Management Control Systems: An Integrated Paradigm

William B. Tankersley, Ph.D., CPA

Department of Government
University of West Florida
Pensacola, Florida 32514
904/626-7511
wtanders@uwf. cc. uwf. edu

Abstract This article takes a practical approach to the dealing with management control systems reveals that there
enduring problem of establishing and maintaining effective exists a vast array of perspectives and differences of opinion
management control over organizational operations. regarding the choice of appropriate control structures and
Drawing upon organizational control theory found in the processes for organizations. These divergent views include
social science literature and taking an eclectic approach to the those of management scientists, political economists,
design of management control systems, an integrated sociologists, social psychologists, organizational theorists,
framework, or "meta perspective," on management control accountants, program evaluators, and organizational
systems is suggested. Adoption of such a perspective by economists, among others. "Control issues are approached
practicing managers should be useful in the practical, day-to- in the literature at different levels of analysis; they are
day selection and implementation of the elementary nuts and analyzed from the perspectives of different social
bolts of management control system structure and process. Too assumptions; and, separate studies of similar control issues
often, these structures and processes are approached from a produce multiple, often incompatible, solutions to the same
fragmented, bottom-up managerial perspective that does not problem,"1 (pp. 1-2)
recognize the significant interrelation of the various layered Management control choices need to be highly
elements comprising the social control system of an rationalized and closely coordinated. The structures and
organization. processes adopted and implemented in the organization
should compliment each other in such a manner as to
Introduction provide a synergistic control effect leading to the
A highly rationalized approach to the management accomplishment of the ultimate goals of the organization.
of organizations suggests that important choices are made This requires a clear understanding of, and appreciation for,
in the selection and application of different organizational the interaction of organizational control elements. As a
control structures and processes within any given practical matter, in order to effectively cope with these
organization. Clearly, the choice of one alternative control conditions, the practicing manager needs a succinct, yet
structure or process over another may result in significantly broad, overview, (i.e., a frame of reference), which provides
different levels of organizational performance. Vincent him or her with an integrated model of the various
Ostrom (1974) underscores the importance of this issue component elements of organizational control structures
with his scathing inference that if organizational scientists and processes.
(here including the practicing manager) are unable to
indicate the consequences of choices among alternative A Meta-Perspective on Control Systems
organizational arrangements, then the scientific Eric G. Flamholtz (1983) provides a useful
warrantability of organizational theory itself must be beginning with his model of organizational control structure
questioned. On the other hand, Ostrom suggests that if and process when he advocates the need to develop a
arrangements chosen to provide coordination and control in
"Meta-Perspective of Control Systems." (p. 154) Defining
the organization reflect known causal relationships which
organizational control as "any actions or activities taken to
can be specified, then, "by altering the appropriate
influence the probability that people will behave in ways
conditions, one set of consequences judged to be
which lead to the attainment of organizational objectives,"
pathological might be avoided and another set of
Flamholtz (p. 154) models control systems found in social
consequences judged to be more benign might be realized."
organization as follows:
(p.3)
The control system...is represented by a series of
This proposition by Ostrom (1974) seems
straightforward enough; the manager should simply choose concentric circles. The innermost circle comprises the "core
the management control element that provides the desired control system." This is a cybernetic structure consisting of
output. However, as has been noted elsewhere (Tankersley four subsystems (planning, operations, measurement and
and Grizzle, 1994), a review of literature evaluation-reward) which are articulated (linked) by
feedback and feed forward loops.

