Management Control Systems in Holistic Approach

Transcription

1 Management Control Systems in Holistic Approach Thithit Atchattabhan, School of Management, Huazhong University of Science and Technology, Wuhan, China & Nishchapat Nittapaipapon School of Management, Huazhong University of Science and Technology, Wuhan, China Abstract Beyond the empirical research to study the idea of Management Control Systems (MCSs), the famous typology by Malmi and Brown (2008), there has been uncovered within the category of package. The Management Control Systems (MCSs) package has been categorized with five structures as planning, cybernetic, reward and compensation, administrative and cultural controls. Meanwhile, most scholars have regular considered the phenomenon of defining MCSs and debated to the distinction of the theoretical and practical which addressed the interdependent driving in business and organization management. By highlight a broader package approach of MCSs, the typology is based on the difference involving decision-making and control those managers straightforwardly apply to organize employee behavior. With regard the recognition and acceptance of Malmi and Brown (2008), this article would discuss and review the range to amplify considering MCSs package which able to develop and provide ideas for further research. Keywords: Management Control System, MCSs package, cultural control, planning control, cybernetic control, reward and compensation control, administrative control Introduction With variances in the scope of their controls, a broad array of Management Control System (MCS) frameworks has been advanced in recent years. According to the formal controls, organization structure and less formal controls are the three distinct control forms that have been identified by past researches. Meanwhile the performance planning, budgeting and a few further formal procedures of management control are included in formal management controls, while responsibilities and reward systems are controls of organizational structure. Corporate culture and learning are elements of less formal controls. In essence the purpose of control structure, some authors separate controls into the result, action and personnel controls. When accomplishment can be measured, the controls resulting regularly embrace rewards and favorable. Whereas the personnel controls consist of training and support of standards, action controls have been employed to limit performance. Regarding various further MCS frameworks and typologies are existed. Recently, Malmi and Brown (2008) offered a structure based on a wide-ranging literature review of nearly forty years of MCS research, called MCSs as a package. Malmi and Brown (2008) show that "the diagnostic origin of MCS as a package gives a satisfactorily extensive, yet economical method for studying the occurrence empirically". Despite various conceptions of MCSs packages appearing in recent decades, Malmi and Brown (2008) dispute whether they leave out key MCSs managers may find useful. MCSs package are detailed in further section as well as Simons (1995) has leveraged the control framework which are also debated in later sections within the interplay to Malmi and Brown s package. Management Control System in Holistic Perspective In the Management Control System (MCS) as a package framework, Malmi and Brown (2008) built the conventional controls consisted of budgets and financial performance measures beyond the socially-based controls as cultural controls. Because most contemporary organizations use more than a few different MCSs, most often having been initiated at dissimilar times and thus not having been created as one harmonized system, the label package is employed. The force of the typology seems to be the extensive capacity of controls rather than any profound dialogue of an individual MCS, as stated > RJEBS: Volume: 05, Number: 07, May-2016 Page 14

