Management Control System of a Commercial Bank or investment company XY

This paper makes an attempt to look at the management control system in a Pakistani commercial bank. The commercial bank sector in Pakistan is very competitive. Nearly all commercial banking institutions have customer retention on its priority. Commercial lenders are encouraging employees to update their knowledge and skill. The working environment is also congenial in Pakistani commercial bankers. Management control systems are essential tool to help management to steer an organization towards its strategic objectives. Developing and implementing an appropriate management control system predicated on Pakistani countrywide culture can improve both the short and permanent performance of commercial banking institutions. This will make commercial banks more efficient and cost effective in extending banking services to all or any the clients. However, the future research must examine the relationship between management control system and success of the commercial banking companies of Pakistan.

Introduction

The advantages part starts with historical qualifications of management control and management accounting. This leads further to a establishment of the purpose of the study and its limitations.

1. 1 Historical Record - The Management Control and Management Accounting

The dependence on management control arose after the Industrial Revolution and offered companies the chance of greater development and enlargement than what have been possible earlier. Larger parts of the value chain were situated within these new and better companies instead of being multiply on different locations in smaller companies or solo folks. After these great changes, companies began to require financial methods as business ratios and copy prices, and from that point the development of different kinds of management adjustments and accounting controls started ( Kaplan & Johnson 1987).

The Dupont Company is often regarded as the inventor of the present day management control (Kaplan 1984). In the early 1900s, DuPont decided to organize itself by dividing the business into distinct functions, e. g. processing, sales and purchasing. Every one of these functions experienced their own manager who could be very customized in how to manage the specific function. Hence, the senior managers didn't need to be engaged much in those activities and may fully concentrate on things as long- term strategies. It had been this kind of decentralized corporation that made Dupont realizes that they needed a performance way of measuring system. They launched a new accounting measure, profits on return (ROI), because they thought it might be more accurate to make use of than the old measures which measured profits and earnings as a percentage of sales or costs. Dupont along with Standard Motors are considered as the pioneers in this field and were also involved in creating different kinds of decentralized organizations, budgeting and planning cycles (Kaplan, 1984).

In articles from 1984, Kaplan reviewed what had happened in the introduction of the area from 1925 compared to that point. He considered that less than expected had took place between 1925 and 1984. Of those new ideas that were provided, many were just academic theories which experienced little or no influence on the real organizations, who should be the beneficiaries.

As of today the contrary problem from what Kaplan said in 1984 can be spotted. Today there are almost way too many options in accounting and management control, and they're much less well examined as the aged theories and tools (Malmi and Granlund, 2009). Addititionally there is another problem with the new ideas and tools, companies and organizations seem to be to get too much trust in them and use them in an uncritical way. They are considered as the answer of all management problems. Examples of these new ideas and tools are, activity- based-costing (ABC), business process reengineering (BPR), healthy Score cards (BSC) and total quality management (TQM). These systems are often expensive to acquire and use, and companies perhaps, do not evaluate the relation between costs and benefits of the systems they use, or why they use it by any means. Are they used just because they are simply modern and everything the competitors use it, or do they really create value for the company (Siverbo and Akesson 2009).

1. 2 Contribution of the Study

The bank sector functions as the main source of reference mobilization in growing economies. Commercial bank or investment company play significant role in the economic development. Today and even more precisely in future, companies, organizations (banking institutions) and other decision making entities whether revenue making or not, will face major management difficulties. Whether the primary goal of the organization is to make revenue or not, it is needed to institute a device in those entities to regulate the activities of managers in order that they remain on an eye on the correct routes as founded by management. To keep activities of the business in monitor a management control system is vital (Rijal S. , 2006). With the background just suggested I find it interesting to see how a company such as a commercial loan provider XY has commenced its bank procedures from November Ist, 1997 as a general population limited company happens to be operating a sizable network through 223 branches in Pakistan, with the registered office at B. A. Building, I. I. Chundrigar, Karachi. The lender perceived the requirements of customers and suits them with quality products and service solutions. During the past five years, loan provider has emerged among the foremost lender in the region endeavoring to meet up with the needs of tomorrow as well as today. To constantly upgrade the quality of service to the clients, training of associates in all the integral aspects of banking, customer support and MCS was specially concentrated. The portfolio concentrates on all areas of conventional bank as well as the financial needs of commercial sector. Active and high value product includes Car Financing, Home Funding, Rupee Travelers Cheques, Credits Cards, Debit Cards, Online Bank, ATM and consumer Durables. Furthermore, Islamic Banking Department is a recently available initiative, which runs as individual branch. With such a huge extension of branches network, the value of the well-functioning management control system becomes vital for their success. Folks have different beliefs and goals that they want to achieve, which makes it challenging for the management of the business to make every employee take actions consistent with what's desirable(www. scribd. com).

