Accounting, Organizations and Society xxx (xxxx) xxx

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Accounting, Organizations and Society

journal homepage: www.elsevier.com/locate/aos

Interdependence of management control practices for product

innovation: The influence of environmental unpredictability
Jean-François Henri a, *, Marc Wouters b, c
a
Universit

e Laval, Canada
b
Karlsruhe Institute of Technology (KIT), Germany
c
University of Amsterdam, the Netherlands

a r t i c l e i n f o a b s t r a c t

Article history: Evidence for the relationship between management control practices and innovation is somewhat
Received 30 April 2018 mixed, notably because of the insufficient attention devoted to the type of information management
Received in revised form control practices provide. This study examines to what extent the interdependence of management
24 July 2019
control practices providing a mix of information for decision-making supports or impedes product
Accepted 13 September 2019
Available online xxx
innovation. We investigate whether the diversity of nonfinancial performance indicators and the func-
tionality of cost information specifically and jointly contribute to product innovation. We also investigate
whether environmental unpredictability moderates those effects. Survey data collected from a large
Keywords:
Management control
sample of manufacturing firms show the specific effect of these management control practices on
Product innovation product innovation. More importantly, the functionality of cost information and diversity of nonfinancial
Environmental unpredictability performance measures are complements (substitutes) under high (low) levels of environmental
Costing system unpredictability, and thus contribute to (impede) product innovation.
Nonfinancial performance indicators © 2019 Elsevier Ltd. All rights reserved.
Interdependence
Complementarity

1. Introduction methods can assist communication, build consensus and provide a

This study investigates to what extent the interdependence of
management control practices providing a mix of information for
decision-making supports or impedes product innovation. The
thinking about the relationship between management control
practices and innovation has undergone considerable develop-
ment. The “traditional” view has been that management controls
mostly impede innovation because the uncertainty inherent in
research and development tasks is inconsistent with formalized
systems that aim to control such activities (Abernethy & Brownell,
1997; Rockness & Shields, 1984). The understanding was that un-
certainty would make formulating strict targets, quantifying and
limiting resources, or codifying how these activities needed to be
carried out irrelevant or even damaging.
Early field work began to provide a more nuanced picture and
showed how management controls can be helpful for product
development (Polesie, 1994), because “the use of financial appraisal

bec, Qc,
* Corresponding author. School of Accounting, 2325, de la Terrasse, Que
G1V 0A6, Canada.
E-mail address: Jean-Francois.Henri@ctb.ulaval.ca (J.-F. Henri).
context which decision-makers can use to evaluate the more sub-
jective dimensions of projects” (Nixon, 1998, p. 329). This idea has
received much more attention in recent papers developing argu-
ments as to why and how management controls can support
innovation (Adler & Chen, 2011; Davila, Foster, & Oyon, 2009b) and
providing empirical support for this positive relationship (Akroyd,
Biswas, & Chuang, 2016; Bedford, 2015; Davila, Foster, & Li,
2009a). For example, marginally statistically significant support
emerged for a positive relationship between formal controls and
innovation (Chenhall, Kallunki, & Silvola, 2011). In a study of more
complex relationships that considered organic controls versus
mechanistic controls as well as exploratory versus exploitative
innovation, results showed that some combinations of these
management controls positively affect innovativeness and project
performance (Ylinen & Gullkvist, 2014). Other studies have shown
that the relationship between management controls and innova-
tion also depends on how control systems are used. If they are used
more interactively, they are more likely to support innovation
(Bisbe & Malagueno, 2009; Bisbe & Otley, 2004; Bonner, Ruekert, &
Walker, 2002; Henri, 2006b). Similarly, if budgets serve as a plan-
ning mechanism (rather than a control mechanism), they facilitate
product innovation that results in enhanced financial performance

https://doi.org/10.1016/j.aos.2019.101073
0361-3682/© 2019 Elsevier Ltd. All rights reserved.

Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
2 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
(Dunk, 2011). Recent reviews of the literature examine the re-
lationships between accounting and product development (Moll,
2005) and between management control systems and innovation
(Chenhall & Moers, 2015). Overall, the evidence for the relationship
between management controls and innovation is somewhat mixed,
creating a need for better understanding of why and how the
presence of management control practices might provide infor-
mation that supports innovation.
One of the most thorough studies of how management controls
may support innovation examined several management controls
specific to product innovation, such as project milestones, reports
comparing actual progress to plan, and the budget for development
projects (Davila et al., 2009a). Drawing on prior literature as well as
their own qualitative interview data, these researchers explored
the various roles through which management controls can support
product development. For example, management controls can be
coded routines for innovation that bolster learning from the past,
can help to coordinate a geographically dispersed workforce or
activities over time, and can provide intermediate milestones that
facilitate contracting with outside partners.
That study demonstrates how management controls can sup-
port innovation in very different ways. Therefore, we believe that it
is important to look at the relationship between innovation and
management controls not in general but from a specific perspec-
tive. Consequently, we narrow the focus of our study in several
ways. Firstly, we focus on product innovation, which concerns ac-
tivities related to the development and introduction of new prod-
ucts (Bisbe & Otley, 2004; Dunk, 2011). Second, we consider that
past studies may have combined different roles of management
control practices for product innovation, with perhaps more
emphasis on the decision-influencing role.1 By focusing specifically
on the decision-supporting role of management controls, we
intend to elicit the informational needs for achieving product
innovation.
Third, we investigate the interdependence between two specific
management controls, motivated by the content of the information
these controls provide to reduce the information gap. In particular,
we look at the mutual benefits of costing systems and nonfinancial
performance indicators, which yield diverse information in terms
of financial versus. nonfinancial information, strategic versus
operational perspective, and information related to product versus
process. These management controls are particularly relevant for
our research, because costing systems and nonfinancial perfor-
mance measures afford diverse but also incommensurable infor-
mation. Importantly, these practices are commonly used in the
context of innovation (Davila & Wouters, 2004; Hertenstein & Platt,
2000), and they also align with our intention to consider the
decision-supporting role of management control practices.
Fourth, we examine specific informational properties related to
these management control practices, namely functionality (Pizzini,
2006) and diversity (Ittner, Larcker, & Randall, 2003). We define
functionality of cost information as the advanced ability of the sys-
tem to provide cost information that supports the needs of the user.
We define diversity of nonfinancial performance indicators as the
variety of the organization’s performance measures that do not
have a monetary unit of measurement and that provide informa-
tion related to diverse strategic drivers, such as operations, quality,
customer and supplier, or employee. Because of this specific focus,
the current research may shed light on the mixed results regarding
1
The decision-influencing aspect of control refers to the need to direct em-
ployees’ activities or behaviors, while the decision-supporting aspects of control
reflect the requirement to support decision-making at any organizational level
(Demski & Feltham, 1976).
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
the relationship between management control practices and
innovation.
Product innovation requires multifaceted activities and complex
tradeoffs between several objectives. While management controls
to support managerial decision-making in product innovation will
likely provide diverse information from various sources intended to
complement each other, the availability of diverse but incommen-
surable information to support product innovation creates a
fundamental tension. On one hand, having more and diverse in-
formation can be helpful, because the decision maker gains a more
comprehensive picture of how product development is being car-
ried out and what is achieved. From this point of view, management
controls would be complements. On the other hand, having infor-
mation that is also incommensurable, potentially conflicting, and
often uncertain can cause problems. Processing such information is
highly demanding and increases the pressure from dealing with
diverse and conflicting demands reflected in various kinds of in-
formation (Bouwens & Abernethy, 2000). In that case, management
controls would be substitutes. It is this fundamental tension related
to the interdependence of various kinds of information provided by
management controls in product development that we investigate.
By interdependence, we mean that these practices not only
simultaneously exist in parallel, but that the benefits of using one
practice increase or decrease when the other practice is also used
(Grabner & Moers, 2013). More precisely, we investigate the spe-
cific and joint effects of the information provided by these man-
agement controls on product innovation.
We also investigate the role of environmental unpredictability as
a potential moderator of these effects. Environmental unpredict-
ability refers to the “inability to anticipate variations among ele-
ments of the environment and assess the effect of material changes
on the organization” (Bedford & Malmi, 2015, p. 9). It may have an
impact on the tension described above because of its influence on
the information gap. As environmental unpredictability increases
and informational needs become greater and more diverse, the
benefit of having more information in the form of both cost infor-
mation and nonfinancial performance indicators is particularly
relevant. However, as environmental unpredictability decreases
and informational needs become smaller and more focused, having
more information is less beneficial relative to the problems that
arise from having to deal with more and incommensurable infor-
mation. For example, environmental unpredictability can influence
the use of management controls in product development (Janka &
Guenther, 2018) and can moderate the relationship between the
use of management controls and managerial performance
(Agbejule, 2005).
We collected survey data from a sample of 310 Canadian
manufacturing firms. Our results show the specific effect of di-
versity of nonfinancial performance measures and of functionality
of cost information on product innovation, but not the joint effect of
these management control practices. Interestingly, we find a joint
positive effect of the two management control practices on product
innovation for firms with a high level of environmental unpre-
dictability, but a joint negative effect for firms with a low level of
environmental unpredictability. In other words, depending on the
level of environmental unpredictability, functionality of cost in-
formation and diversity of nonfinancial performance indicators
may be complements or substitutes.
Our study makes the following contributions. First, the paper
contributes to the debate regarding the influence of management
control on innovation by focusing on the concurrent provision of
specific types of information by particular management control
practices to support decision-making. In other words, we view
management control practices from their decision-supporting role
instead of their typical decision-influencing role. Second, this paper
 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
provides empirical results for the specific effect of cost information
and nonfinancial performance indicators on product innovation
that are examined in past literature, but also considers the inter-
dependence between those management control practices. We
examine how the mutual benefits resulting from the use of varied
information provided by management controls contribute to
product innovation. Third, the paper contributes to the stream of
research devoted to the relationship between environmental
unpredictability and management control practices (Chenhall,
2003; Pondeville, Swaen, & Ronge
, 2013) by showing that the ef-
fect of environmental unpredictability is more noticeable in the
context of concurrent than of separate provision of various types of
information. Last, we consider costing systems as a control practice
in the context of product innovation. Common management con-
trol practices examined as part of a mix of controls in the man-
agement accounting literature are performance measurement,
budgets, incentives, planning systems, and decentralization (Malmi
& Brown, 2008). Less attention has been devoted to costing systems
as part of the control mix. We consider the costing system as a
control practice in its own right and not merely as a financial per-
formance indicator.
The remainder of this paper is structured as follows. We moti-
vate and develop our research hypotheses in the next section. We
describe the research method and results in subsequent sections,
and we present conclusions in the final section.
2. Theory development
2.1. Cost information and nonfinancial performance indicators for
product innovation
Product innovation concerns activities related to the develop-
ment and introduction of new products (Bisbe & Otley, 2004; Dunk,
2011). For example, “product innovation is considered as the
development and launching of new products” (Chenhall et al., 2011,
p. 108), or “product innovation is understood here from an output
perspective, and it is defined as the development and launch of
products which are in some objective respect unique or distinctive
from existing products” Bisbe & Malagueno, 2009, p. 385). Inno-
vation by the firm can be broader and also refer to new technology
and other means of improving numerous firm processes, such as in
administration, manufacturing, or customer support (Henri,
2006b). For example, “Innovative accomplishments … very
broadly … include any policy, structure, method or process, product
or market opportunity that you as the manager of the project
perceived to be new” (Ylinen & Gullkvist, 2014, p. 100). In this
paper, we define product innovation in line with prior literature as
the development and introduction of new products.
Costing systems may support product innovation in several
ways. The functionality of cost information raises managers’
awareness of the significance and breadth of the impact of inno-
vation activities on the organization, and thus increases cost con-
sciousness (Shields & Young, 1994a). Superior cost information
increases organizational costs’ transparency throughout firms by
providing information concerning the appropriateness of the level
and volatility of costs as compared to organizational goals and
competitive benchmarks and the level of improvement of those
costs (Anderson, 2007). More specifically, cost information can be
useful in creating greater cost discipline and in quantifying trade-
offs for more balanced product decisions (i.e., cost vs. features)
(Rabino, 2001; Sandstro€ m & Toivanen, 2002). Cost information may
refer to the costs of R&D activities that enable the introduction of
new products, such as costs for personnel, research facilities,
externally acquired technology, and outsourced R&D services.
Product development projects can be very expensive and may have
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
3
considerable lead times in some industries, such as automotive,
semiconductor, or aerospace. Only a few studies in accounting have
looked at these R&D costs (Birnberg, 1988; Rockness & Shields,
1988; Shields & Young, 1994b).
Cost information in the context of product innovation may also
refer to the costs of the product under development, often called
target costing (Ansari, Bell, & Okano, 2006), and may indicate how
decisions made during product development affect product costs
(e.g., Anderson & Sedatole, 1998; Labro, 2004). Cost figures can be
compared to the allowable costs of the product (Ansari et al., 2006),
an approach that “highlights the role of management accounting,
especially target costing, when cost is a critical design parameter”
(Nixon, 1998, p. 329). The scope of cost figures may vary and include
only material costs or manufacturing costs more broadly, or may
extend to various non-manufacturing costs and even encompass
costs that a supplier incurs (open book accounting) (Agndal &
Nilsson, 2009).
H1a. The functionality of cost information is positively associated
to product innovation.
However, the functionality of cost information alone will often
not suffice, because attributes other than costs are also important. In
product development, firms often use various kinds of performance
measures besides costs to direct organizational attention to areas of
