Management control systems and business performance: Evidence from Sri Lankan apparel industry

https://doi.org/10.35912/ijfam.v4i4.1167
Published: Mar 7, 2023

Abstract:

Purpose: The objective of this study is to explore the types and nature of management control practices and how they influence the business performance of two large apparel manufacturing companies in Sri Lanka.

Research methodology: The research uses in-depth multiple case-study approaches based on a Sri Lankan apparel manufacturing company. Data is collected using interviews, participant observations, and documentary evidence. To achieve the objectives, thematic analysis is used as the analysis tool.

Results: The findings of the study revealed that the existence of tight, strong, impactful, and effective MCSs (Management Control Systems) leads to both high sales volume and also elevates the annual growth of sales of two main apparel companies in Sri Lanka. Moreover, it is found that the effective placement and use of MCSs have a considerable influence on the profitability of the case companies.

Limitations: The main limitation of this study is that it only focuses on two apparel exporting companies in the Sri Lankan apparel industry. Further, this research is a case study-based qualitative research where the inherent shortcomings of any such research are unavoidable where the personal traits of individuals as they place more significance on personal beliefs, opinions, and judgments than the results. Similarly, there is no articulated way to analyze qualitative data in an arithmetical manner.

Contribution: This study contributes to the management discipline in the apparel industry in Sri Lanka and steers the Sri Lankan economy in a positive direction, as the research keeps an eye on the apparel industry at large.

Keywords:
1. Annual Growth of Sales
2. Management Control System (MCS)
3. Organizational Performance
4. Performance
Authors:
1 . Vipuli Maheshika Weerathunga
University of Sri Jayewardenepura, Sri Lanka
2 . S M Chaturika Seneviratne
University of Sri Jayewardenepura, Sri Lanka
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How to Cite
Weerathunga, V. M., & Seneviratne, S. M. C. . (2023). Management control systems and business performance: Evidence from Sri Lankan apparel industry. International Journal of Financial, Accounting, and Management, 4(4), 411–426. https://doi.org/10.35912/ijfam.v4i4.1167
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Vol. 4 No. 4 (2023): March
Articles
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References

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    Anthony, R. N. (1965). Planning and control systems, a framework for analysis. Division of Research, Graduate School of Business Administration, Harvard University, Boston, 1965.

    Baird, K., Su, S., & Munir, R. (2019). Levers of control, management innovation and organizational performance. Pacific Accounting Review.

    Bowen, G. A. (2009). Document Analysis as a Qualitative Research Method. Qualitative Research Journal.

    Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Qualitative Research in Psychology, 77-101.

    Braun, V., Clarke, V., Hayfield, N., Frith, H., Malson, H., Moller, N., & Shah-Beckley, I. (2019). Qualitative story completion: Possibilities and potential pitfalls. Qualitative Research in Psychology, 136-155.

    Bryman, A. (2012). Understanding Research for Social Policy and Social Work. Policy Press.

    Burritt, R., Hahn, T., & Schaltegger, S. (2002). Towards a comprehensive framework for environmental management accounting: links between business actors and environmental management accounting tools. Australian Accounting Review, 12(2), 39-50.

    Castleberry, A., & Nolen, A. (2018). Thematic analysis of qualitative research data: Is it as easy as it sounds? Elsevier, 807-815.

    CBSL. (2014). Annual Report 2014. Central Bank of Sri Lanka. Retrieved from https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2014/en/6_Chapter_02.pdf

    CBSL. (2019). Annual Report 2019. Central Bank of Sri Lanka. Retrieved from https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2019/en/6_Chapter_02.pdf

    Chenhall, R. H. (2003). Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Journal of Accounting, Organizations and Society, 27-168.

    Chow, C. W., Shields, M. D., & Wu, A. (1999). The importance of national culture in the design of and preference for management controls for multi-national operations. Journal of Accounting, Organizations and Society, 561-582.

    Choy, L. T. (2014). The Strengths and Weaknesses of Research Methodology: Comparison and Complimentary between Qualitative and Quantitative Approaches. Journal Of Humanities And Social Science, 19(4), 99-104.

