Balanced management control systems as a mechanism for achieving corporate entrepreneurship

Over twenty years ago, Peters and Waterman posited that the best-run companies had simultaneous "loose-tight" properties, where the organization is "rigidly controlled, yet at the same time autonomy, entrepreneurship and innovation from the rank and file is encouraged" (1982: 318). More recently, Collins (2001) has suggested that what he terms "great" companies have a "culture of discipline," where rigor and discipline enable creativity and entrepreneurship. This creative duality is expressed in terms of "freedom within a framework" and "opportunistic flexibility." The inference of these widely-read examinations of corporate excellence is that corporate control systems play an instrumental role in companies that demonstrate high levels of entrepreneurship. Yet the nature of that role remains unclear. Control systems evolve in companies. The implementation of measures, procedures, systems, and documentation requirements initially brings order, coordination, accountability and efficiency to an otherwise chaotic situation. Without them, quality is inconsistent, schedules are missed, customers are improperly billed, money is wasted, and employees take shortcuts. Simple in the beginning, controls become more sophisticated and complex over time, to the point that they encourage bureaucracy and micro-management (Shih and Yong, 2001). Control measures can become ends in themselves, while conveying a lack of employee trust (Morrow et al., 2004). Concerns for strategic effectiveness are replaced by a preoccupation with operational efficiency (Simons, 1995). Thus, Pinchot observes that "many centralized companies with highly sophisticated control systems are, in fact, out of control" (2000: 125), while Govindarajan (1988) has proposed that U.S. firms are not so much over-controlled as they are mis-controlled. A critical question concerns the relationship between the design and operation of the control system and the level of entrepreneurship exhibited within the organization. On the one hand, control systems provide strategic direction to the innovative efforts of firms, and the efficiencies they produce can free up resources for innovation (Marginson, 2002). Further, they exert discipline over innovative projects in terms of performance benchmarks, schedules, and competition among ideas. On the other hand, it would seem control systems that tightly monitor behavior and resource utilization can serve to undermine employee creativity and the motivation to experiment and take risks (Morris and Kuratko, 2002; Shih and Yong, 2001). Elaborate controls can discourage the kind of bootleg projects, resource bootstrapping, and informal arrangements between departments and units that are frequently associated with corporate entrepreneurship (Pinchot, 2000). They can result in slower decision making, harming the ability of the firm to exploit new opportunities. The purpose of this research is to empirically assess the relationship between control and entrepreneurship in established organizations. Insights from the literature on the nature of control are reviewed, and underlying dimensions of a control system are identified. A series of hypotheses concerning relationships between the components of control and the level of entrepreneurship in a company are proposed. The hypotheses are tested via two surveys directed at cross-sections of corporate managers. Implications are drawn for theory and practice. ENTREPRENEURSHIP IN AN ORGANIZATIONAL CONTEXT Stevenson and Jarillo-Mossi indicate that "entrepreneurship is a process by which individuals--either on their own or inside organizations--pursue opportunities without regard to the resources they currently control" (1990: 23). Sathe (2003) defines corporate entrepreneurship as a process of organizational renewal and new business creation. Others have noted that, in a corporate context, entrepreneurial activities revolve around organizational sanctions and resource commitments for the purpose of innovative results (Naman and Slevin, 1993; Zahra and Covin, 1995). …