Journal of Management

Vol. 39 No. 4, May 2013 906-927

DOI: 10.1177/0149206311411507
© The Author(s) 2011
Reprints and permission: http://www.
sagepub.com/journalsPermissions.nav

Management Control and the

Decentralization of R&D
Brigitte Ecker
Joanneum Research
Sander van Triest
University of Amsterdam
Christopher Williams
University of Western Ontario

The authors investigate organizational conditions influencing the allocation of decision rights
made by headquarters of multinational corporations (MNCs) to their foreign R&D subsidiaries.
The authors draw on the logic of management control theory to build their conceptual model
and then develop this model using arguments from the R&D and time use literatures in order to
test the direct and indirect effects of advanced R&D processes within the subsidiary. They find
that control theory makes correct predictions in terms of three organizational conditions,
namely, research nature, information asymmetry, and interdependencies, but not in terms of
social controls. In addition, the authors uncover a significant interaction between research
nature and advanced R&D processes that indicates a breakdown in control logic in situations
of high time pressure and intense R&D effort. Their study extends the body of literature on
organizational conditions that influence how R&D decision rights are allocated in the MNC by
drawing attention to the task environment in the locations where R&D is performed.

Keywords: decentralization; management control; multinational corporations; research and

development

Acknowledgments: This article was accepted under the editorship of Talya N. Bauer. We thank Paul Beamish,
Jasmijn Bol, Igor Goncharov, and seminar participants at EIBA 2008 in Tallin, EIASM 2008 in Brussels, AAA 2009
in New York, and at Copenhagen Business School.

Corresponding author: Sander van Triest, Amsterdam Business School, University of Amsterdam, Plantage
Muidergracht 12, 1018 TV Amsterdam, The Netherlands.

E-mail: s.p.vantriest@uva.nl

906

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   907

In this article, we study the control of research and development (R&D) activities in multi-
national corporations (MNCs), and specifically the extent to which decision rights are allocated
to subsidiaries that perform these activities.1 The process of conducting R&D is idiosyncratic,
unstructured, and tacit, and it involves trial and error (Clark, 1985; Hill, Martin, & Harris, 2000;
Kim, Park, & Prescott, 2003; Saviotti, 1998). Because of these characteristics, R&D activities
are not straightforward to control. The received logic is that individuals are more creative when
“their supervisors engage in supportive, noncontrolling behaviors [and] their work is evaluated
in a developmental, nonjudgmental fashion” (Shalley, Zhou, & Oldham, 2004: 942). In a meta-
analysis, Damanpour (1991) finds that innovation is negatively related to centralized decision
making and to formalization. More recently, Siggelkow and Rivkin find that “studies report a
positive correlation between decentralization and innovation and, in general, view the associa-
tion as evidence that greater decentralization leads to greater innovation” (2006: 780).
According to Merchant and van der Stede, “Many organizations operate on the belief that
research scientists are highly professional and will control themselves better than the organiza-
tion could by implementing formal controls” (2007: 183). This literature suggests that the
allocation of decision rights to those performing R&D is an effective way of controlling R&D.
Meanwhile, internationalization of R&D activities has been occurring for decades and
shows no signs of letting up (“The New Masters of Management,” 2010; OECD, 2007).
According to Goldman Sachs, global R&D investment is driven mostly by the corporate sec-
tor and over the past decade has grown most prolifically outside of the G7 countries (which
averaged 3.2% growth per year), particularly in countries such as China (20%) and Korea
(8%; Gilman, 2010). MNCs have increasingly moved their R&D operations to be closer to
human capital and networks of innovation.2 This internationalization of R&D creates prob-
lems for corporate managers in terms of how to influence behavior in R&D units around the
world. Indeed, when placing R&D activities abroad, managers need to make a choice as to
the amount of decision rights they allocate to these subsidiaries. Nobel and Birkinshaw state
that the level of autonomy given to R&D units is “probably the most important aspect of
control, [since] it indicates the extent to which head office managers actively influence deci-
sions made in the R&D unit” (1998: 483). It is by no means a foregone conclusion, however,
that all foreign R&D subsidiaries will be given decision-making autonomy to the same degree
(Cheng & Bolon, 1993). As pointed out by Gerybadze and Reger, “International dispersion of
[R&D] activities does not necessarily lead to greater decentralization of . . . control” (1999:
264). The level of decentralization of authority in international R&D is a control choice that
varies from firm to firm (Brockhoff & Schmaul, 1996).
Our study into the question of what influences the assigning of decision rights to foreign
R&D units builds on a line of research that focuses primarily on organizational rather than
external conditions. Birkinshaw, Nobel, and Ridderstråle (2002) find R&D unit autonomy to
be predicted by system embeddedness, that is, the extent to which knowledge in the unit is
contextually embedded. Birkinshaw (2002) also shows how an R&D unit with knowledge
that is low on mobility would benefit from high autonomy. Nobel and Birkinshaw (1998)
show how the role of the unit influences the degree of decentralization, with local R&D adap-
tors being most suited to the decentralization of decision making. Luo (2006) finds R&D
autonomy to be directly related to the task performed, with development tasks more likely to

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

908    Journal of Management / May 2013

require autonomy than pure research due to greater information-processing requirements for
the former. Using resource-based and embeddedness arguments, Asakawa (2001) argues that
resource accumulation through increasing centrality in local R&D networks leads to greater
autonomy for the overseas R&D unit.
We extend this literature by examining the decentralization decision from the logic of
management control theory (Eisenhardt, 1985; Ouchi, 1979) augmented with a time use per-
spective (Bluedorn & Denhardt, 1988; Hall, 1983). According to management control logic,
decentralization is a central element of an organization’s design (Brickley, Smith, & Zimmerman,
2001; Love, Priem & Lumpkin, 2002; Pavitt, 1991). While the choice to internationalize the
firm’s R&D can arise for many reasons (Kuemmerle, 1999; von Zedtwitz & Gassmann, 2002),
once this choice has been made the firm will have to decide how to control those activities
(Anthony & Govindarajan, 2004: 1), including how much to decentralize decision making.
Pavitt (1991: 45) argues that this is difficult in practice; an optimal level of decentralization
in R&D is hard for corporate managers to determine.
The management control literature suggests that decentralization is a trade-off between the
superior knowledge of local managers and the loss of control at firm headquarters (Acemoglu,
Aghion, Lelarge, van Reenen, & Zilibotti, 2007; Christie, Joye, & Watts, 2003). The established
view suggests that the nature of the research (i.e., basic vs. applied; Rockness & Shields, 1984),
information asymmetry between headquarters and subsidiary (Baiman, Larcker, & Rajan,
1995), interdependencies between subsidiaries (Milgrom & Roberts, 1992), and socialization
of employees (social controls; Ouchi, 1979) all influence the delegation of decision making to
foreign R&D operations. We extend this logic to include advanced R&D processes undertaken
within the foreign subsidiary: a variable hitherto neglected in the management control literature
but nevertheless a prominent consideration for R&D managers (Gerybadze & Reger, 1999).
Using questionnaire survey data elicited from heads of 123 Austrian R&D subsidiaries of
MNCs, we find a large variance in the level of R&D decentralization: Not all R&D subsidiar-
ies receive the same amount of decision rights from their headquarters. This variation is
explained in part by the hypothesized effects of the nature of the research activities, information
asymmetry, and interdependencies. However, the result for social controls is unexpected: Our
data indicate that higher decentralization is associated with less use of training, interunit travel,
and rotation policies. Thus, the management control theory prediction that any loss of control
at headquarters through higher decentralization is offset by increasing socialization activities
does not hold for our sample. Furthermore, advanced R&D processes negatively impact decen-
tralization: When subsidiaries are involved in more time-compressed and complex R&D, fewer
decision rights are given to the subsidiary. We also identify a significant interaction between
research nature and advanced R&D processes: For highly intensive R&D, management control
logic breaks down with respect to the impact of research nature on decentralization.
Our main contribution is to extend the body of literature that examines how organizational
conditions influence allocation of decision rights to geographically dispersed R&D (e.g., Luo,
2006; Nobel & Birkinshaw, 1998).3 We do this by analyzing operational conditions at the unit
using management control theory. We also provide a way of extending this logic by consider-
ing how activities are performed in the subsidiary (i.e., their nature and the degree to which
they can be considered advanced R&D processes). The interaction between research nature

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   909

and advanced R&D processes previously has not been considered in relation to decentraliza-
tion of R&D in MNCs. Our contribution is to show how advanced R&D processes in remote
R&D units amount to a special condition that dampens the effect of the nature of the research
on decentralization. This angle is new and underlines the importance of time use theory in
management control problems where time pressures are of concern to the organization.

