Management Control System As Packages Accounting Essay



In recent years, researches on the effectiveness of management control systems (MCS) as a package have been undertaken and drawn much more attention by organisations. This essay mainly focuses on discussing the challenges when adopting management control systems as a package and illustrating differences of typologies in the literature with examples.

Management Control System as Packages (MCSP)

MCS are defined as "any formal, information-based procedures and statements used by managers to monitor and influence the behaviour and activities in a firm" (Simons, 1994). Rather than supporting manager's decision-making, a management control system focuses on supporting as well as controlling activities and processes and decision-making of sub-ordinates. As a general conception, a management control systems package is a collection or set of control systems. [1] 

As MCS could vary from small to big organisations and the framework of MCS applied could be completely diversified, the importance of management control systems as packages could refer to the needs for connecting various MCS and facilitate the better control systems development. And study control systems individually may influence any conclusion we can draw, if the use and impact of a new MCS element is related to the functioning of the existing broader MCS package. The term package was introduced is theoretically as well as practically due to different needs and backgrounds of the interest groups using different systems (Malmi and Brwon, 2008).

Challenges of Using MCSP

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According to Malmi and Brown (2008) here are a range of challenges in studying and implementing MCSP. Firstly, there exist difficulties in defining the concept of MCS. And the formation of MCS package is complicated. Thirdly, to identify inter-related operations of MCSP and the ambidexterity of typologies of MCSP, specific researches need to be accomplished (Sorsanen, 2009). These will be explained in detail in the following content.

Defining and clarifying the concept of management control system has been debatable both in narrow and broad terms. Research needs to be very explicit about whether the systems the organizations applied are defined as control systems. For example, just-in-time (JIT), a production strategy that involves inventory controls. [2] This strategy aims to provide no inventory order stock just by the time the company needs it which requires skillful calculations and accurate time of order. As this sort of management that controls the activities and processes of the organization, it can be concluded in the MCSP. And the most frequent discussed issue suggests that management systems contain many contingency factors and can be referred to different goals of adoption. Some Arthurs define control systems as "techniques and processes to achieve goal congruence which may be designed for all levels of behavioural influence: individuals, small groups, formal subunits and the organization as a whole." (Flamholtz et al, 1985) To be more explicit, MSC is a behaviour-based system rather than a purely decision-support system (Malmi and Brown, 2008). However, conflicts and ambiguities may exist. Management accounting system could be regarded as an example to illustrate this scenario. Management accounting is a very essential part of analyzing data and support decision making on the one hand. On the other hand, a management accounting system could include a budgeting system that controls the overall budget of the organization. "Almost everything in the organization is included as part of the overall control system", quoted by Merchant and Otley (2007).

However, its contingency factors may imply different things for different types of MCS (Teemu and David, 2008; Sorsanen, 2009). Most of the contingency factors are unanticipated and uncontrollable. For example, the Royal Bank of Scotland (RBS) IT failure in June 2012 has caused enormous loss for RBS, and about 17.5 million customers had been affected. The online banking system collapsed and failed to display correct balance. In a letter to the Treasury Committee, Mr. Hester, the chief executive of RBS, said he would not be taking a bonus this year. This revealed that the decision was influenced by the incident. "We managed to resolve a very large number of difficulties experienced by customers immediately through our branches and call centres," he said in the letter. This, however, the immediate respond, is what we can conclude as changes in baviour and control by the accident.

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MCSP works as a combination of control systems and the way they inter-related as a whole is difficult to identify and appraise. There are two major conceptual frameworks of MCSP exist and the typologies they apply are distinguishing and will be addressed in the following content. Different control systems operate simultaneously may be more efficient or can be even clashed. There are informal and formal controls apply to various clans of organization. A bureaucratic organization is suitable for a formal control system which may involve strict action controls. Likewise, a more democratic firm could take patulous personnel controls. The challenge focuses on the degree of sub-ordinates' self-motivation as well as hierarchy and its consistency with control systems.

MCSP is not designed for standardized structures. To imply the complicated and large-scale MCS (accounting as well as non-accounting controls) need to be sophisticatedly coordinate. An empirical MCSP should consider a broad scale of package rather than individual controls. There are also substantial appraisal and research-related activities in line. When carry out a mature MCSP, complex tasks and strategies should set out in advance which may also lead much expense and be time consuming.


This typology was initially raised by Merchant and Van der Stede and it contains four packages of MCS: result controls, action controls, personnel controls and cultural controls.

Merchant and Van der Stede (2007) suggested that result controls are regarded as indirect controls as employees are not bounded by the means they apply to the task but it is the result that they can be rewarded. And this encourages the best method to yield a certain result which may be best motivation to talent and hardworking employees. It is usually delegated by the management by objective system and may be a form of decentralization in large-scale organizations. For example, a public relations agent is often motivated to create a most influential campaign regardless of what types of media they are adopting, such as news press, online promotion, experiential event etc. The agent and the employee are supposed to be paid by more commission if the result is very satisfied. In considering this typology it should be recognized of the effectiveness and appraisals align with it. And there are also limitations on what conditions could adopt this type of control.

