Chapter 9
Chapter 9
Chapter 9
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Appropriate when
Stable and simple environment Goals and objectives can be measured with certainty Little need for complex measures of performance
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Informational control
Behavioral control
Relationships between strategy formulation, implementation and control are highly interactive
Behavioral control
Concerned with whether or not the organization is doing things right in the implementation of its strategy
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Informational Control
Deals with internal environment and external strategic context Key question
Do the organizations goals and strategies still fit within the context of the current strategic environment?
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Informational Control
Traditional approach
Understanding of the assumption base is an initial step in the process of strategy formulation
Contemporary approach
Information control is part of an ongoing process of organizational learning that updates and challenges the assumptions underlying the firms strategy
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Informational Control
The Firms
Update and challenge the assumptions
Assumptions Premises
Goals
Strategies
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Behavioral Control
Behavioral control is focused on implementationdoing things right Three key control levers
Culture Rewards Boundaries
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Traditional approach
Emphasizes comparing outcomes to predetermined strategies and fixed rules
Contemporary approach
A balance between Culture Rewards Boundaries
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Information
Important enough to demand frequent and regular attention from operating managers at all levels of the organization
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Action plans
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Short-term objectives
Specific and measurable Specific time horizon for attainment Achievable, but challenging Provide proper direction, but be flexible when faced with need to change
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Guidelines
Can set spending limits and range of discretion
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Culture: a system of unwritten rules that forms an internalized influence over behavior.
Rules: Written and explicit guidelines that provide external constraints on behavior.
Associated with standardized output Tasks are generally repetitive and routine Little need for innovation or creative activity
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Less need for interdependence Reward and control systems focus more on financial indicators Intense need for tight interdependencies among functional areas and business units Sharing of resources is critical Synergies are more important than cost leadership Heavy use of behavioral performance indicators
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Types of Strategy
Primary Type Need for of Rewards Interdependence and Controls Low High High Low Financial Behavioral Behavioral Financial
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The shareholders The management (led by the Chief Executive Officer) The board of directors
Issue is
How corporation s can succeed (or fail) in aligning managerial motives with
Board of Directors
Shareholders (investors)
Limited liability
Participate in the profits of the enterprise Limited involvement in the companys affairs
Management
Run the company Does not personally have to provide the funds
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Board of directors
Elected by shareholders
Fiduciary obligation to protect shareholder interests
Board of Directors
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Hard for board of directors to confirm that managers are actually acting in shareholders interests Managers may opportunistically pursue their own interests
Principal and agent may have different attitudes and preferences toward risk
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Active, critical participants in setting strategies Evaluate managers against high performance standards Take control of succession process Director independence Right to sell stock Right to vote the proxy Right to sue for damages if directors or managers fail to meet their obligations Right to information from the company Residual rights following companys liquidation
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Shareholder activism
Align rewards of all employees (including rank and file as well as executives) to the long-term performance of the corporation Allow creation of executive wealth that is reasonable in view of the creation of shareholder wealth Measurable and predictable outcomes that are directly linked to the companys performance Market oriented Easy to understand by investors and employees Fully disclosed to investing public and approved by shareholders
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Auditors
Banks and analysts
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Executives
Must promptly reveal the sale of shares in firms they manage Are not allowed to sell shares when other employees cannot
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