EFFECT OF MANAGEMENT CONTROL SYSTEM ON

ORGANIZATIONAL PERFORMANCE: THE CASE OF SELECTED

COMMERCIAL BANK BRANCHES IN HOSANNA TOWN, HADIYA
ZONE, SNNPR, ETHIOPIA

MBA Thesis

YOHANNES EROMO ABAYE

AUGUST 2019

HARAMAYA UNIVERSITY, HARAMAYA

 Effect of Management Control System on organizational Performance: the
Case of Selected commercial Bank Branches in Hosanna Town, Hadiya Zone,
SNNPR, Ethiopia

A Thesis Submitted to the Department of Management,

Postgraduate Program Directorate

HARAMAYA UNIVERSITY

In Partial Fulfillment of the Requirements for the Degree of

MASTER OF BUSINESS ADMINISTRATION

YOHANNES EROMO ABAYE

August 2019
Haramaya University, Haramaya

ii
 HARAMAYA UNIVERSITY

POSTGRADUATE PROGRAM DIRECTTORATE

As Thesis Research advisor, I her by certify that I have read and evaluated this Thesis
prepared, under my guidance, by Yohannes Eromo, entitled Effect of Management Control
System On Organizational Performance: The Case of Selected commercial Bank branches in
Hosanna Town, Hadiya Zone, SNNPR, Ethiopia. I recommend that it be submitted as
fulfilling the thesis requirement.
Submitted by:
Yohannes Eromo _____________________ _________________
Name of the student signature Date
Approved by:

1. Robson Mekonnen, (Asst.prof) ____________________ ___________________

Name of Major Advisor Signature Date
2. Dhamodaran.L. (PhD) _________________ ___________________
Name of Co-Advisor Signature Date
As a member of Board of Examiners of the MBA in Business Administration Thesis Open

Defense Examination, we certify that we have read and evaluated the Thesis prepared by
Yohannes Eromo and examined the candidate. We recommend that the thesis be accepted as
fulfilling the thesis requirements for the degree of masters of business administration.

3. ___________________________ _________________ ____________________

Chair Person Signature Date
4. _____________________ __________________ ____________________
Internal Examiner Signature Date
5. _______________________ ____________________ ___________________
External Examiner Signature Date
Final approval and acceptance of the thesis is contingent up on the submission of its final copy
to the council of post graduate program (CPGP) through the candidates department or School
graduate committee (DGC or SGC).

iii
 DEDICATION

I dedicated that, this thesis manuscript to my beloved wife Meseret Lamboro,

My Mother Ayelech Lire and all of my other priceless family members.

iv
 STATEMENT OF THE AUTHOR

First of all, I declare that this thesis is my work and that all sources of materials used for
this thesis have been duly acknowledged. This thesis has been submitted in partial
fulfillment of the requirements for a master degree at Haramaya University. The Thesis is
deposited in Haramaya University Library and is made available to borrowers under rules
of the Library.

Brief quotations from this thesis are allowable without special permission provided that
accurate acknowledgement of source is made. Requests for permission for extended
quotation from or reproduction of this manuscript in whole or in part may be granted by
the head of the major department or dean of the school of graduate studies when in his or
her judgment the proposed use of the material is in the interest’s scholarship. In all other
instances, however, permission must be obtained from the author.
Name: Yohannes Eromo signature___________________________
Place: Haramaya University, Haramaya
Date of submission: August 2019

v
 BIOGRAPHICAL SKETCH

The author was born in Southern Nations, Nationalities and Peoples’ Regional State,
Hadiya Zone, Hosanna town in November, 1991 G.C. He attended his Primary school at
Jawe Primary School and Secondary School at yekatit 25/67 seniory secondary school.
After his successful completion of high school education he joined Jimma University, on
September 2010 and Graduated with BA degree in management on July 2012. Following
his graduation he served Hadiya zone for 5 years from 2013 to 2017 G.C, and in
September 2017 he joined school of graduate studies at Haramaya university and
continued Master`s program in the field Business Administration.

vi
 ACKNOWLEDGMENTS

First and for most, I would like to express my deepest and unshared thanks to the almighty
God for providing me the opportunity for what I have achieved and for his mercy.
My greatest thanks and heartfelt appreciation go to my main advisor Robson Mekonnen
(Assistant professor of management) and Co-advisor Dhamodaran.L. (PhD) for their guidance,
valuable comments, and their encouragement during my thesis work. Without their
encouragement, insight, guidance, and professional expertise, the completion of this work
would not be possible.

I expressed my gratitude to all Haramaya University friends in general and specially

Temesgen Fikire, Degefe Ayele, Sugamo Lamboro, Tefera Alacho, Wubalem Shugute, and
Birhanu Jabo, Ato Teshale Abose, Ato Alemu Lire a special friend for being supportive and
sharing ideas in every step of my Research work, Moreover, for making me to have a
fascinating time while I am staying in the university I wish to extend my deepest appreciation
to all members of my families for their endless love, support and encouragement. Specially, I
am highly indebted to you, My Mother W/ro Ayelech Lire, Ato Lemma Eromo, Ato Abere
Abayineh, you really are great. Thank you for everything.
Finally, I would like to express my heart-felt thanks and appreciation to my beloved wife
Meseret Lamboro for her encouragements and constructive advice.
Thank you!

vii
 ACRONYMS AND ABBREVIATION

A.A Addis Ababa

CPM Contemporary Performance Measurement
CBE Commercial Bank of Ethiopia
OC Organization Culture
MA Management Accounting
BS Budgeting System
RC Reward and Compensation
MAS Management Accounting System
MCS Management Control System
NBE National Bank of Ethiopia
NPM Net Profit Margin
OP Organizational Performance
DMP Decision Making Practice
FREQ Frequency
ROI Return On Investment
SPM Strategic Planning and Management
SWOT Strength Weakness Opportunities and Threats
ROA Return on Asset
ROE Return on Equity
EVA Economic Value added
GIS Geographical information system

viii
 TABLE OF CONTENTS

DEDICATION IV
STATEMENT OF THE AUTHOR V
BIOGRAPHICAL SKETCH VI
ACKNOWLEDGMENTS VII
ACRONYMS AND ABBREVIATION VIII
TABLE OF CONTENTS IX
LIST OF TABLES XII
LIST OF FIGURES XIII
ABSTRACT XIV
1. INTRODUCTION 2
1.1. Background of the study 2
1.2. Statement of the Problem 3
1.3. Objective of the study 4
1.3.1. General Objective 4
1.3.2. Specific objectives 5
1.4. Research Questions 5
1.5. Research Hypothesis 5
1.6. Significance of the Study 6
1.7. Scope of the Study 6
1.8. Limitation of the study 7
1.9. Organization of Study 7
2. LITERATURE REVIEW 8
2.1. Concept of Management Control System 8
2.2. Core components of MCS 10
2.2.1. Strategic Planning and Management 10
2.2.2. Organizational Culture 11
2.2.3. Budgeting System 12
2.2.4. Decision Making 13
2.2.5. Compensation and rewarding system 13
2.3. Organization performance 14
2.4. Empirical study 16
2.4.1. Management Control System practice 16
2.4.1.1. Strategic Planning and Management 17
2.4.1.2. Organizational culture 18
2.4.1.3. Budgeting System 19
2.4.1.4. Organizational Decision making capability 19
2.4.1.5. Compensation and Rewarding system 20
2.5. Organization Performance 20
2.6. Conceptual framework 21
3. RESEARCH METHODOLOGY 22

ix
3.1. Study Area 22
3.2. Study Design 23
3.3. Sampling Design 24
3.3.1. Target population 24
3.3.2. Sample size determination 24
3.3.3. Sampling technique proportional sample size allocation 25
3.4. Sources of data 26
3.4.1. Primary sources of data 26
3.4.2. Secondary sources 27
3.5. Method of data collection 27
3.5.1. Questionnaires 27
3.5.2. Interview 28
3.6. Reliability of instrument 28
3.6.1. Pre-test study 29
3.7. Method of Analysis 30
3.8. Model Specification 31
3.9. Description of variables for analysis 31
3.9.1. Dependent Variable of the Model 31
3.9.2. Independent Variables 31
3.10. Measurement of variables 32
4. RESULTS AND DISCUSSIONS 33
4.1. Response rate 33
4.2. Demographic information of the respondents 33
4.3. Descriptive Statistics of Scaled Type Questionnaires 35
4.3.1. Perception of respondents towards strategic planning and management 36
4.3.2. Perception of respondents towards Budgeting system the bank uses 38
4.3.4. Perception of respondents towards Reward and compensation 41
4.3.5. Perception of respondents towards decision making 43
4.3.4. Perception of respondents towards organizational performance 44
4.4. Correlations 46
4.5.Regression Analysis Results 48
4.5.1. Hypothesis test result 50
4.5.2. Multiple linear regression assumptions 55
4.5.2.1. Normality test 55
4.5.2.2. Linearity test 56
4.5.2.3. Multicollinearity test between independent variables 57
4.5.2.4. Homoscedasticity: 58
4.5.2.5. Sample size test 59
4.6. Structured interview result 60
5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 62
5.1. Summary 62
5.2. CONCLUSIONS 65
5.3. RECOMMENDATIONS 66
5.4. DIRECTION FOR FURTHER RESEARCH 67
6. REFERENCES 69

x
7. APPENDIX 76

xi
 LIST OF TABLES

Tables Page
Table 1: Target Population and Sample Size (Proportional Sample Size allocation) .............. 26
Table 2:Cronbach's Alpha for each field of Questionnaire ................................................. 29
Table 3: Demographic Characteristics of Respondents ....................................................... 34
Table 4: Descriptive statistics for strategic plan and management the bank uses. ........... 36
Table 5: Descriptive Statistics for Budgeting System The Bank Uses. ............................... 38
Table 6: Descriptive Statistics Organization Culture, the Bank Uses. ............................... 39
Table 7: Descriptive statistics for reward and compensation the bank uses. .................... 41
Table 8: Descriptive Statistics for Decision Making the Bank Uses. .................................. 43
Table 9: Descriptive statistics for organizational performance the bank measure. .......... 44
Table 10: Pearson’s Correlation Coefficient Matrix ............................................................ 47
Table 11: Model summary ...................................................................................................... 49
Table 12: ANOVA ................................................................................................................... 49
Table 13: Coefficientsa ............................................................................................................ 50
Table 14: Collinearity Statistics ............................................................................................. 58

xii
 LIST OF FIGURES

Figures pages
1. Conceptual framework 21
2. Study area (map of Hosanna) 23
3. normal distribution histogram result 56
4. p-p plot: linearity test results 57
5. scatter plot heteroscedasticity test results 59

xiii
Effect of Management Control System on organizational Performance: The
Case of Selected commercial Bank Branches in Hosanna Town, Hadiya
Zone, SNNPR, Ethiopia

ABSTRACT

The influence of Management Control System on business strategies and firms’ performance
has been empirically investigated in numerous studies during the past decade in several
developed and emerging economies. Based on the contemporary competitive, complex, and
mutable global business environments, organizations are being challenged in order to adopt
business models which assist them to address the strategic uncertainties and risks faced in
their business environment. The motives of this study were examining the effects of
management control system on organizational performance in selected commercial bank of
Hossana town. This research was carried out through cross-sectional survey design and
mainly based on data collected through questionnaires and interview. Target population of
survey study were 300 who are employees and managers and 171 sample respondents were
selected from target population by Yamane formula and also stratified sampling technique
was applied to proportionate sample size from each stratum or each branch of the CBE and
then simple random method was used to select employees within branches, but managers were
selected purposively. The study was analyzed in quantitative study approaches, but qualitative
approaches are used from key informant interviews conducted for managers of banks to
strengthen the quantitative approaches, questionnaire with five point Likert scale used for
quantitative explanation which were filled by employees and managers, and finally, it was
processed and analyzed by (SPSS) version 20 and the other statistical methods including
descriptive statistics and inferential statistics. The descriptive and inferential statistical tools
such as; mean, percentage, correlation and multiple regressions were used to analyze
collected data. The result of descriptive analyzes indicates that the mean score of reward and
benefit package is comparatively less of all studied management control system dimensions.
This implies that the selected banks of Hossana town were not providing the level of reward
and benefit as demanded by employees. The findings suggest that selected banks need to
improve all the dimensions of management control system. Although, based on a finding of
regression analysis result, except strategic planning and management which is insignificant
effect on organizational performance with p value of > 0.05, all the independent variables had
relatively strong significant and direct effect on organizational performance with p value
<0.05. Based on the research results, it is recommended for the selected banks to improve
reward and benefit package dimensions for employees, allocating budget based on relative
importance of dimensions, carrying out depth research, continuously evaluating
organizational performance, reviewing suggestion box and act accordingly.

Key Words: budgeting system, decision making, organization culture, reward and
compensation, strategic planning and management, organizational performance.

xiv
 1. INTRODUCTION

1.1. Background of the study

Management Control Systems (MCS) are used by managers to keep track of the company’s
performance and to control employee behavior (Anthony and Govindarajan, 2014).In the
current business environment; MCS considers an important indicator for organizations (Hanafi
and Fatma, 2015). As MCS plays a significant role in enhancing organizational performance
(Duréndez et al., 2016).

Organizational performance is measured in term of both quantitative as well as qualitative

parameters, and it is achieved by the efforts of individual employee and departments (Zehir et
al., 2016). Management control system refers to a management tool that allows for the
planning, budgeting, analyzing, measuring, and evaluating of useful accounting and financial
information for proper decision making to realize sustainable competitiveness and achieve
increased performance (Durendez et al., 2016). These are all managerial activities that enable
managers to design and implement organizational strategies that include all the mechanisms
(strategic planning; budgeting; unit-level resource allocations; performance measurement,
evaluation, and reward; transfer pricing) (Merchant and Stede, 2007).

MCS has always been identified as an important tool for the management of organizations as
academic perspectives, even though the use of MCS among organizations is limited as noticed
fact (Otley, 2003, Raymond 2016) and is most often restricted to the use of traditional
techniques such as budgetary control mechanisms and also traditional accounting tool is
rampant among organizations in developing countries like those in Africa.
Management control system is a reasonable integration of system together and use information
to make planning and control decision, to motivate employee behavior, and to evaluate
performance (Horngren et al., 2002). According to researchers (Anthony, 1965, 1988; Zarifah
and Mohammed, 2013) there are two types of perspectives of management control system, one
is conventional which are mainly emphasized on the conventional perspectives of
management control system and primarily restricted to the economic aspects of organizational
activities and the other one is the current perspectives or contemporary MCS that attempt to
 2

address the behavioral issues within and outside the organizational operations and it is a
product of its social setting that is constitutive in its social relations (Hauriasi and Davey,
2009; Uddin, 2009).

