SPM CH 3

Slide 3.
Chapter 3:
Action, Personnel, and Cultural Controls
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 3.2
Action controls
Ensure that employees perform (or do not perform)

certain actions known to be beneficial (or harmful)
to the organization.
Prevention/detection
Most action controls are aimed at preventing
undesirable behaviors.
Slide 3.3
Effectiveness of action controls
They are usable and effective only when managers:

Know what actions are desirable
Difficult in highly complex and uncertain task environments.
(e.g. research engineers or top-level managers)
Have the ability to make sure that the desirable actions
occur
e.g., Effectiveness of organizational procedures !?
Slide 3.4
Behavioral constraints
Physical
Locks, passwords, and limited access.
Administrative
Restriction of decision-making authority;
Separation of duties.
Slide 3.5
Preaction reviews
Scrutiny of action plans, investment proposals,

budgets.
Review and approval.
Slide 3.6
Action accountability
Holding employees accountable for the actions

they take.
It requires:
Defining what actions are (un)acceptable
Communicating these definitions to employees
e.g., work rules, policies and procedures, codes of conduct
Observing or otherwise tracking what happens
Direct observation/supervision
Periodic tracking (e.g. mystery shoppers)
Evidence of actions taken (e.g. activity reports)
Rewarding good actions, or punishing actions that deviate.

Slide 3.7
Redundancy
Assigning more people (or machines) to

a task than necessary.
e.g., backup people/computing facilities
Slide 3.8
Pros and cons of action controls

PRO
CON
The most direct form of control
Only for highly-routinized jobs
Tend to lead to documentation

of the accumulation of knowledge
as to what works best.
May discourage creativity,

innovation, and adaptation
May cause sloppiness
May cause negative attitudes
Organizational memory
An efficient way of coordination:

i.e., they increase the predictability
of actions and reduce the amount
of inter-organizational information
flows to achieve a coordinated
effort.
e.g., little opportunity for

creativity and selfactualization
Sometimes very costly
Slide 3.9
Personnel/cultural controls
People controls ensure that employees

Will control their own behaviors
Personnel control
Self-monitoring
Will control each others behaviors
Cultural controls
Mutual-monitoring
People controls are part of virtually every

management control system and becoming more
important in flatter and leaner organizations with
empowered employees.
Slide 3.10
Personnel controls
Personnel controls build on employees natural tendencies

to control themselves, because most people
have a conscience that leads them to do what is right;
find self-satisfaction when they do a good job and see their
organization succeed.
Labels
Self-control
Intrinsic motivation
Ethics and morality
Trust and atmosphere
Loyalty
Slide 3.11
Implementing personnel controls
Generally, it is about
finding the right people, giving them a good
work environment and the necessary resources
Selection and placement

Finding the right people to do a particular job.
Training
Give employees a greater sense of professionalism;
Create interest in the job by helping employees to
understand their job better.
Job design and provision of necessary resources

So that motivated and qualified employees have a high
probability of success (e.g. equipment, staff support,
freedom from interruption, etc.)
Slide 3.12
Cultural controls
Cultural controls or mutual-monitoring tap into

social pressure and group norms and values.
Cultural controls are effective because members

of a group have emotional ties to one another.
Cultures are built on shared
traditions
norms
beliefs
ideologies
attitudes
ways of behaving
Slide 3.13
Five ways to shape culture
Codes of conduct
Codes of ethics, corporate credos, mission statements, etc.
Formal written documents with broad statements of corporate
values, commitments to stakeholders, and the ways in which
top management would like the firm to function.
Fundamental guiding principles of the company.
Group-based rewards
e.g., bonus, profit-sharing, employee ownership of company stock;
Cultural controls rather than results controls because the link
between individual performance and rewards is weak.
Slide 3.14
Five ways to shape culture (Continued)
Intra-organizational transfers
Improve the socialization of individuals in an organization and
inhibit the formation of incompatible goals and perspectives;
Improve identification with the organization as a whole as
opposed to subunit identification.
Physical and social arrangements

e.g., office plans, interior decor, dress codes and vocabulary, etc.
Tone at the top

Top management statements must be consistent with the culture
they are trying to create, and importantly, their behaviors should
be consistent with their statements.
Slide 3.15
Start with people controls
People controls
Must always be relied on to a certain extent
Have relatively few harmful side-effects
Involve relatively low out-of-pocket costs
However, it is rare that people controls will be sufficient.

In most cases, it is necessary to supplement them with
action controls
results controls
Maybe, you just shouldnt put all your trust in

people !?

SPM CH 3

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Slide 3.

Ensure that employees perform (or do not perform)

Effectiveness of action controls

They are usable and effective only when managers:

Scrutiny of action plans, investment proposals,

Holding employees accountable for the actions

e.g., work rules, policies and procedures, codes of conduct

Observing or otherwise tracking what happens

Rewarding good actions, or punishing actions that deviate.

Assigning more people (or machines) to

Pros and cons of action controls

The most direct form of control

Only for highly-routinized jobs

Tend to lead to documentation

May discourage creativity,

May cause sloppiness

May cause negative attitudes

An efficient way of coordination:

e.g., little opportunity for

Sometimes very costly

People controls ensure that employees

Will control each others behaviors

People controls are part of virtually every

Personnel controls build on employees natural tendencies

Implementing personnel controls

Selection and placement

Job design and provision of necessary resources

Cultural controls or mutual-monitoring tap into

Cultural controls are effective because members

Cultures are built on shared

Five ways to shape culture

Five ways to shape culture (Continued)

Physical and social arrangements

Tone at the top

Start with people controls

However, it is rare that people controls will be sufficient.

Maybe, you just shouldnt put all your trust in

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