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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