The performance effects of complementary management control mechanisms

Abstract

Purpose The purpose of this paper is to study management control mechanisms (social, behavioral, and output control mechanisms) and their complementary effects on firm performance in lean manufacturing firms. Design/methodology/approach The study uses second-order structural equation modeling to analyze survey data from 368 different lean manufacturing facilities. Findings The paper finds that the complementary effects of management control mechanisms in lean manufacturing firms outweigh their additive effects on firm performance. Research limitations/implications Applying isolated lean management control mechanisms leads to inferior performance, as these management control mechanisms are complementary. Thus, to realize the full potential of lean manufacturing, this paper suggests that lean management control mechanisms should be implemented as an integrated control system. Practical implications Firms seeking to benefit from the implementation of lean manufacturing should understand the complementarity among the management control mechanisms, as the performance effects of lean management control mechanisms when applied together are greater than their isolated additive effects. Originality/value This paper is the first to provide empirical evidence of the superior firm performance effects of complementary lean management control mechanisms compared with their additive effects. This paper also expands the understanding of how to conceptualize lean management control mechanisms. Specifically, this is the first paper to distinguish between social cultural control and social visual control mechanisms as well as between non-financial and financial control mechanisms. This paper is also the first to use a second-order structural equation model to properly test and account for the complementary effects on firm performance that stem from multiple control mechanisms.

Lean service, business strategy and ABC and their impact on firm performance

“…Lean service is designed to improve processes by focusing on NVAs from customer perspective (Hadid, Mansouri, and Gallear 2016;Shah and Ward 2003). The basic premise of the system is that by eliminating NVAs, several benefits can be achieved including a reduction in operating costs, higher productivity and efficiency, improved flexibility, enhanced customer satisfaction and profitability (Nielsen, Kristensen, and Grasso 2018;Shamsuzzaman et al 2018;Agarwal et al 2013). Several practices can usually be used to target NVAs such as standardisation, automation, 5S, process redesign, etc.…”

“…However, this is a common method of measurement that has been used by several researchers in the existing literature (e.g. Nielsen, Kristensen, and Grasso 2018;Banker, Bardhan, and Chen, 2008), and the subjective measures were supplemented with objective measures on firm performance. Endogeneity is another problem which faces most empirical survey studies including this one.…”

“…3(Hadid and Mansouri 2014). The effectiveness of these practices, and others, in delivering the aforementioned benefits has been the subject of ongoing debate among researchers(Galeazzo and Furlan 2018;Nielsen, Kristensen, and Grasso 2018;Shamsuzzaman et al 2018;Hadid, Mansouri, and Gallear 2016). For example,Cua, McKone, and Schroeder (2001) classified lean practices into three bundles (i.e.…”

The complexity of the environment, management control and firm performance

“…Furthermore, management control helps executives better manage the business by assisting decision‐makers to ensure the stability of the organization in its complex environment. It is well established that the complementary effects of management control systems in lean manufacturing firms are greater than their additive effects on firm performance (Nielsen, Kristensen, & Grasso, ). Management control must also ensure the internal coherence of the objectives in light of the strategy pursued.…”

Mitigating Shirking Contracting Performance in Buyer-Initiated Service Triads

“…This assumption, however, has been criticized as artificial as it is not representative of empirical reality (Sitkin et al, 2010). Contemporary studies have therefore started to consider PBC and BBC as complements rather than substitutes (Nielsen et al, 2018;Sihag and Rijsdijk, 2018). This shift has enabled scholars to create a better understanding of how organizations share different types of risks when operating in complicated settings (De Jong et al, 2014).…”