Making sense of the need for control: The process of formalizing management control systems while transitioning from birth to growth in the organizational life-cycle

Abstract: In this paper, we examine the process of formalizing management control systems (MCSs) while transitioning between birth and growth in the organizational life-cycle. We draw upon empirical data from a US-based growth firm and use process theory to extract micro-level details by examining how activities, events and choices impact the formalization process. Our findings contribute to previous MCS life-cycle literature by highlighting risks inherent in a MCS formalization process, demonstrating why it can be perilous and more complex than what may be deduced from Moores and Yuen (2001). We find that a triggering event, culminating in a perceived need for formalization, is the starting point in formalizing MCSs. Furthermore, we find that formalization in general does not necessarily improve the level of control. Instead, we introduce the concept of MCS problem solving consistency and argue that there must be a consistency between the implemented control system and the problem(s) creating a need for formalization. Lastly, we propose that sensemaking plays a vital role in achieving such consistency, as the suitability of the implemented control system is contingent on the organization's ability to accurately make sense of its situation.