Management Control Systems - Essay Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2013 Introduction Management control system is an instrument that has been used by managers to gather information which is intended to guide and control various activities of the organization, with the aim of achieving the organization’s goals and objectives. According to Macintosh and Daft (1987) control is basically a three stage cycle that involves target setting, monitoring of performance and feedback for correction. Macintosh and Daft (1987) further propose that management control systems should theoretically assist managers to perform the control cycle. Control systems also help managers to evaluate employees and coordinate across departments. With reference to this particular statement, this essay analyses the development of the current modern approaches of the management control system and how it has been used in measuring and managing performance. Management control systems used in modern organizations include; planning systems, reward and compensation systems, cultural control systems, administrative control systems and the cybernetics controls system. All these systems work together in an organization in order to achieve the objectives of the organization. Considering the planning control system, in any contemporary organization, planning plays a very vital function. The planning process involves the actual setting of the organization objectives and also the controlling of the various functions of an organization. A planning control system can be analyzed into two perspectives, action planning and long range planning. In action planning, it involves the use of tactics in planning and covers duration of 12 months. Long range planning makes use of strategies for the medium or long run plans (Maria and Gustav, 2010). In the management control system, planning control system starts with setting the performance standards. Macintosh and Daft (1987) refer to these standards as SOPs (Standard Operating Procedures and Policies). According to Macintosh and Daft (1987), SOPs are laid down rules, policies, procedures and operating manuals that are normally employed in directing managers when managing their departments. It is believed that the written performance standards should not be set too low or too high. The standards which are set too low are normally accomplished but not exceeded and on the other hand, performance set too high they tend not to motive the employees to put all their efforts in attaining their goals. Therefore in the management control system, when it comes to planning, the performance standards should be complete. Managers should ensure that the number of performance standards set in planning controls to attain the objectives should be limited in number and arranged in the mode of priority, to enable the employees be able to attain them in the most successful way (Accel-Team, 2013). The next aspect in planning control is the comparison of outcomes with the actual planned results. This comparison should be done by the most trusted person in the organization especially in the management level. After comparison, the next step involves planning control system, evaluation of the results and giving feedbacks. The feedback should be given to the individual in charge, within the organization. The timing of feedback is another important factor that should be put into consideration. Computer based data feedback mechanism has today been used in many organization and it has proved to be the most effective means of feedback delivery. The last step in planning control system is taking the corrective measures. The planning control system cannot be complete when the corrective measures have not been taken. The corrective measures can mean changing the organization objectives and plans or penalizing the employees who have not worked towards attaining the objectives, which seems to be the best for the organization (Accel-Team, 2013). Considering the reward and the compensation system in the management control systems, this is one of the most important parts of the management. Rewards and compensations are aimed at increasing the morale of employees and trying to make the objectives of employees and the organization to concur. Reward can be either positive or negative. Positive rewards include bonus, salary, promotion, recognition, vacations, power, job titles and time offs. The negative rewards include; no promotion, no salary, humiliation and no job security (Charles, 2006). The reward and compensation control system should be fair irrespective of the economic situation. This is because compensation is basically taken as the earnings and benefits of labour. The compensation could be either intrinsic or extrinsic, where both involve monetary and nonmonetary earnings. The intrinsic compensation goes further and it entails the mental satisfaction of the employees. Most organizations pay wages in two forms. The first being the basic wage and the second being the allowances. The allowance is meant to increase the basic wage and prevent the basic wage from reducing over time. In the reward and compensation control system, the organization is expected to balance the basic wage and the allowances in order to reach a fair deal with the employees in terms of their rewards and the job well done. The reward and compensation control system has the following objectives in an organization. The first objective is efficiency, which tends to connect the wage and the profitability and the application of the individuals skills to the performance levels. The second objective of compensation is the macroeconomic ability, which is achieved through high employment levels and with lower inflation. The third objective is the optimal allocation of labour. This allows employees to be able to move from one job to another in order to receive better reward and compensation (Robert, et al.2013). The fourth objective of reward and compensation control system is to enable the organization acquire qualified personnel for different positions in their organizations. The organization should be able to compete for workers in the market. The reward and compensation should actually reflect the demand and supply of workers in the market. Different