Essentials of Contemporary Management - Elsels.thebesacademy.org/Uploads/Documents/2029/chap… · · 2016-12-12All rights reserved. 4 Organizational Control ... Three Organizational

Chapter 8

PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.

Organizing: Control and Culture

Essentials of

Contemporary

Management

© Copyright 2004 McGraw-Hill. All rights reserved. 2

Learning Objectives

• After studying the chapter, you should be able to: ➢Define organizational control, and describe the four

steps of the control process.

➢Identify the main output controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees.

➢Identify the main behavior controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees.

➢Explain the role of organizational culture in creating an effective organizational architecture.


What Is Control?

• Controlling ➢The process whereby managers monitor and

regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals.

➢Involves monitoring and evaluating organizational strategy and structure to assess whether there is a need for change to improve the firm’s competitive performance.


Organizational Control

• Managers must monitor and evaluate: ➢Is the firm efficiently converting inputs into outputs?

• Are units of inputs and outputs measured accurately? ➢Is product quality improving?

• Is the firm’s quality competitive with other firms? ➢Are employees responsive to customers?

• Are customers satisfied with the services offered? ➢Are our managers innovative in outlook?

• Does the control system encourage risk-taking?


Control Systems and IT

• Control Systems ➢Formal, target-setting, monitoring, evaluation and

feedback systems that provide managers with information about how well the organization’s strategy and structure are working.

➢A good control system should: • Be flexible so managers can respond as needed. • Provide accurate information about the organization. • Provide information in a timely manner.


Three Types of Control

Figure 10.1


Types of Control

• Feedforward Controls ➢Used in the input stage of the process.

• Anticipates problems before they arise. • Example: Giving rigorous specifications to suppliers to avoid

quality problems with inputs.

• Concurrent Controls ➢Give immediate feedback on how inputs are

converted into outputs. • Allows correction of problems as they arise • Managers can see that a machine is becoming out of alignment

and adjust/fix it.

Assembly workers

Professional workers


Types of Control (cont’d)

• Feedback Controls ➢Provide after-the-fact information managers can use

in the future. • Customers’ reactions to products are used to take corrective

action in the future.

Salespeople


Control Process Steps

Figure 8.2


The Control Process

1. Establish standards, goals, or targets against which performance is to be evaluated. ➢Managers at each organizational level need to set

their own standards. ➢Standards must be consistent with the

organization’s strategy (i.e., for a low cost strategy, standards should be focused closely on reducing costs).


The Control Process

2. Measure actual performance ➢Managers can measure outputs resulting from

worker behavior or they can measure the behavior themselves. • The more non-routine the task, the harder it is to measure

performance or output, causing managers to measure an employee’s behavior (e.g., that an employee comes to work on time) rather than the employee’s output.

Management by walking aroundConcentration vs. Luck

Enthusiastic vs. unexpected


The Control Process

3. Compare actual performance against chosen standards. ➢Managers must decide if performance actually

deviates, often, several problems combine creating low performance.

4. Evaluate result and take corrective action. ➢Standards have been set too high or too low. ➢Workers may need additional training or

equipment. • This step is often hard since the environment is constantly

changing.

Reward or punishment

Compensation!


Three Organizational Control Systems

Figure 8.3

Feedforward & concurrent control

Feedback control

Social control


Financial Measures of Performance

• Financial Controls ➢Profit ratios

• How efficiently managers convert resources into profits—return on investment (ROI).

➢Liquidity ratios • How well managers protect resources to meet short term debt—

current and quick ratios.


Financial Performance Measures

Profit Ratios

Liquidity Ratios

assets Total taxesbeforeprofit Net

investmenton Return =

revenues Salessold goods ofcost - revenues Sales

margin profit Gross =

sliabilitieCurrent assetsCurrent

ratioCurrent =

sliabilitieCurrent inventory -assetsCurrent

ratioQuick =


Financial Measures… (cont’d)

• Financial Controls (cont’d) ➢Leverage ratios

• How much debt is used to finance operations—debt-to-asset and times-covered ratios.

➢Activity ratios • How efficiently managers are creating value from assets—

inventory turnover, days sales outstanding ratios.


Financial Performance Measures (cont’d)

Leverage Ratios

Activity Ratios

assets Totaldebts Total

ratio assets -to-Debts =

chargesinterest Total taxesandinterest beforeProfit

ratio covered-Times =

Inventorysold goods ofCost

turnover Inventory =

300Sales Totalreceivable Accounts

goutstandin sales Days =


Output Control

• Organizational Goals ➢Each division within the firm is given specific goals

that must be met in order to attain overall organizational goals.

• Goals should be specific and difficult, but not impossible, to achieve (stretch goals).

• Goal setting and establishing output controls are management skills that are developed over time.


Organization-Wide Goal Setting

Figure 10.4


Output Control (cont’d)

• Operating Budgets ➢Blueprints that state how managers intend to

allocate and use the resources they control to attain organizational goals effectively and efficiently.

• Each division is evaluated on its own budgets for cost, revenue or profit.

