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OVERVIEW OF THE CHAPTER This chapter examines the nature of organizational control and describes the four steps of the control process. It also discusses three types of systems available to managers to control and influence organizational members: output control, behavior control, and organizational culture(clan control). Effective management of organizational change is addressed, as well as the role of the entrepreneur in the change process. LEARNING OBJECTIVES Define organizational control and identify the main output and behavior controls managers use to coordinate and motivate employees. (LO1) Explain the role of clan control or organizational culture in creating an effective organizational architecture. (LO2) Discuss the relationship between organizational control and change and explain why managing change is a vital management task. (LO3) Understand the role of entrepreneurship in the control and change process. (LO4)
MANAGEMENT SNAPSHOT: CONTROL IS NO LONGER A PROBLEM FOR ORACLE One of the main advantages of Internet-based control software is its ability to centralize management of a companys widespread operations, thereby allowing managers to easily compare and contrast the performance of different divisions spread around the globe in real time. Oracle, the second largest independent software company in the world after Microsoft, did not have such a system in place and therefore was not experiencing the cost savings that could result from it. Instead, Oracles financial and human resources information was located on seventy different computing systems across the world. Recognizing the irony of the situation, CEO Larry Ellison ordered the implementation of an Internet-based control system as soon as possible. His goal was to have all of Oracles sales, financial, and human resources information systems consolidated in two locations. This information was to be made immediately available to all managers with one click of a mouse. He also instructed that any paper-based control systems be immediately automated. Savings resulted in over $1 billion a year.
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The Importance of Organizational Control A control system contains the measures or yardsticks that allow managers to assess how efficiently the organization is producing goods and services. Without a control system in place, managers have no idea how their organization is performing and how its performance can be improved. Organizational control is important in determining the quality of goods and services because it gives managers feedback on product quality. Effective managers create a control system that consistently monitors the quality of goods and services so that they can make continuous improvements to quality. By developing a control system to evaluate how well customer-contact employees are performing their jobs, managers can make their organizations more responsive to customers. Monitoring employee behavior can help managers find ways to increase employees performance levels. Controlling can raise the level of innovation in an organization by deciding on the appropriate control systems to encourage risk taking.
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The Control Process The control system, whether at the input, conversion, or output stage, can be broken down into four steps. They are: Step 1: Establish the standard of performance, goals, or targets against which performance is to be evaluated. Step 2: Measure actual performance. Step 3: Compare actual performance against chosen standards of performance. Step 4: Evaluate the result and initiate corrective action if the standard is not being achieved.
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The objectivity of financial measures of performance is the reason why so many managers use them to assess effectiveness and efficiency. When an organization fails to meet performance standards, managers know that they must take corrective action.
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Organizational Goals After top managers have set the organizations overall goals, they then establish performance standards for the various divisions and functions. These standards specify for divisional and functional managers the level at which their units must perform if the organization is to achieve its overall goals. Divisional managers then develop a business- level strategy that they hope will allow them to achieve that goal. In consultation with functional managers, they specify the functional goals that managers of different functions need to achieve to allow the division to achieve its goals. In turn, functional managers establish goals that first-line managers and nonmanagerial employees need to achieve to allow the function to achieve its goals. It is vital that the goals set at each level harmonize with the goals set at other levels. Also, goals should be set appropriately so that managers are motivated to accomplish them. The best goals are specific difficult goals, often called stretch goals, that will challenge and managers ability but are not out of reach.
. Operating Budgets The next step in developing an output control system is to establish operating budgets. An operating budget is a blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently. Managers at one level allocate to subordinate managers a specific amount of resources to use to produce goods and services. These lower-level managers are evaluated on their ability to stay within the budget and to make the best use of resources.
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Problems with Output Control Managers must be careful that the output standards they create do not cause managers at lower levels to behave in inappropriate ways to achieve organizational goals. Output standards should encourage managers to be most concerned about the long term. Problems With Output Control When designing an output control system, managers must be sure that the output standards they create motivate managers at all levels and do not encourage inappropriate behavior as a way to achieve organizational goals. Managers primary concern should be long-term effectiveness. Therefore, if conditions change, it is probably better that top managers communicate to those lower in the hierarchy that they are aware of the changes taking place and are willing to revise and lower goals and standards. Managers must be sensitive to how they use output control and constantly monitor its effects at all levels in the organization. Output controls should serve as a guide to appropriate action.
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Management by Objectives To provide a framework within which to evaluate subordinates behavior, many organizations implement some version of management by objectives (MBO). Management by objectives is a system of evaluating subordinates for their ability to achieve specific organizational goals or performance standards and to meet operating budgets. It involves three steps. Step 1: Specific goals and objectives are established at each level of the organization. Step 2: Managers and their subordinates together determine the subordinates goals. Step 3: Managers and their subordinates periodically review the subordinates progress toward meeting goals.
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Problems with Bureaucratic Control With a bureaucratic control system in place, managers can manage by exception and intervene and take corrective action only necessary. However, the following problems have been associated with bureaucratic control, which can reduce organizational effectiveness. They are: Establishing rules is always easier than discarding them. If the amount of red tape becomes onerous, sluggishness can imperil an organizations survival. Because rules constrain and standardize behavior, there is a danger that people become so used to automatically following rules that they stop thinking for themselves. Innovation is incompatible with the use of extensive bureaucratic control. Bureaucratic control is most useful when organizational activities are routine and when employees are making programmed decisions. It is less useful where nonprogrammed decisions have to be made and managers have to react quickly to changes.
