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Implementation of Controlling in Public Companies

Hausarbeit (Hauptseminar) 2016 19 Seiten

BWL - Controlling

Leseprobe

Table of Contents

List of Abbreviations

List of Tables

1 Introduction
1.1 Research Question
1.2 Research Method

2 Controlling
2.1 Historical Background & Origin
2.2 Two Types of Controlling
2.3 Instruments
2.4 Targets

3 Public Companies in Present
3.1 Public Companies
3.2 New Public Management
3.3 Private Public Partnership

4 Controlling Implementation in Public Companies
4.1 Process of Implementation
4.2 Targets of Controlling in Public Management
4.3 Instruments

5 Conclusion

List of Literature

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Tables

Table 1: Operational and Strategic Controlling Functions

Table 2: Operational and Strategic Controlling Instruments

Table 3: Cost Accounting Statement for Public Companies in Germany

1 INTRODUCTION

1.1 RESEARCH QUESTION

A few years ago public companies tried to introduce through innovative management tools an output-oriented controlling as well as switching from cameralism to doubleentry accounting known from the private sector. Additionally private companies tried to establish the cost accounting in the public sector.1 Through the implementation of these innovative controlling tools public companies expected efficiency enhancement, strong customer focus as well as cost- and timesaving.2

The main reason for it was the public finance deficit and the rapid-changing environment as well as the related customer-focused operations and strategies. Especially in cities and municipalities big budget deficits have been observed. Through the changing of social values the individualization of customer needs towards public companies increased. All these changings and deficits couldn’t be solved by a public company without additional external resources. Public companies slowly started to contracting services out and saving on public sector wages.3 In the same time many public sectors transferred into private ownership of private companies.4

A precondition for a successful performance of all these goals is the implementation of a controlling system that defines and measures success factors for companies. This implementation in German public companies still exists only in rudimentary form.5 Responsible for it is the dislike of control of German politics and public companies.

1.2 RESEARCH METHOD

The assignment is written according to the subject matters provided by Philippa Klaes at the MBA International Investment & Controlling.

In the first chapter the author will bring some order to the variety of expressions of the main term Controlling. The next chapter will give definitions for public companies moreover presents two forms of privatization of public companies. Chapter 4 gathers the most important steps of an implementation of a controlling system in public companies before turning to the last chapter, the conclusion where the author will evaluate the advantage and disadvantages of an implementation of an outsourced controlling system in a public organization.

2 CONTROLLING

To give a definition of the heading of this chapter Controlling, the confusion causing quotation of Preißler is taken: “Everybody has their own idea of what controlling means or should mean, and everybody means something different”6. To clarify the real meaning and the concept of Controlling, the following subchapters will give an overview of this this disputed definition.

2.1 HISTORICAL BACKGROUND & ORIGIN

From the historical view, the job title “countroller” was used for the role of keeping records about incoming and outgoing funds in the public sector, at the royal court in England. A “comptroller” first emerged in 1778 in the public sector but in the USA, for monitoring the balance between the national budget and expenditure.7 These two areas, accounting and supervision, still exist in the responsibility field of a Controller. The first controller in the private sector appeared in the early 1920s in the USA.8 Thenceforward the number of controllers grew in interaction with the number of large private enterprises and finally concluded in an increasing competitive pressure. As a result, management responsibilities had to be allocated to various managers and it was necessary for them to have a clear description of the objectives and goals of the firm. For such a description a results-oriented future planning as a support was essential. Since then, controller changed their position from Chief Accountants to someone who are responsible for “… introducing planning procedures based on accounting language, and coordinate as well as analyze budget-related data.” 9 At the same time accounting has been transformed into an instrument dealing with the future. Also Drucker explained 1973 the term Control with regard to management as a kind of measuring events with the need to focus on results based on past economic events.10 But for now, in fact Controlling can be defined as a special management future planning tool that is carried out by controllers, who in the same time are carrying out a certain set of tasks for a manager.11

2.2 TWO TYPES OF CONTROLLING

Fundamentally there are two types of Controlling: The Operational -and the Strategic Controlling. The cause for that is the rapidly increasing need to adapt to the fast changing environment with the Strategic Controlling as well as to act more future- oriented. There is no competition between these two terms they rather complement each other.12 Strategic Controlling deals with potentials of success in contrast to the operative one, which is based on internal actual values such as the accounting system and cost accounting.13 Table 1 shows the most important functions of these two, ranked by importance.

