Japanese Management Accounting Practices for Facilitating Eco-Efficiency: the Experience of Panasonic Akiko Phillips University of Wollongong

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2014 Japanese management accounting practices for facilitating eco-efficiency: the experience of Panasonic Akiko Phillips University of Wollongong

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Japanese management accounting practices for facilitating eco-efficiency: the experience of Panasonic

A thesis submitted in fulfilment of the requirements for the award of the degree

Master of Accountancy

from

University of Wollongong

Akiko Phillips

B.Com

School of Accounting, Economics and Finance

2014

Certification

I, Akiko Phillips, certify that this thesis, submitted in fulfilment of the requirements for the award of Master of Accountancy in the School of Accounting, Economics and Finance at the University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution.

Akiko Phillips

March 2014

Acknowledgements

The most importantly I acknowledge my supervisors; Dr Anura de Zoysa and Dr Kathleen Rudkin, whose support and encouragement for completing my thesis. I, hereby, express my sincere appreciation for their patience and their precious time they offered to me. I thank my friendly supervisors; Kathy and Anura.

I also would like to express my gratitude for all faculty staff who organises seminars and workshops to help me acquiring knowledge and skill for my research. I thank Heather and Celeste from leaning development who gave me guidance of effective writing in English.

Lastly, I thank to my husband Len and children; Tomas, Kazuma and Hannah. Their love and support with encouraging words always cheer me up, so my determination and motivation lasted.

合掌 (Gatt-shou: put both hands together and showing gratitude for all)

Abstract

Companies change their strategies in response to changes in their business’ environment. A deteriorating natural environment is an external factor influencing the operations of businesses. This deterioration has seen a change in society, resulting in an increasing demand for eco-efficient products and services. Incremental awareness by society of environmental issues creates new opportunities for the business community. Organisations’ performances change with their new strategies for meeting the demands for environmentally conscious businesses. This phenomenon is examined through the example of the Japanese company Panasonic Corporation, which regards accounting as the first step of business management. This thesis argues that accounting serves sustainable management because environmental accounting provides the basis for resource management in an organisation. The nation of Japan is committed to accomplishing strong environmental performance, and Japanese companies have an historical reputation of introducing innovative management accounting methods and techniques in response to changes in their business environment. Due to Japan’s geographic position and its inability to be self-sufficient in natural resources, it is reasonable that Japanese companies regard resource management as a critical area to seek solutions for eco-efficiency strategy. This research uses the examples of Panasonic Corporation and a contingency approach to explore the impact of ‘eco-efficiency’ demand on Panasonic Corporation’s management accounting practices. The demand for eco- efficient products and production entices Panasonic Corporation to change its operational activities, reporting contents, corporate structure and business strategies. Consequently, it designs its management accounting practices to fit its context and in so doing accomplish its strategic objectives. Specifically this research identifies and explicates how eco-efficiency demand is reflected in designing management accounting practices. The consequential impact of eco- efficiency consciousness has thus grown largely owing to a response to the eco-efficiency demands. The basis of this study is an examination of Panasonic Corporation’s performance in the context of accounting for the environment. Observations are taken both prior to and after Panasonic’s responses to the Kyoto Protocol.

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Table of Contents

Certification ...... i Acknowledgements ...... ii Abstract ...... iii Table of Contents ...... iv List of Charts...... vi List of Figures ...... vi List of Tables ...... vi Table of Abbreviations ...... vii Table of Japanese Terms ...... viii Chapter 1: Introduction ...... 1 1.1 Introduction ...... 1 1.2 Objectives of the study ...... 3 1.3 Research design ...... 3 1.4 Research contribution ...... 4 1.5 Structure of the thesis ...... 4 Chapter 2: Background of the Research ...... 6 2.1 Introduction ...... 6 2.2 Change and management accounting practices...... 7 2.3 The Kyoto Protocol and its impact on businesses’ environmental performance ...... 8 2.4 The role of accounting in the new environment...... 10 2.5 Japanese context ...... 11 2.5.1 Poor natural resource country ...... 12 2.5.2 The historical context of changing Japanese commerce ...... 13 2.5.3 Japanese culture and disposition ...... 19 2.6 Environmental issues ...... 21 2.7 The impact of environmental issues on Japanese management accounting ...... 22 2.8 Summary ...... 23 Chapter 3: Literature Review ...... 25 3.1 Introduction ...... 25 3.2 Management accounting practices and change ...... 25 3.2.1 Change, internal factors, and MAPs ...... 27 3.2.2 Change, external factors, and MAPs ...... 30 3.3 The eco-efficiency approach in the context of accounting for the environment ...... 34

3.4 Management accounting changes in Japan ...... 37 3.5 The environmental management accounting research in Japan ...... 38 3.6 Summary ...... 43 Chapter 4: Research Design and Methodology ...... 45 4.1 Introduction ...... 45 4.2 Research objective ...... 45 4.3 Research questions and issues...... 47 4.4 Research review ...... 48 4.5 Research design ...... 49 4.6 Theoretical approach ...... 55 4.6.1 Conceptual underpinnings of contingency theory ...... 55 4.6.2 Contingency theory in the context of accounting ...... 56 4.7 Research method ...... 59 4.8 Data collection ...... 61 4.9 Contextual background of Panasonic’s environmental reporting ...... 67 4.10 Summary ...... 69 Chapter 5: Eco-efficiency: the Experience of Panasonic ...... 70 5.1 Introduction ...... 70 5.2 An overview of Panasonic Corporation ...... 71 5.2.1 Panasonic - structural reform and its history of brands ...... 73 5.2.2 Kaisha ...... 76 5.2.3 The Panasonic culture - the founder’s intention and spirit...... 77 5.2.4 Panasonic’s business strategies: accounting and reporting ...... 80 5.2.5 Environmental issues and Panasonic’s response and reporting ...... 86 5.3 The Panasonic in-house MAPs: eco-efficiency conscious production ...... 88 5.3.1 Raw material management -the starting point for value creation ...... 89 5.3.2 Green production management -the challenge ‘a zero emission factory’ ...... 91 5.3.3 Resource circulation: Panasonic and total product responsibility ...... 94 5.3.4 Green supply chain management ...... 98 5.4 Summary ...... 101 Chapter 6: Conclusion ...... 102 6.1 Summary of the study ...... 102 6.2 Discussion of the findings ...... 102 6.3 Contributions of the study ...... 105 6.4 Strengths, constraints and recommendations ...... 107 Appendix 1: Brief History of Panasonic ...... 109

Appendix 2: Panasonic - IR Summary ...... 112 Appendix 3: Not Favourable Impact – A Merger with SANYO (1) ...... 113 Appendix 4: Calculation Model for Figure 7 (chapter 5) ...... 115 Appendix 5: Illustration of Akari-Anshin Service System ...... 116 Appendix 6: Applying the Panasonic Case for the Research Model ...... 117 References ...... 119

List of Charts

Chart 1: History of Japanese Yen ...... 17 Chart 2: Archive of e-R&D cost allocation of Panasonic ...... 82 Chart 3: Reduction of CO2 emitted amount from production activities of Panasonic ...... 85

List of Figures

Figure 1: The model ‘eco-efficiency consciousness reflecting organisational changes’ ...... 53 Figure 2: Panasonic’s new corporate structure - ‘Business Domain System’ in 2003 ...... 72 Figure 3: Brand History of Panasonic ...... 75 Figure 4: The scope of ‘Matsushita’s Environmental Accounting System’ ...... 86 Figure 5: Panasonic’s management accounting practices for sustainability ...... 88 Figure 6: Panasonic Green Factory assessment system indictors ...... 92 Figure 7: Overview of environmental impact from business operation ...... 96 Figure 8: Akari-Anshin Service – take back service program ...... 97

List of Tables

Table 1: Japan's Imports of Non-Renewable Resources in 1989 ...... 12 Table 2: Archive of the changes in the Panasonic environmental and annual reports ...... 63 Table 3: The leading Japanese green brands and environmental Report 2013 ...... 67 Table 4: History of environmental activities prior to the Kyoto Protocol ...... 68 Table 5: Panasonic Structural Changes ...... 74 Table 6: The timeline of environmental issues and Panasonic responses ...... 87

Table of Abbreviations 3R Reuse, Reduce and Recycle B2B2C Business to Business to Consumer BE Business Environment CCM Capital Cost Management CSR Corporate Social Responsibility EA Environmental Accounting e-LCC Environmental effects oriented LCC eco-VC eco-Value Creation (ecological value adding activities) EMA Environmental Management Accounting e-R&D Environmental related R&D FCF Free Cash Flow GHG Green House Gas GRI Global Reporting Initiative ISO International Standards Organization JIT Just In Time (strategy/ manufacturing system) JMA Japanese Management Accounting KPMG-AZSA SC KPMG AZSA Sustainability Co. Ltd LCA Life Cycle Assessment LCC Life Cycle Costing MAC Management Accounting Change MAP Management Accounting Practice MAS Management Accounting System MEIC Matsushita Electric Industrial Corporation MEMA Monetary Environmental Management Accounting METI Ministry of Trade, Economic and Industry of Japan MFCA Material Flow Cost Accounting MOE Ministry of the Environment, Government of Japan NE Natural Environment Panasonic Panasonic Corporation Panasonic-eco Panasonic ecology systems group PAS Product Assessment Sheet PEMA Physical Environmental Management Accounting P-FEMS Panasonic Factory Energy Management System PHP Peace and Happiness through Prosperity PMS Performance Measurement Systems RoHS Restriction of Hazardous Substances Sanyo Sanyo Electric Corporation SEAR Social and Environmental Accounting and Reporting SE-Link Save Energy Link TC Target Costing TNS The Natural Steps TQC Total Quality Control UNFCCC United Nations Framework Convention on Climate Change WEEE Waste from Electrical and Electronic Equipment

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Table of Japanese Terms

あかり Akari Light, Lamp or Lighting 安心 Anshin Relief (ease your mind) 原価企画 Genka- Japanese way of Target Costing Kikaku 板粉 Itakona Plate and powder 会計 Kaikei Accounting 会社 Kaisha A Japanese Corporation 改善 Kaizen Contiguous improvement カンバン Kanban Kanban System – the Toyota’s logistic management system for Just-in-Time production Original ideas comes from a product administrative card which contains information for production 管理 Kanri Administration, broad meaning of management procedure 管理会計* Kanri-Kaikei Managerial Accounting (interchangeable with Keiei-Kaikei) 経団連 Keidanren Japan Business Federation (of Economic) The purpose is to establish consensus in the business community on a wide range of vital domestic and international issues for their stability and apt resolution 経営 Keiei Management, Administration or operation 経営会計* Keiei-Kaikei Management Accounting (Interchangeable with Kanri-Kaikei) 系列 Keiretsu the grouping of enterprises 松下幸之助 Konosuke The founder of Panasonic and a management philosopher Matsushita 共生 Kyosei Symbiosis 松下政経塾 Matsushita Konosuke Matsushita established the Institution in 1979, Political with a view to educate the future leadership of society. Economic This supplementary private Institution civilise youth to Institution have prescience and vision of Japan’s future. メタゲジ Metagegi Compound noun of ‘Meter and Gauge’ One of the Panasonic eco-device 物作り Monozukuri Honest Craftsmanship spirits もったいない Mottainai Too precious to waste – Japanese idiomatic expression 加工貿易 Processing Indicate the style of Japanese manufactures’ business.- Trade Products are assembled domestically and exported overseas 商学部 Shougaku-bu Faculty of Business Administration or Commerce 衆知 Syu-chi Employees to integrate their knowledge (employee empowerment)

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Chapter 1: Introduction

1.1 Introduction

The milieu in which business organisations operate has changed drastically over the last few decades due to a number of factors, such as: the advancement of technology; greater intensity of global competition; and, changing customer demands (McWatters et al. 2001).

Responding to such changes, businesses adjust their strategies accordingly in order to at least maintain and ideally increase both their customers’ value and their organisational value. This thesis, through the examination of the case study of the Japanese company Panasonic

Corporation, explores one such factor, ‘eco-efficiency1’.

It is argued that the emergence of the concept eco-efficiency has initiated significant change in the consciousness of both manufacturers and their customers with respect to an expectation of how goods are produced and consumed. That is, in meeting an increasing demand for the manufacture of eco-efficient products, companies can develop a competitive edge for their products. Fraj-Andrés et al. (2009) point out competition is one of the main factors motivating organisations to incorporate environmental aspects into their strategic planning process. This thesis explores, through the analysis of Panasonic Corporation’s operation, how accounting practices and systems are integral and respond to this process.

Changes in the design of management accounting practices (MAP) are required so that they can provide the necessary new information needed to introduce and assure eco-efficiency in a manufacturing process.

Since the 1970s, Japan has seen a drastic increase in the amount of toxic and synthetic waste produced, as a result of rapid economic growth in the country (Nomura & Kamii 2004).

1 Eco-efficiency is defined as “a concept describing a vision for the production of economically valuable goods and services while reducing the ecological impacts of production” (Gaffikin 2008, p.244).

The environmental impact of rapid development in Japan is significant, because it is a highly industrialised country reliant on manufacturing, and lacking in natural resources. This circumstance is considered a catalyst for Japan being a leader in taking initiatives to address environmental issues. Japan did this earlier than many other countries in the world.

Japan signed the Kyoto Protocol (United Nations Framework Convention on Climate

Change [UNFCCC] 2011) 2 in 1997, compelling Japanese companies to address their environmental impacts, including the incorporation of an eco-efficiency consciousness within their operations. There developed a trend of increasing innovations for eco-production each year in Japan, reducing emissions and waste significantly, and in doing so meeting increasing demand for such products worldwide.

Japan’s government agencies and their regulatory requirements supported eco- production. Progress towards adopting environmental factors into management accounting systems (MAS) was slow until the 1990s (Kokubu et al. 2009). However, since the signing of the Kyoto Protocol in 1997, the Ministry of the Environment, Government of Japan (MOE) promoted optimising Japan’s limited resources and advocated the development of environmental management accounting (EMA) (MOE 2000). The MOE promotes reducing, reusing and recycling materials and they initiated a project to build a ‘resource circulating’ society (MOE 2006). As a major initiative to achieve this goal, in 2000 the Ministry of

Economy, Trade and Industry of Japan (METI), jointly with the MOE undertook a pilot project to examine EMA (METI 2007a). The MOE also set up a training course for researchers and bureaucratic officials to educate them in EMA and associated techniques used for reducing, reusing and recycling resources (Morioka 2011, p.15).

2 The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change, committing its parties to internationally binding emission reduction targets. It was set in December 1997 in Kyoto Japan. Numerous industrialized countries and the European community adopted this treaty with an aim to reduce greenhouse gas (GHG) emissions (UNFCCC 2011).

The Japanese Government’s focus on MAS is consistent with the perception of Burns and Scapens (2000, p.3), who view management accounting change (MAC) as an institutional framework for delivering strategy. Management accounting alters in order to adapt and fit an organisation’s objectives. MAP need to be sensitive to “revolutionary change” that is a result of significant external environmental changes (Burns & Scapens 2000, p.13). A key example of this in Japan is the Kyoto Protocol. However, in this broader context companies’ responses to environmental changes do vary between companies as there are distinctive differences between companies in relation to their traits and cultures. For example, Benn et al.’s (2011) study of the Fuji Xerox Australia case perceives a distinct culture, describing it as “justifiable pride in its technological achievements” (Benn et al. 2011, p.40). This thesis argues that a company with a strong culture of embracing new ideas and striving for innovation is likely to initiate changes to their MAP in line with the company’s strategic policy directions.

1.2 Objectives of the study

This research examines how the management accounting system of an innovative

Japanese company responded to a company strategy of achieving a higher level of eco- efficiency in their operations. For this purpose, this study examines the processes, methods and techniques used by Panasonic Corporation (hereafter Panasonic) to achieve this objective.

1.3 Research design

This is a qualitative exploratory study using text analysis because it enables the researcher to examine the underlying issues in detail. As Neuman (2006, p.40) states this allows “an in-depth examination of an extensive amount of information about very few units or cases for one period or across multiple periods of time”. In this study, research questions

3 are formed using a research framework built on the premises of contingency theory. The details of the research design and framework are given in Chapter 5.

1.4 Research contribution

The contribution of this study is to twofold. Firstly, it contributes to the richness of examples of accounting-in-action in the context of accounting for the environment. Secondly, this study also makes a contribution by investigating and reporting on the results of many studies undertaken by Japanese researchers and reported in the Japanese language, making them accessible to a western audience. It is anticipated that the findings of this study can provide valuable insights about various processes, techniques and methods that can be used to increase the environmental performance of manufacturing companies.

Panasonic is one of a number of globally acknowledged sustainable Japanese manufacturers. The study of its MAP allows this research to capture examples of common insights of Japanese enterprises’ environmental approaches. Contributions of this research are to demonstrate how Japanese companies deal with environmental issues for other entities that seek an effective environmental strategy in their changing business environment. Japan’s signing of the Kyoto Protocol impacted on the business community and forced changes to their internal systems. Hence, it is of relevance to shed a light on a leading eco-efficient company’s environmental approaches.

1.5 Structure of the thesis

This thesis comprises six chapters. The outlines of the remaining five chapters are illustrated in this section. Chapter two provides the background of the research. The topic of

MAC is introduced and the historical influence of the Kyoto Protocol is discussed. The foundations of this thesis are contextualised in terms of the Japanese geographic position,

4 disposition and culture. This section gives special emphasises to the origins of Japanese corporate culture and its influences in forming corporate culture.

Chapter three presents a literature review of MAC. This research specifically investigates how Japanese companies have responded to environmental changes. It also gives a necessary explanation of the unique nature of Japanese management accounting. This section will review both the western and Japanese literatures on MAC.

The design, methodology and theoretical approach are described in chapter four. A contingency approach (Birkin et al. 2005) is used as the theoretical underpinning to form the framework of the study. A contingency approach allows this study to introduce the new contingent variable of eco-efficiency consciousness into the selected research model. Details of data collection, selection and accessibility are depicted. Potential impediments regarding data quality are considered.

Chapter five is concerned with the analysis of Panasonic’s MAP. This section presents an overview of Panasonic’s environmental strategy, particularly the impacts on it of changing eco-efficiency consciousness on Panasonic’s transition to an eco-efficiency oriented business strategy. The inter-relationships of corporate culture, strategy and MAPs are explicated in an historical context. The origin of Panasonic’s corporate culture is discussed in relation to its founder’s management philosophy. Panasonic’s unique MAPs are presented in detail.

On the basis of the research outcomes, chapter six gives a discussion and summary of this study’s findings. The contributions and significance of this research are presented followed by a discussion of the study’s limitations and recommendations. Finally this thesis concludes with identified areas for future research.

Next, chapter two provides the discussion of the background of study and the research topic of MAC. It is the commencement of this study.

Chapter 2: Background of the Research

2.1 Introduction

The world of business is changing dramatically due to continuous technological developments and changing customer needs, etc. Businesses change their strategies in order to match their capabilities with emergent opportunities in the business environment, in order to create value for their customers and shareholders. Consequently MAPs change accordingly so that they can provide to management the information required resulting from changes to business strategy. This research investigates the changes to MAPs introduced by a large and mature Japanese company, Panasonic in response to greater eco-efficiency consciousness.

This chapter provides the background of this research in the context of Japanese disposition. It comprises the following eight sections: section 2.2 explains the process of

MAP changes; section 2.3 gives a description of the major developments in Japan after it signed the Kyoto Protocol; section 2.4 undertakes an overview of the changing role of accounting and its characteristics; and, section 2.5 expounds the reasons for the relevance of the Japanese context. Specifically in section 2.5, the Japanese geographic context in terms of the implications for MAPs of its limited natural resources is explicated in section 2.5.1. An overview of the historical context of Japanese commerce is outlined in section 2.5.2. Japan’s national traits and cultural context and their consequences for developments of Japanese management accounting are explored in section 2.5.3. The specific event of Japan’s signing of the Kyoto Protocol, and the resulting pressure for eco-efficiency on Japanese public and private organisations is illustrated in section 2.6. Section 2.7 discusses the consequential impacts of these factors on Japanese management accounting (JMA). The prominent Japanese

6 company, Panasonic, is introduced as a unique example. The final section 2.8 provides a concluding discussion and summary of this chapter.

2.2 Change and management accounting practices

The discussion about the nature of MAC has been found in academic literature for decades (Burns & Scapens 2000, p. 3). Drury et al. (1993), and Burns and Scapens (2000) believe that the fundamental nature of management accounting is unchanged, but that MAPs are modified and developed as a business’ environment changes. New Institutional Theory3 was introduced into the management accounting literature to theorise the complex inter- organisational processes of MAC. This theory refers to the institutional perspectives of management accounting and builds the outline for an institutional framework (Scapens 1994, as cited in Burns & Scapens 2000). Collier (2001) employs New Institutional Theory to a field study he conducted. Modell (2001) also utilises this theory and emphasises the sociological aspects of performance measurement as a contribution.

New Institutional Theory with its sociological approach became a popular avenue to research MAC. For example; Dambrin et al. (2007), Nor-Aziah and Scapens (2007), and

Ezzamel et al. (2007) use this approach. The main objective of their research is to understand

MAC so that managers will be able to make better decisions for emerging issues and to predict consequential impacts (Burns & Scapens 2000). While this approach gives attention to the influence of economically powerful stakeholders on MAC, it has given less attention to the impact of external environmental factors on MAC.

In contrast, the model proposed by McWatters et al. (2001) “Framework for

Organizational Change” illustrates the impact of external factors on an organisation,

3 New Institutional Theory explains MAC within institutional contexts (Abernethy & Chua 1996; Burns & Scapens 2000; Collier 2001; Modell, 2001). Sociological and organisational aspects of MAC are emphasised in explaining the processes of MAC.

7 indicating factors that influence organisations to change their strategies and MAP. Although the framework suggested by McWatters et al. (2001) is still valid, it needs to be updated to include new factors that are now contributing significant changes to the MAPs of businesses.

It is proposed that the introduction of a major treaty such as The Kyoto Protocol has a profound impact on the practices of businesses and thereby to their MAPs. Burns and Scapens

(2000, p.13) point out “the revolutionary change [that] is likely to be possible only as a result of major external change”. This study considers eco-efficiency consciousness of manufacturers and customers as one of the main external factors to make an impact on business strategy and MAP.

2.3 The Kyoto Protocol and its impact on businesses’ environmental

performance

There is no doubt that the Kyoto Protocol, which set emission reduction targets for countries, has had a significant impact on the way business operations are run. It compelled governments, organisations and people to shift towards producing and consuming environmentally friendly products. This eco-efficiency consciousness by the parties involved has resulted in a significant drop in emissions in the signatory countries. It has also encouraged companies to increase their efforts to recycle and reuse materials in their operations. As a direct result of Japan’s signing of the Kyoto protocol, the METI and the large Japanese manufacturers commenced developing MAS aiming to reduce the emissions produced by companies (METI 2002). As a consequence, a costing method called Material

Flow Cost Accounting (MFCA) was introduced in Japan as a mechanism that a company can use for reducing environmental impacts and costs of production. The MFCA concept originated in Germany but was developed in Japan to suit its requirements. MFCA measures the flows and stocks of material in the manufacturing process, in terms of physical and

8 monetary units so that it enables the identification and accurate costing of waste and emissions (METI 2007a). Commenting on the positives of MFCA, Jasch (2003) points out it allows companies to focus on materials flows with an ability to review production cost computations.

The development of MFCA to reduce environmental impacts was a collaborative effort involving more than 40 experts from 24 countries (Kokubu et al. 2009). They endeavoured to develop the MFCA to fit the objectives of the Kyoto Protocol (Kokubu et al.

2010). The idea of using an engineering oriented approach, such as MFCA, is supported by

Möller (2010, p.572) who suggests using a framework of material and energy flow-based cost accounting to optimise economic evaluation and environmental impact. Hence, MFCA can be recognised as an accounting system for EMA. With regard to the development of EMA,

Soonawalla (2006, p.360) concludes that it is a product of “the emergence of the environmental movement within the context of corporate responsibility and sustainability management.”

