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International Bulletin of Business Administration ISSN: 1451-243X Issue 7 (2010) © EuroJournals, Inc. 2010 http://www.eurojournals.com Management Control Systems: A Historical Perspective Jordi Carenys Professor at the Management Control Department EADA Business School, c/ Aragó 204, 08011 Barcelona Spain E-mail: jcarenys@eada.edu Abstract The aim of this article is to review the background literature on management control systems in organisations. It presents a historical revision of the different trends in the literature on control systems in organisations, in accordance with their common characteristics. The earliest studies conducted on control systems saw them as cybernetic and formal tools, focused on the accounting information systems. In order to surpass the identified limitations of such mechanistic systems, new approaches were developed in which the rational and passive behaviour of individuals was substituted by a greater consideration for the organisational and motivational factors that influence behaviour, accepting that the crucial aspects for the design and implementation of the control systems are not limited solely to those of a formal nature. Subsequently, the cybernetic viewpoint was enriched with different contributions by other trends of thought which centred on analysing the influence of psychosocial and cultural aspects as key variables in the control of organisations. Therefore, the current trend in management control research is to combine the use of formal systems, having financial and non financial indicators, with informal systems, to create a “control package”, because it is considered that through the sole use of cybernetic systems it is impossible to control the relevant variables for an organisation to achieve its objectives. 1. Introduction The aim of this article is to review the background literature on management control systems in organisations. First of all, it will analyse the concept of management control and the need for control systems in organisations. Next, it will conduct a historical revision of the different trends in the literature on control systems in organisations, in accordance with their common characteristics. As will be seen, the management control concept has evolved with time and with the transformation of the environment and the circumstances in which companies have operated. The earliest studies conducted on control systems saw them as cybernetic and formal systems, focused on the use of financial and accounting information systems, fundamentally through cost accounting and budgets. Subsequently, this viewpoint was enriched with different contributions which centred on analysing the influence of psychosocial and cultural aspects as key variables in the control of organisations. These latter studies have stressed the importance of human relationships, leadership, motivation and the organisation’s culture as less formalised – yet no less relevant – aspects of control systems. As a result, organisational management control today is not conceived as a closed mechanistic system but rather as a system with social connotations and open to the influences of the organisation members and its environment. Taking all this into consideration, this article sets out to offer an overall, though synthesised, vision of 37 the different theories and approaches which have been developed on organisational management control. 2. Management Control The word control has numerous meanings and different connotations, many of which are not applicable to the field of management. Within this scope, the term management control was introduced by Anthony (1965) who defined it as the process of assuring that resources are obtained and used effectively and efficiently in the accomplishment of the organisation’s objectives. More recently, Kloot (1997) also points out that in process terms, management control exists in order to ensure that organisations achieve their objectives, and for Fisher (1995) control is used for creating the conditions that motivate an organisation to obtain predetermined results. Hence, the concept of control in organisations appears to be related to the existence of certain objectives or ends in all organisations. Here, it is useful to recall a classic definition by Barnard (1938) according to which an organisation is a system of consciously coordinated activities or forces of two or more persons. The coordination of these forces or activities is conducted at all times with certain explicit purposes, which can thus be regarded as the body of generic objectives of the organisation (Rosanas, 1994). So then, except in trivial cases in which it is possible to verify the degree to which said objectives have been achieved without effort or resource investment, it will be essential to set up some kind of evaluation system in order to check whether or not this explicit aim, which constitutes an organisation’s rationale, is being achieved. As Rosanas observes (1994, p. 223), “measuring the achievement of the organisation’s generic objectives will generally modify the behaviour of the top management. In fact, such a modification of people’s performance (in this case, by the organisational management) is the measuring system’s very raison d’être: its objective is precisely to orient the performance of the