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The design of management control systems in inter-organisational relationships in the Malaysian banking industry
thesis
posted on 2017-02-08, 04:45authored byAsudalli, Mohd Nordin
This study examines the design of management control systems (MCS) in inter-organisational relationships (lOR). Adopting a contingency approach, the study aims to identify whether fit between lOR contextual variables and MCS design enhances lOR performance.
This study conducted several statistical tests to examine the relationships between six lOR contextual variables and the design of MCS in lOR, and their effects on lOR performance. The contextual variables were buyer asset specificity, supplier asset specificity, task difficulty, task variability, goodwill trust and competence trust, while the MCS design was conceptualised by the reliance on bureaucratic MCS. Data was collected using a survey questionnaire from a wide range of lOR in the Malaysian banking industry. The survey yielded 209 usable responses, which represented a 70% response rate.
The sample was divided into two groups according to lOR performance score. Three tests were then conducted, one for the entire sample, one for low-performing group and one for high-performing group. The results of the high-performing group were emphasised because it captures the fit between contextual variables and the appropriate MCS design. The results indicated that buyer asset specificity and competence trust had positive relationships with the reliance on bureaucratic MCS. In contrast, task difficulty and goodwill trust had negative relationships with reliance on bureaucratic MCS. The two other contextual variables were found not significant with regards to influencing the variance of MCS design.
There are several practical implications arising from the findings of this research project. The results support the notion of fit as suggested by the contingency approach. Thus, buyer organisations may increase the effectiveness of their lOR by using an appropriate MCS design. The results suggest that greater (lower) reliance on bureaucratic MCS, when buyer asset specificity and competence trust are high (low), and task difficulty and goodwill trust are low (high), has a positive effect on lOR performance.
In some circumstances, such as when tasks are highly difficult, the reliance on bureaucratic MCS may not lead to an enhanced lOR performance. Instead, social controls may be used to fill in the control gaps. Social controls emphasise the selection process to ensure that only trustworthy suppliers are selected for the jobs. A trusting relationship can be continually developed by regular interactions and reciprocity of exchanges in an open commitment environment.
Unlike goodwill trust, the results suggest that competence trust and bureaucratic MCS has a complementary relationship. In other words, the reliance of bureaucratic MCS may not undermine competence trust. Thus, buyer organisations may rely on bureaucratic MCS to enhance lOR performance even when they have a high competence trust on their suppliers.
Finally, this research project provides empirical evidence on the relationships between several lOR contextual variables and MCS design, and their effects on lOR performance. This research may enhance the generalisation of theory on the design of MCS in lOR.