• Managment control systems are tools to implement strategies
• strategies differ between organizations and controls are tailored to requirements of specific strategies
• strategies are plans to achieve organization's goals

• corporate goals are determined by the CEO with advice of other members of senior management and ratified by BOD
• most goals are set forth by the founder and keep on for generations (Henry Ford: Ford Motor Co, Walt Disney: Walt Disney Co)

• most important goal
• expressed by equation: (revenue - expenses / revenue) x (revenues / investment) = ROI
• first ratio is profit margin percentage
• second ratio is investment turnover

• finding right balance between debt and equity
• shareholder's investment (equity) is amount of financing that was not obtained by debt (borrowing)

• Capital Markets
• Product Markets
• factor Market

• strategies for a whole organizaiton
• strategies for business units within the organization

right mix of business (concerned with where to compete than with how to compete)

• are we in the right mix?
• if not, what should we be in?

• definition of business in which firm will participate
• deployment of resources among those businesses

• single industry
• related diversified
• unrelated business

• many companies have pursued diversification, despite its dismal track record
• research shows related diversified firms perform best, single industry second best, unrelated diversified firms don't do well long-term
• core competency is what a firm excels at and what adds value for customers
• business units of a related diversified firm might be worse off if the were split into seperate companies since a related diversified firm can exploit operating synergies across its business units.
• unrelated diversified firms don't have operating synergies

• many companies don't fit into one of the three classes but companies can be classified along the continuum
• location depends on the extent and type of diversification
• key issue: how should structure and form of control differ across each type of firm?
• design control system to match strategies of firm

• its mission (what are the overall objectives?)
• competitive advantage (how should the business unit compete in its industry to accomplish its mission?)

• Boston Consulting Group (BCG) 2 x 2 growth share matrix (drops cost / unit over time)
• General Electric / McKinsey & Co's 3 x 3 industry attractive-business strength matrix

• Build
• Hold
• Harvest
• Divest

• Question Mark
• Star
• Cash Cow
• Dog

Build

• measures industry growth rate on one axis and relative market share on the other
• views industry growth as an indicator of relative industry attractiveness and rleative makret share as an indicator of the relative competititve position of a business unit in a given industry
• singles out market share as the primary strategy variable because of the importance of the experience curve
• cost per unit decreases predictably with the number of units produced over time

• applies to undifferentiated prodcuts, primary basis on price
• improvements in technology may have a greater impact on reduction of per unit costs than cumulative volume
• agressive pursuit of reducing costs via accumulated production of standardized items can lead to loss of flexibility in market place
• commitment to the experience curve concept can be a severe disadvantage of new technogoies emerge in the industry
• experience isn't the only cost driver. Other drivers are scale, scope, technology and complexity

• every business unit needs to deveop a competitive advantage in order to accomplish its mission

• what is the structure of the industry?
• how should the business unit exploit the industry's structure?
• What will be the basis of the business unit's competitive advantage?

• Industry analysis: five competitive forces
• Value Chain

• Intensity of Rivalry Among Competitors
• Bargaining Power of Customers
• Bargaining Power of Suppliers
• Threat From Substitutes
• Threat of New Entry

• industry growth
• product differentiability
• number and diversity of competitors
• level of fixed costs
• intermittent over capacity
• exit barriers

• number of buyers
• buyers switching costs
• buyer's ability to integrate backwards
• impact of the business unit's product on buyer's product quality / performance
• significance of the business unit's volume to buyers

• Number of suppliers
• suppliers ability to integrate forward
• presence of substitute inputs
• importance of business unit's volume to suppliers

• Relative price/performance of substitutes
• buyer's swtiching costs
• Buyer's propensity to substitute

• Capital requirements
• access to distribution channels
• economies of scale
• product differentiation
• technological complexity of product or process
• expected retaliation from existing firms
• government policy

1. More powerful the five forces are, the less profitable an industry is likely to be.
2. Depending on the relative strength of the five forces, the key strategic issuesfacing the business unit will  differ from one industry to another
3. understanding the nature of each force helps the firm to formulate effective strategies (based on core competencies of the company).

1. Can we reduce costs so revenues stay constant?
2. Can we increase revenue holding costs constant?
3. Can we reduce assets holding costs and revenues constant?
4. Can we do all three simultaneously?

• L.L. Bean
• Craftsman Tools