prod&ion

economics
ELSEVIER

Int. J. Production

Corporate

Economics

43 (1996) 227-237

control of investments and management

styles

Esbjijrn Segelod
Miilardalens Hiigskola. IEA, P.O. Box 883, S-721 23 Viisrer& Sweden
Received

31 August

1994; accepted

for publication 6 February 1996

Abstract
This article describes how corporate managers of major Swedish groups in different industries exert control over
investment requests and the direction of the investments
of their groups. The study is based on interviews with the
corporate managers, who are responsible for the capital budgeting procedures of their groups, and analyses of their
investment manuals. The article describes what they perceive as their most important means of control, and differences
between firms in different lines of industry. These differences can partly be explained by the need to coordinate investments of different kinds and in different parts of the group. The article shows how the design of the resource allocation system depends on the character of the investments
and requires a certain management
style. This connection
between investments,
management
styles and resource allocation systems shows that there is no ideal resource allocation system optimal for all groups.
Keywords:

Resource

allocation;

Capital

budgeting;

Investment;

Corporate

control;

Management

styles; Contingency

model

1. Introduction
Sweden has comparatively
many multinational
groups, some with more than one-hundred
companies and operations
in almost equally many
countries.
More and more functions
have been
decentralized
in recent decades and the group staffs
are therefore small today. Nevertheless,
corporate
executives have retained control over investment
expenditures.
The purpose of this article is to describe how
corporate
managers
in groups with their head
office in Sweden exert control over investments
in
different industries. The article builds on interviews
with corporate managers in charge of the capital
budgeting
procedures
of their group,
supple0925-5273/96/$15.00

Copyright

SSD10925-5273(96)00038-2

1996 Elsevier

mented by analyses of their investment

manuals.
The analysis shows that the resource allocation
systems of the industries studied can be assigned
into three main categories: it thereby constitutes a
step towards a contingency
theory and a better
understanding
of resource allocation in divisionalized groups.
The outline of the article is as follows. I shall
start by identifying some earlier studies of resource
allocation practice relevant to the study. I then list
the means of control
of and requirements
for
investments
deemed especially important
by the
respondents,
and also explain the four categories
of means identified in greater detail. This general
survey of the means makes it easier to describe and
categorize the resource allocation
systems of the

Science B.V. All rights reserved

228

E. Segelodllnt.

industries
studied. An account
of the
methodology
is given in the Appendix.

J. Production

research

2. Earlier studies of resource allocation

procedures
Empirical research on capital budgeting
procedures has been dominated
by postal surveys of
major Anglo-Saxon
corporations.
These surveys
have given us a fairly accurate picture of especially
the project
evaluation
techniques
used by
Australian
[l], Canadian
[2], New Zealand
[3],
Swedish [4, 51, UK [6-91, and US [9-121 companies. There are also studies of business planning
systems [ 131, case studies of investment
processes
and models of the resource allocation
process
showing how capital investments
are championed
and evaluated in companies [14-161 and divisionalized groups [17, 181.
Other scholars have examined the role of the
head office in multidivisionalized
groups [ 19-2 l]
and its means of exerting strategic control [22225].
Several of these studies emphasize
the balance
which multinationals
must maintain between central coordination
and responsiveness
to local needs
[22, 26, 271. These studies show that corporate
managers
can exert influence
through
different
constellations
of means of control, and Goold and
Campbell
[21, 28, 291 presented a categorization
based on the degree of decentralization
and the
number of linkages between divisions and companies, which we shall use in this study.
Attempts to find connections
between accounting practice and organizational
variables have in
general been disappointing
[30, 311. One problem
seems to be that accounting measures are only one
type of measures used to control and coordinate
groups. However, some studies also demonstrate
a
connection
between capital budgeting practice and
the degree of decentralization
[ 171, organizational
structure [21, 321, and financial strategies [33, 341
and between management
styles and post-completion review [35,36]. Furthermore,
there are some
studies showing
that German [37, 381 and especially Japanese
[38,39] groups tend to have a
stronger component
of top-down planning in their
resource allocation
systems. This indicates that it

Economics

43 (1996) 227-237

may be possible to identify connections

between
capital budgeting practice and organizational
variables provided that such routines are placed in the
broader context described by studies of organizational structure and of the role of the head office
of divisionalized
groups.

