The Effect of Business Strategy and External Environment on Manag...

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The Effect of Business Strategy and External Environment on Management Control Systems

By | October 2012
Page 1 of 11
International Journal of Business and Social Science

Vol. 2 No. 13 [Special Issue - July 2011]

THE EFFECT OF BUSINESS STRATEGY AND EXTERNAL ENVIRONMENT ON MANAGEMENT CONTROL SYSTEMS: A STUDY OF MALAYSIAN HOTELS Sofiah Md Auzair Senior Lecturer School of Accounting Faculty of Economics and Management Universiti Kebangsaan Malaysia, Malaysia E-mail: sofiah@.ukm.my, phone: 03-89213745 Abstract This study was undertaken to investigate the use of Management Control Systems (MCS) in Malaysian hotels. MCS was conceptualized as Action/Results controls, Formal/Informal, Tight/Loose controls, Restricted/Flexible, Impersonal/Interpersonal controls and Financial/Non Financial information to represent management control bureaucracy. The framework also recognizes business strategy and external environment (perceived environmental uncertainty - PEU) as factors associated with organizations choice of MCS. A survey methodology was employed. Questionnaires were administered to the top management of the hotels in Malaysia. The findings indicate that hotels pursuing cost leadership strategy was positively associated with a more bureaucratic MCS while hotels pursuing differentiation strategy was associated with less bureaucratic MCS. PEU is negatively associated with less bureaucratic MCS which indicates tighter control when environment is perceived as unpredictable. Overall, the data demonstrates that type of MCS utilized by hotels is associated with the business strategy pursuit and the PEU.

Key words: Management Control Systems, Differentiation Strategy, Cost Leadership Strategy, External Environment

1. Background
The Malaysian government has been introducing and aggressively implementing many policies to boost the service industry in general, and the tourism industry in particular. Through the Malaysian Tourism Development Corporation (MTDC), many local and foreign promotions has been undertaken to encourage tourists to visit Malaysia. Despite the global economic...