Ch9

Strategic Control 9-5 Strategic control involves monitoring performance toward

strategic goals and taking corrective action when needed via effective systems:
Informational control systems Behavioral control systems Corporate governance
Strategic Control:
Traditional Approach 9-6 The traditional approach to strategic control is sequential
Strategies are formulated; goals are set Strategies are implemented Performance
is measured against goals
Strategic Control: Traditional Approach 9-7 Control = feedback loop from
performance measurement to strategy formulation Involves lengthy time lags, singleloop learning Most appropriate when
Environment is stable and relatively simple Objectives can be measured with
certainty Little need for complex measures of performance
Strategic Control: Contemporary Approach 9-8 Relationships between strategy
formulation, implementation, & control are highly interactive, utilizing Informational
control Behavioral control
Strategic Control:
Contemporary Approach 9-9 Informational control = concerned with whether or not
the organization is doing the right things
Behavioral control = concerned with whether or not the organization is doing things
right in the implementation of its strategy
Both types of control are necessary, but not sufficient, conditions for success
Question? Top managers at ABC Company meet every Friday to review daily
operational reports and year-to-date data. This is an example of Informational control.
Informational Control Informational control deals with both the internal & external
environment Do the organizations goals and strategies still fit within the context of
the current strategic environment? Two key issues: Scan & monitor the external
environment Continuously monitor the internal environment
Informational Control Informational control = ongoing process of organizational
learning Focus on constantly changing information - continuous monitoring, testing,
review Updates & challenges assumptions, so Time lags are shortened Changes
are detected earlier Speed & flexibility of response is enhanced
Question?Which of the following is not one of the characteristics of a contemporary
control system? C .It circumvents the need for face-to-face meetings among superiors,
subordinates, and peers. Behavioral Control Behavioral control = focused on
implementation doing things right Influences the actions of employees via:
Culture Rewards Boundaries Behavioral Control: Culture Organizational
culture is a system of Shared values (what is important) Beliefs (how things work)
Organizational culture shapes a firms People Organizational structures
Control systems Organizational culture produces Behavioral norms (the way we
do things around here) Behavioral Control: Culture Organizational culture sets
implicit boundaries regarding: Dress Ethical matters The way an organization
conducts its business A strong culture Leads to greater employee engagement
Provides a common purpose and identity Reduces monitoring costs
Behavioral Control: Culture Effective organizational cultures must be Cultivated
Encouraged Fertilized Organizational cultures can be maintained by
Storytelling Rallies or pep talks by top executives
Behavioral Control: Rewards Reward systems & incentive programs: Powerful
means of influencing an organizations culture Focus efforts on high-priority tasks
Motivate individual & collective task performance Can be an effective motivator &
control mechanism
Behavioral Control: Rewards Potential downside: Individual actions are not
related to compensation; employees are rewarded for the wrong things Different
business units have differing rewards systems Behavior reinforced within subcultures
may reflect value differences in opposition to the dominant culture Reward systems
may lead to information hoarding, working at cross purposes
Behavioral Control: Rewards Behavioral Control: Boundaries Boundaries and
constraints can be useful Focusing individual efforts on strategic priorities
Providing short-term objectives and action plans to channel efforts Specific,
measurable, including a specific time horizon for attainment Achievable, yet
challenging enough to motivate Individual managers held accountable for
implementation
Question? Rules and regulations, rather than culture or rewards, would probably be
used for strategic control at what type of company? C. Manufacturer of mass-produced
products
Behavioral Control: Boundaries Boundaries and constraints can also Improve
efficiency and effectiveness through rule-based controls, appropriate when
Environments are stable and predictable Employees are largely unskilled and
interchangeable Consistency in product and services is critical The risk of

