MANAGEMENT CONTROL

SYSTEM
Introduction
WHAT IS CONTROL???????????
THE Controls in a CAR ( Accelerator, Brakes and Clutch)

• If any one of them is inoperative, car doesn’t work

• If you do not know how to use the, car fails
• If you (lets assume) exert more pressure on the accelerator---leads to
an accident

• Control system and an evaluation system

BUT IN MANAGEMENT….
• Can we have pre-set standards? NO

• CAN control be made automatic? NO

• Requires coordination.

• Having the trust that people have the capability to decide what’s best

Example- SOUTH WEST AIRLINES

CEO Herb Kelleher, who founded Southwest, was deeply committed to a philosophy of putting
employees first. “If they’re happy, satisfied, dedicated, and energetic, they’ll take real good care of
the customers. When the customers are happy, they come back. And that makes the shareholders
happy.”1 Southwest’s walls were filled with photographs of its employees. More than 1,000 married
couples (2,000 employees) worked for the airline. Southwest employees were among the highest paid
in the industry and the company enjoyed low employee turnover relative to the airline industry
MCS-What is the subject?
• A SUBJECT THAT IS BUILT ON CONCEPTS from

• STRATEGY
• OB
• HRM
• & MANAGERIAL ACCOUNTING
• Once an American energy giant valued at over $60 billion, Enron collapsed in 2001 due to massive
and systematic accounting fraud. The scandal exposed that executives, including CEO Jeffrey
Skilling and CFO Andrew Fastow, had created complex off-the-books partnerships to hide billions
in debt and inflate company profits.

• When irregularities were revealed, investor confidence plummeted, and the stock price crashed
from its 2000 peak of $90 to less than $1. The company filed for bankruptcy in December 2001,
resulting in the loss of thousands of jobs and billions in employee pensions and shareholder
investments. Enron's auditor, Arthur Andersen, was also implicated for complicity in the fraud and
ultimately collapsed. The incident led to the Sarbanes-Oxley Act of 2002, which introduced new
regulations to increase corporate transparency.
Why is there a behavioural emphasis?
• People make things happen and businesses rely on people e.g. cost
reduction.

• People can work against or around systems.

• If employees could always be relied ,there would be no need for a

MCS but are sometimes unable or unwilling to act in the
organizations best interest so managers must take steps to guard
against the occurrence of undesirable behaviour and encourage
desirable.
FROM THE HRM PERSPECTIVE
• To teach you all how people respond when control tightens/loosens

• Behavioural control through Budgeting ( behaviour alignment not micromanagement)

• KPIs

• Appraisals

• MBWA

• ALL ARE HUMAN BEHAVIOUR DESIGN TOOL

• “How to make people want to do what strategy needs them to do?????

• MCS evolved from traditional, rigid and often authoritarian
approaches
• Exemplified by Taylor’s scientific management
• Modern integrated system that account for psychological human and
cultural factors (along with financial and operational data)
• MCS is a process by which managers at all levels ensure that people
they supervise implement their intended strategies.
• So the main focus is Strategy IMPLEMENTATION
SYSTEM?????
• Structure
• Hierarchy
• Policies
• Information Flow--- who decides????
• Budget negotiation- conflict resolution and persuasion
• Transfer pricing- Deal with power dynamics and trust

• WHY MCS might fail?

• Poor communication,lack of fairness, resistance to changes etc. etc.
What problems should management controls
address?
• Lack of direction – Due to lack of clarity about organisational goals and instructions for how to meet them. 81% of senior managers
understands the value drivers of their business strategy and 13% believe non-management understand them. Employees set goals
based on their own views rather than direction from leadership.

• Motivational problems – occurs because the individual vs firm objective do not coincide (individual self-interest). Frederick Taylor’s
scientific management says individuals work slowly on purpose. Revenue losses due to surfing internet and fraud. “Every single
person in your business is trying to steal from you”. Motivation should be the primary focus of MCSs

• Personal limitations – occurs when a person lacks aptitude, training, stamina, experience or knowledge of the tasks at hand.
Promotions to positions above competence. Poor job design. Limits in facing new problems, remembering facts and processing
information properly.
 Corporate culture and
designing of control systems
CULTURE>>>>
• Cultures are built on shared traditions, norms, beliefs, values, ideologies, attitudes, and
ways of behaving.

• The cultural norms are embodied in written and unwritten rules that govern employees’
behaviors.

• Organizational cultures remain relatively fixed over time, even while goals and strategies
necessarily adapt to changing business conditions. To understand an organization’s
culture, ask long-time employees questions like: What are you proud of around here?
What do you stand for? What does it take to get ahead? If a strong organizational culture
exists, the seasoned employees will have consistent answers to these questions
Corporate culture and designing of control
systems
• MCS influence culture and human behaviour and leading towards goal
congruence.

• Corporate culture and the design of control systems are deeply intertwined. An
organization's prevailing culture acts as a significant contextual factor that
determines the effectiveness and design of its formal and informal control
mechanisms, and in turn, control systems can be used to reinforce or shape the
desired culture.
• A company’s culture is likely to affect every aspect of how the organization operates and how
people work.

• Research from the Chartered Institute of Personnel and Development (CIPD) has consistently
found that culture will affect a business’s success because, unlike strategy, it is hard to imitate and
can differentiate organizations from their competitors.

