Strategic Management: Formulation and Implementation


This chapter introduced a number of important concepts about management control systems and techniques. Among the major control systems used in organizations are financial control, budgetary control, quality control, and inventory control.

Financial control is control of financial resources as flow into the organization, and flow out by the organization. Top management financial control uses the balance sheet, income statement, and financial analyses of these documents. Financial budgets are also used for organizational control and include the cash, capital expenditure, and balance sheet budgets. Zero-based budgeting is a variation of the budget process and requires that managers start from zero to justify budget needs for the coming year. Quality control can be used in a strategic way to compete effectively. Another major type of control system found in most organizations is inventory control. There are three major types of inventory: raw materials, work in process, and finished goods. Production-operations are critical to organizational performance. Operations management is the management of the productive processes that convert inputs into goods and services. Management by objectives is another important control device used by managers. MBO involves four steps: setting objectives, developing action plans, reviewing progress, and appraising overall performance. The most fundamental of all control techniques is management by exception (MBE), a control principle which suggests that managers should be informed of situation only if control data show a significant deviation from standards. This chapter deals also with time control techniques (PERT and CPM). Managers use these techniques to help them control activities and those are planned for, or are presently occurring.

The areas that managers control are determined by the importance of particular activities to the organization, the amount of control that can be devised, and the cost of control techniques. Moreover, a good control system is consistent with organizational climate, structure, and reward systems, and has reliable performance measures.