Organization theory and design 14 2013

14 Control system

organization @TC 2013

หัวข้อบรรยาย/กรณีศึกษา
11 Organizing for Innovation
C 8: Harvard Business Case / 3M Optical Systems : Managing Corporate Entrepreneurship
12 การสร้างและออกแบบ Cybernetics, Viable System
C 9 : Harvard Business Case / Sun Hydraulics Corporation (A&B)
13 การสร้างและออกแบบ learning Organization/กระบวนการเรียนรู้
C 10 : Harvard Business Case / McKinsey & Company : Managing Knowledge and Learning

14 Control system
C11: Harvard Business Case / Verizon
15 สรุปปิดการบรรยาย or guest speaker


Schools of Thoughts and Doctrinal Issues in Management

Strategic
Management
Business Process
Management
Performance
Management

What is the role of
managers?

What should be the
design of a programmatic
organization?

How should
operations be managed?

What management
policies should be chosen?


Related Discourses?
UNDERLAPS?

OVERLAPS

Accouting
Information
Systems

Value-Added/
Results Orientation

Work Redesign
& Adhocracy

Practices
(ABC/ABM)
TQM
PERFORMANCE MANAGEMENT
Management
BUSINESS PROCESS REDESIGN
Control Structure
Outsourcing and
and Process
Supply Chain Management

Related Discourses?
OVERLAPS

Accounting
Information
Systems

ResultsOrientation

Divisionalization
Strategy
Implementation

DETAILS?

Management
Control Structure
and Process

Leadership
Function
Strategy
Formulation

STRATEGIC MANAGEMENT
Political
Management
UNDERLAPS?

Related Discourses?

Accounting
Information
Systems
Management
Control Structure
and Process

Strategy
Process
Leadership
Function

Political
Management

Related Discourses?
OVERLAPS

Accounting
Information
Systems

ResultsOrientation

Divisionalization
Strategy
Implementation

DETAILS?

Management
Control Structure
and Process

Leadership
Function
Strategy
Formulation

Political
Management
organization UNDERLAPS?
@TC 2013

Management Control
•  Origins (19th c.)
– Operational Control and Cost Accounting on the Shop
Floor (Wedgewood)
– Railroad Management
– Military Supply and Logistics
•  Principal institutional locus
– Accounting departments
– Business schools
– Management consulting industry
•  Scientific source disciplines
– Managerial economics, organizational behavior,
cybernetics

MAC (1)
•  Some big names
– Herbert Simon (1954)
– Robert Anthony (HBS)
Journals
– Anthony Hopwood (LSE, Oxford)
– Robert Kaplan (HBS)
Management
Accounting
•  Some informative texts
– Hongren (technical approach)
Accounting, Organization,
And Society
– Macintosh (organizational approach)
– Simons (strategic management approach)


MAC (2)
•  A Classical View of Management
– POSDCORB
– Focus on CORB and implementing P
– Some interest in O
– Not primarily concerned with P,S,D
•  Some trends in attention and argument
– Less attentive to the shop floor (until the rise of BPM)
– Sought to be compatible with diverse ideas about
strategic management
– Unwilling to play second-fiddle to financial accounting
– Increasingly boisterous about relevance to all aspects of
management (everything except S?)

Functional Discipline: Production and Operations Management

•  Systems Approach
MAC
– “Holistic perspective”
– Bringing together the disparate components of a system
into an effective whole
– Systems dynamics

•  Positive and negative feedback
•  Stock/flow relationships
– Functionality thinking

•  Design hierarchies
•  Function-feature relationships

MAC (3)

Basic Mental Models
Setting targets
Authorizing costs
CO, B, O

CO, P
Planning

Budgeting

Reviewing indicators

R
Execution

?
Evaluation

Corrective Action

The Management Process
Processes within a cycle are sequentially interdependent

MAC (4) Basic Mental Models
Hierarchy of Responsibility Centers
Type name here
Chief Executive
Type name here
Responsibility Center 1
(Profit Center)

Type name here
(Profit Center)

Type name here
(Cost Center)

Type name here
Responsibility Center 2-1
(Profit Center)

Type name here
(Profit Center)

Type name here
(Cost Center)