Table 1: Operational and Strategic Controlling Functions14

Abbildung in dieser Leseprobe nicht enthalten

2.3 INSTRUMENTS

As stated, a management control instruments may be characterized as finance-oriented or operations-oriented. Traditionally most of the measures are accounting-based and financial nature nevertheless they can appear as an instrument that analyses non- financial data.15 However, controllers’ work starts with an intensive engagement with internal cost accounting.16 The first step for all future activities and application of various instruments is the creation of a full transparency about costs and services because only reliable information can be used to set goals.17 Further the controller has to design a mission statement in collaboration with the management. Once this step is done, systematic planning and monitoring systems can be introduced.18 In the following some of the most often used controlling instruments will be examined in Table 2, divided in Operational & Strategic instruments:

Table 2: Operational and Strategic Controlling Instruments19

Abbildung in dieser Leseprobe nicht enthalten

Despite the involvement of these instruments a controller has to be in continuous personal contact with the management to dispute about the main issues of the company, that consequently derive in form of different tasks for the controller.20 Additionally a controller has to fulfill personal requirements such as analytical thinking, persuasiveness, leadership skills as well as technical competences.21

2.4 TARGETS

Basically the main focus of the two above mentioned types and yet the overall goal of a company should be the assurance of a long-term corporate future through profit maximization.22 However, financial targets on their own are often not enough for the management and nowadays not matching the needs of today’s dynamic and fast- changing environment and the needs of the customer.23 That is the reason why today’s controlling instruments often based on non-financial data that focuses on output and quality, for example service volume, employee turnover, or customer complaints. “Profit - as a periodical measure of success - is a lagging indicator in real-life use; it is therefore necessary to direct attention to leading indicators in performance (…)”24 by turning attention to the stakeholders’ value and not only to the shareholders’.

3 PUBLIC COMPANIES IN PRESENT

In the following subchapters a brief explanation of Public Companies will be given together with a brief insight into the terms of New Public Management and Private Public Partnership.

3.1 PUBLIC COMPANIES

The definition of public companies is mostly formulated as following: All production units that are in possession of the government and in the same time vary their prices and service conditions according to government’s decisions.25 Public companies are not following the principle of profit maximization therefore they are not grasps at competitive advantage. But times are changing and as already mention in the Research Question- Chapter public companies are influenced by the customer and output- focused environment.26 The issue about public companies is the non-measurable service they offer their customers and the budget deficit almost all public companies have. They are forced to do best but in the same time they have limited budgets and often low levels of staff.

3.2 NEW PUBLIC MANAGEMENT

New Public Management (NPM) was founded in Great Britain in the 1970s, now it is an international trend that can be observed in public administrations. It can be interpreted as the beginning of the privatization of public companies.27 NPM’s assumption was on the one hand the belief that, from the standpoint of management, the differences between the public and private sector are not significant; therefore public and private companies could be managed and controlled in the same way.28

3.3 PRIVATE PUBLIC PARTNERSHIP

Private Public Partnership (PPP) ranks along with frameworks like Reinvention in Government, Marketization, and Privatization in terms of potential panacea for the failures of state and governance.29 PPP’s function is to outsource works and service contracts through its commercial relationship between government entities and private organizations.30 PPP is a form of privatization of public companies and is very debated in Germany.

4 CONTROLLING IMPLEMENTATION IN PUBLIC COMPANIES

Even when governments were sole providers of public goods and services, private organizations were always involved, directly or indirectly.31 Additionally, as stated before, the first controller worked in the public sector in England and the USA, further historical roots of controlling in the public sector can be found in the positions of the “controller of the currency”, as head of the federal banking supervision from 1863.32 It means that controlling approaches started originally from the public sector and consequently should match with them well. But in today’s reality it is still a different story. There are for sure many benefits of an implementation but in the same time big challenges appear.

4.1 PROCESS OF IMPLEMENTATION

To implement a controlling system in public organizations, public administrations have to undertake an analysis for pointing out the problems of the company. The starting position is the formulation of goals and targets of governments.33 The analysis has to involve internal as well as external factors and result in a mission statement of the public company. From this point the controlling system can start with its before mentioned analysis and instruments of controlling for private companies.34

4.2 TARGETS OF CONTROLLING IN PUBLIC MANAGEMENT

Drucker explained the role of control in public companies as follows: “Controls in a social institution such as business are goal-setting and value-setting. They are not objectives. They are of necessity moral.”35, it means that it is not possible to take a standard controlling system that fits to private companies as well as to public companies. Public management has intangible values and goals; consequently the role of controlling is to match them.

The specific idea about controlling implementation is to force the management of public companies, such as politicians, to define What to do and the public administration department to decide independently How to do it.36 In the case of What to do, controlling must help the government defining two sections of targets: Effectiveness Targets and Efficiency Targets.

