Introduction to Management control

information system
1. Controlling a car
 -brakes &
•
accelerator 


2 controlling temp. of •
body/driving car
– Sensory nerves/eyes
• Sensor or detector
– Brain •
– Muscle & organs/legs
& hands • Assessor


• Effectors

 Management control
It is a set of interrelated communication
structures that facilitates the processing of
information to assist the managers in
coordinating the parts to achieve goals on
continuous basis bringing out the unity
/harmony out of the diverse activities.
 Management control /simple control

• Standard ( like 98.6 ) are not preset

• It is adaptive & needs planning & control
together
• Not automatic as car because it involves
human beings
• Coordination among individuals
• Actions taken are not specified
• It is more about self control

 System
A prescribed & repetitive way to carry out
operations.But the management problems
are uncertain & complex.
Systematic control
-formal management control
e.g.:-task control
Unsystematic control
informal management control e.g.:-
strategy control (IBM mainframe to PC )
 PURPOSE OF MCIS

• Planning of activities- control actual accomplishment with

set plans


• Coordinating Activities- Harmony among functional unit

•
• Communicating - information to various levels of
hierarchy
•
• Evaluating - information & decide actions
•
• Influencing - people to change their behaviour


•
 Domain of MCS
• Strategic planning
– Control of strategy


• Management control
• Task control
– Control of operations
 End term 2008 10 m
Strategy Management Task control
formulation control
unsystematic Lies in between Systematic

Top managers Staff at all levels Task group

Threat,estimate , Not very often scientific

opportunities

Top managers Interaction Use of computers

between &
managers man
 Definition of MCIS
Process by which managers influence others
-Anthony & Govindrajan
Basic phase & essential part of M’ment functions
-Newman
Cybernetic view- entire organisation is a control
system & considers both strategy
& operations
-Stafford Beer
Book “ cybernetic 1947” – Norbert Weiner
 Organisation context of MCS
• Organisation is divided into sub units having independent
autonomy & objectives
• MCS lowers cost to coordinate them
• MCS bring out efficiency & effectiveness
• Now MCS meet requirement of constituents & overall
purpose both
• Facilitates adaptation, innovation.
• To maintain MCS- Understand human behaviour as
human beings are
rational, creative, strong /week morals, desire
association/community
 Adaptive control system
• System is said to be adaptive when its sub systems are
internally consistent with each other
• Control system of two organisation differs but basic 5
subsystems are common
•
• Formal system makes explicit the structure, rules, procedures,
policies to be followed by the managers by documentation
- Plans, budgets, regulations, quotas
•
• Informal system consists of interpersonal relationships &
supplement adaptability in dynamic & unpredictive
environment - strategy control
Infrastructure Management style & culture
•Organisation structure
•Strategy/SBU
•Prevailing style
•Operations
•Pattern of autonomy •External/internal/mixed
•Measurement methods Principal values (corporate
•Responsibility centers culture)
•Transfer pricing •Norms & beliefs
•
•
•Formal control process
•Strategic planning -capital budget
•Operation planning – cost account &
budgeting
•Reporting systems ( monthly/qtrly )
•Operation/variance analysis
•Strategy & project M'ment
•
• Coordination & integration
•Standing committee
Rewards •Strategy ( Top
•Individual & group Mgmt.)
•Strategic & operational •Operations
•Promotion policy •Formal conference
•Involvement techniques
Infrastructure Management style & culture
•Personal contacts Management style & culture
•Networks
•Expertise oriented •Prevailingstyle
•Prevailing style
•Minimal structure •External/internal/mixed
•External/internal/mixed
•Emergent roles Principal values
( informal relationship) •Norms
Principal values & beliefs
•Norms & beliefs

•Informal control process

•Search /alternative generation
•Adhoc ( for particular purpose )
•Uncertainty coping
•Rationalization/dialogue
( compare with value & beliefs)

