What do you understand by Goal Congruence?

What are the informal factors that

influence goal congruence?

Ans: This term is used when the same goals are shared by top managers and their
subordinates. This is one of the many criteria used to judge the performance of an accounting
system. The system can achieve its goal more effectively and perform better when
organizational goals can be well aligned with the personal and group goals of subordinates
and superiors. The goals of the company should be the same as the goals of the individual
business segments. Corporate goals can be communicated by budgets, organization charts,
and job descriptions.

Goal Congruence- Meaning

Individuals work in different hierarchies and handle different responsibilities & may have
different goals. But they must come together as far as Company’s Goal is concerned (there
action must speak Co’s language.)

Goal Congruence

Example 1– The HR manager has devised a HR training program to enhance the skills of its
sales personnel, with an objective to enhance their productivity But if company is in strategic
need of attaining a certain sales volume in a given quarter, it can not do so on account of non
availability of personnel.

Example 2– The marketing department has planned an impressive advertising campaign,

which promises good returns, But say due to cash crunch Company’s current financial
position may not let to lose the strings

Example 3 – Production Manager may get a good applause for reducing cycle time; But at
what cost? Building up the high inventory i.e. higher investment in current assets. While
doing so he just overlooked the financial interest of the company. • After completing the
given activity in more efficient manner the concerned manager scores the point/s on his score
card. • Whether his actions are leading to scoring of points on the organization’s score card
too? if it is so then only one can say the organization is marching towards a common goal.
Every individual working in an organization has got his own motive to do the work.
Individuals act in their own interest, based on their own motivations. And it is always not
necessarily consistent with the Co’s goal. In a goal congruence process, the actions the people
are led to take in accordance with their perceived self interest are also in the best interest of
the organization i.e. Goal congruence ensures that the action of manager taken in their best
interest is also in the best interest of the organization.

Informal factors that influence goal congruence:

Informal Factors –

External factors – set of attitudes of the society, work ethics of the society

Internal factors – (Factors within the organization)

• Culture-Common beliefs, shared values, norms of behavior & assumptions

• Implicitly accepted and explicitly built into.

• Mgt. Style – Informal/Formal

• The Communication Channels

• Perception and Communication – e.g. Budget (meaning) strict profit.

Organizations with Business Divisions (Profit Centre) format have observed that
Divisional Controllers experience divided loyalty in carrying out their functions,
causing a possible dysfunction. How could such a situation be resolved? Define role of
controller which suits your suggestion.

To the extent the decision are decentralized top management may lose some control. Relying
on control reports is not as effective as personal knowledge of an operation. With profit
center, top management must change its approach to control. Instead of personal direction
senior management must rely to a considerable extent on management control reports.

Competent units that were once cooperating as functional units may now compete with one
another dis advantageously. An increase in one manager’s profit may decrease those of
another. This decrease in cooperation may manifest itself in a manager unwillingness to refer
sales lead to another business unit, even though that unit is better qualified to follow up on
the lead in production decision that have undesirable cost consequence on other units or in
the hoarding of personnel or equipment that from the overall company standpoint would be
better off used in another units.

There may be too much emphasis on short run profitability at the expense of long run
profitability. In the desire to report high current profits, the profit center manager may skip on
R&D, training, maintenance. This tendency is especially prevalent when the turnover of
profit center managers is relatively high. In these circumstances, manager may have good
reason to believe that their action may not affect profitability until after they have moved to
other job.

There is no complete satisfactory system for ensuring that each profit center by optimizing its
own profit , will optimize company profits.

If headquarter management is more capable or has better information then the average profit
center manager the quality of some of the decision may be reduced.

Divisionalization may cause additional cost because it may require additional management
staff personnel and recordkeeping and may lead to redundant at each profit center.

Business units as profit centers:

Business units are usually set up at profit centers. Business unit managers tend to control
product development, manufacturing, and marketing resources. They are in a position to
influence revenue and cost and as such can be held accountable for the bottom line. However
as pointed out in the next section a business unit manager authority may be constrained such
constrained should be incorporated in designing and operating profit center.

Constraint on business unit authority

To realize fully the advantage of the profit center concept the business unit manger would
have to be as autonomous as the president of the independent company. As a practical matter
however such autonomy is not feasible. If a company were divided into completely
independent units the organization would be giving up the advantage of size and synergism.
Also senior management authority that a board of director gives to the chief executive.
Consequently business unit structure represents trade off between business unit autonomy
and corporate constraint. The effectiveness of a business units organization is largely
dependent on how well these trade off are made.

The performance of a profit center is appraised by comparing actual results for one or more
orf these measures with budgeting amounts. In addition, data on competitors and the industry
provide a good cross check on the appropriate of the budget. Data for individual companies
are available from the securities and exchange commission for about key business ratios;
standard & poor computer services, Inc; Robert Morris associates annual statement studies;
and annual survey published in fortune, business week, and Forbes. Trade associations
publish data for the companies in their industries.

Revenues: choosing the appropriate revenue recognition method is important. Should revenue
be recognized at the time as order is received, at the time an order is shipped, or at the time
cash is received?

In addition to that decision, issues related to common revenues may need to be considered.
There are some situations in which two or more profit centers participate in the sales effort
that results in a sale; ideally, each should be given appropriate credit for its part in this
transaction. Many companies have not given much attention to the solution of these common
revenue problems. They take the position that the identification of price responsibility for
revenue generation is too complicated to be practical and that sale personnel must recognize
they are working not only for their own profit center but also for the overall good of the
company. They for example, may credit the business unit that takes an order for a product
handled by the another unit with the equivalent of a brokerage commission or a finder fee. In
the case of a bank the branch performing a service may be given explicit credit for that
service even though the customer account is maintained in another branch.

Role of controller

• It should publish procedure and forms for the preparation of the budget.

• It should provide assistance to budgetees in the preparation of their budget.

• It should administer the process of making budget revision during the year.

• It should coordinate the work of budget departments in lower echelons

• It should analyze reported performance against budget, interprets the result,

and prepares summary report for senior management.