Annales Universitatis Apulensis Series Oeconomica, 12(1), 2010
112
SOME ISSUES CONCERNING THE ELEMENTS OF CONTROL
FUNCTION OF MANAGEMENT
Sorin Domnişoru1
Oana Gherghinescu2
Radu Ogarca3
ABSTRACT: In the field literature and the specific practice, the use of terms, such as – control,
verification, evaluation, audit, on one side, and on the other side, the definitions for control function
of management, respectively, control-evaluation function – remain highly ambiguous. Considering
these observations, the authors point out several useful aspects meant to clarify this issue. In order
to highlight the complexity and the integrality of the management function, the analysis of the
elements composing a control system is undertaken. Constantly, the parts are reported to the whole;
therefore, those concerning the evaluation and the verification are reported to the system providing
the exercise of the control function. Willing to eliminate ambiguity, for each of the concepts
involved, certain substances are proposed, as being considered better confined and oriented.
Keywords: management, control, verification, evaluation, audit
JEL codes: M 10, M 42
Introduction
“If anything can go wrong, it will go wrong” is one of the Murphy’s pessimist laws, warning
the managers to stay focused on eventual issues, because, even if a system seems to perform
standardly, it may be undermined slowly inside/from inside. Therefore, in order to avoid the
abnormal functioning within an organization, the management develops a system which provides
insurances concerning the concept of dominance/direction, a possible alternative for control
function. However, one may notice that for the field language, as well as for legal regulations
indicating the same topic, concepts, such as, control, audit and verification are easily used. Thus, we
have expressed certain opinions related to this triad and to the content of the control function of
management.
Research Methodology
Our approach aims at presenting a personal interpretation of the orientation, place and role
of verification, evaluation and internal audit within the control function of management and against
the existing economic and social background, as well as the differences between control and
control-evaluation functions.
The approach provides a synthesis and an antithesis of the ideas deriving from this topic,
proposed by the field literature, of the regulations elaborated by different national and international
organisms. Therefore, we appreciate the fact that a proper use of the concepts and a professional
expression will ease our task.
For achieving our objectives, we have applied a constructive methodology for determining
the criteria, for supporting and elaborating a discourse, for pro-reconsideration of national
regulations of the area and their harmonization with theory and practice within developed countries.
.
Annales Universitatis Apulensis Series Oeconomica, 12(1), 2010.docx
1. Annales Universitatis Apulensis Series Oeconomica, 12(1),
2010
112
SOME ISSUES CONCERNING THE ELEMENTS OF
CONTROL
FUNCTION OF MANAGEMENT
Sorin Domnişoru1
Oana Gherghinescu2
Radu Ogarca3
ABSTRACT: In the field literature and the specific practice, the
use of terms, such as – control,
verification, evaluation, audit, on one side, and on the other
side, the definitions for control function
of management, respectively, control-evaluation function –
remain highly ambiguous. Considering
these observations, the authors point out several useful aspects
meant to clarify this issue. In order
to highlight the complexity and the integrality of the
management function, the analysis of the
elements composing a control system is undertaken. Constantly,
the parts are reported to the whole;
therefore, those concerning the evaluation and the verification
2. are reported to the system providing
the exercise of the control function. Willing to eliminate
ambiguity, for each of the concepts
involved, certain substances are proposed, as being considered
better confined and oriented.
Keywords: management, control, verification, evaluation, audit
JEL codes: M 10, M 42
Introduction
“If anything can go wrong, it will go wrong” is one of the
Murphy’s pessimist laws, warning
the managers to stay focused on eventual issues, because, even
if a system seems to perform
standardly, it may be undermined slowly inside/from inside.
Therefore, in order to avoid the
abnormal functioning within an organization, the management
develops a system which provides
insurances concerning the concept of dominance/direction, a
possible alternative for control
function. However, one may notice that for the field language,
as well as for legal regulations
indicating the same topic, concepts, such as, control, audit and
verification are easily used. Thus, we
have expressed certain opinions related to this triad and to the
content of the control function of
management.
Research Methodology
Our approach aims at presenting a personal interpretation of the
orientation, place and role
3. of verification, evaluation and internal audit within the control
function of management and against
the existing economic and social background, as well as the
differences between control and
control-evaluation functions.
The approach provides a synthesis and an antithesis of the ideas
deriving from this topic,
proposed by the field literature, of the regulations elaborated by
different national and international
organisms. Therefore, we appreciate the fact that a proper use
of the concepts and a professional
expression will ease our task.
For achieving our objectives, we have applied a constructive
methodology for determining
the criteria, for supporting and elaborating a discourse, for pro-
reconsideration of national
regulations of the area and their harmonization with theory and
practice within developed countries.
1 University of Craiova
2 University of Craiova
3 University of Craiova
Annales Universitatis Apulensis Series Oeconomica, 12(1),
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4. What is Control?
The economic literature proposes numerous ways of considering
the concept of control
(taking into account its mechanisms, role and objectives),
classified on branches of economic
science from which derive – management, finances,
accountancy, audit, etc. We shall provide a
brief review of several of these approaches, emphasizing the
fact that, obviously, the concept of
control is not an exclusively economic category.
For the beginning, we assume that certain specifications and
semantic constraints are
needed. Therefore, according to DEX (1998) the concept of
control represents “permanent or
periodic analysis of an activity meant to provide improvement
measures”, but also “continuous
supervision (moral or material); dominance”. Given this
definition, as other terms are employed, we
should precisely indicate their meaning, too:
– study of the whole, of a phenomenon, examining
each constituent;
– action of searching for the truth, for reality,
and whether everything occurs
in conformity with the standards or certain specifications;
iven in control definition) – a
good knowledge of the business
line – as well as the action of blocking somebody’s actions or of
restraining somebody from doing
something; to hold back, to rein in.
5. Synthesizing and concentrating ourselves over the concept of
control as a function of the
management, over its procedural nature, we may introduce a
dimension of analysis, a dimension of
verification (an extra element as compared to the analysis,
meeting pre-determined standards),
indicating an initiation of corrective actions and, a reflection of
the evolution of the economic
world, as well as a dimension of “dominance” of contexts,
particularly, internal (but also external)
to the organization.
The economic literature develops, more or less, between these
coordinates. To this respect,
H. Fayol defines the concept of control as “an action of
checking whether everything is being
carried out in accordance with the adopted plan, with orders
which have been given and with the
principles which have been laid down” (in Boboc, 2003).
According to Fayol, the object of control
consists in detecting weaknesses and errors, their correction in
due time and prevention of improper
action recurrence.
A.N. Tannenbaum (1968) defines the concept of control as a
“process in which a person or
group or organization determines or intentionally affects what
another person, group or organization
will do”3.