Informal rewards Coordination & integration

•Recognition & respect
•Status oriented
•personal involvement of giver
•Performance & stature oriented
•Based upon trust
•Simple /direct/personal/cross org
group
•Telephone/communication vehicle
•Personal memo/adhoc teams
 Interaction between
formal & informal system
• Control system should support org. in both stable &
unstable environment
• Both formal & informal control system support/overlap
each other
• In times of major change---informal dominates
• When environment settles---formalise rules,procedures
• Key is to use the system according to situation
• Each sub system in a system support the other.
• Both set of subsystems mutually supportable
• Indoctrination socializes members to values/policies while
 skill training imparts knowledge of methods.combination
is effective for a control process
 ATTRIBUTES OF A SYSTEM

• System in an org is Open/Adapt to changes

• Local autonomy at sub units relates to style of m’ment
• Sub units interlinked by communication structures
• Negative feed back occurs when deviation
• Positive when system reinforces current action
• Control systems control key variables
• Control system reduces entropy ( tendency to go chaotic)
• Control designed to handle probs which are uncertain
• System allow variety of behaviour to accommodate
alternative states of environment
•


•
 CYBERNETIC SYSTEM OF
MCIS

Prediction Values
source Initial & &. Initial
data inference choice action
s

Feedba Values
Prediction
source ck & Action
& inference
data choices
 CYBERNETICS APPROACH TO
CONTROL
• Kybernetics----steersman---person who directs the
movement of ship along the planned course
• Norbert Weiner coined the term
• Study of entire fieldof control whether man or machine ,
strategy (planning) or operations ( process)
• It sets some norms or target -----the action is taken-----
observations……feedback recovered in data bank------
next process
•
•
•
 ORGANISATIONAL DISASTER &
MANAGEMENT CONTROL
• Impossible to predict disaster but steps may be taken to
minimise it
• External factor difficult to control while internal can be
• No control at time of disaster
• SBU provides qualitative reports about causes & harms.
• DISASTER DISASTER
 FORECASTING PREPAREDNESS


 POST DISATER
 OPERATIONS FACING THE
 DISASTER
 ACCOUNTING DATABASE FOR
CONTROL
•
•
• FINACIAL ACCOUNTING----historical-----GAAP/statutory
• COST ACCOUNTING---operational control----only costing
• DECISION ACCOUNTING---problem/decision---make or buy
expand or not
• CONTROL ACCOUNTING---includes overall goals…through
planning phase securing consistency
• RESPONSIBILITY ACCOUNTING---tracing
cost/revenue/profit/ investment to individual sub
units responsible for decision making
•
 INDUSTRIAL DYNAMICS &
MANAGEMENT CONTROL
APPLICANT CURRICULU
M
DP
ADMISSIO
DP
N
DP
DP
PROCESSING

DP

PLACEMENT
 INDUSTRIAL DYNAMICS &
MANAGEMENT CONTROL
• It insights into control through the key role of information
flowing
• Org. is complex interlocking of information channels &
activities
• These channels emerges at various points to control
physical process
• Aim is to arrive at the right decision with the help of
information
• Control systems are concerned with the DP
• At decision points the actual & desired condition are
compared & right decision is taken

 KEY VARIABLES
• A key variable is a significant indicator of business activity
whose sudden & unpredictable change warrants immediate
actions by the management
• SOURCES
 Industry characteristics - occupancy rates/admissions
 Environmental factors - postal rates/rules for
admission/interest rates
 Competitive strategy - low cost strategy--cost
performance
 capacity utilization
 Stakeholders - customers/suppliers/employees
 Significant functions - treasurer for interest rates /
operational manager for quality

 INPUT-THROUGH-OUTPUT MODEL
• Input variable
 raw material availability BSP
 quality Bela Deela / tea taster / cotton selector
 costs Tribal area / buying in season
• Production variables
 capacity utilisation ONGC / PVR / College
 losses Storage / process / Transpt. loss
 quality control crash test/auto testing / placement
 maintenance productive hour lost
 delivery dairy / newspaper
 cost per unit Perk
• Marketing variables
 order book position manufacturing based on orders- turbines
 market share
 institutional sales BHEL / Defense dept


•
 INPUT-THROUGH-OUTPUT MODEL (CONTD.)
• Asset management variables
 asset turnover
 working capital turnover


Some industry & their key variables



• Insurance
• Banking
• Hotel
• Sugar
• Steel
• Management training institute
• Power industry
• Beverage
• Public relations

