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Management Control Systems

Notes weakness. Much attention has been given in recent years on developing more rigorous
frameworks to conduct environmental analysis (to identify opportunities and threats) and internal
analysis (to identify core competencies). Strategies are laid down to fit the company’s core
competencies with environmental opportunities.

Figure 12.1: Strategies formulation

Environmental analysis Internal Analysis

Competitor Technological know-how
Customer Manufacturing know-how
Supplier Marketing know-how
Regulatory Distribution know-how
Social/Political Logistics know-how

Opportunities and threats Strengths and weaknesses

Identify opportunities Identify core competencies

Fix internal competencies with external opportunities

Firm’s strategies

Strategies are different at different hierarchical levels; there is a clear need for consistency in
strategies across business units and corporate levels.

12.2 Corporate Strategy and Control System

The logic for linking controls to strategy is based on the following lines of thinking:
1. Different organizations generally operate in different strategic contexts.
2. For effective execution, different strategies require different task priorities; different key
success factors; and different skills, perspectives and behaviours.
3. Control systems are measurement systems that influence the behaviours of those people
whose activities are being measured.

4. Thus, a continuing concern in the design of control system should be whether the behaviour
induced by the system is the one that is consistent with the strategy.
At the single business end, the company tends to be functionally organized, with senior managers
responsible for developing the company’s overall strategy to compete in its chosen industry as
well as its functional strategies in such areas as research and development, manufacturing, and
marketing. In contrast, at the unrelated diversified end, the notion of “industry” loses its meaning.
An unrelated diversified company (conglomerate) usually, is organized into relatively
autonomous business units. Given the large and diverse set of businesses, the senior managers,
in such firms, end to focus on portfolio management (i.e., selection of businesses in which to
engage and allocation of financial resources to the various business units), and they delegate the
development of product/market strategy to the general managers of business units. Different
corporate strategies imply different organization structures and, in turn, different controls.

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