Management Control
Management Control
Management Control
David Otley
Lancaster University, UK
Kim Soin
University of Exeter, UK
with the
List of Figures ix
List of Tables x
Preface xi
vii
viii Contents
Index 269
List of Figures
ix
List of Tables
x
Preface
xi
xii Preface
David Otley
Kim Soin
April 2014
Notes on Contributors
xiii
xiv Notes on Contributors
Julia Mundy is the manager of, and a senior researcher at, the Centre for
Governance, Risk and Accountability at the University of Greenwich.
Following ten years experience in the investment management and
Notes on Contributors xix
xxiv
Obituary xxv
1985, which would be widely used in British universities for the next
decade and more. But by this time Clive had moved back to Wales as a
senior lecturer at the University College of Wales, Aberystwyth, being
promoted to Reader in 1996. He moved to the University of Glasgow in
1997 as the Ernst and Young Professor of Accounting, a post he retained
until his retirement. He undertook many roles in Glasgow, acting as
Head of Department from 1991 to 1994 and being the Director of the
Centre of International Accounting for some 20 years from 1991.
His academic work centred on the topics of transfer pricing and
segmental reporting, moving from an initial focus on domestic transfer
pricing into the complex arena of international transfer pricing. Around
half of his 36 refereed journal publications are on this issue and his
work culminated in 2010 with two publications that reflect the span of
his interests. The first (with Martine Cools and Ann Jorissen at Antwerp
University) is a masterly review of issues in management control in tax
compliant, multinational enterprises which use transfer pricing. The
second (with A. Mura) analyses the Early Italian contribution to transfer
pricing! As his editorial board memberships indicate, any journal editor
who required an authoritative and helpful review of an article on transfer
pricing would immediately think of how to persuade Clive to take on
yet more reviewing work. Beyond this he had interests in other areas of
management accounting, including capital budgeting where he recently
completed a CIMA research project on the role of managerial judgement
in this field, and also in the area of managerial motivation and reward
systems.
But he did not just stay at home. He was an associate professor in
the School of Business at the University of Kansas from 1980 to 1982
and has also held appointments at Michigan State University and in
Moscow, Deakin, Sydney, Antwerp, Sardinia and Slovenia. He was
an active member of the American Accounting Association and the
European Accounting Association as well as being a Council Member of
the British Accounting and Finance Association and joint editor of the
British Accounting Review from 2006 to 2008.
He enjoyed collaborating with other people, whether fellow academics
or research students in different countries. And he has been a long time
member of the Management Control Association, a Council member
since 2003, and responsible for (jointly) organising its doctoral colloquia
in both 2007 and 2010.
It is in this latter activity that his interests, skills and abilities combined
to make his contribution outstanding. Student presentations were
always listened to carefully and with evident interest, his comments
xxvi Obituary
were perceptive but always gentle, and students were subtly steered into
an improved direction almost without realising it. And as the activities
moved on into the social events of the evening, Clive was always at the
centre of a small and lively group actively discussing a topic of joint
interest.
It is a great joy that the academic community was able to recognise
some of the contributions he made to it, most particularly in the award
of the Lifetime Achievement Award of the BAFA in April 2012. This
award was presented by Professor Elaine Harris who made the following
comments:
David Otley*
Lancaster University Management School,
United Kingdom
Elaine Harris
University of Roehampton Business School,
United Kingdom
*
Corresponding author.
E-mail address: [email protected]
(D. Otley)
1
Management Control and
Uncertainty
David Otley and Kim Soin
1
2 David Otley and Kim Soin
For obvious reasons, the major cross-cutting theme of the work in this
book is the idea of uncertainty and its consequences. However, the
conceptualizations of uncertainty vary significantly across chapters,
ranging from it being seen as an objective, external factor which can
be measured through to a view that it is a subjective perception which
needs to be observed and reacted to. There are also a variety of views
as to whether uncertainty has increased in the recent past, and varying
ideas of how control systems may either help in dealing with it, or may
themselves compound the problems that it brings.
The world has always been subject to considerable uncertainties,
especially when understanding of how natural events were caused was
less well developed. Until quite recently events such as disease, natural
disasters and crop failures were generally regarded as inexplicable (or
the work of a deity) and few actions could be taken either to prevent
them, or to deal with their consequences. So it might be assumed that
as scientific understanding has increased, the world has become more
predictable, certainly in its physical aspects. As organizations became
larger and more complex in the last 100 or so years, they were also seen
as being able to act as buffers against uncertainty. Parts of an organiza-
tion, most typically the production functions, could be buffered from
external change and allowed to develop well-programmed routines that
led to considerable operating efficiency. The impact of external events
could be buffered by the overall organization to give a more predictable
internal environment, well insulated from sudden external changes.
The downside of such buffering was that the impact of external changes
could be consolidated into a single internal shock, such as the closure of
a whole plant. It is arguable that one purpose of a management control
system was to allow the information about external circumstances to
permeate the boundaries of the organization to allow gradual adapta-
tion without the need to constantly adjust to circumstances that might
only be transitory.
However, other features of the last century have operated in the
opposite direction. As organizations have become more global and
inter-connected, changes in one part of the overall economic system
have begun to affect every other part, and the speed of transmission
of such changes has increased enormously. The recent global financial
Management Control and Uncertainty 7
and managers are being held more accountable, whilst at the same time
delivery of these promises is becoming more difficult.
In this changed environment, the role of control systems is also
changing. From being internally focussed and financially oriented, they
have become increasingly externally driven and use a range of non-
financial information (see Chapter 7). But the accepted connotations
of control may also have to change. Control can no longer be seen
as a guarantee that predicted outcomes will occur. Rather, control is a
process which may be helpful in guiding an organization through the
stormy seas of its environment, and assisting constant adaptation they
may even encompass the change of overall goals as some of the original
goals become unrealistic.
Dealing with uncertainty and risk is seen as one of the key aspects
of late modernity. Late modernity is the description given to todays
highly developed global societies (Giddens, 1990) and is characterized
in various ways ranging from an information society, a post-indus-
trial society, a network society to a risk society (Power et al., 2009).
Uncertainty is central to management control, as all organizations exist
in an environment characterized by significant amounts of uncertainty
from a variety of different sources. For example, UK universities are
clearly operating in a more uncertain funding environment than in the
past. Questions that arise include: are there more factual uncertainties
or are we more anxious? Also, do uncertainties create new uncertainties
once they are managed? And, what are the roles of management control
in these processes?
As Soin and Collier (2013) observe: uncertainty is not new it is a
central feature of any organizational setting. What is new, however, is
that uncertainty is emerging from many different sources both internal
and external. The need to consider both internal and external audiences
(mostly customers, regulators and stakeholders) appears to be the major
change that has occurred. Traditionally, most management control prac-
tice has been inwardly directed but issues like regulation, sustainability,
ethics, governance and risk management are derived from external pres-
sures with accountability being part of that movement.2 Developing these
ideas of external accountability, Miller and Power (2013) further high-
light the adjudicatory nature of (management) accounting (and control)
in response to the changing environment stating that: Accounting has
multiplied in response to individual demands to know more and measure
Management Control and Uncertainty 9
performance to evaluate agents (p. 581). In many ways, the same can
be said of management control. Bourne (in this volume) argues that
the levels of uncertainty have increased and that the development of
performance management frameworks is an attempt to cope with these
changes.
The majority of research approaches taken in studying uncertainty in
the management control literature (which are rather limited in scope)
are at the rational, objective end of the spectrum. Although these can
be useful a more subjective approach (see the trend in this book from
the Widener survey approach, through Bourne; Harris; Warren, Saulpic
& Zarlowski; Soin, Huber & Wheatley; Linsley & Linsley; and Lowe &
De Loo) to both research and practice may be helpful. For example, it
may be that the processes through which uncertainty is identified and
managed may be as important as the actions themselves.
Middle-Range Theory (MRT) appears to have a lot to offer in this
context. Whilst acknowledging the necessity of starting from some
existing framework to structure thought and belief, MRT is also reflex-
ibly open to modification of these initial views through the gathering
of empirical data. It might be helpful to reflect on the type of theory
that approaches such as MRT produce. It may be much more akin to
the Saulpic and Zarlowski approach of affecting real world behaviour by
education and exposure to ideas, rather than in prescription for universal
action. At the very least, there is a contingent view that prescriptions
need to be related to circumstances. More radically, understanding
might only be possible when immersed in specific circumstances, and
grand theories prove to be unhelpful. Management knowledge (and
maybe social knowledge more generally) may require a combination of
theoretical frameworks and specific data that cannot be generalized in
any more cogent manner.
Conclusions
It is evident that the chapters in this book raise more questions than they
answer. However, they are written by some of the leading academics in
the field of management control who have each made their own signifi-
cant contributions to its development. In presenting their own work,
they were also asked to reflect upon its connection with the existence
of uncertainty in the management of todays organizations, and this
has resulted in an impressive set of ideas, which will be influential in
developing the research agenda over the next decade or more. We can
ask no more of our readers than that they study what they have to offer,
to reflect upon it and allow it to influence how they develop their own
Management Control and Uncertainty 13
Notes
1. We are indebted to John Burns for this insight.
2. We are indebted to Christian Huber for this insight.
References
[These do not include references that are given in the book chapters discussed.]
14
Transfer Pricing: Insights from the Literature 15
Hirshleifer (1964) was the first researcher to stress that transfer prices
are the unavoidable by-product of decentralization, as they allow
for accountability of subunit results in the context of the allocated
resources by enabling the computation of accounting profit. Along the
same line, Watson & Baumler (1975) described transfer prices as instru-
ments enabling organizations to differentiate and organize themselves
into different autonomous subunits, while at the same time allowing
them to integrate the actions of the subunits in a coordinated way and
to provide a more suitable system of performance evaluation. In other
words, these authors pointed at the underlying organizational factors
involved in transfer pricing issues, thereby recognizing that uncertainty
in these processes complicated transfer pricing related decision-making.
Eccles (1985) undertook an empirical study that confirmed the impor-
tance of organizational context and the role of strategy and administra-
tive processes as the principal determinants of transfer pricing practices.
The main concern of his interviewees was to choose a transfer pricing
mechanism that induced goal congruence and simultaneously provided
useful and fair measures for performance evaluation. They felt that the
transfer pricing policies and organizational characteristics should be
consistent with strategy; in other words that the transfer pricing policy
16 Martine Cools
Cools and Emmanuel (2007) described how the fiscal regulators continue
to tighten their transfer pricing tax regulations, with the aim to prevent
abuse in the form of tax avoidance by MNEs. The arms length principle,
requiring a continuous comparison between the transfer price and the
price that would have been reached under normal market conditions,
is the main principle for judging the appropriateness and fairness of
transfer pricing in international tax law. National tax authorities have
become more flexible in terms of the acceptable pricing methods, as
long as the MNEs comply with the extensive documentation require-
ments (Cools & Emmanuel, 2007). At the same time, the arms length
principle has always been challenged, as proved by the recent support
of a Common Consolidated Corporate Tax Base (CCCTB) by the
European Commission. The CCCTB refers to one set of rules for compa-
nies operating in the EU, meaning that companies can file a single
consolidated tax return for their European activity, and that their
consolidated profit before tax would be shared out over the member
states by using a simple formula (taking into account sales, employees
and assets). The member states would then be able to tax the profits of
the companies within their state at the tax rate they determine unilater-
ally (European Commission, 2011). Also, the recent Base Erosion Profit
Shifting action plan (BEPS) (OECD, 2013) is an interesting development
at the country level. It proposes a global template that MNEs need to
fill out for providing the necessary information on their global alloca-
tion of the income, economic activity and taxes paid among countries.
The aim of the OECD was to provide a set of rules regarding transfer
22 Martine Cools
Conclusion
Despite all attention it has received over recent years, transfer pricing
remains a relevant research topic. Many domestic as well as multinational
enterprises run into transfer pricing difficulties sooner or later in their
existence. Moreover, the higher degree of globalization creates integrated
business opportunities for MNEs through cross-border transfers, whereas
corporate income tax systems remain nationally based. Further, national
governments react to this trend by formulating tighter regulations to
Transfer Pricing: Insights from the Literature 25
Note
1. Important contributions are Ackelsberg and Yukl (1979), Emmanuel and Gee
(1982), Chalos and Haka (1990), Ravenscroft et al. (1993), Luft and Libby
(1997), Anctil and Dutta (1999), Ghosh (1994, 2000), Kachelmeier and Towry
(2002).
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Transfer Pricing: Insights from the Literature 27
Introduction
30
MCS Research: Current Developments 31
These should give some counter balance to our initial selection of con-
ference papers. After all, some of the conference papers may turn out
to be academic dead ends. Including papers that have recently been
published in two main journals in the field dilutes the influence of such
dead ends in the sample, and helps to focus on the more productive
themes and trends in the collective research agenda.
