Directory UMM :Data Elmu:jurnal:A:Accounting, Organizations and Society:Vol25.Issue4-5.May2000:

Accounting, Organizations and Society 25 (2000) 383±409
www.elsevier.com/locate/aos

An empirical study on the drivers of management control
systems' design in new product development
Tony Davila*
IESE, University of Navarra, Avenida Pearson, 21, Barcelona 08034, Spain

Abstract
New product development has changed signi®cantly over the last decade and management control systems have
played an important role in this transformation. This study draws on Galbraith's concept of uncertainty and investigates the relationship between project uncertainty, product strategy and management control systems. It also explores
whether these systems help or, as argued in the innovation literature, hinder product development performance.
Results support the relevance of the project uncertainty and product strategy to explain the design of management
control systems. They also show that better cost and design information has a positive association with performance,
but that time information has a negative e€ect. # 2000 Elsevier Science Ltd. All rights reserved.

1. Introduction
New product development has become a central
dimension in the strategies of many companies
(Brown & Eisenhardt, 1995; Clark & Fujimoto,
1991, p. 6; Grant, 1996; Gupta & Wilemon, 1990;

Schilling & Hill, 1998). Current emphasis on ®rst
mover advantages, fast product introductions,
more demanding product functionality, and
shortening life cycles has put greater pressure on
new product development (Cooper, 1998). While
manufacturing has traditionally been a key repository of core competencies (Hayes & Abernathy,
1980), outperforming competitors in product
development has emerged as a relevant source of
competitive advantage.

* E-mail address: davila@iese.es (T. Davila).

As the process has gained importance, academics as well as practitioners have voiced the
importance that management control systems play
in coordinating and controlling this process
(Cooper & Kleinschmidt, 1987; Zirger & Maidique,
1990). For example, Clark and Fujimoto (1991),
in their study of the product development process
in the auto industry, argue that:
Today's e€ective product development organization is characterized not only by creativity

and freedom, but also by discipline and control in scheduling, resource use, and product
quality (...) The challenge in product development is not so much unilateral pursuit of
organic structure and permissive management
style as a subtle balance of control and freedom, precision and ¯exibility, individualism
and teamwork (Clark & Fujimoto, p. 169).

0361-3682/00/$ - see front matter # 2000 Elsevier Science Ltd. All rights reserved.
PII: S0361-3682(99)00034-3

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T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

However, this emphasis on a structured product
development process contrasts with the traditional
view supporting a hands-o€ approach (Lothian,
1984; McNair & Leibfried, 1992). According to
this latter view, successful new products result
from devoting adequate resources to the process
and avoiding control procedures that could

restrict the freedom of engineers. The impact of
management control systems in product development performance is, therefore, unclear.
So far, management accounting literature has
devoted scant attention to new product development. Most studies have looked at the relevance of
management control systems to the broader process of R&D (Abernethy & Brownell, 1997;
Birnberg, 1988; Brownell, 1985; Hayes, 1977;
Kamm, 1980; Rockness & Shields, 1984, 1988).
These studies mainly characterize management
control systems as hindering or, at most, being
irrelevant in R&D settings. In contrast, Nixon
(1998) o€ers a rich case description of a product
development process where ®nancial control plays
a signi®cant role.
The importance of new product development
requires the allocation of accounting research
resources in order to understand the phenomenon.
This study seeks to extend this line of inquiry.
Using a contingency approach, the study investigates the design of management control systems1
to understand how companies adapt their systems to the particular characteristics of each product development e€ort. Moreover, the study
brings new evidence to the unsettled issue of the

relevance or, alternatively, the lack of relevance
of management control systems in product
development.
Several characteristics distinguish this study. In
contrast to previous research, the unit of analysis
is the product development project rather than the
R&D project. Because R&D projects are very
1
The term management control systems is used to name the
design as well as the use of measurement systems in an organization. Therefore, leaving out other formal procedures that the
organization may use to alter behaviour (Flamholtz, 1983; p.
154). An alternative term is management accounting systems.
However, management accounting systems are sometimes
interpreted as conveying ®nancial information only, while this
paper also investigates non-®nancial measures.

