The Controlling Concept. Horváth & Partners Management Consultants

the other corporate functions?

      •Governance (cf. Chapter 9): In order to exercise direction, coordination and monitoring, it is necessary to have a regulatory framework which ensures that rules and regulations are adhered to and that risks can be countered. This adherence to rules and regulations is vital and is known as compliance.

      Fig. 1.7:“House of Controlling” – Building blocks of an effective Controlling system

      The Horváth & Partners “House of Controlling” comprises all the necessary building blocks of an effective Controlling system (cf. Fig. 1.7).

      When designing the “House of Controlling”, the following questions must be answered for each individual component:

      •What are the tasks?

      •How should the processes be designed?

      •Which interfaces and touchpoints must be considered?

      •Which instruments are used and where?

      •Who is involved and how?

      •How is this embedded in the organisation?

      •What IT support is planned?

      During the course of this book we will provide a detailed description of each element in the House of Controlling and its main characteristics, and create design checklists for managers and controllers.

1.6The “House of Controlling” and its context factors

      The previous section summarised the central elements of an effective Controlling system in the form of the “House of Controlling”. Now, however, we have to ask the question: How should we design the specific details of those building blocks, i. e. how should we breathe life into the House of Controlling? The answer to this is that there is no “one” controlling system which suits all companies. Rather, the House of Controlling depends on the business model of the specific company and the situation and environment that company finds itself in.

What sort of business model does your company have?

      The starting point for the “House of Controlling” is the business model of a company (cf. Fig. 1.7).

      As everyone seems to be bandying the term “business model” about, and everybody understands it in a different way, first of all we should define what the term actually means. The description of a business model developed at the University of St. Gallen in Switzerland is so simple, clear and convincing that we have used its structure as the basis for the explanations and information provided here (for more details, see Gassmann et al. 2013). This model has four elements which form a “magic triangle” (cf. Fig. 1.8):

      1.Who are our target customers?

      2.What benefits do we offer our customers?

      3.Which value chain do we use to produce our goods and services?

      4.How do we generate a financial return?

      Fig. 1.8:Structure of a business model (Gassmann et al. 2013, p. 6)

      Fig. 1.9:7C Principle

      Another approach to appraising a business model is offered by the 7C Principle developed by Horváth & Partners (cf. Fig. 1.9). At the heart of this principle is the strategic core of the company which comprises the basic decisions of the company. These decisions concern defining the product portfolio, selecting the target customers and markets, and utilising the core competences. The other elements “circle” the strategic core and their correlations must be investigated and defined.

      •Customer perception: Customer perception focuses on those design aspects which take place in particular in the minds of the customers, in their perception. This includes market-related value proposition, positioning on the market and the type of brand utilisation including the instruments of communication used.

      •Customer interface: The customer interface consists of those decisions which determine the direct interaction with the customer. This includes sales channels, the earnings model (i. e. clarification of precisely what the customer is willing to pay for), customer loyalty concepts (e. g. via contracts, bonus programmes or personal relationship) and the design of the customer service.

      •Value Chain: The value chain addresses the method of producing the good or service and looks at the core services and service level, existing (production) locations and how they are networked, and (production) procedures used.

      •Cooperation partners: Within this dimension of the business model we define who the company cooperates with and how that cooperation takes place. Alongside working together with suppliers, both alliances and affiliations (including M&A activities) play an important role.

      •Concepts for the future: At the core of this design field is the analysis of the main focus of innovation, the definition of the dynamics of innovation in the sense of timing (e. g. first mover versus early follower), and decisions relating to the depth of innovation, thereby answering the question of whether external partners are integrated into the different phases of the innovation process.

      •Human capital: The human capital component of the business model focuses on the personnel and knowledge structures of the company, as well as aspects relating to corporate culture.

      The business model influences the House of Controlling in different ways. Firstly, the business model, strategy and strategic planning complement one another. In simple terms, this can be described as follows. The business model describes the customer-centric architecture of the business; the strategy and strategic planning focus on maintaining competitiveness and ask questions about the company’s unique selling proposition (USP). Against this background, the business model also forms the basis for, for example, financial plans and budgets.

      Changes in the market due to company-specific environmental factors (e. g. new competitors, new technologies, changes in customer behaviour) make it imperative to continually evaluate the business model and, if necessary, to develop it. Only in this way can a company prepare itself in time for changes and maintain or develop its own competitive position.

      Fig. 1.10:Porter’s Five Forces (Porter and Heppelmann 2014)

Do you systematically map the factors which affect the environment your company operates in (e. g. using 5 Forces)?

      Thus, the design of the House of Controlling is also heavily dependent upon the company-specific environmental factors. We can use Porter’s Five Forces (Porter and Heppelmann 2014) to systematically map a company’s environment. This can help companies to describe and understand their own environment based on five competitive forces (cf. Fig. 1.10). These forces influence the profitability of a company. The stronger the forces are, the more difficult it is for a company to be profitable in its industry.

      Each individual competitive force has a different impact on the company and, in the final analysis, on the House of