Ch. 16 Outline 1. Bureaucratic Control Systems 2. Other Controls The Control Cycle Different Approaches to Bureaucratic control Financial Controls The Downside to Bureaucratic Control 2. Other Controls Market Control Clan Control

Characteristics of Control Managers can apply three broad strategies for achieving organizational control Bureaucratic control is the use of rules, regulations, and formal authority to guide performance Market Control involves the use of pricing mechanisms to regulate activities in organizations as though they were economic transactions Clan Control Is based on the idea that employees may share the values, expectations, and goals of the organization and act in accordance with them

Control Control is essential for the attainment of any management objective Our Text—Control is any process that directs the activities of individuals toward the achievement of organizational goals Other Texts—The Process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations. Control has been called one of the Siamese twins of management. The other twin is planning. Some means of control are necessary because once managers form plans and strategies, they must ensure that the plans are carried out. This means making sure that other people are doing what needs to be done and not doing inappropriate things. If plans are not carried out properly, management must take steps to correct the problem. This is the primary control function of management.

Approaches to Bureaucratic Control There are three approaches to bureaucratic control Feed forward Control takes place before operations begin and includes policies, procedures, and rules designed to ensure that planned activities are carried out properly Concurrent Control takes place while plans are being carried out and includes directing, monitoring, and fine-tuning activities Feedback Control focuses on the use of information about results to correct deviations from the acceptable standard after they arise

Management Audits Management audits are an evaluation of the effectiveness and efficiency of various systems within an organization Management audits may be External – this occurs when one organization evaluates another organization Internal – these are a periodic assessment of a company’s own planning, organizing, leading, and controlling processes

Budgetary Controls Budgetary control is the process of finding out what’s being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences This is one of the most widely recognized and commonly used methods of managerial control It is commonly called budgeting

Budgetary Control Budgetary control begins with an estimate of sales and expected income One of the primary considerations is the length of the budget period Budgetary control proceeds through several stages. Establishing expectancies starts with the broad plan for the company and the estimate of sales, and it ends with budget approval and publication. The budgetary operations stage, then, deals with finding out what is being accomplished and comparing the results with expectancies. The last stage, as in any control process, involves taking corrective action when necessary. Although practices differ widely, a member of top management often serves as the chief coordinator for formulating and using the budget. Usually the chief financial officer (CFO) has these duties. He or she needs to be less concerned with the details than with resolving conflicting interests, recommending adjustments when needed, and giving official sanction to the budgetary procedures.

Financial Controls Two financial statements that help control overall organizational performance are: Balance sheet shows the financial picture of a company at a given time Profit and loss statement is an itemized financial statement of the income and expenses of a company’s operations Although ratios provide both performance standards and indicators of what has occurred, exclusive reliance on financial ratios can have negative consequences. Because ratios usually are expressed in compressed time horizons (monthly, quarterly, or yearly), they often cause management myopia—managers focus on short-term earnings and profits at the expense of their longer-term strategic obligations. Control systems using long-term (e.g., three- to six-year) performance targets can reduce management myopia and focus attention further into the future.

Financial Controls Financial ratios are also an effective approach for checking on the overall performance of the enterprise They allow managers to effectively compare their organization’s performance with other organization’s performance

Designing Effective Control Systems Effective control systems maximize potential benefits and minimize dysfunctional behaviors Five characteristics of effective control systems They are based on valid performance standards They communicate adequate information to employees They are acceptable to employees They use multiple approaches They recognized the relationship between empowerment and control

Market Control Market controls involve the use of economic forces – and the pricing mechanisms that accompany them – to regulate performance System is based on the principle that as output from an individual, department, or business unit creates value to other people, a price can be negotiated for its exchange Two effects of this occur Price becomes an indicator of the value of the product or service Price competition has the effect of controlling productivity and performance

Market Controls At the corporate level market controls are used to regulate independent business units At the business unit level market controls are used to regulate exchanges among departments and functions Transfer price is the price charged by one unit for a product or service provided to another unit within the organization

Market Controls Market controls are used at the individual level to determine wage levels for the skills that employees possess

Clan Control: The Role of Empowerment and Culture Managers are discovering that control systems based solely on bureaucratic and market mechanisms are insufficient for directing today’s workforce because Employee’s jobs have changed The nature of management has changed The employment relationship has changed Because of this empowerment has become a necessary aspect of a manager’s repertoire of control

Clan Control: The Role of Empowerment and Culture Clan control involves creating relationships built on mutual respect and encouraging each individual to take responsibility for his or her actions Employees work within a guiding framework of values, and they are expected to use good judgment The emphasis in an empowered organization is on satisfying customers, not on pleasing the boss Clan control takes a long time to develop and an even longer time to change