Accounting, Organizations and Society 32 (2007) 735–756

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Management accounting systems, top management

team heterogeneity and strategic change
a,* b
David Naranjo-Gil , Frank Hartmann
a
Pablo de Olavide University at Seville, Business Administration Department, Carretera Utrera Km. 1, 41013, Sevilla, Spain
b
RSM Erasmus University, T8-59, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands

Abstract

Institutional and market changes force many organizations across economic sectors to reconsider their strategic
position and engage in strategic change. Organizations differ in their ability to realize strategic change, however, which
appears to depend on several factors in their strategic management process. In this paper we explore two such factors
simultaneously, which are the composition of the top management team and the characteristics of the management
accounting system. In particular, the paper investigates how top management team heterogeneity affects strategic
change both directly, and indirectly, through the design and use of the management accounting system. Hypotheses
are developed and tested through a survey study among 103 Spanish public hospitals. We find significant effects of
top management team heterogeneity on the extent and direction of strategic change, and find that the use of the man-
agement accounting system partially mediates the relationship between top management team heterogeneity and stra-
tegic change. The paper contributes to the extant literature on the complex relationships between strategic change and
MAS [Gerdin, J., & Greve, J. (2004). Forms of contingency fit in management accounting research – a critical review.
Accounting, Organizations and Society, 29, 303–326], by analysing both extent and direction of strategic change, and by
recognizing the importance of top management teams’ use of the management accounting system for strategic change.
 2006 Elsevier Ltd. All rights reserved.

Introduction This phenomenon appears to affect private and

The literature provides evidence that organiza-
tions across industries experience increased exter-
nal pressures to reconsider their strategic
positions (e.g., Danneels, 2002; Henri, 2006).
*
Corresponding author.
E-mail address: dnargil@upo.es (D. Naranjo-Gil).
public organizations alike, as the sources of pres-
sure originate in both institutional and market
developments (e.g., Frow, Marginson, & Ogden,
2005; Modell, 2004; Nyamori, Perera and Law-
rence, 2001). The ability or failure to initiate and
execute strategic change in response to such exter-
nal pressures has serious implications for organiza-
tional performance (Nyamori et al., 2001).

0361-3682/$ - see front matter  2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2006.08.003
736 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
However, our knowledge about the organizational
factors and mechanisms that enable strategic
change is incomplete and fragmented (e.g., Frow
et al., 2005; Henri, 2006; Chenhall & Langfield-
Smith, 2003), despite clear evidence across the
management literature that organizations system-
atically differ in their inclination and ability to pur-
sue strategic change (e.g., Abernethy & Brownell,
1999; Lant & Montgomery, 1987; Wiersema &
Bantel, 1992). The strategic management litera-
ture, for example, suggests that the composition
of the organization’s top management team
(TMT), which is the echelon ultimately responsible
for strategy development and deployment, affects
the strategic choices of the organization, and the
ability to execute them (see, e.g., Carpenter, Gel-
etkanycz, & Sanders, 2004). Several studies follow-
ing the so-called upper echelon perspective show
that TMT heterogeneity, which is the extent to
which the team consists of managers with varying
backgrounds and competences, systematically var-
ies with the organization’s inclination and ability
to engage in strategic change (e.g., Finkelstein &
Hambrick, 1996; Golden & Zajac, 2001;
Jarzabkowski & Searle, 2005). Typical upper eche-
lon studies, however, do not address the process
through which TMTs pursue and realize strategies,
and they are therefore criticized for providing little
explanation of how different TMTs use organiza-
tional mechanisms differently to realize strategic
change (see, e.g., Carpenter et al., 2004, p. 763;
Miller, Burke, & Glick, 1998, p. 40; Rajagopalan,
Rasheed, & Datta, 1993, p. 375). The accounting
literature, in contrast, emphasizes the role of the
management accounting system (MAS) as an
organizational mechanism that supports strategic
change (e.g., Dent, 1990; Nilsson & Rapp, 1999;
Simons, 1995), but empirical studies have not
addressed the way in which management uses the
MAS to engage in strategic change directly, with
a number of interpretative case studies as a notable
exception (e.g., Abernethy & Chua, 1996; Ezzamel,
Lilley, & Willmott, 2004). An important reason for
this lack of evidence is that studies on the MAS-
strategy relationship have typically modelled strat-
egy as an (exogenous) determinant of MAS, rather
than as an (endogenous) consequence of the MAS,
as they typically conceive strategy as an intention
and position, rather than in terms of emergence
and change (see, e.g., Gerdin & Greve, 2004;
Henri, 2006). Therefore, although the broader
management literature suggests that TMT compo-
sition may affect strategic change via the MAS,
there is no direct empirical evidence on this effect.
In this paper we aim to provide such evidence by
exploring how TMT composition affects strategic
change through the use of MAS, using and com-
bining insights from the strategic management
and accounting literatures. We focus on TMT het-
erogeneity, and explore whether the effect of TMT
heterogeneity on strategic change is mediated by
TMTs’ use of the MAS. In line with previous stud-
ies on the MAS-strategy relationship, we explore
two dimensions of TMTs’ use of MAS, which
are the scope (broad-narrow) of the MAS informa-
tion that TMTs use and the style (diagnostic-inter-
active) in which TMTs use MAS information (cf.
Abernethy & Brownell, 1999; Henri, 2006). Strate-
gic change is defined as the change of strategic
stance from defender position to prospector posi-
tion or vice versa in conformity with previous stud-
ies (Abernethy & Brownell, 1999; Miles & Snow,
1978; Shortell & Zajac, 1990).
This paper attempts to contribute to the litera-
ture in at least three respects. First, we propose
that the use of MAS is an important mediator of
the relationship between TMT heterogeneity and
the organization’s strategic behavior, which fills a
void in the strategic management literature con-
cerning the organizational mechanisms through
which TMTs realize organizational outcomes
(see, e.g., Carpenter et al., 2004; Miller et al.,
1998; Rajagopalan, Rasheed, & Datta, 1993). Sec-
ond, by exploring the mediating role of MAS, we
answer a recent plea in the management accounting
literature for more complete explanations of the
origins and consequences of MAS design and use
in a single study (cf. Gerdin, 2005a; Luft & Shields,
2003; Hartmann & Moers, 1999, 2003). Third, and
in particular, the paper adds to the limited knowl-
edge on the strategic relevance of MAS for organi-
zations engaging in strategic change (Nyamori
et al., 2001; Chenhall & Langfield-Smith, 2003).
The remainder of this paper is structured as fol-
lows. Section ‘‘Literature review and hypotheses
development’’ reviews the literature and develops
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 737