3. Head office means of control

Bower [18] has in a well-known
case study
described the resource allocation
process in divisionalized groups. His most important
contribution can be claimed to be that he showed that
corporate executives do not decide the direction of
investments
by choosing among individual investment requests, but through designing a structural
context that will favour investment requests which
are in line with the desired strategic direction [40,
221. This structural context is defined by Bower as
the
formal
organization
(with
associated
definitions
of managers,
jobs), the system of
information
and control used to measure performance of the business, and the systems used
to measure and reward performance
of managers. [18, p. 711
There are a good many empirical
studies of
structural
context, or more precisely head office
means of strategic control in multinational
groups
[19-23, 271. These studies have identified a great
number
of administrative
mechanisms
used to
exert control, e.g. information
and measurement
systems, planning
processes, management
selection, development
and career policies, and reward
systems. To survey which parts of structural context the interviewees on corporate level perceived
as most important
for their control of the direction of investment,
they were asked open-ended
questions like; How does your group control the
direction
of your volume of investment?
Which
means and possibilities do the group management
and accounting
and finance function
have to
influence the composition
of the volume of investments and the direction
of individual
investments? These questions
led the respondents
to
identify the means of control listed in Table 1
as particularly
important.
Thus, it should be

E. Segelodllnt.

J. Production Economics 43 (1996) 227-237

remembered
that if the interviewees had been confronted with a longer list of means they would
probably
have mentioned
a greater
number
thereof. Furthermore,
that none of the respondents
referred to all the means listed in Table 1, and that
the emphasis placed on the means differed from
group to group.

4. Corporate requirements on investments

Asked which requirements
investments
had to
fulfil to be approved, the respondents
pointed out
that all investments
have to meet certain standards
of
profitability
finance
strategy
coordination
These four types of requirements
had different
weights at different levels of the groups.
The
profitability
calculation
was normally
made at
business level. Corporate
staff seldom make their
Instead
they
own
profitability
calculations.
required and relied on that the business and divisional levels evaluate and assess the profitability
of
the investment.
Corporate
level is more involved in the finance
issue, e.g. by approving the volume of investment,
debt-equity
ratios, profitability
requirements,
and
the raising of funds by the companies of the group.
l

Table 1
Head office means

of investment

control

Precepts for individual investments concerning

_ the formal decision process
_ the division of responsibility
_ the implementation
of investment projects
_ the investment request
Planning processes
_ the budgetary
control process
_ the investment or strategic planning
Profit centre performance

process

measures

Other means of control and coordination

~ investment committees
- board representation
~ staff units
- executive meetings
- management
travel within the group

e.g.

229

Moreover, many groups have directions stipulating that corporate level financial staff be contacted
before the company enters into a lease agreement
or decides on the financing of major investments.
The most important
issue for corporate
managers is strategy.
Corporate
managers
want to
make sure that the investment is in agreement with
previously approved strategies, and if it is not, to
consider it in more detail. The formal approval of
investment
requests therefore often has the character of controlling
how already approved strategies have progressed.
Bower [18] emphasized
the role of divisional
managers
in managing
the part-whole
relationship, and acting as linking pins between business
and corporate
levels. However,
the interviews
showed that also managers responsible
for investments at corporate
level in many groups spend
much time coordinating
investments.
They help to
control1 how production
is allocated to different
countries
and plants, ensure that the managerial
resources to implement
and make the investment
successful exist, that similar technology
is used,
that experiences are transferred
from one project
to another, and design and control the process of
pre-approval
review.

