Accounting, Organizations and Society 86 (2020) 101186

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Accounting, Organizations and Society

jour nal home pa ge : w w w .e l se v ie r .c o m/ lo c a te / a o s

An evolutionary approach to management control systems research: A prescription for future

research
Melissa A. Martin
University of Illinois, College of Business Administration, Chicago, USA

A R TI C L E I N F O
A B S T R A C T
Article history:
Received 5 August 2020 By reviewing the theory underlying the design and interdependency of management control systems, I highlight the
Accepted 20 August 2020 important role firm dynamics plays in our understanding of these control systems. I provide both theoretical and
Available online 13 September 2020 empirical extensions encouraging authors to explore more longitudinal studies to better understand the path dependency
of control system design, how control system elements vary over time within a firm, and how the interdependent nature
of individual control elements might vary.
© 2020 Elsevier Ltd. All rights reserved.

“It is not the strongest or the most intelligent that will survive but those
who can best manage change.” e Leon C. Megginson
1. Theoretical extensions
Modern management control systems literature is built on the foundation
of contingency theory (Otley, 1980). Simply stated, this theory suggests that
the design and use of management control systems (MCS) is dependent upon
its organizational context. In this article, I encourage management control
researchers to consider how the dynamic nature of the firm results in changing
organiza- tional contexts and differing paths to control system design. While
not originally developed to provide dynamic predictions within a firm over
time, contingency theory is easily extended to suggest that, as the firm’s
internal resources and external characteristics evolve over time, it will
differentially utilize control systems and the control mechanisms within.
However, the application of con- tingency theory in prior research largely
utilizes a static reduc- tionist approach thereby limiting our understanding of
the dynamic nature of control systems.
Prior research often examines how control mechanisms vary across
organizational contexts by comparing MCS in different types of firms at a
single point in time. However, conceptualizing control elements with these
static typologies “virtually ignores the origins and evolution of
organizational control” (Cardinal et al., 2004, p. 411). Variation in
organizational context does not only come from
E-mail address: mamarti@uic.edu.
cross-sectional differences, but also from discernible shifts in a single
firm’s internal and external operating environments over time. Much like
cross-sectional differences in organizational context, time-varying
differences in organizational context also likely represent shifts in the
practices necessary to maintain effi- cient control. In their exploration of
complementarities, Milgrom et al. (1991) argue that a system begins
along a path and con- tinues along this path until an unmodeled force disturbs
it; i.e., that systems demonstrate momentum. This suggests that certain events
within the life of the firm may serve as triggers of MCS adoptions and
abandonments (Davila & Foster, 2009). What these events are, in addition to
when and how they affect control system design, is largely unexplored in
empirical management accounting research. The examination of MCS through
a dynamic lens will lead to an enhanced understanding of interactions among
control system el- ements. Following Hall (2016), I differentiate between
contingency based research and contingency theory itself to highlight that,
while contingency theory clearly speaks to the dynamic nature of the firm,
the application of contingency theory in empirical research has been
largely static. Criticisms of the ways in which management accounting
researchers employ contingency theory have given way to new
conceptualizations of the combinations of management control elements
that develop in practice (e.g., Grabner & Moers, 2013). This literature
does not contend that organizational context does not play an important
role in control system design, but that organizational contingencies
overlay a more complex network of control system design decisions.
Un- derstanding how firms utilize control systems in practice requires an
understanding of how organizational context influences not only the
choice of individual control mechanisms, but also its ef- fects on the
interdependencies of such systems. Examining control

https://doi.org/10.1016/j.aos.2020.101186
0361-3682/© 2020 Elsevier Ltd. All rights reserved.
2 M.A. Martin / Accounting, Organizations and Society 86 (2020) 101186

