Designing a new Management Model
By Jeroen Smit
Designing a new Management Model
By Jeroen Smit
March 2004
J.H.G. Smit
Student number: 1009990 Groningen University International Business,
Faculty of Management and Organisation 1st Supervisor: Drs. M. van der Steen 2nd Supervisor: Ir. P. Henrich
The author is responsible for the content of this research paper; the copyright of this paper lies with the author.
Contents
Management Summary...5
Introduction...7
1 Research Format and Methodology...9
1.1 Background...9
1.2 Problem Statement ...11
1.3 Boundaries, methods, time scale ...15
2 Defining management, control and management model ...17
2.1 Management ...17
2.2 Control...18
2.3 Controllable and manageable ...19
2.4 Management model...21
2.5 Conclusion...23
3 Organisational structure and way of management of Company XX...25
3.1 Current structure of Company XX...25
3.2 Current management model ...26
3.3 New Structure Company XX...27
3.4 Conclusion...29
4 Management models ...30
4.1 The Balanced Scorecard Approach...30
4.2 The EFQM Management Model...32
4.3 Value Based management ...35
4.4 Conclusion...37
5 New management model...38
5.1 Reasons for a Tailor-made management model ...38
5.2 Management demands...39
5.3 Combining successful ideas ...40
5.4 Conclusion...41
6 Managing with Performance measures...42
6.1 Reasons for managing with performance measures ...42
6.2 Performance Indicators ...44
6.3 Requirements for steering with performance measures...44
6.4 Conclusion...45
7 Development of the Management Model ...47
7.1 Presenting the model...47
7.2 Discussing the steps of the model in detail ...50
7.3 Conclusion...53
8 Strategy, an ambiguous phenomenon ...54
8.1 Defining Strategy...54
8.2 Internationalisation strategies ...55
8.2.1 Indirect entry, marketing only ...56
8.2.2 Indirect entry, marketing and production ...56
8.2.3 Direct entry, marketing only...57
8.2.4 Direct entry, marketing and production ...58
8.3 Applying internationalisation strategies to the business units...59
8.3.1 ET ...59
8.3.2 YX ...59
8.3.3 Sales ...59
8.3.4 Services...60
8.4 Conclusion...60
9 The construction of the management model ...61
9.1 The Structure of the business units and their mission and vision...61
9.1.1 The structure and the activities of the business units ...61
9.1.2 Defining Mission and Vision of the business units...61
9.2 Strategies and goals of the business units and strategy evaluation...61
9.2.1 Defining the strategies and goals of the different units...61
9.2.2 Strategy and goal evaluation...62
9.3 The SWOT-Analysis, Critical Success factors and Performance indicators ...62
9.3.1 SWOT-Analysis ...62
9.3.2 Determination of the critical success factors ...62
9.3.3 Determination of the performance Indicators ...63
9.4 Value tree, Contribution to VALUE and influence on the PI ...63
9.4.1 Value trees of the units ...63
9.4.2 Contribution to VALUE and influence on the PI ...64
9.5 Conclusion...64
10 Discussion and Recommendations for implementation of the model ...65
10.1 Discussing the model ...65
10.2 Recommendation for implementation...67
11 Conclusions and Reflection...69
11.1 Conclusion...69
11.2 Reflection ...71
Bibliography ...73 Appendices...Error! Bookmark not defined.
Management Summary
This research is carried out within the company of Company X X. Company X X is one of the largest business units of the Company X Group, an international company based in the Netherlands. The background of this research is the fact that within the company Company X X many changes have taken place. Through these changes in the activities and growth of the business, the organisational structure was not suitable anymore. This structure was replaced by a new organisational structure. All these changes created the need for a new management model that would make the management of Company X X able to manage the different business units in a new suitable way. In the new situation Company X X has different business units that are totally end-responsible for their performance. The units are managed as if they are different companies. The management of Company X X wants to be able to manage the different business units by measuring on a monthly basis certain indicators that give an objective view of the performance of that unit. The management model that provides a system to accomplish this is constructed in this research.
The main objective for this research is: “To come to a management model, which enables the companies’ management to lead the company to achievement of its strategic objectives and to give recommendations to the top management of Company X X regarding the implementation of the model.” The main research question in this research is: “What kind of management model should be used within Company X X based on the newly formed structure, in order to manage and control the achievement of the strategic organisational goals?”
In the new structure and with a well fitting management model they would like to find back more control and more ability to manage and steer the company towards its objectives.
The research that is out will be discussed in 11 chapters. First the research format and methodology are provided, in order to be able to see what methods are used and what sub questions are stated in order to answer the main research question. Then the definitions are provided that are used for the words ‘management’, ‘control’ and ‘management model’
throughout this research. These definitions are formulated after having assessed several definitions in literature. To make the words usable in this research I chose to define the words precisely. Management is in this research defined as: ‘Taking the responsibility for the process of planning, organising, leading and measuring the efforts of organisation members and of using all organisational resources to achieve the stated organisational goals’. Control is defined as: ‘The part of management that uses different tools and processes to make sure that certain stated objectives are met and that the organisation stays within certain boundaries, set upfront. These boundaries vary from financial and organisational to which markets will be served.’ In this research is spoken of a management model when: ‘one can denote a unified consistency in management. There has to be a rigid way of measuring performance and a unified way to steer and control different units. If this is the case we can speak of a management model.’
