1. Managing Quality and Performance
Chapter 19
Managing Quality and Performance

2. Controlling Managers use a variety of measures to monitor performance:
Controlling work processes
Regulating employee behavior
Systems for financial resources
Evaluating profitability
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3. The Meaning of Control
Organizational control is the systematic process through which managers regulate organizational activities to make them consistent with expectations established in plans, targets, and standards of performance
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4. Choosing Standards and Measures
Common measures and controls = financial:
Sales
Revenue
Profit
More focus on measuring intangibles
Customer service
Increased revenue
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5. The Balanced Scorecard
Balanced perspective of company performance
Integrates various areas of the organization
Managers record, analyze, and discuss the metrics
Serves as core management-control system
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6. The Balanced Scorecard Model
Purpose is to translate strategy into measures that uniquely communicate an organization’s vision.
Four perspectives:
Financial—value to shareholders
Customer—customer satisfaction and market growth
Innovation and Learning—people and infrastructure
Internal—processes that drive the business

7. 19.1 The Balanced Scorecard
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8. 19.2 Feedback Control Model
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9. Steps of Feedback Control
Establish Standards of Performance
Measure Actual Performance
Compare Performance to Standards
Take Corrective Action
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10. Application to Budgeting
Budgetary control – setting targets and monitoring expenditures
Budgets list planned and actual expenditures
Budgets are associated with a division or department
The unit of analysis for budgeting is the responsibility center
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11. Financial Control
Financial Statements provide basic information for financial control
Balance Sheet shows firm’s financial position
Income Statement profit-and-loss statement or P&L highlights firm’s financial performance
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12. 19.3 Balance Sheet
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13. 19.4 Income Statement
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14. Financial Analysis: Interpreting Numbers
Managers need to evaluate financial reports
Comparing performance with other data and industry standards
Financial Analysis:
Ratios
Statistics
Review:
Profits, assets, sales, and inventory
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15. 19.5 Common Financial Ratios
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16. Hierarchical versus Decentralized Approaches
Hierarchical controls include the monitoring of behavior through rules, policies, reward systems, and written documentation
Decentralized controls based on values and assumptions; rules are only used when necessary
Culture is adaptive, uniting individuals and teams
Managers’ approach to control is changing in many of today’s organizations
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17. 19.6 Comparing Methods of Control
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18. Open-Book Management Decentralized philosophy
Get every employee thinking like an owner
Information sharing and teamwork
Allows employees to see the financial condition of company
See how his/her job fits into organizational success
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19. 19.7 Which Countries Have the Most Secretive Economies?
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20. Total Quality Management (TQM)
Infuse quality into every aspect of the business, all day-to-day activities
Became popular in the U.S. in the 1980s
Focuses on:
Teamwork
Collaboration
Identifying improvements
The goal of TQM is zero-defects
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21. Interlinking Quality and Profitability Performance

22. TQM Techniques Quality Circles Benchmarking Six Sigma
Reduced Cycle Time
Continuous Improvement
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23. 19.8 The Importance of Quality Improvement Programs
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24. 19.9 Quality Program Success Factors
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25. International Quality Standards
ISO 9000 standards – International Organization for Standardization
Organization certification
157 Countries
Organizations demonstrate a commitment to quality
Europe leads in certifications but the United States has had large increases
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26. New Financial Control Systems
Economic Value-Added (EVA) – gauge financial performance; look at ways to add value
Market Value-Added (MVA) – Stock market’s estimate of the value of a company
Activity-Based Costing (ABC) – allocating costs across departments and functions
Corporate Governance – systems and rules from the top are safeguards for shareholders
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27. Review Questions
Define organizational control and explain why it is a key management function.
 Explain the benefits of using the balanced scorecard to track performance and control of the organization.
 Explain the four steps in the control process.
 Discuss the use of financial statements, financial analysis, and budgeting as management controls.
Contrast the hierarchical and decentralized methods of control. 
Identify the benefits of open-book management. 
Describe the concept of total quality management and major TQM techniques, such as quality circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous improvement. 
Identify current trends in quality and financial control, including ISO certification, economic-value-added and market-value-added systems, activity-based costing, and corporate governance, and discuss their impact on organizations.

28. Review Questions – The Balanced Scorecard Model
What is the main purpose of the Balanced Scorecard Model?
What is the difference between TQM and the Balanced Scorecard Model?
Why are “Financials” so important in performance evaluation?
What is the weakness of using “Financials only” in performance evaluation?
What is “strategic planning” in Schneider’s paper titled “How to Build a Balanced Scorecard”?

29. Review Questions - TQM Who defines “quality”? Why?
Why does TQM quantify quality?
Why doesn’t “quality control” improve quality?
Why is “quality improvement” better than “quality control”?
Why did Toyota lose the 6-sigma reputation in 2000s?
Why is TQM a never-ending process?
What is the relationship b/w quality & profitability?
Why does TQM use the word “Total”?
Define leadership and explain its importance for organizations.
Identify sources of leader power.
Identify the tactics leaders use to influence others.