goal congruance

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What do you understand by Goal Congruence? What are the informal factors that influence goal congruence? Ans: This term is used when the same goals are shared by top managers and their subordinates. This is one of the many criteria used to judge the performance of an accounting system. The system can achieve its goal more effectively and perform better when organizational goals can be well aligned with the personal and group goals of subordinates and superiors. The goals of the company should be the same as the goals of the individual business segments. Corporate goals can be communicated by budgets, organization charts, and job descriptions. Goal Congruence- Meaning Individuals work in different hierarchies and handle different responsibilities & may have different goals. But they must come together as far as Company’s Goal is concerned (there action must speak Co’s language.) Goal Congruence Example 1– The HR manager has devised a HR training program to enhance the skills of its sales personnel, with an objective to enhance their productivity But if company is in strategic need of attaining a certain sales volume in a given quarter, it can not do so on account of non availability of personnel. Example 2– The marketing department has planned an impressive advertising campaign, which promises good returns, But say due

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Page 1: Goal Congruance

What do you understand by Goal Congruence? What are the informal factors that

influence goal congruence?

Ans: This term is used when the same goals are shared by top managers and their

subordinates. This is one of the many criteria used to judge the performance of an accounting

system. The system can achieve its goal more effectively and perform better when

organizational goals can be well aligned with the personal and group goals of subordinates

and superiors. The goals of the company should be the same as the goals of the individual

business segments. Corporate goals can be communicated by budgets, organization charts,

and job descriptions.

Goal Congruence- Meaning

Individuals work in different hierarchies and handle different responsibilities & may have

different goals. But they must come together as far as Company’s Goal is concerned (there

action must speak Co’s language.)

Goal Congruence

Example 1– The HR manager has devised a HR training program to enhance the skills of its

sales personnel, with an objective to enhance their productivity But if company is in strategic

need of attaining a certain sales volume in a given quarter, it can not do so on account of non

availability of personnel.

Example 2– The marketing department has planned an impressive advertising campaign,

which promises good returns, But say due to cash crunch Company’s current financial

position may not let to lose the strings

Example 3 – Production Manager may get a good applause for reducing cycle time; But at

what cost? Building up the high inventory i.e. higher investment in current assets. While

doing so he just overlooked the financial interest of the company. • After completing the

given activity in more efficient manner the concerned manager scores the point/s on his score

card. • Whether his actions are leading to scoring of points on the organization’s score card

too? if it is so then only one can say the organization is marching towards a common goal.

Page 2: Goal Congruance

Every individual working in an organization has got his own motive to do the work.

Individuals act in their own interest, based on their own motivations. And it is always not

necessarily consistent with the Co’s goal. In a goal congruence process, the actions the people

are led to take in accordance with their perceived self interest are also in the best interest of

the organization i.e. Goal congruence ensures that the action of manager taken in their best

interest is also in the best interest of the organization.

Informal factors that influence goal congruence:

Informal Factors –

External factors – set of attitudes of the society, work ethics of the society

Internal factors – (Factors within the organization)

Culture-Common beliefs, shared values, norms of behavior & assumptions

Implicitly accepted and explicitly built into.

Mgt. Style – Informal/Formal

The Communication Channels

Perception and Communication – e.g. Budget (meaning) strict profit.

Page 3: Goal Congruance

Organizations with Business Divisions (Profit Centre) format have observed that

Divisional Controllers experience divided loyalty in carrying out their functions,

causing a possible dysfunction. How could such a situation be resolved? Define role of

controller which suits your suggestion.

To the extent the decision are decentralized top management may lose some control. Relying

on control reports is not as effective as personal knowledge of an operation. With profit

center, top management must change its approach to control. Instead of personal direction

senior management must rely to a considerable extent on management control reports.

Competent units that were once cooperating as functional units may now compete with one

another dis advantageously. An increase in one manager’s profit may decrease those of

another. This decrease in cooperation may manifest itself in a manager unwillingness to refer

sales lead to another business unit, even though that unit is better qualified to follow up on

the lead in production decision that have undesirable cost consequence on other units or in

the hoarding of personnel or equipment that from the overall company standpoint would be

better off used in another units.

There may be too much emphasis on short run profitability at the expense of long run

profitability. In the desire to report high current profits, the profit center manager may skip on

R&D, training, maintenance. This tendency is especially prevalent when the turnover of

profit center managers is relatively high. In these circumstances, manager may have good

reason to believe that their action may not affect profitability until after they have moved to

other job.

There is no complete satisfactory system for ensuring that each profit center by optimizing its

own profit , will optimize company profits.

If headquarter management is more capable or has better information then the average profit

center manager the quality of some of the decision may be reduced.

Divisionalization may cause additional cost because it may require additional management

staff personnel and recordkeeping and may lead to redundant at each profit center.

Business units as profit centers:

Business units are usually set up at profit centers. Business unit managers tend to control

product development, manufacturing, and marketing resources. They are in a position to

influence revenue and cost and as such can be held accountable for the bottom line. However

Page 4: Goal Congruance

as pointed out in the next section a business unit manager authority may be constrained such

constrained should be incorporated in designing and operating profit center.

Constraint on business unit authority

To realize fully the advantage of the profit center concept the business unit manger would

have to be as autonomous as the president of the independent company. As a practical matter

however such autonomy is not feasible. If a company were divided into completely

independent units the organization would be giving up the advantage of size and synergism.

Also senior management authority that a board of director gives to the chief executive.

Consequently business unit structure represents trade off between business unit autonomy

and corporate constraint. The effectiveness of a business units organization is largely

dependent on how well these trade off are made.

The performance of a profit center is appraised by comparing actual results for one or more

orf these measures with budgeting amounts. In addition, data on competitors and the industry

provide a good cross check on the appropriate of the budget. Data for individual companies

are available from the securities and exchange commission for about key business ratios;

standard & poor computer services, Inc; Robert Morris associates annual statement studies;

and annual survey published in fortune, business week, and Forbes. Trade associations

publish data for the companies in their industries.

Revenues: choosing the appropriate revenue recognition method is important. Should revenue

be recognized at the time as order is received, at the time an order is shipped, or at the time

cash is received?

In addition to that decision, issues related to common revenues may need to be considered.

There are some situations in which two or more profit centers participate in the sales effort

that results in a sale; ideally, each should be given appropriate credit for its part in this

transaction. Many companies have not given much attention to the solution of these common

revenue problems. They take the position that the identification of price responsibility for

revenue generation is too complicated to be practical and that sale personnel must recognize

they are working not only for their own profit center but also for the overall good of the

company. They for example, may credit the business unit that takes an order for a product

handled by the another unit with the equivalent of a brokerage commission or a finder fee. In

the case of a bank the branch performing a service may be given explicit credit for that

service even though the customer account is maintained in another branch.

Role of controller

It should publish procedure and forms for the preparation of the budget.

Page 5: Goal Congruance

It should provide assistance to budgetees in the preparation of their budget.

It should administer the process of making budget revision during the year.

It should coordinate the work of budget departments in lower echelons

It should analyze reported performance against budget, interprets the result,

and prepares summary report for senior management.

Page 6: Goal Congruance