Organizations are frequently confronted with environmental shifts and change. In our recent publication (Toldbod and Van der Kolk, forthcoming in the European Accounting Review), we examine how environmental shifts can trigger cascades of management control changes, how this creates incoherence, and how managers can use the incoherence to stimulate organizational dialogue. Our study provides insights into the interplay of management control elements and control changes, and mobilizes notions from the organizational ecology literature to theorize our findings.
The story in short
We take a close and long look at a multinational production company, MULTICORP, which was confronted with a problem after the economic crisis of 2008. Because of that crisis, the demand for their products dropped, but because of the highly decentralized structure of MULTICORP and existing management control elements, it took a long time to halt (over)production.
After this problem materialized, new supply chain integration initiatives saw the light, in an effort to enhance internal coordination and supply chain optimization. However, the "old" performance measurement system remained unchanged, and still measured and aspired optimization of individual units. When managers realized this incoherence, they took action – initially not by changing the design of that system, but the way in which it was used. More specifically, they decided to still use the system as a starting point for dialogues, hence stimulating "supply chain thinking" instead of "local unit thinking".
Using the organizational ecology literature
Our findings speak to the literature on the interplay of management control elements in systems and packages, as we zoom in on how initial changes may lead to follow-up changes. Evidence from observations and interviews demonstrates how changes create incoherence among "new" and "old" management control elements, and how managers can deal with that incoherence to mitigate unfavorable effects.
We rely on notions from the organizational ecology literature to theorize why cascades of changes emerge. For instance, we explore the idea that cultural asperity (the extent to which new control elements are different from existing ones) and structural opacity (the difficulty to predict the consequences of a change) impact the control changes.
Studying control change 'as a package'
We show how the use of "old" control elements is adjusted, in order to work well together with "new" ones. One of our conclusions is that control changes should not be studied in isolation – which resonates with arguments made by Malmi and Brown (2008)on why management control elements should not be studied in isolation, but in relation to the package in which they operate. Since management control changes do not happen in isolation but may trigger change cascades, change processes may be larger and more protracted than intended. We hope that our longitudinal case study of MULTICORP and the theorization help to (partly) unravel some of the mysteries surrounding the interplay of management control elements and the dynamics of their changes.
If you have any questions about the publication, please do not hesitate to contact us.
Thomas Toldbod (Aalborg University Business School, tt@business.aau.dk)
Berend van der Kolk (IE Business School, IE University, berend.vanderkolk@ie.edu)
References
Malmi, T., and D.A. Brown. 2008. “Management Control Systems as a Package—Opportunities, Challenges and Research Directions.” Management Accounting Research 19 (4): 287–300. doi:10.1016/j.mar.2008.09.003.
Toldbod, T. and B. van der Kolk. 2020. "Cascading Control Changes, Incoherence and Dialogue – Insights from a Longitudinal Field Study." European Accounting Review forthcoming. doi: 10.1080/09638180.2020.1813185.
