Chapter 13 CONTROL

Chapter 13
Foundations of Control
Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada
11-1
LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter
What Is Control?
Define control
Discuss the reasons why control is important

Explain the planning-controlling link Contrast the three approaches to designing control systems
11-2
LEARNING OUTLINE (contd)

The Control Process

Describe the three steps in the control process
Explain the three courses of action managers can take in controlling

Explain why what is measured is more critical than how its measured
11-3

Controlling for Organizational Performance

Define organizational performance Describe the most frequently used measures of organizational performance
Tools for Organizational Performance
Contrast feed-forward, concurrent, and feedback controls Explain the types of financial and information controls managers can use Describe how balanced scorecards and benchmarking are used in controlling
11-4

Current Issues in Control

Describe how managers may have to adjust controls for cross-cultural differences Discuss the types of workplace concerns managers face and how they can address those concerns Discuss what corporate governance is and how its changing
11-5

The Organizations Culture

Describe the seven dimensions of organizational culture
Discuss the impact of strong culture on organizations and managers

Explain the source of an organizations culture and how that culture continues Describe how culture is transmitted to employees
11-6
What Is Control?
Control
The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations
Importance of Control
To ensure that activities are completed in ways that lead to accomplishment of organizational goals
11-7
Purpose of Controls
Goals and Objectives
Organizational Divisional Departmental Individual
Taking Corrective Action Comparing to Standards Measuring Performance
Controlling
Planning
PlanningControlling Linkage
Leading Organizing
Exhibit 11.1 The PlanningControlling Link

Planning Goals Objectives Strategies
Plans
Controlling Standards Measurements Comparison Actions Organizing Structure Human Resource Management
Leading
Motivation Leadership Communication Individual and Group Behaviour
11-10
What Is Control? (contd)

Types of control systems
Market Control
Emphasizes the use of external market mechanisms to establish the standards used in the control system
Bureaucratic Control
Emphasizes organizational authority and relies on rules, regulations, procedures, and policies
Clan Control
Regulates behaviour by shared values, norms, traditions, rituals, and beliefs of the firms culture
11-11
Exhibit 11.2 Approaches to Design Control Systems
11-12
Exhibit 11.11 Types of Control

Input Processes Output
Feedforward Control Anticipates problems
Concurrent Control Corrects problems as they happen
Feedback Control Corrects problems after they occur
11-13
Tools for Controlling Organizational Performance

Feed-forward Control
Prevents anticipated problems before they occur
Building in quality through design Requiring suppliers conform to ISO 9002
Concurrent Control
Monitoring while activity is in progress
Direct supervision: management by walking around
11-14
Tools for Controlling Organizational Performance (contd)

Feedback Control
Takes place after an activity is done
Corrective action is after-the-fact, when the problem has already occurred
Advantages
Feedback provides managers with information on the effectiveness of their planning efforts Feedback enhances employee motivation by providing them with information on how well they are doing
11-15
The Control Process

1. Measuring actual performance
2. Comparing actual performance against a standard

3. Taking managerial action to correct deviations or inadequate standards
11-16
Exhibit 11.6 The Control Process

Step 1
Measuring Actual Performance
GOALS Organizational Divisional Departmental Individual Taking Managerial Action Comparing Actual Performance Against Standard
Step 2
Step 3
11-17
How and What We Measure

How We Measure
Personal observations (MBWA) Statistical reports Oral reports Written reports
What We Measure
Employees
Satisfaction Turnover Absenteeism
Budgets
Costs Output Sales
11-18
Exhibit 11.7 Common Sources of Information for Measuring Performance
11-19
What Do Managers Measure?
Finances Operations People Information
Financial Controls
Traditional Controls
Ratio analysis
Liquidity Leverage Activity Profitability
Other Measures
Economic value added (EVA) Market value added (MVA)
Budget analysis
Quantitative standards Deviations
11-21
Exhibit 11.12 Popular Financial Ratios
11-22
Exhibit 11.12 Popular Financial Ratios (contd)
11-23
Financial Controls (contd)

Other Measures
Economic value added (EVA)
How much value is created by what a company does with its assets, less any capital investments in those assets: the rate of return earned over and above the cost of capital
11-24
Financial Controls (contd)

Other Measures (contd)
Market value added (MVA)
The value that the stock market places on a firms past and expected capital investment projects If the firms market value (its stock and debt) exceeds the value of its invest capital (its equity and retained earnings), then managers have created wealth
11-25
Controlling Organizational Performance

