2. What Is Control?
• Control
Monitoring activities to ensure that they are being
accomplished as planned and of correcting any
significant deviations
Ensures that activities are completed in ways that
lead to the attainment of the organization’s goals.
3. Why Is Control Important?
• As the final link in management functions:
Planning
Controls let managers know whether their goals and plans
are on target and what future actions to take.
Empowering employees
Control systems provide managers with information and
feedback on employee performance.
Protecting the workplace
Controls enhance physical security and help minimize
workplace disruptions.
4. Steps in the Control Process
1. Measuring Actual Performance
Personal observation, statistical reports, oral
reports, and written reports
Management by walking around (MBWA)
A phrase used to describe when a manager is out in the
work area interacting with employees
5. Steps in the Control Process (cont’d)
2. Comparing actual performance against a
standard
Comparison to objective measures: budgets,
standards, goals
Range of variation
The acceptable parameters of variance between actual
performance and the standard
7. Steps in the Control Process (cont’d)
3. Taking managerial action to correct deviations
or inadequate standards
Immediate corrective action
Correcting a problem at once to get performance back on
track
Basic corrective action
Determining how and why performance has deviated and
then correcting the source of deviation
Revising the standard
Adjusting the performance standard to reflect current and
predicted future performance capabilities
10. Controlling for Organizational Performance
• What Is Performance?
The end result of an activity
• What Is Organizational
Performance?
The accumulated end results of all of the
organization’s work processes and activities
Designing strategies, work processes, and work activities.
Coordinating the work of employees.
11. Organizational Performance Measures
• Organizational Productivity
Productivity: the overall output of goods and/or
services divided by the inputs needed to generate
that output.
Output: sales revenues
Inputs: costs of resources (materials, labor expense, and
facilities)
Ultimately, productivity is a measure of how
efficiently employees do their work.
12. Organizational Performance Measures
• Organizational Effectiveness
Measuring how appropriate organizational goals are
and how well the organization is achieving its goals.
Systems resource model
– The ability of the organization to exploit its environment in
acquiring scarce and valued resources.
The process model
– The efficiency of an organization’s transformation process in
converting inputs to outputs.
13. Industry and Company Rankings
• Industry rankings on: • Corporate Culture
Profits Audits
Return on revenue • Compensation and
Return on shareholders’ benefits surveys
equity
• Customer satisfaction
Growth in profits
surveys
Revenues per employee
Revenues per dollar of
assets
Revenues per dollar of
equity
14. Types of Control
• Feedforward Control
Prevents anticipated problems.
• Concurrent Control
Takes place while an activity is in progress.
• Feedback Control
Takes place after an action
Provides evidence of planning effectiveness
19. Tools for Controlling Organizational
Performance: Financial Controls (cont’d)
• 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.
– The choice is to use less capital or invest in high-return
projects.
20. Tools for Controlling Organizational
Performance: Financial Controls (cont’d)
• Other Measures (cont’d)
Market Value Added (MVA)
The value that the stock market places on a firm’s past and
expected capital investment projects
If the firm’s market value (its stock and debt) exceeds the
value of its invest capital (its equity and retained earnings),
then managers have created wealth.
• The Practice of Managing Earnings
21. Controlling Organizational Performance
• Balanced Scorecard
Is a measurement tool that uses goals set by
managers in four areas to measure a company’s
performance:
Financial
Customer
Internal processes
People/innovation/growth assets
Is intended to emphasize that all of these areas are
important to an organization’s success and that there
should be a balance among them.
22. Information Controls
• Purposes of Information Controls
As a tool to help managers control other
organizational activities.
Managers need the right information at the right time and in
the right amount.
As an organizational area that managers need to
control.
Managers must have comprehensive and secure controls in
place to protect the organization’s important information.
23. Information Controls
• Management Information Systems (MIS)
A system used to provide management with needed
information on a regular basis.
24. Controls and Cultural Differences
• Methods of controlling employee behavior and
operations can be quite different in different
countries.
25. The Dysfunctional Side of Control
• Problems with Unfocused Controls
Failure to achieve desired or intended results occur
when control measures lack specificity
• Problems with Incomplete Control Measures
Individuals or organizational units attempt to look
good exclusively on control measures.
• Problems with Inflexible or Unreasonable
Control Standards
Controls and organizational goals will be ignored or
manipulated.
26. Contemporary Issues in Control
• The right to personal privacy in the workplace
versus:
Employer’s monitoring of employee activities in the
workplace
Employer’s liability for employees creating a hostile
environment
Employer’s need to protect intellectual property
Remember: The computer on your desk
belongs to the company.