 OTHER KEY VARIABLES

• Customer orientation identify,anticipate,understand the customer need

• Business acumen taking strategic & operational decision, adaptability
• Leadership to lead by example
• Result orientationclear concrete measurable results
• Training customized training
• Innovation new ideas & perspective
• Technology impact of technology
• Policy guidance about company goals,objectives
• Customer service feedback from customer & staff

LIMITATIONS OF KEY INDICATORS

Unclear specification of unit of measurement— length of canal
GIGO applies to them… should not lack inconsistent information
Absence of consensus among managers--- banking indicators per employee
But also needs qualitative factors
 KEY VARIABLE INTERACTION

Integration effect
Among variables

Environmental Process
variables variable

Strategy Structure
variables variable

Accomplishment
Of
goals
 DIMENSIONS
STRUCTURE organizational autonomy,structure,
centralization,authority -responsibility

STRATEGY long term goals & policies

ENVIRONMENTAL scope,diversity,uncertainty

PROCESS all org. process which influence

human behaviour---participation,
monitoring,motivation
 STEPS OF IDENTIFICATION
• IDENTIFICATION OF DECISION VARIABLES
• INTERACTION WITH THE ENVIRONMENT-political climate
• IMPLICATION OF CONTROL STRUCTURE-
• KEY SUCCESS VARIABLES & CONTROL PARADIGM
EXAMPLE
PUBLISHING HOUSE
• ANNUAL SUBSCRIPTION
PRICE CHARGED TO ADVERTISER
EXP ON PROMOTION OF SALES
EXP ON PROMOTION OF AD SALES
VOLUME OF MAGAZINE
• profit responsibility circulation advertisement
production distribution
• Autonomy,responsibility,decentralization
 DESIGNING MANAGEMENT CONTROL
• Constructive & not punitive exercise
• Fair,challengeable but attainable
• Objectives in measurable terms
• Control focus on objectives & key activities
• Balance among various aspects of activities
• Avoid giving attention to easy measurable factors
• Single individual to be assigned responsibility
• Comparing actual with desired helps to achieve control for next
period
• Identify early warming indicators-absenteeism,inquiries
• We should take acceptable range of variable & sample for data
bank
• Reports should be focused on exception (MBE)

 CONTROL PROCESS HIERARCHY
• Org has many responsibility centers so control process paradigm must include
 superior-subordinate behaviour as well
• Goals or ends ( g )of a Org. are communicated to a subordinate who devises
means to achieve those goals
• These means of the superior become the goals for next subordinate & thus
means-end chain goes on.The goals of the subordinate & superior must be
congruent to each other.
• The superior meets the subordinates----communicates & negotiate specific &
measurable goals (sales)as well as immeasurable goals in financial terms
( quality )----performance tracked-----correction done if needed
• The same process carried out throughout the org. as per hierarchy of control &
thus goal oriented control process follows the cybernetic paradigm &
involves planning(goals) decision making(behavioral choice) &
controls(comparator-feedback).
• Thus responsibility centers are linked with each other & the over all goal of the
org. is achieved
•
•
•
 CONTROL PROCESS HIERARCHY
G
G

G G
G2 G4
1 3

g g1 g1 g1
g7 g8 g9 g13
6 0 1 2
 Decentralization & loose coupling
•
• The limitation on information processing ability of decision makers creates the
need to decentralize decision making authority, sub goals (cost) & to hold
each responsibility center responsible for one small portion of the overall
goals(ROI)


 Example MUL
• Production unit cost,schedule
• Quality control efficiency & effectiveness
• R&D tech innovation—tech & expense objectives
• Marketing revenue & market share,customer feedback
 price cost ratio data


 None of the following responsible for ROI but the ROI (overall goal)enters into
decision making very indirectly.MCIS is knitting all the responsibility centers
 we cannot say that profit is not the goal when we see sub goals of the
responsibility centers but the decision making system is loosely coupled system
 where ROI (overall goal ) is one of the constraints & it enters into sub systems
in indirect ways