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43
 The middle circle comprises the organization's structure: to provide significant simplification in the process of
Thus, the Flamholtz (1983) configuration of the coordination and control of daily operations, these
organizational control model conceptualizes the fully decisions carry great weight in the overall design of the
developed control system as being comprised of the organizational control system .(Wildavsky, 1968) Role
elements and subsystems displayed in Table 1. It is assignment must be considered in this perspective.
important that practicing managers have a clear Flamholtz (1983) suggests that the Measurement
workingknowledge of the structures and processes Subsystem performs two functions in the control process:
first, numbers provide a medium by which the achievement
Table 1 Elements of the Fully of goals can be evaluated; second, the fact that something is
Developed Control System measured "tends to influence the behavior of people in
organizations" (p. 156). Finally, the Evaluation-reward
Organizational Culture Subsystem is comprised of mechanisms for performance
Value System assessment and the ensuing rewards or penalties.
Beliefs The interactions of these elements of the Core
Assumptions Control System explicitly establish the direct linkage of the
Patterned Ways of Thinking overall social control system existing in the organization to
organizational results. Planning, operations, measurement
Organizational Structure and evaluation-reward subsystems, both individually and
Rules jointly, focus attention directly on results. Thus, the logic of
Interrelationships of Rules a functional link is established. Results are a function of an
Differentiation effective control system.
Integration
Organizational Structure
Core Control System The case for considering Organizational Structure as
Planning Subsystem the second element of the organizational control system
Operations Subsystem begins with an observation made by Otley and Berry
Measurement Subsystem (1980):
Evaluation-reward Subsystem Control is...importantly related to purposes,
coordination and change...A full description of
(adapted from Flamholtz, 1983) organizational control procedures must therefore include an
analysis of those procedures which act to maintain viability
through goal achievement, those concerned with the
its set of rules and their inter-relationships. The outer circle coordination and integration of differentiated parts, and
represents the organization's culture; its value system, those which promote adaptation to both internal and
beliefs, assumptions; the patterned ways of thinking which external change, (p. 232)
are characteristic of the entity. These three elements Accepting this notion, Flamholtz (1983) includes
[emphasis added] of the control system are bounded by the organizational structure in his control system model. Citing
environment of die organization (p. 154). represented by Otley and Berry (1980), he notes, "indeed, organization can
the subsystems and elements of the model. A brief itself be viewed as a control process, occurring when groups
discussion of their composition is useful. of people feel the need to cooperate in order to achieve
purposes which require their joint actions." (p. 158) Thus,
The Core Control System
here it is recognized that the degree of centralization or
Beginning with the Core Control System, the decentralization in the organization, the degree of functional
Planning Subsystem refers to that process where the specialization, the degree of vertical or horizontal
organizational goals, and means to attain those goals, are integration, the degree of reliance on predetermined
decided. Here, it is important to recognize that if agreement procedures for dealing with problems, and the use of rules
has not emerged ex ante with respect to organizational as well as the other dimensions of classic bureaucratic
goals, the process will be political in nature. If goal structure, are understood to be important factors comprising
agreement is implicit, or can be attained simply through a the second major element in this model of organizational
process of articulation, the process will tend to be control.
apolitical. (Tankersley and Grizzle, 1994) In this context, organizational structure can be
The Operations Subsystem refers to the actual daily thought of as representing a strategic response in the
process of performing the functions of the organization. adaptation of the organizational entity to its environment,
Organizational roles serve to assign responsibilities and but, once the initial response is made, the permanency of
activities within the operations subsystem. Because the this emergent organizational structure is, when compared
assignment of these organizational roles can be understood

