Management Control Systems Of A Website Hosting Company Accounting Essay


The small sized companies are considered to be an important role with in a country. These companies own very small scale ownership and volumes. Also it is quite relevant that Management control systems are not applied in these small level companies and also it is very easy to apply MCS in the small business organizations. In contrast with traditional view that smaller organizations have no MCS the practice for MCS can easily be achieved.

I have chosen a small scale private company "ABC" in order to study and analyze MCS and its applications. Company main dealings are based on huge clientage with the services for website designing, Domains' registration and Website hosting. Company includes a total of 15 employees controlling the various services with account, sales and technical support departments.


Main Purpose for this case study is mainly the analysis of MCS with in a small size company to reach the objective that is to analyze and describe usage of Management control systems with in the company.



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"Management control system is fundamentally a tactical instrument which holds managers liable for their performance. This sort of system provides response to the managers and because of this they come to know that what their performance is and what's the direction of the organization future and what sort of rectification is requisite to settle on right path". [1]

Management control system can also be defined as the procedure through which managers make certain that assets are acquired and employed successfully and proficiently in the achievement of the cooperation's strategic objectives. [1]

This description inadequate consequent researchers, not only to visualize Management control system as encircling the chiefly accounting-based gearshift of scheduling, supervising of actions, measuring performance and integrative techniques, it also provide help to synthetically split executive control from operational and strategic control. [1]

As management control discusses the general questions that either employee behavior is appropriate or not? Or either they know what their employers are expecting from them or are they able to act according to the cooperation's strategies. If answer of any of these questions is negative than what steps can be taken to sort out the tribulations of management control.

There are 3 problems mentioned in the management control system those are lack of direction, personal limitations, and motivational problems. How could these problems be detected and what steps can be taken to solve them to keep a perfect control on the management processes?

In the avoidance strategies, centralization of organization is considered as one of the strategy which would be helpful in avoiding the problems and keeping perfect control on management processes. But the question arises and even it is mentioned in most of the literature that centralization is always not much effective in avoiding the problems rather decentralization is most effective where every employee is given chance to put forward their suggestions and opinions. So how could decentralization play its role in avoiding the problems of management? [1]


The main focal point of result control is on the productions of results. Managers don't focus on actions of employees rather they focus more on outcome produced by them. The main aim of result control is to define targets from the employees, measuring their performance and reward them according to the outcome produced by them. This is totally result-oriented approach. [1]


The main focal point of action control is to control the actions of employees. Managers don't focus more on the actions done by the employees. Action control endeavor to control the behaviors of the employees directly by reviewing their actions, scrutinizing and gratifying their behaviors. [1]


The main focal point of personnel control is to appoint the right people at the right places and manage them accordingly. This is totally employee-oriented approach. In Personnel control, managers select the talented, honest and self motivated staff and place them accordingly on the right positions in the organization. They train them according to the tasks given to them and design jobs for them and according allocates resources to them. The main idea behind this approach is to place right people at the right places, so that no other control mechanism is required for them. [1]


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The main focal point of cultural control is to create the precise culture in the organization. Cultural control is structured on strong organizational culture where values and norms are defined for the employees who are in the best interest of the organization. Through cultural control managers create social pressure on employees and compel them perform in the right benefit of the company. [1]


According to the merchant & Van der Stede (2007), "Management control systems tightness ought to provide a superior level of assurance that workforce will proceed according to the association's requirements". Managers need to understand that how the control entity is related to the organizational main strategic objectives.

Result control tightness is based on the description of the preferred consequences, performance actions and the fortification provided.

Action control tightness takes account of behavioral constriction-directorial and physical such as decision are totally made by the higher level managers, thorough and frequent evaluation is performed by knowledgeable managers and employees are made accountable for their actions.

Personnel control tightness is largely based on individual and cooperation's objectives overlapping. The greater the overlap between the individual and cooperation objectives the greater will be tightness.

Cultural control tightness is more influential and constant. Because of strong values and beliefs, most of the organizations have strong organizational culture. Such organizations tend to have tightness in their cultures. But personnel and cultural control cannot be applied alone rather they need other controls to build tightness.


Merchant & Van der Stede (2007) mentioned the remuneration of providing workforce more elasticity, encouraging involvement and granting them authority to think about themselves. This statement shows that most of the managers which are not letting their employees to participate in the decision making and don't provide them flexibility in their tasks, they can perform in effective manner. They not only limit the employees but also limit their capabilities and reduce their motivation for work. The major consequences of this situation can be staff turnover, low sales and low motivation towards work. In contrast, managers who allow their employees to involve in the decision making process not only encourage them but they motivate them to do more well. In effect employees give the quality performance. Managers who provide flexibility in performing different tasks, results in the satisfaction of the customers, which in turn results in the success of the business and quality performance of the employees.


What is desired?

The management control system is a procedure through which managers acquire the required resources and utilize them competently in order to achieve the desired goals. Now question arises that "What is desired?"

MCS influence workforce and executives of cooperation's to put organizational strategies into operation. But this can't happen without knowing that what workforce has to do? And it also involves recognizing the core acts that employees have to execute to meet the requirements of the organization. If things go accurate in the major areas of the businesses then business will always be successful but if the things don't go accurate in the major areas of business than there will always be probability for failure of business. [1]

This question can be regarded as the basic question in designing and evaluating management control system because before designing management control system organizations always look at the areas where control is needed? What are the weaker areas where control is necessary? After knowing this they design management control system and implement them accordingly to achieve desired results. This management control system provide them understanding that what actually desire? For the purpose of evaluation of MCS it is always important to know what actually is desired. For example if some control is required on the employees behavior then managers must see where employees are not according to the requirements and accordingly they will design control system and implement that to make them know that what organization desires and accordingly they will evaluate the performance. [1]

What is likely to happen?