 Organizational slack
• Firm achieve goals--------------less pressure on coupling between
overall goals & sub goals of responsibility centers-----may
result in conflict in between different responsibility
centers--------under exploitation of environment -----------
cost & dividend may be higher & extra inventory will be there
& extra expenditure on discretionary expense centers
• Thus total payments to organizational participants
minustotal necessary payments is called as organizational
slack.
• From point of economy slack is not good but in terms of MCIS
small slack act as cushion in variable environment


Example ----Just in time inventory control & TQM


 COMMUNICATION STRUCTURES IN
SUPPORT FOR CONTROL PROCESS
• Control process & communication structures are intertwined
• The designer designs the information processing system & its element to
allow control process to work smoothly (cybernetic model)
• The first element of inform system is formal/informal process which scans
environment & is called environmental scanning
• Next org does planning wherein objectives are set
• Now feed back comes to responsibility centers from external sources through
environmental scanning & by performance measurement system ( both
financial & non financial ) through internal sources
• Reports & decision making procedures analyse the performance against goals
& objectives (standard operating procedures & cost benefit procedures)
• We find a market driven strategic planning,business planning,operating
budgeting in most organisations.
• Apart from abovementioned information flows,we find formal,informal
communication through meetings,day to day contacts,Adhoc
teams,grapevine etc.
•
•
 IMPACT OF IT ON CONTROL
SYSTEM (MID SEM. 2006 10 M)
• Eliminate many layers of organization
• Filters the information
• Rapid communication
• Inventory tracking/order entry makes pricing decision closer to customer
• Spread sheets coordinates the budgets & strategic planning
• Automatic performance measurement systems designed for task control
• Incentives may be based on Automatic performance measurement systems
• Brings unity in diversity----objective of MCIS
• Decrease in cost of information helps in ABC analysis, product pricing,
capital investment, transfer pricing, make Vs buy decision
• Optical scanning equipments improved inventory control.
• Data can be stored & managed easily at lower cost
• Impact of internet-instant access-multi target-costless-display images-round
the clock (customer becomes virtual king)
•
 Corporate culture & design of control system
 Culture consists of shared values,beliefs & norms of the
organization,which grows over time, applied to every
process,problems & reinforces its value every time when it
achieves successful outcome

 Problems occurs when environment changes…..Ex General motors
 stability,cost control,formal rigid


 1970 when environment ( competitors )…failure occurred



 restructuring …. total quality tech & customer oriented

focus



 Three different types of corporate control mechanism
 bureaucracies--- formal rules, procedures, directives
 markets market oriented incentives
 clan driven depends on value & belief to steer
 Normally the org uses optimum mix of all the three but the
simplest & effective coordination occurs when org share
common goals & values.
 Great org has set of beliefs on which policies & actions are
based
 Values &beliefs are key to success but in changing scenario
these have to be changed as we see in example below
Failure of IBM –Watson the founder instilled following beliefs

 respect for individual -job security,intellectual

freedom,life long employed
 customer service –many people buy on basis of what
other says
 dedication for excellence- better to aim at perfection
and miss than it is to aim at imperfection & hit

• In tech revolution phase IBM critical success factors were
hardware,software & tech staff----competitive
environment----massive losses….CEO resigned
• Traditional managerial style…vertical integration…less
autonomy
• Decentralization done----13 separate companies (9 market based
& 4 geographical)
• Along this IBM added “ total quality & empowerment of its
people”
• “Lay off done instead of lifelong employment”
•
•
• WHETHER CORPORATE CULTURE IS AN ASSET OR
LIABILITY
 ASSET ---- If culture is strong & adaptable to
environment
 LIABILITY— if culture is strong but poorly adapted
 LITTLE INFLUENCE—if it is weak or not pervasive
 STRENGTH OF CORPORATE CULTURE DEPENDS
UPON
•
1. THICKNESS….HOW MANY ASSUMPTIONS ARE
SHARED
2. HOW WIDELY THEY ARE SHARED
3. CLARITY


 STEPS IN IMPOSING CULTURAL CHANGE

1. Promote intrinsic motivation
2. Nullify inappropriate justification
3. Communicate the new pattern with “try it & u will like it
“ approach
4. Reward/recognition/penalties to employees
5. Replacing leaders who are resisting change
6. Change in control subsystems
7.

