Management Control Systems 03/06/2014 04:55:00

Session 1:

Formal systems/Information based systems to implement organizations
strategies.

Hold/Alter organizations activities

Levers of Control (How does an organization control its resources such as
Capital and People given a chosen strategy----It is not a strategy
formulation exercise). Quintessential Example: Narendra Modi

Belief System : (Core values of the organization conveyed through
mission statement, vision statement) that provides the employees
the freedom to be creative. For example: IE provides students with
the ability to choose different ways of implementing learning such
as ICP, Internship for a greater good. (Top down)

Boundary System : Giving limits to the freedom. Be creative but
within the limits, dont jump guns. Decide how you deploy your
resources but also how you do not deploy your resources. (Top
Down)

Diagnostic Control System : Tells you anytime you digress from
the strategy. Gives you a warning signal

Interactive Control System : Futuristic system that helps
organizations deal with unforeseen circumstances. Generally you
are dealing with ambiguous and uncertain circumstances, so it
helps to analyse the current strategy and readjust it or rethink
about a new strategy

Delegation of Decision Rights
Differentiate between delegation of tasks and delegation of decision rights.
DoT is simple but DoDR is a bit tricky.

Delegation of Task: It is a Behaviour Control. Whip and Carrot approach. Go
and knock at the doors (This is a task).

Delegation of DR: When you ask for an outcome and there is no clear
defined way to reach the outcome. I want an increase in sales of 10% (This
is an outcome and there is no defined way to accomplish it).

Problems: A manager can delegate the DR to the assistant manager but the
AM can fail because of two reasons: Incompetency or Self-Interest.
Incompetency can be obviated by terminating the employees. Self-Interest
can be obviated by aligning the goals of the employee with that of
companys.

NUCOR Case:
Steel Company in the US
Worst performing
High labour cost/Steel unions
Overcapacity/low exports for the US Steel
High Competition for imported Steel
Not an Integrated Steel manufacturer but a Mini-mills (Steels from
Scrap)
-- So basically a Low-Cost strategy

Explanations:
1.) Industry Level: Not an attractive industry
2.) Country Level: Not a good country to start a steel business (already a
developed country)
3.) Intra-Industry Structure
MM > ISM
NUCOR >>>>> Others
4.) Internal Mechanisms
Differentiated Strategy: No
Value Chain partner: Not Really
Internal Organization: There you go ;) MCS rules the roost.
Everything was aligned with the low-cost strategy.



Session 2:

Budget as a control mechanism

Profit Centres have two categories
Cost Centres: Input Costs (Minimize Cost): Performance measure
= Budgeted Cost Actual Cost

Revenue Centres: Outputs Revenues (Maximize Revenues):
Performance measure: Actual Revenue Budgeted Revenue

Natural Cost Centre:
Factory => Budgeted Costs (Budgeted # units * Budgeted Cost) => Sales
Budget => Difference must only be in the number of units. Any budget vs
Actual variance should only be in the #units. Uncontrollable part is #units
whereas Manager related variance is controllable.
Here we are dealing with efficiency and financial performance measures.

Artificial Cost Centre:
Legal
Accounting
Marketing
Information System

Here we are not dealing with efficiency but effectiveness i.e. Qualitative and
non-financial performance measures. But sometimes red-tapism is prevalent
in these cost centres and their existence is dubious and questionable.

Incremental Budget: Based on last years budget and multiply it by some
number. They are not a good management control mechanism since it does
not reflect efficiency but people tend to

Zero-based: Everything is clearly defined and is aimed at reducing costs. It
is applicable to project based companies or in the times of crisis because it is
very effective in controlling costs. The downside is that it is very time
consuming.

Vershire Company Case:

Session 3:
1.) Sourcing: Freedom to buy from inside/outside
2.) Transfer Pricing: What prices are inside
Retail Price
Market Price
Cost Price (Variable Costs or Total Costs)
3.) Intervention

North Country Auto:


Marketing Strategy 03/06/2014 04:55:00
Unilever Case

Problem:
The company wants to make inroads into low-income households market
that poses few germane questions
Should the company fight in the lower-end of the market where even
small players with a lower cost structure struggled to make profits?
Should the company launch a new brand or position its already existing
cheaper brands?
Ideal marketing mix for lower end consumers?
Marketing Strategy?