Individual contributor



Decentralized Structure

•  There is an affinity between the idea of a
decentralized structure and responsibility centers
– The doctrine is that establishing responsibility centers
with targets provides a structural basis for selective
decentralization of ‘operational’ decisions from the
strategic apex (top management) to the responsibility
center manager
– Target setting ‘remains’ centralized
– The strategic apex, assisted by the technostructure
(staff), can ‘control by outputs’

•  Responsibility centers and divisions are
conceptually distinct


Inputs

Process

Outputs

Cost $/unit output

•  Here, control is defined in cybernetic terms

Target
Inputs

Process

Need a target, a measure, and available corrective
actions that affect the performance variable

Doctrinal Principles of Control

DP1. Control exists when actual events/outcomes equal
planned events/outcomes
DP2. Responsibility should be clearly assigned (and
matched to authority)
DP3. Any control process requires standard-setting,
monitoring, corrective action, and evaluation
DP4. The cost to the organization of collecting
information should not exceed the value to the
organization of knowing the information

Standard Doctrines of Control

(Managing Costs)

D1. Measure the unit costs of the product
D2. Establish a standard for costs
D3. Assign responsibility for costs
D4. Require responsibility center to report regularly on actual
v. planned costs and planned corrective actions
D5. Learn from experience in the interest of improvement
D6. Evaluate managers, taking into account factors outside
their control


Broadening the Doctrines
D1. Measure the unit
•  D1* Measure critical
costs of the product
performance variables
D2. Establish a standard •  D2* Establish standards
for costs
for the critical
D3. Assign responsibility
for costs
•  D4* Report on
D4. Require responsibility deviations of critical
center to report
relative to standards,
regularly on actual v.
and discern whether
planned costs and
corrective action is
planned corrective
needed
actions

Measure the
Critical Performance Variables

•  Equivalent to saying “develop an accounting
information system”
–  Includes measurement of non-financial indicators
–  Note distinction between performance measurement and management

•  What to measure?
– ‘Product’ quality
– ‘Product’ cost
– Product can be mapped on to either output or outcome

•  How to measure? How often?


MAC
Some Doctrinal Issues

•  How to ensure that information (especially accounting
information) is relevant to “economic” decision-making
•  How demanding should targets be?
•  Should managers always be held to account for
meeting their targets?
•  How should internal pricing work?
•  How to ensure that the management control system is
coherent with the strategy?


Design Options

•  Generic types of targets or standards
– Based on history -- performance in previous periods
– Benchmarked -- based on similar data from similar
organizations or work groups
– ‘engineered’ work standards


Managerial Accounting’s Default Recipe
•  Develop Accounting Information Systems
– Define Outputs
– Measure Unit Costs
– Develop Non-Financial Indicators
– Report Service Efforts and Accomplishments
•  Develop Management Control Structure and Process
– Segment Org’n & Designate Responsibility Centers
– Set Targets
– Practice Diagnostic Control & Evaluate Performance


New Wave MAC


MAC and Public Management (1)
Setting targets
Authorizing costs
CO, B, O

CO, P
Planning

Budgeting

Reviewing indicators

R
Execution

?
Evaluation

Corrective Action

Thompson
Boyce

The Management Process

Notice: no discussion
of innovation

Processes within a cycle are sequentially interdependent

MAC and Public Management (2)
Hierarchy of Responsibility Centers
Type name here
Chief Executive
Type name here
(Profit Center)

Type name here
(Profit Center)

Type name here
(Cost Center)

Type name here
(Profit Center)

Type name here
(Profit Center)

Type name here
(Cost Center)




Core activities (mission centers) = cost centers
Utilities and marketplace activities (support Centers)
profit centers

=

Examples
•  Some Programmatic Embodiments
– Financial Management Initiative, Next Steps Initiative,
and Citizen’s Charter (UK)
– Financial Management Improvement Program
(Australia)
– Government Results and Performance Act (USA)
– Centres de Responsibilité (France)


Value for Money Construct

Inputs

Process

Outputs

Outcomes


Performance Management = NPM
•  “What NPM is Against”

–  Administrative Centralization (Aucoin)
–  Control by Procedure (Mintzberg)
–  Control by Skills (Mintzberg)
–  Control by Wishful Thinking


