Southwest Airlines Management Accounting System

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Southwest Airlines Management Accounting System



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We will begin by describ- ing the control process in simpler systems. Elements of a Control System Every control system has at least foUl' elements : 1. InformatIOn 3. Behavior about what. We shall describe their functioning ill three examples of increasing complexity: the thermostat, which regulates room temperatme; the biological process that regulates body temperature; and the driver of an automobile, who regulates the direction and speed of the vehicle. Thermostat The components of the thermostat are 1 a thermometer the detector , whi ch measures the current temperature of a room; 2 an assessor which compares the current temperatme with the accepted standard for what the temper atme should be; 3 an effector, which prompts a furnace to emit heat if the actual temperatme is lower than "he standard or activates an ai r conditioner if the actual temperature is higher than th e standard and which also shuts off these appliances when the temperature reaches the stan- dard leveL and 4 a communications network, which transm it s informa tion from the therm ometer to the assessor and from the assessor to the heating or cooli ng element.

The elements of the control mechanism by wlUch the body strives to maintain that standard are 1 the sensory nerves detectors scattered throughout the body; 2 the hypo-. This biological con trol system is homeostatic-that is, self-reguJating. If the system is functi oning properly. The body temperature control system is more complex than the thermostat, with body sensors scattered throughout the body and hypothalam us directing actions t. It is also more mysteri- ous; scientists know wha t the hypothalamus does but not hou. A utomobile Driuer Assume you are driving on a highway where the legal i.

But just as body temperature regula Lion is more comphcated than the ther- mostat, so Lhe regulation of a car is more complicated than the regulation of body temperature. This is because there can be no certainty as to what acbon the brain will direct after receiving and evaluaLing information ['rom the detector For example. In this sys- tem. Orgaruzations are led by a hierarchy of managers, with the chief executive officer CEO at th e top, and the managers of business units, departments, functions, and other subunits ranked be low him or her in the or- ganizational chart.

The CEO or, in some organizations. Subject to the approval of the CEO , the various business unit man agers formulate additional strategies that will enable their respective units Lo further these goal s. The management control process is the pmcel5s by which managers at all levels ensure that the people they supervise implement their intended strategies.

Contrast with S impler Control Proct:sst's The control process used by managers contains the same elements as those in the simpler control systems desclibed earlier: detectors, assessors, effectors. Detectors report what is happening throughout the organization; assessors compare this information with the desired state; effec- tors take corrective adion once a significant difference between the actual state and the desired 5tate has been perceived; and the communications system tell managers what is h appening and how that compares to the desired state.

There are, h owever, significan t dillerences between the management control process and the simpler processes described eariler: 1. Unlike in the thermostat or body temperature systems, the standard is not preset. Ratller, i t is a result of a wnscious planning process. III this process , management decides what the organization should be doing, and part of the control process is a comparison of actual ac complish- ments with these plans. Management control. Like controlling an automobile I but unlike reguJaLing room or b ody temperature I. Some detectors in an or ganization may be mechamc:al, hut th e manager often detects imp ortan t information ',.

Althou gh she may have routine ways of comparing certain reports of what is happemng with s t andards of what should be happenjng, the manager must personally perform the assessor function, deciding for hersel f wheth er the di fference between actual and standa rd perfor- mance is significant enough to warrant action, and, if so, what action to take. Then, because actions intended to alter an organization's be- havior involve human beings, the manager must interact with at least one other pe rson t o effect change.

T h e connection fl'om percewzng the need or action to determ ini ng the act io n rel.. A man- ager acting as assessor may decide that "costs are too high" but see no asy or automatic action guaranteed to bring costs down t o wh at the standard says they should be. The Lerm black box describes a n opera- tion whose exact nature cannot be observed. Unlike t h e thermostat or the aut omobile driver, a management. We can n ol' kn ow what action a given manager wi ] take when tl1ere i a significa n t differencL' between actual and expected performance, nor what she assesses, if any action others will take in rt:sponse to tl1e manager's signal. By contrast, we know exactly when t h e therm ostat wi. Drivers who obey t h e 65 m ph speed limit do so n ot because a sign commands it, but because they have consciously decided t.

Systems A system is a p rescnbed a nd usually repetitious way of"carrying out an acti L'ity or a set of' actw ities. Systems are characterized by a more ur less rhythmiC, coordinated, a n d recurring series of steps intended to accomplish a specifi ed purpose. The thermostat. The effectiveness of thei. If all systems ensu red th e correct a. Ll situations. In this book. One can desclibe in considerable depth the var - ious steps in t he formal system, t he iniormation that is collected and used in each step, and th e principles that govern the system's operation as a whole. But it is very difficult, except in general terms, to describe the appropriate actions fo r managers encountering si tuations not contemplated in the forma l system.

These depend, among other factors , on the skills and personalities of the people involved, their relation ships with one another, and the environmen within which a particular problem arises. It is important to recognize, how- ever, that these jnformal processes are strongly affected by the way the orga- nization's formal control systems are designed and operated. Boundaries of Management Control In this section, we define management contr ol and distinguish it from two other systems-or activities-that also require both planning and control: strategy formulation and task control.

