Article Review: ACCOUNTING CONTROL SYSTEM AND BUSINESS STRATEGY AN EMPIRICAL ANALYSIS

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    ACCOUNTING CONTROL SYTEMS

    AND BUSINESS STRATEGY: AN

    EMPIRICAL ANALYSIS

    BY ROBERT SIMONS

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    I N T R O D U C T I O N

    This research investigate therelationship between business strategyand accounting-based control system

    Two classes of variables: controlsystem attributes and businessstrategies

    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

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    Khandwalla (1972) Effect of Different Types of

    Competition on the Use ofManagement Controls, Journalof Accounting Research

    Tushman & Nadler (1978) Information Processing as an Integrating

    Concept in Organizational Design, Academyof Management Review

    Kamm (1980) The Balance of Innovative Behavior and

    Control in New Product Development

    Miller & Friensen (1982) Innovation in Conservative and

    Entrepreneurial Firms, StrategicManagement Journal

    P R E V I O U S S T U D I E S

    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

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    T H E O R Y

    Control Systems Attributes formalized procedures and systems that use information to

    maintain in organizational activity.

    Examples of control systems attributes include : tightness of budgetgoals, use of cost control, frequency of reporting, and intensity ofmonitoring performance results.

    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

    Strategy

    Miles&Snow identified 3 generic strategies which labeledProspector, Defender, and Analyzer. Defenders: operate in stable products areas, offer more

    limited products than competitors, compete through costleadership, quality, & service.

    Prospectors: compete through new products & marketdevelopment. Product lines change over time and this typeof firms is constantly seeking new market opportunities

    Analyzers: combine parts of both Defender and Prospectorsstrategies

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    H Y P O T H

    E S I S

    Ho: Control system attributes do

    not differ between Prospectorfirms and Defender firms

    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

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    Externalassessments byexperts method

    (Snow& Hambrick)

    76 manufacturingfirms which

    completed anreturned the

    questionnaire andagreed to provideddata for this study

    Interview wereconducted withsenior general

    managers in two to

    three hours anddiscussions were

    tape recorded

    The interviewfocused in thestrategies followedby firm on the useof control system

    within the firm

    33 Likert-typescales, 10 factors (F1) Tight budget goals (F2) External scanning

    (F3) Result monitoring (F4) Cost control (F5) Forecast (F6) Goals related to

    output effectiveness (F7) Reporting

    frequency

    (F8) Formula-basedbonus remuneraton

    (F9) Tailored controlsystems

    (F10) Control systemchangeability

    M E T H O D O L O G Y

    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

    SampleSelection Interviews Measures

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    D I S C U S S I O N

    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

    So, Ho can be rejected: Control system attributes doindeed differ between Prospector firms and

    Defender firms

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    ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYSIS

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    C O

    N C L U S I O N

    Firms following different strategies do indeed employ accountingcontrol system in different ways and offers some preliminaryconclusions concerning the attributes which may differ according tostrategy.

    Two strategic firm types identified for this study, Prospector andDefender, appear to be valid an common strategies.

    This study considers control attributes which differ betweenProspectors and Defenders, and provide evidence concerning

    control systems in the two types of firms. High performing Prospectors seems to put more attention to

    forecast data in control systems, setting tight budget goals, andmonitoring outputs carefull.

    For Prospectors, cost control is reduced. Large firms tend to reportfrequently and use uniform control systems which are modifiedwhen necessary.

    Defenders, especially large firms, use their control system lessintensively. They give bonus remuneration based on the

    achievement of budget targets and tended to have little change intheir control systems. ACCOUNTING CONTROL SYTEMS AND BUSINESS STRATEGY: AN EMPIRICAL ANALYS