This chapter proposes a framework for analysing the different roles that formal management control systems (MCS) may play in managing various types of innovation, and, the effect that these innovations have on changes in business strategy. Traditionally, MCS have been associated with mechanisticorganizations (Burns and Stalker 1961), where their purpose was to reduce variety and implement standardization as portrayed in the cybernetic model (Ashby 1960; Anthony 1965). Accordingly, they were frequently perceived as a hindrance to any innovation and change effort in the organization. For example, Ouchi (1979) used an innovation-intensive activity, an R&D department, to illustrate clan control—acontrol approach that rejects formal MCS and instead relies on social norms. Tushman and O’Reilly (1997: 108) summarize this view: ‘With work requirements becoming more complex, uncertain, and changing, control systems cannot be static and formal. Rather, control must come in the form of social control systems that allow directed autonomy and rely on the judgment of employees informed by clarity aboutvision and objectives of the business.’ Recent theory and empirical studies have questioned these commonly held assumptions about the negative effect of MCS on innovation and laid the foundations for this topic to develop. They highlight instead the positive effect that MCS may have on innovation and develop alternative interpretations to the command-and-control view. Rather than a rigid mouldthat rejects the unexpected, MCS may be flexible and dynamic, adapting and evolving to the unpredictable needs of innovation, but stable enough to frame cognitive models, communication patterns, and actions. This new way of looking at MCS is consistent with innovation being not a random exogenous event that certain organizations happen to experience, but rather an organizational process susceptibleto management that explains why certain organizations are more successful than others.
This emerging line of research identifies how MCS enhance the learning, communication, and experimentation required for innovation in strategy formation. However, it has not yet considered different types of innovation, different ways in which innovation emerges, and how innovation getsembedded in the strategy of the firm. Without a model that frames MCS within this context, the advancement of our knowledge about these systems is likely to remain unstructured, with anecdotal pieces of evidence unrelated to each other and relying on diverse concepts that are not specifically designed for this task. The strategic management field has also made important progress to betterunderstand the impact of innovation on strategy. Researchers in this field have argued for specific approaches that bring innovation into the formulation and implementation of strategic change. They propose new ‘mental models’ (Markides 1997; Christensen and Raynor 2003) for strategy formulation. These models redefine an organization’s selfimage (Boulding 1956) and help managers break away from staticviews and create new strategies for the future. These researchers also examine the implementation of innovation as a key aspect of strategic change from a strategic process perspective: how to design organizational structures that are more innovative (Chesbrough 2000), how to design supportive cultures (Tushman and O’Reilly 1997), and how innovation ‘happens’ (Van de Ven et al. 1999; Burgelman 2002).These advances offer a fertile ground to extend the relationship between strategic process and MCS (Langfield-Smith 1997, 2005) and recognize the importance of MCS to strategic change. This chapter provides the background and develops a typology of MCS based on current knowledge on innovation and strategic change. It examines strategy as a process, leaving aside its content aspect (Chenhall...