Accounting, OrgaflizationsandSociet_v,Vol. 15, Nos. l/2, pp. 145-148, 1990. 0361~36fGY90 $3.00+.

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Printed in Great Britain Pergamon Press pIc

THE ENACTMENT OF MANAGEMENT CONTROL SYSTEMS:

A CRITIQUE OF SIMONS

BARBARA GRAY
Department of Management and Organization, Pennsylvania State Univetsity

Abstract

Simon proposes a contingency relationship between a firm’s strategy and its management control systems.
However, his model underspecifies the relationship between strategic uncertainties and management
controls, underplays the recursive impact of management controls on strategy formulation, and ignores the
potential influence of managerial characteristics on control system design.

The major focus of Simons’ paper is on the link
between strategy and management control sys-
tems. More specifically, Simons asks, “What is
the relationship, if any, between the way a firm
competes and the way that it organizes and uses
its management control systems?” The paper
posits a process model of strategy and control in
which top management regulates strategic un-
certainties through its choice of strategy and the
institutionalization of a management control sys-
tem. In his Fig. 1, Simons depicts the relationship
among four key variables (business strategy,
strategic uncertainties, management controls
and organizational learning) as a cyclic one.
The paper makes two important contributions
to the literature on strategic planning. First, it
provides a rich description of management con-
trol systems in two firms within the same indus-
try. Second, in addition to representing the
effect of strategy on the design of management
controls, it acknowledges the recursive effects
of strategic controls on subsequent strategy for-
mulation. I believe, however, that Simons’ model
does not go far enough. That is, it underspecifies
the relationships between strategy, strategic un-
certainties and management controls and under-
plays the impact of management controls on
strategy formulation. Furthermore, the analysis
gives short-shrift to the learning step which
145
completes the loop between management con-
trol systems and strategy and to the mechanisms
by which strategic change is induced when the
strategy fails.
MANAGINGSTRATEGIC UNCERTAINTIES
It is difficult to discern from the paper
whether strategic uncertainties for Simons refer
to objective threats and opportunities the firm
encounters or to an environment which man-
agement perceives or to an enacted environ-
ment which management creates. Management
theorists differ in their depictions of the environ-
ment as determined (Hannan & Freeman, 1978;
Aldrich, 1979), perceived through the eyes of
less-than-perfect observers (Duncan, 1972;
Downey et al., 1981; Lorenzi et al., 1981) or
created through acts of interpretation and action
(Weick, 1979; Smircich & Stubbart, 1985).
Whatpeoplereferto as their environment is generated
by human actions and accompanying intellectual efforts
to make sense out of these actions. The character of this
produced environment depends on the particular
theories and frameworks, patterns of attention, and atfec-
tive dispositions supplied by the actor-observers (Smir-
cich & Stubbart, 1985, p. 726).
Regardless of which school one adopts, how-
146 BARBARA GRAY
ever, they all seem to agree that there are bound-
aries which limit managerial discretion. These
limitations are not explictly considered in Si-
mons’ model. Instead, it appears from his appli-
cation of the model to the two cases that mana-
gers are always able to temper or forestall the
effects of uncertainty through design of an ap-
propriate control system. For example, Hre-
beniak & Joyce (1985) distinguish contexts in
which firms can adapt by design from those in
which they adapt by chance or adapt within con-
straints or may not be able to adapt at all. It
seems reasonable to assume that management
control systems would be designed differently
to correspond to each of these contexts.
A brief discussion of the limited attention of
managers suggests that Simons is more comfort-
able with conceiving of managers as interpret-
ers. Theorists consistent with this perspective
also differentiate strategic contingencies ac-
cording to the degree of threat or opportunity
they invoke (Dutton & Duncan, 1987; Dutton &
Jackson, 1987) or by the adjudged ability of the
firm to respond (Wartick & Christy, 1986).
Thus, the nature of strategic contingencies
themselves as interpreted and acted upon by top
management could be expected to require dif-
ferent management controls. Consideration of
how diIferences in interpretation of strategic
contingencies shape management control sys-
tems would enrich Simons’ model.
THE INFLUENCE OF MANAGEMENT
CONTROLS ON SUBSEQUENT
STRATEGY-MAKING
Learning, for Simons, is described as a process
by which management signals to subordinates
about its strategic intentions. I cannot help but
wonder, then, if learning is only for the lower
levels of the organization? What about the
mechanisms by which top management also
learns? The model seems to perpetuate an image
of top management as an omnicient and omnipo-
tent navigator of the seas of uncertainty. What
happens, for example, if an unanticipated
strategic uncertainty strikes, such as a hostile
takeover attempt or a major accident such as
Three Mile Island or Bhopal?
An alternative model imagines managers as
co-participants in the enactment of their
strategic environments (Pfeffer & Salancik,
1978; Weick, 1979; Smircich & Stubbart, 1985).
Not only do they interpret strategic contin-
gencies, but they construct the environment
with which they will have to navigate in the
future (Giddens, 1979; Gray et al., 1985). They
create the context within which the next round
of strategic decisions will be made.
organized people often struggle within the confines of
their own prior enactments. Patterns of enactment
rooted in prior personal, organizational and cultural ex-
periences powerfully shape ongoing organizational and
cultural options. Starbuck (1983) calls these patterns
“behavior programs” and emphasizes how past thinking
gets concretized into standard operating procedures, job
specifications, buildings, contracts, and so on that take on
the aura of objective necessity (Smircich & Stubbart,
1985, p. 732).
Applying this to Simons’ model, enactment
occurs precisely through the choice of which
management controls to make interactive. That
structures subsequent organizational learning
and delimits what top management will and will
not attend to. Thus, the choice of control sys-
tems imposes a “mindset” or a set of blinders on
the organization which reinforces existing
interpretations and discourages novel interpre-
tations. Research on cognition confirms that
people pay attention to behaviors and events
that are consistent with their existing frame-
works for sense-making and tend to discredit
conflicting evidence (Kiesler & Sproull, 1982;
Gray & Allen, 1987). This leads to persistence in
a course of action, often beyond its usefulness
(Staw, 1976).
That brings us back then to questions con-
cerning how top management learns and how a
change in strategy is introduced. Burgelman
(1983) argues that a major consequence of the
structural context is a reduction in the variation
in proposals for strategic change which emerge.
He contends that a second track of autonomous
strategic behavior is needed in order to, intro-
duce new initiatives. These initiatives arise from
 ENACTMENT OF MANAGEMENT CONTROL SYSTEMS 147