 Cultural changes & impact on adaptive control
system –General electric company
 Chairman Jack Welch
 Manufacturing compressor of refrigerators at louisville plant
 Competitive environment—Mitsubishi(advanced tech),
whirlpool (low cost)
– Necchi offered GE to buy compressor at lower cost
– All signals from formal system pointed that Japanese
will defeat US
 Probs. found & options existed
– $48 for a compressor as compared to $ 24-38 ( buy or
make)
– $17 for labour per hour as compared to $1.7 Singapore
& $1.4 in Brazil (shift to low cost country)
– 65 minutes in louisville 35 min in Necchi & 25 min in
Brazil ( hi tech plant in US)
–

 General electric contd.
• What was done
• Communicate values through shortening of comm. channels,ad hoc
meetings & one-on –one interaction
• Strengthened the informal system by introducing cross
functional teams(infrastructure),recognition programs
(reward structure),constructive conflict emphasized
( coordination),hard headed/soft hearted ( style & culture),best
practices shared among SBU ( informal process)
• Strengthened formal control system by ------Decentralized,
flattened,reduction in staff (infrastructure),drastic increase in
stock options (rewards) ,strong training,councils (coordination
) more informal (style & culture) ,1 or 2 goals to each
SBU,simplified strategy planning ( formal process)
• The managers reasoned---”compressor is heart of refrigerator &
we should not give away our heart”
 General electric contd.
 Changes in corporate culture brought by GE
– To make world class plant strengthen the morale of
engineers that they can do it
– Designing the plant & product together & to automate for
low cost
– Cross functional meets of product & manufacturing
engineers & workers were brought to informal
interactions
– Every piece of machinery is to be American
– Strong training program for workers in automatic
environment
– Once the plant was designed ….formal controls to
monitor cost,quality & productivity will be
implemented ( informal system when environment is
turbulent but when it settles down formal control
system is adopted )
–
 Establishing Total Quality Culture
• In an market where customer is a king ,the organization has to
focus upon customer need as well as efficiency…..&for that
the widely used management system is called a TQM
•
• TQM is a management system that seeks efficient achievement
of all stakeholders expectations by focusing the effort of
every member of the organisation on customers satisfaction
& by using quality techniques
• (nearly 30 ) in each subsystem of management
•
• Zero gap between customer expectation & performance of the
organisation
•
•
 Background of TQM
• Earlier in 1931…..emphasis was on statistical process
control
• Inherent distrust on workers…..there role was just to
maintain schedule
•
• Later,in 1951 Armand Figenbaum …the manager of
quality at GE introduced TQM stressing upon the
integration of
• Quality development
• Quality maintenance
• Quality improvement
•
• Deming presented a series of lectures for quality control
…based on which Japan progressed a lot during 1970-
90 but minimal impact in US

• Juran introduced concept of supplier-customer relationship
•
• Each member of the organization has a customer (internal or external]
• Each recipient of an activity wants a product “fit for use”
• Thus concept of TQM places responsibility of quality on each worker
•
 QFD-Quality function deployment – develop set of techniques
through matrix structure
 expectations in rows & functions in columns
 ( Toyota motors) customer requirement


 product characteristics


 design requirement


 process specification



 Style & culture necessary for TQM
•
• Customer oriented process to satisfy both internal &
external customer
•
• Style that encourage goal oriented team activity
•
• Continuous improvement by every individual
•
• Emphasis on gathering objective data
•
• Seeking new techniques constantly
•
• Belief in every member
 How will you implement TQM
•
•
• Establish the policy & key philosophical principles
• Establish company wide improvement team ( stress on
informal) which will communicate philosophy to lower
level & report progress to top
• Team establishes requirement for product,services,processes
• Measure the gap between customer need & output
• The informal process facilitates active planning
&coordination
• The formal documents the planning & keep the team focused
• The engineering teams include manufacturing,purchasing
,product & process design concurrently
• Adhoc teams are organized to resolve specific issue

