The Entrepreneurial Gap: How Managers Adjust Span of Accountability and Span of Control to Implement Business Strategy

by Robert L. Simons

Overview — The management accounting literature of the past twenty years is replete with studies of budgeting systems, balanced scorecards, performance measures, and contract-based incentives. Relatively little attention has been devoted, however, to the organization structure in which these systems exist. Existing accounting theory has little to say, for example, on how the design of performance measures might differ if a business is organized by function, by region, or by product or customer group. In this study, which augments in-depth field data collected by the author in three separate companies with a larger data set generated by 72 teams of MBA student researchers, organization design is reintroduced as a critical variable in understanding management control systems in the context of intensifying global competition. Results suggest that managers appear to adjust span of accountability relative to span of control based on the degree of innovation and independent initiative they wish to foster. In addition, when managers want employees to build long-term relationships with customers, develop new products and services, or navigate the labyrinths created by complex organization designs, they set span of accountability wider than span of control. Key concepts include:

The propositions developed in this study offer a potentially new way of thinking about the links between accountability, performance measures, and organization design in complex organizations.
Holding individuals accountable for measures that are wider than the resources they control forces them to become resourceful in working with others in different units to figure out how to solve problems and turn opportunities to advantage.
At the same time, norms must exist that encourage the offering of a helping hand to those seeking new ways of achieving their goals. Without these conditions, dysfunctional behavior is inevitable.

Author Abstract

This study focuses on the relationship between business strategy, organization structure, and diagnostic control systems. The project analyzes data from 75 field studies to illustrate how managers adjust span of accountability and span of control to motivate different levels of innovation and entrepreneurial behavior. Six propositions are derived inductively about when, why, and how managers make these choices.