Management Control Systems Flashcards
Why does MC problems occur and how are they prevented?
MC problems occur when there is a misalignment between organizational goals and the actions of employees or teams. Management control problems can be prevented by using some different strategies.
How many groups can MC be split up in and what’s the difference?
Management control systems can be split into to groups. Formal and informal strategies. The difference is how it affects the employee’s behavior and organization performance.
Can you name three formal strategies?
Action control, result control and financial control
Can you name three informal strategies?
Cultural Control, peer control and leadership influence
Action control
Action control are prescribed procedures, employees must follow and that are closely monitored. This is used to avoid MC problems by clearly defining and enforcing how tasks should be performed. An example of Action control can be a strict procedure for food preparations. Each employee must follow these procedures to ensure consistency in product quality and safety.
Result control
Result control are formal performance goals or targets, where the progress is tracked thought formal reviews and metrics. The employees are hold accountable for achieving them. This is outcome-based, meaning that it measures the results when the tasks are done, not how you go through the tasks. A salesperson needs to close certain number of deals. They can choose how they do it. Networking, calls etc., but they are measured on the result.
Financial control
Financial Control is based on budgeting, cost management and financial performance tracking. This ensures that resources are used efficiently. Example here can be when you are constructing a firm. When you establish you need a budget for each project, here project managers are required to stay within budget.
Cultural control
The organization fosters a shared sense of values, work ethics, social norms and cultural expectation that informally guide behavior. This is built over time. Example: You are in a small coffee shop where the owner value friendliness and customer care as key aspects. Over time this creates a cultural where for an example employees greet customer warmly as soon as they walk in.
Peer control
Employees monitor and influence each other’s behavior based on group norms and expactations. Example: In a law firm, associates influence each other’s work ethic, encouraging consistent performance without formal directives.
Leadership influence
The leaders lead by example and set the tone without using direct commands or policies. Example: In a hospital, the CMO models patient-centered care, influencing doctors and nurses to behave similar without direct orders.
Why use informal control strategies and how does it work
Informal control strategies work by influencing employee behavior in ways that align with organizational goals without rules, policies, or supervision. They rely on social and cultural elements within the workplace, leading to more organic control over employees’ actions.
Discuss the pros and cons of result controls and give an example.
Pros:
Employees have the freedom to decide how to achieve the desired outcomes Lead to greater creativity, innovation and job satisfaction as the employees are not micromanaged.
Holds employees accountable for their performance Goals are clear you can easily see who is responsible for successes and failures.
The goal is in focus, not the rigid procedures.
Motivates by being able to choose their own work methods as long as the targets are achieved.
Cons:
May cause to much focus on short term results than long-term success – Cutting corners.
May resort to unethical practices or manipulate the system to achieve targets – Can harm the company’s reputation.
Result control may ignore external factors that impact performance beyond employees control eks supply chain issues.
Some jobs or departments it can be hard just measure results objectively. For an example Creativity or teamwork.
example: Sales department of a tech company
What type of controls are becoming more prevalent in organizations and society?
Discuss the how and why.
Data-driven controls, cultural control, and self-control are becoming more prevalent in organizations and society because of technological advancements, evolving workforce expectations, globalization, and the increasing complexity of modern business environments. These controls offer flexibility, real-time oversight, and alignment with organizational values, making them well-suited for today’s dynamic world.
Discuss the problems of using the measure gross profit (GP) instead of sales volume as a
goal for sales reps. Outline why companies still prefer GP as a measure?
Problems Using GP and not Sales Volume:
Short term mindset – Prioritizing selling high-margin products, even if it’s not what the customer needs. Closing deals to generate immediate profits, rather than making a long-term relationship with clients, sales rep can sometimes avoid discounts to maximize GP. GP can be influenced by outside factors; this can make it difficult assess a sales rep performance.
Even though there are some problems using GP some companies still preferer this method because GP directly reflect the profitability of sales rather than just the volume. For some businesses this is more important than sales volume alone. Most companies aim to maximize profit, not just increase sales volume. GP ensure that sales reps are mindful of pricing, costs, and margins.
Companies often prefer GP as it provides a more wholesome view of financial performance, encourages profitability, and aligns sales efforts with the organization’s broader goals of maximizing profit rather than just moving products. However, it is important to balance this with considerations of customer satisfaction and long-term growth, as an overemphasis on GP can sometimes harm relationships and market share.
What is GP (gross profit)
The money a company makes by selling its products after subtracting the costs of making or buying the products. Eks: Sells for 100, costs 60, GP is 40,-
What is Sales Volume
Total number of products sold. Sales volume show how much you have sold, but not have much you profit from the sales. Eks: Selling 1000 units of a product. Does not tell you have much you have earned and if the sales are profitable.
What are the benefits of awarding bonuses every quarter instead of annually?
Quarterly bonus is a type of financial incentive. Quarterly bonuses provide employees with a more regular and consistent reward for their performance. It’s also important to nota that quarterly bonuses are often tied to the company’s performance during that specific quarter. If the company does good, they receive a higher bonus and vice versa.
Outline the basic dimension of the balanced scorecard and discuss the how and why it is
not an essay task to make a BSC work in organizations. What are the most common
pitfalls?
