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Accounting, Organizations and Society 32 (2007) 735–756

Management accounting systems, top management

team heterogeneity and strategic change
a,* b
David Naranjo-Gil , Frank Hartmann
Pablo de Olavide University at Seville, Business Administration Department, Carretera Utrera Km. 1, 41013, Sevilla, Spain
RSM Erasmus University, T8-59, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands


Institutional and market changes force many organizations across economic sectors to reconsider their strategic
position and engage in strategic change. Organizations differ in their ability to realize strategic change, however, which
appears to depend on several factors in their strategic management process. In this paper we explore two such factors
simultaneously, which are the composition of the top management team and the characteristics of the management
accounting system. In particular, the paper investigates how top management team heterogeneity affects strategic
change both directly, and indirectly, through the design and use of the management accounting system. Hypotheses
are developed and tested through a survey study among 103 Spanish public hospitals. We find significant effects of
top management team heterogeneity on the extent and direction of strategic change, and find that the use of the man-
agement accounting system partially mediates the relationship between top management team heterogeneity and stra-
tegic change. The paper contributes to the extant literature on the complex relationships between strategic change and
MAS [Gerdin, J., & Greve, J. (2004). Forms of contingency fit in management accounting research – a critical review.
Accounting, Organizations and Society, 29, 303–326], by analysing both extent and direction of strategic change, and by
recognizing the importance of top management teams’ use of the management accounting system for strategic change.
 2006 Elsevier Ltd. All rights reserved.

Introduction This phenomenon appears to affect private and

public organizations alike, as the sources of pres-
The literature provides evidence that organiza- sure originate in both institutional and market
tions across industries experience increased exter- developments (e.g., Frow, Marginson, & Ogden,
nal pressures to reconsider their strategic 2005; Modell, 2004; Nyamori, Perera and Law-
positions (e.g., Danneels, 2002; Henri, 2006). rence, 2001). The ability or failure to initiate and
execute strategic change in response to such exter-
Corresponding author. nal pressures has serious implications for organiza-
E-mail address: (D. Naranjo-Gil). tional performance (Nyamori et al., 2001).

0361-3682/$ - see front matter  2006 Elsevier Ltd. All rights reserved.
736 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

However, our knowledge about the organizational and position, rather than in terms of emergence
factors and mechanisms that enable strategic and change (see, e.g., Gerdin & Greve, 2004;
change is incomplete and fragmented (e.g., Frow Henri, 2006). Therefore, although the broader
et al., 2005; Henri, 2006; Chenhall & Langfield- management literature suggests that TMT compo-
Smith, 2003), despite clear evidence across the sition may affect strategic change via the MAS,
management literature that organizations system- there is no direct empirical evidence on this effect.
atically differ in their inclination and ability to pur- In this paper we aim to provide such evidence by
sue strategic change (e.g., Abernethy & Brownell, exploring how TMT composition affects strategic
1999; Lant & Montgomery, 1987; Wiersema & change through the use of MAS, using and com-
Bantel, 1992). The strategic management litera- bining insights from the strategic management
ture, for example, suggests that the composition and accounting literatures. We focus on TMT het-
of the organization’s top management team erogeneity, and explore whether the effect of TMT
(TMT), which is the echelon ultimately responsible heterogeneity on strategic change is mediated by
for strategy development and deployment, affects TMTs’ use of the MAS. In line with previous stud-
the strategic choices of the organization, and the ies on the MAS-strategy relationship, we explore
ability to execute them (see, e.g., Carpenter, Gel- two dimensions of TMTs’ use of MAS, which
etkanycz, & Sanders, 2004). Several studies follow- are the scope (broad-narrow) of the MAS informa-
ing the so-called upper echelon perspective show tion that TMTs use and the style (diagnostic-inter-
that TMT heterogeneity, which is the extent to active) in which TMTs use MAS information (cf.
which the team consists of managers with varying Abernethy & Brownell, 1999; Henri, 2006). Strate-
backgrounds and competences, systematically var- gic change is defined as the change of strategic
ies with the organization’s inclination and ability stance from defender position to prospector posi-
to engage in strategic change (e.g., Finkelstein & tion or vice versa in conformity with previous stud-
Hambrick, 1996; Golden & Zajac, 2001; ies (Abernethy & Brownell, 1999; Miles & Snow,
Jarzabkowski & Searle, 2005). Typical upper eche- 1978; Shortell & Zajac, 1990).
lon studies, however, do not address the process This paper attempts to contribute to the litera-
through which TMTs pursue and realize strategies, ture in at least three respects. First, we propose
and they are therefore criticized for providing little that the use of MAS is an important mediator of
explanation of how different TMTs use organiza- the relationship between TMT heterogeneity and
tional mechanisms differently to realize strategic the organization’s strategic behavior, which fills a
change (see, e.g., Carpenter et al., 2004, p. 763; void in the strategic management literature con-
Miller, Burke, & Glick, 1998, p. 40; Rajagopalan, cerning the organizational mechanisms through
Rasheed, & Datta, 1993, p. 375). The accounting which TMTs realize organizational outcomes
literature, in contrast, emphasizes the role of the (see, e.g., Carpenter et al., 2004; Miller et al.,
management accounting system (MAS) as an 1998; Rajagopalan, Rasheed, & Datta, 1993). Sec-
organizational mechanism that supports strategic ond, by exploring the mediating role of MAS, we
change (e.g., Dent, 1990; Nilsson & Rapp, 1999; answer a recent plea in the management accounting
Simons, 1995), but empirical studies have not literature for more complete explanations of the
addressed the way in which management uses the origins and consequences of MAS design and use
MAS to engage in strategic change directly, with in a single study (cf. Gerdin, 2005a; Luft & Shields,
a number of interpretative case studies as a notable 2003; Hartmann & Moers, 1999, 2003). Third, and
exception (e.g., Abernethy & Chua, 1996; Ezzamel, in particular, the paper adds to the limited knowl-
Lilley, & Willmott, 2004). An important reason for edge on the strategic relevance of MAS for organi-
this lack of evidence is that studies on the MAS- zations engaging in strategic change (Nyamori
strategy relationship have typically modelled strat- et al., 2001; Chenhall & Langfield-Smith, 2003).
egy as an (exogenous) determinant of MAS, rather The remainder of this paper is structured as fol-
than as an (endogenous) consequence of the MAS, lows. Section ‘‘Literature review and hypotheses
as they typically conceive strategy as an intention development’’ reviews the literature and develops
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 737

