Chapter2

Strategic Planning, Management

Control and Operational Control

2.1 STRATEGIC PLANNING

Strategy is a plan or design for achieving one's aim or the use of skillful planning to secure
one's own advantage,
as in war, business or politics. Strategic planning sets the guidelines
for management control and management control sets the guideline for operational control.
The complete management function involves an integration of the three processes-Strategic
planning, Management control and Operational control. All these three processes are
complementary.
According to Robert J. Anthony, "Management control is the process by which managers
assure that the resources are_obtained and used effectively in the accomplishment of the
organization'sobjeetives". But prior to utilizing the resources, there should be proper planning.
that is, the process of deciding how to combine and employ resources. It is the process
of formulating long-range policy-type plans that change the direction and character of the
organization. It affects or sets the goals and the broad strategies that are to be used in
attaining these goals.
Strategic planning decisions affect the physical, financial and organizational framework

within which the operations are carried on. A typical organizational structure indicates three
levels of management as shown in Diagram 2.1.
level, whereas operational control is
Strategic planning is the function of the Top
exercised in the lower level management and shop-floor level. Management control is practiced

ne middle management level touching the bottom of the top-level and top of the lower
level.
which results in identitying
ain activity of strategic planning is strategy-formulation, of
08is, strategies and policies. Management control activities result in the implementation
7. Activities ot
Strategies and policies. This aspect will be discussed in detail in Chapter
 MANAGEMENT CONTROL SYSTEMS
10

Top level

Middle management
level

Lower/shop floor level

Diagram 2.1 The three levels of

management.
operational control result in the efficient and effective
operations. The aforesaid
relationships between
implementation of individual tasks or
the help of the planning and control can be explained
Diagram 2.2. with

Strategic planning
Top level

Middle management
level Management control

Lower/shop floor level

Operational
control
Diagram 2.2
Relationship between planning and control.
2.2 PLANNING AND CONTROL
As mentioned in the previous
financial and organizational section, strategic
framework within whichplanning decisions affect the
operations are carried out. physica
the strategic the
planning process differs from the
Let us consider a few of them: Howevc
management control process in several
(a) X wa
stragetic plan usually relates to
production, marketing, product-line,some
new
particular part of the organization, suc"
entire business. But business, merger, etc.
control exists and is exercised It never covers
having activities and using,resources. in all parts u
of the organiza0
 11
STRATEGIC PLANNING MANAGEMENT CONTROL AND OPERATIONAL CONTROL
hsut o opp.
starts when a need
(b) Strategic planning is unsystematic and irregular. The process
arises due to some perceived threat or an opportunity, or a new idea occurs in

someone's mind. But operational controls are exercised systematically throughout

the year, so that programmed activities indicate the results as per desired objectives
(e.g. as givén in the budget).
but exercised
(c) Strategic planning 1s prepared by the Top-level executives, control
is
by the Middle management and Lower-level executives at the shop-floor. Thus,
planning involves only a few from Top-level management, but the control process
covers the entire Middle- and Lower-level managers.
collected from outside
(d) Strategic planning is primarily based on external information
the organization such as government notifications, new enactments, technical journals,
etc. But the control is exercised on the basis
of internal
market research papers,
information collected through the hierarchy by both formal and informal ways.
in strategic planning are obviously rough
(e) Therefore, data and estimates used use
for future But operational or task control systems
happenings.,
approximation
accurate, actual and current data.
is simple,and straightforward
(t) In strategic planning, the communication process is
executives only. If the strategy
since the strategy is confided with a few top
itself demands limited communication.
strict'y confidential, maintenance of secrecycommunication of policies, objectives,
But in management control_process, the
is extremely important, because
guidelines and decisions down the lines of authority
the unit to implement the strategies
members of
the managers have to influence other
and attain the desired results.
at long-term policy withwith aspecific
no time frame, but all
(g) Strategic planning aims specific time limit within
control processes aim at
short-term objectives
which the task has to be completed.
associate themselves
the Middle-level management groups
It may be mentioned that some of have more important
with the Top-level executives in strategic
planning process, but they
of the operating managers are
control than in strategic planning. Many
roles in management to day work
work. Besides, they have so much pressure of day
not very good at planning often a core group of
in the planning process. That is why,
that they cannot participate for strategic
with the responsibility of preparing basic papers
Senior managers is formed
from outside as well as fromn
with relevant facts and figures
information
plan by collecting
internal data and reports. sometimes viewed as contlicting
control activities are
Strategic planning and management future, while the latter
because the former is using time and energy on
WIith one another, could
activities. It is argued that
if time wasted for the planning
1s concentrating on current spent in
woutd have enhanced or that money
activities, then the profit
beused for current
could add to current profit^
This type of problem is
tackled

