Management Control – Summary papers week 2
Sandino 2007
This paper examines which management control systems (MCS) firms adopt when they
invest in controls for the first time. Early stage firms choose their MCS selectively to monitor
and make decisions because they are time consuming and costly to implement and operate.
MCS are formal information-based procedures and statements that are used to monitor and
influence behaviour and activities in a firm. The issues underlying the choices of MCS in early
stage firms differ from that from mature firms for 3 reasons;
1. Mature firms usually have an extensive amount of formal systems already in place
and thus are less concerned about running out of control.
2. The first MCS provide the foundation for later developed MCS of the firm, therefore
mature firms only concerned to integrate new MCS in old MCS and early stage firms
also need to think how the first MCS will affect future MCS.
3. Early stage firms utilize informal control systems more intensely than do mature
firms and, thus, they might decide to invest only in those formal MCS that liberate
managers from routine operations and allow them to informally focus on the firm’s
strategy.
This research aims to discover which MCS are installed in early stage firm and why.
Furthermore, it explores whether the strategy that an early stage firm pursues significantly
determines the firm’s choice of particular categories of MCS and whether early stage firms
with a better fit between initial MCS and their strategy experience superior performance.
Four different categories of initial MCS, defined in terms of the MCS focus, emerge from the
date;
1. Basic MCS: Common platform across all firms, used to collect information for
planning and establishing operations.
a. Budget
b. Pricing system
c. Inventory controls
2. Cost MCS: Used to achieve operation efficiencies and to minimalize costs.
a. Cost controls
b. Quality controls
3. Revenue MCS: To achieve growth and to learn and respond to the market.
a. Marketing databases
b. Sales productivity
4. Risk MCS: To reduce risks and to protect asset integrity.
a. Loss prevention controls
b. Internal audits, Transaction tracking, Checks and Balances
c. Codes of Conduct
d. Credit controls
e. Policies and procedures
It is expected that firms that focus on differentiation strategies tend to use Revenue MCS as
most important MCS. On the other hand, firms that emphasize on low-cost strategies men
would expect Risk MCS and Cost MCS, however there is little evidence for that. This is
Sandino 2007
This paper examines which management control systems (MCS) firms adopt when they
invest in controls for the first time. Early stage firms choose their MCS selectively to monitor
and make decisions because they are time consuming and costly to implement and operate.
MCS are formal information-based procedures and statements that are used to monitor and
influence behaviour and activities in a firm. The issues underlying the choices of MCS in early
stage firms differ from that from mature firms for 3 reasons;
1. Mature firms usually have an extensive amount of formal systems already in place
and thus are less concerned about running out of control.
2. The first MCS provide the foundation for later developed MCS of the firm, therefore
mature firms only concerned to integrate new MCS in old MCS and early stage firms
also need to think how the first MCS will affect future MCS.
3. Early stage firms utilize informal control systems more intensely than do mature
firms and, thus, they might decide to invest only in those formal MCS that liberate
managers from routine operations and allow them to informally focus on the firm’s
strategy.
This research aims to discover which MCS are installed in early stage firm and why.
Furthermore, it explores whether the strategy that an early stage firm pursues significantly
determines the firm’s choice of particular categories of MCS and whether early stage firms
with a better fit between initial MCS and their strategy experience superior performance.
Four different categories of initial MCS, defined in terms of the MCS focus, emerge from the
date;
1. Basic MCS: Common platform across all firms, used to collect information for
planning and establishing operations.
a. Budget
b. Pricing system
c. Inventory controls
2. Cost MCS: Used to achieve operation efficiencies and to minimalize costs.
a. Cost controls
b. Quality controls
3. Revenue MCS: To achieve growth and to learn and respond to the market.
a. Marketing databases
b. Sales productivity
4. Risk MCS: To reduce risks and to protect asset integrity.
a. Loss prevention controls
b. Internal audits, Transaction tracking, Checks and Balances
c. Codes of Conduct
d. Credit controls
e. Policies and procedures
It is expected that firms that focus on differentiation strategies tend to use Revenue MCS as
most important MCS. On the other hand, firms that emphasize on low-cost strategies men
would expect Risk MCS and Cost MCS, however there is little evidence for that. This is
