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Management control systems and organizational development: New directions for

managing work teams
Seleshi Sisaye
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Organization Development Journal, Vol. 26 Iss 1 pp. 51 - 61
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Management
Management control systems and control systems
organizational development and OD
New directions for managing work teams
51
Seleshi Sisaye
A.J. Palumbo School of Business Administration, Duquesne University, Received December 2002
Pittsburgh, Pennsylvania, USA Revised February 2003,
June 2003
Accepted October 2004
Abstract
Purpose – Aims to apply organizational systems perspectives to discuss the three types of
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organizational development (OD) and management control systems (MCS): normative, coercive and
remunerative-instrumental (utilitarian) that affect the operating performance of teams.
Design/methodology/approach – The paper examines the effect that managerial power relations,
cultural process and structural change intervention of these three types of control systems have on the
formation (size, composition, and strategies), and operational activities (functions and assignment of
tasks) of teams. The paper uses library archives research to study OD, MCS and teams. It has applied
an organizational systems perspective that examines the effects of OD and MCS on teams’
management.
Findings – Recent new directions in management control systems and OD process and structural
intervention strategies have transformed management accounting control systems as the new
administrative control innovations mechanisms for managing teams’ performance and activities in
industrial organizations. Accordingly, the traditional mechanistic control approach has been
substituted or replaced by organic-based processes and structures of team-based control systems.
Practical implications – In organizations, the management of teams is multi-dimensional,
involving the simultaneous use of normative, remunerative and coercive control mechanisms. The
paper advances the views that the effectiveness of team management in organizations is contingent
upon several structural and process factors including the mix of these three types of compliance
systems and the form of organizational setting, i.e. manufacturing or professional organizations.
Originality/value – In the management control literature, the management of teams has centered on
normative or remunerative or coercive control systems. This paper shows that OD’s cultural process
and structural intervention strategies provide new directions to address these three types of
management control system for teams in industrial organizations.
Keywords Team management, Decision making, Control, Organizational development,
Behaviour modification, Innovation
Paper type Research paper

Introduction
Recently, the behavioral accounting literature has addressed the need for new research
directions that incorporate organizational development (OD) process and structural
intervention strategies to study the management control systems of teams in

The author owes special thanks to Professors Marie McHugh, Editor and Tony Berry, Former Leadership & Organization
Development Journal
Editor of the Journal, anonymous reviewers, and Eileen Stommes. Their comments and Vol. 26 No. 1, 2005
suggestions have substantially improved the content and manuscript readability. The author pp. 51-61
q Emerald Group Publishing Limited
has also benefited from the research assistance of Sandy Grau and Nurettin Ekizoglu in 0143-7739
preparing the paper. The author is solely responsible for the final product. DOI 10.1108/01437730510575589
 LODJ organizations. The call for change has been largely caused by the need to improve the
26,1 functional performance abilities of management accounting systems to respond
effectively to environmental changes. Recently, the advent of growth in international
competition has given prominence to the importance of cost as a competitive tool and
the need to undertake changes in organizational structures and systems. The
emergence of new organizational structures and processes, the need to cut costs and
52 change the cost structures associated with production and sales, brought forward the
importance of teams in managing organizations. Moreover, organizational growth
through acquisition and diversification strategies, coupled with technology and
structural changes, has increased the demand for teams to coordinate activities.
This paper applies organizational systems perspectives to discuss the new
directions and relationships that have emerged between management control systems
and organizational change and development strategies on managing work teams. It
examines the effect of managerial power relations, cultural process and structural
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change intervention strategies on the formation, i.e. size and composition, and
operational activities, i.e. functions and assignment of tasks, of teams. The three types
of organizational development and management control relations that affect the
operating performance of teams are:
(1) normative;
(2) coercive; and
(3) remunerative-instrumental (utilitarian).

