case study on management control system

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Management Control Systems: Mini Cases

For his course on Implementing Strategy: Management Control Systems, Vijay Govindarajan uses mini-cases to illustrate how the design and implementation of ongoing management systems are used to plan and control a company's performance.

3M Corporation

Vijay Govindarajan; Julie Lang Length: 4 pages Publication date: 2002 Case No. 2-0002

3M's strategy was rooted in innovation. 3M's 30 Percent Rule, where 30 percent of revenues must come from products introduced in the last four years, clarifies and drives its innovation mentality. Selected policies and philosophies helped to institutionalize a corporate culture of entrepreneurship and innovation.

Dell Computer Corporation

Vijay Govindarajan; Julie Lang Length: 4 pages Publication date: 2002 Case No. 2-0014

The world's largest direct-selling computer company grew from its philosophy that customers know what they want and Dell can deliver it through custom assembly of outsourced components. Through a combination of financial and non-financial measures, Dell turned itself from a product business into a service industry.

Southwest Airlines

Vijay Govindarajan; Julie Lang Length: 4 pages Publication date: 2002 Case No. 2-0012

Southwest used its short-haul and point-to-point strategy to achieve the lowest operating cost structure in the domestic airline industry. Flexible contracts and a rigorous peer recruiting process aligned its 35,000 employees with this strategy.

Wal-Mart Stores, Inc.

Vijay Govindarajan; Julie Lang Length: 4 pages Publication date: 2002 Case No. 2-0013

Sam Walton, founder of Wal-Mart in 1962, had the vision for his store to sell low cost, branded products. By setting up its own distribution system and truck fleet, and evaluating retail stores as separate investment centers, Wal-Mart's control systems helped to build and entrench its competitive advantage.

Management Control Systems: Teaching Cases

In his course on Implementing Strategy: Management Control Systems, Vijay Govindarajan uses his textbook entitled Management Control Systems, (with Robert N. Anthony), Eleventh edition, 2003, in addition to the following cases.

Analog Devices (A)

The first Analog Devices case can be found in VG's book, Management Control Systems

Analog Devices, a leading semiconductor manufacturer designed performance measurement systems that provided far more than just a financial view. As their system evolved, it incorporated more measures designed to reflect growth, rather than just operational efficiency. A similar approach later was popularized as the "Balanced Scorecard."

Analog Devices (B)

Chris Trimble; Vijay Govindarajan; Jesse Johnson Length: 9 pages Publication date: 2001 Case No. 2-0003

In 2000, ADI posted an unprecedented 78 percent growth rate. Their participation was growing in new consumer markets (electronics and communications) with shorter life cycles and high volatility. ADI had to rethink their scorecard for more dynamic environments.

Crown Point Cabinetry

David VanderSchee; Vijay Govindarajan; Julie Lang Length: 8 pages Publication date: 2001 Case No. 2-0010

In 1993, Brian Stowell, CEO of a family-owned cabinet manufacturing business, created a vision for his 85 employees that focused on high quality products with less rework and wasted material. Eliminating production line managers and adopting a team-based management approach was a risky proposition, but one that paid off in increased sales and margins.

Nucor Corporation (A)

Vijay Govindarajan Length: 15 pages Publication date: 1998 Case No. 2-0015

Under the leadership of CEO Ken Iverson, Nucor thrived. Nucor's structure was decentralized, with only four management layers. Only 22 employees worked at the corporate headquarters; plants were located in rural areas across the US and the general manager of each plant was granted considerable autonomy and encouraged to take reasonable risks. Employee relations stressed pay for productivity and took an egalitarian approach toward employee benefits. Under Iverson's leadership, Nucor pioneered the mini-mill concept, built new plants from scratch, promoted from within, and remained a domestic company.

Nucor Corporation (B)

Vijay Govindarajan Length: 3 pages Publication date: 1999 Case No. 2-0016

In January, 1999, Ken Iverson, the thirty-year leader of Nucor Corporation, was forced into retirement. Five months later, his successor, John Correnti, was asked to leave. The board of directors wanted fundamental shifts in Nucor's strategy and organization that Iverson and Correnti resisted. The board's considerations included pursuing acquisitions, expanding into global markets and adding new organizational layers.

The Trustees of Dartmouth College hold the copyright to all the cases listed above. Please download a single copy for evaluation. For permission to reproduce multiple copies; i.e. for classroom use, please contact Annette Lepine n by e-mail at [email protected] . Ms. Lepine can also provide teaching notes for many of these cases, including an instructor's guide for teaching with the book Ten Rules for Strategic Innovators-from Idea to Execution (2005, Harvard Business School Press).

To read this content please select one of the options below:

Please note you do not have access to teaching notes, employees’ identification and management control systems: a case study of modern policing.

Accounting, Auditing & Accountability Journal

ISSN : 0951-3574

Article publication date: 3 September 2021

Issue publication date: 8 January 2021

The authors examined how squad members within an Australian state police force perceived and attached enabling or coercive meanings to a suite of management control system (MCS) changes that were new public management (NPM) inspired.

Design/methodology/approach

The authors conducted a longitudinal case study of a large Australian state police department utilizing an abductive research design.

The authors found that identification processes strongly conditioned the reception of the MCS changes introduced. Initially, the authors observed mixed interpretations of controls as both enabling and coercive. Over time, these changes were seen to be coercive because they threatened interpersonal relationships and the importance and efficacy of squads in combating serious and organized crime.

