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 :- Goal Setting Performance Management Performance Diagnosis Corrective Action What do we Want 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 HRM Organization Structure 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 Formulation Environmental Analysis Internal Analysis Competitor Customer Supplies Regulatory Social/political Technology Know-How Manufacturing Know-How Marketing Know-How Distribution Know-How Logistics Know-How Opportunities & ThreatsStrengths & Weakness Identify Opportunities Identify Core Competencies Fix Internal Competencies With 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 LowHigh 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 Cash Use Market Growth Rate Low High Low Relative 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 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 Rules Other Information Strategic Planning Budgeting Responsibility Center Performance Report actual Versus Plan Was Performance Satisfactory Reward (Feedback) Measurement Feedback Communication ReviseRevise Correctiveaction Yes No

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 CEO Staff Manufacturing Manager Manager Marketing Manager Staff Manager Plant 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 Unit Controller Business Unit Controller Business Unit Manager Business Unit Manager Manager

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