SuperHeroes LLP: A Super Management Control Case Case Study Analysis Presented to Dr. Merlinda Bucad Accountancy Department De La Salle University Manila In Partial Fulfillment of the Course Requirement for MODMGT2 K33 3rd Term, AY 2014 2015 Submitted by: Liban, Dyan Krysza Janine LopezGo, Sharmaine Anne April 22, 2015 A downside of this is that it’s difficult to perfectly align the measures and budgets with the strategy and the pressure to deliver the results. Merchant recommends that managers first apply personnel and cultural controls. setting targets. and then paying bonuses when successful. Action controls are intended to constrain employee actions by clearly directing employees on what they should and should not do. firms need belief controls. action. Personnel controls rely on employees’ desire to selfpolice their actions. but personal limitations prevent them from successfully completing the activities. Robert Simon’s Levers of Control framework consists of four controls that work together to help managers implement their organization’s strategy. and then update the organization’s strategy to address these threats. Results controls clearly communicate to employees what they must accomplish to effectively execute the organization’s strategy and allow employees to determine how to best to reach their goals. business. plan. interactive controls monitor the environment for changes that may harm the firm. For this. optimize the use of resources and safeguard assets. For this. It is an integral part of management that provides information which are primarily used by management to formulate strategies. while cultural controls rely on peer pressure to influence individual employees’ actions. While these outline what employees should not do. Belief controls serve to inspire employees to create value for their organizations because they believe in what the organization is trying to accomplish. coordinate and control activities. action controls should be introduce.Introduction Merchant’s Management Control System framework focuses on eliminating three barriers that prevent employees from successfully executing their organizations’ strategies. outlining initiatives to reach targets. make decisions. In order to effectively remove barriers. In terms of control. . In order to address these barriers. The three barriers include (1) employees lack direction in the sense they don’t know what is expected of them; (2) employees know what is expected of them but aren’t motivated to complete the activities; and (3) employees know what’s expected of them and are motivated. Lastly. boundary controls should be employed. Role of Management Control Systems in Organizations Management control system plays a vital role in various organizations. and personnel and culture controls. Boundary controls outline those activities that aren’t allowed. and operational level strategies and objectives are being met. and eventually the results control. Merchant proposes to use one or more management controls namely results. this helps decision makers determine whether organizational. If inadequate. Diagnostic controls involve developing performance measures based on the organization’s strategy. they don’t encourage employees to do the right things for the organization. one element to consider is comparison with standards. Reason(s) Why Different Types of Firms Require Different Management Control Systems The contingency theory of management accounting suggests that there is no universally appropriate accounting system for all organizations in all circumstances. The people in the city are helpless. First is condition or characteristic being controlled. cultural. customers. is not only limited to management accounting systems.Elements of a Management Control System There are different elements that constitute a management control system. After identifying the conditions. is a city where crime is prevalent and criminals have taken over it. control systems vary from one type of firm to another. The last element is implementor. which means that. political. This basically explains why different types of firms require different management control systems. economic. and the crime is not helping . This can be done using various logistics tools to provide the controller a source of accurate and timely information relevant to the overall performance of the process. an implementation strategy for alterations can be integrated into the existing process. These include external factors such as technological. however. management control systems are substantially based on processes or operations being observed. and competitors. Background of the Case Good city. natural. Another element is sensor. At this point. Also. marketing intermediaries. This essentially means that efficient and effective management control system in type of firm may not be applicable to another type of firm. deviations from the expected outcomes and desired results can be noted and discussed. controllers can determine the key conditions or characteristics of output and monitor them. This theory can also be applied to organizations’ management control systems.This theory. Information should be collected and interpreted in a timely and accurate way by