Fikriyah Arinal Haq / 12010006/ Term 5/ Management Control Systems Resume Chapter 2 Understanding Strategies

FIKRIYAH ARINAL HAQ / 12010006/ TERM 5/
MANAGEMENT CONTROL SYSTEMS
September 9, 2014
Resume chapter 2
Understanding Strategies
Understanding Strategies become a tools to reach the goals. Based on Anthony
and Govindarajan (2004: 51) management controls systems are tools to implement
strategies and strategies itself are plans to to reach organizations goals. The level
of the strategy are the corporate level and the business unit level. For now, we talk
about organization goals, there are:
1. Profitability
Profitability is an important goal for every organization when they run a
business. The equation of profitability is:
= Return on Investment (ROI)
-If the ROI increase, it shows that the goals are successful.The investment that used on the equation refers to the shareholders
investments, which consist of proceeds from the issuance of stock plus
retained earnings. One of the managements responsibilities is t arrive at the
right balance between the two main sources of financing. That are debt and
equity. Profitability refers to profits in the long run, rather than in the current
quarter or year.
2. Maximizing Shareholder Value
Maximize Shareholder value refers to the market price of the corporations
stock. The reason imply maximizing shareholder value are, first,
maximizing implies that there is a way of finding the maximum amount that
a company can earn. Second, although optimizing shareholder value may be a
major goal, its by no meanthe only goal for most organizations. Because it is
difficult to maximize shareholder value, there are many things and many
impacts to other (such as revenue) should be considered by the manager. So,
we have to know the legal rule and the method to maximize shareholder value.
Understanding Strategies The Management Control Environment
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September 9, 2014
3. Risk
Every corporation that run the business has a main goal, they want to get
profit or high return of their business. Because of it, the corporation that want
to reach high profitability, there are many kind of risk that they will face.
4. Multiple Stakeholder Approach
Organizations participate in three market, there are the capital market, the
product market, and the factor market. Three type market has a relation and
different function itself.
The firm has a responsibility to these multiple stakeholder (shareholders,
customers, employees, suppliers, and communities). Ideally, its management
control system should identify the goals for each of these groups and develop
scorecards to track performance.
The Concept of Strategy
Strategy describes the general direction in which an organization plans to
move to attain its goals. A firm develops its strategies by matching its core
competencies with industry opportunities. Kenneth R. Andrews advanced a basic
strategy formulation by stated that it is a process that senior executives use to
evaluate a companys strengths and weakness in light of the opportunities and
threats present in the environment and then to decide on strategies that fit the
companys core competencies and environmental opportunities (Kenneth, 1971).
Strategies can be found at two levels: strategies for a whole organization
and strategies for business units. Here there are the two levels of strategy with the
key strategic issues, generic strategy options and primary organizational levels
involved:
Strategy Level
Key
Strategic Generic Strategic Primary
Issues
Options
Organizational
Levels Involed
Corporate Level
Are We in the
- Single Industry.
right
- Related
mix
industries?
of
Corporate Office
Diversification.
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What industries or
September 9, 2014
- unRelated
subindustries
diversification
should we be in?
Business
Level
Unit What should be Build.
Corporate
Office
the mission of the Hold.
and business unit
business unit?
general manager.
Harvest.
Divest
How should the Low Cost.
Business
business
general manager.
unit Differentiation.
unit
compete to realize
its mission?
-Two Levels of strategy-
Business Unit Competitive Advantage

Michael Porter has described two analytical approaches- industry analysis
and value chain analysis- as aids in developing superiorand sustainable
competitive advantage.each is described briefly below:
1. Industry analysis
Research has highlighted the important role conditions play in the
performance of individual firms. Industry analysis is a tool to systematically
assess the opportunities and threats in the external marketplace. Based on
Porter, the structure of an industry should be analyzed in terms of the
collective strength of five competitive forces. They are:
a. The intensity of rivalry among existing competitors
b. The bargaining power of costumers
c. The bargaining power of suppliers
d. Threat from substitute
e. The threat of new entry
2. Generic competitive advantage
The five-forced analysis is the starting point for developing a competitive
advantage since it helps to identify the opportunities and threats in the external
environment. Porter said two generic ways of responding to the opportunities
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September 9, 2014
in the external environment and developing a sustainable competitive

advantage: low cost and differentiation.
3. Low Cost
The important point of this strategy is to reach the lower cost. It can be
achieved with some approaches like experience curve effect, tight cost control,
and cost minimization.
4. Differentiations
This strategy focus to make different product than the competitors
product offering. It can be achieved with some approaches like create a unique
product, brand loyalty, dealer network, product design and product features,
technology and so on.
5. Value chain analysis
The value chain disaggregates the firm into its distinct strategic activities.
The value chain is the complete set of activities involved in a product,
beginning, with extraction of raw materials and ending with post-delivery
support to costumers. Value chain analysis seeks to determine where in the
companys operations - from design to distribution - costumer value can be
enhanced or cost lowered. The value chain framework is a method for
breaking down the chain from basic raw material to finished goods into
specific activities in order to understand the behavior of costs and the sources
of differentiation. The value chain helps the firm to understand the entire value
delivery system, not just the portion of the value chain in which it participates.
Similarly, customers action have a significant impact too.
Refference:
Anthony and Govindarajan. 2003. Management Control System: Elevent Edition.
Mc Graw Hill: New York.
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FIKRIYAH ARINAL HAQ / 12010006/ TERM 5/

MANAGEMENT CONTROL SYSTEMS

= Return on Investment (ROI)

Understanding Strategies The Management Control Environment