organizations compete for employees and therefore the organization should be able to move to the extent of paying premium wages, just for the purpose of attracting other employees to move from the organizations, where they are employed to join. The reward should be fair enough in order to retain employees in the organization and thus preventing the low labour turnover. Other than the four objectives of the reward and compensation control system, the objective is that, it supports, communicates and promotes organizational culture and competitive long term strategy. Through this, the organization is able to carry out job evaluation. The evaluation is carried out in the following ways; through job ranking, job classification and point factor plans. Job ranking is the oldest and the easiest method of job evaluation where jobs were ranked from the most important to the least important. This was achieved mostly through considering the complexity of the jobs (Bernardin, 2008). Considering the cultural control system as a management control system, in any organization there is a culture that exists. An organization culture is the values, beliefs and social norms which are posed by every individual in the organization and it affects their thoughts and actions. The cultural control system in the organization can work in three different ways in order to control the culture in the organization. The first way is by the organization considering employing all employees that have the same values, the second way is by the organization employing employees with totally different values and the last way is by the organization employing employees and then setting certain values which all the employees are to follow, regardless of whether they are willing or not (Maria and Gustav, 2010). For the effective application of the cultural control system by organizations, the cultural control system has been divided into three areas. The first area being the value based control, the second being symbol control and the third being clan control. The value based control is where by the senior members of the organization decide on the organization beliefs and then they communicate them to their subordinates. This is normally done by managers where they decide to come up with beliefs that are directed to assist in the achievement of the organizations strategies and objectives. Some of these beliefs can be communicated through the organization having missions, visions and value statements (Maria and Gustav, 2010). The value based control has the following impacts on the members of the organization. First it ensures that every employee participates fully, as an employee and a member of the organization. The second effect is that, it ensures every employee receives a fair distribution basing on what he or she delivers to the organization as an employee and the owner of the organization. The third requirement is that it ensures that every employee cooperates with the rest to correct problems in the organization that affects their participation and contribution towards the success of the organization. Many modern organizations using value based control has shown that, the system has united every employee to work together in the same spirit, knowing that they own the organization, share risks and contribute to organization performance (Frederick, 1998). Symbol based control as a cultural control system involves the culture that is manifested visually. This can be undertaken through the special kinds of clothes that every employee in the organization is accustomed to be putting on or the special uniform that every employee in the organization has. The clan control in an organization is formed through the subdivisions of the culture in the organization. In the organization the workers can be grouped according to their marching in the professions, organization units or divisions. These so called clans in an organization work through performing certain rituals in the organization. Clan control depends on shared norms, values, beliefs and informal relationships that facilitate the employees towards attaining the objectives of the organization. Mostly the organizations that use clan control have employees who are really trusted. The employees require less supervision and command for them to perform their duties. This is so because the employees participate in deciding the standards and designing the control systems (Ryszard, 2013). Organizational culture is very significant in modern organizations. Studies indicate that when the organizational development was combined with organizational culture, it promoted the working capabilities of people. Organizational culture makes the employees to have an identity towards their organization and their commitments. It also makes the employees to understand the acceptable behaviors and social stability. Further, it was noted that the organizational culture promotes the communication and mutual understanding among the employees. Organizational culture can also have significant effect on employee motivations, employee morale and the employee good will to work efficiently in order to produce high quality work. Finally organizational culture has the potential to increase the performance of the organization, employee individual satisfaction and problem solving (Shili, 2008). Considering administrative control system as the management control system, administrative control directs behaviors through organization of groups and individuals. Through administrative control system, every individual in the organization is made accountable of the results of his or her behaviors in the organization, by determining how tasks should be performed. The administrative control in the organization can be divided into three categories, which include organization structure, governance structure and finally the policies and procedures. In the context of the organizational structure, it can be argued that when managers adopt a certain organizational structure, they can be able to attain certain contacts and relationships. Organizational structure promotes functional specialization and reduces differences in behaviors. The organizational structure has been used by organizations as a management control system because of the many