What are the positive aspects of control systems on organizational members?

A control system does not “control” organizational performance, but—when used correctly—it is an important tool in the manager’s kit to increase the amount of effective control that he exercises. Control is a central dimension of the manager’s job, and he has a range of strategies from which to choose. The critically important determination is for him to choose the strategy that is appropriate for his particular situation and managerial style. Obviously, the better the fit of strategy and style, the better the organization. In this article, the authors report on the results of their recent research in this area and provide a helpful reminder of what managers so often do wrong and how to correct it.

Not long ago the Boy Scouts of America revealed that membership figures coming in from the field had been falsified. In response to the pressures of a national membership drive, people within the organization had vastly overstated the number of new Boy Scouts. To their chagrin, the leaders found something that other managers have also discovered: organizational control systems often produce unintended consequences. The drive to increase membership had motivated people to increase the number of new members reported, but it had not motivated them to increase the number of Boy Scouts actually enrolled.

The case of the Boy Scouts is a clear example of a widespread problem. Organizations spend large amounts of money, time, and effort in designing and maintaining control systems. These systems are intended to enhance an organization’s ability to coordinate the actions of its members and to identify problems as they arise. Often, however, instead of increasing organizational control these systems reduce the amount of effective control that the organization exercises.

Why does this happen? Our research and the research of others indicate that the problem often lies with the ways that managers use control systems.1 Most control systems, including budgetary, management information, and financial accounting systems, are essentially measurements. They regularly collect information about specific aspects of organizational performance.

The systems themselves are not capable of directly controlling organizational performance. Rather, they provide information to the managers who are in a position to exercise control. If managers use the information well, the control system works. If they use it poorly, the system may produce unintended effects.

Significantly, organizations seldom invest much effort in training managers to use control systems. Instead, most spend a lot of time designing, constructing, refining, and improving the technical aspects of their systems. The result is that while organizational control systems continually become more precise, accurate, and technologically sophisticated, two questions are often overlooked:

1. How effective is the system (and the way it is used) in doing what it is supposed to do?

2. How could the system be better used?

Recent research in a number of organizations has provided some answers to these questions.2 First, control systems influence the way organization members direct their energies on the job; the members are more likely to put time and effort into those areas covered by the systems. Second, how members respond to control systems depends largely on the way managers use the systems. Third, different managers develop different strategies for using control systems. Finally, each strategy has certain drawbacks and benefits.

Only when managers understand (a) how these systems influence the behavior of their subordinates and (b) what trade-offs occur in each control strategy can they learn to use organizational control systems effectively.

In the balance of this article we shall discuss what managers should consider when they choose a control style. We shall examine the various ways in which control systems influence managerial behavior. Then, we shall discuss two major strategies for using control systems, the various issues that ought to be considered when choosing a particular control style, and the implications of the final decision.

Influence on Subordinates

When an area is covered by a control system, organization members concentrate on improving their performance in the measured area. There are three reasons for this direction of energy:

1. Measurement of an area of activity indicates that top management feels the area is important and bears watching.

2. Managers generally use control system measures when they evaluate subordinate performance. Since the subordinate usually feels that the manager’s evaluation influences his or her rewards, the subordinate tends to put energy into the measured areas.

3. It is easy for an organization member to see changes in performance measures that are part of the control system. If his performance is improving, this can be a source of personal satisfaction.

Exhibit I provides an example of how performance measurement directs subordinate energy. In two different organizations—one a northeastern public utility, the other a midwestern bank—employees were asked to indicate to what degree different areas of activity were measured. At another point, they were asked how much time and effort they put into each area. As shown in the exhibit, the general pattern is that the more people perceive that an area is measured, the more time and effort they put into it.

Exhibit I Area Measurement and Effort in Two Organizations

Effects of control systems

It appears that control systems direct how much energy subordinates put into an area, but how is this energy used? On one hand, subordinates may be motivated to increase their levels of performance, producing larger quantities or higher quality work.

On the other hand, measurement may produce the results we saw in the Boy Scouts’ example. Subordinates direct their efforts into “game playing” to “beat the system.” Rather than performing well, employees often set low goals that can be easily met, manipulate measures to come out with the desired results, and actually sabotage the system’s information base.

For example, a large government organization required each person to fill out a form accounting for the way he spent his time in 20—minute blocks. The intent was to motivate the employees to manage their time and to generate valid information about how much time they were allocating to different tasks. The result, however, was vastly different. The employees saw the system as an attempt to regiment their lives and activities.

Thus, instead of being a useful tool, the time sheets became a recreational activity. On Friday afternoons at the work break, employees got together to fill out their time sheets, each competing to see who could come up with the most preposterous record of activities. Needless to say these records had no relation to actual work done. The system did not motivate people to increase performance; it motivated them to play games with the system.