systems through an evolutionary lens allows us to better under- stand the

may be able to explain why managers facing similar contingencies make
path dependency of control system design, how control system elements
differing control choices. As an example, the control mech- anism a
vary over time within a firm, and how the inter- dependent nature of
manager chooses to employ when facing first-time growth in market share
individual control elements might vary.
may be different than the mechanism chosen by an older firm recovering
The limited empirical research following the evolution of con- trol
from some decline and now facing new growth in a new market. By taking
systems over time within a single firm may be in part due to the static
an evolutionary perspective, we may come to understand how equifinality
conceptualization of contingency theory. In contingency theory, firms
arises and allow us to identify similarities in the MCS design process that
strive to implement the best design given static exogenous factors present at
would other- wise be attributed to idiosyncratic manager preferences.
a given point in time and are subject to underperformance when the control
Finally, recent MCS literature has investigated how different control
systems are not optimally matched to the contingent factors (Davila &
mechanisms are integrated within a firm (Ferreira & Otley, 2009; Grabner &
Foster, 2009). However, layering the notion of adaptation to changing
Moers, 2013; Malmi & Brown, 2008). While re- searchers differ on
contingencies, coined Structural Adaptation to Regain Fit (SARFIT), suggests
whether this integration represents MCS as a system or package, the
that firms alternate between periods of fit and misfit as their contingencies
common theme is that control practices need to be internally consistent.
and responses evolve over time (Donaldson, 2001). This suggests that by
This literature makes a conceptual distinction between practices and design
using cross-sectional analyses, the firms that are captured at any one time are
processes which acknowledge and account for the interdependencies in
distributed around the optimal fit (Ittner & Larcker, 2001). As statistical
these mechanisms (i.e., systems of MCS) and those that merely employ
techniques have become more so- phisticated and longitudinal datasets
multiple mechanisms without regard for the interdependency in the design
have become more readily available, it opens the possibility to study fit in
decisions (i.e., packages of MCS) (Grabner & Moers, 2013). The existing
the MCS system over time rather than only in the cross-section.
literature, for the most part, takes the choice of MCS as a package or
Embracing the existence of these longitudinal datasets and finding
system as a firm specific time-invariant construct. Bedford et al. (2016)
access to unique sources of longitudinal data allows us to investigate three
take a more nuanced approach, attempting to integrate firm-specific
categories of causal mechanism in an evolu- tionary framework: variation
contingent factors as pre- dictors of the level and type of integration
e how differences arise across groups of seemingly similar organizations;
observed in control system design. Using a cross-sectional approach,
retention e how certain char- acteristics are preserved or discarded in
Bedford et al. (2016) document that interdependencies between control
firms over time; and se- lection e how organizations who adopt certain
mecha- nisms vary with the strategic context of the firm. If we extend this
characteristics alter the likelihood of firm survival over time (Williams,
view by adding an evolutionary approach, we may indeed find that
2008). By moving beyond the static approach of contingency based
classifications of management control systems as packages or sys- tems
research, we can see how interesting MCS research questions might emerge.
may well be two practices on the path of MCS evolution.
Researchers could hypothesize shifts in the cost/benefit of employing
Consistent with MCS moving between the package and system
different types of controls (e.g., cultural vs. process controls) or differing
structures, Demartini & Otley (2020) in this special issue reconceive MCS as
control mechanisms within a single lever of control as the firm evolves.
existing on a continuum between packages and systems. These authors
Consistent with the selection dimen- sion, researchers could examine
suggest several contextual factors which influence the degree of control
characteristics of the firms, man- agers, environment, etc. Associated with
system integration. Broadly categorized, these factors fall under the
more or less responsive control system adaptations and test whether the
headings of either responsiveness or distinc- tiveness. Composed of three
adaptations and/ or adaptive speed help predict organizational survival and
separate dimensions, responsiveness refers to the ability of the MCS to
success. Overall, an evolutionary perspective allows us to view both firms’
react to internal and external changes in the operating environment of the
organizational contingencies and MCS fit to in turn help us deter- mine
firm. Responsiveness, which the authors argue alters the interdependence of
how firms use and choose differing control mechanisms.
