership we explore how leaders balance creativity and

product innovation against administrative arrangements such as risk management and

management control. Using two case companies we produce distinct contrasts to this balance

with neither showing the ambidexterity needed to ‘secure’ (Selznick, 1957) the value of

innovation and exploration and develop risk management and control systems for exploitative

activities. One case company stuck to its past trajectory of innovation, ignoring risk

management and control; the second case company had systems for its exploitative

operations but was struggling to maintain any value of innovation and exploration.

Nevertheless, one over-riding similarity in both organisations was that the leadership of the

risk systems and management controls was with the engineers; accountants were not to be

seen.

KEYWORDS Risk, risk management, innovation, institutional leaders

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1. Introduction

“How can companies introduce risk management without sacrificing their innovation and

risk-taking activities? What is the appropriate balance between innovation and risk

management, and how can this balance be maintained?” (Kaplan, 2011, p.373). The issue of

balance arises because there may be too much risk averse behaviour that “inhibit[s]

innovation and risk-taking” (Power, 2007, p.173) or too much risk taking without adequate

controls that could be dangerous. The Committee of Sponsoring Organizations of the

Treadway Commission (COSO) (Curtis & Carey, 2012, p.1) suggests that there may be a

sweet spot balancing sufficient risk taking against control; not too risk averse to inhibit

innovation and not too much to put the organization in jeopardy. Reaching this balance may

depend upon organisational leadership; leaders innovate (e.g. Rosing, Frese & Bausch, 2011),

manage risk (e.g. Berry, 2000) and balance both together (Borgelt & Falk, 2007).

Leaders have a key role in the innovation and creativity of their organisations (Mumford &

Licuanan, 2004). The meta-analysis of Rosing, Frese and Bausch (2011) links leadership

style to innovation, creativity and performance and they introduce the concept of

ambidextrous leadership that adapts to cover both explorative and exploitative innovation,

and is used as a framework in this paper. Leaders develop values such as creativity and the

desire for world-class innovation which may be secure and strongly embedded in the

organisation, or may be “precarious” (Kraatz, Ventresca & Deng, 2010; Selznick, 1957)

needing continual rebuilding and maintaining.

Leaders are also essential to risk management as noted by COSO (e.g. deLoach & Thompson,

2014, p.2); leaders “articulate its [organization] objectives, develop strategies …, identify the

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risks to achieving those objectives and then mitigate those risks in delivering the strategy”.

Leaders provide guidance and direction as: “leaders are in agreement about what constitutes

risk” (COSO, 2009, p.10) and adopt appropriate risk management strategies: “You’ll know

you’re doing risk assessment right when leaders at every level use the information to make

decisions” (Curtis & Carey, 2012 p.18). Risk management and management control systems

may be regarded as “mundane administrative arrangements” (Selznick, 1957), but whether

they support or are subversive of innovation, they are almost certainly necessary (Golant et

al., 2015). Leaders may act with the view that risk management systems have no effect on

innovation1, or consistently with the “traditional view” (Davila, Foster & Oyon, 2009) that

formal systems could stifle innovation with the “risk of control” (Berry, Collier & Helliar,

2005), or view risk management as enhancing innovation by increasing performance

(Andersen 2008, 2009)2,3.

The question that arises is not whether controls damage innovation per se but rather which

controls and in what circumstances this occurs (Davila, Foster & Oyon, 2009). For example,

high product innovators might use controls for “avoiding the risks of product innovation that

are inconsistent with the firm’s strategy” (Bisbe & Otley, 2004, p.71) and the need for a

‘restraining of exuberance’ (Miller and Friesen, 1984). Thus, the type of firm may explain

differences in the risk management and control approach taken by the leaders in exploitive,

exploratory and ambidextrous firms (Bedford 2015).

1
Bisbe and Otley (2004) identify three themes of research in relation to innovation and management control
systems, which apply equally to risk management systems.

2
However Andersen (2008) measures risk management by risk outcomes using external information
and not the presence of risk management tools.
3
A view that has had some acceptance by consultants and the professions.

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To explore Kaplan’s idea of “balance” we start this paper from the position that highly

innovative organisations are more likely to manage risk by using less formal systems,

especially when they are in a highly explorative mode. Formal systems will be more evident

when in an exploitative mode, and we examine whether leaders can maintain innovation and

at the same time introduce sufficient risk management and management control systems

(MCS) to satisfy internal and external needs.

Using Kraatz’ (2009) exposition of leadership as institutional work we examine two case

companies, Zeta and Eta, to explore whether leaders determine the type of innovation that is

undertaken, both product and management innovation (Damanpour & Aravind, 2012), and

whether they balance innovation with the risk management systems of their organisations,

playing a pivotal role in building ambidextrous organizations. Further, given the changing

role of accountants and management controls in relation to risk (Collier et al, 2007; Soin &

Collier, 2013), we also explore whether accountants are leaders who undertake a role in the

risk management and innovation process.

The paper is structured as follows. Section 2 provides a review of the literature which relates

to innovation and risk management. The theoretical lens of institutional leadership is also

introduced. In the third section the research method for collecting the case study data is

explained. Section 4 discusses the case findings which are followed by a discussion and

conclusion in Sections 5 and 6 that summarise the key issues from these cases and provide a

future research agenda.

