Cleaning Up – Implementing Sustainability Using Management Control Systems

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nSuccinct Summary of the Article

nBusco, Frigo, Leone and Riccaboni, (2010) analyze how application of MCS drives sustainability in a firm. They used two firms i.e. General Electric and Procter & Gamble to evaluate projects undertaken to promote corporate social responsibilities and corporate sustainability. In order to operationalize the sustainability, a company needs to develop sustainability strategies that recognize measurable and achievable goals and facilitate communication within it. Therefore, by utilizing the three sustainability principles; strategic thinking, managerial processes and operations, the authors assess how management control systems play a role in enabling sustainability and corporate social responsibility. They identified five ways of driving corporate sustainability through management control systems (MCS). First, MCS help an organization to identify clear and shared sustainability goals. Secondly, they also set measures that are capable of holding environmental and social performance throughout the organization and thirdly, they help in decision-making. Fourthly, MCS enable combination of informal and formal elements of a business that ensure better integration with corporate culture. Finally, management control systems manage tension between control and coordination.

nThorough Analyzes of the Article

nBusco, Frigo, Leone and Riccaboni, (2010) discuss how using management control systems (MCS); firms acquire both corporate sustainability and corporate social responsibility. First, they evaluate how firms will be able to identify clear and mutual sustainability goals and incorporate them into firms control systems and planning. In this regard, MCS helps to stimulate organizational change (Busco, Frigo, Leone and Riccaboni, 2010, p.3). It plays a significant part in initiating innovative strategies for operating a business. MCS promote sustainability via measuring, analyzing and rewarding workers in accordance with sustainability goals. The authors argue that MCS establish environmental and social concerns into the corporate system for mutual goals and principles. For instance, General Electric established “Ecomagination Program” that provides innovation to challenges in the environment (Busco, Frigo, Leone and Riccaboni, 2010, p.3). In addition, its products and services offer a measurable performance in the environment that increases returns and generates profits.

nThe article suggests that management control systems set measures that are capable of holding environmental and social performance throughout the organization. Through environmental and social integration, MCS enhances external reporting. Control systems and performance measurement allow for the entire corporate performances. In addition, they promote monitoring and planning systems in order to act sustainably (Busco, Frigo, Leone and Riccaboni, 2010, p.4). Social and environmental accounting creates a bold corporate image and a stronger management instrument. The latter helps firms to determine whether it is functioning pursuant to environmental, social and financial principles.

nBusco, Frigo, Leone and Riccaboni, (2010) note that management control systems help the company in decision-making. They explain that a company can collect social and environmental information from the users. Consequently, timely collection of data and information enables faster integration of ideas via crucial supporting tools (Busco, Frigo, Leone and Riccaboni, 2010, p.7). Management control system allows the combination of informal and formal aspects of a business that ensure better integration with corporate culture. According to Busco, Frigo, Leone L. and Riccaboni, (2010) informal elements include leadership initiatives and commitment while formal elements include internal codes, reward systems and performance management systems. In order to accomplish environmental and social goals, informal and formal features should cooperate. A management control system connects strategies to performances by offering a foundation for assessment and monitoring. Informal elements influence the effectiveness of formal elements, for instance, commitment to leadership because it helps in enhancing environmental strategies and appropriate actions (Busco, Frigo, Leone and Riccaboni, 2010, p.5). Lack of value and principle integration in sustainability increases the risk of tackling environmental and social concerns. Ultimately, Busco, Frigo, Leone and Riccaboni, (2010) explains how MCS manage tension between control and coordination in one side tailored with flexibility on the other. They determine decentralization and centralization of strategies for sustainability (Busco, Frigo, Leone and Riccaboni, 2010, p.6).

nStrengths and Weaknesses of the Article

nThe article has various strengths and weaknesses. The strengths of the article involve using explicit examples to discuss how management control system leads to corporate social responsibility and corporate sustainability. For example, the author presents five reasons of how management control systems drive corporate sustainability and corporate social responsibility. Secondly, the article uses two classic examples of companies that have launched these programs successfully, for example, General Electric in 2005 initiated Ecomagination program with an aim to campaign for profitable environmentally viable business. P & G started “Cool Water Cleaning” detergent sustainability project that uses minimum energy and produces minimum wastes (Busco, Frigo, Leone and Riccaboni, 2010, p.8). Furthermore, authors clearly present the report using tables, illustrations and diagrams, which help to complement the ideas and information.

nThere are few weaknesses of the article. First, the authors fail to define some of the key terms such as corporate sustainability and corporate social responsibility. Secondly, they fail to suggest other areas for further discussion and research.

nOverall Impression behind Corporate Social Responsibility and its Effects on Shareholder’s value

nCorporate social responsibility is very significant in motivating organizational change and promoting shareholders value. It helps to initiate innovative strategies of thinking and operating a business. Management control systems promote corporate social responsibility through measuring, analyzing and rewarding workers pursuant to sustainability goals (Busco, Frigo, Leone and Riccaboni, 2010, p.4-5). CSR establishes environmental and social concerns into the corporate system for mutual goals and principles. It helps to create stakeholders value by reducing internal and external risks.

nImplication of Management control systems in sustainability

nManagement control systems play a crucial role in setting systems for performance measurement for objectives and targets that are sustainable. Methods for performance measurement help to change sustainable strategic thinking into managerial processes and sustainable operations. In this regard, they ensure corporate social responsibility and corporate sustainability (Busco, Frigo, Leone and Riccaboni, 2010, p. 3).

nBenefits of Investing in corporate social responsibility

nFirms will benefit by investing in corporate social responsibility they stimulate organizational change, innovation and growth of business due to increasing profits. In addition, it helps the company to comply with environmental regulations. Besides, it ensures the firm produces services and goods that are globally competitive. Finally, it retains its customers because they can purchase products that promote sustainable growth (Busco, Frigo, Leone and Riccaboni, 2010, p.7).

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nReference

nBusco C., Frigo M.L., Leone L. and Riccaboni A, (2010) Cleaning Up – Using Management Control Systems in Implementing Sustainability can Profit the Earth as well as a Corporation. GE And P&G Show How. Strategic Finance