For instance, there are some issues regarding cultural controls such as lack of trust and lack of
appreciation among employees, no collective method for problem-solving, and low employee
morale (Ataullah et al.,2014; Iqbal et al.,2010; Sohail- Rehan and Ayaz-ul-Haq, 2018), issues
regarding bad planning such as use of old machinery, high cost of production, hire unskilled
labor, and poor state of technology as well as process (Ataullah et al.,2014; Iqbal et al.,2010;
Shah et al.,2012).According to Chenhall (2003), MCS is a broader concept that employs MA
and MAS tools to establish an inclusive strategic and operational control system that integrates
the functions of organizational control, personnel and cultural controls and applicable to
people, things, situations and organizations.

Management control systems have been recognized as important in the formulation and
implementation of strategies as orientation of corporate and business strategy, therefore, be
reflected in the design and use of the management control systems at the respective
organizational levels (Nilsson, 2002, Zarifah and Mohammed, 2013). It is specifically
concerned with the process by which managers control other members of the organization to
implement the organizational strategies and involves a number of activities such as planning
what the organization should do, coordinating the activities of several parts of the
organization, communicating information and evaluating information (Anthony and
Govindarajan, 2002). In coping with the competitive forces, there are three potentially
successful generic strategic approaches to outperforming other firms in an industry; overall
cost leadership, differentiation and focus (Porter 1998, Sajo 2006 and Raymond 2016).

The formal system and informal system are independent but they are highly interrelated,
indistinguishable and subdivision of control system. While there are many components that
make up a management control system, the study focuses merely on the following key
elements: the strategic planning and management, budgeting system, cash and cost
management, organizational culture, decision making, performance measurement, and
compensation and rewards (Marciallo and Kirby, (1994). In general, the study is focused on
 3

examining the practice of MCS on banks performance in Hosanna town branches to view
under the perspective of strategic planning and management, organizational culture, budgeting
system, decision making, reward and compensation system.

1.2. Statement of the Problem

Management Control Systems (MCS) are used by managers to keep track of the company’s
performance and to control employee behavior (Anthony and Govindarajan, (2014).In the
current business environment, MCS considers an important indicator for organizations (Hanafi
and Fatma, 2015). As MCS plays a significant role in enhancing organizational performance

(Duréndez et al., 2016). These are all managerial activities that enable managers to design and
implement organizational strategies that include all the mechanisms (strategic planning;
budgeting; unit-level resource allocations; performance measurement, evaluation, and reward;
transfer pricing) (Merchant and Stede, 2007). The managers employ to ensure that the
behaviors and decisions of their subordinates are consistent with organizational objectives and
strategies (Merchant et al., 2007). Even though the use of MCS among organizations is
limited as noticed fact (Otley, 2003, Raymond 2016) and is most often restricted to the use of
traditional techniques such as budgetary control mechanisms and also traditional accounting
tool is rampant among organizations in developing countries including Ethiopia. However, in
one of the recent studies, the authors recommend that in developing countries there is a need
to test the relationship between MCS and the performance of an organization (Bin- Nashwan
et al., 2017).

In national and international perspective, a number of studies have been conducted in

management control system dimensions and its effect on performance. As studied by
Raymond (2016), study addressed the perceived relationships among management control
systems, business strategy, and organizational performance in U.S. minority-owned
manufacturing businesses and it focused only on formal control systems. The use of informal
control systems such as those grounded in organizational culture (shared beliefs, normative
behaviors, and values), social ties, socialization processes, and the reliance on self-regulation
(Malmi & Brown, 2008), demand greater empirical research that deepen scholarly knowledge
of MCS. For instance, there are some issues regarding cultural controls such as lack of trust
and lack of appreciation among employees, no collective method for problem-solving, and low
 4

employee morale (Ataullah et al.,2014; Iqbal et al.,2010; Sohail-Rehan and Ayaz-ul-Haq,

2018), issues regarding bad planning such as use of old machinery, high cost of production,
hire unskilled labor, and poor state of technology as well as process (Ataullah et al.2014; Iqbal
et al.,2010; Shah et al.2012).

According to Ayichew (2011), there is evident in many cases that though intensive efforts
have been exerted to properly utilize management control practice in Ethiopia by many
organizations, no significant differences have been achieved over the management control
practice which is being exercised in the country. Even if, the number of researches had done in
management control system at various industries, the studies on bank were few and also, most
studies were conducted on individual companies independently. The issue of management
control practice still presents unique challenges in terms of effectively addressing the
organizational goals and objectives and also there are no sufficient studies in Ethiopia
concerning management control practices and its challenges. To overcome this problem few
published studies which conducted in Ethiopia focused on the regional level and sub cities of
Addis Ababa. But, on the zonal level, there is a scant study. So that, those studies that made at
regional and federal level cannot exactly represent CBE‟ branches of Hossana town. This
study was conducted to strengthen the existing theory in that it establish a relationship
between contextual and MCS variables, and also examine how this relationship impacts on
organizational performance. Therefore, the absence of empirical studies in Hossana town
commercial banks concerning management control effect on organization performance is what
motivated this research to put contribution by examining the effects of management control
system on organizational performance; in selected commercial banks of Hosanna town,
SNNPR.

1.3. Objective of the study

The objective of this study is to addresses one broad general objective and more specific
objectives which are derived from general objectives.

1.3.1. General Objective

The general objective of this study is to investigate the effect of management control system
on organizational performance of the selected CBE branches in Hosanna town.
 5

1.3.2. Specific objectives

➢ To examine the perception of employees towards MCS and organizational

performance in selected CBE branches

➢ To identify the influence of MCS (strategic planning, organization culture,

budgeting, decision making, reward and compensation) on organizational
performance

1.4. Research Questions

1. What is the perception of employees of some selected CBE branches towards MCS and
organizational performance?

3. What is the effect of MCS (strategic planning, organization culture, budgeting, decision
making, reward and compensation) on organizational performance?

1.5. Research Hypothesis

Hypothesis is a proposition that is stated in a testable form and that predicts a particular
relationship between two or more variable. In other words, that it thinks a relationship exists,
what first state it is hypothesis and then test hypothesis in the field (Baily and Kenneth, 1978).

In order to achieve the purpose of this study the following hypotheses are considered to be
constructed.

➢ H1: strategic planning and management has no positive and significant effect on
organizational performance.

➢ H2: organizational culture has positive and significant effect on organizational

performance.

➢ H3: budgeting system has positive and significant effect on organizational performance.

➢ H4: decision making has positive and significant effect on organizational performance.

➢ H5: Reward and compensation has positive and significant effect on organizational
performance.
 6

1.6. Significance of the Study

This study has been a significant role how to apply current management control systems in
major business center in general and particularly in the bank to achieve its objectives’ and
goals effectively and efficiently. Conducting a study on management control system in,
commercial bank is believed to be an important approach. The research results would provide

assistance to the commercial banks management to better use management control system
component to achieve their performance, efficiently and on timely manners. Furthermore, this
study was also a very important in providing a better ground for creditors, investors and other
stakeholders, who are devotedly concerned with this issue to take it as a base for further stride
to implement appropriate basic components of management control system for improving
economic welfare and the concerned decision makers to understand the role of MCS,
particularly in banks. Accordingly the findings of this study has the following importance,
first, the study is expected to add up to the existing knowledge on banks. Second, the study is
expected to recommend some of the ways to solve the problems at the place of origin. And
finally, the study would serve as the source of information for researchers who need to
conduct further study on the topic.

1.7. Scope of the Study

Conducting a research in all service industries is not an easy task; it requires much money,
time and effort. Considering money, time and willingness of the banks to give necessary data
for the study, therefore, this study was delimited on the effects of management control system
on organizational performance of the banks regarding to CBE branches in Hosanna town. The
sampling frame was the list of selected banks of Hosanna town. The information from branch
managers and employees was obtained through survey questionnaires and analyzed for
research work. Managers were selected because they have all relevant information regarding
the management control system and they were therefore best placed in answering the
questions.

In terms of the constructs showing in the research framework figure 1 only five ways of
management control system underpinnings (strategic planning, organization culture, budgeting,
decision making, rewards) and their effect on organizational performance. Other elements or
 7

underpinnings measurements of management control systems are excluded from this study and
in terms of respondents all employees and managers were considered but others like
employees those are guards and customers of the bank are not included in this study. It is
perceived that they might not have sufficient banking experiences to give relevant
information, interpret and respond to all the questions in the survey questionnaires.

1.8. Limitation of the study

This study was conducted on eight selected commercial banks, but those banks have many
branches across the country, so the finding of the study may not fully represent them due to
variations in environmental factors. Also the respondents in this study were sample employees
and managers from each selected branch, the sampling unit under study may not be able to
fully generalize to a large population of each bank.

This study was mainly focused on the effect of management control system on organizational
performance, but there might have factors beyond those, that can improve organizational
performance and those factors were not addressed by this study.

1.9. Organization of Study

This paper organized into five chapters: Chapter 1 is introduction including background of the
study, statement of the problem, objectives of the study, research questions, research
hypothesis, significance of the study, scope of the study, limitation of the study and
organization of the study. Chapter 2 contains a review of literature including theoretical and
empirical with regard to MCS. Chapter 3 is research design and methodology, particularly this
section shows the research questions to be addressed and followed by a discussion of the
underlying principles of quantitative research methods approach in the report. Chapter 4
contains data presentation, discussion and interpretation of the results of the different methods
used. Specifically, the results of surveys with questionnaires, interviews, and document
analysis are presented in this chapter. Finally chapter 5 presents summary, conclusions, recom
mendations and direction for future research.
 8

2. LITERATURE REVIEW

This chapter consists of definitions and concepts, brief theoretical framework, different
research findings and views of different scholars which are one way or the other pertinent to
the study.

2.1. Concept of Management Control System

Because of the absence of a general and well-articulated definition, the interpretation of

research results and design of MCS is somewhat problematic (Joni, 2009; Malmi and Brown,
2008). The idea is sustained by Bisbe et al., (2007) who argue that it is essential to pay
particular attention to the conceptual specification of the studied construct since a careful
definition will foster both more effective research into MCS and progress in understanding the
goals.

This definition is slightly narrow in nature since it disconnects management control from
strategic control and operational control (Joni, 2009). On the other hand, Flamholz (1983),
emphasizes the behavioral aspect of MCS by arguing that individuals and organizations share
only partially congruent objectives why it is necessary to channel human efforts toward a
specified set of institutional goals. This idea is also supported by Merchant and Vander Stede
(2003) who argue that “...management control involves managers taking steps to ensure that
the employees do what is best for the organization.

The definition of MCS is also expanded by Anthony and Govindarajan (2003), Berry et al.,
(2005) as the process by which managers of all levels ensure that the people they supervise
implement their intended strategies and further the organization’s goal through planning,
budgeting, responsibility centers, cost management, decision making, management control,
performance measurement, and compensation.

According to Malmi and Brown (2008) the aggregate, definition of MCS as it includes all the
devices and systems; managers use to ensure that the behaviors and decisions of their
employees are consistent with the organization’s objectives and strategies. It is also a process
for detecting and correcting unintentional performance errors and intentional irregularities,
such as theft or misuse of resources (Joni, 2009).
 9

MCS also have many characteristics which influence their use may be formal or informal
(Anthony and Govindarajan, 2003, Langfield-Smith 2007; Natalia and Joseph, 2011,
Demartini, 2014). In any case, the presence, use or absence of MCSs significantly influences
the actions and decisions carried out within an organization (Anthony and Govindarajan 2001,
Muhammad & Mohamed 2013, durendez 2016). According to (Joni, 2009) the issue of MCS
is explored in the form of relationships with hierarchal levels such as Strategy formulation
focuses on the long run, task control focuses on short run operating activities and management
control is in between and fits between strategy formulation and task control in several
respects. MCS have also been defined more generically as the systematic use of management
accounting to achieve some goal, but also encompassing the use of other forms of control such
as personal or cultural controls (Chenhall 2003).

As the researchers (Anthony and Govindarajan 2002, Mihai et.al, 2011), MCS enables
managers to perform strategic analyses on issues such as determining core competencies and
organizational constraints from a cost-benefit perspective and assessing the positive and
negative financial and non-financial factors of strategic and operational plans. It is specifically
concerned with the process by which managers influence other members of the organization to
implement the organizational strategies; this involves number of activities such as planning
what the organization should do, coordinating the activities of several parts of the
organization, communicating information and evaluating information.

As discussed in Saroj (2006) and Ayichew (2011) explored the ideas of exploration of
different scholars regarding the MCS are described into two major parts.

Formal Control System:-Formal system makes possible the delegation of authority. Formal
documentation of structure, policies, and procedures assist members of the organization in
performing their duties (Wu, 2003). An effective set of formal control includes three major
mechanism-operational plans, performance measurement systems, and feedback mechanism.
Operational plans include the firm's annual master budget and related supporting work plans.
They provide the linkage between senior management's strategic plans and the day-to-day
organizational activities of each employee performance measurement systems compile and
report the result of the collective work activities on periodic basis an effective performance
measurement system presents both financial results and operating data on a responsibility
 10

basis (Yesuf, 2010). Individual employees are rewarded not only in financial money, but also
the friendship and working relationship are important because it encourages employees to
carry out their job efficiently (Wu 2003). And Coordination and integration is considered as
interpersonal relationship, which can be changed and adapted to meet the needs of the
organization members. Informal communication helps deeper discussion of sensitive issues in
a softer and flexible environment.

According to Horngren, et al. (2007) the BSC is a management and measurement system that
enables organization to clarify their vision and strategy, translate them into action and
performance reporting approach which links organizational strategy to actions of managers
and employees by combining financial and operating measures, linking performance to
rewards and recognizing organizational diversity in goals. According to Kaplan and Norton,
(1992, 1993), Natalia and Joseph, (2011), the BSC suggested that management views in the
organization from four perspectives, and to develop metrics, collect data and analyze it
relative to each of these perspectives are the learning and growth perspective, the business
process perspective, the customer perspective and financial perspective also there are other
four perspective of the score card permit a balance between short term and long term
objectives, external measures for shareholders and customers and internal measures of critical
business process, innovation, and learning and growth, outcomes designed and the
performance drives of those outcomes and hard objectives measures and softer, more
subjective measures (Kumisa, 2015).

