Management control systems as a package in a Portuguese agri-food companyAbstract
This article aimed to analyze how management control systems (MCSs) as a package have been used in a Portuguese agri-food company. There is a need for a more holistic view of the diversity of management controls in organizations, analyzing how the different management controls interact in specific organizations from different cultural contexts. This is a field study, which allowed the researchers to immerse themselves in the organizational context of an important Portuguese agri-food company, allowing a better understanding of the relationships between different types of management control. It helps raise awareness of the diversity of management controls and the importance of using them as a package in organizations. The study adopts the case study methodology, supported by information collected through documents and semi-structured interviews as methods of collecting and generating evidence. This study reinforces the importance of studying management control systems as a package in different organizational contexts, highlights the importance of the links between different types of management control, shows the dynamics that occur in all components of the theoretical model adopted, and gives visibility to the diversity of management controls that can be used in organizations.
Keywords:
management controls; MCSs as a package; case study; agri-food sector; Portugal
RESUMO
Este artigo teve por objetivo analisar como os sistemas de controlo de gestão (SCG) as a package têm sido usados numa empresa portuguesa do sector agroalimentar. A lacuna que este trabalho preenche é a necessidade de uma visão mais holística da diversidade de controlos de gestão nas organizações, analisando-se como os diferentes controlos de gestão se interrelacionam em organizações específicas de diferentes contextos culturais. Trata-se de uma investigação de campo que permitiu aos investigadores estarem mais imersos no contexto organizacional de uma relevante empresa portuguesa do setor agroalimentar, proporcionando uma melhor compreensão das relações entre diferentes tipos de controlo de gestão. Este trabalho contribui para dar visibilidade à diversidade de controlos de gestão e à importância de esses serem utilizados nas organizações as a package. O estudo adota a metodologia de estudo de caso, suportado pela informação recolhida por meio de documentos e de entrevistas semiestruturadas, como métodos de recolha e de geração de evidência. Este estudo reforça a importância de se estudarem os SCG as a package em diferentes contextos organizacionais, realça a importância das interligações entre diferentes tipos de controlo de gestão, mostra dinâmicas ocorridas em todas as componentes do modelo teórico adotado, e dá visibilidade à diversidade de controlos de gestão que podem ser utilizados nas organizações.
Palavras-chave:
controlos de gestão; SCG as a package; estudo de caso; setor agroalimentar; Portugal
1. INTRODUCTION
Research on management control systems (MCSs) has evolved considerably since the term “management control systems” was first defined by Robert Anthony in 1965 (Merchant & Otley, 2020). The research has shifted from focusing on budgetary controls to a multiplicity of controls covering a broad strategic and operational spectrum of management practices, through which an organization’s managers direct, influence, and/or monitor individual and/or collective behavior toward a common purpose and goal (Pfister et al., 2022).
It has been argued that much research has focused on narrow aspects of MCSs that do not fit into broader organizational contexts (Merchant & Otley, 2020). Therefore, there is a need for researchers to recognize that MCSs are complex in themselves and that they interact in complex ways with the contexts in which they are used. This requires researchers to adopt a holistic approach to highlight the set, or packages, of practices and processes that have been used in organizations.
To address this need, some researchers have attempted to define the scope of MCSs through theoretical models [e.g., Ferreira and Otley (2009), Malmi and Brown (2008), Otley (1999), and Simons (1995)]. Some of the strengths of these models lie in providing an overview of control practices to describe and analyze MCSs holistically, such as considering the links between strategic and operational control, integrating measurement as part of the operation of overall control systems, and including the extent and type of control formalization in the analysis (Pfister et al., 2022).
In turn, over the past few decades, prominent management accounting scholars [e.g., Hopwood (1983), Kaplan (1998, 2011), Malmi (2016), and Merchant e Otley (2020)] have called for field research. However, the impact of these calls still seems to be limited and temporary (Merchant & Otley, 2020), and there is still a lack of this type of research. According to Merchant and Otley (2020), field research provides a better choice of research topics and richer, more reliable results, and can use different research methods (e.g. interviews or direct observation).
This study takes into consideration the calls made by the aforementioned researchers to address gaps in the literature on management control systems (MCS). It aims to contribute to the MCS literature by adopting a more holistic view of the diversity of controls within organizations, including those that have been underexplored and that emphasize their behavioral focus. Thus, the objective of this study is to analyze how MCS as a package have been used in a Portuguese company in the agri-food sector. In addition to the relevance of this company belonging to the agri-food sector - an area in which there is limited MCS literature (Queiroz & Espejo, 2021) - it also has the advantage of being a large-scale company, allowing for an in-depth study of a diverse set of MCS. For the typification of MCS as a package, the theoretical model of Malmi and Brown (2008) is adopted, as it provides a more comprehensive approach to this topic [e.g., Otley (2016)].
This study is organized into six sections. After this introductory section, the next section, the literature review, contextualizes MCS research and presents Malmi and Brown’s (2008) theoretical model. Section 3 describes the methodological procedures used in this study. Sections 4 and 5 then present and discuss the empirical results obtained in light of this theoretical model. Finally, section 6 presents the contributions and limitations of this study, as well as suggestions for future research.
2. LITERATURE REVIEW
2.1. MCSs
The scope of MCSs has expanded over time. Anthony (1965) initially defined a narrower scope than is understood today, emphasizing accounting-related controls and positioning MCSs between strategic planning and operational control. The initial focus of MCS research was primarily on budgetary control, as this was the primary formal control system used by most larger organizations (Merchant & Otley, 2020). The scope of MCSs also began to be widely studied from a contingency theory perspective (Otley, 1980, 2016). For example, Otley (1980) argued that contingency theory could provide a potential explanation for the bewildering variety of MCSs actually observed in organizational practice. It is now widely accepted that MCSs encompass a broad strategic and operational range of management practices that guide, influence, and/or monitor the behavior of organizational members in order to align the diverse interests within (and sometimes beyond) the organization toward a common purpose and goal (Pfister et al., 2022).
