International Journal of Engineering Technology, Management and Applied Sciences

www.ijetmas.com April 2016, Volume 4, Issue 4, ISSN 2349-4476

Management Control Mix: A Case Study

Asst. Prof. Lalit K. Khurana

School of Petroleum Management,
PDPU, Raisan, Gandhinagar (India)

Abstract
Management Control Systems (MCS) are different for firms with different organisational characteristics and its
operations are structured around central issues faced by a firm. This paper attempts to explore elements of MCS in use
in a power distribution company (discom). Since it is a case study, generalisation is not proposed. The reason for
choosing the case study approach is to study the complexity of different forms of management control of a firm
undergoing transformational changes. The findings indicate that the combination of MCS and external regulatory
control have contributed to performance improvement of the firm.
Key words: Management Control Systems, Reforms, Organisational Performance

1. Introduction
The function of the management is to manage organisational activities efficiently and effectively to achieve
the desired performance levels. Management controls facilitate the achievement of that desired performance
levels. The relationship between the use of management control systems (MCS) and its impact on
organisational performance has been studied by various researchers. Literature argues that organisational
performance depends upon a fit between strategy and MCS of the firm. It is pertinent to note that the
operation of management control systems are structured around central issues (Otley, 1999). The context of
this study is power utility where the central issue is reduction of huge Aggregate Transmission & Commercial
(AT&C) losses. The reforms in Indian power sector reforms led to unbundling of State Electricity Boards
(SEBs), establishing independent regulation and allowing privatization. Hence, business environment has
changed in power sector. Changes in external business environment have a high potential impact on
organization performance (Anderson & Dekker, 2005) and therefore companies need to re-design their
Management Control Systems (MCS) in order to align them with the needs of external environmental factors.
A research that investigates the dynamics of change should contribute to management control research
(Covaleski et al., 1996; Luft, 1997). In the post reform period, state-owned unbundled distribution companies
(DISCOMs) are undergoing transformational changes. The utilities are faced with two basic operational
questions:-
 How to effectively and efficiently deliver better customer services which is compelled by the new
competitive environment and a regulatory requirement as well?
 How to upgrade the competences of the human resource to meet new challenges because the power
utilities are to transition from era of monopolistic bureaucratic to a professional approach in management.
To resolve these complex questions, distribution utilities have taken several steps and introduced interventions
into policy level changes and management systems. This study illustrates how unbundled distribution utilities
are scheming or revising the MCS to perform on many important parameters internally driven and externally
imposed by regulator. The paper is organised as follows. A theoretical background is provided in section 2.
Section 3 is methodological, introducing research methods used in this study. Section 4 gives brief profile of
case company Section 5 describes various management control mix. Further discussion and interpretation of
the research results follow in section 6. In section 7, the researcher provides concluding remarks

2. Theoretical Background
There are no universally accepted definition the term “management control”, but the connotation of
“management control” is a pragmatic concern for results, obtained through people (Hofstede G.: 1981).
Anthony and Govindarajan (1995) defined management control as a process in which managers at all levels

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ensure that the people they supervise implement their intended strategies. In the official terminology of
CIMA, which is world’s largest professional body of management accountants, management control is
defined as, “All of the processes used by managers to ensure that organisational goals are achieved and
procedures adhered to, and the organization responds appropriately to changes in its environment.’
Anthony(1990) and Collins (1982) state that most of the authors coincide in highlighting the fact that
management control is a process which managers use subjectively in order to influence the performance and
behaviour of the people forming an organisation in order to put into practice the strategies of the organisation
so that it may attain its objectives both effectively and efficiently. By taking into account the context in which
MCS operates a framework is developed figure 1which serves as guide to structuring the material and offering
meaningful interpretation of the data collected for this study. The framework proposed consists of five broad
components of MCS namely: Planning system, Cultural Control, Organisational Structure, Revenue Control
and Performance Management Systems. The framework is represented as in figure 1 below

Management Control Mix

 Planning Control MCS Outcome
 Cultural Control
(Reduction in Losses)
 Performance Control
 Financial Control
 Personnel Controls

