A major factor differentiates the automatic control system from the management control system, is the exercise of control by human beings in the latter case. In automatic control systems, the human element is missing. It is for this reason that an understanding of organization behavior is important for the proper perception of management control systems and processes. Further, as the major focus of the control system is on the performance evaluation of the organizational sub-units, the control system designer should also have an undemanding of the organization structure. Structure refers to the way the enterprise’s organized so as to enable the total task of the organization to be performed in an efficient and effective way. The organizational structure is essentially the arrangement of its sub-systems with authority and responsibility relations. Thus, it refers to whether the organization is centralized or decentralized or whether it emphasizes line or staff or how the ‘boxes’ are arranged.
In the past, designers of organization structure recommended the following broad guidelines:
- Clear lines of authority running from top to bottom of the organization. It should be possible to trace a chain of command from chief executive to every employee.
- There must be unity of command. No one in the organization should report to more than one boss.
- The accountability and authority of each responsible person should be clearly defined avoid overlapping of tasks and authorities.
- The responsibility should always be coupled with corresponding authority and the responsibility of the higher authority for the acts of his subordinate is absolute, i.e., a manager may delegate authority. However, he cannot disassociate himself from the acts of his subordinate.
- The work of every person in the organization should be confined as far as possible to the performance of a single leading functions, thereby permitting specialization in tasks.
- Line functions should be separated from staff functions. Line functions are essentially those that accomplish the main goal or objectives of the organization such as manufacturing, selling, etc. These are also referred to as operating departments. Staff functions aid in or are auxiliary to line functions. These are generally advisory in nature.
- There are limits to the number of persons that can be co-coordinated by a single manager. This limit is known as ‘span of control‘.
These traditional principles of organizational design could not meet the test of the new organizational forms that had to be designed to meet the complexities of the organizations, which were not necessarily bureaucratic in nature. A contingency theory was evolved to explain some of the complexities. Contingency means it depends. Therefore, the contingency theory aims at analyzing each situation and designing structure taking into consideration task performance and individual group satisfaction, rather than using universal models and fitting them to any situation. There are multifarious relationships between design variables and therefore it is necessary to draw up a task- analysis matrix, indicating tasks and their relationship with design variables, such as objective of the organization, technology, size, people, managerial styles, and so on. If task profiles are similar or interdependent, such tasks can be combined in a department or section. Theses tasks should therefore be integrated into an efficient and satisfying whole. One of the most important integrative mechanisms is hierarchy, which is also the most important characteristic of structure. Other techniques for integrating are the drawing up of rules and procedures for the expected behavior, devising of mechanism for handling information, delegating and referring fewer decisions upwards for approval and making planning a culture in the organization. In using a contingency approach to design an organization structure rather than transplanting perhaps an outmoded model from a similar institution, the following variables need to be analyzed: (i) objectives, (ii) tune orientation, (iii) task differentiation, (iv) people involved, including experience, motives, numbers, (v) market (or external) pressure, (vi) technical system, (vii) managerial style, (viii) ethos and culture of the organization.
Credit: Management Control Systems-MGU