After having defined these aspects an insight is given to the current organisational structure of Company X X and the current way of management. Also the new organisational structure is shown. Three known and widely used management models are discussed. These are: The Balanced Scorecard approach, The EFQM model and Value Based management. Then the new management model is discussed and the reasons for a tailor made model in general. Also the management demands are discussed and the idea of combining successful ideas and why
that provides a suitable model. In this research the word VALUE is frequently used. The definition of the word VALUE is in this research: the total value of a company, financial as well as non-financial. This includes the amount of goodwill, size of the network and the degree of customer satisfaction represents value. VALUE can have a different meaning for every different business unit, this is why it cannot be specified very precisely. The new model uses performance indicators to manage, therefore the requirements and effects of managing with performance measures are discussed. As said performance indicators form an important part of the new management model, this is why an insight is given on what performance indicators actually are. When this is done an idea has formed on what the new model will be like. Then the theoretical result of the research is presented, which is the new process model for coming to the right performance indicators. This new management model consists of 9 steps that have to be followed in order to come to suitable performance indicators and to be able to construct the ‘Main Frame’ which will be filled in every month. The ‘Main Frame’ is actually a scorecard-like format in which for every business unit, all performance indicators are measured and their contribution to VALUE is given. To gain insight on the ability of the company to have influence the scores on the performance indicators, also this influence is measured on a five-point scale.
Furthermore an insight is given on strategy and certain internationalisation strategies which are applied to the different business units. This is done because of the international character of the mission and vision of Company X X. In chapter 9 the new model is constructed for all the different business units according to all the steps that were presented earlier. When this is done the new model is discussed and the management of Company X X are provided with recommendations for the successful implementation of the new management model.
At the end of the research the conclusions will be given that apply to this research. In the conclusion all the answers to the sub questions of this research are provided in order to be able to answer the main research question. The main research question is actually answered through the development op the new management model. Also a reflection to the research is provided. Here an insight to the procedural process of carrying out the research is given and certain drawbacks are mentioned. A possible drawback that is mentioned is the fact that most of the new model is based on the opinions of people within the company. This is because there is in fact hardly any other way to make clear influences of certain factors on the eventual VALUE of the company. The idea of scoring the contribution to VALUE and the influence of the organisation on certain factors on a five point scale can be considered quite soft and is not quantified in hard numbers. However the new model is considered very useful for the management of Company X X into the future.
Introduction
This research is carried out within the company of Company X X. Company X X is one of the largest business units of the Company X Group, an international company based in the Netherlands.
Company X X is undergoing a change in the organisational structure to make sure that the different activities can be properly managed in the future. With this change in organisational structure, also the management model has to be changed. In short this research has to result a new management model which fits exactly with the new organisational structure that is recently being implemented and which is able to help the management of Company X X achieve the organisational goals. The research objective that has been determined for this research is: “To come to a management model, which enables the companies’ management to lead the company to achievement of its strategic objectives and to give recommendations to the top management of Company X X regarding the implementation of the model.”
The main research question is: “What kind of management model should be used within Company X X based on the newly formed structure, in order to manage and control the achievement of the strategic organisational goals?”
In order to come to the answer to this main research question ten sub questions are posed which have to be discussed first. When these sub questions are answered, an appropriate answer can be given to the main research question. This research is a highly iterative. In carrying out this research a concept was used to which I would like to refer to as the
’Toolbox system’. This means that the researcher actually has its own toolbox with different methods and tools and knowledge, to carry out a research. As the researcher proceeds in the process of the research he actually takes out of the toolbox all the things he beliefs he needs at that specific time. This is exactly what was done within this specific research. The array in the chapter actually is the result of the time and place where certain topics were needed to be assessed in order to be able to say something in the next step.
Now the reader will be provided with an insight on which topics will be discussed in which chapters. In chapter one the research format and methodology will be provided, in order to be able to see what methods are used and what sub questions were stated in order to answer the main research question. In chapter two the definitions are provided that will be used for the words ‘management’, ‘control’ and ‘management model’ throughout this research. First some general definitions are provided and then a choice will be made in this matter. In the third chapter there will be given an insight to the current organisational structure of Company X X and the current way of management. Also will be shown what the new structure is like. In the fourth chapter three well known and widely used management models will be discussed: The Balanced Scorecard approach, The EFQM model and Value Based management. Chapter five will be about the new management model and the reasons for a tailor made model. Also the management demands will be discussed here and the idea of combining successful ideas. In chapter six the aspects of managing with performance measures will be discussed. The effects and requirements will be provided and an insight will be given on what performance indicators actually are. In the seventh chapter the theoretical result of the research will be presented. This is the new model for coming to the right performance indicators. In chapter eight an insight will be given on strategy and certain internationalisation strategies which will be applied to the different business units. The strategy part is the eight chapter because in chapter seven it got clear that strategy is a very important aspect in the new model. In chapter
9 the new model will be constructed for all the different business units and accordingly all the steps will be discussed that were presented in chapter seven. In chapter ten the model will be discussed as objectively as possible and the management of Company X X will be provided with some recommendations for the successful implementation of the new management model. In the last chapter the conclusions to this research will be given and will be reflected to. In the last part an insight will be given to the procedural process of carrying out the research.
1 Research Format and Methodology
Before I go any further into the different aspects of the research I would like to stress the fact that this research can be considered as a highly iterative research. With this is meant that although at certain points you have to freeze certain statements and leave them unchanged, many things within this research will undergo a process of thinking, freeze, rethinking, unfreeze, change and refreeze.
1.1 Background The Company
The Company X Group, of which the name stands for ‘Company X’. The business units within the Company X Group and the affiliated customers operate independently, but use shared knowledge and experience, systems and basic processes. With this business model, Company X tries to contribute to a healthy business climate and varied independent AAA.
The business unit
This specific research project takes place within the business unit Company X X, which is one of the largest business units within the Company X Group. Company X X has the responsibility over several X brands that operate nationally as well as internationally.
Examples of these brands are: Z and Y X. Recently the license of E T for Europe (except UK) and the Middle East was acquired. Next to these brands the business unit also contains a Sales division, which produces several private labels, as well as the brands H and A.