 •Style-
participative/team
•SBU •Values
•Prob solving team Strong customer
•Responsibility for quality focus
•Staff support Continuous improve
Innovation
trust
Statistical quality control
Competitive benchmarking
Activity based costing
Target costing
Cost of quality measurement
•
•Based on quality
•Recognition •Training in TQM
•Consistency •Employees
•Skepticism tolerance involvement
•Cynicism rejected •Open & candid comm.
 Managerial style & design of control
system
 EXTERNAL INTERNAL MIXED
•
• Harold Geneen Ed Carlson Roy Ash
•
• ITT United airlines Litton industries
•
• decision making at participative participation
 top after gathering data with central
 from lower level direction
•
• powerful center, 1700 cost & revenue diversified
 authoritative centers ( decent.) but decision
 at HQ (IBS)
 Contd.
EXTERNAL
 INTERNAL MIXE
•
• Incentives Bonus & Recog. Promote best
•


• Meeting staff & line personal comm. Numerous small

 formal qtrly meet rotation of Top meets
•
•
• Budgets…reports aspiration/commitment Yearly plan
 bottom up reports,ROI
 Each control style has its MSSM & internal consistency between
control style,culture & sub systems.
• Styles are used according to staff & according to condition.Control designer
must be aware of the impact of the style he wants to implement
 ORGANIZING FOR ADAPTIVE
ORGANISATION

This chapter deals with the



• infrastructural aspects of the organisation

• Influence of strategy on infrastructure
• Control requirements ORGANISATION STRUCTURE
• STRATEGY
• Adaptive organisation • OPERATIONS
PATTERN OF AUTONOMY
MEASUREMENT
• RESPONSIBILTY
CENTER
• TRANSFER PRICING
 TYPES OF ORGANISATION
• FUNCTIONAL UNIT ORGANISATION


CEO

Manufacturing Marketing
manager manager

M M M M
M M R1 R2
P1 P2
 TYPES OF ORGANISATION
• BUSINESS UNIT ORGANISATION

CEO

controller

M M
UNIT X UNIT Y
controller

Plant Marketin
Plant Marketi
manage g
manage ng
r manager
r manager
 Functional organisation
 – Manager is responsible for specific function
– A skilled functional manager can do better than a
manager responsible for both functions
– Can supervise workers in same functions thus
efficiency increases
– Disadvantages
– Organisation cannot adapt easily to environmental
changes
– As decision making is concentrated at top.
Dispute or suggestion at lower level can be
resolved at top level
– Ex- BOEING- Designer & product manager
different
• Afterwards design –build teams introduced
– Ex –GLAXO- Scientist lack business sense
• Afterwards therapeutic strategy teams
 Business structure organization
• Business unit manager are responsible for all functions
involved in producing & marketing of a product line.
• All disputes/suggestions are taken care of in same
unit& performance is measured by profitability of
the BU
• Unit managers work as separate companies
• Business unit manager demonstrate same entrepreneurial
spirit as CEO
• Unit manager is quite close to market as compared to Top
so the unit may react quickly to threats &
opportunities
• Disadvantages
• But this may result in increase in cost
• Boeing resolved cost issue by creating central fabrication
unit & all manufacturing activities of narrow & wide
bodies requiring skill was placed within it
• Unit manager is generalist but subordinate are functional
 WHAT SHOULD CONTROLLER DO

• Looking at the benefits of Business unit organisation ,

controller generally designs the same because control
 over profitability, efficiency, market, staff productivity,
environment is easy by making unit manager responsible.
•
• But control is not the sole criterion for deciding
organizational structure
• Functional organisation may be prescribed for efficiency
as the functional heads can supervise their staff better
• SBU – brings control
• Functional units – brings efficiency
 Decentralization Vs centralization

•
• Controls become less important if there is strong culture
(self control) & quick information processing but when
the organisation has to launch new products lines or
have to go geographically wide then the the complex
organization cannot take decisions & there the need of
DECENTRALIZATION arises.---------------
CHANDLER
•
•
• The multidivisional structure is a decentralized structure
where in divisional managers have a fair degree of
autonomy & held accountable for profit & asset
utilization ( efficiency ).Each unit is called as a
responsibility center.
 BENEFITS OF DECENTRALISATION
• Closer control & coordination within the division
• Facilitates information processing as analysis of trade off
between cost, revenue & investment is at lower level
closer to impact of decision
• Managerial motivation as they are empowered to take
decision
• Evaluate performanceof organizational sub units
• Ensures the managers a right environment & autonomy
and are trained to take right decision
( entrepreneurship)
• Decentralization should be done if :
• when benefit is more than cost
• Large projects to support permanent
functional organisation
• Company can support functional groups on
continuous basis
 EVOLOUTION OF MATRIX

