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Summary Management Control Lectures
Comprehensive summary of Management Control lectures
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Management control – lecture 1What is management control?
- Management control is a “systematic process by which the organization’s higher-level managers
influence the organization’s lower-level managers to implement the organization’s strategy” (Anthony
et al., 2014, p.8)
The goal of management control is to:
- Create a higher organizational performance (long term) by an effective execution of the firm’s strategy.
- Important is that how higher performance is achieved depends a lot on the strategy, management
control could on one hand be helping the organization be efficient, tight in cost control and thereby
create better performance. Management control could also be something where an environment is
created to help an organization implement a very innovative strategy, and thereby create higher
performance. So, management control does not necessarily mean that something is related to
efficiency, but also could be about creating collaboration for example. Management control is about
nearly everything in a company.
There are two main functions of management control:
- Top-down role help decentralized managers: guidance from the top to assist managers.
What decisions to take
What results to achieve
Where to lead their employees and how to use their resources
- Bottom-up role inform higher-level managers: give feedback and inform higher managers about
what is going on in the organization.
What decisions will or have been taken
What results will or have been achieved
Where employees have been led and which resources will or have been used
Why do we need management control?
I – Decentralized managers do not automatically understand the goals and strategies developed by the top
management nor how they can contribute to these a common understanding needs to be created to
help managers understand the strategy. By creating processes, talking of guidance.
II – Decentralized managers do not automatically agree with organizational goals and strategies developed
by the top management processes are needed to help motivate decentralized managers
III – Decentralized mangers do not automatically have the resources needed to act with organizational
goals and strategies developed by the top management the managers want to do something and have
ideas, but they do not have the resources. There needs to be a clear process about how to get the
resources
Top-down role Bottom-up role
Problem I ‘not - Explain strategies and goals of the - Provide feedback when goals are achieved or when
understand’ organization they are unrealistic
- Support coordination across functions & - Enable coordination and cooperation with other
units functions & units
Problem II ‘not agree’ - Motivate lower-level - Facilitate higher-level managers to benefit from
managers/employees to strive for specialized skills and knowledge of lower-level
organizational goals employees/ managers
Problem II ‘no - Resource allocation give decentralized - Enable lower-level managers to acquire the support
resources’ managers the recourses they need. and resources to execute their responsibilities
- Development/ increase of skills of lower- when support/ recourses are needed, lower
level managers/ employees for managers can apply for these recourses
example a training
, Examples of management control, or not?
Result
1. Measuring the sales of a store manager and discussing them T1 & T2, B1 & B2
in a monthly performance review On one hand this helps with the not understanding
problem (T1), because the sales are discussed so it
will be clear what a higher manager wants from the
store manager. It is also related to not aligned,
because creating a performance review gives a good
motivation to store managers to perform (T2). What
is important is that this is activity sounds a lot like
top-down. But is also bottom up, because it also
helps higher level managers about what a store
manager is doing (B1) and the higher managers can
benefit from the knowledge of the store managers
(B2). For example, about products consumers are
interested in.
2. Establishing a Friday afternoon ‘borrel’ on every last Friday of T1 & T2, B1 & B2
the month This is related to management control, if you think
about such a borrel, it is something that is
systematically implemented. It is about creating more
collaboration between people. It is creating a nice
atmosphere. This is typically more important in
innovative companies rather than efficient
companies.
3. Allowing store managers to select personnel, but not to have T3 & T1, B2 & B3
influence over the product range in the store On one hand it is really related to recourses. Also, it is
helping a lot that you can benefit from specialized
knowledge of store managers (B2). A store manager
probably knows better what a store needs, rather
than a more central head quarter.
On the other hand, it is also related to the strategy,
decentralized managers might not understand the
strategy. For this reason, it can be determined that a
store manager can choose personnel, but is not
allowed to choose the product for the stores.
4. Giving sales persons a bonus for each sale T2
This is a narrow part of management control; it is
relating to motivate people. But not to understanding
the problem or how to relocate resources.
5. Requiring improvements plans from sales persons after three T2 & B1
consecutive months of underperformance (sales below Relating to T2, because of an incentive that is given to
average) perform better. Also, an option is given where
decentralized can be asked why they did not get the
goals (B1). So, they can explain why they are not
preforming well. These reasons are important for
headquarters to understand, so they can make an
improvement plan. Also, when it is not the fault of
the employee, but due to something else. It is
important that it is explained.
6. Conducting a workshop to design the firm’s new strategy This is not necessarily management control; it would
be management control when a workshop is
conducted after a strategy is designed. In this case it
would be related to T1 and B1.
T1: top-down, not understand B1: bottom-up, not understand
T2: top-down, not aligned B2: bottom-up, not aligned
T3: top-down, no resources B3: bottom-up, no resources
, Recap lecture 1:
- Management control is a “systematic process by which the organization’s higher-level managers
influence the organization’s lower-level managers to implement the organization’s strategy”
- The two main functions of management control are the top-down role (helping decentralized
managers) and the bottom-up role (informing higher level managers).
- Why do we need this: management control is needed as not all managers may ‘understand’ the firm’s
strategy, ‘agree’ with organization’s goals or ‘have the resources’ to implement the firm’s strategy?
- What is management control? Management control may relate to formal (a bonus system) and more
informal activities (a regular social activity, such as an afternoon ‘borrel’).
Management control – lecture 2
Management control systems (MCS)
- Could be defined as the systematic. Way in which an organization exercises management control
- It comprises all arrangements, tools and techniques that enable top-down and bottom-up control.
- Determine the emphasis on specific control types (e.g., output controls or clan controls)
- Determine the activities to accomplish management control (e.g., the use of financial rewards to
influence employee behavior).
Why is MCS design important?
- Situations where the MCS was not successful
Boeing: airplanes had technical faults. The management control system was really focused on safety.
Then there were some competitors, which caused that decreasing cost was important in the
management control system. By doing this, a tension was created with the safety culture. The focus
was more on decreasing cost rather than on safety.
Volkswagen: diesel gate, the issue at Volkswagen was the culture (fear and respect). When
managers asked lower managers to get something done, they tried to do it, even if it was unrealistic.
They tried to do whatever, just so that higher level managers weren’t bothered because of the fear
they had for them. There were very unrealistic targets concerning the diesel engines. There wasn’t
an open culture in which problems could be discussed.
Control types to achieve management control (I/II) – Ouchi (1979)
Behavior controls: for example, a Mac.
Donald’s restaurant where each employee
has clear guidelines on how to perform their
task
The main activities in a MCS that perform management control:
- Planning: determining what the organization should do (e.g., developing budgets) it is the deciding
what an organization should do, it can be very strict which leads to an organization being more
bureaucratic or there can be an overall goal.
- Coordinating: enabling activities of several parts of the organization (e.g., by allocating resources for
certain activities)
- Communicating: communicating information across the organization (e.g., conference meetings, formal
letters (intranet)) internal communication within an organization is very important for management
control.
- Evaluating: evaluating certain information, for example, the measured output of a business unit or
employee
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