Abstract
Organizational control can be analysed according to different perspectives. Economic, social, psychological and behavioural theories of control will be critically discussed in order to provide a multifaceted concept of control in economic organizations. In this theoretical framework, management control scholars developed several approaches. Starting from the 60s, academics reached a consensus on cybernetic approaches to management control. Later on, in the 70s and 80s more behavioural and social studies appeared in the field. In the 90s a call for a ‘revolution’ in the management control literature arose, thus more and more research ‘extended the boundaries’ of management control and focussed on both financial and non-financial issues. From this revolutionary approach, the management control field evolved in the performance management one, where the emphasis on control has reduced, while the one on performance increased. At the end of the Chapter, an Italian perspective on management control introduces and discusses different schools of thoughts and highlights different academic views.
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Notes
- 1.
- 2.
Tannenbaum defined the alignment between individual actions/goals to organizational ones as conformity (Tannenbaum 1962: 238). This term implies a twofold meaning. First, individuals should adjust their personal actions/goals so that these align with the organizational ones. Second, individuals perceiving a mismatch between their personal goals and the organizational ones, do not self-select themselves to be part of that organization. Tannenbaum’s work seems to be more closely related to the first meaning of conformity, in that he analysed the different behavioural responses individuals give in order to conform to different types of controls.
- 3.
Cyert and March start their reasoning about the conflict between individual and organizational objectives by assuming that “People (i.e. individuals) have goals; collectivities of people do not” (Cyert and March 1963: 26). After that, they outline three main ways in which the goal formation process works. The first one is the bargaining process, in which the handling of side payments drives the definition of general terms and conditions for organizational goal identification and achievement. The second one is related to the stabilization and elaboration of objectives through budgetary control, functions allocation, and organizational memory building. The last one is the change in objectives through experience that relates to the shift in the attention focus between two or more conflicting objectives, when one of them occurs in a drastic experience.
- 4.
According to Anthony, economic theories influenced what he called “operational control” (Anthony 1965: 93).
- 5.
Cournot developed the duopoly competition theory (Cournot 1838), while Chamberlin put forward the monopolistic competition theory (1933). Robinson introduced monopsony competition (Robinson 1933) and von Stackelberg addressed a type of duopoly, i.e. the Stackelberg leadership model (von Stackelberg 1934).
- 6.
According to Fama, the separation of ownership and control is “an efficient form of economic organisation within the “set of contract” perspective” (Fama 1980: 289). Entrepreneur develops both the management and the risk-bearing function. While competition stresses for the implementation of devices for “efficiently monitoring” all employees’ performance, the latter (employees) experience incentives for serving both the firm they are employed for and external stimuli.
- 7.
For a deeper analysis on the incentive and rewarding mechanism see also Chap. 10.
- 8.
As there is no absolute solution to the owner-manger conflict, the principal-agent theory is also called the managerial theory of the firm (Hart 1989: 1759).
- 9.
Transaction cost theory is closely related to agency theory, in that both emphasise the limits of market transactions related to information asymmetries among economic agents (Kaplan 1984).
- 10.
Evan asserted that compliance “has a cognitive and motivational component” since “subordinates must understand what they are supposed to do and they must be willing to do it” (Evans 1975: 252).
- 11.
On the hierarchy of needs, see Maslow (1970).
- 12.
Arrow gives the example of an exchange between a physician and her/his patient, where “personal responsibility, or fidelity or trust” arises in the assessment of the fairness of the price of the exchange (Arrow 1964: 403).
- 13.
Arrow argues that maximization should also consider some constraints: i.e., the demand for the commodity and the supply of input for producing the commodity. The optimum is determined according to the Lagrange method for constrained maxima and prices are given by Lagrange multipliers (Arrow 1964).
- 14.
- 15.
Burns and Stalker named the two different management practices “mechanistic” and “organic”. The “mechanistic” system “appeared to be appropriate to an enterprise operating under relatively stable conditions. […] In mechanistic systems the problems and tasks are broken down into specialisms. Each individual pursues his task as something distinct from the real tasks of the concern as a whole”; on the other hand, “[o]rganic systems are adapted to unstable conditions, when problems and requirements for action arise which cannot be broken down and distributed among specialist roles […] Individuals have to perform their special task in the light of their knowledge of the tasks of the firm as a whole” (Lawrence and Lorsch 1969: 188).
