Internal and Process Performance Approaches - Coursework Example

? Answer Organizations have in the past measured and managed their performance through internal or process performance approaches which have not been in the position of providing the management information they need to measure and mange the organization effectively and efficiently. This has prompted the use of the balance scorecards approach which enables the organizations to balance the internal and process measures with results and the financial measures which gives the managers a complete picture of the organization as well as the areas where they should make improvements (Lipe and Salterio 2000). This approach was developed by Kaplan and Norton through the development of a set of measures otherwise called by them as “a balance scorecard.” The approach has the ability of giving the managers of organization a fast and quick view of the organization in terms of measures and management of performance information which includes both process and results measures (Swain, Krumwiede and Eaton 1999). The balanced scorecard is compared to the dials and the indicators in an airplane cockpit due to its ability to give comprehensive information simultaneously about the current and the predicted environment needed by managers for effective and efficient management. Information from this approach is ought to be gathered using the four model approach as follows:- in the customers perspectives, the managers are required to know if they are able to satisfy their customers’ needs hence the need for them to respond to the question as to how the customers see them. Secondly, the model will allow the managers to focus on the critical internal operation which enables the organization satisfy the customer needs, this is known as the internal business perspective. Thirdly, the approach gives the innovation and learning perspective which shows the ability of the organization to innovate, improve and learn. These should be tied closely to how they create value to the organization and the services provided by the organization. Lastly, we have the financial perspective of the approach which focuses on profit and market share when it comes to private ventures while in public organizations the financial measures would include the result oriented measures (Lipe and Salterio 2000). Therefore, the balanced scorecard is an organizational framework used in the implementation and management strategy at all the levels of the organization. It does this by linking objectives, initiatives and measures to an organization’s strategy. Hence, the approach can be termed as a strategic management system as opposed to only a measurement system due to its ability to function in both ways (Lipe and Salterio 2000). In addition, the tool enables the organization to be able to clarify their vision and strategy while translating them into action. The full use of the balanced scorecard enables an organization to transform their strategic planning to merely an academic exercise into the nerve center of the organization and its operations through the provision of the overall performance of the organization. This is done through the integration of all the financial measures like ROI, RI and EPS with the other key performance indicators of the organization which are found around the customer’s perspective, internal business processes, organizational growth as well as learning and innovation (Swain, Krumwiede and Eaton 1999). As opposed to Kaplan and Norton, Robert Simons in the explanation of the levers of control and how they can be used in understanding the scope and practice of management control argues that management control systems are formal, information based routines and procedures that are used by managers to maintain and alter patterns in organizational activities (Swain, Krumwiede and Eaton 1999). Hence as compared to the four perspectives in the balanced scorecards, this approach gives us the four levers of control which can be summarized as the control framework used by managers for the administration of conflicts or the strain existing between creation of value and management of value (Simons 1995). The four levers of control according to Simons are as follows:- belief systems which are systems within an organization and they communicate the core values of the organization, values that the organization stands for such as the mission and vision statements. Secondly, there is the Boundary system which defines the limits within which an organization and its stakeholders of employees can operate e.g. the ethics statement or operational guidelines. Still we have the Diagnostic control system which defines the critical performance aspects of the organization such as output measurement and valuation standards. Lastly, the fourth lever is the Interactive control systems and they are specifically designed in an organization for the provision of strategic feedback for uses in the enhancement and redirection of strategy e.g. the competitive analysis and the market feedback reports (Simons 1995). As opposed to the balanced scorecard, the levers of control are in the aspect of creating management systems that can be used to control strategy is difficult. Simons hence advise managers to be in the position of understanding their strategies well and sticking to them (Simons 1995). As well the managers need to understand well the connection between strategic and operational decisions and find out clearly how the two are linked to financial performance. Budgets and accounting performance measures play major roles in the two concepts. This is because budgets are numerical and represent the resources to be use by organizations while accounting performance measures such as ROI, EPS and RI are indicative values that are employed in the decision making processes. Depending on the budget set aside by the management in the implementation of a concept the managers will know which operations to initiate first and this decision will be supported by the calculations provided of the accounting measures (Swain, Krumwiede and Eaton 1999). Therefore budgets and accounting performance measures play the role of focusing the attention of the managers on any forms of negative variances hence enabling an interactive use by the main actors. They in this way enable the organization to be run in a smooth and straight forward manner through providing indicative patterns of motivation and behavior required for the fulfillment of the respective organizational goals (Simons 1995). Answer 2 Controllability principle is built on responsibility accounting hence