organisation’s members, in accordance with the data on the real situation which will inform them of the achievements attained. If the objectives defined in strategic planning are not being attained, the management will in theory modify its own performance in order to change the course of things. Conversely, if they are being attained with ease, the management will likely insist on the lines of performance followed or foreseen up to that time, perhaps even setting more ambitious objectives than those theretofore proposed. At the lower levels of the organisation (···), the need to check whether the different tasks are being performed adequately in order to achieve the organisation’s objectives is even more vital, for a dual reason: on the one hand, the relationship of the specific tasks being undertaken at these levels with the organisation’s overall objectives is considerably less precise; and, on the other, the motivation of the person in charge to act for the good of the organisation as a whole, may on occasion be less intense”. Otley (1999) also coincides in pointing out that the management control system furnishes information intended to be useful to the managers for carrying out their work and helping the organisations to develop and maintain viable behaviour patterns. Moreover, any valuation of the role played by this information requires taking into account the use which managers give to this information. However it should be mentioned that, obviously, control may be applied to different levels of an organisation and that, as a result, the requirements for this control to be effective may differ from some organisational levels to others (Fisher, 1995). As Anthony (1990) sees it, the term control is used in the sense of assuring the strategy’s putting into practice. The function of management control includes carrying out the plans necessary for ensuring that the strategies are fulfilled as envisaged. Although planning and control are at times described as separate procedures, both contribute to the management control function. Anthony (1990) also emphasises that it is a process through which the managers exert their influence on other members of the organisation in order to put its strategies into practice. Management accounting and management control have long been viewed as practically synonymous concepts, since accounting provides a language capable of including all areas of organisation and it has always been attributed with a considerable decision-making orientation, which 38 is especially true in the case of management accounting (Otley, 1999). This is particularly so if we consider that the objectives of an organisation’s accounting system are centred on the following three aspects (Horngren and Foster, 1991): • To produce periodic internal reports for the management, so as to facilitate information and influence people’s behaviour, with regard to cost management, planning and the operations control; • To provide non-periodic or special information for strategic or tactical decisions in matters such as price policies, product selection, investments in equipment, the formulation of overall company policies and long-term planning; • To release information outside the company through financial statements aimed at investors, financial authorities and other people and institutions. If we restrict ourselves here to the first two aims, those having to do more specifically with management, and in contrast to the rather financial purpose of the third aim, we can verify that the first two tally with the company’s purpose of management control. On the one hand, the periodic information referred to in the first point would constitute the basis for the periodic evaluation of the company’s regular activities, which corresponds to the more intuitive notion of control, understood as the process that makes it possible to check that the organisation’s normal routine is as it should be: in other words, that it is operating in accordance with the plans outlined by the organisation. On the other hand, special information for strategic decisions would constitute the basis for what today tends to be called strategic control, which would have to do with much more isolated decisions, related to the formulation or revision of the strategy (Rosanas, 1994). As the history of organisations has developed, the academic world has increasingly reinforced the idea of a growing need for organisational control. We are thus faced with an issue which both academics and professionals, in the fields of both accounting and company organisation, tend to consider of major importance. The fact that there are multiple ways of approaching the control concept has lent it a certain ambiguity, with the literature offering alternative definitions and completely different approaches. There are numerous definitions of the control concept, each adding new viewpoints as new elements are seen to be relevant. For Fisher (1995), the fact that control has so many definitions has led to a certain ambiguity in the control concept itself, which has supposed one of the greatest difficulties in defining management control systems. According to Rosanas (1994), some focuses occasionally look at problems in all their scope yet with little precision; others, in contrast, treat the problems with the utmost precision, but then reduce them to more manageable