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What Kind of Management Control Do You Need?

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What Kind of Management Control Do You Need?

05/04/16 18:48

CORPORATE GOVERNANCE

What Kind of Management
Control Do You Need? by Richard F. Vancil
FROM THE MARCH 1973 ISSUE

A good method of measuring a manager’s financial contribution to a company must meet two criteria. It must seem fair to the manager, and it must reward him for working for the benefit of the whole company, not just his department or division. Although simple in theory, these criteria become difficult to meet in practice. The characteristics of the business may lead managers to work at cross-purposes; moreover, the strategy of a business should have a profound effect on the kinds of decisions made. In this article the requirements of designing effective management control systems are examined in both simple and complex organizations. Pointing to realities with which businessmen are familiar, the author seeks to guide executives in weighing the advantages and disadvantages of functional forms of organization, product division forms, and the socalled matrix concept of organization. He points out that profit centers are by no means a universal answer, however appealing they may be in principle to business leaders.

P

rofit centers are a major tool for management control in large industrial corporations. They possess important advantages:

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What Kind of Management Control Do You Need?

05/04/16 18:48

1. Profitability is a simple way to analyze and monitor the effectiveness of a segment of a complex business. For example, a product division competes in the marketplace against several other companies in its industry, and also competes among other divisions in its company for an allocation of corporate resources for its future growth. Relative profitability in both types of

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