- 16.
Woodward identified three main techniques of production: small batch, large batch and continuous production. Each technique was assigned a scale of predictability, so that small batches resulted in low predictability while continuous production had high predictability (Woodward 1958).
- 17.
Chandler controlled for environmental changes related to “technology, markets and source of supply” that enacted strategic and subsequently structural changes (Lawrence and Lorsch 1967: 198).
- 18.
The strategies were related to “expansion of volume”, “growth through geographical dispersion”, and diversification through “new lines of products” (Chandler 1962: 16).
- 19.
Three sectors were included in Lawrence and Lorsch’s study: a scientific, a market and a techno-economic one (Lawrence and Lorsch 1967: 29).
- 20.
This statement seems to be influenced by the behavioural approach, whose scholars – such as Herbert Simon (1947) – introduced ten years before the Gouldner review.
- 21.
In describing the ‘social categories of economic action’, Weber pointed out that “[r]ational economic action requires instrumental rationality in this orientation, that is, deliberate planning” (p. 63). He put forward that “[n]ot every type of action which is rational in its choice of means will be called ‘rational economic action’ […] in particular, the term ‘economy’ will be distinguished from that of ‘technique’ [… e]conomic action is primarily oriented to the problem of choosing the end to which a thing shall be applied; technology, to the problem, given the end, of choosing the appropriate means” (p. 65–67).
- 22.
The superior’s dominance over subordinates is limited by both the specified sphere of competence, i.e., “jurisdisction” (p. 218), and higher order superiors who have control over their subordinates use of domination.
- 23.
Monocratic bureaucracy refers to “the purely bureaucratic type of administrative organization” (p. 223).
- 24.
Weber stated that bureaucratic administration is superior to other types of administration in terms of “[p]recision, speed, unambiguity, knowledge of the files, continuity, discretion, unity, strict subordination, reduction of friction and of material and personal costs” (p. 973).
- 25.
Rules represent the source of knowledge of the bureaucratic administration – i.e., the source of its efficiency – and officials have to learn and manage them accordingly.
- 26.
Dunnette’s Handbook of industrial and organizational psychology (1973) owes its name to Division 14 of the American Psychological Association, and this is due to the fact that organizational psychology emerged as an independent discipline from industrial psychology (Bass 1965; Blackler and Shimmin 1984).
- 27.
Organizational psychology has been defined as “the study of large scale organizations in their psychological and social aspects” (Quinn and Kahn 1967: 437), or “the study of how men at work are affected by the system of men, money, and materials within which they work. Also, it deals with how they, in turn, exert influence on the conversion of the inputs of human energy, money, and materials on the system’s manifold outputs of wealth, goods, and satisfaction” (Bass 1965: 33). Bass maintained that organizational psychology is connected with other disciplines, such as economics and the physical and behavioural sciences (Bass 1965).
- 28.
On the concept of organization as a complex system, see Rice (1963) and Trist et al. (1963), who developed the so-called Tavistock Sociotechnical model; Homans (1950) and the model named after him; Likert (1961), who put forward the Likert overlapping-group model; Kahn et al. (1964), who introduced the Kahn overlapping-role-set model; and the contingency scholars (Galbraith 1969; Lawrence and Lorsch 1967; Woodward 1958), who introduced the contingency approach.
- 29.
The concept of psychological contract has been defined as “the set of expectations about the nature of the exchange between the individual and the organization […]. Many of these expectations are implicit and unstated, but they act as powerful determinants of behaviour” (Blackler and Shimmin 1984: 17).
- 30.
Organizational determinants are related to the degree of bureaucratisation, size, the hierarchical properties and goals (Bass 1965).
- 31.
Interpersonal relations involve supervisory behaviour, power and authority (Quinn and Kahn 1967: 439).
- 32.
