Enabling and Coercive types of management control systems

“The Influence of internal and external factors on the type of MCS used by

organizations”

By Stefan Jan Koppers

University of Groningen

Faculty of Economics and Business

June 2015

Brugstraat 20B 9714 HZ Groningen

s.j.koppers@student.rug.nl 2591219

Abstract

This research examines which internal and external factors are of influence on enabling and coercive

management control systems (MCS) used by organizations, and how these influences are exerted.

The framework of Adler and Borys (1996) is used which describes enabling and coercive types of

formalization and is linked to MCS by Ahrens and Chapman (2004). An extensive case study analysis

with semi-structured interviews is executed on two organizations. This research identifies strong

arguments about how the internal factors organizational culture, organizational structure and

strategy of the organization influence the MCS in an enabling way. These results are useful for

managers as it provides them insights into which factors needs to be reconsidered when they want

to change their type of MCS. For scientific relevance a more comprehensive picture is obtained about

which and how internal and external factors influence the type of MCS.

Keywords: Management control systems, enabling, coercive, internal factors, external factors Supervisor: Dr. W. Kaufmann Co-assessor: Dr. A. R. Abbasi Amount of words: excl. appendices 14.179, incl. appendices 14.840

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1. Introduction Management control systems (MCS) are considered to be important for organizations as it is used by

the management to align the goals and risk preferences of their employees with the organization.

MCS thus serve the purpose of ensuring organizational performance, driven from an internal

perspective (Merchant, 2006). It is already recognized in the literature that there are factors which

affects the MCS used in organizations. For example, Langfield and Smith (1997) addressed the

relationship between MCS and strategy. Chenhall (2003) identified several contextual variables which

are potentially implicated in the design of an effective MCS. Reheul and Jorissen (2007) researched

the role of performance on the choice of MCS.

Because an MCS is designed to align the activities of the employees with the organizational

objectives, which vary by company, different types of MCS need to exist. Adler and Borys (1996)

made a distinction between enabling types of formalization and coercive types, whereas Ahrens and

Chapman (2004) directly linked this distinction to the study of MCS. According to Ahrens and

Chapman (2004) this framework of Adler and Borys (1996) aids in identifying how and why MCS

might be used to support rather than constrain operational management by highlighting four system

design characteristics. These system characteristics are repair, internal transparency, global

transparency and flexibility. Repair may be a differentiated function or it may be integrated with

routine operational processes. If it is a differentiated function, routine operational roles can be

distinguished from non-routine ones. Internal transparency is concerned with the visibility of internal

processes for organizational members. Global transparency is concerned with the visibility of the

overall context in which organizational members perform their specific duties. Flexibility refers to the

organizational member’s discretion over the use of control systems.

Other research investigated the role which these two different types of MCS, enabling and

coercive have in organizations. Free (2007) investigated whether the concepts of coercive and

enabling uses of accounting are also useful in understanding inter-organizational relationships such

as buyer-supplier dyads. Wouters and Wilderom (2008) investigated which characteristics of a

performance measurement system development process enhance the enabling nature of the PMS.

Jordan and Messner (2012) highlighted potential tensions that may arise between operational

managers’ concern with an enabling use of performance measures, and top management

requirements for control at a distance.

Currently there is no comprehensive picture that identifies which factors are influencing the

type of MCS (enabling or coercive) used and how these factors are influencing the type of MCS used

in organizations. To investigate this, internal and external factors are identified which affects the

MCS.

Internal factors which are recognized in the literature as affecting the MCS are strategy,

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organizational culture, organizational structure, organizational life cycle and size of the organization.

According to Reheul and Jorissen (2007) there are two different views about how strategy affects the

MCS, namely that organizations striving for growth and innovation have great information need and

therefore adopt or a more formal MCS or need a flexible and informal MCS to encourage innovation.

Herath (2007) considers the organizational culture as a factor which affects the MCS by stating that

the organizational culture has a profound influence on employee’s behavior. Chenhall (2003) argues

that the design of the MCS should be consistent with the intent of the organizational structure. It is

therefore important to consider the degree to which MCS are mechanistic or organic. Brignall (1997)

argues that the MCS need to change throughout the life cycle stages to fit in with changes in the

competitive environment, business mission and generic strategy. Organizational size is also affecting

the MCS (Chenhall, 2003). Large firms tend to have more administrative forms of control where

smaller firms tend to use more personal controls (Bruns, 1975). Thus, these internal factors are

recognized as factors affecting the MCS, where this research aims to examine if and how these

factors influence the type of MCS used.

External factors affecting the MCS according to the literature are environmental uncertainty,

technology, national culture and dependency on external financial resource providers. Environmental

uncertainty decreases the reliance on accounting performance measures (RAPM) and increases the

preference of organizations to use the MCS interactively instead of diagnostically (Reheul, 2007).

Herath (2007) recognizes the influence of technology on the MCS when stating that many accounting

information systems have become computerized. Harrison and McKinnon (1999) argue that national

culture affects the MCS in the sense that national culture interacts with the MCS independently from

other factors. The extent to which organizations depend on external providers of financial resources

is affecting the MCS. This, because the more organizations rely on external financial resource

providers, the more information these financial resource providers will demand (Reheul, 2007). Thus,

these external factors are recognized as factors affecting the MCS, where this research aims to

examine if and how these factors influence the type of MCS used.

To examine if and how internal and external factors influence the type of MCS, this research

uses the distinction of Adler and Borys (1996) between enabling types of formalization and coercive

types of formalization. Ahrens and Chapman (2004) directly linked this distinction to the study of

MCS. Currently there is no comprehensive picture that identifies which factors are influencing the

type of MCS (enabling or coercive) used and how these factors are influencing this. This is interesting

to investigate, because when knowing what these factors are and how these factors influence the

type of MCS, it becomes possible to get a better understanding of why a certain type of MCS is used

by an organization. Therefore the research question in this paper is:

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“How do internal and external factors influence the type of MCS (coercive or enabling) used by

organizations?”

Thus, this research aims at contributing to the literature by providing a comprehensive picture of

which and how internal and external factors influence the type of MCS (coercive or enabling) used by

organizations. The practical contribution of this research is to provide managers insight in the factors

influencing their type of MCS. This will help them to consider if their MCS is suitable for their

organization. Also when they want to change their type of MCS, they have a better insight into which

factors need to be reconsidered.

A case study is used to answer this research question. Two case organizations are included in

this research, where one case organization is one of the biggest trading companies in the world while

the other case organization is a technical knowledge-intensive organization. Size in terms of

employees was an important criterion on which these case organizations are selected, because the

need for a more highly sophisticated MCS increases when the size of the organization increases

(Fauzi, 2011). Both case organizations are medium-sized organizations as they employed 208 and 91

employees in 2014 (Russo, 2009). Qualitative data is obtained by conducting semi-structured

interviews as this provides the opportunity to prepare questions beforehand and also allows the

interviewees the freedom to express their views in own terms (Cohen, 2006). Besides this, managers

and lower-level employees might not appraise the MCS in the same way (Tessier, 2012). To be able

to grasp the perceptions of both the managers and the lower-level employees, six interviews are held

with managers and six with lower-level employees. To look for similarities and differences between

the arguing from the interviewees about which and how the factors influence the type of MCS, the

data is analyzed.

In the next section a brief overview of management control systems is described. After that

the distinction between enabling and coercive formalization based on the four generic features

proposed by Adler and Borys (1996) is explained and this is linked with the concept of MCS. Then

internal and external factors affecting the MCS are described. In the methods section, the case study

design and the methods for collecting and analyzing the data are elaborated on. In the results section

the types of MCS used by the examined organizations are shown together with the internal and

external factors that influence the type of MCS. In the discussion the limitations of the results are

discussed and results of earlier research are compared. Finally, the conclusion will answer the

research question posed and recommendations for future research are given.

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2. Literature Review First a brief overview of the MCS literature is provided in this section. Then, the distinction between

the enabling and coercive formalization (Adler, 1996) is examined. After that, the internal and

external factors which are recognized in the literature as affecting the MCS are outlined.

