Essay: Performance Management and Management Control Systems in Complex Organizations

Performance Management and Management Control System perform essentials work tools for management in other to accomplish wanted objectives. They both measure the performance of business and organizations into the developing viable job operations among patterns of behavior.

The three main interest for management execution is to be responsible of the elements of strategy, management and operational control. While implementing the “strategic planning” managers needs to address at least four main strategies issues to develop new operating environment and maximize performance.

These four strategies are:

The goal of Management control system is to pass data. Which. Means that systems focus on information-financial or non-financial facts and information that can influence decision making and managerial actions.

Representation of standard patterns and operations.

Management controls systems are to be used by managers only.

The use of maintain or altering patterns within the activities of organizations.

Because of these four strategies, organizations ultimately aim for seek for a profit plan within management systems. Which means that these systems conform the essential foundation in all high-performance business.

Since business needs to follow a circle of inflow and outflow of revenue to survive and prosper, organization rely on a good accounting system to help them to collect the right information about the transactions of a business, such as (balance sheets, income statements, and cash flow accounts). Along with that is the Internal control systems which helps to determine by whom information should be recorded and verified, so that way balances and assets are safeguarded from an accurate processed accounting system.

In the cycle of seeking profit, organizations also take the rigorous strategic “Profit Planning systems” which helps to understand the actual, or historical data. In other words, it can help management to forecast how much profit the business will (or needs to) make in future accounting periods.

For this stage of strategy managers implement the use of profit plan. They plan mainly two options:

(1) decide the amount and the quantity to focus on a business and to1

(2) estimate the resources that will be provided by the business.2

According to accounting tools, when profit plan is handled correctly and with an emphasis on making realistic estimates, profit planning can help to detect those specific actions that must be taken to arrive at a profit goa3l.

For example:

Increase the investment in new product development in order to increase new product sales

Expand the regions within which existing products are sold

Target areas of declining sales where it can make the most sense to eliminate products or cut costs

Take steps to mitigate risks that may otherwise result in unusually large losses

Target bottleneck operations to increase the productive capacity of the business

As a result, Profit planning is only effective if the management team follows through on the action items stated in the plan. Very often, profit planning is an important managerial exercise tool that is part of their routine, however if falls into the category of not following through.

Also, profit planning must be reinforced periodically when there is a new change in the organizations. Otherwise, management will continue to follow old mistakes that weren’t successful into the new environment.

Another strategy that organizations can take controls and make profit is by the performance measuring systems, which leads how managers uses these systems to achieve their objectives.

The Performance measuring systems according to the strategy execution module 1 from Harvard, states that ” profit is earned by success in a competitive marketplace, it is the successful implementation of these strategies and goals that provide profit”4. Therefore, organizations develop three different types of strategies more phases into how implement these:

Business Strategy

Business Goals

Performance measurement systems

The Business strategy, is the organization working plan for achieving its vision. Mainly by having their objectives prioritized, getting ahead among competitors, and maximizing financial results with its business model strategy.

Particularly this objective is the main core of the strategy, however in order to be a full strategy it needs to address the “how” the organizations can achieve its objective. Therefore, the business strategy explains clearly simple ways of how the organization can differentiate from its competitors, how revenues are earned and where do earnings of the margins are.

For example:

The Boston Retail Company

The Boston Retail Company, may choose to compete on fashion and selection, drawing customers from competitors because of a superior array of up-to-the-minute fashion clothing. In this store, employees are encouraged to keep in touch with the latest fashions and adjust retail displays to ensure that they attract fashion-conscious shoppers. Alternatively, a competing store several blocks away may choose to attract customers by offering lower prices. In this store, fashions are less current. The store is still profitable, however, because the type of customers attracted to this outlet are more price conscious. Employees are constantly reminded of how to keep the store’s costs to a minimum to allow adequate profits despite low prices. 5

The Business goal, are the measurable aspirations that managers set for a business.6 since business goals determines where the directions of the organizations are leading to, so it is the ways to achieve them. Therefore, goals are considered in three main directions, such as:

Business strategy

Financial

Accountability

Basically, understanding these three, allows management to understand the What, where, and How, of doing the daily operations to reach the objectives of the organizations. Whether is expanding the sales returns or simply non-financial objectives. Thus, the grow of the market share from a 6% to 9%.

