Chapter 11 – Management Decision and Control
Chapter 11: Management Decision and Control
Learning Objectives and Chapter Summary
1. PROVIDE comparative examples of decision making in different countries.
Decision making involves choosing from among alternatives. Some countries tend
to use more centralized decision making than others, so that more decisions are
2. PRESENT some of the major factors affecting the degree of decision-making
authority given to overseas units.
A number of factors help to influence whether decision making will be centralized
or decentralized, including company size, amount of capital investment, relative
importance of the overseas unit to the MNC, volume-to-unit-cost relationship, level
3. COMPARE and CONTRAST direct controls with indirect controls.
There are a number of decision-making issues with which MNCs currently are
4. DESCRIBE some of the major differences in the ways that MNCs control
operations.
Controlling involves evaluating results in relation to plans or objectives then taking
action to correct deviations. MNCs control their overseas operations in a number of
5. DISCUSS some of the specific performance measures that are used to control
international operations.
Three of the most common performance measures used to control subsidiaries are
in the financial, quality, and personnel areas. Financial performance typically is
11-1
Chapter 11 – Management Decision and Control
The World of International Management: Global Online Retail:
Amazon v. Alibaba
1. Summary:
This vignette explores online commerce and in particular the strategy and success
of Amazon.com. Online retail sales in the United States will reach $370 billion by
2017. The Chinese retail conglomerate, Alibaba Group, is surging in in online sales
and now totals more than EBay and Amazon together. Alibaba’s Tall (Amazon’s
competitor) will surpass Amazon by 2015. Alibaba combines business-to-business,
business-to-consumer, and consumer-to-consumer transactions under a single
ownership umbrella, while Amazon specializes primarily in just business-to-
consumer sales.
Recently Amazon expanded into video streaming, cloud storage, and other web
services, and has released Kindle Fire as its entrance into the tablet market. Amazon
now has 50 distribution centers across the U.S., thus acting as a direct merchant,
although this requires rapid adaptation and a large investment in fixed assets and, so
far, has produced minimal profits. Alibaba is a “mere” facilitator for sales between
third parties; thus fixed assets are minimal. However, the company cannot control
shipping and distribution, so third-party mistakes reflect on Alibaba. Nor does the
company gain financially from direct-to-consumer selling.
The geographic positioning of Amazon and Alibaba affects their potential future
growth. While the future growth potential of Amazon is somewhat limited, Alibaba
has yet to enter the North American market. Thus, Amazon must expand its market
area. Alibaba is better positioned, as only 50 percent of China has Internet access.
Long-term success for each company is yet to be determined. Managers of both will
be called on to develop and initiate new strategies.
2. Suggested Class Discussion:
1. Reflect on the differences that exist between the markets and strategies of
Amazon and Alibab. How can the companies plan for the future?
2. What accounts for Amazon’s success as an online retailer? What factors explain
Alibaba’s success?
3. Related Internet Sites:
BusinessWeek: {http://www.businessweek.com}.
Amazon: {http://www.amazon.com}.
Alibaba: {http://www.alibaba.com }.
11-2
Chapter 11 – Management Decision and Control
Chapter Outline with Lecture Notes and Teaching Tips
Decision-Making Process and Challenges
1) The managerial decision-making process involves choosing a course of action among
alternatives.
a) The practice becomes more relevant for international managers as globalization
increases.
b) Linear, but often loops back; see phases in Figure 11–1.
2) If decision making is centralized, most important decisions are made at the top; if decision
making is decentralized, decisions are delegated to operating personnel.
3) How decision making is carried out in an organization is influenced by a number of
factors.
Factors Affecting Decision-Making Authority
1) A number of factors will influence international managers’ conclusions about retaining or
delegating decision-making to a subsidiary. Table 11–1 in the text lists some of the most
important situational factors.