Theory and Hypothesis Development

Management control theory encompasses a broad literature relating to planning, organizing,

and controlling activities within the firm (Giglioni & Bedeian, 1974). The key thrust of this
theory is implementation of strategy in terms of design and use of systems of organizational
control (Anthony & Govindarajan, 2004; Merchant & van der Stede, 2007). Decentralization,
or the allocation of decision rights to lower level managers, features prominently in this
theory (Abernethy, Bouwens, & van Lent, 2004; Love et al., 2002). As benefits of decentral-
ization, Brickley et al. (2001) see the effective use of local knowledge, conservation of man-
agement time, and training and motivation for local managers. Costs of decentralization include
incentive problems, coordination and failure costs, and less effective use of central informa-
tion. The trade-off between costs and benefits means that choosing the appropriate level of
decentralization is a major issue for management.
For R&D, this trade-off is complicated by the fact that science and technology research
involves activities that are difficult to control through formal mechanisms, that is, mechanisms
that involve rules, standard procedures, and budgetary targets (e.g., Langfield-Smith, 1997: 208).
R&D is an innovative activity: The R&D process is unstructured, involving experimentation
and creativity from individuals with specialized expertise (Kim et al., 2003: 331). Indeed, accord-
ing to the creativity literature, innovation is associated with high levels of authority at the unit
level: Formal, centralized control is viewed as impeding innovative activities that require
autonomy and employees’ intrinsic motivation (Amabile, 1998; Davila, Foster & Oyon, 2009;
Shalley et al., 2004). In his seminal article on management control, Ouchi (1979: 844) uses
research as the example of an activity that cannot be controlled by “rational” forms of control
(behavioral or output controls); instead, the organization needs to rely on social (clan) controls.
Merchant and van der Stede state that “many organizations operate on the belief that research
scientists are highly professional and will control themselves better than the organization could
by implementing formal controls” (2007: 183). Hill et al. claim that R&D activities are “difficult
to incorporate into organizational control systems” (2000: 565) , while Kim et al. (2003: 336)
find that formalization and centralization are not effective in coordinating and controlling R&D.
The idiosyncratic nature of R&D means that the application of results controls or action controls
is difficult. Although it is not uncommon for R&D activities to be viewed as a profit center or
to be outsourced, which requires formal controls (Hill et al., 2000; Howells, Gagliardi & Malik,
2008), Kerssens-van Drongelen, Pearson, and Nixon (2003: 760) find that performance measure-
ment in R&D profit centers or independent R&D units is limited to items like billable hours, hit
rate on project bids, or size of the forward workload. These items reflect the input (or input
usage) rather than output in terms of performance, innovations, productivity, or profit contribu-
tions (cf. Ulset, 1996).

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

910    Journal of Management / May 2013

Management Control Theory and R&D Decentralization

According to management control theory, the trade-off between knowledge transfer costs
and loss of control lies at the heart of explaining decentralization decisions (Acemoglu et al.,
2007). The costs of knowledge transfer increase with the specificity of information (Jensen
& Meckling, 1992). If the unit’s activities are difficult to measure, knowledge transfer is more
costly since performance measures are not always available, nor is it clear what information
should be given to the unit due to low programmability of activities (Acemoglu et al., 2007;
Eisenhardt, 1985). Furthermore, if decisions require high levels of information about the
environment of the unit, this increases knowledge transfer costs. If there is more local knowl-
edge at the unit, local management will be better placed to both gather and interpret this
knowledge (e.g., Melumad, Mookherjee, & Reichelstein, 1992). Thus, to economize on
knowledge transfer costs, a firm will delegate more authority if the local activities are more
difficult to measure and prescribe and if there is more information asymmetry.
The downside of delegating authority, however, is a loss of control (Acemoglu et al.,
2007). Unit managers can use delegated authority to make decisions that are not in the firm’s
best interest: They may not have all the relevant information to reach an optimal decision,
or they may act in their own self-interest (Eisenhardt, 1985). Both the likelihood and the
costs of suboptimal decision making increase with intrafirm interdependencies because
unit actions will impact other organizational units more often and/or to a greater extent
(Abernethy et al., 2004; Bushman, Indjejikian, & Smith, 1995). The likelihood of self-
interested behavior will decrease with the extent of shared values, that is, the degree to
which employees internalize organizational goals (Eisenhardt, 1985; Parsons, 1956). To
reduce the expected costs of the loss of control, a firm will delegate authority to a lesser
extent in case of higher interdependencies, but social controls in the form of shared values
will enable delegation. Thus, the positive and negative effects of decentralization lead to
four factors impacting the decentralization choice: the type of activity performed in the
unit (we refer to this as research nature in our study), information asymmetries, interde-
pendencies, and social controls.

Research nature. R&D can be categorized on a continuum ranging from basic research
(i.e., earlier stage, more exploratory, highly uncertain) to late-stage development (more
applied, much less uncertain; Luo, 2006; Nobel & Birkinshaw, 1998; Rockness & Shields,
1984). Research nature influences the applicability of management control because tight
controls (detailed prescriptions, frequent monitoring, and detailed performance measure-
ment) are less effective in basic research where activities are less programmable and measur-
able than in late-stage development (Eisenhardt, 1985; Ouchi, 1979; Rockness & Shields,
1984). The ineffectiveness of these controls for basic research means that headquarters’
managers will assign more decision rights to the R&D unit. As applied research activities are
less uncertain, the need for more decision rights at the R&D unit is reduced. Hence,

Hypothesis 1a: The more basic the R&D activities, the higher will be the decentralization of decision
rights relating to R&D activities in the unit.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   911

Information asymmetry. Reducing the distance to markets for human capital through inter-
national R&D (e.g., Sanna-Randaccio & Veugelers, 2007) has implications for how decision
rights are allocated. Information asymmetry arises between headquarters and the R&D
subsidiary because local managers will have specific knowledge that is not available to their
superiors (Abernethy et al., 2004; Christie et al., 2003; Jensen & Meckling, 1992). Reducing
information asymmetry incurs costs through information exchange and monitoring activities
and also entails opportunity losses, as the unit may not be able to react quickly to local infor-
mation (Brickley et al., 2001: 296). In situations of higher information asymmetry, allocating
decision rights to the unit will enable better unit performance (Andersen, 2004; Birkinshaw
et al., 2002). Hence,

Hypothesis 1b: The higher the information asymmetry between an R&D unit and the other units of the
firm, the higher will be the decentralization of decision rights relating to R&D activities in the unit.

Interdependencies. Interdependencies refer to the extent that business units are dependent
upon each other, for example, one being a supplier to another or both working on the same
development project (Fisher, 1994; Thompson, 1967). When interdependencies increase,
coordination becomes more important, and thus decision rights should be handed down
limitedly (Abernethy et al., 2004; Fisher, 1994; Milgrom & Roberts, 1992). Doing this
mitigates the risks of suboptimization: units making decisions that benefit their own perfor-
mance at the cost of the organization’s overall performance. In international firms, increased
centralization is associated with greater interdependencies between subsidiaries because of
increased information-processing demands: Centralization helps overcome the problem of
information overload (Egelhoff, 1982). Hence,

Hypothesis 1c: The higher the interdependencies between an R&D unit and other units of the firm,
the lower will be the decentralization of decision rights relating to R&D activities in the unit.

