Management Control Systems

Chapter 2: Results Controls

Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003

 Personal limitations Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 .  Lack of direction » Will they work consistently hard and try to do what is expected of them .  Management Control is about taking steps to help ensure that the employees do what is best for the organization..  Lack of motivation » Are they capable of doing what is expected of them .......  Three issues: » Do they understand what we expect of them ..Recall that .

Or any combination of those .. Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 ..Control alternatives …  Controls can focus on: – the actions taken ACTION CONTROLS – the results produced RESULTS CONTROLS – the types of people PEOPLE CONTROLS employed and their shared values and norms.

.  It involves rewarding individuals for generating good results. employees are empowered to take whatever actions they believe will best produce the desired results. the employees’ actions are not constrained. » On the contrary. » Results accountability  It influences actions because it causes employees to be concerned about the consequences of the actions they take. Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 .. or punishing them for poor results. » However.Results controls .

.g.g.Elements . market share.  Providing rewards or punishments » Salary increases..  Defining the performance dimensions » What you measure is what you get.. job security. waste. Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 .. managerial characteristics (“being a team player”). etc.  Setting performance targets » Motivational effects + allow to interpret (own) performance. stock price.g.g. » If not congruent with the organization’s objectives. » Subjective: e. hence. » > non-financial: e.. the controls will actually encourage employees to do the wrong things!  Measuring performance on these dimensions » Objective > financial > market-based: e. » > accounting-based: e. cycle-time. return on assets. recognition. bonuses. promotions..

– Superiors / managers must be able to measure the results effectively. Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 .. – The individuals whose behaviors are being controlled must have significant influence on the results in the desired performance dimensions..  Results controls work best only when all of the following three conditions are present: – Superiors / managers must know what results are desired in the areas being controlled.Conditions .

. » If the results are totally uncontrollable. Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 .Ability to influence results . the controls tell us nothing about the actions that were taken:  Good actions will not necessarily produce good results.  The person whose behaviors are controlled must be able to affect the results in a material way in a given time span. » Controllability principle  Results controls are useful only to the extent that they provide information about the desirability of the actions that were taken.  Bad actions may similarly be obscured..

Ability to measure results effectively . » Ability to evoke the desired behaviors  Results measures should be: » Precise..  The “effectiveness” of results measures must be judged by their . » Timely.... » Objective. Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 . » Understandable.

g...  Sometimes conflicting functions: – e. » targets should be slightly conservative Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 . performance measures – Motivation to achieve are often collected for reasons not directly » targets should be “challenging” related to management – Communication among entities control.  They shift risk to employees (because  They yield greater employee of uncontrollable factors). they commitment and motivation.  They are often inexpensive. PRO CON  Behavior can be influenced  Often less than perfect indicators of while allowing significant whether good actions have been taken.Pros and cons of results controls . often require a risk premium for risk averse employees. Hence. autonomy.