article review: accounting control system and business strategy an empirical analysis

8/13/2019 Article Review: ACCOUNTING CONTROL SYSTEM AND BUSINESS STRATEGY AN EMPIRICAL ANALYSIS

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ACCOUNTING CONTROL SYTEMS

AND BUSINESS STRATEGY: AN

EMPIRICAL ANALYSIS

BY ROBERT SIMONS


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I N T R O D U C T I O N

This research investigate therelationship between business strategyand accounting-based control system

Two classes of variables: controlsystem attributes and businessstrategies

ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS


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Khandwalla (1972) Effect of Different Types of

Competition on the Use ofManagement Controls, Journalof Accounting Research

Tushman & Nadler (1978) Information Processing as an Integrating

Concept in Organizational Design, Academyof Management Review

Kamm (1980) The Balance of Innovative Behavior and

Control in New Product Development

Miller & Friensen (1982) Innovation in Conservative and

Entrepreneurial Firms, StrategicManagement Journal

P R E V I O U S S T U D I E S



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T H E O R Y

Control Systems Attributes formalized procedures and systems that use information to

maintain in organizational activity.

Examples of control systems attributes include : tightness of budgetgoals, use of cost control, frequency of reporting, and intensity ofmonitoring performance results.


Strategy

Miles&Snow identified 3 generic strategies which labeledProspector, Defender, and Analyzer. Defenders: operate in stable products areas, offer more

limited products than competitors, compete through costleadership, quality, & service.

Prospectors: compete through new products & marketdevelopment. Product lines change over time and this typeof firms is constantly seeking new market opportunities

Analyzers: combine parts of both Defender and Prospectorsstrategies


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H Y P O T H

E S I S

Ho: Control system attributes do

not differ between Prospectorfirms and Defender firms



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Externalassessments byexperts method

(Snow& Hambrick)

76 manufacturingfirms which

completed anreturned the

questionnaire andagreed to provideddata for this study

Interview wereconducted withsenior general

managers in two to

three hours anddiscussions were

tape recorded

The interviewfocused in thestrategies followedby firm on the useof control system

within the firm

33 Likert-typescales, 10 factors (F1) Tight budget goals (F2) External scanning

(F3) Result monitoring (F4) Cost control (F5) Forecast (F6) Goals related to

output effectiveness (F7) Reporting

frequency

(F8) Formula-basedbonus remuneraton

(F9) Tailored controlsystems

(F10) Control systemchangeability

M E T H O D O L O G Y


SampleSelection Interviews Measures


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D I S C U S S I O N


So, Ho can be rejected: Control system attributes doindeed differ between Prospector firms and

Defender firms


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C O

N C L U S I O N

Firms following different strategies do indeed employ accountingcontrol system in different ways and offers some preliminaryconclusions concerning the attributes which may differ according tostrategy.

Two strategic firm types identified for this study, Prospector andDefender, appear to be valid an common strategies.

This study considers control attributes which differ betweenProspectors and Defenders, and provide evidence concerning

control systems in the two types of firms. High performing Prospectors seems to put more attention to

forecast data in control systems, setting tight budget goals, andmonitoring outputs carefull.

For Prospectors, cost control is reduced. Large firms tend to reportfrequently and use uniform control systems which are modifiedwhen necessary.

Defenders, especially large firms, use their control system lessintensively. They give bonus remuneration based on the

achievement of budget targets and tended to have little change intheir control systems. ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYS

article review: accounting control system and business strategy an empirical analysis

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