MANAGEMENT CONTROL SYSTEMS, STRATEGY AND PERFORMANCE: THE ...
MANAGEMENT CONTROL SYSTEMS, STRATEGY AND
PERFORMANCE: THE CASE OF A SLOVENIAN COMPANY
Metka Tekav i čč
University of Ljubljana, Faculty of Economics
Kardeljeva ploš ad 17, SI-1000 Ljubljana, Slovenia
Phone: +386 1 5892 615; Fax: +386 1 5892 698
University of Ljubljana, Faculty of Economics
Kardeljeva ploš ad 17, SI-1000 Ljubljana, Slovenia
Phone: +386 1 5892 480; Fax: +386 1 5892 698
Željko Ševi ć
University of Greenwich, Business School
Old Royal Naval College, 30 Park Row, Greenwich, London SE10 9LS, England, UK
Phone: +44 20 8331 8205; Fax: +44 20 8331 9005
In the paper, we study the “management control systems-strategy-performance” relationship
from a contingency theory point of view considering the way in which multiple aspects of
control systems and dimensions of context combine in a variety of ways to enhance
performance. Management Control Systems (MCS) are both affected by and affect the
strategy process itself, thus tailoring the information that is judged relevant and important in
terms of strategy development and implementation. In this paper, our purpose is to investigate
the relationship among MCS, strategy and organisational performance in a particular
company. In the paper, implications of MCS in the formulation, implementation and
monitoring of strategies are investigated. The study’s basic conclusion is that MCS influence
the implementation and monitoring of strategies, providing feedback for learning and
information to be used interactively to formulate strategy further. This study upgrades the
existing theory in that it not only establishes a relationship between contextual (in our case
strategy) and MCS variables, but also considers how this relationship impacts the
organisational performance. The research shows that the combination of performance-driven
behaviour and regular use of MCS leads to improved results.
Case study, contingency theory, management control systems, performance, strategy
In the paper, we study the “management control systems-strategy-performance” relationship
from a contingency theory point of view, considering the way in which multiple aspects of
control systems and dimensions of context combine in a variety of ways to enhance
performance (see also: Chenhall & Langfield-Smith 1998; Drazin & Van de Ven 1985; Selto
et al. 1995). Contingency theory suggests that the design and use of management control
systems (MCS) is influenced by – or contingent upon – certain factors which are internal (e.g.
strategy) or external (e.g. environment) to the company (Hickson et al. 1969; Lawrence &
Lorsch 1967; Woodward 1965). The basic argument underlying the contingency theory is that
the organisation neither functions in isolation of the external environment (i.e. level of
uncertainty may change) nor does it remain static or constant with respect to its internal
environment, as for example, size or technology may change (Otley 1980). As one or more of
these factors change, they are likely to cause the company to redesign at least some aspects of
its MCS. Early studies applied the contingency theory approach to the design of
organisational structures. Later, this approach was expanded to the design and use of
management accounting and performance measurement systems as in this study.
Management control systems are both affected by and affect the strategy process itself
(Langfield-Smith 1997; Simons 1995), thus tailoring the information that is judged relevant
and important in terms of strategy development and implementation. In this paper, our
purpose is to investigate the relationship among MCS, strategy and organisational
performance in a particular company. In this study, MCS are defined broadly as systems
conveying useful information to assist managers in their jobs and decision-making to
efficiently and effectively achieve the desired organisational goals. Hence, from this
viewpoint and also taking into account the recent developments of MCS, (see: Peljhan 2005),
the proposition is that the use of more comprehensive MCS practices and information results
in improved company performance. The case study company is a large Slovenian
manufacturing company, Trimo Trebnje, d.d. (hereafter Trimo) which was investigated during
the period 1992 – 2004. Trimo has been, for many years, the leading Slovenian company for
the production and assembly of pre-fabricated steel constructions and one of the most
important European manufacturers of pre-fabricated buildings and living containers. Trimo is
a Slovenia-based company and has achieved its business vision of becoming the leading
European company offering complete solutions in the area of steel buildings.
The paper is divided into six sections. Section 1 is the introduction. Section 2 presents the
literature review regarding the research area of the paper and therefore sets out the theoretical
foundations for the research. Section 3 is the methodological section, introducing case study
research methods used in the study. The research results are presented in section 4. Further
discussion and interpretation of the research results then follows in section 5. A final chapter
concludes the paper, summarising the findings and introducing avenues for future research.
2. Literature review
Contingency-based research has approached the study of MCS assuming that managers act
with the intent to adapt their organisations to changes in contingencies in order to attain fit
and enhanced performance. Many studies, included in Chenhall’s (2003) review, focus on
contemporary aspects of the environment, technologies and structural arrangements. They
draw on the original organisational theorists to develop arguments that help explain how the
effectiveness of MCS depends on the nature of contemporary settings. Also, research has
considered the relevance of additional contextual variables to the design of MCS. Chenhall
(2003, p. 128), for example, notes: “Perhaps the most important new stream of literature has
been that related to the role of strategy”. Dent (1990), Langfield-Smith (1997), Samson et al
(1991), and Simons (1987a, 1990) suggest that MCS have to be tailored explicitly to support
the strategy of the business to lead to competitive advantage and superior performance.