The increasing interest in the concept of eco-efficiency by Japanese companies, especially after the signing of The Kyoto Protocol, has led many Japanese companies to change their business strategies in order to create value for their customers, who are increasingly demanding eco-efficient products. Boons (2009, p.66), who examined the impact of eco-efficiency on business strategy and its links to customer value, provides the following statement from the Royal Philips Corporate Sustainability Report (2003, p.2).

[W]e are committed to being the world’s leading eco-efficient company in the electronics industry. Seeking environmental improvement as an opportunity for innovation, we work continuously to minimise the impacts of products, processes and services. To meet this challenge we establish solid action programs to drive progress in this important area.

As in the case of Royal Philips, being eco-efficient, a company can distinguish itself from its competitors. This is important for a company as the key to a company’s success lies largely in its ability to create value for customers while distinguishing it from its competitors.

2.4 The role of accounting in the new environment

McWatters et al. (2001) stress the need for an organisation to redesign its operational system when it changes strategy due to the influence of external environmental factors.

Referring to the role of management accounting in a changing environment, they state:

[I]f the evolution of the management accounting system lags behind the evolution of the organization, the systems will act as an anchor preventing the organization from successfully dealing with a changing environment. Organizations must adapt to changing environments and management accounting must adapt to changing organizations (p.4).

However, McWatters et al.’s (2001) position does not go uncontested. There are two contrasting positions in the literature on the relationship between organisational change and accounting. Larrinaga-Gonzales and Bebbington (2001, p.269) describe these two competing perspectives as follows:

[T]here are two contrasting positions in the literature on the relationship between organisational change and accounting. The first suggests that organizations can and do change in substantive ways when they respond to the environmental agenda and that environmental accounting is part of the process of enabling these organizational changes. In contrast, the second position posits that organizations will not change in response to environmental demands. Rather, they will change the environmental agenda itself in order to ensure that organizational activities can carry on as before. These two positions are characterized as “organizational change” and “institutional appropriation”.

After having outlined these propositions, Larrinaga-Gonzales and Bebbington (2001) went on to examine their validity through a case study of a Spanish electricity utility.

However, the findings of the study were not very convincing as they could not identify substantive organizational changes due to accounting interventions made by the company.

Despite having contrasting views regarding the relationship between the accounting and organisational change, the observations of company practices show most management accounting techniques have been developed to support managers’ changing needs created by changes in a business environment. At the outset of this study, eco-efficiency consciousness is identified as a new factor that influences organisations to change their strategies and create value for their customers. Given the fact that Japan as a country is committed to improving its environmental performance at both macro and micro levels, it is interesting to investigate the

MAPs that Japanese companies have adopted in the new business environment. Moreover, historically Japan has responded to the substantial changes in the business environment in the late 1980’s by implementing highly innovative MAPs such as Just In Time (JIT), Total

Quality Control (TQC), Target Costing (TC), and Kaizen (Monden & Hamada 1991; Monden

& Lee 1993). By using these methods, Japanese organisations achieved remarkable results.

2.5 Japanese context

Change takes place in both the natural and business environments from which social issues are continuously emerging. In the arduous effort of reducing carbon emissions, in

Japan a collaboration of public and private organisations was formed. Since Japan’s signing of the Kyoto Protocol, the cooperation of the Japanese Ministries; METI and MOE, with

Japanese companies was sought to develop an environmental management system in order to sustain Japan’s business and natural environment simultaneously. Knowing this process enables this research study to understand a key motivation for internal systems changes in

Japanese companies.

2.5.1 Poor natural resource country

Economic growth post WWII is the beginning of Japanese modernisation, where industrialisation proceeded toward mass production and greater consumption of natural resources (MOE 1992). Consequently Japan’s industries had become dependent on natural resources. Due to Japan’s geographical position, Japan was not self-sufficient in meeting its mineral needs compared with a resource rich country such as Australia (METI 2011a).

According to ‘Table 1’ data of 1989 (MOE 1992), the significant proportion of the world’s output of resources are imported by Japanese companies, for example 18% of world production of iron ore output is being exported to Japan. The 2011 annual report of METI displays Japan as a heavy natural resource importer; 99.6% of Japan’s crude oil is imported, and the middle-eastern countries provide 86.6 % of this amount (METI 2011a). Malaysia,

Indonesia and Australia are main suppliers of liquid natural gas to Japan, meeting 57.8% of its demand. Japan’s coal imports are almost 100% with 62.3% of this being supplied from

Australia (METI 2011a).

Table 1: Japan's Imports of Non-Renewable Resources in 19894

World Output Japan’s imports Rate for Japan (%) (in thousand tons) (in thousand tons) Iron ores 590,000 106,494 18.0 Copper ores 9,178 1,419 15.5 Lead ores 3,476 233 6.7 Zinc ores 7,086 599 8.5 Manganese ores 23,862 1,639 6.9 Chrome ores 11,960 984 8.2 Tungsten ores 43 2 4.7 Molybdenum ores 118 22 18.6 Antimony ores 61 5 8.2 Coal 3,474,184 101,509 2.9 Crude oil 2,952,427 178,343 6.0 Natural gas 70,496,366* 1,805,230* 2.6 * Measurement for Natural gas is in trillion joules ** Data in 1988 Source: Table 3-1-1in ‘Quality of the Environment in Japan’ (MOE 1992)

4 1) In trillion joules for natural gas. 2) Crude oil for 1988. 3) Imported ores include those produced at overseas mines. Original data refers to ‘Illustrated States of Countries in the world’ in Handbook on Mining Industry and Comprehensive Energy Statistics in Chap4 (MOE 1992)

Due to its geographic position, Japan is neither resource rich nor self-sufficient in minerals. Furthermore the rapid economic growth after the war makes Japan heavily dependent upon importing resources (Yoshikawa 1988, as cited in Bromwich & Bhimani

1989). These historical roots led to Japan’s adoption of its ‘3R’ Policy: Reduce, Reuse and

Recycle (3R). This policy has been promoted by the 3R Promotion Association of Japan since

1991. It encourages manufacturers to reduce waste in corporations by drawing on the spirit of the Japanese concept of “Mottainai”. The global energy expert Yergin (2011) translates

Mottainai as “too precious to waste” stating “Japan's success as a global role model in energy efficiency is rooted in a deep-seated cultural value of Mottainai” (p.634).

The term Mottainai was promoted by the Kenyan environmentalist Professor Wangari

Maathaiaround globally in 2005 as an environmental conservation concept (Mottainai 2012).

In this spirit MOE promotes ‘a sound material-cycle society’ to make the most of limited resources, and in doing so promotes an eco-efficiency conscious community (MOE 2006,

2008 & 2011b). In 2012 the official resource management project ‘material-cycle society’ proceeded in both the public and private sectors to advance eco-efficient technology (METI

2012). In this way approaches to resource management reflect the Japanese geographic context of being resource poor. This explains Japan’s necessity to cherish limited resources.

2.5.2 The historical context of changing Japanese commerce

Japan’s inability to be self-sufficient in resources is not only due to its geographic position and lack of geological resources, but it is also due to the changing nature of commerce in post WWII Japan (Bromwich & Bhimani 1989, p.30). With the advancement of

Japanese industrialisation in the 1950’s and 1960’s, Japan grew its wealth by “importing resources as low-processed materials, and exporting processed products of secondary industry”

(Weblio 2013). This arrangement is termed in Japanese ‘Processing Trade’ (加工貿易).

Japanese industry has grown through the development of Processing Trade where they partially processed products, through to full processing of products for sale overseas, termed in Japanese ‘Full Set Type’ (METI 2011a).

During this period of high economic growth in Japan, accounting was first largely utilised by the manufacturing sector as a tool for computing the price of products, rather than for controlling production costs (Yanagita 2006, p.220). In this respect western accounting systems were absorbed by Japanese manufacturers and the adaptation of an American perspective of management accounting was main-stream for Japanese accounting researchers

(Yanagita 2006, p.221). However, Japanese manufacturing companies then came to emphasise cost control through managerial accounting, introducing a wider role of accounting in organisations (Yanagita 2006). This broader perspective resembles accounting in Germany where the term ‘management accounting’ is interpreted as ‘controlling and managerial accounting’, supporting administrative procedures as a controlling tool (Yanagita 2006).

Resulting from the dramatic growth of the world economy since the 1950’s, many

Japanese manufacturers expanded their market shares in the west (Bromwich & Bhimani

1989). They created high quality products that are valued by customers globally as reliable brands such as Sony and Honda (Sturgeon 2007). Bromwich and Bhimani (1989, p.30) note the changes these economic conditions in Japan brought about: “Japan has held its leadership position in large-scale repetitive manufacturing operations and continues to uphold its high quality/low cost production philosophy”. Furthermore, Japanese living standards rose and

Japan formed a strong financial position in the world economy especially in Eastern Asia

(Cobb 1993). This change impacted on the structure of Japan’s economy transforming it from

‘Full Set Type’ to ‘International Specialization’; that is production functions are shifting to offshore locations such as China and Malaysia (METI 2011a).

This shift in the structure of Japan’s economy has exposed Japan’s dependence on externally sourced natural resources, and created a greater demand for foreign currency to purchase these resources from overseas. As a consequence of the focus on secondary processing, transportation and energy costs increased. These circumstances led the Japanese firm Daihatsu to develop Kaizen costing (Monden & Lee 1993). Kaizen is a MAP where

“budgeting explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers” (Horngren et al. 2011, p.433). Imai (1986 p.xx5) describes

Kaizen (改善) contextually as being continuous improvement in every occasion of life including the work place. Furthermore Kaizen is considered to create “a corporate culture where employee suggestions are valued, recognised and rewarded” (Horngren et al. 2011, p.433). Thus, the Japanese concept Kaizen is not only a MAPs, rather it is general attitude or perception where those who implement it endeavour to change their state in the hope of a better outcome.

In order to control the surge in transportation and energy costs resulting from Japanese industrialisation and the move to ‘International Specialization’, appropriate MAPs are required to support managers. An example of such a MAP is the inventory and production system JIT, established by Ohno of Toyota (Cobb 1993). JIT is described as “a comprehensive system for controlling the flow of manufacturing in a multistage production environment” (Langfield-Smith et al. 2012, p.1056), while Imai (1986, p.xx) describes JIT as a production and inventory control technique designed to reduce waste in production. Similar to Kaizen, the benefits of JIT are not only in financially lowering inventory costs, but also are in the improvement of quality and minimisation of waste (Langfield-Smith et al. 2012, p.

684). Since JIT manages the minimisation of resources use without losing value to customers

5 The author uses Roman numerals for a page number in the first section.

Cobb (1993, p.5) considers JIT to be a ‘Green Philosophy’ reflecting the Japanese sentiment for eco-efficiency in production.

Understanding the structure and nature of production costs led Japanese manufacturers to transform their manufacturing sector from the ‘Processing trade’ of raw materials to the advanced manufacturing technology of ‘Full Set Type’ (METI 2011a). The manufacturing sector now concentrates on exporting products that contribute more significantly to economic growth. This form of strategic management was indispensable to maintaining competitiveness by pursing heightened productivity and product quality during periods of recession (Nomura & Kamii 2004). This approach is augmented by the sector’s approach to labour. The Japanese management style has long been to regard a quality labour force as integral to cost planning. The contributions of long term skilled employees are valued, and the employees are provided with “large-scale corporate training programmes and a well- executed and integrated industrial policy” (Garvin 1984 as cited in Bromwich & Bhimani

1989, p.30). Hence, the Japanese manufacturing sector is characterised by advanced manufacturing technology and the production of high-technology products for an export orientated economy.

During the 1960’s and 1970’s, Japan experienced drastic economic growth in its manufacturing sector which was made possible because of unique Japanese MAPs inherent in

JIT and Kaizen systems. It was at this time that Japan’s exchange rate impacted negatively on its reliance on overseas resources. Consequently Japanese manufacturers expanded their production systems offshore in order to minimise the effects of the appreciation of their currency. In 1949 a prescribed exchange rate of 360 Japanese yen to the US dollar was implemented. However after the adoption of a floating exchange rate system in 1973, the yen started appreciating (Bank of Japan 2013). In the late 1980’s, the exchange rate JPY/USD

16 appreciated to around 200 yen (The World Bank 2012). Chart 1 below shows the exchange rate fluctuations from 1980 to 2012.

Chart 1: History of Japanese Yen

Source: ‘主要時系列統計データ [Time series of primary statistic data]’ (Bank of Japan 2013)

The yen has appreciated over a long period of time. The rise in the currency led to the transformation of supply chain systems, causing manufacturing to maximise the value of their yen by shifting out of Japan, and in doing so creating an industrial ‘hollowing-out’ phenomenon (Das 1993). However, as price competitiveness had vanished, competitive advantage was created through technological competitiveness achieved by highly skilled workers pursuing engineering innovations (Okano & Suzuki 2007, p.1130).

Such engineering innovations and proficiency were demonstrated in the automobile and electronics industries (Ozawa 1996). Many of the founders of companies in these industries were engineering entrepreneurs who were deeply involved in line management.

Langfield-Smith et al. (2012, p.29) define line management as “managers who are directly involved in the core business activities”. Japanese manufacturers took an interdisciplinary team approach to their manufacturing activities, attempting wider participation and

17 cooperation of employees in order for them to share responsibility for production (Okano &

Suzuki 2007).

Yoshikawa (1994) describes the concept of value engineering, where costs are identified and minimised at every engineering stage of a product’s life cycle. Value engineering is a system that is used to improve the value of goods or services by analysing the functions of the manufacturing process. This is a technique originally used in western manufacturing processes. However, the Japanese took this basic concept and developed it and applied it in their factories together with Kaizen costing and TC (Okano & Suzuki 2007, p.1129). This approach has limitations. Conventional functional cost analysis and value engineering do not consider environmental considerations although it is possible to do so

(Yoshikawa 1994).

Management accounting is seen as providing resilience to Japanese manufactures’ competitiveness because it enables costs’ control and reduction (Bromwich & Bhimani 1989, p.33), enabling communication across organisational target and actual production functions

(Okano & Suzuki 2007, p.1133). An example of such a MAP is that described by Hiromoto

(1988) who identified the concept of an ‘allowable cost’ as an ultimate outcome of TC, An allowable cost is one which permits a price that is acceptable to the market and the target profit margin of the organisation.

TC provides data to vertical and cross-functional management to enable them to manage their costs within the range of their allowable cost; that is, these MAPs facilitate the unique Japanese notion of cost-planning ‘Genka-kikaku’ (Okano & Suzuki 2007, p.1130).

This is illustrated in the comparative study of Wijewardena and De Zoysa (1999), which reveals that such MAPs contribute to cost control throughout various production stages differently in manufacturing in Australia compared with that in Japan. Their survey results indicate Japanese companies’ “emphasis on cost planning and cost reduction tools at the

18 product design stage”, while Australian companies place an “emphasis on cost control tools at the manufacturing stage” (Wijewardena & De Zoysa 1999, p.49). That is, Australian manufacturing did not integrate cost management into the early stages of engineering design of their products as is Japanese manufacturers’ practice. Thus, MAPs enhance the export competitiveness of Japanese manufacturers.

The economic growth that resulted from effective cost management had unintended consequences for Japan. Expansion of manufacturing exports fuelled a social crisis by creating a demand for manufacturing labour. This drew people from the countryside to the city for well-paid and secure jobs. Consequently all major cities became over-populated and small country towns were turned into ghost towns (Nomura & Kamii 2004). Furthermore, while the living standards and welfare of large organisations’ employees (the elite) were enriched, the employees’ conditions of small to medium sized firms were left behind

(Nomura & Kamii 2004). As the result, a widening gap in society was created, which now forms part of current social structure in Japan. This is despite the benefits arising from continuously increasing Japan’s market share through the export of durable Japanese goods

(Nomura & Kamii 2004). This rapidly growing economy in the 1980’s constructed a ‘bubble’, and entering the 1990’s it reached its peak and the bubble economy burst into recession

(Nomura & Kamii 2004, p.36). The policies and the deficiencies in accounting information disclosures of the banking sector also contributed to the bubble economy (Rahman 1998).

2.5.3 Japanese culture and disposition

Unique Japanese MAS such as JIT and Kaizen systems supported Japan’s economic modernisation during the 1970’s. Most of the principles of MAS originated from western commerce, and were modified by the Japanese to fit into Japanese cultural values. These values are informed by Japan’s geographical position, cultural disposition, and the needs of

19 its developing economy. Hopper (1999, p.58) raises the issue of how transferable JMA is to the West and he provides a discussion of the conceptual differences between Japan and the

United Kingdom between value engineering and the accounting function. Loyalty and skilfulness of employees are strong characteristics of the Japanese manufacturing sector in the

1980s’ (Nomura & Kamii 2004). The Japanese approach of integrating engineering and management accounting through MAPs is distinct.

Changes resulting from the period of economic growth since the 1950s were largely influenced by Japan’s national disposition and culture. In 1959, Drucker and Wartzman

(2010) predicted Japan would be the next powerful economic country, due to its national disposition to individuals’ responsibility to the community, and its historic context, stating

“statistics didn’t prove it; but the spirit was there - the commitment that I make a difference”

(Drucker & Wartzman 2010, p.152). Furthermore, Drucker and Wartzman (2010) described

Japan’s unique culture as “the richest tradition of community organisation, of community association, of non-profit organisations” (Drucker & Wartzman 2010, p.153). Aligned with

Drucker and Wartzman (2010), Yergin (2011, pp.635-636) depicts how the Fukushima

Daiichi Nuclear accident has cause Japan to reconsider their duty to and strategy for energy- efficiency.

Japanese corporations are distinctly characterised by ‘Kaisha (会社)’ and Keiretu (系

列), which are “networks of companies formed through historical association and cross- ownership” (Drucker & Wartzman 2010, p.154). An example of a Keiretu is the Panasonic

Group. The representative body of large organisations in Japanese society is called Keidanren

(経団連); which is a not for profit federation of economic organisations, charged to oversee corporate actions and social responsibilities (Drucker & Wartzman 2010, p.154).

After the bust of the Asian “bubble economy”, a new era of the knowledge worker has commenced (Drucker & Wartzman 2010). Prior to this in the economic growth phase, the

Japanese manufacturing sector expanded its global market share through productivity efficiency supported by MAS. The successes of Toyota and Daihatsu are attributed to JIT and

Kaizen, as they are compatible with the Mottainai concept, supporting each company’s corporate cultural uniqueness and the value of their engineering entrepreneurship. The intrinsic value of Japanese manufacturing is emergent from Japan’s cultural disposition and

Japanese historical context.

2.6 Environmental issues

Criticism against severe air and water pollution, and the consequential diseases associated with pollution, became apparent in the late 1960s, as consequence of Japan’s rapid economic growth. In the 1970s, the mass media released a series of criticisms against organisations’ environmental contaminations (Nomura & Kamii 2004, p.x). Subsequently the

Japanese government set regulations to restrain business activities, such as the Basic Law for

Environmental Pollution Control enacted in 1967 and the Waste Disposal and Public

Cleaning Law enacted in 1970 (MOE 2011b).

Such criticisms were made poignant by the first oil shock in 1973 (Nomura & Kamii

2004). The spotlight was placed on the social responsibility of manufacturing industries.

Some organisations responded to criticisms of poor environmental practices of manufacturers, such as the Matsushita Electric Industry Corporation (MEIC: currently Panasonic), who established a pollution survey committee in 1970. They then went on to establish environmental management regulations (in-house) in 1975 (Panasonic 2011a). This is the seed of eco-efficiency demand in a Japanese society that was experiencing diminishing precious resources.

Such attention to resource management and conservation of the natural environment by society was precipitant to Japan’s signing of the Kyoto Protocol in 1997. Increasing ‘eco-

21 efficiency’ demand alongside rapidly diminishing natural resources meant organisations needed to produce more eco-efficient products in order to maintain a sustainable production.

Inevitably organisations changed their existing strategies and internal systems accordingly, in order to endure in a competitive market. Consequentially, MFCA continuously developed under the MOE and METI in order to meet Japanese companies’ aspirations (Kokubu 2004).

Individuals in society were also influenced by the Kyoto Protocol, which promoted the purchase of eco-efficient products by individuals (Fraj-Andrés et al. 2009). This has continued on to the recent past, as Japan deals with carbon pricing followed by carbon permits and their trading in 2008. An example of one such initiative in Japan is that of the official eco-efficiency promotion of the ‘eco-point system’. Consumers are offered an indirect subsidy for replacing their appliances with energy efficient home appliances such as televisions, refrigerators and washing-machines (MOE 2011a). Such a scheme is an example of the framework put in place jointly by bureaucratic and private organisations to assist stakeholders in dealing with current environmental issues.

Japan’s notion of eco-efficiency is derived from: awareness of its limited natural resources; consideration of its geographic conditions; and, its historical context.

2.7 The impact of environmental issues on Japanese management

accounting

Numerous Japanese companies advocate “co-exist of environment” (a literal translation) which challenges corporations to minimise waste and focus all their strength upon preserving their natural resources. This is a challenge for Japanese manufacturers who must meet numerous regulations to diminish pollution. Advancements in material science facilitate manufacturers’ removal of harmful substances from materials (Panasonic 2012e). Japanese

22 companies’ R&D demonstrates their innovation in inventing eco-efficient materials such as lead-free soldering and halogen-free materials (Panasonic 2012e).

The Restriction of Hazardous Substances (RoHS); Directive 2002/95/EC (Ueda et al.

2010) was set by the European Union in 2003. The RoHS “restricts the use of six hazardous materials found in electrical and electronic products” (RoHS Guide 2012), Many Japanese manufacturing participants in the EU market were required to comply with RoHS before July

2006. The impact of the rigor of RoHS was enormous for Japan, because the whole electronics industry and its numerous component product suppliers were affected by this regulation (RoHS Guide 2012). Since the electronic manufacturing industry is fundamental to

Japanese commerce, compliance with RoHS was inevitable. It created a crucial need for management accounting to predict and evaluate the consequences in both monetary and physical terms.

RoHS is not the only stringent legislation enforcing producers to be responsible for their products. Similarly to RoHS, the legislation Waste from Electrical and Electronic

Equipment (WEEE); Directive 2002/96/EC (Ueda et al. 2010) was enacted in early 2003

(WEEE Forum 2012). It imposes obligations on importers and producers to take back and recycle products when they are discarded by their end users (WEEE Forum 2012). Both the

RoHS and WEEE regulations drove eco-efficiency demand. The impact on Japanese manufacturers motivated them to discover innovative solutions for environmental material management.

2.8 Summary

A major change in Japanese society is a demand for eco-efficiency consciousness in economic performance. This is due to an incremental awareness of environmental consciousness by companies and their customers. This change creates new business

23 opportunities and requires organisations to change their business strategies. Previous research has identified a number of external factors that affect the business environment and the consequential changes to business strategies. In terms of eco-efficiency in commerce, the impact of external factors has not received much attention in the academic literature to date.

This chapter provides a background for this study which investigates the impact of such change in the environment on the MAPs of a company in Japan. Japan as a country is committed to achieve high environmental performance and Japanese companies have a reputation of introducing innovative management accounting methods and techniques in response to changes in their business environment.

Due to Japan’s geographic position and characteristic of resource self in-sufficiency, direct and indirect management of natural resources is the key in seeking strategic solutions.

This background informs Japanese companies’ challenge of eco-efficiency consciousness.

This approach represents the concept of Mottainai and the spirit of commitment that Drucker described as ‘I make a difference’ (Drucker & Wartzman 2010, p.152). Understanding an historical context elucidates the origins of a well-organised Japanese corporate community culture, in which a Japanese spirit of commitment distinguishes the uniqueness of Japanese corporate culture (Drucker & Wartzman 2010).

Although Japan is experiencing tremendous economic transformation, the fundamental characteristics of Japanese corporate culture are unchanged. Next, Chapter 3 reviews the literature of EMA from both western and Japanese traditions.

Chapter 3: Literature Review

3.1 Introduction

The background of this research topic; MAC, was discussed in the previous chapter.

