National culture

and management
control
 Learning outcomes
After reading this chapter, you will:
1. Understand the National Culture dimensions including power distance,
individualism vs collectivism, uncertainty avoidance, Masculinity and Long term
orientation.
2. Compare the five national culture dimensions
3. Be familiar with the criticisms on the Hofstede’s cultural dimensions
4. Learn About the Management Control systems
5. Understand how cultural dimensions can impact the Management control
systems
Introduction
In this chapter, we examine the effect of culture on the design
and operation of management control systems at the cross-
national level in two overlapping contexts:
• The first is understanding differences (and similarities) in
approaches to management control in different countries
• The second context is how a multinational company controls
the operations of its global subsidiaries
National Culture
Culture is one of the most contested concepts in the social
sciences with over 160 definitions from various disciplines.
However most of the research uses the conception of culture
provided by Hofstede.
Hofstede (2001, p. 9) defined culture as mental programming –
‘the collective programming of the mind that distinguishes the
members of one group of people from another’.
He argued that the core of culture is values, with values being ‘a
broad tendency to prefer certain states of affairs over others’.
National Culture
National culture dimensions according to Hofstede (gathered
through 116000 questionnaire on IBM employees over 50
countries):
 Power distance
 Individualism vs. Collectivism
 Uncertainty avoidance
 Masculinity
 Long-term orientation
National Culture
Power distance
Power distance (PD), refers to the extent to which people
accept that power in institutions and organizations (political,
social or business) is distributed unequally. People in high
PD societies more readily accept power inequalities coming from
wealth, status or position, and believe that powerful people have
the right (and responsibility) to command, and are entitled to
privileges and perquisites not available to less powerful people.
By contrast, people in low PD societies believe in egalitarianism.
Although there are hierarchies in institutions and organizations,
these exist for administrative necessity and do not reflect
existential inequality between people at different levels.
National Culture
Individualism versus collectivism
Collectivism (is) a social pattern consisting of closely linked individuals
who see themselves as part of one or more collectives (family, co-
workers, tribe, nation); are primarily motivated by the norms of, and
duties imposed by, those collectives; are willing to give priority to the
goals of these collectives over their own personal goals; and
emphasize their connectedness to members of these collectives.
Individualism is a social pattern that consists of loosely linked
individuals who view themselves as independent of collectives; are
primarily motivated by their own preferences, needs, rights, and the
contracts they have established with others; give priority to their
personal goals over the goals of others; and emphasize rational
analyses of the advantages and disadvantages of associating with
others.
National Culture
Uncertainty avoidance

Uncertainty avoidance (UA) relates to how people react to the

uncertainty of the future. People in high UA societies regard
uncertainty as a threat, leading to stress and discomfort. They seek
to reduce uncertainty through rules and regulations in legislative
and institutional activities, adherence to religious beliefs, and
investment in technology and nature-mastering research. People in
low UA societies more readily accept life’s uncertainties and spend
less anxiety, time and money trying to reduce them.
National Culture
Masculinity versus femininity

Masculinity versus femininity (MAS) is the extent to which

analogues of the stereotypical family roles of gender are found in
societies. High MAS (masculine) societies value assertiveness,
competitiveness and overt manifestation of achievement and
success, including material success. Conversely, low MAS
(feminine) societies value personal relationships,
supportiveness, a non-material quality of life and modesty in
achievement.
National Culture
long-term versus short-term orientation

