3. What is Goal congruence?
• The goals of the organization's individual
members should be in alignment with the
goals of the organization.
• In a goal congruence process, the actions
people are led to take in accordance with their
perceived self-interest are also in the best
interest of the organization.
4. Informal Factors that influence Goal
Congruence
External Factors Internal Factors
• Norms of desirable behaviour that
exist in the society of which the Culture
organisation is a part .
• Referred to as work ethic-loyalty to Management style
the organization, their
diligence, spirit, their pride in doing a Informal organisation
good job.
Region-specific
Eg- Silicon Valley ( entrepreneurial spirit, a Perception and
zest for hard work, high ambition, a communication
preference for informal work settings.)
Industry-specific
Eg- Railway and airline industry.
7. BUSINESS UNITS
• A Business Unit is responsible for all the functions involved in producing
and marketing a specified product line.
• Business Unit managers act almost as if their units were separate
companies.
• It is suitable for medium sized to big companies, expanding geographically
or on customer base.
• Business Units may be divided based on :
– Markets served
– Product Lines
– Geography
8.
9. Strengths
• High customer satisfaction
• High task coordination
• Clear performance responsibility
• General management training.
Weaknesses
• Resources may not be utilized properly
• Focus on division’s objectives
• Coordination between headquarter and the division
• Loss of control
10. MATRIX STRUCTURE
• Matrix structure is a hybrid of divisional and functional structure.
• This Hybrid design has divisional units as well as functional departments
specialized and centralized in the headquarter.
• Typically used in large multinational companies, the matrix structure
allows for the benefits of functional and divisional structures to exist in
one organization
11.
12. Strengths
• Better Utilization of resources
• Enhances skill development
• Communication
• Provides flexibility
Weaknesses
• Dual line of command
• Is time consuming
• Implementation is difficult
13. Controller
• The person who is responsible for designing and
operating the management control system is know as
the controller
• Functions of Controller:
– Preparing financial statements and reports
– Supervising internal audit and accounting control
procedures
– Analyzing performance reports and budget proposals
16. Cost Based Pricing
• How to define cost?
– Actual cost
– Standard cost
• How to calculate profit mark-up?
– Percentage of cost
– Percentage of investment
17. Upstream Fixed Costs and Profits
• Transfer pricing can create problems in integrated
companies.
• The final profit center may not be aware of the
upstream fixed costs and profit included
• Even if they are aware: They may be reluctant to
reduce the profits
• There have to be systems in place to make all entities
in the organization aware of the various components
of cost so that decisions can be taken that benefit
the organization.
18. Systems facilitating Cost awareness
• Agreement among the business units
• Two-step pricing
• Profit sharing
• Two Sets of Prices
19. Agreement among Business units-
• Done through a process of negotiation among
business units
• Representatives from buying and selling units
work on profit sharing
• The same is reviewed periodically.
20. Two Step Pricing-
Consists of two charges-
• Product Charge: Standard variable cost of
production
• Periodic charge : Fixed costs associated with the
facilities reserved for the buying unit.
• Profit may be included in the above.
21. Profit Sharing-
• If two – step pricing method not feasible, a profit
sharing is used.
• The product is transferred at standard variable cost.
• Profit is contributed after selling the product. ( Selling
price – Variable manufacturing cost – Marketing cost )
• Applicable were demand is not steady
22. Two Sets of Prices-
• It is used when there are frequent conflicts between
buying and selling unit and can not resolve by any
other method.
• Manufacturing unit revenue is credited at the out
side selling price.
• Buying unit charged to a total standard cost.
• Difference is charged to head office and eliminated
at the time of business unit statement is
consolidated
Editor's Notes
Each individual has his personal goals. The organization, through its top management, sets for itself goals that are desired to achieve. But at times there is conflict in their goals. Participants may act in their own self- interest. Here individuals may grow bigger than the organization and this may lead to goal conflict. The control system should be designed so as to integrate the personal goals with organizational goals, and thereby achieve goal congruence. Perfect goal congruencebetwnind and org goals does nt exist. Ind wants as mch compensation as they cn get but org maintains that salary can go only so high without adversely affecting profits. But an adequate control system will atleastnt encourage ind acts against the best interest of org . For example, if the management control system signals that the emphasis should be only on reducing costs, and if a manager responds by reducing costs at the expense of adequate quality or if he responds by reducing costs in his own responsibility center by measures that cause a more than offsetting increase in costs in some other responsibility center, he has been motivated, but in the wrong direction. It is therefore important to ask two separate questions about any practice used in a management control system: What action does it motivate people to take in their own perceived self interest?, and Is this action in the best interests of the company?
Intcommon beliefs, shared values, norms of behaviour, assumptions that are implicitly accepted and explicitly manifested. Cultural norms are extremely imp since they explain why 2 identical orgs, with identical formal mcs may vary in actual control.It has the strongest impact on MC. Subordinates attitude reflect what they percieve their supervisors attitudes to be which has stemmed from the CEO. Eg- GE has a well-deserved reputation of producing sterling biz managers who hav very different styles but a common ability to lead successfully…from Reginald Jones( formal, dignified, bright, willing to delegate enormous authority to Jack Welch (impatient, informaloutspoken, entrepreneur, feared within GE) to Jeff Immelt (confident, friendly, likeable leader who is adored in GE)Though org chart shows that a production manager has to report to the general manager, PM actually communicates with many other ppl in the org. To understand the realities of management control process it is important to recognise the importance of the relationships that constitute the informal org.The goals of org must b communicated clearly thru both formal and informal channels and must b interpreted correctly. Eg- The budget mechanism may convey the imoression that managers are supposed to aim for highest profits poss in a given yr whereas senior mgmt does not want them to skip on maintenance or employee traing since altough it incresases current profits but will reduce future profitability.s
