Strategic Management Control

This book presents and discusses the fundamentals of strategic management control. It shows how and why this influential mode of control has become crucial for the successful formulation and implementation of competitive strategies. The book focuses on the importance of a strategic dialogue between managers and co-workers (‘Co-worker’ is the term used in this book for people who have non-managerial positions. We recognise that some of the cited authors use the word ‘employee’.) and the role of the strategic management control system in facilitating such a dialogue. The reader will be provided with an overview of the latest developments of the field—both from the research front as well as from practice. To help the reader relate this overview to the practices of her own organisation, the book is loosely structured around the familiar and well-established planning and follow-up structure that most control systems are based on. The first chapter in the book will give the reader an introduction to strategic management control: what it is and how it has developed from a more traditional mode of management control. There is also an overview of the following eight chapters in the book. The 15 authors of the book are all leading experts within their specific field. That ensures that the reader will be provided with well-grounded and different perspectives on strategic management control.

Business strategies need to be communicated and internalized by employees to make a difference. In this chapter we explore how balanced scorecards and strategy maps can facilitate such communication and dialogue among employees. We build on references from the field of strategic management control and a well-grounded overview of the concept of storytelling from the field of cinema studies. In addition to this, we offer an in-depth case description of how the Swedish €100+ million amusement park group, Parks and Resorts Scandinavia, has deigned their strategy map visually, to engage their employees in talking about the strategy and measuring its execution. Our recommendation is that designers of scorecards and strategy maps should take the learnings from motion-picture storytellers into account and apply these experiences in their effort to make the strategy everyone’s job. We especially highlight the two concepts (1) simple design that creates intense content, and (2) “suspension of disbelief”, i.e. how the designer of the strategy map can strike a deal with the viewers (the employees in the organisation) such that they interpret and trust the content in the strategy map.

In this chapter by Alf Westelius and Johnny Lind, “Painting the relevant organisation”, the authors discuss how it is increasingly less self-evident which entity should be the focus of strategic management control. Although the relevant organisation may be the whole, or some parts, of an organisation, it may also be a somewhat broader entity such as a joint venture, an imaginary (i.e. virtual) organisation, a network (Uppsala School network theory style), a value constellation or a partnership. The chapter discusses all these, less obvious, possibilities. Because different people are likely to have different views on what constitutes the relevant entity, an essential aspect of strategic management control is establishing and maintaining the dialogue on associations and boundaries. The dialogue may involve a strong party, perhaps aiming to inspect and influence external parties (e.g. suppliers and customers), but can also be conducted among more equal partners. The authors conclude that people who want to take an active management role, or who want to include others in the exercise of management control, should learn how to paint a convincing picture of what they view as the relevant entity to control (or the relevant parties that should cooperate in jointly controlling their collaboration).

A fundamental aspect of all management control systems is its capacity to make organisations controllable and possible to evaluate. In a well-functioning management control system—especially one that is “strategic”—it can be expected that the metrics used, decisions being made and the responsibilities for these decisions are supporting strategy formulation and implementation. It is especially important that the structures and processes of the control system facilitate an internal strategic dialogue between managers and co-workers in planning, following-up and evaluating the objectives and strategies of the organisation. The chapter discusses some of the challenges of establishing strategic management control. One such challenge is how to establish a strategic dialogue that will help the organisation to develop in the desirable direction. Another, and closely related challenge, is how to ensure that the strategies chosen are implemented throughout the organisation when controls are not coordinated or aligned. Concepts like integrated control, management control package, control mix and ERP systems are used to discuss these and similar challenges. The discussions are based on our own experiences and insights as well as research findings.

