Analysis of Management Control Systems: Venture and Feather Companies

This report delves into the realm of management control systems, analyzing the strategic positions of two companies, Venture and Feather, and how their approaches differ. Venture emphasizes low maintenance costs, while Feather focuses on reputation and delivery speed. The report explores how these strategies strengthen their competitive positions, including implications for management accounting information systems. It also examines whether a centralized or decentralized management structure is more suitable for Modern Travel Company, providing reasons to support the chosen structure. Furthermore, the report identifies undesirable actions in budgeting, such as poor planning, and discusses how interaction between managers and subordinates can reduce budgetary slack. Finally, it explores situations where top management should allow budget discretion, such as changing expenses and unknown revenue.

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Management Control System
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Question one.
1. What are the strategic positions of the two companies (Venture and Feather) and how
do they differ?
Strategic position is the choice a company makes after reviewing the industry in relation
to its competitors and how the competitors operate.1 Such choices are based on value creation
and how those values will differ from the competitors. The strategic position helps a company to
create its own market space and attract more consumers to its products. Strategic positioning
may involve factors such as lower operating costs for the company or premium pricing.2
Venture’s strategic positioning is based on the low cost of maintenance of their shredders.
Ventures operating cost within the two-year period is estimated to be 500 US dollars while that
of Feather is about 700 US dollars. Venture has, therefore, position itself based on low
maintenance cost as compared to Feather. This Positioning style will attract more consumers to
Venture as they will be willing to save money on the operating and maintenance cost.3
Consequently, Venture has emphasized themselves in regards to this strategic position by
stressing their low maintenance and operating costs to consumers. On the other hand, Feather’s
strategic position is based on the firm’s reputation and their ability to deliver goods under a
shorter timeline. The difference in delivery time between the two companies differ by a whole
1 Strauß, Erik, and Christina Zecher, Management control systems, 240
2 Bedford, Management control systems across different modes, 19.
3 Shaikh, et al., A review on optimized control systems,410.

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one week. Such a smooth and efficient delivery time is key in attracting consumers who want
their goods delivered faster. Feather’s strategic positioning is also based on the reputation of
good service. Many consumers are attracted by the guarantee of good quality service. Feather
Company has therefore maintained this reputation over time. The difference between the two
modes of strategic position differ in that Venture’s model is inclined more towards product
operation and maintenance while Feather’s is based upon external factors such as delivery time
and brand image.
2. Explain how these actions translate into strengthening the competitive position of the
Venture’s shredder relative to Feather’s shredder. Also discuss the implications for the
management accounting information system (hint: what sort of information should be collected
and reported?
Competitive positioning is creating the value of marketing by differentiating one’s value
as opposed to that of the competitors.4 Consequently, this gives the business a niche in the
market, allowing the business to attract more customers, retain the available ones and develop a
marketing share. Through their cost leadership, Venture Company is able to set a lower price
than Feather due to their lower cost in production while consequently offering the consumer with
the same benefits.5 This cost leadership gives Venture the opportunity to be flexible with the
consumers. The company can, therefore, absorbs consumer requests such as lowering the prices
and increasing the quality of their machine. The company has also lots of choices in strategies,
4 Cugueró-Escofet, et al., The just design and use of management control systems, 30.
5 Acquaah, Management control systems, business strategy and performance, 133.

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for example, they can set the price at the same level with Feather and still maintain profitability
or reduce the price and attract increase the market share. On the other hand, fast delivery will
help Venture company to tap into a larger market share.6 The contemporary consumers focus
more on fast delivery. By reducing their delivery times, Venture increases their success rate in
the market. Since Venture and Feather are at a price competitive environment, fast delivery can
result in a competitive advantage. In their management accounting information, Venture should
focus on emerging market trends and how consumers respond to their new product and cost
leadership. This will enable the company to understand any existing gap in the market and also
evaluate the ever-changing consumer’s wants. By collecting feedback from the customers, the
company will be able to plan for future changes in order to remain relevant in the industry.
Question two.
1. To meet this goal in the three regions, should Modern Travel Company System’s
management structure be decentralized or centralized? Provide at least four reasons to
support your answer.
Centralized management structure is whereby the top management has the sole decision
in making decisions concerning matters affecting the business.7 This type of management is
hierarchical. On the other hand, a decentralized management system is one which the decision-
making process has been delegated to staff at the lower level of management.8 The lower level
6 Jordao, et al.,Organizational culture and post-acquisition changes, 545
7 Janke, et al., An exploratory study of the reciprocal relationship, 260
8 Lee, et al.,Enablers of top management team, 20.

