Management control systems across different modes of innovation: Implications for firm performance

Abstract

a b s t r a c tThis study examines the use of management control systems (MCS) across different modes of innovation and the effects on firm performance. Specifically, this study draws on Simons' levers of control framework to investigate how top managers attempt to simultaneously balance exploration and exploitation, which place contradictory requirements on firms. Using data collected from a survey of top managers in 400 firms this study demonstrates that the patterns of use and interdependencies among control levers associated with enhanced performance differ depending on the mode of innovation. The findings show that control levers are independently associated with enhanced performance in firms that specialize in either exploration or exploitation, suggesting that levers operate as supplementary rather than as complementary controls in these contexts. However, in ambidextrous firms, diagnostic and interactive levers are shown to have interdependent effects on performance. Furthermore, some evidence suggests that both the combined and balanced use of these levers contributes to generating dynamic tension necessary for managing contradictory innovation modes.

Personnel- and action control in gazelle companies in Sweden

“…Innovative processes may influence not only innovative outcomes but processes and strategic routines that strengthen the competitive position (Bowen et al 2010). As innovative processes introduce uncertainty into organizations (Broadbent et al 2008;Soin and Collier 2013), formal controls, even with a low degree of structure (Heinicke et al 2016;Tessier and Otley 2012), question the relevance and validity of such ideas, thus limiting or avoiding wrong strategic risks and uncertainties (Bedford 2015;Curtis and Sweeney 2016). When the growth potential of a company is low, it may lower the strategic innovative efforts, while companies with a successful past may stimulate efforts through the same controls that offer confidence (Pesämaa et al 2013).…”

“…Correlations, means and standard deviations There is an ongoing debate regarding the validity of either objective or subjective performance measures (Bedford 2015). Venkatraman and Ramanujam (1987) emphasized that both subjective and objective measures have their own limitations.…”

“…Earlier studies have acknowledged that formal controls have an important role in the management of innovations (Bedford 2015). There has also been support for the suggestion that different strategies at different stages, such as growth strategies, may call for different controls (Bedford et al 2016).…”

“…Innovativeness is a risky (Davila 2000), difficult (Henri 2006), contextually dependent task (Hammad et al 2013) that often involves several conflicting goals (Bedford 2015;Gaba and Joseph 2013;Mundy 2010). Furthermore, innovative companies seek processes that lead to meaningful outcomes that match existing products and fully exhibit potential for future growth (Bowen et al 2010).…”

“…Since inappropriate or even wrong control measures consequently affect performance incongruencies, Tessier and Otley (2012) called for stronger coherence and testable transparent measures. A stream of research has also started to recognize how formal controls can support the management of goals that otherwise would be at odds (Bedford 2015;Mundy 2010). Controls may support companies in managing these from one point and offer meaningful feedback.…”