Reasons for management control systems adoption: Insights from product development systems choice by early-stage entrepreneurial companies

Recent theoretical and empirical work indicates that management control systems (MCS) are an important element in enhancing innovation. We extend this research thrust examining the adoption of MCS in product development, arguably one of the business processes where innovation plays a major role. Using a sample of 69 early-stage entrepreneurial companies, data are collected from questionnaires and interviews with each of the CEO, financial officer, and business development managers pertaining to product development MCS. We examine seven different systems: project milestones, reports comparing actual progress to plan, budget for development projects, project selection process, product portfolio roadmap, product concept testing process, and project team composition guidelines. We address three distinct questions: (1) What are the reasons-for-adoption of these systems? The nature of our sample allows us to trace back to the adoption point and develop a set of reasons-for-adoption from the analysis of the data. While MCS fulfill certain roles as described in the literature, these reasons-for-adoption are distinct from these roles. Results indicate that certain events lead managers to adopt these systems and address the challenges that they face. They include contracting and legitimizing the process with external parties and internal reasons-for-adoption such as managers’ background, learning by doing, need to focus the organization, or reaction to problems. (2) Are these reasons-for-adoption associated with differences across companies in the time from their founding date until these systems are adopted (time-to-adoption)? Prior research has looked at the covariance of various organizational variables with this timing; this study goes a step further by looking at the effect of different reasons-for-adoption on this timing. Our evidence finds an association between these two variables. (3) Are these reasons-for-adoption relevant to performance? We find that the reason-for-adoption is associated with the on-time dimension of product development performance.     

Antecedents and Consequences of Eco‐Control Deployment: Evidence from Canadian Manufacturing Firms

Environmental issues have become an important consideration for a growing number of organizations. Eco‐control may represent a valuable tool to help organizations address such issues. The aim of this study is to provide an overview of the eco‐control practices adopted by Canadian organizations and to understand the antecedents and consequences of their adoption. More specifically, this study examines (i) the extent to which eco‐control practices are deployed within organizations, (ii) the factors and motivations that lead organizations to implement eco‐control practices, and (iii) the impact of adoption on firms’ managerial and operational environmental actions as well as on environmental and economic performance. Using survey data from a sample of 249 Canadian manufacturing firms, this article shows that environmental missions, environmental policies, environmental strategic planning, environmental budgets and environmental performance indicators are the most frequently adopted eco‐control practices among the investigated firms, while environmental incentives seem to be less frequently adopted. The results of this study also suggest that competitive and ethical motivations as well as size, environmental exposure and stakeholder pressure are all important factors in explaining eco‐control practice adoption by Canadian manufacturing firms. Moreover, the results of this study show that organizations that have undertaken more intensive managerial and operational environmental actions have also adopted more intensive eco‐control practices. Organizations adopting more intensive eco‐control practices perform better both environmentally and economically performance than firms adopting less intensive eco‐control practices.     

Configuring management control systems: Theorizing the integration of strategy and sustainability

Although organizations have embraced the sustainability rhetoric in their discourse and external reporting, little is known about the processes whereby management control systems contribute to a deeper integration of sustainability within organizational strategy. This paper addresses this gap and mobilizes a configuration approach to theorize the roles and uses of management control systems (MCSs) and sustainability control systems (SCSs) in the integration of sustainability within organizational strategy. Building on Simons’ levers of control framework, we distinguish two possible uses of a MCS and a SCS—a diagnostic use and an interactive use—and we specify the modes of MCSs and SCSs integration. We rely on these two core dimensions to identify eight organizational configurations that reflect the various uses as well as their modes of integration of SCS and MCS. We characterize these ideal-type configurations, explain their impact on the triple bottom line, and describe which mechanisms allow organizations to move from one configuration to another. In so doing, we highlight various paths toward sustainability integration or marginalization within organizations. Finally, we explain how our framework can support future research on the role of MCS and SCSs in the integration of sustainability within strategy.     

