Interaction between national culture and management control systems
Answer: A case study student could use for illustration is google and Toyota recall crisis
The relationship between the national culture and the management control systems (MCS) tends to be inseparable and complex in most economies. This is especially experienced by multinational corporations that operate in various cultures that influence the use and control of subsidies. In trying to avoid crisis emanating from management control systems, most multinational companies have resorted to transferring the home MCS abroad so as to maintain the same level of management control. The success of various organizations thus highly depends on how such organizations adapt to the national cultures in the jurisdictions they wish to operate in. this explains why various organizations have had different types of MCS designs that had diversified impacts.
Uncertainty avoidance cultures tend to evade chances of ambiguity. Individuals under these cultures prefer tight control of budgets and incentives that precisely define the performance targets, the effort, the evaluation of the performance and the incentive compensation. When the bonuses are highly discretionary as opposed to formula based leading to incentives being awarded on undefined terms of performance. Individuals in this culture are highly unlikely to be cooperative. Toyota Japan exhibited a high levels of uncertainty in dealing with the employees and consumers during the recall crisis. They information on the automobiles was highly concealed. The resorted way to deal with the crisis was to be open and tell the truth and this led to the recall of the large numbers of defective automobiles. At Google, employees are always certain of what to expect in terms of incentives that encourage product and the mechanisms of evaluation of performance. This MCS encourages production and high employee retention allowing the organization incur less in terms of recruiting and training.
Individualism is another culture that affects the MCS design. When people prefer being dealt with at individual levels and not as a group, the necessity to have an MCS that evaluates individual performance and rewards individually other than as a group as experienced in collectivistic cultures where people first view themselves as belonging to a group. When individualistic cultures are involved, the chances of personal rivalries are high, rigid budgets on incentives are hard to implement and control may be difficult as most people are driven by their personal goals. The culture at Google is to deal with employees first as individuals and thereafter as members of the entire organization. Google hires people analysists whose main task is to create the profile of employees and highlight how they can be made happy to be more productive in offering the products. Toyota on the hand other exhibits a culture of handling employees as a group and this is exhibited in the decision making of in the organization where the opinions of the employees are factored in.
The power distance culture will always dictate the design of MCS. The culture entails the degree to which members accept the differences and inequalities in the vertical social relations. In practical situations, lower managers are likely to accept the high discretion exercised by their superiors on evaluation and determination of incentives when the power distance is high. Toyota has high power distance and the top management greatly deal with issues of incentives based on the records of the employees. At google the power distance is low and the incentives have quite clear guidelines of being evaluated and awarded. The incentives are personalized and this means the lower managers have a great role in evaluation of performance and awarding the incentives compared to their superiors in the MCS.
Google maintains a femininity culture which emphasizes on maintaining relationships caring for the members and having regards to high quality life. This is observed in the practice of hiring high profile chefs and going to the extent of analyzing the meals to come up with highly healthy meals for the employees. At google, the fact that an engineer is ten times productive does not mean they will be the considered the best. Toyota’s culture is masculine and focus on success that is based on production, assertiveness and material output rather than first being based on happiness of the employees. The more your output the more you are made happy by way of incentives at Toyota.
National culture affects the design of the MCS. It is in the best interest of the organization to adopt the existing culture or come up with a blended culture that increases the fluidity of its operations to enhance productivity and increase the chances of smoothly handling crisis that may affect image and returns. Multinational corporations such as Google and Toyota ought to embrace the cultures of the countries they operate in without lifting and imposing the national culture at their parent company.
Discuss the pros/cons of budgeting. Illustrate the advantages/dis-advantages through reference to a company of your own choice.
Budgets are crucial features of management control systems and subsequently from an integral part of the entire organisational management. Budgets have for a long time been the cornerstone of success of various organisations both profit and non-profit oriented. The failures of some budgets in recent years have attracted criticism on whether the tool still conveniently serves the supposed task. Budgeting is a customary practice with even organisations not practising it having the belief that it is an important practice of management.
Budgets aid in planning. The practical nature of a budget is like that of a business plan. It includes the goals and objectives of an organisation in that fiscal year. Other than providing the guidelines, the budgets are significant in identifying possible hinges that the organisation may face in the process of striving to achieve its objects and either makes provisions for mitigating or averting them. Davis for example detected as early as in 2008 that the recession was affecting its linen operation in the United Kingdom. Using the budget, the situation was remedied in the second half of 2008. The management used the budget to plan for the recession and put the entire organisation on alert.
Budgets increase the level of communication in organisation. An essential of organisational success communication both horizontally and vertically. Putting a plan into a reality requires coordination. The budget can be used to guide the departments on what share they have to fulfil of the greater plan. With effective communication, the uncertainties that may arise and hinder production are eliminated.
Budgeting creates accountability. When finances are procedurally and evidently assigned to a given department, it is upon the concerned individuals to account for the funds at the end of a given period. Other resources too that are allocated by the budget are accounted to when a review of the level of achievement of the goals is being analysed.
