Critique Example

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Accoun t i ng , Orga f l i z a t i onsandS oci e t_v, Vol . 15, Nos. l /2, pp . 145-148, 1990. 0361~36fGY90 $3.00+.00Pr inted in Great Britain Pergamon Pr ess pIc

THE ENACTMENT OF MANAGEMENT CONTROL SYSTEMS:A CRITIQUE OF SIMONS

BARBARA GRAYD ep a r t m e n t o f M a n a g em e n t a n d O r g a n i z a t i o n , P e n n s yl v a n i a S t a t e U n i v et s i t y

Abstract

Simon proposes a contingency relationship between a firms strategy and its management control systems.However, his model underspecifies the relationship between strategic uncertainties and managementcontrols, under plays the recursive impact of management controls on strategy formulation, and ignores thepotential influence of managerial char acteristics on control system design.

The major focus of Simons paper is on the linkbetween strategy and management control sys-tems. More specifically, Simons asks, What isthe relationship, if any, between the way a firmcompetes and the way that it organizes and usesits management control systems? The paperposits a process model of strategy and control inwhich top management regulates strategic un-certainties through its choice of strategy and theinsti tutionalization of a management control sys-tem. In his Fig. 1, Simons depicts the relationshipamong four key variables (business strategy,strategic uncertainties, management controlsand organizational learning) as a cyclic one.

The paper makes two important contributionsto the literature on strategic planning. First, itprovides a rich description of management con-trol systems in two firms within the same indus-try. Second, in addition to representing theeff ect of strategy on the design of managementcontrols, it acknowledges the recursive effectsof strategic controls on subsequent strategy for-mulation. I bel ieve, however, that Simons modeldoes not go far enough. That is, it underspecifiesthe relationships between strategy, strategic un-certainties and management controls and under-plays the impact of management controls onstrategy formulation. Furthermore, the analysisgives short-shrif t to the learning step which

completes the loop between management con-trol systems and strategy and to the mechanismsby which strategic change i s induced when thestrategy fails.

MANAGING STRATEGIC UNCERTAINTIES

It is diff icult to discern from the paperwhether strategic uncertainties for Simons referto obj ective threats and opportunities the firmencounters or to an environment which man-agement perceives or to an enacted environ-ment which management creates. Managementtheorists diff er in their depictions of the environ-ment as determined (Hannan & Freeman, 1978;Aldrich, 1979), perceived through the eyes ofless-than-perfect observers (Duncan, 1972;Downey e t a l . , 1981; Lorenzi e t a l . , 1981) orcreated through acts of interpretation and action(Weick, 1979; Smircich & Stubbart, 1985).

What people efer o as their environment is generatedby human actions and accompanying intellectual effortsto make sense out of these actions. The characte r of thisproduced environment depends on the particulartheories and frameworks, patter ns of attention, and atfec-tive dispositions supplied b y the actor -observer s (Smir -cich & Stubb ar t, 1985, p. 726).

Regardless of which school one adopts, how-

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ever, they all seem to agree that there are bound-aries which l imit managerial discretion. Theselimitations are not explictly considered in Si-mons model. Instead, it appears from his appli-cation of the model to the two cases that mana-gers are always able to temper or forestall theeff ects of uncertainty through design of an ap-propriate control system. For example, Hre-beniak & Joyce (1985) distinguish contexts inwhich firms can adapt by design from those inwhich they adapt by chance or adapt within con-straints or may not be able to adapt at all. Itseems reasonable to assume that managementcontrol systems would be designed differentlyto correspond to each of these contexts.

A brief discussion of the limited attention of

managers suggests that Simons is more comfort-able with conceiving of managers as interpret-ers. Theorists consistent with this perspectivealso diff erentiate strategic contingencies ac-cording to the degree of threat or opportunitythey invoke (Dutton & Duncan, 1987; Dutton &Jackson, 1987) or by the adjudged abil ity of thefirm to respond (Wartick & Christy, 1986).Thus, the nature of strategic contingenciesthemselves as interpreted and acted upon by topmanagement could be expected to require dif -

ferent management controls. Consideration ofhow diIf erences in interpretation of strategiccontingencies shape management control sys-tems would enrich Simons model.

