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What management control attributes

characterize successful SMEs?

A case study of an adolescent SME in South Africa

University of Cape Town - Graduate School of Business

Masters in Business Administration – 2011/2012

Thesis – Management Control Systems

Author: Rolam AIT-SI-BIROUK

Tutor: Enrico ULIANA

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Abstract

In this research, the author examines the Management Control Systems (MCS) deployed by a

successful SME in South Africa. Using Malmi & Brown (2008) framework of “MCS as a

package”, the author draws a typology of the MCS used in the company in order to

understand which form of controls are more conducive to the success of an SME. Several

employees of the firm were interviewed and their responses complemented with field

observations. The author found that cultural and administrative form of controls were the

most prevalent and powerful form of controls in the company.

Keywords

SME, management control systems, Adizes, corporate life cycle, South Africa, MCS as a

package

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Table of contents

Abstract ................................................................................................................................. - 2 -

Keywords .............................................................................................................................. - 2 -

Abbreviations ........................................................................................................................ - 5 -

Statement of original authorship ........................................................................................... - 5 -

Acknowledgments................................................................................................................. - 5 -

1. Introduction ....................................................................................................................... - 6 -

1.1 Background to the research ......................................................................................... - 6 -

1.2 Research problem and justification for the research ................................................... - 6 -

1.3 Outline of the report .................................................................................................... - 7 -

1.4 Delimitations of scope and key assumptions .............................................................. - 7 -

1.5 Research ethics ............................................................................................................ - 8 -

2. Literature review ............................................................................................................... - 8 -

2.1 On SMEs and their condition in South Africa ............................................................ - 8 -

2.2 On management control systems ............................................................................... - 13 -

2.3 MCS as a package ..................................................................................................... - 15 -

2.4 Management control systems in SMEs ..................................................................... - 19 -

2.3 Conclusion ................................................................................................................. - 23 -

3. Methodology ................................................................................................................... - 25 -

3.1 Introduction ............................................................................................................... - 25 -

3.2 Justification of the methodology ............................................................................... - 25 -

3.3 Criteria for case selection .......................................................................................... - 26 -

3.4 Case study procedures ............................................................................................... - 27 -

3.4.1 Gathering of primary data................................................................................... - 27 -

3.4.2 Gathering of secondary data ............................................................................... - 28 -

3.5 Limitations of case study research and how they were handled ............................... - 28 -

4. Analysis of data............................................................................................................... - 31 -

4.1 Introduction ............................................................................................................... - 31 -

4.2 Description of the case and context ........................................................................... - 31 -

4.3 The Company and Adizes (1979) life cycle .............................................................. - 35 -

4.4 MCS as a package and respondents .......................................................................... - 37 -

4.4.1 Planning .............................................................................................................. - 37 -

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4.4.2 Reward and compensation .................................................................................. - 39 -

4.4.3 Cybernetic controls ............................................................................................. - 41 -

4.4.4 Administrative controls ...................................................................................... - 42 -

4.4.5 Cultural controls ................................................................................................. - 43 -

4.4.6 The importance of the founder ........................................................................... - 45 -

4.4.7 The Company’s strengths and weaknesses ......................................................... - 46 -

5. Conclusions and implications ......................................................................................... - 48 -

5.1 Introduction ............................................................................................................... - 48 -

5.2 Conclusions about the research problem ................................................................... - 48 -

5.3 Limitations ................................................................................................................ - 49 -

5.4 Further research ......................................................................................................... - 49 -

References ........................................................................................................................... - 50 -

Appendices .......................................................................................................................... - 56 -

Appendix A: Guiding questionnaire ............................................................................... - 56 -

Appendix B: Interviews schedule ................................................................................... - 58 -

 

   

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Abbreviations

BDM Business Development Manager

CFO Chief Financial Officer

HR Human Resources

HSE Health Safety Environment

HOD Head of Department

JD Job Description

MCS Management Control Systems

MD Managing Director

OPS Operations

QMS Quality Management System

SME Small and Medium Enterprises

SMME Small, Medium and Micro Enterprises

SMT Senior Management Team

Statement of original authorship

I hereby confirm that I have independently composed this Master thesis and that no other

than the indicated aid and sources have been used. This work has not been presented to any

other examination board.

Acknowledgments

The author would like to thank all the people who have directly and indirectly helped with

this research. The author would also like to express his fondest gratitude to the employees of

the company studied for their patience, understanding and time. It is thanks to the nine

respondents that this research has been possible.

The author would also like to show his appreciation to Professor Enrico Uliana for his

guidance and support throughout the process.

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1. Introduction

1.1 Background to the research

Small and medium enterprises (SMEs) seem to have become the panacea of all the world

economic troubles. With sluggish growth, rising unemployment and dropping

competitiveness (in the case of the developed economies), countries, and South Africa in

particular, see SMEs as the silver bullet for all their problems (Mahembe, 2001; Storey, 2000;

Knight, 2001; Lubatkin, Simsek, Ling & Veiga, 2006 and Radas & Bozic, 2009).

Unfortunately, the statistics are not optimistic. Littunen, Storhammar & Nenonen (1998),

Lebrasseur, Zanibbi & Zinger (2003), Maas & Herrington (2006), Fatoki & Garwe (2010)

and Fatoki & Smit (2011) provide important information on the viability of SMEs. They all

indicate that most SMEs die within the first 36 months of incorporation. Rwigema & Venter

(2004) quoted a South African survey on SMEs that showed that between 70% and 80% of

SMEs fail within 5 years.

Whilst there are substantial academic efforts in understanding the poor rate of success of

SMEs, this study will examine what are the characteristics displayed by thriving SMEs. This

paper is especially interested in the management control systems (MCS) deployed by those

SMEs that are not only surviving but also growing despite the tough environment. Perren,

Berry & Partridge (1998), Lubatkin et al. (2006), St Pierre & Delisle (2006), and Fatoki &

Smit (2011) are convinced that the lack of adequate MCS contribute to the demise of SMEs.

1.2 Research problem and justification for the research

Davila & Foster (2007) found that formal MCS were a prerequisite for the survival of start-up

beyond a critical point. Looking at the performance of a sample of start-up companies they

concluded that the implementation of a formal MCS in a start-up increased its chance of

success. Contrary to traditional beliefs that controls inhibit innovation, Davila, Foster &

Oyon (2009) explain that MCS can actually behave as catalyst for innovation through the

process of objective-settings, the measurement of performance, and the rolling out of

performance-based compensation schemes.

The question this study asks is what are the MCS attributes of these successful SMEs?

Merchant & Van der Stede (2003), Davila (2005), Merchant & Otley (2005) and Malmi &

Brown (2008) all point towards the complexity of MCS. According to these authors, MCS

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have both formal and informal levers, operate on multi layers of the firm structure, and are

often part of a system characterized by feedback loops involving the information systems, the

cultures, the behaviour, etc. Furthermore, Adizes (1979) supported by Gibson & Birkinshaw

(2004) and Levinthal & March (1993) indirectly offers that MCS are also function of the

stage in the life cycle of the firm. The research question is therefore important but also very

complex to unpack.

The study will follow a qualitative approach using a single case study methodology. Primary

data have been collected through semi-structured interviews in order to gather valuable

information from the individuals who manage the firm whilst secondary data have been

obtained from a comprehensive literature review, existing company information, internal

procedures and guidelines, and observations.

1.3 Outline of the report

The study is designed as follows. The second chapter will present a literature review of the

key constructs the study will seek to research. In this chapter, the researcher will introduce

definitions of SMEs together with their situation in South Africa, present the main theoretical

frameworks surrounding MCS with an emphasis on “MCS as a package”. The third chapter

will unpack the methodology of the research. The analysis of the interviews will be presented

in chapter four. These results will be synthetized and compared against the existing

theoretical structures. Finally, the research question will be answered and further potential

researches will be introduced.

1.4 Delimitations of scope and key assumptions

The first limitation of the study is the size of the site. The research is about SME raising the

question of the definition of SME. Notwithstanding the comprehensive literature review on

SME which will follow, the researcher defines a SME as a company that has less than 150

employees and the influence of the entrepreneur/creator is still vivid.

The study will focus on a SME that has reached the adolescent stage as presented by Adizes

(1979). This assumes that the firm has successfully survived the first few years of its

existence and is not at a start-up phase. Following Rwigema & Venter (2004), the SME needs

to be older than 5 years old.

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The study is interested in SMEs that are operating in a complex and dynamic environment as

opposed to a predictable and fairly stable one. Complex and dynamic environments are

characterized by a high level of uncertainty i.e. risk but growing rewards.

The goal of this study is therefore to describe and understand what the MCS attributes of a

successful SME are.

1.5 Research ethics

The research has been conducted conscientiously and transparently. The selected firm and its employees were advised of the purpose of the research. All the staff interviewed have clearly been informed about the aim of the study prior to engaging the questioning.

The name of the company and of its employees together with their function will be kept confidential. Furthermore, the employees interviewed have been offered the opportunity to read the research report.

In line with the University of Cape Town’s ethic policy, an ethical clearance for research form has been signed by the researcher.

2. Literature review

2.1 On SMEs and their condition in South Africa

Defining Small and Medium Enterprises (SMEs) is paramount not only for the good running

of this study but also for policy makers who seek the adequate development and application

of economic and financial policies to support the development of SME. Several countries

around the world, trying to spur economic growth, have realized the importance of SMEs for

the development of their economy (Fatoki & Smit, 2011; Varinton, Nazrul & Uday 2009;

Mahembe, 2011; Radas & Bozic, 2009). As such, governments run pluri-annual programs

with the goals of encouraging entrepreneurship, supporting nascent enterprises and providing

internal demand that will fuel the SMEs appetite for growth. Throughout the western world,

they are now seen as a catalyst for job creation, innovation and the silver bullet of economic

growth.

It is therefore primordial that policy makers adequately define the recipient of funds, support

or other tax breaks failing which their efforts will be in vain.

