Effective Management Control Systems Research Articles

The Realization and Effectiveness of Management Control Systems in India

The Realization and Effectiveness of Management Control Systems in India

Effects of management control systems and cognitive orientation on misreporting: an experiment

PurposeThe purpose of this paper is to analyze the simultaneous effect of management control system (MCS) designs (belief vs boundary) and cognitive orientations (individualism vs collectivism) on performance misreporting by combining accounting and psychology literature.Design/methodology/approachThis paper is based on a laboratory experiment with 67 postgraduate students.FindingsResults show that an individualist cognitive orientation increased performance misreporting. The results also showed that a boundary design of MCS intensified the relationship between individualist orientation and performance misreporting.Research limitations/implicationsThis paper shed some light about the role of non-pecuniary control system for reducing managerial performance misreporting. The findings support that the tendency of individuals to avoid misreporting depends not only on the MCS design but also on the match between it and individual’s cognitive orientations.Practical implicationsManagers in organizations should consider the predominant cognitive orientation of individuals when they design MCS. They should consider that control systems, which impose coercive constraints to individuals, may encourage feelings of psychological reactance and then increase performance misreporting.Originality/valueThis study is among the first to combine psychology and accounting literature to analyze how the design of MCS influences individuals’ motivation to misreport their performance. It provided evidence about the effect of non-monetary control systems on individual’s behavior in organizations.

Employee reactions to the use of management control systems in hospitals: motivation vs. threat

ObjectiveManagement control systems (such as budgets or balanced scorecards) are formal procedures used by managers to promote employee behavior aligned with organisational objectives. Employees may react to these control systems by either becoming more motivated or perceiving them as a threat. The aim of this paper is to determine the extent to which hospital ownership (public or private), professional group (physician, nurse, pharmacist or administrative employee), type of contract (fixed or temporary), gender and tenure can condition employee reaction to management control systems. MethodsWe conducted the study in the three largest hospitals in the State of Santa Catarina (Brazil), two public (federal and state-owned) and one private (non-profit organisation). Physicians, nurses, pharmacists and administrative employees received a questionnaire between October 2013 and January 2014 concerning their current perceptions. We obtained 100 valid responses and conducted an ANOVA variance analysis. ResultsOur results show that the effect of management control systems on employees differs according to hospital ownership, professional group and type of contract. However, no significant evidence was found concerning gender or tenure. ConclusionsThe results obtained contribute to creating specific knowledge on the reactions of employees to the use of management control systems in hospitals. This information may be important in adapting management control systems to the characteristics of the hospital and its employees, which may in turn contribute to reducing dysfunctional worker behavior.

MANAGEMENT CONTROL SYSTEMS AND FIRM SUSTAINABILITY: EVIDENCE FROM TEXTILE AND APPAREL BUSINESSES IN THAILAND


 The objective of this study is to examine the effects of management control systems on the firm sustainability of textile and apparel businesses in Thailand. Management control systems are the main variable of the study, while organisational renewal, management development, business excellence, and firm sustainability are the outcome variables of the study. In this study, 186 textile and apparel businesses in Thailand compose the study sample. A mail survey questionnaire was used for data collection. Additionally, structural equation modelling is utilised to test the research relationships. The results show that management control systems positively impact organisational renewal and firm sustainability. In addition, organisational renewal positively affects management development, business excellence, and firm sustainability. Both management development and business excellence positively influence firm sustainability. However, it is found that management control systems are not related to management development and business excellence. In summary, management control systems can help firms survive and sustain themselves in highly variable environments. To gain a sustainable competitive advantage, superior performance, and long-term sustainability, firms’ executives can pay attention to the development, utilisation, maintenance, and improvement of management control systems. To verify and expand the current study, future research needs to collect data from different populations or larger populations and employ other statistical techniques, such as regression analysis, partial least squares, and path analysis to prove the generalisability of the study.

