Management Control System: Emerson Electric

Emerson Electric Company

Evaluate CEO Knight’s strategy for Emerson Electric Co. in view of the strategy, evaluate the planning and control system described in the case. What are its strong and weak points?

Soln.: - Strategy in view of planning and control system is:

At the start of each fiscal year targets are determined and fixed for each division.

Each fiscal year corporate officers meet with the management of each division at the divisional planning conference. At these conferences the corporate officers are appraised of the actions that divisional managers would take to meet the set targets. The meetings are designed to be confrontational which challenge assumptions and conventional thinking.

Prior to the division planning conference, the division president submits 4 charts to the management i.e. the values measurement chart, sales gap chart, sales gap line chart and 5-back by 5-forward P&L, each of which compares different financial ratios and sales and profit values of the current year with those of 5 yrs ago and also with those of forecasted 5th year. These charts enable the division management to determine the gap between historical, present and forecasted values and steps required to close this gap.

Top management listens to division management’s view of customers, markets, new product plans, competition, quality, cost reductions, inventory levels and compensation. Since operating managers carry out the planning, ownership is established and artificial distinction between strategic and operating decisions is eliminated.

Late in the fiscal year, the division president and appropriate division staff meet with top management to present a detailed forecast for the coming year and conduct a financial review of the current year’s performance versus forecast.

Contingency plans are also prepared

Information gathered in the division planning conferences and financial reviews is consolidated and reviewed at corporate headquarters by top management. This helps to examine the total data and prepare for a corporate wide plan.

Before start of the next fiscal an annual corporate wide planning conference takes place where corporate and division forecasts for the nest year and strategic plan for next 5 years are prepared.

It followed the strategy of being the low cost producer for 20 years and then switched to being the best cost producer

It had a focussed manufacturing strategyf

Strong points :

Commitment to total quality and customer satisfaction

Knowledge of competition and the basis on which they compete

Focussed manufacturing strategy