Our findings indicate that management control is a lively area of
research, characterized by heterogeneity in theories, methods and
topics, but with a need to reconsider the balance between explora-
tion and exploitation. We also observe that the field has become very
European, with nearly exclusive European authorship of contemporary
high-impact papers almost all of which are published in European
journals. Because problems of management control are not intrinsically
European, this dominance is reason for concern.
This chapter first demarcates the scope of the review and discusses
the selected papers. It then presents our findings and concludes with
some comments on the state of the field.
To give some focus to this review, we need a set of criteria to decide which
studies to include. The obvious route would be to start from a defini-
tion of the field of management control. There is, however, still debate
as to how to define the field, even after decades of management control
research. At a very general level, most would agree that the field is con-
cerned with understanding the processes and mechanisms that are used
within organizations to influence the behaviour of their members so as
to contribute to organizational performance. But if one requires more
precision, opinions start to diverge. Malmi and Brown (2008) suggest a
rather restrictive definition, concentrating on the systems managers use
to direct employee attitudes and behaviour and excluding decision-sup-
port systems. They also exclude controls that are not directly oriented
towards employees, such as inventory controls and quality controls.
Others advocate a much broader approach. Otley (1999) discusses how
the term management control has become associated almost exclusively
with accounting-based information systems, and how it has become
disconnected from strategic planning and operational management. He
argues that this focus is too narrow, and proposes a more encompass-
ing perspective focussing broadly on the management of performance,
rather than just its measurement. Performance management systems
are the evolving formal and informal mechanisms, processes, systems,
32 Roland Spekl and Anne-Marie Kruis
Sample
Citations of
H-index top paper
Note: information retrieved from Google Scholar Metrics in December 2013. Reported
h-indices and number of citations reflect the situation as per July 2013. Included papers are
published in the years 20082012.
based on the h-index as per July 2013 for papers published in 2008
2012, and measures citation intensity. TAR for instance has an h-index
of 54, which means that of all papers published in this journal in the
five-year reference period, 54 have been cited 54 times or more as per
July 2013. With this score, TAR gets the highest ranking in the Google
list. The most influential individual paper, however, has been published
in JAR and is a study by Barth et al. (2008) on international accounting
standards and accounting quality. This paper has been cited 820 times.
From the 20 most influential journals, we select the papers that belong
to the domain of management control as defined earlier in this chapter,
and rank these using the number of citations they receive. Table 3.2
presents the results from this procedure (the top 25).
MCS Research: Current Developments 35
Table 3.2 Top 25 papers in Management Control from the 20 most influential
journals
Note: information retrieved from Google Scholar Metrics in December 2013. Reported number
of citations reflects the situation as per July 2013. Included papers are published in the years
20082012.
MCS Research: Current Developments 37
It is interesting to note that none of the top 25 papers comes from any
of the leading Northern American journals (that is, TAR, JAE, JAR and
CAR).3 This suggests that the reputation of these journals is not built on
their impact on the field of management control, but rather on their
contribution to the other sub-fields of accounting, particularly finan-
cial accounting and auditing. Apparently, AOS (13 papers in the top
25) and MAR (6 papers) are better able to select the high-impact papers
on management control. Other journals contributing to the top 25 are
AAAJ, BAR and EAR (2 papers each).4 We also note that the authors of
the top 25 papers are almost exclusively European. We will come back
to this observation in the concluding section.
Findings
*Includes one paper (two in the last column) that uses mixed or combined methods.
38 Roland Spekl and Anne-Marie Kruis
uses and roles. At one level, there is a concern with the ambiguity that
is present in some of the new concepts. Bisbe et al. (2007) for instance
note that Simons (1995) concept of interactive control is rather diffuse
(cf. also Ferreira & Otley, 2009 and Tessier & Otley, 2012), and that it
has been operationalized quite differently across studies. Their study
demonstrates that apparently, management control researchers some-
times use the same term to refer to different things. However, there also
appears to be a tendency to introduce new terms to refer to the same
(or at least closely related) phenomena. For instance, to describe the
nature of control (that is, how control is exercised or established), we
can choose from a variety of taxonomies, including the enablingcoer-
cive8 uses as per Adler & Borys (1996), the negativepositive divide from
Simons (1995), and the transactional versus relational uses suggested
by Broadbent & Laughlin (2009). If one needs a classification scheme
to differentiate between the purposes of performance measurement
systems, the choice is similarly rich and includes the diagnostic and
interactive uses referred to earlier, but also Henris (2006) monitoring,
attention focusing, strategic decision-making and legitimization roles,
for example. This rich choice brings conceptual nuance to the field, but
also leads to fragmentation. Therefore, we must address the question
whether we really need all these new taxonomies. Spekl & Verbeeten
(2014) demonstrate that many purpose-oriented classifications show
considerable overlap, and that a synthesis is possible. Tessier & Otley
(2012) make a similar point regarding the taxonomies of the nature of
control. This suggests that a constructive balance can be found between
conceptual nuance on the one hand, and systematic accumulation on
the other, and that the field of management control may well be served
by somewhat more self-control on the part of researchers when consid-
ering new taxonomies.
Conclusion
Notes
1. See Rosenstreich and Wooliscroft (2009) for an assessment of Google Scholar
in evaluating accounting research.
2. Journal acronyms are defined in Table 3.1.
3. The highest ranked management control paper from these four journals is
Robinson et al. (2010), published in TAR (55 quotes).
4. Some reputable journals appear to be missing from the list entirely, such
as the Journal of Management Accounting Research ( JMAR) or Behavioral
Research in Accounting (BRIA). JMAR publishes only one issue per year, and
one could surmise that this causes its absence from the list. This, how-
ever, is not the case. The h-index of a journal is based on that journals
most cited papers, and the theoretical maximum is equal to the total
number of papers published in that journal in the reference period. For
JMAR, this number is 72. The real explanation is that most JMAR papers
just do not get quoted a lot. The most frequently cited paper from 2008
to 2012 in JMAR is Brown et al. (2009), which is referenced 40 times. But,
most JMAR papers receive less than ten citations. A similar observation
holds for BRIA. Its highest-ranked paper from 2008 to 2012 is Lau and
Moser (2008), with 32 quotes.
5. We analysed the papers independently of each other and then compared
our findings for inter-rater agreement. This agreement turned out to be
almost complete, and the few differences were easily resolved.
6. Various papers from the MCA conference apply (versions of) institutional
theory, for example Hiebl et al. (2013) and Wanderley et al. (2013).
7. An approach that is different from ANT, but similar in its micro-orientation
and its allowance for non-human agency is for instance the socio-material
framework applied by Brard et al. (2013).
8. Alternatively referred to as controlling (Mundy, 2010) or constraining
(Tessier & Otley, 2012) uses.
9. Three authors have contributed to two top 25 papers.
10. Five contributors are from Australia, of which four have joined forces with
again European co-authors. The largest group of authors work at UK-based
44 Roland Spekl and Anne-Marie Kruis
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America. Management Accounting Research, 21: 116120.
Mikes, A. (2009). Risk Management and Calculative Cultures. Management
Accounting Research, 20: 1840.
Mundy, J. (2010). Creating Dynamic Tensions through a Balanced Use of Management
Control Systems. Accounting, Organizations and Society, 35: 499523.
Otley, D. (1994). Management Control in Contemporary Organizations: Towards
a Wider Framework. Management Accounting Research, 5, 289299.
Otley, D. (1999). Performance Management: A Framework for Management
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46 Roland Spekl and Anne-Marie Kruis
Introduction
47
48 Shannon Anderson and Henri Dekker
firm exchange. Dekker and Van den Abbeele (2010), for instance, find
that when firms use more extensive contracts for risky IT transactions,
this is associated with greater use of outcome and behaviour controls
during transaction execution. Similarly, Dekker et al. (2013) find that
more elaborate contractual contingency planning agreements between
supply chain partners is associated with use of various control mech-
anisms for managing transaction risk, including performance target
setting, operational performance reviews, information sharing, supplier
support and joint problem solving arrangements. In the next section,
we turn to these alternative modes of management control that may or
may not be specified in contracts, but which have also been found to
have a contingent relationship with transaction costs.
partner selection may not only increase the confidence in the chosen
partner (which may actually reduce the need for control), but also result
in learning about the partner and resources to be exchanged, alternatives
and contingencies that may arise during the transaction. This learning
can facilitate contract and control design. Considering the outcome of
the selection process, evidence from supply chain relationships indi-
cates that the selection of partners of greater ability supports the use of
control practices to manage the relationship; in particular contractual
contingency planning, target setting, operational performance reviews,
information sharing and supplier support (Dekker et al., 2013).
Conclusion
Notes
Portions of this chapter first appeared in Anderson and Dekker (2014). The
authors retain copyright of these materials and they are used with permission of
the publisher.
1. Strictly speaking, Coase predicts that firms minimize the sum of production
and transaction costs. Studies that focus on testing the influence of trans-
action costs on firm boundaries typically assume that production costs are
identical between the firm and external suppliers. This assumption may
be appropriate if minimum efficient scale is low and production entails no
proprietary processes.
2. See Schepker et al. (2014) for a review of the management literature on inter-
firm contracting.
3. In testing relations between exchange hazards and inter-firm governance and
control, studies generally rely explicitly or implicitly on one of two hypoth-
eses: (1) the discriminating alignment hypothesis that states that firms
select the most efficient structure or controls that align with the exchange
conditions they face, and (2) the misalignment hypothesis that states that
firms will suffer negative performance consequences when making subop-
timal choices.
4. Whereas we focus on the interrelation among transaction costs, incomplete
contracts and management controls, other studies have also considered
how inter-firm management controls affect cooperation and socialization
(Mahama, 2006), and how they can form exit barriers (Phua et al., 2011).
5. In a dynamic setting studies have argued that the relation between trust and
control initially is complementary up to the point that sufficient trust is
developed that they become substitutes (Tomkins, 2001; Velez et al., 2008).
This dynamic argument is primarily concerned about the relation between
goodwill trust and controls to mitigate relational risks. Velez et al. (2008) find
that instead of substitution per se, firms also choose to expand the relation-
ship itself, resulting in increased risk, and trust and control increasing even
further.
6. This could for instance be because inter-firm relationships involve multiple
firms with no overlapping profit functions, there is no single central decision-
making authority and resolving disputes may involve third-party arbitrators
or the court of law.
7. Compliance and regulatory risk in the alliance setting is the risk that a
partner will expose the firm to third-party sanctions by failing to comply
with customer requirements, firm policies or government laws and regula-
tions. This risk is not related to coordination of activities (performance risk),
or a partners attempt to capture an unfair share of alliance rents (relational
risk), and instead relates to choices made by the partner to comply (or not)
Management Control in Strategic Alliances 65
with rules and regulations, or to act (or not) in a fiscally responsible manner
(Anderson & Dekker, 2014).
8. The study further finds that financial reviews are used primarily in joint
ventures.
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Introduction
69
70 Sally Widener
Similarly, the accounting literature argues that MCSs are necessary for
firm success, especially when facing high levels of uncertainty. Although
the literature is a bit conflicted on what type of MCS is best suited for
Using Surveys to Research the Human Side of MCS 73
of both systems and find that more intensive use of the PMS system
is positively associated with generative learning whereas more inten-
sive use of the budgeting system is positively associated with adaptive
learning. Performance effects are translated through generative learning
to learning and growth performance and finally to internal business
process performance. Using survey data to construct a structural equa-
tion model allows Lee and Widener (2014) to conclude that different
types of MCSs differently affect different types of learning.
Future opportunities
Learning as a process
Organizational learning is a process that occurs at three levels of an
organization (Crossan et al., 1999). Learning begins with individuals
who bring to bear their intuition on a certain situation or set of data.
Using Surveys to Research the Human Side of MCS 77
They then interpret that information and try to come to some sort of
conclusion or insight. At the level of the group, individuals join together
to integrate the different perspectives. Learning is then institutionalized
at the level of the organization.
The notion of organizational learning as a process that occurs at multiple
levels in the organization lends itself to many interesting and important
research questions. We still know little about the interface of manage-
ment control and learning at each specific level or point in the process.
Could there be some MCSs that inhibit one or more of these steps in the
process? Which MCS enhances an organizations ability to institution-
alize what has been learned? Integrating these questions with the Malmi
& Brown (2008) typologies of control or with the Merchant & Van der
Stede (2007) control framework could reveal interesting implications. For
example, perhaps it is routinizing the process that results in the institu-
tionalizing of learning. Thus, behavioural control in the form of standard
operating practices could be critical as in the Merchant & Van der Stede
(2007) framework. On the other hand, Malmi & Brown (2008) suggest
a typology of five control types, one of which is administrative control.