hypotheses about the relationships between TMT ation between MAS and strategic change, espe-
heterogeneity, the use of MAS and strategic cially since the definition of strategic change is
change. Section ‘‘Empirical study’’ describes the not unproblematic itself (cf. Nyamori et al.,
method. Section ‘‘Results’’ presents the results of 2001). Abernethy and Brownell (1999) define stra-
the empirical analysis. Finally, section ‘‘Discussion tegic change as an organization’s absolute move
and conclusions’’ presents the discussion and con- along the prospector-defender continuum, regard-
clusions of this study. less of the direction of strategic change. Their
results thus suggest that an interactive use of
MAS serves strategic changes towards prospector
Literature review and hypotheses development
positions and towards defender positions equally
well. This, however, seems to contradict with
Private sector changes that lead to globalization
results in the majority of studies on the MAS-strat-
of markets and enhanced competition are forcing
egy relationship suggesting that prospector and
organizations’ strategies towards flexibility, inno-
defender strategies require quite different designs
vation and efficiency (Frow et al., 2005). In the
and uses of MAS (cf. Abernethy & Guthrie,
public sector, the new public management para-
1994; Langfield-Smith, 1997; Simons, 1987). These
digm serves as a common heading of strategic ini-
studies implicitly assume that the direction of
tiatives that many organizations have taken
change matters. Organizations changing their
towards ‘delivering greater efficiency, and more
strategy towards prospector positions typically
responsive and flexible public services’ (Kaul,
change towards more flexible and customer-
1997, p. 13), forced by deregulation and enhanced
oriented forms, aimed at improving product and
accountability (see, e.g., Modell, 2004). In their
service quality to rapidly meet changing market
study of the role of the MAS vis-à-vis these devel-
demands (e.g., Bouwens & Abernethy, 2000;
opments in the hospital sector, Abernethy and
Perera, Harrison, & Poole, 1997; Slater & Narver,
Brownell (1999, pp. 190–191) study the perfor-
2000; Yin & Zajac, 2004). Changes toward
mance effects of the alignment of MAS with strate-
defender positions typically imply an increased
gic change, which they define as the ‘extent to
emphasis on maintaining comparative efficiency
which a firm is moving along the prospector-defen-
by cost-control of a limited set of products and ser-
der continuum’ (cf. Miles & Snow, 1978; Segev,
vices (e.g., Chenhall, 2005; Yin & Zajac, 2004). In
1989; Shortell & Zajac, 1990; Shortell, Morrison,
line with these differences, Simons (1987, p. 370)
& Friedman, 1990). Abernethy and Brownell
finds that firms following prospector strategies rely
(1999) conclude that organizational performance
more on interactive controls than firms following
is highest when managers match high (low) levels
defender strategies. Abernethy and Guthrie
of strategic change with an interactive (diagnostic)
(1994) find that the use of broad scope MAS infor-
use of the MAS. This insight is useful if we assume
mation contributes more to performance in pros-
that the role of accounting is indeed to align itself
pector-type firms than in defender-type firms. In
with a given change in strategy (cf. Nyamori et al.,
combination, available evidence on the relation-
2001, p. 71), but it does not reveal whether and
ship between MAS and strategy thus suggests that
how the MAS provides the organization’s TMT
MAS characteristics that support a certain strate-
with a mechanism to engage in strategic change
gic position may differ from the MAS characteris-
(cf. Dent, 1990; Henri, 2006).1 This requires a
tics that enable a move towards that strategic
more detailed analysis of the nature of the associ-
position (cf. Henri, 2006; Nyamori et al., 2001).
For studies on the relationship between MAS
1
Note that Abernethy and Brownell (1999, p. 196, Table 2) and strategic change this apparent inconsistency
report a significant and positive correlation between strategic at least suggests the need for separate analyses of
and the interactive use of MAS. They do not discuss this result,
however, nor elaborate on the meaning of this association, as
the extent of strategic change (cf. Abernethy &
their study’s focus is on the interactive effect of strategic change Brownell, 1999) and the direction of strategic
and MAS on organizational performance. change. In the section below we develop hypotheses
738 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
about the relationships between TMT composi-
tion, use of MAS and strategic change taking this
consideration into account. Fig. 1 shows the gen-
eral research model to be developed and tested.
TMT heterogeneity and strategic change
The management literature on strategic choice
(e.g. Child, 1972; Hrebiniak & Joyce, 1985), and
on the role of upper echelons in strategic manage-
ment (e.g., Carpenter et al., 2004; Hambrick &
Mason, 1984) both emphasize the importance of
TMTs in the formulation and implementation of
an organization’s strategy. The latter perspective
seeks to explain strategic choices of organizations
by the composition of their upper echelons, claim-
ing that organizations’ strategic directions can be
explained by the demographic backgrounds of
TMT members. Research under this heading
claims and shows that:
‘Organizational outcomes – both strategies
and effectiveness – are [. . .] reflections of the
values and cognitive bases of powerful actors
in the organization’ (Hambrick & Mason,
1984, p. 193).
Wiersema and Bantel (1992), for example,
argued that because of different values, experiences
and cognitive make-up, top managers differ in their
inclination and ability to change organizational
strategies when they are confronted with competi-
tive or other external pressures. Indeed, addressing
turbulence and dynamism require specific manage-
rial skills and competences, the availability of
which varies across individual managers, and
across the management teams they operate in (cf.
Morgan, 1989, p. 1). The upper echelon literature
emphasizes that strategic behaviour is not the mere
result of the combined characteristics of individual
TMT members, but rather of the TMT as a whole
(Carpenter et al., 2004, p. 75). One such important
TMT
Heterogeneity
Fig. 1. General research model.
determinant of TMTs’ handling of strategic change
appears to be its diversity in terms of the back-
grounds of its members, such as age, experience,
tenure, and education (Carpenter et al., 2004; Fin-
kelstein & Hambrick, 1996). Upper echelon
research typically argues, and finds, that in com-
parison to homogeneous TMTs, heterogeneous
TMTs are broader minded, are more inclined to
search the environment for opportunities (e.g.,
Murray, 1989), and have a larger portfolio of
responses to environmental demands (e.g., Hurst,
Rush, & White, 1989; Knight et al., 1999; Pitcher
& Smith, 2001). This is explained by the larger pool
of cognitive resources that heterogeneous TMTs
share, based on their more multi-faceted experi-
ences and backgrounds. Thus, heterogeneous
TMTs are better able to recognize strategic oppor-
tunities and identify the need for strategy change.
For organizations facing external pressures for
change, Murray (1989, p. 125) thus claims and
finds that a greater range of TMT members’ back-
grounds increases the probability that an appropri-
ate new strategy will be identified.
The homogeneous–heterogeneous distinction
has therefore been argued to explain the organiza-
tion’s inclination to engage in strategic change.
Wiersema and Bantel (1992, pp. 98–99) in particu-
lar argued that heterogeneous TMTs discuss more
diverse opinions on strategic change, which stimu-
lates the consideration of strategic change alterna-
tives. They found that TMT heterogeneity
concerning the educational (vocational) back-
ground of its members was positively associated
with the extent and intensity of the analyses that
lead to strategic change (Wiersema & Bantel,
1992, p. 112). In sum, this evidence suggests that
when confronted with similar external pressures
towards strategic dynamism, heterogeneous TMTs
will be more inclined to engage in strategic change
than homogenous TMTs. We formulate the fol-
lowing expectation accordingly.
MAS Strategic Change
• Broad-scope
• Interactive Use
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
H1: TMT heterogeneity is positively related
to the extent of strategic change.
TMT heterogeneity and the direction of strategic
change
The TMT literature also provides evidence on
the effect of TMT composition on the strategic
directions that organizations choose. Miles and
Snow (1978) already proposed that managers in
organizations pursuing prospector positions and
defender positions require different repertoires of
skills and competences, which was more recently
confirmed in a study of Thomas and Ramaswamy
(1996, p. 251). Organizations pursuing defender
strategies typically devote attention to improving
the efficiency of existing operations and do not
tend to search outside their narrow domains for
new opportunities (Miles & Snow, 1978, p. 29).
In contrast, organizations pursuing prospector
strategies attempt to maximize differentiation
emphasizing policies and operations to respond
to various and changing market demands (Miles
& Snow, 1978, pp. 51, 58). This latter implies that
top managers need to permanently scan the envi-
ronment in order to detect new market demands,
strategic opportunities, and to provide service or
product innovations quicker than competitors
(Miles & Snow, 1978). Heterogeneous TMTs
appear to be more inclined towards organizational
innovation (Bantel & Jackson, 1989), and diversi-
fication (Jensen & Zajac, 2004; Tihanyi, Ellstrand,
Daily, & Dalton, 2000) as innovation and diversi-
fication require that TMTs take a broad portfolio
of strategic perspectives into account. Bantel and
Jackson (1989) found that banks following a strat-
egy that emphasized service innovation were man-
