MOTIVATING BEHAVIOR IN MANAGEMENT CONTROL SYSTEMS

MANAGEMENT CONTROL SYSTEMS

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Embedding the organizations ethical code of conduct into MCS design Using a mix of short-term and long-term qualitative and quantitative performance measures (or the balance scorecard approach) Empowering employees to be involved in decision making and MCS design

MANAGEMENT CONTROL SYSTEMS

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Developing an appropriate incentive system to reward performance Companies whose MCS display these four characteristics subscribe to a world view of the role of management labeled the Human Resource Management Model.

HUMAN RESOURCE MANAGEMENT MODEL OF MOTIVATION

The Human Resource Model is used as the basis for presenting the four behavioral considerations in MCS design.

Ethical code of conduct Mix of performance measures

Empowering employees

Incentive system

ETHICAL CODE OF CONDUCT AND MCS DESIGN

First, a well-designed MCS should incorporate the principles of an organizations code of ethical conduct to guide and influence behavior and decision making. Ethics is a discipline that focuses on the investigation of standards of conduct and moral judgment.

Ethical code of conduct

ETHICAL CODE OF CONDUCT AND MCS DESIGN

Hierarchy of Ethical Principles

Legal Rules Societal Norms Professional Memberships

Organizational or Group Norms

Personal Norms

ETHICAL CODE OF CONDUCT AND MCS DESIGN

How can organizations reduce ethical conflicts? by maintaining a hierarchical order of authority by the way the chief executive and other senior managers behave and conduct business

ETHICAL CODE OF CONDUCT AND MCS DESIGN

What are some common ethical conflicts? between the law and the organizations code of ethics between the organizations practiced code of ethics and common societal expectations between the individuals set of personal and professional ethics and the organizations code of ethics

ETHICAL CODE OF CONDUCT AND MCS DESIGN

between the organizations stated and practiced values Faced with a true conflict, the individual has several choices. What are some of these choices? 1 Point out discrepancies to a superior and refuse to act unethically.

ETHICAL CODE OF CONDUCT AND MCS DESIGN

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Point out discrepancies to a superior and act unethically. Take the discrepancy to a mediator in the organization, if one exists. Work with respected leaders in the organization to change the discrepancy. Go outside the organization to publicly resolve the issue.

ETHICAL CODE OF CONDUCT AND MCS DESIGN

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Go outside the organization anonymously to resolve the issue. Resign and go public to resolve the issue. Resign and remain silent. Do nothing, and hope that the problem will go away.

Apply the ethical control framework to decisions

ELEMENTS OF AN EFFECTIVE ETHICAL CONTROL SYSTEM

What are the elements of an effective ethical control system? A statement of the organizations values A clear statement of the employees ethical responsibilities Training to help employees identify and deal with ethical dilemmas

STEPS IN MAKING AN ETHICAL DECISION

Gather Facts

Evaluate Alternatives Make Decision

DECISION MODEL FOR RESOLVING ETHICAL ISSUES

Determine the Facts: What, Who, Where When, How

Define the Ethical Issue

Identify Major Principles, Rules, Values

DECISION MODEL FOR RESOLVING ETHICAL ISSUES

Specify the Alternatives

Compare Values and Alternatives

Make Your Decision

Assess the Consequences

Discuss Task and Results Control Systems

MOTIVATION AND GOAL CONGRUENCE

When designing jobs and specific tasks, system designers should consider three dimensions of motivation. What are these three dimensions? 1 Direction 2 Intensity 3 Persistence

MOTIVATION AND GOAL CONGRUENCE

Goal

congruence is present when the actions that employees take and their personal goals are consistent with those of the organization. In a perfect world employers could rely on employees self control to monitor their own behavior.

TYPES OF CONTROL SYSTEMS

In the real world management often relies on different forms of behavioral control. What are the two most commonly used types of control? 1 Task control 2 Results control

TASK CONTROL
What is task control? It is the process of finding ways to control human behavior so that a job is completed in a prespecified manner. There are two categories of task control: 1 Preventive control 2 Monitoring

TASK CONTROL
In preventive control much, if not all, of the discretion is taken out of performing a task. Monitoring means inspecting the work or behavior of employees while they are performing a task.

RESULTS CONTROL
What is results control? It is the process of measuring employee performance against stated objectives. For results control to be effective, the organization must ... clearly define objectives which are then communicated, and design consistent performance measures.

