Management control system at industries qatar

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  • 1. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 1 Management Control System at Industries Qatar Executive summary Setting up management control systems can be a large task. The structure of the organization plays a part in how well a particular measure is likely to work. Ensuring that the goals of the organization are in concert with the management control system is also an important factor. While it is not possible to evaluate a company’s management control system from an annual report or internet site, we are able to make a prediction. The main tasks of this research paper are the following: 1. To find a publicly listed company on the Qatar exchange. To obtain its latest annual report. To determine what are its core strengths? To explore how does the company expect its strengths to translate into success? 2. What are its major categories of products? To select one category and design a management control system to measure the product’s success as an established brand. Discussion Since we are going to talk about the management control system, we have to say a few words about management and strategic management in general. Strategic management is the overall management of an organization’s performance in order to achieve the stated goals or the so-called business strategy. Every organization, whether commercial or not, should have some strategy. Simply speaking, strategy is a roadmap from the current positions of an organization to the final mission of its existence. This roadmap should show the way how an organization has to achieve its objectives, taking into account its current positions, resources, conditions of the business environment, competitive advantages and positions of the main competitors. This strategy is usually reflected in the so-called vision and mission statements.
  • 2. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 2 “Vision statement is an aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for choosing current and future courses of action” (Vision Statement Definition). A definition of the term “mission statement” is a little bit different. “Mission statement is a written declaration of a firm's core purpose and focus which normally remain unchanged, whereas business strategies and practices may frequently be altered to adapt to the changing circumstances” (Mission Statement Definition). At a glance, it looks like these definitions are really similar, but there is some difference. Vision statement is rather a declaration of what a company is going to achieve, what positions it is going to have on a market. Mission statement is more formal document that describes the clear long-term objectives and the ways of achieving them. Taking into account the current circumstances on the global market, we believe that a firm’s vision and mission statements should be changed, at least, once a year. It should be done to make the strategy of a firm more flexible. Such flexibility is needed because of the consequences of the global financial crisis, which are economic volatility and uncertainty. Also, we can say that any business strategy should be international nowadays, since we are forced to talk about the single international market because of globalization. To be successful any firm should enter international markets. That is why a strategy should account national features of every market. There are cooperative and competitive strategies. Any of them has its advantages and disadvantages. The main advantage of cooperative strategy is synergies, caused by cooperation of firms. The main disadvantage is a possibility of loosing a firm’s own identity.
  • 3. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 3 In this context, we should mention about the possible pros and cons of a firm merging with a rival firm. Once again, it is possible to create synergies and achieve more. On the other hand, an owner of a business should realize that he/she may be forced to delegate some part of his/her power. The most significant advantage of competitive strategies is ability to conduct independent business policy. However, competitive strategies are characterized with the risks of being destroyed by more powerful business rivals. It is impossible to combine those two types of strategies. It is also very difficult to have a few strategies, because it requires a lot of resources and creates uncertainty. We believe that any company should have a few scenarios for one strategy. For example, it is always useful to develop realistic, optimistic and pessimistic scenario. In such way a company’s strategy is going to be really flexible. In our opinion, there are not special instruments to motivate managers and employees to implement a major new strategy. It is important to explain them that the changes are for good and that every one is going to benefit from a new strategic vision of a company’s performance. It is a really difficult task along with development and implementation of such strategy. Usually development of strategy is a difficult and long process that involves the all levels of an organization. An organization’s shareholders state some objectives, an organization’s managers choose the ways of achieving them and the special employees, and professionals develop a clear strategic plan. Thus, as we can see development of a strategy is really complicated process. On the one hand, it requires a lot of time, resources and managerial resources to build an effective strategy. On the other hand, it is essential to choose a right strategy from the whole range that
  • 4. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 4 may be quite difficult in the circumstances of the global financial crisis and economic uncertainty. One of the instruments that may help to choose a right strategy and implement it is the so-called strategy lenses. In fact, strategic lenses are managerial concept that defines for angles from which strategy can be viewed. These angles are the following: strategy as design; strategy as experience; strategy as ideas; strategy as discourse. We would like to explain two first lenses in this paper. The essence of the lenses strategy as design is the following. “This takes the view that strategy development can be a local process in which the forces and constraints on the organisation are weighted carefully through analytic and evaluative techniques to establish clear strategy direction. This creates conditions in which carefully planned strategy implementation should occur” (The Strategy Lenses). Thus, we can treat it like some technical approach, when strategic planning is treated like a standardized operation that puts together an organization’s objectives, resources and also external factors. According to such approach, there should be some universal instruments and mechanisms of strategic planning. The second lenses is better instrument, as for us, because it takes into account an organization’s previous experience and experience of its managers that are responsible for the strategic planning process. Strategy as experience can be described, using the following words. “Here the view is that future strategies of organisations are heavily influenced by the experience of the managers and others in the organisation based on their previous strategies. Strategies are driven not so mush by clear-cut