2.1. A brief overview of the management control systems literature

Management control systems (MCS) are defined in various ways. For example, MCS are the formal

and informal systems which are meant to help individuals to control the things they do with

themselves and other resources (Machin, 1983). MCS has a paramount importance as integration,

coordination and monitoring mechanism (Jones, 1985). MCS is used by the management to align the

goals and risk preferences of their employees with the organization and thus serve the purpose of

ensuring organizational performance, driven from an internal perspective (Merchant, 2006). MCS

include all the devices and systems managers use to ensure that the behaviors and decisions of their

employees are consistent with the organization’s objectives and strategies (Malmi, 2008).

MCS are more than devices of constraint and monitoring, as MCS are the formalized

procedures and systems that use information to maintain or modify patterns in the organizational

activities (Simons, 1990). When task uncertainty is high the reliance on personnel forms of controls

has a positive effect on performance (Abernethty, 1997). MCS are the set of procedures and

processes that are used by managers in order to help employees ensure the achievement of their

personnel and organizational goals and encompassed formal, informal and social control systems

(Bisbe, 2004). Thus, in the literature it is widely recognized that MCS are primarily designed to align

the activities of the employees with the organizational objectives.

Transparency about organizational activities to stakeholders is also a feature of MCS (Jensen,

1993). The definition of MCS which is used in this paper is “control mechanisms to enhance

employee’s goal and risk alignment with the organization to ensure organizational performance and

to provide stakeholders transparency about the organizational activities”. A particular relevant

framework for this research is the distinction between enabling and coercive types of formalization

by Adler and Borys (1996). This framework is outlined in the next section.

2.2. Coercive and enabling formalization

Adler and Borys (1996) made a distinction between enabling types of formalization and coercive

types of formalization. Four generic features are revealed to distinguish deskilling from usability

approaches. These generic features are repair, internal transparency, global transparency and

flexibility.

Repair may be a differentiated function or it may be integrated with routine operational

processes. If it is a differentiated function, routine operational roles can be distinguished from non-

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routine ones. The coercive logic is appropriate when managers fear the opportunism of employee

more than they value their potential contribution to deal with unexpected breakdowns and

identifying opportunities for improvement. In case of a breakdown employees are expected to call

for a specialist to solve the problem (Adler, 1996). The premise of an enabling logic here is that

operations are not totally programmable (Ahrens, 2004). Users are allowed to repair a formal system

in case of a breakdown or problem by themselves (Jordan, 2012).

Internal transparency is concerned with the visibility of internal processes for organizational

members. Management control processes can be made accessible to organizational members to

enhance their internal transparency (Ahrens, 2004). A coercive logic is appropriate when there is

little reason to provide users with any visibility into its internal workings. Procedures are formulated

as lists of flat assertions of duties and the employees are expected to just implement these work

instructions (Adler, 1996). The enabling logic is appropriate when users need to have a good

understanding of the logic of a system’s internal function and they need information on its status.

Users are provided with a clear understanding of the underlying rationale for why certain control

mechanisms are in place (Wouters, 2008).

Global transparency refers to the visibility of the overall context in which organizational

members perform their specific duties (Free, 2007). In the coercive logic, tasks are partitioned and

employees are not expected to move beyond their specific realms. Employees have access to

information only on specific areas which they are responsible for supporting. Broader knowledge is

given to these employees only on a restrictive need-to-know basis (Adler, 1996). In an enabling logic,

controls are designed to afford employees an understanding of where their own task fits into the

whole. Information from beyond ones specific domain is available (Wouters, 2008).

Flexibility refers to the organizational member’s discretion over the use of control systems.

Flexibility means that users can make controlling decisions after enabling systems have provided

information (Ahrens, 2004). In a coercive logic, a manual defines in detail the specific sequence of

steps to be followed and employees are forced to ask a supervisor for approval when they want to

skip unnecessary process steps (Adler, 1996). In an enabling logic flexible systems encourage users to

modify the interface and add functionality to suit their specific work demands. (Wouters, 2008).

Ahrens and Chapman (2004) directly linked this distinction of enabling and coercive types of

formalization to the MCS. The distinction between an enabling MCS and coercive MCS is nowadays

widely recognized in the literature. The main distinction is that a coercive MCS only serves higher-

management needs and controls employees’ behavior where an enabling MCS support employees to

do their work better (Wouters, 2008). According to Free (2007) MCS can be drawn on in enabling

ways to open up opportunities for learning and jointly expanding activities or in coercive ways when

the organization is more aggressively setting the rules. Whether a MCS is enabling or coercive

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depends on how the control system is designed and on how the design and implementation process

is organized (Jordan, 2012). A coercive use of MCS is a one-sided relationship between management

and subordinates, where an enabling use of MCS stimulates control in the interactions between the

management and subordinates (Meer-Kooistra, 2008). The coercive use of MCS is involved with

extensive centralization, preplanning and top-down control. The enabling use of MCS is involved with

empowerment for employees, because operations are not totally programmable (Cools, 2008) Thus,

the main difference is that with a coercive approach employees are solely expected to follow explicit

instructions and with an enabling approach employees are expected to think along the process

(Adler, 1996). Employees controlled based on a coercive approach can thus be seen more as

executors, while employees controlled based on an enabling approach can be seen more as thinking

employees. Based on the four generic features mentioned by Adler and Borys (1996) the main

differences between a coercive approach and an enabling approach are summarized in table 1

below.

Table 1: Differences between the coercive and enabling approach based on the four generic features

Now MCS is defined and the main differences between the coercive and the enabling approach are

outlined. From here on internal and external factors which could influence the type of MCS (enabling

or coercive) used by organizations are outlined in the next sections.

2.3. Internal factors affecting the management control systems

Internal factors affecting the MCS are strategy, organizational culture, organizational structure,

organizational life cycle and size of the organization (Brignall, 1997; Chenhall, 2003, Reheul 2007;

Herath, 2007). How and why these factors affect the MCS is outlined below.

2.3.1. Strategy

Strategy is not an element of context but it is more the means whereby managers can influence the

MCS (Chenhall, 2003). The type of strategy of an organization should influence the design of the MCS

(Gosselin, 2005). There is a need for consistency between the MCS and the strategy of an

organization (Hoque, 2004). The MCS of an organization should be aligned in order to support the

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strategy of the organization, which could lead to superior performance (Auzair, 2005). Two different

views about how strategy influences the MCS exist (Reheul, 2007). Organizations striving for growth

and innovation have great information need and therefore adopt or a more formal MCS or adopt a

flexible and informal MCS to encourage innovation.

Different strategies are recognized in the literature. For example, Miles and Snow (1978)

identified defender, analyzer, prospector and reactor strategies. Organizations with a defender

strategy operate in stable environments, have a narrow product focus and are focusing on cost

control. Organizations focusing on product-market innovation with flexible structures use a

prospector strategy. Hybrid organizations which focus on traditional core products and enters new

markets after the viability is established use an analyzer strategy. The reactor strategy is used by

organizations which lacks a coherent strategy (Miles, 1978). The expectation is that a defender

strategy will influence the MCS in a more coercive way and due to the opposing view of Reheul and

Jorissen (2007) a prospector and analyzer strategy could influence the MCS both in an enabling and

coercive way.

2.3.2. Organizational culture

The organizational culture has had an important effect on MCS, but has had not enough attention in

the MCS literature (Henri, 2006). The culture of an organization is having a profound influence on

employee’s behavior and therefore the MCS (Herath, 2007). Organizational culture represents

relationships and interactions among the human actors of the organization which comes from

beliefs, values, morals, customs and knowledge and can be applied in understanding the behavior of

employees in the organizations.

The terms organic and mechanistic describe culture as well as organizational structure and

five elements are used to measure how organic or mechanistic the culture is (Reigle, 2001). An

organic culture can be described as informal with an open-door policy and where employees have

self-initiation. In a mechanistic culture jargon and negative metaphors are used, symbols enforce

segregation and employees need to be coerced to work. Therefore it could be assumed that an

organic culture will influence the MCS in a more enabling way where a mechanistic culture will

influence the MCS in a more coercive way.

2.3.3. Organizational structure

The design of the MCS should be consistent with the intent of the organizational structure and

therefore the degree to which MCS are mechanistic or organic needs to be considered (Chenhall,

2003). Centralization plays a key role in the design of MCS, where organizations that are more

centralized tend to use more financial measures, while decentralized firms tend to use more non-

financial measures to measure the organizations performance (Gosselin, 2005). Organizational

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structure is considered as a way of coordination and control through which organizational actors’

behavior can be directed towards organizational effectiveness (Herath, 2007). The distinction

between mechanistic and organic structures is made by Burns and Stalker (1961) and is based on the

way the structure is involved with rules, procedures, openness of communication and decision

processes (Chenhall, 2003).

