Management Control

Where management control is imposed, it functions within the framework established by the strategy. Normally these objectives (standards) are established for major subsystems within the organization, such as SBUs, projects, products, functions, and responsibility centers.

Typical management control measures include ROI, residual income, cost, product quality, and so on. These control measures are essentially summations of operational control measures. Corrective action may involve very minor or very major changes in the strategy.

Operational control systems are designed to ensure that day-to-day actions are consistent with established plans and objectives. It focuses on events in a recent period. Operational control systems are derived from the requirements of the management control system.

Corrective action is taken where performance does not meet standards. This action may involve training, motivation, leadership, discipline, or termination.

The differences between strategic and operational control are highlighted by reference to a general definition of management control: "Management control is the set of measurement, analysis, and action decisions required for the timely management of the continuing operation of a process". This section discusses in the terms presented.

  • Strategic control requires data from more sources. The typical operational control problem uses data from very few sources.
  • Strategic control requires more data from external sources. Strategic decisions are normally taken with regard to the external environment as opposed to internal operating factors.
  • Strategic control are oriented to the future. This is in contrast to operational control decisions in which control data give rise to immediate decisions that have immediate impacts.
  • Strategic control is more concerned with measuring the accuracy of the decision premise. Operating decisions tend to be concerned with the quantitative value of certain outcomes.
  • Strategic control standards are based on external factors. Measurement standards for operating problems can be established fairly by past performance on similar products or by similar operations currently being performed.
  • Strategic control relies on variable reporting interval. The typical operating measurement is concerned with operations over some period of time: pieces per week, profit per quarter, and the like.
  • Strategic control models are less precise. This is in contrast to operational control models, which are generally very precise in the narrow domain they apply.
  • Strategic control models are less formal. The models that govern the considerations in a strategic control problem are much more intuitive, therefore, less formal.
  • The principal variables in a strategic control model are structural. In strategic control, the whole structure of the problem, as represented by the model, is likely to vary, not just the values of the parameters.
  • The key need in analysis for strategic control is model flexibility. This is in contrast to operating control, for which efficient quantitative computation is usually most desirable.
  • The key activity in management control analysis is alternative generation. This is different from the operational control problem, in which in many cases all control alternatives have been specified in advance. The key analysis step in operations is to discover exactly what happened.
  • The key skill required for management control analysis is creativity. In operational control, by contrast, the formal review of outcomes to discover causes means that they skill required is the ability to do technical, even statistical, analysis of the data received.
  • The relationship between action and outcome is weaker in strategic control. This is not surprising, as the most desirable area for control in strategic problems -the environment -is the least subject to direct action.
  • The key action variables in strategic control are organizational. In the operational control problem, technical factors such as labor levels, production levels, choice of materials, and the like are the predominant control levels.
  • Alternative actions in strategic control are less easy to choose in advance. In strategic control problem, it is possible to choose all possible action responses to received data in advance. In an operational control problem, the few responses possible can usually all be worked out before any operating data received.
  • The worst failing in strategic control is omitting a worthwhile action. In operating control, the most typical sins are those of omissions (e.g., complaints about too many people employed, too many defects, and too much inventory). In the strategic control problem, sins of omission are much more serious (e.g., not moving into a business opportunity when it presents itself, not undertaking a particular social program, not applying resources to meet that challenges in the best fashion).
  • The time for strategic control is longer. The period in which control has an impact is longer for strategic problems that for operating problems.
  • The timing of strategic control is events oriented. By contrast, operating decisions tend to be made on a periodic basis, and they are usually measured accordingly.
  • Strategic control has little repetition. Not even the structure is the same as past problems of a like kind, much less the technical details. Operating problems, by way of contrast, tend to repeat their structure.
  • Strategic control requires a greater variety of data types. Operating control problems typically have a smaller variety of data.
  • The total volume of data required for strategic control is smaller. On the other hand, perhaps thousands of pieces of data of each type are required for some of operating problems (e.g., the payroll processing of even a small organization).
  • Strategic control data are more aggregated. Operating data are used at the most detailed at transaction level.
  • Strategic control data are less accurate. Operating data generally need to be as accurate as possible.
  • The most important strategic control information is structural. Unlike the operational control are, the values of the technical variables are only of secondary importance.
  • The receipt of data for strategic control is more sporadic. Data for strategic problems are received sporadically as events take place.
  • Strategic control data are less processable by computer. The strategic control that arise in the environment rather than within the organization are generally not so easily available. For the most part, such data need not be computerized. It does imply that any computerization of strategic control tools must consider the important step of capturing necessary in machine-readable form.
  • The key decision in information for strategic control is what data to save. The principal problem in operating control information systems design is the technological problem of efficiently capturing and retrieving data.
  • Contingency plans are less possible in strategic control. The whole idea of contingency plans is much more difficult in the strategic arena. It is more difficult to generate all possible actions ahead of time in a strategic problem, because the alternatives are too numerous and too complex.
  • Triggering contingency planning is more important in strategic control. Because of this difficulty in making contingency plans, triggering an examination of alternatives when things do not go according to plan becomes much more important.
  • Preprogrammed variance analysis is less possible in strategic control. For an operational control model might be possible that the computer performs all possible variance analyses (in the accounting sense). For strategic control it is both difficult technically and impossible practically.
  • A variance inquiry system is more necessary in strategic control. It seems important to have an inquiry system linked to the formal planning model with which combinations of deviations from plans can be explored by the human operator.
  • A variance inquiry language is more necessary in strategic control. Some sort of language in which the human can do variance inquiries is highly desirable in the area of strategic control.
  • An augmented formal planning system in more necessary in strategic control. A formal planning system should be augmented with the variance inquiry language described. This would permit the same system that was used to generate the plan to be used in controlling that plan, leading to both ease of additional analysis as well, as to consistency with the plan being controlling.