critical concern (Davila et al., 2009a). The ends and output are
mostly revealed by cost measures, whereas the means and pro-
cesses are reflected by nonfinancial measures (Henri, 2006a). More
specifically, the latter may relate to market potential, the product’s
feasibility, or the time and resources spent on product development
(Akroyd & Maguire, 2011; Hertenstein & Platt, 2000), whereby “a
pivotal measure of product development performance is on-time
development” (Davila et al., 2009a, p. 341). Diversity of nonfinan-
cial performance indicators contributes to the capture of the various
facets of organizational effectiveness by fostering curiosity and
experimentation, thus favoring the emergence of new ideas (Dent,
1990). By revealing cause-and-effect relationships between busi-
ness aspects, a diverse set of nonfinancial measures contributes to
strategic alignment and organizational learning (Chenhall, 2005).
“Being more traceable to strategic actions and more actionable,
these measures can be used in a forum to stimulate argument,
debate, insights, and new action plans” (Henri, 2006a, p. 86).
Each of these nonfinancial performance measures provides in-
formation on different and clearly separated aspects that are rele-
vant to product innovation. At some point, the number of
nonfinancial performance indicators may become too large to be
useful information. We assume a “reasonable” number of nonfi-
nancial indicators that are manageable and useful. In other words,
we propose that a limited set of diverse, clearly separated nonfi-
nancial performance measures provides a helpful amount of broad
information for product development. The inability of a firm to rely
on appropriate information contributes to ineffective resource
management and sub-optimal decisions (Baines & Langfield-Smith,
2003). We assume that the positive effect of complementary pieces
of information (diverse nonfinancial performance indicators) out-
weighs the issues that may also arise because these performance
indicators have various units of measurement.
H1b. The diversity of nonfinancial performance indicators is
positively associated to product innovation.
2.2. The impact of interdependence of cost information and
performance measures on product innovation
However, an especially compelling consideration may be how
4 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
these two management controls work together to facilitate
decision-making for product innovation. We discuss two opposite
effects. Standing alone, each kind of information is incomplete,
which increases the relevance of more and diverse information for
the decision maker. On the other hand, the incommensurability of
more information increases the decision maker’s difficulty to
actually use the information. We hypothesize that these effects will
work against each other, so that the effect of the interdependence
of cost information and performance measures on product inno-
vation becomes uncertain. We will also explore a potentially
moderating effect of environmental unpredictability that may in-
fluence the relative weight of both effects and, hence, how inter-
dependence of cost information and performance measures would
positively or negatively contribute to product innovation.
2.2.1. The potentially positive effect leading to complementarity
A potentially positive effect on product innovation may occur if
cost information and nonfinancial performance measures com-
plement each otherdtogether they are more useful for product
innovation. Cost information captures some facets that are impor-
tant for product innovation, but not everything; nonfinancial per-
formance captures other facets, but also not everything that
matters for product innovation. Having both kinds of information
prevents the ignoring of aspects that one information source does
not provide, thereby harming product innovation.
The starting point for defining performance indicators and cost
targets is an assessment of what kind of product the firm will offer
at what sales price and how this offering will compare to com-
petitors’ products that are expected to be available. Thus, targets for
a new product relate not only to sales prices and cost targets
derived from those prices but also to targets for the whole spectrum
of functionality and performance of the product. These targets
could be related to, for example, customers’ expectations for the
new product, ways to differentiate the product from competitors’
products, human resources considerations such as required skills or
preferred manufacturing locations, product characteristics that are
important for strategic and operational supplier relationships, or
compliance with particular technical standards. If a product’s
development requires significant resources and lead time, that
project will have targets for both its costs and lead time. The key
point is, therefore, that targets for nonfinancial performance in-
dicators and for costs are both needed to cover the full range of
aspects that are relevant for product innovation. For this reason,
both functionality of cost information and diversity of nonfinancial
performance indicators are required to provide helpful and com-
plementary information supporting decision-making for product
innovation.
The complementary nature of cost information and nonfinancial
performance indicators for product innovation is demonstrated in a
study of product development at an analytical measurement device
company (Jørgensen & Messner, 2009, 2010). Results showed that
highly diverse benefits and costs of decisions in product develop-
ment were difficult to calculate. Management could not rely on
detailed cost and profitability targets and estimates of the extent to
which those were achieved in product development. Strategic ob-
jectives such as quality, lead time, and production efficiency could
not be fully quantified in financial terms, and the calculation model
provided a starting point for discussions of how design choices and
tradeoffs affected these strategic objectives. The management
board’s inquiry emphasized that the integration of different con-
cerns by different parties was important at any stage during the
product development project. The board “used the meetings at the
gate to ensure that there was local communication and coordina-
tion” (Jørgensen & Messner, 2010, p. 202). These findings are
related to findings of case studies of product development projects
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
(Mouritsen, Hansen, & Hansen, 2001, 2009), which suggest that
financial numbers can influence new product development
because “the calculation connects the innovation activity to other
concerns” (Mouritsen, Hansen, & Hansen, 2009, p. 749).
These case studies suggest that the role of financial goals and
calculations in product development can be understood only by
considering those goals and calculations in combination with other
information and practices. Financial goals and calculations can be a
starting point, but managers combine those with insights that are
not compounded in financial models. Diverse nonfinancial perfor-
mance measures are also important to complement cost informa-
tion. Together, the two systems provide more and diverse
information. Limitations of the information provided by one man-
agement control can be complemented by information from the
other management control, allowing the understanding of different
aspects of how product development is going and which actions
should be taken.
In sum, cost information and nonfinancial performance in-
dicators may both be needed, and together they may be useful for
achieving product innovation. Acting as complements, these
management controls may positively contribute to product
innovation.
2.2.2. The potentially negative effect leading to substitution
However, another argument points in the direction of a poten-
tially negative effect of the interdependence of the two manage-
ment controls on product innovation. Cost information and
nonfinancial performance information are incommensurable,
potentially conflicting, and largely uncertain. Discerning how those
different and sometimes contradictory pieces of information need
to be combined is likely very difficult and stressful for decision
makers. Thus, these two management control practices can also be
substitutes. Therefore, whether having the information from both
management controls will actually foster product innovation is not
obvious.
A first reason why a negative joint effect may occur is informa-
tion overload. If both management control practices provide infor-
mation, managers must consider more information. While having
more information may be useful, taking full advantage of it may be
highly demanding and cause information overload. Schick, Gordon,
and Haka (1990, p. 199) define information overload as “occurring
when the information processing demands on an individual’s time
to perform interactions and internal calculations exceed the supply
or capacity of time available for such processing.” In other words,
information overload may result from the combination of more
information provided by cost system and nonfinancial performance
indicators along with limited availability of managerial attention
owing to time and cognitive boundaries (Cardinaels & van Veen-
Dirks, 2010; Lipe & Salterio, 2000; Simons, 1990). One notable
consequence of information overload is the reduction of decision-
making effectiveness (Schick et al., 1990), which might translate
into non-optimal decisions regarding successful product
development.
Although the organization has invested in the provision of
informationdhere in the form of cost information and nonfinancial
performance indicatorsdand managers may be competent and
experienced, this information may not be used to its full extent
(Feldman & March 1981). The fundamental problem at work is
limited attention: “managers have neither the time nor the capacity
to process all the information available to them” (Simons, 1990, p.
135). The difficulty arises owing to bounded rationality and time
constraints because managers are engaged in many concurrent
activities. Specifically, using diverse and incommensurable infor-
mation for decisions is challenging because it involves multi-
attribute decision-making, which has also been found to
 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
distinctly hamper the use of diverse, incommensurable information
in the context of balanced scorecards (Dilla & Steinbart, 2005; Lipe
& Salterio, 2000).
Second, we can develop the general notion of information
overload more specifically for product development to better un-
derstand why in this context both management controls may be
substitutes and have a negative joint effect. The fundamental issue
causing information overload is the complex interrelations between
the various financial and nonfinancial goals, which cannot be fully
quantified. Consider a product development project that does not
meet some important targets and something needs to be done
(Akroyd et al., 2016). The various potential remedial actions involve
complex interactions and tradeoffs. For example, targets for func-
tionality and performance could be abated to save costs and meet
the target for the product cost, which will likely affect the new
product’s sales price and/or sales volume. The product develop-
ment efforts and related costs could be expanded to find ingenious
solutions for achieving the targets for product costs, functionality,
or performance. Besides leading to higher R&D costs, this approach
may also extend the lead time, and the delayed market introduction
may affect sales prices and volumes.
Complicating the interactions and tradeoffs mentioned above
are relationships among product development projects (Davila &
Wouters, 2004). Decisions with respect to one product develop-
ment project can affect other projects, for example through real-
location of R&D resources or because technical design decisions
interact, such as through the adoption of common components
(Labro, 2004). Adding to the complexity is that the lead time of
product development creates uncertainty for estima-
tingdsometimes years into the futuredthe costs to manufacture,
distribute, sell, and service the new product, the purchase prices of
components and materials that will be sourced externally, the lead
time and costs of product development, and so on. Additional
complexity is added when cost targets are dynamic, with for
example a target cost at the product launch and another target cost
for one year later.
A third reason for information overload and why both man-
agement controls may be substitutes and have a negative joint ef-
fect on product innovation is the convoluted overlap between cost
information and nonfinancial performance indicators. The combina-
tion of a set of nonfinancial performance indicators with cost in-
formation presents a fundamental challenge in product
development. Cost information captures some of the financial
impact of some of the nonfinancial performance indicators. For
example, product quality may be quite well reflected in the
manufacturing unit cost but perhaps not in the sales volume;
employee satisfaction may not be compounded in cost information
at all; and product development lead time may be quite well re-
flected in the costs of product development but not in revenue
losses. As a result, cost information partially overlaps and interacts
with some of the nonfinancial performance indicators in a range of
