Management control systems in complex settings emerging research and opportunities

Management Control Systems in Complex Settings: Emerging Research and Opportunities Filippo Zanin University of Udine, Italy Eugenio Comuzzi University of Udine, Italy Antonio Costantini University of Udine, Italy A volume in the Advances in Logistics, Operations, and Management Science (ALOMS) Book Series Published in the United States of America by IGI Global Business Science Reference (an imprint of IGI Global) 701 E Chocolate Avenue Hershey PA, USA 17033 Tel: 717-533-8845 Fax: 717-533-8661 E-mail: cust@igi-global.com Web site: http://www.igi-global.com Copyright © 2018 by IGI Global All rights reserved No part of this publication may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher Product or company names used in this set are for identification purposes only Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI Global of the trademark or registered trademark Library of Congress Cataloging-in-Publication Data Names: Zanin, Filippo, 1974- editor | Comuzzi, Eugenio, 1963- editor | Costantini, Antonio, 1974- editor Title: Management control systems in complex settings : emerging research and opportunities / by Filippo Zanin, Eugenio Comuzzi, and Antonio Costantini Description: Hershey, PA : Business Science Reference, [2018] Identifiers: LCCN 2017025774| ISBN 9781522539872 (hardcover) | ISBN 9781522539889 (ebook) Subjects: LCSH: Industrial management | Management science Classification: LCC HD31.2 M3565 2018 | DDC 658.4/013 dc23 LC record available at https:// lccn.loc.gov/2017025774 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library All work contributed to this book is new, previously-unpublished material The views expressed in this book are those of the authors, but not necessarily of the publisher For electronic access to this publication, please contact: eresources@igi-global.com Advances in Logistics, Operations, and Management Science (ALOMS) Book Series ISSN:2327-350X EISSN:2327-3518 Editor-in-Chief: John Wang, Montclair State University, USA Mission Operations research and management science continue to influence business processes, administration, and management information systems, particularly in covering the application methods for decision-making processes New case studies and applications on management science, operations management, social sciences, and other behavioral sciences have been incorporated into business and organizations real-world objectives The Advances in Logistics, Operations, and Management Science (ALOMS)  Book  Series provides a collection of reference publications on the current trends, applications, theories, and practices in the management science field Providing relevant and current research, this series and its individual publications would be useful for academics, researchers, scholars, and practitioners interested in improving decision making models and business functions Coverage • Decision analysis and decision support • Political science • Organizational behavior • Risk Management • Information management • Operations management • Finance • Networks • Services management • Marketing engineering IGI Global is currently accepting manuscripts for publication within this series To submit a proposal for a volume in this series, please contact our Acquisition Editors at Acquisitions@igi-global.com or visit: http://www.igi-global.com/publish/ The Advances in Logistics, Operations, and Management Science (ALOMS) Book Series (ISSN 2327-350X) is published by IGI Global, 701 E Chocolate Avenue, Hershey, PA 17033-1240, USA, www.igi-global.com This series is composed of titles available for purchase individually; each title is edited to be contextually exclusive from any other title within the series For pricing and ordering information please visit http://www.igi-global.com/book-series/advanceslogistics-operations-management-science/37170 Postmaster: Send all address changes to above address ©© 2018 IGI Global All rights, including translation in other languages reserved by the publisher No part of this series may be reproduced or used in any form or by any means – graphics, electronic, or mechanical, including photocopying, recording, taping, or information and retrieval systems – without written permission from the publisher, except for non commercial, educational use, including classroom teaching purposes The views expressed in