Chapter 10

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0Chapter 10: Strategic Control and Corporate Governance

* Organizations must have effective strategic controls if they are to successfully develop and implement their strategies. * This means having systems that allow the organization to effectively respond to environmental changes as well as balance and align the organization’s culture, rewards, and boundaries. * Overriding this is the goal of the firm’s owners (shareholders) and their elected representatives (board of directors) to ensure that the firm’s executives (management team) strive to fulfill their fiduciary duty and maximize the firm’s long- term value. . * A list of controls that are, or are supposed to be, in place for the functioning of each individual corporation and to ensure the presence of trust in the entire institution of public corporations includes effective * Corporate governance aligning managerial and shareholder interests * Informational controls ensuring that the organization is informed and that its strategies and goals remain aligned with the changing environment— that the organization does the right things * Behavioural controls ensuring that all the members of the organization behave consistently and in coordination, to achieve desirable outcomes— that the organization does things right. * Complementing these controls are financial and operating controls; that is, quantitative measures which ensure that the firm’s performance on multiple dimensions meets previously established targets.

Feedback Control Systems
* Traditional control mechanisms rely on measuring outcomes. Managers set targets and devise specific metrics to measure the achievement of those targets. The targets are established to match specific objectives and organizational goals. * An appropriate time frame is also established that allows pursuit of those objectives and the delivery of results. * Performance is measured against the targets. Targets can take the form of accounting metrics, such as ROI, ROA, ROE, budgets, or adherence to financial audit standards such as GAAP. * Other targets correspond to market-based outcomes and take the form of sales quotas, market share figures, customer satisfaction scores, product introduction rates, brand coverage, and the like. * Operating targets, such as production schedules, tolerance levels, waste rates, utilization, and productivity are also used. * Feedback control systems are placed at the end of a sequential process that starts with strategy formulation and proceeds to goal setting, strategy implementation and action, performance measurement, evaluation and feedback, and, if needed in response to that evaluation, the organization proceeds with steering and corrective action. * Create clear, unambiguous, explicit, and concrete goals for the organization as a whole and for individual units within it. * Each department knows exactly what is expected of it and the time frame within which its task is expected to be accomplished. They provide direct links between individual goals and organizational goals. * A feedback- based control system communicates exactly what individual managers are accountable for. * Specific results can be compared across units and provide the basis for corrective action. * Finally, managers can look back to the actions that have led to the results and draw conclusions about cause and effect; they can use this understanding to inform their subsequent decisions, adjust plans, and take corrective action. * The power of financial and operating controls and feedback control systems, in general, rests on some simple premises that are linked to their very nature. * First, there is a fundamental assumption that goals and objectives can be measured with a high level of certainty. * Second, the environment is thought to be stable enough and simple enough that a well- managed company can move forward in accordance with...
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