simplifications, meaning that “one of management accounting’s merits has been to provide the basic substratum in which organisational control takes place, making use of a certain structure that economic-financial data themselves have.” Most of the authors coincide in highlighting the fact that management control is a process which managers use subjectively in order to influence the performance and behaviour of the people forming an organisation (Tannebaum, 1967; Collins, 1982; Flamholtz, 1983; Inzerilli and Rosen, 1983; Amat, 1992; Fisher, 1995), in order to put into practice the strategies of the organisation so that it may attain its objectives (Anthony, 1990; Collins, 1982), both effectively and efficiently (Anthony and Dearden, 1976), or even surpass them (Blanco, 1984). This process requires the establishment of norms, supervising employee behaviour, measuring the number (although not always the quality) of outputs, and evaluating and correcting behavioural deviations by the members of the organisation (Ouchi, 1979), meaning that it has to be linked to a planning process and a supervisory process (Anthony, 1990), which makes it possible to obtain a feedback of the situation of the organisation’s objectives (Henderson and Lee, 1992; Coates et al., 1993), and thus be able to make timely decisions (Kaplan, 1991; Berry et al.,1995), with the ability to act being the essence of control (Coates et al., 1993). These approaches have an undeniably cybernetic nature, since, as Kloot (1997)) maintains, “the majority of management control systems are regarded as cybernetic or closed-cycle models. A 39 cybernetic control system is that in which objectives are set, outputs are measurable, outputs attained are compared with objectives set and, if necessary, appropriate corrective actions are taken” (page 52). However, it must be said that cybernetic control models require a predictive model for the organisation or system to be controlled, and that when the environment is turbulent and dynamic, the existence of such a predictive model cannot always be easily assumed, so that, if the latter is non-existent or insufficient, the cybernetic control is also insufficient and must be completed with other control models (Kloot, 1997), which is consistent with the proposal by Hopwood (1974), who distinguishes among administrative controls, social controls and self-control. At the overall level of the organisation, it can fairly safely be assumed that top managers are interested in the achievement of its objectives, which on many occasions they themselves have even designed, although at lower levels this does not necessarily have to be so, meaning that, as Rosanas (1994) suggests, delegation cannot exist without adequate control tools, and the lack of these jeopardises the chances for the regular development of the company, which requires management methods that go beyond intuition and visual appreciation of the company’s true situation. Further to the above, it may “be considered that in the majority of companies, their members may not have a specific interest in pursuing the organisation’s objectives beyond what the organisation itself is capable of inculcating in them. An organisation’s control system is the fundamental means it has for inculcating its members to pursue its objectives” (Rosanas, 1994, page 224-225). For this process to be satisfactorily conducted, the management control system has to consider the following aspects, both at the level of the organisation as a whole and at that of the different units comprising it (Vázquez-Dodero and Weber, 1997): • Objectives and goals that reflect those set for the organisation as a whole as a result of the planning carried out, which is equivalent to establishing what has to be done, when and how; • An internal structure of the unit, including the line of authority and responsibility, which refers to allocating the responsibilities of managerial action; • A measuring system consistent with the objectives and the structure of responsibility, which includes fundamentally the budgetary system and the information system for control; • A system of material or non-material rewards or penalties, which leads the different people to act in a direction coherent with the organisation’s objectives. This includes the system of appreciation for performance, and compensation or incentives to motivate the person in charge, linking his personal objectives of all types (i.e. not only financial) with those of the company. Furthermore, for the control process to be successful, environmental characteristics must be taken into account (Collins, 1982,), and even for Emmanuel et al. (1985), the control system has to adapt on its own to this environment. In other words, self-regulation of the company system, solving both strategic problems (the organisation in relation to its environment), and operational problems (the effective application of the plans devised for also achieving overall objectives) (Soldevila, 2000). All this means that the control process must be considered from two dimensions: one that is social and one that is organisational. The former refers to the organisation’s development within the social determinants of the society to which it belongs, and the latter refers to the organisation’s expansion, bearing productive and market factors in mind (Neimark and Tinker, 1986). Moreover, an