Management Control Systems, Strategy and Performance: An

Exploratory Analysis of Family and Non-family Firms in Chile.

Moses Acquaah. Bryan School of Business and Economics, University of North Carolina-Greensboro.
1
Claudio G. Mller . School of Economics and Business, University of Chile.

Abstract
The objective of this research is to compare the relationships among management control
systems, business strategy and firm performance in family and non-family businesses, focusing
on a developing economy in Latin America. Data from 183 small and medium-sized family
enterprises in Chile were analyzed following the methodology developed by Acquaah (2013).
Implications for theory and practice are discussed that may provide possible competitive
advantages for family firms in a Latin-American context.
Keywords: Management Control Systems, Performance, Latin-American, Chile.

1. Introduction and Purpose

Control is defined as a "process which compares what is done with what is planned"
(Moilanen, 2008), to establish if there are deviations and to later apply the corrective
measures which keep the action within set limits. For this, there are verification controls and
learning controls. Both controls have a similar structure, but have underlying differences
between them. Jordan (1995) defines management control as an instrument which supports
top-level decision making in order to plan objectives, develop an action plan and verify that
these objectives have been reached.
A different point of view on management control is that defined by Anthony (1965, p.
42) as the process by which Managers ensure that resources are obtained and used
effectively and efficiently in the accomplishment of the organizations objectives. This
definition limited subsequent researchers not only to envisaging management control systems
(MCS) as encompassing the largely accounting-based controls of planning, monitoring of
activities, measuring performance and integrating mechanisms, but also served to artificially
separate management control from strategic control and operational control.
Several authors have agreed that conventional wisdom assumes this as a purely
economic rationality behind management accounting and control, and that the multiplicity of
research based on institutional perspectives has revealed the social aspects of business, as an
institution that is a reciprocal typication of habitualized action by types of actors (Berger
and Luckmann, 1967, p. 72). This idea is linked with strategy. The strategy concept was not
used explicitly as a variable in MCS research until the 1980s. This is surprising, considering the
field of business strategy or business policy has become increasingly important since it
emerged in the 1950s (Chandler, 1962). Chandler extended his thesis that the modern
economy had rendered family-led enterprise obsolete in scale and scope (Chandler, 1990). He
argued that the dynastic impulse continued family leadership regardless of its cost along
with the limits this imposes on the accumulation of human and financial capital prevents
1

Corresponding Author: Claudio Mller, University of Chile, Diagonal Paraguay # 257 Suite 1905, Santiago, Chile.
+(56) 22 977 2059. Email: cmuller@fen.uchile.cl
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family-led firms from making the investments needed to develop the economies of scale and
scope to the same extent as managerially-led enterprises. Other researchers identify a variety
of other mechanisms that are used as MCS at family-controlled firms (Villalonga and Amit,
2006).
The concept of MCS can include management accounting systems, budgetary
practices, performance measurement systems, project management systems, planning
systems, and reporting systems (Simons, 1990).Several empirical studies have shown that
there are differences in the instrumentation and use of the MCS between family and nonfamily businesses (Kotey, 2005; Moilanen, 2008; Laitinen, 2008; Acquaah, 2013). MCS plays an
important role in the performance of family businesses where MCSs are converted into
prioritary tools that the managers should adopt for suitable decision making (Davila and
Foster, 2005; Duhan, 2007).
These may be due to certain characteristics that differentiate family from non-family
firms, and constitute what Habbershon& Williams (1999) have called familiness, which they
define as a set of resources particular to the business that are attributable to the presence of
the family in company management. These resources and capabilities are unique, inseparable
and synergetic. They derive from the familys involvement and interaction with the business
and are a source of long-term competitive advantage (Zellweger, Eddleston&Kellermanns,
2010).
The objective of this study is to examine the extent to which family firms use MCS and
how their use of MCS enables them to gain competitive advantages by affecting the
implementation of their business strategy and performance relative to non-family businesses
in a developing economy, in particular in a Latin-American country like Chile.

2. Theoretical Framework and Hypotheses

From business strategy points of view, and according to Porter (1980), firms can
choose cost leadership strategy (characterized by tight cost and overheads control, EOS,
efficient facilities usage and high market shares) or differentiation strategy, (characterized by
product and service uniqueness through brand and customer loyalty, innovativeness, and
marketing).
According to Simons (2000), MCS can be categorized into four: (a) belief systems; (b)
boundary systems; (c) diagnostic control systems (DCS); and (d) interactive control systems
(ICS). Belief and boundary systems are used to frame the strategic choice; while DCS and ICS
are the feedback and performance management systems (PMS) used to elaborate and
implement strategy (Bisby&Otley, 2004). Management accounting and strategy researchers,
therefore, argue that MCSs are crucial to the formulation and implementation of business
strategy (Bruining, Bonnet, and Wright, 2004; Kober, Ng, and Paul, 2007; Marginson, 2002).
Our study focuses on DCS and ICS. The DCSs are the formal feedback mechanisms used
to monitor and reward the achievement of pre-determined outcomes, serving to review and
monitor outputs, correcting deviations from preset measures, and discouraging opportunityseeking behavior associated with tight control of operations, highly structured communication
channels, and restricted flows of information (. On the other hand, the ICSs are the formal
mechanisms that managers use to personally involve themselves in the decision-making
activities of subordinates. These lead to exchanges between top management and lower level
management and organizational members. ICSs also provide the opportunity to debate and