Although these concepts are generally applicable to all business, it varies depending the goals strategy of market industries. For example: from a fashion strategy to the goals of the store following the low-price strategy.

The performance measurement systems, allow managers to track how the implementation of the new strategies are going within the business decisions, by comparing the actual result against the measurements taken with goals and objectives.

The results of performance measurement help to provide information on how an organization’s current programs are working and how its resources can be allocated to optimize the programs’ efficiencies and effectiveness 7.

For instance, the performance has two ways to contrast them, either short or long term. And long with these two terms two types of decisions must be made

Design features: What type of information should be collected and with what frequency? 8

How to use: Who should receive the data and what should they do and not do with it? 9

BALANCING ORGANIZATIONAL TENSIONS

Since organizations often daily challenges into balancing workplace. That balance depends how successful short and long-term goals can be executed in the work tensions environment therefore, five important major tensions are considered for implementing the profit planning and performance measurement systems:

1. Balancing Profit, Growth, and Control

2. Balancing Short-term Results against Long-term Capabilities and Growth Opportunities

3. Balancing Performance Expectations of Different Constituents

4. Balancing Opportunities and Attention

5. Balancing the Motives of Human Behavior

Balancing Profit, Growth, and Control

In all businesses, there is a tension between profit, growth, and control. To do so, they are constantly innovating. Innovation may take many forms. To do this it can take several changes into creating either new products or services up to new ways of doing internal related

In any case, an intemperate accentuation on benefit and development can prompt peril. Representatives may participate in practices that put the business in danger. They may misinterpret administration’s goals and “develop” in ways that present pointless dangers to the business.

Control is the establishment of any sound business. Just when satisfactory controls are set up would managers be able to concentrate their energies on making benefit. What’s more, just when a business is beneficial would managers be able to center around developing the business.

A profitable business that lacks adequate controls can quickly collapse.

Control weaknesses inevitably allow error and risk to creep into operations and transaction processing.

Managers can fool themselves into thinking that because the business is profitable, controls must be adequate.

Formal management systems such as accounting systems, internal control systems, profit planning systems, and performance measurement systems, collectively allow managers to balance the organizational tensions created by striving for profit and growth.

2. Balancing Short-term Results against Long-term Capabilities and Growth Opportunities

Organizations must convey money related execution—not tomorrow, or the year after, but rather today. Money markets, speaking to shareowners, rewards administrators who can deliver profit in the present time frame. In any case, creating income reliably—period after period—is frequently troublesome, particularly in repeating organizations, or when huge in advance speculation is important to dispatch another item or put resources into another plant.

Managers should likewise oversee if possible. They should restore generation offices, enter new markets with new items, and put resources into innovative work to remain current with contenders and meet changing client needs.

Performance Measurement and Control Systems play a basic part in dealing with the pressure between here and now benefit requests and the need for long haul interest in capacities and development openings. These systems do this by serving the accompanying goals:

Communicating to the organization the strategic goals of the business and the performance drivers critical to achieving those goals

Providing a yardstick for systematic growth in key performance indicators

Providing a framework for ensuring that adequate resources are available for the achievement of goals and strategies

Specifying the cause and effect relationship between business goals and profit

Establishing and monitoring short-term profit goals

Establishing a framework for allocating resources to build long-term organizational capabilities

3. Balancing Performance Expectations of Different Constituents

Managers strive to achieve a variety of goals: financial, non-financial, short-term, and long-term. But we must stop and ask the question, “Whose goals are we seeking to achieve?” A business entity is comprised of many different constituents. Different parties may have different stakes in the success of a business and desire different things from the people who manage it. Important constituents might include:

Owners, including both small and large stockholders

Managers and employees

Customers

Suppliers

Lenders such as banks

Government agencies (e.g., the IRS) and regulators (e.g., the National Labor Relations Board).

