Management control: an overview

Management control: an overview

1. Management control in large corporations

   • Basic management control approaches, describing: • Its dynamic organization over time (planning, monitoring results) • And its structuring around a performance measurement system (a set of indicators based on a performance model).
     • The belief that management control is reserved for large corporations is ill founded: the director of a small company is confronted with potential uncertainty in his sector of activity, with the need to chart a course and to organize his resources and action plans in a way that is consistent with this orientation
       • This type of approach can be implemented in companies

2. Two levels of performance management

   • Large corporations require a clear structure for decision making. This structure can follow different configurations of varying complexity.
     • Divisional
       • functional and matrix structures
         • Autonomous control by entities
     • Advantages of decentralization -If target setting and results monitoring were only performed by the directors of the corporation then local managers would have no “visibility” of the progress of their activity - the senior executive has the exact information to understand thing
     • Overall performance management by senior management
       • The is to ensure good vertical coordination in the control process, both top down and bottom-up, which we call strategic alignment
         • The decentralization of decision-making authority incurs a more basic risk, known as agency risk. This risk manifests itself along two dimensions:
           • •What ensures that decision-making authority is oriented in the interests of the company? This problem relates to the “direction” in which local decisions are taken.
             • •What ensures that action is done in a sufficiently vigorous fashion? This is a problem of “energizing” action

3. The role of controllers in the performance management system

   • • Management control is naturally associated with one function in the Company. • The performance management system is far from being the exclusive domain of the controllers.
     • • Clarify the objectives to be pursued and plan for the future in an active manner. • The controller plays an essential role in designing systems and tolos
   • • it is essential to understand that the control process is implemented jointly by operational managers and controllers

4. Responsibility centres and results control

   • for achieving this triple function of strategic alignment, horizontal coordination and motivation of managers is the concept of responsibility centre
   • the director of a division has broader powers than the director of a business unit within that division, who in turn has greater responsibilities than a department
   • the amount of freedom given a manager depends on the degree to which the organisation is decentralised.
     • How can we define what the manager is accountable for? In the traditional doctrine of management control, there are three prevailing principles:
       • A principle of demarcation:
       • A principle of anticipation
       • A principle of results control
       • a responsibility centre is defined as an entity within the structure to which the company directors have delegated a certain amount of decision-making authority.
   • The kind and level of its contribution to the organisation’s overall performance objectives has been specified.
   • From global performance measurement to local performance measurement
     • measurement systems play an important role in clarifying the scope of these objectives
     • In a decentralised corporation, it is therefore necessary to construct performance measurement systems at several levels in the organisation

5. Coordination of local-level autonomous control and performance management at the company level

   • The concepts of responsibility center and results control outlined above help to fine-tune the integration of autonomous local control by entities and overall performance management by company directors
     • When entities report on the achievement of a given target to their superiors, the choice of the means employed to achieve these results falls under its responsibility.
       • This allows local managers to preserve their autonomy and also keeps senior management from being overburdened with the surveillance of delegated activities.
   • First, planning (setting targets, formulating action plans) is done at several levels of the organization, which raises the problem of maintaining coherence between the different levels of plans.
     • Second, results monitoring is also carried out at several levels: results and analyses must be performed for the managers in charge of entities, as well as for the purposes of overall control.
       • At this second level the results of the entities must be “sent up” the hierarchical line, a process that is known as “management reporting

6. The control process

   • Management control is an approach that is pursued over time: we situate ourselves both before the action, in the planning phase, and after the action in the monitoring and analysis of results phase.
   • The approach is therefore progressive, which is why we speak of the control process.
   • Control cannot be reduced to a simple exercise of “verification”, because then we would be operating “after the fact”, once the decisions and action had already been undertaken.
     • In such a case the scope of control would be confined to reactions rather than fully effective action.
     • . In seeking to control the attainment of desired outcomes and results, it is essential to prepare the action, to organise it, to perform simulations and to anticipate its consequences.
   • The planning phase is therefore crucial.

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