Midterm Notes

Chapter 1 MCS

Elements of MCS

• Strategic planning
• Budgeting
• Resource allocation
• Performance measurement
• Evaluation and reward
• Responsibility center allocation
• transfer pricing
• The management control process is the process by which managers at all levels ensure that people they supervise implement their intended strategies –result of continuous planning process (planning and control)

• Requires coordination among individuals

• Informal processes are strongly affected by the way the organization’s formal control systems are designed and operated

General relationships among planning and control functions

• Strategy formulation: Goals, strategies, policies
• Management control: implementation of strategy
• Task control: efficient and effective performance of individual tasks

Management Control Activities:

• Planning
• Coordinating
• Communicating
• Evaluating information
• Deciding
• Influencing people

Goal Congruence

• The central control problem is to induce them to act in pursuit of their personal goals in ways that will organizations goals as well
• Goals or individual members are consistent with the goals of the organization itself

Tools for implementing strategy

• Organizational structure
• Human resource management
• Culture

Financial and non-financial emphasis

• Monetary bottom lie and nonfinancial objectives

Interactive control

• Calls management’s attention to developments- both positive and negative- that indicate the need for new strategic initiatives

Strategy Formulation

• The process of deciding on the goals of the organization and the strategies to attain these goals
• Often the result of threats or opportunities

Task control

• Transaction oriented
• Involves seeing if rules are followed
• Certain activities are now automated and thus are task control activities
• Scientific
• Examples of task control, management control and strategic formulation is on page 12

Internet

• Creates infrastructure to process information needed for MCS
• Facilitates coordination and control

Chapter 2

Understanding strategies

Profitability

• ROI= profit/investment
• Profit margin percentage= profit/revenues
• Investment turnover=revenue/investment
• Profit margin percentage X investment turnover= ROI

Maximizing shareholder value

• Shareholder value is not the sole responsibility of a business (ethics)

Risk

• Pursuit of profitability is affected by managements willingness to take risk

Multiple stakeholder approach

• Capital market: firm raise funds
• Product market: firms sells goods
• Factor market: competes for resources- human capital and raw materials
• Firm has responsibility to multiple stakeholders- employees, customers, investors
• MCS should identify the goals for each of these groups and develop scorecards to track performance

The concept of strategy

• A firm develops its strategy by matching its core competencies (strengths and weakness) environmental opportunities (threats an opportunity)
•  Should formulate strategies at both corporate level and business unit level
• Look at exhibit 2.2 on page 58

Corporate Level:

• Where to compete
• Concerned with

• Definition of the businesses in which the firm will participate in
• The deployment of resources among those businesses

• Can be classified into

• Single industry firm –uses its core competencies to pursue growth in that industry (Nucor)
• Unrelated diversified firms(conglomerates)- operate in a number of different industries where businesses have little in common. Grow primarily through acquisition (do not perform well in long-term- do not possess operating synergies)- rockwell
• Related diversified firms: operate in a number of industries and are connected through operating synergies  (research shown on ag perform best)

• 2 types of linkage

• Ability to share common resources
• Ability to share common core competencies
• They grow by leveraging core competencies developed in one business when they diversify into another business
• Emerson electric

• Typically grow internally through research and development
• CEO must nurture core competencies that benefits multiple business units

Business Unit:

• Strategy depends on it mission and its competitive advantage
• BCG’s growth share matrix: uses industry growth rate and relative market share to determine strategy

• Build: mission implies objective of increased market share(question mark)
• Hold: protection of market share and competitive position (star)
• Harvest: maximize short-term earnings and cash flow- cash cow
• Divest: withdraw from the business (dog)

• Should not be sole basis for decision making

• Experience curve: cost per unit decreases with the number of units produced overtime

• Remember low cost products is not the only way to succeed, sometimes better to improve technology

Porter’s generic competitive advantage

• Low cost
• Differentiation

Value chain analysis

• Most attractive competitive position is to achieve cost-cum-differentiation
• Providing better customer value for an equivalent cost
• Providing equivalent customer value and lower cost
• By systematically analyzing costs, revenues, and assets in each activity, the business unit can achieve cost-cum differentiation advantage

Chapter 3

Behaviour in Organization