The meaning of the control

 

 

6. Management control and two-stage rationality

 

In what kind of position does management in an organization find itself in when taking cooperative controls into account? Although management is endowed with formal and informal capacities to direct, the development path of the organization is for a part autonomous and it will be no clear-cut job for management to bring organizational goals and the activities in an organization in line with each other. Focusing too much on deliberate design would prevent us from seeing the whole picture. That would not only result in management being unaware of developments in a number of coordinating principles in the organization, it would also lead to overconfidence in the manipulability of an organization.

 

The combination of both would result in a confidence in manipulability and an unawareness of other developments in an organization having an impact on cooperation of individuals. Which parts of the coordinating rules and routines can be influenced or even directed by management and to which degree? It seems that some of the largely external driven changes are given for a manager, for instance changes in legal or cultural rules. However, even then movements under the discretionary power of management can sometimes make sharp changes possible, like when a merger with a foreign organization brings in a new legal system or culture instantaneously. Lower level coordinating principles and rules, for instance accounting requirements, will obviously be more under the discretionary power of managers then others. One of the means available for a manager to direct would be the fact that he or she is a part of the organization and the various groups within the organization. Leadership style and evaluative behavior will be a part of management control then. In general the manager will not so much be busy with designing the organization but more with merging into an development of the organization, influencing where possible and only sometimes designing controls.

 

In such a process there the cooperative controls, forming and molding the decision space of individuals in the first phase that operate in conjunction, which the manager should take into account. Some of the coordinating rules could strengthen each other and others will work in different directions. Management will ‘manage’ the combination of cooperative controls such that a coherent development of the organization will emerge. It will be precisely the fact that the manager is a part of the organization that will provide the opportunity to direct. The discretionary power of the manager is determined by his hierarchical position, by his position in social groups, by his or her influence on organizational norms and values and by the possibilities to determine accounting rules and systems of incentives and remuneration in the organization. In most instances it holds that management cannot manipulate these factors in an exogenous way, but merely influence a relatively autonomous development process.

 

When looking at goal setting and self-interest we can see that two-stage rationality implies here that management through its influence on the formation of the decision space of individuals is closely engaged in goal determining and goal setting activities in an 14 organization. These goals could be self-interested but they need not. Cultural and social processes could lead to an altruistic attitude in which an individual’s preferences not only depend on his or her own well-being but on the well-being of others in an organization as well. The first phase of two stage rationality is concerned with coordination and therefore it goes beyond self-interested or altruistic behavior. It is about determining the way in which individual decision-making is set. In fact, in this phase of decision making management is explicitly not concerned with the question of given goals of self-interested individuals, but with processes that come precede that, for instance sense making processes and taking these into account in the coordination of activities in the organization.

In sum, when seen from the perspective of cooperative control, management control of two stage rational behavior entails influencing the development path of the organization of which management is a part. It means coordination through participating in the formation of the decision space of members of the organization and with it setting the stage for decision making.

 

 

 

 

 

 

 

 

 

 

 

 

7. Special cases of management control

The traditional view on management control is prescriptive of nature. It tells us what to do if we want to design the best controls. Of course that fits the neo-classical economics or new institutional economics kind of theories in which optimization is of overriding importance. This is the area in which the bulk of research in management control was taking place in the past thirty years. When we look at the management control from the perspective of cooperative control and two stage rationality, we can see the traditional view as a special case of management control in which we suppose individual preferences and self-interested as given and in which we see management control as a design activity of financial controls. If we make such assumptions we have the advantage of an economic perspective that deals largely with financials giving us optimal solutions.

 

Cooperative control, management control and the traditional view.

In this paper we looked at management control from the perspective of enhancing human cooperation in organizations. As control is about human behavior, a perspective on control will be founded on a view on human agency. We built a general framework of cooperative control based on two-stage rationality. This framework made it possible to characterize cooperative control as the way in which human behavior is coordinated in line with organizational goals. Rule following behavior gives meaning to self-interest and in doing so coordinates behavior in an organization. Introducing the role of management, the framework allowed us to draw up a picture of management control in its role of making members of an organization work together instead of only directing self-interested employees with given goals.

Controls often are not deliberate or consciously designed. However, management can perform an important role in the formation of controls. Management control of two-stage rational behavior entails coordination through participating in the formation of the decision space of members of the organization. Management control is about influencing the development path of the organization of which management is a part, rather than designing control systems. The traditional view on management control appears to be a special case when management control is viewed from the perspective of cooperative control. Our framework of cooperative control is not so much general in the sense of spanning all incidents, but general in the sense of spanning a number of special cases. In general the framework generates an increased attention for other factors than the financial ones in controlling the activities in an organization. A great number of instances of such other factors emerge from empirical research. Because these instances are now combined within a general framework, each of them is positioned against the others and therefore more entrenched than before.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion.

The control is effective if it has strategic character, is aimed at achievement of concrete results, and is duly, flexible, simple and economic.

When the organizations carry out the business in the foreign markets, function of the control gets an additional degree of complexity.

The control over the international scale is especially difficult business because of the big number of various spheres of activity and communication barriers.  
Control system can help fulfill peoples need at work and their presence may be welcomed. Often control over behavior is resented and perceived as a threat. The manager should, therefore, enlist the co-operation of control systems. The effective function of control systems is influenced by: motivation of staff; the operation of groups and the informal organization; organization structure; leadership style and systems of management.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Used literature:

 

1. BURNS J., EZZAMEL M., SCAPENS R.W., 2003, The Challenge of Management Accounting Change. Behavioural and Cultural Aspects of Change Management

 

2. CHOW C.W., KATO T., SHIELDS M.D., 1994, «National Culture and the Preference for Management Controls: An Exploratory Study of the Firm-Labor Market Interface»

 

3. HOGARTH R.M. AND REDER M.W., 1986, Rational Choice. Chicago University Press, Chicago

 

4. KAMMINGA P.E. AND MEER-KOOISTRA J. VAN DER, 2007, «Management control patterns in joint venture relationships: A model and an exploratory study»

 

5. NOEVERMAN J., 2007, Management Control Systems, Evaluative Style, and Behaviour: exploring the concept and behavioural consequences of evaluative style, Erasmus Research Institute of Management (ERIM)

 

6. REDMOND W.H., 2004, «On Institutional Rationality.», Journal of Economic Issues

 

 

7. FUSFELD D.R. , 1996, ‘Rationality and Economic Behavior.’, Journal of Economic Methodology

 

8. ELSTER J., 1989, ‘Social Norms and Economic Theory’, The Journal of Economic Perspectives

 

 

9. MERCHANT K.A. AND STEDE W.A. VAN DER, 2007, Management control systems: performance measurement, evaluation and incentives. Prentice Hall, Harlow

 

10. KAMMINGA P.E. AND MEER-KOOISTRA J. VAN DER, 2007, ‘Management control patterns in joint venture relationships: A model and an exploratory study’, Accounting, Organizations and Society.