Management Control Systems

First European Edition

Robert N. Anthony, Vijay Govindarajan, Frank G. H. Hartmann,
Kalle Kraus and Gran Nilsson

Mc
Graw
Hill
Education

Higher
Education

London Boston BurrRidge, IL Dubuque, IA Madison, WI New York San Francisco

St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon Madrid Mexico City Milan
Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

rief Table of Contents

"

Case grid
About the authors
Preface
Acknowledgements
Guided tour

1
2

3
4

PART 1 :
Management control a n d
management control systems
Introduction to management control
Designing management control
systems
PART 2 :
The environment a n d
strategy of organizations
Organizations and their environment
Strategy and management control

XV

xvi
xviii
xix

1
3

9
10

34
11
70
72
142
12

PART 3:
Management control a n d the
organization's internal
structure
Decentralization, control and
incentives
Responsibility centres: revenue and
expense centres

13
14
192
194
227

Responsibility centres: profit and

investment centres
Transfer pricing, shared service
centres and cross-functional
management
PART 4:
The management control
process
Planning and budgeting
Performance measurement and
analysis
Compensation, incentives and
motivation
PART 5:
Management control
challenges
Management control challenges
in service delivery
Management control of projects
Management control and interorganizational relationships
Company Index
Subject Index

254

289

329
331
384
420

476
478
509
552
606
613

Detailed Table of Contents

illillliiiilii^

Case grid
About the authors
Preface
Acknowledgements
Guided tour

x
xv
xviii
xviii
xix

PART 1 :

M a n a g e m e n t control a n d
m a n a g e m e n t control systems
Introduction to management
control
Introduction
Management control: role and position
Human behaviour in organizations
Road map for the reader
Case 1.1: Management Control Problems
Case 1.2: Wal-Mart Stores, Inc.
Case 1.3: PCL: A Breakdown in the
Enforcement of Management
Control

Designing management
control systems
Introduction
Management control systems
Management control system and
processes, in and out of control
Delineating management control,
strategic control and task control
Case 2.1: Management Control Problems
Case 2.2: Nucor Corporation (A)
Case 2.3: PremiumSofi: Managing Creative
People

1
3
4
8
13
20
24
26

29

34
35
36
39
44
50
53
62

PART 2 :

The environment and

strategy of organizations
Organizations and their
environment
Introduction
Shareholders and stakeholders
Goals of the organization
Two major trends
The environment of the organization
Case 3.1: Corporate Governance in Three
Economies: Germany, Japan,
and the United States

70
72
73
74
78
82
86

93

Case 3.2: The Body Shop: Developing

a Roadmapfor Corporate
Social Responsibility
Case 3.3: Tough Decisions at Marks
and Spencer
Case 3.4: Unintended Acceleration:
Toyota's Recall Crisis
Case 3.5: ABB's Hydropower Sustainability
Dilemma

Strategy and management

control
Introduction
Strategy from different perspectives
Strategic frameworks
Strategy and management control systems
Case 4.1: William Oliver Bootmaker
Case 4.2: Encyclopcedia Britannica, Inc. (A)
Case 4.3: Encyclopcedia Britannica, Inc. (B)
Case 4.4: Encyclopcedia Britannica, Inc. (C)
Case 4.5: Cisco Systems (A)
Case 4.6: Cisco Systems (B)

PART 3:
Management control and
the organization's internal
structure
Decentralization, control and
incentives
Introduction
Decentralization and control
Formal control of decentralized
management
Should control be tight or loose?
Controllership
Case 5.1: Management Control Problems
Case 5.2: Southwest Airlines Corporation
Case 5.3: Governance and Control atAXA
Responsibility centres:
r e v e n u e a n d e x p e n s e centres
Introduction
Responsibility centres
Revenue centres
Expense centres
Case 6.1: BookWorm

