Strategy and management control system: Tata Motors

Introduction

This essay addresses a very debatable yet important topic associated with the link between your strategy and management control system of a business. The discussion in this essay roots from Andrew Campbell's paper, Tailored, Not Benchmarked: A BRAND NEW Check out Corporate Planning. This newspaper discusses the impact of benchmarking and the result of useful planning strategies on the value of an organisation. He suggests that instead of deploying standardized benchmarking and planning strategies predicated on another organisation, each organisation must evaluate its inner environment and devise strategies according to the needs of the individual organisation. Campbell identifies the planning process very correctly in his paper as, "An excellent planning process is exclusive to its company (. . . ) carefully designed to the needs of the firms as well regarding the skills, insights, and activities of senior corporate managers". Furthermore, Campbell lays pressure on the fact that organisations need to constantly monitor and adjust their planning ways of match the needs of the organisation and the dynamic business environment. In this paper, Campbell has very modestly touched upon the actual fact that management control systems (MCS) and strategy essentially supplement each other and should be coordinated to create the desired firm value (Campbell, 1999). MCS are thought as "any formal, information-based methods and statements used by managers to keep an eye on and influence the habit and activities in a company" (Simons, 1994). While, strategy is a continuing design of decision making for the future of an organization (Mintzberg, 1978) deliberate (formal) or unintended (casual), that emerges because of the opportunities that arise in the business or market (Vendor & Stede, 2007; Langfield-Smith, 1997)

An earlier perspective on this subject was provided by Anthony (1965, 1988) suggesting that, strategy is the regular given component in the company and management control systems contain the job of monitoring, changing and checking the progress of these execution. Lorange et al (1986) introduced another association of management control and strategy in the concept of strategic control. Proper control is a system constantly examining an organisations strategy regarding its goals, and modifying them whenever the necessity arose. The main one limitation all these perspectives suffered from was the actual fact that, management control systems identified with the duty of monitoring and modifying strategy only (Simons, 1990). Robert Simons (1990) unveiled a new point of view proposing that management control systems were responsible for not only monitoring or implementation, also for formation of strategy; hence establishing a very important romance between management control systems and tactical selections of an organisation.

Building on these ideas, this article aims to analyse the hyperlink between management control system and strategy of Tata Motors Small (TTM), a multinational car firm headquartered in Mumbai, India. During the course of this essay, we will first have a look at TTMs qualifications - strategy, control systems, performance measurement system, and the potential risks they can be facing. Accompanied by this is a conversation on TTMs circumstance in the light of different perspective mentioned above to see whether there exists a link between your strategy, management control system and performance measurement options of TTM. Finally, we will have a look at some suggestions in regards to with their control systems that could help TTM improve their position.

Tata Motors Small - Qualifications and Strategy

TTM is an integral part of the Tata Group, the major private corporate group in India. Tata group has businesses in steel, marketing communications, tea, information technology, ability and hospitality apart from cars. TTM is India's largest automobile company, with consolidated income $20 billion in 2009-10. It's the leader in commercial vehicles in each section, and among the top three in passenger vehicles along with being the world's fourth largest truck company, and the world's second largest bus manufacturer. Furthermore to domestic development, TTMs important tactical move over time has been international growth. TTM has attained Daewoo Commercial Vehicle Company Small, Hispano Carrocera S. p. A. Spain, has a joint venture with Marco Polo of Brazil for development of buses and most recently received the iconic United kingdom brands Jaguar and Land Rover (Just-Auto editorial team, 2010). Tata motors follow an easy rule for development; given that they have limited scientific availability to get a presence on the global commercial world, they look for countries with access to technology and products, find a proper partner for the reason that market, and then sell Tata motors products for the reason that country whilst exporting their products and capacities regionally (Seshan & Kumar, 2008). For instance, In January 2006, Tata motors agreed upon an arrangement with Fiat Group to sell Fiat vehicles through the Tata Motors shops in India. In May 2006, the jv of Tata Motors with Fiat grew into an commercial partnership for sharing Indian facilities to make vehicles, engines and transmissions for Indian and international market segments (Just-Auto editorial team, 2010).

