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Read Chapter 9, especially the parts associated with contemporary strategic controls, informational and behavioral controls. Then, read the following case and answer the questions that follow.
Once strategy is formulated, it must be implemented, and part of implementation is establishing a mechanism for monitoring and correcting organizational performance.
This control mechanism must be consistent with the strategy the firm is following.
How does a firm make sure all key stakeholders are moving in the right direction?
Strategic Control Mechanisms
Strategic control involves monitoring performance toward strategic goals and taking corrective action when needed via effective systems.
Informational-control systems
Behavioral-control systems
Corporate governance
Strategic Control: Traditional Approach Model
The traditional approach to strategic control is sequential.
Strategies are formulated, goals are set.
Strategies are implemented.
Performance is measured against predetermined goals.
Strategic Control: Traditional Approach
Traditional approach to strategic control = feedback loop from performance measurement to strategy formulation
Involves lengthy time lags, “single-loop” learning
Most appropriate when:
Environment is stable and relatively simple.
Objectives can be measured with certainty.
There is little need for complex measures of performance.
TStrategic Control: Contemporary Approach Model
Strategic Control: Contemporary Approach
Informational control = Is the organization “doing the right things”?
Behavioral control = Is the organization “doing things right” in the implementation of its strategy?
Both types of control are necessary, but not sufficient, conditions for success.
Strategic Control: Contemporary Approach Effectiveness
Contemporary control systems using informational control are effective when:
Focus is on constantly changing information that has potential strategic importance.
Information is important enough to demand frequent & regular attention from all levels.
Data & information are interpreted & discussed in face-to-face meetings.
Control system is a catalyst for ongoing debate about underlying data, assumptions & plans.
Informational Control: Issues
Informational control deals with both the internal & external environment.
Do the organization’s goals and strategies still “fit” within the context of the current strategic environment?
Two key issues:
Scan & monitor the external environment
Continuously monitor the internal environment
Informational Control: Characteristics
Informational control = ongoing process of organizational learning
Focus is on constantly changing information – continuous monitoring, testing, review.
Data is interpreted and discussed face-to-face.
Ongoing debates challenge assumptions.
Time lags are shortened.
Changes are detected earlier.
Speed & flexibility of response is enhanced.
Behavioral Control: Culture
Organizational culture is a system of:
Shared values (what is important).
Beliefs (how things work).
Organizational culture shapes a firm’s people, organizational structures, and control systems.
Organizational culture produces behavioral norms (the way we do things around here).
Behavioral Control: Role of Culture
Organizational culture sets implicit boundaries regarding:
Dress
Ethical matters
The way an organization conducts its business
A strong culture
Leads to greater employee engagement
Provides a common purpose and identity
Reduces monitoring costs
Behavioral Control: Rewards
Reward systems & incentive programs:
Powerful means of influencing an organization’s culture
Focusing efforts on high-priority tasks
Motivating individual & collective task performance
Can be an effective motivator & control mechanism
Behavioral Control: Downside of Reward Systems
Potential downsides to reward systems:
Individual actions are not related to compensation; employees are rewarded for the wrong things.
Different business units have differing rewards systems.
Behavior reinforced within subcultures may reflect value differences in opposition to the dominant culture.
Reward systems may lead to information hoarding, working at cross purposes.
Case:
Toronto-Dominion Bank and Strategic Control
The Toronto-Dominion Bank of Canada is among the world’s leading multinational banking firms. Its TD Bank subsidiary is a major player in the U.S. retail-banking space, where it has enjoyed phenomenal growth since it was established in 2008.
In October 2012, TD Bank faced a challenge when it suffered a massive data breach. A set of backup tapes containing over 1.4 million files were lost. The tapes, which were not encrypted, contained the personal information of some 260,000 of TD Bank’s customers, and their loss exposed these customers to possible identity theft. Accused of having failed to adequately protect its customers, TD Bank agreed to pay a penalty of $850,000 in a multistate settlement to resolve its data breach shortcomings. The settlement also required that TD Bank implement new precautionary measures against further breaches. Unencrypted backup tapes could no longer be transported, existing security policies had to be reviewed every six months, employees were to receive more training to detect and prevent situations leading to breaches, and customers had to be informed in a timely manner if there was a potential their data had been stolen or lost.
TD Bank’s new measures were successful at preventing any further breaches between 2012 and 2014, and the bank continued to grow. However, its parent company, Toronto-Dominion, was experiencing some difficulties with its costs. For example, in 2014 Toronto-Dominion’s workforce increased 3 percent, but its total salary and employee benefit costs increased 10 percent and its incentive compensation grew 18 percent.
Toronto-Dominion was not happy with these trends. Company spokeswoman Crystal Jongeward stated: “We review our operations on an ongoing basis. We make adjustments to meet the evolving needs of our customers and run our businesses effectively.” The company started selectively cutting certain management jobs, including vice president roles and some IT positions. The bank also hired a third-party consultancy to review its operations, a move that suggested cost-cutting initiatives were going be system-wide, not just sporadic.
Anticipating slower growth in 2015, new CEO Bharat Masrani signaled that controlling costs would be a high priority. Soon after assuming his new role, Bharat Masrani informed employees and investors alike that the bank would be looking across the organization to identify efficiencies. During the last quarterly earnings call of 2014, he said “I’m determined we will redouble our efforts to increase efficiency and streamline our cost base. This will be an important area of focus in 2015.”
Sources: Chen, A. 2014. TD Bank to pay $850,000 in data-breach settlement. wsj.com, October 15: np.; and Trichur, R. and Dummett, B.. 2015. TD Bank reviewing costs: More layoffs possible. wsj.com, February 12: np.
Questions:
What is a traditional control system? What is a contemporary control system? How are they different from each other?
Define the following terms and provide 1 example for each.
Informational controls
Behavioral controls
What type of strategic control system Toronto Bank is using? Explain why u picked that particular control system for the bank. Present evidence from the case to support your selection.
What measures the bank took after its data breach? Why do you think these measures were successful to prevent future problems? In answering this question please incorporate your knowledge about behavioral controls into the answer.
CEO Masrani hires you as a consultant and ask you for an advice to improve efficiency at his bank. What would be your best recommendation(s) to achieve this task?
