Behavior inOrganizations

AGChp.3 1
Managementcontrolsystems (MCS) influence
humanbehavior.
Good(MCS)influencebehaviorinagoalcongruent
manner ensurethatindividualactionstakento
achievepersonalgoalsalsohelptoachievethe
organizationsgoals.

AGChp.3 2
GoalCongruence
l

Thecentralpurposeofamanagementcontrol
system toensure ahighlevelofwhatiscalled
goalcongruence.
l
Inagoalcongruentprocess,theactionspeople
areledinaccordancewiththeirperceived
l di d ithth i i d self
lf
interestarealsointhebestinterestofthe
organization
g
Anadequatecontrolsystemwillatleastnot
encourageindividualstoactagainstthebest
g g
interestsoftheorganization
AGChp.3 3
InformalFactors thatInfluence
GoalCongruence
Formalcontrolsystems
Strategicplans
Budgets
Reports

Theinformalprocesses
Workethic
Managementstyle
culture

AGChp.3 4
InformalFactors thatInfluence
GoalCongruence
ExternalFactor
Externalfactors normsofdesirablebehavior
thatexistinthesocietyofwhichtheorganization
isapart.
Normsinclude asetofattitudes collectively
referredtoastheworkethic,whichismanifested
inemplo eeslo alt totheorganization,their
inemployeesloyalty totheorgani ation their
diligence,theirspirit &theirpride indoingagood
j
job.

AGChp.3 5
InformalFactors thatInfluence
GoalCongruence
IInternalFactor
t lF t
1.Culture
Themostimportantinternalfactoristheorganizations
Themostimportantinternalfactoristheorganization s
ownculture
commonbeliefs
sharedvalues
normsofbehavior
assumptionsthatareimplicitlyaccepted&explicitlymanifested
throughouttheorganization
Acompanyscultureusuallyexistsunchangedformany
years.Certainpracticesbecomerituals,carriedonalmost
automaticallybecausethisisthewaythingaredonehere.
Organizationalcultureisalsoinfluencedstronglybythe
personality&policiesoftheCEO&bythoseoflowerlevel
managerswithrespecttotheareastheycontrol. AGChp.3 6
InformalFactors thatInfluence
GoalCongruence
2.ManagementStyle
Theinternalfactorthatprobablyhasthestrongestimpacton
managementcontrolismanagementstyle Usually
managementcontrolismanagementstyle.Usually,
subordinatesattitudesreflectwhattheyperceivetheir
superiorsattitudestobe&theirsuperiorsattitudes
ultimatelystemfromtheCEO
ultimatelystemfromtheCEO.
Aninstitutionisthelengthenedshadowofaman.
Managerscomeinallshapes& sizes.
Charismatic&outgoing
Somespendmuchtimelooking& talkingtopeople
(managementbywalkingaround);othersrelymore
heavilyonwrittenreports.
AGChp.3 7
 InformalFactors thatInfluence
GoalCongruence
3.TheInformalOrganization
Thelinesonanorganizationchartdepicttheformal
g p
relationships theofficialauthority& responsibilities
ofeachmanager.
Therealitiesofthemanagementcontrolprocess
cannotbeunderstoodwithoutrecognizingthe
importanceoftherelationshipsthatconstitutethe
informalorganization.

AGChp.3 8
InformalFactors thatInfluence
GoalCongruence
4.Perception&Communication
Inworkingtowardthegoalsoftheorganization,
operatingmanagersmustknow
k :
whatthesegoalsare
whatactionstheyaresupposedtotaketoachievethem.
y pp
Theyreceivethisinformationthroughvarious
channels formal&informal
Anorganizationisacomplicatedentity&the
actionsthatshouldbetakenbyanyonepartto
furtherthecommongoalscannotbestatedwith
absoluteclarityeveninthebestofcircumstances.
AGChp.3 9
 TheFormalControlSystem
TwoTypesoftheFormal Systems
1. TheManagement Control System
2. Rules

