This document discusses how different strategies influence management control processes. It examines how corporate strategy, business unit strategy, competitive advantage, and top management style can impact areas like organizational structure, budgeting, incentive compensation, and strategic planning. Control systems need to be tailored based on whether the strategy is to build, hold, or harvest; pursue differentiation or low costs; and the management style. Measurement and feedback are important for aligning control processes with strategic objectives.
This document discusses how different strategies influence management control processes. It examines how corporate strategy, business unit strategy, competitive advantage, and top management style can impact areas like organizational structure, budgeting, incentive compensation, and strategic planning. Control systems need to be tailored based on whether the strategy is to build, hold, or harvest; pursue differentiation or low costs; and the management style. Measurement and feedback are important for aligning control processes with strategic objectives.
This document discusses how different strategies influence management control processes. It examines how corporate strategy, business unit strategy, competitive advantage, and top management style can impact areas like organizational structure, budgeting, incentive compensation, and strategic planning. Control systems need to be tailored based on whether the strategy is to build, hold, or harvest; pursue differentiation or low costs; and the management style. Measurement and feedback are important for aligning control processes with strategic objectives.
This document discusses how different strategies influence management control processes. It examines how corporate strategy, business unit strategy, competitive advantage, and top management style can impact areas like organizational structure, budgeting, incentive compensation, and strategic planning. Control systems need to be tailored based on whether the strategy is to build, hold, or harvest; pursue differentiation or low costs; and the management style. Measurement and feedback are important for aligning control processes with strategic objectives.
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Chapter 13
Controls for Differentiated Strategies Formal Control Process Goals and strategies Rules Other (Chp 2 & 13) (Chp 3) information
Reward (feedback)
Strategic Responsibility Was Yes
Budgeting center Report performance Planning Performance satisfactory? (Chp 9) actual vs plan (Chp 8) (Chp 10 & 11) (Chp 11 & 12) No
Corrective Measurement Revise Revise action Feedback Communication Introduction Different strategies influence the management control process. 1. Corporate strategy 2. Business level 3. The form & structure of control system. 4. Management Style Corporate Strategy Different strategy different task priorities, key success factors, skill, perspectives & behaviors.
Strategy Control Systems
Measurement Implication for Organization Structure Single Industry Related Diversified Unrelated Diversified Organizational Structure Functional Business units Holding company Industry familiarity of High Low corporate management Functional background of Relevant operating Mainly finance corporate management experience Decision-making authority More centralized More decentralized Size of corporate staff High Low Reliance on internal High Low promotions Use of lateral transfer High Low
Corporate Culture Strong Weak
Implications for Management Control Single Industry Related Diversified Unrelated Diversified Strategic planning Vertical-cum- Vertical only horizontal Budgeting: Low High Relative control of business unit manager over budget formulation Importance attached to Low High meeting the budget Transfer pricing: High Low Importance of transfer pricing Sourcing flexibility Constrained Arm’s-length market pricing Continued…
Single Industry Related Diversified Unrelated Diversified
business unit & business unit corporate performance performance Business Unit Strategy Strategy of business unit depends on two interrelated aspects: 1. Its mission: build, hold, harvest 2. Its competitive advantage: low cost & differentiation Mission Pure Build Pure Harvest
“Builds” unit tend to face greater
environmental uncertainty than ‘harvest”. The choice of build & harvest strategies has implication for short-term vs long- term profit trade-offs. Implications for Strategic Planning Process Build Hold Harvest Importance of strategic Relatively high Relatively low planning Formalization of capital Less formal More formal expenditure decisions Capital expenditure evaluation More emphasis on More emphasis on criteria nonfinancial data financial data Discount rate Relatively low Relatively high
Capital investment analysis More subjective & More objective &
qualitative quantitative Project approval limits at the Relatively high Relatively low business-unit level Different Strategic Missions: Implications for Budgeting Build Hold Harvest Role of the budget More a short-term More a control tool planning tool Business unit manager’s Relatively high Relatively low influence in preparing the budget Revisions to the budget during Relatively easy Relatively difficult the year Frequency of informal More frequent on Less frequent on reporting & contacts with policy issues; less policy issues; more superiors frequent on operating frequent on operating issues issues Frequency of feedback from Less often More often superiors on actual performance versus the budget Continued… Build Hold Harvest “Control limit” used on periodic Relatively high Relatively low evaluation against the budget
Importance attached to meeting Relatively low Relatively high
the budget
Output versus behavior control Behavior control Output control
Different Strategic Missions: Implications for Incentive Compensation Build Hold Harvest
Percent compensation as bonus Relatively high Relatively low
Bonus criteria More emphasis on More emphasis on
nonfinancial criteria financial criteria
Bonus determination approach More subjective More formula-based
Frequency of bonus payment Less frequent More frequent
Competitive Advantage Choosing differentiation approach, rather than a low-cost approach, increases uncertainty in a business unit’s task environment.
Differentiation Low-cost Product innovation Product offering stable Broad set of products Narrow product lines Produce competing Produce no-frill products commodity products Top Management Style Influenced by manager’s background & personality. Style affect management control process how the control system “actually” operates.
