1 Introduction
Studies investigating how management control systems contribute to innovation usually show that although control standardizes operations, it is not an obstacle to new product development and innovation (cf. Davila
2000; Ditillo
2004; Bisbe and Otley
2004; Jørgensen and Messner
2009a,
b). However, less attention has been given to management and process innovations associated with new ideas and practices that challenge existing patterns of behaviour within an organization (Birkinshaw et al.
2008). Such innovations may stand in contrast to standards and standardization. Standards are established, persistent, rule-bound and measurable processes (Wright et al.
2012, p.652). They are frequently seen as “the antithesis of innovation” due to the fact that they represent organizational control and regulations (Wright et al.
2012) impeding changes that are new to the state of the art (Birkinshaw et al.
2008, p.829). Moreover, standardization is defined as the result of intentional or unintended actions that generate order by reducing the variety of processes (Wright et al.
2012, p. 652). David and Rothwell (
1996) render innovation and standardization as antithetical processes. However, such a view appears to be simplistic, especially when control is considered as a bundle of control practices working together to steer the behaviour of employees in desired directions, rather than as specific and separate controls restricting behaviour (see Ouchi
1979; Merchant and van der Stede
2007). One example of a bundle approach is the levers of control (LOC) framework (Simons
1995). It is explicitly concerned with the simultaneous use of multiple controls (Chenhall and Moers
2015) to both enable innovation and to provide constraints on organizations (Mundy
2010).
Recent studies have provided empirical evidence that when different controls have different relative weights in the control system, their combinations support different types of innovativeness (Kruis et al.
2016; Bedford
2015). However, if the combinations do not contain countervailing forces that support different types of innovativeness or both innovation and standardization, innovative capabilities may narrow (Curtis and Sweeney
2017). Similarly, the controlled development of organizations needs both freedom, represented by innovation, and order, provided by standardization. Thus, only the unfettered coexistence of these two forces can ensure “salutary results” (David and Rothwell
1996, p.198). Therefore, it is important to understand how and what kinds of controls may be used in combination to enable the coexistence of both innovation and standardization (see: Gschwantner and Hiebl
2016), rather than focusing on supporting innovations alone by using different levers. The nature of levers may be specifically interesting in the context of lean management, as lean management supports innovativeness and the continuous improvement of processes (Smeds
1994) and requires a standardization of processes (Kennedy and Widener
2008; Fullerton et al.
2013).
This study aims to answer the following research question: How can controls support the coexistence of process and management innovations with standardization in the context of management accounting services? Exploring process and management innovations helps us to enhance our understanding of the nature and interplay of the levers of control, and thus the coexistence of standardization and innovation (cf. Laursen and Salter
2006; Reichstein and Salter
2006). The empirical materials were gathered in the lean environment of a business process outsourcing (BPO) company which offers management accounting services to its clients. It provides a good setting for the study, as the organization in question constantly spurs its staff to demonstrate innovative efforts in designing new processes and improving existing ones. At the same time, it employs formal controls and standards to steer and coordinate the behaviour and activities of its employees in order to fulfil the needs of the client. It should be emphasized that the studied company implements the principles of lean management in its operations. Thus, such a setting allows the study of different forms of innovation, as well as standardization. The latter is evident not only in the adoption of lean management at the system level, but is also predominant within the entire organization, as new developments and ideas are accompanied by new organizational standards and controls (Wright et al.
2012). To structure the analysis, the study follows earlier research using the “levers of control” (LOC) framework (Simons
1995) to classify the controls. The study specifically focuses on the nature of levers, i.e. what kinds of controls are used within those levers to enable this coexistence (Bedford
2015; Curtis and Sweeney
2017; Henri
2006; Mundy
2010).
The present paper contributes to the extant literature in the following ways. It examines the relationships between different levers (Mundy
2010; Henri
2006; Bedford
2015), specifically illustrating the nature of the levers of control to explain how the combinations of different levers and controls within them can provide both consistent and countervailing reinforcement, without crowding out innovation or standardization (Simons
1995; Mundy
2010; Curtis and Sweeney
2017). In this way, the study evidences how management control systems can support the coexistence of innovation and standardization of process and management innovations (Birkinshaw et al.
2008; Mol and Birkinshaw
2009; Wright et al.
2012; Gschwantner and Hiebl
2016). Moreover, it improves our understanding of how lean management in professional management accounting services may productively tie the levers of control together (Kennedy and Widener
2008; Fullerton et al.
