Management Control Systems Can Foster Innovation

A soon to be published paper (1) in the journal Industrial Marketing Management demonstrates the value of a management control system in the fuzzy front-end of innovation. It is hard to believe that management control systems can do anything but stifle the fuzzy front-end of innovation which is all about knowledge exploration. But this study shows how the right control system can act as a boundary object between the innovation team and management and, in doing so, facilitate knowledge exploration and innovation. The control system also facilitates network bricolage by clearly defining resource constraints and milestone goals for releasing resources. Network bricolage is a critical element seen in many successful innovators and innovation teams.

The paper has several implications for a management control system like project management.

Good Project Management Facilitates Innovation

First, the paper points the way to how accounting and management control systems, such as earned value management, can play an important role in facilitating innovation. While the paper itself focuses on a non-financial accounting system it is easy to imagine how these results can extend to integrated management control systems focused on specific task or milestone accomplishment. I could even see further research showing the impact of effective budget management on innovation.

Good Project Management Creates Boundary Objects

Second, the paper clearly shows the benefit of a control system as a boundary object and how the right control system facilitates a process which is highly dependent on knowledge sharing and knowledge development, such as innovation. This can help managers understand how to implement control systems to foster improved knowledge sharing and knowledge development. Knowledge sharing and knowledge development are critical for teams to find solutions to problems ranging from technical problems to performance based problems such as delivering a given outcome within a predefined schedule and budget.

Good Project Management Creates Trust

Third, the paper shows the value of metrics produced by management control systems in creating  “coherent chains of trustworthy arguments”(2) that allow innovation teams to “successfully mobilize internal and external resources and support.” The value of metrics in performing this role is an example of how control system related documents such as a project charter, a work breakdown structure, schedule, project reports and EVM metrics can contribute in creating “chains of trustworthy arguments” that allow managers and project performing teams to successfully work within an organization to deliver desired results. As discussed in a previous post, when done right project documents can foster trust, a significant contributor to successful projects.

Conclusion

Contrary to popular belief, management control systems, like project management or accounting systems, can play an important role in innovation, knowledge sharing and project performance. They clarify constraints which enhance network bricolage, act as boundary objects and create chains of trust. This paper contributes to a re-imaging of management control systems as “flexible and dynamic frames adapting and evolving to the unpredictability of innovation, but stable to frame cognitive models, communication patterns, and actions.”(3)

Overcoming the Innovation Valley of Death

Interestingly, the non-financial accounting system discussed in the paper resembles the Technology Readiness Level (TRL) scale used by the United States Department of Defense to categorize stages of technology development. This similarity includes an instance of the well documented Valley of Death where a technology needs a significant increase in resources to jump to a stage of near production readiness. The findings of the paper can help managers better use systems like TRL to obtain desired technology or innovation results and better understand factors which contribute to crossing over the Valley of Death.

(1) Carlsson-Wall,M., & Kraus, K., Opening the black box of the role of accounting practices in the fuzzy front-end of product innovation, Industrial Marketing Management (2015), http://dx.doi.org/10.1016/j.indmarman.2015.01.007

(2) Hoholm, T., & Olsen, P.I. (2012). The contrary forces of innovation. A conceptual model for
studying networked innovation processes. Industrial Marketing Management, 41,344–356.

(3) Davila, A., Foster, G., & Oyon, D. (2009). Accounting and control, entrepreneurship and innovation:
Venturing into new research opportunities. European Accounting Review, 18, 281–311.