1. Management Control Team Topic Prepared for Dr. Yacus – Mgmt 750 Presented by: Rob Batarla, Jeff Fitzgerald, Brad Stegman, and Andrew Walters Old Dominion University – Northern VA

2. Agenda Review of Agenda How does it Tie in to Strategy? What is Management Control? Centralization – Decentralization Continuum What are the Types of Management Control? Case Study: Mgmt Control at

3. How does it Tie into Strategy? Management Control is a component of the framework of corporate strategy. We are remember the framework of corporate strategy, right?

4. Framework of Corporate Strategy Competitive Advantage Resources Businesses Coherence VisionGoals& Objectives Objectives Contro l Role of Corporate Offices Structure, Systems, and Processes Corporate Advantage

5. Framework of Corporate Strategy Competitive Advantage Resources Businesses Coherence VisionGoals& Objectives Objectives Contro l Role of Corporate Offices Structure, Systems, and Processes Corporate Advantage Control Management Contro l

6. What is Management Control? Management Control is the connection between the business and corporate structure. If the corporate office cannot adequately control its independent businesses, it will never be able to create value. Therefore, Management Control is needed to maintain control over delegated decision making.

7. Centralization - Decentralization Delegation and control Continuum used to provide balance One company can utilize both structures Accuracy became a concern due to many variables Performance measures and rewards Rethinking led to three types of Management Controls

8. Three Types of Mgmt Controls Outcome Control (Andrew) Behavior Control (Brad) Clan Control (Rob) But how do companies pick which “control” works best for them?

9. Choosing Management Controls Choosing a corporate management control approach…. -centralized vs. decentralized -organization system of processes -driven by corporate strategy

10. Outcome Control Utilizes delegated decision making More emphasis placed on results Determining corporate success Established industries Divisional independence

11. Behavior Control Executed in more complex companies Focuses on behavior not results Monitoring managers’: -actions -decisions -performance Considers finances

12. Clan Control Development of an internal system of values and norms (i.e. work dress styles, normal working hours, pride taken in work.) These methods provide control where output and behavioral control does not work. Strong culture and clan control help worker to focus on the organization and enhance its performance.

13. Case Study – Decentralized management style -structure and coherence -reliance on operating mgmt for each subsidiary -outcome control Financial Plans (5 and 10 year) Planning horizon (2 year) Quarterly updates, revisions, and reviews Monthly management update

14. Org Chart – President and Chairman of Executive Committee Member Executive Committee 20 Operating Subsidiaries Member Executive Committee Company Group Chairman 10 Regional Divisions of Subsidiaries Subsidiary President 5 Regional Divisions of Subsidiaries Subsidiary President Company Group Chairman 14 Operating Subsidiaries Company Group Chairman 2 Divisional Subsidiaries Vice Chairman of Executive Committee Management Controls relate to positions at orange subsidiary levels

15. Financial Plans – Financial Planning (5 and 10 years) -Four key indicators: est. unit sales, est. sales revenue, est. net income, est. ROI -Optimistic expectations -No penalties for inaccuracies Budget Planning Horizon (2 year) -Annual Budget -Revenues, expenses, and selected balance sheet items -Used to “run the business, evaluate managers on planning, forecasts, and achievements.”

16. Updates – Periodic Updates -accuracy of budget projections -focus on sales and profits Monthly Management Reports -income statement highlights -summary of balance sheet figures and ratios relative to: position last month / position this month / budgeted position

17. Valuable Resources Used in Supplement to the Text Websites: www.jnj.com and www.codmanjnj.comwww.jnj.comwww.codmanjnj.com Raps, Andreas, Strategic Management. Montvale: Strategic Finance. June 2004. Volume 85, Issue 12; p48. Ekanayake, Sampson, Agency Theory, National Culture and Management Control Systems. Journal of American Academy of Business, Cambridge. March 2004. Volume 4, Issue 1/ 2; p49. ABI/ Inform Database Keyword Search: Management Control

18. Questions? Thank you for letting us present!