Lecture 1

Question 1

What is management control?

Answer 1

The systematic process by which the organization’s higher-level managers influence the organization’s lower-level managers to implement the organization’s strategies.

Question 2

What are management control systems?

Answer 2

Comprising a combination of control practices designed and implemented by top managers to increase the probability that lower-level managers and employees will behave in ways consistent with the organization’s mission, goals, and strategies.

Question 3

What is decentralization?

Answer 3

• Delegation of decision-making authority to lower levels in the organisation.
• Provision of sufficient material and formal resources to execute that authority.
• Assignment of accountability and responsibility for the quality of decision making.

Question 4

What are advantages of decentralization?

Answer 4

• Improvement of quality of decision making of higher-level managers
• Improvement of quality of decision making of lower-level managers
• Increased economies of scale (striving for decreasing costs per unit) and specialization
• Management development

Question 5

What is top-down?

Answer 5

Top managers implement appropriate control practices so that lower-level managers and employees have a clear sense of what decisions to take, what results to achieve, where to lead the people and how to use the resources under their responsibility.

Question 6

What is bottom-up?

Answer 6

• Report on achievements.
• Enable lower-level managers and employees to acquire the support to develop their skills as well as the organizational resources to execute their responsibilities.

Question 7

Why is there need for control?

Answer 7

1. Lower-level managers and employees may not automatically understand the mission, goals, and strategies of the organization, nor how they can contribute to these.
2. Lower-level managers and employees may not automatically agree with the organizational mission, goals, and strategies.
3. Lower-level managers and employees may not automatically have the resources needed to act according to the organizational mission, goals, and strategies.

Question 8

What are input controls?

Answer 8

Input: has to do with people, and the capabilities and characteristics they bring to their function

Question 9

What are common input controls?

Answer 9

• Employee selection processes
• Value statements
• Employee socialization processes

Question 10

What are throughput controls?

Answer 10

Throughput deals with the formal delegation of decision-making responsibility to lower-level managers. These control practices direct lower-level manager and employee behaviour through formal delegation of decision-making responsibility and specifying how behaviours are to be performed or not.

Question 11

What are output controls?

Answer 11

Output controls work through planning, measuring, and following up on important performance targets. They direct lower-level manager and employee behaviour through expressing expectations of what is ‘good enough’ performance.

Question 12

What are enabling management control systems?

Answer 12

– Lower-level manager and employee involvement during the control implementation process
– Lower-level manager and employee understanding
– Communication and visualization
– Input controls - value statement

Question 13

What are coercive management control systems?

Answer 13

– Is management control simply a way for top managers to ensure obedience?
– Many lower-level managers and employees view certain control practices as structural devices for top managers to ‘check’ what they are doing, to coerce them into cooperation, or to force them to do things they would never do of their own free will.
– Certain rules should never be broken.

Question 14

What is the shareholder view?

Answer 14

– Organizations exist to fulfil the demands of the owners
– Principal-agent relationship
– Accounting scandals led to development of corporate governance
– Short term focus, financial capitalism
– Regulatory framework – SOX

Question 15

What is corporate governance?

Answer 15

Principal-agent relationship between owners and managers. →principal-agent problem! How to handle this problem? Corporate governance

it deals with how owners and owner representatives of different kinds act to influence the organization to work in the best interest of the owners.

Question 16

What are the means of corporate governance?

Answer 16

• Board of directors
• Financial reports
• Auditing and internal control
• Incentive programs
• Investor meetings
• Media

Question 17

What is the stakeholder view?

Answer 17

• Organizations exist to fulfil the demands not just of the owners, but of several stakeholder groups.
• Input from all of the most important stakeholders are crucial for the company’s survival.
• Ensuring that stakeholder groups such as customers and employees are happy will also lead to higher profitability.

Question 18

What is corporate social responsibility (CSR)?

Answer 18

Reaction to corporate governance, or reaction to changes in society.
No one clear definition, common definition that it is an organization’s voluntary concern about social and environmental issues.

Question 19

What are arguments for CSR?

Answer 19

1. Ethical; fair to other stakeholder groups besides owners, and it is more sustainable
2. Business: it is good business to have happy employees and to offer the customers sustainable products and services
3. Fashion: everybody else seems to do it, so we must not be left behind

Question 20

What are tools for CSR?

