Element of management control systems include strategic planning, budgeting, resource allocation, and transfer pricing. Management control systems must fit the firm’s strategy, and also some give perspective that strategies emerge through experimentation, which are influenced by the firm’s management systems.
Ø Basic concept
Control
Element of control systems:
1. A detector, report what is happening throughout the organization.
2. An assessor, compare this information with the desire state.
3. An effectors, take corrective action once a significant difference between the actual state and the desired state has been perceived.
4. A communication network, tells manager what is happening and how that compares to the desires state.
Management
The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.
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, coordinated, and recurring series of steps intended to accomplish a specified purpose.
Ø Boundaries of management control
Strategy formulation is the least systematic of the three, task control is most systematic, and management control lies in between. Strategy formulation focuses on the long run, task control focuses on short-run activities, and management control is in between. Strategy formulation uses rough approximations of the future, task control uses current accurate data, and management control is in between. Each activity involves both planning and control, but the emphasis varies with the type of activity. The planning process is much more important in strategy formulation, the control process is much more important in task control, and planning and control are of approximately equal importance in management control.
Management Control
Management control is the process by which managers influence other members of the organization to implement the organization’s strategies.
Management control activities:
1. Planning
2. Coordinating
3. Communicating
4. Evaluating
5. Deciding
6. Influencing
Goal Congruence
Although systematic, the management control process is by no means mechanical; rather, it involves interactions among individuals, which cannot be described in mechanical way. Managers have personal as well as organization goals. The central control problem is to include them to act in pursuit of their personal goals in way that will help attain the organization’s goals as well.
Tool for implementing strategy
Management control focuses primarily on strategy execution. Management controls are only one of the tools managers use in implementing desired strategies.
Financial and non financial emphasis
The financial dimension focuses on the monetary “bottom line” - net income, return on equity, and so forth. But virtually all organizational subunits have nonfinancial objectives – product quality, market share, customer satisfaction, on-time delivery, and employee morale.
Strategy Formulation
Strategy formulation is the process of deciding on the goals of the organization and the strategies for attaining these goals. Goals are timeless; they exist until they are changed, and they are changed only rarely.
Distinctions between strategy formulation and management control
Strategy formulation is the process of deciding on new strategies; management control is the process of implementing those strategies. From the standpoint of system design, the most important distinction between strategy formulation and management control is that strategy formulation is essentially unsystematic.
Task Control
Task control is process of ensuring that specified tasks are carried out effectively and efficiently. Task control is transaction-oriented – that is, it involves the performance of individual tasks according to rules established in the management control process.