2) A major concerns for organizations: how efficient the processes are which are put in place
a) Larger organizations may choose to centralize authority for critical decisions in order
to ensure efficiency through greater coordination and integration of operations.
d) Efficient processes become increasingly important as diversification or differences
between the parent and subsidiary increase.
e) Experience proves to be a simple indicator of efficiency.
3) Protection of goods and services is also important to an MNC.
a) It is common for MNCs to centralize operations when dealing with sophisticated levels
of technology.
b) A company is likely to centralize decision-making processes when there are important
by the home office.
4) The right degree of centralized or decentralized decision making can be critical to the
success of the MNC.
11-3
Chapter 11 – Management Decision and Control
Cultural Differences and Comparative Examples of Decision Making
1) Do decision-making philosophies and practices differ from country to country? Research
shows that to some extent they do, although there also is evidence that many international
operations, regardless of foreign or domestic ownership, use similar decision-making
norms.
a) The French analyze a case and come to a conclusion, then they like to go over it once
more; they may waste time instead of make improvements.
b) Codetermination refers to a legal system that requires workers and their managers to
discuss major decisions. Codetermination is used in Germany and Scandinavian
individual in the organization; decision making decentralized and participative.
c) Japanese:
i) Ringisei is a Japanese term that means “decision-making by consensus.”
ii) Tatemae is a Japanese term that means “doing the right thing” according to norm.
iii) Honne is a Japanese term that means “what one really wants to do.”
2) Other cultural differences:
a) How managers view time in the decision-making process: French, for example, do not
value time as much as their counterparts; Danes act first and take advantage of
opportunities.
b) Level of team orientation: Sweden―high, informal; Germany―fast, dominated by the
decision authority.
Total Quality Management Decisions
1) To achieve world-class competitiveness, MNCs are finding that a commitment to total
quality management (TQM) is critical.
a) Total quality management is an organizational strategy and the accompanying
techniques that result in the delivery of high-quality products or services to customers.
b) TQM―primary area is manufacturing, where it is having a big impact.
c) TQM uses:
i) Empowerment which is the process of giving individuals and teams the resources,
eliminating waste.
iv) Table 11–2 provides some examples of new theories on quality.
11-4
Chapter 11 – Management Decision and Control
Teaching Tip: QPR Online provides information on quality management. Descriptions of
ISO 9000, a family of standards, EFQM a practice tool for organizations to measure
where they are on a path to excellence, and the Malcolm Baldridge National Quality
Award are provided.
Decisions for Attacking the Competition
1) Another series of key decisions relates to MNC actions that are designed to attack the
competition and gain a foothold in world markets.
2) Examples:
a) General Motors established production operations on a worldwide basis in order to
become a major player throughout Asia, Australia, Europe, and South America, as well
as in select areas of Africa.
b) While GM is trying to tap the upper market, BMW has made the decision to move
down the line and gain small-car market share.
c) NEC: The phone company is moving aggressively from Japan into the world market,
especially in fiber-optics and mobile phones (handsets and semiconductors).
d) Intel brought out a new lower-priced Pentium chip to undercut the competition and
teamed up with Hewlett-Packard to develop the Itanium chip
The Decision and Control Linkages
1) Decision-making and controlling are two vital and often interlinked functions of
international management.
a) Controlling involves evaluating results in relation to plans or objectives and deciding
what action to take next.
b)
2) Examples:
a) Siemens: Known for engineering, changed management, improved the speed of the
decision-making processes, and stressed the customer. U.S. management style didn’t
sit well with parent company.
b) Universal Studios Japan: Learned that the Japanese wanted an authentic American
experience but also expected the park to cater to their own cultural preferences;
discovered that creating an emotional connection between consumer and the park,
instead of focusing on the power of Hollywood, encourages people to frequent it.
The Controlling Process
1) Controlling involves evaluating results in relation to plans or objectives and deciding what
action to take.
