2.  What is a contract?  What is an employee contract?  What do you think it means to have an incomplete contract? ◦ http://en.wikipedia.org/wiki/Contract_theory#Inco mplete_contracts http://en.wikipedia.org/wiki/Contract_theory#Inco mplete_contracts

3. Grading Breakdown Component % Final Project (group)30% Initial Assignments20% Class Participation (3 days x 10% each)30% In Class Assignments and Quizzes20% Risks if too much group work (versus individual)? Risks if I make class participation 5% of grade? 50% of grade?

4.  In information systems we talk about using information to gain strategic advantages and manage the organization better ◦ In and Management Control Systems (MCS) we think about how to effectively execute on whatever strategy we are given and decide exactly what information will help manage the organization better  In information systems we think about the technology that carries that information and how it is changing the way we do business ◦ In MCS we think about getting the right information to aid in execution ◦ Two types of management information (interrelated)  Decision-facilitating  Decision-influencing

5.  You will be given book chapter(s) and a case  You will be given specific questions to answer for each case We discuss the chapter We discuss the case Put together the theory and reality

6. Strategy Formulation Management Control Objective Setting What we want to do How we will do it Execution

7.  Without objectives, it is impossible  to assess whether the employees’ actions are purposive  to make claims about an organization’s success  Objectives can be  financial or non-financial  quantified, explicit or implicit  economic, social, environmental, societal

8.  Strategies define HOW organizations should use their resources to meet their objectives. ◦ Specified ◦ Emerging  Hence: ◦ Strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors.

9.  The process by which management EXECUTES on strategy: ◦ ensures that people in the organization carry out organizational objectives and strategies; ◦ encourages, enables, or, sometimes “forces” employees to act in the organization’s best interest.  Management control includes all the devices/mechanisms managers use to ensure that the behavior of employees is consistent with the organization’s objectives and strategies.

10.  Strategic control (HOW do we continue to meet our objectives over the long run?) ◦ External Focus  Do we add value for the customer? ◦ Is our strategy (still) valid? ◦ Strategy revision  “intended” vs. “emergent” strategies.  Management Control (HOW do we EXECUTE on our strategy) ◦ Internal Focus ◦ Are our employees likely to behave appropriately? ◦ Key Questions  Communication - Do employees understand what we expect of them?  Motivation - Will they work consistently hard and try to do what is expected of them?  Capabilities - Are they capable of doing what is expected of them?

11.  Do they understand what we expect of them?  Lack of direction  Will they work consistently hard and try to do what is expected of them?  Lack of motivation  Are they capable of doing what is expected of them?  Personal limitations

12.  Management control is about encouraging PEOPLE to take desirable actions  Hence, management control has a Behavioral Orientation  Agency Problem (basic psychology in an economic setting) ◦ Agents and Principals act in their own interests sometimes to the detriment of the organization  MCS aim to mitigate agency costs

13.  Employees do not know what the organization wants from them.  When this lack of direction occurs, the likelihood of the desired behaviors occurring is obviously small.  How to control? ◦ Communication+ Reinforecment

14.  When employees ‘choose’ not to perform as their organization would have them perform  Lack of goal congruence ◦ Individual goals do not coincide with organizational goals  Self-interested behavior ◦ Generally, individuals are prone to act in their self interest  agency problem and costs  different objectives  take long lunches, overspend on things that make life more pleasant, use of sick leave when not sick, etc. ◦ More extreme examples of motivational problems:  Employee crime (fraud and theft).

15.  Sometimes, people are “unable” to do a good job because of certain personal limitations they have.  The Peter Principle ◦ lack of requisite knowledge, training, experience ◦ employees are promoted above their level of competence  http://www.amazon.com/Peter-Principle-Laurence- J/dp/1568491611 http://www.amazon.com/Peter-Principle-Laurence- J/dp/1568491611 ◦ some jobs are not designed properly  Possible policies/control to mitigate the Peter Principle ◦ Training ◦ Job Assignment ◦ Job Design

16.  “GOOD CONTROL”  “GOOD CONTROL” is said to take place when there is a “high” probability that the firm’s objectives will be achieved; ◦ a “low” probability that major unpleasant surprises will occur. ◦ No such thing as Perfect control  Therefore, controls should be: ◦ Future oriented – proactive not reactive ◦ Objective – driven ◦ Economically desirable

17.  Control Problem Avoidance ◦ Activity elimination  e.g., outsourcing, divestment ◦ Automation  Computers/robots eliminate the human problems of inaccuracy, inconsistency, and lack of motivation  Only applicable to relatively easy decision situations  Automation can be very costly ◦ Centralization  Superiors reserve for themselves the most critical decisions  Management Control Systems

18.  Results Controls (Chapter 2) – Atlanta Home Loan, Armco, Inc. AirTex  Action Controls (Chapter 3) - Atlanta Home Loan, AirTex  Personnel Controls (Chapter 3) – Atlanta Home Loan, Alcon Labs, AirTex

19.  To get you started with case discussions we will have our first discussion on Blackboard before you come to campus ◦ Read the questions (found in Blackboard under “Case Questions.docx”) for the case entitled Atlanta Home Loan and prepare to comment in the discussion board in Blackboard ◦ Read all comments on the discussion board including those of other students. You can comment on their comments too  This is like a “pseudo” case discussion that will get you prepared for class

20.  Read All Chapters in MCS section (they are short)  Read the questions for each case and read each case (schedule explains suggested reading order)  Jot down notes on each case and answer the questions  Bring those answers to class so we can have fruitful case discussions

21.  Balanced Scorecard Group Project ◦ Find an IPO firm of your choice and develop a balanced scorecard and a strategy map for ◦ Write up a report ◦ Present your project to the class on “exam” day ◦ Start thinking of IPOs you may be interested in from the last 2 years. Your group will have to choose a company before you get to campus  You will get a separate correspondence related to this project