Management control system and firm success: an empirical investigation of electronics parts businesses in Thailand.

Author:Chankaew, Nuntha
Position:Report - Survey
 
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  1. INTRODUCTION

    Today's economy has changed rapidly. As a consequence, each company must adapt to change strategy methods and tools for the management to ensure competitiveness and even more importantly to keep the company survive and succeed in the end. Therefore, there should be mechanisms or measures in the action that will assist in the administration of the company to achieve sustainability. The main purpose of management control systems (MCS) is to monitor decisions throughout the organization and to guide employee behavior to desirable ways in order to increase the chances to achieve organization's objectives, including organizational performance (Langfield-Smith, 1997; Kallunki et al., 2010). MCS can be defined as a tool designed to assist the manager's decision-making consisting of both formal and informal forms of controls (Chenhall; Zhao, 2003; Chenhall and Euske, 2007). In Henri (2006), the definition includes planning systems, reporting systems, and monitoring procedures that are based on information use.

    Interestingly, MCS is a broad concept consisting of many elements and used for varying purposes. Mahama (2006), and Malmi and Brown (2008) define management controls to include all of those organizational arrangements and actions designed to facilitate the achievement of performance goals with the least unintended consequences. MCSs are generally conceptualized to have two dimensions; namely, performance evaluation and socialization of organizational members.

    Firms need to establish control tools to help managers make right decisions. The strong competition due to market globalization and technological change are forcing firms to develop management control system. Management control system will become a tool to achieve sustained success of firms by helping directors to make decisions in daily operation and providing good strategies of the business (Chenhall, 2003). In the context of an acute competitive environment, practices can have very dysfunctional effects on the decision making processes and evaluation at the various levels of management. Various forms of dysfunctional behaviors have been previously identified and MCS research identified some key terms/concepts such budgetary slack, managerial short term orientation, manipulation of performance measures specific to particular control systems or contexts (Chow et al., 1996). However, MCS represents logo of survival in organization costly and time-consuming to install and operate (Sandino, 2007). Several researchers have focused on the role of MCS design, environment to implement MCS etc., but this paper will focus only on MCS. Taken all together, this discussion implies that MCS would foster control systems to exist in all spheres of the operations of the organization and necessary in the part of the process of management in extra effort on behalf of their organization, which consequently would lead to higher levels of firm success. In other words, managerial capability would mediate the relationship between MCS and firm success because MCS is one such system in which the top management also ties its hand. Unless the performance is as per the objectivity of MCS, no one could be rewarded despite the willingness of the top management. Consequently, everything would be converted in the high level of productivity (Nilniyom, 2009). Therefore, MCS plays an essential role in development (Abernethy et al., 2004) by assisting organizations in observing nation-wide accountabilities (Chenhall, 2003).

    The objective of this research is to test MCS (performance evaluation and socialization of organizational members) on firm success via resource utilization quality, organizational effectiveness and operational planning efficiency. In addition, if there are directs effect relationship between MCS and resource utilization quality, organizational effectiveness and operational planning efficiency, it will have direct relationship between resource utilization quality and organizational effectiveness, there are direct relationship between operational planning efficiency and organizational effectiveness; there are direct relationship between resource utilization quality, organizational effectiveness; operational planning efficiency and firm success. This research also tests the relationships under accounting system quality and environmental munificence. The primary research questions of this work are: 1) How extend the relationship between MCS and resource utilization quality, organizational effectiveness and operational planning efficiency?, 2) How extend the relationship between the resource utilization quality and organizational effectiveness?, 3) How extend the relationship between the operational planning efficiency and organizational effectiveness?, 4) How extend the relationship between the firm success, resource utilization quality, organizational effectiveness and operational planning efficiency?, 5) How extend the moderating effect of accounting system quality on the relationship between MCS and resource utilization quality, organizational effectiveness and operational planning efficiency?, and 6) How extend the moderating effect of environmental munificence on the relationship between resource utilization quality, organizational effectiveness, operational planning efficiency and firm success?

    This study is outlined as follows. The first section reviews existing significant literature in the areas and streams of MCS (performance evaluation and socialization of organizational members), resource utilization quality, organizational effectiveness, operational planning efficiency, and firm success, links between the concepts of the aforementioned variables, and develops the key research hypotheses of those relationships. The second explicitly details research methods, including data collection, measurements, and statistics. The third gives the results of the analysis and the corresponding discussion. The final summarizes the findings of the study, points out both theoretical and managerial contributions, and presents suggestions for further research and the limitations of the study.

  2. MANAGEMENT CONTROL SYSTEM AND FIRM SUCCESS

    In this study, management control system (performance evaluation and socialization of organizational members) is the main determinant of driving firm success through mediating functions of resource utilization quality, organizational effectiveness and operational planning efficiency. The management control system-firm success relationships are systematically investigated. Thus, the conceptual, linkage, and research model presents the associations between management control system and firm success as shown in Figure 1 below.

    Management control system indentifies several aspects or activities of management control namely, planning, coordinating, communication, evaluation, decision-making and influencing (Anthony and Govindarajan 2004). Therefore, MCS has the potential to aid managers in this process by assisting them in formulation strategy related to markets, products which required technologies and appropriate structures for specific business units. MCS can then be implicated in the implementation and monitoring of strategies. Here, MCS can provide feedback for learning and information to be used interactively to actually formulate strategy, other than implementing strategy (Nilniyom, 2009). In this study, MCS is a broad concept consisting of many elements and used for varying purposes. Mahama, (2006) defines management controls to include all those organizational arrangements and actions designed to facilitate the achievement of performance goals with the least unintended consequences. MCSs are generally conceptualized to have two dimensions; namely, performance evaluation and socialization of organizational members.

    [FIGURE 1 OMITTED]

    2.1 Performance Evaluation

    Performance evaluation is the first dimension of management control system and its aspect focuses on the process of measuring, evaluating and rewarding performance (Mahama, 2006). Central to the performance evaluation function of a MCS is the performance measurement systems. PMS generates and uses information capable of influencing individuals who are pursuing their self-interest to also pursue collective interest by aligning their individual interests and periodically assessing how these...

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