Balanced Scorecard
A measurement tool that uses goals set by managers in four areas to measure a companys performance:
Financial Customer Internal processes People/innovation/growth assets
11-26
Information Controls
Management Information Systems (MIS)
A system used to provide management with needed information on a regular basis
Data: an unorganized collection of raw, unanalyzed facts (e.g., unsorted list of customer names)
Information: data that has been analyzed and organized such that it has value and relevance to managers
11-27
Benchmarking of Best Practices

Benchmarking
The search for the best practices among competitors or non-competitors that lead to their superior performance A control tool for identifying and measuring specific performance gaps and areas for improvement
11-28
Exhibit 11.13 Steps to Nurture best practices Implementing a Best on an ongoing basis best practices Practices Program Create knowledge sharing system
Communicate best practices throughout the organization Develop best practices reward and recognition systems Identify best practices throughout the organization Connect best practices to strategies and goals
Source: Based on T. Leahy, Extracting Diamonds in the Rough, Business Finance, August 2000, pp. 33-37.
11-29
Comparing Actual Performance Against Standard

Determining the degree of variation between actual performance and the standard
Significance of variation is determined by:
The acceptable range of variation from the standard (forecast or budget) The size (large or small) and direction (over or under) of the variation from the standard
11-30
Exhibit 11.8 Defining the Acceptable Range of Variation

Acceptable Upper Limit Acceptable Range of Variation
Standard
Acceptable Lower Limit
t+1
t+2 t+3 Time Period ( t )
t+4
t+5
11-31
Exhibit 11.9 Sales Performance Figures for July, Beer Unlimited
11-32
Taking Managerial Action

Courses of Action
Doing nothing
Only if deviation is insignificant
Correcting actual (current) performance

Immediate or basic corrective action
Revising the standard

Determine whether the standard is realistic, fair, and achievable
11-33
Exhibit 11.10 Managerial Decisions in the Control Process

Compare actual performance with standard No Is variance acceptable? Goals Standard Measure actual performance No Is standard acceptable? No Revise standard Correct performance Y es Identify cause of variation Y es Do nothing Is standard being attained? Y es Do nothing
11-34
Qualities Of An Effective Control System (PP. 382-3)

Corrective Action Multiple Criteria Emphasis on Exceptions Accuracy Timeliness
EFFECTIVE CONTROL SYSTEM
Economy
Strategic Placement Reasonable Criteria

Robbins et al., Fundamentals of Management, 4th Canadian Edition 2005 Pearson Education Canada, Inc.
Flexibility
Understandability
FOM 7.17
Contingency Factors in Control Systems

Contingency Variable Small Control Recommendations Informal, personal management
Organization Size
Large
High Low High Low Open Closed High Low
Formal, personal management

Many complex criteria Few, easy-to-measure criteria Increased number of controls Reduced number of controls Informal, self-control Formal, external controls Comprehensive controls Loose, informal controls
Position and Level
Degree of Decentralization
Organizational Culture
Importance of an Activity
Dysfunctional Controls
Inflexible Controls
Unreasonable Standards
Current Issues in Control

Cross-cultural Issues
The use of technology to increase direct corporate control of local operations Legal constraints on corrective actions in foreign countries
Difficulty with the comparability of data collected from operations in different countries
11-38
Current Issues in Control (contd)

Workplace Concerns
Privacy versus monitoring:
E-mail, telephone, computer, and Internet usage can all be monitored
Employee theft
The unauthorized taking of company property by employees for their personal use
Violence
Anger, rage, and violence in the workplace is affecting employee productivity
11-39
Exhibit 11.14 Types of Workplace Monitoring by Employers

Internet use Telephone use E-mail messages Computer files Job performance using video cameras Phone conversations 54.7% 44.0% 38.1% 30.8% 14.6% 11.5%
Voice-mail messages
Source: Based on S. McElvoy, E-Mail and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy? Communications and the Law, June 2002, p. 69.
6.8%
11-40
Exhibit 11.15 Control Measures for Employee Theft or Fraud
11-41
Exhibit 11.16 Control Measures for Deterring or Reducing Workplace Violence
11-42
Current Issues in Control (contd)

Corporate Governance
The system used to govern a corporation so that the interests of the corporate owners are protected
Changes in the role of boards of directors
Increased scrutiny of financial reporting
11-43
Entrepreneurs Managing Downturns

Recognizing crisis situations Things can turn worse Exit the venture Business evaluation
Entrepreneurs Controlling for Growth

Plan for growth Organize for growth Control for growth
Understanding Organizational Culture

