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Controls for Differentiated Strategies

Management Control Systems

Chapter 13

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Corporate Strategy

Different organizations generally operate in different strategic contexts.

Different strategies require different task priorities, key success factors, skills, perspectives, and behaviours for effective execution.

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Corporate Strategy

Control system are measurement systems that influence the behaviour of the people whose activities are being measured.

A continuing concern in the design of control systems should be whether the behavior induced by the system is consistent with the strategy.

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Business Unit Strategy

The strategy of a BU depends on :Its Mission : what are its overall

objectives?Its competitive advantage : how should

the BU compete in the industry?4 Missions of BUs:

Build, Hold, Harvest, and Divest

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Business Unit Strategy

2 generic ways of BUs to compete and develop “sustainable competitive advantage” :Low CostDifferentiation

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Mission of Business Unit

Build, Hold, Harvest, and Divest. The mission of the BU influences the

uncertainties. MCS (SPM) can be systematically varied

to motivate the manager to cope effectively with uncertainty.

Different missions often require systematically different MCS.

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Mission and Uncertainty

Why “Build” units tend to face greater environmental uncertainty than “Harvest” units?Build strategies typically are undertaken

in the growth stage of product life cycle. Harvest strategies typically are undertaken in the mature/decline stage of the product

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Mission and Uncertainty

An objective of a Build BU is to increase market share. Build strategy puts a BU in greater conflict with its competitors than does a harvest strategy.

On both the input side and the output side, build managers tend to experience greater dependencies on external individuals and organizations than do harvest managers.

Build BUs are often in new and evolving industries.

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Competitive Advantage

A BU can choose to compete either as a differentiated player or as a low-cost player.

If a BU is choosing a differentiation approach, rather than a low-cost approach, increases uncertainty in a BU’s task environment.

The uncertainty facing low-cost and differetiation BUs is similar to the uncertainty facing harvest and build BUs.

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Differentiation vs Low-Cost

Differentiation• Product innovation is more

critical, because focuses primarily on uniqueness and exclusivity.

• Tend to have a broader set of products to create uniqueness and create high environmental complexity.

• Products succeed if customers perceive that they offer more advantages.

Low-Cost• Reducing cost. Prefers to

keep its product offering stable over time.

• Tend to have narrow product lines to minimize inventory carry costs and benefit from scale economies.

• Typically produce no-frill commodity products and succeed because low price.

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Top Management Style

Differences in Management Styles Implications for Management

ControlPersonal vs Impersonal ControlsTight vs Loose Controls

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