Research limitations/implications

The authors contributed to MCSs literature by revealing the critical role that multifaceted relational and collective identification processes played in shaping interpretations of controls as enabling–coercive. The authors build on this to elaborate on the notion of employees’ centricity in the MCS design.

Practical implications

This study suggests that, in complex organizational settings, the MCS design and change should reckon with pre-existing patterns of employees’ identification.

Originality/value

The authors suggested shifting the starting point for contemplating the MCS change: from looking at how what employees do is controlled to how the change impacts and how employees feel about who they are. When applied to the MCS design, employee centricity highlights the value of collaborative co-design, attentiveness to relational identification between employees, feedback and interaction in place of inferred management expectations and traditional mechanistic approaches.

Management control systems
Enabling control
Coercive control
Employees’ identification
Serious crime

Acknowledgements

The authors would like to thank James Guthrie for his support and insightful comments as well as two anonymous reviewers who contributed significantly to improving the quality of the paper. The research was supported under the Australian Research Council's Linkage Projects funding scheme.

Cuganesan, S. and Free, C. (2021), "Employees’ identification and management control systems: a case study of modern policing", Accounting, Auditing & Accountability Journal , Vol. 34 No. 1, pp. 31-53. https://doi.org/10.1108/AAAJ-04-2020-4490

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Operation of management control practices as a package—A case study on control system variety in a growth firm context

2008, Management Accounting Research

Related Papers

Management Accounting Research

Alice öqvist

This paper is concerned with the use of management control systems (MCSs) within high growth firms (HGFs) to support rapid growth. Considering that a lack of MCSs has been identified as a major cau ...

Tuomas Koskiniemi

Chandana Hewege

This article critiques the mainstream management control theory with a view to highlighting its gaps and to suggesting a direction for its future development. Management control theory has undergone lopsided development due to the dominance of accounting-based approaches to the study of management controls. Thus, management control theory has failed to explain complex issues that are interwoven with deep-rooted, sociocultural context within which these issues emanate. Although the influence of organizational theory, particularly systems theory, cybernetics, and contingency theory, resulted in a marginal outward shift of the boundaries of the mainstream management control theory, the main drawbacks of the theory remained unresolved. Alternative theoretical perspectives rooted in disciplines such as political economy, sociology, and anthropology can enrich the mainstream management control theory. Management control issues emanating from non-Western contexts would remain largely unexp...

Journal of Applied Business Research (JABR)

Darja Peljhan

In the paper, we study management control from the Simons’ four levers of control framework point of view (i.e. diagnostic control systems, interactive control systems, beliefs systems, and boundary systems). The theoretical framework is tested by the use of an in-depth case study. We investigate how are MCS deployed by a case company according to Simons’ four levers of control and how does a company use them. The paper looks at tensions and balances between different styles of use of formal MCS, as well as between different types of control systems (e.g. formal vs. informal). The study’s contribution is that it incorporates a wider range of controls, including informal (i.e. social) mechanisms, to provide a more comprehensive analysis, as opposed to the majority of prior studies focusing on a more limited range of controls.

Fabio Frezatti

ABSTRACT: This work analyzes the development profile of Brazilian firms regarding management accounting attributes. Much has been written in recent years about the design of management control systems and the use of management control artifacts, but there is a relevant antecedent that has been little explored, namely the profile of these attributes, involving aspects such as scope, timeliness, integration and aggregation (Chenhall & Morris, 1986; Silvola, 2008).

Dr. Israel Kofi Nyarko, FICWLS, FCIML, CMC, ChPA

Effective management control systems are very essential to organisations both as a safeguard against waste, abuse and fraud and as a means of ensuring that policies laid down by management are properly implemented. The purpose of this study is to consider some strategic issues related to the nature and importance of management control systems in any type of organization. An interpretive study approach was adopted for the design and gathering data for analysis. This approach culminated in the identification, documentation and interpretation of meanings, beliefs, thoughts and general impressions about managerial control systems. The study revealed that the effectiveness of organizational operations largely depends on sound managerial controls. It was also realized that controls are used to set the direction of strategic change and to energize and inspire workforce in the process of growth. Managerial control systems equally help in focusing attention on particular issues; creating dialogue, and stimulating learning, thereby allowing new ideas and strategies to emerge in response to opportunities or threats in the competitive environment. 1. INTRODUCTION 1.1 Background of the Study The importance of the subject matter of management controls (MCS) has been felt on the collapse of companies such as Tyco, Global crossing, WorldCom, and Enron because of the lapses in controls. CEO and top management compensation in these companies were so heavily tied up with stock options that executives were motivated to manipulate financial statements to their personal gains. The role of management is to organize, plan, integrate and interrelate organizational activities to achieve organizational objectives. The achievement of these activities is facilitated by management control systems. Management control, of course, is a core business function and exists as a separate and well-established discipline within the management field. MCS theory is a useful integrative tool for organizing, explaining, and understanding the concept of performance measurement. MCS consists of all organisation structures, processes and subsystems designed to elicit behaviour that achieves the strategic objectives of an organisation at the highest level of performance with the least amount of unintended consequences and risk to the organisation. Management controls may be briefly defined as the organisation, policies and procedures used to help ensure that government or organisation programmes achieve their intended results; that the resources used to deliver these programmes are consistent with the stated aims and objectives of the responsible organisations; that programmes and resources are protected from waste, fraud, and mismanagement; and that reliable and timely information is obtained, maintained, reported, and used for decision making. It is important that management controls are viewed, not as separate systems in their own right, but as control mechanisms to be integrated into the systems serving the entire cycle of planning, budgeting, management, accounting, and auditing. The systems should support the effectiveness and integrity of every stage of this cycle and provide continued feedback to managers. The term management control was introduced by Anthony (1965) who defined it as the process of assuring that resources are obtained and used effectively and efficiently in the accomplishment of the organization's objectives. More recently, Kloot (1997) also points out that in process terms, management control exists in order to ensure that organisations achieve their objectives, and for Fisher (1995) control is used for creating the conditions that motivate an organisation to obtain predetermined results. Hence, the concept of control in organisations appears to be related to the existence of certain objectives or ends in all organisations.

