INTERNATIONAL MANAGEMENT Chapter 11: Evaluation and Control
Chapter 11
EVALUATION AND CONTROL
Learning Objectives
After studying this chapter, you should be able to:
2. identify financial, strategic, and cultural controls.
4. understand the rationale for encouraging best practices, including quality
management programs.
General Teaching Suggestions
Discuss a recent scam that made headlines like the Siemens scam. Students should
identify the defects in the evaluation or control systems of the party(ies) involved.
Discussions should lead to the concepts in the chapter.
Opening Case Discussion Guide
The case discusses the famous Barings bank case and examines the dangers of a weak
evaluation system that led to the bankruptcy of this 233-year-old bank.
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CHAPTER OUTLINE: KEY CONCEPTS AND TERMS
Sections I through II of Chapter 11
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I. EVALUATON AND CONTROL PROCESS
1. Key Concepts
In learning about evaluation and control it is helpful to separate the two concepts.
• Evaluation: The steps in gap analysis are:
i. Evaluation of Current Status: This is a determination of how the firm is
doing right now in moving from where it is to where it wants to be. There
ii. Evaluation of the Firm’s Future: The evaluation of the firm’s future
direction and its industry should also consider the same three dimensions
identified above. Oftentimes, firms simply extrapolate the past.
Brainstorming is used to generate ideas about the firm’s present and
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iii. Fundamental Evaluation of Firm Direction: The third step is a more
fundamental periodic evaluation of whether a different strategic direction
is needed. The evaluation process needs to identify opportunities or paths
on such opportunities as an emergent strategy.
• Control: There are four principal mechanisms commonly used to directly
exercise control over a firm’s daily function:
i. Financial control
ii. Strategic control
iii. Organizational control
iv. Personnel control
• Institutionalizing Controls: Each level of the organization has a different role,
and the nature of control is different in each. The reporting structure that
classically is expected to exist in mature markets is:
i. Boards of Directors
• Implementing Evaluation and Control: Discussion in Chapter 9 examined
decision making and groups and the abilities critical in the evaluation (and
control) activities of an international firm. Other concerns in implementing
evaluation and control are:
2. Key Terms
• Evaluation – The process of determining a firm’s progress toward reaching goals
and objectives.
• Control – Actions taken to move a firm to better meet its goals after the
evaluation of the firm’s gap between goals and achievements.
• Gap analysis – Analysis of the gap between what a firm wants to occur and what
actually has occurred and is likely to occur.
• Delphi method – Experts rank different potential future outcomes and through an
iterative process these predictions are refined until a prediction of what the future
may hold is reached.
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• Emergent strategy – Managers see opportunities and shift the organization to
that new direction.
• Financial controls – Focus on gaps between the desired financial outcomes and
the actual outcomes.
• Quality circles – A group of workers who meet on a regular basis to discuss
ways of improving the quality of work.
• Balanced Scorecard – A system that summarizes an organization’s strategic
objectives into four main performance metrics: financial, internal processes,
customers, and learning and growth. These perspectives provide feedback on the
execution of the strategic plan.
II. SUMMARY
1. Key Concepts:
• This chapter has established the fundamentals of evaluation and control in the
international firm.
• The international firm must have systems and procedures in place to evaluate if
those goals and objectives are being met. This is the role of evaluation.
• Once a firm conducts its evaluation, it then needs to determine an appropriate
course of action: to do nothing, change the goal, or change the strategic actions it
is taking to achieve that goal.
• Firms now have a number of new measures at their disposal that come from
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END-OF-CHAPTER GUIDE
* MANAGERIAL GUIDELINES
* OPENING VIGNETTE DISCUSSION QUESTIONS
* DISCUSSION QUESTIONS
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MANAGERIAL GUIDELINES
• Evaluation and control in practice is an ongoing process that happens with the
two processes intertwined with each other.
• Goals and objectives are not set in stone—they should adjust as the environment
changes.
• Managerial actions must also be open to change.
• While the firm is constantly evaluating itself on current actions and future
OPENING VIGNETTE DISCUSSION QUESTIONS
1. What are some of the ways that an evaluation and control system can prevent
problems like those at Barings?