aged by teams with more diverse backgrounds
than less innovative banks. Tihanyi et al. (2000,
p. 1173) found that TMT heterogeneity is posi-
tively associated with firms’ inclination to explore
new, international, markets. In sum, as heteroge-
neous TMTs share a larger pool of cognitive
resources, have more multi-faceted experiences
and backgrounds, they are supposed to be better
able to identify and utilize the opportunities stem-
ming from the environment (Carpenter et al.,
739
2004; Finkelstein & Hambrick, 1996). Moreover,
heterogeneous TMTs also ‘possess greater ability
to generate a more complex and unpredictable
mix of alternatives for strategic action’ (Ferrier,
2001, p. 862), which seems to be in line with a nat-
ural inclination towards accepting prospector posi-
tions, rather than towards optimising existing
operations as defender positions would imply.
Hambrick, Cho, and Chen (1996) studied the influ-
ence of TMT heterogeneity on firms’ competitive
moves and found that heterogeneous TMT indeed
exhibited a greater propensity towards actions and
initiatives, but were slower and less comfortable in
their reactions and responses to competitors’ ini-
tiatives (Hambrick et al., 1996, p. 679). Therefore,
we expect that the relationship between TMT het-
erogeneity and strategic change in Hypothesis 1
will be especially prevalent for organizations
changing towards prospector positions rather than
for organizations changing towards defender
positions.
H2: The relationship between TMT heteroge-
neity and the extent of strategic change is
more positive for organizations moving
towards prospector positions, than for orga-
nizations moving towards defender positions.
TMT heterogeneity and the use of MAS
Although the former hypotheses reflect direct
relationships between TMT composition and stra-
tegic change, the strategic literature urges us to
seek understanding of the factors and process fac-
tors that mediate this relationship. Based on a
review of the upper echelon literature, Miller
et al. (1998, p. 40) conclude that ‘the mediating
effects of process variables have not been examined
in most studies of executive diversity and organiza-
tional outcomes’. Similarly, Carpenter et al. (2004,
p. 763) labels these process factors as the ‘black
box’ of upper echelon research. As the manage-
ment accounting literature generally suggests that
MAS design and use is a relevant component of
strategic management (Gerdin & Greve, 2004;
Langfield-Smith, 1997), we argue that MAS is
likely to be such a mediator of the relationship
740 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
between TMT composition and strategic change.
Moreover, the upper echelon literature emphasizes
that TMTs shape organizational behaviour
through the way their cognitive make-up deter-
mines their search, interpretation and ‘filtering’
of management information, such as the MAS typ-
ically provides (cf. Hambrick & Mason, 1984;
Knight et al., 1999; Miller et al., 1998). Some stud-
ies of the TMT-strategy relationship acknowledge
the importance of the use of management informa-
tion by TMT members (see, e.g., Thomas &
McDaniel, 1990; Young, Charns, & Shortell,
2001). Thomas and McDaniel (1990), for example,
asserted that since strategic issues are often ill-
structured and ambiguous, TMTs will approach
them differently according to the amount of data
they gather and use for interpretation. We expect
that the typical searching and filtering behavior
of top managers will reflect in TMTs’ use of the
MAS in making and executing strategic decisions
(cf. Abernethy & Brownell, 1999; Langfield-Smith,
1997; Young et al., 2001). We will develop separate
hypotheses for the scope (broad-narrow) of the
MAS information that TMTs use and the style
(diagnostic-interactive) in which TMTs use MAS
information.
The TMT literature predicts that TMTs will dif-
fer in the scope of the management information
that they consider useful in the (strategic) decisions
that they take (Finkelstein & Hambrick, 1996; Jar-
zabkowski & Searle, 2005; Knight et al., 1999).
Broad-scope MAS information is information that
is ‘externally focused, non-financial, and future-
oriented’ (Bouwens & Abernethy, 2000, p. 223)
which ‘provides managers with a wider range of
solutions to consider’ (Bouwens & Abernethy,
2000, p. 226). Broad-scope information thus com-
plements typical ‘narrow scope’ information,
which reflects traditional management accounting
information that is ‘internally focused, financial,
and historically-based’ (Bouwens & Abernethy,
2000, p. 223). The scope of MAS has often been
associated with strategy, under the expectation
that a broader range of information allows manag-
ers to better understand the relationship between
activities, processes and strategic outcomes (cf.
Abernethy and Guthrie, 1994; Chenhall and
Morris, 1986; Gerdin, 2005a; Gul, 1991; Gul and
Chia, 1994). Mia and Chenhall (1994, p. 4), for
example, showed that broad scope MAS informa-
tion is crucial for managerial decision making, for
example when organizations are facing complex
situations, high environmental dynamism and
strategic uncertainty (Abernethy & Guthrie,
1994, p. 55). We believe that broad scope MAS
information will be especially valued by heteroge-
neous TMTs. One reason is that heterogeneous
TMTs are more inclined to change and innovation
(Bantel & Jackson, 1989; Jensen & Zajac, 2004),
and thus will understand the relevance of broad
scope information to support their decisions.
Another reason is that heterogeneous TMTs
appear to foster multiple alternative frameworks
and perspectives in their decision-making (cf. Fin-
kelstein & Hambrick, 1996; Jarzabkowski &
Searle, 2005; Knight et al., 1999). We expect that
the diversity of experience and knowledge of heter-
ogeneous TMTs not only spurs them, but also
enables them to gather and process a broader
range of management information (cf. Bantel,
1994, p. 406; Finkelstein & Hambrick, 1996).
Overall, therefore, we expect that more heteroge-
neous TMTs will attach higher value to broad-
scope MAS information.
H3: TMT heterogeneity is positively related
to the perceived usefulness of broad-scope
MAS.
Studies on the relationships between MAS use
and strategy have often used Simons’ (1995,
2000) description of the diagnostic and interactive
use of control systems, generally arguing that the
interactive use of MAS is essential for enabling
(dynamic) strategic change (Abernethy & Brow-
nell, 1999, p. 192), and supporting (static) innova-
tion (Bisbe & Otley, 2004, p. 729). An interactive
use of MAS involves dialogue and communication
among top managers (Widener, 2006, p. 5), as well
as between top management and subordinates,
which ‘stimulates opportunity-seeking and encour-
ages the emergence of new initiatives (Simons,
1995, p. 93). Henri (2006, p. 5) asserted that when
MCS are used interactively ‘data are discussed and
interpreted among organizational members of dif-
ferent hierarchical levels’. We expect that TMT
heterogeneity is positively related to the interactive
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
use of MAS by team members. As upper echelon
studies consistently show, intra-TMT diversity is
likely to cause TMT-members to emphasize differ-
ent aspects of information sets, and interpret them
in different, and perhaps conflicting, ways (Knight
et al., 1999; Smith et al., 1994). This suggests that
the MAS will act as a ‘learning machine’ rather
than as ‘answer machine’ (cf. Chapman, 1997).
TMT diversity may also lead to a greater variance
in proposed decision-making alternatives (Knight
et al., 1999, p. 447), and to increased debates
within the team about the appropriateness of cur-
rent strategies, and strategic alternatives (see, Car-
penter, 2002, p. 277), which are all constitutive
elements of the interactive use of MAS. To explore
the associated relationship, we propose to test the
following hypothesis.
H4: TMT heterogeneity is positively related
to the interactive use of MAS.
Use of MAS and strategic change
In this section we will develop hypotheses about
the relationship between the use of MAS and strate-
gic change. Although empirical evidence on the
relationships between MAS characteristics and
strategy is not straightforward (Langfield-Smith,
1997), it suggest that the availability of a broader
set of information facilitates and encourages mana-
gerial debates and interactions on strategic issues
(Abernethy & Brownell, 1999, p. 192; Bisbe &
Otley, 2004, p. 711), which are necessary conditions
for any process in which strategic goals and objec-
tives are redefined. Strategic change involves ven-
turing into new contexts, whose complexity and
unpredictability (Abernethy & Brownell, 1999, p.
191) requires broad-scope information (cf. Bouw-
ens & Abernethy, 2000, p. 226; Mia & Chenhall,
1994, p. 2). This suggests that the use of broad-
scope MAS is a necessary requirement for strategic
change. In addition, broad-scope MAS informa-
tion appears to facilitate interdepartmental plan-
ning and coordination (cf. Bouwens & Abernethy,
2000), technological change (cf. Mia & Chenhall,
1994, p. 1), decentralization (cf. Gerdin, 2005b;
Hartmann, 2005), customization (cf. Perera, Harri-
son, & Poole, 1997), organizational flexibility, and
741
the organization of interdependent operations (cf.
Abernethy & Lillis, 1995; Eccles, 1991, p. 131),
which are all constitutive elements of prospector
strategies, rather than of defender strategies (cf.
Shortell & Zajac, 1990). Perera et al. (1997) and
Carr, Mak, and Needham (1997) in particular
found that the use of physical and non-financial
measures, i.e. broad-scope information, is particu-
larly necessary in organizations pursuing strategies
directed at increased customer-orientation and
quality. The kind of information appears to be
advantageous as a complement to, rather than
replacement of, traditional (financial) management
accounting information (cf. Carr et al., 1997). Aber-
nethy and Guthrie (1994, p. 61) found that prospec-
tor-type firms that supplemented traditional