5. Precepts for individual investments

5.1. Strategic investments
All companies
have some system for referring
strategic investments
upwards in the hierarchy. A
common practice is to use authorization
limits. At
least 83% of the groups have such limits, which is
in line with studies of UK [7, 91 and US [41, 91
groups which show figures of 77-89%. In addition,
a large number of Swedish and US [42,43] groups
have directions
stipulating
that all acquisitions
need group board approval; in some groups also
all investments
which might alter a strategy previously approved.
Differentiated
limits are found in the multinational engineering
groups. Limits for communication equipment, computer hard- and software, and
certain
kinds of industry
specific investments,
might be lower; something that previously has been

E. Segelodllnt. J. Production Economics 43 (1996) 227-237

230

claimed not to exist in most Alglo-Saxon

groups
[7, 441. Furthermore,
many groups have rules stating that a certain staff unit shall be contacted concerning financing,
leasing, and when preparing
requests for real estate, computer, or certain kinds
of machine investments.
Another
solution to this problem and supplementary routine has been adopted by six multinamainly
engineering
groups.
Large
tionals,
investment projects usually consist of a number of
independent
steps, or can be so structured.
Therefore, these groups have issued directions stating that the requester may not apply for grants for
a project which will be followed by consequential
new investments.
First, a request for the major project or investment
programme
must be approved
by the right level. Then requests can be submitted
for sub-investments
within the programme
when
these investments
come to the fore.
Still other means employed
to refer strategic
decisions to the right level, and to make strategic
decisions precede operational
decisions, are the use
of an investment
or strategic process, board representation
and to create consensus through executive meetings.

5.2.

The capital budgeting

manual

Most groups with substantial

fixed investments
which have decentralized
the evaluation
of capital
investments
have put their precepts for individual
investments
on paper and created a capital budgeting manual. This means that shipping groups
and other groups where all evaluations
of investments are carried out by top management
and their
staff normally
lack a manual,
and that groups
where intangible
investments
predominate,
e.g.
service groups, as well as small groups with fixed
investments,
may lack a manual.
Of the 13 manuals giving a purpose for the manual, 11 state that it helps improve strategic planning and control, six financial planning and three
creating a unitary language within the group when
it comes to investment
issues. The last purpose
mentioned
was in the interviews
emphasized
by
managers in the groups which have grown by international
acquisitions
and been forced thereby to

integrate new company cultures and create a common language on investment

issues.
The manual instructs the requester on how to
work out an investment request. In addition, many
manuals also supply a description
of the formal
investment process, and who is responsible for what
in this process, as well as instructions
regarding
how investment projects are to be appraised, implemented, and reviewed, both ex ante and ex post.
the
multinational
engineering
Particularly,
groups have introduced
instructions
stating that
certain expense types of investments,
e.g. R&D,
market investments,
in-house
training,
shall be
treated and evaluated as fixed investments
as far
as possible. A few groups have taken a further step
and developed
a manual
for R&D, and those
groups which have decentralized
the evaluation
of
acquisitions have sometimes also developed a manual for this purpose.
At least 10 groups have supplemented
their manual and forms with a templet for board decisions
which specifies how a request for a major investment should be presented to the board. This type
of form gives the calculator more freedom to adjust
the techniques to the object.

6. Planning processes
All the groups in which interviews were held had
an annual budgetary control process and a capital
budget, and all but the two most profitable and
liquid groups considered themselves to have more
good requests than they could finance.
These
requests were ranked mainly at business and divisional levels, and in some of the groups by an
investment
committee at divisional level.
Thirteen of the 19 groups and almost all multinational
groups in the engineering
industry only
had a one-year capital budget at corporate level,
the others a three or five year budget. The capitalintensive forest and metal industries usually have
a longer investment
budget than the engineering
groups. Studies of UK [7-91 and US [9, 10, 411
groups have shown that 69989% of those in these
studies have had an investment
budget extending
over more than one or two years.
Three of the groups, and at least one in which
no interviews were carried out, have introduced an

