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Management Control Systems Chapter 4: Control Tightness (or Looseness) Merchant and Van der Stede: Management Control Systems © Pearson Education Limited.

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Presentation on theme: "Management Control Systems Chapter 4: Control Tightness (or Looseness) Merchant and Van der Stede: Management Control Systems © Pearson Education Limited."— Presentation transcript:

1 Management Control Systems Chapter 4: Control Tightness (or Looseness) Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003

2 - 2 - Control and “good” control... u “” u “Good control” is said to take place when there is … –a “high” probability that the firm’s objectives will be achieved; –a “low” probability that major unpleasant surprises will occur. u Hence, the benefit of a control system can be expressed in terms of the amount of control achieved. u In this respect, tight control is “good” because it provides a high degree of certainty that people will act as the organization wishes (assuming away harmful side-effects … ).

3 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited Tight action controls … ( I ) u Behavioral constraints –Physical constraints »Extra protection usually costs more. –Administrative constraints »Restricting decision making to higher organizational levels provides tighter controls if: u Higher-level personnel can be expected to make more reliable decisions; u Those who do not have authority cannot violate the constraints. u Preaction reviews –Become tighter if the reviews are frequent, detailed, and performed by diligent, knowledgeable persons.

4 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited u Action Accountability –The amount of tightness of control generated by action accountability depends on: »The definition of (un)desirable actions u Definitions must be specific, yet complete; –e.g., “act professionally” vs. “obtain three competing bids before releasing a purchase order” u Definitions must be understood and accepted. »The effectiveness of the action-tracking system u Employees should feel that their actions are noticed, and noticed relatively quickly. »The reinforcement provided u i.e., the significance of the rewards or punishments. Tight action controls … ( II )

5 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited u The definitions of the desired results areas u The performance measures u The reinforcements provided –The definitions of the desired results areas »Congruence u Choosing measurable performance dimensions that reflect an organization’s “true” objectives; u e.g., # visitors for the success of a museum ? # of patents for the success of R&D-departments ? Annual profits for a firm with significant growth prospects ? »Specificity u Disaggregation + quantification; u e.g., “keep customers happy” vs. “less than 1 pct. customer complaints.” The achievement of tight results controls depends on: ( I )

6 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited The achievement of tight results controls depends on: ( II ) –The definitions of the desired results areas »Congruence »Specificity »Communication and internalization u Depends on: –qualification of the personnel involved; –the amount of participation allowed in the goal-setting process; –the perceived degree of controllability; and, –the reasonableness of the goals. »Completeness u What you measure is what you get ! u Hence, when the defined results areas are incomplete, performance in the unmeasured areas is likely to slip.

7 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited –The performance measures »precision (cf., amount of “noise”) »objectivity (cf., freedom of “bias”) »timeliness u Refers to the time lag between the individual's performance and the measurement of results. »understandability u What are we held accountable for? u How can the measure be affected? –The reinforcements provided »Links between results and rewards should be: u Direct: i.e., no ambiguity or buffers; u Definite: i.e., no excuses. The achievement of tight results controls depends on: ( III )

8 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited u The tightness of personnel controls depends a great deal on the overlap between individual and organizational objectives: the larger the overlap, the lesser the perceived tightness »Selection, training and job design are methods to implement personnel controls u Cultural controls are often more powerful + stable »Strong company cultures. Tight people controls …

9 Merchant and Van der Stede: Management Control Systems © Pearson Education Limited Control combinations... u In order to achieve tighter control, managers often use multiple forms of controls which can either reinforce each other or overlap... u The aim is: –to achieve (tighter) control over all the factors critical to the entity’s success; or, –to obtain a high degree of assurance that employees will behave as the organization wishes.


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