mcs basics
TRANSCRIPT
SYLLABUS
BASICS1. Financial Goal Setting, Organisation Hierarchies
and Behaviour2. Responsibility Centres3. Profit Centres4. Transfer Pricing5. Measuring and Controlling Profits and Assets6. Performance Management and Control7. MCS in Service and Non Profit Organisations8. Controls for Differentiated Strategies9. Audit – Efficiency Audit and Management Audit
Management Control Systems
1. Task Control
2. 2005 - Difference between Task Control and Management Control
3. 2005 – Difference between Strategy formulation and Task Control
Designing and Implementing Systems
to plan and control the firm’s
performance …
Therefore must include…
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 Must Include…
• Strategic Planning
• Budgeting
• Resource allocation
• Performance Measurement
• Evaluation and reward
• Responsibility Centre Allocation
• Transfer pricing
Simple Example
Organisations must have devices in place to ensure that the strategic intentions are achieved.
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”More Difficult as Organisations become complex… Suzlon-integration
Walmart Case
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
Automatic
Automobile Driver
Not Automatic
detector Sensory nerves Eyes read speedometer
assessor Hypothalmus of brain
Brain compares actual and desired speed
effector Muscles and organs – sweating, panting,
opening pores shivering
Foot – directed by brain – pressure on accelerator
Communication system
nerves nerves
To understand MCS –need to understand 2 other interrelated systems –Strategy Formulation, Task Control
General Relationships among Planning and Control Functions
Management Control
MC fitsBetween
these
Blurred Boundaries
???
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
– Co-ordinating
– 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 )
Does not meanThat every departure from
Plan is bad…
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
• Transaction
oriented
• Scientific
• The focus is on
specific tasks
Management Control
• Involves the behavior of
managers
• Can never be reduced to
science
• 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 FunctionsStrategy Formulation Management Control Task Control
Acquire an unrelated business
Introduce new product or brand within product line
Coordinate order entry
Enter a new business Expand a plant Schedule production
Add direct mail selling Determine advertising budget
Book TV commercials
Change debt/equity ratio Issue new debt Manage cash flows
Maintain Personnel Records
Devise inventory speculation policy
Decide inventory levels Reorder an item
Boundaries of Management Control
Strategy…
Strategy Formulation
Management Control
Task Control
Long Term focus Short Term focus
Uses rough estimate of future
Current accurate data
Emphasis on planning
Both Emphasis on control
Least systematic Most systematic
The Concept of Strategy
Fix internal competenciesFix internal competenciesFix internal competenciesFix internal competencies
Opportunities and threatsOpportunities and threatsIdentify opportunitiesIdentify opportunities
Opportunities and threatsOpportunities and threatsIdentify opportunitiesIdentify opportunities
Environmental analysisCompetitorSupplierRegulatorySocial/Political
Environmental analysisCompetitorSupplierRegulatorySocial/Political
Strategy Formulation
Internal analysisTechnology know howManufacturing know howMarketing know howDistribution know howLogistics know how
Internal analysisTechnology know howManufacturing know howMarketing know howDistribution know howLogistics know how
Strengths and weaknessesIdentify core competencies
Strengths and weaknessesIdentify core competencies
Firm’s strategiesFirm’s strategies
Business Unit Strategies
Hold
“ Star “
Build
“ Question mark “
Harvest
“ Cash cow “
Divest
“ Dog “
High
High
Low
High Low
Low
Low
High
Cash useMarket
growth rate
Business Unit Mission : The BCG ModelCash source
Relative market share
Business Unit Strategies
SubstitutesSubstitutesSubstitutesSubstitutes
SuppliersSuppliersSuppliersSuppliers
New EntrantsNew EntrantsNew EntrantsNew Entrants
Business Unit Competitive Advantage
CustomersCustomersCustomersCustomersIndustry Industry CompetitorsCompetitors
Industry Industry CompetitorsCompetitors
Industry Structure Analysis : Porter’s Five Forces Model
Formal Control Process
Strategic Planning
PerformanceSatisfactory?
OtherInformation
ReportActual Versus
Plan
Rules
ResponsibilityCentre
PerformanceBudgeting
StrategicPlanning
Goals And
Strategies
yes
No
measurement
feedback
communication
revise
revise
Corrective
action
Reward - feedback