Under the responsibility of the business unit X, also a division for Services has its place. This division provides all kinds of services like AAA consultancy and advice to affiliated customers. These affiliated customers are customers that are a member of the Company X BBB. Services also produces its own brands, that are exclusively supplied to the members of Company X. Examples of these brands are C and D, two top level X brands that are fully marketed and produced by Company X X. These brands only exist as a service to affiliated customers. Company X X also holds a separate department for Marketing & Development, which takes care of all the marketing and promotion activities for Company X X. The combined consumer turnover of Company X X with its’ affiliates is about many euros.
Background of the research
The history and grow-path of Company X X have created a very dynamic but also very non- transparent organisation, which now is not suitable anymore. Also the fact that several new brands have been acquired makes the current structure of the company not very workable anymore. The activities of the company are to complex to be managed in the current way. The fact that the company wants to achieve its ultimate potential makes it inevitable to come up with a new structure for the organisation. In this new structure everything gets its own appropriate place and responsibility. For this reason a new organisational structure has been developed in cooperation with an external consultancy agency. From this perspective there is a need for a new management model. This model has to enable the management of the company to lead the company to the achievement of organisational goals. The first of January 2004 is set as the kick-off date, to start working in the new structure. To make the change in
structure visible and to give the organisation time to get familiar with it there will be some internal moving of working places. This will take place three months before January.
All of the supplying manufacturing factories are situated within foreign countries. This is why the Company X Group holds its own buying offices with its main office based in Hong-Kong.
The benefit of having this organisation is the fact that in this way Company X is able to assure the quality of the products by checking it very often directly in the factories abroad. Close coordination has to take place between the suppliers, ZZZ and Company X X in the Netherlands as well as with the customers. Several customers of Company X X are foreign companies and customers. The recently acquired License of the international X brand E is also going to operate very internationally, but has to be managed and kept under control by the management of Company X X. Also the PPP Group, a franchise organisation with its two formulas SSS and JJJ, has been acquired. In the future this company is possibly going to form another business unit of Company X X. All these events make it a very interesting, complex and challenging research. This has to result eventually in a useful and well-fitting suitable management model which allows future acquisitions to be added to the company and become managed by Company X X
Inappropriate structure and subsequent problems
In order to be sure that the problems and reasons for the change in structure and thus the need for another management model are clear, now a short insight will be given on the structure and the main problems that come with it. To make things a bit more understandable the organisational structure is displayed graphically in figure 1.1.
Confidential
Figure 1.1 Organisational structure
The activities of Company X X are becoming far to different and big in size to manage them in the current manner. The little stars in the figure indicate the members of the management team of Company X X. Currently the management team of Company X X is responsible for the management of all the different departments. The red dotted line indicates the management deliberation every month. The problem is that all the small problems are also discussed within this management team, because there no other place to do that. So these monthly meetings take far too much time and cannot focus on the things that are of real strategic importance to the whole company. Another problem is that as you can see the managers of Z and Y X do not take part in the management team. This is rather strange because these two Business unit form large sources of turnover. As we showed with the thicker lines around Z and Y X, these two brands are separate companies, which form different business units of Company X X. The other activities (Sales, Services and Marketing
& Development) are departments of Company X X. So we can conclude that there clearly is an imbalance in this structure. Also the department Marketing & Development has the same kind of place in this structure as the other core activities is rather strange. Marketing &
Development should rather be some kind of staff department like Finance and Control is. This structure and its problems will also be discussed in chapter 3.1.
1.2 Problem Statement
Already an overview has been given of the background of the research. Now a conclusion has to be drawn on what should be the problem statement for this research. Probably many research questions can be posed, which all address the same problem. Of course there are several points of interest that can be enlightened within these kinds of processes. There are several theories on how a problem statement should be formulated and structured. I chose the one developed by De Leeuw (1997).
A Problem Statement consists of a view different aspects. According to De Leeuw (1997) a problem statement can be divided into four different parts:
• The Main Research Question
• The Main Research Objective
• A set of Sub-Questions
• A set of boundaries to the Research
Main Research Question
The actual question of this research can be made very large. In the end I want to come to a management model that gives a backbone on how to come to the translation of the firms strategy into actual points of action that have to take place within the different business units.
The main research question is as follows:
“What kind of management model should be used within Company X X based on the newly formed structure, in order to manage and control the achievement of the strategic organisational goals?”
Main Research Objective
The objective of this research has risen from all kinds of different sub-objectives that were formulated. Of course from out of the organisation of Company X, certain interests exist. The companies’ management in cooperation with a consultancy agency has come to a new kind of rough cut organisational structure. This structure seems to be a logical step in the company’s process of evolvement. With the current process of the changes in the company’s organisational structure, a need for a new way of management has grown. In other words there is a need for a new kind of management model. The idea is to develop a model which works with certain performance indication measurement tools. This way the company thinks that it will be able to keep the different business units in a grip. The exact definitions of the words management, management model and control are provided in chapter 2.
The objective for this research can be defined as follows:
“To come to a management model, which enables the companies’ management to lead the company to achievement of its strategic objectives and to give recommendations to the top management of Company X X regarding the implementation of the model.”
Sub-questions
1. How can the aspects management, control and management model be defined?
2. How is the company currently structured?
3. How is the company currently managed?
4. What will be the new structure of the company?
5. What kind of management models can be described?
6. What are the strategic organisational goals of Company X X?
7. What are the demands of the top management of Company X X with respect to a new management model?
8. What are the demands of the management of the different business units within Company X X with respect to a new management model?
9. What other theoretical elements should be taken into account in designing a new management model?
10. What recommendations can be given to Company X X with respect to the implementation of the new management model?
Clarification on sub-questions and the process of data things
At first management and control will be defined as well as management model (Literature review). This has to be done in order to be able to discuss the current way of management within the company and to be able to develop a new model. These aspects will be used in the whole research, so it is logical to define them before we go further.