control mechanisms, fits neatly into an evolutionary perspective. To the
A second common principle upon which the MCS literature rests is that
extent the constructs underlying responsiveness (strength, direct- ness,
of equifinality (Doty et al., 1993; Gresov & Drazin, 1997; Sandelin,
and dependence) vary over time, I would predict differential control
2008). This idea suggests that two firms facing similar contingencies may
system integration. For example, I propose that depen- dence, which refers
arrive at the same final state through the use of differing control
to the extent to which control mechanisms share the same performance
configurations. Limited research in this arena points to the considerable
measures, varies over time within a firm. As the internal information
latitude managers have in designing control systems. Research in
environment of the firm evolves and becomes more sophisticated, more
equifinality generally suggests differ- ences arise because managers may
information is routinely collected, providing a larger menu of performance
utilize personal preferences to choose among available control
measures to choose from. To the extent these measures are differentially
mechanisms at any given point in time. If we study how control systems
infor- mative about multiple dimensions of performance, we expect
evolve over time, we may be able to identify common decision types and
managers to choose more informative performance measures, decreasing
points across firms, irrespective of the control mechanism actually chosen.
the level of dependence between control mechanisms. In sum, this view of
Following this approach of examining broad consistencies in control
the interdependent nature of control systems suggests that firm evolution
practices, Bedford et al. (2016) perform a meta-analysis of cross-sectional
may have a distinct role to play in how we understand the level of
studies to identify consistencies across broad cate- gories of control
integration of control practices for a given firm.
mechanisms for firms pursuing different strate- gies. Their evidence
In addition to helping illuminate how firms move along the
suggests that even when specific control outcomes vary across firms, we continuum between system and package structures of control systems, an
may be able to identify consis- tencies in broader control system design evolutionary approach, coupled with this notion pro- vides several
themes. By layering this intuition with an evolutionary perspective, additional fruitful avenues for future research. For example, is the process
researchers may be able to identify consistent inflections points, drivers of of identifying and designing around the interdependencies in existing
change, and resulting control system design choices. Further, by controls a process which only more established firms with more
incorporating the path-dependent nature of the evolution of the firm, developed internal information
researchers
 M.A. Martin / Accounting, Organizations and Society 86 (2020) 101186
systems are capable of achieving? Conversely, can a firm alter its system
design focus to move between viewing their practices as a package or a
system, or is the system design a structural firm trait? Allowing contextual
factors to influence the evolutionary impact of control system integration
results in additional questions. Can we identify common points within a
firm’s evolution at which we see a shift in the design focus of MCS
between the package and system extremes? Following the model in
Grabner and Moers (2013), which highlights the role of interdependence,
an evolutionary approach may allow us to distinguish operational
contingencies that affect the relation between existing control mechanisms
and/ or the payoff function to employing an additional control. By
examining how the relation between controls changes over time within a
firm, we can better understand whether and when control systems more
closely represent sets of loosely coupled elements or purposefully
designed interdependent controls.
2. Research extensions
While from a theoretical perspective it seems there is much to be
gained in our understanding of control systems by adopting an
evolutionary perspective, undertaking this research in practice is more
difficult. Starting from an analytical perspective, extending models from
prior studies may provide testable empirical pre- dictions. For example,
Grabner and Moers (2013) model the choice of control mechanisms as a
function of both the relation between existing control mechanisms and a
predetermined vector of orga- nizational characteristics. While this model
consists of a single period control system decision based on the
interdependence and expected payoff of existing controls, extensions may
allow for evolution in the system. Perhaps researchers could relax the
assumption that the vector of organizational characteristics are
predetermined and allow for expectations of contingencies based on firm
evolution. Additionally, further work could explore pre- dictions about,
for example, the interdependence of controls if the model is expanded to
maximize the payoff function over a longer window as the firm evolves.
Turning to empirical research, one straightforward way to study the
evolving nature of control systems would be to engage in a longitudinal field