Social controls. Social controls emphasize internalization of values (Parsons, 1956), strong
company cultures (Deal & Kennedy, 1982), reducing opportunistic behavior (Ouchi, 1980),
and understanding and internalizing organizational goals (Eisenhardt, 1985). A common set
of values enables subsidiaries to use their knowledge “to pursue the interests of the MNC as
a whole and not just their partisan interests” (Nohria & Ghoshal, 1994: 494). Socialization
mechanisms can “build inter-personal familiarity, personal affinity, and convergence in cogni-
tive maps” (Gupta & Govindarajan, 2000: 479) and allow subsidiary managers’ interests to
be aligned with those of the corporation (Gupta, Govindarajan, & Malhotra, 1999: 211).
Higher use of social controls allows for more decentralization because headquarters’ manag-
ers are more comfortable that employees receiving decision rights share the values of the
wider corporation and have knowledge and skills that are aligned to the goals of the corpora-
tion (Nobel & Birkinshaw, 1998: 488). Hence,

Hypothesis 1d: The higher the use of social controls at the R&D unit, the higher will be the decen-
tralization of decision rights relating to R&D activities in the unit.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

912    Journal of Management / May 2013

Extending Management Control Theory in the R&D Context

We now extend the logic of management control theory to incorporate the notion that how
R&D work is conducted in the subsidiary influences decentralization choices. Our interest
here is not the nature of R&D in the sense of basic versus applied research (see Hypothesis
1a) but, rather, how the R&D unit performs these activities. Our particular focus is on the use
of advanced practices such as simultaneous engineering, parallel R&D, and/or conducting
R&D on a 24-hour basis. There are two reasons for this focus. First, such practices represent
an advanced set of capabilities in the R&D subsidiary. Various scholars in the international
management and innovation literatures have highlighted the potential relationship between
subsidiary capabilities and decentralization (Gassmann & von Zedtwitz, 1999; Ghoshal &
Bartlett, 1988). Second, these practices imply a decision made by the firm to compete under
time pressure. R&D-intensive industries are characterized by a high rate of technological
development and change, and firms are likely to resort to time-based competition (de Meyer
& Mizushima, 1989). We develop competing hypotheses for the direct and indirect effects of
advanced R&D processes based on these two lines of reasoning.

Advanced R&D processes. Ghoshal and Bartlett’s (1988) groundbreaking study of the deter-
minants of innovation in overseas MNC subsidiaries identifies a strong correlation between
local resources and local autonomy. Although this often-cited study is potentially less relevant,
as it covers a broader set of functions than R&D (de Meyer & Mizushima, 1989), the logic that
the state of R&D advancement (i.e., possessing and using advanced resources and capabilities)
is associated with decentralization of decision making to the unit is supported in various R&D-
specific studies. For example, Gassmann and von Zedtwitz (1999) stress the importance of
decentralized communication and self-coordination when advanced R&D is carried out.
Simultaneous engineering occurs in group R&D activity where a number of operational
units of the organization are involved in R&D projects, working on new product and produc-
tion technology at the same time (Davila & Wouters, 2004; Shenas & Derakhshan, 1994;
Sohlenius, 1992). Similarly, parallel R&D refers to separate R&D teams (or units) working
in parallel on a joint project, normally at an early stage of the life cycle, that are less likely
to require production engineering input. The R&D literature suggests that when an R&D unit
is involved in these types of activities, decentralized communication and self-coordinating
become critical (Gassmann & von Zedtwitz, 1999). New developments in communication
and information technology also enable continuous R&D, or “24-hour R&D” (e.g., Inkpen
& Ramaswamy, 2006: 75). When an R&D unit is sophisticated enough to become involved
in 24-hour R&D, it is likely to require operational decision-making authority as headquarter
managers will not be available at key times. Hence,

Hypothesis 2: The more advanced the R&D processes in the unit, the higher will be the decentral-
ization of decision rights relating to R&D activities in the unit.

An alternative logic drawn from the time management and time use literature (Bluedorn &
Denhardt, 1988; Hall, 1983) suggests that the use of advanced practices in an R&D unit are

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   913

associated with centralization of decision making. When the R&D unit uses advanced practices,
such as 24-hour R&D and simultaneous engineering, it is effectively addressing a need to
perform under time pressure (Sohlenius, 1992). Time pressure in group projects comes with
certain costs. For example, Bluedorn and Denhardt (1988: 309-310) state that the quality of
decision making reduces as time pressure increases. In an R&D setting, scientists usually adopt
a long-term time horizon (von Zedtwitz & Gassmann, 2002), and this may be at odds with the
time horizon adopted by applied engineers and R&D managers. Andrews and Farris (1972) find
that the relationship between time pressure and performance in science and engineering groups
is only positive up to a point: When the pressure desired by scientists is out of step with the
pressure applied, performance will suffer. Thus, there are circumstances in which time pressure
in R&D becomes counterproductive. These hazards are likely to encourage headquarter manag-
ers to maintain centralized control over remote R&D operations in order to ensure that any
decision to increase advanced R&D processes in the unit does not have an adverse outcome.
This line of argument is also reinforced in the R&D literature. De Meyer and Mizushima
(1989) show that time pressure to complete R&D projects is associated with a tendency
toward centralization. Gerybadze and Reger also argue that when the innovation regime in
the company is dynamic and fast, centralization is more likely because of the need to “secure
direct and undistorted access to the most critical resources” (1999: 264). Related to this line
of thinking, Pearce and Papanastassiou argue that an overseas lab with an advanced, special-
ized mandate is especially “vulnerable to external decision-making concerning the evolution
of the overall networked programme” (1999: 38). Thus, the parent company maintains
strong power to limit the role of the specialized R&D unit, and this becomes especially acute
when the level of advancement is associated with high financial cost. In support of this,
Baiman et al. (1995) suggest that relative importance is negatively related to decentraliza-
tion: If a business unit is more important to the firm, headquarters will delegate less author-
ity. This leads to the following alternative expectation of the relationship between advanced
R&D processes and decentralization:

Hypothesis 2alt: The more advanced the R&D processes in the unit, the lower will be the decentral-
ization of decision rights relating to R&D activities in the unit.

Moderating effects of advanced R&D processes. We extend our logic by considering the
impact of advanced R&D processes on the relationship between the nature of R&D activities
(i.e., basic research vs. applied development) and decentralization since both are character-
istics at the R&D task level. Following the competing hypotheses (2 and 2alt), we also pro-
pose competing hypotheses for this moderating effect.
In the first instance, we assume that advanced R&D processes in the unit amplify the
effect that basic research in the unit has on the need to decentralize. As argued above, basic
research is less programmable and measurable, reducing the effectiveness of centralized
controls. In advanced R&D processes, such basic research not only is less programmable and
measurable but also is more likely to require intense local communication and self-coordi-
nation (Gassmann & von Zedtwitz, 1999). This is particularly so if the R&D projects are of
the simultaneous or parallel kind (Davila & Wouters, 2004; Shenas & Derakhshan, 1994;
Sohlenius, 1992). Similarly, if R&D work is conducted on a 24-hour basis, the operational

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

914    Journal of Management / May 2013

influence of headquarter managers becomes limited. Thus, the combination of an activity that
is not easily programmed or measured, along with an operational need for this activity to be
coordinated locally, means a strengthening in the decentralization of decision rights. Hence,

Hypothesis 3: Advanced R&D processes positively moderate the relationship between research
nature and the decentralization of decision rights relating to R&D activities in the unit.

