Slide 3.
Chapter 3: Action, Personnel, and Cultural Controls
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.2
Action controls
Ensure that employees perform (or do not perform) certain actions known to be beneficial (or harmful) to the organization Prevention / detection
Most action controls are aimed at preventing undesirable behaviors
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.3
Effectiveness of action controls
They are usable and effective only when managers:
Know what actions are desirable Difficult in highly complex and uncertain task environments (e.g., research engineers or top-level managers) Have the ability to make sure that the desirable actions occur For example, effectiveness of organizational procedures?
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.4
Behavioral constraints
Physical
Locks, passwords, limited access, etc.
Administrative
Restriction of decision-making authority Separation of duties, etc.
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.5
Preaction reviews
Scrutiny of action plans, investment proposals, budgets
Review and approval Part and parcel in (capital) budgeting processes, which are otherwise mainly a results control mechanism
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.6
Action accountability
Holding employees accountable for the actions they take
It requires:
Defining what actions are (un)acceptable Communicating these definitions to employees
For example, work rules, policies and procedures, codes of conduct
Observing or otherwise tracking what happens
Direct observation/supervision Periodic tracking (e.g., mystery shoppers) Evidence of actions taken (e.g., activity reports)
[Rewarding good actions, or] punishing actions that deviate
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.7
Redundancy
Assigning more people (or machines) to a task than necessary
For example, backup people or facilities
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.8
Pros and cons of action controls
PRO
CON
The most direct form of control Tend to lead to documentation of the accumulation of knowledge as to what works best
Organizational memory
Only for routine jobs May discourage creativity, innovation and adaptation May cause sloppiness May cause negative attitudes
An efficient way of coordination
For example, little opportunity That is, they increase the for creativity and selfpredictability of actions and reduce actualization the amount of inter-organizational information flows to achieve a Sometimes very costly coordinated effort
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.9
Personnel/cultural controls
People controls (for short) ensure that employees:
Will control their own behaviors
Personnel control Self monitoring
Will control each other
Cultural controls Mutual monitoring
People controls are part of virtually every management control system, and indispensable in flatter and leaner organizations with empowered employees
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.10
Personnel controls
Personnel controls build on employees natural tendencies to control themselves, because most people
have a conscience that leads them to do what is right find self-satisfaction when they do a good job and see their organization succeed
Labels ...
Self-control Intrinsic motivation Ethics and morality Trust and atmosphere Loyalty
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.11
Implementing personnel controls
Generally, it is about
finding the right people, giving them a good work environment and the necessary resources
Selection and placement
Finding the right people to do a particular job
Training
Give employees a greater sense of professionalism Create interest in the job by helping employees to understand their job better
Job design + provision of necessary resources
So that motivated and qualified employees have a high probability of success (e.g., equipment, staff support, freedom from interruption)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.12
Cultural controls
Cultural controls or mutual monitoring tap into social pressure and group norms and values Cultural controls are effective because members of a group have emotional ties and a sense of responsibility to one another
Cultures are built on shared ...
traditions norms beliefs ideologies attitudes ways of behaving
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.13
Ways to shape culture
Codes of conduct
Codes of ethics; corporate credos, mission statements, etc.
Formal written documents with broad statements of corporate values, commitments to stakeholders, and the ways in which top management would like the firm to function Fundamental guiding principles of the company
Group-based rewards
For example, profit-sharing, employee ownership of company stock
These are cultural controls (although of a results control nature) because the link between group (individual) performance and rewards is stronger (weaker)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.14
Ways to shape culture (continued)
Intra-organizational transfers
Improve the socialization of individuals in an organization and alleviate the formation of incompatible goals and perspectives
Improve identification with the organization as a whole as opposed to subunit identification
Physical and social arrangements
For example, office plans, interior decor, dress codes and vocabulary, etc.
Tone at the top
Top management statements must be consistent with the culture they are trying to create, and importantly, their behaviors should be consistent with their statements
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 3.15
Start with people controls
People controls Must always be relied on to a certain extent
Have relatively few harmful side-effects
Involve relatively low out-of-pocket costs
However, it is rare that people controls will be sufficient; hence, in most cases, it is necessary to supplement them with
Action controls Results controls
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
