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Management Control Systems in Small and Medium- Sized Enterprises: A

Case Study

Article in International Journal of Scientific Research and Management (IJSRM) · May 2022
DOI: 10.18535/ijsrm/v10i5.em09

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International Journal of Scientific Research and Management (IJSRM)
||Volume||10||Issue||05||Pages||EM-2022-3540-3554||2022||
Website: www.ijsrm.in ISSN (e): 2321-3418
DOI: 10.18535/ijsrm/v10i5.em09

Management Control Systems in Small and Medium-

Sized Enterprises: A Case Study
Daryl F. Famacion-Quinco, DBA1, Maria Nancy Quinco-Cadosales, PhD2
La Salle University, Ozamiz City1
Cebu Normal University, Cebu City2
Philippines

Abstract
Small and medium sized enterprises (SMEs) are the backbone of the Philippine economy. They comprise
99.6% of the total business establishments in the market. Many studies have said that SMEs, particularly
small firms, do not need and do not use management control systems (MCS) due to their simple
organizational structure and limited resources. Only a few studies have shown that these firms have
developed and are using MCS even those sophisticated management accounting practices (MAPs) and
information. This empirical study was conducted to get an understanding of the use and the form of MCSs
applied in SMEs in Misamis Occidental and to explore on their implementation of control. The study used
the case study method. The study included 46 SMEs surveyed and seven SMEs interviewed. The
companies have already been in the industry for more than 10 years and employed from 10 to 199 persons.
They are a combination of traditional and modern enterprises due to the generation of the owners/managers
handling the business operations. The results suggest that SMEs in Misamis Occidental do use a wide
range of MCS practices and information although many practices are not integrated as highly and
systematically into their normal operations based on the data of adoption rates and ranks. The results also
indicate that MCS are themed along the lines of financial controls, clan controls, customer-oriented
controls, relationship controls, and strategic-oriented controls. This shows a combination of traditional
MCS and new sophisticated MCS which adds to the knowledge that SMEs do practice and adopt MCS in
their operation.

Keywords- management control systems, small and medium-sized enterprises, case study, Philippines

I. Introduction
Micro, small and medium enterprises (MSMEs) play an important role in the Philippine economy. They
represent 99.6 percent of the 777,687 total business enterprises in the Philippines while the remaining 0.4
percent is represented by large companies as of 2010 (National Statistics Office, 2010). The MSMEs
contribute to the development of the Philippines by creating jobs for the labor force, stimulate economic
development in the rural areas, serve as partners to large enterprises as suppliers and providers of support
services (Senate Economic Planning Office, 2012).
Entrepreneurs are tasked to run the business smoothly to meet the growing challenges and demands of the
corporate environment. Phihlela, Odunaike, and Olugbara Durban (2012) said that in order for a business
organization to succeed, there is a need for timely information about its operations. To be able to get these,
the operations have to be monitored and measured constantly.
Management control systems (MCS) enable managers not only to cope with increasing information needs,
but also to avoid loss of control because of lack of monitoring (Child & Mansfield as cited by Chenhall,
2003). However, MCS are costly and time-consuming to install and operate. This would require that the

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3540

entrepreneur needs to formalize the activities of the business. Previous research suggests that small
businesses engage in less formalized, more operational, and more pesonal planning than larger firms and that
they utilize friends, family, and magazines to collect information (Robinson, Logan, & Salem as cited by
Lyles, Baird, Orris, Kuratko, 1993). Lyles et al. (1993) also pointed out that formal planners have an average
of 101 employees, which under the Philippine definition is already considered a medium enterprise. Thus, it
can be noted that as an enterprise grows, the more inclined it is to formalize operations.
The role of MCS in smaller or medium-sized entities has received little attention in the contingency-based
MCS literature (Reid & Smith, 2000). Many opportunities for MCS, contingency-based research are likely to
be found in SMEs.

For Chenhall (2003), the goal of MCS research is to provide findings that assist managers achieve their goals
or those of their organization. He also suggested for contingency-based studies to first establish adoption and
use of MCS, then to examine how they are used to enhance decision quality and finally investigate links with
organizational performance. He cited that few MCS studies have explicitly considered size as a contextual
variable. In the main, studies have examined relatively large organizations, usually justifying this as it is
large firms that tend to adopt the type of practices incorporated within more formal MCS.