R. Mockler (in a paper dated in 1970) considers control as “a
systematic effort made by
business management to compare performance to predetermined
standards and to undertake, if
necessary, corrective actions to see that human and other
corporate resources are being used in the
6. most effective and efficient way possible in achieving business
objectives.” (Certo, 2002, p. 557)
According to E. McKenna (in a paper dated in 1988), the
concept of control may be seen as
“the minimization of idiosyncratic behavior and the promotion
of conformity in accordance with
explicit plans” (in Morris et al). Slightly following the same
idea, A. Burlaud and C.J.Simon (1997)
defined control as “a system of adjusting behaviors” as well as
“a language with a strong influence
on those who use it, because a language represents in itself a
vision of the world and those who
speak it are forced to adopt it”. Through its characteristics,
control may be seen as a way of unifying
concerns and behaviors, fact which has greater importance when
dealing with larger groups, more
varied and geographically spread out. Language gives shape to
reasoning. For example, the finance
language introduced within an organization (words, as well as
indices stand for standards) requires
more interest than financial concerns.
A. N. Anthony (1995) defines control as “a process by which
managers ensure that
resources are produced and used effectively and efficiently for
achieving the goals of the
organization”.
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According to Adam Jr. and Ebert (2001, p. 437) who propose a
more general vision, control
is a process through which a characteristic of the system is
transformed in order to generate the
desired change meant to improve the system.
According to a source of reference specific to the area dealt
with, a control system is made
up of policies and procedures meant to provide the management
a reasonable guaranty, namely, that
the entity achieves its predetermined goals. These policies and
procedures are often defined as
control mechanisms and represent, on the whole, a basis
providing control to managers and
shareholders inside and over the entity (Arens et al., 2006, p.
332).
According to Nicolescu and Verboncu (2001, p. 27), “control
represents the entire body of
processes measuring and directing performances, subsystems
and components of the organization
against predetermined plans and goals in order to eliminate
detected deficiencies and to integrate
positive deviations”.
Considering the national legislation, the concept of control
implies:
- All the principles, criteria, norms and methods concerning the
organization inside the
entity, including the mood or the specific strictness;
- All internal procedures, among which we mention: purchase
procedure, registration
8. procedure, claim monitoring and recovery procedure etc.
- Preventive financial control;
- Other forms of internal control, with no specification in the
law (OG 119/1999) meant to
clarify which are these forms. Considering the size, the profile
and the policy of the organization,
there different forms of control: task separation to avoid
incompatibilities, technical and quality
control of generated products and services; hierarchical control
correlated to accounting control and
verifications, management financial control; labour protection
control; trade control, sanitary
control etc.
As a preliminary corollary, we may state that the concept of
control does not define only
actions, mechanisms, procedures, but also a “philosophy”
developed within the organization which
allows the activity evolution in accordance with stakeholders’
plans, purposes, and expectations.
Moreover, the difference between internal and external control
looses its importance, no matter
whether we relate to rights and responsibilities of a part of
stakeholders (from inside) or to social
responsibility of the organization and its sustainable evolution.
Objectives and Characteristics of Control
In our opinion, the concept of control is richer in content than
that of verification-evaluation,
and includes, among its objectives, the goals achievement to an
adequate level within the
organization, as well as the development and maintenance of
certain system of collecting, stocking,
9. processing, updating and transmission of financial and
management data and information. Control
mechanisms applied within the organization are meant to
encourage the efficient and effective
utilization of its resources, including human resources, for the
purpose of optimizing the company
actions. An important part of the results registered by these
control mechanisms provides correct
information intended for the internal decision-making process.
Another crucial component of the dominance system is that of
protecting the assets,
including the inventory of the organization.
At the same time, the control system is aiming at abiding the
enforced laws and regulations.
Entities have the obligation to abide numerous laws and
regulations. Most of these governmental
decrees are only partially related to accountancy. As the control
system tends to develop, beyond
these aspects which directly concern the accounting and
financial-accounting and control system
within the entity, there is great influence over the management
and control covers the first line of
defense in protecting the wealth against eventual losses and in
enhancing the achieved
performances.
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10. All these considerations lead us to a certain substantial
viewpoint – control should not be
considered as a purpose in itself, but as a way of achieving a
goal, namely, the improved
functioning of the system within the organization (Adam, Ebert,
2001, p. 437), including its
formation in order to face the changes occurring outward
(Dalotă, 2003, p. 298).
In theory, as well as in practice, we may identify a series of
characteristics of control.
Briefly, we shall feature the most significant ones:
Control represents a continuous integration and incorporation
on the operations. Control is
not a very precisely delimited event or, in other words, it is not
confined to verification, on the
contrary, it consists of a series of means and processes, of
actions developed simultaneously with
the entity operations, in a continuous manner. It should exist as
an integrant part of each system
applied by the management for the regulation and coordination
of all the initiated and developed
operations, without being viewed as a distinct unit of the entity.
Control is achieved as part of the
philosophy, architecture and logistics of the organization
supporting managers in leading the entity,
in this manner, all planed objectives would be completed.
Management has the charge of an adequate control meant to set
its objectives, to apply its
mechanisms, to monitor and evaluate it. Beside available
technical and financial means, control is
an essential instrument used and created by the management for
fulfilling the goals of the
11. organization. As for all efforts exerted by the organization,
control actions should be undertaken
only if benefits deriving from this kind of activities exceed the
costs required for their development.
In many cases, management is not ready to introduce a system
which tends to be ideal due to the
fact that costs could be very high and there might be collateral
losses.
For example, a company counting 7 employees and numerous
business sites has as a main
line of business renting locations to third parties with the view
of selling varied merchandises
within these sites. Renting contracts included the following
claim: the third party owes the lessor
3% of the turnover registered for the rented location, but not
less than 1000 euro/month.
The economist took notice of the fact that all the 60 clients
actually owed monthly 1000
euro, as the stated turnover was too small to consider the
application of the 3% to gained returns.
Moreover, because of the high price of the rent, as compared to
the potential of certain companies,
the occupancy rate of rented spaces indicated 70-75%.
The same economist or, in other words, a part of the internal
control system, considered the
following mechanisms of optimizing the business:
- In order to monitor the sales, clients were asked to present
copies for the reports printed
by the cash registers, an irrelevant mechanism because these
reports corresponded to the stated
turnover for those respective locations.
12. - To place an employee inside each location rented, charged
with monitoring the sales. The
procedure proved to be very expensive; the efforts for keeping
60 extra employees, together with
the depreciation of assets, largely exceeded possible revenues.
- To place personnel to the exit way of each site; the personnel
being charged with
monitoring the sales achieved by each partner considering fiscal
receipts. The system risked
generating, physically, a strangulation of the business circuit, or
psychologically, to affect the
business fund allotted to those locations. The conclusion was
that this mechanism of internal
control, too, was inappropriate.
- To connect cameras in each location. Technically, this
measure did not provide an
adequate monitoring of sales achieved by business partners and,
besides, it was highly expensive....