study of a single firm. Here researchers could either utilize historical
information collected by the firm to assess changes in organizational context
and control systems over time or embed themselves to collect data going
forward. While there is much to be gained by this approach, the costs can be
prohibitive. As an alternative, researchers could utilize a survey that generates
repeated observations within a firm over time. This approach al- lows for
time-series analysis that informs changes in control practices and
organizational characteristics.
In addition to field research, advances in empirical archival data may
allow researchers to examine the impact of firm evolution on control system
design. The length of time over which data has been collected for publicly
traded firms is reaching a critical mass to allow for time-series
evolutionary style analyses. For example, BoardEx and ISS (formerly
RiskMetrics) provide a longitudinal sample of governance variables suitable
for examining evolution in this aspect of control systems, though the data is
largely limited to US firms. Making use of this longitudinal data, Graham et
al. (2019) examine changing governance mechanisms over time, specifically
examining how the board and CEO interact as the firm evolves. In addition,
IncentiveLab provides approximately fifteen years of data on executive
incentive contracts, including specific contracting terms, providing another
aspect of control systems to be examined longitudinally with publicly
available archival data.
As an alternative to variables routinely collected in large data- bases,
researchers could also opt for creating archival datasets
3
through textual analysis. Using commonly employed techniques,
researchers can scour firms’ public disclosures for words and phrases that
may shed light on the types of control systems employed by the firm. For
example, a simple textual search of public firm disclosures reveals that in
a 2020 SEC filing AmBev describes their desire to control costs by
implementing a zero- based budgeting management control system (AmBev
S.A., March 24, 2020 20-F Filing). By collecting such data over a long
window, researchers can examine how the control systems change, how
firms alter the discussion of existing controls over time, and whether this
discussion can predict upcoming changes in control system design.
In implementing this more dynamic approach, researchers may have been
deterred by the almost infinite combination of state and structural variables
(Gerdin & Greve, 2004). However, the config- uration school of thought
suggest most organizations fall within a limited number of system states
(Miller & Friesen, 1984). The challenge to researchers is systematically
identifying both a parsi- monious set of system states as well as identifying
the state of each firm at a given point in time. Life cycle theory considers a
firm’s life cycle stages as distinct phases that arise from a unique combination
of both the organization’s internal characteristics as well as the external
contexts in which the firm operates (Anthony & Ramesh, 1992; Dickinson,
2011; Moores & Yuen, 2001). The life cycle liter- ature typically concludes
that a five-stage model sufficiently de- scribes the pattern of an organization’s
development (e.g., Gort & Klepper, 1982; Miller & Friesen, 1984).
Identifying a firm’s life cy- cle stage provides a method to parsimoniously
capture patterns in the set of state and structural variables, thereby creating a
manageable framework for examining dynamic changes in control systems
within a firm.1 Layering life cycle theory onto MCS research could be a
fruitful avenue for future research. Drake and Martin ( 2 0 2 0 ) pair publicly
available executive compensation and life cy- cle stage data to examine how
firms differentially reward earnings and returns in compensation contracts as a
firm evolves over time. As an alternative to using distinct changes in system
states to assess changes in control systems, researchers could also adopt the
responsiveness and distinctness indices suggested by Demartini and Otley
(2020), to investigate how firms’ MCS are able to evolve to changing internal
and external environments.
While no articles in this issue directly investigate the dynamic
nature of MCS, it is easy to see how we might extend these studies. I first
consider two studies that use surveys to focus on the role of MCS in
innovation. Henri & Wouters (2020, this issue) investigate the
interdependence of MCS for facilitating product innovation by examining the
interactive roles of diversity in non-financial per- formance measures and cost
information. Speckbacker & Wabnegg (2020, this issue) also examine the
effect of interdependent con- trols on innovation behavior by investigating the
roles of explicit incentive design and implicit career incentives. I submit that
the path dependent nature of firm evolution likely influences both the control
practices used by the firm as well as their integration. In adopting an
evolutionary perspective, we could also consider how the MCS system
evolved to arrive at its current state. Have the existing mechanisms been
recently added to control innovation? Are the control mechanisms an artifact
of a prior firm state in which innovation was more/less important to value