Perhaps the use of administrative control is necessary to institutionalize
learning. Thinking through their entire typology, perhaps planning and
cybernetic controls influence interpretation, reward and culture control
influence integration (e.g., free rider, team incentives) and administra-
tive and culture control influence institutionalization. Studies that try to
combine and sort out the uses of systems with all five types of control
systems and the four processes of learning could provide great insight.
One way to address these questions is to design a survey that will
support multilevel studies on a number of topics related to learning and
management control. Multilevel analyses have not been frequently used
in accounting literature, although they are used quite extensively in other
business disciplines (e.g., management).5 The survey method is ideal as (1)
it can be constructed and administered to individuals, teams and organi-
zations that all operate in an environment where learning is important
and (2) it can be designed so as to collect the variables of interest.
Future research could also examine a specific stage of the learning
process in order to provide insights with depth as opposed to breadth.
Srivastava et al. (2006) provide an illustration of how researchers can
examine team processes. They performed a study on 102 teams in hotel
properties and concluded that empowerment leads to knowledge sharing
and efficacy in teams. In their study, knowledge sharing has character-
istics similar to that of the integration process of learning that occurs
at the team level. In the management control literature Simons (1995)
78 Sally Widener
theorizes that the LoC package leads to empowerment and learning (see
also Spekl et al., 2014 for empirical evidence). Integrating these findings
with Srivastava et al. (2006) might allow insights to be generated about
whether the LoC package is associated with the integration process, and
further, whether that association can be explained via knowledge sharing.
A survey could be designed to measure the relevant constructs and struc-
tural equation models could provide evidence on the mediating relation-
ship. Not only will insights be gained at the intersection of management
control and learning, but also using survey methods and appropriate
analysis techniques will provide insights on why the relation exists.
Conclusions
Notes
The author gratefully appreciates comments from participants at the 2013 MCA
conference and from the editors, David Otley and Kim Soin.
1. This chapter will make more explicit and provide more depth on the reflections
contained in a plenary address I gave at the 9th International Management
Control Research Conference.
2. I also advocate the use of mixed methods in research studies (e.g., Gable,
1994).
3. Note that survey research must be done well for it to be powerful (e.g., see
Van der Stede et al., 2005). The purpose of this chapter is not to discuss how
to do good survey research; however, there are a number of authoritative
articles that do so (see e.g., Dillman et al., 2008).
4. It is important to note that creativity and innovation are not synonyms.
Innovation is about the implementation of the creative ideas (Chang &
Birkett, 2004).
5. For example see Kidwell, R.E. et al. (1997) and Wang et al. (2011).
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Using Surveys to Research the Human Side of MCS 81
Introduction
What is uncertainty?
83
84 David Otley
Predictive models
I will use the term predictive model to include all the methods we use
to predict future outcomes, whether these occur solely in the brain of an
individual, or are formally specified typically using computer models.
Thinking first of human predictive ability, there is now a considerable
body of (mainly psychological) literature that shows that human beings
are not very good at prediction, even of relatively simple tasks and
outcomes. It demonstrates that we have biases that are usually uncon-
scious that lead us to overestimate the occurrence of common outcomes
and to underestimate the likelihood of less common outcomes. We
also have difficulties in envisaging the full range of future possibilities,
and so fail to attribute likelihoods to them. In particular, we are often
overconfident and assume that the worst cannot happen even when we
acknowledge its possible existence. The conclusion is that human beings
are not as good at forecasting the future as they believe they are. So good
control systems need to make allowance for this state of affairs.
If human beings are poor at forecasting, then so are computer models.
Although computer-based forecasting models have become extremely
complex and sophisticated over the past two or three decades, they
seem to have run into potentially insurmountable problems. Although
increasing sophisticated models are better at representing the past trajec-
tory of events with a high degree of accuracy, this attribute does not
seem to lead to greater success in predicting the future. This can only
be explained by the observation that the drivers of future events are
not exactly the same as they were in the past, so an improved encap-
sulation of history does not seem to lead to better prediction of the
future. Indeed, it might be argued that what the more complex models
are doing is capturing the noise (which will not repeat in exactly the
same way) rather than the underlying processes involved.
Forecasting is therefore something we are not very good at, regardless
of how we set about the task. We often do not know what we dont know
(Donald Rumsfelds famous unknown unknowns). And even when
we are aware of some possible adverse possibilities, we are often poor
at assessing their likelihood of occurrence and their possible impact.
Indeed, much of the literature concentrates on predicting the likelihood
rather than its impact. This can lead to misplaced confidence when a
low likelihood event has immense consequences.
Formal risk management processes seem to run into the same diffi-
culties. The often quoted remark that it is the process of risk manage-
ment rather than the formal outcomes that is important, indicates a
Thinking about Uncertainty 87
Reactions to uncertainty
profitable product for insurance companies who can diversify their risk.
Note, however, that many policies of this nature (e.g. travel insurance)
take care to exclude extreme events where a probability distribution is
not known (e.g. terrorist activity, nuclear contamination, etc.).
Even an individual may be able to reduce their exposure to uncertainty
by diversification. So, whereas investment in the shares of an individual
company may have an unacceptably high degree of risk/uncertainty
associated with it, a diversified portfolio covering many such companies
may be able to deliver a comparable return at lower risk. However, such
diversification does not protect against events that affect all companies.
The recent financial crisis caused substantial drops in equity share prices
in most companies on a global basis. In our increasingly inter-connected
world, there are a growing number of risks that are not mitigated by
diversification.
A final strategy can be to attempt to benefit from unexpected uncer-
tainties. To think about this requires consideration of both the likeli-
hood of an event and also its impact or consequences. An event may
have a small likelihood of occurrence, but the consequences if it occurs
can be substantial. In the recent financial crisis, some types of extreme
risk appeared to have been mis-priced allowing speculators to take
hedging positions that allowed them to benefit from low probability
adverse events.
Given that many of the above uncertain events have been difficult
to foresee, it is likely that some people may have been unexpectedly
lucky as well as others who have been unlucky. One practical
response to such outcomes is to take advantage of any luck which may
come your way, without falling into the trap of believing the outcome
was the result of you own superior skill or judgement. As Shakespeare
put it: There is a tide in the affairs of men which, taken at the flood,
leads on to fortune; omitted, the voyage of their life is bound in sorrows
and in miseries.
have generally been seen as low risk (although the increased globalization
of food supply can be seen as a process which has increased risk). Many
such companies have chosen to try to increase their returns by increasing
their exposure to risk by such mechanisms as high financial leverage. In
these circumstances, planning becomes a central tool where the predict-
able consequences of selected actions are analysed in considerable detail
over a lengthy period of time. In my own lifetime I have seen corpo-
rate plans covering a period of ten years (or even longer), although this
reduced to five years, and more recently most commonly to three years,
indicating a different perspective on the uncertainty that is perceived.
Indeed, even a three-year plan was described to me as having years
two and three written in pencil, indicating that it was more a one-year
rolling plan with a three-year horizon. The most common control tool,
even today, is budgeting which attempts to predict financial outcomes
over a one-year period. Even here, the Beyond Budgeting movement
has argued that such budgets give a false sense of security and inhibit
flexibility.
At the other end of the spectrum, we have situations where any
attempt to forecast the future is seen as problematic and as producing
more problems than it solves. An example would be the fashion industry,
where attempts to forecast what will be fashionable next season are
fraught with problems. At the top end, designers attempt to control
the market by deciding what will be fashionable, and selecting next
seasons colour palette, for example. But lower down, the mass market
tends to adopt an agile strategy that involves waiting and seeing. This
is possible only if the items which turn out to be in demand can be
designed, manufactured and distributed in a very short space of time,
typically ten days to six weeks. A by-product of this strategy in the UK
has been an increasing return to local manufacture to reduce lead times
in delivery. So the key attribute of such strategies is agility, a rapid reac-
tion to actual events which are observed, rather than any attempt to
predict them.
It seems obvious that both ends of such a spectrum are extreme. What
most organizations have to do is to place different aspects of their opera-
tions at an appropriate point on such a planningagility spectrum. Some
activities may need long-term planning, such as those which require
long-term capital investment, although this can be partially mitigated
by specifying flexible assets (e.g. some types of robotic machinery) that
can be utilized in a variety of ways. But other activities may continue
to be resistant to prediction. Who could have forecast the impact of the
internet on shopping habits, leading to the slow decline of the high
90 David Otley
street, but a relative increase in the requirement to deliver the goods and
services ordered in such a manner?
Finally, there is the area of risk management, a term which has
become increasingly popular in recent years. At one extreme, this seems
to require consideration of the possible risks faced by an organization,
but in practice appears confined to relatively predictable possibilities.
But at least this may stimulate some form of contingency planning of
a what will we do if ... ? nature. It is sometimes claimed that it is not
the outcome of risk management that is its key virtue, but rather the
process of thinking about it. Perhaps it is a process which can be used to
counter the human characteristic if ignoring or under-estimating future
uncertainties.
Handling uncertainty
no better than a random selection of shares that might yield (or perhaps
more sensibly, a tracker fund following the whole market or appro-
priate sector). However, this observed average effect does not rule out
the possibility that some managers may out-perform the market for an
extended period of time. [Interestingly, this effect may not be balanced
by an equal number of managers who under-perform as it is unlikely
these under-performers will remain in their jobs!].
Consider a starting position with 1024 fund managers (less than
currently exist in the UK), and assume that their performance is purely
a random effect driven by luck and chance rather than skill and judge-
ment. After a year one might expect half of them (512 managers) to have
out-performed the market, balance by another 512 who under-performed.
After two years, some 256 managers will have an above average two-year
track record. After five years, there will be 32 star managers who have an
enviable five-year record of out-performance and who will be only too
keen to advertise this outstanding track record. They will look all the
better for the fact that many of their former colleagues and competitors
may no longer be active in fund management and have sought their
fortunes in other occupations!
How then should we evaluate the performance of fund managers,
given that there will always be a significant number who have
achieved their success by luck alone? Clearly, track records need to
be regarded with care, as they may reflect more luck than judgement.
Nevertheless, the lack of a track record may be more worrying, despite
the fact that many of the under-performers may have suffered just
from bad luck. So reported results cannot give us the insight we need
into the qualities of the managers concerned; we need to examine the
processes by which they made the judgements to buy (or sell) shares
in their portfolios. But this is also an evaluation that has significant
difficulties in this industry. There is no approach that is guaranteed
to give superior results, for if there were, it would rapidly become the
normal approach in the market and inevitably fail to deliver in the
longer term.
It is notable that many fund managers set out the rudiments of their
favoured approach in their marketing literature. And I am happy to
acknowledge that they are probably being honest in their belief that the
approach they adopt has likely benefits. They are particularly likely to
believe this if they have enjoyed several periods of above average results!
But different approaches are suitable for different market conditions,
and it often seems to be the case that a previously successful approach
founders when circumstances change.
Thinking about Uncertainty 93
Conclusions
References
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7
Managing through Uncertainty
Mike Bourne
97
98 Mike Bourne
early double entry book keeping to recent times. In the late thirteenth
century, double entry book keeping became necessary as a means of
managing complex trading arrangements. For example, Johnson (1981,
p. 512) cites the Medici accounts as an excellent example of how a pre-
industrial organization could maintain a good account of external trans-
actions and stock without recourse to higher-level techniques, such as
cost accounting.
This situation persisted until the birth of the modern factory in the
early nineteenth century. Prior to the industrial revolution, merchant
entrepreneurs used a domestic system for manufacturing goods such as
textiles. This involved the merchant buying raw materials in the open
market and coordinating their conversion into manufactured items
through consigning the goods to independent households (Johnson,
1981). At this time, all the transactions were market based with arti-
sans working to market determined piece rates for the job. So in reality,
nothing had changed in accounting terms since the time of the Medicis.
Double entry book keeping was perfectly adequate.
Johnson (1981) argues that development in accounting practice came
in the United States with two major structural changes in the manage-
ment of production. Firstly, piece-work payment systems were replaced
by wages and, secondly, factories developed from single to multiple
operations. The transition from piece-work payments to a wage payment
meant that managers in the early textile mills could no longer know
what the product cost without records of output and wages paid. There
was also an additional problem. Without a piece-work rate, they (the
workers) had no automatic incentive to pursue the same goal when
being paid wages (Johnson, 1981, p. 514) so employees performance
had to be measured and monitored for control purposes.
Moving from single to multi-operation production also makes an
understanding of costs much more important. The development of
integrated mills in the USA necessitated management cost accounting
systems. In the UK, Johnson (1981) argues, single process mills relied
on efficient market institutions to coordinate different production
processes which eliminated the economic advantage of administrative
control and cost accounting systems. Thus, we see the emergence of
early cost accounting systems for internal control around 1850 in an
integrated New England textile mill (Johnson, 1972). These were used to
facilitate control of productivity, measure the impact of internal changes
and manage raw materials.