Figure 1: Conceptual Framework

3. Methodology
A case study suits to this research as the approach is used to capture the complexity of MCS in an
organisation. To form this case study, qualitative primary data have been gathered. The study uses qualitative
data to a larger extent; however quantitative data have also been gathered to understand the outcome of MCS.
Data are collected through semi-structured interviews from a sample of select Junior Engineers, Dy.
Engineers/Dy. Managers, Executive Engineers and Chief Engineers from the field office and corporate office
of company. The approach to case study was abductive i.e. after collecting empirical materials; the theory has
been referred time to time. Since MCS of an organsation may contain many parts, the principle of parsimony
was kept in mind and hence not all the aspects of management control were feasible to cover in the timeframe.
The main objective for the case study is to describe the management control practice of a state-owned
distribution company and seeing them in the context of the operational performance of the company. Three
parameters were mainly considered to choose the distribution company namely, size of the jurisdictional area,
ownership structure and performance of company in the post-reform period. The idea of choosing a state-
owned power distribution company emerged because power distribution is largely catered by state-owned
power utilities. Private participation in this segment of power value chain is limited as of now and their size of
operations is relatively small and mostly confined to the urban area. Further the researcher argues that
unbundled state power distribution utilities are undergoing major transformational changes in the post reform
era and faced with host of challenges.

Selection of Power Management Control Performance

Systems (Financial or Non-
Distribution Utility Financial

Figure 2: Approach to Case Study

111 . Lalit K. Khurana

 International Journal of Engineering Technology, Management and Applied Sciences

www.ijetmas.com April 2016, Volume 4, Issue 4, ISSN 2349-4476

4. Brief Profile of Case Company

The case company is a Distribution Licensee within the meaning of Section 2(17) of Electricity Act 2003.
Since company has been vested with the function of distributing power by the State Government of Gujarat,
the business scope of the company falls within the legal framework as specified in the Electricity Act 2003
include:
1. To develop the required distribution infrastructure within the State of Gujarat to meet the demand of the
consumers;
2. To operate efficiently the existing distribution infrastructure;
3. Merchant Sale of Power in the event of availability of surplus power after meeting the requirement of own
consumers with whom the capacity is contracted presently;
4. Other associated business like providing Training, Research and Development activities,
5. Technical consultancy services and O&M related services;
6. Contracts for outsourcing of distribution related activities, joint venture participation in the market, etc.
The company is responsible for distribution of electricity in the central parts of a State in India. Table1 gives
salient features of its business.

Table 1:A Snapshot of Details of Company

Total Area in Sq.Km. 23,854 Sq KM
Total Consumers 2593746 Nos.
No. of Towns 42 Nos.
No. of Villages 4,305 Nos.
Total Circles 4 Nos.
Total Division Offices 17 Nos.
Total O&M Sub-Division Offices 86 Nos.
Total Sub-Stations 121 Nos.
Total No of 11 kV Feeders (excl. SST) 1145 Nos.
Total Transformers (Nos.) 53453 Nos.
Total Cash Collection (as on 30.09.2010) Rs. 1623.95 Crs
The consumers' mix of company consists of various categories such as residential, commercial, industrial, and
agricultural and others consisting of around 25 lacs consumers which are served by 4 circles. Residential
category of consumers consists of the largest consumer base followed by commercial & then agriculture. Both
these categories are subsidised and affect the revenue of the company. The industrial consumption is around
40% which is beneficial for company and 16% is agriculture consumption which is considered as a cause of
concern. In past several years from the date of segregation, the company got recognition through various
achievement awards.

5. Description of Management Control Mix of the Company

Planning control: Control without planning is not possible. Both are intertwined. Planning is considered as an
ex-ante from of control that guides and directs employees (Flamholtz et al. :1985). With the advent of
independent regulation in power sector, planning system of case company has been influenced in various
ways. For instance, State Electricity Regulatory Commission (SERC) directs that distribution licensees should
develop a comprehensive business plan for the control period and the same should be filed along with the
Multi Year Tariff (MYT) filings. It is observed that planning system of the company is partly shaped by the
new regulatory system. For instance, as per the Forum of Regulators’ recommendation, “Distribution

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www.ijetmas.com April 2016, Volume 4, Issue 4, ISSN 2349-4476