  • 5. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 5 analysis as by the taken-for-granted assumptions and ways og doing things embedded in the culture of organisations” (The Strategy Lenses). First of all, we have to provide definition of the term “strategic capability”. As for us, one of the most appropriate definitions is the following. Strategy capability of an organization is a set of its capacities, resources and other pros that creates a long-term competitive advantage of an organization over its competitors. Thus, strategic capability of an organization is a basis for its strategy, because it defines an organization’s possibilities and strategic objectives. However, we should understand that the strategy can be directed to the growth of an organization’s capability. That is why, these terms are quite interdependent. There are a lot of factors that may influence the process of strategic management. Among such factors we may differentiate organizational structure. Organizational structure, simply speaking, is a construction of an organization. It is construction of an organization’s functional and production departments, correspondence between them. This construction defines the character of informational flows between the levels of an organization and its employees. The other important element of an organizational structure is a set of formal and informal rules that influences relations between an organization’s levels and representatives. Of course, organizational structure is able to influence the process of strategic management, because it defines internal institutional environment in which an organization operates. Thus, it influences the way in which the decisions are made, character of these decisions and people responsible for making them. That is why we can claim that the strategic management process would be different in organizations with different organizational structures.
  • 6. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 6 The similar factor is the so-called cultural web. In fact, these terms describe the cultural environment, in which an organization operates. That is why it is not surprisingly that this factor influences the process of strategic management. “The Cultural Web identifies six interrelated elements that help to make up what Johnson and Scholes call the “paradigm” – the pattern or model – of the work environment. By analyzing the factors in each, you can begin to see the bigger picture of your culture: what is working, what isn’t working, and what needs to be changed” (The Cultural Web). These elements are the following: stories, rituals and routines, control systems, organizational structures, power structures and symbols. Corporate social responsibility is also able to influence the process of strategic management. Moreover, we can even say that social responsibility changes the character of the strategies of a lot of company, because nowadays the companies can not only follow some business goals, but also solve social problems. Taking into account modern social and ecological problems, somebody has to take the leading role in solving them. We believe that the governments and business are the most appropriate candidates. The reason is quite simple – they have such financial and politic possibilities. In general, we can say that the modern business should be socially responsible. It means that they should include solving social problems in their strategies. We can define four popular approaches to the problem of corporate social responsibility. The first approach is the so-called community-based improvement approach. According to this approach the organizations should work with local communities to improve their live and benefit from it. For example, if some company has a branch is the developing countries it may promote education of the local citizens. In such way an organization increases the level of life of a community and, on the other hand, gets educated labour force.
  • 7. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 7 The second approach is the so-called philanthropy. It require from organizations providing donations to the communities for different purposes. Some organizations do not support such approach, because they are not able to see the clear benefits for them. The third approach provides incorporation of the CSR strategy into the general business strategy of an organization. Thus, social responsibility is an integral element of the business strategy in this case. In fact, we believe that this approach is the most justified because of the reasons mentioned above. Finally, the last approach is related to creating the so-called shared value. This approach claims that the business success and social welfare are interdependent. That is why if an organization want to be successful it has to improve the social environment in which it operates. There are two main theoretical concepts of the strategic management – the competitive (positioning) and competence (resource-based). The second approach supposes that the basis of a company’s competitive advantage is the resources that a company owns. The key to success of an organization is right allocation and usage of these resources. The essence of the first approach can be described with the following words. “Competitive positioning is about defining how you’ll “differentiate” your offering and create value for your market. It’s about carving out a spot in the competitive landscape and focusing your company to deliver on that strategy” (Competitive Positioning). As we can see this approach focuses on usage of the market possibilities and patterns by a company. Thus, we deal with two opposite approaches. One of them strengthens the role of a company’s resources and their allocation, the other is focused on the usage of market possibilities.
