EFFECT OF MCS AND STRATEGY ON FIRM PERFORMANCE
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CHAPTER ONE
INTRODUCTION
1.0 Background to the Study
Management Control Systems (MCS) can be seen as the method of gathering, analysing and using information to appraise and assess the execution and effectiveness of the various firm assets like human, physical, monetary with an overview of firm methods. Basically, MCS can also be viewed as a simplified process of overseeing and confirming the achieved and used assets successfully and effectively in accomplishing the organization’s targets(Anthony, 1965 cited in Armesh, Salarzehi , & Kord, 2010). The expectations of customers and other investors and constant grievances concerning the disappointment with the organizations’ administrations has triggered the pressing need for responsibility and clearness in conveying these services(Ibrahim & Karim, 2004). High organizational performances were caused by an equivalent mixture of a firm’s surroundings, approach, internal structures and frameworks (Govindarajan, 1998). MCS comprises internal structures and systems. In this modern-day aggressive, dynamic and changing international business condition, organizations need to device and put into use business models that would help them in identifying the key vulnerabilities and dangers in their business surroundings (Bin-Nashwan, Abdullah, & Obaid, 2017). Due to the modern-day aggressive, multifaceted, and mutable worldwide trading environments, organizations are encountering challenges in order to make use of business patterns which can assist them to tackle key vulnerabilities and threats faced in their business surroundings (Bin-Nashwan, et al., 2017). The main issue of this study is that management accounting researchers and experts have opined that one of the ways that helps organisationss to continually regenerate their businesses to last and thrive in a multifaceted and ambiguous environment is to comprehend the function of MCS in framing a business strategy that can produce a sustainable competitive advantage which would enrich the firm’s performance (Simons, 2000; Widener, 2007). It is in this note that the implementation of MCS across organization’s processes is most paramount. MCS is a system used in businesses which assembles and process data to assess the performance of the firm resources that will ultimately influence the behavior of the firm in implementing organizational devices (Armesh, Salarzehi , & Kord, 2010).
According to Ferreira & Otley (2007)as cited in Bin-Nashwan et al., (2017), the crucial role of MCS is to offer useful information that managers of organization deploy in basic leadership, arranging, observing, and assessment of hierarchical exercises to positively change worker behavior. Marginson (2002) believes that MCS also offers strategic direction for firms to be more innovative in making efforts so that their competencies in production can sustain up assets for inventive exercises. The policy and financial analysts proposed that MCS is significant in assisting top administrators in passing on methods, identify the operational activities which are needed to apply these methods, explaining shared desires, recognizing needs for operational upgrades and furthermore set focuses on that may invigorate present and future activities (Simons, 1990).
There is developing enthusiasm for investigating the connection between the utilization of Management Control Systems and activities of organizations (Bisbe & Otley, 2004). Execution of MCS plays a vital function in the organization activities, as MCS assume major resources that administrators should take to arranging, planning, investigating, estimating and assessing valuable data for legitimate basic decision taking (Cosenz & Noto, 2015; Dávila & Foster, 2005; Duhan,2007). Data and arranging frameworks are helpful administration apparatuses for accomplishing the vital targets of the organization (Duhan, 2007), produce inventive development and accomplish the harmony among control and adaptability (Simons, 1995).
With respect to MCS and performance activities, Dávila (2000) positively indicated the use of the MCS with lean thinking and firm performance. Afterward, with a sample of Spanish firms, Bisbee and Otley (2004) discovered that the better use of the MCS, the better the effect of innovation on the activities of SMEs. Witha model of industrial companies in New Zealand, Adler, Everett, and Waldron (2000) gathered that MCS have good impact on invention performance.
