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NAMA : HANS JONNI

NIM : A 311 10 268

DYSFUNCTIONAL BEHAVIOR IN MANAGEMENT

CONTROL SYSTEMS

There are various forms of dysfunctional behaviors that can occur in an organization but

with one common and underlying objective: to use the rules and procedures to one’s

advantage. Hirst (1983, 596) considers dysfunctional behavior to be translated in rigid

bureaucratic behavior, strategic behavior, resistance and invalid data reporting. But, a more

thorough description of the forms of dysfunctional behavior, as reviewed by Birnberg et al.

(1983), can be listed as follows:

Smoothing – The subordinate utilizes the information system to his/her benefit by

altering the pre-planned free flow of data without altering the actual activities of the

organization (Ronen & Sadan, 1981). The most common example would be the

booking of sales/expenses achieved/incurred in the current period to subsequent

periods.

Biasing & Focusing – The manager has flexibility over the various indicators or

types of information he/she can report. Biasing would imply selecting the one(s)

suiting best the circumstances and more favorable to the manager. Such situations

usually exist when managers are being required to provide estimates of future

events12 (Birnberg et al., 1983, 121). This is very much related to the idea of

focusing, since the attention of superiors is being diverted to specific, and more

positive, elements of a system.

Filtering - According to Read (1962), filtering occurs when information is withheld

because the subordinate thinks that this could be used by his/her superior to hinder

the subordinate’s personal goals (e.g. career progression). This was later confirmed

by O’Reilly & Roberts’ (1974) study. Birnberg et al. (1983) also classify the

delaying of reports, over-presentation (to cause information overload) or over-

aggregation as a form of filtering.

Illegal Acts or Falsification – Such dysfunctional behaviors may include forgery of

documents and reports i.e. existing information is intentionally altered to satisfy

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required norms and variances. Examples of studies that have documented such

practices are Mars (1982), Vaughn (1983) and Simon & Eitzen (1986).

These two broad categories of dysfunctional behaviors (information manipulations and

gaming) identified above may not necessarily contain all the types of dysfunctional

behaviors14. Nor do these practices actually operate in isolation of one another15.

Managers may thus be engaged into gaming and manipulation at different levels of

combination. Therefore, a methodological problem has been to determine how to

operationalize the concept of dysfunctional behavior. Indeed, Hirst (1983, 603) and

Merchant (1990, 298) note the difficulties in obtaining honest responses, given the sensitive

and “illicit” nature of dysfunctional behavior. In this respect, Hirst (1983) used surrogate

measures such as tension and social withdrawal (viewed in terms of subordinate-superior

relations) to capture dysfunctional behavior but eventually suggests the use of case study

approaches for future research.

On the other hand, Merchant (1990), Jaworski and Young (1992) and Chow et al. (1996)

used various constructs to measure dysfunctional behavior. Appendix 1 provides a summary

of the various questions used by these earlier studies and their respective Cronbach-Alpha

statistics. It was noted that measures used by Jaworski and Young (1992) do overlap

between the different categories and types of dysfunctional behavior in contrast to the

measures used by Merchant (1990) and Chow et al. (1996) i.e. the latter studies attempt to

distinguish between strategic information manipulations (manipulation of performance

measures) and gaming (short-term orientation). Also, and despite earlier arguments to avoid

direct “sensitive” measurements (e.g. Hirst, 1983 and Otley, 1978), the questions relating to

data manipulation (in Merchant, 1990) were unambiguous and may have resulted in non-

responses16. Finally, direct questions involving specific and detailed dysfunctional

practices (e.g. shifting funds between accounts to avoid budget overruns) may elicit

respondents to provide ethically motivated attitudes rather than generating a measure the

incidence (or extent) of dysfunctional behavior.

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DYSFUNCTIONAL BEHAVIOR IN COST AND

MANAGEMENT ACCOUNTING

Poor morale on the part of managers is the root cause of most of the disadvantages suffered

by a system of budgetary control. Unless adequate attention is given to the behavioral

factors and the right atmosphere is created in which the system can flourish, the efficiency

of the system may be seriously impaired. Applying budgets without adequate participation,

setting standards which are not attainable, reporting exceptions as though they are failures,

and fixing responsibility without control, will certainly lead to resentment and distrust on

the part of managers within the budgeting system, Being human they will act to defeat what

they consider to be a system which disadvantages them, and may link the budget accountant

with this action if they consider him to be an adversary, a critic or an investigator.

Dysfunctional behavior manifests itself in a variety of ways.

1. Line managers faced with the threat of adverse variances will adopt a defensive

attitude to avoid responsibility. They may ‘build in slack” by increasing their

expenditure estimates when the budget is drafted, so that their department is

cushioned against adverse condition, variances disclosed are usually favorable.

2. A manager may conceal some expected advantage when budget forecasts are made

or may delay some profitable activity until it can be used to offset the effect of other

losses.

3. A manager who is worried by adverse variances may avoid taking risk: in escaping

criticism he or she also forfeits to the business the chance of large profits.

4. Managers who expect their budget to be cut will automatically enlarge their forecast

of expected costs. If the costs prove lower than anticipated, they will be entrusted

with a greater expenditure budget than they require to run their department

efficiently. As the year-end approaches, and they have not spent as much as was

expected, in order to escape discovery they will then spend up to the padded budget

on items which are not really required.

5. It is not unknown for managers who are pressured by unattainable budgets to falsify

information in order to ‘beat the budget’.

6. If pressure is put on a manager it will spoil atmosphere of teamwork and co-

ordination in the business, as a pressured manager may try to pass pressure back up

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the organization by rejecting the budget or the standards imposed by it, or

conversely may form a group bond with the employees under his control to express

their resentment.