Summary study book Management control systems of Robert N. Anthony, Vijay Govindarajan, Frank G. H. Hartmann, Kalle Kraus, Göran Nilsson - ISBN: 9780077133269, Edition: 1, Year of publication: 2014
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Rijksuniversiteit Groningen (RuG)
Economie en bedrijfseconomie
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Samenvatting Management Control Systems
Chapter 1 Introduction to management control
The goal of management control systems is to implement organizational
strategies. Organizations that are able to efficiently meet their strategic
objectives are the best performers in the long run. Management control,
therefore, directly concerns organizational performance and one of its challenges
is, indeed, to increase the organization’s long-term performance. Management
control systems consist of the various ways in which the organization’s top
management team attempt to enhance the organization’s performance in line
with strategic objectives. Such typical control system elements include strategic
planning; budgeting; resource allocation; performance measurement, evaluation
and reward; responsibility center allocation; and transfer pricing.
Management control is the systematic process by which the organization’s
higher-level managers influence the organization’s lower-level managers to
implement the organization’s strategies. Management control is about
decentralized organizations.
Large firms that strive to maximize their value on behalf of their shareholders are
the organizations that are the most in need of informing their decentralized
managers about the strategic goals and associated actions that will satisfy their
owners.
Decentralization causes a number of reasons why lower-level managers do not
automatically perform in line with the organization’s overall objectives:
Decentralized managers do not automatically understand the goals and
strategies developed by higher-level managers, nor how they can
contribute to these goals and strategies.
Decentralized managers do not automatically agree with organizational
goals and strategies developed by higher-level managers.
Decentralized managers do not automatically have the resources needed
to act with organizational goals and strategies developed by higher-level
managers.
An important first function of management control is its top-down function to
provide lower-level managers with a clear sense of direction that helps them take
actions, make decisions and achieve results that help the organization to achieve
its overall goals. Bottom-up, management control should inform higher-level
,managers about the progress of decentralized managers in their efforts to
achieve organizational objectives.
Motivation to achieve the organization’s goals may be lacking because managers
have private goals that are incompatible with the goals of the organization.
Private goals include goals that managers try to achieve out of self-interest, and
that lead to the consumption of organizational resources for private reasons. An
important second function of management controls is their top-down function to
motivate lower-level managers to take actions, make decisions and achieve
results that help the organization achieve its overall goals. Bottom-up,
management control should facilitate the higher-level managers to benefit from
the specialized skills and knowledge of decentralized managers.
An important third function of management control is its top-down function to
ensure that decentralized managers have the skills and the organizational
resources they need to perform in line with organizational objectives. Bottom-up,
management control should enable lower-level managers to acquire the support
to develop their skills as well as the organizational resources to execute their
responsibilities.
Planning concerns the decisions that managers need to make about what the
organizational participants need to do in the future.
Organizing concerns the use of physical, human and financial resources in such
a way that the plans can become operational, and the planned actions can be
taken.
Staffing concerns the managerial responsibility to ensure that the organization
employs the right people to perform the actions.
Leading concerns the managerial function of ensuring that the plans and
planned activities are followed by organizational participants.
Controlling suggests the importance of establishing whether the actions and
activities are performed according to plan.
With management control it is not only about the way in which individual
managers decide and act, but rather how managers across levels cooperate. For
this reason management control goes beyond the individual managerial functions
in three ways:
1. Management control is the systematic process by which the organizations
higher-level managers influence the organization’s lower-level managers.
, This means that management control integrates the various managerial
functions in such a way that these functions in conjunction help the
organization to realize its strategies.
2. Management control is about different layers in the organizational
hierarchy. Management control connects different hierarchical levels to
help the organization to realize its strategies.
3. Management control is not just about managerial decisions and actions; it
is about the tools and techniques that managers apply in their execution of
management control.
Typical cost accounting tools that managers could use to keep score, direct
attention and solve problems are variance analysis and budgeting.
The persistence of the relevance of financial information for management control
can be explained by at least two reasons:
The importance of money as the overall measure of organizational
performance
The general importance of the organization’s overall accounting system to
satisfy the information needs of the organization’s stakeholders.
Management control is about influencing the behavior of humans in organizations
in such a way that this behavior becomes goal-congruent. Goal-congruent
behavior is behavior that helps the organization to implement its strategies and
to reach its goals. Goal-congruent behavior is hard to obtain and assess in a
timely manner for three reasons:
1. Managers may deviate from the organization’s strategies because they do
not understand or support those strategies or lack the resources to
accomplish the organization’s strategies.
2. The concept of goal-congruent behavior is problematic in itself as it is not
always a priori clear which behavior is goal-congruent and which behavior
is not.
3. Even if the need for management control is clear and management control
has become a part of the managerial task, good management control is
quite a challenge for those managers exercising it. It requires that,
throughout the organizational hierarchy, managers understand what the
organizational strategies require them to do, and are able to inform the
organizational participants under their supervision about those strategies
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