creation? Does innovation equally create value in different states of the firm?
Are the performance measures used to capture employees’ innovation
1
Dickinson (2011) developed a methodology to classify firms’ life cycle stages from
publicly available cash flow information. The ubiquitous nature of cash-flow disclosures
across time and across firms in a wide variety of countries makes this an appealing approach
to examine dynamic properties of the firm.
4 M.A. Martin / Accounting, Organizations and Society 86 (2020) 101186
efforts equally informative of that effort in these different states? And,
importantly, we can examine whether these evolutionary factors alter the
relation between control interdependence and innovation.
Next, in informing the use of demand and performance speci- fications
in empirical tests of MCS interdependencies, Masschelein & Moers (2020,
this issue) highlight the often overlooked but important role of both the
demand specification and controls for contingency factors. I echo their
sentiment and further suggest that investigating the dynamic nature of control
systems is likely better achieved through a demand specification. This is
particularly true when common performance measures differentially
reflect firm value over the life of the firm. However, adopting an
evolutionary perspective to understand differential demand as well as
which contingency factors to consider in understanding demand as the
firm evolves will require more groundwork in the field.
Another paper in this special issue addresses cross-sectional variation in
MCS design by documenting significant differences in control system
interdependencies across different Western cul- tures (Malmi et al., 2020,
this issue). A plausible extension of this research would be to examine
whether control systems change similarly across these cultures given
similar changes in firm and environmental characteristics, or whether
cultural beliefs about change alter the path of control system development.
Our under- standing of the dynamic nature of control systems stands to
grow considerably from such collaborative survey study efforts, and I
hope future research will devote some resources in this direction. Moving
to the experimental realm, adding an evolutionary perspective may allow us
to gain insights into how existing controls are differentially perceived over
time and how this might lead to changes in MCS design. Extending studies
such as Schedlinsky et al. (2020, this issue) who show how a perceived
behavioral control alters the effectiveness of relative performance systems,
may pro- vide additional insights. Do the feelings of sacrificed autonomy
in the presence of surveillance vary with increased interactions with the
control mechanism? Further, does the level of integration be- tween the
behavioral control and the remaining system, given dynamic firm and
environmental contexts, alter the relative per- formance outcomes?
Another study in this issue, Lill (2020) ex- amines the interdependence
of two controls (probabilistic audits and compensation) on employee
misreporting behavior. In thinking about the path dependence of firm
evolution, would we expect consistent outcomes to the moderating effect of
distance depending on how this control has evolved? For example, if
monitoring distance increases as a natural function of firm growth versus a
distance inherent in firm structure, would we expect dis- tance to have the
same impact on misreporting behavior? Overall, if we believe we can
enhance our understanding of MCS by adopting an evolutionary perspective,
experiments have a unique role to play in using laboratory settings over
multiple periods to investigate the
dynamic nature of control systems.
3. Conclusions
In sum, significant work has been devoted to understanding cross-
sectional differences in management control systems across different types of
firms, with considerable resources devoted to understanding these systems in
early stage firms. However, considerably less work explores how these
control systems change over time within the same firm. While prior research
points to differences in control mechanisms adopted by firms in different
stages of development, little work has focused on how these con- trols change
and, importantly, whether their interdependencies shift as the firm evolves. I
urge management accounting re- searchers to use their strength in
modelling, the laboratory, the
field, or with archival data to extend our understanding both of how the
mechanisms utilized by control systems change over time and whether and
how the integration of these processes changes as the firm develops. The path
dependent nature of the firm suggests that exploring the control system
development path is an impor- tant avenue for future research.
Acknowledgements
I thank the editors of this special issues, Charis Chapman, Isa- bella
Grabner, and Frank Moers for the opportunity to contribute to the issue. I
thank the conference hosts at Maastricht University for inviting me to attend
this conference and providing an invigorating academic experience. I thank
the authors included in this special issue for the provocative work creating
such excitement to further our knowledge in the field of management control
systems.
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