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2. Literature Review

2.1 Risk and Risk Management

A significant focus of the risk management literature in accounting has been on Enterprise

Risk Management (ERM) systems, including studies of the connection between the balanced

scorecard and ERM at Tesco (Woods, 2007) and between budget setting practices and ERM

systems (Arnaboldi & Lapsley, 2011). ERM systems go deeper than being a mere technical

issue as management can seek comfort in such auditable formal systems (Power, 2009) and

possibly avoid facing the real risks of an inter-connected world. Hence risk management

systems may be formally defined in an ERM system or be informal and operate within

narrow areas of risk, rather than being enterprise-wide. Indeed, a survey with a comparatively

large number of respondents from the Netherlands showed that only 23.6% of respondents

had complete ERM systems (Paape & Speklè, 2012); the majority of organisations appear to

be only using partial risk management systems and risk registers using a multiplicity of

spreadsheets. The overall risk management system, whether incorporating an ERM or not,

may reflect the risk appetite of an organisation as “a ‘thing’ to be measured” but in practice it

involves “a dynamic construction involving values and the situational experience of a

multitude of organizational agents” (Power, 2009, p.854.). A broader understanding how risk

management interacts with innovation is explored in this paper.

2.2 Risk Management and Innovation

Central to this paper is the relationship of risk management to innovation, where innovation

is “the implementation of an idea – whether pertaining to a device, system, process, policy,

program, or service – that is new to the organisation at the time of adoption” (Damanpour,

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1987, p.676)4. The “new to organisation” definition (see also Mol & Birkinshaw, 2009)

encompasses the installation of a formal risk management system but excludes a product

developed but never produced.

Conventional innovation definitions (see Oke, Burke & Meyers, 2007) cover product versus

process, radical (explorative) versus incremental (exploitative) (Ylinen & Gullkvist, 2014),

and technological and managerial. Technological innovations are more commonly researched

(Crossan & Apaydin, 2010) but increased attention has turned to managerial (Battisti & Iona,

2009; Damanpour & Aravind, 2012; Mol & Birkinshaw, 2009; Volberda, Van den Bosch, &

Heij, 2013) or organizational innovations (see Oslo Manual definition OECD, 2005). Such

managerial innovations have the potential to improve organisational performance (Mol &

Birkinshaw, 2009; Walker, Damanpour, Devece, 2011) especially when combined with

technological innovation. Managerial innovations are germane to this paper as they cover any

new systems covering risk management, project management, costing and management

information and quality assurance. Recent research has suggested that management

innovations increase technological innovations, although this remains disputed (Battisti &

Iona, 2009; Hollen, Van den Bosch, & Volberda, 2013; Volberda et al, 2013) and the extant

knowledge of the connection between innovation and risk management is limited.

One of the few studies of risk management and innovation is Berglund’s (2007) study of two

firms which found that boundary management was important as many risks related to the

external environment covering distributors, suppliers and even consumers. Existing risk

4
The accounting literature uses a range of definitions. Some use the Oslo manual definitions of the OECD
(2005) with the term “organizational innovation”. This is equivalent to the terms management or managerial
innovations used in this paper and commonly in the accounting literature (e.g. Hayne & Free, 2014).

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management processes inhibited innovation and the implementation of flexible business

models so that new ideas were rapidly killed off. The much earlier work of Burns and Stalker

(1961) noted that organic organisations with less controls were more effective innovators,

especially in turbulent environments. However, highly innovative firms with prospector

strategies might need controls to curb innovative excess (Miller and Friesen, 1982; see also

Simons, 1987). In the same vein, Davila, Foster and Oyon (2009) propose a model of

management control systems predicated on structured processes of innovation. While COSO

(2004) postulates that risk management systems should take a whole of enterprise approach,

in practice there is not always a connection between risk management systems, broader MCS

and innovation. This paper fills this gap and investigates how innovation, risk management

and MCS interact with a focus on the role of leaders doing institutional work.

2.3. Leadership as Institutional Work

Kraatz (2009) develops the institutional leadership of Selznick (1957) using the institutional

work strand of institutional theory5. Washington et al. (2008) outline three domains of

institutional leaders: developing internal consistency through ‘the elaboration of social

integrating myths’ (Selznick, 1957, p.151); building external supporting mechanisms through

establishing legitimacy; and overcoming external enemies. Institutional leaders infuse values

into an organization “beyond the technical requirements at hand” (Selznick 1957, p.17)6 to

create an institution that is distinctive in its own right from other organisations. Selznick

views values as “ways of acting and believing that are deemed important for their own sake”

(Selznick, 1957, p. 21) that arise from within, discovered, not imposed, and linked to the

5
Institutional work is now well expounded in the accounting literature (e.g. Chiwamit, Modell & Yang, 2014;
Hayne & Free, 2014) and has been used to explore ideas such as the rise of risk management (Hayne & Free,
2014) and domain change in accounting expertise (Suddaby, Saxton & Gunz, 2015).
6 Selznick (1957) calls such leaders who can create and maintain values “statesmen” [sic].

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values in the broader society. Selznick did not reify institutions; he recognised that the values

of an organisation were made up of the values of the people who were the constituents, or

actors, within those institutions. Values cannot not be taken for granted; over time they can

become secure or they may be precarious and be abased, abused or corrupted. The

intertemporal balancing between past history and the need for present and future change

(Golant et al., 2015) may affect these values as the focus of the institutional leaders change.

Kraatz (2009, pp.72-73) focuses on the intertemporal trajectory of an organisation and

identifies two specific roles of leaders: “legitimacy seeking”; and that of the “creation and

maintenance of organizational integrity”.7 One of the threats to the dynamic intertemporal

nature of organisational values is the mundane administrative arrangements introduced by

leaders, past or present, that can “endanger the maintenance of desired values” (Selznick,

1957, p.141). As Kraatz and Flores (2015) identify, the role of leaders in maintaining values

and balancing innovation against risk management, and identifying those leaders is central to

the two case companies in this paper.

3. Method and Case Introduction

3.1 Introduction to Case companies

This study involves two case companies, Zeta and Eta, in the same industry, that provide

different insights in to leadership and the balance of innovation, risk management and

control. It was essential that our case companies had a strong history and culture of

innovation and during a meeting with a senior manager of Zeta it became clear that the

company met this criterion and was willing to allow access. An approach was made to the

second company, Eta, in the same industry to reduce any significant contextual differences as

7
From these Kraatz, (2009, pp.74-81) generates seven “sights from the bridge” of the work of leaders in
pluralistic organizations.

