David Otley

• MA, MTech, PhD
• Professor Emeritus at Lancaster University

Purpose The purpose of this multi-voiced paper is to propose a prosocial paradigm for the field of performance management and management control systems. This new paradigm suggests cultivating prosocial behaviour and prosocial groups in organizations to simultaneously achieve the objectives of economic performance and sustainability. Design/method...

The organisational justifications made for CSR-related decisions and actions are examined over time using a structured framework premised on instrumental, political, integrative and ethical as well as first and second-order rationales. Using material from semi-structured interviews and drawing on documentary sources, we find that the decision-makin...

Purpose The purpose of this paper is to reflect on how to apply the abductive research process for developing a theoretical explanation in studies on performance management and management control systems. This is important because theoretically ambitious research tends to require explanatory study outcomes, but prior research frameworks provide lit...

This discussion paper outlines the wider context from which the systems versus package debate has emerged, and draws on the papers included in this Special Issue to make suggestions for future progress. It argues that much research work has focused on narrow aspects of management control systems and has often detached these from their wider organiz...

A Performance Management System (PMS) can be conceived as either a package or a system, with the latter generally being seen as preferable to the former. This paper tries to go beyond this dualism by adopting an approach which understands the integration of the mechanisms within an overall PMS as being a continuum that ranges from a complete lack o...

Different design choices in the controls used to manage performance often lead to a range of unintended consequences, which have profound effects on individuals and organizations. This paper presents a mixed review (both systematic and eclectic) of the literature on the unintended consequences of performance management systems and develops a typolo...

This article reviews the literature on the contingency theory of management accounting since the 1980 review by the author. It traces the expansion of this literature and critically outlines some of the major themes explored over this period. It argues that a mechanistic approach that will develop into a predictive mechanism for the design of optim...

The paper reports on a qualitative interpretive field study which looks at the impact of incentives on the risk-taking behaviour of bankers.

Management control is about the process of steering organizations through the environments in which they ope rate, to achieve both short- term and longer-term goals. These goals will differ from organization to organization because their stakeholders are different and the compromises between different stakeholder demands will be resolved in differe...

Much of the discussion of the design and operation of management control systems takes place under the (often implicit) assumption that the future can be known with a high degree of certainty. Even where uncertainty is explicitly recognized, it takes the shape of a benign form of external uncertainty where the future, although not completely predic...

Purpose This article has two main parts. First, the aim of the paper is to give a brief overview of the major developments in management control over the past 50 years and attempt to draw out some abiding themes that have arisen from the work that has been conducted. Second, it will examine one of the more recent issues in more detail, namely manag...

Purpose The purpose of this paper is to describe the dynamic development of technical controls in different companies and to interpret the observations using Van de Ven and Poole's typology of change process theories. Design/methodology/approach Case study data were obtained through semi‐structured interviews, observation and document analysis in...

The management control literature has been criticised for having concepts that are ill-defined. This causes mixed empirical results and makes it difficult to build a coherent body of knowledge. The paper addresses this issue by developing an important framework, that of Simons’ Levers of Control, which has been criticised in the past for its vague...

Research assessment of UK universities has a history going back to at least 1986. A formal review system is operated by the Higher Education Funding Councils and their predecessors, and used to inform one stream of research funding. The current system was formalised in 1992 and continued until 2008, when a decision was taken to revise it more radic...

Financial misrepresentation has usually been analysed by large-scale empirical research. However the generality gained from such an approach is at the cost of understanding the rich and complex nature of financial misrepresentation in real organizations. We adopt a case study approach to gain more insight into the incentives, embedded in contracts,...

Issues in the area of performance management and management control systems are typically complex and intertwined, but research tends to be based on simplified and partial settings. Simplification has made the work easier to carry out, but it has come at the price of increased ambiguity and conflicting findings from different studies. To help mitig...

Issues in the area of performance management and management control systems are typically complex and intertwined, but research tends to be based on simplified and partial settings. Simplification has made the work easier to carry out, but it has come at the price of increased ambiguity and conflicting findings from different studies. To help mitig...

This review starts from the lines of enquiry suggested by Otley et al. [Otley, D.T., Broadbent, J.M., Berry, A.J., 1995. Research in management control: an overview of its development. British Journal of Management 6, S31–S34] and develops these themes in the light of more recently published research. Hence this review is structured around the foll...

This is the text of a plenary address given to the AFAANZ annual conference on 1 July 2007 on the Gold Coast, Queensland, Australia.

Purpose Holding the number of outside directorships constant, this paper aims to test whether executive directors from superior performing firms are subsequently rewarded with better quality outside directorships. Design/methodology/approach The quality of new outside directorship appointments is modelled using a two‐step Heckman selection procedu...

