Strategy and MCS

Shujun Ding, Ph.D.

Associate Professor, Accounting
Telfer Excellence Fellow
Winter 2016

UnderstandingStrategy
CorporateLevelStrategy
Where

BusinessUnitStrategy
How

CorporateLevelStrategies
Threeexamples:
SingleIndustry
RelatedDiversified
UnrelatedDiversified
Conglomerates

ImplicationsforMCSdesign
Impactcorporatestructureandformofcontrol
Authority&responsibility,reportingrelationship,delegation,
etc.

BusinessUnitLevel
Mission
TheBCGModel
Build
Hold
Harvest
Divest

Strategy
Fiveforcesanalyses
Lowcostvs.differentiation

CorporateLevelStrategy
Implicationsforstructure
Exhibit13.1

Implicationsforcontrol
Exhibit13.2

BusinessUnitMissionandStrategy
ImplicationsforMCS
Strategicplanning
Exhibit13.3

Budgeting
Exhibit13.4

Incentivecompensation
Exhibit13.5

ContingencyBasedMCS
Chenhall (2003)
Hereviewedcontingencybasedempirical
MCSstudiesinthepasttwodecades.
Objectiveofthereview
Improveourunderstandingoftherelationship
betweenMCSandavarietyofcontextualfactors.

ContingencyBasedMCS:External
Environment
Uncertainty
Uncertaintyvs.Risk:probabilitiestoparticularevents

Otherelementsofenvironment

Turbulence
Hostility
Diversity
Complexity
Controllability
Ambiguity

ContingencyBasedMCS:External
Environment
MainFindings(p.138)
Uncertainenvironment moreopenand
externallyfocusedtheMCS.
Hostileandturbulentenvironment greater
relianceonformalcontrols
Survivalcomesfirst

Inuncertainexternalenvironments,youwillsee
MCSfocusedontightfinancialcontrolsAND
Anemphasisonflexible,interpersonalinteractions

ContingencyBasedMCS:Technology
Threetypes:Complexity,TaskUncertainty,and
Interdependence
Marketing(highertaskuncertainty)vs.Production

MainFindings(p.138)
Standardizedprocesses moreformalMCS.
Taskuncertainty&interdependence greater
relianceoninformalcontrols

ContingencyBasedMCS:
OrganizationalStructure
Decentralizationvs.MCS
MoreformalMCS
Aggregationandintegration

Teambasedstructures
Participation
Compensation

Organicstructures
FutureorientedMCS
ABC/ABM

ContingencyBasedMCS:Strategy
Mainfindings
Comparedtodifferentiation,strategies
characterizedbycostleadership formal,
traditionalMCS
Harvest&costleadership formal
performancemeasurementsystems

ContingencyBasedMCS:Culture
Theimportanceofnationalculture
Multinationalcorporations

Hofstede

http://geerthofstede.com/nationalculture.html
Cultureisthecollectiveprogrammingoftheminddistinguishingthemembersofone
grouporcategoryofpeoplefromothers

Fivedimensions

PowerDistance
IndividualismvsCollectivism
Masculinityvsfemininity
Uncertaintyavoidance
Longtermorientation(Confucianism)[addedin1991]

ContingencyBasedMCS:Culture
Mainfindings

Nationalcultureplaysan
importantroleindesigningMCS

UpperEchelonTheory
Fundamentaldifferencesinbehaviorandmanagement
styleexistbetweenTMTswithanadministrative
orientationandTMTswithaprofessionalorientation.
TMT:TopManagementTeam
AdministrativeOrientation
abackgroundingeneraladministration(e.g.economics,
business,andlaw)

ProfessionalOrientation
abackgroundintechnicalandprofessionalprocesses(e.g.
engineering,physics,andmedicine)

 Accountingisamongthemostcommon
undergraduatedegreesreceivedbyCEOsofS&P500
companies(SpencerStuart2006)
FTSE100companieshave24chiefexecutivesholding
anaccountancyqualification(Fisher2005).
52%ofFTSE100CEOshaveafinancialbackground,
whileoneinfourCEOsarecharteredaccountants
(RobertHalf2015)

TheUSCongresspassedtheSarbanesOxleyAct
(SOX)inJuly2002
Followinganumberofmajorcorporatescandals(e.g.
Enron)

Thefindingofaresearch(CullinanandRoush2011):
Usingasampleof264CEOchangeswefoundthatthe
percentageofnewlyappointedCEOswith
ACCOUNTING/FINANCE backgroundsSIGNIFICANTLY
INCREASED inthepostSOXperiodcomparedtothepreSOX
period.

ENGINEERING isTHEmostPOPULARundergraduate
degreereceivedbyCEOsofS&P500companies
(SpencerStuart2006)

WillTopManagementStyleAffect
MCS?
IfYes,how?
Isthereapredictableassociationbetween
TMTstyleandMCSimplementation.

NaranjoGilandHartmann2006
Onlypartofthestudyisreviewedhere.
TheauthorsexaminedtheeffectofTMTstyle
onthefollowingthreecategoriesofMAS/MCS
TheinteractiveuseofMASvs.thediagnosticuse
ofMAS
Theuseofnonfinancialinformationvs.financial
information
TheroleofMASinresourceallocationvs.
performanceevaluation

NaranjoGilandHartmann2006
Theauthorscontinuedtoexaminetheeffect
ofTMTstyleonstrategyimplementation
Flexibilitystrategyimplementation
Coststrategyimplementation

NaranjoGilandHartmann2006
Dataarefrom92completeTMTs.inSpain.
PartialLeastSquare(PLS)wasusedtotestthe
predictions.
Astatisticaltechnique

MajorFindings
TheUpperEchelonTheoryissupported
ManagementstyledoesaffectMAS/MCSuse.
TMTswithaprofessionalorientationaremorelikely
TouseinteractiveMAStools
Tousenonfinancialinformationfordecisionmaking

TMTswithaprofessionalorientationarefoundtobe
relatedtotheimplementationofstrategicobjectives.
ProfessionalorientedTMTsaremoreinclinedtofocuson
flexibilitystrategy

MoreonTMT

MilitaryBackground
PoliticalConnections
ReligiousBelief
Gender
EthnicDiversity