Notas del editor
The most common sources of information for performance measurement are personal observation, statistical reports, oral reports, and written reports. Personal observation provides first-hand knowledge of an activity, thereby permitting intensive coverage and allowing managers to “read between the lines.” Because it is subjective, however, personal observation may be biased. Also, it is time-consuming and obtrusive. Statistical reports consist of computer print-outs, graphs, bar charts, and numerical displays. Although they represent relationships clearly and accurately, statistical reports provide limited information about an activity and ignore qualitative elements. Oral reports consist of one-on-one conversations, telephone calls, and conferences. The advantages and disadvantages of oral reports are similar to those of personal observation. Written reports can also measure performance. They are more formal, comprehensive, and concise than oral reports. In addition, they are easy to catalog and reference. Comprehensive control efforts by management will require the use of all four of these methods
Managers compare actual performance to a standard to determine the degree of variation. Some variation is normal, but management must determine the acceptable degree of variation.
Managers can take action in three ways: do nothing, take corrective action, or revise the standard. Because “doing nothing” is self-explanatory, this section discusses the other two options. Corrective action can include changing strategy, structure, compensation, and training; redesigning jobs; and replacing personnel. Immediate corrective action corrects problems at once and gets performance back on track. Basic corrective action determines how and why performance has deviated and corrects the problem at the source. Rather than “putting out fires” with immediate corrective action, effective managers analyze deviations and, if justified, permanently correct variances between standard and actual performance. Before revising a standard downward, management must realize that if employees fall significantly short of reaching its target, their natural response will be to shift blame for the variance from themselves to the performance standards. If a manager believes that the standards are realistic, then he or she must explain the position, reaffirm the expectation that future performance will improve, and take appropriate corrective action.
Fortune 500, Forbes 500
Management can implement controls proactively (feedforward), during an activity (concurrent), or after the activity has been completed (feedback). Feedforward control is the most desirable because it prevents anticipated problems. Thus, it is proactive. Unfortunately, this type of control requires timely, accurate information that is often difficult to obtain. As a result, managers often rely on concurrent and feedback control mechanisms. Concurrent control occurs while an activity is in progress. The best known form is direct supervision. Even though there is some delay between the activity and the manager’s response, it is minimal. Feedback control , the most commonly used type, occurs after the action. The major drawback is that by the time that the manager has the information, the damage has already been done. But, for many activities, feedback is the type of control that is workable. Compared to feedforward and concurrent control, feedback has two advantages. First, it helps managers to gauge the effectiveness of their planning efforts. Second, feedback can enhance employee motivation.
Effective control systems share certain common qualities, the importance of which varies with the situation. However, we can generalize that the following characteristics should make a control system effective. 1. Accuracy. An effective control system is reliable and produces valid data. 2. Timeliness. An effective control system provides timely information. 3. Economy. Managers should impose only the controls needed to produce the desired behavior. 4. Flexibility. Controls must be adjustable because times and conditions change. 5. Understandability. Employees will misunderstand or ignore a cryptic control system. 6. Reasonable criteria. Control standards must be reasonable and attainable. If they are unreasonable, they no longer motivate. 7. Strategic placement. Management should control the factors that are strategic to the organization. 8. Emphasis on the exception. Effective controls minimize the routine and pinpoint the exceptional. 9. Multiple criteria. Multiple performance measures expedite accurate performance assessments. 10. Corrective action. Effective controls identify the problem and specify the solution.
The differences in control systems of multinational corporations are primarily in the measurement and corrective action steps of the control process. Managers of foreign operations of multinational corporations, for instance, are not closely controlled by the head office. Furthermore, distance promotes formalized goals, and technological differences make control data incomparable. Organizations in technologically advanced nations use indirect control devices (computer-related reports and analyses) in addition to standardized rules and direct supervision. In countries that are less advanced, direct supervision and highly centralized decision making predominate.
When control standards are inflexible or unreasonable, employees may lose sight of the overall goals of the organization. Furthermore, the controls may run the organization instead of the organization running the controls. This situation could produce dysfunctional behavior. For example, workers may concentrate on quantity to the detriment of quality if performance is evaluated on the basis of the number of units produced. Evidence indicates that the manipulation of control data is not a random phenomenon. When being measured on activities that make a difference in a person’s rewards, individuals often distort actual figures, emphasize successes, and suppress evidence of failures. Therefore, failure to design flexibility into a control system can create problems that are more severe than those the controls were intended to prevent.
Technological advances in computer hardware and software have made the process of controlling much easier. As a result, difficult questions have been raised about what managers have the right to know about employees and how far they can go in controlling employee behavior, both on the job and at home. How can organizations benefit from the information provided by computer monitoring systems and yet minimize the behavioral and legal drawbacks? Experts suggest that organizations do the following: Tell employees, both current and new, that they may be monitored for business reasons. Post a written employee-monitoring policy where employees will see it or distribute it to each employee. Have all employees acknowledge in writing that they have received a copy of the policy and that they understand it. Monitor only those situations in which a legitimate business purpose is at stake: for instance, training or evaluating workers, or controlling costs. When used in this manner, computer monitoring can be an effective and ethical management control tool.