Paper

The Dual-Role Framework: A Structured Approach for Analyzing Management Controls

Jasmijn C. Bol Tulane University

Serena Loftus Kent State University

ABSTRACT: We provide a conceptual framework for analyzing studies on management controls and management control systems (MCSs). This framework describes and analyzes the directing and activating processes of management controls and MCSs. Because our focus is on why management controls are effective, our conceptual framework complements earlier frameworks that focus on specific empirical methods, controls, and literature maps. We discuss several applications of the framework, such as depicting an individual research study, comparing multiple research studies examining the same control, and organizing an area of research. Our approach benefits consumers of management accounting research by increasing understanding and access to extant research. In addition, the application of our approach can reveal gaps in the literature or the potential for mediating factors to explain conflicting findings and can thus inform future research.

Keywords: management control systems; management controls; employee motivation; employee effort; extrinsic rewards; employee cognition; intrinsic rewards.

I. INTRODUCTION

Management accounting “serves two important roles in an organization: (1) to provide some of the necessary information for planning and decision-making, and (2) to motivate individuals” (Sprinkle 2003, 288). This study focuses on the latter by providing a conceptual framework for research that analyzes the decision-

influencing role of management controls, defined as organizational actions undertaken to increase the probability that employees will behave in ways leading to the attainment of organizational objectives (Flamholtz 1983; Otley and Berry 1980). We posit that the collective set of management controls (hereafter, the management control systems (MCSs)) needs to both inspire employees to exert effort (e.g., increase employees’ willingness to contribute to the firm by under- taking an action) and channel their efforts toward the desired organizational objective (e.g., direct employees’

The authors thank Andrew H. Newman (editor), two anonymous reviewers, Robert Bloomfield, Nicole Cade, Jeffrey Clark, Christoph Feichter, Isabella Grabner, David Erkens, Lisa Koonce, Lynn Hannan, Katlijn Haesebrouck, Lisa LaViers, Robert Kaplan, Maximilian Margolin, Frank Moers, Jordan Samet, Jason Schloetzer, Karen Sedatole, Tim West, and workshop participants at Carnegie Mellon University; Frankfurt School of Finance and Management; Georgetown University; Tulane University; WHU–Otto Beisheim School of Management; the Egyptian Online Seminar in Business, Accounting and Economics; the 2019 Regional Meetings of Applied and Computational Mathematics (ERMAC) Research Conference and Professional Development Workshop at WU Vienna University of Economics and Business; the 2019 XV International Accounting Research Symposium at the Universidad Carlos III de Madrid; New Orleans Entrepreneur Week 2019; the 2019 Family Business Forum at Tulane University; the 2019 American Accounting Association Management Accounting Section Midyear Meeting; and the 2019 European Accounting Association Annual Congress.

Previous versions of this paper circulated with the titles “A Holistic Framework for Effective Management Control Systems” and “The Dual-Role Framework for Effective Management Control Systems: Activating and Directing Employee Effort.”

Jasmijn C. Bol, Tulane University, A. B. Freeman School of Business, Department of Accounting, New Orleans, LA, USA; Serena Loftus, Kent State University, Ambassador Crawford College of Business and Entrepreneurship, Department of Accounting, Kent, OH, USA.

Editor’s note: Accepted by Andrew H. Newman, under the Senior Editorship of Eva Labro.

Submitted: November 2021 Accepted: October 2022

Early Access: October 2022

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American Accounting Association DOI: 10.2308/JMAR-2021-065

willingness to contribute to the most desirable action to achieve the organizational objective).1 Specifically, our dual- role framework identifies six ways in which management controls can motivate employees to undertake desired actions and three ways in which they can channel employee behavior toward desired outcomes.

The dual-role framework focuses on the decision-facilitating role of management controls by delineating how man- agement controls encourage employees to undertake desirable actions. Because our focus is on why management con- trols are effective, our conceptual framework complements the important frameworks of prominent scholars that focus on specific empirical methods (Sprinkle 2003; Bonner and Sprinkle 2002). Our framework also complements taxonomies that examine the characteristics of specific controls (e.g., Ferreira and Otley 2009; Luft and Shields 2009; Dikolli and Sedatole 2007; Otley 1999; Simons 1994; Merchant 1981; Otley and Berry 1980), as our framework can be applied to many types of controls. Further, the dual-role framework complements the many literature reviews available for man- agement accounting scholars, including literature maps that provide a comprehensive view of the topics studied in the extant literature (Herschung, Mahlendorf, and Weber 2018; Luft and Shields 2003). Although literature reviews usefully summarize prior work (Massaro, Dumay, and Guthrie 2016), they are retrospective, with the result that they include only previously studied topics (Cooper 1998). Conceptual frameworks, which are “primarily a conception or model of what is out there that you plan to study, and of what is going on with these things and why” (Maxwell 2013, 49), can complement literature reviews by incorporating critical thinking about studied phenomenon. Thus, although our con- ceptual framework discusses each element in the context of the literature, like as other conceptual frameworks do (e.g., Ferreira and Otley 2009; Luft and Shields 2009; Dikolli and Sedatole 2007; Bonner and Sprinkle 2002; Otley 1999), it is not derived from literature reviews.

