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Management Control Systems

Chapter 3: Action,

Personnel & Cultural Controls

Merchant and Van der Stede: Management Control Systems © Pearson Education Limited !!3

8/15/2019 Slides h03

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-Merchant and Van der Stede: Management Control Systems © Pearson Education Limited !!3

"ecall that ###

Management Control is a$out ta%ing steps to help

ensure that the employees do hat is $est 'or the

organi(ation#

)hree issues:* +o they understand hat e epect o' them ###

Lack of direction

* -ill they or% consistently hard and try to do hat

is epected o' them ###

Lack of motivation

* Are they capa$le o' doing hat is epected o' them ###

Personal limitations

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Control alternati.es /

Controls can 'ocus on:

0 the actions ta%en

0 the results produced

0 the types o' people

employed and their

shared .alues and

norms#

ACTION CONTROLS

"ES1L)S C2)"2LS"ES1L)S C2)"2LS

PE2PLE C2)"2LSPE2PLE C2)"2LS

2r any com$ination o' those ###2r any com$ination o' those ###

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Action controls /

Ensure that employees per'orm 4or do not per'orm5

certain actions %non to $e $ene'icial 4or harm'ul5

to the organi(ation#

Prevention / detection

0 Most action controls are aimed at pre.enting

undesira$le $eha.iors#

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E''ecti.eness o' action controls ###

)hey are usa$le and e''ecti.e only hen managers:

0 Know what actions are desirable

* +i''icult in highly comple and uncertain tas% en.ironments#

4e#g#, research engineers or top6le.el managers5

0 !ave the abilit" to make s#re that the

desirable actions occ#r

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7eha.ioral constraints ###

Ph"sical constraints

0 Loc%s, passords, limited access, /

Administrative constraints 0 "estriction o' decision6ma%ing authority8 0 Separation o' duties#

* Primarily directed at one control pro$lem:eliminate moti.ational pro$lems#

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Preaction re.ies ###

Scrutiny o' action plans, $udgets#

0 "e.ie 9 modi'ication 9 appro.al#

Can potentially address all three control pro$lems:

0 Alle.iate lac% o' direction8

0 Pro.ide moti.ation8

0 Mitigate personal limitations#

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olding employees accounta$le 'or the actions they ta%e#

;t re

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"edundancy ###

Assigning more people 4or machines5 to

a tas% than necessary#

0 e#g#, $ac%up people 9 computing 'acilities

Limited in addressing the control pro$lems:

0 Pro.ide moti.ation8

0 2.ercome personal limitations# 0 also: rather costly

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)he most direct 'orm o' control

)end to lead to documentation

o' the accumulation o' %noledgeas to hat or%s $est#

0 2rgani(ational memory

An e''icient ay o' coordination:

0 i#e#, they increase the predicta$ility o' actions and reduce the amount

o' inter6organi(ational in'ormation

'los to achie.e a coordinated

e''ort#

2nly 'or highly routini(ed o$s

May discourage creati.ity,

inno.ation, and adaptation

May cause sloppiness

May cause negati.e attitudes

0 e#g#, little opportunity 'or

creati.ity and sel'6

actuali(ation

Sometimes .ery costly

Pros and cons o' action controls ###

PRO CON

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Control alternati.es /

Controls can 'ocus on:

0 the actions ta%en

0 the results produced

0 the types o' people

employed and their

shared .alues and

norms#

AC);2 C2)"2LS AC);2 C2)"2LS

"ES1L)S C2)"2LS"ES1L)S C2)"2LS

P$OPL$ CONTROLS

2r any com$ination o' those ###2r any com$ination o' those ###

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People controls ###

People controls ensure that employees ###

0 -ill control their on $eha.iors Personnel control

Self%monitorin&

0 -ill control each othersB $eha.iors

C#lt#ral controls

'#t#al%monitorin&

People controls are part o' .irtually e.ery management

control system $ecoming more important in / =flatter

and leaner organizations with empowered employees#>

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Personnel controls /

Personnel controls $uild on employeesB natural tendencies

to control themsel.es, $ecause most people /

0 ha.e a conscience that leads them to do hat is right8

0 'ind sel'6satis'action hen they do a good o$ and see theirorgani(ation succeed#

la$els ### 0 Sel'6control

0 ;ntrinsic moti.ation 0 Ethics and morality

0 )rust and atmosphere

0 Loyalty

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Methods to implement personnel controls ###

Denerally, it is a$out /() finding the right people, giving them a good

work environment and the necessary resources* )

Selection and +lacement* inding the right people to do a particular o$#

Trainin&* Di.e employees a greater sense o' pro'essionalism8

* Create interest in the o$ $y helping employees to

understand their o$ $etter#

,ob desi&n - +rovision of necessar" reso#rces* So that moti.ated and

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Cultural controls ###

Cultural controls or mutual6monitoring tap into

social pressure and group norms and values#

Cultural controls are e''ecti.e $ecause mem$ers

o' a group ha.e emotional ties to one another#

Cultures are $uilt on shared ###

0 traditions8

0 norms8

0 $elie's8

0 ideologies8

0 attitudes8

0 ays o' $eha.ing, etc#

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i.e ays to shape culture / 4;5

Codes of cond#ct

* Codes o' ethics8 corporate credos, mission statements, etc#8

* ormal ritten documents ith $road statements o' corporate

.alues, commitments to sta%eholders, and the ays in hich

top management ould li%e the 'irm to 'unction#

* undamental guiding principles o' the company#

.ro#+%based rewards

* e#g#, $onus, pro'it6sharing, employee onership o' company stoc%8* Cultural controls rather than results controls $ecause the lin%

$eteen indi.idual per'ormance and reards is ea%#

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Intra%or&aniational transfers

* ;mpro.e the sociali(ation o' indi.iduals in an organi(ation and

inhi$it the 'ormation o' incompati$le goals and perspecti.es8

* ;mpro.e identi'ication ith the organi(ation as a hole as

opposed to su$unit identi'ication#

Ph"sical and social arran&ements* e#g#, o''ice plans, interior decor, dress codes and .oca$ulary, etc#

Tone at the to+* )op management statements must $e consistent ith the culture

they are trying to create, and importantly, their $eha.iors should

$e consistent ith their statements#

i.e ays to shape culture / 4;;5

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Start ith people controls ###

People controls /

* Must alays $e relied on to a certain etent8

* a.e relati.ely 'e harm'ul side6e''ects8

* ;n.ol.e relati.ely lo out6o'6poc%et costs#

oe.er, it is rare that people controls ill $e su''icient#

;n most cases, it is necessary to supplement them ith /

* action controls8

* results controls#

May$e, you ust shouldnBt put all your trust in people FG

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Cases

;nternal "e.enue Ser.ice 4p#HH ''#5: 0 E.aluate the change o' the ;"SBs collection 'unction 'rom the

C2 organi(ation to the ACS system

0 As )im 7ron, assistant commisioner 'or Collection, hat

ould you doG 0 -hen,# i' e.er, is computer monitoring appropriateG -hat

sa'eguards to pri.acy can you en.isionG

Alcon La$oratories, ;nc# 4p#II ''#5 0 o ould you characteri(e the control strategy used in the

"&+ areaG 0 E.aluate the control strategy: hat, i' anything, ould you

suggest Alcon managers do di''erentlyG

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