heterogeneous (National Science Foundation,
1976), focusing on one type of project increases
the power of the research design. The study also
goes beyond the narrow de®nition of management

control systems around ®nancial information
to add formal but non-®nancial information
(Kaplan, 1983; Banker, Potter & Schroeder, 1993).
Moreover, the theoretical foundation of the study
leads to an interpretation of management control
systems di€erent from previous studies and to a
di€erent set of independent variables.
The study focuses on the medical devices industry to keep the external factors as constant as
possible and avoid confounding e€ects that may
come from di€erences across industries. This
industry has several attractive characteristics.
First, product development is an important process: R&D over sales averages more than 5% for
the industry and new products are constantly
introduced. Therefore, companies have well
thought-out product development processes.
Second, the industry is characterized by a lot of
technological diversity. Some products Ð syringes,
for example Ð use well-established technology,
while others Ð CT systems, for example Ð compete by bringing to the market the latest technology developed. Finally, product strategies are also
diverse; even products belonging to the same

company and serving the same product-market
have to adapt their value proposition to di€erent
market segments ranging from price sensitive to
performance oriented customers. X-ray products
include machines designed to take static images of
parts of the body, where price is the key purchasing criteria, as well as sophisticated machines that
scan the whole body from di€erent angles, where
performance and customer interfaces are the key
competitive dimensions.2 Both diversity in technology and product strategies suggest that companies manage product development di€erently.
The remainder of this paper is structured as follows. The next section reviews previous research

2
The companies in the study include a wide range of medical
products: body-imaging machines, heart devices, orthopedics,
surgical instruments, drug delivery products, diagnostic equipment, blood collection, and therapy products.

T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

on the design and role of management control
systems in R&D and presents the theoretical framework underlying the study. Section 3 describes

the phenomenon studied through the description
of four representative cases. These cases illustrate
the variables in the research as well as the
hypotheses of the study. Section 4 develops the
hypotheses for the empirical test based on the
theory as well as case ®ndings. Section 5 describes
the research design for the survey study. Section 6
discusses the results of the paper and Section 7
reaches conclusions.

2. Theory development
2.1. The product development process
The objective of product development is to
translate an idea into a tangible physical asset.
The process is structured around well-de®ned
phases; each phase ends with a decision-making
meeting where management decides about the
future of the project. A typical product development project starts with a planning phase to
establish the requirements of the project. During
this phase, the organization de®nes the target

market and the characteristics of the product.
These characteristics include functionality, price,
performance, and expected release time. The outcome of the initial phase is a broad description of
these characteristics. The second phase Ð concept
design Ð goes into more detail to specify the product speci®cations and the requirements of the
development project: target costs, technological
performance, customer interfaces, market release
dates, and organizational resources. The third
phase Ð product design Ð is the actual development of the physical product. It is in this phase
when trade-o€s get resolved and information is
transformed into a tangible product. The last two
phases Ð testing and production start up Ð con®rm that the product meets its objectives and prepare it for release. The process, even though
described as linear, is an iterative process: product
speci®cations or even the product concept can be
re-evaluated in light of new information generated
throughout the process.

385

2.2. Literature review

Past work on management control systems in
R&D follows two approaches. One line of
research focuses on how R&D departments use
®nancial measures (Brownell, 1985; Hayes, 1977;
Rockness & Shields, 1988). The consensus from
these studies reveals that ®nancial measures do not
have an important role in R&D departments other
than signaling the commitment of the organization to its R&D e€orts. The perceived importance
of budgets ``decreases monotonically from planning to monitoring, monitoring to evaluating,
and evaluating to rewarding'' (Rockness & Shields,
p. 571).
Another line of research adopts a broader view
of control systems (Abernethy & Brownell, 1997;
Kamm, 1980; Rockness & Shields, 1984). For
example, Kamm de®nes control as ``the set of
criteria, policies and procedures established to
standardize operations and to make possible measurement of performance to insure achievement of
organizational objectives'' (p. I-12, I-13). Rockness and Shields (1984) study the relationship
between types of control and project characteristics. Following Ouchi's framework3 (Ouchi,
1979), they classify R&D projects according to the

level of knowledge of the transformation process
and the measurability of the output. Next, they
predict a relationship between these characteristics
and the type of control used: input, behavior, and
output control. These authors ®nd only marginal
relationships between control systems and project
characteristics. Similarly, Kamm (1980) concludes
that ``researchers do not necessarily exhibit more
innovative behavior when they perceive relatively
loose administrative control than when they perceive tight control'' (p. IV±11). Abernethy and
Brownell (1997), use Perrow's model (Perrow,
1970) that relates type of control with task
analyzability and number of exceptions. These
authors conclude that ``reliance on accounting
controls has signi®cant positive e€ects on performance only where task uncertainty is lowest''
while ``behavior controls appear to contribute to

3

See also Thompson (1967, p. 86).