11-5
2) Examples:
a) Mitsubishi purchased 80 percent of Rockefeller Center in the late 1980s; later
depressed rental prices and rising maintenance costs led the company to walk away
from the investment.
b) The control process is crucial for MNCs in the fast-moving personal computer (PC)
business. PC firms must deal with the relentless pace of technological change, thus
stringent controls of inventory, just-in-time manufacturing (60 days till outdated).
3) Control problems in attempting to control overseas operations to become integrated,
coordinated units:
a) The objectives of the overseas operation and the corporation conflict
b) The objectives of joint-venture partners and corporate management are not in accord
c) Degrees of experience and competence in planning vary widely among managers
running the various overseas units
d) There may be basic philosophic disagreements about the objectives and policies of
international operations, largely because of cultural differences between home- and
host-country managers.
Types of Control
1) There are two ways to look at control. One is by determining if the firm uses internal or
external control, the other is looking at how the firm uses direct and indirect controls.
2) Internal and External Controls
a) From an internal control standpoint, an MNC will focus on the things that it does best.
At the same time, management wants to ensure that there is a market for the goods and
services that it is offering. So the company first needs to find out what the customers
want and be prepared to respond appropriately.
b) Trompenaars and Hampden-Turner set forth four management views regarding how a
control strategy should be devised and implemented:
i) Find out which of these strategies work, which don’t, and why. Devising our own
iv) Be the chief deviser of strategy: Use experience, information, and intelligence to
create a broad thrust; let subordinates to fit these to customer needs.
c) Cultures differ in the control approach they use. See Table 11–3.
3) Direct Controls
a) Direct controls refer to the use of face-to-face or personal meetings for the purpose of
monitoring operations.
b) Examples:
i) CEO runs meetings to discuss problems, set goals, evaluate, decide on actions.
11-6
Chapter 11 – Management Decision and Control
ii) Top executives visit overseas affiliates or subsidiaries to can learn firsthand the
iv) Organizational structure to make the unit highly responsive to home-office
requests and communications: ensures that all overseas operations are run in
accord with central management’s desires through formal reporting relationships
and chain of command.
4) Indirect Controls
a) Indirect controls refer to the use of reports and other written forms of communication
to control operations.
b) Examples: monthly operating reports; supplements to the operating report, include
financial statements, such as balance sheets, income statements, cash budgets, and
financial ratios that provide insights into the unit’s financial health.
c) Examples of financial statements usually required from subsidiaries:
i) Statements prepared to meet the national accounting standards and procedures
country
d) Typically, MNCs will use indirect controls to monitor performance on a monthly
basis, whereas direct controls are used semi-annually or annually.
Approaches to Control
1) International managers can employ many different approaches to control.
a) These approaches typically are dictated by the MNC’s philosophy of control, the
economic environment in which the overseas unit is operating, and the needs and
desires of the managerial personnel who staff the unit.
b) The tools used:
i) Will give unit manager the autonomy needed to adapt to changes in the market and
iii) Some control tools are universal.
2) Some Major Differences
a) MNCs control operations in many different ways, and these often vary considerably
from country to country.
b) Horovitz found that:
i) British controls had four common characteristics:
11-7
Chapter 11 – Management Decision and Control
Control was used more for general guidance than for surveillance.
Operating units had a large amount of marketing autonomy.
ii) German managers employed very detailed control and focused attention on all
variances; they placed heavy control on production and stressed efficiency.
iii) French managers used a control system more for surveillance than for guiding
operations, and the process was centrally administered, but less systematic and
sophisticated.
c) Major difference: Americans make greater use of output control, and Europeans rely
more heavily on behavioral control.
i) Control in U.S.: MNCs focus on the quantifiable, objective aspects; allows
comparative analyses. European MNCs: measure more qualitative aspects; more
managers who are willing to spend long periods of time abroad.
iv) Control in European MNCs requires more decentralization of operating decision
making than does control in U.S. MNCs.
v) Control in European MNCs favors short vertical spans or reporting channels from
the foreign subsidiary to responsible positions in the parent.
