Management Control Systems in a Global Economy

By Lere, John C.; Portz, Kris | The CPA Journal, September 2005 | Go to article overview

Management Control Systems in a Global Economy


Lere, John C., Portz, Kris, The CPA Journal


In an increasingly global economy, accountants may find themselves working for a foreign-owned multinational corporation; employed by a U.S.based multinational corporation and designing and implementing a management control system for a recently acquired or opened subsidiary in another country; or responsible for the design and implementation of a management control system for a U.S.-based company that employs a large number of recent immigrants.

An accountant employed by a foreignowned multinational coiporation may be faced with a management control system that differs from U.S. practices. An accountant who has dealt with successful design and implementation of management control systems may find that proven practices may not work well in other countries or in divisions and companies in the United States that employ workers with diverse cultural backgrounds. Differences in cultures can affect the appropriateness and effectiveness of the practices that make up a management control system.

Accountants face two questions when involved with situations where traditional U.S. management control systems and practices may not be the most appropriate or effective: In what meaningful, relevant ways do cultures differ between countries? And what do these differences imply about the elements that make up a management control system?

How Cultures Differ

Understanding differences between cultures can be complex. Although several studies have examined cultural differences, one of the most comprehensive was conducted by Geert Hofstede. From 1967 to 1973, Hofstede collected and analyzed data from more than 100,000 individuals working in more than 70 countries. From those results, and later additions, Hofstede developed a theoretical framework that identifies four primary dimensions that differentiate cultures: power distance, individualism/collectivism, masculine/feminine, and uncertainty avoidance. He used these dimensions to distinguish the cultures of 50 countries and three regions. Later, with Michael H. Bond, Hofstede added a fifth dimension, Confucian dynamism, which has been used to distinguish cultures among 23 countries. Hofstede's taxonomy is a widely used framework for differentiating among cultures.

Power distance. In his 1991 book, Cultures and Organizations: Software of the Mind, Hofstede defines power distance as "the extent to which the less powerful members of institutions and organizations within a country, expect and accept that power is distributed unequally." According to Hofstede, workers in large power distance countries, where centralized power tends to be accepted, "expect to be told what to do," while workers in small power distance countries, where there tends to be less tolerance of centralized power, "expect to be consulted."

Individualism/collectivism. The individualism/collectivism dimension addresses whether the individual or the group is a focus. In an individualist society, individuals tend to act according to their best interest. The focus of management is on hiring and managing individuals, not groups. In a collectivist society, employees tend to act according to the best interest of the group to which they belong. This does not always align with their individual interests. Hiring focuses on the group to which one belongs and management techniques focus on the group as a whole.

Masculine/feminine. Hofstede's masculine/feminine dimension is less about gender than about gender roles. At the masculine end, there is a high degree of gender role differentiation: "Social gender roles are clearly distinct (i.e., men are supposed to be assertive, tough, and focused on material success whereas women are supposed to be more modest, tender, and concerned with the quality of life)." At the feminine end, there is a low level of discrimination between genders: "Social gender roles overlap (i.e., both men and women are supposed to be modest, tender, and concerned with the quality of life). …

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