Laying the foundation for strategic renewal: Using
management control systems to direct and support
autonomous strategic action.
Master Thesis Boelo Houwen
University of Groningen,
Faculty of Economics and Business
MSc Business Administration,
Laying the foundation for strategic renewal: Using
management control systems to direct and support
autonomous strategic action.
Master Thesis Boelo Houwen
University of Groningen,
Faculty of Economics and Business
MSc Business Administration,
Organizational and Management Control
October 2013
Boelo Houwen
S2043904
Address: Gelderse Roosstraat 63
Postal Code: 9741 KL
City: Groningen
Mobile: 06-29440214
Date: 13-10-2013
MSc Business Administration
Specialization: Organizational & Management Control
Supervisor: dr. A.R. Abbasi
1
Laying the foundation for strategic renewal: Using
management control systems to direct and support
autonomous strategic action.
Abstract
2
1. Introduction
Incumbent firms have an incentive to invest in incremental innovations and therefore focus on exploiting organizational activities, technologies, products and services that are well understood within the firm (Hill and Rothaermel, 2003). As a result of this behaviour, incumbent firms seem to have great difficulty adapting their businesses to new radical technologies that revolutionize the competition in an industry. This directly shows in the considerable turnover of the Fortune 500 list. From the top 100 U.S. based industrial companies listed in the Fortune magazine in 1965, only 19 remained in 2005. 15 companies fell out of the top 100 and 66 were acquired or disbanded. To counter these forces of inertia and to enhance a firm’s longevity, it is generally accepted and empirically tested that firms should explore new opportunities on a continuing basis (Burgelman & Grove, 2007; Piao, 2010). Several authors (Hill & Rothaermel, 2003; Burgelman, 1983a; 1983b, Burgelman & Grove, 2007), have therefore addressed the importance of autonomous strategic action as a source for strategic renewal. Hill & Rothaermel (2003) describe autonomous action as the tendency for individuals deep within an organization to take actions on their own initiative, even if those actions are inconsistent with the stated strategy of the organization as articulated by top management. When these initiatives manifest into new businesses that replace declining ones it can enhance organizational longevity. This phenomenon where radical innovations emerge from the bottom of the organization through autonomous initiatives is also known as corporate entrepreneurship (Davila et al., 2009). The creative processes that cause these autonomous initiatives require a particular motivational environment (Davila, et al., 2009). Hill & Rothaermel (2003) propose that organizations can implement autonomous strategic action through a set of cultural norms, systems and procedures. This indicates a required change in management control systems (MCS) of organizations. MCS can be defined as those systems, rules, practices, values and other activities that management puts in place in order to direct employee behaviour (Malmi & Brown, 2008). Organizational environments are heavily influenced by control mechanisms and MCS should therefore be able to create a nurturing environment for autonomous strategic action. To provide the raw material for strategic renewal it is required that employees can deviate from the established corporate strategy through autonomous initiatives (Burgelman, 1983b). Traditionally however, MCS were often associated with securing employee compliance toward the organization’s objectives and strategy. Due to this traditional focus, research on how to structure control processes to encourage and make new radical innovations emerge is still minimal (Davila et al., 2009). This study will therefore explore the following research question; how do management control systems
need to be designed to enable autonomous strategic action? With its results this study tries to
contribute to filling this research gap, thereby progressing the understanding of how MCS can contribute to the strategic renewal and long-term survival of (incumbent) firms.
3 champions that nurture autonomous initiatives and advocate them as strategic opportunities to top management (Burgelman, 1983b; Floyd and Wooldridge, 1992). The goal of these champions is to convince top management that the current concept of strategy needs to be revised so it accommodates their autonomous initiative (Burgelman, 1983a; 1983b). The generic selection process involves the allocation of resources and attention to autonomous initiatives, which try to prove their strategic significance (Burgelman, 2002). Strategic context determination therefore refers to generic selection process, as it functions as a selection mechanism that operates on the stream of autonomous strategic behaviour in an organization (Burgelman, 1983a). Top management can however, only amend its strategy when they are reasonably certain that an autonomous initiative is viable (Burgelman, 2002). The generic retention process concerns the autonomous initiatives that survive and grow important in the organization (Burgelman, 2002). When these autonomous initiatives are incorporated in the concept of corporate strategy then they become part of the induced strategy process (Burgelman, 1983b). This latter strategy process represents the traditional top-down strategy process, which top management uses to align the strategic actions of operational and middle managers in line with the intended strategy (Burgelman, 2002).
The autonomous strategy process increases variation by exploring new opportunities and the induced strategy process decreases variation by exploiting the current competencies of an organization. When resources are allocated to autonomous strategic action it will go at the expense of the organization’s intended strategy and core business. An organization therefore has to determine the relative emphasis it needs to put on the autonomous strategy process. The relative emphasis autonomous strategic action requires within an organization, might be derived from its corporate strategy. Organizations that follow a more entrepreneurial orientated strategy, for example, would require different levels of strategic renewal and innovation than organizations that follow a cost-efficient strategy (Miles et al., 1978). Entrepreneurial orientated strategies would have to put more emphasis on the autonomous strategic action to find and exploit new product and market opportunities. In contrary to cost-efficient strategies that want to align strategic actions with the intended strategy to generate and maintain efficiency. The desire for strategic renewal does not only depend on the strategy of an organization, but also depends on environmental change (Mintzberg, 1978). Environmental dynamics may therefore determine some of desirability of autonomous strategic action, as they also seem to determine some of the effectiveness of an organization’s exploration activities (Perez-Freije & Enkel 2006; Kim & Rhee 2009). Highly dynamic environments, for example, would require organizations to continuously generate new competencies and explore new opportunities to differentiate them from their competitors (Floyd & Lane, 2000). The relative attention an organization’s systems and processes have to put on autonomous strategic action might therefore depend on their corporate strategy and the dynamics of their external environment.
4 package are the individual social and technical controls available to managers. The MCS package therefore represents the core of Tessier & Otley (2012) conceptual development. Tessier & Otley (2012) propose that sets of these individual controls compose into four MCS, which manage a specific objective. This latter conceptual model can therefore provide a more macro view on MCS.
5
2. Research Design
This section will elaborate on the research’s design based on the research’s objective, main- and sub-research questions and applied sub-research methodology.
2.1 Research objective
The main objective of this research is to analyse how MCS need to be designed to manage a supportive environment for autonomous strategic action. From this objective the following main research question is acquired:
How do management control systems need to be designed to enable autonomous strategic action?
