Page 212 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 10: Interactive Control

Notes

Notes They are considered adaptive if the two systems are internally consistent, consistent
with one another and designed to permit learning that is effective in continuously meeting
the competitive challenges in the environment.

10.4.2 Formal Control System

There are generic set of five mutually supportive management subsystems and is useful for
describing the formal aspects of management control systems.
The details of the sub-systems are given below:

Management Style and Culture of the Organization

Management styles may be summarized on a continuum between highly directive or autocratic
styles (external styles) and highly participative styles (internal styles). Style influences the
design of management systems in that, these systems serve management and should fit the way
management chooses to operate. The corporate culture consists of shared values, common
perceptions and common decision premises applied by organization’s participants to the activities
and problems of the organization.

Formal Control Process

Two distinct formal planning processes are strategic planning and operations planning. There
are two budgets: one for operations and one for strategy. There are two sets of reports: one for
strategic reports and one for operating activities. Monthly, quarterly and yearly to date
comparisons are made and detailed operating variances are calculated to assess progress towards
achieving operating plans. Reporting against strategic plans accompany action programme of
projects that are monitored over time.

Infrastructure

The infrastructure consists of organization structure and patterns of autonomy. The corporate
structure needs to embody provisions for both the strategic and operational mode of operations.
One for strategic business planning is to create Strategic Business Units (SBUs) at various levels
of the organization. An SBU is defined for those parts of business that can relate to an established
outside market, including competitors. Profit centres are then established at various levels
below the SBU level. Each of the profit centres acts like a small business organization with profit
responsibility.

Rewards

!
Caution Rewards must match incentives to the value contribution of individuals in the
organization.

Incentives take the form of materialistic and non-materialistic inducements and include all
forms of monetary compensation together with non-monetary forms. The reward system should
emphasize both individual and group performances as well as operating and strategic
performance. Formal reward programmes are necessary to reward performance on all four
dimensions.

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