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shown in Table 1. As a result of non-disclosure agreements the pseudonyms of Zeta and Eta

are used. Not even the industry of these firms can be revealed. So we have assumed an

engineering industry environment for our two firms, as their operations are creative by their

nature. Zeta is a privately held company; its shareholders are the founding entrepreneurs with

a multinational company (MNC) holding a large but minority shareholding; Eta is the

Australian subsidiary of a MNC. The Australian government was a major customer for Zeta

and Eta, but at the time of the data collection the Australian government was cutting back

substantially on spending to solve a substantial budget deficit. Historically the Australian

government, although concerned about value for money, took a long-term view and invested

in long-term technological advances. Both companies believed that their market could be

expanded into Asia and that the Australian government and other Western governments

would start to increase their purchases as economic conditions improved.

Engineering excellence is a dominant value in both case companies but is understood in

different ways. Zeta has very strong values relating to creativity; it wants to develop new

products that are the best in the world. For Zeta it was a whole of system design with product

innovation as its core. This explorative value has become strongly imbued in the organisation

to the detriment of other values and perhaps even threatens its long-term survival as it begins

to exploit its products. Eta has been in the exploitative stage for a while, with modest

exploration, and a preference for incremental innovation. For Eta it is primarily process

innovation at an engineering level, with some focus on technological improvement. Eta had

successfully diversified into areas that were outside of its core product group using the

technology from the parent MNC.

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Both organisations have an important, but weaker, value of being a “family” with a genuine

interest and concern with individuals. Against these values stand Selznick’s “mundane

administrative arrangements” encompassing the risk management and management control

systems presenting a potential conflict (Kraatz & Flores, 2015) with a role for the

institutional leaders to infuse the values (Kraatz & Flores, 2015; Raffaelli & Glynn, 2015) but

maintain a balance.

Table 1 about here

3.2 Research Method

The research method was qualitative using documentary evidence, some level of observation

when spending days on site and touring facilities, and interviewing. The design was based on

collecting evidence around the core question concerning risk and innovation, but it was an

emergent design where the central theme of this paper, leadership, emerged through the

process of analysis. The initial phase of data collection included a knowledge of the

companies’ histories and then documenting the extent of the risk management systems and

the key management control systems. This was followed by interviewing key staff in both

organisations. The interviews were conducted, using a standard protocol (see Appendix 1), of

between 40 and 80 minutes. The interview protocol had general questions concerning the

organisational culture and future challenges as well as more precise questions about

innovation, the risk management processes and the role of accountants and accounting in the

management control process. The research design relied on collecting evidence around the

core question concerning risk and innovation.

Out of the 325 employees at Zeta we interviewed 15, including the key staff responsible for

risk, accounting and business improvement and a breadth of roles across functions such as

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research and development (the engineers), production and manufacturing, and project

management (mainly also engineers). We interviewed up and down the organisational

hierarchy, including the CEO (a qualified accountant), CEO-elect and the founding Technical

Director. Although there was a level of ‘saturation’ with shared views, the very lower levels

of the organisation were under represented. At Eta the focus was on a specific subsidiary of

the multinational company and 8 project managers and accounting staff and one manager

outside of that subsidiary were interviewed for external confirmation. On top of this formal

interviewing were the informal discussions in meal breaks and during the course of the visits;

these informal discussions were invaluable in fleshing out the key issues.

The interviews were transcribed. Two processes were used for coding. First there was an

intensive listening and re-listening to the interviews to take notes of the key themes. Then

there was much more careful coding for themes and sub-themes. Some of these themes came

from the literature and some were in vivo, developed out of the case. As the analysis

developed the over-arching theme of leadership was seen as the most significant. A feedback

report was delivered to both organisations with the view of receiving validation of our

general conclusions as well as offering some tangible return for staff time in both

organisations.

4. Results

4.1 An Overview of Risk

Early in the interviews the staff were asked about their understanding of what risk meant and

the major risks their organization faced. This section explores these ideas as a basis for the

explanation of the risk management systems, formal and informal, and the balance, if any,

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taken by the leaders between risk, risk management and innovation. Table 2 provides an

analysis of 14 types of risk identified at Zeta and 6 at Eta, under operational, financial and

strategic risks.

Insert Table 2 about here

An overview of the views of risk at Zeta suggest that there were two different views of risk.

The product innovators, labelled “The Engineers” in the rest of this paper, were focused on

strategic risks as they researched and developed on-going “explorations” of new world-class

technologies, clearly and demonstrably led by the Technical Director. Those in the

exploitation stage, named “The Rest”, focused on operational risk as they were responsible

for bringing product to the customer on-time and on-budget. Nevertheless, both groups

shared the same organisational value of innovation that was deeply embedded; both groups

believed that there their technology had to continue to be the best in the world, with a

concomitant reputational risk of lagging the international competition: “The second we fall

back in to the pack we are dead meat”. Some recognised the significant strategic risks in the

product development stage: “Lots of money goes in to things that might not work … [then

there is] a window of opportunity – maybe months or a few years”. Competitors would

eventually catch up.

Apart from the risk of losing product leadership, views of risk diverged. The Engineers

expressed the view that the risks associated with projects was ‘just work’; they were “issues”

or problems waiting to be solved. Risk was intuitively handled rather than through any risk

management processes. To “The Rest”, project risk was delivering product, and the risk that

they would suffer reputational damage with customers because they could not deliver.