• Managers are evaluated by how well they meet goals for controlling costs, generating revenues, or maximizing profits while staying within their budgets.

Independent profit center


Problems with Output Control

• Managers must create output standards that motivate at all levels. ➢They must be careful not to create short-term goals that

motivate managers to ignore the future. • Example: Cutting costs by curtailing research and development (R&D)

now may lead to a loss of competitiveness in the future. ➢If standards are set too high, workers may engage

unethical behaviors to attain them. • Example: Attempting to increase output regardless of product quality

issues caused by omitting steps in the production process.

Investment from debt or equity?


Behavior Control

• Direct Supervision ➢Managers who directly manage can teach, reward,

lead by example, and take corrective action as needed.

• Can be very expensive since only a few workers can be personally managed by one manager and many managers are needed.

• Close supervision demotivates workers who desire less scrutiny and more autonomy, causing them to avoid responsibility.

• Direct supervision is difficult to do effectively in complex job settings.


Management by Objectives

• Management by Objectives (MBO) ➢A goal-setting process in which managers and

subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate their attainment of those goals.

• Specific goals are set at each level of the firm. • Pay raises and promotions are tied to goal attainment. • Teams are also measured with goals and performance measured

for the team.

Self-control


Rules and Standard Operating Procedures

• Bureaucratic Control ➢Control through a system of rules and standard

operating procedures (SOPs) that shapes the behavior of divisions, functions, and individuals.

• Rules and SOPs tell the worker what to do (standardized actions) so outcomes are predictable.

• There is still a need for output control to correct mistakes. • Bureaucratic control is best used for routine problems in stable

environments.


Rules and Standard Operating Procedures (cont’d)

• Bureaucratic Control ➢Problems with Bureaucratic Control

• Rules easier to make than than discarding them, leading to bureaucratic “red tape” and slowing organizational reaction times to problems.

• Firms become too standardized and lose flexibility to learn, to create new ideas, and solve to new problems.


Organizational Culture

• Organizational Culture ➢The set of internalized values, norms, standards of

behavior, and common expectations that control the ways in which individuals and groups in an organization interact with each other and work to achieve organizational goals.


Clan Control

• Clan Control ➢The control through the development of an internal

system of values and norms. ➢Both culture and clan control accept the norms and

values as their own and then work within them. • Examples: Work dress styles, normal working hours, pride taken in work.

➢These methods provide control where output and behavioral control does not work.

➢Strong culture and clan control help worker to focus on the organization and enhance its performance.

信仰!思想!⼒力量


Factors Creating A Strong Organizational Culture

Figure 8.5


Values and Norms

• Values ➢Beliefs and ideas about the kinds of goals members

of a society should pursue and about the kinds and modes of behavior people should use to achieve those goals.

• Norms ➢Unwritten, informal rules or guidelines that

prescribe appropriate behavior in particular situations.

• Having norms and values that are suited to the organization’s environment is important.


Creating Organizational Culture

• Values of the Founder ➢Initial values are critical as founders hire their

first set of managers. • Founders are likely hire those who share their vision which

evolves eventually into the culture of the firm.


Creating Organizational Culture (cont’d)

• Socialization ➢Organizational Socialization

• The process by which newcomers learn an organization’s values and norms and acquire the work behaviors necessary to perform jobs effectively.

• Newcomers learn not only because “they have to” but because they want to in order to “fit in.”

• Organizational behavior, expectations, and background are included in socialization.

Tacitly apprenticed

潛移默化



• Ceremonies and Rites ➢Formal events that focus on important incidents:

• Rite of passage: denoting employees’ entrance into the firm with the formal presentation of a name badge.

• Rite of integration: building common bonds with annual office parties and outings or celebrations for meeting organizational performance goals.

• Rites of enhancement: enhancing worker commitment to values through promotion ceremonies and awards dinners.

Setting the community order



• Stories and Language ➢Organizations repeat the stories of founders or

significant events in the firm’s history to communicate the values and norms for behaviors that are valued by the organization.

• Show workers how to act and what to avoid. • Stories often have a hero that workers can mimic. • Many firms have unique dress codes and use jargon in their

internal communications that only their employees understand.


Culture and Managerial Action

• Innovative Culture affects the functions of management. ➢Planning

• In innovative firms, the culture will encourage all managers to participate.

• In slow moving firms, the focus will be on the formal process rather than the decision.

➢Organizing • Creative firms have organic, flexible structures that are most likely

very flat with delegated, decentralized authority.


Culture and Managerial Action (cont’d)

• Culture affects the functions of management (cont’d) ➢Leading

• Flexible, open organizations encourage leading by example; top managers take risks and trust lower managers.

➢Controlling • Innovative firms choose types of controls that match their structure

and foster new ideas and organizational cooperation.


Homework 7

• GM’ new Saturn automobile line was a completely new design that was built by a specially-recruited workforce in a new factory.

• To market the new car, GM set up separate dealerships and announced the sales people in these organizations would not be paid on a commission basis, as is common in the industry. Instead, they were to be salaried.

• Why should GM do so? What might be the advantage of this pay policy?