An organization's effectiveness is in major part a measure of the effectiveness of its master strategy. Selection of the appropriate basis for assessing organizational effectiveness presents a challenging problem for managers and researchers.

There are no generally accepted conceptualizations prescribing the best criteria. Different organizational situations - pertaining to the performance of the organization's structure, the performance of the organization's human resources, and the impact of the organization's activities -require different criteria.

J. Barton Cunningham, after reviewing the relevant literature, concluded that seven major ways of evaluating organizational effectiveness existed: rational goal model, systems resource model, managerial process model, organizational development model, the bargaining model.

The rational goal approach focuses on the organization's ability to achieve its goals. An organization's goals are identified by establishing the general goal, discovering means or objectives for its accomplishment, and defining a set of activities for each objectives.

The organization is evaluated by comparing the activities accomplished with those planned for. These criteria are determined by various factors.

The systems resource model analyzes the decision-makers's capability to efficiently distribute resources among various subsystem's needs. The systems resources model defines the organization as a network of interrelated subsystems.

These subsystems needs may be classified as:

  • bargaining position -ability of the organization to exploit its environment in acquisition of scarce and valued resources;
  • ability of the systems' decision-makers to perceive, and correctly interpret, the real properties of the external environment;
  • ability of the system to produce a certain specified output;
  • maintenance of internal day-to-day activities;
  • ability of the organization to co-ordinate relationships among the various subsystems;
  • ability of the organization to respond to feedback regarding its effectiveness in the environment.
  • ability of the organization to evaluate the effect of its decisions;
  • ability of the organization' system to accomplish its goals.

Each organizational problem requires a specific allocation of resources. The bargaining model presumes that an organization is a cooperative, sometimes competitive, resource distributing system.

Decisions, problems and goals are more useful when shared by a greater number of people. Each decision-maker bargains with other groups for scarce resources which are vital in solving problems and meeting goals.

The overall outcome is a function of the particular strategies selected by the various decision-makers in their bargaining relationships. This model measures the ability of decision-makers to obtain and use resources for responding to problems important to them.

Each of the subsystems' needs should be evaluated from two focal points: efficiency and stress. Efficiency is an indication of the organization's ability to use its resources in responding to the most subsystems' needs. Stress is the tension produced by the system in fulfilling or not fulfilling its needs.

The managerial process model assesses the capability an productivity of various managerial processes -decision making, planning, budgeting, and the like -for performing goals.