Our framework contributes to the academic literature in three ways. First, it provides an inclusive overview of non- extrinsic rewards (nontangible rewards, including feelings) that activate effort in MCSs. Many psychological theories examine how affective or feelings-based rewards motivate employees, including self-determination theory (Deci, Olafsen, and Ryan 2017; Deci and Ryan 2012), social comparison theory (Suls and Wheeler 2000), and social identity theory (Ashforth and Mael 1989). However, no single theory explains employees’ complete set of affective states. Our framework therefore extends these theories.2 Further, these theories focus on the employees’ experiences rather than on an organizational perspective. The dual-role framework organizes the large variety of nonextrinsic rewards currently used by organizations and studied by scholars in a variety of disciplines and can therefore serve as a point of entry for those seeking to navigate the vast literature on how management controls create nonextrinsic rewards for employees.

Second, our approach categorizes the processes that direct employee effort toward the organization’s objectives, providing a foundation for future research on these processes. Specifically, our framework complements that of Merchant and Van der Stede (2007), who describe the importance of effort direction within MCSs but do not differenti- ate between situations where employees shirk and those where employees’ high effort exertions are ineffectively chan- neled toward organizational objectives. Our framework can inform future research by parsing these directing processes and highlighting maintained assumptions that may warrant further investigation. Therefore, the dual-role framework complements prior research by providing a structure for a more precise analysis of the functionality of each control in addressing motivational problems.

Third, the focus of many researchers is increasingly on the relationships between management controls (Bedford, Malmi, and Sandelin 2016; Grabner and Moers 2013a; Malmi and Brown 2008), which necessitates an organizing tool that can account for the effects of the other controls within a MCS. For instance, researchers interested in whether man- agement controls are complements or substitutes may benefit from a framework that allows them to identify activating and directing processes associated with each control. Our framework can be used to organize all the processes associated with a set of controls, which facilitates analyses of management controls as a system. Similarly, our structured approach can help researchers reconcile contradicting findings.3

In addition, this framework can benefit management accounting educators by providing a tool for representing how MCSs motivate and direct effort that students with no prior knowledge of research can understand. Educators can use this framework to guide classroom discussion of MCSs or to complement discussions of specific management controls. By helping students understand the findings of MCS research, our framework also increases students’ awareness of man- agement accounting research and underscores the importance of management accounting in business school curricula.

1 We use the word “effort” to refer to employees’ general exertions rather than specific aspects of effort (Bonner and Sprinkle 2002). For example, effort includes strategic thinking and creative development.

2 For example, self-determination theory incorporates self-cognitive, affiliative, and intrinsic rewards. However, it does not incorporate status or pro- social rewards. Further, Deci et al. (2017) suggest that more research is needed about the interplay between self-determination theory and extrinsic rewards.

3 See Section IV for examples of applications of the framework.

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Managers can also benefit from our framework, as it provides them with a tool to structurally analyze how their organization’s MCS is motivating and directing employee effort. As a result, they can better understand employee moti- vation. These insights can also inform managers considering changes to their organization’s MCS, including the adop- tion of new controls or removal of existing ones.

In the next section, we detail the processes that activate employees’ effort exertions and the processes that direct employees’ efforts toward organizational objectives.

II. THE DUAL-ROLE FRAMEWORK

Effective management controls increase the likelihood that employees will undertake actions that lead to the attain- ment of organizational objectives (Flamholtz 1983; Otley and Berry 1980), and this framework analyzes controls based on how they contribute to this objective. An effective control system has two roles in creating effective control outcomes: (1) motivating employees to exert effort (e.g., increasing employees’ willingness to contribute to the firm by undertaking an action) and (2) directing their efforts toward the organizational objective (e.g., directing employees’ efforts to the most desirable action that achieves the organizational objective).

We next analyze the processes that enable controls to activate and direct employee effort, which are summarized in Figure 1. Figure 1 presents activating and directing processes simultaneously, as the MCS can pursue both processes in con- cert. Further, individual controls can direct effort without activating it. For instance, a code of conduct can increase employ- ees’ understanding of desired behaviors without changing their willingness to exert effort. Other controls may activate effort but fail to direct that effort. For example, paying employees a flat wage may encourage them to expend effort at work but will not channel that effort toward specific actions, absent other elements of the MCS. Other controls may both activate and direct effort simultaneously, such as pay-for-performance systems that both encourage employees to exert effort in pur- suit of a reward and direct this effort toward performance objectives. Thus, the multitude of controls that comprise the MCS simultaneously activate employees’ effort and direct it. In our presentation of the framework, we discuss activating processes before directing processes, but the framework can be adapted based on the researcher’s purpose.

Processes that Activate Employee Effort

Employees undertake desirable behaviors to maximize their satisfaction with the outcomes of those behaviors and earn rewards (Vroom 1964) (expectancy theory). We next identify six types of rewards that activate employee effort— extrinsic, self-cognitive, status, prosocial, affiliative, and intrinsic.4 Table 1 summarizes each activating process, which we further discuss below.

FIGURE 1 Conceptual Framework

4 We do not claim that no other rewards may activate control outcomes. Instead, our objective is to depict processes that have been studied widely in the literature.

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Extrinsic Activation

Extrinsic rewards activate effort, as employees exert effort to earn or retain tangible rewards (Lambert 2001; Lazear 2000; Prendergast 1999; Holmstrom and Milgrom 1991). These rewards include cash; items convertible to cash, such as gifts; and other tangible items valued by employees. Extrinsic rewards may be valuable ipso facto (e.g., cash or equiva- lent to cash, time off, and flexibility in working hours) or instrumental toward other valuable items, such as food and housing (Kelly, Presslee, and Webb 2017; Cerasoli, Nicklin, and Ford 2014; Presslee, Vance, and Webb 2013).

