Chapter 1

The Nature of Management Control Systems

BASIC CONCEPTS

Define the terms in the name of the course: Control Management Systems

Control

2. 3. 4.

Control: to ensure that strategic intentions are achieved. Elements of a control systems:
An assessor (penilai) An effector (umpan balik) A communications network (jaringan komunikasi)

1. A detector or sensor (sensor)

Elements of Control Process

Control device 1. Detector. Information about what is happening 2. Assessor. Comparison with standard. 3. Effector. Behavior alteration, if needed

Entity being controlled

Controlling Examples

Thermostat

A thermometer An assessor An affector A communication network The sensory nerves The hypothalamus The muscles & organs Overall communications system of nerves

Body temperature

Controlling Examples

Automobile driver

Eyes (detector) Brain (assessor) Foot (affector) Nerves (communication network) Eyes Brain Foot

Management

An organization consist of a group of people who work together to achieve common goals (satisfactory profit). Organization are led by a hierarchy of managers.
1. 2. 3. 4. CEO Managers of business units Managers of department Managers of section overall strategies strategies strategies strategies

GOALS

The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.

Management Control Process Vs Simpler Control Processes

1.
2. 3. 4.

5.

Standard is not preset (involved planning & control). Management control is not automatic. Management control requires coordination among individuals. The connection from the perceiving the need for action to determining the action required to obtain the desired result may not be clear. Much management control is self-control.

Systems

A system is a prescribed and usually repetitious way of carrying out an activity or a set of activities. Systems are characterized by a more or less rhythmic, coordinating, & recurring series of steps intended to accomplish a specific purpose. Many management action are unsystematic (based on judgment).

If all systems ensured the correct action for all situations, there would be no need for human managers.

BOUNDARIES OF MANAGEMENT CONTROL

Define management control. Distinguish it from two other systems (or activities) that also require planning & control:

Strategy formulation Task control

General Relationships Among Planning and Control Functions

Activity Nature of End Product

Strategy formulation

Goals, strategies, and policies

Management control

Implementation of strategies

Task control

Efficient and effective performance of individual task

Management Control

Management control is the process by which managers influence other members of the organization to implement the organizations strategies. Management Control Activities:

Planning Coordinating Communicating Evaluating Deciding Influencing

Management Control Activities

Management control does not necessarily require that all actions correspond to a previously determined plan (ex. budget).
Based on circumstances
Conforming to a budget is not necessarily good, and departure from a budget is not necessarily bad.

Goal Congruence

Goal congruence means the goals of an organizations individual members should be consistent with the goals of the organization itself. Management control process is systematic, but not mechanical. Involves interaction among individuals.

The management control systems should be designed & operated with the principle of goal congruence in mind

Tools for Implementing Strategy

Management control focuses primarily on strategy execution. Management controls a are only one of the tools managers use in implementing desired strategies.

Framework for Strategy Implementation

Implementation Mechanism Management controls Organization Structure Human Resource Management

Strategy

Performance

Culture

Continued

Organizational structure specifies the roles, reporting relationship, & division of responsibilities that shape decision-making with in an organization. Human resource management is the selection, training, evaluation, promotion, & termination of employees so as to develop the knowledge & skills required to execute organization strategy. Culture refers to the set of common beliefs, attitudes, & norms that explicitly or implicitly guide managerial actions.

Financial & Nonfinancial Emphasis

Management control systems encompass both financial & nonfinancial performance measure. Financial: net income, ROE Nonfinancial: product quality, market share, customer satisfaction

Aid in Developing New Strategies

Interactive control

Management control can provide the basis for considering new strategies. Calling management attention to developments that need for new strategic initiatives.

Todays controls

Tomorrows strategy

Strategy Formulation

Strategy formulation is the process of deciding on the goals of the organization & the strategies for attaining these goals.

Goals the broad overall aims of an organization Objectives specific steps to accomplish the goals within a given time frame.

Goals are timeless. In the strategy formulation, goals of the organization are usually taken as given.

Continued

Strategy are big plans, important plans The need for formulating strategies usually arises in response to a perceived threat or opportunity. A threat or opportunity can arise from anywhere & at any time.

Complete responsibility for strategy formulation should never be assign to a particular person or organizational unit

Distinctions between Strategy Formulation & Management Control

Strategy Formulation

Deciding on new strategies. Unsystematic. Involves judgment. The numbers used are usually rough estimates. Involves few people (sponsor of the idea, headquarters staff & senior management).

Management Control

Implementing strategies Systematic. Involves a series of steps that occur in a predictable sequence. Reliable estimates. Involves managers & their staffs at all level.

Task Control

Task control is the process of assuring that specified task are carried out effectively & efficiently. Transaction-oriented. Some are mechanical. Scientific.

Distinction between Task Control & Management Control

Task Control

Management Control

Not scientific Focus on specific task Relate to specific task

Scientific Organizational units Concerned with broadly defined activities.

Examples of Decisions in Planning & Control Functions

Strategy Formulation
Acquire an unrelated business Enter a new business Add direct mail selling Change debt/equity ratio Adopt affirmative action policy Devise inventory speculation policy

Management Control
Introduce new product or brand within product line Expand a plant Determine advertising budget Issue new debt Implement minority recruitment program Decide inventory level

Task Control
Coordinate order entry Schedule production Book TV commercials Manage cash flows Maintain personnel records Reorder an item

Impact of the Internet on Management Control

Benefits of internet:

Instant access. Multi-targeted communication. Costless communication. Ability to display images. Shifting power & control to the individual. Change the rules of the game in the business-toindividual consumer sector. Change business-to-business commerce.

Impact of internet in the world of business:

Impact of the Internet on Management Control

Internet makes the processing of information involved in MCS easier & faster, with few errors. Internet facilitates coordination & control through the efficient & effective processing of information.
But the internet cannot substitute for the fundamental processes that are involved in management control