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Output controls such as the amount of time a surgeon takes for each operation or the costs of making a discovery are very crude measure of the quality of performance. II. ORGANIZATIONAL CULTURE AND CLAN CONTROL (LO2) Organizational culture is another control system that regulates and governs employee attitudes and behavior. It is the shared set of beliefs, expectations, values, norms, and work routines that influence how members of an organization relate to each other and work together to achieve organizational goals. Clan control is the control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations. Organizational culture is not an externally imposed system; rather, employees internalize organizational values and norms. Rather, employees internalize organizational values and norms, and then let these values and norms guide their decisions and actions. Organizational culture is an important source of control for two reasons: 1) it makes control possible in situations where managers cannot use output or behavior control, and 2) when a strong and cohesive set of organizational values and norms is in place, employees focus on thinking about what is best for the organization in the long run.
Manager as a Person: James Casey Creates a Culture for UPS UPS employs over 250,000 people and is the most profitable company in its industry. Since its founding in 1907 by James E. Casey, UPS has developed a culture that has been a model for competitors, such as FedEx and the U.S. Postal Service. From the beginning, Casey made efficiency and economy the companys driving values. Loyalty, humility, discipline, dependability, and intense effort were established as the key norms and standards UPS employees should adopt. UPS has always gone to extraordinary lengths to develop and maintain these values and norms in its workforce.
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III. ORGANIZATIONAL CHANGE (LO3) There is a fundamental need to balance two opposing forces in the control process. On one hand, adopting the right set of output and behavior controls is essential for improving efficiency. One the other hand, however, employees also need to feel that they have the autonomy to depart from routines as necessary to increase effectiveness because the environment is dynamic and uncertain. Many researchers believe that the highest performing organizations are those that are constantly changing and thus have become experienced at it. For this reason, it is vital that managers develop the skills necessary to mange change effectively. Several experts have proposed a model that managers can follow to implement change successfully.
Organizational change is the movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness. Assessing the Need for Change Organizational change can affect practically all aspects of organizational functioning, including organization structure, culture, strategies, control systems, and groups and teams, human resource management system, as well as critical organizational processes such as communication, motivation, and leadership. It can also bring alterations in the way that managers carry out the critical tasks of planning, organizing, leading, and controlling, and the ways they perform their managerial roles. Deciding how to change an organization is a complex matter because change disrupts the status quo and poses a threat to many, prompting some employees to resist attempts to alter work relationships and procedures.
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Deciding On the Change To Make Once managers have identified the source of the problem, they must decide what they think the organizations ideal future state would be and begin engagement in planning how they are going to attain the organizations future state. This step also includes identifying obstacles or sources of resistance to change. Obstacles to change are found at the corporate, divisional, departmental, and individual levels of the organization. Corporate-level changes, even seemingly trivial ones, may significantly affect how divisional and departmental managers behave. For this reason, an organizations present strategy and structure can be powerful obstacles to change.
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Implementing the Change Generally managers introduce and manage change from the top down or from the bottom up. Top down-change is implemented quickly. Top managers identify the need for change, decide what to do, and then move quickly to implement the changes throughout the organization. Bottom-up change is typically more gradual. Top managers consult with middle and first line managers, and then over time, managers at all levels work to develop a detailed plan for change. A major advantage of bottom-up change is that it can co-opt resistance to change from employees.
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IV. ENTREPRENEURSHIP, CONTROL, AND CHANGE Entrepreneurs are the people who bring about change to companies and industries because they see new and improved ways to use resources to create products customers will want to buy. Entrepreneurs assume the risk associated with starting a new business, which is substantial since many new businesses fail. They receive all of the returns or profits associated with the new business venture. Employees of existing organizations who notice opportunities for product or service improvements and are responsible for managing the development process are known as intrapreneurs. There is an interesting relationship between entrepreneurs and intrapreneurs. Many intrpreneurs become dissatisfied when their employers decide not to support their new product ideas and development efforts. Very often they leave their employer to found new ventures that may compete with the company they left. Frequently, founding entrepreneurs lack the skill, patience, or experience to engage in the difficult work of management. Therefore, they must hire managers who can create an operating and control system that will help the new venture to prosper.
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Lecture Enhancer 8.2 USING THE EXIT INTERVIEW AS A CONTROL SYSTEM Feedback on problems is the only way to prevent them from recurring. One often-overlooked way of getting this feedback from employees is through the exit interview. Interviews with employees who voluntarily leave the organization serve a dual purpose. For the employee, exit interviews are a chance to say many things they havent been able to say before. For employers, the interviews can be an excellent source of information. Many companies, however, do not conduct exit interviews or conduct them ineffectively.
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Control can take place at the corporate, divisional, functional, and individual levels. 2. Which output performance standards (such as financial measures and organizational goals) do managers use most often to evaluate performance at each level? Performance standards include financial measures (such as ratios), organizational goals, and operating budgets. Refer to the answer to question #3 in Management in Action for examples of these standards. 3. Does the organization have a management by objectives system in place? If it does, describe it. If it does not, speculate about why not.
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