cross cultural implications on management control systems by paulino silva
DESCRIPTION
This presentation shows the cross cultural implications on Management Control Systems and was made during the Cross Cultural Management Erasmus Intensive Programme at the TEI of Crete - Greece.TRANSCRIPT
CROSS CULTURAL IMPLICATIONS ON MANAGEMENT CONTROL SYSTEMS
Paulino Silva [email protected]
ISCAP - IPP, Portugal
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OUTLINE
1. Introduction 2. Management Control 3. Control Problems 4. Types of Controls 5. Cultural implications on MCS 6. Conclusion
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WHAT IS MANAGEMENT CONTROL?
“Management Control is thus fundamentally concerned with ensuring that appropriate actions are taken to implement overall organizational plans, and with monitoring the effectiveness of such action and plans.” (Emannuel et al., 1990) “Management Control is the function that makes sure that actual work is done to fulfill the original intention” (Drury, 2003).
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CONTROL PROBLEMS
l People may fail in an organization’s best interest for three basic reasons:
1. Lack of direction 2. Lack of motivation 3. Lack of abilities
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LACK OF DIRECTION
l People do not always understand what they are expected to do.
l Some employees perform poorly because they do not know what the organization waits from them à managers have to inform them how they can maximize their contributions in favour of organization’s objectives.
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LACK OF MOTIVATION
l Some people who know what is expected from them are not interested in behaving conveniently because of their individual incentives are not adequate to motivate them to perform.
l This happens when organizational objectives are not coincident with those of individuals.
l Some drastic examples of motivational problems are employee theft or fraud.
l A particular form of “stealing” happens when employees manipulate their performance reports.
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LACK OF ABILITIES
l There are two types of abilities, innate abilities, or acquired abilities.
l This problem occurs when people know what is expected from them and are very motivated.
l The cause can be lack of intelligence, training, experience or even competencies for the function.
l Another cause that happens very often is that jobs are not well designed.
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DIFFERENT TYPES OF CONTROL
l To make sense of the vast number of controls that are used we can classify them into three categories using approaches of Ouchi (1979) and Merchant (1998). They are:
n Results (or output) controls;
n Action (or behavioural) controls;
n Personnel and cultural (or clan and social) controls.
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RESULTS CONTROLS
l Results controls are presented through the form of results accountability.
l To implement results controls, managers should: n Define the dimensions along which results are desired; n Measure performance on these dimensions and
compare them with pre-determined standards; n Provide rewards to compensate desired results.
l The most important form of results controls is the budgetary control, as it measures outputs as well as inputs.
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RESULTS CONTROLS – CONDITIONS
l Conditions to use results controls: n Managers should know what results are most
wanted in the areas being controlled; n Employees whose behaviours are being
controlled have considerable influence on the results for which they are being held accountable;
n Managers should measure the results effectively.
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RESULTS CONTROLS -‐ ADVANTAGES
l Results controls can influence people’s behaviour without put in question their autonomy;
l Results controls can provide effective control, even where necessary knowledge is short of to what actions are desirable;
l Results controls are normally cheap.
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ACTION CONTROLS
l Action controls aim to ensure that individuals perform certain actions that are known to be desirable.
l Involve observing the actions of individuals as they go about their work.
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FORMS OF ACTION CONTROLS
l Behavioural constraints: provide a preventive form of action control by making difficult some undesirable behaviours. For example, locks, personnel identification, passwords, etc.
l Pre-action review: involves observing the work of others before the task is complete and making corrections if needed. For example, planning reviews, approvals on capital expenditure proposals, etc.
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FORMS OF ACTION CONTROLS
l Action-accountability controls: similar to results-accountability controls. They require i) defining the limits of acceptable behaviours; ii) tracking the behaviours; and iii) punishing deviations.
l Redundancy: involves assigning more employees (or machines) to a task than the necessary.
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ACTION CONTROLS -‐ ADVANTAGES
l There is a direct link between the control and the object being controlled, that is actions;
l Action-accountability controls have a tendency to lead to documentation of the accumulation of knowledge about effective organizational practices;
l Action controls are an efficient way to support organizational coordination;
l Some action controls can prevent the first occurrence of undesirable actions.
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PERSONNEL & CULTURAL CONTROLS
l These controls are used by managers to benefit in two different ways: individual self-control and social control.
l Individual self-control is a present force that pushes most people to perform the best way.
l Social control is a pressure exerted by workgroups on those who deviate from group norms and values.
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PERSONNEL & CULTURAL CONTROLS
l These controls can be put in place through upgrading the capabilities or reliability of staff in key positions;
l Some forms of personnel and cultural controls are: n to institute training programmes; n improving communications to help individuals understand
their roles better; n To provide resources that people need to perform their jobs
well; n Encouraging peer control by establishing cohesive
workgroups with shared goals; n Build a strong corporate culture that increases staff’s
identification with corporate goals and values.
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CONTROL PROBLEMS AND TYPES Control Types
Control problems Lack of direction Lack of motivation Lack of abilities
Results controls: - Results accountability
X
X
Action controls: - Behavioural constraints - Pre-action reviews - Action accountability - Redundancy
X X
X X X
X X X
Personnel controls: - Selection and placement - Training - Provision of necessary resources - Creation of a strong organizational culture - Group-based rewards
X X X X
X X X
X X X
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CONTROL SYSTEM DESIGN
l Managers need to adapt combinations of the feasible controls (results, action and personnel) to the demands of the situations being controlled.
l The first step to design a control system is to identify the control problems that exist à this is important because the control types are not equally effective at addressing each of the control problems. For example, results controls do not help solve personal limitations, and training does not solve motivational problems.