hypotheses about the relationships between TMT ation between MAS and strategic change, espe-
heterogeneity, the use of MAS and strategic cially since the definition of strategic change is
change. Section ‘‘Empirical study’’ describes the not unproblematic itself (cf. Nyamori et al.,
method. Section ‘‘Results’’ presents the results of 2001). Abernethy and Brownell (1999) define stra-
the empirical analysis. Finally, section ‘‘Discussion tegic change as an organization’s absolute move
and conclusions’’ presents the discussion and con- along the prospector-defender continuum, regard-
clusions of this study. less of the direction of strategic change. Their
results thus suggest that an interactive use of
MAS serves strategic changes towards prospector
Literature review and hypotheses development
positions and towards defender positions equally
well. This, however, seems to contradict with
Private sector changes that lead to globalization
results in the majority of studies on the MAS-strat-
of markets and enhanced competition are forcing
egy relationship suggesting that prospector and
organizations’ strategies towards flexibility, inno-
defender strategies require quite different designs
vation and efficiency (Frow et al., 2005). In the
and uses of MAS (cf. Abernethy & Guthrie,
public sector, the new public management para-
1994; Langfield-Smith, 1997; Simons, 1987). These
digm serves as a common heading of strategic ini-
studies implicitly assume that the direction of
tiatives that many organizations have taken
change matters. Organizations changing their
towards ‘delivering greater efficiency, and more
strategy towards prospector positions typically
responsive and flexible public services’ (Kaul,
change towards more flexible and customer-
1997, p. 13), forced by deregulation and enhanced
oriented forms, aimed at improving product and
accountability (see, e.g., Modell, 2004). In their
service quality to rapidly meet changing market
study of the role of the MAS vis-à-vis these devel-
demands (e.g., Bouwens & Abernethy, 2000;
opments in the hospital sector, Abernethy and
Perera, Harrison, & Poole, 1997; Slater & Narver,
Brownell (1999, pp. 190–191) study the perfor-
2000; Yin & Zajac, 2004). Changes toward
mance effects of the alignment of MAS with strate-
defender positions typically imply an increased
gic change, which they define as the ‘extent to
emphasis on maintaining comparative efficiency
which a firm is moving along the prospector-defen-
by cost-control of a limited set of products and ser-
der continuum’ (cf. Miles & Snow, 1978; Segev,
vices (e.g., Chenhall, 2005; Yin & Zajac, 2004). In
1989; Shortell & Zajac, 1990; Shortell, Morrison,
line with these differences, Simons (1987, p. 370)
& Friedman, 1990). Abernethy and Brownell
finds that firms following prospector strategies rely
(1999) conclude that organizational performance
more on interactive controls than firms following
is highest when managers match high (low) levels
defender strategies. Abernethy and Guthrie
of strategic change with an interactive (diagnostic)
(1994) find that the use of broad scope MAS infor-
use of the MAS. This insight is useful if we assume
mation contributes more to performance in pros-
that the role of accounting is indeed to align itself
pector-type firms than in defender-type firms. In
with a given change in strategy (cf. Nyamori et al.,
combination, available evidence on the relation-
2001, p. 71), but it does not reveal whether and
ship between MAS and strategy thus suggests that
how the MAS provides the organization’s TMT
MAS characteristics that support a certain strate-
with a mechanism to engage in strategic change
gic position may differ from the MAS characteris-
(cf. Dent, 1990; Henri, 2006).1 This requires a
tics that enable a move towards that strategic
more detailed analysis of the nature of the associ-
position (cf. Henri, 2006; Nyamori et al., 2001).
For studies on the relationship between MAS
Note that Abernethy and Brownell (1999, p. 196, Table 2) and strategic change this apparent inconsistency
report a significant and positive correlation between strategic at least suggests the need for separate analyses of
and the interactive use of MAS. They do not discuss this result,
however, nor elaborate on the meaning of this association, as
the extent of strategic change (cf. Abernethy &
their study’s focus is on the interactive effect of strategic change Brownell, 1999) and the direction of strategic
and MAS on organizational performance. change. In the section below we develop hypotheses
738 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

about the relationships between TMT composi- determinant of TMTs’ handling of strategic change
tion, use of MAS and strategic change taking this appears to be its diversity in terms of the back-
consideration into account. Fig. 1 shows the gen- grounds of its members, such as age, experience,
eral research model to be developed and tested. tenure, and education (Carpenter et al., 2004; Fin-
kelstein & Hambrick, 1996). Upper echelon
TMT heterogeneity and strategic change research typically argues, and finds, that in com-
parison to homogeneous TMTs, heterogeneous
The management literature on strategic choice TMTs are broader minded, are more inclined to
(e.g. Child, 1972; Hrebiniak & Joyce, 1985), and search the environment for opportunities (e.g.,
on the role of upper echelons in strategic manage- Murray, 1989), and have a larger portfolio of
ment (e.g., Carpenter et al., 2004; Hambrick & responses to environmental demands (e.g., Hurst,
Mason, 1984) both emphasize the importance of Rush, & White, 1989; Knight et al., 1999; Pitcher
TMTs in the formulation and implementation of & Smith, 2001). This is explained by the larger pool
an organization’s strategy. The latter perspective of cognitive resources that heterogeneous TMTs
seeks to explain strategic choices of organizations share, based on their more multi-faceted experi-
by the composition of their upper echelons, claim- ences and backgrounds. Thus, heterogeneous
ing that organizations’ strategic directions can be TMTs are better able to recognize strategic oppor-
explained by the demographic backgrounds of tunities and identify the need for strategy change.
TMT members. Research under this heading For organizations facing external pressures for
claims and shows that: change, Murray (1989, p. 125) thus claims and
finds that a greater range of TMT members’ back-
‘Organizational outcomes – both strategies
grounds increases the probability that an appropri-
and effectiveness – are [. . .] reflections of the
ate new strategy will be identified.
values and cognitive bases of powerful actors
The homogeneous–heterogeneous distinction
in the organization’ (Hambrick & Mason,
has therefore been argued to explain the organiza-
1984, p. 193).
tion’s inclination to engage in strategic change.
Wiersema and Bantel (1992), for example, Wiersema and Bantel (1992, pp. 98–99) in particu-
argued that because of different values, experiences lar argued that heterogeneous TMTs discuss more
and cognitive make-up, top managers differ in their diverse opinions on strategic change, which stimu-
inclination and ability to change organizational lates the consideration of strategic change alterna-
strategies when they are confronted with competi- tives. They found that TMT heterogeneity
tive or other external pressures. Indeed, addressing concerning the educational (vocational) back-
turbulence and dynamism require specific manage- ground of its members was positively associated
rial skills and competences, the availability of with the extent and intensity of the analyses that
which varies across individual managers, and lead to strategic change (Wiersema & Bantel,
across the management teams they operate in (cf. 1992, p. 112). In sum, this evidence suggests that
Morgan, 1989, p. 1). The upper echelon literature when confronted with similar external pressures
emphasizes that strategic behaviour is not the mere towards strategic dynamism, heterogeneous TMTs
result of the combined characteristics of individual will be more inclined to engage in strategic change
TMT members, but rather of the TMT as a whole than homogenous TMTs. We formulate the fol-
(Carpenter et al., 2004, p. 75). One such important lowing expectation accordingly.

TMT MAS Strategic Change

Heterogeneity • Broad-scope
• Interactive Use

Fig. 1. General research model.

