Table

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Topic

Contents
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Organisation background Introduction Evaluation of management control system (MCS) Analysis of assessment findings Outcomes that influence the innovation level of employees & organisation

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Conclusion Recommendations References -------------------------------

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Words Count : 2938

1.0

Organization Background

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# COMPA
Betamek Electronics ( M ) Sdn. Bhd. was established on 23rd August 1989, with an authorized and paid up capital of Ringgit 2 million with total workforce of 180 local employees. The crucial point of their operations is designing and manufacturing of Car Audio System, Switches, Cigarette Lighter and other interactive products. Their intent is to be a noteworthy global and domestic player in the segment of Original Equipment Manufacturer by adhering to the mission of Best Quality and Total Customer Satisfaction. To state, the company is landed for its achievement of a turnover of Ringgit 53 million. Their clients comprise of Perodua Automobile which is contributing 95% of total sales and 5% are come from Nissan Tan Chong. This report examines the way in which different levers are used by managers in R&D functional department of Betamek Electronics during product development to create order and accomplish control. Below are the organisational structure of R&D department :

C T US OM

Betamek Electronics R&D Organisation functional structure : Managing director

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USB & Bluet

General manager

R&D manager

Styling designer X2

Electronic Engineer * X4

Mechanical Engineer * X3

2.0 Introduction Product development is one of the most important organisational activities (Kumar & Phrommathed, 2005), yet there are many arguments in the literature about how it should be controlled. The aim of this report is to explore the use of Simons levers of control to evaluate and assess the innovation capabilities and its influences towards employees and organisational context. Types of product development projects in R&D Betamek Electronics : Product development projects were categorised by managers according to their level of technology and in relation to the type of market (ie; radical, semi-radical (technology), semiradical (market) and incremental). Epstein and Shelton (2006) use to illustrate the interplay between technology and business models (see Figure below). At Betamek, this framework was used to allocate resources. Davila et al (2006) argue that it is vital to understand the type of product innovation so that the innovation can be managed, funded and resourced appropriately.

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Source: based on Davila et al (2006)

New

semi-radical ( technical )

Radical

Technology Near to existing

Incremental

Semi-radical ( business )

Near to existing Business model

New

3.0 Evaluation of Management Control System ( MCS ) Management control systems, in Simonss definition are: the formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities (Simons, 1995, 2000). Simons framework levers of control (1995) are based on four control systems: 1. beliefs systems 2. boundary systems 3. diagnostic control systems 4. interactive control systems Simons (1995) reviews the problem of exercising control in an environment demanding flexibility, innovation and creativity. Belief systems are used to inspire and promote commitment through the employees internalization of the organizations core values. Boundary systems specify the outer limits for decision making and actions. They are based in the principle that it is better to specify what must not be done rather than specify what must be done in order to promote initiative and creativity. In diagnostic control mechanisms that can be used to balance the conflict between creativity and control. Interactive control systems are aimed at communication and dialogue in order for senior management to maintain a hands-on involvement in the decisions and actions of their subordinates. They are intended to keep track of the critical uncertainties that may threaten the organization in the future. These control mechanisms can be combined to provide a suitable environment for innovation and creativity without loss of control and eventually to ascertain that people behave according to pre-established rules and plans (Simons, 2000).

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Assessment of Simons lever of MCS on R&D innovative & creativity dimension :

Simons lever of control

Elements of lever of control

Descriptions of elements

Rating : A Adequate B Needs improvement C Poor

Beliefs Control Systems

Core values

Beliefs that define basic principles, guidance and direction of the innovation & creativity to the employees of the organization. Effective communication of core values and beliefs of the organization Belief in organizational values and willingness to exert effort to achieve organizational goals Motivate individuals to adopt new ways of creating values through innovation when problems are encountered during strategy implementation Systematic reinforcement of basic values, purposes and direction of the organization through credos, missions and statements of purpose Parameters within which managers can use their own judgment and discretion in making decisions. Clearly stated types of behaviour that are forbidden

Communication

Commitment

Motivation

Reinforcement

Boundary Control Systems

Parameters

Ethical codes

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of conduct Ethical Boundaries Behaviour or actions that are out of bounds or otherwise would result in serious consequence Specify how every action should be performed e.g. rules, policies, regulations, manuals, and checklists in order to support platform of innovative environment To measure output or outcomes in terms of time, quantity or quality Pre set or pre established good levels of performance or product specifications Take corrective actions for any deviations from the predetermined standards of operation Sharing of information to develop internal force, motivate opportunity-seeking, and encourage the emergence of new strategic initiatives. Formal information system used to ensure managers are personally involved in the decision-making activities B

Diagnostic Control Systems

Standard Operating Procedures

Output Measures Predetermined Standards Correct Deviations

Interactive Control Systems

Information Networks

Formal Information Systems

Face to Face Interaction

Regular to frequent face-toface meetings between superiors, subordinate and peers to explain, discuss, interpret and assess the impact of information gathered to cultivate the

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innovativeness

4.0 Analysis of Assessment findings :

Beliefs control system : People in organization want to contribute; choose to do right; strive to achieve; like to innovate; and want to do competent work; but may be prevented by organizational blocks due to lack of motivation, commitment and unclear of reinforcement towards organizational mission & vision. Further improvements are essential as to address the following systemic strategies :

To translate the strategy of the business into a detailed plan to create value To evaluate whether sufficient resources are available to implement the intended strategy To create a foundation to link economic goals with leading indicators of strategy implementation To motivate employees & managers to achieve strategies.

