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Management Control Systems: Chapter 3: Action, Personnel & Cultural Controls
Management Control Systems: Chapter 3: Action, Personnel & Cultural Controls
Chapter 3: Action,
Personnel & Cultural Controls
Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003
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
Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -2-
Control alternatives …
Controls can focus on:
Prevention / detection
– Most action controls are aimed at preventing
undesirable behaviors.
Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -4-
Effectiveness of action controls ...
They are usable and effective only when managers:
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Behavioral constraints ...
Negatively / positively stated
– Boundary systems vs. belief systems.
Physical constraints
– Locks, passwords, limited access, …
Administrative constraints
– Restriction of decision-making authority;
– Separation of duties.
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Preaction reviews ...
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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).
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Redundancy ...
Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -9-
Pros and cons of action controls ...
PRO CON
The most direct form of control Only for highly routinized jobs
Tend to lead to documentation May discourage creativity,
of the accumulation of knowledge innovation, and adaptation
as to what works best.
May cause sloppiness
– Organizational memory
May cause negative attitudes
An efficient way of coordination:
– e.g., little opportunity for
– i.e., they increase the predictability
creativity and self-
of actions and reduce the amount
of inter-organizational information actualization
flows to achieve a coordinated Sometimes very costly
effort.
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Control alternatives …
Controls can focus on:
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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
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Methods to implement personnel controls ...
Generally, it is about …
“… finding the right people, giving them a good
work environment and the necessary resources” …
Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 - 14 -
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.
Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 - 15 -
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.
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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.
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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.
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