Module II

Behavior in Organizations

Objectives
To understand Goal Congruence and impact of GOOD Management Control Systems on it. To analyze the formal and informal control system and its influence on the organization. Type of Organization : Fit and effective MCS Role of Controller : the person who is responsible for the design and operation of MCS

Goal Congruence
Senior Management wants the organization to attain the organization's goals but the employees are interested in achieving their personal goals. Thus, the central purpose of the control system is to make sure that a high level of Goal Congruence to be implemented. In a Goal Congruent process, the actions people led to take in accordance with their perceived self-interest are also in the best interest of the organization. But, this situation is purely an utopian type. And an adequate control system can at least ensure to encourage an individual to act for the organization.

Informal factors influencing Goal Congruence

The formal control system which includes strategic planning, budgets, reports etc. are very important for any organization but the informal processes like work ethics, management style, culture etc. should be taken into consideration to implement the strategies effectively. There are both internal and external informal factors that play key role In achieving goal congruence. External Factors: work ethics local or regional attitudes other attitudes industry specific. Internal Factors: Culture: beliefs, norms of behavior, assumption at organization Management Style: superior's attitude, leadership style The informal organization: formal/informal relationships, centralization/decentralization. Perception and communication

Formal Control System

The informal factors have major impact on the effectiveness of an organizations control. The other major influence is the formal systems. And this system can be classified into two major segment. Management Control System itself and Rules: positive and negative. Some specific types are as below: Physical control Manuals System Safeguards Task control systems

1. 2. -

The formal control process

Goals Rules Other information

Yes Strategic Planning Responsibility Center Performance Report Actual Vs. Plan Was Performance Satisfactory?

Budgeting

Communication

No

Types of organizations
A firms strategy has a major influence on its structure. And in turn the type of structure influences the organizations control system. The structures can be divided into three major categories: 1. Functional organizations:
In which each manager is responsible for a specified function such as marketing or production. The rationale for the functional form of organization involves the notion of a manager who brings specialized knowledge related to specific function. Thus, an important advantage of a functional structure is efficiency. There is no proper way to find the effectiveness of the performance of the function as the performance of the whole organization is measured together. the head of two different functions may have disputes in terms of resource allocation, performance measurement, operational dependency which will be solved only at top. Functional structures are inadequate for a firm with diversifies products and markets.

There are certain disadvantages as well;

Contd.
2. Business Units: - The business unit form of organization is designed to solve the problems inherent in the functional structure. - In which business unit managers are responsible for most of he activities of their particular unit, and the business unit functions as a semi-independent part of the company. - They are responsible for planning and coordinating the work of the separate functions and for resolving the disputes between functions. - The business unit manager is responsible for all the activities but the important decisions like funds allocation, approving of budgets, judging of performance will be done by top management only. - An advantage of the structure is it provides a training ground in general management. - Another advantage of this type of structure is that because the business unit is closer to the market for its products than headquarters is. - But, with this advantages certain disadvantages or problems are also there like, there may be a duplication of work because the functional work is done at unit level will be done at top level also. Which will increase the staff cost.

Functions of the Controller

The person who is responsible for designing and operating the management control system is considered a controller in the organization. The controller usually performs the following functions: Designing and operating information and control systems. Preparing financial statements and financial reports for share holders and other external parties. Preparing and analyzing performance reports, interpreting those reports for managers an analyzing the program and budget proposals from various segments of the company. Supervising internal audit and accounting control procedures to ensure the validity of information, establishing adequate safeguards against theft and fraud, and performing operational audits.