2.2. Core components of MCS

2.2.1. Strategic Planning and Management

Strategy is the link between an organizations goals and objectives and the operational
activities executed by the organization. Strategy can be defined as: the art of generating value.
It provides the intellectual frameworks, conceptual models, and governing ideas that allow a
company’s managers to identify opportunities for bringing value to customers and for
delivering value at a profit (Marian and Mihai, 2011). In coping with the competitive forces,
there are three potentially successful generic strategic approaches to outperforming other firms
 11

in an industry; overall cost leadership, differentiation and focus (Porter, 1998). Langfield-
Smith (1997) states that, “the MCS should be tailored explicitly”.

2.2.2. Organizational Culture

According to Amah, (2006), and Elizabeth and Mang (2016), culture can be seen as shared
philosophies, values, beliefs, attitudes, expectations and norms which keep an organization
together. It is a unique identity which makes humans different from each other as well as
tribes, religion, nationality as well as organizations. They include languages, values, norms as
well as other behavior pattern, Madu, (2012) further explains the manifestations of culture as
the way things are done, the rights and rituals, organizational climate, reward system and the
organization’s basic values. Organizational culture is the prime responsibility of
organizational leaders which includes its founders and those at top positions. They establish
the parameters for formal communication lines as well as organizational formal interaction
rule (Madu, 2004). Organizational culture can also manifest itself in power distance in the
organization, individualism, masculinity as well as avoidance of uncertainty (Shahzad et al,
2012). Organizational culture is like the onion which has different layers, the invisible layers
are norms and values but they are also the most important. According to Tousi (2003), culture
in its widest meaning refers to complex human products like arts, philosophy, knowledge and
technology and in social sciences, it refers to a system of common rules which are accepted by
a group of people at a particular and group behavior is conducted based upon the system.
Organizational culture defines the way employees complete tasks and interact with each other
in an organization.

The research conducted by Alharbi et al., (2003), Elizabeth Chijiago,(2016) shows that the
attraction of organizational culture has impact up on management control system and
employee’s performance to support the strategy of the business”. Ittner et al., (2003) explored
that, a basic assumption in the strategic control literature is the need to form specific control
practices with the company`s selected strategy. Therefore, strategy is an important factor in
the design and use of MCS. Accounting scholars have argued that MCS have to be modified in
accordance with the strategy of a company (Simons 2000). Otley (1999) notes that the strategy
and objectives that a company decides to pursue represent a central contingency variable. In a
sense it is not an element of context, rather it is the means whereby managers can influence
 12

technologies, the structural arrangements and the MCS (Chenhall 2003). According to
Malmi& Brown (2008), culture is a control system when it is used to regulate behavior.
Therefore, the authors explicitly assume that it is rather a matter of whether Managers desire
to use culture as a control system or not. This study acknowledges that culture is relatively
stable across time and might occasionally be beyond managers’ scope for control, but,
nevertheless, it is assumed here that culture can be used at least to some degree as an MCS.

2.2.3. Budgeting System

As studied by researchers Kuwata et al., (2015) in the banking industry, budgeting is an

indispensable tool -which has profit maximization as its goal and this can only be realized
when resources are properly planned and controlled with the required commitment and
expertise. According to Okpanachi and Muhammad (2013), banks are profit-oriented
enterprises, there is a need for effective budget and budgetary controls as it constitute
important and fundamental management and internal control systems organizational
performance. According to study by the scholar Hartmann (2000), there is positive relation
between emphases on pressure of managers and budgetary performance. As revealed in Joneso
(2008) in contemporary businesses, budgets remain one of the most widely used MCS
techniques. For example, discovered three key reasons why organizations in the hospitality
industry develop budgets: as a tool for management control, performance evaluation, and
planning. As discussed Hesford&Potter (2010), budgets can be viewed as a forecasting tool in
the short term (about a year) in order to align strategy and business objectives in the long term,
are needed for advanced forecasting (about five years to ten years). According to author
Horngren (2007), budgeting is the common accounting tool organization use for planning and
controlling what they must do to satisfy their customers and succeed in marketplace and when
administered wisely, budgets : compel strategic planning and implementation of plans, provide
a framework for judging performance, motivate managers and employees, promote
coordination and communication among submits within the organization.

According to Joshi et al., (2003) examined budgeting planning, control, and performance
evaluation practices in a developing country found out that most of the firms prepare long-
range plans and operating budgets, and use budget variances to measure a manager’s
 13

performance, for timely recognition of problems, and to improve the next period’s budget to
achieve organizational goals.

2.2.4. Decision Making

According to Heidi et.al., (2006), qualitative methods study to achieve MCS in Energy co
plays an important role in several steps of the decision process. First it appears to have assisted
in the identification, clarification of problems and solving problems procedurally to attain
organizational performance.

As studied in Sajo (2006) and Ayichew (2011), in line with the decision for comments given
by the employees and customers are made by the branches in which the power is in hand
where as the power in which cannot in hands of the branch manager and officer as well will
transfer to the board of director to judge and pass possible decisions. As Simons (2000) noted,
decision making refers to the improvement of decision processes through planning (setting
performance and strategic goals and ensuring an adequate level and mix of resources) and
coordination (integrating disparate parts of a business to achieve objectives).

2.2.5. Compensation and rewarding system

According to Merchant and Otley (2007), incentive plans and reward system is the thing that
employee value, and hence motivates them to act in a specific way that is in the interest of the
organization. As Anthony and Govindarajan (2007) stated, the main goal of incentive plans
and reward system is to form goal congruence between organizations goals and employees
interests. There are two types of motivating employees, extrinsic and intrinsic. Extrinsic
motivation represents the quantifiable benefits that are provided to the employees through
financial rewards (Stringer et al., 2011). Commonly, this type of incentive management is the
collective rewards that are given to the employees such as profit sharing schemes, team-based
incentives and gain sharing plans. On the other hand, intrinsic motivation is the psychological
satisfaction that individuals gain through unquantifiable approaches (Ferreira and Otley, 2009;
Stringer et al., 2011). These unquantifiable approaches may include; recognition, fairness and
equity, inclusiveness and praise of the employees (Ferreira and Otley, 2009). In the MCS
literature, majority of the organization employ the extrinsic motivation methods while intrinsic
approaches are hardly used by the studied organizations (Stringer et al., 2011). One of the
 14

major conclusions with regard to Trimo (2002) strategy is that the leadership style is a very
important determinant of Trimo’s successful implementation of the strategy. She is very
charismatic and capable of mobilizing employees towards achieving common goals. In
literature, there are discussions about different types of leaders. When looking into the
classification that distinguishes transactional and transformational leadership styles (Tucker&
Russell 2004), they conclude that she is a true transformational leader with the following
characteristics: She uses authority and power to inspire and motivate people to trust and follow
her example (Tucker and Russell 2004). She has energy-producing characteristics that
generate new changes for the organization (Tucker and Russell 2004). Individual employees
are rewarded not only in financial terms. The informal rewards are important because it
encourages employees to carry out their job efficiently and status oriented (Stringer et al.,
2011 Ferreira and Otley, 2009)

2.3. Organization performance

By reviewing several literatures, there are numerous definitions of business strategy, which in
most cases is defined as business strategy as how competitive advantage will be achieved

by a business as it has been recommended that MCS should be explained clearly in

maintaining the business strategy which could lead to a greater performance (Acquaah,
2013,Tsamenyi, Sahadev, and Qiao, 2011, Henri, 2006).

Performance can be defined as the results of the activities of an organization or investment

over a given period of time. Based on literature review, the results of MCS on organization

performance are hard to predict. A positive relationship between performance and the
implementation of MCS will be expected if MCS provide significant information for
coordination and learning, and there is some indication about this matter in the performance

field (Akroyd and Maguire, 2011, Bisbe and Otley, 2004; Davila, 2000).

Furthermore, this section seeks to make it clear why economic perspective alone is not
sufficient in assessing the possible performance implications of MCS. Once the foundation for
other than financial performance implications has been rationalized, the section turns to
 15

introduce the concept of organizational ambidexterity by elucidating the prior research on the
topic and, especially, on the antecedents of organizational ambidexterity. According to Al-
Shami (2008) and Meaza (2014) performance of firms are measured three important things
such as profitability, size and survivorship.

Profitability indicates the firm’s ability to achievement of the rate of return on a company’s
assets and investment funds. With regard to size, it is a firm’s ability to expand its size could
be a reflection of it success as earnings are reinvested and external funding could be easily
found. Whereas survivorship indicates the ability to earn sustainable development concerning
competitive advantages beyond initial opportunities like an economic upturn or the early
growth stage of an industry.

A couple of small business studies have examined the role of various MCS that relates to
effectiveness of small firms, applying contingency theoretical frameworks. In these studies
effectiveness or performance is an outcome variable. Thus according to the contingency
theoretical point of view, this group of studies concentrates on interaction or congruence fit
(Donaldson 2001, Drazin and Van deVen 1985, Luft and Shields 2003). However, depending
on the research question also studies examining different types of associations between
dimensions of MCS and performance have been applied in this research stream and also
included in this section of prior MCS studies of small businesses ( Luft and Shields, 2003), for
a discussion.

Gul (1991) has examined the interacting effects of perceived uncertainty and MAS on the
small business managers’ performance using a method of moderated regression analysis.

Based on the survey responses of 168 SMEs Wijewardena et al. (2004) found that both
sophistication of budgeting practices and budgetary control process had a positive and
significant correlation with the sales growth of firms over the three past years. However, as
typically occurs in MCS studies, performance in sales was self reported by the respondents
due to difficulties for getting objective performance data for the firms.

Furthermore, Gul (1991) focusing on the interrelationship between the sophistication of MAS,
environmental uncertainty and managers’ performance and McMahon (2001) respectively
between financial management practices and firm performance provide us, in fact, only a
 16

piecemeal view regarding the dimensions of comprehensive MCS of today and their possible
effects on performance. Actually, their study results are even contradictory, because
Gul(1991) found that the use of MCS has a significant association with performance when
environmental uncertainty is also intertwined in the analysis. On the other hand, McMahon
(2001) did not find any significant relationship between use of financial reporting practices
and firm performance. However, McMahon (2001) used only bivariate associations in his
analysis leaving out possible interaction effects of contingencies like environmental
uncertainty. Furthermore, McMahon’s study sample consisted of both small and medium-sized
firms and so it is not a small business study like Gul’s (1991).

To sum up all these studies above it seems that more sophisticated use of MCS tends to relate
to better business performance.

2.4. Empirical study

This section deals with the empirical framework supported by different researchers regarding
the MCS. It is composed of the practical application, methods adopted and findings of MCS,
strategic issue, budgeting system, decision making, organizational culture, and rewards and
compensation.

2.4.1. Management Control System practice

The impact of service process type, business strategy and life cycle stage on MCSs are studied
under Auzair and Langfield-Smith (2005) using quantitative method by investigating scope of
their efforts in the service organizations. Dimensions of MCSs under investigation are action
versus result control, formal versus informal control, tight versus loose control, restricted
versus flexible control, impersonal versus interpersonal control; mass versus professional
depicts the dimension of service process type.

According to Raymond (2016), in U.S. minority-owned manufacturing businesses by using a

quantitative, survey-based correlation design focusing on the relationship between financial
and nonfinancial-based management control systems as well as low-cost leadership and
differentiation strategies, and also how these practices impacted organizational performance
indicating that financial- and nonfinancial-based management control systems, differentiation
 17

Strategies and low cost were significantly and positively related to organizational
performance.

As studied in researchers (Nartey et al., 2014), the study found out that, strong management
controls exist in the control environment and monitoring activities components of the internal
control systems of banks in Ghana quantitatively by five point Likert scale used to measure
respondents’ knowledge and perception of internal controls and the bank “internal control
system effectiveness having highly rated by respondents with average means of 4.72 and 4.66
respectively.

According to (Channell and Langfield-Smith, 2007) using case study with two companies
apply management controls to strategy have highest performance. The results provide support
for three conclusions: (1) with regard to the service process type results indicate that mass
service organizations apply more bureaucratic management controls than professional service
organizations, (2) cost leaders apply more bureaucratic management controls than
differentiators, and (3) for the lifecycle stage the results indicate that organizations in the
mature stage of their life cycle apply more bureaucratic MCs than organizations in the growth
stage of their life cycle.

2.4.1.1. Strategic Planning and Management

Tsamenyi et al., (2011) conducted survey-based quantitative research to investigate the

hypothesized contingent relationship between business strategy, MCS, and performance in a
Sample of 215 enterprises operating in the Xinjiang autonomous region of China. They found
that those organizations classified as pursuing differentiation strategy used more non financial
based MCS, and this positively impacted organizational performance.

According to Joni (2009), using mixed methods study of several findings emerge from the
study. First, the control packages of the business units were found to be virtually akin to each
other but, however, equally functional in the face of different contingencies. Second, the
packages seemed to rely more on informal and “organic” controls as opposed to formal and
“mechanistic” controls. Third, whilst cultural controls were argued to provide a contextual
frame for other controls, reward and compensation controls were asserted to remain relatively
separate from other package elements. Planning, cybernetic, and administrative controls, on
 18

the other hand, appeared to be tightly linked in practice. Finally, the business units ‟MCSs
packages were argued to be of assistance in fostering organizational ambidexterity.

According to Saroj (2006) using quantitative method study with descriptive statistics, the
findings of the generic strategy of Nepalese commercial banks has been divided for two main
areas of business: deposit and lending. The different branches of the same commercial banks
at the different geographical location are adapting different strategy. Around fifty two percent
branches of commercial banks are concentrating on differentiation strategy and 47.4 percent
are following focus strategy to attract the depositors. In case of lending, majority of branches
(52.6 percent) of such banks are adapting differentiation strategy followed by focus
(42.1percent) and cost leadership (5.3 percent).

As studied by Ayichew (2011), using mixed method study with descriptive statistics, the
findings of the SPM of CBE studied in Addis Ababa has been divided for two main areas of
business strategies and business operational analysis. The different branches of the same
commercial banks at the different geographical location are adapting different strategy and
frequencies are also different at different branches.

