Organizational Control in a Complex Business Environment

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Chapter 16
Organizational Control in a Complex Business
Environment
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Organizational Control Defined
The systematic process through which managers
regulate organizational activities to make them
consistent with the expectations established in
plans and to help them achieve all predetermined
standards of performance.
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Process of Control Slide 1 of 3

• Setting Standards for Performance
• Whenever possible, the standards should be set in
  a manner that allows them to be compared with
  actual performance.
• Measuring Actual Performance
• An organization must decide
• What to measure.
• When to measure.
• How frequently to measure.

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Process of Control Slide 2 of 3

• Comparing Actual Performance With Standards
• This step involves determining if actual
  performance compared to standards falls within
  acceptable limits.
• Responding to Deviations
• If the deviation from performance is
  unacceptable, then corrective action is
  warranted. If the deviation is acceptable, no
  correction action is necessary.

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Process of Control Slide 3 of 3
If deviations are acceptable
Take no corrective action
Set performance standards
Measure actual performance
Compare performance with standards
If deviations are unacceptable
Take corrective action
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Designing Quality and Effectiveness into the
Control System
Factors to consider when designing a control
system
The amount of variety in the control system
The ability to anticipate problems
The sensitivity of the measuring device
The composition of the feedback reports
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Design Factors Affecting Control System Quality
Slide 1 of 3

• The Amount of Variety in the Control System
• Variety refers to the number of activities,
  processes, or items that are measured and
  controlled.
• Law of requisite variety
• Control systems must have enough variety to cope
  with the variety in the systems they are trying
  to control.

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Design Factors Affecting Control System Quality
Slide 2 of 3

• Ability to Anticipate Problems
• If a deviation can be anticipated before it
  occurs, corrective action can be instituted more
  quickly and the negative consequences of the
  deviation reduced.
• Sensitivity of the Measuring Device
• Care must be taken to use a device that is
  sensitive enough to adequately measure the system
  being controlled.

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Design Factors Affecting Control System Quality
Slide 3 of 3

• Composition of Feedback Reports
• Variance reporting
• Highlighting only those things that fail to meet
  the established standards.
• Management by exception
• Focusing on the elements that are not meeting the
  standards.

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Control System Design IssuesSlide 1 of 2
Control Process Steps
Design Considerations
Step 1 Set standards of performance
Design factors - Variety - Anticipation -
Sensitivity - Feedback reporting
Step 2 Measure actual performance
Effectiveness criteria - Related to strategy -
Complete - Use objective and subjective
measures - Timely - Acceptable
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Control System Design IssuesSlide 2 of 2
Control Process Steps
Design Considerations
Step 3 Compare performance with standards
Select proper amount - Cost - Reliability -
Process importance
Step 4 Respond to deviations
Select focal point - Feedforward focus -
Concurrent focus - Feedback focus - Multiple focus
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Criteria for Effective Control Slide 1 of 3

• Is Related to Organizational Strategy
• A control system should measure what is important
  now and what will be important in the future.
• Utilizes All Steps in the Control Process
• To be effective, a control system must employ all
  of the steps in the control process.

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Criteria for Effective Control Slide 2 of 3

• Composed of Objective and Subjective Measures
• Effective control systems typically require
  managers to blend quantitative (objective) and
  qualitative (subjective) performance measures.
• Incorporates Timeliness in Feedback Reporting
• Timeliness is the degree to which the control
  system provides information when it is needed.

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Criteria for Effective Control Slide 3 of 3

• Acceptable to a Diverse Work Force
• To be effective, organizational controls must be
  accepted by employees.
• The control system should motivate workers to
  recognize standards and act to achieve them.

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Selecting the Proper Amount of Control Slide 1
of 3

• Costs in the Control System
• Two basic categories of costs need to be
  considered
• The costs associated with the information needed
  to perform the control process.
• The costs associated with undesirable deviations
  from standards.

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Selecting the Proper Amount of Control Slide 2
of 3

• Reliability of the System
• Reliability refers to the probability that the
  object or process being controlled will
  consistently behave in an acceptable manner.
• The basic premise is that the more reliable the
  process, the less control that is needed.

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Selecting the Proper Amount of Control Slide 3
of 3

• Importance of the Process Being Controlled
• The more important the object or process being
  controlled, the greater the amount of control
  that should be exercised.

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Selecting the Focal Point for Control Slide 1 of
2

• Feedforward (Preventive) Control
• Focuses on detecting undesirable material,
  financial, or human resources that serve as
  inputs to the transformation process.
• Concurrent Control
• Focuses on the transformation process to ensure
  that it is functioning properly.

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Selecting the Focal Point for Control Slide 2 of
2

• Feedback Control
• Focuses on discovering undesirable output and
  implementing corrective action.
• Multiple Focal Points
• Most organizations use several control systems
  focused on various phases of the transformation
  process.

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Control Focal Points
Control system
Feedforward control
Concurrent control
Feedback control
Transformation process
Inputs
Outputs
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Managerial Control Philosophies
Bureaucratic Control
Organic Control
Use of formal mechanisms to influence behavior,
assess performance, and correct unacceptable
deviations from standards.
Reliance upon social values, traditions, shared
beliefs, flexible authority, and trust to assess
performance and correct unacceptable deviations.
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Factors Favoring Bureaucratic vs. Organic Controls
Bureaucratic Control
Organic Control
Task-oriented management style Culture favors
decision making at the top Employees that lack
education and experience Performance that can be
quantified and measured
Relationship-oriented management style Culture
encourages employee participation Highly
educated, highly trained employees Performance
that is difficult to measure
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Mechanisms for Financial Control Slide 1 of 3

• Financial Statements
• Balance sheet
• Summary of an organizations financial position
  at a given point in time, showing assets,
  liabilities, and owners equity.
• Income statement
• Summary of an organizations financial
  performance over a given time interval, showing
  revenues, expenses, and bottom-line profit or
  loss.

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Mechanisms for Financial Control Slide 2 of 3

• Financial Ratios
• Liquidity ratios
• Indicators of the firms ability to meet its
  short-term debt obligations.
• Profitability ratios
• Indicators of the relative effectiveness, or
  profitability, of the organization.

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Mechanisms for Financial Control Slide 3 of 3

• Financial Ratios (cont.)
• Debt ratios
• Indicators of the firms ability to handle
  long-term debt.
• Activity ratios
• Indicators of performance with respect to key
  activities defined by management.

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Ethical Issues in the Control of a Diverse Work
Force

• Drug Testing
• Undercover Surveillance
• Computer Monitoring