Does business strategy and management control system fit determine performance?

Tapio Jukka

doi:10.1108/ijppm-11-2020-0584

Abstract

PurposeThis study examines the relationship between business strategy, management control system (MCS) type and performance. Does the alignment of organisation business strategy and MCS fresult in better performance?Design/methodology/approachThis study draws on the business strategy and MCS type literature to identify business strategies and MCS types. A scoring method was used to identify business strategy types and cluster analysis to identify MCS types from a sample of 80 firms and 621 firm-years of data. Analysis of variance was used analyse the differences.FindingsFour types of MCS were identified and were labelled clan, adhocracy, market and hierarchy. The sample was split into defender, analyser, prospector and reactor strategies. The results showed defender strategies performed better with hierarchy or market type MCSs while prospector strategies performed better with clan or adhocracy MCS types. Analysers performed acceptably with all MCS types.Practical implicationsThe results of this study suggest that organisations should align their business strategy with a certain MCS type to achieve good performance. Also, alignment of top management and business strategy is supported as the top management properties differ between the MCS types.Originality/valueThis research contributes to the management control and strategy literature by demonstrating how the alignment between organisation business strategy and organisation-level MCS type determines organisational performance. The results suggest that differing business strategies yield better performance when aligned with the appropriate management controls represented by an MCS type.

Highlights

While the relationship between business strategy and the use and design of management controls to implement it has received considerable attention, our knowledge on this relationship and its effects is still fragmented (Chenhall, 2003; Otley, 2016)
Using the Miles and Snow (1978) business strategy typology and an organisation-level management control system (MCS) typology (Jukka and Pellinen, 2020; Ouchi, 1979; Spekle, 2001; Whitley, 1999) this study addresses the following research question: Does the alignment of organisation business strategy and MCS result in better performance? Or in other words, does a certain business strategy work better with a certain type MCS? This research contributes to the management control and strategy literature by demonstrating that the organisation-level MCS type should be aligned with the organisation’s business strategy to enhance performance
The first cluster identified as clan MCS type was characterised by a large top management team (TMT) with diverse functional backgrounds suggesting a tendency towards teamwork, participation and human resource development (Hartnell et al, 2011)

Summary

Introduction

While the relationship between business strategy and the use and design of management controls to implement it has received considerable attention, our knowledge on this relationship and its effects is still fragmented (Chenhall, 2003; Otley, 2016). Management controls are the processes and mechanisms managers use to influence the behaviour of individuals and groups towards the predetermined objectives and goals of the organisation. These controls can include personal supervision, performance measurement or reward systems, and these control processes and mechanisms are merged and used together as management control systems (MCSs). Depending on how control in an organisation is imposed by management, differing MCS types can be identified.

Methods

Results

Conclusion