1.

In their critique of conventional, functionalist approaches to management control

systems, Dermer & Lucas (1986) refer to “the illusion of managerial control”. Explain
what this critique is about and how “the illusion of managerial control” may be
mitigated by adopting alternative perspectives on the role of management control
systems in organisations. (50 marks) 


Merchant & Van der Stede’s “object of control” framework presumes an implicit
economics-based model by conceptualising the choice of control systems as an
outcome of cost-benefit trade-offs. Under this model, it is assumed that all
organisational members are economically rational actors (Homo Economicus). All
superiors (principals) and subordinates(agents) are both interested and have diverging
interests/objectives. Subordinates are effort and risk averse and also the choice of
control systems can be reduced to a question of explicit or implicit contracting. Costs
and benefits are easily conceptualised and (in principle) measurable.

Where superiors have imperfect information about subordinates actions, they have
two basic options in choosing control systems. The first one is contract based on
behaviour of the subordinate and monitor compliance, and the second one is contract
based on the outcomes of subordinates action and rewards are designed to compensate
the risk bear by the subordinates (result controls). The direct and indirect cost of
option one and two is compared and the least costly alternative subject to contextual
constraint is chosen.

The limitation for this model is that it presumes that organisational members work in
social vacuum and always act on their self interests. The political, cultural context and
organisational history is ignored. This model also reduces the choice of control
systems to a matter of explicit or implicit economic calculation. This model can also
be self fulfilling if economics based arguments are explicitly used as a justification for
the choice of control systems. This can reinforce rather than mitigate dysfunctional
attitudes and behaviour.

In the critique of conventional, functionalist approaches to management control

systems, Dermer & Lucas (1986) refer to “the illusion of managerial control”. It is
said that the rationalistic, instrumental approaches to management control such as the
object of control framework are often too narrow. This is because under the model, it
generally based on only one managerial rationality. It also ignores that organisations
are not solely constituted by principles and agents but by multiple stakeholders group
with their own rationality and competing demands. Object of control framework also
assume that organisations are political power fields where managerial control is an
expression of some negotiated order. Dermer and Lucas stated that unless the
possibility of multi rationality is recognised, control may prove to be illusive.
According to the study, the pre requisites for conventional management control
approach include clear and specific goals, possibilities of measuring performance,
clear view of effects of managerial interventions to address performance problem and
also clear causal linkage between underlying organisational activities and
performance. The consequences of exposing the illusion of managerial control are
that it may destabilise organisations and lead to disruptive conflicts and power
struggle. It may also lead to loss of direction and ambiguity.

Given the prevalence of multiple rationalities and interests in organisations, a

rationalistic managerial approach is not enough and alternative perspective is needed
to mitigate the illusion of managerial control. There are three alternatives perspectives
in management control research according to Chua 1986. These includes the rational,
interpretive and critical perspective.

The rational perspective view organisational reality as objectively verifiable and it

exist ‘out there’. The management role is assumed to be rational and value neutral
tool for decision making and control. This perspective assumes equilibrium and has
limited interest in the process of change. Interpretive perspective on the other hand
view the organisational reality as intersubjectively created and maintained.
Management control role is assumed as changeable practices that are inspired with
context specific meanings. Under this perspective, change and stability intertwined
and often unpredictable. Critical perspective, view the organisational reality as
constituted by competing interests with varying power. View management control
role as a vehicle of power and domination and view change as requiring questioning
of existing power relationship.