Chapter 3

Goal congruence
What is goal congruence?
Goal congruence is a situation in which the goals of individuals or groups are aligned with the
goals of the organization. Goal congruence refers to a situation in which the goals and
objectives of different individuals, departments, or entities within an organization are aligned and
harmonious with the overall objectives of the organization as a whole. In other words, there is
consistency and agreement among various parties regarding what needs to be achieved, and
their efforts are directed towards the common goals of the organization.

When goal congruence exists within an organization, it typically leads to increased cooperation,
effective communication, and efficient resource allocation. It reduces conflicts that might arise
due to conflicting goals and ensures that everyone is working together towards a shared
purpose. This alignment of goals is crucial for achieving optimal organizational performance and
maximizing outcomes.

Conversely, when there is a lack of goal congruence, conflicts of interest, competition for
resources, and inefficiencies can arise.

What is goal congruence and why is it treated as a primary

consideration for designing management control system?

Goal congruence is a situation in which the goals of individuals or groups are aligned
with the goals of the organization. When goal congruence exists, individuals and groups
are more likely to work towards achieving the organization's goals.

Goal congruence is treated as a primary consideration for designing management

control systems because it is essential for the success of any organization. When
individuals and groups are working towards the same goals, they are more likely to
coordinate their efforts and make decisions that are in the best interests of the
organization. This can lead to increased productivity, improved decision-making, and
reduced conflict.

There are a number of ways to promote goal congruence in an organization. One way is
to set clear and achievable goals that are communicated effectively to employees.
Another way is to involve employees in the goal-setting process so that they feel
ownership of the goals. It is also important to provide regular feedback to employees on
their progress towards their goals and to reward them for achieving their goals. Finally,
it is important to create a culture of trust where employees feel comfortable
communicating with their managers about their goals and concerns.

List the most common informal factors that play a key role in
achieving goal congruence?
• External factors: External factors are norms of desirable behavior that exist in the
society of which the organization is a part. These norms include a set of attitudes, often
collectively referred to as the work ethic, which is manifested in employees’ loyalty to the
organization, their diligence, their spirit, and their pride in doing a good job (rather than just
putting in time). Some of these attitudes are local—that is, specific to the city or region in which
the organization does its work. In encouraging companies to locate in their city or state,
chambers of commerce and other promotional organizations often claim that their locality has a
loyal, diligent workforce. Other attitudes and norms are industry-specific. The railroad industry,
for example, has norms different from those of the airline industry. Still others are national;
some countries, such as India and China, have a reputation for excellent work ethics

• Internal Factors:
Culture

The most important internal factor is the organization’s own culture—the common beliefs,
shared values, norms of behavior, and assumptions that are implicitly accepted and explicitly
manifested throughout the organization. Cultural norms are extremely important since they
explain why two organizations, with identical formal management control systems, may vary in
terms of actual control.

Management Style

The internal factor that probably has the strongest impact on management control is
management style. Usually, subordinates’ attitudes reflect what they perceive their superiors’
attitudes to be, and their superiors’ attitudes ultimately stem from the CEO. (This is another way
of saying, “An institution is the lengthened shadow of a man.”)3 Managers come in all shapes
and sizes. Some are charismatic and outgoing; others are less ebullient. Some spend much time
looking and talking to people (“management by walking around”); others rely more heavily on
written reports.

The Informal Organization

The lines on an organization chart depict the formal relationships—that is, the official authority
and responsibilities—of each manager. The chart may show, for example, that the production
manager of Division A reports to the general manager of Division A. But in the course of fulfilling
her responsibilities, the production manager of Division A actually communicates with many
 other people in the organization, as well as with other managers, support units, the
headquarters staff, and people who are simply friends and acquaintances. In extreme situations,
the production manager, with all these other communication sources available, may not pay
adequate attention to messages received from the general manager; this is especially likely to
occur when the production manager is evaluated on production efficiency rather than on overall
performance. The realities of the management control process cannot be understood without
recognizing the importance of the relationships that constitute the informal organization.

Perception and Communication

In working toward the goals of the organization, operating managers must know what these
goals are and what actions they are supposed to take to achieve them. They receive this
information through various channels, both formal (e.g., budgets and other official documents)
and informal (e.g., conversations). Despite this range of channels, it is not always clear what
senior management wants done. An organization is a complicated entity, and the actions that
should be taken by any one part to further the common goals cannot be stated with absolute
clarity even in the best of circumstances. Moreover, the messages received from different
sources may conflict with one another, or be subject to differing interpretations. For example,
the budget mechanism may convey the impression that managers are supposed to aim for the
highest profits possible in a given year, whereas senior management does not actually want
them to skimp on maintenance or employee training since such actions, although increasing
current profits, might reduce future profitability.

Explain the formal framework for management control systems:

1. Rules: rules are shorthand for all types of formal instructions and controls,
including standing instructions, job descriptions, standard operating
procedures, manuals, and ethical guidelines. Some specific types of rules
are as follows:
• Physical Controls: security guards, locked storerooms, vaults,
computer passwords, television surveillance, and other physical
controls may be part of the control structure.
• Manuals: written guidelines for accomplishing any task.
• System Safeguards: various safeguards are build into the information
processing system to ensure that the information flowing the system is
accurate, and to prevent or at least minimizing fraud of every sort.
• Task Control Systems: the process of ensuring that specific tasks are
carried out efficiently and effectively. Many of these tasks are controlled
by rules.
 [Link] Control Process
• Goals and Strategies
• Strategic planning
• Budgeting
• Responsibility center performance
• Report actual versus plan
• Is performance satisfactory
• Reward or corrective action and revision

Provide the basic framework for building an MCS for a large

organization?