The role of management control systems in planned organizational change: An analysis of two organizations

In the management control literature there is growing interest in the role of management control systems (MCS) in planned organizational change. The existing literature is concerned with either rational, technical change principles or more social and political interpretations of MCS facilitated change. This paper aims to extend this literature by combining technical approaches to MCS facilitated change with a behavioral approach in the study of two similar organizations. Moreover, the paper employs a holistic approach to change to develop a comprehensive understanding of the role of MCS in planned organizational change. A framework by Huy [Huy, Q. N. (2001). Time, temporal capacity, and planned change. Academy of Management Review 26(4), 601–623] is used to provide an integrative approach that focuses on both rational, systematic practices and the behavioral processes involved in their implementation. This is achieved by identifying four idealized intervention types: commanding, engineering, teaching and socializing. Understanding the application of these four intervention types requires analysis of the way they interact through time.     

The impact of family control on the use of performance measures in strategic target setting and incentive compensation: A research note

This paper deals with the impact of a firm's governance structure on its management control system (MCS). We argue that the involvement of founding family members in the top management team (TMT) as a corporate governance characteristic has an impact on how the TMT exercises control over subordinates. Based on a sample of 304 mainly small and medium-sized firms, our paper provides empirical evidence that founding family involvement in the TMT is associated with the latter making less use of performance measures in its strategic target setting and incentive practices, and that this impact of family involvement is moderated by firm size.     

The effect of service process type, business strategy and life cycle stage on bureaucratic MCS in service organizations

This study uses the survey method to investigate the influence of several contingent variables on the design of MCS in service organizations. MCS was conceptualized in terms of five dimensions: action/results controls, formal/informal controls, tight/loose controls, restricted/flexible controls, and impersonal/interpersonal controls to form a composite measure of the degree of MCS bureaucracy. The framework used in this study recognizes that the service process type, business strategy, and stage in the organizational life cycle influence the choice of MCS design within an organization. Questionnaires were administered to financial controllers of service organizations operating in Australia. Using t tests and multiple regression analysis, the results indicated that (1) mass service, mature and cost leader firms place a greater emphasis on more bureaucratic forms of MCS, compared to professional service, growth and differentiator firms, and (2) service process type, organizational life cycle stage, and business strategies have a significant influence on the design of a firm's MCS.     

Towards an organizational theory of the transfer pricing process

Understanding the transfer pricing issue as it arises in large decentralized firms is important, because it represents a pervasive problem in the design of managerial accounting and control systems in complex organizations. This paper draws on the growing literature on the economics of internal organization to develop an understanding of the strategic, organizational and transactional conditions under which transfer pricing (and related control) issues arise, and the organizational processes used to implement intra-firm transfers of products and to determine transfer prices. The objective of the paper is to develop a theory of the transfer pricing process and to reduce hypotheses from the theory.     

Examine ERP post-implementation stages of use and value: Empirical evidence from Portuguese SMEs

There is a great interest among researchers and practitioners in accounting information systems (AIS) value. This is particularly important in cases of systems such as enterprise resource planning (ERP). This paper empirically measures and analyses the determinants of ERP use and value in a single framework, as well as provides empirical evidence from Portuguese small and medium enterprises (SMEs). Drawing upon theories on the process and contexts of information technology (IT) we postulate nine hypotheses. Used the technology–organization–environment (TOE) framework to hypothesize how compatibility, complexity, efficiency, best-practices, training, and competitive pressure explain ERP use. Based on the resource-based view (RBV) theory we hypothesize how ERP use, collaboration and analytics explain ERP value, and its potential contribution for the nature of management control and accounting information systems on Portuguese SMEs. Through structural equation modeling, a data set of 134 web-surveyed firms is used to test the hypotheses. Our empirical analysis leads to six main findings: 1) compatibility, complexity, best-practices, and efficiency are more important determinants for ERP use as well as training and competitive pressure, suggesting that technological, organizational and environmental characteristics are the main drivers of ERP use among Portuguese SMEs. 2) Similarly, collaboration and analytics are more important for ERP value upon use, suggesting that system capability characteristics are the main drivers of ERP value. 3) ERP value benefits from system enhancements to firms' business processes in the post-implementation phases. 4) For Portuguese SMEs the mostly valued metric attained through ERP is management control. 5) Impelled by legislation, Portuguese SMEs are using ERP as the accounting system for management, financial and tax accounting. 6) Portuguese SMEs invest more than 70% of their annual IT budget to ERP use. Together, these findings offer insights into how Portuguese SMEs use and extract value from ERP, and how enhancements positively impact the system's value. Unlike the typical focus on ERP adoption described in the literature, this research focuses on the post-implementation phase, linking actual use with value creation, adding an empirical study to the AIS literature.     

