The Effects of Interactions between Management Control Systems and Strategy on Firm Performance: An Empirical Study

Abstract

system (ICS) and differentiation strategy (DS) is associated with high firm performance and that high interaction between diagnostic control system (DCS) and cost leadership strategy (CS) is associated with high firm performance.Keywords: Business Strategy, Diagnostic Control System, Interactive Control System, Financial Performance, NonFinancial Performance, General Firm Performance, Factor Analysis, Logistic Regression Analysis JEL Classification: M10, M40 IntroductionIt is a natural phenomenon for firms to determine a strategy for being successful and, in this manner, to monitor their own operations and activities that they want to realize. The environment of global competition has made firms more effective regarding this issue. Now more than ever, firms should produce with lower costs and more flexibly and should focus on improvement of their operational processes. As a result, firms can make a difference in realizing their strategies compared to their competitors. In an environment of global competition, making a difference means having good management control system (MCS) that is suitable for the strategy (Langfield-Smith, 1997;Simons, 1987).According to research, the presence of a net strategy is necessary but not sufficient. Strategy should be supported with different resources and skills, supportive organizational arrangements and control systems (Hyvönen, 2007:345). MCS can play a key role in strategy implementation by helping to translate organizational strategy into desired behaviours and results, communicating expectations, monitoring progress, providing feedback, and motivating employees through performance-based rewards

SMEs Managers’ Perceptions of MCS: A Mixed Methods Approach

“…However, nearly half of those in the study do not use a MCS (Table 1) that is probably due to their lack of resources and capabilities (Albizu et al, 2017;Kafetzopoulos, 2020). Most SMEs in the study have a formal strategy on how to achieve their goals (Eker & Eker, 2016), and they communicate that strategy and objectives to their employees (Albertini, 2019). The average annual turnover per company is between 2 and 10 million euros, and the number of employees is typically be-…”

“…An MCS provides processes for managers to engage with resources required to accomplish an organization's goals (Langfield-Smith, 1997). Thus, in order for organization's to achieve these goals, they need the MCS to be compatible with their strategies (Eker & Eker, 2016). Additionally, Duréndez et al (2016) and Szutowski (2020) propose that MCS allow managers to plan, analyze, measure, and evaluate financial information essential to decision-making.…”