Explaining Performance Management’s Centrality in NPM

•  Managerialism and New Institutional Economics
•  “Business metaphor” (e.g., outputs)
•  Precursors (PPBS, Plowden)
•  Coalition of Professions (Economics, Accounting)
•  Ferment in management accounting practice
•  Outsourcing and privatization


The Balanced Scorecard (BSC) - "One of the most important
management practices of the past 75 years" HBR
Measurement
and Reporting

Alignment and
Communication

Enterprise-wide
Strategic Management

1992

Articles in Harvard Business Review:

§  “The Balanced Scorecard —
Measures that Drive
Performance” January February 1992

§  “Putting the Balanced Scorecard
to Work” September - October
1993

§  “Using the Balanced Scorecard

2009
Endorsement by Gartner Group 2009:
The balanced scorecard methodology
developed by Drs. Kaplan and Norton
extends beyond financial measures to
link vision to action.
The Harvard Business Review has
acclaimed the balanced scorecard
as one of the most influential ideas
of the past 75 years
Source: Gartner Group; 2009 Feature Article:

Business Value of IT — Non-financial Measurements
“The Balanced Scorecard” is translated into 18 languages

as
a Strategic Management System”
January - February 1996

Informed Risk Decisions
Based on presentation of Balanced Scorecard Collaborative

1996!


2000

There is a consistent set of “best practices” applied by successful
BSC users
1. MOBILIZE CHANGE THROUGH
EXECUTIVE LEADERSHIP

2. TRANSLATE STRATEGY TO
OPERATIONAL TERMS

1.1 Top leadership committed
1.2 Case for change clearly articulated
1.3 Leadership team engaged
1.4 Vision and strategy clarified
1.5 New way of managing understood
1.6 Program manager identified

2.1 Strategy map developed
2.2 Balanced Scorecard created
2.3 Targets established
2.4 Initiatives rationalized
2.5 Accountability assigned

3. ALIGN THE ORGANIZATION
TO THE STRATEGY
3.1 Corporate role defined
3.2 Corporate – SBUs aligned
3.3 SBU – Support units aligned
3.4 SBU – External Partners aligned
3.5 Board of directors aligned

STRATEGYFOCUSED
ORGANIZATION
BEST PRACTICES

4. MOTIVATE TO MAKE STRATEGY
EVERYONE’S JOB
4.1
4.2
4.3
4.4

5. GOVERN TO MAKE STRATEGY A
CONTINUAL PROCESS
5.1 BSC reporting system established
5.2 Strategy review meetings conducted
5.3 Planning, budgeting, and strategy integrated
5.4 HR and IT planning linked to strategy
5.5 Process management linked to strategy
5.6 Knowledge sharing linked to strategy
5.7 Strategy Management Office
established

Strategy awareness created
Personal goals aligned
Personal incentives aligned
Competency development aligned

Source: Balanced Scorecard Collaborative/Palladium - www.bscol.com ; NOW - http://www.thepalladiumgroup.com


What is meant by “Balanced”

The task of developing a comprehensive strategy demands systematic consideration and integration of
various perspectives. We have to balance between financial and non-financial considerations and apply a
measure combination. The basic framework as conceived by Kaplan and Norton, 1996 is presented below.
The actual contents of each perspective are tailored to the specific organizational/unit realities,
needs and challenges.
For making the strategy explicit we use the Strategy Map/s
Financial
Perspective

Customer
Perspective
•  Objectives
•  Key Performance Indicators
•  Targets
•  Initiatives

Kaplan and Norton, 1996

•  Objectives
•  Targets
•  Initiatives

Strategy
Learning & Growth
Perspective
•  Objectives
•  Targets

Internal Process
Perspective
•  Objectives
•  Targets
•  Initiatives


Tailoring to the specific organizational/unit realities, needs and challenges
- government procurement service example
FINANCIAL
- Optimum Cost Efficiency of
Purchasing Operations;
Cost Reasonableness of
Actions

CUSTOMER
- Customer Satisfaction
- Effective Service/Partnership

MISSION
VISION
STRATEGY

INTERNAL BUSINESS
PROCESSES

- Acquisition Excellence

- Most Effective Use of
Contracting Approaches
- Streamlined Processes
- On-Time Delivery
- Supplier Satisfaction
- Socio-economics

LEARNING AND
GROWTH

- Access to Strategic Information
- Employee Satisfaction
- Organization Structured for
Continuous Improvement
- Quality Workforce

Source: USA, Department of Energy Procurement System

Example of the Basic Building Blocks of the Strategy and
displaying the strategy’s cause-effect hypotheses
Financial Perspective!
Return on
Investment
"

Revenue
Strategy
"

Productivity
Strategy
"

Sources of Growth
"

Sources of Productivity
"

Customer Perspective!