What Is Organizational Culture? A system of shared meanings and common beliefs held by organizational members that determine, to a large degree, how they act toward each other The way we do things around here
Values, symbols, rituals, myths, and practices
Implications:
Culture is a perception Culture is shared Culture is a descriptive term
11-46
Exhibit 11.3 Dimensions of Organizational Culture

Degree to which employees are expected to exhibit precision, analysis, and attention to detail Degree to which employees are encouraged to be innovative and to take risks Degree to which managers focus on results or outcomes rather than on how these outcomes are achieved
Attention to Detail
Innovation and Risk-taking
Outcome Orientation
Stability
Organizational Culture
People Orientation
Degree to which organizational decisions and actions emphasize maintaining the status quo
Aggressiveness
Team Orientation
Degree to which management decisions take into account the effects on people in the organization
Degree to which employees are aggressive and competitive rather than cooperative Chapter 11, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada
Degree to which work is organized around teams rather than individuals
11-47
Strong Vs. Weak Cultures

Strong Cultures Key values are deeply held and widely held Have strong influence on organizational members
Factors Influencing the Strength of Culture Size of the organization Age of the organization Rate of employee turnover Strength of the original culture Clarity of cultural values and beliefs
11-48
Developing an Organizations Culture

The founders philosophy
Recruitment of employees who fit Behaviour of top management Socialization of new employees to help them adapt to the culture
11-49
Exhibit 11.4 How an Organizations Culture
Is Established
Top Management Philosophy of Organization's Founders Selection Criteria Organization's Culture
Socialization
11-50
How Employees Learn Culture

Stories
Narratives of significant events or actions of people that convey the spirit of the organization
Rituals
Repetitive sequences of activities that express and reinforce the values of the organization
Material Symbols
Physical assets distinguishing the organization
Language
Acronyms and jargon of terms, phrases, and word meanings specific to an organization
11-51
Exhibit 11.5 Managerial Decisions Affected by Culture
11-52

Chapter 13 CONTROL

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Chapter 13 CONTROL

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Chapter 13

Discuss the reasons why control is important

LEARNING OUTLINE (contd)

The Control Process

Explain the three courses of action managers can take in controlling

LEARNING OUTLINE (contd)

Controlling for Organizational Performance

LEARNING OUTLINE (contd)

Current Issues in Control

LEARNING OUTLINE (contd)

The Organizations Culture

Discuss the impact of strong culture on organizations and managers

Exhibit 11.1 The PlanningControlling Link

What Is Control? (contd)

Exhibit 11.2 Approaches to Design Control Systems

Exhibit 11.11 Types of Control

Feedforward Control Anticipates problems

Concurrent Control Corrects problems as they happen

Feedback Control Corrects problems after they occur

Tools for Controlling Organizational Performance

Tools for Controlling Organizational Performance (contd)

The Control Process

2. Comparing actual performance against a standard

Exhibit 11.6 The Control Process

How and What We Measure

Exhibit 11.7 Common Sources of Information for Measuring Performance

What Do Managers Measure?

Finances Operations People Information

Exhibit 11.12 Popular Financial Ratios

Exhibit 11.12 Popular Financial Ratios (contd)

Financial Controls (contd)

Financial Controls (contd)

Controlling Organizational Performance

Benchmarking of Best Practices

Comparing Actual Performance Against Standard

Exhibit 11.8 Defining the Acceptable Range of Variation

Acceptable Lower Limit

t+2 t+3 Time Period ( t )

Exhibit 11.9 Sales Performance Figures for July, Beer Unlimited

Taking Managerial Action

Correcting actual (current) performance

Revising the standard

Exhibit 11.10 Managerial Decisions in the Control Process

Qualities Of An Effective Control System (PP. 382-3)

EFFECTIVE CONTROL SYSTEM

Strategic Placement Reasonable Criteria

Contingency Factors in Control Systems

Formal, personal management

Position and Level

Current Issues in Control

Current Issues in Control (contd)

Exhibit 11.14 Types of Workplace Monitoring by Employers

Exhibit 11.15 Control Measures for Employee Theft or Fraud

Exhibit 11.16 Control Measures for Deterring or Reducing Workplace Violence

Current Issues in Control (contd)

Increased scrutiny of financial reporting

Entrepreneurs Managing Downturns

Entrepreneurs Controlling for Growth

Understanding Organizational Culture

Exhibit 11.3 Dimensions of Organizational Culture

Innovation and Risk-taking

Degree to which work is organized around teams rather than individuals

Strong Vs. Weak Cultures

Developing an Organizations Culture