Management Control Systems Chapters 1 & 2, Management Control Systems, 12th Ed., Anthony and Govindarajan

Strategy Corporate Strategy Business Strategy To maximize use of resources Business Strategy To compete in selected markets

Goals and Strategy Strategy Formulation How to attain Strategy Implementation (Execution) Objectives Management Control Systems

Management Control The process by which managers influence other members of the organization to implement the organization’s strategies.

Management Control Activities include: Planning Coordinating Communicating Evaluating Deciding Influencing

Management Control Systems Facilitate management control Primarily focus on strategy execution Encompass both quantitative and qualitative performance measures Concerned with broadly defined activities

Conflict of Interests Goal congruence implies that individual goals and organizational goals are consistent Agency Theory implies the opposite

Good Management Control Achieves goal congruence by aligning Organizational goals Individual goals

Goal Congruence Influenced by Informal factors Formal factors External – work ethic Internal – culture, management style, informal organization, perception, communication Formal factors Rules Formal control system

Organizational Structure Functional organization Highly centralized Matrix organization Business unit organization Highly decentralized

Lines of Control within the Organization Solid lines Direct reporting Dotted lines Coordination / reporting

The Controller Responsible for Normally the CFO Design of the Management Control System Operation of the Management Control System Normally the CFO