Management Control Instruments: Support Topics

Management Control Instruments: Support Topics

DOI: 10.4018/978-1-7998-2007-9.ch005

Abstract

The definition of the dialogue instruments is closely linked to the management of the knowledge that companies want to implement and should contribute to the proper functioning of the management control tools and to the sharing, application, and knowledge creation within the organization. In this chapter, some knowledge management techniques will be presented, which should be defined, taking also into consideration the management control systems to be implemented. In view of the constant changes in the business environment, the company must be market-oriented, and adequate information by segments will be highlighted for decision making. Being important to obtain efficiencies in the realization of internal work processes, the authors also describe some topics of the activity-based costing and activity-based management. As organizations are becoming more complex and decentralized, the information system should also adapt. In this sense, the authors describe organizational types and the adaptation of the management control instruments.
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Knowledge Management

The Importance of Knowledge

As mentioned, the offer developed by most companies is currently based on the sophistication and permanent innovation or the efficiency of the work processes, therefore, the competitive advantages very associated with the result of knowledge, which encompasses, among other factors (Hislop, 2013):

  • Human Resources skills: qualifications, experience and creativity;

  • Organization Competencies: organizational structure, quality of management, work processes and techniques, organizational values and culture, information systems, speed of action, research, notoriety and upstream and downstream relations.

As it can be seen, all the factors enunciated are intimately related to the knowledge of customers, products, technologies, company’s working methods. In addition, it can be inferred that there are two types of knowledge:

  • Tacitus: It is the one that is incorporated into individuals and that is why it is not easily transmissible. As examples we have: life experiences, organizational values and culture;

  • Explicit: It is articulated and coded knowledge, which is described in rules and procedures known and accepted by everyone in the organization, so it is easily transmissible.

However, they are in such a way interconnected, that it is very difficult to analyze them separately. For example, the interpretation of a document (explicit knowledge) often depends on the experiences of each one (tacit knowledge). In this sequence of ideas, it is fundamental to interconnect the two types of knowledge, align them with the company's strategy, share them and act on them (Hislop, 2013).

In this regard, Edvinsson and Malone (1997), two of the main investigators in this area, defined knowledge (for these authors, the term intellectual capital assumes the same meaning), using an analogy: comparing the company to a Tree. The visible part constituted by the trunk, branches and leaves is constituted by the explicit knowledge composed of documents and reports. The hidden roots are in fact the largest part of the tree, hence the fruit quality, flavor and color (tacit knowledge). Therefore, they propose the separation of knowledge (or intellectual capital) in two perspectives based on the criterion of possession:

  • Human Capital: It is the combination of the experience, skills, innovation and individual capacities of employees in the performance of their tasks, including the company’ values and culture;

  • Structural Capital: Hardware, software, databases, organizational structure, patents, customer and supplier panoply, brands and all other assets that support employee productivity.

Thus, the company can transact structural capital, but cannot own human capital. Despite this, human capital expands other knowledge capacities. The company must consider a process that ensures its creation, sharing and application in the organization, in order to awaken a culture of innovation and entrepreneurship in the internal structure, contributing to greater flexibility and adequate response to the market constant surroundings changes (Amaral & Pedro, 2004).

Knowledge and management can be defined as follows (Kluge et al, 2002):

  • Knowledge consists in understanding relationships and causalities, so it is fundamental to make operations effective, elaborate business processes or predict business models’ results;

  • Management is a conscious and systematic decision on how best to use scarce resources in an environment of uncertainty to achieve lasting improvements in the performance of an organization.

Combining these definitions, one can infer that knowledge management consists in understanding the relationships within the organization and in its surroundings, to coordinate the available resources, in order to improve products, processes and customer relations, creating value for activity stakeholders and obtaining competitive advantages that allow sustained growth. Thus, knowledge management should be properly aligned with the organization's business strategy and accepted by all hierarchical levels and functional areas assuming the risk, being, otherwise, ineffective.

Considering the challenges of the business context, figure 1 is presented with a suggestion of a model of business success that will contribute greatly to the management of knowledge.

Figure 1.

Business success model

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