Chapter

Adaptive Control System

and Culture
Design, System

4.1 ADAPTIVE CONTROL SYSTEM

Dr. Joseph A. Maciariello and Dr. Calvin J. Kirby, in their famous book on Management
Control systems have enunciated the adaptive system to attain the control based on the
of adjusting to a
concept of cybernetics. The word 'adaptation' means the act or process
new environment or situation.
As stated in chapter 1, the concept of adaptive control system is derived from the
theory of cybernetics, which refers to a machine called 'Stratman' that could correct, by
conglomeration of circuits, its own deviations from a planned course. Every human being
adapts himself'herself to the environment to which he/she belongs. Therefore, like the self-
of human
regulatory principles biological system,control systems in an organization are
designed to assist the management in steering the organization towards the achievement of
its purpose by bringing out unity out of the diverse efforts of sub-units and of individuals.
A control system is a set of formal and informal
systems. These two sets of systems
are distinct, highly interrelated and sometimes indistinguishable sub-divisions of control
systems. They are considered "adaptive, if the two systems, i.e. formal and informal, are
internally consistent, mutually supportive and reinforcing
sub-systems and effectively meet
the competitive challenge in the environment.
Organizations differ in their formal and informal systems. Control
various form as per the requirement of the organization. No two systems come in
systems are alike. Yet, it
is DOSsible to describe the general elements of
comprehensive and effective control systems.
Again, control systems function in the midst of the dynamics of
dvnamics must be taken into consideration while designing control system. organizations. These
I astlv, it has to be recognized that there is a
strong relationship between the effectiveness
of control system and the leadership characteristic of the
management of organization.
30
 ADAPTIVE CONTROL
SYSTEM-DESIGN, SYSTEM AND CULTURE
4.2 FORMAL SYSTEM
31
Formal system makesmakesdelegation of authority possible with
Formalto
proce
edures be followed by the members of the explicit structure,
nolicies and procedures assists organization.
ese structures, policie:
Formal policies and
their respective duties members of the documentation of
their resp
The system contains a generic set of five
organisation in performing
mutually supportive
They are:
managenent sub-systems
(a) Management style and culture
(b) Infrastructure
(c) Control process
(d) Coordination and integration ,3
(e) Rewards

Fach of the above sub-systems are turtheT sub-divided into their components
in Diagram 4.1. as indicated

Infrastructure
.Organisation structure:
Mangement Style and
Culture
Strategy Prevailing style:
Operation - Internal/external
Pattern of autonomy
.Principal values:
Measurement methods: -
Norms and beliefs
Responsibility centres
- Transfer pricing

Formal Control Process

Strategic Planning:
- Capital budgeting

.Operations Planning:
- Cost accounting
- Budgeting

.Reporting System:
- Strategy/project management
- Operations/variance analysis

Coordination and Integration

Rewards Standing Committees:
Individual and groups Strategy
Short term& long term
-

Operations
Promotion & planning .Formal conference
Involvement techniques

system.
formal control
Sub-systems of the
Diagram4.1
 32
MANAGEMENT CONTROL SYSTEMS

It may be observed in Diagram 4.1 that all the five sub-systems are connected with each
other indicating (a) mutually supportive and (b) reinforcing, which are the basic strengths
of the system. The system is designed to focus upon the needs of the customers and
markets, to be consistent with the informal systenms of the organization and being mutually
supportive to each other. Moreover, each sub-system contains explicit provision for
managing both short-term concerns and the innovations necessary to remain viable in the

long run.

4.3 INFORMAL CONTROL SYSTEM

All organisations have informal dimensions consisting of interpersonal relationships that are
not shown in the formal organization chart. An Operational Manager is directly related to
his superior and subordinates, but in the organization, there are so many managers of parallel
positions, superiors and even juniors, who unofficially come in contact with the Operational
Manager, say in a meeting, seminar or even lunch-room, when they can exchange views on
business topics. This depends on personality, personal contacts, reliability, tactful behaviour
of the manager concerned. Barnard has defined informal organization as "the aggregate of
personal contacts and interactions and the associated groupings of the people.
In short, informality refers to the relaxation of sharp differentiation (of hierarchy) and
explicit description of behaviours expected out of superior subordinate relationship. Thus,
formality leads to a pattern of defined behaviours, whereas informality leads to a pattern of
interacting roles.
In fact, the informal control process consists of activities engaged in by members of
the organization outside the formal control process, when
(a) encountering non-routine decision-making, such as realignment of goals
(b) seeking new information to increase their understanding of problem areas.