Purpose This paper sets out to demonstrate a conceptual structure for the study of performance management systems which subsumes one major aspect of management accounting activity, namely performance evaluation and control. Design/methodology/approach The approach takes the form of a review of management accounting practices and change over the pa...

Performance management systems, which tend to be taken for granted by organizations, consist of several interrelated but often loosely coupled parts. The design of these separate parts is often the responsibility of different business functions, such as management information systems, operations management, human resources and finance. When there i...

Drawing together contributions from leading thinkers around the world, this 2007 book reviews developments in the theory and practice of performance measurement and management. Significantly updated and modified from the first edition, the book includes ten additional chapters which review performance measurement from the perspectives of accounting...

Drawing together contributions from leading thinkers around the world, this 2007 book reviews developments in the theory and practice of performance measurement and management. Significantly updated and modified from the first edition, the book includes ten additional chapters which review performance measurement from the perspectives of accounting...

This paper explores two issues in the formation of expectations in hierachically ordered organizations - the estimates of events made by individuals at one level and the coupling of these estimates to those made at the next level in the organization. Data from two field studies are used to illustrate the changes in risk bearing imposed by close cou...

This chapter provides a review of the broad field of the literature on control and accountability, which is generally seen as being encompassed within the domain of management control systems (MCS) research. It describes researchers’ definitions of the MCS domain, the frameworks and conceptualizations they have used to provide structure to the fiel...

There is still a controversy over the use of residual income as a tool for the measurement of the performance of units and managers in divisionalized organizations. This has been highlighted by the recent debate in this journal between Cyril Tomkins [1, 2] and Lloyd Amey [3]. Tomkins advocates the use of residual income for profit centres where con...

This chapter begins by reviewing the roles that budgetary control systems take in helping managers assure organizational performance and by considering some of the growing criticisms of their efficacy that have been made in recent years. Two distinct views have been taken about the best way to proceed. The first espouses incremental improvement to...

This paper puts forward the Performance Management and Control (PMC) framework as a research tool for describing the structure and operation of management control systems (MCS). The framework has been inductively generated from the observation of MCS design and use practices in four different organizations, and from our reflections on the strengths...

In order to consider the context of control this chapter will examine issues outside the organisation, that is to say, the environment in which the organisation exists. This endeavour should not be seen as unproblematically imposing a strict delineation of the organisation and its environment, nor as a one-way relationship between the two. Thus, in...

The chapter discusses case-based research in accounting and its benefits. It describes the richness of this kind of research that addresses the task of understanding and theorizing the content, processes, and context of the accounting practice. It presents a personal reflection of the authors on their case research and enumerates the problems faced...

Accounting choices have usually been analysed by large-scale empirical research. However, the generality gained from such an approach is at the cost of understanding the rich and complex nature of such choice decisions in real organizations. This article presents the results of an in-depth analysis of the use of accounting choices by a single group...

Simons' `levers of control' framework indicates that an interactive use of management control systems (MCS) contributes to fostering successful product innovation. However, his work is ambiguous in not specifying whether the relationship between interactive controls and innovation is a mediating or a moderating relationship. This paper examines the...

This paper is a personal account of the author's involvement with management control research over the past 35 years. The development of management control as a research area is briefly reviewed, culminating with its transition into performance management. However, the basic issues involved have remained remarkably unchanged over this period, as is...

Practitioners in Europe and the U.S. recently have proposed two distinct approaches to address what they believe are shortcomings of traditional budgeting practices. One approach advocates improving the budgeting process and primarily focuses on the planning problems with budgeting. The other advocates abandoning the budget and primarily focuses on...

A substantial component of government funding for university research in the UK is now based upon an evaluation of the quality of research being conducted in each university, on a subject by subject basis. This paper describes the processes involved in the 1996 Research Assessment Exercise (RAE) for business and management studies. It is argued tha...

This paper presents an overview of the 2001 Research Assessment Exercise as it applied to the subject area of Accounting and Finance in the UK. Its purpose is primarily to continue to document this important process which is used to allocate substantial amounts of government funding to universities. In addition, given the amount of detailed reading...

This paper is about the development of cost and/or management accounting research in Britain. The authors are three researchers active in this area from the 1970s until the present. The history has not been constructed from careful archival reconstruction of events, or publications, or surveys of colleagues. Rather, it is a personal joint recollect...

Despite recent developments in reporting non-financial measures of performance such as the Balanced Scorecard, the mainstay of management control systems remains the reporting of accounting numbers. This paper reviews the different roles that accounting performance measures fulfil and points out the dangers in using measures designed for one role f...

Previous studies on the use of budgetary criteria in performance evaluation have used a wide range of variables, measures and models, but have concentrated upon extending rather than repeating previous work. This study includes replications of parts of five previous studies and obtains results that differ in many respects from previous findings. Be...

