Experimenting with Risk and Management Control Systems in Inter-firm Alliances 2

Abstract

This study examines the interrelations between risk and management control systems in inter-firm alliances—specifically, how risks influence the choices and construction of management control systems, and how these management control systems subsequently affect the articulation and evolution of risks. The research issues are examined by using the theoretical perspective of a three-stage experimentation process under the actor-network theory. Data were collected from one international joint venture in the Chinese automobile industry through formal and informal interviews, observations and review of internal and external documents. This study found that risk and inter-firm alliances continuously and mutually construct each other through management control systems. On the one hand, management control systems contribute to the articulation of risks in inter-firm alliances by identifying the source of risk, generating risk perception, rationalising and objectifying risk perception, and producing knowledge on risk. On the other hand, different management control systems are initiated, crafted, selected, formalised and negotiated as the outcome of the partner firm’s efforts to experiment with solutions to address risks. These findings contribute to the accounting and management control literature by demonstrating that risk management of inter-firm alliances is not a static phenomenon. Instead, risk and management control systems in inter-firm alliances are (re)constructed through an ongoing experimentation process that involves interactions among firms in crafting and testing solutions to risks. In this ongoing experimentation process, management control systems are not only used to manage risks, but also contribute to the articulation of new risks. This paper also extends prior research by highlighting how personal ties may play a critical role in the risk management of alliance relationships.