In a more contemporary approach, MCS research has peculiarities that deserve to be highlighted. One of them is related to the maintenance of the behavioral approach, which was very present in the initial research work on MCSs (Merchant & Otley, 2020), in order to understand how some members of an organization try to control the behavior of others in order to achieve certain levels of organizational performance. Over time, however, MCS research has tended to include a more in-depth analysis and/or reflection on the behavioral assumptions of the people involved in the studies.
A second specificity concerns the fact that MCSs are studied in their informal aspect, going beyond their formal aspect and analyzing how different informal and/or formal parts interact and form a complex whole. Organizations tend to have a variety of formal and informal controls (Chenhall & Moers, 2015). This variety of management controls has been explored in the literature, sometimes distinguishing between systems that are intentionally designed by managers and more comprehensive control packages (Pfister et al., 2022), which requires researchers to take a more visible look at the social and cultural aspects of MCSs.
A third feature of more recent research on MCSs, stemming from its behavioral focus, is the inclusion of other management systems that were not considered as MCSs in some of the previous literature. This more inclusive view is well supported in the management accounting and control literature, where managers are shown to engage in information policies and tactics to exercise control (Goretzki et al., 2018).
The peculiarities of MCSs just highlighted imply a broader view of them that can be adopted in more contemporary research processes. In addition to the most common management control practices, for researchers who adopt this view, MCSs also include a range of other types of management controls, particularly of a more social and cultural nature. These controls, in turn, can be understood as a package of MCSs. In this sense, the study by Malmi and Brown (2008) presents a variety of management controls that an organization’s managers normally use to continuously manage the organization’s performance, and treats them as a package of MCSs. In the same vein, Sandelin (2008) argues that MCSs as a package are based on combinations of various control components in the context of firm growth and does not operate based on a single control element.
Despite the potential of this MCSs as a package approach, Otley (2016) points out that the package concept has not been taken seriously in most empirical studies, which is crucial to consider in future studies. Also based on this line of action, O’Grady and Akroyd (2016) argue that using MCSs as a package ensures that the managers of an organization adequately balance the different dimensions of performance, as they are controls that are intentionally used to guide the behavior of individuals within the organization. In the same vein, Demartini and Otley (2020) show that the coupling approach, which considers different controls as a system or a package, is useful in assessing the effect of different states of linkage between controls, and there is clear evidence of relatively poor performance in the absence of coupling. However, the process of coupling controls needs be considered. For example, Grabner and Moers (2013) argue that before approaching an organization’s control environment as a package, it is necessary to understand how specific organizational practices shape control systems to solve specific control problems. In turn, Bedford et al. (2016) argue that not all management control practices considered relevant in isolation are relevant when considered simultaneously as a package.
MCSs as a package have also been studied in the context of organizational supply chains [e.g., Reusen and Stouthuysen (2017) and Mouritsen et al. (2022)]. For example, Reusen and Stouthuysen (2017) conclude that supply chain relationships can be managed through MCSs and that these systems play a very important role. For their part, Mouritsen et al. (2022) emphasize the importance of the interrelationship between different management control practices. The authors admit that there is a tension between the supply chain and management controls, since the former wants the organization to be more productive, which may affect its ability to be profitable. At the same time, the organization needs to be resilient and maintain its position in the supply chain, maintaining its integrity, which requires significant profitability.
The interrelationship between management control practices can become more complex when organizations are internationalized. For example, in an organization with a presence in several countries, cultural differences are an influencing factor in the use of information, as multinational companies operate in different countries and face different situations. The most common cultural difficulties include language, practices and laws, which vary significantly from one country to another (Vaz et al., 2015).
2.2. Malmi and Brown’s (2008) Theoretical Model
Malmi and Brown’s (2008) theoretical model provides a typology of MCSs (see Figure 1). This typology includes the following five groups of controls: (1) cultural controls, (2) planning, (3) cybernetic controls, (4) reward and compensation, and (5) administrative controls. In turn, this model consists of different mechanisms and allows managers to engage in both decision-making and control processes to ensure that employees behave in a way that achieves organizational goals (Hanzlick & Brühl, 2013).
Cultural controls can take three different forms: clans, values and symbols. To contextualize the cultural controls of their theoretical model, Malmi and Brown (2008) used the definition of Flamholtz et al. (1985), which includes the set of values, beliefs and social norms that tend to be shared by its members and in turn influence their thoughts and actions within the organization. Cultural controls are at the top of the model because they are broader in nature and are assumed to change (very) slowly. In turn, cultural controls provide the context in which the other types of controls included in the model take place. It should also be noted that organizations may rely even more on cultural practices of management controls when they have low measures of performance outcomes, and that cultural controls via clans tend to be more effective in relatively mature and smaller organizations (Bedford, 2020). As Ouchi (1979) points out, clans depend on a socialization process aimed at eliminating goal incongruence between individuals, and thus assume subtle forms of control.
At an intermediate level in Malmi and Brown’s (2008) model are three types of controls that are more likely to change over time than cultural controls. These include planning controls, cybernetic controls, and controls related to rewards and compensation, which are presented in a temporal order. At the planning level, the objectives of the different parts of the organization are set. This type of control provides coordination by aligning these objectives and controlling the activities of groups and individuals to ensure that they are consistent with the desired organizational results in the short and long-term.
Then, according to the timeline, cybernetic controls are relevant. Malmi and Brown’s (2008) theoretical model allows for four cybernetic controls: (a) budgets, (b) financial measures, (c) non-financial measures, and (d) hybrid controls based on the two previous types of control. Budgets are an almost universal practice. They are used in most organizations with a focus on planning and evaluating the performance of those plans. Financial measures, in turn, can use the information contained in the budget and can be used to set goals. Non-financial measures can be used to overcome limitations identified in financial measures. Finally, hybrid controls, which balance financial and non-financial measures for different time horizons, have grown in importance in recent years, allowing the organization’s strategy to be evaluated and reformulated.
Still at the intermediate level of Malmi and Brown’s (2008) model, reward and compensation controls are important. These controls focus on motivating and enhancing the performance of individuals in an organization and achieving harmony between their goals and those of their organization.