  • 8. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 8 There are two main methods of the strategic development – strategic alliance and acquisitions. We believe that strategic alliances are better for the organizations that do not support aggressive strategy of development. Usually organizations do not support such approach, because in such case they are forced to look for some compromise with the partners and abandon some competitive advantages. That is why such method is used for the purpose of realization of some significant project. The second option is more appropriate for the organizations that support aggressive approach. They usually acquire other companies for the purpose of increasing their market share or entering new markets. However, we should realize that such strategy is possible only in the special market circumstances. Also it usually faces a lot of institutional and legal limitations. Synergy is another key element of the strategic development of any organization. Synergy is a combination of efforts and resources of different elements for the purpose of getting bigger effect. This effect is bigger than from performance of the separate elements. Also this effect is not a simple sum of contributions of different elements. In fact, this is the essence of synergy. When the performance of different elements of an organization is coordinated and collaborated, an organization can reach an optimal combination of resources and skills that leads to higher results. That is why any organization has to promote cooperation of its functional, regional and production departments for the purpose of getting a synergy effect. Strategic management process consists of the three consecutive elements – strategic planning, strategic control and financial control. First of all, the strategy should be developed and the plan of its realization should be implemented. Then an organization should constantly monitor and control the process of the strategy’s realization. Finally, financial control should
  • 9. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 9 become an integral part of this control, because financial resources are the main drivers of development of a company. Such approach has a lot of advantages that are the following: 1. First of all, it lets achieve the smaller goals that become a basis for achieving the most important objectives; 2. Second of all, it lets resolve the conflicting views of the stakeholders on a company’s strategy and process of its realization; 3. Third of all, it helps to capitalize the knowledge received during the previous stages of the strategy’s realization and use it for the further steps. The main advantage of this approach is its flexibility. However, it is also time- consuming and quite expensive. On the other hand, we believe that the future benefits from this approach are much bigger than the initial costs. Internal management control system is an integral element of the overall system of strategic management that has been analyzed above. First of all, we would like to provide a definition of the term “management control system”. In our opinion, one of the most appropriate definitions of this term is the following. “Management control system is essentially a strategic tool for holding managers accountable and responsible for their performance. Existence of such a system also provides feedback for managers to know how they perform, in which direction the organization is heading, and what type of course correction may be required to stay on course” (Management Control System Definition). Simply speaking, management control system is a system of control over the overall performance of an organization and, especially, work of the managers. This system should answer the question whether the work of the managers is effective enough to realize a company’s strengths and achieve the stated strategic goals.
