Chapter8Chapter8 PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., All rights reserved. Organizing: Control and Culture

© Copyright 2004 McGraw-Hill. All rights reserved.8–2 Learning Objectives After studying the chapter, you should be able to:After studying the chapter, you should be able to:  Define organizational control, and describe the four steps of the control process.  Identify the main output controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees.  Identify the main behavior controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees.  Explain the role of organizational culture in creating an effective organizational architecture.

© Copyright 2004 McGraw-Hill. All rights reserved.8–3 What Is Control? ControllingControlling  The process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals.  Involves monitoring and evaluating organizational strategy and structure to assess whether there is a need for change to improve the firm’s competitive performance.

© Copyright 2004 McGraw-Hill. All rights reserved.8–4 Organizational Control Managers must monitor and evaluate:Managers must monitor and evaluate:  Is the firm efficiently converting inputs into outputs? Are units of inputs and outputs measured accurately?Are units of inputs and outputs measured accurately?  Is product quality improving? Is the firm’s quality competitive with other firms?Is the firm’s quality competitive with other firms?  Are employees responsive to customers? Are customers satisfied with the services offered?Are customers satisfied with the services offered?  Are our managers innovative in outlook? Does the control system encourage risk-taking?Does the control system encourage risk-taking?

© Copyright 2004 McGraw-Hill. All rights reserved.8–5 Control Systems and IT Control SystemsControl Systems  Formal, target-setting, monitoring, evaluation and feedback systems that provide managers with information about how well the organization’s strategy and structure are working.  A good control system should: Be flexible so managers can respond as needed.Be flexible so managers can respond as needed. Provide accurate information about the organization.Provide accurate information about the organization. Provide information in a timely manner.Provide information in a timely manner.

© Copyright 2004 McGraw-Hill. All rights reserved.8–6 Three Types of Control Figure 10.1

© Copyright 2004 McGraw-Hill. All rights reserved.8–7 Types of Control Feedforward ControlsFeedforward Controls  Used in the input stage of the process. Anticipates problems before they arise.Anticipates problems before they arise. Example: Giving rigorous specifications to suppliers to avoid quality problems with inputs.Example: Giving rigorous specifications to suppliers to avoid quality problems with inputs. Concurrent ControlsConcurrent Controls  Give immediate feedback on how inputs are converted into outputs. Allows correction of problems as they ariseAllows correction of problems as they arise Managers can see that a machine is becoming out of alignment and adjust/fix it.Managers can see that a machine is becoming out of alignment and adjust/fix it. Assembly workers Professional workers

© Copyright 2004 McGraw-Hill. All rights reserved.8–8 Types of Control (cont’d) Feedback ControlsFeedback 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.Customers’ reactions to products are used to take corrective action in the future. Salespeople

© Copyright 2004 McGraw-Hill. All rights reserved.8–9 Control Process Steps Figure 8.2

© Copyright 2004 McGraw-Hill. All rights reserved.8–10 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 organization’s strategy (i.e., for a low cost strategy, standards should be focused closely on reducing costs).

© Copyright 2004 McGraw-Hill. All rights reserved.8–11 The Control Process 2. Measure actual performance  Managers can measure outputs resulting from worker behavior or they can measure the behavior themselves. The more non-routine the task, the harder it is to measure performance or output, causing managers to measure an employee’s behavior (e.g., that an employee comes to work on time) rather than the employee’s output.The more non-routine the task, the harder it is to measure performance or output, causing managers to measure an employee’s behavior (e.g., that an employee comes to work on time) rather than the employee’s output. Management by walking around Concentration vs. Luck Enthusiastic vs. unexpected

© Copyright 2004 McGraw-Hill. All rights reserved.8–12 The Control Process 3. Compare actual performance against chosen standards.  Managers must decide if performance actually deviates, often, several problems combine creating low performance. 4. Evaluate result and take corrective action.  Standards have been set too high or too low.  Workers may need additional training or equipment. This step is often hard since the environment is constantly changing.This step is often hard since the environment is constantly changing. Reward or punishment Compensation!

© Copyright 2004 McGraw-Hill. All rights reserved.8–13 Three Organizational Control Systems Figure 8.3 Feedforward & concurrent control Feedback control Social control

© Copyright 2004 McGraw-Hill. All rights reserved.8–14 Financial Measures of Performance Financial ControlsFinancial Controls  Profit ratios How efficiently managers convert resources into profits—return on investment (ROI).How efficiently managers convert resources into profits—return on investment (ROI).  Liquidity ratios How well managers protect resources to meet short term debt—current and quick ratios.How well managers protect resources to meet short term debt—current and quick ratios.

