Practice shows that, in order to improve internal and external communication, managers need to increase the request of information about their business administration. So, for this, they need a complementary system which assures them this kind of informa

PETE STEFAN

POPA IRIMIE EMIL

VOLKAN ILDIKO REKA

Directory of Open Access Journals

1113  USING MANAGEMENT CONTROL TO ALIGN ORGANIZATIONAL STARTEGIES AND TO MEASURE PERFORMANCES  Pete Ştefan  Babes-Bolyai  University,  Faculty  of  Economics  and  Business  Administration,  58-60,  Teodor Mihali Street, Cluj-Napoca, Romania Email: stefan.pete@econ.ubbcluj.ro; Tel: 0264-418658 Popa Irimie Emil  Babes-Bolyai  University,  Faculty  of  Economics  and  Business  Administration,  58-60,  Teodor Mihali Street, Cluj-Napoca, Romania Email: irimie.popa@econ.ubbcluj.ro; Tel: 0264-418652, int. 5806 Volkán Ildikó Réka  Babes-Bolyai University, Faculty of Economics and Business Administration,   58-60, Teodor Mihali Street, Cluj-Napoca, Romania Email: v_reka@yahoo.com; Tel: 0264-418652, int. 5808  Practice shows that, in order to improve internal and external communication, managers need to increase the request of information about their business administration. So, for this, they need a complementary system which assures them this kind of information and data. The related actions in this way are: forecast and  control.  Management  control  appeared  as  an  answer  to  the  evolving  concerns  toward  economic efficiency and represents a privileged tool of management, defined as the process through which managers assures themselves that the resources are acquired and used with efficiency, efficaciousness and pertinence for realizing the objectives of an organization.  Keywords management control, strategy, performance  JEL Classification: M - Business Administration and Business Economics; Marketing; Accounting  1. INTRODUCTION The American Accounting Association defined accounting in 1966 as the process of identifying, measuring  and  communicating  economic  information  to  permit  informed  judgments  and decisions by users of the information. This definition is important because it recognizes that:   -accounting  is  a  process  which  main  preoccupation  is  to  capture  business  events,   record their financial effect, summarize and report the result of those effects.    -it  is  concerned  with  economic  information,  both  financial  and  non-financial  and   its  purpose  is  to  support  ―informed  judgments  and  decision‖  by  users  in  order  to   record, report and interpret business transactions.  Meanwhile accounting is seen as fulfilling three functions: 1.  Scorekeeping – capturing, recording, summarizing and reporting financial performance. 2.  Attention- directing - drawing the attention of managers to, and assisting in the interpretation of, business performance, particularly in terms of the comparison between actual and planned performance. 3.  Problem-solving – identifying the best choice from a range of alternative actions.  The attention-directing and problem-solving functions are taking place through three inter-related functions:   Planning – refers to establishing goals and strategies to achieve goals.   Decision-making – using financial information to make decisions   Control  –  using  financial information to  maintain  performance  as close  as  possible to plans.  1114  The mentioned inter-related functions are important and relevant as increasingly businesses have been  decentralized  into  many  business  units  and  managers  need  financial  and  non-financial information to develop and implement strategies for the future; making good decisions about products, services and their prices; and ensuring that plans are put into action and are achieved. This can be done by management accounting and management control.  2. RESEARCH METHODOLOGY This  article  is  a  theoretical  study  and  its  purpose  is  to  present  the  relationship  between management control, performances and strategy using information and data gathered from the existing literature on national and international level. After covering the available literature in this field, based on a qualitative analysis, we want to demonstrate in this article that management control becomes an effective informational system and assures organizational coordination and development, capable to answer to 3 basic questions: What for?, For who? and On who? The outcome becomes strategic for the organization on a long term and for all the actors within it.   3. MANAGEMENT CONTROL – ROLE AND NECESSITY   Anthony defined management control as: ―the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization‘s objectives‖534.  In time Anthony developed a model that differentiated three planning and control functions:   -Strategy  formulation  was  concerned  with  establishing  goals  and  objectives,   strategies  and  policies,  defining  resources  and  policies  used  to  achieve  those   objectives  and  goals.  This  function  is  oriented  towards  external  environment  and   operates with strategic decisions on long term. This fed into   -Management  control,  which  was  concerned  with  the  implementation  of   strategies  and  assures  that  resources  are  obtained  and  used  effectively  and   efficiently  in  order  to  achieve  objectives.  This  function  operates  with  tactic   decisions.   -Task  control,  which  comprised  the  efficient  and  effective  performance  of   individual tasks. This function is oriented towards internal environment and   operates with current decisions. Otley argued that such a separation was unrealistic and that management control was ―intimately bound up with both strategic decisions about positioning and operating decisions that ensure the effective implementation of such strategies‖.535  Building  on  Anthony‘s  earlier  definition,  in  2000  Anthony  and  Govindarajan  defined management control as ―a process by which managers at all levels ensure that the people they supervise implement their intended strategies‖536. In 1995 Berry et al. admitted that management control: ―is the process of guiding organizations into  viable  patterns  of  activity  in  a  changing  environment  …..    managers  are  concerned  to                                                        534 Anthony, R. N. Planning and Control Systems: A Framework for Analysis. Boston, MA: Harvard Business School Press, 1965 535  Otley,  D.  Management  control  in  contemporary  organizations:  Towards  a  wider  framework.  Management Accounting Research, 5, 1994, pg. 298 536 Anthony, R. N. and Govindarajan, V. Management Control Systems. (10th international edition). New York, NY: McGraw-Hill Irwin, 2000, pg.4; 1115  influence the behavior of other organizational participants so that some overall organizational goals are achieved‖537. All and all management control is a system of rules, a collection of inter-related mechanisms and consists of formal, information-based routines and procedures used by managers to maintain or alter patterns in organizational activities. Managers  use  internally  and  externally  generated  information  to  govern  their  organizations. Because  one  of  the  managerial  functions  requiring  information  is  control  we  can  talk  about management control system (MCS) in every organization. According  to  Anthony  and  Govindarajan  a  Management  Control  System  has  the  following components: 1. A detector or sensor, which is a measuring device that identifies what, is actually happening in the process being controlled.  2. An assessor, which is a device for determining the significance of what is happening. Usually, significance is assessed by comparing the information on what is actually happening with some standard or expectation of what should be happening. 3. An effector, which is a device that alters behavior if the assessor indicates the need for doing so. This device is often called ―feedback.‖  4.  A  communications  network,  which  transmits  information  between  the  detector  and  the assessor and between the assessor and the effector. Most businesses have a variety of control systems in place. For example, a control system may reflect a set of procedures for screening potential suppliers or employees, a set of criteria to evaluate  potential  and  existing  investments,  or  a  statistical  control  process  to  monitor  and evaluate quality. Regardless of the specific actions taken, a management control system should serve to guide organizations in designing and implementing strategies such that organizational goals and objectives are achieved.   4. The Impact of MANAGEMENT CONTROL ON STRATEGY AND PERFORMANCES  To maintain a competitive position a company must generate the information necessary to define and implement its organizational strategies. Strategy is the link between an organization‘s goals and objectives and the operational activities executed by the organization. In the current global market, firms must be certain that such a linkage exists.  Strategy can be defined as: ―the art of creating value. It provides the intellectual frameworks, conceptual models, and governing ideas that allow a company‘s managers to identify opportunities for bringing value to customers and for delivering value at a profit. In this respect, strategy is the way a company defines its business and links together the only two resources that really matter in today‘s economy: knowledge and relationships or an organization‘s competencies and its customers‖.538 The accomplishment of a strategy reclaims taking in consideration the different management horizons:   -The  strategic  horizon  –  settles  the  goals  and  objectives  on  long  term,  5-10  years,   and as a result of these elaborates strategic plans.   -Budgetary  horizon  –  translates  into  practice  the  established  goals  and  objectives   on medium term using budgets and operational plans.   -Operational horizon – elaborates, applies, pursuits and analyses action plans. Management control acts within each horizon using specific instrument on every level and the controlling  process  is  bounded  to  the  decision  making  process.  