Exhibit II summarizes the effects of control systems. The existence of measures in an area has an effect on subordinate behavior but measurement is not the only factor. The measures have to be perceived by the employees as being reasonably accurate, and they have to be used skillfully by the managers.

Exhibit II How Control Systems and Their Use Affect Behavior

Strategies of Control

A manager must give serious thought to his use of control system measures in any one area. He must consider the consequences of his actions in terms of the kinds of behavior that he motivates in his subordinates. Although there is a range of strategies for control, two major approaches—external control and internal motivation—seem to prove most useful for many managers. Exhibit III shows that each of these strategies requires different behavior on the part of the manager, each can have either desirable or undesirable effects on subordinate behavior.

Exhibit III Two Different Strategies of control

External control

This strategy is based on the assumption that subordinates in the particular situation are motivated primarily by external rewards and need to be con trolled by their supervisors. To use the control system effectively in this way requires three steps.

First, the goals and standards associated with the system need to be made relatively difficult in order to “stretch” subordinates and leave little room for slack.

Second, the area measures need to be constructed so that they are “people proof,” to prevent individuals from being able to manipulate the measures.

Third, rewards need to be directly and openly tied to performance, as indicated by the measures in the control system, to ensure that the subordinates have an incentive to work hard.

An example of the external control approach would be to evaluate a manager solely on the performance of his profit center, with relatively high levels of profit being budgeted and with his compensation tied primarily and directly to the number of dollars of profit.

This external control strategy can have different effects. On one hand, subordinates may channel a great deal of energy into measured areas and may try hard to make their measures move, since they can gain rewards by doing so. Where the system is very tightly structured, the result will be a high degree of control of subordinate behavior. On the other hand, several undesirable results may occur.

First, such a strategy may motivate organization members to improve their performance measures but not create any commitment to their doing a better job. The subordinates will begin to develop an attitude toward performance in which “doing well” means doing well on the performance measures, not necessarily performing their jobs more effectively. As a result, if they can increase their “performance” by manipulating the measures, providing false information, intentionally setting low goals and standards, or sabotaging the system, the organization members can be expected to do so.

Second, such a strategy may result in misdirected effort. Subordinates may put all of their energies into the particular behavior that is measured, while forgetting other behavior that, although not measured, is also vital. For example, if all efforts are directed toward increasing sales volume, the amount of effort devoted to ongoing customer service may be decreased. In this case, the result is short-term maximization in the measured area with possible negative long-term effects on unmeasured areas.

Third, such a strategy may tend to reduce the flow of valid information, particularly negative information. If people are directly rewarded for positive movement of measures, they may become motivated to withhold information that would negate the meaning of those measures and to withhold negative information from higher-level managers who need it for decision making.

Finally, such a strategy may bring about excessive caution, directing energy toward justification of all actions. Subordinates may be motivated to ensure that the measures either continue to look good (by not taking any risks), or to assemble “just in case” files filled with information justifying a decrease in measured performance. In either case, energy is directed toward coping with the system, rather than toward the larger goal of making the organization more effective.

Internal motivation

In this strategy, management assumes that subordinates can be motivated by building their commitments to organizational goals and by their being involved in the necessary tasks. They assume that employees will be motivated by the feelings of accomplishment, achievement, recognition, and self-esteem that come from having performed a job well. The strategy of internal motivation is implemented by using the control system in a very different manner than in the external control strategy.

First, although goals are set, the most important feature of this approach is not the difficulty in achieving the goals but the fact that they are set participatively. Those people who are responsible for achieving goals are given some influence over the nature of those goals.

Second, the measures are used for joint problem identification and solution rather than for punishment or blame. When a performance begins to move in an undesired direction, it is not the time for heads to roll. It is the time for managers and subordinates to meet together (a) to determine the reasons for the change, and (b) to develop solutions to the problems that have come up. Thus the system takes on an “early warning” function of surfacing problems, beginning the resolution process before those problems reach the crisis state.

Finally, although rewards are tied to performance, they are not tied to one or two specific measures. Rather, the reward structure emphasizes accountability for the entire job performance, only part of which may be represented by the measures. In general, the control system becomes problem-based and future-oriented. The system helps the manager exercise control of subordinate behavior by directing future efforts, rather than by punishing each person’s past actions.

This internal motivation strategy may have different effects. It may generate high commitment to goals because the organization member participates in setting them and feels responsible for seeing that they are achieved. This may lead to greater energy directed toward task performance. As performance increases and as the individual monitors his progress through the measures of the control system, the strategy may also enhance the employee’s satisfaction in performing his job well.

Thus the open nature of the control system and its general, rather than specific, accountability mean that there is little incentive for subordinates to play games or to behave dysfunctionally. More important, it encourages and rewards the flow of valid information, particularly negative information.