Many management controls provide extrinsic activation by providing financial rewards, including paying employ- ees a fixed amount of compensation to show up for work and perform desired tasks (Frey 1993). Another example is pay-for-performance systems, which award compensation for specific performance outcomes (Ittner, Larcker, and Pizzini 2007; Hannan 2005; Ittner, Larcker, and Randall 2003; Bonner and Sprinkle 2002; Lazear 2000; Jenkins, Mitra, Gupta, and Shaw 1998; Ittner, Larcker, and Rajan 1997; Lambert, Larcker, and Weigelt 1993). Paying efficiency wages, defined as higher wages than could be earned at other organizations in similar roles, can also encourage employees to exert effort to preserve these benefits (Chen and Sandino 2012; Gneezy and List 2006; Cappelli and Chauvin 1991; Akerlof 1984, 1982).

The framing of financial rewards provided by the MCS also can impact employees’ effort (Gonzalez, Hoffman, and Moser 2020; Van der Stede, A. Wu, and S. Wu 2020). For example, employees’ willingness to work for financial rewards may be higher when the reward is framed as a bonus rather than a penalty (Christ, Sedatole, and Towry 2012; Luft 1994). In addition, the timing of financial rewards can impact effort activation (Berger, Libby, and Webb 2018; Choi 2014), as the impact of financial rewards on effort may diminish over time.

Employees may also exert effort to obtain future financial rewards. In these cases, employees’ effort is activated in pursuit of tangible rewards that will accrue in future periods. For instance, promotions inside or outside the organization often convey large compensation increases (Campbell 2008; Prendergast 1993; Baker, Jensen, and Murphy 1988). Consequently, promotion opportunities can provide extrinsic activation as employees strive to obtain future promotions (Bol and Leiby 2018; Baik, Evans, Kim, and Yanadori 2016; Grabner and Moers 2013b; Ederhof 2011; Cichello, Fee, Hadlock, and Sonti 2009). Similarly, career development opportunities can also provide extrinsic activation (Holmstrom 1999; Gibbons and Murphy 1992; Dechow and Sloan 1991), as gaining valuable skills can increase employ- ees’ ability to command higher salaries outside their current role or organization. In addition to being formally specified, future rewards may be part of the informal management control system, which encourages employees to preserve the financial value of their long-term relationship with employer (Choi 2014; Gibbons and Henderson 2012; Halac 2012; Levin 2003; Baker, Gibbons, and Murphy 2002; Fehr and G€achter 2000).

Extrinsic rewards need not be cash based. Rather, extrinsic activation can arise from any tangible rewards, including items like travel, gift cards, or merchandise (Newman, Tafkov, Waddoups, and Xiong 2022; Kelly, Presslee, and Webb 2017; Presslee, Vance, and Webb 2013). Tangible rewards can be more effective than cash-based rewards in some situa- tions (Xu 2021; Heninger, Smith, and Wood 2019). Factors like the novelty, fungibility, and mental framing of tangible rewards may impact the extent to which they motivate employees (Choi and Presslee 2023; Mitchell, Presslee, Schulz, and Webb 2022).

Effort is not only activated by extrinsic rewards. There are also controls that rely, at least in part, on nonextrinsic rewards to motivate effort (Prendergast 1999; Baker et al. 1988). Specifically, employees can also strive to earn or retain affective or emotional rewards (Lerner and Tirole 2002; Osterloh and Frey 2000; Deci, Koestner, and Ryan 1999; Baumeister and Leary 1995). We further classify affective rewards into five categories of feelings-based rewards.

TABLE 1

Classification of Activating Processes (Bonner and Sprinkle 2002)

Classification Description

Extrinsic Employees exert effort to earn or retain tangible financial or nonfinancial rewards. Self-cognitive Employees exert effort to experience positive feelings about themselves. Status Employees exert effort to compare favorably with others. Prosocial Employees exert effort to experience positive feelings that arise from helping others

or experiencing strong interpersonal relationships. Affiliative Employees exert effort to experience positive feelings of belonging and contributing to a community. Intrinsic Employees exert effort to experience the enjoyment derived from engaging in specific actions.

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Self-Cognitive Activation

Management controls can impact employees’ self-cognitive rewards, which entail how employees think and feel about themselves.5 Positive self-cognition includes feelings of competence, pride, self-esteem, and self-efficacy, whereas negative self-cognition includes feelings of incompetence and inferiority. Employees may exert effort to achieve positive self-cognitive rewards and avoid negative self-cognition (Akerlof and Kranton 2005; Bandura and Locke 2003; B�enabou and Tirole 2002; Deci et al. 1999; Stajkovic and Luthans 1998; Bandura 1997; Deci, Connell, and Ryan 1989; Ryan, Mims, and Koestner 1983).

Many controls can impact self-cognitive rewards. For example, the frequency and direction of performance feed- back impacts employees’ self-cognitive feelings and the receipt of negative performance feedback may decrease their affect (Hall 2008; Ilgen and Davis 2000; Nease, Mudgett, and Qui~nones 1999; Ilgen, Fisher, and Taylor 1979). Recognition and gratitude for employees’ accomplishments may also create positive self-cognitive feelings (Gallus 2017; Bradler, Dur, Neckermann, and Non 2016; Lourenço 2016; Grant and Gino 2010; Stajkovic and Luthans 2003), and the language used in performance feedback can impact employees’ affective responses to feedback (Loftus and Tanlu 2018). Corporate communications can also create positive self-cognition (Cronin, Erkens, Schloetzer, and Tinsley 2021; Mathieu and Zajac 1990; Muchinsky 1977), whereas restrictive monitoring can negatively impact employees’ feelings (Sewell and Barker 2006; Gopinath and Becker 2000).

