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Nature of Management Control Systems

This document discusses two views of management control systems and their relationship to business strategy. It also outlines the key elements of a control system, including detectors, assessors, and effectors. Finally, it explains the differences between management control, which involves human decision-making, and simpler task control systems.

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182 views2 pages

Nature of Management Control Systems

This document discusses two views of management control systems and their relationship to business strategy. It also outlines the key elements of a control system, including detectors, assessors, and effectors. Finally, it explains the differences between management control, which involves human decision-making, and simpler task control systems.

Uploaded by

Kim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BA 221: The Nature of Management Control Systems

Thursday, April 4, 2019 7:49 PM

Management Control Systems: 2 Views


• Management Control systems must fit the firm's strategy
○ First, strategy must be developed through a formal and rational process
○ Strategy then dictates the design of the firm's management systems
 Ideal if environmental changes are predictable
• Strategies emerge through experimentation which are influenced by the firm's management
systems
○ Management control systems can affect the formulation of strategies
○ Best suited in a rapidly changing environment where there is no sufficient time to formulate
a strategy

Elements of a Control System


• Detector: measures what is actually happening in the process being controlled
• Assessor: determines the significance of what is actually happening by comparing it with some
standard or expectation of what should happen
• Effector: feedback that alters behavior if the assessor indicates the need to do so
• Communications Network: transmits information between the detector and the assessor and
between the assessor and the effector

Management
• The management control process is the process by which managers at all levels ensure that the
people they supervise implement their intended strategies
• Contrast with Simpler Control Process
○ Standards are not preset- it is a result of a conscious planning process
○ Controls are not automatic- requires human involvement
○ Requires coordination among individuals
○ The connection between the need for action and identification of the required action may
not be clear
 Black Box: an operation whose exact nature cannot be observed
○ Management control is self-control

System
• Prescribed and usually repetitive way of carrying out an activity or set of activities
• MCS are far more complex than a typical system

Strategy Formulation --> Management Control --> Task Control


Goals, strategies, and policies Implementation mechanism Efficient and effective
for strategies performance of individual tasks
Strategy Formulation
• Process of deciding on the goals of the organization and the strategies to attain those goals
• Goals: overarching aims; Objectives: specific steps to achieve goals within a given timeframe
• Complete responsibility for strategy formulation should never be assigned to a particular person or
organizational unit. Nobody has monopoly over "bright ideas".

Management Control
• Process by which managers influence other members to implement the organization's strategies
• Other Implementation Mechanisms
○ Organization Structure: roles, reporting lines, division of responsibilities that shape decision-
making in an organization
○ HR management: selection, training, evaluation, promotion, and termination of employees
to develop the knowledge and skills required to implement the company strategy
○ Culture: set of common beliefs, norms, attitudes that influence and guide managerial actions

Strategy --> Implementation mechanisms --> Performance


• Management control activities
• Organization structure
• HR Management
• Culture

MBA Page 1
• Covers both Financial (bottom-line) and Non-Financial (product quality, market share, customer
satisfaction, on-time delivery, employee morale)
• Activities
○ Planning the future course of action
○ Coordinating and communicating the various activities of the organization to different
departments
○ Evaluating information and deciding what to do
○ Influencing people to work in accordance with the goals of the organization.

• Goal Congruence: the goals of individual members are consistent with the goals of the entire
organization
• Interactive Control: Today's controls are tomorrow's strategies

Task Control
• Process of ensuring that specified tasks are carried out efficiently and effectively
• Transaction oriented- involves the performance of individual tasks according to rules established in
the MC process

Impact of the Internet to MC


• Instant access use: On the web, the huge amount of data can be sent to anyone anywhere in the
world in a matter of seconds.
• Multi-targeted communication: The Internet has a vastly expanded one-to-many reach; one web
entry can reach millions of people.
• Costless communication: Communication with customers via the internet avoids the costs of
salaries of telephone operator.
• Ability to display images: The Web enables the customers to see the products being offered for
sale.
• Shifting power and control to the individual: The individual is the “king”. Consumers are in
control and can use the web 24 hours a day at their own conveyance without being interrupted or
unduly influenced by sales representatives or telemarketers.
• The internet however does not substitute for the fundamental processes involved in MC
○ Understanding the relative importance of the various and sometimes competing goals that
drive individuals to act e.g. personal achievement versus collective achievement, value
creation for customers and shareholders rather than oneself.
○ Aligning various individual goals with those of the organization.
○ Developing specific objectives by which business units, functional areas and individual
departments will be appraised.
○ Communicating strategy and specific performance objectives throughout the organization.
○ Determining the key variables to be measured in assessing an individual’s contribution to
strategic goals.
○ Evaluate actual performance relative to the standard and making inferences as to how well
the manager has performed.
○ Conducting productive performance review meetings.
○ Designing the right reward structure.
○ Influencing individuals to change their behaviors.

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