Underlying most accounting research is the assumption that MCS contribute to the successful
operation and profitability of the company (Merchant & Simons 1986). Also, there is
evidence (Govindarajan 1988; Govindarajan & Gupta 1985) that high organisational
performance results from the matching of an organisation’s environment, strategy and internal
structures and systems.
We argue that strategy represents a very important contingency variable (see also: Langfield-
Smith 1997; Simons 1995). Miles and Snow (1978) suggest that the strategy choice the
company makes will affect its MCS, meaning that different types of organisational plans and
strategies will tend to cause different control system configurations. Many scholars
(Govindarajan & Gupta 1985; Hope & Hope 1995; Miles & Snow 1978; Simons 1987b, 1990,
1991, 1995; Whittington 1995) suggest that there is an important link between strategy and
MCS and that a congruent match of the two variables is essential to performance. According
to performance measurement literature, the appropriate performance measurement system
encourages actions that are congruent with organisational strategy (Kaplan & Atkinson 1998;
Kaplan & Norton 1996; Simons 2000; Whittington 1995).
According to Chandler (1962, p. 13), strategy is “defined as the determination of the basic
long-term goals and objectives of an enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals”. Under a contingency view, in
past research work (Chenhall & Langfield-Smith 1998; Dent 1990; Dermer 1977;
Govindarajan 1988; Govindarajan & Gupta 1985; Otley 1980; Samson et al. 1991; Simons
1987a, 1990) it has been suggested that the MCS should be tailored (designed and used)
explicitly to support the strategy of the business to lead to competitive advantage and superior
performance. Also, there is evidence (Govindarajan & Gupta 1985; Govindarajan 1988) that
high organisational performance may result from the matching of an organisation’s
environment, strategy and internal structures and systems.
Langfield-Smith (1997, p. 207) states that, “the MCS should be tailored explicitly to support
the strategy of the business”. For example, Young and Selto (1991, p. 270) observe that
strategy influences “… the choice of accounting techniques and the manufacturing practices”.
Ittner and Larcker (1997, p. 295) say, “a key assumption in the strategic control literature is
the need to align specific control practices with the organisation’s chosen strategy”.
Therefore, strategy is an important factor in the design and use of MCS. Accounting scholars
have argued that MCS have to be modified in accordance with the strategy of a company
(Simons 1987a). Otley (1999) notes that the strategy and objectives that a company decides to
pursue, represent a central contingency variable. Strategy is somewhat different from other
contingency variables. In a sense it is not an element of context, rather it is the means
whereby managers can influence technologies, the structural arrangements and the MCS
Early studies in contingency research have found that there is a match between a company’s
strategy and its MCS (e.g. Govindarajan & Gupta 1985; Miles & Snow 1978; Miller &
Friesen 1982; Simons 1987a). These studies have proved useful in recognising that there are
systematic differences in the MCS of companies pursuing differing strategies. They have
highlighted the importance of achieving a fit between a company’s MCS and its strategy to
enhance performance (e.g. Dent 1990; Langfield-Smith 1997; Samson et al. 1991; Simons
1987a, 1990). Furthermore, literature on the role of strategy as a specific contingent variable,
has developed (see, for example, Langfield-Smith 1997; Simons 1995). This suggests that
different types of organisational plans and strategies will tend to cause different control
system configurations. Notwithstanding the strategic direction selected by the company,
contingency-based research predicts that certain types of MCS will be more suited to
There are several frameworks that show how companies react in a changing competitive
environment (see: Peljhan 2005). Classifications of Miles and Snow (1978) and Porter (1980)
appear to be referred to most in the literature. The typology developed by Miles and Snow
(1978) is one of the more famous ones in strategy literature. Their typology is based on how
companies respond to a changing environment and align environment with their company.
They identified generic strategies which they labelled defender, prospector, analyser and
reactor, where defender and prospector are assumed to be at the ends of the continuum (Miles
& Snow 1978):
• Defenders are companies with a narrow business scope. Top managers are highly expert
in their company’s limited area of operation but tend not to search outside their domains
for new opportunities. Consequently, they seldom need to make major adjustments in their
methods of operations and their structure. They devote primary attention to improving the
efficiency of their existing operations. Defenders operate in relatively stable product areas,
offer more limited products than competitors and compete through cost leadership,
quality, and service. They engage in little product/market development.
• Prospectors are companies that almost continually search for market opportunities and
they regularly experiment with potential responses to emerging environmental trends.
Because of their strong concern for product and market innovation, they are sometimes
not totally efficient. Prospectors compete through new products and market development.
Product lines change over time and this type of company is constantly seeking new market
• Analysers are companies that operate in two types of product-market domain, one
relatively stable, the other changing. In their stable areas, these companies operate
routinely and efficiently through the use of formalised structures and processes. In the
turbulent areas, top managers watch their competitors closely for new ideas and then
rapidly adopt those that appear to be the most promising.
• Reactors are companies in which the top management frequently perceives change and
uncertainty occurring in their organisational environments but is unable to respond
effectively. According to Miles and Snow (1978), these companies lack a consistent
strategy-structure relationship and therefore seldom make adjustments of any sort until
environmental pressures force them to do so.