management and then benchmarked against previously stated organizational or competitive standards. and demographic factors. In various types of firms. It is important that the communication is carefully worded. Because of size and complexities associated with organizational systems. There are different factors that contribute in the design of MCS. After collecting data and comparing it with desired standards. managers must integrate the various communications and data collecting sensors that procure and pass information from the system to management. it is not practically possible to control every aspect of their operations with rigid control mechanisms. its suppliers. This is often referred to as a series of corrective actions that address and test issues with the process in the next control cycle. a large metropolis. However. Internal factors typically includes the company itself. as miscommunication and misinterpretation of data can lead to costly mistakes. In addition.000 each). the citizens in Good city were happy in the decline of crime rate but the damages from the superheroes are also affecting the citizens so they complained to the mayor. they hired Controller. They all agreed that SuperHeroes LLP’s strategy is to clean up and keep good city safe from criminals while minimizing damaging and casualties. Their experiment blew up but as a result. 10x. the scientists became mutants and inherited superpowers. After brainstorming. They are Catrix (fast. A month after starting their business.000 per month.e. there was a top secret laboratory where scientists experiment with shapeshifting DNA. The four mutants wondered what their future holds since no one will hire them as scientists. The first thing they talked about was how they will fight crime and how they will split the $40. “Mayor. strong. Before Controller can start giving advice to the LLP. the four mutants planned on how the business is going to work. Skater. and 2 by 4 (can fly. a professional accountant with super management control powers to help them formulate a plan to execute their strategy. Lasereye (can see through stuff and can shoot lasers). and smart). Catrix. something went very wrong. but the mayor and the police are powerless against it. SuperHeroes LLP starts to clean up the city. Envirogirl.”. In the city.the city’s business. Catrix came up with an idea. Guffaw (strong. they went to the mayor and pitched their idea to help fight crime in the city for a flat fee of $40. After their agreement. So. They worried about how they will support themselves and their family. one of the superheroes said but the mayor still wanted them to lessen the damages in the city. They did a great job in stopping crimes but they also incur damages in the city. You know SuperHeroes LLP contributes more to Good city than just turning bad guys over to . $10. He proposed that they should incorporate a limited liability partnership (LLP) called SuperHeroes LLP and sell their superpower services to clean up Good City’s crime. the mayor called a meeting with the superheroes and told them they had to minimize the damage that they incur. They also decided to recruit other superheroes in their LLP: Domatrix. 3Side. and feels no pain). So. in which the mayor was excited about so he agreed. can grow as big as he wants.000 equally (i. awake at night and what can get in the way of SuperHeroes LLP successfully executing its strategy?; (3) What are your firm’s values. and can use his body like a javelin). I hope you know that this may tie our hands and make us less effective. mean. tourism and citizen’s morale. what compass guides your decisions.000 revenue among themselves. the superheroes went back to the laboratory and started to plan their next course of action in which Catrix acted as the CEO. As a result. Jarm. So. and how will you get the group to live by those values?; (4) What is the best way for SuperHeroes LLP to get paid by the city? To answer that you need to measure your benefit to Good city. They decided that will work separately and split the $40. and what is it accountable for?; (2) What keeps you. he asked the superheroes some questions first: (1) Who are SuperHeroes LLP accountable to. While doing an experiment. Kewl and H*bot. but gets the same pay. the company is compromising its environmental responsibility for its operations.the police to be prosecuted. SuperHeroes LLP is accountable to the environment because of the damages it causes in operating ts services. The company is accountable for lowering the crime rate in Good City which keeps the citizens safe from any harm or danger. especially the damage cost which is an external failure cost. the company is also accountable to the citizens of Good City who are the ones that benefit from its services. and what is it accountable for? SuperHeroes LLP is accountable to the mayor of Good City since he is the one who hired them.a. 1. In addition. Currently. What can get in the way of SuperHeroes LLP successfully executing its strategy of cleaning up Good City and keeping it safe from criminals? SWOT Analysis STRENGTHS ● Competent employees ● Differentiation strategy ● Firstmover advantage WEAKNESSES ● Three barriers of Merchant’s Management Control System ● Sudden increase in