BUS 101

Management in a Global
Environment

Chapter 11
Organizational Control and Change
 Learning Objectives
• Define organizational control and explain how it increases
organizational effectiveness.
• Describe the four steps in the control process and the way
it operates over time.
• 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 a means of coordinating
and motivating employees.
• Discuss the relationship between organizational control and
change, and explain why managing change is a vital
management task.
 Management Functions
• Planning: Set the direction and allocate resources.
• Organizing: Create structures, bring people/ material
resources together in working combinations.
• Leading: Inspire people to best utilize these
resources.

• Controlling: Monitor and regulate how efficiently /

effectively an organization and its members are
performing the activities necessary to achieve
organizational goals.
 Importance of
Organizational Control
Organizational control helps managers along the 4
building blocks of competitive advantage:
• Obtain superior efficiency
• Increase quality of goods and services (TQM, Six Sigma)
• Increase responsiveness to customers (CRM)
• Raise level of innovation

Without a control system in place, managers have

no idea how well their organization is performing and
how its performance can be improved.
 Control Systems
Control system: Formal 1) target-setting,
2) monitoring, 3) evaluation, and 4) feedback systems
that provide managers with information about how well
the organization’s strategy and structure are working.

Effective control system has 3 characteristics:

• Flexible enough to allow managers to respond as
necessary to unexpected events.
• Provides accurate information about organizational
performance.
• Gives managers information in a timely manner.
 Control Systems
Control and information systems are developed to
measure performance at each stage in the process
of transforming inputs into finished goods/services

3 types of control
 3 Types of Control
Feedforward control: Control that allows managers
to anticipate problems before they arise.

Supplier screening Employee screening

Request for proposal (RFP)

References
 3 Types of Control
Concurrent control: Control that gives managers
immediate feedback on how efficiently inputs are
being transformed into outputs so managers can
correct problems as they arise.

Machine that is out Employee who lacks skills

of alignment necessary to perform a task
efficiently
 3 Types of Control
Feedback control: Control that gives managers
information about customers’ reactions to goods and
services so corrective action can be taken if
necessary.

Customer returns Change in sales volume

- defects - customer needs
Organizational Control Process

1. Set standard
2. Measure
3. Compare
4. Evaluate
 Organizational Control Process
Step 1: Establish the standards of performance,
goals, or targets against which performance is to
be evaluated.

• At corporate level: standard of performance that measures

efficiency is operating costs.
• Set corporate goal of “reducing operating costs by 10% for next 3
years” to increase efficiency.
• Evaluate divisional managers for their ability to reduce operating
costs within their respective divisions.
• Set cost-saving targets for functional managers.

Do not focus on just one standard (i.e. efficiency) and

ignore others (i.e. customers’ needs, innovation).
 Organizational Control Process
Step 2: Measure actual performance.

• Actual outputs that result from a behavior (i.e.

number of products sold).
• Behaviors themselves (i.e. employees come to
work on time; employees consistently follow the
established rules for greeting and serving
customers).

• Employees at fast-food restaurants (routine, easier).

• Shoe designer’s creativity (non-routine, complex).
 Organizational Control Process
Step 3: Compare actual performance against
chosen standards of performance.

• If performance is higher than expected, managers might

decide they set performance standards too low and may
raise them for next period to challenge their staff.

• If performance is too low and standards were not reached,

or if standards were set so high that employees could not
achieve them, managers must take corrective action.
➢ Reason for poor performance?
• Higher labor costs →search for low-cost overseas suppliers or
invest more in technology
• Changes in environment (new global competitor, recession,
increase in interest rates)
 Organizational Control Process
Step 4: Evaluate the result and initiate corrective
action (make changes) if the standard is not being
achieved.

• Work standard was too high (i.e. sales target was too optimistic and
impossible to achieve → adopt more realistic standards).
• Latest technology is not being used.
• Workers lack advanced training needed to perform at higher level.
• Compete with low-cost rivals → organization needs to buy its inputs
or assemble its products abroad.
• Efficiency is low → restructure or reengineer its work processes
using Six Sigma.
Organizational Control Systems
 Organizational Control Systems
Output control: To monitor output or performance,
managers choose goals or performance standards
that they think will best measure efficiency, quality,
innovation, and responsiveness to customers at the
corporate, divisional, departmental or functional, and
individual levels.

Behavior control: To shape behavior and induce

employees to work toward achieving organizational
goals.

Clan control: To control individuals and groups.

Organizational Control Systems
Output Control
Just FYI,
no need to
Financial measures of performance remember
 Organizational Control Systems
Output Control
Organizational goals
Stretch goals: Goals that challenge and stretch
employees’ ability but are not out of reach.
 Organizational Control Systems
Output Control
Operating budget: Budget that states how managers
intend to use organizational resources to achieve
organizational goals.

