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Chapter 16:
The Effects of Environmental
Uncertainty, Organizational
Strategy, and Multinationality on
Management Control Systems
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.2
Contingency/situational factors
MCS variables
Outcome variables
Degree of control
Dysfunctional side-effects
Control costs
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.3
Strategy typologies
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.4
Degree of Relatedness
High
low
Single
Business
Firms
Related
Diversifiers
Connection between
Unrelated
Diversifiers
Number of Businesses
businesses is mainly
financial (holdings)
High
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.5
Incentives
Budgets
Single/Related
Business
Unrelated
Diversified
Control of SBU-manager
over budget formulation
Low (?)
High
Importance attached to
meeting the budget
Low (?)
High
Bonus criteria
Bonus determination
Bonus basis
financial and
nonfinancial criteria
primarily subjective
or discretionary (?)
primarily formula-based
SBU + corporate
primarily SBU-performance
performance
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.6
Differentiation
economies of scale
brand loyalty
superior customer
service
standard products
product features
cost minimization
standardized tasks and
production processes
product design
customization
Slide 16.7
Control of SBU-manager
over budget formulation
relatively low
relatively high
Budget revisions
during the year
relatively difficult
relatively easy
Tolerance towards
budget deviations
relatively low
relatively high
relatively high
relatively low
Importance attached to
meeting the budget
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.8
primarily
financial criteria
more emphasis on
nonfinancial criteria
Bonus determination
primarily
formula-based
more subjective
or discretionary (?)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.9
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.10
Slide 16.11
Local institutions
Labor unions
Use of performance-based rewards
(merit-based vs. seniority-based)
Accounting regulations
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 16.12
Inflation
Financial risk (e.g., use of flexible budgeting)
Slide 16.13
If not,
Evaluate manager in local currency
Treat foreign exchange losses and gains below the line
Calculate foreign exchange variance and treat it as
uncontrollable
Flex the budget to end-of-year currency rates
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012