In this case study author aim to describe the management control systems of an commercial bank using its exclusive name XY from Pakistan, since it is broadening and growing with good velocity as compared to other banks due to its good MCS system.

1. 3 Problem Formulation

Bank XY is a commercial bank in Pakistan that is growing rapidly and increasing its branches network in the country. Bank XY has had an enormous success and uses almost the same control systems in every branch all over the country (Phone Interview, 2010), rendering it interesting for me to spell it out and analyze one of these. My principal research question is the fact that,

What management control systems are used at different degrees of the commercial bank XY in Pakistan?

1. 4 Purpose of Study

The main target of this study is to analyze and explain the management control system of commercial Bank or investment company XY in Pakistan. I will also try to explain how different management control systems are being used in the bank.

1. 5 Limitation of the Study

The focus of this study is to describe the management control systems employed by managers to direct employees, behavior. Taking into consideration the size of Bank or investment company XY, s firm and the time I have deliberated to the study, it is acceptable for me personally to limit the analysis to include few standard bank branch and the management control systems controlling these branches from higher levels of the organization. I shall also concentrate on the internal environment, which means I shall not consider most of the exterior environment that's not imperative to the understanding of the management control system within the bank branch.

Data and Methodology

This research study will be written by the qualitative approach, since author goal is to understand the management control system of the certain company he has chosen. Creator has no ambitions to make any basic assumptions predicated on this single research, as opposed to if he had chosen to execute a quantitative research study on several companies. The type of research study he has chosen to use is the abductive

ase study, since he wanted to have the chance to return to the idea even after empirical materials had been collected (alvesson & Skoldberg, 1994). The newspaper is dependant on both most important and secondary data. Main data have been collected by phone interview developed for branch manager and employees at different branches. The replies were received from the 12 professionals and supporting employees of 12 loan company branches. Secondary data have been collected from the website of Loan provider XY, Pakistan. The info, accumulated from various sources have been analyzed with the support of recently developed theory.

Theory

In this section, I shall verify the main theories of management control. Before explaining the explanations of management control systems (MCSs), Author shall make an effort to make clear management and management control.

3. 1 Management and Management Control

Literature written about them, management is identified in a number of ways, but all have something to do with the procedure of allocating resources and immediate activities to fulfill the organization's overall goals. Management is a broad subject matter and can be divided into smaller elements such as functions, fund, marketing/sales and product development. The management process can even be separated into smaller parts that are objective environment, strategy formulation and management control. Objective setting up is a required process to formulate and sometimes reconsider the way and vacation spot of the company. If the goals are not place it is impossible to determine if the resources are allocated correctly and when the right activities have been performed. Strategy formulation is the procedure where organization finds out how to use their resources to meet their aims. The management functions of objectives establishing, strategy formulation and management control is a process of continuum (Product owner and Van der Stede, 2007).

3. 2 Merchant's Management Control Alternatives

According to Merchant and Vehicle der Stede (2007) companies and other organizations have four management control alternatives i. e. , result control, action control, personnel controls and ethnical controls.

3. 2. 1 Effect Controls

The basic idea of results control buttons is you don't inform your employees how to do things but what you would like them to achieve and how they will benefit if indeed they achieve it. For instance, a manager explains to a worker that he wishes him to produce ten units weekly, in case he succeeds he will receive a prize of $50. By these activities the manager may control his employees to do what he wants without interfering too much in their work practices. The procedure of result handles include four steps, the foremost is defining the measurements on which results are desired, the second reason is measuring performance on these proportions, the 3rd is arranging performance focuses on for employees to strive for and the previous offers rewards to encourage the actions that will lead to the desired results. Results adjustments are usually applied to professional employees who are considered to have the ability to work effectively without having to be advised how to do things, but instead work successfully towards focuses on (Product owner and Van der Stede, 2007).