Finally, another system of pricing was adopted and applied by
the company during its
collaboration with the clients. Prices were established,
exclusively, as absolute sums differentiated
according to the nature of merchandises and the positioning of
different areas inside the site – for
food products 20 euro/month/m2; cosmetics and mobile services
50 euro/month/m2; for clothing,
knits and other garments 40 euro/month/m2 in season and 10
euro/month/m2 in extra season; for
coffee, cigarettes and alcoholic beverage 60 euro/month/m2 etc.
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In this manner, monitoring the partners’ sales was no longer
necessary for the management,
the company achieving a 40% increase in revenues and an
occupancy rate of 90-100% in renting the
locations to different clients.
Analyzing this example, a control component has identified at
least two risks which were
avoided by recommending the change of renting contracts
conclude with the clients. In other words,
a mechanism of control was created providing a reasonable
guaranty for the company in achieving
its goals.
Inherent restrictions. Mechanisms of the internal control could
never be considered as
perfect means, regardless of their design and application. For
example, even if an ideal system was
conceived, its efficiency would depend on its users’ ability and
reliability. The concept of control
should not be generalized or idealized; this tendency is
perceived in the practice of some
organizations, and also in the field literature. For example, the
English professor Charles Lane
claims that control function is the only important function of
management (Nicolescu, Verboncu,
2001, p. 27).
Rabindranath Tagore, Indian philosopher wrote down in a
metaphorical manner: „If you
14. shut the door to all errors, truth will be shut out” (in Russu,
1999, p. 317). Returning to present and
to scientific literature, it is obvious that for many managers to
avoid failure seems to be more
important than having success. This seems to be connected to
their experience revealing the fact
that most of the managerial systems largely punish the failure,
than rewarding the success, and
whereas the burden of a failure remains attached to an
individual, as a hall-mark, the news of a
success vanishes in an instant, similar to a volatile substance
(Görg, 1997, p. 63).
Following the same idea Peter Drucker, a guru of the
management, mentioned that: „The
better a man is the more mistakes he will make – for the more
things he will try. I would never
promote into a top level job who had not made mistakes, and
big ones at that. Otherwise he is sure
to be mediocre” (in Beatty, 1998, p. 86).
This reasoning leads us to the idea that control has to be an
interactive function, too. This
approach has been introduced by Robert Simons (1995). The
interactive control defines the
“attention” (wakefulness) of the management to all evolutions –
negative evolutions, as well as
positive ones – influencing the organization and demanding new
strategic initiatives. As a graphical
representation of this approach, we propose the following chart:
15. Fig. no. 1 - Interactive character of control
Source: Anthony (2001)
To this effect, Stevenson and Jarillo (1996) discuss about a
comparison between the
traditional approaches “order and control” and the new approach
“early warning”. Control should
become an instrument applied for managing incertitude,
promoting risk assumption, encouraging
certain initiatives and forcing employees to assume
responsibilities (H. Oden, 1997, in Morris et
al.). According to this new orientation, the control system has a
key role in risk management, a
significant determining factor in achieving organizational
objectives (Turnbull, Internal Control
Working Party, 1991, p. 4). Thus, managers have the
opportunity of developing control systems
able to consider, besides financial aspects, a range of risks to
which the organization is exposed
(Spira, op. cit.).
Actual control
Future strategy
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16. 117
Elements of a Control System
Generally, we may affirm that a control system, within an
organization, comprises five
categories of elements: medium of control; risk management;
control, information and
communication activities, and supervision. Each category may
be well supported by arguments and
includes numerous elements of control that we shall briefly
describe.
i. Medium of Control. The medium of control detaches as a real
pillar of internal control
system, its task being to protect, constrain and determine the
other components of control. Lacking
of an adequate medium of control, it is slightly probably that
the other four components could lead
to an efficient control, regardless of their quality.
Following the analysis of the medium of control, we have
noticed that it includes actions,
policies and procedures which reflect general attitudes assumed
by the management, the board
members and/or by the owners of the organization towards
control and its important role within the
organization. The medium of control, particularly, as well as the
control system are influenced by a
series of factors: organizational culture, organizing structure,
informational system, human
resources management, management style. These influences
may be graphically influenced as in
figure below:
17. Fig. no. 2 - Determining factors of control system of the
organization
Adaptation after: Anthony, 2001, p. 8
We shall continue to synthetically present the most important
mutual influences.
The organizational culture is seen by Edgar Schein as “a pattern
of basic assumptions for
learning, discovered or developed by a certain group, a certain
collectivity, during the process of
learning how to successfully solve the issues related to the
external evolution and internal
integration, which has registered an adequate development for a
certain period of time, in order to
18. be validated, and which is going to be transmitted to the new
members as an optimum way of
perceiving, thinking and feeling connected to those issues”
(Năstase, 2004, pp. 29-30).
Ov. Nicolescu (2001) considers the organizational culture as
“the aggregate of values, faiths,
aspirations, expectations and behaviors designed in time within
each organization, having a
dominant status within it and directly and indirectly
determining its functioning and performances”.
Strategy
Organization system
Performance
Internal
control
structure
onal
system
management
communication
techniques of
management
19. Organizational
culture
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The organizational culture is a major factor determining
members’ behavior within an
organization; it may influence the level of achieving the goals
and the tasks developed by the
organization through directing the employees’ potential and
grafting certain behaviors and adequate
attitudes able to trigger employees’ latent energies and,
likewise, able to provide the conservation of
the organizational excellence, representing the needed support
in adopting the best solutions and the
most suitable behaviors meant to face the hostilities of the
medium (Stanciu, Ionescu, 2005, p. 57).
Connected to the elements of control, the organizational culture
foresees a set of common
frameworks learned during social interactions, forwarded heart-
to-heart and, at the same time,
having a rule-making nature. In other words, the organizational
culture helps the employees to
understand what they are allowed to do and what they are not,
as long as they are at work (De Vries,
2003, p. 233). The organizational culture may provide
reliability, if it is based on autonomy and
openness to ideas, or fear and reprisal. For the first case, we
20. may observe the prevalence of informal
and discipline control measures, for the other case, formal
control systems, as an imposition coming
from outside (Ionescu, Cazan, 2004, p. 283).
Among the elements of the organizational culture, a significant
role in configuring the
control system is played by the system of values and,
respectively, behavioral norms.
Values represent “the essence of the culture”, the essence of the
success philosophy
implemented by the organization, the central element which
gives a sense to a common direction
and indicates the way in which the members of the organization
should work together (Huţu, 2003,
p. 100). When the organizational culture gains strength, values
will absorb general attention;
otherwise, values would be ignored. When dealing with strong
cultures, values play the role of an
informal control system which grows stronger than any other
control system, due to the fact that it
provides purpose and significance for everything that is meant
to be achieved for performance
(Huţu, 2003).
Behavioral norms consist of habits, traditions, rituals and
ceremonies under the title of
(un)written rules of the organization (Stanciu, Ionescu, 2005, p.
46). Norms should be formal –
concerned with official and organizational regulations
(functioning rules, of interior order,
specifications of functions, positions, decisions) or informal
(orally transmitted as examples, having
great influence on employees).