viewed as the cornerstone of responsibility accounting. The principle gives the managers the discretion of only evaluating elements that are within their control. Therefore, controllability principles ensures that in as much as a manger can be responsible for a given division within an organization, the principle ensures that they are only responsible or are only held responsible for the factors that they can control. Hence, responsibility accounting serves as a communication system upon which organization goals are achieved while controllability principles has the role of making this communication system more clearer and understandable making controllability principle and appealing notion (Arya 2007). Responsibility accounting on the other hand is a concept under the traditional management control systems that allows for ease of decentralization in the modern forms of organizations. It has the functions or distributing accountability and provision of accounting reports on the distributed accountabilities. Responsibility accounting has the ability of streamlining the subsystems of large organizations so that they have similar goals (Arya 2007). Hence, responsibility accounting is a system where managers are held responsible for all the activities under their leadership therefore providing a foundation upon which the controllability principle is built. This relationship between the two terms makes them inseparable as one depends on the other for the efficiency and effectiveness of the organizations (Berry, Broadbent & Otley 1998). Responsibility accounting is a concept among those in the accounting performance measurement systems. This concept is enhanced due to the difficulty experienced when trying to run large diversified organizations hence the decentralization and separation into manageable sections. The parts are the ones referred to as the responsibility centers and there are individuals responsible for each center hence responsibility accounting. Such centers include revenue center, cost centers, profit centers and investment centers. The managers of whom the responsibilities of each of the segment are assigned are also bestowed to poses the greatest influence over the resources to be managed in each of the segments depending on the element they are in control of (Arya 2007). This drives us to the underlying concept under responsibility accounting which is controllability. Here, it is attested that a manager should only be held responsible for the aspects of performance which he or she has control. Responsibility accounting may therefore take the form of an accounting system which collects, summarizes and reports accounting data that relates to the responsibilities of individual managers. It is an accounting system which tracks and gives a report of costs, expenses, revenues and operational statistics by way of area of responsibility or the organizational unit (Arya 2007). Therefore the system is endowed with the provision of information to evaluate each manager on the revenue and expense items over which the manager has control and influence. While some of the reports of responsibility accounting normally contain only those items that are subject to control by each responsibility manager, others will normally contain both controllable and non controllable. In responsibility accounting and control as well as report, the identification and separation of the factors is mandatory and in a clear manner. This is irrespective of whether the items are controllable or non-controllable (Berry, Broadbent & Otley 1998). For efficiency in the implementation of the responsibility accounting system, the organization must be organized well to allow for the assignment of responsibilities to the individual managers (Arya 2007). This is after the respective managers and their lines of responsibility are fully defined and separated. It is important to note that it is the organization’s chart that is normally used as a basis for reporting in responsibility accounting. Without clearly defining the clear lines of responsibilities and the items upon which such clarifications are done, it may be difficult to implement responsibility accounting hence the stress laid upon such definition. After such clarifications are made there is delegation of decision making to the respective departments for as many items as possible but still there are items that must still remain under the management and decision making of the top management (Berry, Broadbent & Otley 1998). The distribution of the items depending on the department is to bust the traceability to a particular manager’s area of responsibility to find out the impacts of their controls to the overall performance of the organization. In case of underperformance of the department by a particular manager or detection of any malpractice, it is the manager whom will be penalized as they are considered responsible for anything in their departments (Berry, Broadbent & Otley 1998). Responsibility accounting and controllability principle goes hand in hand and control exists in two major forms that are absolute and relative. The former is rare as any manager is required to have absolute control over an item to enable them be held responsible (Arya 2007). Because of other factors that may be beyond a manager’s control the items which they are considered responsible for may go out of hand hence at such instances we find ourselves compromising absolute control due to the identified degree of uncontrollability as may be established in each situation. This makes or leaves us with the option of holding the manager only responsible for those items in the department upon which they have relative control as these are the items upon which the manager has control over most of the factors that may affect them (Berry, Broadbent & Otley 1998). In this regard controllability principle becomes part and parcel of responsibility accounting. It is even prudent to deduce that it is upon responsibility accounting that controllability principle is derived. There are only minute challenges that are observed most so when it comes to relative controllability concept since it leads to motivational problems as the manager’s evaluations may be conducted on basis of premises that do not totally reflect their efforts or decisions. The controllability principle applied well as seen above becomes an unqualified good (Arya 2007). Answer 3 Motivation is the urge to do something and it comes from within, a motivated employee is very easy to work with and this makes motivation a tool to enhance control in any organization. There are a number of things that