Journal of Management Development

Siriyama Herath

PurposeThis paper aims to develop a conceptual framework that can be used in studying the changing nature of management control in organizations. It is based on four components of the management control system, namely: organizational structure and strategy; corporate culture; management information systems; and core control package.Design/methodology/approachA range of published works is reviewed to explore the nature of management control.FindingsThe conceptual framework developed in the paper can be used in studying the changing nature of management control in organizations.Research limitations/implicationsThis is not an empirical investigation of management control.Originality/valueThe framework presented in this article is useful to both practitioners and researchers of management control.

International Journal of Business and Management

Paolo Popoli

Management control systems are increasingly called upon to find an appropriate balance between efficiency and flexibility, between short- and long-term orientation, between formal and informal tools and techniques. However, management control has been studied and treated, in the prevailing literature, by adopting a “sectoral” approach. In this respect, economic-financial control, organizational control, and strategic control are deeply analyzed and clearly qualified in their respective aims, methodology and tools, but at the same time are the results of a specialized and fragmented perspective. Starting from these premises, this paper aims to provide a conceptual framework for designing a management control system from a “systemic perspective”, in order to capture all economic, financial, strategic and operational dimensions of business within a unitary management control system. Methodologically, this paper is conceptual in nature, based on a qualitative analysis of the prevailing ...

The British Accounting Review

David Otley

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11 Understanding management control systems and strategy

Published: March 2006
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This chapter explains the relationship between management control systems (MCS) and strategy, and how this research area has developed over the last two decades. Examples of empirical studies that utilize various theoretical frameworks and research methods are presented to indicate the breadth of the research area and the ways that researchers have studied the field. Section 11.2 defines different perspectives of strategy that have emerged and explains how they have been used in MCS research. Section 11.3 tracks the development of MCS from its origins as a static cybernetic process, through to its focus as a strategic tool. The remainder of the chapter gives detailed examples of empirical research in the MCS-strategy area that illustrates the major types of research that have influenced our thinking of the MCS-strategy relationship.

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Encyclopedia of Sustainable Management pp 2289–2295 Cite as

Management Control Systems and Sustainability

João Oliveira 7
Reference work entry
First Online: 22 November 2023

15 Accesses

Management control ; Management control packages

Management control systems (MCS) are mechanisms aiming to influence managers’ and employees’ behaviors, in order to achieve the organization’s objectives and strategies. With regard to the increasingly important sustainability dimension, there is the challenge to translate its broad objectives and strategies into daily practices across the organization. To fill this gap, MCS, or more specifically sustainability control systems (SCS), constitutes an array of diversified mechanisms aiming to promote alignment between sustainability-oriented objectives and behaviors in organizations.

Introduction

Management Control Systems (MCS) are commonly defined as organizational mechanisms promoting that managers and employees work toward the organization’s objectives and strategies. In short, MCS are ways to influence behaviors (Gond et al. 2012 ; Merchant and van der Stede 2018 ). To achieve this, the definition of MCS should be...

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Adler, P. S., & Chen, C. X. (2011). Combining creativity and control: Understanding individual motivation in large-scale collaborative creativity. Accounting, Organizations and Society, 36 (2), 63–85. https://doi.org/10.1016/j.aos.2011.02.002 .

Article Google Scholar

Battaglia, M., Passetti, E., Bianchi, L., & Frey, M. (2016). Managing for integration: A longitudinal analysis of management control for sustainability. Journal of Cleaner Production, 136 (Part A), 213–225. https://doi.org/10.1016/j.jclepro.2016.01.108 .

Bonini, S., Gorner, S., & Jones, A. (2010). How companies manage sustainability: McKinsey Global Survey results. https://www.mckinsey.com/business-functions/sustainability/our-insights/how-companies-manage-sustainability-mckinsey-global-survey-results . Accessed 28 Aug 2019.

Bouten, L., & Hoozée, S. (2016). Let’s do it safely: How Altrad Balliauw configured a package of control systems. Journal of Cleaner Production, 136 (Part A), 172–180. https://doi.org/10.1016/j.jclepro.2016.01.105 .

Crutzen, N., Zvezdov, D., & Schaltegger, S. (2017). Sustainability and management control. Exploring and theorizing control patterns in large European firms. Journal of Cleaner Production, 143 (1), 1291–1301. https://doi.org/10.1016/j.jclepro.2016.11.135 .