Then the current structure of Company X X will be described in order to see where we are coming from and to show why a new structure has been designed (Desk research). After this an insight will be given on the current way of management within the company, based on the findings of sub-question 1 (Semi-structured interviews).
In the fourth sub-question the new designed structure of Company X X will be described (Desk research). This is very important, because the new model has to be tailor made and adapted to the new structure.
After this the literature will be assessed to see what kind of management models can be described and what features they have. This will be done in this part of the research because now it is clear what kind of literature is important to assess (Literature review).
Then the Strategic organisational goals of Company X X will be assessed and described (Desk research and Semi-structured interviews). These are also very important with respect to the design of a new management model. A close fit between these two has to emerge.
When this is all clear, the moment has arrived to take a close look on what kind of demands the top management of Company X X has with respect to a new Management Model (Semi-
structured interviews). Directly after this a close look will be taken on what demands the management of the different business units has with respect to a new Management Model (Semi-structured interviews).
When the demands of the different management levels are clear I want to have a look at what other elements should be taken into account in the design of a new Management Model, that emerge from the literature (Literature review).
Finally some recommendations will be given to Company X X with respect to the implementation of the proposed management model (Desk research).
Conceptual model
New Management Model outcomes interviews
outcomes interviews Strategic
organisational goals SQ. 6
analysis of literature
this line indicates the border of Company X This dotted line indicates the new organisational structure
SQ. 4
theoretical elements of influence SQ. 9
Demands Managed System SQ. 8
Demands Managing Organ SQ. 7
Theory on Management and Control and
Management Models SQ. 1/5
Current Structure
SQ. 2 Current way of
Management SQ. 3
Reccommend- ations on Implementation
SQ. 10 Figure 1.2 Conceptual model for this research
In figure 1.2 the conceptual model of this research is showed. You can see that the new organisational structure (the dotted square) is displayed as a MO MS system by De Leeuw (1997). In structuring this model de Leeuw has made visible a simple management situation.
In this model there are three main actors: The environment and the organisation itself (within the border of Company X X), which consists of the Managing Organ and the Managed System (MO and MS). The success of effective management depends on one hand on the quality of the managerial capacity of the Managing Organ. On the other hand it depends on the managerial features of the Managed System.
In the conceptual model of this research, the new management model has the most attention.
As you can see there are seven factors of influence on the new management model. The demands of the Managing Organ, the demands of the Managed System, the strategic organisational goals, the theory on management models and other theoretical elements of influence. Also the current organisational structure and the current way of management have influence on the new model. These two factors have influence on the new management model because they form the situation where the company is coming from. It is important to take this
into account when you are developing a new management model, because the former situation also determines for a bit the range of future possibilities and the ability of the company to change. As shown in the model the current structure has influence on the current way of management, which is also indicated by an arrow. The demands of the Managing Organ have to be analysed and gathered through interviews. The same goes for the demands of the Managed System. The outcomes of those interviews have direct influence on the design of the management model. The influence of the new organisational structure on the new management model is of course very big. The recommendations on the implementation of the new model are placed outside the company of Company X X. These recommendations have influence on the company and are influenced by theory on management models and by the new model itself. The fact that the picture shows that the model is placed in the middle of the new organisational structure shows the close relation that exists between both of them. There are no arrows placed between them because the new model has to become embedded within the new structure. So a fit between the structure and the management model is very important.
The influence of the theory comes from outside the company. Of course the possibilities that are sketched within the different theories on management models have direct influence on the design of the new management model for the company. This relation also works the other way around. When a certain direction is becoming clear, concerning the type of model or the requirements that it has to have, a focus on specific theories with these aspects will emerge. I chose to display the model in this way, with the references to the different sub questions of my research, because this shows clearly the connection between the different questions. The model was not given a physical direction to emphasise the array in answering the sub questions, because that could make things less clear. The way the model is structured now, clearly emphasises the importance of the new model and clearly shows the relations between the different sub questions and factors.
1.3 Boundaries, methods, time scale
Every research has to have certain limits to itself, otherwise the research would become either much too extensive, or it will get too broad and not thorough enough to be able to eventually come to clear-cut answers to the stated research questions.
Boundaries
This research will be limited to Company X X B.V., which is a division of the Company X Group. Company X X has different activities in the field of X: Services, franchise activities and the marketing of leading and new X brands. This research of course contributes to the transparency of Company X X and its activities, but also makes it easier for the Company X Group management to keep track of Company X X and its business units. Due to recent developments the model will not be filled in for the two business units Z X and SSS & JJJ Formulas. However when needed, the model will be able to assess these activities as well.
These two units were recently acquired and their future place in the organisation is yet unknown. The activities of Z X are adjourned due to financial troubles within that unit.
About SSS & JJJ we can say that this recent acquisition for the moment is still under the management of the PPP Group which is owned by Company X X for 51% and of which the remaining 49% will be obtained in 2005. However, it is desirable that the new management model in the future could function for these two units as well.
Methods
Different research methods will be used in executing this research. Mostly it will be the analysis of primary and secondary data. The data will be collected in different ways. Primary data will be collected through the execution of several interviews with people from within the company. The idea is to construct a question form that people can fill in rather easily and quickly. Secondary data will be collected by scanning all kinds of documents that exist within the company that were made earlier. Also very important is the things and analysis of all kinds of scientific theories and literature on different parts of the field of research.
Timescale
Similar to almost every research also within this research time is limited. In this case time is limited to about six months. In the first phase of the research much reading had to be done.
This is typical for this phase from which the character can be described as “exploring”. This also includes parts of the things of the secondary data in order to come up with more useful primary data. After this we began with the things of primary data and the analysis of all the data. In this part of the process we take a close look at the way in which the company is structured in the current situation. Also important is the way in which the company has been managed up until now.
