Differentiated Strategies Service Organizations Chapters 12 13 Management

Differentiated Strategies & Service Organizations Chapters 12 & 13, Management Control Systems, 12 th Ed. , Anthony and Govindarajan

Differentiated Strategies ¨ Corporate Strategy – The right mix of businesses • Single industry • Related diversified industries • Unrelated diversified industries – Allocation of resources to support the mix ¨ Business Strategy – How to compete in a particular market – Based on the resources allocated by the corporate strategy

Organizational Structure ¨ Continuum – From single industry (Functional) – Through related diversified (Business units) – To unrelated diversified (Holding company) ¨ Must be considered in developing a management control system

Control Considerations ¨ Increased diversification reduces knowledge levels of management – Results in increased vertical planning systems – Results in greater budgetary control at lower levels – Results in less subjectivity for incentive plans – Results in less goal congruence at the highest corporate level

Business Unit Strategy ¨ Basis – how to compete in a given market ¨ Usually have one of four “missions” – Build – Hold – Harvest – Divest ¨ Two ways to compete – Low cost – Differentiation

Implications ¨ Build – Less certainty, greater subjectivity – Use of interactive control systems ¨ Hold – Greater certainty, balance of subjectivity and objectivity – Heavier use of diagnostic control systems ¨ Harvest – Almost absolute certainty, greater objectivity – Use of diagnostic control systems ¨ Divest

Top Management Style ¨ Managers are different ¨ Management control systems must take that into consideration – Personal versus impersonal controls – Tight versus loose controls ¨ Want some examples? – All taken from Fortune, November 18, 2002

John Patterson National Cash Register Company 1884 -1921 ¨ Three-step approach to employee development – Break a man’s self-esteem – Rebuild it from scratch – Then fire him

John F. Welch General Electric 1981 -2001 ¨ Redefined the CEO’s central purpose in life: – Increase the stock price, pure and simple

Albert J. Dunlap Scott Paper / Sunbeam Corporation Mid 1990’s ¨ Scott Paper – Boosted stock price by 225% – Cut 11, 000 employees, R&D, plant improvements, and almost everything within reach – “I’m a superstar in my field, much like Michael Jordan in basketball” ¨ Sunbeam Corporation – Bankrupt

Service Organizations ¨ General Characteristics – Quality Control – Labor Intensive – Often Multi-Unit

Organization Types ¨ Professional Services ¨ Financial Services ¨ Health Care Organizations ¨ Nonprofit