Cascading Control Changes, Incoherence, and Dialogue: Insights from a Longitudinal Case Study

Abstract

Environmental shifts regularly urge organizations to adapt, which may entail management control (MC) changes. Changes to an MC element such as a performance measurement system, however, may in turn create incoherence with other, non-changed elements, generating a need for more changes, and thus trigger a cascade effect. To date, however, we know little about how this sequential process unfolds and what managers can do to deal with incoherence. This paper contributes by enhancing the understanding of sequential changes, drawing on the organizational ecology literature, and we empirically inform our research with a five-year longitudinal case study. Our data illustrates in detail how initial MC changes, intended to cope with an environmental shift, trigger a cascade effect. This sequential process results in an extensive change period, during which various incoherent MC elements coexist. Our study acknowledges that incoherence among MC elements can decrease control effectiveness by creating intra-organizational frictions, yet we highlight the role of managers in mitigating such negative effects. Specifically, we show how managers can alleviate the unfavorable effects of incoherence by changing their use of performance measures in order to better facilitate organizational dialogue, learning and problem solving.

Keywords:

• Change
• Management Control
• Organizational Ecology
• Performance Measurement

Acknowledgements

The authors would like to thank Salvador Carmona, Matthew Hall, Robin Roslender, Thomas Borup Kristensen and Henrik Nielsen, for their constructive comments on earlier versions of this paper. We would also like to thank Teemu Malmi and the two anonymous reviewers for their helpful feedback. Earlier versions of this paper were presented at the 9th EIASM Performance Measurement conference in Nice, the 12th Manufacturing Accounting Research Conference in Copenhagen and at a research seminar at Aalborg University. The authors thank the participants for their valuable feedback.

Notes

1 In this study, we distinguish between design and use of MC elements, in line with prior MC literature (Merchant & Van der Stede, 2007; Naranjo-Gil & Hartmann, 2007; Tessier & Otley, 2012). In general, design refers to the content (e.g. what is measured) and the specific qualities of the MC element (e.g. what is the target, how many performance indicators are included) as they are developed. Use refers to how the MC element is actually used by managers (e.g. how do managers use the MC element to exercise control).

2 The notion of cultural asperity partly resembles the idea of fit or misfit from contingency theory. Contingency theory’s notion of fit or misfit is often used when examining a relationship between an (internal) MC element and an external contingency variable at one moment in time (i.e., a snapshot), for example environmental uncertainty. Furthermore, a contingency approach greatly benefits from particular theories that can provide predictions and/or explanations of a specific phenomenon (Chenhall, 2003; Gerdin & Greve, 2004; Otley, 2016). The organizational ecology literature allows us to understand a purely intra-organizational phenomenon from a dynamic perspective, namely how a change to a specific MC element aligns with existing, stable MC elements. This enables a more dynamic and local view compared to how fit and misfit have been operationalized in the contingency literature (cf. Chenhall, 2003).

3 Only two interviewees (ID 4 and 9) had their main responsibility outside Denmark – in Australia and Germany. Although it is too strong to say that we “control” for culture in our study, we believe that potential cultural differences did not play a significant role in the phenomena studied in this paper.

4 According to Supply Chain Conductor 1 (ID 21) who had multiple years of experience as a plant manager.

5 Multiple respondents referenced this vision, for instance sales and operational planning manager (ID 2), Master Planner 2 (ID 14) and Supply Chain Conductor 1 (ID 21).

6 Initially there was only one supply chain conductor, but later this number increased to four for MULTICORP.

7 To respect the confidentiality agreement with the interviewees, our interviewees are anonymized.

8 This specific example is based on the internal document Performance Management – KPI definitions.