Evaluating the completeness and effectiveness of management control systems with cybernetic tools

In the MCS literature, accounting control frameworks and the concept of the control package offer different views on the components comprising control systems but little guidance for assessing the completeness of the systems or the effectiveness of the control being delivered.This paper draws on two cybernetic tools, namely the Viable System Model (VSM) and variety engineering (VE) to analyze the completeness and effectiveness of management control systems in a case company.The components of the system are mapped on to the VSM and the completed model used to assess the completeness of the system. The VSM analysis reveals the MCS of the case company is complete and therefore control problems arising from incomplete structures are not anticipated or found. The VE analysis, guided by the VSM, systematically assesses the company’s approach to control by considering how the variety of the control system and the environment are amplified and attenuated, respectively. The analysis reveals the system is designed around processes that amplify branch managers’ ability to respond to highly uncertain external conditions. The MCS is judged to provide effective control, meaning it appropriately balances the variety of the system and the environment, enabling branches to consistently achieve their performance goals.The VSM and VE together provide new tools to describe and analyze MCS and their fit with the external environment.

How Big Data Will Change Accounting

SYNOPSIS Big Data will have increasingly important implications for accounting, even as new types of data become accessible. The video, audio, and textual information made available via Big Data can provide for improved managerial accounting, financial accounting, and financial reporting practices. In managerial accounting, Big Data will contribute to the development and evolution of effective management control systems and budgeting processes. In financial accounting, Big Data will improve the quality and relevance of accounting information, thereby enhancing transparency and stakeholder decision making. In reporting, Big Data can assist with the creation and refinement of accounting standards, helping to ensure that the accounting profession will continue to provide useful information as the dynamic, real-time, global economy evolves.

Contracting with One Agent for One Period

We introduce a general single-agent single-period incentive model that is applicable to a broad-spectrum of situations. Agent’s hidden actions contribute to the firm’s profits, which is not measurable in general. However, there are measurable outcomes, which stochastically depend on the agent’s decisions. To model the agent’s decision problem, we make a few reasonable assumptions and concentrate on continuous, differentiable and additively separable utility function. In this sense, the agent maximizes his expected net utility, considering the possible levels of the indicators along the costs associated with his actions. Our model is rather unrestricted due to a small number of assumptions, but it is not readily solvable to yield useful results. Anyway, though being simple, it provides a scientific approach for developing efficient and effective management control systems in many practical situations.

Socialization Mechanisms and Goal Congruence

Goal congruence is the desired outcome of an effective management control system. Empirical research, though, often assumes the existence of goal congruence and instead attempts to establish relations between control and firm (or employee) performance. In a research setting where the firm does not rely on performance measures to motivate and direct employee behavior, we examine how socialization mechanisms (i.e., the beliefs system, mentoring, and peer pressure) influence employees’ perceptions of their work environment and goal congruence. We use survey data from 354 employees to estimate a structural equation model that provides evidence on the relations between socialization mechanisms, the perception of secure and stable work conditions, and goal congruence. We find that all three socialization practices are positively correlated with one another and thus work as a package of socialization controls. Our results show that a working environment employees believe offers them security and long-term stability is important to ensuring that their goals are aligned with the firm’s. Moreover, the extent to which top management communicates core values, supervisors engage in mentoring, and peers encourage and monitor one another, are important management controls since they help create a secure and stable work environment.

The Real Coso, and Nothing but the Real Coso

Within the international corporate governance debate, one recommendation which appears to be gaining ground internationally is that management should report, publicly or otherwise, on the effectiveness of management control systems or aspects of it. With respect to evaluation and standards for effectiveness, all reports in the field of corporate governance make reference to the conceptual framework included in the final report of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control – Integrated Framework [1992]. In our opinion, the international reference to the current COSO report is therefore unjustified: the COSO framework does not include the assumed and widely acclaimed unequivocal standards.This paper is divided into two sections. In the first section we will analyse the current COSO framework in more depth and argue for what reasons the COSO framework does not comprise the internationally widely acclaimed standard. First, we discuss the backgrounds leading to, and the methodology applied by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). Secondly, we evaluate the definition and accompanying content of the COSO framework. Thirdly, we argue why – in our opinion – the COSO framework does not comprise the widely acclaimed standards. Fourthly, we evaluate the guidance for evaluation of the effectiveness of management control systems and the general applicability of this guidance. In section two we present a new management control framework to overcome the deficiencies of the current COSO framework, in order to fulfil the international widespread corporate governance recommendations for organisations to report on the effectiveness of their management control system. The revised management control evaluation framework comprises four perspectives on control, which are derived from the main existing paradigms in organisation theory, which represent the general developments of organisation theory. First, we position the COSO framework between business practice and the different levels of analysis applied science (management control theory), basic science (organisation theory) and relevant paradigms. Secondly, we discuss the origin of the four control perspectives. Thirdly, we will evaluate the arguments mentioned in the COSO framework to include management control features, using our control evaluation framework, to analyse whether the partial and restricted view on control of COSO (see section one) is confirmed.

