Upload
swati-kamthe
View
230
Download
0
Embed Size (px)
Citation preview
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 1/20
Management ControlManagement Control
SystemSystem
Chapter 2Chapter 2
By Prof. Shilpa RanderBy Prof. Shilpa Rander
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 2/20
Boundaries of Management Boundaries of Management
ControlControl Management Control is the process by whichManagement Control is the process by which
managers influence other members of themanagers influence other members of theorganization to implement the organizationsorganization to implement the organizationsstrategies.strategies.
1.1. Planning.Planning.
2.2. Coordinating.Coordinating.
3.3. CommunicatingCommunicating
4.4. EvaluatingEvaluating5.5. Deciding what, if any, action should be taken.Deciding what, if any, action should be taken.
6.6. Influencing people to change their behavior.Influencing people to change their behavior.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 3/20
Management Control is different from two otherManagement Control is different from two othersystemssystems-- Strategy Formulation and Task Control.Strategy Formulation and Task Control.
Management ControlManagement Control fits betweenfits between strategystrategy formulationformulation andand
task control.task control.
Goals, Strategies and Policies.Goals, Strategies and Policies.
Implementation of StrategiesImplementation of Strategies
Efficient and EffectiveEfficient and Effectiveperformance of individual Tasksperformance of individual Tasks
Strategy Formulation
Management Control
Task Control
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 4/20
UnderstandingUnderstanding
StrategiesStrategies
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 5/20
StrategyStrategy
Strategies are plans to achieveStrategies are plans to achieve
organization goals.organization goals.
Strategy describes the general directionStrategy describes the general direction
in which an organization plans to movein which an organization plans to moveto attain its goals.to attain its goals.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 6/20
Management Control Systems are tools toManagement Control Systems are tools to
implement strategies.implement strategies.
Strategies differ between organizations, andStrategies differ between organizations, andcontrols should be tailored to thecontrols should be tailored to the
requirements of specific strategies.requirements of specific strategies.
Different strategies require :Different strategies require :
1.1.Different task priorities;Different task priorities;2.2.Different key success factors;Different key success factors;
3.3.Different skills, perspectives, and behaviors.Different skills, perspectives, and behaviors.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 7/20
The concept of StrategyThe concept of Strategy
Deciding on the goals of the organization and theDeciding on the goals of the organization and thestrategies for attaining these goals.strategies for attaining these goals.
Strategy Formulation :Strategy Formulation :
1. A firm develops its strategies by matching its core1. A firm develops its strategies by matching its corecompetencies with industry opportunities.competencies with industry opportunities.
2. Strategy formulation is a process that senior executives2. Strategy formulation is a process that senior executivesuse to evaluate a companys strengths and weaknesses inuse to evaluate a companys strengths and weaknesses inlight of the opportunities and threats present in thelight of the opportunities and threats present in theenvironment and then to decide on strategies that fit theenvironment and then to decide on strategies that fit thecompanys core competencies with environmentalcompanys core competencies with environmentalopportunities.opportunities.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 8/20
Environmental Analysis:
CompetitorCustomerSupplier
RegulatorySocial/Political
Internal Analysis:
Technology know-howManufacturing know-how
Marketing know-how
Distribution know-how
Logistics know-how
Opportunities & Threats:
Identifying opportunities
Strengths & Weaknesses:
Identify core competencies
Fix internal competenciesWith externalopportunities
Firms Strategies
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 9/20
Strategy Level :Strategy Level :
Strategies for the whole organizationStrategies for the whole organization--Corporate Level StrategyCorporate Level Strategy
Strategies for business units within theStrategies for business units within theorganizationorganization--Business Unit StrategiesBusiness Unit Strategies
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 10/20
Corporate Level StrategyCorporate Level Strategy
1.1. The definition of business in which the firm willThe definition of business in which the firm willparticipate.participate.
2.2. Are we in the right mix of industries? Are we in the right mix of industries?
3.3. What industries and subindustries should we be in?What industries and subindustries should we be in?4.4. The deployment of resources among thoseThe deployment of resources among those
businesses.businesses.
5.5. Decisions involving businesses to add, businesses toDecisions involving businesses to add, businesses to
retain, businesses to emphasize, businesses toretain, businesses to emphasize, businesses todeemphasize, and businesses to divest.deemphasize, and businesses to divest.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 11/20
In terms of their corporate levelIn terms of their corporate levelstrategy, companies can bestrategy, companies can be
classified into 3 categories:classified into 3 categories:
1.1. Single IndustrySingle Industry-- A single industry firm uses its A single industry firm uses itscore competencies to pursue within that industry.core competencies to pursue within that industry.
