Management control systems and organizational effectiveness

¶ … Management control systems" Kenneth a. Merchant Wim A. Van der Stede Part A completed.

In order to properly evaluate the established management control system, it is important to organize regular reviews that can be implemented company-wide every three or six months. This type of reviews will evaluate the management control system instruments based on several key indicators: the degree to which the control system was able to discover, in due time, a potential problem in the organization; the direct cost savings that the control system was able to create; the direct financial gains that the system made and whether the management control system that has been implemented is aligned with the company's strategic objectives.

For each of the management control system instruments that have been implemented, the indicators can be customized so as to reflect the specific area of activity. For example, the financial indicators can be customized to show the way revenue has varied. However, the indicators should also be flexible enough so as to be aligned with the company's strategic objectives: if the company's goal has been to increase its market share, then the fluctuation of the revenues for a given period of time may be irrelevant.

The reviews underscored several key observations. First of all, the costs that the management control system in place incurs are significant and there are several reasons for this, including the fact that this is a global organization and that the system is holistic, involving a large number of human and financial resources.

Second, the role of the management control system is to show potential problems in time and to allow for their remediation. In this case, one of the instruments used showed that the logistical costs of the companies were too high, which led to a change in that area. However, overall, the management control system can also fail from time to time.

In the case of the Easyway Bubble Tea -- Hurstville organization, this report proposes several changes in the management control system, namely the adoption of several other tools that are cheaper and more viable for a company such as this. The management control system in place needs to be more flexible, in order to reflect the global characteristics of the organization, but also its localization.

One such instrument is a balance scorecard. One of the conclusions of the management control system review was that the company has no tool to measure the strategic performance of the company. It needs an instrument that adequately combines financial and non-financial measures and does not focus exclusively on the financial side of the business.