Structure of Planning and Control Artifacts and their Accuracy in Brazilian Family Businesses.
| Autor | Frezatti, Fabio |
| Cargo | Research Article |
INTRODUCTION
The logic of the management and control chain is discussed from the theoretical viewpoint in papers in the area of management control (Malmi & Brown, 2008; Merchant & Van der Stede, 2007) and covers the existence of various artifacts such as strategic planning, budget, forecast, budgetary control, and performance indicators. However, there is little empirical evidence regarding the relationship between the artifacts within the logic of interdependence and specifically of complementarity (e.g., Grabner & Moers, 2013).
These mechanisms are normally treated as planning and cybernetic controls (that is, comparisons between predictions and results are provided), consisting of two of the five groups of control artifacts discussed by Malmi and Brown (2008) based on the management control systems (MCS) terminology. MCS consists of a collection or set of controls and control systems used by organizations interdependently (Bedford, 2020; Grabner & Moers, 2013; Malmi & Brown, 2008; Merchant & Otley, 2020). Chenhall and Moers (2015) discuss the difference between packages and the management control system per se, with the need to understand the set (Kapiyangoda & Gooneratne, 2021). Assertive information for managers on what they should do in the future to maximize their contributions in order to meet the organizational objectives is essential for the organization and the accuracy conveyed feeds future assertiveness through the credibility of the process.
Planning forms part of the results control logic by deciding directions in advance and the cycle ends and renews when the calculated results stimulate and encourage the managers to develop their talents and improve future performance (Degenhart, Lunardi, & Zonatto, 2019; Merchant & Van der Stede, 2007). As a set, the various elements contribute to executives increasing their ability to achieve results through the following factors: (1) knowledge of the expected results, which provides both the guidance on what is expected of someone and the opportunity for commitment as they understand whether it is possible or not to achieve the goal; (2) the ability to influence results, through knowing the performance profile expected of them and being able to develop strategies and tactics for that; and (3) the ability to effectively control the results, since they know the goals and plan how to achieve them (Merchant & Van der Stede, 2007).
This vision concerns the ex-ante control (Flamholtz, Das, & Angeles, 1985), an active option of this study's approach. The establishment of performance goals can favor different perspectives, such as the relationship with the historical results or what was negotiated, the existence of fixed or flexible targets, and the focus on the parameter of internal or external comparison, enabling the performance evaluation to occur and recognition to become technically viable (Frow, Marginson, & Ogden, 2010; Henttu-Aho, 2018; Merchant & Van der Stede, 2007).
In particular, planning and cybernetic controls provide various benefits for organizations, such as advance decisions, the coordination of activities, identification and advance delegation of responsibilities, motivation to achieve goals, and conditions for measuring and evaluating area and manager performance (Hansen & Van der Stede, 2004; Sivabalan, Booth, Malmi, & Brown, 2009). Within that perspective, one of the managers' expectations is for the planning and control process to enable the organization to be assertive in the establishment and achievement of goals, considering that, in doing so, it can more effectively coordinate its resources, align objectives with managers, and incentivize them, as well as establishing alignment between the implemented strategies and the company's strategic priorities (Hansen & Van der Stede, 2004; Sivabalan et al., 2009; Sponem & Lambert, 2016).
One of the main attributes that can be used to evaluate the effectiveness of the planning and control process is its accuracy. Accuracy, in general, represents the level of precision with which a proposed estimate is aligned with the actual result and can be supported by various artifacts such as a budget and forecast (Bruggen, Grabner, & Sedatole, 2021; Cassar & Gibson, 2008; Henttu-Aho, 2018).
Therefore, it should be noted that the understanding and perception of accuracy directly affect the benefits mentioned by Merchant and Van der Stede (2007), giving value to them or even, in an extreme case, destroying them in terms of credibility. High accuracy in terms of what was planned tends to provide conviction that the planning and control process adds value to the management model. Low accuracy tends to create a perception that the investment in time, people, and mechanisms may be something that is meaningless (Becker, Mahlendorf, Schaffer, & Thaten, 2016) for the company objectives, due to the mismatch between the plan and reality, which is seen as a relevant criticism regarding the company budget (Libby & Lindsay, 2010).
