USING MANAGEMENT CON TROL TO ALIGN ORGANI ZATIONAL STARTEGIES [615548]

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USING MANAGEMENT CON TROL TO ALIGN ORGANI ZATIONAL STARTEGIES
AND TO MEASURE PERFORMANCES

Pete Ștefan
Babes -Bolyai University, Faculty of Economics and Business Administration, 58-60, Teodor
Mihali Street, Cluj -Napoca, Romania Email: [anonimizat]; Tel: 0264 -418658
Popa Irimie Emil
Babes -Bolyai University, Faculty of Economics and Business Administration, 58-60, Teodor
Mihali Street, Cluj -Napoca, Romania Email: [anonimizat]; Tel: 0264 -418652,
int. 5806
Volkán Ildikó Réka
Babes -Bolyai University, Faculty of Economics and Business Administration, 58-60, Teodor
Mihali Street, Cluj -Napoca, Romania Email: [anonimizat]; Tel: 0264 -418652, int. 5808

Practice shows that, in order to improve internal and external communication, managers need to increase
the request of information about their business adm inistration. So, for this, they need a complementary
system which assures them this kind of information and data. The related actions in this way are: forecast
and control. Management control appeared as an answer to the evolving concerns toward economic
efficiency and represents a privileged tool of management, defined as the process through which managers
assures themselves that the resources are acquired and used with efficiency, efficaciousness and pertinence
for realizing the objectives of an organizat ion.

Keywords
management control, strategy, performance

JEL Classification: M – Business Administration and Business Economics; Marketing; Accounting

1. INTRODUCTION
The American Accounting Association defined accounting in 1966 as the process of identi fying,
measuring and communicating economic information to permit informed judgments and
decisions by users of the information. This definition is important because it recognizes that:
-accounting is a process which main preoccupation is to capture busine ss events,
record their financial effect, summarize and report the result of those effects.
-it is concerned with economic information, both financial and non -financial and
its purpose is to support ―informed judgments and decision‖ by users in order t o
record, report and interpret business transactions.

Meanwhile a ccounting is seen as fulfilling three functions:
1. Scorekeeping – capturing, recording, summarizing and reporting financial performance.
2. Attention – directing – drawing the attention of manage rs to, and assisting in the interpretation
of, business performance, particularly in terms of the comparison between actual and planned
performance.
3. Problem -solving – identifying the best choice from a range of alternative actions.

The attention -directing and problem -solving functions are taking place through three inter -related
functions:
 Planning – refers to establishing goals and strategies to achieve goals.
 Decision -making – using financial information to make decisions
 Control – using financial inform ation to maintain performance as close as possible to
plans.

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The mentioned inter -related functions are important and relevant as increasingly businesses have
been decentralized into many business units and managers need financial and non -financial
informa tion to develop and implement strategies for the future; making good decisions about
products, services and their prices; and ensuring that plans are put into action and are achieved.
This can be done by management accounting and management control .

2. RE SEARCH METHODOLOGY
This article is a theoretical study and its purpose is to present the relationship between
management control, performances and strategy using information and data gathered from the
existing literature on national and international level .
After covering the available literature in this field, based on a qualitative analysis, we want to
demonstrate in this article that management control becomes an effective informational system
and assures organizational coordination and development, capa ble to answer to 3 basic questions:
What for? , For who? and On who? The outcome becomes strategic for the organization on a
long term and for all the actors within it.

3. MANAGEMENT CONTROL – ROLE AND NECESSITY
Anthony defined management control as: ―t he process by which managers assure that resources
are obtained and used effectively and efficiently in the accomplishment of the organization‘s
objectives‖534. In time A nthony developed a model that differentiated three planning and control
functions:
-Strategy formulation was concerned with establishing goals and objectives,
strategies and policies, defining resources and policies used to achieve those
objectives and goals. This function is oriented towards external environment and
operates with strate gic decisions on long term. This fed into
-Management control , which was concerned with the implementation of
strategies and assures that resources are obtained and used effectively and
efficiently in order to achieve objectives. This function operates with tactic
decisions.
-Task control , which comprised the efficient and effective performance of
individual tasks. This function is oriented towards internal environment and operates
with current decisions.
Otley argued that such a separation was unrea listic and that management control was ―intimately
bound up with both strategic decisions about positioning and operating decisions that ensure the
effective implementation of such strategies‖.535