A considerable body of literature has developed following Hopwood (Hopwood (1972). An empirical study of the role of accounting data in performance evaluation. Journal of Accounting Research Supplement 156–182) studying the consequences of evaluative style on managerial behaviour and performance. However, this literature also displays some confusio...

This paper proposes a framework for analysing the operation of management control systems structured around five central issues. These issues relate to objectives, strategies and plans for their attainment, target-setting, incentive and reward structures and information feedback loops. Their central focus is on the management of organizational perf...

A substantial component of government funding for university research in the UK is now based upon an evaluation of the quality of research being conducted in each university, on a subject by subject basis. This paper describes the processes involved in the 1996 Research Assessment Exercise (RAE) for business and management studies. It is argued tha...

Research suggests that dysfunctional behaviour by auditors may be related to the perceived tightness of time budgets. Using data collected from practising auditors, examines the nature of such a relationship. Found that the frequency of dysfunctional behaviour increased sharply as budgets were seen to approach unattainable levels of performance. Re...

This study is an empirical investigation into the operation of control systems in large audit firms in Ireland. All audit seniors in three Big 6 firms were included in a postal survey. The results showed evidence of under-reporting of time, premature sign-off and other audit quality reduction acts. The analysis was extended beyond that reported in...

This paper builds on a series of earlier reviews of the management control literature (Giglioni and Bedeian, 1974; Hofstede, 1968; Merchant and Simons, 1986; Parker, 1986) and considers the development of the management control literature in the context of organizational theories. Early themes which have provided the roots for the development of th...

Prior research has highlighted the problem of dysfunctional reactions to control systems. Studies carried out in auditing firms have revealed high levels of budget pressure leading to a variety of dysfunctional behaviours which can be difficult to control. This study examines how subordinates' reaction to control systems is influenced by the leader...

In previous chapters we have addressed the issues of control and of control structures. In this chapter we address the question of procedures for control primarily through consideration of planning. We work from the idea that a plan constitutes a model of the expected or intended future activities of the organisation and can be a basis for control...

The aim of this chapter is to consider the role of accounting systems in organisational control. Every organisation, be it small or large, business or family unit, has some type of accounting system. Accounting systems provide a fundamental way of handling high levels of complexity by the imposition of a set of standard operating procedures; this p...

As we noted in Chapter 1, not all aproaches to control have adopted a systems perspective. The aim of this chapter is to provide a broad outline of the work of some of the authors and researchers who have considered the problem of control using various social and organisational frameworks. Social and organisational approaches seek to locate control...

Organisational control concerns everyone. Whether you are a manager attempting to run a department, a politician trying to frame legislation to control multinational corporations, or just an individual affected by the activities of the many organisations that have an impact on you, organisational control is a fundamental issue of modern life. In wh...

As Chapters 1 and 2 have shown, there are lots of different approaches to considering control. Different approaches lead to the creation of diverse structures within organisations. When we come to consider the structures of control then, once more, we can look at the creation of these structures through a number of different ‘lenses’. The approache...

In this chapter we will provide a brief overview of the three sections and explore some of the questions and issues that have arisen. In the language of Fayol, control appears as one of the universal activities of organisations and of managing. It had, for him, a central place in the list of planning, leading, organising, controlling and motivating...

This book provides a starting point from which to explore Management Control. By providing a wide-ranging discussion of the issues and institutional settings for this subject, it seeks to provide a resource which can be 'dipped into' on a flexible basis. Divided into 3 sections with different focuses, nevertheless each chapter is self standing and...

This paper argues that the traditional definition of the scope and practice of management control which was developed in the mid 1960s is now too restrictive as it is based on a context of large, hierarchically structured organizations which are now in relative decline. This decline has been caused by changes in the business and social environment...

There have been many calls for the increased use of case study research but only a much smaller number of examples of its application in practice. One reason for this is a lack of understanding concerning the contributions such research can make coupled with an awareness of its limitations. This paper reviews four published case studies with which...

This paper describes the planning and control procedures observed to operate in a medium-sized British company producing and marketing animal foods and related products for agricultural markets, and relates these to the emergence of corporate strategies. It focuses upon the role of management in this process and relies upon the accounts given by ma...

This paper reports on a research study on the processes of control operated in the branch organization of a bank-owned finance house, which was in the business of providing both industrial and retail loans. Before presenting descriptive material designed to set the context for the case, the theoretical position taken by the researchers is outlined....

This case study examines the accountability and management control arrangements that operate within the British Coal Corporation. Although based primarily upon a recent interview-based study, comparisons are also made with a previous study conducted by the author some 15 years ago. The paper describes current control practices, assesses how they ha...

The final link in the management control cycle is to connect the achievement of desired results with incentives for managers, so that they are motivated to achieve the performance targets that are set. The linking of rewards with performance helps ensure that effort is devoted in desirable directions. However, there are a variety of possible reward...