After designing and implementing the management control system results differ. Results differ because it is proved in many researches that organizations with the tight management control systems come up with the quality performance and organizations with the looser MCS have low quality performance.

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Sometimes there is a possibility that management control system become much costly for the organization and provides them with fewer benefits. This justify that what will likely to happen means what will be results. Different forms of control systems are used in order to achieve the desired results. [1]


Managers apt to have short term oriented goals and decisions because of implementation of financial control on results. Managers focus more on short term goals rather than having long term vision of the achievements. This problem is known as myopia which reflects that managers tend to focus more on short term goals. In other words this term reflects that managers are no far sighted rather they are nearsighted. This myopia creates many problems and to overcome these problems managers need to have better knowledge of stock market or patterns of earnings. Managers must not be after smoother achievement of expectation. By understanding the stock market they can guide their employees in well manner so that they might not act myopically. Organizations stand on long term visions of turnover rather than short-term cash flows. [1]

Different remedies to address myopia problem are listed below:

Combination measure system: The first remedy is to implement combination measure system. It describes that the leading indicators of value driver should reflect the financial upshot on stakeholder's value of definite management undertakings and collapses more rapidly than do accounting measures. This also hold managers accountable for the value drivers which resultantly alter the balance of enticements towards lasting concerns because it compel the managers at the moment to make tradeoffs between temporary profits and indicators of long-standing profits. This approach also describes that any single measure, with any kind of perfection level, can never contribute in success of the organization rather multiple measures are required to achieve profitability. This approach is also called balanced scorecard which highlights the value of leading indicators in the organization's profitability. [1]

Shareholders value: The second remedy is to create the stakeholder's value. In this approach single entity is considered at starting and ending stages of accounting phase and disparity is therefore considered as expected profits generated during the phase. If these measures are accurately performed by the managers than they will generate the expected cash flows and profitability. [1]

Control investments with pre-action reviews: This remedy encourages the mangers to made distinction between the operating and development expenses. Operating expenses are important for current revenues and development expenses are important in future revenues. Managers are encouraged to make best use of the operating expenses to maximize sales and increase operating efficiency, which resultantly improves the current performance. On the other hand they are asked to generate ideas for the development investments which are important in the long term profitability. [1]

Accounting measures improvement: All measures which are taken to improve the profits and expenses fall under this category. Every activity done in the organization requires some investments, these activities provides basis for best match between the expenses and revenues. Match between expenses and revenues are important in the profitability of the organization. Companies must make the decisions keeping in mind the best match between the expenses and the profits. [1]

Period of measurement: If the period of measurement is prolonged than accounting measures can be improved. The longer is the period of measurement, the more congruent are the accounting measures with the financial value. [1]

Reduction of pressure: when managers don't have pressure of short term profits they would think best ideas for the long term profits. So managers must not be pressurized for short term goals rather they must be encouraged to focus on long term goals. [1]



Case study is useful in research methodology as it is used to provide evidences on what the

researcher considers to work with. The case study aims at detailed study of the unit. Also it is a comprehensive study. This method of research may adopt qualitative or quantitative approach. It is also useful in illustration of a concept that is difficult to describe using theoretical language. Also through case study an existing theory can be challenged through help of case study. [3]

This case study is a qualitative study, and in order to understand what management control systems are being used in ABC I use a qualitative approach as well as inventory management processes. Various evidences and events used in this case study are interviews based questions and various observations.



ABC is a private company dealing with IT businesses. ABC has total of 15 employees dealing with sales, accounts and technical services to clients. Website Design, Domain registration and website hosting are the main services being provided by this company. Due to its 95% uptime guarantee of the services company gains good repute in the market.


ABC creates a budgetary plan spanning through out the year related with its server costs, certain co-locations cost, employer salaries, financial analysis of sales per year and advertisement costs. There exists a revisit plan on budget that occurs on special considerations.



Action controls being utilized in ABC company mainly through prevention of data loss and various measures regarding unauthorized access to system. Main sources are required to be checked such as backup techniques, inspection and implementation of firewalls and password protection methods.


ABC use performance measures based on sales reports that are always created once a month and mainly measures controlling factors are included with in the range of overall income, total expenses, total turnover and profit.


The most prominent controls with the company are personal and cultural controls. All of the employers are motivated through bonuses and skills and results are equally measured through performance.



ABC is currently using various third party softwares for performance measures such as sales volume, expenses, net income, turnover and profit. These softwares include koyako live suite which provides performances of employee while dealing with clients in order to solve their technical issues, and regarding sales ABC is using standard website review of sales and report based on weekly and monthly. Also ABC is using third party software Modern Billing which controls the billing as well as manage accounts and financial performances of the company.

Currently, ABC is emphasizing on web-based reports regarding market shares of the company and normal trend of business intakes by company, that can be shown in figure 1.

Fig 1: Total Domain trends of ABC

Control Systems and Recommendations to ABC:

Requirement of a detailed business plan spanning for 2-3 years based upon current performances.

Requirement of a budget plan (preferably a software).

Requirement of analysis of applications and softwares used by third party.


This Study provides a glimpse of Management control systems with in a small size company. Based upon the company with its volume the MCS are comparatively not large in scale. Action Controls of ABC are considered to be very important for functioning of a company in proper order and these controls require extra attention on the whole with emphasize on various performance measures that can only be achieved through system failures checks and routines. Result Controls are better be checked through web analysis reports as well as the various third party tools that measure budgetary performances and results.

This case study analyze this web-hosting company that there requires budgetary plans and various other control measures such as proper planning for business growth and performance spanning 2-3 years.