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Whilst it is generally accepted that SMEs are defined as organisations of restricted size

(especially compared against larger entities) i.e. reduced number of employees, limited

material and technical resources, and abridged access to financial means, a review of the

literature show that there is no single, uniform definition. Most definitions combine a

statistical (often the size of the workforce) and an economical (turnover, balance sheet)

element.

For Lubatkin et al. (2006), SMEs are firms that employ between 20 and 500 employees and

are older than start-ups (i.e. older than 24 months old). For the authors, SMEs face the same

competitive pressures as larger organizations do to jointly pursue exploitation and exploration

growth and are playing an important role in countries economic tissue.

The European Commission considers as SMEs, organizations that meet any of the following

criteria:

Definition of SMEs

Enterprise category Employees Turnover Balance sheet total

Medium sized < 250 ≤ € 50m ≤ € 43m

Small sized < 50 ≤ € 10m ≤ €10m

Table 1: Definition of SMEs according to the European Commission Report (2005)

In South Africa, a ‘small business’ is officially defined in Section 1 of the National Small

Business Act of 1996 (amended by the National Small Business Amendment Acts of 2003

and 2004 (NSB Act) as):

“A separate and distinct business entity, including co-operative enterprises and

nongovernmental organisations, managed by one owner or more which, including its

branches or subsidiaries, if any, is predominantly carried on in any sector or sub sector

of the economy mentioned in Column I of the Schedule14... ”.

Falkena, Abedian, Von Blottnitz, Coovadia, Davel, Madungandaba, Masilela & Rees (2001)

classified South African Small, Medium and Micro Enterprises (SMMEs) based on the

definition set forth in the National Small Business Act. The table below shows their

classification:

SMMEs definition

Enterprise size Employees Turnover Gross assets

Medium < 100 < ZAR50m < ZAR18m

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Small < 50 < ZAR25m < ZAR4.5m

Very small < 20 < ZAR500K < ZAR500K

Micro < 5 < ZAR150K < ZAR100K

Table 2: SMMEs definition according to the South African National Small

business act (Falkena et al., 2001)

The United Nations Industrial Development Organization (UNIDO) released a booklet in

2007 aimed at the development of SMEs throughout the world. The organization, whilst

acknowledging the difficulty to clearly define SMEs, laid down a list of qualitative

characteristics often found in SMEs.

Category SMEs Large firms

Management Proprietor entrepreneurship

Functions-linked personality

Manager-entrepreneurship

Division of labour by subject matter

Personnel Lack of university graduate

All round knowledge

Dominance of university graduate

Specialisation

Organisation

Sales

Buyer’s relationship

Production

Research and development

Highly personalized contacts

Competitive position not defined and

uncertain

Unstable

Labour intensive

Following the market, intuitive approach

Highly formalised communication

Strong competitive position

Based on long- -term contracts

Capital intensive

Economies of scale

Institutionalised

Finance Role of family funds

Self-financing

Diversified ownership structure

Access to anonymous capital market

Table 3: Characteristics found in SMEs and Large firms according to United Nations Industrial Development

Organization (UNIDO, 2007)

In his literature review, Mahembe (2011) compiled a list of SME definitions found from

various sources. The list has been synthetized below and amounts converted into South

African Rand for easier comparison.

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Table 4: characteristics of SMEs in selected countries (Mahembe, 2011)

Whilst the spread between the above definitions is surprising, it certainly translates the level

of economical maturity achieved by the respective economies and the resources available as

well as gives an idea about the policies developed and implemented in these regions.

The spread mentioned above also highlights the limits of clearly defining SMEs. For

example, when does an SME cease to be an SME? Also, the question of the economic and

industrial contexts within which the organization operates, albeit extremely influential for the

set-up and the structure of the entity, is often ignored.

Knight (2001) explains that whilst SMEs face the same environment as larger organizations

do, the challenges are more arduous. SMEs tend to have limited amount of resources and

capabilities and have less influence on their markets than larger counterparts do. So not only

have SMEs an handicap to access or even create markets, they are also more susceptible to

changes to the “forces of globalization” i.e. contracting trade, foreign exchange risks,

investment barriers, etc.

Nevertheless, SMEs do have some advantages compared to their larger counterparts. Thanks

to their smaller sizes, they are less limited by bureaucracy and by restrictive information

systems (Verity, 1994; Covin & Slevin, 1989; Pelham & Wilson, 1995). SMEs often display

more agility than larger companies, show faster response times to market changes, adopt new

technologies earlier and are as, if not more, innovative than bigger outfits (Knight, 2001).

Storey (2000), Knight (2001), Mahembe (2001), Lubatkin et al (2006), Katz and Green

(2007), Julien (2008), Fatoki & Garwe (2010) and Fatoki & Smit (2011) provide recurring

characteristics that help drawing a typology of SMEs.

1. SMEs are more agile than larger organisations. They respond to market changes and

adopt new technologies more easily and faster.

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2. SMEs are resources constrained especially financial resources.

3. Decisions are made quicker and faster in SMEs than in larger companies i.e. less

bureaucracy and fewer people involved.

4. The entrepreneur who started the venture profoundly shapes the organisation, the

structures and systems.

5. SMEs often do not display systematic and rational tools to deal with risk and

uncertainty.

6. SMEs are highly focused on few products/services and few markets/customers and

are therefore highly susceptible to market shifts.

7. SMEs planning horizons are often narrow due to the necessity to cash opportunities

quickly and due to the limits of their management systems.

As in most emerging economies, the SMEs landscape in South Africa is very diverse and

ranges from informal organisations motivated by necessity (such as street hawkers, taxis and

restaurants) to medium structures that have an international reach.

In South Africa, the statistics surrounding SMEs are difficult to get by and often subject to

inaccuracies. Whilst, the Ntsika Enterprise Promotion Agency (Ntsika) publishes an official

report every year on the “state of small business in South Africa”, Berry, Von Blottnitz,

Cassim, Kesper, Rajaratriam & Van Seventer (2002) claim that the report provides, at best,

an estimation about the trends of the official and recorded data which brings to fore the

question of the informal sector which may represents two third of SMMEs according to the

authors.

Comparing different public and private sources released between 1999 and 2001, Berry et al.

(2002) concluded that the information concerning SMEs should be considered carefully and

not blindly trusted. They nevertheless pointed that the very small enterprises are

overwhelming in numbers (around 1.2 and 1.8 million businesses) and probably represent

between 69% and 80% of all SMMEs.

Fatoki & Smit (2001), using the 2008 Global Entrepreneurship Monitor (GEM) report,

concluded that the survival rate of South African SMEs is lower than any other GEM country

and that the new firm creation rate in South Africa is lower than what is expected for a

country at its stage of economic development. Fatoki & Garwe (2010) and Fatoki & Smit

(2011) refer to an Ntsika report from 2002 which claims that South African SMEs contribute

56% of private sector employment and 36% of GDP. The authors are also of the opinion that

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“without the creation of new SMEs, South Africa is likely to stagnate and decline

economically and social problems such as crime and corruption are likely to increase”.

This view is nevertheless not embraced by Berry et al. (2002) who argue that SMEs have not

delivered the fruits anticipated by the South African policy makers. Fatoki & Garwe (2010)

explain that the growth targets set forth by the South African government for the period

2004-2014 will most likely not be reached. The authors write that whilst SMEs tend to grow

faster than the host economy, in South Africa most SMEs are created by necessity (i.e. last

resort) and therefore tend to not grow at all.

2.2 On management control systems

Davila (2005) reminds us that the absence of adequate management tools such as MCS has

been claimed to be restricting the growth of firms sometimes causing them to fail. Davila

(2005) also argues that MCS provide a controlled by exception environment that allow

management to focus their attention and that release structured information when the

“informal network is overloaded”.

The definition and the scope of MCS are moving targets. Fisher, (1998); Bisbe & Otley

(2004), Bisbe, Batista-Foquet & Chenhall (2007), Merchant & Otley (2005), and Berry,

Coad, Harris, Otley & Stringer (2008) all provide a dense review of the concept and

definition but all note the complexity of the notion and the difficulty to embrace a holistic

description.

Anthony (1965) was the first one to define management control systems. For him, MCS was

the process by which management sourced the adequate resources and processed them in

order to effectively and efficiently accomplish the organisation’s objectives. Anthony’s view

was somewhat narrow and mechanistic. Using a Cartesian approach, he considered the firm

as a simple “machine” whereby to understand the mechanic of the whole, it is sufficient to

understand the mechanic of the part.

Simons (1994) defined MCS as “the formal, information-based routines and procedures

managers use to maintain or alter patterns in organizational activities”.

Merchant & Van der Stede (2003) incorporated a behavioural component in their definition

of MCS. Somewhat aligned with Flamholtz (1983), they discuss the necessity of management

controls to monitor and channel the efforts of employees toward formal goals. The authors

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write that as not all employees can be relied upon to do what is best for the firm; MCS are

required to direct their actions and behaviours. Using Hambrick (1994) concept of

“behavioural integration”, Lubatkin et al (2006) consider that an interactive and cohesive

management team is better able to orchestrate the firm’s collective and task processes,

including the quality and speed of information flow and joint decision making. The writers

are of the opinion that behavioural integration directly influences the performance of the top

management team henceforth of the firm.

Van Caillie, Santin, Crutzen & Kabwigiri (2006) describe management control system as the

sum of all the components that are inter-related (processes, guidelines, rules, structures),

formal and informal and interdependent from one another, set up and maintained by the

entrepreneur to form a unified whole.

Merchant & Otley (2007) seem to adopt the widest definition of all when they write that the

management control system of a company encompasses all aspects of the organisation. The

authors wrote that MCS can incorporate almost all the levers that management can pull to

source, allocate and manage resources in order to achieve the firm’s objectives. The authors

claim that practically everything in the organization could be associated with the overall

control system.

Malmi & Brown (2008) differentiate between MCS and decision support systems. They

explain that MCS incorporate all the “devices and systems” that management use to direct

and nudge behaviours and choices of the employees towards the organization’s goals. The

corollary being that if a system does not help managers affecting employees’ behaviour, then

that system is not a MCS.