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Two different views of risk were put together cryptically by one interviewee who noted that

the greatest risk was that ‘we grow too fast or too slowly’. Too fast was to be challenged by

the incapability of the flat organisational structure under the Technical Director to be able to

handle the volume of deliveries to customers with only informal systems in place, let alone

finding the human, physical and financial resources to expand. Growing too slowly was to be

unable to find new international markets in which to expand and face falling purchases from

the Australian government – a recipe for corporate failure.

Risk attitudes at Eta were more conventional than at Zeta but, mirroring Zeta, the

interviewees did not believe they were operating in a high risk environment. At Eta the focus

of risk was more at the project level: “Risk is the likelihood of a consequence. We pay lip

service to risk, until it pops up in front of our eyes - oh what shall we do? The main risk is

that a project does not deliver - risk is at project level.” Eta managed the risk of product

delivery but seemed to have lost the willingness to take the risk of generating new products

and technologies. Most staff at Eta described their culture as risk averse and conservative;

“ultra conservative” was a common description. To some extent this was the result of resting

on its laurels after a brilliant technological innovation 15 years ago imported from its MNC

parent, which it had since developed, marketed and delivered.

Of the specific risks shown in Table 2, operational risks such as delivering on time and

scheduling issues were the most common risks mentioned, notably by “The Rest” at Zeta, but

not “The Engineers”; at Eta only one interviewee mentioned delivery and scheduling issues

as a risk. The supply chain was also a risk for Zeta, with suppliers delivering components that

would not meet specifications or engineers putting through new innovations as design

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changes mid-way through a project that derailed the project and also created supply chain

problems in ordering parts in time.

Staffing, both losing key staff and attracting new staff, was identified as a risk in both

companies. Both Zeta and Eta had a core value of providing desirable work-places, with

interviewees at both case companies talking of instances where people had left, only to

return. Zeta aimed for, and appeared to provide, a family friendly environment with a positive

climate. This was drawn from its history as a small company which had tried to keep its

“smallness” culture while it grew. Eta had an impressive “campus style” building with a

central cafeteria which was a hub for employees to mingle and build friendships. The parent

MNC had been run very informally and this had impacted on the culture of the Australian

subsidiary. Nevertheless Eta had, just before the interviews, been through a round of

redundancies, which had provided an exogenous “shock” to its complacency. Three large

projects were winding up at around the same time and management had made a pre-emptive

reduction in staff using both voluntary and forced redundancies.

Financial risk was primarily an issue at Eta where the interviewees believed that the shift in

focus to shorter term financial returns in the last five years had been the result of a change in

ownership from a private company to a public one, although this was not necessarily the case.

The poor operating margins in the Global Financial Crisis (GFC) and post-GFC period

stimulated a massive restructuring of the MNC resulting in a cultural shift to a more

integrated corporate structure. For Zeta, short-term profit was not important but there was a

prevailing belief that there would be more pressure from the minority MNC shareholder in

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the future for better financial returns. In general, financial risk stemmed from the operational

and strategic risks and was not a risk per se.

4.2 Risk Management Systems

At Zeta, consistent with the marginal view of risk, there were no formal risk management

systems at all; risk was intuitively handled rather than through any formal risk management

processes. Risk registers would make risk more visible at the project level, but this was not

consistent with the view of The Engineers that risk was just work that needed to be done. The

Engineers pushed back against risk management, even if demanded by customers. Indeed, a

government customer had been sent away “battered and bruised”; unable to explain the need

to impose more sophisticated approach to risk management. The CEO was comfortable with

this informal approach to risk, as promulgated under the Technical Director’s leadership,

especially as no project had lost significant money for 15 years. The CEO claimed that there

was an intuitive feel for risk:

“.. [but we] know the risk because we are on the floor every day and talk to people
who are doing the producing- not relying on a set of numbers that go for ten levels
into the organization”.

Since most of the sales activity was project based there was some level of risk processes; risk

management through the tender stage and then through delivery. Yet much of this was driven

by Australian government contracts where there were purchasing policies which required a

level of risk adherence. In the tender stage the organization reluctantly ticked the boxes; there

had even been resistance to complying with the Australian government’s requirements for a

Work, Health & Safety evaluation but in the end this was non-negotiable. Risk management

was thus an external imposition rather than an internally generated requirement.

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There were some informal risk management systems. For a new project tender there would be

a Red Team Review, where three or four senior staff would read the whole tender document

– whether these staff came from programs, finance, engineering, marketing, warehousing,

facilities, logistics, or operations, depended upon the contract - before being passed to the

senior executives on the board.

At Zeta “The Rest” who were responsible for exploiting the technologies in producing

product for customers, were critical of the approach to risk. As a manufacturing engineer put

it:

“The innovation side of the company and the manufacturing side of the company have
different risk appetites…Manufacturing engineering team … are there to adapt the
design to be ready for manufacture. That is the gap we don’t fill very well because the
people who have the capability to do that are very much focused on the design stage
of things, the early innovation, there is a bit of a gap between getting that feedback
from the manufacturing side back in to the engineering side and improving designs
that way. From a research and development technology side we are continually
pushing for bigger and better things…to improve over and above what the customer
wants- we will deliver solutions to exceed their expectations … we have a long term
view of the product”

At Eta there were no corporate level or organisational wide risk management systems; an

ERM system had been discarded more than a decade ago. Yet they had serious approaches to

managing risk and well developed formal risk management systems. The systems were so

good that the parent company had asked to look at these to adopt them in its subsidiaries and

branches around the world. The focus, within the part of the firm we studied, was a well-

developed risk mapping system at a project level, using a series of Excel spreadsheets in a

structured form, not only to meet the needs of government customers but also the MNC

parent.

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There was some differences in the views of the interviewees at Eta as to whether the

approach to risk was genuine or just “tick box” conformity to a risk management system.