D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 739

H1: TMT heterogeneity is positively related 2004; Finkelstein & Hambrick, 1996). Moreover,
to the extent of strategic change. heterogeneous TMTs also ‘possess greater ability
to generate a more complex and unpredictable
mix of alternatives for strategic action’ (Ferrier,
TMT heterogeneity and the direction of strategic 2001, p. 862), which seems to be in line with a nat-
change ural inclination towards accepting prospector posi-
tions, rather than towards optimising existing
The TMT literature also provides evidence on operations as defender positions would imply.
the effect of TMT composition on the strategic Hambrick, Cho, and Chen (1996) studied the influ-
directions that organizations choose. Miles and ence of TMT heterogeneity on firms’ competitive
Snow (1978) already proposed that managers in moves and found that heterogeneous TMT indeed
organizations pursuing prospector positions and exhibited a greater propensity towards actions and
defender positions require different repertoires of initiatives, but were slower and less comfortable in
skills and competences, which was more recently their reactions and responses to competitors’ ini-
confirmed in a study of Thomas and Ramaswamy tiatives (Hambrick et al., 1996, p. 679). Therefore,
(1996, p. 251). Organizations pursuing defender we expect that the relationship between TMT het-
strategies typically devote attention to improving erogeneity and strategic change in Hypothesis 1
the efficiency of existing operations and do not will be especially prevalent for organizations
tend to search outside their narrow domains for changing towards prospector positions rather than
new opportunities (Miles & Snow, 1978, p. 29). for organizations changing towards defender
In contrast, organizations pursuing prospector positions.
strategies attempt to maximize differentiation
emphasizing policies and operations to respond
H2: The relationship between TMT heteroge-
to various and changing market demands (Miles
neity and the extent of strategic change is
& Snow, 1978, pp. 51, 58). This latter implies that
more positive for organizations moving
top managers need to permanently scan the envi-
towards prospector positions, than for orga-
ronment in order to detect new market demands,
nizations moving towards defender positions.
strategic opportunities, and to provide service or
product innovations quicker than competitors
(Miles & Snow, 1978). Heterogeneous TMTs TMT heterogeneity and the use of MAS
appear to be more inclined towards organizational
innovation (Bantel & Jackson, 1989), and diversi- Although the former hypotheses reflect direct
fication (Jensen & Zajac, 2004; Tihanyi, Ellstrand, relationships between TMT composition and stra-
Daily, & Dalton, 2000) as innovation and diversi- tegic change, the strategic literature urges us to
fication require that TMTs take a broad portfolio seek understanding of the factors and process fac-
of strategic perspectives into account. Bantel and tors that mediate this relationship. Based on a
Jackson (1989) found that banks following a strat- review of the upper echelon literature, Miller
egy that emphasized service innovation were man- et al. (1998, p. 40) conclude that ‘the mediating
aged by teams with more diverse backgrounds effects of process variables have not been examined
than less innovative banks. Tihanyi et al. (2000, in most studies of executive diversity and organiza-
p. 1173) found that TMT heterogeneity is posi- tional outcomes’. Similarly, Carpenter et al. (2004,
tively associated with firms’ inclination to explore p. 763) labels these process factors as the ‘black
new, international, markets. In sum, as heteroge- box’ of upper echelon research. As the manage-
neous TMTs share a larger pool of cognitive ment accounting literature generally suggests that
resources, have more multi-faceted experiences MAS design and use is a relevant component of
and backgrounds, they are supposed to be better strategic management (Gerdin & Greve, 2004;
able to identify and utilize the opportunities stem- Langfield-Smith, 1997), we argue that MAS is
ming from the environment (Carpenter et al., likely to be such a mediator of the relationship
740 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

between TMT composition and strategic change. Chia, 1994). Mia and Chenhall (1994, p. 4), for
Moreover, the upper echelon literature emphasizes example, showed that broad scope MAS informa-
that TMTs shape organizational behaviour tion is crucial for managerial decision making, for
through the way their cognitive make-up deter- example when organizations are facing complex
mines their search, interpretation and ‘filtering’ situations, high environmental dynamism and
of management information, such as the MAS typ- strategic uncertainty (Abernethy & Guthrie,
ically provides (cf. Hambrick & Mason, 1984; 1994, p. 55). We believe that broad scope MAS
Knight et al., 1999; Miller et al., 1998). Some stud- information will be especially valued by heteroge-
ies of the TMT-strategy relationship acknowledge neous TMTs. One reason is that heterogeneous
the importance of the use of management informa- TMTs are more inclined to change and innovation
tion by TMT members (see, e.g., Thomas & (Bantel & Jackson, 1989; Jensen & Zajac, 2004),
McDaniel, 1990; Young, Charns, & Shortell, and thus will understand the relevance of broad
2001). Thomas and McDaniel (1990), for example, scope information to support their decisions.
asserted that since strategic issues are often ill- Another reason is that heterogeneous TMTs
structured and ambiguous, TMTs will approach appear to foster multiple alternative frameworks
them differently according to the amount of data and perspectives in their decision-making (cf. Fin-
they gather and use for interpretation. We expect kelstein & Hambrick, 1996; Jarzabkowski &
that the typical searching and filtering behavior Searle, 2005; Knight et al., 1999). We expect that
of top managers will reflect in TMTs’ use of the the diversity of experience and knowledge of heter-
MAS in making and executing strategic decisions ogeneous TMTs not only spurs them, but also
(cf. Abernethy & Brownell, 1999; Langfield-Smith, enables them to gather and process a broader
1997; Young et al., 2001). We will develop separate range of management information (cf. Bantel,
hypotheses for the scope (broad-narrow) of the 1994, p. 406; Finkelstein & Hambrick, 1996).
MAS information that TMTs use and the style Overall, therefore, we expect that more heteroge-
(diagnostic-interactive) in which TMTs use MAS neous TMTs will attach higher value to broad-
information. scope MAS information.
The TMT literature predicts that TMTs will dif-
H3: TMT heterogeneity is positively related
fer in the scope of the management information
to the perceived usefulness of broad-scope
that they consider useful in the (strategic) decisions
that they take (Finkelstein & Hambrick, 1996; Jar-
zabkowski & Searle, 2005; Knight et al., 1999). Studies on the relationships between MAS use
Broad-scope MAS information is information that and strategy have often used Simons’ (1995,
is ‘externally focused, non-financial, and future- 2000) description of the diagnostic and interactive
oriented’ (Bouwens & Abernethy, 2000, p. 223) use of control systems, generally arguing that the
which ‘provides managers with a wider range of interactive use of MAS is essential for enabling
solutions to consider’ (Bouwens & Abernethy, (dynamic) strategic change (Abernethy & Brow-
2000, p. 226). Broad-scope information thus com- nell, 1999, p. 192), and supporting (static) innova-
plements typical ‘narrow scope’ information, tion (Bisbe & Otley, 2004, p. 729). An interactive
which reflects traditional management accounting use of MAS involves dialogue and communication
information that is ‘internally focused, financial, among top managers (Widener, 2006, p. 5), as well
and historically-based’ (Bouwens & Abernethy, as between top management and subordinates,
2000, p. 223). The scope of MAS has often been which ‘stimulates opportunity-seeking and encour-
associated with strategy, under the expectation ages the emergence of new initiatives (Simons,
that a broader range of information allows manag- 1995, p. 93). Henri (2006, p. 5) asserted that when
ers to better understand the relationship between MCS are used interactively ‘data are discussed and
activities, processes and strategic outcomes (cf. interpreted among organizational members of dif-
Abernethy and Guthrie, 1994; Chenhall and ferent hierarchical levels’. We expect that TMT
Morris, 1986; Gerdin, 2005a; Gul, 1991; Gul and heterogeneity is positively related to the interactive
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 741