Prospector and Defender companies are similar to strategic types identified in other empirical
studies (Miller & Friesen 1978; Mintzberg 1973; Porter 1980; Utterback & Abernathy 1975).
Analysers are intermediate hybrid, combining parts of both Defender and Prospector
strategies. Reactors are companies which fail to follow one of the other three strategies. Miles
and Snow (1978) suggest that successful companies have to ensure that their MCS are
properly and differentially designed to take account of their strategy. They argue that
Defenders will emphasise cost control, trend monitoring and efficiency rather than scanning
Langfield-Smith (1997) provides a summary of research into MCS and strategy.
the environment for new opportunities. Prospectors, by contrast, will use comprehensive
planning and measure performance more subjectively.
Much of the empirical research in the “MCS – strategy” area involves a search for systematic
relationships between specific elements of the MCS and the particular strategy of the
company (Govindarajan & Gupta 1985; Simons 1987b). According to Govindarajan (1986),
the prospector and defender classifications of Miles and Snow closely parallel the
differentiation and cost leadership strategies of Porter. Simon’s (1987b) research evidence
suggests that companies following different strategies employ control systems in different
ways. According to Simons (1987b), high performing Prospector companies seem to attach a
great deal of importance to forecast data in control systems, setting tight budget goals and
monitoring outputs carefully. For Prospectors, cost control is reduced. In addition, large
companies appear to emphasise frequent reporting and the use of uniform control systems
which are modified when necessary. Defenders, particularly large companies, appear to use
their control systems less intensively. They emphasise bonus remuneration based on the
achievement of budget targets and tend to have little change in their control systems.
Simons’ (1987b) observations are in accordance with previous studies. Tushman and Nadler
(1978) argue that companies facing high uncertainty will utilise their control systems to a
high degree. Khandwalla (1972) concluded that companies engaged in continual product
development and the search for new market segments become differentiated and require
elaborate controls, including budgeting techniques, for purposes of integration. Chenhall
(2003) summarises that strategies characterised by conservatism, defender orientations and
cost leadership are more associated with formal, traditional MCS focused on cost control,
specific operating goals and budgets and rigid budget controls, than entrepreneurial and
product differentiation strategies. Furthermore, low cost and differentiation strategies imply
different managerial mindsets and involve different perspectives for the MCS. Companies
that have adopted a low cost strategy use a set of measures to control costs and to compare
the standard with actual costs. On the other hand, companies following a differentiation
strategy develop other types of measures concerning quality and efficiency of promotional
operations, etc. Measurement systems have to contribute to the implementation of the
strategic orientations in guiding the action by ensuring short- and long-term performance
evaluation. Therefore, strategy, actions and measures have to continuously work in harmony.
Looking for consistency between strategy-actions-measures implies the use of financial and
non-financial performance measures. If quality and time become essential strategic criteria,
financial performance measures are less effective to manage a company in the long run. This
does not mean that accounting data are not useful, but they have to be complemented by non-
financial performance measures.
The extent to which discussed models, which were developed in the 1970s and 1980s,
maintain their relevance to contemporary settings is partly questionable, (Kotha & Vadlamani
1995; Shortell & Zajac 1990) as today, strategies are being complicated by the need for most
companies to be both low cost producers and to provide customers with high quality, timely
and reliable delivery. Therefore, we will attempt to explain this contrast by the use of in-depth
explanatory longitudinal case study. The ability of the management to anticipate and respond
to opportunities and pressures for change is critical for organisational survival. A number of
scholars (Dent 1990; Hopwood 1987) have provided strong theoretical support for the idea
that MCS can serve an active role in shaping organisational change. There is, however, little
broad-based empirical research examining how these systems are used in companies facing
strategic change, and with what consequence (Shields 1997). Much of the empirical research
studying the links between MCS and strategy has been limited to identifying variations in
control system design in companies facing different strategic priorities (Govindarajan 1988;
Govindarajan & Gupta 1985; Simons 1987a). Moreover, the results of this research have been
inconclusive or in some cases, contradictory (for example, compare Govindarajan 1988;
Miller & Friesen 1982; Simons 1987a).
Simons (1990) offers one possible explanation for the apparent inconsistencies in the
literature. He argues that prior research has been preoccupied with studying the extent to
which differing strategic priorities influence the importance of MCS in their traditional role of
performance evaluation, or what he refers to as their “diagnostic” role (Simons 1990, 1991).
By contrast, few studies have examined how the role of accounting might change, depending
on the strategic setting (Chapman 1997). It is entirely possible that the reliance on accounting
forms of control will not necessarily diminish in importance in different strategic
circumstances, but that their role or use will be different. In particular, what is ignored by
much of the research is the potential for MCS to be used much more actively as a tool for
formulating and implementing changes in strategic direction, or what Simons (1994) refers to
as the “interactive” use of MCS. The question of how companies use MCS to facilitate and
support the strategic change process is largely unexplored (Shields 1997). Therefore, we will
use an in-depth explanatory longitudinal case study to explore and explain this, at the moment
insufficiently researched area, of how companies use MCS to facilitate and support the
strategic change process in more detail. We argue that MCS are implicated in the
implementation and monitoring of strategies, providing feedback for learning and information
to be used interactively to formulate strategy. Few studies in MCS have investigated these
issues (see: Simons 1987b, 1991, 1994). On the contrary, most have been restricted to
identifying MCS that are appropriate for different strategic models (Abernethy & Brownell
1999; Chenhall 2003).
