The Effect of Contextual Factors on the Design of Management Control Systems
Introduction
This paper determines the effects contextual factors have on the design of Management Control Systems. The paper firstly discusses what is meant by “Management Control Systems” and what is expected of “Management Control Systems”. Contingency-based research is outlined and five key contextual variables are identified for discussion. The five factors (external environment, technology, structure and size, strategy and national culture) are assessed to determine their impact on design and implementation of management control systems.
Management Control Systems and Contingency-Based Research
Management Control Systems are systems that are put into place within organisations to help ensure that managers within organisation’s act in the best interest of the organisation and not self interest.
Contingency theory is a theory that states that “the design and use of control systems is contingent upon the context of the organisational setting in which these controls operate” (Fisher, 1998). The idea of contingency theory is that the selection and use of a management control system is contingent on a variety of internal and external factors.
Chenhall has identified five factors which impact Management Control Systems. They are external environment, technology, structure and size, strategy and national culture. A further study from Cadez and Guilding (2008) has identified a revised list of four factors (some of which are already considered in Chenhall’s previous work). They are business strategy, degree to which adopted strategy is deliberately formulated, market orientation and firm size. Other authors have identified different terms of contingency factors such as; uncertainty, technology and interdependence, industry, firm and unit variables, competitive strategy and mission and observability factors (Fisher 1998).
There are many more variations provided by further works from a range of researchers, however from the above group the following categories of
This paper determines the effects contextual factors have on the design of Management Control Systems. The paper firstly discusses what is meant by “Management Control Systems” and what is expected of “Management Control Systems”. Contingency-based research is outlined and five key contextual variables are identified for discussion. The five factors (external environment, technology, structure and size, strategy and national culture) are assessed to determine their impact on design and implementation of management control systems.
Management Control Systems and Contingency-Based Research
Management Control Systems are systems that are put into place within organisations to help ensure that managers within organisation’s act in the best interest of the organisation and not self interest.
Contingency theory is a theory that states that “the design and use of control systems is contingent upon the context of the organisational setting in which these controls operate” (Fisher, 1998). The idea of contingency theory is that the selection and use of a management control system is contingent on a variety of internal and external factors.
Chenhall has identified five factors which impact Management Control Systems. They are external environment, technology, structure and size, strategy and national culture. A further study from Cadez and Guilding (2008) has identified a revised list of four factors (some of which are already considered in Chenhall’s previous work). They are business strategy, degree to which adopted strategy is deliberately formulated, market orientation and firm size. Other authors have identified different terms of contingency factors such as; uncertainty, technology and interdependence, industry, firm and unit variables, competitive strategy and mission and observability factors (Fisher 1998).
There are many more variations provided by further works from a range of researchers, however from the above group the following categories of
References: Cadez, S., Guilding, C., (2008) An Exploratory Investigation of an Integrated Contingency Model of Strategic Management Accounting, Accounting Organisations and Society, vol 33, p836-863 Chapman, C., (1997) Reflections on a Contingent View of Accounting Hannan, M. & Freeman, J. (1989) Organisational Ecology Cambridge: Harvard University Press Hartmann, F., (2000) The Appropriateness of RAPM: Towards the Further Development of Theory Accounting Organisations and Society, vol 25, p451-482 Perrow, C., (1970) Organisational Analysis: A Sociological View. California: Wadsworth Publishing Company