use of MAS by team members. As upper echelon the organization of interdependent operations (cf.
studies consistently show, intra-TMT diversity is Abernethy & Lillis, 1995; Eccles, 1991, p. 131),
likely to cause TMT-members to emphasize differ- which are all constitutive elements of prospector
ent aspects of information sets, and interpret them strategies, rather than of defender strategies (cf.
in different, and perhaps conflicting, ways (Knight Shortell & Zajac, 1990). Perera et al. (1997) and
et al., 1999; Smith et al., 1994). This suggests that Carr, Mak, and Needham (1997) in particular
the MAS will act as a ‘learning machine’ rather found that the use of physical and non-financial
than as ‘answer machine’ (cf. Chapman, 1997). measures, i.e. broad-scope information, is particu-
TMT diversity may also lead to a greater variance larly necessary in organizations pursuing strategies
in proposed decision-making alternatives (Knight directed at increased customer-orientation and
et al., 1999, p. 447), and to increased debates quality. The kind of information appears to be
within the team about the appropriateness of cur- advantageous as a complement to, rather than
rent strategies, and strategic alternatives (see, Car- replacement of, traditional (financial) management
penter, 2002, p. 277), which are all constitutive accounting information (cf. Carr et al., 1997). Aber-
elements of the interactive use of MAS. To explore nethy and Guthrie (1994, p. 61) found that prospec-
the associated relationship, we propose to test the tor-type firms that supplemented traditional
following hypothesis. accounting information systems with information
with a broader focus performed higher. Overall,
H4: TMT heterogeneity is positively related
this suggests that broad-scope MAS supports
to the interactive use of MAS.
strategic change, but that this support may be more
crucial for organizations moving towards prospec-
Use of MAS and strategic change tor positions. To explore these issues empirically,
we propose to test the following two hypotheses.
In this section we will develop hypotheses about
H5a: There is a positive relationship between
the relationship between the use of MAS and strate-
the perceived usefulness of broad-scope
gic change. Although empirical evidence on the
MAS and the extent of strategic change.
relationships between MAS characteristics and
H5b: The relationship between the perceived
strategy is not straightforward (Langfield-Smith,
usefulness of broad-scope MAS and the
1997), it suggest that the availability of a broader
extent of strategic change is more positive
set of information facilitates and encourages mana-
for organizations moving towards prospec-
gerial debates and interactions on strategic issues
tor positions, than for organizations moving
(Abernethy & Brownell, 1999, p. 192; Bisbe &
towards defender positions.
Otley, 2004, p. 711), which are necessary conditions
for any process in which strategic goals and objec- A parallel point can be made regarding the rela-
tives are redefined. Strategic change involves ven- tionship between the interactive use of the MAS
turing into new contexts, whose complexity and and strategic change (Simons, 1995). Since the
unpredictability (Abernethy & Brownell, 1999, p. interactive use of MAS focuses on the use of infor-
191) requires broad-scope information (cf. Bouw- mation for dialogue and communication (Aber-
ens & Abernethy, 2000, p. 226; Mia & Chenhall, nethy & Brownell, 1999; Simons, 1995), TMTs
1994, p. 2). This suggests that the use of broad- should use the MAS interactively when they aim
scope MAS is a necessary requirement for strategic to redefine or change strategic priorities. This
change. In addition, broad-scope MAS informa- was the central argument in Abernethy and Brow-
tion appears to facilitate interdepartmental plan- nell (1999, p. 192) who asserted that management
ning and coordination (cf. Bouwens & Abernethy, requires information ‘that is more prospective in
2000), technological change (cf. Mia & Chenhall, nature’ and thus need an ‘information exchange
1994, p. 1), decentralization (cf. Gerdin, 2005b; process that is interactive and dynamic’ to manage
Hartmann, 2005), customization (cf. Perera, Harri- strategic change effectively. Such a process enables
son, & Poole, 1997), organizational flexibility, and management teams ‘to collectively make sense of
742 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

changing circumstances’ (Chapman, 1997; Simons, Otley (2004, p. 711) and Abernethy and Brownell
1995, p. 218). Moreover, by stimulating organiza- (1999, p. 192) both argued that the use of broad-
tional dialogue and debate, interactive MAS use scope MAS might not only facilitate, but also
contributes to the emergence of strategic actions encourage debates and managerial interactions.
(Henri, 2006, p. 9; Malina & Selto, 2001). Thus, We therefore propose to test the following hypoth-
we expect that the interactive use of MAS encour- esis in line with available evidence.
ages and facilitates strategic change. This support
may be especially prevalent for organizations mov- H7: There is a positive relationship between
ing towards prospector positions, as some recent the perceived usefulness of broad-scope
studies suggest. Bisbe and Otley (2004), for exam- MAS and the interactive use of MAS.
ple, argued and showed that the interactive use of
control systems favours innovation ‘through the Empirical study
provision of guidance for search, triggering and
stimulus of initiatives’ (p. 729). Henri (2006) stud- To test the hypotheses, we collected data
ied the relationships between the use of manage- through a questionnaire study distributed to mem-
ment control systems and organizational bers of TMTs in all public hospitals in Spain. We
capabilities that support strategic choices and selected this setting for several reasons. First, the
found that ‘performance measurement systems complexity of the variables and relationships
used in an interactive (diagnostic) way contribute involved in this study required a single industry,
positively (negatively) to the deployment of mar- to reduce the noise in our measures and control
ket orientation, entrepreneurship, innovativeness for variables of no theoretical interest to the study.
and organizational learning’ (Henri, 2006, p. 20). Second, the public hospital sector has been the
Overall, this suggests that the interactive use of object of some recent studies exploring organiza-
MAS is important to enable strategic change, tional and strategic roles of MAS, on which the
and that its role may be more explicit for organiza- present study builds (e.g., Abernethy & Brownell,
tions moving towards prospector positions. To 1999; Abernethy & Lillis, 2001; Abernethy & Vag-
explore these relationships, we propose to test noni, 2004). Third, the hospital sector across most
the following hypotheses. Western countries is involved in processes of strate-
H6a: There is a positive relationship between gic reorientation, thus providing a relevant and
the interactive use of MAS and the extent of useful testing ground (Abernethy & Lillis, 2001;
strategic change. Carretero, 2000; Kurunmäki, 2004). In Spain, these
H6b: The relationship between the interactive developments have resulted in various laws2 that
use of MAS and the extent of strategic change require regional health care authorities to encour-
is more positive for organizations moving age hospitals to pursue strategic goals expressed
towards prospector positions, than for orga- in terms of enhanced cost efficiency, and flexibility
nizations moving towards defender positions. and decentralization, and encourage hospitals to
increase flexibility, service quality, resources man-
agement and cost control3 (see, e.g., Carretero,
Broad-scope MAS and the interactive use of MAS

Above, we developed separate, yet related,

hypotheses about broad-scope MAS and the inter-
active use of MAS. In this final section we want to Several Spanish laws demand that hospitals engage in
take into account that these two MAS characteris- improving service quality and enhanced cost control (e.g., Law
tics may be related. Although Simons (1995) ini- 16/1986, Decree 63/1995, and Law 21/2001).
Spanish Regional Public authorities have large degrees of
tially asserted that the interactive use of MAS freedom in introducing new managerial structures and account-
could relate to any MAS aspect, thus suggesting ing systems in hospitals (see, e.g., Carretero, 2000; Errasti,
the independence of these two factors, Bisbe and 1997).
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 743