Tax strategy control: The case of transfer pricing tax risk management

This paper examines how a functional tax strategy impacts the management control system (MCS) in a multinational enterprise (MNE) facing transfer pricing tax risks. Based on case study findings it is argued that the MCS in a multinational setting is contingent upon the MNE's response to its tax environment. Moreover, the paper extends existing contingency-based theory on MCS by illustrating the role of inter-organisational network collaboration across MNE transfer pricing tax experts. This collaboration, caused by a widely dispersed tax knowledge base, fuels the formal interactive control system and reduces tax uncertainty. The paper adopts an interdisciplinary approach for explaining findings, using contingency-based theory and network theory at the inter-organisational level.     

The control dynamics of outsourcing involving an early-stage firm

Firms in the early stage of their organisational lifecycle experience challenges that shape the adoption of management controls. They are also recognised for their use of outsourcing. However, the accounting research has provided limited insight on how these control challenges and inter-organisational control concerns interact to influence the adoption of specific controls within an outsourcing relationship involving an early-stage firm. Exploration of this gap provides a key motivation for this paper. Contrary to existing management control and organisational science literature, we find a strong preference for new or enhanced action controls. Conversely, we find low levels of interest in result controls by managers within the buyer but not the supplier firm. These preferences influence inter-organisational control adoption within the frame of an incomplete outsourcing contract that emphasises flexibility in terms of relationship exit. Within the limits of a case study methodology, we argue that adoption of inter-organisational controls is shaped by tensions between the control challenges of early-stage firms, the control preferences of managers within these firms and inter-organisational control concerns. These findings have theoretical implications, expanding the Davila et al. [2009. Reasons for management control systems adoption: insights from product development systems choice by early-stage entrepreneurial companies. Accounting, Organizations and Society, 34 (3–4), 322–347] framework and the Merchant [1985. Control in Business Organizations. Boston, MA: Pitman] control typology into an ESF inter-organisational control context.     

A comparative analysis of the evolution of a taxonomy for best practices: a case for ‘knowledge efficiency’

Taxonomies play an increasingly important role in knowledge management of business best practices, providing a basis by which to index, find and communicate knowledge. However, knowledge continues to evolve over time. As a result, taxonomies must also continue to evolve as organizations innovate and change. Reportedly, firms customize best‐practice taxonomies to meet their unique organization needs. Accordingly, we might expect organizations to generate dissimilar best‐practice taxonomies. However, taxonomies must also reflect the state of knowledge in the area being categorized, and thus are likely to be similar in many ways in different organizations. The purpose of this paper is to study how taxonomies change in different organizations and how they stay the same. In order to explain the parallels in organizational taxonomies, the notion of ‘knowledge artefact efficiency’ (or knowledge efficiency) is suggested to capture the concept that new knowledge is rapidly adopted by many organizations in their knowledge management systems. Copyright © 2009 John Wiley & Sons, Ltd.     

Management accounting: Are new techniques making in-roads with practitioners?