2013; Tillema and Van der Steen
2015) and further ensure the coexistence of innovation and standardization (David and Rothwell
1996; Wright et al.
2012).
The remainder of the paper is organized as follows. The next section presents the theoretical perspective of the study. Section
3 describes the research design, while Sects.
4 and
5 present an analysis of the empirical findings. The paper ends with a discussion and conclusions.
3 Research methodology
In order to understand the nature of the levers of control that are necessary to enable the coexistence of innovation and standardization, this paper adopts a case study method as recommended by earlier research (see Curtis and Sweeney
2017, among others). The data for the present study was collected in Cube—a department of a large business process outsourcing firm (BPO) located in Central Eastern Europe that employs more than one thousand accounting and finance professionals on site. The department in which this study takes place provides the most advanced service in the portfolio of company. Employing around one hundred accountants, it is responsible for delivering management accounting services that have been transferred from the client, including managerial reporting, budgeting, transfer pricing, and performance evaluation. The volume of activities carried out in the management accounting department is substantial, as over seven thousand reports are prepared each month by Cube for more than seven hundred entities. The constant pressure on cost and process improvement has resulted in the introduction of lean management in the organization, which started in 2015.
The data consists of twenty-two interviews, presentations, and internal documentation given to the researchers. The data collection was enriched by observations made during visits to the company in order to observe employees in a natural setting and to identify the controls. The collection of empirical material took place in 2016–2017. All the interviews and presentations were recorded, transcribed and translated into English, as some of them were conducted in the local language. Two researchers or more were present during each interview. The semi-structured interviews lasted between 30 and 130 min and covered different organizational levels and positions. The details of the interviews are in the Appendices. The interview guide was structured and the themes were defined, but the final content was shaped in the course of every interview. Respondents were asked about their educational background and earlier professional experience, about the nature, methods and organization of their day-to-day work, details of projects completed, as well as their perception of the organization and its controls. Interviews were supplemented with reports, procedures, instructions, agreements, code of conduct, process maps, competency matrices, and score tables provided by the respondents. Two presentations were important for the triangulation of the research. The first presentation of the firm led by one of the senior managers helped gain an understanding of the organization of the company, specific to business process outsourcing, and the major concepts behind its existence and operations. The second presentation on lean led by three senior managers discussed lean principles and details of their implementation. During the presentations, the participants answered questions asked by researchers. Working with the company for almost 2 years allowed us to observe employees working on different projects, as well as performing their daily activities. The researchers’ observations were gathered in the form of written field notes prepared after each visit to the company.
The transcripts of interviews, field notes and additional internal documentation resulted in rich and detailed qualitative material. The analysis was conducted in the following stages. First, each member of the research team read the materials independently, focusing particularly on the management control system and the relationship between innovation and standardization. Next, the first author identified the levers of control using the research material. Finally, the entire research team analysed whether there were interactions between the levers and if and how these interactions support the coexistence of process and management innovations with standardization. The separated controls were studied in order to detect their nature as well as the combinations of different levers that occur in the organization. As a result of this analysis and discussions within the research team, the researchers began to understand how the levers worked together and reinforced one another, influencing the relationship between innovation and standardization. As abductive reasoning was used, where empirical observations continuously redirected the theoretical view and vice versa (see: Järvenpää
2007) the concepts of consistent and countervailing reinforcement introduced by Curtis and Sweeney (
2017) were finally used to explain and highlight the important findings in the data. While these analytical steps and the discussions within the research team did not follow a clear structure that can be depicted retrospectively, they resulted in the patterns described in the following section and summarized in Table
1 in Sect.
5.