Finally, at the bottom of Malmi and Brown’s (2008) model are administrative controls, which are related to the controls discussed earlier in this section. Administrative controls direct the behavior of individuals in the process of specifying how tasks should be performed in organizations and are divided into three groups: (a) governance structure, (b) organizational structure, and (c) policies and procedures. Governance structure is associated with the composition of the organization’s board of directors and includes the formal lines of authority as well as the systems in place to ensure that administrators meet to organize activities. Organizational structure, on the other hand, is based on the specialization of functions or organizational practices and can encourage certain types of contacts and relationships within an organization. It is something that can be changed by managers to better respond to the organizational strategy. Finally, policies and procedures correspond to the bureaucratic approach and include operational practices that follow policies and rules defined by members of the organization.
Malmi and Brown’s (2008) theoretical model has already been used in other studies [e.g., Hanzlick and Brühl (2013), Malmi et al. (2022), and O’Grady and Akroyd (2016)]. For example, O’Grady and Akroyd (2016) investigate MCSs as a package in a multinational logistics company established in New Zealand by the Mainfreight family and conclude that the different controls were explicitly depicted based on this model to monitor the main drivers of performance, with a focus on profitability. The authors also show that the integrated operation of controls as a package ensures that managers adequately consider and balance multiple dimensions of performance, including financial and non-financial, short- and long-term, and local and global performance.
For example, the study by Hanzlick and Brühl (2013) examined empirical data from top managers in Germany from a sizable sample of firms to understand the outcomes of different elements of MCSs. The authors conclude that the use of these controls is highly relevant for top management in guiding individual behavior, as they translate a body of evidence that allows managers to see how their company compares to a large and robust sample of other companies. However, the authors note a greater emphasis on short-term planning and cybernetic controls to the detriment of long-term planning.
More recently, the study by Malmi et al. (2022) uses the theoretical model of Malmi and Brown (2008) to compare the use of management controls in three different Western cultural regions: Anglo-Saxon, Germanic and Nordic. The study reveals empirical differences in management control practices in business units of large firms located in these three regions, in particular significant cultural differences that may have implications for the design and use of MCSs. The authors also find that Anglo-Saxon companies emphasize management control practices more than Germanic and Nordic companies, which they attribute to the dominant shareholder orientation in the Anglo-Saxon region. The authors also highlight similarities in other management control practices, namely the fact that bonuses appear to be of a similar size in all regions, as it is common practice for human resource professionals to compare the compensation levels of competing companies.
Also recently, and in the context of public sector organizations, Frei et al. (2022) used Malmi and Brown’s (2008) theoretical model to analyze how Austrian public universities respond to the presence of different institutional logics. The authors identify the types of MCS used to meet each of the different institutional logics under analysis: academic, governmental and entrepreneurial. On the academic side, the authors highlight the need to develop interdisciplinary research areas as a type of administrative control that can contribute to the reputation of researchers and the university. On the governmental side, they emphasize top-down hierarchical communication as a type of cultural control. In terms of business logic, the authors point to the existence of monetary incentives with bonuses resulting from performance evaluations, as well as non-monetary incentives.
3. METHODOLOGICAL PROCEDURES
Since this study seeks to understand how MCSs as a package have been used in the company Alfa (fictitious name, for confidentiality reasons), a company in the agri-food sector, we chose a case study methodology, supported by evidence collected through documents and semi-structured interviews. This methodology is appropriate when we want to study the “how” or “why” of a particular phenomenon (Yin, 2018), and it allows us to contextually study problems and issues of interest in the field of accounting and management control (Vieira et al., 2017).
Based on Malmi and Brown’s (2008) theoretical model presented in section 2.2, evidence was collected through documents and semi-structured interviews to identify and understand the different management controls in place at Alfa that make up its MCSs as a package.
With regard to the documentary information accessed, some of which was provided by the company, the following sources should be highlighted: Alfa’s presentation of its mission and values, governance structure, purchasing procedure and corresponding purchase order approval plan. In addition, all the information available on Alfa’s website was analyzed, in particular the information on its creation and evolution, as well as the types of business. Together, the analysis of the various documentary sources made it possible to prepare the script for the first interview. The scripts for the following interviews always took into account all the evidence already gathered, both through documentary sources and through interviews conducted.
Between November 2021 and December 2022, a series of eleven semi-structured interviews were conducted with managers from different organizational areas of Alfa (see Table 1). The interviews were semi-structured to allow new themes to emerge during the course of the interviews. The aim of each interview was to deepen our knowledge of the use of MCSs as a package in Alfa, as well as to complement or validate some issues where the evidence gathered was not yet robust enough.
All interviews were conducted through the Teams digital platform and, with the permission of the interviewees, were recorded specifically for the purposes of this research and then transcribed for a better analysis of the evidence collected. The transcriptions were made using the “Transcribe” tool available in Word and, after review, were sent individually to each of the interviewees for validation. None of the interviewees requested any changes to the content of the transcripts sent. In order to guarantee the confidentiality of the interviewees, no reference is made to any element that could identify them. The length of time between each interview was a factor that was particularly taken into account from the beginning of this research, in order to best analyze the evidence gathered in the previous interviews, as well as the documentary sources available, in order to better prepare for the next interview(s). In this way, documents and interviews worked simultaneously as methods of collecting and generating evidence.
The data analysis was not a linear process and required much reflection throughout the research process. This iterative process of analyzing the information collected was based on the three stages suggested by Miles et al. (2014). First, the data collected from interviews and written documents were coded and grouped into 17 categories based on the different types of management controls included in Malmi and Brown’s (2008) theoretical model. This was done to bring order and meaning to the information collected. Second, each management control identified was analyzed in the context of the controls included in its category, while looking for interrelationships with management controls from other categories. Finally, conclusions were drawn and tested.
4. EMPIRICAL STUDY
4.1. Background to the Company Alfa
Founded in the 1950s, Alfa is a Portuguese company that operates in the agri-food sector, more specifically as a producer and exporter in the tomato industry. The company is family-owned, with the founders remaining shareholders to this day and the management headed by a family member. Alfa currently has around 500 employees on a regular basis and, as a seasonal company, employs around 1,000 people in Portugal between July and October each year. As a result of its growth, the company has recently undergone an organizational restructuring (see Figure 2).