the lower and middle levels of the organization,
but require the use of political tactics in order to
induce any modifications in the existing
strategy. Political pressure is needed to over-
come the inertia created by existing control sys-
tems which, according to Burgelman, “impound
the learning of the firm over time” (p. 68). Miller
& Friesen ( 1982) seem to be making a similar
argument with their findings that management
controls utilized in prospector firms discourage,
rather than encourage innovation.
Simons seems oblivious to the need for politi-
cal maneuvering to induce strategic change.
While he acknowledges a role for debate over
planning ,and budgets, the acceptance of
strategic initiatives by middle and lower levels is
taken for granted. It seems curious that the inter-
viewees in companies A and B did not report any
resistance to strategic directives created by iner-
tial forces and vested interests in the status quo
(Miller & Friesen, 1980; Quinn, 1980; Gray &
Ariss, 1985). Simons does, however, acknow-
ledge top management’s resistance to entertain-
ing proposals which deviate from its current
strategic course. Clearly the political function
served by management controls deserves explor-
ation in subsequent work.
MANAGERIAL CHARACTERISTICS
One final set of factors which intluence
strategic decisions may help explain why differ-
ent firms institute different systems of control.
Recent work by Hambrick & Finkelstein ( 1987)
and Miller 81 Droge ( 1986) speculate that top
management characteristics (e.g. aspiration
level, tolerance for ambiguity, need for achieve-
ment, political acumen, etc.) intluence strategic
choices and the exercise of discretion and con-
trol in the organization. If the additional 14 cases
in Simons’ research do not correspond to the
Prospector/Defender prototypes illustrated by
companies A and B, some explanation for the
deviations may be found in top management at-
tributes such as these.

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