MANAGEMENT CONTROL, MANAGEMENT ACCOUNTING 43
a general management function concerned with the achievement of overall
organizational aims and objectives...management control is concerned with
looking after the overall business with money being used as a convenient
measure of a variety of other more complex dimensions, not as an end in
itself. (p. S33)Otley (1999) proposed a framework for management control systems around
five central issues: objectives, strategies and plans, target-setting, incentive and
reward structures, and information feedback loops. The framework was tested
against three major systems of organizational control: budgeting, economic value
added (EVA) and the Balanced Scorecard. Otley concluded that performance
management provides an important integrating framework.
Non-financial performance measurement......................
The limitations of financial measures were identified most clearly by Johnson
and Kaplan (1987), who argued that there was an excessive focus on short-term
financial performance. They commented:
Managers discovered that profits could be ‘earned’ not just by selling more or
producing for less, but also by engaging in a variety of non-productive activ-
ities: exploiting accounting conventions, engaging in financial entrepreneur-
ship, and reducing discretionary expenditures. (p. 197)such as:
R&D, promotion, distribution, quality improvement, applications engineer-
ing, human resources, and customer relations – all of which, of course, are
vital to a company’s long-term performance. The immediate effect of such
reductions is to boost reported profitability, but at the expense of sacrificing
the company’s long-term competitive position. (p. 201)Johnson and Kaplan (1987) emphasized the importance of non-financial indicators,
arguing:
Short-term financial measures will have to be replaced by a variety of non-
financial indicators that provide better targets and predictors for the firm’s
long-term profitability goals, signifying this as a return to the operations-
based measures that were the origin of management accounting systems.
(p. 259)The development of theBalanced Scorecard(Kaplan and Norton, 1992; 1993; 1996;
2001) has received extensive coverage in the business press. It presents four differ-
ent perspectives and complements traditional financial indicators with measures
of performance for customers, internal processes and innovation/improvement.