Strategy

The Nature of Management Control SystemsSinggih Wijayana, Ph.D.Table of ContentsBasic ConceptsBoundaries of Management ControlRoad Map for the ReaderPrefaceElements of Management Control Systems include:Strategic planningBudgetingResource allocationPerformance measurementEvaluation and rewardResponsibility center allocationTransfer pricingBasic ConceptsControlElements of a control system consists of:A detectorAn assessorAn effectorA communication network

Basic ConceptsA detector or sensor is a device that measure what is actually happening in the process being controlled.An assessor is a device that determines the significance of what is actually happening by comparing it with some standards or expectations of what should happen.An effector (feedback) is a device that alters behavior if the assessor indicates the need to do so.A communications network consist of devices that transmit information between the detector and the assessor and between the assessor and the effector.

Elements of the Control Process 1. Detector. Information about what is happeningEntity being controlledControl devices3. Effector. Behavior alteration, if needed2. Assessor. Comparison with standardElements of the Control ProcessExample: You are driving a carDetectors= Your eyesAssessor= Your brainEffector= Your footCommunication network= Your nerves system

Basic ConceptsManagementThe management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.SystemsA system is a prescribed and usually repetitious way of carrying out an activity or a set of activities.If all systems ensured the correct action for all situations, there would be no need for human managers.Boundaries of Management ControlStrategy formulation is the process of deciding on the goals of the organization and the strategies for attaining these goals.Management control (Anthony and Govindarajan, 2004): is the process by which managers influence other members of organization to implement the organizations strategies.Task control is the process of ensuring that specified tasks are carried out effectively and efficiently.General relationships among planning and control functionsStrategyFormulationManagementControlTaskControlActivityNature of End ProductGoals, strategies, policiesImplementation of strategiesEfficient and effective performance of tasksManagement controlManagement control involves:PlanningCoordinatingCommunicatingEvaluatingDecidingInfluencingGoal congruenceThe goals of an organizations individual members should be consistent with the goals of an the organization itself.Framework for strategy implementationMCSStructureHRMCultureImplementation MechanismStrategyPerformace13Distinctions between strategy formulation and management control:CharacteristicsStrategy FormulationControl ManagementSystem designUnsystematic, Strategic decision may be made any timeRhythmic, predetermined proceduresNature of informationTailored-made to faced problems, more external and predictive, less accurateIntegrated, more internal and historical, more accurateCommunication of informationSimpleDifficultInvolved peopleTop management and staffsTop management and line managers14Distinctions between strategy formulation and management control:CharacteristicsStrategy FormulationControl ManagementNumber of involved peopleFew peopleMany peopleMental activityCreative and analyticAdministrative and persuasiveDisciplineEconomicsSocial psychologyTime horizonTend to long-termTend to short-termEnd productsGoals, strategiesStrategy implementation15Distinctions between management and task controls:CharacteristicsControl ManagementTask ControlFocus of activityThe whole of operationIndividual task or transactionNature of informationIntegrated, many financial dataTailored-made to individual task, more non-financial dataInvolved peopleManagementSupervisor or noneMental activityAdministrative and persuasiveFollow direction or noneEnd productsStrategy implementationTasks are carried out effectively and efficiently16Distinctions between management and task controls:CharacteristicsControl ManagementTask ControlMental activityAdministrative and persuasive

Follow direction or noneDisciplineSocial psychologyEconomics, physicsTime horizonWeekly, monthly, annuallyDailyType of costDiscretionary costsEngineered costsExamples of decisions in planning and control function:17Strategy FormulationManagement ControlTask ControlEnter a new businessExpand a plantSchedule productionChange debt to equity ratioIssue new debtManage cash flowsAdd direct mail sellingDetermine advertising budgetBook TV commercialsDecide magnitude and direction of researchControl of research organization Run individual research project Acquire an unrelated businessIntroduce new product or brand within product line Coordinate order entry Boundaries of Management ControlImpact of the internet on management controlThe internet provides major benefits that the telephone does not:Instant accesMulti-targeted communicationCostless communicationAbility to display imagesShifting power and control to the individual.But, the internet cannot substitute for the fundamental processes that are involved in management control.Road Map for the ReaderThe management control enviroment (Part 1)Chapter 2 the generic types of organization strategies.Chapter 3 the characteristics of orgaizations that affect management control process.Chapter 4, 5, 6, 7 define and describe different types of RC, and discuss the considerations involved in assigning financial responsibility to various organizational subunits.Road Map for the ReaderThe management control process (part 2)Chapter 8 strategic planning.Chapter 9 budget preparation.Chapter 10, 11, 12 performance measurement, performance evaluation, and management compensation.Road Map for the ReaderVariations in management control (part 3)Chapter 13 differentiated controls for differentiated strategiesChapter 14 service organizationsChapter 15 multinational organizationsChapter 16 management control of projects.