THE INFLUENCE OF MANAGEMENTCONTROLS ON SUBSEQUENT

STRATEGY-MAKING

Learning, for S imons, is described as a processby which management signals to subordinatesabout its strategic intentions. I cannot help butwonder, then, i f learning is only for the lowerlevels of the organization? What about themechanisms by which top management alsolearns? The model seems to perpetuate an imageof top management as an omnicient and omnipo-tent navigator of the seas of uncertainty. Whathappens, f or example, if an unanticipatedstrategic uncertainty strikes, such as a hostile

takeover attempt or a major accident such asThree Mile Island or Bhopal?

An alternative model imagines managers asco-participants in the enactment of theirstrategic environments (Pfef fer & Salancik,1978; Weick, 1979; Smircich & Stubbart, 1985).Not only do they interpret strategic contin-gencies, but they construct the environmentwith which they will have to navigate in thefuture (Giddens, 1979; Gray et al . , 1985). Theycreate the context within which the next roundof strategic decisions will be made.

organized people often struggle within the confines oftheir own prior enactments . Patterns of enactmentrooted in prior personal, organizational and cultural ex-periences powerfully shape ongoing organizational and

cultural options. Starbuck (1983) calls these patternsbehavior programs and emphasizes how past thinkinggets concretized into standard operating procedures, jobspecifi cations, buildings, contracts, and so on that take onthe aura of objective necessity (Smircich & Stubbart,1985, p. 732).

Applying this to Simons model, enactmentoccurs precisely through the choice of whichmanagement controls to make interactive. Thatstructures subsequent organizational learningand delimits what top management will and will

not attend to. Thus, the choice of control sys-tems imposes a mindset or a set of blinders onthe organization which reinforces existinginterpretations and discourages novel interpre-tations. Research on cognition confirms thatpeople pay attention to behaviors and eventsthat are consistent with their existing f rame-works for sense-making and tend to discreditconflicting evidence (Kiesler & Sproull, 1982;Gray & Allen, 1987). This leads to persistence ina course of action, often beyond i ts usefulness(Staw, 1976).

That brings us back then to questions con-cerning how top management learns and how achange in strategy is introduced. Burgelman(1983) argues that a major consequence of thestructural context is a reduction in the variationin proposals for strategic change which emerge.He contends that a second track of autonomousstrategic behavior is needed in order to, intro-duce new initiatives. These initiatives arise from


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ENACTMENT OF MANAGEMENT CONTROL SYSTEMS 147

the lower and middle levels of the organization,but require the use of political tactics in order toinduce any modifications in the existingstrategy. Political pressure is needed to over-come the inertia created by existing control sys-

tems which, according to Burgelman, impoundthe learning of the firm over time (p. 68). Miller& Friesen ( 1982) seem to be making a similarargument with their findings that managementcontrols utilized in prospector firms discourage,rather than encourage innovation.

Simons seems oblivious to the need for politi-cal maneuvering to induce strategic change.While he acknowledges a role for debate overplanning ,and budgets, the acceptance ofstrategic initiatives by middle and lower levels is

taken for granted. It seems curious that the inter-viewees in companies A and B did not report anyresistance to strategic directives created by iner-tial forces and vested interests in the status quo(Miller & Friesen, 1980; Quinn, 1980; Gray &Ariss, 1985). Simons does, however, acknow-ledge top managements resistance to entertain-

ing proposals which deviate from its currentstrategic course. Clearly the political functionserved by management controls deserves explor-ation in subsequent work.

MANAGERIAL CHARACTERISTICS

One final set of factors which intluencestrategic decisions may help explain why differ-ent firms institute different systems of control.Recent work by Hambrick & Finkelstein ( 1987)and Miller 81 Droge ( 1986) speculate that topmanagement characteristics (e.g. aspirationlevel, tolerance for ambiguity, need for achieve-ment, political acumen, etc.) intluence strategic

choices and the exercise of discretion and con-trol in the organization. If the additional 14 casesin Simons research do not correspond to theProspector/Defender prototypes illustrated bycompanies A and B, some explanation for thedeviations may be found in top management at-tributes such as these.