There were monthly steering committee meetings for each project and there was some solid

targeted questioning about the state of the risks. Indeed, this was the only opportunity that the

Chief Accountant had to ask tough questions about project risk, as he had no responsibility

for any of the risk management systems. There was always a discussion of whether to use the

“Management Reserve” created at the start of the project, which could only be released in

exceptional circumstances where a risk had arisen that could not be mitigated any further.

The reserve was often viewed as a profit buffer which could be released to meet the profit

expectations of the international parent company rather than being used to actually mitigate

any risks.

Overall, neither company had formal, enterprise wide risk management systems. Zeta was not

interested at all in an ERM or any formal risk management systems; its focus was on

exploration of new innovations and pushing the boundaries of technologies. Eta had found an

ERM to be inefficient; many staff did not even remember that they had once tried to use such

a system. Nevertheless Eta did have formal risk management systems consistent with its

focus on exploitation of the core technology; risks were managed in a structured way to

maximise profits.

4.3 Balancing Product Innovation and Risk

The boldest product innovator was Zeta. Although its major radical product innovation had

occurred some years ago it had successfully incrementally refined this innovation across the

market place. All staff seemed to have a great sense of pride in the technological

advancement of its product solutions. An engineer suggested that the most important thing

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about the company was “producing impressive, impressive technology. It’s being

innovative”. A perceived risk was not only to be “ahead of the pack” in terms of technology

but to be perceived to be ahead of the pack – a small Australian company up against strong

international competition from global MNCs. In light of their product innovation it was: “the

lifeblood of the company; to innovate you have to take risks”.

Product innovation started off almost serendipitously at Zeta; picking up sub-contracted work

from other suppliers that could not complete projects or as a response to direct contact from

customers who were not getting the deliveries they wanted from other suppliers. This kicked

off a spirit of creativity which led to a specific product that was world class and had become

the platform for future developments in the company. The original leaders, of which the

Technical Director still remained, believed that they could build technology that was superior

to any other available at the time. However, innovations were often so far ahead that they

had to be disguised and remain invisible to customers. Product innovation was rapid and

allowed Zeta to keep ahead:

“Tuck things away in the back, little edges, radical things, so conceptually new you
don’t want to let the market place know … Prototyping phase - move quickly through
early design early build – build things quickly, test them quickly, if not work redesign
it, rebuild it, test it, O.K. it works- move on”

At the same time, product innovation was low risk as many costs, even of failed

developments, could be passed on to the customer. The hub of innovation centred around the

Technical Director, the leader, who personally sanctioned or destroyed each proposed

development according to his own mental map of the way forward. Part of the acculturation

for young engineers was: “Learning that other people above you like to make – need to make

decisions about … the direction of a piece of technology”. Yet many were bewildered, not

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knowing why a particular suggestion for a development had been vetoed or supported by the

Technical Director. The Technical Director was focused on a holistic approach to

development where whole systems were delivered, and he was scathing of the US approach

of breaking a project into parts which, when later put together, were suboptimal. The

institutional work of the Technical Director was to frame the organisation around a particular

value, that of innovation, and he worked hard to instil this across the organisation. The

concentration of so much of the product innovation in the Technical Director was

acknowledged widely as a problem, and even he agreed that he was a key risk of the

business, as one interviewee noted: “he lives and breathes this business, he founded the

company and, and is this brilliant guy. He’s the source of 99% of the good technological

ideas and indeed many of the business ideas”. At the same time he was getting older and

there was a fear that growth would put even greater stress on this individual in a very flat

organisation. Delays to get an appointment were already three weeks in length; safely

protected by his Executive Assistant!

As previously noted there was a well understood division of Zeta into “the Engineers” and

“the Rest”; “the Engineers” did the leading edge thinking around the Technical Director.

There was an understanding by both sides that “the Engineers” were a “protected species”

and “privileged class”. Nothing was to intrude into the Engineers’ innovation space, not even

details needed by other engineers for the production process. Risk management processes

were definitely not allowed to intrude into the space used for product innovation. Indeed,

while the researchers were visiting one site they saw a Work, Health & Safety audit being

conducted by a team as agreed by the senior management. The researchers watched as this

was stopped in its tracks by the Technical Director when it reached ‘the Engineers”; it was

wasting creative time!

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Not even production and manufacturing issues related to exploitive innovation were allowed

to stand in the way of explorative product innovation. As noted, some staff at Zeta were

concerned because the focus on explorative innovation created the risk of not delivering

product to customers on time. Manufacturing engineering staff, The Rest, had trouble getting

support from The Engineers working on innovative new products; the latter were concerned

that they might get “caught” by the Technical Director wasting creative innovation time on

solving production issues; there was certainly little time for any process innovation.

At Eta, while many of the interviewees claimed to be interested in product innovation there

was a clear belief that this only happened at the fringes of the organisation. Some blamed the

MNC parent for favouring projects at headquarters but an interviewee with activity in the

international space saw this as an excuse. While at Zeta, innovation was at the core of daily

activity, at Eta, Research and Development was a completely separate division and bids for

funding for new projects needed to be made on an annual basis. The staff at Eta saw their

focus as more D than R: “We execute R and D. Little R. Capital D”. “How can you claim to

be serious about research”, one interviewee asked, “when no research project is allowed to

fail?” Another was more scathing about the innovation at Eta: “Engineers love

process…Some are reluctant to step outside process…If too difficult or arduous - it scuttles

innovation - and entrepreneurial behaviour”. Product innovation had died but perhaps more

by a culture of low innovation with no leadership at the local level, than the presence of any

particular systems.

