Chapter Nine: Strategic Control and Corporate Governance 1.

Why are effective strategic control systems so important in todays economy? Strategic control is the process of monitoring and correcting a firms strategy and performance. Two central aspects of strategic control are informational control, which is the ability to respond effectively to environmental change and behavioral control, which is the appropriate balance and alignment among a firms culture, rewards, and boundaries. 2. What are the main advantages of contemporary control systems over traditional control systems? What are the main differences between these two systems? Traditional control systems are sequential. (1) Strategies are formulated and top management sets goals, (2) strategies are implemented and (3) performance is measured against the predetermined goal set. Traditional control systems rely on feedback; have a single loop (no change until end of cycle); and the end may be viewed to justify means In contemporary control systems, information control is part of an ongoing process of organizational learning that continuously updates and challenges the assumptions that underlie the organizations strategy. In such double loop learning, the organizations assumptions, premises, goals, and strategies are continuously monitored, tested, and reviewed. The benefits of continuous monitoring are evident time lags are dramatically shortened, changes in the competitive environment are detected earlier, and the organizations ability to respond with speed and flexibility is enhanced. 3. Why is it important to have a balance between the three elements of behavioral control---culture; rewards and incentives; and, boundaries? Behavioral control is focused on implementation doing things right. 4. Discuss the relationship between types of organizations and their primary means of behavioral control. 5. Boundaries become less important as a firm develops a strong culture and reward system. Explain. In most environments, organizations should strive to provide a system of rewards and incentives, coupled with a culture strong enough that boundaries become internalized. This reduces the need for external controls such as rules and regulations. First, hire the right people. Second, training pays a key role. Third, managerial role models are vital. Fourth, rewards systems must be clearly aligned with the organizational goals and objectives.

6. Why is it important to avoid a one best way mentality concerning control systems? What are the consequences of applying the same type of control system to all types of environments? 7. What is the role of effective corporate governance in improving a firms performance? What are some of the key governance mechanisms that are used to ensure that managerial and shareholder interests are aligned?

8. Define principal-principal (PP) conflicts. What are the implications for corporate governance? Principal-principal conflicts are conflicts between two classes of principals controlling shareholders and minority shareholderswithin the context of a corporate governance system.