Session 2

Management Control Systems
Performance Measurement, Evaluation, and Incentives

4th edition
Chapter 3
Action, personnel, and
cultural controls
Copyright © 2018, 2012, 2007 Pearson Education, Inc. All Rights Reserved
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
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
 For example, effectiveness of organizational procedures
Behavioral constraints
• Physical
– Locks, passwords, limited access, etc.
• Administrative
– Restriction of decision-making authority
– Separation of duties, etc.
Preaction reviews
• Scrutiny of action plans, investment
proposals, and budgets
– Review and approval
– Part and parcel in (capital) budgeting processes,
which are otherwise mainly a results control
mechanism
Action accountability
• Holding employees accountable for the actions they
take
• It requires:
– Defining what actions are (un)acceptable
– Communicating these definitions to employees
 For example, 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
Redundancy
• Assigning more people (or machines) to a
task than necessary
– For example, “backup” people or facilities
Pros and cons of action controls
PRO CON
• The most direct form of control • Only for “routine” jobs
• Tend to lead to documentation • May discourage creativity,
of the accumulation of innovation and adaptation
knowledge as to what works
best • May cause sloppiness
– Organizational memory • May cause negative
• An efficient way of coordination attitudes
– That is, they increase the – For example, little
predictability of actions and opportunity for creativity
reduce the amount of inter- and self-actualization
organizational information flows
• Sometimes very costly
to achieve a coordinated effort
Personnel/cultural controls
• “People controls” (for short) ensure that employees:
– Will control their own behaviors
Personnel control
Self-monitoring
– Will control each other
Cultural controls
Mutual monitoring
• People controls are part of virtually every management
control system, and indispensable in … “flatter and
leaner organizations with empowered employees”
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
Implementing 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)
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 and a sense of
responsibility to one another
• Cultures are built on shared …
–traditions
–norms
–beliefs
–ideologies
–attitudes
–ways of behaving
Ways to shape culture (1 of 2)
• 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
– For example, profit-sharing, employee ownership of company
stock
– These are cultural controls (although of a results control nature)
because the link between group (individual) performance and
rewards is stronger (weaker)
Ways to shape culture (2 of 2)
• Intra-organizational transfers
– Improve the socialization of individuals in an organization and
alleviate the formation of incompatible goals and perspectives
– Improve identification with the organization as a whole as
opposed to subunit identification
• Physical and social arrangements
– For example, 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
Start with people controls
• 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;
hence, in most cases, it is necessary to supplement
them with …
– Action controls
– Results controls

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Management Control Systems

Performance Measurement, Evaluation, and Incentives

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