Chapter 1

The Nature of
Management Control Systems

BASIC CONCEPTS

Define the terms in the name of

the course:
Control
Management
Systems

Control

Control: to ensure that strategic intentions

are achieved.
Elements of a control systems:

1. A detector or sensor (sensor)

2.
3.
4.

An assessor (penilai)
An effector (umpan balik)
A communications network (jaringan
komunikasi)

Elements of Control Process

Control
device
1. Detector. Information
about what is happening

2. Assessor. Comparison
with standard.
3. Effector. Behavior
alteration, if needed

Entity
being
controlled

Controlling Examples

Thermostat

A thermometer
An assessor
An affector
A communication network

Body temperature

The sensory nerves

The hypothalamus
The muscles & organs
Overall communications system of nerves

Controlling Examples

Automobile driver

Eyes (detector)
Brain (assessor)
Foot (affector)
Nerves (communication network)
Eyes

Brain

Foot

Management

An organization consist of a group of people who

work together to achieve common goals
(satisfactory profit).
Organization are led by a hierarchy of managers.
1.
2.
3.
4.

CEO
Managers of business units
Managers of department
Managers of section

overall strategies
strategies
strategies
strategies

GOALS

The management control process is the

process by which managers at all levels
ensure that the people they supervise
implement their intended strategies.

Management Control Process Vs

Simpler Control Processes
1.
2.
3.
4.

5.

Standard is not preset (involved planning &

control).
Management control is not automatic.
Management control requires coordination
among individuals.
The connection from the perceiving the need for
action to determining the action required to
obtain the desired result may not be clear.
Much management control is self-control.

Systems

A system is a prescribed and usually repetitious

way of carrying out an activity or a set of
activities.
Systems are characterized by a more or less
rhythmic, coordinating, & recurring series of steps
intended to accomplish a specific purpose.
Many management action are unsystematic
(based on judgment).

If all systems ensured the correct action for all situations,

there would be no need for human managers.

BOUNDARIES OF
MANAGEMENT CONTROL

Define management control.

Distinguish it from two other systems (or
activities) that also require planning &
control:

Strategy formulation
Task control

General Relationships Among Planning

and Control Functions
Activity

Strategy
formulation

Management
control

Task
control

Nature of End Product

Goals, strategies, and policies

Implementation of strategies

Efficient and effective

performance of individual task

Management Control

Management control is the process by which

managers influence other members of the
organization to implement the organizations
strategies.
Management Control Activities:

Planning
Coordinating
Communicating
Evaluating
Deciding
Influencing

Management Control Activities

Management control does not necessarily

require that all actions correspond to a
previously determined plan (ex. budget).
Based on circumstances
Conforming to a budget is not necessarily good, and
departure from a budget is not necessarily bad.

Goal Congruence

Goal congruence means the goals of an

organizations individual members should be
consistent with the goals of the organization itself.
Management control process is systematic, but
not mechanical.
Involves interaction among individuals.

The management control systems should be designed &

operated with the principle of goal congruence in mind

Tools for Implementing Strategy

Management control focuses primarily

on strategy execution.
Management controls a are only one of
the tools managers use in implementing
desired strategies.

Framework for Strategy Implementation

Implementation Mechanism
Management
controls

Strategy

Human
Resource
Management

Organization
Structure

Culture

Performance

Continued

Organizational structure specifies the roles,

reporting relationship, & division of
responsibilities that shape decision-making with
in an organization.
Human resource management is the selection,
training, evaluation, promotion, & termination of
employees so as to develop the knowledge &
skills required to execute organization strategy.
Culture refers to the set of common beliefs,
attitudes, & norms that explicitly or implicitly
guide managerial actions.

Financial & Nonfinancial Emphasis

Management control systems

encompass both financial &
nonfinancial performance
measure.
Financial: net income, ROE
Nonfinancial: product quality,
market share, customer
satisfaction

Aid in Developing New Strategies

Interactive control

Management control can

provide the basis for
considering new strategies.
Calling management attention
to developments that need for
new strategic initiatives.

Todays
controls

Tomorrows
strategy

Strategy Formulation

Strategy formulation is the process of deciding on

the goals of the organization & the strategies for
attaining these goals.

Goals
the broad overall aims of an organization
Objectives
specific steps to accomplish the goals
within a given time frame.

Goals are timeless.

In the strategy formulation, goals of the
organization are usually taken as given.

Continued

Strategy are big plans, important plans

The need for formulating strategies usually
arises in response to a perceived threat or
opportunity.
A threat or opportunity can arise from anywhere
& at any time.

Complete responsibility for strategy formulation should

never be assign to a particular person or organizational unit

Distinctions between Strategy

Formulation & Management Control
Strategy Formulation

Deciding on new
strategies.
Unsystematic.
Involves judgment.
The numbers used are
usually rough estimates.
Involves few people
(sponsor of the idea,
headquarters staff &
senior management).

Management Control

Implementing strategies
Systematic.
Involves a series of steps
that occur in a predictable
sequence.
Reliable estimates.
Involves managers &
their staffs at all level.

Task Control

Task control is the process of assuring that

specified task are carried out effectively &
efficiently.
Transaction-oriented.
Some are mechanical.
Scientific.

Distinction between Task Control &

Management Control
Task Control

Not scientific
Focus on specific
task
Relate to specific
task

Management
Control

Scientific
Organizational units
Concerned with
broadly defined
activities.

Examples of Decisions in Planning &

Control Functions
Strategy Formulation

Management Control

Task Control

Acquire an unrelated
business

Introduce new product or

brand within product line

Coordinate order entry

Enter a new business

Expand a plant

Add direct mail selling

Determine advertising
budget

Schedule production
Book TV commercials

Change debt/equity ratio

Issue new debt

Manage cash flows

Adopt affirmative action

policy

Implement minority
recruitment program

Maintain personnel
records

Devise inventory
speculation policy

Decide inventory level

Reorder an item

Impact of the Internet on

Management Control

Benefits of internet:

Instant access.
Multi-targeted communication.
Costless communication.
Ability to display images.
Shifting power & control to the individual.

Impact of internet in the world of business:

Change the rules of the game in the business-toindividual consumer sector.

Change business-to-business commerce.

Impact of the Internet on

Management Control

Internet makes the processing of

information involved in MCS easier &
faster, with few errors.
Internet facilitates coordination & control
through the efficient & effective processing
of information.
But the internet cannot substitute for the fundamental
processes that are involved in management control