  • 10. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 10 In order to analyze this concept on practice we have chosen the following company for analysis – Industries Qatar. We have chosen this company because of a few reasons. It is publicly listed – that is why it is quite easy to get financial and other information about the company. Also, it is quite powerful and famous company. It means that results of its analysis can be considered as representative. The company is specialized in manufacturing and sales of steel billets, bars, coils etc. It also produces and sells ethylene, polyethylene, hexacane and other chemical products. The company’s revenues were more than $4.5 millions in 2011. We can seriously say that the company’s performance has an international character. Some additional information about the company can be got from the following quote. “The company offers its products primarily in Qatar, Egypt, India, Jordan, the United States, southeast Asia, Australia, the Gulf region, the Middle East, the Far East, Europe, Africa, and Oceania. Industries Qatar Q.S.C. was founded in 1969 and is based in Doha, Qatar” (Industries Qatar Company Profile). In order to explore the company’s strategic strengths we have to analyze its annual report. We have chosen the report for the last year. It can be found on the company’s official website. Among the company’s main strengths the following ones can be pointed out: 1. Aggressive marketing campaign in order to attract attention of customers. Additionally, this marketing campaign has an international character; 2. Innovative solutions in the business that are able to create additional competitive advantages. The industry is not associated with high technology. That is why not significant innovations are able to create significant advantages of the competitors;
  • 11. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 11 3. It has a great experience and history on the market. It is known among the customers; 4. It has a positive reputation and image among the partners, supplier, investors and creditors, customers and the whole community; 5. It has a wide range of the sales centers. The company’s branches and stores are located not only in the native country, but even abroad; 6. International character of the business; 7. Support from the local authorities; 8. Finally, the company has significant financial support. We can call it financially sustainable and flexible, on the other hand. We can even develop a balanced scorecard in order to see the importance of each competence and the degree of its realization. All the marks are from 1 (not realized) to 5 (totally realized). Competence Importance Realization Aggressive marketing campaign in order to attract attention of customers 3 4 Innovative solutions in the business that are able to create additional competitive advantages 5 4 It has a great experience and history on the market. It is known among the customers 3 5 It has a positive reputation and image among the partners, supplier, investors and creditors, customers and the whole community 4 4 It has a wide range of the sales centers 4 5 International character of the business 4 3
  • 12. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 12 Support from the local authorities 4 5 The company has significant financial support 4 5 Thus, the main core competitive advantages are provided above. Now we have to define what actions are taken by the company to realize these core competences. In fact, realization of them is a part of strategic management of the company. The company defines its advantages and then proposes the ways in which they can be realized. Also, the company chooses the strategic goals according to the competitive advantages. Such correlation between the advantages and goals is the main strength of the company. Internal management control is one of the most significant instruments of realization of the company’s strategic advantages. We can say that it consists of the two parts. First of all, it is control over the work of the managers. Second of all, it is control over quality of the products. Moreover, all these instruments are united in a single system – system of management control. Internal standards and requirements are developed, constant evaluation and monitoring are performed, bonuses and fines are imposed. Conclusions To conclude we would like to say the following. Strategic management is the overall management of an organization’s performance in order to achieve the stated goals or the so- called business strategy. Every organization, whether commercial or not, should have some strategy. Simply speaking, strategy is a roadmap from the current positions of an organization to the final mission of its existence. Internal management control system is an integral element of the overall system of strategic management that has been analyzed above. Management control system is essentially a strategic tool for holding managers accountable and responsible for their performance. Existence of such a system also provides feedback for managers to know how
  • 13. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 13 they perform, in which direction the organization is heading, and what type of course correction may be required to stay on course. In order to analyze this concept on practice we have chosen the following company for analysis – Industries Qatar. We have chosen this company because of a few reasons. It is publicly listed – that is why it is quite easy to get financial and other information about the company. Also, it is quite powerful and famous company. It means that results of its analysis can be considered as representative. We have analyzed its core advantages and the actions that are taken by the company to realize them. One of such actions is of course internal management control. It consists of two parts. First of all, it is control over the work of the managers. Second of all, it is control over quality of the products. Moreover, all these instruments are united in a single system – system of management control. Internal standards and requirements are developed, constant evaluation and monitoring are performed, bonuses and fines are imposed.
  • 14. MANAGEMENT CONTROL SYSTEM AT INDUSTRIES QATAR 14 References Competitive Positioning. Retrieved May 10, 2012, from http://www.marketingmo.com/strategic-planning/competitive-positioning/ Industries Qatar Company Profile. Retrieved May 10, 2012, from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=IQCD:QD Industries Qatar Official Website. Retrieved May 10, 2012, from http://www.industriesqatar.com.qa/IQ/IQ.nsf/en_Index?ReadForm Management Control System Definition. Retrieved May 10, 2012, from http://www.ventureline.com/accounting-glossary/M/management-control-system definition/ Mission Statement Definition. Retrieved May 10, 2012, from http://www.businessdictionary.com/definition/mission-statement.html The Cultural Web. Retrieved May 10, 2012, from http://www.mindtools.com/pages/article/newSTR_90.htm The Strategy Lenses. Retrieved May 10, 2012, from http://www.scribd.com/doc/39036446/Business-Strategy-Answers-Final-Draft Vision Statement Definition. Retrieved May 10, 2012, from http://www.businessdictionary.com/definition/vision-statement.html