In Quinn and Kahn’s analysis, responses relate to role behaviour and job satisfaction (Quinn and Kahn 1967: 439).
- 33.
Organizational outcomes may be referred to productivity, absenteeism or turnover (Quinn and Kahn 1967: 439).
- 34.
Personality can be analysed as either a constant for all individuals or a variable whose dimensions are organizational-dependent (Quinn and Kahn 1967: 451).
- 35.
As stated by Simon “[t]he question is sometimes asked whether an analysis of organisations in terms of their decision-making processes is “sociological” or whether it is “psychological”. The question is a little bit odd […]. The correct answer in either case is “both”” (Simon 1976: XXXV).
- 36.
Indeed, Margolis posited “[…] the traditionalist solution […] does not integrate into the main body of explanation of the non-profit-maximizing goals and business rules observed in practice which arise in part because of the existence of uncertainty” (Margolis 1958: 189). For some evidence of non-profit-maximising goals, see e.g. Rothschild (1947), who asserted that the entrepreneur is primarily interested in the firm’s long-run survival. In a similar vein, Baumol (1959) posited that the main objective of the firm is the maximisation of sales under a certain profit constraint. Gordon (1948), Simon (1947) and Margolis (1958) stressed that instead of maximising profit, managers tend to strive for ‘satisfactory profit’. Other organizational objectives relate to market share (Lanzillotti 1958), managers’ personal objectives (Scitovsky 1943), social responsibility (Freeman 1984), security, autonomy and growth (Galbraith 1967), growth and expansion goals (Penrose 1959).
- 37.
According to Simon, rationality can be defined as “the selection of preferred behaviour alternatives in terms of some system of values whereby the consequences of behaviour can be evaluated” (p. 75). Also, he advised using the term rationality “in conjunction with appropriate adverbs” such as objective (vs. subjective) rationality, or personal (vs. organizational) rationality (p. 76).
- 38.
Simon clarified that he used the term rational in the “goal-oriented” meaning (p.3).
- 39.
Simons asserted that “[o]n the one side, the individual is limited by those skills, habits and reflexes which are no longer in the realm of the conscious […]. On a second side, the individual is limited by his value and those conceptions of purpose which influence him in making his decisions. […] On a third side, the individual is limited by the extent of his knowledge of things relevant to his job” (p. 40).
- 40.
In Simon’s work, attention has been defined as “the set of elements that enter into consciousness at any given time” (p. 90).
- 41.
Following the same reasoning, Papandreou asserted that substantive planning involves constructing the firm’s budget, while procedural planning is related to the communication and authority system (Papandreou 1952).
- 42.
In Cyert and March’s study, multiple goals relates to the need to identify and manage more than a single objective at a time; the changing goals approach is consistent with the learning from experience that leads to the adjustment of objectives as soon as the related aspiration-level changes; finally, goals are set at an aspirational-level because the maximisation principle has been substituted by the “satisfying principle”; i.e., “a level of aspiration that the firm uses to evaluate alternative policies” (Cyert and March 1963: 10). In a similar vein, Margolis defined the aspiration level, asserting that “at least two conditions hold for aspiration level: (1) it must be high enough to assure the long-run survival of the firm […] and (2) the aspiration level for future periods must be equal to or greater than current normal profits” (Margolis 1958: 190).
- 43.
Anthony stressed that social psychology is the source discipline of “management control” (Anthony 1965).
- 44.
Even though many scholars acknowledge that the roots of control within organizations lie in the work of Taylor (Miller and O’Leary 1987), previous studies, such as those by Babbage (1832) and Fink (1874), have been identified as addressing “innovations which led directly to twenty-first-century processes of management control” (Otley et al. 1995: S34).
- 45.
As Reeves and Woodward clearly pointed out “In the literature relating to organizational behaviour there is ambiguity in the use of the word control. The confusion arises largely because to control can also mean to direct. Precisely defined control refers solely to the task of ensuring that activities are producing the desired results. Control in this sense is limited to monitoring the outcome of activities, reviewing feedback information about this outcome, and if necessary taking corrective actions” (Reeves and Woodward 1970: 38). Also, Lowe and Machin stressed that the definition of management control “leaves scope for academics to disagree violently, whilst still perceiving themselves to be studying the same thing!” (Lowe and Machin 1983).
