A survey of Portuguese companies found that most can identify substantial changes in management control. This study highlights push factors to changing practices in management control in Portugal – the company marketing environment, the growing need for management information and concerns about organisational management. It also looks at inhibitory factors – difficulties in adapting to new technologies and new procedures, and a conservative business culture.
Nowadays, managers increasingly require information on changes in market conditions because of growing competitiveness and changes in the structure and business strategy of organisations. The systems of management control play an important role in the competitive capacity of companies.
Over the past few decades, significant changes have taken place in the business environment such as industrial automation, computerised information technology (IT) and global competition. These have led to changes in organisational structures including those in accounting systems for decision-making about planning, control and performance assessment. These management control systems not only involve introducing new systems and techniques, but also using traditional systems differently for improved entrepreneurial competitiveness.
This study is based on research conducted in the United Kingdom in the 1990s by researchers Scapens, Ezzamel and Burns in cooperation with the Chartered Institute of Management Accountants (CIMA). The study aims to investigate the importance of management control in Portuguese companies in the past decade and to analyse the nature, causes and implications of possible changes in business practices. It identifies push and inhibitor factors to changing practices in management control.
The work was supported by self-administered questionnaires structured in four sections. The first focused on changes in management control in the organisation in the past decade. A second section aimed to characterise the organisation by identifying its turnover, main business and number of workers employed. The third section asked the respondents for information such as their role and position in the company, the department where they were integrated and their level of qualification. In the final section, respondents could express their views and comments.
A sample of 687 companies was selected from 5,507 companies based on the Portuguese mainland with an annual turnover of at least €5 million and at least 50 employees.
The questionnaires were initially distributed by email. In order to increase the number of responses, questionnaires were also sent by post and were followed by phone calls to those companies that only gave a partial response. Fieldwork took place between January and June 2006. Only 116 replies (17%) were obtained. Most questionnaires were answered by administrative or financial directors.
Most companies (85%) that responded to the survey identified changes in management control, with 70% of companies describing such changes as ‘substantial’ or ‘very substantial’ (Figure 1).
Changes in management control are mostly related to the use of new management software but also with reorganisation, development and improved accuracy of existing information management (Figure 2).
Figure 2: Management control techniques adopted in the past decade (% of respondents)
Source: Da Silva Vicente, 2007
Quality measures are new techniques adopted increasingly frequently by many companies in order to fulfil quality certification processes. Other respondents indicated the need to improve information management in particular, to support decision-making, to respond to growing needs for information from their users and also to move towards achieving higher levels of productivity. Non-financial performance measures are also common and heavily framed by commercial and strategic concepts in order to focus on factors that generate income in the long term.
Strategic management accounting and the activity-based costing (ABC) tool involving the joint use of traditional techniques with new and advanced accounting techniques are also common among the companies surveyed.
Corporate restructuring particularly in terms of changing management or administration, introducing a management control department or a new controller were also mentioned by respondents, though less often.
The factors that stood out as the main push factors for changes in level of management control in Portuguese companies were linked to their internal context such as:
Respondents also highlighted the influence of the market environment.
Other important factors involved the availability of resources such as workers’ skills and appropriate software.
Factors identified as changes in management control were those associated with a growing need for information to tackle internal change, and those that addressed concerns about organisational management.
On the other hand, changes in management control systems are inhibited primarily by factors related to human resources such as a lack of worker training and qualifications, and workers’ difficulties in adapting to new processes and methodologies, as well as by an entrepreneurial culture resistant to change and new procedures. Respondents also reported the high cost of new accounting software and the conservatism of top management as inhibitors of the process of change.
Changing practice in management accounting is a multidimensional and complex process that requires careful planning, implementation and control. This study reports on the changes in management controls recently introduced in Portuguese companies in order to cope with increasing information needs resulting from changes in market conditions, growing competitiveness, and changes in the structure and business strategy of organisations. It is therefore crucial that management accounting and control evolve in line with these new and demanding realities. Factors related to human resources, among both workers and managers, may inhibit this process of change.
Da Silva Vicente, C.C., Mudança nas Práticas de Controlo de Gestão em Portugal (902Kb PDF) [Study on change in practices of management control in Portugal], thesis submitted as part of a Masters’ degree on accountability, Higher Institute of Labour and Corporate Science (Instituto Superior de Ciências do Trabalho e da Empresa, ISCTE), Lisbon, 2007.
Heloísa Perista and Janine Nunes, Research Centre for Social Intervention (CESIS)