The purpose of this study therefore, is attempting to carry out a review of relevant literatures on the influence of MCS and strategy on organization’s performance. The study has been divided into five chapters. The first chapter is a general review to briefly trace the background and gives an insight of MCS and strategy. The second chapter reviews in detail the concept of MCS, firm performance as well as the empirical and theoretical framework of the study. Furthermore, in the third chapter, the methodology used in this study, with special emphasis on data sources were extensively discussed. Chapter four is date analysis and presentation. Chapter five summarizes the findings, followed by analyzing of the findings and gives several recommendations for this research work.
1.1 Statement of the Problem
The development and the research on MCS both from the academia and the practitioners have been turbulent in the last 30 years. This is due mainly on (1) the discovery of cutting-edge ICT with the appearance of ground-breaking PCs and fast programming which has permitted access and spread of more and better information; (2) quick changes because of expanded challenge for customers; (3) just as expanding corporate control in international firms and a worldwide pattern towards responsibility and esteem creation. These previously mentioned focuses are joined to trigger speeding up in the advancement of the idea. It is commonly accepted that MCS are tools that can recognize shortcomings, clear up techniques and goals characterized to convey esteem, by encouraging methodology execution and by upgrading organization performance in the present competitive atmosphere (Ittner, et. al., 2003; Widener 2007). All things considered, all in all, the examinations in the connection among MCS and execution have yielded vague, uncertain, or in some cases conflicting outcomes.
There has been analysis from various quarters that an increasingly complete way to deal with types of MCS and its effect on execution ought to be examined. (Otley 1980; Fisher 1995; Milgrom & Roberts, 1995). As buttressed by Otley (2014, 2016) among others, despite the fact that organizations trust that MCS can help them in the assignment to convey esteem, a few specialists such as Henri (2006a), asserted that the particular connection among MCS and execution is questionable and that there is lacking proof to recommend an immediate connection among MCS and execution. In the contrary direction, Koufterous et al (2014) contended that there is a hole in the writing on how explicit employments of MCE influence performance. There is, however, next to no expansive previous research looking at the function that MCS can play in molding firm performance. In the line, Pavlov and Bourne (2011) added that since MCS relationship to performance has not been obviously examined, little is thought about the systems that interface this connection between MCS effect and performance.
1.2 Brief Profile of Scib Insurance Brokers
Standard Chartered Insurance Brokers was the first name of the organization and was built up in May 1977, as a joint venture between FIM (Finance Insurance and Management) Consultants Limited and Standard Chartered Insurance Brokers Limited, UK.
Standard Chartered Insurance Brokers, UK itself was a joint venture between Standard Chartered Bank (affiliated to Standard Bank of Nigeria, now First Bank of Nigeria Plc) and Sedgwick Insurance Brokers UK. Standard Chartered Bank later divested from all non-banking activities overall which incorporated its advantage in Scib. The name Scib was adopted when Standard Chartered Bank Ltd divested from the joint venture. Sedgwick however kept its interests and played the role of Scib’s technical partner until it was acquired by Marsh & MacLennan in 1997.
With the acquisition and take over of Sedgwick by Marsh & McLennan, the Technical Agreement with Scib stopped as Marsh already had another partner firm in Nigeria. Nonetheless, Scib and Marsh keep on working together and teaming up on a case-by-case premise. Comparative affiliations and connections are maintained with AON and other worldwide intermediaries.
Scib holds the position of one of the Top three Brokers in Nigeria amongst more than five hundred registered Insurance Brokers offering Insurance & Reinsurance intermediation and Risk Management and advisory Services. Scib has a staff strength of one hundred and twenty (Technical, Non-technical and Admin) , Scib has a fundamentally energetic, experienced, diversed and multi-disciplinary group with the presence of Chartered Insurance Professionals, Risk advisory and Management Consultants, Engineers, Lawyers with backgrounds in Actuarial Science, Engineering and Economics. Scib is currently the Network partner and Correspondent in Nigeria for Aon, one of the largest insurance broking company in the world.
