Business as Usual? An Institutional View of the Relationship Between Management Control Systems and Strategy

• Date: 01 May 2015
• Author: Basil P. Tucker,Lee D. Parker
• Published date: 01 May 2015
• DOI: http://doi.org/10.1111/faam.12050

Financial Accountability & Management, 31(2), May 2015, 0267-4424

Business as Usual? An Institutional

View of the Relationship Between

Management Control Systems

and Strategy

BASIL P. TUCKER AND LEE D. PARKER∗

Abstract: The relationship between management control systems (MCS) and

strategy has received considerable attention in the management control literature.

Contingency-based approaches, however, have traditionally dominated this research,

with limited attention devoted specifically to how MCS and strategy may combine in

organisations operating within highly institutionalised environments. Adopting an

institutional perspective, the current study is based on interviews with CEOs and

senior executives in 32 Australian Not-for-Profit organisations. Our findings indicate

a tendency for these organisations to decouple informal control from MCS, producing

a ‘business as usual’ mentality via the pervasive informal approach to control,

supplanting contingency-based predictions relating to MCS-strategy relations.

Keywords: management control, strategic typologies, Not-for-Profit

INTRODUCTION

This study addresses the issue of how management control systems (MCS1)

and strategy combine within institutional settings. While the MCS – strategy

linkage has attracted a wide range of researcher attention, aspects of this

∗The authors are respectively from the School of Commerce, University of South Australia,

Adelaide, Australia and RMIT University, Melbourne, Australia. The authors gratefully

acknowledge the support provided by CPA (Australia), and the Institute of Public

Administration Australia/University of Canberra Public Administration Research Trust Fund

for their generosity in providing partial financial support for this research. This paper has also

benefited from constructive comments from participants at the BAA Annual Conference, held

in Dundee, Scotland from 21st – 23rd April, 2009, and the research seminar presentations at

the School of Commerce, March 2009, and Aston Business School April 2009. In addition, we

thank Helen Thorne, Kim Langfield-Smith, David Otley, Clive Emmanuel, John Burns, and

Paul Collier for their valuable comments and suggestions in relation to this research.

Address for correspondence: Basil P.Tucker, School of Commerce, University of South

Australia, Adelaide, Australia

e-mail: Basil.Tucker@unisa.edu.au

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114 TUCKER AND PARKER

relationship nonetheless remain opaque to researchers and practitioners alike.

In this particular paper, we consider the contributory role of management’s

efficiency and legitimacy agendas that underpin this relationship and the

potential tensions between those agendas. Furthermore, within the MCS-

strategy relationship, the study expands our view of the control side of the

equation in terms of both MCS and informal control.

Over recent decades, with respect to the relationship between MCS and

strategy, we have now accumulated a wealth of knowledge through both survey

and case-based research in a diverse range of contextual settings. Although

collectively drawing on a variety of theoretical perspectives, contingency

approaches have tended to dominate MCS-strategy research (Tucker et al.,

2009; and Langfield-Smith, 2007). Central to such contingency approaches

is the search for systematic relationships between specific elements of the

MCS and the particular strategy of the organisation (Langfield-Smith, 2007).

The inclusion of some measure of organisational performance is an intrinsic

component of such contingency-based, MCS-strategy studies. Performance is

typically conceptualised as a necessary measure of ‘fit’ between MCS and its

strategic direction. Enhanced performance is taken to reflect ‘good’ fit, whilst

poor performance implies ‘poor’ fit. Thus, contingency-based approaches are

implicitly predicated on an assumption that rational managers are unlikely

to adopt or use MCS that do not, in combination with a particular strategy,

ultimately assist in enhancing performance (Chenhall, 2003).