4.4 Balancing Risk and Management Innovation

The counterpoint to a risk taking culture to technological innovation at Zeta was a risk averse

approach to management innovation which might stifle or inhibit the Engineers. There was a

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deeply scarred organisational memory of a cross-functional team developing a plan for an

ERP implementation that had been stymied in the end by the Technical Director, the leader of

the Engineers. While a business process improvement team was working up a proposal for

another ERP system this was problematic as staff were continually trying to second-guess the

attitude of the Technical Director to another attempt of a managerial innovation. Indeed,

without any central information systems, staff ran around with manual time sheets and Excel

spreadsheets that had proliferated without any ability to manage data. Managing by

spreadsheet was noted by a number of staff, and one interviewee expressed their concern:

“We have a whole bunch of Excel macros – pull information from here and try and squeeze it

all together...[the] Systems don’t talk to each other...Everyone has a spreadsheet on their

desk” Another was more forthcoming about the use of spreadsheets:

“Excel was never meant to be used in the first place - people throughout the company
have their own Excel spreadsheets - because they don’t have any information readily
available. Over 600 for one department, over 800 for others - like labour tracking,
productivity, and a variety of things. Take people away from those Excel spreadsheets
and use a proper tool. Individual spreadsheets - lack of connected data and poor
quality. It’s not bottom up.”

Staff claimed that they were too busy with technological change to spend time looking at

managerial innovations. An accountant that was interviewed reflected that: “People working

flat out and get[ting] them to do process improvement at the same time is difficult - not high

priority - small projects - nothing more … [the] Priority is innovation and getting product out

the door”. The cultural values were resistant to any change in processes: “They don’t like

change. That is one of the big things. This is the weirdest thing, you’ll bring in the grandest

idea that it is a real no-brainer and you will have people lining up to tell you why it won’t

work”. This was partially explained by a very stable workforce: “there is a significant

number of long standing employees who have never seen anything else, who [say] ‘Why do

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we need to change?’”. In this climate, without clear leadership of change agents, there was an

inability to get what was viewed as “essential” change happening.

Committees were created in some cases by The Rest to help install some form of

management control system, but these did not seem to achieve anything: “Committees are set

up to discuss- …- I sit on that and barely anything has moved”. The lack of a control system

saw the creation of a business improvement steering committee but the lack of a system as a

key driver was not the focus:

“Points get lost in big group meetings. … People believe the ERP is the magic
solution – but we need to change the processes with it- a kick start- rather than just
overlay it- there are background things that need to be fixed before we even look at
any system.”

In contrast, Eta had more formal control systems as would be expected of a subsidiary of a

large MNC and management innovations were largely driven by head office. While systems,

like the risk register and risk management system had been developed by the Australian

operation, there were many more new systems being developed at head office towards a more

integrated architecture. Thus process innovation was occurring, with the parent as the project

champion. Sometimes staff at Eta, as a subsidiary, believed that the management innovations

being imposed on them by head office were not as good as their existing ones; the

“innovations” were steps backward; head office as a leader was not balancing process

innovation against the risk of being less efficient.

4.5 The role of leaders in balancing risk management and innovation

Zeta cannot be understood without understanding its historical, socially integrating myths and

the role of leaders in this process. It is the story of a small group of men involved in creating

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Zeta, of which the Technical Director remained the long-term hands-on contributor and a

dominant, perhaps domineering, force. The Technical Director maintained his institutional

leadership role, establishing internal consistency (Washington et al., 2008) and elaborating

the historical values of a small innovative start-up organisation trying to provide a capability

in Australia that was as good as the rest of the world and almost serendipitously building a

piece of technology which ensured its claim to be world-class. The values around innovation

were not just about the past but also about the future, with no difficulty in balancing

“coherence with the past and responsiveness with the present” (Golant et al., 2015 p.607).

The problem was the sheer change in the size and possible trajectory of the organisation; it

had been trying to manage its growth with the same (lack of) risk management and

management control systems that had originally been set up for a much smaller organisation.

The thought of trying to introduce managerial innovations at Zeta were fraught with

difficulty: “A new process might help produce a quality product that doesn’t have lots of

bugs- but it is difficult to make a decision without fear of being undermined by the Technical

Director”. The admiration for the technical expertise and product vision of the Technical

Director seemed unbounded but there were concerns about his approach to management.

In contrast, the historical context of Eta was its formation as a subsidiary of a global MNC

that came into existence in Australia to deliver a single product to, at that stage, the

Australian government. This product had been developed by the parent company on an

international scale, and the historic myth had created an air of confidence in building the

future on the past. Over time the Australian subsidiary had built its own local culture but it

was also dependent on shifts in culture of the international parent. The importance of a local

leader in Australia was important as the interviewees noted because “Culture stems from the

board down” and the innovation that occurred depended upon whether “the CEO is a

technologist or a traditional CEO”. A leader was necessary as it was: “A process to capture

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ideas, filter them re risk and reward- bring resources and another noted that: “We need

sponsors of innovation to look after guys who innovate to protect them from activities of

others” as “Innovation needs a champion- has the belly”.

4.5 Who are the leaders? Where are the Accountants?

Institutional leaders were viewed in both organisations as important to the innovation that

occurred, whether product or process, explorative or exploitative. Having engineers as leaders

at Zeta was particularly important. At Eta this resided more with the parent. Nevertheless,

given the prevailing engineering logic of both companies it was not surprising that

accounting and accountants were marginalized. At Zeta, the accountants had no role of any

significance. They were simply the “bean counters”; there was almost hostility to the idea

that the finance team might be business advisors who could contribute to business success.

While many agreed that the finance team was over-worked, there was a strong attitude that

they should not have more resources or a greater role. This was the result of the

overwhelming innovation culture but was compounded by the lack of focus on financial

outcomes by this unlisted company. As long as the company was cash flow positive and

broke-even there was no goal of profit maximization. Long term development and long term

financial returns possibly mattered but not annual profit. This was helped by the CEO who

was a qualified accountant and controlled the financial aspects of the company at board level

and could effectively cushion the Technical Director and quieten any push for any greater

accounting involvement.