Table 1
Summary of all the identified combinations control levers and their mutually reinforcing characteristics in Cube
Beliefs and interactive | Mission statement, training on company’s values, annual meetings, annual competition, lean meetings | Consistent | Beliefs inspire employees to participate in meetings aimed at stimulating innovativeness | N/A |
| | | Beliefs inform employees about the importance of innovativeness | |
| | | Meetings communicate and challenge strategy, mission, values | |
Boundary and diagnostic | Code of conduct, training on communication, instructions and procedures, SLA, KPIs, score tables, process maps, competency matrices | Consistent | N/A | Boundaries delineate how to carry out everyday activities in the way predefined by the company; establish limits and standards |
| | | | SLA provides indicators that should be contained in the performance measurement system |
| | | | Diagnostic controls measure ex post the results of employee actions |
| | | | Diagnostic controls provide input on whether the processes are working in accordance with the standards |
Diagnostic and interactive | KPIs, score tables, process maps, competency matrices, annual meetings, annual competition, lean meetings | Countervailing | Diagnostic controls provide information that should be discussed during the interactive process | Interactive meetings focus attention on information from standardized performance measurement systems and allow them to be challenged |
| | | Meetings stimulate the dialogue and debate on strategies, lean implementation and innovativeness | |
Interactive and boundary | Annual meetings, annual competition, lean meetings, code of conduct, instructions and procedures, SLA | Countervailing | Boundaries ensure that meetings and dialogue about innovativeness are more effective | Boundaries provide standards of communication during meetings |
| | | Interactions make procedures and SLAs less restrictive and more likely to foster innovativeness | During meetings, managers discuss risks and opportunities, improving boundary controls |
Beliefs and boundary | Code of conduct, instructions and procedures, SLA, mission statement, training on company’s values | Countervailing | Innovativeness built into beliefs is limited by boundaries in order to reinforce its effectiveness | Beliefs state the key values that should be contained in the code of conduct |
| | | The SLA and code of conduct underline the importance of innovativeness | Standards prevent from wasting organizational resources |
Diagnostic and beliefs | KPIs, score tables, process maps, competency matrices, mission statement, training on company’s values | Countervailing | Diagnostic controls communicate a strategy concerning innovativeness | Beliefs state the key values that should be contained in the standardized performance measurement system |
| | | diagnostic controls promote learning through feedback | |
The setting of the study describing innovation, standardization and the management control system, as well as the relationship between them, is further discussed in Sects.
4 and
5 below.
5 Simultaneous use of levers: enabling the coexistence of innovation and standardization
As the previous section indicates, all the levers of control in Cube are simultaneously used, combining their elements in a reinforcing whole (cf. Simons
2000). Since the control system contains countervailing controls, the nature of the levers and their use is analysed in more detail in this section to illustrate how mutual reinforcement becomes both consistent and countervailing, thus balancing between searching for new opportunities and effectively controlling the existing, efficient, standardized processes (Curtis and Sweeney
2017). In general, employees from all levels in Cube are engaged in innovation-seeking activities for clients and internal processes; all these processes are carefully monitored.
And if there are improvements, then we also reward people. […] We give rewards, we instill pride in those people. […] So how do we do these things [process innovations and improvements for clients]? Lots [of SLAs], many agreements with the customer, procedures, how we should provide quality, what the deadlines for particular reports are… All this is written in stone, so to speak […] because we need to ‘live’ it. All these things and [everything that was] agreed with the customer are written down in [Cube’s] KPIs, too. (Senior Manager 1)
The “positive” levers of control are clearly related in Cube and they focus on innovativeness. Cube’s beliefs are aimed at inspiring employees to participate actively in interactive controls and contribute to the strategy. On the other hand, meetings which present values and strategy in Cube are an important element of the control system, underlining the importance of innovation as a core value. Daily and monthly meetings are time-consuming for managers, but they are important for the teamwork and problem solving element. Directors try to combine the beliefs and interactive controls, engaging themselves and all the employees in learning about the strategy, uncertainties, engagement and innovation (see Simons
1995).
Every day we have meetings with different team leaders in order to discuss problems in the team concerning innovation and solutions. (Senior Manager 1)
The regular interactive meetings play an important role in identifying and generating new initiatives in order to achieve the organization’s objectives. They enable discussion between managers and employees on strategic challenges, provide a shared view of the organization, and tie it together through the shared focus on Cube’s values that represent beliefs (cf. Simons
1995). It is evident in the talk of employees representing various levels of management that meetings are an important source of innovative ideas.
I have the power to influence many decisions, suggest new solutions, and implement new ideas. There is great flexibility, and we can thrash out together how the innovation should look. (Process Manager 1)
The “negative” controls aimed at standardization also work together. Diagnostic controls (the performance measurement system, score tables, process maps, competency matrices) are combined with boundaries (the code of conduct, instructions and procedures) as the directors seek to reduce the risk of opportunistic behaviour and information asymmetry while controlling the process and its results in order to fulfil the requirements of clients in a standardized way. The comment below illustrates that boundaries (procedures) and diagnostic controls (process maps) are frequently combined in order to support the improvements of processes.
Harmonization and automation need procedures. The rules and principles […] as well as mappings must be clear. (Process Manager 4)
In accordance with Simons (
1995, p. 47), Cube uses diagnostic control systems to pressure employees, while strict standards make clear that certain undesirable behaviours will not be tolerated. The SLA is a specific control, which contains elements of both boundary and diagnostic systems, providing elements required by clients that are then encompassed by the performance measurement system.