Setting Boundaries: Cause & effect relationship is unclear in the area of R&D activities conducted. Therefore, definition of clearer rules & regulations are needed in order to achieve optimum business goals and objectives.

To communicate specific risks to be avoided, disseminate the information to all level. Define standards of business conduct for all employees in order to minimize the boundaries ambiguity. Punish noncompliance with business conduct codes as to avoid recurrence from all employees.

Diagnostic Control Systems:

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Performance measurement plays a crucial role in product innovation ( Mc Quarter et al, 1998 ). It is a key process of measuring the product development efficiency and effectiveness. These performance measurement system is not only concerned with collecting data associated with a pre-determined standard or specifications. It is an overall management system involving prevention and detection aimed at meeting conformance to internal and external customer requirements.

* Set or negotiate targets, to ensure the achievement of business strategies,managers personally negotiate performance goals with subordinates

Receiving updates and exception reports: monthly or quarterly updates and exception reports. Short quarterly review meetings are necessary to be scheduled to review progress against preset goals. Following up on significant exceptions: if a critical performance variable is off target, managers must devote the necessary attention and resources to bring the variable back in line (Simons, 1995). Design and maintain the R&D innovative measurement system in line with competitive dimension through Quality conformance, Timeliness monitoring, Productivity value added, Safety awareness and Environment control ( Maskell, 1991).

Interactive control system : The R&D innovation process are deeply connected with information transformation where decision making and opportunities seeking are gathered and processed in an effective and creative way ( Hagedoorn, 2002). Necessary and appropriate information must be made available to the right place, at the right time and in the feasible format. Therefore, communication is a vital and basic necessity for R&D innovativeness. According to Baets (1998), learning occurs in any organizations with information and knowledge are dynamically utilised and updated. Thus, the better project members are connected with each other and with key outsiders such as suppliers and customers the better the performance of the development team. Undeniably, the impact or linkages of communication, cooperation and inter-functional harmony are strongly tied to the success of innovation. Below are the immediate improvement actions needed :

Schedule frequent face to face meetings within departmental staffs to discuss data and demand response from all the engineers from R&D manager. Develop systematic data gathering and compilation as to support appropriate documentation.

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Facilitate and establish more frequent interactive processes in order to generate innovative ideas from all level of staffs.

Implement Internal Controls One of the key skills in effective innovation management is balancing and matching the product strategy & portfolio management to the firms competencies and capabilities in technology and marketing ( Schilling, 2010). A product strategy should define the aims and objectives of the product innovation effort in line with company overall strategy, specify product market to focus on and formalize the optimum organizational structures for innovative and creativity implementation. It should also bring to the attention of team integration and permit delegation. Portfolio management recognizes that organizational development effort to innovate inclusive of radical new, innovative products as well as small scale and incremental redesign. Cooper (1999) mentioned that company must maximize the value of the portfolio and seek the right balance of opportunities. Therefore, correct strategy are vital to decides project selection and criteria must be selected that can measurably compare how products support the organization strategy. Following are the strategic internal control needed in Betamek Electronics : Structural safeguards: ensure clear definition of authority for individuals handling assets and recording accounting transactions. Systems safeguards: ensure adequate procedures for transaction processing. Staff safeguards: ensure that accounting and transaction-processing staff have the right level of expertise, training and resources.

5.0 Outcomes that influence the innovation level of employees & organization:
without a good understanding of the marketplace the product development process

would not have any focus. (organisation.)

less interactive control as members of different functions within the organisation met

face-to-face to debate information and challenge assumptions about innovation ideas. Very less innovative idea being triggered. ( employee & organisation)

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 Employees unable to think outside the box, resulted very low numbers of radical new

ideas contributed for innovative development. ( employee)

Without concentration to focus on ideas selection that would support Betameks

vision and strategy. Fragmented and unrealistic ideation always in place. (organisation.)
Ideation ranking and screening by application of stage-gate was not exist. This would

disable the prioritisation of idea generation towards the potential adaptation and implementation. Some valuable innovative ideas were side-placed and unable to capitalise to the right entry-time and ultimately losing out companys potential strategic competitive advantage. (organisation)
Without project briefs control system in signalling the start of a project and broadly

defined the type of product to be developed and the market for which it was being developed. It was also uncertainty of communication signal to all the functional departments of the firm that resources would soon be needed to develop the product. (organisation.)
With the current level of MCS dimensions, only short-term planning and execution of

innovation possibilities could be met. Hardly available long-term strategic and financial goals would be planned, organised and implemented to achieve firms objectives in align with internal strengths and core competencies. (organisation.)
Short of employee empowerment such as idea generation incentives to motivate and

drive the innovative working environment. R&D department did not create an innovative oriented environment that encouraged the generation of new ideas. ( employee)
There are lacking of innovative application tools in the working environment. Such

tools missing could be Quality Function Deployment (QFD ), six sigma quality system and Failure Mode Effect Analysis ( FMEA) that served as a platform for the innovation existence ( employee & organization).
The existing MCS do not provide and reflect the sufficient participation from Top

management in order to provide maximum drive to the organization innovative culture.