E. Segelodllnt.

J. Production

annual investment
or strategic process during the
last decade. The strategic process runs during the
spring and precedes the budgetary control process
which takes place during the autumn. Decisions on
new products, markets and major investments
are
made in the strategic process; other investments
in
the budgetary
control
process.
All these four
groups have large R&D expenses. The strategic
process has been introduced
to improve strategic
control and coordination
of resources. For a more
detailed
description
of a strategic
process see
Vancil and Lorange [25, 451.
7. Profit centre performance measures
Return on investment
(ROI) and other performance measures are perhaps viewed most often as
ex post criteria; if the unit makes the wrong investments then this will sooner or later be seen in its
ROI. However, it can be seen as an ex ante criterion.
As ROI is estimated on accounting
measures of
capital, the return can be increased by reducing the
capital invested. Thus, it may for instance seem
more profitable
to choose reinvestments,
rather
than expansion
investments.
UK and US [46, 471
industry
have been criticized for demanding
an
excessive
ROI,
thereby
favouring
short-term
investments
to compensate
for short-term
ROI
reduction.
The managers
interviewed
seem well
aware of this risk and some of them have said that
they sometimes have to curtail the volume of reinvestments.
In many multinationals,
the requirements
vary
widely for operations
in different countries,
and
markets. In general, corporate managers estimate
and make proposals
on requirements.
However,
most interviewees
also pointed out that the performance measures used are target rates fixed in a
process of negotiation,
and that the agreed rate is
primarily
seen as a commitment
by the unit in
question.

Economics

43 (1996) 227-237

231

total extent of these committees has not been surveyed as the interviewees
on corporate
level in
manufacturing
groups in general were not represented on these committees and therefore did not
refer to them as one of their and the corporate levels principal means of control.
A large number of interviewees emphasized the
importance
of influence through board representation. Group managers
are represented
on the
boards of the divisions and divisional managers on
the boards of the companies. Through this system
corporate
executives receive information
on the
major investments
and strategies under consideration by lower levels before these plans result in a
request for expenditure,
and are thereby enabled
to influence the direction of investment.
Staff units can be seen as agents for executive
managers, and are of course an important
means
of information
and control. However corporate
staff units have been reduced
during
the last
decades to the extent that many groups today only
have juridical,
accountant
and finance functions
left at corporate level. Technical staffs have been
decentralized
to lower levels, turned into staff companies, or simply abolished. A staff company is a
group company and profit centre selling its services
to other group companies,
and also often on the
open market.
Several of the interviewees, especially in the service and multinational
engineering
industries,
emphasized the importance
of executive meetings.
These meetings are not primarily intended to direct
investments but it happens that the investment policy and investment issues are discussed. Such executive meetings
and other fora for face-to-face
communication
can constitute an important means
of arriving at a common way of thinking on investment issues.
Some of the interviewees saw travelling-aroundmanagement
as an important means to disseminate
group executive thinking and to coordinate investments. In some of these groups only corporate executives travel, in others, also staff representatives.

8. Other means of control and coordination

9. Resource allocation in a few industriess
Many groups have investment
committees especially on divisional level, and some have different
committees for different types of investments.
The

There are no two groups with the same administrative routines for investments.
At the same time

E. Segelod/Int.

232

J. Producrion Economics 43 (1996) 227-237

there are no doubt similarities between groups in

the same industry (see Table 2). The routines form
a system the logic of which only appears when the
characteristics
of the resource allocation system are
related to the investments
it is supposed to handle
and to the markets and technologies
these investments represent.
Investment
decisions are likewise decentralized
in trading and retailing groups. Many of the service groups show similarities with the trading and
retailing groups, although corporate level is represented in the investment committees assessing certain important
and often company-specific
types
of investment,
e.g. investments
in software, market and competency
development.
They want to
retain central control over the specification
and
development
of the knowledge
and skills which
they sell. A good example is McDonalds,
which
franchises its business formula at the same time as
it has retained central control of the set and quality of the services performed by the franchisees.

Table 2
Resource

allocation

A different situation prevails in the three investment - and R&D - intensive groups. The investment
intensive
group
uses the same
basic
technologies
in the capital-intensive
production
and distribution
systems which it has built up in
several different countries. This makes it profitable
to coordinate
investments
and the investmentspecific competencies
which are needed for their
success. The other two groups have very large
investments
in market and product development,
complex investments,
fast technical development
with short product life cycles. This necessitates
stronger involvement
from the head office to exert
its entrepreneurial
role, and to facilitate this role
an annual strategic process has been introduced.
Chandler [ 191 distinguished
between the entrepreneurial and administrative
functions of corporate
level, i.e. to determine the growth path, goals and
strategies of the organization
as opposed to monitoring the strategies and performance
of subordinate operating units.

and line of industry

Multinational engineering groups Fixed, R&D, and market investments of about the same size. Investment proposals come from
below, but corporate
management
can sponsor strategic initiative. Limits of authorization
are often differentiated
with regard to
the type of investment, the pre-approval
review system is well developed, and special routines often exist for major strategic
investments.
The manual is important
and also valid for certain expense type of investments.
The description
is based on interviews in six groups and analyses of nine investment manuals (619).
Small engineering groups The manual is intended
are simpler than in larger groups. (4/6)

only for fixed investments.