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T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

performance in no situation'' (p. 245).4 This evidence suggests that management control systems
have, at most, a minor role in product development.
Nixon (1998) provides a rich case description on
the balancing role of the controller in assisting
engineers during the development of a new copper
rod production machine. In contrast to previous
studies, the author reports that the ``®nancial
component of the system serves to integrate the
disparate perspectives'' (p. 343).
However, management control systems have
proven to be useful tools in environments characterized by high levels of uncertainty. For
example, Khandwalla (1972) ®nds that reliance on
formal control systems increases with the intensity
of competition. Similarly, Simons (1987) reports
that high performing prospectors rely on the
information provided by frequently updated formal control systems to drive organizational learning (Dent, 1990). Additional research shows that
managers who perceive a higher level of environmental uncertainty tend to use broad scope and
more timely information (Chenhall & Morris,
1986) as well as more external, non-®nancial, and
ex-ante information (Gordon & Narayanan,
1984). Kren (1992) ®nds that participation in the
budgeting process is related to better performance
for high uncertainty tasks. Finally, Chenhall and
Lang®eld-Smith (1998) report that di€erent strategic priorities emphasize di€erent formal control
systems regardless of the uncertainty faced by the
organization.
A possible explanation for the apparent contradiction between the results for R&D environments, where management control systems seem
not to be relevant, and other environments is a
di€erent interpretation of management control
systems. R&D studies interpret these systems as
control tools to reduce goal divergence rather than
as information tools to deal with uncertainty.
These ®ndings are in line with the concept of clan
control (Ouchi, 1979). Clan control emphasizes
informal control mechanisms and relies less on

4

Accounting control is similar to Rockness and Shields'
(1988) ®nancial measures, while behavior control is related to
the level of formalization of the organizational structure.

formal systems. When uncertainty is high, clan
control is preferred to solve goal congruence
problems (Merchant, 1982).5
In line with the alternative interpretation of
management control systems as tools to manage
uncertainty, studies on target costing all concur on
the role of target costing procedures as communication, problem solving, and learning devices
(Cooper, 1995; Kato, Boer & Chow, 1995; Koga,
1998; Sakurai, 1989; Tani, 1995). Koga and
Davila (1998) ®nd that target costing ful®lls an
information role to facilitate learning and experimentation, yet they ®nd no support for target
costing being used to address goal divergence
problems or coordination issues.
2.3. Theoretical framework
2.3.1. Management control systems and the
concept of uncertainty
Product development is an uncertain process.
For example, Gupta and Wilemon (1990) report
that technological uncertainty is mentioned as a
reason for delays by 58% of project managers
surveyed. Each new product development process
presents a di€erent set of problems and organizations need information to solve uncertainties as
they emerge. The theoretical background of the
paper is based on the concept of uncertainty as
``the di€erence between the amount of information required to perform a task and the amount of
information already possessed by the organization'' (Galbraith, 1973, p. 5). This paper, in contrast to previous work in the ®eld, assumes that
the main role of management control systems in
product development is to supply information
required to reduce uncertainty rather than to
reduce goal divergence problems. This alternative
perspective is intended to reconcile the tension
that exists between the sparse empirical evidence
available with the strong recommendations by
practitioners and academics in the product development ®eld. The concept of management control
5
The dual role of management control systems is common
in the literature, for example Shields and Shields (1998) identify
motivation and information sharing as di€erent reasons for
participative budgeting. See also Barrett and Fraser (1977).

T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

systems used in this study,6 following Chenhall
and Morris (1986) and Gordon and Narayanan
(1984), goes beyond the narrow perspective
focused around accounting numbers Ð cost,
pro®tability, and budget Ð to include a broader
information set (Kaplan, 1983) capturing customer, product design, and time-related measures.
Management control systems in new product
development are viewed as sources of information
that are used to close the gap between ``the information required to perform a task and the amount
of information already possessed''. This view is
consistent with Tushman and Nadler (1978) who
argue that management control systems are e€ective tools to manage uncertainty because they
supply the data needed to reduce Galbraith's
``information gap''.
However, management control systems are not
necessarily the optimal sources when the information that they deliver is not matched to the uncertainty facing the product development manager.
The relevant information may be obtained from
alternative sources. For instance, it may be
obtained through experimentation (Pisano, 1994)
or informal communication (Allen, 1977; Dougerthy, 1990); if this is the case, then management
control systems may not have any role in the process and, consequently, not be related to project
uncertainty.
Research in new product development
(McGrath, 1995; Shenhar & Dvir, 1996; Von
Hippel, 1988; Wheelwright & Clark, 1992) has
identi®ed three main types of uncertainty (or
``information gaps'' according to Galbraith's de®nition): market-related uncertainty, technologyrelated uncertainty, and project scope. These three
types of uncertainty shape the design of management control systems. In addition to the uncertainty characterizing the project, the design of
management control systems depends on the
strategy (Govindarajan & Gupta, 1985) as well as
the organizational structure (Bruns & Waterhouse,

6
Simons (1995, p. 5) de®nes management control systems
as the formal, information-based routines and procedures
managers use to maintain or alter patterns in organizational
activities.