Long-term versus short-term orientation (LTO) relates to the

relative emphasis placed on the short-term compared to the
long-term. Low LTO (or short-term oriented) societies expect
immediate results and immediate gratification of needs, including
social consumption and spending. High LTO societies are more
prepared to defer need gratification, more prepared to save and
invest for the future, and more oriented to perseverance
 Criticisms of Hofstede Culture
1. One criticism is that equating culture with nation states
ignores the multi-cultural composition of countries which
have different ethnic regional groups such as Switzerland
(with German, French and Italian enclaves), or different
ethnic mixes such as Malaysia (with Chinese, Indian and
indigenous Malay cultural groupings) and Australia (with a
highly diverse ethnic mix of British, Chinese, sub-continental
and Middle Eastern groups as a result of immigration over
the past 50 years).
• A related concern is the tendency to group countries
together as culturally homogeneous (Latin America).
 Criticisms of Hofstede Culture
2. A second criticism of Hofstede’s study is that it was restricted
to middle level managers in city locations in one industry and
firm and can, therefore, only describe the values of middle-class
urbanites who work for IBM.
• although the restriction had the methodological strength of a
closely matched sample. Hofstede was not comparing, say,
Swedish nurses with German police. This would have
introduced an occupational culture difference that would
confound a national culture explanation of differences
 Criticisms of Hofstede Culture
3. A third criticism is that Hofstede’s measures were derived in
the late 1960s and early 1970s and are, therefore, out of date.
There is evidence that globalization, technological and
educational transfer, and movements in a country’s collective
and individual wealth can change a country’s culture over time.
• However, contemporary studies that have replicated or
applied Hofstede’s measures across varying countries
conclude that the dimensions are as relevant in the early
twenty-first century as they were when his original study was
conducted.
 Criticisms of Hofstede Culture
4. Finally, Hofstede’s approach is criticized as being too
simplistic in reducing the rich complexity of culture to a limited
set of aggregate dimensions. Culture cannot be reduced to five
dimensions with labels attached. Hofstede’s approach is
accused of treating individuals as ‘cultural dopes’; i.e. reducing
people’s behaviour to a consequence of values and ignoring the
complexity, eccentricities and other inputs to individual
behaviour.
 Management Control Systems
We define management control as the set of mechanisms that
assist an organization to achieve its objectives.
Components of MCS:
• Formalization
• Concentration of authority
• Participation
• Scope and type of information (used to evaluate and reward
performance)
Management Control Systems
Formalization

The extent to which control is exercised through formal rules and

procedures is also referred to as formalization. It ranges from
low, where there is little use of standardized rules and
procedures, to high where the opposite situation pertains.
Whitley (1999, p. 509) notes that a high degree of formalization
‘implies a strong institutionalization of impersonal regulations
governing economic activities and their assessment’.
Management Control Systems
Concentration of authority

The extent that control is exercised over how organisational

units’ activities are carried out is also referred to as
concentration of authority, specifically whether authority is
concentrated at corporate level management (centralisation), or
is delegated to lower level managers in the organisational
hierarchy (decentralisation). Formalisation and concentration of
authority are often grouped together under the heading
organisational structure, as they both reflect control
consequences of prior organisational structural choices.
Management Control Systems
Participation

The third characteristic of Whitley’s (1999) MCS is the influence

and involvement that organizational members have in exercising
control. This is also referred to as participation and includes the
extent that people are involved in, and can influence, the setting
of performance targets for which they are held responsible.
Management Control Systems
Scope and type of information used to evaluate and
reward performance
fourth characteristic is the scope and type of information used in the
MCS to evaluate and reward performance. This characteristic is
multi-faceted and includes choices such as: the time frame for
evaluation (is performance measured against short-term or longer-
term indicators?); the set of performance indicators to be used in
evaluation (does it allow for multiple indicators, including financial
and non-financial indicators, or is it concentrated on a single or
restricted set of items such as bottom-line profit?); and the linkages
between target performance indicators and evaluation and reward
(are evaluation and reward tightly linked to target attainment, or only
loosely linked?).
Management Control Systems
Informal controls
These four characteristics of MCS may be classified as formal
controls because they typically result from decisions about MCS
design. They may also be regarded as ‘traditional’ controls because
they have developed in archetypical organizations of the twentieth
century with relatively fixed organizational structures of the
functional, product or divisional form, and with hierarchical authority
lines. By contrast, fluid workgroups and teams and informal
information sharing (which may be classified as informal
controls) are becoming increasingly important in organizations
facing a new millennium environment of rapid technological change,
product and service innovation and intense global competition.
Management Control Systems
Fluid workgroups and teams

Fluid workgroups and teams constitute ad hoc and temporary task

forces formed to solve specific problems, where solutions require
inter-functional cooperation and expertise and need to be found
quickly. The teams are fluid because they comprise people from
different organizational specializations, who move in and out of
teams as problems demand.
Management Control Systems
Informal information sharing

Informal information sharing is important because it provides a

channel for transmitting information that should, if unimpeded, be
faster and more directly relevant to action than information
provided through formal organizational channels.

