CHAPTER 16 CONTROL
Feedforward Control
The Control Process
Control is a regulatory process of establishing
standards to achieve organizational goals,
comparing actual performance to the standards,
and taking corrective action when necessary to
restore performance to those standards.
16-1a Standards
Standards are a basis of comparison for
measuring the extent to which organizational
performance is satisfactory or unsatisfactory.
Benchmarking is the process of determining
how well other companies (not just competitors)
perform business functions or tasks. In other
words, benchmarking is the process of
determining other companies’ standards.
16-1b Comparison to Standards
The next step in the control process is to
compare actual performance to performance
standards. Although this sounds
straightforward, the quality of the comparison
depends largely on the measurement and
information systems a company uses to keep
track of performance.
16-1c Corrective Action
The next step in the control process is to identify
performance deviations, analyze those
deviations, and then develop and implement
programs to correct them.
16-1d Dynamic, Cybernetic Process
Cybernetic derives from the Greek word
kubernetes, meaning “steersman,” that is, one
who steers or keeps on course.
16-1e Feedback, Concurrent, and
Feedback control is a mechanism for gathering
information about performance deficiencies
after they occur.
Concurrent control addresses the problems
inherent in feedback control by gathering
information about performance deficiencies as
they occur.
Feedforward control is a mechanism for
gathering information about performance
deficiencies before they occur.
16-1f Control Isn’t Always Worthwhile or
Possible
Control loss occurs when behavior and work
procedures do not conform to standards.1
To determine whether control is worthwhile,
managers need to carefully assess regulation
costs, that is, whether the costs and unintended
consequences of control exceed its benefits. If
a control process costs more than it benefits, it
may not be worthwhile.
cybernetic feasibility, the extent to which it is
possible to implement each of the three steps in
the control process. If one or more steps cannot
be implemented, then maintaining effective
control may be difficult or impossible.
Control Methods
16-2a Bureaucratic Control
Bureaucratic control is top-down control, in
which managers try to influence employee
behavior by rewarding or punishing employees
for compliance or noncompliance with
organizational policies, rules, and procedures.
16-2b Objective Control
In many companies, bureaucratic control has
evolved into objective control, which is the use
of observable measures of employee behavior
or output to assess performance and influence
behavior. Whereas bureaucratic control focuses
on whether policies and rules are followed,
objective control focuses on observing and
measuring worker behavior or output.
Behavior control is regulating behaviors and
actions that workers perform on the job. The
basic assumption of behavior control is that if
you do the right things (that is, the right
behaviors) every day, then those things should
lead to goal achievement.
Instead of measuring what managers and
workers do, output control measures the
results of their efforts. Whereas behavior control
regulates, guides, and measures how workers
behave on the job, output control gives
managers and workers the freedom to behave
as they see fit as long as they accomplish
prespecified, measurable results. Output control
is often coupled with rewards and incentives.
16-2c Normative Control
With normative controls, a company’s widely
shared values and beliefs guide workers’
behavior and decisions.
16-2d Concertive Control
Whereas normative controls are based on
beliefs that are strongly held and widely shared
throughout a company, concertive controls are
based on beliefs that are shaped and negotiated
by work groups.
16-2e Self-Control
Self-control, also known as self-management,
is a control system in which managers and
workers control their own behavior.35 Self-
control does not result in anarchy, in which
everyone gets to do whatever he or she wants.
In self-control, or self-management, leaders and
managers provide workers with clear
boundaries within which they may guide and
control their own goals and behaviors.Leaders
and managers also contribute to self-control by
teaching others the skills they need to maximize
and monitor their own work effectiveness. In
turn, individuals who manage and lead
themselves establish self-control by setting their
own goals, monitoring their own progress,
rewarding or punishing themselves for
achieving or for not achieving their self-set
goals, and constructing positive thought
patterns that remind them of the importance of
their goals and their ability to accomplish them.
What to Control?
16-3a The Balanced Scorecard
The balanced scorecard encourages
managers to look beyond such traditional
financial measures to four different perspectives
on company performance. How do customers
see us (the customer perspective)? At what
must we excel (the internal perspective)?
The second major advantage of the balanced
scorecard approach to control is that it
minimizes the chances of suboptimization,
which occurs when performance improves in
one area at the expense of decreased
performance in others.
