Rendell Company Management

Control System Study Case

Irvine Farhanan, Amanda Talitha Rahmadita, Aldo Pranata
120110120060, 120110120152, 120110120170

Accounting, Faculty Economics and Business, Padjadjaran University

Jalan Dipatiukur no 35, Bandung, Indonesia.
amandatalithar@gmail.com

Abstract
This research is an exploration due to answer the question
regarding Rendell Company Study Case in our Management Control
System subject. Our focuses are to answering the questions given in
the book and find the most applicable solution for the questions
stated in the Management Control System Book by tracing the
existing facts provided. It is expected that the findings and solutions
that we made will contribute to the people who has the similar
issues.
Keywords: Rendell Company, Management Control System, Internal
Control

I.

PREFACE

Background Study
At the end of the 1970s, although the company continued to
generate profits, growth rate decreased rapidly. James Hodgkin
became company president in 1984, previously as controller and on
1980 and vice president in 1983. Fred Bevins, who was an assistant
controller before, replaced Hodgkin after Hodgkin was promoted as
the vice president.
Rendell company has seven operating divisions: the smallest
has annual sales of $50 million, while the number of sales per year
of the largest as much as $500 million. Each division is responsible
for manufacturing and marketing sections in each production sector.
Although the number of parts and components transferred between
divisions, business volume is not large division.
Organizational corporate controller in 1980 has a
responsibility, especially in terms of (1) financial records, (2) internal
auditing, and (3) the analysis of the capital budget request.
Personally, as a controller, Hodgkin (1980) took an active role in
reviewing budget performance reports and studies the divisions and
hires some people to help his analysis. While Bevins continues to
move in the same direction as his promotion as the new controller.
In 1985 the corporate organization was beginning to be well staffed
to be able to give careful attention towards the information
submitted by the divisions.
The division controller directly reports to the divisional
general manager. But the controllers are always encouraged to
consult prior to the appointment of the controller division. In
addition, he also consulted in relation to the increase in the salaries
of the controller division. The specified corporate controller function
on the recording system in which the divisions are expected to
conform to the general procedures related to budgeting and
performance reporting. However, the implication is clear that the
performance of the division of budget reporting is accountability
division general manager, division controller that acts as a staff
assistant in preparing the document.

Internal Analysis of Rendell Company

The relationship between controller and
divisional manager in Rendell has a
structure like the picture shown beside.
To understand more about Rendell
environment, we will analyze the internal
environment of Rendell Company. We only
analyze the internal system because the
case is related to the internal control of
Rendell Company and the case doesnt
include any other external influence. So
below here are the strength and weakness
that Rendell have regarding those Rendell structures of controller
and divisional manager.

Strength
1. With control division reports directly to the division
manager, enabling issues to be quickly resolved and based
on the latest information.
2. Critical assessment helps to reduce the over-budgeting
and implement a new control program easier.

1.

Weakness

It is possible for the Division Manager to hide financial information.

2. The Division Controller may not be independent and make
the information among it biased.

Theoretical
Behavior in Economics
Management control systems affect human behavior. Good
management control system in such a way as to influence behavior
has a purpose that is consistent; meaning individual actions

undertaken to achieve personal goals will also help to achieve

organizational objectives. Or this could also be called as goal
congruence.
Goal Congruence
Goal congruence indicates that the individual within an
organization are not against the interest of organization even when
those individuals have their own self-interest. In a goal congruence
process, the actions people are led to take in accordance with their
perceived self-interest are also in the best interest of the
organization.
There are two things which influences the goal congruence, informal
factors and formal factors. Both formal and informal factors
influence human behavior within an organization; they affect the
degree to which goal congruence could be achieved.
Informal Factors That Influence Goal Congruence
1. External Factors
External factors are the norms regarding the expected behavior in
the community, where the organization is a part. These norms
include attitude, which collectively often called as EOTS work, which
is realized through employee loyalty to the organization, tenacity,
passion and pride owned by employees in performing their duties.
2. Internal Factors
a. Culture
The most important internal factor is the organization's own culturethe common beliefs, shared values, norms of behavior and
assumptions that are implicitly and explicitly manifested throughout
the organization. Cultural norms are extremely important since they
explain why two organizations with identical formal management
control systems, may vary in terms of actual control. A company's
culture usually exists unchanged for many years.
b. Management Style
Internal factor, which may have the most powerful impact on
management control, is management style. Typically, subordinate
attitudes reflect what they perceive as their superior attitude, and
the attitude of the boss in the end rests on what the attitude of the
CEO.
c. Informal Organization

The lines on the organization chart describing the formal

relationships, the shareholders authorized the authority and
responsibilities of any management.
The chart may show, for example, that the production manager of
Division A reports to the general manager of Division A. But in the
course of fulfilling his or her responsibilities, the production manager
of Division A actually communicates with many other people in the
organization, as well as with other managers, support units, the
headquarters staff, and people who are simply friends and
acquaintances. In extreme situations, the production manager, with
all these other communication sources available, may not pay
adequate attention to messages received from the general
manager; this is especially likely to occur when the production
manager is evaluated on production efficiency rather than on overall
performance. The realities of the management control process
cannot be understood without recognizing the importance of the
relationships that constitute the informal organization.
d. Perception and Communication
In an effort to reach organizational goals, managers must know the
goals and actions to be taken to achieve it. They receive this
information through various channels, both formal (e.g., budgets
and other official documents) and informal (e.g., conversations).
Despite this range of channels, it is not always clear what senior
management wants done. An organization is a complicated entity,
and the actions that should be taken by anyone part to further the
common goals cannot be stated with absolute clarity even in the
best of circumstances.