Employees also experience positive self-cognitive feelings of pride and self-esteem when their behavior is consistent with their ethical code and negative self-cognitive feelings of shame when their behavior is inconsistent with that code (Fiske and Taylor 2016; Ambrose, Arnaud, and Schminke 2008; Sims and Kroeck 1994; Trevino 1986). MCSs can also encourage employees to act in line with their moral codes or promote behavior that employees perceive as immoral or unethical (e.g., Maas, van Rinsum, and Towry 2012; Lord and DeZoort 2001; Bernardi and Arnold 1997; Sweeney and Roberts 1997).

Status Activation

Employees also exert effort to compare favorably with others, including direct peers or reference groups (Luft and Shields 2009; Auriol and Renault 2008; Besley and Ghatak 2008; Suls and Wheeler 2000). Employees may also exert effort to obtain formal or informal status within the organization or society (Bol and Leiby 2022; Lerner and Tirole 2002).

MCSs can activate status rewards by explicitly comparing employees’ performance to that of their peers. For exam- ple, relative performance evaluation can activate employees’ desire for positive social comparison and status (Tafkov 2013). Tournaments, where peers compete, are another example (Berger et al. 2018; Choi, Newman, and Tafkov 2016; Hannan, McPhee, Newman, and Tafkov 2013; Hannan, Krishnan, and Newman 2008). Public employee recognition or provision of status-enhancing rewards, like corner offices or private parking, also activate effort through desire for status, in addition to providing extrinsic or self-cognitive rewards (Elsbach 2003; Tajfel 1982).

Prosocial Activation

Since humans inherently need to interact with others (Deci and Ryan 2000; Baumeister and Leary 1995), employees also may exert effort for prosocial rewards, positive feelings that arise from helping others or experiencing strong inter- personal relationships (Grant and Sonnentag 2010; Grant 2007; Batson and Shaw 1991). Prosocial feelings, such as ful- fillment and security, arise from trusting relationships, whereas negative prosocial emotions, such as guilt and shame, arise from hurting or breaking relationships (Mahama and Chua 2016; Grant and Wrzesniewski 2010; Vosselman and Van der Meer-Kooistra 2009; V�elez, S�anchez, and ~Alvarez-Dardet 2008; Abernethy, Bouwens, and van Lent 2004; Poppo and Zenger 2002).

The MCS can activate employees’ pursuit of prosocial rewards from helping behaviors in various ways (Black, Newman, Stikeleather, and Waddoups 2019; Hackman and Oldham 1976). For example, the MCS can increase per- ceptions of task significance by emphasizing the beneficiaries of employees’ effort in training programs (Grant 2008) or the organization’s mission statement (Thompson and Bunderson 2003; Collins and Porras 1996).6 Helping

5 Our definition of self-cognitive rewards is adapted from Fiske and Taylor (2016) definition of social cognition, which incorporates how people feel about others and themselves. We separate self-cognitive rewards from social cognition and delineate aspects of social cognition that are important for MCSs in other categories of activation (e.g., status activation and affiliative activation).

6 Helping activities do not require physical contact between employees and the beneficiaries of their efforts to accrue prosocial rewards (Grant 2007; Grant et al. 2007).

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behaviors are not always exclusively altruistic (Gibbons and Henderson 2012; Ariely, Bracha, and Meier 2009; Gibbons 1997); nonetheless, these behaviors provide prosocial rewards.

MCSs can activate employees’ pursuit of prosocial rewards from strong interpersonal relationships by facilitating the development and maintenance of strong relationships (e.g., organizing social activities and having consistent team membership) (Chenhall, Hall, and Smith 2010). Further, employees’ relationship with their direct managers can impact a variety of behaviors, including their willingness to exert effort (Bol, Haesebrouck, and Loftus 2020; Christ and Vance 2018; Drexler and Schoar 2014; Vance 2010; Sliwka 2007; Towry 2003). MCSs can also provide prosocial rewards by designing jobs to increase interaction with customers or clients (Grant 2007; Salanova, Agut, and Peir�o 2005; Harter, Schmidt, and Hayes 2002; Wrzesniewski and Dutton 2001; Schneider, White, and Paul 1998; Johnson 1996; Ryan, Schmit, and Johnson 1996).

Affiliative Activation

Employees derive rewards from affective feelings of belonging to a community, which arise from value alignment with the community or the coordination of independent actions with other community members (Bandura 2006; Deci and Ryan 2000; Baumeister and Leary 1995; Dutton, Dukerich, and Harquail 1994; Ashforth and Mael 1989). Affiliative rewards can emerge from an individual’s desire to work with others to achieve shared goals, such as advanc- ing the values and mission of an organization and team (Besley and Ghatak 2005; Bandura 2000).

MCSs can activate employees’ desire for affiliative rewards via culture or clan controls, like socialization and selec- tive hiring (Campbell and Sandino 2019; Campbell 2012; Ouchi 1979). Culture controls rely on goal alignment between the organizations’ desired outcomes and the employees’ desired outcomes or value alignment, where, because of shared values, employees are motivated to contribute to the firm. These shared values can be promoted or endorsed by the organization (Kraus, Kennergren, and Von Unge 2017; Henderson and Van den Steen 2015). For example, corporate social responsibility initiatives or corporate giving may increase employees’ feelings of identification with the organiza- tion, providing affiliative activation (Balakrishnan, Sprinkle, and Williamson 2011; B�enabou and Tirole 2010; Anteby 2008). An organization’s performance management system or monitoring processes can also provide affiliative rewards by reinforcing shared values and beliefs (Chenhall, Hall, and Smith 2017; O’Leary 2017).

