Management Contract


The Management Contract is an arrangement under which a company provides managerial know-how in some or all functional areas to another party for a fee that ranges from 2 to 5 percent of sales. International companies make such contracts with 1) firms in which they have no ownership, 2) joint venture partners, and 3) wholly owned subsidiaries. The last arrangement is made solely for the purpose of allowing the parent to siphon off some of subsidiary’s profits. This becomes extremely important when, as in many foreign exchange poor nations, the parent firm is limited in the amount of profits it can repatriate. Moreover, because the fee is an expense, the subsidiary receives a tax benefit.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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Basic Organizational Structures


Although there is an almost infinite variety of structural forms, certain basic types predominate in modern complex organizations. There are three basic organizational structures. The conglomerate structure is a variant of divisional structure and is thus not depicted as a fourth structure. Generally speaking, each structure tends to support some corporate strategies over others.

  • Simple Structure has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operates in a reasonably small, easily identifiable market niche. Employees tend to be generalists and jacks of all trades.
  • Functional structure is appropriate for a medium-sized firm with several related product lines in one industry. Employees tend to be specialists in the business functions important to that industry, such as manufacturing, marketing, finance, and human resources.
  • Divisional structure is appropriate for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized.
  • Strategic business units (SBU)are a recent modification to the divisional structure. Strategic business units are divisions or groups of divisions composed of independent product-market segments that are given primary responsibility and authority for the management of their own functional areas. An SBU may be of any size or level, but it must have 1) a unique mission, 2) identifiable competitors, 3)an external market focus, and 4) control of its business functions. The idea is to decentralize on the basis of strategic elements rather than on the basis of size, product characteristics, or span of control and to create horizontal linkages among units previously kept separate.
  • Conglomerate structure is appropriate for a large corporation with many product lines in several unrelated industries. A variant of the divisional structure, the conglomerate structure (sometimes called a holding company) is typically an assemblage of legally independent firms (subsidiaries) operating under one corporate umbrella but controlled through the subsidiaries’ boards of directors. The unrelated nature of the subsidiaries prevents any attempt at gaining synergy among them.

If the current basic structure of corporation does not easily support a strategy under consideration, top management must decide if the proposed strategy is feasible or if the structure should be changed to a more advanced structure.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

View from the Top


Consider the chief executive’s perspective. When a CEO looks at the company, several features stand out most sharply. These are the traditional components of corporate structure: divisions, functional departments, strategic business units, and subsidiaries. They are the activities over which the chief executive has responsibility. They form the mental model the top leadership has of the business. Most companies take these components for granted as their basic subunits.

Unfortunately, these components cloud more than clarify the perspective most essential to the intelligent resizing of a company’s work.

When changes are made in a company’s strategy, or when changes outside its control make readjustment or retrenchment necessary, the lines and boxes on the company’s organization chart are also frequently shifted. These moves usually seem to make good sense at the time—from just following function, after all—but as the retrospective research indicates, moving the boxes and redrawing the lines do not always pay off.

This happens because, frequently, the wrong question is being asked. The search is usually for the “best” organizational configuration: flat, functional, divisional, matrix, or some hybrid. This issue, which eventually does need to be addressed, is premature if it is the first thing that comes to mind when considering the company as a whole. It diverts attention from careful consideration of the “functionality” that the “form” is being adapted to. It also makes the company susceptible to the management fad of the moment, so that a means because the goal: how can we flatten our structure, use cross-departmental teams, or become an information-based organization? These are all potentially useful tactics, but for what end?

This type of organization, driven from the top down, is one that deals with the structures for doing things, rather than the things that need doing. Its view of the boxes on the organization chart too often goes no deeper than the head count the boxes contain. This perspective is troublesome and can be misleading, but even more dangerous is the viewpoint provided by some contemporary forms of strategic planning.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

What Strategic Planning is not?


Clearly, strategic planning is no panacea. Strategic planning is simply a set of concepts, procedures, and tools designed to help leaders, managers, and planners think and act strategically. Used in wise and skillful ways by a “coalition of the willing,” strategic planning can help organizations focus on producing effective decisions and actions that further the organization’s mission, meet in mandates, and satisfy key stakeholders. But strategic planning is not a substitute for strategic thinking and acting. Only caring and committed people can do that. And when used thoughtlessly, strategic planning can actually drive out precisely the kind of strategic thought and action it is supposed to promote.

Furthermore, strategic planning is not a substitute for leadership. There is simply no substitute for leadership when it comes to using strategic planning to enhance organizational performance. At least some key decision makers and process champions must be committed to the strategic planning process, or any attempts to use it are bound to fail.