To investigate the “MCS-strategy-performance” relationship, we have followed a case study
methodology (Eisenhardt 1989; Yin 2003) as the strength of this method is the likelihood of it
resulting in a new or upgraded theory (Eisenhardt 1989). Case studies were undertaken in the
past to investigate the role of the MCS in supporting and influencing the strategic processes
within companies (see: Simons 1990). Chenhall (2003) argues that the generation of
propositions concerning novel relationships concerning MCS, processes and their contextual
setting are often best identified and elaborated by using case study methods. This is also one
of the reasons we decided to use an in-depth explanatory case study method to investigate the
relationship among MCS, strategy and organisational performance that is grounded on the
contingency theory framework of MCS. When undertaking the case study, multiple sources of
evidence were used, establishing a chain of evidence. Data was gathered from formal and
semi-formal interviews and observations during site visits and through the participation in
Trimo’s strategic conferences, from the study of internal and external documents and from
professional literature. This enabled us a systematic and comprehensive analysis.
Data on Trimo’s MCS were collected from various sources, including interviews with top and
middle managers, company documents and archival records. The use of multiple sources of
evidence enabled verification through triangulation, which is the strength of case research
(Noda & Bower 1996). A major concern of the present study was to triangulate managers’
views and opinions with ‘harder’ evidence, such as that obtained from documents and
archival records. An interview protocol ensured that the same themes were covered with each
interviewee. Construct validity of the interview data was pursued through an “action-
research” approach. Eden and Huxham (2002) have argued that an action research setting
increases the possibility of being able to access respondents ‘theory-in-use’, which in itself
aids validity in this type of research. The questionnaire used and the semi-structured
interviews were carefully constructed and contained questions to elicit information required to
investigate research questions and as such, it is assumed that construct validity is high.
Interview data were continually cross-referenced with other data sources and cross-checked
with the chronology of activities and events that took place during the course of the study.
This form of triangulation enhanced the internal validity and reliability of the case study
material. Finally, a draft research report was prepared and sent to all interviewees for
comment. These were evaluated in order to ensure that reported ideas and propositions
aligned with managers’ experiences. This increased the construct validity of our research (cf.
Atkinson & Shaffir 1998; Yin 2003).
4. Results: “MCS – strategy – organisational performance” relationship in a case
Trimo’s history began in 1961 when the company “Kovinsko podjetje Trebnje” was founded,
as a socially-owned enterprise. The next year saw the beginning of another new company, this
one called “Kovinooprema”. In 1971, both companies and some smaller companies merged to
form “Trimo Trebnje”. The main activity of the new company was the production of metal
elements and equipment made of stainless steel. In the following years, the former Yugoslavia
and third world countries had many infrastructure and other projects, creating a high demand
for Trimo’s products. The 1980s, however, brought crises in the export markets and the
company faced its first major challenge. It responded with the modernisation of its production
line and the introduction of new fireproof products.2 For a short time, it seemed that the
company had overcome its problems, but in 1991 Slovenia became independent and the
former multi-ethnic state of Yugoslavia fell apart. As Trimo lost the majority of its domestic
(former federal) market it had to suddenly re-orientate towards more competitive foreign
markets, especially in the European Union and the emerging central and eastern European
markets (see: Ševi 2005).
As Trimo encountered many problems at the beginning of the 1990s, a true company
turnaround was needed and that also meant the need for a new vision and a different approach
to developing and implementing a business strategy. The major turnaround of the company
was achieved in 1992 when new top management was appointed. Today, Trimo is a joint-
stock company with €34,000 value added per employee, internationally-oriented with 70 per
cent of exports, mainly in Europe, operating in 40 countries. Their main products include pre-
fabricated steel buildings, steel structures, façades, roofs, containers and sound-isolating
systems. Trimo’s pre-fabricated steel buildings represent endless possibilities of use since
they are suitable for office buildings, commercial buildings, sports facilities, warehouse
facilities and industrial and other facilities. Trimo’s main product is called “complete
solutions” and includes a mix of all the products and services Trimo offers, from an idea and
draft to the finished building. When looking into Trimo’s production programme, there is no
similar company in Slovenia. Trimo is the market leader in the area of roofs and façades from
mineral wool panels in west and central Europe and in the area of steel constructions in
Slovenia (Kranjec 2003). With its business orientation towards offering complete solutions
Before modernisation, Trimo used polyurethane as the filling for the building panels. After modernisation, they
have used environmentally friendlier fireproof mineral wool that enables them to penetrate more demanding
and with a broad production programme, Trimo cannot be directly compared to any of its
competitors that are all manufacturers with relatively focused production programmes (Trimo
2005c). Trimo builds its strategy of long-term growth of the company on internationalisation
(Trimo 2004). As a result of a successfully implemented turnaround, Trimo has made
significant improvements in the way it runs its business that results in the performance
increasing year by year. In the period from 1992 to 2004 revenues and value added per
employee grew seven times, export grew eight times and the number of employees decreased
by 21 per cent (Trimo 2005a).