- Effectiveness Targets

The Effectiveness-Controlling has the target to uncover the deviations between the original targets and the actual task fulfillment in order to subsequently measure these deviations.37 The most important target is the improvement of more customer-oriented service.38 Customer satisfaction level can be measured by controlling systems and help public companies to act more efficiently. Fundamentally public companies “sell” customer service consequently by improving it they improve the quality of their service.39 Moreover controlling can help to speed up decision-making processes through depoliticization concepts. This effectiveness target plays the most important role for the budgetary discharge.40 Controlling makes the decision process more flexible so the employees have more time to work on other things.

- Efficiency Targets

In case of the efficiency controlling, four targets can be defined: Tailor-made accounting systems manageable organizational units, budgetary discharges, staff motivation through performance-based pay systems and the responsiveness to staff requirement fluctuation.41

4.3 INSTRUMENTS

Controlling instruments influence the behavior of organizational resources to implement organizational strategies. As mentioned in previous chapter Controlling Instruments there are various instruments that can be used for a private company as well as for a public company controlling analysis.42 The issue again is the Social Return of Investment and the difficulty about measuring these intangible assets. Therefore controlling has to define KPIs for each non-measurable asset.43

To give an example of the differences between a cost accounting statement of a public company and a private one, Table 3 is illustrated:

Table 3: Cost Accounting Statement for Public Companies in Germany44

Abbildung in dieser Leseprobe nicht enthalten

It can be observed, that this cost accounting system differs from private company’s systems. Intangible assets have to be put in products. There is no clear definition about each product area for the public sector and this challenge has to be solved by the implementation of Controlling, which helps to measure these intangible assets. Other instruments that have been named at the chapters before are not presented here because they are beyond the scope of this assignment.

5 CONCLUSION

There is a fundamental basic limitation for controlling public companies. “This lies in the fact that a institution is both a true entity and a fiction.”45 As and entity it can use all the before stated instruments to measure success even by taking an external company: outsource the controlling. “But a social institution is comprised of persons, each with his own purpose, his own ambitions, his own ideas, his own needs (…), it has to satisfy the ambitions and needs of its members (…), the system itself is not quantitative an cannot be quantified.”46 That is why public companies’ success is sometimes not possible to measure. The real measurement for public organizations is the ground of behavior and the cause of action. Controllers has to understand that in the case of public companies only people’s decisions are setting the goals of its strategy. An implementation of a controlling system “(…) which is not in conformity with this (…) will cause never-ending conflict and will push the public companies out of control.”47 So the long-term goal Profit Maximization is not the highest one of a public company activity. The emphasis on financial measures, however, distracts from essential non- financial factors. Furthermore, non-financial measures are better predictors of long-run performance, but still services in general cannot be measured precisely, for that reason important metrics for the implementation of a controlling system are missing.

In the public sector Controlling is standing in crossfire between experience of private economy, political influence and bureaucratic tradition. Politicians do not formulate their targets specific enough for the public administrations as result the administrations do not know What to do. The so important strategy that must be going through all departments of a company cannot be set and results in unmotivated staff, dissatisfied customers and a short-term planning. Even if targets have been formulated and the administration knows What to do, it may happen that the politicians do not want to be controlled.

Because of the fact, that these and other before stated problems appear more and more in public companies, they often decide to undertake a privatization. In case of a privatization of a public company such as from a private equity company, issues like loss of decision-power as well as expected return on investment from the investor appear. It means, if the privatized company is not able to pay yields to the private company it could be sold or just closed. The other solution for the above stated issues is to contracting services out, to outsource the Controlling. Even if this might be associated with costs, the benefits an outsourced controlling is offering are much more cost saving. Controlling allows decentralized scope for action and additionally supports the rights and obligations of the public sector management. It allows the employees how to achieve the goals set from the top: Such degrees of freedom are then primarily by personal instruction and mutual adjustment, accompanied by some general provisions.48 Through the allocation of management responsibilities, governments and their employees have more time to react to issues like Refugees Accommodations and the rapid-changing environment as well as setting targets for the customer-focused services.

In summary it can be said that an outsourced controlling system in a public company can be seen as an advantage for the stakeholders but it is a disadvantage for the governments, because they loose the power of decision through controlling instruments.

List of Literature

Blankart, Ch. B. (1980): Ökonomie der öffentlichen Unternehmen. Eine institutionelle Analyse der Staatswirtschaft, München: Verlag Franz Vahlen

Christensen, T., Laegreid, P. (2011): The Ashgate Research Companion to New Public Management, Farnham: Ashgate Publishing Limited

Drucker, P.F. (1973): Management: Tasks, Responsibilities, Practices, New York: Harper & Row, Publishers, Inc.

