Page 33 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Managerial style is important to the design of Control System because:
1. Control Systems influence the behaviour of those controlled in that the controllee focuses
his energies centralized on the matters “that count”, because this is the manner in which
his performance is evaluated.
2. The precise manner in which Control System influences behaviour depends on how the
systems are used by the managers.
3. Managers differ in the use of Control Systems i.e., they have different styles of control.
Though there is infinite number of Managerial Control Styles, it is possible in principle to
describe three pure types of Managerial Styles in terms of their influence on the design of
Control Systems. These are:

1. External Control Style: Under the External Control Style, the decision-making mechanism
is managed by top executives after data are gathered at lower levels in the organisation.
The external style uses a rather mechanical, authoritative, control system whereby goals
are set at a demanding level, comprehensive formal measures are developed so as to
cover all the areas of performance, the measurement system is designed to prevent
manipulation on the part of controllees and rewards are tied closely to performance
measures. This style is likely to produce considerable tension and will limit the flow of
negative information from subordinates to the superiors.

Design a control system in the external control style, the following characteristics has
been identified.
(a) Infrastructure: Powerful Central Management Group, semi autonomous divisions
and highly refined formal systems of goals and controls. Product managers are used
to do worldwide product planning and marketing. Normally such situation develops
a strong controller organisation. Controllers directly report to the divisional
controllers and the corporate controller checks the movement of inventories,
payables, receivables and detects the first sign of incipient loss, excessive stocks or
unprofitable products.

(b) Rewards: Positive incentives and big bonuses are used effectively to motivate superior
performance. Sometimes the bonuses are 30% or more of their salary. This results in
intensive competition among executives and always there is a tendency to show
higher performance than what is actually achieved.

(c) Communication and integration: Here subordinates are scrutinized through the use of
staff and through the use of frequent meetings. Parallel channels of information are
used from the line and staff to monitor operations.
(d) Control Process: A highly detailed formal planning and control process is used to
provide the facts in a variety of ways. Managers submit 5 year and 1 year plans.
Weekly, monthly and quarterly reports measure progress against plans. Internal
controls, monthly management reviews, constant pressures and samplings, are used
to measure progress. Comprehensive analysis are done on policies and plans as to
sales, returns and capital requirements.
2. Internal Control Style: The internal style is more participative and attempts to capitalize
upon the internal needs and motivation of the subordinates, such as the need to
accomplishment mastery, socialization, power and self-esteem in an attempt to build
internal commitment for organizational goals. The formal and informal controls then
emphasize self-control and steering control.

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