important point within this context is that in no human organisation (or subdivision of same) can the objectives be perfectly defined in a single dimension; or, expressed otherwise, the objectives of an organisation are, in general, incompletely defined (Rosanas, 1994). And too, the relevance of the control process increases when an incompatibility arises between the individual objectives of the members of the organisation, and when there is a need to make major efforts to redirect them towards the achievement of the organisation’s overall objectives (Flamholtz, 1983; Amat, 1992), and, furthermore, when there is a desire to maintain the stability of the structure of 40 an organisation’s internal relations and establish formal or informal mechanisms for regulating the activities of its members (Inzerilli and Rosen, 1983). These authors introduce the organisation’s sociocultural factors and distinguish between two types of control dependent on the participation of the individuals, so that they distinguish between external control and internal control. External control is less sensitive to sociocultural factors than internal control, whereas internal control is based on voluntary action and on the individual’s own identification with the organisation. Amat (1992) also differentiates two control perspectives. In the first place, a limited perspective of the control concept, which can be understood as analysis a posteriori and in monetary terms of the effectiveness of the management by the different person in charge of the company, in relation to the results that were expected to be obtained or to the predetermined objectives. In this perspective, control is developed rationally and isolated from its context (people, culture, environment), and it is ensured by comparing the results obtained with those expected. Within this limited approach, accounting control systems are most habitually used. In the second place, a broader control perspective, which not only considers the financial aspects, but also (and very especially) takes into account the context in which the activities are conducted; and in particular, the aspects related to individual behaviour and with the organisational culture. From this second perspective, control is exerted not only by the management, but also by each of the people forming part of the organisation. It is exerted not only a posteriori but also permanently, and is not only limited to the technical aspects of its design, but also has to be adapted both to the culture of the organisation and to the people forming part of the company. Furthermore, it does not have to be focused only on the result, but instead has to be flexible, regarding the control process as a motivation mechanism. Dermer and Lucas (1986) introduce a political perspective, stating that the definition of control is linked to concepts of authority (the person in charge of the organisation has to dominate the behaviour of his subordinates), objectives and strategy (an effort is made to attain the set objectives through the effective and efficient combination of the organisation’s means and resources), analysis of the current situation, motivation (the organisation’s components have to be motivated in order to make the individual objectives tally with the overall ones), evaluation (in order to measure the performances), decision-making (once the organisation’s situation is evaluated with respect to the set objectives, those in charge have to make the most timely corrective decisions) and execution and valuation of these decisions. All the authors take for granted the importance of control in organisations. They see it as a common trait and inevitable in all human organisations (Flamholtz, 1983; Amat, 1992), making the control function one of the most basic and indispensable in business management, although in fact, control is only one of the elements that an organisation may avail of as a management system, although it is, unquestionably, the system that contributes most greatly to improving organisational performances (Blanco, 1984). At the same time, measuring these performances involves translating the organisation’s strategy into results, and thus for the organisation to know their trajectory (Lingle and Schiemann, 1996). In Lawler and Rhode’s view (1976), one of the main reasons for implementing control systems is indeed the difficulty in coordinating the activities of the organisation’s members. This is especially true when it grows in size, something next to impossible if one does not possess information on everything that takes place in an organisation. For Anthony (1990), implementing a control system in an organisation is justified on account of its being the only process through which company management ensures that the organisation’s objectives are achieved and employed most effectively. Simons (1995) and Merchant (1982) defend the use of control systems as mechanisms for managing organisational change. They consider that, in situations involving strategic change, the top management has to use control systems to bring about the formalisation of the organisation’s beliefs, and the setting of acceptable limits of strategic behaviour for defining and following up the critical variables in the evaluation of results, in order to foster the debate over strategic uncertainties, to fight against the organisation’s