At the same time such a strategy may have some undesirable effects. The comparatively loose nature of this approach means that the manager will have less control over the behavior of his subordinates. Because the manager gives up total control over the specific goals, subordinates may establish less ambitious goals.

In addition, since the information provided by the control system is for problem solving and not for evaluation, it becomes difficult to use it as a basis for giving rewards. Thus the manager has to sacrifice some of the value that is inherent in the external control approach in order to build internal motivation on the part of subordinates.

Finally, some individuals may not respond to the participative process because of differences in working style or personality. These people, therefore, will not be motivated to perform well within this strategy framework.

Choice Strategies

Neither of the two strategies just discussed is necessarily the “right” strategy to use in all cases. Since each has certain drawbacks and benefits, a manager must consciously and carefully choose the approach that suits his particular situation. In making that choice, he needs to consider the following four issues:

1. Consistency between strategy choice and managerial style.

In choosing a control strategy, a manager may have to modify either his style or the strategy so that his total approach to managing is consistent. For instance, if a manager generally makes all important decisions without involving subordinates, it would be a mistake for him to use an internal motivation approach. The subordinates would be accustomed to following the manager’s lead. They may not be capable of setting realistic goals on their own; or worse, they may use their influence to set easy objectives that they know they can achieve. It is only in the context of a generally participative manager-subordinate relationship that an internal motivation approach to organizational control is likely to be effective.

2. Organizational climate, structure, and reward system.

A control strategy, to be most effective, should be consistent with other factors in the organization that determine employee behavior. For example, a tight control system in an organization that normally provides a great deal of discretion and freedom for employees would soon run into problems.

3. Reliability of job performance measures.

In some cases, control system measures accurately reflect job performance. In others, the measures do not adequately indicate how well the job is being done. When the control system is an unreliable indicator of performance, it is hard to implement a tight external control strategy since the use of inaccurate or unreliable measures as a basis for evaluation and reward could have disastrous consequences. Under such conditions, a looser and more internally oriented organizational control strategy is required.

4. Individual differences among subordinates.

Because people are motivated by different needs, they may respond differently to the same organizational structure. The choice of control strategy assumes that the manager knows something about the nature of the people who work for him. Individuals who are committed to the work itself (e.g. in many professional occupations) are likely to be less responsive to an external control strategy than those individuals whose primary motivation is financial reward or promotion.

A manager must also consider how much employees desire to participate in decision making. Some people may respond well to the opportunity for participation, while others may not want to become more involved or assume the responsibility. Thus the types of people who work for the manager should be a factor influencing his choice of a control strategy.

An informed choice

At first glance, it may appear that a manager has too many factors to juggle to enable him to make an effective choice. One way around this problem is for the manager to lay out the key decisions and choice points sequentially.

First, the manager needs to ask himself a number of questions (see Exhibit IV). What kind of managerial style does he generally use? What kind of organization is he in? How accurate and reliable are his important performance measures? Finally, how much do his subordinates desire to participate in decision making?

Exhibit IV Questions a Manager Should Ask Himself When Choosing a Control Strategy

Second, the manager must systematically evaluate his answers to determine which strategy is most appropriate. One way of doing this is by using a decision-tree approach (see Exhibit V). As indicated by the exhibit, different combinations of answers to the key questions lead the manager to different recommended strategies with different issues concerning their implementation.

Exhibit V A Decision Tree For Choosing a Control Strategy

In addition to the decision steps outlined in Exhibit V, the manager also needs to consider the tradeoffs between the different strategies that may apply to his particular situation. Obviously, he must weigh the desirable or undesirable effects (as listed in Exhibit III) that a control system may have on his particular group of subordinates.

For example, if the opportunities for game playing are few and the costs to the company of game playing are low, the external control strategy may be more feasible. In most organizations, however, the potential costs of game playing are high. Therefore, managers should give serious consideration to the internal motivation strategy, especially if the basic decision-making process indicates that subordinate participation is feasible.

A control system and the way that it is used constitutes a potentially powerful tool for influencing the behavior of individuals in organizations. Just as the manager needs to make a careful and informed choice among control strategies, the organization needs to be conscious of the alternative approaches to designing and using control systems. Becoming aware of the potential effects of control systems and of the great importance of the process of control—as opposed to the technology of control—is central to making an organization and its people more productive and effective.

1. Studies such as Chris Argyris’s The Impact of Budgets on People (Ithaca, New York: Cornell University, 1952) and Frank J. Jasinsky’s “Use and Misuse of Efficiency Controls,” HBR July–August 1956, p. 105, provide concrete examples of the problems that can arise from poor use of feedback systems.

2. Anthony G. Hopwood’s An Accounting System and Managerial Behavior (London: Haymarket Publishing, Ltd., 1974) and Geert H. Hofstede’s The Game of Budget Control (Assen, Netherlands: Van Gorcum, 1967) look systematically at the ways in which accounting information is used and the impact these uses can have.

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