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managers, therefore, have the power to make decisions for the company. This type of
management shows a bottom to a top flow of information. The management of Modern Travel
Company should embrace a decentralized system of management, in their bid to provide an
integrated transport system. This management system will allow the regional managers to have a
wider span of control, fewer hierarchical tiers and a smooth flow of ideas from the regional
branches.9 Additionally, this type of management will allow the top managers of Modern Travel
Company to relieve themselves of excess day to day decision making. This will allow those
managers to focus more on critical problems and strategies. The decentralized management
system in Modern Travel Company will also provide opportunities for the regional managers to
gain experience in management, therefore, facilitating their promotions. Further, in the
decentralized management structure, the regional managers are in a better position to make more
informed decisions concerning the transport management system. This is because these managers
are exposed directly to the local conditions in the regions they operate. For example, the regional
manager knows about the consumer behavior in their areas, such as the preferred mode of
transport, the terrain of their operating area and the price to set in order to remain competitive.10
This shows that the regional manager knows of the culture of the local people and more
importantly the local language. Another advantage of a decentralized system for Modern Travel
Company is flexibility. In a competitive environment, business should make decisions fast.11
Consequently, the regional manager can make a timely decision after analyzing the situation.
9 Haustein, et al., Management control systems in innovation, 350.
10 Saxton, et al., Rules of crowdsourcing, 15.
11 Afram, Abdul, and Farrokh Theory and applications of HVAC control, 349.

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Another importance of this system is that it improves decision making and teamwork. This is
because the regional managers and employees are involved in sharing of the decision making
powers and are given freedom of action and autonomy. This sharing integrates the managers and
employees as one and develops further the spirit of decision making. Additionally, this system of
management enables the regional managers of Modern Travel Company to take initiatives by
giving them autonomy and authority. This further increases their creativity by allowing them to
implement key strategies in the transport control system.
Question three
a. Identify two undesirable actions (other than padding the budget) that managers might
take as a result of an overemphasis on budgets as a performance measure. Explain how the
actions you have identified affect the short-term and long-term performance.
Budgeting is among the key management issues and is part of the management control
process. In line with the budgeting process, the manager should show integrity by applying
ethical principles in the process.12 Some of the undesirable actions in the budgeting process
include over budgeting. This is where the managers of an organization allocate more resources
than necessary to different variables in the organization. Over budgeting affects the short-term
and long-term performance as the organization may in future lack the requisite funds to support
future projects. This is because the funds have not been depleted in the budgeting proposal
process. Poor planning is another undesirable action in the budgeting process. This is the
situation whereby the managers fail to consider future events in the budgeting process. This
12 Knowles, et al., A survey of cyber security management, 55.

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results in allocating finances to the project without establishing the overall advantage of the
project to the organization. Poor planning affects the short-term and long-term performance in
that the finances allocated to project may not result in significant results. This may, therefore,
results to allocating money to non-beneficial programs. Additionally, poor planning may cripple
the organization financially and limit the implementation of future projects.
b. Explain how regular interaction between managers and their subordinates can reduce
budgetary slack.
Budgetary slack is the deliberate overestimation of budgetary expenses or
underestimation of revenue of the budget to allow flexibility for the proposed budget. This issue
has been on contention in several platforms with some terming the situation as unethical. To
counter budget slack, there is the need to have a good rapport between the managers and the
employees in order to propose effective budget estimation. Through this interaction, different
ideas can be tabled and the best decision arrived at. Interaction also boosts the relationship
between the working staff and also develop the confidence of the subordinates. Trust is an
important factor in any working environment. Through regular interaction, this trust can be
developed among the working staff allowing the managers to delegate key decisions to the
subordinates. Such action can motivate the staff as they feel appreciated allowing them to be
discreet in the budget formulation process. Additionally, interaction enables the subordinates to
practice integrity.13 This is important because the employees will be honest in any duty that they
13 Kim, Hyojoon, and Nick, Improving network management, 118.

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handle. Integrity is important in the budget formulation process as those involved in the budget
proposing process will be ethical and follow the prescribed guidelines and rules. Consequently,
the interaction will enable the management and subordinates to be diligent and shy away from
overestimations of expenses and underestimation of revenues.
c. One way higher-level managers can prevent their subordinates from padding their
budget is to allow some discretion to exceed the budgeted costs when necessary. Identify four
situations where it is necessary for top management to allow budget discretion.
Practicing discretion is essential for every business manager. It involves the freedom and
autonomy to make decisions. Critically, it involves the task hand and how to apply personal
judgment to make key integral decisions.14 Budgetary discretion involves allowing the
employees to make a key decision in the budget formulation process. It also involves giving the
employees room to exceed the budget. This is key them breathing room to propose costs and
exceed the proposed costs. Giving the employees the ability to exceed the cost helps in ensuring
the employees do not inflate the budget. Managers can allow the subordinates to exceed budget
in a situation where the expenses are changing. For example, the budget allowance for
purchasing products can be exceeded because the price of goods is not constant. Additionally,
budget discretion can happen when the expected revenue is not known. This allows money to
cover for an additional cost. Another situation is when the proposed budget may face budget
cuts. In this situation, exceeding the cost will ensure the initial budget is not affected after the
cut. Lastly, managers can allow discretion to cater for any issue that may arise within the course
of the financial period.
14 Guenther, Conceptualizations of controlling, 270.

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