Inertia and changes in control systems: A study of spin-off companies
Abstract
This study examines the extent to which an organization can rapidly and effectively change its management control system. Determining an organization's ability to adapt and make changes in its strategic and financial controls is important because these control systems shape and constrain current and future decisions concerning the strategic direction of the firm. The four propositions that are developed draw on the organizational ecology and punctuated equilibrium models of change and consider the frequency and types of changes in strategies and control systems that follow a spin-off. The spin-off event was chosen because it provides both the opportunity and the incentive for changes in strategies and controls. On the basis of responses from 35 spin-off companies, the results suggest that firms do change their control systems following a spin-off. However, as would be predicted by the punctuated equilibrium model, the likelihood of changes in controls varies depending on the length of time that the control system has been in place, the firm's performance relative to expectations prior to the spin-off, and the predictability of changes in the firm's competitive environment. Conflicting results were found with respect to the impact of changes in the Chief Executive Officer, the top management team, and the Board of Directors. Finally, this research highlights significant relationships between changes in strategy and both incremental adjustments and reorientations in control systems which raises questions as to when radical change would be preferable to adaptation.
Degree
Ph.D.
Advisors
Woo, Purdue University.
Subject Area
Management
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