licensees should submit the Business Plan and power purchase plan, for approval of the Commission, at least
six months prior to submission of MYT petitions.”
The company prepares business plan for the projection period of three years. This plan is viewed by company
as a strategic and operational plan. The business plan captures the role of the company in State power sector
and its technical and commercial relationships with the other utilities operating in the state. The current
performance and performance over the previous years is kept in view to develop the realistic and achievable
targets. The company gives importance to meeting the performance as per the projections. The company
disaggregates the projections to lower levels so as to involve the Circles in process and also to convey the
direction in which the company is headed. The company follows a bottom up planning process to identify
requirements for renovation & modernization (R&M) and addition of new capacity in the network.
Cultural Control: Pyoria and Johnson (2007) suggest that in order for an organization to attain consistent
superior performance, it must create a sustainable competitive advantage. A sustainable competitive
advantage is derived from creating superior value for the customer and for the desire to create superior value;
management drives to establish behavioral norms and beliefs that in turn, drive the organizational culture.
Strong cultures are often said to help business performance because they create an unusual level of motivation
in employees. Corporatization of unbundled power utilities posed a big challenge of moving away from more
bureaucratic culture to corporate-oriented culture. Developing a high performance culture in a state-owned
power company is not an easy task due to its past legacy of bureaucratic systems and processes. Case
company has taken steps both at macro and micro level towards building the culture of accountability. The
company set out vision and mission statements in terms of “Customer satisfaction through reliable and
quality power at competitive cost and reducing distribution losses”. Executive Engineer describes that post
reform the manner of conduction periodic review of performance has changed. Pre reform the review
meetings were held but agenda points were not very precise and there was no fear of poor performance. After
the reform, Managing Director of the company calls head of the entire four circles to conduct every first week
a monthly review meeting. From corporate office a person visits circle every month for a close interactions on
seven parameters of performance related to technical, customer, HR and administration). The minutes of
meeting thus prepared are presented before the MD. Post reform meetings are on precise and there is some
fear for poor performance but corporate culture like in private sector is not seemed feasible. A Superintendent
Engineers describes that
“…senior managers have no freedom to decide how to develop the company. We make decision on the basis
of formal rules and SOP; other concerns are secondary….”
Major portion of the current manpower in the case company is from the erstwhile integrated State Electricity
Board. Managerial behaviour is still characterized by low risk taking and slow decision making process. The
average age of employees is in the range of 42 to 48 years which is also a big hurdle in developing corporate
culture. The company follows the seniority basis promotions. The seniority cum merit and merit cum seniority
both the points are taken into consideration while promoting the employee. Interactions with field executives
indicate that there is a big disappointment due to loose coupling of rewards and employee performance. The
current business plan of the company indicates to implement performance linked incentive.
Financial Control: This subsection discusses two of financial control tools in use in the company. Budget
Control: Budgeting is very basic instrument of management control. According to Malmi and Brown (2008),
Budgets are a form of cybernetic controls that are central to, as well as a foundation of, MCS in most
organizations. It is found that the budgeting system in the company operates on traditional incremental
approach which has been causing huge budgetary slack. The Managing Director of the company shows great
concern about budgetary slack. He says “.. our staff, mostly technical people, needs training as to how to
prepare a proper budget ..”. Interactions with field executes indicated that there is no shortage of budget.
Almost all the interviewees agreed that the degree of budgetary participation (BP) has improved after the
reforms and unbundling.
Revenue Control: One of the major problems in power distribution is poor collection efficiency. Collection
efficiency is the ratio of revenue actually realized from consumers and energy amount billed to consumers for
a particular period, in percentage terms. Low collection efficiency causes high levels of losses. Overall