inertia, to communicate new strategic objectives, to set up calendars for their implementation, and to ensure that due attention is paid to new strategic initiatives. Thus, even though 41 control is merely one element in a management system, we may conclude that it is the one that most significantly contributes to improving organisational performance. Therefore, all organisations require the designing of an information system in order to perform control functions, since the control system must be the tool through which the organisation strives to ensure that its strategies are carried out. 2. Development of Management Control Literature The growing awareness of organisations of the need to have information systems for management purposes is related to their own need to coexist in a permanently changing environment, not only physically but also technologically, socially and financially (Caplan, 1971). This situation became more accentuated over the 1980s and 1990s, owing to the processes of market internationalisation and globalisation (Roberts and Hunt, 1991). In view of this new context, organisation managers have had to adapt the structure of their companies to these changes and to plan, control and handle different types of decisions. This means that information systems have to be adapted to each organisation’s objectives, structure and culture, since, through these systems, organisations seek to raise their capacity for coordinating their member’s decisions and for pinpointing problems that may arise (Lawler and Rhode, 1976). As will be seen, opinions in this respect are enormously varied, since, while it is true that most authors regard accounting control systems as particularly important, certain more critical authors feel that accounting systems are not a definitive solution. While they recognise their usefulness, they do not deem them indispensable and furthermore argue that it is impossible to establish an ideal, perfect system that paves the way for obtaining the information needed for planning and controlling organisation management. The accounting information system is the information system par excellence, since it can be designed to obtain objective (Hopwood, 1972) and quantifiable information (Emmanuel et al., 1985) at all organisational levels. Out of all the accounting control systems, management control research has progressively focused on budgeting as the key system (Birnberg et al. 1983) and because it is the most regularly used for organisational management control (Caplan, 1971). Today, however, budgeting is regarded not as the only control system but rather as one that must be complemented by other control mechanisms, both formal and informal. This is because of the growing recognition of the importance of qualitative variables that are very difficult to measure (Clancy and Collins, 1979). Flamholtz (1983), who analyses the relationship among the organisation’s accounting, budgeting and control system, concludes that this relationship may be very complex, since budgeting and accounting, as components of the formal control system, are not control systems in themselves, but instead depend on a good relationship and the filling of certain prerequisites by the other control mechanisms for control itself to work. In a nutshell, the majority of control systems (budgets, information management systems and accounting and financial systems) are management systems that compile information on specific aspects of the organisation’s performance and release them to the organisation members, although, in order to do this, attention has to be paid to which systems each organisation has to use and how it has to do so (Camman and Nadler, 1977). According to Kaplan (1991), the management control system makes it possible to adapt to changes in the environment, provides feedback in the performances, makes it possible to evaluate the profit of the products and clients, and counsels in capital investment decisions. Likewise, its adoption intends to reduce internal tensions and conflicts, as well as to facilitate reports to external groups (Cooper et al., 1981). Although the number of studies and research works on this subject is very extensive, most authors draw attention to the fact that there are still many points pending for establishing an ideal system, especially if the criticisms of the current systems are taken into account (Soldevila, 2000). In light of the foregoing, we cannot help but observe that, while it is always possible to improve accounting systems for controlling management, often if not always, it is virtually impossible to attain the ideal control system (Hopwood, 1972). Similarly, Merchant (1982) notes that “perfect control, which implies the conviction that the fulfilment of the objectives adapts to 42 those set out, will never be possible, since unforeseen events are always likely to take place (...) a good control system should be interpreted in the sense that an informed person can reasonably assume that there will be no unpleasant surprises”(p.46). Other authors criticise the excessive prominence they feel is given to accounting systems as part of the control system. For McKinnon and Bruns (1992), research has focused too greatly on accounting information systems for management control, while ignoring the fact that the decisionmaking process has to avail of many other