ADVANCED
MANAGEMENT
CONTROLS
GSM 645
Capstone Course
Integrate Core
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Managing Exchange
Managing Organizations
Economics & Finance
Budget and control
Quantitative methods and Statistics
Case Course
• Action Forcing
• Historical
• Public and not-for-profit
• Business
• Role playing
POSDCORB
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Strategic PLANNING
ORGANIZING
STAFFING
Organizational
DEVELOPMENT
CONTROLLING
OPERATING
REPORTING
BUDGETING
Focus on Lower Level
Management Functions
Lower Level Functions
coordination, performance
measurement, and control systems are
merely means of implementing
product/market strategies
Higher Level Functions
This course is divided into three
sections:
Best practice
Aligning Strategy and Structure
Modern Performance
Measurement and Control
Systems
Design of Responsibility
Structures
• Ongoing
– revenue and expense centers
– profit centers
– investment centers
• Finite
– projects
– Products
– teams
Linking Responsibility Structures
• Mission and support centers
• Using transfer prices
• Programming and project analysis
-- i.e., transforming project
budgets(capital budgets) into
responsibility budgets
• Discretionary expense centers
Contemporary Fads
• Lean management
• Internal pricing (unbalanced transfer
prices, multi-part tariffs, and
intraorganizational sales of assets)
• Overhead management (cycle-time
burdening and activity accounting)
• Process reengineering
TEXTS
• Anthony and Govindarajan,
Management Control Systems (A&G);
• Bower and Christenson, Public
Management, Text and Cases [HO];
Grading
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Case presentations -- 2 (15%)
Sloan Essay (15%)
Exercises 3 (16%)
Class participation (24%)
Case memos -- 3 (30%)
– Case writing can be substituted for case memos
– Case presentations, class discussion, memos, and
the Sloan essay should reflect material contained
in the text.
Official Syllabus
Management
• Subject areas
– Designing programmatic organizations
• Closely related with organizational and cultural aspects of
strategy and policy
– Executive leadership
• Focus is on the strategic apex (top management) of organizational
units
• Closely related to strategic management
– Managing operations
• Focus is on the design, maintenance, and strengthening of the
operating core as well as on the planning, budgeting, control,
execution, and evaluation of performed tasks
Schools of Thoughts and Doctrinal
Issues in Management
Strategic
Management
Business Process
Management
Performance
Management
What is the role of
managers?
What should be the
design of a programmatic
organization?
How should
operations be managed?
What management
policies should be chosen?
Related Discourses?
OVERLAPS
Accouting
Information
Systems
UNDERLAPS?
Value-Added/ Work Redesign
Results Orientation & Adhocracy
Practices
(ABC/ABM)
TQM
PERFORMANCE MANAGEMENT
Management
BUSINESS PROCESS REDESIGN
Control Structure
Outsourcing and
and Process
Supply Chain Management
Related Discourses?
Strategy
Process
Accounting
Information
Systems
Leadership
Function
PERFORMANCE MANAGEMENT
Management
Control Structure
and Process
STRATEGIC MANAGEMENT
Political
Management
Related Discourses?
OVERLAPS
ResultsOrientation
Accounting
Information
Systems
Leadership
Function
Divisionalization
Strategy
Implementation
PERFORMANCE MANAGEMENT
Strategy
Formulation
Management
STRATEGIC MANAGEMENT
Control Structure
Political
and Process
Management
DETAILS?
UNDERLAPS?
Management Control
• Origins (19th c.)
– Operational Control and Cost Accounting on the
Shop Floor (Wedgewood)
– Railroad Management
– Military Supply and Logistics
• Principal institutional locus
– Accounting departments
– Business schools
– Management consulting industry
• Scientific source disciplines
– Managerial economics, organizational behavior,
cybernetics
MAC (1)
• Some big names
– Herbert Simon (1954)
Journals
– Robert Anthony (HBS)
– Anthony Hopwood (LSE, Oxford)
Management
Accounting
– Robert Kaplan (HBS)
• Some informative texts
Accounting, Organization,
And Society
– Hongren (technical approach)
– Macintosh (organizational approach)
– Simons (strategic management approach)
MAC (2)
• A Classical View of Management
– POSDCORB
– Focus on CORB and implementing P
– Some interest in O
– Not primarily concerned with P,S,D
• Some trends in attention and argument
– Less attentive to the shop floor (until the rise of BPM)
– Sought to be compatible with diverse ideas about strategic
management
– Unwilling to play second-fiddle to financial accounting
– Increasingly boisterous about relevance to all aspects of
management (everything except S?)
Functional Discipline: Production and
MAC
Operations Management
• Systems Approach
– “Holistic perspective”
– Bringing together the disparate components of a
system into an effective whole
– Systems dynamics
• Positive and negative feedback
• Stock/flow relationships
– Functionality thinking
• Design hierarchies
• Function-feature relationships
MAC (3)
Basic Mental Models
Setting targets
Authorizing costs
Reviewing indicators
CO, P
CO, B, O
R
?
