The Effect of Culture on Management Control Systems

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Introduction

Management control system applied in an institute which avails and utilizes it in determining the actual operations of separate facilities and resources to be utilized in the company. These include human resources and the resources relating to finance. This also entails the organization as a whole considering the organizational strategies. They are gadgets which are utilized by the company in attaining the best as far as the objective is a concern. These strategies are put into use with regard to the MCS in place and influenced by the company location. It is a technique used by a company in encouraging the employees’ participation in the company operations. This also is enhanced to evaluate their overall performance as they carry out the work they are assigned to do.

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Types of systems

Formal and Informal

Formal controls are the measure of the height of the production. Informal controls involve the accurate utilization of professional ethics. The controls on the production of the company are thoroughly vetted in the responsible company. Process controls are when managers in the course of performing their duties tend to have an effect on the activities that are considered to be of ultimate importance in order to achieve the desired or the best results possible. Professional control is concerned with encouraging a lot of cooperation and sharing of every piece of information within the whole organization1.

Simple vs. Complex

The simple one is that which is being put into use by the company by incorporating all the operations of the company. Complex MCS occurs when the available information systems which are currently in use become a web leaving the organizations’ control systems with a large number of variables to be controlled.

There are also other types of MCS including;

  • Diagnostic vs. Interactive
  • Single objective vs. multi-objective

Management Control Systems are highly dependent on the adopted strategy just like the culture of the host country of the organizational operation. There are several dimensions to national culture as discussed below.

Dimensions to national culture

Power distance

This refers to the fact that in a country, the less powerful members of the society accept and also expect that power distribution is not equal. The huge command distance cultures enhance the positive coexistence of the employees and the senior members of the company. As a result, the objectives of the firm or organization are easily achieved and the firms are in a good financial position.

Individuality/collectivism

There are various communities that promotes individuality while others are on the side of Collective opinions. Collectivism is superior in terms of performance because members of a collective culture view the whole idea of self-development as occurring through harmony and in interpersonal relations and contributing to the welfare of every other group member. Thus teamwork is highly productive. In contrast, members of an individualistic culture such as the U.S. are less ready to take action at individual levels for their positive effects on other members of the group. Therefore, many of the controls used by US firms for example individual piece by piece-rate pay and responsibility accounting, start a long way down from an individualistic approach to social organization and work2.

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Uncertainty avoidance

This relates to the uncertainty in picking up separate accounts in a biased manner.

In societies that have high levels of uncertainties’ avoidance, tend to be more formal and structured. On the other hand in societies where uncertainty avoidance is very low, people tend to dislike the rigidity of the rules and seem to enjoy the challenges presented every other day to them by a dynamic environment3. They are not caught off guard or unawares and as such, they always have a back up plan or what is in other words referred to as plan B.

Masculine/Feminine dimension

In a masculine environment winning is the most important thing while in a feminine environment caring for the disadvantaged is the main agenda. Men are more of goal oriented therefore making performance their foremost objective. On the other hand ladies are soft hearted and care about the welfare of everyone and may end up not producing competitive results. A firm situated in a country with majority masculine workforce has better performance as compared to a firm situated in a country with majority feminine workforce. Therefore the management in a firm, though at a risk of gender inequality, should have more masculine employees4.

Short term/ long term orientation

Experienced firms are more often than not entitled to better performance. The longer a firm has been operating, the more efficient it is likely to be. The management tries one type of control system at a time so as to be able to determine the strategy that best suits the firm in the long run in terms of performance.

Management control systems are also very dependent on the accounting information from the financial statements of the organization. These include the balance sheets of the year, the trading profit and loss account, income and expenditure of the year and the ledgers. This information which is mainly from a subsequent audit is very vital in making conclusive decisions on the type of management control system that works best for the organization in question.

Conclusion

Generally, when the manager who is in charge of the entire organization is making final decisions like what management control system to adopt for smooth running of the firm, he should take into consideration all the factors that will affect the system that he or she chooses to work with. The manager should also have the knowledge of what works best for the particular firm which he is working for since it does not necessarily work the same in other firms.

This can be as a result of being located worlds apart and therefore have adopted completely different cultures. Originality is very important in the world of business and copying someone’s way of doing business may be tempting but the test always that needs to be remembered is that each business or firm has its values on which it is built and no two firms are alike in the way they are operated5.

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National culture has great effects which led to formation of hypothesis on several assumptions. These assumptions can be made about the effects of each culture applicable in an organization. Asian companies have very high levels of performance unlike Western companies. However, it should be noted that these companies have adopted different national cultures. Each firm or organization must learn to formulate its own goals and objectives and its own strategic measures on how to achieve those goals. Management control systems are just tools that aid in achievement of an organization’s goals. The MCS chosen must be carefully selected.

Bibliography

Anthony, Robert Newton & Govindarajan Vijay. Management control systems.13th ed. New York: McGraw-Hill/Irwin, 2006.

Collier, Paul M. & Agyei-Ampomah Samuel. Management Accounting – Risk and Control Strategy. 4th ed. New Jersey: Butterworth-Heinemann, 2007.

Merchant, Kenneth A. & Stede Wim A. Management control systems: performance measurement, evaluation and incentives. 4th ed, New York: Financial Times/Prentice Hall, 2007.

Sekhar. Management Control Systems: Text And Cases. New York: Tata McGraw-Hill, 2005.

Sisaye, Seleshi. The ecology of management accounting and control systems: implications for managing teams and work groups in complex organizations. New York: Greenwood Publishing Group, 2006.

Footnotes

  1. Collier, Paul M. & Agyei-Ampomah Samuel. Management Accounting – Risk and Control Strategy. 4th ed. New Jersey: Butterworth-Heinemann, 2007.
  2. Sekhar. Management Control Systems: Text And Cases. New York: Tata McGraw-Hill, 2005.
  3. Merchant, Kenneth A. & Stede Wim A. Management control systems: performance measurement, evaluation and incentives. 4th ed, New York: Financial Times/Prentice Hall, 2007.
  4. Sisaye, Seleshi. The ecology of management accounting and control systems: implications for managing teams and work groups in complex organizations. New York: Greenwood Publishing Group, 2006.
  5. Anthony, Robert Newton. & Govindarajan Vijay. Management control systems.13th ed. New York: McGraw-Hill/Irwin, 2006.

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