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The nature of management control - Coggle Diagram
The nature of management control
Taking an audit perspective
The concept of and the need for audit underpins what we are trying to achieve in our ability to understand and control performance
The alignmnet of the three requirements - hear, listen and understand, requires us to assess the data and information with which we are presented.
We need to have confidence in the integrity of that data and information to the point where we are content that we are dealing with certainty - this will at least partly be based around our judgement of the integrity of the originating source of data and the level of bias that is associated with the judgement we make
Control methods
Internal awareness
In what is known as a single loop system, there is a straight iteration around the system, the control sits as part of the problem solving and it is built into the system itself
External awareness
In a double loop system, this type of system will usually involve many more than just two loops (iterations), there is an external sense check built into the systsem which is required before it is allowed to continue
Organisational metaphors
Robert Flood (1991)
suggests the use of a number of different metaphors to help us to understand a range of different types of control and behaviour that exist within our organisational systems. In our age of technology, we take systems for granted at many levels, often without thinking about the implications
Five types of metaphor which will help us to consider the type of qualities that we may be be looking for when we start to examine systems more deeply in a business context
MACHINE metaphor
Flood describes this as a closed system single loop view
Predefined inputs and outputs
A machine is designed to work - you push the buttons and it operates, in a continuous and repetitive manner, to deliver one or more pre-defined outcomes. There is a strong reliance on the efficiency of the parts of the machine which simply need replacing when they wear out or fail
ORGANIC metaphor
Flood describes this as an open system double loop view
The inputs can be determined but the outputs will evolve
This represents a direct challenge to the machine view, particuarly when one or more of the parts of the machine is a person.
BRAIN metaphor
This is a particular category of 'open system' with a keen focus on viability
The inputs can be manipulated to ensure that the outputs are delivered, but the outputs themselves are likely to also be manipulated. The human brain is itself seen as a control system. The system needs to have the ability to teach itself to learn and build its own methods of control, based upon objective external stimuli
CULTURE metaphor
Flood uses the word culture as a metaphor for the unspoken, familiar ways of thinking and acting in all organisations
The inputs may be based upon the culture criteria, then the engine of the organisation will operate in a manner dictated by the beliefs, practices and evolving norms of the organisation. Firms in identical markets can behave very differently based upon the underlying culture
POLITICAL metaphor
Flood uses the political metaphor to describe the pursuit of power by individuals and the impact this has on organisational relationships
The influence of the individual will ultimately drive success
Leadership and control
The assertion here is that effective control in the strategic thinking process needs to be aligned with achieivng the right balance in the governance process
What matters for control is the real impact of the type of governance that can realistically and practically oversee the running of any size and type of organisation on a periodic basis
The governance balance will differ within every orgnaisation and will continue to vary as the external environment, the organisation and the people evolve
Control sits as part of the strategic or formal framework which creates the balance and together with the trangulaiton of strategy, risk and control, we need to consider
If the reputation of an organisation is one of efficiency, then one would expect to find effective control. If an organisation is known for its poor standards and inefficiency of operation, then one would expect to find poor and inadequate controls and a negative reputation
The structure requires a challenging balance of differing leadership skills
Experienced players: people who understand what they are dealing with
Lateral thinkers: people who have the ability to think beyond the obvious
Intelligent listeners: people who will audit the views of others
Determined challengers: people who are prepared to formulate and ask the difficult questions
Independent unbiased and objective leaders with certain specific and relevant knowledge and skill sets (NEDs)
Effective leaders of committees and boards (chair)
Simons (1994)
argues that to really understand whether we have appropriate and effective controls around and within our strategic thinking and the emanating risks, we need to understand the differing levers of control within an organisation. There are a number of generic concepts that can be applied
Beliefs
These are the core values within an organisation
There is the need to understand how and why value is created, so where controls need to be placed
There is the need to understand the human relationships within the organisation and the differing communication methods and systems
Boundaries
Every organisation will have its current pre-defined limits and parameters
The strategic boundaries will define the journey and need for appropriate control measures
The implementation of control and the autocratic or consultative approach to compliance will have particular significance when boundaries are broken
People interaction
The people interactivity requires a system thinking approach to be able to visualise how the organisaiton actually works
The difference between what is happening and what should be happening can require a gap analysis approach
This will often be aligned to the power culture that exists and the identification of who makes that core decisions
Feedback monitoring
There is the need to understand what happens when a control system alarm is activiated - who does what, how and why
There is no point in having diagnostic contorls that are just ignored
There needs to be an assurance that feedback is taken seriously
Power and control
Traditional autocratic organisations would restrict power and control to those in positions in seniority
There has been a wide recognition that control can often be most effective when used directly at the source of the problem or the change that is required rather than waiting for a reactive response after the event
Structure and control
The growth of enterprise resource planning (ERP) systems has led to a different level of expectation around control
ERP systems are structured to place direct control with sometimes significant room for interpretation in the hands of the different people usng the system across an organisation
The end results will be quantitative and financial and monitored through audit and risk-control structures but the level of control allowed by such software structures is designed to deliver more effective end-to-end control within an organisationn on an immediate rather than a retrospective basis
An ERP system allows ongoing control
The nature of data capture and data efficiency can lead to different perspectives and problems of structure and control