Table of contents
2 Types of controls
3 Effectiveness and advantages/disadvantages
4 Tightness and costs
List of references
Management Control Systems (MCS) vary considerably among different organisa- tions. This essay will critically discuss the different types of controls in three sec- tions.
2 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 separa- tion of duties is applied to limit the employee's competence to execute all or a por- tion of specific actions. Nevertheless, the restriction of decision-making-authority supposes that managers of high-ranking positions are more trusted. Moreover, sep- aration of duties is a fundamental requirement of internal control, but it cannot pre- vent possible collusion. Making behavioural constraints foolproof is quite difficult, especially when the company is dealing with deceitful and disloyal people. Sec- ondly, 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 perfor- mance dimension; (2) measuring performance on these dimensions (in either finan- cial 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 di- verse reward forms can vary largely depending on individuals' circumstances and tastes. Moreover, defining the right performance dimension is quite challenging be- cause the aims that are set and the measurements that are made will shape the em- ployee'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 (Mer- chant & Van der Stede, 2017).
Wells Fargo, for example, measured their cross-selling success by the average num- ber of products held by a customer. The unintended consequence was a widespread practice of employees opening new accounts for existing clients without their con- sent, because otherwise they did not reach their minimum goals. This scandal led to a $185 million fine and the dismissal of thousands of employees (Heskett, 2017).
Financial terms are often defined at higher levels of organisations, whereas opera- tional measures are usually used at lower ones. This variation creates a hinge inside the management hierarchy (Merchant & Van der Stede, 2017).
Measuring non-financial performance can offer some benefits, such as reflecting intangible values or evaluating the business` progress. However, many organisa- tions fail to identify, analyse, and act on the right non-financial measures (Ittner & Larcker, 2003).
Furthermore, in a dynamic and quickly changing environment, it is essential to adapt and effectively manage the measurement systems, so that they remain rea- sonable and relevant to the issues that are of current importance (Kennerly & Neely, 2003).
Merchant and Van der Stede (2017:95) state that “personnel controls can be imple- mented through (1) selection and placement, (2) training, and (3) job design and resourcing. In other words, finding the right people to do a particular job, training them, and giving them both a good work environment and the necessary resources is likely to increase the probability that the job will be done properly”. However, finding the right people who are self-motivated by their own aims which are con- gruent with the organisation's objectives is difficult.
Models of cognitive ability, personality, vocational interests, biodata, and situa- tional judgment tests are often used for personnel selection (Borman, 2003).
A study by Piotrowski and Armstrong (2006:489) shows that the majority of firms rely on traditional recruitments and personnel selection techniques over the use of online assessment methods. “Personality testing is popular in about 20% of the companies and one-fifth of the respondents plan to implement online testing in the future. Furthermore, screening for honesty -integrity (28.5%) and violence potential (22%) was found to be somewhat popular”.
There are five ways to shape culture in an organisation: (1) by codes of conducts as fundamental guiding principle of the company; (2) group rewards such as bonuses, profit-sharing or employee ownership of a company stock; (3) intra-organisational transfers; (4) physical and social arrangements like office plants, dress codes or vocabulary, and (5) tone at the top, which means that the top management state- ments and behaviours must be consistent with the type of culture they are trying to create (Merchant & Van der Stede, 2017).
Google has one of the most successful corporate cultures and landed several times on the top spot of the best companies to work for. Beside free gourmet meals, com- plimentary massages and the “80/20-rule”, there are also many others intangible qualities that keep "Googlers" satisfied, productive and dedicated to the company. Moreover, it has a purpose that is direct and clear: "To organize the world's infor- mation and make it universally accessible and useful” (Forbes, 2018:4).
3 Effectiveness and advantages/disadvantages
Su et al. (2015) claim that different control types can lead to a higher level of em- ployee organisational commitment, which is defined as an employees’ identifica- tion with the companies’ values, their willingness to perform well and their inten- tion to stay with the company.
- Quote paper
- Anonymous, 2019, Management Control Systems, Munich, GRIN Verlag, https://www.grin.com/document/498218