Management A Practical Introduction Third Edition Angelo Kinicki & Brian K. Williams

Techniques for Enhancing Organizational Effectiveness Chapter 16: Control Techniques for Enhancing Organizational Effectiveness Managing for Productivity Control The Balanced Scorecard, Strategy Maps, & Measurement Management Levels & Areas of Control Some Financial Tools for Control Total Quality Management Managing Control The Manager’s Toolbox: Improving Productivity: Going Beyond Control Techniques To Get The Best Results Summary In addition to control systems, there are various ways for organizations to improve productivity. Specifically: establish base points, set goals, and measure results use new technology improve match between employees and jobs encourage employee involvement and innovation encourage employee diversity redesign the work process For Discussion: Improving productivity is likely to be key goal for most companies. How would you encourage employees to look for ways to improve productivity? Are there areas you could focus on yourself?

16.1 Managing for Productivity WHAT IS PRODUCTIVITY? Productivity is defined as outputs divided by inputs where: outputs are the goods and services produced, and inputs are labor, capital, materials, and energy Productivity is important because it determines whether a company will make a profit and affects a country’s standard of living Maintaining productivity depends on control

16.1 Managing for Productivity Figure 16.1: Managing for Productivity and Results

16.2 Control: When Managers Monitor Performance WHY IS CONTROL IMPORTANT? Control is making something happen the way it was planned to happen, while controlling is monitoring performance, comparing it with goals, and taking corrective action as needed Recall that: -planning is setting goals and deciding how to achieve them -organizing is arranging tasks, people, and other resources to accomplish the work -leading is motivating people to work hard to achieve the organization’s goals -controlling is making sure performance meets objectives

16.2 Control: When Managers Monitor Performance Figure 16.2: Controlling for Productivity

16.2 Control: When Managers Monitor Performance There are six reasons why control is needed: 1. To adapt to change & uncertainty 2. To discover irregularities and errors 3. To reduce costs, increase productivity, or add value 4. To detect opportunities 5. To deal with complexity 6. To decentralize decision making & facilitate teamwork There are four steps in the control process: 1. Establish Standards 2. Measure Performance 3. Compare Performance To Standards 4. Take Corrective Action, If Necessary

16.2 Control: When Managers Monitor Performance Figure 16.4: Steps in the Control Process

16.3 The Balanced Scorecard, Strategy Maps & Measurement Management HOW CAN MANAGERS ESTABLISH STANDARDS AND MEASURE PERFORMANCE? The balanced scorecard, strategy maps, and measurement management are all techniques that managers use to establish standards and measure performance The balanced scorecard gives top management a fast but comprehensive view of the organization using four indicators: customer satisfaction, internal processes, innovation and improvement activities, and financial measures

16.3 The Balanced Scorecard, Strategy Maps & Measurement Management Figure 16.5: The Balanced Scorecard

16.3 The Balanced Scorecard, Strategy Maps & Measurement Management A strategy map is a visual representation of the four perspectives of the balanced scorecard that enables managers to communicate their goals so that everyone in the company can understand how their jobs are linked to the overall objectives of the organization There are two types of organizations: -measurement-managed companies are ones that have set measurable criteria that are linked to performance goals -non-measurement managed firms do not have measurable criteria linked to goals

16.3 The Balanced Scorecard, Strategy Maps & Measurement Management Figure 16.6: The Strategy Map

16.4 Levels & Areas of Control HOW SHOULD CONTROL BE IMPLEMENTED? There are three levels of control: 1. Strategic control by top managers is monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed 2. Tactical control by middle managers is monitoring performance to ensure that tactical plans – those at the divisional or departmental level – are being implemented and taking corrective action as needed 3. Operational control by first-level managers is monitoring performance to ensure that operational plans – day-to-day goals – are being implemented and taking corrective action as needed

16.4 Levels & Areas of Control There are six areas of organizational control: 1. Physical Area 2. Human Resources Area 3. Informational Area 4. Financial Area 5. Structural Area 6. Cultural Area

16.3 Some Financial Tools For Control WHAT ARE THE MAJOR FINANCIAL TOOLS FOR MANAGERS? Financial controls including budgets and financial statements are especially important to firms A budget is a formal financial projection Budgets provide a yardstick against which managers can measure performance and make comparisons to other time periods, departments, and so on Lecture Note: Given the recent financial fiascos of companies like Enron, many students will be aware of the importance of financial checks and balances for companies. Discuss the responsibility of stakeholders in the financial affairs of companies. To what standards should companies be held?