Even the accounting system itself was a problem; there was evidence that it had much more

capability than it was being used for, but the dominant engineering logic did not allow for a

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more powerful, and possibly “intrusive” accounting system. The impression of the

accounting staff by others was almost derisory: “Accountants are a world unto themselves-

anything that impacts on them- it’s a deviation- it means the world has ended- we are so busy,

there is so much to do” and they were “in the slipstream- non-existent”. At Zeta accountants

were excluded from any aspect of risk management and were marginalised and were not seen

as leaders.

In contrast, Eta had shifted to a prevailing logic of financial returns, imposed by the parent,

with no institutional leader locally in Australia that could espouse the values of the past and

the innovation tradition. However, just as at Zeta, the accountants were not important; they

were physically and functionally removed from many activities. Accountants were involved

in risk scrutiny and budgeting but the shift to financial outcomes had been met by engineers

taking on “accounting” functions, like budgetary feedback processes at the project level,

rather than by the accountants showing any involvement or leadership of risk, managerial

innovation, risk management, or management control.

5. Discussion

The first case company, Zeta, is a highly innovative, risk taking, organisation with an

observable clash between innovation and the desire of some staff for more formalized risk

management systems. Product innovation dominates. Driven by a key institutional leader,

formal risk management systems are marginalized for fear that they might reduce exploratory

product innovation. For a similar reason both process innovation and managerial innovation

are not welcome. With a lack of interest in formal systems, including accounting systems,

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the accountants are of limited consequence. The challenge for the company is to compete in

global markets and grow in size using informal control systems.

The second case, Eta, has become complacent in terms of exploratory innovation and some

staff believe that it needs some significant explorative product innovation to stay in the

market. It is now in the exploitative stage of its major product and has become risk averse

with a risk management focus. Notably, just as for Zeta, accounting is also marginalized in

this strong engineering culture; engineers risk manage, budget and control costs. Formalized,

well-structured risk management systems exist but only at a project level. Managerial

innovation, where it existed, has been driven by the parent MNC as it seeks more integration

between its international offshoots. The result is a superficial contradiction between an

informal approach to risk management with the presence of much formalized systems and

processes.

In both of these case companies institutional leadership (Selznick, 1957) is important to the

balance (or lack thereof) of risk management and innovation. In Zeta, risk management

requirements are met when absolutely necessary, but continuing risk taking to produce

innovative solutions to customer needs is the past, present and future; innovation is the value,

risk management is part of the “mundane administrative arrangements”. In Eta is hard to

conclude that the formalized systems have inhibited innovation; the innovation lethargy

results from no local leaders maintaining the original innovation value, with only incremental

developments and a risk management focus.

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Golant et al.’s (2015) concept of inter-temporal balancing is evident in both organisations.

Zeta has a deeply embedded historic value of innovation which continues to be critical to the

organisation in the future; it lacks any belief in risk management systems and broader

management control systems to navigate the present and the future. Eta has historically had a

strong belief in risk management at the local level, but the lack of a leader of innovation has

resulted in the innovation value being lost in the rhetoric and framing discourse. Eta

genuinely needs to re-invigorate its past values to be able to forge a strong future direction.

None of the actors in Eta see themselves as powerful leaders, and although not ‘cultural

dopes’ (Lawrence, Suddaby and Leca, 2009) they need ‘external supporting mechanisms’

(Washington et al., 2008) for an institutional leader to appear to provide some balance in the

future.

Innovation has been a critical value for survival for both companies as without it neither Zeta

nor Eta has a future. Both face leadership threats to this value as “external” actors in the form

of MNCs that have a shareholding; a dormant, but potentially worrying, parent in the case of

Zeta and a pro-active, increasingly less benign, parent in the case of Eta. While both

organisations had done well in their start-up phases, this has diminished over time for Eta,

and aligns with Kraatz’ (2009, p.80) role of leadership as: “character-defining choices in

response to competing demands of their pluralistic institutional environment.”

Where the organisations differ is the behaviour of the internal actors. The paradox of

embedded agency could perhaps be resolved in Zeta through a new incoming CEO as an

institutional leader to challenge the Technical Director who, despite his awareness of its

unworkability, values the old approach and a mental map of how the organisation should

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work. Both these players have a political role in negotiating a way forward; the first of what

Kraatz (2009, p.74) describes as a “sight … from the bridge” of the institutional work that

leaders perform. The ‘Rest’ at Zeta want a transformation by the leaders into a larger firm

approach and a formalizing of the loose overgrown ‘small firm’ leadership. One of the roles

of a leader is to reinforce values through symbolism. In the case of Zeta there is no need to

reinforce the symbolism around innovation and world class products; this is firmly shared in

the myths and symbols of the firm. The concern of Selznick (1957) that leaders may make

mundane decisions when not sufficiently aware of the implications for precarious values is

not apparent at Zeta. But, the new incoming CEO needs to demonstrate significant “social

skills” (Fligstein, 2001) to develop a meaning around innovation but at the same time

introduce structures and practices (Kraatz 2009) that are more formal, balancing risk

management with innovation, in keeping with the needs of a growing organisation and

customer expectations. The value at risk would be the family culture.