21. Informal norms, values and faiths implemented within the
organizations also establish the
tone of moral reasoning within the company (Ionescu, 2005, p.
628), determining the removal and
the diminution of motivations or temptations which might
engender the employees to get involved
in unfair, illicit, immoral deeds, or the contrary.
In order to get values and norms known and respected by the
employees of a company, it is
essential that, between whiles, during the operating life of the
organization, an introduction and
explicit details of major values, meant to guide the decisions
and the actions of the personnel
concerning internal and external interactions of the company, to
be set forth.
Values and organizational norms communication reproduces a
continuous process,
manifested under formal, as well as informal, explicit and
implicit aspects (Năstase, 2004, p. 75).
As an important component and resource inside the
organizational culture, the managerial
culture is developed. This concept refers to the system of
managerial values, faiths, aspirations,
expectations and behaviors which is reflected in the
management styles and types applied within the
organization, indicating, in an obvious manner, the content of
the organizational culture and the
company performances (Stanciu, Ionescu, 2005, p. 79). We
outline this consideration by means of
emphasizing the fact that, by many of the managerial culture
dimensions, the management attitude,
the management working philosophy and style and the
commitment for competence (see Arens,
22. 2006, pp. 334-336) develop a significant influence on the
control system.
We should also mention that all these elements of the
managerial culture register a
determiner in the concept of manager’s temper. This concept,
beside the influence mediated
through the organizational and managerial culture, may also
influence, in a direct way, the design of
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the control process within an organization. The table below
synthetically illustrates these possible
connections:
Table no. 1
Correlation between manager’s temper and the type of control
employed
Temper Type of control
Cheerful Active control, diplomatic, pleasant, efficient
Choleric Active control, tending to anger
Stolid Efficient control, slightly tending to “nagging”
Wistful Tendency toward tolerance
Source: Boboc, 2003, p. 111
23. The organizing structure of an entity represents the group of
individuals and organizing
subunits constituted and interconnected to provide organizing
premises meant to establish and
achieve foreseen objectives (Nicolescu, 2003, p. 30). By
understanding the organizing structure, the
managerial and functional aspects of an economic entity are
better perceived, as well as the way in
which control mechanisms are applied, therefore, a biunivocal
strong correlation is established
between organization and the concept of control.
During the last century, the pyramid constituted the organizing
symbol of control, status and
bureaucracy. Recently, organizing symbols oriented towards
networks and “cobwebs”, having as
distinctive marks operational or ad-hoc teams, unconfined and
chaotic horizontal processes or
virtual systems (Ulrich, 2002, p. 144).
The hierarchy has been set for conserving a series of valuable
capacities: precise
responsibility, legitimate authority, predetermined routines,
work division and professional
background. In a world of unforeseen changes, of globalization,
of dynamic technologies, of
educated employees and clients, these capacities will no longer
yield favorable results.
The employees of the future organization will prove autonomy,
self orientation and self
motivation. This way of performing is enforced when the
employees are aware of the expectations
of the company, of its orientation and of the reason for this
24. orientation and of the individual
contribution to the achievement of the general goal. The results
of this new way of perceiving
things will be materialized at low costs due to a reduced need
for supervision and to a better quality
relying on more competent decisions (Hesselbein et. al., 2002,
p. 146).
Human resource policies and practices. The most important
aspect of control within an
entity is the personnel operating here. When dealing with
competent and reliable employees, even
in the absence of other types of control mechanism, there is
competitive activity within the
organization. Honest and efficient individuals are able to
perform a high quality-related work even
if there are few types of control mechanisms. Contrarily, even if
numerous other control
mechanisms are applied, incompetent or unreliable individuals
may transform the system into a real
chaos. Despite the existence of a competent and reliable
personnel, it is wrong to disregard the fact
that people possess a series of innate weaknesses (although
most of the specialists in management
consider X Theory as being obsolete). For example, they may
get bored or become unsatisfied; their
personal issues may affect professional performances or their
planned objectives may change.
Taking into account the important role of competent and
reliable personnel in providing an
adequate control, all methods applied for hiring, evaluating,
training, promoting and rewarding the
individuals represent a crucial aspect of any managerial control
system; these considerations are far
away from the meaning of verification, but they imply a highly
25. useful activity in providing control.
ii. Risk Evaluation and Administration by the Management of
the Entity. All the
organizations, regardless of their size, structure, designation,
nature or industry, are facing different
risks deriving from internal or external sources, which must be
managed. Considering the fact that
economic, industry, juridical and operational circumstances
evolve, management should respond to
Annales Universitatis Apulensis Series Oeconomica, 12(1),
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the challenge of creating useful mechanisms meant to identify
and to administrate the risks
associated to these changes. Control, suiting a single set of
circumstances, will no longer be
efficient, will no longer adapt if these circumstances evolve.
Therefore, control should be focused
on an important aspect of activities, that of internally and
externally scanning the medium of the
organization.
The identification and analysis of risks represent a continuous
process and a critical
component of an efficient control. Management should be
focused on risks to all levels of the
organization and undertake all necessary measures to eliminate
these risks. Following risk
26. identification, management needs to estimate its importance, to
evaluate the probability of its
occurrence and to formulate specific measures meant to reduce
the risk to an acceptable level.
iii. Activities of control represent a series of policies and
procedures, beside those included
by the others components, providing the fact that for achieving
their goals, entities adopt necessary
measures in order to face the risks affecting their activity. By
their definition, there are five types of
activities of control: adequate separation of responsibilities;
adequate commission of operations and
activities; adequate elaboration and registration of documents;
independent verifications of norms
application and of results achievement. We shall not insist on
analytical aspects concerning these
activities, our main focus being the last activity of control.
Therefore, the independent verification of norms application
and of results achievement
consists in a comparative, rigorous and anonymous examination
of the other four categories. One
may notice the need for independent verifications determined by
the fact that control tends to get
“used” in time, in the absence of a mechanism of periodical
verification. This category of
verifications includes at least: preventive financial control,
financial and accounting verification-
review and administration control, quality control etc. It is
possible that employees forget to apply a
norm, or they deliberately refuse to apply a procedure or they
become careless if nobody verifies
them. In addition to these situations, no matter how competitive
are the mechanisms of control, their
might exist accidental/planned errors.
27. From the perspective of verifications or of control, we may state
that the applied indices and
the criteria drawn upon represent an impulse towards
performance. An optimum system of
evaluation, as an integrant part, leads the organization in a
positive direction. a system incorrectly
conceived and applied, on the contrary, may be damaging
(Harrington, Harrington, 2000, p. 349).
Expert managers are hired only for protecting stakeholders’
investments, as well as for
conferring them value. Performance indices fulfill both
functions: they indicate whether the
company is under short-term control and whether value is
generated for long-term. It often happens
that the objective of the short-term control prevails over the
objective of generating value for
stakeholders, and particularly, of stimulating department
managers to generate it. It is not the
concern for generating value, but that of enforcing a financial
control, as strict as possible, that
encourages costs diminution and activity restraint for the
detriment of investments and growth.