Rules
Alltypesofformalinstructions&controls standinginstructions,job
descriptions standardoperatingprocedures manuals&ethical
descriptions,standardoperatingprocedures,manuals&ethical
guidelines.
Rulesrangefromthemosttrivialtothemostimportant.
Somerulesareguides organizationmembersarepermitted&
expectedtodepartfromthem.
Somerulesarepositiverequirementsthatcertainactionsbetaken.
Othersareprohibitionsagainstunethical,illegal,orotherundesirable
p g , g ,
actions.
Therearerulesthatshouldneverbrokenunderanycircumstance:arule
prohibitingthepaymentofbribes. AGChp.3 10
 TheFormalControlSystem
TypesofRules
1.PhysicalControls
Securityguards,lockedstorerooms,vaults,computerpasswords,
televisionsurveillance&otherphysicalcontrolmaybepartofthe
p y y p
structure
2.Manuals
Muchjudgmentisinvolvedindecidingwhichrulesshouldbe
writtenintoamanual whichshouldbeconsideredtobe
guidelines,howmuchdiscretionshouldbeallowed.
Manualinbureaucraticorganizationsaremoredetailedthanare
g
thosein otherorganizations;
Large organizationshavemoremanuals&rulesthansmallones
Centralized organizationshavemorethandecentralizedones
Organizations withgeographicallydispersedunitsperforming
similarfunctions(suchasfastfoodrestaurantchains)havemore
thandosinglesiteorganizations
11
AGChp.3
 TheFormalControlSystem
Manuals&othersetsofrulesshould bereexaminedperiodically
toensurethatarestillconsistentwiththewishesofcurrent
seniormanagement.
3.SystemSafeguards
Varioussafeguardsarebuiltintotheinformationprocessing
systemtoensurethattheinformationflowingthroughthe
systemisaccurate&to preventfraudofeverysort.Include:
Crosscheckingtotalswithdetails
Requiring signatures&otherevidencethatatransactionhas
b
beenauthorized
th i d
Separating duties
Counting cash&otherportableassetsfrequently
A numberofotherproceduresdescribedintextsonauditing.
numberofotherproceduresdescribedintextsonauditing
Checks ofthesystemperformedbyinternal&external
auditors. AGChp.3 12
 TheFormalControlSystem

4.TaskControlSystems
Taskcontrol processofensuringthatspecifictasksarecarried
p g p
outefficiently&effectively
Manyofthesetasksarecontrolledbyrules
Ifataskisautomatedtheautomated,systemitselfprovidesthe
control.