The study will follow Malmi & Brown (2008) and Merchant & Otley (2007) notion that MCS

is a holistic concept that encompasses the devices, means, tools, mechanisms, systems and/or

processes provided that these can be clearly identified and contribute towards the

management of the firm and the reaching of the goals. As such, the MCS of a firm can be

considered as a system made of smaller but interrelated control devices and systems.

Fischer (1998), Van Caillie et al. (2006) and Sandelin (2008) present MCS as a “package”,

made of interrelated management control elements, that functions only if the relationships

between the elements are satisfactory. Malmi & Brown (2008) explain that whilst the concept

of MCS as a package has been in existence for over thirty years, there has been little

empirical work done on the topic. The difficulty with MCS as a package is that the concept is

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a complex one involving several individual elements (Enterprise Resource Planning,

Accounting systems, cultural frameworks, organizational structure, etc.) that are in systematic

interaction with each other (Teittinen, Pellinen, & Järvenpää, 2012). As such, Malmi &

Brown (2008) argue that most of the MCS researches contemplate single themes which are

considered unconnected from each other and from their environment. Malmi & Brown (2008)

pointed out that MCS are intrinsically difficult to examine due to their complexity and their

size.

By missing systemic relationships between elements and between elements and their

environment, researches reach, at best, incomplete results or, at worse, erroneous conclusions

(Malmi & Brown, 2008). Dent (1990) expresses the same reservations.

This study will also embrace Malmi & Brown (2008) conception of MCS as a package. The

reason for following their definition is because they emphasize control and therefore exclude

systems, tools and processes that solely support decision making. The following paragraph

will present the concept of MCS as package in more detail.

2.3 MCS as a package

Figure 1: MCS as a package (Malmi & Brown, 2008)

Planning:

Supported by the findings from Flamholtz, Das & Tsui (1985), Malmi & Brown (2008)

explain that planning is an “ex ante form of control”. According to the authors, planning not

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only determines the objectives of the organization hence “directing effort and behaviour”

towards particular goals, planning also provides yardsticks or benchmarks to be achieved and

also helps facilitating coordination between functional structures within an organization.

Planning henceforth contributes towards regulating and directing the activities of the

individuals ensuring their alignment with the organization ultimate goals. Contrary to

Merchant & Van der Stede (2007), Malmi & Brown (2008) explain that planning does not

only cover financial aspects of the firm’s management. Indeed, planning, whether strategic or

operational, provide directions and insights on what to do, when, how, by whom and the

anticipated outcomes.

Cybernetic controls:

Malmi & Brown (2008) recall Green & Welsh (1988) definition of cybernetic controls:

“a process in which a feedback loop is represented by using standards of

performance, measuring system performance, comparing that performance

to standards, feeding back information about unwanted variances in the

systems, and modifying the system’s comportment”.

Malmi & Brown (2008) nevertheless make a distinction between a system that allows a

manager to address a variance without anyone else’s involvement (information and decision

support system) and a system which demands a linkage between behaviour and targets, and

the instituting of accountability for variations in performance (cybernetic system). The

authors also explain that a cybernetic control can take four shapes i.e. budgets, financial

measures, non-financial measures, and hybrid systems made of financial and non-financial

measures such as balance scorecards.

Budgets are ubiquitous and often are one of the pillars of the firms’ MCS. Hansen, Otley &

Van der Stede (2003) explain that the reason for budgets to be as prevalent as a MCS is

because they funnel all the forces of an organization, integrate processes, facilitate the

resource allocation and foremost contribute to plan the required individual behaviours and

performance.

Financial measures systems include those measures that are used to drive and reward certain

behaviours but that are narrower than budget and can be targeted e.g. accounts receivable

collection, economic value added (EVA), return on investment, etc.

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Malmi & Brown (2008) suggest that non-financial measures are increasing in importance as a

result of the limitations of financial measures. Examples of such non-financial measures are

transit time in transportation companies, total quality management (TQM), employee

retention, etc.

Hybrid systems are made of financial and non-financial systems. The most commonly used

hybrid system being the balance scorecard (BSC).

Reward and compensation controls:

These controls are directing towards individuals and group of individuals with the aim to

motivate them and increase their performance ensuring congruence between their actions,

behaviours and goals with those required by the firm. Basing their views on Bonner &

Sprinkle (2002), Malmi & Brown (2008) explain that the prospect of rewards contributes to

additional efforts from employees which lead to improved performance.

Bonner & Sprinkle (2002) further explained that extrinsic (monetary) incentives lead to

improved performance through three channels: focusing the efforts of the individual,

increasing the duration of the efforts and intensifying the efforts on the task.

Administrative controls:

Malmi & Brown (2008) explain that the administrative controls help management align and

monitor behaviours, set accountability levels, organize tasks and set standards of

performance.

The authors identify three kind of administrative controls: “organisation design and

structure”, “governance structures within the firm”, and “procedures and policies”.

The organisation and the design of the firm are powerful forms of control. Flamholtz (1983)

and Malmi & Brown (2008) argue that through “functional specialization”, organizational

design enhance control through “reducing the variability of behaviour and, in turn, increasing

its predictability”. Whilst several researchers consider the firm’s design as part of the

environment and the context, Malmi & Brown (2008) consider it as variable that managers

can adjust.

The governance structure of the firm refers to the structure and mechanism of the board of

directors as well as the different management and functional teams. The governance structure

contributes towards the controlling of the firm through a battery of levers, formal and

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informal, such as the different levels of authority, the accountability matrix, functional

meetings, agendas, etc.

Policies and procedures often appear to be among the strongest control tools in the kit of the

management team. In his toolbox, the manager will find standard operating procedures,

policies, guidelines and rules. Merchant & Van der Stede (2007) refers to these levers as

“action controls, i.e. behavioural constraints, pre-action reviews, and action accountability”.

Cultural controls:

Flamholtz et al. (1985) defined organisational culture as those social constructs (values,

norms and beliefs) that are often shared by the members of the organization. Malmi & Brown

(2008) write that although the culture could be imposed to the firm as part of its contextual

environment, it often contributes to shaping informal control mechanisms within its walls.

They see three facets to cultural controls:

- Value based controls: value based controls can be associated with Simons (1994)

belief systems that assert that management reinforces beliefs, norms and values

through organizational instruments that help solidify the commitment, purpose, and

direction of the individuals. More often than not, these controls are explicitly

formalized through the value and mission statements, credos, etc. Malmi & Brown

(2008) explain that firms either recruit employees whose values match those of the

company, or reshape employees own set of values through socialization or enforce the

values to the employees through behaviour control mechanisms.

- Symbol based controls: symbol based controls are visual forms of controls. Firms

may shape the work space in a particular manner to encourage communication, insist

on employees to wear uniforms to create an illusion of professionalism, etc.

- Clan controls: Malmi & Brown (2008) use Dent (1990) argument that there are

distinct subcultures within organizations. The authors label these subcultures as clans

and explain that these clans can relate to professions (accountant, doctors) or group

within organizations (functions, race, gender). Similar to an ethnological approach,

the authors write that each clan has its ceremonies, rituals, beliefs, etc.

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2.4 Management control systems in SMEs

As this study focuses on Management Control System within SMEs, one needs to overlap the

literature on SMEs and Management.

Due to their size, SMEs tend to use a management control system that is not complex and that

is often not formalised (Van Caillie et al., 2006). The processes, activities and operations also

tend to be set up in simple ways with emphasis on existing actors (internal and external) and

on reacting to the direct forces of the environment i.e. little room for planning. Lubatkin et al.

(2006) explain that as SMEs lack the amounts of resources available to larger firms

(financial, organisational, competencies), they often have to rely on the ability of the

management team. They argue that because SMEs have less hierarchical levels, the

management team is more likely to play both operational and strategic roles.

Littunen et al. (1998), Lebrasseur et al. (2003), Maas & Herrington (2006), Fatoki & Garwe

(2010) and Fatoki & Smit (2011) provide important information on the viability of SMEs.

They all indicate that most SMEs die within the first 36 months of incorporation. Rwigema &

Venter (2004) quoted a South African survey on SMEs that showed that between 70% and

80% of SMEs fail within 5 years.

Perren et al. (1998), Lubatkin et al. (2006), St Pierre & Delisle (2006), and Fatoki & Smit

(2011) are of the opinion that among the complex patchwork of reasons driving SMEs to the

ground, lack of adequate management skills and systems bears substantial responsibility. In

their literature review, Perren et al (1998) point to the contradictory outcomes of existing

researches about management control and decision-making in SMEs. They remind us that

some results show that SMEs have weak controls, poor management information and that the

decision making process is not structured. (Nayak & Greenfield, 1994). They also retell of

other researches that suggest that SMEs do have effective information gathering practices and

that the decision making process can be developed. Whilst Perren et al. (1998) acknowledge

these outcomes; they suggest that the contradiction may stem from the way the researches

have been carried out rather than being real contradictions.

Perren et al. (1998) found that SMEs managers and owners tend to use informal management

system mechanisms in the early stage of the firm. These systems provide the managers with

adequate information at a reliable speed and are appropriate to the scale of the firm. As the

business grows and the number of transactions increases, these mechanisms tend to

formalize. This transition, from informal to formal, is nevertheless not a conscious movement

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but more the result of a complex system at play where factors involved interact with each

other in a dynamic relationship. The authors write that the founders, managers, business

model and internal processes evolve together – one serving as a catalyst or a stimulus to the

other while one acting as an inhibitor.

Lubatkin et al. (2006), in comparing the knowledge-processing demands of SMEs and larger

firms, explain that whilst operating managers in both kinds of organizations are close to the

markets and hence closer to trends, in larger firms they often have to rely on middle

managers to channel their messages. These intermediaries then decide what information to

pass to top management. The authors also write that these middle managers may change the

substance of the messages to suit and promote their immediate agenda. In contrast, in SMEs,

thanks to their proximity to the operations, the top management team is directly involved not

only addressing the strategy and other board related matters but also actively participating

with the implementation of the decisions.