This chapter reviews the literature of changing MAPs from both the western and Japanese traditions. As such, the chapter is organised as follows: Section 3.2 provides a literature review on the discussion of MAPs and MACs. Internal factors of MACs are reviewed in section 3.2.1 followed by external factors’ impact on MAPs in section 3.2.2. This is followed by a discussion of the eco-efficiency approach in EMA in section 3.3. An overview of

Japanese MAC is in section 3.4. Subsequently, section 3.5 reviews the studies on EMA practices in Japanese organisations. The last section 3.6 provides a summary of the chapter.

3.2 Management accounting practices and change

Before exploring the impact of organisational change on MAPs, the nature of organisational change is first considered. Quattrone and Hopper (2001, p.403) ask the question; “what constitutes change?” They identify competing assumptions in the literature about organisational change. The first approach is functionalist, assuming that change is purposive and intended to meet an objective in a known external world. The alternate assumption evident in the literature is constructivist, assuming that change is a result of contextual pressures on organisations from prevailing institutions. In this second approach institutional theory is often employed, looking for isomorphism and routines. However,

Quattrone and Hopper (2001) argue, whatever assumption is adopted, a modernist stance is taken where both approaches concern themselves with a linear process across time and space.

They take exception to this notion of process, arguing for a concept of ‘drift’, and the need for

25 contextual studies of management accounting and change. They criticise the premises of institutional theory based approaches and their limitations. The view of Quattrone and Hopper

(2001, p.429) is given as:

[…] how and why the extant literature, whether inspired by a theory of rational choices or by the search for contextual factors explaining change, is trapped in a problematical modernist constitution that grants the object of change and observers a definite ontology and methodology……accounting change are trapped within a modernist dichotomy which defines boundaries such as in versus out, external versus internal, organization versus context.

Extending this notion of drift introduced by Quattrone and Hopper (2001), Andon et al.

(2007) develop the notion of relational drifting as an explanation of organisational change.

This study of an Australian telecommunications organisation reviews a suite of performance measurement metrics that were trialled to improve performance. They argue organisational change highlights “the situated and experimental means through which accounting inscriptions are fabricated” (Andon et al. 2007, p.273). This study found the process of change to be not linear and developments of MAPs were relational, loosely coupled and fabricated to work. Regarding processes of change, Andon et al. (2007, p.277) state the importance of influential negotiators supporting elements of change where politics and other factors influencing organisations shape the process of change.

The findings of Quattrone and Hopper (2001) and Andon et al. (2007) that organisational change is a contestable ‘drifting’ concept is supported in the review of literature on MAC that follows. Section 3.2.1 examines the internal factors affecting organisational change and MAPs, and section 3.2.2 explores the external factors affecting organisational change and MAPs.

3.2.1 Change, internal factors, and MAPs

Changes in natural environments and more generally business environments influence technological advancements, innovation and scientific discovery. These influences shape stakeholder expectations and drive firm value. Logically, the impacts of these factors change organisations’ internal systems. MAC, specifically innovations in MAPs occur as a result of this change. MAPs and modified or developed to new forms. There is contention in the literature whether or not such changes are for legitimisation purposes, or to achieve real efficiencies by management, or are a combination of both purposes.

Modell (2001) in a study of the Norwegian health care sector focuses on MAC resulting from reform of public sector organisations. The study emphasises the relationship between institutional processes and performance measurement, examining whether or not managers passively adapt to change. Modell concluded that adoption of a new MAP for performance management by a hospital was perceived as both legitimacy-seeking to external stakeholders and efficiency-enhancing by senior management. Model observed “extensive efforts to make a highly complex control system operational for internal use alongside conscious attempts to ‘sell’ the new control practices to important external audiences”

(Modell 2001, p.458).

Modell’s observations are close to the findings of the previous study of Lowe (2000), who examined the implementation of a sophisticated case-mix budgeting system in a large public hospital in New Zealand. This study observed work practices and clinical procedures change when MAPs for case-mix accounting were introduced. Lowe (2000) found that the main impacts of changing MAPs were not just to provide legitimation to external constituents, but that they changed behaviours of professional work patterns and management structures.

Modell’s (2001) and Lowe’s (2000) conclusions are contrary to the earlier argument of Abernethy and Chua (1996), that simple and unsophisticated financial controls are viewed as sufficient for the purpose of legitimisation to external stakeholders.

Burns and Scapens (2000) perhaps offer an explanation for these different findings.

They note the environment in which MAC occurs is becoming increasingly volatile due to changes in information technology, markets, organisational structures; and MAPs. They present the view that amongst such changes MASs and MAPs constitute organisational rules and routines that mediate relationships between individuals’ actions and their institutions.

Hence they argue that MASs and MAPs are fundamental to both understanding and enacting organisational change.

Dambrin et al.’s (2007) later findings are consistent with those of Burns and Scapens

(2000). Dambrin et al. (2007) examined how institutional changes are introduced inside organisations, and specifically how changes in an organisation’s institutional logic are disseminated through the firm by its MAS and MAPs. They find change is not solely technical, systemic or linear in its process, but that it also invokes cultural discourses within an organisation to deploy new ideals.

Thrane (2007) also studies the nature of change in MAPs in inter-organisational systems that are dynamic and complex. This study noted that MAPs develop in two ways: first they evolve new organisational ‘space’ or configurations; and, secondly they are a source of instability rather than stability and unintended order rather than planned change. Thrane

(2007) discusses institutional pressure; however there is no discussion of where institutional pressure comes from and what external forces impact organisations.

Nor-Aziah and Scapens (2007) examine the role of MAPs affecting organisational change in an extreme event: a case of the corporatisation of a Malaysian public utility.

Through the lens of institutional theory, they determine that new MAPs associated with

28 budgeting over time become separated from other organisational activities, determining such

MAPs to be both a process and an outcome of organisational change. However, the focus, being similar to Thrane (2007), does not discuss the external factors impacting MAPs in depth.

Busco and Scapens (2011) undertake a longitudinal case study of the former state-own cast iron foundry in Italy. In processes of organisational transformations, evolutionary and revolutionary accounting changes were observed when the Italian foundry was acquired by the powerful American company. An institutional framework is applied for examining “the nature of these processes of change, and has tried to interpret how and why organisational culture and MAS evolve across time and space” (Busco & Scapens 2011, p.348). Their findings are in line with Thrane’s (2007) that evolutionary MAPs occur at new organisational

‘space’ but they are not a source of stability. Busco and Scapens (2011) argue that key factor of change resides in culture and the institutional framework does not capture this factor.

Contrafatto and Burns (2013) examine the interrelationship between organisational change and the role of accounting in MAPs for sustainability. They investigate the social and environmental accounting and reporting (SEAR) of an Italian multinational organisation.

Theoretically they draw upon Laughlin’s (1991) framework of organisational change and

Burns and Scapens’ (2000) conceptualisation of accounting change. This framework provides an explanation of evolutional changes in organisations. The impact of external jolts shape organisational rules and routines (Contrafatto & Burns 2013); however impacts of external factors receive less attention. Since the ultimate objective of a private sector organisation is profit maximisation; the authors suggest a profit-oriented model is more suitable rather than a sustainability oriented one (Contrafatto & Burns 2013, p.365).

Since the introduction of the model of McWatters et al. (2001) “Framework for

Organisational Change”, society has changed and management accounting follows

29 accordingly. This implies the model needs to be modified to incorporate the new factor of eco-efficiency consciousness and its impacts on MAC.

3.2.2 Change, external factors, and MAPs

Burns and Vaivio (2001) advocate the importance of understanding the impact of external change on management accounting, stating that the ‘new economy’ requires MAS to meet new technology driven information requirements such as enterprise resource planning systems, e-commerce, the internet and data mining. Specifically, they see the move from flat and horizontal organisational structures as new challenges for traditional MAPs. Thus, the role of management accounting requires transforming from controller or score-keeper to business support or internal business consultant (Burns & Vaivio 2001, p.390). They note the decentralisation of MAPs through the organisation as a result of external influences.

Seal (2001) has findings consistent with Burns and Vaivio (2001). Seal (2001) undertook a case study of management accounting in a highly diversify conglomerate that was changing its strategic focus to a multinational product market focus. This was driven by external forces such as globalisation and technological development. Seal (2001) drew the conclusion that MAPs’ development was paradoxical in this case: while it became increasingly focused on specific markets and technologies, its MAS and associated MAPs became increasingly diffuse and differentiated. He advocated that MAPs struggle with non- financial measures, and that they should remain an autonomous sub-system from management systems generally.

Laitinen (2001) studied MAC in a group of small Finnish technology firms. The approach taken is a mathematical method of factor analysis using an application of behaviour theory to identify motivation patterns for organisational change. The key finding of this study is that while MASs that are beneficial to management in large organisations in identifying

30 strategic directions appropriate to external factors, MASs are more ineffective in smaller technology companies. Smaller technology companies with their high growth in unstable environments of high competition must change their MASs more frequently than more stable firms in less competitive environments. Laitinen (2001) also proffers behavioural theory is not capable of explaining how external factors impact on organisations, rather it only explains internal variables, types, and patterns. Therefore, Laitinen (2001) suggests underlying economic forces should not be disregarded in a MAC study.

Lee (2011) conducted a survey to identify factors that lead to the adoption of environmental cost accounting within Korean manufacturing organisations, in the context of their response to the introduction of the Korean Government’s regulatory guidelines for environmental cost accounting in 2004. This study found that “conventional management accounting systems typically underestimate environmental costs” (Lee 2011, p.46), both with monetary and physical information. There is no systemic approach to the implementation of environmental cost accounting. This study also finds that existing MAS in the firms cause resistance and difficulties in adopting environmental MAPs.

Haldma and Lääts (2002) conducted a case study of MAPs in Estonian manufacturing companies. They explore how the social revolution of Estonia impacted on MASs with reference to its economic and social environment. Haldma and Lääts (2002) specifically examine the impacts of the external factors of fundamental political and structural change resulting subsequent to the nation’s independence in 1991. A questionnaire survey is analysed through a contingency theory framework. Haldma and Lääts (2002) find that firms have not found it easy to change from socialist concepts embedded in MAPs. They conclude the effectiveness of a MAP depends on its adaptability to change precisely to shifts in the business and external contingencies. This study identifies the legal accounting environment and a shortage of properly qualified accountants as impacting on the effectiveness of MAS

31 design and associated MAPs. This case illustrates the framework of contingency theory being capable of explaining the changing aspects of MACs.

The contingency framework is used for analysing empirical survey data of Estonia’s service industry (Lääts et al. 2011). The validity of performance measurement systems (PMS) in a changing business environment is investigated. As Ferreira and Otley (2009, as cited in

Lääts et al. 2011) claim PMS are reflected MAC, thus the broad area of MAC offers a scope for managers to be cognizant of the relationship among business activities, specific strategies and objectives (Lääts et al. 2011, p.360). Chenhall (2003) discusses the broader use of contingency-based research such as management control systems because contingency-based research has its foundations in organisational theory, which considers contextual variables only at the organisational level (Chenhall 2003, p.157).

The premise of contingency theory embraces appropriation of accounting changes in an organisational frame so that an appropriation of PMS is to achieve desired organisational goals (Lääts et al. 2011, p.361). Therefore, “Ferreira and Otley (2009) argue that a study of

PM systems use must take external and internal contextual variables into account” (Lääts et al.

2011, p.361). Hence, adoption of both external forces and consequential internal changes such as sustainable strategies is critical for an organisation’s success and survival. From the study of Lääts et al. (2011) it is evident that as the service companies’ PMS develop further sophisticated systems, the higher the usage of non-financial performance measures (pp.370-

371). Hence, their findings highlight an appropriate cost accounting system enhances the accuracy of cost information for PMS (p. 373).

Birkin et al. (2005) argue that changes are needed in MAPs to revise those practices that damage social and ecological systems. That is, they focus on the impact of MAPs on the external environment, calling for a “conscious cultural evolution” in accounting practice to recognise our interdependence of existence (Birkin et al. 2005, p.185). They call for

32 accounting change to validate the environmental, social and sustainable development. The meaning of cultural consciousness includes an awareness of the external impact of accounting controls (Birkin et al. 2005). A conscious cultural evolution embraces culture as “pre- dominate attitudes and behaviours that characterise the functions of a group or organisation as well as the totality of socially transmitted behaviour patterns” (Birkin et al. 2005, p.186). This study thus anticipates reflexive consciousness as a critical driver of MAPs.

Birkin et al.’s (2005) conceptual approach of the “conscious cultural evolution” was originally proposed by Ornstein and Ehrilch (2000, as cited in Birkin et al. 2005, p.187). The concept is to “overcome a particular biological inheritance whereby people are not accustomed to take as much notice of something that happened slowly”. An important aspect of their predisposition is the long-term effects of slow environmental changes (Ehrlich 2000).

Since slow reflexes are the process, people sense and accept continuing issues in society and values which reside within (Birkin et al. 2005).

Similarly, conceptual frameworks also widen its boundary to inter-disciplinary fields such as sociological, psychological and biological perceptions, for example; Birkin et al.

(2005) and Johansson and Siverbo (2009). Birkin et al (2005) combine a biological norm and sociological perception to elucidate the sustainability phenomenon in society. This social change has an impact on organisational culture, thus changes in accounting practices are unconsciously executed due to ‘a slow reflexive’ of human nature. In line with Birkin et al.

(2005), Johansson and Siverbo (2009) use the framework of evolutionary theory and universal Darwinism to discuss the slow and gradual changes in accounting. Within the boundary of an institution, they discuss human actors and their behaviours in conjunction with cognitive and normative routines and rules. However, their investigation does not explain accounting actors’ behaviour. Alternatively, Johansson and Siverbo (2009) suggest using pluralistic theoretical frameworks and to develop of an integrated theory for MAC.

The connotation of ‘consciousness’ means an association, or an awareness and control of a whole process (Birkin et al. 2005). A conscious cultural evolution embraces culture as

“pre-dominate attitudes and behaviours that characterise the functions of a group or organisation as well as the totality of socially transmitted behaviour patterns” (Birkin et al.

2005, p.186). The proposition is culture that is embedded in consciousness links to the concept of eco-efficiency. This study thus anticipates reflexive consciousness as a critical internal driver.

Similar to Latinen (2001), the Fraj-Andrés et al.’s (2009) case study adds further explanation of the conscious mind in terms of strategic motivation. This case perceives environmental pressures as opportunities to project organisations’ environmental consciousness to their stakeholders (Fraj-Andrés et al. 2009). The study utilises mathematical method. However, their findings could not identify the factor which determines the choice of environmental strategies.

3.3 The eco-efficiency approach in the context of accounting for the

environment

Corporate strategy to achieve an eco-efficiency approach is discussed by Burritt and

Schaltegger (2001). They develop an approach to exercise budgetary control over environmental costs. They claim such information is needed as a tool to help managers and regulators assess value adding environmental management (Burritt & Shcaltegger 2001).

They offer a comprehensive framework to map possibly recognisable EMA tools (Burritt et al.

2002). Their proposed definition of EMA includes monetary environmental management accounting (MEMA) and physical environmental management accounting (PEMA). Both generate information for internal management; while MEMA focuses on financial impacts of corporate environmental activities, PEMA focuses the impact of corporate activities on the

34 natural environment measured in physical terms (Burritt et al. 2002, p.9). The ultimate objective is to make managers understand the utility of MEMA and PEMA; that is, they promote the effectiveness of EMA and encourage corporations to adopt EMA tools.

Burritt (2005) studies the scope of EMA with respect to eco-efficiency, specifically the recognition of environmental issues as fundamental to conventional management accounting, rather than treating environmental impacts and costs as less important matters

(Burritt 2005, p.27). He summarises a wide range of challenges for EMA, and notes some countries still have not developed EMA measurements. He argues benign EMA systems that encompass economic, physical and social factors are better than only economically focused

EMAs (Burritt 2005). The benefits of EMAs are demonstrated through the case study of

Japanese companies; that is, MEMA successfully reduces the production costs and saves material and energy usages achieved by PEMA (Burritt & Saka 2006). The links between

EMA and eco-efficiency measurement are thus evaluated. They also reveal underdevelopment of EMA information and underutilisation of eco-efficiency information in the practical links to eco-efficiency measurement.

When production costs are assigned, there is a direct causal link which leads to a cost object, while indirect costs need to be allocated to the appropriate cost object. Burritt (2010) discusses cost allocation through eco-performance indicators to assign environmental costs towards ecologically-sustainable development. According to Hiromoto (1988), the role of

JMA is perceived as ‘a behaviour influencing role’, rather than ‘an information role’ in the management process (Burritt 2010, p.210). This “reconditions accountants to change their measurement systems towards an eco-centric approach6” (Burritt 2010, p.216).

6 Burritt (2010, p.217) depicts an eco-centric approach as “encourages activities that are in harmony with nature; recognises that all nature has intrinsic worth; promotes elegantly simple material needs; recommends use of appropriate technology rather than high technology solutions; perceives the virtue in doing with enough; and places focus on bio-regions”.

Despite increasing attention on EMA, it is still under-developed. Some literature utilises contingency theory as a way of analysing the impact of contingent variables that influence and are anticipated to influence an organisation’s EMA (Bouma & van der Veen

2002; Qian et al. 2011, as cited in Christ & Burritt 2013). Christ and Burritt (2013) research the role of accountants’ behaviours in influencing MAPs. The accountants’ perceptions toward future EMA procedures in their organisations were extensively associated with three variables; environmental strategy, the environmental sensitivity of the industry and organisational size (Christ & Burritt 2013, p.170). Christ and Burritt (2013) conclude, a direction of future research is proposed to extend the contingency based approach in the field of EMA. An opportunity thus exists to develop the current framework through the introduction of additional contingency variables.

There is a dearth of literature in the area of EMA, and diversification of research into this area is required. Environmental issues are driving recent changes in MAPs. MAC studies tend to be concentrated on examining control, power, and motivations of change. However, all issues are not completely explained. Numerous researchers complain of a lack of longitudinal research in the topic (Burns & Scapens 2000; Busco et al. 2007; Scapens &

Bromwich 2010; and Chenhall & Smith 2011).

The objective of this research is to contribute to the literature by examining how a

Japanese company responds to external impacts in a way that affects the designs of its MAPs.

It also amends a model to incorporate eco-efficiency consciousness in the process of MAC.

Due to cultural and language barriers, the introduction of recent developments in Japanese

MAPs to western literature is often delayed. Therefore, this research attempts to contribute by informing the west how Japanese deal with current environmental changes in their MAPs.

Prior to examining the literature on EMA in Japan in section 3.4 the next section provides an overview of MAC in Japan as reported in western academic literature.

3.4 Management accounting changes in Japan

There have been previous studies examining JMA practices that Japanese companies have introduced in response to the changes in the business environment (Burritt & Saka 2006;

De Zoysa & Herath 2007; Benn et al. 2011). JIT, TQC, the Kanban System, Kaizen and TC are known to be some of the popular MAPs used by Japanese companies. However, as Okano and Suzuki (2007) argue the notion of JMA is hard to define in simple terms because of the lack of wider research about JMA in the western literature. In their opinion, what is reported in western accounting literature as JMA are accounting methods, techniques and practices used in leading Japanese companies although many of these methods, techniques and practices have originated in other countries but have been improved vastly to suit the needs of

Japanese companies.

Okano and Suzuki (2007) further add that the vast majority of studies on JMA, which appeared in western accounting literature, had looked at such practices from the western perspectives and do not portray the real picture of the origin and stages of the development of many known JMA practices. As Burrows and Chenhall (2012, p.127) point out many known

JMA innovations have predecessors or parallels in the West.

One of the best known JMA methods that has attracted worldwide attention is

‘Genka-kikaku’7 (原価企画) which is a tool used by Japanese companies for planning their costs (Maruta 2009; Yamamoto 2012; Nishii et al. 2010). Burrows and Chenhall (2012) in their review of the history of TC identified evolutional features of this method. They express that Japanese MASs were well developed in the reflection of reality in descriptive publicised papers. As Burrows and Chenhall (2012) point out irrespective of the debate whether the

Genka-kikaku method originated in Japan or not, there is no question about the fact that

7 While, numerous management accounting literature used the original term ‘Genka-kikaku’ some of the literature in English use the term ‘Target costing” to describe this concept, although direct translation of this term into Japanese does not generate the term ‘Genka-kikaku” (Yanagita 2006, p.226). Therefore, many consider the English term ‘Target costing’ is incapable of describing the practice of Genka-kikaku.

Japanese manufacturers have developed it to the current form and proven how this method could be used effectively. In terms of the transferability of TC, Kato (1993) states that TC applications fit better in Japanese culture which focuses on non-financial information than in the North America which focuses predominantly on the financial. Referring to the studies on

TC, Burrows and Chenhall (2012, p.139) argue that because of the descriptive nature of

Japanese researchers who study TC Japanese scholars explore broader issues within the topic which result in rich descriptions of actual practice of TC, rather than the writers of this method in the west (Burrows & Chenhall 2012).

Okano and Suzuki (2007) view JMA as performance oriented as against the financial figure-oriented western management accounting. Vaivio (1999) exploring non-financial aspects of MAC conclude that such measures are more powerful in an organisational context and align with Hiromoto’s (1988) perspective in which he suggests that organisations create favourable organizational conditions through practices such as TQM. It offers more detailed appreciation of how these extra organizational influences become interlinked with organizational circumstances and become connected to MAC (Vaivio 1999, p.428). The next section will review the literature on EMA in Japan.

3.5 The environmental management accounting research in Japan

The use of the term EMA for studies examining environmental accounting (EA) issues in Japan is a recent phenomenon. When the environmental issues were conspicuous around 1970s, the studies examining environmental issues were generally discussed under the theme ‘Social Accounting’ (Tokutani & Kawano 1978, p.185). However, there was a dearth of research in the area of ‘social accounting’ at this time. This is confirmed by Kawano (1993, p.276) who points out that the social accounting research carried out in Japan was not adequate to highlight the problems with CSR practices of Japanese companies in 1970s which

38 is known to be the time that the Japanese companies paid least attention to fulfilling their corporate social responsibilities. As a result of discursive research and the inadequate efforts made by corporations in addressing social issues in Japan, the development of Japanese social accounting has been slow until recently. However, the growing attention on serious environmental and social issues has created a need for developed accounting practices for reporting CSR practices of Japanese companies (Kawano 1993).

Prior to the introduction of the Kyoto Protocol, Japanese EA research was concentrated on application and analysis of western theories in the Japanese context (Kokubu et al. 2009). The application of Life Cycle Costing (LCC) for EA practice and examination of associated problems has been one of the main topics undertaken in EA research (Kawano

1993). For example, Tomimasu (1996), while carrying out a theoretical examination of the contents in company environmental reports, examined the challenges faced by companies to integrate LCC and Life Cycle Assessment (LCA) in order to form an EA system. Furthermore,

Okano (1999) evaluated the validity of LCC in terms of its potential and practical features of

LCC through the cases of the United States’ national defence and concluded the need for further development of LCC to expand its methodological feature in managing non-financial environmental accounts.

Similarly, Makido (2003, p.10) while criticising the current state of the Japanese EA in which a higher emphasis has been placed on CSR reporting than on the environmental conservation efforts, emphasised the need for developing LCC in order to increase environmental conservation efforts. To this effect, he proposed the “Design to Cost” system, which is an accounting system for managing costs within a given range in which quality and functional conditions of products are being satisfied at the design stage. The new approach proposed is based on the micro economic concept of environmental costs’ analysis and depends upon stakeholders’ eco-efficiency values and corporations’ environmental

39 consciousness, as a trade-off point. In developing a conceptual framework for LCC, Okano

(2010) considered this ‘Design to Cost’ system should be treated as an environmental cost controlling tool.

