Proceedings of the 3rd European Conference on Intellectual Capital

Innovation Strategy and Management Control: The Link
Between Knowledge Management and Management
Control Systems
Maurizio Massaro 1 , Roland Bardy 2 and Filippo Zanin 1
1
Udine University, Italy
2
Florida Gulf Coast University, USA
maurizio.massaro@uniud.it
rbardy@t-online.de
filippo.zanin@uniud.it
Abstract: In <strong>the</strong> light <strong>of</strong> <strong>the</strong> increasing complexity and intensity <strong>of</strong> competition <strong>the</strong>re is a growing sense that
innovation is a relevant key to continuously out perform competitors, to diversify, adapt and, even, re-invent <strong>the</strong>
organization. Understanding how enterprises manage <strong>the</strong> process for acquiring and sharing new knowledge has
emerged as an important stream <strong>of</strong> research for supporting <strong>the</strong> enterprises’ competition challenge. Likewise, <strong>the</strong>
literature recognizes that Management Control Systems (MCS) play an important role for supporting <strong>the</strong> “problem
finding” and “problem solving” process. Thus, MCS becomes a tool for producing knowledge. Focusing on <strong>the</strong>se
lines <strong>of</strong> research, <strong>the</strong> aims <strong>of</strong> this exploratory paper are to: i) identify such <strong>the</strong>oretical and statistically proven
clusters that describe where and how companies acquire, produce and select knowledge for sustaining
innovation strategies. A <strong>the</strong>oretical framework is adopted which encompasses <strong>the</strong> origin <strong>of</strong> knowledge (where)
and <strong>the</strong> knowledge creation process (how); ii) identify such <strong>the</strong>oretical and statistically proven clusters that
describe how companies use <strong>the</strong>ir MCS for producing knowledge and sustaining innovation strategies; iii) detect
and prove, within <strong>the</strong>se clusters, <strong>the</strong> existence <strong>of</strong> a link between MCS and knowledge management processes in
terms <strong>of</strong> coherence between how companies manage <strong>the</strong> knowledge process and how <strong>the</strong>y use MCS. In order to
have a wider perspective, <strong>the</strong> paper analyzes <strong>the</strong> knowledge management process during innovation processes.
The research is based on a survey conducted on a sample <strong>of</strong> 40 enterprises working in <strong>the</strong> North East <strong>of</strong> Italy
that carry out pertinent innovation processes. A structured questionnaire was delivered to <strong>the</strong> CEO <strong>of</strong> <strong>the</strong>
company, <strong>the</strong> Financial Manager and <strong>the</strong> Innovation Manager for a total amount <strong>of</strong> 120 questionnaires. The
managerial implications <strong>of</strong> this paper could be: i) to help managers in <strong>the</strong> development <strong>of</strong> tactical and operative
activities related to innovation strategies, in order to facilitate knowledge processes; ii) to <strong>of</strong>fer guidelines for
projecting more useful MCS in order to facilitate innovation processes.
Keywords: innovation, intellectual capital, knowledge management, management and control systems
1. Contextual framework and research questions
Scholars advise that to acquire a sustainable competitive advantage, companies must treat
knowledge as a strategic asset (Teece, 2000). Knowledge management (KM) thus becomes a
strategic task and <strong>the</strong> ability to link KM to strategy and competitive advantage is recognized as <strong>the</strong>
key to solving problems and exploiting opportunities in order to innovate companies’ business models
(Drew, 1999). Literature on this topic is quite extensive and it is not possible to identify a unique
definition <strong>of</strong> innovation and KM (Bardy, 2010) but some authors (Van de Ven and Engleman, 2004)
noted four basic perspectives emerging in studies <strong>of</strong> innovation strategies: human, contextual,
structural and process. The first focuses on making organizations more innovative by exploring new
knowledge ra<strong>the</strong>r than exploiting existing knowledge. The second emphasizes <strong>the</strong> creation and
management <strong>of</strong> a context that is appropriate for innovation. The third refers to a structural problem <strong>of</strong>
building an infrastructure across organizational boundaries for absorbing external knowledge. The
final perspective focuses on revealing <strong>the</strong> sequences <strong>of</strong> activities and transactions that are involved in
and which contribute to <strong>the</strong> constitution <strong>of</strong> new knowledge.
At <strong>the</strong> same time <strong>the</strong> influence <strong>of</strong> internal and external factors during innovation strategies has
attracted interest within <strong>the</strong> academic debate. Internal factors include organizational structures,
control and coordination mechanisms, communication channels, and organizational cultures. Early
studies noted that organic organizations were more effective than bureaucratic or mechanistic
organizations in innovation because <strong>the</strong> former were characterized as having flexible structures and
informal communication channels, which were important for sharing knowledge within an organization
(Butler, 1981). External factors refer to a set <strong>of</strong> contextual contingencies that have an effect on KM
and innovation activities. Van de Ven (2004) for instance, discussed <strong>the</strong> role <strong>of</strong> networks in
transferring knowledge across organizations, industries, and national boundaries while Cohen and
Levinthal (1990) emphasized <strong>the</strong> importance <strong>of</strong> absorptive capacity as <strong>the</strong> ability to recognize,
assimilate, and apply external knowledge. O<strong>the</strong>rs shed light on complementary assets as constituting
231