Strategic Management: Formulation and Implementation

Management Control

Where management control is imposed, it functions within the framework established by the strategy. Normally these objectives (standards) are established for major subsystems within the organization, such as SBUs, projects, products, functions, and responsibility centers.

Typical management control measures include ROI, residual income, cost, product quality, and so on. These control measures are essentially summations of operational control measures. Corrective action may involve very minor or very major changes in the strategy.

Operational control systems are designed to ensure that day-to-day actions are consistent with established plans and objectives. It focuses on events in a recent period. Operational control systems are derived from the requirements of the management control system.

Corrective action is taken where performance does not meet standards. This action may involve training, motivation, leadership, discipline, or termination.

The differences between strategic and operational control are highlighted by reference to a general definition of management control: "Management control is the set of measurement, analysis, and action decisions required for the timely management of the continuing operation of a process". This section discusses in the terms presented.

An organization's effectiveness is in major part a measure of the effectiveness of its master strategy. Selection of the appropriate basis for assessing organizational effectiveness presents a challenging problem for managers and researchers.

There are no generally accepted conceptualizations prescribing the best criteria. Different organizational situations - pertaining to the performance of the organization's structure, the performance of the organization's human resources, and the impact of the organization's activities -require different criteria.

J. Barton Cunningham, after reviewing the relevant literature, concluded that seven major ways of evaluating organizational effectiveness existed: rational goal model, systems resource model, managerial process model, organizational development model, the bargaining model.

The rational goal approach focuses on the organization's ability to achieve its goals. An organization's goals are identified by establishing the general goal, discovering means or objectives for its accomplishment, and defining a set of activities for each objectives.

The organization is evaluated by comparing the activities accomplished with those planned for. These criteria are determined by various factors.

The systems resource model analyzes the decision-makers's capability to efficiently distribute resources among various subsystem's needs. The systems resources model defines the organization as a network of interrelated subsystems.

These subsystems needs may be classified as:

Each organizational problem requires a specific allocation of resources. The bargaining model presumes that an organization is a cooperative, sometimes competitive, resource distributing system.

Decisions, problems and goals are more useful when shared by a greater number of people. Each decision-maker bargains with other groups for scarce resources which are vital in solving problems and meeting goals.

The overall outcome is a function of the particular strategies selected by the various decision-makers in their bargaining relationships. This model measures the ability of decision-makers to obtain and use resources for responding to problems important to them.

Each of the subsystems' needs should be evaluated from two focal points: efficiency and stress. Efficiency is an indication of the organization's ability to use its resources in responding to the most subsystems' needs. Stress is the tension produced by the system in fulfilling or not fulfilling its needs.

The managerial process model assesses the capability an productivity of various managerial processes -decision making, planning, budgeting, and the like -for performing goals.

The managerial process model is based on the intuitive concept of substantial rationality, which interrelates the drives, impulses, wishes, feelings, needs, and values of the individuals to the functional goals of the organization.

This model appraises the organization's ability to work as a team and to fit the needs of its members. The model focuses on developing practices to foster:

  1. supervisory behavior manifesting interest and concern for workers;
  2. team spirit, group loyalty, and teamwork among workers and between workers and management;
  3. confidence, trust and communication among workers and between workers and management;
  4. more freedom to set their own objectives.

The model's procedure attempts to answer four main questions:

  1. Where are we?;
  2. Where do we want to go?;
  3. How will we get there?;
  4. How will we know when we do get there?

These questions can be divided into four areas: question one is concerned with diagnosis, question two with the setting of goals and plans, question three with the implementation of goals, and question four with evaluation.

This model is concerned with changing beliefs, attitudes, values, and organizational structures so that individuals can be better adopt to new technologies and challenges. It is a process of management by objectives in contrast to management by control.

The structural functional approach tests the durability and flexibility of the organization's structure for responding to a diversity of situations and events.

According to this model, all systems need maintenance and continuity. The following aspects define this:

In the functional approach an organization's effectiveness is determined by the social consequences of its activities.

The crucial question to be answered is: how well do the organization's activities serve the needs of its client groups?

The appraisal of an organization's effectiveness should consider whether these activities are function or dysfunctions in fulling the organization's goals.

These seven models have their strengths and shortcomings depending upon the organizational situation being evaluated. The choice of evaluation approach usually hinges on the organizational situation that needs to be addressed.

Until 1965, and not uncommonly even today, conventional wisdom held that planning and control in organizations should be separated: "... control must reflect plans; and planning must precede control". In 1965, Robert Anthony of the Harvard Business School put forward a novel framework for the analysis of planning and control systems.

Anthony's basic thesis is that planning and control are so closely interlinked in organizations as to make their separation meaningless and undesirable. He suggests, it makes much more conceptual and practical sense to link together similar and interwind planning and control activities into systems of homogeneous characteristics.

Instead of two categories of planning and control (a practice still supported by certain authorities), Anthony suggests that organizational planning and control be segmented into three categories:

  1. strategic planning
  2. management control
  3. task (operational) control

It is important to note that Anthony's terminology, is somewhat misleading. When Anthony says "strategic planning" he means "strategic planning and control." Similarly "management control" embraces both planning and control activities.

According to Anthony:
"Strategic planning is the process of deciding on the goals of the organization and the strategies for attaining these goals."

Strategies are guidelines for deciding the appropriate actions for attaining the organization's goals. The essential difference between strategic planning and management control is that the strategic planning process is unsystematic.

Strategic control occurs in three ways. First, strategic planning is itself a form of control. Second, strategic plans are converted into reality not only by their influence on the management control activity but also by the key decisions regarding allocation of resources.

Third, while capital budgeting systems can respond to requests for resources that are consistent with the accepted strategic plan, the period between formal, comprehensive strategic planning exercises can give rise to unanticipated changes in the environment or unexpected internal crises.

Anthony views management planning and control as the processes by which (1) organizational objectives are achieved and (2) the use of resources is made effective and efficient.

"Management control is the process by which managers influence other members of the organization to implement the organization's strategies."

Management control decisions are made within the guidance established by strategic planning. Management control is a systematic process. It is done by managers at all levels; it is done on regular basis; it involves the whole organization; and it involves a large amount of personal interaction and relatively less judgment.

There are two somewhat different types of management control activities: (1) the management control of operating activities, and (2) the control of operational projects.