Management Control Systems in Multiunit Companies

Professor Sandino conducts research on early-stage multiunit companies that introduce management control systems to help maintain operations, as well as company culture, as they grow, but also to enable adaptation to the different markets that they serve. Building off of prior research in which she examined what systems are often first implemented (and why), Professor Sandino has sought to understand the long-term implications of those choices. In a case study on the fast-growing Chinese hotel chain China Lodging Group, Professor Sandino and her coauthors study the long-term tradeoffs for early-stage management control systems. Multiunit organizations initially experience accelerated growth upon introducing management control systems because such systems often allow consistent replication and oversight of an existing strategy across locations. But rigid, traditional systems can later impede growth as companies enter new markets. This runs counter to conventional wisdom in this area. Upholding existing standards may prevent the organization from learning from customers and adapting as needed, but promoting local experimentation introduces risks as well and could lead to redundancy and inefficiency.

Professor Sandino’s research has identified how some firms overcome the tradeoffs of attaining control and flexibility when serving diverse markets by implementing management control systems that promote experimentation (i.e., systems that incorporate a degree of flexibility, accountability for results, and feedback), as well as those that keep managers focused on organizational values and goals. For example, her case study “OXXO’s Turf War Against Extra” and technical note “Control or Flexibility? Structured Empowerment Offers Both—Lessons from Retail and Service Chains” illustrate how some organizations execute strategy profitably, using a type of flexible system she refers to as “structured empowerment,” empowering employees to make choices from narrow sets of options across a select set of inputs and processes and the responsibility to deliver results in line with the company’s value proposition. This enables a company to balance control—by standardizing input and process options employees can choose from to drive results—and flexibility—by enabling employees to combine diverse inputs and processes to produce service offerings and routine sequences fitting their particular markets.

Companies that give employees a degree of flexibility to make decisions and the responsibility to produce results, rather than enforcing process-based rules and routines, are more likely to learn about and satisfy diverse customer needs, increase their ability to expand into new markets, and perform better.

Managers are more likely to oversee productive experimentation when organizational values and goals are made clear, as employees will know what behaviors and goals are desired when exercising discretion granted by flexible systems. They will also be more likely to provide feedback to and share knowledge with teams in other units.