MANAGEMENT CONTROL
Summary
,Table of contents
Week 1. Design of management control systems .................................................................. 2
Week 2. Management control system design and contingency fit .......................................... 6
Week 3. The balanced scorecard (BSC) .............................................................................. 11
Week 4. Monetary incentive systems and motivation ...........................................................14
Week 5. Responsibility centres and control with transfer price systems. ..............................18
Week 6. Models of Human Behaviour ..................................................................................23
Test yourself! ......................................................................................................................26
Answers: .............................................................................................................................28
1
,Week 1. Design of management control systems
What is management control?
Management control is steering an organization in such a way that the organization’s goals
are realized. For example, an organization has a goal of making € 1.000.000 profit, how can
you ‘steer’ the organization in such a way that they will reach that milestone?
Definition of Management control
The definition of management control is a ‘systematic process by which the organization’s
higher-level managers influence the organization’s lower-level managers (or employees) to
implement the organization's strategy. (Anthony et al., 2014, p. 8).
The goal of Management control
The goal of management control is to effectively execute the firm’s strategy. And reach a
higher organizational performance (these are long term goals of the organization)
The two main functions of management control
The two main functions of management control are top-down roles, and bottom-up roles.
These are different functions, made for different sorts of organizations. The function of the
top-down role is to help decentralized managers, while the function of the bottom-up role is to
inform higher-level managers. The different roles are stated below:
Top down-role
As stated above, the top-down role is to help decentralized managers. But with what do they
need help with? Well, with the following:
1. What decisions to take
2. What results to achieve?
3. Where to lead their employees and how to use resources
Bottom-up role
2
,The bottom-up role is to inform higher-level managers with the following:
1. What decisions will, or have been taken
2. What results will, or have been achieved
3. Where employees will or have been led and which resources will or have been used.
But why do we need management control?
We need management control because of the following:
1. Decentralized managers do not automatically understand the goals and strategies that
have been developed by the top-management nor how they can contribute to these.
2. Decentralized managers do not automatically agree with organizational goals and
strategies developed by top-management.
3. Decentralized managers do not automatically have the resources needed to act with
organizational goals and strategies developed by the top-management.
These can be defined in three different problems. With the help of the different roles (top-
down and bottom-up) we can explain why we need management control.
Some examples of top-down and bottom-up roles.
1. Measuring the sales of a store manager and discussing them in a monthly
performance review.
This is an example of a top-down role. The new store manager isn’t familiar with the
organization and doesn’t know (yet) which decisions to take, and which results to achieve. By
discussing this with the store manager allows the store manager to learn and bond with the
organization.
2. Allowing store managers to select personnel, but not to have influence over the
product range in the store
This is an example of a top-down role. The store managers are able to select personnel they
like and have the right amount of skills for the job, but they can’t influence the product range
in the store. This is kept by higher management.
3. Giving salespersons a bonus for each sale
This is an example of a bottom-up role. The salespersons are selling products for the
organization, and the more they sell, the more bonusses they will get. This can motivate
lower-level managers and personnel to strive for organizational goals.
3
, 4. Conducting a workshop to design the firm ‘s new strategy
This is an example of a bottom-up role. The higher-level management is setting up
workshops to design the firms new strategy. This can help to align the lower-level managers
and employees with the organization’s strategy and allows them to have input in the strategy.
How can you define management control systems (MSC)?
➢ Management control could be defined as the systematic way in which an organization
exercises management control.
➢ Comprise all arrangements, tools and techniques that enable top-down and bottom-up
control.
➢ Determine the emphasis on specific control types (e.g., output controls or clan
controls).
➢ Determine the activities to accomplish management control (e.g., the use of financial
rewards to influence employee behaviour).
