Cluster 3: Case Note Superheroes LLP

Cluster 3
Case note SuperHeroes LLP

The case is based around a knowledge intensive firm consisting of superheroes who fight crime in
Good City. The employees of a knowledge intensive firm are the key value creating assets.
- Q1 Explain the role of management control systems in organizations:

 Introducing an MCS increases the organization’s performance as it better aligns the
actions of the employees with the organization’s strategy
 The Superheroes has had problems with achieving their strategy, an MCS might
therefore be nice.
 Overall, SuperHeroes LLP needs an MCS because they need to “control” the effect of
the organization’s members to ensure it is meeting its objective.
- Q2 Describe the elements of a management control system
 The focus of management control systems is to eliminate the three barriers that
prevent employees from successfully executing their organization’s strategy.
 The employees lack direction in the sense that they do not know what is
expected of them.
 They know what is expected, but lack motivation to complete the activities.
 Employees know both what is expected, and they are motivated, however,
personal limitations prevent them from successfully completing activities.
 Merchant & Van der Stede proposes three control mechanisms to address this issue:
 Action controls: These mechanisms are mainly focused on problems due to
lack of direction. Action controls are put in place to constrain employee
actions by outlining what the employee should and should not do. Highly
related to processes and fits especially well in industrial value logics
 Result controls: Such control mechanisms address problems related to lack
of motivation and lack of direction. Result controls map out the outcomes
that must be achieved and then rewards employees when they achieve
them. Often monitored through KPI’s.
 Personnel and Culture controls: These control mechanisms address issues
related to all three barriers. These controls focus on recruitment and training
of employees to function well in the given organization. One important
Culture control is that the managers ‘walk the talk’ (lead by example).
 Merchant recommends that managers start by applying personnel/culture
controls as these have the least negative effects.
- Q3 Understand why different firm types, such as knowledge intensive firms, require
different management control systems.
 This question is based on the framework of Ouchi, which will be presented to a
greater extent in its own chapter of this paper. One key take away is the SMART
measurements:
 Strategic (Does the measures align with the organization’s strategy?)
 Measurable (can the activity be quantified?)
 Actionable (can managers influence the results of the activity?)
 Reliable (can the activity be measured accurately?)
 Timely (does the measure provide feedback on a timely basis?)
- Examples of measures in a BSC
 Outcome Perspective: Crime statistics, New business investment in Good City, Tax
revenues; Tourism stays/spending
 Citizen Perspective: Citizen satisfaction with SuperHeroes LLP’s crime fighting
activities; Citizen satisfaction with safety; Citizen Quality of Life.
 Internal Process perspective: Property damage; Number of Citizens injured
 SuperHero Learning and Growth perspective: SuperHero training hours; SuperHero
turnover rate.
- Reward system:
 A balanced reward system should incorporate at least one metric from each of the
perspectives.
Teams and Performance: The reinforcing Cycle

From the conclusion of the article
- Teams are all about performance results!

- Real teams emerge when there is a performance challenge that demand multiple skills and
perspectives.
- Teams in weak performance cultures tend to look over their shoulders at changes in
direction from above.
- The main take away of the article is that teams can only produce so much performance in a
company. It is necessary that the management is open to these changes so that it work with
and not against the results of the team.
- The leaders of the company must be open to the effects of the team work, or else there is no
reason to conduct team work in the first place.
Conceptual Framework for designing MCS – Ouchi
- The article focuses on two questions:
 What are the mechanisms through which an organization can be managed so that it
moves towards its objectives?
 How can the design of these mechanisms be improved, and what are the limits of
each basic design?
- Ouchi finds three main control mechanisms
 Market mechanisms: Activities related to buying and selling will always to some
extent be based around or in a market. The supervision of such activities is therefore
greatly simplified due to the price competition of the market. Managers can trust
that the price paid by the employee will be at, or very close to the fair price of the
product, input or resource. The theory behind this is that effective competition and
self-interest dragging in all directions will ensure a fair price in the market.
Furthermore, the market is said to contain all the information necessary for efficient
decision making.
 Bureaucratic mechanisms: This mechanism of control focuses on close personal
surveillance and direction of subordinates. This control mechanism is highly
dependent on internal rules. The bureaucratic control mechanism is the frame for
control in industrial value creation logics.
 Clan mechanisms: This mechanism enforces control through traditions and common
values. The mechanism is highly prominent in knowledge intensive firms where team
work is the main value producing method, and where all individuals share an equal
or closely resembling set of values. Control can to some extent be due to self-justice
or to the fact that everyone shares the same view of the world. Selecting and
recruiting the right individuals for the job is a really important aspect when the
organization’s control systems are based on the clan mechanism. The clan
mechanism closely resembles that of Simons’ Belief system.
Type of control Social requirements Informational requirements

Market Norm of Reciprocity Price
Bureaucracy Norm of Reciprocity Rules
Legitimate Authority
Clan Norm of Reciprocity Tradition
Legitimate Authority
Shared Values, Beliefs
- As we can see from the social requirements, we move from a Market control mechanism and
to the Clan mechanism. The market is only based on reciprocity, the theory that a cheater
will be punished by other participants in the market.
- If the Market control system fails, a Bureaucratic control mechanism will be the next choice
as this also incorporates the legitimate authority. The reciprocity here relates to the thought
“you get paid for an honest day’s work”. The legitimate authority relates to the rules and
norms of the bureaucratic model.
- A Clan incorporates both of the earlier social requirements, but in addition, it also
incorporates a set of shared values and beliefs in the employees. This is the most demanding
control form.
- While the Clan has the highest social requirements, it has the lowest requirements when it
comes to information. The Market mechanism requires the highest amount of information.
- An explicit accounting system will in most cases give the users the necessary information to
come to conclusion. Furthermore, the system can be used by virtually any individual in the
organization, with access and the necessary training to operate it.
- Ouchi presents one pitfall to the Market control mechanism, namely that the theoretical
perfect market is just that, theoretical. The perfect pricing effect of such a market is not
feasible in the real world.
- According to Ouchi, there are two ways of achieving effective people control:
 Either go to the expense of finding employees who fit the needs exactly
 or, take people who not fits exactly and put in place a managerial system to instruct,
monitor, and evaluate them.
- The first group can be expensive in terms of salary and cost of recruiting; however, they need
little to no monitoring and supervisory, especially if they are also hired based on shared
values.
- The second group is less expensive to recruit, however, they need strict supervision and
guiding, which might end up being far costlier for the organization.
- Some firms will be able to hire special individuals who possesses both the skills and the
values necessary for the organization. This practice is most common in “professional
bureaucracies” such as hospitals and public accounting firms.
- Below is Ouchi’s framework which is the basis for the presentation of Merchant’s
mechanisms above.
- Manufacturing organizations in a stable industry fit the requirement for behavior control and
for output control. Such organization can incorporate the market control mechanism and the
bureaucratic control mechanism.
- A professional firm, or firms in an ever-changing industry cannot to the same extent base
their control systems on such mechanisms. These will most likely have to resort to Clan
control mechanisms.
- Firms with a high degree of goal congruence can focus their mechanisms closer to that of
clan control.
- High ambiguity can only be tolerated if the goal incongruency is trivial.

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Cluster 3

Case note SuperHeroes LLP

- Q1 Explain the role of management control systems in organizations:

Teams and Performance: The reinforcing Cycle

- Teams are all about performance results!

Type of control Social requirements Informational requirements

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