types of information, meaning that accounting reports are only a small part of same. Palmer (1992) argues for the need for information systems that are more open than those strictly for accounting purposes, so as to reflect the organisation strategy, meaning that it is vital to modernise and upgrade accounting systems to changes in the companies, markets, products, technology and quality. Estes (1992) also defends the use of accounting systems, provided they evolve and adapt to society. When the environment changes, organisations need accounting information systems that detect problems, alterations and conflicts. What is more, they have to whet the organisation’s curiosity, ease the decision-making process in a participatory manner, and raise the organisation’s capacity to face changes in the environment (Hedberg and Jönson, 1978). The following paragraphs present a synthesis of the development of the management control concept in the literature. We have pointed out the existence of different trends of thought, which have gradually evolved as organisations and markets have transformed, introducing new variables for building efficient control systems adapted to social changes, to the process of internationalisation and to increased market competition (Jaeger and Balinga, 1985; Neimark and Tinker, 1986). Nonetheless, the contributions by the different authors are clearly heterogeneous and there does not appear to be a single predominant paradigm (Flamholtz et al., 1985; Merchant and Simons, 1986; Amat, 1991). Even so, all share the aim of improving organisational performance (Jaeger and Balinga, 1985). Amat (1991) points out that, despite the importance of organised control and control systems, there is a lack of adequate understanding of how control systems work, owing to the fact that the majority of the research works have examined them independently of the organisational context in which they operate. In our exposition we are going to distinguish the three trends that Soldevila (2000) proposes: mechanistic, formal control systems; control systems focused on psychosocial aspects; and control systems focused on the organisation’s cultural and anthropological aspects. 2.1. Mechanistic and Formal Control Systems This category includes the early contributions on the subject of management control and is characterised by the control system as a technical and formal system that coordinates human performances with the sole purpose of producing goods and services (Soldevila, 2000). According to this conception, management control systems are formally explicit tools and they themselves make it possible to bring about the organisation’s effectiveness and the efficiency (Amat, 1991). For Amat (1991), the different contributions to this trend of thought are sustained by mechanistic theories and have the following common points: • The organisation’s objectives are perfectly defined, clear and tend to be in relation to the maximisation of profit; • The management plans and controls the efforts by the organisation’s members; • Behaviour is managed through the design of formal organisational mechanisms (hierarchy of authority, rules, behavioural norms and defined procedures, centralisation of the decision process); • Control of the efforts by the organisation’s members can be achieved through the use of logic and qualitative techniques; • Control can be exerted through the design of formal systems and based on the principle of control by exception; 43 • Motivation is largely extrinsic and incentive systems have to be fundamentally based on monetary payment. Within this trend of thought: we can distinguish on the one hand, classic or traditional organisation theory and, on the other, contingency theory. The first contribution in this line of thought is what corresponds to the classic school represented by Fayol (1949) and Taylor (1911), who bequeathed a scientific, rational vision of company and management systems. In the same trend of thought one can include the works by Anthony (1965) and Anthony and Vancil (1972), who introduce a broader vision of the organisation, suggesting the influence of company policy on the design of the control system, although solely in the formal aspects related to strategic planning carried out by the top management. For this reason, the classic focus has been criticised for devoting its attention to formal aspects alone, without taking into consideration the effects of other informal or more complex factors (Soldevila, 2000). In this mechanistic and formal trend we could also include what is known as contingency theory, which, according to Amat (1991), is a simplification of systems theory. This approach maintains that no control system is ideal for all organisations, but instead depends on the circumstances in which it finds itself (Amat, 1991). It is thought to have been developed by Burns and Stalker (1961), Thomson (1967), Woodward (1965), Lawrence and Lorsch (1967), and Gordon and Miller (1975). Attention has been drawn to the existence of three fundamental contingency factors in the design of control systems: technology, dimension and environment, meaning that the effectiveness of a control system depends on its adjustment to the organisation’s characteristics and, especially on the three foregoing variables (Berry et al., 1995). For Amat(1992), the limitations of the contingency