Slide 2.

Chapter 2:
Results Controls

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 2.2

Results controls

Involves rewarding individuals for generating good

results (or punishing them for poor results).
Results accountability

It influences actions because it causes employees to

be concerned about the consequences of the actions
they take.
However, employees actions are not constrained;
On the contrary, employees are empowered to take
whatever actions they believe will best produce the
desired results.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 2.3

Elements

Defining the performance dimensions

What you measure is what you get; hence,
If not congruent with the organizations objectives, the controls
will actually encourage employees to do the wrong things!

Measuring performance on these dimensions

Objective > financial > market-based: e.g., stock price

> accounting-based: e.g., return on assets

> non-financial: e.g., market share, customer turnover

Subjective: e.g., managerial characteristics (being a team player)

Setting performance targets

Motivational effects

Providing rewards (or punishments)

Monetary and non-monetary
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 2.4

Conditions

Results controls work best only when all of

the following three conditions are present:
Superiors/managers must know what results are
desired in the areas being controlled.
The individuals whose behaviors are being controlled
must have significant influence on the results in the
desired performance dimensions.
Superiors/managers must be able to measure the
results effectively.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 2.5

Ability to influence results

The person whose behaviors are controlled must be

able to affect the results in a material way in a given
time span.
Controllability principle

Results controls are useful only to the extent that

they provide information about the desirability of
the actions that were taken.
If the results are totally uncontrollable, the controls
tell us nothing about the actions that were taken:

Good actions will not necessarily produce good results;

Bad actions may similarly be obscured.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 2.6

Ability to measure results effectively

The effectiveness of results measures must

be judged by their
Ability to evoke the desired behaviors

Results measures should be:

Precise;
Objective;
Timely;
Understandable.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 2.7

Pros and cons of results controls

CON

PRO

Behavior can be influenced

while allowing significant
autonomy.

They yield greater employee

commitment and motivation.

They are often inexpensive.

e.g., performance measures
are often collected for
reasons not directly
related to management
control.

Often less than perfect indicators of

whether good actions have been taken.

They shift risk to employees (because

of uncontrollable factors). Hence, they
often require a risk premium for risk
averse employees.

Sometimes conflicting functions:

Motivation to achieve
targets should be challenging

Communication among entities

targets should be slightly conservative

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007