different ways. Moreover, such partially overlapping cost infor-
mation and nonfinancial performance indicators also represent a
mix of leading and lagging information. While this mix of infor-
mation can be useful (the positive effect), it is likely to also be
confusing to decision makers and very difficult to make sense of
(the negative effect). This challenge differs fundamentally from that
presented by diverse nonfinancial performance indicators only,
which we expect to be positively associated to product innovation.
Using a limited number of clearly separated, nonfinancial perfor-
mance indicators that each captures its own, unique aspect for
product innovation may be far less challenging, even if such in-
formation has various units of measurement, in comparison to
making sense of the complex overlap between cost information and
nonfinancial performance indicators. Therefore, we proposed
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
5
above that such a set of nonfinancial performance indicators basi-
cally provides helpful diverse information for product
development.
Against this background, serious limits clearly exist as to how
well the complex interactions and tradeoffs between financial and
nonfinancial goals can be quantified. Both management control
practices provide information that is incommensurable, potentially
conflicting, and largely uncertain. Therefore, a potentially negative
effect of the interdependence of the two management control
practices on innovation may occur because interdependence not
only creates the need to process more information, but also diverse
and commensurable information (financial and nonfinancial infor-
mation from various sources) that also highlights the complex in-
terrelationships among various objectives in product development
projects. The information from the two management control
practices may suggest inconsistent and conflicting clues as to how
things are going and which decisions could be made for successful
product development. The incommensurable mix of financial and
nonfinancial information is not provided in a way that it can easily
be combined. Processing such information is very demanding and
also increases the pressure from having to deal with diverse and
conflicting demands in product development as reflected in cost
information and diverse nonfinancial key performance indictors
(Davila & Wouters, 2005). The joint use of the two management
control practices might severely exacerbate uncertainties and
complex interrelationships, not only among various aspects of one
product development project but also among several product
development projects. The attempt to encode, formalize, and signal
those uncertainties and complexities could stifle creativity and
generation of new ideas. The pressure from the need to meet
multiple broad targets could impede the reconciliation of priorities
and issues related to product innovation and profitability: “Too
often we stifle creativity and learning by insisting upon good per-
formance from all activities” (Otley, 1994, p. 297).
Thus, competing arguments result in tension regarding the joint
effect of management control practices on product innovation.
Considering that we cannot determine which effect will prevail, we
do not predict the presence of complementarity or substitution, but
simply the presence of interdependence. Formally stated:
H2. The functionality of cost information and diversity of nonfi-
nancial performance measures are interdependent, and are thus
related to product innovation.
2.3. The potential moderating effect of environmental
unpredictability
We will also explore to what extent environmental unpredict-
ability may be a moderator influencing the relative strength of the
specific and joint effects discussed so far between functionality of
cost information, diversity of nonfinancial performance indicators,
and product innovation. As environmental unpredictability in-
creases and informational needs for product innovation become
greater and more diverse, the benefit of having more information is
particularly relevant. However, as environmental unpredictability
decreases and informational needs become smaller and more
focused, having more information is less beneficial. This way,
environmental unpredictability could differentiate between when
functionality of cost information and diversity of nonfinancial
performance indicators are complements versus substitutes. Fig. 1
summarizes our conceptual model.
2.4. Influence of contextual factors
The model first controls for the influence of various contextual
6 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
Fig. 1. Conceptual framework.
factors on product innovation, namely size, ownership, strategy,
culture and decentralization, which have been documented in past
studies. Large organizations are more likely to innovate because of
resources availability (Damanpour & Aravind, 2012). Ownership is
expected to influence product innovation considering the influence
of shareholders and the presence of more intense external pressure
(Dzikowski & Tomaszewski, 2014; Zhang, Wei, Yang, & Zhu, 2018).
The strategic intent of the organizations, notably in terms of R/D
orientation, market orientation and product launch strategy, is
expected to influence product innovation (Ar & Birdogan, 2011;
Cheng et al., 2013; Slater, Mohr, & Sengupta, 2014). An organiza-
tional culture displaying a favorable attitude toward change leads
to an internal climate conducive to innovation (Damanpour, 1991;
Cheng et al., 2013; Slater et al., 2014). While centralization is
considered to prevent innovative solutions, the dispersion of power
is expected to contribute to product innovation (Damanpour, 1991;
Slater et al., 2014).
Furthermore, following the rich literature of contingency theory
arguing the influence of contextual factors on management control
practices (Chenhall, 2003; 2007) and considering the empirical
strategy proposed by Grabner and Moers (2013) to test interde-
pendence, we also use the same control variables to capture the
potential influence of different pairs of management controls and
context. More specifically, owing to the presence of five contextual
variables and two management control practices, ten pairs of var-
iables have been considered in our model.
3. Method
3.1. Data collection
As part of a larger research project, survey data were collected in
2011 from a random sample of 1500 Canadian manufacturing firms.
Dillman (2000) recommends that a survey be designed and
administered to maximize the expected net returns to the respon-
dent. With the current data collection, we used various means to
maximize the response rate. Specifically, we promised potential
respondents a copy of the survey results, sent a personalized cover
letter with the survey, had the survey instrument designed by a
professional designer and presented in an attractive and easy to read
booklet, and identified the survey with the name of one author’s
university, a well-known and highly respected institution. We made
three follow-up contacts to increase the response rate.
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
The contact details of the sample firms were obtained from
Scott’s Directories. This database comprises fully autonomous en-
tities or subunits of larger firms that in all cases appeared as
separate entities in the database. We selected organizations with
100 or more employees and for which contact names of top or
middle managers were available. After elimination of undeliverable
surveys (organizations that had moved, wrong addresses, etc.), the
final sample comprised 1418 organizations. We first validated the
questionnaire using a pre-test administered to five academics and
five managers. Data were then collected through a structured
questionnaire sent to the middle or top manager. We sent the
questionnaire to the respondents along with a letter explaining the
purpose of the study and a self-addressed stamped envelope. The
survey implementation occurred in four steps: initial mailing, first
follow-up (after three weeks), second follow-up (six weeks after
the initial mailing), and third follow-up (ten weeks after the initial
mailing).
In total, we received 310 useable questionnaires for a response
rate of 21.9%. On average, firm size was 265 employees. The re-
spondents had on average 15.7 years of experience working for
their organization and were top managers (60%), middle managers
(22%), or CFOs and controllers (18%).2 To check for potential
nonresponse bias, we conducted a two-step analysis. First, we
compared respondents with nonrespondents in terms of sample
characteristics. Chi-square statistics revealed no significant differ-
ences (p > .05) between the size and industry of respondent firms
and nonrespondent firms. Then, we compared early and late re-
spondents in terms of construct measures.3 A comparison of the
means of the constructs revealed no difference between early and
late respondents (p > .01). Hence, nonresponse bias does not
appear to be a major concern in this sample.
3.2. Measurement of constructs
All measures are drawn from existing instruments. Unless
otherwise specified, the instrument used a seven-point Likert-type
scale. Appendix 1 shows the questionnaire items for the constructs
as well as Cronbach’s alphas and statistics from confirmatory factor
analyses (loadings, variance extracted, composite reliability,
goodness-of-fit indices4) where applicable.
The diversity of nonfinancial performance measurement is based
on the instrument developed by Ittner et al. (2003). Respondents
rated the extent to which the organization uses seven nonfinancial
performance measures: operational performance, product quality,
customer relations, employee relations, supplier relations, product
innovation,5 and environmental performance. Those items were
2
Analyses of variance (ANOVA) were conducted to determine whether the mean
scores of the constructs vary among the three groups of respondents. No significant
differences were observed except for one control variabledorganizational cultur-
edwhich differed slightly between top and middle managers (p < .05). Thus, the
three groups of respondents form a homogenous sample.
3
We conducted two analyses. In the first analysis, early respondents refers to
those providing answers before the first follow-up and late respondents refers to
those providing answers after the third follow-up. In the second analysis, early and
late respondents refer respectively to the first and last 10% of the respondents.
4
The indices used to assess the model are among the most frequently reported:
NNFI (non-normed fit index), CFI (comparative fit index), and RMSEA (root mean
square error of approximation). The following threshold values are recommended:
NNFI >0.90 (Tabachnick & Fidell, 2013); CFI > 0.95 (Hu & Bentler, 1995); and
RMSEA < 0.l0 (Browne & Cudeck, 1993).
5
To preserve the completeness of the items identified to capture diversity of
nonfinancial performance measurement, we have kept the measurement of prod-
uct innovation as one of the items even if the dependent variable is product
innovation. However, we have also run a sensitivity analysis by removing this item
from the construct. The results of the various statistical analyses discussed below
remain unchanged.
 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
chosen because they capture a broad scope of information used by
managers. In line with our conceptual intention to focus on the
diverse information provided by management control practices, the
current performance indicators cover both strategic and opera-
tional dimensions and have short-term implications. An index
based on the number of performance indicators that were
frequently emphasized was computed as follows. First, each indi-
cator was coded on a dichotomous score whereby 0 refers to firms
for which the use of that indicator is less than or equal to the
median, or 1 otherwise. Then, an overall score was computed by
summing the result of each indicator, which led to an index varying
between 0 and 7. A higher score indicated greater diversity of
nonfinancial performance measurement. This aggregation
approach was used because the aim is not to capture a set of in-
dicators relating to the same underlying construct but to identify a
variety of indicators used by managers. We are interested in the
informational property of diversity (i.e., managers who have to
handle multiple performance indicators) and not necessarily in the
specific influence of each type of indicator on specific decisions in
product innovation.
We measured the functionality of cost information using five
items from the instruments of Chenhall and Morris (1986) and
Pizzini (2006). Respondents indicated the degree to which they
agreed with the various statements as these applied to their or-
ganization. Instead of measuring functionality on the basis of an
absolute view capturing specific features of the costing system, we
chose an approach in line with our definition and level of analysis.
More specifically, we use a relative view to capture the informa-
tional property of functionality based on the informational needs of
managers. A higher mean score indicated greater functionality of
cost information. Because the items represent manifestations of the
construct, they are considered to be reflective measures. For
instance, because of the functionality of cost information, the in-
