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 ∗
Tel.: +358 9 4313 8457; fax: +358 9 4313 8678. E-mail address: mikko.sandelin@hse.ﬁ.
1044-5005/$ – see front matter © 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.mar.2008.08.002
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...
References: Abernethy, M.A., Chua, W.F., 1996. A ﬁeld study of control system “redesign”: the impact of institutional processes on strategic choice. Contemporary Accounting Research 13 (2), 569–606. Ahrens, T., Dent, J.F., 1998. Accounting and organizations: realizing the richness of ﬁeld research. Journal of Management Accounting Research 10, 1–39. Ahrens, T., Mollina, M., 2007. Organisational control as cultural practice—A shop ﬂoor ethnography of a Shefﬁeld steel mill. Accounting, Organizations and Society 32 (4–5), 305–331. Alvesson, M., Kärreman, D., 2004. Interfaces of control. Technocratic and socio-ideological control in a global management consultancy ﬁrm. Accounting, Organizations and Society 29, 423–444. Brown, D., 2005. Management Control System Packages. PhD dissertation, University of Technology, Sydney. Brown, D., Malmi, T., Booth, P., 2008. Loosely coupling theory of management control systems. Paper presented in 2008 Global Management Accounting Research Symposium (GMARS). Bruns, W.J., Waterhouse, J.H., 1975. Budgetary control and organizational structure. Journal of Accounting Research 13, 177–203. Cardinal, L.B., Sitkin, S.B., Long, C.P., 2004. Balancing and rebalancing in the creation and evolution of organizational control. Organization Science 15 (4), 411–431. Chapman, C.S., 1997. Reﬂections on a contingent view of accounting. Accounting, Organizations and Society 22 (2), 189–205. Chenhall, R.H., 2003. Management control system design within its organizational context: ﬁndings from contingency-based research and directions for the future. Accounting, Organizations and Society 28 (2/3), 127–168. Collier, P.M., 2005. Entrepreneurial control and the construction of a relevant accounting. Management Accounting Research 16, 321–339. Covaleski, M.A., Evans III, J.H., Luft, J.L., Shields, M.D., 2003. Budgeting research: three theoretical perspectives and criteria for selective integration. Journal of Management Accounting Research, 15. Davila, T., Foster, G., 2005. Management accounting systems adoption decisions: evidence and implications from early-stage/startup companies. The Accounting Review 80, 1039–1068. Doty, D.H., Glick, W.H., Huber, G.P., 1993. Fit, equiﬁnality, and organizational effectiveness: a test of two conﬁgurational theories. Academy of Management Journal 36 (6), 1196–1250. Eisenhardt, K., 1989. Building theories from case study research. Academy of Management Review 14 (4), 532–550.
M. Sandelin / Management Accounting Research 19 (2008) 324–343
Ferreira, A., Otley, D., 2005. The design and use of management control systems: an extended framework for analysis. Working paper. Fisher, J., 1995. Contingency-based research on management control systems: categorization by level of complexity. Journal of Accounting Literature 14, 24–48. Flamholtz, E.G., 1983. Accounting, budgeting and control systems in their organizational context: theoretical and empirical perspectives. Accounting, Organizations and Society 8 (2/3), 153–169. Flamholtz, E.G., 2005. Strategic organizational development and ﬁnancial performance: implications for accounting, information, and control. Advances in Management Accounting 14, 139–165. Flamholtz, E.G., Das, T.K., Tsui, A.S., 1985. Toward an integrative framework of organizational control. Accounting, Organizations and Society 10 (1), 35–50. Galbraith, J.R., 1973. Designing Complex Organizations. Addison-Wesley, Reading, MA. Gerdin, J., 2005. Management accounting system design in manufacturing departments: an empirical investigation using a multiple contingencies approach. Accounting, Organizations and Society 30, 99–126. Granlund, M., 2001. Towards explaining stability in and around management accounting systems. Management Accounting Research 12 (2), 141–166. Granlund, M., Taipaleenmäki, J., 2005. Management control and controllership in new economy ﬁrms—a life cycle perspective. Management Accounting Research 16, 21–57. Greenhalgh, R.W., 2000. Information and the transnational SME controller. Management Accounting Research 11, 413–426. Greiner, L.E., 1998. Evolution and revolution as organizations grow. Harvard Business Review, 55–64. Gresov, C., Drazin, R., 1997. Equiﬁnality: functional equivalence in organization design. Academy of Management Review 22 (2), 403–428. Gupta, A.K., Smith, K.G., Shalley, C.E., 2006. The interplay between exploration and exploitation. Academy of Management Journal 49 (4), 693–706. Huikku, J., 2007. Explaining