Since its foundation, Alfa has always aimed at internationalization and has always designed its strategy to achieve this goal. Its internationalization has been gradual, starting with the export of its products, where it made a name for itself. Today, more than 80% of its production is exported to countries in every continent of the world. According to the company, most of Alfa’s exports go to European countries, followed by South America, the Middle East and Asia, North and Central America, Africa and Oceania. Alfa exports to more than 60 countries and also has partnerships with some companies in Europe where it stores finished products to facilitate its logistics operations for distribution closer to those markets.
Its growth in terms of the market led Alfa to consider the internationalization of its production. Thus, at the beginning of the 21st century, Alfa decided to have its own companies operating abroad, thus increasing its production offer. To this end, it acquired companies in the northern and southern hemispheres, taking advantage of the climatic differences on both sides of the world and maximizing the production of its tomato products, since their production is seasonal.
Alfa has two distribution channels: wholesale and retail. The wholesale distribution channel sells its raw product, namely tomato concentrate, where the general order of business is to collect the raw material, which is then exported to other customer industries. The company has a 3% share of the global agro-processing market. In addition to this industrial market, Alfa also has some retail production lines where its products, namely ketchup, diced tomatoes and peeled tomatoes, are sold to various retail distributors, including representatives of the hospitality market (hotels, restaurants and cafes) looking for excellent products.
4.2. MCSs as a Package
4.2.1. Cultural controls
Cultural controls can be exercised in different ways. Malmi and Brown (2008) propose three types of cultural controls (clans, values and symbols) and place them at the top of their theoretical model because they consider them to be more comprehensive controls, more stable over a long period of time, and less prone to change within organizations than other types of controls. This premise of Malmi and Brown’s (2008) theoretical model is confirmed in the case of Alfa, as shown in this section.
To begin the analysis of cultural controls through clans, it is important to remember that clans tend to represent groups of individuals who are subjected to a process of socialization in which they are taught a set of skills and values. However, these individuals also establish their own values and can form (informal) affiliation groups within an organization. In identifying the clan within Alfa, it can be seen that the leader of the company, the chief executive officer (CEO), is always a family member. This demonstrates a high degree of family control and does not delegate this responsibility to any other person outside the family, either in the company in Portugal or in its subsidiaries abroad. In this way, Alfa’s CEO is able to have greater control over the behavior of the company’s individuals, as all policies and procedures must be in line with the values established by the family. The fact that the CEO has always been a member of the family shows that he is not just a CEO who wants to fulfill his management responsibilities. He is also a member of the family that owns the company and represents it in all business dealings. An open dialogue is allowed with the rest of the organization’s employees, sharing new ideas and suggestions for improvement. However, some of the interviewees also pointed out that when suggestions are not in line with the CEO’s ideas, whether in terms of procedures, practices, hiring or anything else, it is more difficult for them to be accepted. This reality sometimes results in employees not making suggestions and, as a result, the CEO can more easily affirm the values associated with his family clan. Although there are no other family members in direct management positions at Alfa, several family members are shareholders in this economic group and heads of other family businesses that have independent management and include other businesses.
The cultural controls group also includes the values aspect. As mentioned above, this is a company with a high degree of family control, but which is moving towards multinational management. This perspective is strongly assimilated within the company, as can be seen from the following interview excerpts:
A family business with a multinational mentality. A 60-year-old start-up that wants to innovate, wants to grow, and instills the founders’ mentality in its employees. (Interviewee A)
It’s a company with family roots, it doesn’t have very differentiated management yet. We’re working on moving away from family-type management towards more multinational management. (Interviewee J)
According to the document entitled “Presentation of the Company,” Alfa’s vision is to always strive to manufacture products in a safe and sustainable way for customers, and its values and beliefs include teamwork, loyalty, integrity, passion and commitment, strategically aiming to be the benchmark company worldwide in the agri-food sector in which it operates. According to the evidence gathered on values, Alfa always strives to do better in the pursuit of excellence, works with passion for what it does, embraces the commitment to carry out its projects and always emphasizes the importance of teamwork. The interviewees reported that it is essential to maintain the quality of the product, its efficiency, the level of service and customer trust.
Alfa’s values are instilled in its employees from the recruitment stage. At this stage, Alfa presents its beliefs and values to the candidates, reinforcing the idea that being part of the organization requires integrity. Subsequently, it is the recruits who decide whether they feel recognized as part of a company where values are frequently reminded through Kaizen methodologies, which are described below in the context of administrative controls. The values dynamic is the result of the teamwork of directors and managers, which they call the leadership team. By focusing on its values, Alfa is able to guide the behavior of its employees so that they try to act in accordance with the company’s values.
The final aspect of cultural controls in Malmi and Brown’s (2008) theoretical model is symbols, which visually characterize the company. This is something that remains in the memory of the employees, and when they see them or follow a certain ritual associated with Alfa, they are easily led to remember certain aspects of the company. One of these symbols is the uniform, which differs from area to area. The differences in the uniforms provide information about the organizational area of the company in which the employee works. Alfa’s organizational areas are therefore easily distinguished by the color of their uniforms, as Interviewee J says: “The uniforms are slightly different in color and by the colors we can identify which area the employee is working in.” In this way, a culture of professional association is instilled and it is easy for employees to identify their organizational area. Another element considered a symbol of Alfa is its logo. For example, in order to reaffirm its internationalization, Alfa had to renew its image by introducing a new logo for its brand in order to reinforce the processes of organizational change related to the internationalization strategy.
Internal communication is also promoted through open-plan offices. At the moment there is still a mix, but the work being done is always aimed at an upgrade with the logic of implementing open space, as some interviewees pointed out. In practice, these offices are an open space for each of Alfa’s existing departments, with an “island” layout where multidisciplinary teams can work in groups or individually. This type of arrangement is a way of controlling the behavior of individuals, but also an important factor in facilitating communication and the continuous improvement of the actions of the departments themselves.
