Paradoxes of Management and Control in a New Economy Firm

Abstract

Firms operating at the centre of the 'new economy', such as dot-coms, Internet related technology providers, www-site or -portal designers, or content producers, are characteristically organisations with strong culture of technical capability or artistic creativity. These 'new economy firms' (NEFs) have a tendency to operate in a highly flexible manner, with very limited arsenal of formal rules and procedures, and driven by the encouraging and future-oriented vision of their leading actors. They operate in a world of stories about a 'better future', to which they believe they can significantly contribute. After a vast boom period of late 1990s, NEFs were hit hard by the stock price crash of the year 2000. Many of these firms encountered difficult financial and operational troubles, and many of them have gone bankrupt. Consequently, the question about the potential significance of more rigorous management control technologies was more seriously raised. However, the approach of management control appears to bring internal tensions into these new economy firms: how to make the two quite radically different worlds compatible with each other? On the one hand, some kind of management control methods seem to be desperately needed in order to bring adequate order into the managerial chaos often inherent in these firms and to keep them viable under market pressures. On the other hand, such methods tend to be felt as threatening the original 'ways of doing' in these firms. This article analyses paradoxes around these issues, and aims at outlining how the two approaches could be combined in the new economy firms. Based on the notion of loosely coupled systems, it is suggested that management and financial control systems are indeed needed in order to keep NEFs alive in market pressures, but that they should be relatively light and simple in order to leave enough room for creativity and flexibility, which are the corner-stones of NEFs' way of doing things.

Keywords: New economy firms, management control, managerial paradoxes

JEL Classification: M40, M46