Lars Östman towards a general theory of financial control

Tensions in vertical processes 

 

Individual and collective needs and desires are the ultimate bases for the requirements placed 

on organisations. Outcome, on the other hand, is determined by how a certain potential is 

utilized. In principle, a discrepancy between the two is natural. Vertical tensions arise. 

Requirements from a generation of savers may conflict with working conditions for a 

younger generation. Or financial limits for function-driven activities set by a governmental 

authority may not be consistent with operational aims that are declared simultaneously.  

At the highest vertical levels, needs and external interest are in focus. At the highest well-

organized level, decisive premises are established. Some room for choice is available, almost 

at some discretion, but once premises have been settled, they will serve as rather rigid 

reference points for a process downwards. Income requirements that have been deduced 

from historical levels in stock markets or targets in cost-cutting campaigns may serve as 

examples. Actors at high levels are at a distance. Mobility for them concerns structural 

transactions and transfer-driven activities and general ideas of how control should be 

implemented in operational and functional units. Top-level actors are not able to develop 

horizontal processes in any deep sense, nor should they even try to do so normally. They can 

influence ongoing activities through demands on subordinated units. Operative interventions 

are of very general types. Top-level views may contain contradictions that appear obvious 

only when they come closer to operations.   

A hierarchy contains various levels where room for action appears and is consumed. 

Mobility is most valuable at those levels that have an essential, potential impact on 

horizontal flows, either pro-actively or through adaptive behaviour, for core activities and 

relations forwards and backwards. It is not equally important at other levels. Mobility is 

dependent on capacity for resistance. Each level has its exposure to variations in financial 

development and repercussions of exogenous factors. Continuous mobility at a certain level 

is conditioned by how financial variations hit the unit and to what extent the unit is equipped 

to meet such variations. Operational consequences may vary. Capacity for resistance, for 

example through reserves, fulfils a purpose especially at levels where mobility has an 

essential impact on horizontal flows and facilitates adaptive behaviour, in both the short and 

the long term. At each level, people tend to regard their own reserves as motivated, but not 

reserves at lower levels. In accordance with this idea – and due to the shift of vertical 

processes upwards – group-level reserves now tend to be strongly questioned.  

The nature of tensions varies with the types of connections between principals and 

horizontal flows. For pay-driven organisations, tensions may mean a shift of burden to other 

parties, for example customers, but in pure cases this could be a secondary problem for 

principals and a primary problem only if a series of future payments is affected. It is possible 

that customers may counteract. For function-driven organisations, the effect itself on the 

horizontal flow should be a primary concern for principals. Nevertheless, in practice the 

scope and character of activities may be affected, especially due to the needs of the financial 

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limits. Often, counteractions are weaker. Furthermore, selection is not possible to an 

essential extent. Tensions tend to remain and grow.         

Shifts from the controllability concept to an outcome focus were one of the most decisive 

and multifaceted changes in financial control during the 20

th

 century. For a long time, the 

controllability concept was dominant in management literature and practice: an organisation 

and its parts should concentrate on what can be influenced to a reasonable extent, and 

prevailing conditions are the obvious starting point for defining commitments, tasks imposed 

and risks to be borne.   

The status of the controllability concept weakened towards the end of the century. An 

outcome focus predominated: concentrate on the outcome strived for, link it with strong 

rewards and sanctions, do not make the relationship between resources and outcome a 

primary consideration, stimulate adjustments to factors that cannot be affected, restrict what 

are regarded as obstacles. Several currents of opinion worked along this line. Methods for 

achieving goal control became common during the second half of the 20

th

 century. Reward 

and bonus schedules received considerable attention, particularly since control at a distance 

had become an important phenomenon during the last decades of the century. According to 

the logic of the most intense and popular parts of the public debate, it was possible to relate 

guilt for deficient outcomes to actions of individual parties, and guilty individuals were 

preferably pointed out, regardless of controllability in its original sense. These tendencies 

increased towards the end of the century, at a time when interdependencies in economic life 

were increasing and parties that could act independently of each other were more difficult 

than ever to find.