1.2 Objectives of the study
The broad aim of this research work is to investigate the effect of MCS and strategy on firm performance, while the specific aims include the following:
- To examine the impact of non-financial MCS on firm performance
- To investigate the impact of financial MCS on firm performance
- To assess the effect of cost leadership strategy on firm performance
- To examine the impact of differentiation strategy on firm performance
- To examine the impact of Cost leadership strategy on firm performance
1.4 Research Questions
The following research questions were answered in the course of the study:
- Is there any significant relationship between non- financial MCS and firm performance?
- What impact does financial MCS have on firm performance?
- Is there any significant relationship between cost leadership strategy and firm performance?
- What impact does differentiation strategy have on firm performance?
- Is there any relationship between Focus Strategy and the performance of firm?
1.5 Statement of Research Hypotheses
- H0: There is no significant relationship between non-financial MCS and firm performance
- H0: Financial MCS does not significantly influence firm performance
- H0: There is no significant relationship between cost leadership strategy and firm performance.
- H0: Differentiation strategy does not significantly influence firm performance.
- H0: There is no relationship between focus strategy and firm performance
1.6 Significance of the Study
This research work is advocated by the absence of sufficient scholarly production with respect to MCS concepts and theories, strategy and firm performance. As the expanding of studies in the field and the dispersal of speculations are vital endeavors, the dialog on such issues fills in as inspiration and creates new theories, mindsets and standards. This study seeks to improve the discussion on Management Control System concepts and add to the current writing on the relationship between MCS, procedure and organization performance.
1.7 Justification of the Study
This study when completed should be able to be of relevance to the following economic segments in the country:
- Firms in all Sectors of the Economy, business organisations can borrow ideas and principles from this study upon its completion on how MCS may impact positively on firm performance.
- Government and their Agencies: it will also suggest ways that the governments and their officials can carry out the ideal of MCS across different governments departments, agencies or parastatals.
- Students and academic researchers: it will provide and equip students and researchers the needed veritable information which may be used in carrying out further research studies in a related research problem areas.
1.8 Scope and Limitations of the Study
This study was carried out on both the management and the non-management staff of Scib Insurance Brokers. The study will be undertaken in Scib head office in Lagos State and other branches in Nigeria.
The study is constrained in the following ways: The time may not allow the researcher to wholly complete the work of this extent within the time allotment given for the work to be finished. There are various research works done by different analysts that one may need to examine and contemplate so as to get a full hold of the study. Other thought of restriction is the dimension of trust/certainty. Scib Insurance Brokers reposes in the researcher in divulging information needed to the researcher.
1.9 Plan of the Study
This entire project is made up of five chapters. The first chapter deals on the introduction to the research topic and other issue like the significance of the study etc. The chapter two has to with the literature review, which is the review of relevant materials on MCS and strategy and how they are related with firm performance. Chapter three focuses on the research methodology used in the project. Chapter four involves presentation and analysis of the relevant information gathered from the questionnaire distributed and chapter five is the summary of work and conclusion.
1.10 Definition of Terms
Management Control System: Management Control System(MCS) can be said to be a system that aid the gathering and implementing of information to decide the performance activities of different firm resources like human, physical, financial and also the firm as a whole in light of the organizational strategies pursued.
Firm performance: Firm performance is an important facet in strategic administration researches and is usually adopted as a dependent variable. Regardless of this pertinence, there is not really an accord about its definition, dimensionality and estimation, what limits advances in research and understanding of the concept. However, firm performance can be characterized as proportion of performance of an organization that may not just rely upon the proficiency of the organization itself but also on the market.
Strategy: Strategy involves a plan of action which is designed towards a long-term or overall aim. A strategy is a general plan or set of plans intended to achieve something,
Cost leadership strategy: Cost leadership involves setting up an upper hand by having the most minimal expense of activity in the industry. However, cost leader companies do strive on price and are very efficient at such a form of competition, because they have a minimal cost structure and administration.
Differentiation strategy: This is a methodology a business takes to build up a remarkable item or administration that clients will discover superior to or particular from items or administrations offered by competitors.
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