Sales&Op

Strategic Management Journal, Vol. 12, 49-62 (1991)

STRATEGIC ORIENTATION AND TOP MANAGEMENT ATTENTION TO CONTROL SYSTEMS
ROBERT SIMONS Graduate School of Business Administration, Harvard University, Boston, Massachusetts, U.S.A.

Management control systems are viewed typically as management-by-exception tools for implementing intended strategies. This study provides a different perspectiveby focusing on the way that top managers use specific control systems to focus organizational attention on strategic uncertainties and thereby guide the development oj'new strategic initiatives. Analysis of field-based data from 30 businesses in the U.S. health care products indtistry is used to develop a model and propositions that distinguish between interactive and diagnostic control systems,and illustrate the selective use of these systems in different strategic contexts.

are reported to managers for remedial action and follow-up (Anthony, Dearden, and Bedford, Management control systems are viewed typically 1989: Chapter 1), In this description of the as tools of strategy implementation. The research management control process, strategy is a conreported in this paper departs fromthis perspec- straint: strategies are approved (if not developed) tive by exploring the circumstances under which by top managers, plans are communicated downmanagers use control systems as catalysts for new ward through the organization, and formal strategic initiatives. An empirical study of 30 systems are used to inform top managers if businesses in one U,S. industry is used to model actionsor outcomes are not in accordance with and illustrate how top managers use formal intended plans. Since control systems are a systems interactively in different strategic settings primary tool for management-by-exception, systo focus organizational attention and learning, tems of this type may be labeled diagnostic and thereby shape the formation of new strategies. control systems. In this study,management control systems are Recent research has indicated, however, that defined broadly as the formalized routines and control systems are not always used to manage procedures that use information to maintain or by exception. In certain circumstances, top alter patterns in organizational activity (Simons, managers use control systems far more actively on 1987a), These systems include formalizedinfor- a day-to-day basis to intervene in organizational mation-based processes for planning, budgeting, decision-making. Based on the amount of top cost control, environmental scanning, competitor management attention directed to a control analysis, performance evaluation, resource allo- system, a management control system can be cation, and employee rewards. labeled as interactive when topmanagers use Management control systems are usually that system to personally and regularly involve described as information feedback systems (Green themselves in the decisions of subordinates. and Welsh, 1988; Giglioni and Bedeian, 1974), When systems are used interactively, four Goals are set in advance, outcomes are compared conditions are typically present (Simons, 1987b: with preset objectives,and significant variances 351-352):

INTRODUCTION

0143-2095/91/010049-14$07.00 © 1991 by John Wiley & Sons, Ltd,

Received 9 December 1988 Final revision received 9 May 1990

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R. Simons
depends on an assessment of strategic uncertainties by top managers (Simons, 1990). Strategic uncertainties do not relate typically to what the firm already knows how to dp well, i.e. its criticalsuccess factors (Daniel, 1966); rather, strategic uncertainties refer to contingencies that could provide threats or opportunities as circumstances change (Daft et al., 1988). Top managers focus their attention on strategic uncertainties that could derail their vision for the future and use selected systems interactively to focus the attention of the entire organiztion on these uncertainties. Most...