Tuture plans and programme for five or seven years, along

with prepar1ng an
LOday by preparing a long-term plan, say Carbide India Ltd. used to prepare
Annual
Union
or Business Plan. In sixties,
Budget five Use
annual Statements and Balance
Sheets for years.
Susiness Plan complete with Income taken today.
indicates a perspective of decisions
long-term
Or a five-year plan period
 CONTROL SYSTEMS
MANA GEMENT

12
fifth year are tentative, and will never form
never form actual
However, all figures from second to plans
for those years.
different functions. For management control, e
Planning and control
are two
who also exercise control
nount
unt
of planning
their has to be
subordinates.
undertaken by the same managers
It is said that "all levels of management should participate in planning
by using
have neither time nor inclination or analytical bent of m
But the operating managers while setting Standard co
is needed for formulating strategic
plans. In early seventies,
company, the newly appointed Co.g
and Budgetory control system in a renowned cigarette roller
decades. Re-educating the entire supervi
found that the supervisors had stopped thinking for
formidable task for him which
he did admirably.
staff was a

2.3 OPERATIONAL cONTROL

Operational control is the process of assuring that specific tasks are carried out effectively
and efficiently. Focus of operational control is on individual or specitic tasks or transactions.
Examples are scheduling and controlling a job, procuring an item of inventory, controlling
a personnel action such as taking an interview.

Activities are planned and programmed in advance. They are measured in terms of input
and output. Inputs are the resources that output consumes. Output are the goods, services
and other effects created by the organization. Let us take an
In
example
metallurgical industry, several virgin metals are melt in an electric furnace and the
molten metals are poured in a casting mould of a billet. Within
fËve minutes, the molten
metais solidify and the billet is taken out of the mould with the
Thereafter, the knob (which is created for
help of moving lift.
pouring molten metals) is broken and the billet
is stored for transferring to the next
proces. The furnace has the capacity of melting
1000 kg of metal. At the end of each round of
and some residue called zinc ash is
casting 8 billets, the furnace has to be cleaned
collected from the bottom of the furnace. It has market
value and is sold outside.
In the plant, Standard
Costing System is used to control the
output are planned and programmed in the operations. The input and
following way:
Input
Output
Zinc 840 kg Billet 8
Lead 60 kg pes. @ 112 kg 896 kg
Cadmium 20 kg
Scrap 8 Pcs. @ 12 kg 96 kg
Process Scrap 80 kg
(Knobs)
Zinc Ash
Total 8 kg
1000 kg Total
1000 kg
The entire process is broken down
into several
inputs, charging metals into furnace, tasks or
preparing mould for operations, such as, weighing
bring1ng billet out of the casting,
the mould through the knob, pouring molten metal
cleaning the furnace after casting 8 Dillets, mould after breaking the into
collecting zinc ash, taking knod,
weight of knobs and
 STRATEGIC PLANNING MANAGEMENT CONTROL AND OPERATIONAL CONTROL | 13