Gond, J.-P., Grubnic, S., Herzig, C., & Moon, J. (2012). Configuring management control systems: Theorizing the integration of strategy and sustainability. Management Accounting Research, 23 (3), 205–223. https://doi.org/10.1016/j.mar.2012.06.003 .

Grabner, I., & Moers, F. (2013). Management control as a system or a package? Conceptual and empirical issues. Accounting, Organizations and Society, 38 (6–7), 407–419. https://doi.org/10.1016/j.aos.2013.09.002 .

Malmi, T., & Brown, D. A. (2008). Management control as a package – Opportunities, challenges and research directions. Management Accounting Research, 19 (4), 287–300. https://doi.org/10.1016/j.mar.2008.09.003 .

Merchant, K., & van der Stede, W. (2018). Management control systems – Performance measurement, evaluation and incentives (4th ed.). Harlow: Pearson.

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Moon, J., Gond, J.-P., Grubnic, S., & Herzig, C. (2011). Management control for sustainability strategy . London: CIMA.

Morioka, S. N., & Carvalho, M. M. (2016). Measuring sustainability in practice: Exploring the inclusion of sustainability into corporate performance systems in Brazilian case studies. Journal of Cleaner Production, 136 (Part A), 123–133. https://doi.org/10.1016/j.jclepro.2016.01.103 .

Simons, R. (1995). Levers of control: How managers use innovative control systems to drive strategic renewal . Boston: Harvard Business School Press.

Tessier, S., & Otley, D. (2012). A conceptual development of Simons’ levers of control framework. Management Accounting Research, 23 (3), 171–185. https://doi.org/10.1016/j.mar.2012.04.003 .

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Oliveira, J. (2023). Management Control Systems and Sustainability. In: Idowu, S.O., Schmidpeter, R., Capaldi, N., Zu, L., Del Baldo, M., Abreu, R. (eds) Encyclopedia of Sustainable Management. Springer, Cham. https://doi.org/10.1007/978-3-031-25984-5_755

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CONTROL-SYSTEM DESIGN EXAMPLES: COMPLETE CASE STUDIES

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In the preceding chapters of this book, we have analyzed and designed control systems from specific viewpoints. For example, the Nyquist and Bode diagrams and the root-locus method were applied to linear control systems in Chapter 1 , and Chapters 2 and 3 , and extended to digital control systems in Chapter 4 . The describing function, phase-plane, circle criterion, Liapunov's and Popov's methods were applied to the analysis and design of nonlinear control systems in Chapter 5 . How do we take a global viewpoint of a control-system design problem and look at it from both linear and nonlinear viewpoints? We must also consider reliability, cost size, weight, and power consumption. We must design a working control system that meets all the specifications, that can be sold at a profit, that can be built on schedule, and that satisfies the customer's requirements.

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Design for the positioning system of a tracking radar which illustrates both linear and nonlinear design considerations jointly.
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Management Control System Case Study

He and his business partner Frank Edwards had Just bought Airtime Aviation, a floundering enterprise on the verge of bankruptcy, and were excited about putting their business school education to work. The two had scraped together $500,000 so that Air Tex would have at least a little cash to pay some bills. With the amount they had contributed, Airtime had a total of $515,000 in the bank.

“Oh, Mr.. Richards,” Sarah said, “I’m so glad you called. When will you be in? I have a few checks for you to sign. ” “l should be In tomorrow. What are the checks for? ” “I’ve written checks for only our most pressing bills,” she said.

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L tried very hard to make sure that only those that are most important be paid. ” “That’s fine,” Ted replied. “What’s the total of the checks you’ve written? “$510,000,” she said. Ted nearly dropped the phone. “Let’s discuss this when I get Into the office. ” He drove down to Airtime the next morning to speak with Sarah Arthur, the compass account- ant.

As it turned out, his first day owning his own company would not turn out exactly as he had planned: I had envisioned that when I bought my company, I would walk in the front door the next morning, and everyone would bow down to me.

There would be a brass band playing, or something. Instead, I walk In through the back door (a) realizing that I have a crisis on my hands, (b) hoping no one is going to see me so I an deal with this crisis, and (c) of course, not really knowing how I’m going to deal with It. What I did was say to Sarah Arthur, “We are not going to pay these bills. ” Well, she was shocked.

“But you have to pay them! ” she said. I looked at this woman, who had been with the company for 20 years, and said, “No, I will decide what bills we are going to pay. She sat back and said, “Okay,” convinced that I was going to make a fool of myself. That was my first day. THE PURCHASE Ted Richards and Frank Edwards met In 1986 when they were students at Harvard Business School.

Although planning on initially working for large companies, they eventually wanted to own their own business. Upon graduation in 1988, Frank took a lob in the corporate finance department of a large electronics company in Los Angels, and Ted went to the Los Angels branch of a well-respected con- sultans firm.

As they were located in the same city, the two met often for lunch. Whenever they met, they talked about going into business together. Instead of starting an entirely new business, Ted and Frank really wanted to find a “fixer-upper” – they wanted to purchase and “turn around” a falling business that showed a lot of attention. “In good business school fashion,” said Frank, “we established some criteria, which were: 1 .

The company couldn’t cost much, since we didn’t have much money. 1 en company Ana to need want we Ana to offer – winch we outhunt at Tanat time were managerial skills. 3. The industry had to be fragmented and non- oligopolies. We didn’t want to be a small fish in a big pond. 4.