2.2 Research questions
The relationship will be examined through the various research questions. The final two sub-questions are structured by Malmi & Brown (2008) and Tessier & Otley (2012) frameworks on management control.
When should management control systems enable and/or constrain autonomous strategic action?
Depending on the strategy and environmental dynamics of an organization, autonomous strategic action may be desirable or not. Therefore, it first needs to be established in which situations autonomous strategic action should be supported by MCS and which roles and associated behaviours are displayed by employees in the autonomous strategy process.
Which set of elements and components in the management control system package can enable the autonomous strategic behaviour of employees?
How can the various elements and components of the MCS package provide a supportive organizational environment that enables the autonomous strategic behaviour of employees?
How do the objectives of management control systems relate to autonomous strategic action?
Tessier & Otley (2012) conceptual framework proposes four MCS that each manages a specific objective. How do the objectives of these four MCS relate to autonomous strategic action?
2.3 Research methodology
This research will perform an exploratory literature research on how MCS need to be designed to enable autonomous strategic action. Fig. 1, visualizes the research´s design as a conceptual model. Autonomous strategic action can be dissected into three generic processes e.g. variation, selection and retention processes according to the evolutionary organization theory (Burgelman, 2002). As seen in Fig. 1, the retention process is not included in the research design. Autonomous initiatives become part of the induced strategy process during the generic retention process. The research design therefore regards the retention process as the end of the autonomous strategy process.
6 be included in the research design. The first sub-question will also elaborate on what roles and associated behaviours that are displayed by employees in the autonomous strategy process. MCS are put in place in order to direct employee behaviour (Malmi & Brown, 2008). It is therefore required to establish what autonomous strategic behaviour encompasses, before it can be determined how MCS can enable or constrain it.
Autonomous
strategic action Variation process Selection process
MCS Elements and components Objectives Environmental dynamics Organizational strategy +/+ / -+ + Retention
Figure 1 Conceptual model
The design of MCS is based on two conceptual models and dissects MCS into elements, components and objectives. The MCS elements and components are based on Malmi & Brown (2008) conceptual model which they specify as the MCS package. The MCS package is made out of five elements; cultural controls, planning controls, cybernetic controls, reward and compensation and administrative controls. Each element also has various underlying components. The MCS package will be applied in the second sub-question for a systematic analysis. This analysis will determine which control elements and components can enable autonomous strategic behaviour of employees. The results of this analysis will differentiate on how the autonomous strategic behaviour of employees is enabled between the generic variation and selection processes.
Tessier & Otley (2012) argue that the elements and components from the MCS package are the individual social and technical controls available to managers. With their conceptual model, Tessier & Otley (2012) propose that sets of these individual controls compose into four MCS, which manage a specific objective. This second conceptual model is associated to the third and last research sub-question, which will perform an analysis on how the objectives of these four MCS relate to the concept of autonomous strategic action. This will give the research a micro to macro approach.
8
3. Timing of autonomous strategic action and associated behaviour
Simons (1994) states that MCS must accommodate deliberately intended strategies as well as incremental strategies that emerge in various corners of the organization. The required level of accommodation for these incremental strategies is related to the appropriate timing. As the timing of explorative activities is an important factor for its efficacy in increasing organizational survival (Piao, 2010). Several authors have proposed that organizations should use different balances of exploration and exploitation based on various environmental dynamics. Perez-Freije & Enkel (2006), for example, argue that, innovation processes in fast changing industries need to support creativity, whereas slow dynamic environments need to enhance resource efficiency. Kim & Rhee (2009) propose that the exploratory activities of an organization would perform better in stable environments rather than turbulent environments. Organizations should also explore less during periods of incremental change and more during periods of technological ferment (Tushman and Anderson, 1986). There should however always be a temporal overlap of exploration and exploitation activities (Piao, 2010). Organizations should attain better performance when there is a match between their strategy, internal structures and systems and their external environment (Langfield-Smith, 1997). MCS should therefore adapt to changes in corporate strategy and the external environment to accommodate the appropriate balance between exploration and exploitation. This should also affect the balance between the autonomous and induced strategy processes, as the former involves exploration and the latter exploitation (Burgelman, 2002). Several authors (Andersen, 2000; Floyd & Lane, 2000; Burgelman & Grove, 2007) have addressed this balance between these two strategy processes specifically, which will be elaborated upon below.
Burgelman & Grove (2007) suggest that the balance between the autonomous and induced strategy processes depends on strategic actions of an organization in relation to its external environment. If players within an industry only engage in strategic actions that produce linear and fairly predictable change it will lead to a stable external environment (Burgelman & Grove, 2007). During these periods the autonomous strategy process can secure a sustained profitable growth by replacing declining businesses with new strategic opportunities. The autonomous strategy process however seems to grow more important as the external environment gets more dynamic. According to Burgelman & Grove (2007), this happens through strategic actions that considerably change the competitive context and the widespread rules that determine how competition takes place.
9 require the organization to choose which of the strategy processes should gain its support, as both cannot be supported at the same time (Burgelman & Grove, 2007). When an organization has autonomous initiatives, which can be considered viable and can lead it to a new strategic direction, it should amend its strategy and allocate its resources to the induced strategy process. However, if there are no validated opportunities, the organization should allocate more resources to the autonomous strategy process.
Floyd & Lane (2000) argue that autonomous strategic action primarily responds to environmental contingencies with high levels of factor market dynamics or technical concerns, rather than product dynamics or customer concerns. In these environments, organizations would require a continuous renewal of their competencies to differentiate themselves or to stay ahead of their competitors. These environmental situations would be commonly found in emerging technology-intensive industries or during hyper-competition (Floyd & Lane, 2000). These proposals also gain empirical support by Andersen (2000) who shows that autonomous strategy process is important for economic performance and organizational innovation in dynamic and complex computer product industries.
Autonomous strategic action therefore seems to be most relevant for performance in dynamic technology intensive industries. The autonomous strategic process should however always be supported to various degrees as it can provide an organization with new opportunities (Burgelman & Grove, 2007; Piao, 2010). Most of the time an industry operates with relative stability. During these periods the main purpose of autonomous strategic action is to secure an organization with a sustained profitable growth by replacing declining businesses. The autonomous strategy process can also lead organizations into a new strategic direction. This may be a necessary precaution when the core business of an organization is jeopardized, as another entity considerably changes the competitive context. However, if the organization leads in rule-breaking strategic actions then they should exploit this opportunity, making the autonomous strategy process less relevant. Hyper-competition and runaway-industry change are the most uncertain environmental situations organizations can experience as it will prevent them from creating a sustainable competitive advantage (Floyd & Lane, 2000; Burgelman & Grove, 2007). In these environments the autonomous strategy process should continually generate new competencies to temporarily differentiate an organization from its competitors until a viable strategic direction presents itself (Floyd & Lane, 2000; Burgelman & Grove, 2007).