[In SLA] there is important information that shows what we measure, how we measure it, how much it has to be in percentage terms, how many reports must be uploaded on time, how many errors are acceptable: everything is explained there in detail. This is a control tool between them [the clients] and us. The SLA gives our clients security and assurance that we will work appropriately and add value. (Senior Manager 1)
The above-mentioned combinations of levers are mutually reinforcing but consistent, as the first pushes for consistency in innovation, while the second focuses on standardization. However, the role of the positive and negative elements in constructing countervailing reinforcement is also visible in Cube (cf. Curtis and Sweeney
2017). The relationship between the diagnostic and interactive systems is extremely important, as operating in tandem these levers reinforce the positive effect of the interactive system on innovation (Henri
2006; Bedford
2015). The ability to integrate diagnostic and interactive levers constitutes an important organizational capability in Cube, inducing innovations in a highly standardized environment (cf. Henri
2006). The interactive processes play an important role in Cube, as they not only provide information but also integrate the strategic and operational perspectives necessary for the development and implementation of innovative solutions. Regular meetings stimulate dialogue on new solutions, focus attention on innovative effort, and inspire creative leaders, but they are monitored by a standardized diagnostic control in the form of the performance measurement system. Targets and standards are clearly stated to employees, but the diagnostic system is moderated by workshops and meetings explaining the aim of controls, thus supporting innovativeness. The comment below suggests that during interactive meetings, innovation and improvement targets are not just presented to employees but also discussed with them in order to support problem solving. Senior managers are engaged in these activities, actively participating in discussions on changes to the processes.
[…] Targets [on improvements and innovation] are precise and personalized. […] We try to explain the idea of them to our employees, and we are happy because they are not afraid now to say, ‘I do not understand [my target], help me to do it correctly!’ We prepare workshops for employees [aimed at discussing with them] how to define targets and map a process, and how to change the process and define the roles in the process. (Senior Manager 3)
Regular interactive meetings also aim to stimulate dialogue and debate among employees. These controls focus attention on the performance measurement system itself and allow it to be challenged. This “positive” element in the use of a standardizing diagnostic system thus makes the organization’s goals transparent with regard to innovation, and facilitates coordination among all the employees to achieve these goals. It promotes “mutual commitment” and motivation among employees (Adler and Chen
2011, p. 75). The below comment reveals that although regular meetings with employees are aimed at discussing KPI and targets, senior managers use them in order to provoke disputes among employees and engage them in innovation-seeking activities.
We ask employees how they see their roles in realizing a certain strategy. We meet regularly and try to discuss this issue. Then they try to translate targets into activities and tasks. […] We have one such competitive strategy: improvement through engaging all our workers. And we use this idea in all our departments and processes. (Senior Manager 1)
A good deal of this interaction is introduced by lean management, which specifically connects diagnostic lean controls with interaction in daily and monthly lean meetings focused on improvements and innovation. Cube appears to combine traditional and lean controls (cf. Tillema and Van der Steen
2015). Lean implementation merges the countervailing elements of interactive and diagnostic systems. Adding lean meetings to the regularly held annual sessions with senior management countervails the characteristics of diagnostic controls that are traditionally deemed restricting. Still, the diagnostic system contains an element of standardization through the variance analysis of a number of financial indicators, such as revenue or profit margin, but it is expanded by nonfinancial indicators concentrated on project improvements and innovation, such as delivery time, percentage of errors, and value added to the process. Discussions on highly standardized diagnostic lean controls such as score tables, competency matrices and process mappings help employees better understand the aims of the organizations with regard to innovation, while engaging them in the realization of the strategy, stimulating lively debate and inspiring improvements and creativity. The following quite reveals that for senior managers, lean meetings aimed at discussing diagnostic lean controls, though time-consuming and challenging, are a valuable source of local knowledge.
Visual tables” [score tables, competency matrices and process maps] are important. […] They are reviewed daily with the team leader and managers and the leader must analyse any problems and discuss them with workers. […] We want to make leaders concentrate on people and future processes. Such tables are time-consuming but in three teams in controlling we improved efficiency by 53%, because we started to look for problems and solutions and people’s development. […] It is challenging for a leader to look for solutions and plan a few experiments with the team. (Senior Manager 3)
Thanks to lean, diagnostic controls contain a social element, introduced mainly by personal development targets for employees and competence matrices. Moreover, the social mechanism (Kennedy and Widener
2008) brought about by interactive meetings, teamwork and problem solving encourages employee decision making (Tillema and van der Steen
2015) and fosters innovative behaviour. Lean KPIs used in performance measurement and lean meetings create a system that is seen by employees as enabling and empowering, rather than restricting.