2.4.1.2. Organizational culture

According to Higgoda (2012), a case study on effect of planning system of university at KTH
there are different cultural findings and conclusions:- Knowledge about the codes of conduct
group work, changes of responsibilities, physical arrangement and tone at the top
administrators. There is mostly a general level of awareness about the codes of conduct and
most of them are considered to be the common knowledge either gathered through experience
or by intuitive thinking, the responsibilities are mostly shared amongst the group members and
a good level of communication is maintained. The planning system administrators who stated
that there are no shared responsibilities are specialized in the work they perform or either
worked alone, stay locked-in with the planning systems. However, as time passes, there are
more responsibilities added with the same with new versions of the planning systems, the
planning system administrators are satisfied with the physical arrangement with respect to
their working environment. Nurwati (2013) Studied in the Village Unit Cooperatives (KUD)
in Southeast Sulawesi) by descriptive analysis; he analyzed results of the influence of direct
 19

management control of the organizational cultural values obtained significant positive path
coefficients. This suggests that management control affect organizational culture. Path
coefficient is positive means that there is a direct relationship between the control of
management to organizational culture. Higgoda (2012), also studied on effects of cultural
controls on workplace relationship and he has concluded that workplace relationships are
strong which shows the strong governance of the culture within an organization. The emphasis
on informality, group work, homely atmosphere and the less power distance contributes to the
development of strong bonds between the employees, which ultimately defines a strong
culture from findings conclusion of cultural controls in each planning system

In the study Nurwati (2013) also analyzed the effect of organizational culture on work
behavior in his studied area. The results of the analysis of the direct influence of
organizational culture on work behavior coefficient values obtained significant positive path.
This suggests that organizational culture affects work behavior.

2.4.1.3. Budgeting System

According to Kpedor (2012), researched using qualitative method in budgeting and budgetary
Control and performance evaluation: a case study of Allterain Service Group. Findings
exposed that the use of budget among key actors is at the lower level and also established that
monthly performance reports do not get down to the project managers with most of the ideas
in performance in respect to meal cost and the number of employees for a project misdirected
in the budget. Ugwuanyi and Ebe (2012), using applied content analysis technique, assessed
the effect of poor budgetary control practices on budget implementation and goal achievement
of government owned firms in Enugu State. Findings exposed that there exist poor controlling
practices using government owned firms in Enugu State, and that appropriate budgetary
implementation firm’s goal achievement are almost not kept by those firms.

2.4.1.4. Organizational Decision making capability

According to Sajo (2006) and Ayichew (2011), using mixed method in Nepal and Addis
Ababa commercial banks that the MCS led to a balancing process when making decisions, and
this appears to be its strength in overcoming the conflict between multiple objectives such as
 20

investment decisions, targets set by branches and heads of corporate and directives given by
NBE. It has done formally by providing the framework for Board and Executive level
discussions, and presents the information in a way which shows the potential impact of
decisions on all strategic objectives.

2.4.1.5. Compensation and Rewarding system

As researcher Ayichew (2011) by using mixed method of study revealed that the
compensation and rewards such as salary/benefit/promotion given Addis Ababa CBE
additional benefit for better performance (performance higher than the standard), researcher, at
present all commercial banks are encouraging their employees to discharge better performance
and enhance educational qualification and attain trainings. It is supported by the response
provided by managers and employees of such commercial banks encouraging employees to
learn new skill and knowledge to improve employees’ performance and then the
organizational goals attain.

According to the findings of Saroj (2006), by applying quantitative methods of study shows
that the compensation and rewards such as salary (benefit) promotion given to Nepalese
commercial banking sector, is mostly determined by performance followed by education,
experience, relationship, and other factors respectively. Regarding additional benefit for better
performance (performance higher than the standard), 53.8% responded they get additional
benefit for better performance. 17% of respondents say they don't get any additional benefit
for better performance and 28.2% did not provide any comment on this dimension.

2.5. Organization Performance

In today’s world as competition increasing at increasing rate, companies were able to deliver
their offer and services that are tailored for every customer. Certainly, these organizations can
accomplish competitive advantage in sale and service marketing through tailoring their mass
services. At the moment, the profitable companies endeavor to transfer their mass services to
the individual customer. Organization performance refers to the enhancement of the
organizational standing in the market, improvement of the customers’ perception of
organization and its products, and increase in their loyalty toward organization (Martin, 2005).
 21

2.6. Conceptual framework

This conceptual framework is formulated based on the review of the existing literature on the
effect of management control system practice on organization performance. In the conceptual
framework, organization performance is a dependent variable, which is subjected to factors
such as strategic planning and management, organizational culture, budgeting system, decision
making, Reward and compensation.

Independent variable Dependent variable

Strategic planning and
management

Organizational culture
Organizational
performance
Budgeting system NPM

ROE

Decision making

Reward &
compensation

Figure 1: Conceptual framework

Source: adopted with modification from Raymond (2016)
 22

3. RESEARCH METHODOLOGY

This chapter provides an outline of the research methods and procedures that are employed in
analysis of the effect of management control system on organizational performance in Hadiya
Zone particularly in Hosanna town selected banks of the study area, study design, sampling
design, data source and methods of collection, validity and reliability, data analysis methods,
model specification was utilized in this study.

3.1. Study Area

Hosanna town is located at 232 km south from the Ethiopian capital city Addis Ababa and 160
km west of Hawassa City. The absolute geographic location of Hosanna is 7˚15'00’’ North
latitude and 37˚50’30” East longitude (Hadiya zone culture and tourism, 2016).

Hosanna town serves as a major business center for inhabitants in the region. Some of offers
amenities including; Telephone service, postal service, gas stations, 24-hours electricity, Bank
services, Insurance service and suitable Hotels and restaurant service.

The zone has an estimated total population of 1.2 million people. Many of its residents are
primarily ethnic Hadiyas, followed by Kembata, Gurage, Silte, Oromiya and Amhara origins-
they all live together peacefully. While the majority of its residents speak Hadiyigna as their
first language, some speak other languages such as Amharic, Kembatigna, Guragigna,
Silitigna and Oromigna. The population is predominantly Protestant, with some Muslims,
Orthodox and Catholics (Hadiya zone culture and tourism department, 2016).

Banks are institutions which accept deposits, make business loans, and offers related services.
It also allow for a variety of deposit accounts from any location as checking, savings, and time
deposit. While Banks offer services to individuals, they are primarily concerned with receiving
deposits and lending to businesses. All selected branches were study case area and the
researcher wanted to assess managerial practice in these branches to reveal appropriate
recommendation to concerned bodies.
 23

FIGURE 2: STUDY AREA (MAP OF HOSANNA)

Source: Researcher Own Drawing Gis

3.2. Study Design

Research design is basically master plan of a research which focuses on how the study is to be
conducted (Miller and Salkind, 2002). In order to achieve the purpose of the study the research
design selected to use cross sectional studies which have been a study within a particular time
frame and known as one shot soureli et al., (2006).Therefore, this design helps researcher to
obtain overall picture of research objective as it stands at time of the study.

The researcher was used the collected facts or information to analyze and make a critical
evaluation of the data/information (Zegeye, 2009). Survey strategy allows one to collect
quantitative data, which one can analyze quantitatively using descriptive and inferential
statistics (Saunders et al, 2009).

Quantitative approaches are employed for the data that the researcher collects from
respondents through questionnaires. Detail description of the findings was displayed in tables
 24

and charts as well as to develop inferences on the relationship between management control
system components and organizational performance with testing significance levels of the
variables. Using this design, patterns of data was investigated and generalized.

3.3. Sampling Design

3.3.1. Target population

A population (universe) is a group of individuals, objects or items from which samples are
taken for measurement (Kombo and Tromp, 2006). It refers to an entire group of objects or
events having common characteristics for observation, the aggregate of what conforms to
certain specifications (Mugend, 2003). The target populations of the study were from Hosanna
town selected CBE branch employees and managers. The total number of target population
was 300.

3.3.2. Sample size determination

There are several formulas developed for sample size determination that conforms to different
research situations. The sample size for this study was determined by using the formula
described by (Yamane 1967) as follows: Also according to Amugune (2014) used to draw
adequate sample size and it is more simplified for distributing sample proportions.

Where n = the sample size of the study

N= total number of employees and managers (target population) of Hosanna town branches
e = margin of error= 5 %= 0.05 and 1=indicates the probability of the event occurring.

From the study area target populations (300) are employees and managers were
included and using the above formula the sample size for the study is (171) obtained.
 25

3.3.3. Sampling technique proportional sample size allocation

The study used stratified sampling techniques in order to select the required sample by
considering branches as strata. Cooper and Schindler (2008) stratified sampling is a technique
used where the population is not homogeneous.

The respondents should be as closely representative of the total population as possible

(Kothari, 2009). Stratified sampling method was engaged to proportionate each branches
sample size of study area. Then Sample of respondents was selected from each stratum using
simple random sampling within the branch. That is in the proportional allocation, a small
sample was taken from small strata and large sample were taken from a large strata and the
sample size in each strata had been fixed.

Then purposively the managers of selected bank branches were taken as a respondent in order
to get necessary information from them rather than other members. Purposive sampling
enables researcher to squeeze a lot of information out of the data that they have collected. This
allows researcher to describe the major impact their findings have on the population and is
extremely time and cost effective when compared to other sampling methods. This is also
ensured that the requirements of efficiency, representativeness, reliability and flexibility taking
caution of bias that is resulted from non-respondents (Kothari, 2009).

Finally, the sample size was allocated proportionally based on size of branches with in the
study area. Proportional sample size allocations to different branches were determined by the
following formula: nj = n/NxNj; Where, N is population size the total number of population
in selected banks in the study area town) n is sample size of the study

nj is sample size of a branch j

Nj is population of a branch j ; j =1, 2, 3, 4, 5

 26

Table 1: Target Population and Sample Size (Proportional Sample Size allocation)
No Name of each Strata population Sample size of strata
strata/branches population
nj = n/NxNj
1 Hossana 48 27
2 Sechdunna 36 21
3 Wachemo 39 22
4 Seleme 38 22
5 Bobicho 37 21
6 Gofermeda 29 17
7 Batenna 39 22
8 Fonko 34 19
Total 300 171
Source: survey result, (2019)

3.4. Sources of data

In this study, the researcher was used both primary and secondary sources of data to obtain
reliable information about component of management control system.
To answer the basic research questions, the researcher was going through a series of data
gathering procedures. This procedure helps the researcher to get an authentic and relevant data
from the sample units.

3.4.1. Primary sources of data

The researcher was obtained the primary sources of data from the employees and managers.
According to Biggam (2008), primary data is the information that the researcher finds out by
him/herself regarding a specific topic. The main advantage with this type of data collection is
that, it is collected with the researcher`s purpose in mind. It implies that the information
resulting from it is consistent with the research questions and objectives. Those sources were
helping the researcher to acquire first-hand information and to draw inferences.

The researcher was used five point Likert scale methods from the range of responses.
According to Prayag (2007), five point scales reduces the level of frustration among
respondents, and increases the rate and quality of the responses. Although, Das (2009)
describe the benefits of Likert as; quick and economical to administer and score, easily
 27

quantify (easy to calculate mean) most attitude measurement, provide direct and reliable
assessment of attitudes and they lend themselves well to item analysis procedures. The usage
of this particular scaling method ensured that the research study illustrated the ability to assess
the responses and measure the responses quantifiably. So that a pattern or trend can be
produced in order to answer the basic research questions. According to Neumann (2003)
explained, it is a process of asking many people the same questions and examining their
answers to research questions.

3.4.2. Secondary sources

Secondary sources of data were collected from different books, journals, CBE ‟ websites,
yearly reports, and previous researches that related to management
Control system and performance.

3.5. Method of data collection

In order to acquire necessary information from the respondents, the primary data was the
major source for this study collected from managers and employees of the bank through
questionnaire and structured interview, documents and only questionnaires and structured
interview discussed.

3.5.1. Questionnaires

Questionnaires were used to collect data from selected respondents. This is because
questionnaire is convenient to conduct survey and to acquire necessary information from large
number of study subject within short period of time. Furthermore, it makes possible an
economy of time and expense and provides a high proportion of usable response (Blunt,
1976). The questionnaire was prepared in English language which were described the respond
ents ‘profiles; included sex, age, experience, education level, position, marital status. The
second part incorporated the core components of MCS, include strategic planning and manage
ment, organizational culture, budgeting system, decision making capability, compensation and
rewarding systems. The questionnaires were distributed and collected by researchers through
the assigned data collectors. To make the data collection procedure smart and cleared from
 28

confusions, the data collectors were properly oriented about the data collection procedures by
the principal investigator. In addition, the data collectors were nearly followed by researcher
to give timely feedback on the data collection procedure. Documents like CBE branches
profile reports and other relevant proclamation document of the bank were consulted to
supplement the data obtained through questionnaire.

3.5.2. Interview

The most common sources of data collection in qualitative research are interviews,
observations, and review of documents (Holt-Jenson, 1999). The interview is undoubtedly the
most common source of data in qualitative studies. This study conducted person-to-person
interview format during data collection. Interviews are structured style could conduct, for
managers of the bank in which questions are determined before the interview. Frequently, the
interviewer asked the same questions of the same categories of participants, those are
managers. In this research only one type of interview were used: structured interviews, in
which a carefully worded questionnaire was administered, the emphasis was on obtaining
answers to carefully phrased questions. Interviewers were trained to deviate only minimally
from the question wording to ensure uniformity of interview administration.

3.6. Reliability of instrument

In order to reduce the possibility of getting the incorrect answer, attention were paid up on the
reliability and validity of the questionnaire. There are many different types of validity and
reliability. Hence, there is several ways in which they can be addressed (Cohen et.al,
2005).Validity is the degree to which a measure accurately represents what it is supposed to. It
is concerned with how well the concept is defined by the measure. On the other hand
reliability is concerned with the internal consistency of the items. As Hair et.,al (2011) defined
reliability as the extents to which a variable or a set of variable is consistent in what it is
extended to measure. As the current study, internal consistency analysis would carried out
through cronbach`s alpha reliability tests. Duffy et al., (2001). Asserted cronbach`s α
measures the consistency with which participants answer items with in a scale. Duffy et al.,
(2001) further stated, a high α (greater than 0.60) indicates that the items with in a scale are
measuring the same construct. SPSS version 20 were used to produce the values for
 29

Cronbach`s Alpha.

3.6.1. Pre-test study

Before administering the instruments to the sample representing the target population, a pre
test study was conducted at Hosanna town selected CBE branches, with the aim of testing the
instruments. Checking the validity and reliability of data collecting instruments before
providing to the actual study subject is the core to assure the quality of the data (Kerr et al.,
2006). To ensure validity, the instruments was developed and a pilot study was carried out on
17 (that is; 10 percent of the sample size) employees and managers of study area CBE bank
branches, to pre-test the instrument. As result, all of the factors were above the acceptable
reliability scale and a total of 34 items employed for five constructs in the study, out of thirty
four items five items were dropped. From strategic planning and management, item and eight,
from budgeting system item three, from organization culture item one, from decision making
item three were dropped. The pre-test provide an advance opportunity for the investigator to
check the questionnaires and to minimize errors due to improper design elements, such as
question, wording or sequence (Mullins, 1999).
The process was to examine the consistency of the responses between the tests. The researcher
used different sources of data and approaches to strengthen the validity of the results. The
reliability of the instruments, namely the questionnaires was computed to determine reliability.
This indicated that the questionnaires were reliable in collecting data for the variables
understudy. Reliability is defined as basically concerned with issues of consistency of
measures. According to Hair, et al., (2006), if α is greater than 0.7, it means that it has high
reliability and if α is smaller than 0.3, then it implies that there is low reliability. Cronbach’s
alpha has been engaged to evaluate or test the reliability and internal consistency scale for
each section of the questionnaire.