387

1975). Cooper (1995) reports that companies place
di€erent emphasis on target costing procedures
depending on product strategy. Certainly, the
value of a piece of information (for instance, cost
information) is contingent upon the importance as
well as the uncertainty related to the competitive
dimension addressed (cost leadership). Similarly,
organizational structure a€ects the size of the
project team that is associated with the level of
formalization (Mintzberg, 1979, pp. 230±235) and
the project manager's responsibilities that a€ect
the allocation of uncertainty. For instance, if the
marketing department is responsible for dealing
with market uncertainty, then the project manager
will be insulated from it and he will not demand
customer-related information, even if it may be
critical to the success of the project.
2.3.2. Management control systems and project
performance
The e€ect of management control systems upon
new product development performance is dicult
to predict. If management control systems supply
information relevant for coordination and learning, then a positive relationship between performance and the use of management control systems
is expected. Some evidence in the product development ®eld exists pointing in this direction
(Koga & Davila, 1998, Nixon, 1998). But arguments as well as evidence (Eisenhardt & Tabrizi,
1995) exist suggesting that such a relationship
does not exist or is negative. Management control
systems, by imposing rules and constraining
behavior, reduce the level of creativity required
from product development and, thus, negatively
a€ect performance (Amabile, 1998).

3. Case studies
To understand how project managers use management control systems, I visited 12 business
units in seven companies both in Europe and the
United States. During each of these visits, I interviewed one or two project managers, the marketing manager, the R&D manager, and the general
manager for each business unit as well as the person in charge of the design and implementation of

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T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

the new product development process guidelines.
Because existing literature in management control
systems in product development is still sparse, I
chose to do an exploratory study using case
studies as the preferred methodology to build
knowledge about the phenomenon (Yin, 1988).
Interviews were structured around a set of questions about the formal systems and the product
development process itself. The questions were
open-ended which allowed me to adapt the interview to the expertise of each manager without
losing the overall direction. Appendix A presents
the protocol that I used for the interviews with
project managers. Similar protocols were used for
the interviews with other managers.
I interviewed an average of ®ve managers in
each business. The use of multiple informers
allowed for a triangulation of the data. When a
manager's explanation did not agree with the
description given by previous managers of the
same organization, the di€erences were explored
until the reason for this divergence was fully
understood.
Next, I present four illustrative cases on the
diversity of product development projects and the
design and use of management control systems.
3.1. Project manager A
Project manager A worked in an anesthesia
monitoring system. This product was designed to
work together with the company's anesthesia
delivery system. The company's strategy was ``to
work very close to the customer, in that sense we
are not a low cost producer but we focus very
much on customer needs and facilitate customer
interface with the product. We want to be special
in the sense of adapting to the needs of the customer and understanding the customer well''.
At the beginning of the project, the manager
signed a three page contract with eight goals:
schedule (phases and review points), quality,
usability, manufacturing cost, project budget,
simple description of intended functionality, and
contact points with other projects (the anesthesia
delivery system). The purpose of this contract was
not to evaluate performance ex-post, but to gain
the personal commitment of each person involved

in the project. The contract brought together the
expectations of the various people involved in the
project rather than establish goals to increase
extrinsic motivation.
Project goals were clearly de®ned except for
product speci®cations related to the customer
interface. The product's strategic advantage came
from meeting customer needs and developing the
appropriate customer interface. The ``information
gap'' to be closed during the product design
phase came from the market, in particular from
customer needs.
Because of the relevance of customer information, management built ¯exibility into project
goals to incorporate this information during the
execution instead of freezing it at the beginning of
the project. The decision to sketch only certain
product speci®cations at the start of the project
was intended to adapt as much as possible to customer feedback: ``there is a need to expose the
product and product concept to the customer and
be ready to change and adapt features and
appearance to their reactions.'' Uncertainty was
purposely left unresolved on the customer dimension to adapt during the development process, but
it was clearly bounded: ``there is a need to de®ne
¯exibility dimensions up-front (and freeze other
dimensions)''.
During the execution, the project was divided
into smaller sub-projects including ``moving from
the traditional two measures captured in a traditional anesthesia monitoring system to several
measures, developing the frame to integrate the
various modules of the product, and writing the
product's software''. The project also had marketing sub-projects like ``the product launch project including training distributors, promotion
material and marketing concept communication''.
The project manager directly supervised engineers
and marketing people. He was also frequently in
touch with manufacturing people to prepare production ramp-up.
Project objectives were periodically reviewed in
the formal review points. However, customer information was constantly received: ``There is a constant
communication with doctors, at a certain point a
doctor was working full time for the company
to make sure that the product was user friendly.''