The  Management  Control Systems (MCS) enables managers to perform strategic analyses on issues such as determining                                                        537 Berry, A. J., Broadbent, J. and Otley, D. The domain of organizational control. In A. J. Berry, J. Broadbent and D. Otley (eds), Management Control: Theories, Issues and Practices, London: Macmillan, 1995, pg. 4 538 Richard Normann and Rafael Ramirez, From Value Chain to Value Constellation: Designing Interactive Strategy, Harvard Business Review (July–August), 1993, pg. 65; 1116  core competencies and organizational constraints from a cost-benefit perspective and assessing the positive and negative financial and non-financial factors of strategic and operational plans. Johnson and Kaplan emphasized the importance of non-financial indicators arguing that539 short-term financial measures will have to be replaced by a variety of non -financial indicators that provide better targets and predictors for the firm‘s long-term profitability goals, signifying this as a  return  to  the  operations  based  measures  that  were  the  origin  of  management  accounting systems. Within organizations performance measurement has been and it is dominated by management control systems that are focused on control and than improvement. Performance measurement goes beyond the boundaries of traditional management accounting and could be achieved by accountants  having  a  better  understanding  of  the  operational  activities  of  the  business  and building  this  understanding  into  control  systems  design;  connecting  control  systems  with business  strategy,  which  has  to  some  extent  been  addressed  by  the  proponents  of  strategic management accounting (see below); and focusing on the external environment within which the business operates, through a value-chain based approach. Anthony once said, on one hand, that management control is the process through which managers use their power to influence other members of the organization to implement strategies, to realize goals and objectives and, on the other hand, it integrates facts on long, medium and short terms, having well determined implications in human factors, objectives and assignments.  5. CONCLUSIONS The  management  of  an  organization  involves  two  key  areas:  planning  and  control.  Every organization requires plans to determine priorities and resource allocation and a mechanism by which execution against the plans can be controlled.  Management control is the process by which management ensures that the organization carries out its strategies  effectively  and  efficiently.  By  management  control  managers  look  to  conceive  and  to elaborate reporting instruments aimed to allow the leaders to act realizing economical, global coherence between  objectives,  resources  and  performances.  In  management  control  systems  accounting information provides a window through which the real activities of the organization may be monitored.  An organization‘s strategy must be appropriate for its resources, circumstances, and objectives. The process  involves  matching  the  company's  strategic  advantages  to  the  business  environment  the organization faces. One objective of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organization‘s goals, policies, and action sequences (tactics) into a cohesive whole, and must be based on business realities. The performance measurement systems, on the other hand, should encourage managers to act in the best interest of the organization and its subunits and to support organizational missions and competitive strategies.  In the end we can say that management control is a core business function and exists as a separate, well-established discipline within the management field. The extension of this discipline to business ethics and its partial merging with legal risk management has been one of the more important developments in international business of the last two decades.  References 1.  Anthony,  R.  N.  Planning  and  Control  Systems: A  Framework  for  Analysis.  Boston,  MA: Harvard Business School Press, 1965;                                                        539 Johnson, H. T. and Kaplan, R. S. Relevance Lost: The Rise and Fall of Management Accounting. Boston, MA: Harvard Business School Press, 1987, pg. 197; 1117  2.  Anthony,  R.  N.  and  Govindarajan,  V.  Management  Control  Systems.  (10th  international edition). New York, NY: McGraw-Hill Irwin, 2000; 3.  Barfield  J.T.,  Raiborn  C.A.,  Kinney  M.R.,  Cost  Accounting:  Traditions  &Innovations (Hardcover), South-Western College Pub, 5 edition, 2002; 4. Berry, A. J., Broadbent, J. and Otley, D. The domain of organizational control. In A. J. Berry, J. Broadbent and D. Otley (eds), Management Control: Theories, Issues and Practices, London: Macmillan, 1995; 5.  Bromwich,  M.  The  case  for  strategic  management  accounting:  The  role  of  accounting information for strategy in competitive markets. Accounting, Organizations and Society, 15(1/2), 27–46, 1990; 6.  Chartered  Institute  of  Management  Accountants  Performance  Measurement  in  the Manufacturing Sector. London: Chartered Institute of Management Accountants, 1993 7. Drury, C. Management and Cost Accounting. (5th edn). London: Thomson Learning, 2000; 8.  Johnson,  H.  T.  and  Kaplan,  R.  S.  Relevance  Lost:  The  Rise  and  Fall  of  Management Accounting. Boston, MA: Harvard Business School Press, 1987; 9. Otley, D. Management control in contemporary organizations: Towards a wider framework. Management Accounting Research, 5, 1994, 10. Normann R., Ramirez R., From Value Chain to Value Constellation: Designing Interactive Strategy, Harvard Business Review (July–August), 1993;    

USING MANAGEMENT CONTROL TO ALIGN ORGANIZATIONAL STARTEGIES AND TO MEASURE PERFORMANCES

Abstract

Similar works

Full text

Available Versions

Directory of Open Access Journals