Management Control Topic 2

The Control Process

1. Measure the performance achieved

2. Compare the performance achieved and estimated

3. Take corrective actions to avoid problems and improve in the future

Importance of Management Control

It is the final target of the management as it supervises and monitors all functions, resources, and processes

3 Main Questions Related to Management Control

• Do they understand what we expect fo them? (Lack of directional problem)

• Will they pursue organizational objectives? (Motivational problem)

• Are they capable of doing so? (Personal limitations)

4 Types of Management Controls

1. Result Controls

2. Action Controls

3. Personnel Controls

4. Cultural Controls

Process of Results Controls

1. Rewarding only “good” results

2. Working on short term desire (employee’s greed)

3. Align with the company’s long-term objectives

Steps to Apply Controls on Results

1. What do we want to achieve? (Definition of dimensions)

2. How are we going to measure the dimensions? (Definition of performance measures - financial/ non-financial)

3. What is the performance objective? (Performance level definition)

4. What is the reward related to the achievement obtained (Incentives)

What Control Problems does Result Controls Solve?

• Lack of direction

• Motivation problems

• Personnel limitations

Action Controls

involves practices that ensure that employees act in the organization’s best interest

4 Forms of Action Controls

• Behavioral constraints

• Preaction reviews

• Redundancy

• Action accountability

What Control Problems does Behavioral Constraints Solve?

• Motivation Problems

What Control Problems does Preaction Reviews Solve?

• Lack of direction

• Motivational problems

• Personnel limitations

What Control Problems does Action Accountability Solve?

• Lack of direction

• Motivational problems

• Personnel limitations

What Control Problems does Redundancy Solve?

• Motivational problems

• Personnel limitations

3 Personnel Controls

1. HR selection and placement (hiring strategies)

2. Training

3. Job design and sourcing

What Control Problems does Selection Process Solve?

• Lack of direction

• Motivational problems

• Personnel limitations

What Control Problems does Training Solve?

• Lack of direction

• Personnel limitations

What Control Problems does Job Design and Sourcing Solve?

• Personnel Limitations

Cultural Controls

designed to encourage mutual or peer monitoring. based on social norms of conduct, respect among co-workers, and rule diffusion by example rather than word only

Means of Cultural Control Implementation

• “Tone at the top”

• Employee internal rotation

• Group rewards

• Physical arrangement and dress codes

• Codes of conduct

What Control Problems does Codes of Conduct Solve?

• Lack of direction

• Personnel limitations

What Control Problems does Group Rewards Solve?

• Lack of direction

• Motivation problems

• Personnel limitations

What Control Problems does Employee Internal Rotation Solve?

• Lack of direction

• Personnel limitations

What Control Problems does “Tone at the Top” Solve?

• Lack of direction

What Control Problems does Physical Arrangements and Dress Codes Solve?

• Personnel limitations

Motivation

desire to achieve the chosen goal (goal congruence) combined with the resulting pursuit of this goal (effort)

2 Factors for Motivation to be Effective

1. Goal Congruence: when individual goal coincides with the organizational target

2. Effort: effort is high enough to achieve the target

Direct Costs

all out of pocket costs related to controls (e.g. bonuses for achieving the targets of result controls, audit fees, etc.)

Indirect Costs

costs linked to the design of innapproproial controls that detach employee behavior from organizational objectives (e.g. rewarding brokers only based on sales commission, allocating R&D budgets only based on patents)

Adaptation Costs

costs incurred to adapt the organization’s control systems across different business units, local business environments, distinct regulatory regimes, etc.

Personnel and Cultural Controls

generate few adverse outcomes and costs are low

Results and Action Controls

more powerful and generally go hand in hand