accounting information systems with information
with a broader focus performed higher. Overall,
this suggests that broad-scope MAS supports
strategic change, but that this support may be more
crucial for organizations moving towards prospec-
tor positions. To explore these issues empirically,
we propose to test the following two hypotheses.
H5a: There is a positive relationship between
the perceived usefulness of broad-scope
MAS and the extent of strategic change.
H5b: The relationship between the perceived
usefulness of broad-scope MAS and the
extent of strategic change is more positive
for organizations moving towards prospec-
tor positions, than for organizations moving
towards defender positions.
A parallel point can be made regarding the rela-
tionship between the interactive use of the MAS
and strategic change (Simons, 1995). Since the
interactive use of MAS focuses on the use of infor-
mation for dialogue and communication (Aber-
nethy & Brownell, 1999; Simons, 1995), TMTs
should use the MAS interactively when they aim
to redefine or change strategic priorities. This
was the central argument in Abernethy and Brow-
nell (1999, p. 192) who asserted that management
requires information ‘that is more prospective in
nature’ and thus need an ‘information exchange
process that is interactive and dynamic’ to manage
strategic change effectively. Such a process enables
management teams ‘to collectively make sense of
742 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
changing circumstances’ (Chapman, 1997; Simons,
1995, p. 218). Moreover, by stimulating organiza-
tional dialogue and debate, interactive MAS use
contributes to the emergence of strategic actions
(Henri, 2006, p. 9; Malina & Selto, 2001). Thus,
we expect that the interactive use of MAS encour-
ages and facilitates strategic change. This support
may be especially prevalent for organizations mov-
ing towards prospector positions, as some recent
studies suggest. Bisbe and Otley (2004), for exam-
ple, argued and showed that the interactive use of
control systems favours innovation ‘through the
provision of guidance for search, triggering and
stimulus of initiatives’ (p. 729). Henri (2006) stud-
ied the relationships between the use of manage-
ment control systems and organizational
capabilities that support strategic choices and
found that ‘performance measurement systems
used in an interactive (diagnostic) way contribute
positively (negatively) to the deployment of mar-
ket orientation, entrepreneurship, innovativeness
and organizational learning’ (Henri, 2006, p. 20).
Overall, this suggests that the interactive use of
MAS is important to enable strategic change,
and that its role may be more explicit for organiza-
tions moving towards prospector positions. To
explore these relationships, we propose to test
the following hypotheses.
H6a: There is a positive relationship between
the interactive use of MAS and the extent of
strategic change.
H6b: The relationship between the interactive
use of MAS and the extent of strategic change
is more positive for organizations moving
towards prospector positions, than for orga-
nizations moving towards defender positions.
Broad-scope MAS and the interactive use of MAS
Above, we developed separate, yet related,
hypotheses about broad-scope MAS and the inter-
active use of MAS. In this final section we want to
take into account that these two MAS characteris-
tics may be related. Although Simons (1995) ini-
tially asserted that the interactive use of MAS
could relate to any MAS aspect, thus suggesting
the independence of these two factors, Bisbe and
Otley (2004, p. 711) and Abernethy and Brownell
(1999, p. 192) both argued that the use of broad-
scope MAS might not only facilitate, but also
encourage debates and managerial interactions.
We therefore propose to test the following hypoth-
esis in line with available evidence.
H7: There is a positive relationship between
the perceived usefulness of broad-scope
MAS and the interactive use of MAS.
Empirical study
To test the hypotheses, we collected data
through a questionnaire study distributed to mem-
bers of TMTs in all public hospitals in Spain. We
selected this setting for several reasons. First, the
complexity of the variables and relationships
involved in this study required a single industry,
to reduce the noise in our measures and control
for variables of no theoretical interest to the study.
Second, the public hospital sector has been the
object of some recent studies exploring organiza-
tional and strategic roles of MAS, on which the
present study builds (e.g., Abernethy & Brownell,
1999; Abernethy & Lillis, 2001; Abernethy & Vag-
noni, 2004). Third, the hospital sector across most
Western countries is involved in processes of strate-
gic reorientation, thus providing a relevant and
useful testing ground (Abernethy & Lillis, 2001;
Carretero, 2000; Kurunmäki, 2004). In Spain, these
developments have resulted in various laws2 that
require regional health care authorities to encour-
age hospitals to pursue strategic goals expressed
in terms of enhanced cost efficiency, and flexibility
and decentralization, and encourage hospitals to
increase flexibility, service quality, resources man-
agement and cost control3 (see, e.g., Carretero,
2
Several Spanish laws demand that hospitals engage in
improving service quality and enhanced cost control (e.g., Law
16/1986, Decree 63/1995, and Law 21/2001).
3
Spanish Regional Public authorities have large degrees of
freedom in introducing new managerial structures and account-
ing systems in hospitals (see, e.g., Carretero, 2000; Errasti,
1997).
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
2000; Naranjo-Gil & Hartmann, 2004). Since 2002
every Spanish region is allowed to manage its
health care institutions independently, this is the
end point of a decentralization process dictated in
a General Law in 1986. This provided a national
context that was appropriate for testing our
hypotheses, as it assured that the issues central to
this paper were considered relevant by the popula-
tion, with expected positive consequences for the
willingness to cooperate, the perceived relevance
of the constructs measured and validity of con-
struct measurement. These expectations were sup-
ported in an initial pilot-study conducted in a
subset of the sample (cf. Abernethy & Brownell,
1999). TMT members’ names and addresses were
obtained through Spanish National Catalogue of
Hospitals, which was updated with the help of
internet sources and direct telephone calls until a
complete list of 884 TMT members was available.
We followed Dillman (2000) in designing the
questionnaire. First, based on the extant literature,
instruments were selected for measuring the con-
structs (see below), and a draft version was made
of the questionnaire. Second, we tested the ques-
tionnaire in 18 interviews with members of the tar-
get population, and made small adaptations based
on the comments received. Third, we chose an
attractive layout for the questionnaire, assuring
good quality of paper and printing, and a profes-
sional overall impression. Fourth, the distribution
and recollection procedure for 884 TMT members
in 218 hospitals followed the contact procedures
recommended by Dillman (2000) in his Tailored
Design Method for mail surveys. The five contacts
followed were: (1) the pre-notice letter; (2) the sur-
vey sending; (3) the follow-up letter; (4) the second
survey sending; and (5) the telephone calls. Fol-
lowing this procedure increased the chances of
avoiding the typical flaws associated with survey
research (see, Young, 1996). A satisfactory
response rate was achieved with 496 (56.10%)
questionnaires returned of which 473 (53.51%)
were deemed useful for further analysis. Our unit
of analysis was the TMT, which is formed by dif-
ferent members in Spanish hospitals (Errasti,
1997): CEOs, Medical Director, Nursing Director,
and General Service-Financial Director. Since the
number of members in the TMT may vary
743
slightly,4 we consider as a full TMT those for
which at least three observations were available.
Thus, we formed a total of 103 TMTs (47.24%)
using 381 responses. The rest of the responses were
discarded for the analysis of hypotheses, but not
for the tests for validity and response-bias.
We checked for the presence of common-rater
bias by conducting Harman’s (1967) single-factor
test in which all of the variables were simulta-
neously entered into an exploratory factor analy-
sis. Harman’s test assumes that if a single or
common factor emerges from the factor analysis,
which captures the majority of the covariance
among the variables, there is strong evidence of
common rater bias (Podsakoff, MacKenzie, Lee,
& Podsakoff, 2003, p. 889).5 We conclude that
the analysis was not subject to common-rater bias
since a single factor did not emerge in our data.
Table A1 reports on the cross-loadings, which sup-
port the existence of multiple factors and their
alignment with the items (cf. Fornell & Larcker,
1981). We also tested for potential non-response
bias by comparing survey respondents’ with the
original mailing list, by comparing early and late
respondents, and by comparing respondents used
for TMT formation with the other respondents
(cf. Pedhazur & Pedhazur, 1991; Roberts, 1999).
Chi-square tests and independent-samples t-tests
on various characteristics, size of hospitals, gov-
ernmental dependency and type of directors, did
not reveal any sign of non-response bias.6
Variable measurement
Strategic change was measured using the instru-
ment from Abernethy and Brownell (1999) and
4
Some hospitals have an administrative director and a
financial director (TMTs with five members). In others the
CEO will also perform the function of the medical or general
service director (TMTs with three members).
5
A confirmatory factor analysis (cf. Iverson & Maguire,
2000) confirmed that the hypothesis of a single factor account-
ing for all variance should be rejected (v = 498.77, p-
value < 0.001).
6
For example, the results of the v2 test for the size and