CEO

PERSO
MRKT. ENGG MNF. PROJ
N.
M M. M M.
M

PROJ PROJ PROJ

M1 M2 M3
 MATRIX STRUCTURE
• It is a mixed organizational form in which normal hierarchy is
overlayed by some form of lateral authority, influence &
communication
• Conditions when matrix is deployed
– High division of labour & specialization (high skill or
technology)
– Large projects,high tech projects,complex products &
services,operation in many countries
• Characteristics of matrix
– Responsibility of coordination & ROI on manager who is
handling project ( control & coordination)
– Share the resources economically among various projects
(efficiency)
– Ex Defense, heavy electrical, construction
– Matrix manager has responsibility for project as well as
they have to share resources from specialized functional
groups
 PROJECT ORGANISATION
Program. Program 1 Program 2 Program 3 Total
functions Functional
(DAM) (BRIDGE- (HIGHW- output
S) AYS)
engineering Hrs/units/
rupees

Procurement

Quality
assurance

Manufacturing

Program
management

Total prog.
requirements
 PROJECT ORGANISATION
• Cost ,quality & schedules are key variables of a project
• Various functions are represented in rows
• Program undertaken are represented in columns
• Total functional output is calculated in last column
(hrs/units/Rs.)
• Project manager has responsibility (cost/time/quality)
for a particular project But he has no control over
the functional authorities
• Thus there are two authorities
– Knowledge based (functional)
– Resource based (project manager)
• Matrix structure brings coordination between project &
functional authority by formal & informal
relationship among them.
 PRODUCT ORGANISATION
GENERAL
MANAGER

MANAGE PROD
MKT ADVT SALES R PER’NEL
UCTI
M M M OF ONM
PRODUCT M
S

PRODUCT
PRODUCT PRODUCT
MANAGE
MANAGER MANAGER
R
A B
C
 PRODUCT ORGANISATION
• MATRIX STRUCTURE IS APPROPRIATE FOR
MANAGEMENT OF PRODUCTS WHEN :-
– Number of products grow relatively more
– Product require close coordination among various
functions
– Market is small to justify separate product division
• CHARACTERSTICS
– Functional specialist reports to functional managers
& not to product manager
– Matrix structure preserves economy as functional
heads are shared & coordination by providing
total management to each product
– For economy functional groups are kept centralized
– Product managers purchase services from them whenever
required
 SERVICE ORGANISATION
CEO

CLENT M’MENT
AUDIT TAX SERVICES
M M SERVICES
M M

M
M M
BANGALOR
DELHI MUMBAI
E
 SERVICE ORGANISATION
• CHARACTERSTICS
–
– MULTIPLE SERVICES OFFERED THROUGH
CLOSE CORDINATION OF VARIUOS HIGH
SKILLED FUNCTIONS OR DISCIPLINES
– EXAMPLE tourism, advertising, hotel, law, CA
firm
– Even though functional organisation is desired, focal
point is the client of the particular region
– Clients are best served when local office provides all
the services
– Functional personnel report directly to the functional
head & the local office manager purchase services
from the functional resources whenever required
 MATRIX IN MULTINATIONAL

PRESIDEN
T

DIVISIONAL DIVISIONAL
MANAGERS MANAGERS OF
OF AREA PRODUCTS

MATRIX
MANAGER
P -1 IN A-1

F1 F2 F3 F4
 MATRIX IN MULTINATIONAL

• Multinationals are geographically dispersed

•
• Multinationals have different products in particular geographic
location
•
• Therefore two dimensions—Market area & Product are
considered while designing the organizational structure
•
• If product is standard - only functional dimension
•
• If market is homogeneous - only product dimension
•
• But if both are different - then Matrix is called for
•
 MATRIX IN MULTINATIONAL

