The Controlling Concept. Horváth & Partners Management Consultants

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Introductory Remarks

      How can a company be orientated towards a performance goal and manage to ensure that this goal is reached?

      Only when the company is able to master this increasingly demanding challenge will its continued existence be secured. But that in itself is not really an answer, because it does not tell us how to master the challenge of performance orientation. This is why successful performance management concepts have been developed all around the world, in academia and in business practice, over the past century.

      This book 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).