Situating Management Control

Systems in their social, relational

and technical contexts
Fredrik Svärdsten
fs@sbs.su.se
Why this lecture? The role of the assumption.
• Organizations tend to have many different management accounting tools. Examples of such tools
are The Balanced Scorecard (BSC), Budgets and Values.

• Somehow, all these tools co-exist in an organization, and together they constitute a Management
Control System (MCS).

• To be able to develop and improve a MCS, we need to have an assumption (an assumption is
something that you assume to be the case, even without proof) about how control works in
practice and an understanding of how the system is constructed and how the different tools in
the system relates to each other.

• Our understanding of how the system is constructed and how the tools relates to each other,
depends on our assumption about how control works in practice.
Why this lecture? The role of the assumption.

• Why is the assumptions important for the development of MCS? It is important

because the problems we identify, and the solutions we propose, will depend on
the assumptions we have about control and the system.

• Today we will talk about three research papers: The purpose of presenting these
papers is twofold: First, the papers inform you about what a MCS can be, and
how it can be understood in research about MCS. Second, they provide examples
of different assumptions about control and what implications these assumptions
have for our understanding of MCS.
MCS studies tend to emphasize different aspects of the system

Technical
aspects:
e.g. How do we
measure perf. and
set targets? Relational
aspects:
e.g. How do we
Social aspects:
connect strategy
e.g. How and why
and control? Can
may people react
different tools be
(differently, or at
linked?
all) to control
efforts?
Agenda today

• Malmi, T., & Brown, D. A. (2008). Management control systems as a package –

opportunities, challenges and research directions. Management Accounting
Research, 19, 287-300.

• Ladva, P., & Andrew, J. (2014). Weaving a web of control. “The promise of
opportunity” and work-life balance in multinational accounting firms. Accounting,
Auditing and Accountability Journal, 27, 634-654.

• Alvesson, M., & Kärreman, D. (2004). Interfaces of control. Technocratic and

socio-ideological control in a global management consultancy firm. Accounting,
Organizations and Society, 29, 423-444.
Malmi & Brown (2008). Management control
systems as a package – Opportunities,
challenges and research directions.
Malmi & Brown (2008)

• Assumption about control – control can be designed beforehand,

implemented and executed.

• Underlying question: How can we design the best possible MCS

package?
Malmi & Brown (2008)

Technical
aspects:
e.g. How do we
measure perf. and
set targets? Relational
aspects:
e.g. How do we
Social aspects:
connect strategy
e.g. How and why
and control? Can
may people react
different tools be
(differently, or at
linked?
all) to control
efforts?
Malmi & Brown (2008) – why package?
• The idea of MCS as a package has existed for a long time. But little research has
been made of the implications of this assumption. Why should we discuss MCS as
a package?

• First, many studies focus on management accounting tools in isolation. This

means that we don’t understand their context. This means that we never
learn about the MCS system as a whole.
• Second, the functioning of a particular tool may be affected by the system as
a whole. If we only focus on the functioning of one tool, we may miss
possible explanations for why a certain technique fail or succeed.
• Third, by taking a broader package approach, we may be able to better
analyze the impact of innovations such as the BSC (we will discuss the impact
of BSC in seminar 2 in this course).
Malmi & Brown (2008) – challenges with the package
assumption

• Challenge 1 – How do we distinguish MCS from other support systems? And what
is MCS supposed to control? Humans? Material flows?

• Challenge 2 – Given the definition, what should be included in a MCS?

Malmi & Brown (2008), challenge 1 – MCS definition, i.e., how
to define MCS

Our suggestion […] is to start with the managerial problem of directing employee
behavior. Those systems, rules, practices, values and other activities management
put in place in order to direct employee behaviour should be called management
controls. If these are complete systems, as opposed to a simple rule (for example
not to travel in business class 4), then they should be called MCSs. Accounting
systems that are designed to support decision making at any organizational level,
but leave the use of those systems unmonitored, should not be called MCSs and
instead termed management accounting systems (p. 290).
Malmi & Brown (2008), challenge 1 – MCS definition, i.e., how
to define MCS

Any system, such as budgeting or a strategy scorecard can be categorised as a MCS.

The term ‘package’ is employed because in most contemporary organisations
there are a number of MCS. If all those were designed and coordinated
intentionally, we might call the whole system a MCS.6 However, the concept of a
package points to the fact that different systems are often introduced by different
interest groups at different times, so the controls in their entirety should not be
defined holistically as a single system, but instead as a package of systems (p.
291).
Malmi & Brown (2008), challenge 2 – what should
be included? The package:

13
Malmi & Brown (2008) –
Planning controls

• Ex-ante form of control (i.e., control beforehand). Planning sets goals and thereby
steer effort and behavior. Planning also sets standards in relation to goals and
clarifies the level of effort expected from organizational members.

