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Management Decision and Control Chapter 11 Management Decision and Control

Learning Objectives Provide comparative examples of decision making in different countries Present some of the major factors affecting the degree of decision-making authority given to overseas units Compare and contrast direct controls with indirect controls

Learning Objectives (continued) Describe some of the major differences in the ways that MNCs control operations Discuss some of the specific performance measures that are used to control international operations

Global Online Retail: Amazon versus Alibaba Competitive strategies Alibaba is a conglomerate, whereas Amazon specializes in business-to-consumer sales Alibaba acts as a facilitator for third-party sellers, whereas Amazon acts as a direct merchant itself Geographic positioning of both companies affects their potential future growths

Managerial Decision-Making Processes Involves choosing a course of action among alternatives Often linear but looping back is common Degree of managerial involvement depends on the: Structure of the subsidiaries Locus of decision making Can be centralized or decentralized

Figure 11.1 - Decision-Making Process

Table 11.1 - Factors That Influence Centralization or Decentralization of Decision Making in Subsidiary Operations

Cultural Differences in Decision Making How managers view time in the decision-making process French managers tend to spend ample time on searching for and evaluating alternatives Danish managers want to act first and take advantage of opportunities

Cultural Differences in Decision Making (continued 1) Germans and Scandinavian countries both have codetermination Codetermination: Legal system that requires workers and their managers to discuss major decisions Germans tend to be fairly centralized, autocratic, and hierarchical Swedes focus more on quality of work life and the importance of the individual in the organization

Cultural Differences in Decision Making (continued 2) Japanese are different from Europeans though they employ a long-term focus Use the following decision-making processes: Ringisei: Decision making by consensus Tatemae: Doing the right thing according to the norm Honne: What one really wants to do

Research Findings on Decision Making Swedish teams Higher team orientation, flatter organizational hierarchies, and open-minded and informal work attitudes Transparent and less formal decision making German teams Willing to accept a changed or unpopular decision and have clearer responsibilities for the individual Faster in decision making as it is largely dominated by the decision authority of an expert in the field

Total Quality Management (TQM) Organizational strategy and accompanying techniques that result in the delivery of high-quality products or services to customers Critical to achieve world-class competitiveness Has a big impact in the manufacturing area Employs concurrent engineering or interfunctional teams to develop new products Used by MNCs to tailor their output to customer needs

Total Quality Management Techniques Employee empowerment Empowerment: Gives individuals and teams the resources, information, and authority needed to develop ideas and effectively implement them Rewards and recognition Merit pay, discretionary bonuses, pay-for-skills and knowledge plans, plaques, and public recognition

Total Quality Management Techniques (continued) Ongoing training Takes a wide variety of forms Ranges from statistical quality control to team meetings designed to generate ideas for streamlining operations and eliminating waste Objective is to apply kaizen, which is a Japanese term for continuous improvement

Decisions to Attack the Competition Examples Ford Motor Company’s decision to challenge other automakers and to be a major player in developing markets, such as Asia and Africa Audi company's decision to target younger professionals in established markets BMW company's decision to focus on providing more options and personalization for consumers Mercedes company's decision to go for a lowest-cost strategy

ISO 9000 Certification Indirectly related to TQM To ensure quality products and services Examines design, process control, purchasing, service, inspection and testing, and training Necessary prerequisite to doing business in the EU Screening criterion for getting business in the U.S. and around the globe

Decision Making and Controlling Interlinked functions Controlling Process of evaluating results in relation to plans or objectives and deciding what action, if any, to take Types of control Internal and external control Direct and indirect controls

Figure 11.2 - Models of PC Manufacturing - Traditional Model

Figure 11.2 - Models of PC Manufacturing - Direct Sales Model

Figure 11.2 - Models of PC Manufacturing - Hybrid Model

Control Problems Conflict between the objectives of the overseas operation and the MNC Disagreement in the objectives of joint venture partners and corporate management Variance in the degree of experience and competence in planning among managers Basic philosophic disagreements in the objectives and polices of international operations due to cultural differences

Internal and external control Internal control - Focuses on the things that an MNC does best External control - Ensures that there is a market for the goods and services that it is offering By finding out what the customers want and be prepared to respond appropriately

Table 11.3 - Impact of Internal- and External-Oriented Cultures on the Control Process

Direct and Indirect controls Direct controls - Use face-to-face or personal meetings for monitoring operations Example - Top executives visit overseas affiliates to learn of problems and challenges Indirect controls - Use reports and other written forms of communication to control operations Example - Monthly operating reports

