The Effect of Contextual Factors on the Design of Management Control Systems

1560 WordsAug 15, 20107 Pages
THE EFFECT OF CONTEXTUAL FACTORS ON THE DESIGN OF MANAGEMENT CONTROL SYSTEMS For implementation of the management control system (MCS) of the organisation in a dynamic and ambiguous environment, it is necessary to analyse and assess the external and internal factors, as well as predicting how they will change over time, given the unpredictability of certain factors of the environment: tight competition, accelerating changes in the environment, dynamic changes in consumer demands, the sudden appearance of new business opportunities (Chenhall 2003). The objective of designing MCS in such a situation is to help the organisation to achieve its goal. Thus, according to Danneels (2002, cited in Asel 2009), management need to continuously…show more content…
Although research into culture has been limited, compared to studies of other contextual variables, it remains relevant. Hopwood (1986, in Fauzi & Hussain 2008) stressed the importance of culture in MCS design with social control and Simons (2000, in Fauzi & Hussain 2008) with boundary system, which plays a negative, limiting role for company’s new opportunities. The basic view is that culture will impact the development and effectiveness of MCS (Chenhall 2003). The most frequently used culture classifications are the ones by Hofstede (1984, in Chenhall 2003) including following dimensions: power distance, uncertainty avoidance, and individualism and collectivism. However, these results in some limitations: a study using only Hofstede values may omit other relevant values; the values assigned by Hofstede may not be applicable to the country due to education and globalisation. What is more, such values may not apply equally to all individuals within a culture. According to Barney (1991, in Widener 2004) human capital is a valuable resource as it creates efficiencies and enables the firm to be more effective. In order to gain more understanding about the relation between the use of a strategic resources and design of MCS, Widener (2004) investigates four attributes of strategic human capital: importance, behavioural uncertainty, firm-specificity and spread of the resource through the company. Widener (2004) states, that if

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