Does environmental uncertainty drive the use of management control systems and innovation?

This paper analyzes the effects of environmental uncertainty on the use of Management Control Systems (MCS) and product and process innovation.

The hypotheses were tested with data from a survey carried out with 140 managers of innovative Brazilian firms using structural equation modeling.

The analyzes show significant negative effects of environmental uncertainty on MCS use and non-significant ones on product and process innovation, which suggests that when environmental uncertainty increases, the MCS use decreases. In contrast, significant positive effects of MCS use on product and process innovation were found, despite environmental uncertainty permeating innovation. However, no mediating effect of the MCS use on the relationship between environmental uncertainty and innovation was observed.

This study presents implications to the management literature grounded on the Contingency Theory by pointing out negative effects of environmental uncertainty on MCS use and product and process innovation. This encourages research on other contingency factors that might be predictors of MCS use and innovation.

The findings provide evidence that the analyzed organizational practices (MCS use and innovation) are conceived and implemented to disregard external stimuli, which may bring dysfunctional consequences that need to be monitored.

The study contributes by revealing that environmental uncertainty inhibits the MCS use and does not favor innovation. It was expected that MCS that produce information about the external environment would be valued and would have effects on the strategic planning in these firms.