An alternative argument is that advanced R&D processes in the unit dampen the effect that
basic research in the unit has on the need to decentralize. In this logic, we draw again on the
time management and time use literature (Bluedorn & Denhardt, 1988; Hall, 1983): The pres-
ence of advanced R&D processes in the subsidiary represent a strategic emphasis for the unit
to perform under time pressure (de Meyer & Mizushima, 1989). Because of the risk that
lower quality decisions will be made by those working under time pressure (Bluedorn &
Denhardt, 1988), as well as the issue that time pressure applied to scientists can become
counterproductive (Andrews & Farris, 1972), the requirement to decentralize simply because
the core activity in the unit is less programmable becomes muted. In addition, if we follow
the logic that advanced R&D processes represent a cost that needs to be monitored closely
by those making the investment (Baiman et al., 1995), the fact that the research is basic is of
secondary importance. Therefore, our alternative expectation of the impact of advanced R&D
processes on the relationship between research nature and decentralization is as follows:

Hypothesis 3alt: Advanced R&D processes negatively moderate the relationship between research
nature and the decentralization of decision rights relating to R&D activities in the unit.

Method

Sample

An MNC develops R&D capabilities outside of its country of origin in order to seek new
knowledge for product and technology development, enabling it to build and sustain competi-
tive advantage on a global basis (Dunning & Narula, 1995; Kuemmerle, 1997). The question
of decentralization is especially relevant for the R&D function of the MNC (Nobel & Birkinshaw,
1998). Our analysis is based on a survey of R&D subsidiaries of MNCs operating in Austria
in 2002. We started by conducting 10 interviews with CEOs, R&D managers, and information
technology managers of Austrian subsidiaries of foreign MNCs. These interviews were con-
ducted in German. The purpose of these initial interviews was to explore R&D subsidiary roles
and control issues within networks of R&D. The sample frame of all foreign MNCs with R&D
activities in Austria was then constructed using data assembled via the Hoppenstedt database
and the Austrian register of companies. The Hoppenstedt database includes data on the owner-
ship, as well as the activities, of MNCs in Austria. Two criteria were used: (1) that the units
were majority owned by a foreign MNC (i.e., the MNC had at least 50% equity share of the
unit) and (2) that the subsidiary contained a dedicated R&D function. These criteria were used
in order to select cases of geographically dispersed R&D units in which the responsibility for

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   915

control choice lies with the MNC. Next, we contacted the subsidiaries by phone as a prenoti-
fication aimed at increasing the likelihood of response (van der Stede, Young, & Chen, 2005).
The sample frame consisted of 272 R&D unit heads. Questionnaires in German were sent
by postal mail, with a follow-up mailing after two months. In total, we received 197 responses
(72%), of which 138 filled in questionnaires, for a response rate of 51%. Because of missing
values on several items, we had to drop 15 further responses for the analyses reported in this
article. Therefore, the final sample consists of 123 observations, for a final response rate of
45%. These R&D subsidiaries belonged to 123 different MNCs. We tested for response bias on
subsidiary characteristics (number of employees, age of subsidiary, mode of establishment) and
on the dependent variable (the decentralization construct, reported below) for early versus late
responders and found no significant differences. The sample contained R&D units from a range
of technology-intensive sectors (electronics, telecommunications, pharmaceuticals, chemicals,
automotive, etc.) and 16 different home countries (i.e., headquarter locations). Among these,
Germany, the United States, Switzerland, and the Netherlands were the most frequent.

Measures

Decentralization. Decentralization in the MNC refers to the extent to which authority has
been delegated to units of the firm. The dependent variable is measured through six question-
naire items capturing the influence of headquarter management on decisions relating to R&D
activities in the subsidiary (Gates & Egelhoff, 1986; Gordon & Narayanan, 1984; Moers,
2006). The level of decentralization is established by asking the respondent about the loca-
tion of six key decisions with respect to the subsidiary’s R&D activities: the appointment of
the R&D unit’s manager, the formulation of standards for technical documentation at the
R&D unit, the development of new products and/or processes at the R&D unit, participation
in transnational projects, investments in the R&D unit, and approval of the R&D unit’s bud-
get. This is done on a scale of 1 to 5 from headquarters alone (1) to subsidiary alone (5), with
combined decision making in between. The six items were averaged to create the decentral-
ization measure, which had a Cronbach’s alpha of .84. The actual range of 1.00 to 5.00 covers
the complete theoretical range.

Nature of R&D activities. Decentralization is likely to be associated with R&D activities

that are more basic (cf. Evans & Davis, 2005). We asked respondents to categorize their
R&D activities. Respondents could allocate a total of 100% across four categories: basic
research, development of new products and services, development of existing products and
services, and customer service (Håkanson & Nobel, 1993: 395; Rockness & Shields, 1984:
169). Research nature was measured as a weighted sum of these categories, with basic
research receiving a weight of 4, development of new products 3, development of existing
products 2, and customer service 1, leading to a theoretical range of 1.00 to 4.00. So if a
respondent indicated 10% basic research, 30% new product development, 20% existing
product development, and 40% customer service, it received a research nature score of 2.10.
In this way, higher scores represent more basic research. The actual range is 1.10 to 4.00.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

916    Journal of Management / May 2013

Information asymmetry. Direct measurement of information asymmetry is difficult since

there is a theoretical possibility that information asymmetry is an endogenous variable: If the
subsidiary has more decision rights, there is less need for communication (Aghion & Tirole,
1997). Following this logic, decentralization is naturally related with information asymmetry:
The subsidiary is allowed to make more decisions on its own; it does not need to keep head-
quarters informed of these decisions. Therefore, rather than measuring information asymme-
try through communication frequency or asking who is more informed about the subsidiary’s
activities (e.g., Abernethy et al., 2004), we utilize the importance of the geographic scope of
the mandate. Studies of MNC subsidiary roles have highlighted increased information asym-
metry in subsidiaries that have local mandates (e.g., Birkinshaw & Morrison, 1995; Roth &
Morrison, 1992). In Roth and Morrison’s terms, a subsidiary with a global mandate has a
worldwide responsibility for a complete set of product activities; this requires that the subsid-
iary work “with headquarters to develop and implement strategy” (1992: 716). This acts to
reduce information asymmetry between subsidiary and headquarters. “Local implementers,”
on the other hand, arise in situations where responsiveness to national differences is important
(Birkinshaw & Morrison, 1995). Gassman and von Zedtwitz (1999: 240) referred to R&D
units in polycentric configurations having a strong local market sensitivity but having little
incentive to share information with other units, thus increasing information asymmetry.
We capture information asymmetry by asking respondents to indicate the principal geo-
graphic markets for their R&D units: local, Europe, and outside Europe. We expect informa-
tion asymmetry will be higher in local mandates, since local knowledge will be more
important in this case. We measure the importance of local activity as follows: If the mandate
is only local, we score a 3; if the mandate is local and either Europe or outside Europe, we
score a 2; and if the mandate covers all three levels, we score a 1. If the mandate does not
include local, we score a 0 (this happens for 79 out of 123 respondents). In nontabulated
results, we repeat our analysis using a dummy variable with any local orientation scoring a
1 and otherwise 0; the inferences remain identical.

Interdependencies. We measure interdependencies as the relative importance of intraorga-

nizational flows of products and services at the subsidiary level (Nobel & Birkinshaw, 1998).
Respondents were asked to indicate the share of purchases from other units of their firms and
the share of sales to other units. To simplify the questionnaire, respondents were offered vari-
ous ranges (0%, 1-5%, 6-10%, 11-20%, 21-40%, 41-70%, 71-100%). We took the midpoint of
each range to come to a percentage score for interdependency. Since the largest range was
71-100%, the maximum theoretical score on this construct is 0.85, obtained if both intrafirm
purchases and sales are in the range of 71–100%. The observed range is from 0.00 to 0.70.