T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

3.2. Project manager B
Project manager B had developed a new clip
used for brain surgery. Medical doctors used these
clips to keep blood vessels closed while performing
brain surgery. Existing clips were metallic. This
material had the advantage of providing the right
mechanical properties like torsion and resistance
as well as being cost e€ective. But metal had a
signi®cant drawback for certain types of surgery.
When the doctor, while performing surgery, had
to do a scan of the patient's brain, the clip created
shades in the picture and, more important, magnetic ®elds could move the clip with possibly
devastating consequences for the patient. In doing
some tests on his own, project manager B found
that a new material, titanium, could solve this
problem. Titanium was more expensive but it
would become the only product available to perform scans during surgery. The company estimated a signi®cant market for the product and
funded the project.
According to the project manager the main
question during the project was to get the
mechanical properties right: ``in this product,
technology was critical''. Technology was the
main source of uncertainty as well as the key factor for product success. He did not care about the
cost of the product, because it would have a virtual monopoly in its segment: doctors did not
have alternative products and competitors were
unlikely to develop the required mechanical knowhow to copy the clip in the short term.
At the beginning of the project, the project
manager talked to doctors and was present in
several surgeries to see how the clip was used.
These visits allowed him to understand customer
needs. In addition, the project was not subject to
time pressure because no other company was
investing in a similar product. Only when the
technology was well understood, did the company
decide on a deadline. During the 4 years that the
project lasted, all the attention of the project
manager was focused on ®nding the right combination of materials and the appropriate design to
meet the mechanical requirements: ``because it was
intense in technology, it was hard to see problems
and it was also hard to calculate timing''.

389

Because technology was the paramount variable
in this project, project manager B worked together
with a team made up of researchers. Only a marketing manager was supporting the team to facilitate
contact with doctors. The project plan was simple,
the timing for the various phases of the product
were loosely speci®ed as was the budget and the
expected product cost. The fact that the CEO had
come from the R&D function and kept close contact with product development people reinforced
an informal control on the project. Through
monthly meetings, the CEO evaluated whether the
project was moving according to expectations
without the help of a formal project plan.
The management control system for project
manager B was almost non-existent. He got all the
relevant information from prototyping ``to assure
manufacturability''. He built more than two
thousand prototypes before he found the right mix
of materials and design. Any other information,
like timing or cost, was irrelevant to him. The new
clip was a success when it hit the market.
3.3. Project manager C
Project manager C worked for the same company as project manager B. He was in charge of
developing a hip endoprothesis for an Asian
country. The product was similar to an existing
one, but the marketing department had found that
the body geometry of people in the main ethnic
group of the country was di€erent. The company
saw this fact as a relevant dimension for competitive advantage. The project took a year to
develop. Because the product was similar to an
existing one, few doubts existed regarding product
cost and technology: ``we knew a lot about the
structure of the development of this product''.
The pressure points were time-to-market and
project budget. Time-to-market characterized the
strategy of this product. Time pressure came
through the scheduling of the introduction date:
``time-to-market was the most important factor
because the group in the country had already
started to sell the product''. The budget was
equivalent to the number of prototypes because of
the direct relationship between prototypes and
investment: ``there was a monthly overview meeting

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T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

to compare project costs and budget, it was important to reduce as much as possible the number of
prototypes to save development money. There was
a trade-o€ between safety and investment''.
The main task for project manager C was to
coordinate the e€ort of engineers to meet the tight
schedule. The source of uncertainty came mainly
from project scope. The management control system
provided detailed information on how the project
progressed in terms of schedule and budget.
The project manager did not have direct contact
with the customer. In fact, his supervisor talked to
the marketing people in the Asian country and the
marketing people talked to doctors. The project
manager did not see this lack of direct access to
the customer as a problem because the product
was well understood, the only relevant issue being
a change in geometry. Moreover, the contacts with
the marketing people were mostly related to product launch, not to customer needs.
Finally, product costs were also well understood. However, the manufacturing person
involved in the development team periodically
estimated product cost to make sure that it was on
target: ``the project would have stopped only if
manufacturing costs had been too high''.
Management control systems in this project
were focused around time-to-market and project
budget. The latter information was re¯ected in the
project manager's decisions concerning whether to
build a new prototype. Product costs, even if critical
to project success, were managed by exception.
3.4. Project manager D
Project manager D developed a multi-purpose
X-ray machine. The product had two critical
components, the X-ray camera and the examination table for the patient. The technology for the
X-ray machine was well understood and developed in-house. But, the table was a complex
mechanical device. Because the machine allowed
an X-ray picture to be taken of any part of the
body, the table was large and, as a consequence,
hard to develop. In addition, the doctor could
choose the angle for the picture that (s)he considered most appropriate. This capability meant
that the table had to move at least 180 degrees in