the non-adoption of post-completion auditing. European Accounting Review 16 (2), 363–398. Keating, P., 1995. A framework for classifying and evaluating the theoretical contributions of case research in management accounting. Journal of Management Accounting Research, 66–86. Kärreman, D., Sveningsson, S., Alvesson, M., 2002. The return to machine bureaucracy? Management control in the work settings of professionals. International Studies of Management and Organization 32 (2), 70–92. Langﬁeld-Smith, K., 1997. Management control systems and strategy: a critical review. Accounting, Organizations and Society 22, 207–232. Langﬁeld-Smith, K., 2007. A review of quantitative research in management control systems and strategy. In: Chapman, C.S., Hopwood, A.G., Shields, M.D. (Eds.), Handbook of Management Accounting Research—Volume 2. Elsevier, Oxford. Lukka, K., 2005. Approaches to case research in management accounting: the nature of empirical intervention and theory linkage. In: Jönssön, S., Mouritsen, J. (Eds.), Accounting in Scandinavia—The Northern Lights. Kristianstads Boktryckeri, Sweden, Kristianstad. Lukka, K., 2007. Management accounting change and stability: loosely coupled rules and routines in action. Management Accounting Research 18, 76–101. Lukka, K., Granlund, M., 2003. Paradoxes of management and control in a new economy ﬁrm. In: Bhimani, A. (Ed.), Management Accounting in the Digital Economy. Oxford University Press. March, J.G., 1991. Exploration and exploitation in organizational learning. Organization Science 2 (1), 71–87. March, J.G., 2006. Rationality, foolishness, and adaptive intelligence. Strategic Management Journal 27, 201–214. Merchant, K.A., 1981. The design of corporate budgeting system: inﬂuences on managerial behavior and performance. The Accounting Review 56 (4), 813–829. Merchant, K.A., 1998. Modern Management Control Systems. Prentice Hall, New Jersey. Merchant, K.A., Otley, D., 2007. A review of the literature on control and accountability. In: Chapman, C.S., Hopwood, A.G., Shields, M.D. (Eds.), Handbook of Management Accounting Research—Volume 2. Elsevier, Oxford. Merchant, K.A., Van der Stede, W.A., 2006. Field-based research in accounting: accomplishments and prospects. Behavioral Research in Accounting 18, 117–134. Merchant, K.A., Van der Stede, W.A., 2007. Management Control Systems. Prentice Hall. Miles, R.E., Snow, C.C., 1978. Organizational Strategy, Structure, and Process. McGraw-Hill, New York. Miller, C.C., Cardinal, L.B., Glick, W.H., 1997. Retrospective reports in organizational research: a reexamination of recent evidence. Academy of Management Journal 40, 189–204. Mintzberg, H., 1983. Structures in Fives: Designing Effective Organizations. Prentice-Hall, Englewood Cliffs, NJ. Mintzberg, H., Ahlstrand, B., Lampel, J., 1998. Strategy Safari: A Guided Tour Through the Wilds of Strategic Management. Free Press: Simon & Schuster. Mitchell, F., Reid, G.C., 2000. Editorial. Problems, challenges and opportunities—the small business as a setting for management accounting research. Management Accounting Research 11, 385–390. Moores, K., Yuen, S., 2001. Management accounting systems and organizational conﬁguration: a life-cycle perspective. Accounting, Organizations and Society 26, 351–389. Otley, D., 1999. Performance management: a framework for management control systems research. Management Accounting Research 10, 363–382. Otley, D., 2001. Extending the boundaries of management accounting research: developing systems for performance management. British Accounting Review 33, 243–261. Otley, D., Berry, A.J., 1994. Case study research in management accounting and control. Management Accounting Research 10 (10), 45–65. Perren, L., Grant, P., 2000. The evolution of management accounting routines in small business: a social construction perspective. Management Accounting Research 11, 391–411. Porter, M.E., 1985. Competitive Advantage. Creating and Sustaining Superior Performance. Free Press, New York.
M. Sandelin / Management Accounting Research 19 (2008) 324–343
Sandino, T., 2007. Introducing the ﬁrst management control systems: evidence from the retail sector. The Accounting Review 82 (1), 265–294. Scapens, R.W., 1990. Researching management accounting: the role of case studies. British Accounting Review 22, 259–281. Simons, R., 1995. Levers of Control: How Managers use Innovative Control Systems to Drive Strategic Renewal. Harvard Business School Press, Boston. Spekle, R.F., 2001. Explaining management control structure variety: a transaction cost economics perspective. Accounting, Organizations and Society 26, 419–441. Yin, R.K., 1993. Applications of Case Study Research. SAGE Publications, Thousand Oaks.
Please join StudyMode to read the full document