Yanagita and Yamada (2005), examining the CSR reports of leading Japanese companies, discuss the emergence of ‘CSR accounting’ which view the societal issues from the perspective of stakeholders. They observed the willingness of companies to disclose their environmental data and their discernible efforts in addressing environmental issues. However, the reports they examined were found to have complex structures and high lag-times in reporting information. Interestingly, this study distinguishes ‘CSR accounting’ from EA and considers CSR accounting is equivalent to EMA or ‘sustainability accounting’ found in the western accounting literature. Kokubu (2007, p.232) also expressed his concerns regarding the state of ‘CSR accounting’ and views it as a system that still was required to be properly standardised and developed methodologically before being accepted as an accounting system.

In contrast, Yanagita (2011, p.42) considers ‘CSR accounting’ as an EA system in which environmental conservation as well as broader social issues such as human rights and stability of employment are dealt with.

Another area of EA research that has attracted the attention of researchers after the signing of Kyoto Protocol is MFCA8 which is an accounting system that incorporates material and energy flows into accounts. MOE has undertaken the role of developing MFCA principles while METI has taken the role of developing practical aspects of MFCA (MOE

2002 and METI 2002). The EMA Guidelines issued in 2002 introduces the ‘environmental budgeting matrix’ which provides organisations a means to assign environmental costs within the scope of materials and energy flows (METI 2002) as outlined in the guidelines. As a result, many leading Japanese companies were compelled to participate in the pilot project of

8 See chapter 4 for details.

MFCA (METI 2007b). A number of academics examined the application of MFCA practices on Japanese companies involved in the projects and published their findings in the form of case studies (Kokubu et al. 2009).

The case analysis of the MFCA practices at Canon Company revealed that the company has been able to achieve significant reduction in the lens processing costs and significant benefits of cost and waste reduction in material usage and process time through the use of MFCA (METI 2008). Anjyo’s (2003 & 2006) analyses of the Canon case found that in the aspect of material and cost management, the validity of MFCA has developed both theoretically and practically. Subsequently, Anjyo (2007) expands the MFCA concept to embrace broader social aspects which is close to Yanagita and Yamada’s (2005) view for

‘CSR accounting’.

Through an analysis of Ricoh’s EMA, Kokubu and Kurasaka (2002) discuss the

Japanese corporate perspectives for EMA. They claimed that EMA of Ricoh is comprised of an external disclosure function and internal management information, which identifies any reduction in environmental costs and economic benefits. Thus, although EMA is underdeveloped, financial accounting is utilised for reporting and internal operations. In such a circumstance, Ricoh has developed an in-house “environmental accounting information system for decision makers which is linked to the corporate accounting system” (Kokubu &

Kurasaka 2002, p.171). Subsequently, the results of a survey reveals the characteristics of a

Japanese EMA disclose largely oriented environmental information more than Western countries. However, the new trend is that more companies apply the EMA application in conjunction with the internal management tool (Kokubu 2004 and Kokubu & Nashioka 2005).

The integrations of MFCA and LCA are researched by Kokubu and Shimogaki (2007).

Their focus is to develop the theoretical framework and practical applications. This

41 framework is examined through the Toyo Ink case9 (METI 2010). An application of MFCA analyses for input and output quantity centred at the individual production stages identified losses separately at the five processes. The captured data is defined and converted into economic value at cost assigning points. Successively, visualised improvements points are optimised to reduce loss and waste based on the MFCA analysis (METI 2010).

Tokyo Ink has applied this system for one production line. Afterwards, the company considered implementing the system for other internal production lines (METI 2010). Thus,

Toyo Ink used the utility of MFCA for assessment for improvement and LCA analysis for an operational line (METI 2010).

Kokubu (2011a) discussed the applications of MFCA for supply chains in conjunction with waste management. Although the analysis of the Canon case exhibited a positive impact on results due to collaboration between suppliers and Canon (METI 2010), the conceptual framework development precedes practical enhancement in this area of research. A further detailed discussion of the disposal and recycling of products is needed with regards to the supply chain. In relation to waste management, Hashimoto (2007) proposed to integrate EA with ‘waste accounting’ which is designed to identify costs for recycling and disposal.

However, since the system used for disposal and recycling is a complex and expensive one, he did not attempt to include cost-benefit measurements and details of accounts.

Hashimoto’s (2007) paper illustrates the tendency of Japanese EMA research where often the conceptual development proceeds to the practical EMA development. Kokubu

(2009) criticises this tendency in the recent MFCA research. Its objectives are shifting from the original controlling and managing environmental issues to a cost management emphasised

9 Material Flow Cost Accounting: Case Examples - II. Case Examples in the Manufacturing Industry; Case 4: TOYO INK MFG. CO., LTD. Production characteristics: MFCA implementation in production of colouring pellets for plastic. From ‘The framework of; Environmental Industries Office, Industrial Science and Technology Policy and Environment Bureau’ (METI 2010)

Japanese MAP tool (Kokubu 2009 & 2010), that is, accounting reflects Japanese corporations’ perspectives because of its passive nature (Modell 2001).

The review of the literature on EMA in Japan shows that researchers have paid increased attention to EMA studies in recent years. Although from the evidence it cannot be ascertained whether the Japanese organisations are genuinely interested in improving their environmental performance, it is certain that businesses’ approach to the environment in

Japan has changed in recent years to the extent that companies are compelled to demonstrate eco-efficiency consciousness in their business operations. However, despite the growing interest in EMA and increasing number of EMA studies undertaken form various perspectives10, studies examining how the recent environmental changes affect the design of

MAPs are still limited.

3.6 Summary

In both the western and Japanese MAC literature, the impact of external factors on the motivations for changes to MAS and MAPs has received less attention than internal factors or other issues. This chapter illustrates the necessity to diversify MAC studies into this area.

Chenhall and Smith (2011) suggest that current developments in Japanese MAPs are worth exploring, particularly non-financial features of MAC, as they may reveal their powerful effects on an organisation in a given context. The study of contingent variables offers another layer of context for the study of EMA. Vaivio (1999) argues external factors influence the state of organisations and MAC.

Although EMA is becoming a popular research area, MAPs for EMA are still underdeveloped. Financial functions of EMA such as cost analysis are favoured for reporting and internal operations. It is also noted that Japanese companies, for example Ricoh, tend to

10 As Suzuki and Okano (2007, p.1120) points out most of the Japanese accounting literature has not been subjected to rigorous peer review process and therefore limits the validity of their claims.

43 develop in-house management accounting systems which link to their corporate accounting systems, meaning they must develop internally to fit changes in their business environment

(Wijewardena & De Zoysa 1999).

Japanese companies’ environmental consciousness is growing and they are leaders in incorporating eco-efficiency into their MAPs. Cultural and language barriers prevent the rapid transfer of JMA innovations to the west. Thus, this research attempts to contribute by including how Japanese companies deal with current environmental changes affecting MAPs.

Chapter 4: Research Design and Methodology

4.1 Introduction

This chapter narrows the focus of discussion so far by deliberating on the research design and methodology of this study. Chapter four considers the case of Panasonic as a way of understanding the broader context and the Japanese national disposition in order to appreciate the imperative for Japanese corporations to effectively manage resources and be environmentally responsible. Specifically, sections 4.2 and 4.3 provide the research objective, research questions and issues respectively. Section 4.4 describes the research review and section 4.5 explicates the research design. Section 4.6 introduces the theoretical framework of contingency theory and its basic ideas in section 4.6.1. Contingency theory in the context of accounting is exhibited in section 4.6.2, followed by the research method of content analysis is introduced in section 4.7. Data collection scope and approach is identified in section 4.8; section 4.9 gives a contextual background of Panasonic’s environmental reporting; and, section 4.10 summarises key aspects of this chapter.

4.2 Research objective

The objective of this research is to examine how a Japanese organization responded to recent changes in the business environment due to the increasing eco-consciousness of its customers and other stakeholder organisations. This is illustrated by the experience of

Panasonic.

There are two main reasons for choosing Panasonic. First, Panasonic is a globally renowned Japanese manufacturer: it comprises 538 Keiretsu in 2013 (Panasonic 2013d) and about 300 manufacturing sites throughout the world (Panasonic 2013c, p.2). Its R&D unit

45 specifically researches drivers of eco-efficiency consciousness, and pursues the development of innovative eco-efficient materials to be used in its products, for example the innovation of a process of lead-free soldering (Takeuchi & Takeda 2008).

The second reason for choosing Panasonic is that it has a unique corporate culture derived from its founder’s management policy. This conservative style of customer-oriented management is believed by Panasonic to maintain their employees’ morale and sustain their business mission (Panasonic 2013e). The founder, a renowned management philosopher, introduced this policy as a unique management tool, differentiating Panasonic’s corporate culture from others.

The basic concept of Panasonic Corporate culture is to contribute to society through its business activities. The founder expressed this concept as the company being “a public entity of society” and emphasised honourable management. Accountability and fairness in management is the main criterion of “a public entity of society” (Panasonic 2013e). This original ideology is deeply rooted in Panasonic’s corporate culture and forms its CSR concept.

This feature thus differs from others, such as Toyota’s Guiding Principles11 (Toyota 2013a) and Canon’s corporate philosophy Kyosei (共生)12 (Canon 2013a).

Since Panasonic aims to provide a wide range of products to enhance people’s daily lives globally, this research suggests that Panasonic has a capacity to influence other manufacturers with its innovations in eco-efficiency, consequently leading other manufacturers to change their strategies and internal procedures.

11 Guiding Principles at Toyota were set in 1992, based on Toyota’s founder’s ‘Five Main Principles of Toyota’ (Toyota 2013b).

12 KYOSEI means symbiosis (Weblio 2013). Canon uses KYOSEI to convey its corporate philosophy and Canon’s contribution to all people, regardless of culture, custom, language and race. It also includes CSR concepts (Cannon 2013b & 2013c).

4.3 Research questions and issues

The following questions are examined:

1) What are the major changes in the Japanese business environment in response to

increased attention on eco-efficiency?

2) How does Panasonic use MAPs to respond to the increased attention on eco-

efficiency?

In addressing these questions, given that Panasonic operates globally, it is necessary to discuss how prevailing Japanese culture and language impede the transfer of Panasonic’s eco-efficiency strategies to the west. Recent developments of Japanese MAPs have not substantially transferred to the west, and where they have, this has not been in a timely manner. The language barrier creates a lag for management accounting researchers writing in

English. Although an increasing amount of the Japanese research is published in English,

Japanese researchers usually do not write their papers in English. Even if Japanese researchers write their articles in English and publish in English language journals, it is hard to deny the potential contextual gap due to the heterogeneous linguistic structure of the two languages. Therefore, this research takes this issue into consideration and attempts to lower the language barrier in data analysis.

In addition, Japan has a different peer review system for publication to the west

(Okano & Suzuki 2007). These points need to be overcome to accomplish advancement of management accounting research. Scapens’ and Bromwich’s (2010) inquiry notes such gaps between the Japanese and western culture. Hence, the significance of this research is contextualised by the barriers that reside between Japanese culture and language, and the

West. Thus, fulfilment of the research objective will contribute to the topic of MAC.

4.4 Research review

The business environment in which Japanese companies operate has changed drastically over the last few decades due to a number of factors such as: expanding market and production sites globally, development of fast and convenient innovative trading systems; and, changing customer behaviours. An objective of this research is to reveal how a Japanese company responded to a changing business environment, and examine what MAPs a company used to aid its survival in a competitive market.

The more recent economic state prevalent after the global financial crisis exhibits a tightening of global competition. This has specifically hit the electronics industry severely.

The idea of a digital evolution has become the critical driver of Japan’s current business environment. This digital evolution provides fast and convenient access to global markets and international social networks also creating a social transformation. This social transformation contributes to broaden access to digital resources for all. Predominantly use of internet facilitates people investigating their questions and issues in a timely manner. The research issues raised previously may be overcome partially due to expanding accessibility of information.

This research employs bilingual data analysis of Panasonic material in order to close the conceptual and contextual gap of the linguistic issues. Panasonic’s official reports between 1997 and 2013, such as their environmental reports and financial reports, are published in Japanese and English. Panasonic is a leading Japanese company that is aware of its external image, and demonstrates keen attention to public relations. This research examines Panasonic’s disclosures regarding their accountability to eco-efficiency, and evaluates the reasonableness of the quality of information for the public.

Panasonic’s reports have generally been released within reasonable time frames and their contents are well organised. There is a high volume of reporting generally. The quality

48 of data needs to be given more attention. Specifically, translation of materials from Japanese into English (and vice versa, but generally the Japanese version is the original), means the linguistic structure may incidentally cause ambiguity and contextually misappropriate a concept in translation. Reading reports in both Japanese and English languages provides for an in-depth examination of descriptions of MAPs.

A native Japanese speaker, who has been living in English speaking countries for twenty years, undertakes this research. It has been supported by two supervisors; a native

English speaker who offers essential feedback about nuance and some incomprehensible expressions in materials. Another supervisor, who lived in Japan for numerous years and who is fluent in Japanese, advises on conceptual differences between the two languages and cultures. As such a unique research circumstance, this research anticipates to lowering the language barrier and gets closer the conceptual and contextual gap between English and

Japanese in management accounting research. This approach is applied to the analysis and evaluation of Panasonic data. In conjunction it focuses on specifically MAPs that are used in response to external environmental demands.

4.5 Research design

Having discussed the research issues and reviewed the research approach, this section describes procedures of this research, which took place as follows;

1) Secondary data and related resources of Panasonic was gathered from both private

and government sources. Japanese materials were collected from official Japanese

websites, while English materials were obtained from the global website of the

company. Over the course of collecting data for the study, some observations of

online content were deleted or changed in time, for example the archiving of

financial information not related to the most recent years. This research has

assessed the materials in Japanese and English when they are both available,

however some data are only available in Japanese, such as some Japanese

academic management accounting literature.

2) Data was gathered and analysed under the following categories:

a. Natural Environment and Business Environment - The content analysis of

Panasonic’s environmental reports, sustainability reports and annual reports

are assessed to count the word ‘environment’. After counting, they were

analysed contextually and sorted refining the term by distinguishing between

its reference to the natural environmental setting and the business

environmental setting.

b. Environmental Strategy and Business Strategy - The Panasonic official

reports are analysed in terms of their features of environmental strategy and

business strategy. Through the exploration of empirical events of the

company, the impact of external factors is observed through consequential

changes in operations, for example the adoption of a new structure and

implementation of a new business strategy.

c. Environmental Accounting - The Panasonic reports and the official

publications of MOE and METI are studied in relation to the topic of

‘environmental accounting’. The frequency of the words ‘environmental

accounting’ appearing in the mentioned materials is also examined. The

MOE’s and METI’s official environmental management accounting

guidelines, pilot projects and case study reports are referenced largely.

d. Financial Data - Archives of Panasonic’s annual reports, data books and

shareholders’ communications are assessed. Environmentally related

economic and financial information was extracted in order to produce the

referential materials for this research.

e. Externality and Authority - Environmental regulations and changes to

environmental regulations are examined in order to identify any

consequential impacts on Panasonic’s business activities. Audit reports of

Panasonic’s annual reports and environmental reports are also examined.

f. Academic Literature and Related Publications - Various fields of Japanese

academic literature and publications are referenced in relation to explicate the

embedded information of this study. The fields of management, economics,

sociology, finance and accounting are referenced. One of the emphasised

fields of study is JMA, in which literature is reviewed in the scope of MAC.

g. Konosuke Matsushita - is the founder of Panasonic. His management

philosophy and bibliography are studied in conjunction with the history of

Panasonic. The inter-relationships among his basic management policy, the

Panasonic corporate culture and its influence on corporate social

responsibility are investigated through analysing the Panasonic reports, his

publications and his contributions to society.

h. Media, Business Magazines, Industrial Experts and Other - Various other

supplementary materials are resourced to identify the underlying contextual

factors such as conflicts of interest or political pressure on the Panasonic

operations. An additional investigation of the background of sources selected

is done in order to assure reliability of the information.

3) Analyses of the extracted information to identify factors influencing Panasonic’s

operations. In doing so the lens of contingency theory is utilised.

The research model used is adapted from the model “Framework for Organizational change” introduced by McWatters et al. (2001). The original model does not include the contingent external driver of eco-efficiency demands; however, McWatters’ model focuses on external factors influencing managerial decisions and controlling behaviours in business activities. Consequentially, this impact links to organisational value (McWatters et al. 2001).

As society changes, inter-relationships between these factors also are being transformed. This is described in Figure 1 below. The adapted portion for this study is indicated as shaded.

This research adds an external factor, ‘eco-efficiency’(see Figure 1) to the model of

McWatters et al. (2001), where the critical variable of eco-efficiency is interconnected to the other three factors of technology change, customer needs and global competition.

Organisations that fail to embrace the societal need for eco-efficiency to be incorporated in their MAPs will find it difficult to survive in the long run. This study using the case of

Panasonic, examines the impacts on Panasonic of incorporating the environmental external force of eco-efficiency consciousness into their internal systems.

Figure 1: The model ‘eco-efficiency consciousness reflecting organisational changes’ This new model is adapted from the model; McWatters et al. “Framework for Organizational change” (2001)

External Environmental Factors (forces)

Customer Technology Eco- Needs Global Change efficiency Competition

Eco-efficiency Consciousness

Formulation of Strategies The process of Management Accounting System Design

Green Strategy for Control Planning Customer value Decisions Decisions

Customer Value

Organizational Value Sustainable

Corporation

The area of external environmental factors’ influence on MAPs is under-theorised.

Common theoretical approaches to studying MAPs emphasise theorising external factors influencing MAPs using for example; institutional, sociological, and economic theories, or those that theorise specific factors that influence MAPs, for example contingency theory.

The Gupta et al. (1994) study employs both contingency theory and institutional theory. Contingency theory explains the relationships between external demands and internal activities, while institutional theory explains how social expectations impact organisational forms and behaviours and so affect performance. This study demonstrates the explanatory power of contingency theory for organisational changes, and explains how organisational procedures “conform to societal expectations of rational behaviour” (Gupta et al. 1994, p.264).

There are many approaches to theorising change of MAPs. Burns and Scapens (2000) introduce new institutional theory to explicate the inter-organisational process of MAC.

Zimmerman (2001, p.425) claims that the best research for managerial accounting is to use economics-based theory. However, Drury (1997, p.854) earlier argued that economic based theories tend to ignore socio-political forces. Modell (2001) and Collier (2001) employ theory emphasising sociological aspects that contribute to MAC. Bouma and van der Veen (2002, p.279) seek “a theory for Environmental Management Accounting” in which they draw hypotheses from the application of contingency theory and institutional theory. However,

Baxter and Chua (2006, pp.52-53) claim later that “institutional theory has overemphasized the influence of environmental models and underemphasized strategic options available to organizational actors”.

Numerous MAC studies focus on factors internal to the firm, for example controls, so that the impacts of external factors receive less attention. Chenhall (2006) considers the context of business and the role of contingency variables in measuring the effectiveness of

54 organisational performance, arguing “contingency approaches provide insights into how organisations adapt to changing situations” (Chenhall 2006, p.93). Thus this research employs contingency theory to investigate the context of MAC.

4.6 Theoretical approach

Contingency theory has a capacity to explain the relationships between external demands and internal activities (Gupta et al. 1994). This research applies the contingency approach to give insight into how a company adjusts its internal operations to meet changing circumstances. A contingency approach allows this research to explain Panasonic’s responses to external demands in the context of accounting. This section depicts how this research applies a contingency approach in order to explicate Panasonic MAPs response for the business’ environmental changes.

4.6.1 Conceptual underpinnings of contingency theory

According to Galbraith (1982, p.25), the conceptual underpinnings of contingency theory derive from the idea of differentiation (Lawrence & Lorsch 1967) and the idea of organisation design (Galbraith 1977). The first idea comes from Lawrence and Lorsch (1967), whose research focus is on large organisations’ behaviour patterns in conjunction with the demands of a business environment. The concepts of differentiation and integration are applied in their study. They seek systematic patterns in the context of complex organisational systems and their effectiveness in the given external environment.

Although external factors shape particular attributions of organisational activities, structural attributions are critical internal factors that need to be investigated to determine

“the pattern of cognitive and normative orientations” (Lawrence & Lorsch 1967, p.5). As

Burns and Stalker (1961, as cited in Lawrence & Lorsch 1967, p.6) note, a changing business

55 environment of uncertainty is best managed with an ‘organic’ structure rather than a

‘mechanistic’ one; the modern society requires organisations to design modern structures in order to operate effectively and efficiently.

Another aspect considered in the scope of contingency theory is ‘organisation design’

(Galbraith 1977). Galbraith (1974) takes a view that when processing information the design of the organisation’s form is relevant, and explicates the relationship between task uncertainty and organisational form. Given incremental uncertainty in commerce, organisations are required to integrate mechanisms that efficiently process their information (Galbraith 1974).

In order to be effective, it requires redesign of organisations to cater for changing variables such as strategic choices, organising mode choices, and integration of individuals’ choices

(Galbraith 1977, pp.26-27).

4.6.2 Contingency theory in the context of accounting

Galbraith (1977, p.28) expresses the assumptions that: “1. there is no one best way to organise and 2. not all the ways to organise are equally effective. In accepting these assumptions, the application of contingency theory allows a researcher to identify the factors affecting the choices and efficacy of an organisation’s procedures (Bouma & van der Veen

2002, p.281). Contingency theory assumes contingent variables such as corporate size, culture, leadership and the environment result in divergence in organisations’ performance (Chenhall

2006). Numerous empirical studies have employed contingency approaches to elucidate organisational procedures and accounting systems’ techniques (Bouma & van der Veen 2002).

Drury (1997, p.854) states “the contingency theory approach to management accounting seeks to define specific aspects of an accounting system’s design that are appropriate for different sets of circumstances”. Haldma and Lääts (2002) apply contingency theory to explain the effect of socio-political forces on changing accounting practices during

Estonia’s economic transition. Specifically they examined contingent factors affecting MAPs, and in doing so identified new drivers evident in the transition which impacted on MAPs

(Haldma & Lääts 2002, p.379). Thus, contingency theory has explanatory power of the relationship between the design of MAPs in organisations’ and various other factors (Drury

1997, p.854).

Under the contingency approach, “the external environmental factor is a powerful contextual variable that is at the foundation of contingency-based research” (Chenhall 2006, p.94). This model scrutinises one external factor; eco-efficiency, to determine the impact it has on an organisations’ activities both prior and post the Kyoto Protocol. Since there is no standardised accounting system to implement for environmental management, the premise of a contingency approach holds (Otley 1980, p.413). The impact of the external environmental factor eco-efficiency consciousness influences change in an organisation’s business strategy.

Contingency-based research is depicted by Haldma and Lääts as “the existing link between nature, the use of the MAS and subsequently enhanced performance” (2002, p.384).

Haldma and Lääts are concerned about economic performance in terms of the concept of cost allocation and objectives (Haldma & Lääts 2002, p.386). For instance, the concepts of unit cost and notion of variable costing need to be adopted in order to provide appropriate information for decision makers. They claim that designing effective MAPs depends on an organisational capability to adapt to both external and internal changing circumstances.

Innovation and strategy determine internal contingencies as characteristics of an entity, and performance measurement and evaluation depend upon the internal drivers and MAPs

(Haldma & Lääts 2002, p.384). Evidence suggests that changes in costs and MAPs are associated with shifts in the business and accounting environment, i.e. with external contingencies (Haldma & Lääts 2002, p.384).

The contingency-based theoretical framework, therefore, explains the impact of internal and external factors on the processes of a MAP in order to influence and measure performance. This study utilises the framework of Haldma and Lääts’ (2002) article to examine how a Japanese manufacturer, Panasonic, responded to environmental change.

Furthermore, this study utilises the notion of a conscious evolution of organisational culture as described by Birkin et al. (2005). It deliberates on the potential of accounting to contribute to changes in both the social and natural environment. This deliberation is a form of ‘conscious culture evolution’, which is “a deliberate, managed evolution to achieve specific goals” that are “clearly and firmly embedded in consciousness” (Birkin et al. 2005, p.186). That is, “the word ‘conscious’ has associations of an awareness and control with regard to a whole process of cultural evolution rather than some part of that process” (Birkin et al. 2005, p.186). Since culture evolves slowly and endlessly, it is necessary to have a mechanism in human nature to adopt and overcome changes. MAPs are seen as such a mechanism for an organisation.