each of the three spatial axes with a high degree of
precision. The main source of uncertainty for this
product came from mechanical technology.
The X-ray division had recently reassessed its
strategy after several years of disappointing ®nancial performance. According to the marketing
manager: ``We are stripping down the number of
products because now there are too many and it is
expensive to deliver and service such an extensive
line of products. We are not satisfying customers
per se, we are also looking at pro®tability. The
current product line is based only on satisfying
customer needs and this is why there is so much
proliferation of products''. This new emphasis on
cost a€ected project manager D, even if technology was the key source of uncertainty.
Product development was a linear process at the
division. It started in the marketing department
with product de®nition, then customer requirements were translated into system speci®cations,
system speci®cations into component speci®cations, then components were integrated at the system integration phase, and ®nally the product was
launched. The role of the project manager was
limited in this division to the supervision of component development. His main task was to break
down the project into small work packages fully
speci®ed in terms of budget, time, component
speci®cations, and component cost and make sure
that plans were met. In the terms of Wheelwright
and Clark (1992), he was a ``lightweight'' project
manager with no people reporting directly to him,
but only coordinating the development e€ort. The
project manager mentioned: ``I never talk to customers, they talk to the marketing people but not
to me''.
Because of the recent focus on cost that the
new division imposed, a cross-functional group
re-estimated product costs ``every time new parts
become available''. However, the most time consuming issue for the project manager was an Italian
OEM in charge of developing the examination
table for the X-ray machine: ``It took them too
long and they made too many mistakes in developing the table. We did the design and wrote the
software for the table. The Italian company was in
charge of the mechanics''. His attention was
devoted to managing the relationship with this

T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

supplier, provide support to their people, and try
to minimize the e€ect of these problems in project
scheduling and cost. He did not care as much
about budget because ``development cost is similar
to time because it is basically time multiplied by
price''. Even if the product achieved its objectives,
the project was not considered a success because
of delays and budget overruns.
3.5. Discussion of case studies
The previous cases provide a diverse set of product development experiences and di€erent roles
for management control systems. Each project
manager required di€erent information depending
on product strategy and type of uncertainty. For
project A, meeting customer needs was the key
success factor as well as the main source of uncertainty. Management purposely left customerrelated uncertainties to be resolved during the
development process through close contact with
the customer. The structure of management control systems emphasized customer interaction.
Time, budget, and product cost were managed by
exception. Because the project never hit these
constraints, the project manager devoted his
attention to customer information. The project
team integrated both engineers and marketing
people with a looser coordination with the manufacturing function. This structure re¯ected the
management belief that the project manager
should be in charge of marketing.
In contrast, project B was all technology. Time
was not a constraint, nor was budget nor product
cost. In fact, the formal systems were loose compared to the detailed project plans and review
points used in the other projects. The project
manager focused his attention on prototyping as
the most ecient way of coping with technological
uncertainty. Project B exempli®es a situation
where detailed formal management control systems could undermine performance. Prototyping
gave project manager B the information that he
needed Ð any other source of information would
have been a burden and undermined performance.
His team was composed of R&D people only and
he reported to the CEO who had a background in
R&D.

391

Project C illustrates the development process
most similar to a manufacturing process where
uncertainty resides in coordination Ð project
scope. The cause±e€ect relationships were well
understood and product functionality was well
de®ned. Project manager's attention was mainly
devoted to time-to-market and budget. He did not
interact with customers, nor did he devote much
attention to costs (controlled by exception), but he
was constantly thinking what needed to be done to
meet the deadline and assessing whether he could
save development costs by reducing prototyping.
It is interesting to observe how project manager C
used a non-®nancial measure Ð number of prototypes Ð as a substitute for a ®nancial measure Ð
project investment. Again, this project manager
was in charge of an R&D team. Interestingly,
his contacts with marketing were not related to
customer needs but to product launch because of
its importance to the strategy of the product.
Finally, project manager D worked at a company where costs had become a key dimension
because product proliferation had led the company into disappointing ®nancial performance.
This emphasis was translated into frequent cost
estimations. Unfortunately, the main source of
uncertainty for project manager D came from
technology. The design of a key part of the product was subcontracted out and ran into problems. Project manager D had to devote most of
his attention to this unexpected issue that a€ected
the timing, functionality, and budget of the project. In this case, management control systems
informed the project manager about technology
only by exception even if it may have required
more frequent updating. Project manager D did
not have a team reporting to him, he only coordinated the technical part of the project. Table 1
summarizes these ®ndings.

4. Development of the research hypotheses
4.1. Uncertainty and the design of management
control systems
The theoretical discussion and case descriptions
suggest that uncertainty is a driving force in the

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T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

Table 1
Summary of the case studies
Project manager A
Anesthesia monitoring
system

Project manager B
Brain clip

Project manager C
Endoprothesis for an
Asian country

Project manager D
Multipurpose X-ray
machine

Type of
uncertainty

Market-related uncertainty
Product speci®cations
were clearly de®ned except
for customer interface.