• Two approaches to planning: Tactical focus – action planning for immediate

future. Strategic focus – goals and actions for the long run (we will talk more
about this in lecture 3 and 4).
Malmi & Brown (2008) –
Cybernetic controls
Five characteristics:
1. Should enable quantification of organizational
activities.
2. Standards of performance should be present.
3. There is a feedback process.
4. The feedback should be analyzed and compared
with the standards.
5. It should be possible to improve the system or the
activities on the basis of the analysis.
Examples of cybernetic control: Budgets, Financial
measures, Non-financial measures, Hybrids.
Malmi & Brown (2008) – Reward
and compensation controls
• The purpose of reward and compensation is to
align individual goals with organizational goals.

• Extrinsic motivation – behavior driven by external

rewards, such as money.

• Intrinsic motivation – behavior driven by internal

rewards. One example could be when we achieve
something we think is meaningful.

• Rewards for extrinsic motivation most common.

Closely related to cybernetic control.
Malmi & Brown (2008) –
Administrative controls
• Organizational design and structure – can be a
powerful form of control since it can encourage certain
kinds of contacts and relationships. Think about
Stockholm Business School (SBS) for example.

• Governance structures – board structure, management

teams, meeting schedules etc.

• Policies and procedures – e.g., standard operating

procedures, rules and policies.

Administrative control create the structure in which

planning, cybernetic control and rewards and
compensations are exercised.
Malmi & Brown (2008) –
Cultural controls
• Value-based controls – e.g., mission statement,
vision statements, statements of purpose etc.
constitute a belief systems which convey values.

• Symbol-based controls – Visible expressions such

as workspace design (we can think about
Google) or dress codes or uniforms.

• Clan controls – the management of subcultures

within an organization.

Culture is assumed to be slow to change and is

understood as providing a contextual frame for
other controls.
Malmi & Brown (2008) – interesting
questions for further inquiry

• What is actually contained in MCS packages? Are

there different kinds of functional demands that
impact the control package configuration? We will
touch upon this in lecture 3, 4 and 7 and seminar 2.

• Next question concerns the relationships between the

systems in a control package. Is the effectiveness of
each control system dependent on the existing
configuration of the package? This will be discussed
in lecture 3, 4 and 7 and in seminar 2.
Ladva & Andrew (2014). Weaving a web
of control. ”The promise of
opportunity” and work-life balance in
multinational accounting firms.
????
Ladva & Andrew (2014)

• Assumption about control: Control is not only planned. Something happens when
employees are exposed to control tools. To understand control, we need to
understand how employees respond to control in practice.

• Underlying question: How can we understand the interrelationship between

control tools, if we take the perspective of the employees?
Ladva & Andrew (2014)

Technical
aspects:
e.g. How do we
measure perf. and
set targets? Relational
aspects:
e.g. How do we
Social aspects:
connect strategy
e.g. How and why
and control? Can
may people react
different tools be
(differently, or at
linked?
all) to control
efforts?
Ladva & Andrew (2014) – introduction

• Topic: Work-life balance (WLB) in multinational accounting firms.

• Many firms have policies for WLB. However, these policies tend to be
disconnected from MCS systems.

• Why is this a problem? It is a problem because MCSs are designed to produce a

strong sense of responsibility for work, deadlines, budgets etc. This means that a
MCS may create a culture that demands long work hours at the expense of WLB.
Ladva & Andrew (2014) – introduction

• Problematize Malmi & Brown (2008):

”The package […] of control ( and similar typologies) have tended to offer a fairly
functionalist view. These typologies […] [are] suggesting that the identification of
control is critical to a proper understanding of how MCS work within a firm. They
are generally motivated by questions of effective control” (p. 635).

• Functionalism – focuses on the intended function of something (e.g. a budget)

and how this function could be improved (often in technical terms). One critique
against the functionalistic analysis is that it neglects other possible consequences
of, e.g., budget steering.
Ladva & Andrew (2014) – introduction

Technical
aspects:
e.g. How do we
measure perf. and
set targets? Relational
aspects:
e.g. How do we
Social aspects:
connect strategy
e.g. How and why
and control? Can
may people react
different tools be
(differently, or at
linked?
all) to control

??? efforts?
Ladva & Andrew (2014) – introduction

• What do we miss with the functionalistic analysis in this particular

case? – The impact of MCS on work-life balance (WLB).