3. 2. 2 Action Controls

Action controls are somewhat the opposite of results control buttons, employees are told what to do and exactly how they must do it, e. g. by rules and procedures. The difficulty with this is the fact the guidelines and steps must be optimized, or else the employees can do everything wrong, despite their doing what they were advised by their managers (Vendor and Vehicle der Stede, 2007).

3. 2. 3 Staff Controls

Personnel controls refer to the assumption that employees naturally want to regulate themselves. Managers do not have to tell employees how to proceed and then screen their every steps to make certain that they certainly the tasks that that where intended. The assumption is the fact that employees prefer to perform well for themselves and this should lead to a well undertaking company. Unlike, or at least less than results and action handles, these kind of controls require more careful selection of employees. Everyone have to fully qualified for the positioning they occupy on the business to be able to use workers control. Motivation is another essential requirement to make this work; managers have to keep their workers constantly motivated. This may be attained by training, further work related education or different kinds of rewards (Vendor and Truck der Stede, 2007).

3. 2. 4 Cultural Controls

When personnel adjustments trust the ability that folks want to perform well, cultural settings rely on the power that group to maintain the values and approaches the organization aims at. Inside the group organization everyone is likely to take responsibility and care of everybody else and the peer pressure is important. The theory is that the group should encourage itself; the assignment of the professionals is in cases like this to teach the group in what things to be encouraged to do. With their help managers may use things as rules of do or group rewards and when the group works well the group will get a reward. If only group rewards are given the individual worker will try to do his/her best to make the group succeed, instead of just caring about themselves (Product owner and Truck der Stede, 2007).

3. 2. 5 Control System Tightness

The benefit from any well working MCS is the fact that the chance that the business will achieve its aims increases. This gain can be referred to in terms of MCS tightness (or looseness), where a tight MCS increases the probability that the employees will need activities that is attractive by the organization. Managers often use several kind of management control alternative to tighten up control. Sometimes these control buttons overlap and sometimes they can be complementary, which enables the combination of these to create restricted control total of the factors critical to the organization's success (Vendor and Van der Stede, 2007).

Whether a results control is small or loose will depend on the characteristics of the meanings of the desired final result areas, the performance actions, and the support or bonuses provided. Relating to Merchant and Van der Stede (2007), for management control to be considered small in a results handles system, the results proportions must be congruent with the true organizational goals, the performance goals must be specific, with feedback in short time increments, the desired final result must be effectively communicated and internalized by those whose conducts are being controlled, and when results controls are given exclusively in a given performance area, the measures must be complete (PP 118 - 119). Congruence problems can are present because the management does not understand the organization's true targets or the measure measurements do not echo the organization's true targets (Vendor and Vehicle der Stede, 2007).

For a results control system to be limited, the performance steps also need to be exact, objective, timely and understandable. When the performance procedures used do not have these characteristics the control system cannot be considered small since behavioral problems are likely. Furthermore, if rewards (or punishments) are directly and definitely from the accomplishment or non-accomplishment of the required targets, the MCS is more likely to be tighter (Product owner and Truck der Stede, 2007).

Action control systems can be viewed as tight only if it likely that worker will constantly perform the actions desired to achieve the company's objectives rather than take any undesired activities. The tightness of the action accountability settings is determined by characteristics of the definitions of appealing and undesirable actions, the effectiveness of the action-tracking system and the reinforcements (rewards and punishments) provided. A highly effective action monitoring system is where employees can be certain that their actions will be seen relatively quickly. Consequence is more prevalent doing his thing control contexts than in a result control context, given that they often include employee violation of guidelines and steps (Vendor and Truck der Stede, 2007).

Tight staff/cultural controls are most likely found in charity and voluntary organizations where employees feel some type of satisfaction by doing good, in family businesses, where the interest of the family employees are same as the organization's (Merchant and Vehicle der Stede, 2007).

Empirical Data

The first section of this chapter includes record and other essential facts of any commercial loan provider XY, Pakistan. Another section includes the empirical information publisher obtained during his telephonic interviews with the managers and employees at Lender.