Building on Anthony‘s earlier definition, in 2000 Anthony an d Govindarajan defined
management control as ―a process by which managers at all levels ensure that the people they
supervise implement their intended strategies‖536.
In 1995 Berry et al. admitted that management control: ―is the process of guiding organizat ions
into viable patterns of activity in a changing environment ….. managers are concerned to

534 Anthony, R. N. Planning and Control Systems: A Framework for Analysis. Boston, MA: Harvard Business School
Press, 1965
535 Otley, D. Management control in contemporary organizations: Towards a wider framework. Management
Accounting Research, 5, 1994, pg. 298
536 Anthony, R. N. and Govindarajan, V. Management Control Systems. (10th international edition). New York, NY:
McGraw -Hill Irwin, 2000, pg.4;

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influence the behavior of other organizational participants so that some overall organizational
goals are achieved‖537.
All and all management control is a system of rules, a collection of inter -related mechanisms and
consists of formal, information -based routines and procedures used by managers to maintain or
alter patterns in organizational activities.
Managers use internally and externally generated information t o govern their organizations.
Because one of the managerial functions r equiring information is control we can talk about
management control system (MCS) in every organization .
According to Anthony and Govindarajan a Management Control System has the follow ing
components:
1. A detector or sensor , which is a measuring device that identifies what, is actually happening in
the process being controlled.
2. An assessor , which is a device for determining the significance of what is happening. Usually,
significanc e is assessed by comparing the information on what is actually happening with some
standard or expectation of what should be happening.
3. An effector , which is a device that alters behavior if the assessor indicates the need for doing
so. This device is o ften called ―feedback.‖
4. A communications network , which transmits information between the detector and the
assessor and between the assessor and the effector.
Most businesses have a variety of control systems in place. For example, a control system may
reflect a set of procedures for screening potential suppliers or employees, a set of criteria to
evaluate potential and existing investments, or a statistical control process t o monitor and
evaluate quality. Regardless of the specific actions taken, a man agement control system should
serve to guide organizations in designing and implementing strategies such that organizational
goals and objectives are achieved.

4. The Impact of MANAGEMENT CONTROL ON STRATEGY AND PERFORMANCES
To maintain a competitive po sition a company must generate the information necessary to define
and implement its organizational strategies. Strategy is the link between an organization‘s goals
and objectives and the operational activities executed by the organization. In the current global
market, firms must be certain that such a linkage exists.
Strategy can be defined as: ― the art of creating value. It provides the intellectual frameworks, conceptual
models, and governing ideas that allow a company‘s managers to identify opportunit ies for bringing value
to customers and for delivering value at a profit. In this respect, strategy is the way a company defines its
business and links together the only two resources that really matter in today‘s economy: knowledge and
relationships or an organization‘s competencies and its customers‖.538
The accomplishment of a strategy reclaims taking in consideration the different management
horizons:
-The strategic horizon – settles the goals and objectives on long term, 5 -10 years,
and as a result of these elaborates strategic plans.
-Budgetary horizon – translates into practice the established goals and objectives
on medium term using budgets and operational plans.
-Operational horizon – elaborates, applies, pursuits and analyses action plans.
Mana gement control acts within each horizon using specific instrument on every level and the
controlling process is bounded to the decision making process. The Management Control
Systems (MCS) enables managers to perform strategic analyses on issues such as de termining

537 Berry, A. J., Broadben t, J. and Otley, D. The domain of organizational control. In A. J. Berry, J. Broadbent and D.
Otley (eds), Management Control: Theories, Issues and Practices, London: Macmillan, 1995, pg. 4
538 Richard Normann and Rafael Ramirez, From Value Chain to Value Co nstellation: Designing Interactive Strategy,
Harvard Business Review (July –August), 1993, pg. 65;

