Prepared and Presented by : Tunisha Jethwani

CONTROL
Management control can be defined as a systematic effort by
business management to compare performance to
predetermined standards, plans, or objectives in order to
determine whether performance is in line with these standards
and presumably in order to take any remedial action required
to see that human and other corporate resources are being
used in the most effective and efficient way possible in
achieving corporate objectives.

STRATEGY
A method or plan chosen to bring about a desired future, such
as achievement of a goal or solution to a problem.
Strategy generally involves setting goals, determining actions
to achieve the goals, and mobilizing resources to execute the
actions. A strategy describes how the ends (goals) will be
achieved by the means (resources).
 The logic for linking controls to strategy is based on the
following line of thinking :

 Different organizations generally operate in different strategic

contexts.
 Different strategies require different task priorities, key
success factors, skills, perspectives, and behaviors for
effective execution.
 Control systems are measurement systems that influence the
behavior of the people whose activities are being measured.
 Thus, a continuing concern in the design of control systems
should be whether the behavior induced by the system is
consistent with the strategy.
CONTROL PROCESS
 Different strategies that influence the management
control process :
 Corporate Strategy
 Business level strategy

Others ;
 The form and structure of control system
 Management Style
DIFFERENTIATED
STRATEGIES
 On the basis of organizational level or hierarchy, we can classify
strategies into the following three types :
CORPORATE STRATEGY
 A corporate strategy entails a clearly defined, long-term
vision that organizations set, seeking to create corporate
value and motivate the workforce to implement the
proper actions to achieve customer satisfaction.
 In addition, corporate strategy is a continuous process
that requires a constant effort to engage investors in
trusting the company with their money, thereby
increasing the company’s equity. Organizations that
manage to deliver customer value unfailingly are those
that revisit their corporate strategy regularly to improve
areas that may not deliver the aimed results.
TYPES OF CORPORATE
STRATEGIES
The three main types of corporate strategies are :
 Growth strategy
 Stability strategy
 Retrenchment
 GROWTH STRATEGY
Like the name implies, growth strategies are those corporate
level strategies designed to achieve growth in key metrics
such as sales / revenue, total assets, profits etc.

 STABILITY STRATEGY
Stability strategies are mostly utilized by successful
organizations operating in a reasonably predictable
environment. It involves maintaining the current strategy that
brought it success with little or no change.

 RETRENCHMENT
Retrenchment strategies are pursued when a company’s
product lines are performing poorly as a result of finding itself
in a weak competitive position or a general decline in industry
or markets. The strategy seeks to improve the performance of
the company by eliminating the weakness and pulling the
company back.
BUSINESS UNIT STRATEGY
 The guiding principles and planned objectives set by
management to be followed by an autonomous
division of a company.
 A separate business unit strategy for each division
will often be prepared and used by larger companies
that have considerably different objectives among
their various divisions.
 The strategy of a business unit depends on two interrelated
aspects :
1. Its mission ( What are its overall objectives? )
2. Its competitive advantage ( How should the business unit
compete in its industry to accomplish its mission? )

 Typically, business units choose from three missions ;

 Build
 Hold
 Harvest

 The business unit has two generic ways to compete and

develop a sustainable competitive advantage : Low cost
and Differentiation
COMPETITIVE ADVANTAGE
 A business unit can choose to compete either as a differentiated
player or as a low cost player. Choosing a differentiation approach,
rather than a low-cost approach, increases uncertainty in a business
unit’s task environment for three reasons :

1. A business unit with greater emphasis on new product activities

tends to face greater uncertainty, since the business unit is betting
on unproven products.
2. Customer perception is difficult to learn about and customer loyalty
can change for a number of reasons, it’s more difficult to predict
the demand for differentiated products than the demand for basic
commodities.
3. Low cost business units typically tend to have narrow product lines
to minimize inventory costs and benefit from scale economies.
Differentiation business units tend to have a broader set of
products to create uniqueness.
TOP MANAGEMENT STYLE
 The management control function in an organization is
influenced by the style of senior management.
 The style of chief executive officer affects the
management control process in the entire organization.
 The various dimensions of management style
significantly influence the operation of the control
systems. Even if the same reports with the same set of
data go with the same frequency to the CEO, two CEO’s
with different styles would use these reports very
differently to manage the business units.
IMPLICATIONS FOR MANAGEMENT
CONTROL
Personal versus Impersonal controls

 Managers differ on how much importance they attach to formal

budgets and reports as well as informal conversations and other
personal contacts. Some managers are ‘number oriented’ ; they
want a large flow of quantitative information, and they spend much
time analyzing this information and deriving tentative conclusions
from it.

 Other managers are ‘people oriented’ ; they look at a few numbers,

but they usually arrive at their conclusions by talking with people,
judging the relevance and importance of what they learn partly on
their appraisal of the other person. They visit various locations and
spend time talking with both supervisors and staff to get a sense of
how well things are going.
 Tight versus Loose controls

 A managers style affects the degree of tight versus loose

control in any situation. The manager of a routine production
responsibility center can be controlled relatively tightly or
loosely, and the actual control reflects the style of the
managers superior.

 The degree of looseness tends to increase at successively

higher levels in the organization hierarchy : higher-level
managers typically tend to pay less attention to details and
more to overall results (the bottom line, rather than the details
of how the results are obtained). However, this generalization
might not apply if a CEO has a different style.
 The Google Style
 They have a policy of recruiting only class - A employees and
giving them the freedom to exercise their creativity.
 There is a 70-20-10 norm about time allocation by employees:
70 percent of the time should be devoted to Google’s core
business of search and advertising, 20 percent to off-budget
projects related to the core-business, and 10 percent to
pursue ideas based on one’s own interest and competencies.
There are also generous rewards and awards for
implementing innovative ideas. Though employees perceive
such systems as perks, the company sees these systems as
“the seed corn for its future,” as it would ensure that
entrepreneurial employees implement their innovative ideas
within the company rather than go out and create a competing
new venture. It is estimated that about 50 percent of Google’s
new products are generated using the ‘free’ time that
employees are granted.
 SUMMARY
 Designers of management control systems should take
explicit notice of the strategic context in which the
controls are being applied.
 Business units have missions that can be classified as
“build” , “hold”, or “harvest” and their managers can also
decide to build competitive advantage based on low cost
or differentiation. The appropriate management control
process is influenced by which of these strategies is
selected for a given business unit.
 The control system should be designed in the context of
each organizations unique external environment,
technology, strategy, organization structure, culture and
top management style.