The Effect of Formal Controls on Innovation and Performance in The Presence of Trust - Thesis Proposal Example

Thesis Proposal The Effect of Formal Controls on Innovation and Performance in The Presence of Trust This study examines the effects formal controls and organizations’ innovation and performance in the presence of trust. With this purpose, the study is carried out on a different business. Various data collection, analysis and sampling methods, are used. The results show that good management is and financial planning is the backbone of successful business venture. It is further noted an innovative culture has a positive impact on an organization performance Introduction Businesses that are operated under a clear line of operation are successful. For a business to thrive certain key features must be considered so as to enable the functionality of a business venture. The activities to be executed in such a business venture is another burning issue. The operation of the business venture should be planned and organized correctly. Documentation for all the activities that are to be carried out should be correctly done. Finance is a sensitive issue in a business venture. Background information Financial management is the key to prosperous business activity. The firm should be able to nominate new business employees and train them to take roles in their firm. Commitment from the employees is mandatory for a business to thrive. Team work is also catalyzing factor for the growth of the business. The managerial figures should trust their juniors and allocate them duties in the firm. The firm should also trust the relationship they have with their customers and have confidence that they will buy their products. The clients should also trust the products being offered by the firm. In the case of new inventions in the business, clients should trust the firm to have offered quality products and which suits their needs. Trust is important for both parties especially in the case of new inventions. In most cases, the firm usually uses many resources to come up with new products in the market. For a product to successfully compete with other products in the market, it must meet the standards that are required and also must be captivating and meet customers need. In the case of first time users of the product, they must trust the product to meet their needs. The firm also requires carrying out a feasibility study before taking into account their next line of venture. The feasibility study is important because the customers will have to know what the customers taste is and what should incorporate in the new product or invention before producing it. The advantages of a feasibility study are • The firm will get to understand the demands of the customers and their taste and preferences. It helps also to identify whether real demand of the new product exists. Based on the feedback from both the staff and customers the resulting data can be used to form a priority list. • It helps to assess resources available to complete the project. If additional resources are required fund can be solicited from the necessary sources before the project begins. The results also give the project managers to reset their expectations based on the acquired real budget and headcount • The business can also be able to identify the relevant marketing targets of their products. The target markets are identified during this phase and hence easy to identify the competitors in that particular field. • Marking a timeline is the biggest advantage of the feasibility study. The project manager can also mark deadlines of when the project should be finalized and when the customers should expect products in the business. • Supply chain can also be identified by the study. The product can move from the producer to the consumers or from the producer or from the producer to consumer but through the retailer. • Feasibility study enables business to view the quality of the team they have rather than the quantity. Statement of the problem The relationship between management control and innovation is a debated issue in the accounting field. The success of a business venture is attributed to the relationship between the two issues. The research aims to identify the relationship between the above named fields. The new firms in the industry must learn how to manage and control innovation as it is the key factor that can help a business to achieve the planned goals. Management control forms the business culture which is the key management instrument to enhance performance. Organizations depend on innovation for them to grow. The study involves analyzing the influence of innovative culture and management control systems to business ventures. Objectives The study is mainly aimed at determining the relationship between formal control measures used by the management and company’s performance and innovation in the presence of trust. Other objectives of the study include; a. To determine whether management control systems have positive or negative effects on performance and innovation. b. To identify how formal control systems provide trust on innovation. Hypothesis a. Formal control systems applied in organizations have a positive influence on innovation and performance. b. Control systems provide trust on innovation by provision of warranty on valuable goods Literature Review Knowledge in control methods is important in any business. Management is a critical area in an organization that requires appropriate control measures to be implemented. Management is most significant aspect in an organization since it controls and manages all activities carried out in an organization. Researchers in management field have been focusing on studying control measures implemented by managements and their effects on organizations’ performance and innovation in the presence of trust. 