Management control in IB

Control

aspects in international business

AIM
To

explore the issues related to control in international businesses. To discusses the different types of control systems that a company might use. To see how control can be managed effectively. To addresse issues related to the management of productivity, quality, and information.

1. Levels of control in international business

1.1 What is control? Control is the process of monitoring and regulating activities in a firm so that some targeted measure of performance is achieved or maintained. The control process begins by establishing a goal or other performance target. Progress towards meeting that goal or target is then monitored by management, and appropriate actions are taken to keep the company on track.

1.2 Levels of control Control can be implemented at the strategic, organisational, and operational levels.

Figure 1 Levels of control in international business

1.2.1 Strategic control Strategic control is a level of control that monitors how well an international business formulates its strategy and how well it implements that strategy. Strategic control allows a company to see how effectively it is achieving its goals and whether it is maintaining its desired strategic alignment with its environment.

 Control

is particularly important when it comes to a companys financial resources. A special managerial position may be created to handle financial control. The position is usually called a financial controller. A primary responsibility of an international financial controller is managing the inventory of various currencies necessary for the smooth functioning of the companys operations.

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some cases management of exchange rate fluctuations is centralised at the corporate parent level, while in other cases, it is decentralised to the subsidiary level. Strategic control is also important in joint ventures and strategic alliances. In most cases an independent control system is developed for each joint venture or strategic alliance.

1.2.2 Organisational control Organisational control is a level of control that focuses on the design of the organisation itself. Most international businesses use one or more types of organisational control systems. Responsibility centre control: the most common type of organisational control system. It is decentralised and involves identifying fundamental responsibility centres within an organisation such as SBUs. Individual centres are then evaluated on how well they meet their goals.

 Generic

organisational control: most frequently used when a firm pursues similar strategies in each market in which it competes. Since there is no strategic variation between markets, control is centralised at headquarters, and the same stable and straightforward control systems are used for each unit.

 Planning

process control: can be used in combination with either responsibility centre control or generic organisational control. Firms concentrate their organisational control systems on the actual mechanics and processes they use to develop strategic plans. The focus is on the process rather than on the outcomes.

1.2.3 Operations control Operations control focuses specifically on operating processes and systems within both the firm and its subsidiaries and operating units. Operations control generally focuses on relatively short periods of time and is typically more specific and focused than strategic or organisational control systems. The focus of operations control is usually at the lower levels of the firm, such as first-line managers and operating employees.

2. Managing the control function in international business

Control

is very complex. To effectively control, managers need to understand

how to establish control systems, what the essential techniques for control are, why some people resist control, and what managers can do to overcome this resistance.

2.1 Establishing control systems Control systems in international business are established through four basic steps
set control standards for performance, measure actual performance, compare performance against standards, and respond to diviations.

The

steps are applicable to any area and any level of control.

Figure.2 Steps in international control

2.2 Essential control techniques There are many different control techniques available to MNCs. Three of these techniques are
accounting systems, procedures, and performance ratios.

2.2.1 Accounting systems Accounting is a comprehensive system for collecting, analysing, and communicating information about a firms financial performance and structure. As accounting procedures are heavily regulated, comparisons between the financial performance of firms within a given country is relatively easy. However, international comparisons are more difficult. Using this approach by Dickson Poon, a Hong Kong investor in the retailing industry.

2.2.2 Procedures Most firms use a variety of procedures to maintain effective control. Procedures are the combination of policies, standard operating methods, rules and regulations that help managers carry out of the control function. Procedures may be changed in some cases when such a need arises.

2.2.2 Performance ratios Performance ratios such as inventory turnover are also commonly used by international businesses. A performance ratio is a numerical index of performance that the firm wants to maintain. For example, inventory turnover ratios, the percentage of seats filled on specific flights, the percentage of flights that depart and arrive on time, hotel occupancy rates.

2.3 Behavioural aspects of international control Human behaviour plays a role in the effectiveness of control systems. Control may be resisted for several reasons.
overcontrol control is not focused appropriately - trying to control the wrong things: control cost at the expense of quality Do not want to have increased accountability

2.4 Overcoming resistance to control Resistance to control can be minimised in several ways.
promote participation appropriate focus and reasonable accountability diagnostic mechanisms for addressing unacceptable deviations

 Behavioural

aspects of control can be approached from a cultural perspective. Companies may try to alter behavioural variations associated with national culture by hiring individuals who will fit into the companys corporate culture and by providing management development programs that impart the companys corporate culture.

3. Controlling productivity in international business

Productivity

is an economic measure of efficiency that summarises the value of outputs relative to the value of the inputs used in their creation. Productivity is distinct from control, yet it is also closely related in that the ultimate aim of most control systems is to ensure high levels of productivity. Labour productivity, land productivity.

 There

are several general strategies a company can pursue to monitor and control its productivity.
spend more on research and development (R&D), improve operations, and increase employee involvement.

4. Controlling quality in international business

4.1 The meaning of quality Quality is defined as the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs. The International Organisation for Standardisation (ISO) has developed ISO 9000, a set of guidelines for quality that major companies in more than 50 countries have agreed to adopt.

 Quality

is important because

it has become a factor that affects a firms competitiveness; it is directly related to productivity; and, it helps firms to develop and maintain customer loyalty.

 Quality

consists of eight dimensions:

performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality.

4.2 Total quality management Total quality management (TQM) is an integrated effort to systematically and continuously improve the quality of an organisations products and services. TQM programs generally include five essential components.

Figure.3 The essential components of total quality management

variety of tools including statistical process control and benchmarking are available to firms using TQM. Statistical process control, a family of mathematically based tools for monitoring and controlling quality, is used to define the target level of quality, to specify an acceptable range of deviation, and to ensure that product quality is meeting the target.

 Benchmarking

is the process of legally and ethically studying how other firms do something in a high quality way and then either imitating or improving their methods. Benchmarking is a common practice in Australia. Examples of benchmarking, Xerox.

5. Controlling information in international business

5.1 The role of information Information is data in a form that is of value to a manager in making decisions and performing related tasks. Information should be timely and accurate so that managers can better understand their firms environment - its customers, competitors, and suppliers; government policies that affect its hiring, production and financing decisions; and, virtually every other element of its environment.

 Information

is used by managers to help them decide how to respond to the environment, and it is also used in the strategic formulation, implementation and control process. 5.2 Managing information Managing information in an international firm is more complex than in a domestic firm because information is likely to be in different languages and subject to different legal contexts.

 In

addition, computer software and hardware configurations are not always compatible. An information system is a methodology created by a firm to gather, assemble, and provide data in a form useful to managers. International firms use information systems to link their operations so that managers around the world can access information and communicate with other managers.

Most important points today

What

is control and levels of control How to manage control Productivity control Quality control Information control