Chapter 9 Strategic Control and Corporate Governance Essay

86) Explain why control systems are necessary for strategy implementation. Answer: Strategic control is the process of monitoring and correcting the strategy and performance of a firm. Two central aspects of strategic control are informational control (the ability to respond effectively to environmental change) and behavioral control (the appropriate balance and alignment among the culture, rewards, and boundaries of a firm). As both general and competitive environments become more unpredictable and complex, the need for contemporary systems increases. Difficulty: 2 Medium Topic: Organizational Structure and Controls Learning Objective: 09-01 The value of effective strategic control systems in strategy implementation. Bloom's: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 87) When would single-loop control systems be most appropriate? Answer: The traditional approach to strategic control is based on a feedback loop from performance measurement to strategy formulation. Such traditional control systems, termed single-loop learning by Chris Argyris of Harvard University, simply compare actual performance to a predetermined goal. They are most appropriate when the environment is stable and relatively simple, goals and objectives can be measured with a high level of certainty, and there is little need for complex measures of performance. Sales quotas, operating budgets, production schedules, and similar quantitative control mechanisms are typical. The appropriateness of the business strategy or standards of performance is seldom questioned. Difficulty: 2 Medium Topic: Organizational Structure and Controls Learning Objective: 09-02 The key difference between "traditional" and "contemporary" control systems. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 88) Discuss the differences between informational control and behavioural control and when each is appropriate. Answer: Adapting to and anticipating both internal and external environmental change is an integral part of strategic control. The relationships between strategy formulation, implementation, and control are highly interactive, as suggested by Exhibit 9.2. The exhibit also illustrates two different types of strategic control: informational control and behavioral control. Informational control is a method of organizational control in which a firm gathers and analyzes information from the internal and external environment in order to obtain the best fit between the organization's goals and strategies and the strategic environment. It is primarily concerned with 43 whether the organization is doing the right things. Behavioral control is a method of organizational control in which a firm influences the actions of employees through culture, rewards, and boundaries. It asks if the organization is doing things right in the implementation of its strategy. Both the informational and behavioral components of strategic control are necessary, but not sufficient, conditions for success. What good is a well-conceived strategy that cannot be implemented? Or what use is an energetic and committed workforce if it is focused on the wrong strategic target? Difficulty: 3 Hard Topic: Organizational Structure and Controls Learning Objective: 09-03 The imperative for contemporary control systems in today's complex and rapidly changing competitive and general environments. Bloom's: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 89) Effectively implementing strategy requires manipulating three key control levers: culture, rewards, and boundaries. What are the compelling reasons for an increased emphasis on culture and rewards in a system of behavior controls? Answer: There are two compelling reasons for an increased emphasis on culture and rewards in a system of behavioral controls. First, the competitive environment is increasingly complex and unpredictable, demanding both flexibility and quick response to its challenges. As firms simultaneously downsize and face the need for increased coordination across organizational boundaries, a control system based primarily on rigid strategies, rules, and regulations is dysfunctional. The use of rewards and culture to align individual and organizational goals becomes increasingly important. Second, the implicit long-term contract between the organization and its key employees has been eroded. Today younger managers have been conditioned to see themselves as free agents and view a career as a series of opportunistic challenges. As managers are advised to "specialize, market yourself, and have work, if not a job," the importance of culture and rewards in building organizational loyalty claims greater importance. Difficulty: 3 Hard Topic: Organizational Structure and Controls Learning Objective: 09-04 The benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 44 90) What is agency theory and what problems is it concerned with resolving? Answer: Agency theory is a theory of the relationship between principals and their agents, with emphasis on two problems: (1) the conflicting goals of principals and agents, along with the difficulty of principals to monitor the agents, and (2) the different attitudes and preferences toward risk of principals and agents. Difficulty: 2 Medium Topic: Corporate Governance Learning Objective: 09-05 The three key participants in corporate governance: shareholders, management (led by the CEO), and the board of directors. Bloom's: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 91) Discuss several actions that can have a positive influence on board of director dynamics as the board works to both oversee and advise management. Answer: The actions include: (1) building the right expertise on the board; (2) keeping the board size manageable; (3) choosing directors who can participate fully; (4) balancing the need to focus on the past, the present, and the future; (5) considering management talent development; (6) getting a broad view; and (7) maintaining norms of transparency and trust. Difficulty: 2 Medium Topic: Governance Mechanisms Learning Objective: 09-06 The role of corporate governance mechanisms in ensuring that the interests of managers are aligned with those of shareholders from both the United States and international perspectives. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 45