4. 1 Record and facts about Commercial Loan company XY

Bank XY was founded in June 21st, 1997 its banking operations started out from November1st, 1997. The lender employed in commercial bank and related services. The bank is currently operating through 223 branches. Bank XY marketplace conceits of individual customer as well as variety of business organization. Loan company XY has segment the market on demographic, mental health and behavioral style to focus on maximum amount of segments with different varieties of products suitable for each segment. Active and high value product includes Car Financing, Home Funding, Rupee Travelers Cheques, Credits Credit cards, Debit Cards, Online Bank, ATM and consumer Durables. In addition to this, Islamic Banking Division is a recent initiative, which manages as different branch. This helps their dedication to a culture of technology and seeks out synergies with clients and providers to ensure interrupted services to its customers. The bank perceived certain requirements of customers and fits them with quality products and service alternatives. In the past five years, bank has emerged among the foremost lender in the region endeavoring to meet up with the needs of tomorrow as well as today. To constantly upgrade the quality of service to the customers, training of team members in all the integral aspects of banking, customer support and MCS was specially centered (www. scribd. com)

4. 2 Telephonic Interviews at Bank or investment company XY

All the empirical material in this section was obtained through the telephonic interviews. Author interviewed professionals at different levels with participation in personnel, sales, financial and business related areas at Loan provider XY. Creator also made cellphone interview with a worker at the lender XY HQ.

4. 3 MCS in Commercial Bank or investment company XY

4. 3. 1 MCS for Collection of Employee

Every new employee is carefully determined to fit the account of how Standard bank wants those to be and the employees need to find out how important the central values are for the bank. The education and banking experience have important account during selection of new employees. The personality and which ideals you have are also important. Hence, collection of employees is important and will try to employee individuals who curently have the right principles and beliefs to match the culture. In addition they believe that it is important that the applicants have an interest for loan company job. They think that if the applicant has been to their own website to consider employment, they have taken the first step to show to show interest in standard bank job. When a new person is utilized she or he undergoes an launch education and training for few days.

4. 3. 2 Common Strategy of Commercial Bank

The universal strategy of commercial loan company XY is divided for two main regions of business, first deposit and lending. The different branches of the same commercial lenders at the various geographical location are implementing result, action, employees and culture control buttons jointly. In case there is lending most branches uses result and action control together.

4. 3. 3 Marketing of New Services

Most of the commercial standard bank branches promote their products/services very aggressively by using end result and action control. A lot of the commercial loan provider branches are concentrating in preserving customers and only some branches are contending for customer acquisition.

4. 3. 4 Focus on setting Practice

The commercial bank set target because of their branches for the intended purpose of planning and managing the actions. In the majority of the branches focus on is set in conditions of quantity of clients, amount of first deposit and the amount of lending. Individual focus on are also placed and properly communicated to them.

4. 3. 5 Performance Measurement

The commercial loan provider compares real performance with predetermined target of the branches frequently.

4. 3. 5 Pay back System

In commercial bank sector, gain/reward/salary/promotion is mainly dependant on performance accompanied by education, experience, new romantic relationship/ customer advertised in first deposit or lending and factors respectively like majority get profit for better performance and some did not get performance profit. The commercial bank provided bonus with their employees out of earnings. The amount of bonus is dependant on the quantity of salary the employees are receiving. Some bonus items are related to fantastic performance also.

4. 3. 5 Encouragement to employees to learn new Skills

The commercial loan provider is encouraging his employees to discharge better performance and improve educational qualification and attain trainings. The majority of employees working in the lender get leave sanctioned using their bank to attain training related with their jobs. In addition, it supports that the commercial bank or investment company is stimulating employees to learn new skill and knowledge.

4. 3. 6 Cooperation

Majority of the employees feel they get complete assistance off their coworkers. This implies the working environment is very conducive in the lender to discharge better performance.

Analysis

In this section author has examined the empirical data collected at the interviews on the basis of the theories referred to in the idea part.

5. 1 The Combination of Vendor, s Control Alternatives at Loan company XY

As identified by Vendor and Truck der Stede (2007) the power from a MCS can be expressed by the tightness or looseness of the MCS. As given, a good results control system must include results sizes that are congruent with the organizations true aims, performance focuses on that are specific, feedback in a nutshell time intervals, effective communication of the desired end result and complete procedures if the results control system can be used exclusively (Merchant and Truck der Stede, 2007). As publisher shall argue below, he feels that these factors are met at the Bank branch.