Technology-related
uncertainty
The project manager built
more than 2,000
prototypes.

Project scope
Pressure came from
coordinating e€orts to
meet the expected market
introduction date.

Technology-related
uncertainty
The project included
complex mechanical
parts.

Product strategy

Customer-focused strategy
``We focus very much on
customer needs and
facilitate customer
interface with the
product.''

Technology-focused
strategy
``In this product,
technology was critical.''

Time-to-market strategy
``Time-to-market was the
most important factor
because they had already
started to sell the
product.''

Low cost strategy
``Product costs are
estimated every time new
parts become available.''

Organizational
structure

Cross-functional team
Including engineers and
marketing people.

Engineers-only
The project manager
worked only with
engineers.

Engineers-only
His supervisor managed
relationship with
marketing.

Lightweight project
manager
Nobody reported directly
to him, he only
coordinated e€orts.

Purpose of
management
control systems

Information purpose
Management control
systems were designed to
focus management
attention on customer
needs.

Information purpose
Management control
systems used sparsely,
experimentation was the
main vehicle to reduce
uncertainty.

Information purpose
Management control
systems used constantly to
monitor schedule and by
exception for cost and
budget.

Information purpose
Management control
systems used by exception
to detect potential
problems.

Performance

The alignment between
project uncertainty,
customer-focused strategy
and management control
systems' design led to a
successful project.

The low emphasis on
time, cost, or customer
information allowed
project manager to focus
on experimentation and
develop a successful
product.

Low uncertainty related
to technology and
product speci®cations
allowed attention to be
focussed on time-tomarket to meet
introduction date.

Misalignment between
uncertainty, strategy, and
project manager's
authority led to poor
performance re¯ected in
problems with an OEM
supplier.

design and use of management control systems.
Case discussions illustrate how the sources of
uncertainty vary across projects. Also, product
development literature and management accounting literature identify di€erent types of project
uncertainty. To be as close as possible to the phenomenon studied, I rely on the classi®cation of
uncertainty used in the product development literature. Uncertainty is classi®ed as market uncertainty, technological uncertainty, and project
scope (Shenhar & Dvir, 1996).7
Von Hippel (1988, chapter 2) describes the
importance of the organization's experience with
the targeted customer segment. When the organi-

zation already serves the target customers, their
needs and requirements are well understood and
uncertainty is low. In contrast, when the organization enters a new market, uncertainty surrounding
7

A parallelism can be established between both classi®cations (without implying that the concepts are the same). Environmental uncertainty (Chenhall & Morris, 1986; Gordon &
Narayanan, 1984) is similar to market uncertainty and can be
managed through organizational interfaces with the environment (Thompson, 1967, p. 20). Task uncertainty (Kren, 1992;
Abernethy & Stoelwinder, 1991) is inherent to the task performed and can be equated to technological uncertainty (Brownell
& Dunk, 1991). Finally, project scope is related to the organizational structure of the project.

T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

customer preferences increases (market uncertainty). In the latter case, information about customers is expected to help in reducing market
uncertainty.
H1a:8 Customer information is used more
intensively as market uncertainty increases.
The sources of product technology can range
from existing, well-known bodies of knowledge
(low uncertainty) to unknown and yet-to-be
developed
technologies
(high
uncertainty)
(McGrath, 1995; Shenhar & Dvir, 1996; Wheelwright & Clark, 1992). When technology is the
main source of uncertainty, project team members
focus their attention on resolving the problems
associated with technology. Product design and
functionality information can help in addressing
this type of uncertainty. However, case study B
suggests that project managers may obtain the
relevant information from experimentation and
prototyping (Clark & Fujimoto, 1991; Pisano,
1994), and then the relationship between technology uncertainty and the use of management control systems is non-existent or even negative.
H1b: Management control systems are used less
intensively as technological uncertainty increases.
Finally, project scope is related to e€ort that the
project manager has to devote to coordinating the
input from di€erent constituencies. Project scope
depends on the number of people involved in the
project. A small project, possibly because the product is simple or because it only involves a small
group of engineers, will have low demands on
formal systems for coordination. In contrast, a
large project with ®fty people dispersed in several
departments around the company will need to rely
much more on formal systems for coordination
(Mintzberg, 1979).
The coordination e€ort will also depend on the
project manager's responsibility. For example,
project manager A was responsible for customer
interaction as well as technology development,
while project manager B only supervised R&D
people. There is ample evidence on the relationship between organizational structure and the