Action controls therefore are recognized as a direct control that based on managing employees' behaviour directly in the way that fulfills organisation's best interest. (Merchant and Van der Stede, 2007) There are four basic forms involve: behavior constraints, preaction reviews, action accountability and redundancy. This control system could be applied in a bureaucratic organisation with rigorous structure and culture which regulate employees with stressful strategies.

Personnel controls appear to build on employees' natural tendencies to control and/or motivate themselves and include clarified expectations, trainings and provision of necessary resources (Merchant K., & Van der Stede W., 2007). This could be referred to McGregor's X and Y theory [3] as leaders believe that their sub-ordinates are the type Y which are self-motivated rather than a theory X employees which are lazy and avoid responsibilities. This suggests an open communication and harmonious relationship between managers and sub-ordinates and a free atmosphere of creativity.

Cultural controls are strong when employees in an organisation have shared traditions, the way of behaving, beliefs, attitudes and ideologies. And cultural controls are designed to influence collectivity of a group and emphasis on group rewards, codes of conduct, rotation, physical arrangement, etc. (Merchant and Van der Stede, 2007) This type of control system allow as a whole cultural group. Strong environment change the way people behave to a same trend and pace.

Simons (1990,1991,1995,2000) Typology

Simons developed a widely recognized typology which consists of four control systems: beliefs, boundary, diagnostic and interactive system. This theory suggests informal and formal routine and divided levers into positive negative energy (see Appendix A) (Simons, 1995). The four levers of control are: core values, risks to be avoided, strategic uncertainties, critical performance variables; and they are controlled by beliefs system, boundary systems, interactive system and diagnostic system, respectively.

T. Malmi, D.A. Brown 2008 TyPology

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This typology was initially raised by T. Malmi and D.A. Brown and is more developed and sophisticated than the former two typologies in some ways. And it aims to facilitate and stimulate discussion and research in this area, rather than suggesting a final solution to all related conceptual problems (T. Malmi, D.A. Brown, 2008). There are five control systems in this typology which are: planning, cybernetic, reward and compensation, administrative and cultural controls (see Appendix B). And each function of control system is illustrated in more detail (see Appendix C).

Organisation Ambidexterity and Equifinality

Nevertheless, here presents an issue which is called organization ambidexterity when imply control systems. "The basic problem confronting an organisation is to engage in sufficient exploitation to ensure its current viability and, at the same time, to devote enough energy to exploration to ensure its future viability." Levinthal and March (1993, p. 105) Exploration refers to innovation, search, discovery and embracing variation whereas exploitation means efficiency, increasing productivity, control certainty and variance reduction (O'Reilly & Tushman 2008). There needs to be balance between exploration and exploitation since an organization would not benefit from exclusively exercises either of them. This ability to pursue two distinguishing parts at the same time enables organisations to yield a very efficient coordination and fulfill the outside demands.

Considering the object-of-control typology, functional concerns and internal consistency within the control function, there could yield equifinality by adopting different control systems (Sandelin, 2008). Based on several case studies in Sandelin's essay, with small, growth oriented 'new economy firm', different control systems equally applied on complex operations resulted in equaifinality. Even though with some limitations exist, this indicates there are similarities between different control systems and it is possible to achieve the goals akin.

China First Metallurgical Group Co., Ltd Case (CFMCC)

During the recent Chinese state-owned organisations' reforms, many control systems have been widely recognized and the process has been very challenging. Simply setting targets and every employee obey the rules and no incentives and extra-rewards used to be the popular style of Chinese state-owned companies. However, people living in China indeed quite enjoy it since they prefer a more stable and less competitive lives. "You would be paid equally no matter how hardworking or how lazy you were." said by Jine Luo, an accountant of CFMCC. After two years reform, CFMCC transferred from a traditional organisation to a public limited company.

The former action control system has been replaced by a package of control systems which includes cultural control, cybernetic controls, reward and compensation and administrative controls. The company created a very rigorous and vigorous atmosphere and several slogans with unique image as promotion. And the administrative controls have been improved. More developed governance structure with more open-minded procedures has been implied. Employees are more flexible and innovative. And the monthly-reviewed bonus scheme has been established. The problems with the reform were the weak cybernetic controls and lack of planning. Since it used to be a state-owned company, the budgets and financial measurement seemed to be loose, whereas now they need more measurement and strict control over the financial department. As planning plays a significant part of MCSP, staff in CFMCC still are not well-directed and would be reluctant to changes of their goals and behaviours. CFMCC is on its road towards a decentralized and well-developed organisation.

With more than 7500 employees, it is difficult to co-ordinate a control system package if it does not fit in the previous organization structure and culture. The total revenue peaked at 8.3 hundred million renminbi in 2008 which was 263 percent as much as it was of the old style of control systems. There are much more efficiency has been created and the competiveness has been doubled.


This essay aims to provide a much clarified scope of management control system as packages and typologies with examples. According to those typologies abovementioned, an efficient and mature MSCP needs to be inter-coordinated and appropriate for the circumstances it is applying to. With regards to challenges of ambidexterity and equifinality, limitations may exist when the control systems could not be suitable for every structure of organizations and uncertainties and variations could make significant impact on the core goal of the organization. Empirical researches and professional skills are always needed before considering application of management control systems.