With recent changes to the pharmaceutical benefits scheme, there has been increased pressure on local community pharmacies to improve both financial and non-financial measures of performance. With such pressure there has been increased attention given to management control systems as a means of ensuring effective use of resources and improved organisational functioning. To illustrate the use of management control systems and management accounting, this report will analyse the current practices at the community pharmacy Pharmasave. The primary function of Pharmasave pharmacy is the supply of both prescription and non-prescription medication, in conjunction with providing advice and primary health care. With reference to theory and frameworks, this report will highlight the effectiveness of the management control systems in place at Pharmasave Pharmacy. In turn recommendations will be made to improve the organisation’s current management control system based on the results of the analysis. Management Control Systems
According to Anthony (1965), management control systems can be defined as “ the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of organisational objectives”. Management control systems (MCS) encompass the organisational structure and the set of formal and informal information based routines, procedures, processes, and practices that can be used to influence goal attainment within organisations.
Chenhall (2003) argue that the definition of management control systems has evolved towards a more comprehensive view encompassing a larger scope of information. MCSs are seen as comprising external contextual information on customers, markets and competitors, as well as non-financial and predictive information. A more complete list of management control systems includes budgets, recruitment, training, supervision, performance appraisal, policies and procedures, rewards systems and organisational culture.
Organisations and management controls can be viewed as either cybernetic or non-cybernetic. Scott (1998) outlined the rational and natural perspectives as follows. Cybernetic controls are based on the notion that organisations are highly formalised, which are driven by goals and strategy. Non-cybernetic or natural perspectives explain that rules and roles do not significantly influence the actions of people in organisations. Rather informal interactions between people are more important than the formal structure in understanding behavior (Scott, 1998).
Both financial measures and non-financial measures form the basis of effective organization control. Tuomela (2005) identified there are limitations of financial performance measurements alone. Financial measures are lagging indicators, which highlights short-term performance. To create a balance perspective on performance, non-financial performance measurements have been developed. Non financial performance measurement approaches include Performance Pyramid, Performance Prism, ISO 9000 and the Balanced score card. Management Control Systems at Pharmasave Pharmacy
This report will highlight the introduction of a performance measurement system at Pharmasave and its resulting affects on the existing company culture. The introduction of a performance measurement system was a new concept to Pharmasave. Prior to the implementation; employee performance was discussed only during an annual performance appraisal. The new performance measurement system implemented was based on numerous quantifiable objective measures such as conversion of generic medication and increased sales. With reference to the management control framework Simon’s four levers of control (Tuomela, 2005)(appendix 1), and Otley’s (1999) performance management framework (appendix 3), this report will drawn attention to the different control mechanisms existing at Pharmasave Pharmacy. It is important to note that...
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