Designing Strategic Control Systems

Copyright © 2001 Houghton Mifflin Company. All rights reserved.

Chapter 12Chapter 12

Designing Strategic Control SystemsDesigning Strategic Control Systems

StrategicStrategic Charles W. L. HillCharles W. L. Hill

ManagementManagement Gareth R. JonesGareth R. Jones

Fifth EditionFifth Edition

PowerPoint Presentation PowerPoint Presentation by Charlie Cookby Charlie Cook

An Integrated ApproachAn Integrated Approach

Copyright © 2001 Houghton Mifflin Company. All rights reserved. 12-2

What Is Strategic Control ?What Is Strategic Control ?

Strategic controlStrategic control The selection of an organizational strategy and The selection of an organizational strategy and

matching structure for the organization.matching structure for the organization. Creation of control systems to monitor and evaluate Creation of control systems to monitor and evaluate

strategic performance of the organization.strategic performance of the organization. The importance of strategic controlThe importance of strategic control

Achieving operational efficiencyAchieving operational efficiency Maintaining focus on qualityMaintaining focus on quality Fostering innovationFostering innovation Insuring responsiveness to customersInsuring responsiveness to customers


FIGURE 12.1

A Balanced Scorecard ApproachA Balanced Scorecard Approach


FIGURE 12.2

Strategic Control SystemsStrategic Control Systems

Steps in designing an Steps in designing an effective control effective control

systemsystem


FIGURE 12.3


Levels of organizational Levels of organizational controlcontrol



Types of control systemsTypes of control systems

Financial Financial ControlsControls

OutputOutputControlsControls

Behavior Behavior ControlsControls

Organizational Organizational CultureCulture

Stock priceStock price Divisional goalsDivisional goals BudgetsBudgets ValuesValues

ROIROI Functional goalsFunctional goals StandardizationStandardization NormsNorms

Individual goalsIndividual goals Rules and Rules and proceduresprocedures

SocializationSocialization

TABLE 12.1


Management by Objectives Management by Objectives (MBO)(MBO)1.1. Establish specific goals Establish specific goals

and objectives at each and objectives at each level in the organization.level in the organization.

2.2. Make goal setting a Make goal setting a participatory process.participatory process.

3.3. Conduct a periodic review of progress Conduct a periodic review of progress toward meeting goals.toward meeting goals.


Behavior ControlsBehavior Controls

Operating BudgetsOperating Budgets A blueprint for the use of organizational resources.A blueprint for the use of organizational resources.

StandardizationStandardization Standardization of inputsStandardization of inputs Standardization of conversion activitiesStandardization of conversion activities Standardization of outputsStandardization of outputs

Rules and proceduresRules and procedures Positive effect: Help control, guide, and limit behaviors.Positive effect: Help control, guide, and limit behaviors. Negative effect: Rules lead to bureaucratic behaviors.Negative effect: Rules lead to bureaucratic behaviors.


What Is Organizational Culture?What Is Organizational Culture?

CultureCulture The collection of values and norms shared by people and The collection of values and norms shared by people and

groups in an organization.groups in an organization. Shared values and a common culture increase integration and Shared values and a common culture increase integration and

improve coordination.improve coordination.

ValuesValues Beliefs and ideas about common goals and proper behaviors.Beliefs and ideas about common goals and proper behaviors.

NormsNorms Act as guidelines or expectations that prescribe acceptable Act as guidelines or expectations that prescribe acceptable

behavior by organizational members.behavior by organizational members.


FIGURE 12.4

Organizational CultureOrganizational Culture

Ways of transmitting organizational culture:Ways of transmitting organizational culture:


Culture and Strategic LeadershipCulture and Strategic Leadership

The influence of the founderThe influence of the founder Initial cultural values and management Initial cultural values and management

style is imprinted on the organization style is imprinted on the organization by its founder.by its founder.

Organizational structureOrganizational structure Structure follows strategy. Structure follows strategy.

Strategic leadership affects Strategic leadership affects the cultural norms and values the cultural norms and values that develop in the organization.that develop in the organization.


Adaptive and Inert CulturesAdaptive and Inert Cultures

Adaptive culturesAdaptive cultures Are innovative and encourage and Are innovative and encourage and

reward initiative by middle and reward initiative by middle and lower-level managers.lower-level managers.

Inert culturesInert cultures Are cautious and conservative; Are cautious and conservative;

do not value and may discourage do not value and may discourage by initiative by middle and lower-level managers.by initiative by middle and lower-level managers.


The Composition of the Top-The Composition of the Top-Management TeamManagement Team

Top managementTop management Determines the strategic direction of the company.Determines the strategic direction of the company. Establishes organizational values and norms.Establishes organizational values and norms.

Diversity in top managementDiversity in top management Reduces the threat of organizational inertia.Reduces the threat of organizational inertia. Improves decision making.Improves decision making. Helps the culture become adaptive.Helps the culture become adaptive. Guards against inbreeding and homogeneity.Guards against inbreeding and homogeneity.


Traits of Strong and Adaptive Traits of Strong and Adaptive CulturesCulturesA bias for actionA bias for action

Have values that promote Have values that promote autonomy and entrepreneurship.autonomy and entrepreneurship.

Nature of the Nature of the organization’s missionorganization’s mission

““Sticks to its knitting”Sticks to its knitting”

How to operate the organizationHow to operate the organization Create an organizational Create an organizational

design that motivates design that motivates employees to do their best.employees to do their best.


Strategic Reward SystemsStrategic Reward Systems

Individual reward systemsIndividual reward systems Piecework plansPiecework plans Commission systemsCommission systems Bonus plansBonus plans PromotionPromotion

Group and organizational Group and organizational reward systemsreward systems

Group-based bonus systemsGroup-based bonus systems Profit sharing systemsProfit sharing systems Employee stock option systemsEmployee stock option systems Organization bonus systemsOrganization bonus systems

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Designing Strategic Control Systems