Lars Östman towards a general theory of financial control

From the 1960s to the 1980s  

 

Companies and combinations of companies continued to grow. They established or acquired 

subsidiaries abroad. Structures and financial control systems shaped the nature of groups as 

an organisational concept within the private sphere. Group executives and group 

management became the important actors. Stock market influence on organisational matters 

was still weak, while internal structures changed profoundly. Centralistic hierarchies with 

functional responsibilities were replaced by decentralisation through divisions and profit 

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centres, in Europe from the 1960’s onwards. Thus, a financial entity often consisted of 

several smaller financial entities – labelled business units – which in turn contained sub-

units. Vertical control and a periodical continuous pressure became the main tools at top 

executive levels and gradually throughout organisations.

     

Thus

, several business units were running parallel within growing groups.  Basically, they 

were rather independent of each other from an operational point of view, but they were 

dependent on the group financially. Business units could be arranged with regard to user 

categories, the nature of the output, geographical areas or some other important dimension. 

There could be some conflict between these dimensions. From an operational point of view, 

dependence could be difficult to avoid. This was not necessarily the intention, because 

strategic synergies between different business units could possibly give strength. In these 

cases, price mechanisms of ordinary markets served as a model for the transfer pricing of 

pseudo-commercial units. The need to integrate parallel functions was mainly constrained to 

lower levels, where operational dependence was still strong. The number and size of 

function-driven units began to decrease. Besides, many such units needed explicit internal 

customers. There was an increase in the global dimension of business both for sourcing and 

for marketing; production was off-shored to low-cost countries. Nevertheless, business life 

still had mainly a national character. 

The public sector was purely national and was growing too, but no longer slowly. More 

and bigger function-driven organisations basically aimed at some purpose defined within 

organisations and by vertical principals. The increase was in many respects considerable. 

Various budgetary techniques were tried out without really leading to decisive long-term 

improvements in procedures. Normally, tax-financed units do not have the same 

opportunities as pay-driven units to select and to improve productivity in some real sense. 

For this reason alone, costs of output tended to increase continuously. For a long time, this 

was no decisive constraint, because organisations were in the main compensated for price 

changes.  

Unions, federations and confederations also grew in size and importance at both national 

and organisational levels. This was certainly the case in the private sector, but differences 

over time were even more remarkable in the public sphere. Until the 1960s, instruments of 

union influence on organisations within the public sector were few and weak, but this 

situation changed step by step. Private and public sector organisations became similar in this 

respect. Generally speaking, laws were passed in several fields that had previously been 

governed by agreements between the labour market parties. One such law concerned 

employee influence in particular organisations and comprised rules that were more far-

reaching than in the voluntary system it replaced. Employment security was the aim of 

another law with its origin in this period. Dismissals should be preceded by a process carried 

out with unions; they should occur only for certain reasons and employees should be 

dismissed in a certain order. Ownership in companies was debated and investigated. Should 

unions be owners? 

Since the late 1950s, television was a spectacular instrument for information and 

entertainment. The number of newspapers had decreased. Business and organisational life 

received more attention than before but still not very extensively.