4.2.2. Planning, cybernetic controls, reward and compensation
The middle tier of Malmi and Brown’s (2008) model includes three different types of management controls: (1) planning, (2) cybernetic controls, and (3) reward and compensation. In the case of Alfa, the evidence gathered through interviews and documentary sources shows that there is an important policy of structural organization, with the aim of maximizing both the quality of its products and the level of customer satisfaction. In this way, it is clear that planning plays a very important role at Alfa and that it is a formal management control that is very deeply rooted in its organizational practices. The fact that it is a family-owned company also means that its CEO has made a greater commitment to Alfa and has encouraged the directors of the different departments to consider the need for organizational planning. Planning is therefore a natural practice in this company. As part of long-term planning, strategic plans are reviewed every 5 years, when a master plan is drawn up, which is then adapted to the competitive context. As Interviewee K says, the new master plan involves redirecting some of the actions to achieve the (re)defined goals: “We’re human. We can define things and then, after one or two years, we realize that’s not the way to go. Let’s not dwell on it. Let’s improve. Let’s do it differently.”
Alfa’s strategic actions are aimed at continuing to be more efficient and effective than its competitors all over the world, with the motto of doing more and doing it better. These actions are supported by the quality certifications that Alfa holds, since the quality of the product it sells is one of the most important factors for its managers and employees. With the aim of becoming an international reference company in the sector in which it operates, Alfa introduced internationalization in its long-term planning and decided to broaden its horizons and go beyond its borders, establishing itself in two other countries, one located in the northern hemisphere and the other in the southern hemisphere. Internationalization was a goal pursued by Alfa through several stages, which were achieved, culminating in the purchase of its foreign subsidiaries at the beginning of the 21st century.
Another example of Alfa’s long-term planning was the decision to create a supply chain department. All of Alfa’s subsidiaries have their own supply chain, but not all of them have a formal department. Prior to the creation of the supply chain department at Alfa, all the areas of activity that now make up the department were distributed among other departments, and there was a need to bring these areas together in a single department, as Interviewee A points out:
We had separate areas, so retail production planning was part of the retail commercial area. We had the purchasing area as part of industrial production, and we had the transportation area as part of industrial sales, so somehow those areas were brought together.
According to Interviewee H, the integration of the customer service area into the supply chain department was a very important change for the commercial department, because by transferring inventory management and order management tasks to the supply chain department, the sales staff now has more time for commercial tasks.
In order to achieve the proposed long-term objectives, it is necessary to reorganize activities and manage action plans with a shorter time horizon in mind (less than 12 months), i.e. with a more tactical focus. As Alfa now has a formally constituted supply chain department, there have been some structural changes in the areas that make up the various departments. Still within the company’s tactical focus, there are forecasts, which are adjustments made whenever necessary to the annual budget, but without changing the total value of the budget. This time horizon of less than 12 months leads to cybernetic controls.
Turning now to cybernetic controls, it is important to remember that Malmi and Brown’s (2008) model includes the following four: (a) budget, (b) financial performance measures, (c) non-financial performance measures, and (d) hybrid performance measures, which can include both financial and non-financial measures. The first of these cybernetic controls, the budget, is considered as central at Alfa and its use is unquestioned. Although it can be used to integrate processes and decide on the allocation of resources, its focus is on annual planning and, subsequently, it is a basis for evaluating the performance of the multiple plans that make up each annual plan. At Alfa, for example, an annual budget is prepared, starting in September and presented at the end of October. Forecasts of a more strategic nature are also made with some regularity. They are put into practice together with the budget and make it possible to fine-tune strategies and analyze deviations in each annual period, based on an analysis of the results obtained in previous periods. As Interviewee G describes: “At Alfa, the budgeting processes have internal control procedures, a timetable, a dynamic sequence, and there’s a procedure for the area of budgeting processes.”
Different departments are included in the budget in different ways. For example, the supply chain department has to make its opex plan and its capex plan. The opex plan concerns personnel costs and external supplies and services, not only in terms of warehousing but also in terms of production planning, while the capex plan is the investment plan to improve its processes.
Still within the context of cybernetic controls, Alfa uses financial, non-financial and hybrid performance measures to analyze its results. Various financial measures are used, particularly those more closely related to cost control and revenue recognition, and may be used by departmental areas or at a more aggregated level. Examples of these financial measures include the cost of purchasing materials and services, personnel costs, production costs, marketing costs, sales value, etc. Many of these measures come from the budgeting process itself and are then used to monitor annual plans. There is also another type of financial measure that is based on financial results, combining revenues and costs. One of the indicators of this type that Alfa uses the most is earnings before interest, taxes, depreciation and amortization (EBITDA). However, no financial indicator is perfect and they all have limitations. In fact, the performance communicated through EBITDA depends on many other operational performances throughout Alfa’s value chain, as Interviewee J tells us:
For example, if we have an incident, it’ll have a financial impact and therefore an impact on the EBITDA indicator. For us, it’s the most comprehensive indicator because everything operational is impacted there and everything less operational as well.
Alfa also uses non-financial performance measures. These tend to be used to overcome some of the perceived limitations of financial measures. Good examples of the use of non-financial measures are the measures that make it possible to assess the individual performance of the different areas of Alfa. These measures form an evaluation model that is being developed to standardize practices in accident analysis, safety, environmental and performance evaluation, among others, both in Portugal and in the countries where Alfa has its subsidiaries.
Alfa has also implemented a hazard analysis and critical control points system on all its production lines, which identifies possible risks and the corresponding control measures. For Alfa, the traceability of the raw materials from which its products are made is fundamental to guaranteeing quality and controlling food safety. In this sense, the traceability system implemented by the company allows the history of its production to be told through the batch identification number on the product packaging, covering all ingredients and packaging materials. In turn, the level of customer service is a very important non-financial performance measure at Alfa. Guaranteeing levels of customer service is fundamental, as Interviewee I points out: “Customer service is the main thing. To guarantee customer service, we have two ticket tools. On top of that, we also have a call center.”
