1. 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

2. Agenda Organizations and Sustainable Development
Management Control Systems- formal and informal control
Five controls with specific Sustainable Development Perspective
Cultural control for Sustainable Development
Planning for Sustainable Development
Cybernetic control for Sustainable Development
Reward and Compensation for Sustainable Development
Administrative controls for Sustainable Development
Interactions of controls and Sustainable Development
SMCS Performance and Challenges

3. Organizations and Sustainable Development
Sustainable Development is considered a strategic intangible asset- adopted to improve performance and create opportunities from innovations and internal changes
Organizations that adopt SD becomes institutionalized through regulations and agreements
Sustainable Development – Sustainability – sustainable –business- Corporate (social) responsibility

4. Management Control Systems
Management Control Systems consist of
formal and informal controls
Formal controls – are contractual obligations that comprise rules, performance evaluations, reward criteria and budgeting systems
Informal controls – comprise beliefs, shared values, norms, cultures, traditions and self-control.

5. Five types of control with specific Sustainable Development perspective
Stable cultural controls –
embrace the set of values, symbols and social norms within ‘clans’ that are shared by members of an organization.
Planning controls – exert control by involving employees in long-range and action planning.
Cybernetic control – are used to achieve accountability of employees for deviations in performance. They include budgets, (non-)financial measurement systems and hybrid systems
Reward and compensation systems –
aim to motivate individuals or groups to attain organizational goals
Administrative controls –
consist of governance structures, organization structures and policies and procedures

6. Cultural control for Sustainable Development
Sustainable development is integrated into culture through
initiatives
communication
engagement
Cultural control provide the basis for
Understand the Sustainable Development
Understand formal control mechanisms
Reaching suppliers beyond the boundaries

7. Planning for Sustainable Development
Local and centralized planning regards:
Short-term SD objectives
Long-term SD objectives
The integration of SD in planning process fails :
If SD planning is done with Systems traditionally used for financial planning
If specific action plans are not established
If strategic planning is not adapted to local circumstances

8. Cybernetic control for Sustainable Development
3 major types of Cybernetic Control
Present a flexible budgeting system to assess environmental indicators
The Sustainable Balanced Scorecard with an environmental perspective
Sustainability accounting approach

9. Reward and Compensation for Sustainable Development
Organizations link reward and compensation to SD to ensure accountability and to influence decision making.
Managers ask for higher compensation when:
risk arises from environmental underperformance or non compliance
Managers ask for lower compensation when:
they can control risk exposure
Incentives to managers – managers choose among SD objectives opportunistically, depending on the optimal input-reward-relationship
Organization focus on environmental issues for the following reasons:
Lower prioritization of SD compared to main business strategy
The assumption that financial performance reflects SD
Difficulties in assigning responsibilities

10. Administrative controls for Sustainable Development
Top management commitment:
Raises awareness for SD
Provides a vision of SD goals
Assures legitimacy
New sustainable organization should be supported by:
Transparent communication
Formal statements (mission statements, policies, codes of conduct)
Agents that convey the SD concerns

11. Interactions of controls and Sustainable Development
Interactions of controls were found:
From top management commitment to sustainability performance measurement
From transformational leadership to intrinsic motivation
Between cultural controls and training
Between planning and cybernetic controls

12. SMCS Performance and Challenges
Sustainability Management Control Systems performance :
SD-performance – range from micro factors measuring individual achievements of a manager/department to macro factors that measure improvements in an eco-system or working conditions in an industry
Economic performance – range from quantifiable accounting and market-related organizational measures to qualitative, even subjective measures
Sustainability Management Control Systems Challenges:
Picking and quantifying appropriate measures
Relating a meaningful benchmark to those measures
Allocating costs and revenues to accountable manager/unit
Defining different performance measures that respond to different stakeholder demands