The notion of ‘a conscious evolution’ is proposed by Ornstein and Ehrlich (Birkin et al. 2005, p. 187). They see it as something “to overcome particular biological inheritance whereby people are not accustomed to take much notice of things that happen slowly”, such as climate change (Birkin et al. 2005, p.187). A solution being suggested by Ehrlich is that

“we overcome this evolutionary defect by consciously developing ‘slow reflexes’ and using them consistently” (Ehrlich 2000, p.327). The notion of conscious cultural evolution complements contingency theory to develop the framework for this research.

This research argues that by employing the concepts of ‘eco-efficiency impact’ and

‘conscious cultural evolution’ the relationship to organisations’ performances can be explained. Management accounting is used objectively. An organisation’s strategy responds to ‘eco-efficiency consciousness’ and eventually demands its MAPs fit this organisational

58 objective. That is, accounting has a passive nature and accountants do not make proactive choices (Modell 2001). Thus the framework of contingency theory and the notion of

‘conscious cultural evolution’ offer an approach to answer the research questions concerning how the demand for eco-efficiency creates an eco-efficiency consciousness in the organisation which is then reflected in consequential internal changes.

4.7 Research method

This research undertakes content analysis which is defined as “any qualitative data reduction and sense-making effort that takes a volume of qualitative material and attempts to identify core consistencies and meanings” (Zhang & Wildemuth 2009, p.1). According to

Zhang and Wildemuth (2009), content analysis assists “researchers to understand social reality” (2009, p.1). Content analysis supports researching in an interpretive paradigm. Zhang and Wildemuth (2009) explicate the usefulness of this method for analysing material.

Primary and secondary sourced data of Panasonic is analysed under this method to source information pertaining to MAPs related to environmental accounting. The research, thus, emphasises a particular aspect of Panasonic whereby a nexus of management accounting and environmental issues are identified (Neuman 2006, p.40). There is a large amount of empirical data in qualitative and quantitative representations available publicly in both the

English and Japanese languages.

Panasonic is a Japanese multinational manufacturing organisation and recognised as a leading sustainable entity globally (Sustainable Asset Management 2012). Several accounting and management researchers are studying Panasonic’s financial performance and its management approaches, such as Kosuga (2007 & 2009), Ookura (2008) and, Kurunsaari and

Bu (2011). Because of its size and reputation built over 95 years of operations, various

59 sources of secondary data are available. This study, in its selection and extraction of materials and analysis, focuses on MAPs related to the environment.

In undertaking content analysis using both Japanese and English source material, this research identifies conceptual and contextual gaps evident between western and Japanese management accounting. Cognitive and linguistic gaps affecting accounting practice are illustrated. For example, in relation to the term ‘management accounting’, in English this can be interpreted as accounting for management and control. However, in Japanese management accounting it can be translated as either ‘管理会計 (Kanri-Kaikei)’ or ‘経営会計 (Keiei-

Kaikei). The word ‘会計 (Kaikei)’ stands for accounting. The letters ‘管理 (Kanri)’ represent

‘administration’ which signifies a broader meaning of management procedures than the west

(Yanagita 2006). The general Japanese term of management is ‘経営 (Keiei)’ which indicates a similar context to the western notion (Weblio 2013). Thus, significantly the role of management accounting in the Japanese context places an emphasis on both managerial and controlling (financial) aspects, as well as a more general concept of administration.

Monden et al. (2007) published the book ‘Japanese Management Accounting Today’.

Topics in the list of contents portray broad topics in managerial accounting such as cost management, process management, management control systems and budgeting. All authors belong to the Faculty of Commerce which translates in Japanese as ‘商学部 (Shougaku-bu)’ where managerial accounting is situated as a sub-major of it. This indicated structure may illustrate an example of conceptual differences in the practice of management accounting.

Therefore, the examination of Panasonic may elucidate an understanding of this gap.

Specifically, EA was treated as an independent section in the Panasonic reports from 1999 until 2007. However, since 2008 EA is treated as a subset of environmental management

(Panasonic 2008b). This change signifies that EA is now integrated and utilised as a

60 managerial tool, emphasising the administrative, eco-control and technical functions of its

MAPs.

4.8 Data collection

Data is identified as being relevant through reference to the research questions and the model (see Figure 1). Panasonic’s official information is normally available in both Japanese and English. Since this research objective is to seek logical explanations through: systematically appearing words; motives of actions; experienced impacts of external events; consequential operational changes; and, the holistic state of Panasonic, a variety of

Panasonic’s information is analysed.

Publicly available primary data of Panasonic was collected through various sources.

Reports of environmental data have been issued since 1997. In 2001, an Environmental

Sustainability Report was released. The contents section clearly demonstrates how Panasonic organised this report. It exhibits how regulations and regulators such as the Global Reporting

Initiative (GRI), MOE and METI, had an impact on the contents of the report (Panasonic

2001c, p.4). In the following four years, Panasonic issued a large volume of environmental reports. Increasing pressure for eco-efficiency in production was heightened by the enactment of the Kyoto Protocol. In 2005 Panasonic published its environmental data book and sustainability report separately.

The following table illustrates the summary of analysis completed on the Panasonic environmental and annual reports. The key term ‘environmental accounting’ is counted and evaluated throughout the environmental reports. The change in its volume is also indicated, this change assessed to be the result of the impact of the external factor of eco-efficiency demand on Panasonic. The selected annual reports are analysed for mention of the environment and environmental strategy specifically. The cost of environmental related R&D

61 is investigated, in both its proportion and the nature of allocated items. The word

‘environment’ as it appears in the annual reports is analysed in terms of its context, categorised into two contextual meanings of ‘business environment (BE)’ and ‘natural environment (NE)’. Numbers of NE exceed BE throughout all available annual reports. It indicates the linkage between NE, environmental strategy and economic outcomes. This style of reporting is appealing to stakeholders because it indicates a response to their demand for eco-efficiency consciousness.

Furthermore, there is a small discrepancy in volume between Japanese and English versions of documents. For example, in the sustainability report of 2010, the Japanese version has seven more pages than the English version. This is attributed to explanations of different conditions of supplier and buyer relationships. In the Japanese version, the section of supply chain management exhibits the stricter Japanese reporting requirements for supplier collaboration than that of the English sustainability report (Panasonic 2010d, pp.26-28).

Although the details are expressed as supplemental information, the three pages supplied give the impression of detailed demands for suppliers to comply with certain factors in order to keep their business relationships. While the English sustainability report illustrates the selection criteria of a supplier, it takes only two thirds of a page to detail the itemised request of a clean procurement declaration (Panasonic 2010d, p.27).

It signifies that the issuer is conscious about the conceptual differences towards eco- efficiency in the supply chain between domestic and overseas suppliers. This alteration is embraced by the assumption of contingency theory. It explains that organisational dealings in different geographic circumstances fit into social expectations of eco-efficient procurement.

The depth of eco-efficiency consciousness depends on contingent variables such as national disposition and geographical circumstances.

These features of the data are discussed as exemplars of the analysis undertaken. The following two tables exhibit the summary of the content analysis undertaken. Attributes of

Panasonic’s management and EA are captured.

Table 2: Archive of the changes in the Panasonic Reporting

Table 2a: Content Analysis of Panasonic Reports (English Version)

Words Grand Environmental and sustainability Reporting name changes Vol. of EA/page in Context Context Total (volume of Engslih version) AR ER&SR BE/p. NE/p. vol. 1997 Environmental Report (45) 0 N/A 1998 Environmental Report (45) 0 N/A 1999 Environmental Report (95) 9 N/A 2000 Environmental Report (56) 27 N/A 2001 Environmental Sustainability Report (68) 15 62 8 20 130 2002 Environmental Sustainability Report (78) 26 68 12 40 146 2003 Sustainability Report (96) 19 80 11 58 176 2004 The Panasonic Report for Sustainability (76) 7 45 8 44 121 2005 Environmental Data Book (64) The Panasonic Report for Sustainability (56) 11 + 0 94 9 38 214 2006 Environmental Data Book (70) The Panasonic Report for Sustainability (64) 13 + 1 98 7 51 232 2007 Environmental Data Book (69) The Panasonic Report for Sustainability (44) 7 + 1 122 11 51 235 2008 Environmental Data Book (75) Sustainability Report (100) 9 + 0 114 6 100 289 2009 Eco-Idea Report (69) Sustainability Report (136) 7 + 0 120 19 108 325 2010 Eco-Idea Report ( 44) Sustainability Report (70) 4 + 1 72 10 67 186 2011 Eco-Idea Report (50) Sustainability Report (52) 4 + 0 57 6 49 159 2012 Eco-Idea Report (48) Sustainability Report (84) 4 + 0 61 14 49 195 2013 Sustainability Report (220) 3 36 8 9 256 Keywords: Context of 'Environment’: BE-Business Environment, and NE-Natural Environment, EA-Environmental Accounting, AR-Annual Report, ER-Environmental Report, SR-Sustainability Report

Source: Panasonic IR Library (Panasonic 2013s)

Table 2b: Content Analysis of Panasonic Reports (Japanese Version)

Environmental and sustainability Reporting name changes Words Grand EA/page Vol. of Context Context Total (volume of Japanese version) in ER&SR AR BE/p. NE/p. vol. 1997 環境報告書(53) 0 N/A 1998 環境報告書 (49) 0 N/A 1999 環境報告書 (95) 8 N/A 2000 環境報告書(56) 24 N/A 2001 環境報告書(68) 16 62 7 34 130 2002 環境報告書(78) 24 68 12 43 146 2003 環境経営報告書 (92) 19 80 9 56 172 2004 松下電器グループ・環境経営報告書 (76) 8 45 11 43 121 2005 松下グループ環境データブック(68) 松下グループ社会環境報告 (56) 13 + 0 94 10 39 218 2006 松下グループ環境データブック(70) 松下グループ社会環境報告 (64) 13 + 1 98 11 49 232 2007 松下グループ環境データブック(68) 松下グループ社会環境報告 (44) 7 + 1 122 16 46 234 2008 パナソニックパナソニックグループ環境データブック (75) 社会・環境報告- 詳細版- (105) 9 + 0 114 17 95 294 2009 エコアイディアレポートパナソニックグループ (69) 社会環境報告- e報告書詳細版(140) 7 + 0 120 26 103 329 2010 エコアイディアレポートパナソニックグループ (44) サスティナビリティリポート (76) 4 + 1 72 18 100 192 2011 エコアイディアレポートパナソニックグループ (50) サスティナビリティリポート (52) 4 + 0 57 10 82 159 2012 エコアイディアレポート (48) サスティナビリティリポート (84) 4 + 0 63 14 78 195 2013 サスティナビリティリポート (202) 3 36 8 9 238 Keywords: EA-Environmental Accounting (環境会計) , Environment (環境)

Source: 「IR 資料室」パナソニック(パナソニック 2013s)

The Sustainability Report Responsibility Guidelines ‘G3.1’ and the MOE’s

Environmental Reporting ‘Guidelines 2012’ are enforced due to increasing pressure from the

GRI (Baba 2013). Compliance with these regulations is imposed on Panasonic (Panasonic

2013c). Subsequently, Panasonic’s 2013 Sustainability Report was over two hundred pages and has included in its contents Panasonic’s Environmental Report including commentary of

Panasonic’s broader social liabilities and ethical procurement. This is in keeping with the standardisation of the structure of sustainability reporting13. Panasonic claims to be a ‘global sustainable entity’ by because Level B of the GRI and International Standards Organisation

(ISO) 26000 Core Subjects have been met (Panasonic 2013c, p.192). These credentials allow the external perception of Panasonic as a leading sustainable entity with a depth of eco- efficiency consciousness.

13 ISO 26000 Core Subjects and the GRI Application Levels System (Panasonic 2013c)

The influence of the GRI, along with the guidelines of MOE and METI, are recognised by Panasonic itself in its Environmental Sustainability Report of 2001 (p.4). In addition, simultaneously while meeting these regulatory requirements Panasonic engaged in a partnership with an international non-profit environmental organisation, The Natural Step

(TNS), who provide a sustainability analysis of a firm’s environmental reports. Panasonic claims that TNS Step recognises that Panasonic (MEIC as at 2001) has a capacity to influence and enhance a sustainable society, and that this mission is derived from Panasonic’s founder’s devotion to social and ecological responsibility (Panasonic 2001c, p.64).

The assessment criteria of TNS are consistent with Panasonic’s change to sustainable practices, such as their MAPS for scarce material management. TNS is quoted in Panasonic’s

Environmental Report 2004 as saying “Matsushita’s top management has made very clear statements about sustainability as a major driver for Matsushita’s future progress” (Panasonic

2004b, p.73).

TNS continues to conduct an analysis of Panasonic’s sustainability in operations

Furthermore an independent review of Panasonic’s environmental reporting has been conducted by KPMG AZSA Sustainability Co. Ltd (KPMG-AZSA SC) since 2005, whereby they certify the reports. It is proffered that this is an impact of the Kyoto Protocol enactment on Panasonic management. The first independent review report is provided by KPMG-AZSA

SC in 2005, but it does not state any external review references and criteria; such as official reporting guidelines, regulations and measurements. This review report is only found in the

Japanese version of the report. This creates an issue of accountability where the purpose of such sustainability auditing is ambiguous. However such an external audit fulfils Panasonic’s need to be seen as a leading sustainable entity.

To date in Panasonic’s environmental reports, TNS continues to provide a sustainability analysis of Panasonic’s performance under their partnership contract. Also,

KPMG-AZSA SC continues to provide a sustainability auditing service which is conducted with reference to the International Standard on Assurance Engagements 3000 of International

Federation of Accountants, the MOE Guidelines for environmental reporting and others

(Panasonic 2013c, p.200). Having analysed the KPMG-AZSA SC’s assurance reports issued from 2006 to 2013, it is concluded that Panasonic’s management has been responsive to changing environmental regulations.

The question of the independence of sustainability auditing arises with respect to regulatory changes and the rotation rule for auditors. The independent auditor’s report for

Panasonic is placed in their annual securities reports; it is not placed in the Panasonic Annual

Report. Having analysed Panasonic’s annual securities reports issued from 2005 to 2013 with respect to the audit function, one of the auditors was engaged in the auditing of Panasonic auditing for 11 years until 2006. This person has got back in the audit board with an impression of the first year auditor in 2009 and worked as a main auditor till 2011. This is controversial with respect to the rotation rule for auditors (Financial Service Agency 2006).

The period of continuous audit engagement has changed from a 7 year engagement period with a 2 year interval rule, to a 5 year engagement period and a 5 year interval rule in 2007

(The Japan Institution of CPA 2008). One of the largest Japanese audit firms is affiliated with the big four audit firms that provide assurance for Panasonic’s reports. Such a situation may give rise to a conflict of interest and agency problems between the two firms (The Japan

Institution of CPA 2013). Due to the size and nature of Panasonic business, there are only a few audit firms capable of providing audit services for Panasonic.

Over 85% of listed entities are audited by the big four in the EU; Deloitte, Ernst and

Young, KPMG and PWC (Fuchida 2012, p.150). Fuchida argues that it is not sufficient to only limit the audit service period of chief auditors, but that it is also necessary to change audit provider itself (Fuchida 2012 p.151). Since Panasonic falls into the criteria of a Public

Interest Entity, Panasonic’s financial information should be audited by applying the relevant

International Audit Directive/Regulations. Specifically, an audit service provider must conduct its procedure in a rigorous manner in order to be accountable for Panasonic’s data and in order to give assurance to stakeholders.

4.9 Contextual background of Panasonic’s environmental reporting

Panasonic, along with Sony14, produced their first environmental reports for the year ended 1997. This Panasonic’s report was then issued in February 1998. It was three months after the adoption of Kyoto Protocol in December 1997. The table 3 demonstrates, this

Panasonic report is one of the earliest environmental reports issued by a Japanese company, because other leading Japanese companies such as Toyota, Canon, Mitsubishi, Hitachi and

Honda, had not yet commenced issuing environmental reports in 1997, but and Panasonic did.

Table 3: The leading Japanese green brands and environmental Report 2013 Brand 1994 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Toyota ER E & SR SR Honda Environmental AR Environmental AR AND CSR-R Panasonic ER E & SR SR e-data book AND SR eco-idea R AND SR SR Sony ER* ER ER ER S&ER CSR -R CSR R'ing AR+CSR Nissan ER E & SR E & SR Toshiba CSR -R Canon ER SR Hitachi ER CSR-R SR Sharp ER E & SR SR Denso ER E & SR CSR-R NEC Environmental AR CSR AR AR ER = Environmental Report, SR = Sustainability Report, AR = Annual Report Sources: ‘Best-Global-Green-Brands-2013’ (Interbrand 2013) ‘RobecoSAM-Sustainability Rating’ (RobecoSAM 2013) ‘Survey of Environmental Brand’ (Nikkei Environmental Management Survey 2013)

14 According to Sony's environmental report in 1997, Sony published the first environmental report in 1994 (Sony 1997, p.1). Although the Sony Environmental Report 1994 was requested to view, it was not available.

The issuing of this first environmental report by Panasonic is consistent with the notion of the company having a public responsibility to society, a principle of its founders’ management policy and its obligation to disclose information about its environmental sustainability. The table 4 below exhibits Panasonic’s environmental activities shown in its environmental report 1997 (p.5). It demonstrates the depth of Panasonic’s ecological consciousness and its articulated responses to changes in the business environment.

The following Table 4 exhibits the influence of external factors and consequential responses of Panasonic’s internal management demonstrating their eco-efficiency consciousness. The depth of eco-efficiency consciousness depends on organisational culture.

Panasonic’s organisational culture derives from the founder, so the extension research material includes the Panasonic corporate history and the founder’s publications.

Table 4: History of environmental activities prior to the Kyoto Protocol Panasonic Environmental Activities Business Environmental factors 1970 - Pollution Survey Committee - Water pollution control law enacted (Japan) Established - Waste Disposal and Public Cleansing Law enacted 1975 - Environmental Management regulations - Montreal Protocol on Substances that Deplete the instituted Ozone Layer adopted (in 1987) 1988 - CFC*-reduction Committee established - Ozone Layer Protection enacted (Japan) - Environmental Protection Promotion

1989 Office established - Matsushita Environmental Charter - Keidanren Global Environmental Charter enacted 1991 (Environmental Statement and Code of by Japan Federation of Economic Organisation - Conduct) instituted Law for promotion of Effective Utilisation of Resources enacted (Japan) - The Earth summit held in Rio de Janeiro, Agenda - Environmental Policy Committee 1992 21 and Rio Declaration on Environment and established Development adopted - UNFCCC** adopted - Matsushita Environmental Voluntary - The Basic Environmental Law enacted (Japan) 1993 Plan 2000 adopted - Matsushita group ‘s Global environmental internal audits launched - Corporate Environmental Affairs - Keidanren announced ‘Keidanren Voluntary 1997 Division established Action Plan on the Environment’ (Japan) - Semi-annual Environmental Conference is inaugurated *CFC stands for chlorofluorocarbon, **UNFCCC stands for United Nations Framework Convention on Climate Change Source: Panasonic environmental Report (Panasonic 1997)

Panasonic’s culture is based on its founder’s management policy. Panasonic’s founder was Konosuke Matsushita. He launched his business in 1918 and continued to contribute to the company’s management as president until 1961. Konosuke Matsushita continued in an advisory roll until his death in 1989. His lifetime of dedication was recognised nationally and he received the most honourable civil award of the Grand Cordon of the Order of the Rising

Sun with Paulownia Flowers (勲一等旭日桐花大綬章) from Emperor Hirohito in 1987

(Panasonic 2013g). Consequently, archives pertaining to Konosuke Matsushita form part of the data for this study. His biography incorporates a crucial part of Panasonic’s corporate history and so it is considered to be relevant. These documents provide additional layers of social context. Numerous data are collected through internet archival research and sources are examined in both Japanese and English (when both are available). Information of the founder is collected from the Konosuke Matsushita museum in Osaka Japan.

4.10 Summary

In summary, this research examines how the Japanese company Panasonic modifies its activities to promote eco-efficiency. Specifically, the research examines the consequences of a developing eco-efficiency consciousness on Panasonic’s changing MAPs, to achieve this externally driven strategic goal. Japan’s signing of the Kyoto Protocol is used as a benchmark of eco-efficiency consciousness to assess Panasonic’s performances. A contingency approach is used as the theoretical lens.

Chapter 5: Eco-efficiency: the Experience of Panasonic

5.1 Introduction

The business environment of firms can change rapidly due to external influences

(McWatters et al. 2001). Firms change their business strategies in response to these external influences. One such example is consumer demand for eco-efficient products, which drives manufacturers to embed eco-efficiency into the lifecycle of their products in order to obtain a competitive advantage. Consequent production costs and savings are captured by a firm’s

MAS (Hunkeler et al. 2008). In this way it can be said that changes in an organisation’s vision, strategy, and production are passively reflected through MAPs (Modell 2001).

This example of Panasonic examines how external demands for eco-efficient products are reflected in the organisation’s management accounting processes. Panasonic is a leading

Japanese producer of eco-efficient products. Panasonic brands this strategy as “eco-ideas for life”. Their business activities are examined within the context of its unique corporate culture.

Panasonic claims to embed a deep eco-efficiency consciousness in its products and services globally. It can therefore be expected this socially responsible approach is reflected in its management accounting processes.

This chapter is organised as follows. Section 5.2 will provide an overview of the

Panasonic Corporation. In this section the details of Panasonic’s structural reforms and its brands history are described in section 5.2.1, followed by the context of Kaisha (Japanese company) is explained in 5.2.2. The founder’s intention and spirit are explicated in section

5.2.3. Section 5.2.4 explains Panasonic’s strategic use of management accounting and reporting. Section 5.2.5, describes some of the responses of Panasonic to changing external factors impacting on the organisation. In section 5.3, Panasonic’s in-house MAPs are

70 illustrated. This section will be divided to portray the features of the MAPs which include the raw material management in section 5.3.1; the further extension of the eco-efficiency concept that influences green production and linkage to CSR is section 5.3.2; the resource circulation practices with LCC in section 5.3.3 and section 5.3.4 illustrates the implication of the MFCA concept for supply chain management. The final section 5.4 provides a summary of the chapter.

5.2 An overview of Panasonic Corporation15

Panasonic is a globally recognised Japanese company that manufactures home and business electrical appliances, with net sales in 2012 of 7,300 billion yen16 (US$ 91 billion)

(Panasonic 2013a & 2013f). It was established in 1918 and incorporated in 1935 in Osaka

Japan, with the name ‘Matsushita Electric Industrial Co.’ (MEIC). The head office is located in Kadoma City, which is one of the eastern suburbs of the Osaka Prefecture. MEIC changed its company name to ‘Panasonic Corporation’ (Panasonic) in 2008.

The establishment of MEIC began with three people; the founder Konosuke

Matsushita, his wife Mumeno and her brother Toshio Iue. The ground floor of their residence was converted into a workshop where subcontracted fan insulator plates were produced.

Konosuke Matsushita designed an attachment plug and a two-way socket, which was the first original product of MEIC. Subsequently, they successfully obtained funds from a major bank in Japan (Panasonic 2013l). Matsushita’s brother-in-law Iue became an executive manager of

MEIC. However, after Japan lost WWII, under the economic reparation enforcements implemented by the US General Headquarters, Iue had to leave MEIC. Consequently, Iue launched Sanyo in 1947 (Sanyo 2013).

15 Appendix 1 – Brief History of Panasonic is illustrated. 16 Appendix 2 – IR Summary of Panasonic FY 2013 is exhibited.

From these beginnings, Panasonic has grown into a multinational entity; however, its origin in a typical Japanese family business is still evident. An example of this is at the end of

2008, amid the external context of global economic turmoil, Panasonic announced a merger with Sanyo Electric Corporation (hereafter Sanyo), Panasonic’s co-founder’s company

(Panasonic 2009d, p.3).