Budgetary planning and control is the most visible use of accounting information in the management control process. By setting standards of performance and providing feedback by means of variance reports, the accountant supplies much of the fundamental information required for overall planning and control. However, budgetary information serves a va...

The need for the accounting information system to promote behaviour congruence is possibly most pronounced for investment centre managers. The importance of capital projects to the long-term effectiveness of the company means that the interactions between results, action and personal controls cannot be overlooked. In-depth studies of the capital bu...

Financial performance measures provide quantitative and common yardsticks to evaluate achievement relative to a plan or to compare parts of the company. In that these reflect or are taken to reflect the achievement of the individual divisional manager, we can see that financial performance measures contribute to results controls, in particular. The...

This chapter sets out the main features of the organizational context within which accounting controls operate. Organizations use many different types of control to coordinate their different activities, but accounting provides a convenient language for discussing the impact of a wide range of disparate activities. However, accounting information i...

A major aim of a management control system is to induce individuals to behave in ways which contribute to overall organizational performance. An important element of the control process is therefore concerned with how and why individuals are motivated to act. In this chapter, we shall consider two major classes of motivational theory, namely conten...

While the limitations of the contingency approach are recognized, it seems heroic to assume that a single accounting information system will work equally well in all types of companies. We have identified one contingent variable — the incidence of non-programmed decision making — as a potentially significant influence in the design of accounting in...

This chapter argues that as companies grow to avoid environmental uncertainty, they subsequently become more complex to manage. By diversifying, the enlarged company encounters the combined problem of operating in an increased number of distinct, dynamic product and geographical markets where top management ability to identify and monitor constantl...

In comparison with many other accounting issues, transfer pricing may be regarded as a relatively small nut, but it is one which has proved difficult to crack. This may be due to the pervasive nature of transfer pricing. At one level, the issue has the attributes of a zero sum game, one divisional manager benefiting at the expense of another. At a...

The previous four chapters have outlined the general background against which the activity of management control takes place. In this chapter, a more managerially oriented stance is taken in outlining and evaluating the various control options that are available to senior managers. Accounting-based controls are thus set in the context of the wider...

This chapter is concerned with the ways in which organizational structure can act as a means of influencing and controlling the behaviour of the individuals who work within it. This is the subject matter of organizational theory, so the first part of the chapter reviews its development. It is found that no coherent overall theory of organizational...

A major function of management accounting information is to support managerial decision making, for a main criterion for rational decision making in business organizations is the maximization of financial benefits. However, the estimation of financial costs and benefits involves the combination of historical data with subjective estimates concernin...

Permaclean Products is an old-established firm, located in Dunstable, which manufactures a comprehensive range of domestic cleaning materials. It has a sound reputation and a well-known brand name which has made it a market leader in a wide range of products designed for home use. Although Permaclean has several competitors, the total sales of each...

The focus of this text is on the provision of information that will assist managers to guide their organizations in appropriate directions. Previous chapters have reviewed the nature of the control process and have outlined current theories of individual motivation and organizational structure. We now turn to the nature of the management task itsel...

There has been a tendency in recent years for management research to become polarised into two distinct streams, one predominately theoretical in approach, the other empirical. The first stream of work constructs overall theoretical frameworks, maybe drawn from a number of source disciplines, but having little empirical content. The second stream c...

The aim of this chapter is to survey developments in the application of organization theory to management accounting research to provide accounting researchers with a basis for designing future research projects that will make useful contributions in this area. The original intention was to examine recent empirical work in organization theory with...

This chapter surveys the development of management accounting in the academic literature over the last twenty years or so, in an attempt to evaluate the current state of the art. The survey is organized in three levels. The first level is the conventional wisdom — i.e. the state of the art as it is currently taught to undergraduate students, some o...

The purpose of this chapter is to examine and evaluate the contributions made by the disciplines of cybernetics and general systems theory to the study of management control. It seeks to do this by drawing out the concepts of control developed in each of the disciplines and considering their applicability in the context of organisational control sy...

Contingency theories of management accounting have become a current vogue but have produced few significant new results. By surveying the development and content of these theories it is argued that they have been based on an inadequate and insufficiently articulated model. An improved model, based on ideas of organisational control and effectivenes...

Organisation control is a subject of fundamental importance to the designer of accounting control systems. Yet discussions of accounting control tend to take place against a back-cloth of incomplete and outmoded theories of organisation and simplistic and authoritarian concepts of control. In this paper, the applicability of a cybernetic model of c...

Budgeting has always been a problematic process. At the end of a budget period it is invariably found that some managers have been able to achieve their budget targets more successfully than others. But when senior managers come to evaluate their subordinates’ performance they have to recognize that some apparent success is caused by certain manage...