By Katja Kolehmainen, CEO & Co-Founder, Grip Strategy
A company’s management system has a profound impact on its competitiveness. At its best, it focuses management attention on what matters strategically, supports better decision-making and helps turn strategy into action. At its worst, it can make strategy execution more difficult – or even prevent the organization from recognizing that its strategy needs to change.
A management system is therefore much more than a way of organizing management. It shapes what gets attention, what gets discussed, what decisions are made and what kind of action is encouraged across the organization.
I have studied management systems and their relationship with strategy for more than two decades, both in academic research and in practice. My work has ranged from my doctoral dissertation and subsequent research on management control systems and strategic thinking to working with companies and public sector organizations on strategy, management and organizational development.
Across these very different contexts, one observation has remained remarkably consistent: the way an organization is managed matters enormously for its ability to execute strategy, adapt and remain competitive.
The management system needs to work as a whole
When companies discuss their management systems, attention often turns to individual elements: organizational structures, targets and KPIs, management meetings, planning processes or incentives. Yet these elements do not operate independently. Their combined effect determines what the organization pays attention to, how decisions are made and what kinds of behavior are encouraged.
Malmi and Brown (2008) use the concept of a management control systems package to describe this broader combination of different management control mechanisms. The central idea is that these mechanisms coexist and interact – and their combined effect can be very different from the effect of any individual mechanism.
What matters is whether the different elements reinforce each other and, above all, support the strategy. Consider a company whose strategy calls for closer collaboration across business units, while its organizational structure, targets and incentives encourage each unit to optimize its own performance. Or a company whose strategy emphasizes renewal and long-term growth, while management attention and discussion focus almost exclusively on short-term performance. Individual mechanisms may be perfectly rational, yet together they can send conflicting signals.
When management systems become a competitive disadvantage
Management systems are not neutral. They shape management attention, influence decision-making and reinforce particular ways of understanding the business and its environment. This makes them a potentially powerful source of competitive advantage – but also a potential source of inertia.
Our research on Nokia Mobile Phones (Malmi, Kolehmainen & Granlund, 2023) illustrates just how consequential this can become. We show how managerial beliefs and assumptions developed during a period of success became embedded in management control systems – and how those systems, in turn, reinforced prevailing managerial thinking. As the competitive environment changed and some of those assumptions became increasingly inaccurate, practices that had previously supported the business began to contribute to inertia, including slow and suboptimal decision-making.
The implications go well beyond strategic renewal. A management system can strengthen competitiveness when it directs attention towards the right issues and enables timely decisions and action. But when the assumptions embedded in the system no longer reflect the realities of the business environment, the same system can reinforce outdated thinking, delay action and ultimately undermine competitiveness.
This creates a fundamental challenge for management systems: they need to provide sufficient focus to drive strategy execution while remaining open enough to bring changing assumptions, emerging issues and new strategic questions into management discussion.
Start with what needs to be managed to execute the strategy
Developing a management system should not begin with an organization chart, a new meeting structure or a new set of KPIs. It should begin with the business and its strategy: What are the critical issues we need to manage exceptionally well for our strategy to succeed?
Once these critical management priorities have been identified, the different elements of the management system can be designed around them. Does the organizational structure support their management, or does it create boundaries and encourage siloed optimization? Are management roles, responsibilities and decision rights clear, and do strategically important issues have clear ownership? What management principles guide decision-making, collaboration and leadership throughout the organization?
The same logic extends to management forums and decision-making structures. Strategically important issues need a place where they are regularly discussed, challenged and decided upon, and the roles and connections between different forums need to be clear. Finally, targets, metrics and performance monitoring should focus attention on the issues that matter for strategy execution and provide management with the information needed to make decisions.
None of these elements works independently. A logical organizational structure is not enough if decision rights remain unclear. A carefully designed KPI system adds little if the measures do not generate meaningful management dialogue. And well-designed management forums achieve little if the strategically important issues never make it onto their agendas. What ultimately matters is the alignment of the different elements around the issues that are critical for executing the strategy.
From strategy execution to strategic dialogue
A strong management system needs to do two things simultaneously. It needs to create focus and discipline around the execution of the chosen strategy, while also creating space for strategic dialogue, learning and challenge.
This is an important distinction in Robert Simons’ Levers of Control (1995). In addition to using control systems diagnostically to monitor performance against predefined targets, Simons describes how they can be used interactively to focus management attention on strategic uncertainties and stimulate ongoing dialogue throughout the organization.
This means that measures, management forums and other management practices can serve a purpose beyond monitoring performance. They can help surface new questions, challenge assumptions and bring emerging strategic issues into management discussion. Used in this way, the management system does not only support the execution of strategy; it also contributes to the organization’s ability to learn and adapt.
This dual role is essential. Organizations need enough focus and discipline to execute their strategy, but also enough openness to question it. A management system should help leaders keep attention on what matters today without becoming blind to what may matter tomorrow.
A good management system helps an organization execute today’s strategy effectively. A great one also helps it recognize when tomorrow’s strategy needs to be different.
Research behind our thinking:
Malmi, T. & Brown, D. A. (2008). Management control systems as a package—Opportunities, challenges and research directions. Management Accounting Research, 19(4), 287–300.
Malmi, T., Kolehmainen, K. & Granlund, M. (2023). Explaining the Unintended Consequences of Management Control Systems: Managerial Cognitions and Inertia in the Case of Nokia Mobile Phones. Contemporary Accounting Research, 40(2), 1013–1045.
Simons, R. (1995). Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal.Harvard Business School Press.