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CULTURAL ISSUES
l Countries, and even regions within countries have different cultures;
l These differences may not affect the design of the management control system, but they can have a great effect on how information from the system is used.
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MULTINATIONALITY
l Normally, controlling multinational organizations is more difficult than controlling domestic organizations;
l Managers face a multidimensional organizational problem: their organizations are organized not only by function and product line, but also by geography.
l The geographic factor requires managers adapt their organizations to each of the national (and even regional) cultures in which they operate.
l Management Control Systems adaptation across borders is difficult, and if done improperly the organization may suffer.
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NATIONAL CULTURES: SIMILARITIES
l People, in all countries, and all regions of all countries, have the same basic physiological needs and similar desires for safety, comfort and accomplishment.
l This means that people tend to respond to the set of incentives with which they are faced to further their own self-interests.
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EXAMPLE FROM CHINA
l For example, in Beijing, in China’s socialistic economy, different types of taxi fare structure exist. n Type 1: earn only 1 yuan (about 0,10 €) for the first
km of travel, but 1,5 yuan for every km after that à these drivers are highly motivated to find customers wanting long rides, and refuse short ones.
n Type 2: earn 10 yuan for the first km of travel, but 1 yuan for every km after that à these drivers are highly motivated to find customers wanting short rides, and refuse long ones.
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EXAMPLE FROM CHINA
l These examples from China provide evidence that results controls should work anywhere in the world.
l People, even in a country that has used a socialistic economy for a long time, respond to the environment with which they are faced in satisfying their own self-interests.
l Besides that, money proves to be a powerful motivator!
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NATIONAL CULTURES: DIFFERENCES
l Despite the basic similarities, there are also many differences: n National culture: “the collective programming of the
mind which distinguishes the members of one group or society from another”.
n National culture admits that people’s tastes, norms, values, social attitudes, religions, personal priorities, and responses to interpersonal stimuli differ across nations.
n An important factor of MCS’s effectiveness is whether the staff perceive them as culturally appropriate.
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HOFSTEDE CULTURAL DIMENSIONS
l The four cultural dimensions identified by Geert Hofstede are: n Individualism n Power distance n Uncertainty avoidance n Masculinity
l However, these four dimensions do not explain all the differences between people in different countries, but explain a part of it.
l Each dimension has an implication for MCSs.
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INDIVIDUALISM (VS. COLLECTIVISM)
l People from an individualistic culture tend to place their self-interests ahead of those of the group;
l People from a collectivistic culture are motivated by group interests and emphasize maintenance of interpersonal harmony.
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POWER DISTANCE
l It relates to the extent to which members of a society accept that institutional or organizational power is distributed unequally.
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UNCERTAINTY AVOIDANCE
l Uncertainty avoidance can be strong or weak;
l Individuals strong in uncertainty avoidance feel uncomfortable when the future is unknown and ambiguous.
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MASCULINITY
l The masculinity dimension relates to the preference for achievement, assertiveness and material success (masculine);
l This is opposed to an emphasis on relationships, modesty and the quality of life (feminine).
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COMPARING CULTURES
l If we compare Taiwanese culture with U.S. culture, we found the U.S. culture more individualistic and more masculine, while Taiwanese culture is higher in power distance and uncertainty avoidance;
l These cultural dimensions are so important, that some researchers have suggested that high individualism is a key factor of U.S. management theories.
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INDIVIDUALISM EFFECTS
l Employees very individualistic tend to prefer individual-oriented work arrangements, performance evaluations and compensations à this is what happens very often with U.S. companies that make relatively high use of individual incentives.
l Employees high in collectivism tend to prefer more group-oriented work arrangements, and as so group performance evaluations and compensations à Group performance is the basis for the performance compensation in firms from countries with a very collectivistic culture.
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POWER DISTANCE EFFECTS
l People who are high in power distance tend to prefer greater centralization of decision-making authority and less participation on decision-making processes;
l In this stream, it is expected to see higher decentralization and more employee participation in standard setting in companies from low power distance cultures.
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UNCERTAINTY AVOIDANCE EFFECTS
l Planning and budgeting systems should be more elaborate, with more ritual, to reduce employees’ level of anxiety;
l Managers should also use more formal, more rigid performance standards and less subjectivity in performance evaluations.
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MASCULINITY EFFECTS
l Managers should design MCS taking into account that masculine cultures permit the focus on performance, relative performance evaluations , and performance-based incentives.
l In feminine cultures, emphasizing performance without taking into account the well-being of members is likely to be less accepted or even counterproductive.
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LOCAL INSTITUTIONS
l Social, government, and legal institutions vary significantly across nations (government agencies, baking systems, labor unions, etc.);
l Legal systems can be very important as well, since they include property rights, regulations, access to legal remedies, and the enforceability of contracts;
l For example, organizations in countries with strong labor unions often find it difficult to implement performance-based pay for incentive purposes. Most unions prefer basing pay on seniority.
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LOCAL BUSINESS ENVIRONMENTS
l Business risk can be caused by security problems, such as military conflicts, kidnappings, bombings, etc.
l Inflation: environmental factor that differs significantly across countries. Inflation variations affect the value of currencies à create financial risk;
l Labor availability, quality and mobility: In developing countries skilled and educated labor is limited. In these situations MCSs tend to be more focused on action controls than on results controls.
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CONCLUSION
l Problems of control can be overcome with different types of control;
l Cultural issues can be very important, not only in the design of a MCS, but also in its use;
l Other external factors, besides culture, should be taken into account by managers when implement and use MCSs.
