The Effects of Strategy–Management Control System Misfits on Firm Performance

Abstract

The purpose of this study is to investigate the effects of misfits between business strategy and management control systems on performance. We address the following research question: Do firms that align their management control systems with the specific requirements of their business strategy perform significantly better than those that do not achieve the required match? We define a misfit as the degree to which management control systems deviate from empirically derived optimal configurations for a given type of business strategy. We use the two-stage approach proposed by Ittner and Larcker (2001) to measure misfit and to investigate the impacts of misfit on performance. Based on a questionnaire survey of executives from 109 banks, we hypothesize and find that the strategy-control systems misfit has a significantly negative correlation with both self-rated and publicly available performance measures. RÉSUMÉLes auteurs ont pour but d'analyser les re´percussions qu'ont sur la performance les inade´quations entre les strate´gies d'entreprise et les syste`mes de controˆle de gestion. Ils se penchent sur la question suivante : « Les entreprises qui coordonnent leur syste`me de controˆle de gestion avec les exigences particulie`res de leur strate´gie d'entreprise affichent-elles une performance sensiblement meilleure que celles qui n'y parviennent pas ? » Selon les auteurs, l'inade´quation s'entend de la mesure dans laquelle les syste`mes de controˆle de gestion de´vient des configurations « optimales » de´rive´es de l'expe´rience, pour un type donne´de strate´gie d'entreprise. Ils utilisent l'approche en deux temps propose´e par Ittner et Larcker (2001) pour mesurer l'inade´quation et pour e´tudier les re´percussions de l'inade´quation sur la performance. À la lumie`re d'un sondage par questionnaire mene´aupre`s de cadres supe´rieurs de 109 banques, ils confirment l'hypothe`se formule´e selon laquelle l'inade´quation entre strate´gie et syste`me de controˆle pre´sente une corre´lation ne´gative significative avec les mesures de la performance, tant lorsque cette dernie`re est auto-e´value´e que lorsqu'il s'agit d'une donne´e accessible au public.

Exploring The Relationships Between Environmental Uncertainty, Business Strategy and Management Control System on Firm Performance

“…Arachchilage and Smith, (2013) found that the moderating effect created by the diagnostic use of MCS is more significant when the cost leadership strategy is used for performance. Gani and Jermias (2012) found that the strategy-control systems misfit has a significantly negative correlation with both self-rated and publicly available performance measures. Results revealed that diagnostic use of performance measurement system negatively influence only the organisational learning, while the interactive use positively interacts with most of the capabilities.…”

Materializing Strategy: The Role of Comprehensiveness and Management Controls in Strategy Formation in Volatile Environments

“…TMs' expectations are communicated by the MCs in use, which direct employee attention (Floyd and Lane, ; Jaworski and MacInnis, ). Both forms influence employee behaviour and consequently the degree to which goal congruence can be achieved (Gani and Jermias, ). There is a strong relationship between the MCs used, strategy processes and performance (Daft and Macintosh, ; Jaworski, Stathakopoulos and Shanker, ; Marginson, ).…”

“…Prior research into MCs suggests that in times of uncertainty there is the requirement to combine more formal controls with more interpersonal and flexible control approaches (Chenhall, ). MCs provide the stability necessary to meet the needs of efficiency, whilst simultaneously creating an information environment that permits MMs to envision and respond to new organizational opportunities (Gani and Jermias, ).…”

Loyalitas Nasabah Dan Kinerja Perbankan Di Indonesia

“…Beberapa penelitian menunjukkan bahwa indikator ukuran kinerja non-keuangan yang penting pada bank adalah kepuasan pelanggan (Venkatraman & Ramanujam, 1987;Rhee & Mehra, 2006;Gani & Jermias, 2012). Oleh karena salah satu indikator penyusun IBLI adalah kepuasan pelanggan, maka penelitian ini menggunakan IBLI tahun berikutnya sebagai proksi ukuran kinerja non-keuangan.…”

“…Penelitian sebelumnya seringkali hanya menggunakan ukuran kinerja finansial saja (Ittner & Larcker, 1998;Fornell et al, 2006;Leo et al, 2009). Sesuai dengan Gani & Jermias (2012), penelitian ini menggunakan 4 variabel kinerja finansial yang didasarkan pada angka akuntansi (accounting-based) yang juga digunakan oleh Bank Indonesia untuk mengevaluasi kinerja bank di Indonesia. Keempat variabel tersebut adalah return on assets (ROA), return on equity (ROE), net interest margin (NIM), dan non-performing loans (NPL).…”