Amongst all the challenges faced by SMEs in their life cycle, this study is interested in the

stress faced by SMEs between the “go-go” and “prime” phases as described by Adizes

(1979). Adizes argued that “the attitudes and style of an organization's managers may provide

a means for ensuring a long and effective life for an organization.” Adizes identified 10 Life

Stages in the corporate life cycle of an organization.

They include:

1. Courtship (the initial development or creation of the proposition/model/business/

formation/etc.);

2. Infancy (after launch - start of active trading);

3. Go-go (frantic energetic early growth and sometimes chaos);

4. Adolescence (still developing but more established and defined);

5. Prime (the business or organization at its fittest, healthiest and most competitive,

popular and profitable);

6. Stability (still effective, popular, can still be very profitable, but beginning to lose

leading edge - vulnerability creeping in maybe);

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7. Aristocracy (strong by virtue of market presence and consolidated accumulated

successes, but slow and unexciting, definitely losing market share to competitors and

new technologies, trends, etc.);

8. Recrimination/Early bureaucracy (doubts, problems, threats and internal issues

overshadow the original purposes);

9. Bureaucracy (inward-focused administration, cumbersome, seeking exit or

divestment, many operating and marketing challenges);

10. Death (closure, sell-off, bankruptcy, bought for asset value or customer-base only)

Figure 2: company life cycle (Adizes, 1979)

In the “go-go” phase, the SME is characterised by a “horrendous appetite” and sees

opportunities everywhere. According to Adizes, an organization at this stage of its life cycle

“moves fast, often makes decision intuitively since it lacks experience and almost every

opportunity seems to become a priority”. The interest span of the organization is short,

moving from opportunity to opportunity erratically spreading itself thin. At this stage, the

company’s major challenges are a resource trap (it may run out of capital or lose everything

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in one bet) and the “founder’s trap” i.e. the personification of the managerial process. As

Adizes explains, whilst the unshakable commitment of the founder helps the organization

survive the infant stage, it may become the cause for dysfunction; “the loving embrace

becomes a stranglehold”. The founder refuses to let go and to institutionalize his leadership

i.e. set up systems, procedures, and policies that would reduce his involvement with day-to-

day affairs.

In the “adolescent” phase, administrative processes and systems are institutionalized.

Planning takes place. Training and human resources schemes are developed. At this stage,

growth cools off. The corollary of these administrative efforts is that time and energy are

taken away from delivering quick wins. The management of the firm may refuse to dedicate

time towards organizing, planning and answering “how” questions. This creates intestine

tension whereby some managers drive the administrative charge whilst others keep on

pushing growth efforts. One group of managers wants to set standard operating practices

(SOP), guidelines, policies and frameworks whilst the other group wants to “get back to

work”, do business and sell. Gibson & Birkinshaw (2004) and Levinthal & March (1993)

indirectly looked at this phase when they considered exploitative and explorative strategies.

They found that both strategies deployed together could results in improved performance.

March (1991) does not share this view and believes that firms pursuing two directions at once

run the risk of being mediocre at both and that they should better focus on one direction

“allowing for only marginal consideration of other direction”. Adizes (1979) explains that

during this phase new comers (with more administration experience) are hired. The new

comers will want to administrate the firm, increasing profits even if it means lower sales,

setting up a principled based organizational structure. These new comers will be at odds with

the old timers, both groups pushing in two opposite directions. As figure 2 illustrates, the

company runs the risk of a breakup. On one hand, should the old timers manage to rule out

initiatives from new comers, the company would take the “unfulfilled trajectory”. This

company will not reach its full potential. On the other hand, should the new comers success

in implementing their vision, the company would follow a “premature ageing” trajectory i.e.

profitability increases for a while until such time that the firm runs out of ideas as the old

timers (the entrepreneurs) have left the organization. This divorce needs to be avoided.

During the “prime” phase, the organization is results orientated, has policies and procedures

to operate effectively and is still aggressively looking for new opportunities. Management is

able to effectively set targets and predictions measure the performance against these

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predictions and anticipate future developments in the market. Whilst staying in “prime” is not

assured, the focus of this study is not on the management of the “prime” phase.

The management control systems required or displayed during the “go-go” phase are

intuitively different to the ones needed to survive in the “prime” phase.

During the “go-go” phase, the founder of the firm is actively involved, personally governs the

organization and assumes hands-on responsibility. During this phase, the management’s

behaviours and styles are greatly influenced by the founder’s personality, values and

experience.

In the “prime” phase, irrespective of whether the founder is leading the firm or not, the

management of the organization is institutionalized, well structured, has a set of procedures

and policies to govern the company and tools and systems to monitor and direct performance.

2.3 Conclusion

A review of the literature clearly shows that the study deals with two constructs that are not

clearly defined.

On one hand, SME are definitely organizations of small size and of limited resources but it is

not clear how small. The spread of the definitions is large and it is not evident which

definition carries more weight than the other. SMEs are qualified based on metrics (sales,

number of staff, and size of the balance sheet) but often ignore qualitative characteristics as

well as the context and industries within which they operate. The review nevertheless points

clearly towards the frailty of SMEs which brings to the fore the question of the determinants

of success.

On the other hand, the literature is also uncertain about MCS. The definitions encountered

differ by their “appetite”. Descriptions range from narrow (with emphasis on resources

allocation) to holistic (with the inclusion of behavioural, systemic and cybernetic

understanding). However, Perren et al. (1998), Lubatkin et al. (2006), St Pierre & Delisle

(2006), and Fatoki & Smit (2011) all argue that the lack of a solid MCS is often associated

with the early death of SMEs.

Furthermore, a review of Adizes (1979) framework, supported by Gibson & Birkinshaw

(2004) and Levinthal & March (1993), shows that the different stages of the life cycle of the

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company have different needs and requirements in terms of management, controls, structures

and leadership or put differently in terms of MCS. Adizes framework also describes the

organization risks faced by the firm during the adolescent phase i.e. a potential divorce

between the founding group of individuals (entrepreneurs) and a group of new comers who

want to temper growth and focus on administration.

This study is therefore interested in understanding the MCS attributes of a successful SME in

its adolescent phase.

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3. Methodology

3.1 Introduction

The objective of the study is to determine the attributes of the MCS in an adolescent SME as

described by the Adizes (1979) framework. The study requires a deep understanding of the

life cycle of firms, the environment within which they operate as well as the internal forces at

play. Therefore, the thesis will follow a hermeneutic approach i.e. understanding the actions

of managers and the processes operating within a firm under the influence of its context as

opposed to a positivistic approach which would seek to find a generally applicable answer to

a research question (Yin, 2011).

3.2 Justification of the methodology

Because of the complexity of the research question i.e. the lack of clear definition for SME

and MCS, the importance of the context as well as the stage in the life cycle the researched

company is at; the author deemed more adequate the use of a single case study. Yin (2004)

and Anderson, Crabtree, Steel & McDaniel (2005) espouse this view when they write that

case studies are relevant to situations where there is “little control over the behaviour,

organization or events” and where situation cannot simply be reduced to a single cause-effect

relationship.

A single case study approach was chosen in order to answer the research question. Yin (1994)

writes that in situations where theory is deficient, single case studies can yield substantial

insights to idiosyncratic cases. Yin (1994) writes further that there are six sources of

information in case study methodologies i.e. documentation, archival records, interviews,

direct observation, participant observation and physical artefacts. The author does not

necessarily prescribe the utilization of all these sources in case studies. Yin (2011) writes that

for a qualitative research to be of value, the researcher needs to have a solid grasp of the

topic, the theories and the environment. As such, the study is based on a comprehensive

literature review on SMEs, MCS and firm life cycle.

Whilst becoming more popular, qualitative researches are often thought to be less appropriate

than extensive large scale empirical surveys (Saunders, Lewis & Thornhill, 2003). As

prescribed by Yin (2004), it therefore becomes important to validate the methodology.

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Case studies often call for intensive and in-depth focus on the targeted subject of the research

(Gomm, Hammersley & Foster, 2002; Yin, 2004) which fits snuggly with the study’s

research question. Case studies also allow for a deeper contextual anchoring which permits

the reader to fully appreciate the milieu of the instance. Case studies are also more interesting

when the instance being researched is contextual and temporal i.e. bounded. VanWynsberghe

& Khan (2007) write that “boundaries enable the researcher to develop focused hypotheses

by circumscribing what is inside and outside of the case”.

Moreover, the author of the study is interested in producing new insights and learning new

lessons. Lincoln & Guba (2000) argue that case studies are a great conduit to derive new

working hypotheses and test new paradigms.

3.3 Criteria for case selection

The site selected for the case study is a group of company which will be referred to as The

Company for easy reference. The Company is a South African organization incorporated in

1991 in Cape Town. The core business of the company is the provision of repair,

maintenance and inspection services in antagonistic environments (confined space, extreme

heights, etc.). Its solutions are less intrusive, more efficient, more versatile and less expensive

than the traditional erection of metallic structures on space constrained assets like rigs,

vessels, refineries, etc. The company has an international reach as it operates in several

countries in Africa, the Middle East and South America. The firm has about 40 employees

(most of them based in Cape Town, South Africa) and had a turnover in excess of $35 million

in 2011 (96% of its sales occurring outside South Africa). Sales have grown at a steady rate

of 20% p.a. over the last three years.

The researcher recently joined the firm as the CFO of the group. As such, the researcher has

access to all the individuals working for the company and all the current and historical data

(financial, statistics, customers, suppliers, etc.). Nevertheless, the primary reason for selecting

The Company as the site of this study is its characteristics. As will be argued below, the

Company is indeed a SME which is in the adolescent phase as described by Adizes (1979).

Furthermore, despite operating in a very dynamic and complex environment, i.e. oil and gas

offshore industry with large multinational companies as its customer base in developing

countries, it managed to grow and outperform its competitors. Hence the question, of extreme

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relevance to the CFO, what are the management control systems attributes that support this

performance?

3.4 Case study procedures

Given the exploratory nature of the research, the study relies on literature review and

qualitative research. The tools used for the data collection are in line with Yin (1994) i.e.

semi-structured interviews, current and historical data from the existing systems (financial,

quality management system, human resources and logistical), direct observations as well as

direct participation. The case did not allow for the collection of physical artefacts.

