Decision Making and Control

chapter eleven

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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Chapter Outline

• The decision-making process• Centralized vs. decentralized decision making• Global examples of employee participation in

decision making• Types of controls:

– Personal (direct controls)– Bureaucratic controls– Indirect controls – Cultural controls

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Decision-Making Process

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Factors Affecting Decision Making Authority

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The Importance of Centralization

• Most evidence indicates that most decision-making approaches used around the world favor centralization of authority

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Decision-Making inU. S. Multinationals

• Most use fairly centralized decision making in managing overseas units

• Provide the necessary control for developing and implementing a worldwide strategic plan

• Ensure that all units are operating according to the strategic plan

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Employee Participation inDecision Making

• Quality circles

• The ringi system in Japan

• Employee representation on company boards of directors

• Legal requirements for employee participation in the European Union– Works Councils– European Works Councils

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The Ringi System in Japan

• A proposal (ringisho) is made by a middle manager. – There is consultation with other groups at the same

level (nemawashi or root-tying). The proposal may be modified.

• If the proposal is endorsed by the other groups, it is forwarded to the next higher level of management, where more consultations occur.

• This process is repeated until the proposal reaches top management, which can accept the proposal, send it back for more analysis and development, or set it aside.

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Employee Representation onCompany Boards of Directors

• Common in large companies in Germany, the Czech Republic, Denmark, Sweden, Slovakia, Slovenia

• Legally required in Germany and Sweden• Workers usually have 1/3 of board seats

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Works Councils

• In the European Union, all but the smallest companies must establish works councils in each EU country where they do business.

• Works Councils are usually established at each company facility.

• They include both union and management representatives

• They deal with issues related to job security, working conditions, company performance, and administering the labor contract.

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European Works Councils

• A company must establish a European Works Council if it has– at least 1,000 employees in the EU– at least 150 employees in each of two member

states

• The European Works Council deals with issues that are of concern to employees in more than one EU country.

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Controlling

• The process of evaluating results in relation to plans or objectives and deciding what action, if any, will be taken– Decision making may be based on quantitative or

qualitative data, or a mixture of the two.– Some MNC’s centralize control, while others

decentralize at least some control.

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Areas that are Commonly Controlled

• Financial performance

• Market performance

• Quality performance – controlled through statistical process control– The role of quality circles is to improve

quality.

• Personnel performance

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Types of Controls

• Personal controls (direct controls)

• Bureaucratic controls

• Indirect controls

• Cultural controls

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Personal Controls

• An executive maintains control through personal contacts with subordinates. – Meetings– Video conferences– Visits to overseas operations

• Managers for overseas operations may be selected on the basis of responsiveness to home office concerns and requests.

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Bureaucratic Controls

• Bureaucratic controls are based on a system of rules and procedures.

• In MNC’s the most important forms of bureaucratic control are:– Budgets, which control the way that overseas

businesses allocate and use their money. – Capital spending rules ensure that overseas units

spend capital funds in a way that is consistent with corporate objectives.

• Budgets and capital spending may be negotiated between headquarters and the foreign subsidiary.

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Indirect Controls

• Reports that foreign operations must submit to headquarters

• Key financial data– Financial statements that meet the reporting

requirements of the host country– Financial statements that meet the reporting

requirements of the home country– Statements prepared to meet the financial

consolidation requirements of the home county• Financial statements show whether the foreign

operation has met its profitability, revenue, and cost targets.

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Indirect Controls (2)

• Other reports showing whether the foreign operation has met its targets in other areas market share and quality.

• Targets are often negotiated between headquarters and the subsidiary.

• Headquarters management usually tries to set goals that are challenging but achievable.

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Indirect Controls (3)

• Control is achieved by comparing the foreign subsidiary’s performance with the targets. – Managers who exceed the targets will be

rewarded.– If targets are not met, corporate

management will intervene to find out why and take corrective action.

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An Example of Cultural Differences in Budget Controls

U.S. Managers• Annual budgets• The budget is a

control tool.• Budgets should be

based on expense forecasts that are as accurate as possible (not much “slack”)

Japanese Managers• Long-term budgets• The budget is a

communication tool.• Budgets should have

more “slack” than U.S. companies allow.

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Cultural Controls

• Cultural controls exist when employees “buy in” to the norms and value systems of the company. – When cultural controls are strong, employees tend

to control their own behavior, which reduces the need for supervision.

– Some companies have extended cultural controls to their long-term suppliers.