In addition to this, the interactive controls encouraged by the directors are combined with clear boundaries (the code of conduct, workshops, procedures, SLA), meaning interactive controls are focused on innovation and are more effective (cf. Simons
1995). With regular meetings, directors promote and spur innovative behaviour, but with boundary controls, they establish standards and limits within which employees are expected to perform. Managers discuss risks and opportunities during daily and monthly meetings, which stimulate engagement, but within an explicitly defined area delineated by quality controls and procedures.
We can exchange ideas, discuss a few improvements […] (Team Manager 1) […] This makes our […] horizons broader, […] but for every process [of innovation] […] we also have various additional documents for checks, quality and control. (Process Executive 1)
Because of the described interrelationships, the boundary system, which is traditionally deemed to be restricting as it is designed to allow employees to deliver their tasks only within a predefined area (cf. Adler and Chen
2011, p. 75), is not limited only to this purpose in Cube. It also empowers employees to seek out innovative solutions for clients. As a result, employees do not perceive standardized procedures and SLAs as restrictive controls but as elements which facilitate their work (cf. Ahrens and Chapman
2004). One employee explained the importance of instructions in innovation-seeking activities:
Instruction nicely describes the whole process, but you can also learn many things about the process from instruction. You can use it to improve the process. (Management Accountant 1)
Furthermore, the code of conduct and training on communication prepares employees to collaborate with colleagues during a meeting and challenge strategy, as well as to take a leadership role. Interestingly, one of the senior managers mentioned “standardizing the leadership” in business relations in the company. This element is essential in order to conduct successfully interactive meetings in Cube.
[During lean meetings] we tackle issues of lack of leadership. We want to standardize leadership—if you are a leader, managing people’s, colleagues’ and clients’ relationships must be standardized in the company. (Senior Manager 1)
There is also some evidence of a relationship between belief and boundary systems, as innovation seeking is built into the beliefs (the values in the mission statement), but carefully limited within given boundaries (the code of conduct, training, procedures, SLA) in order to reinforce effectiveness.
[In order to improve and innovate] you must clearly understand the rules that exist in the organization. (Process Manager 4)
This illustrates how the combination of two levers allows the identification or creation of a ‘unique set of opportunities at a point in time given its competencies and resources’ (Simons
1995, p. 16). In Cube it facilitates the search for and recognition of innovation without wasting organizational resources and taking too high a risk. All the innovative tasks must be assigned to the appropriate employees possessing the skills and competences that will enable an effective solution.
We want ad hoc tasks [within each project] to go to the right person who has the competences to solve the problems. It is a waste of time if an ad hoc task is sent to an arbitrary employee who then wastes time attempting to solve the problem or looking for someone else who can tackle the task instead. So we want to divide and group our resources by competencies, so ad hoc tasks are directed to a person with the appropriate competences. (Senior Manager 1)
The mission statement and training within the belief systems support the boundary system by setting out the key issues that are contained in the code of conduct, thus helping to delineate the acceptable domain of activity for organizational participants in line with the company’s values. Materials from the training session on values received from the company as well as employee comments confirm that the initial, compulsory training of new staff clearly outlines the behaviour desired.
One of the compulsory training sessions is always on Cube’s values. […] Before a new employee starts work here, he or she must be “put in the picture” and participate in the basic training on values. (Team Manager)
On the other hand, the SLA, code of conduct and different instructions within the boundary system aimed at establishing limits and standards also underline the importance of innovation and leadership. Therefore, they reinforce the belief system as, training on communication and the code of conduct, for example, helps employees incorporate the mission and values into ordinary activities and everyday interaction with clients and colleagues. Careful analysis of the materials received from Cube (the code of conduct and presentations from the training on communication in particular) as well as employee comments reveal the importance of team work, engagement, and innovativeness in the company`s daily life.
[In Cube’s code of conduct] activity within the team is also important—being engaged, suggesting new solutions, helping fellow employees. (Process Manager 4)
Finally, the belief systems and diagnostic controls are also related. Belief systems communicate the values of a company, which in turn create the framework for strategy. However, in Cube, implementation of strategy engages extensive use of diagnostic control systems that measure not only to what extent the strategy is achieved, but also, among other factors, innovativeness, improvements and value added to the processes, in order to gauge whether process innovations have helped to reach the goals.
