Understanding Strategies
Chapter - 2
Introduction
Management Control:
Management control is the process by which
managers influence other members of the
organization to implement the organization
strategies.
It covers two aspects:
Understanding the strategies
Implementation of strategies
Strategy:
“ A company’s strategy consists of the combination
of competitive moves & business approaches that
managers employ to please customers, compete
successfully and achieve organizational goals”
“ The strategy describes the general direction in
which an organization plans to move to attain its
goals.”
Differs between organizations and controls are tailor
made.
Goal:
“Long run outcomes an organization seeks to
achieve”
Determined by CEO; Can be altered by Directors
Major Goals of an
organization: Profit
maximization
Profitability is usually the most important
goal.
It is expressed by an equation that is the
product of two ratios.
Revenues - Expenses Revenues
ROI
Revenues Investment
ROI Profit Margin % Investment Turnover
Profitability refers to profits in the long run,
rather than in the current quarter or year.
Major Goals of an organization:
Wealth maximization (Max.
shareholders value)
Maximization probably refers to the market
price of the corporation’s stock. And to
achieve this the way is to maximize profit.
First, way is to increase company’s earning.
But not possible in all the cases.
And now marginal cost and demand curves
require to be calculated.
Second, Optimizing shareholder value is not
the only goal. Most managers feel obligation
to other stake holders in the organization in
addition to shareholders.
Major Goals of an
organization: Risk
Profitability is affected by management’s
willingness to take risks.
Risk also means POSSIBILITIES
The risk-taking varies from company to
company, among personalities and
managers
Some companies make it very clear that the
primary responsibility is to preserve
company’s assets
Major Goals of an
organization: Multiple stake
holder approach
Organizations deal in – capital market,
product market, factor market
The firm has responsibilities to all these
multiple stakeholders: shareholders,
customers, employees, suppliers and
communities.
Ideally, its management control system
should identify the goals for each of these
groups and develop scorecards to track
performance.
The Concept of Strategy
Strategies describe the general direction in which
an organization plans to move to attain its goals
Core Competencies Industry
Opportunities
Strategies
Two Levels Of Strategy
Corporate Level
Business Unit Level
Corporate Level Strategy
Is about being in the right mix of businesses
Concerns of questions like where to compete
than how
Corporate-level Strategies
High Domino's Single Industry Firm
Pizza
HUL Related diversified Firm
Degree of
Relatedness
ITC
Unrelated diversified Firm
Low High
Extent of Diversification
Contd…
Single Industry Firms
Unrelated Diversified Firms
Related Diversified Firms
Business Unit Strategies
Depends on two interrelated aspects:
Its mission
Its competitive advantage
Business Unit Mission
The BCG Model
build, hold, harvest, divest
Business Unit Competitive Advantage
Porter’s Five Force Model
Value Chain for Business
