What Is a Management Control System?
One of the mantra’s I often quote to my clients is “If you can’t measure it, you can’t manage it”.
It’s true isn’t it? But how many business owners can put their hands up to owning and using an effective management system to drive continuous improvement, and really engage with their employees to drive productivity in their organisation?
In my experience, this is one area of running their business that many start-ups fail to get right, and as a result find it difficult to stay in control, without getting involved in too much of the detail. Consequently you may find the business is running you, rather than you running the business.
The idea of a management system is to put in place a structured framework for measuring the day to day performance of key functions in your business. Of course, this doesn’t necessarily mean every single function, although that would be the best possible scenario.
As a minimum, ask yourself this question: do you have concrete mechanisms (and written down on the back of a cigarette packet doesn’t count) to forecast, plan, monitor & control, and report on the inputs, value adding processes and outputs that determine how your business makes money?
Take Care of the KPI’s & the £’s Look After Themselves
Traditionally, most management reports come from the accounts and only tend to measure the financials of the business. This causes a couple of problems. Firstly, if the bookkeeping isn’t up to date, cash flow isn’t visible, or the accounts are only updated once a month, that’s quite a long time passing before you know whether your operations are achieving your business goals or not. Secondly, by the time the inputs and outputs have been converted into pounds and pence, it’s very difficult to identify who has achieved what in the business, and see whether everyone’s performing at acceptable level.
This emphasis on the financials distracts from essential measures such as productivity, customer satisfaction and product quality. Financial data alone can hide problems and off schedule conditions until it’s too late to reduce the impact of the causes.
Your business results will reflect your proactive approach when you use day-to-day operational key performance indicators (KPI’s) to review performance and take corrective action. Instead of waiting for your month end financial reports to become available weeks after the facts, you can identify and act on productivity issues sooner.
How Management Control Systems Work
A Management Control System (MCS) is essentially a business tool to monitor and control how well the organisation is performing against its objectives. It assesses the effectiveness of your managers, provides individuals with feedback on how they are performing, and where the organisation is heading. If a correction is required, it can tell you where action is needed to keep things under control.
A good MCS will have each of the key elements of Forecast, Plan, point of Monitoring & Control, Reporting and an Action Meeting – functioning at every management level of the business. Each cycle will be feeding the level below from the top down and then reporting and taking action from the bottom up.
The MCS acts like the conductor of an orchestra. It ensures each level of the structure works together in harmony so that the whole organisation performs according to the score. If one instrument stops playing, the whole system crumbles. The beauty in the system means you can quickly identify the point of failure and address the issue with the individual responsible before things get too far off schedule.
How Management Control Systems Help You
Your MCS will support a continuous improvement culture in your business. Identifying areas for improvement, creating an environment of wanting to evolve and maximising business opportunities.
There may be some resistance to the implementation of a comprehensive MCS. It can involve a significant amount of work and some members of staff will be nervous about having their performance so closely monitored. But don’t let that detract you from the real benefits you will gain.
Having an effective MCS in place removes the intangible nature of business performance. You won’t have to rely on perception or gut feel to make assessments, which can be extremely inaccurate. Instead it focuses on frequent, factual and objective measurements, which you can see in clear black and white. This in turn limits the influence of culture and tradition in the business by presenting fair and non-disputable facts.
The MCS improves the data flow across your organisation giving you a greater overview of what’s happening within your business; what’s working and what isn’t and where action needs to be taken to drive improvements. Your decision making skills will be better and more informed, as you can now base them on facts instead of gut feel or perception.
Communication is critical. All this enhanced information reduces the amount of time you spend in meetings as the information automatically gets to the person who needs it. Any time you spend in meetings represents lost hours that could have been used in a more effective way. We all know meetings are more effective when objectives, agenda and expected outputs are all clearly defined.
Most importantly, a robust MCS improves performance in your business. Managers are held accountable for achieving clearly defined results. Individuals know what’s expected of them and what they must do to achieve it. All the critical data and information of your business can have a dedicated forum for planning, variance reporting and action.
All of which reduces ambiguity and uncertainty in the business. It helps change the behaviour of your employees, to challenge assumptions and let people know precisely what is expected of them and by when. It can replace a culture of stagnation with one of continuous improvement, highlight areas where work can be better and creating opportunities to evolve your business. In short, it leads to better results.
Building An Effective Management Control System
Understanding the value of a Management Control System is one thing, but putting it into action is quite another challenge altogether. Here are some of the fundamental elements you should look for in your own systems to check their effectiveness towards improving productivity and performance in your product or service delivery.
The Basic Principles
– What we intend to do
– How we are going to do it
– Performance how this is managed
– Problems how these are identified and solved
For areas of opportunity to be identified, informed decisions made and put into action – information needs to flow through all levels of your organisation. The right information should get to the right person at the right time.
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Well designed jobs and work flows that reduce duplication and strip out low value activity
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Clear lines of reporting and communication, with a minimalist management structure – more than three levels of management and you’re probably top heavy
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Clear roles & responsibilities are defined for all the job roles in the team
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Managers are working as facilitators and coaches with their team, rather than authoritative commanders
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Your staff have a common focus that drive goals, and is defined in specific key performance indicators for each job role
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Plans are rolled down from the forecast & budget, and prepared in advance of the month, week or day setting out a route map in short time frames
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Well communicated targets and objectives through the system elements
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Managers schedule time in their day to proactively monitor progress with each team member individually, and agree corrective actions to improve the results, document the commitments with due dates and the individual responsible.
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Pertinent, concise and timely reporting that is fact based and allows management and the business owner to take informed decisions
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There is real time reporting and summarising of operational problems, quantified consequences and looking for root causes;
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Effective review meetings are held on a regular basis, analysing off schedule conditions and driving action plans to resolve the root cause of problems – not putting sticking plaster solutions over the symptoms.
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Holistic continuous improvement across the whole organisation is driven by operational plans, and through challenging the norm
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The employees are encouraged and empowered to actively seek best practice methods and standardise them across teams
If you’d like to get your management control systems working better for you, freeing up your time to work ON the business whilst keeping a finger on the pulse of what’s happening IN the business, Alluxi brings a wealth of productivity expertise to the SME sector.
Your Next Steps to Greater Productivity
Alluxi is here to offer you support, bringing a facts and figures approach to evolve your business and realise your goals. As a first step towards identifying your current business challenges and evaluating where your future opportunities exist within your business, we invite you to complete the in-depth Alluxi Business Success Scorecard focussing on the 10 key areas of a successful business.
Take 15 minutes to respond to the scorecard and get your results within minutes. You’ll be invited to book a follow-up 1-2-1 Productivity to Profit Breakthrough Session to find out how you can implement rapid and measurable improvements.
Click here to take the Alluxi Business Success Scorecard now