Studies that have examined size as a variable, have considered its effects together with other elements of
context. However, the issues underlying the choices of MCS in SMEs differ from those confronted by large
firms: (1) large firms usually have an extensive amount of formal systems already in place; (2) SMEs utilize
informal controls more intensely than do large firms (Cuguero & Rosanas, 2011; Davila & Foster, 2005).
This study hopes to add to the literature on empirical studies about MCS in SMEs.

Second, it seems essential that more emphasis should be placed on the study of real control systems as they
operate in practice. Theoretical speculation has its place, but it needs to be strongly grounded in
organizational reality. This is especially true of an integrative activity such as MCS design and use. The
advantages of field studies in this context are considerable. They help ensure that the many factors that
influence the results of a control systems operation are considered. They help focus on issues that are very
real to organizations, and they allow the changes that occur over time to be monitored.

This study aims to fill the gap in the management accounting literature by empirically examining the use of
MCS practices and information of small firms applying a contingency theoretical framework.

II. Objectives of the Study

The study aims to explore the use of MCS in SMEs in Misamis Occidental. Previous studies noted that
organizations tend to be more informal in its early stages and size. Thus, for this study, the performance
management framework by Otley (1999) will be adopted using the five questions as follows:
1. What are the key objectives that are central to the organization’s overall future success, and how does
it go about evaluating its achievement for each of these objectives?
2. What strategies and plans has the organization adopted and what are the processes and activities that it
has decided will be required to successfully implement these? How does it assess and measure the
performance of these activities?
3. What level of performance does the organization need to achieve in each of the areas defined in the
above two questions, and how does it go about setting appropriate performance targets for them?
4. What rewards will managers and other employees gain by achieving these performance targets - or,
conversely, what penalties will they suffer by failing to achieve them?
5. What are the information flows - feedback and feed-forward loops that are necessary to enable the
organization to learn from its experience and to adapt its current behavior in the light of that experience?

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 The structure of the framework analyzes the operation of MCS around the issues that relate to: objectives,
strategies and plans for their attainment, target setting, incentive and reward structures and information
feedback loops (Otley, 1999).

III. Methodology
The justification for case-based research in accounting and control systems is now widely recognized. Otley
and Berry as cited by Tessier and Otley (2012) hold that the nature of controls requires their study within the
settings in which they are used. They maintain that case study research makes possible a comprehensive -
approach to the study of controls in use. Moreover, they encourage the pursuit of exploratory studies as
means of capturing the richness of accounting and control systems when examined within organizational
contexts.

Yin as cited by Meyer (2001) defined case studies as “an empirical inquiry that investigates a contemporary
phenomenon within its real-life context when the boundaries between the phenomenon and its context are
unclear, and where multiple sources of evidence are used”. The case studies conducted here were exploratory
to the extent that only the general aspects of the study design were determined and advanced (Yin, 1993). As
Yin noted, “in this type of case study, fieldwork and data collection are undertaken prior to the final
definition of study questions and hypotheses” (1993, p. 5).

This approach was considered particularly suitable given the general absence of prior knowledge regarding
control practices in the host country. The research design involved seven short case studies. These
endeavored to examine the functioning of MCS in seven small to medium (non-finance) companies located in
Misamis Occidental. The purpose was to examine the design and use of control systems using the
frameworks found in the literature mentioned, and to assess their ability to explain the evidence gathered.
Further, Chenhall (2003) argued that the generation of propositions concerning novel relationships
concerning MCS, processes and their contextual setting are often best identified and elaborated by using case
study methods.

The study was done among the SMEs of Misamis Occidental. The respondents came from companies that
are more than 10 years in the industry. This would provide credence to the agency being more formally
managed. This criterion is following the same criteria of previous research studies that consider the firms that
are not more than 10 years old as young (Beckman et al., Certo et al., Covin & Slevin, Yli-Renko, as cited in
Durendez & Garcia, 2008).

For the case study, four interviewees come from the small sized enterprises and three from the medium sized
enterprises. Among the interviewed for those owning/managing small sized enterprises: one owner-manager
is engaged in the furniture manufacturing and trading industry, one owner-manager operates a fish wholesaler
and retailer business; one owner-manager is engaged in coffee and tablea manufacturing; and one in the food
manufacturing and service business. The medium sized owners/managers interviewed are: one manages a
construction business, one owner/manager is engaged in the tourism industry and the other is engaged in the
food franchise business.

Three of the respondents are first generation owner managers, three are second generation owners/managers
and one is third generation from the original owner of the business.

