Each individual has his personal goals. He joins an organization to achieve then goals. The personal goal may just be to get a job that assures safety and monetary rewards. The organization, through its top management, sets for itself pals that are desired to achieve. At times there is a conflict between individual pals and organizational goals. Such conflict is more clearly evident in nonprofit organizations such as research and development institutions, and educational institutions. Top management wants these organizational goals to be attained, out other participants have their own personal goals that they want to achieve. These personal goals are the satisfaction of their needs. In other words, participants act in their own self- interest. Here individuals may grow bigger than the organization and this may lead to goal conflict. The control system should be designed so as to integrate the personal goals with organizational goals, and thereby achieve goal congruence. As managers tend to take action according to their perceived self-interest, the control system should ensure that these actions are also in the interest of the organization. Thus, the system should discourage individuals acting against the interests of the organization, e.g., a cost reduction should not be achieved at the cost of quality if the organization has concern for quality products.
In the language of social psychology, the management control system, should encourage goal congruence; that is, it should be structured so that the goals of participants, so far as is feasible, are consistent with the goals of the organization as a whole. If this situation exists, a decision that a manager regards as being good from his own viewpoint will also be good decision for the organization as a whole. As McGregor states: The essential task of management is to arrange organizational conditions and methods of operations so that people can achieve their own goals best by directing their own efforts towards organizational objectives !
Perfect congruence between individual goals and organizational goals does not exist. One obvious reason is that individual participants want as much salary as they can get, whereas from the view point of the organization, there is an upper limit to salaries, beyond which profits will be adversely affected. As a minimum, however, the system should not encourage the individual to act against the best interests of the company. For example, if the management control system signals that the emphasis should be only on reducing costs, and if a manager responds by reducing costs at the expense of adequate quality or if he responds by reducing costs in his own responsibility center by measures that cause a more than offsetting increase in costs in some other responsibility center, he has been motivated, but in the wrong direction. It is therefore important to ask two separate questions about any practice used in a management control system:
- What action does if motivate people to take in their own perceived self interest?, and
- Is this action in the best interests of the company?
There is a close link between motivation and goal congruence. As motivation involves desire for a selected goal and the drive or pursuit towards the goal, it has two aspects, namely congruence and effort. The achievement of goal congruence may also be affected by the degree of freedom to make decisions, i.e., autonomy given to the managers. Therefore, while designing a control system, the three important aspects related to goal congruence, managerial effort and autonomy should be given due consideration, with a view to motivating managers to achieve organizational goals.
Credit: Management Control Systems-MGU