Organizations and Management Control Systems
Management control requires a complete and clear definition of the goals that the organization would like to achieve. The definition requires the measurement system design, metrics, data, and the analytics process to measure. This means if we do not know where to go, any direction could be good or bad. This is, as Carroll expresses in Alice’s Adventures in Wonderland: “If you don’t know where you’re going, any road will take you there.”
How to get the answer to where we want to go? The answer can be addressed by the analytics process that provides insights to identify what is known, unknown, and unknowable: presenting in as clear a way as possible desirable and feasible futures and avoiding strategic traps, such as keeping the evidence out of the decision process just because it could be convenient to ignore it.
The definition of the goals will include the problems to solve and the process to define the problems in a clear way and to find the methods to get solutions. In the end, the management control system will be based on the following areas of development:
- ? People moving in a common direction to implement the strategy.
- ? Coordination, permanent search for solution of problems, search of the best.
- ? Problem-solving capacity. This is expected in most of the cases that are systematic, organized, and with attributes, such as efficiency and effectiveness.
- ? Review of strategic concepts, such as the bases of passing from a single industry to diversified (unrelated and related), sharing or no resources or core competencies, managing as a portfolio the business units.
- ? Use of tools that can be analytics in a qualitative or quantitative way. For instance,
- — Strategy and the four Ps (product, price, promotion, place)
- — Mapping market growth to relative market share
- — Attractiveness and strengths
- — Porter’s forces
- — Generic competitive strategies (low cost — differentiation)
- — Value chain analysis
- — BSC Kaplan and Norton—structure of the BSC properly defined to support the BU portfolio.
- ? Start with a clarification to the whole organization of the mission, vision, and value proposition based on the mission to review the factors associated with the planning process, formalization of capital expenditure and evaluation, capital investment analysis, project development, compensation, and budgeting review.
- ? Design of detectors, assessors, effectors, and communication as Anthony and Govindarajan (2007) point out. We create early warning systems, control systems in the time of the action and post actions. Detectors are the ways to observe the information to be aware of what is happening. Assessors are a means to review similarities and differences between the current situation and the expected one. And effectors look for the reduction of the difference between the current and expected results. In our previous chapter, we view this comparison and observations as risk management-related tasks.
In general, the management control system is about supporting and developing capabilities for organization members to achieve goals and implementing
Figure 3.2 Implementing a strategy requires alignment.
the strategy. These actions are connected to improve alignment and coordination, deciding what to measure, creating the systems to measure, performing analytics, and generation of analytics knowledge for better business understanding. The development of the analytics knowledge process will cover defining the root causes of problems, solutions, and developing knowledge transfer methods to move the analytics knowledge across the organization, horizontally and vertically (see Figure 3.2).
Management control systems under the analytics process require a clear connection with measurement systems that include metrics with and without risk factors in their definitions. The next section presents some of the links between key performance indicators and key risk indicators related to the development of a management control system.