#1.

Nokia: Please read the following news item concerning Nokia:

STOCKHOLM – Nokia Corp. replaced a top handset executive and said it will carve out a business
unit focused on smartphones, part of a broader management shuffle as the cellphone maker battles
fierce competition in the premium handset market.
The Finnish company remains the world’s largest cellphone marker, with 40% global market share,
but has struggled to keep pace in the smartphone market with innovations from Apple Inc.’s
iPhone, Blackberry-maker Research In Motion Ltd., and phones based around Google Inc.’s
Android platform.
The reorganization comes a month after Nokia posted weaker-than- expected quarterly earnings
and lowered its full-year profit margin guidance as competition pressured the prices of its high-end
devices. Last week Nokia said it will launch a new line of smartphones later this year. But industry
watchers had expected the devices to come in the first half of the year, fuelling concerns that Nokia
isn’t getting new services to market quickly enough.
Sales chief Anssi Vanjoki will lead the new unit focused on smartphones and mobile computers, as
well as Internet services. As part of the changes, Nokia said its mobile devices business will be
divided into three units, down from the current five.
Nokia said Rick Simonson, the head of the mobile-phone unit and seen by some as a potential CEO
successor, has decided to retire from his full-time duties. The 52-year-old former finance chief had
taken over the unit about seven months ago.
Mr. Simonson is stepping down for “personal reasons” as he wants to spend more time with his
family, said Nokia spokesman Leo McKay, who added that Mr. Simonson wasn’t available for
comment. In July, his role will be taken over by Mary McDowell, currently chief development
officer. Mr. Simonson will remain a senior adviser.
“Nokia’s new organisational structure is designed to speed up execution and accelerate
innovation,” said Chief Executive Olli-Pekka Kallasvuo.
Nokia said it has also appointed Rich Green, a former executive at Sun Microsystems, to the newly
created position of chief technology officer.
Market watchers weren’t convinced about the effectiveness of the latest changes, which are Nokia’s
second restructuring in less than a year aimed at speeding up innovation and better integrating its
businesses.
The loss of Mr. Simonson from his full-time role is “rather worrying,” said Swedbank analyst Jari
Honko, adding that the new structure is unlikely to substantially change the company’s position in
the premium smartphone segment.
Later this year Nokia will launch devices based on Symbian 3, an upgraded version of its key
smartphone platform. Nokia also plans to introduce premium products based on the new MeeGo
platform, which it co-developed with Intel Corp.
Tuesday’s changes indicate that Nokia is confident in its strategy of boosting its portfolio with new
high-end products based on MeeGo and upgraded Symbian versions, said research director Ben
Wood at analysis firm CCS Insight. Nokia’s chances of closing the gap with rivals Apple and
Google will depend on its success in delivering on that vision, he added.
Questions
A What are the choices that managers of Nokia are faced with according to this analysis?
B What kind of behaviours should be elicited by appropriate management control?
C What happened to Nokia? What decisions were taken and how were these decisions motivated?
#2. China and The USA: Please read the following commentary on management style differences
between China and the USA.2
A question I often receive from considerate Chinese managers working with the U.S. is: “When is a
good time to call Americans after work? Is 10PM too late?”
The inquirers most likely have run into obstacles before realizing that in the U.S. people don’t want
to be called around the clock for work. This is in contrast to China where economy is growing at a
breakneck pace and long work hours are normal business. It also stems from the culture that work
and life are not distinctly separated. Recent news highlighting the cultural clash that holds back
Chinese companies in Brazil articulated this same issue. The attitude towards time management
and work-life balance is obviously very different in China, the U.S. and Brazil.
This question is but a small piece of reflection of the bigger differences between our management
styles. The typical Chinese management style can be summarized as “Parental” vs. the more
“Democratic” style in the west.
In the west, the ideal boss is a “resourceful democrat”. He sets the vision and strategy for the
business but empowers subordinates to execute. He encourages two-way communication with his
employees and allows bottom-up input in decision-making.
In China, the ideal boss is a “benevolent father”. He is like a parent (a Chinese parent, by the way)
who supervises his children on everything that needs to be done. He believes in discipline and
attention to details and manages his people at a micro level. He also spends lots of time caring for
the personal welfare of his employees and regards it as part of his job.
There are obviously both pros and cons to each style. When you work with a Chinese company, it is
helpful to know how their management style translates into daily business:
Pros: The Chinese style can be very efficient in carrying out critical missions and get quick results.
The direction is set at the top, and the role of the employees is simply to execute. This saves time in
negotiating and brain–storming.