2000; Naranjo-Gil & Hartmann, 2004). Since 2002 slightly,4 we consider as a full TMT those for
every Spanish region is allowed to manage its which at least three observations were available.
health care institutions independently, this is the Thus, we formed a total of 103 TMTs (47.24%)
end point of a decentralization process dictated in using 381 responses. The rest of the responses were
a General Law in 1986. This provided a national discarded for the analysis of hypotheses, but not
context that was appropriate for testing our for the tests for validity and response-bias.
hypotheses, as it assured that the issues central to We checked for the presence of common-rater
this paper were considered relevant by the popula- bias by conducting Harman’s (1967) single-factor
tion, with expected positive consequences for the test in which all of the variables were simulta-
willingness to cooperate, the perceived relevance neously entered into an exploratory factor analy-
of the constructs measured and validity of con- sis. Harman’s test assumes that if a single or
struct measurement. These expectations were sup- common factor emerges from the factor analysis,
ported in an initial pilot-study conducted in a which captures the majority of the covariance
subset of the sample (cf. Abernethy & Brownell, among the variables, there is strong evidence of
1999). TMT members’ names and addresses were common rater bias (Podsakoff, MacKenzie, Lee,
obtained through Spanish National Catalogue of & Podsakoff, 2003, p. 889).5 We conclude that
Hospitals, which was updated with the help of the analysis was not subject to common-rater bias
internet sources and direct telephone calls until a since a single factor did not emerge in our data.
complete list of 884 TMT members was available. Table A1 reports on the cross-loadings, which sup-
We followed Dillman (2000) in designing the port the existence of multiple factors and their
questionnaire. First, based on the extant literature, alignment with the items (cf. Fornell & Larcker,
instruments were selected for measuring the con- 1981). We also tested for potential non-response
structs (see below), and a draft version was made bias by comparing survey respondents’ with the
of the questionnaire. Second, we tested the ques- original mailing list, by comparing early and late
tionnaire in 18 interviews with members of the tar- respondents, and by comparing respondents used
get population, and made small adaptations based for TMT formation with the other respondents
on the comments received. Third, we chose an (cf. Pedhazur & Pedhazur, 1991; Roberts, 1999).
attractive layout for the questionnaire, assuring Chi-square tests and independent-samples t-tests
good quality of paper and printing, and a profes- on various characteristics, size of hospitals, gov-
sional overall impression. Fourth, the distribution ernmental dependency and type of directors, did
and recollection procedure for 884 TMT members not reveal any sign of non-response bias.6
in 218 hospitals followed the contact procedures
recommended by Dillman (2000) in his Tailored Variable measurement
Design Method for mail surveys. The five contacts
followed were: (1) the pre-notice letter; (2) the sur- Strategic change was measured using the instru-
vey sending; (3) the follow-up letter; (4) the second ment from Abernethy and Brownell (1999) and
survey sending; and (5) the telephone calls. Fol-
lowing this procedure increased the chances of
avoiding the typical flaws associated with survey Some hospitals have an administrative director and a
research (see, Young, 1996). A satisfactory financial director (TMTs with five members). In others the
CEO will also perform the function of the medical or general
response rate was achieved with 496 (56.10%) service director (TMTs with three members).
questionnaires returned of which 473 (53.51%) 5
A confirmatory factor analysis (cf. Iverson & Maguire,
were deemed useful for further analysis. Our unit 2000) confirmed that the hypothesis of a single factor account-
of analysis was the TMT, which is formed by dif- ing for all variance should be rejected (v = 498.77, p-
ferent members in Spanish hospitals (Errasti, value < 0.001).
For example, the results of the v2 test for the size and
1997): CEOs, Medical Director, Nursing Director, government dependency comparing the original mailing list and
and General Service-Financial Director. Since the survey respondents were respectively: v2 = 4.465 (p = 0.107)
number of members in the TMT may vary and v2 = 6.455 (p = 0.488).
744 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Abernethy and Lillis (2001). We followed their use medicine, nursing, biology and chemistry) (cf. Hitt
of the strategic typology of Miles and Snow & Tyler, 1991; Knight et al., 1999; Wiersema &
(1978), based on evidence about its validity and Bantel, 1992).7 We used Blau’s (1977) index of het-
continued relevance (Shortell & Zajac, 1990). erogeneity, which has been used extensively among
Managers in the TMT were presented two descrip- TMT researchers, to measure categorical vari-
tions, one of a defender organization and another ables.PBlau Heterogeneity Index is calculated as
of a prospector organization. Then, these manag- ð1  p2i Þ, where pi is the proportion of the team
ers were asked to indicate their organization’s stra- in the ith educational (or functional) category. A
tegic position three years ago, and their current score of zero, which did not occur in our sample,
strategic position, along a five-point scale that would indicate perfect managerial homogeneity
stretched from the defender (‘1’) to the prospector (functional or educational). Higher score of this
(‘5’) description. Strategic change was measured as index indicate higher diversity on functional back-
the absolute difference between the past and cur- ground between members of the TMT. TMT het-
rent ratings (cf. Abernethy & Brownell, 1999). erogeneity was subsequently constructed as a
For the analyses involving directional effects we latent variable formed by the four variables related
divided the sample into subsamples of organiza- to the heterogeneity of age, tenure, education and
tions changing towards a defender strategy (nega- experience. The items’ loadings on this construct
tive scores) and organizations changing towards appear in Table A1 of the Appendix, which show
prospectors (positive scores). the correspondence between items and factors.
Top management team heterogeneity was mea- These analyses show also that the Composite Reli-
sured following the procedure recommended in ability, Average Variance Extracted and Cron-
upper echelon research (cf. Hambrick et al., bach-a were satisfactory, exceeding minimum
1996; Wiersema & Bantel, 1992). We focused on levels (Hair, Anderson, Tatham, & Black, 1998;
four demographic characteristics to obtain a score Nunnally, 1978).8
for TMT heterogeneity, using factual questions
related to age, tenure, experience, and education
(cf. Bantel & Jackson, 1989; Finkelstein & Ham-
brick, 1996; Hambrick & Mason, 1984; Hambrick 7
We used two categories since the vast majority of managers
et al., 1996). Managers were thus asked to indicate (89.1%) indicated to have a degree related to either Business–
their age and tenure in their management position Economics–Law or Medical-Nursing.
Item reliability measures the amount of variance in an item
in the present organization and in other organiza- due to the underlying variable rather than to error. Evidence of
tions in the same sector. Managers were also asked convergent validity can be concluded when the item reliability is
to indicate their educational and functional back- at least 0.50. Anticipating the presentation of the PLS analyses,
ground and experience in years. Age and Tenure we report on two PLS outputs concerning validity and
heterogeneity was measured using the coefficient reliability of individual constructs, Composite Reliability and
Average Variance (Fornell & Larcker, 1981). Composite
of variation of the score on these items (standard Reliability measures the correlation among the multiple indi-
deviation divided by the mean), which is the supe- cators for a particular variable (minimum level is 0.70).
rior measure as it provides a direct, and scale- Following Hair et al. (1998), the Average Variance Extracted
invariant measure of dispersion (cf. Allison, index measures the variance captured by the variable relative to
1978). Educational and Experience heterogeneity the variance due to the measurement error (minimum level is
0.50). Discriminant validity is concerned with the degree to
are not amenable to the coefficient of variation which a variable measures a concept that is uniquely defined
measure, since they were measured as categorical and is not highly correlated with other variables included in the
variables (cf. Finkelstein & Hambrick, 1996; Wier- model. The discriminant validity of variables is considered
sema & Bantel, 1992). Thus a ‘1’ represented a acceptable when the correlation between two variables is less
dominant administrative (external) oriented edu- than the average variance extracted (Fornell & Larcker, 1981).
We also tested for the inequality of the variance of intra-TMT
cational or experience background (e.g. business, and inter-TMT scores using ANOVA where appropriate. This
economics, law) and a ‘0’ represented a dominant analysis showed inter-TMT variance to be significantly higher
professional (internal) oriented background (e.g. than intra-TMT variance.
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 745