Mechanistic structures are involved with top-down rules and procedures setting, while in

organic structures are involved with openness of communication and empowerment of employees

for decision making. Overall, the expectation is that an organic structure influences the MCS in an

enabling way, where a mechanistic structure influences the MCS in a coercive way.

2.3.4. Organizational life cycle

There is a potential influence from the life cycle stage on the MCS (Auzair, 2005) and the life cycle

stage of organizations need to be matched with the MCS of organizations (Miller, 1984). The MCS

need to change throughout the life cycle to fit in with changes in the competitive environment,

business mission and generic strategy (Brignall, 1997). A failure in taking the life cycle of an

organization into account with budgetary policies results in inefficiencies in resource allocations

(Czyzewski, 1991).

The organizational life cycle can be classified in five stages, namely birth, growth, maturity,

revival and decline (Moores, 2001). In the birth stage the organization is just started where the

product-market scope is narrow, in the growth stage organizations have an aggressive build strategy

with product innovation and a broad product-market scope and in the maturity stage organizations

have a hold/harvest strategy with low product innovation and a consolidated product-market scope.

In the revival stage organizations have an aggressive build strategy, considerable levels of product

innovations and a diversified product-market scope to recover, where in the decline stage low

product innovations and a consolidated product-market scope exist. Expected is that the MCS

becomes more enabling at the stages involved with higher levels of product innovations and the goal

to growth. Expected is also that in the maturity and decline stage the MCS becomes more coercive,

due to the lack of growth intentions and low levels of innovation.

2.3.5. Size of the organization

A few MCS studies have explicitly considered size as a contextual variable which affects the MCS

(Chenhall, 2003). Two forms of control associated with size are identified. Large organizations tend to

have more administrative forms of control, where smaller organizations tend to use more personal

controls (Bruns, 1975). An increasing number of employee’s is causing coordination and control

issues and due to the substitution of capital for labor, reduced size have also implications for MCS

(Chenhall, 2003).

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Size can be measured in several ways, namely in terms of revenues, number of employees or

in percentage of the market share. The size of the organization is measured in number of employees,

because this is directly linked with the definition of MCS in this research. A distinction is made

between micro organizations (max. 9 employees), small organizations (max. 49 employees), medium-

sized organization (max. 249 employees) and large organizations (Russo, 2009). It is interesting to

examine if the assumption that an increasing organization in terms of size influences the MCS in a

more enabling way is correct.

2.3.6. Summary of internal factors

Summarized in table 2 below are which and how the internal factors are affecting the MCS.

Table 2: internal factors affecting the MCS

2.4. External factors affecting the management control systems

External factors affecting the MCS are environmental uncertainty, technology, national culture and

dependency on external financial resource providers (Harrison, 1999; Chenhall, 2003, Reheul, 2007;

Herath, 2007). How and why these factors affect the MCS is outlined below.

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2.4.1. Environmental uncertainty

Uncertainty is one of the most widely researched aspects of the environment (Chenhall, 2003).

Combinations of traditional budgetary and interpersonal controls are preferred to be used in

organizations with an increasing environmental uncertainty. High environmental uncertainty is

associated with an emphasis on budgets for evaluation and required explanation of variances, but

also with high participation and interpersonal interactions between superiors and subordinates

(Ezzamel, 1990). The MCS of an organization tend to use more non-financial measures in

organizations which are facing higher levels of environmental uncertainty (Gosselin, 2005). Managers

from organizations operating in uncertain environments place more importance on relevant

information for decision making instead of pure coordinating and controlling purposes. Perceived

environmental uncertainty (PEU) affects the MCS as it is positively associated with a bureaucratic

form of MCS (Auzair, 2011). Environmental uncertainty decreases the reliance on accounting

performance measures (RAPM) and increases the preference of organizations to use the MCS

interactively instead of diagnostically (Reheul, 2007). Thus, different opinions about how

environmental uncertainty affects the MCS exist, where this research tries to identify if the MCS

becomes more coercive or more enabling due to an increasingly uncertain environment.

2.4.2. Technology

There is a need to consider technological changes within the organizational context (Young, 1991).

Understanding the appropriate fit between MCS and advanced technologies is considered by

reflecting on the basic, generic notions of technology (Chenhall, 2003). Many accounting information

systems have become computerized. Managers should make sure that these systems are designed

and operated to meet the requirements of the organizations (Herath, 2007). Therefore expected

could be that technology makes the MCS more enabling, because employees have more insights for

being empowered. Or technology makes the MCS more coercive, because technology is used to

coerce employees to execute their activities according to top management demands.

2.4.3. National culture

National culture affects or interacts with the MCS independently from other factors (Harisson, 1999).

National culture has become important in the design of MCS, since an increasing amount of

organizations have developed multi-national operations. Therefore organizations need to consider

whether they transfer their domestic MCS overseas, or if they need to redesign their MCS to fit with

the cultural characteristics of the foreign subsidiaries (Chenhall, 2003). National culture is considered

as an important topic in the current era of global operations, because there is an increasing need for

organizations towards knowing which MCS are effective in the different national settings (Chow,

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1999). Expected is that the more a national culture is involved with hierarchy the more coercive the

MCS becomes.

2.4.4. Dependency on external financial resource providers

The extent to which organizations depends on external providers of financial resources affects the

MCS (Reheul, 2007). Low performing organizations are more dependent from external financial

resources than well performing organizations, because these organizations generate less financial

resources internally. Therefore these organizations will feel more pressure towards the expectations

of their financial resource providers. They will require detailed information about the financial

situation and the progress which is made by the organization. In this line of reasoning it can be

expected that the greater the dependency of organizations from external financial resource

providers is, the more coercive the MCS becomes.

2.4.5. Summary of external factors

Summarized in table 3 below are which and how the external factors are affecting the MCS.

Table 3: External factors affecting the MCS

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3. Methodology In the first part of this section, the research design is described together with the selection of the

case organizations. Then, the data collection is explained and finally, the process of data analysis is

described.

3.1. Research design and selection of case organizations

Based on the distinction between enabling and coercive types of MCS by Ahrens and Chapman

(2004), this paper tried to provide a contribution to the literature by providing a more

comprehensive picture that identifies which factors are influencing the type of MCS used and how

these factors are influencing the type of MCS used in organizations. According to Eisenhardt (1989)

theory development from case study research is particularly appropriate when little is known about a

phenomenon. For the reason that this research tried to provide a more comprehensive picture, the

best way to explore this new knowledge is by “theory development”.

The first case organization in this research is one of the biggest trading companies in the

world and is divided into three business units, namely Perfumes & Cosmetics, Liquors and Health &

Beauty. Their annual report of 2014 presents revenues of 660 million euros for 2014 with 208

employees. This organization is called Trade from here on. The second case organization is a

technical knowledge-intensive organization which is divided into five business units. These business

units are engineering, inspection, maintenance, contracting and production. The revenues over 2014

were 18.5 million euros with 91 employees. This organization is called Technique from here on.

Findings in theory development often rest on a very limited number of cases (Eisenhardt,

1989). Selecting two instead of one case organization provided the possibility to look for similarities

and differences between these case organizations. Arguments become stronger when a particular

reasoning is given by interviewees from both case organizations. Besides this, the findings can be

weakened when interviewees from both case organizations give contradicting arguments. This

increased the reliability of this research (Yin, 2003).

The issues underlying the choices of MCS differ in early-stage organizations from mature

organizations. The main reason is that mature organizations have an extensive amount of formal

systems already in place and are therefore less concerned about running out of control than early-

stage organizations (Sandino, 2007). For this reason mature organizations are better suitable for this

research than early-stage organizations. The need for a more highly sophisticated MCS increases

when the size of the organization increases (Fauzi, 2011). Therefore the selected case organizations

need to be of considerable size such as medium-sized organizations (50-249 employees) and large

organizations (min. 250 employees) (Russo, 2009). Besides these criteria, it is important that the

organizations were willing to participate and to have an entrance in these organizations. Trade was

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willing to participate, because of friendly relationships from the author within this organization. Due

to a former internship from the author at Technique participation from this organization was easily

obtained. Both selected case organizations met the abovementioned criteria and were therefore

suitable for this research.