10
3.1 Autonomous strategic action and associated roles and behaviour
Autonomous initiatives often but not necessarily emerge from the bottom of the organization and often start small either by an individual or small group (Burgelman, 2002). Regardless of the size of autonomous initiatives, each hierarchy level in the organization (e.g. top management, senior/middle management and operational level managers and employees) has a role in the autonomous strategy process, which will be elaborated upon in this paragraph.
The development of new autonomous initiatives and competencies starts with operational management, which role is to acquire assets and skills by experimenting with novel solutions to emerging problems (Burgelman, 1983a; Floyd & Lane, 2000). According to Floyd & Lane (2000), this experimenting role of operational management involves a set of behaviours that include; learning and improving, linking technical ability and need, experimenting and taking risks and initiating autonomous initiatives.
Learning and improving is associated with organizational learning. According to Kloot (1997), organizational learning is the process of changing the organization to fit the changed environment and may be either adaptive or generative. Kloot (1997) elaborates, that adaptive learning only involves minor changes to operating policies not affecting an organization’s existing operational paradigm of strategies, structures and actions. Generative learning is more closely related to the concept of autonomous strategic action, because it also involves questioning underlying policies and goals (Argyris, 1977). Thereby resolving incompatible organizational norms and setting new priorities or restructuring norms. This eventually leads to the creation of a new operational paradigm (Kloot, 1997).
Corporate entrepreneurs tend to combine pieces of technology and organizational knowledge, which exist in separate parts of the organization, thus creating new technical and market links (Burgelman, 1984). Technical linking creates solutions for new, or known but unsolved, technical problems by activities that assemble external and/or internal pieces of technological knowledge (Burgelman, 1983a). Need linking involves activities that match new technical solutions to new or poorly served market needs (Burgelman, 1983a). These linking activities usually, but not necessarily, happen at lower hierarchy levels, as these employees are more directly involved in the development of an organization’s technical capabilities and have sufficient contact with the business side to be aware of market needs (Burgelman, 1983a; 2002).
Experimenting with new and unproven technical and need links involves a level of risk. To enable autonomous strategic behaviour, top management needs to encourage experimentation and risk-taking to nurture the development of the highest potential ideas (Hart, 1992). Product champions can be related to the initiators of autonomous initiatives. These champions try to draw resources to their initiative to demonstrate its feasibility and to create a market interest, thereby gaining and maintaining support in the organization (Burgelman, 1983a; 2002).
11 therefore is to balance the induced and autonomous strategy process by evaluating and retaining the initiatives that have the most potential to meet challenges that emerge from the external environment (Floyd & Lane, 2000; Burgelman & Grove, 2007). Floyd & Lane (2000) also associate middle management role in the autonomous strategy process with a set of behaviours that include; nurture and advocate, championing, and presenting strategic alternatives to top management. Due to their position middle managers are able to initiate and asses’ alternative strategic courses (Wooldridge & Floyd, 1990; Floyd & Wooldridge, 1992). According to Floyd and Wooldridge (1992), middle managers select certain autonomous initiatives and nurture them with an early investment. When autonomous initiatives prove themselves successful, middle managers advocate them as new business opportunities. Advocating new business opportunities to top management relates to organizational championing (Burgelman, 1983a). Organizational champions present the autonomous initiatives they selected to top management and keep them informed about their initiatives’ developments. During this process, organizational champions try to make top management enthusiastic about selected initiatives and try to convince them to about their strategic importance (Burgelman, 1983a).
In addition to the identified roles and behaviour associated with autonomous strategic action, several authors (Hornsby et al., 1999, 2002, 2009; Goodale et al., 2011) reported on five internal organizational factors that can promote the entrepreneurial behaviour of managers. In these studies, corporate entrepreneurship refers to the development and implementation of new ideas into the organization (Hornsby et al., 2002). The five organizational factors can be interpreted as followed:
(1) Top management support: the extent to which one perceives that top managers support, facilitate, and promote entrepreneurial behaviour; including the championing of innovative ideas and providing the resources people require to take entrepreneurial actions (Hornsby et al., 2009).
(2) Work discretion: the extent to which one perceives that the organization tolerates failure, provides decision-making latitude and freedom from excessive oversight, and delegates authority and responsibility to lower-level managers and workers (Hornsby et al., 2009). (3) Rewards and reinforcement: the extent to which one perceives that the organization uses
systems that reward based on entrepreneurial activity and success (Hornsby et al., 2009). (4) Time availability: workloads ensuring that individuals and groups have the time needed to pursue innovations, with jobs structured in ways to support such efforts and achieve short and long-term organizational goals (Goodale et al., 2011).
(5) Organizational boundaries: precise explanations of outcomes expected from organizational work and development of mechanisms for evaluating, selecting, and using innovations (Hornsby et al., 2008).
12 fostering corporate entrepreneurship. This is line with Burgelman (1983a), who suggest that the motor of corporate entrepreneurship resides in autonomous initiatives that emerge from the bottom of the organization. These five reported factors do however not explicitly differentiate between the induced and autonomous strategy processes. They rather affect the internal environment of an organization, which determines the interest in and support of entrepreneurial initiatives within an established company (Hornsby et al., 2002). How management control mechanisms can support these factors will therefore, to some extent, determine the interest in and support of autonomous initiatives and might therefore enable the autonomous strategic behavior of employees.
13
4. Enabling autonomous strategic behaviour with the MCS package
Traditionally, MCS were associated with reducing variations from the established strategic planning (Davila, et al., 2009). And many companies are still managed with methods that are designed to manage routine operations and not innovation and change (Christiansen, 2000). This traditional view of management control lead to the conclusion that formal management control was a hindrance to innovation. Informal cultural controls were however associated with innovation, through the work of Ouchi (1979). In his work, he linked the uncertain task environment of a research laboratory with the use of clan controls, which exercise control trough social norms. This view on MCS has changed significantly over the last decade, to systems that support organizations in responding and adapting to their changing environments (Davila, 2005). According to Davila et al. (2009), this started with Simons (1987) empirical work, which identified that entrepreneurial orientated prospector firms put more emphasis on control systems than their less entrepreneurial defender counterparts. Both informal and formal controls therefore seem to have an effect on innovation activities, such as autonomous strategic action. Consistent with this point, Malmi & Brown (2008) argue that MCS should be studied as a package. As management controls (such as administrative or cultural) do not operate in isolation from each other. Using Malmi & Brown (2008) MCS package, this section will analyse how each control element and their underlying components can enable the autonomous strategic behaviour of employees. The MCS package consists out of five elements: cultural controls, planning controls, cybernetic controls, rewards and compensation and administrative controls.