Both the manual

Forest and sreel groups Large

projects

dominate

is adjusted

investments

dominate.

investment

Trade and retailing groups Intangible

in the engineering groups. (3/ 1)

Capital intensive groups Large recurrent

ment sponsors strategic initiative and is
thick and the profitability
criterion only
group. Two additional
groups supplying
R&D
minor
ments
ment

and the manual

More short-term

investments

and capital

budgeting

for these types of project.

and simpler

evaluation

procedures

(318)
techniques,

than

investments predominate.
Investment proposals come from below. The corporate
managerepresented on the investment committees which rank investments.
The manual is very
one of several criteria
influencing the decision to invest. Based on interviews in one
manuals might perhaps be assigned to this category.

intensive groups Both R&D and market investments are very large. Major commitments
are decided in a strategic process,
in the subsequent budgetary
control process. Relatively centralized decisions on new products and markets generate investon lower levels in production
equipment.
The evaluation
techniques used are quite simple and the importance
of the investmanual has diminished as the volume of intangible investments has increased. (213)

Shipping groups Ships are very large investments.

Appraisals
and decisions are made within a small management
group. There is
no manual. The appraisals
may be either simple or advanced. Similar conditions may prevail in real-estate companies and small
companies where the functions of ownership and management
have not yet been separated. (2/-)
Service groups Intangible investments
ment. There is usually no investment

predominate.
Some groups have different investment committees for different types of investmanual and for most investments only simple evaluation techniques are used. (7/-)

E. Segelodllnt.

The large mechanical

engineering
groups are to
be found somewhere in between these two poles.
Proposals of new products and markets come from
below. The corporate level put strong emphasis on
that the companies adhere to the strategies earlier
agreed on and checks that the investment requests
are in line with these strategies; if such is not the
case then the decision must be referred upwards
and a far more comprehensive
analysis made.
Otherwise they control the quality of the request
and supply feedback to the investor,
and from
time to time also sponsor certain strategic initiatives. The steel and forest groups seem to place a
similar emphasis on strategic control. However, the
structure of investments
is less complex, they use
fewer measures of control, and the pre-approval
Table 3
Resource

allocation

233

J. Production Economics 43 (1996) 227-237

review system is less well-developed

or at least
different.
Classifying
these three categories of groups with
regard to the degree of decentralization
of investment decisions and the need for coordination
we
arrive at Table 3.
The shipping
groups
do not fit into this
classification
as investment
decisions
are not
decentralized.
In other words, there are no agency
problems
[48, 491 between the managers making
the appraisal,
those pushing the investment
and
those making the investment
decision.
The proposed
classification
is in its external
appearance
almost identical to that developed by
Goold and Campbell
[21, 28, 291. They studied
the role of the centre and management
styles in 16

in a few industries

Capital or R&D intensive

groups

Multinational engineering and

forest groups

Trading, retailing and certain

service groups

Linkages
Substantial

Moderate

Simple

Planning
Major investments decided
before and outside the
budgetary
control process

Investments
handled in the budgetary
control process, strategic investments
sometimes outside this process

All investments handled in the

budgetary
control process

The centre is active in strategic

development
and setting
priorities for investments

Especially the multinational

engineering groups combine
means of control

Investment decisions are decentralized

and financial means of control
predominate

Consensus

Clear individual

important

many

responsibility

Clear individual

Investment committees for specific types of intangible investments,

e.g. R&D, employees competence
opment, IT and market investments may exist in groups where such investments are important

responsibility

development,

software

devel-

Ex-post review
Individual investments are followed up decentralized
Group staff may follow up new strategies
Investment manual
Can be a comprehensive
handbook,
or
very simple and play a subordinate
role if major investments
are decided
in a separate planning process or
intangible investments predominate
Investment criteria
PBP used to rank small and medium-sized
for major and expansion investments
PBP and DCF criteria only two of
several investment criteria and used
with great flexibility