4Cs

Company Consumers

Collaborators

Competitors

Context (PEST)
Consumer
goods
Well
known
company
with 45
brands of
detergents
81%
market
share of
detergent
powder
with 75%
market
share in
NE
detergent
market
Low-
income
Consumers
48 million
(53% of
whom are
below 1-2
times
average
national
income)
Dependent
on
agriculture
28% Own
washing
m/c in NE
(67% in
SE)
Generalist
Wholesalers
but are
sometimes
dependent
on small
wholesalers
Specialized
Distributors
with
exclusive
rights to sell
Unilevers
detergent in
certain
regions
Since it is a
big
component
P&G (15%
market
share)
and 17.5
in NE
detergent
market
Ace (11%
market
share)
Cheaper
Local
Brands
Tax Incentives
for companies
investing in NE
Water is soft
which
facilitates
more foam
formation
which
basically
removes one
key advantage
of the
detergent
powder
73% think
bleach is
necessary
in NE (18%
in SE)
Use bars of
laundry
soap and
use the
detergent
only for
good
fragrance
5 times a
week in NE
vs 3.9 time
a week in
SE
Women
consider it
pleasurable
of the
product cost
and the
decision
cannot be
reversed,
the choice
of
distributors
is vital



4Ps

Product

Price

Place Promotion
Detergent
powder
OMO
(Favourite
brand)

Minerva (only
Low price
(52%) OMO at
$3 /kg
(17%) Minerva
at $2.4 /kg
(6%)
Campeiro at
Northeast of
Brazil
Rural
Cant use products
for low-income
people which will
alienate them from
the brand and will
leave them with a
perception that the
brand sold as
both detergent
powder and
laundry soap)
and

Campeiro
(companys
cheapest
brands)
Low Margin

Solutions:
Large packet
or sachets
Right
attributes to
control price
1.7 /kg product is of inferior
quality
Cannot make it
aspirational which
will jeopardise the
existing consumers
Explaining to the
small stores where
the most of the
target customers go
and rely on their
advice
70% ATL (lower cost
per contact and
increased visibility)
and 30% BTL
or 70% BTL (overall
reduced cost but
higher cost per
contact and lower
visibility) and 30%
ATL


6 Product attributes looked before effecting purchase:
1. (24%) Perceived power more cleanliness per quantity of product,
whitening and productivity
2. (20%) Smell, and softness
3. (16%) Ability to remove stains w/o need of for laundry soap and
bleach
4. (16%) Consistency and granularity of the powder (Ease of
dissolving)
5. (13%) Packaging: simple, easily recognizable
6. (11%) Impact on colours (Fading) ---Least preferred metric

Market (Northeast)
1. Detergent Powder:
$ 106 million
42000 tons
Growing at a rate of 17%
Barriers to entry are high because its capital intensive
Average revenue $2520 per ton

2. Laundry Soap
102 million
81250 tons
Growing at 6%
Barriers to entry are lower since it is easy to produce
Average revenue $1250 per ton
Used to remove tough stains
No fragrance
Top 4 have 38% market share with Minerva at 19% selling @
$1.7/kg
P&G is absent in this segment leaving only local brands as big
competitors out of which the biggest one being ASA with its brand
Bem-te-vi enjoying 11% market share and sold @ $1.2 /kg and
Flora Fabril with 6%

Concerns of entering low-income segment
o Cannibalisation of high-margin brands with low-margin ones
o Starting of price war
o Brand dilution since its been operating in premium segment
o Will result in repelling top students and brand managers
o Whether they have right skills and organization to compete in this
market
o Cost-benefit trade off??
o Brand repositioning or brand extension?


GO:
Big Market 50 million
If we dont go, P&G will occupy
Leverage experience in India
Focus on customers who may be growing







Supply Chain Management 03/06/2014 04:55:00
Cost (under-stocking) = Opportunity Cost = 1 0.2
Cost (over-stocking) = 0.20 0.0 (salvage value)

C.R. = (1 0.2)/{1 0.2 + 0.2-0} = 0.8

P(Demand < Supply) = Cost (under-stocking)/(cost(under stocking) + cost
(over-taking))

If we introduce retailer
Price retailer = 1.00
Cost retailer = 0.80

Price (you) = 0.80
Cost (you) = 0.20

Critical Ratio (you) = Cost under stocking/{Cost under-stocking + Cost
overstocking} = (0.80 0.20)/(0.80 0.20 + 0.20 0) = 0.75

Critical Ratio (retailer) = (1 0.8)/{1 - 0.8 + 0.8} = 0.2