theory are specified in that “the relations between the variables are not sufficiently clear, this research has tended not to study the relation between control system and effectiveness and, furthermore, the tendency has been to associate effectiveness with profitability; the prescriptions proposed by this approach have obtained insufficient empirical verification; and the close relation between the different components of a control system invalidates the isolated study of control systems with respect to their broader context which, moreover, is much more complex and multidimensional than what this trend has indicated” (page 28-29). The application to an organisation of mechanistic and formal management control systems involves a series of drawbacks which have been shown by different authors. The following are the most relevant: • They present important limitations when adapting to changes in the conditions, circumstances and situations in the organisations owing to change in the environment, since, according to Amat (1991) and Neimark and Tinker (1986), they do not take the environment into account or fail to sufficiently specify its influence on the control system; • For Ouchi (1977) control and structure are not sufficiently differentiated, and in some cases are even confused with one another; • They only work satisfactorily when the activities to be developed are specific and repetitive, or else when high pressure is exerted by the management for people to submissively accept specific tasks, and furthermore, when the environment is stable (Amat, 1991); • They lack a socio-historic perspective on the social origin of control systems (Neimark and Tinker, 1986); • They can take on a bureaucratic nature which can hinder creativity and innovation (Amat, 1991); • They can have unforeseen and undesirable consequences; for example, the objectives of the organisation’s members can take precedence over the objectives of the organisation (Morgan, 1986); 44 • Ongoing feedback mechanisms, through which the organisation can be made more dynamic, are forgotten and focus is preferentially on control at specific times (Neimark and Tinker, 1986); • They can prompt demoralising effects on the employees, especially those at the lower levels of the hierarchical scale (Morgan, 1986); • Performance by the organisation’s members is not clearly specified, since the main objective of analysis of this trend is the organisation itself (Neimark and Tinker, 1986). Thus, while on the one hand it can be concluded that mechanistic control systems are seen to be overly structured and lacking a capacity for innovation in the face of environmental change which alters the initial conditions, on the other, many of the paradigms (profit maximisation, emphasis on formal aspects) and many of the management techniques currently in use (cost accounting, budgetary control...) are based on this mechanistic approach. 2.2. Systems Based on Psychosocial Aspects As a formula for surpassing the limitations of mechanistic approaches, Amat (1991) points out that the management control concept was enriched by the incorporation of more complete approaches, in which people’s passive and rational behaviour was substituted by a greater consideration of the motivational factors that influence behaviour and it began to be accepted that the crucial aspects for the design and implementation of a control system were not limited solely to formal ones. Pérez López (1993) stresses that the research works conducted using this approach regard the organisation as a social body in which people take part not only to obtain the incentives offered by the company but to satisfy other needs as well. According to Caplan (1971) the increased complexity of organisations requires the incorporation of new control techniques oriented towards motivational factors, in order to persuade organisation members to cease passive attitudes or behaviours, rendering it necessary to accept that, for control systems to be implemented, it is not enough to consider the formal aspects but rather one must include the individuals’ behavioural aspects. Three trends of thought: can be distinguished: the human relations school, the trend based on human information processing, and open systems theory. These three trends of thought share several common traits, which, according to Amat (1991), can be expressed in the following points: • Formal systems both influence and are influenced by the people that form part of the organisation; individual behaviour not only depends on the system’s formal design, but also is influenced by the individual and organisational context in which it acts; • Man is limitedly rational and does not attempt to completely maximise, but rather is satisfied with a lower level; • The organisation’s objectives are not always clear and furthermore can create conflicts with the individual objectives; • Control of individual behaviour may not only be achieved through the use of quantitative techniques but also responds to psychosocial conditions, so that control can be taken not only through both results and behaviour; • Motivation is conditioned not only by extrinsic factors but also by intrinsic factors. The most relevant aspects of each of these three trends are as follows: The trend based on human relationships focuses its analysis on the effects on the behaviour of the individuals