Organization Control Systems for the Nineties

By Atkinson, Anthony A. | CMA - the Management Accounting Magazine, June 1992 | Go to article overview

Organization Control Systems for the Nineties


Atkinson, Anthony A., CMA - the Management Accounting Magazine


Using organic systems to meet the objectives of organization stakeholders.

Facing the twin challenges of everchanging markets and employee involvement, organizations need a new control system model -- and a revision of decades-old management accounting practices.

Are management accounting practices keeping up with the needs of Canadian organizations? As organizations decentralize and involve more employees in making decisions, their control systems in place to measure performance must keep pace to reflect these changes. Systems developed almost half a century ago need an overhaul to ensure that organizations remain competitive into the next century.

Control systems in Canadian organizations fall on a continuum between two extremes: mechanistic systems and organic systems. The difference between the two extremes lies in how they are controlled (see Figure 1).

Organizations with mechanistic systems use controlling units and control units. These systems are closed and centralized, and operate under rules, or standard operating procedures, that prescribe behavior. The control system is used to enforce compliance with prescribed rules. The knowledge and authority to change the rules are concentrated at the top of a well-defined hierarchy. Mechanistic systems work well when the organization faces a static, well-understood business environment.

Organic systems are what Joseph M. Juran has called self-controlled. These systems are adaptive and decentralized, and have few rules prescribing behavior. The control system ensures that employees understand what creates the organization's success and how each organization responsibility unit contributes to that success. Knowledge and authority to change processes are distributed throughout the organization. Organic systems are effective when the organization faces a dynamic or poorly understood environment.

External and internal pressures

Mounting evidence suggests that few organizations operate in stable or well-understood environments. In fact, most, if not all, organizations should consider themselves organic, not mechanistic. Even financial institutions, government agencies, and regulated utilities -- long-held examples of organizations using well- understood technologies in stable environments -- face the same external pressures and changes as organic organizations.

Internal influences, especially decentralization, also favor organic organizations. Proponents of decentralization call for organizations to delegate responsibility to employees. In their view, employee empowerment or involvement makes jobs more interesting and rewarding. In fact, some observers argue that management has a moral obligation to create interesting job environments. These arguments had little impact until causal links were established between employee involvement and profitability, or productivity. Suggestions for employee empowerment and job enrichment are now attracting more attention.

Employee empowerment, quality circles, suggestion systems -- all elements of organic systems -- reflect the belief that success requires tapping the knowledge and skills of all employees. "Employee Involvement Is Our Way of Life" is one of the six guiding principles in the statement of Mission, Values and Guiding Principles of the Ford Motor Company. The General Electric Company uses workout sessions or meetings of diverse employee groups to solve problems. After studying many organizations, Tom Peters concluded that managers' roles are to hire the right people, to foster an environment that promotes employee involvement, and to become helpers or teachers as empowered employees make decisions.

Thus, external and internal pressures are creating organic organizations whose hallmarks are decentralization and effective employee involvement. These pressures are hardly transitory. Rather, growing global competition will intensify organizations' need to adapt. …

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