zinc ash, and stacking billets for inspection and quality check. All of the aforesaid activities
will be recorded in appropriate reporting format and finally, the input and output will be
reconciled.
Under operational control, the pelationship between the output andinputcan be established
objectively as observed in the above illustration. This does not imply that this input-output
relationship is absolute and remains unchangedunder any circumstances. Improved machinery,
better materials, new techniques, etc. can alter the input-output ratio at any time. The
optimum is that the combination of resources, out of all the possible combinations, that
produces the product at the lowest cost. If the optimum input-output relationship for a gven
activity can be predetermined, then the inputs that should be used in a certain set of
circumstances can be programmed, and output can be measured and compared against such

input. These expenses are, therefore, named as 'programmed cost' or 'engineered cost. It
is a rational system, because action to be taken is decided by a set of logical rules. Control
is easier because of the use of scientific standards with which the actuals can be compared.
of
However, when the choice of relationship between the output and input is a matter
subjective judgement, e.g. Legal expense or Advertisement and Sales promotion expenses,
incurred for such activities
it comes within the purview of Management Control. Expenses
are called Discretionary expenses. On the other hand,
the costs whose optimum amount can
or Managed costs.
be estimated ebjectively as given in the illustration are Engineered
where input-
Operational control is applicable to direct activities of manufacturing plants the
not to
be established and definite tasks can be identified, but
output relationship can

indirect activities and indirect expenses like production planning, purchasing, inventory
etc. The latter activities, come under
control, order processing, billing, payroll accounting,
of the latter activities operational
the perview of Management control. Again, in some parts
number of purchase order typing per day
or task control is applicable. In Purchase section,
of supplier's bills can be determined, but the
can be programmed o r in Accounts, passing
departments is
entire section's work cannot be pre-determined. Hence, control on operating
could be areas where operational control can be
basically management control, but there
activities having input-output relationship can be
exercised partially, because some of the
programmed.

2.4 MANAGEMENT CONTROL

the process by which managers influence other

Management control has been defined as
their strategies, and also assures that the
members of their organizations to implement The
resources are obtained and used effectively
and efficiently in achieving its objectives.
process of management control is carried on within the
framework outlined by strategic
and efficiently as
planning. It is intended to achieve the planned objectives as effectively
possible within the given parameters.
Control brings out the tollowing
An analysis of the above definition of Management
salient features:
of process and a 'structure'.
Management Control system consists
a
(a) Process. A
programming,
such as
h e process refers to the set of actions that takes place,
 MANAGEMENT CONTROL SYS7EMS

reporting,
analysing and communicating
analysing

set-upP indicating 1
measuring,
set-up
14 performance organizational
o r g a n i z a t i o n a l

operating.
the
to the
refers a c c o u n t a b i l i t y .

budgeting. s t r u c t u r e

i n f o r m a t i o n .
The
responsibility
and
control ol is
Is a p rocess
process for the
t use of
Management

authority,
delegation,

are
management.
managers
as well as with bordina
mates
(b) Managers. They
ne interaction
between
which fixes the
fixes the goals, objec
goale

involves planning
process theeves
It ntended to achieve
achieve these
managers.
refer to
strategic
process
is intended
goals
They Control
Strategies.
(c) Management

its strategieseffecti.
The
and policies. carries out its strategies effectiv
organization
and objectives. assure
that the the work
perform the
personal
personally,
that the
managers managers
The
(d) Assures. not mean and subordinates
s.
This does other managers
and efficiently. done mostly by for doin
the work by its customers g the
Actually, they
get satisfaction expressed
the
It indicates the
customers.

()Effectively.
and in a
manner desired by maximum output with minimum
job in time the skill of producing
()Efficienthy. It refers to
input per unit.

MANAGEMENT CONTROL
FEATURES OF
CHARACTERISTIC
2.5
SYSTEM
centres', A programme means and
(a) It focuses on 'programmes' and 'responsibility
undertake to
and services that an organization
project, products, goods
includes a
of an organization
centre is an unit or sub-unit
achieve its goals. Responsibility
a manager, who becomes responsible
and accountable for the
usually headed by
activities of that unit or sub-unit. Responsibility centres constitute organization
structure, which will be discussed in detail in the next chapter.
data and
(b) For the purpose of control, managers use two types of data, viz. planned
actual data. Planned data relate to estimate, budget, standard and forecast details or

future events or activities.