3.4.1GatheringofprimarydataPerry (1998) explains that there is no set number of interviews to be carried out for a case

study. The population interviewed represented the “top two layers” of the organization’s

hierarchical structure i.e. the senior management team (SMT) as well as their direct

subordinates (nine interviews). Thanks to the limited number of staff, the shallowness of the

structure and the general implication of the managers with day-to-day operational issues, the

nine individuals selected allow for not only the transversal slicing of the firm (i.e. inter-

functional) but also vertical (i.e. from top to bottom). These interviews allowed for a cross-

functional triangulation of the research question. The responses of the interviews were

dissected to discover emerging themes which were then compared against the “MCS as a

package” framework.

Semi-structured interviews were chosen over structured interviews as they offer more

flexibility. Their structures (conversational) are often perceived less intrusive by respondents,

and allow for two-way communication. They also permit the expansion of the interviewees

i.e. often not only the answer is provided but the reason as well. Semi-structured

questionnaires can be adjusted so as to make provision for the level in the organization, the

level of education of the respondent, the level of English and the environment.

The questionnaire was sent to the interviewees in advance by email so as to allow them to

prepare their responses. Interviews were carried out during working hours and took place in

the boardroom of the firm so as to avoid day-to-day disruption. The researcher anticipated the

sessions to last between forty five and seventy minutes. Simple field notes were taken during

the interviews and elaborated further directly after the meetings. Upon seeking authorization

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from each respondent, the interviews were recorded. The recordings were then transcribed to

allow for better analysis of the answers. Appendix A shows the guiding questionnaire that

was used whilst appendix B shows the schedule and duration of the interviews.

Based on the interviews, the researcher attempted to assess the existence of the MCS vectors

as introduced by Malmi & Brown (2008) as well as quantify their strength. The researcher

hoped to be able to draw a typology of the MCS of the company and highlight the areas that

support the business and the areas that are weak or non-existent.

3.4.2GatheringofsecondarydataSecondary data collected were mostly of two sorts.

Firstly, a comprehensive literature review was performed to extract academic insight on the

topics of SME, MCS and company life cycle. Articles were sourced through internet search

engines and database such as Emerald, Elsevier, ScienceDirect, SpringerLink, and GUPEA.

The books were consulted at the Graduate School Library in Cape Town or on the internet

when they were available

Secondly, as the CFO of the company, the researcher has access to all the available

information in the company. The researcher was therefore able to access financial

information, statistics data, documented policies and procedures.

The researcher, thanks to his recent appointment and privileged position in the company, was

able to contribute to the research problem by bringing his observations. As mentioned earlier,

the researcher is still new in the firm and still has a “fresh eye” on the operations and systems

of company. This “unpolluted” view, somewhat similar to the view an external consultant

may have, has the potential to provide a critical and first hand flavour to the observations.

 

3.5 Limitations of case study research and how they were handled

Whilst qualitative researches are becoming more popular and accepted by the academic body,

it remains that they can still be criticized for their lack of methodological thoroughness. The

researcher provides below a list of issues or shortfalls commonly associated with qualitative

research and explain whether they are relevant to the instance at hand or how they were

handled.

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The research design is biased and influenced by the interests, school of thought,

theoretical position of the researcher and the research question keeps on evolving

throughout the research rendering the research less valid.

It is true that this research design is influenced by the researcher. After all, being the

CFO of the firm, he is directly involved with the problem at hands. Nevertheless, it is the

researcher’s opinion that irrespective of whether or not he is directly implicated with the

research, he will have an opinion on the subject matter. Researchers are humans and

subject to opinions, ideas and bias. The researcher therefore does not believe that he can

be “taken out of the equation”. What he can do, in line with Pyett (2003), is to explicitly

mention his position, views or objectives with the research. This has been done under

paragraph 3.3.

With regards to the “fluctuating” research question, the researcher embraces Diefenbach

(2009) view that the “re-formulation of the research question is a sign of progress, for an

increasingly better and deeper knowledge and understanding of the objects of reasoning

and recognition of emerging patterns”. As explained by the author, researchers should

be encouraged to question their research design throughout the whole process.

The collection of data is not done systematically and data collected through interviews

are subjective and function of context, situation, prejudices, etc.

In exploratory cases, Diefenbach (2009) explains that the systematic collection and

quantitative representativeness of the data are irrelevant but what is important is that the

support and context for the research design provide the “objects of reasoning as well as

all relevant criteria and circumstances (e.g. cultural background, institutions) that are

needed to be taken into account in order to investigate the research problem

appropriately”. The researcher believes that these conditions are met as the site at hand

provides the right background for the research question.

The data collected is often grouped and interpreted subjectively by the researcher.

This issue is real. Diefenbach (2009) explains that one way to circumvent this problem is

to include more researchers during the categorisation stage so as to reduce the risk of

subjectivity. He nevertheless goes on to argue that other researchers may just mean more

subjectivity. Pyett (2003) writes that “the benefit of the doubt” should be given to

researchers and the assumption should be made that they are diligent, trustworthy and

honest. This humanistic claim is laudable but shaky. Researchers are human beings and

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as such as vulnerable to the turpitudes of the mind as anybody else. The researcher will,

as much as it is possible, explicit the reasoning for grouping data together so as to make

the process as transparent as possible.

Case study findings cannot be generalized because of the uniqueness of their nature.

Diefenbach (2009) is categorical about this critic. He unambiguously claims that findings

from case studies can be generalized provided that the research follows a solid

methodology. He nevertheless remarks that often qualitative studies are weak in deriving

grounded theories. He suggests that in order to induce a theory properly, researchers

should have in mind two writing efforts i.e. one paper describing the case and the finding

stemming from it and another one to formulate the theory.

The researcher here does not expect to generalize the findings. He is more interested in

the observation of a phenomenon and its description. The researcher will also seek to

gain valuable insight about the existing MCS of the firm so as to potentially fill in the

gaps or re-enforce its strong aspects.

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4. Analysis of data

4.1 Introduction

After a description of the case and the context, this section will explain why the case is an adolescent firm as per Adizes (1979) framework. The empirical findings will then be analysed with the “MCS as a package” framework as a basis.

 

4.2 Description of the case and context

The Company started operating in 1991. It is historically based in Cape Town and its operations are still managed from there.

At the inception of the firm, the Founder of the company, being an extreme sport enthusiast, realised then that he could marry his passion with business needs. As such, together with few friends, he decided to put their skills at use in addressing the needs of local companies. He offered extreme heights and difficult access solutions to South African customers.

It is when they were doing some basic repair and maintenance work on an oil rig in the Cape Town harbour that The Company first encountered the oil & gas industry. Following a good performance, the oil & gas customer requested the services of The Company in Angola. The Company tasted for the first time the lucrative offshore industry and has since deepening its presence in this sector.

Today, The Company is present in several West African countries, in Brazil, and in the Middle East. The company also seeks to enter the East African market following the development of the oil & gas industry in Tanzania and Mozambique.

The Company’s clients are mostly large multinational players in the oil & gas industry. They are sometimes oil extracting and producing firms (Majors), but more often than not they are subcontractors to the Majors.

This sector is crowded with actors of different sizes, experiences and international reach. Competition is extremely intense whilst the bargaining power of customers enormously exaggerated. Indeed, the maintenance and inspection market is a demand driven market where customers decide what to buy, how much, when, from whom and in which way. Service providers have little say, their negotiation power tremendously limited and they often financially rely heavily on these customers.

Furthermore, not only has The Company direct competition from other international firms, it also has to compete against substitutes and well entrenched products such as scaffolding. Whilst the economical and safety benefits of its products offering are not disputable, existing methods and products have been around for much longer and are more familiar and easy to understand for the decision makers.

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The Company’s 2011 sales were in excess of $35 million and are expected to reach $50 million in 2013. The sales and the net profit of The Company have been growing at a steady 20% compounded annual growth rate since 2008.  

 

 

Table 5: The Company’s growth rate

The Company currently has about 40 employees most of whom based in the Cape Town headquarters. As can be seen from table 5 and figure 3, the number of employees has also grown fast and has somewhat followed the growth in sales and profit.

 

 

Figure 3: Number of employees

 

   

10

15

20

25

30

35

40

45

Mar 2008

Sep 2008

Mar 2009

Sep 2009

Mar 2010

Sep 2010

Mar 2011

Sep 2011

Mar 2012

Sep 2012

# employees

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Figure 4 shows the organisational chart of the company as of Sept. 2012. The positions highlighted in orange represent the senior management team (SMT).

 

 

Figure 4: Organisational chart 

Whilst The Company’s turnover is well above the ceilings offered by South African definitions, the author still believes that The Company is an SME. Indeed, the firm has still less than 100 employees. Furthermore, several of the attributes presented in the brief typology of SMEs mentioned earlier in the report (page 11 & 12) are met.

- The Company is agile. The author has witnessed how reactive the company is to market changes and how it thrives at answering very volatile customers’ needs. Decisions are taken very quickly and administrative processes and requirements, although growing, are not yet obstructing the decision making mechanisms.

- The Company is resource constrained. On one hand the business growth outpace the internal capacity growth (manpower) and on the other hand the drastic payment terms imposed by the large customers (often unacceptably delaying payments) cause a strain on the cash flow of the firm.

- The entrepreneur who started the venture (the current MD) has shaped the organization as it is now and still has a major influence on the business and the strategy.

- The author notes that The Company does not plan far ahead. The author did not witness plans that went further than three months and those plans were being altered on a daily basis. Whilst the necessity to cash opportunities and the limits of the existing systems provide some insights on the lack of deep planning, the complexity of the industry The Company operates in also contributes to the difficulty to see pass three months and to stick to original scenario.

It is worth mentioning here that the Founder/MD does not think that The Company is an SME anymore. According to him, the reach and complexity of the organization is so broad that it defies the author’s view.

The Company has gone through some organizational changes since 2011.