government dependency comparing the original mailing list and
survey respondents were respectively: v2 = 4.465 (p = 0.107)
and v2 = 6.455 (p = 0.488).
744 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
Abernethy and Lillis (2001). We followed their use
of the strategic typology of Miles and Snow
(1978), based on evidence about its validity and
continued relevance (Shortell & Zajac, 1990).
Managers in the TMT were presented two descrip-
tions, one of a defender organization and another
of a prospector organization. Then, these manag-
ers were asked to indicate their organization’s stra-
tegic position three years ago, and their current
strategic position, along a five-point scale that
stretched from the defender (‘1’) to the prospector
(‘5’) description. Strategic change was measured as
the absolute difference between the past and cur-
rent ratings (cf. Abernethy & Brownell, 1999).
For the analyses involving directional effects we
divided the sample into subsamples of organiza-
tions changing towards a defender strategy (nega-
tive scores) and organizations changing towards
prospectors (positive scores).
Top management team heterogeneity was mea-
sured following the procedure recommended in
upper echelon research (cf. Hambrick et al.,
1996; Wiersema & Bantel, 1992). We focused on
four demographic characteristics to obtain a score
for TMT heterogeneity, using factual questions
related to age, tenure, experience, and education
(cf. Bantel & Jackson, 1989; Finkelstein & Ham-
brick, 1996; Hambrick & Mason, 1984; Hambrick
et al., 1996). Managers were thus asked to indicate
their age and tenure in their management position
in the present organization and in other organiza-
tions in the same sector. Managers were also asked
to indicate their educational and functional back-
ground and experience in years. Age and Tenure
heterogeneity was measured using the coefficient
of variation of the score on these items (standard
deviation divided by the mean), which is the supe-
rior measure as it provides a direct, and scale-
invariant measure of dispersion (cf. Allison,
1978). Educational and Experience heterogeneity
are not amenable to the coefficient of variation
measure, since they were measured as categorical
variables (cf. Finkelstein & Hambrick, 1996; Wier-
sema & Bantel, 1992). Thus a ‘1’ represented a
dominant administrative (external) oriented edu-
cational or experience background (e.g. business,
economics, law) and a ‘0’ represented a dominant
professional (internal) oriented background (e.g.
medicine, nursing, biology and chemistry) (cf. Hitt
& Tyler, 1991; Knight et al., 1999; Wiersema &
Bantel, 1992).7 We used Blau’s (1977) index of het-
erogeneity, which has been used extensively among
TMT researchers, to measure categorical vari-
ables.PBlau Heterogeneity Index is calculated as
ð1  p2i Þ, where pi is the proportion of the team
in the ith educational (or functional) category. A
score of zero, which did not occur in our sample,
would indicate perfect managerial homogeneity
(functional or educational). Higher score of this
index indicate higher diversity on functional back-
ground between members of the TMT. TMT het-
erogeneity was subsequently constructed as a
latent variable formed by the four variables related
to the heterogeneity of age, tenure, education and
experience. The items’ loadings on this construct
appear in Table A1 of the Appendix, which show
the correspondence between items and factors.
These analyses show also that the Composite Reli-
ability, Average Variance Extracted and Cron-
bach-a were satisfactory, exceeding minimum
levels (Hair, Anderson, Tatham, & Black, 1998;
Nunnally, 1978).8
7
We used two categories since the vast majority of managers
(89.1%) indicated to have a degree related to either Business–
Economics–Law or Medical-Nursing.
8
Item reliability measures the amount of variance in an item
due to the underlying variable rather than to error. Evidence of
convergent validity can be concluded when the item reliability is
at least 0.50. Anticipating the presentation of the PLS analyses,
we report on two PLS outputs concerning validity and
reliability of individual constructs, Composite Reliability and
Average Variance (Fornell & Larcker, 1981). Composite
Reliability measures the correlation among the multiple indi-
cators for a particular variable (minimum level is 0.70).
Following Hair et al. (1998), the Average Variance Extracted
index measures the variance captured by the variable relative to
the variance due to the measurement error (minimum level is
0.50). Discriminant validity is concerned with the degree to
which a variable measures a concept that is uniquely defined
and is not highly correlated with other variables included in the
model. The discriminant validity of variables is considered
acceptable when the correlation between two variables is less
than the average variance extracted (Fornell & Larcker, 1981).
We also tested for the inequality of the variance of intra-TMT
and inter-TMT scores using ANOVA where appropriate. This
analysis showed inter-TMT variance to be significantly higher
than intra-TMT variance.
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
Interactive use of MAS was measured using the
six-item Likert-type instrument from Abernethy
and Brownell (1999) and Bisbe and Otley
(2004), which follows Simons’ (1995, 2000)
description of interactive control. The instrument
was slightly adapted in wording to be under-
standable in the Spanish hospital setting based
on information from the interviews with the 18
managers. Respondents were asked to indicate
on five-point, fully anchored, scales the extent
to which they used the MAS for six types of man-
agerial actions. The six items related to the use of
MAS for negotiating goals and targets, for
encouraging new goals and priorities, for signal-
ling key strategic areas, for encouraging new
ideas and actions, for involving subordinates in
face-to-face discussions and for use as a learning
tool (cf. Simons, 1995). Exploratory factor analy-
sis revealed that the six items loaded on one fac-
tor that could be interpreted as interactive use of
MAS. Cronbach alpha and Composite Reliability
were also satisfactory, exceeding the recom-
mended level with 0.816 and 0.863 respectively
(see Appendix, Table A1).
Broad-scope MAS was measured with a five-
point Likert scale that addressed the perceived use-
fulness of several aspects of the available MAS
information (cf. Chenhall & Morris, 1986; Mia &
Chenhall, 1994), slightly adapted to the medical
context. This scale acknowledges the distinction
between MAS information that is perceived useful
and MAS information that is actually available (cf.
Gul, 1991; Gul & Chia, 1994). The questions regard
four scope dimensions, which are non-financial,
future oriented, externally orientation, and long-
term oriented (Mia & Chenhall, 1994).9 Table A1
in the Appendix shows satisfactory construct reli-
ability, since the items regarding the four scope
items load higher on the broad-scope construct
than on the other constructs. Also the Composite
Reliability and the Cronbach-a of this construct
are satisfactory (see Appendix, Table A1).
9
This type of management information is available in public
hospitals through a system known as INIHOS (INformación
Inter HOSpitales), which provides indicators used for measur-
ing, comparing and evaluating health care performance among
hospitals.
745
We controlled for the effect of two variables in
our model; hospital size and government depen-
dency. Hospital size was measured by the number
of beds (cf. Abernethy & Lillis, 2001; Errasti,
1997). Government dependency of hospitals was
measured by a dummy variable, which allowed
to make a distinction between hospitals in regions
with a long history of autonomy in health care
management, and the regions with a recent auton-
omy in health care management, to control for any
spill over effect from before the 2002 health care
reform that provided all hospitals with the same
formal autonomy.
Results
The hypotheses were tested using the partial least
squares (PLS) technique (Chin, 1998; Wold, 1982).
PLS is a variance-based approach for the estima-
tion of path models involving latent constructs that
are indirectly measured by multiple indicators
(Wold, 1982). PLS allows us to simultaneously cope
with the issues of construct measurement and the
structural relationships among different constructs.
Thus PLS estimates the model parameters based on
the ability to minimize the residual variances of
dependent variables (Chin, 1998). PLS can estimate
models with small sample sizes, can model both for-
mative and reflective indicators and does not make
distributional assumptions about the data used for
modelling (Chin, 1998). A preliminary data analysis
was done to establish the validity and reliability of
measures (see above), and appropriateness of the
causal model (Chenhall, 2005; Hair et al., 1998).
We followed the procedure advocated by Hulland
(1999) in evaluating PLS models, which provides
a separate analysis of the measurement and struc-
tural model.10 The measurement model was
assessed by examining the reliability of individual
items and the convergent and discriminant validity
10
The item scores were standardized (with a zero mean of zero
and a variance of one), before running the PLS model (cf. Chin,
Marcolin, & Newsted, 2003). The assessment of the measure-
ment model involved examining item reliability and the
convergent and discriminant construct validity (Chin, 1998;
Fornell & Larcker, 1981).
746 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Table 1
Descriptive statistics for variables (n = 103)
Variable Mean SD Theoretical range Actual range
1. Age heterogeneity 0.91 0.06 0.00–1.00 0.71–0.97
2. Tenure heterogeneity 0.56 0.21 0.00–1.00 0.65–0.98
3. Experience heterogeneity 0.48 0.19 0.00–1.00 0.29–0.92
4. Education heterogeneity 0.52 0.18 0.00–1.00 0.31–0.90
5. Extent of strategic change 1.87 0.69 0.00–4.00 0.00–4.00
6. Interactive use of MAS 3.33 0.54 1.00–5.00 1.55–4.56
7. Broad-scope MAS 3.14 0.38 1.00–5.00 2.00–4.11

