To be effective, management control systems should be closely aligned with the organization’s strategies and goals. Two examples of strategies at ExxonMobil are (1) providing innovative products and services to increase the company’s market share in key customer segments (by targeting customers who are willing to pay more for faster service, better facilities, and well-stocked convenience stores) and (2) reducing costs and targeting price-sensitive customers. Suppose ExxonMobil decides to pursue the former strategy. The management control system must then reinforce this goal, and ExxonMobil should tie managers’ rewards to achieving the targeted measures.
Management control systems should also be designed to support the organizational responsibilities of individual managers. Different levels of management at ExxonMobil need different kinds of information to perform their tasks. For example, top managers need stock-price information to evaluate how much shareholder value the company has created. The stock price, however, is less important for line managers supervising individual refineries. Those managers are more concerned with obtaining information about the firm’s on-time delivery of gasoline, equipment downtime, product quality, number of days lost to accidents and environmental problems, cost per gallon of gasoline, and employee satisfaction. Similarly, marketing managers are more concerned with information about the service at gas stations, customer satisfaction, and market share.
Effective management control systems should also motivate managers and other employees. Motivation is the desire to attain a selected goal (the goal-congruence aspect) combined with the resulting pursuit of that goal (the effort aspect).
Goal congruence exists when individuals and groups work toward achieving the organization’s goals—that is, managers working in their own best interest take actions that align with the overall goals of top management. Suppose the goal of ExxonMobil’s top management is to maximize operating income. If the management control system evaluates refinery managers only on the basis of costs, the managers may be tempted to make decisions that minimize costs but overlook product quality or timely delivery to retail stations. This oversight probably won’t maximize the operating income of the company as a whole. In this case, the management control system will not achieve goal congruence.
Effort is the extent to which managers strive or endeavor in order to achieve a goal. Effort goes beyond physical exertion, such as a worker producing at a faster rate, to include mental actions as well. For example, effort includes the diligence or acumen with which a manager gathers and analyzes data before authorizing a new investment. It is impossible to directly observe or reward effort. As a result, management control systems motivate employees to exert effort by rewarding them for the achievement of tangible goals, such as profit targets or stock returns. This induces managers to exert effort because higher levels of effort increase the likelihood that the goals are achieved. The rewards can be monetary (such as cash, shares of company stock, use of a company car, or membership in a club) or nonmonetary (such as a better title, greater responsibility, or authority over a larger number of employees). Management control systems must be aligned with an organization’s structure. An organization with a decentralized structure will have different issues to consider when designing its management control system than a firm with a centralized structure.