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The firms considered are seven SMEs of Misamis Occidental. The choice of seven firms is supported by
Eisenhardt’s (1989) approach to case study research which argues for the use of more than a single case. She
concluded that “between 4 to 10 cases usually works well. With fewer cases, it is often difficult to generate a
theory with much complexity, and its empirical grounding is likely to be unconvincing, unless the case has
several mini-cases within it”. (p.535)

An interview guide was used for the gathering of qualitative data. The interview guide was developed using
the performance management framework by Otley (1999).

The responses of the research participants were analyzed line by line. The coding process followed
Charmaz’s (2006) model. The initial open coding was constantly compared to identify the focused coding
leading to the emergence of the core category. The core categories derived from the cases revolved around
financial controls, clan controls, customer-oriented controls, relationship controls and strategic-oriented
controls of MCS adopted and used among SMEs in Misamis Occidental.

Face-to-face interviews were done with all the owners/managers and the interviews lasted for at least two
hours to three hours to the maximum. Five of the interviews were conducted in the actual business sites of
the interviewees and two were done in a coffee shop in Ozamiz City. There were instances when the
interview was finished in one sitting while in some instances, the interviewer had to be told to come back and
finish the interview at another time.

Three of the interviews were recorded (with permission from the interviewees) and transcripts were made
while the rest were not recorded due to the requests of the interviewees but written transcripts were made
during the interview process. After each interview, a case write-up was made directly.

Qualitative data analysis was done using the six steps as enumerated by Creswell (2009): preparing and
organizing the data, exploring and coding the database, describing findings and forming themes, representing
and reporting findings, interpreting the meaning of the findings, and validating the accuracy of the findings.

To ensure that research ethics were observed, the following have been undertaken: a) the objectives, issues
and risks, and benefits of the project were conveyed to the participants through the introductory letters
attached to the questionnaires and sent before the actual interview; b) formal verbal consents have been
obtained from the participants prior to the start of the interviews and the interviews were proposed to be
conducted at each participant’s workplace or at a most convenient place for them; and c) the privacy of the
participants and the confidentiality of data that were obtained from the survey participants were strictly
maintained in such a manner that the participant cannot be identified in the report or any related publications.

IV. Results and Discussion

The discussion of the results of the MCS in SMEs was made through the development of case studies: four
selected small and three medium-sized enterprises in Misamis Occidental. The cases described and exposed
the enterprise’s vision, strategy, organization, and MCS. The case studies highlighted the similarities,
differences, and uniqueness of the enterprise’s vision, strategy, organization, and MCS.

In the new economy, the SMEs play a critical role. They offer a rich area for prospective research. For this
research, SMEs were studied in terms of the management controls put in place and whether they are

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3543

formal/informal controls. Secondly, the study wanted to establish whether the choices of management
controls in SMEs are associated with the firm’s strategy.
A. Data Analysis

The practice and usage of MCS of four small and three medium-sized firms of the case studies were
analysed. The coding process of the seven cases revealed the significant features in each of the cases to
arrive at the dimensions relevant to the conceptualization of a model for SMES.
The vision of the SMEs can be generalized in terms of the generation running it. After the coding process of
the answers of the interviewees in terms of the questions pertaining to their vision, Table 1 shows the themes
and dimensions the SMEs’ vision. The data show that the founders want economic gain and stability for the
business to continue on into the future. This is true both for SMEs that are owned and managed by the
founders. The next generation owners/managers tend to focus on the growth and expansion of the business
in terms of new markets. The next generation owners/managers are more aggressive for wanting to find new
markets for their business and recognizing that market saturation is bound to happen thus, finding your own
market niche will ensure that sustainability into the future can be assured.

Table 1 : Themes and Dimensions of the SMEs Vision

Themes Dimensions
Founders/Owners Next Generation Owners/Managers
Small Medium Small Medium
Economic Gain Economic Gain Economic Gain Financial
Family Provider Relationships
Succession
Stability Stability Environmental
Less Risk Uncertainties
Wellness Wellness Customer needs
Environmentalist
Faith Values
Growth in market Growth Customers
Market Niche
New Markets Financial

Table 1 shows that relationship goals are important for founding owners. This is observed in the statement
by Mrs. Juanita, “To earn enough to be able to provide for their needs especially a good education for their
children.” Employees are treated like family and the conduct in the operations are like that of running one’s
own household.

