Contemporary Management 2nd Cdn ed

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Chapter
Organizational Control
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LEARNING OBJECTIVES
LEARNING OBJECTIVES

• After studying the chapter, you should be able
  to
• Define organizational control, and describe the
  four steps of the control process.
• Define the main output controls, the main
  behaviour controls and organizational culture in
  terms of the impact on the motivation of
  employees.
• Discuss the advantages and disadvantages of using
  output controls, behaviour controls and
  organizational culture as a means to coordinate
  and motivate employees.
• Recognize appropriate situations where
  organizational control, behaviour control and
  organizational culture should be used to motivate
  employees so that an organization can achieve
  high performance.

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CHAPTER OUTLINE

• What Is Organizational Control?
• The Importance of Organizational Control
• Control Systems
• The Control Process
• Output Control
• Financial Measures of Performance
• Organizational Goals
• Operating Budgets
• Problems with Output Control

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CHAPTER OUTLINE

• Behaviour Control
• Direct Supervision
• Management by Objectives
• Bureaucratic Control
• Problems with Bureaucratic Control
• The Role of Culture Organizational Control
• Output and Behaviour Controls The Underlying
  Assumption
• Getting Control of the Innovative, Flexible
  Organization
• Culture and the Four Activities of Management

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• Managers must monitor and evaluate
• Is the firm efficiently converting inputs into
  outputs?
• Are units of inputs and outputs measured
  accurately?
• Is product quality improving?
• Is the firms quality competitive with other
  firms?
• Are employees responsive to customers?
• Are customers satisfied with the services
  offered?
• Are our managers innovative in outlook?
• Does the control system encourage risk-taking?

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CONTROL SYSTEM

• Formal, target-setting, monitoring, evaluation
  and feedback systems that provide managers with
  information about how well the organizations
  strategy and structure are working.
• A good control system should
• be flexible so managers can respond as needed.
• provide accurate information about the
  organization.
• provide information in a timely manner.

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THREE TYPES OF CONTROL
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TYPES OF CONTROL

• Feedforward Control
• Used in the input stage of the process
• Managers can anticipate problems before they
  arise.
• Managers can give rigorous specifications to
  suppliers to avoid quality problems with inputs.
• Concurrent Control
• Give immediate feedback on how inputs are
  converted into outputs
• Allows managers to correct problems as they arise
• Managers can see that a machine is becoming out
  of alignment and fix it.

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TYPES OF CONTROL

• Feedback Controls
• Provide after-the-fact information managers can
  use in the future
• Customers reactions to
• products are used to take
• corrective action in the future.

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CONTROL PROCESS STEPS
Step 1
Step 2
Step 3
Step 4
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THE CONTROL PROCESS

• 1. Establish standards, goals, or targets against
  which performance is to be evaluated.
• Managers at each organizational level need to set
  their own standards.
• Standards must be consistent with the strategy of
  the organization (i.e., for a low cost strategy,
  standards should be focused closely on reducing
  costs).

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THE CONTROL PROCESS

• 2. Measure actual performance
• Managers can measure outputs resulting from
  worker behaviour or they can measure the
  behaviour themselves.
• The more non-routine the task, the harder it is
  to measure performance or output, causing
  managers to measure an employees behaviour
  (e.g., that an employee comes to work on time)
  rather than the employees output.

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THE CONTROL PROCESS

• 3. Compare actual performance against chosen
  standards.
• Does performance actually deviate from
  standard?If so, by how much?.
• 4. Evaluate result and take corrective action.
• Standards may have been set too high or too low.
• Workers may need additional training or
  equipment.
• This step is hard when environment is constantly
  changing.

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THREE STEPS OF PLANNING
Figure 7.1
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SIX STEPS IN DECISION MAKING
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Learn from feedback
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THREE ORGANIZATIONAL CONTROL SYSTEMS
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FINANCIAL MEASURE OF PERFORMANCE

• Financial Controls
• Profit ratios
• Measures of how efficiently managers convert
  resources into profitsreturn on investment
  (ROI).
• Liquidity ratios
• Measures of how well managers protect resources
  to meet short term debtcurrent and quick ratios.
• Leverage ratios
• Measures of how much debt is used to finance
  operationsdebt-to-asset and times-covered
  ratios.

