Management Control Systems as a Catalyst of Essay

  • Length: 4 pages
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  • Subject: Business - Management
  • Type: Essay
  • Paper: #39566717

Excerpt from Essay :

Management Control Systems as a Catalyst of Strategic Agility and Organizational Performance

The continual evolution of Management Control Systems as a Package (MCSP) today encompasses accounting, finance, human resources, market-based data, management control and information systems, and the entire culture of an organization, yet defies a precise typology (Merchant, Van der Stede, 2006) (Malmi, Brown, 2008) or a consistent global definition (Cruz, Scapens, Major, 2011). The intent of this analysis is to evaluate the concept of how management control systems (MCS) have over time evolved into MCSPs, and what advantages can be used for relying on them to increase organizational performance. The issues and difficulties that arise from using MCSPs, their distinctive uses, and the typologies of MCSPs are discussed, along with examples of how they can be used to increase organizational performance.

The Foundational Elements of MCSPs .

The MCSP taxonomies compared in this analysis include the one created by Malmi, Brown (2008)and Merchant, Van der Stede (2006). Both share the common attributes or elements of a fully integrated MCSP including subsystems for the functional areas of accounting, auditing, finance, reporting and governance, in addition to support for analytics. Within the last decade both have also begun to adopt Balanced Scorecards (BSC) in an effort to illustrate how analytics are being used to successfully manage businesses (Lawson, Stratton, Hatch, 2006). Both MCSPs are also specifically developed to with the goal of bringing greater agility and performance to organizations through completely different operating philosophies and approaches (Otley, 1999). Studies of MCSPs show that the greater the level of agility and ambidextrous nature of these systems, the greater the ability to withstand market turbulence and continually deliver profitable performance (Merchant, Van der Stede, 2006). This agility and ambidexterity of any given MCSP platform and typology also is an indicator of how well-integrated the components are to each other and the external subsystems fo the enterprise (Cruz, Scapens, Major, 2011).

While there are major differences in the typologies of MCSPs, there are several factors which make them similar to each other. First, both share a common definition of budgets, financial and accounting control systems, the use of compliance and governance systems, and the use of contract management and strategic planning as control and planning platforms. Both are also specifically designed to provide organizations with greater agility, market focus and ability to respond quickly to threats and opportunities. Both also have control systems, subsystems and mechanisms in place. Of the two, the philosophical approach taken by Merchant, Van der Stede (2006) prioritize and value highly control practices, specifically focusing on results controls, action controls, personnel controls and cultural controls. This philosophical approach to defining, managing and continually improving and MCSP is comparable to leadership theory and practice in that it concentrates more on compliance, less on vision, to drive results. Allegorically speaking the Merchant, Van der Stede (2006) typology is more transactionally-driven from a leadership standpoint while the Malmi & Brown (2008) approach is more comparable to transformational leadership, leading by defining socially-based controls predicated on values and culture.

Analysis of MCSP Typology Differences

In analyzing the differences between the Merchant & Van der Stede (2007) and Malmi & Brown (2008) typologies, the former is more likely to be used in organizations that highly value transactional forms of management, and therefore most likely have business models and processes that are highly repetitive in nature.

The series of controls in the Merchant, Van der Stede (2006) MCSP typology are well-suited for large-scale production and service operations with highly repetitive processes, systems and tasks where conformity is critical for profitability and growth of the business. Another underlying assumption of the Merchant & Van der Stede (2007) typology is that employees are inherently in need of control due to their own lack of direction, motivation to consistently performance and the personal limitations organizational structures place on people (Merchant, Van der Stede, 2006). As a result this typology is actually a framework comprised of controls, action controls, personnel controls and cultural controls. Another key assumption of this typology is that given the high level of control within work groups and departments within the organization, there will be less variation in quality, leading to higher levels of production and eventually, financial performance of the enterprise (Merchant, Van der Stede, 2006). It is common to find organizations based on this MCSP typology using quality management methodologies including Six Sigma to remove any variation in process or system performance.

Contrasting the Merchant & Van der Stede typology, the Malmi & Brown (2008) typology concentrates on defining a package of controls that are actually integrated control systems that give enterprise and organizations the flexibility of using traditional accounting and financial management reporting including budgets, financial measures and administrative controls while also using social-based values and leadership to attain complex plans and objectives (Malmi, Brown, 2008). This typology also includes integration of governance and structure systems, which along with socially-based controls predicated on the culture, values and mission of the organization, set the foundation for transformational leadership and goal attainment (Malmi, Brown, 2008).

While the decision of which typology is a multifaceted one, the key determinants often used in the decision include the philosophies of the management team, depth and complexity of the business model and its supporting processes, systems and tasks, and the requirements of the business for external integration (Merchant, Van der Stede, 2006) (Malmi, Brown, 2008). The management philosophy of a business will also be a primary determinant in how effectively the chosen typology allows the enterprise to stay agile and market focused in turbulent economies, interpreting and acting quickly on market data as a result (Otley, 1999). There must be a high level of congruence between the chosen typology and the management philosophy for the enterprise to succeed over the long-term. The selection of one typology over another also has a very significant impact on the level and extent of analytics and business intelligence an enterprise can generate and use to guide strategy (Lawson, Stratton, Hatch, 2006). That's why the aligning of typologies to management philosophy and broader corporate cultures is critically important.

What typology should be used for a company

Given the fact that the majority of organizations today are knowledge-driven, the Malmi, Brown (2008) typology is a better fit given its focus on combining control systems and corporate culture. This typology is also more focused on transformational leadership, which provides the opportunity for employees to have a strong sense of autonomy, mastery and purpose in their work, all of these are core components of long-term motivation and learning. The Malmi, Brown (2008) typology is also much better suited for organizations who are information-systems and innovation-based as it allows employees to more fully own their jobs and take pride in their contributions. This typology is also critical for the long-term advance of organizations that rely heavily on creativity and non-linear processes to gain new inventions and innovation.

MCS as packages that support organizational objectives and increase performance

An example of MCS as packages being used include the adoption of Balanced Scorecards (BSC) that are essential for galvanizing entire organizations around customer-based needs and requirements (Lawson, Stratton, Hatch, 2006). BSC initiatives and programs often require process-based change so business intelligence and analytics applications can gain access to the information they need.

IKEA relies heavily on their MCSP typology for accounting and management control, using their accounting and financial systems to manage their global distribution and retail network. Their approach to ensuring an egalitarian culture is further supported with the core components of the Malmi, Brown (2008) typology, as the company often creates opportunities for shared ownership of product design with its customers. IKEA uses their MCSP as a means to translate supply chain efficiencies into valuable customer experiences at the store level. Their many advantages of using an…

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