Interactive use of MAS was measured using the We controlled for the effect of two variables in
six-item Likert-type instrument from Abernethy our model; hospital size and government depen-
and Brownell (1999) and Bisbe and Otley dency. Hospital size was measured by the number
(2004), which follows Simons’ (1995, 2000) of beds (cf. Abernethy & Lillis, 2001; Errasti,
description of interactive control. The instrument 1997). Government dependency of hospitals was
was slightly adapted in wording to be under- measured by a dummy variable, which allowed
standable in the Spanish hospital setting based to make a distinction between hospitals in regions
on information from the interviews with the 18 with a long history of autonomy in health care
managers. Respondents were asked to indicate management, and the regions with a recent auton-
on five-point, fully anchored, scales the extent omy in health care management, to control for any
to which they used the MAS for six types of man- spill over effect from before the 2002 health care
agerial actions. The six items related to the use of reform that provided all hospitals with the same
MAS for negotiating goals and targets, for formal autonomy.
encouraging new goals and priorities, for signal-
ling key strategic areas, for encouraging new
ideas and actions, for involving subordinates in Results
face-to-face discussions and for use as a learning
tool (cf. Simons, 1995). Exploratory factor analy- The hypotheses were tested using the partial least
sis revealed that the six items loaded on one fac- squares (PLS) technique (Chin, 1998; Wold, 1982).
tor that could be interpreted as interactive use of PLS is a variance-based approach for the estima-
MAS. Cronbach alpha and Composite Reliability tion of path models involving latent constructs that
were also satisfactory, exceeding the recom- are indirectly measured by multiple indicators
mended level with 0.816 and 0.863 respectively (Wold, 1982). PLS allows us to simultaneously cope
(see Appendix, Table A1). with the issues of construct measurement and the
Broad-scope MAS was measured with a five- structural relationships among different constructs.
point Likert scale that addressed the perceived use- Thus PLS estimates the model parameters based on
fulness of several aspects of the available MAS the ability to minimize the residual variances of
information (cf. Chenhall & Morris, 1986; Mia & dependent variables (Chin, 1998). PLS can estimate
Chenhall, 1994), slightly adapted to the medical models with small sample sizes, can model both for-
context. This scale acknowledges the distinction mative and reflective indicators and does not make
between MAS information that is perceived useful distributional assumptions about the data used for
and MAS information that is actually available (cf. modelling (Chin, 1998). A preliminary data analysis
Gul, 1991; Gul & Chia, 1994). The questions regard was done to establish the validity and reliability of
four scope dimensions, which are non-financial, measures (see above), and appropriateness of the
future oriented, externally orientation, and long- causal model (Chenhall, 2005; Hair et al., 1998).
term oriented (Mia & Chenhall, 1994).9 Table A1 We followed the procedure advocated by Hulland
in the Appendix shows satisfactory construct reli- (1999) in evaluating PLS models, which provides
ability, since the items regarding the four scope a separate analysis of the measurement and struc-
items load higher on the broad-scope construct tural model.10 The measurement model was
than on the other constructs. Also the Composite assessed by examining the reliability of individual
Reliability and the Cronbach-a of this construct items and the convergent and discriminant validity
are satisfactory (see Appendix, Table A1).
The item scores were standardized (with a zero mean of zero
This type of management information is available in public and a variance of one), before running the PLS model (cf. Chin,
hospitals through a system known as INIHOS (INformación Marcolin, & Newsted, 2003). The assessment of the measure-
Inter HOSpitales), which provides indicators used for measur- ment model involved examining item reliability and the
ing, comparing and evaluating health care performance among convergent and discriminant construct validity (Chin, 1998;
hospitals. Fornell & Larcker, 1981).
746 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Table 1
Descriptive statistics for variables (n = 103)
Variable Mean SD Theoretical range Actual range
1. Age heterogeneity 0.91 0.06 0.00–1.00 0.71–0.97
2. Tenure heterogeneity 0.56 0.21 0.00–1.00 0.65–0.98
3. Experience heterogeneity 0.48 0.19 0.00–1.00 0.29–0.92
4. Education heterogeneity 0.52 0.18 0.00–1.00 0.31–0.90
5. Extent of strategic change 1.87 0.69 0.00–4.00 0.00–4.00
6. Interactive use of MAS 3.33 0.54 1.00–5.00 1.55–4.56
7. Broad-scope MAS 3.14 0.38 1.00–5.00 2.00–4.11

Table 2 structural model, and reports on the significance

Correlations from PLS model (n = 103)
of the standardized bs that resulted from this anal-
1 2 3 4 ysis, based on a bootstrapping procedure that used
1. TMT heterogeneity 1.000 500 samples with replacement. Table 3 also reports
2. Extent of strategic change 0.228b 1.000 the R2 statistics for the dependent (strategic
3. Interactive use of MAS 0.237a 0.271a 1.000
change) and mediating (MAS) variables. Regard-
4. Broad-scope MAS 0.109 0.198b 0.311a 1.000
ing the measurement model, the PLS analysis con-
Significant at 0.01 level (two-tailed).
b firmed the reliability and unidimensionality
Significant at 0.05 level (two-tailed).
analyses of the variables, with high composite reli-
ability of the latent variables (see Appendix, Table
A1) and with general loadings of manifest variables
of the constructs (Chin, 1998; Fornell & Larcker, on latent variables exceeding 0.60. Discriminant
1981). Table 1 shows the descriptive statistics for validity of the measurement model was assessed
all variables. Table 2 shows the correlation by calculating the average variance extracted
analyses. (AVE), and comparing this with squared correla-
Fig. 2 displays the results from the test of the full tions between constructs (Table 2) which attested
model. Table 3 contains the detailed output statis- to satisfactory discriminant validity (cf. Fornell &
tics of the analyses of the path coefficients in the Larcker, 1981). First we present the results from


TMT Strategic
Heterogeneity 0.317a Change

0.279a Interactive Use 0.246b

of MAS

a b c
Significant at 0.01 level (two-tailed) Significant at 0.05 level (two-tailed) Significant at 0.1 level (two-tailed)

Fig. 2. Structural model for all organizations: TMT, MAS and strategic change (n = 103, solid lines represent significant paths).
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 747

Table 3
Results from PLS analysis: full model (path coefficients, n = 103)
To From TMT heterogeneity Broad-scope MAS Interactive use of MAS R2
Broad-scope MAS 0.114 0.180
Interactive use of MAS 0.279a 0.317a 0.233
Extent of strategic change 0.197c 0.209b 0.246b 0.191
Significant at 0.01 level (two-tailed).
Significant at 0.05 level (two-tailed).
Significant at 0.1 level (two-tailed).

PLS related to the full structural model, where we H4 since the coefficient of the path from TMT het-
analyze the effect of TMT and MAS on the extent erogeneity and the interactive use of MAS is posi-
of strategic change (Hypotheses 1, 3, 4, 5a, 6a and tive and significant.
7, see Fig. 2 and Table 3). Then we present the In trying to elaborate on these results, we ran a
results from PLS related to the two subgroup mod- PLS model relating the different characteristics of
els for the directional effects on strategic change TMT heterogeneity (age, tenure, experience and
(Hypotheses 2, 5b and 6b, see Figs. 3 and 4). education) directly to MAS design, MAS use and
the extent of strategic change. Table 4 indicates
TMT heterogeneity: effects on the extent of that none of these characteristics is significantly
strategic change and MAS related to broad-scope design of MAS, although
all four types of TMT heterogeneity are positively
The results in Table 3 suggest that H1 can be related to the interactive use of MAS. Regarding
accepted, since the path coefficient between TMT the relationship between TMT heterogeneity and
heterogeneity and the extent of strategic change the extent of strategic change, Table 4 also shows
is positive and significant. The results in Table 3 that age and tenure heterogeneity are not directly
do not allow acceptance of H3, since the path coef- related to strategic change. This is in line with
ficient between TMT heterogeneity and broad- some findings from previous studies (Bantel &
scope design of MAS is not significant. Consistent Jackson, 1989; Wiersema & Bantel, 1992). Overall,
with our arguments, however, the results support however, we conclude that the results are largely


TMT Strategic
Heterogeneity 0.296a Change

0.291a Interactive Use 0.344b

of MAS


a b
Significant at 0.01 level (two-tailed) Significant at 0.05 level (two-tailed)

Fig. 3. Structural model for subgroup of organizations moving toward prospector positions: TMT, MAS and strategic change (n = 61,
solid lines represent significant paths).
748 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756


TMT Strategic
Heterogeneity 0.241b Change

0.187c Interactive Use

of MAS

b c
Significant at 0.05 level (two-tailed) Significant at 0.1 level (two-tailed)

Fig. 4. Structural model for subgroup of organizations moving toward defender positions: TMT, MAS and strategic change (n = 37,
solid lines represent significant paths).