AGChp.3 13
 TheFormalControlSystem
FormalControlProcess
Astrategicplanimplementstheorganizationsgoals&strategies.
Thestrategicplanisconvertedtoanannualbudgetthatfocuseson
th l
theplannedrevenues&expensesforindividualresponsibilitycenters.
d & f i di id l ibilit t
Responsibilitycentersarealsoguidedbyrules&otherformal
information.
Theycarryouttheoperationsassignedtothem&theiroutcomes
aremeasured&reported.
Actualresultsarecomparedwiththoseinthebudgettodetermine
whetherperformancewassatisfactory.
Theresponsibilitycenterreceivesfeedbackintheformofpraiseor
otherreward.
Ifitwasnot,thefeedbackleadstocorrectiveactioninthe
responsibilitycenter&possiblerevisionoftheplan.
AGChp.3 14
TypesofOrganization
Afirmsstrategyhasamajorinfluenceonitsstructure,
Thetypeofstructureinfluencesthedesignofthe
organizationsmanagementcontrolsystems.
i ti t t l t
Structures canbegroupedintothreegeneral
categories:
1. Afunctionalstructure eachmanagerisresponsiblefora
specifiedfunction(productionormarketing)
2. Abusinessunitstructure businessunitmanagersare
g
responsibleformostoftheactivitiesoftheirparticularunit
TheBUfunctionsasasemiindependentpartofthecompany
33. Amatrixstructure inwhichfunctionalunitshavedual
responsibilities
AGChp.3 15
 TypesofOrganization
f
FunctionalOrganizations
Therationaleforthefunctionalformoforganizationinvolves
g g p
thenationofamanagerwhobringsspecializedknowledgetog
bearondecisionsrelatedtospecificfunction.
Askilledmarketingmanager&askilledproductionmanager
makeabetterdecisionsthangeneralpurposemanager
Animportantadvantageofafunctionalstructureisefficiency.
Disadvantages:
1 Nounambiguouswayofdeterminingtheeffectivenessof
1.
theseparatefunctionalmanagersbecauseeachfunction
contributesjointlytotheorganizationsfinaloutput.
Nowayofmeasuringwhatfractionofprofitwas
contributedbyeach.
AGChp.3 16
 TypesofOrganization
2. Iftheorganizationconsistsofmanagersinonefunction
f f f
whoreporttohigherlevelmanagersinthesamefunction,
whointurn,reporttostillhigherlevelmanagersinthat
function,thenadisputebetweenmanagersofdifferent
functionscanberesolvedonlyatthetop,eventhroughit
mayhaveoriginatedatamuchlowerorganizationallevel.
3. Inadequate forafirmwithdiversifiedproducts&markets.
4. Tendtocreatesilosforeachfunction,therebypreventing
crossfunctionalcoordinationinareassuchasnewproduct
p
development.
Thisproblemcanbemitigatedbysupplementingthe
e t ca u ct o a st uctu e t ate a c oss u ct o a
verticalfunctionalstructurewithlateralcrossfunctional
processessuchascrossfunctionaljobrotation&team
basedrewards AGChp.3 17
TypesofOrganization
BusinessUnits
Abusinessunit alsocalledadivision
Responsible forallthefunctionsinvolvedinproducing&
marketingaspecifiedproductline.
Businessunitmanagersactalmostasiftheirunitswere
separatecompanies.
Responsible forplanning&coordinatingtheworkofthe
separatefunctionsensuring forexamplethattheplansof
separatefunctionsensuring,forexamplethattheplansof
themarketingdepartmentareconsistentwithproduction
capabilities&forresolvingthedisputesthatarisebetween
thesefunctions
thesefunctions.
Performance ismeasuredbyprofitabilityofthebusinessunit.
AGChp.3 18
 T
TypesofOrganization
fO i i

AlthoughBUmanagersexercisebreadauthorityovertheir
units,hradquartersreservecertainkeyprerogatives
At i i
Ataminimumheadquartersis:
h d t i
1. Responsibleforobtainingfundsforthecompanyasawhole
&forallocatingthesefundstothevariousbusinessunitsin
accordancewithitsdeterminationastobestuse.
d i hi d i i b
2. Approvebudgets&judgestheperformanceofBU
managers,setstheircompensation&ifthesituation
warrants,removesthem.

AGChp.3 19
 T
TypesofOrganization
fO i i

3. EstablishthecharterofeachBU theproductlinesitis
permittedtomake&sell&/orthegeographicalterritoryin
whichit canoperate&thecustomerstowhich maysell
4. Establishescompanywidepolicies
HeadquartersstaffofficesmayassisttheBUinproduction
&marketingactivities&inspecializedareassuchashuman
resources,legalaffairs,publicrelations,&controller&
treasurymatters.
Th h d
Theseheadquartersfunctionsarecrucial;withoutthem,
t f ti i l ith tth
theBUswouldbebetteroffasseparatecompanies

AGChp.3 20
TypesofOrganization
AdvantagesofBusinessUnit
1. Itprovidesatraininggroundingeneralmanagement.
p gg g g
TheBUmanagershoulddemonstratethesame
entrepreneurialspiritthatcharacterizes theCEOofan
p
independentcompanyp y
2. BecausetheBUisclosertothemarketforitsproducts
thanheadquartersis,itsmanagermaymakesounder
production&marketingdecisionsthanheadquarters
d ti & k ti d i i th h d t &
canreacttohewthreatsoropportunitiesmorequickly.