A manual exists and can play an

important
role, not least for the
formation
of standards
and a
common group language with regard
to investment issues

investments

and DCF technique

PBP and DCF criteria used with

flexibility by corporate
level, possibly
stricter on lower levels

A manual exists
but is simple

in some groups,

PBP and in some groups

major investments

DCF for

PBP and DCF criteria used relatively

strict, if they are applied

234

E. Segelodllnt.

J. Production

successful diversified British groups, and arrived at

a model in which the management
styles used by
senior management
at corporate level are classified
into three main categories;
those focusing
on
strategic planning,
strategic control and financial
control.
Corporate level and the centre are more actively
involved in shaping business strategies in strategic
planning
companies,
and planning
is therefore
more centralized
than in strategic and financial
control groups. In consequence,
the head office
also tends to measure,
and react with greater
flexibility to the performance
of lower levels. The
decentralized
financial planning groups rely more
on financial measures of control which they interpret with less flexibility. Strategic control groups
tend to combine traits from these styles and to
emphasize strategic control. Then there are various more or less decentralized
subgroups of these
three main categories; nevertheless,
most groups
can be placed in one of these three main categories.
One explanation
why many Swedish groups
favour strategic control may be that they are multinationals
and operate mostly on mature markets.
Such multinationals
have to combine
flexible
responsiveness
to the needs of national subsidiaries
with central coordination
to achieve global competitiveness
[27,22]; this tends to make strategic
control a feasible style. There are in fact few examples of successful multinationals
practicing a strict
financial planning style [2 1,231. In general, a more
flexible approach
to local markets
and performance measures is necessary.
Goold and Campbell
[21] are careful to stress
that their classification
builds on management
styles and not on line of industry or formal structure and administrative
systems. The latter can,
according
to them, be similar. The management
style is dependent
on the growth path which the
group has chosen, rather than on industry specificconditions.
Top management
chooses, according
to them, a management
style based on their formula of success; they also give several examples
when the UK groups they studied have changed
style from time to time. However, linkages between
divisions and companies
arising from the character of the investments
determine the need for coordination,
and are directly reflected in the formal

Economics

43 (1996) 227-237

investment
routines of the groups studied. Going
from, for instance,
strategic control to strategic
planning
would necessitate
the development
of
new administrative
routines.
It is difficult to see
how else such a change could give the centre more
than an illusion of increased influence.
A few remarks. Especially,
the multinational
engineering
groups combine
a large number of
means to control their investments.
They seem to
set strategic control first, at the same time as they
also try to a varying extent to exert financial control and strategic planning influence. Observe also
that larger groups are forced to put a stronger
emphasis on financial measures of control, than
smaller ones, and that individual
business areas,
divisions and companies may be run differently, i.e.
a group might have a heterogeneous
business
structure.
Furthermore,
that decentralization
in
itself can be seen as an ideology and therefore be
independent
of the management
styles which
Goold
and Campbell
[21] identify.
Japanese
groups with similar management
styles have much
larger corporate
staffs than UK groups [21], and
corporate
staff in Swedish groups are often still
smaller.

10. Summary and conclusions

The resource
allocation
systems of Swedish
groups
resemble
those found in Anglo-Saxon
groups. Proposals
for new investments,
and in
many cases also new strategies, come from below.
In contrast to UK and US groups, the corporate
level in major Swedish groups more often has only
a one-year capital budget and has decentralized
the
post implementation
review. This indicates a more
far-reaching
decentralization.
However,
as the
study
also
shows
that
there
are
industry
differences,
it cannot
be ruled out that these
differences between UK, US and Swedish groups
can be partly explained by the composition
of the
industries in these countries, with Sweden having
comparatively
many multinationals
on mature
markets.
The traditional
bottom-up
type of resource allocation system applied by strategic and financial
control groups has been criticized [47,50-521 for
focusing interest on individual
investments
and