2 by Malmi and Brown (2008), where several are correlated to a representative research stream. A distinction is also made by the authors between the decision-making and controls brought to express behavior, with the explanation for MCS being "those systems, rules, practices, values and other activities management put in place in order to direct employee behavior" (Malmi and Brown, 2008, p. 290). Generally, the uncomplicated rules should not be identified as MCSs. The purpose of the discrimination from the typology has emphasized the control relates to the directors guaranteeing steady conduct from representatives and other pertinent parties in line with the organization's goals and plans. Five overall types of controls comprise the divisions of MCSs package conceptual framework by Malmi and Brown (2008). Since they supply a contextual frame for the rest of the controls, cultural controls are shown at the top of the typology. Consequently, Malmi and Brown (2008) have presumed to emerge in the contemporary organizations, the authors depict planning, cybernetic in addition to reward and compensation controls. These controls are often thought to be connected in accordance with they generate the fundamental articulating the set of planning, cybernetic, and rewards and compensation controls, while the administrative controls are located at the bottom. Therefore, the clarification of the various MCSs will be offered in subsequent sections. 1) Cultural controls Supported by many researchers as "the set of values, beliefs and social norms which are likely to be allocated by its members and, in turn, influence their thoughts and actions", which Malmi and Brown (2008) submit to the organizational culture description by Flamholtz et al. (1985). Even if present as within an organization context (Malmi and Brown, 2008), culture may sometimes exceed the control of managers. When used to manage behavior, the authors contend that culture is a control system. However the three diversified viewpoints of the cultural control including value-based controls, symbol-based controls, and clan controls are considered by the MCSs package. Simons (1995) has revealed the belief system as the idea of value controls which is characterised with apparent set of organizational dispositions that the senior managers correspond properly and strengthen steadily to afford the core values, mission, and the context of organization direction. As a means of managing control behavior through advancing a particular form of culture, e.g. observable expressions like office design or dress codes, symbols might also be employed (Malmi and Brown, 2008). The notion of clan controls was originated by Ouchi (1979), as offered by the authors. In addition, Malmi and Brown (2008) have remained provide the description to clans structure that identified the organization processing within the profession task or group of socialized. And then the employed as clan controls have become the values and beliefs within the clan. 2) Planning controls When raising the focus of planning as a control, Malmi and Brown (2008) have implied to the work of Flamholtz et al. (1985). Since it entails goal setting and standard formation, Flamholtz et al. (1985) posit the planning into an ex ante control. Consecutively, employee s actions should be guided and directed by the information. It deems to emphasize of how employees anticipate their effort and behavior which proposes to be defined by goal setting and standard establishment (Malmi and Brown, 2008). Within the organization, the planning controls permit it to co-ordinate and align different goals simultaneously, the purpose of the organization has enabled employees throughout the controlled and compliance with a variety of activities. Owing to the long-range planning and action planning have been loosely separated by Malmi and Brown (2008). As it ponders the formation of planning more than a year ahead, long range planning has a more deliberate concentration. On the other hand, action planning is evolved tenacity to the dominant of estimating the goals and achievement in the imperative prospect. Moreover, Malmi and Brown (2008) have contended that there are a few researchers who place planning inside of the monetary control frameworks, where the planning does not inexorably include accounting. Particular tactical projects and initiatives enacted to direct employees could be included. > RJEBS: Volume: 05, Number: 07, May-2016 Page 15

3 3) Cybernetic controls Malmi and Brown (2008) examined the four characteristic of cybernetic frameworks which they have recognized in antecedent of management control system academic researches including spending plans, budgetary measures, and non-monetary related evaluate as the hybrids, which enclose the mutual previously discussed measures. As they guide the performance to the ultimate goals in accordance with determine the responsibility for operation disparity, cybernetic controls are thought to be MCSs. Particularly Hansen et al. (2003) narrated that budgets possess numerous purposes in the performance planning and subsequent evaluation of the indeed performance to the business plan. Additionally, as Malmi and Brown (2008) also justified that this process seems to be the control of the desirable level of organization behavior. Whereas financial performance measurement systems can be employed for constricted target-setting, a budget is a more expansive technique. However, the commercial measurement would probably associate with the budget information. Regarding the nonmonetary measures, Malmi and Brown (2008) have stated that it has been given heightened significance as MCSs in modern organizations. When the financial measurement restrictions have been attempted to justify and formulate, these systems could be employed. Possessing the mutual monetary and nonmonetary measurement, there have been integrated the final cybernetic control with termed hybrid. 4) Reward and compensation controls Through the achievable consonance between the targets and performances of the organization, Bonner and Sprinkle (2002) convinced that the reward and compensation systems deliberate to inspiring and growing the individual and group those specific performance contained by organizations. Meanwhile, they also explained that the continuation of rewards and compensation led to amplify endeavors parallel within the absence of an expected rewards and compensations those are the fundamental disputation. Consequently, Ittner and Larcker (2001) revealed that accounting management research has habitually pinpointed to the extraneous motivation rewards, while Flamholtz et al. (1985) has implied that the reward manipulating might differ from extrinsic to intrinsic. Financial incentives increasing effort and performance by focusing individual efforts on tasks was the contention to Bonner and Sprinkle s (2002) research that supported the notions of incentives and performance literatures. The connecting of exertion to tasks impacts performance into three aspects consisting of: effort direction which focus on the individuals tasks; effort duration which concern on how long individuals dedicate themselves to the task; and effort intensity which the degree of consideration individuals applies to the task. In the typology, reward and compensation systems refer to the distinct components. Eventually, the organizations have remained providing rewards and compensation in accordance with the essential reasons as keeping employees and supporting cultural control throughout the set rewards, while rewards are often associated with cybernetic controls. Consequently, there has been existed a requirement for empirical academic to contemplate other systems of the reward and compensation, the projected intentions, and the connections of a variety of controls (Malmi and Brown, 2008). 5) Administrative controls Regarding the state of the typology by Malmi and Brown (2008), the articulating the set of principles has comprised the three distinctive aspects of administrative controlsthe with interpreting into governance structure, organizational structure, and policies and procedures. In generally, the governance structure is inclusive of the board structure and operation management, even the range of coordination. The product of meetings frequently being schema and deadlines used to guide employee conduct and performance is an example. Organizational structure as a relative variable is a consideration by numerous other researchers. On the other hand, Malmi and Brown (2008) have debated that organizational controls are incorporated with the typology because organizational structure is feasible to change and inconsistency of conduct and performance can be managed by means of organizational design structure. > RJEBS: Volume: 05, Number: 07, May-2016 Page 16

