Chapter 10 Outline

Chapter 10 Outline

Using Diagnostic and Interactive Control Systems

-Managers must rely on employees to achieve financial and non-financial goals.

-The priority and efforts of implementing and communicating strategic goals and measures becomes greater as a company expands.

-Using performance measurement and control systems effectively becomes critical to success.

-2 Types of control systems: Diagnostic and Interactive

-Diagnostic control systems are used as levers to communicate critical performance variables and monitor the implementation of intended strategies.

-Interactive control systems are used to focus organizational attention on strategic uncertainties and provide a lever to fine-tune and alter strategy as competitive markets change.

--Diagnostic control systems are defined as the formal information systems that managers use to monitor organizational outcomes and correct deviations from preset standards of performance.

-Managers can use most performance measurement and control systems diagnostically, including:

-balanced scorecards

-expense center budgets

-project monitoring systems

-brand revenue/market share monitoring systems

-human resource systems

-standard cost-accounting systems

-Why use control systems? Two typical principal reasons for using a system diagnostically: to implement strategy effectively and conserve scarce management attention.

-Implementing strategy- Managers are interested primarily in monitoring diagnostic control systems that report variance information about critical performance about critical performance variablesвЂ"those factors that must be achieved or implemented successfully for the intended strategy of the business to succeed.

-Without diagnostic control systems, managers could neither communicate nor implement strategy effectively in large complex organizations.

-Because of the importance of these systems, managers must ensure that

1. critical performance variables have been analyzed and identified

2. appropriate goals have been set

3. feedback systems are adequate to track performance

-Conserving Attention- Instead of constantly monitoring a variety of internal processes and comparing results with preset targets and goals, managers receive periodic exception reports from staff accountants. If everything is OK then their job is done and things keep going. If not then the managers will invest time into the issue. This process is called management by exception.

Using Diagnostic Control Systems Effectively: To operate diagnostic control systems effectively, managers must ensure that they devote sufficient attention to five areas: setting goals, aligning performance measures, designing incentives, reviewing exception reports, and following up significant