This chapter addresses the question: How do product prices reflect business strategy and how can they be set? We attempt to answer this question by using ideas from the field of strategic management control, which integrates several elements: competitive strategy, customer value, cost structure, and pricing. We present an analytical concept—the price model equalizer—which can be used to facilitate and support strategic dialogues in such assessments and analyses. The chapter also presents the Value Creation Model (VCM), which is a tool supporting pricing decisions. The VCM enables a company to match customers’ valuation of product attributes and its activity costs for providing these attributes. In addition, the VCM has analytical features that enables a company to focus on, and have a strategic dialogue about, the relationship between price, cost, and product value attributes. A conclusion drawn in the chapter is that strategically anchored pricing is based on a certain logic, focusing on assessing and analysing the business environment, business models, and price models. Taken together, the approach to pricing described in this chapter enables a strategic dialogue that contributes to the realization of business strategies.

Given contemporary business life, management control needs to develop from a technology of monitoring employees to an instrument for facilitating work and formulating goals and strategies. By embracing complexity instead of hiding it behind a handful of targets, management control may help the organization to learn. This chapter focus on reviewing ideas on the active contribution of the controlled in hierarchical dialogues. This perspective is essential, especially since organizations have multiple objectives and a dialogue can mitigate the risks of ending up with fragmented strategic directions. As far as we see it, dialogues are key to make control systems enabling. The possibility of dialogue is dependent on management accepting that control is something that is developed in interaction. It also depends on the controlled trusting that being heard is linked to qualitative and supportive feedback; dialogical control is a two-way street.

The breadth of the controller role, ranging from bookkeeper, “bean counter” and “watchdog” to a more strategic business partner, has long been discussed in the accounting literature. Resting upon the assumption that controllers, at least on the business partner side of the spectrum, frequently engage in dialogue with operations managers, this chapter investigates what such dialogues, or “accounting talk”, may look like and what the role of the controller may be therein. The chapter outlines three common types of dialogues between controller and managers, which serve to create awareness of problems, identify reasonable solutions, and challenge assumptions about how to conduct operations. In these dialogues, accounting information and other types of information jointly form a multifaceted image of operations that may spark discussion and debate around strategic issues. These dialogues may furthermore serve an educational purpose for both controller and managers as information and stories are exchanged around interpretations of data, definition of concepts and day-to-day operational concerns. Assuming this more strategic and interactive role, the controller becomes involved not only in calculations but also in social processes related to educating, persuading and inspiring. The chapter ends with a discussion of how a more strategic controller role can be enabled.

The chapter summarizes the forces that shaped management control over the last half-century, based on the author’s work as an educator, author, consultant and researcher. While many of the fundamental issues of organisation life remained the same, conditions changed. Methods that became influential later were proposed already in the 1970s, for instance multicriteria targets and mobilizing local knowledge in large organisations. Change has been slower and more gradual than expected then, and he believes some of the advice given in the 1970s could have made our ride during the next half-century less bumpy. Since 1970 strategic management control has emerged as the key process for coordinating decentralized action, supported by the simultaneous development of information systems. Its contribution to success rests on strategic dialogues, leading to shared views on tasks and expectations. They need to combine facts and credible assumptions into narratives supported by evidence. Convincing scenarios will make organisation members eager to contribute their part to the journey envisioned in its strategies. Articulating beliefs, possibilities, and preferences during a strategic dialogue presupposes data on performance and future options. Metrics are central to this kind of control, and they need to connect these to vital aspects of strategy and environment.

Chapter 9 draws implications from the previous chapters. To permeate the entire organisation, strategy should be visible and understandable. Co-workers throughout the organisation should be able to explain the organisation’s strategy to others. Those who want others to buy into their view on what is “the relevant organisation”—the unit that is to be controlled—need to present a credible and persuasive story of what and why. Both managers and co-workers should initiate strategic dialogues within the management control framework, so everyday activities are both guided by the strategy, and can provide impulses for changes in organisational focus. As management control increasingly guides the actions of the workforce, the importance of mutual dialogue between managers and co-workers will increase. One topic would be the reasonableness of achieving specified goals. Such dialogues are important parts in creating a perception of management control as a support, not a straitjacket. Controllers should dress their analyses in practice-relevant narratives, not just numbers, and engage in dialogue with people at different organisational levels, both to help them better see the implications of the numbers, and to help the controllers themselves grasp the work and the organisational setting that the numbers are intended to capture.