Management Control Systems: A Variety Engineering Perspective

Abstract

This paper draws on two strands of cybernetic thought, namely Ashby’s Law of Requisite Variety (LORV) and the Viable System Model (VSM), to analyze control systems in two organizations. The LORV specifies the conditions needed for effective control and the VSM provides the structural arrangements for operationalizing the LORV. The analysis considers a beyond budgeting system employed in a logistics company and a traditional, budget-based system utilized by a tertiary institution. The VSM is used to map the underlying structure of each system including communications between interacting components. The interactions are analysed using the LORV and interpreted according to whether communications reduce/attenuate variety or increase/amplify the organization’s ability to respond to it.

Results show that the beyond budgeting system incorporates a high mix of amplifiers relative to attenuators to increase branch managers’ ability to respond to high levels of external variety. In contrast, the budget based system relies on a high mix of attenuators relative to amplifiers to ensure all faculties adhere to the budgeted plan.

The beyond budgeting system, designed around a range of amplifiers, is more readily able to absorb the impact of external shocks. The budget-based system with its range of attenuators is less likely to generate requisite variety in the face of changing external conditions.

This meta-analysis, which considers the variety attenuating and amplifying role of control mechanisms, provides a new tool to describe and analyse management control systems and their fit with the external environment and strategy.

Keywords: viable systems model, cybernetics, law of requisite variety, management control, Beyond Budgeting, university budgeting