The economic benefit of goal congruence and implications for management control systems

In this study, we examine the importance of goal congruence in management control systems (MCS) using a theoretical framework that draws upon both agency theory and stewardship theory. Two aspects of goal congruence are considered: (1) a manager’s voluntary acceptance of an organization’s strategy, i.e., principal-agent alignment, and (2) manager consensus regarding their organization’s strategy, i.e. agent–agent alignment among the potentially divergent interests of multiple agents. We demonstrate the impact of managers’ strategy acceptance (consensus) on four measures of economic benefit: inputs (resource accumulation), outputs (volume of services), operating efficiency (output per unit of input), and cost structure flexibility (adaptability to volume). The results indicate that greater manager consensus is associated with hospitals that accumulate more resources and provide higher levels of service with greater efficiency and additional cost structure flexibility. Our evidence also indicates that hospital managers (MDs, nurses and CFOs) are not motivated by individual opportunism alone, and that goal congruence does not depend solely upon selecting the right performance measures and incentives to remove inefficiencies and moral hazards. We conclude that goal congruence based upon both strategy acceptance and reinforcing incentives may result in MCS that are less costly and more effective.