Page 275 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes 6. Developing teams from different countries to work on special projects of cross-national
importance so that they may share viewpoints.
7. Placing foreign personnel on the board of directors and top level committees to bring
foreign viewpoints into top level decisions.
8. Giving all decisions and subsidiaries credit for business resulting from combined efforts,
so they are motivated to view activities broadly.
9. Basing reward system partially on global results so that managers are committed to
global as well as local performance.

Reports

Headquarters need timely reports to allocate resources, correct plans and reward personnel.
Further reports are used to evaluate the performance of subsidiary personnel in order to reward
and motivate them. Since all information exchange does not occur through formalised written
reports, certain members of the corporate staff spend much time visiting subsidiaries.
The following points may be noted:
1. Companies should evaluate managers on things they can control. What is within the
subsidiary manager’s control varies from company to company (because of decision making
authority differences) and from subsidiary to subsidiary (because of local conditions).

2. Companies evaluate results in comparison to budgets.
3. It is hard to compare countries using standard operating ratios.
4. A system that relies on a combination of measurements is considered more reliable than
one that doesn’t.
5. Management should re-evaluate information needs periodically to keep costs down and it
should ensure that information is being used effectively.

Control in Special Situations

Acquisition, shared ownership and changes in strategies create control problems. These are
discussed below:
Acquisition: A policy of expansion through acquisition can create some special control problems.
Acquisition can lead to overlapping geographical responsibilities and markets as well as new
lines of business in which the corporate manager has no experience. Further, the acquiring
company’s culture may be very different from that of the acquired one. Again, attempts to
centralise certain decision making or to change operating methods may result in distrust,
apprehension and resistance to change on the part of the acquired company. Resistance may
come from government authorities who want to protect their domestic economies. These
authorities may use a variety of means to ensure that decision-making remains vested within
the country.
Shared ownership: Shared ownership limits the flexibility of corporate decision making. For
example, Nestle shares ownership with Coca-Cola in a joint venture for the production and sale
of canned coffee and tea drinkers. Nevertheless, there are administrative mechanisms that enable
a company to gain control even with a minority equity interest. These mechanisms include
spreading the remaining ownership among many shareholders, contract stipulations that board
decisions require more than a majority (giving veto power to minority shareholders), dividing
equity into voting and non-voting stock and side agreements on who will control

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