16-3b The Financial Perspective: Controlling
Budgets, Cash Flows, and Economic Value
Added
Cash flow analysis predicts how changes in a
business will affect its ability to take in more
cash than it pays out. Balance sheets provide
a snapshot of a company’s financial position at
a particular time (but not the future). Income
statements, also called profit and loss
statements, show what has happened to an
organization’s income, expenses, and net profit
(income less expenses) over a period of time.
Financial ratios are typically used to track a
business’s liquidity (cash), efficiency, and
profitability over time compared with other
businesses in its industry. Finally, budgets are
used to project costs and revenues, prioritize
and control spending, and ensure that expenses
don’t exceed available funds and revenues.
In a typical budgeting process, a manager uses
the previous year’s budget and adjusts it to
reflect the current situation, but zero-based
budgeting requires managers to outline a
budget from scratch each year.
Conceptually, economic value added (EVA) is
not the same thing as profits. It is the amount by
which profits exceed the cost of capital in a
given year.
16-3c The Customer Perspective:
Controlling Customer Defections
Customer defections a performance
assessment in which companies identify which
customers are leaving and measure the rate at
which they are leaving
16-3d The Internal Perspective: Controlling
Quality
Value is the customer perception that the
product quality is excellent for the price offered.
At a higher price, for example, customers may
perceive the product to be less of a value. When
a company emphasizes value as its quality goal,
managers must simultaneously control
excellence, price, durability, and any other
features of a product or service that customers
strongly associate with value.
16-3e The Innovation and Learning
Perspective: Sustainability
 prevent leakage and contamination of soil and
underground water supplies.
CHAPTER 17 MANAGING INFORMATION
Strategic Importance of Information
Today, a generation later, computer hardware
and software are an integral part of managing
business information. This is due mainly to
something called Moore’s law.
Raw data are facts and figures. For example,
11, $762, 32, and 26,100 are some data that I
used the day I wrote this section of the chapter.
However, facts and figures aren’t particularly
useful unless they have meaning.
Whereas raw data consist of facts and figures,
information is useful data that can influence
someone’s choices and behavior.
17-1a First-Mover Advantage

The goals of the top level, waste prevention and First-mover advantage is the strategic
reduction, are to prevent waste and pollution advantage that companies earn by being the
before they occur or to reduce them when they first in an industry to use new information
do occur. technology to substantially lower costs or to
differentiate a product or service from that of
There are three strategies for waste prevention competitors.
and reduction:
17-1b Sustaining Competitive Advantage
1. Good housekeeping—performing
regularly scheduled preventive
maintenance for offices, plants, and
equipment.
2. Material/product substitution—replacing
toxic or hazardous materials with less
harmful materials.
3. Process modification—changing steps or
procedures to eliminate or reduce waste.
At the second level of sustainability, recycle
and reuse, wastes are reduced by reusing
materials as long as possible or by collecting
materials for on- or off-site recycling.
A growing trend in recycling is design for
disassembly, where products are designed
from the start for easy disassembly, recycling, Characteristics and Costs of Useful
and reuse after they are no longer usable. Information
At the third level of sustainability, waste 17-2a Accurate Information
treatment, companies use biological, chemical,
or other processes to turn potentially harmful Information is useful when it is accurate. Before
waste into harmless compounds or useful by- relying on information to make decisions, you
products. must know that the information is correct. But
what if it isn’t? Many retailers use customer
The fourth and lowest level of sustainability is satisfaction surveys to determine what they
waste disposal. Wastes that cannot be need to improve, and checkout wait times are
prevented, reduced, recycled, reused, or treated always near the top of the list.
should be safely disposed of in processing
plants or in environmentally secure landfills that 17-2b Complete Information
Information is useful when it is complete.
Incomplete or missing information makes it
difficult to recognize problems and identify
potential solutions.
17-2c Relevant Information
You can have complete, accurate information,
but it’s not very useful if it doesn’t pertain to the
problems you’re facing. For instance, if you’re
unlucky enough to contract bullous pemphigoid,
a rare skin condition resulting in large, watery
blisters on your inner thighs and upper arms,
chances are the dermatologist you visit won’t
have any relevant experience with this condition
to be able to recognize and treat it.