In addition, strategic planning is not synonymous with creating an organizational strategy. Organizational strategies have numerous sources, both planned and unplanned. Strategic planning is likely to result in statement of organizational intentions, but what is realized in practice will be some combination of what is intended and what emerges along the way. Strategic planning can help organizations develop and implement effective strategies, but they should also remain open to unforeseen opportunities. Too much attention to strategic planning and excessive reverence for strategic plans can build organizations to other unplanned and unexpected—yet incredibly useful—sources of information, insight, and action.

The discipline necessary for strategic planning can be of two sorts. The first harkens back to Latin root of the word “discipline,” emphasizing instruction, training, education, and learning. The second embodies later interpretations of the word, emphasizing order, control, and punishment. Emphasis should be placed on education and learning, although there clearly are occasions when imposing order, taking control, and enforcing appropriate sanctions are appropriate. Certainly, key leaders, managers, and planners can best use strategic planning as an educational and learning tool, to help them figure out what is really important and what should be done about it. Sometimes this means following a particular sequence of steps and preparing formal strategic plans, but not necessarily. The ultimate goal of strategic planning should not be a rigid adherence to a particular process or an instance on the production of plans. Instead, strategic planning should promote wise strategic thought and action on behalf of an organization and its key stakeholders. What steps to follow, in what sequence, and whether or not to prepare formal plans are subsidiary concerns.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

New Product Process


New products actually build up the way rivers do. Great rivers are systems with tributaries that have tributaries. Goods that appear complex are just collections of metal shapes, packaging material, fluids, prices, and so on. A good anology is the production of automobiles, with a main assembly line supported by scores of subsidiary assembly lines scattered around the world, each of which makes a part that goes into another part that ultimately goes into a car in that final assembly line.

 If you can imagine the quality control people in auto parts plants evaluating each part before releasing it to the next step, you have the idea of a new product evaluation system. The new product appears first as an idea, a concept in words or pictures, and we evaluate that first. As workers turn the concept into a formed process of metal, or software, or a new factory site preparation service, that good or service is then evaluated. When a market planner puts together a marketing plan, its parts are evaluated separately (just as minor car parts are) and then evaluated again in total, after it is added to the product.

 The fact that we evaluate the product and its marketing plan as separate and divisible pieces is what lets us telescope the development process into shorter periods of time. There was an era when we went through a new product’s development step by step, nothing “ahead of its time.” But today we may be working on a package before we actually have finished product, we may be filming part of a commercial before the trademark has been approved and finalized.

 This sometimes causes some backtracking, but the cost of that is less than the costs of a delayed introduction. It does require, however, that we have thought through carefully the item’s overall development needs—and, which of those needs are crucial, and which not crucial. Any evaluation system must cover the crucial ones.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Legal Fiction or Economic Reality?


Knowing the cost of your operations, however, is not enough. To compete successfully in an increasingly competitive global market, a company has to know the costs of its entire economic chain and has to work with other members of the chain to manage costs and maximize yield. Companies are therefore beginning to shift from costing only what goes on inside their own organizations to costing the entire economic process, in which even the biggest company is just one link.

The legal entity, the company, is a reality for shareholders, for creditors, for employees, and for tax collectors. But economically, it is fiction. Thirty years ago the Coca Cola Company was a franchisor. Independent bottlers manufactured the product. Now the company owns most of its botling operations in the United States. But Coke drinkers–even those few who know that fact–could not care less. What matters in the marketplace is the economic reality, the costs of the entire process, regardless of who owns what.

Again and again in business history, an unknown company has come from nowhere and in a few short years overtaken the established leaders without apparently even breathing hard. The explanation always given is superior strategy, superior technology, superior marketing, or lean manufacturing. But in every single case, the newcomer also enjoys a tremendous cost advantage, usually about 30 percent. The reason is always the same: the new company knows and manages the costs of the entire economic chain rather than its costs alone.

A powerful force driving companies toward economic chain costing will be the shift from cost-led pricing to price-led costing.

It will be painful for most businesses to switch to economic chain costing. Doing so requires uniform or at least compatible accounting systems at companies along the entire chain. Yet each one does its accounting in its own way, and each is convinced that its system is the only possible one. Moreover, economic-chain costing requires information sharing across companies, yet even within the same company, people tend to resist information sharing. Despite those challenges, companies can find ways to practice economic chain, costing now.

Whatever the obstacles, economic chain costing is going to be done. Otherwise, even the most efficient company will suffer from an increasing cost disadvantage.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact http://www.asifjmir.com