1. We begin with three terms :
Introduction
We begin with three terms :
Control
Management
Systems
Management control is a must in any organization that practices decentralization

2. Basic Concepts
An organization must be controlled, that is, devices that ensure it goes where its leaders want it to go must be operative
Control

3. Elements of a Control System
Basic Concepts
Elements of a Control System
1. Detector/Sensor
A device that measures what is actually happening in the process being controlled

4. Basic Concepts 2. Assessor
Significance is assessed by comparing the information on what is actually happening with some standard or expectation of what should be happening
2. Assessor
A device that determines the significance of what is actually happening by comparing it with some standard of what should happen

5. The device is often called “feedback”
Basic Concepts
The device is often called “feedback”
3. Effector
A device that alters behavior if the assessor indicates the need to do so

6. Communication network
Basic Concepts
Communication network
4. Communication network
Devices that transmits information between the detector and the assessor and between assessor and the effector

7. Basic Concepts Elements of the Control Process
device
2.Assessor, comparison with standar
1.Detector, observed information about what is happening
3. Effector, behavior altering communication if needed
Entity
being
controlled

8. Basic Concepts
The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies
Management

9. Basic Concepts
A system is a prescribed and usually repetitious way of carrying out an activity or a set of activities
Systems

10. Boundaries of Management Control
Management control fits between strategy formulation and task control in several respects

11. Boundaries of Management Control
General Relationships among Planning and Control Functions
Activity
Nature of End Product
Goals, Strategies and Policies
Strategy Formulation
Implementation of Strategies
Management Control
Efficient and Effective Performance of Individual Tasks
Task Control

12. Boundaries of Management Control
Management control is the process by which managers influence other members of the organization to implement the organization’s strategies 24

13. Boundaries of Management Control
Management control involves a variety of activities, including :
Planning, what the organization should do
Coordinating, the activities of several parts of the organization
Communicating, information
Evaluating, information
Deciding, what, if any, action should be taken
Influencing, people to change their behavior

14. Boundaries of Management Control
Goal Congruence
Goal congruence means that, insofar as is feasible, the goals of an organization’s individual members should be consistent with the goals of the organization itself.
Tool for Implementing Strategy
Management control focuses primarily on strategy execution.
Management control are only one of the tools managers use in implementing desired strategies.
Strategies are also implemented through the organization’s structure, its management of human resources and its particular culture.

15. Framework for Strategy Implementation Implementation Mechanism
Basic Concepts
Framework for Strategy Implementation
Implementation Mechanism
Management
Controls
Strategy
Performance
Organization
Structure
HR Management
Culture

16. Boundaries of Management Control
Strategy formulation is the process of deciding on the goals of the organization and the strategies for attaining these goals
Strategy Formulation ?

17. Boundaries of Management Control
Distinctions between strategy formulation and Management Control
Strategy Formulation
is the process of deciding on new strategies
Management Control
is the process of implementing those strategies

18. Boundaries of Management Control
Task control is the process of assuring that specified tasks are carried out effectively and efficiently
Task Control ?

19. Boundaries of Management Control
Task Control
Transaction oriented
Scientific
The focus is on specific tasks
Management Control
Involves the behavior of managers
Can never be reduced to science
The focus is on organizational units
Concerned with the broadly activities of managers
Distinctions between Task Control and Management Control

20. Boundaries of Management Control
Examples of Decisions in Planning and Control Functions
Strategy Formulation
Management Control
Task Control
Acquire an unrelated business
Introduce new product or brand within product line
Coordinate order entry
Enter a new business
Expand a plant
Schedule production
Add direct mail selling
Determine advertising budget
Book TV commercials
Change debt/equity ratio
Issue new debt
Manage cash flows
Devise inventory speculation policy
Decide inventory levels
Reorder an item

21. Boundaries of Management Control
Impact of the Internet on Management Control
Instant access
Multi targeted communication
Costless communication
Ability to display images
Shifting power and control to the individual

22. The Concept of Strategy
Strategy Formulation
Environmental analysis
Competitor
Supplier
Regulatory
Social/Political
Internal analysis
Technology know how
Manufacturing know how
Marketing know how
Distribution know how
Logistics know how
Opportunities and threats
Identify opportunities
Strengths and weaknesses
Identify core competencies
Fix internal competencies
Firm’s strategies

23. Business Unit Strategies
Business Unit Mission : The BCG Model
Cash source
High
Low
Hold
“ Star “
Build
“ Question mark “
Harvest
“ Cash cow “
Divest
“ Dog “
High
High
Market growth rate
Cash use
Low
Low
Relative market share
High
Low

24. Business Unit Strategies
Business Unit Competitive Advantage
Industry Structure Analysis : Porter’s Five Forces Model
New Entrants
Suppliers
Industry
Competitors
Customers
Substitutes

25. Types of Organizations
A firm’s strategy has a major influence on its structure. Their structures can be grouped into three general categories :
A functional structure
In which each manager is responsible for a specified function such as production or marketing.
2. A business unit structure
In which business unit managers are responsible for most the activities of their particular unit, and the business unit functions as a semi independent part of the company
3. A matrix structure
In which functional units have dual responsibilities

26. Types of Organizations A. Functional Organizations

27. The Types of Organizations
Disadvantages of a functional structure
There is no unambiguous way of determining the effectiveness of the separate functional managers
A dispute between managers of different functions can be resolved only at the top, even though it may have originated at a much lower organizational level.
Functional structures are inadequate for a firm with diversified products and markets
The important advantage of a functional structure is efficiency

28. Types of Organizations B. Business Unit Organizations
A business unit, also called a division, is responsible for all the functions involved in producing and marketing a specified product line.

