Chapter 16 Control

Control Function in Management 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 ©2005 Prentice Hall

Control Function in Management Ensures adjustment or conformity to objectives Ensures adjustment or conformity to specifications Control Regulates activities Regulates behavior ©2005 Prentice Hall Adapted from Exhibit 16.1: The Control Function in Management

Control’s Feedback Loop Planning Control Changes in Feedback Organizing ©2005 Prentice Hall Adapted from Exhibit 16.2: Control’s Feedback Loop

Basic Elements in Control Process Establish standards 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 ©2005 Prentice Hall Adapted from Exhibit 16.3: The Basic Elements in the Control Process

Specificity of Standards and Performance Measurement High Low Level of confusion in performance measurement Concrete Abstract Specificity of standards ©2005 Prentice Hall Adapted from Exhibit 16.4: The Effect of Specificity of Standards on Performance Measurement

Establishing Standards How specific should they be? Who should set them? How difficult should they be to reach? ©2005 Prentice Hall Adapted from Exhibit 16.5: Issues in Establishing Standards

Basic Elements in Control Process Establish standards 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 Measure performance ©2005 Prentice Hall Adapted from Exhibit 16.3: The Basic Elements in the Control Process

Measurement of Performance Is there consensus among those involved as to how performance will be measured? Can measurement criteria be quantified? Performance Measurement Are all necessary aspects of actions contributing to performance being measured? Can expensive, but noncritical, controls be eliminated? ©2005 Prentice Hall Adapted from Exhibit 16.6: Issues in the Measurement of Performance

Basic Elements in Control Process Establish standards 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 Measure performance Compare performance against standards ©2005 Prentice Hall Adapted from Exhibit 16.3: The Basic Elements in the Control Process

Basic Elements in Control Process Establish standards 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 Measure performance Compare performance against standards Evaluate results and take any necessary corrective action ©2005 Prentice Hall Adapted from Exhibit 16.3: The Basic Elements in the Control Process

Outcomes of Performance Measurement Actual performance better than expected performance + 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) - Actual performance worse than expected performance ©2005 Prentice Hall Adapted from Exhibit 16.7: Outcomes of Performance Measurement

Types and Scope of Control Strategic Controls Tactical Controls Operational Controls (Narrow) (Broad) Scope ©2005 Prentice Hall Adapted from Exhibit 16.8: Types and Scope of Control

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 ©2005 Prentice Hall

Centralization of Control and Environmental Stability Decentralized Centralized Degree of centralization Stable Turbulent Environmental stability ©2005 Prentice Hall Adapted from Exhibit 16.9: Degree of Centralization of Control in Relation to Environmental Stability

Approaches to Strategic Control High Low Environmental turbulence Easy Difficult Ability to specify and measure precise strategic objectives ©2005 Prentice Hall Adapted from Exhibit 16.10: Approaches to Strategic Control

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 ©2005 Prentice Hall

Strategic and Tactical Controls Time Frame Limited Long, unspecific Objective Controls relate to specific, functional areas Controls relate to organization as a whole Types of Comparisons Comparisons made within organization Comparisons made to other organization Focus Implementation of strategy Determination of overall organizational strategy ©2005 Prentice Hall Adapted from Exhibit 16.11: Characteristics of Strategic and Tactical Controls

Control in the Human Resource Function Appraisal and evaluation Selection Human Resource Function Controls Compensation Training ©2005 Prentice Hall Adapted from Exhibit 16.14: Opportunities for Control in the Human Resource Function

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). ©2005 Prentice Hall Adapted from exhibit 16.15: Control in Bureaucracy and Clan Structures

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 ©2005 Prentice Hall

Control Model Process Pre-Control Concurrent Control Feedback Preventive Corrective Input Output ©2005 Prentice Hall

Operational Controls 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 ©2005 Prentice Hall Adapted from Exhibit 16.16: Operational Controls

Control Effectiveness Focus of control Balanced scorecard Financial perspective Customer perspective Internal business perspective Innovation and learning perspective Amount of control ©2005 Prentice Hall

Control Effectiveness Quality of information Usefulness Accuracy Timeliness Objectivity Flexibility Favorable cost-benefit ratio Source of control ©2005 Prentice Hall

Effectiveness of Controls Key Factor Concerns Focus of control What will be controlled? Where should controls be located in the organizational structure? Who is responsible for which controls? 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? ©2005 Prentice Hall Adapted from exhibit 16.17: Key Factors in Determining the Effectiveness of Controls