Management Control Systems

Chapter 3: Action,
Personnel & Cultural Controls

Wim Van der Stede

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

» Will they work consistently hard and try to do what

is expected of them ...
 Lack of motivation

» Are they capable of doing what is expected of them ...

 Personal limitations

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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.

Or any combination of those ...

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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.

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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 ...

» e.g., Effectiveness of organizational procedures !?

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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.

» Primarily eliminate motivational problems.

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Preaction reviews ...

 Scrutiny of action plans, budgets.

– Review / modification / approval.

Can potentially address all three control problems:

– Alleviate lack of direction;
– Provide motivation;
– Mitigate personal limitations.

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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).

» [Rewarding good actions, or] punishing actions that deviate.

 It potentially addresses all three control problems.

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Redundancy ...

 Assigning more people (or machines) to

a task than necessary.

– e.g., backup people / computing facilities

Limited in addressing the control problems:

– Provide motivation;
– Overcome personal limitations.

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:

– the actions taken ACTION CONTROLS

– the results produced RESULTS CONTROLS

– the types of people PEOPLE CONTROLS

employed and their
shared values and
norms.

Or any combination of those ...

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People controls ...
 People controls ensure that employees ...
– Will control their own behaviors
 Personnel control
 Self-monitoring
– Will control each others’ behaviors
 Cultural controls
 Mutual-monitoring

 People controls are part of virtually every management

control system + becoming more important in … “flatter
and leaner organizations with empowered employees.”

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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” …

 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, etc.)

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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.

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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.

 Physical and social arrangements

» e.g., 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.

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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.

 However, it is rare that people controls will be sufficient.

In most cases, it is necessary to supplement them with …
» action controls;
» results controls.

 Maybe, you just shouldn’t put all your trust in people !?

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