(c) The control process is a set of actions such as programming, budgeting, monitoring
evaluat1ng, analys1ng and reporting. It is a continuous or an on going process.
the navigator in an aircraft or sea
as
voyage continually takes reading to _ascerta
whether or not he is relative to a
planned course, so should the business manag
continuous takes reading to assure himself that his enterprise or department 1S
course" (H. Knootz and C.
O'Donnel-Principle
be taken up in details in the next chapter.
of Management). This process*
(d) It is a 'total system covering all
aspects of a company's is
importantbecause management function assures that all operations. one
another. Unless management obtains parts are balanced wl
between all the activities is not information about each of them, cooraue
(e) The system is normally coordinated
possible.
and
can be used by other units for some integrated so that the same set of inforn ation
other
collected for one purpose may differ from purpose. It means that although tnc data
those collected for pose,
some other pu
 STRATEGIC PLANNING, MANAGEMENT
CONTROL AND OPERATIONAL
CONTROL 15
these data should be reconciliable
with one another. In fact, Management Control
System is a set of
interlocking sub-systems generating a single system. While
designing reporting format, this aspect is carefully considered by the systems manager.
(f)The system is usually designed with financial figures and not with
physical which
input and output. Because, monetary unit is the only common denominator
units of

can be used to
express heterogeneous input and resources, such as, kgs.,
pcs., litre,
machine-hour, labour-hour, etc. However, reports of non-monetary measures, such
as, units per operation, output
per labour, defectives and spoilage per unit of output
are also
important part of the system and therefore, must be included.
(g) The system tends to be rhythmic, not ad hoc, one-time or occasional. It follows
a regular time table like daily, weekly, fortnightly, monthly, quarterly, half-yearly and
annual, year after year. In the budget preparation, actual operations, reporting and
reviewing, the procedure to be followed at each step in the process-the time table
for completion for each step, the type of formats to be used for reports-all are
set in a policy and procedure manual. All reports are prepared and forwarded to the
persons mentioned in the circulation list at regular intervals.
(h) Line and staff managers are equally involved in the control process, but more
significant decisions are made by the line managers, not by the staff managers. Staff
people collect, summarize and present information that are useful in the planning
process and system design, but the line manager's judgements are mostly incorporated
in the approval plans, because they are the persons who will influence others and
their performance will be measured. Line managers are, therefore, the focal points
in management control.
) GW. Dalton and P.R. Lawrence added two other features in Management Control
System:
(a) Reciprocity. Every living being tries to control its environment as a mean of
fulfilling its needs, who in turn, must be controlled by someone. If anyone
refuses to be controlled by the other, he loses the control he has. It is the
reciprocal nature of the exchange that makes the control effective.
(b) Expansibility Control in an organization is a variable rather than a constant
element, because it can expand or contract. The influence of an individual in the
organization changes from time to time. Similarly, an organization's influence in
the environment fluctuates.

Finally, the purpose of a Management Control System is to encourage managers to take

actions that are in the best interests of the company Although systematic, the Management
Control System is by no means mechanical. The process involves interactions among
individuals. There is no mechanical way of describing these interactions. Again, managers
have their personal goals. The key control problem of management control system is to
induce them to act so that when they seek their personal goals, they help to attain the
organization's goals also. This is called Goal Congruence, which will be elaborated in
Chapter 7.
 16 MANAGEMENT CONTROL SYSTEMS

