This study explores the use of organizational controls and whether they have effects on data manipulation and management myopia.  Data are gathered on a large U.S. firm, and Toshiba, a Japanese manufacturer matched in size and industry.

1. National culture and control systems

A control system can be defined to include all devices that help ensure the proper behavior of people in the organization.

Profit center managers’ discretionary program spending decisions were affected by a broad set of controls, the most important of which can be classified into 5 categories: net income targets, expense targets, headcount constraints, procedural controls (requirements for approvals), and directives given by higher management typically in formal meetings.

The four cultural dimensions, according to Hofstede’s cultural taxonomy, are:

1          Individualism vs. collectivism: relates to people’s self-concept: “I” or  “we”.

2        Large vs. small power distance relates to people’s acceptance that power in institutions
 is distributed unequally.

3        High vs. low uncertainty avoidance refers to the degree to which the members of a society feel comfortable with uncertainty and ambiguity.

4        Masculinity vs. femininity reflects preferences for achievement and material success as opposed to emphases on relationships and the quality of life.  

Hofstede's data showed the following for Japan, the U.S. and 39 other countries.

2. Hypotheses tested

Individualism is lower for Japan than the U.S., while the other 3 dimensions are higher for Japan (power distance, masculinity and especially uncertainty avoidance).

Therefore, 3 hypotheses are tested:

1        H1: Overall, the controls imposed on U.S. profit center managers are tighter than those imposed on their Japanese counterparts (because of the U.S. ’ high individualism.)

2        H2: Compared to their U.S. counterparts, Japanese profit center managers are subject to tighter procedural controls (because of Japan ’s higher uncertainty avoidance.)

3        H3: Compared to their U.S. counterparts, Japanese profit center managers are subject to tighter controls through directives given by superiors at meetings (because of Japan ’s higher power distance.)

4        H4: Controlling for the degree of control system tightness, the extent of dysfunctional behavior is lower among Japanese than U.S. profit center managers (because of Japan ’s lower individualism)

3. Result

The findings support H2, H3, H4, and do not support H1.

The contradictory result for H1 may result from the fact that the Japanese system of relationships and hierarchies tends to channel vital decisions into a few hands.  Furthermore, high use of directives from upper management and procedural controls may be linked to the Japanese firms’ life-time employment policies which may limit employees’ abilities to leave their firm even when faced with these relatively stifling forms of control.

4 Limitations of this study

1. Data were collected from only one firm from each country.

2. Data from the U.S. and Japan were collected several years apart.

3. The set of controls studied did not capture all the aspects and attributes of the companies’ control systems.

4. The study only examined 2 potential effects of controls (discouragement of new ideas and manipulation of performance measures.)

5.  The study focused only Japanese and U.S. managers in their home country settings.

6.  Cultural concepts and measures of controls could be broadened to include for example Confucian Dynamism.

5.  Further problems

1.  As the parts of a control system operate as a package, each individual simultaneously embodies all the dimensions of national culture.

2.  As controls have the potential to complement or substitute for one another, multiple cultural dimensions may affect individuals in interactive ways. (For example, having managers evaluate one another may reduce uncertainty while it entails explicit interpersonal comparisons and overt competition).

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