Performance Measurement Systems

1Introduction

However, despite the high importance practitioners and scholars attach to parent-PMSs, two research gaps on parent-PMSs are prevailing in the management accounting literature. First, research has neglected important developments concerning the design of parent-PMSs. Admittedly, research on the design of parent-PMSs has a long-lasting tradition, but older empirical studies (e.g. McInnes (1971); Choi/Czechowicz (1983)) mainly deal with financial performance measures and targets only (Schmid/Kretschmer (2010), p. 225). However, nowadays parent-PMSs are no longer regarded as purely financial systems (Chenhall/Langfield-Smith (2007), p. 267). Instead, the literature suggests that the design of parent-PMSs has changed during the last decades in several ways (Bourne et al. (2000), pp. 754-755; Klingebiel (2001), pp. 17-18; Gleich (2011), pp. 10-19). First, parent-PMSs today are expected to contain both financial and non-financial performance measures and targets (Lynch/Cross (1995), p. 38; Klingebiel (2001), pp. 17-18). Second, conceptual studies suggest that parent-PMSs should be linked to the remuneration of the subsidiaries’ management and staff to effectively influence their decisions (Atkinson (1998), pp. 553-556; Otley (1999), p. 366). Finally, it is common sense that parent-PMSs nowadays need an information technology (IT) infrastructure, which consists of, for example, enterprise resource planning systems and business intelligence systems (Horváth/Seiter (2009), p. 402; Heinicke (2018), p. 480).

Despite this newer and broader understanding of parent-PMSs, many studies (e.g., Quattrone/Hopper (2005); Kihn (2008)) still only address single design elements of parent-PMSs, such as performance measures or IT systems. By providing descriptions of single elements, these studies cannot describe how the different design elements of parent-PMSs are connected to each other. Furthermore, many studies (e.g., Kihn (2008); Dossi/Patelli (2010); Du et al. (2013) have an explanatory focus and therefore do not describe the design of parent-PMSs in detail. Thus, the management accounting literature lacks a description of the design of parent-PMSs based on multiple design elements.

The second research gap relates to the adoption of parent-PMSs at subsidiary level, which has received scant attention in the literature:

“For multinational enterprises (MNEs), the adoption of practices by various subsidiaries remains an interesting but insufficiently discussed management issue […]. This issue requires attention from both researchers and managers because it affects the managerial performance of MNEs.”

(Cheng/Yu (2012), p. 82)

“There are not many studies in the accounting literature which explore whether and how locals reshape global management control systems when mobilising them to conduct their day-to-day activities. […] It seems to be assumed, therefore, that the management control systems used by the parents will simply be reproduced […].”

(Cruz et al. (2011), p. 414)

As expressed by the quotes above, the literature has ignored how subsidiaries adopt parent-PMSs for a long time (Dossi/Patelli (2008), p. 144; Cruz et al. (2011), p. 414). In fact, the literature has mainly looked at the design of these systems or has simply assumed that subsidiaries adopt parent-PMSs as intended by the head offices (Cruz et al. (2011), p. 414). However, recent studies (e.g., Siti-Nabiha/Scapens (2005); Dossi/Patelli (2008); Mahlendorf et al. (2012)) provide preliminary evidence that subsidiaries might deviate from head offices’ intentions in two ways when adopting parent-PMSs.

First, the subsidiaries’ use of the parent-PMS might deviate from head offices’ intentions (Dossi/Patelli (2008), p. 138; Mahlendorf et al. (2012), p. 689). In fact, the few existing studies indicate that subsidiaries might only pretend to use parent-PMSs without actually incorporating them in the day-to-day business (Siti-Nabiha/Scapens (2005), p. 58; Dossi/Patelli (2008), p. 138; Mahlendorf et al. (2012), p. 689). For example, subsidiaries might report the performance measures of the parent-PMS to their head office but do not discuss them in local meetings (Ansari/Euske (1987), pp. 561-564; Siti-Nabiha/Scapens (2005), p. 47). Second, the management accounting literature provides evidence that subsidiaries might develop their own PMS when they are dissatisfied with the design of the parent-PMS (e.g., Siti-Nabiha/Scapens (2005), p. 65; Dossi/Patelli (2008), p. 140). These so-called local-PMSs are unofficial PMSs, which are not approved by the MNCs’ head offices (Kilfoyle et al. (2013), pp. 385-386; Goretzki et al. (2018), pp. 1888-1892). A subsidiary might develop a local-PMS to have an alternative to the parent-PMS or to compensate for the perceived weaknesses in the parent-PMS design (Siti-Nabiha/Scapens (2005), p. 65; Cruz et al. (2011), p. 413; Cooper/Ezzamel (2013), pp. 291-293).

The first research question (RQ) relates to the head office level. It aims to provide a description of the design of the head offices’ parent-PMSs. This description also serves as the basis for investigating the second research questions, which shift the focus to the adoption of parent-PMSs at subsidiary level. RQ 2a seeks to describe how the subsidiaries use the parent-PMSs. By addressing RQ 2b, this study aims at investigating the existence and design of local-PMSs. Based on the use of parent-PMSs and the existence and design of local-PMSs, this study intends to carve out a typology of the adoption of parent-PMSs. Finally, RQ 2c aims at exploring factors that influence how the subsidiaries adopt parent-PMSs.

These research questions are addressed by conducting case studies of five German MNCs. This research approach is particularly suitable due to the explorative stage of prior research, especially on the adoption of parent-PMSs. At each case company, interviews are conducted at both head office and subsidiary level. The interviews at head office level provide information on the design of the parent-PMSs. At subsidiary level, experts from two subsidiaries of each case company are interviewed to examine the adoption of the parent-PMSs. The resulting empirical data is analyzed both within and across the cases.