Work teams: definitions

In the OD literature, work teams are defined as having members who are drawn from
several departments or possessing different functional areas of specialization, for
example accounting, finance, marketing, production or organizational expertise.
Hollenbeck et al. (1998) have identified three team attributes that are important in team
decision-making processes. First, teams are highly interdependent, and members
collaborate to share information and specific tasks relevant to accomplish their work
objectives. Teams select leaders who can manage and lead, and take initiative in
innovations and problem solving. Second, team members share “a common goal and a
common fate”, where they are held accountable and responsible for their performance
outcome. Third, there is interaction, influence and feedback among team members,
which yields better team performance results (p. 269).
There is substantial research in the management accounting literature relating
performance feedback and economic incentives of teams to performance outcome and
accountability (see Birnberg, 1998; Drake et al., 1999; Evans, 1998). However, it needs to
be noted that there are cultural, social and power-political control issues that affect the
formation and the effective functioning of teams in organizations (Kirkman and
Shapiro, 1997). When management control systems are viewed as OD-oriented
strategies, the functions of control systems become systemic, purposive, and are able to
institutionalize cultural norms for managing teams. Accordingly, systems analysis is
used to show that the synergetic effect between OD and management control systems
brings new directions in the implementation of organizational control mechanisms to
manage teams effectively.
 Systems approach to organizational change and development Management
An overview of systems theory control systems
The systems approach studies organizations in relation to contextual environmental
factors such as “structure, size, technology, and leadership patterns” (Smirich, 1983, and OD
p. 344). The approach views organizations as being composed of several systems that
are interdependent, where a change in one or more parts of the system will affect the
entire system. Organizations as systems are purposeful. They comprise individuals, 53
groups/teams, structures, systems, and policies (Beer, 1980; von Bertalanffy, 1975).
Organizations have four major components (subsystems). These include: tasks,
individuals, formal structures, and a set of informal organizational arrangements that
deal with “communication, power, influence, values, and norms” (Nadler, 1981, p. 193).
These four organizational subsystems are interrelated and have functional
relationships that promote congruence and system maintenance among team
members.
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Systems analysis suggests that the formation of teams in an organization is

developmental and systemic-integrative, since teams draw members from several
cross-functional areas to manage complex tasks that have a broader, organization-wide
scope. Congruity ensures a match between individual team member skills and the
system goals of the organization (Parsons, 1951). While systems theory emphasizes
stability, adaptation, and functional congruity, it also “recognizes the fact that
individuals, tasks, strategies, and environments may differ greatly from organization
to organization” (Nadler, 1981, p. 194).

Environmental changes and organizational development change strategies

Organizations as systems are bound to be affected by environmental changes. They
are always in flux to attain a state of equilibrium to preserve system characteristics
(Boulding, 1968). The continued interaction between an organization and its
environment introduces what Thompson and McEwen (1969) referred to as
“environmental control”, which requires management to initiate changes or alter
goals. Accordingly, the degree of environmental control over the organizational goal
setting process could be manifest in the form of competition, bargaining, co-optation or
coalition. Work teams are employed to prepare strategic plans and develop missions
and goals to align organization resources with changing requirements of the external
environment.
Environmental changes affect organizational systems, structure, strategy,
functions, procedures, and day-to-day activities. Organizations go through a series
of developmental stages: emergence, stability and crisis to maintain stability, growth
and continuity to adapt to environmental changes. Work teams become instrumental in
the organizational change and development processes. While environmental changes
generate discontinuity and “dysfunction” in social systems, institutional leaders have
the ability to manage teams/groups to facilitate the adaptation process of
organizational systems to environmental changes (Perrow, 1986; see also Giddens,
1987). Accordingly, cross-functional teams and work groups are formed to handle
complex functions that cannot be effectively addressed by divisional/departmental
specialists.
 LODJ Systems intervention strategies: process versus structural intervention
26,1 The systems approach suggests that organizations simultaneously pursue both
process and structural intervention strategies to create desired changes in work team
functions. Process and structural interventions thus affect management control
systems and the operational performance of work teams in organizations.

54 Process intervention
Process intervention strategies target changing people’s behavior, culture, attitudes,
interpersonal and inter-group interactions, as well as organizational communication
styles and flow of information (Beer, 1980, pp. 4-5). These interventionist changes
affect system maintenance and team functions and strengthen the relationship
between teamwork characteristics and cultural change.
For process changes to be functional, team members need to operate within
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horizontal and lateral structures. These arrangements enable team members to receive
non-hierarchical cooperation that advances their full participation in problem
identification and resolution. In general, process intervention strategies facilitate
collaborative work among inter-departmental and cross-functional management teams
on specified activities.