2 Defining management, control and management model
Before we go any further into the theory on management and related subjects, we first have to define the meaning of the words management, control and management model and provide insights on these different items. Also the words controllable and manageable will be discussed.
2.1 Management
The word ‘management’ is quite difficult to define in the right way. It is in the first place specifically American and can hardly be translated into any other language, not even into British English. It denotes a function but also the people who discharge it. It denotes a social position and rank but also a discipline and a field of study. But even in the American usage, management is not adequate as a term, because institutions other than business often do not speak of management or managers. Universities and hospitals or government have administrators. Armed services have commanders, and other services sometimes speak of executives. This is rather strange because all these institutions have the same management function. And in all of them it does the same work: organising, setting objectives and goals, staffing and measuring results. Further we know that management is independent from ownership. It concerns an objective function and should be grounded in the responsibility for performance. It is no longer relevant whether the manager is also the owner. Ownership is incidental to the main job, which is to manage. The first definition of business management is
‘an economic organ’. Specifically it is an economic organ of an industrial society. Every act and decision, every deliberate form of management, has economic performance as its first dimension (Drucker, 1977).
There has always been a variety of theories about management and these theories have been particularly important since the industrial revolution of the nineteenth century. The need for coordination emerged under this influence. De Leeuw (1997) defines management as any deliberate form of directional influence on certain events, not at all related to the way in which this task is spread over the different people of the organisation.
Another definition is given by Watson (2001). He says that management can be seen simply as a matter of running an organisation so that the stakeholders will go on supporting it in such a way that it is able to continue its existence into the future. Mescon, Albert and Khedouri (1985) say that the management of a company is responsible for the process of planning, organising, leading and controlling the efforts of organisation members and of using all organisational resources to achieve the stated organisational goals. When we look at what managers do we can see that the skill of Management can actually be described as ‘getting things done by other people’ (Parker Follett, 1941). These definitions give more emphasis to the fact that managers are trying to achieve organisational objectives by arranging for other people to perform whatever tasks are needed. They do not necessarily do these tasks themselves. It can be argued that management can be described as ‘the process of optimising human, material, and financial contributions for the achievement of organisational goals’
(Pearce and Robinson, 1989).
When talking about Management it is relatively old- Xed to emphasise the running of an organisation in terms of just administration and control. This is more or less the operational view of management. The more modern view of management has been expressed by Sir Roland Smith (1993) in stating that management should be based on ‘Innovation, marketing
and risk’. The emphasis has to lay not so much on running the company as on planning, developing and changing it. It can be argued that, from the last years of the twentieth century, change is the natural order of things and the most important management skill is the management of change. (Hannagan, 1995).
I would like to conclude these writings on the item Management with the way in which I would like to define Management for the use in the rest of this research. For this research I define management somewhat the same as Mescon, Albert and Khedouri (1985) do. That is:
‘management is taking the responsibility for the process of planning, organising, leading and measuring the efforts of organisation members and of using all organisational resources to achieve the stated organisational goals’. When the word management is used in this research, it always concerns the management of a company.
2.2 Control
Several authors have addressed the subject of organisational control in diverse ways. There does not seem to be one universal definition for organisational control. Actually I see control as part of the management function. However, in order to get clear about what is meant by control in this research, a general definition has to be formulated. The literature on the nature of organisational control processes is dominated by the four broad perspectives of cybernetics/goal, power/authority, culture, and evolution (Das, 1993).
Cybernetics/Goal Perspective
The essence of control is action for adjusting operations to predetermined standards. Hofstede (1978) has noted that most control systems are based on the cybernetic model. This model consists of (a) a standard or objective, (b) a means of measuring performance and (c) feedback channels. Of course a problem for this model is the fact that it might be the case that the goals that are set, are not the goals that are being tried to reach. This could be because certain persons would only try do reach goals that are in their own advantage. The chance on this kind of bias also depends on the hierarchical position of the people who have to reach the goals.
Power/Authority perspective
Control is in this perspective referred to as a process by which a group or person intentionally tries to affect the behaviour of another person or group. This could be seen as a kind of cycle.
An intent of person A which leads to an influence intent, results in specific behaviour of person B, which on its turn leads to the fulfilment of the intention of person A. Control has a bit the taste of superiority. Most of the times control is very desirable. Ironically, control leads directly to being controlled, in the sense that the controller must conform to certain norms to stay in control. Hofstede (1978) says that it is mainly political control that prevails in many organisations like schools or hospitals. In these kind of organisations there is not really a clear objective. And the main prerequisite for control is the existence of clear goals and objectives.
In these kind of organisations control is mainly the outcome of politics and negotiations between groups or persons. Hofstede (1978) says that we should think of control as a structure and not as a process, because a structure can more easily explain the power-based negotiations of entities.
Cultural Perspective
This perspective states that there are basically two ideal types of organisational control; Type A and Type B. Type A is characterised by short term employment, individual decision making, formal evaluation and frequent promotion and little concern for people. Type B consists of long-term employment and holistic concern for people. The choice for either one of the ideal types depends on societal values and the extent of labour mobility. However a choice has to be made.
Evolutionary Perspective
Traditionally we have a controlling cycle, which consists of the basic aspects enactment, selection and retention (ESR). Das (1989) has recently shown that this basic cycle fundamentally has a hierarchical character. This evolutionary perspective says that you first have retention, which is actually the setting of goals and rules. Than you have the actual game of selection and enactment, of which the playing is very much based on hierarchical fundaments.
Many theories tend to combine all these perspectives into one multiple paradigm approach on organisational control, which combines all the perspectives without subscribing one especially. In this research we will use the following definition of control: ‘The part of management that uses different tools and processes to make sure that certain stated objectives are met and that the organisation stays within certain boundaries, set upfront. These boundaries vary from financial and organisational to which markets will be served.’
2.3 Controllable and manageable
The words controllable and manageable can be used next to each other.
