Management Control Systems Set A

Management Control Systems

Dr. Mary Ipe

04/10/23 Free template from www.brainybetty.com 2

Flow of discussion

Introduction of MCS Nature of management control Purpose of MCS Organizational context of MCS Formal and informal control systems Components of control systems Cybernetic approach to MCS

(Sources: MCS, ICMR, 2008 Ed. Ch-1; MCS, ICMR 2003, Ch 1; MCS- Robert Anthony & Vijay Govindarajan , Ch.1)

Introduction

• Enron collapse (2001), WorldCom artificial inflated earnings (2001), Satyam scandal (2008) rock the corporate world-Above examples illustrate absence or malfunctioning of MCS

• MCS is broadly concerned with attainment of goals and implementation of strategies (eg: TATA group’s TBEM Model)

• MCS is a ‘ set of interrelated communication structures that facilitate the processing of information for the purpose of assisting managers in coordinating the parts and attaining the purpose of an organization on a continuous basis’.


How is MCS viewed?

Collection of controls used to address the following situations:

Managers and employees do not have a clear idea of what is expected of them

They have a fair idea of what is expected, but do not feel motivated due to the working conditions (e.g. reward system)

Nevertheless employees are not able to perform

MCS assists the management in formulating strategies, coordinating the activities and steering them towards the achievement of the overall goals and objectives

MCS is an interdisciplinary subject with contributions from all branches of management


Purpose of MCS

• Purpose : Assist management in the coordination of the activities and in steering those activities towards the achievement of the firm’s overall goals

• Ensure that the right strategies are carried out to attain the organization’s objectives

• Objectives: Effectiveness and efficiency of business operations

• Enhance reliability in financial reporting

• Helping in compliance with applicable regulatory and legal framework


Domain of MCS

• MC is the “ process by which managers influence other members of the organization to implement the organization’s strategies” (Anthony & Govindrajan)

• MC activities – planning, coordinating, communicating, evaluating and influencing

• Planning- control process compares actual accomplishments with the set plans

• MCS ensures that each part of the organization is in harmony with that of the other

• Brings about unity of purpose through the efforts of individuals


Boundaries of MCS

• MC fits between strategy formulation and task control


Strategy Formulation

Management Control

Task Control

NATURE OF END-PRODUCTACTIVITY

Implementation of strategies

Goals, strategies & policies

Efficient & effective performance of individual tasks

Planning & Control functions• Strategy formulation is in response to a perceived

threat or opportunity or emergence of ‘new ideas’

• Strategies are important plans- setting the direction in which senior management wants the organization to move

• Strategy formulation is essentially unsystematic

• Involves few people –the sponsor of the idea, HQ staff and senior management


Management & Task Control

• MC process is a series of steps in predictable sequence to a fixed time-table

• MC process involves managers & staff at all levels

• Task control ensures that specified tasks are carried out effectively and efficiently

• Task control is transaction-oriented involving performance of individual tasks according to rules established in the MC process

• Numerically controlled machine tools, process control computers and robots are mechanical task control devices


Impact of internet on Mgmt.Control

• Internet has changed the rules of the game in business –to- individual consumer sector

• Major benefits of internet

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


Internet & Mgmt. Control

• MCS involves information & organizations require an infrastructure to process that information

• Internet provides that infrastructure making the processing of information easier and faster, with fewer errors

• Internet facilitates coordination and control through the efficient and effective processing of information

• Internet cannot substitute for the fundamental processes involved in management control

• Implementing strategies through management controls is a social process and cannot be fully automated


Organizational context of MCS

• Nature and purpose of the organization

• Organization structure and size

• National culture

• Corporate strategy & organizational diversification

• Competitive strategy

• Internal and external stakeholder expectations


Responsibility of organization toward stakeholders

• Shareholders-financial returns, sustainable growth

• Employees-reward systems , safety & health, participative decision-making , job satisfaction,

• Customers-right quality & quantity ,value , safety & health

• Suppliers/Creditors-Proper pricing & licensing, continuing business relations, adherence to payment terms

• Government- compliance ,competitiveness , fair business practices

• Community-protection of the environment , promoting human development


Formal Control Systems

• Formal control systems make explicit the structure, policies

and procedures to be followed by members of the

organization

• The members of organizations can perform their duties

efficiently when they are provided with formal documents of

these structures, policies and procedures

• Formal control systems are laid out in writing by the

management

• Examples include plans , budgets , regulations and quotas


Formal Control Systems(Source: Management Control Systems, Maciarello & Kirby, 1997)


INFRASTRUCTURE•Organizational structure•Strategy•Operations•Patterns of autonomy•Measurement Methods•Responsibility centers•Transfer Pricing

MANAGEMENT STYLE & CULTURE

•Prevailing style•External/internal/mixed•Principal values•Norms and beliefs

COORDINATION & INTEGRATION

•Standing committees•Strategy•Operations•Formal conferences•Involvement techniques

REWARDS

•Individual and group

•Short-term and long-term

•Promotion policy

FORMAL CONTROL PROCESS•Strategic planning•Capital budgeting•Operation planning•Cost accounting•Budgeting•Reporting systems•Strategy/ project management•Operations/ variance analysis

Informal Control Systems• Informal controls arise as a result of employees’ behavior

• Informal controls include group norms and organizational culture; They originate with employees and are affected by general socio-cultural factors

• Informal systems promote greater compatibility of personnel and encourage the “willingness to serve” organizational purposes

• Informal control process consists of activities engaged in by members of the organization outside the formal control process

• These systems help the organization to adapt itself to the environmental change and technical innovation


Informal Control Systems(Source: Management Control Systems, Maciarello & Kirby, 1997)


INFRASTRUCTURE•Personal contacts•Networks•Expertise-oriented•Minimal structure•Emergent roles

MANAGEMENT STYLE & CULTURE

•Prevailing style•External/internal/mixed•Principal values•Norms and beliefs

COORDINATION & INTEGRATION

•Based upon trust•Simple/ direct/ personal•Telephone conversation•Personal memos

INFORMAL AWARDS

•Recognition•Status-oriented•Intrinsic•Performance-oriented•Stature-oriented•Personal contact

INFORMAL CONTROL PROCESS•Search/alternative generation•Ad hoc as needed•Uncertainty coping•Rationalization/ dialogue

Subsystems & components of control systems

• Style & culture

- Corporate culture

- Corporate culture as a control mechanism

- Management indoctrination and skill-training

• Formal control process

- Formal planning process

- Formal reporting process

• Infrastructure

• Rewards

• Coordination and integration mechanisms

- Committees

- Formal conferences


Cybernetics & Systems Approach to control

Source: Subash Sharma, Management Control System Texts & Cases (Tata McGraw Hill, 7th Reprint, 1997)


Source Initial dataPredictions

& Inferences

Values &ChoiceTarget

Initial action

Source Feedback data

Predictions&

Inferences

Values &Choice

Action

Management Control Systems Set A

Documents

Transcript of Management Control Systems Set A