Table 2 structural model, and reports on the significance

Correlations from PLS model (n = 103)
of the standardized bs that resulted from this anal-
1 2 3 4 ysis, based on a bootstrapping procedure that used
1. TMT heterogeneity 1.000 500 samples with replacement. Table 3 also reports
2. Extent of strategic change 0.228b 1.000 the R2 statistics for the dependent (strategic
3. Interactive use of MAS 0.237a 0.271a 1.000
change) and mediating (MAS) variables. Regard-
4. Broad-scope MAS 0.109 0.198b 0.311a 1.000
a
ing the measurement model, the PLS analysis con-
Significant at 0.01 level (two-tailed).
b firmed the reliability and unidimensionality
Significant at 0.05 level (two-tailed).
analyses of the variables, with high composite reli-
ability of the latent variables (see Appendix, Table
A1) and with general loadings of manifest variables
of the constructs (Chin, 1998; Fornell & Larcker, on latent variables exceeding 0.60. Discriminant
1981). Table 1 shows the descriptive statistics for validity of the measurement model was assessed
all variables. Table 2 shows the correlation by calculating the average variance extracted
analyses. (AVE), and comparing this with squared correla-
Fig. 2 displays the results from the test of the full tions between constructs (Table 2) which attested
model. Table 3 contains the detailed output statis- to satisfactory discriminant validity (cf. Fornell &
tics of the analyses of the path coefficients in the Larcker, 1981). First we present the results from

Broad-scope
MAS
0.209b

TMT Strategic
Heterogeneity 0.317a Change

0.279a Interactive Use 0.246b

of MAS

0.197c
a b c
Significant at 0.01 level (two-tailed) Significant at 0.05 level (two-tailed) Significant at 0.1 level (two-tailed)

Fig. 2. Structural model for all organizations: TMT, MAS and strategic change (n = 103, solid lines represent significant paths).
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 747

Table 3
Results from PLS analysis: full model (path coefficients, n = 103)
To From TMT heterogeneity Broad-scope MAS Interactive use of MAS R2
Broad-scope MAS 0.114 0.180
Interactive use of MAS 0.279a 0.317a 0.233
Extent of strategic change 0.197c 0.209b 0.246b 0.191
a
Significant at 0.01 level (two-tailed).
b
Significant at 0.05 level (two-tailed).
c
Significant at 0.1 level (two-tailed).

PLS related to the full structural model, where we
analyze the effect of TMT and MAS on the extent
of strategic change (Hypotheses 1, 3, 4, 5a, 6a and
7, see Fig. 2 and Table 3). Then we present the
results from PLS related to the two subgroup mod-
els for the directional effects on strategic change
(Hypotheses 2, 5b and 6b, see Figs. 3 and 4).
TMT heterogeneity: effects on the extent of
strategic change and MAS
The results in Table 3 suggest that H1 can be
accepted, since the path coefficient between TMT
heterogeneity and the extent of strategic change
is positive and significant. The results in Table 3
do not allow acceptance of H3, since the path coef-
ficient between TMT heterogeneity and broad-
scope design of MAS is not significant. Consistent
with our arguments, however, the results support
H4 since the coefficient of the path from TMT het-
erogeneity and the interactive use of MAS is posi-
tive and significant.
In trying to elaborate on these results, we ran a
PLS model relating the different characteristics of
TMT heterogeneity (age, tenure, experience and
education) directly to MAS design, MAS use and
the extent of strategic change. Table 4 indicates
that none of these characteristics is significantly
related to broad-scope design of MAS, although
all four types of TMT heterogeneity are positively
related to the interactive use of MAS. Regarding
the relationship between TMT heterogeneity and
the extent of strategic change, Table 4 also shows
that age and tenure heterogeneity are not directly
related to strategic change. This is in line with
some findings from previous studies (Bantel &
Jackson, 1989; Wiersema & Bantel, 1992). Overall,
however, we conclude that the results are largely

Broad-scope
MAS
0.301a

TMT Strategic
Heterogeneity 0.296a Change

0.291a Interactive Use 0.344b

of MAS

0.224b

a b
Significant at 0.01 level (two-tailed) Significant at 0.05 level (two-tailed)

Fig. 3. Structural model for subgroup of organizations moving toward prospector positions: TMT, MAS and strategic change (n = 61,
solid lines represent significant paths).
748 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Broad-scope
MAS
-0.191c

TMT Strategic
Heterogeneity 0.241b Change

0.187c Interactive Use

of MAS

b c
Significant at 0.05 level (two-tailed) Significant at 0.1 level (two-tailed)

Fig. 4. Structural model for subgroup of organizations moving toward defender positions: TMT, MAS and strategic change (n = 37,
solid lines represent significant paths).

