This paper is a review of the empirical contingency-based literature regarding the development and structure of management control systems. It categorizes the literature by topic: meaning of MCS, outcomes of MCS, and contextual variables including external environment, technology, organizational structure, size, strategy, and national culture. The paper provides a thorough review of studies that examine these topics. Additionally, Chenhall provides recommendations for future research.
The study limits its focus to contingency-based theories developed from a functionalist perspective. In other words, the assumption is that management control systems “are adopted to assist managers achieve some desired organizational outcomes or organizational goals. The appropriate design(s) of MCS will be influenced by the context in which they operate” (p.128). The figure below has been designed to clarify the functionalist perspective.
The Meaning of MCS
There are multiple terms that have been used in describing ‘management control systems.’ The author chooses to use MCS to refer to the broad application of a system that provides both financial and non-financial information on both internal and external factors, to managers for the purposes of control and decision-making.
When studying MCS, one of two approaches can be taken. First, one can build on existing areas, trying to extend overall theories. Second, researchers may choose to evaluate new and novel ideas as they come into practice. Both types of research make important contributions. Primarily, because MCS change over time, it is important to study the implementation and success of new managerial accounting tools. Furthermore, as old MCS lose relevance, research on them does not have significant practical applications. The author also warns of the dangers of studying accounting MCS in isolation. Consideration of other organization control systems is imperative given the interactive nature of MCS with those other systems. One suggestion is to classify organizational controls as organic or mechanistic. Table 1 puts forth a taxonomy which classifies controls in this way.
Another potential issue in MCS research is the assignment of dependent and independent variables. Some studies classify performance as the dependent variable, and MCS as the independent variable. The criticism of this approach is that, given rational economic theory, organizations will always choose the MCS that leads to the highest performance; thus nullifying meaningful results. Others look at the contextual variables as independent and the MCS as dependent. Finally, some studies examine implementation of MCS and link it to performance. The author cautions that prima fascia adoption does not necessarily lead to actual use, thereby clouding the link between performance and implementation of MCS. The External Environment
The first contingent variable examined is that of the effect of the external environment on MCS. Many studies narrow this down to uncertainty and risk assessments. However, there are many other characteristics of the external environment which may be relevant.
Propositions concerning external environment (Note: Propositions are paraphrased from the original article. For exact wording, see original work).
Uncertainty leads to open/ externally focused MCS.
Hostility and turbulence are associated with reliance on formal controls.
Even when MCS are tightly controlled in an uncertain environment, flexibility and interpersonal interactions also exist.
Generic Concepts of Technology
The author defines technology as hardware, materials, people, software, and knowledge. The majority of studies examine complexity, task uncertainty, and interdependence as contingent factors related to MCS. When using complexity as a factor, the technology relates to the complexity of the production...
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