Management Control Systems for a Hybrid Business Strategy : an exploratory case study of a Dutch food-retailer

Management Control Systems (MCS) are found to be contingent on several factors like size, structure, culture, and business strategy. Because MCS are concerned with aligning employee behavior with organizational objectives, business strategy makes the best claim to affect what MCS are used and how they are used. Porter (1980) formulated cost leadership and differentiation business strategies as viable alternatives for creating a competitive advantage. Failing to choose one of these generic strategies, would render a firm ‘stuck in the middle’, leading to a low return on investment. More contemporary research, however, suggests that a hybrid strategy, which combines both cost leadership and differentiation strategies, is a viable and perhaps even superior alternative to either one generic strategy. Extensive literature exists on what MCS are effective for both cost leadership and differentiation strategies; however, our understanding of what MCS are effective under a hybrid business strategy is very limited. This study attempted to increase our understanding A case study approach was adopted to study MCS in a firm that pursues a hybrid business strategy. We used Malmi & Brown’s (2008) MCS package framework for describing MCS at our case company. Data was gathered through interviews with employees involved with strategy formulation and MCS design, an extensive document review, and observations made by the author during his time at the case company. The result of this thesis are a series of both theoretically and empirically grounded propositions addressing what MCS are expected to be effective for a hybrid business strategy. An important finding is that the MCS package configuration for hybrid strategy is not simply a combination of all typical differentiation or low cost MCS, nor is it a middle ground of these two. We propose that: Firms pursuing hybrid strategy will strongly emphasize cultural control, make extensive use of a budget and incentive pay and will have a structure that balances centralized decision making with autonomous employees. The study contributes to the literature in several ways. This first attempt to link MCS to hybrid strategy provides propositions that are ready for further empirical testing. It furthermore introduces hybrid strategy to Porter’s (1980) curve, this way visually presenting the potential value of hybrid strategy. Next, it contributes by linking business strategies to MCS packages. Based on the literature we formulated MCS configurations that fit each of Porter’s (1980) strategies. Finally, it contributes by describing how the different components of the MCS package interrelate.