MANAGEMENT CONTROL SYSTEMS
Control theory’s central management insight is that organizational structure, procedures,
practices, and norms (i.e., controls) are integral to organizational functioning, effectiveness,
and goal achievement.
Organizational control is defined as any mechanism or process that managers use to align
attention, attitudes, behavior, and outcomes of organizational members with an organization’s
goals. The concept of organizational control describes both formal control (such as structures,
procedures, and rules) and informal control (such as norms, practices) mechanisms, as well as
the systems of control mechanisms used in predictable configurations. From their earliest
writings, organizational scholars have emphasized the relationship between control application
and goal attainment and have depicted organizational control as one of the four primary
functions (i.e., controlling, coordinating, organizing, and planning) of management. Most
conceptualizations of organizational control rest on theories of cybernetic systems where inputs
are transformed through processes into outputs. In implementing these systems, managers plan,
measure, reward and provide feedback on achieved performance. Control systems evaluate
inputs, processes, and outputs to assess the attainment of specific production standards. If
standards are satisfied, work proceeds unabated. If not, managers alter the inputs, processes, or
outputs employed by the system until desired standards are achieved. The information processing
theory of organizations was synthesized into the core idea that control is based upon the
programmability of tasks and the measurability of outcomes. Contemporary organizational
research presents two primary streams of control research. One influential body of work
examines individual elements of control. A second prominent body of work investigates ideal
types of control arrangements. Together these two streams provide the foundation for control
research, so each is briefly summarized.
ORGANIZATIONAL CONTROL FUNDAMENTALS
Analyzing Individual Control Mechanisms as Single Elements
Research on individual mechanisms of control has greatly influenced theory and research over
the last two decades. This work has identified and classified single controls as control
mechanisms (i.e., individual units such as standards, rules, procedures, policies, routines, and
norms) used to manage organizational functions such as socialization processes, principal-agent
relations, and performance evaluations. The “individual control mechanism” perspective has
emphasized the use of formal controls which describe officially sanctioned mechanisms that are
executed through explicit, written and codified rules, procedures, policies, and systems.
Researchers have also emphasized informal controls which describe norms and beliefs that guide
behavior. These mechanisms are developed and applied through direct (face-to-face) personal
contact, shared experiences, organizational stories, rituals and other culturally-based processes.
Empirical research has classified individual control mechanisms according to the target of
control. Arguably the most widely used classification scheme groups mechanisms based on the
segment of the organizational transformation process to which they are targeted: inputs used in
production, processes involved in performing work, and outputs that represent product quality or
quantity. Managers select input targets (“input control”) to direct the flow of human, material,
and financial resources into the firm. Managers choose behavior targets (referred to as “behavior
control” or “process control”) – such as rules and norms – to determine how work gets done.
Finally, managers employ output targets such as profits, customer satisfaction levels, and
production volumes and schedules – to regulate the product and service results that are achieved.
Examining Control Mechanisms in Clusters or Configurations
Researchers have observed that, in practice, sets of individual control mechanisms tend to
predictably cluster into control systems, and that studying each control element in isolation does
not adequately reflect the complexity of organizational control use. This recognition has led
researchers to focus greater amounts of their attention on evaluating the effectiveness of different
control system configurations, how such control systems evolve over time, and the relationships
between control systems and other important organizational phenomena (e.g., innovation, trust).
A second and distinct stream of control research has emerged that adopts a typological
perspective in examining ideal types of control systems. Perhaps the most well-known typology
of control systems was proposed in the late 1970s by William Ouchi (building on the work of
Oliver Williamson). Ouchi’s “markets, hierarchies and clans” approach defined three distinct
types of control systems, each comprised of different clusters of individual control elements.
Managers within market control systems primarily focus on evaluating specific transaction
outcomes, the most common of these is the price or cost of each transaction (e.g., a piece rate for
production workers or a performance-based bonus for an executive).
A second form, referred to as the bureaucratic or legalistic control system, attempts to address
how individuals adhere to organizational rules or norms. Managers within bureaucratic control
systems apply formal procedures, rules and regulations, job specialization, and hierarchical
authority to direct the processes and procedures that their subordinates use in performing work
tasks. A third form, referred to as the clan control system, is comprised of informal, norm-based
social control mechanisms to ensure selecting the “right” people and doing things “properly.” In
clan control systems, managers focus on selecting motivating, monitoring, and rewarding based
on adherence to the organization’s cultural norms as expressed through particular values,
behaviors and attitudes.
Recently, researchers have extended this control system classification by assessing the extent to
which actors within each control system emphasize formal and informal mechanisms. These
dimensions can be crossed to form a 2X2 table where low formal and informal control
characterize the market control system and where high/low combinations characterize the
“bureaucratic” (high formal, low informal) and “clan” control systems (high informal, low
formal). This classification scheme has helped scholars identify the “integrative” control system
as a fourth type, comprised of high levels of both formal and informal controls. The incidence of
each of the types of systems and how they evolve and change form over time is still not well
understood, but research is being done to explore these fundamental questions.
Organizational control research has historically been manager-focused and has stressed the use
of singular control mechanisms in isolation. More recently, researchers have moved away from
studying singular forms of control and embraced the study of multifaceted control systems.
These two trends build on the seminal works on organizational control while reflecting the
complexity needed to better understand how modern organizations function.
While organizational control theory spans decades, and is no longer conceptualized as being only
administered top-down, executed formally, and directed toward output through the use of reward
and punishment levers, it is more important than ever to organizational success in uncertain and
changing environments. Modern managers must recognize that control usage varies by
organizational units and levels and is multifaceted and dynamic. The effective implementation of
control by managers should seek to use multiple controls to balance and adapt configurations of
control to promote the commitment and achievement of organizational goals. Thus, managers
can continually reassess control usage across hierarchical levels and time.
-- Laura B. Cardinal, Sim B Sitkin, and Christopher P. Long
See Also:
CROSS-REFERENCES: Agency Theory, Ambidextrous Organization, Balanced Scorecard,
Contingency Theory, Organizational Cultural Model, Organization Culture Theory,
Organizational Structure and Design, Strategy and Structure
Further Readings:
1. Anthony, R.N. (1952). Management controls in industrial research organizations.
Cambridge, MA: Harvard University Press.
2. Cardinal, L. B., Sitkin, S. B., & Long, C. P. (2004). Balancing and rebalancing in the creation
and evolution of organizational control. Organization Science, 15: 411-431.
3. Fayol, H. (1949). General and industrial management. C. Storrs (trans.) London: Pitman.
4. Ouchi, W. G. (1979). A conceptual framework for the design of organizational control
mechanisms. Management Science, 25: 833-848.
5. Ouchi, W. G. (1980). Markets, bureaucracies, and clans. Administrative Science Quarterly,
25: 129-141.
6. Sitkin, S.B., Cardinal, L.B., & Bijlsma-Frankema, K. (2010). Organizational control: New
directions in theory and research. Cambridge University Press.