3.2. Data collection

During this research notes have been taken about the research process and the way that this

research was conducted to make this research controllable and replicable (Aken, 2012). Data is

collected by doing semi-structured interviews with six managers and with six lower-level employees.

The distinction between managers and lower-level employees in this research is that managers are

defined as employees who are directing a group of lower-level employees within the organization,

where lower-level employees are defined as employees who just execute their own tasks without

directing other employees. Examples of lower-level employees in this research are Area Managers of

Trade and an engineer of Technique.

It was interesting to examine the perceptions of both the managers and the lower-level

employees, because they might not appraise the MCS in the same way (Tessier, 2012). Managerial

intentions of the MCS refers to what managers are trying to achieve by implementing a control and is

a design attribute of the MCS, where employees perceptions refers to the interpretation they have

from the intentions from the MCS.

Semi-structured interviews were used, because this provided the opportunity of preparing

questions beforehand and allowed the interviewees freedom to express their views in their own

terms (Cohen, 2006). To increase the quality of the interview questions, the interview guide was

composed and critically assessed by two master students and the mentor who are doing research in

the same field. The interview guide is presented in Appendix A and consists of three parts. Questions

in the first part determined the type of MCS used by the case organizations. Questions in the second

part are intended to examine if and how the identified factors influence the type of MCS. In the last

part interviewees were provided the opportunity to raise factors of influence on the type of MCS by

themselves. Where possible, formal documentation such as an annual report, business information

guide and business objectives goals were used to support findings from the interviews. These

documents are analyzed and served as complementary data to the interviews.

3.3. Data analysis

Analyzing data is the heart of building theory from case studies, but it is also the most difficult and

least codified part of the process (Eisenhardt, 1989). A key step in this process is within-case analysis.

All interviews are transcribed and from these interview transcripts relevant quotes are gathered. To

provide a better overview relevant quotes from every factor are marked. To help building theory

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form the conducted data, cross case analysis is done to search for within group similarities and

intergroup differences. For this, all relevant quotes were provided with a code to structure quotes

per factor and type of employees. As presented in Appendix B, two different coding schemes were

used, where one coding scheme was used to structure quotes related to the type of MCS used. The

first number determined the case organization, where the second number distinguished between

managers and lower-level employees. The generic feature is specified with the third number and the

fourth number concluded if the arguing is related with a coercive or enabling type of MCS. The

second coding scheme was to determine the factors of influence on the type of MCS. The first two

numbers were similar with the first coding scheme, where the third number indicated which factor

the quote is about. The fourth number appointed the specific elements of the factors, where the fifth

number specified if the interviewee agreed that there is an influence on the type of MCS used or not.

A quote from an Area Manager of Trade is used as an example:

“If you are expected to constantly grow and the trade is fast you need to have a lot of freedom to act.

If you are not released it will cost you more time and greater effort to grow. Therefore you do not need to be

restricted on too much rules from the management.”

This quote was coded with the number 1.2.1.5.2. and is established as follows. This quote

came from an interviewee of Trade (1), which is a lower-level employee (2), which went about the

factor strategy (1) and if and how it influenced the type of MCS (5) and that the interviewee argued

that this factor influenced the type of MCS (2).

After conducted all the relevant coded quotes, it became possible to analyze per factor how

many interviewees recognized particular factors as of influence on the type of MCS used by the

organization. From this point it became possible to look for similarities and differences in the line of

reasoning from the interviewees about if and how these factors influence the type of MCS.

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4. Results In this section the results of this case study will be presented. First, the type of MCS used by

both organizations will be described and explained. After that, it is explained which and how the

factors influence the type of MCS used by the organizations.

4.1 Type of MCS used by case organizations

The four generic features repair, internal transparency, global transparency and flexibility

(Adler, 1996) are used to measure whether the type of MCS is coercive or enabling. In terms of repair

all managers and employees of Trade recognize enabling characteristics. The Managing Director of

Trade argues:

If someone faces an operational problem, for example with a customer or supplier, than they are expected to solve these problems by themselves.

One manager and all employees of Trade recognize also coercive characteristics in terms of repair.

An Area Manager notices:

It is possible that you face problems which you never dealt with before. It is an easy step to ask a colleague or manager for help in that case.

According to all managers and two employees of Technique the MCS contains enabling

characteristics. A Business Unit Manager formulates:

When someone in our department faces a problem than this person feels responsible for solving this problem his self.

Two employees of Technique recognize coercive characteristics as one employee formulates: You are not supported to solve problems by yourself. You are encouraged to use the knowledge of

your colleagues to solve the operational problems you face.

Thus, there is a difference in perception between managers and employees at both case

organizations, where managers almost only recognize enabling characteristics and employees

recognize enabling and coercive characteristics in terms of repair. Looking at internal transparency all

managers and all employees of Trade recognize enabling characteristics. The Managing Director of

Trade formulates:

If you really understand the logistics and all the processes behind, you will be able to generate a faster throughput time and bring in more orders. Than you are really going to perform and you will really run a business.

All managers and employees of Technique recognize solely enabling characteristics in terms of

internal transparency. An employee mentions:

17

Of course I know the reasons for executing my tasks and an underlying reason exists for all tasks I execute. It is important to understand why I execute my tasks.

Thus, the intentions and the perceptions of the managers and employees of both case organizations

are in line (Tessier, 2012) and in terms of internal transparency the characteristics are predominantly

enabling. In terms of global transparency all managers and all employees of Trade recognize solely

enabling characteristics. An Area Manager of Trade argues:

Yes, sure. From all departments within this organization we get information about how it works for example with the customs, transport, but also how things go financially. This is to make sure that you have this knowledge in case that you need this information when talking to your customers.

All managers and all employee of Technique consider global transparency as solely enabling. A

Business Unit Manager of Technique mentions:

We are giving the kick-off of projects nowadays more importance. This to make sure that everybody

who is involved in the project gets the right information and also to make sure that everybody knows from

each other what he or she is doing during the project.

Thus, the intentions and the perceptions of the managers and employees within both case

organizations are in line and in terms of global transparency both case organization use a

predominantly enabling type of MCS. In terms of flexibility all interviewees of Trade recognize only

enabling characteristics. The Sales Director notices:

We start working now with a new ICT system. We first compile some key users to create support for this new system. Additionally we add groups of employees to gradually making more and more employees involved with this new system.

All interviewees of Technique recognize solely enabling characteristics in terms of flexibility. An

employee argues:

Actually, most process changes are initiated by employees themselves. They just sometimes have a

need for another structure or process.

Concluded, both case organizations are using a predominantly enabling MCS when looking at the

four generic features.

4.2. Internal factors of influence on the type of MCS

Internal factors identified as affecting the MCS are strategy, organizational culture,

organizational structure, organizational life cycle stage and size of the organization. The interviewees

are asked specific question about these topics and if and how they think that these factors influence

the type of MCS. Besides this, the interviewees came up with level of education, type of product and

vision of the CEO as additional factors.

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4.2.1. Strategy

All interviewees of Trade mention the growth goal of Trade with 10-15% each year.

Therefore the organization continuously develops existing markets and looks for new markets. The

annual report of Trade from 2014 states: “growth is the lifeblood of Trade and the premier pillar of

our strategy. We firmly believe that growth is based on innovation and quality, fuelled by entering

into new markets and by continuously making use of new business opportunities”. Thus, Trade is

having a prospector strategy (Miles, 1978).

All managers and employees of Trade argue that strategy is influencing the type of MCS,

where their line of reasoning is similar. The Managing Director reasons:

I truly belief that you need to let people do the things they are best in. […] I could push people to perform in a certain way, but this just will not work. Then my employees will never excel. I give my employees therefore a lot of autonomy. […] In my opinion this will benefit our trading.

An Area Manager of Trade argues that employees need freedom to act in order to grow. He

mentions that growing will cost more time and effort when employees are not empowered.

The managers of Technique and their business goals guide name the pillars maintenance,

standardized traffic guidance systems and water management on which their strategy is based,

where the employees are less clear about this. Technique seeks for new markets and enters these

new markets after the viability of the market is established and therefore Technique has an analyzer

strategy (Miles, 1978).

