Management Control

How to effectively evaluate strategic performance?

Andy Weeger

Neu-Ulm University of Applied Sciences

September 3, 2024

Learning outcomes

After this session, you should have a solid understanding of

  • differences and relationships between strategic planning and implementation and control,
  • the formal strategy and management control process according to the management control perspective,
  • difficulties of accurately measure strategic performance,
  • the planning hierarchies according to Mintzberg and their objectives and measures,
  • the reasons that lead companies to set different priorities in their management and planning approach, and
  • different performance measurement frameworks including their key differentiating characteristics.

Prologue

You can’t manage what you can’t measure. Peter Drucker

Reflection

Form small groups of 3 to 4 students, take 10 minutes to discuss your findings from reading Chakravarthy (1986) and to create a 5 minutes presentation that answers following questions:

  • Why is it difficult to accurately measure strategic performance?
  • Why are traditional financial metrics limited in capturing the strategic impact of various strategic initiatives and decisions?
  • How can the quality of a firm’s adaptation be evaluated?
  • How should, according to the findings of the study, strategic performance be evaluated?
  • How do the findings relate to the balanced score card method?

Management control

Definition

Management control is the process by which managers influence other members of the organization to implement the organization’s strategies Anthony and Govindarajan (2014, 6)

What are examples for management control decisions?

Part of strategy implementation

Anthony and Govindarajan (2014)’s perspective on management control

 

The formal strategy and management control process

Formal management control system (Anthony and Govindarajan 2014, 105)

 

 

 

Planning hierarchies

Four hierarchies

Figure 3: Four planning hierarchies according to Mintzberg (2000)

 

 

 

 

Conventional strategic planning

Figure 5: Conventional strategic planning according to Mintzberg (2000)

Strategic planning as a “numbers game”

Figure 6: Strategic planning as a “numbers game” according to Mintzberg (2000)

Capital budgeting as ad hoc control

Figure 7: Capital budgeting as ad hoc control

Performance measurement frameworks

Overview

Du Pont Pyramid, Tableau du Bord, Balanced Scorecard, Performance Pyramid, and Performance Prism.

Group work

Form small groups of 3 to 4 students, take 15 minutes to do a research on one of the frameworks and to prepare a short presentation (5 minutes) that summarizes the key-tenets of the framework.

Prepare yourself to present your insights.

Conclusion

The frameworks reflect key ideas to today’s understanding of performance measurement system design:

  • Inclusion of non-financial and financial metrics
  • Creating a balanced set of multidimensional measures
  • Identifying trade-offs between measures
  • Include a mix of historical or lagged indicators and predictive measures
  • Linking measures in terms of a cascading system and means-ends relationships
  • Linking measures and targets with actions
  • Inclusion of internal (e.g. costs, quality) and external perspectives (e.g. competitiveness)
  • The integration of multiple stakeholders
  • The dynamics of performance measurement systems over time (with changing priorities and strategic focus)

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

  • Explain Mintzberg’s planning hierarchies and provide examples of how these hierarchies (may) manifest in organizational planning processes.
  • Discuss the advantages and disadvantages of top-down versus bottom-up planning approaches according to Mintzberg. How can organizations effectively balance these approaches for strategic success?
  • Compare and contrast the management control framework proposed by Anthony and Govindarajan with Mintzberg’s planning hierarchies. How do these frameworks complement or differ from each other?
  • Identify and explain the key components of the management control framework. How can organizations use these components to enhance strategic performance management?
  • Analyze the Du Pont Pyramid and its application in assessing return on investment (ROI). How does it contribute to understanding financial performance within an organization?
  • Compare and contrast the Balanced Scorecard and the Tableau du Bord as strategic performance management frameworks. Discuss their strengths and weaknesses in different organizational contexts.
  • Evaluate the significance of the Performance Prism in incorporating stakeholder perspectives in performance management. How does it enhance the overall understanding of organizational success?

Homework

Read Chen et al. (2010) and make notes on following questions:

  • What are prominent conceptions of information systems strategy identified by the authors in the literature?
  • How do these relate to the perspectivs on strategy as discussed earlier (see here)?
  • How do the authors (re-)conceptualize information systems strategy?
  • How might the concepts discussed in the paper be applied in real-world IT strategy formulation?

Q&A

Literature

Anthony, R. N., and V. Govindarajan. 2014. Management Control Systems. McGraw-Hill Education.
Chakravarthy, Balaji S. 1986. “Measuring Strategic Performance.” Strategic Management Journal 7 (5): 437–58.
Chen, Daniel Q, Martin Mocker, David S Preston, and Alexander Teubner. 2010. “Information Systems Strategy: Reconceptualization, Measurement, and Implications.” MIS Quarterly, 233–59.
Mintzberg, H. 2000. The Rise and Fall of Strategic Planning. Prentice Hall.