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collection efficiency in India is as low as 85 per cent. A 45% T&D loss combined with 85% collection
efficiency would mean that a power company collects revenue only 55 x 85 = 46.75 per cent of the power
generated by the system (Economica India :2003). IT is the key enabler for improving revenue collection,
minimizing losses, and proper energy accounting and efficient consumer services. Major IT applications
implemented by the company are E- Urja, E-Payment, Anytime Payment, SCADA, GIS, GPS, Consumer
Indexing, IVRS Call centre etc.
Performance Management: Performance Management System (PMS) is a major key element of
Management control mix (Henri, 2006). “Ideally all employees should have performance objectives related to
organisational goals.” (Zwell, M. : 2000). It is found that internally, the company attacked on the problem of
poor performance by way of making operational performance metrics more exhaustive in nature to ensure
sustainable profit performance. The records indicate that the company is using 21 operational performance
metrics and its profit sheet contains seven parameters of performance. The State Electricity Regulatory
Commission (SERC) also has some influence in determining the performance metrics to be used by a power
distribution company. Regulatory Commission has issued the Standards of Performance (SOP) regulations,
2005 which provides the time limits for distribution utilities for carrying out various activities, the quality of
supply to be maintained, compensation payable for non-maintenance of standard of Performance. Under the
SOP regulation, the case company is required to calculate the reliability of its distribution system and furnish
the report to the regulatory commission.
Personnel controls: An ideal control model should regulate both ability and motivation of employees (Walsh
and Seward, 1990). Motivation may also be achieved by training, work related education or different types of
rewards (Merchant and Van der Stede 2007). Personnel controls help employees do a good job; they build on
employees’ natural tendencies to control themselves”. (Merchant, K. A. :1998, Pp.253). It is found that
Human Resource department of the case company is responsible for all the function related to screening,
recruitment, selection, training & development of the employees. Deputy Manager (HR) of the company
stated that
“..HR systems in the company are undergoing changes but in gradual manner. The reason for slow process is
potential resistance by employees who are used to old ways and systems...”
In organizational structure also, HR function is not yet elevated to top management level. HR department
reports to the Chief Engineer (T&O) and thus whatever matters of importance come to his attention get
filtered before reaching to the MD of the company. Interactions with field executives indicate that there is a
little disappointment with the performance appraisal system due to the loose coupling between Rewards and
Employee Performance. Most of the interviewees agreed that HR approach is slightly better and changing
when they compare to the pre-reform period. For instance, fast promotion scheme is introduced for the high
performing employees. Certain parameters in Employee Performance Appraisal Form have been modified. To
create training infrastructure, the holding company promoted an autonomous training and research facility by
setting up Gujarat Energy Training & Research Institute (GETRI). The institute provides training to the
employees of all the power utilities in Gujarat including the case company. The case company is deputing its
employees to the GETRI for need based training and development programmes. In summation, the case
company is endeavouring to provide an environment that each employee is motivated to contribute his/her
best to achieve the Company’s goals /objectives.
Outcome Variable: Reduction of Losses
Various measures for efficient and effective management of power distribution utility should finally lead to
reduction in Aggregate Technical & Commercial (AT&C) losses. AT&C looses provides a complete picture
of energy and revenue loss condition. The AT&C Losses comprise of two elements: Technical Losses &
Commercial Losses. The Technical Losses primarily take place due to (a) Transformation Losses (b) High
Resistance losses (Copper loss) on distribution lines due to inherent resistance and poor power factor in the
electrical network. The commercial losses are mainly due to low metering efficiency, theft and pilferages.
Table 2 indicates that pre-unbundling the losses were high. After the restructuring unwieldy integrated
electricity board, with the several initiatives for the efficient and effective management of utility, losses have
reduced and almost stabilised at around 15% (figure 3)

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Table 2: AT& C Losses of GEB (Pre Unbundling)

2002-03 2003-04 2004-05
31.24% 35.48% 35.15%

Figure 3: Aggregate Technical and Commercial Losses over the years

6. Discussion
In the following paragraphs the main results are discussed considering the paradigm of control in the context
of power distribution company. Whilst the use of management control mix in each power distribution may
generally vary, by this case study, there is assertion that post reform; unbundling and corporatization of power
company have led to significant changes in the management control practices of the company. It is observed
that traditional tools of management control will not yield better performance, hence there is need to move
away from the legacy of bureaucratic control practices in current business environment. Therefore, the case
company has taken several measures to strengthen the management control practices and it is seen that the use
of informal controls is becoming important. For example, Managing Director of the company himself shows
keen interest in monitoring and review process and implementing better control practices. Following are the
summarised findings:
a) There are major changes in planning control system. It is becoming strategic in nature. Externally, the
planning process is influenced by the regulatory control
b) Budget control is based on traditional approach; however, some improvement is seen with introducing the
practice of budget participation (BP).
c) The role of IT is found to be instrumental in making revenue control more effective.
d) To manage the performance, new metrics have been evolved. Regulatory interventions in terms of
issuance of Standards of Performance (SOP) have also played a role in shaping the overall performance
management system of the company.
e) Personnel or HR control is slightly better and changing compare to the pre-reform period. Various
interventions such as fast promotion scheme introduced for the high performing employees, training and
development of employees signals of new management control practices.
f) Reduction of loss as an outcome variable for the effective management control indicates that various
control tools in use have facilitated in the improvement of performance of the company.

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g) It is found that external factor i.e. regulatory interventions by the SERC seem to have facilitated in
shaping the management control mix of the company.

7. Concluding Remarks
In summation, there is a support to an assertion that management controls have a role in achieving the set
objectives. The bigger interest of this case study was concerned how power distribution utilities are making
better use of MCS to influence organisational performance which can be used by other power utilities
particularly government-owned to continuously improve the performance. There is no specific theoretical
model tested in this in-depth explanatory case study. The study is not without limitations. Several factors like
local culture, political will power could have had an influence on the evidences. Further, lower adoption may
not necessarily mean poor management control practices. Broadly, it is concluded that the company is
orienting its Management Control practices to new business environmental pressures post reform period.

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116 . Lalit K. Khurana