14. How banks can shape their Management Control System to achieve more innovation: a case study

New competitors from other industries increase the pressure on banks to offer more innovative solutions and services to their clients. In that context the design of bank’s Management Control System (MCS), seems to become more important as MCS provide the environment for managers and experts to create new ideas. As MCS in banks are almost without exceptions based on budgetary control, it seems reasonable to examine alternative MCS approaches that enable banks to become more competitive in terms of costumer relevant innovations. Thus, we ask how banks can redesign their MCS characteristics in order to enable more innovation and simultaneously ensure full compliance with regulations. To answer this question, we analyze case studies of a bank that applies a radical decentralized MCS and is perceived to be more responsive to its customers compared to its peers and at the same time fully compliant with European regulations. We find that banks may need to shape their MCS from a hierarchical centered command and control approach towards more social control. Moreover, our analysis suggests that putting more emphasis on social control mechanisms may enhance the efficiency of the remaining hierarchical control mechanisms.