THE EFFECT OF BUSINESS STRATEGY AND EXTERNAL ENVIRONMENT ON MANAGEMENT CONTROL SYSTEMS

Management Control Systems (MCS)

Business Strategy  Cost leadership and differentiation strategies Differentiation strategy is associated with a less bureaucratic MCS (results, informal, flexible and interpersonal controls) while a cost leadership strategy is associated with a more bureaucratic MCS (action, formal, tight and impersonal controls).

External Environment  Perceived Environmental Uncertainty  Intensity of manpower and price competition  Changes in new services, economic and technology, legal, political and scientific discoveries  Predictability of competitors and customers

Summary  Cost leadership strategy is positively associated with a more bureaucratic MCS while a differentiation strategy is associated with a less bureaucratic MCS.  Perceived environmental uncertainty (PEU) will be positively associated with a more bureaucratic form of MCS and negatively associated with a less bureaucratic MCS. Thus, an emphasis of non-financial information in the less bureaucratic form of MCS can be less effective when environment is perceived to be unpredictable.

Thank You Presented By, Kavicitra Shanmugam A143406