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Firstly, The Company has been sold to a foreign company (The Foreign Firm) whom The Company had very tight business relations with. The Foreign Firm is larger than The Company in assets base, revenue, profits and geographical scope. The Entrepreneur and previous owner of The Company is now the Managing Director. And whilst the Foreign Firm is not involved with day-to-day business and operations, it does request a minimum of reporting (financial and statistics) and it indirectly nudges The Company to formalize its processes and operations.

Secondly, and as can be seen in figures 5& 6, younger, more educated and more experienced staff have either joined the company or have been promoted to managerial positions.

 

Figure 5: Number of staff by tenure 

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Figure 6: Qualification levels by tenure 

These two forces have had for effects to push The Company towards the adolescent phase of the Life Cycle of companies as proposed by Adizes (1979). In confirmation of the Adizes diagnosis of an adolescent firm, the author has witnessed several internal conflicts and turf wars as “old timers” feel at odds with “new comers” and as processes tend to slowly formalize as a result of a more professional management approach.

The author also senses a “wind of change”. Change being forced to all the departments as a result of new management and/or new employees, as a result of the influence of the Foreign Firm, and as a result of the acknowledgement by a fraction of the staff that business has to be run differently.

 

4.3 The Company and Adizes (1979) life cycle

In line with Adizes’ descriptions of Adolescent companies, The Company is somewhat characterized as chaotic and disorganized. The compensation system is a patchwork of deals, people run to the MD (founder of The Company) when issues arise, policies and procedures are poorly documented. Critical knowledge and information are stored in the brain of the people who have been working for The Company the longest.

The “old timers” in The Company therefore hold the power. Managers who recently joined and who are expected to formalize and professionalize the firm have a hard time and often seem to dance the “one step forward, two steps backward”.

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For example, attempts have been made to adjust the incentive scheme in order to remove the personal bias in the process therefore rendering it more analytical and less subjective. These attempts have been vigorously opposed by “old timers”. The author believes that these trials were understood by “old timers” as direct attacks to their existing influence who risked losing their special deals.

The author has heard through interviews but also in the corridors comments from “old timers” about new managers/employees such as:

1. “The new CFO is ruining people’s morale”, 2. “New comers do not understand how The Company works”, 3. “They will run the company to the ground”, 4. “They want to take over The Company”.

The author has witnessed the creation of two camps.

One camp, led by “old timers”, wants to stick to what has always been done. Its members believe that what has been successfully done in the past will still be successful in the future. The members of this camp oppose new suggestions, refuse to cooperate with new managers, run to the founder to complain and undermine efforts to improve management.

The other camp, the camp of change, is led by new managers and is made of new employees but also of “old timers” who believe that change is necessary. This camp feels that the past must be “wiped out” and everything should start from fresh. The members believe that what exists is flawed and not professional enough to carry The Company’s growth. The author also witnessed how some “new comers”, frustrated by the efforts of the “old timers” to undermine change, are wondering why they accepted to join The Company. They indeed feel impotent, tired with the incessant back-and-forth, unappreciated and unrecognized for their contributions.

There is therefore a “guerrilla” within The Company. A culture of “We versus Them” is dangerously growing and is negatively affecting the good running of the firm as well as weakening the foundations of its success.

 

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4.4 MCS as a package and respondents

4.4.1 Planning The first dimension of “MCS as a package”, as constructed by Malmi & Brown (2008), that was questioned was Planning. By asking questions about short, medium and long term goals, the author hoped to assess whether this dimension existed within The Company.

From the answers obtained, the author can categorically conclude that if there is some form of planning and if goals are determined by the Senior Management Team they are not communicated. None of the nine respondents were aware of any goals formally stated by the SMT. Some of the respondents mentioned hear-say, but none of them knew what The Company’s goals are for the future.

For example, one interviewee responded

“I presume they’re formalised and documented, but they haven’t been communicated down from top management yet”.

When asked what they thought the plans and goals of The Company were, some had no idea. A respondent answered

“Communication is one from top management down. Like I said earlier, I don’t know what the goals are for the company. I don’t know where I’m going to with the company. I don’t think anybody else knows either. Whereas if people have a set goal, will they know exactly what the company’s plans are for them, they will work towards it. They’ll grow themselves towards that”.

Another individual said

“I don’t think that there is actually a strategy or an objective for the whole company for the next let's say two to five years”.

Other mentioned basic rhetoric such as

“All I know is that we want to grow” or “I do know like in any other company we want to grow, that we want to be the best in the market”.

Finally, some employees realized how serious the lack of planning could be for the Company

“Not really. I think a lot of times we just plug holes, like you say. Every time you’ll see a new face, you wouldn’t even realise that there’s a shortage in a specific department”.

Several questions were asked in order to identify who makes the decisions within the Company and how. The first area looked into was business development. As figure 4 shows, The Company has a Business Development manager (BDM) who reports directly to the Founder/MD. The responsibility of that role is to find and generate new revenue streams.

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Although respondents identified the BDM as source of new business, most of them acknowledged that the creation of new revenue streams was not entirely left to the BDM. To the question “How are business opportunities determined?”, respondent answered:

“Word of mouth, BDM, visual presence”

“I’m actually not sure. I would assume it’s basically by word of mouth, when they know locally there’re new rigs coming in the harbour. I know the BDM is involved a lot with that. He hangs out with people that know about new opportunities. I don’t really know. Most of the others that I know of, is actually existing jobs that we have that basically just expanded and we got contracts on the expansion”.

“I don’t know. I would assume you guys hear about jobs and would go in for tendering purposes, or the BDM lets people know what rigs are coming into the harbour or what’s coming into other harbours and…I really don’t know”.

“We are more trying to maintain the existing business and we are more like waiting till somebody asks us if we can do something, except the person […] the operations manager”.

The next area investigated was how business opportunities were selected and by whom. Here the responses were very diverse. For example, with regards to the business opportunity selection

“Jobs decided based on experience”

“The one that’s more profitable”

“we go for a business because we think there is something behind”

“I think, basically if there’s availability of resources, it would be selected, if they accepted our quotes. I’m actually also not really sure how they are selected.”

“I’m not sure if we’ve got defined criteria to go and see”

“From what I’ve seen, that was pretty well handled, because they look internally at what they can do realistically and didn’t shoot for something that would be a risk”

And, with regards to who takes the decision to chase a job

“I think at the end of the day the decision is up to the MD”

“For me, the Ops manager and the CFO have a lot of influence on what jobs we do”

“There is one person who makes the final decision and that is the Ops manager…about the scope of work”

“Its too many chiefs..this is what’s happening”

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“who makes the decisions in the company, I’ve only got the MD. I don’t have top management for that. I actually have…because the ultimate rap I think, and the ultimate yes would come from him.”

Here the respondents’ answers demonstrate that the generation of business and the selection of a revenue streams is not a straight forward process. It is evident that there are many ways to yield new revenue, from the hunting of the BDM, to marketing efforts through existing jobs, word of mouth, etc. The selection process, as explained by the interviewees, also highlights The Company’s approach to business i.e. no line of business clearly targeted (no trade off), focus on what they know and the availability of resources followed by the profitability of the job.

From the interviews, it is safe to say that The Company does not use planning as a lever to manage and direct the company’s resources towards one direction. The author believes that the reason for this is that The Company’s remains extremely opportunistic.

The Founder/MD confirmed this when he said

“I think its just being in the right place at the right time, and capitalising on opportunities and doing what you’re saying you’re going to do.”

Managers would chase an opportunity if they feel that it will create value irrespective of the effects this prospect might have on existing business lines. Setting goals and planning is somewhat making trade-offs i.e. selecting business lines that would be pursued rendering the other ones undesirable. As such, planning goes against The Company’s culture.

4.4.2 Reward and compensation As mentioned previously, reward and compensation mechanisms that are based on performance are thought to increase the performance of individuals and to help controlling the effort direction, duration and intensity of employees.

The Company runs a bi-annual performance reviews. Employees and their manager sit together and go through the last six months to assess the performance, based on the employee’s job description. Prior to meeting, each party would have rated the performance on a scale from zero to ten. As no targets or goals are actually set and compared against an actual, bargaining between the parties ensues in order to reach a final score. A bonus is then calculated based on the final score. If the employee scores the maximum ten, s/he would receive one month salary. Any score between zero and ten would translate into a proportion of salary.

When ask whether such schemes can actually contribute towards increased performance, most of the respondents answered positively.

“Just to motivate you to do better than what you’re doing by giving more than what you’ve done already”,

“It inspired people to work to their best ability”.

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But when asked whether the existing system is designed to do just that, answers were not unanimous. Some employees said

“It isn’t really measured. It’s more a general discussion than the actual performance”.

“It’s basically based on management’s opinion on what you did”.

“At the moment I think the performance reviews are not structured right. Those percentages .for example, on mine it will say, “X” 50% of the time […]. I’m not spending on “X”, and “Y” may be 20%, but I don’t have any “Y”, so where does that 20% fall into? I’m busy with so much other stuff that is not on my JD. I can’t be performance managed on what is on my JD”.

“I think the performance reviews is more to touch base with what you are doing, what you are not doing, how you’re performing in your job, where you’re lacking basically, and the performance incentive is just to say thank you, and to remunerate good performance, I would say”.

The founder/MD inferred that the current system is not necessarily in place to reward good performance but rather that it is an injection of financial recognition to individuals who are working under a tremendous amount of stress

“I think we in our business, there’s exceptional pressure of timing. Yes, the people may work flexible hours and things like that, but its unlike any other business that I’ve worked in, maybe in the courier, but you’ve got a deadline and if something doesn’t work it costs you an absolute fortune, and there’s constant pressure because there’s constant change. I think you know, the business grows exceptionally well and I think, you know, for guys to maybe get a bonus once a year are just a 13th cheque and they’ve slaved, maybe not hours-wise, but pressure-wise, and the business is flying…I think I need to be compensated for that. That’s why in the capacity that I had, is that we had that dual bonus in the business. Its just a sort of mid-year breath.”