the number of employees ● Occupational hazard ● Constraints ● Conflict among employees ● Corrupt employees ● Loss of superpower (return to human form) OPPORTUNITIES ● High crime rates in other cities (Market expansion) ● No market competition ● Expansion/Replication of mutation process THREATS ● Going concern issues ● Environmental issues ● Possible lawsuits ● Corrupt government ● Anonymous or hidden crimes .; and (5) What is the best way to compensate each of the 12 super heroes? Guffaw is catching twice the criminals.b. while minimizing the costs it incurs. Is that fair to him? 1. Who is SuperHeroes LLP accountable to. The company is also accountable to its employees in terms of compensation as a return for their services. By being accountable to the mayor. But. Another thing to consider is that the superheroes may be injured which is an occupational hazard. lack of training and skills) which prevent them from successfully completing the activities even without the first two barriers. Corrupt government may also cause a problem for the company. This poses a problem because there will be no more crime to fight for. the mayor of Good City is already complaining about the $40. In minimizing the damage to the city. In addition. the LLP may be subject to constraints when performing its job. there are three barriers that may prevent the superheroes from successfully executing their organization’s strategies. This may give access to criminals to . if not impossible. there is also a possibility that the company will not be able to see all the crimes happening around the city. will be very difficult to meet. In addition to employee issues. which leads to no demand for the services of the company. If one or more of the superheroes are part of the problem. These may also cause the company to lose employees which may negatively affect the company and create competition.As identified in the Merchant’s Management Control System. then the objective of the LLP. This will decrease the effectivity of the company in which the mayor and the citizens may complain about. It is hard to control crime in a city where the leader is part of the wrongdoings.000 flat rate so there may be a conflict on the amount of compensation since they have to distribute it among the 12 members. This may cause problems for the LLP if the number of available healthy superheroes cannot control the crime level to an acceptable level. They need to weigh the benefits from the loss before carrying out their duties which can limit the effectivity of crime fighting.g. This is because the superheroes (employees) are the ones who reduces the crime in the city. the superheroes may not be able to do their jobs effectively. The first barrier is the lack of direction of the employees (they don’t know what is expected of them). This will keep the company from doing their job as the powers of superheroes are the most important asset of the company. These new members may not agree with the plans and strategy of the LLP. The mayor may take advantage of his position and use the information he has on the company to successfully commit crime. These concerns may cause the barriers mentioned earlier to develop. a corrupt employee may be worse than a corrupt mayor. This will cause the company to shut down. Another concern for the LLP is that they expanded rapidly by increasing the number of superheroes from 4 to 12 members. The last barrier is personal limitation (e. There is also a possibility that the LLP will be very effective in solving crimes that it totally eliminates it from the city. Of course there is also the possibility of the mutants to return to their human forms which will cause them to lose their powers. The second is the lack of motivation of the employees despite of having direction. On the other hand. which is to minimize crime rate. Understanding customers’ needs and consistently delivering quality services is important. The following are the values that should be considered for SuperHeroes LLP: Client Focus . implementation and monitoring of organizational strategy. the company should have longterm commitment with Research and Development in order to discover more laboratory procedures that could create other kinds of mutations. specifically in the formulation. Safety of the citizens in Good City is the main priority of the company. the company should find substitute chemicals for the hazardous materials that are necessary for the company’s laboratory processes. criminals may follow that way to succeed in their goal. This also involves environmental damages employees may cause fire to a nuclear plant (if the city has). At present.continue breaking the law. Given the fact that the company is engaged to a longterm commitment with Research and Development. employees cause a lot of damages to the citizens. By realizing that certain way(s) of doing a crime is not visible to the superheroes.d. Moreover. the company should be engaged on corporate social responsibility such as in restoring what has been damaged in the community during their operations.c. it is guaranteed that the company will be hired/invited back by Good City and possibly other cities. Having the firstmover advantage in the industry. Quality . by providing services efficiently and effectively. 