• Ladva and Andrew propose another metaphor:

”We argue that a ’web of controls’ works to sustain the long-hours

culture within multinational accounting firms. Thinking about control
systems as a web […] offers a new way of exploring how controls work
interdependently to intensify each other” (p. 635).
Ladva & Andrew (2014) – Theory

• MCS are used to achieve firms corporate objectives

(such efficiency, profitability, growth) and this
produce behaviours that directly contradict WLB
ambitions.

• Why? – The explanation is that MCS has

implications for the employee’s identity. When we
are measured and controlled, this creates a fear of
exclusion and constant anxiety about one’s
achievement.

• We accept this ”because of our ego, upon which

our identity is based, replicated the same
comparative processes that management
accounting perform” (p. 638). (Compare the notion
of “calculating selves” from the CURA course).
Ladva & Andrew (2014) – Empirics,
the web of control

• Observed how the employee’s weaved their own

web of control through their relationship with
work, time and identity.

• Whys is this important? It is important because

Malmi & Brown (2008) don’t take the employees’
self-control into account. They neglect the fact that
control is not only enacted upon employees by
managers. Control is produced by people at all
levels in the organization.
Ladva & Andrew (2014) – Empirics, the web of control; time
budgeting.
• Every project had a time budget. The employees however
under-reported in order to look efficient.

Quote from one interviewee: I think [the budgeting process] needs to be a bit fairer.
In a way what’s a [budget] meant to do? It’s meant to show how much cost you are
going to incur for a particular job and broken down to separate stages. What value’s
there if there is no way that I’m going to be able to do that particular task within that
amount of hours? (Male, second year).
Quote from one interviewee: So if you do charge your hours and you blow the
budget and you do happen to have one of those non-understanding managers, you’ll
stop getting booked on jobs basically because word spreads; it’s very political in the
place [y] you stop getting booked and then you don’t meet one of your major KPIs
and that’s grounds for not getting promoted and things like that. You can very quickly
build a bad reputation because it’s very political and [word] kind of spreads like that
(Female, second year).
Ladva & Andrew (2014) – Empirics, the web of control; the
efficiency discourse.

• The employees were building a sense of their own

efficiency and the efficiency expectations from the
firm, even though they had not been exposed to an
explicit discussion of this from the firm itself. This
sense of their own efficiency became a control tool.

• These ideas of efficiency led to under-reporting of

time.

• This, in turn, contributed to a culture that was contrary

to WLB.
Ladva & Andrew (2014) – Empirics, the
web of control; the career discourse

• The conceptualization of ”career” by the junior accountants

also disciplined their behaviour, i.e, this conceptualization
became a control tool.

• The tough first years held a promise of a better future:

Quote from one of the interviewees: I guess it’s because Big Four opens up so
many doors. It’s the experience. So you’ve got a lot of people just hanging in
there until they have that really good opportunity come their way (Female,
second year).
Quote from one of the interviewees: If you want to get your name forward,
and get promoted, then you need to do something that makes you stand out
[y] usually the strategy most people employ to get ahead is to work hard
(Female, third year).
Ladva & Andrew (2014) – Concluding discussion

• The time budgeting system, the notion of efficiency and ”career” were powerful
controls because they were not imposed externally on the junior accountants.
”They were produced by ”the self”, exercised on the self and rationalized as
critical to the self’s emerging identity” (p. 648).

• Woven together, these controls constitute a very powerful control system

because together they have an intimate impact on the junior accountant –
ultimately affecting the sense of self (p. 650).
Ladva & Andrew (2014) – What can we learn from the paper?

• Malmi & Brown (2008) • Ladva & Andrew (2014)

Ladva & Andrew (2014) – What can we learn from the paper?

• MCSs look very different, depending on 1) how we approach this phenomenon

(technical, relational, social?) and 2) our assumptions about how control works
(one way process? two way process? etc..)

• Control is a two-way process. There are formal control tools, but employees may
also reinforce the control of themselves and create their own control tools. To
understand the interrelationship between tools, we should consider this two-way
process.

• Identity is an important factor to consider in the analysis.

Discussion

• Can you relate to Malmi & Brown’s package? Do you have experience
of multiple management control systems?

• Do you have any experience of the ”self-control” Ladwa & Andrew

talk about?
 Alvesson & Kärreman (2004). Interfaces of control.
Technocratic and socio-ideological control in a global
management consultancy firm.

Interface?
Alvesson & Kärreman (2004)

• Assumption about control: Control is not only planned. Something happens when
employees are exposed to control tools. To understand control, we need to
understand how employees respond to control in practice.