The reasoning about how strategy influences the MCS corresponds between the managers

and employees of Technique. A Business Unit Manager of Technique argues that a more coercive

MCS actually better suits their standardized traffic guidance system products and for their project

based products employees need empowerment to be creative and innovative and therefore a more

enabling type of MCS is used. An employee of Technique formulates:

I think that it is a prerequisite that our employees are able to see the right opportunities and are

empowered to utilize these opportunities. Therefore we need a more enabling MCS. […]. Our organization

wants to be flexible in order to be able to react on markets and to see opportunities and utilize these.

Thus, Trade uses a prospector strategy, where Technique uses an analyzer strategy. All

managers and employees of Trade are fully aware of their strategy, where the managers and only

one employee of Technique are aware of their strategy. All managers and employees from both case

organizations consider strategy as of influencing the type of MCS. Trade is using an enabling MCS,

because it is striving each year for significance growth and Technique is using an enabling MCS,

because they mostly work on project basis. The view of Reheul and Jorissen (2007) that organizations

striving for growth and innovation need a flexible and informal MCS is supported by these findings.

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4.2.2. Organizational culture

All managers and employees of Trade recognize organic elements on all aspects of the organizational

culture (Reigle, 2001). One manager recognizes mechanistic elements for artifacts and symbols and

one employee recognizes mechanistic elements for espoused values. The annual report of Trade

states: “The company is a responsive organization with client-driven flexibility. The company and its

team are used to deal with unusual problems, challenges or unanticipated opportunities and always

put the clients first”. Thus, the culture of Trade is predominantly organic.

All managers and employees of Trade mention that the organizational culture influences the

type of MCS. They argue that an organic culture makes the MCS more enabling. An employee of

Trade states:

You determine the type of organization and then you develop a matching MCS. Our culture here is

that everybody has his own business within this organization. Communication is informal and you need to

achieve by yourself, independently. Therefore we need an enabling MCS.

All managers of Technique recognize organic elements in terms of language, patterns of behavior and

opinions and underlying assumptions, where two managers recognize organic elements for artifacts

and symbols and one manager recognizes organic elements for espoused values. One manager of

Technique recognizes mechanistic elements for patterns of behavior and opinions and underlying

assumptions, where all managers recognize mechanistic elements for espoused values. All

employees of Technique recognize organic elements on all aspects, except for espoused values

where one employee recognizes organic elements. For patterns of behavior and espoused values

mechanistic elements are recognized by two employees of Technique. The business goals guide of

Technique states: “communication within Technique is stimulated by walking around by the

management and every quarter a personnel meeting focused on policy, realization, goals and other

important company matters”. Thus, the culture of Technique is predominantly organic.

All managers and employees of Technique use similar argumentation and reason that an

organic culture makes the MCS more enabling. An employee of Technique formulates:

The culture here is always to unburden the customer and to go far to help and solve problems for

them. […] If something goes wrong it needs to be solved directly. Sometimes we go far to prevent problems,

even if this costs us money.

Thus, both Trade and Technique have a predominantly organic culture. The interviewees of both case

organizations argue that an organic culture makes the MCS more enabling.

4.2.3. Organizational structure

To measure organizational structure specific questions about centralization, formalization

and differentiation are asked to the interviewees (Sathe, 1975). All managers of Trade recognize

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organic elements for centralization, where for formalization one manager recognizes organic

elements and one manager recognizes mechanistic elements. All employees recognize organic

elements for centralization and two employees recognize organic elements for formalization, where

one employee recognizes mechanistic elements for formalization. All managers and employees of

Trade argue that there are four hierarchical levels. Thus, Trade is having a predominantly organic

structure.

One manager and all employees of Trade argue that their structure influences the type of

MCS, where two managers are not clear about this. Their reasoning is similar, namely that an organic

structure influences the MCS in an enabling way. An Area Manager of Trade mentions:

It is very hard to have an enabling MCS in a mechanistic structure. When you look at the warehouse,

they have a more mechanistic structure and they therefore use another MCS. They just need to execute their

tasks and they are empowered and supported to have input in the processes. This is contradicting with our

structure.

All managers and employees of Technique recognize organic elements for centralization and

formalization. Two managers and two employees also recognize mechanistic elements for

formalization. Four hierarchical levels are recognized for the Business Unit Maintenance and

Engineering. The business goals guide from Technique mentions that the organization is divided in

2012 to keep the organization controllable and flat. Thus, Technique is having a predominantly

organic structure. All managers and employees of Technique mention that the more organic the

structure the more enabling the MCS becomes. An employee of Technique notices:

The basis of our structure is that the organization wants to be flexible and that the organization is able

to adapt to the environment. If the employees are not allowed to accomplish their work by themselves they

will not be able to adapt to the environment quick enough.

Thus, a predominantly organic structure is used at both case organizations. All interviewed managers

and employees, except two managers of Trade, recognize the influence of organization structure on

the type of MCS. The reasoning is similar about how the structure influences the MCS, namely that

an organic structure influences the MCS in an enabling way. These findings are in line with the

literature (Chenhall, 2003).

4.2.4. Organizational life cycle stage

All managers and employees of Trade notify that Trade is in the growth stage, where their

annual report mentions that Trade won five times the Gazelle award from the Daily Financial

Newspaper as fastest growing Dutch company. Thus, Trade is in the growth stage (Moores, 2001). All

managers and two employees argue that the life cycle stage of the organization influences the type

of MCS. The Managing Director states:

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When you constantly grow external parties are placing more demands at a certain point. You can do a

lot within your head, but at one point you become too big. Therefore we developed a lot of systems, especially

for logistics and expedition. This facilitates us to grow. Without these systems we should not have reached this

amount of grow.

One employee thinks that the influence of the life cycle stage on the type of MCS could be the other

way around, in the sense that because Trade has an enabling MCS they stay in the growth stage.

All managers and employees of Technique argue that Technique is now stable after a

considerable growth and a recent repercussion. Thus, Technique is in the maturity stage (Moores,

2001). All managers and employees argue that the organizational life cycle stage influences the type

of MCS with the same reasoning. An employee of Technique notices:

If an organization is in the birth stage then there will be a very informal MCS. Now we are in the maturity stage we need more regulation. We now should need to steer more then we should do in the birth stage.

Trade and Technique are both in a different stage of the life cycle, where Trade is in the growth stage

and Technique is in the maturity stage. Except for one employee of Trade, all interviewees argue that

the further the organization comes in the life cycle stage, the more coercive the MCS becomes.

4.2.5. Size of the organization

Trade employed 208 people in 2014 and is therefore a medium-sized organization (Russo,

2009). All managers and employees of Trade argue that the bigger an organization becomes the

more coercive the MCS becomes. A Business Unit Manager of Trade mentions:

The bigger you become, the more hierarchy you need. Because the bigger the organization, the more

managers and layers you need to control your people. This means directly more steering towards your

employees.

Technique employed 91 people in 2014 and is therefore a medium-sized organization (Russo, 2009).

All managers and employees of Technique reason that the bigger an organization becomes the more

coercive the MCS becomes. An employee of Technique formulates:

Due to the fact that we have only a few layers it is possible to see what happens here. If the

organization would grow you should need incentive-contracts. Because then you need to make sure that your

employees have other incentives to take the correct decisions.

Thus, Trade and Technique are medium-size organizations, where all interviewees consider the

organizational size as of influencing the type of MCS. They use similar argumentation, namely that

the bigger the organization becomes the more coercive the MCS becomes, which is in line with the

literature (Burns, 1975).

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4.2.6. Level of education

All managers and one employee of Trade consider the level of education from the employees

as of influence on the type of MCS. These respondents all argue that the higher the level of education

from employees the more enabling the MCS becomes. The Managing Director of Trade argues:

The responsibility that our employees receive is quite high […]. Employees with a higher education level are more capable of handling responsibilities […]. Employees with a lower education level tend to take decisions which are less thought through and less in line from what we expect from them.

One manager of Technique also considers the level of education from the employees as

influencing the type of MCS and states:

You should not underestimate the education level from employees. Employees with a higher

education level are more capable of acting on their own and they are more capable of handling the

empowerment they receive in an enabling type of MCS.

The level of education from employees is considered as a factor influencing the type of MCS at both

case organizations. The argumentation among the respondents is similar, namely that the higher the

level of education from employees the more enabling the MCS becomes.