4 The last MCS inside of the authoritative controls, strategies and systems, are set up to determine particular conduct and procedures, as standard working processes and methodology. Simons (1995) proposed that the great incorporate might be emerged by the regulations and policies of organization. Various control mechanisms implemented could be integrated in several other MCSs, according to Malmi and Brown (2008). Moreover it also comprises as follow the especial policy pathways, processes, and training into the administrative control. In the event that, the training helps to serve the purposes of manipulate and administrate the organizational culture which it deems to be reciprocated as a cultural control. MCSs Enhance the Levers of Control Perspective Toward both traditional controls including Simons (1995) notion of management control systems, Malmi and Brown (2008) have incorporated and cultivated that the manipulation of information-based routines and procedures managers are adopted to keeping and modify the conformation of organizational activities. Except for Simons more constricted focus on information based routines, Malmi and Brown (2008) deem their MCS explanation truly comparable with Simons. However, Simons (1995) stated which the information-based systems have transformed to be the control systems when they have been utilized to serve the purposes of manipulate even adjust models of organizational activities. Considered as four contrasting forces to efficiently execute strategy, four distinct systems including belief, boundary, interactive and diagnostic comprise the divisions of Simons (1995) that is the levers of control framework. Owing to the belief systems these are utilized to motivate representatives and intuitive control frameworks to animate firm learning in addition to supporting innovation and policies. To guarantee conformity, boundary systems provide restrictions. When goals are accomplished, diagnostic control systems are used to inspire, observe and recompense employees. Belief systems are an integral element of the levers of control according with the four controls have been operated collectively, simultaneously the belief systems emphasize to manner that enable work with other systems. (Widener, 2007, in Arjaliès and Mundy, 2013). In essence, value controls of Malmi and Brown (2008) have been drawn and found on Simons represents of the belief systems and correspondent in both MCS frameworks, as previously stated. Simons (1995) goes on to explain that business plans and budgets are diagnostic control systems. Therefore, diagnostic controls as described by Simons are equal to Malmi and Brown (2008) have separated into the planning, cybernetic, and rewards and compensation controls. Partially developed from Simons' frameworks, Malmi and Brown (2008) express them as policies and procedures. For the reason that they may perhaps be claimed to comply with the policies and procedures which Malmi and Brown (2008) have labeled as contained by administrative controls, rules and procedures include Simons (1995) boundary systems. It might be more difficult to identify a counterpart of management control systems as Malmi and Brown s MCSs package to Simons interaction of control system. On the other hand, as Simons (1995) has also explained that the several diverse of MCSs could fill this role ever since the interaction of control systems have been employed to promote managerial knowledge and the innovation and strategies improvement. References Arjaliès, D., & Mundy, J. (2013), The use of management control systems to manage CSR strategy: A levers of control perspective. Management Accounting Research, Vol. 24, No. 4, p Bonner, S. E., & Sprinkle, G.B. (2002), The effects of monetary incentives on effort and task performance: theories, evidence, and a framework for research, Accounting Organizations and Society, Vol. 27 No. 4-5, p Flamholtz, E., Das, T., & Tsui, A. (1985), Toward an Integrative Framework of Organizational Control, Accounting Organizations and Society, Vol. 10, No. 1, p Hansen, S., Otley, D., & Van der Stede, W. (2003), Practice developments in budgeting: an overview and research perspective. Journal of Management Accounting Research, Vol. 15, p Ittner, C., & Larcker, D. (2001), Assessing empirical research in managerial accounting: a value-based management perspective, Journal of Accounting and Economics, Vol. 32, p > RJEBS: Volume: 05, Number: 07, May-2016 Page 17

5 Malmi, T., & Brown, D. (2008), Management control systems as a package-opportunities, challenges and research directions, Management Accounting Research, Vol.19, No. 4, p Ouchi, W. (1979), A conceptual framework for the design of organizational control mechanisms, Management Science, Vol. 25, No. 9, p Simons, R. (1995), Levers of Control, Harvard Business School Press, Boston. > RJEBS: Volume: 05, Number: 07, May-2016 Page 18