In the early 1990s Trimo pursued a defender strategy (Trimo 2005c) as defined by Miles and
Snow (1978). It was a company with a relatively narrow production-oriented business scope.
They paid primary attention to improving the efficiency of their existing operations and
offered more limited products than their competitors and competed especially through costs.
They engaged in little product and market development. At the beginning of the turnaround,
the company looked at the fundamental question: “What are we really about? – the essence of
Trimo”, as they strived to set up their vision, mission and strategy in 1993. Today, the
emphasis is on the learning organisation. The mission of the company is to facilitate original
and complete solutions in the area of steel buildings. The mission reflects itself in the
following stakeholder approach directions:
• To assure customers of an increase in effectiveness by the successful accomplishment of
• To develop the potential of each individual within the company.
• To build a financially strong company that delivers adequate ROE growth of the company
to the shareholders.
• To be sensitive to the environment and aware of the need to protect it for future
generations and to support different social and environmental activities.
On the other hand, in the second half of the 1990s, especially since 1998, Trimo has begun to
pursue a prospector strategy, continually searching for market opportunities and regularly
experimenting with potential responses to emerging environmental trends. They have become
strongly focused on product and market development, but still considering costs, as prices of
their inputs, especially raw materials, vary a lot. Trimo’s strategy can be characterised as a
differentiation strategy focusing on creating a product or service that is perceived by
customers as something unique. When Trimo was at the defender stage, it used control
systems less intensively than in the prospector stage, where they attach a great deal of
importance to forecast data in control systems, setting tight budget goals and monitoring
In 1998, Trimo achieved a breakthrough in its internationalisation (see: Peljhan 2005) causing
the business to expand. They stated a new vision in 1998 very ambitiously: “To become the
leading producer of pre-fabricated buildings in Europe by 2010”. In 2001, they redefined it
even more ambitiously to “…become the leading European company offering complete
solutions in the area of steel building”. Since 2001, the product that differentiates Trimo from
its competitors has been called the “complete solutions’ that Trimo provides to its customers.
Although Trimo is a manufacturing company, services (design, projecting, technical service)
play a very important part in providing the complete solution to their customers. In 2002,
Trimo’s decision to transform itself from a simple (production) company to a highly
technological and engineering company began to show results. The share of low-educated
employees has been falling, while the share of highly educated people has been rising. In
2002, each employee had around 50 hours of education and training. Further, in 2002, Trimo
began to implement the Balanced Scorecard (BSC) and upgraded Total Quality Management
(TQM) programme, which has been an important part of the strategic directions of the
company since 1992. The main novelty was the introduction of “Key Files” as the tool they
use for facilitating process improvements. Annually, they invest around 3 per cent of revenues
in new products’ development. In 2003, Trimo launched a new production line for fireproof
façade panels to expand the existing selection of façade panels with a new environmentally-
friendly product. In 2004, the European Foundation for Quality Management (EFQM)
recognised Trimo for its excellence. Also in 2004, production capacities were increased and
production flexibility improved, to accommodate the enormous product range, which
prompted the construction of a new warehouse for raw materials.
There was a huge effect of strategic change on the decision context in Trimo. The change
process created a context where decision-making by top management became increasingly
complex and unpredictable, as new opportunities altered strategic objectives and changed the
priorities placed on those objectives. Abernethy and Brownell (1999) argue that in this
situation, top management redefines goals and objectives. This can create a level of
uncertainty or ambiguity for subordinates as to the priorities or preferences on which to focus
their attention. In addition, the technological and production changes associated with changes
in product mix and with new product development required that new routines be learned. As
Galbraith (1973) notes, these conditions impose additional demands on the organisation’s
information processing capabilities. That also was the case in Trimo.
At its 2005 Strategic Conference, the Managing Director briefly sketched the company’s
background, examining the turnaround of Trimo from 1992 to the present. The basic business
concepts of continuous improvement, quality and customer satisfaction were key strategy
components for the company’s turnaround. The drivers of change for renewal from 1992 on
were manufacturing excellence (e.g. productivity and flexibility), responsive product
development - the result of an all-pervasive close-to-the-customer philosophy - and extensive
“building” of its sales network. Trimo’s turnaround is a result of the following (Trimo 2004,
Trimo 2005d): dedication of each employee to the continuous improvement of the business;
development of the highest quality product possible and the improvement of both internal and
external relationships to maintain customer satisfaction. These are simple principles, the most
significant of which is each employee’s dedication to the concept of continuous improvement,
because it is the foundation for other two concepts. Dedication to continuous improvement
means never being satisfied with the status quo. It means working every day to improve upon
the prior day’s performance.
