Management control is crucial for every organization. How is it, then, that this topic is rarely discussed? Moreover, there is neither a uniform definition in practice nor in academia. Below, you will learn more about the importance of management control for your organization and how to begin implementing it right away.
To gain a solid understanding of management control, it is essential to view this discipline within the context of management. In the most recent work by Merchant & Van der Stede from 2017, they assert that management control constitutes the 'back end' of the management process. According to Merchant & Van der Stede, management control has the same meaning as 'execution' and 'strategy implementation.' The philosophy of Merchant & Van der Stede is explored in more detail below.
According to Merchant & Van der Stede (2017), management control focuses on the execution of an organization’s strategy, with the central question being: "Is it likely that our employees will behave appropriately?" This question can then be broken down into the following sub-questions:
Do our employees understand what is expected of them?
Will they consistently work hard and do what is expected of them—meaning, will they strive to achieve the organizational goals in line with the established strategy?
Are they capable of delivering quality work?
If the answer to any of the above questions is negative, the question becomes what management can do to resolve the control issue. Addressing these management control issues involves influencing, guiding, and aligning employee behavior towards achieving organizational goals in accordance with the set strategy.
“Management control is the influencing of employee behavior to achieve organizational objectives.”
Management control involves managers ensuring that employees do what is best for the organization. This is a critical goal, as it is the people within the organization who must accomplish the work. Thus, management control is the influencing of employee behavior to achieve organizational objectives.
In relation to this objective, Merchant & Van der Stede (2017) describe in alignment with Batten (1963) in his book Tough-Minded Management what real control is all about: “In essence, real control consists of people who know what is to be done, when it must be done, where it must be done, who must be involved and committed, how it can be done, and, above all, why it must be done. Charts, graphs, and other mechanistic tools are only manifestations of real control” (Batten, 1963).
There are various perspectives on the application of management control. For instance, Merchant and Van der Stede (2017) developed an ‘objects-of-control’ framework. Within this framework, management control systems (MCS) are based on the ‘objects-of-control,’ which include results, actions, and personnel/culture. These elements must be controlled due to ‘personal limitations,’ ‘motivational problems,’ and ‘lack of direction,’ which are the three key management issues. According to Merchant and Van der Stede (2017), the reason for and overarching goal of control is human behavior, which must be regulated to achieve organizational objectives. Objectives are a necessary condition for designing MCS, as employees need insight into what the organization is trying to achieve. Therefore, objectives (and the strategy) must be articulated before an MCS can be designed.
Another important framework is the work of Malmi & Brown (2008). They developed a typology based on a synthesis of approximately forty years of literature. In line with Otley (1999), Malmi and Brown (2008) prefer the term 'package' over 'systems,' as the concept of a package suggests that individual systems are designed and implemented by different actors at different times. Central to the package approach is the idea that MCS directs employee behavior.
Both models are relatively practical in nature and also suitable for an overall assessment and design of a management control system within your organization. Due to the strong holistic approach of the Malmi & Brown model, it is elaborated on below, enabling you to quickly identify areas for potential improvement. This model consists of the following elements: cultural controls, planning, cybernetic controls, reward & compensation, and administrative controls.
Summary
Management control is the influencing of employee behavior to achieve organizational objectives. Various perspectives and models have been developed over the past decades to achieve this. Essentially, it is about aligning human behavior with organizational goals. You can achieve this by implementing different ‘systems’ that either enforce or encourage certain behaviors. The types of problems vary by organization, as each organization has different objectives.
Sources:
Merchant, K., & Van der Stede, W. (2017). Management control systems: performance measurement, evaluation and incentives (4th edn.). Harlow: Pearson.
Batten, J. D. (1963). Tough-Minded Management (1st edn.). Papamoa Press.
Ferreira, A., & Otley, D. (2009). The design and use of performance management systems: an extended framework for analysis. Management Accounting Research, 20, pp. 263-282
Malmi, T., & Brown, D. (2008). Management control systems as a package: opportunities, challenges and research directions. Management Accounting Research, 19, pp. 287-300.