2.!The value proposition of target
customers!

Value Proposition!
Price
"

Quality
"

Function
"

Time
"

1. The economic model of key
levers driving financial
performance

Relatioship
"

Image
"

Internal Process Perspective!
“Build the
Brand”
"

“Make the
Sale”
"

“Deliver the
Product”
"

“Service
Exceptionally”
"

Learning & Growth Perspective!
Staff
Competencies
"

+
"

Technology
Infrastructure
"

Source: Presentation of Balanced Scorecard Collaborative

+
"

Climate for Action
"

3.!The value chain of core
business processes!

4. The critical enablers of
performance improvement,
change and learning!

Kaplan and Norton's Generic Strategy Map template
Please keep in mind that the positioning of a perspective on the template does not in any way indicate the relative importance of
the perspective.

The Generic Strategy Map template
has to customized to the organization’s/department's/unit's particular strategy

A Strategy Map Represents How the Organization Creates Value
Productivity Strategy

Financial
Perspective

Improve Cost
Structure

Growth Strategy

Long-Term
Shareholder Value
Increase Asset
Utilization

Expand Revenue
Opportunities

Enhance
Customer Value

Customer Value Proposition

Customer
Perspective

Price

Quality

Availability

Selection

Product / Service Attributes

Internal
Perspective

Operational Management
Processes

• Supply
• Production
• Distribution
• Risk Management

Functionality

Service

Partnership

Relationship

Customer Management
Processes

• Selection
• Acquisition
• Retention
• Growth

Innovation

Processes
• Opportunity ID
• R&D Portfolio
• Design/Develop
• Launch

Image

Regulatory and Social
Processes

• Environment
• Safety and Health
• Employment
• Community

Human Capital

Learning and
Growth
Perspective

Information Capital
Organization Capital
Culture

Leadership

Alignment

Teamwork


Source:
Kaplan
R.
S.
&
Norton
D.
P.,2004,Strategy
Maps:
Converting
intangible
assets
into
tangible
outcomes,
HBR

Brand

BSC Terminology
Strategy Map example: Diagram of the!
cause-and-effect relationships!
between strategic objectives
"
Strategic Theme:  
Operating Efﬁciency!
Financial
!

Proﬁtability"

Fewer planes"

More"
customers"

Extending the Map into Objectives, Measurements,
Targets and Initiatives
Statement of
what strategy
must achieve
and what’s
critical to its
success
"

How success in
achieving the
strategy will be
measured and
tracked
"

The level of
performance or
rate of
improvement
needed
"

Key action
programs
required to
achieve
objectives
"

Customer
!
Flight "
Is on time"

Lowest "
prices"

Objectives"
Internal
!
Fast ground "
turnaround"

•  Fast ground
turnaround"

Measurement"

•  On Ground Time"
•  On-Time Departure"

Target"

•  30 Minutes"
•  90%"

Initiative"

•  Cycle time
optimization"

Learning!
Ground crew "
alignment"
Based on : Presentation of Balanced Scorecard Collaborative


Balanced Scorecard Overview
Components of a Balanced Scorecard
Strategy

Scorecard

Strategy Map
THEME

THEME

Measures

Targets

Internal
Perspective

❏
❏

F3 - Reduce Cost Structure

❏ Deposit Service Cost Change

❏ -5%

❏ Global Re-Engineers

C1 - Increase Customer Satisfaction
With Our Products & People

❏ Share of Segment

❏ 20%

❏

C2 - Increase Satisfaction “After the
Sale”

❏ Customer Retention

❏ 95%

I1 I2 -

Understand Our Customers
Create Innovative Products

❏

❏

Cross-Sell Products

❏ Cross-Sell Ratio

❏ 9%

I4 -

Customer
Perspective

F1 - Improve Returns
F2 - Broaden Revenue Mix

Shift Customers to Cost-Effective
Channels
Minimize Operational Problems
Responsive Service

