MANAGEMENT CONTROL

SYSTEM
PRESENTATION TOPIC :
CONTROLS FOR DIFFERENTIATED STRATEGIES
GUIDED BY :
HARDIK BAXI SIR

SUBMIT TO :
DEPARTMENT OF BUSINESS ADMINISTRATION
M.K.BHAVNAGAR UNIVERSITY 1
PRESENTED BY :
 VOHRA MUNIRA
MERCHANT HUSSAINI
VAJANI ANKIT
VANAAR YUVRAJSINH
GOHIL JAYDEEPSINH

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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 Cost
Differentiation

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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 Control
Personal vs Impersonal Controls
Tight vs Loose Controls

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Case Study: 3M Corporation

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Introduction
• Founded in 1902, the Minnesota Mining & Manufacturing Corporation (3M)

• Reported sales revenues of $16.7 billion during the year 2000

• Presence in Asia Pacific, Europe, and Latin America

• Active in six business segments. 21 established and strategic brands

• More than 75,000 3M employees worked to create more than 500 new products every year

• Between 1985 and 2000, 3M’s gross profit margin averaged over 48 % and return on equity for the company averaged 22.2%

• Early in 3M’s history, chair and CEO William L. McKnight, long considered to be the company’s “spiritual founder,” introduced
policies and philosophies that were considered to be responsible for 3M’s ability to innovate consistently

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Case Study
• Discussion Question

• Evaluate the policies and philosophies of 3M from the standpoint of

helping the company implement its strategy, rooted in innovation.

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Selected Policies and Philosophies
• 15% Option

• 30% Rule

• Dual-Ladder Career Path

• Seed Capital

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Selected Policies and Philosophies
• Rewards for Success

• Tolerance for Failure

• R&D Spending

• Intrapreneurs

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Selected Policies and Philosophies
• Three-Tiered Research

• Technology Forums

• Customer Contact

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Texas Instruments and Hewlett-
Packard Case Study

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Case Context
• Texas Instrument (TI) and Hewlett Packard (HP) are two companies
famous for introducing electric and electronic products.

• Although competing in similar industries, their strategies and

management control are very different.

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Problem Definition
• Given the differences in strategy between the two firms, what would
you expect would be the differences between TI and HP in their
planning and control systems: strategic planning systems; budgeting
systems; reporting systems; performance evaluation systems; and
incentive compensation systems?

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Framework For Analysis
• Identify and contrast the business and functional strategies of each
firm
• Identify and discuss each firm’s “tendencies” in terms of:
Planning and control systems
Strategic planning systems
Budgeting systems
Reporting systems
Performance evaluation systems and
Incentive compensation systems

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Framework For Analysis
• Compare the expected “tendencies” to the actual control used by
each firm during the time period 1980-1985
• Formulate conclusion and Recommendation

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Analysis
• Texas Instruments - Harvest Low Cost

• Hewlett-Packard – Build differentiation

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Contrasting Strategies of TI and HP

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Business strategy
• Texas Instruments
Competitive advantage for large, standard markets based on long-run
cost position

• Hewlett-Packard
Competitive advantage for selected small markets based on unique,
high-value/high-features products

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Functional Strategy

Texas Instruments Hewlett-Packard

Marketing: Marketing:
• High volume/low price • High value/high price
• Rapid growth • Controlled growth
• Standard products • Custom features

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…Functional Strategy
Texas Instruments
Manufacturing:
• Scale economies and learning
curve
• Vertical integration
• Large, low-cost locations
Hewlett-Packard
Manufacturing:
• Delivery and quality driven
• Limited vertical integration
• Small, attractive locations
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…Functional Strategy
Texas Instruments Hewlett-Packard

R&D: R&D:
• Process and product • Product only
• Cost driven • Features and quality driven
• Design to cost • Design to performance

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…Functional Strategy
Texas Instruments Hewlett-Packard

Financial: Financial:
• Aggressive • Conservative
• Higher debt • No debt
• light ship • Margin of safety (slack)

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Harvest(TI) Vs Build(HP)
• TI tended to enter early in a product’s life cycle, and stayed through
maturity.

• HP tended to create a new product and then replaced it when it

matured.

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Harvest(TI) Vs Build(HP)
• TI sought a balanced portfolio of businesses where mature, large
businesses provide resources for young, high-growth businesses.

• HP sought all high-growth, high-margin businesses that met their own

resource needs, largely on an individual basis.

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Low-cost(TI) Vs Differentiation(HP)
• TI emphasized aggressive cost improvements, with equally aggressive
price cuts.

• HP desired cost improvements, but sought higher margins and held

prices longer.

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Low-cost(TI) Vs Differentiation(HP)
• TI concentrated on more capital-intensive, cost-effective production
processes to match high-volume standard product needs.

• HP concentrated on flexible production processes to match low-

volume, more custom product needs.

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Conclusion
• The HP(“build”) has a more flexible but higher risk strategy. They
require constant innovations to lead the market and these new
products demand a premium price.
• Budget flexible and there is a greater dependent in constant updates
in reporting.
• Management performance is measured on long term, non-financial
parameters and they are motivated by higher, but less-frequent,
special compensations.

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• The TI(“harvest”) has a more structured , lower risk strategy. They
require efficiency and productivity to keep maintain low cost and sell
at low price.
• Budgets are very important forms of control and actual performance
are expected to adhere to the budget.
• Management performance is measured on short term, financial
parameter and they are motivated by more frequent but, relatively
lower, special compensations.

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Thank You

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