The author notes that the existing “incentive” scheme is not actually rewarding excellent performance. As an example, the Company’s average score for June 2012 performance review was 91%, with some employees scoring as high as 100%. This would mean that a majority of employees are high achievers, deliver exactly what is required from them all the time and exceed managers’ expectations. Unfortunately, the author has observed plenty of errors, shortfalls, misbehaviours, etc which contradict this result.

As employees have taken for granted that they would receive close to a month salary twice a year, efforts to change the current system have been resisted as employees feel that they would lose an entitlement. The current mechanism is closer to a thirteenth and fourteenth cheque scheme designed to encourage employees and thank them for their efforts.

 

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4.4.3 Cybernetic controls The author clearly notes the lack of cybernetic controls within The Company. From a Finance stand point, seasonal budgets are drafted once a year for the following year. The actual performance of each month is then compared against the budget which then becomes the benchmark. Deviations against the budget are investigated, explained and when possible actions are taken to eliminate or mitigate the deviation. It is worth noted that budget remains high level. It is not broken down by department, has limited information about individual jobs and is only concerned with the income statement.

Beside the Finance realm, there are few other cybernetic measures such as the number of incident, accident and fatalities and the number of expired documentation.

Whilst the new CFO has implemented other forms of cybernetic controls to complement the traditional budget, there are still too few to make a difference and focus mostly on financial performances. The author also notes that Finance and to some extend HR consume the existing cybernetic tools.

The respondents’ feedbacks confirm the above. To the question “What is measured in the company?”

“I don’t think a lot. At this stage, from finance point of view, we measure the results every month against budget. I don’t know what measurements any other of the departments have in place”.

“To the question "What is being measured?" I don’t know”.

“We are not going to analyse what we do, and we are not going back and do some changes or do some improvements”.

“I don’t know what our targets are for the year, specifically what we’re trying to achieve”.

“Well, we’ve started measuring how many guys there are, how many medicals have expired, how many medicals are going to be expiring, same with the contracts, same with the documentation”.

The author notes that out of the nine interviews, only three individuals mentioned financial measures. This surprised the author as he anticipated respondents to know and acknowledge that part of finance’s job is to measure and analyse.

There is a serious absence of analysis and review within The Company. The author believes that this leaves The Company exposed, yielding bad decisions, and leaving inappropriate behaviours and attitudes unchallenged. For example, the author witnessed that several bad decisions were not “unpacked” and reviewed in order to understand the root causes and avoid recurrence.

Nevertheless, the founder/MD acknowledges the need for more analytical means to be used to manage the business

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“I think as we’re growing from that small company into a bigger company, into a corporate, we’re still trying to keep the ethos of everybody happy, and doing what have you, but you need to have that corporate culture of the ramifications. You know, historically we ran on huge margins. So if we had a cock-up every now and again, it was ok because you could absorb it, but today you’re on such a thinner margin, you know, absolutely everything has to run like clockwork and you can’t afford to have those bumps. I think that is a significant difference. So, somebody like you, new, coming into the environment that had that sensitive or have the need for sensitive change to be monitored, I think its imperative. We’re dead if we’re not.”

4.4.4 Administrative controls The Company has one shareholder which is represented at the Board of Directors by the founder who has retained directorship. As such, the governance structure is not different to the managerial structure.

The organizational design of The Company is shown in figure 4 whereby Heads of Department (HOD) report directly to the Managing Director. Each HOD is responsible for her or his department and is consulted for all matters that may impact the department. Whilst many researchers argue that the organizational design of a firm is part of the context, the author, in line with Malmi and Brown (2008), believes that it is important for the control of The Company. Indeed, the author notes that there are several matters that involve both HR and Logistics. Consequently, by separating both departments and allocating clear responsibilities and tasks to each other; the Founder/MD has made sure that some level of functional specialization occurs; which in return helped increase predictability in behaviours and attitudes.

Furthermore, every single position within The Company is framed by its Job Description (JD). The JD is designed so that the employee and the manager know exactly what is expected from the employee in terms of activities and responsibilities. The JDs also contain rough estimates of the amount of time to be dedicated to each activity.

The author observed that a number of activities were governed by policies and procedures. The Company being certified ISO9001, it has to document all its important activities, store them and make them available to the employees. This is being done through a Quality Management System (QMS) which is tightly maintained and updated.

Whilst most of the respondents knew what the organizational structure looked like, some interviewees did not seem to know exactly where they stood in the organization chart

“Officially, I don’t have anybody reporting to me…unofficially I have a lot of people reporting to me, because I need to get information out of the people”.

“The MD and then the four key managers…I’m not sure if I’m under that”.

Whereas most respondents were comfortable with the current organizational structure, two aired their frustration

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“If we had a definite goal and we were working towards the goal, we would structure to achieve that goal. At the moment we’re structuring to handle what’s happening in the company.”

One area that seems to require attention is how The Company organizes individual responsibilities: JDs

“That’s another good question, because that’s what I…I think the job descriptions which we have are very…some of them are very difficult to understand because it includes…it’s a three pager and its just too big. People don’t really know…its too much on the description”.

“The thing is, I’ve got this feeling everybody’s doing whatever he wants, more or less. So that says everybody’s making their own decisions. But, if its going moneywise, the decision is backed up at least by one of the senior managers. So that senior manager needs to approve it otherwise the money is not paid.”

“Our current job descriptions are a lot of information; it’s a lot of duplicate info”.

With regards to policies and procedures, the author remarks that all respondents know where they are stored (QMS) but not all of them were aware of the sort of documents saved in the system. For example, the following policies and procedures were mentioned quite often.

“Policies - Training and development”.

“The dress code is one of the main things I believe.”.

“Dress code, procedures on safety, procedures on flowcharts, procedures on…lots of procedures here”.

The Company’s organizational structure seems to be one of the pillars of its MCS. Whilst it may look like a standard silo structure where people are limited to their functional scope, few strong individuals bridge the gap between functions and contribute to creating a sort of corporate glue.

4.4.5 Cultural controls This dimension is rather hard to apprehend. It is nevertheless evident to the author that the set of social constructs governing The Company are not those superficial and outer layers value/norms systems often seen in large corporations.

For example, whilst there is a dress code, this code does not force employees to dress in a particular way but rather prohibits some apparel. It is therefore impossible to identify some form of social marker based on the outfit.

When asking about strategy related matters, the author enquired whether the respondents knew the Vision and Mission statements of The Company. These statements are clearly displayed next to the reception. To preserve the confidentiality of The Company intact, the

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Vision and Mission statements will not be repeated in this research as they would help identify the case. Only five of the respondents had an idea of what they were and only two could formulate them.

There are no rituals or ceremonies, the office space is not compartmented, and working hours are not designed to ensure a particular behaviour.

Rather, the author witnessed a very informal atmosphere in the office. For an outsider, it would really feel as if everyone is at the same organizational level. The MD and the CFO offices are always open and openly welcome people who want to discuss. The Ops manager wanders around the office to “take the pulse” and talk to everyone. This is confirmed by a respondent when s/he says that

“Our culture and environment is very relaxed, and we have an open door policy. I don’t need to make an appointment to see you. I just knock on your door and you’re available.”

When asked about the values carried by The Company, respondents replied

“Trust, integrity, openness”

“honesty, and integrity, reliability”

“Loyalty and honesty as well”

“honesty, integrity”

“Integrity and commitment definitely in this company”

Undoubtedly, these values (honesty, integrity and reliability) have been inoculated by the founder (Founder/MD) throughout the years. When asked about him, respondents said

“He’s always fair, he’s very considerate”.

“From the MD. I’ve never known that he has said no to anyone for a loan or anything like that, time off…he actually doesn’t say no”.

“I think his influence is actually quite big because I think he is the person who brought this culture into the company of this humanity culture which the people are actually”.

The Founder/MD is indeed very committed to its staff and treats them with utter respect. He explained his philosophy in the following terms

“To me, you know, I’ve always maintained that if you’ve got happy staff and staff are comfortable and they can get…for me to get out of bed in the morning and want to go to work is motivational, and I try and make sure that our staff are like that,[…], because then…if you’ve got happy staff then guys will go that extra mile for you. I think that’s a different thing…that ethos is what I’ve always tried to keep in a business. I think that for me it’s .for people wanting to come and work for us, that is

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value, and not that you have to fight to keep people. That is measureable to us, to anybody else.”

Respondents also mentioned that the year is scattered with celebrations such as baby showers, weddings, birthdays, year-end functions, barbeques, etc.

The author believes that by showing real respect to the employees, by being honest, open and available, by displaying commitment and by making the work space as informal as possible, the founder has managed to create a recipe yielding loyal, dedicated and committed employees.

4.4.6 The importance of the founder Adizes (1979) explained that the transition from “Go-Go” to “Adolescent” could be assimilated to a transition from “Monarchy” to “Constitutional Monarchy”. At this stage, kings (founders) realize that they cannot govern the entity on their own, they need help. They and their entourage grasp that there is not enough hours in the day to manage the business and that as the firm grows and the environment changes, they need new skills, new experience; new blood. They are aware that they now need to decentralize but they are wary to lose control.

This period is often a difficult time for the founders. As the firm lacks internal skills, the founders turn to external professionals to facilitate the transition.

New professionals have indeed joined The Company: New CFO (with an MBA), promoted HR manager (with an MBA), new project manager (with an MBA). Whilst the founder remains at the head, he is decentralizing his authority.

The author wanted to evaluate the founder’s involvement and influence according to the respondents.

“I think there’ve been slight changes recently of his level of commitment”

“It doesn’t seem to be the same level of commitment as to what there was previously”

“He is very involved in decision-making, but he’s got a relationship with the SMT…he’s got such a great relationship with you guys that he only steps in when need be. He trusts the staff that is running his company. He knows what is going on, he’s very much involved, but he only steps in when he needs to make the call”

“I don’t think it’s necessarily the power was taken away, I think more he lost interest. That’s a bad way of saying it, but he doesn’t really want to be that involved anymore. That he’s happy that someone else makes the decisions on his behalf”

“He is not very often in his office”

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“He’s not as involved in the company as what he was previously, and I think he is there more to facilitate senior management. He doesn’t have to be involved as much in the company as what he was previously”

“He also is very careful of change”.