• Managers at one level allocate to subordinate managers a

specific amount of resources to produce goods and
services.
• Once they have been given a budget, these lower-level
managers must decide how to allocate money for different
organizational activities.
• They are then evaluated for their ability to stay within the
budget and to make the best use of available resources.
 Organizational Control Systems
Output Control

Problems with output control

• Managers must be sure the output standards they
create motivate managers at all levels and do not
cause managers to behave in inappropriate ways
to achieve organizational goals.
 Organizational Control Systems
Output Control

Problems with output control

• Suppose top managers give divisional managers the goal of
doubling profits over 3-year period. This goal seems
challenging and reachable when it is jointly agreed upon.
• In the first 2 years profits go up by 70%. In the 3rd year,
however, economic recession hits and sales plummet.
• Divisional managers think it is increasingly unlikely that they
will meet their profit goal. Failure will mean losing the
substantial monetary bonus tied to achieving the goal.
• How might managers behave to try to preserve their
bonuses?
 Organizational Control Systems
Output Control

Problems with output control

• Divisional managers might find ways to reduce costs
because profit can be increased by raising sales revenues
or reducing costs:
• Cut back on R&D activities
• Reduce marketing expenditures
• Delay machinery maintenance
• Lay off employees, cut down training expenses
• This might help achieve short-run goal - doubling profits -
but such actions could hurt long-term profitability or ROI:
• Cutback in R&D can reduce the rate of product innovation
• Cutback in marketing will lead to the loss of customers
 Organizational Control Systems
Behavior Control
Direct supervision: Managers actively monitor and
observe the behavior of their subordinates, point out the
behaviors that are appropriate / inappropriate, and
intervene to take corrective action as needed; lead by
example.

Problems with direct supervision:

• It is expensive: Manager can personally manage only a
relatively small number of subordinates effectively.
• Can demotivate subordinates: If employees feel they are
under such close scrutiny; if employees feel they are not
being evaluated in accurate/impartial way.
• For many jobs employee control through direct supervision
is simply not feasible.
 Organizational Control Systems
Behavior Control
Management by objectives (MBO): Goal-setting
process in which a manager and each of his/her
subordinates negotiate specific goals/objectives for
the subordinate to achieve and then periodically
evaluate the extent to which the subordinate is
achieving those goals.

• Step 1: Specific goals and objectives are established at

each level of the organization.
• Step 2: Managers and their subordinates together
determine the subordinates’ goals.
• Step 3: Managers and their subordinates periodically
review the subordinates’ progress toward meeting goals.
 Organizational Control Systems
Behavior Control

Management by objectives (MBO)

“Improve communication with teammates”

“Improve customer service”

S: specific
M: measurable
A: achievable
R: relevant
T: time-bound
 Organizational Control Systems
Behavior Control
Bureaucratic control: Control of behavior by means
of a comprehensive system of rules and standard
operating procedures (SOPs).
• When employees follow the rules that managers have
developed, their behavior is standardized.
• Standardized behavior leads to standardized outputs.

Problems with bureaucratic control:

• Establishing rules is always easier than discarding them -
organizations tend to become overly bureaucratic over time.
• People might become so used to automatically following
rules that they stop thinking for themselves.
Organizational Control Systems
Behavior Control

Bureaucratic control
Organizational Control Systems
Clan Control

Clan control: Control exerted on

individuals / groups in an
organization by shared values,
norms, standards of behavior, and
expectations.

Values and norms that specify

appropriate / inappropriate
behaviors and so determine the
way its members behave.
 Managing Ethically
Some managers and organizations go to great
lengths to monitor their employees’ behavior, and
they keep extensive records about employees’
behavior and performance.

However, there are ethical implications of

organizations’ monitoring and collecting information
about their employees.
 Organizational Change
Organizational change: Movement of an
organization away from its present state and toward
some preferred future state to increase its efficiency /
effectiveness.
Lewin’s Force-Field
Theory of Change
 Lewin’s Force-Field
Theory of Change
• Wide variety of forces arise from the way an
organization operates - from its structure, culture, and
control systems - that make organizations resistant to
change.
• Wide variety of forces arise from changing task and
general environments that push organizations toward
change. These 2 sets of forces are always in
opposition in an organization.
• When the forces are evenly balanced, the organization
is in a state of inertia and does not change.
• To get an organization to change, managers must find
a way to increase the forces for change, reduce
resistance to change, or do both simultaneously.
 Types of Change
• Evolutionary change: Change that is gradual,
incremental, and narrowly focused.
– Total quality management

• Revolutionary change: Change that is rapid,

dramatic, and broadly focused.
– Reengineering
– Restructuring
– Innovation
 Managing Change

Steps in the organizational change process

 Managing Change
Step 1. Assess the need for change.

• Recognize that there is a problem.

• Gap between desired performance and actual
performance: review performance measures.
• Sometimes the need for change is obvious (i.e.
organization’s performance is suffering); other times –
not so obvious.
• Identify the source of the problem.
• Look inside the organization: its structure.
• Look outside the organization: changing environmental
forces.
 Managing Change
Step 2. Decide on the change to make.

• Decide what the organization’s ideal future state would be.

• Plan how to attain the organization’s ideal future state.
• Identify obstacles/sources of resistance to change (at
corporate, divisional, departmental, and individual level) -
company’s culture, present strategy and structure:
• Improve communication so all organizational members are aware of
the need for change and of the nature of the changes being made.
• Empower employees and invite them to participate in planning for
change.
• Emphasize group or shared goals.
 Managing Change
Step 3. Implement the change.

• Top-down change: Fast, revolutionary approach to change

in which top managers identify what needs to be changed
and then move quickly to implement the changes
throughout the organization.
– Managers decide to restructure and downsize the organization and
then divisional and departmental managers have specific goals to
achieve.
• Bottom-up change: Gradual or evolutionary approach to
change in which managers at all levels work together to
develop a detailed plan for change.
– Choose a new CRM system to implement.
 Managing Change
Step 4. Evaluate the change.

• Benchmarking: Process of comparing one company’s

performance on specific dimensions with the performance
of other high-performing organizations.