Understandability

Two aspects of understandability are important. First, the employees whose behaviors are
being controlled must understand what they are being held accountable for. This requires
communication. Training, which is a form of communication, may also be necessary if, for
example, employees are to be held accountable for achieving goals expressed in new and
different terms, such as when an organization shifts its measurement focus from accounting
income to, say, economic value added (more on this in Chapter 11).
Second, employees must understand what they must do to influence the measure, at least in
broad terms. For example, purchasing managers who are held accountable for lowering the
costs of purchased materials will not be successful until they develop strategies for
accomplishing this goal, such as improving negotiations with vendors, increasing competition
among vendors, or working with engineering personnel to redesign certain parts. Similarly,
employees who are held accountable for customer satisfaction must understand what their
customers value and what they can do to affect it. The same holds for teachers in universities
who often do not understand what specific teaching skills or approaches result in better (or
worse) teaching evaluations by their students at the end of the term.
When employees understand what a measure represents, they are empowered to work out
what they can do to influence it. In fact, this is one of the advantages of results controls: good
control can be achieved without knowing exactly how employees will produce the results.

Cost efficiency
Finally, measures should be cost efficient. A measure might have all of the above qualities
and yet be too expensive to develop or use (e.g. when it involves third-party surveys of
customers, say, to collect the data), meaning that the costs exceed the benefits. When that is
the case, the firm may need to settle for an alternative, more cost-efficient measure. Advances
in technology and data analysis, such as related to “big data,” have made data that had
hitherto been hard to obtain or analyze more readily available. But data are not information,
and these data do not uniformly have good properties, where much of it is unstructured. For
example, understandability in terms of the claimed relationships with specific actions and
decisions often is particularly problematic. And even objectivity can be an issue, perhaps
surprisingly, because, as it has been said, “torture the data long enough and they will confess
to anything.”53
For example, California’s MemorialCare Health System is part of a movement by hospitals
around the United States to change how doctors practice by monitoring their progress toward
goals. What is different this time, some hospital executives argue, is that “new technology
enables closer, faster tracking of individual doctors,” where MemorialCare is keeping
detailed data on how the doctors perform on many measures, including adolescent
immunizations, mammograms, and keeping down the blood-sugar levels of diabetes patients.
The results are compiled, number-crunched, and eventually used to help determine how much
money doctors will earn, where the new insurance payments also factor in quality goals. An
assessment of this “doctordata” system indicates that it has helped reduce the average stay for
adult patients, trimmed the average cost per admitted adult patient, and led to improvements
in indicators of quality, including patient re-admissions, mortality, and complications. This
has not been uncontentious, however. Cardiologist Venkat Warren said that he worried that
“some bean-counter will decide what performance is” and wondered whether doctors would
be pushed to avoid older and sicker patients who might drag down their numbers.54
Overall, many measures cannot be classified as either clearly good (effective) or poor
(ineffective). Different tradeoffs among the measurement qualities create some advantages
and disadvantages. For example, measures can often be made more congruent, controllable,
precise and objective if timeliness is compromised. Thus, in assessing the effectiveness of
results measures, many difficult judgments are often necessary. These judgments are
discussed in more detail throughout several chapters of this text.
Conclusion
This chapter described an important form of control, results control, which is used at many
levels in most organizations. Results controls are an indirect form of control because they do
not focus explicitly on the employees’ actions or decisions. However, this indirectness
provides some important advantages. Results controls can often be effective when it is not
clear what behaviors are most desirable. In addition, results controls can yield good control
while allowing the employees whose behaviors are being controlled high autonomy. Many
people, particularly those higher in the organizational hierarchy but also so-called knowledge
workers, value high autonomy and respond well to it, although they may not always respond
well to the measures used, particularly when these suffer from significant weaknesses in
terms of the various measurement properties we discussed.
Results controls are therefore clearly not effective in every situation. Failure to satisfy all
three effectiveness conditions – knowledge of the desired results, ability to affect the desired
results, and ability to measure controllable results effectively – will impair the results
controls’ effectiveness, if not render them impotent. Worse, it could produce dysfunctional
side effects, various forms of which we discuss in later chapters.
That said, results controls usually are the major element of the management control system
(MCS) used in all but the smallest organizations. However, results controls often are
supplemented by action and personnel/cultural controls, which we discuss in the next chapter.