Chapter 16

1. Chapter 16 Control

2. Control Function in Management • Control • Regulation of activities and behaviors within organizations • Adjustment or conformity to specifications or objectives • Effective control depends heavily on other functions that precede it and feeds back to them • Planning • Organizing • Leading

3. Ensures adjustment or conformity to objectives Ensures adjustment or conformity to specifications Control Regulates activities Regulates behavior Control Function in Management Adapted from Exhibit 16.1: The Control Function in Management

4. Planning Control Organizing Control’s Feedback Loop Changes in Feedback Adapted from Exhibit 16.2: Control’s Feedback Loop

5. Establish standards Basic Elements in Control Process • Establish standards • Specification starts at the top of the organization and involves every level of employee • Standards are the targets of performance • Involving employees in setting standards • Commits the employees to achieving the standards • Results in more appropriate standards Adapted from Exhibit 16.3: The Basic Elements in the Control Process

6. High Low Concrete Abstract Specificity of Standards and Performance Measurement Level of confusion in performance measurement Specificity of standards Adapted from Exhibit 16.4: The Effect of Specificity of Standards on Performance Measurement

7. Standards Establishing Standards How specific should they be? Who should set them? How difficult should they be to reach? Adapted from Exhibit 16.5: Issues in Establishing Standards

8. Establish standards Measure performance Basic Elements in Control Process • Measure performance • Obtain consensus about how to assess performance • If performance involves multiple activities, measure must be comprehensive • Measurement is costly and hence usefulness of the information must justify the costs Adapted from Exhibit 16.3: The Basic Elements in the Control Process

9. Performance Measurement Measurement of Performance Is there consensus among those involved as to how performance will be measured? Can measurement criteria be quantified? Are all necessary aspects of actions contributing to performance being measured? Can expensive, but noncritical, controls be eliminated? Adapted from Exhibit 16.6: Issues in the Measurement of Performance

10. Establish standards Measure performance Compare performance against standards Basic Elements in Control Process • Compare performance against standards • Comparisons are affected b the kinds of measurements available • Managers must interpret the patterns of comparisons (some negative/some positive) • Comparisons often involve subjective and objective measures Adapted from Exhibit 16.3: The Basic Elements in the Control Process

11. Establish standards Measure performance Compare performance against standards Evaluate results and take any necessary corrective action Basic Elements in Control Process • Evaluate results/take necessary corrective action • Not all results require action • Evaluate importance and magnitude of the deviation • Determine what action to take if necessary • Diagnosis skills of managers • Level of expertise • Evaluate the standards and the measures • Employees performing better than “standard” should be recognized and rewarded Adapted from Exhibit 16.3: The Basic Elements in the Control Process

12. Reinforcing Action Taken (e.g., increase rewards and recognition, consider increasing production targets, add new product lines) Actual performance measured against standard for performance Gap Detected Corrective Action Taken (e.g., increase training, modify supervision, invest in newer equipment) Outcomes of Performance Measurement Actual performance better than expected performance + - Actual performance worse than expected performance Adapted from Exhibit 16.7: Outcomes of Performance Measurement

13. Strategic Controls Tactical Controls Operational Controls (Narrow) (Broad) Types and Scope of Control Scope Adapted from Exhibit 16.8: Types and Scope of Control

14. Scope of Control Strategic Control • Assess and regulate how the organization fits its external environment and meets its long-range objectives and goals • Control becomes less efficient in uncertain or changing environments

15. Decentralized Centralized Stable Turbulent Centralization of Control and Environmental Stability Degree of centralization Environmental stability Adapted from Exhibit 16.9: Degree of Centralization of Control in Relation to Environmental Stability

16. High Low Easy Difficult Approaches to Strategic Control Environmental turbulence Ability to specify and measure precise strategic objectives Adapted from Exhibit 16.10: Approaches to Strategic Control

17. Scope of Control Tactical Control • Assess and regulate day-to-day functions of the organization and its major units in implementing its strategy • Financial controls • Budgetary controls • Supervisory structure controls • Human resource controls • Contrasting approaches to using tactical controls • Bureaucratic control • Commitment, or clan, control

18. Tactical Controls Strategic Controls Limited Long, unspecific Controls relate to specific, functional areas Controls relate to organization as a whole Comparisons made within organization Comparisons made to other organization Implementation of strategy Determination of overall organizational strategy Strategic and Tactical Controls Time Frame Objective Types of Comparisons Focus Adapted from Exhibit 16.11: Characteristics of Strategic and Tactical Controls

19. Appraisal and evaluation Selection Human Resource Function Controls Training Compensation Control in the Human Resource Function Adapted from Exhibit 16.14: Opportunities for Control in the Human Resource Function

20. Control in Bureaucracy and Clan Structures Type of Social Control Informational Control Requirementsa Approach Requirements Bureaucracy Norm of reciprocity Legitimate authority Adherence to rules and regulations Formal and impersonal Emphasis on detecting deviance Imposed on the individual Rules Clan Norm of reciprocity Legitimate authority Shared values, beliefs Stresses group consensus on goals and their measurement Mutual assistance in meeting performance standards Uses deviations as guidelines in diagnosing problems Control comes from the individuals or groups Traditions aSocial requirements are the basic agreements between people that, at a minimum, are necessary for a form of control to be employed. Source: Adapted from William G. Ouchi, “A Conceptual Framework for the Design or Organizational Control Mechanisms,” Management Science 25, no. 9 (1980), pp. 833–847 (p. 838). Adapted from exhibit 16.15: Control in Bureaucracy and Clan Structures

21. Scope of Control Operational Control • Assess and regulate specific activities and methods used to produce goods and services • Precontrol of operations • Concurrent control of operations • Postcontrol of operations

22. Input Process Output Pre-Control Concurrent Control Feedback Control Preventive Corrective Control Model

23. Precontrol • Controls the quality, quantity, and other characteristics of the inputs to the process • Concurrent • Control • Evaluates the conversion process as it occurs • Provides immediate feedback, which impacts worker motivation • Postcontrol • Traditionally, quality control • Many of these controls are being changed to pre- and concurrent controls Operational Controls Adapted from Exhibit 16.16: Operational Controls

24. Control Effectiveness • Focus of control • Balanced scorecard • Financial perspective • Customer perspective • Internal business perspective • Innovation and learning perspective • Amount of control

25. Control Effectiveness • Quality of information • Usefulness • Accuracy • Timeliness • Objectivity • Flexibility • Favorable cost-benefit ratio • Source of control

26. Effectiveness of Controls Focus of control What will be controlled? Where should controls be located in the organizational structure? Who is responsible for which controls? Key Factor Concerns Amount of control Is there a balance between over- and undercontrol? Quality of information collected by the controls Is the information useful? Is the information accurate? Is the information timely? Is the information objective? Flexibility of controls Are the controls able to respond to varying conditions? Favorable cost-benefit ratio Is the information being gathered worth the cost of gathering it? Source of control Is control imposed by others? Is control decided by those who are affected? Adapted from exhibit 16.17: Key Factors in Determining the Effectiveness of Controls