formation available is detailed, flexible, and timely.
The combined effect of the two management control practices of
diversity of nonfinancial performance indicators and functionality
of cost information is operationalized as a classical interaction
termdthat is, a product term between the two practices described
above.
We measured product innovation using the four-item instrument
adapted by Bisbe and Otley (2004). Respondents compared their
innovative behaviors to the industry average in terms of the rate of
new product introductions, the rate of existing product modifica-
tions, the tendency of firms to pioneer, and the part of the product
portfolio corresponding to recently launched products. Because the
items represent manifestations of the construct, they are consid-
ered to be reflective measures. For instance, because the organi-
zation innovates, products have been launched and the
organization has been first to market.
Using an approach similar to that of Bedford and Malmi (2015),
we measured environmental unpredictability on the basis of three
items relating to major external stakeholders (i.e., suppliers, cus-
tomers, and competitors). Respondents indicated how predictable
or unpredictable those external factors are for their organizations. A
higher mean score reflects more environmental unpredictability. As
the items represent manifestations of the construct, they are
considered reflective measures. For instance, because of the
unpredictability of the environment, the actions of stakeholders
can hardly be anticipated.
The contextual variables were measured as follows. Size was
measured using the natural log of the number of employees.
Ownership is a dichotomous variable (public vs. private firm).
Differentiation strategy was measured using the six-item instru-
ment developed by Govindarajan (1988). Respondents were asked
to position their main products relative to those of leading
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
7
competitors in six areas. A higher mean score indicates an orga-
nization displaying a strategy more oriented toward differentiation.
Adopting a competing-values perspective (Quinn & Rohrbaugh,
1983), we measured organizational culture by one section of the
Institutional Performance Survey (IPS) developed at the National
Center for Higher Education Management Systems (Krakower &
Niwa, 1985). Respondents were asked to distribute 100 points
among four ideal cultural types along each of four dimensions of
culture: institutional character, institutional leader, institutional
cohesion, and institutional emphasis. For each dimension, re-
spondents distributed 100 points among four sentences where
organization A refers to group culture, organization B refers to
developmental culture, organization C refers to hierarchical cul-
ture, and organization D refers to rational culture. First, a score was
compiled for each type of culture by summing the ratings obtained
on the four dimensions. For each firm, the sum of the four cultural
types equals 400. Second, a value score was computed for the
control and flexibility values as follows: (i) flexibility-value
score ¼ group-culture score þ developmental-culture score, and
(ii) control-value score ¼ hierarchical-culture score þ rational-
culture score. Hence, the flexibility- and control-value scores can
vary between 0 and 400 and their sum equals 400. A higher score
indicates stronger organizational values. Lastly, we used the five-
item instrument of Gordon and Narayanan (1984) to measure the
level of decentralization whereby the respondents were asked to
what extent authority has been delegated to the appropriate
managers for five types of decisions (e.g., selection of investments,
pricing, etc.). A higher mean score indicates a higher level of
decentralization.
3.3. Reliability and validity of constructs
To establish the reliability of multi-item constructs, we first
examined the Cronbach’s alphas and composite reliability. The
constructs must exceed the recommended cut-off point of 0.70 to
reflect an acceptable level (Fornell & Larcker, 1981; Nunnally, 1967).
Moreover, to verify convergent validity, we analyzed the variance
extracted and performed confirmatory factor analyses (CFAs). The
variance extracted must exceed the recommended cut-off point of
0.50 to reflect acceptable validity (Hair, Black, Babin, & Anderson,
2010). Three main elements were examined for the CFA: the sig-
nificance of the standardized factor loading and the R2 for each
item, the overall acceptability of the measurement model using chi-
square statistics, and three fit indices.6 Appendix 1 presents the
statistics of the measurement analyses. Re-specification was
necessary for four constructs because of insufficient factor load-
ings: functionality of costing (1 item removed), strategy (2 items
removed), decentralization (2 items removed), and product inno-
vation (1 item removed). After this re-specification, all multi-item
constructs exceed the recommended cut-off point for the Cron-
bach’s alpha, composite reliability, and variance extracted (except
for strategy, which is slightly below the threshold in terms of
variance extracted), and all exhibit acceptable model fit with
adequate R2. All factor loadings are statistically significant (p < .01).
Discriminant validity was assessed in several ways. First, we
applied Harman’s (1967) single-factor test, which did not reveal the
presence of a single factor, suggesting that the variables are distinct
constructs. Second, we compared the variance extracted from
multi-item constructs with the squared correlation between latent
constructs (Fornell & Larcker, 1981). To support discriminant
6
NNFI, CFI, and RMSEA reflect two complementary types of indices (absolute fit
and incremental fit measures) and are among the most frequently reported (see
footnote 5 for the threshold values).
8 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
validity, the variance extracted for each construct must exceed the
squared correlations, which is the case with our constructs.
Lastly, we assessed the common method bias for all constructs
using multitraitemultimethod analysis (Podsakoff, MacKenzie,
Jeong-Yeon, & Podsakoff, 2003; Widaman, 1985). The results sug-
gest that the common method accounts for a small portion of the
total variance in the measures examined (24%, which is below the
suggested threshold of 25%) (Williams, Cote, & Buckley, 1989).
Therefore, common method is not considered to be a major issue in
this study.
3.4. Data analysis
To test our conceptual model, we used structural equation
modeling (SEM). This approach has the notable advantage of con-
trolling for measurement errors and simultaneously testing various
relationships among latent exogenous and endogenous variables.
More specifically, to conduct the test for interdependence, we
employ an empirical strategy adapted from the pay-off function
described by Grabner and Moers (2013). As mentioned, we control
for the potential interactions between contextual factors and
management control practices by integrating the covariance be-
tween ten pairs of control variables and management control
practices in the structural model.7
In presence of an interaction term, and following the seminal
work of Kenny and Judd (1984), Jaccard and Wan (1995) propose a
procedure that has the same logic but is simpler to implement and
is adapted for structural equation modeling. Basically, all possible
cross-products of the existing indicators are used as indicators of
the latent product.8 Although this procedure is one of the most
technically robust, it is also one of the most complicated (Cortina,
Chen, & Dunlap, 2001).
4. Results and discussion
4.1. Descriptive evidence
Descriptive statistics of the constructs and the correlation ma-
trix are presented in Table 1. Regarding the two management
control (MC) practices, the diversity of nonfinancial performance
measurement and functionality of cost information have respec-
tively a mean score of 2.51 and 4.46 with a standard deviation of
2.03 and 1.40. We first note that both MC practices are positively
and significantly correlated with product innovation.
4.2. Specific effect of MC practices
Table 2 presents the standardized results of the structural
7
The covariance between two exogenous latent variables equals the correlation
times the product of the variables’ standard deviations.
8
The joint effect variable has four latent indicators as the cross-products of the
four indicators of functionality of the cost information (s1, s2, s3, s4) and the in-
dicator of diversity of nonfinancial performance indicators (d1). Specifically, the
four indicators are: (i) s1*d1, (ii) s2*d1, (iii) s3*d1, and (iv) s4*d1. With this
approach, several parameters are constrained to equal values determined by
various equations: the variance of the latent product, the paths from the latent
product to its indicators, and the error variances of these indicators. With respect to
the presence of a product term in the structural equation model, the usual
recommendation is that variables involved in the creation of the product term be
centered prior to their formation (Cortina et al., 2001). This procedure minimizes
identification problems caused by the correlation between the variables and the
products created from them. It also allows interpretation of the coefficients ob-
tained for the lower-order effects (main effects). Hence, diversity of nonfinancial
performance indicators and functionality of costing were centered prior to the
formation of the product term.
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
equation models. The results of Model 1 (full sample) suggest that
both diversity of nonfinancial performance measurement (0.464;
p < .01) and cost information functionality (0.134; p < .05) posi-
tively and significantly influence product innovation. These results
support past studies suggesting that management control practices
provide information for decision-making that support product
innovation (Chenhall & Moers, 2015; Moll, 2005).
The results of sub-group analyses (Models 2 and 3) provide
interesting complementary evidence. Findings suggest that the
positive influence of these MC practices on product innovation
remains positive and statistically significant regardless of the level
of environmental unpredictability. One notable exception relates to
the positive influence of functionality of cost information on
product innovation that is not significant for firms facing low
environmental unpredictability. This exception could suggest that
in the context of low unpredictability, cost structure is well known
by managers and cost variations may not be material. Therefore,
not much additional information might be contained and displayed
by more detailed cost information. Otherwise, in the context of
product innovation, those results generally imply that both MC
practices, each in its own way, provide information that contributes
to reduction of uncertainty and to support of decision-making. In
other words, the results support the arguments proposed in H1b
and, to a large extent, in H1a.
4.3. Joint effect of MC practices
The results of Model 1 (full sample) suggest that the interaction
between functionality of cost information and diversity of nonfi-
nancial performance measurement does not influence product
innovation. In other words, on average the interdependence be-
tween the two MC practices does not explain variation of product
innovation. Because we formulated a nondirectional hypothesis,
this result does not formally support H2. The positive effect of
having more and diverse information and the negative effect of
incommensurability of such information seem to work against each
other, which is fully consistent with the idea behind H2, resulting in
no apparent effect. This conclusion is also supported by the sub-
group analysis (Models 2 and 3) that provides further notable in-
sights for the moderating effects of environmental unpredictability.
For firms displaying a low level of environmental unpredictability,
the interaction is negative and statistically significant (0.134;
p < .05). However, for firms displaying a high level of environ-
mental unpredictability, the interaction term is positively and
significantly associated with product innovation (0.075; p < .05).
Fig. 2 illustrates the moderating influence of environmental
unpredictability on the link between the joint effect of MC practices
and product innovation. In a context of low environmental unpre-
dictability, the effect of diversity of nonfinancial performance in-
dicators on product innovation decreases as the functionality of
cost information increases (and vice versa). When the functionality
of cost information is low, the effect of performance indicators on
product innovation is still beneficial. However, as the level of
functionality increases (to around 2), the influence of performance
indicators’ diversity becomes detrimental. In contrast, with high
environmental unpredictability, the effect of nonfinancial perfor-
mance indicators’ diversity on product innovation increases as the
functionality of cost information increases (and vice versa). We will
discuss this result in the next section.
4.4. Discussion of the moderating effect of environmental
unpredictability
We suggest the moderating effect occurs because environ-
mental unpredictability influences the relative strength of two
 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx 9

