6. Aligning kontrollisysteemit to konteksti Flashcards
STRATEGY AND MANAGEMENT SYSTEMS
- How should we design our performance management system depending on what strategy we adopt?
- Corporate strategy basic options - related or unrelated diversification -> degree of interdependence between units and how to exploit synergies between interdependent units?
- Business strategy can be conceptualized in many ways
- Typical distinction in this literature is between cost leadership and differentiation, and how these require different emphasis on efficiency and innovation => implications on e.g. performance indicators in use
Mitä innovaatiot ovat?
INNOVATIONS = implementation of creative ideas within an organization
-> Create, select and implement
Mitä on creativity?
Creativity is a function of creative-thinking skills, expertise and motivation
CREATIVITY: INNOVATION RESEARCH
- Key finding: intrinsic motivation is much more important than extrinsic
- This does not promise much to accountants….
- However, if controls are perceived as a package containing various methods / tools / practices that are used to make sure organization achieve its objectives, there might be something in fostering creativity for designers of performance management systems
- Organizational culture is key <- e.g. clear goals
- Christensen (2003): organizational structure is one key attribute to make sure organizations continue to innovate
- Organic structure, flat / non hierarchical organizations
- Apple did not have divisions with P&L responsibility, they had only one P&L for the whole company
- Sony failed in portable music business because different divisions (responsible for their own profits) couldn’t get their act together
- Innovation managers / internal innovation coaches; someone at the top has responsibility, these appointments signal importance
- Lot of emphasis on communication
- Innovation related measures on every managers scorecards
- Rules and policies:
– Employee’s are allowed to pursue their own ideas as long as it has some connection to firm activities (Google 20% of time, 3M 15% of time)
– The # of personnel in any unit is not allowed to exceed e.g. 200 people
Mitä on OPEN INNOVATION?
Open innovation is a method of innovation …. which allows companies to essentially source some of their innovation efforts to outside parties, often through contests where individuals compete to develop the best solution to the innovation challenge the company has set
forth.
Käytännössä: Companies perform open innovation by essentially putting forth an innovation problem they are facing to the public and then inviting individuals to submit solutions to that problem.
Lue vaan aiheesta -> CREATIVITY: INNOVATION RESEARCH
E.g. Procter & Gamble
– Target: Half of the new ideas need to come outside the organization
– Own R&D further develop these ideas
– 35% of new products and 45% of product improvements are from these external sources
– P&G has doubled their success in innovations
Chesbrough: Introduce a company wide incentive system which reward for all external ideas company decides to utilize
Lue vaan: ACCOUNTING RESEARCH
- Fragmented in many ways
- Most of the early literature has not made a distinction between creation, selection and implementation
Lue vaan -> CREATIVITY: ACCOUNTING RESEARCH
Old paradigm: MCS inhibit innovation as they are based on different logics than creativity
– Creativity imply variations, exceptions, flexibility and uncertainty
– MCS imply routines, little variation and certainty (see Davila et al., 2009; Dunk, 2011)
– MCS hinder intrinsic motivation (see e.g. Adler & Chen, 2011)
– Personnel controls more effective than accounting and behavioural / action controls when task uncertainty is high (Abernathy & Brownell, 1997)
New paradigm emerging on the positive role of accounting and control (Davila, Foster & Oyon, 2009)
- Simons four levers of control to balance innovation and control
- Interactive use of controls related to innovativeness (e.g. Simons,1995; Davila 2000; Henri, 2006)
- Assumption: Effect of interactive use of MCS on innovation is due to increased communication
- Adler & Chen (2011) address the impact of controls on individual level motivation in the context of large-scale collaborative creativity (LSCC)
–> LSCC need both creativity and co-ordination
Lue vain –> CREATIVITY: ACCOUNTING RESEARCH –> Adler & Chen propositions:
- Adler & Chen propositions:
– The use of belief systems positively associated with identified motivation
– Enabling (coersive) use of boundary and diagnostic systems positively (negatively) associated with intrinsic and identified motivation
– The use of interactive controls positively associated with intrinsic and identified motivation
– Optimal mix of diagnostic and interactive controls positively associated with intrinsic and identified motivation
– Incentives combining individual-based and group-based component positively associated with intrinsic and identified motivation
CREATIVITY: ACCOUNTING RESEARCH
- The role of incentives in creativity (Steven Kachelmeier and his colleagues 2008, 2010)
- Laboratory experiments
- Creativity-based compensation improves average creativity ratings
- Creativity-weighted schemes produce same creativity, but lower quantity than quantity only schemes
- If all output is desirable, then using quantity only incentives produce better results
- If mediocre output is harmful, then rewarding both quantity and creativity serves better
Lue vain –> SUMMARY ON CREATIVITY
- Long standing debate about the role of controls in creativity still to be resolved
- Both innovation and accounting scholars have suggested the use of controls may also have positive effect
- There is also some evidence to support these claims, but there is still lot to be done to increase our understanding of the impacts of various controls (positive and negative) and the mechanisms that produce these creative outcomes
Lue vain -> SELECTION: INNOVATION RESEARCH
- Innovator’s Dilemma (Clayton Christensen, 1997) : New technologies cause great firms to fall
- Firms pay too much attention to current customers and their profitability and do not pay enough attention to new (disruptive) technologies
- One of the reasons relates to accounting: new disruptive technologies do not seem big / profitable enough at the outset
- This would suggest accounting is counterproductive in disruptive innovations, but has value in innovations in sustaining technologies
Lue vain -> SELECTION: ACCOUNTING RESEARCH
- Accounting research has not paid much attention to selection criteria in the studies of innovation
- Bisbe & Otley (2004), in their literature review, discuss the role of accounting in blocking innovation excess
- We teach capital budgeting techniques => we may ask e.g. what is, or could be, the role of real-option
modelling techniques in selecting among innovative ideas
Lue vain -> IMPLEMENTATION: INNOVATION RESEARCH
- Innovator’s solution, Christensen, (2003)
- Resources (people), processes (patters of interaction, coordination, communication, and decision making; the most crucial ones are enabling processes that support investment decisions), values (how employees make prioritization decisions; e.g. by requiring certain gross profit margin)
- Be patient for growth, be inpatient for profits
Lagging indicators, typically on the basis of market or financial performance.
– E.g. the percentage of sales coming from products introduced in the past several years; ‘time to profit’
Leading indicators, which measure process input quality and/or quantity, or factors conditioning innovation.
– The number of patents issued and granted; the percentage of R&D spent on long term, high-risk/high-impact projects
In-process indicators, which measure process quality in terms of deliverables and time or cost compliance.
– E.g. the number of non-value-adding changes in projects past a certain point; the % of project review gates passed according to schedule
Learning indicators, which measure the improvement rate on critical performance targets for the business.
– the product stabilization period (from launch until quality and performance meet expectations); the ‘half-life’ of a specific improvement
Lue vain -> IMPLEMENTATION: ACCOUNTING RESEARCH
- In this phase much less disagreement - Management control can have a positive impact
– provides structure to convert creativity into value (Davila & Ditillo, 2011; Chapman 1998)
– Translate ideas into action (Chenhall, 2003) - MCS are used during new product development projects to reduce uncertainty (Davila 2000)
- MCS perceived as systems to support decision-making as opposed to systems to reduce goal divergence problems
- When MCS provide information directed towards coordination and learning, they affect performance in positive way (e.g. Koga & Davila, 1998; Nixon 1998)