The next major development in management accounting coincides
with companies trying to progress from managing a single (although
Managing through Uncertainty 99
Taking Johnsons (1981) argument to the next stage, one would expect
each of these environmental changes to have an impact on the develop-
ment of management control and performance measurement systems.
For example:
At the centre of the debate was the issue of keeping the management
control system up to date. Traditionally, as described earlier, a change
in the environment normally triggers a change in the strategy which
then leads onto a change in the performance measures that underpin
the management control system. But organizations werent doing this,
106 Mike Bourne
which led the team to ask why? One of the conclusions was that such
an approach is too cumbersome and takes too much management time
and effort to implement. The solution proposed to this problem was the
Performance Alignment matrix.
The Performance Alignment Matrix is a simple two-by-two matrix
comprising two dimensions: outcomes and solutions (see Figure 7.1). Its
purpose is to help guide senior decision-makers in designing a manage-
ment control system that has the flexibility but aligns operations with
strategy. The argument made is that the control approach needs to fit
the environment in which the organization operates and the level of
uncertainty the organization faces. I will briefly describe the approach
here.
In the matrix, the outcome dimension captures the intended goals the
organization is trying to achieve. These goals can be stated in specific
terms or more general terms. This is to reflect the difference between situ-
ations where the organization can state its intended longer-term goals
precisely and situations where there is a broad understanding of what is
required. In the paper (Melnyk et al., 2014) the difference between these
two dimensions was illustrated by the example:
Specific Outcomes
I need five new products launched by the end of the year.
I need armed security to protect my supplies.
General Outcomes
I want to do radical innovation.
I want my supplies secured.
Outcome
General Specific
Assessment-driven Outcome-driven
General management soluons
Solutions
Increasing FAC
sophistication
STAGE-GATE NPD GOVERNANCE
Sophistication FEEDFORWARD ANTICIPATORY CONTROL:
level SOPHISTICATION LEVELS
7 Product Category level review of the FAC metric target
+
No Measurement
throughout the process. The team also start to assess the strategic fit
of the range being developed with the brand strategy.
At level 4, the sophistication develops to look at key ratios. The ratio
described in the paper is the FAC (Feedforward Anticipatory Control)
metric, in this case the cash margin per product. Forecasting cash
margin per product enables the team to think about the size of the
range and to balance the need for innovation with over and wasteful
development.
At level 5, the team introduce different scenarios to help them think
about the risks they are taking and the confidence in their forecasts
Finally at levels 6 and 7 the team start to reflect on the targets that
have been set and on the target value of the FAC metric itself.
In practice, this approach has proved remarkably useful for the manage-
ment teams developing the portfolios. Not only are the teams more
confident in their forecasts and selection decisions but results show
that the higher the level of sophistication used, the better the resulting
financial results (Baker & Bourne, 2014).
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112 Mike Bourne
Introduction
114
Uncertainty and Designing Compensation Systems 115
where the strategic priority is to be first to the market with new prod-
ucts. There is no adequate measure that can assess managerial effort
in achieving this priority; furthermore, desired outcomes have a long
time horizon. The wrong measures can lead to misdirected effort and,
worse, fraudulent behaviour that is costly for the firm and the individ-
uals within it. Such behaviour also influences the efficient functioning
of the market and hence has wider implications for societys well-being.
The consequences of Enron, Worldcom and, more recently, the global
banking crisis offer a pertinent illustration of the economic and social
consequences of poorly designed PMCS.
Our review incorporates research that examines how both contex-
tual and individual level variables influence PMCS, and conceptualize
uncertainty broadly to capture a variety of contextual factors. Otleys
definition in Chapter 6 (p. 83) is useful as he refers to uncertainty as a
lack of ability to predict what the future will hold, for good or ill ... and
involves an inability to forecast the likely consequences of such events.
This definition is consistent with early work of Galbraith (1977) and
Thompson (1967) who argued that uncertainty arises due to incomplete
information about processes required in transforming work into desired
outcomes and/or where there is ambiguity about what those desired
outcomes might be. In chapter 6, Otley sharpens this definition by recog-
nizing that uncertainty is not a fixed property of the external world (i.e.,
external to the individual) but rather a property of individuals or groups
of individuals. In other words, one individual can interpret a particular
organization context quite differently from another and will respond
accordingly. That is not to say that particular contexts wont make it
more or less challenging to predict the future but that the ability of indi-
viduals to manage under conditions of uncertainty will differ.
We examine those empirical studies concerned with the challenge
of designing PMCS in organizations faced with uncertainty. Our objec-
tive is to evaluate the current state of knowledge about the influence of
uncertainty on PMCS, and to try to make sense of what we have learned
about PMCS in complex settings. Two filters are used to narrow the scope
of our review. First, we aim to extend the Merchant et al. (2003) review
of incentive compensation systems by including only papers published
between 2003 and 2013.1 Second, we differentiate our review from that
of Franco-Santos et al. (2012), who reviewed the consequences of PMCS,
by including only those empirical studies that examine uncertainty as a
determinant of PMCS. Our focus on PMCS as the dependent variable is
also mindful of the concerns expressed in the literature with models that
include performance as the dependent variable.2 All studies that fit our
116 Margaret Abernethy and Julia Mundy
Theoretical perspectives
A B C D
Choice of
performance
measure/ Subjectivity/
Type of Uncertainty incentive Discretion Use/ Other
(IV) contract in use importance dimensions
Contextual
Environmental HassabElnaby Cavalluzzo
uncertainty et al. (2005) & Ittner
OConnor et al. (2004)
(2006)
Competition Evans III et al. Hansen & Van
(2010) der Stede
Hansen & Van der (2004)
Stede (2004)
OConnor et al.
(2006)
Strategy Dekker et al Hansen & Van Dekker et al
(2013) der Stede (2013)
Hansen & Van der (2004) van Veen-
Stede (2004) Lillis & van Dirks (2010)
HassabElnaby Veen-Dirks
et al. (2005) (2008)
Malina & Selto
(2004)
Ittner, Lambert &
Larcker (2003)
Uncertainty and Designing Compensation Systems 119
A B C D
Choice of
performance
measure/ Subjectivity/
Type of Uncertainty incentive Discretion Use/ Other
(IV) contract in use importance dimensions
Analysis
This section presents the results of our analysis. Table 8.1 includes all
studies classified by type of uncertainty and the PMCS dimension.
Where a study includes more than one type of uncertainty or examines
more than one dimension of PMCS it is included in the relevant cell.
Given the multiple ways in which PMCS have been defined and opera-
tionalized, we take some licence in classifying the PMCS of interest in
each empirical study.
strategic choices in the design and use of PMCS (Lillis & van Veen-
Dirks, 2008).
Risk increases the extent to which outcomes are controllable by managers
and thus influences the choice of measures and incentive contracts.
Firms facing higher risks are less likely to use measures that could
cause sub-optimal decision-making by managers (Evans III et al., 2006;
2010) but more likely to rely on group-based incentives that share the
costs of risk (Pizzini, 2010). High levels of risk can also be mitigated by
allowing evaluators to adjust targets downwards so that managers are
compensated for uncontrollable events (Bol et al., 2010).
Interdependencies reduce the informativeness of performance meas-
ures by obscuring the contribution made by different individuals or
groups. Research findings indicate that interdependencies can either
increase or decrease the choice and use of PMCS. There is evidence
that as interdependencies increase performance measurement tends
to incorporate a greater use of NFPM and/or disaggregated measures
(Gerdin, 2005; Hansen, 2010; van Veen-Dirks, 2010; Bouwens &
van Lent, 2007). However, the use of divisional summary measures
(i.e. ROI, RI) declines when the focal units actions affect other divi-
sions and increases if the reverse is the case (Abernethy et al., 2004).
Interdependencies also increase the reliance on group-based incen-
tives (Pizzini, 2010) and the use of subjective bonuses (Gibbs et al.,
2004).
Task complexity affects not only the understanding of means/ends rela-
tions but also creates a common problem faced by firms as managers
are expected to perform multiple tasks, some of which are measur-
able and others which are not (Roberts, 2010). Performance measures
become noisy and their use is often problematic for evaluating and
rewarding managerial performance. In line with theoretical expecta-
tions, the evidence indicates that task complexity is negatively associ-
ated with both the use of quality measures and the use of capitation
(fixed-fee) contracts due to the increased noise in performance meas-
ures (Evans III et al., 2006; 2010).
Noise in performance measures reduces their informativeness by obfus-
cating the relation between the outcome and the measure used to
evaluate it. Noise has a direct impact on the subjective use of PMCS.
For example, evaluators are more likely to rely on subjective measures
when objective measures do not provide sufficient information or
as a means to deal with unexpected performance (Grabner & Moers,
2013; Woods, 2012). However, noise in PMs can also cause managers
to make errors of judgement or to behave dysfunctionally (Krishnan
Uncertainty and Designing Compensation Systems 125
We note also the dominance of archival and survey methods in the selec-
tion of papers studied here. The full set of papers (i.e., 91) included many
experimental studies but only a limited number of case and field studies.
Many experimental studies focus on outcomes of PMCS, which enhance
our understanding of the consequences of PMCS, whereas case studies
are particularly useful in providing greater contextualization of PMCS.
Overall, the findings provide complementary evidence about the design
and use of PMCS under specific types of uncertainty. Although findings
are largely consistent across a variety of research settings and countries,
some studies point to differences that warrant further investigation. It
appears that different forms of uncertainty are more salient within some
industries and countries than within others. However, there is consistent
evidence that uncertainty is a significant determinant in the design and
use of PMCS.11 We find that uncertainty leads to increased adoption
and development of PMCS (e.g. development of more diverse measures,
introduction of non-financial measures), although its effects on the use
of PMCS are less predictable. For example, our analysis shows how some
forms of uncertainty have been found to lead to an increase in the diver-
sity and type of performance measures used while others have the opposite
effect. Similarly, noise in performance measures is associated with a greater
use of NFPM, whereas choices related to strategy and interdependencies
can lead to different effects. Uncertainty can also impinge on managers
ability to choose the right measures or to make evaluations based on the
available information. Despite the challenges involved in the design and
use of PMCS the evidence suggests that the choice of measure and way
in which those measures are used can mitigate some of the unintended
consequences when firms face increasing levels of uncertainty.
We identify very few papers that investigate simultaneously the effects
of different forms of uncertainty on PMCS. However, when viewed
together, some of the findings potentially give rise to incompatible
choices. This indicates the importance of understanding how different
forms of uncertainty might interact to influence PMCS in different
ways. For example, if competitive environments are not conducive to
the use of budgets in performance evaluations, then it is not clear how
firms pursing a cost leadership strategy can balance this against a focus
on tight cost control. Task complexity is associated with a reduced reli-
ance on quality measures, but this might conflict with the greater use
of NFPM in competitive environments. Firms with a high level of inter-
dependencies between departments must balance the relative merits of
aggregated and disaggregated measures, while simultaneously consid-
ering the increased use of NFPM in such situations.
Uncertainty and Designing Compensation Systems 127
Notes
1. We acknowledge the financial support provided by the Department of
Accounting, University of Melbourne and also the most valuable research
assistance provided by Estha Gondowijoyo. We also thank the editors for
Uncertainty and Designing Compensation Systems 129
Research
Author Year Journal Theoretical base Method
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132 Margaret Abernethy and Julia Mundy
134
Controlling Creativity and Innovation 135
There are many definitions and viewpoints about creativity and inno-
vation. Referring to Fagerberg (2005) creativity is here understood as
the ability to imagine and source visionary new ideas and inventions,
and innovation as the first attempt to implement those incremental or
radical novelties in practice. Creativity and innovation are both asso-
ciated with how humans work together, how the work environment
inspires new ideas and how it shapes the ability to execute those ideas
(Adler & Chan, 2011; Amabile et al., 1996). Although creativity has rele-
vance along the whole innovation process, it is said to be particularly
crucial at the beginning of the idea creation stage (Davila et al., 2009b).
From a control perspective, the distinction between creativity and
innovation is important because the ability to imagine, visualize or
identify new ideas roots partially in different individual and organiza-
tional requirements than the execution of those ideas in practice (e.g.,
Davila & Ditillo, 2013). In this regard, social psychological research has
shown that creativity is associated with environmental conditions that
enhance intrinsic motivation. Creativity relates to personality traits such
as freedom, discretion, independence and self-determination (Barron &
Harrington, 1981). Furthermore, organizational environments where
employees autonomy on task strategies is reduced (to the extent that
it hampers experimentation) affect intrinsic motivation and creativity
negatively (Amabile, 1983).