17-2d Timely Information
Finally, information is useful when it is timely. To
be timely, the information must be available
when needed to define a problem or to begin to
identify possible solutions. If you’ve ever
thought, “I wish I had known that earlier,” then
you understand the importance of timely
information and the opportunity cost of not
having it.
17-2e Acquisition Costs
Acquisition cost is the cost of obtaining data
that you don’t have. Acxiom, a billion-dollar
company, gathers and processes data for
direct-mail marketing companies. If you’ve
received an unsolicited, “preapproved” credit
card application recently (and who hasn’t?),
chances are Acxiom helped the credit card
company gather information about you. Where
does Acxiom get that information? The first
place it turns is to companies that sell consumer
credit reports at a wholesale cost of $1 each.
17-2f Processing Costs
Companies often have massive amounts of data
but not in the form or combination they need.
Processing cost is the cost of turning raw data
into usable information. While Google offers a
wide range of online services, most of its
revenues come from search-related ads. But
those ads are effective only when Google
serves up accurate searches that help people
find what they’re looking for.
17-2g Storage Costs
Storage cost is the cost of physically or
electronically archiving information for later
retrieval and use. While your Facebook account
is free, Facebook spends billions so that its
more than 1 billion users worldwide can connect
with their friends, play online games, and share
photos.
17-2h Retrieval Costs
Retrieval cost is the cost of accessing already-
stored and processed information. One of the
most common misunderstandings about
information is that it is easy and cheap to
retrieve after the company has it. Not so. First,
you have to find the information. Then, you’ve
got to convince whoever has it to share it with
you. Then the information has to be processed
into a form that is useful for you. By the time you
get the information you need, it may not be
timely anymore.
17-2i Communication Costs
Communication cost is the cost of
transmitting information from one place to
another. For example, a small business with
twenty people needing phone lines, a hosted
website, and high-speed Internet access pays
Comcast about $1,300 a month for that access.
Capturing, Processing, and Protecting
Information
17-3a Capturing Information
There are two basic methods of capturing
information: manual and electronic. Manual
capture of information is a slow, costly, labor-
intensive, and often inaccurate process, which
entails recording and entering data by hand into
a data storage device. For example, when you
applied for a driver’s license, you probably
recorded personal information about yourself by
filling out a form.
Bar codes represent numerical data by varying
the thickness and pattern of vertical bars. The
primary advantage of bar codes is that the data
they represent can be read and recorded in an
instant with a handheld or pen-type scanner.
Radio frequency identification (RFID) tags
contain minuscule microchips and antennas that
transmit information via radio waves.34 Unlike
bar codes, which require direct line-of-sight
scanning, RFID tags are read by turning on an
RFID reader that, like a radio, tunes into a
specific frequency to determine the number and
location of products, parts, or anything else to
which the RFID tags are attached.
Electronic scanners, which convert printed
text and pictures into digital images, have
become an increasingly popular method of
capturing data electronically because they are
inexpensive and easy to use.
The first requirement for a good scanner is a
document feeder that automatically feeds
document pages into the scanner or turns the
pages (often with a puff of air) when scanning
books or bound documents. the second
requirement for a good scanner is optical
character recognition software to scan and
convert original or digitized documents into
ASCII (American Standard Code for Information
Interchange) text or Adobe PDF documents.
ASCII text can be searched, read, and edited
with standard word processing, email, desktop
publishing, database management, and
spreadsheet software, and PDF documents can
be searched and edited with Adobe’s Acrobat
software.
17-3b Processing Information
Processing information means transforming
raw data into meaningful information that can be
applied to business decision making. Evaluating
sales data to determine the best- and worst-
selling products, examining repair records to
determine product reliability, and monitoring the
cost of long-distance phone calls are all
examples of processing raw data into
meaningful information.
Data mining is the process of discovering
patterns and relationships in large amounts of
data. Data mining is carried out using complex
algorithms such as neural networks, rule
induction, and decision trees.
The data typically come from a data
warehouse, which stores huge amounts of data
that have been prepared for data mining
analysis by being cleaned of errors and
redundancy.