We needed to be able to see our way clear to have the company grow at a rate of 20% per year the first five year-period. ” Ted and Frank looked at a number of businesses over the next year and half and in early fall of 1989, located a fixed-base operational at San Miguel Airport in Texas that was losing money and look- inning for a buyer.

After four months of negotiation, on December 29, 1989, Ted, Just 26 years old, and Frank, 28, purchased the stock of the company for $100,000, assumed the lease on the building (and all the assets and liabilities) and were in business. The lease on the facilities had a purchase option at a price considerably less than the market value. By exercising the option and then selling and leas- inning back the building, Ted and Frank were able to ease the $500,000 for working capital.

Ted and Frank discussed the organizational structure at Airtime, and agreed to decentralized its operations by making each operating activity a profit center and grouping them by departments. Each departmental manager would be given author- itty over his operations, including granting of credit, purchasing to a predetermined limit, setting poll- ices, and collecting receivables. He or she would also be held responsible for its results. Frank was concerned, however: I agree with our decision to decentralized this author- itty, but I am concerned whether now is the time to do it.

We’ll have a tough time when we first walk in the door and I don’t know if the departmental managers can be taught some of these management techniques fast enough.

After all, some have never finished high school. Maybe we should begin by making all these decisions ourselves for a month or two. I realize that we don’t know the aviation business yet, but even though neither of us has been a line manager, maybe we can learn the aviation business faster than some of our managers can learn formal management skills.

Either way, we’re putting the company on the line and the two-minute warning whistle has already blown. During the four months they were negotiating the deal, Frank and Ted spent virtually every weekend together. Of this period, Ted commented: 1 Fixed-base operations are companies located on an airport that service the non-airline aviation market.

They generally sell, fuel and maintain aircraft as well as provide flight instruction and charter services. These companies can range from small family operations to multiple-location companies with sales exceeding $500 million.

We spent something on the order often hours a week, of which maybe two or three hours would be trying to understand Sarah Urethra’s accounting system ND accounting statements, and another two or three discussing pro formal financial projections and the rest on what we would do when we acquired the company. Frank basically did the financial projections and I designed the accounting system. Actually, I dreamed it up one afternoon at work. I sat down at my computer and designed the forms myself.

Franks projections for the next ten years showed that things were really tight.

Even with the $500,000 from the sale and leaseback of the facilities, Frank projected that we were going to run out of money near the end of the first year. We new this when we were negotiating for the company, and it made us a bit nervous. Well, three days before the closing, Frank came to me, white as a sheet, and confessed that we had made a structural error in the projections. He was computing accounts paddle on ten wrong Dyads, Ana we were going to run out AT money In three months. We had a little discussion as to whether we should blow the whole deal right there, knowing that we could’ t survive.

W e decided to go ahead with the deal. We knew it would be an impossible Job, no matter how we sliced it, but we were prepared to go through with it. AIRTIME AVIATION PRIOR TO PURCHASE Airtime was one of eight fixed-base operations at San Miguel Airport, which served Center County, Texas – one of the most rapidly growing comma- nineties in the nation. Airtime had a loss of $500,000 on sales of $10 million in fiscal year 1989, and this left the company with a negative net worth (see Exhibit 1). The company conducted activities through six informal departments (see Exhibit 2).

Fuel line activity The activity employed twelve unskilled fueling people, with an average tenure with the company of eight months, and three dispatchers who accordion- dated their activities via two-way radio.

It was managed by Will Leonard, a man in his mid-ass, who had been the construction foreman for Bill Dickerson when Bill was a real estate developer. When Dickerson bought Airtime in 1980, he brought Will Leonard with him to manage the “line crew. ” Will was enthusiastic about his Job, extremely loyal to Dickerson, and well-liked by his employees.

Although lacking in any theory of management (he had a high school diploma and some Junior college credits), Will was a good first line manager who was instinctively people-conscious while holding them in line. The fuel activity encompassed five operations: Retail Fueling – A Phillips Petroleum franchise of underground storage of 60,000 gallons of Jet fuel, 20,000 gallons of “VA-Gas,” and five fuel trucks to serve locally based and transient aircraft.

Wholesale Fueling – Service of a fuel farm for Texas Air, a regional airline connecting San Miguel with cities in Texas, Louisiana, Arkansas and Oklahoma.

Airtime bought its own fuel separately. Fuel Hauling – An over-the-road fuel truck and a Texas Public Utilities permit to haul fuel on public roads. The truck, in essence, served Phillips, at a price, by delivering its fuel to Airtime. Rental Cars – An agency of a local automobile rental company, mainly used as a service to train- Steen pilots.

Tie-Downs – Storage of transient and San Miguel- based aircraft in six hangars and 50 open tie-downs. 2 The fuel activity was open 18 hours a day, seven days a week, year-round.

Service and parts The service activity repaired, maintained, and overhauled aircraft. It employed six mechanics and a departmental secretary. The parts activity, a separate accounting entity, employed one person and was managed by the head of service, as sales went almost entirely to the service activity. The manager of these operations was Carl Green, a man in his ass, who had been chief mechanic for Dove Aircraft at Love Field in Dallas prior to moving to Airtime.

Before that, he was the mechanic/copilot for a Dallas oil executive.