With regard to innovation, the traditional R&D view has been that
it should be protected within the organization. However, during the
last decade the view that companies should systematically open up
the innovation cycle has received increasing attention in practice and
research. Organizations use external ideas as well as internal ideas,
and internal and external paths to market, in order to advance their
technology (Chesbrough, 2003). For example, so-called inbound proc-
esses refer to the integration of suppliers, customers and other external
knowledge sources (e.g. buy or license patents). These activities require
an innovation network, the ability to source outside knowledge, and the
financial strength to acquire knowledge carriers (Piller & Walcher, 2006).
In contrast, outbound processes are concerned about benefitting from
136 Jan Pfister
The two case examples are IBM and Standard Chartered. They have in
common that both are large multinational companies with a concern to
stay at the forefront of the technological developments in their respec-
tive industries. By doing so they have a particular interest in screening
the markets for suitable ideas and start-ups that could help transform,
advance and grow their business.
The cases were developed via semi-structured interviews with the
key managers responsible for the specific innovation areas in the two
companies. These interviews were recorded, transcribed and analysed
with NVivo. In addition, publicly available information complemented
the case writing.
So the best way to predict the future is to inspire the next generation
to build it better, the future already exists at universities its just not
140 Jan Pfister
Spohrer leads a team of about 500 people worldwide that manages a data-
base and network of 5,000 universities. The Program is facilitated through
several initiatives. For example, within their Global Entrepreneurship
Program, IBM makes software freely available to start-ups that generate
up to one million revenues and are less than five years in business. They
also organize so-called Smart Camps around the world. If a start-up is
selected to participate in that they can obtain additional funding for free
advertising and venture capital and also might get integrated into IBMs
customer accounts.
Interestingly from a control perspective, IBM applies rigid and detailed
formalized processes to select these start-ups. These evaluations include
internal and external indicators, the research skills of the university
as well as the universitys connection to IBM, for example in terms of
providing employees or being a customer of IBM itself. As Spohrer points
out, at the core of this control process is a sophisticated algorithm that
has been developed based on large data and experience:
Well the hidden part is what are these 28 variables and the exact
nature of the algorithms, we keep that very close to our chest, but we
let people know this is the way, you know, this is what were doing
so help us, you know, because thisll help you. If you have a start-up,
if youre a university and you can produce start-ups and align with
us this is what were trying to do, were trying to basically help your
entrepreneurs coming out of your university get stinking rich. And
when theyre rich, theyll give back to the university and youll have
a brand new reputation so whats not to like about this model, its
just, its basically service science, service is the application of knowl-
edge for mutual benefit.
IBM introduced the term service science which entails the applica-
tion of rigorous scientific methods to the study of business and soci-
etal systems, thereby designing and implementing complex tasks that
Controlling Creativity and Innovation 141
provide value for others. This control philosophy roots in the assump-
tion that one can develop the optimal set of equations and algorithms
upon which innovation can be formally steered. IBMs CFO clarified at
public speeches that these 28 variables are at the centre of their decision-
making and if applied correctly can create a sustainable winwin situ-
ation for all parties involved. Although some of the variables might be
more important than others, the formula is continuously tested in terms
of the behaviours and processes that improve the performance along
those variables. Hence, IBM has developed highly formalized procedures
to select, adapt and integrate external innovations into their business
and has designed these control processes as fit to their business envi-
ronment. This is an approach that stands in contrast to the next case
example of Standard Chartered.
The SC Studios office consists of four full time employees and relies mainly
on specialist contractors. For example, they added temporary develop-
ment groups for the design of specific applications or hired consultants
and other parties on demand. SC Studios primarily works with and reports
to the Chief Information Officer (CIO) of the bank in order to provide the
required information at a relatively senior level. This information is then
used top down from the CEO-level. However, SC Studios also aims for
broad engagement outside of the IT vertical, and works with across levels
in the bank as they encounter interesting products, services, or concepts
that may be particularly useful to a business unit.
From a control perspective, SC Studios is classified as a non-banking
entity and maintains full legal/policy compliance while not needing
heavy bureaucracy and rigid standardized processes that can be typical
in other areas of the bank. SC Studios was created on the basis that the
bank is by necessity a structured and regulated institution that addition-
ally requires a pipeline of innovation insights and opportunities that
come from a wide variety of sources. Schofield explains:
Discussion
Innovation How to identify and select suitable How to keep the bank at the
challenge start-ups from university ecosystems forefront of technological
around the world and integrate them innovations despite being
with IBMs Smarter Cities Intelligence remotely located from Silicon
Operations Centers Valley where many of these
trends come from
Business Formalized and well-established Formalized and well-established
environment structure; Progressive, experimental structure; Highly regulated,
and innovative business bureaucratic and relatively
IBM is an innovation company. inagile business
We pursue continuous Standard Chartereds ambition is to
transformation both in what we be the worlds best international
do and how we do it always bank. We bank the people and
remixing to higher value in our companies driving investment,
offerings and skills, in our operations trade and the creation of wealth
and management practices, and in the across Asia, Africa and the
transformational capabilities we deliver Middle East
to our clients.
MCS Use of algorithm to make decisions Use of a special and agile unit
about acquisitions of start-ups; outside the structure to flexibly
Provide start-ups an ecosystem capture the newest innovation
to scale their innovations rapidly trends and keep the bank at the
around the globe forefront of the technological
o MCS are formally integrated with developments
the innovation ecosystem of the o MCS are formally excluded
business from the highly regulated
banking bureaucracy
2008) respecting the broad view of MCS (Ferreira & Otley, 2009) supports
innovation within the company, and consequently the organization is
more likely to accept and successfully apply formal control procedures
for innovation. In contrast, the type of worker attracted to the bank
is clearly different from the IBM case. By nature of the industry, this
business is rather conservative, bringing in more compliance and task-
fulfilling people that are accustomed to work with the banks proce-
dures and compliance mechanisms. Formalizing innovation within this
business would be difficult to develop as the type of employee is less
likely to be driven by technological novelties. The solution for the bank
is a comparably small investment, giving a few employees the task of
networking and feeding the global bank with information about inno-
vations. Consequently, both case examples seem to balance the context
and conditions needed for creativity and innovation to occur, but with
radically different solutions.
Conclusion
Notes
1. I would like to thank the editors and Kari Lukka for their comments on the
draft; Jim Spohrer (IBM) and Todd Schofield (Standard Chartered) for their
valuable time for the interviews and Solomon Darwin (Center for Corporate
Innovation at UC Berkeley) for support with access.
2. Quotes are based on interview with James Spohrer, IBM Almaden Research
Center, San Jose, June 2013.
3. See recent article in Financial Times by the CEO of Standard Chartered: Sands,
Peter (2013) Banking is heading towards its Spotify moment, Financial Times,
June 30.
4. Quotes are based on interview with Todd Schofield, Standard Chartered Bank,
San Francisco, July 2013.
5. Quotes in the table are from vision and strategy statements of company
websites.
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10
Managing Management Controls
Sophie Tessier
Introduction
149
150 Sophie Tessier
out of stock to order (clear choice, but loss of sales). To circumvent this
problem, while still providing leeway to employees, the finance director
suggested a restricted order form (default option) with the possibility of
ordering from the full catalogue (opt-out option).
Other procedures are implemented to formalize unwritten rules
(March et al., 2000). Indeed, the absence of formal rules does not mean
that there are no rules (Perrow, 1986). To illustrate this, Perrow gives
the example of an employee who takes initiatives (because there are
not supposed to be any rules) ending up being told he did something
wrong. In other words, the absence of rules can lead to a lack of direc-
tion (Merchant, 1985) resulting in employees learning by the nega-
tive (Tessier, 2009). Formalizing the unwritten rule reduces ambiguity
regarding what is acceptable and what is not.
Finally, other reasons for implementing controls include growth (which
creates coordination problems) (March et al., 2000; Tessier, 2009), new
technology (March et al., 2000) and new laws (Tessier & Otley, 2012b).
[The control] was not user friendly, because it was newly launched.
This year, we did a lot of improvement on it [ ... ] its really easy. So it
went from the worst tool to now where [the users] they like it very
much.
or the incentive to propose and facilitate change (Adler & Borys, 1996).
On the other hand, enabling procedures, which have an inherent repair
feature and which have internal and global transparency will lead to
more improvement, because users will have both the knowledge and
the incentive to participate in the improvement process (Adler & Borys,
1996).
With time, control packages will become more stable and while the
population of rules grows, it does not grow exponentially. Indeed,
once new rules are implemented for a particular problem and once
knowledge of these new rules increases, the need for further rule
implementation and improvement decreases. In other words, the rate
of birth and rule revision decreases with the age of the rule regime.
As a result, rules become part of the scenery and are taken for granted
(March et al., 2000). However, when this happens, organizations stop
paying attention to these particular areas of their control packages.
Organizations will move their attention to new problem areas which
require new rules and will pay less attention to revising existing
ones.
When controls are not improved on a regular basis, or when organiza-
tions move their attention to other problem areas, controls can become
obsolete beyond repair and have to be removed, rather than changed.
Thus, an organizations level of tolerance to rule obsolescence will have
an impact on control improvement and the speed at which controls
become obsolete. In fact, Schulz (2003) found that the number of years
since the last revision is negatively related to rule revision, but positively
related to rule suspension.
What people have been doing is trying to dam the hole in the dyke,
keep on putting something in there just to make sure we comply and
what we havent done is say well what we should do is take all of
that and put one piece of concrete in place. (Tessier & Otley, 2012b,
p. 787)
Concluding remarks
This chapter suggests that a systematic process for reviewing and moni-
toring control packages should be introduced into an organization to
ensure that there are no controls missing, that the ones in place are
as effective and efficient as they can be, and that obsolete or dupli-
cate controls are removed. This new activity or task could be called
controls management or as Anthony (1965, p. 258) called it Control of
the Management Control System. This requires different levels of moni-
toring: control level (monitor a specific control), process level (monitor
controls in a specific process), organization level (monitor controls in
different processes to identify redundant controls: corporate govern-
ance, risk management, internal auditing, external auditing and SOX
management) (Tessier, 2009).
In Chapter 6, Otley mentions that a common reaction to uncertainty
is to ignore it. To an extent, the control of management control activity
is based on an acknowledgement of uncertainty. Underlying the proac-
tive search for missing controls is the realization that uncertainty as
Managing Management Controls 159
to what the future holds will lead to new needs for control in the future,
needs that cannot be foreseen in the present. Similarly, searching for
obsolete controls implies that the environment has changed in unex-
pected ways that renders some controls obsolete. Furthermore, imple-
menting best practice to help employees with weak predictive models is
acknowledging that uncertainty lies within individuals, as explained by
Otley, and that sharing knowledge and experience, in the form of best
practice, will improve the predictive models of others.
The control of management control activity is also a way of coping with
uncertainty. Implementing controls such as best practice is an attempt
to reduce uncertainty regarding the accomplishment of certain tasks.
Moreover, implementing new controls is often done even though imple-
menters are uncertain about what is required. The proactive manage-
ment of controls implies that controls are implemented regardless of
uncertainty with the intention of adjusting and improving controls
once uncertainty has been eliminated (or at least reduced) knowing that
experience with less than perfect controls is contributing to this reduc-
tion in uncertainty. Hence, it allows organizations to implement less
than perfect controls (that will subsequently be improved), rather than
waiting for uncertainty to disappear on its own.
The complexity of organizations operations, and the level of regu-
lation from industry-specific regulatory bodies, and from the finan-
cial market in addition to the individuals need for structure and role
clarity suggest that the use of technical controls is not going to lessen in
the years to come. Rather than being trapped in a vicious circle of rule
proliferation, where new rules are implemented to unify and systema-
tize existing rules (March et al., 2000), organizations would benefit from
investing the time and the resources to actively manage their manage-
ment control systems to take full advantage of their benefits and lessen
their disadvantages.
Note
This chapter is loosely based on Tessier & Otley (2012b).
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Ahrens, T. and Chapman, C. S. (2004). Accounting for Flexibility and Efficiency:
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Contemporary Accounting Research, 21(2): 271301.
160 Sophie Tessier
Introduction
162
Feel the Risk 163
Literature review
Anticipated outcomes
(including anticipated Cognitive
emotions) evaluation
Subjective
probabilities Behaviour Outcomes
(incl. emotions)
Feelings
Other factors
e.g., vividness,
immediacy,
background mood
without realizing the detail of that analysis. So whilst some decision bias
may arise from over-confidence (Griffin & Tversky, 2002) when experi-
enced managers begin to trust their own judgement too much (a form
of management hubris), this does not invalidate the potential usefulness
of human judgement in SIDs.
Remarkably, Kahneman & Klein (2009) joined forces to argue that the
two apparently opposing paradigms of heuristics as bias (HB, work
by Kahneman and his associates) and naturalistic decision-making
(NDM, work by Klein and Simon) are actually compatible after all.
