Ensures adjustment or conformity to specifications Ensures adjustment or conformity to specifications Regulates activities Regulates behavior Ensures adjustment or conformity to objectives Ensures adjustment or conformity to objectives Control Control Function in Management

Effective control depends heavily on planning, organizing, and leading Reflect changes in internal and external environments of the firm Need to balance too much vs. too little control Control amounts, levels, and types should be appropriate for the organization Provides feedback for changes in planning and organizing Control Function in Management

Control’s Feedback Loop Organizing Planning Control Feedback Changes in

Basic Elements in Control Process Control process includes four elements Each element involves managerial attention and decisions Establish Standards Measure Performance Compare Performance against Standards Compare Performance against Standards Evaluate Results and Take Action Evaluate Results and Take Action

Basic Elements in Control Process Standards = targets of performance Start at the top of the organization and involves every level of employee Should be as specific as possible Involve employees in setting standards –Commits the employees to achieving the standards –Results in more appropriate standards Establish Standards

Basic Elements in Control Process Obtain consensus about how to assess performance If performance involves multiple activities, measurement must be comprehensive Measurement is costly, so usefulness of the information must justify the costs Establish Standards Measure Performance

Basic Elements in Control Process Comparing expected vs. actual performance Comparisons are affected by the kinds of measurements available Managers must interpret the patterns of comparisons (some negative/some positive) Comparisons often involve subjective and objective measures Establish Standards Measure Performance Compare Performance against Standards Compare Performance against Standards

Basic Elements in Control Process 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 Establish Standards Measure Performance Compare Performance against Standards Compare Performance against Standards Evaluate Results and Take Action Evaluate Results and Take Action

Outcomes of Performance Measurement Actual performance measured against standard for performance Gap Detected Gap Detected Reinforcing Action Taken (e.g., increase rewards and recognition, consider increasing production targets, add new product lines) Reinforcing Action Taken (e.g., increase rewards and recognition, consider increasing production targets, add new product lines) Corrective Action Taken (e.g., increase training, modify supervision, invest in newer equipment) Corrective Action Taken (e.g., increase training, modify supervision, invest in newer equipment) Actual performance better than expected performance + - Actual performance worse than expected performance

Types and Scope of Control Scope (Narrow)(Broad) Operational Controls Tactical Controls Strategic Controls

Assessment and regulation of how the organization as a whole fits its external environment and meets its long-range objectives and goals Comparisons are made to other companies Affected by: –Ability to specify and measure strategic goals objectives –Environmental uncertainty

Tactical Controls Assessment and regulation of the day-to-day functions of the organization and its major units in the implementation of its strategy Financial controls Budgetary controls Supervisory structure controls Human resource controls

Strategic and Tactical Controls Tactical ControlsStrategic Controls Time Frame Objective Types of Comparisons Focus LimitedLong, unspecific Controls relate to specific, functional areas Controls relate to organization as a whole Comparisons made within organization Comparisons made to other organizations Implementation of strategy Determination of overall organizational strategy

Tactical Controls: Financial Controls Include quantitative ratios involving key financial statistics Common financial ratios –Profitability ratios (e.g., ROI) –Liquidity –Leverage –Efficiency or activity Can be used for internal and/or external comparisons Other financial measurements –Break-even point

Tactical Controls: Budgetary Controls A type of tactical control based on responsibility for meeting financial targets and evaluating how well those targets have been met Compared to financial controls, budgetary controls: –Cover a more limited time frame (3-12 months) –Focus on financial objectives –Usually cannot be used to compare an organization to its competitors

Supervisory Structure Controls A type of tactical control based on reporting levels in the organization Measure and evaluate: Reporting structure Span of control Other structural issues

Training Control in the Human Resource Function Compensation Selection Human Resource Function Controls Appraisal and evaluation Appraisal and evaluation

Control in Bureaucracy and Clan Structures Type of Control Social Requirements Control ApproachInformational Requirements Bureaucracy Norm of reciprocity Legitimate authority Adherence to rules and regulations Formal and impersonal Emphasis on detecting deviance Imposed on the individual Rules ClanNorm 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

Operational Controls Assessment and regulation of the specific activities and methods an organization uses to produce goods and services Used in evaluating: –Inputs –Transformation –Outputs

Operational Controls Pre-control Controls the quality, quantity, and other characteristics of the inputs to the process Pre-control 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 Concurrent Control Evaluates the conversion process as it occurs Provides immediate feedback, which impacts worker motivation Post-control Traditionally, quality control Many of these controls are being changed to pre- and concurrent controls Post-control Traditionally, quality control Many of these controls are being changed to pre- and concurrent controls

Control Effectiveness Control effectiveness depends on many factors: Focus of control Amount of control Quality of information Flexibility of controls Favorable cost-benefit ratio Source of control