8
Hypotheses are stated in positive terms for clarity, but the
no-hypotheses are tested.

393

design of management control systems (Baiman,
Larker & Rajan, 1995; Bruns & Waterhouse, 1975;
Merchant, 1981). Therefore, the empirical tests
need to control for the organizational structure.
H1c: Management control systems are used
more intensively as project scope increases.
4.2. Product strategy and the design of
management control systems
The relationship between strategy and management control systems' design has been well documented at the business strategy level (Govindarajan
& Fisher, 1990; Kaplan & Norton, 1996; Lang®eld-Smith, 1997; Merchant, 1985; Simons, 1987).
The ®ndings of these studies are robust in terms of
the typology of strategy used. Simons (1987) uses
the strategy types de®ned by Miles and Snow
(1978); Merchant (1985) follows the typology suggested by MacMillan (1982); while Govindarajan
and Fisher (1990) rely on Porter's (1980) concept
of competitive strategy. If these results are generalized to product development, then it is expected that product strategies will be related to
management control systems' design. However,
this relationship is only a conjecture empty of any
empirical evidence. Even if cost may be critical to
the success of a product competing on price,
meeting initial speci®cations may satisfy this
objective and the project manager can safely
ignore cost information. The typology of product
strategies selected for the research is based on
Miller and Roth (1994) who identify price, timeto-market, and customer focus as di€erent product
strategies.9 If management control systems provide
useful information to deal with relevant project
uncertainties, then project managers designing
low-price products will value product cost information more highly, while time information may
be more valuable for products that would stand to
bene®t from ®rst mover advantages. The following
hypotheses capture these arguments:
9
Technology-based strategy is sometimes included as an
additional product strategy. As illustrated in the case study of
project manager B, when technology is the most relevant
dimension, management control systems play a minor role in
the product development process.

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T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

H2a: Cost information will be used more intensively as the importance of a low cost product
strategy increases.
H2b: Time information will be used more intensively as the importance of a time-to-market product strategy increases.
H2c: Customer information will be used more
intensively as the importance of a customer
focused product strategy increases.
4.3. Management control systems and project
performance
The aim of most managerial activities is to
improve the performance of the organization.
Therefore, it is relevant to know whether management control systems a€ect project performance.
Notice, however, that the absence of a relationship between management control systems and
performance does not necessarily mean that these
systems are irrelevant. An alternative interpretation is that companies have optimally designed
systems. If all companies have precisely the management control systems that they require, then
performance will not be related to these systems.
In contrast, if such a relationship exists, then it
can be concluded that management control systems are related to project performance and that
some companies are not using optimal systems.
The relationship between management control
systems and project performance will be positive if
projects bene®t from more structured systems. On
the other hand, if systems are too structured and
sti¯e the ability of the development team to
respond to demands particular to the project, then
the relationship will be negative.
Moreover, the relationship between management control systems and project performance
may be contingent upon certain project characteristics.10 In particular, strategy has been frequently
identi®ed as a€ecting the design of management
control systems (Govindarajan & Gupta, 1985;
Lang®eld-Smith, 1997). The following hypotheses
capture the main e€ect (H3a) as well as contingent
relationships (H3b, H3c, H3d).
10
I thank one of the referees for pointing out this interesting
extension.

H3a: More intense use of management control
systems has a positive e€ect on project performance.
H3b: More intense use of customer information
has a positive e€ect upon performance for products following a customer-focused strategy.
H3c: More intense use of cost information has
a positive e€ect upon performance for products
following a low cost strategy.
H3d: More intense use of time information has
a positive e€ect upon performance for products
following a time strategy.
Finally, the detail reported at the beginning of
the product design phase may also a€ect project
performance. However, existing evidence is contradictory. Eisenhardt and Tabrizi (1995) ®nd that
the amount of planning has no e€ect upon development time. In contrast, Gupta and Wilemon
(1990) report that the ®rst reason for product
delays is a poor de®nition of product requirements
(71% of the respondents). A more general argument supporting the importance of planning is
provided by Bruns and McKinnon (1992) who
found a positive association between clear goals
and improved performance. The last hypothesis
captures these arguments and relates them to product development.11
H3e: Detailed project objectives are associated
with improved performance.

5. Research and survey design
Management control systems in product development vary over time and across the organization's hierarchy. They vary over time because
information needs are di€erent for the planning,
concept design, product design, and testing and
start up phases. Similarly, management control
systems span the whole organization, from the
formal systems used by top management, to the
routines that shape the work of a recently hired
engineer. This variation in the research setting can
11
Similarly to the discussion for project performance, the
e€ectiveness of having a detailed plan may be contingent upon
project characteristics. However, the theory developed in the
paper does not identify these contingencies. Future research
may fruitfully explore this ®eld.

T. Davila / Accounting, Organizations and Society 25 (2000) 383±409

decrease signi®cantly the power