The word “manageable” refers to the way in which certain systems are shaped, in order to make it possible for the management of these systems to manage these systems properly. The word “controllable” refers to the way in which a system is shaped in order to make it controllable from inside out. One can call a system manageable when under certain conditions and with a certain goal, it is possible to find an effective management measure or steering/control measure. De Leeuw (1997) has structured a model of a simple management situation, which is shown in figure 2.1. In this model there are three main actors: The environment and the organisation itself (within the dotted line), which consists of the Managing Organ and the Managed System (De Leeuw, 1997).
Figure 2.1 Managing Organ-Managed System Model
As said before the success of effective management depends on one hand on the quality of the managerial capacity of the Managing Organ. On the other hand it depends on the managerial features of the Managed System. This model is used to make a distinction between the Managed System and the Managing Organ. This can provide an insight on the effectiveness of management.
The managerial capacity of a Managing Organ can be described with the five essentials for effective management. Objective, model of the Managed System, information concerning the environment and the condition of the system, sufficient control measures, information processing capacity (De Leeuw, 1997).
Now these essentials will be discussed more deeply because they are very important in the process of coming to an effective management model.
1. Objective
Although it seems rather strange, the objectives of the company do not have to be very explicit and complete. They neither have to be constant. The only thing that has to be taken into account is the fact the company always has to be able to judge changes. Positive and negative changes must be recognised as such. There has to be a mechanism to evaluate the effects of the management process.
2. A model of the Managed System
In order to manage a certain system properly, you have to be able to predict the effects of certain measures. Of course one chooses to undertake certain measures to accomplish something specific. So the effects of measures have to be a little bit predictable. So you
Environment
MO
MS
have to have an insight on how the model works to see how it will react on certain measures.
3. Information concerning the environment and the condition of the system
Apart from managerial aspects a companies’ future is also influenced by external situational factors. This is why one should always have information on the current situation of the system as well as information on the external environment of the company.
4. Sufficient control measures
To be able to manage properly, the Managing Organ has to have sufficient control measures. The number of measures should be in balance with the variety of circumstances that can occur. The Law of Requisite Variety, states the fact that the number of control measures can at maximum be the same as the number of disturbances of the system. Most of the time a smaller number of measures is enough to cover a higher number of disturbances.
5. Information Processing Capacity
This important prerequisite for effective management is actually rather logical. The Managing Organ has to have certain information of the current situation of the environment as well as information on the Managed System itself. All this information has to be processed in such a proper way that this information gets to the right places without any spill over or delay in time. With spill over is meant that the information should not reach people who should not have this information. With delay in time is meant that the process of assessing the information has to take place rather quickly, otherwise the information is not up to date anymore. When this occurs there is the risk of taking measures that are not appropriate anymore and could have adverse effects.
It has to be said that these essentials for effective management, are never enough. That is, even if all of these essentials are taken care of, effective management cannot be guaranteed.
This is because of the fact that effectiveness of management also depends on the conditions of the Managed Organ.
2.4 Management model
There are many ways to define the meaning of a management model. In my opinion many of them come down to something like the following definition, which I based partly on a few statements of Cap Gemini Ernst & Young, because I think that they formulated certain aspects very well (www.nl.cgey.com).
A management model gives structure to the relations between the results that a company wants to meet, and the control and managing measures that have crucial influence on these results. In this system the mission, vision and strategy of the company play a very important central part. These aspects have to be implemented and translated into specific goals for all layers of the organisation. Also factors from the environment that might not be controllable have to be taken into account when assessing the results (Boundary Control). This is because
of the fact that these conditions also have great influence on the results. All of these aspects have to be translated into certain indicators to be able to measure the values of all influences.
In a research on the characteristics of high performance organisations, Goldsmith and Clutterbuck (1997), found a few interesting facts. Clarity and consensus about the role and responsibility of corporate headquarters and business units is found to be very important. Also a balance between strategic and financial control, in which autonomy and customership of lower levels is promoted seems to be of good influence on the performance of companies (Goldsmith and Clutterbuck, 1997). This is quite logical, because this allows the corporate headquarters to focus more on the long-term strategy and the development of a future batch of experienced managers. Also they need time to coach the company in achieving its ambitions.
Of great importance in all companies is clarity on the responsibility throughout the different business units and layers of management. This structure of responsibility has to be consistently applied throughout the whole company. A clear and consistent management model provides in the need for this kind of consistency in responsibility. Choices have to be made to define the way in which responsibility is spread within the company.
The sort of model that can be developed depends to a large extent on the parenting style that is used within the company. According to Goold and Campbell (1994) three parenting styles can be defined. These are, ‘Strategic Planning’, ‘Strategic Control’ and ‘Financial Control’.
The ‘Strategic Planning’ style means that the headquarters plays a very important role in the planning process of the different divisions and business units within the organisation. This style needs the headquarters to constantly be well informed on the operational status of the different units. With ‘Strategic Control’ the headquarters gives some guidelines to the different units with which they are on their own responsible for the development of the unit strategy. These plans are to be evaluated by the headquarters. With certain frequency the headquarters reviews the performance of the different units with the use of different performance indicators. When a company uses the ‘Financial Control’ style, this means that the responsibility to develop strategy and the execution of it is placed with the different business units. The headquarters is merely interested in the financial performance of the different units. So the headquarters isn’t interested in the unit strategy, but more in the fact whether the business unit is financially performing well.
It is important to assess the position that a company has within the field of these parenting styles. This creates transparency and clarity about the responsibilities that different management layers have.
Head- quarters Influence
on the planning
proces of Business
Units
Strategic Planning
Strategic Control
Financial Control
Management style of heaquarters towards different Business Units Flexible Tight Strategic Tight Financial High
Low
2.2 Different Management Styles with different Parenting Styles
In some theories a model can be described as a simplification of a part of reality. People often think of a model as some graphical figure or scheme. In this research we define something as a model, when: ‘one can denote a unified consistency in management. There has to be a rigid way of measuring performance and a unified way to steer and control different units. If this is the case we can speak of a management model.’