Intrinsic Activation

Employees also exert effort for intrinsic rewards, the enjoyment derived from specific actions (Meyer, Becker, and Vandenberghe 2004; Kunz and Pfaff 2002; Osterloh and Frey 2000; Deci et al. 1999).7 Although enjoyment may result from the feelings described earlier, such as feelings of status or positive self-cognition, employees may also find tasks inherently enjoyable (Bonner and Sprinkle 2002). As a result, simply engaging in such a task can create rewards (Botvinick and Braver 2015).

Elements of the MCS can enhance this enjoyment. For example, an organization’s selection processes can also be used to hire employees who find work tasks inherently enjoyable (Campbell 2012; Kachelmeier and Williamson 2010; Vance 2010; Prendergast 2008; Akerlof and Kranton 2005). Controls that allow employees to customize their job responsibilities can also enhance their enjoyment of tasks (Petrou, Demerouti, Peeters, Schaufeli, and Hetland 2012; Berg, Grant, and Johnson 2010; Oldham and Hackman 2010; Wrzesniewski and Dutton 2001).

Management controls can also temper task enjoyment. For instance, monitoring systems can decrease employees’ enjoyment by fostering resentment about coercion (Gagn�e and Deci 2005). Output controls can also impact employees’ enjoyment of creative tasks, as excessively challenging targets can decrease task enjoyment (Pfister and Lukka 2019; Br€uggen, Feichter, and Williamson 2018; Davila and Ditillo 2017).

The relationship that controls have on task enjoyment is not always clear. For example, extrinsic rewards can reduce employees’ enjoyment of rewarded tasks, which reduces task enjoyment activation in some situations (Kamenica 2012; Bailey and Fessler 2011; B�enabou and Tirole 2003; Bonner, Hastie, Sprinkle, and Young 2000; Frey and Oberholzer-Gee 1997). In other situations, the presence of extrinsic rewards appears to enhance employees’ task enjoy- ment and increase their effort (Cerasoli et al. 2014; Deci et al. 1999). Thus, the impact of financial rewards on task enjoyment activation likely varies based on the situation.

7 Although task enjoyment arises from the process, rather than the outcome, of effort exertion (Cerasoli et al. 2014; B�enabou and Tirole 2003), we refer to task enjoyment as an intrinsic reward to ease exposition.

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Discussion of Activating Processes

Our classification of activation processes shows that employees may exert effort in the pursuit of six potential rewards: extrinsic, self-cognitive, status, prosocial, affiliative, and intrinsic rewards. Although each of these is unique, a single control can provide more than one type of activation. For example, promotions may provide both extrinsic and status rewards. As another example, individuals may help others in the context of shared community memberships, which may result in employees experiencing prosocial and affiliative rewards simultaneously. However, each reward specified in the framework differs in its implications for MCS designers and researchers. Thus, although some feelings can certainly be experienced simultaneously, MCS designers and researchers cannot assume that these feelings are always present at the same time (i.e., act as perfect complements). For example, helping others does not always happen in the context of a shared community, and as a result, sometimes only prosocial activation is present. In a similar vein, some community work that provides affiliative rewards is not geared at helping others, and hence, no prosocial rewards are present. Moreover, some employees may find helping others inherently enjoyable and thus be intrinsically motivated to help others in a community setting, whereas others find this stressful and unenjoyable. Thus, it is important to sepa- rately recognize the different activating processes, as they do not always complement each other and may vary based on employee characteristics.

Processes that Direct Employee Effort

The second role of management controls is directing the employees’ efforts toward the organizational objective. As with effort activation, the framework delineates the processes by which this can happen. We propose that, for an employee’s actions to be appropriately directed, the MCS must fulfill three conditions: (1) the employee understands the desired action, (2) the employee has the capabilities to undertake the desired action, and (3) the employee prefers the desired action over alternatives. Table 2 summarizes each process, which we discuss in the sections below.

Understanding

For the MCS to appropriately direct effort, employees must understand which actions contribute to the organiza- tional objectives and how to prioritize different actions (Merchant and Van der Stede 2007). Management controls increase employee understanding in many ways. For example, controls that communicate the organization’s strategy, priorities, and values inform employees of the organization’s desired outcomes and provide insights into how employee actions contribute to these outcomes (Gartenberg, Prat, and Serafeim 2019). Low employee understanding may arise from insufficient guidance about the organization’s objectives or inaccurate and contradictory messages about organiza- tional objectives or priorities (Bol et al. 2020). Controls that create understanding (e.g., training, mission statements, etc.) are especially important when management does not have complete information about how specific employee actions contribute to desired outcomes and employees must determine how to contribute (Grabner 2014; Campbell 2012; Prendergast 2008; Abernethy and Brownell 1997).

Capabilities

For the MCS to direct effort, employees must possess the necessary capabilities (Merchant and Van der Stede 2007). These capabilities arise from both employees’ ability (i.e., their capacity to perform the actions desired by the organization) and the resources available to employees (i.e., the tools and supplies that employees can use to perform the desired action).

