Management Control System at a Publicly Listed Company - Term Paper Example

Management Control System at a Publicly Listed Company Table of Contents Table of Contents 2 Introduction 3 Strategic Analysis 4 Applications for Performance Measurement for Vodafone 4 Analysis of Balance Scorecard 7 References 10 Introduction The Vodafone Group came into existence in the year 1982. Vodafone has spread its wings across more than 30 countries and it is the second largest telecom company in the world providing mobile network services to the people. The company has its headquarters at Berkshire, but recently it has shifted to London, United Kingdom. It employs around 70,000 employees round the world. Though Vodafone is almost a market leader, but the extreme competition in the telecom industry round the world has compelled Vodafone to go for a turnaround strategy. The world market was facing a credit crunch which affected such MNCs as Vodafone too. So the objective of the study would be to assess the management control system of Vodafone. It is also important to assess the strategic management model to interpret the winning formula of Vodafone not only as a company but also as a brand name. A company is a place where a group of employees work together for common goals and to receive compensation in return for the service that they are providing to the company. The company is run by a group of top level managers and they divide the departments, units and groups under them to carry out the decisions and objectives that they plan for the company. The process of management control simply ensures that the strategies implemented and the goals set by the top management of the company is moving in the right direction and the human resource of the company are perfectly allocated for performing these activities are carefully carrying out their task (Anthony and Govindarajan 51-53).  The management control system involves communication of guidelines, decisions and the objectives of the company or the organization. Similarly strategic management planning also involves communicating similar functionalities as management control. But in a much similar way, strategic planning is a part of the management control process. Strategic planning is basically applied economics but management control is applied psychology. Both of these functions involve the top level management. It is a very important strategy that is often followed in companies practicing decentralized model. Strategic Analysis It is a well known fact that in order to survive in the global market, the company should possess competitive advantage over its competitors. Competitive advantage of the company involves two vital issues such as the cost structure and special features of the firm to differentiate with its competitors. Companies always try to increase their value chain in order to have an edge over its competitors. Companies like Vodafone formulate strategies which involve searching for the opportunities of growth in the telecom sector, achieving a great operational performance, strengthen the capital base of the company and enter aggressively in the emerging markets of the world. This may also be regarded as the short-term goals of Vodafone. Now when companies make strategies and motivate their employees to make them functional, they must also utilize some method to measure the performance of the market, the customers, and the products of the company as well as of the employees. Otherwise it would be impossible for the companies to understand the end results of implementing the strategies and plans (Das 41). Applications for Performance Measurement for Vodafone The management control system involving strategic planning, implementing the plans in the company to achieve a common objective, that is profit maximization and increasing the market share. They also have the responsibility to review the level of performance and control the internal factors. So the managing the performance not only involves managing the corporate performance but also the performance of the business management. Business management functions involve analyzing and organizing the business methodologies, processes and the systems and accordingly work to increase the performance of the business. The balance score card methodology is a part of performance analysis tool. This tool was introduced by Robert S. Kaplan and David P. Norton. This helps the company to determine its long term goals and strategies. Basically a company is analyzed from four basic perspectives: growth and Learning, Customer base and satisfaction, Financial aspect and finally Internal business process of the company. Figure 1 Source: (“Balanced Scorecard Basics”) The balance score card of the Vodafone also represents the visions and the strategies of the company. In addition to these aspects, it also contains the targets, measures, objectives and initiatives, so as to measure the balance performance of the company. It has been always the dream or vision of the company, Vodafone to be the leader in the telecom industry. In the annual report 2011 (Vodafone, 2011), Qatar, Chief Executive Officer expressed the five key strategies of Vodafone for the year 2011: Aggressive competition for growth in all the segments they are dealing with. Vodafone plans to form a partnership with Qatar government for providing superfast broadband facility