    Chris Akroyd, R. K. (2015). The Emergence and Utilization of Management Control Systems in a High Growth Firm. 2-50.

    Crowe, S., Cresswell, K., Robertson, A., Huby, G., Avery, A., & Sheikh, A. (2011). The case study approach. BMC Medical Research Methodology.

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    Felício, T., Samagaio, A., & Rodrigues, R. (2021). Adoption of management control systems and performance in public sector organizations. Journal of Business Research.

    Gaille, B. (2018, February). 25 Advantages and Disadvantages of Qualitative Research. Retrieved from Brandon Gaille Small Business & Marketing Advice: https://brandongaille.com/25-advantages-disadvantages-qualitative-research/

    Goldstein, A. E., & Reiboldt, W. (2004). The Multiple Roles of Low Income, Minority. The Qualitative Report, 241-265.

    Hansen, E. L. (1995). Entrepreneurial Networks and New Organization Growt68. Sage Journals.

    Harper, D., & Thompson, A. R. (2011). Qualitative Research Methods in Mental Health and Psychotherapy: A guide for students and practioner. John Wiley and Sons.

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    Ilse Maria Beuren, S. A. (2014). Evaluation of Management Control Systems in a Higher Education Institution with the Performance Management and Control. Journal of Information Systems and Technology Management, 11(ISSN online: 1807-1775), 169-192.

    J. Greenberg. (2001). Studying organizational justice cross-culturally: Fundamental Challenges. International Journal of Conflict Management.

    Jänkälä, S. (2007). Management Control Systems (MCS) in the Small Business Context. Acta Universitatis Ouluensis G Oeconomica 30, G30(ISSN 1796-2269), 5-403.

    Joanna L. Ho, C.-J. H. (2011). The Impact of Management Control Systems on Efficiency and Quality Performance – An Empirical Study of Taiwanese Correctional Institutions. Asia-Pacific Journal of Accounting and Economics, 77-94.

    Josep Bisbe, D. O. (2004). The Effects of the Interactive Use of Management Control Systems on Product Innovation. Accounting, Organizations and Society-Elsevier, 29(0361-3682), 709-737.

    Kariyawasam, A. H., Low, D. L., & Kevin. (2014). Impact of Management Control Systems on The Normalized Profits Of Manufacturing Companies in Sri Lanka. International Journal of Arts and Commerce, 3( ISSN 1929-7106 ), 26-34.

    Kariyawasam, A. N., Low, D. L., Kevin, & Senaratne, D. (2014). Impact of Management Control Systems on Year on the Year Growth of Operating Profits of Manufacturing Companies in Sri Lanka. International Journal of Research in Commerce, Economics & Management, 4, 26-29.

    Kiger, M. E., & Varpio, L. (2020). Thematic analysis of qualitative data: AMEE Guide. Medical Teacher.

    Knight, D., & Wilmott, H. (1993). Its a Very Foreign Discipline - The Genesis of Expenses Control in a Mutual Life Insurance Company. ritish Journal of Management, 1-18.

    Langfield-Smith, K. (1997). Management Control Systems and Strategy: A Critical Review. Elsevier Science Ltd-Pergamon, 22, 207-232.

    Malcom Smith, A. M. (2007). Management Practices and Performance Reporting in the Sri Lankan Apparel Sector. Managerial Auditing Journal, 22, 303-318.

    Maqableh, M., Rajab, L., Quteshat, W., Masa’deh, R. M., Khatib, T., & Karajeh, H. (2015). The Impact of Social Media Networks Websites Usage on Students’ Academic Performance. Communications and Network, 7.

    Margaret A. Abernethy, P. B. (1999). The Role of Budgets in Organizations Facing Strategic Change: An Exploratory Study. Accounting, Organizations and Society-Pergamon, 24(0361-3682), 189-204.

    Martinelli, D. P. (2001). Systems hierarchies and management. Systems Research and Behavioral Science.

