The Effect of Contextual Factors on the Design of Management Control Systems
THE EFFECT OF CONTEXTUAL FACTORS ON THE DESIGN OF MANAGEMENT CONTROL SYSTEMS
For implementation of the management control system (MCS) of the organisation in a dynamic and ambiguous environment, it is necessary to analyse and assess the external and internal factors, as well as predicting how they will change over time, given the unpredictability of certain factors of the environment: tight competition, accelerating changes in the environment, dynamic changes in consumer demands, the sudden appearance of new business opportunities (Chenhall 2003). The objective of designing MCS in such a situation is to help the organisation to achieve its goal. Thus, according to Danneels (2002, cited in Asel 2009), management need to continuously renew control system for the company to survive and prosper.
The contingency-based theories developed from a functionalist perspective (Chenhall 2003) highlight six factors affecting the design of MCS: external environment, technology, organisational structure, organisational size, organisational strategy, and national culture. Widener (2004) investigates how strategic human capital is associated with the design of MCS.
According to Asel (2009) in the light of the 2008/2009 financial crisis uncertainty and risk rose enormously for many organisations and hence forced many companies to adapt MCS to the changing environment. To cope with uncertain conditions, Simons (1995, cited in Fauzi & Hussain 2008) suggest using a model of interactive control system, whose role is to encourage organisational learning and the process of developing of new ideas and strategies. It is expected that the MCS will be effective because of using that model. Chenhall (2003) is followed with some propositions regarding environment–MCS relationship. In his view, ‘the more uncertain the external environment the more open and externally focused the MCS’ (2003, p. 138) and even when MCS are tightly controlled in an uncertain environment, flexibility and
For implementation of the management control system (MCS) of the organisation in a dynamic and ambiguous environment, it is necessary to analyse and assess the external and internal factors, as well as predicting how they will change over time, given the unpredictability of certain factors of the environment: tight competition, accelerating changes in the environment, dynamic changes in consumer demands, the sudden appearance of new business opportunities (Chenhall 2003). The objective of designing MCS in such a situation is to help the organisation to achieve its goal. Thus, according to Danneels (2002, cited in Asel 2009), management need to continuously renew control system for the company to survive and prosper.
The contingency-based theories developed from a functionalist perspective (Chenhall 2003) highlight six factors affecting the design of MCS: external environment, technology, organisational structure, organisational size, organisational strategy, and national culture. Widener (2004) investigates how strategic human capital is associated with the design of MCS.
According to Asel (2009) in the light of the 2008/2009 financial crisis uncertainty and risk rose enormously for many organisations and hence forced many companies to adapt MCS to the changing environment. To cope with uncertain conditions, Simons (1995, cited in Fauzi & Hussain 2008) suggest using a model of interactive control system, whose role is to encourage organisational learning and the process of developing of new ideas and strategies. It is expected that the MCS will be effective because of using that model. Chenhall (2003) is followed with some propositions regarding environment–MCS relationship. In his view, ‘the more uncertain the external environment the more open and externally focused the MCS’ (2003, p. 138) and even when MCS are tightly controlled in an uncertain environment, flexibility and