Advanced Management Control and Sustainable Development Lecture 3: Managing sustainable development with management control systems Prof. Angelo Riccaboni University of Siena Department of Business and Law angelo.riccaboni@unisi.it

Agenda Management Control System Cultural Control Planning Control Cybernetic Control Reward and Compensation Administrative Controls

Management Control System Management control system should be able to develop, gather and communicate information to management at different levels in the organization. Management control system should aim to provide financial as well as non-financial information as needed by different managers. Financial information are material costs, labour costs, net profit, investments made etc Non-financial data are those which are not in monetary terms such as production units per worker, labour hours, machine hours, time taken to comply with the customer’s orders, absenteeism. 

Today’s Situation Organizations as systems are bound to be affected by environmental changes. The degree of environmental control over the organizational goal setting process could be manifest in the form of : Environmental changes affect: competition bargaining co‐optation or coalition organizational systems functions structure procedures strategy day‐to‐day activities

Strategic and Organizational controls STRATEGIC CONTROL is concerned with tracking the strategy as it is being implemented, detecting any problem areas or potential problem areas suggesting that the strategy is incorrect, and making any necessary adjustments ORGANIZATIONAL CONTROL is concerned with executing the strategy. Typical operational control measures include return on investment, net profit, cost, and product quality.

Strategic and Organizational controls Administrative Planning Organizational Cybernetic Reward and compensation Cultural

Cultural control Rely on corporate culture and value system Defines intrinsic motivation of workers and their aspirations Culture specifically is a means of controlling behavior, providing stability within the organization and a sense of belonging. Company leaders develop cultural controls to create social norms and a sense of shared values within the organization.

Examples of Cultural Control Unwritten Social Norms - if your group has an unwritten rule of silence regarding unethical practices, an individual who speaks out against it may be shunned and excluded from future group activities. Mission Statement - "Our mission is to inspire and nurture the human spirit -- one person, one cup, one neighborhood at a time," implies standards of high ethics, community activism and quality. It provides a base for company culture and how its employees should behave Rules and Regulations -  Most company have handbooks that include such things as nondisclosure agreements, anti- discrimination policies, expected work schedules, standards of conduct and general information. While many of these are included per federal or state law, other company policies fall in line with the organization's structure and culture.

Four major aspects of planning: Planning control Rely on strategic planning and company’s objectives Involve the main focus on action plans contribution to purpose and objective – has the purpose to facilitate the accomplishment of enterprise purpose and objectives primacy of planning – is the basis for the organizing, influencing, staffing, leading and controlling functions of managers pervasiveness of planning - planning is a function of all managers, although the character and the width of planning vary with the authority and with the nature of policies and plans efficiency of plans - implies the normal ratio input/output and it measures the amount of contribution the plan has over the reaching objectives and purposes. Four major aspects of planning:

Examples of Planning Control Planning involves – strategy, position and budgets Strategy - defines the organization. Specific strategy setting can take many forms, but generally includes elements pertaining to the definition of core values, mission, objectives, and sustainability. Position - depends on gathering and evaluating accounting information(Cost/Volume/Profit Analysis and Scalability; Global Trade and Transfer; Branding / Pricing / Sensitivity / Competition) Budget - outline the financial plans for an organization. There are various types of budgets, which must take into account ongoing operations, capital expenditure plans, and corporate financing

Cybernetic control Focus on corporate performance management Focus on Reporting Balanced Scorecard Accounting Motivate individual performance management Define budgeting

Examples of Cybernetic Control

Reward and Compensation Compensation can be defined as all of the rewards earned by employees in return for their labour. This includes: Direct financial compensation - consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals Indirect financial compensation - including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services Non-financial compensation - referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions

Administrative Control Regard leadership. Management and structure Policies, guideline and codes of conduct Training and learning Communicating, discussions, feedback Engaging and empowering employees Vision and mission statement Cross-functional teams Resource allocation

Examples of Cybernetic Control Giving workers longer rest periods or shorter work shifts to reduce exposure time; Moving a hazardous work process to an area where fewer people will be exposed; Changing a work process to a shift when fewer people are working; Clear and readable signage are administrative tool for communication and control of hazards at workplaces ; Compliance of regulatory provisions is the best administrative control; Organization of drills for emergency; Inclusion of bonus to those who regard safety and follow the safety instructions Disclosure of the hazards and risk to civil administration to get help in real emergency; Inclusion of safety in Corporate Social Responsibility (CSR) and demonstration with community of nearby.