The objective of this course is to develop a sophisticated understanding of the powerful role of
management control systems to facilitate achievement of the organizational objectives in a
timely, efficient and effective manner.
What do MSR do?
- Influencing decisions
- Coordinates between different business units
The problem we will address in this course? External risks and internal employee-
related risk will risk your outcome. How will you mitigate these risks?
3 employee-related risks
- Lack of direction (you are not really doing what the firm wants you to do)
- Lack of ability (you are not capable)
- Lack of effort (lazy problem)
Example agency problem
Student job at a butcher
Principal y Profit + customer satisfaction– w(x) x is the number of hours
Agent w(x) Customer satisfaction* - you want this x to be related to the effort– c(g)
*Imagine you work 1 day a week; would you be satisfied if your performance would
be measured by surveying clients who come every day?
Most important concept of this EC 3 legged stool, is probably going to be an exam
question.
Carrefour example
Discussion question: given the centralization of purchasing, how would you change
the performance measures?
Before – Sales (costs – depreciation costs)
After – you must reevaluate all the costs and look where control is not in hands of the
business unit manager anymore. For example, you can exclude purchasing costs.
What is the biggest impact, sales, or cost management? Sales, influencing either P
(higher prices) or Q (higher quantity).
If you change the organizational structure, you also must change the performance
measures and reporting system (3 legged stool).
1. What is the organizational structure? Centralized? Decentralized?
2. How do you evaluate the performance?
3. How do you distribute data in the firm? How often? How detailed? When do
you close? Closing once a month already influences the culture
4. Soft control. The social norms, leadership, and culture in the organization
Bad managers come into the firm and change the organizational structure without
thinking of the impact on the management control system.
, If you change one of the legs, you have to change the other legs as well.
LECTURE 3 DESIGNING YOUR ORGANIZATION
In the management control system, we have 4 elements: organizational design,
reporting system, soft control, and performance evaluation. In this lecture, we are
going to focus on organizational design.
EG Healthcare example
See PowerPoint for details
Advantages Disadvantages
More efficient You also must change the other stool
and that’s a lot of management time.
Causes a lot of confusion between the
employees
Carrefour and HP are not as successful as GE in constantly changing the
organizational structure, why do you think? this type of question can you expect on
the exam, you have to focus on the control perspective
GE is more flexible to also change to other elements of the stool, which HP
and carrefour didn’t do.
DPD example
See PowerPoint for details
Design/analyze a 3-legged stool for DPD.
Who has the right to set up projects? Everyone. It depends what area it is related to.
Most project however are related to customer satisfaction, this should be done by the
director logistics Chief Commercial Officer
What we do and how will we continue?
- Set up a budget
- Set up a schedule
- Set up a reporting system
- What are the results
- Analyze current control system
- Analyze what can be changed at reasonable costs
- Involve people throughout the project
strategy is developed! What now?
Decision 1: what is the structure organization?
Organizing by market (by customer, geography, or product for example)
Advantages – high responsiveness
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