Every one of these constituents might be keen on various parts of execution. Proprietors and investors may look for development in profit or dependability in profit installments. Directors, notwithstanding benefit, may esteem development in the business to permit the open door for advancement and progression. Workers may want relentless income and the chance to partake in the business’ prosperity. Clients will be keen on item quality, administration, and cost. Providers acknowledge simplicity of working together and dependability all together and installment handling. Loan specialists will search for pointers of money related quality and liquidity to pay obligation commitments and enthusiasm as they wind up due. Government organizations will be keen on consistence with controls.

In this way, when chiefs outline and utilize execution estimation and control frameworks, they should know about the distinctive interests of every one of these constituents. Directors must strike a harmony between these desires since they will at times impact. For instance, clients may need high caliber and low costs; administrators might need to amplify costs and net revenues, however pay low expenses; workers might be occupied with pay increments and liberal post-retirement benefits. All around composed administration control frameworks give a crucial method for perceiving and adjusting these trade-offs.

4. Balancing Opportunities and Attention

Another tension in organizations relates to having too much of one thing and too little of another. What do managers today have too much of? The answer is “opportunity.”

For example: consider Google, started by two Stanford Ph.D. students in 1998 as an online search engine. Over time, Google’s managers recognized many additional opportunities to create value for customers. Since 1998, Google has expanded their product line into social media, medical biotechnology, venture capital investments, home automation, and the development of new technologies such as driverless cars.

5. Balancing the Motives of Human Behavior

One of the central reasons that managers utilize execution estimation and control systems is to impact the conduct of subordinate directors and different representatives of the business. To do as such effectively, supervisors (and creators of administration control frameworks) must have a reasonable feeling of what propels individuals to work viably toward the objectives of any business.

REACHING TRUE POTENTIAL

Organizations—especially large ones—often make it hard for people to reach their potential. To understand why, we must examine the organizational blocks that organizations unwittingly create for the men and women who work in them.

1. Business organizations often make it difficult for people to understand how they can contribute and make a difference. Employees may not understand the strategy and direction of the business. They may not be sure of the larger purpose—or mission—of the business, or how they can fit into that purpose.

2. Businesses often create pressure and temptation for employees. Performance pressures (“If you can’t do it, I’ll find someone who can!”) may cause people to bend the rules or hide information, even though they know what they are doing is wrong. Also, temptation in the form of lucrative bonuses and performance awards—as well as access to company assets—may cause an employee to step over the line between what they know to be right and wrong.

3. Achievement can be difficult either because individuals lack resources to get the job done, or because they face so many competing demands that they are unable to focus on any single objective with enough intensity to achieve the desired outcomes. Productive energy becomes scattered and diffused making it difficult to achieve strategically important goals.

4. People may fail to innovate because they lack the resources or are afraid of the risk of challenging the status quo. How many times do each of us hesitate when attempting to voice opinions that may seem novel or radical and may not be supported by our superiors and colleagues?

The qualities of human instinct are inseparably bound up in the hierarchical pressures that influence every one of us who work in associations. Performance measurement and control systems can’t be outlined without considering both human conduct and the circumstances and the results of these authoritative pieces.

Questions & Answers:

1. Why do Performance Management and Management Control systems are so important? Answer: The reason is because performance measurement and control systems allow all managers to achieve their desired profit goals and strategies.

2. What can be achieve in term of benefits using these? Answer: These systems help managers to achieve balance tensions between profit, growth, and control. In a short-term versus long-term performance; expectations of different constituents; opportunities and attention; and the differing motives of human behavior.

3. What kind of use can, they help organizations? Answer: management control systems can be used to improve the organizational blocks that impede the true potential of all people who work in modern organizations.

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