Chapter 8 Summary
Running head: CHAPTER 8 SUMMARY 1
CHAPTER 8 SUMMARY 2
Chapter 8 Summary
Chapter 8 Summary
U. S. Bank Regulation
The government acted as a sponsor of Fannie Mae and Freddie Mac. These organizations eased the operations with mortgages. Together with other firms they purchased mortgage contracts from companies that signed them with homebuyers. It was rather profitable. Restrictions concerning qualifying for mortgages reduced, and people who could not afford it before, started to purchase homes. Such mortgages were purchased in other countries, as well. It resulted in huge losses everywhere that caused the deregulation of banks. The influence of the government on banks decreased. Financial crisis caused the increase of corporate restructurings.
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Strategic Control Systems
The author provides the definition of this concept. Accounting measures, including return on investment, are the basis of some control systems. However, some experts consider them ineffective. Even if they are efficient for a short term, they may turn counterproductive for managers for a long-term perspective. It is not easy for managers to interpret accounting data, but it is much more difficult for shareholders to do this. A certain balance between all types of control should exist. Technological advance allows companies to employ so-called bottom-up control systems. Strategic control involves such types of control as feedforward, concurrent, and feedback.
To implement the process of strategic management, a manager should create goals and observe their causes and effects in order to define whether the results are much higher or much lower than expected. Feedback controls have several significant functions in companies. The author distinguishes four types of this system: budgets, ratio analysis, audits, goals and objectives. There are six steps to establish it. At first one, a manager must have goals, which should be broadened. Then he/she has to think about the outcomes that each goal will lead to and identify how much time it will take to achieve the result. The following step is to divide the responsibility for each objective between different managers. Then there is a necessity to create a plan of actions to reach each goal. Finally, he/she should monitor each managers progress. The authors description of every step is detailed. While depicting the first one, the author mentions the elements that make feedback control effective. They are purpose, vision, and mission. A manager should come to a conclusion about the subject affected by the achievement of those elements and the way the subject affected. The author mentions that ambitious objectives may involve both the customers and shareholders targets. To reach it, managers who are in charge of its achievement should participate in setting this target. Effective targets have eight characteristics. Firstly, it is motivating only if it is high. Secondly, a target should be realistic. Thirdly, it should be specific. Fourthly, an effective target can be measured. Fifthly, all managers and workers affected should understand them. Sixthly, they should participate in setting them. Seventhly, managers and workers should constantly report about the progress of their achievement. Lastly, an effective target is time-bound. Regular review is the final compound of the establishment of feedback controls. If one of the components of the plan fails, a manager should determine its reasons and possible actions that may help to improve the situation.
Concurrent controls have many similarities with feedback controls, but unlike latter, they are oriented at the current-time processes. The most widely-spread sorts of concurrent controls are connected with quality standards, services processes, and production. Other its sorts are related with order taking and inventory levels. The author provides two examples of companies with inventory systems and describes how they operate. Another sort of concurrent controls is connected with behavioral control. the latter can be subdivided into clan and bureaucratic controls. The latter contain procedures, policies, and rules that predetermine employees behavior. Clan controls are socialization processes that make an employee appreciate the abilities, expected behaviors, and values of a company.
Feedforward controls are systems that monitor things. If the company is large, its information systems help to manage them. Sometimes they are also called tracking or surveillance systems. They are significant because economic, political, social and technological environments constantly modify, and the company should adjust to these changes. The basis of a companys strategies is the assumptions concerning future events, in other words, premises that require control. This control allows companies to keep their goals and strategies up-to-date and can be considered as the means for implementing them.
Comprehensive Strategic Control Systems
These systems should involve concurrent, feedback, and feedforward controls. To be effective, they should involve four elements. Firstly, top management should have an access to the generated information. Secondly, operating managers should frequently pay attention to the control process. Thirdly, employees should discuss and interpret the data directly. Finally, its success depends on constant debate. Multinational corporations should also take into account national culture while planning these systems. According to Hofstede, there are five dimensions that distinguish national cultures: Power Distance, Individualism or Collectivism, Masculine or Feminine, Uncertainty Avoidance, and Confucian Dynamics. Consideration of the national culture will make strategic control systems effective. If the performance of the company does not match the expectations, the manager should initiate restructuring.
Strategies are not flawless. Even the success of a company requires change. According to the research, evolving companies go through a cycle that includes two processes convergence and radical adjustment or orientation. The first one makes managers create mental models, in other words, mindsets that determine the way the company operates. However, mental models may make managers refuse from changing, especially in the music and movie production, automobile and camera/film industries, as well as in retailing segments. Convergence may never stop. However, a crisis may help the company to renew. In that case the company may refocus corporate assets, retrench, make changes to the companys internal structure, or opt for a leveraged buyout.
Refocusing Corporate Assets
External shareholders favor refocusing activities. According to the research, companies that restructure tend to reduce rather than increase the diversification. A sell-off is a kind of divestiture when another company or managers of a particular business unit buy it. Another type of divestiture is a spin-off.
Retrenchment is a strategy that involves labor shedding, closing plants that do not bring income, outsourcing ineffective activities, making quality or cost controls tighter, and implementation of new efficiency or quality policies. Labor shedding is common for retrenchment. Nowadays downsizing concerns middle management, but earlier workers got laid off hourly.
Chapter XI Reorganization
Chapter XI of the Federal Bankruptcy Code is designed to protect companies that have serious financial difficulties. A federal court supervises a proceeding for a company to create a plan and solve the problems. Chapter XI has a serious disadvantage: after filing, a court will watch all managers substantial decisions.
A leveraged buyout is a process of buying a particular business unit by private investors, unions, employees, or managers. Researchers have different views concerning the effectiveness of leveraged buyouts. For them to succeed, the price and financing of the company should be right, management should be prominent, and stakeholders should be treated fairly.
Organizational structure can act as means of restructuring. It enables to decrease the pressure on top managers. Companies often implement a combination of several approaches of restructuring.
Dealing with Economic Cycles
Such phenomenon as an economic cycle is widely-spread. Government can help, but it cannot solve all problems. Thus, economic growth intersperses with economic shrinking. Economic growth makes producers increase the supply. Economic shrinking causes financial stress for less effective companies, so they partly adjust the strategies to deal with economic cycles. To succeed in dealing with them, a company should have business cycle orientation that involves Business Cycle Literacy, Forecasting Resources, a Facilitative Organizational Structure, Business-cycle Sensitive Management Principles, and Supportive Organizational Culture. The existing of a strategy may also be helpful. According to the research, a downturn may lead to the increase of returns, whereas Globalization will cause many challenges for managers.