2.1 Management Control systems and performance Definition and meaning of the term management control system has been evolving in the past years as highlighted by Chenhall (2003). According to Chenhall (2003), it has evolved from focusing on provision and acquisition of formal, adequate and financially equitable business information to aiding decision making processes performed by management. The term management control systems are described as set of processes and procedures used by organizational managers, executive leaders, directors and other participants in order to achieve goals and objectives of participants and organizations (Otley & Berry 1994). According to Anthony (2007), management control refers to the process used by directors and managers in an organization to influence members of the enterprise or business to implement and follow company’s strategies, programs and procedures. Horngren et al. (2005) defines management control systems as integrated techniques used by management in collection and utilization of information to provide motivation to employee behavior and help in performance evaluation. Management control systems are viewed as managerial tools that help organization’s management to facilitate and run the company towards achieving its objectives and gaining competitive advantage. Managers in businesses and enterprises make use management control systems in different units to ensure activities are performed appropriately and according to set goals and objectives of the organization. Management Control systems contain different features. First, there are several dimensions of budgeting used in management control systems. Common budgeting dimensions involved include importance and benefit of meeting budgets, formality of system sophistication and information, budget slack, links present in the reward system, variance analysis and post completion audits (Van der Stede, 2000). Secondly, management control system involves temporary innovations such as non-financial measures of performance, ABC/ABM and economic value analysis (Wallace, Biddle &Bowen, 1998). Studies have revealed that management control systems are significant in organizations’ performance and innovation. First, management control systems used managements ensure that organizations perform critical evaluations. Chenhall (2003) stated that usage of management control systems in organizations aid management in carrying out critical evaluation on various features such as formal budgeting, target costing, life cycle costing, innovation implementation, and in the overall performance of the organization. Critical evaluation provides an opportunity to the management in determination and identification of performance linkages in an organization. Evaluating projects critically through implementation of formal controls measures of management enables the management to identify several developments and improvement necessary in improving organizational performances. For example, critical evaluation of employees working and performance, helps management to know and identify the poorly performing employees and the best performing employee. In addition, management would be able to determine the number of more employees required in any unit of an organization in order to achieve objectives. Provision of formal, reliable and effective communication is another way through which management control systems are important and significant to organizations’ performance and innovation. Application of formal control measures in management activities ensures that customers, employees, suppliers, distributors and managers provide valid information to the management for decision making processes. For instance, formal control measures applied in an organization may limit use of social media in acquisition and dismissal of company’s information. Application formal control measures may also help the management in securing important information of the business. For example, formal control measures may limit access of important information of the business to few important managers or directors in an organization. As a result, the control measure led to information conservation and security. 22 Innovation and trust Innovation is the act of coming up or producing new business ideas that are later implemented by the business managerial departments of the business. Firms’ innovation is categorized into two main parts. These parts are radical and incremental innovation (Dewar and Dutton 1986). Radical innovation primarily deals with new design concepts that break paradigms. Incremental innovation deals with minor improvements or adjustments in the current product or technology. Radical innovation involves the Knowledge that is mostly different from current information or might be a mix of the modern and old information. Incremental innovation employs the status quo of the current solution of the problems. Incremental innovation only involves simple adjustments or minor improvements of the existing products. (García-Pérez-de-Lema, 2008). Management control systems are important elements in the decision making process (Henri 2006). An extensive literature by Henri (2006) argues that the business culture has important effects on management control systems (MCS). Management decision should base on unbiased decisions, managerial procedures such as such as financial accounting and planning, cost accounting and financial diagnosis. These should be the tools used in the decision making process. However, research reveals that management accounting systems are not broadly used by small business enterprises SMEs (Choe, 1996). This result is the reason as to why many SMEs fall compared to large business enterprises. In the current world, innovation is the order of the day. Innovation is occurring in numerous areas all over the world. Discussions about innovation are widely distributed in social sciences such as sociology, economics and management. In addition, innovative steps and researches are being performed in technological and scientific areas at a large scale. In a brief statement, innovation has gradually become to emblem of the society in modern days. In some extent, innovation is being applied as a solution to different organizational problems (Godin, 2008). Innovation refers to anything that creates, improves or develops new processes, resources or values of the business. According to Galunic and Rodan (1998), innovation refers to the capability and capacity of an organization to utilize new developments in processes, programs and procedures. Damanpour (1991), defined innovation as a concept, process, product, idea or procedure that is considered new in the area where it is utilized or applied. Innovation is greatly affected by application of management control measures in an organization. Formal control measures have both positive and negative influences on innovation. Formal control measures adopted by organization affect innovation positively be encouraging employees and managers to utilize modern technology developments in an organization. For example, a company may develop a formal control measure that requires all members of an organization to have knowledge on computer operations and performance. Such a measure affects innovation since employees gain new skills and information in computer operations and usages. (Acs Z.J, Audretsh D.B., 1990) Trust creation between the organization and customers, employees or suppliers, are crucial. Management develops formal control systems aimed building long-term relations and trust. For