The managerial process model is based on the intuitive concept of substantial rationality, which interrelates the drives, impulses, wishes, feelings, needs, and values of the individuals to the functional goals of the organization.

This model appraises the organization's ability to work as a team and to fit the needs of its members. The model focuses on developing practices to foster:

  1. supervisory behavior manifesting interest and concern for workers;
  2. team spirit, group loyalty, and teamwork among workers and between workers and management;
  3. confidence, trust and communication among workers and between workers and management;
  4. more freedom to set their own objectives.

The model's procedure attempts to answer four main questions:

  1. Where are we?;
  2. Where do we want to go?;
  3. How will we get there?;
  4. How will we know when we do get there?

These questions can be divided into four areas: question one is concerned with diagnosis, question two with the setting of goals and plans, question three with the implementation of goals, and question four with evaluation.

This model is concerned with changing beliefs, attitudes, values, and organizational structures so that individuals can be better adopt to new technologies and challenges. It is a process of management by objectives in contrast to management by control.

The structural functional approach tests the durability and flexibility of the organization's structure for responding to a diversity of situations and events.

According to this model, all systems need maintenance and continuity. The following aspects define this:

  • security of the organization as whole in relation to the social forces in its environment (this relates to ability to forestall threatened aggressions or deleterious consequences from the actions of others);
  • stability of lines of authority and communication (this refers to the continued capacity of leadership to control and have access to individuals in the system);
  • stability of informal relations within the organization;
  • continuity of policy making (this refers to the ability to reexamine policy an a continuing basis);
  • homogeneity of outlook (this refers the ability to effectively orient members to organization norms and beliefs).

In the functional approach an organization's effectiveness is determined by the social consequences of its activities.

The crucial question to be answered is: how well do the organization's activities serve the needs of its client groups?

The appraisal of an organization's effectiveness should consider whether these activities are function or dysfunctions in fulling the organization's goals.

These seven models have their strengths and shortcomings depending upon the organizational situation being evaluated. The choice of evaluation approach usually hinges on the organizational situation that needs to be addressed.

Until 1965, and not uncommonly even today, conventional wisdom held that planning and control in organizations should be separated: "... control must reflect plans; and planning must precede control". In 1965, Robert Anthony of the Harvard Business School put forward a novel framework for the analysis of planning and control systems.

Anthony's basic thesis is that planning and control are so closely interlinked in organizations as to make their separation meaningless and undesirable. He suggests, it makes much more conceptual and practical sense to link together similar and interwind planning and control activities into systems of homogeneous characteristics.

Instead of two categories of planning and control (a practice still supported by certain authorities), Anthony suggests that organizational planning and control be segmented into three categories:

  1. strategic planning
  2. management control
  3. task (operational) control

It is important to note that Anthony's terminology, is somewhat misleading. When Anthony says "strategic planning" he means "strategic planning and control." Similarly "management control" embraces both planning and control activities.

According to Anthony:
"Strategic planning is the process of deciding on the goals of the organization and the strategies for attaining these goals."

Strategies are guidelines for deciding the appropriate actions for attaining the organization's goals. The essential difference between strategic planning and management control is that the strategic planning process is unsystematic.

Strategic control occurs in three ways. First, strategic planning is itself a form of control. Second, strategic plans are converted into reality not only by their influence on the management control activity but also by the key decisions regarding allocation of resources.

Third, while capital budgeting systems can respond to requests for resources that are consistent with the accepted strategic plan, the period between formal, comprehensive strategic planning exercises can give rise to unanticipated changes in the environment or unexpected internal crises.

Anthony views management planning and control as the processes by which (1) organizational objectives are achieved and (2) the use of resources is made effective and efficient.

"Management control is the process by which managers influence other members of the organization to implement the organization's strategies."

Management control decisions are made within the guidance established by strategic planning. Management control is a systematic process. It is done by managers at all levels; it is done on regular basis; it involves the whole organization; and it involves a large amount of personal interaction and relatively less judgment.

There are two somewhat different types of management control activities: (1) the management control of operating activities, and (2) the control of operational projects.

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The Evaluation And Control Of Organizational Strategy
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