Management Control of the Process of Evolution: Fact or Fiction?

This paper presents the results of a research-project to integrate the Management Control Framework, based upon the COSO report Internal Control - Integrated Framework [1992], and the theory of Evolution Management. The research question is to explore whether this Management Control Framework is of use in the process of evolution.Today effective management control systems are no guarantee for success tomorrow. Even winning the “Baldridge Award” for quality management is no guarantee for survival. From an evolutionary point of view, the principles of natural growth and self-organisation, show that organisations evolve through different stages such as no growth, new growth, high growth and declining growth. Not (high) growth, as is often assumed, but survival is the pivotal criterium. Our paper presents the results of an opinion survey among 131 high-level managers in 109 organisations across 7 countries in Europe. The survey was conducted to identify the organisational states and directions which have naturally evolved and to explore the perceptions, if not, misconceptions of management. The contributing corporations include profit and non-profit organizations in a wide variety of industries. The research results are remarkable. Not only is the unreversable proces of evolution confirmed. The survey also shows how managers’ perception of organisational success and effective management control systems are biased by the stage of high growth. Declining growth, no growth and to a certain extent, new growth tend to be seen as failure.The paper concludes with an innovative view on how to use these findings in the design of an effective management control-system which better supports companies in the different stages of growth.

Intervensi Pengendalian dalam Sistem Pengendalian Manajemen dan Kaitannya dengan Kinerja Perusahaan

This research is to examine the effect of management control system in water supply firm to the firm performance when some control interventions exist. The case is derived from water supply firm in Banyumas Regency. In this research the effect of result control, action control, personnel control, and cultural control to the firm performance is examined and control intervention is positioned as moderating variable. Data was obtained by using questionnaire sent to employees, from top management to the lowest level. This research uses regression analysis and Moderated Regression Analysis (MRA) to test hypothesis. The result indicates that result control, personnel control and cultural control affect performance. Action control has no effect to performance. Control intervention moderates the relationship between management control system and performance, however, individually control intervention just moderate the effect of personnel control and cultural control to performance. Control intervention does not moderate the effect of result control and action control to performance.

The effects of management control systems on product innovation: An exploratory study

The effects of management control systems on product innovation: An exploratory study

Social capital and management control systems: A study of a non-government organization

In this paper we use the concept of social capital to outline a distinctive approach to understanding the interplay between management control systems and the development of social connections in and between organisations. Social capital provides a comprehensive framework for examining the nature of social connections through its focus on both structural networks (bridging) and interpersonal relationships that predispose individuals towards mutually beneficial collective action (bonding). In doing so, social capital provides a means of considering how individuals react to management control systems in terms of the social ties that exist both within the organization and external to the organization. Using a case study of a non-government organization, we show how social capital is implicated in efforts to attract economic capital and cultural capital. We demonstrate how elements of a management control system can either enhance or inhibit the bonding and bridging dimensions of social capital with potential consequences on both economic and cultural capital. We highlight the mixed and sometimes contradictory effects of management control systems on social capital, and provide a powerful illustration of the role of management control systems in brokering alliances and bridging structural holes.

The Effect of Management Control System on Hotel Environmental Performance

The Effect of Management Control System on Hotel Environmental Performance

Reciprocity Under Trust-Based Management Control: An Experimental Test

Trust-based control systems may be preferable to traditional, agency-based control systems in certain organizational settings. But for trust-based control to be beneficial, employees must honor the trust placed in them and reciprocate by taking the action desired by the firm. We conduct three experiments to investigate the determinants (i.e., feelings of obligation and concerns over fairness) of employees' reciprocity in a dyadic agency relationship. We find that feelings of obligation have prevailing effects on employees' reciprocal behavior. In the first two experiments, the employee's decision to reciprocate is not affected by payoff inequities which favor the firm. Rather, the employee exhibits a strong preference for reciprocity that leaves the firm better off than the employee. However, in the third experiment, concerns for fairness come into play when reciprocity produces payoffs that appear overly disadvantageous for the employee. Thus, employees' reciprocity is bounded at a level such that the employee perceives that a fair share of the payoffs is received. Our findings provide useful insights into understanding how different social norms work in tandem to affect employees' reciprocal behavior. Such understanding is important for designing effective management control systems in practice.