The work of a leader is to create formal structures in part to stop any particular new

constituency from taking over. At Zeta there was a strong feeling against systems, at times

almost irrational, and the Technical Director as leader acted as an ‘architect creating

structures that grant various constituencies sufficient influence to secure their support, while

simultaneously limiting their power over the whole organization’ (Kraatz, 2009, p.76). The

prospect of an incoming CEO at Zeta trying to create a balance is a huge challenge; the

agenda of the “Engineers” and “the Rest” are different and may create a role for the CEO to

become an institutional leader and create a workable coalition amongst “the Rest resulting in

a more ambidextrous organisation providing some balance. At Eta its cosy ultra-conservative

environment was not one that would enable survival. No leaders had appeared to “make

value commitments in order to win trust and sustain cooperation among institutional

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constituencies” (Kraatz, 2009, p.77) and there was a failure to maintain any deeply embedded

values. The detailed project risk management systems masked the most critical risk – its own

survival; there might be no long-term reason for the parent MNC to operate in Australia. The

current CEO of Eta was trying to broaden the product base to diminish this risk but taking the

role of an institutional leader was limited as he was reaching the end of his tenure of his

appointment by the MNC. A leader’s role is to bridge disparate constituencies (Kraatz 2007)

but the communication and rhetoric of the MNC parent as leader was of greater profitability

providing no balance with an innovation value.

In both cases accountants as actors were marginalized. While management accounting

researchers may look for evidence of the pro-active role of management accountants as

business advisors (e.g. Järvenpää, 2007) this is not the case here. Within the engineering

excellence logics of both companies, there was no role for accountants to provide leadership.

For Zeta, accountants did not have a role in institutional work because they were not engaged

in the main game of the organisation. At Eta the institutional work of accountants had been

subsumed by engineers. Our results stand in stark contrast to the view of a dominant

accounting logic (Broadbent, 2002; Broadbent, Gill and Laughlin, 2008); our two firms with

a dominant engineering logic provide a different story about accounting and risk management

when the leaders are engineers involved in creating new products. Nevertheless, consistent

with the idea that accounting logics can be pushed by those other than accountants

(Broadbent et al, 2008) there is evidence in Eta that accounting logics were important despite

the dominant engineering logic. The two cases provide evidence of risk management

processes being managed by people far from the accounting function (Power, 2007; Woods,

2007; Soin & Collier, 2013). In these firms with strong engineering logics it is engineers who

are the risk managers, the cost controllers and the budgeters, the leaders and the potential

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balancers. In such “outcomes driven” organisations risk management is not a high priority,

contrasting with Power’s (2007, p.180) observation that: “Risk management is increasingly

publicly certifiable and visible because of its role in defining organisational virtue and

legitimacy”. Risk management and control systems are part of Selznick’s “mundane

administrative arrangements”. At Zeta there is deep suspicion that innovation in risk systems

might endanger the historic values of creativity and excellence and the small firm ideals.

Although some staff believe that holding on to the past values of innovation (Golant et al.,

2015) and ignoring risk management may endanger Zeta’s future, these views are

marginalised. While this is not evident in Eta, there is an overconfidence in administrative

arrangements that give a false sense of security about the future of the organisation. There

seems to be a need to carry on the past values of innovation but no one locally has taken on

the mantle as an institutional leader.

6. Conclusion

Overall, innovation and risk management may be balanced when institutional leaders support

innovation as a value yet create and maintain important mundane administrative

arrangements. The problem of balance for leaders may be creating and maintaining

innovation in the exploitation stage and risk management in the exploration stage. Leaders

have a role in infusing values into an organisation, such as innovation, but they also need to

maintain the mundane administrative arrangements of risk management and management

control. To balance this across exploration and exploitation appears difficult. Neither

company in this study had leaders interested in becoming ambidextrous organisations; the

leader at Zeta, the Technical Director, wanted innovation, the leader at Eta, the remote parent

MNC, wanted management control. Neither was ambidextrous.

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This is an ongoing research agenda and these two cases only scratch the surface. One of the

limitations of this study is that both enterprises are highly focused on engineering and are

dominated by engineers. Accountants are not leaders in any sense although they have a much

stronger influence in other organizations highlighting how the organisational and historical

context matters. The next step is therefore to find some exemplar ambidextrous organisations

that have balanced innovation as an ongoing explorative process and managed exploitation by

having good systems including risk management. Such organisations will be risk takers and

risk managers, consistent with the idea that risk management not only mitigates against any

damage but also enables opportunities to be seized in the future.

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Appendix 1 - Interview Protocol
 What is really important to this organization?
 What are the things that will be important to this organization in the next five years?
 How would you describe the organizational culture?
 What do you understand by risk and what are the major risks that your organization
faces?
 What do you believe is the risk culture or appetite of your organization?
 How is risk managed here?
 How has that developed over time?
 What sort of innovations happen here:
o Product or process
o Incremental or radical
o Management or technological
 How do you think the risk management process impacts on innovation? (tease out)
 How do your general management systems (forecasting, budgeting, performance
measurement) measure and impact:
o Risk
o Innovation
o The link between risk and innovation
 What is the role of the finance/accounting staff in relation to other specialists
supporting both risk and innovation?

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Acknowledgements: We gratefully acknowledge a grant from the Chartered Institute of
Management Accountants which funded part of this research. Contributions to improving the
paper have been appreciated from participants at the 2014 European Group for Organization
Studies and the Critical Perspectives on Accounting conference, Toronto, especially Robin
Roslender, and from seminar participants at Aston University and the University of South
Australia.

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Table 1 Comparison of the Two Case Companies

Zeta Eta

Ownership Privately owned; large but Subsidiary of an MNC

minority ownership by MNC
No. of employees 325 320
No. of branches 5 4
Commenced operations 1982 1984

This Table shows a brief comparison of the two case companies

Table 2 List of risks mentioned by the interviewees

Risk Zeta staff Eta staff

Organisational

Deliver on time/ scheduling x x

Design changes derailing plans x

Staffing issues x x

Not meet customer specifications/ unsafe x x

products
Complacency x

Supply chain x

Financial

Financial risk in general x x

Grow too fast x

Component failure x

Strategic

Succession planning x

Competitors and the market changing x x

Legal x

Reputation x x
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Security/ fire/ health and safety x

Note: This table shows the risks that were mentioned by the interviewees at Zeta and Eta