This paper is of two parts, with the second part building on the first. We begin by briefly describing our key items, namely: management accounting, organizational control, systems approach and Simon’s Levers of Control. Then, we cap our discussion by attempting to understand the role and operation of management accounting in organizational control from the perspectives of systems approach and Simons’ levers of control. Management AccountingManagement accounting, as defined by the Chartered Institute of Management Accountants (CIMA), is “the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information used by management to plan, evaluate, and control within an entity and to assure appropriate use of and accountability for its resources” (CIMA Official Terminology).
As such, management accounting is focused on business strategy and strategic decision making. With value creation as its objective (in contradistinction to financial accounting’s mere measurement of the organization’s worth or value), it is tasked to do the assessment about the competitiveness of (business) environment and the ascertainment of whether the competitive advantage (of the environment) is sustainable. Understandably, thus, management accounting is essentially forward looking by providing real-world strategic direction, business management and leadership (in comparison to financial accounting which -- as it does financial reporting, auditing, among others – is doing an after-the-fact verification). Control SystemPlainly said, control (system) is any scheme or design to manage, command, direct or regulate the behavior of entities (within an organization).
In the context of organizational management, it is a system that gathers and utilizes information to evaluate and influence the performance of different resources – such as human, physical, financial, and what not – of an organization with the organizational strategies as the backdrop.
It is a management function to monitor and, thus, to ensure that all the processes of an organization is geared towards its defined goals and strategies. Organizational control system is as old as organizations. It is an activity that essentially facilitates in the fulfillment of goals of organizations. Required by coordination of activities, motivation of behavior and the need to address the uncertainty and turbulence that organizations are facing, it is “any process in which a person or group of persons or organization of persons determines (or intentionally effects) the behavior of another person, group or organization” (Samuelson 1999, 1-2).
Systems TheoryOrganizations and management of organizations may be understood through the prism of physical- and engineering-models-drawn systems approach or theory. The word “system” describes any set of interacting elements over time (see Vincent 2002), as in the bodily system of any living organism or the physical set up of computers and telecommunications. Systems theory, then, is a framework from which one tries to analyze and/or grasp the nature of and the very interaction among objects in concert in order to come up with some result.
With the managerial, procurement, production, marketing, accounting – among others – as subsystems, organizations are systems (Hahn 2007, 305) -- of physical, social and technological nature. “As applied to organizations, (systems theory is focused) on the entire organization and considers the primary system objective to be sustainability of existence… through adaptation brought about by constant interaction with its environment” (Hahn 2007, 308).