Network enterprise management

Author: Guo Bin
Publisher:
Publish Date: 2005-01-01
Features: In the dynamic and highly competitive market environment of the network economy, one of the key issues managers face is how to implement moderate control within the organization while emphasizing flexibility, innovation, and creativity. This control should ensure organizational integrity while better capturing market opportunities and responding promptly to external changes. Essentially, the goal of a management control system is to strike a reasonable balance between control and creativity. Typically, management control can be achieved through three approaches: (1) personnel control, selecting and assigning people for specific tasks; (2) behavioral process control, guiding and influencing employee behavior through policies, incentives, and norms; (3) result control, monitoring and controlling processes by comparing expected performance with actual performance. The types of management control systems can accordingly be classified as follows:
1. Result-Oriented Goals – Expected Control: This control measures results and compares them with expected goals to determine whether important objectives are achieved effectively and efficiently. The advantage of this control method lies in helping managers reduce the pressure of continuous supervision and control over processes and outcomes, allowing them to focus more time and energy on more valuable activities. However, this control method may lead to potential issues, especially when measurement indicators are poorly designed or the measurement process is misused. For example, under pressure, some supervisors may manipulate performance metrics artificially, leading to the failure of the control system and potentially harming the organization. In business management practice, the principle of "reaching for the golden apple" is recommended. It means that when setting goals, they should neither be too low to lack challenge nor too high to demotivate employees. Instead, goals should be set as achievable yet require effort to attain.
2. Organizational Goals, Values, and Rules: By conveying core values, empowering employees, and encouraging them to seek new opportunities, this approach aligns employee behavior with organizational goals. Typical examples include "pursuit of excellence," "respect for employees," and "becoming the best company in the industry." This method essentially establishes the rules of the game, identifying behaviors and mistakes employees should avoid. Managers often face the choice of "telling subordinates what to do or what not to do." In a network organization, managers need to fully leverage employees' initiative and creativity, encouraging innovation within specific rule boundaries. Therefore, it is crucial to set rules that tell employees what not to do rather than what to do, as the former avoids damaging the organization's foundation while giving employees ample room to perform.
3. Strategic Control: Through interactive information exchange between managers and subordinates, top management can focus on strategic uncertainties, understand environmental changes, and respond proactively. In this process, "exception management," proposed by Frederick Taylor, the father of scientific management, will be applied in various forms. The exception principle states that managers should retain the authority to handle exceptional events, while routine activities should be completed through delegation to subordinates.
Comparison of Financial and Operational Controls
There are two fundamental methods for monitoring and controlling the behavior of business units and subsidiaries: financial control and operational control. The first, financial control, evaluates managers' performance through objective output data (e.g., return on capital, total sales growth rate). The second, operational control, acknowledges that all uncontrollable events (e.g., the bankruptcy of a major customer) will affect managers' performance. Operational control focuses more on evaluating managers' decisions and behaviors rather than measuring their outputs. For example, after an unexpected economic recession, a company using financial control might penalize its managers, while a company using operational control might reward them for reducing inventory in anticipation of the recession, even if they also failed to meet budget targets. Although most companies adopt a combination of these two successful corporate strategies to some extent, they often emphasize one over the other. This choice mainly depends on the characteristics of each business in the portfolio and the professional expertise of the company's managers. Financial control is most suitable for mature and stable industries and independent business units. For these businesses, several financial variables can accurately reflect their strategic position. In highly uncertain and rapidly changing industries, financial control is less appropriate. For instance, in high-tech industries, existing financial metrics may fail to reflect the loss of a company's leadership position. This evaluation method also poses problems when the performance of different business units is interdependent. To effectively use operational control, company managers must be relatively familiar with each business in the portfolio, which often requires considerable operational experience. Managers may need to monitor multiple performance indicators for different businesses, and the trade-offs between these targets may not be obvious. Operational control systems require more than just cooperation between company and business unit managers. Through frequent strategic planning meetings, operational strategy reviews, and capital budget discussions, company managers can closely observe the actions of business managers, acting as coaches and judges. Unsurprisingly, this approach is highly dependent and often leads to larger internal company structures.
### II. Indicators of Management Control Systems
In a company's management control system, different departments are classified into various types of responsibility centers based on their characteristics and the needs of strategic control, with corresponding performance indicators used for supervision and control. The main types of responsibility centers include revenue centers, cost centers, profit centers, and investment centers (Table 2-1).
Table 2-1 Types of Responsibility Centers
| Responsibility Center Type | Revenue Center | Cost Center | Profit Center | Investment Center |
|-----------------------------|---------------|-------------|---------------|-------------------|
| Key Performance Indicators | Revenue/Sales | Cost | Profit | Return on Investment |
| Typical Departments | Sales Dept. | Manufacturing Dept. | Operating Unit | Business Unit |
Regarding the performance indicators commonly used in management control, they can be categorized into four types based on whether they describe behavior or results, and whether they are achieved externally or internally (Figure 2-2).
Case: General Motors in Its Early Years Without Management Control
"Blue-Eyed Billy" Durant founded General Motors in 1908, the same year Ford introduced his Model T. As one of the most imaginative figures in the industry, Durant was originally a sales and finance professional who traded in auto and parts companies. He engaged in stock speculation and liked to combine these companies into large groups. Durant was an energetic person but not a systematic planner. Under his leadership, early General Motors was a hodgepodge of various independent factories with little coordination.