Managers monitor and evaluate the organization's strategy and performance and determine what can be improved or changed.
A. Organizational Control and Building a Competitive Advantage
1. Managers can use benchmarking and increases in productivity to measure their efficiency.
2. Six Sigma principles and TQM programs are used to continuously improve quality using information measured by the control system.
3. A control system that evaluates customer service can be used to improve responsiveness to customers.
4. Controlling can raise the level of innovation when appropriate control systems encourage risk taking.
B. The Importance of Organizational Control
5. to adapt to change and uncertainty and deal with complexities
6. to detect irregularities, errors and opportunities
7. to reduce costs, increase productivity, or add value
8. to decentralize decision making and facilitate teamwork
II. Steps in the Control Process:
A. Establish the performance standards or targets (for time, output, quality and behaviour)
B. Measure actual performance - outputs or behaviours
C. Compare performance to the standards
D. Evaluate results and initiate corrective action if necessary (fix problems or change unrealistic standards)
III. Control Systems and Operations Management
A. formal target-setting, monitoring, evaluation, and feedback systems that provide information about how efficiently the organization is functioning.
B. Effective control systems are flexible, accurate and timely.
C. In operations management, managers use control systems in the input, conversion, and output stages of operations.
1. Feedforward Control – anticipating problems before they arise
2. Concurrent Control – immediate feedback so problems solved as they arise during the conversion process
3. Feedback Control – feedback after the work is completed (such as customer reactions) is used to correct problems
IV. Types of Control to Coordinate and Motivate Employees:
IV.1. Output Control
A. Financial Measures of Performance
1. Profit Ratios – measure how efficiently are using the organization's resources
a. Return on investment (ROI) – net income before taxes divided by tot. assets
b. Gross profit margin – revenue for the product minus the resources used to produce the product
2. Liquidity Ratios – measure how well managers can meet short-term obligations
a. Current ratio – current assets divided by current liabilities
b. Quick ratio – whether liabilities can be paid without selling inventory
3. Leverage Ratios – how much managers use debt or equity to finance ongoing operations – debt to assets ratio and times covered ratio.
4. Activity Ratios – measure how well managers create value from assets, inventory turnover and days sales outstanding
B. Organizational Goals – each division has specific goals to pursue
1. goals provide a framework for what is evaluated and assessed
2. Specific, difficult, or stretch goals that are challenging but not out of reach are often best
C. Operating Budgets – a blueprint for use of resources to achieve goals; can use expense, revenue or profit budgets to measure divisional contribution
D. Problems with Output Control - Standards need to be realistic, achievable and flexible or managers concentrate on short term rather than long term, and may act unethically.
IV.2. Behaviour Control
A. Corporate Governance and Control – in response to recent large scandals, corporations have reformed the way they approach accountability processes.
B. Direct Supervision – managers actively monitor, teach and correct subordinates. It is immediate, but expensive, potentially demotivating, and not feasible for complex jobs.
C. Management by Objectives – a system for setting goals participatively, evaluating the performance of subordinates, and monitoring progress toward goal achievement with periodic reviews.
1. Establish specific goals and objectives
2. Managers and subordinates together determine the subordinates' goals
3. Managers and subordinates periodically review subordinates' progress
D. Bureaucratic control – a system of rules and standard operating procedures (SOPs) that shape and standardize behaviour.
1. Management uses varying degrees of penalties when administering discipline to punish undesirable workplace behaviours. Needs to be given objectively, fairly and consistently.
2. Problems with bureaucratic control
a. Establishing rules is easier than discarding them
b. People may follow the rules instead of thinking creatively
IV.3. Clan Control
A. How Clan Control Works. It relies on organizational culture, a system of shared values, norms and standards of behaviour, to control behaviour.
1. It can be used in situations where output or behaviour control can't.
2. It can orient decisions and actions towards helping the organization perform well.
V. How Culture Controls Managerial Action
A. Planning – innovative cultures encourage participation in planning, whereas conservative cultures have formal, top-down planning
B. Organizing – organic structures for innovative cultures, and mechanistic for conservative cultures
C. Leading – lead by example and encourage risk-taking vs. rigid MBO programs and constant supervision
D. Controlling – flexible and long term vs. direct supervisions, rules and regulations, fear of punishment and discipline
