2.1 Management control and beyond: a holistic approach to performance improvement

The first approach to improving performance often is to tighten management control, especially in failing organisations, but this has some draw backs. Much of management control relies on feedback loops with a control loop being central.

Harvard Business review argued that management control is a translation of strategic goals into accounting-based controls. This booklet tries so show management control in broader terms. Without some mechanism of coordination and control there is no organisation, the author argues. (Dee Hock argued that without some shared belief there is no organisation.)

A control process, as of Maciarello (1984) entails:

1\. Set goals and performance measures

2\. Measure achievement

3\. Compare achievement with goals

4\. Compute the variances as a result of the preceding comparison

5\. Report the variances

6\. Determine cause(s) of variances

7\. Take action to eliminate the variances

8\. Follow up to ensure that goals are met

Gareth Morgan suggested that it helps to understand organisations if you use metaphors, instead of trying to find the truth. The management control framework rests on two such metaphors: organisations as machines and organisations as information processing systems.

As machines it involves seeing an organisation as functional departments split in jobs which are clearly defined to operate precisely with regular patterns. The idea is that orders from the top flow down till the bottom without error. This is used efficiently in things like fast food chains where specifying each task will help provide a consistent product.

In terms of information processing systems (cybernetic approach) you envision as system that can respond to its environment. Think of a control loop with improvements possible anywhere within that loop.

The weaknesses in both of those that neither are people machines or tasks as clearly specified (machines metaphor is only viable sometimes) and in the information processing metaphor the goals are seen as static or are externally determined which introduced the second control loop: double-loop learning. The first is about learning to cope and respond and the second to find new ways of seeing the world. (Japanese companies have much less informal system for control. See page 11 book 2)

Morgan suggests three barriers to double-loop learning.

A: Due to different functions, goals, objectives, inside the company for different people/departments, you stop seeing the bigger picture and boundaries are created inside the company. People will keep their place. Single loops might prevent double loops as this is seen as a basic challenge to the company.

B: There is usually a lot of playing with the numbers inside a company, often referred to as beaurocratic accountability. A change in goals involves uncertainty which many find hard to cope with.

C: There is a gap between what people say and what they do. Current nature is not often questioned and this will result in a system that will effectively prevent understand or dealing with problems. You need to challenge the values and norms embedded in the theories you use.

To overcome this Morgan suggests:

1\. Encourage and value and open and reflective approach and avoid a blame culture

2\. Encourage the use of multiple viewpoints, constructive conflict and debate.

3\. Do not impose overly specific goals, objectives or targets.

The booklet suggests that things are loosely coupled in today’s organisations and you need to understand performance from multiple perspectives, much like the balanced scorecard which is focussed on outcomes. What is needed is to look at enablers too, which is where the EFQM comes on, taking a holistic approach to performance and assumes that multiple stakeholders need to be satisfied at the same time. The holistic approach needs to look at dependencies as well as trade-offs and tensions that exist. (E.g. Hotel: tension between ROA and customer satisfaction in filling more rooms that are available)

Organisational rules are loosely coupled with how people behave and customer satisfaction is loosely coupled with coupled with customer loyalty, Xerox for example linked 1% in customer satisfaction to 0.05% in customer retention, which is rare precision.

The EFQM model suggests that there are five performance enablers and 4 performance outcomes. It suggests that it can be used for:

develop vision and goals

understand systemic nature, linkages, cause and effect

basis of the EFQM award

assessing current health of the organisation

More info at <http://www.efqm.org/>

Following is a case study of how United Utilities plc used a mix of balanced scorecard and the EFQM model to management performance. They broke down myths, changed attitudes, and used the balanced scorecard as more of a strategic framework. They also used the business excellence model for continuous improvement. Two key perspectives were used. The people perspective involved people satisfaction, culture and alignment with business goals. The customer perspective involved to consult, listen, act and demonstrate. They have turned out to radically change the role that the finance professionals will play in the future.

This example is for the financial department and shows how they re-examined both core goals and how they assess their performance.

Summarising, this showed how management control involves a control loop, how to achieve organisational goals to co-ordinating and controlling activities. It also showed how metaphors can be sued, what double-loop learning is and what role EFQM plays.