Excessive control leads to value destruction for stakeholders
and clients, and eventually, as the
company loses its competitiveness, for the employees. The
design and the analysis of a system of
performance indices, meant to achieve a balance between
managerial control and operational risk
assumption, may appear as a fundamental, but, at the same time,
fragile, condition for success. It
cannot be confused with the aggregate of control.
iv. Communication and Information System. The information
flow is essential for a control
28. system (Adam, Ebert, 2001, p. 437). Among the components of
the informational system specific to
an organization, the accounting information subsystem plays the
most important role in planning
and controlling the economic activity of the organization, being
the most developed information
subsystem of the company, due to the high volume of
accounting information. Therefore, field
literature points out the fact that 80% of the information spread
within the systems of an
organization is of economic nature, and 47% of this economic
information is of accounting nature
Annales Universitatis Apulensis Series Oeconomica, 12(1),
2010
121
(Oprea et. al., 2002, p. 334)…. But this does not give us the
right to reduce control and/or control
function of the management to the stage of financial and
accounting verification.
Considering the process of control, we estimate that the
communication system transcends
the informational one. Blind informatization in excess based on
attendants’ mystification, illusion of
transparency, informational full intensity may engender
uncontrollable and delayed effects.
“Information is highly probable to become a kind of unexploded
bomb, in the sense that
information has no longer the deliverable effect, and not only it
29. becomes useless in solving the
issues, but may generate new ones, recurring to pseudo-
information – information lacking addresses
and significance” (J. J. von Cuilenburg, O. Scolten, G. W.
Noomen, 1998 in Zlate, 2004). Under
these circumstances, an efficient organizational communication
becomes necessary in order to settle
responsibilities, to precisely limit authority and tasks, to
provide an optimum control.
v. Supervision or Internal Audit. Supervising activities refer to
permanent or periodic
evaluation of control functioning quality performed by the
management of an organization in order
to determine whether its mechanisms are applied according to
enforced regulations and whether
they are modified accordingly when dealing with changes of
circumstances.
The most important aspects of the monitoring activity are
determined by the main types of
supervising activities developed within a company and by the
way in which these activities
influence control mechanisms, whenever it is the case.
We also mention that the size of an organization determines a
significant impact over the
nature of control and over specific control mechanisms applied
during the activity. Therefore,
developed and high developed organizations counts on highly
formalized, impersonal, controls with
feed-back, while, and less developed organization are rather
controlled in an empirical manner,
abiding the principles and other elements mentioned before.
30. Conclusions
We consider that the utterances presented in this paper, as well
as several elements
encountered in the field literature and in daily experiences,
provides us a basis for reporting
verification-evaluation to the control function of the
management. Therefore, synoptically reducing
the concept of control to the surface and the shape of a circle
(figure 3), we may state that,
considering a plastic point of view, the lines plotted on the
graph represent the part consisting of
evaluation-verification (verification and internal audit
activities) of the whole, here, the control
function of management. Intersections of the lines, for example,
may stand for real redoubt of fight
against the risks etc.
Fig. no. 3 - Correlation between the whole, namely, control and
a certain part, namely,
verification-evaluation
Annales Universitatis Apulensis Series Oeconomica, 12(1),
2010
122
Adopting this vision, we consider that a more concerned use of
concepts of: control, control-
evaluation, evaluation, audit, verification-evaluation,
verification etc, is needed. When speaking of
31. control, the audit and verification may be involved, but they do
not represent the same meanings
and it is highly recommended not to confuse the language used.
Control is an attribute of a more ample management, which
includes a certain way of
designing, achieving and working of systems and relations. As
mentioned before, beside
verification and audit, control also includes: leading philosophy
and attitude, level of education,
training and morality of employees etc.
Consequently, we suggest applying the sense of order and
conformity inquiry for
verification and that of dominance, interception and “leading”
of a certain process, of an activity
or/and of an entity, for control. The concepts of verification and
audit correlated to that of control
define the relation between parts and the whole. A better
evolution of the first two concepts within
an organization generates grater chances of achieving an
adequate control, but we need much more
in order to exhaustively introduce the concept of control
function of the management. Moreover, as
verification, audit and evaluation get weaker within the
aggregate of control, without affecting goals
achievement process, the reference system or organization
becomes more performant.
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The Journal of Applied Business Research – January/February
2015 Volume 31, Number 1
Copyright by author(s); CC-BY 175 The Clute Institute
A Conceptual Model Of Linkage
Between Innovation Management And
Controlling In The Sustainable Environment
Neda Vitezić, Ph.D., University of Rijeka, Croatia
Vanja Vitezić, Ph.D. Student, University of Rijeka, Croatia
37. ABSTRACT
The main objective of this research is to investigate the role of
controlling in the innovation
management process respecting sustainability. The question of
interest is whether controlling is
involved in the innovation management process and how to
measure the effectiveness of
innovation process using controlling as analytical and
informative function and support to the
management of the company. Today's approach to strategic
management emphasized concept of
sustainability and innovation. For that reason there is a need for
a broader role of controlling in
decision making process, especially for the purposes of efficient
measurement system. In order to
38. develop conceptual model of the relationship between
innovation management and controlling
research is done on Croatian enterprises that has controlling
department. The involvement of
controlling function in innovation process is analyzed using
interview method and results
confirmed insufficiently developed linkage between controlling
and sustainable innovation
management. The conceptual model which is proposed is
developed with regard to sustainable
innovation process and management performance within which
controlling place coordinative
and integrative role. A model suggests five stages of the
innovation process in which controlling is
included as analytical and informative function. Also, a model
provides a framework for further
elaboration of controlling effectiveness, when it is included in
39. innovation management process.
Keywords: Innovation Management Process; Controlling;
Strategic Management; Sustainability; Measurement
System
INTRODUCTION
he concept of innovation as a key driver of economic growth
has been recognized in the theories of
economic growth since 1950’s when economist Robert Melton
Solow supplemented Adam Smith's
input factors of labor and capital with third- technological
innovation, which he termed «total factor
productivity.
1
40. Knowledge, technology, entrepreneurship and innovation are
the center of the growth model (Solow,
1957). Another famous economist Joseph Schumpeter
recognized innovation activity as an independent productive
factor and showed that innovation has an influence on the
growth of business and economies. He also emphasized
the entrepreneurial function as an important fact for effective
innovation but also regarded the innovative activity of
entrepreneurs as a process of «creative destruction», which
leads to change in economy or transformation of society.
However, as Schumpeter emphasized, innovation also leads in
economic structures, which is named «creative
construction». (Lambooy, 2005)
Innovation is mainly defined as a change or novelty induced by
human creativity, resulting in the adoption
of new ideas, new products or services, systems, processes,
41. policies or programs (Zaltman, Duncan & Holbek, 1973,
Daft, 1982; West & Farr, 1989, Dory, 2005). It is the result of
interaction between individuals and various
1
Solow model was awarded the Nobel Prize in Economics in
1987. His theory is related to correlation between increased
economic growth and
increased total factor productivity and vice versa and was
confirmed by many empirical studies.
