Management Control Systems as a Package

Topics: Management, Control theory, Control engineering Pages: 39 (13711 words) Published: January 15, 2012
Management Accounting Research 19 (2008) 324–343

Operation of management control practices as a package—A case study on control system variety in a growth firm context Mikko Sandelin ∗
Helsinki School of Economics, Department of Accounting and Finance, P.O. Box 1210, FIN-00101 Helsinki, Finland

Abstract This empirical case study examines the operation of management control practices as a package in a growth firm context by paying particular attention to the couplings among cultural, personnel, action and results controls. The analysis focuses on two different management control packages in the face of similar contingencies at different points of time. The paper argues that the functionality of a control package depends on internal consistency, specifically on the reciprocal linkages of design and use between a primary mode of control and other control elements. Moreover, it argues that control package variety is driven by the way in which the management responds to functional demands. Two different control packages are considered equifinal to the extent of limited operational complexity, whereas an accounting-centric control package is also sufficient in the face of increasing levels of operational complexity. © 2008 Elsevier Ltd. All rights reserved. Keywords: Management control package; Control system variety; Internal consistency; Functional demands; Equifinality; Growth firm

1. Introduction This empirical case study examines the operation of management control practices as a package in a growth firm context. While it has been acknowledged that ‘soft’ and informal modes of control typically characterize small firms (e.g. Bruns and Waterhouse, 1975; Merchant, 1981; Flamholtz, 1983; Chenhall, 2003; Merchant and Van der Stede, 2007), an increasing body of literature now suggests that growth renders management control systems (MCS), especially management accounting systems (MAS), more formal (Granlund and Taipaleenmäki, 2005; Moores and Yuen, 2001) and that formal MAS facilitate the growth of a firm (Davila and Foster, 2005; Sandino, 2007; Greiner, 1998). In the growth firm context, the more comprehensive management control package has been investigated to a limited extent. Lukka and Granlund (2003) have paid particular attention to organizational culture and Collier (2005) has focused on socialization practices as primary control mechanisms, whereas other studies have examined MAS and formal standard operating procedures (Granlund and Taipaleenmäki, 2005; Davila and Foster, 2005; Sandino, 2007). The main thrust here is that an equally good final state can be achieved by various control system designs in the face of similar contingencies (Huikku, 2007; Merchant and Otley, 2007; Ferreira and Otley, 2005; Gerdin, 2005; Spekle, 2001; Otley, 1999; Chapman, 1997; Fisher, 1995). The need for coordination and control can be met by several alternative ∗

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M. Sandelin / Management Accounting Research 19 (2008) 324–343


management control system designs (Gerdin, 2005). Contingency theory, as it builds on the assumption that variables are related to each other in a one-to-one manner, seeks optimal control system designs in specific circumstances at the cost of system variety (Spekle, 2001; Gerdin, 2005; Merchant and Van der Stede, 2006). Moreover, a long-held view in organizational design literature suggests that multiple means of control do not only complement each other but may also operate as substitutes (Galbraith, 1973; Mintzberg, 1983; Fisher, 1995; Abernethy and Chua, 1996; Ferreira and Otley, 2005; Huikku, 2007). The potential for achieving the same final state by various configurations of control elements and systems in the face of similar contingencies is referred to as equifinality (Doty et al., 1993; Gresov and Drazin, 1997). In...

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