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Chapter 8 Strategic Control

Learning Objectives After reading this chapter, you should have a good understanding of:   The value of effective strategic control systems in strategy implementation.   The key difference between “traditional” and “contemporary” control systems.   The imperative for “contemporary” control systems in today’s complex and rapidly changing competitive and general environments.   The benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries. 8-3

Ensuring Informational Control   Traditional control system   Based largely on the feedback approach   Little or no action taken to revise strategies, goals and objectives until the end of the time period 8-4

Ensuring Informational Control   Contemporary control system   Continually monitoring the environments (internal and external)   Identifying trends and events that signal the need to revise strategies, goals and objectives 8-5

Traditional Approach to Strategic Control   Traditional approach is sequential   Strategies are formulated and top management sets goals   Strategies are implemented 8-6

  Traditional approach is sequential   Performance is measured against the predetermined goal set   Control is based on a feedback loop from performance measurement to strategy formulation   Process typically involves lengthy time lags, often tied to the annual planning cycle Traditional Approach to Strategic Control 8-7

  This “single-loop” learning control system simply compares actual performance to a predetermined goal   Most appropriate when   Environment is stable and relatively simple   Goals and objectives can be measured with certainty   Little need for complex measures of performance Traditional Approach to Strategic Control 8-8

  Relationships between strategy formulation, implementation and control are highly interactive   Two different types of control   Informational control   Behavioral control Contemporary Approach to Strategic Control 8-9

  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 conditions for success Contemporary Approach to Strategic Control 8-10

Informational Control   Deals with internal environment and external strategic context   Key question   “Do the organization’s goals and strategies still ‘fit’ within the context of the current strategic environment?”   Two key issues   Scan and monitor external environment (general and industry)   Continuously monitor the internal environment 8-11

Informational Control   Traditional approach   Understanding of the assumption base is an initial step in the process of strategy formulation   Contemporary approach   Information control is part of an ongoing process of organizational learning that updates and challenges the assumptions underlying the firm’s strategy 8-12

Question What are two compelling reasons for an increased emphasis on culture and rewards in implementing a system of behavioral control? 8-13

  Behavioral control is focused on implementation—doing things right   Three key control “levers”   Culture   Rewards   Boundaries Behavioral Control: Balancing Culture, Rewards, and Boundaries 8-14

Behavioral Control: Balancing Culture, Rewards, and Boundaries 8-15

Behavioral Control: Balancing Culture, Rewards, and Boundaries  Contemporary approach  A balance between Culture Rewards Boundaries  Traditional approach  Emphasizes comparing outcomes to predetermined strategies and fixed rules 8-16

Question Organizational culture shapes a firm’s: a) People b) Organizational structures c) Control systems d) All of the above 8-17

Building a Strong and Effective Culture   Organizational culture is a system of   Shared values (what is important)   Beliefs (how things work)   Organizational culture shapes a firm’s   People   Organizational structures   Control systems   Organizational culture produces   Behavioral norms (the way we do things around here) 8-18

  Culture sets implicit boundaries (unwritten standards of acceptable behavior)   Dress   Ethical matters   The way an organization conducts its business   Culture acts as a means of reducing monitoring costs Building a Strong and Effective Culture 8-19

Example: Researchers are Breaking the Rules   Numerous researchers are falsifying their research to compete with the intense competition within the field of science.   Organizational culture of a company, not an individual’s failing character, is the underlining cause for unethical behavior of researchers. Source:. “Many Researchers Break the Rules: Study,,” Forbes. April 13,

  Effective culture must be   Cultivated   Encouraged   Fertilized   Maintaining an effective culture   Storytelling   Rallies or pep talks by top executives Building a Strong and Effective Culture 8-21

Question Rewards and incentive systems are all of the following except: a)They are powerful means of influencing an organization’s culture b)They are focused efforts on low-priority tasks c)They can motivate individual and collective task performance d)They can be an effective motivator and control mechanism 8-22

Motivating with Rewards and Incentives   Rewards and incentive systems   Powerful means of influencing an organization’s culture   Focuses efforts on high-priority tasks   Motivates individual and collective task performance   Can be an effective motivator and control mechanism 8-23

  Potential downside   Subcultures may arise in different business units with multiple reward systems   May reflect differences among functional areas, products, services and divisions   Shared values may emerge in subculture in opposition to patterns of the dominant culture   Reward systems may lead to information hoarding, working at cross purposes Motivating with Rewards and Incentives 8-24

  Creating effective reward and incentive programs   Objectives are clear, well understood and broadly accepted   Rewards are clearly linked to performance and desired behaviors   Performance measures are clear and highly visible Motivating with Rewards and Incentives 8-25

  Creating effective reward and incentive programs (Cont.)   Feedback is prompt, clear, and unambiguous   Compensation “system” is perceived as fair and equitable   Structure is flexible; it can adapt to changing circumstances Motivating with Rewards and Incentives 8-26

Example: That’s Management   Goal - Motivate your team to deliver immediate results   How - incentives and rewards, clear goals, and a passionate attitude about winning   Never stop thinking about developing your people   Internal training programs or outside courses, give different experiences and stretch assignments, and encourage risk taking

Setting Boundaries and Constraints   Focus efforts on strategic priorities   Norman Augustine’s four criteria   Be high-tech   Be systems-oriented   Deal with large customers   Be in growth businesses 8-28

  Short-term action plans   Specific   Can be implemented   Individual managers held accountable for implementation of action plans   Short-term objectives   Specific and measurable   Specific time horizon for attainment   Achievable, but challenging   Provide proper direction, but be flexible when faced with need to change Setting Boundaries and Constraints 8-29

  Improving Efficiency and Effectiveness   Rule-based controls characteristics Environments are stable and predictable Employees are largely unskilled and interchangeable Consistency in product and service is critical Risk of malfeasance is extremely high Setting Boundaries and Constraints 8-30

Question Which of the following types of controls is most appropriate in an organization where consistency in product and service is critical? a) Bureaucratic controls b) Systematic controls c) Cultural controls d) Rule-based controls 8-31

Organizational Control: Alternative Approaches ApproachSome Situational Factors Culture: a system of unwritten rules that forms an internalized influence over behavior. Rules: Written and explicit guidelines that provide external constraints on behavior.  Often found in professional organizations  Associated with high autonomy  Norms are the basis for behavior  Associated with standardized output  Tasks are generally repetitive  and routine  Little need for innovation or creative activity 8-32

ApproachSome Situational Factors Rewards: The use of performance-based incentive systems to motivate.  Measurement of output and performance is rather straightforward  Most appropriate in organizations pursuing unrelated diversification strategies  Rewards may be used to reinforce other means of control Organizational Control: Alternative Approaches 8-33

Evolving from Boundaries to Rewards and Culture   Organizations should strive to have boundaries internalized   System of rewards and incentives coupled with a strong culture Hire the right people (already identify with the firm’s dominant values) Train people in the dominant cultural values Have managerial role models Reward systems clearly aligned with organizational goals and objectives 8-34

Example   Stock-option stashes grew 47% from the previous year for CEO’s   Soaring stock-option growth indicates CEOs pay is directly related to their good performance   Watson Wyatt believes the compensation package offered to CEO’s is in accordance with the job market   If the board of a company could hire someone to do the job for less, they would hire that individual Source: Clark, Hannah. “Stock-Option Stashes for CEOs,” Forbes, February 28,