Different control types to achieve management control
There are different control types to achieve management control. Some being formal, others
being informal. Ouchi (1979) and Merchant & van der Stede (2007) are discussing different
types to achieve management control:
4
Summary
,Table of contents
Week 1. Design of management control systems .................................................................. 2
Week 2. Management control system design and contingency fit .......................................... 6
Week 3. The balanced scorecard (BSC) .............................................................................. 11
Week 4. Monetary incentive systems and motivation ...........................................................14
Week 5. Responsibility centres and control with transfer price systems. ..............................18
Week 6. Models of Human Behaviour ..................................................................................23
Test yourself! ......................................................................................................................26
Answers: .............................................................................................................................28
1
,Week 1. Design of management control systems
What is management control?
Management control is steering an organization in such a way that the organization’s goals
are realized. For example, an organization has a goal of making € 1.000.000 profit, how can
you ‘steer’ the organization in such a way that they will reach that milestone?
Definition of Management control
The definition of management control is a ‘systematic process by which the organization’s
higher-level managers influence the organization’s lower-level managers (or employees) to
implement the organization's strategy. (Anthony et al., 2014, p. 8).
The goal of Management control
The goal of management control is to effectively execute the firm’s strategy. And reach a
higher organizational performance (these are long term goals of the organization)
The two main functions of management control
The two main functions of management control are top-down roles, and bottom-up roles.
These are different functions, made for different sorts of organizations. The function of the
top-down role is to help decentralized managers, while the function of the bottom-up role is to
inform higher-level managers. The different roles are stated below:
Top down-role
As stated above, the top-down role is to help decentralized managers. But with what do they
need help with? Well, with the following:
1. What decisions to take
2. What results to achieve?
3. Where to lead their employees and how to use resources
Bottom-up role
2
,The bottom-up role is to inform higher-level managers with the following:
1. What decisions will, or have been taken
2. What results will, or have been achieved
3. Where employees will or have been led and which resources will or have been used.
But why do we need management control?
We need management control because of the following:
1. Decentralized managers do not automatically understand the goals and strategies that
have been developed by the top-management nor how they can contribute to these.
2. Decentralized managers do not automatically agree with organizational goals and
strategies developed by top-management.
3. Decentralized managers do not automatically have the resources needed to act with
organizational goals and strategies developed by the top-management.
These can be defined in three different problems. With the help of the different roles (top-
down and bottom-up) we can explain why we need management control.
Some examples of top-down and bottom-up roles.
1. Measuring the sales of a store manager and discussing them in a monthly
performance review.
This is an example of a top-down role. The new store manager isn’t familiar with the
organization and doesn’t know (yet) which decisions to take, and which results to achieve. By
discussing this with the store manager allows the store manager to learn and bond with the
organization.
2. Allowing store managers to select personnel, but not to have influence over the
product range in the store
This is an example of a top-down role. The store managers are able to select personnel they
like and have the right amount of skills for the job, but they can’t influence the product range
in the store. This is kept by higher management.
3. Giving salespersons a bonus for each sale
This is an example of a bottom-up role. The salespersons are selling products for the
organization, and the more they sell, the more bonusses they will get. This can motivate
lower-level managers and personnel to strive for organizational goals.
3
, 4. Conducting a workshop to design the firm ‘s new strategy
This is an example of a bottom-up role. The higher-level management is setting up
workshops to design the firms new strategy. This can help to align the lower-level managers
and employees with the organization’s strategy and allows them to have input in the strategy.
How can you define management control systems (MSC)?
➢ Management control could be defined as the systematic way in which an organization
exercises management control.
➢ Comprise all arrangements, tools and techniques that enable top-down and bottom-up
control.
➢ Determine the emphasis on specific control types (e.g., output controls or clan
controls).
➢ Determine the activities to accomplish management control (e.g., the use of financial
rewards to influence employee behaviour).
Different control types to achieve management control
There are different control types to achieve management control. Some being formal, others
being informal. Ouchi (1979) and Merchant & van der Stede (2007) are discussing different
types to achieve management control:
4
