ISSUES IN CONTROL

New Control Measures In recent years, the reliance on profitability, return on investment, and other purely financial measures to gauge the performance and health of business firms has given way to a larger variety of control indicators which provide a more complete picture of the firms performance and competitive standing. Measures of product quality and customer satisfaction are two of the more important measures which firms have added to the key performance indicators with which they gauge overall performance. Customer Satisfaction Though the concern about customer complaints and satisfaction is as old as business itself, the widespread effort to measure this systematically and continuously is relatively recent. In part, this is the result of intensifying competition for the customers loyalty among contemporary firms, and in part also because of the influence of various management gurus who claim that contemporary firms must be customer driven to be successful. Customer satisfaction can be measured through various means. Many firms who cannot afford to use the services of independent consumer research organization devise their own measures which include questionnaires, interviews, sales force feedback, etc. These methods are not new. What is new is the effort to collect customer satisfaction data on a regular or continuing basis- so that changes and trends over time can be detected and evaluated. By measuring customer satisfaction systematically and continuously, firms have a direct basis for gauging the state of customer satisfaction instead of inferring the same primarily from the trend in the sales revenues of the firm. Quality Measurements. Statistical Quality Control is the name of the traditional approach for the measurement of production quality in the shop floor. As a result of the highly acclaimed innovations pioneered in Japanese manufacturing firms quality control circles, how ever, the approach to quality has changed in a very fundamental way. It is no longer considered a virtue to use a traditional concepts such as acceptable quality levels where product lots are passed off as acceptable provided the defect rate (as measured through random sampling) does not exceed a certain predetermined threshold. Rather, firms are now enjoined to aim for zero defects as their quality standard in production.

The phenomenal success of quality circles in Japanese manufacturing has revolutionized attitudes and practices in quality assurance world-wide. Today, people speak of Total Quality Management or TQM to extend the philosophy of continuous improvement which originated in the production floor in Japan to all the other operations and processes in the firm. Many leading firms today are not content just to measure and monitor quality in their various products and processes internally. Through the process of benchmarking, They obtain data on the practices and performance of their best competitors against which to compare their own performance It can be said that TQM is now a worldwide movement. Numerous books are now available detailing the philosophy, analytical concepts and practices of TQM. More importantly, there is now an International Standards Organization (ISO) based in Geneva, Switzerland which represents a federation of national standards organizations from more than 100 countries around the world. Such organization promote international standardization of quality practices, among others, and can perform independent and comprehensive assessments and certificate of the practices of a specific firm. This discussion, which is limited only to customer satisfaction and quality measures, are meant to suggest that the practice of giving up primary reliance on financial measures to monitor and control the activities of the firm is giving way to a more comprehensive set of measures which provide the managers of business firms additional data and insights into aspects of the firms operations which are often not captured in traditional financial measures.

Cost Implications of Control In designing a control system or in adopting a control tool or technique, management must weigh the benefits to be derived from the system against the cost of installing and maintaining the system. The types of costs that are associated with control are personnel costs, capital, and operating expenses. Personnel costs increase as control is tightened because of additional manpower requirements as tasks are divided. Control requirements that one person should not have full control of a transaction. The assignment of tasks to several persons insures checks and balances in an organization. Another aspect of the control function is closed monitoring of performance in order to correct deviations from targets or plans. The monitoring process requires timely and regular reports which imply the creation of additional tasks to be performed by additional personnel.

Examples of additional tasks that are created by the Control Function are: 1) internal auditing 2) financial analysis. Internal auditing involves among others, the regular evaluation of the companys internal control system, the examinations of the companys accounting records and the periodic verification of companys assets. In a small business, the owner assumes this responsibilities with the assistant of the accountant. In large firm, the size of the internal audit staff could approximate that of accounting staff, both reporting to a Controller. Performance monitoring requires additional staff who will prepare variance analysis reports (analysis of deviations of actual performance from target performance) and timely financial reports like Financial Statements. As personnel costs increase with the division of tasks and addition of new tasks, capital outlays also increase. The more people that a company hires, the more floor space is required as well as office furniture and equipment. As number of employees increase, operating expenses, utilities, telephone, and supplies, also increase. Cost of administration and overhead cost also increase as the number of personnel increase. Considering these costs, management must, therefor, carefully assess the benefits from control before adopting a specific control tool or system.