Financial Statements Required from Subsidiaries for Indirect Controls Statements prepared to meet the national accounting standards and procedures prescribed by the host country Statements prepared to comply with the accounting principles and standards required by the home country Statements prepared to meet the financial consolidation requirements of the home country

Approaches to Control Major differences among countries Great Britain Financial records were sophisticated and heavily emphasized Top management tended to focus on major problem areas and not involve in specific matters of control Control was used for general guidance than for surveillance Operating units had a large amount of marketing autonomy

Approaches to Control (continued) Germany Managers employed very detailed control and focused attention on all variances Managers placed heavy control on production and stressed operational efficiency France Managers employed control systems closer to that of Germans than to the British Control was used more for surveillance than guidance and was centrally administered Less systematic and sophisticated system

Approaches to Control: U.S. Firms versus European Firms Measure quantifiable, objective aspects Need precise plans and budgets in generating standards for comparison European firms Measure qualitative aspects Need high levels of knowledge about appropriate behavior in supporting the goals of the firms

Approaches to Control: U.S. Firms versus European Firms (continued) Need large central staffs and centralized information-processing capability Require less decentralization of operating decision making Favor long vertical spans between parent and subsidiary firms Need capable expatriate managers willing to spend time abroad Require more decentralization of operating decision making Favor short vertical spans between parent and subsidiary firms

Performance Measures for Control: Financial Performance Measured by profit and loss and return on investment Profit is an important part of ROI calculation Amount of profit is directly related to how well or poorly a unit is judged to perform Can be affected by fluctuations in currency value If a country devalues its currency, subsidiary export sales will increase If a country revalues its currency, export sales will decline

Performance Measures for Control: Quality Performance Quality control (QC) - Major function of production and operations management Achieved through quality circles Quality control circle (QCC): Group of workers who meet on a regular basis to discuss ways of improving the quality of work Example Reasons why Japanese goods are of high quality Minimal worker error, effective use QCCs, use of early warning systems, use of training overkill, and use of cutting edge technology

Performance Measures for Control: Personnel Performance Common approach is the periodic appraisal of work performance Variations are found across countries in: Methods used in evaluations How the control actually is conducted How rewards and monitoring of performance are handled

Performance Measures for Control: Personnel Performance (continued) Assessment centers: Identifies individuals with the potential to be selected for or promoted to higher-level positions Involve the following simulation exercises: In-basket exercises that require managerial attention Committee exercises that require candidates to work as a team in making decisions Business decision exercises that make participants compete in the same market Preparation of business plans and letter-writing exercises

World’s Most Admired Firms Common themes based on the analysis from the consultants at the Hay Group Top managers take their mission statements seriously and expect everyone else to do the same Success attracts the best people, and the best people sustain success Top companies know precisely what they are looking for Firms see career development as an investment, not a chore

World’s Most Admired Firms (continued) Whenever possible, these companies promote from within Performance is rewarded Firms are genuinely interested in what their employees think, and they measure work satisfaction often and thoroughly

Be the International Management Consultant If you were a foreign investor, would you want to invest in a consumer electronics company in Japan? Does the fact that the company has had past problems requiring government intervention affect your initial decision? How does it impact your decision that you would be competing with a government-backed company during the bid process?

Review and Discuss A British computer firm is acquiring a smaller competitor located in Frankfurt What are two likely differences in the way these two firms carry out the decision-making process? How could these differences create a problem for the acquiring firm? Give an example in each case

Review and Discuss (continued 1) Which cultures are more likely to focus on external controls? Which cultures would consider direct controls more important than indirect controls? How would you explain a company’s decision to use centralized decision-making process and decentralized control process, considering the two are so interconnected? Provide an industry example of where this may occur

Review and Discuss (continued 2) How are U.S. multinationals trying to introduce total quality management into their operations? Give two examples Would a U.S. MNC doing business in Germany find it easier to introduce TQM concepts into German operations, or would there be more receptivity to them back in the United States? Why? What if the U.S. multinational were introducing these ideas into a Japanese subsidiary?

Review and Discuss (continued 3) In what ways could an accelerated decision-making process harm a company? Using Figure 11–1, which stage(s) do you think would be most in danger of being overlooked? A company does a personnel performance evaluation by reviewing the financial decisions the management has made, specifically focusing on ROI How is this approach beneficial to the company?

Review and Discuss (continued 4) Which aspects could the company be neglecting? Which cultures are most likely to employ this method? Which cultures would avoid this tactic?