Budgets increase efficiency. The cost management knowledge for employees is essential in ensuring the resources are used to secure a given level of output. Employees are key to ensuring the resources provided by the organisation are effectively utilised to meet certain targets.
Budgeting is time consuming. Except in situations where the employees are accustomed to the budget, there exists precise procedures and guidelines for budgeting and the organisation uses a budgeting software, the budgeting process will always take much time to finalise. The participative budgeting process used by various organisations further complicates the budgeting procedure and make it more time consuming. At Davis, the budgeting takes approximately one month, this significantly excludes those participating in the process to execute other duties thus affecting production to a great extent. Approximately 750 people are involved in the budgeting process at Davis. This is attributed to the democratic nature of the budgeting process.
Budgets the disadvantage of creating room for blames. The failure by a department may lead to its manager/head to blame another for their failure to contribute to the success of that particular department. This may reach toxic levels where departments do not cohesively work together and to an extent giving rise to an unhealthy working environment. Budgets encourage strategy rigidity. When an organisation creates an annual budget, the management may decide that all effort and resources should be focused on meeting outlined targets in the budget. Considering the dynamics of the market, this may not be healthy as the organisation will likely need to shift its operations to meet certain market factors that were not accommodated in the budgeting process. Apple Inc. has a fixed way of developing their budgets and this inhibits the inclusion of other factors that may not be foreseeable during the budgeting process. The budget designs are predetermined and only adjustments are done during the process. This puts them at a disadvantage when they have to address crisis that may arise out of scope of the budget.
The significance of the budget as tool in management systems control cannot be underestimated. Through the budget the management is able to effectively go about various responsibilities such as planning, strategizing, controlling and decision making. The limitations associated with budgeting that have been contributed by the contemporary dynamics have seen a lot of criticism creating doubts as to whether budgets still have relevance in management and to extension the organisations. Budgets remain the prevailing reliable tools for plan implementations and success of an organisation.
Result control is a mechanism of MCS that attracts action based on the outcomes. When individuals in a given organisation generate the desired results, they get rewarded and at times it equally means that those who perform below the expectations are punished.
Result accountability is achieved. When employees are aware that at the end of their dealings they have to account for their actions and transactions, they are more likely to exercise due diligence compared to when they go about their duties knowing a new dimension will come without being held into account for the previous one. It will thus be upon an employee to put the necessary measures and available resources in the most effective way they deem to bring the desired results.
Result controls offers the most direct from of control of the employees in an organisation. When the management is able to narrow down to each employer and hold them accountable for their results, it is easier to control the entire organisation compared to when such managements have to treat employees as a group and do not precisely identify which individuals are responsible for what outcomes.
Result control in MCS is crucial in documentation. Since the aim is the end results, through time an organisation is able to distinguish what works best and in what circumstances. When such have been ascertained, the organisation is likely to experience increased production and decreased costs. The employees are empowered to take paths that they believe will table the desired results and when they account for the results they let the organisation know how they reached the same. The management of the organisation is allowed to make informed decisions on which procedures and mechanisms effectively achieve the goals and the same could be recommended for the general operations of the organisation.
Result controls yield great employee motivation and commitment. People are more engaged in work when at the end of the dealings they have somethings that gives them fulfilment. The rewards both monetary and non-monetary inspire employees to increase production. The same applies when they strive to avoid punishments arising from their actions. Employees will dedicate themselves more to a cause either to obtain rewards or alternatively avoid being punished for not meeting reasonable expectations.
Result controls may discourage innovation and creativity. This is often experienced when a perceived successful way of going about things has been documented by the organisation or a culture has arisen from it. The employees would therefore not risk being punished for poor results just because they were trying to find another way of accomplishing their tasks when already there exists a way of doing the same that can easily attract rewards.
Result controls are only suitable when jobs are highly routinized. When employees have to go about duties and routines that are dynamic, the use of a traditional procedure is highly unlikely to guarantee them the same results.
The empowered employees may act beyond their jurisdiction. Since the organisation is more concerned with the results and the mechanism and procedures followed are not sufficiently scrutinised, the employees driven by need for rewards and fear of punishment may involve in activities that may at the end cost the entire organisation. Jérôme Kerviel who was an employee of French bank Société Générale though being on a desirable company was driven by the need for rewards to be involved in high risk transactions that earned the organisation huge revenues but in the long run placed it at a crisis.
Results controls are effective tool in MCS for realising the objectives of the organisation. Employees get motivated by the rewards and thus strive to ensure they are productive. Alternatively, the fear of punishments for poor results is an incentive to ensuring good results. The organisation upon availing resources required by the employees entrusts them to deliver the desired results and this enables the employees feel empowered. However, focusing on the results may force some employees to involve in clandestine procedures and transactions that in the long run may put the organisation in a crisis. Result controls should therefore, be considerate to the degree of their effectiveness in management control systems.