4.2.7. Type of product

One manager of Trade considers the type of product as influencing the type of MCS.

According to this manager, the way of empowering employees at Trade would never be suitable in a

fabric where they work with for example 100 employees at a production line. One manager of

Technique and two employees argue that the type of product is influencing the type of MCS. Their

argumentation is similar, where one employee of Technique commented:

I think the type of MCS is also dependent on the type of products you produce. For example when you

produce ping-pong balls it becomes important to standardize the process to make it as cheap as possible. In

our organization nothing is standard and therefore we need creativity and innovativeness from our employees.

This will result in a more enabling MCS.

Thus, respondents from both organizations argue that customized products influence the type of

MCS in an enabling way and standardized products influence the type of MCS in a coercive way.

4.2.8. Vision of the CEO

The way of leading by CEO is applied by his followers according to one manager of Trade. The

former CEO of Technique was a very directive man with a directive way of dividing the tasks and

therefore selected followers. The current CEO believes in empowerment of employees with own

responsibilities according to a Business Unit Manager of Technique. An employee of Technique

argues that a transformational CEO will make use of a more enabling MCS where a transactional

leader will make use of a more coercive MCS, because a transformational CEO beliefs in the strength

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of employees where a transactional CEO is having a more compelling way of directing. Thus, the

more the CEO believes in empowerment of employees the more enabling the MCS becomes.

4.3. External factors of influence on the type of MCS

The external factors affecting the MCS are identified as environmental uncertainty,

technology, national culture and dependency on external financial resource providers. In the

interviews the interviewees are asked specific questions about these topics and if and how they think

that these factors influence the type of MCS. Besides this, the interviewees came up by themselves

with cultural differences within the Netherlands as influencing the type of MCS.

4.3.1. Environmental uncertainty

All managers and employees of Trade consider the individual markets in which they operate

as uncertain. Two managers and one employee remark that their total market is stable due to

product diversification and globalization. Two managers and all employees of Trade consider

environmental uncertainty as influencing the type of MCS, where their arguing differs. One manager

and two employees reason that more environmental uncertainty causes a more enabling MCS,

where one manager and one employee argue that more environmental uncertainty causes a more

coercive MCS. An Area Manager of Trade formulates:

You need to be able to react quickly in a changing environment. If you need permission to act from to many people you are too late. Therefore you need a great extent of freedom and responsibility and you should not be restricted on to much rules and procedures.

A Business Unit Manager of Trade mentions:

If the future is uncertain you cannot empower employees that much anymore. Therefore employees need more steering and they need to be told that where their focus needs to be.

All managers and employees of Technique consider their market as uncertain. They argue that

contracts are changing in a way that more risks are put at contractor organizations like Technique. All

managers and two employees argue different about how they consider environmental uncertainty

influencing the type of MCS. One manager and one employee reason that an increasing

environmental uncertainty causes a more enabling MCS, where two managers and one employee

argue that this makes the MCS more coercive. An employee of Technique states:

Because we need to deal with changing circumstances, we want our organization to be flexible and able to adapt quickly. Therefore employees need to be empowered.

A Business Unit Manager of Technique notices:

Due to the uncertainty of the environment we need to enroll sharper on the tenders. Therefore we need more project control, because we cannot handle setbacks every time […]. We become sharper and try to build in more control.

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Ten out of twelve interviewees recognize environmental uncertainty as of influence on the type of

MCS. The interviewees have opposing views about the way environmental uncertainty influences the

type of MCS within both case organizations. One view is that an increasing environmental

uncertainty influences the MCS in a more enabling way, where the opposing view is that in this case

the MCS is influenced in a more coercive way. Both views are in line with the literature (Reheul,

2007).

4.3.2. Technology

All managers and employees of Trade recognize technological changes within the

organization. Interestingly, all managers argue that technology influences the type of MCS and all

employees do not recognize this. All managers of Trade state that technological developments

influence the MCS in an enabling way. The Managing Director formulates:

Because of these technological changes we are able to almost fully empower our employees. They have a complete overview of what they are doing because of our systems. This causes less risk on mistakes and this enables employees to perform.

All managers and employees of Technique recognize technological changes within the organization.

Their business goals guide considers technology as an important factor for keeping the organization

controllable. All managers and one employee argue that these technological changes influence the

type of MCS, but their line of reasoning differs. Two managers reason that the technological

developments influence the MCS in a coercive way, where one manager and one employee argue

that the MCS actually becomes more enabling. A Business Unit Manager of Technique notices:

These technological developments provide us with more means of control. Where you had gut feeling

in the past you are now able to steer on facts due to these technological developments. […]. This causes that

the MCS becomes more coercive. You use the information to make your employees aware.

The contradicting reasoning according to an employee:

The new ERP system makes us able to create self-control. People should be made clear what is

expected from them and then they can check in the system, do I meet these requirements?

Thus, all managers and only one employee at both case organizations consider technology as

influencing the type of MCS. The managers of Trade and one manager and one employee of

Technique argue that technological developments makes the MCS more enabling, where two

managers of Technique reason that it makes the MCS actually more coercive.

4.3.3. National culture

Only Trade has foreign subsidiaries where one employee had been actively involved in a

foreign subsidiary. This employee argues that national culture does not influence the type of MCS. He

reasons that when Trade takes over another organization, Trade is very dominant in the way they

25

want these organizations to operate. Thus, national culture does not influence the type of MCS

according to this research. This is contradicting with the literature (Chow, 1999). Perhaps at

organizations which are more involved with different cultures, national culture has more influence

on the type of MCS.

4.3.4. Dependency on external financial resource providers

All managers and employees of Trade argue that the bank finances their operations, despite

their wealthy financial position and therefore Trade is dependent from the bank. All interviewees of

Trade, except one employee, argue with similar reasoning that this influences the type of MCS. They

reason that the greater this dependency is the more coercive the MCS becomes. A Business Unit

Manager argues:

When a bank invests in your organization they will get a voice about how to deal with stocks for example. Finance receives reports and they see that certain products are not selling good and fast enough. They provide us with this information and our task is to attend our employees on this. The bank demands that products are no longer in stock then 180 days. Then we are forced to sell this stock, even if it goes with a loss.

Two managers and two employees of Technique mention that Technique is dependent from the

bank, where one employee even states that Technique operates under the supervision of the banks

special management. One manager and one employee do not want to react on this topic. The

interviewees use similar argumentation, namely that the greater this dependency is the more

coercive the MCS becomes. The CEO argues:

In the short run the bank does have influence on the type of MCS, because they could be compelling.

The demand insights and reports about our activities. But in the end as a company you would like to have these

insights by yourself as well.

Thus, both case organizations are dependent from the bank, where Technique is more dependent

from the bank than Trade. The arguing is similar between the interviewees of Trade and Technique

as they all state that the greater the dependency on external financial resource providers is the more

coercive the MCS becomes. This is also in line with the literature (Reheul, 2007).

4.3.5. Cultural differences within the Netherlands

Two managers of Trade consider cultural differences within the Netherlands as an influencing

factor on the type of MCS, where they use similar argumentation. The Managing Director notices:

We work with people from the North which consciously choose to stay here. In my opinion the loyalty of our people is higher than in the West of the Netherlands. People from the West are more often changing jobs for example. Also the motivation and the drive are higher from our people. They are therefore more capable of handling a more enabling type of MCS than people in the West.

26

One manager and one employee of Technique consider cultural differences within the Netherlands

as influencing the type of MCS. They both use similar argumentation. A Business Unit Manager

mentions:

In general the mentality of people from the East is that they are not really outspoken. This causes that they are less initiating the freedom to take actions by themselves. We try to improve this, but this is difficult. Therefore an enabling type of MCS is sometimes difficult for people from this area.

Thus, the interviewees of Trade argue that people from the North are more capable of being

empowered than people in the West, because of a higher loyalty, motivation and drive. The

interviewees from Technique argue differently and reason that people from the East are less capable

of being empowered, because they are more closed and less mouthed compared with people from

the West.

