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Differentiated Strategies &Service Organizations

Chapters 13 & 14

Management Control Systems, 11th Ed.,

Anthony and Govindarajan

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Differentiated Strategies

Corporate Strategy

The right mix of businesses Single industry

Related diversified industries

Unrelated diversified industries

Allocation of resources to support the mix

Business Strategy

How to compete in a particular market

Based on the resources allocated by the corporate

strategy

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Organizational Structure

Continuum

From single industry (Functional)

Through related diversified (Business units)

To unrelated diversified (Holding company)

Must be considered in developing a

management control system

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Control Considerations

Increased diversification reduces knowledge

levels of management

Results in increased vertical planning systems

Results in greater budgetary control at lower

levels

Results in less subjectivity for incentive plans

Results in less goal congruence at the highestcorporate level

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Business Unit Strategy

Basis how to compete in a given market

Usually have one of four missions Build

Hold

Harvest

Divest

Two ways to compete Low cost

Differentiation

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Implications

Build

Less certainty, greater subjectivity Use of interactive control systems

Hold

Greater certainty, balance of subjectivity andobjectivity

Heavier use of diagnostic control systems

Harvest

Almost absolute certainty, greater objectivity

Use of diagnostic control systems

Divest

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Top Management Style

Managers are different

Management control systems must take that

into consideration Personal versus impersonal controls

Tight versus loose controls

Want some examples?

All taken from Fortune, November 18, 2002

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John PattersonNational Cash Register Company

1884-1921

Three-step approach to employeedevelopment

Break a mans self-esteem

Rebuild it from scratch Then fire him

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John F. WelchGeneral Electric

1981-2001

Redefined the CEOs central purpose in

life:

Increase the stock price, pure and simple

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Albert J. DunlapScott Paper / Sunbeam Corporation

Mid 1990s

Scott Paper

Boosted stock price by 225%

Cut 11,000 employees, R&D, plantimprovements, and almost everything within

reach

Im a superstar in my field, much like MichaelJordan in basketball

Sunbeam Corporation Bankrupt

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Service Organizations

General Characteristics

Quality Control

Labor Intensive

Often Multi-Unit

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Organization Types

Professional Services

Financial Services

Health Care OrganizationsNonprofit