Management Control Systems

312 Pages·2013·3.32 MB·English

Management Control Systems

Subcomponents, optimal design and the role of time

as a contingency

Dissertation

zur Erlangung des Grades eines Doktors der

wirtschaftlichen Staatswissenschaften

(Dr. rer. pol.)

des Fachbereichs Rechts- und Wirtschaftswissenschaften

der Johann Gutenberg-Universität Mainz

vorgelegt von

Dipl. Kaufmann Bastian Brand, M.A. (Europ. Studies)

in Mainz

im Jahre 2013

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Tag der mündlichen Prüfung
11.11.2013

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Abstract

Management Control System (MCS) research is undergoing turbulent times. For a

long time related to cybernetic instruments of management accounting only, MCS

are increasingly seen as complex systems comprising not only formal accounting-

driven instruments, but also informal mechanisms of control based on organizational

culture. But not only have the means of MCS changed; researchers increasingly apply

MCS to organizational goals other than strategy implementation.

Taking the question of "How do I design a well-performing MCS?" as a starting

point, this dissertation aims at providing a comprehensive and integrated overview

of the "current-state" of MCS research. Opting for a definition of MCS, broad in terms

of means (all formal as well as informal MCS instruments), but focused in terms of

objectives (behavioral control only), the dissertation contributes to MCS theory by, a)

developing an integrated (contingency) model of MCS, describing its contingencies,

as well as its subcomponents, b) refining the equifinality model of Gresov/Drazin

(1997), c) synthesizing research findings from contingency and configuration re-

search concerning MCS, taking into account case studies on research topics such as

ambidexterity, equifinality and time as a contingency.

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V

Kurzzusammenfassung

Die internationale Forschung zum Thema "Management Control Systems" (MCS) hat

innerhalb der letzten Jahrzehnte einen starken Wandel erfahren. Klassischerweise

wurden MCS mit kybernetischen Instrumenten der internen Buchhaltung, wie der

Budgetierung, in Verbindung gebracht. Heutzutage werden MCS mehr und mehr als

komplexe Systeme betrachtet, die u.a. auch informelle Kontrollmechanismen der Or-

ganisationskultur umfassen. Nicht nur die für MCS relevanten Instrumente werden

nun umfassender gesehen; Wissenschaftler untersuchen zunehmend, wie MCS für

über Strategieimplementierung hinausgehende Ziele eingesetzt werden kann.

Basierend auf der Grundfrage, wie ein effektives MCS zu gestalten ist, erarbeitet die

Dissertation eine umfassende und integrierende Darstellung des aktuellen Stands

der MCS-Forschung. Es wird eine MCS Definition gewählt, die bezüglich der MCS-

Instrumente umfassend, bezüglich der MCS-Ziele allerdings fokussiert ist. Die Dis-

sertation trägt zur aktuellen MCS-Theorie folgendermaßen bei. Erstens, es wird ein

integriertes situatives MCS-Modell entwickelt, das nicht nur die Kontingenzfaktoren,

sondern auch die einzelnen MCS-Subkomponenten beschreibt. Zweitens wird das

für organisationstheoretische Grundfragen wichtige Equifinalitätsmodell von

Gresov/Drazin (1997) erweitert. Drittens, werden aktuelle Erkenntnisse der Kontin-

genz- und Konfigurationstheorie bezüglich MCS dargestellt und kontrastiert. Dabei

wird insbesondere auf neuere Forschungsgebiete, wie Ambidexterity, Equifinalität

und die Rolle von Zeit und Unternehmensalter eingegangen.

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Table of Contents

Abstract................................................................................................................................... III

Kurzzusammenfassung......................................................................................................... V

Table of Contents..................................................................................................................VII

List of tables ........................................................................................................................... XI

List of figures .......................................................................................................................XIII

List of abbreviations.............................................................................................................XV

1.
Introduction................................................................................................................... 1

1.1.
Point of departure..................................................................................................... 1

1.2.
Research goals........................................................................................................... 6

1.3.
Existing literature and contributions..................................................................... 9

1.4.
Outline of this thesis............................................................................................... 11

2.
Perspectives on Management Accounting and MCS............................................ 15

2.1.
Importance of MCS and of defining the term..................................................... 15

2.1.1.
Introduction...................................................................................................... 17

2.1.2.
The traditional MCS perspective................................................................... 20

2.1.3.
Extensions and objections to the traditional MCS perspective................. 26

2.2.
A taxonomy of MCS perspectives........................................................................ 32

2.3.
Definition of key terms .......................................................................................... 37

3.
Management Control Systems - Components and design choices..................... 41

3.1.
A framework on components and design choices............................................. 41

3.2.
MCS instruments .................................................................................................... 45

3.2.1.
Classifications .................................................................................................. 45

3.2.2.
Properties.......................................................................................................... 66

3.3.
Organizational functions relating to informal controls .................................... 75

3.3.1.
Organizational structure ................................................................................ 75

3.3.2.
Organizational culture.................................................................................... 89

3.4.
Organizational mission and strategy................................................................... 99

3.5.
The environmental context.................................................................................. 108

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3.5.1.
An organization and its environment ........................................................ 108

3.5.2.
Layers of the environment ........................................................................... 110

3.5.3.
Dimensions of the environment.................................................................. 113

4.
Organizational theories and MCS.......................................................................... 117

4.1.
Introduction........................................................................................................... 117

4.2.
Contingency theory.............................................................................................. 119

4.2.1.
History & development................................................................................ 119

4.2.2.
Assumptions .................................................................................................. 121

4.2.3.
Concepts of fit ................................................................................................ 122