AGChp.3 21
TypesofOrganization
Disadvantages ofBusinessUnits
1. EachBUstaffmayduplicatesomeworkthatinafunctional
organizationisdoneatheadquarters.
TheBUmanagerispresumablyageneralist,buthisorher
subordinatesarefunctionalspecialists&theymustdeal
withmanyofthesameproblemsaddressedbyspecialists
bothatheadquarters&inotherbusinessunitsaswell
2. LayersofBUstaffmaycostmorethanthevaluegainedby
divisionalization
3. Skilledspecialistsincertainfunctionsareinshortsupply&
individualBusmaybeunabletoattractqualifiedpeople.
4 Thedisputesbetweenfunctionalspecialistsinafunctional
4.
organizationmaybereplacedbydisputesbetween
businessunitsinabusinessunitorganization AGChp.3 22
TypesofOrganization
ImplicationsforSystemDesign
Afunctionalorganizationmaybemoreefficientbecause
largerfunctionalunitsprovidethebenefitsofeconomiesof
g p
scale.
Abusinessunitorganizationrequiresasomewhatbroader
typeofmanagerthanthespecialistwhomanagesaspecific
functioncompetentgeneralmanagersofthistypemaybe
difficulttofind.
Thesystemsdesignermustalwaysfitthesystemtothe
organizationratherthantheotherwayaround.
Oncemanagementhasdecidesthatagivenstructureis
best,allthingsconsideredthenthesystemdesignermust
takethatstructureasgiven.
AGChp.3 23
FunctionoftheController
Controlleristhepersonwhoisresponsiblefordesigning&
operatingthemanagementcontrolsystem.
FunctionsofController
Designing&operatinginformation&controlsystems
Preparingfinancialstatements&financialreportsfor
shareholders&otherexternalparties
Preparing&analyzingperformancereports,interpretingthese
reportsformanagers&analyzingprogram&budgetproposals
fromvarioussegmentsofthecompany&consolidatingthem
intoanoverallannualbudget.

AGChp.3 24
FunctionoftheController
Supervisinginternalaudit&accountingcontrolproceduresto
ensurethevalidityofinformation,establishingadequate
safeguardsagainsttheft&fraud&performingoperational
g g p g p
audits.
Developingpersonnelinthecontrollerorganizations&
p
participatingintheeducationofmanagementpersonnelin
p g g p
mattersrelatingtothecontrollerfunction.

AGChp.3 25
 FunctionoftheController
RelationtoLineOrganization
Thecontrollershipfunctionisastafffunction.
Thecontrollerisresponsibleforthedesign&operationofthe
systemswhichcollect&reportinformation,theuseofthis
hi h ll & i f i h f hi
informationisresponsibilityoflinemanagemet.
Thecontrollermayberesponsiblefordeveloping&analyzing
controlmeasurements&recommendingactionstomanagement.
controlmeasurements&recommendingactionstomanagement
Thecontrollerdoesnotmakeorenforcemanagementdecisions.
TheresponsibilityforactuallyexercisingcontrolrunsfromtheCEO
downthroughthelineorganization
Thecontrollerdoesmakedecisions
Controllersplayanimportantroleinthepreparationofstrategic
p
plans&budgets.
g
Theyareaskedtoscrutinizeperformancereportstoensure
accuracy&tocalllinemanagersattentiontoitemsdeserving
furtherinquiry. AGChp.3 26
FunctionoftheController
TheB sinessUnitController
TheBusinessUnitController
Businessunitcontrollershavedividedloyalty.
Onetheonehand,theyowesomeallegiancetothecorporatecontroller
y g p
whoispresumablyresponsiblefortheoveralloperationofthecontrol
system.
Ontheotherhand,theyalsooweallegiancetohemanagersoftheir
ownunits,providestaffassistance
Insomecompanies,businessunitcontrollerreportstothe
businessunitmanager&haswhatiscalledadottedline
relationshipwiththecorporatecontroller.
relationshipwiththecorporatecontroller
Inothercompanies,businessunitcontrollersreportdirectly
tothecorporatecontroller.

AGChp.3 27
AlternativeController Relationship
DottedLine SolidLine

Corporate Corporate
Controller
ll Controller
ll

BusinessUnit BusinessUnit
Manager Manager

BusinessUnit BusinessUnit
Controller Controller

AGChp.3 28