2.6 sOME DISTINCTIONS BETWEEN STRATEGIC PLANNING

AND MANAGEMENT CONTROL

Characteristics Strategic Planning Management Control

a. Focus of plans On one aspect at a time On entire organization
b. Complexities Many variables, hence complex Less complex
c. Structure Unstructured and irregular, Rhythmic, definite pattern,
each problem being different set procedure
d. Nature of Tailor-made for the issue, more Integrated, more internal and
information external and predictive, less historical, more accurate
accurate.
e. Communication of
Relatively simple Relatively difficult
information
f. Purpose of estimates Show expected results Lead to desired results
g. Persons involved Staff and top management Line and top management
h. No. of persons Small
involved Large
i Mental activity
Creative, analytical Administrative, persuasive
j. Planning and control Planning dominant but Emphasis on both planning
some control
and control
k. Time horizon Tends to be long
L End result
Tends to be short
Policies and precedents
Action within policies laid
m.
Appraisal of job done
Extremely difficult Less difficult

2.7 SOME DISTINCTIONS BETWEEN OPERATIONAL

AND MANAGEMENT CONTROL CONTROL
Characteristics Operational Control
a. Focus of plans
Management Control
Single task or transaction On entire organization
b. Nature of information Tailor-made to
often operation, specific, Integrated, more internal
C. Persons involved
non-financial, real time and historical, more accurate
d. Mental activity
Supervisors
Follow directives Line and top management
or none as in
case of machines
or set
Administrative. persuasive
e. Time horizon Day to day objectives
f. Type of cost Tends to be short
Engineered-Existence of
objective standard against Discretionary-Control 15

which actuals can be more ditficult due to

makes control easier compared Subjective consideration
 STRATEGIC PLANNING, MANAGEMENT
CONTROL AND OPERATIONAL CONTROL
17
SUMMARY

1. Management Control is the process

by which managers influence other members of
the organization to
implement the organization's strategies, and also assumes that the
organization carries out it's strategies effectively
and efficiently.
2. General relationships among Planning and Control functions can be analysed in the
Diagram 2.3.

Functions
Activity Nature of End Results
1. Top level
2. The least systematic
3. Long-run focus
4. Uses rough approximation Strategy Goals, Strategies
for future Formulation and Policies
5. Process of planning
more important

Planning and control

equally important
Management| Implementation of
Control strategies

1. Lower level
2. The most systematic
Task or Efficient and effective
3. Focus-short-run
operational activities Operational implementation of
Control individual tasks
4. Uses accurate current data
5. Control more important
Diagram 2.3 Relationship between planning and control functions.

Managegent control fits in between the other two activities, i.e., strategy formulation
and task/operational control in several aspects, such as:
(a) Strategy formulation occurs at the top management level while task control is
exercised at the lower levels and management control is in between the two
levels.
(6) Strategy is the least systematic, task control is the most systematie and management
control is in between.
(c) Strategy formulation focuses on the long run, task control in the short run and
Management control is in between.
(d) Strategy uses rough estimates of the future, task control uses current actual
and control is in between.
(e)
accurate data, Management
Planning and control are involved in each of the activities, but the emphasis
varies with the type of activity. The planning process is much more important
in strategy formulation, the control process is much more important in task
control and planning and control have more or less equal importance in management
control.
 SYS
CONTROL

MANA GEMENT
should
18 mean that the
action
conform toto
cone

situation, whie
Control does
not necessarily
based on an
anticipated tuation, which may
budget is etter y
bette
3. Management discovers a
or
or a budget. A plan If a manager
way
plan performance. him/heray
a
not exist at
the time of
System
should not prohibit rohibit him/her from
may Control
or
the Management onforming to the budget/p
Contorming budget/e
required.
of performing,
fashion. Approval
may be ha
that from a budget
is not necessarily
operating in departure
is not necessarily
good and a the Management Control System
Although systematic,
considerations. individduals.
Behavioural involves
interactions among
4. The process
mechanical.
means interactions.
is by no
describing these
mechanical way of Control
or Management
There is no Main problem
have their personal goals.
Again, managers so that when they seek their personal goals, they
is to induce them to act Goal Congruence.
System also. This is called
to attain the organization's goals
help
5. Framework for Strategy Implementation:

Implementation Mechanism

Management
controls

Human
Organisation resource
Strategy structure Performance
management

Culture

Diagram 2.4
Implementation mechanism.