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5. Discussion In order to examine what the influence of internal and external factors is on the type of MCS

used by organizations, it is first important to determine which type of MCS is used by the studied

case organizations. The interviews reveal that, according to the four generic features of Adler and

Borys (1996) both case organizations have predominantly enabling characteristics. As a consequence,

argumentation about how factors influence the MCS in an enabling way is based on experience of

the interviewees, whereas argumentation about how factors influence the MCS in a coercive way is

solely based on assumptions of the interviewees. Organizations with predominantly coercive

characteristics should be investigated to increase the validity of the argumentation about how

internal and external factors influence the MCS in a coercive way. After determining the type of MCS

used at the case organizations, the discussion about if and how the internal and external factors

influence the type of MCS is described below.

The results show that organizational culture and organizational structure influence the MCS

in an enabling way. According to the data, both case organizations have predominantly organic

cultures. In terms of organizational structure, respondents of both case organizations emphasized on

organic structures, especially in terms of centralization which is considered as the most important

structural element (Gosselin, 2005). According to Chenhall (2003), organic structures are involved

with openness of communication and empowerment of employees for decision making. Therefore it

can be expected that organic structures influence the MCS in an enabling way, which is supported by

the findings at both case organizations. Organizations with predominantly mechanistic cultures and

structures should be investigated to test properly if the hypothesis that mechanistic cultures and

structures influence the MCS in a coercive way can be confirmed.

The results show how the internal factor strategy influences the MCS in an enabling way.

According to the data, Trade develops existing markets and looks for new markets. Trade is

successfully doing this as they won five consecutive awards for fastest growing Dutch organization.

Thus, Trade can be considered as having a prospector strategy (Miles, 1978). The managers of

Technique are clear about their strategy, whereas the employees are less aware of this. This can be

caused by ineffective communication about their strategy from top management to the employees.

These managers argue that Technique seeks for new markets and enters these new markets after the

viability of the market is established. Thus, Technique can be considered as having an analyzer

strategy (Miles, 1978). The findings show that Trade strives for growth and Technique for innovation

within their customized projects, which influences the MCS in an enabling way. This is in line with

findings of Reheul and Jorissen (2007), who stated that organizations that strive for growth and

innovation need a flexible and informal MCS to encourage innovation. However, the opposing view

28

of Reheul and Jorissen (2007) that these organizations have great information need and therefore

adopt a more formal MCS indicates that these organizations tend to use more coercive MCS.

Organizations with a predominantly coercive MCS should be investigated to examine if this opposing

view can be confirmed.

According to the interviewees, the internal factors organizational life cycle stage and

organizational size influences the MCS in a more coercive way. This research situates Trade in the

growth stage, which is characterized by having an aggressive build strategy with a broad product-

market scope (Moores, 2001). Technique however, is stable after a considerable growth and a recent

repercussion and is therefore is situated in the maturity stage (Moores, 2001). In this research it

seems that the MCS becomes more coercive when organizations develop throughout the

organizational life cycle. However, both case organizations are unexperienced with the revival and

decline stages and it is therefore hard to draw conclusions about how these stages influence the type

of MCS.

According to Russo (2009), both case organizations are medium-sized organizations as Trade

employed 208 people and Technique employed 91 people in 2014. The interviewees argue that the

MCS becomes more coercive when organizations become bigger. This is in line with the literature as

it is stated that large organizations tend to have more administrative forms of control, where smaller

organizations tend to use more personal controls (Bruns, 1975). Small and large sized organizations

should be investigated to increase the validity of these results. Thus, concluding this research reveals

how the internal factors organizational culture, organizational structure and strategy of organizations

influence the MCS in an enabling way and findings in this research also show how the internal factors

organizational life cycle stage and size of the organizations influence the MCS in a coercive way.

In this paragraph it is discussed how the external factors dependency on external financial

resource providers, environmental uncertainty, technology and national culture have mixed

influences on the type of MCS. Both case organizations are dependent on the bank. The interviewees

argue that when organizations become more dependent on external financial resource providers, the

MCS becomes more coercive. This supports the literature, where it is stated that external financial

resource providers will require detailed information from organizations which they finance (Reheul,

2007). To get a more comprehensive picture about how this factor influences the type of MCS, more

research is needed at organizations dependent from other external financial resource providers and

at financial independent organizations.

According to the data, both case organizations are operating in quite uncertain

environments. Contradicting views about how environmental uncertainty influences the type of MCS

exist within both case organizations. Some interviewees argue that an increasing environmental

29

uncertainty influences the MCS in an enabling way, while others argue that this actually results in a

more coercive MCS. The literature indicates that environmental uncertainty results in a more

enabling MCS, as it is stated that organizations tend to use more non-financial measures in case of

environmental uncertainty (Gosselin, 2005). In contrast, the literature also indicates that

environmental uncertainty causes a more coercive MCS, as it is stated that high environmental

uncertainty is associated with an emphasis on budgets for evaluation (Ezzamel, 1990). Because both

contradicting views are supported within both case organizations, apparently the personnel

preference about how to deal with environmental uncertainty is more important than the

organizational context. Organizations operating in stable environments need to be investigated to

get a more comprehensive picture about how environmental uncertainty influences the type of MCS.

Technological developments take place within both case organizations. At both case

organizations all managers consider technology as a factor of influence on the type of MCS, while 5

out of 6 employees do not recognize this. This is in line with research of Tessier and Otley (2012),

who stated that the managerial intentions and the employees’ perceptions of the MCS can differ.

Perhaps employees can be more short-term focused compared with managers and are therefore less

aware of the influence technology has on the type of MCS. At Trade all managers argue that

technology influences the MCS in an enabling way. Looking at Technique, the results are

contradicting as one manager and one employee consider technological developments as resulting in

a more enabling MCS, whereas two managers argue that this actually results in a more coercive MCS.

Perhaps not all managers of Technique are actively involved in the composition of technological

developments, which causes contradicting findings as opposed to the managers of Trade. Both case

organizations confirm that technology has influence on MCS in general, but it remains unclear

whether this leads to more enabling or more coercive MCS. More research is needed to determine

this.

Only one employee of Trade has been actively involved in a foreign subsidiary and he does

not consider national culture as of influence on the type of MCS. In the literature national culture is

considered as important, because there is an increasing need for organizations towards knowing

which MCS are effective in different national settings (Chow, 1999). It is possible that Trade uses a

specific success formula and is dominant when taking over organizations and therefore within Trade,

national culture does not seem to influence the type of MCS. Employees more involved with different

national cultures should be interviewed to test properly if and how national culture influences the

type of MCS. Concluding, the findings in this research show how dependency on external financial

resource providers influences the MCS in a coercive way, where contradicting argumentation exists

about how environmental uncertainty and technology influences the type of MCS.

30

In the last part of the interviews the interviewees have the opportunity to come up with

additional factors of influence on the type of MCS. They came up with level of education from

employees, type of product, vision of the CEO and cultural differences within the Netherlands. Level

of education from employees can be seen as an additional factor, because it cannot easily be linked

to existing factors affecting the MCS. The argumentation seems assumable that the higher the level

of education, the better employees are capable of handling an enabling MCS, because they faced

also a lot of empowerment during their education. It is possible that due to the relatively young

research field of enabling and coercive MCS, this factor is currently not considered in the literature.

The factors type of product and vision of the CEO can be part of an organizations strategy and are

therefore not separately considered in the literature as affecting the MCS. It is possible that cultural

differences within the Netherlands is currently not considered in the literature as affecting the MCS,

because of the questionability about if this factor can be made generalizable. More research is

needed to examine if and how these additional factors influence the type of MCS.

In this paragraph a short discussion about the reflection on the methods is provided

consisting of operational issues, validity and reliability limitations. The relatively small time frame of

this research limited the amount of case organizations which could be investigated. However, access

to the case organizations was obtained, due to friendly relationships from the author within both

case organizations. Semi-structured interviews offered the potential to address exploratory and

explanatory research. The additional factors that were found proved the added value of using semi-

structured interviews. The conclusions from this study can be generalized to other people and other

contexts. However, this generalization is limited by the selected industries and the organizational

size. More empirical data is necessary to make the findings generalizable to other industries and

larger organizations. The reliability of this research is affected by participant and observer bias during

the interviews. Reliability was increased by informing the interviewees upfront about the duration of

the interview in order to let them reserve enough time in their schedule. This enabled the

interviewee to expand upon some interview questions. The answers provided by the interviewees

may have been guided by the semi-structured interview or by the interviewers’ attitude. It is

attempted to reduce this bias by the involvement of both managers and lower-level employees,

reducing the chance of mentioning only top-down or bottom-up views.