MCSs can provide capabilities in several ways, such as selecting employees who demonstrate proficiency in the desired tasks, training them to improve their performance, and endowing them with the necessary tools. Another critical

TABLE 2

Classification of Directing Processes

Classification Description

Understanding Employees’ understanding of how actions contribute to the organizational objectives and how to prioritize different actions

Capabilities Employees’ abilities and resources required to achieve desired outcomes Preferences Employees’ proclivity for the organization’s desired actions relative to available alternatives

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firm resource is information and knowledge, which often develop in different parts of the organization and are costly to transfer (Merchant and Van der Stede 2007; Osterloh and Frey 2000; Grant 1996; Baiman, Larcker, and Rajan 1995). The design of the MCS influences the extent to which and how knowledge is shared (Haesebrouck, Cools, and Van den Abbeele 2018; Ditillo 2012; Maas and Mat�ejka 2009; Rowe, Birnberg, and Shields 2008; Ditillo 2004). Another critical resource is time, as employees cannot execute desired tasks without sufficient time.

Preferences

The MCS shapes employee preferences, defined as employees’ proclivity for the organization’s desired actions, rela- tive to available alternatives. Alternative actions can include both activities that are less beneficial to the firm than the organization’s preferred action and those that undermine organizational objectives. Rewards inherently impact employ- ees’ preferences by creating incentives for employees to undertake rewarded actions. As a result, controls that confer rewards influence employees’ preferences. Without actively managing the combination of rewards provided by the MCS and the resulting employee preferences, it is unlikely that the MCS perfectly directs effort toward the organizational objectives. When employees receive more rewards for alternative actions than preferred actions, employees will be more inclined to perform these alternative actions than those desired by the organization (Prendergast 1999; Holmstrom and Milgrom 1991). Thus, for employee effort to be directed toward the organizational objectives, the organization must not only provide a set of rewards that activates effort but also must ensure that the desired actions accrue a larger set of rewards than alternative actions. Otherwise, preference misalignment can impede the achievement of organizational objectives.

Preference misalignment can arise from any of the six types of rewards discussed earlier. Preference misalignment associated with extrinsic rewards is well documented (Feltham and Xie 1994; Kerr 1975). For example, performance measurement or evaluation systems can create misalignment in preferences when these systems reward undesirable behaviors (Berger, Fiolleau, and MacTavish 2019; Wang 2017). Although preference misalignment beyond extrinsic rewards has not received much attention, organizations should realize that preference misalignment derives from the combination of all rewards, extrinsic and nonextrinsic. Although performing undesirable tasks over desirable tasks may not impact an employee’s extrinsic rewards (the employee might be paid a fixed salary), the difference in the intrinsic rewards associated with each task might result in the employee neglecting a desired action in favor of a more enjoyable task that only marginally benefits the organization.

Organizations can influence employee preferences for desirable tasks and thereby improve the effectiveness of the MCS’s direction. For example, the organization can add controls that reward employees for performing desired actions or penalize them for failing to perform those actions. Further, an organization’s performance measurement or evalua- tion system can direct employees’ effort toward desired actions (Hannan et al. 2013; Chenhall and Langfield-Smith 1998; Hirst 1983). Another possibility is that the organization can make alternative actions less attractive through rules and penalties. Organizations can likewise alter employees’ perceptions of the desirability of tasks by changing the fram- ing of the tasks.

Discussion of Directing Processes

For an employee’s effort to be directed toward the organization’s objective, the MCS must ensure that the employee understands which actions the organization desires, that the employee has the capabilities to undertake the desired actions, and that the employee prefers the desired actions over alternatives. Of course, MCS may fail to direct employ- ees’ efforts for more than one reason. For instance, an organization’s employees may fail to understand their perfor- mance goals and lack the resources needed to achieve these goals. However, consideration of each unique aspect of direction can assist researchers in identifying why a MCSs’ direction either succeeds or fails.

III. APPLICATIONS OF CONCEPTUAL FRAMEWORK

Benefits of Application to a Study Examining a Single Control

First, our framework can be used to depict and analyze studies that focus on one management control. The frame- work shifts the readers’ focus from what management controls are studied to why management controls are effective (or ineffective), as it provides a structured approach for identifying processes triggered by controls. Thus, our approach asks readers to open the black box of management control effectiveness by explicitly identifying how individual controls influence employee behavior and organizational objectives. By analyzing these processes, our framework emphasizes

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the theoretical relationship, rather than the studied control, and enhances readers’ insights into the functionality and effectiveness of management controls.

Our framework also facilitates clearer identification of moderating factors by mapping these factors to relationships rather than controls. Readers may struggle to distinguish moderating factors from control attributes, which can function as moderating factors. Further, our framework prompts readers to consider any maintained assumptions or boundary conditions present in a study. In addition, structured analysis of the many relationships impacted by a single control can help researchers identify potential mediating or moderating factors and reveal gaps in the literature where research has not examined a potential interaction or mediating relationship.

To illustrate, we apply our approach to the work of Farrell, Kadous, and Towry (2008). Figure 2 presents our graphical depiction of the analysis of Farrell et al. (2008), who examine the role of forward-looking and contemporane- ous performance measures in incentive contracts. First, we determine the management control and desired outcome studied. Farrell et al. (2008) focus on incentive systems and their attributes, which include forward-looking and contem- poraneous performance measures, and examine their impact on efficient task execution. Next, we determine the activat- ing processes present in the study. Farrell et al. (2008) provide all participants with incentive contracts that activate effort via the provision of an extrinsic reward (cash). Further, we highlight the directing processes examined in the study as understanding. Farrell et al. (2008) show that forward-looking measures, compared with contemporaneous measures, provide more information to employees about the appropriate task strategy. We also indicate Farrell et al. (2008) main- tained assumption that the provision of cash bonuses increases employees’ preference for actions associated with the bonuses over alternatives. They also examine whether different employment horizons moderate the directing relation- ship, so this must be recognized as a moderating factor.