RESULTS CONTROL
When is results control most effective? Organization members understand the organizations objectives and their contribution to those objectives. They have the knowledge and skill to respond to changing situations. The performance measurement system is designed to assess individual contributions.

Understand the Balanced Scorecard and its applications

USING A MIX OF PERFORMANCE MEASURES

What is the second major behavioral characteristic of a well designed MCS? Using a mix of short-term and long-term qualitative and quantitative performance measures (or the balance scorecard approach)

Mix of performance measures

USING A MIX OF PERFORMANCE MEASURES

Occasionally, employees are so motivated to achieve a single goal that they engage in dysfunctional behavior. What are some examples of dysfunctional behavior? gaming data falsification

USING A MIX OF PERFORMANCE MEASURES

The

traditional focus of performance measures has been on quantitative financial measures. What are some quantitative non-financial measures? Cycle Time Market Share Schedule Adherence Customer Retention

Yield

USING A MIX OF PERFORMANCE MEASURES

Organizations can design performance measurement systems that encourage a desired behavior. Multiple performance measures should reflect the complexities of the work environment and the variety of contributions that employees make.

THE BALANCED SCORECARD

Financial perspective How do we look to our stakeholders?
Customer Perspective How do we look to our customers?

Business Processes What processes are the value drivers?

Organization Learning Are we able to sustain innovation?

EMPOWERING EMPLOYEES TO BE INVOLVED IN MCS DESIGN

What is the third major behavioral characteristic of a well designed MCS? It is empowering employees to be involved in decision making and MCS design.

Empowering employees

EMPOWERING EMPLOYEES TO BE INVOLVED IN MCS DESIGN

Empowering employees requires two essential elements: Allowing employees to participate in decision making Ensuring that they understand the information they are using and generating

DEVELOPING APPROPRIATE INCENTIVE SYSTEMS

What is the fourth major behavioral characteristic of a well designed MCS? Developing an appropriate incentive system to reward performance.

Incentive system

DEVELOPING APPROPRIATE INCENTIVE SYSTEMS

What are intrinsic rewards? They are those rewards that come from within an individual. They reflect satisfaction from doing the job. What are extrinsic rewards? They are rewards that one person provides to another to recognize a job well done.

PERFORMANCE MEASUREMENT REWARD SYSTEM

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There are six attributes of a measurement system that must be in place to motivate desired performance. Employees must understand their job. Designers of the performance measurement system must make a careful choice about whether it measures employees inputs or outputs.

PERFORMANCE MEASUREMENT REWARD SYSTEM

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The elements of performance that the performance measurement system monitors and rewards should reflect the organizations critical success factors. The reward system must set clear standards for performance that employees accept.

PERFORMANCE MEASUREMENT REWARD SYSTEM

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The measurement system must be calibrated so that it can accurately assess performance. In certain situations the reward system should reward group rather than individual performance.

PERFORMANCE MEASUREMENT REWARD SYSTEM

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What is incentive compensation? It is a reward system that provides monetary (extrinsic) rewards based on measured results. It is a pay-for-performance system that bases rewards on achieving or exceeding some measured performance.

TYPES OF INCENTIVE COMPENSATION

Cash bonus Profit sharing Gainsharing Stock Options

TYPES OF INCENTIVE COMPENSATION

What is a cash bonus? It is a payment of cash based on some measured performance. It is also called a lump-sum reward, pay for performance, and merit pay. What is profit sharing? It is a cash bonus that reflects the organizations, or an organization units, reported profit.

TYPES OF INCENTIVE COMPENSATION

What is Gainsharing? It is a system for distributing cash bonuses from a pool when the total amount available is a function of performance relative to some target. What are the three most widely used Gainsharing programs?

TYPES OF INCENTIVE COMPENSATION

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Improshare (Improved Productivity Sharing) Scalon plan: Base Ratio = Payroll costs Value of goods or service Rucker Standard = Payroll costs Production value

TYPES OF INCENTIVE COMPENSATION

What is a stock option? It is a right to purchase a stated number of the organizations shares at a stipulated price (the option price).

CONCLUSION
Four key behavioral characteristics comprise a welldesigned MCS. As a result, manager has to be careful to involve employees in designing a MCS for the organization.