in the control systems, since this behaviour is thought to be conditioned, among other factors, by individual objectives, by the relationship which each individual has with the job he performs in the organisation, by the motivation and participation of each individual, and, in short, by all human relationships which occur within the organisation. Within this trend, it is deemed that the employee no longer has merely financial needs but also pursues his own personal satisfaction in the organisation, which, according to Ansari (1977), involves the appearance of the manager-leader who will provide the impetus necessary for the employees to improve their performances and their 45 satisfaction. This body of research, linked to the development of social psychology and sociology and to the impact of the human relations school, is centred on the study of people’s influence on the exercise of organisational control. Amat (1991), points out that the basic aspect of these lines of research is the belief that having a company conception that places higher emphasis on its people helps make individual objectives coherent with organisational objectives and, therefore, can increase intrinsic motivation and the capacity for self-control. The literature pinpoints two major lines of research within the trend of human relationships. The first has been focused on the analysis of the effects of employee behaviour in the design of the control system (Ridgway, 1956; Argyris, 1952, 1964, 1977, 1990; Stedry, 1960; Becker and Green, 1962; Hofstede, 1968; Schiff and Lewin, 1970; Lawler and Rhode, 1976: Ivancevic, 1976; Searfoss, 1976; Steers, 1977). In the second line we see the introduction of the effect of leadership styles on individual behaviour and on the design of the control system (De Coster and Fertakis, 1968; Hopwood, 1972; Swieringa and Moncur, 1974; Seiler and Bartlett, 1982). The trend based on human information processing adds managerial decision-making to the design of the control systems, valuating the organisation’s psychosocial aspects-The research works in this line share the introduction of the principles of behavioural and cognitive psychology for analysing the factors that affect the quality of individual decisions. The factors that influence the quality of decisions have been classified into three: those linked to inputs, which measure the information properties (type of measurement, degree of trust, method and order of presentation), those linked to the process that uses the individual employees when making decisions (personality, intelligence, decision rules used, etc), and those linked to final outputs (speed, quality and degree of trust in the reasoning . The most significant contributions have been those made by Driver and Mock (1975); Hopwood (1978); Prakash and Rappaport (1977); Macintosh (1981); Libby and Lewis (1982) and Nutt (1986). The literature on human information processing, despite the fact that it regards organisations as coalitions of decision-making individuals, each with different aspirations, expectations, feelings and specific individual psychological variables and a capacity to process information, treats the organisational context superficially by placing too great an emphasis on the individual aspects (Amat, 1991). In the approaches addressed up to this point, organisations have been treated as a closed system, in which it is believed that control is attainable by regulating the internal organisational variables; on the contrary, within the trend of the open systems theory, the organisation is regarded as an open system. The approach known as open systems is based on bearing in mind the close relationship between the organisation and the environment, in addition to, owing to the influence of the human relations school, a broader consideration of the aspects tied to human behaviour. Along this line of research and within the scope of control systems, the most outstanding works are those by Argyris (1964); Katz and Kahn (1966); Thomson (1967); Hofstede (1968); Lowe and Tinker (1977); Ansari (1977, 1979) and Amey (1979a, 1979b). It is worth observing that with the introduction of the open systems trend, organisations begin to be characterised by a body of actions by individuals and groups that try to attain their own objectives. The organisational dynamic is no longer the result of existing formal action, but instead is the complex combination of formal and informal factors, both internal and external, to the organisation itself. Organisations, insofar as they are systems, begin to be studied with the characteristics typical of a system: internal interdependence, capacity for developing feedback, the ongoing search for balance, acceptance of equifinality in the means chosen, and capacity for adaptation. The three trends or theories that take into account the psychosocial aspects in control systems introduce the effect of the individual and overall behaviours of the members of the organisation and of the relationships among them, to the extent that these elements condition the design of the control system . Although progress has been made in the study of the control systems, they have been criticised by different researchers (Colville, 1981; Cooper, 1983; Chua, 1986; Dermer and Lucas (1986); Bhagat and McQuaid, 1982), who consider that, given the changes which organisations have 46