12 1 Chapter 12 Designing Strategic Control Systems

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12 -1 Chapter 12: Designing Strategic Control Systems Text by Charles W. L. Hill

12 -1 Chapter 12: Designing Strategic Control Systems Text by Charles W. L. Hill Gareth R. Jones Multimedia Slides by Milton M. Pressley Univ. of New Orleans Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -2 Preview 4 What Is Strategic Control? 4 Strategic Control Systems 4 Organizational

12 -2 Preview 4 What Is Strategic Control? 4 Strategic Control Systems 4 Organizational Culture 4 Strategic Reward Systems Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -3 What Is Strategic Control? • Strategic Control Defined – Selection of Organizational

12 -3 What Is Strategic Control? • Strategic Control Defined – Selection of Organizational Strategy and Structure – Creation of Control Systems to Monitor and Evaluate Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -4 What Is Strategic Control? The Importance of Strategic Control • • Control

12 -4 What Is Strategic Control? The Importance of Strategic Control • • Control and Efficiency Control and Quality Control and Innovation Control and Responsiveness to Customers Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -5 Balanced Scorecard Approach to Strategic Control • The Balanced Scorecard Model Copyright

12 -5 Balanced Scorecard Approach to Strategic Control • The Balanced Scorecard Model Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -6 Mission and Goals

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -6 Mission and Goals Develop a Strategy and Structure Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -7 Mission and Goals

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -7 Mission and Goals Develop a Strategy and Structure Create Strategic Control Systems that Measure: Efficiency Quality Innovation Customer Response Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -8 Mission and Goals

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -8 Mission and Goals Develop a Strategy and Structure • • Create Strategic Control Systems that Measure: Efficiency Quality Innovation Customer Response Measure Financial Performance Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -9 Mission and Goals

Figure 12. 1: A Balanced Scorecard Approach Establish Company 12 -9 Mission and Goals Develop a Strategy and Structure • • Create Strategic Control Systems that Measure: Efficiency Quality Innovation Customer Response Measure Financial Performance Take Corrective Action to Solve Problems or Exploit New Opportunities Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -10 Strategic Control Systems • Strategic Control Systems Defined • Steps in Designing

12 -10 Strategic Control Systems • Strategic Control Systems Defined • Steps in Designing Control Systems Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -11 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System

12 -11 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System and Targets Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -12 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System

12 -12 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System and Targets Create Measuring and Monitoring Systems Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -13 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System

12 -13 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System and Targets Create Measuring and Monitoring Systems Compare Actual Performance Against the Established Targets Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -14 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System

12 -14 Figure 12. 2: Steps in Designing an Effective Control Establish Standards System and Targets Create Measuring and Monitoring Systems Compare Actual Performance Against the Established Targets Evaluate Result and Take Action If Necessary Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Strategic Control Systems 12 -15 (Continued) Corporate-Level Managers (Set Controls Which Provide Context For)

Strategic Control Systems 12 -15 (Continued) Corporate-Level Managers (Set Controls Which Provide Context For) Figure 12. 3: Levels of Organizational Control Divisional-Level Managers (Set Controls Which Provide Context For) Functional-Level Managers (Set Controls Which Provide Context For) First Level Managers Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Strategic Control Systems 12 -16 (Continued) Table 12. 1: Types of Control Systems Financial

Strategic Control Systems 12 -16 (Continued) Table 12. 1: Types of Control Systems Financial Control Output Control Behavior Control Organizational Culture Stock Price Divisional Goals Budgets Values ROI Functional Goals Standardization Norms Transfer Pricing Individual Goals Rules and Procedures Socialization Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -17 Strategic Control Systems (Continued) • Financial Controls – Stock Market Price –

12 -17 Strategic Control Systems (Continued) • Financial Controls – Stock Market Price – Return on Investment (ROI) – Market Share – Cash Flow Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -18 Strategic Control Systems (Continued) • Output Controls – Divisional Goals – Functional

12 -18 Strategic Control Systems (Continued) • Output Controls – Divisional Goals – Functional and Individual Goals Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -19 Strategic Control Systems (Continued) Management by Objectives (MBO) • Establish Specific Goals

12 -19 Strategic Control Systems (Continued) Management by Objectives (MBO) • Establish Specific Goals at Each Organizational Level Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -20 Strategic Control Systems (Continued) Management by Objectives (MBO) • Goal Setting is

12 -20 Strategic Control Systems (Continued) Management by Objectives (MBO) • Goal Setting is Participatory Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -21 Strategic Control Systems (Continued) Management by Objectives (MBO) • Periodic Review of

12 -21 Strategic Control Systems (Continued) Management by Objectives (MBO) • Periodic Review of Progress Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -22 Behavior Control • Operating Budgets • Standardization – Standardization of Inputs –

12 -22 Behavior Control • Operating Budgets • Standardization – Standardization of Inputs – Standardization of Conversion Activities – Standardization of Outputs Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -23 Organizational Culture • • Organizational Culture Defined Organizational Values Organizational Norms Socialization

12 -23 Organizational Culture • • Organizational Culture Defined Organizational Values Organizational Norms Socialization Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -24 Figure 12. 4: Ways of Transmitting Culture Socialization Tactics Signs, Symbols, and

12 -24 Figure 12. 4: Ways of Transmitting Culture Socialization Tactics Signs, Symbols, and Stories Norms and Values Rites and Ceremonies Organizational Rewards Organizational Culture Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -25 Organizational Culture (Continued) Culture and Strategic Leadership • The Influence of the

12 -25 Organizational Culture (Continued) Culture and Strategic Leadership • The Influence of the Founder • Organizational Structure Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -26 Organizational Culture (Continued) Adaptive and Inert Cultures • Adaptive Cultures Copyright ã

12 -26 Organizational Culture (Continued) Adaptive and Inert Cultures • Adaptive Cultures Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -27 Organizational Culture (Continued) Adaptive and Inert Cultures • Adaptive Cultures • Inert

12 -27 Organizational Culture (Continued) Adaptive and Inert Cultures • Adaptive Cultures • Inert Cultures Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -28 Organizational Culture (Continued) Composition of the Top Management Team • Helps Determine

12 -28 Organizational Culture (Continued) Composition of the Top Management Team • Helps Determine the Company’s Strategic Direction • Establishes the Values and Norms That Lower-Level Managers Will Follow Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -29 Organizational Culture (Continued) Traits of Strong and Adaptive Corporate Cultures • Bias

12 -29 Organizational Culture (Continued) Traits of Strong and Adaptive Corporate Cultures • Bias for Action • Nature of the Organization’s Mission • How to Operate the Organization Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -30 Strategic Reward Systems Individual Reward Systems • • Piecework Plans Commission Systems

12 -30 Strategic Reward Systems Individual Reward Systems • • Piecework Plans Commission Systems Bonus Plans Promotion Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

12 -31 Strategic Reward Systems (Continued) Group and Organizational Reward Systems • Group-Based Bonus

12 -31 Strategic Reward Systems (Continued) Group and Organizational Reward Systems • Group-Based Bonus Systems • Profit-Sharing Systems • Employee Stock Option Systems • Organization Bonus Systems Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.

Chapter Summary 12 -32 4 WHAT IS STRATEGIC CONTROL? S M E T S

Chapter Summary 12 -32 4 WHAT IS STRATEGIC CONTROL? S M E T S Y S L O R T N O C IC G E 4 STRAT E R U T L U C L A N IO T A IZ N A 4 ORG S M E T S Y S D R A W E R IC G 4 STRATE Copyright ã 1998 by Houghton Mifflin Company. All rights reserved.