Five of all the cases (whether small or medium-sized or founder owned or next generation owners) focused
on the priority goal of the business and that is profitability not only for themselves but for the whole family.
This includes their immediate families and the employees that serve the enterprises. This is supported by the
results of the survey which indicated that the short run goals of the business focus on (1) Profitability; (2)
Liquidity; (3) Growth; (4) Stable Development; and (5) Leverage.

Like that of the statement of Mrs. Cena wherein, “No one in their right minds will go into business, if not for
profit.” According also to Mr. Johny, “as long as he can pay for his expenses, money is saved for the
desired targeted expansion projects; he is satisfied with the outcome of his operations.” This is supported
by the study of Sweeting (1991) wherein controlling is geared towards the attainment of the desired
liquidity.

All of the respondents admitted that the business goal is more family oriented rather than just for personal
gain. This conforms to the statement of Herath (2006) wherein the expected outcomes of any control system
as a whole is the survival and growth of the organization and the job satisfaction and personal development
of its participants.

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3544

The results show that the SMEs have their own vision but they prefer to have it unwritten (Suranga &
Rahman, 2014). The vision serves as their guide for their actions and the expected actions of their
staff/employees. They informally communicate the vision of their company through daily performance
evaluation as a monitoring tool to guide actions and decisions. These findings are supported by the result of
the survey wherein quality improvement analysis, personnel analysis and analysis of business strengths and
weaknesses are ranked as number two in the relatively high adoption of MCS practices and information in
SMEs.

The themes derived from the open coding of the answers of the interviewees leads to the dimensions
financial measures, relationships, environmental uncertainties, values and customers as the dominant aspects
of the vision of the SMEs in Misamis Occidental.

Although the interviewed SME owners do not formally admit to having strategies in the conduct of their
operations, five dimensions for the themes seem to dominate the discussions. These dimensions coded
pertain to relationships, customers, financial measures, values and clan control. After the coding process,
the themes and dimensions are developed as displayed in Tables 2.

Table 2 : Themes and Dimensions of SMEs Strategy

Themes Dimensions
Founder/Owner Next Generation Owners
Small Medium Small Medium
Family Relations Family Orientation Family Orientation Relationships
Partnerships Partnerships Partnerships
(mentors, advisers, (mentors) (suppliers)
connetions)
Customer Loyalty Customer service Customer Customer satisfaction Customers
satisfaction Customer driven
Customer driven
Marketability
Quality
Market Niche
Innovation
Sales Targets Sales Targets Sales Targets Financial
Budgets (sales, costs) Budgets (sales, Budgets (sales, costs) Measures
Capital Structure costs)
Capital Structure
Liquidity and
Growth
Economies of Scale Scale-up
Faith Values
Devotion
Drive Drive
Loyalty
Trust Trust
Honesty
Objectivity
Accountability
Personal Personal Management Personal Personal management Clan control
Management Management
Teamwork Planning
Planning
Focus Empowerment
Empowerment Information sharing
Experiential learning

Five of the interviewees admit that relationships are important that are built on the values: trust, faith,
honesty, loyalty, drive, objectivity, accountability and devotion. These relationships with their employees,

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3545

customers, suppliers and advisers/mentors revolved around the concept of family relations geared towards
the achievement of family specific goals. These themes and dimensions are observable whether the SMEs
are founder owned/managed or owned/managed by the next generation. This is in agreement with
Speckbacker and Wentges as cited by Senftlechner and Hiebl (2015) when they say that informal
management controls are trust-based management accounting/management controls (MA/MC). These trust
based controls are a strength and competitive advantage for family businesses.

Two small and three medium-sized enterprise owners/managers interviewed are concerned about the
customers’ patronizing their products or services for they believed that they are the real source of their
profitability. This finding is supported by the results of the survey wherein quality improvement analysis,
customer profitability analysis, calculations on customer costs and customer analysis (satisfaction,
behaviour, etc.) ranked second, third, fourth in the rate of adoption of MCS practices and information among
SMEs.

Customers are directly in contact with their employees, thus it is important to recruit/hire employees that
share the same values and goals of the enterprise. It is therefore, customary among the interviewed
enterprises to hire employees that belong to the extended family tree of the organization. This gives them
the belief that they would act in the firm’s best interest. Thus, as Moilanen (2008) said that the need for
management controls may be reduced if trust is present in the company. But it can be noted in the table, that
values are predominantly given importance by the founder owner/manager as a business strategy compared
to the next generation owner/managers.

