Lecture 1: Introduction

Question 1

What is performance measurement and business control?

Answer 1

How we ensure that lower-level managers and employees take the decisions and show the actions that help organizations realize their mission, goals and strategies.

Question 2

What is a management control system?

Answer 2

A combination of control practices designed and implemented by top managers to increase the probability that lower-level managers and employees will behave in ways consistent with the organization’s mission, goals and strategies.

Question 3

What are some examples of control practices?

Answer 3

• budgets
• mission statements
• transfer pricing arrangements
• performance measures
• reward systems

Question 4

What is the top-down role of management control systems?

Answer 4

Top management giving lower-level managers and employees a clear sense of what decisions to take, what results to achieve, where to lead the people and how to use the resources under their responsibility

Question 5

What is the bottom-up role of management control systems?

Answer 5

Top managers getting a clear sense of what lower-level managers have done and what they think

Question 6

What are some reasons to why there is a need for both top-down and bottom-up management control systems?

Answer 6

1. Lower-level managers and employees may not automatically understand the mission, goals and strategies of the organization, nor how they can contribute to them. Provides a clear direction, and informs on progress.
2. Lower-level managers and employees may not automatically agree with the organizational mission, goals and strategies. Motivate goal congruent decisions, and utilise specialised skills of lower levels.
3. Lower-level managers and employees may not automatically have the resources needed to act according to the organizational mission, goals and strategies. Ensure access to skills and resources needed, and development of these.

Question 7

How can we systematically design/divide control practices (the overarching parts)?

Answer 7

• Input controls
• Throughput controls
• Output controls

Question 8

What are input controls?

Answer 8

The capabilities, knowledge and intentions of the people in the organization.

• Employee selection processes. Screening processes, hire “right” & congruent people.
• Value statements. Formally/systematically communicating values to inspire.
• Employee socialization processes. Systematically designed processes: introduction programs, training programs, influencing collegiality, citizenship and culture.

Question 9

What does it mean to tone at the top?

Answer 9

Top managers set the example for lower-level managers in the way they act, the opinions they proclaim and the norms they seem to adhere to. Often reciprocate the behavior they see displayed.

Question 10

What are throughput controls?

Answer 10

Directing behavior through formal delegation of decision-making responsibility, and by specifying how behaviors are (not) to be performed.

• The organizational architecture. Appropriate structural arrangements for the organization’s mission, goals and strategies. Functional, business unit, etc…
• The organization’s set of rules. Policies, guidelines, codes of conduct.

Question 11

What are output controls?

Answer 11

Focus on the actual output/result of the behavior. Making managers accountable for certain results/output. Planning, measuring and following up on important performance targets.

• Budgets.
• Performance measures, targets, incentive systems.
• Risk management.

Question 12

What are some features of implementing good control practices?

Answer 12

• Lower-level manager and employee involvement during the implementation process
• Lower-level manager and employee understanding (of underlying logic)
• Communication and visualization

Question 13

What are some concepts related to organizational architecture?

Answer 13

• Company size matters
• Decentralization
• Often more or less independent business units
• How to allocate responsibilities (revenue centers, expense centers, profit centers, investment centers, transfer pricing).
• Distinction between top and lower levels of managers (smaller firms: more direct/informal communication, less need for systematic/complex/costly management control systems)

Question 14

What are the parts of the performance management process?

Answer 14

• What do we measure? (triple bottom line: financial, environmental, social / profit, people, planet)
• How do we set targets?
• How do we reward people?
• ROI vs. RI vs. EVA
• Capital budgeting, innovation and sustainability
• The balanced scorecard and sustainability

Question 15

What are some of the most common corporate governance means used by owners?

Answer 15

• The board of directors
• Financial reports
• Auditing and internal control
• Incentive programs
• Investor meetings
• Media

Question 16

In what two conflicting ways can corporate governance influence the management control system?

Answer 16

• Corporate governance and focus on the owners may make the organization more effective.
• On the other hand: it makes them so short term in focus that it destroys value in the long run.

Question 17

What are some tools to be used in CSR work?

Answer 17

• Code of conduct
• Sustainability reporting
• Internal reporting channels
• Culture and values
• Personal example
• Storytelling
• Training
• Intranet

Question 18

What is an organization’s mission and goals?

Answer 18

Mission: about the reason why the organization exists.

Goals: more concrete, both financial and strategic

Question 19

What is the management control systems model of human behavior?

Answer 19

• MCS should motivate managers and employees (motivating goals, and motivating rewards for effort).
• MCS should consider managerial and employee abilities and inabilities (encourage learning and innovation, cherish tacit knowledge, help to overcome natural cognitive limitations).
• MCS should support a healthy, social and ethical environment (culture, social values and ethics matters)