Other examples of non-financial measures are levels of stock shortages and turnover. These measures not only measure efficiency, but also the way in which stock levels and shortages are managed. They are considered important because they make it possible to deal with certain situations that could jeopardize delivery and compromise customer service levels. On the other hand, high inventory levels have financial implications, as Interviewee J points out: “Money has to be constantly turning over, so if we have a very high level of stock, we have money sitting idle.” The level of performance of non-financial measures is assessed at least once a year, together with the budget and action plans.
Still within the scope of cybernetic controls, Alfa also uses hybrid performance measures that tend to balance financial and non-financial measures. An example of this balance at Alfa is achieved through the 360º performance evaluation system. This evaluation system combines financial performance measures (e.g. EBITDA) with non-financial performance measures (e.g. customer service level). These measures cannot be analyzed independently, as it is their combination that leads to the presentation of Alfa’s results. As Interviewee J mentioned earlier, an incident in production will have a negative impact on Alfa’s financial results.
To support the set of financial, non-financial and hybrid measures, Alfa has invested in robust, integrated information systems. Until 2020, Alfa’s managers used data analysis and processing software called Energy. Given its weaknesses, this software was replaced by System Applications and Products Business Planning Consolidation (SAPBPC). This enterprise resource planning (ERP) became Alfa’s main corporate management tool. This change has had an impact on the company, as Interviewee B points out:
Energy was a little more fragile, because there was no in-depth knowledge of ERP, so there was an ‘exploitation’ of pushing some responsibilities to other organizational areas. SAPBPC itself, as it has been built, will mean that each of the organizational areas will have to take responsibility for their functions in the medium term.
In turn, despite the potential of SAPBPC, there are information needs to be met. According to Interviewee G, the company had difficulties in obtaining some indicators through existing management information systems. To overcome these difficulties, a commercial dashboard called “Executive Committee” was developed. This dashboard represented a major step forward in terms of management information systems, as it enabled the implementation of planning software, where data are calculated and integrated into SAPBPC. In the last decade, the implementation of this ERP system has allowed more democratic access to information, since the information is integrated into the ERP and more people have access to it. SAPBPC has also made it possible to minimize errors, since all the work that used to be done on Excel sheets has now been integrated into this system, eliminating a lot of manual work, as Interviewee G says: “In the last decade we implemented a planning model called SAPBPC. That was the biggest revolution, because we stopped entering everything manually and started having everything automatic and integrated.”
Still at the intermediate level of Malmi and Brown’s (2008) model, there is a control called reward and compensation. The reward and compensation indicators are an element to control the behavior of Alfa’s employees in that they are expected to make a greater effort in carrying out their work tasks, showing a higher level of commitment and dedication to achieving previously negotiated objectives, particularly in the context of cybernetic controls (e.g. budget).
The aforementioned 360º performance evaluation system is in place at Alfa. Once a year, Alfa makes an overall assessment of its employees’ performance based on a predefined matrix. This evaluation results in the monetary value that each employee will receive. The evaluation matrix includes individual indicators, departmental indicators and overall company indicators. The result of the evaluation is included in a pre-defined scale, depending on the employee’s evaluation, which can imply a reward of up to 130% of their basic monthly wage. This management control is seen by Alfa as a way of rewarding its employees for their good performance. Indirectly, it is also seen as a way of retaining them in the company. In most of Alfa’s organizational areas, this reward is highly valued by the employees and allows them not only to feel more satisfied in their work, but also more motivated to achieve the company’s objectives, whether in terms of productivity or quality of services provided.
4.2.3. Administrative controls
On the last tier of Malmi and Brown’s (2008) model are three types of administrative controls. These controls direct the behavior of Alfa’s employees through (1) its governance structure, (2) its organizational structure, and (3) its policies and procedures.
Alfa’s governance structure relates to its board of directors. In addition to its CEO, this board includes five directors responsible for different organizational areas: operations, product, customer, finance and security. Each of Alfa’s five directors tries to coordinate their team based on the global strategy defined by the company. As mentioned earlier in this study, Alfa has been pursuing a stronger internationalization strategy in recent years, which has had an impact on the company’s governance structure. For example, Interviewee J says that the company’s global growth has made it necessary to have a more group organization, with people responsible for each region but also for the group, and the board of directors has had to adapt to this new reality. Alfa’s governance structure has therefore undergone some changes over time. Most of the interviewees mentioned significant changes to the board of directors, the main restructuring being based on the need for directors to be responsible not only for the company in Portugal, but also for its subsidiaries abroad. One of these respondents, Interviewee K, put this into context as follows:
“A new director comes in 2019. The two who were there in addition to the CEO remain and a new director comes in for the corporate side. Last year, the CFO was replaced by another CFO, who instead of being only regional became global. The CCO was also replaced.”
Closely related to the governance structure is another administrative control, the organizational structure. This administrative control covers the different organizational areas of Alfa, as shown in Figure 2 in section 4.1, and has undergone changes over time. One of the most important changes in recent years has been the creation of the supply chain department. This department now covers various organizational activities that were scattered throughout other departments of Alfa and has had an impact on planning, one of the controls mentioned in section 4.2. This change in the organizational structure was aimed at taking a more comprehensive view of the supply chain, as Interviewee B says:
Today, we effectively receive information from sales and are responsible for customer service. We have a comprehensive view of the entire operations area, from the supplier to the end customer, which allows us to be aware of problems and their causes.
More recently, Alfa has started to use the Kaizen methodology to promote dialogue and daily meetings between all levels of the company’s employees. There are daily meetings of 5 to 10 minutes, before the work day, to identify existing difficulties and share ideas on how to do things differently, so that people also feel involved in processes of organizational change. These meetings remind people of the production goals, Alfa’s values and mission, the importance of product quality and customer recognition. Employees are also shown images of practices in Alfa’s subsidiaries, so that the information conveyed is reliably supported. Communication between different levels of the organizational structure is important and is acknowledged by several interviewees, as in the case of Interviewee K: “We fully believe that those who are involved on a daily basis are the ones who have the best ideas, the best practices, so that we can improve. We try to listen very carefully to what people have to say.”