Five of the owners/managers have strategies based on intuition, and no written documents are made. They
are usually developed based on past experiences in running their businesses. It could also come from
advices from experts for which they consider in their group. Suranga and Rahman (2014) stated that the
experiences of the owner are very influential. Sales and expense figures are closely monitored based on past
experiences and deviations are analyzed based on market movements and environmental changes. These
traditional financial management practices, market and customer oriented practices and strategic oriented
practices are among those ranked in the survey as relatively high adoption.

Five of the interviewees also declare that personal management of their own enterprise is the key to their
success. This theme is consistently practiced both by founder owned/managed and next generation
owned/managed SMEs as can be seen in the table. Daily monitoring is important for their decision-making.
In the decision making process of three of the SMEs, employees have the opportunity to be involved. The
owners are open to the feedback given by their employees and they consult them in aspects where they
believe the employees have a good knowledge of the issues at hand.

As for the owners/managers, they are the sole decision makers in the business. But for those managers,
normally the second and third generation of the family, whose parents are still around, they are only
recommendatory as far as major decisions are to be made. It is still their parents, who technically own the
industry, which makes the ultimate decision for the business. Thus, for these generation of
owners/managers, planning is important as part of the strategy since they are not the ones who directly
makes decisions. They need to communicate to the founding owners or to their parents the plans and
activities for the business and must get their approval first. It is therefore important for them to be
empowered and they translate it to their own practices of management and running the business entrusted to
them.

Throughout the study, five of the repondents stated that the business should be personally manage to
monitor immediately actions and outputs. This is typical of a clan control practice of owners/managers.
Mrs. Cena said that “The owner should be the one to personally manage the business.” Experience served as
the basis for the monitoring and evaluation. Cashflow monitoring is the most important area. Budgets for
sales and expenses are generally established even if not documented and generally communicated to the
employees. This is consistent with the study of Davila and Foster (2005) which concluded that budgets,

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3546

cashflows and sales projections are the first management control instruments implemented in a business.
The results of the survey supports this finding wherein casflows, budgets and sales projections are among
those of relatively high adoption and of high use.

As the number of employee’s increases, the business structure normally develops and adds sub levels to the
owner-managers as can be seen in the themes under Table 12. At a lesser number personal management and
overseeing of all the tasks are handled by the owner-manager themselves. As the number increases, there
arises the need to add middle level managers to handle the different tasks in the organization. But although
there are middle level managers, the communication lines directly leading to the owner is still open and
employees can still go directly to the owner-manager for issues and concern and vice versa.

This kind of management reflects that of clan control culture wherein the culture is characterized by having
a management style which promotes working as a team, and consensus and participative decision-making is
observed (Durendez & Garcia, 2008) as can be seen in Table 3. The elements of culture here are considered
as informal controls which act as a starting point for the design and use of formal control systems. Peljhan
and Tekavcic (2008) agreed that informal controls are catalysts of efficient formal controls and these
pertains to the culture and leadership style in an organization.

Table 1 : Themes and Dimensions of the SMEs Organizational Structure

Themes Dimensions
Founder/Owner Next Generation Owners
Small Medium Small Medium
No middle managers No middle managers Flat
Open communication Open
communication
Centralized decisions
Few middle
managers
Few middle managers Few middle managers
Family Orientation Family orientation Family orientation Relationships
Consultative Values
Respect
Camaraderie Camaraderie
Performance Goal congruence Evaluation
evaluation

Informal management controls are a source of strength and competitive advantage by family owned
businesses (Speckbacker & Wentges as cited by Senftlechner & Hiebl, 2015). SMEs in Misamis Occidental
use management control systems to facilitate decision-making as evidenced by the results of this study.
These informal management controls usually focuses on mutual trust, family specific goals and
centralization of power. These are important antecedents to formal controls (Senftlechner & Hiebl, 2015).
The next generation owners/managers are the ones more concerned with the strategic oriented practices.
This can be due to the vision of these owners/managers that drive them to be aggressive in their decisions in
terms of the direction of their businesses. Table 4 gives the themes and dimensions developed from the
open coding for the SMEs MCS practices and information.