This application reveals several benefits. First, Figure 2 highlights that Farrell et al. (2008) study both the activating and directing role of incentives. Specifically, the representation shows both the activating and directing processes that are present in the work of Farrell et al. (2008) (extrinsic activation, understanding, and preferences direction) as well as prompting researchers to the processes that are absent. Further, the moderating factors and their relationship to the directing processes are salient. Thus, readers can easily identify any processes that warrant future research. Overall, this structured approach increases the users’ understanding of the study and helps identify future research opportunities.

Benefits of Application to Individual Study Examining Multiple Controls

The framework facilitates a structured examination of the complete effects of controls on overall MCS outcomes. It highlights the importance of “systems thinking” (Sterman 2000), which involves analyzing the relationships between the individual controls comprising the MCS. It also emphasizes the importance of considering the complete set of controls present in the study when forming conclusions. Individual management controls are unlikely always to exhibit similar relationships with other elements of the MCS. Instead, relationships between controls may vary based on the presence of many other factors, such as control attributes, other controls, or moderating factors. This approach prompts users to form a complete assessment of the studied controls and control environment, which helps readers identify factors impacting the generalizability of findings.

FIGURE 2 Depiction of Farrell et al. (2008)

Figure 2 applies the conceptual framework to Farrell et al. (2008), which investigates efficient task execution. The study also investigates whether employment horizon influences this relationship.

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In addition, the framework can help determine whether controls act as complements or substitutes within a specific setting. If two controls perform different roles within a MCS, they are unlikely to act as substitutes ipso facto; rather, they are likely complements. In contrast, if both controls perform the same role (either activating, directing, or activat- ing and directing), they are more likely substitutes.

For example, Figure 3 applies our approach to the work of Abernethy, Dekker, and Schulz (2015), who examine the relationship between two controls, employee selection and incentive contract controls, to determine whether they act as complements or substitutes.

Abernethy et al. (2015) argue that incentive contracts activate effort by providing employees the opportunity to earn extrinsic rewards and direct employees’ actions via alignment of performance measures with desired organizational objectives. The authors also argue that selection controls provide affiliative or intrinsic activation by hiring employees with innate preferences for desired tasks or shared values with the organization. Further, selection controls direct effort via an increased understanding of organizational objectives arising from value alignment.

Abernethy et al. (2015) also investigate the impact of two moderating factors on the directing processes: organiza- tional learning and performance measure noise. Organizational learning requires capturing many performance elements, some of which are difficult to measure, which increases the potential for misalignment in the MCS. Abernethy et al. (2015) show that incentive contracts and selection controls act as complements for directing effort when organizational learning is increasing. Abernethy et al. (2015) also argue that noisy performance measures have a decreased ability to direct employee effort, a result amplified in organizations with high organizational learning. They show that organiza- tions substitute incentive contracts with selection controls when both performance measurement noise and organiza- tional learning are high.

Applying our approach to Abernethy et al. (2015) benefits users in several ways. First, the application clearly and concisely shows the complete set of factors included in the study, enhancing understanding. Further, our approach facili- tates understanding of whether the studied controls are complements or substitutes. The graphical representation shows that both controls can activate and direct effort, which means that they can perform the same roles as substitutes. Our representation also highlights any moderating factors that may influence the role(s) the control fulfills within the MCS and consequently its relationship to other controls. For instance, the moderating role of both performance measure noise and organizational learning on directing processes is emphasized, drawing attention to the implications of the study’s findings. Overall, our approach improves readers’ understanding by clearly conveying the complete set of studied elements.

Benefits of Application to Multiple Studies Examining the Same Control

The framework is also useful for analyzing differences between separate studies examining the same control, as it eases the comparison of research and highlights differences between studies. This is particularly useful for comparing studies that yield mixed findings, as our approach not only enables users to identify different findings in the literature

FIGURE 3 Depiction of Abernethy et al. (2015)

Figure 3 applies the conceptual framework to Abernethy et al. (2015), which examines whether incentive contracts and selection controls are sub- stitutes or complements. The study also investigates whether organizational learning and noise influence these relationships.

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but also provides insights about why findings may differ. In addition, the application of this framework reveals directing and activating processes that have not been explored in either study, which helps researchers identify potential gaps in the literature.

To illustrate, we apply our approach to two studies examining the same control with different findings, Jeffrey (2009) and Kelly et al. (2017). Both studies examine whether incentive type (cash or tangible) impacts performance. Although both studies examine very similar controls in very similar control environments (i.e., tournaments), their find- ings differ. When controls for participants’ demographic characteristics are included, Jeffrey (2009) finds no difference in performance between participants receiving a cash reward and those receiving a tangible reward. Kelly et al. (2017) examine two rounds of a tournament and find that, although incentive type does not influence performance in the first round, tangible rewards result in greater performance than cash rewards in the second round. Figure 4 presents Jeffrey (2009), and Figure 5 shows Kelly et al. (2017).

