Professional Documents
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Corporate Strategy
Logic for linking controls to strategy is based on following line of thinking: different organisations generally operate in different strategic contexts different strategies require different task priorities, key success factors, skills, perspectives and behaviour for effective execution control systems influence behaviour of people thus, a continuing concern in design of control systems should be whether the behaviour induced by system is consistent with strategy
Corporate Strategy
Implications for Organisation Structure: at single industry end, company tends to be functionally organised at unrelated diversified end, many senior managers tend to be experts in finance as firm moves from single industry to diversified end, autonomy of unit manager increases for two reasons: senior managers of unrelated diversified firms may not have knowledge & expertise to make strategic & operating decisions for business units
Corporate Strategy
there is very little interdependence across units in a conglomerate size of a conglomerates corporate staff as that to same-sized single industry firm, tends to be low also, a conglomerate may not have single, cohesive, strong corporate culture Implications for Management Control: different corporate strategies imply following differences for designing of control systems: due to more diversification, corporate managers may not be experienced in activities of units
Corporate Strategy
single industry and related diversified firms possess corporatewide core competencies on which strategies of most of business units are based Strategic Planning: due to lower level of interdependencies, conglomerates tend to use vertical planning system for related diversified and single industry firms, planning systems tend to be horizontal & vertical Horizontal dimension might come into process in different ways like: a group executive might be responsible to plan
Corporate Strategy
strategic plans of individual units could have an interdependence section, where general manager identifies focal linkages with other units and how they will be exploited corporate office could require joint strategic plans for interdependent business units strategic plans of individual units could be circulated to managers of similar units to critique and review Above methods are not mutually exclusive, some of them could be proposed fruitfully at same time
Corporate Strategy
Budgeting: Chief Executives of single industry firms may be able to control operations of subordinates through informal and personally oriented mechanisms like frequent personal interactions In a conglomerate, it is nearly impossible for Chief Executive to rely on informal interpersonal interactions as a control tool For a conglomerate, business unit managers have more influence in developing budgets and greater emphasis is on meeting budgeted targets
Corporate Strategy
Transfer Pricing: For a conglomerate, policy is to give sourcing flexibility to business units and use arms length market prices For a single industry or related diversified firm, synergies may be important rather than freedom to make sourcing decisions Incentive Compensation: Use of formulas by conglomerates to determine bonuses, while subjective factors are used in case of single industry and related diversified firms
Corporate Strategy
Profitability measures are used to determine incentives for unrelated diversified firms in terms of profit of particular business units manager Single industry and related diversified firms base bonus of business unit manager on both units performance and performance of larger organisational unit such as product group Bonus of general managers should be based on overall corporate performance so that greater inter-unit cooperation is encouraged, thereby enhancing exploitation of interdependencies