Welcome Lukas. You’re a professor at the Stockholm School of Economics. Could you tell the audience a little more about yourself? Who are you, and what’s your research focus?

As you said, I’m a professor at the Stockholm School of Economics, focusing on management accounting and control. My research and teaching interests revolve around performance measurement, and how companies use accounting—both financial and non-financial numbers—to execute and sometimes redefine their strategies. I also study topics like budgeting, forecasting, and the role of finance functions, such as CFOs and controllers, in these processes.

What initially sparked your interest in management control systems?

That’s a good question! I’ve always been fascinated by the organizational aspects of accounting. It’s not just a technical tool; it’s embedded in social processes. Accounting measures influence how people interact in organizations. It mediates these interactions, and that’s something I find really interesting.

This podcast is all about goal setting, which is a big part of management control systems, right?

Absolutely. Management control systems encompass the practices, rules, tools, and systems that organizations use to ensure everyone works in the organization’s best interest. Goals are a central part of that. A key question is how to build an infrastructure around goals that helps employees understand what’s expected of them, ensures they have the right resources, and motivates them—not just extrinsically, but also in ways that align with their own identities and creativity.

So is that the main reason why management control is needed in organizations?

Historically, yes. The original purpose of management control systems was to translate strategies into concrete plans, goals, and targets, ensuring they’re implemented throughout the organization. But over the last 30 years or so, these systems have evolved. They’ve become more enabling, not just ensuring the execution of strategy, but also facilitating rethinking and redefining goals and strategies. Today, management control systems are about both execution and exploration, helping organizations stay adaptable and innovative.

I recently read an article in the Harvard Business Review that highlighted how clear goals lead to better results, less burnout, and happier employees. The article was from 2011 or 2012. What does recent research say about goal setting?

You’re right that clear goals can have many benefits—they provide guidance and help people understand what’s expected of them. However, research also shows an ambivalent side. When goals are too rigid or overly formalized, employees might focus solely on meeting those goals, neglecting other important tasks. This can lead to issues like gaming the system or creating unnecessary stress. Our latest research shows that the meaning behind the goals is increasingly important. Employees need to feel that the goals align with their values and that they’re working toward something meaningful. If they don’t, it can affect their well-being and lead them to reconsider their place in the organization.

Many modern leaders I meet are looking for a perfect way to implement goal setting across their teams. What would your advice be for them?

A simple yet effective approach is to design goal-setting processes collaboratively. Involving employees in the development of goals and targets can help ensure those goals are meaningful at every level of the organization. This also extends to decisions about whether certain goals should be linked to incentive systems or used primarily for learning. Including employees in these decisions can address many of the challenges we’ve discussed.

I work with OKRs (Objectives and Key Results), which is a very inclusive framework. It promotes collaboration. I know you’re familiar with this and other frameworks. Could you elaborate on the pros and cons of OKRs?

OKRs are an interesting framework, especially because they’re meant to be dynamic and help organizations navigate uncertainty. They’re also focused on learning, which is key. One thing that stands out with OKRs is that they encourage organizations to steer in uncertain times while detaching them from incentives, which can make them more flexible. However, it’s important to think about how OKRs fit into the broader management control infrastructure. If you use OKRs for accountability and learning, you also need to decide what elements to use for performance evaluation and incentives.

If it were up to you, how would you design performance and incentive systems for a company?

I’d differentiate between systems used diagnostically and those used interactively. Diagnostic systems are focused on ensuring targets are met, and they’re very results-driven. Interactive systems, on the other hand, focus on learning and help the organization adjust strategies as necessary. OKRs can be very effective in this interactive space, where you need to be more agile and adaptable.

So would organizations need two different goal-setting systems?

Not necessarily two separate systems, but it depends on the complexity of the organization. You can have parts of the organization that are steered diagnostically, focusing on efficiency and execution, while other parts are managed interactively, focusing on learning and adaptation. However, these systems need to be aligned to avoid creating silos.

That sounds a bit like managing business-as-usual goals versus transformational goals, right?

Exactly. Diagnostic systems work well for business-as-usual goals, where you want predictability and control. Interactive systems are more suited for transformational goals, where you need flexibility and creativity to explore new opportunities.

Like the three strategic horizons McKinsey talks about—business-as-usual in the short term, and transformation for the long-term future.

Yes, and as organizations grow and become more complex, you need to balance both. You need tight controls for business-as-usual activities, but also create space for more interactive control systems that allow for adaptation and exploration.

Unfortunately, we’re running out of time. Any final thoughts?

I’d encourage leaders to experiment with their systems. Control systems shouldn’t be static—they need to evolve with the organization, especially in volatile times. Be open to revising them and making them fit for purpose.