a manger is able to do to motivate their employees to enhance their controllability of the organization in terms of management (Ortmann & Hertwig 2006). This is the challenge that most managers in modern organization face today, the form of motivation they are likely to employ to enhance their management control of the organization. The manager apart from other factors they are able to control their relationship with each of the employees and as well create a conducive work environment and reputable organization culture that fuels employee motivation (Ariely & Bracha 2007). Monetary rewards are today the basis upon which most employees get motivated in the process of realizing change in the organization (Scheuer 2000). This happens in the form of the management changing the monetary incentive to realize a change in the desired behavior in the workers hence enhanced tool of control. Monetary incentive from research is found to be effective and most efficient in attracting, motivating, and retaining employees not to forget that monetary incentives can enable an organization create a high performance culture in the organization hence management control enhancement (Ariely & Bracha 2007). However, it is important that managers are cautious when using such incentives and they are advised to mix them with other non-monetary sources of motivation. This is because in as much as monetary incentives are good for motivating and enhancing management control there are other instances when the same is not very possible (Ortmann & Hertwig 2006). They only tend to be effective in cases when the link between the cause of an individual’s action and the desired outcome exists. Without such a link, monetary reward as a source of motivation and management control is irrelevant and the management has to device a non-monetary technique to ensure that they retain control which they so much desire. It has to be noted that managers are most concerned about the motivation they offer to the employees since motivated employees are happy, loyal and productive and easy to control attributes that are highly needed by companies (Ariely & Bracha 2007). Motivating employees have proved a great challenge in the past but there are a number of theories that can be used to create practices, procedures and processes that influence the motivation of the employee and hence management control efficiency and effectiveness. Management control is needed by managers for the sake of supporting organizational aims and objectives (Scheuer 2000). Maslow initiated a hierarchy that shows how people attain a sense of satisfaction; the hierarchy is most often used in most organizations to explain what employee motivation is and all that satisfies each and every employee and the order in which each of the needs are satisfied. The satisfaction of the needs may take the approach of the monetary context or non-monetary though in one way or the other they result into a monetary impact to an organization (Ortmann & Hertwig 2006). With all the needs well satisfied employees are in the position of doing their work well a scenario which makes the work of the managers quite easy. In this stage the concept of external and internal controls emerge; the concept is otherwise called locus of control and it helps individuals understand self verses control by others. Management controls for the achievement of the organizational goals is mainly feasible when the employees use the locus of control to convince them and make them believe that they are able to exercise control over their work and their environment through their own actions hence ease in control of employees who are self reliant (Scheuer 2000). It is true that employees who are facing internal locus of control always tend to be self motivated and little do they need external approval or rewards hence there is no need for monetary incentives for them to undertake their roles effectively. This is despite the fact that often or not manager’s use monetary incentives to achieve the company’s financial targets or the accounting performance measures like ROI, RI, EPS and others (Ariely & Bracha 2007). The accounting performance measures are the goals of each and every organization. They are achieved through budgetary mechanisms which are the plans of action with regards to the resources of an organization. As is witnessed above, an organization needs a motivated workforce for the sake of the efficiency and effectiveness of its functions. Such forms of effectiveness are mainly arrived at by looking at the measures of accounting performances. Employees who require monetary incentives to provide results are given such incentives and there are others who do not require such incentives in monetary terms. They are as well given the motivation in the way they need them for the sake of collective achievement of the stipulated goals (Ortmann & Hertwig 2006). The achievement of management control will be realized when the set objectives are scrutinized against the actual achievement. The resultant shortfalls or gains are given the right corrective measures which may involve the adjustment of the budgets to accommodate the extra requirements. This is derived from the need for achievement which explains the need for individuals to see for higher rewards for their perceived actions (Ariely & Bracha 2007). This case scenario is particularly relevant in the employment world and it shows that individuals as a result are able to move from lower level achievement to higher level achievement all the way to the highest achievable levels. And as these levels increase, the levels of management control also raise in equal measures hence a satisfaction on the managers in terms of goal and aims achievement (Ortmann & Hertwig 2006). Answer 4 Cybernetics is viewed as a subset of management or management control. This is because research findings have it that the principles of cybernetics have been used implicitly by management control. The cybernetics framework lays emphasis on information flow through the cybernetics systems; this extends to finding ways in which this knowledge is used within such systems to achieve their ends in a self correcting way (Salazar & Leonard 2006). Before going deep into this discussion lest say that cybernetics and management control are interactive concepts and requires use an implementation for the sake of efficiency and effectiveness in management control and ultimate influence on management. This is because just like in many areas of human pursuit, it does not present so much of the inventions of new theories and principles. This has made cybernetics