© Copyright 2004 McGraw-Hill. All rights reserved.8–15 Financial Performance Measures Profit Ratios Liquidity Ratios

© Copyright 2004 McGraw-Hill. All rights reserved.8–16 Financial Measures… (cont’d) Financial Controls (cont’d)Financial Controls (cont’d)  Leverage ratios How much debt is used to finance operations— debt-to-asset and times-covered ratios.How much debt is used to finance operations— debt-to-asset and times-covered ratios.  Activity ratios How efficiently managers are creating value from assets—inventory turnover, days sales outstanding ratios.How efficiently managers are creating value from assets—inventory turnover, days sales outstanding ratios.

© Copyright 2004 McGraw-Hill. All rights reserved.8–17 Financial Performance Measures (cont’d) Leverage Ratios Activity Ratios

© Copyright 2004 McGraw-Hill. All rights reserved.8–18 Output Control Organizational GoalsOrganizational 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).Goals should be specific and difficult, but not impossible, to achieve (stretch goals). Goal setting and establishing output controls are management skills that are developed over time.Goal setting and establishing output controls are management skills that are developed over time.

© Copyright 2004 McGraw-Hill. All rights reserved.8–19 Organization-Wide Goal Setting Figure 10.4

© Copyright 2004 McGraw-Hill. All rights reserved.8–20 Output Control (cont’d) Operating BudgetsOperating Budgets  Blueprints that state how managers intend to allocate and use the resources they control to attain organizational goals effectively and efficiently. Each division is evaluated on its own budgets for cost, revenue or profit.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.Managers are evaluated by how well they meet goals for controlling costs, generating revenues, or maximizing profits while staying within their budgets. Independent profit center

© Copyright 2004 McGraw-Hill. All rights reserved.8–21 Problems with Output Control Managers must create output standards that motivate at all levels.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 (R&D) now may lead to a loss of competitiveness in the future.Example: Cutting costs by curtailing research and development (R&D) now may lead to a loss of competitiveness in the future.  If standards are set too high, workers may engage unethical behaviors to attain them. Example: Attempting to increase output regardless of product quality issues caused by omitting steps in the production process.Example: Attempting to increase output regardless of product quality issues caused by omitting steps in the production process. Investment from debt or equity?

© Copyright 2004 McGraw-Hill. All rights reserved.8–22 Behavior Control Direct SupervisionDirect Supervision  Managers who directly manage can teach, reward, lead by example, and take corrective action as needed. Can be very expensive since only a few workers can be personally managed by one manager and many managers are needed.Can be very expensive since only a few workers can be personally managed by one manager and many managers are needed. Close supervision demotivates workers who desire less scrutiny and more autonomy, causing them to avoid responsibility.Close supervision demotivates workers who desire less scrutiny and more autonomy, causing them to avoid responsibility. Direct supervision is difficult to do effectively in complex job settings.Direct supervision is difficult to do effectively in complex job settings.

© Copyright 2004 McGraw-Hill. All rights reserved.8–23 Management by Objectives Management by Objectives (MBO)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.Specific goals are set at each level of the firm. Pay raises and promotions are tied to goal attainment.Pay raises and promotions are tied to goal attainment. Teams are also measured with goals and performance measured for the team.Teams are also measured with goals and performance measured for the team. Self-control

© Copyright 2004 McGraw-Hill. All rights reserved.8–24 Rules and Standard Operating Procedures Rules and Standard Operating Procedures Bureaucratic ControlBureaucratic Control  Control through a system of rules and standard operating procedures (SOPs) that shapes the behavior of divisions, functions, and individuals. Rules and SOPs tell the worker what to do (standardized actions) so outcomes are predictable.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.There is still a need for output control to correct mistakes. Bureaucratic control is best used for routine problems in stable environments.Bureaucratic control is best used for routine problems in stable environments.

© Copyright 2004 McGraw-Hill. All rights reserved.8–25 Rules and Standard Operating Procedures (cont’d) Rules and Standard Operating Procedures (cont’d) Bureaucratic ControlBureaucratic Control  Problems with Bureaucratic Control Rules easier to make than than discarding them, leading to bureaucratic “red tape” and slowing organizational reaction times to problems.Rules easier to make than 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.Firms become too standardized and lose flexibility to learn, to create new ideas, and solve to new problems.

© Copyright 2004 McGraw-Hill. All rights reserved.8–26 Organizational Culture Organizational CultureOrganizational Culture  The set of internalized values, norms, standards of behavior, 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.