Despite numerous criticisms and the examples of specific companies changing to a particular technique, there are few empirical studies providing evidence of the status of management accounting practice. The primary purpose of this study was to examine trends in the adoption of the new managerial accounting techniques by manufacturing firms. Evidence of changes in the direction of managerial accounting would have significant future implication regarding the direction of management accounting education and of accounting theory. The results of this study indicate that new techniques are being adopted while traditional systems are being maintained, suggesting that a broadening of innovations in management accounting may require the development of a new and separate course dealing strictly with these innovative techniques in the transition to world-class manufacturing.     

Management accounting system design in manufacturing departments: an empirical investigation using a multiple contingencies approach

This paper proposes a multiple contingencies model that examines the combined effect of departmental interdependencies and organization structures on management accounting system (MAS) design. The model was tested by means of empirical data collected from a questionnaire addressed to 160 production managers. The response rate was 82.5%. The findings provide some support for the notion that organizations adapt their MAS design to the control requirements of the situation. Furthermore, the study offers some empirical support for the existence of suboptimal equifinality. That is, in situations which lack of a single dominant imperative, several alternative, and functionally equivalent management control system (MCS) designs, may arise.     

Competitive forces and the importance of management control systems in emerging-economy firms: The moderating effect of international market orientation

Using survey and archival data from exchange-listed Chinese firms, we investigate the relationship between competitive forces (i.e., the threat of foreign entrants and buyers’ bargaining power) and the importance that the firms place on their management control systems (MCS), and whether the firms’ international market orientation moderates this relationship. We examine five MCS practices—formal procedures, strategic planning, budget targets, approval procedures, and participative budgeting—both as a package and separately. We predict and find a positive association between the threat of foreign entrants and the importance that the firms place on their MCS, but this association is larger for firms competing predominantly in the domestic market than for those competing predominantly in international markets. Further, we predict and find that the association between buyers’ bargaining power and the importance that the firms place on their MCS is larger for firms competing predominantly in international markets than for those competing in domestic markets. We probe deeper into our empirical findings using qualitative data collected from post hoc interviews with managers of Chinese firms and those of international firms operating in China. We discuss the implications of our findings and provide some directions for future research.     

Enterprise risk management and firm performance: A contingency perspective

In recent years, a paradigm shift has occurred regarding the way organizations view risk management. Instead of looking at risk management from a silo-based perspective, the trend is to take a holistic view of risk management. This holistic approach toward managing an organization’s risk is commonly referred to as enterprise risk management (ERM). Indeed, there is growing support for the general argument that organizations will improve their performance by employing the ERM concept. The basic argument presented in this paper is that the relation between ERM and firm performance is contingent upon the appropriate match between ERM and the following five factors affecting a firm: environmental uncertainty, industry competition, firm size, firm complexity, and board of directors’ monitoring. Based on a sample of 112 US firms that disclose the implementation of their ERM activities within their 10Ks and 10Qs filed with the US Securities and Exchange Commission, empirical evidence confirms the above basic argument. The implication of these findings is that firms should consider the implementation of an ERM system in conjunction with contextual variables surrounding the firm.     

Risk management and calculative cultures

Enterprise risk management (ERM) has recently emerged as a widespread practice in financial institutions. It has been increasingly codified and encrypted into regulatory, corporate governance and organizational management blueprints. A burgeoning literature of regulatory and practitioner texts is indicative of the apparent diversity of ambitions, objectives and techniques that constitute the ERM agenda. Making sense of these developments is a challenge. This paper presents field-based evidence from two large banking organizations suggesting that systematic variations in ERM practices exist in the financial services industry. The cases illustrate four risk management ideal types and show how they form the ‘risk management mix’ in a given organization. Further, drawing on the literature of the roles and uses of management control systems (MCS), the paper explores how ERM achieved organizational significance in the studied settings. The findings are indicative of the current co-existence of alternative models of ERM. In particular, two types of ERM models are postulated: one driven by a strong shareholder value imperative (ERM by the numbers), the other corresponding to the demands of the risk-based internal control imperative (holistic ERM). This paper explains the differences in the two risk management mixes pointing towards alternative logics of calculation [Power, M.K., 2007. Organized Uncertainty—Designing a World of Risk Management. Oxford University Press, Oxford], which I conceptualise and describe as different calculative cultures. The study suggests that calculative cultures, which in these cases shaped managerial predilections towards ERM practices, are relevant, albeit so far neglected, constituents of the fit between MCS and organizational contexts.     