Panasonic’s operations expanded over time to in 2013, 634 group entities globally in

80 different countries (Panasonic 2013i). The corporate governance structure comprises a

Panasonic Board made up of the offices of president, chairman, vice chairman, four senior managing directors, six managing directors, and four directors. The organisation also has two senior corporate auditors and three corporate auditors, a senior managing executive officer and eight managing executive officers and twelve executive officers. The 43 executives provide the governance structure for Panasonic’s operations. Although Panasonic’s business has expanded overseas and provides a wide range of products and services globally, only two female and three non-Japanese officers are members of the Panasonic Board (Panasonic

2013j). This lack of representational diversity can be conjectured to reflect Panasonic’s characteristic of a conservative Japanese corporate culture.

Figure 2: Panasonic’s new corporate structure - ‘Business Domain System’ in 2003

Source: Panasonic Annual Report 2003 (Panasonic 2003a, p.10)

5.2.1 Panasonic - structural reform and its history of brands

There are examples in Panasonic’s past of the organisation’s strategy to undertake structural reforms in response to changes in its economic context and other contingencies such as environmental factors. Underpinning Panasonic’s organisational culture throughout these reforms is the management philosophy of its founder, Konosuke Matsushita, who from the company’s inception expanded its operations based on his vision of ‘humanism and harmonisation’ (Matsushita 1962).

In the 1990s the impacts of advanced digital technology were significant and rapid.

The then MEIC responded strategically to this contingent factor. They restructured their management composition in 2000 to operate more effectively in the changing competitive global market, while at the same time still maintaining the founder’s management philosophy

(Ueda et al. 2010). This reform facilitated the transformation of MEIC from an out-dated management structure to an organization with modern multinational management (Onishi et al. 2008). This was done for strategic long term gain. Although this corporate restructure resulted in an unprecedented financial loss in 2001, the regenerated MEIC successfully increased its market share globally after the completion of reforms in 2003.

Table 5 exhibits these structural changes of Panasonic commencing in 2000 and concluding in 2013. Panasonic changed its structure from a divisional system present in the year 2000, to a business domain system17 commencing 2003, and with a change of CEO back to a divisional system in 2013.

The execution of large structural changes to domains was initiated by a powerful CEO who remained Panasonic’s Chairman of the Board until 2012. Structural change is initiated in

17 A business process domain is “a logical grouping of business systems dedicated to a common purpose” and its roles takes “a set of function views, aligned with the business process structure of the enterprise” (The Open Group Architecture Framework 2013)

73 response to a shift in contingency variables in the environment in which companies operate

(Donaldson 1995, p.36).

Table 5: Panasonic Structural Changes Date Structure Segment (business units) Visual Equipment, Audio Equipment, Home Appliances, Digital and Prior to 9 Divisions Communication devices, Digital Components, Battery and Kitchen Appliances 2000 and Other Structural Reform Period January Digital Networks, Home Appliances/Environmental Systems, Components & 2003 Devices/ Manufacturing Systems, Services and Solutions and Other 4 Business April Domains AVC Networks, Home Appliances, Components & Devices, JVC and Other 2004 (Common August AVC Networks, Home Appliances, Components & Devices, *MEW Panahome R&D 2007 and Other (MEW - Matsushita Electric Works Co., Ltd.) Platforms) AVC Networks, Home Appliances, Components & Devices, **PEW Panahome 2009 and Other (PEW - Panasonic Electric Works Co., Ltd.) 5 Business Digital AVC Networks, Home Appliances, PEW Panahome, Components & 2010 Domain Devices, SANYO and Other January 7 Business AVC Networks, Appliances, Systems & Communications, Eco Solutions, 2012 Domains Automotive systems, Industrial Devices, Energy and Other April 4 Divisional Appliances Company, Eco Solutions Company, AVC Networks Company, 2013 Companies Automotive & Industrial Systems Company and other *MEW (Matsushita Electronic Works), **PEW (Panasonic Electronic Works) Source: Prior to 2000 reference to ‘Kakushin Matsushita-denki’ (Asahi 1998) and Between 2000 to 2013 reference to Panasonic Annual Reports (Panasonic 2013s)

A new president was appointed in 2013. He again reorganised Panasonics’ structure from seven business domains in 2012 to four divisional companies from 1 April 2013.

However, the segments of the business were retained: Appliances; Eco-solutions; AVC

Networks; and, Automotive & Industrial Systems. These four company divisions comprise 49 business units. Panasonic’s operational structure was redesigned around this framework

(Panasonic 2013a, p.8). The ultimate objective of both restructures was to increase economic efficiency and eliminate loss and the waste of resources (Koitabashi 2013).

Another strategy Panasonic embraced in response to the external demand for consumer products that are eco-efficient, was to raise their brand visibility. As illustrated in

Figure 3 below, since the 1960’s MEIC’s brands were Panasonic, National and Technics.

None of these brands were satisfactorily recognised in the global marketplace. Consequently

MEIC unified their brands with the company name ‘Panasonic’ in October 2008, successfully releasing new products globally under that brand (Takeuchi & Takeda 2008).

Figure 3: Brand History of Panasonic18

Source: Panasonic official global site ‘Brand History’ (Panasonic 2013k)

18 Source: Figure 3 is a concise brand history of Panasonic. Full version of the Panasonic Brand History is available at http://panasonic.net/brand/history/ (Panasonic 2013k).

5.2.2 Kaisha

Shrinking R&D investment resulted in a weakened financial position for Sanyo in

2005, when a net loss of 205.7 billion yen (US$ 2.2 billion) was recorded (Sanyo 2009).

Sanyo’s struggle continued and its accumulated losses did not improve. Declining cash flows, loss of share value and the impact of the global financial crisis in 2008 meant that Sanyo’s operations were in a difficult state. Drawing on the historical connection, the unification of

Panasonic and Sanyo was expedient and created a beneficial business synergy (Panasonic

2012a). The historical relationship between Panasonic and Sanyo and their bank, who is a powerful stakeholder, demonstrates the Japanese concept of Kaisha. One significant attribute of Kaisha is “the substantial level of banking dependence and banks’ involvement in a firm’s affairs” (Abegglen & Stalk 1985, p.274).

Abegglen and Stalk (1985, p.270) depict Kaisha as “products of Japan’s economy, and their effectiveness is largely controlled by the effectiveness of economy as a whole”. For example, although Panasonic paid a high premium for Sanyo’s equity, it did not generate economic returns from the transaction19. This transaction was rationalised through the historic relationship between the two companies. In fact, Panasonic later sold Sanyo’s core business to a Chinese company (Murai & Hamada 2011). The Kaisha “are economic organisations as well as social organisations, and nothing in Japan’s dash for affluence has allowed its economy to repeal the basic laws of economics or change the basis and nature of economic competition” (Abegglen & Stalk 1985, p.272). In this Kaisha relationship, thus, financial information was not prioritised when making management decisions.

19 See Appendix 3- it shows each segment profits and sales of the Panasonic group in 2010. The financial results illustrates that the merge with Sanyo is an irrational decision made by the powerful person in Panasonic.

5.2.3 The Panasonic culture - the founder’s intention and spirit

Panasonic’s founder, Konosuke Matsushita ( 松下幸之助 ) is internationally recognised for his contributions to business. Time Magazine labelled him as the ‘genius entrepreneur’ in 1962 (Anon. 1962). Life Magazine introduced Konosuke Matsushita as a

“top industrialist, the biggest money-maker, philosopher, magazine publisher and best-selling author” (Mills 1964, p.107). The world was informed of the death of Konosuke Matsushita under the heading “Exemplar of Japan’s post-war industrial success” (Anon. 1989, p.18). His feats saw him become a popular entrepreneur in the history of Japanese industrial development.

The founder of Panasonic: Konosuke Matsushita - the Basic Management Objective20

[R]ecognizing our responsibilities as industrialists, we will devote ourselves to the progress and development of society and the well-being of people through our business activities, thereby enhancing the quality of life throughout the world. Source: ’Basic Management Objective’ (Panasonic 2013e)

His management principal is that a company is also a public entity of society and its mission is to contribute to society (Panasonic 2009d, p.2). This basic management philosophy

20 Panasonic Corporation's Basic Management Objective, formulated in 1929 by the company's founder, Konosuke Matsushita.

77 is the foundation of Panasonic’s approach of unifying its employees. Its culture is built on the founder’s management policy which is reflected in the corporate vision of co-existing harmoniously with each community and its environment (Panasonic 2009d, p.3). His contributions to the local community include the establishment of Matsushita Memorial

Hospital in 1940, the reconstruction of the gate of the Temple in Asakusa Tokyo in 1960, and a six billion yen donation (US$ 47 million) for the Osaka International Flower and Green exhibition in 1988 (Panasonic 2013m).

One of Konosuke Matsushita’s significant contributions was the establishment of the

Peace and Happiness through Prosperity Institution (PHP) in 1946. The objectives of the PHP

Institution were to study human nature and to help Japanese society recover from the post

WWII depression (Kotter 1997, p.198). From 1970, an English language magazine was commenced by PHP (Panasonic 2013n). For over 65 years, the PHP Institution has been publishing the PHP Journal21 to provide reflections on the founder’s philosophy in order to guide society. For example; the liability of organisations to society for their emerging environmental issues were raised in his publication ‘Corporate Social Responsibility’ in 1974.

Subsequently, his CSR vision was expressed in the book ‘My Management Philosophy’ as:

[T]here is much discussion today regarding ‘social responsibility’, but while the meaning of that concept can be wide-ranging depending on social conditions at a particular time, the fundamental social responsibility of a corporation, in any era should be to improve society through its business activities. It is extremely important to manage all business activities based on this sense of mission (Matsushita 1978 as cited in Panasonic 2012d, p.6)”.

After the establishment of the PHP Institution, Konosuke Matsushita’s went on to establish another institution, The Matsushita Political Economic Institution (松下政経塾) in

1979 with a view to educate the future leadership of society. Former Japanese Prime Minister

Noda was a graduate student of this institution (Panasonic 2012f). This institution launched

21 The PHP journal is similar to the Reader’s Digest. It has been a popular journal for all generations for many years.

78 the Kyoto Symposium in 1983 to discuss various social issues; from the world economy and politics to education systems (Panasonic 2012f). Included in this symposium was conservation of the natural environment. His view against pollution was strict, stating “the destruction of nature through industrial development damages human happiness. It is against the principle of the corporation22” (Panasonic 2000, p.53). His firm determination towards natural environmental issues is reflected in Panasonic’s goal of eco-efficiency consciousness.

It has appeared as ‘eco-ideas for life’ in Panasonic promotions and in their awareness of limited resource management (Panasonic 2000). An example of eco-efficiency consciousness is demonstrated by the development of a process for lead free soldering that eliminates pollutant substances from production. Konosuke Matsushita’s strong beliefs endure in

Panasonic’s striving for eco-efficient production, and this serves as a point of differentiation from its competitors.

A leading Japanese EMA researcher, Kokubu, presented the implications for Japan’s

CSR, treating the approach of Konosuke Matsushita as a raw model in the traditional

Japanese style of management, and perceived Konosuke’s CSR philosophy as legendary from a Japanese CSR standpoint (Kokubu 2011b, pp.7-9). The interrelationship of the Konosuke’s

CSR philosophy, the Panasonic management policy and its employees’ eco-efficiency consciousness was also depicted (Kokubu 2011b, p.8). Furthermore, Benn et al. (2006, p.160) describe a high level employee engagement, stating “the workplace culture at Panasonic has supported the ready development of eco-efficiency practices”. Panasonic’s employees’ eco- efficiency consciousness derives its founder’s contributions to society, and his influence is maintained in the firm through his publications.

Panasonic’s employees have embraced the management philosophy of eco-efficiency, which has become a main management tool used by the company to promote sustainability

22 Original in Japanese “産業の発展が自然を破壊し、人間の幸せを損なうことは本末転倒である”

(Ookura 2008). This is in the form of reducing energy, materials and water usage by recycling substances without making adverse environmental effects through “eliminating hazardous emissions or by-products” (Weblio 2013). Research and development is a critical element for developing innovative products to minimise their impact on the natural environment (Onishi et al. 2008). Development of material engineering and resource management techniques are crucial for Panasonic’s future.

5.2.4 Panasonic’s business strategies: accounting and reporting

The strategic focus of Panasonic is on sustainability to enrich customers’ lives

(Panasonic 2013c, p.5), in which the concept of eco-efficiency in production takes a crucial role in operations (Yamakawa 2012). Panasonic’s focus is on what products are necessary or convenient for customers to have, and is a customer oriented management strategy (Panasonic

2013a, p.6).

An example of this is Panasonic’s ‘Business to Business to Consumer’ (B2B2C) approach, in which the core strategy of branding “eco-ideas for life” (Panasonic 2013r) is extended to its supply chain through collaboration with business customers (Panasonic

2013q). In terms of MAPs, the flow of management accounting information and environmental MAPs changed from a top-down style to promoting a bottom-up system, instilling the concept of eco-efficiency consciousness throughout the whole of Panasonic’s operations (Ookawara 2013). Both customers and employees are educated about an eco- efficient life style by using and producing eco-products. ‘A Better World’ is created by an individual’s contribution and awareness (Ookawara 2013).

Eco-efficiency in production is achieved through a combination of ‘cutting-edge technology’ that makes the most of value engineering (Panasonic 2013r), and MAPs.

Underlying this approach is Panasonic’s belief that manufactures are liable for the full life-

80 cycle of their products sold to consumers. Each individual business unit in the Panasonic

Group is responsible for their respective products.

Simultaneously, these respective units are liable to maintain their own adequate capital and growth. Two measurements are used in determining the performance of each unit,

Free Cash Flow23 (FCF), and Capital Cost Management24 (CCM). Okunaga (2004, p.39), a former Panasonic accountant, claims FCF as “cash flow that allows decision makers to select an object to utilise to their intentions”; whereas the Panasonic’s CCM is “the Panasonic way of an economic value added tool for strategic management” (Okunaga 2004, p.31). That is, they are tools for Panasonic’s unique cash flow management (2004, p.36). This partially reflects the founder’s management policy, thus, it links MAP and CSR.

FCF measures on-going costs of an operation (Ookura 2008). Panasonic previously used the target sales as a performance measurement. In 2013, however, Panasonic commenced using operating profits as the index for measuring efficiency of performance and effectiveness of strategic management. That is, recognising continuous growth in sales as perhaps unsustainable, a focus on profits through margins created from innovative environmentally conscious quality products was initiated. This strategy differentiates

Panasonic from its competitors such as Sony and Hitachi.

CCM was adopted in Panasonic as a control for capital assets to be maintained at an adequate level (Ookura 2008). In 1999 Panasonic began using a modified CCM for performance evaluation. The basis of CCM is to control cash flows to and from investments and assets (Kosuga 2010). The ultimate objective of CCM is to effectively utilise resources to

23 FCF is “cash flow from operations less any capital expenditures necessary to maintain its current growth” (Peterson 2013). FCF to equity is “the FCF adjusted for the debt cash flows; the debt cash flow adjustment or net borrowings” (Peterson 2013). This is an example to calculate FCF, however, the ability to generate future FCF depends on the current financial state and performance. 24 According to Kawakami (2000, as cited in Ookura 2008), CCM is calculated as the cost of investment and asset management less operating profits (before deducting dividends).

81 increase operating profit and to reduce the cost of capital investment. These tools support

Panasonic’s managers in allocating resources to R&D efforts.

In order to be a leading manufacturer, R&D investment is a necessity in developing goods and services of the future. The proportion of investment allocated to R&D is a critical feature of business. According to Panasonic’s reports, the environmental R&D (here-after e-

R&D) was kept around three per cent of the consolidated R&D from 1999 until 2010; apart from it being four per cent in 2006. It is surmised that the enactment of the Kyoto Protocol impacted Panasonic’s operations in 2005-2006.

In 2008, a voluntary emissions trading system commenced in Japan, followed by the total GHG reduction obligations of Tokyo which began in 2010 (Tokyo City Council

Environment Division 2013). In conjunction with the amendments of the Waste Management and Public Cleaning Law, the Pollutant Release and Transfer Register, and the Chemical

Substance Control and Management Regulations for manufacturers, it is anticipated that these changes drew the attention of Panasonic’s management and required an immediate response.

Although Panasonic’s operational profit fell by forty per cent between 2007 and 2010, R&D e–investment rose almost seven times while the consolidated R&D allocation remained steady.

Chart 2: Archive of e-R&D cost allocation of Panasonic

Panasonic Operating Profit (Loss) and Environmental R&D cost (million yen) 40,000 600,000

35,000 500,000

Environmental 30,000 400,000 300,000 25,000 Operating profit 200,000 20,000 100,000 15,000

R&D 10,000 -100,000 5,000

-200,000

0 -300,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Environmental R&D Operating profit (loss)

Source: Panasonic fact books in IR Library (Panasonic 2013s)

As shown in Chart 2 above, despite the sharp drop in Panasonic’s profit during the global financial crisis in 2008 and volatile market conditions thereafter resulting in a high volatility in its profit, Panasonic increased its investment in e-R&D. Figure 2 clearly shows

Panasonic has continually invested in environmentally related R&D activities despite the ups and downs of its operational results. As the figure depicts, Panasonic invested substantially in e-R&D in 2001 despite its record net loss in this year. Similarly, in 2011, the equivalent of

144% of operating profit was invested in e-R&D (Panasonic, 2012c & 2012d).

In fact, new tax incentives were introduced for global corporations conducting new

R&D operations in Japan. The Japanese government allows “qualified companies to reduce their national corporate income tax base by 20% under the Business Location Law” (Ernst &

Young 2013). The tax treatment of R&D cost has expanded to increase the maximum amount of corporate tax deduction for the total amount of R&D investment. It shifted from 20% to

30% of corporate tax within a period of 2 years. For experiments and research expenditures, the deduction rate of 12 % is applied for additional joint research (METI 2013). Tax relief may offer tax assets for Panasonic, thus this contingency variable has an impact on

Panasonic’s operations. This is not limited to e-R&D.

Over the years, Panasonic has taken a number of measures to increase the efficient use of resources and to decrease its environmental costs. Japan’s signing of the Kyoto Protocol also has a profound impact on the reduction of carbon emissions. Panasonic (2011e) set up their environmental affairs division in 1997 and their recycling business promotion office in

1998 and launched their policy of green procurement in 1999 in order to accomplish the objectives of the Kyoto Protocol.

As seen in chart 3 below, Panasonic has been challenged to reduce carbon emissions across the full life-cycle of its products, from the selection of raw materials to the end of a

83 product’s life. Owing to the 3R policy, the end signifies that products are decomposed to raw materials for recycling and some are circulated back into production.

The founder emphasised a Japanese concept, Syu-chi (衆知), in his management policy which means to gather the wisdom of many people (Weblio 2013). Konosuke showed appreciation for the merit of an individual employee’s opinion, viewing the company as being comprised of employee entrepreneurs (Panasonic 2012b, p.6). This illustrates a feature of the

Panasonic corporate culture that managers offer opportunities to employees to be involved in parts of decision making processes. This encourages employees to be engaged in their work and excel in their given tasks (Onishi et al. 2008).

This policy instilled a culture of innovation in Panasonic. Progressive eco-efficiency inventions such as the non-felon gas refrigeration and lead-free soldering illustrate the power of Syu-chi. The employees’ motivation to work, thus, comes from this encouragement and their pride in Monozukuri (物作り)25.

Panasonic’s practice reflects Syu-chi in Monozukuri. Specifically employees are mindful of the environmental impact of all stages of operations. In order to achieve the target reduction amounts of carbon emissions flowing from the Kyoto Protocol, Panasonic continuously invests in environmental R&D to develop hazardless materials and to design energy efficient products. The reduction of emissions over time visually demonstrates to all stakeholders the eco-efficiency consciousness of Panasonic and its achievement of sustainable performance. According to Groen et al. (2012, p.17) favourable improvements, consequentially impact positively on employees’ satisfaction (Panasonic 2012d). Panasonic’s decline of carbon emissions is shown in Chart 3 below.

25 Monozukuri means craftsmanship, however this Japanese word implies the spirit of Japanese craftsmanship to convey in the manufacturing process utmost quality, optimum functionality and care for the product’s users.

Chart 3: Reduction of CO2 emitted amount from production activities of Panasonic

Panasonic - CO2 Emitted amount and Sales 9,500 4.90

4.70 9,000 ton ) (million amount emitted

Sales (billion yen) (billion Sales 4.50 8,500 4.30 8,000 4.10 7,500

3.90

7,000 3.70

6,500 3.50 2005 2006 2007 2008 2009 2010 2011 Sales (billion yen) Emitted Amount (million ton)

Source: Panasonic Sustainability Report (Panasonic 2011d, p.45 & 2012d, P.41)

Panasonic has continuously responded to regulations and societal pressures by changing both actions and reporting practices. In the following Figure 4, the scope of

“Matsushita Environmental Accounting System” (Panasonic 2003b, p.55), MEIC illustrates the incorporation of in-house MAPs to manage environmental issues. It indicates that all elements need to be taken into consideration in developing MAPs, such as raw materials, energy and customers’ economic welfare and environmental conservation benefits. Moreover,

Panasonic’s principle of EA was stated as;

[I]dentifying costs and benefits in monetary terms is the first step of business management. In this sense, environmental accounting is a tool that serves as the base for environmental sustainability management. In addition to the environmental conservation costs and the in-house economic benefits, Matsushita has calculated in monetary terms the environmental conservation benefits, and the electricity savings achieved as a result of using energy-saving products” (Panasonic 2003b, p.55).

Panasonic restructured its business units implementing a strategy of environmental conservation in order to accomplish the objective of eco-efficiency in their products and services.

Figure 4: The scope of ‘Matsushita’s Environmental Accounting System’

Source: Panasonic Sustainability Report (Panasonic 2003b, p.55)

5.2.5 Environmental issues and Panasonic’s response and reporting

Panasonic over time has responded to regulatory changes and societal pressures by changing both actions and reporting practices. Panasonic has issued environmental data reports since 1997. Between 2001 and 2004, Panasonic integrated their environmental report with their sustainability report; however, from 2005 environmental data books and sustainability reports were published separately. Since the enactment of the Kyoto Protocol, the volume of these reports has increased significantly. Despite the high volume of environmental information, the frequency in appearance of the term ‘environmental accounting’ has been diminishing in these reports over time. The following table describes the timeline of regulatory enforcements and Panasonic’s reporting responses (Table 6).

