Decision Making and Control chapter eleven McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

11-2 Chapter Outline The decision-making process Centralized vs. decentralized decision making Global examples of employee participation in decision making Types of controls: –Personal (direct controls) –Bureaucratic controls –Indirect controls –Cultural controls

11-3 Decision-Making Process

11-4 Factors Affecting Decision Making Authority

11-5 The Importance of Centralization Most evidence indicates that most decision-making approaches used around the world favor centralization of authority

11-6 Decision-Making in U. S. Multinationals Most use fairly centralized decision making in managing overseas units Provide the necessary control for developing and implementing a worldwide strategic plan Ensure that all units are operating according to the strategic plan

11-7 Employee Participation in Decision Making Quality circles The ringi system in Japan Employee representation on company boards of directors Legal requirements for employee participation in the European Union –Works Councils –European Works Councils

11-8 The Ringi System in Japan A proposal (ringisho) is made by a middle manager. –There is consultation with other groups at the same level (nemawashi or root-tying). The proposal may be modified. If the proposal is endorsed by the other groups, it is forwarded to the next higher level of management, where more consultations occur. This process is repeated until the proposal reaches top management, which can accept the proposal, send it back for more analysis and development, or set it aside.

11-9 Employee Representation on Company Boards of Directors Common in large companies in Germany, the Czech Republic, Denmark, Sweden, Slovakia, Slovenia Legally required in Germany and Sweden Workers usually have 1/3 of board seats

11-10 Works Councils In the European Union, all but the smallest companies must establish works councils in each EU country where they do business. Works Councils are usually established at each company facility. They include both union and management representatives They deal with issues related to job security, working conditions, company performance, and administering the labor contract.

11-11 European Works Councils A company must establish a European Works Council if it has –at least 1,000 employees in the EU –at least 150 employees in each of two member states The European Works Council deals with issues that are of concern to employees in more than one EU country.

11-12 Controlling The process of evaluating results in relation to plans or objectives and deciding what action, if any, will be taken –Decision making may be based on quantitative or qualitative data, or a mixture of the two. –Some MNC’s centralize control, while others decentralize at least some control.

11-13 Areas that are Commonly Controlled Financial performance Market performance Quality performance – controlled through statistical process control –The role of quality circles is to improve quality. Personnel performance

11-14 Types of Controls Personal controls (direct controls) Bureaucratic controls Indirect controls Cultural controls

11-15 Personal Controls An executive maintains control through personal contacts with subordinates. –Meetings –Video conferences –Visits to overseas operations Managers for overseas operations may be selected on the basis of responsiveness to home office concerns and requests.

11-16 Bureaucratic Controls Bureaucratic controls are based on a system of rules and procedures. In MNC’s the most important forms of bureaucratic control are: –Budgets, which control the way that overseas businesses allocate and use their money. –Capital spending rules ensure that overseas units spend capital funds in a way that is consistent with corporate objectives. Budgets and capital spending may be negotiated between headquarters and the foreign subsidiary.

11-17 Indirect Controls Reports that foreign operations must submit to headquarters Key financial data –Financial statements that meet the reporting requirements of the host country –Financial statements that meet the reporting requirements of the home country –Statements prepared to meet the financial consolidation requirements of the home county Financial statements show whether the foreign operation has met its profitability, revenue, and cost targets.

11-18 Indirect Controls (2) Other reports showing whether the foreign operation has met its targets in other areas market share and quality. Targets are often negotiated between headquarters and the subsidiary. Headquarters management usually tries to set goals that are challenging but achievable.

11-19 Indirect Controls (3) Control is achieved by comparing the foreign subsidiary’s performance with the targets. –Managers who exceed the targets will be rewarded. –If targets are not met, corporate management will intervene to find out why and take corrective action.

11-20 An Example of Cultural Differences in Budget Controls U.S. Managers Annual budgets The budget is a control tool. Budgets should be based on expense forecasts that are as accurate as possible (not much “slack”) Japanese Managers Long-term budgets The budget is a communication tool. Budgets should have more “slack” than U.S. companies allow.

11-21 Cultural Controls Cultural controls exist when employees “buy in” to the norms and value systems of the company. –When cultural controls are strong, employees tend to control their own behavior, which reduces the need for supervision. –Some companies have extended cultural controls to their long-term suppliers.