1. Damages to the community is not only limited to the damages to the properties. the chemicals involved in the company’s laboratory processes may be harmful to the environment. What is the best way for SuperHeroes LLP to get paid by the city? Develop a performance measurement for SuperHeroes LLP. Integrity . Superheroes should act with integrity through honesty. Environmental Stewardship . Continuous Improvement . fairness and accountability basing on doing the right thing at the right time for the right reason. What is the best way to compensate each of the 12 superheroes? . This value is also important because the company is currently integrating differentiation in its strategy. or the fire on properties may result to air pollution. In addition. for example. how should the CEO get the other superheroes to live by these values? Establishing values for the company is very important because these are considered as guiding principles in decision making. citizens may opt to file cases against SuperHeroes due to property damages. If these damages cause to the community is not minimized. What are SuperHeroes LLP’s values? What compass guides its decisions? And more importantly. By doing more than the expectations of the city. 1. Of course the bonus will be based on how much the crime rate decreased. SuperHeroes LLP will receive $100. the mayor may stipulate that crime rate has to decrease by at least 2% to receive the bonus and for every 0.g. Although adding a bonus to the compensation may seem like a good idea.01%}) bonus. but if it is variable. The main payment will be $30. crime went down from 73% to 70%.000.000 x [1 70%]). This will also encourage the LLP to strengthen its ecoefficiency. The mayor may also opt to give a bonus to SuperHeroes LLP if crime rate has significantly decreased compare to the previous month. But first. These damages include property and infrastructure damages.000 x 3%). Bonus will be $900 ($30. Instead of a $100. If crime rate for the month is 70%. If costs are steady. then the company can set aside a fixed portion plus a percentage of the net .000 ($100.g.000 regardless of the performance and effectivity of the company. the company will receive the compensation that they deserve. the company should set aside a fixed portion (e. Monthly flat rate was $40. Distribution of Profit The net payment that SuperHeroes LLP receives will be distributed among the 12 superheroes.000 as basis which will be multiplied to 1 minus crime rate to compute for the compensation. there are longterm issues that the mayor should consider first. which earns them a bonus. a portion of that should be set aside for the company to fund its daytoday operations and other costs that it might incur. If the crime rate for a certain month is relatively low. This will be computed by multiplying the main payment to the decrease in crime rate. This will encourage the company to do its best to reduce crime in the city. and environmental damages. $5.000 ($100 x {[3% 2%]/0.000). That means a 3% decrease in crime rate from the previous month will entitle the LLP to a $10.01% decrease in excess of 2%. the LLP may consider letting the crime rate increase quickly in order for them to have a way to decrease it again. which is fixed. then payment to the LLP will be higher for that month than in other months with higher crime rates. The LLP should review its historical costs to see if its operational costs are constant for each month or if it varies according to crime solving activities. By basing monthly payment to SuperHeroes LLP on the monthly crime rate. 5%). If costs are both fixed and variable. The damage costs caused by solving crimes will have to be deducted from the total compensation to encourage the superheroes to minimize the damage they create. the company should set aside a percentage of the net payment (e. For instance. For instance. This will also encourage the company to keep on striving to decrease the crime rate. the mayor may setup $100. For example..Payment to SuperHeroes LLP The best and fairest way for the SuperHeroes LLP to get paid is based on the crime rate of the city. then the company will receive $30. the bonus can also be based on the main payment that they will receive. If crime rate is already too low that it cannot reduce it any more. 2. The factors that should be considered in measuring their performances are (1) number of criminal arrests. $5. There should be codes of conduct that clearly delineate activities that employees aren’t allowed to engage in. Also. Management Control System A significant part of a management’s job is to control the processes involved in the successful operation of a business.05]). Employees should be directed of what should and should not be done. the LLP should establish a criteria and rate the crime from 1 to 10 (10 being the highest level of crime). Objectives should be properly communicated to the superheroes for them to have direction and to effectively execute organization’s strategy. . Results controls . The gross compensation. Accordingly. etc. superheroes who exceed the maximum damage cost should be penalized. damages by each superhero should be deducted to their respective salary. If the