    MAS Holdings. (n.d.). Retrieved March 15, 2022, from https://www.masholdings.com/

    Merchant, K. A., & Otley, D. T. (2007). A review of the literature on control and accountability. Handbook of Management Accounting Research. C. S. Chapman, A. G. Hopwood, and M. D. Shields, 785-804, Amsterdam: Elsevier Press.

    Nani, D. A., & Safitri, V. A. (2021). Exploring the Relationship between Formal Management Control Systems, Organizational Performance and Innovation: The Role of Leadership Characteristics. Asian Journal of Business & Accounting.

    Nudurupati, S. S., Garengob, P., & Bititcic, U. S. (2021). Impact of the changing business environment on performance measurement and management practices. International Journal of Production Economics.

    Ong, T. S., Haghshenas, Z., Teh, B. H., Adedeji, B. S., & Magsi, H. B. (2021). Management Control Systems and Performance: The Mediating Role of Organizational Capabilities in Malaysia. Asian Journal of Accounting and Governance, 49-64.

    Otley, D. (1999). Performance Management: A Framework for Management Control Systems Research. Management Accounting Research, 10, 363-382.

    Patton, M. Q. (2002). Qualitative Research & Evaluation Methods. Sage Publications.

    Samudrage, D. N. (2018). Relationship between Strategy and Management Control Systems : Case of a Privatized Telecommunication Company in Sri Lanka. 120-151.

    Sandino, T. (2007). Introducing the First Management Control Systems: Evidence from the Retail Sector. The Accounting Review 2007, 82, 165-293.

    Simons, R. (1990). The Role of Management Control Systems in Creating Competitive Advantage: New Perspectives. Accounting, Organizations and Society-Pergamon, 15(0361-36B2/90), 127-143.

    Simons, R. (1990). The Role of Management Control Systems in Creating Competitive Advantage: New Perspectives. Accounting, Organizations and Society-Pergamon, 15, 622-645.

    Stuart Burchell, C. C. (1980). The Roles of Accounting in Organizations And Society. Accounting, Organizations and Society-Pergamon, 5(1), 5-27.

    Teemu Malmi, D. A. (2008). Management Control Systems as a Package—Opportunities, Challenges and Research Directions. Management Accounting Research Elsevier, 288-300.

    Ussahawanitchakit, P. (2017). Management Control Systems and Firm Sustainability: Evidence from Textile and Apparel Businesses in Thailand. Asian Academy of Management Journal, 22, 186-208.

    Yin, R. K. (1994). Discovering the Future of the Case Study. Method in Evaluation Research. Sage Journals.

    Zoe Helsen, N. L. (2016). Management Control Systems in Family Firms: A Review of the Literature and Directions for the Future. Journal of Economic Surveys, 1-26.