Another target is connected with process development, […] aimed at making us work as consultants, suggesting new technologies and new services to the client. This not only provides quality and prompt results, but also […] makes us innovative, inventive […] so adding value to client. (Senior Manager 1)
Diagnostic controls in Cube are designed not only to monitor and provide input on how processes work, but they also promote learning through a feedback mechanism. Moreover, the system contains various perspectives that communicate the strategy and translate it into critical success factors that can be measured. Personal development targets, client assessments, as well as lean targets are constructed in such a way as to lead employees to develop their skills and knowledge, seek new solutions and process improvements and thus satisfy the requirements of the customer. When clients assess their contact with employees, they indicate if the employees are innovative and what improvements they suggested. This element pushes employees towards innovation-seeking activities in their daily contact with contractors. As a result, financial goals can also be achieved. The comment below from a senior manager suggests that this combination of belief systems and diagnostic controls creates a perpetual, repeating pattern of translating strategy into targets, then into tasks and activities necessary to innovate and improve.
And every year the process starts from the beginning: strategy, targets, translating targets into tasks and activities, discussion with workers, looking for problems, kaizen, solutions to the problems, improvements; every year it’s the same. (Senior Manager 1)
Diagnostic lean controls, in particular, such as score tables, process maps and competency matrices, communicate clearly a strategy that translates strategic plans into targets used for standardization and control purposes. Senior managers underline that mapping of the processes especially requires a strategic approach.
We also try to create mapping of future processes. So we take the current mapping of processes, and try to simulate how it should look in the future—of course taking into consideration our strategic aims and targets. (Senior Manager 2)
Thanks to this countervailing combination with beliefs and lean enforcement, the nature of the diagnostic system works counterintuitively, as suggested by Simons (
1995), reinforcing momentum for innovation with standardized procedures (Curtis and Sweeney
2017).
In summary, different combinations of levers create various types of reinforcement. A combination of only positive or negative levers creates consistent reinforcement, and thus a push for consistency in a single direction: either standardization or innovation Moreover, although some levers, by nature, provide constraints and impose control on employees, when they are combined with levers containing an element which pushes employees towards new solutions and creative thought, countervailing reinforcement occurs. This situation results in creating an innovation-friendly environment and encouraging employees to search for innovative solutions without endangering the company’s goals and values. Table
1 presents a summary of all the identified combinations of control levers and their mutually reinforcing characteristics.
6 Discussion
Our study has highlighted how management control systems can support the coexistence of innovations and standardization. Although there are many claims made regarding management controls, there remain few empirical studies showing their impact in terms of innovation and standardization. Thus, our study provides insight into the relationship between innovation, standardization and management control in general. Analysing the relationship between different levers of control and their nature, we found that process and management innovations can coexist with standardization of those processes. This is an important finding as it overcomes the traditional view that standardization represents an organizational control that impede innovation (Birkinshaw et al.
2008; Wright et al.
2012).
We identified radical and incremental processes, as well as management innovations in the studied organization intertwined closely with standardization. We argue that the managing process and management innovations in Cube are highly standardized (Wright et al.
2012). Standardization is evident in the adoption of lean management at the system level, as its diffusion in the organization is assisted by and reliant on standardized solutions and methods of implementation, such as score tables, process maps and competence matrices (Worren et al.
1999; Wright et al.
2012). But standardization also predominates at the micro level within the organization (Courpasson
2000) due to the fact that every process improvement and innovation ends with standardization. Although this narrows the duties of Cube, the relationship between standardization and process innovation is also quite supportive, as it encourages both radical and incremental innovative effort in order to provide new services. In this way, standards promote local innovation and learning in the organization (David and Rothwell
1996). Indeed, it was evident in some of the employee comments that a conflictual relationship between standardization and innovation exists at the moment of refreezing the standard in order to improve processes, as well as during the mapping and standardizing of the process due to lean (see: Wright et al.
2012); however, the conflict is overcome by the simultaneous use of different control levers, such as meetings, workshops, training sessions and procedures. Furthermore, we suggest that the combination of control levers enables exploitation of existing organizational knowledge in the form of incremental management innovation aimed at improving the internal processes without crowding out more radical innovation. This is in contrast to Benner and Tushman (
2003), who claim that standardization highlights only incremental innovation.