to its customers. Establish Vodafone as a brand and as a role model in Qatar. It also involves taking part in all talents. Take risk in new innovative ventures. Deliver customer satisfaction through better customer service. Vodafone tried to increase the values of their service through providing advanced movie devices. They surprised their customers by offering great value and offers to their customers. They introduced economic prepaid as well as post paid plans, so due to this factor the customer base of Vodafone also increased to 756,767. That is about 45 % of the people in Qatar are using Vodafone. So it can be also interpreted that the ARPU has also increased as the company is aggressively into attracting more customers. The established call centers of Vodafone are providing extremely good services. The company also covers almost 100 percent of the 2G and 99 percent of the 3G network services to the customers. This is because of the excellent performance of their services (Vodafone 9-18). The company also welcomes talented people of Qatar to join them, so that the company can utilize the talents well. Vodafone has utilized the balanced scorecard methodology to increase the value of their offerings for their customers. There are reasons as to why the company decided to utilize this performance measurement tool. Vodafone increased rapidly in size due to its high performance but it was becoming impossible to measure the level of performance due to its size. There was a need for the measurement and response of the operational activities. There was a continuous change in the external factors or environment of the company, so the influence had to be measured for decision making (“Business Strategy”). Analysis of Balance Scorecard The performance measures of Vodafone for the year 2011 would be based on the five business strategies decided by Vodafone Qatar. Firstly, the satisfaction of the customers can be identified through the customer delight index, and the revenues derived by investing in the emerging markets. Vodafone has understood that the focuses of the customers are not only to use a mobile phone for calling but also for several other functions. So, they have enhanced the value to maintain the trust and loyalty of the customers. This is for the customers perspectives. Now, if we see the financial perspective, the free cash flow, return on equity and EBITDA margin, we will be able to analyze the strategic objective of the company. The EBITDA margin helps to analyze the profit of the company from its core offerings. The free cash flow of the company involves the information on joint-ventures or strategic alliances. It also involves high dividend which in turn helps the shareholders. The Growth and learning perspective of Vodafone is not implementing the cost leadership method to get an edge over its competitors. It has focused on launching new products, providing value-added services to its customers and focused more on increasing their ARPU. So, it can be clearly stated that growth will come automatically if the revenue increases with time. The business perspective in the balance scorecard are decided or taken into account through the analysis of the annual capital expenditure, operational efficiency ratio and employee turnover rate. Vodafones main objective is to trust its people for success and growth of the company. The employee turnover rate is very useful for the measurement of the performances against the strategic planning of the company. The working capital evaluating for two year would simply state the actual performance of the company against the invested working capital. The cost reduction program of Vodafone is just to increase the efficiency of the company and to justify the customer and employee ratio (Niven 1-2). The balance scorecard is actually made to compare between the target values and the actual value. This is done so as to see the status of the company from all perspective. Vodafone had five strategies which they planned to reach by the end of 2011. So, we can say that it has created an excellent customer base and really surprised its customers by introducing the prepaid Red plans and other value-additions. The company did penetrate in all the segments and left a mark. The employee growth was about 17 percent. So its strategy to acquire new talents was successful. Vodafone Money Accounts in Qatar bought a revolution. This was actually a process to transfer money in bank accounts through mobile phones. So it was something really innovative. Moreover, Vodafone aims at covering almost 95 percent of the households for its broadband services by 2015. This was the scorecard of Vodafone Qatar, which evaluated all its target strategies and the progress or performance of these plans during the financial year. References “Balanced Scorecard Basics.” Balanncescorecard. n. p. 2012. Web. 12 May 2012. . “Business Strategy.” Sourcewatch. N. p. 2012. Web. 12 May 2012 . Anthony, Robert. N and Vijay Govindarajan. Management Control System. New Delhi: Tata McGraw Hill, 2007. Print. Das, Subhas. Chandra. Management Control System. Haryana: PHI Learning Pvt Limited, 2011. Print. Niven, Paul. R. Balanced Scorecard Step-By-Step: Maximizing Performance and Maintaining Results. New York: John Wiley & Sons, 2006. Print. Vodafone. Vodafone Qatar Annual Report 2010 – 2011. Vodafone, 2012. PDF file. . Read More