Social controls. Following Nobel and Birkinshaw (1998), on a scale of 0 (does not happen)
to 5 (very important), we asked for the importance of the following four items: personnel
rotation programs, job training programs, personal visits by the R&D unit’s employees to
other units, and personal visits from employees of other R&D units to the unit. First, Merchant
and van der Stede (2007: 83, 90) note that personnel rotation and job training are important
social controls. Second, we use personal visits because these are an important mechanism by

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   917

which shared values are established within the organization (Edström & Galbraith, 1977). The
four items were averaged into a construct, which had a Cronbach’s alpha of .81, with the
actual range of the resulting construct covering the complete theoretical range of 0.00 to 5.00.

Advanced R&D processes. We use four items to capture advanced R&D processes: simul-
taneous engineering, parallel R&D, 24-hour R&D, and participation in international projects.
Simultaneous engineering refers to the degree of R&D unit involvement with other operational
units of the organization in R&D projects (Davila & Wouters, 2004; Shenas & Derakhshan,
1994). Parallel R&D refers to separate R&D units working in parallel on a joint project. New
developments in communication and information technology also enable continuous R&D, or
24-hour R&D (e.g., Inkpen & Ramaswamy, 2006: 75). The score on these items is averaged on
a scale of 0 (does not happen) to 5 (very important), with the actual range covering the whole
theoretical range of 0.00 to 5.00. The Cronbach’s alpha of .62 is acceptable for a new construct.

Control variables. We include a range of control variables that have been identified in prior
research as having an influence over control choices within the firm. First, we might expect
subsidiary size and age to play a role (Gates & Egelhoff, 1986). We control for this using the
natural log of the total number of employees at the subsidiary, as well as the log of the num-
ber of years since the establishment of the subsidiary. Second, we might expect prior perfor-
mance of the R&D subsidiary to influence decentralization, as the parent company rewards
good performance with additional investment (Frost, Birkinshaw, & Ensign, 2002). We
account for past performance of the subsidiary by including the log of the total number of
patents filed by the subsidiary in the past five years. Third, greenfield investments may offer
more possibilities to structure the organization and management of unit development and
integration (e.g., Barkema & Vermeulen, 1998). We capture the mode of establishment of the
subsidiary using a dichotomous variable for greenfield versus acquisition. Fourth, cultural
distance between home and host countries can influence managerial attitudes toward risk in
host countries. We use Kogut and Singh’s (1988) cultural distance measure to account for any
effects caused by differences in national culture between the Austrian unit and its foreign
headquarters. Fifth, we account for industry effects by including two industry dummies for
the most knowledge-intensive industries, one for electronics and telecommunications and one
for pharmaceuticals and chemicals (Kuemmerle, 1999). Finally, we control for the difference
in national technological capability between the home country of the MNC and Austria. For
this, we use the difference in the ArCo Index (Archibugi & Coco, 2004) for the country pair.
A higher score on this variable means that the MNC’s home country is more technologically
advanced. We also run untabulated regressions with the World Economic Forum Technology
Index as a measure of national technological capability; inferences remain similar.
There is a risk of common method bias from using the single-respondent self-reported ques-
tionnaire. We checked for common method bias using Harman’s single-factor test (Podsakoff
& Organ, 1986). With the scale items entered into an unrotated factor analysis, the variance for
the first factor was 25% (out of 69% variance for all emerging factors having an eigenvalue
greater 1). We therefore expect that common method bias will not affect the interpretation of the
results.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

918    Journal of Management / May 2013

Results

Descriptive Statistics

Table 1 presents descriptive information and bivariate correlations. Most important in this
table is the variation in the measure of decentralization. As indicated in the method section,
the actual range covers the complete theoretical range. This implies that there are R&D-active
subsidiaries that have full control over their decisions but that there are also subsidiaries
indicating that headquarter management makes all decisions. Overall, firms differ substantially
in the amount of decision rights they allocate to their R&D-active subsidiaries.
The measure of the nature of the R&D activities also shows a broad range, with a minimum
of 1.10 (implying 90% customer service activities and 10% existing product development)
and a maximum of 4.00 (only basic research). The scores on the individual research types
(untabulated) show that development is the most frequent type of research, and basic research
is the least frequent. The remaining independent variables all show good variation in their
standard deviations and ranges.
With respect to the bivariate correlations, we see that correlations of decentralization with
research nature and interdependencies have the expected sign and are significant, while infor-
mation asymmetry is positively correlated but not significant. Unexpectedly, social controls
are negatively associated with decentralization. Advanced R&D processes is negatively related.
Finally, all control variables show lower correlations than the main independent variables do.

Main Findings

To analyze our hypotheses, we use an ordinary least squares (OLS) regression with robust
standard errors, presented in Table 2. Robust standard errors provide for more conservative
(higher) standard errors (e.g., Wooldridge, 2002: 57); our statistical inferences are identical
when using regular OLS standard errors. To facilitate interpretation of the interaction models,
we report regression results using standardized independent variables (Jaccard, Turrisi, &
Wan, 1990). In column 1, we analyze the effects of the control variables. All are insignificant
and thus do not explain the decentralization decision by themselves.
The regressions testing our hypotheses (Models 2-4) have R2 values of .25 to .31 and
adjusted R2 values of .17 to .20 due to the relatively high number of independent variables
given the number of observations. This is comparable to the results of Moers (2006: 914) and
Abernethy, Bouwens, and van Lent (2010: 12), who report adjusted R2 values of .15 to .19
for the explanatory variables in regressions analyzing decentralization. We find that for all
models, the management control–based independent variables have the expected sign at a
significance level of .05 or less (with research nature significant at p = .08 in Model 4), except
for social controls, which is highly significant (p < .01) but in the opposite direction. Advanced
R&D processes in Model 3 is significantly negative at p = .07. The interaction Model 4 leads
to a significant negative direct effect of advanced R&D processes and a negative coefficient
on the interaction of advanced R&D processes and R&D research nature. The maximum VIF

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Table 1
Descriptive Statistics
Variable M SD 1 2 3 4 5 6 7 8 9 10 11 12 13
  1. Decentralization 3.45 0.96
  2. Research nature 2.42 0.44 .17†
  3. Information asymmetry 0.61 0.95 .15 –.23*
  4. Interdependency 0.21 0.19 –.25** –.00 –.10
  5. Social controls 2.68 1.24 –.32** .11 –.04 .16†
  6. Advanced R&D processes 2.04 1.18 –.19* .23* .05 –.04 .47**
  7. Log subsidiary employees 5.60 1.34 –.04 .25* –.06 .03 .34** .30**
  8. Log establishment age 2.51 1.05 –.12 .03 .08 .22* .08 .03 .20*
  9. Log number of patents + 1 1.37 1.59 –.12 .39** –.15† .12 .32** .33** .50** .11
10. Acquisition 0.63 0.48 .09 .07 .01 –.13 –.06 –.03 .03 –.49** –.07
11. Cultural distance 1.45 1.37 .02 –.14 .03 –.14 –.01 .03 .03 –.07 –.12 .06
12. Electronics/telecommunications 0.26 0.44 –.01 .10 –.07 .28** .15 .13 .08 –.00 .12 –.05 .12
13. Chemicals/pharmaceuticals 0.19 0.39 –.03 –.24** .15† –.30** –.03 –.03 –.17† .01 –.00 –.16† –.09 –.28**
14. ArCo distance 0.08 0.08 .12 .16† –.03 .07 .11 .09 –.03 –.09 .04 .02 .16† .09 –.03

Note: N = 123.
†

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

p < .10. *p < .05. **p < .01.