Structural intervention
On the other hand, structural intervention strategies are oriented towards changing the
components of organizational systems. They include changes in organization/job
design, reward systems, performance management systems, and accounting control
systems (Beer, 1980, pp. 133-5, 159; French and Bell, 1978, pp. 74-80, 165-70) that affect
team performance outcome.
There is a growing emphasis that new directions in management control and OD
research address both process and structural interventions, because they
simultaneously affect team characteristics, functions, cultural interactions, and the
structural aspects of management accounting and control systems. Once teams are
formed to carry out purposeful actions, the effectiveness of self-managing teams
depends on the type and mix of the types of power relations.

Power, management control and compliance systems

The subject of power and control has been of interest to sociologists, behavioral
accountants and OD researchers. In general, the study of power and control in
organizations has varied depending on the theoretical approaches – i.e.
structural-functional (SF), radical structuralism, conflict-pluralistic or interpretive –
and definitions of power (see Burrell and Morgan, 1979). However, the common thread
among these perspectives is that power involves a relative relationship where an actor
has the ability to influence another actor to carry out his/her directives. Power creates
dependency and imbalanced relationships, which can affect social exchange
mechanisms in networks or work group teams (Sisaye, 1997). Managers who are in
power use rewards (physical, material or symbolic) and punishment (deprivation) to
secure employee compliance with organizational goals. Subordinate orientation to
compliance can be either positive (commitment) or negative (alienative) (Etzioni, 1980,
pp. 87-8).
 Second, these approaches have stressed that the basis of power, whether at the Management
individual, group or organizational level, can influence the extent to which leadership control systems
and management can secure employee compliance. To this effect, Etzioni (1961, 1964)
has identified three bases of power control: and OD
(1) normative;
(2) coercive; and
55
(3) utilitarian (remunerative-instrumental).
He has also identified three associated forms of compliance:
(1) moral under normative power;
(2) alienative when coercive power is used; and
(3) calculative in remunerative power (see also Etzioni, 1980, pp. 87-100).
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A discussion of these three types of control system now provides the context within
which OD and management control systems impact the operating activities of work
teams.

Normative power and control

Etzioni (1961, 1980) defined normative power as encompassing the allocation of
“symbolic rewards”, “esteem and prestige symbols”, and the use of rituals and norms
to facilitate positive response (Etzioni, 1961, p. 5; 1980, p. 88). Leaders who exercise
normative power have charisma, are persuasive and manipulative in their use of
expressive activities to build their social power. Leaders have positive and affective
interpersonal relationships with their followers, characterized by a high moral
involvement and a “positive orientation of high intensity” (Etzioni, 1961, p. 10).
Normative power is associated with upper-level organizational participants who are
committed, have higher performance obligations, and whose remunerative needs are at
least moderately satisfied.
Etzioni (1961) suggested that even lower level employees who work in
professional organizations such as research and planning organizations and law
firms are subject to normative control (p. 31). In these organizations, the prolonged
recruitment and selection, placement and socialization processes have
institutionalized the use of cultural goals (Etzioni, 1961, pp. 52-3, 80; 1980, p. 91).
Leaders who rely on normative compliance seek to involve employees in
organizational activities through absorption and cooptation in organizational
positions and structures (see Selznick, 1957).
Normative decision making, whether practised at the individual, group or
organizational level, is grounded on the principles of functionality and consensus.
Teams/groups that use the consensus decision-making approach not only gather
and share information (adaptation), they use existing power and control
mechanisms (goal attainment) to promote affection and mutual trust (integration),
and achieve common goals and values (pattern maintenance) among them (Hare,
1973, pp. 82-4). It is therefore plausible to assume that consensus among
groups/teams could transform overtime into concertive control where group politics
and leader desire for control affect the outcome of the decision process. In other
words, there is a certain degree of coercion involved even in decision situations that
are reached through consensus.
 LODJ Coercive power and control
26,1 Etzioni (1961) defined coercive power as involving the threat or use of physical
sanctions including force to secure compliance (pp. 5, 27). Although coercive power,
when it is negative, may result in alienative involvement among employees, it can be
effective when an “organization is confronted with highly alienated lower participants”
(pp. 13, 28-9, 5, 27). If coercion is applied to less alienated employees, it will adversely
56 affect their morale, their effectiveness, and commitment to the organization.
While the word “coercive” has negative connotations, coercion has been integrated
into compliance in most management control systems. Barker (1993) advanced the
view that coercive control can coexist with concertive (normative) control when a team
uses a more structured negotiated consensus decision making to practice “a tightening
of the iron cage” by all means. He suggested that “the powerful combination of peer
pressure and rational rules in the concertive system creates a new iron cage whose bars
are almost invisible to the workers it incarcerates” (p. 435). Sewell (1998) cited
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advances in information technology as bringing a new form of control: electronic