advantages drawn from having the organizational structure. It was noted that the organizational structure promotes communication within the organization. This is achieved through the distribution of authority. When the employees are hired in an organization, they are introduced to the order of authority, this makes them understand the person who is on authority and how the order of command should be channeled. The organization structure also helps in measuring the performance of the employees. When the employees report to their manager according to the duties they have performed, the manager is able to carry out the performance appraisal of every employee. The organization structure was also noted to help achieving of the goals. Through the order of commands that is directed in the organizational structure, every employee in the organization plays an important role in achieving the organization goals. Lastly the organization structure helps in getting solutions for the organization through the corporation of every individual in the organization (Rick, 2009). Considering governance structure as an administrative control system, it is the formal lines of authority and accountability. It deals with the board structure and how it is planned to functioned. The governance structures could be considered as the initiatives of the managers to coordinate meetings with their subordinates and coming up with agendas. The last part of the administrative control is the policies and procedures. Managers in the organizations use policies and procedures to control the process of the organization. They include standards operating procedures and rules and policies. Rules and policies can be portrayed in the action accountability. Finally the last system of the management system and control is the cybernetics controls system. Cybernetics is the study of control of the systems. In other words cybernetics control can be viewed as the system of feedback control. This can be viewed when the there is a standard of performance set for the organization, the organization carries out its activities and at the end of it, the performance is measured against the standards sets. Also, Cybernetic control can be the control of the activities of the organization which can be marked out using a closed loop. This means that feedback procedure is an essential part of the cybernetic, which should be included in the control system. The system of the information in the organization must at least use on one or more loops of information feedback for the efficient running of the organization (Humberto & Heinz, 2001). Four important cybernetic divisions have been used in the management control systems. These are; financial measures, nonfinancial measure, budgets and hybrids. Considering budget as the cybernetic control system, it involves organizations making budgets of the activities which they are going to undertake throughout the year. It was found out that it was fundamental for the organization to make their budgets which corresponds to the financial year. The budgeting process normally takes four distinct processes, which include; set up, follow up, analysis and usage. The financial measures of the cybernetic control system involve employees being held up accountable for the financial issues in the organization. The financial measure is linked with the financial performance which can be either market oriented or accounting oriented. The nonfinancial measures of the cybernetic control system may be used to prevent the shortcomings of the financial measures and to identify the key supporters of performance. The very common example of the nonfinancial measures is the customer satisfaction and market share. By using the nonfinancial measures, the employees can get better understanding of the information that they need in attaining organization’s strategic objectives. Using the nonfinancial measures the investors can have the general view of the organization performance since the nonfinancial performance deals with the intangible values such as R&D productivity where the accounting fails to recognize it as the assets of the organization. This has faced many challenges in the organization, since most o organizations fails to identify and analyze the nonfinancial measures that exist in the organization (Christopher and Ittner, 2003). In general, the hybrid measures of the cybernetic control system involve both financial measures and the non financial measures. The major approach used by the organizations in the hybrid measures was the management by objectives method. According to the management system and departmental independences identified by Macintosh & Daft (1987) it can be stated that, the role of management accounting management system was covered separately from other management control systems. The authors covered the relationship between the department independence and the various management control systems. For the independences of the departments and the management control systems, it was noted that managers used tools for management control systems such as cybernetic control, rewards and compensations, administrative control systems and the planning control system for the efficient management of the organizations that enabled the organizations to achieve their target objectives (Macintosh & Daft, 1987). Conclusion In the organizations, there are various modern management control systems that ensure the smooth running and controlling of the organizations. The major key roles of management control systems include risks reduction, in which the organization is directed towards attaining their specific goals and objectives. The management control system forms the basis for future action of the organization whereby it provides the facts needed for planning and organizing work that help the organizations to track and evaluate their results. Lastly the management control system simplifies supervisions of the managers toward their subordinates. With the use of management control system, it is easy for the managers to supervise their subordinate and direct them towards the right track of attaining the organization goals and objectives. References Charles, T, 2006, what is a compensation system? 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