919
920    Journal of Management / May 2013

Table 2
Result of Regression on Decentralization
Expected Model 1 Model 2 Model 3 Model 4
Constant 3.43** 3.22** 3.16** 3.29**
Log subsidiary employees 0.04 0.08 0.08 0.06
Log establishment age –0.09 –0.07 –0.08 –0.08
Log number of patents + 1 –0.09 –0.07 –0.06 –0.03
Acquisition 0.06 –0.04 –0.06 –0.10
Cultural distance –0.02 –0.03 –0.03 –0.03
Electronics –0.01 0.16 0.19 0.17
Chemistry –0.03 –0.08 –0.09 –0.13
ArCo distance 1.49 1.68 1.71 1.68
Research nature + 0.22* 0.24* 0.21†
Information asymmetry + 0.17* 0.19* 0.17**
Interdependency – –0.19* –0.22* –0.25**
Social controls + –0.31** –0.24** –0.22**
Advanced R&D +/– –0.16† –0.21*
Advanced R&D × Research Nature +/– –0.18+
Advanced R&D × Info Asymmetry –0.01
Advanced R&D × Interdependency 0.03
Advanced R&D × Social Controls 0.09

R2 .05 .25 .27 .31

Adjusted R2 –.02 .17 .18 .20
F 0.86 6.10** 6.02** 5.41**

Note: N = 123.
†
p < .10. *p < .05. **p < .01.

in all models is 1.74, indicating that multicollinearity will not affect our interpretation of the
results.
The results are as follows. First, more basic research is associated with higher decentral-
ization. If research activities are less programmable, the unit gets more freedom to enable
the creativity that is required. Next, interdependency limits decentralization: The extent to
which the unit is integrated with other units impacts the decentralization of the R&D activ-
ities. The significant positive coefficient on the importance of local activities supports the
argument on information asymmetry. Contrary to our expectations, social controls are
significantly negatively related with decentralization; that is, more decentralization is asso-
ciated with less use of social controls. Finally, the control variables are all insignificant.
This strengthens our argument that operational characteristics are more important than
higher level characteristics such as size, cultural distance, or national technological capabil-
ity in the decentralization decision.
Figure 1 illustrates the effect of the interaction between advanced R&D processes and
research nature. This graph has been constructed using the coefficients from Model 4, with
all variables taken at their mean except for the two interacted variables. The graph shows that
for advanced R&D processes, the nature of the research does not impact decentralization.
Advanced R&D processes appear to “override” management control logic in this respect.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   921

Figure 1
Impact of Advanced R&D Processes on the Relationship
Between Research Nature and Decentralization

4.3

4.1

3.9

3.7
Decentralization

3.5

3.3

3.1

2.9
Less advanced R&D processes

More advanced R&D processes

2.7
Service Basic research

Research Nature

Discussion

The increasing geographic dispersion of R&D activity around the world (i.e., the interna-
tionalization of R&D) raises an important question for MNCs relating to how decision rights
are allocated to remote R&D units once they have been set up abroad. The traditional view
argues that R&D unit managers require freedom to make key decisions; R&D is idiosyncratic
and difficult to control from afar. The current study provides evidence that R&D units vary
in terms of how much freedom they have to make decisions and that this freedom is dependent
on internal organizational factors. Thus, consistent with management control theory (Anthony
& Govindarajan, 2004; Giglioni & Bedeian, 1974; Merchant & van der Stede, 2007), we find
strong support for hypotheses relating to research nature, information asymmetry, and inter-
dependencies. In terms of these three variables, there is nothing special about R&D. However,

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

922    Journal of Management / May 2013

in terms of social controls, on the one hand, and advanced R&D processes within the unit, on
the other, our results challenge and extend management control theory. This leads us to three
key discussion points.
First, the results suggest that decentralization to R&D units can be largely explained from
a management control perspective, despite the idiosyncratic nature of R&D activities. If the
specific R&D activities in question are more early stage and exploratory (i.e., so-called basic
research), more decision rights are allocated to the managers involved. Too much centraliza-
tion for this type of R&D stifles creativity and innovation and reduces the effectiveness of the
exploratory science. R&D managers heading units that undertake basic research are offered
the opportunity to decide for themselves how their budgets are allocated, which transnational
projects to take part in, and how local processes and technical documentation are formulated.
As new discoveries are made and new scientific information comes to light, the ability to
readjust resource deployments locally in order to respond and exploit new knowledge is
important. Similarly, our results suggest that information asymmetry is managed by placing
decision rights with the R&D subsidiary. Where the unit’s mandate is purely local, integration
with local actors becomes a necessity. As a consequence of this, increased levels of local
information occur. Centralizing decision rights in this scenario is counterproductive and inef-
ficient. There is a strong risk that differences in levels of information regarding the local
environment will mean that central decision makers will make poor decisions that do not
reflect the needs of the unit. In terms of interdependencies, we find interdependences to be
associated with lower decentralization. Coordination among units that are highly dependent
on each other requires a centralization of decision making. We conclude that as far as these
variables are concerned, there is nothing special about R&D.
Second, from a management control theory perspective, the finding regarding social con-
trols is unexpected. We expected social controls to be associated with higher decentralization
but find the opposite. This highlights a potential limitation of management control theory
within an international R&D context. Normative integration is much harder and more costly
to implement in international organizations than domestic ones. Cultural and institutional
differences across countries may prevent the efficient transfer of tacit knowledge that informal
communications should allow (Szulanski, 1996). Our finding may also be explained by the
argument that transferring and rotating staff across countries and continents has a financial
cost that will encourage MNCs to look for alternative ways of communicating and sharing
knowledge with a remote R&D subsidiary. Developments in information technology enable
a much faster transfer of management information on current activities and performance,
reducing the need for informal, social controls (Dewett & Jones, 2001).
Third, we show how aspects of R&D policy implemented at a local level (namely, research
nature and advanced R&D processes) have an important implication for theorizing on the
issue of control within international R&D. The most striking finding in the current study relates
to the interaction between these variables: For time-compressed and advanced R&D processes,
management control logic no longer applies with respect to the relationship between research
nature and decentralization. Such an advanced R&D process environment in a foreign sub-
sidiary has been set up for a reason: high scientific yield and performance in terms of tech-
nological breakthroughs and patenting. This type of R&D operation may require substantial
capital investment by the corporation, and expectations from headquarters will be high. For

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   923

these reasons, subsidiaries that are involved in more time-compressed and sophisticated R&D
stand out in terms of importance. As a result, fewer decision rights are given to the subsidiary,
even if the subsidiary is performing more basic, early-stage research (cf. Argyres & Silverman,
2004). This extends the management control perspective in relation to activities performed
by the unit: It is not just what the unit does that influences control choice; it is also the inter-
action between what the unit does and how it does it.

Implications, Limitations, and Future Directions

One implication of our research is to reinforce the existing call to stop viewing R&D as a
“monolithic” process (Davila et al., 2009): Managers incorporate the nature of R&D and other
subunit organizational contingencies in their control choices. This qualifies the tendency in the
creativity literature to suggest that control “kills” creativity (Amabile, 1998). In fact, the sug-
gested optimal control mechanism from the literature is social controls (Kim et al., 2003; Ouchi,
1979), but we find that social controls are not used as a mechanism to counter the possibilities
of divergence of interest between headquarters and subsidiaries. On the other hand, the view
sometimes voiced in the management literature that R&D activities need to be centralized due
to the difficulties in establishing formal controls (Hill et al., 2000) is not reflected in our findings.
If anything, the implication is to focus on the observable characteristics of the R&D subsidiary.
Another implication for researchers relates to the question of whether allocating decision
rights to dispersed R&D units is linked in any way to the original decision to internationalize.
Our approach of disentangling internationalization and decentralization adds clarity to prior
research on control of foreign R&D, which uses dispersion and decentralization as interchange-
able terms (Howells, 1990). We emphasize that these are quite different phenomena. Decentralizing
R&D operations may accompany an initial relocation or expansion of R&D operations abroad,
but it does not have to. As capabilities in remote operations develop, organizational contingen-
cies play an ever-increasing role in the need to reassess the appropriateness of the control
mechanism. The lack of extant literature on this topic points to new research possibilities.
There are a number of limitations in the current research. First, the data collection was only
carried out in one, relatively small, developed country. Second, firms were chosen only from
technology-intensive manufacturing sectors; the service sector was not included. This sampling
strategy will limit the generalizability of the findings. Third, our data collection instrument
utilized self-reported measures. Fourth, we did not control for whether the outcome of the
underlying R&D projects in the subsidiaries were more product oriented or process oriented.
Future research could address these issues by including more sectors and countries and con-
ducting detailed case studies of R&D decentralization in different empirical settings. Indeed,
a useful continuation of the current research would be to identify which types of control
mechanisms substitute for social controls within decentralized R&D, given our finding on
social controls. Another extension would be to examine the fit between the organizational
contingencies discussed here, the delegation of decision rights, and performance of overseas
R&D subsidiaries. Furthermore, future research could investigate the potentially complex
interactions between organizational factors that influence the trade-off between local knowl-
edge and loss of control at headquarters and policy choices—such as how intense and time-
compressed R&D should operate—which are ultimately implemented at a local level.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