Table 2:Cronbach's Alpha for each field of Questionnaire

 30

No Factors No. Items Cronbach's Alpha result

1 Strategic planning &management 6 0.828
2 Budgeting system 5 0.826
3 Organizational culture 6 0.830
4 Reward&compensation 7 0.900
5 Decision making practice 5 0.842
Total 29
Source: survey result, (2019)

3.7. Method of Analysis

According to Cooper and Emory (1995), data analysis usually involves reducing accumulated
data to manageable size, developing summaries, looking for patterns, and applying statistical
technique. To assess the MCS practice and effect of its component on over all bank branches
performance which was conducted in Hadiya zone Hosainna town, the completed data
collection was examined for completeness and consistency during data management and
storage. Depending on the nature of the data collected through questionnaires, interview, and
documents, the following procedures and statistical tools are employed. Data had checked for
consistency and completeness on daily basis then is coded, checked, and entered to computer.
Finally, it is processed and analyzed by Statistical Package for Social Sciences (SPSS) version
20.
To analyze the data, different kinds of statistical methods including descriptive statistics, and
inferential statistics (correlation and multiple regression) were used. Furthermore, descriptive
are applied for frequencies, percentage and mean value were computed using SPSS. Then the
data were analyzed and interpreted with in necessary information collected from respondents.
The analysis and interpretation is based on the respondent’s responses and stated by simple
and clear sentences to express the qualitative and quantitative data. The quantitative data is
mainly expressed by using tables , percentages, mean values and rank order where as the data
collected through interviews are analyzed qualitatively used concurrently to strengthen the ana
lysis of the questionnaires. According to Malhotra (2007) using descriptive survey method hel
ped the study in picturing the existing situation and allowed relevant information using
appropriate data collecting instrument.
 31

3.8. Model Specification

Multiple linear regressions was engaged to identify and predicting the relation and
contribution for the study objectives. The effect of independent variable over dependent
variable in the study area was explained using the following multiple linear regression models
developed as Gujarati (1995). . The left-hand variable,
Y, represent the dependent variable in the model, whereas X represent the explanatory
(independent) variable in the estimation model, β0 is the constant, β represent the coefficient
and e is the error term.

Multiple linear regression model assumptions was conducted based on a Gujarati (1995) and
Fidell (2001). Checking goodness-of-fit carry significant benefits for the research; because
once the model is fitted, it is effective in describing the outcome of variables.

3.9. Description of variables for analysis

The important variables investigated in the research are dependent and independent variables.
Dependent variable is a variable that is affected or explained by another variable and an
independent variable is a variable that causes change in another (Sarandakos, 1998).

3.9.1. Dependent Variable of the Model

The dependent variable for multiple linear regression analysis was organizational
performance.

3.9.2. Independent Variables

The independent variables of testing study are those, which are expected to have relationship
with organizational performance by bank with strategic planning and management, organizatio
nal culture, budgeting system, decision making capability, and compensation and
rewarding system.
 32

3.10. Measurement of variables

Independent variables and Dependent variable: According to Nartey et al. (2014) five
Point Likert scale which was used to measure respondent’s knowledge and perception of
internal Controls and internal control system effectiveness and it is also easy to read and
complete by Participants. This is coded as 1 to 5 and similarly operationalized by use of
instruments adopted from Tsamenyi et al. (2011), (never = 1, rarely = 2, sometimes = 3, very
often = 4 and always = 5). Both the dependent variable (organizational performance) and the
independent variables (component of MCS) are measured by this method because this study
was survey based with structured questionnaires.
 33

4. RESULTS AND DISCUSSIONS

In this chapter, the data collected from respondents were analyzed and interpreted using
quantitative analysis which involves analysis of the demographic information and the
descriptive and inferential statistics employed to test the hypothesis and to investigate the
influence of independent variables on dependent variable. To analyze the collected data in line
with the overall objective of the research undertaking, statistical procedures were carried out
using SPSS version 20.

4.1. Response rate

A total of 171 questionnaires were distributed to employees and managers of the CBE branch
banks to assess the practice of independent variables on organizational performance and 162
questionnaires were filled up and returned making the response rate 94% out of 100. This
indicates that;-the respondents in the study area were committed to give relevant information
to the research under study.

4.2. Demographic information of the respondents

The demographic characteristics include: gender, age, marital status, level of education,
service year/experience and current position of the respondent. This aspect of the analysis
deals with description of the characteristics of the target population gives some basic
information about the sample population involved in the study. The table below explains the
details of background information of the respondent.
 34

Table 3: Demographic Characteristics of Respondents

Variables Categories Frequenc percentage
y
Gender Male 96 59.3
Female 66 40.7
Total 162 100
Age of respondents below25 11 6.8
25-35 134 82.7
36-50 17 10.5
Total 162 100
Certificate 1 0.6
Educational background of respondents
Diploma 10 6.2
Degree 151 93.2
Total 162 100
Marital status of respondents Married 111 68.5
Un married 48 29.6
Others 3 1.9
Total 162 100
Experience of respondents Below 1year 14 8.6
1-2 year 38 23.5
3-4 year 82 50.6
5 and above 28 17.3
Total 162 100
Position of respondents Manager 25 15.4
Non manager 137 84.6
Total 162 100
Source: Survey result, (2019).

The survey shown on table 3, there were more males as compared to females. Male
 35

respondent represents 59.3%, and the rest 40.7 % were females. In the case of age of
respondents 6.8% of the respondents are <25 years, 82.7 % of the respondents are in the range
of 25-35 years, 10.5 % are in the range of 36-50 years, and there is no above 50 years in the
studied areas of CBE branches. In the case of educational level of respondents, certificate
holders are 0.6%, diploma holders account 6.2%, degree holders are 93.2% and there is no
masters and above. Regarding to marital status 29.6 % unmarried, 68.5 % married and 1.9 %
are others in the study area of CBE branches. In the case of service year of respondents 8.6%
are below 1 year, 23.5% of respondents range 1-2 year experience, 50.6% are 3-4 years
experiences and also 17.3 % , five and above years experience. Regarding to current position
of respondents, 15.4% are managers and 84.6 % are non managers in the study area.

4.3. Descriptive Statistics of Scaled Type Questionnaires

In this part descriptive statistics in the form of frequencies and percentages were presented to
illustrate the level of usability of the respondents with their implications of the eight selected
CBE banks. The responses of the respondents for the variables indicated below were measured
on five point Likert scale with: 1 = never, 2 = rarely, 3 = sometimes, 4 = very often and 5 =
Always.
 36

4.3.1. Perception of respondents towards strategic planning and management

Table 4: Descriptive statistics for strategic plan and management the bank uses

Strategic planning and management variables Mean Std

strategic plan based on feasibility in terms of cost and time 3.4012 1.10031

analysis of business strengths and weaknesses 3.7099 1.03168

Differentiation strategy implemented in line with providing unique 4.1049 1.11794

service to their customers.

Focus Strategy such as specializing on one of the major activities, 3.8519 1.26698
lending service.

cost leadership strategy such as high quality service, providing at 3.7840 1.28884
low cost, efficiency

Market share analysis forecast 3.7160 1.03040

Customer satisfaction and performance analysis 4.0988 1.12128

for adopting alternative strategies 3.8210 1.28973

Source: survey result, (2019) n = 162

As indicated in table 4: the perception of the respondents towards strategic plan, accordingly,
strategic plan based on feasibility in terms of cost and time has scored a mean of 3.4012 with
standard deviation of 1.10031, analysis of business strengths and weaknesses has score a mean
of 3.7099 with standard deviation of 1.03168, differentiation strategy implemented in line
with providing unique service to their customers has scored a mean of 4.1049 with a standard
deviation of 1.11794, focus strategy such as specializing on one of the major activities,
lending service has scored a mean of 3.8519 with standard deviation of 1.26698, cost
leadership strategy such as high quality service, providing at low cost, efficiency has scored a
mean of 3.7840 with standard deviation of 1.28884, market share analysis and forecast has
score a mean 3.7160 with standard deviation of 1.03040, Customer satisfaction and
performance analysis has score a mean of 4.0988 with standard deviation of 1.12128, for
adopting alternative strategies has score mean of 3.8210 with standard deviation of 1.28973
 37

Yet in study area commercial banks used strategic planning and management meeting and
ensuring differentiation strategy implemented in line with providing unique service to their
customers, customer satisfaction and performance analysis, analysis of business strengths and
weaknesses, focus strategy such as specializing on one of the major activities, lending service,
cost leadership strategy such as high quality service, providing at low cost, efficiency, for
adopting alternative strategies, market share analysis forecast are the most important variables
that play decisive role to achieve performance of the bank.
According to Nartey (2014), Mean of 0.00 -1.49 =very ineffective, 1.50-2.49 =in effective,
2.50-3.49 =moderate, 3.50-4.49 =effective, 4.5-5 =very effective). Mean values also explains
effectively usability levels of this sub variables in the study areas bank branches. There for the
above table 4: shows that all variables in the study area are used effectively with
comparatively except strategic plan based on feasibility in terms of cost and time 3.40 in range
of 2.50-3.49 = moderate effectiveness.
 38

4.3.2. Perception of respondents towards Budgeting system the bank uses

Table 5: Descriptive Statistics for Budgeting System The Bank Uses.

Budgeting system variables Mean Std.

Budget for branch expansion and growth 3.3642 1.02002

Review cash flows inflow and out flow Monthly or quarterly 4.1852 1.13784

Budget for the firm’s capital structure (equity and liabilities) 3.4259 .98312

The bank uses Budget follow-ups, at least quarterly, and variance 3.5617 .97127
analysis

The bank uses budget for industry as a whole in terms of new 3.6605 1.11547
competitors and new concepts ,new technology

Budget for investing in others encourage and facilitate dialogue 4.0926 1.13008
and information sharing with customers
Source: survey result, (2019) n = 162

As indicated in table 5: the perception of the respondents towards budgeting system,

accordingly, budget for branch expansion and growth has scored a mean of 3.3642 with a
standard deviation of 1.02002, review cash flows, inflow and out flow monthly or quarterly
has score a mean of 4.1852 with a standard deviation of 1.13784, budget for the firm’s capital
structure equity and liabilities has score a mean score of 3.4259 with a standard deviation of
0.98312, the bank uses budget follow-ups, at least quarterly, and variance analysis has score a
mean of 3.5617 with a standard deviation of 0 .97127, the bank uses budget for industry as a
whole in terms of new competitors and new concepts, new technology has score a mean of
3.6605 with standard deviation of 1.11547, budget for investing in others encourage and
facilitate dialogue and information sharing with customers has score a mean of 4.0926 with
standard deviation of 1.13008.
Yet, in study area banks regarding to this independent variable, review cash flows inflow and
out flow monthly or quarterly, the bank uses budget follow-ups, at least quarterly, and
variance analysis, the bank uses budget for industry as a whole in terms of new competitors
and new concepts, new technology, budget for investing in others encourage and facilitate
dialogue and information sharing with customers good management practice to handle
customers, are the most crucial variables to achieve organizational performance of the bank.
 39

There for table 5: shows that all variables in the study area are used effectively with
comparatively except budget for branch expansion and growth with a mean value of 3.36,
budget for the firm’s capital structure equity and liabilities, with a mean value of 3.43 are in
range of 2.50-3.49 = moderate effectiveness the bank uses budgeting system.

4.3.3. Perception of respondents towards organizational culture

Table 6: Descriptive Statistics Organization Culture, the Bank Uses.

Organizational culture variables Mean Std

The bank uses a good communication skills to attract customers 3.6728 1.32735
in relative to other competitive banks

The bank has collective thinking minds or common values 3.9259 1.02488
,beliefs, behaviors of the employees which create a difference
from other banks

The bank treats customers with dignity and respect even if there 3.9198 1.07471
is disrespect up on the customer side.

The bank has culture supportive initiatives ways for improving 3.9136 1.09428
the quality of bank services delivery to customers.

The bank creating a strong organizational culture and valuing 3.7099 1.28866
changes through participative practice

The bank has formal statements of value used to motivate 4.2222 1.09771
subordinates in sharing responsibility.

Relatively the bank culture more open currently than in the 4.1790 1.13611
previews.
Source: survey result, (2019) n = 162

As indicated in table 6: the perception of the respondents towards organization culture, the
bank uses a good communication skills to attract customers in relative to other competitive
banks has score a mean of 3.6728 with standard deviation of 1.32735, the bank has collective
thinking minds or common values ,beliefs, behaviors of the employees which create a
difference from other banks has score a mean value of 3.9259 with a standard deviation of
1.02488, the bank treat customers with dignity and respect even if there is disrespect up on
the customer side has score a mean of 3.9198 with a standard deviation of 1.07471, the bank
has culture supportive initiatives ways for improving the quality of bank services delivery to
 40

customers has score a mean of 3.9136 with a standard deviation of 1.09428, the bank creating
a strong organizational culture and valuing changes through participative practice has score a
mean of 3.7099 with a standard deviation of 1.28866, the bank has formal statements of
value used to motivate subordinates in sharing responsibility has score a mean of 4.2222 with
a standard deviation of 1.09771, relatively the bank culture more open currently than in the
previews has score a mean of 4.1790 with a standard deviation of 1.13611.

As have been indicated in table 6, regarding to organizational culture, all of which the bank
uses a good communication skills to attract customers in relative to other competitive banks,
the bank has collective thinking minds or common values ,beliefs, behaviors of the employees
which create a difference from other banks, the bank treats customers with dignity and respect
even if there is disrespect up on the customer side, the bank has culture supportive initiatives
ways for improving the quality of bank services delivery to customers, the bank creating a
strong organizational culture and valuing changes through participative practice, the bank has
formal statements of value used to motivate subordinates in sharing responsibility, relatively
the bank culture more open currently than in the previews are the most important variables to
achieve organizational performance of the bank.

