Management Control Systems

Chapter 3: Action, Personnel & Cultural ControlsMerchant and Van der Stede: Management Control
Systems © Pearson Education Limited 2003

2  Recall that ...Management Control is about taking steps to help ensure that the employees do
what is best for the organization.

Three issues:

Do they understand what we expect of them ...Lack of direction

Will they work consistently hard and try to do what is expected of them ...Lack of motivation

Are they capable of doing what is expected of them ...Personal limitations

3  Control alternatives …
Controls can focus on:

the actions taken : ACTION CONTROLS

the results produced: RESULTS CONTROL

the types of people employed and their shared values and norms : PEOPLE CONTROL

Or any combination of those ...

4  Action controls …Ensure that employees perform (or do not perform) certain actions known to be
beneficial (or harmful) to the organization.

Prevention / detection :Most action controls are aimed at preventing undesirable behaviors.

5  Effectiveness of action controls ...

They are usable and effective only when managers:

Know what actions are desirable ...Difficult in highly complex and uncertain task environments (e.g.,
research engineers or top-level managers)

Have the ability to make sure that the desirable actions occur ...

6  Behavioral constraints ...

Physical constraints Locks, passwords, limited access, …

Administrative constraints Restriction of decision-making authority;

Separation of duties. Primarily directed at one control problem: eliminate motivational problems.

7  Preaction reviews ... Scrutiny of action plans, budgets.

Review / modification / approval Can potentially address all three control problems: Alleviate lack of
direction; Provide motivation; Mitigate personal limitations.
8  Action accountability ...
Holding employees accountable for the actions they take. It requires:

Defining what actions are (un)acceptable;

Communicating these definitions to employees;e.g., work rules, policies and procedures, codes of
conduct.

Observing or otherwise tracking what happens; Direct observation / supervision;

Periodic tracking (e.g., “mystery shoppers”); Evidence of actions taken (e.g., activity reports).

[Rewarding good actions, or] punishing actions that deviate. It potentially addresses all three control
problems.

9  Redundancy ...
Assigning more people (or machines) to a task than necessary. e.g., backup people / computing
facilities Limited in addressing the control problems: Provide motivation; Overcome personal
limitations. also: rather costly

10  Pros and cons of action controls ...

The most direct form of control Tend to lead to documentation of the accumulation of knowledge as
to what works best.

Organizational memory an efficient way of coordination: i.e., they increase the predictability of
actions and reduce the amount of inter-organizational information flows to achieve a coordinated
effort.

Only for highly routinized jobs May discourage creativity, innovation, and adaptation May cause
sloppiness May cause negative attitudes e. g., little opportunity for creativity and self-actualization
Sometimes very costly

12  People controls ... People controls ensure that employees ...

Will control their own behaviors Personnel control Self-monitoring Will control each others’ behaviors
Cultural controls Mutual-monitoring

People controls are part of virtually every management control system + becoming more important in
… “flatter and leaner organizations with empowered employees.”

13  Personnel controls …Personnel controls build on employees’ natural tendencies to control

themselves, because most people …have a conscience that leads them to do what is right; find self-
satisfaction when they do a good job and see their organization succeed. labels ...Self-control
Intrinsic motivation Ethics and morality Trust and atmosphere Loyalty

14  Methods to implement personnel controls ...

Generally, it is about … “… finding the right people, giving them a good work environment and the
necessary resources” …

Selection and placement

Finding the right people to do a particular job.

Training Give employees a greater sense of professionalism;

Create interest in the job by helping employees to understand their job better.

Job design + provision of necessary resources So that motivated and qualified employees have a
high probability of success (e.g., equipment, staff support, freedom from interruption, etc.)

15  Cultural controls ...Cultural controls or mutual-monitoring tap into social pressure and group
norms and values. Cultural controls are effective because members of a group have emotional ties
to one another. Cultures are built on shared ...traditions; norms; beliefs; ideologies; attitudes; ways
of behaving, etc.

16  Five ways to shape culture … (I)

Codes of conduct Codes of ethics; corporate credos, mission statements, etc.; Formal written
documents with broad statements of corporate values, commitments to stakeholders, and the ways
in which top management would like the firm to function.

Fundamental guiding principles of the company. Group-based rewards e.g., bonus, profit-sharing,
employee ownership of company stock;

Cultural controls rather than results controls because the link between individual performance and
rewards is weak.

17  Five ways to shape culture … (II)

Intra-organizational transfers Improve the socialization of individuals in an organization and inhibit
the formation of incompatible goals and perspectives; Improve identification with the organization as
a whole as opposed to subunit identification.

Physical and social arrangements e.g., office plans, interior decor, dress codes and vocabulary, etc.
Tone at the top

Top management statements must be consistent with the culture they are trying to create, and
importantly, their behaviors should be consistent with their statements.

18  Start with people controls ...

Must always be relied on to a certain extent; Have relatively few harmful side-effects; Involve
relatively low out-of-pocket costs. However, it is rare that people controls will be sufficient. In most
cases, it is necessary to supplement them with …action controls; results controls.

Maybe, you just shouldn’t put all your trust in people !?