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challenge underlying assumptions; they focus attention on strategic uncertainties and

encourage opportunity-seeking behavior and experimentation.
The unique characteristics exhibited by family businesses such as the unification of
family life and business activities; the desire to preserve the familys socioemotional wealth;
the perpetration of cohesive clan cultures, and the pursuit of both financial and nonfinancial
goals (Gomez-Mejia, Cruz, Berrone, and De Castro, 2011; Habbershon and Williams, 1999;
Miller & Le Breton-Miller, 2005) distinguishes family businesses from non-family businesses.
These differences would be manifested in the way MCS would be used to support the
implementation of business strategy and their subsequent impact on performance in family
and non-family businesses.
The relationships between MCS, business strategy and performance are expressed in
terms of four hypotheses, formally stated below and depicted in Figure 1:
H1: The influence of DCS on business strategy will be greater for Non-Family
Business than for Family Business.
H2: The influence of ICS on business strategy will be greater for Family Business
than for Non-Family Business.
H3: The total effect of DCS on performance through business strategy will be
greater for Non-Family Business than for Family Business.
H4: The total effect of ICS on performance through business strategy will be
greater for Family Business than for Non-Family Business.
[Insert Figure 1 here]
Data Set
The data used to test the models hypotheses is drawn from a database of 183 Chilean
firms who responded to the survey conducted for this study, between January and March
2013. The average age of these businesses was 46 years. To be included in the database a firm
had to be controlled by a single family (i.e., with an ownership more than 50%) and have an
official Board of Directors or be in the process of appointing one. 31 of them (17%) were listed
on the Santiago Stock Exchange while the rest were privately held. In 89% of cases, the CEO
was a member of the controlling family, and 8.2% had a Family Council. Of the 1,239 directors,
senior managers and other executives at these firms, 14.7% responded to the survey. We used
previously validated measures of MCS in the Western world (e.g., Henri, 2006; Widener, 2007)
and Simons (2000) description of MCS to operationalize it. We further relied on Dess and
Davis (1984) conceptualization of Porters (1980) business strategy typology which has been
used in several studies to measure business strategy. Performance was measured using both
financial (e.g., profitability) and non-financial (productivity, growth, market share) measures.
More detailed demographic characteristics are shown in Table 1.
[Insert Table 1 here]
3. Expected Findings and Contribution
We expect to corroborate the hypothesized relationships that we have proposed. First, the
expected findings to confirm the results obtained by Acquaah (2013) using data from Ghana
and enhance the generalizability of the findings in other developing countries with different
cultural and institutional environments. Second, the findings will provide top managers in
family businesses the opportunity to alter the behavior of employees towards performance
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measurement and control; and communicate and ensure continual attention to strategic
initiatives. Moreover, family business managers would be able to focus employees attention
towards the implementation of strategy; and the allocation of the limited resources effectively
and efficiently in mitigating the weaknesses they face in the complex, and uncertain business
environment. Thus this proposed research will contribute to both the strategy and family
business literatures in filing the gap on the utilization and role of MCS in influencing business
strategy and performance.
References
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Figure 1: Relationships between set-ups and hypotheses

Table 1: Demographic characteristic of Sample

Demographic characteristic

Overall
# of firms /
frequency Per cent

Family businesses

Non-family businesses

# of firms Per cent

# of firms

Per cent

13%

Firm Sector
State-owned enterprises

31

Private Enterprises

152

83%

Total

183

100%

17%

Business sector
Manufacturing

28

15%

17

18%

11

Service

155

85%

79

82%

76

87%

Total

183

100%

96

100%

87

100%

Family businesses

96

52%

Nonfamily businesses

87

48%

183

100%

Less than

27

15%

18

19%

10%

5099

2%

2%

1%

100199

15

8%

10

10%

6%

200499

34

19%

22

23%

12

14%

Family versus nonfamily businesses

Total
Firm size (number of employees)

500 and over

104

57%

44

46%

60

69%

Total

183

100%

96

100%

87

100%

Firm age (years)

Less than 10

16

9%

14

15%

2%

1020

40

22%

27

28%

13

15%

2130

34

19%

22

23%

12

14%

30 and over

93

51%

33

34%

60

69%

183

100%

96

100%

87

100%

22%

Total
Public versus privately owned
Public (listed on stock market)

31

17%

12

13%

19

Privately owned

152

83%

84

88%

68

78%

Total

183

100%

96

100%

87

100%

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