Eureka! Their main differences stem from the fact that HB research
is largely conducted in laboratory settings and is predisposed to
algorithms, whereas NDM is conducted in the field and adopts an
admiring stance towards experts. The admiration for expert judgement
stemmed from early research that observed successful chess players. It
might be argued that the same rigour has seldom been applied in SID
research. Kahneman and Klein argue that whilst their predispositions
and emphasis differ, they acknowledge the potential for both system 1
and 2 decision-making in practice, with the caveat that professional
intuition is sometimes marvellous and sometimes flawed.
Dane and Pratt (2007) explored the effectiveness of intuition in mana-
gerial decision-making, proposing a model that incorporates both the
domain knowledge and task characteristics, which supports the
view taken by Harris (2009) that understanding the managerial cogni-
tion of the risks attached to a particular type of project in a particular
industry (through cognitive mapping) can help managers to mobilize
their expert intuition in SDM. Advocates of Simons approach suggest
that his bounded rationality can usefully be applied to examine the
cognitive processes of experts to improve our understanding of human
decision-making (Campitelli & Gobet, 2010). Much psychology litera-
ture deals with personal decision-making of individuals rather than
collective decisions in an organizational context, although the concept
of social intelligence is acknowledged (Hertwig & Herzog, 2009).
It is argued here that this must surely influence managers heuristics and
help to develop a shared cognition of business motives and the environ-
ment such that expert intuition will take the BSC as a reference point. If
this is the case, it is argued that the BSC could and should be recognized
as an appropriate form of framing for strategic decisions. It seems odd
that few companies seem to have taken BSC principles on board in SDM
despite guidance from the original authors (Kaplan & Norton, 2004) in
their work on strategy mapping. While Woods (2011, p. 162) advocates
integrating risk and performance measurement, there is little guidance
for practitioners about how to integrate risk and BSC into SDM.
The so-called paradox of risk is that often there is more detailed risk
analysis at the operational level and not enough at the strategic level.
Whilst there is a place for quantitative methods, when we have reliable
enough data to make it meaningful, strategic level managers could do
well to feel the risk and harness their expert intuition (benefitting
from the NDM research) as well as using multiple performance measures
to evaluate propositions.
The main conclusions from the literature are that appraising SIDs
requires more than the single aim of profit maximization to be consid-
ered, that risk and other non-financial factors are not easily measured
but need to be assessed, that managerial judgement is based on concepts
from psychology, but decision-making involves multiple managers and
most relevant behavioural theories relate to the individual. It is also
difficult to discover how managers feel the risk and match (or not)
their risk appetite with that of their organization, especially through
survey research methods, where respondents may over-emphasize
rational approaches.
The main argument of this chapter is that as traditional capital budg-
eting techniques are inadequate for SID-making in todays increasingly
uncertain world, more flexible frameworks such as BSC and cognitive
174 Elaine Harris
Notes
1. The mathematics of portfolio theory are not covered here, see Bromwich
(1976): 295301.
2. Option pricing theory examines the benefits of holding an option to invest,
so delaying a decision to invest until a later date when there is less uncertainty
surrounding the likely outcome.
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12
Management Control and
Uncertainty: Risk Management in
Universities
Kim Soin, Christian Huber and Sharon Wheatley
Introduction
178
Risk Management in UK Universities 179
Further practical guidance on how HEIs can enhance and embed their
risk management processes is to reconcile the top-down and bottom-up
elements of a risk management process. Figure 12.1 illustrates the risk
management activities HEFCE would expect to see in an institution
following current good practice.
Strategic Planning
Current & Future Risk Profile Feedback &
High-level
(monthly / quarterly) Actions
SWOT/STEP
& Strategic Risk Integration Action
Integration of
of Strategic
Strategic &
& Action
Operation-wide Planning
Register Operation-wideReviews
Reviews Planning
Collation of
Operational Risk Reviews
Operations
Operations Programme & Project Functional Support
Risk
RiskReview
Review Risk Review Risk Review
Audit
Risk HEFCE Risk committee
Policy format/cited Register responsible Risk Map
across the whole university and to identify ways to embed the risk
management system. In conjunction with internal audit, they devel-
oped ways to share risk management knowledge for example, via
training sessions.
Lower down the organization at the management level, where much
of this control activity was enacted, there were more diverse views on
risk. Competing aims, lack of engagement with, and ownership of the
system as well as a reluctance to engage in the process were all evident in
academic attitudes towards risk management. For academics, this mana-
gerial/bureaucratic style of control (Macintosh, 1994), was a complete
anathema that challenged the traditional (management control) values
of autonomy, creativity and collegiality (Ezzamel, 1994; Macintosh,
1994; ter Bogt & Scapens, 2012). Risk management was perceived as
an administrative task rather than an academic one. Some academic
managers (for example, Heads of Schools) were unwilling or unhappy
to be interviewed on the topic, saying they knew nothing about it.
Many brought administrators to the interviews because they were seen
as more able to answer questions about risk management. This fear
of the risk management system led to a myopia about the active control
systems that were already in place to alleviate risk. Things that covered
traditional academic territory like controlling academic risks around
students: issues such as progression, recruitment patterns and the
viability of new courses. These issues covered traditional academic terri-
tory and systems were already in place to assess, document and control
risk in these areas.
The formal risk register was not identified as part of any risk manage-
ment controls by any of the interviewees and the role and purpose
of the centralized risk register was unclear throughout the research.
Although, in theory, it can be a means to improve risk management
within an organization by forcing senior managers to be accountable
for the identification, assessment and control of risks they manage,
it is clear that senior managers in academic departments did not feel
comfortable with such forms of practice. Added to this, there was a lack
of clarity about how transparent and open the risk register is meant to
be and who has access to the document. Accountability in particular
was a thorny issue: formal responsibility for the preparation of local
risk registers was assigned to Heads of School. Yet, in the 2005 risk
register, all the people identified as being responsible for risk manage-
ment were administrative staff (even where it was clearly an academic
management issue). Consequently, accountabilities for the process were
unclear. The following example archive keeping demonstrates that
188 Kim Soin, Christian Huber and Sharon Wheatley
practices with artefacts like risk registers becoming a central part of the
risk management policy. Although self-regulation enables organizations
to decide on the internal processes to achieve external targets and aims
(Ayres & Braithwaite, 1992; Culpitt, 1999), standardized responses are
frequently utilized, as our web-based search of university websites shows.
Risk registers and risk policies are the most common tools for managing
uncertainty in universities. Risk registers have become widespread in
many different types of organizations (Jordan et al., 2013). One reason
for the popularity of these tools could be that they are fairly generic,
which makes them applicable to a number of contexts by a number of
people. Another reason could be that they are easy to interpret, which
helps them to create accountability, as a number of stakeholders (such
as HEFCE in the higher education sector) can interpret the data and thus
call for such a form of representation. As Power et al. (2009) summa-
rize: the circulation of generic risk management standards and princi-
ples creates isomorphic pressures on organizations to conform to these
models and to apply them: a good organization is one which manages
risk in accordance with established frameworks (p. 169).
If Powers (2007) thesis that powerful discourses of accountability
and transparency are affecting many current management practices is
correct, then risk management can be seen as a response to calls for
accountability par excellence. The example of universities, again, can
shed some light on this development. HEFCE is a government agency
and deeply embedded in public discourses of spending tax-payers
money for the benefit of society. In this function, HEFCE is accountable
to the government and the nebulous figure of the tax payer. More impor-
tantly, HEFCE is also the propagator of accountability and imposes the
need and the technologies of accountability on universities. Enforced
self-regulation is a form of regulation which is especially prone to the
logic of accountability, as organizations must prove that they do not
abuse their freedom. This logic of governance is turning the organiza-
tions inside out, as Power (2007) argues. Organizations must use forms
of governance and management control to prove to stakeholders that
they behave accountably. The only way to do so is to lay bare the inside
workings of the organizations including the management of risk.
Where do these efforts to achieve accountability leave the prac-
tice of management control? We suggest that risk management is not
replacing traditional forms of management control but complementing
them. In our empirical example, this intertwinement occurred at the
senior management level. Risk management tools were used in addition
to more traditional forms of reporting and incorporated into existing
190 Kim Soin, Christian Huber and Sharon Wheatley
Notes
1. For a comprehensive discussion of the origins and influences of NPM on
public administration see Gruening (2001), Hood (1991, 1998), Pollitt
(2004).
2. In the higher education sector, reports such as the Jarratt Report (1985)
can be seen as manifestations of external attempts to change the internal
governance of institutions and the influence of managerialist values on the
sector.
3. HEFCE copyright material is reproduced with the permission of
Higher Education Funding Council for England (HEFCE) and may be
accessed in its original form here: http://webarchive.nationalarchives.
gov.uk/20100202100434/http://hefce.ac.uk/pubs/hefce/2005/05_11/
4. Although it is worth noting that SWOT (a similar type of analysis) is an
essential component of the HEFCE risk management template (see Figure 1,
page 7 and page 29 of HEFCE, 200511).
Risk Management in UK Universities 191
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192 Kim Soin, Christian Huber and Sharon Wheatley
Introduction
Thus far, this book has directed significant attention towards issues
of uncertainty, management control and controls; however, to under-
stand their true complexity, these matters benefit from further exami-
nation in the context of real business practices. This chapter will draw
on issues discussed elsewhere in this book and explore their relevance
within the UK electricity generation industry. Issues, such as the human
reaction to uncertainty, as discussed in Chapter 6, and how it can be
addressed by reducing exposure to it and attempting to benefit from it
will be addressed in this chapter. Chapter 10 introduced issues relating
to how controls are often introduced when new external regulations
emerge within the industry, and this is discussed further by exploring
how companies can reject new controls by choosing not to comply
and/or by holding back investment. Chapter 11, meanwhile, calls for
more research into the practice of strategic decision-making in its socio-
political, organizational context and how this influences how managers
assess the likely risks to a project before approving them; this chapter
will examine how in the electricity generation industry it was not risks
per se that led to the holding back of approval but rather uncertainties,
leading to a push for consultation on a new public policy.
This chapter will consider all of the issues highlighted earlier, by
providing a contextual industry analysis, focussing on uncertainty
arising from current and potential future regulations. It will explore
how uncertainty critically limited investment in the UK electricity
generation market, by examining how energy companies make multi-
million pound capital investment decisions in a climate of significant
regulatory uncertainty. By examining the increasing environmental
193
194 Liz Warren
Investments: investment
appraisal
Institutional process
10%
De-rated capacity margin (%)
0%
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
Year
made; in the UK most of this pressure comes from subsidies that the
renewables are receiving. The gap between price and risk is a significant
issue, because the model private investors use to make decisions relies
on returns and risks being compatible if investment is to take place.
Shareholders demand good returns on their investments. It is there-
fore not surprising that the UK is now in a position where a significant
proportion of the assets generated are either naturally coming to the end
of their useful life (many are nuclear plants), or are closing because the
owners costbenefit analysis does not deliver profitable results (many of
the large coal plants). Investing in the necessary equipment to comply
with new environmental EU legislation creates, in many cases, unprof-
itable projects. Within the UK, in addition to EU regulation filtering
through, there has also been an added complication; that is, there was
no meaningful energy policy. The generators had no idea, aside from
renewables, what technology or fuel type would be favoured in the
future. As the big six companies, in the UK generation industry, are
mainly international companies, their capital allocation for new invest-
ment must be considered from an international perspective. Therefore,
if the cost of capital and risk is lower in another country compared to
the UK, then that is where they will make an investment, given that
returns are higher. There is no loyalty to the UK.
25%
71%
Figure 13.3 Chart revealing real options theory with Combined Cycle Gas
Turbine investment applications
Source: Plats new power and respective developers. Cited in E&Y (2013).
In this industry the value comes from taking a wait and see approach
towards future regulations, as can be seen in Figure 13.3. Figure 13.3
demonstrates the real options theory being used in practice with only 4 per
cent of approved investments actually being constructed; the others have
either been suspended or the applications are being held back. Examining
their capital expenditure budgets the generators had to consider how
much they wanted to spend given the amount of uncertainties. The
generators recognize that future regulations could improve the economic
conditions for long-term investments. Thus, Guthrie (2012) states that
real options analysis is of critical importance in industries where high
capital investments are required, such as the UK generation industry. It is
argued that real options modelling can assist multinational organizations
to downsize their risk exposure (Driouchi & Bennett, 2011).
The direct result of the application of real options to the industry was
the governments White Paper in 2011. The government was forced
to accept that the issue of sustainability urgently required addressing,
through the creation of new policies and market structures to encourage
a balanced portfolio. No one knows whether the consultation process
Regulation of UK Electricity Generation 203
outlined in the paper will be successful, but there is certainty that regu-
latory intervention is required to encourage investment; as no govern-
ment can afford the consequences if blackouts occur.