Beyond contributing to the conceptualization of innovation and standardization, the study provides insights into the relationships between different levers, as well as their impact on the coexistence of innovation and standardization. We discovered that in this organization, all the levers are tied to one another and practically each lever supports the achievement of aims by the other levers. In other words, levers of control are mutually reinforcing (Simons
1995). However, the way each lever of control interacts with the others is of particular importance in developing the unique potential of the organization studied (Henri
2006). A combination of belief and interactive controls focuses the attention of employees on innovation, while diagnostic and boundary controls are aimed at standardizing the processes. The lack of dominance of one pair over another constitutes a crucial factor (Mundy
2010), as the consistency towards innovation does not, however, crowd out standardization for efficiency and vice versa (cf. Curtis and Sweeney
2017).
Our study also reveals the countervailing combinations of levers that support the coexistence between standardization and innovation, as well as prevent the crowding out of radical innovation in favour of incremental innovations. As the positive controls (beliefs and interactive systems) are considered to contribute to more radical innovations, while negative controls (boundary and diagnostic systems) are related to incremental innovation and standardization (Simons
1995; Bedford
2015), the countervailing combination of levers minimizes such a crowding out effect. We have found specific controls, such as lean controls, service level agreement, and training, to be of specific importance for that purpose. Indeed, diagnostic lean controls such as score tables, process maps and lean KPIs are focused on the implementation of somewhat incremental management innovations, while the social mechanism brought by lean (Kennedy and Widener
2008) in the form of lean meetings and personal development of staff through competence matrices and personal development targets spurs radical process innovation. Lean meetings, in particular, combine other control levers with the interactive systems, as diagnostic lean controls, such as score tables, process maps, competency matrices and lean KPIs are discussed, providing input as to whether the constantly installed new processes are working in accordance with the ways standardized by the company (boundary systems).
The study would suggest that more countervailing combinations of controls counterbalance the nature of levers, thus moderating the contradictions between innovation and standardization. This is due to the fact that a lever that traditionally supports either standardization or innovation working in tandem with a countervailing lever changes its nature, reinforcing the impact of the other level and vice versa. Thus, the diagnostic control system—mainly the performance measurement system—combined with an interactive system created by various management/employee meetings is no longer restrictive and focused only on standards, but also promotes innovativeness among employees (Henri
2006). On the other hand, interactions that traditionally stimulate dialogue on new initiatives (Simons
1995) when discussing the performance measurement system during meetings, focus on the diagnostic system and standards that monitor processes. Furthermore, interactions work in Cube within the limits established by boundaries, but the SLA and procedures are not perceived by employees as restrictive; instead they are encouraged to seek innovativeness and facilitate it. Combining beliefs with boundaries ensures that innovation is built into everyday activities, albeit carefully delineated by various limits and standards. Diagnostic controls not only translate the beliefs into targets and monitor employees, but also stimulate them to find novel solutions (Simons
1995). Thus, placing a control within a specific lever is frequently too restricting in Cube, as a control can have characteristics of different levers. For instance, the SLA represents a boundary control of the nature of a diagnostic lever, and the performance measurement system is used both in diagnostic and interactive ways.
Due to the consistent and countervailing combination of levers, the management control system fosters communication among employees, managers and directors (Simons
1995; Henri
2006), improves cooperation (Mundy
2010) and develops the creative skills necessary to exploit as well as explore knowledge (Benner and Tushman
2003). At the same time, though, it steers and monitors activities, in addition to standardizing processes within the company (Simons
1995). The more levers engaged in the combinations, the stronger the reinforcement that can be achieved (see: Simons
1995).
One limitation of our research is the fact that although the case study method has the advantage of allowing an examination of the management controls, their relationship and impact on innovation and standardization in the organization, the specific context of a BPO company precludes a generalization of the results taking into account different types of companies. A further limitation of our data is that concerns a single-company case study based on a limited number of interviews. On the other hand, the interviews were supplemented with presentations, additional materials received from the organizations, as well as observations of the researchers who participated in the daily activities of the company for almost two years, so the qualitative material was rich and extensive, which enabled the study of the nature of levers and the relationship between different types of innovations and standardization.
7 Conclusions
The aim of this study was to answer the research question of how controls can support the coexistence of process and management innovations with standardization in the context of management accounting services. We collected data at a large department of a BPO company. The department is a supplier of management accounting services where the standardization needed to serve the clients is combined with constant process and management innovation to ensure the continuation of operations. Having collected the data, we explored the multiple relationships between levers. Set against the traditional view that standards are in conflict with innovation, we argue that both process and management innovations can coexist with standardization at the system level, as well as at the micro level within an organization (Wright et al.