To summarise, the key elements of Trimo’s transformation process from 1992 onwards were
the clear vision and business strategy set at the beginning. This vision and strategy have been
successfully communicated to all employees. Cleary defined values and norms as building
blocks of Trimo’s organisational culture helped to shape employee behaviour to fit the new
business philosophy of customer orientation, continuous improvements and TQM. The
formalised processes of continuous improvements, TQM key files and care for company
property gave employees clear tasks and responsibilities. Consecutive strategic change,
following the successful turnaround, was the change from defender to prospector strategy
(see: Miles and Snow, 1978). On the contrary, when turnaround was unsuccessful, it would
manifest itself in a strong resistance to change and that was not the case in Trimo. As changes
usually induce rational and emotional reactions, due to ambiguity felt by the participants in
the change process, Trimo could not avoid problems of resistance to changes, especially at the
beginning (1992-1995) when employees wondered why they needed to change the old ways
of doing things if they all knew the processes very well. Top management has managed to
spread the need to change through constant communication and employee training. This
awareness of the need to change is a necessary condition for a successful implementation of
changes (Kotter 1996).
In Trimo, they monitor the achievement of strategic goals every six months, while the
implementation of annual plans is controlled weekly. Corrective measures are taken as soon
as negative deviations are reported. Employees are informed about the company’s results in
weekly or bi-weekly departmental meetings, in weekly newsletter (on one page), in a
quarterly company’s magazine and at annual education days where the Managing Director
(MD) presents last years’ results and future plans. Trimo modifies its strategy according to the
changes in its business environment. They have very good experience with flexible actions, as
they managed to continually reach or even exceed short- and long-term goals in the last
decade. They remain focused on their customers’ needs.
Critical success factors that have to be addressed for achieving competitive advantage are
people, customers, value added and environment. These factors are considered in the
company as follows (Trimo 2002):
• People: Employees are the key strength of Trimo. The company’s power depends on
management and all its employees. Values are team work, goal orientation, creativeness,
innovativeness and individual talent.
• Customers: Enthusiastic and satisfied customers are the measure of company success.
Trimo develops and improves original and complete product and service solutions for its
• Value added: Profit and value added growth and cash flow available enable quicker
• Environment: They take care to have an orderly factory and are environment-friendly.
Employees’ health is a value which is accomplished through healthy living.
Trimo measures its performance with respect to the key elements of its strategy. Therefore, it
uses a strategic performance management system (cf. Ashton 1997, de Haas & Kleingeld
1999, Ittner et al. 2003, Kaplan & Norton, 2001, Nilsson & Olve 2001, Simons 2000). Trimo
began implementing strategic performance management in the prospector period when it
realised the importance of aligning all levers of control in the company, so that what is critical
to the company’s success is regularly evaluated and rewarded by using key performance
indicators (KPIs). KPIs are used by top management to monitor organisational performance in
key strategic areas, as defined by key processes in the company. There are 62 KPIs (cf.
Peljhan 2005). 28 of them are included in BSC. In Trimo, managers consider KPIs once a
week at the Management board meeting. In diagnostic control, managers use a management-
by-exception approach when discussing the reports at the weekly Management board
meetings. As its Quality Assurance Director (Trimo 2005b) says: “Reports contain
explanations for KPIs variances and whether they present problems or not”. Only problems
(i.e. deviations) are discussed and appropriate actions taken. That the changes trigger revised
action plans is reflected in the following Quality Assurance Director statement (Trimo
2005b): “In the weekly meetings in which we discuss KPI for each organisational unit
(sector), specific decisions are made about what actions we have to take in case of
deviations”. Based on observations, we argue that they have been using a strategic
performance management system systematically since 2002. In the following years, they will
enhance the capabilities of their system by upgrading it to an ERP system, enabling them to
monitor key performance information in real time. Trimo’s main performance indicator is
value added per employee. This clearly shows that Trimo is focused on its future development
Trimo uses balanced measurement systems as a means of communicating to their employees
what is important and where the business is heading. Performance measurement systems
assist managers in tracking the implementation of business strategy by comparing actual
results against strategic goals and objectives (cf. Simons 2000). They have used BSC since
2002, although they have measured their performance from a financial and non-financial
perspective before. At the moment, they are striving to form efficient functional BSCs. They
want to focus especially on reducing the number of measures they are currently using.
Although the system is well organised, it has not yet received the full “buy-in” of some
managers, as they are still using parallel systems designed in the past. As this is maybe
allowed during the “transition” period of applying new performance measurement systems, it
must not be tolerated when the new ERP system is fully implemented.
One of the major conclusions with regard to Trimo’s strategy is that the MD’s leadership style
is a very important determinant of Trimo’s successful implementation of the strategy. She is
very charismatic and capable of mobilising employees towards achieving common goals. In
literature, there are discussions about different types of leaders. When looking into the
classification that distinguishes transactional and transformational leadership styles (e.g. Bass
1990; Bass & Avolio 1994; Tracey & Hinkin 1998; Tucker & Russell 2004), we conclude that
she is a true transformational leader with the following characteristics:
• She is a leader of innovation (King 1994).
• She creates new pathways in an organisation (Mink 1992).
• She motivates people to work for a new and greater good and to create change
(Davidhizar & Shearer 1997). She appeals to higher motivation and adds to the quality of
life of the people and the organisation. She uses authority and power to inspire and
motivate people to trust and follow her example (Tucker & Russell 2004).
• She has energy-producing characteristics that generate new changes for the organisation
(Tucker & Russell 2004).
• She formulates an inspiring vision, facilitates the vision, encourages short-term sacrifices
and makes pursuing the vision a fulfilling venture (Ackoff 1999).