Answer 20

• Code of conduct; a document that clarifies corporate view on what is appropriate conduct in different situations. Usually not only for employees, but also suppliers
• Sustainability reporting: public reporting, often following the global reporting initiative, on performance in social and environmental aspects
• Internal reporting channels; whistleblowing or ethical hotlines; employees can report behaviour not in line with corporate policy
• Culture and values; prevailing values among managers and employees often impact their behaviour more than written rules
• Personal example: how top managers behave often has a major impact on values and behaviour of employees
• Storytelling; telling stories; often refers to stories of how a top manager or founder of an organization behaved in a certain situation; inspire employees I guess
• Training: often compulsory training programs to inform managers and employees
• Intranet: the intranet is often used in order to inform and influence employees

Question 21

What is a mission?

Answer 21

Mission states the purpose of the organisation. It can help to:
* Inspire employees
* Attract people to the organisation
* Encourage team spirit

Question 22

Different types of organizational goal

Answer 22

• Financial goals: High profitability and low risk
• Profitability (for profit-organisations)
• Cost effectiveness (non-profit organisations): This is for non-profit organisations where the profit cannot be calculated. One important goal is not to spend more money than their allowance from the state or municipality. The organisation should perhaps not spend considerably less money either, since that might imply it is not doing its job.
• Strategic goals: Complement financial goals

Question 23

Deliberate strategies

Answer 23

Design perspective: strategy should be designed to fit the organization’s environment and capabilities. SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis to develop strategy.
→ in line with contingency theory; basing strategy on both internal and external factors

Positioning perspective: focus is more on choosing a generic strategy, rather than carefully planning a specific strategy fitted to the organization. Main focus on the structure of the industry; rather than external and internal contingencies and organization’s goals.

Question 24

Emerging strategies

Answer 24

Even well-designed strategies may not be implemented successfully and may not work well in practice. → emerging strategies perspective states strategies gradually emerge out of how problems are dealt with in practice.
Learning, rather than designing and planning.

Question 25

Corporate Strategy

Answer 25

Corporate strategy is about where to compete.

Single industry: Operates in one line of business. A single industry firm uses its core competencies to pursue growth within that industry.

Related diversification: Firms that operate in a number of industries, and their businesses are connected to each other through operating synergies.
Ability to share common resources and core competencies, this helps the firm to reap the benefits of economies of scale and scope.

Unrelated diversification: The connection between business units is purely financial.

Question 26

Business unit strategy

Answer 26

This is about how to compete and for this we use Porter’s five forces model.
1. The intensity of rivalry among existing competitors: factors affecting direct rivalry are industry growth, product differentiability, number and diversity of competitors, level of fixed costs, intermittent overcapacity and exit barriers
2. The bargaining power of customers: buyer power is affected by number of buyers, buyers’ switching costs, buyers’ ability to integrate backwards, impact of the business unit’s product on buyers’ total costs, impact of the business unit’s product on buyers’ product quality/performance, and significance of the business unit’s volume to buyers
3. The bargaining power of suppliers: factors affecting supplier power are number of suppliers, suppliers’ ability to integrate forwards, presence of substitute inputs and importance of the business unit’s volume to suppliers
4. Threat from substitutes: factors affecting substitute threat are relative price/performance of substitutes, buyers’ switching costs and buyers’ propensity to substitute
5. The threat of new entry: factors affecting entry barriers are capital requirements, access to distribution channels, economies of scale, product differentiation, technological complexity of product or process, expected retaliation from existing firms, and government policy

Question 26

What are the two generic ways of creating competitive advantage?

Answer 26

Low-cost: Competitive advantage based on cost leadership.
* Cost leadership can be achieved by (e.g.) economies of scale in production, experience curve effects, tight cost control, cost minimization.
Differentiation: Competitive advantage by offering something unique.
* Differentiate the product offering, creating something that is perceived as unique.
Stuck-in-the-middle: Neither – avoid at all costs

Question 26

Contingencies in designing an MC system?

Answer 26

What is the situation in which you are creating the MC system E.g. business environment, strategy, technology, national culture.

Question 27

When do you need a mechanistic or organic system?

Answer 27

High need for innovation → organic system
Low need for innovation → mechanistic system

Low-cost strategy tends to fit mechanistic (not always) → standardized, large production Differentiation strategy tends to fit organic system! → unique, high-quality products for example

Question 27

Mechanistic and organic management control systems?

Answer 27

Zie samenvatting en slides.