example, management may establish control policy that safeguards financial details of customers, employees and suppliers to the public. Innovation practices such as development of personal identification numbers of employees would be appropriate in ensuring that personal information of employees is secured. (Becker, 1967) Managements in organizations ensure that customers trust innovations by providing formal control policies such as warranty and free samples. Formal control policies help in building customer’s trust in products and services produced through application of innovation. In addition, control measures contribute in building trusts between supplies and the organization through innovation. Technological innovation ensures that suppliers’ goods are recorded appropriately through use of computers. In some extent, technological development results to establishment of trust between suppliers and the organization. Methodology Research design Research design refers to means of collecting evidence, information or data selection of techniques to be employed in analysis and interpretation of data for drawing conclusions of the study. Case study is the research designs that have been used. Case study is a research study that is used to investigate or collect data regarding a specific business or group of people. The group or organization must have different features. The following are the advantages of case study • It allows a lot of data to be collected that would not be collected using other methods of data collection. Also, the data that is gathered is a lot more detailed and of greater depth. • It tends to be conducted on rare case where large samples which are similar are not available • Case study also allows scientific experiments to be conducted. • Case studies support, adapt and produce ideas original hypothesis that are later used for testing. • Case study helps to identify the specific individual features that would be identified by another process. Sampling technique The sampling method used is clustering. Cluster sampling is the process where companies are selected randomly and data collected from them. The process will involve interviewing business managerial figures in the business. These will help to obtain information related to managerial control. Interviews will also be given to customers who will answer questions about what they view about their producers’ innovative strategies. They will also answer questions on what improvements or adjustments the organizations should use to improve their products to their customers. Clustering method was used because it targets population and is very large and geographically dispersed making simple data sampling extremely expensive and also time consuming. The number of either companies or customers is very large. Therefore, it would be difficult and expensive to interview all of them. Clustering method fits all situations. Potential problems It is important to ensure that important subgroups are not left out and also consider potential bias in the study. For example if all clusters thrown out by random selection are large regions, are the results likely to change if the some regions are small. For example because of few facilities and different social structure. Data collection methods Interviewing Interviewing is primarily used in qualitative research. It also saves time compared to other methods of data collection. Its limitation is that it may achieve less information in understanding culture. Due to the current economy interviewing is widely used research method especially in data collection process especially in policy related research. Interview is data collection method where one tries to understand what people think through their speech. There are various types of interviews. Often they are categorized by their the degree of control The advantage of interviews is that the researcher will acquire first-hand information from the respondent. In this area of research interviewing, is a good data collection process as it will target different groups at different times. Unstructured interviewing Unstructured interviewing is the best interviewing process as it applies reduced controls over the informant and the response that they give. It is usually a friendly chart that usually has a topic of discussion or question that must be answered. Unstructured interviewing is characterized by few questions that are usually asked by the researcher. It is also referred to as open-ended interview since it does not have restrictions. Successful unstructured or open-ended questions start with a grand tour question. Study of documents Qualitative research can be obtained in research documents. Documents refer to all types of written records such as education legislation, statistics, demographic trends, inventories, journals minutes and many others. The process involves the identified documents on the ground relating to the business from which one want to gather information. Content analysis Content analysis is used when originally qualitative information is reduced to numerical terms. Content analysis started off as a method for analyzing messages in the media, including articles published in newspapers, speeches made by politicians on radio and television, various forms of propaganda, and health records. More recently, the process of content analysis has been applied more widely to almost any form of communication. Interviewing being the data collection process, there will be many records from different feedbacks from the group interviewed. Also, there will be propaganda since some respondents will not be sure of what they will be saying, therefore, making content analysis technique appropriate. The greatest strengths of content analysis are that it gives provision to a way of extracting information from the source of real-world settings. The media influence the ways people think and feel about issues, and so it is important to analyze media communications in detail. Content analysis can reveal issues of concern. Study of documents that are also part of published articles is another best method of getting data. In this research, some of the information from these articles will be relevant thus making content analysis considerate. References Ferreira A, David Otley D. (2005). The Design and Use of ManagementControl Systems: An Extended Framework for Analysis. Lancaster: Lancaster University Press. Acs Z.J, Audretsh D.B. (1990). Innovation and Small Firms. Cambridge: The MIT Press. Adams, R. (2006). Innovation management measurement: a review. International Journal of Management Reviews, 21-47. Anahita Baregheh, Jennifer Rowley & Sally Sambrook. (2008). 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