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FINANCIAL MEASURE OF PERFORMANCE (Contd)

• Financial Controls (contd)
• Activity ratios
• Measures of how efficiently managers
• are creating value from assets
• inventory turnover, days sales
• outstanding ratios.

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• Organizational Goals
• Each division within the firm is given specific
  goals that must be met in order to attain overall
  organizational goals.
• Goals should be specific and difficult,but not
  impossible to achieve (stretch goals).

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ORGANIZATION- WIDE GOAL SETTING
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• Operating Budgets
• state how managers intend to allocate and use the
  resources they control.
• Each division is evaluated on its own budgets for
  cost, revenue or profit.
• Managers are evaluated by how well they meet
  goals for controlling costs, generating revenues,
  or maximizing profits while staying within their
  budgets.

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ESSENCE OF EFFECTIVE OUTPUT CONTROL

• Objective financial measures
• Challenging goals and performance standards
• Appropriate operating budgets
• Most organizations develop sophisticated output
  control systems

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PROBLEMS WITH OUTPUT CONTROL

• Managers must create output standards that
  motivate at all levels.
• They must be careful not to create short-term
  goals that motivate managers to ignore the
  future.
• Example Cutting costs by curtailing research and
  development (RD) now may lead to a loss of
  competitiveness in the future.
• If standards are set too high, workers may engage
  in unethical behaviours to attain them.
• Example Attempting to increase output regardless
  of product quality issues caused by omitting
  steps in the production process.

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• Direct Supervision
• Actively monitor, observe, teach, reward, lead by
  example, and take corrective action as needed.
• can be very expensive
• can de-motivate workers who desire less scrutiny
  and more autonomy
• difficult to do effectively in complex job
  settings

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MANAGEMENT BY OBJECTIVES

• Management by Objectives (MBO)
• A goal-setting process in which managers and
  subordinates negotiate specific goals and
  objectives for the subordinate to achieve and
  then periodically evaluate their attainment of
  those goals.
• Specific goals are set at each level of the firm.
• Goal setting is participation with manager and
  worker
• Periodic reviews of subordinates progress toward
  goals are held
• Pay raises and promotions are tied to goal
  attainment
• Teams are also measured in this way with goals
  and performance measured for the team.

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BUREAUCRATIC CONTROL

• Bureaucratic Control
• Control through a system of rules and standard
  operating procedures (SOPs) that shapes the
  behaviour of divisions, functions, and
  individuals.
• Rules and SOPs tell the worker what to do
  (standardized actions) so outcomes are
  predictable.
• There is still a need for output
• control to correct mistakes.
• Bureaucratic control is best used for routine
  problems in stable environments.

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BUREAUCRATIC CONTROL

• Problems with Bureaucratic Control
• Rules easier to make than discarding them,
  leading to bureaucratic red tape and slowing
  organizational reaction times to problems.
• Firms become too standardized and lose
  flexibility to learn, to create new ideas, and
  solve to new problems.
• Less useful in complex,changing situations

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ORGANIZATIONAL CULTURE

• Organizational Culture
• The set of internalized values, norms, standards
  of behaviour, and common expectations that
  control the ways in which individuals and groups
  in an organization interact with each other and
  work to achieve organizational goals.

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OUTPUT BEHAVIOR CONTROLS THE UNDERLYING
ASSUMPTION

• To use output and behaviour controls, the
  organization must know what is to be done in
  every situation an employee might face.
• Every situation
• Has been anticipated
• Is clearly understood
• Has an optimal reaction
• Governing behaviour with standard procedures is
  nearly impossible if need innovation and
  flexibility to compete.

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GETTING CONTROL OF THE INNOVATIVE, FLEXIBLE
ORGANIZATION

• Organizational culture can be used as a control
  system
• Broad guidelines for desired behaviours are
  internalized.
• Allows flexibility and innovation, consistent
  with company
• values and norms.
• Can provide control where output and behavioural
  control does not work.

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• Culture of innovative, flexible organizations
• Planning
• High level of involvement from all areas
• Focus on innovation, creativity
• Organizing
• Organic, flexible structures with teams
• Flat with decentralized authority
• Leading
• Leading by example
• Leaders take risks, celebrate success, openly
  discuss failure
• Controlling
• Long term goals and flexible MBO programs

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SUMMARY
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THE END