Chapter 8 Strategic Control and Restructuring 1

2 Learning Objectives To understand:  feedback, concurrent, feedforward and comprehensive strategic control systems  the implications of national cultures for the design of control systems  characteristics of the most common restructuring tactics  the concept of business cycle orientation and how it is useful in helping firms deal with economic cycles To understand:  feedback, concurrent, feedforward and comprehensive strategic control systems  the implications of national cultures for the design of control systems  characteristics of the most common restructuring tactics  the concept of business cycle orientation and how it is useful in helping firms deal with economic cycles

3 StrategicDirection Strategy Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring External and Internal Analysis Strategic Management Process

4 Strategic Control System A system to support managers in - assessing whether the organization’s strategy is accomplishing goals as intended - assessing whether the organization’s strategy is accomplishing goals as intended - identifying areas needing attention - identifying areas needing attention A system to support managers in - assessing whether the organization’s strategy is accomplishing goals as intended - assessing whether the organization’s strategy is accomplishing goals as intended - identifying areas needing attention - identifying areas needing attention

5 Types of Control Feedback - Provides managers with performance information so that they can make adjustments if necessaryFeedback - Provides managers with performance information so that they can make adjustments if necessary Concurrent - Provides real-time information used to control organizational processesConcurrent - Provides real-time information used to control organizational processes Feedforward – Monitoring systems that help managers anticipate changes in their external and internal environmentsFeedforward – Monitoring systems that help managers anticipate changes in their external and internal environments Feedback - Provides managers with performance information so that they can make adjustments if necessaryFeedback - Provides managers with performance information so that they can make adjustments if necessary Concurrent - Provides real-time information used to control organizational processesConcurrent - Provides real-time information used to control organizational processes Feedforward – Monitoring systems that help managers anticipate changes in their external and internal environmentsFeedforward – Monitoring systems that help managers anticipate changes in their external and internal environments

6 Stakeholders and Environment Missions and Goals Strategies Implementation concurrentcontrols ( including targets & concurrent controls) Performance Comparison of Performance with Targets Assessment of Cause and Effect FEEDFORWARD CONTROL FEEDBACK CONTROL FEEDBACK CONTROL time Feedback that guides impressions & expectations Feedback used to alter plans and strategies

7 Feedback Controls Functions of feedback controls in organizations: Creating specific objectives or targets ensures that managers understand the plans and strategies that guide firm decisions Motivate managers to pursue organizational interests Help managers decide when and how to intervene to make corrections Functions of feedback controls in organizations: Creating specific objectives or targets ensures that managers understand the plans and strategies that guide firm decisions Motivate managers to pursue organizational interests Help managers decide when and how to intervene to make corrections

8 Elements in a Feedback Control System Establish Broad Goals Based on Mission, Vision, and Purpose Identify Key Result Areas for Each of the Broad Goals Establish Targets for Each Result Area and a Time Frame for Accomplishment Make a Specific Manager Responsible for Each Target Develop an Action Plan for Accomplishing Each Target Follow Up With Each Manager

9 Characteristics of Effective Objectives or Targets High enough to be motivating Realistic Specific Measurable Understood by all affected managers & employees Set through participative processes Use feedback on performance Cover specific time frame High enough to be motivating Realistic Specific Measurable Understood by all affected managers & employees Set through participative processes Use feedback on performance Cover specific time frame

10 Concurrent Controls Process Controls Statistical Process Control Real-time Inventory Control Behavioral Controls Bureaucratic Controls Rules and Procedures Policies – general guides to action Clan Control Socialization processes that dictate appropriate behavior Orientation sessions Training Formal communications such as newsletters, mission, visions, values Process Controls Statistical Process Control Real-time Inventory Control Behavioral Controls Bureaucratic Controls Rules and Procedures Policies – general guides to action Clan Control Socialization processes that dictate appropriate behavior Orientation sessions Training Formal communications such as newsletters, mission, visions, values

