The Controlling Concept. Horváth & Partners Management Consultants

takes a close look at the concept of Controlling, which – while based on US role models – was originally developed in Germany and has since spread and proven itself in Europe as well as America and Asia.

      As in other fields, there are various approaches in the concepts for corporate performance management, which sometimes overlap. In many cases, companies have individual solutions which are made up from a mixture of different concepts. Internationalisation and globalisation mean that such “best practices” are communicated and copied all around the world.

      One particular problem we find here is the “wording”. Although English has become the lingua franca of the business world, there are still frequent communication problems. This makes it even more important to define terms clearly and also to distinguish clearly between them.

      This is especially important for the “Controlling Concept” as the word “Controlling” has become a part of the German language; in English, it does not always carry the same meaning as it does in German.

      For this reason, we would like to provide a brief explanation of the most important, commonly used specialist terms in Controlling, and shed light on the relationships between them. We are well aware that some things might be described differently in textbooks and in business practice. We believe we should begin by explaining three concepts and defining how they relate to one another:

      •Accounting, which is broken down into Financial and Management Accounting

      •Performance Measurement/Performance Management

      •Controlling/Management Control

      In literature and in business practice, the term “accounting” is used in two ways. First, it is used as an umbrella term to describe all the processes and procedures used to collect and process financial data. Usually, accounting is then broken down into financial accounting and management accounting. In the narrower sense, accounting is also used to describe financial accounting, which comprises bookkeeping (today more commonly called accounting) and balance sheets.

      The task of management accounting is to provide management with information from accounting to support the decision-making process.

      Performance measurement is a set of tasks which deal with the definition and measurement of performance. Performance measurement is an essential element of operationalising corporate targets.

      Performance management is a term which is used in a wide variety of ways. We interpret the term in a very broad sense. We see performance management as all the decisions and activities of management which foster the efficient and effective achievement of corporate goals.

      Some authors equate performance measurement with performance management. We do not. For us, performance measurement is the measurement of performance whereas performance management consists of the all-embracing management task of ensuring a good or service is actually produced.

      In general, management control is seen as the process of planning, managing and monitoring.

      Controlling, as described in this book, is a function which integrates the process-based aspects of management control and the topics of performance measurement and management accounting (cf. Figure 1).

      Figure 1:Controlling: Integrative support function

      Now, who are the persons in charge of this function?

      In English and American English, accountants are the people who are responsible for accounting and balance sheets.

      Management accountants (sometimes also called cost accountants in English) are in charge of management accounting.

      The controller is responsible for providing all the necessary support for management through systems and information (also including management accounting) – they are the main character of our book (cf. Figure 2).

      Figure 2:Controller/Controlling

      Due to their close involvement in performance management, the controller is referred to as a business partner to the manager. (The name “management accountant”, which is still common in some places [UK, USA], does not do sufficient justice to the actual role of the controller.)

      In our book, managers are the people who are responsible for decision-making in the company.

      Figure 3 shows an overall view of how we understand the roles and the people playing them in this book:

      Figure 3:The Performance Pyramid

      Financial accounting supplies the basic data from accounting and balance sheets for management accounting. Management accounting and performance measurement are the sole responsibility of the controller. Management control, in the sense of process design and information supply, also falls under the remit of the controller. Performance management operates using Controlling as its foundation.

      Thus, we can summarise as follows:

      •The Controlling process comprises and integrates management control, performance measurement and management accounting.

      •The Controller is the person in charge of management support designing and using the Controlling process (“business partner”).

      •Controlling lays the foundation for performance management in the form of information and processes. We see this as all the leadership and management activities which are needed to produce the company’s goods and services congruent with corporate goals.

      •On the whole, we see this concept of Controlling as the essential cornerstone of performance management.

      This book is a practical guide for managers and controllers on how the Controlling Concept can increase the performance of their organisations.

Further reading

      Bragg S. M., The Controller’s Function – The Work of the Managerial Accountant, 4. ed., Hoboken, N. J. 2011.

      Chapman, C. S. (Ed.), Controlling Strategy – Management, Accounting, and Performance Measurement, Oxford 2005.

      Desroches, D., Lawson, R., Evolving Role of the Controller, Montvale, NJ 2013.

      Kaplan, R. S., Atkinson, A. A., Matsumura, E. M., Young, S. M., Management Accounting – Information for Decision Making and Strategy Execution, 6. ed., London 2012.

1	Nature and Structure of Controlling

1.1Chapter objectives

      Fig. 1.1:Chapter objectives

      In this introductory chapter we will first develop a common understanding of the term Controlling, of the general tasks of Controlling, and of the roles and competences of controllers. The main objective of the chapter is to provide the reader with an initial overview of the main components of an effective Controlling system.

      Fig. 1.2:Position of the chapter in the “House of Controlling”

1.2Introduction

      Over