Applying our approach to these two studies immediately highlights the differences between them. Specifically, although both examine similar controls, different activating processes are present in each study. Both studies expect participants to exert effort due to desire for the extrinsic reward; however, Jeffrey (2009) also includes intrinsic activa- tion that Kelly et al. (2017) do not, as his experimental task is a word game. Perhaps more importantly, relative per- formance feedback is present in Kelly et al. (2017), which can provide self-cognitive and status activation. Self- cognitive rewards can arise from participants’ feelings about their performance, whereas status rewards can arise from social comparisons of performance. Both elements are absent from the methodology of Jeffrey (2009), as feedback is not provided during the experiment and there is no public comparison. The presence of self-cognitive and status rewards in Kelly et al. (2017) may induce additional effort, which may explain the difference in their findings and those of Jeffrey (2009). Indeed, Kelly et al. (2017) attributes the difference in findings to the presence of social com- parisons (i.e., status activation) in their study. The dual-role framework highlights this difference, which enhances readers’ understanding of the studies. In addition, the framework draws attention to other differences between the studies that have not been identified by the authors, namely the presence of intrinsic activation in Jeffrey (2009) and the presence of self-cognitive activation in Kelly et al. (2017). It also highlights the potential for different activation processes to interact. Thus, our framework facilitates the comparison of findings and offers insights into why findings may differ.

FIGURE 4 Depiction of Jeffrey (2009)

Figure 4 applies the conceptual framework to Jeffrey (2009), which examines the impact of cash and noncash incentives on employee performance.

FIGURE 5 Depiction of Kelly et al. (2017)

Figure 5 applies the conceptual framework to Kelly et al. (2017), which examines the impact of cash and noncash incentives and relative perfor- mance feedback on employee performance.

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Benefits of Application to an Area of Research

Finally, the dual-role framework can also help develop an overview of the literature on an individual control. The two-dimensional categorization can be used to both present and organize research and illustrate unexamined processes. This is particularly useful for introducing areas of research or for summarizing the findings of areas of research concisely and visually.

For example, this framework was used to summarize conclusions from behavioral research on relative performance evaluation at the 2020 Journal of Management Accounting Research Forum on Relative Performance Evaluation (Hannan 2020). Specifically, Hannan (2020) used the activation processes from this framework to summarize inferences about research on relative performance evaluation (hereafter, RPE). Hannan (2020) concluded that a robust area of the literature shows that RPE can impact status activation, citing Tafkov (2013) as an important contributor in this area. Further, Hannan (2020) concluded that RPE can facilitate extrinsic activation by reducing noise in the relationship between effort and reward, citing Drake and Martin (2020) as an example of RPE facilitating extrinsic activation. The benefit of this application of the framework is that it allowed the presenter to summarize the prior research in a struc- tured way.

In addition, Hannan’s (2020) application revealed opportunities for future research by highlighting understudied activation processes. For instance, she concluded that little is known about the impact of RPE on affiliative activation but that such a study would enhance understanding of the consequences of RPE in not-for-profit organizations. Her dis- cussion also highlighted that the presence of RPE may temper intrinsic activation by crowding out the enjoyment inher- ent in assessed tasks. Thus, the use of the framework not only provided an organizing structure for her conclusion but also helped highlight areas where more research on RPE could be valuable.

IV. CONCLUSION

We present a conceptual framework for analyzing research on management control that examines how a control contributes to desired organizational outcomes. We identify six processes that activate employee effort and three pro- cesses that direct it. Our framework focuses on how MCSs activate and direct employees’ effort rather than the study’s empirical design or type of control studied. As a result, our approach complements both taxonomy-oriented frameworks that focus on individual controls (Merchant and Van der Stede 2007; Sprinkle 2003; Bonner and Sprinkle 2002; Otley 1999; Simons 1994; Otley and Berry 1980) and literature maps of management accounting research (Herschung, Mahlendorf, and Weber 2018; Luft and Shields 2003).

The dual-role conceptual framework can help academics in several ways. First, consumers of MCS research can use this approach to represent individual studies on a single management control so that their findings can be easily under- stood and compared. Second, the framework can facilitate a structured examination of the interactive effects of multiple controls on overall MCS objectives, an important benefit given the growing research examining the relationships between management controls (Bedford, Malmi, and Sandelin 2016; Grabner and Moers 2013a). Third, this approach can be used to compare studies examining the same control, aiding the understanding of conflicting findings. Fourth, our framework can be used to organize areas of research to facilitate access and understanding and to highlight gaps in the literature where more research is needed.

As with all studies, the dual-role conceptual framework is subject to limitations that offer opportunities for future research. For example, future research may identify additional processes that activate or direct effort. Researchers can incorporate these processes into the dual-role framework as they are uncovered in subsequent research. That is, the framework provides a foundation that future researchers can expand as additional elements are discovered. Likewise, this framework does not specify the relative value of each identified process. Future research may investigate the relative importance of the processes identified in this framework as well as the factors that mitigate each process’s relative impact. Thus, future researchers can build on the descriptive purpose of this framework to develop normative insights about the importance of each activating and directing process.

Further, the focus of this research is on developing a conceptual framework and demonstrating potential applica- tions of it. We do not perform an archival literature review. However, we acknowledge that a literature review that adopts the perspective of this framework to an area of management accounting could reveal interesting insights. For example, a literature review may reveal understudied activating and directing processes that warrant further research. Given that such a literature synopsis is beyond the scope of this study, we encourage future research to undertake this endeavor.

Despite these limitations, the dual-role framework can assist producers and consumers of management research and advance the field of management accounting and research on management control systems.

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