The MD’s characteristics of a transformational leader were essential during the period of
strategic change from defender to prospector strategy. As a transformational leader (and of
course by the help of whole top management team) she managed to alter the existing structure
of the early 1990s and influenced people to buy into a new vision and new possibilities. Based
on observations, it is concluded that her primary focus since 1992, when she took on the
managing director position, has been to create a change process, continually causing people
within the organisation to learn and grow. She builds shared vision and goals and implements
them through teamwork and high commitment. Trimo’s management believes that fast and
open flow of information, ideas and efficient problem-solving are of key importance in order
to follow new trends in business and for implementing all the necessary changes. In order to
do that, employees had to change their approach and accept teamwork principles. These
principles are used both in managing the company and in actual execution of work.
Information and knowledge from management is transferred to co-workers at weekly
meetings. From there, information and knowledge is transferred to different work areas and to
other employees. This kind of organisational structure also enables different forms of group
work. Teamwork also allows for a better specification of the problems and a faster solution.
Most of the Trimo’s practices are congruent with those usually described at prevailing best
practices: extensive training and communication, decentralised decision making, teamwork
and employee involvement in problem-solving, as well as high job security and fair
compensation. These practices help Trimo to build their competitiveness through their people,
which is also the underlying principle of Trimo’s organisational culture. As such, their
approach is difficult to imitate and thus presents a true sustainable source of competitive
In the literature review, we have found that strategy plays a key role within MCS, yet this role
is not fully understood, although a growing body of literature has examined the impact of
strategy on MCS (e.g. Chenhall & Langfield-Smith 1998; Chong & Chong 1997; Dent 1990;
Dermer 1977; Gosselin 1997; Govindarajan 1988; Govindarajan & Gupta 1985; Ittner &
Larcker 1997; Miles& Snow 1978; Miller & Friesen 1982; Otley 1980, 1999; Samson et al.
1991; Simons 1987a, 1990, 1995; Young & Selto 1991; for a review see also Langfield-Smith
1997). This study adopts Miles’ and Snow’s (1978) typology of strategy with four strategy
patterns: defender, analyser, prospector and reactor. Considering that many contemporary
MCS techniques, such as the BSC, appear to be better equipped for dealing with the
information requirements of highly innovative companies, a positive relationship between the
strategy type and the extent to which contemporary MCS techniques are used in Trimo was
expected. It was postulated that defenders use contemporary MCS techniques (e.g. BSC,
informal controls) to a lesser extent than prospectors.
The early 1990s represented a defender period for Trimo. The company focused on traditional
basic MCS’ information (this corresponds to previous findings on defenders, e.g. Gupta &
Govindarajan 1984; Govindarajan & Gupta 1985; Shank & Govindarajan 1993). Trimo made
a very distinctive shift from defender strategy in the period 1992-1998 to a very prospector-
oriented strategy in the period from 1998 onwards. In these phases, MCS changes followed
strategy changes. This confirms theoretical propositions from section 2. As Trimo has pursued
a prospector (i.e. differentiation) strategy it has been using external and internal environment-
oriented and future-oriented MCS information - in addition to the traditional MCS
information - as suggested also in literature (Chenhall & Morris 1986; Chong & Chong 1997;
Langfield-Smith 1997; Shank & Govindarajan 1993).
Trimo’s managers need this kind of information as the company’s strategic mission is to
increase market share and pursue strong growth for its operations. Moreover, there was a huge
effect of strategic change (from defender to prospector) on the decision context in Trimo. The
change process created a context where decision-making by top management became
increasingly complex and unpredictable as new opportunities altered strategic objectives and
changed the priorities placed on those objectives. Abernethy and Brownell (1999) argue that
in this situation, top management is redefining goals and objectives. Also in Trimo, they
stated a new vision in 1998 and in 2001 they redefined it even more ambitiously. This was
interrelated with more technological and production changes associated with changes in
product mix and with new product development and required that new routines be learnt. As
Galbraith (1973) notes, these conditions impose additional demands on the organisation’s
information processing capabilities. That was the case also in Trimo.
When looking at the entire 1992-2004 period, the study’s results suggest that Trimo’s
strategic change from defender to prospector resulted in improved organisational outcomes, as
they responded to changed business conditions by altering structural arrangements within the
organisation. We argue that MCS is an intervening variable between company strategy and
performance. Also prior results of Chong and Chong (1997) propose that MCS has an
intervening role between a company’s strategy and performance and other empirical studies
(e.g. Gul 1991; Gul & Chia, 1994) report that MCS affect a company’s performance. The
study tested the intervening role of the use of comprehensive MCS between strategy and
performance in Trimo during the period 1992-2004. More specifically, the study looked at
how the relationship between the strategy moving from defender to prospector and the use of
comprehensive MCS evolved during the researched period. It was found that strategy change
had a positive relation to Trimo’s performance. In addition, as discussed above, strategy
change has had a positive relation also to the use of MCS. Trimo has been growth-oriented
during the entire researched period (and still is). Also, it has been increasing the use of more
comprehensive MCS practices year by year. Furthermore, this use of MCS seems to assist
them to perform better year by year. This result also supports the empirical evidence Chong
and Chong (1997) have found among larger Australian businesses.
