Control system, strategy and learning.

Author:Ismail, Tubagus
 
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INTRODUCTION

When a strategy is implemented, it sometimes needs an alteration to adjust with the change in surrounding environment of a firm. Therefore, a formed strategy may be accomplished as it has already planned before. The formed strategy can also be realized in modified shape, or even completely different strategy. Strategy formation process also demands manager to learn more rapidly (Elcock, 1996). As a result, it needs a control system which can not only help strategy formation process but also improve the learning process in an organization (Kober et al., 2007; Simon, 2000). Learning process to reach sustainable competitive advantage derives from internal and external learning (Schroeder et al., 2002). Management control system (MCS) provides valuable information in decision making, planning and evaluation process (Anthony & Govindarajan, 2004; Davila, 2005; Merchant & Otley, 2006). MCS attains the collective and individual cooperation in organizational unit and becomes the channel to every employee's effort in accomplishing company's specific aim (Anthony & Govindarajan, 2004; Ouchi, 1979; Flamholtz, 1983).

There has been a significant development of researches which explore the relationship between MCS and strategy (Langfield-Smith, 2007). MCS is the only managerial instrument used to implement a desired strategy (Anthony & Govindrajan, 2004). Therefore, every company must have orientation and business strategy reflected in MCS (Langfield-Smith, 1997).

Up to now, there have been many literatures which explore the impact of management control system (MCS) on strategy. Unfortunately, there are still few studies which highlight the impact of MCS on strategy based on interactive approach and process approach (Henri, 2006; Kober et al., 2007). Kober et al. (2007) found that MCS will shape company's strategy. Roberts (1990) also said that the use of interactive MCS (interactive control system) will facilitate the strategy formation process.

Kober et al. (2007) and Roberts (1990) used case study qualitative method. Case study enables more detailed analyses of strategy formation process, in addition many authors encourage the use of case study (Dent, 1990). Generalization of this qualitative result, however, is still limited because of many specific organizational characteristic. As a result, future study needs to provide causal relationship between MCS and strategy based on quantitative method, consequently we can get a more generalized result (Kober et al., 2007).

Many authors have conceptualized strategy formation process into two parts (Chenhall, 2005). First, strategy that becomes an intention (intended), a pre formulized strategy by top management in a company. This kind of strategy may not be used if an unexpected change happens. Second, a strategy that has immediate nature (emergent), it comes out either from a process or the strategy development, to respond on sudden changing environment.

Strategy formation process must be able to adapt itself into any situation. By constantly learning the feedback, management will find out the best way to implement the formed strategy (Elcock, 1996). Having formed a strategy, an organization must collect and analyze information needed to reach the successfulness of strategy implementation. It is in line with Mulcaster (2009) who said that one succeeded factor in implementing a strategy is organizational learning. A process to collect and analyze any information is called organizational learning (Senge, 1990). Yet, the knowledge of how strategy influence learning process is still limited (Mulcaster, 2009).This study aims to investigate the relationship between the use of interactive control system a part of MCS with strategy formation process and its impact on learning. Learning which is used in this study is internal and external learning (Schroeder, 2002).

The remainder of the paper is organized as follows. Theoretical background and hypotheses development, research method, result, discussion, and the final section is conclusion, limitation and future research.

THEORETICAL BACKGROUND AND HYPOTHESES DEVELOPMENT

Interactive Control System

Interactive control system (ICS) is a formal system used by top managers to involve themselves in regular and personal decision making activities (Simons, 1987; Simons, 1994; Simons, 2000). Interactive control system is used to stimulate any dialogue, interview and bridge the information gap among hierarchy levels, functional departments and profit centre in an organization. Interactive diagnostic control system can be made by constantly giving attention and focusing on manager's interest. Interactive control system is used by top management to guide strategy formation process informally by setting personal involvement, intimacy or closeness with problem and commitment matter (Mintzberg, 1987).

A system will be called interactive system if top manager reports that the system is frequently used personally and regularly. Interactive system becomes top priority for top managers and their subordinates (Simon, 1987; Henri, 2006). This system is used by management in direct routine meeting with subordinates and other parties in a company to review data and generate action plans. Top manager must decide which aspect of management control system that will be used interactively and which aspect that will be the program (Simon, 1987). MCS becomes interactive control when a business manager uses planning and controlling procedures, and they also actively monitor and interfere decision making activity which continuously occurs among subordinates in a company (Simons, 1990). Intervention will give opportunity for top management team to have an open and fair argument based on data, acquisition and other action plans, for that reason interactive management control demands continuous attention from subordinate in every level of a company. (Simons, 1990).

Interactive control system's function is to monitor strategic uncertainties. Top management in a company will uncover their possessed value and reference to individual in an organization who gives input to decision making process. Observation and monitoring are actions to search for unexpected matters, interactive management control will guide their organizational member on how to search for unexpected matters and what kind of intelligence information will be collected (Simons, 1990). Unexpected matters or expectation will probably become new alternative, new preference or a change for the company (Feldman & March, 1981). New alternative decision making by the top manager is really needed when the decision itself is closely related with strategic policy or strategic change in a company (Mintzberg, 1973). Interactive control system enables top manager to have complete information on taken and distributed decision in a company.

Strategy Formation Process

One characteristic of strategy formation process in present taxonomy has been explained by Mintzberg & Waters (1985); Mintzberg & McHugh (1985); Mintzberg (1990, 1994); Mintzberg (1978, 1987, 1994). In strategy formation process, there are two simultaneous independent processes (Mintzberg & Waters, 1985). First, intended strategy (InS) viewed as a statement which has proactive purpose and formal shape and it has been planned before a decision is taken and or an action is performed. Having finished strategy formation, the process will be followed with implementation phase (Langfield-Smith, 1997). This kind of strategy is called as intended strategy. Intended strategy is a plan that becomes the company's purpose and it has been predicted as the most suitable action to reach company's purpose (Mintzberg, 1978). If the existing situation is appropriate, maneuver, trick or thing like that will be used to halt and threat competitor from entering the market (Mintzberg, 1978). Basic concept of this strategy states that entire action must be planned well in advance. In this case, intended strategy explains plans from top to bottom position.

The second strategy is emergent strategy (ES). Emergent strategy is the result of cumulative influence from daily decision made by middle manager (Mintzberg, 1994). Their decision is usually tactical, and not framed as strategic decision. Emergent strategy is a strategy to give responses on unpredicted external threat (Mintzberg, 1994). This kind of strategy derives from daily activities or routine business, and it sometimes comes from an unpredicted idea or way of thought from bottom to top position of a company.

Internal Learning

Internal learning (IL) process includes employee training in multifunctional way (Gerwin & Kolodny, 1992) and...

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