MA Lecture 3.2

Slide 3.
Chapter 3:
Action, Personnel, and Cultural Controls
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition © Pearson Education Limited 2007
Slide 3.2
Action controls
 Ensure that employees perform (or do not perform) certain

actions known to be beneficial (or harmful)
to the organization.
 Prevention/detection
 Most action controls are aimed at preventing

undesirable behaviors.
Slide 3.3
Effectiveness of action controls
 They are usable and effective only when managers:
 Know what actions are desirable
Difficult in highly complex and uncertain task

environments.
(e.g. research engineers or top-level managers)
 Have the ability to make sure that the desirable actions occur
e.g., Effectiveness of organizational procedures !?
Slide 3.4
Behavioral constraints
 Physical
 Locks, passwords, and limited access.
 Administrative
 Restriction of decision-making authority;
 Separation of duties.
Slide 3.5
Preaction reviews
 Scrutiny of action plans, investment proposals, budgets.
Review and approval.
Slide 3.6
Action accountability
Holding employees accountable for the
actions they take.
It requires:
 Defining what actions are (un)acceptable
 Communicating these definitions to employees
 e.g., work rules, policies and procedures, codes of conduct
 Observing or otherwise tracking what happens

 Direct observation/supervision
 Periodic tracking (e.g. “mystery shoppers”)
 Evidence of actions taken (e.g. activity reports)
 Rewarding good actions, or punishing actions that

deviate.
Slide 3.7
Redundancy
 Assigning more people (or machines) to

a task than necessary.
 e.g., backup people/computing facilities
Slide 3.8
Pros and cons of action controls

PRO CON
 The most direct form of control  Only for highly-routinized jobs
 Tend to lead to documentation  May discourage creativity,
of the accumulation of innovation, and adaptation
knowledge as to what works best.
 May cause sloppiness
 Organizational memory
 May cause negative attitudes
 An efficient way of coordination:
 e.g., little opportunity for
 i.e., they increase the predictability
creativity and self-
of actions and reduce the amount
of inter-organizational information actualization
flows to achieve a coordinated  Sometimes very costly
effort.
Slide 3.9
Personnel/cultural controls
 People controls ensure that employees
Will control their own behaviors

Personnel control
Self-monitoring
Will control each others’ behaviors

Cultural controls
Mutual-monitoring
 People controls are part of virtually every management control
system and becoming more important in “flatter and leaner
organizations with empowered employees.”
Slide 3.10
Personnel controls
 Personnel controls build on employees’ natural
tendencies to control themselves, because most
people
 have a conscience that leads them to do what is right;
 find self-satisfaction when they do a good job and see their organization
succeed.
 Labels
Self-control
Intrinsic motivation
Ethics and morality
Trust and atmosphere
Loyalty
Slide 3.11
Implementing personnel controls

 Generally, it is about
“finding the right people, giving them a good
work environment and the necessary resources”
 Selection and placement

 Finding the right people to do a particular job.
 Training
 Give employees a greater sense of professionalism;
 Create interest in the job by helping employees to
understand their job better.
 Job design and provision of necessary resources

 So that motivated and qualified employees have a high
probability of success (e.g. equipment, staff support,
freedom from interruption, etc.)
Slide 3.12
Cultural controls
 Cultural controls or mutual-monitoring tap into
social pressure and group norms and values.
 Cultural controls are effective because members

of a group have emotional ties to one another.
 Cultures are built on shared

traditions
norms
beliefs
ideologies
attitudes
ways of behaving
Slide 3.13
Five ways to shape culture
 Codes of conduct
 Codes of ethics, corporate credos, mission statements, etc.
 Formal written documents with broad statements of corporate
values, commitments to stakeholders, and the ways in which
top management would like the firm to function.
 Fundamental guiding principles of the company.
 Group-based rewards
 e.g., bonus, profit-sharing, employee ownership of company stock;
 Cultural controls rather than results controls because the link between individual
performance and rewards is weak.
Slide 3.14
Five ways to shape culture (Continued)
 Intra-organizational transfers
 Improve the socialization of individuals in an organization and
inhibit the formation of incompatible goals and perspectives;
 Improve identification with the organization as a whole as
opposed to subunit identification.
 Physical and social arrangements

 e.g., office plans, interior decor, dress codes and vocabulary, etc.
 Tone at the top

 Top management statements must be consistent with the culture
they are trying to create, and importantly, their behaviors should
be consistent with their statements.
Slide 3.15
Start with people controls

 People controls
Must always be relied on to a certain extent
Have relatively few harmful side-effects
Involve relatively low out-of-pocket costs
 However, it is rare that people controls will be sufficient.

In most cases, it is necessary to supplement them with
action controls
results controls
 Maybe, you just shouldn’t put all your trust in

people !?

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Slide 3.

 Ensure that employees perform (or do not perform) certain

 Most action controls are aimed at preventing

Effectiveness of action controls

 They are usable and effective only when managers:

 Know what actions are desirable

Difficult in highly complex and uncertain task

e.g., Effectiveness of organizational procedures !?

 Scrutiny of action plans, investment proposals, budgets.

Review and approval.

 Observing or otherwise tracking what happens

 Periodic tracking (e.g. “mystery shoppers”)

 Evidence of actions taken (e.g. activity reports)

 Rewarding good actions, or punishing actions that

 Assigning more people (or machines) to

 e.g., backup people/computing facilities

Pros and cons of action controls

Will control their own behaviors

Will control each others’ behaviors

Implementing personnel controls

 Selection and placement

 Job design and provision of necessary resources

 Cultural controls are effective because members

 Cultures are built on shared

Five ways to shape culture

Five ways to shape culture (Continued)

 Physical and social arrangements

 Tone at the top

Start with people controls

 However, it is rare that people controls will be sufficient.

 Maybe, you just shouldn’t put all your trust in

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