4.1 Cultural controls
Although Simons (1987) showed the relevance of formal controls for innovation activities, the culture of an organization still remains an important informal control system for regulating autonomous strategic behaviour. Malmi & Brown (2008) define organizational culture as the set of values, beliefs and social norms which tend to be shared by its members and, in turn, influence their thoughts and actions. Organizational culture can either inhibit or enhance autonomous strategic behaviour. According to Chenhall, et al. (2011) organization cultures will be supportive of innovation if they are more adaptive and responsive, have open communication and a free flow of information and engage employees in developing new ideas. These characteristics indeed seem supportive to the experimenting and championing roles of operational and middle management. However, an organizational culture is a complex control system influenced by several dimensions and overlapping determinants including several formal and informal controls (Martins & Terblanche, 2003). Organizational cultures therefore remain relatively fixed over time and are slow to change (Merchant & Van der Stede, 2007; Malmi & Brown, 2008).
14 behaviour. Additionally, autonomous strategic action needs to be legitimized through organizational values and norms that allow the questioning of established strategies and encourage employees to exercise their strategic voice (Hill & Rothaermel, 2003). If an organization wants to achieve strategic renewal, it needs to transfer shared organizational values that make employees perceive that it is allowed to search for opportunities beyond the stated corporate strategy. Employees can use their strategic voice to promote these new opportunities and/or technologies packaged as autonomous initiatives as potential new strategies for the organization (Burgelman 1983b; Hill & Rothaermel, 2003). Floyd & Lane (2000) also argue that using ‘voice’ has the greatest potential to resolve strategic role conflict within and between managers. Role conflict occurs within an individual when it holds multiple and conflicting goals and can also happen between two or more individuals when they have conflicting opinions about which of multiple roles is appropriate (Floyd & Lane, 2000). Strategic role conflict can therefore occur between conflicting goals of the autonomous and induced strategy processes and between managers from different hierarchy levels due to different environmental orientations (Floyd & Lane, 2000). At the company Intel, for example, managers started to gradually allocate manufacturing resources away from the induced strategy process to more profitable business opportunities from the autonomous strategy process due to a the adoption of a new resource allocation rule (Burgelman, 1991). During this period conflicting opinions among managers started to arise about which of the two strategy processes was appropriate (Burgelman, 2002; Burgelman & Grove, 2007). These strategic role conflicts were however resolved through the encouragement of strategic voice. What encouraged managers to use their strategic voice was Intel’s cultural tradition of open debate among managers about the business value of strategic initiatives (Burgelman, 1994). These open debates were based on constructive confrontation, knowledge power and economic performance, rather than impediments of change such as organizational (hierarchy) power and politics (Burgelman, 1994; Hill & Rothaermel, 2003). The encouragement of strategic voice can therefore potentially influence the perspective of an employee on the need for change (Floyd & Lane, 2000). If employees perceive ‘the need for change’ it will create an organizational climate that is ‘open to new ideas’, which will give autonomous strategic action an increased chance of being accepted (Marginson, 2002). When employees are however not encouraged to use their strategic voice it may lead to undesirable behaviour such as avoidance, lying or exiting the organization (Grover, 1993). Top management should communicate the appropriate values and beliefs in the form of vision statements, mission statements, credos, and/or statements of purpose (Simons, 1994; Malmi & Brown, 2008).
15 Employees will also perceive that top management is supportive of autonomous strategic action when these activities are institutionalized into the systems and processes of an organization (Hornsby et al., 2002). According to Hornsby et al. (2002), institutionalizing entrepreneurial activity is one of many forms of management support next to the championing of ideas and providing resources or expertise. Top management can therefore use cultural controls to legitimize autonomous strategic action and inspire employees in their search for new business opportunities. Employees will however truly start to perceive that top management supports autonomous strategic action when it is also institutionalized within the systems and processes of the organization.
4.2 Planning controls
Malmi & Brown (2008) concern strategic planning and action planning under planning controls. Planning acts to conserve the basic orientation of the organization and serves as a boundary system that specifies which types of behaviour are tolerated (Mintzberg, 1994; Simons, 1994). At first sight, planning might seem detrimental and appear to act against autonomous strategic behaviour. As it specifies types of behaviour, thereby lowering the work discretion of employees. Andersen (2000) however shows, that autonomous strategic action and strategic planning are congruent, but independent processes. This is also in line with Burgelman (1983b; 2002) who proposes two separate strategy processes e.g. autonomous and induced strategy process. Strategic planning thereby represents part of this latter strategy process.
Which methods an organization uses in the strategic planning process, does however affect some of associated behaviour with autonomous strategic action. Kloot (1997), for example, concludes that centralized planning by top management should have less emphasis if organizations want to achieve generative learning. Instead, organizations should involve more managers and employees to encourage flexibility and creativity in responding to sudden external changes. Similar, Barringer & Bluedorn (1999) show that high-level employee participation in planning facilitates a higher level of corporate entrepreneurship intensity in a firm. Poskela & Martinsuo (2009) however found contradicting results and did not find a significant relationship between strategic renewal and participative planning. An explanation for these results might be that Poskela & Martinsuo (2009) focus on the activities that take place before the formal product development project. Whereas the other two studies (Kloot, 1997; Barringer & Bluedorn 1999), include activities from the entire innovation process from the perspective of the evolutionary organizational theory. Participate planning therefore does not seem to be an inspiration source for new autonomous initiatives. According to Burgelman (2002), the willingness of operational and middle managers to engage in autonomous strategic action is influenced by their assessment of the probability that the strategic context determination process can be activated and successfully completed. It can be argued that participate planning increases this probability, as it gives rise to champions that want to advocate their autonomous initiative. Participative planning might also reinforce organizational values that encourage the exercise of strategic voice, as organizational values and beliefs constitute in combination with formal technical controls (Tesluk, et al., 1997; Tessier & Otley, 2012). Participative planning may therefore enable the strategic context determination process and the autonomous strategic behaviour of employees.
