Ensures adjustment orconformity to specifications

Ensures adjustment orconformity to specifications

Regulates activitiesRegulates activities

Regulates behaviorRegulates behavior

Ensures adjustment orconformity to objectivesEnsures adjustment or

conformity to objectives

ControlControl

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

OrganizingOrganizing

PlanningPlanning

ControlControl Feedback Changes in

Basic Elements in Control Process

• Control process includes four elements

• Each element involves managerial attention and decisions

Establish StandardsEstablish Standards

Measure PerformanceMeasure Performance

Compare Performanceagainst Standards

Compare Performanceagainst 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 StandardsEstablish 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 StandardsEstablish Standards

Measure PerformanceMeasure 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 StandardsEstablish Standards

Measure PerformanceMeasure Performance

Compare Performanceagainst Standards

Compare Performanceagainst 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 StandardsEstablish Standards

Measure PerformanceMeasure Performance

Compare Performanceagainst Standards

Compare Performanceagainst Standards

Evaluate Results and Take Action

Evaluate Results and Take Action

Outcomes of Performance Measurement

Actual performance measured against

standard for performance

Actual performance measured against

standard for performance

GapDetected

GapDetected

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

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 Controls Strategic Controls

Time Frame

Objective

Types of Comparisons

Focus

Limited Long, 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

TrainingTraining

Control in the Human Resource Function

Compensation

Compensation

SelectionSelection

Human Resource Function Controls

Human Resource Function Controls

Appraisal and evaluation

Appraisal and evaluation

Control in Bureaucracy and Clan Structures

Type of Control

Social Requirements

Control Approach Informational Requirements

Bureaucracy • Norm of

reciprocity• Legitimate

authority

•Adherence to rules and regulations•Formal and impersonal•Emphasis on detecting deviance•Imposed on the individual

Rules

Clan •Norm 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

ConcurrentControl

Evaluates the conversion

process as it occurs

Provides immediate

feedback, which impacts worker

motivation

ConcurrentControl

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