16.3 Some Financial Tools For Control There are two different ways to budget: Incremental budgeting allocates increased or decreased funds to a department by using the last budget as a reference point—only incremental changes in the budget request are reviewed Zero-based budgeting forces each department to start from zero in projecting its funding needs for the budget period There two different types of budgets: Fixed budgets allocate resources on the basis of a single estimate of costs Variable budgets allow the allocation of resources to vary in proportion with various levels of activity

16.3 Some Financial Tools For Control A summary of some aspect of an organization’s financial status is a financial statement There are two basic types of financial statements: A balance sheet summarizes an organization’s overall financial worth (assets and liabilities) at a specific point in time where assets are the resources the organization controls, current assets are cash and other assets that are readily convertible to cash, fixed assets are property, buildings, and equipment that are harder to convert to cash, and liabilities are claims by suppliers, lenders, and others

16.3 Some Financial Tools For Control The income statement summarizes an organization’s financial results - revenues (the assets from the sale of goods) and expenses (the costs required to produce goods and services) - over a specified period of time Liquidity ratios indicate how easily a company’s assets can be converted to cash Debt-management ratios indicate the degree to which an organization can meet its long-term financial obligations Asset management ratios indicate how effectively an organization is managing resources Return ratios indicate how effective management is at generating a return on assets

16.3 Some Financial Tools For Control Formal verifications of an organization’s financial and operational systems are called audits There are two types of audits: An external audit is a formal verification of an organization’s financial accounts and statements by outside experts An internal audit is a verification of an organization’s financial accounts and statements by the organization’s own professional staff

16.6 Total Quality Management HOW CAN QUALITY BE IMPROVED? Total quality management (TQM) is a comprehensive approach, led by top manager and supported throughout the organization, dedicated to continuous quality improvement, training, and customer satisfaction The two core principles of TQM are people orientation (everyone involved in the organization should focus on delivering value to customers), and improvement orientation (everyone should work on continuously improving work processes) There are several techniques for improving quality including employee involvement, benchmarking, outsourcing, reduced cycle time, and statistical process control Practical Action: Outsourcing Public Services: Does Privatization Always Work? This Practical Action explores what happens when companies are privatized. It’s important to recognize that privatization is not a cure-all for a company’s problems. Effective controls are still important because even private companies make bad decisions sometimes!

16.7 Managing Control Effectively HOW CAN CONTROL BE MANAGED SUCCESSFULLY? Successful control systems are: 1. Strategic & results oriented – they support strategic plans and focus on activities that will make a real difference to the firm 2. Timely, accurate, & objective 3. Realistic, positive, & understandable & encourage self-control 4. Flexible - so that they can be modified as needed

Chapter 16: Control There are several barriers that can limit successful control: Too much control - when companies exert too much control, employees may rebel 2. Too little employee participation - employee participation can enhance productivity 3. Overemphasis on means instead of ends 4. Overemphasis on paperwork - unnecessary emphasis on paperwork can reduce effort in other areas 5. Overemphasis on one instead of multiple approaches - using multiple control activities can increase accuracy and objectivity

Finale: Some Life Lessons WHAT ARE THE KEYS TO MANAGERIAL SUCCESS? Initiative is always in short supply If you have an active desire to learn new things, you’ll be ready for the next step Think ahead, understand what your obstacles are, and develop a strategy to win Be flexible, keep your cool, and take yourself lightly