Seminar Competitive Strategy, Governance, and Control Systems: Impact on Performance

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On Monday, October 14, 2019, the University of Surabaya had the opportunity to invite Prof. Johnny Jeremias to speak in a seminar for bachelor and master students. Prof. Johnny Jeremias was born in Manado, had studied in Indonesia, and then continued his education and career in Canada. He now serves as a lecturer at Simon Fraser University Canada, having previously gone through a career as an auditor, lecturer, to management consultant. A series of his career has shown that Prof. Johnny has much experience, especially in terms of company performance. This time, he conveyed how the competitive strategy adopted by the company, along with its leadership structure and system control, can influence the company’s performance. He began his session with an explanation of how conflicts generally occur at the manager and owner level, where the owner is often treated as an outsider. Conflicts can occur due to unbalanced information flow. Information alone can also lead a company to a competitive strategy. Why do companies want to gain an edge from information? 3 pillars strengthen each information function, namely:

  1. Perceived opportunity: It is in the forms of unclear regulations or policies, internal controls that do not innovate, or there are opportunities to increase income significantly. If companies utilize these opportunities, they can innovate and grow rapidly.
  2. Perceived pressure: one example of perceived pressure is to target turnover that is too high, but instead, it leads to a lack of maximum company performance because the mindset of managers is only targeting to achieve the minimum requirements.
  3. Rationalization: It is how the behavior of someone who tries to rationalize the choices, even though it is actually wrong. This applies to the majority rule system, where if 90% of people choose to implement plan A and the remaining 10% choose plan B because it is more applicable. However, due to the majority rule system, Plan A is implemented with the perception of rationalizing Plan A.

The three pillars above explain that there are many opportunities for managers to get involved and fix the company’s management by obtaining information. He also highlighted his argument by giving examples of scandals in the world of accounting, such as the BRE-X. The case that occurred at BRE-X began with a report by the BRE-X CEO that said they discover a gold mine in Busang, Kalimantan. The news was welcomed by the capital market residents, so the shares of BRE-X skyrocketed because they assumed the company had good prospects in the future. However, six months later, then the public realized that the news was a hoax. The scandal is one example of asymmetric information circulating. Information can bring a profit to a company and also harm the company. However, getting an advantage is not limited to the acquisition of information, but rather by utilizing agency relations. Agency relations illustrate how relationships are established by managers to improve company performance. Prof. Johnny explained that monitoring and incentives are essential to minimize problems arising from agency relations. However, incentives are considered to be able to significantly improve performance because of the perception that rising performance will bring far more benefits. In general, incentives are powerful to be applied to managers.

In general, competitive strategies are divided into two types, namely, innovative and efficiency. Innovative strategies are characterized by democratic systems, empowerment, and freedom for managers. Meanwhile, the efficiency strategy is characterized by autocratic, high control, and more structured with many procedures. He explained that the appropriate competitive strategy category was used if using an innovative strategy; the good governance structure applied is less monitoring. With innovative strategies and less monitoring, the type of product produced allows it to be unique from similar products, to become a first-mover company, to be able to monopolize the market and provide a premium price. If using an efficiency strategy, the proper form of governance structure is autocratic. Even so, he said, that no governance structure is most appropriate. The most important part is how to combine the strategy, governance structure, and compensation incentives.

fig. 1

How do we know if the company is using an innovative or efficient strategy? This can be seen from how much the company spent on Research and Development (R&D) division. If R&D has a large portion of the budget, the company can be concluded using an innovative strategy, which features different products in the target market. However, innovative and efficiency strategies can be applied together, as in Samsung company. The company continues to issue the latest innovations in its products, accompanied by 70% to 90% of the budget poured into the R&D division. However, Samsung’s new product will eventually become a commodity product. It turns out, the short product life cycle is Samsung’s target, where if a new product has become a commodity product, then they will prioritize sales volume and lower their margins as an efficiency strategy implemented. Although Samsung is a successful example of combining the two competitive strategies, Prof. Johnny still suggests separating the implementation of the two strategies in a company; it is feared that chaotic might happen.

fig. 2

The seminar continued with questions related to the material presented by Prof. Johnny Jeremias. One participant asked whether it could apply innovation from how companies operate in order to achieve efficiency. Prof. Johnny answered that it is possible, like, for example, Toyota. Toyota is known as an efficient company, especially with Just-in-Time. However, the innovative form the company produced was in the form of Lexus products. Another question asked how the real implementation of stock base options can improve company performance. He explained managers must stay in the company within a certain period of time in order to enjoy dividends from company shares, and enjoy the benefits derived from the difference in prices listed on the stock options compared to the real-time price on the capital market. He answered the enthusiasm of students with satisfying and logical answers.

 Finally, the seminar ended with the awarding of certificates, souvenirs, and Javanese hat by the Head of Master of Accounting study program to Prof. Johnny Jeremias. It is hoped that by holding this seminar, it can further strengthen students’ understanding of what strategies are most appropriate for the company, as well as how to create controls, so that company performance is maintained, as well as being increasingly improved.

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