Within the scope of the administrative controls in Malmi and Brown’s (2008) theoretical model, it remains to address that of policies and procedures. This type of administrative control consists of a tendentially bureaucratic approach to specifying procedures, operating practices, rules and policies to be followed within Alfa. There are many examples that could be given of this type of administrative control. However, we will focus on a few examples that have had a significant impact on Alfa’s organizational practices.
In recent years, the Kaizen Institute has also had a significant impact on this type of administrative control. This institute has provided support in the standardization of procedures. This standardization is part of the program being implemented, which is divided into two vectors: a strategic vector that leads to a project to improve procedures, and a people and team vector that develops the skills of the work teams so that they can then sustain the gains that can be achieved in the company’s projects. The need for this standardization is recognized by several interviewees, and one of those most involved in these processes [Interviewee F] should be highlighted: “Standardization is absolutely fundamental, it’s probably the first step you can take in any continuous improvement journey, and the continuous improvement department has direct involvement as a coach, being the driving force behind standardization.”
Another example of this type of administrative control is related to Alfa’s internationalization policy. There was a need to review some existing actions and reorganize activities so that they could be put into practice as soon as possible to overcome some obstacles. One of the most obvious obstacles to internationalization was language, but beyond this factor, it is necessary to work in a global and standardized way. There was an urgent need to standardize procedures so that everyone could work in the same way and with the same tools, as shown in the following interview excerpts:
We’re starting to standardize accident analysis practices, safety practices, environmental practices, performance evaluation practices, among others, and we’re going to have a lot of standardization when we put the same software in our foreign subsidiaries, which we don’t have yet. Management control has to be done with two different pieces of software. It’s a bit difficult to standardize, and we still haven’t standardized the industrial costing method. (Interviewee G)
As the company grows, it’ll need that standardization and uniformity, because otherwise, in every geography, in every area, they do it differently, and then data analysis becomes completely impossible.” (Interviewee K)
Another example of changes in procedures relates to the purchasing area, as a result of its integration into the supply chain department. This integration led to the need to adapt some procedures, taking into account the different types of purchases, as can be seen in the following interview excerpts:
When it comes to purchasing raw materials, the supply chain department identifies the purchasing needs, negotiates, closes the negotiation, opens the contract, and then, based on the contract, the supply chain creates the purchase orders (PO). The product arrives, the goods are entered into SAPBPC, and then the invoice and PO are matched. (Interviewee C)
Depending on the value of the order, approval from the Administration may be required. Once approved, SAPBPC generates a PDF and an email is sent to the supplier awarding the order, as SAPBPC is not yet ready to send this automatically. (Interviewee D)
As far as purchasing is concerned, a generic document consisting of the general conditions of the order has been created and is an integral part of the “Purchasing Procedure” document. A purchasing procedure had already existed at Alfa for some time, but it was only with the arrival of the Kaizen Institute and the creation of the supply chain department that it underwent some updates and became the rule in every department’s negotiations, thus influencing all of Alfa’s organizational areas. Each order delivered by the supplier is subject to the general conditions of the order and it was decided to turn this document into a procurement tool that would “bind” suppliers to certain obligations and allow Alfa to act as a customer with certain penalties whenever this was the case. Standard contracts were also defined for supplies, services and commodities, i.e. items that fluctuate on international markets. All these new rules have brought advantages to Alfa, as Interviewee A tells us:
It’s really brought benefits, and I don’t know if I’d say they’re all in terms of optimizing people’s work. I think it’s just that people have started to work in a more organized and informed way and, most importantly, with an eye on profitability.
The traceability of products at the customer’s request is a procedure that was changed with the implementation of the new ERP, SAPBPC, presented in the previous section. The new procedure allows the different organizational areas to know at any time the exact location of each product in Alfa. In addition to knowing the entire path of the products, already mentioned in section 4.2.2, Alfa’s new traceability procedure has made it possible to improve response times to customers and to increase customer confidence.
In terms of recruitment activities, as an agri-food company with seasonal production, the greatest influx of these activities in Portugal occurs particularly between July and October, reaching up to 1000 employees. During this period, Alfa works 24 hours a day, 7 days a week. However, a difficulty was identified that stems from the need to disseminate food safety policies, hygiene and safety rules, among others, to the company’s new employees. Each new employee needs to know what their job entails and how to carry out the tasks they will be performing. But as all learning takes time, this process of on-the-job training is not easy in this seasonal period, as Interviewee E tells us: “We have a difficulty in terms of people in the campaign because a lot of people are hired at this time.” Despite this situation, the policy of training employees is always a priority. In general, professional training can be included in administrative controls, as it usually involves teaching individuals to follow policies and procedures in specific work contexts.
5. RESULTS
Having presented Alfa’s different MCSs in the previous section, it is important to analyze them as a package in the light of Malmi and Brown’s (2008) theoretical model. The first observation that emerges from this analysis is that it was possible to identify controls for each of the typologies of this theoretical model: cultural controls, planning, cybernetic controls, reward and compensation, and administrative controls (see Figure 3). Thus, the study of MCSs as a package in this Portuguese company in the agri-food sector, along with other studies conducted in other organizational and cultural contexts [e.g., Frei et al. (2022) and O’Grady and Akroyd (2016)], demonstrates the validity of this theoretical model and contributes to the call for the need to study MCSs as a package in organizations [e.g., Demartini and Otley (2020) and Otley (2016)].
This study, carried out at Alfa, differs from other studies that focus on planning, cybernetic and reward controls. Despite the importance of these typologies, cultural and administrative controls influence the way Alfa’s management is carried out in order to increase the level of organizational performance. For example, the fact that the position of CEO has always been held by a member of the family that owns Alfa’s capital shows the importance of cultural controls in Alfa’s management. This cultural control, identified in this study as clan, is very relevant to understanding how other management controls work at Alfa. According to Ouchi’s (1979) study, a clan requires an idea of legitimate authority, but also social agreement on a wide range of values and beliefs, as is the case at Alfa. This family control at Alfa is relatively similar to that demonstrated in O’Grady and Akroyd’s (2016) study, in the context of a New Zealand-based multinational logistics company. Both studies show that clan-based controls continue to be relevant in large family businesses, and their effectiveness is not strongly associated only with smaller companies (Bedford, 2020).