T
The Journal of Applied Business Research – January/February
2015 Volume 31, Number 1
Copyright by author(s); CC-BY 176 The Clute Institute
organizations, systems and institutions, using price or other
signals to find the direction in which to develop
42. (Lambooy, 2005). Innovation can be also viewed as incremental
or radical, based on or introduced by new
technologies or processes, which are marginally or significantly
different from the predecessor (Bleischwitz, Giljum,
Kuhndt & Schmidt-Bleek, 2009), component or architectural
(Hellström, 2007). OECD’s Oslo Manual (1997)
narrows the definition of innovation only to the application of
technologically new products and processes and their
significant technological improvement, but also emphasizes that
innovation is a complex, diversified activity with
many interacting components.
In today's sustainable economy, innovation plays a central role
in creating value and sustaining competitive
advantage (Baregheh, Rowley & Sambrook, 2009) and in the EU
2020 growth strategy, innovation is one of the five
43. main objectives, which should help EU to become a sustainable
and inclusive economy. (Europe 2020, 2012).
According to the concept of sustainability, innovation should be
socially, environmentally and economically
sustainable, optimizing these three pillars, which is not an easy
task. There is a need for more open innovations as
well as more room for social innovation experimentation:
“Social innovation is an important new field which should
be nurtured […] to find new ways of meeting social needs
which are not adequately met by the market or the public
sector […] (European Commission, 2010)
What is the link between innovation and controlling?
Realization of the EU's new development strategy,
Europe 2020, requires sustainable management which will be
achieved by the use of specific toolset and steering
instruments. A steering cycle which includes clearly set targets,
44. planning and measurement system is the main
component of business controlling. Sustainability business is
creating new targets or modifying the existing ones,
and controlling tools have to be adjusted. Controlling, as one of
the important management functions, supports
innovation management to meet the requirements of
sustainability through expanded and additional assessment of
measurement system. Innovation indicators should be
implemented for measuring the effectiveness of new
sustainable innovations. In the literature on innovation
management, measures are frequently proposed but empirical
studies have found many organization tend to focus only on the
measurement of innovation inputs and outputs and
ignore the processes in-between (Cordero, 1990).
Although people generally assume that innovation is a more
technical task, it is a function carried out by all
45. the core process areas in the company. For that reason,
innovation management and controlling has become
increasingly important for business. Controlling as a
management service has to follow changes in management’s
activity and become proactive driver of innovation. Controllers
and the management have a joint responsibility to
reach the objectives because they help design management
process.
The aim of this study is to investigate the role of controlling in
the innovation management process
respecting sustainability orientation in the enterprise’s
performance. This research is motivated by the fact that
neither theoretical nor practical approach to this issue is
sufficiently investigated. In Europe, the German approach
to the function of controlling is dominant focusing on strategic
and operational role. At the same time EU strategy
46. encourages the development of enterprises on the concept of
sustainable innovation. Empirical research and
practice, especially in the CEE countries indicates the still
insufficient involvement of controlling in the innovation
process and strategic management. Our research confirms that
controlling is mainly focused on financial
measurement and reporting system and its broader role is still
missing. Therefore, we believe our conceptual model
to be useful and contributing to the development of this field of
science. To answer to our research question
concerning whether controlling is involved in the innovation
management process and how to measure the
effectiveness of innovation process using controlling, we used
interview method for the purpose of exploratory
research.
47. The research is structured as follows: firstly, the relation
between management innovation and controlling
is theoretically explored, taking into account sustainable
environment. Secondly, to confirm insufficient involvement
of controlling in the management of innovation we used
interview method. Sample is consisted of 84 large and
medium Croatian companies and financial institutions that have
controlling department. There is no official data
about number of companies that have controlling department but
according some assessment there is around 120
(sample of 70 per cent). Thirdly, based on the interview results
and available literature review we placed a
conceptual model which highlights the need for expanding the
role and tasks of controlling in the process of
The Journal of Applied Business Research – January/February
2015 Volume 31, Number 1
48. Copyright by author(s); CC-BY 177 The Clute Institute
introducing innovation and during its implementation. By
setting up the conceptual model connecting the most
common stages of the innovation process with the updated
function of the controlling in the sustainable environment
(“controlsustainovator”), we believe our contribution to the
science is valuable.
INNOVATION MANAGEMENT AND CONTROLLING IN THE
SUSTAINABLE ECONOMY
When talking about sustainable economy in the environment of
sustainability, terms corporate social
responsibility (Carroll, 1999), corporate social performance
(Wood, 1991), corporate citizenship (Crane, Matten &
Moon, 2008) are frequently used. In such environment the
scope and commitment of management and owners, as
49. two main stakeholders, expand. A company can realize its
mission, vision and objectives only by adapting to the
demands of the broad concept of sustainability where, beside
economical, mostly financial aspects of performance,
environmental and social aspects are at the same level of
importance. «Social enterprise» (Gray, Owen & Adams,
1996), described also as «moral person» (Monks & Minow,
2004), or «collectivist entity» (Capaldi, 2005) has rights
but also obligations to perform with the purpose of satisfying
interests of all stakeholders (Freeman, 1984). Thus,
«triple bottom line» (TBL) concept (Elkington, 1997), often
called 3P – «people, planet and profit» presents a
standard of sustainability and sustainable economy. Regarding
the link between sustainability and innovation there
are many studies which confirm their positive relation because
many aspects of CSR create a new products or
50. processes. CSR could be viewed as a form of investment and a
mechanism for product differentiation.
Today companies are finding themselves challenged by various
stakeholders, primarily customers, for
aspects of TBL commitments and performance. They are faced
with a need to build sustainable competitive
advantage to stand out from the competition. Over 30 years ago
Porter (1980) emphasized that the main competitive
advantages are innovation, new business models (Grant, 2005),
research and development in general. Innovation as
a necessity for competition is emphasized in much of the earlier
scientific research (Drucker, 1998, Levitt, 1963,
Pearson, 1988, Porter, 1980) and it is evident in the last
two/three decades that there have been a significant number
of innovations in the area of products, services, manufacturing,
IT industry, process systems and other. There is a
51. need for new business models (Grant, 2005), research and
development in general. Recent orientation to sustainable
products meant adoption of new innovative strategy and
acceptance of additional expenditure for R&D. Lopez,
Perez & Rodriguez (2008) found that company R&D
expenditure is affected positively by adoption of CSR oriented
goals and that the companies which have adopted CSR practices
tend to be associated with R&D expenditure.
Regardless, CSR driven innovation is aimed to align social
processes but also to enhance value.
