The Effect of Different Types of Competition on the Use of Management Controls

Abstract

To most accountants, a management information and control system based on accounting and other quantitative data is an article of faith. This paper is not designed to discredit that faith. Rather its purpose is to outline some of the competitive conditions under which sophisticated management controls are more extensively utilized and those under which they are less extensively utilized. One result of this study could be a more discriminating application of management controls. Generally speaking, competition is likely to accentuate the use of controls. The greater the competition, the greater the need to control costs, and to evaluate whether production, marketing, finance, etc. are operating according to expectations. This paper empirically confirms this argument. But it goes beyond this to try and show that different types of competition -in this paper, price, marketing or distributive, and product competition -may have very different impacts on the use of controls in manufacturing organizations. It is not easy to measure how extensively a particular control is used in a firm. Two firms may both claim to use internal audits or activity budgeting. But one may be using it occasionally, or with respect to only a small part of its operations, while the other may have a full-fledged system of internal audit and activity or flexible budgeting. Thus, a dichotomous, yes-no measure is not very useful. Nor is a management control a physical thing that can be measured cardinally. We are therefore forced to use ordinal measures, such as rating scales, particularly in preliminary stages of research.