Chapter 3

Behavior in Organizations
 Objectives

• To understand Goal Congruence and impact of GOOD

Management Control Systems on it.
• To analyze the formal and informal control system and
its influence on the organization.
• Type of Organization : Fit and effective MCS
• Role of Controller : the person who is responsible for the
design and operation of MCS
 Goal Congruence
• Senior Management wants the organization to attain the
organization's goals but the employees are interested in achieving
their personal goals.
• Thus, the central purpose of the control system is to make sure that
a high level of “Goal Congruence” to be implemented.
• In a Goal Congruent process, the actions people led to take in
accordance with their perceived self-interest are also in the best
interest of the organization.
• But, this situation is purely an utopian type.
• And an adequate control system can at least ensure to encourage
an individual to act for the organization.
 Informal factors influencing Goal Congruence
• The formal control system which includes strategic planning, budgets,
reports etc. are very important for any organization but the informal
processes like work ethics, management style, culture etc. should be taken
into consideration to implement the strategies effectively.
• There are both internal and external informal factors that play key role In
achieving goal congruence.
• External Factors:
- work ethics
- local or regional attitudes
- other attitudes – industry specific.
• Internal Factors:
- Culture: beliefs, norms of behavior, assumption at organization
- Management Style: superior's attitude, leadership style
- The informal organization: formal/informal relationships,
centralization/decentralization.
- Perception and communication
 Formal Control System
• The informal factors have major impact on the effectiveness of an
organization’s control. The other major influence is the formal
systems. And this system can be classified into two major
segment.
1. Management Control System itself and
2. Rules: positive and negative. Some specific types are as below:
- Physical control
- Manuals
- System Safeguards
- Task control systems
 The formal control process

Goals Rules Other information

Yes

Responsibility Report Was

Strategic
Budgeting Center Actual Vs. Performance
Planning
Performance Plan Satisfactory?

No
Communication
 Types of organizations
A firm’s strategy has a major influence on its structure. And in turn the type
of structure influences the organization’s control system. The
structures can be divided into three major categories:
1. Functional organizations:
- In which each manager is responsible for a specified function such as
marketing or production.
- The rationale for the functional form of organization involves the notion of a
manager who brings specialized knowledge related to specific function.
- Thus, an important advantage of a functional structure is efficiency.
There are certain disadvantages as well;
- There is no proper way to find the effectiveness of the performance of the
function as the performance of the whole organization is measured together.
- the head of two different functions may have disputes in terms of resource
allocation, performance measurement, operational dependency which will be
solved only at top.
- Functional structures are inadequate for a firm with diversifies products and
markets.
 Contd.
2. Business Units:
- The business unit form of organization is designed to solve the problems
inherent in the functional structure.
- In which business unit managers are responsible for most of he activities of
their particular unit, and the business unit functions as a semi-independent
part of the company.
- They are responsible for planning and coordinating the work of the separate
functions and for resolving the disputes between functions.
- The business unit manager is responsible for all the activities but the
important decisions like funds allocation, approving of budgets, judging of
performance will be done by top management only.
- An advantage of the structure is it provides a training ground in general
management.
- Another advantage of this type of structure is that because the business unit
is closer to the market for its products than headquarters is.
- But, with this advantages certain disadvantages or problems are also there
like, there may be a duplication of work because the functional work is done
at unit level will be done at top level also. Which will increase the staff cost.
 Functions of the Controller
The person who is responsible for designing and operating the
management control system is considered a controller in the
organization. The controller usually performs the following functions:
- Designing and operating information and control systems.
- Preparing financial statements and financial reports for share
holders and other external parties.
- Preparing and analyzing performance reports, interpreting those
reports for managers an analyzing the program and budget
proposals from various segments of the company.
- Supervising internal audit and accounting control procedures to
ensure the validity of information, establishing adequate safeguards
against theft and fraud, and performing operational audits.