Case Scenario: Company-Coca Cola
From the analysis (illustrated below), critique the MCS with a view to identifying strengths and weaknesses in order to make comprehensive recommendations (at least 3 recommendations)
Needs referencing (word limit: about 500-800words)
Case Scenario: Design and implementation of MCS
Management control systems is a system that collect information to monitor and evaluate the behavior and performance of employees and management in order to achieve a company’s targets and implement strategies. Accounting methods and financial measuring benchmarks are often utilized and evaluated as a vital part of a management control system. A specific financial goal could present what agenda and decision-making items the manager are facing such as the sales volume or profits. Financial activities within a Coca-Cola may be broken down into four areas with the relative targets:
- Cost center --- The Company could evaluate the direct cost and determine the amount of organizational total fixed costs in this area directly. For example, a manufacturing factory in The Coca-Cola Company would institute the standard costs between direct materials and direct labors, and the objective of management is to decrease the differences between actual costs and standard costs.
- Profit center --- This area is regarded as an independent unit with the purpose of financial control management. The manager of profit center is responsible to create the best portfolio of costs and revenues in order to obtain the most beneficial outcomes. For instance, a product line manager may focus on the gross profits; however, the marketing manger may prefer to emphasize the negative effects of the marketing expenses and the overhead in the factory.
- Revenue center --- This area has no authority of pricing and costs. Sales department is generally a revenue center, with the aim of expanding revenue ranges with limited budgets.
- Investment center --- The manager of this area undertakes the trade of all types of assets that could be useful for the company, who has to balance the current demands of profiting and the demands of increasing future profits. A main part of their target is to maximize the return on investment.
Elements of management control system:
From the very beginning of the company, the leaders of Coca-Cola have realized that quality is the core competitive advantage which brings about differences with its competitors. For many years, The Coca-Cola Company quality management was regulated and centrally controlled. Developing in the current competitive global market, The Coca-Cola Company is not a single entity from a legal or managerial perspective, which is responsible for the manufacture and sale of bases and syrups and consumer brand marketing initiatives. Meanwhile, the system operates through multiple local channels, including cooperation with their bottling partners for the residual process like packaging, merchandising and distributing the final beverages. Therefore, The Coca-Cola Company measures the quality of ingredients and materials and regulates criteria of collaborators’ activities in order to ensure their products meet Company requirements and consumer expectations in the marketplace. Thus, quality control system in the Company would be a main part of management control system, which is beneficial to execute strategies and achieve their missions in a goal congruent manner.
Administrative controls:
The Coca-Cola Company is a global business that also operates on a local scale by collaborating with more than 250 bottling partners worldwide. To ensure the quality of products, the company has regulated formal rules for their partners in every process of manufacturing, merchandising and distributing. This is consistent with their mission and serves as the standard against which they weigh their actions and decisions:
- To refresh the world --- in mind, body and spirit.
- To inspire moments of optimism --- through our brands and actions.
- To create value and make a difference everywhere we engage.
These formal rules, instruction, job descriptions and performance measurement employed assist to detect and monitor the whole process and examine possible problems as to product quality. The goal-oriented mission statement supplies inspiration and a sense of direction. These controls are more mechanistic, which rely heavily on vertical hierarchical structures and result in a simple but forceful MCS. Mechanistic controls are suitable for firms that operate in a stable environment and overall knowledge is at the top of the hierarchy. However, this may not be effective for The CocaCola Company as it should consider how to profit from rapidly changing, continually fragmenting, global markets for high-quality, high performance, customer configured goods and services but not stay unchanged in a stable way.
Diagnostic controls:
The Coca-Cola Company uses formal information systems to monitor performance and correct deviations. According to its internal regulation and visions, such as bringing to the world a portfolio of quality beverage brands that anticipate and satisfy people’s desires and needs and nurturing a winning network of customers and suppliers to create mutual, enduring value, the company sets goals in advance and outcomes are compared with present objectives. Quality System Campion is appointed by top management of each organizational unit with the purpose of ensuring that process for the quality management system are established, implemented, and maintained and then report to top management on whether actions and outcomes are in accordance with intended plans and any need for improvement.
In Coca-Cola, business plan, quality statement, objectives and metrics, audit results, analysis of data, corrective and preventive actions, and management review are applied to continually improve the effectiveness and efficiency of its quality management system. A corrective action procedure is conductive to eliminate the cause of nonconformities so as to prevent recurrence. The unit would set the standard to determine the level of deviations to be corrected, following by determining and implementing action needed. Besides, they should track the status of action until completion and record the results of action taken thus the top management could review the performance of corrective action taken. A preventive action procedure is very similar to the corrective action procedure, which is to eliminate the cause of potential nonconformities in order to prevent occurrence. All the diagnostic controls are to provide motivation, resources and information to ensure organizational goals and strategies will be achieved.
Interactive controls
Top management of each organizational unit has responsibility of transmitting the business plan to all employees who must understand the objectives and metrics to assist with the achievement of the plan. This is a process where top managers involve themselves regularly and personally in the decisions of subordinates. Top management must ensure the establishment of the appropriate communication process with subordinates and that the contents have to be related to quality management system. In addition, Coca-Cola has designed a communication strategy that ensures all appropriate personnel have access to the current authorized requirements, specifications, programs and procedures so that they could effectively carry out the activities related to their work. Interactive controls have a beneficial effect on the disposal of strategic uncertainties and can stimulate innovation which enhances knowledge. During the process of communication with the subordinates like dialogue, debate and idea creation, top management could provoke new initiatives and new ways of managing activities across organizations.
The fit and effectiveness of MCS
Since the mid-1990s, when the market situations started to change, The Coca-Cola Company has been evolving their approach to managing quality. In 1995, the first iteration of The Coca-Cola Quality System (TCCQS) was introduced in order to satisfy the local tastes and remain consistent quality as well as issue new products. To synchronize new regulations, quality management methods and industry best practices and market situations, TCCQS has evolved in 2004 to offer a series of improvements to managing quality and accelerating quality system implementation, including a simplified, streamlined, modular structure; alignment with externally recognized standards; and a provision to leverage external resources such as training and auditing, while addressing the unique requirements of the Coca-Cola system. This is because more attention were focused on quality planning, management review and safety, not only in manufacturing, but also throughout the entire supply chain.
As the direction of Coca-Cola itself is the symbol of quality, customer and consumer satisfaction and a responsible citizen of the world, the company enlarges the beverage portfolio and supplier base to satisfy the growing demands of developing markets around the world with the rising customer and consumer expectations and regulatory scrutiny. To deal with the increasing requirements and changing business scenarios, Coca-Cola Operating Requirements (KORE) replaced The Coca-Cola Management System as a new management system in 2010 to support strategic growth plans and create an integrated quality management program. KORE is a comprehensive management control system which guarantees the highest standards in product safety and quality across the entire Coca-Cola system by describing clear requirements for the policies, specifications and programs that guide the operations. Business and quality objectives
are integrated and aligned with consistent standards to evaluate performance through KORE that monitors risks across the supply chain as well as defines methods and tools to solve problems for persistent quality improvement. Furthermore, based on a consolidated governance principle, each organizational unit implements a safety and quality system in accordance with KORE requirements to further support the integrity of the products.
Reference:
Hamed, A., Habibollah, S., Baqer, K, 2010, Management Control System, Interdisciplinary Journal of Contemporary Research in Business, Vol 2, No 6. What Are Management Control Systems?
The Coca-Cola Company 2012 Annual Report
The Coca-Cola Company, 2004. The Coca-Cola Quality System Evolution 3 [PDF] The Coca-Cola Company.