Controlling of IB

•For achieving the goals predefined processes and instruments are required which influences the performance of the organization•Control is essentially concerned with regulating the activities within the organization so that they are accord with the expectations established in policies , plans and practices.•A major task of the firm’s leadership is to control on various basis of function, product, geographical and overall strategic and financial objectives.

Objectives of Control

• It supply data for top management for monitor, evaluate and adjust

• Provide the means for coordination of the units toward common objectives

• It provide the basis for evaluating the performance of the units and managers at each level

Types /Methods of Control Systems

Personal Controls

Output Controls Cultural Controls

Personal Controls:-Personal contact with the subordinates-Most widely used in the small firms, where direct supervision- Also structures the relationships between managers at different levels in MNE-CEO may use a deal of personal contact to influence the behaviour of his immediate subordinates.

Bureaucratic Controls• A System of rules and procedure that directs

the actions of sub-units• Capital spending rules require headquarters

management to approve exceed certain limit

Output Controls• It involves setting goals for subsidiaries to

achieve the objectives• Objectives criteria Productivity, Profitability,

Growth, Market share and quality

Cultural Controls• It exists when employees “buy into” the norms

and value systems of the firm• Employees tend to control their own behaviour

which reduces need for direct supervision• In a firm with strong culture, self control reduces

the need for other control systemsApproaches to Control

Market Approach Rules Approach Corporate Culture Approach

• Market Approach- External market forces allowed to control the behaviour of the management within the units of MN’s- Organisation are decentralized and transfer prices are freely negotiated- The decisions are largely directed by the market

• Rules Approach- Rules oriented organization- Greater reliance on strongly imposed rules and procedures- Highly developed planning and budgeting system with extensive formal reporting- This types of control uses both the input and output controls in highly formalized way.

• Corporate Culture Approach- The members of the organization internalize the goals by developing a strong set of beliefs and values which influence their operations- Though the orgn.have strong norms of behaviour they are informal and less explicit- Major changes naturally takes more time to bring the needed organizational changes or adjustments

Control Mechanisms

Reports

Management Performance Evaluation

Cost and Accounting Comparisons

• Reports- Powerful control mechanism- Allocate resources/monitor the performance- Reward personnel- Reports must be frequent, accurate and up-to-date

• Visit to Subsidiaries- Not all the information exchange through - Corporate staff often visit subsidiaries to confer and socialize with local managers- Visit can serve the goal of controlling foreign operations because they enable the visitors to collect information and offer advice and directives.

• Management Performance Evaluation- Evaluate subsidiary managers separately from their subsidiary performance- Because of decision making authority differences something are beyond the control- Slow growth and risky economical and political environment

- The company should still reward the country’s managers for doing a good job in the face of diversity

• Cost and Accounting Comparisons- Different cost among subsidiaries - Meaningful comparison of their operating performance- Set of book that are consistent with home country principles another to meet local reporting requirements

Constraints in Control System

• Distance- Geographical distance and cultural disparities- But advent of email and fax transmission has replaced the human in communication

• Diversity- Needs locally responsive – adjusting needs of the country in which operates – Labour, cost, currency, factors, setting standards etc.

Constraints in Control System

• Degree of Uncertainty- Data relating to that are inaccurate and incomplete- Control implies setting goals and developing plans to meet the goals

• Differences in approach- Approaches are different in different countries - They are not at par in the approaches to controls are concerned

Performance Measurement of Global Business

Establish Standard of Performance• Standard of performance apply to

many aspect of the orgn. Such as cost, quality, and customer service• Incorporate more than one standard

since they reflect expected levels of Mfg. performance such as process yields, product quality, overhead spending levels etc.

Measure Actual Performance• Measures the actual results of the

process• Manual or Automated data collection

system are requied to gather information• Standard cost system includes labour

hours, machine hours, material usage etc.

Analyze the Performance and Compare it with standards

• Measures the actual results of the process• Manual or Automated data collection

system are requied to gather information• Standard cost system includes labour

hours, machine hours, material usage etc.

Construct and Implement an Action Plan

• Variance analysis will highlight potential problem areas• Indentify the source of the problem

and develop plans to correct or improve the situation• Effectiveness of performance system

depends upon management’s ability to act on the information provided

Review and Revise Standards

• Modern organizations are in a constant state of change

• Update periodically to reflect these changes• Standards are updated once in a year during

the standard setting process• However if the variances are significant, the

performance standards should be revised during the interim periods

Effective Performance Measurement System • Must be integrated with overall strategy of the

business• Be a system of regular feedback and review of

actual results against original plan and performance

• Must be comprehensive, needs t include the factors that contribute to the organizations success such as competitive performance, quality of services and innovation

• Requires the range of financial and non-financial indicators

Effective Performance Measurement System • Owned and supported throughout the

organization, the implementation must be top-down

• Measures must be fair and achievable• System and results reporting must be simple,

clear and understandable• Need to prioritize and focus so that only the

key performance indicators for the business in strategic terms are measured

Performance Evaluation System• “The periodic review of operations to ensure

that the objectives of the enterprise are being accomplished”

• The MNC must have an accounting information to evaluate domestic and foreign operations

• The proper measurement of the performance of an individual, a division, a subsidiary or even a company as a whole is not simple

Objectives of Performance Evaluation• To evaluate the economic performance

of its international operations• To evaluate the unit’s management

performance• To monitor progress toward corporate

objectives including strategic goals• To assist the efficient allocation of

resources

Various Performance Indicators• Financial Measures

- ROI (Return on Investment)- ROI = Division return(Segment Margin)

Investment In division- ROI = Division controllable return(Manager’s Contribution

Controllable Investment• Most common method to evaluate the return on investment• Relation ship of profit to invested capital• It encompasses all the important factors in a single measure• Logical motivator of the managers since they are evaluated by

ROI, they will act to maximize the ROI of their units

Various Performance Indicators• Budget as Success indicator

- Budget as a accepted tool for controlling operations and forecasting future operations- Clearly set out objectives of the entity- Budget gives the managers to set their own performance standards- Headquarters must rely to greater extent on good local or regional budgets which help facilitate the strategic planning process

• Non Financial Measure- Market Share- Percentage of Sales- Exchange Variations- Quality Control- Productivity Improvement

Types of Performance Evaluation System• Budget Programming

- Prepared for planning and financial control- Easy to compute the variance- To measure current performance in relation to comparable performance in the past

• Management Audit- Extended financial audit system- Monitors the quality management decisions in financial operations- It appraises and audits the functioning of the management

Types of Performance Evaluation System• PERT(Programme Evaluation Review Technique)

- It is based on CPM(Critical Method)- It delineates a given project or program into network of activities or sub-activities with a view to optimize the time- The performance is measured by comparing the scheduled time and cost inputs with the actual time and cost inputs

• Management Information System- Ongoing information system designed to plan, operate, appraise, monitor, control and redirects the total management towards the determined targets and goals-MIS is all pervasive and encompass the financial, physical budgeting, management audit and control systems of the PERT