Carl had a high school diploma, aircraft and power 2 A tie-down is an area of asphalt or concrete with ropes, where an aircraft is parked by tying it down to prevent it from rolling away or from sustaining wind damage. Plant licenses, and multi-engine and commercial pilot certificates. He knew airplanes, engines and aircraft mechanics. He was, in Tee’s words, “not a self-starter, had a bit of retirement mentality, and avoided conflict except when it came to quality.

You would never worry about anything he rolled out of his shop. Flight training The flight training activity was managed by Roy Douglas, whose pilot license was Selenga Day one AT ten Wright Brothers. Roy Ana neon several world records In platoon’s early days, and was highly respected by the aviation community. He spent a lot of time “hangar flying” with old cronies and, while he didn’t manage the department in any real day-to- day sense, he hired the seven instructor pilots and three dispatchers, eave check rides to students prior to their FAA [Federal Aviation Administration] flight exam, and set safety policies.

He and his chief dispatcher, who now had been with him for over ten years, were intensely loyal to both Airtime Aviation and the flying community.

They had, however, “seen everything and were surprised by nothing,” and they were very resistant to change, be it new aircraft technology, aviation teaching methodology, or accounting systems. The flight training activity, which had lost money each year, had two types of operations: Flight School – Flight training in 18 ingle- engine light aircraft from eight flight instructors coordinated by three dispatchers.

Flight ratings were offered from private pilot through air trans- port ratings. Pilot Shop – Sales of flight supplies, such as logbooks, navigational charts, and personal and training flight supplies. Sales were made from three display counters by the flight school dispatchers. Avionics Avionics was a single-person activity conducted by Leon Praxis.

Leon was a college- trained electronics technician whose responsibilities included repair- inning radios and electronic navigational equipment. He started at eight every morning and left reemploy at five, so that he could spend time working on other interests at home.

Aircraft sales Airtime had been a Piper Aircraft dealer until two months before its sale. The owner, Bill Dickerson, was unable to finance the number of aircraft Piper required to be carried in inventory, so he lost the franchise, fired his two salespeople, and closed down the department. Accounting The Accounting Department was central to the company in two ways.

First, it was located in a glass-enclosed office in the center of the building, where it could be seen by everyone and everyone could be seen from it (see Exhibit 3).

The second part of its centrality was the role that its manager, Sarah Arthur, played in Airtime. Sarah had worked for Bill Dickerson for more than 20 years. In his absence, which was frequent, Sarah managed the company. While her title was accountant, she had no accounting training of any kind, and her idea of running the company was to be the central repository of all information. She received and opened all the mail – not Just mail for her depart- meet – and she would distribute it to the depart- meet heads as she saw fit.

What she distributed, in Tee’s words, “was typically nothing – bills would come and she would keep them. Checks would come and she would keep them. And, at the end of the day, she would collect cash from all the depart- meets and keep it. ” Sarah managed all the receive- abeles and payable. All accounting information was Sarah’s, and nothing left her office. The department managers knew nothing about the profitability of their opera- actions.

All they knew was that airplanes would fly and that Sarah Arthur would come around at the end of each day and collect their money.

Then, occasionally, she would berate the department managers for their high receivables. Of course, they had no idea how big their receivables were, or who they presented. They would Just “be beaten over the head. ” As Ted described it: The management system that was in place when we bought the company was one woman won magically Kept everything In near nana . Inner was a Eliminate Ana almost incomprehensible formal system.

There were basic financial statements and a set of reports that were produced for and according to Piper Aircraft’s specifications each month, but they helped Piper, not the management.

We may have negotiated with Bill Dickerson, but we were going to take over the management of the company from Sarah Arthur. ASSUMING MANAGEMENT RESPONSIBILITIES The roles of Ted and Frank Frank and Ted took over the business not only as full and equal partners, but as best friends who understood each other very well. Frank assumed the chairmanship, and turned his attention to specific and critical projects, the first being the reestablishment of aircraft sales – potentially a major profit area. Ted took the title of president and chief operating officer, and began to manage the rest of the business.

As Ted said later: I knew Frank wouldn’t be right at my side at every decision, but I made sure that four times a day I could walk into his office and say, Frank, I don’t really know what I’m doing,” and he would give me a pat on the back and put my head in order.

Frank, in turn, depended on Ted for operational inputs and intellectual support. They both worked 12-hour days, five days a week, with Ted, not mar- ride, putting in 10-12 hours each day on weekends as well. Frank, who had a family, tried to put in three or four hours a day on the weekends.

Management and control Beyond the immediate cash crisis, Ted viewed his three most important tasks as: 1 . Revamping the management of Airtime.

2. Installing a control system that would both support the management and provide information needed in order to make decisions. 3. Wresting De facto control of the company from Sarah Arthur promptly. Frank and Ted believed that it was very import- ant to provide an environment where the depart- mental managers could make correct decisions on their own, since they had decided they could not make all the decisions themselves.

They had neither the time nor the technical knowledge.

As Ted put it: One of the things I was very concerned about was how to manage by providing an environment that encouraged the managers to make decisions the way I would want them made. That was very, very import- ant to me. I wanted to provide a framework that didn’t limit their actions but certainly provided very fast feedback as to how they were doing and made it personally worthwhile for them to do the right things. I spent a lot of time thinking about how to do that, and it occurred to me that there were really two ways to do that.

I recognize that there has to be the black hat and the white hat in any of these situations, and so I decided to make the control system represent reality and my personal role would then be that of an memo- action leader as opposed to a task leader. I would let the control system be the task leader, and then I could exert more avuncular personal leadership.