99
102
114
125

142
143
144
147
155
168
173
175
177
179
188

192
194
195
196
197
204
205
210
212
214

227
228
228
233
234
240

Detailed Table of Contents

Case 6.2: MoreSki

Case 6.3: Barca Products, S.A.
Case 6.4: Grand Jean Company
Case 6.5: Vershire Company
Responsibility centres: profit
and investment centres
Introduction
Conditions for delegating profit
responsibility
Advantages of profit centres
Difficulties with profit centres
Business units as profit centres
Other profit centres
Measuring profitability
Investment centres
Measuring assets employed
Case 7.1: BreathEZ
Case 7.2: MedalRain
Case 7.3: TurnAround
Case 7.4:Abrams Company
Case 7.5: Quality Metal Service Center

254

255

Planning and budgeting

Introduction
Long-range strategic planning
Benefits and limitations of long-range
strategic planning
The parts and linkages of the budget
Budgeting process
Budget preparation
Beyond budgeting
Alternatives to budgeting
Critique against beyond budgeting

10

255
256
256
257
258
260
264
267
275
276
277
278
282

Transfer pricing, shared service

centres and cross-functional
management
289
Introduction
290
Transfer pricing
290
Transfer pricing methods
291
Pricing corporate services
297
Administration of transfer prices
298
Shared service centres
300
Cross-functional management
302
Case 8.1: Computer Sciences Corporation 307
Case 8.2: Transfer Pricing Problems
309
Case 8.3: Birch Paper Company
314
Case 8.4: North Country Auto, Inc.
316
Case 8.5: BoldFlash: Cross-Functional
Challenges in the Mobile
Division
322

PART 4:
The management control
process

Case 9.1: Sometimes Accountants Fail

to Budget
356
Case 9.2: The Case of the Colored Post-It
Notes
361
Case 9.3: New York Times
363
Case 9.4: Svenska Handelsbanken
373

241
242
246
249

332
335
336
338
341
344
348
349
352

384

Introduction
385
385
Performance measurement systems
386
Variance analysis
Additional considerations and
limitations of variance analysis
392
Combining financial and non-financial
performance measures
396
405
Case 10.1: Variance Analysis Problems
Case 10.2: Making Balanced Scorecard
Work: The Worldclass Lighting
Experience
408
Case 10.3: The Gail Palmer Ashton Graduate
School ofBusiness: The Balanced
Scorecard Initiative
416
11

Compensation, incentives
and motivation

Introduction
Compensation and incentives
Theories on incentives and motivation
Case 11.1: What Is CEO Talent Worth?
Case 11.2: Arck Systems
Case 11.3: Lincoln Electric Company (A)
Case 11.4: Disorganization atSemco:
Human Resource Practices
as a Strategic Advantage

PART 5:
Management control
challenges
12

329
331

Performance measurement
and analysis

420
421
422
425

440
446
450

464

476

Management control
challenges in service delivery
478
Introduction
479
Service organizations
479
Professional and financial service
organizations
482
Management control systems
483
The financial services sector
485
Health-care organizations
487
Non-profit and NGOs
489
Case 12.1: Management Control Problems 494
Case 12.2: Piedmont University
496
Case 12.3: Implementation ofPerformance
Measurements atHopco
Hospital
499

Detailed Table of Contents

13

Management control of projects

09

Introduction
510
Nature of projects
510
The control environment
512
514
Project planning
Project execution
517
Project evaluation
520
522
Agile project management
Case 13.1: Project Management Analysis
in the Internet Forecasting
Industry
526
Case 13.2: Interior JV: Teething Problems
of a Manufacturing Operation in
China
528
Case 13.3: CMM versus Agile: Methodology
Wars in Software Development 532
Case 13.4: AB Thorsten
544

14

M a n a g e m e n t control a n d intero r g a n i z a t i o n a l relationships

Introduction
Increased importance of interorganizational relationships
Inter-organizational management control
Case 14.1: Ramirent
Case 14.2: Working Capital Management
Case 14.3: LEGO Group: An Outsourcing
Journey
Case 14.4: ECCO A/S - Global Value
Chain Management
Case 14.5: Strategic Performance
Measurement of Suppliers
at WTC
Company Index
Subject Index

552
553
554
555
565
566
567
580

596
606
613