E. Segelodllnt.

J. Production

hard data, instead of soft data and the contribution of the investment
to the strategy
of the
company and group. The critics maintain that the
system
with authorization
levels, systems
of
classification
and instructions
for the evaluations
and requests of individual
investments
will contribute to fragmentation.
Referring
to the more
centralized
German
[37,38]
and
especially
Japanese [38,39] groups some writers have recommended
increased
centralization
of investment
decisions [50,52], e.g. through the introduction
of
an annual strategic process or corporate representation on the investment
committees.
This study shows that such sweeping recommendations
can be dangerous.
Corporate
management
has several strings to their bow and
requirements
on lower levels to use certain project
evaluation
techniques are but one of these strings.
The importance
attached to, for instance,
these
formal evaluation
techniques differs from industry
to industry
depending
on the character
of the
investments
and organizational
structure.
This
means that there is no resource allocation
system
ideal for all groups of companies, and that the system has to change as the preconditions
for the
groups activities change.
The last three decades since Istvans [41] and
Rencks [53] studies have been characterized
by an
ever increasing decentralization
of investment decisions. Bottom-up type of systems are suitable when
the individual
business is the proper unit of analysis, but when investments
of different types or in
different parts of a group have to be coordinated
some form of top-down
planning
is needed.
Moreover,
it may well be necessary to centralize
certain decisions to make a more general decentralization
possible,
e.g. to improve
the preapproval
review system when the evaluation
of
individual
investments
is decentralized.
However, during the last decade some firms in
industries with large R&D, market investments, and
short product life cycles, have found it necessary to
gain more top-down
influence,
most evidently
through the introduction
of an annual strategic
process. A similar development
has been reported
for similar
non-Swedish
groups
like Eastman
Kodak : Eastman Kodak is getting away from project analysis calculation methods altogether, placing

Economics

43 (1996) 227-237

235

more emphasis on decision trees and the long-term

strategy of the company
[12, p. 114, see also 541.
However, this does not mean that groups in all
industries need more top-down
influence in their
system. Some do, but for instance the forest industry may not, which will probably
mean that the
resource allocation
systems of the future will be
more carefully tailored to the industry and that we
shall see more diverse systems in the future.

Acknowledgements
This research was made possible by generous
grants from the Swedish Council for Research in
the Humanities
and Social Sciences. The author
wishes to thank Roger Johansson
and a class of
final year students at the Department
of Business
Studies, Uppsala University, for carrying out some
of the interviews, and Docent Ingemund
Hagg for
supervising the class together with the author.

Appendix. Research methodology

The article draws on interviews with corporate
managers responsible for investment procedures in
34 groups and analyses of the capital budgeting
manuals
of 29 groups listed on the Stockholm
Stock Exchange.
The data collection started by obtaining capital
budgeting manuals from the 54 groups belonging
to industries which due to earlier studies of capital
budgeting manuals [53,55] could be expected to use
a manual. Thirty-nine
of the 54 groups used a manual, and in 1990-91 copies of 74% of these manuals were received, or 8 1% of those groups that had
an approved manual at the time of the request.
In the next stage interviews were held with 47
managers
in 34 of the 191 companies
on the
Stockholm Stock Exchange which had their head
office in Sweden (see Table 4). The interviews were
prepared through the analysis of investment
manuals and annual reports, taped, transcribed,
and
sent to the interviewees for comments.
Two factors
which seemed important
were
group size and industry. Therefore, the set of 54
groups (Group I in Table 4) was stratified with
regard to line of industry and the market value of

236

E. Segelodllnt. f. Production Economics 43 (1996) 227-237

Table 4
Interviews
Group
Chief financial executive
Corporate
controller
Managers responsible for capital
budgeting routines
Other managers
Total number of managers
Number of groups

Group

II Total

8
I

12

20
8

6
I

0
6

6
13

28
19

19
15

47
34

the groups, and 19 groups selected for interviews

by random number. Fourteen of these groups used
a manual. Interviews were also carried out in 15
groups in lines of industry which normally lack a
capital budgeting
manual,
e.g. banks, shipping,
trading, software and consulting firms, and groups
listed on-the over-the-counter
list (Group II). In
1993 short interviews were held with the managers
in Group I to collect supplementary
information
and investigate the development
during the recession 1990-93.

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