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

Its 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 :-

Goal Setting

Performance Management

Performance Diagnosis

Corrective Action

What do we Want 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

Strategy

Organization Structure

HRM

Performance

Culture

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 Formulation
Environmental Analysis Competitor Customer Supplies Regulatory Social/political Internal Analysis Technology Know-How Manufacturing Know-How Marketing Know-How Distribution Know-How Logistics Know-How

Opportunities & Threats

Strengths & Weakness

Identify Opportunities

Identify Core Competencies

Fix Internal Competencies With 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 achievea personal or organizational desired endpoint 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
Single Industry (Mc Donald,Wrigley)

Degree of Relatedness

Related Diversification (P&G,Dow-Corning, Corning glass)

Unrelated Diversification (Textron , ITT) Low Extent of Diversification High

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

High High

Cash Source

Low High

Star Hold
Market Growth Rate Cash Cow Harvest

Questionnaire Build

Dog Divest

Cash Use

Low High Relative Market Share Low

Low

Business Unit Competitive advantage

Industry Structure Analysis: Porters 5 Forces Model

New Entrants

Suppliers

Industry Competitor

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

Superior
Cost cum differentiation advantage
Relative Differentiation Position

Differentiation advantage

Low-Cost Advantage Inferior Inferior

Stuck-inThe-middle

Superior

Goal Congruence

A goal or objective is a projected state of affairs that a person or a system plans or intends to achievea 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 Rules Other Information

Reward (Feedback)

Yes Strategic Planning Revise Budgeting Responsibility Center Performance Report actual Versus Plan Was Performance Satisfactory No Measurement Feedback Communication

Revise

Corrective action

Types of Organization

A)

It has been grouped into three categories:

A functional structure in which each manager is responsible for a specified function such as production or marketing 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 semiindependent part of the company. 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

B)

C)

Functional Organization
CEO
Staff

Manufacturing Manager Staff Manager Plant 1 Manager Plant 2 Manager Plant3

Marketing Manager Staff

Manager Region A

Manager Region B

Manager Region C

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 Unit Manager

Business Unit Manager

Business Unit Controller

Business Unit Controller

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