Serious mistakes can be made if princi- ples and generalizations specific to one system are applied in another. As yOll will see, management control fits between strategy formulation and task control in several respects. Strategy formulation is the least sys- tematic of the three. Strategy formulation focuses on the long run, task control focuses on short-run activities, and management control is in be- tween. Strategy formulation uses rough approximations of the future. Each aCtivity involves both planlling and control , but the emphasis varies with th e type of activity. The planning process is much more important in strategy formulation , the control process is much more important in task control, and planning and control are of approximately equal importance i.

The relationships uf these systems of activities to one an other are indicated in Exhibit 1. Several aspects of this process ar e amplified here. Such plans are based on circumstances ueli eved to exist at the time they were form ulated. If hese circumstances ha ve changed at thl2 time of implementation, the actions dictaLed by the plan may no longer be appropriate. If a manager discovers a better approach-one more likely than the predetermined plan to achieve the organization's goals- the management control system should not obstruc t its implementation. In other words, con- for m 'ing to a budget is not necpssarily good, and d ep arture from a budget is not necessarz y bad.

Goal Congruence Alth ough systemabc, the management control process is by no means me- chanical; rather, it involves interactions among individuals. Managers have personal as well as organiza- tional goals. Goal cong ruence means that, insofar as is feasible, the goals of an organization's individual members should be consisten t with the go:. The management control system should be desjgned and operated wi th the principle of goal congruence in mind.

The company's management control system was directed toward the effici ent management of store operations, which in turn conferred a cost advantage companywide. This inf'oTInation enabled the company to reduce the likelihood of stock-outs and the need fi l- mru'kdowns n ll slow moving stock, and to maximize inventory turnover. The data from "outstanding" performer" among 5, stores were used to improve operations in "problem" stores. As indicated in Exhibit 1. Organizational structure specifies the roles , reporting relationships, and di- vision of responsibilities that shape decision-making v.

Hum an resource management is the selection, training, evaluation , promotion, and termination of empl oyees so as to develop the knowledge and skills req llired to execute organizational strategy. Culture refers to the set of common beliefs, attitudes, and norms that explicitly or implicitly guide managerial acti ons. Control customcl' satisfaction. Today':3 Aid in Dec'eloping New Strategie;j cuntrols As discussed eadieI', the pl'imar:y role of management contr ol is to ensure the execution of chosen strategies.

In industries that are subject to rapid environ- mental c:hanges. Interactive conlrols are an integral part ofthe management control system. Strategy Formulation S t rategy formula tlun is the. Goals are timeless. For many businesses. In the strategy form ulation process, th e goals of the urganization are usually taken as a given, although on occasion strategic th. Ninety-two percent of the time, the selected flight was on the first screen. This provided a huge incentive for American to manipulate its ranking formula, or even corrupt the search algorithm outright, to favor American flights.

At first this was limited to juggling the relative importance of factors such as the length of the flight, how close the actual departure time was to the desired time, and whether the flight had a connection, but with each success American became bolder. Before long, the new flights suddenly started appearing at the bottom of the screen. On one occasion, Sabre deliberately withheld Continental 's discount fares on 49 routes where American competed.

Congress investigated these practices and in Bob Crandall , president of American, was the most vocal supporter of the systems. Unimpressed, in the United States government outlawed screen bias. Even after biases were eliminated, travel agents using the system leased and serviced by American were significantly more likely to choose American over other airlines. The same was true of United and its Apollo system. The fairness rules were eliminated or allowed to expire in By then, none of the major distribution systems was majority owned by the airlines. American brought High Court action which alleged that after the arrival of Sabre on its doorstep British Airways immediately offered financial incentives to travel agents who continued to use Travicom and would tie any override commissions to it.

British Airways eventually bought out the stakes in Travicom held by Videcom and British Caledonian, to become the sole owner. Department of Transportation and the British Monopolies Commission, British Airways defended the use of Travicom as a truly non-discriminatory system in flight selection because an agent had access to some 50 carriers worldwide, including Sabre, for flight information. From Wikipedia, the free encyclopedia. The New York Times. Harvard Business Press. ISBN Some place the project starting in , some , some place the original system in Manhattan, others Briarcliff. The Serling book uses November 5, , as the date of the announcement of the joint development and as the date of the first SABRE reservation taken at the Hartford Reservations office.

Blair Smith. Smith discusses how a chance meeting with C. Head, Robert V. Software Magazine. February, Gutis New York Times. Lewis De La Merced Advertising Age. Murray from S. Nason, American Airlines, Dec. Ott to L. Iovinelli et al. United Kingdom: Routledge. Archived from the original on April 6, Retrieved May 4, How much should you be earning? Get started. Aeronautical Engineer. Air Traffic Controller. Aircraft Maintenance Technician. Aircraft Mechanic. Airline Manager. All Southwest Airlines - Aviation salaries. Administrative Assistance. Administrative Assistant. Administrative Coordinator. Administrative Specialist. Center Manager. All Southwest Airlines - Administrative Assistance salaries. Browse all Southwest Airlines salaries by category Accounting.

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