surveillance control, where management uses video cameras to monitor self-discipline
compliance and obedience among workers without face-to-face interaction.
In other words, technological development and the competitive business
environment, coupled with the organizational desire to institute continuous
improvement through process innovation, has given new meaning to coercive
control. Coercive control no longer needs to be exercised through direct command and
immediate supervision but indirectly can be observed through concertive – normative
and compliance – self regulatory control (Ezzamel and Wilmott, 1998; Sewell, 1998).
Accordingly, coercive control has been integrated into group – concertive and
electronic – surveillance control techniques to monitor self-discipline compliance
among employees. In accounting, coercive control has been closely identified with
restrictive control if accounting systems are tight and are enforced in a punitive
manner. While coercive control reflects the negative aspects of bureaucratic control, it
is usually administered in conjunction with remunerative/instrumental control.

Remunerative power and control

The terms remunerative and instrumental controls are often used interchangeably.
According to Etzioni (1961 1980), “remunerative power” is based on control over
material resources and rewards through allocation of salaries and wages, commissions
and contributions, working conditions, “fringe benefits”, services and commodities
(1961, p. 5; 1980, p. 88). Remunerative power is based on control of instrumental
relationships, activities, economic incentives and goals. The control mechanism is
related to low intensity involvement or mild commitment among employees whose
behaviors become calculative as employees attempt to act rationally with their
immediate supervisors (Etzioni, 1980, p. 91).
Etzioni (1961) classified manufacturing organizations and factories that have
largely blue collar workers and offices where most of the lower-level participants are
white collar and clerical employees as utilitarian organizations (p. 31). These
employees have limited scope oriented to production goals and respond to utilitarian
compliance. Accordingly, utilitarian organizations have tendencies to exhibit dual
power structures where remuneration incentives are the predominant form of control,
but accompanied by coercive sanctions to secure employee compliance.
 In remunerative organizations, consensus on procedures and contractual Management
relationships are supported by upward instrumental communication in the form of control systems
management performance reports, and downward flow for performance appraisal and
feedback purposes (Etzioni, 1961, pp. 141-2). While bureaucratic control in and OD
management accounting has been associated closely with remunerative control
systems, recently critical studies in accounting have suggested that accounting control
is primarily used for coercion and subordination of employees to accomplish 57
management objectives (Ezzamel and Wilmott, 1998).
An important aspect of the remunerative and coercive control dimension is related
to the extent of control – tight versus remote control – and the scope of control –
narrow or broad, depending on the number of activities assigned to a subordinate
(Etzioni, 1980, p. 95). Given these two dimensions, coercive control encompasses tight
control and narrow activities, whereas remunerative control involves a combination of
both tight and remote control and broader responsibilities. However, for lower-level
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participants, the scope is usually narrow and well defined. Accordingly, the
commitment of organizational members and their internalization of norms are likely to
be affected by the prevailing power, control, and compliance process systems
characteristics – normative, coercive, or remunerative.

A process view of culture and organizational power control

The systems approach defines organizations as having cultures. Over time, as
organizations become increasingly complex and institutionalized, they develop their
own cultural identity, norms, and values (Baligh, 1994; Hatch, 1993).

Organizational culture: definition

Organizational culture thus consists of norms, values, beliefs, procedures and rules
that are shared and bind members together. Feldman (1988) defined organizational
culture as “a set of meanings created within the organization but influenced by broader
social and historical processes. Organizational members use these meanings – norms,
roles, plans, ideals and ideas – to make sense out of the flow of actions and events they
experience” (p. 57). Organizational culture shapes individual as well as team member
behavior by providing direction, stability and solidarity to group members (Selznick,
1957). Leadership, founding members, individual and team/group commitment to
certain ideals can help create an organizational culture that influences behavior,
commitment, organizational decisions and attitudes towards innovation (Boeker, 1989).
Team members show their loyalty and commitment by observing and participating
in the rituals of organizational life. When institutionalized, culture plays a central role
in the formation of social structure and the distribution of power and resources
(Kilmann, 1984; Sewell, 1992).