Informal information, sourced through personal communications

such as meetings and other naturally occurring interactions among
organizational members, dominates other sources of information
in directing day-to-day decisions and actions.
National culture and management control systems
Organizational structure: formalization and
concentration of authority
As noted earlier, formalization is the extent that control is exercised
through formal rules and procedures, and concentration of
authority is the degree that decision-making authority is
concentrated at the top of the organizational hierarchy
(centralization) or devolved down the hierarchy (decentralization).
The cultural dimensions relevant to formalization and concentration
of authority are uncertainty avoidance and power distance
respectively. Indeed, the definitions of uncertainty avoidance and
power distance are almost synonymous with the MCS
characteristics.
National culture and management control systems
Organizational structure: formalization and
concentration of authority
Uncertainty avoidance (UA) measures the degree to which people
feel (un)comfortable with uncertainty and the extent that they seek
to reduce it through rules and regulations. As a consequence,
organizations in high UA cultures are likely to place greater
emphasis on control through written rules, standardized operating
procedures, and formalized planning.
National culture and management control systems

Organizational structure: formalization and

concentration of authority

One of the strongest research findings is an association between

power distance (PD) and concentration of authority. Theoretically,
high PD cultures are characterized by a high regard for formally
constituted hierarchies and an acceptance that authority and
responsibility for leadership and decision-making are vested at the
upper levels.
National culture and management control systems

Participation

Participation is the extent to which organizational members are

involved in, and can influence, the setting of performance targets
and budgets they will be held responsible for.
In low PD cultures, hierarchies do not imply intrinsic inequalities of
power, and people at lower hierarchical levels want and expect to
have input into decisions that affect them.
By contrast, in high PD cultures superiors are expected to make
decisions as a consequence of their hierarchical status, and
subordinates are more accepting of a non-consultative, non-
participative decision style.
National culture and management control systems

Participation

Similarly, in highly individualist (high IDV) societies, people are

motivated by individual responsibility and autonomy; they will
defend their interests in ensuring the fairness of performance
targets, and must be convinced that achieving the organization's
goals will also achieve their own goals. By contrast, in low IDV
cultures there is a collectivist rather than self-orientation, and
organizational members expect the organization (and their
superiors) to defend their interests in return for loyalty.
There is less emphasis on individual responsibility and autonomy
in motivation, and more on duty and responsibility to the
organization.
National culture and management control systems

Participation

The cultural dimensions, therefore, suggest that individuals in low

PD, high IDV cultures will seek and respond more favorably to
opportunities for participation in performance-setting decisions than
individuals in high PD, low IDV (more collectivist) cultures.
National culture and management control systems

Scope and Type of information

Time frame and set of performance indicators

The time frame for evaluation relates to whether organizational
members’ performance is measured against short-term or longer-
term indicators. The set of performance indicators relates to
whether measurement is focused on a single or limited number of
indicators (typically financial ‘bottom-line’ indicators), or includes
multiple indicators (financial and non-financial). Intuitively, the
cultural dimension of long-term versus short-term orientation (LTO)
is relevant to the choice of time frame for evaluation.
National culture and management control systems

Scope and Type of information

Time frame and set of performance indicators

The cultural dimensions of masculinity versus femininity (MAS) and
LTO are both relevant to the set of performance indicators used in
evaluation. Van der Stede (2003, p. 267) argues that the emphasis
on achievement and competition in high MAS societies produces
greater focus on meeting a ‘bottom-line’ performance target, and
less focus on the development and well-being of organizational
members. He argues further that such a restricted focus ‘is likely to
be less accepted or even counterproductive’ in low MAS countries,
where preferred performance measures would include multiple and
less financially oriented indicators.
National culture and management control systems

Scope and Type of information

Linkage between performance indicators and evaluation and

reward
Theoretically, power distance, individualism versus collectivism,
and uncertainty avoidance are relevant to subordinate responses
to different evaluative styles. Subordinates in high PD, collectivist
and high UA cultures are likely to respond more positively, ceteris
paribus, to higher RAPM (or tighter linkages between budget
targets and performance evaluation and reward), while those in low
PD, individualist and low UA cultures are likely to respond more
favorably to lower RAPM (or looser linkages).