A gap that derives from this perception is that the transformation of tolerance for deviations is not empirically discussed and the topic fails to receive advancements. In other words, how much accuracy does an organization need and how much can it have? How can the discussion of the decided accuracy be transformed into something useful for the organization? Consequently, research that critically analyzes both accuracy and the structure that enables its achievement is needed to improve the management models to address this relevant gap (Abernethy & Brownell, 1999) and, when this occurs, the mechanisms improve the process and are perceived as guides for responses to crises (Becker et al., 2016).
Within that perspective, the utility of the planning and control process gains a relevant dimension (Abernethy & Brownell, 1999), and its accuracy, which in terms of performance to be achieved becomes a decisive factor for the validation of its set (Frow et al., 2010; Libby & Lindsay, 2010). This attribute can also interfere in the performance evaluation of an individual, an area, and the organization as a whole, depending on the structure of its performance evaluation model (Luz & Lavarda, 2020). It is associated both with the mechanisms and with what senior management believes and expects from the set of mechanisms available.
In the structuring of this study, the following gaps were identified: (1) addressing accuracy considering the perspective of 'actual' accuracy (obtained result), proposing ranges of variation; (2) discussing the interdependence and integration of the structure of artifacts and its impact over accuracy, using the diagnostic control approach discussed by Simons (1995); (3) analyzing accuracy considering elements that are exogenous and therefore have less predictive controllability, namely the 'market assumptions,' such as inflation, exchange rate variations, wages, and supplier prices; and (4) addressing variables that present some level of relative controllability, the so-called 'accuracy of financial performance variables,' such as revenue, profit, margin, and return, which are elements that are commonly used for organizational management. An additional gap that has implications over management models concerns understanding accuracy as liable to a conscious decision with elements with different levels of objectivity to be addressed. The five gaps were covered in different levels of depth.
Consequently, the guiding question of the research is the following: 'How are the planning and control artifacts associated with the desired level of performance accuracy?' Thus, the research aims to identify the relationship between the structure of planning and control artifacts and the accuracy of the performance variables with a view to adapting the profile of artifacts to the desired impact over performance accuracy.
The study proposes to contribute to the management control literature in various ways: first, by presenting the set of planning and control artifacts in terms of complementarity, integration, and impact on accuracy; and second, by highlighting the accuracy topic in a quantitative and ordinal way, as an element to be decided by the organization in terms of level, considering that an organization's managers apply resources as a result of the observed degree of tolerance. This involves a proposal in which the managers, by understanding accuracy as something measurable (Ritchie & Lewis, 2003), can decide their level of tolerance according to their utility, prioritize the uses of artifacts, and allocate resources so that the combination works (Chapman, 1997; Chenhall, 2003). Finally, by exploring the necessary condition analysis (NCA) approach, we complement the structural equation analysis and shed light on the conditions needed for a high level of performance accuracy. With this, the impact of the research can be translated through the understanding of the behavior, adaptation, and use by companies in a comparative way so that the goals are realistic and, at the same time, challenging (Ferreira & Otley, 2009), resulting from the managers' contextual perception in the search for efficiency (Welsch, 1996).
LITERATURE REVIEW, CONSTRUCTS, HYPOTHESES, AND THEORETICAL MODEL
In the literature review, we will cover accuracy in the planning and control process, the artifacts of the planning and control system (basic and forecasts), and their hypotheses.
Accuracy in the planning and control process
Accuracy represents the level of precision with which an estimate of a market assumption or of a performance goal becomes reality (Bruggen et al., 2021; Cassar & Gibson, 2008; Henttu-Aho, 2018). To measure it, it is necessary to capture the percentage deviation between what was projected in the budget or in the forecast and what occurred (Henttu-Aho, 2018; Jordan & Messner, 2020).
In a parallel with the military area, the accuracy that a missile has is of fundamental importance for...
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