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Management control systems in innovation companies: a literature based framework

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Abstract

Past research has traditionally argued that management control systems (MCSs) may present a hindrance to the creativity of innovation companies. This theoretical paper surveys the literature to focus an investigation on the MCSs of innovation companies. Within the object of control paradigm the paper develops and presents a theoretical model of the impact of eleven external, organisational and innovation related contingency factors on the MCSs in companies that engage in innovation activities. We also suggest measures for further empirical research. By formulating hypotheses on 43 potential interactions the model predicts contradictory influences on two direct control categories, results and action control, but stresses the importance of two indirect categories, personnel and cultural control. More specifically, the high levels of technological complexity and innovation capability in this type of company are expected to be negatively associated with the application of results and action control, whereas personnel and cultural seem to be more appropriate. Furthermore, important sources of finance, venture capital and public funding, are both hypothesised to be positively associated with the application of results, action and personnel control; whereas only public funding is predicted to be positively related to the application of cultural control. The principal contribution of this paper lies in synthesising the literature to provide a model of the impact of a unique set of eleven contingency factors for innovation companies on a broad scope of controls. In addition, the contingency model, if empirically validated, would add value by inferring the particular forms of management control which would be beneficial in innovative company settings.

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Notes

  1. Mainly the framework is literature based; however some hypotheses are supplemented by observations from preliminay fieldwork (see Sect. 2.2).

  2. In this context, innovation activities encompass “all scientific, technological, organisational, financial and commercial steps which actually, or are intended to, lead to the implementation of innovations” and also include “R&D that is not directly related to the development of a scientific innovation” (OECD 2005, p. 47).

  3. In our framework, performance appraisals are part of results control and therefore seen as direct control, due to the direct interaction between management and employee.

  4. For a review of conceptualisations of MCSs see, for example, Strauß and Zecher (2012).

  5. The literature review covered the 1980–2012 period in the journals Accounting, Organizations and Society and Management Accounting Research using the ScienceDirect database and the journals Accounting Horizons, Accounting Review and Administrative Science Quarterly using the EBSCO Business Source Premier database. The keywords for the search were “control” and “innovation” or “research and development” or “product development” or “network”. Of these, papers with a focus on innovation companies were selected. Further, journals with a focus on innovation and R&D, namely R&D Management (EBSCO Business Source Premier) and Technovation (ScienceDirect), were searched for “management control” or the related MCS categories.

  6. For reviews of the contingency-based literature addressing MCSs see Chapman (1997), Langfield-Smith (1997), Hartmann (2000) and Chenhall (2003).

  7. For instance, organisational outcome variables are effectiveness, efficiency, job related tension and satisfaction (Fisher 1998).

  8. E.g. system complexity, product perishability, advanced management technology

  9. Management accounting systems are part of the overall MCS framework, mainly in the category of results control.

  10. In this context, administrative controls refer mainly to results control but also action control (see Chenhall 2003).

  11. The OECD recommends to measure firm size on the basis of number of employees in the Oslo manual (2005, p. 72) and the Frascati manual (2002, p. 62) in order to ensure comparability.

  12. For a review of the concept of innovative capability see Martínez-Román et al. (2011).

  13. The fourth component of this original measure, human resource management (HRM), is not used in this framework in order to avoid any collinearity problems with the construct of personnel control.

  14. Rockness and Shields (1996, p. 577) measured “control through the expenditure budget” as “perceived importance of the expenditure budget for management control of R&D”.

  15. As explained in Sect. 2.2.1, high customer power is expected to be prevalent if few customers make up a large share of a company’s total sales based on a measure of O’Connor et al. (2011).

  16. The importance of the contingency factor “public funding” has been identified during the preliminary qualitative study (see Sect. 2.2.3) and the hypotheses are supplemented by these observations.

  17. Guidelines in other countries are believed to be similar, given EU legislation.

  18. For this framework, the standard application form (version 3.04 as of 04.09.2013) of the Central Innovation Programme SMEs for individual project funding in Germany has been used to assess the application requirement for public funding (attachment 4 of the application form). http://www.zim-bmwi.de/download/einzelprojekte/antrag_ep_druck, last access 15.09.2013.

  19. Except for a not hypothesized effect of VC on cultural control.

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  1. University of Applied Sciences Schmalkalden, Schmalkalden, Germany

    Ellen Haustein, Robert Luther & Peter Schuster

  2. Bristol Business School, University of the West of England, Bristol, UK

    Robert Luther

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Haustein, E., Luther, R. & Schuster, P. Management control systems in innovation companies: a literature based framework. J Manag Control 24, 343–382 (2014). https://doi.org/10.1007/s00187-014-0187-5

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