16 result in higher innovation performance. Indicating that detailed action planning for operational processes will benefit the innovation performance of an organization. Their results also show that when process control formality is high, rewards and reinforcement significantly increases innovation performance and time availability significantly reduces innovation performance. Detailed action planning might therefore best promote innovation performance when operational management perceives that risk taking and innovation activities are rewarded and supported. These results are in line with Hornsby et al. (2009) findings, which show that operational management does not implement more new ideas when they perceive work discretion. This in contrary to middle managers who do implement more new ideas and unofficial improvements when they perceive work discretion (Kuratko et al., 2005; Hornsby et al., 2009). Hornsby et al. (2009) argue that managers would likely use an increase in work discretion to enhance performance on salient task. When operational managers therefore perceive an increase in work discretion they are likely to focus their attention more narrowly on increasing efficiency rather than implementation of new ideas (Hornsby et al., 2009). It can also be argued that operational managers do not regard themselves as the implementers of new ideas or autonomous initiatives. In the autonomous strategy process they are responsible for the generation and development of new ideas by linking technical ability and need (Burgelman, 1983a; Floyd & Lane, 2000; Brentani & Reid, 2012). Middle managers might rather regard themselves as the implementers of these unofficial improvements and initiatives as they are often responsible for selecting and nurturing autonomous initiatives that they regard as strategically important (Floyd and Wooldridge, 1992). Less detailed action planning that increases work discretion would therefore only enable the autonomous strategic behaviour of middle managers, rather than operational managers.
4.3 Cybernetic controls
According to Malmi & Brown (2008) cybernetic systems can be used as controls, when behaviour is linked to targets and when employees are held accountable for variations. They include budgets, financial measures, non-financial measures and hybrids in their definition of cybernetic controls. Cybernetic controls use a feedback loop to check for unwanted performance variances from standards and use this information to modify the systems behaviour or underlying activities (Green & Welsch, 1988). These controls are also associated with reducing variation and implementing standardization (Davila, 2005). Cybernetic controls can therefore inhibit emerging autonomous initiatives that are seen as unwanted performance variances, showing the importance of legitimizing autonomous strategic action within an organization. How organizations control their budgets and manage resource allocation in relation to innovation activities, can have a large impact on autonomous strategic behaviour. Poskela & Martinsuo (2009), for example, show that resource allocation decisions have key role in promoting front-end innovation activities such as autonomous strategic action. Autonomous initiatives also usually emerge where managers have some budgetary discretion, as these initiatives increase variation from intended plans (Burgelman, 1991).
17 autonomous initiatives (Geiger & Cashen, 2002). Budgetary discretion and internal resource slack however have an inverted U-shaped relationship with innovation (Geiger & Cashen, 2002; Morris, et al., 2006). Providing too much budgetary discretion and/or resource slack would therefore also be detrimental for innovation performance as it gives rise to agency problems. Organizations that use budgets as a control tool seem to need to find and strike a balance that still provides control, but is also flexible enough to pursue strategic opportunities.
Shih and Yong (2001) argue that during dynamic environmental situations where the autonomous strategy process has a key role, budgets might not be the appropriate vehicle for control. Their research shows that the more uncertain an organization is about its financial results, the less is the extent that budgeting is used as a control tool. Budgeting as a control tool also has been criticized in the management control literature. As budgeting processes are too long and expensive, centralize power and decision-making, reinforce bureaucracy, inhibit initiative, increase political gaming and focus on cost reduction, rather than value creation (Hope & Fraser, 2000; Player, 2003, Østergren & Stensaker, 2011). An alternative approach to budgeting that is adopted increasingly by organizations is the balanced score-card, which Malmi & Brown (2008) define as a hybrid form of cybernetic control. This approach however also suffers from a short-term focus due to the performance drivers of the annual budget (Player, 2003). In line with these arguments, budgeting and the balanced score-card seem to inhibit autonomous strategic behaviour. The willingness of employees to engage in the autonomous strategy process is also influenced by their assessment of the probability that it can be activated and successfully completed (Burgelman, 2002). Budgeting processes therefore seem to involve too much bureaucratic red-tape thereby inhibiting creativity, time to experiment, bottom-up communication and initial investments that are required for autonomous strategic action. Also due to the long-term horizon of most autonomous initiatives, the short-term horizon of the balanced score-card seems detrimental for enabling managers in their autonomous strategic behaviour.
18 available for these innovative activities (Kuratko, et al., 1990; Hornsby et al., 2002). With traditional budgeting, resources have been committed for the budgeting period and therefore it fails to empower employees to act by providing them with resource capabilities (Hansen et al., 2003; Hope & Fraser, 2003). Beyond budgeting solves this problem by provides a dynamic and continuous resource allocation process (Østergren & Stensaker, 2011). In sum, beyond budgeting creates an incentive for managers to invest in autonomous initiatives, due to the stretch targets and together with a continuous resource allocation process, it increases the possibility for autonomous initiatives to emerge and find their initial investment.
Another alternative proposed by Floyd & Lane (2000) is to separate the resource allocation process for autonomous initiatives by establishing an intra-organizational market for these projects. Instead of nurturing a broad range of autonomous initiatives, the initiatives are weighed against each other and selected based on their performance against accepted criteria. The budget for this market can be based on the appropriate balance between the autonomous and induced strategy processes, thereby planning acceptable levels of autonomous strategic behaviour. Hill & Rothaermel (2003) argue that it is important that a resource allocation process for autonomous strategic action is not influenced by the exercise of organizational power and politics. As autonomous initiatives often bring organizational change and managers may want to oppose the redistribution of power and influence that comes with it. If corporate resources are however already committed to this intra-organizational market, organizational power and politics cannot conspire to hinder resource allocation to non-traditional areas, such as autonomous strategic action. Committing a resources allocation process to the autonomous strategic action will also further its legitimization (Hill & Rothaermel, 2003). The intra-organizational market can provide either initial investments and/or larger investments for autonomous initiatives. Larger resource allocation decisions within this market should be based on open debates among middle management to effectively reflect the dynamics of the external environment (Burgelman, 1994; Floyd & Lane, 2000; Hornsby et al., 2002). According to Hill & Rothaermel (2003) it may also increase the probability that an incumbent will invest in radical technologies if middle management has the formal systems and procedures that allow them to influence resource allocation within an organization. Open debates based together with appropriate organizational values can also bring information equivocality and goal incongruities between parties to a minimum, which are prerequisites for an effective market (Floyd & Lane, 2000). When employees perceive the market as fair, it will reduce strategic role conflict and promote trust and collaboration among employees in the autonomous strategy process (Floyd & Lane, 2000). The intra-organizational market can also provide a continuous resource allocation for the autonomous strategy process, thereby encouraging managers to experiment and take risks (Kuratko et al., 1990; Hornsby et al., 2002).
