Management Control Systems

Ch 1. Nature of management control system Ch 2. Understanding strategies Ch 3. Behavior in organizations

By: Sheeja Kumaran

Roll No- 2730

MBA II / SEM IV Date- 16-01-2009

Ch 1. The Nature of Management Control System

To Understand Management

To understand the team control. To understand the team management. To understand the team system

Control
Elements of a Control System
1.

2.

3.
4.

Detector or Sensor (Information about what is happening) Assessor (Comparison with standards) Effector (Behaviour attention if needed) Communications (Transmit between both ways between detector and assessor)

Elements of the Control Process

Control device

2.Assessor.Comparison With standard

1.Detector.Information About what is happening

3.Effector.Behavior alteration if needed

Entity Being controlled

Examples of Control
Thermo Stat

Detector is a thermometer. Assessor compares current temperature with accepted standard of temperature. Effector which prompts furnace to heat or activate air conditioner. Communications which transmits information in both ways between thermometer and assessor.

Management

It consists of hierarchy of manager with CEO to managers of business units, departments, functions and subunits below him.

The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.

Significant difference between management control process and simple process

The standard is not preset. Management Control System is not automatic. Management Control System requires co-ordination among individuals. Perceiving the need for action to determing the action to obtaining the result may not be clear. Much management control is self control

System

A system is a prescribed and usually repetitious way of carrying out an activity or set of activities.

General relationships among planning and control functions in management control

Strategy Formulation

Goals, strategies and policies.

Management Control

Implementation of strategies

Task Control

Efficient & Effective performance of individual tasks

Management Control
It is a process by which management influence other members of the organization to implement the organizational strategies. It includes activities like Planning Coordinating Communicating Evaluating Deciding Influencing

Framework for Strategy Implementation

Management Controls

Strategy

Organizational Structure

Human Resource Management

Performance

Culture

Strategy Formulation
It is the process of deciding on the goals of the organization and the strategies for attaining these goals.

Difference between strategy formulation and management control

Strategy formulation:It is process of deciding new strategy. It is essentially unsystematic. It is a decision making made at any time. It is involved with more judgment. It has involvement of few people- the sponsor of the idea, head quarter's staff and senior management.

Management Control

It is the process of implementing the strategies. It is a series of steps that occur in predictable sequences with more or less fixed time table. It has involvement of managers and their staff at all levels.

Task Control

Task control is the process of ensuring that specified tasks are carried out effectively and efficiently. It is transaction oriented. It is scientific in nature. It is widely seen in organization with task control information.

Strategy Formulation Acquire an unrelated business Enter new business Add direct mail selling Change debt/equity ratio

Management Control Introduce new product or brand within product line Expand a plant Determine advertising budget Issue new debt

Task Control Coordinate order entry Schedule production Book TV commercials Manage cash flows

Adopt affirmative action policy

Devise inventory speculation policy Decide magnitude & Direction of research

Implement minority recruitment program

Decide inventory levels Control research organization

Maintain personnel records

Reorder an item Run individual research project

Impact of Internet on Management Control

Major benefits of internet. Instant access Multi-target communication. Costless communication. Ability to display images. Shifting power and control to the individual.

Important Fact :Internet facilitates coordination and control through effective and efficient processing of information but internet cannot substitute for the fundamental process of management control.

Ch 2 Understanding Strategies

Some Basic Concepts :

Goal Profitability Maximizing shareholder value Risk Multiple stakeholder approach

Strategy Formulation :
Environmental Analysis -competitor -customer -supplier -regulatory -social/political Internal Analysis -technology know-how -manufacturing know-how -marketing know-how -distribution know-how -logistics know-how

Opportunities & Threats -identify opportunities

Strengths & Weakness -identify core competencies

Fix internal competencies with external opportunities

Firms Strategies

Two levels of Strategy :Strategy Level Key strategy Issues Generic Strategic Options Primary organizational levels involved Corporate office

Corporate Level

Are we in the right mix of industry? What industry or sub industry should we be in?

Single industry Related diversification Unrelated diversifications. Build, hold, harvest, divest. Low cost Differentiation

Business unit What is the mission level of business unit? How should it compete to realize its mission?

Corporate office & business unit general manager.

Corporate Level Strategy :

It is about being in the right mix of business. It is more concerned about where to compete rather than how to compete. It deals with issues: 1) Definition of business in which firms will participate. 2) The deployment of resources among those business.