Formal Factors That Influence Goal Congruence

Rules
We use the word rules as shorthand for all types of formal
instructions and controls, including: standing instructions, job
descriptions, standard operating procedures, manuals, and ethical
guidelines.
Statement of Problem
The problem in this Rendell Company will be stated and questioned
in each question based from the book. Our result of discussion will
be explained in the next step of this paper.

What is the organizational philosophy of Martex with respect to the

controller function? What do you think of it? Should Rendell adopt
this philosophy?
To whom should the divisional controllers report in the Rendell
Company? Why?
What should be the relationship between the corporate controller
and the divisional controllers? What steps would you take to
establish this relationship on a sound footing?
Would you (authors) recommend any major changes in the basic
responsibilities of either the corporate controller or the divisional
controller?

II.

Results and Discussions

1. What is the organizational philosophy of Martex with

respect to the controller function? What do you think of
it? Should Rendell adopt this philosophy?
In Martex, divisional controllers report
directly to the corporate controller. The
divisional controllers are assigned to each
division to monitor and ensure the accuracy
of each divisions financial reporting. They
act as the corporate spy, they are
identifying organizational slack and making
sure that integrity of reporting is intact.
Therefore,
in
Martex,
the
divisional
controllers are sort of independent entities
from each division; their loyalty is with the
corporate controller. This strategy is very
good strategy because each divisions goals
are aligned with the company objectives and the top management
could receive unbiased information.
Martexs philosophy has both negative and positive side:
+: Financial and performance report within a division is more
accurate and could minimize the existence of biased information.

This could make the management controlling system from the top
management been easier.
-: Divisional Control staff will be acted like a spy, and we predict that
the manager divisional will not trust and entirely opened to the
divisional control staff and they will be excluded from the form of
team in this one line of divisional.
By re-identifying the given theoretical about human behavior, our
team could conclude that there is a differences will be made if
Rendell take Martex as their new philosophy. As it has been
explained before, the internal factors, which affect the goal
congruence within a company, are culture, management style,
informal organization, perceptions and communication. Rendell
Company has a really good culture such as discipline, time
management, compliance, and stuffs. This could make Rendell has a
good level for a goal congruence.
We agree that Rendell should adopt the philosophy of Martex,
because by following this new method and philosophy, top
management will receive the more good quality of information. This
philosophy supports the independencies of divisional controller.
The quality of information given by the divisional in Rendell
structure most of times could be biased information that will affect
the top management respond.
Even if this philosophy could make the divisional control staff wont
be counted as a team, this deficiency could be resolved by the next
explanation on the other questions below.
If we take a look back into the theoretical section, we can see that a
company must has goal congruence within the internal parties
inside the company. That is why we agreed to adopt this new
philosophy, because we think, by this new method and philosophy,
corporate controller, general division, and division controller might
reach the perfection of goal congruence. So, the timing and sources
used in Rendell could be as effective as it could be.

2. To whom should the divisional controllers report in

Rendell? Why?
Management style in a company reflects the internal condition and
might affects the goal congruence level in a company. That is why
management style such as to whom should the divisional controllers
report the information question is being concerned.

This differences report section could lead to a better communication

happened in Rendell Company. And to make the perceptions of any
entities are aligned to be one to reach the goal congruence itself.
We think that it is better if the division controller report both to the
corporate controller and division manager. They report to corporate
controller so the general information wouldnt be biased and
corporate controller will directly aware of surrounding issues. More
of it, the connection between controller division and corporate
division would be more solid, so even if the divisional controller are
excluded from the divisional that they took, they are still part of
team which involves in corporate controller responsibility.
Reporting to the manager division would build trust relationship
between manager division and division controller, because divisional
controller should have an access to sensitive information in the
related division.

3. What should be the relationship between the corporate

controller and the divisional controllers? What steps
would you take to establish this relationship on a sound
footing?
The corporate controller should establish a stronger link with the
division controllers by holding regular meetings just to let the
division controllers feel his presence in the company.

The corporate controller should show his authority to the division

controllers by creating stricter metrics to measure their
performance, which will be the basis whether they should be
retained, transferred or replaced. Both corporate controller and
division managers will have to evaluate the performance of the
division controllers: the corporate controller will base it on the
overall performance of the division and their general function, while
the division managers will focus on the outputs of the division
controllers based on the specific functions given to them by the
managers.
4. Would you recommend any major changes in the basic
responsibilities of either the corporate controller or the
divisional controller?

We agreed that there is no major change in the basic responsibilities

needed for corporate controller or divisional controller. We
recommend the shifting of controller division responsibility to
corporate controller and suggest a more solid relationship between
corporate and divisional controller so the presence of divisional
controller will more a bit appreciated.
Rendell Company should think more about the effectiveness by
reviewing the organizational structure and goal congruence. Good
management control system influence behavior in a goal congruent
manner, that is, they ensure that individual actions taken to achieve
personal goals also help to achieve the organizational goals.
In a goal congruence process, the actions people are led to take in
accordance with their perceived self-interest are also in the best
interest of the organization.
(Anthony,RobertN.Govindarajan,Vijay.ManagementControlSystemsTwelfh
Edition2007,Chapter3.McGrawsHillEducation)

References:

Anthony,RobertN.Govindarajan,Vijay.ManagementControlSystemsTwelfh
Edition2007,Chapter3.McGrawsHillEducation
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PerumusanMasalahRendellCompany,byUniversitasInternationalBatam
https://www.scribd.com/doc/245780519/MCSCase33RendellCompany
Describingandillustratingsignificanceofhumanbehaviorpatternsinmanagement
controlsystemManagementControlSystem
http://mcs20112010.blogspot.com/2011/04/describeandillustratesignificance
of.html

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