malfeasance is extremely high Minimize improper and unethical conduct via Antibribery policies Regulations and sanctions i.e. Sarbanes-Oxley
Behavioral Control Systems
Rewards and incentives, plus a strong culture, reduce the need for external controls, IF
organizations Hire the right people Train people in the dominant cultural values
Have managerial role models Have reward systems clearly aligned with
organizational goals and objectives
Example: Building a Strong, Rewarding Culture Zappos hires only one out of 100
applicants a hiring process that is weighted 50% on job skills & 50% on the potential
to mesh with Zappos culture. Call center reps are measured based on how much time
they spend with customers; not how many calls they take Rewards include Zollars
(Zappos dollars) given by peers to peers for deserving behaviors Because Zappos has
a strong culture they can Run primarily using recognition with few incentive
programs Eschew traditional programs use what works for them
Corporate Governance Corporate governance controls focus on relationships
between The shareholders The management (led by the Chief Executive Officer CEO) The Board of Directors How can corporations succeed (or fail) in aligning
managerial motives with The interests of the shareholders The interests of the board
of directors
Corporate Governance The separation of owners (shareholders) & management in a
modern corporation Shareholders (investors) have limited liability & can participate in
the profits without taking direct responsibility for operations Management can run the
company without personally providing any funds The Board of Directors are elected
by shareholders & have a fiduciary obligation to protect shareholder interests
Corporate Governance: Agency Theory Agency theory deals with the relationship
between principals & agents What to do when the goals of the principals and agents
conflict? What to do when it is difficult or expensive for the principal to verify what
the agent is actually doing? What happens when the principal and the agent have
different attitudes and preferences toward risk?
Corporate Governance Mechanisms Corporate governance mechanisms: aligning
the interests of owners and managers through A committed and involved Board of
Directors Shareholder activism Managerial rewards and incentives Contractbased outcomes CEO duality should the CEO also be chairman of the board of
directors?
Corporate Governance Mechanisms Duties of the Board of Directors Regularly
evaluate, and, if necessary, replace the CEO; determine management compensation;
review succession planning. Review & approve financial objectives, major strategies,
and plans of the Corporation. Provide advice and counsel to top management.
Select & recommend candidates for the Board of Directors; evaluate board processes.
Review the adequacy of all compliance systems.
Corporate Governance Mechanisms An effective Board of Directors should
Become active, critical participants Ensure that strategic plans undergo rigorous
scrutiny Evaluate managers against high performance standards Take control of the
succession process Practice director independence No interlocking directorships
Insist that directors own significant stock in the company
Corporate Governance Mechanisms Individual shareholders have rights:
To sell stock, vote the proxy, bring suit for damages, get information, receive residual
rights following the companys liquidation Collectively, shareholders have power:
To direct the course of corporations, file shareholder action suits, demand key issues
be brought up for proxy votes Institutional investors can be aggressive: By
reviewing performance, requesting changes in the firms governance structure, filing
court action, becoming major shareholders
Corporate Governance Mechanisms Boards are responsible for managerial rewards
and incentives Boards can require that CEOs become substantial owners of company
stock Salaries, bonuses, and stock options can be structured so as to provide rewards
for superior performance and penalties for poor performance Dismissal for poor
performance should be a realistic threat
Corporate Governance Mechanisms: CEO Duality?
Unity of Command: (in favor of) Duality Provides clear focus Eliminates
confusion and conflict Enhances a firms responsiveness Enables quick decisions
based on first-hand knowledge Agency Theory: (in favor of) Separation Safeguards
against corruption or incompetence Removes conflict of interest, especially regarding
CEO succession Improves perceptions of legitimacy
Corporate Governance Mechanisms External governance control mechanisms
The market for corporate control The takeover constraint Auditors Enron,
WorldCom? Banks and analysts Lehman Brothers, Countrywide? Regulatory
bodies
Securities and Exchange Commission (SEC) The Sarbanes-Oxley Act Media and
public activists Bloomberg Businessweek, Ralph Nader
Example: Corporate Governance & Stakeholder Groups AIG (American
International Group) paid $218 million in bonuses to its financial services division