Categories Of Corporate Level Strategies:

A single industry firm- which operates in one line of business. A related diversified firm- which operates in several industries and benefits from common set of competencies. An unrelated business firm- which operates in business that are not related to one another.

Pictorial Representation of Strategy :

Single industry firm

Unrelated diversified firms

Related diversified firms

Summary of Three Generic Strategies :

Type of corporate Strategy Single Industry Firm Related Diversified Firms Unrelated Diversified Firms

Identifying Features

Competes in Sharing of only one core industry competencie s across business

McDonalds Ford Motors Procter & Gamble Du-Pont At&T

Totally autonomous business in very different markets

General Electric Textron

Examples

Business Unit Strategies :

It deals with how to create and maintain competitive advantage in each of the industries in which the company is participating. It depends on two interrelated aspects 1) Its mission. 2) Its competitive advantage.

Business Unit Mission : The BCG Model

high high
Cash source

low

STAR
HOLD

QUESTION MARK
BUILD

high

Market Growth rate

Cash use

CASH COWS
HARVEST
high

DOG
DIVEST

low

low
low

Relative market share

Business Unit Mission :

To build To hold To harvest To divest

Porters Five Forces Model : Industry Structure

NEW ENTRANTS

SUPPLIERS

INDUSTRY COMPETITORS

CUSTOMERS

SUBSTITUTES

Industry Analysis :

Michael Porters five competitive forces as seen in above chart: Intensity of rivalry among existing competitors. Bargaining power of customer Bargaining power of suppliers Threats from substitutes Threats from new entry

Observations from Industry Analysis :First: More powerful the five forces - less profitable industry. Weak five forces - average profitability is high in industry. Strong five forces - average profitability is low in industry

Second: Depending on relative strength of five forces the key strategic issues of business unit will differ from one industry to another. Third: Understanding nature of each forces helps unit to formulate effective strategies.

Generic Competitive Advantage

According to Porter, the business unit has two generic ways of developing competitive advantage. 1. Low cost 2. Differentiation

Basis for Competitive Advantage :

Superior

Relative Differentia tion position Inferior

Cost-cumdifferentiation advantage Low-cost advantage

Superior

Differentiation advantage Stuck-in-the middle

Relative cost position

Inferior

Value Chain Analysis :

Value chain is the complete set of activities involved in a product from extraction of raw material to post delivery support to customer. It seeks to determine where in the companys operation- from design to distribution the customer value can be enhanced or costs lowered.

Typical Value Chain for a Business

Product Development

Manufacturing

Marketing And Sales

Services/ Logistics

Support Activities: Finance, Human Resources, Information Technology

Ch 3. Behavior in Organization

What is Goal Congruence?

In goal congruent process, the actions people are led to take in accordance with their perceived self-interest are also in the best interest of the organization.

Informal Factors Influencing Goal Congruence :

EXTERNAL FACTORS: Set of attitudes INTERNAL FACTORS: Culture Management style The informal organization Perception and communication

The Formal Control System :

Two types : 1. The management control system 2. Rules. * Physical controls * Manuals * System safeguards * Task control systems

Goals and strategies

Rules

Other information

Reward (feedback) Yes

Strategic planning

Budgeting

Responsibility Center performance

Report Actual vs. plan

Was Performance Satisfactory?

R e vi s e Revise Corrective action

No Measurement Feedback Communication

Types of organization :

A functional structure. A business unit structure. A matrix structure.

CEO Staff

Manufacturing Manager Staff

Marketing Manager Staff

Manager Plant 1

Manager Plant 2

Manager Plant 3

Manager Region A

Manager Region B

Manager Region C

Functional Organization

CEO

Manager Business Unit X Staff

Manager Business Unit Y

Manager Business Unit Z

Staff

Staff

Plant Manager

Marketing Manager

Plant Manager

Marketing Manager

Plant Manager

Marketing Manager

Business Unit Organization

CEO Staff

Function A Manager

Project X Manager

Function B Manager

Project Y Manager

Function C Manager

Project Z Manager

MATRIX ORGANIZATION

Functions of Controller :

Designing and operating information and control systems. Preparing financial reports and statements. Preparing and analyzing performance reports and consolidating them for annual budget. Supervising internal audit and accounting control procedures Developing personnel in controller organization

Alternative Controller Relationships

Corporate Controller Business Unit Manager Corporate controller Business Unit Manager

Business Unit Controller

Business Unit Controller

Dotted line

Solid line