Considering the diffusion of the use of MCS in Trimo, the conclusion is drawn that this
company does not fit into the frames of recent research results in Slovenian companies that
traditional management tools are dominating the more recently developed and more strategic-
oriented practices (e.g. Peljhan et al. 2005; Tekav i & Peljhan 2003). Also, when
considering the 1992-2004 period, the trend seems to be towards increasing use of the latter
type. The findings of the present study indicate that Trimo systematically uses comprehensive
MCS information and practices. Some advocates of more sophisticated MCS practices (e.g.
Chenhall & Langfield-Smith 1998; Dent 1990; Govindarajan 1988; Govindarajan & Gupta
1985; Otley 1980; Samson et al. 1991; Simons 1987a, 1990; Kaplan & Norton 2001) have
emphasised that the elements of a company’s MCS have to be fitted to their special needs.
Implicitly, this also means that all MCS information and practices are not necessary and
beneficial for every single company, although MCS should be comprehensive enough in order
to function as excellent radars. Therefore, lower adoption and usage rates among some of the
contemporary alternatives (e.g. ABC, ABB) in Trimo may not necessary indicate its poor
MCS. Thus, the findings should be interpreted as indicators of MCS diffusion, rather than
suggesting the 100 per cent adoption or the systematic use for every single MCS information
or practice is an objective and the best solution. Trimo’s last 13 years have shown that
information technology with various application possibilities, as well as the many
developments that have been occurring in the business environments, have had a very positive
impact on the use of more comprehensive MCS information and practices.
This study upgrades the existing theory in that it does not only establish a relationship
between strategy and MCS, but also considers how this relationship impacts on organisational
performance. It is argued that managers and other employees need to display performance-
driven behaviour (i.e. goal-oriented behaviour) for efficient and effective management control
to be achieved. This research shows that the combination of performance-driven behaviour
and regular use of MCS leads to improved results. The following factors were identified to
influence positively performance-driven behaviour and can be used by other companies:
1. Employees3 understand the performance management:
• Employees understand the meaning of KPIs, so they have an insight into the (possible)
consequences their actions have on the results of their KPIs. Here, the most important
By employees we mean all organisational members.
thing is the right communication, facilitated also by organisational culture and the
leadership style of managers.
• Employees have an insight into the relationship between business processes and KPIs,
so they understand that the results they achieve on their KPIs are important to the
continuity of the company. It is important to present employees with this process-KPIs
relationship at least once a year, e.g. in the form of special education days and keep
reminding them periodically e.g. at departmental meetings.
2. Employees have a positive attitude towards performance management:
• Employees recognise and acknowledge the need for performance management, which
makes them willing to co-operate during its implementation.
• Employees realise the importance of KPIs to their performance, so performance
management becomes part of their daily activities.
3. Performance management matches the responsibilities of employees:
• Employees’ KPI-sets are aligned with their responsibility areas, so they can be used
for the steering and control of those areas.
• When employees influence the KPIs assigned to them, the acceptance and use of those
KPIs increases. For example, in the annual appraisal of employees, they must have the
possibility to express their attitude to particular KPIs and to influence which KPIs are
assigned to them.
• Employees holding management positions use their KPIs for managing their
subordinates, which increases regular use of performance management.
4. Organisational culture is aimed at using performance management to continuously
• Each organisational unit’s results on KPIs are openly communicated, so everyone is
aware of the status of the company and performance knowledge can be shared.
• Employees trust the performance information, which increases the acceptance of the
• Employees clearly see (top) management using performance management, so they
understand the importance of performance management to management and the
company as a whole.
5. Performance management has a clear management control focus:
• Employees find performance management relevant because it has a clear control
purpose and can therefore facilitate their activities.
• Employees find performance management relevant because only those stakeholders’
interests that are important to the company’s success are incorporated and
performance management stays aimed at the continuity of the company.
In the paper, implications of MCS in the formulation, implementation and monitoring of
strategies were investigated. Ideally, the role of strategy is dynamic, involving managers in
continually assessing the way combinations of environmental conditions, technologies and
structures enhance performance. MCS has the potential to aid managers in this process by
assisting them in formulating a strategy related to markets and products, required technologies
and appropriate structures. This study’s basic conclusion is that MCS influence the
implementation and monitoring of strategies, providing feedback for learning and information
to be used interactively to formulate strategy further. Few studies in MCS have investigated
these issues (see: Simons 1987b, 1991, 1994), rather, most have been restricted to identifying
MCS that are appropriate for different strategic models (Chenhall 2003). Therefore, the
findings of the paper fill this void. This study upgrades the existing theory in that it not just
establishes a relationship between contextual (in our case strategy) and MCS variables, but
also considers how this relationship impacts organisational performance. The research shows
that the combination of performance-driven behaviour and regular use of MCS leads to
Directions for future research stem from the paper’s findings as well as from missed
opportunities that indicate opportunities for future research. It would be worthwhile to
conduct a longitudinal study on a wider sample of companies to study how and why they
change their strategic orientation and the use of MCS and how this has impacted their
decision-making, actions and performance management. This study can combine case-study
as well as survey methods. The advantage of the present study is that it provides an impetus
for future researchers to address these issues and to move beyond existing models of control
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