Table 1
Descriptive statistics and correlation matrix.

Diversity of Nonfinancial Functionality of cost Product Environmental Size Owner- Differenti-ation Culture Decentra-
Performance Indicators information Innovation Unpredictability (log) ship Strategy lization

Descriptive statistics
No. of items 7 4 3 3 1 1 4 1 3
Theoretical range 0e7 1e7 1e7 1e7 e 1e2 1e7 0e400 1e7
Minimum 0 1 1 1.67 1.04 1 1.33 0 1
Maximum 7 7 7 7.00 5.08 2 6.50 400 6.67
Mean 2.51 4.46 4.19 3.78 2.36 1.32 4.64 193.80 3.95
Standard deviation 2.03 1.40 1.47 1.09 .56 .47 .83 85.5 1.39
Median 2.00 4.60 4.33 3.67 2.22 1.00 4.67 195 4.0

Diversity of nonfinancial 1
perf. indicators
Functionality of cost .344** 1
information
Product innovation .291** .244** 1
Environmental -.050 -.027 -.010 1
unpredictability
Size .047 -.135* .006 -.052 1
Ownership (private or .002 -.030 -.071 -.078 .286** 1
public firm)
Differentiation strategy .237** .155** .375** .012 .001 -.047 1
Culture (flexibility values) .162** .115* .225** .068 -.220 -.248** .045 1
Decentralization .083 .080 .167** -.126* .201** .163** .091 -.054 1

Note 1: * Significant at the 0.05 level. ** Significant at the 0.01 level.