Table 4
Path analysis: decomposition effect of TMT heterogeneity (path coefficients, n = 103)
To From Age heterogeneity Tenure heterogeneity Experience heterogeneity Education heterogeneity
Broad-scope 0.072 0.095 0.154 0.137
MAS
Interactive use 0.196c 0.187c 0.231b 0.293a
of MAS
Extent of 0.157 0.142 0.256a 0.289a
strategic change
a
Significant at 0.01 level (two-tailed).
b
Significant at 0.05 level (two-tailed).
c
Significant at 0.1 level (two-tailed).

consistent with our previous overall analysis of
TMT heterogeneity.
MAS and the extent of strategic change
Table 3 provides evidence for H5a, since it
shows a positive and significant relationship
between broad-scope MAS and the extent of strate-
gic change. Also H6 is supported, since the path
coefficient between the interactive use of MAS
and the extent of strategic change is positive and
significant. Regarding H7, the results in Table 3
indicate a positive and significant path between
broad-scope MAS and the interactive use of
MAS in line with our expectation. Overall, as
Fig. 2 illustrates, we conclude that the interactive
use of MAS mediates the relationship between
TMT and strategic change, and that there is a
direct relationship between broad-scope MAS
and the extent of strategic change (Baron & Kenny,
1986; Chenhall, 2005). To add some appeal to these
results we used the method suggested by Baron and
Kenny (1986)11 to test the relative strength of the
11
Baron and Kenny (1986) argue that four conditions must
hold for testing mediating effects: (1) the independent variable
must be significantly correlated with the dependent variable; (2)
the independent variable must be significantly correlated with
the mediator variable, and (3) the relationship between the
independent and dependent variable must be weaker in (2) than
in (1).
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756 749

Table 5 The results in Tables 6 and 7 show a positive

Path analysis: decomposition of direct and indirect effect and significant path between TMT heterogeneity
through MAS use
and strategic change for the prospector subgroup,
Submodel Direct Indirect effect Total with the path between TMT heterogeneity and
effecta through MASb
strategic change towards defender position
(1) TMT–interactive 0.197 0.069c 0.297 appearing insignificant for the defender subgroup,
use–strategic change
(2) TMT–interactive 0.197 0.016d 0.244
which suggests support for H2. Concerning H3
use–broad-scope–strategic and H4, both partial models (see Tables 6 and 7)
change confirmed the findings for the full model, suggest-
a
Direct effect between TMT-strategic change (p < 0.05, two- ing that TMT heterogeneity is not related to
tailed). broad-scope of MAS design, but positively related
b
Indirect effect result from multiplying significant path to the interactive use of MAS. Tables 6 and 7 fur-
coefficients (all paths significant, p < 0.05, two-tailed). The ther provide evidence for H5b and H6b. The
submodel TMT–broad-scope–strategic change was not ana-
lyzed since the path between TMT and broad-scope was not
results show a significantly positive (negative) path
significant. from broad-scope MAS to strategic change for the
c
(0.279 * 0.246). prospector (defender) subgroup, which confirms
d
(0.279 * 0.274 * 0.209). Submodel 2 uses the significant path H5b. The results also show a significantly positive
coefficient of 0.274 from a rerun of the model with the signifi- (insignificant) path from interactive use of MAS to
cant path going from the interactive use of MAS towards
broad-scope MAS design.
strategic change for the prospector (defender) sub-
group, which is in line with H6b. Finally, in con-
formity with the results of the full model, H7
mediating effect of the interactive use of MAS12.
was supported in both partial models, suggesting
Table 5 reports on this analysis, in which the indi-
that the positive relationship between broad-scope
rect effect was calculated as a multiplication of the
MAS and the interactive use of MAS exists regard-
statistically significant indirect effects on and from
less the direction of strategic change.14 We per-
MAS use (cf. Sarkar, Echambadi, Cavusgil, &
formed an additional test to establish the
Aulakh, 2001).
significance of the differences found using the pro-
cedure outlined in Keil et al. (2000, p. 315). The
TMT heterogeneity: effects on MAS direction and
differences appeared significant except for the
the strategic change
direct link between TMT heterogeneity and strate-
gic change.15 For this latter relationship, are evi-
We ran two subgroup models for testing the
dence is limited to the numerical difference found
hypotheses regarding the direction of strategic
change, one for the subgroup that changed towards
a prospector position (61 hospitals), and the other 14
In testing both the full and partial models using PLS, we
for the subgroup that changed to a defender posi- included the two control variables (size and governmental
tion (37 hospitals).13 Figs. 3 and 4, and Tables 6 dependency), which did not reveal any significant path with
and 7 show the PLS analyses for both these models. heterogeneous TMT, MAS design, MAS use and strategic
change. The results reported are those of the model tested with
control variables. For reasons of clarity, we have not included
these variables in the graphical presentations. Additionally, in
12
Our analysis involved two calculations, one with interactive response to concerns about the measurement of strategic
use of MAS (submodel 1) only, and one including the change (Bergh & Fairbank, 2002), we ran the model with
significant path between broad-scope MAS towards interactive strategic position (at t0, and t3) as control variables. This did
use of MAS (submodel 2). Submodel 2 uses the significant path not affect the direction or the significance of the path
coefficient of 0.274 from a rerun of the model with the path coefficients.
15
going from the interactive use of MAS towards broad-scope For the relationship between broad scope MAS and
MAS design. strategic change, the difference between path coefficients is
13
Only five hospitals did not change their strategy. We 0.492 (p < 0.01). For the link between the interactive use of
excluded those from the subgroup analyses in order to avoid MAS and strategic change, the difference between path coef-
noise in our analyses. ficients is 0.174 (p < 0.05).
750 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Table 6
Results from PLS analysis: partial model (path coefficients, prospector subsample, n = 61)
To From TMT heterogeneity Broad-scope MAS Interactive use R2
of MAS
Broad-scope MAS 0.103 0.174
Interactive use of 0.291a 0.221
MAS
Strategic change 0.224b 0.301a 0.344a 0.183
towards prospectors
a
Significant at 0.01 level (two-tailed).
b
Significant at 0.05 level (two-tailed).

Table 7
Results from PLS analysis: partial model (path coefficients, defender subsample, n = 37)
To From TMT heterogeneity Broad-scope MAS Interactive use R2
of MAS
Broad-scope MAS 0.095 0.163
Interactive use of 0.187c 0.241b 0.214
MAS
Strategic change 0.154 0.191c 0.170 0.172
towards defenders
b
Significant at 0.05 level (two-tailed).
c
Significant at 0.1 level (two-tailed).