In research, there have been many different views regarding the
types of innovation. Some (Reichstein &
Salter, 2006, Becheikh, Landry& Amara, 2006) find that process
innovations are considerably understudied,
emphasizing that 37 per cent of authors investigate product
innovations, while only 1 per cent process innovations.
52. From the aspects of Croatian companies and its innovations
Veža & Prester (2007) came to the conclusion that there
are some innovations in the products and processes but with low
innovativeness that the main innovation activity is
acquisition of new innovative technologies and these
innovations have the greatest impact in return. According to
one study (Aboody & Lev, 2001), investment in innovation is
often the only type of investment to provide returns
above costs of capital. Thus, the growing importance of
innovation for business success and competitiveness in the
so called sustainable economy is not accidental.
Along with many models of innovation (radical, products and
processes), there are also various approaches
in the innovation phases or stages (Cormican & O’Sullivan,
2004, Andrew & Sirkin, 2006, Hansen & Birkinshaw,
2007). In terms of company, the application of the innovation is
53. a project task regardless of whether the innovation
is operational or strategic. All models of innovations start with
initial phase or idea generation, the next step is
selection of ideas where has to be decided which idea to track,
third step is realization or prototyping where selected
ideas are tested, fourth phase is implementation or launch of
innovation which passed all the tests and it is ready to
find its place on market and the last, post launch phase, is
monitoring for the purpose of learning how the process
went and how to avoid some observed errors. Besides that, there
are some contextual factors like strategy,
organizational structure, leadership, culture, skills and other,
which are important to consider when analyzing
innovation process. The most common stages in the innovation
process are shown in the Figure 1.
54. The Journal of Applied Business Research – January/February
2015 Volume 31, Number 1
Copyright by author(s); CC-BY 178 The Clute Institute
Figure 1: The Most Common Stages In The Innovation Process
Converting ideas to realization i.e. usable products or services,
processes and others kind of innovations
requires high levels of inter-functional co-ordination and
integration. In other words there is a need for controlling
which can be viewed in each of these stages as managerial tool
for decision making process. In the literature and
also in practice controlling as a subsystem of management and
one of the management functions is not uniquely
defined. There is difference from etymological aspect (process,
55. concept, guidance, supervision, assessment)
conceptual (planning, control, analysis, coordination and
integration of management functions), ethical (company
“economical conscience”).It is primarily an analytical
informative function that assists management in the
implementation of the set objectives, result-oriented
coordination of planning and control, along with transparent
information provision (Horvath, 2009), reasonable assurance of
leadership (Weber & Schäffer, 2011), or
management control…. the process by which managers
influence other members of the organization to implement
the organization’s strategies. (Anthony & Govindarajan, 1998).
Manager is responsible for the strategy, processes
and performance results, while controller is responsible for their
transparency. In the environment of sustainability,
manager is responsible for the ethical aspects of overall
performance and controllers for including sustainability
56. indicators in their information system. Through their
development stages from “recorder”, through “navigator” to
the “innovator”, controllers are today the ones that need to
optimize the operations for the benefit of stakeholders.
Considering sustainability orientation of controlling it is
realistic to highlight controller as sustainability oriented
innovator or “sustainnovator” or more precisely
“controlsustainnovator”! According to sustainability orientation
we
propose the following controlling functions (See Figure 2):
Initial phase or
idea generation
Implementation
or launch
57. Monitoring for
learning
Selection of ideas
Realization or
prototyping
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Figure 2: Controlling Functions In The Sustainable Environment
In today’s sustainable environment, controlling as a managerial
function needs to adjust its instruments and
58. develop an information system that would meet the interests of
potential stakeholders. Thus, sustainability oriented
controlling, often called sustainability controlling, represents a
forward-looking management instrument for business
leadership. With regard to innovation management, controlling
and its tools should be included in the individual
phases. That means to find measurement and reporting system
aligned with sustainability concept (like Global
Reporting Initiative Sustainability Reporting Framework).
Analytical and diagnostic role of controller is particularly
important and according Simons “lever of control” (1995) the
main actors in diagnostic control system are the
gatekeepers (controllers, planners, accountants). Proposed
controlling function emphasizes the essential role of
controller:
59. - controller have to
use various quantitative and qualitative data
and information inside and outside of the organization
- controllers are the one who need to clarify,
asses, evaluate and make conclusion on various
issues of business performance
- use analytical skills to develop reporting
system primarily for management control purposes
but also for all others stakeholders needs
- controllers coordinate and
integrate the main management function planning,
organizing, staffing and control in order to make socially
responsible decision.
Business orientation to sustainability requires the controller to
monitor effectiveness of decision-making process and
optimize stakeholder interests.
METHODOLOGY AND RESEARCH RESULTS
60. Croatia as a post- transition country went through privatization
process in which contemporary forms of
leadership and management were accepted. The concept of
sustainability accepts an increasing number of
enterprises under the influence of foreign, especially German
and other EU investors. They introduced controlling as
subsystem of management mainly in large and medium-sized
enterprises. Also domestic companies increasingly
introduced controlling in the last ten years as a replacement for
the former departments of planning and analysis, or
as an entirely new department. The controlling department is
independently organized in most of the successful
companies but it still does not exceed 50 per cent from
estimated companies. (Špac & Mošnja-Škare, 2009),
Previous research (Vitezić, 2006) and this research by interview
method showed that controlling department is
61. usually centrally organized in the large and medium companies
and employs three to five people. It is mainly
focused on financial aspect of the business and therefore uses
financial indicators and some other quantitative
Target
processing of
various data and
information
Analytical
judgement and
appraisal
Strategic and
operational
63. Guidance and
counseling to
socially
responsible
decision
Developing a
reporting system
for stakeholders
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2015 Volume 31, Number 1
Copyright by author(s); CC-BY 180 The Clute Institute
indicators. In addition to annual reports, controlling is
64. commonly reported monthly and quarterly. Controlling
department is usually established because of the need for fast
and high-quality information, which should assist
management in decision making process for the purpose of the
objectives realization. Studies (Vuko & Ojvan, 2013)
have shown that Croatian companies with controlling
department have an average higher profitability than
companies without controlling department. Doubtless, effective
controlling has positive effects on the business
efficiency and therefore is a useful function within a
management system.
In order to make a conclusion about the involvement of
controlling in innovation management, explanatory
research is conducted. Firstly, large and medium companies that
have controlling departments were selected.
Companies are from various sectors – mostly industrial,
65. services, trade and financial sector (banks and insurance).
The sample includes 84 or 70 % companies of approximately
120 that have a controlling department (there is no
official database on the number of controlling departments).
With each of 68 controlling managers an oral interview
was conducted. The questions referred to the existence of a
separate R&D or other department, involvement of
controlling in the innovation process, the role of controlling in
measurement and reporting system (especially from
the point of measuring and reporting).