- 46.
One of the first studies that tried to set forth some principles of control was by Urwick, who introduced three – even though in a previous study responsibility and evidence principles were also concerned (Urwick 1928) – principles of control: “uniformity”, i.e., all figures should be related to the overall organizational structure; “comparison” with standards and previous performance; and “utility”, all figures vary in the value they had when facts happened and the one they had when they are recorded (Urwick 1943: 122).
- 47.
Some of these techniques relate to standard setting, the recording of results and directions (Emerson 1912).
- 48.
In Church’s words, control is “that function which coordinates all of the other functions and in addition supervises their work” (Church 1914: 81); while Fayol defined it as “verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established” (Fayol 1949: 107).
- 49.
- 50.
One of the well-known techniques to assess planned and actual performance is variation analysis.
- 51.
Some scholars showed their concern about the “poverty of management control philosophy” (Hofstede 1978).
- 52.
- 53.
Anthony stated that “[i]t is important to distinguish between “systems” and “processes.” In brief, a system facilitates a process; it is the means by which the process occurs”. He continues by saying “we are interested in both in terms of how it works” (Anthony 1965: 5).
- 54.
Previous studies argued that predictive models use a type of variable that is “outside the scope of the accounting structure” since such models require information that are related to the external environment and difficult to measure objectively (Otley and Berry 1980: 234).
- 55.
This definition is related to the concept of personnel control that, together with action control and results control, defines the organization’s controls. Merchant’s results control relates to people’s responsibility for attaining target results. Action control is more concerned with people carrying out proper actions instead of non-proper ones (Merchant 1985). Some scholars stressed that output control is more efficient than behaviour-action control in large organizations (Blau and Scott 1962; Evans 1975; Williamson 1971), while others maintained that, in order to enhance effectiveness, both controls should be performed within the organization (Berry et al. 1995; Ouchi 1977).
- 56.
- 57.
- 58.
Similarly, Lebas posited that “measuring parameters descriptive of performance makes sense only if the data are to be used in making decisions” (Lebas 1992: 65).
- 59.
Armstrong follows this approach by stressing that performance management is “a systematic process for improving organizational performance by developing the performance of individuals and teams” (Armstrong 2006: 1).
- 60.
- 61.
Together with the economic control, management (“gestione”) and leadership (“direzione”) form the three momenti of economic administration (Besta 1922).
- 62.
Furthermore, Amaduzzi asserted that there is no difference, neither in finality nor in content, between recording and constraining, hence accounting and management control are overlapping in Amaduzzi’s approach (Amaduzzi 1963: 455–ff.). This approach seems to address a very extensive concept of accounting, covering other disciplines such as organisation, management, as well as psychology, which are closely related to management control. Besta’s approach develops a more coherent relationship between recording and constraining, namely that of means to an end (Mondini 1898: 17).
- 63.
From a different standpoint, Giovanni Rossi argued that on the one hand control is only a part of the accounting discipline, while on the other economic control is made up of two components, that is recording and administrative constraining, that are conceptually heterogeneous, hence they can’t belong to the same discipline (Rossi 1922: 246; Giannessi 1964). A similar point of view is that of Achille Sanguinetti (1903).
- 64.
Planning, i.e. antecedent control in Besta’s terms, is composed of both partial (or single) forecasts, and general forecasts (Besta 1922, Vol. I: 115).
- 65.
Napoleone Rossi put forward that planning should be conveniently translated into a “planned balance sheet” (Rossi 1966: 165; translated from the original), or “budget” which is “made up of operational plans for each sector of the business” (p. 165). The Author stressed the importance to test the feasibility of the budget “a priori”, i.e. in advance (p. 168). On the same vein, Maria Bergamin Barbato addressed budgeting as a “crucial” step, when it is related to strategic planning (Bergamin Barbato 1992: 10).
- 66.