Table 4
Path analysis: decomposition effect of TMT heterogeneity (path coefficients, n = 103)
To From Age heterogeneity Tenure heterogeneity Experience heterogeneity Education heterogeneity
Broad-scope 0.072 0.095 0.154 0.137
Interactive use 0.196c 0.187c 0.231b 0.293a
of MAS
Extent of 0.157 0.142 0.256a 0.289a
strategic change
Significant at 0.01 level (two-tailed).
Significant at 0.05 level (two-tailed).
Significant at 0.1 level (two-tailed).

consistent with our previous overall analysis of Fig. 2 illustrates, we conclude that the interactive
TMT heterogeneity. use of MAS mediates the relationship between
TMT and strategic change, and that there is a
direct relationship between broad-scope MAS
MAS and the extent of strategic change
and the extent of strategic change (Baron & Kenny,
1986; Chenhall, 2005). To add some appeal to these
Table 3 provides evidence for H5a, since it
results we used the method suggested by Baron and
shows a positive and significant relationship
Kenny (1986)11 to test the relative strength of the
between broad-scope MAS and the extent of strate-
gic change. Also H6 is supported, since the path
coefficient between the interactive use of MAS Baron and Kenny (1986) argue that four conditions must
and the extent of strategic change is positive and hold for testing mediating effects: (1) the independent variable
significant. Regarding H7, the results in Table 3 must be significantly correlated with the dependent variable; (2)
the independent variable must be significantly correlated with
indicate a positive and significant path between the mediator variable, and (3) the relationship between the
broad-scope MAS and the interactive use of independent and dependent variable must be weaker in (2) than
MAS in line with our expectation. Overall, as in (1).
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 749

Table 5 The results in Tables 6 and 7 show a positive

Path analysis: decomposition of direct and indirect effect and significant path between TMT heterogeneity
through MAS use
and strategic change for the prospector subgroup,
Submodel Direct Indirect effect Total with the path between TMT heterogeneity and
effecta through MASb
strategic change towards defender position
(1) TMT–interactive 0.197 0.069c 0.297 appearing insignificant for the defender subgroup,
use–strategic change
(2) TMT–interactive 0.197 0.016d 0.244
which suggests support for H2. Concerning H3
use–broad-scope–strategic and H4, both partial models (see Tables 6 and 7)
change confirmed the findings for the full model, suggest-
Direct effect between TMT-strategic change (p < 0.05, two- ing that TMT heterogeneity is not related to
tailed). broad-scope of MAS design, but positively related
Indirect effect result from multiplying significant path to the interactive use of MAS. Tables 6 and 7 fur-
coefficients (all paths significant, p < 0.05, two-tailed). The ther provide evidence for H5b and H6b. The
submodel TMT–broad-scope–strategic change was not ana-
lyzed since the path between TMT and broad-scope was not
results show a significantly positive (negative) path
significant. from broad-scope MAS to strategic change for the
(0.279 * 0.246). prospector (defender) subgroup, which confirms
(0.279 * 0.274 * 0.209). Submodel 2 uses the significant path H5b. The results also show a significantly positive
coefficient of 0.274 from a rerun of the model with the signifi- (insignificant) path from interactive use of MAS to
cant path going from the interactive use of MAS towards
broad-scope MAS design.
strategic change for the prospector (defender) sub-
group, which is in line with H6b. Finally, in con-
formity with the results of the full model, H7
mediating effect of the interactive use of MAS12.
was supported in both partial models, suggesting
Table 5 reports on this analysis, in which the indi-
that the positive relationship between broad-scope
rect effect was calculated as a multiplication of the
MAS and the interactive use of MAS exists regard-
statistically significant indirect effects on and from
less the direction of strategic change.14 We per-
MAS use (cf. Sarkar, Echambadi, Cavusgil, &
formed an additional test to establish the
Aulakh, 2001).
significance of the differences found using the pro-
cedure outlined in Keil et al. (2000, p. 315). The
TMT heterogeneity: effects on MAS direction and
differences appeared significant except for the
the strategic change
direct link between TMT heterogeneity and strate-
gic change.15 For this latter relationship, are evi-
We ran two subgroup models for testing the
dence is limited to the numerical difference found
hypotheses regarding the direction of strategic
change, one for the subgroup that changed towards
a prospector position (61 hospitals), and the other 14
In testing both the full and partial models using PLS, we
for the subgroup that changed to a defender posi- included the two control variables (size and governmental
tion (37 hospitals).13 Figs. 3 and 4, and Tables 6 dependency), which did not reveal any significant path with
and 7 show the PLS analyses for both these models. heterogeneous TMT, MAS design, MAS use and strategic
change. The results reported are those of the model tested with
control variables. For reasons of clarity, we have not included
these variables in the graphical presentations. Additionally, in
Our analysis involved two calculations, one with interactive response to concerns about the measurement of strategic
use of MAS (submodel 1) only, and one including the change (Bergh & Fairbank, 2002), we ran the model with
significant path between broad-scope MAS towards interactive strategic position (at t0, and t3) as control variables. This did
use of MAS (submodel 2). Submodel 2 uses the significant path not affect the direction or the significance of the path
coefficient of 0.274 from a rerun of the model with the path coefficients.
going from the interactive use of MAS towards broad-scope For the relationship between broad scope MAS and
MAS design. strategic change, the difference between path coefficients is
Only five hospitals did not change their strategy. We 0.492 (p < 0.01). For the link between the interactive use of
excluded those from the subgroup analyses in order to avoid MAS and strategic change, the difference between path coef-
noise in our analyses. ficients is 0.174 (p < 0.05).
750 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Table 6
Results from PLS analysis: partial model (path coefficients, prospector subsample, n = 61)
To From TMT heterogeneity Broad-scope MAS Interactive use R2
of MAS
Broad-scope MAS 0.103 0.174
Interactive use of 0.291a 0.221
Strategic change 0.224b 0.301a 0.344a 0.183
towards prospectors
Significant at 0.01 level (two-tailed).
Significant at 0.05 level (two-tailed).

Table 7
Results from PLS analysis: partial model (path coefficients, defender subsample, n = 37)
To From TMT heterogeneity Broad-scope MAS Interactive use R2
of MAS
Broad-scope MAS 0.095 0.163
Interactive use of 0.187c 0.241b 0.214
Strategic change 0.154 0.191c 0.170 0.172
towards defenders
Significant at 0.05 level (two-tailed).
Significant at 0.1 level (two-tailed).