(cf. Thompson, Higgins, & Howell, 1994). Overall,
however, we conclude the full causal path from
TMT composition to strategic change is signifi-
cantly different for the two groups.
Discussion and conclusions
The objective of this paper was to improve our
understanding of MAS as a mechanism that medi-
ates the relationship between top management
team composition and organizational strategic
change. Broad-scope MAS and interactive use of
MAS were argued to mediate the relationship
between TMT heterogeneity and the extent and
direction of strategic change. Our findings can be
summarized as follows. Regarding the relationship
between TMT and strategic change, the findings
show that TMT heterogeneity is positively related
to the extent of strategic change, and especially for
the strategic change towards prospector positions.
TMT heterogeneity appears unrelated to strategic
change for organizations moving towards defender
positions. Regarding the relationship between
TMT heterogeneity and MAS, the findings show
that TMT heterogeneity is positively related to
the interactive use of MAS. Although the tradi-
tional interpretation is that interactive use of
MAS reflects interactions between different (strate-
gic and operational) hierarchical levels, these
results suggest that it may also reflect the use of
MAS at a certain (i.e. board) level. The findings
do not support a relationship between TMT heter-
ogeneity and broad-scope design of MAS. This
result could be explained by the fact that this is a
design dimension of MAS, which cannot directly
be influenced by TMTs, or which cannot be
adapted to the individual characteristics of TMT
members (cf. Mia & Chenhall, 1994). The addi-
tional models using the underlying four sources
of heterogeneity support the aggregate analysis,
although age and tenure heterogeneity appeared
not to be related to strategic change. This is in line,
however, with some findings from previous studies
(Bantel & Jackson, 1989; Wiersema & Bantel,
1992). For example, Wiersema and Bantel (1992)
found a positive relationship between educational
heterogeneity and strategic change, but concluded
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
that age and tenure heterogeneity are less impor-
tant in capturing ‘the underlying constructs of
creativity – innovativeness and diversity of infor-
mation’ (p. 115).
Regarding the relationships between MAS and
strategic change, the findings show that broad-
scope MAS is positively related to strategic change
for organizations moving towards prospector posi-
tions. These results are in line with Chenhall’s
(2003) arguments that broad-scope design of
MAS overcomes the lack of relevance of narrow-
scope MAS information for managing flexibility,
decentralization and innovation (cf. Bisbe & Otley,
2004; Gerdin, 2005b; Hartmann, 2005). The results
also show that the interactive use of MAS is not
related to strategic change for those organizations
moving towards defender positions, but that it is
positively related to strategic change for organiza-
tions moving towards prospector positions. This
confirms the suggestions of Abernethy and Lillis
(1995, 2001), and Bisbe and Otley (2004) men-
tioned earlier. Finally, we found a relationship
between MAS scope and the interactive use of
MAS, suggesting that the perceived usefulness of
broad-scope affects the way in which the informa-
tion is used. Overall, we conclude that our results
provide evidence for the mediating role of MAS
of the relationship between TMT composition
and strategic change, answering to pleas in the
strategic management and management account-
ing literatures for a better understanding of the
processes and arrangement through which organi-
zations change their strategies (Carpenter et al.,
2004; Luft and Shields, 2003; Miller et al., 1998;
Rajagopalan et al., 1993; Chenhall & Langfield-
Smith, 2003). We find that this mediating role is
particularly prevalent for changes towards pros-
pector positions.
This paper has several limitations, beyond those
typically related to the use of the questionnaire
survey (Young, 1996). Two of these limitations
are the lack of ability to test for causal direction,
and the paper’s focus on one industry. Regarding
the latter, we believed that this industry is well sui-
ted to test our hypothesis, but it may contain idio-
syncrasies that have been overlooked. Clearly,
empirical testing of the hypotheses generated in
this paper in a different industrial context may pro-
751
vide insight into the external validity of the find-
ings. Another limitation of this paper is its focus
on top management teams ‘as the sole custodians
of strategy, ignoring the contributions of middle
and lower level managers to the strategic process’
(Nyamori et al., 2001, p. 72). Other groups of
managers may influence the relationships studied
as well.
This study is exploratory in nature and leaves
ample room for future research. First, the findings
of this study focus on the TMT, and future studies
may look at the potential effects of intra-TMT
group processes on MAS use. In particular, group
processes such as communication, conflict, and
agreement seeking could have significant effects
on the relationships found in this study. In this
vein, other variables beyond demographic charac-
teristics could be analyzed for the TMT, such as
the distribution of power and authority (cf. Aber-
nethy & Vagnoni, 2004). Second, the constructs
central to this study could be defined and opera-
tionalized in different ways. Regarding the TMT
construct, other TMT characteristics, such as
directly reflecting cognitive and psychological
characteristics, could be addressed and measured
(cf. Finkelstein & Hambrick, 1996). Other MAS
design characteristics could be analyzed (e.g., time-
liness, aggregation and integration, Chenhall &
Morris, 1986), as well as specific management
accounting techniques, such as the budgeting
method, the use of ABC-costing or the use of
scorecard-type instruments for performance
appraisal. Finally, the path analyses explored here,
that suggest mediation fit, could be complemented
with tests for moderation forms of contingency fit,
given that the proper theoretical foundation can be
found (cf. Hartmann & Moers, 1999, 2003; Gerdin
& Greve, 2004).
Acknowledgements
The authors express their thanks for comments
received on earlier versions of this paper from Ma
Concepción Álvarez-Dardet, Victor Maas, Paolo
Perego, Marcel van Rinsum, seminar participants
at Pablo Olavide University, RSM Erasmus Uni-
versity, Sydney University and the University of
752 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756

Örebro, and at management accounting seminars sidering it as the whole of management

of the EAA, EIASM, and ARNN and especially
to two anonymous reviewers for their constructive
feedback. The authors also acknowledge the partial
funding of this research project by the Spanish Min-
istry of Education and Science (Project PB98-1358).
Appendix. Questionnaire items
Q1. TMT heterogeneity
• Age
• University degree and title (years of edu-
cation in medicine and general manage-
ment/law)
• Years of experience as clinician/doctor at
public hospitals
• Years of experience as clinician/doctor at
other health care organizations
• Years of experience as managers in cur-
rent hospital
• Years of experience as managers in other
health care organizations
Q2. Interactive use of MAS
According to the following descriptions,
please indicate the extent to which you use
the Management Accounting System, con-
accounting and control techniques:
• Set and negotiate goals and targets
• Debate data assumptions and actions plans
• Signalling key strategic areas for
improvement
• Challenge new ideas and ways for doing
tasks
• Involvement in a permanent discussion
with subordinates
• Learning tool
Q3. Broad-scope design of MAS
Please, indicate the extent of usefulness of
the following information elements provided
by your MAS:
• Future-oriented information
• External information
• Non-financial information
• Long-run oriented information
4. Strategic change
The following two descriptions of hospitals
were given to respondents. They were asked to
circle on a five-point Likert-type scale where
they would place their hospital three years ago,
and where they would place the hospital now.

Table A1
Factors, cross-loadings and reliability and validity statistics for the multi-item scales
Variables Items 1 2 3 CRa AVEb Alpha
1. TMT heterogeneity Age heterogeneity 0.634 0.417 0.504 0.741 0.538 0.784
Tenure heterogeneity 0.657 0.537 0.470
Experience heterogeneity 0.838 0.578 0.701
Education heterogeneity 0.725 0.595 0.511
2. Interactive use of MAS Negotiate goals 0.523 0.632 0.598 0.863 0.552 0.816
Encourage new priorities 0.596 0.712 0.607
Signal key strategic areas 0.612 0.778 0.543
Encourage new ideas 0.626 0.829 0.689
Ïnvolve with subordinate 0.630 0.817 0.705
Learning tool 0.597 0.729 0.641
3. Broad-scope MAS Future-oriented information 0.619 0.601 0.811 0.849 0.560 0.772
External information 0.538 0.592 0.746
Noneconomic information 0.494 0.538 0.712
Long-run information 0.568 0.582 0.789
a
Composite reliability.
b
Average variance extracted.
 D. Naranjo-Gil, F. Hartmann / Accounting, Organizations and Society 32 (2007) 735–756
‘‘Hospital A offers a relatively stable set of ser-
vices and tends to focus on a particular seg-
ment of the population and offers a more
limited range of services than other hospitals
of the same categories. Generally Hospital A
is not at the forefront of new services develop-
ments in health care. Developments in services
tend to concentrate on current areas of opera-
tion. It believes that doing the best job possible
in its existing range of services and refining
existing services are of utmost importance’’.
‘‘Hospital B makes relatively frequent
changes in, and additions to, its set of ser-
vices and tends to offer a wider range of med-
ical services compared to other hospitals of
the same categories. Hospital B responds
rapidly to early signals of market needs or
opportunities and it consistently attempts
to be at the forefront of new service develop-
ments. Other hospitals often follow Hospital
B in the development of these services. This
type of hospital may not maintain its
strength in all of the areas it enters’’.
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