44 'Coastal Business Review

to the sub-elements of the core control system, relatively these shared meanings influence and affect the thoughts,
static. Nonetheless, while it maybe that change in and more importantly, the actions of individuals, brings
organizational structure occurs relatively slowly, the words cultural analysis clearly within the bounds of concern for
of Charles Lindblom (1977) must not be forgotten: ...each managerial control system development.2
bureaucracy tends to develop its own style and thereafter can
only be bent so far, only partly adapted, to new tasks. Comparative Dimensions of Organizational
Despite the availability of ostensibly appropriate old Control Systems
bureaucracies, high-level decision makers must therefore While the above discussion defines organizational
often create new bureaucracies to attack new control systems in terms of the distinctive components
tasks...administrative reform is endless, (p. 28) which analysts should consider, it does not adequately
Managers and control analysts must ever be alert to provide for the recognition of variances in these elements
the need for appropriate administrative reforms. which may be found across organizations. According to
Organizational structure cannot be assumed to necessarily be Lawler and Rhode (1976), "to predict the impact of a
static or permanent. control system,...we need to know not only what the parts
of the system are but how they operate" (p. 41). Not only
Organizational Culture do organizations differ with respect to the presence or
Organizational Culture, the third element specified in absence of control elements in their systems, singular
the model, can be understood as those shared values, beliefs control elements that are found to exist within two or more
and social norms which tend to influence individual organizations do not necessarily operate identically across
thoughts and actions within the organizational framework. the organizations under observation.
(Flamholtz, 1983) Although here, as well as elsewhere, Two perspectives are helpful in illustrating this
(Sathe, 1983; Schein, 1985), culture is viewed as an comparative aspect of control system analysis. The first
organizational control variable that can be identified and approach is suggested by Flamholtz (1983), while the
changed for the purpose of improving organizational second is taken from the contingency model of
effectiveness, there remain important nuances in the organizational analysis. (Morgan, 1986, Burrell and
interpretation of the concept itself. (Sathe, 1983) While Morgan, 1979)
some adopt the "cultural adaptations" approach, viewing Flamholtz (1983) observes that organizational
culture as nothing more than those artifacts which are control systems can be categorized into different "control
directly observable in the focus group, (i.e. patterns of levels" (p. 157) according to the presence or absence in a
behavior, speech, and use of material objects), others adopt given organization of the elemental subsystems forming the
the "ideational" approach, where, as with Flamholtz (1983) Core Control System. He offers a straightforward
and Schein (1985), culture is that which is shared within the definition of the various levels:
mind. The problem in examining culture with this approach ...if none of the...elements of control [here, referring to the
is, of course, the very difficult proposition of discovery of planning, measurement and evaluation-reward subsystems]
what is in the mind of others. Additionally, with respect to are present, we shall define this condition as first degree
this problem, differences are found even within the control. In this condition, there are merely operations
"ideational" approach itself. Sathe (1983), for example, (decisions and actions) which produce results. This type of
argues that organizational culture manifests itself in four condition is not uncommon and is characteristic of
different observable phenomena: shared things, shared entrepreneurship and relatively small businesses.
sayings, shared doings, and shared feelings. Important Second degree control consists of operations plus
cultural differences can be inferred from observing (any) one additional element: planning, measurement, or
differences in these four manifestations. Edgar Schein evaluation-reward. For example, an organization may have
(1985), on the other hand, suggests that the essence of a measurement system without formal planning or even
organizational culture resides in fundamental, preconscious, without any system for performance assessment and the
basic assumptions about, among other things, reality, time administration of rewards.
and space, human nature, and human relationships. Thus, to Third degree control consists of operations plus any
understand a given organizational culture requires a highly two additional elements.
intensive ethnomethodological, or phenomenological, Fourth degree control consists of all of the four
approach, (see Patton, 1980, p. 44 et seq.) For many basic elements of the core control system: planning,
practical purposes related to the analysis of organizational operations, measurement and evaluation-reward, (p. 158)
systems, it is suggested that the cultural element can be While it is true that organizational control systems
understood to be those shared values, beliefs and social may vary in respect to the elemental composition of the
norms which tend to influence individuals' thoughts and core control system, and while this aspect of control
actions, and which can be inferred from the examination of analysis is indeed important, even fundamental, to the
organizational artifacts and processes, (see Sathe, 1983) The improvement of control in organizations, the Flamholtz
undisputed fact that