Table 4: Themes and Dimensions of the SMEs MCS practices and information
Themes Dimensions
Founder/Owner Next Generation Owners
Small Medium Small Medium
Sales targets Financial
Net profit Net Profit Measure
Profitability Profitability
Gross Profit Gross Profit
Liquidity Liquidity
Growth
Cashlfow

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 Capital Structure Capital Investments
Bonus (monetary) Bonus (monetary, Bonus (monetary, Bonus (monetary) Feedback
non-monetary) non-monetary)
Feedback Feedback (employees, Feedback (trusted Feedback (employees, Internal and
(employees, government people) government agencies) External sources
customers, mentors, regulations, suppliers) of information
advisers, friends)
Owner Centered Clan Control
Experiential Experiential Experiential
Opportunistic
Performance Performance
evaluation evaluation
Environmentalist
Lenient
Seasonality Risk Environmental
Risk Innovation Uncertainties

Themes Dimensions
Founder/Owner Next Generation Owners
Small Medium Small Medium
Customer Customer satisfaction Customer Customer satisfaction Customer
satisfaction satisfaction
Quality Quality Market Niche

Teamwork Accountability Accountability Values

Camaraderie
Faith
Honesty Empowerment
Family oriented Family oriented Relationships

All of the interviewees expressed the importance of listening to everyone in the organization and the ability
to fulfil the employees’ needs of personal development in the organization. Five of the owners/managers
allow their employees to decide over their actions, and the controlling function ends after evaluating if goals
and objectives are achieved. Employee empowerment is greatly observed by the interviewees in their own
workplaces. This result is parallel to previous research which suggests that small businesses engage in less
formalized, more operational, and more pesonal planning than larger firms and that they utilize friends,
family, and magazines to collect information (Robinson, Logan, & Salem as cited by Lyles et al., 1993).

The study revealed that employee monetary bonuses are given for good performances but they are not
considered as formal established incentives. Most of the employees are motivated to work because of the
treatment and the camaraderie practiced in the enterprise. In most of the instances, the employees had
developed their family inside the business and the nurturing treatment extended to the whole family
becomes the motivational factor to help in the success of the organization.

The study also revealed that human resource practices are present in all of the businesses. They all admit
that they have incentive programs, evaluation of performances and communication to the employees. But
even if the interviewees admits to the human resource practices, they are all undocumented and sometimes
affected greatly by the owner’s perceptions and subjective judgment. The survey results also showed that
personnel analysis belongs to the relatively high adoption and high usage rates. These findings are in
conformity with the findings of Davila and Foster (2005).

The table also shows that environmental uncertainties are taken into consideration primarily by small firms
whether owned/managed by the founders or the next generation. It can be noted that small firms are
threatened by drastic movements in the market due to the limitations that they face in terms of capitalization
and manpower. Being able to adopt to the environment is a big challenge to these firms thus, for them the
way they managed their businesses are greatly affected by these environmental uncertainties.

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All of the actions and activities of the SMEs in Misamis the are geared and focused on the customers. The
dimension on customers are predominantly present in all firms interviewed and it commonly has the theme
of customer satisfaction. In the words of Mr. Lieu, “ I am willing to sacrifice cost targets if it is for the
satisfaction of the customers.” It is in this light that all of the interviewees monitor and control the acts and
activities in the organization to achieve the desired goals of the enterprise.

Several studies affirm that the strategic orientation determines the types of MCSs needed (Chenhall, 2003;
Otley, 1999). However, MCS can also support strategy formulation and the process of strategy control.
This could include the monitoring and subsequent revision of the company strategies especially in the case
of SMEs wherein there is little separation between and enterprise strategic thinking and decision-making
(Lyles et.al., 1993). The themes and dimensions developed under strategy and MCS are presented in Table
5.

Table 5 : Themes and Dimensions under Strategy and MCS

Strategy Management Control Systems
Themes Dimension Themes Dimension
Family Relations Relationships Accountability Values/
Partnerships (supplier, Family Orientation
mentors, connections, Teamwork
advisers) Empowerment
Faith Values Recognition,
Drive Honesty,
Trust Faith
Devotion Camaraderie Relationships
Honesty
Customer Service Customers Oriented Customer satisfaction Customers
Customer Loyalty Market Niche
Customer Satisfaction Product Quality
Marketability
Quality
Market Niche
Innovation

Sales Targets Financial Measures Net Profit Financial Measures

Budgets (Sales, Costs) Sales target
Capital structure Gross Profit rate
Scale-up/Economies of Cost Targets
Scale Liquidity
Liquidity Growth
Growth Cash flow
Capital
Structure/Investments
Feedback (advisers, Internal and External
employees, customers) sources of information
Bonus (financial and non-
monetary)
Seasonality Environmental
Risk Uncertainties

The owners/managers directly control the operations of the business with little or no help from other
persons. For them it is important that relationships are built and that all the forces act together for the
attainment of the company specific goals. Thus, among the SMEs under study, MCS focuses primarily on
the strategy execution which is highly affected by the interactions of the customers and the employees of the
enterprise. MCS main role is to influence the behavior of employees to ensure that individual actions are
taken to pursue personal goals that would also help achieve the organization’s goals (Anthony &
Govindaran, 2004).