The White Paper (DECC, 2011) initiated the Energy Market Reform
(EMR), and focussed on decarbonization and renewable issues by
providing fixed prices in the form of Contracts for Difference (CfD),
carbon price support (CPS), capacity market (CM) and Emission
Performance Standards (EPS); however, there remain many associated
problems and uncertainties that arose from the proposals and will be
of concern for many years to come. Pollitt and Haney (2013) argue that
although the government is promoting the EMR as a total re-design of
the market they also suggest that is it simply an attempt to balance the
market by combining available subsidies. Although combining subsidies
would possibly generate an intermediate solution for the government, in
terms of its low carbon policy it will do little to resolve macroeconomic
problems and thus will continue to provoke uncertainty among inves-
tors (Pollitt & Haney, 2013). Sarasini (2013) adds to Pollitt and Haneys
(2013) concern, arguing that existing climate energy policies are full of
uncertainty when examining medium- to long-term frameworks.
As discussed in Chapter 6 some activities within organizations (and
this can include markets) are resistant to prediction; this can create
problems for management control systems. The chapter has demon-
strated that changes in regulations can result in prediction problems in
investment appraisal scenarios that produce uncertainty. It is not that
the issue of uncertainty is new, as argued by Soin and Collier (2013:
85), managers have always faced uncertainty it is a central feature
of any organizational setting; it is that uncertainty is emerging from
many different sources. However, this chapter has specifically exam-
ined uncertainty as it emerges from the prospect of current and future
regulation.
Regulation within the industry has added an interesting character to
the exploration of uncertainty, because it is simultaneously a vehicle
that the government can use to push its own political agenda, i.e. on
the environment, and plays a significant role in investment decisions
made by generators. In short, the introduction of new regulations often
creates a need for new management controls to monitor the item being
governed through the new regulation; these are non-negotiable (March
et al., 2000; Tessier & Otley, 2012). However, an interesting aspect of the
UK electricity generating industry is that the generators have refused to
accept the status quo and use management control features to create a
crisis, an investment hiatus and to encourage change.
204 Liz Warren
Conclusion
Notes
1. Separated into two companies, Innogy (2000), now known as RWE (2002)
and International Power (2000).
2. Owned by EON since 2002.
3. Until 1996, this companys ownership was maintained by the government,
and known as British Energy. Then EON acquired it in 2009, rebranding it in
2011 as EDF Energy Nuclear Generation Limited.
4. Security of supply is the industry term for the ratio of supply against demand
the aim is to have more supply than demand.
5. A 35% reduction based upon 1990 emissions values.
6. Although it is recognized that nuclear is a clean technology, under current
legislation (in most parts of the world) it is not considered a renewable.
Renewables include solar, wind, hydro etc. ... (IEA, 2014).
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206 Liz Warren
207
208 Olivier Saulpic and Phillipe Zarlowski
In the section that follows, we draw out some implications for teaching
and research and as in the previous section use examples based on
our experience as academics to illustrate our propositions. We have to
acknowledge/recognize however, that we have gained our experience
over the years in a specific context the French elite school system
within the field of Higher Education Institutions (HEIs). Several illustra-
tions we provide and recommendations we formulate have been shaped
by our interactions with actors in this system and developed within
the institutional context in which we have been embedded. Therefore,
we briefly review some features of the French elite school system that,
in our view, are relevant to the ideas developed in this section, before
presenting and illustrating the implications that we draw for teaching/
education and research.
solved. This is also the period in which business schools in France have
established their permanent faculty. Recruitment was partly among
young academics that had been sent on research grants to the business
schools of leading research universities in the United States to earn their
PhDs, and partly as technical experts in the field of management (Takagi
& de Carlo, 2003; see also Kodeih & Greenwood, 2014). The constitu-
tion of a permanent faculty has been one of the major transformations
in the internal organization of the schools, as they became more central
institutions in the field of HEIs for the production of business, political
and administrative elites.
This brief overview of some of the features of the elite school system
in France depicts a context in which todays senior managers in private
or public sector organizations have had very little exposure to research
activities or research results, methodologies or epistemologies during
their own initial academic curriculum. When they have, it is very likely
that these research activities or results were underlain by the quasi-
positivism epistemology of decision/economics/management sciences,
which was dominant at that time in France. In both cases, the emphasis
is placed on the problem-solving capacity of management and/or
management sciences.
Conclusion
Notes
1. In the developments that follow, we refer to management control textbooks
in general, without referring to any specifically. While we readily acknowledge
that our propositions might not hold for every textbook, we refer here to text-
books as a genre and to the type of knowledge this genre generally conveys.
As co-authors and coordinators of management textbooks ourselves (Saulpic
et al., 2011), we know that we have not avoided several of the pitfalls that we
are reflecting on in this chapter. With the propositions we develop here, we
simply intend to reflect on the contributions that we, as academics, can have
Rethinking Knowledge in MCS Research 221
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Rethinking Knowledge in MCS Research 223
Introduction
224
Management Accountants as Strategists 225
Isolate Hierarchist
Low group, high grid High group, high grid
GRID
Individualist Egalitarian
Low group, low grid High group, low grid
GROUP
base. Job titles signify the status of each member of the accounting depart-
ment, supported by job descriptions that delineate levels of authority
and set out the types of task that can be undertaken dependent upon job
title. All of this ensures there are no doubts or uncertainties about the
role of each member of the accounting department.
Similarly, pre-1980, organizations clearly distinguished manage-
ment control from strategic planning (Ittner & Larcker, 2001p. 351). If
strategizing is not denoted as an element of the accountants role then
that accountant is highly unlikely to strategize as this would arouse
suspicions and create uncertainty regarding demarcations in respect
of internal boundaries. Should an accountant presume to engage in
strategizing when it is not designated a part of their role, there will
be mechanisms for dealing with this aberrant behaviour to alleviate
the uncertainty this creates. For example, in extremis, organiza-
tions will expel troublemakers from the group through dismissal
procedures. These internal boundaries also hinder the development
of novel management accounting initiatives as they do not facilitate
cooperation between management accountants and others within the
organization.
The actors within a strong grid (hierarchical) organization would view
accounting staff as specialists possessing specific accounting-related
proficiencies as denoted by professional accounting qualifications,
which would confer respect and be important symbols of status across
the organization. This view of accountants as specialists accords with,
and upholds, the hierarchical pattern of social relations.
The design of accounting-based systems that support the strat-
egy-making process will also be affected by the prevailing culture.
Management control systems, for example, will be organized differ-
ently in hierarchical and individualistic organizations. In the former
type of organization these systems will tend towards being bureaucratic
or mechanistic. Standardized procedures for the operation of the
systems will have been drawn up by the accounting department and it
will be expected that other parts of the organization comply with these
procedures. It may appear strange that individuals will follow systems
blindly and without querying their efficacy, but this can occur when
there is a hierarchical expectation of compliance. The hierarchical
organization is seeking to maintain the status quo wherever possible
and any questioning of this creates uncertainty as it threatens the hier-
archical solidarity.
The strong group aspect of the hierarchical organization suggests the
accountant is likely to view their role as dominated by a stewardship
232 Philip Linsley and Alexander Linsley
function for he or she will perceive their primary duty as ensuring there
is certainty in respect of survival of the group and this is best achieved
by being a guardian of the organizations capital. This implies a cautious
and prudent approach to financial matters is adopted by the accounting
staff. Therefore, the management accountants approach to risk manage-
ment is likely to be that there needs to be a very (c)areful balancing of
risks and rewards ... to keep the firm safe (Underwood & Ingram, 2010,
p. 28).
The manner in which accounting-related information is used within
management control systems will also be impacted by the strength of the
group dimension. In a hierarchical organization the manner in which,
for example, comparisons of actual and budgeted results occurs will
be driven by the need to ensure that poor performance is a collective
responsibility. The result is it becomes more tolerable for managers in
strong group organizations to be able to attribute adverse variances to
unforeseeable external factors. Therefore, it is logical in a hierarchical
setting that cost containment is practised rather than cost reduction
(Ashton et al., 1995) as it then decreases the likelihood of the need to
challenge under-performing managers or divisions. In a strong group
organization there may also be a number of goals set that have some
ambiguity. The difficulty associated with setting one clearly defined
target in this culture is that it creates the potential for group members
to be pitted against one another as this goal is pursued. Strong group
organizations wish to avoid internal rivalries and consequently set less
certain (and more moderate) goals that allow group members to gain a
sense of achievement without competition challenging the strong group
ethos. Roslender & Hart (2002) discuss how new initiatives in measure-
ment systems such as the balanced scorecard have a primary concern
with what firms are trying to become (p. 260). Hierarchical firms are not
trying to become they are trying to remain as they are. Their fervent
hope is the future will be configured as the past as this brings certitude.
of publicity that has been given over the past 10 years to the apparent
limitations of traditional cost systems and the urgent need for organi-
sations to change their management accounting systems it is puzzling
why most firms have been reluctant to change (Drury & Tayles, 1995,
p. 277). Similarly, studies such as Guilding et al.s (2000) comparison
of strategic management accounting practices in the UK, USA and New
Zealand found there is negligible use of the term strategic manage-
ment accounting in organisations and that appreciation of the term
amongst practising accountants is somewhat limited (p. 129).
Prima facie, it seems paradoxical that new management accounting
techniques and, in particular, strategic management accounting ideas
are not being used more frequently. As strategy thinking changed post-
1980 and adjusted to fit with the individualistic culture then we might
expect that management accounting would change and become more
compatible with an individualistic culture by becoming more closely
tied to strategy. This appears not to be so and, hence, explains why calls
for accountants to have a greater strategy focus still persist.
The management accountant in an individualistic organization will,
if sufficiently attentive, have perceived a shift in the basis upon which
respect is accrued pre- and post-1980. Post-1980 status is no longer based
upon having gained membership to one of the professional accounting
bodies; more important is how well the individual accountant performs
within the organization in supporting the creation of value for share-
holders (Ittner & Larcker, 2001) as the individualist fears any threat to
wealth. Technical accounting knowledge is also more open to ques-
tion and, generally, there is less trust in and respect for the accounting
profession (Linsley & Shrives, 2009). In an individualistic setting past
certainties regarding the role and place of the accountant are cast out.
The nature of the accounting role also changes, with a more informal
approach allowing for some flexibility in the operation of accounting-re-
lated systems. In this less restrictive environment, users of such systems
may via from, or sometimes bypass, set procedures or controls further
undermining the accountants status.
A softening of the internal boundaries occurs as functional speciali-
zation (through the use of cross-functional teams, as well as the elimina-
tion of traditional specializations) is removed (International Federation
of Accountants, 1998: paragraph 20). This provides the opportunity for
actors in companies to have greater amounts of autonomy and suggests
greater fluidity in roles is possible including permitting a great deal
of management accounting ... (to be) ... undertaken by the business
managers rather than by the accountants (Burns & Vaivo, 2001).
234 Philip Linsley and Alexander Linsley
Conclusion
Notes
1. Of necessity, only a very short overview of some key aspects of Douglasian
cultural theory is provided in this section.
2. The International Federation of Accountants (IFAC) (1998) considers the
development of management accounting as a four-stage process and with the
Management Accountants as Strategists 237
critical period of transition in the 1970s. This supports the idea of discussing
management accounting as a pre- and post-1980 activity.
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16
The Existential Perversity of
Management Accounting and
Control
Alan Lowe and Ivo De Loo
Introduction
239
240 Alan Lowe and Ivo De Loo
A friend of ours has been singing in a top classical amateur choir for a couple
of years. Recently, following a less than ideal performance at an interna-
tional contest, the choirs conductor and its management decided to install a
quality management system in an attempt to raise the overall standard of the
choirs performances. The information in the jury report was used to create
this system. Choir members were sent the full report via e-mail, and were
subsequently informed (informally, in a pub) that a system would be installed.
By so doing, the choir director and its management intended to signal that
quality standards were a major concern.
One element of the system stipulated that all voices within a particular
vocal range (sopranos, altos, tenors, basses) now had to have separate prac-
tice sessions. Another element of the system, which choir members were not
informed about in advance, stipulated that each member had to be tested
periodically by singing specialized parts in front of a professional singer (from
a professional top choir). Choir members were suddenly invited for their first
(and up until now, only) test session.
Since the instalment of especially the latter element of the system, several
incidents have occurred. Relationships between a particular group of choir
members became strained after the test session, when they started to discuss
each others vocal abilities. This led to the departure of one of the members.
Also, a stricter probation period has been introduced for choir members who
pass their audition. One choir member, who had passed the audition, still had
to leave the choir, when she was told by others that her voice did not blend
well with the rest of her group.