Cons: The Chinese style generally discourages two-way communications and ownership at the
lower level. Coupling this with the group-oriented Chinese culture where goals and rewards are
managed as a group versus individuals, accountability can get fairly blurry. The parental style can
also put a lot of stress on western employees who are not used to “micro-managing” and can
harbor de- motivation. Western employees may feel that they are not fully trusted to manage their
own work.
In order to create a productive partnership, both China and the U.S. must co-adapt to each other.
For global organizations expanding to the other country, managing local talents often requires
creative solutions. What motivates Chinese employees is not always the same as what motivates
U.S. employees. There are also generational differences, for example – something that the Chinese
managers also struggle to cope with as the younger generation adopts more western values. For
most Chinese companies that are in the U.S., the art of managing a multicultural employee base is
still largely elusive. Trial and error will help, but realizing its importance and setting a strategy to
purposefully managing it is the more sure way to yield results in successful global business.
Questions
A What types of management control are affected by the differences in management styles between
China and the USA?
B Which of these management cultures resembles the cybernetic model of control more closely?
C To what extent do you think that management control system design should follow culture? Or
should we expect that culture follows management control system design?
#3. Enrron: Please reread Real world vignette: The following exerpt about Enron that contains an
excerpt of a discussion on Enron’s demise in the early years of this century.
One of the most striking examples of the role of management control in good and bad times is
found in the Enron case. When this case unfolded, it shocked the world of accounting, control and
governance. How could things have gone so wrong? Perhaps the most striking aspect of the Enron
case is the speed with which things can go wrong after the systems have proved to be failing, as the
following extract shows.
Enron formed after merger
Enron was formed in 1985 following a merger between Houston Natural Gas and Omaha-based
InterNorth. Kenneth Lay, who had been the chief executive officer (CEO) of Houston Natural Gas,
became
Enron’s CEO and chairman, and quickly rebranded Enron into an energy trader and supplier.
Deregulation of the energy markets allowed companies to place bets on future prices, and Enron
was poised to take advantage.
Enron named America’s most innovative company
By 1993, Enron had set up a number of limited liability special purpose entities that allowed Enron
to hide its liabilities, growing its stock price. Analysts were already criticizing Enron for
‘swimming in debt’, but the company continued to grow developing a large network of natural gas
pipelines, and eventually moving into the pulp and paper and water sectors. Enron was named
‘America’s Most Innovative Company’ by Fortune for six consecutive years between 1996 and
2001.
Misleading financial accounts
Creative accounting allowed Enron to appear more powerful on paper than it really was. Special
purpose entities – subsidiaries that have a single purpose and that did not need to be included in
Enron’s balance sheet – were used to hide risky investment activities and financial losses. Forensic
accounting later determined that many of Enron’s recorded assets and profits were inflated, and in
some cases, completely fraudulent and nonexistent. Some of the company’s debts and losses were
recorded in offshore entities, remaining absent from Enron’s financial statements.
During the late 1990s and into the early 2000s, more and more special purpose vehicles were
created that allowed the company to keep debts off the books and inflate assets. These entities,
along with other accounting loopholes and poor financial reporting, let Enron ultimately hide
billions in debt from special deals and projects. (For more on corporate disclosure, read The
Importance of Corporate Transparency.)
Sell-off
In August of 2001, shortly after the company achieved $100 billion in revenues, then-CEO Jeff
Skilling unexpectedly resigned, prompting
Wall Street to question the health of the company. Kenneth Lay once again took the helm, and both
Lay and Skilling, in addition to other Enron executives, began selling large amounts of Enron stock
as prices continued to drop – from a high of about $90.00 per share earlier in the year, to less than
a dollar. The U.S. Securities and Exchange Commission (SEC) opened an investigation. (For more
on the structure of the commission, check out Policing The Securities Market: An Overview Of The
SEC.)
Dec. 2, 2001
Less than a week after a white knight takeover bid from Dynegy was called off, Enron filed for
bankruptcy protection. The company had more than $38 billion in outstanding debts. In the
following months, the U.S. Justice Department initiated a criminal investigation into Enron’s
bankruptcy. Several Enron executives and Enron’s auditor firm, Arthur Andersen, have since been
indicted for a variety of charges including obstruction of justice for shredding documents and
conspiracy to commit wire and securities fraud, and some have been sentenced to prison.
Questions
A Identify the ways in which Enron was out of control.
B What are the most important causal factors of this control problem? To
what extent would you consider this a problem of management control? What level of control was
dysfunctional according to the cascading idea of management control?
C Could appropriate management control have avoided this problem?