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3549

The results of the study revealed that the themes developed under strategy and MCS are of the same or
related orientations. They have similar dimensions of relationships, values, clan control, financial measures
and customers. This shows that there is a link between these management practices and processes in SMEs
(Lyles et. al., 1993). There exists goal congruence between the strategy of the firms to build on relationships
to attain the financial goals of the firms and the execution and control of these items as supported by the
MCS of the SMEs (Anthony & Govindarajan, 2004).
The themes and dimensions discussed above are summarized in Figure 1 to capsulized the MCS practices
and information in SMEs in Misamis Occidental.

FIGURE 1. MCS MODEL FOR SMESUSING THE TEMPLATE

V Conclusion
The responses show that SMEs in Misamis Occidental have adopted and implemented various MCS practices
and information from the traditional financial accounting practices and management to the new and
sophisticated type of MCS. A high level of informal (social) control was identified in all of the studied
companies. This usually involved mutual trust, devotion, honesty, teamwork, camaraderie, and centralization
of power. Due to the direct contact between the environment and the owners/managers of the SMEs,
management controls usually is about relationships and values shared by the whole organization. There
emerge the core categories of financial controls, clan controls, customer-oriented controls, relationship
controls and strategic-oriented controls of MCS among SMEs in Misamis Occidental. Formal financial
controls like cashflows, budgets and costing are highly used and adopted in the SMEs of Misamis Occidental.
These formal financial controls are supplemented in their use by non-financial measures like customer
analysis and business strengths, weaknesses, opportunities and threats (SWOT) analysis. The SMEs in
Misamis Occidental do not only employ traditional and conventional financial management practices but also
modern sophisticated MCS even if the degree of use is not systematically integrated into the business
operations. SMEs in Misamis Occidental also suffer mostly from the lack of human resources regarding the
use and adoption of formal MCS information and analyses. The surveyed respondents indicated that they
have too little staff, not having enough time or the needed skills and anticipating low benefits in relation to
costs for a more comprehensive adoption and use of MCS practices and information. The MCS orientation
among SMEs in Misamis Occidental are themed along the lines of financial controls, clan controls, customer-

Daryl F. Famacion-Quinco, IJSRM Volume 10 Issue 05 May 2022 [www.ijsrm.in] EM-2022-3550

oriented controls, relationship controls and strategic-oriented controls. This shows a combination of
traditional MCS and new sophisticated MCS which add to the knowledge that SMEs do practice and adopt
MCS in their operations.

VI Recommendations
To sum up, this explorative study has provided information on the use of MCS among SMEs in Misamis
Occidental. The information can be used as a base for further academic research in the business context.
These results also shows that aside from designing MCS suited to SMEs, there is a need to guide them in the
technical implementation and adoption as well as the use of MCS information.

It is recommended to the academic community to investigate the curricula and program offerings to include
in the content an in-depth discussion about informal controls involving mutual trust, devotion, honesty,
teamwork, camaraderie as they are important controls that helps in the running and operations of SMEs.

The community building/extension projects of the academic community may include activities designed for
the capacity building of SME owners/managers to in the adoption and implementation of MCS practices and
information. The programs design should take into consideration the limitations of the SMEs in terms of
availability of human resources, time or the needed skills for a more comprehensive adoption and use of MCS
practices and information.

It is also recommended for SMEs to formalize operations in terms of control procedures for monitoring and
accountability for the owners to be able to have more time outside of the business. Hands on management
demands all the time of the owners, thus, developing an organizational structure for line/department
managers/supervisors will entail sharing some management responsibilities to employees that will give them
some free time to attend to other matters outside their business.

Conflict Of Interest
The authors declare the absence of conflict of interest in the completion of this research project.

Acknowledgements
The authors are grateful to the business owners who willingly expressed their intention to participate for the
completion of this study. The results, conclusion, and recommendations herein are derived from the views
the research respondents and had been shown to experts in the field.

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