The results of the interviews are as follows:
department but have a department that performs
some kind of research in the domain of strategic development,
technical department, market research,
66. marketing or working groups for innovation
36% of the companies, is not involved in 40%
of them, while in 24% of the companies included partially
involve controlling
process, it is usually employed for the
purpose of assisting in the preparation of feasibility studies, the
calculation of prices and costs, and in the
later stage when innovation is launched, controlling department
monitors revenues costs and their
profitability
which are reported on a monthly or quarterly
basis and sometimes occasionally, depending on individual case
It is evident from the interviews that controlling is rarely
included as a team member in the overall
67. innovation process. Coordinative function of controlling is very
rarely featured in the process approach to
innovation. Effectiveness of individual innovations is also
rarely monitored in all stages of the innovation process.
Controlling is mainly involved in measuring the effectiveness of
innovation upon its implementation as a kind of
follow up. The financial aspect of measurement as the most
common instrument in controlling is evident through the
measurement of costs, revenues and profitability of individual
innovations.
Proposed Conceptual Model
Innovation process is not strictly set, depending on how it is
managed and what the type of innovation is.
Likewise, controlling is not determined unambiguously but its
concept is derived from the need of management
68. structures of individual companies. The problem is that every
manager has their own idea of what controlling is and
how to implement it. Very often controlling is identified with
control, managerial accounting or with plan and
analysis. Over the last twenty years in the Croatian economy,
research and development departments have, due to
privatization and the lack of industrial development, gradually
extinguished. Therefore, a different approach is
observed in organization and involvement of controlling in the
process of introducing new products, services,
processes and other types of innovation.
In today’s environment there is a need to innovate controlling
function towards sustainability but
innovation management also has to meet the requirements of
sustainability. Controlling will support that concept
through developing new assessment criteria for innovations i.e.
69. adding new measurement and reporting system for
innovation efficiency and effectiveness assessment purpose.
Supported by the interview results which have
confirmed the lack of controlling involvement in the innovation
process, theoretical background of the role and
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2015 Volume 31, Number 1
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significance of controllers function to management decision
making and according to the main stages in the
innovation process, we propose the following conceptual model
(see Figure 3):
Figure 3: Link Between Sustainable Innovation Management
And Controlling
70. Analysing your
company to
understand situation
SUSTAINABLE INNOVATION PROCESS
CONTROLLING
Idea generation and
selection
Idea realization
Team brainstorming Prototype or pilot
project
Controller as a
71. member of team
Coordination and
integration of innovation
process
Monitoring Implementation
and launch
Controlling
Follow – up
1-3 years
Controlling Measurement,
correction and adjustment
SUSTAINABLE MANAGEMENT PERFORMANCE
72. The Journal of Applied Business Research – January/February
2015 Volume 31, Number 1
Copyright by author(s); CC-BY 182 The Clute Institute
The process of innovation in a company could be seen as a kind
of project that is carried by the already
mentioned stages. Controlling ensures meaningful and cost-
effective operation of the innovation process,
coordinating and linking individual tasks within the project
innovation.
-phase of the innovation process controlling
analyzes the current situation in the company,
advises management and encourages new ideas to improve
business in accordance with stakeholder policy.
assemble a team of different experts - one of
73. which should be a controller. Team members need to develop
their ideas but also ideas of people who are
in the company encouraged for innovation. (Brainstorming).
The result is a selection of ideas. The role of
controller is in financial, cost-effectiveness assessment of each
idea.
ensure the
implementation of ideas through testing and
prototyping or performing a pilot project. Depending on the
type of innovation controller is included as
coordinator and evaluator of effects.
g
compares the achieved results with the plan, identifies
deviations, proposes measures and suggests a solution.
idea and advises if significant deviation has
occurred. Monitoring or follow-up of ideas is usually limited to
a certain period of 1-3 years.
74. So, we can say that the common controller tasks are related to
the supervision of ideas, coordination among
team members and between the team and other employees,
synchronize and compare data, mainly monitoring costs
and budget, revenue and profitability. Although, beside more
favored quantitative indicators, controllers should also
take into consideration the increasingly used qualitative ones,
including those on corporate social responsibility and
sustainability in general.
Finally, innovation management leads towards sustainability
and thus the need for controlling support in
metrics is developing. The controller as service provider for the
management has an impact to decision making
process and sustainable performance. Therefore, the controller
and the manger are jointly responsible for the
75. formulation and implementation of ideas and sustainable
business goals.
CONCLUSION
Innovation is today the main driving force behind business
value creation. Therefore the concept of
innovation has become an integral part of established theories
of economic growth. Market oriented innovation has
became especially important to the companies due to need for
effectiveness and adaptability towards customers and
other stakeholders. Management's main attention has to be
primarily focused on external effectiveness but also on
the internal efficiency and investments for new innovations or
R&D. Reinforcing the need for innovation as a key
factor of success poses challenges for innovation management.
A challenge in innovation management understands
76. the innovation not only as a new product or service («the
invention»), but as a function that permeates all key areas
of the process. Given that innovation can be a combination of
various factors - marketing, R&D, production
capability, these should be integrated in the innovation process.
Although there are different views on this, the main
activities in the process of innovation management can be
summarized in four basic stages: idea generation and
selection of the best one, realization or prototyping,
implementation, launching and monitoring for the purposes of
correction and changes.
The importance of innovation for company's sustainability
impacted also the practice of controlling. As a
management service which provides transparent information for
decision making process, controlling has to follow
management's focus and activities. Thus, controllers design and
77. accompany the management innovation process,
helping to define ideas, analyzing the implementation of
innovation, making corrections and monitoring the effects
of new invention or process innovation. The obligation of the
controller is to choose the appropriate instruments and
customized metrics for analyzing the effectiveness of
innovation.
A study on Croatian companies has confirmed still insufficient
involvement of controllers in all stages of
the innovation process. Controlling is mainly involved in the
initial phase through feasibility study and upon the
innovation implementation as a follow up analysis. Coordinative
and integrative function of controlling is not
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2015 Volume 31, Number 1
78. Copyright by author(s); CC-BY 183 The Clute Institute
sufficiently expressed in the whole process of innovation.
Therefore the proposed conceptual model highlights the
need for controlling involvement which would include
coordination, planning, control and analysis in all stages of
innovation management. Adopting proposed model companies
can more accurately measure the effectiveness of
each stage of innovation process. Measurement of innovation is
important not only from research perspective but
significantly more from practical aspects. This research is based
on current worldwide literature and practice in the
post transition country, and should be extended to the other
countries. The conceptual model is not scientifically
confirmed and further research should be taken to prove
efficacy of innovation through controller’s involvements
and their impacts in each of innovation stages.
79. AUTHORS’ INFORMATION
Neda Vitezić, Ph.D., full professor of Controlling, Business
Analysis and Auditing, University of Rijeka, Faculty of
Economics Rijeka, Croatia. E-mail:[email protected]
Vanja Vitezić, Ph.D. student, teaching asistant of
Entrepreneurial Management and Innovation and Project
Management, University of Rijeka, Faculty of tourism and
hospitality management, Ika, Croatia. E- mail
[email protected]
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