Alfieri stressed that the Anglo-Saxon literature on organisational control came from Besta’s approach to accounting and from his definition of economic organisation (Alfieri 1923).
- 67.
Gino Zappa defined an “azienda” as an “economic coordination in action, constituted and run for the satisfaction of the human needs through the production of goods and services” (Zappa 1927: 30; translated from the original).
- 68.
Similarly, Ferdinando Di Fenizio put forward that general, overall planning can be termed “programmazione”, i.e. planning, while the economic documents encompassing planning principles, is a “programma”, i.e. a plan (Di Fenizio 1963: 14).
- 69.
A slightly different taxonomy of antecedent control, or planning, has been introduced by Lino Azzini, who defined long-range plans (“piani di lungo periodo”) the result of planning activity, while defined-range plans (“piani di periodo definito”) relates to either annual or more than annual plans, particular plans (“piani particolari”) when related to sub-systems of different kind, activities, and so forth, finally forecast accounts (“conti di previsione”) relate to elemental activities, or process stages (Azzini 1982: 363-ff.).
- 70.
From a similar perspective, Pellegrino Capaldo asserted that planning is both a “continua”, i.e. ongoing, and a “sistematica”, i.e. systematic, forecasting activity. The ongoing characteristic refers to the urge of continuously check for a fit between internal forecasts and environmental change. The systematic feature is related to the need to coordinate forecasts between all organisational dimensions (Capaldo 1965: 38). On the effectiveness of planning, Fortunati and Matacena stressed that planning should be “strategic”, “quantitative”, “global”, as well as “flexible and ongoing” (Fortunati and Matacena 1997: 34–ff.).
- 71.
- 72.
Similarly, Capaldo (1965), Fortunati and Matacena (1977), Guarini (1966), and Superti Furga (1969). The latter defined programming as “expected actions that should be accomplished”, while the programme is “the projection in the future of the administrative activity” which “has been determined through the flow of administrative decisions” (Superti Furga 1969: 26; translated from the original). Control, instead, is an “operational decision that follows the remarking of deviations related to different actual either internal or external conditions compared to hypotheses founding the programme” (p. 27).
- 73.
Although statistical methodologies support decision-making, decision-makers’ bounded rationality limits their effectiveness (Sciarelli 1967).
- 74.
Organisational values define the organisational culture, since it is the “set of values shared by management, which provide cohesion within and an image towards the outside of the firm” (Cescon 1988: 13; translated from the original).
- 75.
Reducing risk is one of the functions of the interactive control system in Robert Simons’ framework, which identifies “strategic uncertainties”, i.e. “uncertainties and contingencies that cloud threaten or invalidate the current strategy of the business” (Simons 1995: 94).
- 76.
For additional insights into the fit between performance management systems and the environment, see Chap. 12 of this work.
- 77.
Onida posited that both economic and “moral” rewards can promote employees’ productivity. Furthermore, he addressed negative rewards, i.e. punishments, as a form of disincentive to low productivity, as well as thefts of securities (Onida 1950: 136–137).
- 78.
Brusa highlighted the stages of strategic planning, which are (Brusa and Zamprogna 1991: 17):
-
Analysis of the “macro” scenario;
-
Setting of long-term objectives;
-
Setting of organisational “rules of behaviour”;
-
Identifying businesses and related choices;
-
Analysis of the business’ competitive profile;
-
Identifying business’ strategic alternatives;
-
Formulating portfolio strategy;
-
Operative planning.
-
- 79.
The systematic literature review provided only forty performance measurement studies (compared to the more than two hundred for performance measurement), which contained “performance management” in their title.
- 80.
Concept specification is “the process whereby fuzzy and imprecise notions of constructs are made more specific and precise” (Bisbe et al. 2007: 790).
- 81.
Only 30 % of the papers reviewed explicitly define or refer to other authors’ definitions of the terms performance measurement or performance management.
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Demartini, C. (2014). The Evolution of the Concept of ‘Management Control’: Towards a Definition of ‘Performance Management System’. In: Performance Management Systems. Contributions to Management Science. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-36684-0_2
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