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core competencies and organizational constraints from a cost -benefit perspective and assessing
the positive and negative financial and non -financial factors of s trategic and operational plans.
Johnson and Kaplan emphasized the importance of non -financial indicators arguing that539 short –
term financial measures will have to be replaced by a variety of non -financial indicators that
provide better targets and predictors for the firm‘s long -term profitability goals, signifying this as
a return to the op erations based measures that were the origin of management accounting
systems.
Within organizations performance measurement has been and it is dominated by management
control systems that are focused on control and than improvement. Performance measurement
goes beyond the boundaries of traditional management accounting and could be achieved by
accountants having a better understanding of the operational activities of the business and
building this understanding into control systems design; connecting contro l systems with
business strategy, which has to some extent been addressed by the proponents of strategic
management accounting (see below); and focusing on the external environment within which the
business operates, through a value -chain based approach.
Anthony once said, on one hand, that management control is the process through which managers
use their power to influence other members of the organization to implement strategies, to realize
goals and objectives and, on the other hand, it integrates facts on long, medium and short terms,
having well determined implications in human factors, objectives and assignments.

5. CONCLUSIONS
The management of an organization involves two key areas: planning and control. Every
organization requires plans to determi ne priorities and resource allocation and a mechanism by
which execution against the plans can be controlled.
Management control is the process by which management ensures that the organization carries out its
strategies effectively and efficiently. By ma nagement control managers look to conceive and to
elaborate reporting instruments aimed to allow the leaders to act realizing economical, global coherence
between objectives, resources and performances. In management control systems accounting
information provides a window through which the real activities of the organization may be monitored.
An organization‘s strategy must be appropriate for its resources, circumstances, and objectives. The
process involves matching the company's strategic advantages to the business environment the
organization faces. One objective of an overall corporate strategy is to put the organization into a
position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an
organization‘s go als, policies, and action sequences (tactics) into a cohesive whole, and must be based
on business realities.
The performance measurement systems, on the other hand, should encourage managers to act in the best
interest of the organization and its subunits and to support organizational missions and competitive
strategies.
In the end we can say that m anagement control is a core business function and exists as a separate, well –
established discipline within the management field. The extension of this discipli ne to business ethics
and its partial merging with legal risk management has been one of the more important developments in
international business of the last two decades.

References
1. Anthony, R. N. Planning and Control Systems: A Framework for Analysis . Boston, MA:
Harvard Business School Press, 1965;

539 Johnson, H. T. and Kaplan, R. S. Relevance Lost: The Rise and Fall of Management Accounting. Boston, MA:
Harvard Business School Press, 1987, pg. 197;

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2. Anthony, R. N. and Govindarajan, V. Management Control Systems. (10th international
edition). New York, NY: McGraw -Hill Irwin, 2000;
3. Barfield J.T., Raiborn C.A., Kinney M.R., Cost Accounting: Traditi ons &Innovations
(Hardcover), South -Western College Pub, 5 edition, 2002;
4. Berry, A. J., Broadbent, J. and Otley, D. The domain of organizational control. In A. J. Berry,
J. Broadbent and D. Otley (eds), Management Control: Theories, Issues and Practices , London:
Macmillan, 1995;
5. Bromwich, M. The case for strategic management accounting: The role of accounting
information for strategy in competitive markets. Accounting, Organizations and Society, 15(1/2),
27–46, 1990;
6. Chartered Institute of Manageme nt Accountants Performance Measurement in the
Manufacturing Sector. London: Chartered Institute of Management Accountants, 1993
7. Drury, C. Management and Cost Accounting. (5th edn). London: Thomson Learning, 2000;
8. Johnson, H. T. and Kaplan, R. S. Rele vance Lost: The Rise and Fall of Management
Accounting. Boston, MA: Harvard Business School Press, 1987;
9. Otley, D. Management control in contemporary organizations: Towards a wider framework.
Management Accounting Research, 5, 1994,
10. Normann R., Rami rez R., From Value Chain to Value Constellation: Designing Interactive
Strategy, Harvard Business Review (July –August), 1993;