this series are those of the authors, but not necessarily of IGI Global Titles in this Series For a list of additional titles in this series, please visit: https://www.igi-global.com/book-series/advances-logistics-operations-management-science/37170 Novel Six Sigma Approaches to Risk Assessment and Management Vojo Bubevski (Independent Researcher, UK) Business Science Reference â2018 251pp H/C (ISBN: 9781522527039) • US $200.00 Enterprise Resiliency in the Continuum of Change Emerging Research and Opportunities Raj Kumar Bhattarai (Tribhuvan University, Nepal) Business Science Reference â2018 186pp • H/C (ISBN: 9781522526278) • US $150.00 Examining Cultural Influences on Leadership Styles and Learning From Chinese Valerie Zhu (Xi’an University of Science and Technology, China) Business Science Reference • ©2017 • 207pp • H/C (ISBN: 9781522522775) • US $125.00 Globalization and the Ethical Responsibilities of Multinational Corporations Emerging Tarnue Johnson (Argosy University - Chicago, USA) Business Science Reference â2017 110pp H/C (ISBN: 9781522525349) US $125.00 Multi-Criteria Decision Making for the Management of Complex Systems Albert Voronin (National Aviation University of Ukraine, Ukraine) Business Science Reference â2017 201pp H/C (ISBN: 9781522525097) • US $175.00 Handbook of Research on Manufacturing Process Modeling and Optimization Strategies Raja Das (VIT University, India) and Mohan Pradhan (Maulana Azad National Institute of Technology, Bhopal, India) Business Science Reference â2017 530pp H/C (ISBN: 9781522524403) • US $285.00 Managerial Strategies and Green Solutions for Project Sustainability Gilman C.K Tam (Independent Researcher, China) Business Science Reference • ©2017 • 255pp • H/C (ISBN: 9781522523710) • US $180.00 For an enitre list of titles in this series, please visit: https://www.igi-global.com/book-series/advances-logistics-operations-management-science/37170 701 East Chocolate Avenue, Hershey, PA 17033, USA Tel: 717-533-8845 x100 • Fax: 717-533-8661 E-Mail: cust@igi-global.com • www.igi-global.com Table of Contents Preface vii Acknowledgment xiii Section Complexity and Management Control Systems Chapter Complexity Chapter Management Control Systems: Concepts and Approaches 22 Chapter Management Control Systems: Contingency Factors 50 Section Managing Value in Complex Firms Chapter Complexity and Control: Managing for Value Creation in Complex Firms .79 Chapter Complexity and Control: Forecasting, Planning, and Budgeting in Complex Firms 97  Section Empirical Evidence of Managerial Practices in Complex Firms Chapter Strategy in Action: The Use of Visual Artefacts for Strategic Change 131 Chapter The Effect of Business Strategy and Stock Market Listing on the Use of Risk Assessment Tools 145 Related Readings 169 About the Authors 188 Index 189 vii Preface To reach the point that you don’t know, you have to take the road that you don’t know San Giovanni della Croce (1542-1591) WHY A BOOK ON COMPLEXITY AND MANAGEMENT CONTROL SYSTEMS? Theme, Perspectives, and Guidelines “Management Control Systems in complex settings Emerging research and opportunities” is a relevant milestone of a research path centered around the evocative topic of “control and firm’s value under complexity conditions” Complexity and control are analysed with the lens of “economic value” in order to adopt multiple and unconventional perspectives on the topic New lines of reasoning have stimulated the generation of an innovative conceptual framework that is articulated around the following turning points: • From the Corporate Control to the Complexity Control: This methodological shift evokes the adoption of a new approach able to emphasize the pivotal role of the environmental complexity for managing firm’s value The control of complexity becomes the objective of the Management Control Systems (MCS) and, at the same time, the methodological approach for controlling strategy, operations and resources A radical change of perspective is taking place While the classical approaches to management control are targeted to maximize the financial value of the firm and its constituent assets, the Preface • • viii complexity approach explicitly takes into consideration the active role of the context under which management control is performed; From the Management of Organisational Performance to the Management of Complexity: A new conceptual framework is proposed for managing value