4.4 Rewards and compensation
19 addition to their base-salary require an extra incentive for undertaking the risk and bearing the uncertainty of entrepreneurial activities (Eisenhardt, 1989; Jones & Butler, 1992). Corporate entrepreneurs might depart from the organization to found their own firms, if there are no incentive schemes to cover these aspects and reward for their effort and activities (Jones & Butler, 1992). Incentives that can promote entrepreneurial behaviour are equity and equity equivalents, bonuses, salary increases, promotions, recognition and rewards (Bhardwaj et al., 2011).
Hornsby et al. (2002) proposes that an effective reward system that spurs entrepreneurial activity must consider goals, feedback, outcome-based incentives and an emphasis on individual responsibility to increase autonomy. Goodale, et al. (2011) results show that a reward system for entrepreneurial activity positively influences innovation performance when process control formality is high, indicating that the innovation processes are amendable to the application of structured and disciplined oversight for evaluation and reward. According to Burgelman (1991), employees may see the autonomous strategy process as an alternative opportunity structure if they perceive that their opportunities in the induced strategy process are limited. Employees therefore engage in autonomous initiatives to seek expression of their special skills and achieve career advancements (Burgelman, 1991). This is also in line with Bhardwaj et al. (2011), who suggest that recognition and enhanced status, rather than money, are primary motivators for employees to take on autonomous initiatives. Some employees might also engage in autonomous initiatives because it is congruent with their self-image and/or because of their curiosity and intrinsic motivation (Burgelman 1991; Poskela & Martinsuo, 2009). Middle managers can therefore enable the autonomous strategic behaviour of some employees, by providing intrinsic rewards that allow employees to experiment with innovative ideas (Hornsby et al., 2002).
Corporate entrepreneurs tend to favour outcome-based incentives that are linked to the performance of their initiative such as bonuses based on ROI or profit sharing (Perez-Freije & Enkel, 2006; Lerner et al., 2009; Bhardwaj et al., 2011). Outcome based rewarding promotes the bearing of uncertainty, reduction of opportunism and encourages creativity and risk-taking (Jones & Butler, 1992; Kloot, 1997). Performance measurement can however only start as the initiatives start to take shape during the selection process. As establishing effective performance measures in advance will be difficult. Determining the contribution of an individual at this stage would also be difficult to evaluate, group rewards therefore seem favourable (Jones & Butler, 1992). Group rewards would also spur collaboration among the involved team members.
It is important that the reward system is visible to reinforce an entrepreneurial culture and give employees an incentive to engage in entrepreneurial activities (Lerner et al., 2009). Hornsby et al. (2009) argue that if much of corporate entrepreneurship activities are viewed as unsanctioned, little formal structure for rewards and resources will be instituted. This again shows that it is important that cultural controls legitimize autonomous strategic action (Hill & Rothaermel, 2003). Finally to promote risk taking, organizations should not immediately sanction managers that undertake an autonomous initiative and fail (Jennings & Lumpkin, 1989). This will however be appropriate when projects fail repeatedly.
20 status. Product and organizational champions should be rewarded appropriately or they may depart from the organization to found their own firms. More formalized evaluation and reward systems can be applied as the initiative gains shape during the selection process. At this stage, outcome-based incentives are favoured indicating that rewards should be linked to the long-term performance of the autonomous initiative.
4.5 Administrative controls
The final element from Malmi & Brown (2008) proposed MCS package is administrative controls. According to Malmi & Brown (2008), administrative controls direct employee behaviour through; the organizing of individuals and groups, the monitoring of behaviour, the delegation of authority to which employees must account their behaviour, and the process of specifying how tasks or behaviours are to be performed or not performed. Three groups of administrative controls are considered in their framework; governance structures within the firm, organization design and structure, and procedures and policies. Currently, the relationship between corporate entrepreneurship and governance structures has not received much attention from academics (Phan et al., 2009). According to Malmi & Brown (2008), governance also includes systems, which are in place to ensure that representatives of various functions and organisational units meet to co-ordinate their activities both vertically and horizontally. These governance systems might therefore be essential in facilitating bottom-up communication and impetus. It could also provide organizational champions with opportunities to advocate autonomous initiatives to top management.
Malmi & Brown (2008) argue that a particular organisational structure can be an important control device in organisational design, as it can encourage certain types of contact and relationships. According to Flamholtz (1983) several structural dimensions can be used to exercise control, these include; the degree of centralization, functional specialization, the degree of vertical or horizontal integration and the span of control. Flamholtz (1983) further explains that functional specialization exercises control by reducing variability of behaviour and increasing predictability. The other dimensions facilitate control by directing influence over the decisions making process for non-programmable events. It can however be argued, that these other structural dimensions do have an effect on the autonomous strategic behaviour of employees, which would make them control mechanisms. Organisational design is context specific and depends on an organization’s market structure, strategy, production process and the extent of information asymmetry (Hansen et al. 2003). Basing the organization structure on solely autonomous strategic action to the exclusion of these other elements can therefore lead to a poor design. Still, some considerations can be made regarding autonomous strategic action and the design of organisational structure.
21 cross-functional integration in order to facilitate tacit knowledge exchange and organizational learning (Hayton, 2005). Autonomous strategic action also relies on bottom-up communication and substantive interactions between top management and middle managers that act as organizational champions (Burgelman, 1984; 2002). To facilitate this communication the organizational structure should not have too many hierarchal levels (Kuratko & Goldsby, 2004; Bhardwaj et al., 2011). In line with argument, Marginson (2002) also suggest that hierarchically based administrative controls can shape middle managers perception of their role as either entrepreneur or enabler of the core-business. Finally, wider spans of control would promote work discretion, which is one of the organisational factors that encourages managers to undertake entrepreneurial activities (Hornsby et al., 2002). These results from the literature suggest that autonomous strategic action favours an organic organization. As this structure implies decentralized decision making, minimal hierarchy levels, wide spans of control, free-flowing information networks and closely integrated organizational functions such as marketing, manufacturing and R&D (Covin & Slevin, 1991; Urban, 2012).