4.3.1 The System

The informal control system is symmetrical to the set of sub-system of the formal control
system. Practically, the informal structure emerges as a counterpart of the formal
sub
systems. These emergent roles are the result of informal relationships and responsibilities
that emerge based upon expertise,
experience and trust. Informal control system also consSists
of five sub-systems as formal control and
system, they are mutually supportive and reinforc1ing.
Consider diagram 4.2.
It is clear that for the formal infrastructure
the informal counterpart is roles.
Informal contacts promote compatibility and emergent
encourage the willingness to serve the organization.
4.3.2 Importance of Informal Control
System
Organizations indulge in informal control
process when
making or when seekingnew informat1ion to
encountering non-routine decision-
increase understanding of some of the problem
 ADAPTIVE CONTROL SYSTEM-DESIGN, SYSTEM
AND CULTURE 33

Infrastructure
Mangement Style and
Personal contacts Culture
.Network Prevailing style
.Expertise oriented Internal/external
.Minimal structure Principal values
.Emergent roles Norms and beliefs

Informal Control Process

.Search/generation of alternatives
Coping uncertainty
Dialogue

Coordination and Integration

Informal Rewards
.Based on trust
.Recognition
.Status oriented
.Intrinsic/personal goals

control system.
Diagram 4.2 Subsystems of the informal

writer had occasion to meet

the top bosses of the organization
times had the
areas. How many raid by the Central Excise
critical period of labour unrest! There was a
informally during the was seen in a
Director of the Company
and the Managing
officials in one of the units, of another unit discussing
about the
Accounts Manager
farewell dinner closetted with
an
Central Excise matters.
the latter was an expert in increased
because
way out, organizations have significantly
in the business
uncertainties intense
In recent times, environment,
unpredictability, change of current the
due to the presence of greater to come out of
technical innovations
and the need for development
competition due to globalization rapid change and
environmental disturbance
is significant, formal
difficult situation. If thee cannot wait for the
period, management
or new goals required. During this
are situation, managers
tend to use
feedback. In such a
situation
cOnrol system alone to give necessary meaning to the current
search for
framework, contractimg
informal decision-making data,
CO involve collecting
directions. These processes
Order to determine future undetstausual
increase
seeking to
experience and in general, on rod
pers, recalling past turbulent times, the management
must rely
control is a support
ever, even during Informal
organization.
within the
to prevent instability
SUs stem control system.
ystem to the already established formal
 MANAGEMENT CONTROL SYSTEMs
34
4.4 SUB-SYSTEM DETAILS

4.4.1 Management Style and Culture

and culture of
conform to the existing style
informal must and the style of
control system--formal and in an organization
y method of doing things
organization. The prevailing system.
ne be incorporated in the control external styles. The
n e top management must
directive or
autocratic, that is
be highly mixture of both the styles,
Management styles may internal styles or even a
or of because these systems serve
same could be highly participative systems,
of the management
The style influences the design chooses to operate.
the management
management and
should fit the way
n o r m s and
beliefs which are shared by the
culture refers to principal values, tend to develop
shared values,
Corporate Most of the organizations
organization. be said to have a
participants of the decision premises
and therefore, can
and c o m m o n like Jessop &
c o m m o n perceptions
the opportunity to work in organizations
had
culture. The writer Ltd. (8 yrs.) and Britannia
corporate
Carbide (7 yrs.), Godfrey Philips India
Co. (3 yrs.), Union different management style
Each one of these
organizations had
Industries Ltd. (13 yrs.). were maintained throughout,
the
& Co., formal relationships
and culture. While in Jessop The most effective
form of coordination occurs
relaxed in Union Carbide.
same is more c o m m o n values
and beliefs about the
organization share
members of an
values facilitates the
when the individual sense of shared
the business. A strong
activities and problems of
control process.
mechanism, a corporate culture must
be consistent
To be effective as a coordinating It is also crucial
and it must be accepted widèly.
with the requirement of the environment, various members of organization.
the
for the executives todevelop a sense of trust among entrant is provided
towards the organization, a new
In order to impart the right attitude Indoctrination
before handling any assignment.
with indoctrination and training programme and
the organization to socialise new members tothe values, policies
is the process used by
involves imparting knowledge of methods
procedures ofthe organization. Skill development indoctrination
the organization. The combination of
used to perform various tasks required for
effective functioning of the control process.
and skill development is crucial to the

4.4.2 Infrastructure
The infrastructure of formal control system consists of the organization structure, pattern
of autonomy and measurement methods. Two modes of operations are necessary within an

organization, i.e. strategic planning and business units. One of the most common methods
of placing responsibility for strategic business planning is to create Strategic Business Units
(SBU) at various levels of the organization. Goals, strategies and action programmes are

established at SBU level.