Our friend still loves to sing very much, and could not imagine singing in
another choir, but, in certain situations, does have his own thoughts about
the relationship between what can (now) be called the choir and the people
who make up this choir.
Morin (1995) believes that work serves two essential purposes for an
employee. Firstly, it has an economic/utilitarian function (focussing
on salary and job security aspects). Secondly, it also has an expressive
function (emphasizing the need to have individual autonomy and inter-
esting work). No matter how high someones salary or (bonus) incen-
tives are, if a person feels substantially fenced in by measures taken by
his/her organization (for instance, in terms of incentives granted), or
has a purely repetitive job that is of little intrinsic value, it may well be
that he/she becomes demoralized, stressed and lonely at work (see also
Pauchant, 1995). This is exactly what the (incidents in the) anecdote in
Box 16.1 seem(s) to exemplify.
We suggest that many of the representations of organizational effec-
tiveness and management accounting and control that are currently in
vogue tend to focus on the economic/utilitarian aspects of work to the
exclusion, or at least the detriment, of the expressive needs of the indi-
vidual (see also Bhimani & Bromwich, 2009, Malmi & Ikheimo, 2003).
We have another anecdote that might help to exemplify this, as can be
seen in Box 16.2.
An insightful conversation does not necessarily or immediately
generate ideas that may lead to concrete outputs. However, (input
and) output measurements are currently regarded as important yard-
sticks of organizational effectiveness and performance, even in univer-
sities (ter Bogt & Scapens, 2012). Publication standards are commonly
used to assess how faculty members are performing. That they may be
considered by their peers as valuable colleagues; have good ideas that
help to improve the work of others; be able to reflect effectively on the
The Existential Perversity of Control 245
Box 16.2 Informal soft skills versus output controls in organizational life
academic output of their colleagues ... may not matter that much in an
environment that uses hard measures of inputs and outputs. We would
argue that softer, hard to measure, skills are however very important to
make a university go round. If this is not acknowledged by managers,
Aubert (1995) contends that an organization (for instance, a university)
may well get to be governed by an anxiety of death. We will describe
what she means by this in the following section.
Anxiety of death
During a recent flight, one of the authors sat next to someone who had carried
out contract work as a store-fitter for several years across a number of major
UK retailers such as Tesco and Primark. As they talked about the reason for
their respective flights, the store-fitter started to reflect on a recent time he had
spent working in a more rural area in China, where he had been employed to
fit some new large Tesco stores.
He had been especially impressed by the way Chinese workers, and the
Chinese people in this area, seemed to relate to one another in that area. The
team of UK workers of which he was part, was regularly invited, even during
what he considered to be normal working hours, to share a meal at the
homes of Chinese colleagues working on the same site. He was baffled when
they told him that even though they could hardly pay for the food, they
considered the possibility to share a meal and spend an afternoon or evening
together very important. He recounted that this appeared to be more impor-
tant to them than earning or having more money, or sticking strictly to prede-
termined working hours that their boss deemed fit. After these meals, Chinese
workers also tended to work harder and longer, often well into the night. The
UK team, feeling energized by what they experienced and saw, did the same,
even though the UK team supervisor, located in the UK, had expressed his
surprise, but did not encourage or sanction this.
Epilogue
Notes
The authors would like to acknowledge support from ICAEWs charitable trusts
for the research project from which this chapter is derived.
1. Apparently, managers themselves have such interests in mind at all times (see
also Macintosh, 1994).
252 Alan Lowe and Ivo De Loo
2. This anecdote, as well as all other anecdotes in this chapter, should not
be treated as case studies, as they are clearly much less. They are personal
accounts of experiences that the authors have had, or have been told of, that
are related to the issues and concerns expressed.
3. In a broader but similar vein, Whyte (1963) asks whether it is such a good idea
that societies get to be governed by what he calls the mediocrity of business
method. He asserts that it starts from an assumption about the (chiefly) stable
and predictable nature of (business) affairs, and suggests that these affairs will
become substantially less stable and predictable in the years after the publica-
tion of his book.
4. Such behaviours have been the focus of much attention in the past six years
(since the financial crisis), but also prior to these events. The issue of both
self-interest and unsociable types of behaviour at the centre of significant
organizational catastrophes has also been regularly depicted on popular film.
A recent example is the film Margin Call, featuring Kevin Spacey and Jeremy
Irons.
5. Actually, she uses the term death anxiety, which does not translate very well
in English. Hence, the slight rewording that we propose.
6. Various political/social debates have fallen into this negativity trap. For
instance, considerable misgivings have been raised in the recent resurgence
of concern in regard to immigration into the UK, as can be seen here: http://
www.theguardian.com/uk-news/2014/jan/03/romanian-bulglarian-uk-immi-
gration-hysteria-far-right. Similarly, the use of negative language and fear in
the depiction of economic policy and the social problems subsequent to the
global financial crisis can be witnessed as well, as this example illustrates:
http://www.ehfg.org/448.html.
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Meaning while Staying Competitive. In T. C. Pauchant (Ed.) In Search of
Meaning. Managing for the Health of Our Organizations, Our Communities, and the
Natural World. San Francisco: Jossey Bass, 151172.
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Matter Comes to Matter. Signs: Journal of Women in Culture and Society, 28(3),
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Baxter, J. & Chua, W.F. (2003). Alternative Management Accounting Research
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The Existential Perversity of Control 253
For over 25 years, we have undertaken research that has used a research
approach called Middle-Range Thinking (MRT) (cf. Laughlin, 1995,
2004; Broadbent & Laughlin, 2008) as a means of seeking to develop
understanding of the role of accounting in change in the social world. In
considering change in both society and organizations, we have concen-
trated on wide-ranging management controls, particularly those using
accounting technologies, which have been implemented in the attempt
to implement the required change. This chapter explores some elements
of MRT both generally and specifically in the context of understanding
control in conditions of uncertainty.
The basic arguments that will be expounded in this chapter are
twofold. Firstly, we make the case that the research that we have under-
taken over many years studying change in the public services, using
a framework inspired by the work of Jurgen Habermas, is a study of
management control. In particular, the notion of steering that we have
used (see a summary of our work in Broadbent & Laughlin, 2013) is in
fact a management control system (MCS). Secondly, we will argue that
a research approach using MRT provides important insights into the
nature and functioning of MCS, particularly in conditions of uncertainty.
Our general argument is that the nature of the MCS that is required, at
both societal as well as organizational levels, given the uncertainties that
exist, needs to be relational rather than transactional (cf. Broadbent
& Laughlin, 2009, 2013). More specifically, in conditions of uncertainty
we argue relational approaches are essential. To illustrate this argument
we will draw on a variety of examples taken from our research in the
provision of public services.
The chapter will be divided into two major sections and a short
conclusion containing some prescriptions based on the analysis. The
255
256 Jane Broadbent and Richard Laughlin
ASSUMED GENERAL
EMPIRICAL PATTERNS COMPLETE PARTIAL NONE
RELEVANCE OF PRIOR
THEORY AT OUTSET OF ALL DEFINING & PROVIDING IGNORED
RESEARCH: TO BE ENCOMPASSING SKELETALTHEORY
ROLE OF OBSERVER
SUBJECTIVITY IN
EMPIRICAL ENGAGEMENT MINIMISE STRUCTURED
COMPLETE
QUESTIONNAIRES
DATA COLLECTION INTERVIEWS
METHODS DOCUMENTS OBSERVATION
design archetypes are the steering systems and mechanisms guiding the
organizational systems.3
In a Weberian ideal type situation then all the elements of society
and organizations should be synchronized; however, this is not usually
the case. Research that we have undertaken over the years has demon-
strated differences in the discursively formed societal lifeworlds and
organizational interpretive schemes and a propensity for resistance by
organizations to imposed and perceived inappropriate societal steering
mechanisms. Intuitively this is unsurprising, as we should expect
interpretively and discursively formed actions and assumptions to be
diverse.
Steering as MCS
The argument that has been presented so far has been conceptual but
provides some introduction to the key elements of the framework that
are relevant to consideration of MCSs both those that regulate internal
organizational actions (intra-organizational MCS) and those which take
place between societal steering institutions and organizations where the
former seek to regulate the latter (inter-organizational MCS). Management
Control Systems are, in our model, the steering mechanisms or design
archetypes emanating from the organizational structures and societal
steering institutions set up to manage them. If we are to understand MCS
then we need to understand processes of societal steering that impact on
the design archetypes that control at the organizational level namely
inter-organizational control. We must also understand the impact of design
archetypes in an organizational context intra-organizational control.
Broadbent & Laughlin (2009), building on Ferreira & Otley (2009),
conceptualize these inter-organizational and intra-organizational
controls as performance management systems (PMSs) which can be
of two fundamentally different forms which are referred to as transac-
tional and relational. This theoretical differentiation informed and was
informed by research exploring the nature and use of PMSs in Higher
Education in England (Broadbent et al., 2010). We will briefly return
to this research later but for now it is important to distinguish between
transactional and relational steering/PMSs/MCS.4 Put simply an MCS,
in this context, is concerned with exercising control over the ends and
means of actions and activities that are pursued through the use of
money. When an MCS is transactional in nature it assumes that the ends
and means of the use of money can be defined and controlled in much
the same way as occurs when money is exchanged for some defined
and measurable goods or services. This way of thinking is indifferent
Middle-Range Thinking and Management Control Systems 261
This set of necessary criteria is not often achievable and hence it is heroic
to claim that control can be achieved in all situations. For control to
be achieved, there is a need for a programmed activity that meets the
above criteria. This point is often forgotten, and the assumption that
is often made is that all activity can be controlled and can be made
programmable.
During the past 25 years, a good deal of effort has been expended
on finding ways in which decisions in non-programmable situations
might be taken, often adopting a more positivistic approach. These
approaches have been based on a view that, despite the complexity of
the social world, rule-governed patterns do exist if we can only find
them. Therefore, efforts have focussed on approaches that seek to
systematize decisions using models based on quantitative studies of past
data. They have focussed on the use of models that seek to take into
account the risk inherent in a situation and factor in different levels of
risk-adjusted outcomes, using more or less sophisticated mathematical
modelling. These approaches assume away uncertainty although they
seek to accommodate risk.
However, although risk can be factored in (the known unknowns),
uncertainty (the unknown unknowns) is often disregarded. Given that
uncertainty means that there is no possibility of placing a probability on
something occurring; this clearly creates a problem for the mathematical
modelling approaches that seek to attempt to capture reality in this way.
Middle-Range Thinking and Management Control Systems 263
The emphasis of this chapter has been to argue that in this complex
world where uncertainties abound, MRT is a research approach that
enables us to develop useful understandings. MRT accepts that we can
derive generic theories, which can inform future empirical studies but
that such theories will always be skeletal in nature as the nature of
understanding is uncertain and changing. All theories therefore can be
used to inform future endeavours to understand the empirical world but
will always be incomplete and will need to be open to revision through
these empirical engagements. In this sense, MRT disagrees with the claim
of theoretical closure of the positivists and the theoretical denial of those
of a more interpretive persuasion. But it shares more with the latter and
values the empirical detail as necessary flesh for the skeleton.
More specifically, in the context of seeking to build MCS that can deal
with uncertainty, our research using MRT has argued that MCSs need to
be relational rather than transactional. This will enable us to deal with
the uncertainties that exist in society and organizations. Put simply trans-
actional MCSs assume away uncertainty by disregarding it through seeing
all control as nothing more than a simple measurable something for some-
thing issue. This is simply not the case and thus control will not be achieved
and such systems will generate dysfunctions. Relational MCSs, on the other
hand, recognize uncertainty. Rather than defining the outcomes required
and/or the process for achieving those outcomes, the ethos of relational
MCS understands the need for engagement in order to enable meaningful
outcomes. Relational MCSs define a process by which to enable outcomes to
be achieved using an open discursive model to arrive at models of control.
Where there is uncertainty, an ongoing reflexive approach provides a better
possibility of dealing with new demands as they arrive.
In conclusion, in conditions of uncertainty, MRT provides a basis for
meaningful theoretical engagement with organizations and relational
MCSs provide a practical approach to improving control in organizations.
Notes
1. More detail about the arguments informing the analysis in Figure 17.1, drawn
from Laughlin (2004: 272), can be found in this original source or in Chapter 2
of Broadbent & Laughlin (2013).
2. It is important to stress that our theoretical framework is informed by
Habermass thinking but is far from a simple replication of his ideas.
3. See Laughlin (1991) and Broadbent & Laughlin (2013) Chapter 3 for more
details.
268 Jane Broadbent and Richard Laughlin
4. For ease of referencing for the remainder of this chapter, we will refer to this
complex control activity as an MCS.
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Index
269
270 Index