11 Feedforward Control Systems Rapid changes in the social, economic, technological and political environments make good feedforward controls necessary and important Monitoring Systems – The firm analyzes information from stakeholders, the industry and the broad environment to predict potential changesMonitoring Systems – The firm analyzes information from stakeholders, the industry and the broad environment to predict potential changes Premise Control – evaluates whether information used to establish strategies and goals is still validPremise Control – evaluates whether information used to establish strategies and goals is still valid Rapid changes in the social, economic, technological and political environments make good feedforward controls necessary and important Monitoring Systems – The firm analyzes information from stakeholders, the industry and the broad environment to predict potential changesMonitoring Systems – The firm analyzes information from stakeholders, the industry and the broad environment to predict potential changes Premise Control – evaluates whether information used to establish strategies and goals is still validPremise Control – evaluates whether information used to establish strategies and goals is still valid

12 Comprehensive Strategic Control Systems Rapidly advancing technologies make continuous improvements through control systems a possibility Information generated should be an important and recurring item to be addressed by top management Control process should be given frequent attention at all levels Data from system should be discussed in face-to- face meetings Continually challenge the underlying data, assumptions and strategies Rapidly advancing technologies make continuous improvements through control systems a possibility Information generated should be an important and recurring item to be addressed by top management Control process should be given frequent attention at all levels Data from system should be discussed in face-to- face meetings Continually challenge the underlying data, assumptions and strategies

13 National Cultures For control systems to be effective they should reflect the culture of the nation in which they are established: Power distance - degree to which members of society accept uneven power distributionPower distance - degree to which members of society accept uneven power distribution Individualism/collectivism – degree to which the focus of society is on individual or groupIndividualism/collectivism – degree to which the focus of society is on individual or group Masculine/feminine – degree to which society draws strong distinctions between gender rolesMasculine/feminine – degree to which society draws strong distinctions between gender roles Uncertainty avoidance – degree to which members of society are tolerant of uncertainty and ambiguityUncertainty avoidance – degree to which members of society are tolerant of uncertainty and ambiguity Confucian dynamics – degree to which decisions are focused on the long term vs. the short termConfucian dynamics – degree to which decisions are focused on the long term vs. the short term For control systems to be effective they should reflect the culture of the nation in which they are established: Power distance - degree to which members of society accept uneven power distributionPower distance - degree to which members of society accept uneven power distribution Individualism/collectivism – degree to which the focus of society is on individual or groupIndividualism/collectivism – degree to which the focus of society is on individual or group Masculine/feminine – degree to which society draws strong distinctions between gender rolesMasculine/feminine – degree to which society draws strong distinctions between gender roles Uncertainty avoidance – degree to which members of society are tolerant of uncertainty and ambiguityUncertainty avoidance – degree to which members of society are tolerant of uncertainty and ambiguity Confucian dynamics – degree to which decisions are focused on the long term vs. the short termConfucian dynamics – degree to which decisions are focused on the long term vs. the short term

14 National Cultures and Control Systems Influence of national cultures on characteristics of control systems: Power distance high – focus on outcomesPower distance high – focus on outcomes Power distance low – focus on adherence to plan Individualism – individual rewardsIndividualism – individual rewards Collectivism – team-based rewards Masculine – value on achievement, heroism and material successMasculine – value on achievement, heroism and material success Feminine – value on relationships and quality of life Uncertainty avoidance – control over management risk takingUncertainty avoidance – control over management risk taking Uncertainty tolerance – less rule based Long-term oriented – focus on sales growth and customer satisfactionLong-term oriented – focus on sales growth and customer satisfaction Short-term oriented – focus on profits Influence of national cultures on characteristics of control systems: Power distance high – focus on outcomesPower distance high – focus on outcomes Power distance low – focus on adherence to plan Individualism – individual rewardsIndividualism – individual rewards Collectivism – team-based rewards Masculine – value on achievement, heroism and material successMasculine – value on achievement, heroism and material success Feminine – value on relationships and quality of life Uncertainty avoidance – control over management risk takingUncertainty avoidance – control over management risk taking Uncertainty tolerance – less rule based Long-term oriented – focus on sales growth and customer satisfactionLong-term oriented – focus on sales growth and customer satisfaction Short-term oriented – focus on profits