2. What happened to Barings in the end?
Netherlands-based ING purchased Barings Bank in 1995 for the nominal sum of
3. What do you think of the fact that Leeson is out of jail, has now written a book,
and had a movie made about his experience at Barings? Or that he charges
thousands of dollars to speak to groups about motivation and proper financial
measures and controls?
Student responses may vary. Some students may be particularly upset with the
DISCUSSION QUESTIONS
1. Based on the concept of “denominator management” by famed strategists C.K.
Prahalad and Gary Hamel list five ways firms can increase short term return by
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increasing the ‘‘R’’ portion of ROI. Which of these may be harmful to a firm’s
long-term strategic position and why?
Denominator management occurs when a firm tries to increase its return on
2. Why do individuals rely so much on financial controls in an international
business?
There are four principal mechanisms commonly used to directly exercise control
3. An Asian executive feels that the American consumers must be influenced to
follow the Chinese way of having instant jook [a rice porridge] in the morning. Is
trying to change how meals are taken in America a good path to profitability and
growth? Why or why not? Shouldn’t firms try to educate customers about better
ways to live (including the buying of their product)?
Refer the discussions on persuasion and influence in Chapter 10. Profitability
4. This chapter covered how the board of directors and CEO play a key role in the
evaluation and control processes of an international firm. It was discussed in
Chapter 3 that the Sarbanes Oxley Act has had a major impact on how a board
and CEO act. What are your thoughts on how this has affected their ability to
conduct their evaluation and control activities?
Student responses will vary. The Sarbanes-Oxley Act’s major provisions include:
IN-CLASS EXERCISES
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1. Research on consumer purchase patterns at a fast food restaurant presents
confusing and unclear findings. You are charged to make a report to management
on these findings. Why do you think the results collected are so confusing? If you
were to study the problem yourself, how would you explain why customers are
buying milkshakes? And how could your fast food employer benefit from
knowing this?
Student answers may vary.
2. After answering the above question, consider how you would increase milkshake
sales. What would you change about the product to fit with the current situation?
What about the packaging? What about adding new flavors? Be sure to explain
your recommendations.
The strategy adopted should fit in with the overall strategy of the firm. Evaluating
3. Someday you may work for a global firm from mainland China. How do you feel
about that? How different do you expect it would be from working in a firm from
your country? (If you are from mainland China, then change the global firm to a
U.S. firm to answer the question.) How might the evaluation and control systems
differ in the two countries?
4. Divide into teams. Each team is to take on the role of a different part of the world
or major country in a region (United States, Europe, United Kingdom, Asia,
China, Middle East, Egypt, etc.). Based on what you’ve learned in this class about
different cultures in these regions, what type of evaluation and control system do
you think would be needed in that region? Come together as a class and design
TAKE-HOME EXERCISES
1. What is denominator management? How can a firm practice it? Why is this a
problem? Find an example of this on the Web. Recognize that the popular press
may not use the term denominator management. Instead you will likely have to
search on phrases like ‘‘underfunding of R&D,’’ ‘‘focusing too much on short
term profits,’’ etc.
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2. Do some research on the problems of control in China, specifically problems with
the financial reporting system there. Prepare a summary of the key items that your
boss would need to know if he or she were charged with finding a company to
acquire in China.
The accounting standards for an international firm can vary. It is critical in
3. One of the major environmental changes in recent years for the food industry is
the fact that nearly one third of all meals are eaten in the consumer’s automobile,
usually breakfast. Assume you are a manager of a breakfast cereal firm. What
issues do you face as a result of this sea-change in eating habits? How would you
respond to it?
4. Research a country with a reputation for high levels of corruption, such as
Nigeria, Russia, or Pakistan. Detail the nature of the corruption that has been
reported in the country for your boss in a page or so. Then provide a suggestion
for how the firm you both work for may deal with such issues as you begin to do
business there. Focus particularly on the evaluation and control system that will
be needed to prevent a situation like Barings from occurring.
Previous discussions on evaluation and control should add perspective to the
SHORT CASE QUESTIONS
1. Why do you think the Citigroup CEO went to Japan to bow and apologize since
such behavior is not traditionally American?
Persuasion and influence strategies need to consider the cultural differences
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2. Do you think Europeans may have been more forgiving than the Japanese about
the withdrawal of the private banking license? The Canadians?
3. Why do you think the firm did not respond strongly when the problems were first
found in early 2000?
Common issues in decision making could have led the management to ignore the