employees AFTER receiving an $85 billion bailout from the U.S. government The
U.S. House of representatives complained AIG leadership caved in AIG financial
services managers were left without an income Many AIG financial services managers
were AIG shareholders Was corporate governance effective? Were external
governance control mechanisms inappropriate?
International Corporate Governance Principal principal conflicts (vs principal
agent conflicts) involve Concentrated ownership, or family ownership Motivation
to engage in expropriation of minority shareholders for personal gain Business groups
who can take coordinated action Japanese keiretsus, Korean chaebols Few external
regulatory constraints
International Corporate Governance
Study Questions
1.
Rule-based controls are most appropriate in organizations with all of the following
characteristics EXCEPT- B. employees are highly skilled and independent.
2.
Rule-based controls are most appropriate in organizations with the following
characteristics: environments are stable and predictable, employees are largely
unskilled and interchangeable, consistency in product and service is critical, and
the risk of malfeasance is extremely high (e.g., in banking or casino operations)
manufacturer of mass produced products
3.
The process of monitoring and correcting a firms strategy and performance
Strategic control
4.
A sequential method of organizational control in which strategies are formulated
and top management sets goals (1), strategies are implemented (2), and
performance is measured against the predetermined goal set (3) Traditional
approach to strategic control
5.
Approach in which managers anticipate changes in both the internal and external
environment; relationship between strategy formulation and implementation;
informational control and behavioral control Contemporary approach to
strategic control
6.
A method of organizational control in which a firm gathers and analyzes
information from the internet and external environment in order to obtain the best
fit between the organizations goals and strategies and the strategic environment
Informational control
7.
A method of organizational control in which a firm influences the actions of
employees through culture, rewards and boundaries Behavioral control
8.
What is the concern of informational control? Whether or not the organization
is "doing the right things"
9.
What is the concern of behavioral control? Whether or not the organization is
"doing things right" in the implementation of its strategy
10. Top managers at ABC Company meet every Friday to review daily operational
reports and year-to-date data. This is an example of? Informational control
11. A system of shared values and beliefs that shape a companys people,
organizational structures and control systems to produce behavioral norms
Organizational culture
12. Policies that specify who gets rewarded and why Reward system
13. Rules that specify behaviors that are acceptable and unacceptable Boundaries
and constraints
14. Rules and regulations, rather than culture or rewards, would probably be used for
strategic control at what type of company? Manufacturer of mass-produced
products
15. The relationship among various participants in determining the direction and
performance of corporations; the primary participants are the shareholders, the
management and the board of directors Corporate governance
16. A mechanism created to allow different parties to contribute capital, expertise and
labor for the maximum benefit of each party Corporation
17. A theory of the relationship between principals and their agents with emphasis on
two problems (1) the conflicting goals of principals and agents along with the
difficulty of principals to monitor the agents and (2) the different attitudes and
preferences toward risk of principals and agents Agency theory
18. A group that has a fiduciary duty to ensure that the company is run consistently
with the long term interests of the owners or shareholders of corporation that acts
as an intermediary between the shareholders and management Board of directors
19. Dual leadership structure where the CEO acts simultaneously as the chair of the
board of directors Duality
20. Theory which is in favor of duality for it provides clear focus, eliminates
confusion and conflict and enhances a firms responsiveness Unity of command
21. Theory which is not in favor of duality but separation instead for it safeguards
against corruption and incompetence and removes conflict of interest Agency
theory

22.

23.
24.
25.
26.
27.

Methods that ensure that managerial actions lead to shareholder slue

maximization and do not harm other stakeholder groups that are outside the
control of the corporate governance system; things such as the market for cop rate
control, auditors, banks and analysts, regulatory bodies (SEC), and media and
public activists External governance control mechanisms
An external control mechanism in which shareholders dissatisfied with a firms
management sell their shares Market for corporate control
The risk to management of the firm being acquired by a hostile raider Takeover
control
Conflicts between two classes of principals- controlling shareholders and minority
shareholders- within the context of a corporate governance system Principal
principal conflicts
Activities that enrich the controlling shareholders at the expense of the minority
shareholders Expropriation of minority shareholders
A set of firms that, though legally independent, are bound together by a
constellation of formal and informal ties and accustomed to taking coordinated
action; Japanese keiretsus, Korean chaebols Business groups