6.0 Conclusion : Management Control is a process that ensures desired objectives will be achieved and all the activities are planned to conform according to conformity. Control can not be carried out without objectives and plans, standardization and design are key elements while building control in R&D functional department. Standardization is carried out through formalization of work processes, skills, behaviour, process outputs, and other organizational factors. Design
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aspects of control are employed with job specification, formalization of the behaviour and job training and indoctrination. Evidence of assessment shown that management control as strategic measures is considerably weak in Betamek R&D department. The 4 lever of control system were studied and evaluated to gauge the innovation capabilities and its maturity. It was identified that starting point of R&D strategy formulation emerges from the mission and values of the organization ( Beliefs control). Strategy also function as a position, communicating to the individuals of an organization how to compete ( Interactive control ). Third angle is plan, which means that the strategy can be implemented through setting goals and targets ( Diagnostic control ). Fourth, strategy can be also seen as patterns of action, which can be understood as adjusting the strategy continuously through learning and feedback ( Boundary control ). There are many approaches and techniques in management practice aimed at increasing goal attainment and performance through their effect on employee motivation. Empowerment is established as one of these approaches . It supplements the traditional method of motivating employees with rewards and punishment alone. Empowerment has been observed to have a significant influence on group decision-making ability, interdepartmental communication, innovation, commitment to stakeholders, and increased quality . It was noted that Top management participation are equally important in making the innovative environment and strategy in place. The Managing Director of Betamek Electronics is the best actor to drive the innovative working atmosphere.

7.0 Recommendations : An open culture helps employees to innovate and come up with new ideas and concepts (Martins and Terblanche, 2003). Performance of employees and their projects should be benchmarked with the best practices in the industry. The organization should use professional and target oriented management of people, finance and other resources. Quality Management system of ISO TS 16949 concepts should be used extensively that places a highimportance on documentation and standardisation of control which something that Betamek Electronics are short of . With the application of proper performance measures such as Failure Mode
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Effect Analysis ( FMEA ) put into development stages, the commercialisation of innovation would be much more realistic and achievable. But the disadvantage of adopting a new Quality management system would required total participation from all cross functional department which would occupied large functional area system modification or transformation. And also the result of new system can only be assessed and evaluated after some timeline.

According to Schilling (2010), there is a growing recognition of the importance collaborative R&D networks for successful innovation. The collaboration in between could come from joint ventures, licensing and second sourcing agreement, research associations and value added networks for technical interchange. Collaborative research is consider highly adoptable and feasible for the case of Betamek Electronics because it is very unlikely that its R&D department will posses all of the resources and necessary capabilities to develop and implement a significant innovation ( Hagedoorn, 2002). But the drawback of collaborative research is that it would involve huge amount of monetary investment especially Betamek Electronics is consider just a small organisation that only targeted at local Original equipment market. And the work force of R&D staff are necessary to increase accordingly.

Future research in Betamek R&D department could look at different management control structures such as budgeting or could even take a departmental view by examining how different levers of might be used within a function (such as technology or marketing) during the product development process. This would match a budgeting management control structure as the budgeting process seemed to be related to departments but not the product development process.

8.0 References : 1. Baets,W.R, 1998, Organisational Learning and Knowledge Technology in a Dynamic environment. Boston: Kluwer Academic Publishers.
2. Cooper, R.G, 1999, From experience: The invisible success factors in product

innovation. Journal of Product Innovation Management.

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3. Davila, A., Epstein, M. J., & Shelton, R. 2006. Making Innovation Work: How to Manage it, Measure it and Profit from it. New Jersey: Wharton School Publishing 4. J. Hagedoorn, 2002, Inter-Firm R&D partnerships an Overview of Major Trends and Patterns since 1960, Research Policy 31.
5. Martins, E., & Terblanche F., 2003. Building organizational culture that stimulates

creativity and innovation. European Journal of Innovation Management 6. M.A Schiling, 2010, Strategic Management of Technological Innovation, Third Edition, Mc Graw Hill.

7.

Maskell, B.H, 1991, Performance Measurement for World Class Manufacturing,

Cambridge: Productivity Press. 8. Mc Quarter, R.E, Peters, A.J. Dale and Rooney, E.M., 1998, The management and organizational context of new product development: Diagnosis and self assessment, International Journal of Production Economics. 9. Simons, Robert 1995 Levers of Control: How Managers use Innovative Control Systems to Drive Strategic Renewal. Harvard Business School Press

10. Simons, R., 2000. Performance Measurement and Control Systems for Implementing Strategy: Text and Cases. Prentice-Hall, Upper Saddle River, NJ

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