Table 2
Results of the structural equation model.

Description of Paths Model 1 Model 2 Model 3

Full Sample Low Environ. High Environ.
Unpredictability Unpredictability

Coef. Sig Coef. Sig Coef. Sig

Main paths
Functionality of cost information / Product innovation .134 * .004 n.s. .292 **
Diversity of nonfinancial perf. ind. / Product innovation .464 ** .598 ** .339 **
Joint effect of cost info & perf. ind. / Product innovation -.009 n.s. -.134 * .075 *
Control paths
Size / Product innovation -.064 n.s. -.048 * -.082 n.s.
Ownership / Product innovation .011 n.s. .043 n.s. -.001 n.s.
Strategy / Product innovation .440 * .533 * .269 *
Organizational culture / Product innovation .107 * .130 * .039 n.s.
Decentralization / Product innovation .109 * .020 n.s. .154 **

Covariance parameters (unstandardized)

Size - Diversity of nonfinancial perf. ind. -.027 n.s. -.003 n.s. -.054 n.s.
Ownership - Diversity of nonfinancial perf. ind. -.014 n.s. .033 n.s. -.067 n.s.
Strategy - Diversity of nonfinancial perf. ind. .144 ** .221 ** .069 n.s.
Organizational culture - Diversity of nonfinancial perf. ind. 13.1 ** 16.8 ** 9.8 *
Decentralization - Diversity of nonfinancial perf. ind. .208 ** .232 ** .161 *
Size - Functionality of costing -.100 ** -.052 n.s. -.179 **
Ownership - Functionality of costing -.005 n.s. .036 n.s. -.109 **
Strategy - Functionality of costing .150 ** .075 n.s. .306 **
Organizational culture - Functionality of costing 7.2 n.s. 4.51 n.s. 21.3 **
Decentralization - Functionality of costing .234 ** .268 ** .161 n.s.

R2 of product innovation .232 .211 .282

Goodness-of-fit indices
x2 284.6 p < .01 304.1 p < .01 324.2 p < .01
NNFI .912 .843 .852
CFI .939 .879 .898
RMSEA .067 .085 .097
n 310 169 141

*p < .05 **p < .01.

opposing effects at work. Having more diverse information pro- information, dealing with conflicting objectives, and drawing
vides a more comprehensive picture to support decisions for conclusions for product innovation more complex and risks
product innovation. In that sense, the two management control incurring information overload. Following this reasoning, the two
practices are complements. However, that information is also management control practices are substitutes.
diverse and incommensurable, which makes processing the If environmental unpredictability is greater, the

Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
10 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
Fig. 2. Joint effect of MC practices on product innovation.
complementarity effect appears to be stronger. Managers may
experience more difficulties in anticipating changes in the envi-
ronment and assessing their implication in terms of product
development. As the informational needs are greater and more
diverse, the advantage of having more diverse information for
reducing the informational gap becomes more important. In the
presence of more environmental unpredictability, the limitations of
each separate piece of informationdcost information as well as
nonfinancial performance indicatorsdare exacerbated. For
example, the uncertainty for estimating future costs becomes
greater, understanding realistic targets for the functionality and
performance of the product becomes more challenging, and the
costs and lead time of product development are more difficult to
plan. Greater functionality of cost information and more diversity
of nonfinancial performance indicators become more relevant un-
der greater environmental unpredictability. In other words, we
suggest that for managing product development under greater
unpredictability, the potentially positive effect of having a larger set
of diverse information becomes more relevant, leading to cost in-
formation and diversity of nonfinancial performance measures
being complements.
The substitution effect is likely to not change much. The levels of
functionality of cost information and diversity of nonfinancial
performance indicators determine the complexity of making sense
of the information. The challenge arises from the large amount of
information and its complex nature, because it is incommensu-
rable, potentially conflicting, uncertain, and because the financial
and nonfinancial information partially overlap in complex ways.
This complex information mix creates information overload,
because decision makers have limited information processing ca-
pabilities, time, and attention. The level of environmental unpre-
dictability would not matter for this challenge of dealing with a
situation of information overload, because these limitations of the
decision maker in terms of limited attention, information-
processing capacity, and managerial time constraints are not
caused by environmental unpredictability. In other words, the
critical threshold of these limitations has already been reached,
regardless of the level of unpredictability.
Overall, more environmental unpredictability contributes to
increasing the need for diverse information for which the use of
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
management controls practices will be instrumental. On the other
hand, more environmental unpredictability does not influence the
limitations of decisions makers and level of incommensurability of
the information. On balance, if environmental unpredictability is
greater, the advantage of having more information becomes greater
relative to the disadvantage of incommensurable information and
potential contradictions within the information set. The two
management control practices are needed together to support
product innovation.
If environmental unpredictability is lower, the complementarity
effect appears to be weaker. Managers may experience less diffi-
culty in anticipating changes in the environment and assessing
their implication in terms of product development. Thus, as the
informational needs are smaller and more focused, having more
diverse information is not that important. The substitution effect is
again not likely to change much, because the challenge for decision
makers to make sense and effective use of the information is not
different owing to higher or lower environmental unpredictability.
Overall, the advantage of having more diverse information becomes
smaller relative to the disadvantage.
Thus, environmental unpredictability appears to moderate the
joint effect of functionality of cost information and diversity of
nonfinancial performance indicators on product innovation.
Essentially, the moderating effect of environmental unpredict-
ability on the interdependence between the two management
control practices happens by how it changes the advantage of
having diverse information (complementarity effect), while the
disadvantage of incommensurable information remains stable
(substitution effect). Greater environmental unpredictability in-
creases the difficulty of understanding the complex tradeoffs
involved when making decisions about product development,
making the advantage of a broader set of information more
important, compared to a context of lower environmental unpre-
dictability. If the disadvantage ensuing from the potential harm
that comes from information overload, dealing with conflicting
objectives, and having to reconcile incommensurable information
remains more or less the same, the relative weight of both effects
changes owing to greater environmental unpredictability. This
would explain why the relationship between the joint effect of the
two management control practices and product innovation
 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
becomes positive for high environmental unpredictability and
negative for low environmental unpredictability.
5. Conclusion
We considered interdependence of management control prac-
tices in terms of the information they supply for product innovation
and from a decision-supporting perspective. Against that back-
ground, this study sought to contribute to the debate regarding the
influence of mix of controls on product innovation. More specif-
ically, the purpose of this study was twofold. First, we examined the
specific and joint effects of two management control practicesdthe
use of cost information and nonfinancial performance indica-
torsdon product innovation. Second, we explored the influence of
environmental unpredictability on those effects. Results from a
sample of 310 manufacturing firms yielded two main conclusions:
1. On average, the functionality of cost information and diversity of
nonfinancial performance indicators exert a specific influence
on product innovation. This result is particularly noticeable for
firms displaying greater environmental unpredictability.
2. On average, the interdependence between cost information and
nonfinancial performance indicators does not seem to influence
product innovation. However, environmental unpredictability
moderates these relationships. More specifically, in a context of
greater environmental unpredictability, those two management
control practices are complements, and thus trigger product
innovation. Conversely, for firms displaying lower environ-
mental unpredictability, those two management control prac-
tices are substitutes, and thus impede product innovation.
This study contributes to the current debate about the role of
management control practices in the context of product innovation.
One explanation for previous competing findings could reside in
the consideration of management controls as a whole instead of
specific components providing different types of information to
support decision-making. Our study contributes to this stream of
research by investigating in more detail the informational proper-
ties of two practices: functionality of cost information and diversity
of nonfinancial performance indicators. We demonstrate the spe-
cific and especially the joint effects of these two MC practices,
providing a more nuanced understanding of the role of MC prac-
tices in the context of product innovation.
In line with past studies suggesting that appropriate informa-
tion supports effective resource management (Baines & Langfield-
Smith, 2003), we observe specific effects from management control
practices on product innovation. More importantly, the interde-
pendence between these management control practices has two
effects. On one hand, the information provided by one management
control practice augments the information provided by another,
having a complementary effect. On the other hand, the diverse
information supplied by the two management control practices is
difficult to integrate for decision-making, having a substitution
effect.
Whether the interdependence of these management control
practices will foster or hamper product innovation depends on the
relative importance of the two effects. If environmental unpre-
dictability is high, the benefit of having more and diverse infor-
mation is great and thus, the management controls were found to
be complements. If environmental unpredictability is low, having
more and diverse information is less important. The problems
Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
11
associated with the presence of both sets of information become
relatively more important, and the management controls were
found to be substitutes. The joint use of the two management
control practices may lead to less support for product innovation
than if the decision maker relied on only one practice to provide
information. These results suggest thatddepending on the external
context, which can be more or less stable while leading to various
levels of information gapdthe simultaneous presence of greater
functionality of cost information and more diverse set of nonfi-
nancial performance indicators can impede or trigger the
achievement of product innovation.
The implication of this finding is that in opposite contexts of
uncertainty, the optimal design of the management control mix
varies and might lie somewhere between information insufficient
to provide an adequate understanding of a decision’s implications
and excessive information that exacerbates the innate uncertainty
and complexity, paralyzing decision-making. Attention could be
given to designing management controls to support the decision
maker in combining and summarizing the information from
different sources. One approach would be to translate diverse in-
formation into a common monetary unit of measurement. Previous
studies in product development have shown several beneficial ef-
fects of monetary quantification to support decision-making, such
as the differences in alternative supplier offerings (Wouters,
Anderson, Narus, & Wynstra, 2009; Wynstra, Anderson, Narus, &
Wouters, 2012).
This study is subject to potential limitations in terms of internal
and external validity. First, the study investigates two management
control practices, namely the costing system and performance in-
dicators, and one type of innovation, that related to the product.
However, other MC practices could be investigated, such as the use
of the budget, internal controls, and policies and procedures, or the
different uses of performance measures (instead of only the di-
versity of measurement). Furthermore, the notion of innovation
could be expanded to consider new technology or innovation in
terms of internal processes. Second, this study is static in that it
does not incorporate the evolution of MC practices and product
innovation over time. Third, any generalizations from the results of
this study to other organizations require caution because of the
scope of the current sample (i.e., small to medium-sized
manufacturing firms).
Acknowledgement
The authors would like to acknowledge the useful contributions
of the participants at the 2018 AOS Conference, 2017 EAA annual
congress, 2017 CAAA Conference, 7th Colloque de l’Association de
contro^le de gestion as well as research seminars held at Oregon
State University Corvallis, IESEG Lille, University of Münster, WHU -
Otto Beisheim School of Management, Copenhagen Business School
and Laval University.
Appendix 1. Questionnaire items and statistics of
measurement analysis
Environmental unpredictability
Please indicate how predictable or unpredictable are the
external factors of your organization.
Scale: 1 ¼ highly predictable to 7 ¼ highly unpredictable.
12 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx

