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The problem of using management accounting techniques to measure managers' performance in the service sector is examined. The essence of the problem, it is argued, is that organisations are being judged externally on one set of criteria while the internal control system measures a different set of criteria. Using a management accounting perspective the article identifies the dominance of accounting measures in performance measurement and demonstrates how this has led to dysfunctional behaviour of managers. It is then proposed that a control system be developed that aims to achieve organisational control by the specification of a range of control measures. Measures of finance, customer service, resource utilisation, employee attitudes and service development should be included. Furthermore, no one set of measures can be expected to satisfy all organisations, the exact set and relative weighting of each component being determined by the particular organisation's objectives.

This paper suggests that there is a natural tension between operations managers and management accountants. This tension is particularly evident when decisions are being made about process change. Semi‐structured interviews with 40 operations managers revealed that accountants were only involved in about half of change processes. Surprisingly this proportion was the same for both continuous and radical change programmes despite the latter involving greater risk and capital investment. Six case studies were then used to identify the factors which underpin the degree of involvement where there was close interaction between accountants and operations managers. The paper concludes with a discussion of the implications for operations managers and some suggestions for further research.

ABSTRACT**:  Economic regulators provide incentives for good quality of service as well as constraints on the prices or revenue which can be charged by firms with monopoly power. Economic theory suggests that regulators should choose standards according to consumers' valuation and the marginal cost of quality improvements, and that firms respond by equalizing the marginal costs from not making improvements (i.e. the regulatory penalty plus any loss in revenue) with the marginal costs of improvement. This paper explores the evidence for such economically rational behaviour by both regulators and regulatees. We use a specially constructed data set on service quality targets and achievements across the main UK utility sectors; documentary evidence from regulators; and interviews with managers in companies subject to those regulators. We conclude that regulators are motivated by political as well as economic factors. And that companies may not respond primarily to the regulator's financial rewards or penalties for their quality targets, with a consequent danger that regulated consumers pay for marketing in unregulated markets; the resulting level of service quality may be 'too high' in the economic sense.

Considers the relationship between the types of targets or benchmarks used and reward structures adopted in two contrasting performance improvement strategies – continuous improvement and radical change. Hypothesises that the process of target setting and the reward structures adopted will be different between the two strategies. The propositions are that organisations involved in continuous improvement of a process will base their performance targets on past performance and internal benchmarking, arrived at through consultation and with a mixture of financial and non‐financial rewards for achieving targets. For processes involving radical change, targets will be based on external benchmarks imposed by senior management, with financial rewards for their achievement. The findings from a semi‐structured questionnaire conducted in 40 UK service organisations reveal that most continuous improvement targets were based on past performance and that processes undergoing radical change made limited use of external benchmarks. In the majority of cases, targets were imposed by managers without consultation, with rewards linked to theachievement of those targets. Financial rewards, particularly financial bonuses, predominated in both improvement strategies. The implications are that the potential benefits of adopting process changes are being constrained. In continuous improvement the lack of participation in target setting could be undermining the team‐based empowerment philosophy of the strategy. The aim of radical change is to achieve a paradigm shift involving revolutionary rather than evolutionary change which is less likely to be fulfilled with targets based on past performance.