Explaining the Unintended Consequences of Management Control Systems: Managerial Cognitions and Inertia in the Case of Nokia Mobile Phones*

Abstract

Management control systems (MCS) have been known to produce unintended, dysfunctional consequences. However, relatively little is known about how MCS can contribute to the inertia and even decline of a firm. Our analysis in the abductive mode was triggered by a surprising case study observation that although Nokia Mobile Phones (NMP) certainly had many capabilities that could have facilitated a timely response to disruptive environmental change, this did not happen. In developing an explanation for this, we draw on the managerial cognitions literature, showing how the cognitions at NMP, developed in the era of organizational success, became embedded in its MCS. This embeddedness, in turn, intensified existing cognitions. As the cognitions became less accurate over time, the once effective MCS started to cause various inertial effects, such as suboptimal and slow decision‐making. We contribute to the literature on the dysfunctional consequences of MCS by theorizing how MCS can contribute to inertia via cognitions in two ways: first, by reinforcing prevailing cognitions and hence preventing management from realizing a need for change; and second, by moderating the impact cognitions have on actions by delaying actions based on renewed cognitions. Both ways may be fatal, especially in hyper‐competitive contexts.

Tax amnesty, corporate social responsibility disclosure, and organizational inertia

“…Consequently, this established pattern of behavior fosters organizational inertia, rendering change a challenging endeavor (Brulle & Norgaard, 2019). As explained by Malmi et al (2023), the dysfunctional consequences of management control systems contributes to organizational inertia through a cognitive perspective in two main channels. First, management control systems can uphold existing ways of thinking, thus obstructing management from recognizing the necessity for change.…”

Strategic Management for Nokia Case

“…We have used SWOTs as a general framework to better understand why Nokia's corporate strategic planning has failed and to identify key areas where value propositions can be effectively achieved [2]. (See Table2).…”

“…The future looks risky for Nokia as the company's stock has fallen more than 80% since 2007.Once the undisputed leader of mobile handsets, the company has been unable to maintain its dominant position and is losing market share to new players in the industry [1][2]. The Finnish firm has been a slow innovator (an aspect partly related to the absence of significant competition in an era when it dominated the industry) and hasn't been able to match the pace of innovation provoked by recent entrants.…”