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Management Control Systems PDF

312 Pages·2013·3.32 MB·English
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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 II Tag der mündlichen Prüfung 11.11.2013 III 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. IV 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. VI VII 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 VIII 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 IX 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 X 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 XII 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 XV List of abbreviations BSC Balanced Scorecard MA Management Accounting MAS Management Accounting Systems MCS Management Control Systems OLC Organizational life cycle

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