According to Nartey (2014), Mean of 0.00 -1.49 =very ineffective, 1.50-2.49 =in effective,
2.50-3.49 =moderate, 3.50-4.49 =effective, 4.5-5.00 =very effective. Mean values also
explains effectively usability levels of this sub variables in the study areas bank branches.
 41

4.3.4. Perception of respondents towards Reward and compensation

Table 7: Descriptive statistics for reward and compensation the bank uses

Reward and compensation variables Mean Std

The bank provides bonus and makes employees promotion 4.44 1.01541
and transfer on the bases of performance.

The bank makes salary increment and additional benefit on 4.18 1.14699
the bases of service year.

The bank provides nonfinancial rewards and recognition for 2.80 1.35655
employees even if at low profit return.

Adjust the amount of bonus based on actual circumstances. 3.94 1.32932

Financial rewards are shared evenly to subordinates profit 1.85 1.18254

sharing

Financial rewards increase as subordinate’s performance 3.91 1.20246

exceeds targets.

Determine weight of performance measures as the evaluation 4.22 1.09612

takes place
Source: survey result, (2019) n = 162

As indicated in table 7: the perception of the respondents towards rewards, the bank provides
bonus and makes employees promotion and transfer on the bases of performance has score a
mean of 4.4444 with a standard deviation of 1.01541, the bank makes salary increment and
additional benefit on the bases of service year has score a mean of 4.1790 with a standard
deviation of 1.14699, the bank provides nonfinancial rewards and recognition for employees
even if at low profit return has a mean of 2.7963 with a standard deviation of 1.35655,
adjust the amount of bonus based on actual circumstances has a mean value of 3.9444 with a
standard deviation of 1.32932, financial rewards are shared evenly to subordinates profit
sharing has score mean of 3.9136 with standard deviation of 1.20246, financial rewards
increase as subordinates performance exceeds targets has a mean of 4.2160 with a standard
deviation of 1.09612.
 42

Yet, in study area banks regarding to reward and compensation, the bank provides bonus and
makes employees promotion and transfer on the bases of performance, the bank makes salary
increment and additional benefit on the bases of service year, the bank provides nonfinancial
rewards and recognition for employees even if at low profit return, adjust the amount of
bonus based on actual circumstances, financial rewards are shared evenly to subordinates
profit sharing, financial rewards increase as subordinate’s performance exceeds targets,
determine weight of performance measures as the evaluation takes place are the most crucial
variables to achieve the performance of the bank.

There for table 7: shows that all variables in the study area are used effectively with
comparatively except financial rewards are shared evenly to subordinates profit sharing with a
mean value of ranges (1.50-2.49) = 1.85, ineffective and the bank provides nonfinancial
rewards and recognition for employees even if at low profit return with a mean value of
2.80 are in range of 2.50-3.49 = 2.80 moderate effectiveness the bank uses reward and
compensation.
 43

4.3.5. Perception of respondents towards decision making

Table 8: Descriptive Statistics for Decision Making the Bank Uses.

Decision making variables Mean Std

cost and availability of capital, government regulation and the 4.2901 1.15658
economy

on comments and suggestion given by the employees, 3.5679 1.28477

customers, investors government

The bank makes decisions based on Investments benefit from 3.9938 1.22853
stakeholders.

The bank makes strategic decisions based on strategic plan and 4.0185 1.07179
Policies or directives given by NBE

The target set by bank for the managers different types of 3.9691 1.22815
performance targets (most important one`s are profit, revenue
and cost targets).

The bank makes market surveys and other marketing reports on 3.9321 1.32406
the bases of revenue, profit and cost.
Source: survey result, (2019) n = 162

As indicated in table 8: the perception of the respondents towards decision, the bank makes
decision based on cost and availability of capital, government regulation and the economy has
score a mean of 4.2901 with standard deviation of 1.15658, the decision based on comments
and suggestion given by the employees, customers, investors government has score a mean
of 3.5679 with a standard deviation of 1.28477, the bank makes decisions based on
investments benefit from stakeholders has score a mean of 3.9938 with a standard deviation
of 1.22853, the bank makes strategic decisions based on strategic plan and policies or
directives given by national bank of Ethiopia has score a mean of 4.0185 with a standard
deviation of 1.07179, the target set by bank for the managers different types of performance
targets, most important one`s are profit, revenue and cost targets has score mean of 3.9691
with standard deviation of 1.22815, the bank makes market surveys and other marketing
reports on the bases of revenue, profit and cost has score a mean of 3.9321 with standard
deviation of 1.32406.
 44

However, decision based on cost and availability of capital, government regulation and the
economy, on comments and suggestion given by the employees, customers, investors
government, the bank makes decisions based on investments benefit from stakeholders, the
bank makes strategic decisions based on strategic plan and policies or directives given by
national bank of Ethiopia, the target set by bank for the managers different types of
performance targets most important one`s are profit, revenue and cost targets, the bank makes
market surveys and other marketing reports on the bases of revenue, profit and cost are the
most important variables to achieve organizational performance of the bank.
Mean values also explains effectively usability levels of this sub variables in the study areas
bank branches. There for table 8, shows that all variables in the study area are used effectively
with a mean value ranges (3.50-4.49).

4.3.6. Perception of respondents towards organizational performance

Table 9: Descriptive statistics for organizational performance the bank measure.

organizational performance Mean Std

Performance on the bases net profit margin (NPM) 3.7200 1.51438

Performance on the bases of return on investment (ROI) 3.3600 1.55134

Performance bases on shareholders’ value analysis or 3.4800 1.61038

economic value added (EVA)

Performance on the bases of return on equity (ROE) 3.7200 .84261

Performance on the bases of return on asset (ROA) 4.3600 1.18603

Performance by comparing actual performance with pre- 3.8400 1.51877
determined target
Source: survey result, (2019) n = 25

Yet, in study area banks regarding to organization performance, the bank measure
performance on the bases net profit margin, annual profit of each branch in study area are
hosanna branch has 19 million, sechdunna branch has 14 million, wachemo branch has 18
million, seleme branch has 17 million, bobicho branch has 16 million, gofermeda meda
branch has 12 million, batena branch has 15 million and fonko branch has 13 million has
score a mean of 3.7200 with standard deviation of 1.51438, the bank measure performance
 45

on the bases of return on investment has score a mean of 3.3600 with standard deviation of
1.55134, the bank measure performance on the bases on shareholders’ value analysis or
economic value added has score a mean of 3.4800 with a standard deviation of 1.61038, the
bank measure performance on the bases of return on equity has score a mean of 3.7200
with standard deviation of .84261, performance on the bases of return on asset has score a
mean of 4.3600 with standard deviation of 1.18603, the bank measure performance by
comparing actual performance with pre-determined target has score a mean of 3.8400 with
standard deviation of 1.51877.

As a result of table 9, regarding to organizational performance, the bank measure performance

on the bases net profit margin that is the percentage of revenue left after all expenses have
been deducted from sales, the measurement reveals the amount of profit that a business can
extract from its total sales, this measurement is typically made for a standard reporting period,
such as a month, quarter, or year, and is included in the income statement of the reporting
entity, as a result of that the study area banks have annual profit of a minimum twelve million
and maximum nineteen million birr, bank measure performance on the bases of return on
equity, is the measure of a industries annual return net income divided by the value of its
total shareholders’ equity, expressed as a percentage, return on equity is a two-part ratio in its
derivation because it brings together the income statement and the balance sheet, where net
income or profit is compared to the shareholders’ equity. To put it another way, it measures
the profits made for each dollar from shareholders’ equity, the bank measures performance on
the bases of return on asset, is a profitability ratio that provides how much profit a company is
able to generate from its assets. In other words, return on assets measures how efficient a
company's management is in generating earnings from their economic resources or assets on
their balance sheet. Return on asset is shown as a percentage and the higher the number, the
more efficient an industries management is at managing its balance sheet to generate profits.
The bank measure performances by comparing actual performance with pre-determined target
are the important variables that can play essential roles to measure performance of the bank.
According to Nartey (2014), (Mean of 0.00 -1.49 =very ineffective, 1.50-2.49 =in effective,
2.50-3.49 =moderate, 3.50-4.49 =effective, 4.5-5.00 =very effective). Mean values also
explains effectively usability levels of this sub variables in the study areas bank branches.
There for table 9, shows that all variables in the study area are used effectively with a mean
 46

value ranges (3.50-4.49), except return on investment with a mean of 3.3600 and economic
value added with a mean of 3.4800 moderately effective to measure performance of the bank.

4.4. Correlations

According to Wajahat (2010), before the start of regression analysis it is important to check
the correlation test between dependent variable and independent variables. The Pearson
correlation scale ranges from -1 to +1, any value greater than zero indicates a positive direct
relationship between the two variables, which implies that every increase in the independent
variable would lead to the increase dependent variable, while any value less than zero
indicates a negative indirect relationship between two variables, that means that every increase
in the independent variable would lead to the decrease on the dependent variable (Hafiz,
2007).
 47

Table 10: Pearson’s Correlation Coefficient Matrix

Correlations
OP SPM BS OC RC DM
OP Pearson 1
Correlation
Sig. (2-tailed)
N 162
SPM Pearson .559** 1
Correlation
Sig. (2-tailed) .000
N 162 162
BS Pearson .742** .542** 1
Correlation
Sig. (2-tailed) .000 .000
N 162 162 162
OC Pearson .366** .136 .211** 1
Correlation
Sig. (2-tailed) .000 .085 .007
N 162 162 162 162
RC Pearson .384** .339** .147 .291** 1
Correlation
Sig. (2-tailed) .000 .000 .062 .000
N 162 162 162 162 162
DM Pearson .574** .602** .628** .020 .050 1
Correlation
Sig. (2-tailed) .000 .000 .000 .796 .526
N 162 162 162 162 162 162
**. Correlation is significant at the 0.01 level (2-tailed).
Source: survey result, (2019)
From the Table 10, result it can observed that, organization budgeting system is
strongly correlated variables (with r value of .742), organization decision making capabilities,
organization strategic planning and management are moderately correlated variables (with r
 48

value of .574 and .559), organization culture and reward and compensation are weakly
correlated variable (with r value of .366 and .384), respectively, with organization
performance.

Furthermore, according to Evans (1996) correlation is an effect size and can be described with
absolute value of r as 00 up to. 19 is “very weak”, .20 up to .39 is “weak”, .40 up to. 59 is
“moderate”, .60 up to. 79 is “strong”, and. 80 up to 1.0 is “very strong.” Based on this in
Hossana town selected commercial bank of Ethiopia; organization performance is strongly
correlated with organization budgeting system and moderately correlated with decision
making capabilities and strategic planning and management and weakly correlated with
reward and compensation and organization culture.

4.5. Regression Analysis Results

Regression analysis allows the prediction or estimation of the value of one variable, the
criterion dependent, or predicted variable; called as Y from one or more predictor variables
called X (Keith, 2006).
The multiple regression analysis was conducted using the standard regression method. It is
conducted to investigate the influence of independent variable on the dependent variable and
identify the relative significant influence; i.e., independent variable, strategic planning and
management, budgeting system, organization culture, reward and compensation and decision
making to the dependent variable, i.e organization performance in selected CBE branches in
the study area. The proposed hypotheses were tested using multiple regression analysis.
Coefficient of determination-R-square is the measure of proportion of the variance of
dependent variable about its mean that is explained by the independent or predictor variables
(Hair et.al, 1998). Higher value of R-square represents greater explanatory power of the
regression equation.

The relationship of dependent variable Y to the independent variables can be

expressed as: , where α = βo is constant, µi is error
term and β is coefficient of independent variables.
 49

Table 11: Model summary

Model Summaryb
Model R R Square Adjusted R Std. Error of the Estimate
Square
1 .826a .682 .672 1.323120
a. dependent variable: organization performance
b. Predictors: (Constant), decision making, rewards and compensation, organization culture,
strategic planning and management, budgeting system
Source: survey result, (2019).
From Table 11, it can be seen that the R-square value in the model summary tells the
goodness of fit of the model. R-square value for this model is .682, which means management
control system components independent variables are able to measure organization
performance, dependent variable at 68.20 percent. However; the remaining 31.8 percent could
be some other variables which had not been considered in this study.
Table 12: ANOVA
ANOVAa
Model Sum of df Mean F Sig.
Squares Square
1 Regressi 5.852 5 1.1704 66.853 .000b
on
Residual 2.731 156 0.0175064
1026
Total 8.583 161
a. Dependent Variable: organization performance
b. Predictors: (Constant), decision making, rewards and compensation, organization culture,
strategic planning and management, budgeting system
Source: survey result, (2019)
As have seen in Table 12, total sum of squares (8.583) is equal to the sum of explained sum of
squares (5.852) and residual sum of squares (2.731). A study of these components total sum of
squares of is known as the analysis of variance (ANOVA) from the regression viewpoint.
From the Table 12, it is identified that the value of F-stat is 66.853 (mean square of regression
divided by mean square of residual) and it is significant at p value of 0.00 (p < 0.05).
This indicates that the overall model was reasonably fit and there was a statistically
significant association between management control system and organization performance.
Hence, it can be concluded that management control system components collectively have
significant effect on organization performance of Hossana town selected CBE branches.
 50

Table 13: Coefficientsa

Model Unstandardized Standardiz T Sig.
Coefficients ed
Coefficients
B Std. Beta
Error
1 (Constant) -3.139 0.059 -5.251 0.000
Strategic
planning and 0.149 0.016 0.058 0.924 0.357
mgt
Budgeting
system 0.330 0.039 0.512 8.299 0.000
Organization
culture 0.847 0.022 0.180 3.713 0.000
Reward
&compensati 0.218 0.048 0.226 4.462 0.000
on
Decision
0.216 0.069 0.203 3.113 0.002
making
Dependent variable: organization performance
Source: survey result, (2019)

The relationship of dependent variable Y to the independent variables can be

expressed as: . Here, is constant and
- are the coefficients of independent variables (Satendra et al., 2011). The researcher
used unstandardized coefficients to constructing a regression equation (Pallant and Julie,
2005). From the coefficient table 13, the substitution of the equation becomes:

Organization performance = -3.139 + 0.149 strategic planning and management + 0.330

budgeting system + 0.847 organization culture + 0.218 reward and compensation + 0.216
decision making.