in complex settings The relation between complexity and firm’s financial performance is analysed by adopting a new methodological perspective that encourages the exploration of the intricate cause and effect relationships among firm’s value and its determinants It is difficult to develop a comprehensive understanding of the value drivers and their impacts on firm’s value The proposed conceptual framework tries to overcome this imbalance by making the causal relationships more explicit; From the Functionalist View of MCS to the Perceived View of Complexity Management: Traditional approaches to management control adopt a narrow and functionalist view of the MCS Consequently, management control is seen as a system of formal and analytical tools that supports rational decision-making by providing financial measures, economic analysis and allowing “management by exceptions” However, decision and control processes are rarely rational and linear Rather, they are complex interconnections of provisional and emerging practices that involve many actors who represent different values, beliefs, biases and competencies This seems consistent with the emphasis on the individual’s perception of the importance and use of specific MCS Thus, MCS and complexity are not objective entities but subjective abstractions beyond the perceived reality of organisational phenomena Following this line of reasoning, it is important to make a distinction between two different conceptualisation of complexity: perceived complexity and managed complexity The first conceptualization refers to complexity as a individual and social accomplishment The second one, draws attention to the problem of the treatment of complexity It depends on the degree of complexity of the analysed problem If the problem is simple to understand, then it is possible to apply analytical and rational tools Conversely, when the problem continues to evolve over time taking unpredictable terms, it is manageable by assuming simplifying assumptions Then, the control of complexity is a bundle of multifaceted practices that involves building imperfect cognitive representations of the problem or, alternatively, rational and computationally tractable solutions; Preface • From Traditional Control Methods and Tools to Advanced Toolkit for the Management of Complexity: Complexity management requires the use of advanced methods and tools able to capture the dynamics that impact on the creation, conservation or destruction of economic value In this perspective: a) multidimensional models are becoming increasingly important tools for the control of firm’s strategy in complex settings; b) there is a systematic change of the methods and metrics that support forecasting, planning and budgeting processes; c) increasing level of complexity stimulates the adoption of more sophisticated measurement tools and techniques; d) advanced management control systems combine different measurement and representation tools (quantification, narrative approach, visual maps, matrix, alternate templates, temporal bracketing) THEME AND OBJECTIVES OF THE BOOK Complexity science has emerged across different research fields in recent years In business management, the term complexity generally evokes a business context involving problems in decision-making, direction, measurement and evaluation, both by managers and stakeholders On the one hand, complexity implies environmental uncertainty, change, dynamism, heterogeneity These characteristics can be ascribed to the contemporary competitive environment Nowadays, firms have to face challenges driven by a variety of factors: changes in manufacturing and operations, the rise of emergent markets and developing economies, the long-lasting effects of the 2008 financial crisis, evolutions in customer tastes and preferences, relations with buyers and suppliers, rapid innovations, variations in the actions of competitors and growing rivalry, deregulation and globalization issues, the diffusion of information technologies On the other hand, firms can also be internally viewed and analyzed as complex systems Firms must respond to the expectations of a range of multiple stakeholders Product life cycles are shorter and factors such as knowledge, innovation and intangible assets are increasing their importance Customer loyalty and reputation have become major concerns Overall, complexity influences organizational structures, and makes planning and control more difficult ix Related Readings Huygh, T., & De Haes, S (2016) Exploring the Research Domain of IT Governance in the SME Context International Journal of IT/Business Alignment and Governance, 7(1), 20–35 doi:10.4018/IJITBAG.2016010102 Ingle, S., & Kuprevich, C L (2016) Workforce Development in Behavioral Healthcare and the Increased Use of Technology: Is It Working or Not? 