Policies and procedures is the final component that Malmi & Brown (2008) consider under administrative controls. They define them as the bureaucratic approach to specifying the processes and behaviour within the organization. One well known policy is that of the company 3M, that gives its employees 15% of their time to explore new ideas (Davila et al., 2009). Time availability for pursuing entrepreneurial ideas has also been identified as a key antecedent for entrepreneurial behaviour of managers (Hornsby et al., 2002). However, at 3M this policy is accompanied with a strong entrepreneurial culture. These bureaucratic approaches that are designed by an organization to spur entrepreneurial behaviour might therefore not have the same results when adopted by another organization. Goodale et al. (2011), for example, shows that time availability best promotes innovation performance under low levels of process control formality and risk control. Indicating, that giving employees more free time to explore opportunities and ideas does not necessarily results in better innovation performance, when they get caught up in the red-tape of a bureaucratic organization.
What Merchant & Van der Stede (2007) define as action controls is also included in policies and procedures (Malmi & Brown, 2008). Loose action controls that have a low emphasis on behavioural constraints, pre-action reviews and action accountability can promote work discretion (Merchant & Van der Stede, 2007). Tight action controls also discourage creativity, innovation and adaption (Merchant & Van der Stede, 2007). Loose action controls can therefore promote autonomous strategic behaviour for middle managers, as they implement more new ideas and unofficial improvements when they perceive work discretion (Kuratko et al., 2005; Hornsby et al., 2009).
4.6 Synergies
22 autonomous strategic behavior. The co-operated effort of these control elements to legitimize and institutionalize autonomous strategic action should therefore most effectively enable the autonomous strategic behavior of employees.
Cultural controls can legitimize autonomous strategic action and inspire employees through the appropriate values and norms (Hill & Rothaermel, 2003; Marginson, 2002). Legitimizing autonomous strategic action will also promote the institutionalization of a formal structure for rewards and resources (Hornsby et al., 2009). Similarly, if employees perceive that autonomous strategic action is institutionalized within the processes and systems of an organization, it will reinforce the values and norms that legitimize autonomous strategic action (Hill & Rothaermel, 2003). Institutionalizing autonomous strategic action would require a resource allocation process and reward system committed to this process. As employees must perceive that resources are available for their autonomous initiatives and that their efforts and risks for its associated activities are rewarded appropriately (Kuratko, et al., 1990; Jones & Butler, 1992; Hornsby et al., 2002).
Beyond Budgeting or an intra-organizational market for autonomous initiatives seem more favorable resource allocation processes for enabling autonomous strategic behavior, rather than traditional budgeting. Beyond Budgeting provides stretch targets that rely on the creativity of managers, which increase chances for initiatives to find their initial investment (Hope & Fraser, 2003; Østergren & Stensaker, 2011). An intra-organizational market for autonomous initiatives would require a less radical organizational change than beyond budgeting. With middle management involvement, this approach might also reflect dynamics of the external environment and balance autonomous and induced strategy processes more effectively. A resource allocation process that is established mainly for autonomous initiatives, would also more effectively legitimize autonomous strategic action within the organization.
An effective reward system for autonomous strategic behavior should be visible to further legitimize autonomous strategic action and enhance an entrepreneurial culture (Lerner et al., 2009). Managers that start or engage in an autonomous initiative should be rewarded with recognition, career advancements and/or enhanced status (Burgelman, 1991; Bhardwaj et al., 2011). If not rewarded appropriately they might exit the firm (Jones & Butler, 1992). More formalized evaluation and reward systems can be applied as the initiative gains shape during the generative selection process. At this stage, outcome-based incentives are favoured indicating that rewards should be linked to the long-term performance of the autonomous initiative (Perez-Freije & Enkel, 2006; Lerner et al., 2009; Bhardwaj et al., 2011).
24
5. Objectives of MCS in relation to autonomous strategic action
The previous section elaborated on how individual control elements can enable the autonomous strategic behaviour of employees. These control elements are at the core of Tessier & Otley (2012) framework and represent the individual social and technical controls available to managers. Now a more macro view will be taken on management controls, by analysing how the objectives of MCS relate to autonomous strategic action. According to Tessier & Otley (2012) the objective of MCS is to manage performance (do this) and/or compliance (do not do that) to different degrees. These objectives relate to the second level Tessier & Otley (2012) conceptual model, which comprises of four different control systems; operational performance system, strategic performance system, operational boundary system and strategic boundary system. According to Tessier & Otley (2012), each of these four MCS manages a specific objective. Managing these opposing objectives creates tensions that exist between “freedom and constraints”, “empowerment and accountability”, “bottom-up creativity and top-down direction” and, “experimentation and efficiency” (Tessier & Otley, 2012). Managing the balance between the ‘autonomous and induced strategy processes’ and between ‘exploration and exploitation’ might also be added to these tensions (Burgelman & Grove, 2007; Piao, 2010). Burgelman & Grove (2007) propose that achieving the appropriate balance between these two strategy processes is at the heart of corporate longevity. MCS therefore play a key part in extending firm survival, as they can match an organizational climate with an organization’s strategy and dynamics of the external environment, thereby stimulating the appropriate employee behaviour throughout its life cycles. To achieve this effect, this section will elaborate on how the objectives of these four MCS proposed by Tessier & Otley (2012) relate to autonomous strategic action.
5.1 Operational performance system
The operational performance system resembles what Burgelman (2002) defines as the structural context. Both involve control systems that align the activities of an organization with the intended corporate strategy (Burgelman, 2002; Tessier & Otley, 2012). The definition of the structural context however, takes a broader perspective by including all administrative and cultural mechanisms that top management can use to maintain the link between strategic initiatives and the intended corporate strategy (Burgelman, 2002). In contrary to the operational performance system, which uses cybernetic feedback systems, appraisal processes and organizational values and symbols to oversee what an organization must do well to achieve its strategy (Tessier & Otley, 2012). The cybernetic feedback systems make the operational performance system to a large extent a top-down system, that can help managers assess the extent to which intended strategies are realized (Simons, 1995).
25 out how to achieve the desired output. A requirement for empowering employees is that standardization is reduced, as it will limit opportunities for creativity (Simons, 1995).
Organizational values can even further empower employees if they allow the questioning of established strategies and encourage managers to use their strategic voice (Hill & Rothaermel, 2003). The previous section argued, that these cultural controls are the main protection against a short-term attitude. They communicate an organization’s purpose and direction, which motivates and inspires employees during individual opportunity seeking and guides them in making appropriate trade-offs (Simons, 1995; Marginson, 2002; Malmi & Brown, 2008). The operational performance system therefore has to balance between encouraging individual action and creativity, by giving employees autonomy in their activities and ensuring coordinated, consistent and accountable behaviour through standardization (Morris et al. 2006).