31

6. Conclusion

MCS are considered to be important for organizations as it is used by the management to

align the goals and risk preferences of their employees with the organization and thus serve the

purpose of ensuring organizational performance, driven from an internal perspective (Merchant,

2006). Ahrens and Chapman (2004) directly linked the distinction from enabling and coercive

formalization (Adler, 1996) to MCS. A comprehensive picture about which and how internal and

external factors influence the type of MCS is provided by this research.

Several internal factors influence the MCS in an enabling way. A strategy which strives for

growth or is based on customized projects influences the MCS in an enabling way. This supports the

literature which states that organizations striving for growth and innovation need a flexible and

informal MCS to encourage innovation (Reheul, 2007). Also an organic organizational culture and

structure causes a more enabling MCS. This supports the literature where organic structures are

considered to be more involved with empowerment of employees (Chenhall, 2003). This research

identifies several additional internal factors affecting the MCS and influencing the type of MCS, which

are level of education, type of product and vision of the CEO. According to this research a higher level

of education from employees makes the MCS more enabling, when an organization produces

customized products the MCS becomes more enabling and when the CEO beliefs in empowerment of

employees the MCS becomes more enabling as well.

Several external factors influence the MCS in an enabling way. An increasing environmental

uncertainty causes a more enabling MCS. This supports the literature which states that increasing

environmental uncertainty decreases the reliance on accounting performance measures (Reheul,

2007). Technological developments make the MCS also more enabling, where the literature currently

only recognizes that technology influences the MCS, but does not provide insights in how. This

research identifies one additional external factor affecting the MCS and influencing the type of MCS,

namely cultural differences within the Netherlands. This is causing a more enabling MCS in the sense

that people from the North have a high level of loyalty, motivation and drive and are therefore

capable of being empowered. This factor is currently not recognized in the literature.

This research also identifies internal and external factors as of influence on the type of MCS

in a coercive way. The further the organization comes into the life cycle, the more coercive the MCS

becomes. The literature currently does not provide insights in this. Also the bigger the organization in

terms of employees the more coercive the MCS becomes. This is in line with the literature which

states that large firms tend to have more administrative forms of control (Bruns, 1975). Also this

research finds that when organizations produce standardized products and when the CEO does not

believe in empowerment than in both cases the MCS becomes more coercive. These findings are not

32

recognized in the literature yet. Looking at external factors influencing the MCS in a coercive way this

research identifies that increasing environmental uncertainty causes a more coercive MCS. This

supports the literature as it states that environmental uncertainty is positively associated with a

bureaucratic form of MCS (Auzair, 2011). Technological developments make the MCS more coercive,

where currently the literature does not provide insights in this. An increasing dependency on

external financial resource providers causes a more coercive MCS as well. This supports the literature

where is mentioned that financial resource providers will require detailed information about the

financial situation and the progress which is made by the organization (Reheul, 2007). This research

identifies one additional external factor affecting the MCS and influencing the MCS in a coercive way,

namely cultural differences within the Netherlands are causing a more coercive MCS. This, because

people from the East are less capable of being empowered, because they are more closed and less

mouthed compared with people from the West. This factor is currently not recognized in the

literature.

6.1. Managerial and theoretical implications

When considering the managerial implications, this research provides managers insight in the

factors influencing their type of MCS. This will help them to consider if their current MCS is suitable

for their organization. Also when they want to change their type of MCS, they have a better insight

into which factors need to be reconsidered. Managers are in the position to influence the strategy,

organizational culture and structure, technology and type of product of the organization and

therefore they should focus on these factors when they want to change their type of MCS.

Theoretically this research provides evidence about the already recognized internal and

external factors influencing the MCS and adds to this by providing insights in how these factors

influence the type of MCS. Also a more comprehensive picture is gained as the interviewees came up

with some interesting additional factors which influence the type of MCS.

6.2. Limitations and future research

Like in all research, this research does have some limitations as well. One limitation is that at

both case organizations the MCS have predominantly enabling characteristics. Findings about how

interviewees argue that the MCS becomes more coercive are based on assumptions and these

findings could be more reliable when respondents actually work in an organization with a

predominantly coercive MCS. Future research can be done in case organizations which use a

predominantly coercive MCS to validate the results in this research. Another limitation is that only

one interviewee had been actually involved in foreign subsidiaries. Therefore the factor national

culture could not be properly tested. Future research should be done at organizations and with

interviewees that have more experiences with foreign subsidiaries to get a better understanding

33

about if and how national culture influences the type of MCS. A limitation of this research is also the

qualitative character of this research as this research is not free of interpretation from the author.

Subjectivity is minimized by staying in close contact with two master students and a mentor during

this research and by discussing the progression of this research. As this research is meant to develop

theory it is a good starting point for future research to test the findings from this research. As the

interviewees came up with some interesting factors of influence on the type of MCS future research

can test if these factors, level of education, type of product, vision of the CEO and cultural differences

within the Netherlands are indeed influencing the type of MCS

34

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8. Appendices

8.1. Appendix A: Interview guide

Introduction

- Thank interviewee for cooperation.

- Introduce myself

- Mention the goal of this interview

- Ask for permission to record the interview and tell interviewee that he/she could stay

anonymous.

- Ask interviewee if he/she has questions beforehand.

General questions

- Could you tell something about yourself, in terms of your function in this organization?

- What is the main purpose of the MCS in this organization?

- Have you been involved in composing the MCS?

Characteristics of the MCS used

- When faced with operational problems, are employees encouraged to solve these by

themselves? In which stage become colleagues involved in solving these problems?

- To what extent do employees need to understand the underlying reasons for tasks they

execute?

- Are employees provided with information to help them interact with the broader

organization and external environment ant to what extent?

- Are employees involved at changing processes and to what extent?

Factors influencing the type of MCS (enabling or coercive) used

- What is the strategy of this organization/department?

- Is this strategy influencing the type of MCS used (enabling/coercive) according to you and if

yes, how?

- Do you want to add something?

- How is language used to communicate the organizational culture?

- For what purpose are artifacts and symbols used?

- To what extent are achievements celebrated and to what extent are employees empowered

to search for ways of doing their jobs better?

- What is more important, praise for good performance or quality of work?

38

- To what extent are employees directed to start working and directed with performing their

tasks?

- Is the organizational culture influencing the type of MCS (enabling/coercive) and if yes, how?

- Do you want to add something?

- How centralized is the hierarchy within this organization/department and how many

hierarchical levels are there?

- To what extent are employees tied to rules and procedures?

- How many discrete functions which are executed by at least one specialist have the

organization/department and how many different job titles?

- Does the organizational structure influence the type of MCS (enabling/coercive) and if yes,

how?

- Do you want to add something?

- Is the organization growing, stable or declining and to what extent?

- Does the organizational life cycle stage influences the type of MCS (enabling/coercive) and if

yes, how?

- Does the size of the organization influences the type of MCS (enabling/coercive) and if yes,

how?

- Do you want to add something?

- How uncertain is the external environment of this organization/department?

- Is (un)certainty of the external environment influencing the type of MCS (coercive/enabling)

and if yes, how?

- Do you want to add something?

- Which technological developments have been occurred?

- Do these technological developments influence the type of MCS (enabling/coercive) and if

yes, how?

- Does this organization have foreign subsidiaries or is this organization a foreign subsidiary?

- If yes, differs the MCS from foreign subsidiaries from the MCS here?

- Do you think that national culture influences the type of MCS (enabling/coercive) and if yes,

how?

39

- Do you want to add something?

- To what extent is this organization dependent from external financial resource providers, like

banks, external shareholders and investors?

- Do you think that dependency on external financial resource providers influences the type of

MCS (enabling/coercive) and if yes, how?

- Do you want to add something?

- Are there other factors which influence the type of MCS (enabling/coercive) according to

you? If yes, what are these factors and how do these factors influence the type of MCS

(enabling/coercive)?

Concluding

- Do you have any questions left?

- Do you want to add something on the topics discussed?

- Finish and thank interviewee for cooperation.

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8.2. Appendix B: Coding scheme

Coding scheme A: Type of MCS used

Coding scheme B: Internal factors

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Coding scheme B: External factors

Coding scheme B: Additional factors