CH10
Organizational Structure Organizational structure refers to formalized patterns of
interactions linking Tasks Technologies People Structure provides a balance
between The need for division of tasks into meaningful groupings The need to
integrate these groupings for maximum efficiency and effectiveness
Question?
Generally speaking, discussions of the relationship between strategy and structure
strongly imply that B.structure follows strategy.
Organizational Structures Dominant Growth Patterns of Large Corporations
Organizational Structures: Simple Structure
The simple organizational structure is the oldest & most common organizational form,
where The organization is small, with a single or very narrow product line The
owner-manager makes most of the decisions The staff is an extension of the top
executives personality
Organizational Structures: Simple Structure
Advantages Highly informal Coordination of tasks by direct supervision
Centralized decision- making Little specialization Few rules & regulations;
informal reward systems
Disadvantages Employees may not understand their responsibilities Employees
may take advantage of lack of regulations Limited opportunities for upward mobility
Organizational Structures: Functional Structure The functional organizational
structure is where the major functions of the firm are grouped internally The
organization is small, with a single or closely related product or service, and high
production volume The owner-manager needs specialists in various functional areas
The chief executive has responsibility for coordination & integration of the functional
areas
Organizational Structures: Functional Structure
Advantages Enhanced coordination & control Centralized decision- making
Enhanced organizational-level perspective More efficient use of managerial &
technical talent Facilitated career paths in specialized areas
Disadvantages Impeded communication & coordination due differences in values &
orientations silos May lead to short- term thinking Difficult to establish uniform
performance standards
Organizational Structures: Divisional Structure The divisional organizational
structure is where products, projects, or product markets are grouped internally
Divisions are relatively autonomous, consisting of products & services that are
different from those of other divisions Each division includes its own functional
specialists typically organized into departments Division executives help determine
product- market & financial objectives
Organizational Structures: Divisional Structure
Advantages Separation of strategic & operating control Quicker response to
changes in the market environment Minimal problems sharing resources
Development of general management talent is enhanced
Disadvantages Can be very expensive Can lead to dysfunctional competition
among divisions Differences in image & quality may occur across divisions Can
focus on short- term performance
Organizational Structures: SBU Structure The strategic business unit (SBU)
structure is where similar products or markets are grouped into units to achieve synergy
Variation on the divisional structure Synergies are achieved through related
diversification core competencies, shared infrastructures, market power Each of the
SBUs operates as a profit center
Organizational Structures: SBU Structure

Advantages Planning & control done by the corporate office Decentralization of

authority Quicker response to changes in the market environment Synergies
through sharing core competencies, infrastructures, & market power
Disadvantages Can be difficult to achieve synergies Increased personnel &
overhead expenses Corporate office further removed from the divisions Corporate
unaware of key changes in market conditions
Example: Challenges of a Divisional Structure Johnson & Johnson has more than
275 operating companies located in 60 countries, and sells products in virtually all
countries around the world. J&J is organized into three business segments: Consumer,
Pharmaceutical, and Medical Devices and Diagnostics - a decentralized SBU divisional
structure How to keep autonomy while also developing synergies between the
business units? How to extend control mechanisms across divisions to better monitor
performance?
Organizational Structures: Holding Company Structure The holding company
structure is where businesses in a corporations portfolio are the result of unrelated
diversification Variation on the divisional structure Similarities are few, so
synergies are limited Operating divisions have autonomy Corporate staffs are small
& have limited involvement, relying on financial controls & incentive programs to
obtain performance
Organizational Structures: Holding Company Structure
Advantages Cost savings due to fewer personnel and lower overhead Divisional
autonomy increases motivation level of divisional executives Quicker response to
changes in the market environment
Disadvantages Potential for synergies is very limited Corporate office has little
control Difficult to replace key divisional executives if they leave Turnaround may
be difficult due to limited corporate staff support
Organizational Structures: Matrix Structure
The matrix organizational structure is where functional departments are combined
with product groups on a project basis Functional departments, product groups &
geographical units are combined Individuals have two managers Project managers
& functional managers share responsibility
Organizational Structures: Matrix Structure
Advantages Increases market responsiveness, collaboration & synergies Allows
more efficient utilization of resources Improves flexibility, coordination &
communication Increases professional development
Disadvantages Dual reporting relationships lead to uncertainty regarding
accountability Can lead to power struggles & conflict Human resources are
duplicated Decision-making takes longer
Organizational Structures: International Operations Firms with international
operations must consider a structure based on the following: The type of strategy that
is driving the firms foreign operations The degree of product diversity The extent
to which a firm is dependent on foreign sales
Multidomestic
Strategies use International division structure Geographic-area division structure
Worldwide matrix structure Global Strategies use Worldwide functional structure
Worldwide product division structure Worldwide holding company structure
Organizational Structures: International Operations A global start-up Uses
inputs from around the world Sells its products & services to customers around the
world Has communication & coordination challenges Has less resources than wellestablished corporations Must use less costly administrative mechanisms
Frequently chooses a boundaryless organizational design
Organizational Structures: Boundaryless Designs A boundaryless organizational
design makes these boundaries more permeable: Vertical boundaries between
organizational levels Horizontal boundaries between functional areas External
boundaries between the firm and its customers, suppliers, & regulators Geographic
boundaries between locations, cultures, & markets Boundaryless designs include
barrier-free, modular, & virtual organizations
Organizational Structures: Boundaryless Designs A barrier-free organization has
permeable internal & external boundaries and requires: Higher level of trust and
shared interests Shift in philosophy from executive development to organizational
development Greater use of teams Flexible, porous organizational boundaries
Communication flows & mutually beneficial relationships with both internal and
external constituencies
Question?
What advantages does outsourcing provide an organization?
A.Access to the best-in-class goods and services. B.The ability to expand rapidly with a
relatively low capital investment. C.The opportunity to focus scarce resources on
existing core competencies. D.All of the above.
Organizational Structures: Boundaryless Designs
A modular organization requires seamless relationships with external organizations:
Outsources nonvital functions or non-core activities to outsiders Activates