4.5.1. Hypothesis test result

Five hypotheses have been tested to answer the research questions based on the research
problem and objectives. The hypotheses address each management control system such as;
strategic plan and management, budgeting system, organization culture, reward and
compensation and decision making effects on organization performance. The hypothesis test
results were presented as follows.
 51

Hypothesis 1
H1: strategic planning and management has no positive and significant effect on organization
performance in selected banks of Hossana town; at p value of < 0.05 and β value .149.
In the above coefficient Table 13, value of p > 0.05 with contribution of β=.149 revealed that,
strategic planning and management has no significant effect on organization performance. So
that, null hypothesis would not rejected. Although, beta value of .149 indicates that strategic
planning and management has no positive effect on organization performance of study area
selected banks. Moreover, the beta value of .149 implies that an increase in the effectiveness
of strategic planning and management by one unit leads to an increase in organization
performance by .149 units. Therefore, more investment on the usage of, strategic plan based
on feasibility in terms of cost and time, analysis of business strengths and weaknesses,
differentiation strategy, implemented in line with providing unique service to their customers,
focus strategy such as specializing on one of the major activities, lending service, cost
leadership strategy such as high quality service, providing at low cost, efficiency, market
share analysis and forecast, customer satisfaction and performance analysis, for adopting
alternative strategies using modern equipment, technology and appearance of personnel results
more organization performance.

This finding is contrary with the previous study by Ayichew (2011) using mixed method
study with descriptive statistics, the findings of the SPM of CBE studied in Addis Ababa has
been divided for two main areas of business strategies and business operational analysis. The
different branches of the same commercial banks at the different geographical location are
adapting different strategy and frequencies are also different at different branches. Who
reported that SPM positively and significantly influenced the level of organization
performance.
Hypothesis 2
H2: organization budgeting system has a positive and significant effect on organization
performance in selected commercial banks of Hossana town; at p value of < 0.05 and β value
0.330.

In the coefficient Table 13, the p < 0.05 with contribution of β = 0.330 showed that
organization budgeting system has a significant effect on organization performance. So, the
null hypothesis was rejected. Although, beta value of .330 indicates that budgeting system has
 52

positive effect on organization performance of study area selected banks. Moreover, the beta
value of .330 implies that an increase in the effectiveness of budgeting system by one unit
leads to an increase in organization performance level by 0.330 units. Therefore, selected
banks should improve the attributes of budgeting system such as, budget for branch expansion
and growth, review cash flows inflow and out flow monthly or quarterly, budget for the firm’s
capital structure, equity and liabilities, the bank uses budget follow-ups, at least quarterly, and
makes variance analysis, the bank uses budget for industry as a whole in terms of new
competitors and new concepts, new technology, budget for investing in others, encourage and
facilitate dialogue and information sharing with customers.

This finding is contrary with the previous study by Ugwuanyi and Ebe, (2012), Kpedor
(2012), who found that insignificant influence of budgeting system on organization
performance.

Hypothesis 3

H3: organization culture has a positive and significant effect on organization performance in
selected banks of Hossana town; at p value of < 0.05 and β value 0.847.

Based on coefficient Table 13, p < 0.05 with contribution of β=.847 revealed that organization
culture has significant effect on organization performance. Therefore, the null hypothesis was
rejected. Also, beta value of .847 indicates that organization culture has positive effect on
organization performance of study area banks. Moreover, the beta value of .847 implies that
an increase in the effectiveness of organization culture by one unit leads to an increase in
organization performance by .847 units. Hence, in order to increase performance more, the
study area banks should improve attributes of organization culture such as, the bank uses a
good communication skills to attract customers in relative to other competitive banks, the bank
has collective thinking minds or common values, beliefs, behaviors of the employees which
create a difference from other banks, the bank treat customers with dignity and respect even if
there is disrespect up on the customer side, the bank has culture supportive initiatives ways
for improving the quality of bank services delivery to customers, the bank creating a strong
organizational culture and valuing changes through participative practice, the bank has formal
statements of value used to motivate subordinates in sharing responsibility, relatively the bank
culture more open currently than in the previous the bank`s staffs telling customers exactly
 53

when services were delivered, the industries staff willingness to help customers, management
accessibility and honest responses to customers inquiries.

This finding is consistent with the previous research work conducted by Nurwati (2013), who
reported that organization culture positively and significantly influence the level of
organization performance.

Hypothesis 4

H4: Reward and compensation has a positive and significant effect on organization
performance of selected banks of the Hossana town; at p value of < 0.05 and β value .218.

Based on coefficient Table 13, p value of < 0.05 with contribution of β=.218 revealed that
reward and compensation has a significant effect on organization performance. So that, null
hypothesis was rejected. Also, beta value of .218 indicates reward and compensation has a
direct effect on organization performance of study area banks. Moreover, the beta value of
.218 implies that an increase in the effectiveness of reward and compensation by one unit
leads to an increase in organization performance by .218 units. Therefore, the more the study
area bank invests in the attributes of reward and compensation such as; the bank provides
bonus and makes employees promotion and transfer on the bases of performance, the bank
makes salary increment and additional benefit on the bases of service year, the bank provides
non financial rewards and recognition for employees even if at low profit return, adjust the
amount of bonus based on actual circumstances, financial rewards are shared evenly to
subordinates, such as profit sharing, financial rewards increase as subordinates performance
exceeds targets, determine weight of performance measures as the evaluation takes place,
required skills in providing services, sufficient knowledge of service, consistently courteous
with customers, and employees make customers feel safe in their transactions there by
resulting, in more organization performance.

This finding is consistent with the previous research work conducted by Saroj, (2006) and
Ayichew (2011), who reported that reward and benefit has positively and significantly
influence the level of organization performance.

Hypothesis 5
 54

H5: the banking industries decision making has a positive and significant effect on
organization performance in selected banks of Hossana town; at p value of < 0.05 and β value
.216.

Based on coefficient table 13, p < 0.05 with contribution of β = .216 revealed that decision
making has a significant effect on organization performance. Therefore, the null hypothesis
was rejected. Also beta value of .216 indicates that decision making has a positive effect on
organization performance of study area banks. Moreover, the beta value of .216 implies that
an increase in the effectiveness of decision making by one unit leads to an increase in
organization performance by .216 units. So, to increase performance level of industries,
selected banks should invest more in attributes of decision making such as, target set by bank
for the managers different types of performance targets, most important one`s are profit,
revenue and cost targets, the bank makes market surveys and other marketing reports on the
bases of revenue, profit and cost, performing industries heart interest, using reliable
knowledge, giving customers individual attention, demonstrating integrity, trustworthiness,
dealing with customers and employees commitment to ethics and promote ethical behavior in
the workplace to increase banks performance.

Moreover, based on the findings of regression analysis, the researcher found that all of the
management control dimensions strategic planning and management, banks budgeting system,
banks culture, banks reward and compensation, and banks decision making had positive and
significant effects on organization performance of Hossana town selected banks.

The standardized Beta values for each of the different variables have been converted to the
same scale; so that, it is better compete them (Pallant and Julie, 2005). Therefore, researcher
was used the standardized Beta coefficients, to compare or prioritize the effects of independent
variables (strategic planning and management, banks budgeting system, banks culture, banks
reward and compensation, and banks decision making) on dependent variable organization
performance in selected banks of Hossana town. So that, based on table 13, banks budgeting
system had a relatively strong and direct effect on organization performance at β value of .512
and followed by reward and compensation at β value of .226, decision making at β value of
.203, organization culture at β value of .180 and strategic planning and management at β value
of .058, respectively.
 55

This finding is consistent with the previous study by Sajo, (2006) and Ayichew, (2011) who
reported that decision making capability has positively and significantly influenced the level
of organization performance.

4.5.2. Multiple linear regression assumptions

Before running regression analysis, it is essential to test assumptions of multiple linear

regression analysis models (Keith, 2006, Pallant, 2005). Therefore, each assumption result was
discussed in the following sub topics.

4.5.2.1. Normality test

The distribution of residuals should be normal at each value of the dependent variable is one
of multiple linear regression assumption. This means that errors are normally distributed, and
that a plot of the values of the residuals will approximate a normal curve (Keith, 2006).
According to Gujarati (1995) ui are independently and normally distributed with mean zero
and a common variance was given as; µi~ IN (0,).

The normality assumption is about the mean of the residuals is zero. Moreover, Normality
tests are used to determine whether a data set is well-modeled by a normal distribution or not,
or to compute how likely an underlying random variable is to be normally distributed
(Gujarati, 2009). Therefore, the researcher was used Histogram methods of testing the
normality of the data. According to Fidell (2001), if the residuals are normally distributed
around it`s mean of zero, the histogram should be a bell-shaped and regression standardized
residual plotted between 3.3 and –3.3. So that, from figure 3 below, it can be noted that the
data conforms to the normality assumption (Stevens, 2009).
 56

Figure 3: normal distribution histogram result

Source: survey result, (2019).

4.5.2.2. Linearity test

Multiple regressions can accurately estimate the relationship between dependent and
independent variables, when their relationship is linear in nature (Keith, 2006). If linearity is
violated, all the estimates of the regression including regression coefficients, standard errors,
and tests of statistical significance may be biased (Keith, 2006). This can be best checked by
p-p plot residual as shown in figure below. When, p-p residual look at straight line, the
relationship between the dependent and independent variables is linear. Therefore, there is no
linearity problem on the data used for this study.
 57

Figure 4: p-p plot: linearity test results

Source: survey result, (2019)

4.5.2.3. Multicollinearity test between independent variables

Multicollinearity: it meant the existence of a perfect or exact, linear relationship among some
or all explanatory variables of a regression model. If there is perfect Collinearity among the
independent variables, their regression coefficients are indeterminate and their standard errors
are not defined. Therefore, independence of independent variables was tested by Variance
inflation factor (VIF) and tolerance.
Tolerance =1- Where; Xj = the jth explanatory variables regressed on the other independent
variables. = The coefficient of determination when the variable Xj regressed on the remaining
explanatory variable.
 58

According to Gujarati (2003), multicollinearity test helps to identify the correlation between
explanatory variables and to avoid double effect of independent variable from the model.
When independent variables have multicollinearity effect, there is overlap or sharing of
predictive power. This may lead to the paradoxical effect, whereby the regression model fits
the data well, but none of the explanatory variables (individually) has a significant impact in
predicting the dependent variable. For this purpose, variance inflation factor (VIF) and
tolerance test were employed to check whether or not multicollinearity problem exists in
explanatory variables. If the value of VIF is less than 10, there is no multicollinearity between
the explanatory variables and on the other hand VIF greater or equal to 10 is an indicator of a
serious multicollinearity problem. In addition, tolerance is an indicator of how much of the
variability of the specified independent is not explained by the other independent variables in
the model and is calculated using the formula 1-for each variable. If this value is very small
(less than 0.10), it indicates that the multiple correlation with other variables is high,
suggesting the possibility of multicollinearity (Keith, 2006; Shieh, 2010).
Table 14: Collinearity Statistics
Collinearity Statistics
Model Collinearity Statistics
Tolerance VIF
1 Strategic planning and management .514 1.945
Budgeting system .536 1.867
Banks culture .870 1.150
Rewards and compensation .793 1.260
Decision making .480 2.083
a. Dependent Variable: organization performance
Source: survey result, (2019)
As shown in Collinearity Statistics Table 14, above the value of VIF of all independent
variables was found to be smaller than ten and as well as tolerance test result is greater than
0.1. These values indicated that there is no multicollinearity problem on this research
explanatory variable.

4.5.2.4. Homoscedasticity:

The variance of the residuals for every set of values for the independent variable is equal and
violation is called heteroscedasticity. This means that researcher assume that errors are spread
 59

out consistently between the variables. Symbolically described as follow;

VAR ( µi / X1…Xk) = For all i

Where, Var is variance

µ i is disturbance term or error term

Xk is explanatory variable is the constant or Homoscedasticity variance of µi

Figure 5: scatter plot heteroscedasticity test results

Source: survey result, (2019)

4.5.2.5. Sample size test

With a small sample, one can obtain a result that does not generalize other target population. If
results do not generalize to other samples, then it is little scientific value. To test sample size
 60

researcher uses a formula given by (Pallant, 2005.). This formula used to test sample size
problem by taking into account the number of independent variables as follows.
N > 50+8m =162 > 50+8x5 = 162 > 90
Where, m = number of independent variables, N- valid sample size. Therefore, based on the
above equation result, valid sample size 162 is greater than 90 and this result showed that the
data conforms to the sample size assumption.
On the other hand, Pearson’s correlation and regression test results showed that all
management control system components had positive and significant effects on organization
performance except strategic planning and management which is insignificant effect on the
dependent variable organization performance with p value of 0.05. For instance, budgeting
system was the most important factor to have positive and significant effect on organization
performance, followed by decision making, reward and compensation, and banks culture.
Therefore, selected banks should improve those dimensions to increase performance level of
banks.

4.6. Structured interview result

Interviews were conducted from eight selected branch managers of Hosanna town commercial
bank of Ethiopia, due to this branch managers have duty and responsibilities to control and
evaluate performance were interviewed independently at different times. The interview
questions were fully structured and focused on investigation of the effect of management
control system on organizational performance of the bank. More specifically, the interview
questions were also tried to examine how those management control system can influence
organizational performance.

In the first place, the interviewees were asked to verify about strategic plan and management
of their branches. As interview result stated that, even if strategic plan made at the higher level
of national bank of Ethiopia, board of directors, the bank strategic plan to maximize stake
holders satisfaction by deploying modern technology and skilled man power, by using feasible
strategies, by using SWOT analysis, focusing on feasible and achievable activities by
providing high quality service at low cost. As interview felt that strategic planning and
management of the bank was directly contributes to improved organizational performance.
 61

Based on the interview result, the bank evaluate budgeting system in line with service
performance of the branch, by evaluating based on the performance of previous period plus
10% incremental to the next period by considering budget for branch expansion and growth by
review cash flows that means inflows and outflows and budget usage in terms of other
competitive banks. Evaluating budgeting system and taking corrective action result in
improvement of performance.

Interview result postulates that, cultural values affect organizational performance in banks,
that means sometimes customers face language problem, lack of communication skills with
employees, during this time the bank treat customers with dignity and respect, the bank adopt
culture supportive ways for improving the quality of bank service delivery to customers. As a
result good cultural values could increase organizational performance.

As a result of interview from eight banks, the bank give additional benefits and reward for
employees in their branch on the bases of individual performance, retained earnings of the
bank, that means the bank does not provide non financial rewards and recognition for
employees at low profit return period, in addition to that financial rewards increase as
subordinates performance exceeds targets. From this the researcher deduce that as benefits and
rewards for employees increases, employees in the organization would be satisfied as a result
organizational performance would increase.

As a result of interview, the bases for decision are complain from customers, employees cost
and capital, government regulation, proclamations, comments and suggestion given by
investors that means investment benefits from stake holders, policies and directives given by
NBE. The researcher deduces that good decision making practice would encourage
organizational performance.
 62

5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

Based on the analysis and interpretations made at the previous chapter, the following
summary, conclusions and recommendations are made.

