10Chapter Organization Control and Culture

Chapter #10 Learning Objectives By the conclusion of this discussion you should understand:By the conclusion of this discussion you should understand:  What controls are and how they should be used in organizations to help improve efficiencies, quality, responsiveness and innovation.  The control process and how it is used.  The three organizational control systems and their purpose and value to organizations.

Organizational Control Controlling: process of monitoring and evaluating whether outcomes match objectives; if not, analyzing why and taking corrective action.Controlling: process of monitoring and evaluating whether outcomes match objectives; if not, analyzing why and taking corrective action.  Is the firm efficiently converting inputs into outputs?  Is product quality improving?  Are employees responsive to customers?  Are our managers innovative in outlook?

Control 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.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:A good control system should:  be flexible so managers can respond as needed.  provide accurate information about the organization.  provide information in a timely manner.

Three Types of Control Figure 10.1

Control Process Steps Figure 10.2 Establish standards Measure actual performance Compare Evaluate & take corrective action

Three Organizational Control Systems Figure 10.3 Output Control Behavior Control Culture Control Financial Measures or performance Goals Operating budgets Direct supervision Management by Objective (MBO) Rules & Standard Operating Procedures Values Norms Socialization

Financial Measures of Performance Financial ControlsFinancial Controls  Profit ratios  Liquidity ratios  Leverage ratios  Activity ratios

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.

Output Control (cont’d) Operating BudgetsOperating Budgets  Blueprints 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.

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.They must be careful not to create short-term goals that motivate managers to ignore the future. If standards are set too high, workers may engage unethical behaviors to attain them.If standards are set too high, workers may engage unethical behaviors to attain them.

Behavior Control Direct SupervisionDirect Supervision  Managers who directly manage can teach, reward, lead by example, and take corrective action as needed. 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.

Behavior Control Behavior Control 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)rules and SOPs tell the worker what to do (standardized actions) still a need for output control to correct mistakes.still a need for output control to correct mistakes. best used for routine problems in stable environmentsbest used for routine problems in stable environments

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.

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.  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.

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.

Creating A Strong Organizational Culture Figure 10.5

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.

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 is presented.Organizational behavior, expectations, and background is presented.

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.

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.

Culture and Managerial Action Culture affects the functions of management.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.

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.

ConclusionConclusion Controlling is a necessary function for all levels of management.Controlling is a necessary function for all levels of management. When used effectively, controls improve efficiencies, responsiveness, quality and productivity.When used effectively, controls improve efficiencies, responsiveness, quality and productivity. Output, behavior and culture control systems can be used together to achieve results.Output, behavior and culture control systems can be used together to achieve results.