be the most preferred mark through its articulation and internalization of notions that have previously been presented in an empirical manner (Beer 2006). Our analysis of the above framework with regards to budgeting, we start by us looking at the framework that links the management of businesses and cybernetics. Then we look at the conceptual makeup of the managerial process and make an identification of the major components of cybernetics. Later an assessment of cybernetics and its impacts on management and control on some elements of management control aspects. The components forming an organization are called organisms and they translate to form the cybernetics systems. Since organizations may not have aspects considered by more basic theories, we can hence expect to find the applicability of cybernetics to management as a necessity (Beer 2006). This is despite the fact that such applicability may not be in the position of fully describing and rationalizing the management process. In the process of moving from conceptual machines to cybernetic systems there are errors that are encountered together with uncertainty and change in the environmental factors. The movement into organisms is coupled with a variety of irrational behaviors engendered with limited capabilities. In moving an organization into culture, social behavior and interactive modes much difficulty is always experienced hence one needs to be extremely careful when trying to relate cybernetic control to the management of real world organizations (Salazar & Leonard 2006). Control is a key aspect of a budget and it is the last element in the implementation cycle. The process revolves around collection of information about the performance of the budgetary system; such information is then compared to the desired or planned values. This step prompts action in case the actual of a budget is different from the desired hence the controller manager can either increase or decrease depending on whether there is a fall or a rise in the values. The control process hence involves reporting of performance, comparison of the differences between desired and actual levels of performance and accounting for why the differences exists between the planned and the reality. This due to the fact that managerial activities in business organizations include both planning and control aspects which ranges from environmental analysis which looks at the environment upon which an organization will be dealing with. Thereafter goals and alternative directions are determined through the normative criteria. Thereafter, the goals are transformed into operational propositions and objective actions after which the choice is made on a critical decision. These are decision that must be undertaken to reach the desired objectives according to management plan (Beer 2006). These decisions will prompt the next step which is the choice of indicators which will inform the managers as to when they are within the track or out of the track. The indicators will be measured and their effectiveness through the measurements chosen, this involves the choice of dimensions as well. To complete the management mechanism, there has to be a choice of a management information and control system. The description above indicates that management control shares critical components of a cybernetic control system as the whole seven step process depicts a complete cybernetic process which is simplified as goal formation, hierarchical structuring and the control aspect (Salazar & Leonard 2006). With regards to goal formation, cybernetics has very little influence on management and management control. Perfectively competitive organization models allow the market to serve as a cybernetic control system through relaying a lot of emphasis on the results of the process as opposed to the process itself (Beer 2006). The emergence of the field of cybernetics has enabled organizations to start understanding the importance of viewing economic and business activity in terms of dynamic organizational adjustments through uncertainty. The history of cybernetics is marked with a series of careful and serious science that is surrounded by a colorful penumbra of speculation and loose analogies of which a number of cultural values have grown up though they seem not to have any solid backing of the arguments presented (Salazar & Leonard 2006). Despite this cybernetics is one of the sure ways of ensuring management control. This is because it is the area of control that cybernetics exerts more significant and influence that cannot be disputed. Through cybernetics budgets of large companies can today be controlled through provision of automatic quality controls (Beer 2006). This has allowed the takeover of managerial functions, redefinition of the same functions and upgrades where necessary through the aid of cybernetics. The control through cybernetics does not exist only in operations of such organizations but also in the planning perspectives. Another area where cybernetics has been applied in organizations is in the areas of servomechanisms controls of organizations (Beer 2006). If the business poses partial knowledge about its changing environment, many disturbances is created which must be corrected hence the need for cybernetic controls hence exercise of cybernetics in practice (Salazar & Leonard 2006). References Ariely, D, & Bracha, A, 2007, Doing good or doing well? Image motivation and monetary incentives in behaving prosocially, Tel Aviv: Eitan Berglas School of Economics. Arya, A, 2007, The controllability principle in responsibility accounting: another look, Cambridge: Canada. Beer, S, 2006, Decision and control; the meaning of operational research and management cybernetics, Wiley: London. Berry, A.J, Broadbent, J, & Otley, DT, 1998, Management control theory, Ashgate: Aldershot, Hants, England. Lipe, M, and S, Salterio. 2000, The balanced scorecard: Judgmental effects of common and unique performance measures. The Accounting Review (July): 283–298. Ortmann, A, & Hertwig, R, 2006, Monetary incentives: usually neither necessary nor sufficient? CERGE-EI: Prague. Salazar, AM, & Leonard, A, 2006, Cybernetics and public administration, Emerald Group Pub: Bradford, England. Scheuer, S, 2000, Social and economic motivation at work: theories of work motivation reassessed, Copenhagen Business School Press: Copenhagen. Simons, R. 1995, Levers of Control, HBS Press: Boston, MA. Swain M, K, Krumwiede, and T, Eaton, 1999, Effects of balanced scorecard performance measures on decision process and decision quality. Working paper, Brigham Young University. Read More