Still in the context of the typology of cultural controls, it should be noted that although the values of Alfa are strongly influenced by the family clan, showing a link between different components of the typology of cultural controls, values related to the international competitive context are also visible. These values tend to highlight the need for organizational changes, particularly in the composition of the board of directors. The emphasis placed on Alfa’s values highlights the growing importance of the behavioral approach to MCSs (Merchant & Otley, 2020; Pfister et al., 2022), as well as the importance of combining formal and informal controls (Chenhall & Moers, 2015; Goretzki et al., 2018) to achieve better levels of organizational performance.
The use of symbols as cultural controls was also evident at Alfa. Symbols have been used at Alfa to communicate values to its employees, but also to external stakeholders, thus reinforcing the corporate culture. Thus, there is a clear link between the different cultural controls (clan, values and symbols). This is an important contribution of this study because it shows this link between the different components of cultural controls.
At the planning level, we identified various controls to carry out Alfa’s growth strategy through its increasing internationalization. This strategy has accompanied the company throughout its life cycle and has been intensified in recent decades, leading to the acquisition of companies in the agri-food sector in countries in both the northern and southern hemispheres. This growth in Alfa’s production levels, as well as the existence of two seasonal campaigns, meant that the management controls associated with the planning typology had to be adapted.
In pursuit of its expansion through increasing internationalization, Alfa had to increase its planning, cybernetic, and compensation and reward controls. This situation illustrates the importance of combinations of different controls in an environment of corporate growth (Sandelin, 2008). For example, there is strong evidence of an increase in financial, non-financial and hybrid measures, implying the need to increase their information systems. This demonstrates the importance of properly weighing and balancing multiple performance dimensions (O’Grady & Akroyd, 2016). However, the evidence collected shows that Alfa balances cybernetic controls with other controls and does not favor the former over the latter, as in the study by Hanzlick and Brühl (2013), which included a sample of German companies. This shows that balancing management controls is not always easy to reconcile in companies, especially when they are located in different cultural regions (Malmi et al., 2022) or have different institutional logics (Frei et al., 2022).
Alfa also highlights the importance of administrative controls, individually and collectively, in increasing its organizational performance. Alfa has made changes to the composition of its board of directors, altered its organizational structure, and introduced new organizational procedures. For example, there has been an effort to standardize some organizational procedures. These standardizations are particularly necessary as a result of the organizational and cultural differences between different subsidiaries of Alfa, which are located in different countries, as in the study by Malmi et al. (2022). In the case of Alfa, there were cultural difficulties related to language (Vaz et al., 2015), as well as standardization difficulties in terms of aggregating management information between subsidiaries in different countries, typical of internationalization processes in different cultural regions.
Alfa’s administrative controls are relevant to its ability to implement and monitor its strategy. Thus, at Alfa, there is a strong link between this component of the administrative controls typology and the planning and cybernetic controls typologies, demonstrating once again the relevance of the interrelationship between different types of management controls.
Unlike cultural controls, administrative controls are less slow to change. However, changes in the components of these types of management controls have also taken time to implement and stabilize at Alfa. In turn, some of these controls tend to be more unstable, particularly the policies and procedures component.
6. CONCLUSION
This study analyzed how MCSs as a package have been used in a Portuguese family-owned company in the agri-food sector, based on the different types of management controls included in Malmi and Brown’s (2008) theoretical model, using a case study methodology supported by documents and semi-structured interviews.
This study makes several contributions. The first is to identify management controls related to all components of the five typologies of Malmi and Brown’s (2008) theoretical model, demonstrating the validity of this model in the context of a Portuguese family-owned company in the agri-food sector. This finding reinforces the importance of studying MCSs as a package in different organizational contexts, as advocated by Otley (2016).
The second contribution comes from the fact that this study shows the various interrelationships between different types of controls. For example, at Alfa there are cultural controls that influence planning, which in turn influences cybernetic and administrative controls. This is an important contribution of this study to improve the static perspective of the typologies of management controls in Malmi and Brown’s (2008) theoretical model.
The third contribution of this study is the ability to chronologically highlight changes in all the components of the five typologies of Malmi and Brown’s (2008) theoretical model, albeit at different rates. This study showed slower changes in the cultural controls typology and slower changes in the administrative controls typology. However, it should be emphasized that it was only possible to detect these different changes, including in the administrative controls typology, because a case study methodology was used.
Finally, this study contributes to giving visibility to the diversity of management controls and the importance of their use in organizations as a package. This visibility may lead accountants and managers to adopt a more comprehensive view of the scope of MCSs in the organizations they influence. In turn, it may lead (more) accounting educators to consider a better balance between technical and behavioral topics in their classes in different organizational contexts.
Like all research, this study has limitations. The main limitation of this study relates to the information about the organization’s foreign subsidiaries. Some basic data were collected, which is very important for the purposes of this study. However, the research could have been further enriched if it had been possible to conduct interviews with employees of Alfa’s foreign subsidiaries. Therefore, it is suggested that future studies look at companies located in different geographical areas of the world, with the aim of understanding how the parent company’s management control practices are adapted in its subsidiaries located in different cultural contexts. It is also suggested that future studies analyze the interrelationships between management controls of different types of MCSs in other organizational contexts and explore the implications of these interrelationships.
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This is a bilingual text. This article was originally written in Portuguese, published under the DOI https://doi.org/10.1590/1808-057x20252182.pt
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This article stems from a Master's dissertation submitted by the co-author Sara Joana Daniel Ricardo, in 2023.
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FUNDING
This study was conducted at the Research Center on Accounting and Taxation (CICF) and was funded by the Portuguese Foundation for Science and Technology (FCT) through national funds (UIDB/04043:CICF and UIDP/04043:CICF).
Source: 
Source: Alfa company.
CEO = chief executive officer; EBITDA = earnings before interest, taxes, depreciation and amortization; EVA = economic value added; IRR = internal rate of return. Source: Prepared by the authors.