I also realized that I didn’t have the time to train everyone in the management approach we wanted to use at Airtime. Nor did I have the guts to fire everyone and bring in new talent, and that wouldn’t have been a good idea anyway.

I also realized that unless I changed the basic attitudes in the company, we would never survive. In order to do that, we needed to do a lot of education, and that would be my personal role. But, if I was going to do that successfully, I couldn’t at the same time be berating them about the achievable, so it was necessary to take the unity-gritty daily tasks of banging people over ten nana Ana put teem somewhere else. I Llano’s really Tell Tanat Frank snouts 00 that, and so to provide this environment for decentralized decision making was very, very important.

Ted began to implement a management control structure, incorporating the following policies: 4. Profit centers would be established for each major activity. These profit centers would be combined where appropriate into departments. 5. Revenues and expenses would be identified by profit center and communicated to the profit center manager.

. Departmental managers would be responsible for their profit centers, and would receive a bonus of 10% of their profit center profits after administrated- eve allocation. 7.

The profit center managers would have pricing authority for their products or services, both inter- anally and externally. The fuel department manager could, and did, charge the Flight School retail price for the fuel they used, whereas he charged the Service Department his cost for its oil.

5. The profit center managers could buy products externally rather than internally, if it was in their best interests to do so. The Flight School manager could, and did, have his aircraft repaired outside Arête’s shop when it was unable to fulfill his service needs. . The profit center managers could buy needed cap- ITIL equipment and operating supplies on their own authority within established purchase order limits. Ted recalled one of the first times this decentralized authority was tested: When we bought the company, it had an old, rotten, obsolete copier.

It was under the control of Sarah Arthur, and everyone who wanted a copy of anything had to go to Sarah, the Witch of the North, and plead – which was really an awful thing to do.

I remember one day, Will Leonard, the manager of the Fuel Department, said, “Can’t I get a copier? ” I said, “Will, you can do anything you want within the limitations of the POP. ” So, he bought the smallest copier he could find, and he let everyone in the company make copies, charging them 10 cents a copy. At the end of the month, he would present bills to every department for the copies they used. He made money on his copier because everyone else was scared to death to walk into the Accounting Department and face the Witch of the North.

Here was a classic entrepreneurial example, and it became almost a cause c©l©beer. People were saying, “How did he get a copier? What right does he have to charge me for the copier? ” I would say, “If you want a copier, go get one. ” But with one here at 10 cents a copy, they realized they couldn’t really afford one them- selves, so they grumbled and went about their business. 7. The profit center managers had the authority to hire, fire, and administer the salary schedule in their departments quite independent of the rest of the company.

CASH MANAGEMENT Cash and accounts payable When Ted arrived at Airtime on the first day of his ownership, he gathered up the heck Sarah had written and pulled up the accounts payable file on the computer, called in his departmental managers one by one and said, “Who are your most important suppliers? ” He looked at the individual accounts to see how old the balances were and called up each of the suppliers, saying, “I’m the new owner of Airtime Aviation, and I would like to come down and talk to you about our credit arrangements.

” He later said: Over the next six months, I got on good terms with the suppliers.

I talked to them, took them out to lunch, and let them take me out to lunch. We paid them a little bit here and a little bit there, and we stayed out of serious trouble. A direct result of Tee’s assumption of the accounts payable decision was that era Arthur Degas to view near stay at Lealer as Delve Eliminate to ten Tour months agreed upon. As it became clear that Ted was not going to let her make the manage- meet decisions anymore, she limited her work for the company strictly to the four- month transition period agreed upon in the purchase agreement.

As Ted put it: She effectively said, “I will work from 1 1 a.

M. To 2:00 p. M. Every day. I will answer your questions and that is all.

That was fine with me. I hired a new accounting clerk to be Sarah’s assistant. She worked from 8 in the morning until 7 at night. I hired her; she worked for me. And when Sarah Arthur quietly packed up and left, the departure was easy. Cash and accounts receivable With the accounts payable crisis on the road to a solution, Ted turned his attention to cash inflow.

In his words: My biggest worry was how we were going to control cash, or rather, how I was going to provide a system that would motivate the departments to manage cash. The solution I came up with was to take the receive- abeles and give hem back to the departments. That was very controversial. Everybody in the whole company fought me on that. Frank didn’t like it – I was totally alone.

First of all, the managers didn’t understand it. They had never seen receivables, they didn’t know what they were. They felt as though they were playing with dynamite. “Here they are, but what do I do with them? Frank, on the other hand, was concerned that things would get totally out of control because our most important asset – our incoming cash flow – had suddenly been handed out to amateurs. Sarah Arthur may not have been perfect, but she had a lot of experience. In the Fuel Department, I handed the receivables to the dispatcher, a 20-year-old surfer who had dropped out of college after two years.

In the Flight School, I also gave them to the dispatcher, a 55-year-old, loyal employee. These were the only two departments with significant accounts receivable.

In Service and Avionics, I gave them to the managers, but these were not significant. One Saturday morning, I sat down at the computer and printed up all of the balances, and physically pre- scented them to these two women – the De facto depart- meet heads. Then I sat down and showed them how to input the correct information using the current weeks transactions.

So, we started to collect data on the accounts receivable. To motivate the department heads to manage their accounts receivable, Ted gave them the credit- granting authority and the responsibility for cool- election.