(cf. Thompson, Higgins, & Howell, 1994). Overall, TMT heterogeneity and MAS, the findings show
however, we conclude the full causal path from that TMT heterogeneity is positively related to
TMT composition to strategic change is signifi- the interactive use of MAS. Although the tradi-
cantly different for the two groups. tional interpretation is that interactive use of
MAS reflects interactions between different (strate-
gic and operational) hierarchical levels, these
Discussion and conclusions results suggest that it may also reflect the use of
MAS at a certain (i.e. board) level. The findings
The objective of this paper was to improve our do not support a relationship between TMT heter-
understanding of MAS as a mechanism that medi- ogeneity and broad-scope design of MAS. This
ates the relationship between top management result could be explained by the fact that this is a
team composition and organizational strategic design dimension of MAS, which cannot directly
change. Broad-scope MAS and interactive use of be influenced by TMTs, or which cannot be
MAS were argued to mediate the relationship adapted to the individual characteristics of TMT
between TMT heterogeneity and the extent and members (cf. Mia & Chenhall, 1994). The addi-
direction of strategic change. Our findings can be tional models using the underlying four sources
summarized as follows. Regarding the relationship of heterogeneity support the aggregate analysis,
between TMT and strategic change, the findings although age and tenure heterogeneity appeared
show that TMT heterogeneity is positively related not to be related to strategic change. This is in line,
to the extent of strategic change, and especially for however, with some findings from previous studies
the strategic change towards prospector positions. (Bantel & Jackson, 1989; Wiersema & Bantel,
TMT heterogeneity appears unrelated to strategic 1992). For example, Wiersema and Bantel (1992)
change for organizations moving towards defender found a positive relationship between educational
positions. Regarding the relationship between heterogeneity and strategic change, but concluded
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 751

that age and tenure heterogeneity are less impor- vide insight into the external validity of the find-
tant in capturing ‘the underlying constructs of ings. Another limitation of this paper is its focus
creativity – innovativeness and diversity of infor- on top management teams ‘as the sole custodians
mation’ (p. 115). of strategy, ignoring the contributions of middle
Regarding the relationships between MAS and and lower level managers to the strategic process’
strategic change, the findings show that broad- (Nyamori et al., 2001, p. 72). Other groups of
scope MAS is positively related to strategic change managers may influence the relationships studied
for organizations moving towards prospector posi- as well.
tions. These results are in line with Chenhall’s This study is exploratory in nature and leaves
(2003) arguments that broad-scope design of ample room for future research. First, the findings
MAS overcomes the lack of relevance of narrow- of this study focus on the TMT, and future studies
scope MAS information for managing flexibility, may look at the potential effects of intra-TMT
decentralization and innovation (cf. Bisbe & Otley, group processes on MAS use. In particular, group
2004; Gerdin, 2005b; Hartmann, 2005). The results processes such as communication, conflict, and
also show that the interactive use of MAS is not agreement seeking could have significant effects
related to strategic change for those organizations on the relationships found in this study. In this
moving towards defender positions, but that it is vein, other variables beyond demographic charac-
positively related to strategic change for organiza- teristics could be analyzed for the TMT, such as
tions moving towards prospector positions. This the distribution of power and authority (cf. Aber-
confirms the suggestions of Abernethy and Lillis nethy & Vagnoni, 2004). Second, the constructs
(1995, 2001), and Bisbe and Otley (2004) men- central to this study could be defined and opera-
tioned earlier. Finally, we found a relationship tionalized in different ways. Regarding the TMT
between MAS scope and the interactive use of construct, other TMT characteristics, such as
MAS, suggesting that the perceived usefulness of directly reflecting cognitive and psychological
broad-scope affects the way in which the informa- characteristics, could be addressed and measured
tion is used. Overall, we conclude that our results (cf. Finkelstein & Hambrick, 1996). Other MAS
provide evidence for the mediating role of MAS design characteristics could be analyzed (e.g., time-
of the relationship between TMT composition liness, aggregation and integration, Chenhall &
and strategic change, answering to pleas in the Morris, 1986), as well as specific management
strategic management and management account- accounting techniques, such as the budgeting
ing literatures for a better understanding of the method, the use of ABC-costing or the use of
processes and arrangement through which organi- scorecard-type instruments for performance
zations change their strategies (Carpenter et al., appraisal. Finally, the path analyses explored here,
2004; Luft and Shields, 2003; Miller et al., 1998; that suggest mediation fit, could be complemented
Rajagopalan et al., 1993; Chenhall & Langfield- with tests for moderation forms of contingency fit,
Smith, 2003). We find that this mediating role is given that the proper theoretical foundation can be
particularly prevalent for changes towards pros- found (cf. Hartmann & Moers, 1999, 2003; Gerdin
pector positions. & Greve, 2004).
This paper has several limitations, beyond those
typically related to the use of the questionnaire
survey (Young, 1996). Two of these limitations Acknowledgements
are the lack of ability to test for causal direction,
and the paper’s focus on one industry. Regarding The authors express their thanks for comments
the latter, we believed that this industry is well sui- received on earlier versions of this paper from Ma
ted to test our hypothesis, but it may contain idio- Concepción Álvarez-Dardet, Victor Maas, Paolo
syncrasies that have been overlooked. Clearly, Perego, Marcel van Rinsum, seminar participants
empirical testing of the hypotheses generated in at Pablo Olavide University, RSM Erasmus Uni-
this paper in a different industrial context may pro- versity, Sydney University and the University of
752 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Örebro, and at management accounting seminars sidering it as the whole of management

of the EAA, EIASM, and ARNN and especially accounting and control techniques:
to two anonymous reviewers for their constructive
feedback. The authors also acknowledge the partial • Set and negotiate goals and targets
funding of this research project by the Spanish Min- • Debate data assumptions and actions plans
istry of Education and Science (Project PB98-1358). • Signalling key strategic areas for
• Challenge new ideas and ways for doing
Appendix. Questionnaire items tasks
• Involvement in a permanent discussion
with subordinates
Q1. TMT heterogeneity • Learning tool
• Age
• University degree and title (years of edu- Q3. Broad-scope design of MAS
cation in medicine and general manage- Please, indicate the extent of usefulness of
ment/law) the following information elements provided
• Years of experience as clinician/doctor at by your MAS:
public hospitals
• Years of experience as clinician/doctor at • Future-oriented information
other health care organizations • External information
• Years of experience as managers in cur- • Non-financial information
rent hospital • Long-run oriented information
• Years of experience as managers in other
health care organizations 4. Strategic change
The following two descriptions of hospitals
Q2. Interactive use of MAS were given to respondents. They were asked to
According to the following descriptions, circle on a five-point Likert-type scale where
please indicate the extent to which you use they would place their hospital three years ago,
the Management Accounting System, con- and where they would place the hospital now.

Table A1
Factors, cross-loadings and reliability and validity statistics for the multi-item scales
Variables Items 1 2 3 CRa AVEb Alpha
1. TMT heterogeneity Age heterogeneity 0.634 0.417 0.504 0.741 0.538 0.784
Tenure heterogeneity 0.657 0.537 0.470
Experience heterogeneity 0.838 0.578 0.701
Education heterogeneity 0.725 0.595 0.511
2. Interactive use of MAS Negotiate goals 0.523 0.632 0.598 0.863 0.552 0.816
Encourage new priorities 0.596 0.712 0.607
Signal key strategic areas 0.612 0.778 0.543
Encourage new ideas 0.626 0.829 0.689
Ïnvolve with subordinate 0.630 0.817 0.705
Learning tool 0.597 0.729 0.641
3. Broad-scope MAS Future-oriented information 0.619 0.601 0.811 0.849 0.560 0.772
External information 0.538 0.592 0.746
Noneconomic information 0.494 0.538 0.712
Long-run information 0.568 0.582 0.789
Composite reliability.
Average variance extracted.
D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 753

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