knowledge & expertise of best in class suppliers but retains strategic control
Focuses scarce resources on key areas Accelerates organizational learning
Decreases overall costs, leverages capital
Organizational Structures: Boundaryless Designs A virtual organization requires
forming alliances with multiple external partners: Continually evolving network of
independent companies Linked together to share skills, costs, & access to one
anothers markets Coping with uncertainty through cooperative efforts Each gains
from resulting individual & organizational learning May not be permanent
Example: A Virtual Organization This textbook is published by McGraw-Hill
Education Putting the textbook and supplemental material together is done by a virtual
team The authors live in Texas, Michigan, and New York The editors work in
Illinois The text compositors are in India The PowerPoint & Case Teaching Notes
author works out of her home in Connecticut Deadlines are coordinated by the MH
editors in Illinois, to pull the book together and arrange for distribution
Organizational Structures: Boundaryless Designs A boundaryless organization
requires Mechanisms to ensure effective coordination and integration Common
culture and shared values Horizontal organizational structures Horizontal systems
and processes Communications and information technologies Human resource
practices Awareness of the benefits and costs of developing lasting internal & external
relationships
Organizational Structures: Boundaryless Designs: Benefits
Costs Agency costs are reduced through the use of relational systems Transaction
costs between the firm and its suppliers are reduced Individual participants are less
likely to perceive a conflict of interest Relationships between individuals become
more important than profits Conflicts are resolved through ad hoc negotiations &
processes Relationships are driven more by social connections than by needed
competencies
Organizational Structures:Ambidextrous Designs Ambidextrous organizational
designs address two contradictory challenges:How to maintain adaptability
How to achieve alignment Ambidextrous organizations Are aligned and efficient
while they pursue modest, incremental innovations Are flexible enough to adapt to
changes in the external environment and create dramatic, breakthrough innovations
Question?
According to a study by OReilly and Tushman, effective ambidextrous structures had
all of the following attributes except B.managerial efforts that were highly focused on
revenue enhancement.
Organizational Structures: Ambidextrous Designs Ambidextrous organizational
designs Effectively integrate and coordinate existing operations Establish project
teams that are structurally independent units Pay attention to each units processes,
structures, & cultures Effectively integrate each unit into the existing management
hierarchy
Study Questions
1.
Generally speaking, discussions of the relationship between strategy and
structure strongly imply that B) structure follows strategy.
2.
All of the following statements about simple organizational structures are
true except D) creativity and individualism are rare.
3.
A simple structure is characterized by B) low specialization and high
centralization
4.
Functional structures are usually found in organizations where there is A)
high volume production.
5.
At Sharp Corporation, work is divided into units that specialize in
production, marketing, research and development, and other management
tasks. This is an example of a B) functional structure
6.
Which of the following is an advantage of a functional type of
organizational structure? C) pooling of specialists enhances coordination
and control.
7.
Which of the following is a disadvantage of a functional type of
organizational structure? A) differences in functional orientation may
impede communication and coordination.
8.
A divisional structure C) facilitates the development of general
managers.
9.
Which of the following is an advantage of a divisional type of
organizational structure? B) an enhanced ability to respond quickly to
changes in the external environment