2.5 Conclusion
In this chapter we discussed the meanings of the words management, control, management model as well as the words manageable and controllable. We did this in order to create consistence on the meaning of these words, to be able to use them in the rest of the research.
For the use in the rest of the research we define management as taking the responsibility for the process of planning, organising, leading and controlling the efforts of organisation members and of using all organisational resources to achieve the stated organisational goals.
In this research, it always concerns the management of a company. With control is meant the part of management that uses different tools and processes to make sure that certain stated objectives are met and that the organisation stays within certain boundaries that are set upfront. These boundaries vary from financial and organisational to which markets will be served.
The word ‘manageable’ refers to the shape of certain systems that makes it possible for the management of these systems to manage these systems properly. When we use the word
‘controllable’, it concerns the way in which a system is shaped in order to make it controllable from inside out. The fact if management is effective depends on one hand on the managerial capacity of the Managing Organ, and on the other hand it is influenced by the managerial features of the Managed System.
In constructing a new management model it is very important that the parenting style is taken into account. Three different parenting styles can be distinguished. These are, ‘Strategic
Planning’, ‘Strategic Control’ and ‘Financial Control’. A management model gives structure to the relations between the results that a company wants to meet, and the control and managing measures that have crucial influence on these results. In this system the mission, vision and strategy of the company play a very important central part.
3 Organisational structure and way of management of Company XX
In this chapter the current structure and the current way of management of Company X X will be discussed. These things have to be assessed before we can discuss the new structure, later on in this chapter. This chapter will merely draw the point where Company X X is coming from. This information is part of the input for the construction of the new management model.
3.1 Current structure of Company XX
Company X X is one of the largest business units within the Company X Group. Company X X has the responsibility over several X brands that operate nationally as well as internationally. Examples of these brands are: Z and Y X. Y X has the full ownership of Y X in Country X. Next to these brands the business unit also holds a Sales division, which produces several private labels, as well as the brands H and A. The marketing and sales of the brands C and D currently lies with Services and the production takes place through Sales. The sales lies with Services, because of the service-like character of the exclusive supply of the brands to affiliated customers.
Under the responsibility of the business unit X, also a division for Services has its place. This division provides all forms of AAA consultancy and advice to independent companies and to affiliates that are a member of Company X. Traditionally Company X was purely a BBB. This made it possible for its members to buy large numbers of products and hereby benefit from scale benefits. This service is now a part of the Services division. Company X X also holds a separate department Marketing & Development, which takes care of all the marketing and promotion activities for Company X X. Next to these departments, there are a number of staff departments. There is a Finance & Control department, a human resources department and a secretary department. Graphically it looks like this:
Confidential
Figure 3.1 Current Structure Company X X (*= Member Management Team)
In the current situation, the top management has the responsibility over the whole organisation. The company is managed through a management team. The management team includes the managing director and the managers of the different departments and units. The member of the current management team are: The president, the vice president, the Human Resources manager, the manager Finance & Control, the Services manager, the manager Marketing & Development and the manager Sales. That means that the managers of the brands Z and Y X do not take part in the management team. The problem is that only the management team takes part in this meeting and not all departments managers are a member of that team. Another problem is that all problems that occur just in one unit, are currently being discussed by the whole management of Company X. So these meetings are taking place to centralised. There are no established meeting points within the departments at all. The different units currently do not really have their own responsibility and the only indicator of their performance is their profit and loss figures. This used to be no problem at all, because the size and character of the business was well in line with the way of organising things.
However the last few years the complexity and diversity of the different brands grew rapidly and the size of the running business also gradually grew larger. In line with the strategy also actions were taken and the current structure became obsolete. It has to be noted that this will
probably not be in the near future due to macroeconomic circumstances. This is however part of the mission that is formulated for Company X X.
3.2 Current management model
In order to come up with a new management model, first the current management model has to be analysed. It has to be found out if there even is a management model within the current situation at Company X X. According to the definition that was constructed in chapter 2.4 there can indeed be spoken of a management model within the current structure of Company X X. This is because one can denote a unified consistency in management. So there has to be a rigid way of measuring performance and a unified way to steer and control different units.
This does not mean that the way of measuring is very broad.
In chapter 2.4 three different management styles with according parenting styles were discussed. Now we should be able to place the current way of management within Company X X in the figure of different parenting styles as shown in figure 3.2.
Head- quarters Influence
on the planning
proces of Business
Units
Strategic Planning
Strategic Control
Financial Control
Management style of heaquarters towards different Business Units Flexible Tight Strategic Tight Financial High
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3.2 Company X X placed within the different management styles with different parenting styles
In assessing the way in which Company X X is currently managed it can be said that the current parenting style tends to ‘Strategic Planning’. The strategies of the different units are developed by the management of Company X in cooperation with the different units. The management is now very closely involved in the process of the different units. This parenting style with the close cooperation in developing strategy comes with a rather flexible way of management control. Currently the performance of the different units or departments is only measured from a financial perspective. Now the company is only steered on the operational result. Other perspectives also are said to play a part in the assessment of the performance of the units. Only these perspectives are not officially a part of the performance measurement system. Also the fact that the management of Company X X is closely involved in the development of the strategies of the different units makes it difficult to assess the performance of the units. Because then the management is actually also measuring the effects of its own decisions in a way. This makes it hard to be critical to a units´ performance. When a unit is
responsible for the development of its own strategy, it is easier for the management to be as critical as needed. Because then it is clear who is responsible for certain decisions and strategies.
Currently the management team has a meeting every month in which certain issues are assessed. The managers of the different business units do not have a part in these meetings.