Supervised data mining usually begins with
the user telling the data mining software to look
and test for specific patterns and relationships in
a data set. Typically, this is done through a
series of “what-if?” questions or statements.
Unsupervised data mining, the user simply
tells the data mining software to uncover
whatever patterns and relationships it can find in
a data set.
Association or affinity patterns occur when
two or more database elements tend to occur
together in a significant way.
Sequence patterns appear when two or more
database elements occur together in a
significant pattern in which one of the elements
precedes the other. Sequence patterns appear
when two or more database elements occur
together in a significant pattern in which one of
the elements precedes the other.
Predictive patterns are just the opposite of
association or affinity patterns. Whereas
association or affinity patterns look for database
elements that seem to go together, predictive
patterns help identify database elements that
are different.
17-3c Protecting Information
Protecting information is the process of
ensuring that data are reliably and consistently
retrievable in a usable format for authorized
users but no one else.
Data clusters are the last kind of pattern found
by data mining. Data clusters occur when three
or more database elements occur together (that
is, cluster) in a significant way.
Two critical steps are required to make sure that
data can be accessed by authorized users and
no one else. One is authentication, that is,
making sure users are who they claim to be. The
other is authorization, that is, granting
authenticated users approved access to data,
software, and systems.
This is why many companies are now turning to
two-factor authentication, which is based on
what users know, such as a password, and what
they have, in their possession, such as a secure
ID card, their phones, or unique information that
only they would know.
Hackers can access files, run programs, and
control key parts of computers if precautions
aren’t taken. To reduce these risks, companies
use firewalls, hardware or software devices
that sit between the computers in an internal
organizational network and outside networks
such as the Internet.
A virus is a program or piece of code that,
without your knowledge, attaches itself to other
programs on your computer and can trigger
anything from a harmless flashing message to
the reformatting of your hard drive to a system-
wide network shutdown.
Another way of protecting information is to
encrypt sensitive data. Data encryption
transforms data into complex, scrambled digital
codes that can be decrypted only by authorized
users who possess unique decryption keys.
Now, virtual private networks (VPNs) have
solved this problem by using software to encrypt
all Internet data at both ends of the transmission
process.
Alternatively, many companies are now 17-4c Sharing Knowledge and Expertise
adopting web-based secure sockets layer
Knowledge is the understanding that one gains
(SSL) encryption to provide secure off-site
from information. Importantly, knowledge does
access to data and programs. If you’ve ever
not reside in information. Knowledge resides in
entered your credit card in a web browser to
people. That’s why companies hire consultants
make an online purchase, you’ve used SSL
and why family doctors refer patients to
technology to encrypt and protect that
specialists.
information.
Whereas an executive information system
Accessing and Sharing Information and
speeds up and simplifies the acquisition of
Knowledge
information, a decision support system (DSS)
17-4a Internal Access and Sharing helps managers understand problems and
potential solutions by acquiring and analyzing
An executive information system (EIS) uses
information with sophisticated models and tools.
internal and external sources of data to provide
managers and executives the information they Expert systems are created by capturing the
need to monitor and analyze organizational specialized knowledge and decision rules used
performance. by experts and experienced decision makers.
They permit nonexpert employees to draw on
Intranets are private company networks that
this expert knowledge base to make decisions.
allow employees to easily access, share, and
publish information using Internet software.
Intranet websites are just like external websites,
but the firewall separating the internal company
network from the Internet permits only
authorized internal access.
Finally, corporate portals are a hybrid of
executive information systems and intranets.
While an EIS provides managers and
executives with the information they need to
monitor and analyze organizational
performance, and intranets help companies
distribute and publish information and forms
within the company, corporate portals allow
company managers and employees to access
customized information and complete
specialized transactions using a web browser.
17-4b External Access and Sharing
With electronic data interchange, or EDI, two
companies convert purchase and ordering
information to a standardized format to enable
direct electronic transmission of that information
from one company’s computer system to the
other company’s system.
Web services use standardized protocols to
describe and transfer data from one company in
such a way that those data can automatically be
read, understood, transcribed, and processed
by different computer systems in another
company.
An extranet, by contrast, allows companies to
exchange information and conduct transactions
by purposely providing outsiders with direct,
password-protected, web browser–based
access to authorized parts of a company’s
intranet or information system.