924    Journal of Management / May 2013

Notes

1. We use the term decentralization to refer to the delegation of decision-making authority (or decision rights)
by superiors to lower levels in the organization. Some studies refer to this as autonomy.
2. No longer are home countries of multinational corporations (MNCs) the only incubating environments for
the firm’s innovation, and game-changing innovations may arise from any host country in which the MNC has
access to intellectual and human capital (Florida, 2003). Therefore, the geographical proximity of innovation capa-
bility to headquarters is not as important as it once was.
3. Other streams of literature have focused on strategic factors such as industry contingencies, corporate struc-
ture and other parent company characteristics, entry mode, and local context characteristics (e.g., Howells, 1990;
von Zedtwitz & Gassmann, 2002; Young & Tavares, 2004).

References

Abernethy, M. A., Bouwens, J., & van Lent, L. 2004. Determinants of control system design in divisionalized firms.
Accounting Review, 79: 545-570.
Abernethy, M. A., Bouwens, J., & van Lent, L. 2010. Leadership and control system design. Management
Accounting Research, 21: 2-16.
Acemoglu, D., Aghion, P., Lelarge, C., van Reenen, J., & Zilibotti, F. 2007. Technology, information, and the decen-
tralization of the firm. Quarterly Journal of Economics, 122: 1759-1799.
Aghion, P., & Tirole, J. 1997. Formal and real authority in organizations. Journal of Political Economy, 105(1): 1-29.
Amabile, T. M. 1998. How to kill creativity. Harvard Business Review, September-October: 76-81.
Andersen, T. J. 2004. Integrating decentralized strategy making and strategic planning processes in dynamic environ-
ments. Journal of Management Studies, 41: 1271-1299.
Andrews, F. M., & Farris, G. F. 1972. Time pressure and performance of scientists and engineers. Organizational
Behavior and Human Performance, 8: 155-200.
Anthony, R. N., & Govindarajan, V. 2004. Management control systems (11th ed.). New York: McGraw-Hill.
Archibugi, D., & Coco, A. 2004. A new indicator of technological capabilities for developed and developing countries
(ArCo). World Development, 32: 629-654.
Argyres, N. S., & Silverman, B. S. 2004. R&D, organization structure, and the development of corporate techno-
logical knowledge. Strategic Management Journal, 25: 929-958.
Asakawa, K. 2001. Organizational tension in international R&D management: the case of Japanese firms. Research
Policy, 30: 735-757.
Baiman, S., Larcker, D. F., & Rajan, M. V. 1995. Organizational design for business units. Journal of Accounting
Research, 33: 205-229.
Barkema, H. G., & Vermeulen, F. 1998. International expansion through start-up or acquisition: A learning per-
spective. Academy of Management Journal, 41: 7-26.
Birkinshaw, J. 2002. Managing internal R&D networks in global firms: What sort of knowledge is involved? Long
Range Planning, 35: 245-267.
Birkinshaw, J. M., & Morrison, A. J. 1995. Configurations of strategy and structure in subsidiaries of multinational
corporations. Journal of International Business Studies, 26: 729-753.
Birkinshaw, J., Nobel, R., & Ridderstråle, J. 2002. Knowledge as a contingency variable: Do the characteristics of
knowledge predict organization structure? Organization Science, 13: 274-289.
Bluedorn, A. C., & Denhardt, R. B. 1988. Time and organizations. Journal of Management, 14: 299-320.
Brickley, J. A., Smith, C. W., Jr., & Zimmerman, J. L. 2001. Managerial economics and organizational architecture
(2nd ed.). Boston: McGraw-Hill.
Brockhoff, K. K. L., & Schmaul, B. 1996. Organization, autonomy, and success of internationally dispersed R&D
facilities. IEEE Transactions on Engineering Management, 43(1): 33-40.
Bushman, R. M., Indjejikian, R. J., & Smith, A. 1995. Aggregate performance measures in business unit manager
compensation: The role of intrafirm interdependencies. Journal of Accounting Research, 33(Supplement): 101-128.
Cheng, J. L. C., & Bolon, D. S. 1993. The management of multinational R&D: A neglected topic in international
business research. Journal of International Business Studies, 24: 1-18.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   925

Christie, A. A., Joye, M. P., & Watts, R. L. 2003. Decentralization of the firm: Theory and evidence. Journal of
Corporate Finance, 9(1): 3-36.
Clark, K. B. 1985. The interaction of design hierarchies and market concepts in technological evolution. Research
Policy, 14: 235-251.
Damanpour, F. 1991. Organizational innovation: A meta-analysis of effects of determinants and moderators.
Academy of Management Journal, 34: 555-590.
Davila, A., Foster, G., & Oyon, D. 2009. Accounting and control, entrepreneurship and innovation: Venturing into
new research opportunities. European Accounting Review, 18: 281-311.
Davila, A., & Wouters, M. 2004. Designing cost-competitive technology products through cost management.
Accounting Horizons, 18(1): 13-26.
Deal, T. E., & Kennedy, A. A. 1982. Corporate culture. Reading, MA: Addison-Wesley.
de Meyer, A., & Mizushima, A. 1989. Global R&D management. R&D Management, 19: 135-146.
Dewett, T., & Jones, G. R. 2001. The role of information technology in the organization: A review, model, and
assessment. Journal of Management, 27: 313-346.
Dunning, J. H., & Narula, R. 1995. The R&D activities of foreign firms in the United States. International Studies
of Management and Organization, 25(1-2): 39-73.
Edström, A., & Galbraith, J. R. 1977. Transfer of managers as a coordination and control strategy in multinational
organizations. Administrative Science Quarterly, 22: 248-263.
Egelhoff, W. G. 1982. Strategy and structure in multinational corporations: an information processing approach.
Administrative Science Quarterly, 27: 435-458.
Eisenhardt, K. M. 1985. Control: Organizational and economic approaches. Management Science, 31: 134-149.
Evans, W. R., & Davis, W. D. 2005. High-performance work systems and organizational performance: The mediating
role of internal social structure. Journal of Management, 31: 758-775.
Fisher, J. 1994. Technological interdependence, labor production functions, and control systems. Accounting,
Organizations and Society, 19: 493-505.
Florida, R. 2003. Innovation goes global: A study of foreign-affiliated R&D laboratories in the USA. In B. McKern
(Ed.), Managing the global network corporation: 81-99. London: Routledge.
Frost, T. S., Birkinshaw, J. M., & Ensign, P. C. 2002. Centers of excellence in multinational corporations. Strategic
Management Journal, 23: 997-1018.
Gassmann, O., & von Zedtwitz, M. 1999. New concepts and trends in international R&D organization. Research
Policy, 28: 231-250.
Gates, S. R., & Egelhoff, W. G. 1986. Centralization in headquarters–subsidiary relationships. Journal of International
Business Studies, 17(2): 71-92.
Gerybadze, A., & Reger, G. 1999. Globalization of R&D: Recent changes in the management of innovation in
transnational corporations. Research Policy, 28: 251-274.
Ghoshal, S., & Bartlett, C. A. 1988. Creation, adoption, and diffusion of innovations by subsidiaries of multinational
corporations. Journal of International Business Studies, 19: 365-388.
Giglioni, G. B., & Bedeian, A. G. 1974. A conspectus of management control theory. Academy of Management
Journal, 17: 292-305.
Gilman, D. 2010. The new geography of global innovation. New York: Global Markets Institute at Goldman Sachs.
Gordon, L. A., & Narayanan, V. K. 1984. Management accounting systems, perceived environmental uncertainty
and organization structure: An empirical investigation. Accounting, Organizations and Society, 9: 33-47.
Gupta, A. K., & Govindarajan, V. 2000. Knowledge flows within multinational corporations. Strategic Management
Journal, 21: 473-496.
Gupta, A. K., Govindarajan, V., & Malhotra, A. 1999. Feedback-seeking behavior within multinational corporations.
Strategic Management Journal, 20: 205-222.
Håkanson, L., & Nobel, R. 1993. Foreign research and development in Swedish multinationals. Research Policy,
22: 373-396.
Hall, E. T. 1983. The dance of life: The other dimension of time. New York: Anchor Press.
Hill, S., Martin, R., & Harris, M. 2000. Decentralization, integration and the post-bureaucratic organization: The
case of R&D. Journal of Management Studies, 37: 563-585.
Howells, J. 1990. The location and organisation of research and development: New horizons. Research Policy, 19:
133-146.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