This is something that will change in the new management model. It is of course only logical that the managers of the different units play a part in the general meetings of the management team that decides on the whereabouts of the company in a broad way.
The current management model used to fit with the organisation as it was. But due to recent developments a new way of management is needed.
3.3 New Structure Company XX
The size and character of the activities of Company X X are changing. To make sure that the company stays responsive to the market and to be able to keep a good relation with its customers, a new structure was developed. This new structure was both the desire of the board of directors of the Company X Group and of the management of Company X X. In the first chapter the drawbacks of the old structure of Company X X were already mentioned. The old structure shows an imbalance through the fact that the brands Z and Y form separate business units and the other activities are departments of Company X X. Also the fact that these two business units do not take part in the management team makes the organisation difficult to through the current structure.
The main background of the new structure is that it makes it possible for Company X X to reach its Strategic organisational goals. With this new structure Company X X is able to approach the markets of the different units in the right way. To make this new structure work and make it applicable to future acquisitions, certain norms have been set. The different business units of Company X X will operate as different autonomous companies. These units have to have certain features to become managed as an autonomous unit. These features are that the company at the point of measuring should at least have one or more of the following features:
• Current annual turn-over of at least 5 million Euros
• Estimated turn-over in 3 years at least 10 million Euros
• Brand recognition or Brand potential
• Strategic importance or a Take Down Risk
The unit directors manage the companies with full end responsibility over the specific business units. Costs made by Company X X in favour of individual units will be charged at the different individual units in a realistic way. For the execution of secondary (or staff) processes like Finance & Control, human resources management and Marketing &
Development, the different units are obliged to make use of the services provided by Company X X to keep uniformity and to stay able to reach synergy. Cooperation between different units will be on customer-supplier bases. It will be stimulated to cooperate and make use of each other competences and try to reach scale benefits. In a figure the new structure looks like displayed beneath.
Figure 3.2 The new organisational structure of Company X X Confidential
The dotted collared lines indicate deliberation. The red triangle is the meeting with the whole management of Company X X once every three months. The blue sections indicate the bilateral deliberation between the management of Company X and the specific business unit, which takes place every month. The green sections indicate the meeting of the management of the business unit every month. And the purple circles indicate the departmental meetings of the business units which take place once every two weeks. In the new structure Company X X strives for the fact that responsibilities have to be at the lowest possible level. This in order to make everybody involved in the process and to make certain that everyone in the organisation stays committed to the business. Also in this way the management is able to focus on making the strategy for the different units work as well as the overall strategy of Company X X. In this contrast Company X has started the People program 5 years ago. As can be seen the department of Marketing & Development became part of the staff organisation of Company X X in this new structure.
Also a reason for the new structure is to separate several activities, to create fully separated business units that could in fact even be sold off separately. This creates the ability to come a bit to a form of portfolio management. An example of activities that are being separated is the whole process of the brands C and D. In the old situation Services was responsible for the marketing and sales of the brands, and Sales was responsible for the production. In the new situation both of the brands will totally be produced and marketed by Services so that each unit can focus on its own activities. Through the changes in the organisational structure and the development of a new management model actually the companies’ position in the graph on parenting style and management style is being shifted towards a position somewhere in between of ‘Strategic Control’ and ‘Financial Control’.
Head- quarters Influence
on the planning
proces of Business
Units
Strategic Planning
Strategic Control
Financial Control
Management style of heaquarters towards different Business Units Flexible Tight Strategic Tight Financial High
Low
3.3 New position Company X X within different management styles with different parenting styles
The idea is that the different business units will develop their own strategy within certain boundaries set by Company X X and that the units will be checked on their performance regularly to see how the units are doing and to what extent they are executing their strategy how they are living up to the expectations. The control will not be purely financial but also on
other points. This is why the position of Company X X is somewhere in between of
‘Strategic Control’ and ‘Financial Control’.
Due to the fact Z couldn’t make its turnover and had financial problems, its activities are being adjourned. So it still belongs in the structure but embodies no real activities anymore.
About the business unit SSS & JJJ can be said that the management and control of it, will stay with the PPP Group for a while. Company X X owns 51% of the PPP group and will obtain the rest in the close future. So these two units will not appear in the new management model, however the new model has to be constructed in such a way that the two activities could be incorporated without much trouble. The same goes for newly acquired X brands and companies.
3.4 Conclusion
The structure of Company X X has evolved over the years. Due to the fact that the nature and the size of the activities of Company X X have changed over time, the structure became obsolete. The management of Company X X decided to design a new structure that could provide a maximum in responsiveness to the market. The current way of management is more or less based on just the evaluation of financial results, such as profit and turnover. Most of the responsibility in deciding about strategy and other major decisions in the different business units are currently made by the management of Company X X. In the current structure not all the managers of the different business units are represented in the management team. This is one of the reasons for the management to alter the structure. In the new situation certain criteria will decide on whether a certain activity will be managed directly by the management of Company X X, or that it will become a separate business unit.
There are four criteria that will decide on this matter. These are: a current annual turn-over of at least 5 million Euros, an estimated turn-over in 3 years of at least 10 million Euros, brand recognition or brand potential, strategic importance or a take down risk. Decisions in this matter will be taken by the management of Company X X.
These are the general criteria that will be used by the management in deciding on the matter of how to manage and structure the specific activity. Of course the management eventually decides according to what it finds is best for the company. This could mean that for instance the strategic importance of an activity is more important than the size, and thus eventually indeed gets its own management.
In the new structure the directors of the different business units will take part in the management meeting every three months. This way the power of the management team is equally divided among the organisation. In these meeting the strategy will be discussed and guarded. Certain problems will be solved and information will be exchanged. Apart from the directors of the business units, also the managing director of Company X X as well as the financial manager and de Human resources manager will take part in this meeting.