E.g. McDonalds.E.g. McDonalds.
2.2. Related DiversificationRelated Diversification-- firms that operate in afirms that operate in anumber of industries and their businesses arenumber of industries and their businesses areconnected to each other. E.g. Procter & Gambleconnected to each other. E.g. Procter & Gamble
3.3. Unrelated DiversificationUnrelated Diversification-- Firms that operate in aFirms that operate in anumber of different industries.number of different industries.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 12/20
Business Unit Strategy :Business Unit Strategy :
Within the organization small units areWithin the organization small units arecreated.created.
Issues:Issues:1.1. What should be the mission (overallWhat should be the mission (overall
objectives) of the business unit?objectives) of the business unit?2.2. How should the business unit compete toHow should the business unit compete to
realize its mission?realize its mission?3.3. Responsible for the performance of theResponsible for the performance of the
respective unit.respective unit.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 13/20
Distinction between strategy formulationDistinction between strategy formulation
and Management control:and Management control:1.1. Process of decidingProcess of deciding
on new strategieson new strategies
2.2. It varies with theIt varies with thenature of thenature of thestrategy.strategy.
3.3. It involvesIt involvesrelatively fewrelatively fewpeoplepeople
1.1. Process of Process of implementingimplementingthose strategies.those strategies.
2.2. It involves a seriesIt involves a seriesof steps.of steps.
3.3. It involvesIt involvesmanagers andmanagers andstaff at all levels instaff at all levels inthe org.the org.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 14/20
Task Control:Task Control:
Task Control is the process of ensuringTask Control is the process of ensuringthat specified tasks are carried out that specified tasks are carried out efficiently and effectively.efficiently and effectively.
1.1. Transaction oriented.Transaction oriented.2.2. Coordinate order entryCoordinate order entry3.3. Schedule ProductionSchedule Production4.4. Manage Cash FlowsManage Cash Flows5.5. Maintain Personnel RecordsMaintain Personnel Records6.6. Reorder an Item.Reorder an Item.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 15/20
Strategic Management Strategic Management
Process :Process : Formulating strategy & strategic plansFormulating strategy & strategic plans
and managing the org. to achieveand managing the org. to achieve
them.them. Strategic management takes placeStrategic management takes place
within the context of vision of within the context of vision of organization.organization.
It describes how the vision of theIt describes how the vision of theorganization will be realized.organization will be realized.
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 16/20
GoalsGoals
ProfitabilityProfitability
Stability of the org.Stability of the org.
Value to the local community Value to the local community
Service to the societyService to the society
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 17/20
ProfitabilityProfitability
Economic Value Added (EVA) = Profit AfterEconomic Value Added (EVA) = Profit AfterTaxTax Return On Assets (Capital Invested)Return On Assets (Capital Invested)
Profit After TaxProfit After Tax==
EBITEBIT
--Interest Interest --
TaxTax
Return On AssetsReturn On Assets
==Rate Of ReturnRate Of Returnxx
Total AssetsTotal Assets
OrOr
Cost Of CapitalCost Of CapitalX X
CapitalCapital
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 18/20
Return On Capital EmployedReturn On Capital Employed==
EBIT/Capital Employed.EBIT/Capital Employed.
EBITEBIT==
SalesSales--
Variable Cost Variable Cost --
Fixed Cost Fixed Cost
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 19/20
Capital EmployedCapital Employed
Equity Share CapitalEquity Share Capital
++Preference Share CapitalPreference Share Capital++
Debenture CapitalDebenture Capital++
Long Term Loans fromLong Term Loans fromFinancial InstitutionsFinancial Institutions
Total AssetsTotal Assets--
Current LiabilitiesCurrent Liabilities
OrOr
Non Current AssetsNon Current Assets++
Working CapitalWorking Capital
5/12/2018 Understanding Strategies 2 - slidepdf.com
http://slidepdf.com/reader/full/understanding-strategies-2 20/20
Return On Investment Return On Investment ==
Profit x 100 /Investment Profit x 100 /Investment
Profit MarginProfit Margin==Profit x 100 / SalesProfit x 100 / Sales
Investment Turnover RatioInvestment Turnover Ratio
==Sales / Investment Sales / Investment
Return On Investment=
ProfitMargin x Investment Turnover