MANAGEMENT CONTROL SYSTEM Controls for

Topics: Management, Strategic planning, Strategic management Pages: 6 (1320 words) Published: November 8, 2014
MANAGEMENT CONTROL SYSTEM
GROUP TASK

SUMMARY
Controls for Differentiated Strategies

PRESENTED BY

FINA ELWASISTE 0910534030

M. ALVICKY SATYWARDANA 1210534006

MUHAMMAD IRVAN ADHA 1210534022

INTERNATIONAL ACCCOUNTING

2014

Controls for Differentiated Strategies
Focus of chapter is Contingency Theory: A specific structure and process for an organization depends upon various external and internal factors. Research studies have identified important factors that influence control system design: Size

Business Environment
Technology
Interdependence
Strategies

Corporate Strategy
Logic for linking controls to strategy depends on:
Different organizations operate in different strategic contexts. Different strategies require different:
Task priorities
Key success factors
Skills
Perspectives
Behavior patterns
Control systems are measurement systems that influence people being measured The design of the control system should be monitored for behavior induced by system is consistent with corporate strategy.

Implications for Organization Structure
Corporate strategy is a continuum line from a single industry strategy to an unrelated diversification strategy on the other pole. Various corporate strategies imply different organization structures and different control systems. Review (Exhibit 13.1) At the single industry pole companies tend to be functionally organized. Not all single industry firm are organized as such - for instance: Fast food chains

Hotels
Supermarkets
Drugstores
They are organized by business units with both production and marketing functions at many facilities. However, every unrelated, diversified company or conglomerate is organized by autonomous business units. Senior managers in these firms focus on portfolio management and delegate the development of product/market to the BU managers. Single industry managers are very familiar with their industry and have expertise in many operating facets.

On the other hand, conglomerate managers tend to be experts mainly in finance. As a firm moves from a single industry firm to the unrelated diversified firm finds the autonomy of the BU manager tends to increase. Implications for Organization Structure - Continued

There are two reasons for this:
Unlike in a single industry firm senior managers in unrelated diversified firms do not possess expertise to make strategic and operating decisions for disparate BU’s. There is virtually no interdependence across BU’s in a conglomerate. The unrelated nature of conglomerates varied BU’s does not effectively allow transferring executives.

Implications for Management Control
Organizations no matter how well aligned they are to their strategy, cannot effectively implement it without a consistent management control system. Different corporate strategies imply differences in context for control systems: As firms diversify, managers lack expertise so performance valuation tends to be at arm’s length. Implications for Management Control - Continued

Single industry and related diversified firms possess corporate-wide core competencies which define BU strategies - Communication channels are key to success. Low levels of interdependence among BU’s in conglomerates means it is desirable to adjust balance in control systems from cooperation to entrepreneurial.

Strategic Planning in conglomerates tend to be vertical.
Strategic planning in single industry and related diversified firms can be both horizontal and vertical. Horizontal portion comes form:
Group of executives develop group strategies to take advantage of synergies. Individual BU’s have an interdependence and managers identify linkages with each other and try to maximize them Corporate office requires joint strategic plans for independent BU’s. Plans of individual BU’s would be circulated to similar BU’s for critiques. Implications for Management Control - Continued

Budgeting in a single...
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