15 Common Restructuring Approaches Refocusing Corporate Assets: downscopingRefocusing Corporate Assets: downscoping Retrenchment: turnaround strategy, often involving downsizing (workforce reductions)Retrenchment: turnaround strategy, often involving downsizing (workforce reductions) Chapter XI Reorganization: provides temporary court protection from foreclosure and an opportunity to renegotiate contractsChapter XI Reorganization: provides temporary court protection from foreclosure and an opportunity to renegotiate contracts Leveraged Buyout (LBO): private purchase of business by managers, employees, unions, or private investorsLeveraged Buyout (LBO): private purchase of business by managers, employees, unions, or private investors Structural Reorganization: changes to organizational designStructural Reorganization: changes to organizational design Refocusing Corporate Assets: downscopingRefocusing Corporate Assets: downscoping Retrenchment: turnaround strategy, often involving downsizing (workforce reductions)Retrenchment: turnaround strategy, often involving downsizing (workforce reductions) Chapter XI Reorganization: provides temporary court protection from foreclosure and an opportunity to renegotiate contractsChapter XI Reorganization: provides temporary court protection from foreclosure and an opportunity to renegotiate contracts Leveraged Buyout (LBO): private purchase of business by managers, employees, unions, or private investorsLeveraged Buyout (LBO): private purchase of business by managers, employees, unions, or private investors Structural Reorganization: changes to organizational designStructural Reorganization: changes to organizational design

16 Business Cycle Orientation Capabilities that allow a firm to respond more quickly than rivals to business cycles: Business cycle literacy Forecasting resources Facilitative organizational structure Business-cycle sensitive management principles Supportive organizational culture Capabilities that allow a firm to respond more quickly than rivals to business cycles: Business cycle literacy Forecasting resources Facilitative organizational structure Business-cycle sensitive management principles Supportive organizational culture

17 Trends: Increasing global complexity and interconnectedness, fueled by technological advancementsIncreasing global complexity and interconnectedness, fueled by technological advancements Specialized, mobile and diverse labor pools, including those found outside home countriesSpecialized, mobile and diverse labor pools, including those found outside home countries Education levels, income levels and access to capital will continue to grow worldwideEducation levels, income levels and access to capital will continue to grow worldwide New powerful competitors in global marketplaceNew powerful competitors in global marketplace Increased concern about governance, sustainability and social responsibility; increased regulationIncreased concern about governance, sustainability and social responsibility; increased regulationTrends: Increasing global complexity and interconnectedness, fueled by technological advancementsIncreasing global complexity and interconnectedness, fueled by technological advancements Specialized, mobile and diverse labor pools, including those found outside home countriesSpecialized, mobile and diverse labor pools, including those found outside home countries Education levels, income levels and access to capital will continue to grow worldwideEducation levels, income levels and access to capital will continue to grow worldwide New powerful competitors in global marketplaceNew powerful competitors in global marketplace Increased concern about governance, sustainability and social responsibility; increased regulationIncreased concern about governance, sustainability and social responsibility; increased regulation The Future

18 Challenge of the Future Challenges for managers: retaining valuable employeesretaining valuable employees creating and preserving competitive advantagecreating and preserving competitive advantage discouraging new entrantsdiscouraging new entrants serving increasingly demanding customersserving increasingly demanding customers choosing and timing technology investments at a time when change is so rapidchoosing and timing technology investments at a time when change is so rapid major shocks associated with terrorism, new diseases and warsmajor shocks associated with terrorism, new diseases and wars Challenges for managers: retaining valuable employeesretaining valuable employees creating and preserving competitive advantagecreating and preserving competitive advantage discouraging new entrantsdiscouraging new entrants serving increasingly demanding customersserving increasingly demanding customers choosing and timing technology investments at a time when change is so rapidchoosing and timing technology investments at a time when change is so rapid major shocks associated with terrorism, new diseases and warsmajor shocks associated with terrorism, new diseases and wars