First, the options that the branch working seem to be congruent with the true organization objectives since they measure developments/loans, deposits and costs such as staff, branch office and operational cost meticulously. They also use non-financial performance steps including the customer satisfaction index which allows them to triumph over the shortcoming of the financial performance measures. Given that they take customer satisfaction under consideration they lowered the likelihood of increasing consequence at the expense of decreasing customer satisfaction, which is congruent with their true organizational aims.

Secondly, the goals they use appear to be specific since they use detailed procedures to judge their performance, e. g. they not gauge the number of debtor and depositor, but also borrowed and deposited amount per each customer. Furthermore they placed specific goals of how high percentage of customers should be satisfied with their services e. g. the turnaround time for loan application, the waiting amount of time in the counters. Thirdly, the employees get feedback in a nutshell time intervals since performance is communicated on a regular basis as well as more descriptive feedback each week at assembly, and yearly when they e. g. see the target achievement record. Lastly the desired results are communicated effectively through their regular conferences and the process of setting the business and action plans.

According to Vendor and Truck der Stede (2007), a good results control system also have comprise performance actions that are, correct, objective, well-timed and understandable. Furthermore they claim that the results control system may very well be tighter if rewards or punishments are directly and definitely linked to the accomplishment or non-accomplishment of the required targets. I feel that the performance procedures of Standard bank Alfalah meet up with the characteristics identified by Vendor and Van der Stede (2007). The salary system used by the lender is also associated with their performance on the required targets. Hence, it seems like the results control system of the lender can be viewed as as restricted.

The action control systems of the commercial bank does not include as much rules, but instead they have a quite rigorous group and governance composition. They also use daily, weekly, monthly performance follow-up sheets and guides to control the activities of employees. Regarding to Merchant and Van der Stede (2007) examples of action adjustments are behavioral constraints, preaction reviews and action accountability. They further argue that the action control systems can be viewed as tight only if chances are that employees will regularly perform the activities. Bank branch will not use as many physical constraints but instead more administrative constraints such as restricting some decisions making to raised levels of the business. However, in general, the lender branch managers and encouraging employees have quite a high influence independently office of the branch and can make many decisions on their own.

The employee's activities are supervised by their closest manager and since bank has many different firm levels and each has their own director it is likely that the professionals can trail their subordinate's actions quite carefully. Furthermore, since the results control system is limited it is also reasonable to believe undesirable actions will be discovered rapidly. Reinforcements used are group rewards such as one basic or two basic earnings which will be paid if the lender employees have achieved the focuses on. To sum up, there is no doubt that bank or investment company uses action handles and action control systems but I would not consider them either tight or loose, but instead average or average.

As concluded by Vendor and Vehicle der Stede (2007) the employees/cultural control systems are seldom small, except in organizations whose corporate and business ethnicities are strong. Bank culture includes customer's care-consciousness, equality, developments/loans and deposits target focus. These beliefs are prominent and within their vision, quest as well as in everything they do. They also point out the importance that each employee should talk about their values to squeeze in. This implies that bank commercial culture is strong which allows me to conclude that their employees/cultural control is restricted or at least moderately tight.

Conclusion

The Pakistani commercial banking sector is very competitive. The commercial bankers are contending mainly in services to be able to set up competitive position, to hold on to customer's services at priority.

The majority of the commercial lender branches have been using results control system. All the commercial loan company branches are making use of the concept of management control system by placing targets for his or her branch with individual and contrasting it with actual performance. The prospective for a branch is set in conditions of volume of clients, amount of first deposit and lending. Concentrate on is also fixed for the majority of the individuals employees. The mark of the branches and people level is frequently monitored against their performance. The supervisor of the different branches of the commercial standard bank desire to evaluate the performance of the branch. Matching to individual employee's replies, their financial and non financial gain is based on performance accompanied by education and training and experience respectively. But the yearly bonus is dependant on salary they are receiving. The managers of different lender branches encourage employees to take part in decision-making process. The commercial loan company motivates employees to upgrade their knowledge and skill as the power is based on educational qualification and training after performance, they provide paid leave to take part in training and for further education.

The working environment in commercial loan provider is very congenial as the majority of the employees believed that they get quite definitely cooperation using their coworkers. However, the future research needs to examine the relationship between management control system and success of the commercial bankers in Pakistan.

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