• Underlying question: How can we understand the interrelationship between

control tools (in this case forms of control), if we take the perspective of the
employees?
Alvesson & Kärreman (2004)

Technical
aspects:
e.g. How do we
measure perf. and
set targets? Relational
aspects:
e.g. How do we
Social aspects:
connect strategy
e.g. How and why
and control? Can
may people react
different tools be
(differently, or at
linked?
all) to control
efforts?
Alvesson & Kärreman (2004) – Forms of control

• Technocratic forms of control. ”Objectivistic” forms of control. This refers to the

approach towards control taken by researchers, managers, consultants etc. The
employee’s behavior is controlled through prescribed behavior (e.g., performance
indicators, standards for operating behaviors, policies).

• Socio-ideological forms of control. Informal control. Definition of common

interpretations of situations, widely understood and shared by members of the
organization (e.g., ideology, culture, clan control).
 Alvesson & Kärreman (2004) in relation to Malmi & Brown
(2008) and Ladva & Andrews (2014)

Ladva &
Ladva & Andrews:
Andrews: Identity
Time budget
Alvesson & Kärreman (2004) – introduction

• Many studies elaborate on one particular management accounting tool in order

to focus.

• However, a case can be made for understanding various forms of controls as

simultaneously active.

• It may be counter-productive to assume the existence of one dominant

management control form. Different control tools may be linked to, and
supporting each other rather than marginalized by a dominant form.
Alvesson & Kärreman (2004) – empirics: different control tools
in a global management consultancy firm
• Partner control – The partners of the firm ”frame control”, i.e., the decide how
subordinates should be controlled, that is; They frame what is “most important”
for the business. They also control the subordinate’s careers (compare Ladva &
Andrew, 2014). Partners are also seen as ”mythical figures” distant from
operations.
• Organizational control – hierarchical levels, division of labor, definition of outputs
and the HRM system.
• Project management and control – planning, staffing, monitoring, project
evaluation.
• ”Excess of control” (compare Ladva & Andrew, 2014) – ”ghosting”, which means
that employees under-report their working time. Consequence of the identity as
belonging to the “elite”.
Alvesson & Kärreman (2004) – Discussion and Conclusion

• The organization works well, it produces planned outputs etc. However, this
should not be understood as a ”triumph of technocratic control” (p. 436).

• Instead, technocratic control create a certain culture and ideology (compare

Ladva & Andrew, 2014) in the organization that enforce and sustain the
technocratic control and make it work.

• Socio ideological control is thus intimately tied to technocratic control.

Alvesson & Kärreman (2004) – what can we learn from the paper (in
addition to the learning points from Ladva & Andrew) in relation to
Malmi & Brown?

We learn about the interaction between Cultural controls and Cybernetic and
Administrative controls:
Summary of the lecture
• Organizations tend to have many different management accounting tools. Examples of such tools
are The Balanced Scorecard (BSC), Budgets and Values.

• Somehow, all these tools co-exist in an organization, and together they constitute a Management
Control System (MCS).

• To be able to develop and improve a MCS, we need to have an assumption (an assumption is
something that you assume to be the case, even without proof) about how control works in
practice and an understanding of how the system is constructed and how the different tools in
the system relates to each other.

• Our understanding of how the system is constructed and how the tools relates to each other,
depends on our assumption about how control works in practice.
Summary of the lecture

• Why is the assumptions important for the development of MCS? It is important

because the problems we identify, and the solutions we propose, will depend on
the assumptions we have about control and the system.

• Today we have talked about three research papers: The purpose of presenting
these papers is twofold: First, the papers inform you about what a MCS can be,
and how it can be understood in research about MCS. Second, they provide
examples of different assumptions about control and what implications these
assumptions have for our understanding of MCS.
Summary of the papers’ learning points
• Malmi & Brown (2008) – provide an overview of what a MCS ”package” may contain. A ”package”
may contain several MCS (such as cybernetic control, cultural controls, reward and
compensation). Question: How are the different MCSs, and the tools within the MCSs,
interrelated?

• Ladva & Andrew (2014) – provide an answer to the question. They show how employees create
discourses of efficiency and career. These discourses can be understood as part of the
organization’s cultural control. They are not planned, they are informal, but still they are strong
control tools. The discourses, in turn, undermine WLB. WLB can be understood as a kind of
“value” in the organization and therefore a kind of formal cultural control.

• Alvesson & Kärreman (2004) – also provide an answer to the question. The show how the
technocratic control (planning, cybernetic, rewards, administration) can create a certain culture.
In this case, this culture reinforce and sustain the technocratic control. This culture is not planned,
but it is still a strong control tool.