3) Evaluating Approaches to Control
a) Is one control approach any better than the other? Each seems to work best for its
respective group. Some studies predict that as MNCs increase in size, they likely will
move toward the objective orientation of the U.S. MNC.
b) In deciding which form of control to use, MNCs must determine whether they want a
more bureaucratic or a more cultural control approach; from the cultural perspective, it
must be remembered that this control will vary across subsidiaries.
Performance Evaluation as a Mechanism of Control
1) Three of the most common approaches to control are evaluating financial performance,
quality performance, and personnel performance.
Financial Performance
1) Financial performance evaluation of a foreign subsidiary or affiliate usually is based on
profit and return on investment.
a) Profit and loss (P&L) refers to the amount remaining after all expenses are deducted
from total revenues.
b) Return on investment (ROI) refers to return measured by dividing profit by assets.
2) Sometimes differences in tax rates can be used to maximize overall MNC profits. This
same basic form of manipulation can be used in transferring money from one country to
11-8
Chapter 11 – Management Decision and Control
another. Transfer prices are manipulated upward or downward depending on whether the
parent company wishes to inject or remove cash into or from a subsidiary.
3) The so-called bottom-line (i.e., profit or loss) performance of subsidiaries also can be
affected by a devaluation or revaluation of local currency.
4) Relying solely on financial results to evaluate performance can result in misleading
conclusions.
Quality Performance
1) Just as quality has become a major focus in decision-making, it also is a major dimension
of the modern control process of MNCs.
a) A quality control circle (QCC) refers to a group of workers who meet on a regular
basis to discuss ways of improving the quality of work.
2) Why are Japanese-made goods of higher quality than the goods of many other countries?
a) The reasons for the quality differences:
i) Focus on keeping the workplace clean and ensuring that all machinery and
equipment were properly maintained
iv) Build in early warning systems in order to know when something is going wrong
b) Higher performance with suppliers than U.S. with these steps:
i) Leveling their own production schedules in order to avoid big spikes in demand,
thus allowing their suppliers to hold less inventory
have to be received at the delivery plant
c) Management attitudes toward quality also were quite different. Workers are trained for
all jobs on the line; “training overkill.”
i) If someone is moved to another job, he or she can handle the work without any
additional assistance.
ii) The workers realize that management puts an extremely high value on the need for
quality.
d) Some evidence shows that, at least in the short run, an overfocus on quality may
become economically unwise. Major issue: how to identify quality problems and
resolve them as efficiently as possible. See Figure 11–3.
Personnel Performance
1) Besides financial techniques and the emphasis on quality, another key area of control is
personnel performance evaluation. This type of evaluation can take a number of different
11-9
Chapter 11 – Management Decision and Control
forms, although there is a great deal of agreement from firm to firm about the general
criteria to be measured.
2) “World’s Most Admired” firms— common themes:
a) Top managers at the most-admired companies take their mission statements seriously
and expect everyone else to do the same.
b) Success attracts the best people—and the best people sustain success.
f) Performance is rewarded.
g) The firms are genuinely interested in what their employees think, and they measure
work satisfaction often and thoroughly.
3) One of the most common approaches to personnel performance evaluation is the periodic
appraisal of work performance. Awareness of international differences is particularly
important:
4) An assessment center is an evaluation tool used to identify individuals with potential to
be selected or promoted to higher-level positions. Simulation exercises:
a) in-basket exercises that require managerial attention
d) preparation of a business plan
e) a letter-writing exercise
The World of International Management―Revisited
Questions & Suggested Answers
1. How might differences in national and corporate culture impede timely decisions
and control processes among existing and potential competitors in online retail?
Answer: The growth of online retailing may come as a surprise to some people,
however, most will probably agree that the trend is likely to continue. Moreover, as
online sales make up an increasingly larger share of total sales for many companies,
11-10