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The effects of the interactive use of management control systems on process and organizational innovation

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Abstract

This study examines how the interactive use of management control systems (iMCS) affects process and organizational innovation. Firstly, it is postulated that iMCS directly influences the development of process and organizational innovations. Secondly, we argue in favor of a moderating role of iMCS in the relationship between innovation and financial performance. Most studies of MCS and innovation have focused on new product development. However, process and organizational innovations follow innovation patterns that clearly differ from product innovation. The research model is empirically examined using data collected from a survey of 230 firms. Results from a structural model tested applying Partial Least Squares regression, controlling for size, family ownership, R&D, and product innovation, reveal that iMCS fosters process and organizational innovation. Results also suggest that iMCS could play a moderator role in the relationship between process innovation and financial performance. These findings highlight the role of iMCS in process and organizational innovation, expanding previous literature on Simons’ Levers of Control and innovation. The results are also discussed with regard to their managerial implications.

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Notes

  1. This structure avoids contravening Luft and Shields’ (2003) position on moderating variables.

  2. The benefits of using MCS rarely have a direct impact on financial performance (Bisbe and Otley 2004; Henri 2006). However, MCS do exercise a “step-by-step” impact through intermediate and organizational factors before actually achieving financial performance.

  3. The agrifood industry is the largest Spanish industrial sector by GDP. It also presents a percentage of innovative companies consistently higher than in the whole of the Spanish economy and similar to that observed in industry in general.

  4. We conducted a systematic literature review through the EBSCO database and searched for documents that use the words “Control systems” or “Management control systems” or “Management accounting systems” or “Performance measurement systems” and “product innovation” in their abstracts. Ten papers were found. We repeated the process with the expressions “process innovation” (two papers were found) and “organizational innovation” (no paper was found) instead of product innovation. Then, we added the term “interactive” and repeated the same process for each type of innovation. This time three papers were found for “product innovation” and no paper was found for “process innovation” and “organizational innovation”.

  5. Firms belonging to National Classification of Economics Activities (CNAE) 10 and 11.

  6. The SABI database contains the economic and financial information on more than 600,000 Spanish and Portuguese firms, and is widely used and accepted for scientific studies (Bisbe and Malagueño 2012).

  7. After deletion of erroneous observations (CNAE not coincident or companies with no activity).

  8. \(e = \sqrt {\frac{{K^{2} xPxQ\left( {N - 1} \right)}}{{n\left( {N - 1} \right)}}}\) where e = sample error; K = value for assigning the confidence level, K = 1.96 for a confidence level of 95 %; P and Q = data confidence values. For a confidence level of 95 % P = Q and they take values of 0.5; N = sample population and n = sample size.

  9. Interactive use of MCS = MAX (Average of Interactive use of Cost Accounting, Average of Interactive use of BSC, Average of Interactive use of Budget System).

  10. f2 = (R2 interaction model − R2 main effects model)/(1 − R2 main effects model). Following Chin et al. (2003) and Naranjo-Gil et al. (2008), interaction effect sizes are small if f2 = 0.02, medium if f2 = 0.12 and large if f2 = 0.35.

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Acknowledgments

The authors gratefully acknowledge the participants and anonymous reviewers at the XVI AECA Conference (Spanish Association of Accounting and Business Administration). Granada Spain, September 2011; at the 18th Workshop on Accounting and Management Control–Raymond Konopka Memorial, Baeza, Jaén, Spain, February 2013 and at the 36th Annual Congress of the European Accounting Association, Paris, France, May 2013, for their insightful comments and suggestions. Jacobo Gomez-Conde is grateful to Catedra AECA Carlos Cubillo (2013-2014) and Ministerio de Ciencia e Innovación (ECO2013-48328-C3-2-P) for financial support.

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Authors and Affiliations

  1. Faculty of Business Administration and Tourism, Accounting and Finance Department, University of Vigo, Campus of Ourense, Edificio Jurídico-Empresarial, s/n, 32004, Ourense, Spain

    Ernesto Lopez-Valeiras

  2. Faculty of Business Administration and Tourism, University of Vigo, Campus of Ourense, Ourense, Spain

    Maria Beatriz Gonzalez-Sanchez

  3. Faculty of Economics and Business Administration, Universidad Autónoma de Madrid, Campus of Cantoblanco, Madrid, Spain

    Jacobo Gomez-Conde

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  1. Ernesto Lopez-Valeiras
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  2. Maria Beatriz Gonzalez-Sanchez
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Correspondence to Ernesto Lopez-Valeiras.

Appendices

Appendix 1

1.1 Interactive use of management control systems

Balanced scorecard (as for cost accounting and budget systems)

Is balanced scorecard used in your company? [yes/no]. If so:

  1. (1)

    …is used for result control (1) or continuous learning (5)

  2. (2)

    …is used to promote efficiency of internal operations (1) or to enhance creative responses to environmental changes (5).

  3. (3)

    …information is discussed face-to-face with team managers rarely (1) or continuously (5).

  4. (4)

    managers only discuss this tool face-to-face with their executive team when there are deviations (1) or managers always debate on this tool with their executive team (5)

1.2 Innovation

1.2.1 Process innovation

Please rate [Scale: (1), low and (5), high)] the extent to which new process incorporated are

  1. (1)

    Important in company results.

  2. (2)

    A novelty for the market.

1.2.2 Organizational innovation

Please rate [Scale: (1), low and (5), high)] the extent to which changes in business organization (introduction of new management systems, new forms of work development, new exterior relationships, new forms of employee training, etc.) are

  1. (1)

    Important in company results.

  2. (2)

    A novelty for the market.

1.3 Financial performance

Relative to your expectations, rate [Scale: (1), low and (5), high)] your degree of compliance (on average over the last 3 years) with performance goals on:

  1. (1)

    Sales.

  2. (2)

    Profit.

  3. (3)

    ROA.

Appendix 2

See Table 5 and 6.

Table 5 Factors, cross-loadings, and reliability and validity statistics for the multi-item scales (n = 230)
Full size table
Table 6 Reliability and validity statistics for the multi-item iMCS scales (n = 230)
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Lopez-Valeiras, E., Gonzalez-Sanchez, M.B. & Gomez-Conde, J. The effects of the interactive use of management control systems on process and organizational innovation. Rev Manag Sci 10, 487–510 (2016). https://doi.org/10.1007/s11846-015-0165-9

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