Question 2

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Categorise the management control mechanisms used by Citibank and Citibank Indonesia as action, results, personnel and culture controls. Identify one of the management control mechanisms that need immediate attention. Explain why that attention is needed.

The case of Citibank Indonesia provides us with an exemplary to examine its management control mechanisms. The Citibank faced budgetary issues in the year 1984 that forced it to develop effective management control mechanisms. The planning processes that Citibank cut across all the types of management control mechanisms, that is actions, results, culture and personnel controls. As part of their results control mechanism the Citibank managers had set targets that they had to use later as criteria against which to appraise their performance. The main targets for evaluating corporate performance included return on assets, profits, returns on equity and growth. However, they later recognized that setting targets alone is not sufficient to ensure increased productivity and hence they developed effective compensation systems.

The Citibank managers’ personnel control mechanism involved hiring competent employees who could they could rely on for good performance. Apart from employing qualified people, the Citibank managers developed effective training and development programs to ensure that they employees are informed in all areas. However, Citibank experienced higher employee turnover, whereby their trained employees moved to other organizations. Thus, Citibank managers came up with competitive compensational and benefits systems to ensure that they retain competent employees. The managers could be given up to about 70% of base salary as incentives and assigned bonuses of around 70% on personal performance and 30% on corporate performance.

The action control mechanism of Citibank entailed ensuring that workers do not cause harm to the organization through their action. Citibank management team fixed sovereign risk limits aimed at recapturing the capital the bank invested Indonesia. Citibank managers developed effective communication systems to ensure that important information is communicated to all the departments of the organization. In this case, the Citibank managers established pre-action reviews to avoid inappropriate action from occurring.

As part of its cultural control mechanism, Citibank respected and upheld a fair financial system. However, the cultural control mechanism of Citibank is wanting and requires immediate action. The budgetary issues that Citibank experienced in 1984 show that the management team had failed to create an appropriate ethical culture. The management has not done enough to make sure that everyone in the organization adopts their stated core values. It is very clear from this case that some managers are not adhering to this code as the corporate officials pushed for higher net incomes despite the bank having an already aggressive budget.