He also established the following monthly charges against their departmental profits: Receivables 60 days old or less 1% of the balance Receivables 60-90 days old 3% of the balance Receivables 90-120 days old 3% of the balance Receivables over 120 days old 6% of the balance charged the balance to the profit center Cash and the banks When Frank and Ted acquired Airtime, they also acquired short-term bank notes payable of $300,000 from the Center National Bank. The notes had been outstanding for several years, and Ted was concerned, since if the bank called the notes, it would put the company into bankruptcy.

As Ted recalled: One of the people I called Just before we bought the company was Hal Latter, the manager of the branch we did business with.

I took him out to dinner, and over dinner, I told him about the company and how it was doing, as well as some of my plans for the future. I said, “But we have this problem of the $300,000 1 owe you. I would love to convert that to a 24- Mont note to get It out AT ten snort-term category, so as to Increase our working capital to make us more attractive to our suppliers.

That way, we can get bet- term terms from them. ” He looked at me and, without thinking it over, said, “Fine, I’ll do it. ” He had made a gut decision based upon some good vibes, and I was shocked, since I was prepared to negotiate with him.

I thought to myself, “The basis upon which business is done, at least with this man, is total candor and honesty. ” So, I started this program of giving the bank our internal financial reports every month, along with a over letter summarizing what I was doing. Hall’s reaction was great.

He thought it was the best thing he’d ever seen. No customer had ever done that to him before. The result was that whenever I went to him – we paid off the loan ahead of time – and said, “Hal, it looks as if I’m going to need $500,000 for 60 days,” he would say, miss, Eve been following it.

Eve been watching your receive- abeles growing because of your extra business. I know a growing business needs money from time to time. It’s no problem – I’ll put the money in your account this afternoon. ” THE ACCOUNTING

SYSTEM By the end of the second month, Airtime was pro- dicing a profit and loss statement on the activities of each department. Each department kept account of its own sales, receivables, inventories, expenses and, through the POP system, expenses initiated by the department.

In order to provide a predictable, and simple method of cost allocation which still would be understood and “managed” by the department heads, Ted established an Administration Profit Center which paid taxes, borrowed money, paid interest, utilities, bills, and other general admissions- iterative expenses. The

Administrative Department in turn levied a series of monthly charges to each department as follows: I Social Security taxes, health insurance, and other fringe benefits were charged to departments as a predetermined percent of wages. Thus, when a manager took on a new employee, he or she knew that it would cost the department, say, 125% of the wage. I Accounts receivable – a monthly charge based on the amount and age of the receivables. I Operating assets – including the Parts Department inventory and the Service Department’ s shop equipment – were charged to the departments using them on a predetermined percent of the asset’s cost.

I Rent, fire and occupancy insurance, building main- tenancy and depreciation, and other occupancy costs were charged as predetermined rental per square foot of floor or ramp space occupied. I A predetermined percentage of sales which repress- ended the cost of Tee’s office and the Accounting Department was also charged. As all the charges were predetermined, calculus- elated and announced twice a year, the managers would control their expenses by managing their receivable balances, conserving on equipment purr- chases, and varying the square footage they coco- pied.

There were ever any unanticipated expenses, and the charging rates were set for breakable. As Ted put it: There was an interesting example of the effects of this system.

Airtime had a total of 5. 2 acres of land, of which approximately 3 were for tie-downs that accommodated approximately 60 aircraft. The fuel Department always wanted more space because it meant that they could accommodate more transient aircraft. The Flight School always wanted more space to make it easier to manage their comings and goings.

The Shop always wanted more space as a service and convenience to customers leaving or dropping off aircraft to be serviced. Before the departments were changer Tort ten area teeny occupied tenure was no way to Intelligently resolve tens conflict.

Bill Dickerson, the former owner, or Sarah would have to make what was essentially an arbitrary decision. With our system, however, there was a definite price to be paid for demanding more space. And with the manager’s bonus system, 10% of that price came right out of the manager’s pocket. The result was that we had very few of these ids- cushions that did not reach a natural compromise.

And when, over time, each department truly needed more space and was more and more willing to ay the rent, we raised the rent until demand equaled supply.

It was great to see a free market in action: As an aid towards educating departmental man- eager in the management of their operations and for keeping them aware of their activities, response- abilities and results, Frank and Ted instituted a Daily Department Report, which required the departments to submit internally consistent operate- inning and accounting information.

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PDF Management control systems and innovation: a case study grounded in
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Management and control Beyond the immediate cash crisis, Ted viewed his three most important tasks as: 1 . Revamping the management of Airtime. 2. Installing a control system that would both support the management and provide information needed in order to make decisions. 3.
Operation of management control practices as a package—A case study on
1.. IntroductionThis empirical case study examines the operation of management control practices as a package in a growth firm context. While it has been acknowledged that 'soft' and informal modes of control typically characterize small firms (e.g. Bruns and Waterhouse, 1975, Merchant, 1981, Flamholtz, 1983, Chenhall, 2003, Merchant and Van der Stede, 2007), an increasing body of ...
Management control systems uppg 4 (docx)
Introduction 2. Method and purpose 3. Malmi, T., & Brown, D. A. (2008). Management control systems as a package— Opportunities, challenges and research directions. Management accounting research, 19(4), 287-300. ... Operation of management control practices as a package—A case study on control system variety in a growth firm context ...