© Copyright 2004 McGraw-Hill. All rights reserved.8–27 Clan Control Clan ControlClan Control  The control through the development of an internal system of values and norms.  Both culture and clan control accept the norms and values as their own and then work within them. Examples: Work dress styles, normal working hours, pride taken in work.Examples: Work dress styles, normal working hours, pride taken in work.  These methods provide control where output and behavioral control does not work.  Strong culture and clan control help worker to focus on the organization and enhance its performance. 信仰  思想  力量

© Copyright 2004 McGraw-Hill. All rights reserved.8–28 Factors Creating A Strong Organizational Culture Figure 8.5

© Copyright 2004 McGraw-Hill. All rights reserved.8–29 Values and Norms ValuesValues  Beliefs and ideas about the kinds of goals members of a society should pursue and about the kinds and modes of behavior people should use to achieve those goals. NormsNorms  Unwritten, informal rules or guidelines that prescribe appropriate behavior in particular situations. Having norms and values that are suited to the organization’s environment is important.Having norms and values that are suited to the organization’s environment is important.

© Copyright 2004 McGraw-Hill. All rights reserved.8–30 Creating Organizational Culture Values of the FounderValues of the Founder  Initial values are critical as founders hire their first set of managers. Founders are likely hire those who share their vision which evolves eventually into the culture of the firm.Founders are likely hire those who share their vision which evolves eventually into the culture of the firm.

© Copyright 2004 McGraw-Hill. All rights reserved.8–31 Creating Organizational Culture (cont’d) SocializationSocialization  Organizational Socialization The process by which newcomers learn an organization’s values and norms and acquire the work behaviors necessary to perform jobs effectively.The process by which newcomers learn an organization’s values and norms and acquire the work behaviors necessary to perform jobs effectively. Newcomers learn not only because “they have to” but because they want to in order to “fit in.”Newcomers learn not only because “they have to” but because they want to in order to “fit in.” Organizational behavior, expectations, and background are included in socialization.Organizational behavior, expectations, and background are included in socialization. Tacitly apprenticed 潛移默化

© Copyright 2004 McGraw-Hill. All rights reserved.8–32 Creating Organizational Culture (cont’d) Ceremonies and RitesCeremonies and Rites  Formal events that focus on important incidents: Rite of passage: denoting employees’ entrance into the firm with the formal presentation of a name badge.Rite of passage: denoting employees’ entrance into the firm with the formal presentation of a name badge. Rite of integration: building common bonds with annual office parties and outings or celebrations for meeting organizational performance goals.Rite of integration: building common bonds with annual office parties and outings or celebrations for meeting organizational performance goals. Rites of enhancement: enhancing worker commitment to values through promotion ceremonies and awards dinners.Rites of enhancement: enhancing worker commitment to values through promotion ceremonies and awards dinners. Setting the community order

© Copyright 2004 McGraw-Hill. All rights reserved.8–33 Creating Organizational Culture (cont’d) Stories and LanguageStories and Language  Organizations repeat the stories of founders or significant events in the firm’s history to communicate the values and norms for behaviors that are valued by the organization. Show workers how to act and what to avoid.Show workers how to act and what to avoid. Stories often have a hero that workers can mimic.Stories often have a hero that workers can mimic. Many firms have unique dress codes and use jargon in their internal communications that only their employees understand.Many firms have unique dress codes and use jargon in their internal communications that only their employees understand.

© Copyright 2004 McGraw-Hill. All rights reserved.8–34 Culture and Managerial Action Innovative Culture affects the functions of management.Innovative Culture affects the functions of management.  Planning In innovative firms, the culture will encourage all managers to participate.In innovative firms, the culture will encourage all managers to participate. In slow moving firms, the focus will be on the formal process rather than the decision.In slow moving firms, the focus will be on the formal process rather than the decision.  Organizing Creative firms have organic, flexible structures that are most likely very flat with delegated, decentralized authority.Creative firms have organic, flexible structures that are most likely very flat with delegated, decentralized authority.

© Copyright 2004 McGraw-Hill. All rights reserved.8–35 Culture and Managerial Action (cont’d) Culture affects the functions of management (cont’d)Culture affects the functions of management (cont’d)  Leading Flexible, open organizations encourage leading by example; top managers take risks and trust lower managers.Flexible, open organizations encourage leading by example; top managers take risks and trust lower managers.  Controlling Innovative firms choose types of controls that match their structure and foster new ideas and organizational cooperation.Innovative firms choose types of controls that match their structure and foster new ideas and organizational cooperation.

© Copyright 2004 McGraw-Hill. All rights reserved.8–36 Homework 7 GM’ new Saturn automobile line was a completely new design that was built by a specially-recruited workforce in a new factory.GM’ new Saturn automobile line was a completely new design that was built by a specially-recruited workforce in a new factory. To market the new car, GM set up separate dealerships and announced the sales people in these organizations would not be paid on a commission basis, as is common in the industry. Instead, they were to be salaried.To market the new car, GM set up separate dealerships and announced the sales people in these organizations would not be paid on a commission basis, as is common in the industry. Instead, they were to be salaried. Why should GM do so? What might be the advantage of this pay policy?Why should GM do so? What might be the advantage of this pay policy?