BIBLIOGRAPHY

Aldrich, H. E., 0t;ganizution.s a n d E n v i r o n m e n t s (Englewood Clilfs, NJ: Prentice-Hail, 1979).Burgelman, R., A Model of the Interaction of Strategic Behavior, Corporate Context, and the Concept of

Strategy, A c a d e m y o f Ma n a g e m e n t R e v ie w ( 1983) pp. 61-70.Downey, H. K, Hellriegel, D. & Slocum, J. W., Jr, Environment Uncertainty: The Construct and its

Application, A d m i n i s t r a t i v e S c i e n c e Qu a r t e r l y ( 1 9 7 5 ) pp. 613-629.Duncan, R. B., Characteristics of Organizational Environment and Perceived Environmental Uncertainty,

A d m i n i s t r a t i v e S c i e n c e Qu u r t e r l y ( 1972) pp. 3 13-327.Dutton. J . E. & Duncan, R. B., The Creation of Momentum for Change Through the Process OfStrategic Issue

Diagnosis, S t r a t e g i c M a n a g e m e n t J o u r n a l ( 1987) pp. 279-295.Dutton, J . E. &Jackson, S. E., The Categorization of Strategic Issues by Decision Makers and its Link to

Organizational Action, A c a d e m y o f Ma n a g e m e n t R e v i e w ( 1987) pp. 76-90.

Giddens, A., Ce n t r a l P r ob l e m s i n S o c i a l T h e o r y (Berkeley, CA: University of California Press, 1983).Gray, B. & Allen, R. G., Cognitive and Group Biases in Issues Management: What You Dont Know Can Hurt

You, in Marcus, A. A., Kaufman, A. M. and Beam, D. R. (e d s )B u s i n e s s S t r a t e g y a n d Pu b l f c Po t f c y p p . 1 9 5 -2 0 8 (Westport, CT; Greenwood Press, 1987).

Gray, 8. & Ariss, S. S., Political and Strategic Change Across Organizational Life Cycles, A c a d e m y o fM a n a g e m e n t R e v i e w (1985) pp. 707-723.

Gray, B., Donnellon, A. & Bougon, M. G., Organizations as Constructions and Destructions of Meaning,

J o u r n a l of Ma n a g e m e n t ( 1 9 8 5 ) pp. 83-98.Hambrick, D. C. & Finkelstein, S., Managerial Discretion: A Bridge Between Polar Views of Organizational

Outcomes, in Staw, B. M. and Cummings, L. L. (eds) R e s e u r c b n O rg u n i z a t i o n u l Bebavfor(Greenwich,CT: JAI Press, 1987).


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Harman. M. T. & Freeman, J., The Population Ecology of Organizations, American Journal o f Soc io l o g y

(1977) pp. 929-964.Rlesler, S. & Sproull, L., Managerial Response t o Changing Environment: Perspectives on Problem Sensing

from Social Cognition, A d m i n i s t r a t i v e S c i e n c e Qu a r t e r l y ( 1 9 8 2 ) pp. 548-570.Lorenzi, P., Sims, H. P. & Slocum, J. W., Jr, Perceived Environmental Uncertainty: An Individual or

Environmental Attribute, J o u r n a l o f Ma n a g e m e n t (1981) pp. 27-41.

Miller, D. & Droge, C., Psychological and Traditional Determinants of Structure, A d m i n i s t r a t i v e S c i e n c eQu a r t e r Iy (19 86 ) pp. 539-560.

Miller, D. & Friesen, P. H., Momentum and Revolution in Organizational Adaptation, A c a d e m y o fM a n a g e m e n t J o u r n a l (1980) pp. 591-614.

Miller, D. & Friesen, P. H. Innovation in Conservative and Entrepreneurial Firms, S t r a t e g i c Ma n a g e m e n tJ o u r n a l (1 9 8 2 ) pp. l-27.

Pfeffer, J. & llalancik, G. R. T h e E x t e r n a l Co n t r o l o f Or g a n i z a t i o n s : A R e s o u r c e De p e n d e n c e Pe r s p e c t i v e(New York: Harper and Row, 1978).

Quinn, J. B., S t r a t e g y f o r Ch a n g e : L o gi c a l I n c r em e n t a l i s m (Homewood, IL: Irwin, 1980).Smircich, L & Stubbart, C., Strategic Management in an Enacted World, A c a d e m y o f Ma n a g e m e n t R e v i e w

(1 9 8 5 ) pp. 724-736.Starbuck, W. H., Organizations as Action Generators,American Soc io log i ca l Rev i ew ( 1983) pp. 91-102.Staw, B., Knee-deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action,

O rg a n i z a t i o n a l B e h a v i o r a n d H u m a n Pe r f o r m a n c e ( 1 9 7 6 ) pp. 27-44.Wartick, S. I_ & Christy, D. P., Issues Management: An Empirical Study of the Link Between IssuesIdentitlcation and Issues Analysis, paper presented at the Academy of Management Meeting, Chicago(August 1986).

Weick, K E., T h e S o c ia l Ps y c h o l o g y o f O rg a n i z i n g (Reading, MA: Addison-Wesley, 1979).

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