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  2. Anthony, R. N. (1965). Planning and control systems, a framework for analysis. Division of Research, Graduate School of Business Administration, Harvard University, Boston, 1965.
  3. Baird, K., Su, S., & Munir, R. (2019). Levers of control, management innovation and organizational performance. Pacific Accounting Review.
  4. Bowen, G. A. (2009). Document Analysis as a Qualitative Research Method. Qualitative Research Journal.
  5. Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Qualitative Research in Psychology, 77-101.
  6. Braun, V., Clarke, V., Hayfield, N., Frith, H., Malson, H., Moller, N., & Shah-Beckley, I. (2019). Qualitative story completion: Possibilities and potential pitfalls. Qualitative Research in Psychology, 136-155.
  7. Bryman, A. (2012). Understanding Research for Social Policy and Social Work. Policy Press.
  8. Burritt, R., Hahn, T., & Schaltegger, S. (2002). Towards a comprehensive framework for environmental management accounting: links between business actors and environmental management accounting tools. Australian Accounting Review, 12(2), 39-50.
  9. Castleberry, A., & Nolen, A. (2018). Thematic analysis of qualitative research data: Is it as easy as it sounds? Elsevier, 807-815.
  10. CBSL. (2014). Annual Report 2014. Central Bank of Sri Lanka. Retrieved from https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2014/en/6_Chapter_02.pdf
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  12. Chenhall, R. H. (2003). Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Journal of Accounting, Organizations and Society, 27-168.
  13. Chow, C. W., Shields, M. D., & Wu, A. (1999). The importance of national culture in the design of and preference for management controls for multi-national operations. Journal of Accounting, Organizations and Society, 561-582.
  14. Choy, L. T. (2014). The Strengths and Weaknesses of Research Methodology: Comparison and Complimentary between Qualitative and Quantitative Approaches. Journal Of Humanities And Social Science, 19(4), 99-104.
  15. Chris Akroyd, R. K. (2015). The Emergence and Utilization of Management Control Systems in a High Growth Firm. 2-50.
  16. Crowe, S., Cresswell, K., Robertson, A., Huby, G., Avery, A., & Sheikh, A. (2011). The case study approach. BMC Medical Research Methodology.
  17. D. H. Kincade, N. C. (2015). The Quick Response Management System: Structure and Components for the Apparel Industry. The Journal of The Textile Institute.
  18. EDB. (2020). Sri Lanka Export Statistics. Information Technology Division/ Sri Lanka Export Development Board.
  19. Embuldeniya, A. (2018). Impact of Apparel Industry on the Economy of Sri Lanka. Journal of Social Statistics, 1-15.
  20. Felício, T., Samagaio, A., & Rodrigues, R. (2021). Adoption of management control systems and performance in public sector organizations. Journal of Business Research.
  21. Gaille, B. (2018, February). 25 Advantages and Disadvantages of Qualitative Research. Retrieved from Brandon Gaille Small Business & Marketing Advice: https://brandongaille.com/25-advantages-disadvantages-qualitative-research/
  22. Goldstein, A. E., & Reiboldt, W. (2004). The Multiple Roles of Low Income, Minority. The Qualitative Report, 241-265.
  23. Hansen, E. L. (1995). Entrepreneurial Networks and New Organization Growt68. Sage Journals.
  24. Harper, D., & Thompson, A. R. (2011). Qualitative Research Methods in Mental Health and Psychotherapy: A guide for students and practioner. John Wiley and Sons.
  25. Henri, J. F. (2006). Management control systems and strategy: A resourcebased perspective. Accounting, organizations and society. 31(6), 529-558.
  26. Holdings, M. (n.d.). MAS Holdings. Retrieved March 15, 2022, from https://www.masholdings.com/
  27. Hrebiniak, L. G., & Snow, C. C. (1980). Research Notes: Industry Differences in Environmental Uncertainty and Organizational Characteristics Related to Uncertainty. Academy of Management Journal.
  28. Ilse Maria Beuren, S. A. (2014). Evaluation of Management Control Systems in a Higher Education Institution with the Performance Management and Control. Journal of Information Systems and Technology Management, 11(ISSN online: 1807-1775), 169-192.
  29. J. Greenberg. (2001). Studying organizational justice cross-culturally: Fundamental Challenges. International Journal of Conflict Management.
  30. Jänkälä, S. (2007). Management Control Systems (MCS) in the Small Business Context. Acta Universitatis Ouluensis G Oeconomica 30, G30(ISSN 1796-2269), 5-403.