arrest of a criminal is by a group of superheroes. Action accountability is very important for LLP because of the nature of its business. This maximum may vary if the superhero is successful or not. research and development. or according to the degree of crime. Action controls . In addition. new equipments. bonuses may be given based on the number of criminals caught in excess of the minimum.e.g. The company may also have a policy of setting aside more portion of the compensation if there is a need to upgrade facilities (e. (2) the degree of crime of the criminal arrested.g.payment (e.000 + [net payment x 0. then the credit to that arrest should be shared among the group on the basis of their contribution.). upgrade laboratory. Then. The remainder of the compensation should be divided among the 12 employees based on their performance. To measure the degree of crime. and (3) damages incurred. should be allocated based on that as the salary of the superheroes. Performance should be computed by adding the product of criminal arrested and degree of crime (i. Merchant’s Management Control System 1. In order to urge the superheroes. supervision should be imposed on the employees to ensure that their actions are not against any rules and laws. The company can also set a minimum number of criminals to be caught per superhero in a month. which is the main payment and the bonus. the allocation of damages should also be based on their contribution. summation of [criminal arrested x degree of crime]). It can also set a maximum damage cost per crime fighting activity. new gadgets. This will be achieved by performance evaluation. Gross compensation can be calculated based on performance and costs damages incurred will be deducted correspondingly. Lastly and more importantly. iii. SuperHeroes LLP must have a criteria in hiring applicants. To monitor the performance of the company and how it is fitting in with changes in the environment. the company mays decide to implement a training program to keep the superheroes fit updates with current events. The company should also recognize and reward superheroes show strong beliefs in the company values. This code of conduct should include: i. quality. Boundary controls. the company should provide training for its employees to do their job more efficiently. the five values of the company (client focus. 3. Belief controls. Real identity of the superhero should be confidential to outside parties. the company should only hire employees with superpower and has a sense of heroism. No superhero should refuse to help an innocent citizen in danger. it should have monthly performance evaluation either from the mayor or from a qualified third party. SuperHeroes LLP should establish a code of conduct that is specific to the LLP to guide the superheroes on what are the acceptable and unacceptable practices. v. Interactive controls. continuous improvement and environmental stewardship) should also be part of the belief system. . No innocent citizen should be harmed by a superhero. 4. iv. The company’s compliance to its agreement with the mayor and the quality of the superheroes’ work should be evaluated. Catrix should serve as an example to the other superheroes. (Refer to 1d for a more detailed explanation) 2. No superhero shall compete against another or steal another superhero’s target criminal in order to gain more pay. Compensation to employees is divided among employees based on three measures (1) number of criminals arrested; (2) degree of crime committed; and (3) damages incurred. Simons’ Levers of Control Framework 1. In addition. In addition to that. Under no circumstances should a superhero break a law. the company should have group activities that will show them their importance as superheroes in the city. To do that. SuperHeroes LLP should set up a belief system that clearly communicates the importance of crime solving in Good City. In addition to that. Diagnostic controls.3. ii. Personnel & Cultural controls . integrity. For instance. objectives and values. 2. As seen on the discussion above. Do you feel that the control system you have just developed meets the objective of cleaning up Good City and keeping it safe from criminals while minimizing property damage and casualties to its citizens? With the developed management control system for SuperHeroes LLP. References: https://www.com/management/textbooks/boundlessmanagementtextboo k/control8/managingcontrol66/elementsofmanagingcontrol3331876/ . With these.boundless. employees are now empowered to provide services to their clients in line with the company’s strategies. three barriers that prevent employees from successfully executing strategies were addressed. using both Merchant’s management control system and Simon’s levers of control framework. it can be seen that it is in accordance to meeting the objective of the company which is to cleanup Good City and keep it safe from criminals while minimizing property damage and casualties to its citizens. there is an increase in the alignment between the activities planned and the activities performed by its employees. Moreover. academia.edu/2323034/CONTINGENCY_THEORY_AND_MANAGEMEN T_CONTROL_PACKAGES_IN_SMALL_FIRMS_CASE_EVIDENCE_FROM_INDIA .http://www.