2012; David and Rothwell
1996). Moreover, the different types of innovations identified in the studied organization involve significant standardization, but standards enable or even inspire innovative practices (Wright et al.
2012; David and Rothwell
1996; Damanpour
1991). This is due to the fact that standards assist lean management and its implementation in a company, providing a common language for investigation and experimentation, thus encouraging improvements based on learning from previous experience (Wright et al.
2012; Benner and Tushman
2003; David and Rothwell
1996). Standardization of processes narrows down the duties of employees and managers, thus creating a strong impetus to encourage innovation.
Our research complements the conceptualization of innovation and standardization by highlighting the role of management control systems in this relationship. The current study contributes to the growing stream of research on how management controls work collectively (Simons
1995; Otley
1999; Malmi and Brown
2008), and their impact on innovative activities (Mundy
2010; Henri
2006; Adler and Chen
2011; Widener
2007; Janka and Guenther
2018). Our primary focus is on process and management innovations (Chenhall and Moers
2015; Lopez-Valeiras et al.
2016), acknowledging both the impact on innovative activities and the need for predictability with the help of standardization (David and Rothwell
1996; Birkinshaw et al.
2008; Wright et al.
2012; Janka et al.
2019). While previous studies have provided some evidence on how countervailing but mutually reinforcing combinations of control levers affect the development of organizational capabilities, they have rarely investigated the nature of those levers and their impact on the coexistence of innovation and standardization.
The present study shows how both standardization and innovation are supported by the simultaneous use of different levers of control. We were able to do this by exploring the controls that constitute these levers. All of the identified controls enhance one another and reinforce their impact. This therefore supports Simons’ (
1995) statement that all levers are needed because they are mutually reinforcing (Simons
1995; Bedford
2015; Curtis and Sweeney
2017). While mutual reinforcement is consistent with the premises of the LOC framework (Simons
1995), the important finding of the present study is in showing categorically what kinds of positive and negative controls may reinforce one another, thus creating both consistent and countervailing reinforcement, in turn enabling the coexistence of innovation and standardization. The mutual reinforcement produced by two combinations of levers (belief/interactive and diagnostic/boundary) can be described as consistent, as it creates a push for consistency in the same direction (Curtis and Sweeney
2017). Although the interplay between belief and interactive levers reinforces the importance of innovation, the interactions between boundary and diagnostic systems focus on standardization. Moreover, we identified four different combinations of levers that contain countervailing forces, which thus created countervailing reinforcement (cf. Curtis and Sweeney
2017).
We found this type of reinforcement was necessary to reduce excessive momentum towards standardization or innovation. In particular, the interplay between diagnostic and interactive levers enhanced by lean controls plays an important role in spurring controlled innovation. Nevertheless, mobilizing the other combinations of positive and negative levers (Simons
1995) prevents a crowding out effect. Such combinations of countervailing elements counterbalance the essence of levers, as “negative” levers operate in a fashion reinforcing innovation, while “positive” levers draw the management’s attention to the need for control and standardization. The same controls can be used within different levers supporting both standardization and innovation and therefore the LOC framework may be too restricting in naming the controls within levers. Therefore, this study contributes to a better understanding of the relationship between levers and their nature, which is not clearly articulated in the original framework (Bedford
2015; Curtis and Sweeney
2017; Kruis et al.
2016). Furthermore, in exploring the nature of levers, we also contribute to the subject literature by showing how lean service management effectively ties the levers of control together (Kennedy and Widener
2008; Fullerton et al.
2013; Tillema and Van der Steen
2015), as it introduces a good deal of interaction with regular meetings. The description provided in the present paper provides an illustration of how traditional and lean controls may work effectively together, which differs from the findings of Tillema and Van der Steen (
2015).
The study also points to broader implications of controls for adopting incremental and radical innovations. As positive controls are considered to contribute to more radical innovations, while negative controls are related to incremental innovation and standardization (Simons
1995; Bedford
2015), the simultaneous use of countervailing levers enables the exploitation of existing organizational knowledge through incremental management innovation aimed at improving internal processes without crowding out the more radical innovation necessary for the long-term survival of the organization (cf. Benner and Tushman
2003; Wright et al.
2012; Gschwantner and Hiebl
2016).
An interesting direction for future research would be to examine how a change in a control system resulting from further lean implementation influences the relationships between levers, and the impact on innovation. It would be of interest to ascertain if the changes in levers of control triggered by lean would have a positive influence on various strategic capabilities in the organization.
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