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February, 2010

Making Scorecards Actionable Newsletter # 43 (2010)

Content of Making Scorecards Actionable Newsletter # 43 (2010)

» Visit to Thailand
» Relating internal control and management control
» What did you think about this newsletter?



MEET US IN THAILAND

In the beginning of March, Carl-Johan will teach at the prestigious Thammasat Business School’s MBA program (March 8). At Thammasat, he will also run a faculty seminar to discuss similarities and differences between European and Asian implementations of balanced scorecard.

Please, contact Carl-Johan directly, if you like to set up an individual meeting while he is in the region. He can be reached at carl-johan.petri@makingscorecardsactionable.com.



RELATING INTERNAL CONTROL AND MANAGEMENT CONTROL

A debate we expect to hear much more about in years to come concerns the relationship between management control and internal control. There is an important overlap between the two. Up till now scorecards are probably seen as a tool for management control. Should they also be required as part of internal controls? Can internal control be designed from a BSC perspective?

Answers to such questions require further work on the concepts and analysis of practical experiences. Two recent books may contribute to this.

A licentiate thesis at Linköping University to be presented next month summarizes the extensive literature on internal control: Internal Control – A Study of the Concept and Themes of Internal Control. Its author, Olof Arwinge, is himself a practicing internal auditor and brings his practical experience to bear on the writings about internal control, going back at least a hundred years. He finds no reason to discuss scorecards, but his book shows how broadly many now define the concept of internal control. If like he claims it denotes “an all encompassing process” it might make sense to utilize strategy maps and scorecards to facilitate the communication that is at the heart of this process.

For a direct juxtaposition of internal control and management control we may turn to a recent book by Dutch authors: Eddy Vaassen et al.’s Accounting Information Systems and Internal Control (2nd ed., Wiley 2009). On pp.70-71, we read:

“In brief we believe that the main differences between management control and internal control are as follows:

(o) Management control is driven by strategy, whereas internal control is driven by transactions.

(o) Management control focuses on influencing decision-making whereas internal control focuses on supporting decision-making

(o) Management control has a predominant behavioural orientation whereas internal has a more mechanistic orientation.”

While agreeing with this characterization of management control, we have met internal control experts who differ from this book’s view on internal control. It says that internal control “starts from the lower layer in the framework and proceeds bottom-up to meet with management control” and sees a convergence between the two forms of control.

The authors stress the importance of internal control for reliable information and safeguarding of assets. Information on what and safeguarding what assets will however forever be a consequence of strategic choices, thus underlining the close relation with strategy-driven management control.

Or should we regard them as just two different aspects of control? The existence of a strategic logic, and its implementation throughout an organisation, would seem to be a necessary condition also for mechanistic, transaction-driven decision support – if, following this book, that is what internal control is about. Is it possible to have internal control without strategic direction?



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MAKING SCORECARDS ACTIONABLE NEWSLETTER is a bi-monthly update on our experiences and opinions on how scorecards and strategy maps can be made actionable – to help organisations realise their intended business strategies. The newsletter is compiled and distributed for free by the authors of the book “Making Scorecards Actionable – Balancing Strategy and Control”. Also make sure to check out www.makingscorecardsactionable.com to get up to date information about our seminars, to evaluate your organisation’s BSC skills according to our computerised BSC Analyser and to download presentations from the document archive.
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