Table 6: The timeline of environmental issues and Panasonic responses

Annual Regulatory enforcements and Change in Environmental and Total Words Panasonic Action Report other events on society Sustainability Report name volume EA/page Volume Energy Conservation Law Set Environment management Pre- enacted (METI) in 1979 regulations in 1975 Set Environmental affairs Global Reporting Initiative Division and semi-annual 1997 (GRI) was founded, Environmental Report (45) N/A 0 environmental conference Japan adopted Kyoto Protocol established in 1997 Home Appliance Recycling Law First Environment Report is 1998 Environmental Report (45) N/A 0 enacted published Pollutant Release and Adoption of Environmental 1999 Environmental Report (95) N/A 9 Transfer Register Law enacted Accounting Basic Law for Establishing a Lead-free solder project Sound Material-Cycle Society commenced, the first 2000 Environmental Report (56) N/A 27 (MOE), Act on the Promotion environmental exhibition for of Effective Utilization of general public in Osaka Law for special measures against PCBs enacted (JAP), Matsushita Eco technology Environmental Sustainability 2001 62 126 15 Home Appliance Recycling Law Centre launched Report (64) enacted Set a position for Law of countermeasures environmental specialist , full Environmental Sustainability 2002 against soil pollution enacted 68 146 26 adoption of bio-diesel fuel for Report (78) (JAP) supply chain Set RoHS and enacted WEEE Infusing lead-free techniques, 2003 Sustainability Report (98) 80 178 18 (EU) Zero-emission factory in Japan Prohibited the use and PCB management office 2004 produce products contain Report for Sustainability (76) 45 121 7 established asbestos (JAP) Report for Environmental 2005 Kyoto Protocol is enacted Enactment of Kyoto Protocol Sustainability 94 214 11 + 0 Data Book (64) (56) Enactment of RoHS (EU), Relief Report for Set the position for Environmental 2006 Law for Asbestos Victims Sustainability 98 212 13 + 0 environmental specialist Data Book (70) enacted (JAP) (44) REACH enacted in EU , Chinese U.N. recognition of "Energy Report for Environmental 2007 RoHS enacted, Restriction of Conservation of its Malaysian Sustainability 122 255 7 + 1 Data Book (69) product entering EU market factory as CDM (64) Set the committee of Co2 G20: the conference for Global reduction promoting, Environmental Sustainability 2008 114 221 9 + 0 warming is held establish the Environmental Data Book (75) Report (32) Strategy Research Centre eco-ideas for housing to Eco-Idea Sustainability 2009 Enacted the WEEE in China demonstrate a zero Co2 life- 120 325 7 + 0 Report (69) Report (136) style living Set International Integrated Commenced service for the Eco-Idea Sustainability 2010 Reporting Committee (IIRC), entire factory energy-saving 72 186 4 + 1 Report ( 44) Report (70) Cancun agreement (COP16) support North Eastern Earthquake, the Set Corporate Electricity saving Eco-Idea Sustainability 2011 57 159 3 + 0 price of rare earth soared division across the entity Report (50) Report (52) Impact of the Earthquake MOE "the Recycle Resource Eco-Idea Sustainability 2012 61 193 3 + 0 promote Energy saving Project has commenced Report (48) Report (84)

Source: Panasonic IR Library (Panasonic 2013s)

5.3 The Panasonic in-house MAPs: eco-efficiency conscious production

Panasonic has utilised various MAPs and other management systems to respond to the changes in the business environment. As mentioned, CCM and FCF emphasise the financial economic aspects of Panasonic’s eco-efficiency consciousness. This section describes

Panasonic’s uses of MAPs to support ‘green’ manufacturing (mapping in Figure 5 below).

Specifically, section 5.3 is arranged as follows: sub section 5.3.1 explicates raw material management techniques in which Itakona Costing and MFCA are discussed; this is followed by section 5.3.2, green production systems that are supported by Metagegi devices.

There are three devices: the Simulation Technique device, the Panasonic factory energy management systems (P-FEMS) and the ‘Save Energy link’ (SE-link). Section 5.3.3 introduces resource process of the Akari-Anshin service in conjunction with the use of LCC and LCA. Finally, section 5.3.4 discusses supply chain management in conjunction with process management accounting, in which the strategic partnership of buyer and supplier initiates clean and green procurement for the Panasonic group entities.

Figure 5: Panasonic’s management accounting practices for sustainability (evolved Figure 4)

5.3.1 Raw material management -the starting point for value creation

Panasonic’s strategic objective is a customer-oriented management focus that has a strong commitment to develop a wide range of eco-efficient products (Yamakawa 2012). It is not a surprise that Panasonic focused on selecting raw materials which do not contain harmful substances that cause adverse effects on the environment (Panasonic 2009b). Raw materials management is seen as the base element of Panasonic’s resource management in which the process of cost appropriation is executed (Takeuchi & Takeda 2008). With respect to product cost analysis, specification of raw materials is examined thoroughly by products’ outputs and by the waste of raw materials in monetary and physical units.

The above cost appropriation method is called Itakona, which is a target costing system used by Panasonic. The literal meaning of the Japanese term Itakona is, ‘Plates and

Powders’ (Panasonic 2011e). Itakona costing is an essential resource optimization technique using the cost analysis of raw materials at powder and plate level. Itakona is not a mere cost management tool, but rather involves the collective activities of inter-departmental employees who integrate knowledge to create a rational outcome of products within the appropriate cost range. Inevitably, material engineering information takes a critical role in Itakona26 (Takeuchi

& Takeda 2008).

Crucial information is shared in what is called the Itakona Board, where the concept of MFCA27 is utilised. MFCA visualises waste and emissions in operations, thus it provides a guideline for material management. Since 2000, the Japanese ministry METI has promoted the implementation of MFCA, because it allows companies to capture energy flow and waste of material. The captured waste is converted into physical and monetary units, thus accurate

26 In the product planning stage, the selection of raw materials is important. The cross-functional team, that comprised participants from the different divisions, is able to grasp material information visually (White 2008). This display at the Itakona board shows a wide range of raw material details that are exhibited at the material selection meeting (White 2008). Thus, the team can review and examine raw materials ascending to plates and powders at the micron level prior to manufacturing (Panasonic 2011e). 27 MFCA is defined and discussed at Chapter 2.

89 costs of waste and emissions are able to be identified (METI 2008, p.4). Itakona adopts this feature and thereby reduces costs and adverse environmental impacts from the raw material being used for products.

The framework of Itakona and MFCA facilitates the cross-functional team’s estimation of monetary costs and physical levels of carbon emissions. As Panasonic uses reductions of carbon emissions as a measure of productivity, this management accounting concept encourages decreased carbon emissions from operations (Takeuchi & Takeda, 2008).

Itakona extended the MFCA conceptually, with the consequence of encouraging all employees to reduce carbon emissions. This is called ‘CO2 Itakona activity’ and it covers a wide range of company activities other than manufacturing (Panasonic 2012g).

In addition, the meeting to discuss material management issues is called the Itakona meeting. Participants in this meeting perceive themselves as making contributions in

Monozukuri (the Japanese concept of craftsmanship, explained earlier). It offers an opportunity for employees to integrate their knowledge and to have their contributions recognised explicitly. This management concept of Syu-chi links to Panasonic’s management philosophy and replicates the founder’s spirit (Panasonic 2009d). The Itakona process thus embeds the corporate culture.

Panasonic’s sensitive and proactive attitude towards environmental issues is derived from the founder. He set up the Environmental Investigative Committee for pollution in 1970 and the Environment Management Control Unit in 1972, who were responsible for implementing environmental management regulations in 1975 (Panasonic 2011b). These events demonstrate how the founder responded to the external changes and the level of his concern with environmental issues. His attitude has encouraged Panasonic’s employees to accept the theme of eco-efficiency consciousness in manufacturing. Consequently, the recent

90 green strategy of ‘eco-ideas for life’ affirms Panasonic’s mission as a member of a sustainable community.

Since raw materials’ analysis is a vital phase of products’ development processes, companies inevitably have to pay special attention to it as it not only helps reduce materials costs but also contributes to increasing the degree of eco-efficiency. In modern society, the products tend to be designed smaller and lighter with attention to technological improvements.

There will be less raw materials and fewer components used in eco-efficient manufacturing

(Panasonic 2012d). Consequently the company would be able to emit less. Hence, this aligns with the environmental LCC assertions that “externalities are expected to be internalised in the decision-relevant future” (Hunkeler et al. 2008, p. xxvii). The following section discusses another dimension of the MFCA concept which is used in managing cleaner production.

5.3.2 Green production management -the challenge ‘a zero emission

factory’

Panasonic also attempts to reduce its environmental impacts in its production process with its green production management philosophy. This philosophy aims for zero waste and emissions in Panasonic’s factories (Panasonic 2012e). In 2012 the Panasonic group had 254 factories worldwide, and issues site reports on them evaluating their performance with respect to management of waste, emissions, and energy consumption (Panasonic 2012g). Details of the indicators of Panasonic’s Green Factory Assessment System are exhibited in Figure 6 below. As per Figure 6, environmental activities of the company are assessed under 5 areas and 5 levels using 15 categories. The five main objectives that the Green Factory Assessment

System aims to achieve are: (1) emission reductions; (2) a strengthening of environmental performance; (3) a reduction of activities; (4) a risk reduction; and (5) human resource

91 development. In 2012 the company’s factory activities are measured to be 3.8 (Level 3) and the company is aiming to improve it toward Level 4 (Panasonic 2012b, p.10).

Figure 6: Panasonic Green Factory assessment system indictors

Source: eco-ideas Report 2012 (Panasonic 2012b, p.10)

The cross-functional management team plays an important role in the company’s green factory assessment system. The team selects the raw materials and the suppliers taking the view of a long term perspective (Speckman 1988). Materials engineering provides the technical information for the team to learn about materials and deliberate ways to eliminate toxic substances from raw materials and production processes, such as lead-free soldering

(Panasonic 2008b). There is a drive for efforts to accomplish Panasonic’s challenge of zero emission factories (Takeuchi & Takeda 2008).

Several factories of Panasonic in Japan have already been certified as green factories at per the criteria described above (Aoki et al. 2011). In realising this achievement, Panasonic developed innovative technologies to identify energy flows and measure waste and emissions amounts in physical units, through the implementation of three new devices (Panasonic

2011g). One of the group’s entities, Panasonic Eco-Systems Corporation which specialises in environmental business solutions, developed these devices (Panasonic 2012b).

The first device is called the Panasonic Factory Energy Management System (P-

FEMS) which measures, monitors and analyses energy usage in the plant at every minute.

The second innovation is called The Simulation System. This utilises captured data to simulate optimal energy flows, which can be implemented for efficiency without stopping a production line.

The Save Energy Link (SE-Link) is the third device which is used to control all equipment for it to run at its optimal operational level (Panasonic 2011g). MAPs using these systems convert the captured waste and pollution measurements into economic values. The values of waste and emissions are then presented in monetary unit in real time, enabling this cost information of waste and emissions to be available to decision makers.

Panasonic’s environmental performance is enhanced through additional development of recycling and waste management techniques. Accordingly, contaminated water from factories’ operations is filtered and purified, and waste is recycled into reusable substances.

Through the development of these technologies, its techniques supporting eco-efficiency consciousness help other organisations to operate eco-efficiently (Panasonic 2012g).

The utility of MFCA and Itakona also enhance they eco-efficiency of factories’ operations (Takeuchi & Takeda 2008, p.58). An additional technology and its associated

MAPs used by Panasonic to achieve energy savings is called Metagegi. It stands for ‘meter and gauge’ in Japanese. This technology and MAP technique tracks energy use and emissions

flows. It is used by Panasonic not only in its factories, but it is also applied in Panasonic’s

administrative offices, in order to measure and reduce emissions from any of the

organisation’s activities. The Metagegi technique discriminates waste and emissions

accurately. Used in conjunction with materials engineering, it provides for optimal use of

chemicals and materials. As a result of the use of Metagegi, Panasonic has reduced emissions

and energy usage in the operation of their kilns and ventilators (Panasonic, 2012g). The

Metagegi technique is not perceived as a traditional MAP; however it is a critical supporting

tool to capture physical data and convert it into monetary information enabling Itakona

practice so as to achieve higher levels of EMA objectives.

Through the implementation of these devices and techniques, Panasonic’s MAPs

generate monetary information for the use of decision makers in assessing performance and

improving productivity. Any physical reduction of waste and emissions has both an economic

and environmental advantage (Panasonic 2012g). Information on the potential costs and

benefits of production is forecast through these processes and used by the cross-functional

management team (Langfield-Smith & Thorne 2012).

5.3.3 Resource circulation: Panasonic and total product responsibility

In 1991, the Law for Promotion of Effective Utilization of Resources was enacted in

Japan (MOE 2012). This contingent external factor led to Panasonic adopting a MAP that

utilised a Product Assessment Sheet (PAS) to evaluate its products’ details in order to capture

the requisite information for improvement of its resources use (Panasonic 1997). The PAS

contains 50 assessment items of 35 categories regarding the environmental impact of the life

cycle of Panasonic’s products (Panasonic 1997). A combination of full LCC; environmental

effects oriented LCC (e-LCC), and complementary LCA are modified as a tool for value

creation as a part of Panasonic’s eco-efficiency strategy.

Consistently assessing all costs associated with the product’s entire life cycle, the PAS reveals the costs of waste (Hunkeler et al. 2008). The inter-relationship between waste management, recycling and resource management is inseparable for a manufacturer in terms of green production (Benn et al. 2011). Resource management is the key measurement and the focus area for Panasonic, limiting resources needed for production by reusing and recycling them. This issue is presumed as a fundamental responsibility of manufacturers.

Regulation requires it must be accounted for in a rigorous manner.

Through the advance of value engineering, use of sustainable materials and chemical engineering Panasonic has improved its recycle ratio to a high of 98.9 % (Panasonic, 2012b).

According to Morioka’s (2011 p.50) full cost accounting for waste management supports the minimisation of disposal.

The following section exhibits the overview of waste management and resource circulation in Panasonic’s operations (see Figure 7). It describes Panasonic’s full life cycle of products. It includes not only the recycling of waste; it also uses reclaimed waste, turning it into raw materials and back into the products (Panasonic 2012b). In 2012 14.7 % of raw materials inputs are recycled re-useable materials (Panasonic 2012b). The MAPs of

Panasonic assign relevant costs and analyse the cost and benefits for the costs of goods recycled. It represents the economic value of circulating and recycling raw materials and the associated energy usages recorded in the accounts.

Figure 7: Overview of environmental impact from business operation

Source: eco-ideas Report 2010 (Panasonic 2010b, p.33)

Recycling is a responsibility of the manufacturers. This cost is associated with LCC of the product (WEEE 2012). In order to extract reusable components from consumable products upon their disposal, one of the systems that Panasonic has initiated is to take back the consumed products for recycling; and to reproduce raw materials from them (Panasonic

2012b). One example of Panasonic of this new type of business system is their recycling program for consumers’ disposals of fluorescent lights. For consumers, this recycling program adds economic value to Panasonic’s products and is attractive to consumers who were experiencing problems in disposing of fluorescent lights at the end of their life. This

96 system is called the ‘Akari-Anshin service28’ which commenced in 2002 (Panasonic 2003b, p.15).

The Akari-Anshin service is a take-back collection program under a lease contract, which offers consumers the opportunity to return used products to their purchase point

(Panasonic 2012h). The owners of Panasonic brand fluorescent lights proceed to dispose of their used lights at the nominated recycling facilities (Panasonic 2012h). That is, Panasonic’s retail outlets (the service providers of Akari-Anshin) are legally liable to collect used florescent lights under strict contract provisions (Panasonic 2012h). According to the Akari-

Anshin service, MAPs play a critical role between the service provider and Panasonic, assigning costs to stages of the process. MAPs record both the cost of goods recycled; their costs of use in other products, and the costs of materials recycled (Panasonic 2012h).

Figure 8: Akari-Anshin Service – take back service program

Source: ‘What he selling? Light and Trust Service’ (Panasonic 2003b, p.15)

28 The details of Akari-Anshin service is illustrated at Appendix 6. This service translates to ‘the light and trust service’ (Panasonic 2003b, p.15)

The mechanism of Panasonic’s recycling oriented manufacturing is exhibited in

Figure 8, where the contributions of value engineering and its MAPs take form. It illustrates the innovation of the eco-business system; the Akari-Anshin service. Its success demonstrates

Panasonic’s approach to e-LCC embraces all costs in the value chain (Panasonic, 2012h).

Ultimately, some limited resources are able to be recycled endlessly through green production.

This lifts the brand value of Panasonic. Akari-Anshin is a practical example of the founder’s management philosophy in action. It emphases value to the customer, and is a result of

Panasonic’s employees’ unique perspectives and innovation in manufacturing concepts.

This new recycling approach of the Akari-Anshin Service attracted the attention of the

United Nations Environmental Programme (2011, p.29). However, diffusion of the system is not straightforward as it embeds Panasonic’s unique cultural characteristics. In order to diffuse the system, it requires a commitment to eco-efficiency consciousness throughout the supply chain (Takeda & Takeuchi 2008). This system pervades nationally in Japan, but not in the west.

5.3.4 Green supply chain management

Historically Japanese manufacturers establish longstanding relationships with their suppliers. Buyers tend to employ a substantial amount of time selecting a supplier (Asanuma,

1989). However, once the decision is made, a supplier gains business stability and receives mutual benefits (Spekman 1988). Thus, it is important to understand this strategic partnership in terms of its implications for product quality, productivity, lead time and cost reductions

(Ansari & Modarress 1990; Frazier et al. 1988; Lamming 1993, as cited in Langfield-Smith

& Greenwood 1998, p.331). Furthermore, this aspect differentiates Japanese companies’ supply chains from others (Dyer & Chu 2000).

Since manufacturing is a major part of Panasonic’s businesses, Panasonic is dealing with nearly 13,500 suppliers globally (Panasonic 2012d). They help Panasonic to develop products that meet customers’ expectations (Panasonic 2012d, p.56). Strategic partnership and collaboration are emphasised in company documents. Panasonic has established a longstanding mutual trust through cooperative activities (Panasonic 2012d). This longstanding relationship with its suppliers has enabled Panasonic to reduce transaction costs, production costs and switching costs (Langfield-Smith & Greenwood 1998).

Therefore, the company also has to place reliance on its suppliers to improve their own environmental performance. It is very important that longstanding suppliers and collaborative partners understand Panasonic’s business vision and management philosophy of eco-efficiency consciousness for the effective implementation of company strategies on raw material management, green production and resource circulation described in the previous sections. Panasonic attempts to educate its suppliers. The information its company annual reports indicate that in accordance with its CSR policy with respect to its suppliers, Panasonic provides them with technical support and regular training on compliance (Panasonic 2013c).

Panasonic promotes ‘green’ supply chain management where the suppliers are compliant with Panasonic’s CSR procurement policy. The business relationships are constantly reviewed on the basis of quality, cost, delivery and service criteria with regard to performance assessment, technical exertion and CSR activities (Panasonic 2012d).

Panasonic’s CSR procurement policy Green Procurement Standards were first issued in 1999, with the sixth edition being issued in 2012. Since 2005 Panasonic has implemented

‘Environmental Quality Assurance System Audits’ to measure compliance with the regulations. Consequentially, strategic partnerships are essential to facilitate this quality assurance process, which relies to some extent on establishing mutual trust in business.

The other key Panasonic CSR procurement requirement is Clean Procurement, stating its expectations in the appointment of suppliers (Panasonic 2013o). Obtaining the certificate of ISO 9001 and ISO 14001 is a prerequisite condition for all suppliers (Panasonic 2013o).

Collaborative supplier relationships enhance strategic merit for Panasonic (Langfield-Smith

& Greenwood 1998, p.334). This is less common in the west.

Panasonic eco-systems group (Panasonic-eco) participated in the project that developed the use of environmental management accounting systems of MFCA which were promoted by the Japanese ministry METI (2002). This project applies the MFCA concept to costing supply chain management. The result of this pilot project was that it successfully reduced negative environmental impacts from its supply chain (METI 2011b). This project converts emissions into economic values expressed in monetary units, such as flows of waste and associate costs (Onishi et al. 2008). In Panasonic’s case in implementing the MFCA project in its supply chain (METI 2011b), the buyer of Panasonic-eco and the Supplier of

Nippon Sangyo Shizai agreed to adjust the purchase cost of the scrap materials through

MFCA analysis (METI 2011b). The strategic partnership enabled them to invest in new moulds which eliminate the captured waste, so that the raw material input amount of the supplier became equal to the finished product amount for the buyer (METI 2011b).

Consequentially, the numbers of loads, CO2 emission and resources usages are reduced

(METI 2011b p.113). Hence, the validity of the MFCA concept for green supply chain management was proven.

After experiencing favourable outcomes from this pilot study, Panasonic implemented eco-VC (ecological value creation) activities which aim to save energy, minimise resource usages, recycle materials and reduce CO2 emissions through collaborations with its suppliers (Panasonic 2012g). Rationalising products’ life cycles is encouraged and

100 streamlining associate costs is archived, establishing resource recirculation. That is the ultimate goal of Panasonic resource management.

5.4 Summary

This chapter explored Panasonic’s approaches to eco-efficiency consciousness and the impacts on its business operations. This chapter highlights how MAPs change and are changed by eco-efficiency consciousness and changing external contingencies affecting

Panasonic. The analysis of the chapter shows that Panasonic has responded to changes in its business environment by introducing innovative MAPs as well as other management methods to produce environmentally friendly products.

Since Panasonic operates in the global market, the founder’s business policy and spirit informs the employee culture. It is the foundation of the Panasonic’s strong corporate culture, which is the foundation of its strategic management. It informs employee’s morale, empowerment, motivations and eco-efficiency consciousness. Consequently, it impacts on the design and implementation of MAPs. Examples of these discussed were Itakona, Metagegi, e-

LCC, MFCA and Syu-chi.

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Chapter 6: Conclusion

6.1 Summary of the study

The exploration of Panasonic’s MAPs in Chapter 5 illustrates how various MAPs are used for improving the environmental performance of Panasonic. This chapter concludes by answering the research questions: what are the major changes in the Japanese business environment in response to increased attention on eco-efficiency?; and, how does Panasonic use MAPs to respond to the increased attention on eco-efficiency? First, section 6.2 summarises the significant findings of the study, followed by an account of the research contributions in section 6.3. Finally, section 6.4 discloses the research constraints and makes recommendations for further investigation.

6.2 Discussion of the findings

A contingency approach allows this research to explore the impacts of the variable eco-efficiency consciousness on the environment in which Panasonic operates. Specifically, the impacts of an external demand for eco-efficient products on Panasonic’s strategic objectives and operational MAPs are explored. It is concluded that Panasonic endeavours, as an entity with a social responsibility to the public, to meet societal obligations and expectations for eco-efficient operations and products.

Public and political pressure on Panasonic, to provide eco-efficient products and services is seen by Panasonic’s management as opening up new business opportunities.

Panasonic sees MAPs as integral to taking up this opportunity, regarding accounting as the first step of business management. Panasonic uses its MAPs to enable sustainable management. It emphasises the concept of materials flows and its establishment as the basis

102 of Japanese EMA. The Japanese culture and Japan’s natural disposition to a dearth of sufficient natural resources inform the focus on resources and materials management that is characteristic of JMA. This is most relevant in pursuing solutions and strategies for eco- efficiency in production and in achieving a sustainable society.

This study examines Panasonic’s use of MAPs in the context of their strong corporate culture and the contingent factor of demand for eco-efficient products from stakeholders with eco-efficiency consciousness. Panasonic uses its MAPs to make strategic changes towards meeting the demand for eco-efficiency in all aspects from supply chain, to production to the life cycle of its products.

Panasonic’s strategic changes are observed both prior to and after the enactment of the

Kyoto Protocol. Significant changes are observed in Panasonic’s operations, specifically between 1997 when Japan endorsed the Kyoto Protocol until 2005, when the Protocol was enacted. The implicated environmental issues were an imperative for an eco-efficiency oriented management to incorporate environmental considerations into all its designs.

An internal contingency variable of eco-efficiency consciousness has thus grown largely in order to meet social and political expectations. This internal driver inspires innovation to underpin Panasonic’s corporate culture and research and development of its products and services. MAPs must generate the relevant environmental information efficiently, in order to shift strategy and support newly restructured business units in their information needs.

Panasonic employed its bespoke Itakona costing method, based on attentive resource management using MFCA. Itakona provides information on the cost effectiveness of materials usage while at the same time supporting the line management to reduce the waste and adverse ecological impacts. It bridges the artificial divide between materials engineers’

103 innovations for eco-efficient production with accountants’ motivation for cost minimisation.

Specifically, the production costs are decreased in light of waste reduction.

Another significant innovation is the product life cycle recycling ‘take-back’ system of the Akari-Anshin service29. This resource circulation system is supported by accounting for waste management. Hence, the depth of eco-efficiency consciousness exerts an influence on accounting-in-action in the context of accounting for the environment. Panasonic’s eco- innovation appeals to the business community and society.

Naturally, private entities aim to increase their organizational value in both physical and monetary terms. This aspect is captured by the research model; ‘eco-efficiency consciousness reflecting organisational changes’. The contribution of this model is that it incorporates eco-efficiency strategy as a contingent factor adding economic value. Efficacy of the strategy can be measured in terms of financial results and social legitimacy.

Although inspiration for eco-efficiency consciousness may come from the fulfilment of an economic goal, it is also motivated by other contingency factors such as culture. The research has identified the depth of eco-efficiency consciousness of management and employees are linked to the underlying contingency factor of organisational culture.

Panasonic’s corporate culture is derived from underlying Japanese cultural preferences in which the basis of the founder’s management philosophy was formed.