Although the importance of performance as an underlying motivation for

investigating the MCS-strategy relationship is not in dispute, the central thesis

of this study is that enhanced efficiency is not necessarily the primary or

even predominant determinant of how MCS combines with strategy. It is

well established that MCS are also adopted to meet organisational needs for

institutional, social and political legitimacy, and these needs may be inconsistent

with rational economic motivations (Adolfsson and Wikstrom, 2007; and Modell,

2001). In contrast to the contingency standpoint, this view is consistent with the

institutional perspective that an organisation’s need to demonstrate conformity

to institutionalised expectations of rational practice also influences its choice of

control and coordination mechanisms (Meyer and Rowan, 1977). The adoption

of control practices and their implementation in institutional settings is by no

means axiomatic, however. In situations in which organisations feel pressured

to adapt to institutionalised expectations about their choice of practices, they

sometimes respond only superficially by appearing to adopt new structures and

practices without necessarily implementing them (Meyer and Rowan, 1977).

The scenario in which an organisation may sometimes exert conscious efforts to

portray itself as following the institutionalised ‘rules’ while actually conducting

‘business as usual’ is known as ‘decoupling’, and forms a central concept in

institutional theory.

Institutionalism and decoupling has a particular relevance for accounting and

management control. Accounting often lends legitimacy to the management

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BUSINESS AS USUAL? 115

of organisations and gives the impression of a modern, efficient bureaucracy

(Meyer and Rowan, 1977), but at the same time, may be loosely coupled to day-to-

day activities (Weick, 1976). Control mechanisms, disconnected from action, can

survive (Kouzes and Mico, 1979) and be a solution to a legitimacy problem rather

than a problem of control (Brunsson, 1990). Indeed, in highly institutionalised

environments, management control has been observed to be distinctly decoupled

from operational endeavours (Pettersen, 1995) as well as strategic activities

(Parker, 2002).

Adopting an institutional rather than a contingency frame of reference, and

admitting the possibility of decoupling can reveal phenomena about which extant

MCS-strategy research has been largely silent. In particular, our understanding

of how MCS and strategy combine under such conditions is largely unknown,

and it is this question that the current study seeks to directly address. In so

doing, the current study is based on interviews with 32 Australian Not-for-

Profit (NFP) organisations. The use of NFPs as a vehicle for this investigation

is germane to this study as it is well established that this NFP sector, where

relationships between means and ends are frequently unclear (Scott, 1987),

and outcomes are often intangible (Stone et al., 1999), is one which is highly

institutionalised (Bigelow et al., 1996). In such a setting, legitimacy is often

more critical than efficiency in gaining access to resources, funds, and personnel

(Greenberg, 1982). Although many NFPs also face market as well as instituti-

onal pressures, the strength of these pressures is unlikely to covary. Institutional

pressures more than market pressures are likely to predominate in relation

to a NFPs ability to achieve its goals, gain access to resources, and achieve

and maintain a sustainable strategic position (Bigelow et al., 1996). Thus, this

study contributes to management control theory by providing insights into how

MCS and strategy may combine in such institutionalised environments in which

legitimacy rather than efficiency is of primary concern.

In addition to this theoretical significance, however, the current study has

practical importance for NFP practitioners in view of the considerable social and

economic impact of this sector. For instance, in the UK over 22 million adults

were involved in formal volunteering in the nonprofit sector in 2007, and the

economic value of volunteering was estimated to be approximately £171 billion

per year (UK Office for National Statistics, 2009). In 2006, there were over

1.25 million US not-for-profit organisations with assets of $US2.5 trillion (US

Internal Revenue Service, 2006). In Australia, there are over 58,000 nonprofit

organisations, employing around 890,000 people (full-time-equivalent), and 4.6

million volunteers, collectively contributing $58 billion to GDP (Australian

Bureau of Statistics, 2009). The substantial scale of the NFP sector reflects its

importance in assuming expanded roles as governments seek to provide social

and other services in more flexible, cost-effective ways (Stone et al., 1999), and

underscores the socio-political prominence of this sector and its contribution to

Western economies (Lindenberg, 2001).

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