Management Control Systems: A Key Strategic Resource for Business Success

Management Control Systems: A Key Strategic Resource for Business Success

DOI: 10.4018/978-1-7998-2007-9.ch003

Abstract

In the current business context, characterized by uncertainty and constant innovation, management control systems may have a prominent role in organizations' success because they can contribute to decision making based on more credible and personalized available information on the origins of both value creation and value destruction. This chapter is about the importance of management control systems to achieve business success and intends to give an insight into the potential contribution of management control instruments to a more effective response to the current challenges of the competitive context and, consequently, to business success.
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Business Context And Organizations’ Management Challenges

We are living times of great changes in the business context, as result of international competitiveness, that puts face to different world regions players, with very differentiated production costs, with direct impact on sales prices and the way companies seek to conquer the markets, more and more through the mastery of unique competences, that provide them with sustainable competitive advantages.

Alongside globalization, technological innovations approximated markets and business partners, transforming speed and the way of conducting the business, as well as monitoring work processes, more effective monitoring chain value of business activities.

So, currently it is unanimously accepted that market information, competition and internal organizations functioning is a key strategic resource for business success.

In this sense, management control instruments increasingly seek to ensure that the facts registration is not limited to complying with the applicable accounting and financial normative, but to produce information on the activity evolution and companies’ competitive environment itself.

However, management control instruments may also represent a very important tool for disseminating both mission and strategy defined by different hierarchical levels and functional areas, therefore contributing to a greater involvement in establishing objectives and critical actions to the business success. Besides, establishing operational and management performance assessing systems not only enables more effective activity monitoring, but also a performance alignment, in pursuing organization’s global objectives, by its various players.

In fact, away are the days where organizations worked only for domestic markets and that competition was national (Bartol & Martin, 1998). World and organizations are changing. We live today in the so- called Knowledge Society, instant communications and global business, where changes occur so quickly that they are imperceptible.

After World War II and until about 1970, there was a high economic growth and a real social progress characterized by populations greater income (Murteira, 1997). At that time, there were five basic principles that guided the management of organizations’ management (Drucker, 2001):

  • The company owned production means and so it generated wealth;

  • Overall, the work tasks were little complex, and people had low qualifications and so it was vulgar to work throughout their lives, only for one company, not having great bargaining power in wages definition and other benefits arising from their collaboration;

  • Decision-making was centralized in the managers, being the most efficient way to coordinate both resources and activities;

  • Suppliers and brands had a high market power, because competition was limited or non-existent;

  • Technology was in possession of a small number of companies and there was no sharing or knowledge dissemination among different industries.

However, the economic slowdown and the oil crises of the 70 decade have completely changed the economic and financial situation of countries and organizations.

The largest companies, in the constant search for efficiencies in their value chains, internationalized their activity to the most diverse points of the globe (Donnelly et al, 2000). At the same time, technological innovations and Media development succeeded at an exponential pace liberalizing access to new markets and businesses (Murteira, 2002).

Thus, the globalization phenomenon had an impact at all levels in our societies, including organizations managing itself.

Business environment, previously characterized by high stability, and where managers simply monitored results’ evolution, with sporadic activity adjustments and resources use, was now confronted with a reality in permanent mutation, where uncertainty was always present in making decisions (Freire, 1998):

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