❏ Channel Mix Change

❏ TBD

❏ Service Error Rate

❏ <1%

❏ Request Fulfillment Time

❏ <2 days

I5 I6 -

Learning
Perspective

L1 - Develop Strategic Skills
L2 - Provide Strategic Info L3 Align Personal Goals

❏
❏
❏

Return on Investment
Revenue Growth

New Product Revenue

Skills Coverage
Employee Satisfaction
Revenue per Employee

❏
❏

Initiatives

I3 -

Financial
Perspective

BALANCE

Strategic Objectives

15%
+10%

❏
❏

10%

100%
80%

❏

❏

Finance 2000

Sales & marketing
Reorganization &
Training

QFD Project

❏ Customer Database

❏ Global Service Training
Program

❏
❏

HRMS
Knowledge
Management System


Horizontal and Vertical Alignment !!!
The Organizational Framework
Strategy

Objectives

Measures

Strategic
Business
Unit (SBU)
Department
Team/
Individual
Ensure Alignment:
Each sub-unit and individual link their objectives to the map.

The Measurement Pyramid

Goal

Strategic/GPRA Goals
End-Outcomes

Outcome
Performance
Measures

Program

Longer-Term Intermediate
Outcomes

Program Performance Measures

Program Components
Shorter-Term
Intermediate
Outcomes
& Outputs

Program Component Performance Measures

Activities
Activity Performance Measures

Outputs


Some Tools for Determining
What to Measure
Program Logic Model
Inputs

Process/
System

Output

Intermediate
Outcomes

End
Outcome

Process Flow
Causal Analysis
Desired
Outcome

Prototype
Product

Acceptable
To Market

Results
Of
Testing

Not Acceptable
Back to
Laboratory


Balanced Scorecard Six Step Development Process

Step 3
!
!
Draft a!
Strategy Map
!
With Linkages
!
And Themes
!

Step 1
!
!
Develop a
!
Project Plan
!
Step 2
!
!
Build a
!
Strategic
!
Architecture
!
!

Step 5
!
!
Select Strategic
Initiatives
!
Step 4
!
!
Determine
Measures and
Targets
!

Step 6
!
!
Plan for
implementation of
the SFO
!

Typically 8-12 Weeks!


Consider the Timeframe for Value Creation
Long-Term Growth in
Shareholder Value

12-24 months

Operations Management
Processes

Customer
Management Processes

24-48months
Innovation
Processes

Shareholder Value

6-12 months

Regulatory and
Social
Processes

Good Citizen
Product
Innovation

Customer
Management

Operational
Effectiveness
1

2

3
Time (Years)

4

5
Source: Strategy Maps – Robert S.
Kaplan and David P. Norton

The Key is to Build a Management Process Which is
Driven by the Strategy
1Strategy Development &
Planning

Objectives

Measures

Targets

Initiatives

The Balanced Scorecard
articulates and
communicates the strategy

Management interprets
results, makes decisions
and evolves the strategy

2

Initiative Assessment
Initiative Plan: B
Initiative Plan: A
Owner:
Financial Benefits:

3

Reporting & Analysis

Initiatives are aligned to
support the strategy

Corporate & SBUs must
manage the business in
support of the strategy

4

Decision-Making &
Communication


Putting the BSC to work
Presentation of the metrics and their visualization


http://vaperforms.virginia.gov/Scorecard/ScorecardatGlance.pdf


Balanced Scorecard

Radar Chart"

Dashboard"

Some of the Indicators of Good Balanced Scorecard
1.

2.

A good Balanced
Scorecard will “tell
the story” of your
strategy in
!
actionable terms.
!

!Executive Involvement 

Strategic decision makers must validate and own the
strategy and related measures !
!Cause-and-Effect Relationships 
Every objective selected should be part of a chain of
cause and effect linkages that represent the strategy"

3. Balance between outcome and leading measures There

should be a
balance of outcome measures and leading measures to
facilitate anticipatory management"

4.

!Financial Linkage 

Every objective can ultimately be related to ﬁnancial
results"
5.

Source: Balanced Scorecard Collaborative/Palladium

Each initiative should be
based on a gap between baseline and target. "

!Linkage of Initiatives and Measures:


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