The Dysfunctional side of control

Have you ever noticed that some of the people who work in the college registrar’s office don’t seem to care much about students’ problems? At times they appear to be so fixated on ensuring that every rule is followed that they lose sight of the fact that their job is to help students, not to hassle them.

At the Chronic Fatigue and Immune Dysfunctional Syndrome association of America, executives were spending thousands of dollars each year on research. As the association’s CEO Kim Keeney stated “We’re in this business to go out of business. That’s why they kept funding research projects. They would raise money and use the money for research support – making available thousands of dollars for research”. Although the association’s executives were excited about the opportunity to raise awareness of the disease and pursue a cure, they recognized one thing: They had no idea where their money was being spent. Without controlling for research outcomes, they believe more than $12 million was misspent by one of the organization to whom they had given money.

This example illustrates what can happen when controls are lacking similar results occur when controls are inflexible or control standards are unreasonable too. That’s because people lose sight of the organization’s overall goals. Instead of the organization running the controls, the controls can sometimes run the organization.

Because control systems don’t monitor everything problems can occur when individual s or organizational units attempt to look good exclusively on control measures. The result again is something that is dysfunctional. More than not, this dysfunction is caused by incomplete measures of performance. If the control system evaluates only the quantity of output people will ignore quality. Similarly if the system measures activities rather than results people will spend their time attempting to look good on the activity measures.

To avoid being reprimanded by managers people may engage in behaviors that are designed solely to influence the information system’s data output during control period. Rather than actually performing well, employees may manipulate measures to give the appearance that they are performing well. That’s precisely one of the key factors in the Enron scandal. Evidence indicates that the manipulation of control data is not a random phenomenon. It depends on the importance of an activity. Organizationally important activities are likely to make a difference in a person’s rewards; therefore incentive is high to look on those particular measures. When rewards are at stake, individuals tend to manipulate data to appear in a favorable light by for instance distorting actual figures, emphasizing success, and suppressing evidence of failures. On the other hand, only random errors have been found to occur when the distribution of rewards is unaffected.

Our conclusion is that controls have both an upside and a downside. Failure to design flexibility into a control system can create problems more severe than those the controls were implemented to prevent.

When controls are lacking individuals may attempt to look good exclusively on control measures. That’s what happened at Computer Associates. CA’s chief executive officer was one of 15 company executives and employees involved in an accounting scheme of improperly reporting revenues to boost the company’s financial performance. The fraud cost public investors hundreds of millions of dollars. In federal court, CEO was sentenced to 12 years in prison and fined $8 million.

As managers design efficient and effective control systems a number of issues can arise process of controlling much easier. But these advances in technology brought with them difficult questions regarding what managers have the right to know about employees and how far they can go in controlling employees’ behavior.