Lars Östman towards a general theory of financial control

Connections to external processes 

 

A board, if any, and central executives have to consider if and how internal objects, 

measures and requirements should be linked to external demands. Objects as such must be 

chosen with this aspect in mind, possibly paying regard to what objects would facilitate 

external understanding and evaluation. Furthermore, measures and targets may be designed 

as a replica of external components. For example, there are various ways to formally 

consider the rate of return on equity requirements from owners. 

Since the last few decades of the 20

th

 century, many forces have induced connections 

between public and internal measures of companies. Mostly, public measures have been the 

determining factor. One expression of this development is that external periodical measures 

frequently became the norm for the design of internal periodic measures. Beyond this, 

periodical measures of a traditional kind lost some of their weight internally. Instead, value-

based measures attracted more attention: calculated values of the same kind as at any 

evaluation of companies and shares. Such values for separable parts of organisations became 

more important in internal control as well. As previously noted, public measures for entire 

organisations have tended to be designed with an exchange perspective. They may therefore 

be difficult to reconcile with internal measures that should be relevant for ongoing and 

lasting horizontal activities.  

To a varying degree, internal control systems record and react to variations in the 

surroundings. Not only in the private sector, processes for the evolution and design of 

control systems of an organisation often mean that external functional modes and tendencies 

are captured and built into the system. In this way, organisations not only create 

opportunities to satisfy immediate demand but they also tend to strengthen certain outside 

values, views and habits.