5.2 Strategic performance system
According to Tessier & Otley (2012) the strategic performance system focusses on strategic uncertainties to signal the need to review strategies. They define this control system as the sets of controls that monitor whether the organization has the proper strategy to ensure the attainment of its vision. The strategy of an organization may be inappropriate when strategic performance targets are not in line with its vision, but strategy is implemented as intended. In these situations, revisions in strategy can be facilitated by broad open debate based on technical and market knowledge (Burgelman, 1994; Burgelman & Grove, 1996; Ferreira & Otley, 2009). The strategic performance system thereby also activates the strategic context determination process that evaluates and selects autonomous initiatives based on their strategic potential (Burgelman, 1983b; 2002). These processes usually involve various types of champions, that advocate their autonomous initiatives as strategic opportunities to top management (Burgelman, 1991; Floyd & Lane, 2000). A key function of the strategic context is to link these new opportunities to corporate strategy (Burgelman, 2002). The strategic performance system can therefore activate the strategic context, by signalling the need to review strategies, thereby giving organizational champions the opportunity to advocate their autonomous initiative to top management.
26 extend the boundaries of an organization’s competencies and strategic opportunities and/or help organizations prepare for disruptive technologies (Burgelman & Grove, 2007). This, for example, will present more opportunities to counter strategic inertia, as a higher amount of autonomous initiatives is generated (Burgelman & Grove, 2007). During runaway industry change it will increase chances that the autonomous strategy process generates a viable new strategic direction (Burgelman & Grove, 2007). Finally, during hyper-competition an organization would also depend on the autonomous strategy process to continuously define new competencies, which can temporarily differentiate themselves from their competitors (Burgelman & Grove, 2007; Floyd & Lane, 2000).
5.3 Boundary systems
The operational and strategic boundary control systems are concerned with compliance and managing risks. The operational boundary system informs employees of the limits imposed on their actions and the strategic boundary system defines the acceptable domain of opportunity-seeking (Tessier & Otley, 2012). According to Simons (1995) telling employees what to do, e.g. by standardizing operating procedures, discourages initiative and creativity. However, informing employees what not to do by setting boundaries, still allows innovation, but in clearly defined limits.
Other authors also noticed organizational boundaries as an important organizational factor when considering corporate entrepreneurship (Kurakto et al. 1990; Hornsby et al. 1999, 2002; Goodale et al. 2011). These authors define organizational boundaries as “precise explanations of outcomes expected from organizational work and development of mechanisms for evaluating, selecting, and using innovations” (Hornsby et al., 2008). Consistent with Simons (1995) proposal of telling employees what to do, organizational boundaries were negatively associated with corporate entrepreneurship (Hornsby et al. 1999, 2002). Goodale et al. (2011) however argue, that innovation outcomes emerge most predictably when innovation is treated as a structured and purposeful process. In their analysis they also find a significant positive relationship between organizational boundaries and innovation performance. These mixed results might be related to their definition of organizational boundaries that concerns two processes. The first process considers standardizing operating procedures or precise explanations of outcomes expected from organizational work and therefore rather concerns performance (Hornsby et al. 2008; Tessier & Otley , 2012). The second process is consistent with the generic selection process of the evolutionary organization theory. As this process also works through administrative and cultural mechanisms, that regulate the allocation of resources and attention to different strategic initiatives (Burgelman, 2002).
27 which will go at the expense of an organization’s core-business or undermine an organization existing competitive position (Burgelman & Grove, 2007).
The boundary systems are also based on risks to be avoided by setting limits for employees and/or autonomous initiatives (Tessier & Otley, 2012). High risk control can significantly reduce innovation performance (Goodale et al., 2011). Leaving employees with few constraints however leads to rogue behaviour, agency problems and organisational failure (Kuratko & Goldsby, 2004). Morris et al. (2006) therefore argue that levels of entrepreneurship will be higher if boundary systems strike a balance in flexibility that gives managers an intermediate level of discretion. The level of compliance and risk avoidance required depends on an organization match between corporate strategy and the dynamics of the external environment. For example, if an organization wants to control industry change it needs to align internal and external forces to its advantage, which would require high risk control to carry out the intended strategy (Burgelman & Grove, 2007). In contrary to periods of strategic inertia that require low risk control to generate more strategic alternatives (Burgelman & Grove, 2007). The boundary systems should therefore not be static, but able to continuously adapt to the current corporate strategy and the dynamics of the external environment. Strategic boundaries should also never limit experimentation and opportunity searching entirely, as organizations always need to maintain some level of exploration activities and autonomous strategic action (Burgelman & Grove, 2007; Piao, 2010). Burgelman (2002) also proposes separate contexts for the autonomous and induced strategy processes. It might therefore be appropriate that the strategic boundary system evaluates and selects autonomous initiatives through a separate mechanism with its own evaluation standards and performance indicators. Burgelman (2002) explains, that the induced initiatives involve incremental changes, which still can be very large, in contrast to autonomous initiatives, which usually start small and take a longer time to develop. Initial returns from autonomous initiatives may therefore seem insignificant compared to induced initiatives.
5.4 Synergies
Tessier & Otley (2012) argue that achieving synergies between these four MCS is possible as they do not operate separately from each other. To achieve better performance through synergy, organizations should match their strategy, MCS and the dynamics of their external environment. The four MCS therefore have to cooperate to achieve this match at the appropriate time and to manage the balance between the autonomous and induced strategy processes.
28 values of the operational performance system (Simons, 1995; Tessier & Otley, 2012). This domain guides and inspires employees in their experiments and opportunity-searches. Experimentation and search behaviour should not be entirely unbounded, as this can spread an organization its resource too thin, due to the funding of too many initiatives (Burgelman & Grove, 2007). Simons (1995) argues that strategic boundaries are usually imposed when excessive search behaviour and experimentation have put the resources of an organization in risk. The boundary systems should therefore also accommodate the learning and changes that arise from innovation activities (Kloot, 1997). Organizations can, for example, set new boundaries based on autonomous initiatives that are amended in corporate strategy or failed experiments and initiatives. Morris et al. (2006) argues that it may be useful to periodically conduct control audits as strategically managing control systems is a complex task. These control audits might also prove to be a useful tool to determine if the MCS are still working in synergy to manage an appropriate balance between the two strategy processes.