Linking management control system with product development and process decisions to cope with environment complexity§

In this study, we report the results of a large-scale survey study on business strategy and innovations conducted in China in November 2002. We focus on the impact of environmental complexity on the choice of management control systems and the effects of management control systems on product development and process decisions. Our findings provide some valuable insights to strategic change. When the pressure for change comes from the external environment, the strategic control approach is usually chosen to cope with environmental complexity. Strategic control focuses on the process of benchmarking a firm's strategic and operational decisions with that of their competitor's. Additionally, strategic control emphasises R&D and new product development, and aligns manufacturing strategy with corporate objectives. This approach has a long-term impact on a firm's position in the market place. When the pressure for change comes from the inside of an organisation and the company is more interested in maintaining its current market position, financial control approach is usually chosen to cope with environment complexity. Financial control approach focuses on incremental improvement in the manufacturing process and short-term financial performance. This approach provides risk-averse benefits to the company.

Effective integration of management control systems for competing in global industries

Extending Simon’s (1990) work, this paper proposes an effective management control system that allows companies to integrate different management control systems in order to improve operational effectiveness, employee creativity, and company competitiveness. Reviews conventional and modern competitive strategies and discusses both positive and negative effects of management control systems. Argues that to be effective, diagnostic management systems must be supplemented by boundary control systems, interactive control systems, and belief systems. Effective integration of the four different management control systems, it is argued, is dependent on companies applying them in a way that maximises operational effectiveness without limiting employee creativity. The importance of starting the design of a management control system with the specification of a system of beliefs which defines the company’s values and direction is highlighted.

PHYSICIANS AND RESOURCE MANAGEMENT: THE ROLE OF ACCOUNTING AND NON-ACCOUNTING CONTROLS

Prior research has identified the difficulties associated with encouraging physicians to ’take resource management to their hearts’ and has questioned the efficacy of implementing management accounting systems (MASS) in the health care setting. Although physicians are now being integrated into management structures, they typically do not identifjr with managerial values and goals. This creates a potential impediment to the effective implementation of accounting-based controls. No prior research has, however, assessed if this impediment is equally significant in the effective implementation of other non-accounting forms of control. This paper builds on prior research and assesses the extent to which a physician manager's managerial orientation significantly influences the effectiveness of both accounting and non-accounting forms of control. The paper contributes to the literature by simultaneously assessing the effect of managerial orientation on the use and relative importance of three forms of control. The results confirm the importance of an identification with managerial values and norms for the effective implementation of management accounting systems. This orientation, did not, however, appear to be important for the effective implementation of non-accounting forms of control. These findings have direct implications for the design of effective management control systems in hospitals and other organizations dominated by professionals.

The Relationship between Organisation Structure and Management Control in Hospitals: An Elaboration and Test of Mintzberg’s Professional Bureaucracy Model

The conflict between professional and bureaucratic models of behaviour has long been recognised. Evidence provided in the professional/bureaucratic literature indicates that this conflict will impact on the effectiveness of management control systems when dominant professionals, such as physicians, are incorporated into bureaucratic organisations. This article elaborates Mintzberg′s (1979) professional bureaucracy model and empirically examines a number of propositions concerning the way in which activities are controlled and coordinated in hospitals. An analysis of 192 subunit managers in four large Australian teaching hospitals indicated significant differences in the use of control and co‐ordinating mechanisms by health care professionals who manage core operating subunits and managers of subunits which provide support services. These differences do not all follow the predictions of Mintzberg′s model.

Management control of new product development projects

Management control systems that are used to control new product projects and the characteristics of effective management control systems are identified. Results of a study of the management control systems used in twelve new product development projects indicate that the systems used in successful new product projects were different than those used in less successful projects. It was also found that on all projects individual rewards were not directly tied to project performance or to a product's commercial success. Implications of the findings for managers of development departments are discussed.