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MANAGEMENT AND ACCOUNTING WEB |
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Contingency Theory Brief Summary & Graphics by James R. Martin |
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Otley's Original View of Contingency Theory (From the Ittner & Larcker 2001 summary) |
The following graphic illustrates Otley's original (1980) view of contingency theory1.
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Contingency Theory (From the Tiessen & Waterhouse summary) |
An expanded view of contingency theory is that the structure of an organization depends on the company's technology and environment and the effectiveness of the management accounting system is contingent on the organization's structure.
The location of information in relation to technology and environment has an important influence on organization structure. In uncertain environments with non-routine technology, information is frequently internal. Where environments are certain, or where technology is routine, information is external.
The dimensions of structure and control include authority structure and activities structure, i.e., rules and procedures that determine the discretion of individuals. Authority relates to social power. In the contingency model, decentralized authority is more appropriate where uncertain environments or non-routine technology exist. Centralized authority is more appropriate when environments are certain. The graphic illustration below reflects my interpretation of these theoretical concepts.
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The Functionalist View of Contingency Theory (From the Chenhall summary) |
Chenhall discusses contingency theories from a functionalist perspective where the assumption is that management control systems are developed, or adopted to aid in achieving desired organizational goals and outcomes. The appropriate management accounting system is contingent on the external environment, technology, organizational structure, organizational size, organizational strategy and national culture. The graphic below illustrates this functionalist perspective.
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Article Summaries related to Contingency Theory |
MAAW includes a variety of article summaries related to contingency theory, in addition to the three mentioned above. For example, Langfield-Smith reviewed a number of contingency studies related to management control systems and strategy. See that summary and other summaries for more on how contingency theory has been used as a basis for examining various research questions.
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1 Otley, D. T. 1980. The contingency theory of management accounting: Achievement and prognosis. Accounting, Organizations and Society 5(4): 413-428.
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