Management Control Systems

Learning Objective 1 Describe a management control system and its three key properties

• gathers information for planning and control decisions
• aligns with strategy, supports organizational responsibility of managers, and motivates employees

A management control system is a means of gathering and using information to aid and coordinate the planning and control decisions throughout an organization and to guide the behavior of its managers and other employees. Some companies design their management control system around the concept of the balanced scorecard. For example, ExxonMobil’s management control system contains financial and nonfinancial information in each of the four perspectives of the balanced scorecard (see Chapter 13 for details). Well-designed management control systems use information both from within the company, such as its net income and levels of employee satisfaction, and from outside the company, such as its stock price and customer-satisfaction data.

Formal and Informal Systems

Management control systems consist of formal and informal control systems. The formal management control system of a company includes explicit rules, procedures, performance measures, and incentive plans that guide the behavior of its managers and other employees. The formal control system is composed of several systems, such as the following:

• The management accounting systems, which provide information about the firm’s costs, revenues, and income
• The human resources systems, which provide information about the recruiting and training of employees, absenteeism, and accidents
• The quality system, which provides information about yields, defective products, and late deliveries to customers

The informal management control system includes the shared values, loyalties, and mutual commitments among members of the organization, the company’s culture, and the unwritten norms about acceptable behavior for managers and other employees. Examples of company slogans that reinforce values and loyalties are “Levi’s, Quality Never Goes Out of Style” and “Walmart, Save Money, Live Better.”