29. The Types of Organizations
Advantages of a business unit organizations :
Provides a training ground in general management. The business unit manager should demonstrate the same entrepreneurial spirit that characterizes the CEO of an independent company.
Its manager may make sounder production and marketing decisions than headquarters might, and unit as a whole can react to new threats or opportunities more quickly
Disadvantage of a business unit organizations are :
1. Each business unit staff may duplicate some work that in a functional organization is done at headquarters.
2. The disputes between functional specialists in a functional organization may be replaced by disputes between business units in a business unit organization.

30. Types of Organizations C. Matrix Organizations
CEO
Staff
Function A
Manager
Project X
Manager
Project Y
Manager
Function B
Manager
Project Z
Manager
Function C
Manager

31. The Types of Organizations
Implications for System Design
Once management has decided that a given structure is best, all things considered, then the system designer must take that structure as given

32. Responsibility Centers
Nature of Responsibility Centers
A responsibility center exists to accomplish one or more purposes, these purposes are its objectives.
The objectives of responsibility centers are to help implement the strategies.
The goods and services produced by a responsibility centers may be furnished either to another responsibility centers or to the outside marketplace

33. Responsibility Centers
The Core Operation of Responsibility Center
Work
Output
Input
Goods or services
Resources used, measured by cost
Capital
The products produced by a responsibility center may be furnished either to another responsibility center (as input) or to the outside marketplace (as output)

34. Responsibility Centers
Types of Responsibility Centers
Engineered Expense Centers
Examples
Optimal relationship
can be establish
Work
Outputs
Inputs
Manufacturing
function
(Dollar)
(Physical)

35. Responsibility Centers
Types of Responsibility Centers
Discretionary Expense Centers
Examples ……
……..
Optimal relationship
cannot be establish . .
Work
Outputs
Inputs
R&D
function
(Dollar)
(Physical)

36. Responsibility Centers
Types of Responsibility Centers
Revenue Centers
Examples ……
……..
Input do not related
to outputs . .
Work
Outputs
Inputs
Marketing
function
(Dollar revenue)
(Dollar only for
costs directly incurred

37. Responsibility Centers Types of Responsibility Centers
Profit Centers
Examples ……
……..
Input are related
to outputs . .
Work
Outputs
Inputs
Business
unit
(Dollar costs)
(Dollar profits)

38. Responsibility Centers Types of Responsibility Centers
Investment Centers
Examples ……
……..
Profits are related
to capital employed . .
Capital
Employed
Outputs
Inputs
Business
unit
(Dollar costs)
(Dollar profits)

39. Transfer Pricing Methods
Transfer Price is to refer to the amount used in accounting for any transfer of goods and services between responsibility centers.

40. Transfer Pricing Methods
Fundamental Principles
The fundamental principle is that the transfer price should be similar to the price that would be charged if the product were sold to outside customers or purchased from outside vendors
When profit centers of a company buy products from, and sell to, one another, two decisions must be made periodically for each product :
Should the company produce the product inside the company or purchase it from an outside vendor ?. This is the sourcing decision.
If produced inside, at what price should the product be transferred between profit centers ?. This is the transfer price decision.

41. Transfer Pricing Methods
Upstream Fixed Costs and Profits
a. Agreement Among Business Units
Some companies establish a formal mechanism whereby representatives from the buying and selling units meet periodically to decide on outside selling prices and the sharing of profits for products with significant upstream fixed costs and profit

42. Transfer Pricing Methods
Upstream Fixed Costs and Profits
b. Two Step Pricing
Establish a transfer price that includes two charges :
For each unit sold, a charge is made that is equal to the standard variable cost of production.
A periodic charge is made that is equal to the fixed costs associated with the facilities reserved for the buying unit.

43. Transfer Pricing Methods
Business Unit X (manufacturer) Product A
Expected monthly sales to business unit Y ,000 units
Variable cost per unit $ 5
Monthly fixed costs assigned to product ,000
Investment in working capital and facilities ,200,000
Competitive return on investment per year %
One way to transfer product A to business unit Y is at price per unit, calculated as follows :
Transfer price for product A
Variable cost per unit $ 5
Plus fixed cost per unit $ 4
Pus profit per unit $ 2
Transfer price per unit $ 11

44. Transfer Pricing Methods
Correction by two step pricing :
Transfer price for product “A” $ 5 + $ 20,000/month fixed cost + $ 10,000 per month for profit :
$ 1,200,000 x = 10,000 12
Unit “Y” will pay the variable cost of
(5,000 unit x $ 5/unit) : $ 25,000
Plus fixed cost and profit : $ 30,000
Total $ 55,000
Unit “X” will pay $ 11/unit (5.000 unit x $ 11 = $ 55,000)
If transfers in another month were 4,000 units, Unit “Y” would pay $ 50,000 [(4,000 unit x $ %) + $ 30,000], under two step pricing, compared with $ 44,000 ($ 11 x 4,000 unit).
The difference is penalty for not using a portion of unit X’s capacity that it has reserved.

45. Transfer Pricing Methods
Upstream Fixed Costs and Profits
c. Profit Sharing
The system operates as follows :
The product is transferred to the marketing unit at standard variable cost
After the product is sold, the business units share the contribution earned, which is the selling price minus the variable manufacturing and marketing costs.

46. Transfer Pricing Methods
Upstream Fixed Costs and Profits
d. Two Sets of Prices
The manufacturing unit’s revenue is credited at the outside sales price and the buying unit is charged the total standard costs. The difference is charged to a headquarters account and eliminated when the business unit statements are consolidated.