Management Control System

Management Control Systems (MCS) are defined by Anthony in Langfield-Smith

(1997) as the process by which managers ensure that resources have been obtained and used
effectively and efficiently in achieving organizational goals. The process within MCS can be
very broad encompassing elements of planning, monitoring, recording and integrating certain
processes. It also entails corrective mechanisms and mitigative actions to revert the
companies back to the desired performance level. Thus, MCS acts as a tool to change systems
within an organisation in order to achieve a desired set of results aligned with the company
goals.

The term control within management control systems has many variations in different
researches such as formal and informal controls (Anthony et al., 1989) output and behavior
controls (Ouchi, 1977) market, bureaucracy and clan controls (Ouchi, 1979) administrative
and social controls (Hopwood, 1976) and results, action and personnel controls (Merchant,
1985a). For this article we were be discussing mostly on the formal and informal perspective
of control. As the name suggests formal controls consists of rules and standard operating
procedures. These controls are normally more result orientated which means it can be
recorded and compared. The most obvious form of formal controls involve financial
information such as budget systems. These form of information is easily gathered, processed
and used to devise of a suitable management control system to improve the outcome towards
the goals of the company. However, formal controls are not limited to financial controls as
they also include any form of information that can be recorded and gathered. This can include
administrative controls such as rules or SOPs that employees must follow, human resource
controls such as a system to improve employee turnover rates and many other forms of
controls. These controls are to ensure the actual company performance is on track with the
company goals for the period.

Conversely, informal controls are not backed by scrunching numbers or analysing

reports. These controls are not consciously designed (Langfield-Smith, 1997). They normally
come in the form of company culture and unwritten policies. These controls are usually
derived from the norms and values within the organisation. Although, not formally tracked,
informal controls still play a vital role in making sure the company functions at its highest
capacity. It usually tends to relate to employee motivation and goal alignment within the
employees of a company.

MCS has the propensity to support the strategy of the business to lead to competitive
advantage and superior performance (Dent, 1990; Simons, 1987a, 1990). MCS allows
managers to control and improve the organisations environment, strategy and internal
structures which then results in a superior organisational performance. This in turn leads to
the company having a competitive advantage in the market. In the case of formal controls,
managers can implement certain systems in order to lessen cost of production or to improve
efficiency which directly translates to better performance as well as a financial advantage
over other firms. Informal controls also have a similar effect to improving organisational
performance. For example, an organisation that practices a flatter organisational hierarchy
may result in a greater inflow of new ideas and measures thus improving the companies
performance and competitive advantage.

MCS has a lot of benefits however, there are a number of disadvantages of MCS that
can arise when the management is not careful. For example, strict control systems can result
in lack of employee morale and lack of room for change and innovation. Employees who
prefer flexibility and freedom in their work can get stressed out by following these systems
that have put in place by their superiors. Thus, it is important for managers to adjust their
control systems based on their employee morale.

In conclusion, MCS is something that should not be taken lightly by managers and
needs to be implemented by all organisations in order to improve their overall performance
and to gain a competitive advantage in their market. That being said, it is important for
managers to properly assess their company and employees before introducing a new system
to determine the suitability with the company’s vision and objectives. Additionally, control
systems implemented needs to be reviewed and corrected in case of any errors or
unsuitability of the system.
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