Organizational learning and management control systems: responding to environmental change

Abstract

Organizations must find ways of surviving in times of rapid, transformative environmental change. Organizational learning is the process of changing the organization to fit the changed environment, and may be either adaptive (not involving paradigmatic change) or generative (moving to new shapes and structures). Management control systems may help or hinder organizational change. They may be reactive, changing in a passive way to reflect environmental change or used to reinforce existing rationales for action. However, basic management control and budgeting systems are designed to ensure that problems or errors of environmental fit are detected. If the correction of these problems results in fundamental changes, generative learning will take place. There are four major constructs associated with organizational learning: knowledge acquisition, information distribution, information interpretation and organizational memory. Management control system design may include features which fit each of these constructs, and appropriate system design can assist organizations to learn and survive during periods of change. To illustrate the links between management control and organizational learning, this research undertook case studies in two organizations which approached a common environmental change differently and exhibited different levels of organizational learning related to different management control system characteristics.