4.2.4.
Application on MCS...................................................................................... 125

4.3.
The theory of strategic choice ............................................................................. 130

4.3.1.
Objections to contingency theory................................................................ 130

4.3.2.
An alternative contingency model.............................................................. 133

4.4.
Configuration theory............................................................................................ 136

4.4.1.
Introduction.................................................................................................... 136

4.4.2.
History & development................................................................................ 139

4.4.3.
Assumptions .................................................................................................. 143

4.4.4.
Mintzberg's "Structure in Fives".................................................................. 146

4.4.5.
Evidence on configuration theory............................................................... 163

4.4.6.
The control taxonomy of Bedford / Malmi................................................ 168

4.5.
Six challenges of organization theory................................................................ 173

5.
Towards a Meta-theory of MCS design ................................................................ 177

5.1.
Introduction........................................................................................................... 177

5.2.
External versus internal fit .................................................................................. 179

5.3.
Preliminary findings on organizational challenges......................................... 186

5.4.
Equifinality and ambidexterity........................................................................... 188

5.4.1.
Equifinality..................................................................................................... 188

5.4.2.
Ambidexterity................................................................................................ 190

5.5.
Integrating organizational theories using a contingency perspective .......... 193

5.5.1.
The framework of Gresov/Drazin............................................................... 193

5.5.2.
Organizational politics - An extension to Gresov/Drazin ....................... 201

5.6.
Management Control Systems and advanced organizational theory........... 207

5.6.1.
"Operation of MC practices as a package" - Sandelin (2008) .................. 207

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5.6.2.
"Interfaces of control" - Alvesson / Kärreman's (2004)............................. 210

5.6.3.
"Loose coupling theory of MCS" - Brown/Malmi/Booth (2008).............. 212

5.6.4.
"'Continuous' budgeting" - Frow/Marginson/Odgen (2010)................... 215

5.6.5.
Comparing the case studies with MCS theory.......................................... 216

6.
Time as a contingency.............................................................................................. 221

6.1.
Introduction........................................................................................................... 221

6.2.
The contingency factor of organizational age .................................................. 223

6.3.
The role of past and future contingencies......................................................... 225

6.3.1.
A study on the potential impact of anticipated change........................... 225

6.3.2.
A discussion on the empirical results of Pant (1998) ............................... 232

6.3.3.
The role of inertia .......................................................................................... 234

6.4.
Organizational life cycle theory.......................................................................... 240

6.4.1.
Introduction.................................................................................................... 240

6.4.2.
The life-cycle theory of Miller / Friesen ..................................................... 242

6.4.3.
Life cycle theory and MCS ........................................................................... 252

6.5.
Synthesis ................................................................................................................ 257

7.
Conclusion................................................................................................................. 259

7.1.
Research results..................................................................................................... 259

7.2.
Final remarks......................................................................................................... 268

References............................................................................................................................. 271

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XI

List of tables

Table 1. Key assumptions of traditional and "modern" MCS ...........................33

Table 2. MCS instruments related to group of MCS practices..........................50

Table 3. Criteria of MCS instrument sophistication ...........................................66

Table 4. Direct and indirect costs by types of MCS instruments......................70

Table 5. Work environments by complexity and interdependency.................82

Table 6. Select list of performance criteria .........................................................106

Table 7. MCS Design Choices - Contingency Matrix .......................................116

Table 8. A taxonomy of configurations..............................................................141

Table 9. Scenarios of internal and external constraints....................................181

Table 10. A classification of equifinal situations...............................................195

Table 11. Organizational theories to use

for MCS design in different scenarios of 'meta-contingencies'.......198

Table 12. Typology of Macintosh/Quattrone.....................................................202

Table 13. Criteria for distinctiveness and responsiveness in a MCS context 213

Table 14. Contingency matrix of deviation from fit .........................................229

Table 15. Description of Miller/Friesen's (1984) Life-Cycle Stages.................246

Table 16. The four organizational imperatives .................................................250

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XIII

List of figures

Figure 1. Research approach..................................................................................13

Figure 2. Management control and its

relationship to strategy formulation and task control ........................21

Figure 3. The cybernetic cycle................................................................................23

Figure 4. A cybernetic cycle with learning rules.................................................24

Figure 5. A holistic view on organizational control ..........................................29

Figure 6. Contingency framework of Otley.........................................................31

Figure 7. Dichotomies of MCS definitions...........................................................35

Figure 8. Contingency framework on MCS,

organizational functions and the external environment ..................42

Figure 9. Elements of Management Control Systems ........................................43

Figure 10. Taxonomy of MCS instruments of Malmi/Brown............................55

Figure 11. Levers of Control framework..............................................................59

Figure 12. Organizational chart of a functional organization...........................84

Figure 13. Organizational chart of a divisional organization ...........................88

Figure 14. Different levels of culture ....................................................................89

Figure 15. Analytical process for determining MCS design ...........................102

Figure 16. Competing values framework ..........................................................107

Figure 17. Effectiveness and efficiency as organizational goals.....................108

Figure 18. The Organzation and its environment.............................................111

Figure 19. Child's (1972) "Strategic choice" contingency framework.............134

XIV

Figure 20. The five Basic Parts of the Organization .........................................150

Figure 21. 6 challenges of organization theory .................................................174

Figure 22. 6 challenges of organization theory .................................................199

Figure 23. Contingencies of MCS theory ...........................................................205

Figure 24. Estimate on the relative position of two case

companies with respect to 3 key dimesnions.................................219

Figure 25. Development of MCS formality across the OLC............................255

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List of abbreviations

BSC
Balanced Scorecard

MA
Management Accounting

MAS
Management Accounting Systems

MCS
Management Control Systems

OLC
Organizational life cycle