This essay will critically discuss the different types of controls in three sections. This essay aims to analyze the different types of control systems as well as their effectiveness, their advantages and their disadvantages. It will also focus on Tightness and costs.
Management Control Systems (MCS) vary considerably among different organisations. There are several different forms of action control.
Management control choices are based on many factors. The effectiveness, tightness and costs of the different types of controls vary in any single situation and organisation. Hence, managing and implementing MCS is quite challenging.
Table of Contents
1 Introduction
2 Types of controls
3 Effectiveness and advantages/disadvantages
4 Tightness and costs
5 Conclusion
Research Objectives and Themes
This essay critically examines the nature and application of Management Control Systems (MCS) within organizational settings. The primary objective is to evaluate how different forms of controls—ranging from action and results controls to personnel and cultural mechanisms—function, their inherent advantages and disadvantages, and the strategic implications of balancing control tightness with organizational costs.
- Categorization and mechanisms of various management control types.
- Evaluation of effectiveness, controllability, and performance measurement.
- The role of personnel and cultural factors in organizational commitment.
- Strategic trade-offs between control tightness, costs, and side-effects.
- The influence of organizational context and firm size on control system design.
Excerpt from the Book
Types of controls
According to Merchant and Van der Stede (2017), there are four different forms of action controls. Firstly, behavioural constraints are a negative form of it. Action controls try to prevent employees from doing undesirable things and can be applied physically or administratively. Restriction of decision-making authority or separation of duties is applied to limit the employee's competence to execute all or a portion of specific actions. Nevertheless, the restriction of decision-making-authority supposes that managers of high-ranking positions are more trusted. Moreover, separation of duties is a fundamental requirement of internal control, but it cannot prevent possible collusion. Making behavioural constraints foolproof is quite difficult, especially when the company is dealing with deceitful and disloyal people. Secondly, preaction reviews involve the scrutiny of investment proposals, action plans and budgets. Proposed actions get reviewed and approved, disapproved or some modifications are requested. Thirdly, action accountability means that employees are held accountable for the actions they take. The fourth form is redundancy and means that there are more employees assigned to an activity than necessary. It raises the chance that a task will be reliably completed, but it can result in conflict or frustration. Table 1 shows the three fundamental control problems addressed by different forms of action controls.
The implementation of results controls involves four steps: (1) defining the performance dimension; (2) measuring performance on these dimensions (in either financial or non-financial, subjective or objective terms); (3) setting performance targets; and (4) providing rewards (or punishments) for target attainment, through both monetary and non-monetary incentives. However, motivational effects of the diverse reward forms can vary largely depending on individuals' circumstances and tastes. Moreover, defining the right performance dimension is quite challenging because the aims that are set and the measurements that are made will shape the employee's view of what is important. In other words, what you measure is what you get. Hence, if the measurement dimensions are not congruent with the company's objective, the controls will encourage employees to produce undesired results (Merchant & Van der Stede, 2017).
Summary of Chapters
1 Introduction: Provides an overview of the variability of Management Control Systems (MCS) across organizations and introduces the scope of the critical discussion.
2 Types of controls: Explores the four forms of action controls and the implementation steps for results controls, highlighting challenges in performance measurement.
3 Effectiveness and advantages/disadvantages: Discusses the conditions necessary for effective results and action controls, including their impacts on employee commitment and organizational behavior.
4 Tightness and costs: Analyzes the strategic choice of control tightness, the associated financial and indirect costs, and the risk of harmful side-effects like behavioral displacement.
5 Conclusion: Summarizes that MCS choices are highly contingent upon specific organizational situations, making the implementation of such systems a complex management task.
Keywords
Management Control Systems, Action Controls, Results Controls, Performance Measurement, Personnel Controls, Cultural Controls, Control Tightness, Organizational Commitment, Behavioral Displacement, Agency Theory, Strategic Context, Incentive Systems, Motivation, Management Hierarchy, Corporate Culture
Frequently Asked Questions
What is the core focus of this publication?
The work provides a critical examination of Management Control Systems (MCS), exploring different control types, their effectiveness, and the financial and behavioral implications of their implementation.
What are the central themes discussed in the text?
The central themes include the classification of action and results controls, the role of personnel and cultural factors, the trade-offs between control tightness and costs, and how organizational context influences control system design.
What is the primary objective of this essay?
The objective is to critically analyze how diverse MCS mechanisms function and to identify the factors that determine their success or failure in aligning employee behavior with organizational goals.
Which scientific approaches are utilized?
The text employs a review-based approach, synthesizing established management literature and theoretical frameworks—such as agency theory and contingency-based research—to evaluate MCS effectiveness.
What topics are covered in the main body?
The main body details the forms of action and results controls, discusses performance measurement challenges, examines the strategic use of personnel/cultural controls, and analyzes the costs and side-effects of tight control systems.
Which keywords best characterize the work?
Key terms include Management Control Systems, Performance Measurement, Personnel Controls, Control Tightness, Organizational Commitment, and Behavioral Displacement.
Why is performance measurement considered a significant challenge in MCS?
Measuring performance is challenging because if metrics are not congruent with organizational objectives, they can lead to undesired employee behaviors, as demonstrated by the Wells Fargo case cited in the text.
How does firm size affect the choice of control systems?
The text notes that as firms grow, administrative complexity requires more sophisticated MCS; larger firms often utilize tighter administrative controls, whereas smaller firms frequently rely more on personnel and cultural controls.
What are the potential negative side-effects of tight controls?
Tight controls can lead to harmful side-effects such as behavioral displacement, gamesmanship (like data manipulation or creating slack resources), operating delays, and negative employee attitudes.
- Quote paper
- Anonym (Author), 2019, Management Control Systems, Munich, GRIN Verlag, https://www.grin.com/document/498218
