SYLLABUS

BASICS
1. Financial Goal Setting, Organisation Hierarchies and
Behaviour
2. Responsibility Centres
3. Profit Centres
4. Transfer Pricing
5. Measuring and Controlling Profits and Assets
6. Performance Management and Control
7. MCS in Service and Non Profit Organisations
8. Controls for Differentiated Strategies
9. Audit – Efficiency Audit and Management Audit
 1. Task Control
2. 2005 - Difference between Task Control and Management Control
3. 2005 – Difference between Strategy formulation and Task Control
BI June 28-July 11, 2010
Godrej Home Appliances Division is in the red…
“if the business were headed nowhere we would not hesitate to exit or shut them down”
Adi Godrej

Management Control Systems

Designing and Implementing Systems to
plan and control the firm’s performance …

Therefore must include…

 Management Control Systems Must Include…

• Strategic Planning
• Budgeting
• Resource allocation
• Performance Measurement
• Evaluation and reward
• Responsibility Centre Allocation
• Transfer pricing

Organisations must have devices in place to ensure that the strategic intentions are achieved .

Simple Example
 Simple Example – Zizou Ltd
• Manufacture and Sale of Talcum Powder, After Shave
Lotion and Deodorant for MEN
• One factory
• Not much advertising, good distribution through own
field force
• Launch of ‘Enchante’ fragrance for Women (target
college girls)
• Process – mixing formula supplied by licensor (French),
bottling, packaging, distributing- using existing facilities
• Two machines added, ten workers hired
• MD’s declaration “30 % of our profits, from the second
year, are expected to come from Enchante”
Walmart Case More Difficult as Organisations become
complex… Suzlon-integration
Suzlon’s key competitive advantage – vertical integration
http://www.suzlon.com/pdf/SuzlonEnergyLimitedInvestorPresentation1.pdf

Some managed through acquisitions…

A Control System will have certain elements…
 Elements of a Control System - at least four

• Detector or sensor – measuring device

• Assessor – comparison of actual versus
plan / standard and significance of it
• Effector (or feedback) that alters
behaviour if assessor deems it necessary
• Communication network for
communication between the three above

An example
 Features of Control Systems – Simple to Less
Simple

Body temperature Automobile Driver

Automatic Not Automatic
detector Sensory nerves Eyes read
speedometer
assessor Hypothalmus of Brain compares
brain actual and
desired speed
effector Muscles and Foot – directed
organs – sweating, panting, by brain – pressure
opening pores shivering on accelerator

Communication nerves nerves

system
To understand MCS –need to understand 2 other interrelated systems –Strategy
Formulation, Task Control
General Relationships among Planning and Control
Functions

MC fits
Between
these

Blurred
Boundaries
???

Management Control
 Management Control

• Process by which managers influence other members of the organisation

(often the people they supervise) to implement the organisation’s
strategies
• Involves may activities including
– Planning Does not mean
That every departure from
– Co-ordinating Plan is bad…
– Communicating
– Evaluating information
– Deciding action to be taken
– Influencing people to change their behaviour
• MCS should be designed keeping principle of goal congruence in mind
(tough )
Features of Management control
 Management Controls – no absolutes, all relative (NK)
• Involve interaction between people
• Not automatic
• Are an instrument for strategy implementation
• Standards are not preset – arise out of conscious
planning
• Not automatic – data needs to be interpreted
(manager as assessor), usually some interaction is
required.
• Requires coordination among people
• It is not always clear as to what action is required
• Much of it is self control

Strategy Formulation
 Strategy Formulation

• Process of deciding on the (important) goals of the

organisation and the strategies for attaining these goals

• Different organisations and types of organisations will

have different goals

• Strategies may be needed when there are opportunities

or threats (both of which can be perceptions!)

Difference Between Strategy

Formulation and MC
Difference Between Strategy Formulation and MC

• Strategy formulation can happen any time (all the

TelCo’s must be in strategy formulation mode now ;)

23/12/2010

• MC is systematic, though not automatic - unlike simpler

control process like regulation of body temperature

Task Control
 Task Control
• Process of Ensuring that specified tasks are carried out efficiently
and effectively
• Transaction oriented - may not even need human intervention.
Today computers execute many control functions earlier done by
humans
• Often
– ensuring tasks are carried out according to rules
– Quite programmed – the desired state, or means to correct to desired
state can be computed scientifically (eg EOQ)
• Most of the information generated in an organisation pertains
to task control
• Some task control systems – Procurement, Scheduling, Quality
Control, Cash Management

Distinction between Task Control and Management Control

 Distinction between Task Control and Management
Control
Task Control Management Control

• Transaction oriented • Involves the behavior of

managers
• Scientific
• Can never be reduced to
• The focus is on specific
science
tasks
• The focus is on

organizational units

• Concerned with the broadly

activities of managers

Examples of Decisions in Management and Task Control

 Boundaries of Management Control
Examples of Decisions in Planning and Control Functions
Strategy Formulation Management Control Task Control

Acquire an unrelated Introduce new product or Coordinate order entry

business brand within product line

Enter a new business Expand a plant Schedule production

Add direct mail selling Determine advertising Book TV commercials

budget

Change debt/equity ratio Issue new debt Manage cash flows

Maintain Personnel
Records
Devise inventory Decide inventory levels Reorder an item
speculation policy
 Boundaries of Management Control
Strategy Management Task Control
Formulation Control

Long Term focus Short Term focus

Uses rough Current accurate

estimate of future data
Emphasis on Both Emphasis on
planning control
Least systematic Most systematic

Strategy…
 The Concept of Strategy
Strategy Formulation
Internal
Internalanalysis
analysis
Environmental
Environmentalanalysis
analysis Technology
Technologyknow
knowhowhow
Competitor
Competitor Manufacturing
Manufacturingknow
knowhow
how
Supplier
Supplier Marketing
Marketingknow
knowhowhow
Regulatory
Regulatory Distribution
Distributionknow
knowhowhow
Social/Political
Social/Political Logistics
Logisticsknow
knowhow
how

Opportunities
Opportunitiesand
andthreats
threats Strengths
Strengthsand
andweaknesses
weaknesses
Identify
Identifyopportunities
opportunities Identify
Identifycore
corecompetencies
competencies

Fix
Fixinternal
internalcompetencies
competencies

Firm’s
Firm’sstrategies
strategies
 Business Unit Strategies
Business Unit Mission : The BCG Model
High Cash source Low

High Hold Build High

“ Star “ “ Question mark “

Market Cash use
growth Harvest Divest
rate

“ Cash cow “ “ Dog “

Low Low

High Relative market share Low

 Business Unit Strategies
Business Unit Competitive Advantage
Industry Structure Analysis : Porter’s Five Forces Model

New
New Entrants
Entrants

Suppliers
Suppliers Industry
Industry Customers
Customers
Competitors
Competitors

Substitutes
Substitutes
 Formal Control Process

Goals
Other
And Rules
Information
Strategies

Reward - feedback
yes
Report
Responsibility
Strategic Actual Performance
Budgeting Centre
Planning Performance Versus Satisfactory?
Plan
No
r r C
o
e e r
r
v v e measur
i i c
s s t
i ement
e e v
e
feedback
a
c
t
communication
i
o
Strategic Planning n