ME2028 – Letter 5
Dear student,
In the fifth lecture of the course ME2028 Behavioural management control, we discussed the
benefits and costs of management control. The costs part can be divided into Behavioural
displacement, gamesmanship, negative attitudes and operating delays. There are different
problems for different types of control. The important thing here is to balance the benefits
with the costs for the control.
In the lecture, we discussed the case about Disctech. The text we covered was chapter 6. The
question for the assignment is the fifth one as follows:
Q1: One of the causes of management control problems is lack of motivation. Why does this
problem exist?
Q2: Why is controllability needed in order for results control to be effective?
Q3: Discuss the four types of personnel controls in terms of self monitoring.
Q4: What is tight control?
Q5: What types of gamesmanship can occur in results control?
Next, we are going to discuss the design of management control systems, covered in chapter
6. The case we are going to use is AirTex. The assignments are:
1. What are the key recurring activities?
2. Describe the earlier and the new system in terms of type of control.
3. Discuss pros and cons with the new, decentralised, system.
You can find the analysis-tool that we are going to use for this case on the enclosed paper.
Another thing we discussed is the seminar work. If you haven’t formed a group yet, it is time
to do this. You also have the instruction for the seminar work attached.
Best regards / Håkan
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Håkan Kullvén
School of Industrial Engineering and Management, ITM
Associate professor in Industrial Economics and Management
Lindstedsvagen 30
100 44 Stockholm
+46 73 500 4580
+46 8 790 6052
hakan.kullven@indek.kth.se
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Chapter 6: AirTex Aviation
Ted and Frank bought the divisionalised small company AirTex. They wanted to make each
individual feel like her/his role was to raise profits. Therefore it was important to have fast
feedback and good rewards for profits. The main idea was expressed as: “I want to make the
managers take the decisions that I would take”. They thought they had two possibilities, either
to learn the business themselves, or teach the employees management. They choose the latter.
In doing so, it was necessary to: manage cash, create a MCS system, and change the role of
Sarah, the head of accounting and previously the in-fact manager (she had total control of
nearly everything). Some of the activities that needed to be controlled in the company were:
Purchasing
Grant credit
Collect receivables
Pricing
People
Borrow money
Pay bills
The departmental managers were often uninterested and uneducated in management, but were
interested in flying/the operations and often old and well known in the industry, or young and
inexperienced. They didn’t understand the earlier system due to Sarah keeping control of
everything.
The new system built on: the managers of the departments granting control of cash, authority
and responsibility. It used cost allocations, transfer pricing, and information flows. No budget
was used. A tight daily report system was constructed.
Case for seminar work
The case for the seminar work is ”Pacific Sunwear of California, Inc”.
The questions that you should discuss around are the following:
1. Discuss the different types of control that SOX implies for
PacSun; what action, results, personnel and cultural controls are
used?
2. Discuss the benefits and costs for PacSun of complying with
SOX. Is it worth it?
3. The SOX act isn’t only for the companies as such, but also to
protect investor’s money. From this perspective, is SOX adding
value in this case?
These questions should be answered on a maximum of two pages, to
be handed in one day & night before the first seminar.