• In the words of management guru Peter Drucker, “culture eats strategy for breakfast
Controls as a Mechanism to Shape Culture

Managers can intentionally design and use formal control systems to

communicate and reinforce the intended culture.

For example, using a specific type of performance measurement

system can signal whether the company values individual competition
(market culture) or group collaboration (clan culture)
Hofstede's cultural dimensions theory
Geert Hofstede's cultural dimensions theory is a framework for understanding and
comparing national cultures, originally developed from research at IBM in the late 1960s
and early 1970s. It was later expanded to include six dimensions that help explain how
cultural values influence behaviour, especially in a business context.
• Power Distance Index (PDI)
This dimension measures the extent to which less powerful members of organizations and
institutions (like the family) accept and expect an unequal distribution of power.
High PDI Cultures (e.g., Malaysia, Guatemala) accept hierarchical structures where
everyone has a defined "place" in the system, and authority is rarely questioned.
Low PDI Cultures (e.g., Austria, Denmark) strive for equality and encourage flat
organizational structures, decentralized decision-making, and participative management
styles.
• Individualism vs. Collectivism (IDV)
This dimension concerns how people are integrated into groups in a society. Individualistic
cultures, like the United States, prioritize individual achievement and rights, while
collectivist cultures, such as those in Central America, emphasize strong, cohesive in-groups
that provide support in exchange for loyalty.
Hofstede's cultural dimensions theory
• Masculinity vs. Femininity (MAS)
Also known as "tough vs. tender," this dimension looks at a society's preference for achievement and assertiveness versus cooperation
and quality of life. Masculine cultures, including Japan, value assertiveness and material rewards, with distinct gender roles. Feminine
cultures, like Sweden, value cooperation, caring, and quality of life, with more overlapping gender roles.
• Uncertainty Avoidance Index (UAI)
UAI measures how well a society tolerates ambiguity and the unknown. High UAI cultures, such as Germany, have a low tolerance for
uncertainty and rely on strict rules and laws to minimize it. Low UAI cultures, like Singapore, are more relaxed and comfortable with
ambiguity and risk-taking.
• Long-Term vs. Short-Term Orientation (LTO)
This dimension relates a culture's connection to the past with its actions in the present and future. Long-term orientation cultures, such
as South Korea, are pragmatic and future-oriented, valuing perseverance and thrift. Short-term orientation cultures, like the United
States, focus more on the past and present, valuing tradition and immediate results.
• Indulgence vs. Restraint (IVR)
The final dimension considers the extent to which a society allows the free gratification of basic human desires related to enjoying life.
Indulgent cultures, found in Latin America, allow for the expression of desires and emphasize happiness and leisure. Restrained
cultures, like those in East Asia, suppress gratification through social norms, with less emphasis on leisure.
• In some collectivist cultures,
• such as Japan, incentives to avoid anything that would disgrace
oneself and one’s family are
• paramount. Similarly, in some countries, notably those in Southeast
Asia, business deals sometimes are sealed by verbal agreement only.
In those instances, the dominant social and moral
• obligations are stronger than legal contracts.
The Competing Values Framework (CVF)
The Competing Values Framework (CVF) is a model developed by Robert
Quinn and Kim Cameron to diagnose and change organizational culture by
classifying it into four types: Clan, Adhocracy, Market, and Hierarchy.
These cultures are defined by two dimensions: flexibility versus stability and
internal focus versus external focus. The framework helps leaders
understand their dominant cultural style, identify strengths and weaknesses,
and align the culture with strategic goals to foster adaptability and
effectiveness.
The four cultural types

• Clan Culture (Collaborate): This is an internal, flexibility-focused culture that emphasizes teamwork,
mentorship, and employee involvement. It is often seen in family businesses or startups where there is a
sense of loyalty and tradition.

• Adhocracy Culture (Create): This is an internal, flexibility-focused culture that prioritizes innovation,
creativity, and a forward-thinking approach. Apple's early years are an example of this culture.

• Market Culture (Compete): This is an external, stability-focused culture that concentrates on

competitiveness, achievement, and market share.

• Hierarchy Culture (Control): This is an external, stability-focused culture that emphasizes control, stability,
efficiency, and predictability. Government departments and universities often have this culture.
Cultural controls are informal mechanisms that shape an organization's values, beliefs, and behaviors.

Visible Artifacts and Behaviors (Overt Examples)

• Dress Codes/Uniforms: Formal business attire vs. casual wear guides expectations.
• Office Layout: Open-plan offices (collaboration) vs. private offices (hierarchy/focus).
• Communication Styles: Formal use of titles vs. first-name basis interactions.
Rituals and Ceremonies
• "Employee of the Month" awards for rewarding individual achievement.
• Team-building events to foster belonging and cooperation.
• Daily team meetings or cheers to build enthusiasm and shared purpose.
• Company Perks: Gym memberships or free meals can reinforce a culture of well-being or hard work.
Espoused Values and Norms (Stated/Guiding Principles)
• Mission and Vision Statements: Stated core values that guide decision-making (e.g., "customer first").
• Hiring and Promotion Practices: Selecting candidates based on "cultural fit" and promoting those who
exemplify desired values.
• Performance Management Systems: Rewarding team performance over individual output to promote
teamwork.
• Role Modeling by Leadership: Leaders demonstrating desired behaviors to set the standard for the rest of
the organization.
The road ahead….
• To understand what kind of control mechanisms should be used in a
specific culture.

• Example ---MYNTRA--- culture

• CULTURE CONTROLS and Change ???