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Management Control System
Road Map …… Perspectives of Management Control System
What is Management Control System Purpose of Management Control System System Control System Management Control Understanding Strategies Goals Corporate Business Unit Strategies
Road Map ……
Organizational hierarchies & behavior Goal Congruence Informal Factors Formal Control System Types of Organisation Functions of Controller
What is Management Control System It is a set of interrelated communication
structures that facilates the processing of information for the purpose of assisting managers in coordinating the parts and attaining the purpose of an organisation in a continous basis.
Purpose To assist management in coordination of
parts of organisation and steering of those parts towards the achievements of overall purposes goals and objectives.
System
It’s a prescribed and usually repetitious way of carrying out an activity or set of activities.
Control System It is designed to bring unity out of these diverse activities of an
organisation to fulfill purpose. According to phillip Kotler Control Process is :-
GoalSetting
PerformanceManagement
PerformanceDiagnosis
Corrective
Action
What do weWant to Achieve?
What is Happening?
Why is it Happening?
What should We do
About it?
Management Control It is the process by which managers influence
other members of the organisation to implement the organisation strategies Planning (What organisation should do) Coordinating(the act of several parts of
organisation) Communicating information Evaluating information Deciding what if any action should be taken Influencing people to change their behaviour
Understanding strategies Strategy describes the general direction in
which an organisation plans to move to attain its goals.
Framework for Strategy Implementation
Implementation Mechanism
Management Control
HRMOrganizationStructure
Culture
Strategy Performance
Strategy Formulation It is a process that Senior executive uses to
evaluate companies strength and weakness in light of opportunities and threats and then decide the one which fits companies core competencies with environmental opportunities.
Strategy FormulationEnvironmental
Analysis Internal Analysis
CompetitorCustomerSupplies
RegulatorySocial/political
Technology Know-HowManufacturing Know-How
Marketing Know-HowDistribution Know-How Logistics Know-How
Opportunities & Threats Strengths & Weakness
Identify Opportunities Identify Core Competencies
Fix Internal CompetenciesWith external opportunities
Firm Strategies
Goal A goal or objective is a projected state of affairs
that a person or a system plans or intends to achieve—a personal or organizational desired end-point in some sort of assumed development.
Corporate A corporation (usually known in the United
Kingdom and Ireland as a company) is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person.
Corporate Culture It consist of shared values, Common
perception and decision premises applied by organisational participants to the activites and problems of the organisation.
Corporate Level Strategy It is about being in the right mix of business
and concerned with questions such as: Where to compete than How to compete in particular industry
Graphical representation of Generic Corporate Structure High
Degree of
Relatedness
Unrelated Diversification(Textron , ITT)
Related Diversification
(P&G,Dow-Corning,Corning glass)
(Mc Donald,Wrigley)Single Industry
Low High
Extent of Diversification
Business Unit Strategies
It deals with how to create and maintain competitive advantage in each industry
Strategy of business unit depends on: Mission (what are it overall objectives) Competitive advantage (How should business unit
compete in its industry to accomplish it mission)
Business Unit Mission
“Dog”Divest
“Star”Hold
“Questionnaire” Build
“Cash Cow”Harvest
High
Cash Source Low
High
CashUse
Market Growth Rate
LowHigh
Low
LowRelative Market Share
High
Business Unit Competitive advantage Industry Structure Analysis: Porters 5 Forces Model
New Entrants
Industry Competitor
Suppliers Customers
Substitutes
Industry Analysis It should be analysed in terms of:
Intensity of rivalry among existing competitors Bargaining power of customers Bargaining power of Suppliers Threat from substitutes Threat of new entry
Basis for competitive advantage
Cost cum differentiation advantage
Differentiation advantage
Low-Cost Advantage
Stuck-in-The-middle
SuperiorInferior
Inferior
Relative Differentiation Position
Superior
Goal Congruence A goal or objective is a projected state of
affairs that a person or a system plans or intends to achieve—a personal or organizational desired end-point in some sort of assumed development.
Congruence is the state achieved by coming together, the state of agreement.
Goal Congruence In this 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 Informal factors that influence goal
congruence are: External factor Internal factor
External Factor They are norms of desirable behavior that
exist in the society of which the organization is a part such as “Attitude” ----”Work Ethic” Eg: Employee Motivation
Internal Factor Culture:
It a common belief, shared values , norms of behaviour and assumption that are implicitly accepted and explicitly manifested in the organisation.
Informal Organization The informal organization is the interlocking social
structure that governs how people work together in practice.
It is the aggregate of behaviors, interactions, norms, personal and professional connections through which work gets done and relationships are built among people who share a common organizational affiliation or cluster of affiliations.
It consists of a dynamic set of personal relationships, social networks communities of common interest, and emotional sources of motivation.
Formal Control System Rules Types of rules are:
Physical Control Manuals System Safeguard Task Control System
Formal Control Process
Goal Strategies
RulesOther
Information
Strategic Planning
BudgetingResponsibility
Center Performance
Report actual Versus
Plan
Was PerformanceSatisfactory
Reward (Feedback)Reward (Feedback)
Measurement FeedbackMeasurement Feedback
CommunicationCommunication
ReviseRevise ReviseRevise Corrective Corrective actionaction
YesYes
NoNo
Types of Organization It has been grouped into three categories:
A) A functional structure in which each manager is responsible for a specified function such as production or marketing
B) A business unit structure in which business unit managers are responsible for most of the activities of their particular unit, and the business unit functions as a semi-independent part of the company.
C) A matrix structure in which functional units have dual responsibilities. If members of project team are employees of sponsoring organisation they have two “bosses” The project manager and manager of functional department to which they are permanently assigned
Functional Organization
CEOStaffStaff
ManufacturingManufacturing ManagerManager
Marketing ManagerMarketing Manager
StaffStaff
ManagerPlant 1
Manager
Plant 2
Manager
Plant3
Manager
Region A
Manager Region B
Manager
Region C
Staff
Functions of a controller Person responsible for designing and
operating the management control system is a controller. Actually in many organization title of the person is Chief Financial Officer.
Controller Performs… Designing and operating information & control
systems Preparing financial statements & reports Preparing and analysing performance reports, &
interpreting these reports for managers. Supervising internal audit & accounting control
procedure. Developing personnel in controller organisation &
participating in education of management personnel
Business Unit controller
Corporate Controller
Corporate Controller
Business UnitController
Business UnitController
Business Unit ManagerBusiness Unit ManagerBusiness UnitBusiness Unit ManagerManager
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