Along with Internationalisation of businesses, TTM comes after the strategy of product innovation, which gives TTM with its competitive edge - affordable products. It began with introducing the ground breaking 407 system for vehicles in the 1980s, designed especially to suit Indian street conditions, in awareness with rural areas. Moreover, even today towards the finish of the third ten years of its lifetime it dominates two-third of the market. In 1998, TTM launched the first indigenously designed traveler car in India, the Tata Indica sporting advancement by giving more space, modern features at an extremely competitive price. In 2005, TTM launched India's first little truck, a little sub one-tonne vehicle facilitating intra-city or shorter ranges. This vehicle was designed to replace the three-wheeler carriages market in India by a far more sophisticated four-wheeled mode of travel at almost the same price. It used a two-cylinder engine motor, provided only in Irish crme shade and got a rigid forward axle and rear steering wheel drive for low cost. The most recent advancement TTM has come out with is the 632-cc Tata Nano, stated to be the cheapest car on the globe also known as the People's car/ Rupees 1 lakh car ($2500). The mark price itself became the foundation of innovation, as industry promises that it is impossible to produce a car at that price. This car is developed based on some innovative ideas; engine motor was packaged on the rear part; two cylinder engine motor (conventionally there are three-four cylinder machines); identical deals with and mechanisms for left and right side doors. Moreover, the speedometer and other musical instruments -panel in the Nano are at the heart of the dashboard, rather than facing the drivers, to make it easy and cheaper to switch the positioning of the steering wheel from the to the remaining facilitating exports to other marketplaces as well (Seshan & Kumar, 2008). Furthermore the automobile has unconventional seats; maximising the interior space by moving the tires to the sides and power teach to below the rear seat creating sufficient space to accommodate three-to-four people (BMA, 2010).

Analysis - Management control system and Performance Dimension System

To maintain the invention in products and enlargement in markets TTM had to expose changes in their MCS to check their strategic steps. TTM has two main divisions predicated on the type of vehicles - traveler autos and commercial vehicles (CVBU). With increasing functions TTM In the year 2000, TTMs CVBU suffered its first loss of $2. 5 million that led the business to look at the Tata Business Quality Model (TBEM). TBEM, based on Malcolm Baldridge Honor for business brilliance and Balanced Scorecards as its performance way of measuring, which will be discussed comprehensive later (Tata Group| Corporate Governance| Busniess Brilliance, 2010). TTM saw shift from a far more hierarchical composition to a flatter organisational structure, facilitating easy communication between employees. The change running a business model complimented the change in the information technology system too. TTM uses an integration of outsourced facilities a few of that happen to be Ariba for dealer discussions; product lifecycle management and advanced computer aided designs for the engineering and designs of their products; SAP - venture software application and programmes for enterprise learning resource planning and increasing transaction success. Through this, the actions of all departments - creation, manufacturing, purchase, money functions etc, were interlinked facilitating better control and coordination by means of a competent supply-chain management system. Furthermore, TTM changed their product development process and created a more collaborative process using the features of different project companions, suppliers, design homes, subsidiaries and associate companies specialising in different verticals. With all the change of the in-house production process TTM realised the value of expanding into the international market and therefore implemented the internationalisation school of thought mentioned previously, to keep in line with their goals and targets at the same time as gaining access to different marketplaces (BMA, 2010).

TTM has a strategic preview with their ideas every 5 years where plans are improved whilst adding new goals and goals. A well-defined process for the prep and monitoring of the total annual budgets and long-term business programs is followed. You will discover meetings twice a month of the management committee at operational levels to review the operations and ideas of key business areas. TTM has a set of corporate policies, the Tata Code of Do, within the integrity of financial reporting, honest conducts, regulatory compliance, conflict of hobbies review and reporting of concerns. All employees have regular exposure to this through fast streaming information between the management and the employees through articles, periodicals and news letters (Jamble, Sukate, Guha, Mhasade, Sumeet, & Tonk, 2010).

TTM comes with an intact performance way of measuring system keeping consistent with their strategy of offering advancement at a competitive price, as stated above - the Balanced Scorecard. After enduring their first reduction in more than fifty years in 2000, TTM were required to resort to stringent cost lowering across all business units, which poised an effort. TATA Motors Commercial Vehicle Business Device then hired the well balanced scorecard. With the process in progress, the genuine problem uncovered itself. It turned out that the manual dynamics of the review types of procedures of such a huge composition was getting extremely difficult to use and consuming valuable amount of time. To address this, the Balanced Scorecard Automation Tool was applied that could centralise, assimilate and collate the info, providing immediate review and analytical features and a thorough one picture of organisational performance. Within 2 yrs of this, CVBU documented a revenue of $ 2. 3 Million from the loss of $ 2. 5 Mil, resulting in 60% of TTMs inventory turnover. In the beginning, CVBU had started the balanced scorecard with only commercial level scorecard; but using its success, now it has extended to six hierarchical levels with 3 hundred and thirty one scorecards, also getting excited about proliferate it to the lowest degree of organisational composition (Huda, 2009).