Under the Panasonic brand, there are over 500 group entities with around 300 thousand employees globally. These entities and employees are bound together by the founder’s management philosophy which resonates contemporarily with the environmental imperative. This underpinning of a strong corporate culture facilitates the penetration of an eco-efficiency consciousness in Panasonic’s global workforce, and in doing so lowers the national cultural barriers amongst the group entities.

29 A take back service of consumed fluorescent light

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Due to the magnitude of the company operations, it is surmised that Panasonic has the capacity to inspire and stimulate an eco-efficiency consciousness in both the business community and in society more generally.

Panasonic’s inclination towards innovation may be explained by its disposition to

Japanese culture, which manifests itself in different approaches to MAPs than those of the west. While control of materials and their associated costs is emphasised in Japanese MAPs, western approaches prioritise financial aspects. Interestingly, German MAPs more closely resemble Japanese MAPs (Yanagita 2006).

This study illuminates the contextual issues in transferring JMA to different countries.

Obstacles occur from the beginning design stage, due to the different expression of corporate context and objectives. For example the Japanese KAISHA is unique where culture and quality in relationships rate, rather than economic goals alone. Note, as examples the acquisition of Sanyo by Panasonic, and the ability to influence the cost structures of supply chains in costing materials recovery. Such differences are presumed as cultural barriers to non-Japanese organisations. The example of Panasonic demonstrates the link between its culture of eco-efficiency consciousness with its founder’s underlying management philosophy, manifest in its Itakona cost method, and its Akari-Anshin service.

6.3 Contributions of the study

This study uses a contingency lens to explicate the captured phenomenon in the research. It scrutinises the contingency variable of eco-efficiency demand to determine the impact on an organisation’s internal operations. Since there is no standardised accounting system for environmental management, a contingency approach is embraced. The contingency variable eco-efficiency consciousness is examined in the context of desired organisational strategic outcomes in terms of social, environmental and economic perceptions.

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The contingent factors of eco-efficiency demand and culture (national and organisational) and the impact of these in shaping MAPs is the focal point of the research.

Specifically with respect to culture, this is a determinant of workers’ empowerment and pride.

It is found that the cultural gap between Japan and the west is a factor in transferring JMA.

For Panasonic, a critical contingency variable is its corporate culture. The inter-relationships among the MAP’s utility and the corporate culture enhance Panasonic’s eco-efficiency consciousness. This culture supported consequential changes in the business strategy needed and then introduction of innovative ‘green’ products.

This concept is complemented for the contingency approach. Culture is a contingency variable. It is a management control tool and an ethical basis of corporate culture. This research extends the utility of ‘conscious cultural evolution’ within accounting context. It can be used as a powerful tool when an organisation’s strategy intensely aims to reduce adverse environmental effects. Hence contingency theory is capable to explain the Panasonic MAPs and its inter-relationships with the green strategy.

A contingency approach brings to light the influences of an eco-efficiency consciousness on an organisation’s strategies, MAPs and performances. It sets the expectations for MAPs beyond “rational economic decision-making” (Drury 1997, p.854).

The depth of eco-efficiency consciousness was shown in Panasonic’s activities. The passive nature of accounting is observed generally in Panasonic operations.

To sum up, the first significant contribution is the identification of the contingency driver of eco-efficiency demand. The emergence of this factor is the result of a ‘slow reflexive of eco-efficiency-consciousness’. Incremental awareness of eco-efficiency in society forces a response from the business community, and accordingly MAPs are required to serve them.

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The second contribution of this study is the modification of the research model to

‘eco-efficiency consciousness reflecting organisational changes’. It explicates the ability of contingency factors such as the environment influence to change in an organisation’s operations.

Thirdly, the double layers of national and organisational culture in the context of a corporation MAPs reveal internal contingency drivers that influence management. The internal contingency variable of ‘eco-efficiency consciousness’ varies organisations’ strategic objectives and performances.

6.4 Strengths, constraints and recommendations

This research examined a single company in the particular industry, thus it has limitations. Although the model has highlighted the introduction of contingency variables eco-efficiency consciousness and culture, and the consequential variables’ influence on a company’s performance, this research has examined only the large multi-national organisation of Panasonic. These premises have not been evaluated in different sizes of organisations, diverse industries and countries. Further studies are needed in order to confirm the efficacy of this approach.

Future studies on the current topic are therefore required in order to elucidate organisations’ responses to environmental changes. It is also suggested to conduct survey for measuring the degree of organisations’ eco-efficiency consciousness, as this was beyond the scope of the research questions of this thesis.

Another peculiarity of this study is a bilingual research method. This method adds uniqueness to the study; however the researcher’s background experiences inevitably manifest a biased perception and interpretation. Furthermore, the conceptual and contextual gap between the Japanese and English languages should not be underestimated. This

107 impediment may affect the whole thesis. It constrains the content analysis of data.

Specifically, it imposes the process of literature review in two heterogeneous languages.

Accounting is, thus, a semantic language of social communication in various languages. The differences between Genka-kikaku and Target Costing illustrate the premise of this issue.

Additionally, some minor contextual discrepancies were observed between Japanese and English data of Panasonic materials. Some of them are certified by authorities. These conceptual differences are merely caused by epistemological issues or simply linguistic and cultural variances; however a few simple mistakes in data presentation and translations were unexplainable (Panasonic 2013p, p.67). It can be a humble human error; however it illustrates a constraint.

The findings of this research elucidate the impacts of eco-efficiency on significantly changing business activities. This factor not only affects Japanese entities; any entity in the world should consider the sustainability of the natural and business environments for future generations. Panasonic’s challenge illustrates what problems and actions organisations face in their endeavour for a sustainable society.

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Appendix 1: Brief History of Panasonic

109

110

Source: Panasonic - The 106th Business term; Annual Securities Report for the fiscal year ended 31 March 2013 (Panasonic 2013p, pp.3-5)

111

Appendix 2: Panasonic - IR Summary

Source: ‘IR Summary’ Panasonic global site (Panasonic 2013t)

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Appendix 3: Not Favourable Impact – A Merger with SANYO (1) Source: Panasonic Annual Report ‘Business at a glance’ (2010a, p.22-23)

113

Not Favourable Impact – A Merger with SANYO (2)

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Appendix 4: Calculation Model for Figure 7 (chapter 5)

Calculation Model is used for Figure 7 “Overview of environmental impact from business operation” (Panasonic 2010b, p.34)

Covered Are – Global

[Scope]

Production: 274 manufacturing global sites

Logistics: all participated entities in procurement, production, marketing and waste management

Produces use: Lifetime power consumption of covered products and Cos emissions associated therewith. Lifetime power consumption estimated based on the number of products sold, annual power consumption, and usage time (length of years in which Panasonic defines replacement parts and available). Following CO2/kWh) for each region used.

Recycling: Recycling of products means to use by oneself or to make into a state available for sale or free of charge the components and materials of a separated product.

Input: An amount of purchased electricity from power utilities, a volume of heavy oil and kerosene, and a volume of water, industrial water and groundwater.

Output: CO2 emissions associated with the use of electricity, gas, LPG and petroleum, NOx and SOx emissions from business sites governed by legal regulations and ordinances, and water discharge to sewage and public water districts

*1 - 30 major products with large amounts of energy and resource use *2 – Air-conditioners, TVs, refrigerators’/freezers, washing machines/laundry dryers and PCs *3 – Covering Japan only

The definition of 30 major products (Domestic house hold electronic appliances) - New models in 2010 products of: Plasma and LCD TVs, DVD recorders, SD stereo systems, FAX machines, Refrigerators, Air –conditioners, Microwave ovens, IH cooking heaters, Washing machines and dryers, Natural coolant (CO2) hear pump water heaters, Kettle (thermos), Electric carpets, Vacuum cleaners, Toilet seats (warmth and rinse), Irons, Humidifiers and dehumidifiers, Ventilators (include bathroom), Air-purifiers, Range hoods, fluorescent lamps and silica bulbs and hair dryers

Source: Panasonic eco ideas Report (2010b, p.34)

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Appendix 5: Illustration of Akari-Anshin Service System

Panasonic’s full responsibility of products – ‘take back service system’

The above illustration is adapted from the original image of ‘Akari-Anshin Service’ in the Panasonic eco-solutions official site (only in Japanese site).

Source: Environmental Products and Services; ‘Akari-Anshin Service’, viewed 2 March 2013, http://panasonic.co.jp/es/environment/product/04/index.html

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Appendix 6: Applying the Panasonic Case for the Research Model

Figure 1 – the model ‘eco-efficiency consciousness reflecting organisational changes’ (Chapter4) This model is adapted from the model; McWatters et al. (2001) ‘Framework for Organizational change’

External Environmental Factors: Triple bottom line: mass production, consumption and waste Limited resources, Pollution, GHG, Global warming

Technology Customer Global Competition: Needs: Eco-efficiency Change: Restructure, eco-efficient Demand: Ubiquitous Green R&D society products The Kyoto - innovation Protocol, GRI, RoHS, WEEE

Strategy for Customer Value: ‘eco-ideas for life’ – environmental conscious manufacturer- a leading sustainable Internal Changes: corporation & eco - products Waste management: R&D for Green factory innovation – Zero emission factory Metagegi devices, Strategic partnership with suppliers, Reclaim material

Planning Decisions: Control Decisions: eco-efficiency The founder’s policy Itakona costing, Consciousness: Itakona board Syu-chi, Collaboration Strategy + MAPs: Autonomous concept of MFCA MFCA, TC, e-LCC

Set Profit margin level

Customer Value: Recyclable, eco-friendly design, Energy efficient, Reusable material, ‘Akari-Anshin service

Organizational Value: ‘Panasonic’ Brand visibility, CSR – Green value, Sustainable entity global

recognition

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Environmental and sustainability Annual Total Words Regulatory and other event Panasonic Action Reporting name changes Report Volume EA/page Energy Conservation Law enacted (METI) in 1979 Set Environment management regulations in 1975 Pre- Volume Global Reporting Initiative (GRI) was founded, Set Environmental affairs Division and semi-annual 1997 Environmental Report (45) N/A 0 Japan adopted Kyoto Protocol environmental conference established in 1997 1998 Environmental Report (45) N/A 0 First Environment Report was published 1999 Environmental Report (95) N/A 9 Adoption of Environmental Accounting Basic Law for Establishing a Sound Material-Cycle Society (MOE), Act on the Promotion of Effective Lead-free solder project commenced, the first 2000 Environmental Report (56) N/A Utilization of Resources (METI), environmental exhibition for general public in Osaka 27 GRI issued the sustainability reporting guidelines Environmental Sustainability Report 2001 Law for special measures against PCBs enacted (JAP) Matsushita eco technology Centre launched (64) 62 126 15 Environmental Sustainability Report Law of countermeasures against soil pollution enacted Set a position for environmental specialist, 2002 (78) 68 146 26 (JAP) Full adoption of bio-diesel fuel for supply chain Infusing lead-free techniques, Zero-emission factory in 2003 Sustainability Report (98) 80 Set RoHS and enacted WEEE (EU) 178 18 Japan

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The Panasonic Report for Prohibited the use and produce products contain 2004 PCB management office established Sustainability (76) 45 121 7 asbestos (JAP) Environmental The Panasonic Report 2005 Kyoto Protocol is enacted Enactment of Kyoto Protocol Data Book (64) for Sustainability (56) 94 214 11 + 0 Environmental The Panasonic Report Enactment of RoHS (EU), Relief Law for Asbestos 2006 Set the position for environmental specialist Data Book (70) for Sustainability (64) 98 212 13 + 0 Victims enacted (JAP) The Panasonic Framework for Co2 reduction agreement in U.N. recognition of ‘Energy Conservation of its 2007 Environmental Report for Heiligendamm Summit (G8), Chinese RoHS enacted, Malaysian factory’ as Clean Development Mechanism Data Book (69) Sustainability (44) 122 255 7 + 1 Restriction of product entering EU market Environmental Sustainability Report Set the committee of Co2 reduction promoting, 2008 Hokkaido Toya-ko (Japan) Summit Data Book (75) (32) 114 221 9 + 0 establish the Environmental Strategy research centre Enacted the WEEE in China eco-ideas for housing to demonstrate 2009 Eco-Idea Report Sustainability Report (69) (136) 120 325 7 + 0 The Copenhagen Accord was adopted at the COP15 a zero Co2 life-style living Eco-Idea Report Sustainability Report International Integrated Reporting Committee was set Commenced service for the entire factory 2010 (44) (70) 72 186 4 + 1 The Cancun agreement of COP 16 energy-saving support Eco-Idea Report Sustainability Report The UN Durban Climate Change Conference – COP17, Set Corporate Electricity saving division to bridge across 2011 (50) (52) 57 159 3 + 0 The price of rare earth soared the entity Eco-Idea Report Sustainability Report National campaign of MOE ‘the Recycle Resource 2012 The UN Doha Climate Change Conference – COP18 (48) (84) 61 193 3 + 0 Project’ has commenced

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Note * ‘Panasonic IR Library’ provides the link of archives of the Panasonic’s various official reports. This site I have accessed frequently in order to search and analyse data for this study. The date viewed, thus, is not specified in the reference list.

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パナソニック 1998,「1998 年度・環境報告書」, 松下電器産業株式会社, 大阪。

パナソニック 1999, 「1999 年度・環境報告書」, 松下電器産業株式会社, 大阪。

パナソニック 2000,「2000 年度・環境報告書」, 松下電器産業株式会社, 大阪。

パナソニック 2001a, 「アニュアルレポート 2001」, 松下電器産業株式会社, 大阪。

139

パナソニック 2001b, 「ファクトブック 2001 年 3 月期データ─」,松下電器産業株式会社,大阪。

パナソニック 2001c,「2001 年度・環境報告書」, 松下電器産業株式会社, 大阪。

パナソニック 2002a, 「アニュアルレポート 2002」, 松下電器産業株式会社, 大阪。

パナソニック 2002b,「2002 年度・環境報告書」, 松下電器産業株式会社, 大阪。

パナソニック 2003a, 「アニュアルレポート 2003」, 松下電器産業株式会社, 大阪。

パナソニック 2003b, 「環境経営報告書 2003」, 松下電器産業株式会社, 大阪。

パナソニック 2004a, 「アニュアルレポート 2004」, 松下電器産業株式会社, 大阪。

パナソニック 2004b,「松下電器グループ・環境経営報告書 2004」, 松下電器産業株式会社, 大阪。

パナソニック 2005a, 「アニュアルレポート 2005」, 松下電器産業株式会社, 大阪。

パナソニック 2005b, 「松下グループ・環境環境データーブック 2005」, 松下電器産業株式会社, 大阪。

パナソニック 2005c,「松下グループ・社会環境報告 2005」, 松下電器産業株式会社, 大阪。

パナソニック 2006a, 「アニュアルレポート 2006」, 松下電器産業株式会社, 大阪。

パナソニック 2006b, 「松下グループ・環境環境データーブック 2006」, 松下電器産業株式会社, 大阪。

パナソニック 2006c, 「ファクトブック 2006 年 3 月期データ ─」,松下電器産業株式会社,大阪。

パナソニック 2006d,「松下グループ・社会環境報告 2006」, 松下電器産業株式会社, 大阪。

パナソニック 2007a, 「アニュアルレポート 2007」, 松下電器産業株式会社, 大阪。

パナソニック 2007b, 「松下グループ・環境環境データーブック 2007」, 松下電器産業株式会社、大阪。

パナソニック 2007c, 「ファクトブック 2007 年 3 月期データ ─」,松下電器産業株式会社,大阪。

パナソニック 2007d,「松下グループ・社会環境報告 2007」, 松下電器産業株式会社、大阪。

パナソニック 2008a, 「アニュアルレポート 2008」, 松下電器産業株式会社, 大阪。

パナソニック 2008b, 「パナソニック・環境環境データーブック 2008」, 松下電器産業株式会社, 大阪。

パナソニック 2008c, 「ファクトブック 2008 年 3 月期データ ─」, パナソニック株式会社, 大阪。

パナソニック 2008d,「社会環境報告- e 報告書詳細版 2008」, 松下電器産業株式会社, 大阪。

パナソニック 2009a, 「アニュアルレポート 2009」, パナソニック株式会社, 大阪。

140

パナソニック 2009b, 「エコアイディアレポート 2009」, パナソニック株式会社, 大阪。

パナソニック 2009c, 「ファクトブック 2009 年 3 月期データ ─」, パナソニック株式会社, 大阪。

パナソニック 2009d,「社会環境報告- e 報告書詳細版 2009」, パナソニック株式会社, 大阪。

パナソニック 2010a, 「アニュアルレポート 2010」, パナソニック株式会社, 大阪。

パナソニック 2010b, 「エコアイディアレポート 2010」, パナソニック株式会社, 大阪。

パナソニック 2010c, 「ファクトブック 2010 年 3 月期データ ─」, パナソニック株式会社, 大阪。

パナソニック 2010d, 「サスティナビリティリポート 2010 」, パナソニック株式会社, 大阪。

パナソニック 2011a, 「アニュアルレポート 2011」, パナソニック株式会社, 大阪。

パナソニック 2011b, 「エコアイディアレポート 2011」, パナソニック株式会社, 大阪。

パナソニック 2011c, 「ファクトブック 2011 年 3 月期データ ─」, パナソニック株式会社, 大阪。

パナソニック 2011d, 「サスティナビリティリポート 2011 」, パナソニック株式会社, 大阪。

パナソニック 2011e, 「私たちのＣＳＲの取り組み資源循環」, 2012 年 6 月 12 日閲覧, http://panasonic.co.jp/eco/env_data/back_number/pdf/resources2011j.pdf.

パナソニック 2011f, 「パナソニックグループの新事業体制」, 2012 年 11 月 30 日閲覧,

http://panasonic.co.jp/ir/relevant/2011/jn111031-2.pdf.

パナソニック 2012a, 「アニュアルレポート 2012」, パナソニック株式会社, 大阪。

パナソニック 2012b, 「エコアイディアレポート 2012」, パナソニック株式会社, 大阪。

パナソニック 2012c, 「ファクトブック 2012 年 3 月期データ ─」, パナソニック株式会社, 大阪。

パナソニック 2012d, 「サスティナビリティリポート 2012 」, パナソニック株式会社, 大阪。

パナソニック 2012e, 「環境配慮工場」，2012 年 6 月 14 日閲覧, http://panasonic.net/eco/factory/cf/.

パナソニック 2012f, 「創業者松下幸之助の生涯： 158 “世界を考える京都座会“が発足 1983 年（昭和 58 年）」, 2012 年 8 月 6 日閲覧， http://panasonic.co.jp/history/person/158.html.

パナソニック 2012g, 「工場の省エネルギー・温暖化防止：CO2 イタコナ活動の推進」, 2012 年 8 月 10 日閲覧, http://panasonic.net/eco/factory/energy_conservation/index.html.

パナソニック 2012h, 「あかり安心サービスとは？」, 2012 年 6 月 28 日閲覧, http://www2.panasonic.biz/es/lighting/akarianshin/akari_01.html.

パナソニック 2012i 「有価証券報告書第 105 期」, 2012 年 8 月 9 日閲覧, http://panasonic.co.jp/ir/reference/edinet/pdf/Report2011.pdf.

パナソニック 2013a, 「アニュアルレポート 2013」, パナソニック株式会社, 大阪。

141

パナソニック 2013b, 「ファクトブック 2013 年 3 月期データ ─」, パナソニック株式会社, 大阪。

パナソニック 2013c, 「サスティナビリティリポート 2013 」, パナソニック株式会社, 大阪。

パナソニック 2013d, 「会社概要」, 2013 年 8 月 3 日閲覧, http://panasonic.co.jp/history/person/014.html.

パナソニック 2013e, 「経営理念とサスティナビリティ」, 2013 年 8 月 5 日閲覧, http://panasonic.net/sustainability/jp/management/philosophy/.

パナソニック 2013g, 「創業者松下幸之助の生涯：163. 勲一等旭日桐花大綬章を拝受 1987 年」, 2013 年 8 月日閲覧, http://panasonic.co.jp/history/person/163.html.

パナソニック 2013h, 「ビジョン」, 2013 年 7 月 2 日閲覧, H:\Panasonic_JAP\Technical_reports\Vision About Panasonic Global.mht.

パナソニック 2013i, 「会社概要」, 2013 年 11 月 17 日閲覧, http://panasonic.net/gateway/.

パナソニック 2013j 「役員一覧」, 2013 年 11 月 17 日閲覧, http://panasonic.net/corporate/management/.

パナソニック 2013k, 「ブランド」, 2013 年 5 月 19 日閲覧, http://panasonic.net/brand/history/.

パナソニック 2013l, 「創業者松下幸之助の生涯：創業から終戦まで」, 2013 年 6 月 11 日閲覧, http://panasonic.net/history/corporate/chronicle/index.html#section01.

パナソニック 2013m, 「創業者松下幸之助の生涯：会長就任から逝去まで」, 2013 年 6 月 11 日閲覧, http://panasonic.net/history/founder/chapter4/story4-05.html.

パナソニック 2013n,「松下幸之助物語：5-4. PHP」, 2013 年 6 月 28 日閲覧, http://panasonic.co.jp/founder/story/5-4.html.

パナソニック 2013o, 「パナソニックグループ・グリーン調達基準書第 6.1 版」, 2013 年 6 月 28 日閲覧, http://panasonic.co.jp/procurement/data/green_J_v6_1.pdf.

パナソニック 2013q, 「新中期計画 2013 年度事業方針」、2014 年 2 月 24 日閲覧, http://panasonic.co.jp/ir/vision/pdf/20130328_vision_note_j.pdf.

パナソニック 2013r, 「2013 International CES（全米家電協会）津賀社長オープニングキーノートスピーチ要旨」、2014 年 2 月 24 日閲覧, http://panasonic.co.jp/company/philosophy/vision/ces2013/.

パナソニック 2013s*, 「IR 資料室」, http://panasonic.net/ir/library.

丸田起大 2009, 「トヨタ・パブリカ開発における原価企画」, 原価計算研究,第 33 巻, 第 1 号， 28-40 頁.

馬場未希 2013, 「世界 350 社が発行「統合報告書」って何？’, 日経ビジネス, 6 月 14 日号, http://business.nikkeibp.co.jp/article/report/20130614/249684/?rt=nocnt.

142

淵田康之 2012, 「金融・証券規制動向諸~欧米で再び高まる監査法人改革論’, 野村資本研究所, 2013 年 9 月 2 日閲覧, http://www.nicmr.com/nicmr/report/repo/2012/2012win11.pdf.

牧戸孝郎 2003, 「環境会計の新たな展開に向けて」, 企業会計, 第 55 巻, 第 1 号, 4-11 頁.

松下幸之助 1962, , 私の行き方, 考え方－我が半生の記録, PHP 研究所。

村井令二浜田健太郎 2011, 「パナソニック、三洋の白物家電事業をハイアールに売却へ」, ロイター,7 月 28 日付, 2013,年 10 月 7 日閲覧, http://jp.reuters.com/article/topNews/idJPJAPAN-22399720110728.

もったいない（Mottainai） 2012, 「もったいないとは・・・」, 2012 年 10 月 10 日閲覧 viewed 10 December 2012, http://mottainai.info/about/.

柳田仁 2006, 国際経営会計論ードイツならびにアメリカ・日本の比較研究, 中央経済社。.

柳田仁 2011, 「現代企業における CSR と持続可能な成長－CSR 経営会計の必要性とその課題」, 神奈川大学－国際経営論集 no.41, 37-44 頁。

柳田仁・山田英俊 2005, 「CSR 経営会計の展開に関する一考察」, 神奈川大学, 国際経営フォーラム no.16, 111-125 頁。

山川龍雄 2012, 「誰も参入できない砦を作る：津賀一宏氏・パナソニック社長」, 日経ビジネス, 7 月 16 日号, 98-101 頁。

注：

日本語の参考文献表には主に日本語でのみ出版された書籍・文献を表記していますが、パナソニックおよび政府官庁出版物は参考・引用の際に日本語と英語の文脈を考察の上考慮して参照した出版物を日本語で記載しています。

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