Profit centres are the centre established at various levels, at and below the SBU level
of the organization. Profit centres enjoy certain autonomy to use its resources and produce
results. They act as a small business organization with profit responsibility. Concepts of
responsibility centre and transfer pricing are used to measure their performance.
 ADAPTIVE CONTROL SYSTEM-DESIGN,
SYSTEM AND CULTURE 35
structure under
afrastructure ormal control system refers to
infor
Infras
informal dimensions which
the organisation chart. They are very difficult to
n the
in are
not
shown
define, but all organizatjons
them and use them as need ariseskInteractions among people, that is,
and use
ve hoc teams, and available expert resources outside the formal personal contacts,
networks adhoc
structure are some
the
elements of formal infrastructure
of
The informal tructure and emergent roles come into play specially when the management
erceives
a a need
need to increase the adaptability
of the organization.
Temporary sub-sets of
form
may form for the purpose of coping with
ndividuals may uncertainty. The purpose of these
subsets is to develop new goals an objectives, remove barriers to goal attainment, achieve
purpose, and inerease adaptability.
organizational
orga
4.4.3 Control Process

Farmal control process is divided into two parts viz. planning and reporting. Planning again

is sub-divided into strategic planning and operations planning

A strategic planning decides upon the goal and objectives, key strategies to attain them
and allocation of fund/resources, i.e. capital budgeting. Strategic planning aims at keeping
the organization viable in the long run and projects for next five to seven years. Operation
on the other hand, has a short-term focus, say for one year or less. It
aims at
planning.
achieving the nearest objectives set at the strategic planning stage. The cost accounting
plans and
sVstem is used to provide measurement information, while the budgeting process
controls the functions of the organization.
as well as operations. Detailed reports are
Reporting systems cover both strategic plans
both the strategic and operation plans. Proiect reports
prepared to assess progress against
Various
are
reports prepared showing deviations
provide information to the project management.
from the budget in respect of the operation. Such reports are prepared periodically, say
weekly, monthly quarterly, half-yearly and annual. and be
The formal control processes should support style and culture
planning and
and rewards.
supported by infrastructure, communication systems environmental disturbance limits the
Informal control system becomes active when
When managers make decisions during
steerability of an adaptive cybernetic system. trameworks,
environmental tend to use more informal decision-making
disturbances, they
adhoc teams.
Such as search orgeneration of alternatives, making
tends
Under conditions of uncertainty, management

(1) to accelerate information gathering,

or strategies,
(11) search for alternative goals, purposes and
and expectations
11) compare their solution to values, beliefs
(1V) adapt to new conditions.

4.4.4 Coordination and Integration

between the subunits of an
integration
nder formal control system, coordination and committees-one
for strategic

two standing
aCcomplished by the creation of
 36
MANAGEMENT CONTROL SYSTEMS

decisions and the other for

Or the
operational control Besides., formal con ferences of key managers
organization including those who are at the profit centre level are held
The formal periodically
coordinating mechanisms vary in degree of formality. All the coordinating
mechanisms are highly dependent upon timely and accurate intformation flow. Effective
information and telecommunication systems are, therefore, key strategic assets for
assisting
coordination activities
The formal system of communication can be identified by the structure of the organization
But informal communicative systems evolve as people develop working relationships. They
depend upon interpersonal relationships, based upon trust. As such, they are quite adaptable
to meet the perceived needs of the organization. These communications tend to be less
guarded during informal communication, leading to discussions on more sensitive issues
Telephonic conversation, personal memo or personal emissary are often more effective than
the formal communication system.

4.4.5 Rewards
In a formal control system, there should always be a sub-system of giving rewards to the
value contribution of individuals in the
organization.
Incentives take all fom of monetary and non-monetary compensation. The scheme of
incentives is not stable over time. The most stable of the incentives includes ideals of the
organization that individuals identify with and find worthwhile. The value of reward to the
recipient is important to consider. Personalized rewardstend to mean more to the individuals
receiving them. The difficulty of providing adequate incentives over time leads to pressure
for growth. The reward systems of an organization should emphasize on both individual and
group performances as well as on operating and strategic performances. Formal reward
programmes are necessary to reward performance on all the four dimensions.
Formal individual rewards including compensation and promotions should reflect individual
contributions to performance regarding short-term objectives and long-term
goals.
Some
of
e most effective group awards are tied to overall organizational performance-both long-
term and short-term.
However, informal rewards are stature-oriented. These rewards are bestowed on the key
team members within the informal system. They are usually more intrinsic in nature.
Individuals are shown respect for their ability to operate within the informal control
system.
Informal recognition and rewards are effective because of the
personal involvement of the
giver. Management should ensure that the formal rewards are also bestowed
appropriately
upon the members of the organization, who are recognized informally.

SUMMARY

A control system is a set of formal and informal systems that are

distinct and highly
interrelated. They are considered adaptive if the two systems, i.e. formal and
informal are
internally consistent, mutually supportive and reinforcing subsystems.
 ADAPTIVE CONTROL SYSTEM-0ESIGN, SYSTEM AND
CULTURE
makes delegation
ctem of
authority possible with
members of the organization.explicit strueture,
F o r m a l c o n t r o l

Aares to,
to be followed by the
fnformal control
procedures

and
o f the activities engaged in by the members outside
the formal control
o l i c i e s

consists

ss encountering a non-routine decision-making or seeking new information

system formal and informal-contains the following subsystems
process when

Any control s y s t e m - f o r n

Management
style and culture
1.
2 . I n f r a s t r u c t u r e

Control process

and integration
Coordination
4
Rewards
.