  31. Joanna L. Ho, C.-J. H. (2011). The Impact of Management Control Systems on Efficiency and Quality Performance – An Empirical Study of Taiwanese Correctional Institutions. Asia-Pacific Journal of Accounting and Economics, 77-94.
  32. Josep Bisbe, D. O. (2004). The Effects of the Interactive Use of Management Control Systems on Product Innovation. Accounting, Organizations and Society-Elsevier, 29(0361-3682), 709-737.
  33. Kariyawasam, A. H., Low, D. L., & Kevin. (2014). Impact of Management Control Systems on The Normalized Profits Of Manufacturing Companies in Sri Lanka. International Journal of Arts and Commerce, 3( ISSN 1929-7106 ), 26-34.
  34. Kariyawasam, A. N., Low, D. L., Kevin, & Senaratne, D. (2014). Impact of Management Control Systems on Year on the Year Growth of Operating Profits of Manufacturing Companies in Sri Lanka. International Journal of Research in Commerce, Economics & Management, 4, 26-29.
  35. Kiger, M. E., & Varpio, L. (2020). Thematic analysis of qualitative data: AMEE Guide. Medical Teacher.
  36. Knight, D., & Wilmott, H. (1993). Its a Very Foreign Discipline - The Genesis of Expenses Control in a Mutual Life Insurance Company. ritish Journal of Management, 1-18.
  37. Langfield-Smith, K. (1997). Management Control Systems and Strategy: A Critical Review. Elsevier Science Ltd-Pergamon, 22, 207-232.
  38. Malcom Smith, A. M. (2007). Management Practices and Performance Reporting in the Sri Lankan Apparel Sector. Managerial Auditing Journal, 22, 303-318.
  39. Maqableh, M., Rajab, L., Quteshat, W., Masa’deh, R. M., Khatib, T., & Karajeh, H. (2015). The Impact of Social Media Networks Websites Usage on Students’ Academic Performance. Communications and Network, 7.
  40. Margaret A. Abernethy, P. B. (1999). The Role of Budgets in Organizations Facing Strategic Change: An Exploratory Study. Accounting, Organizations and Society-Pergamon, 24(0361-3682), 189-204.
  41. Martinelli, D. P. (2001). Systems hierarchies and management. Systems Research and Behavioral Science.
  42. MAS Holdings. (n.d.). Retrieved March 15, 2022, from https://www.masholdings.com/
  43. Merchant, K. A., & Otley, D. T. (2007). A review of the literature on control and accountability. Handbook of Management Accounting Research. C. S. Chapman, A. G. Hopwood, and M. D. Shields, 785-804, Amsterdam: Elsevier Press.
  44. Nani, D. A., & Safitri, V. A. (2021). Exploring the Relationship between Formal Management Control Systems, Organizational Performance and Innovation: The Role of Leadership Characteristics. Asian Journal of Business & Accounting.
  45. Nudurupati, S. S., Garengob, P., & Bititcic, U. S. (2021). Impact of the changing business environment on performance measurement and management practices. International Journal of Production Economics.
  46. Ong, T. S., Haghshenas, Z., Teh, B. H., Adedeji, B. S., & Magsi, H. B. (2021). Management Control Systems and Performance: The Mediating Role of Organizational Capabilities in Malaysia. Asian Journal of Accounting and Governance, 49-64.
  47. Otley, D. (1999). Performance Management: A Framework for Management Control Systems Research. Management Accounting Research, 10, 363-382.
  48. Patton, M. Q. (2002). Qualitative Research & Evaluation Methods. Sage Publications.
  49. Samudrage, D. N. (2018). Relationship between Strategy and Management Control Systems : Case of a Privatized Telecommunication Company in Sri Lanka. 120-151.
  50. Sandino, T. (2007). Introducing the First Management Control Systems: Evidence from the Retail Sector. The Accounting Review 2007, 82, 165-293.
  51. Simons, R. (1990). The Role of Management Control Systems in Creating Competitive Advantage: New Perspectives. Accounting, Organizations and Society-Pergamon, 15(0361-36B2/90), 127-143.
  52. Simons, R. (1990). The Role of Management Control Systems in Creating Competitive Advantage: New Perspectives. Accounting, Organizations and Society-Pergamon, 15, 622-645.
  53. Stuart Burchell, C. C. (1980). The Roles of Accounting in Organizations And Society. Accounting, Organizations and Society-Pergamon, 5(1), 5-27.
  54. Teemu Malmi, D. A. (2008). Management Control Systems as a Package—Opportunities, Challenges and Research Directions. Management Accounting Research Elsevier, 288-300.
  55. Ussahawanitchakit, P. (2017). Management Control Systems and Firm Sustainability: Evidence from Textile and Apparel Businesses in Thailand. Asian Academy of Management Journal, 22, 186-208.
  56. Yin, R. K. (1994). Discovering the Future of the Case Study. Method in Evaluation Research. Sage Journals.
  57. Zoe Helsen, N. L. (2016). Management Control Systems in Family Firms: A Review of the Literature and Directions for the Future. Journal of Economic Surveys, 1-26.