Planning
Budgeting
Execution
Evaluation
Corrective Action
The Management Process
Processes within a cycle are sequentially interdependent
MAC (4)
Basic Mental Models
Hierarchy of Responsibility Centers
Type name here
Chief Executive
Type name here
Responsibility Center 1
(Profit Center)
Type name here
Responsibility Center 2
(Profit Center)
Type name here
Responsibility Center 3
(Cost Center)
Type name here
Responsibility Center 2-1
(Profit Center)
Type name here
Responsibility Center 2-2
(Profit Center)
Type name here
Responsibility Center 2-3
(Cost Center)
Individual contributor
Individual contributor
Individual contributor
Decentralized Structure
• There is an affinity between the idea of a
decentralized structure and responsibility centers
– The doctrine is that establishing responsibility centers
with targets provides a structural basis for selective
decentralization of ‘operational’ decisions from the
strategic apex (top management) to the responsibility
center manager
– Target setting ‘remains’ centralized
– The strategic apex, assisted by the technostructure
(staff), can ‘control by outputs’
• Responsibility centers and divisions are
conceptually distinct
MAC (5)
Basic Mental Models
Inputs
Process
Outputs
Cost $/unit output
MAC (6)
Basic Mental Models
• Here, control is defined in cybernetic terms
Target
Inputs
Process
Need a target, a measure, and available corrective
actions that affect the performance variable
Doctrinal Principles of Control
DP1. Control exists when actual events/outcomes
equal planned events/outcomes
DP2. Responsibility should be clearly assigned (and
matched to authority)
DP3. Any control process requires standard-setting,
monitoring, corrective action, and evaluation
DP4. The cost to the organization of collecting
information should not exceed the value to the
organization of knowing the information
Standard Doctrines of Control
(Managing Costs)
D1. Measure the unit costs of the product
D2. Establish a standard for costs
D3. Assign responsibility for costs
D4. Require responsibility center to report regularly on
actual v. planned costs and planned corrective actions
D5. Learn from experience in the interest of improvement
D6. Evaluate managers, taking into account factors
outside their control
Broadening the Doctrines
D1. Measure the unit costs
of the product
D2. Establish a standard
for costs
D3. Assign responsibility
for costs
D4. Require responsibility
center to report
regularly on actual v.
planned costs and
planned corrective
actions
• D1* Measure critical
performance variables
• D2* Establish standards
for the critical
performance variables
• D4* Report on
deviations of critical
performance variables
relative to standards,
and discern whether
corrective action is
needed
Measure the
Critical Performance Variables
• Equivalent to saying “develop an accounting
information system”
– Includes measurement of non-financial indicators
– Note distinction between performance measurement and
management
• What to measure?
– ‘Product’ quality
– ‘Product’ cost
– Product can be mapped on to either output or outcome
• How to measure? How often?
MAC
Some Doctrinal Issues
• How to ensure that information (especially
accounting information) is relevant to “economic”
decision-making
• How demanding should targets be?
• Should managers always be held to account for
meeting their targets?
• How should internal pricing work?
• How to ensure that the management control
system is coherent with the strategy?
Design Options
• Generic types of targets or standards
– Based on history -- performance in previous
periods
– Benchmarked -- based on similar data from similar
organizations or work groups
– ‘engineered’ work standards
Managerial Accounting’s Default
Recipe
• Develop Accounting Information Systems
– Define Outputs
– Measure Unit Costs
– Develop Non-Financial Indicators
– Report Service Efforts and Accomplishments
• Develop Management Control Structure and Process
– Segment Org’n & Designate Responsibility Centers
– Set Targets
– Practice Diagnostic Control & Evaluate
Performance
New Wave MAC
MAC and Public Management (1)
Setting targets
Authorizing costs
Reviewing indicators
CO, P
CO, B, O
R
?
Planning
Budgeting
Execution
Evaluation
Corrective Action
Thompson
Boyce
Notice: no discussion
of innovation
The Management Process
Processes within a cycle are sequentially interdependent
MAC and Public Management (2)
Hierarchy of Responsibility Centers
Type name here
Chief Executive
Type name here
Responsibility Center 1
(Profit Center)
Type name here
Responsibility Center 2
(Profit Center)
Type name here
Responsibility Center 3
(Cost Center)
Type name here
Responsibility Center 2-1
(Profit Center)
Type name here
Responsibility Center 2-2
(Profit Center)
Type name here
Responsibility Center 2-3
(Cost Center)
Individual contributor
Individual contributor
Individual contributor
Core activities (mission centers) = cost centers
Utilities and marketplace activities (support Centers)
= profit centers
Examples
• Some Programmatic Embodiments
– Financial Management Initiative, Next Steps
Initiative, and Citizen’s Charter (UK)
– Financial Management Improvement Program
(Australia)
– Government Results and Performance Act (USA)
– Centres de Responsibilité (France)
Value for Money Construct
Inputs
Process
Outputs
Outcomes
Performance Management = NPM
• “What NPM is Against”
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Administrative Centralization (Aucoin)
Control by Procedure (Mintzberg)
Control by Skills (Mintzberg)
Control by Wishful Thinking
Explaining Performance
Management’s Centrality in NPM
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Managerialism and New Institutional Economics
“Business metaphor” (e.g., outputs)
Precursors (PPBS, Plowden)
Coalition of Professions (Economics, Accounting)
Ferment in management accounting practice
Outsourcing and privatization
Conclusion
Student Presentations