Cultural processes and the management control of teams

The OD literature has advanced the view that cultural processes of homogenization
among organizational team members can contribute to higher degrees of social
interaction and facilitate information sharing (Beer, 1980). Culture thereby performs a
functional role by directing instrumental control mechanisms on how best to manage
groups. Culture also can facilitate working relationships among employees,
organizations, and the changing organizational environments.
 LODJ Over time, as organizations grow and become more complex, their internal
26,1 subsystems are divided into subunits or departments. Their need for managers, teams
and groups to coordinate the growing functional areas increases. With increasing
organizational complexity, cultural homogeneity cannot be sustained. Accordingly,
managers develop layers of hierarchy to monitor complex structures and solidify their
control over employees, consumers, and suppliers. Teams and work groups could be
58 drawn from several functional areas of management. Differentiation can provide
management avenues for normative control by promoting cohesiveness and solidarity
among team members who share similar views and opinions on a given issue.
Differentiation requires instrumental control of teams if cross-divisional teams are
assigned to work on a given specific task.
The relationship between cultural diversity and normative versus instrumental
control is also related to the size of the organizational populations and systems (Sisaye,
2005). As systems size increases, cultural homogeneity decreases, minimizing the
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affective attributes of normative control mechanisms to facilitate work team

compliance. Teams become instrumental by providing forums for diverse group
members with similar interests and specialization to work on projects directed towards
improving overall organizational performance.

Conclusion – a cultural systems view of management control innovation:

the shift from individual to team-based management control systems
The systems approach to organizational change, power relationships and management
control systems have been rooted in the principles of OD’s process and structural
intervention strategies. OD has been viewed by Porras and Silvers (1991) as a change
program designed to create a “better fit between the organization’s capabilities and its
current environmental demands, or promoting changes that help the organization to
better fit predicted future environments: “OD concentrates on work-setting changes
that help an organization adapt to its external environments”. It focuses on “planned
change” approaches that emphasize “change in individual employees’ cognitions as
well as behaviors” (p. 54). Accordingly, OD has focused on management control issues
of individual and group processes as well as structural arrangements and reward
systems.
The cultural intervention approach of OD has been popular in continuous
improvement programs of total quality management (TQM), where bottom-up
participation and the use of change leaders (quality circles) and teams have been
advocated for production and quality improvement programs (Sisaye and Bodnar,
1995). OD’s structural change approach has advocated simultaneous changes in all
organizational control systems. Many organizations have implemented new or
emerging management control techniques that emphasize group/team control
structures such as TQM and business process reengineering (BPR) and accounting
control systems such as activity-based costing (ABC). TQM, BPR and ABC are
implemented to support more flexible organizational structures and systems to
manage teams and process innovation changes (Sisaye, 2001, 2003).
These organizational control techniques have shifted the basis of management
control systems from meeting separate, individually based budgetary goals to a team
based performance measures that are dependent on the achievement of organization
wide goals. Performance and compensation packages are now being increasingly tied
 to team-based performance goals. These environmental-induced changes in Management
management control systems have led to profound cultural changes. It has changed control systems
the administrative control mechanisms philosophy of the conventional model of
management accounting systems, which has been based on the principles of and OD
instrumental-remunerative and coercive control. The traditional approach has stressed
individual control, centered on principal agent (management-subordinate)
relationships, hierarchy of authority, chain of command, and bureaucratic control. 59
However, these mechanistic approaches are currently being substituted or replaced by
organic-based processes and structures of team-based control systems. Accordingly,
team-based management controls are being used in manufacturing organizations to
monitor production quality and cost control, manage incentive systems, design and
implement process innovation changes in management accounting systems such as
ABC. These recent new directions in management control systems and OD’s process
and structural intervention strategies have transformed management accounting
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control systems such as ABC as the new administrative control innovations

mechanisms for managing teams’ performance and activities in industrial
organizations.

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Business & Economics Series, Praeger, New York, NY, forthcoming.
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 Smirich, L. (1983), “Concepts of culture and organizational analysis”, Administrative Science Management
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Further reading
Etzioni, A. (Ed.) (1969), A Sociological Reader on Complex Organizations, 2nd ed., Holt Rinehart &
Winston, New York, NY.
Etzioni, A. and Lehman, E.W. (Eds) (1980), A Sociological Reader on Complex Organizations,
3rd ed., Holt Rinehart & Winston, New York, NY.
Downloaded by La Trobe University At 21:12 06 February 2016 (PT)

Thompson, J.D. (1967), Organization in Action, McGraw-Hill, New York, NY.

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