• Some products require marketing emphasis some

engineering or production,some require technological
change,sometimes it is necessary to drop one product in
an area while expanding sales of other……..The
product manager advocates his product or product line
& make sure to get attention by the area manager
• The product manager also coordinate distribution,
production, inter area transfer to improve worldwide
sales
• The structure of Matrix consists of-
– Product manager……responsible for product, No authority on
functions
– Area manager………..responsible for area given & full
authority over function discipline assigned to
his area
• There are behavioral adjustments in between Product & Area manager
 Use of Teams for TQM strategies

•
• Teams are cross- unit group made up of task-relevant
representatives who meet periodically to focus on
clients,products,market or problems
•
• These teams are formal or informal,temporary or permanent
&may include experts
•
• Sometimes teams are formed for particular project where
their structure is simple,temporary & more informal as
compared to Matrix
 Control factor in organizational design
• Centralized -responsibility & authority for all
products,project &services rest with top
• Decentralized- division or departments have the authority
over functions
• Matrix -hybrid which capture benefit of both
• Controller has to choose among the three alternatives for
highest benefit or he may do variation in each model
• The factors to be kept in mind is Efficiency &
coordination
• We should compare the incremental gain in coordination
versus the incremental managerial cost & lost scale
economies.If net benefits are positive & large one
should go for decentralization
 Matrix Vs Functional
• There is improved coordination & motivation in Matrix
but
– Cost increases two fold- additional layer of management
– Difference in orientation between program ( time )
& functional personal (quality ).Rewards can be
linked to both authorities to solve this problem
– Diffuse responsibility--program responsibility lies
upon program manager while technical
responsibility lies upon functional manager in
Matrix, so it is difficult to isolate responsibility
– Organizational limbo– In temporary projects
,program staff feels insecure after completion of
project & hence they linger on the program
thereby inflating cost especially in adverse
economy
– Effective informal relationship & goal congruent
 The controller’s organization
• Person responsible for designing & implementing the MCIS is
called as controller.
• His main responsibilities are :-
– To design control system
– Prepare financial reports & statements
– Develop internal audit system to control monetary & non
monetary assets
– Conduct educative sessions to create awareness about his
function
– Advise management on financial implications of
decisions
– Analyze budgets & program & coordinate various
segments of the organization
• In matrix division controller has two bosses-
– Corporate controller- functional accountability
– GM division- operational accountability
 The controller’s organization
•
• Characteristics of a strong controller
– Personal -energy,motivation,integrity,professional
commitment
– Technical-accounting knowledge & analytical skills
– Business judgment- understand what management
needs
– Communication skills- Grasps, Think, summarize,
communicate
– Building effective interpersonal relationships-
Accepted by all
– Able to challenge management –constructive
criticism
– Dual accountability-coordinate both division &
corporate m’ment
 Control in Adaptive organization Q 4 2006
mid term 15 m & Q3 in end term 2006 10 m
• Environment changes continuously & controller should modify
the structure accordingly.( open system)
• Resources should be steered & realigned & culture should be
reorganized
• Factors which create need for adaptive organization
• Environmental uncertainty- Adhoc teams & verbal
communication
– --do -- complexity- Decentralize into focused market
segments
– ---do--- diversity - Autonomous business unit for
each market
– ----do---- hostility - centralization done,quick data
gathering & quick decisions example-political or new
competition

• Informal control in adaptive organization
• •Global operating
•Emergent roles for perspective
Local markets •Opportunistic action
•Acceptance of oriented
Temporary assignment •Change oriented
•Lifelong learning
•Agile to new assignment
•Verbal informal
action
•Multidisciplinary
team
for problem solving

Based on peer recog- Personal travel of

-nition of adaptive manager
values For world wide
Of the organization familiarity
 Formal control for adaptive organisation
•Global operating
•Org structure perspective
•Easily form & •Opportunistic action
dissolve Same as in informal
oriented
•Widespread outsourcing •Change oriented
•Widespread use of teams •Lifelong learning
•Agile to new assignment
•Clear company vision
•Integrated inform
systems
•Rapid information flows
•Accurate reporting
•Rapid authorization
•Rotation on global
Linked to achievement basis
Of excellence in •Multidisciplinary
Uncertain teams
environment