Does consistency in management control systems design choices influence firm performance? An empirical analysis

This study examines the impact on firm performance of theoretically consistent relationships between three management control systems (MCS) design choices – delegation, performance measurement, and incentive compensation. Based upon the ‘three-legged stool’ model and agency theory, the hypothesis is that theoretically consistent MCS design choices are associated with enhanced firm performance. Using survey data from large Australian firms, the findings support the hypothesis, suggesting that an appropriate MCS design is a determinant of firm performance. The study contributes to the literature by moving beyond a focus on the antecedents of the three key MCS design choices to the consequence of alignment of those choices.     

A multilevel framework to enhance organizational resilience

Abstract

Organizational resilience is a capacity that emerges at multiple levels. Although the multilevel character of organizations has been generally acknowledged in existing organizational studies, there is a lack of theoretical and empirical studies that address how it affects organizational resilience. To adress this gap, this article offers a multilevel framework applicable to enhance organizational resilience and presents an empirical study to probe the impact of multilevel elements on organization's capacity for responding to critical situations. More specifically, the new framework will help an organization to enhance its resilience through a process of self-assessment on crisis preparedness and response capacity. This process will allow the organization to identify and remedy potential vulnerabilities in the interaction between its organs as well as environment. We argue that crisis management and organizational resilience are mutually shaped across multiple levels, from individual, organizational, to environmental. These multiple levels are operationalized operationalization in four phases: (1) reviewing and monitoring context, (2) testing preparedness, (3) analysing and assessing responses, and (4) strengthening capabilities. In these phases, we underline that resilience management requires continuous embracing of the dynamic processes within an organizational system and its environment. To validate the framework, we present an empirical study on a security organization, and describe the results to demonstrate how to utilise the tool in practice. In conclusion, we discuss how the multilevel framework can be further applied towards building stronger resilience management.     

Do organizational life-cycle and venture capital investors affect the management control systems used by the firm?

This paper investigates how the organizational life-cycle stage of the firm and the existence of venture capital investors affect the use of management control systems. The study consists of three types of management control systems, i.e. business planning, budgeting and management control techniques. Our empirical analyses are based on a survey questionnaire of 105 Finnish firms operating in all industries at different life-cycle stages. The results indicate that the business planning and use of management control techniques differ between the organizational life-cycle stage of the firm and the existence of venture capital investors. However, the existence of venture capital investors is also essential in maturity and revival firms while the earlier literature emphasizes their role in start-up and growth firms. Our results remain the same after conducting various robustness checks.     

The growing role of informal controls: does organization learning empower or subjugate workers?

Several management theorists have called for organizations to incorporate organization learning, empowerment, open-book management, and similar initiatives to generate better value from an important strategic resource: employees. What does this mean for the controlled? Do extensions of the management control system’s ability to implement the strategy of the firm offer workers a more central role in creating their future? Or is this “progress" just another means to extract extra effort from workers for the benefit of owners? This paper is developed in two parts. The first argues that seeking better value from workers is here to stay, and that the implications for management control system bear consideration. In particular, the five disciplines of Senge’s (1990) Organization Learning are introduced to illustrate growing ways informal controls enhance workers’ knowledge contributions. The second half of the paper examines implications of this increasing control. Some argue that it is naive to expect organization learning will lead managers to willingly realign existing lopsided rewards. However, as a natural response to change, these controls are themselves dynamic and evolutionary. This paper suggests that the growing dependence on employee’s superior knowledge recalibrates power arrangements. Further there is a growing awareness that many managers’ self-interest is mitigated by their sense of fairness. Consequently, an increasingly shared authority combined with the self-reflection and transparency of organization learning raises the possibility of an environment where those who perform the work share more equally in its rewards.