Risks

Fetching the good thing about low cost of labour in India, and cheaper resources, TTM places itself as a firm providing innovation at a lower cost, however they do not necessarily produce differentiated products. Their advancement only is based on the fact that they give a multitude of features suited to Indian conditions at less price, that no other Indian company does indeed (lower competition in local market). The hazard that TTM faces is the managing of two different segments of vehicles at exactly the same time, the higher priced premium portion (Jaguar and Land Rover) and the very low priced segment (Tata Nano); the low cost manufacturing would not be as helpful its premium sections car (Seshan & Kumar, 2008). In addition, other Indian manufacturers teaming up internationally like Renault Logan (jv between Mahindra and Renault) will intensify your competition for TTM. Further, by entering into the premium autos and sports energy vehicles portion, TTM now encounters competition from many other brands like Audi, BMW, Daimler, and Volkswagen (Wentz, 2008). Additionally, Through TTM's core strategy of internationalisation, they be based upon exports for profits. But, as the positioning of the Indian Rupee has strengthened, it is posing an issue resulting in a lesser than expected export realisation (Kurup & Toms, 2008). In addition to that, TTMs low cost products count on low quality and its own international competitors like Hyundai and Maruti Suzuki have internationally approved quality. Therefore, TTM must treat its critical quality issue to be a global player (editorial team, 2010)

From the conversation about TTM, it can be observed that there surely is a very obvious alignment of its strategy using its performance dimension system and management control systems. The corporate strategy of any company assists with the decision of the business regarding the kind of businesses to operate in (Johnson & Scholes, 1989), how to structure and fund the company, how to acquire and utilize the resources to convert distinctive competencies into competitive advantages (Andrews, 1980 cited in; Langfield-Smith, 1997). TTMs MCS has a much-organised composition comprising of formal control - standard operating procedures, budgetary controls; informal settings - regular relationship with employees, interactive communication system (also facilitating employees control); administrative and communal settings - plying moral codes of do; which exemplifies that TTMs MCS has a well-defined framework complementing its exact strategic point of view (Langfield-Smith, 1997). By changing the organisational composition and introducing a fresh performance measurement system (the balanced scorecard), it can be noticed that TTM reviews its MCS has a repeated tactical preview and initiate changes as and when the need comes up. Furthermore, it is visible that TTM is a follower of the contingency school of thought, which advocates that organisational success results from deploying administrative tactics (like performance dimension) in a manner that matches the contingencies the company functions within. Rather it is visible that, while adapting to these contingencies, TTM is finding new methods that match their company than relying on people other organisations use (Chenhall, 2006).

Scope for Improvement

Robert Simons (1995) suggested that for professionals of modern organisations, it is a difficult task to manage employees and organisation efficiently while providing them with enough space to come up with new and impressive ideas at the same time handling them enough so that they do not misuse this independence. He suggested four levers of control, the belief system; boundary systems; diagnostic control systems and interactive control systems (Simons, 1995). As the opinion systems inculcate central principles of the company, the boundary systems specify what needs avoidance. Alternatively, diagnostic control systems determine critical performance variables and the interactive control systems help handle proper uncertainties (Triantafylli, 2010). For successful execution of lever of settings, the organisations has to make sure that the four levers are complementarily in location to produce the desired organisational performance keeping in line with the strategy. For TTM while the appropriate notion and boundary systems are set up, there seems to be a lack of diagnostic and interactive control systems. A number of key issues that require attention have been described in the earlier section relating to their strategy with respect to competition, quality and exports. If TTM possessed the diagnostic and interactive control systems in place then these critical areas could have been settled with an appropriate solution resulting in effective organisational performance. Along with, TTMs strategy would have accounted for these shortcomings if intact levers of settings were set up.

Conclusion

TTM is one of the strong contenders in the Indian vehicle market going towards a more international sphere. If it goes on with development and the cost advantage, the company can make successful headway. For doing that, TTM must consider some areas that require attention, bring the required changes to its organisational functions, strategy, and control systems. Although, there is a strong link between the MCS and strategy for TTM, but it could be put to a more valuable use by employing the appropriate changes. Reverting to Campbell's affirmation mentioned earlier, it is obviously recognizable that TTM will not benchmark, but give attention to its external and inner advantages and utilizes the resources properly. This is noticeable from the fact that they use the option of cheaper resources and labour to acquire their cost benefit which TTM unveiled new performance measurement system with the change in their technique to match it. Furthermore, TTM has employed the option of technical expertise to manufacture innovative products, gain a competitive border on the market, and carve a niche for itself. Therefore, TTM has its unique strategy and competitive advantage gained by virtue of its effective management control system that is accountable for TTMs success.

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