Erichsen, J. (2011): Controlling-Instrumente von A-Z, 8th edition, München: HaufeLexware GmbH & Co. KG

Ferlie, E., Ashburner, L., Fitzegerald, L., Pettigrew, A. (1996): The New Public Management in Action, Oxford: Oxford University Press

Fiedler, R. (2016): Controlling von Projekten, 7th edition, Wiesbaden: Springer Fachmedien

Haiber, Th. (1997): Controlling für Öffentliche Unternehmen, München: Verlag Franz Vahlen

Preißler, P.R. (2014): Controlling, 14th edition, München: Oldenbourg Wissenschaftsverlag

Ramesh, G., Vishnuprasad, N., Naik, G., Suraj, A.B. (2010): Public Private Partnership, Abingdon: Routledge

Reding, K. (1989): Handwörterbuch der öffentlichen Betriebswirtschaft, Stuttgart: Chmielewicz und Eichhorn

Weber, J., Schäffer, U. (2008): Introduction to Controlling, Stuttgart: Schäffer-Poeschel Verlag.

[...]


1 Cf. Christensen, T., Laegreid, P. (2011), p. 98.

2 Cf. Reding, K. (1989), p. 278.

3 Cf. Haiber, Th. (1997), pp. 1-2.

4 Cf. Ferlie, E. et al. (1996), p. 15.

5 Cf. Christensen, T., Laegreid, P. (2011), p. 105.

6 Preißler, P.R. (2014), p. 14.

7 Cf. Fiedler, R. (2016), p. 8.

8 Cf. Preißler, P.R. (2014), pp. 14-15.

9 Weber, J., Schäffer, U. (2008), p. 5.

10 Cf. Drucker, P.F. (1973), pp. 496-498.

11 Cf. Weber, J., Schäffer, U. (2008), p. 1.

12 Cf. Fiedler, R. (2016), p. 12.

13 Cf. Erichsen, J. (2011), p. 199.

14 Source: Own representation based on Weber and Schäffer

15 Cf. Erichsen, J. (2011), pp. 1-3.

16 Cf. Weber, J., Schäffer, U. (2008), p. 1.

17 Cf. Erichsen, J. (2011), pp. 1-3.

18 Ibid.

19 Source: Own representation based on Erichsen

20 Cf. Fiedler, R. (2016), p. 26.

21 Cf. Weber, J., Schäffer, U. (2008), p. 133.

22 Cf. Fiedler, R. (2016), p. 138.

23 Cf. Preißler, P.R. (2014), p. 6.

24 Weber, J., Schäffer, U. (2008), p. 82.

25 Cf. Blankart, Ch. B. (1980), p. 7.

26 Cf. Haiber, Th. (1997), pp. 1-2.

27 Cf. Ferlie, E. et al. (1996), pp. 15-16.

28 Cf. Reding, K. (1989), p. 278.

29 Cf. Christensen, T., Laegreid, P. (2011), p. 106.

30 Cf. Ramesh, G. et al. (2010), p. 2.

31 Cf. Ramesh, G. et al. (2010), p. 2.

32 Cf. Weber, J., Schäffer, U. (2008), pp. 3-4.

33 Cf. Haiber, Th. (1997), p. 101.

34 Cf. Preißler, P.R. (2014), p. 34.

35 Drucker, P.F. (1973), p. 496.

36 Cf. Haiber, Th. (1997), p. 31.

37 Cf. Reding, K. (1989), p. 278.

38 Cf. Haiber, Th. (1997), p. 32.

39 Cf. Blankart, Ch. B. (1980), p. 7.

40 Cf. Haiber, Th. (1997), p. 22.

41 Cf. Haiber, Th. (1997), pp. 39-50.

42 Cf. Erichsen, J. (2011), pp. 1-3.

43 Cf. Fiedler, R. (2016), p. 138.

44 Source: Own representation

45 Drucker, P.F. (1973), p. 504.

46 Ibid.

47 Ibid.

48 Cf. Weber, J., Schäffer, U. (2008), p. 82.

Details

Seiten
19
Jahr
2016
ISBN (eBook)
9783668370197
ISBN (Buch)
9783668370203
Dateigröße
706 KB
Sprache
Englisch
Katalognummer
v350010
Note
1,7
Schlagworte
implementation controlling public companies

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Titel: Implementation of Controlling in Public Companies