For the majority of respondents, the founder is losing interest in The Company; he is not as committed as he used to be. For them, the reduced commitment is disruptive.

“INTERVIEWER: If he (the founder/MD) were to not work here anymore, just to leave, do you think it would be disruptive to the company, or would we just go on?

INTERVIEWEE: I think it would be disruptive to the company”

“But, things seem to flow better when he’s at the office, and I know, even if he’s not here, he’s always available on his phone or e-mail and he actually always responds. So he’s not actually really absent when he’s not here, but the whole environment in the office changes when he’s here, for the better I think.”

The author believes that this is a risky situation. As Adizes (1979) explains, during the Adolescent phase, and the turf wars that ensues, two “pathologies” may present themselves. The first one is called “The Divorce” whereby the founder regains full control of the firm, removes the new comers and the company moves back to the “Go-Go” phase with all its pitfalls.

The second one, called “Premature ageing”, is characterized by a complete withdrawal of the founder (sometimes a departure) leaving the new professionals piloting the firm. Often, “several “old timers” follow the founder (creating knowledge and experience vacuum). In this pathology, because of lack of entrepreneurial spirit, sales stagnate or drop and the company stops growing or dies.

The author is concerned that The Company may show signs of “Premature ageing”.

4.4.7 The Company’s strengths and weaknesses The author wanted to collect the strengths and weaknesses as perceived by the respondents.

The respondents believe that The Company presents the following strengths:

- With regards to employees: “Commitment to going the extra mile”, “Flexibility”, “Dedicated staff”, “young staff”

- With regards to leadership: “the MD is very open to new things”, ”Strong leadership”, “Management team They’re reliable, most of the time keep their word, majority of the time, they’re understanding, great mentorship abilities and they keep their word, integrity”.

When asked about weaknesses, most of them mentioned communication

“Communication-I think it’s very bad”

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“There’s not really a structure in communication where you can say, ok, that’s for example a handover of a project, or that there’s a meeting, but it’s not efficient.”

“If you think about communication from top down, sometimes I think there’s a lot of misinterpretation”

“Communication flow downwards then it’s usually not too good”

“We still lack a bit of communication in our company”

“Communication issues”

Other weaknesses brought forward were

“Lack of succession planning”

“The lack of direction and planning, that’s definitely inhibiting the growth here,”

“I think the main thing is that the people are Complacent about what we do”

“I think that limited thinking is a big thing which prevents the company to grow further.”

“Ja, there’s five managers. I think they are…we’ve got five senior managers which is the MD, and the four functional managers. When I came I had this feeling that there were like two groups…two teams and they were working against each other, which I would count as a weakness”

“Be careful to become too corporate, when 90% of your staff are subcontractors. You alienate yourself from your staff”

For the author, those weaknesses are symptomatic of the “pathology” presented in the previous sections and representatives of an Adolescent firm.

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5. Conclusions and implications

5.1 Introduction

This research aimed at discovering the MCS attributes displayed by a successful SME. More precisely, the question focused on a particular stage in the life of the company; the adolescence (Adizes, 1979). This final chapter presents the conclusions of this research and proposes an answer to the research question.

 

5.2 Conclusions about the research problem

In order to apprehend the MCS in successful SME, this paper offered a transversal case study of a South African SME which is believed to be in its adolescence (Adizes, 1979). Out of forty employees, nine were interviewed (22.5% of employees). Eight of these interviews were taped and transcribed for ease of access. The first interview was not recorded but field notes were taken. The author followed loosely a questionnaire built upon Malmi & Brown (2008) framework “MCS as a package” and analysed the answers to extract a conclusion.

The findings seem to contradict previous MCS-based researches which concluded that analytical means (planning and cybernetic tools) to be the first MCS levers used by SME (Davila & Foster, 2007; Sandino, 2007; Simons, 1995). Rather, the author found that cultural and administrative controls to be the foundations of the MCS of successful SMEs.

The author thinks that this outcome could be explained by taking a contingency view of the MCS within The Company. Under this perspective, it seems appropriate to believe that The Company, growing at double digits speed and constantly looking for cash, would not dedicate its valuable resources to analyse the business but rather to grow it. Therefore cybernetic and planning tools were left in the “cupboards” while the founder/MD was shaping a dedicated and committed workforce by modelling the structure (administrative tool) and by increasing the loyalty and engagement of the employees (cultural tool).

From a practitioner stand point, and notwithstanding the quality of the service/product sold, the author therefore concludes that the survival chance of a SME could be enhanced by insuring a cohesive and highly committed workforce through the design of an adequate administrative structure and the creation of an environment where employees feel respected, engaged and loyal.

The Company is at a crossroad. It’s growing out of a SME into a more mature entity. It is at the adolescent phase of its life and as for human beings, this period is full of conflicts and characterized by uncertainty about which direction to take. As anticipated by Adizes (1979), The Company has seen the arrival of professional individuals whose goals are to formalize processes, analyse trends and performances, streamline decision making, etc. Unfortunately, while this professional transformation is necessary, it shakes the entire foundation of The Company. The push towards more formality, more analytics, more rigour and more transactional based relationships is ripping apart the very tissue that made the company

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successful. The founder/MD has the terrible responsibility to strike the right balance between change forces and conservation forces.

5.3 Limitations

The author of this research is an employee of The Company and is directly responsible for and impacted by the forces at play within the company. As such, it is fair to admit that the conclusions of this paper may be tainted by his experience, view, knowledge and emotions.

Furthermore, the author of the study is also a member of the SMT. Thus, there is a risk that the answers provided by the respondents were also tainted or bias in order to align with the author’s perceived views. Whilst it is not evident from the responses, one needs to be mindful that the risk exists.

Finally, most of the respondents were new to the concepts, vocabulary and ideas introduced or questioned. To compound this issue, the author’s mother tongue is not English and he may use expressions and/or vocabulary that may not be fully understood by the interviewees.

5.4 Further research

As this research is based on a single case, the conclusions may not be generalized to other SMEs. Nevertheless, the author believes that, because of their nature, SMEs can hardly have strong analytical controls (cybernetic and planning). More often than not, as they struggle to grow with limited access to resources, their first reaction may be to make do with what they have i.e. not tying resources up with analysing, reviewing, planning, forecasting, etc. It would therefore be interesting to expand the research to more SMEs and assess the importance of cultural and administrative forms of controls in those companies that have managed to live more than 3 or 5 years.

It would also be of interest to investigate the development of MCS in SMEs from their inception to maturity and verify whether the tools used throughout the growth evolve with the company. Another research area could be a measure of the correlation between the existence of some form of controls and the death/survival of SMEs. The result of this research could prove to be valuable and have direct practical application.

 

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Appendices

Appendix A: Guiding questionnaire

Interviewee details 

1. Educational and Professional background 

2. Current position, role and tenure 

3. Level in the organization and number of people reporting to them 

4. Effect of company growth on their day‐to‐day job 

Decision making 

1. How are business opportunities determined? 

2. On what basis are the opportunities selected and pursued i.e. what are the criteria for 

selection? 

3. Who makes the selection? 

MCS ‐ Planning 

1. What are The Company’s goals and actions for the immediate future (12 months)? Have 

they been formalized? 

2. What are your department’s goals and actions for the immediate future (12 months)? Have 

they been formalized? 

3. Who determine these goals and actions? How are they derived? 

4. How are these goals and actions managed over time? 

5. What are the company’s goals for the 3‐5 years’ time horizon? 

MCS ‐ Cybernetics 

1. What is measured i.e. quantified in the company, in your department? 

2. What are the standards of performance i.e. the benchmarks? 

3. Do you have a process enabling you to measure your performance against the standards? 

How does it work? Who does it? How often? 

4. What do you do if there is a difference between the actual performance and the standards? 

5. What actions do you take when deviations from the standards are observed? 

MCS – Reward/Compensation 

1. What do you think a performance‐based reward system is? 

2. What do you think of performance‐based rewards? 

3. Does the company have a compensation mechanism that rewards the performance of 

individuals? 

4. What is the mechanism? How often does it take place, how is performance measured, what 

is the reward made of and how is it derived? 

5. What is the purpose of the current reward mechanism? 

6. Are the performance rewarded aligned with the company’s objectives? 

MCS – Administrative 

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1. Organizational design – How is The Company structured? How do authorities channel 

through the organization? 

2. Organizational design – Who has cross functional responsibilities? 

3. Organizational design – How are jobs defined?  

4. Organizational design – How does the organization ensure that people do what they are 

supposed to do? 

5. Organizational design – How do employees know what their functions, goals, and authority 

are? 

6. Governance structure – Who makes decisions in the company? 

7. Governance structure – What is the authority matrix like? 

8. Governance structure – How are decisions made? 

9. Policies and procedures – What are the procedures and policies that govern the individuals 

in your function? 

10. Policies and procedures – Where are they stored? Who is responsible for their application 

and maintenance? 

MCS – Cultural controls 

1. What are The Company’s Vision and Mission statements? 

2. What would you say are the value of the company? 

3. What sorts of rituals or celebrations take place at The Company? 

4. Is there a dress code? If yes, what do you think it represents? 

5. What would you say is the company’s culture of communication? 

MCS and the complex/dynamic environment 

1. What, in your opinion, is inhibiting the company’s ability to grow? 

2. What, in your opinion, is supporting the company’s ability to grow? 

3. What are the key attributes displayed by the management team that helped the company 

growing? 

Role of the founder 

1. What influence does the founder have in the company today? 

2. How does he manage the business? 

 

   

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Appendix B: Interviews schedule

#  Date  Duration 

1  05/09/2012  35 min 

2  06/09/2012  70 min 

3  07/09/2012  80 min 

4  11/09/2012  60 min 

5  11/09/2012  60 min 

6  12/09/2012  45 min 

7  12/09/2012  80 min 

8  13/09/2012  55 min 

9  01/11/2012  35 min