2. Learning Objectives
After reading this chapter, you should have
a good understanding of:
LO9.1 The value of effective strategic control
systems in strategy implementation.
LO9.2 The key difference between “traditional” and
“contemporary” control systems.
LO9.3 The imperative for “contemporary” control
systems in today’s complex and rapidly
changing competitive and general
environments.
9-2
3. Learning Objectives (cont.)
LO9.4 The benefits of having the proper balance
among the three levers of behavioral control:
culture, rewards and incentives, and boundaries.
LO9.5 The three key participants in corporate
governance: shareholders, management (led by
the CEO), and the board of directors.
LO9.6 The role of corporate governance mechanisms
in ensuring that the interests of managers are
aligned with those of shareholders from both the
United States and international perspectives.
9-3
4. Strategic Control
Strategic control
the process of monitoring and correcting a
firm’s strategy and performance
Informational, behavioral
9-4
5. Ensuring Informational Control
Traditional control system
1. strategies are formulated and top
management sets goals
2. strategies are implemented
3. performance is measured against the
predetermined goal set
9-5
7. Traditional Approach
to Strategic Control
Most appropriate when
Environment is stable and relatively simple
Goals and objectives can be measured with
certainty
Little need for complex measures of
performance
9-7
9. Contemporary Approach to Strategic
Control
Informational control
a method of organizational control in which a
firm gathers and analyzes information from the
internal and external environment in order to
obtain the best fit between the organization’s
goals and strategies and the strategic
environment.
9-9
11. Contemporary Approach
to Strategic Control
Behavioral control
a method of organizational control in which a
firm influences the actions of employees through
culture, rewards, and boundaries.
9-11
12. Effectiveness of Contemporary Control
Systems
1. Focus on constantly changing information that
has potential strategic importance.
2. The information is important enough to demand
frequent and regular attention from all levels of
the organization.
3. The data and information generated are best
interpreted and discussed in face-to-face
meetings.
4. The control system is a key catalyst for an
ongoing debate about underlying data,
assumptions, and action plans.
9-12
13. Behavioral Control
Behavioral control is focused on
implementation—doing things right
Three key control “levers”
Culture
Rewards
Boundaries
9-13
14. Reasons for an increased emphasis on
culture and rewards
1. The competitive 2. The implicit long-
environment is term contract
increasingly between the
complex and organization and its
unpredictable, key employees has
demanding both been eroded.
flexibility and quick
response to its
challenges.
9-14
15. Building a Strong and Effective
Culture
Organizational culture
a system of shared values and beliefs that
shape a company’s people, organizational
structures, and control systems to produce
behavioral norms.
9-15
16. Building a Strong and Effective
Culture
Culture sets implicit boundaries
(unwritten standards of acceptable
behavior)
Dress
Ethical matters
The way an organization conducts its
business
9-16
17. Sustaining an Effective Culture
Effective culture Maintaining an
must be effective culture
Cultivated Storytelling
Encouraged Rallies or pep
Fertilized talks by top
executives
9-17
18. Motivating with Rewards and
Incentives
Rewards and incentive systems
Powerful means of influencing an
organization’s culture
Focuses efforts on high-priority tasks
Motivates individual and collective task
performance
Can be an effective motivator and control
mechanism
9-18
19. Motivating with Rewards and
Incentives
Potential downside
Subcultures may arise in different business
units with multiple reward systems
May reflect differences among functional
areas, products, services and divisions
9-19
21. Setting Boundaries and Constraints
Focus efforts on strategic priorities
Provide short-term objectives and action
plans
Specific and measurable
Specific time horizon for attainment
Achievable, but challenging
9-21
22. Setting Boundaries and Constraints
Improve operational efficiency and
effectiveness
Minimize improper and unethical conduct
9-22
24. Evolving from Boundaries
to Rewards and Culture
System of rewards and incentives
coupled with a strong culture
Hire the right people
Training plays a key role
Managerial role models are vital
Reward systems clearly aligned with
organizational goals and objectives
9-24
25. Role of Corporate Governance
Corporate governance
the relationship among various participants
in determining the direction and performance
of corporations.
primary participants are the shareholders,
the management, and the board of
directors.”
9-25
26. The Modern Corporation
Corporation
A mechanism
created to allow
different parties to
contribute capital,
expertise, and labor
for the maximum
benefit of each
party.
9-26
27. Agency Theory
Deals with the relationship between
Principals – who are owners of the firm
(stockholders)
Agents – who are the people paid by
principals to perform a job on their behalf
(management)
9-27
28. Agency Theory: Two Problems
1. The conflicting 2. The different
goals of principals attitudes and
and agents, along preferences
with the difficulty of towards risk of
principals to principals and
monitor the agents.
agents, and
9-28
29. Governance Mechanisms
Board of directors
a group that has a fiduciary duty to ensure
that the company is run consistently with the
long-term interests of the owners, or
shareholders, of a corporation and that acts
as an intermediary between the shareholders
and management.
9-29
31. Governance Mechanisms
Shareholder activism
actions by large shareholders, both
institutions and individuals, to protect their
interests when they feel that managerial
actions diverge from shareholder value
maximization.
9-31
33. External Governance
Control Mechanisms
External governance control
mechanisms
methods that ensure that managerial actions
lead to shareholder value maximization and
do not harm other stakeholder groups and
that are outside the control of the corporate
governance system.
9-33
34. External Governance
Control Mechanisms
Market for corporate control
Auditors
Banks and analysts
Regulatory bodies
Media and public activists
9-34
35. Sarbanes-Oxley Act
Auditors
Barred from certain types of non-audit work
Not allowed to destroy records for five years
Lead partners auditing a firm should be
changed at least every five years
9-35
36. Sarbanes-Oxley Act
CEOs and CFOs
Must fully reveal off-balance sheet finances
Vouch for the accuracy of information
revealed
Executives
Must promptly reveal the sale of shares in
firms they manage
Are not allowed to sell shares when other
employees cannot
9-36
Hinweis der Redaktion
two central aspects of strategic control: 2 (1) informational control, which is the ability to respond effectively to environmental change, and (2) behavioral control, which is the appropriate balance and alignment among a firm’s culture, rewards, and boundaries.
Process typically involves lengthy time lags, often tied to the annual planning cycle This “single-loop” learning control system simply compares actual performance to a predetermined goal Most appropriate when Environment is stable and relatively simple Goals and objectives can be measured with certainty Little need for complex measures of performance
Culture acts as a means of reducing monitoring costs
Rule-based controls are most appropriate in organizations with the following characteristics: • Environments are stable and predictable. • Employees are largely unskilled and interchangeable. • Consistency in product and service is critical. • The risk of malfeasance is extremely high
Shareholders (investors) Limited liability Participate in the profits of the enterprise Limited involvement in the company’s affairs Management Run the company Does not personally have to provide the funds Board of directors Elected by shareholders Fiduciary obligation to protect shareholder interests
The Business Roundtable, representing the largest U.S. corporations, describes the duties of the board as follows: 1. Select, regularly evaluate, and, if necessary, replace the CEO. Determine management compensation. Review succession planning. 2. Review and, where appropriate, approve the financial objectives, major strategies, and plans of the corporation. 3. Provide advice and counsel to top management. 4. Select and recommend to shareholders for election an appropriate slate of candidates for the board of directors; evaluate board processes and performance. 5. Review the adequacy of the systems to comply with all applicable laws/regulations.