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Countries: A Case of SME Clusters in Pakistan In P Mothataesi Sebina, K Moahi, & K Bwalya (Eds.), Digital Access and E-Government: Perspectives from Developing and Emerging Countries (pp 284–296) Hershey, PA: IGI Global doi:10.4018/978-1-46665868-4.ch018 Zhou, N., & Gifford, W M (2015) Optimization of Service Development Strategy in a Global Environment In Y Diao & D Rosu (Eds.), Maximizing Management Performance and Quality with Service Analytics (pp 86–118) Hershey, PA: IGI Global doi:10.4018/978-1-4666-8496-6.ch004 187 188 About the Authors Filippo Zanin holds a PhD in Business Administration at University of Udine in 2005 Prior to his Ph.D studies he worked for years on research related to SME management control and strategy at Ca Foscari University of Venice Dr Zanin’s research explores new areas in strategy-making, management control and performance measurement focusing on qualitative research in accounting and management His areas of teaching include financial and managerial accounting, decision-making, strategy change, merger&acquisition Dr Zanin joined University of Udine as a Lecturer in Business Administration in 2008 Eugenio Comuzzi is the Chair of the postgraduate course in Business Administration at University of Udine Professor Comuzzi’s research interests lie in business evaluation, financial accounting and economic measurement, with special emphasis on complexity theory He has written extensively on the strategic control and business evaluation in complex settings Antonio Costantini is currently Research Fellow at the University of Udine He holds a Ph.D from University of Chieti-Pescara Dr Costantini’s research interests include management control, strategic management accounting and risk management He has taught courses in management control and business administration 189 Index A M agency 57, 132, 134-135, 138, 140 analytical tools 98, 100, 112 management control 22-35, 38-43, 50, 57, 66-68, 80, 89, 116, 131-132, 134-136, 147-148, 152, 160, 162 market listing 145, 147, 152, 154, 156, 158-160 MCS 24-26, 28-29, 31-35, 38-43, 50-53, 57-63, 65, 67-73, 123, 132, 145-146, 148, 152 measurement techniques 149-153, 155, 158, 160 metrics 79 C causal ambiguity 56, 79 complex firm 81, 93 complex management model 86, 147, 153 COMPLEXITY PARADIGMS 99 complexity theory 1, 3, 5-6, 16-17, 85, 89 conceptual framework 1-2, 81, 89 contingency factors 50-51, 68, 72, 152 contingency theory 31-33, 50, 65, 73, 150 control systems 22, 24, 28, 31-34, 36-39, 50, 57, 67-71, 80, 134, 152 N non-financial measures 37, 39, 60, 82, 136 E O economic value 51, 56, 58, 79-80, 82, 84, 86, 89, 93 environmental uncertainty 32-34, 51, 6364, 67-68, 70, 111, 116, 118, 146 organizational phenomena 1-2, 4, 133-134 F financial measures 37, 39, 80, 93 future actions 97-98, 100, 141 K knowing 12, 132-133, 135 P performativity 131-132, 134, 140 process complexity 17 R risk assessment 118, 145, 147-162 S state complexity 17 Index stock market 145, 147, 152, 154, 156, 158-160 strategic planning cycle 97, 111, 114 strategizing 57, 62, 132-136, 140 strategy 28-29, 31-32, 35-37, 51, 53-62, 68, 70, 80-84, 86, 93, 98, 108-112, 115, 117, 119, 123-124, 131-141, 145, 147-148, 152-153, 156-157, 160 strategy maps 131-132, 138, 140 strategy renewal 131-132, 134 190 V variability 13-15, 69, 102, 104, 147 variety 13-14, 23, 29, 31, 40, 98, 103-104, 109, 119, 148-149 Velocity 13-15 ... (1542-1591) WHY A BOOK ON COMPLEXITY AND MANAGEMENT CONTROL SYSTEMS? Theme, Perspectives, and Guidelines Management Control Systems in complex settings Emerging research and opportunities is a relevant... Managing Value in Complex Firms Chapter Complexity and Control: Managing for Value Creation in Complex Firms .79 Chapter Complexity and Control: Forecasting, Planning, and Budgeting in Complex. . .Management Control Systems in Complex Settings: Emerging Research and Opportunities Filippo Zanin University of Udine, Italy Eugenio Comuzzi University of Udine, Italy Antonio Costantini