926    Journal of Management / May 2013

Howells, J., Gagliardi, D., & Malik, K. 2008. The growth and management of R&D outsourcing: Evidence from
UK pharmaceuticals. R&D Management, 38: 205-219.
Inkpen, A., & Ramaswamy, K. 2006. Global strategy: Creating and sustaining advantage across borders. New
York: Oxford University Press.
Jaccard, J., Turrisi, R., & Wan, C. K. 1990. Interaction effects in multiple regression. Newbury Park, CA: Sage.
Jensen, M. C., & Meckling, W. H. 1992. Specific and general knowledge, and organizational structure. In L. Werin
and H. Wijkander (Eds.), Main currents in contract economics: 251-274. Oxford, UK: Blackwell.
Kerssens-van Drongelen, I., Pearson, A., & Nixon, B. 2003. Organisation and management of research and develop-
ment facilities—From cost to profit focus. International Journal of Technology Management, 25: 746-765.
Kim, K., Park, J.-H., & Prescott, J. E. 2003. The global integration of business functions: A study of multinational
businesses in integrated global industries. Journal of International Business Studies, 34: 327-344.
Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International
Business Studies, 19: 411-432.
Kuemmerle, W. 1997. Building effective R&D capabilities abroad. Harvard Business Review, 75(2): 61-70.
Kuemmerle, W. 1999. The drivers of foreign direct investment into research and development: An empirical inves-
tigation. Journal of International Business Studies, 30: 1-24.
Langfield-Smith, K. 1997. Management control systems and strategy: A critical review. Accounting, Organizations
and Society, 22: 207-232.
Love, L. G., Priem, R. L., & Lumpkin, G. T. 2002. Explicitly articulated strategy and firm performance under
alternative levels of centralization. Journal of Management, 28: 611-627.
Luo, Y. 2006. Autonomy of foreign R&D units in an emerging market: An information processing perspective.
Management International Review, 46: 349-378.
Melumad, N., Mookherjee, D., & Reichelstein, S. 1992. A theory of responsibility centers. Journal of Accounting
and Economics, 15: 445-484.
Merchant, K. A., & van der Stede, W. A. 2007. Management control systems: Performance measurement, evalua-
tion and incentives (2nd ed.). Harlow, UK: Prentice Hall.
Milgrom, P., & Roberts, J. 1992. Economics, organization and management. Englewood Cliffs, NJ: Prentice-Hall.
Moers, F. 2006. Performance measure properties and delegation. Accounting Review, 81: 897-924.
The new masters of management. 2010. Economist, April 17: 12.
Nobel, R., & Birkinshaw, J. 1998. Innovation in multinational corporations: Control and communication patterns
in international R&D operations. Strategic Management Journal, 19: 479-496.
Nohria, N., & Ghoshal, S. 1994. Differentiated fit and shared values: Alternatives for managing headquarter–
subsidiary relations. Strategic Management Journal, 15: 491-502.
OECD. 2007. OECD science, technology and industry scoreboard. Retrieved June 2, 2010, from www.oecd.org/
dataoecd/61/50/39525781.pdf
Ouchi, W. G. 1979. A conceptual framework for the design of organizational control mechanisms. Management
Science, 25: 833-848.
Ouchi, W. G. 1980. Markets, bureaucracies, and clans. Administrative Science Quarterly, 25: 129-141.
Parsons, T. 1956. Suggestions for a sociological approach to the theory of organizations—I. Administrative Science
Quarterly, 1: 63-85.
Pavitt, K. 1991. Key characteristics of the large innovating firm. British Journal of Management, 2: 41-50.
Pearce, R., & Papanastassiou, M. 1999. Overseas R&D and the strategic evolution of MNEs: Evidence from labo-
ratories in the UK. Research Policy, 28: 23-41.
Podsakoff, P. M., & Organ, D. W. 1986. Self-reports in organizational research: Problems and prospects. Journal
of Management, 12: 531-544.
Rockness, H. O., & Shields, M. D. 1984. Organizational control systems in research and development. Accounting,
Organizations and Society, 9: 165-177.
Roth, K., & Morrison, A. J. 1992. Implementing global strategy: Characteristics of global subsidiary mandates.
Journal of International Business Studies, 23: 715-735.
Sanna-Randaccio, F., & Veugelers, R. 2007. Multinational knowledge spillovers with decentralised R&D: A game-
theoretic approach. Journal of International Business Studies, 38: 47-63.
Saviotti, P. P. 1998. On the dynamics of appropriability, of tacit and of codified knowledge. Research Policy, 26:
843-856.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016

 Ecker et al. / Management Control and R&D   927

Shalley, C. E., Zhou, J., & Oldham, G. R. 2004. The effects of personal and contextual characteristics on creativity:
Where should we go from here? Journal of Management, 30: 933-958.
Shenas, D. G., & Derakhshan, S. 1994. Organizational approaches to the implementation of simultaneous engineering.
International Journal of Operations and Production Management, 14(10): 30-43.
Siggelkow, N., & Rivkin, J. W. 2006. When exploration backfires: Unintended consequences of multilevel organi-
zational search. Academy of Management Journal, 49: 779-795.
Sohlenius, G. 1992. Concurrent engineering. CIRP Annals—Manufacturing Technology, 41(2): 645-655.
Szulanski, G. 1996. Internal stickiness: Impediments to the transfer of best practice within the firm. Strategic
Management Journal, 17(Special issue): 27-43.
Thompson, J. 1967. Organizations in action. New York: McGraw-Hill.
Ulset, S. 1996. R&D outsourcing and contractual governance: An empirical study of commercial R&D projects.
Journal of Economic Behavior and Organization, 30: 63-82.
van der Stede, W. A., Young, S. M., & Chen, C. X. 2005. Assessing the quality of evidence in empirical management
accounting research: The case of survey studies. Accounting, Organizations and Society, 30: 655-684.
von Zedtwitz, M., & Gassmann, O. 2002. Market versus technology drive in R&D internationalization: Four different
patterns of managing research and development. Research Policy, 31: 569-588.
Wooldridge, J. M. 2002. Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.
Young, S., & Tavares, A. T. 2004. Centralization and autonomy: Back to the future. International Business Review,
13: 215-237.

Downloaded from jom.sagepub.com at PENNSYLVANIA STATE UNIV on March 5, 2016