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(1983) analysis falls short in that it does not provide an designed to integrate the individual and the organization
analytical perspective which detects differences in control through a more open, democratic style which emphasized
levels across organizations where the same control system the importance of delegation, trust and intrinsic job
elements are present. satisfaction, (p. 176)
There seems to be recognition that cultural and The contingency approach to organizational analysis
selected structural elements of organizational control thus augments the model of control presented above. Not
systems may vary across organizations, yet for Flamholtz, only can an organizational control system be seen as
"control level" is solely a function of the presence or comprised of certain specified elements, it is now
absence of the elements of the core control system. recognized that these control elements (including the core
Presumably, in such a model, control systems comprised of control subsystems) are, themselves, distinctive in that
the same elemental constructs are equivalent. This deserves significant differences in the elements can be identified
more attention. across organizations. These differences will impact
Concepts found within the contingency model of organizational outcomes.
organizational analysis (Morgan, 1986, Burrell and Morgan,
1979), are helpful in this regard. Here, again, organizations Summary: Utility of The Control Model
are seen as being comprised of several subsystems. The The control model presented here provides two
structural subsystem and the managerial subsystem are the perspectives from which to approach the analysis of
subsystems most closely congruent with the control organizational control systems. First, control arrangements
elements included in the control model discussed above. An are seen as being comprised of specific social artifacts:
explicit feature of contingency theory, however, is the organizational culture, organizational structure, and a core
recognition that these subsystems may take on widely control system. Each of these artifacts has been described
varying characteristics across organizations. For example, in terms of its component parts. (See Table 1) Second, these
the structural subsystem is described as varying from, on component elements are seen as varying across
the one hand, mechanistic and highly bureaucratic, to on the organizations. Using the perspective offered by the
other hand, an organic structural arrangement. contingency theory of organizational analysis, the separate
...it has become more or less orthodox to compare elements found in organizational control systems may be
organizations in terms of their degree of bureaucratization, described at one extreme as being mechanistic, bureaucratic
using Weber's ideal-type 'bureaucracy' as a basis for and highly authoritarian. The other extreme may be
analysis. The distinction offered by Burns and Stalker characterized as organic, democratic and more participatory
(1961) between mechanistic (bureaucratic) and organic in nature. Utilizing this framework, organizational control
organizations has become well established, and the research systems can be analyzed in terms of their component parts
of Woodward (1958), the Ashton group (Pugh et al., 1976) as well as their relative level of centralized authority.
and Richard Hall (1972)...has added empirical substance to These conceptual tools provide practicing managers
the notion that organizations do in fact vary in terms of with a framework useful for the description and analysis of
formal structure. (Burrell and Morgan, 1979, p. 175) the organizational control systems presently in place in
Likewise, managerial subsystems are described as their organizations. Proper specification and consequent
ranging from highly authoritarian to highly participatory appreciation of the layered elements comprising the social
and democratic. Burrell and Morgan (1979) argue that these control system in an organization is the first step toward
differences in managerial subsystems across organizations accomplishing Ostrom's (1974) proposition that, "by
can be discerned in variances of managerial or leadership altering the appropriate conditions, one set of consequences
styles. For example, they cite McGregor's (1960) "Theory judged to be pathological might be avoided and another set
X" and "Theory Y" as providing a clear distinction between of consequences judged to be more benign might be
the highly authoritarian, directive style of management and realized." (p.3)
the flexible, open, democratic style. McGregor "provides a
convenient way of characterizing this dimension of the
managerial subsystem, (p. 176)" Also, this variance in Endnotes
managerial or leadership style is reflected in Likert's work ^or interesting, but widely varying approaches to organi-
(1967), Blake and Mouton's managerial grid (1964) and the zational control see: Eisenhardt (1985), Downs (1966),
Ohio State leadership studies. (Yukl, 1981) Burrell and Anthony and Herzlinger (1980), Hofstede (1981),
Morgan conclude: McGregor (1985), Merchant (1985), Perrow (1986), Schein
[This]...distinction will thus serve to capture the (1985), Weiss (1986) and Williamson (1986).
common element which distinguishes those managerial 2
styles which seek to direct, coerce and control and those For a very practical and comprehensive discussion of the
analysis of organizational culture as it relates to control of

46 Coastal Business Review

organizations, see Edgar H. Schein, Organizational Culture Likert, R. (1967). The Human Organization. New York:
and Leadership, 2nd edition (1993). McGraw Hill.

Biographical Information Lindblom, C. E. (1977). Politics and Markets: The World's

William B. Tankersley is Assistant Professor of Public Political-Economic Systems. New York: Basic Books.
Administration in the Master of Public Administration McGregor, D. (1985, 1960). The Human Side of
Program at the University of West Florida. He is a licensed Enterprise. New York: McGraw-Hill.
certified public accountant (Tennessee), and holds a
doctorate in public administration from Florida State Merchant, K. A. Control in Business Organizations.
University. His 1990 dissertation, "The Effects of Boston: Pitman, 1985.
Organizational Control Structure and Process on Morgan, G. (1986). Images of Organization. Beverly
Organizational Performance" was awarded the 1990-1991 Hills: SAGE.
"Best Dissertation Award" by the Public Sector Division of
the Academy of Management. His experience spans Ostrom.V. (1974). The Intellectual Crisis in American
management consulting, public accountancy and university Public Administration (rev. ed.). University, AL: University
teaching. His writing activities include of Alabama Press.
authoring/coauthoring planning studies, technical reports,
financial reports and academic articles. Otley, D. T. and Berry, A. J. (1980). Control, Organization
and Accounting. Accounting, Organizations and Society,
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