5.1. Summary

➢ The basic interest of this study is to find out the effects of management control system
on organization performance in selected CBE branches of Hossana town. Both primary
and secondary data were used as a source of information and the data are collected
through questionnaires, interview and documents. The questionnaires were coded,
entered, and analyzed using the SPSS version 20.The data collected from close ended
questionnaires were analyzed and interpreted by using various statistical tools. After
analyzing the information gathered through questionnaires the following findings were
presented.
➢ Based on the descriptive statistical analysis indicated that selected commercial bank
branches apply different strategies for better performance of branches. As a result
different emphasis were given using within strategies are varied from level to level and
area to area in order to increase the market share. Also different mean values, standard
deviation of usage level or frequent practice and effective usability of strategies were
observed concerning each variable.
➢ Regarding to strategic planning and management the perception of the respondents
towards strategic plan, accordingly, strategic plan based on feasibility in terms of cost
and time has scored a mean of 3.4012 with standard deviation of 1.10031, analysis of
business strengths and weaknesses has score a mean of 3.7099 with standard deviation
of 1.03168, differentiation strategy implemented in line with providing unique service
to their customers has scored a mean of 4.1049 with a standard deviation of 1.11794,
focus strategy such as specializing on one of the major activities, lending service has
scored a mean of 3.8519 with standard deviation of 1.26698, cost leadership strategy
such as high quality service, providing at low cost, efficiency has scored a mean of
3.7840 with standard deviation of 1.28884, market share analysis and forecast has
score a mean 3.7160 with standard deviation of 1.03040, customer satisfaction and
 63

performance analysis has score a mean of 4.0988 with standard deviation of 1.12128,
for adopting alternative strategies has score a mean of 3.8210 with standard deviation
of 1.28973.

➢ Yet in study area commercial banks used strategic planning and management meeting
and ensuring differentiation strategy implemented in line with providing unique service
to their customers, customer satisfaction and performance analysis, analysis of
business strengths and weaknesses, focus strategy such as specializing on one of the
major activities, lending service, cost leadership strategy such as high quality service,
providing at low cost, efficiency, for adopting alternative strategies, market share
analysis and forecast are the most important variables that play decisive role to achieve
performance of the bank.
➢ Yet, in study area banks regarding to budgeting system variable, review cash flows
inflow and out flow monthly or quarterly, the bank uses budget follow-ups, at least
quarterly, and makes variance analysis, the bank uses budget for industry as a whole
in terms of new competitors, new concepts and new technology, budget for investing
in others encourage and facilitate dialogue and information sharing with customers
good management practice to handle customers, are the most crucial variables to
achieve organizational performance of the bank.
➢ Although descriptive statistics stated that study area banks emphasized more
consideration on organizational culture by creating strong culture through participative
practice, the more open currently than the previous periods, collective thinking minds
supportive for the implementation of new initiatives for team spirit, good
communication and others in order to attain organization performance having with a
mean values ranging from effectiveness (3.50-4.49) all are effective.
➢ regarding to organizational culture, all of which, the bank uses a good communication
skills to attract customers in relative to other competitive banks, the bank has
collective thinking minds or common values, beliefs, behaviors of the employees
which create a difference from other banks, the bank treats customers with dignity and
respect even if there is disrespect up on the customer side, the bank has culture
supportive initiatives ways for improving the quality of bank services delivery to
customers, the bank creating a strong organizational culture and valuing changes
 64

through participative practice, the bank has formal statements of value used to
motivate subordinates in sharing responsibility, relatively the bank culture more open
currently than in the previews are the most important variables to achieve
organizational performance of the bank.
➢ Yet, in study area banks regarding to reward and compensation, the bank provides
bonus and makes employees promotion and transfer on the bases of performance, the
bank makes salary increment and additional benefit on the bases of service year, the
bank provides nonfinancial rewards and recognition for employees even if at low
profit return, adjust the amount of bonus based on actual circumstances, financial
rewards are shared evenly to subordinates profit sharing, financial rewards increase as
subordinate’s performance exceeds targets, determine weight of performance measures
as the evaluation takes place are the most crucial variables to achieve the performance
of the bank.
➢ In the case of decision making, decision based on cost and availability of capital,
government regulation and the economy, on comments and suggestion given by the
employees, customers, investors government, the bank makes decisions based on
investments benefit from stakeholders, the bank makes strategic decisions based on
strategic plan and Policies or directives given by NBE, the target set by bank for the
managers different types of performance targets most important one`s are profit,
revenue and cost targets, the bank makes market surveys and other marketing reports
on the bases of revenue, profit and cost are the most important variables to achieve
organizational performance of the bank.
➢ The correlation result showed that, all the independent variables strategic plan,
budgeting system, organization culture, reward and benefit and decision making were
positively and significantly related to organization performance.
➢ Moreover, in terms of the stated research hypotheses the following findings emerged
from the multiple linear regression analysis investigation: management control system
components except strategic plan and management, all of which are budgeting system,
organization culture, reward and benefit and decision making have a positive and
significant effect on organization performance in selected banks in the study area.
Regression finding further show that, organization culture had relatively strong and
direct relationship with organization performance at β value .847 and followed by
 65

budgeting system at β value .330, reward and compensation at β value .218,

organization decision making at β value .216, and strategic planning and management
at β value .149 respectively.
➢ Thus, findings are very important and enable Hossana town commercial banks to have
a better understanding of management control system components towards
organization performance. That helps them to be competitive in local and global
market by increasing performance level.

5.2. Conclusions

➢ This research has numerous functions in management of bank customers because

commercial banks were interested in obtaining and retaining of customers to achieve
organization performance. During the investigation the researcher used both
descriptive and inferential statistics and based on the findings he made the research to
an end by outlining the following classic conclusions.
➢ In general from descriptive statistics concluded that practice of management control
system components are used or practiced with giving different priorities and
effectiveness levels as organization culture are highest effective and usable in the
branches, followed by budgeting system, organizational decision making, to attain
organization goals, but in study area branches, compensation and benefit plan had
relatively less focused for employees performance and strategic planning and
management have moderate effectively used on commercial bank branches because of
almost all strategies are takes place at corporate level. The findings of the study
showed that the employees in the eight banks have management control system of
strategic planning and management, organization budgeting system, organization
culture, reward and compensation, and decision making. Therefore, the researcher can
convincingly conclude that the concept of management control system is well
understood by the majority of employees of the selected banks and they were able to
relate them with organization performance.
➢ The correlation analysis result shows that management control system components
budgeting system such as, budget for branch expansion and growth, review cash flows
inflow and out flow, monthly or quarterly, budget for the firm’s capital structure,
 66

equity and liabilities, the bank uses budget follow-ups, at least quarterly, and variance
analysis, the bank uses budget for industry as a whole in terms of new competitors and
new concepts, new technology, budget for investing in others, encourage and facilitate
dialogue and information sharing with customers are strongly correlated with
organization performance, the other variables such as strategic planning and
management and organization decision making system are moderately correlated with
organization performance and organization culture and reward and compensation
system are weakly correlated with organization performance. From this it is pertinent
to conclude that the independent variables have the power to determine the
organization performance of the banks.
➢ The multiple linear regression model analysis result shows that all the management
control system variables have positive and significant effect on organizational
performance except strategic planning and management which is insignificant effect on
organization performance and from both descriptive and inferential statistics concluded
that current management control system are focused on socio-cultural aspects,
behavioral factors and economic approach to achieve entire organization performance.

5.3. Recommendations

➢ This study suggests that to increase banks performance, in study area, the national
bank of Ethiopia, the district managers, branch managers, the government and the
policy makers must pay great effort on management control factors which has direct
contribution on performance.

➢ Providing reward and compensation: - national bank of Ethiopia provides desirable

reward and benefits to employees in order to deliver prompt service, to serve their
customers more than they have expected and the more performed one should be
promoted, hence that increases over all banks performance.

➢ Organization performance evaluation: - It is important to evaluate the level of its

performance frequently, this will allow the selected banks to measure frequently its
effectiveness of performance level.
 67

➢ Carrying out research: - It is necessary to conduct research on regular base to

identify banks performance level.

➢ Government: - the government may intervene to make strategic plan which is feasible
for the achievement at the branch level regarding to strategic planning and
management.

➢ Commercial bank: - the commercial bank branch managers must focus on gathering
the comments and suggestions given by the employees, customers and other
stakeholders and even if does not have given the power make decisions to branch
managers, they have to transfer to the board of directors in order to judge and deliver
achievable decisions to satisfy their customers and to increase overall organization
performance in order to increase market share. The study area bank would use good
communication skills to attract customers relative to other competitive bank, makes
periodic advertisement and promotion to gain a competitive advantage and to improve
performance of the bank. In order to assure going concern and attain the goals, the
bank should encourage outstanding employees in performance by setting aside the
benefit. The performance of employees and their level can be conformed through peer
evaluation horizontally, customer comments nearby officials’ evaluation.

5.4. Direction for Further Research

➢ For future researchers, it‘s better to involve or including all other rest banks, because
survey method may increase reliability of the research findings. Due to the scope of
this research objective, the researcher did not investigate the impact of management
control system in the performance of the banks. So, future research can further
investigate the impacts of management control system on organization performance.
➢ Moreover, the current study employed management control system as independent
variables under management control system dimensions and investigated their effects
on organization performance. This implies that other variables relating to management
control system were not considered. Hence, it is suggested that in future, other
 68

researchers should factor in other elements of management control system and assess
their impact on organization performance.
➢ Finally, this study did not make use of moderating (control) variables in the
conceptual framework and therefore, there is an opportunity for other researchers to
introduce these variables like age, gender or size of the companies and establish
whether the findings can be generalized.
 69

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7. APPENDIX

Haramaya University

College of Business and Economics

Department of Management School of Graduate Studies
Program MBA

Appendix I semi structured questionnaire :

I . Instructions for enumerators:1. Make brief introduction to each respondent before

starting the distribution i.e., tell them your name; 2. Explain clearly the purpose and objectives
of the study; 3. Ask their consent before you distribute, 4. If respondent have not time to
respond the questionnaire at a moment you distribute, let them to respond at home and please
follow up with their address or phone number, 5. Please do not try to use technical terms while
discussing with respondents and, Questionnaire will be filled by employees and managers of
selected bank----------------- Branch. Dear Respondent, The purpose of this questionnaire is to
collect primary data for conducting a study on the topic, “The effect management control
system on organization performance in selected banks of Hosanna town‟‟ for the partial
fulfillment of the Master of Business administration (MBA) Program at Haramaya University.
I kindly request you to provide me reliable information. Your responses will be kept
confidential.

Thank you in advance for your cooperation!

Instructions:-
No need of writing your name.
Please put (Right) mark on one of five numbers to the right of each statement
indicated in the following.
Please answer in the space provided for open ended questions.

Part I: personal information

1. Sex; Male Female
2. Age (Years); below 25 25-35 35-50 above 50
3. Educational Level: Certificate Diploma Degree Master Degree and
above
 77

4. Marital status: married unmarried, other

5. Experience/service year; <1year 1-2 year 3-4 year 5 & above
6. Your present position: manager non manager
PART II: Questions related with MCS to achieve organization performance
Please state your level of opinion for each given statement using the following scales:
1 = Never 2 = Rarely 3 = sometimes 4 = very often 5 = always

*Questionnaires for managers and employees regarding to MCS variables.

✓ Please put Right mark on the most appropriate alternative for each row
No Perceptions of respondents towards the effects of
MCS on organization Performance ✓ Usability scale

Items 1 2 3 4 5

strategic plan and management , the bank uses:

1 Strategic plan based on feasibility in terms of cost and
time

2 Analysis of business strengths and weaknesses

3 Differentiation strategy implemented in line with

providing unique service to their customers

4 Focus Strategy such as specializing on one of the major

activities, lending service

5 Cost leadership strategy such as high quality service,

providing at low cost, efficiency

6 Market share analysis forecast

7 Customer satisfaction and performance analysis

8 For adopting alternative strategies

budgeting system the bank uses

9 Budget for branch expansion and growth
 78

10 Review cash flows inflow and out flow monthly or

quarterly

11 Budget for the firm’s capital structure equity and

liabilities

12 The bank uses Budget follow-ups, at least quarterly, and

variance analysis

13 The bank uses budget for industry as a whole in terms of

new competitors and new concepts ,new technology

14 Budget for investing in others encourage and facilitate

dialogue and information sharing with customers

Role of organizational culture on

15 The bank uses a good communication skills to attract
customers in relative to other competitive banks

16 The bank has collective thinking minds or common

values ,beliefs, behaviors of the employees which create
a difference from other banks

17 The bank treat customers with dignity and respect even if

there is disrespect up on the customer side

18 The bank has culture supportive initiatives ways for

improving the quality of bank services delivery to
customers

19 The bank creating a strong organizational culture and

valuing changes through participative practice

20 The bank has formal statements of value used to

motivate subordinates in sharing responsibility

21 Relatively the bank culture more open currently than in

 79

the previews

Reward and compensation: the way the bank use

22 The bank provides bonus and makes employees
promotion and transfer on the bases of performance

23 The bank makes salary increment and additional benefit

on the bases of service year

The bank provides non financial rewards and

24 recognition for employees even if at low profit return

25 Adjust the amount of bonus based on actual

circumstances

26 Financial rewards are shared evenly to subordinates

profit sharing

27 Financial rewards increase as subordinates performance

exceeds targets

28 Determine weight of performance measures as the

evaluation takes place

The bank makes decision based on :

29 cost and availability of capital, government regulation

and the economy

30 on comments and suggestion given by the employees,

customers, investors government

31 The bank makes decisions based on Investments benefit

from stakeholders.

32 The bank makes strategic decisions based on strategic

plan and Policies or directives given by NBE
 80

33 The target set by bank for the managers different types of

performance targets, most important one`s are profit,
revenue and cost targets.

34 The bank makes market surveys and other marketing

reports on the bases of revenue, profit and cost.

* Questionnaires only for managers regarding to

organizational performance ( the bank measure )

1 Performance on the bases net profit margin (NPM)

2 Performance on the bases of return on investment (ROI)

3 Performance bases on shareholders’ value analysis or

economic value added (EVA)

4 Performance on the bases of return on equity (ROE)

5 Performance on the bases of return on asset (ROA)

6 Performance by comparing actual performance with pre-

determined target

* How much is annual profit: ---------------------------------------------------------------

APPENDEX -3 structured Interviews

1. Verify about strategic plan and management of your branch

2. How do you evaluate budgeting system in line with service performance of your branch?

3. How the cultural values affect organizational performance in your branch?

4.Over view the bases to give additional benefits and reward for employees in your branch?
5. What are the bases to make decision for service performance in your branch?