Confirmatory Factor Analysis (CFA) Items Initial Model Respecified Model

Standardized Loadings R2 Standardized Loadings R2

Suppliers’ actions .587** 0.344 e e

Customer demands, tastes and preferences .956** 0.914 e e
Market activities of competitors .790** 0.624 e e

Goodness-of-fit of the model: c2 (0) ¼ 0.0 p < .001; e

NNFI ¼ 1.0; CFI ¼ 1.0; e
RMSEA ¼ 0.0 e
Cronbach’s alpha: .814 e
Composite reliability: .830 e
Variances extracted: .628 e

Functionality of cost information Scale: 1 ¼ Not at all to 7 ¼ To a great extent.

Operational performance (e.g., productivity, safety, cycle time).
Please indicate the degree to which you agree with the following Product quality (e.g., defect rates, warranty claim).
statements as they apply to your organization. Customer relations (e.g., market share, customer satisfaction,
Scale: 1 ¼ strongly disagree to 7 ¼ strongly agree. customer retention).

Confirmatory Factor Analysis (CFA) Items Initial Model Respecified Model

Standardized R2 Standardized R2
Loadings Loadings

The cost accounting system provides data that allow me to analyze costs at different levels (e.g., per product, per 0.689** 0.475 .692** .479
customer, per activity).
The cost accounting system can easily customize reports to the specification of users. 0.655** 0.429 e e
The cost information arrives immediately upon request. 0.796** 0.633 .771** .595
Cost reports are provided frequently on a systematic basis. 0.762** 0.581 .776** .602
There is no delay between an event occurring and the relevant cost information being reported to you. 0.781** 0.610 .791** .626

Goodness-of-fit of the model: c2 (4) ¼ 21.970 p < .001; c2 (2) ¼ 3.531 p ¼ .171;
NNFI ¼ .955; CFI ¼ .982; NNFI ¼ .994; CFI ¼ .997;
RMSEA ¼ 0.102 RMSEA ¼ 0.05
Cronbach’s alpha: 0.866 0.843
Composite reliability: 0.846 0.844
Variances extracted: 0.545 0.575

Product innovation

In comparison with the industry average:

Confirmatory Factor Analysis (CFA) Items Initial Model Respecified Model

Standardized R2 Standardized R2
Loadings Loadings

During the last three years, how many new products has your organization launched? 0.703** 0.494 0.702** 0.493
During the last three years, how many modifications to already existing products has your organization 0.551** 0.304 e e
launched?
In new products, how often has your organization been first-to-market? 0.728** 0.530 0.727** 0.528
What is the percentage of new products in your organization’s product portfolio? 0.894** 0.799 0.895** 0.801

Goodness-of-fit of the model: c2 (1) ¼ 0.0318 p < .858; c2 (0) ¼ 0.0 p < .1.0;
NNFI ¼ 1.0; CFI ¼ 1.0; NNFI ¼ 1.0; CFI ¼ 1.0;
RMSEA ¼ 0.0 RMSEA ¼ 0.0
Cronbach’s alpha: 0.829 0.807
Composite reliability: 0.815 0.821
Variances extracted: 0.532 0.607

Diversity of nonfinancial performance indicators Employee relations (e.g., employee satisfaction, turnover).
Supplier relations (e.g., on-time delivery, input into product
Please rate the extent to which each of the following perfor- design).
mance indicators is used by your organization. Product innovation (e.g., new product development success,

Please cite this article as: Henri, J.-F., & Wouters, M., Interdependence of management control practices for product innovation: The influence of
environmental unpredictability, Accounting, Organizations and Society, https://doi.org/10.1016/j.aos.2019.101073
 J.-F. Henri, M. Wouters / Accounting, Organizations and Society xxx (xxxx) xxx
development cycle time).
Environmental performance (e.g., inputs of energy, outputs of
solid waste and air emission, regulatory compliance).
Note: An index based on the number of performance indicators
that were frequently emphasized was computed as follows. First,
each indicator was coded on a dichotomous score whereby 0 refers
to firms for which the use of that indicator is less than or equal to
the median, or 1 otherwise. Then, an overall score was computed by
summing the result of each indicator, which led to an index varying
between 0 and 7.
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