Slide 1.
Chapter 1:
Management and Control
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.2
Management control
The process by which management:
ensures that people in the organization carry
out organizational objectives and strategies;
encourages, enables, or, sometimes forces
employees to act in the organizations best interest.
Management control includes all the devices/mechanisms
managers use to ensure that the behavior of employees is
consistent with the organizations objectives and strategies.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.3
Function and benefit
Purpose/function
get done what management wants done;
influence behavior in desirable ways.
Benefit
increased probability that the organizations
objectives will be achieved.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.4
Management and its components
Objective Setting
Strategy Formulation
Management Control
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.5
Objective setting
Objectives are
a necessary prerequisite for any purposeful activities.
Without objectives, it is impossible
to assess whether the employees actions are purposive;
to make claims about an organizations success.
Objectives can be
financial versus non-financial;
quantified, explicit versus implicit;
economic, social, environmental, societal.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.6
Strategy formulation
An organization must select any of innumerable
ways of seeking to attain its objectives.
Strategies define how organizations should
use their resources to meet their objectives.
Hence,
strategies put constraints on employees to
focus activities on what the organization does
best or areas where it has an advantage over
competitors.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.7
Key questions
Are our employees likely to behave
appropriately?
Do they understand what we expect of them?
Will they work consistently hard and try to do what
is expected of them?
Are they capable of doing what is expected of them?
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.8
The basic control problem
Management control is about encouraging
PEOPLE to take desirable actions,
i.e., it guards against the possibilities that employees will
do something the organization does not want them to do,
or, fail to do something they should do.
Hence, management control has a
BEHAVIORAL ORIENTATION !
If all personnel could always be relied on to do what is
best for the organization, there would be no need for a
management control system.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.9
Basic control issues
Three issues:
Do they understand what we expect of them
Lack of direction
Will they work consistently hard and try to do what
is expected of them
Lack of motivation
Are they capable of doing what is expected of them
Personal limitations
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.10
Lack of direction
Employees do not know what the organization
wants from them.
When this lack of direction occurs, the likelihood of
the desired behaviors occurring is obviously small.
COMMUNICATION + REINFORCEMENT !
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.11
Motivational problems
When employees choose not to perform as
their organization would have them perform.
Because
Lack of goal congruence
Individual goals do not coincide with organizational goals.
Self-interested behavior
Generally, individuals are prone to being lazy
e.g., take long lunches, overspend on things that make
life more pleasant, use of sick leaves when not sick, etc.
More extreme examples of motivational problems:
Employee crime (fraud and theft).
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.12
Personal limitations
Sometimes, people are unable to do a good job
because of certain personal limitations they have.
Some examples/causes:
lack of requisite knowledge, training, experience;
employees are promoted above their level of competence;
some jobs are not designed properly;
etc.
TRAINING
JOB ASSIGNMENT
JOB DESIGN
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.13
Note that
Management controls do not always involve a simple
cybernetic system like a thermostat
Detector
Assessor
Effector
measure performance;
compare with pre-set standard;
take corrective action.
Many controls dont focus on measured performance
e.g., direct supervision, employee hiring standards,
codes of conduct.
Many controls are proactive rather than reactive
i.e., they are designed to prevent control problems before the
organization suffers any adverse effects on performance.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.14
Control can be achieved through:
Control Problem Avoidance
Management Control Systems
Action Controls;
Results Controls;
People Controls.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.15
Control-problem avoidance
Three possibilities:
Activity elimination
e.g., subcontracts, licensing agreements, divestment.
Automation
Computers/robots eliminate the human problems
of inaccuracy, inconsistency, and lack of motivation;
Only applicable to relatively easy decision situations;
Automation can be very costly.
Centralization
Superiors reserve for themselves the most critical
decisions.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.16
Control alternatives
Controls can focus on:
the actions taken
ACTION CONTROLS
the results produced
RESULTS CONTROLS
the types of people
employed and their
shared values and
norms
PEOPLE CONTROLS
Or any combination
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.17
Depending on
Excellent
Action Control
and/or
Results Control
Results Control
Poor
(e.g. movie director,
entity manager)
High
Action Control
(e.g. large projects)
People Control
(e.g. research lab)
Low
Knowledge of which specific actions are desirable
Ability to measure results on important performance dimensions
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 1.18
Overview
Can people be avoided?
(e.g. automation, centralization)
Yes
No
Can you rely on people involved?
No
Yes
Yes
Can you make people reliable?
Control-problem
avoidance
People controls
No
Have knowledge about what Yes Able to assess whether
specific actions are desirable?
specific action was taken?
Yes
No
Have knowledge about what
results are desirable?
No
Action controls
Yes
Able to measure results?
Yes
Results controls
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
