CORE FOCUS

• Organizational control? And its importance in increasing

organizational effectiveness
• Four steps in the control process
• Main output controls- advantages and disadvantages
• Clan control or organizational culture- and its effects on
organizational architects/ design
• Change? Why managing change is an important task in
management
• Role of entrepreneurship in the control and change
management process
Definition

• Controlling is 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
• a means of directing and motivating subordinates to work
toward achieving organizational goals and to provide
managers with specific feedback on how well an organization
and its members are performing
• keeping an organization on track, anticipating events that
might occur, and then changing the organization to respond to
whatever opportunities or threats have been identified
Importance of controlling

• Are units of inputs and

outputs measured
accurately
superior
• Is the firm’s quality efficiency
product quality

competitive with other

firms
• Are customers satisfied
with the services offered responsiveness innovation and
to customer risk taking
• Does the control system
encourage risk-taking
Control system and IT
• formal target-setting,
monitoring, evaluation,
and feedback systems that
provide managers with
information about whether
the organization’s strategy
and structure are working
efficiently and effectively
• 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
3 Types of control
3 types of control

• Feedforward Controls – Used to anticipate problems before

they arise so that problems do not occur later during the
conversion process
• Concurrent Controls – Give managers immediate feedback
on how efficiently inputs are being transformed into outputs
• Feedback Controls – Used to provide information at the
output stage about customers’ reactions to goods and
services so that corrective action can be taken if necessary
4 steps in control process
three types of organizational control system
Financial measure of control

• Profit Ratios – measure how efficiently managers

are using the organization’s resources to generate
profits.
• Return on Investment (ROI) : organization’s
net income before taxes divided by its total assets
• Operating margin : calculated by dividing a
company’s operating profit by sales revenue
==> Provides managers with information about how
efficiently an organization is utilizing its resources
Financial measure of control

• Liquidity ratios – measure how well managers have

protected organizational resources to be able to meet
short-term obligations
• Leverage ratios – measure the degree to which
managers use debt or equity to finance ongoing
operations
• Activity ratios – provide measures of how well
managers are creating value from organizational
assets
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
Output control- some pitfalls

• the output standards they create motivate

managers at all levels
• do not cause managers to behave in inappropriate
ways to achieve organizational goals.
• too ambitious
• cut back on cost and expense (research activities,
machinery maintenance, marketing, layoff...) ==>
hurt long-term profitability or ROI
Organization goal
• Each division within the firm is
given specific goals that must
be met in order to attain overall
organizational goals.
• Goals should be set
appropriately so that managers
are motivated to accomplish
them
• stretch goal: challenge and
stretch managers’ ability within
the reach and expenditure
Operating budget

• Blueprint that states how managers intend to use

organizational resources to achieve organizational
goals 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
Behavior control

• In an attempt to shape behavior and induce

employees to work toward achieving organizational
goals, managers use direct supervision, management
by objectives, and bureaucratic control by means of
rules and standard operating procedures

• managers who actively
monitor and observe the
behavior of their subordinates manager can personally manage
• Teach subordinates
appropriate behaviors
• Intervene to take corrective
action
• Most immediate and potent
form of behavioral control
• Can be an effective way of
motivating employees
• Problems with Direct
Supervision
– Very expensive because a
only a relatively small number of
subordinates effectively
– Can demotivate subordinates if
they feel that they are under such
close scrutiny that they are not free
to make their own decisions
- The more complex a job is, the
more difficult it is for a manager to
evaluate subordinate's
performance
MBO

• A formal goal-setting process in which a manager

and each of his or her subordinates negotiate specific
goals and objectives for the subordinate to achieve
and then periodically evaluate the extent to which the
subordinate is achieving those goals within given
operating budget
• Ignited by Peter Drucker in 1954 in The Practice of
Management.
3 steps in MBO application

• 1. Specific goals and objectives are established at each

level of the organization
• 2. Managers and their subordinates together determine
the subordinates’ goals
• 3. Managers and their subordinates periodically review
the subordinates’ progress toward meeting goals
Model of MBO process
Pros and cons of MBO
How can a manager can conduct MBO effectively

• individual managers must understand the specific

objectives of their job and how those objectives fit in with
the overall company goals set by the board of directors.
• The managers of an organization’s various units,
subunits, or departments should know not only the
objectives of their unit but should also actively participate
in setting these objectives and make responsibility for
them
Bureaucratic Control
• Control of behavior by means
of a comprehensive system of
rules and standard operating
procedures that shapes and
regulates the behavior of
divisions, functions, and
individuals
• UPS
• retail stores, fast-food
restaurants, and home
improvement stores
• 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
- Bureaucratic control is much less
useful in situations where
nonprogrammed decisions have to
be made
Output control and behavior control are inappropriate

• A manager cannot evaluate the performance of workers

such as doctors, research scientists, or engineers by
observing their behavior on a day-to-day basis.
• Rules and SOPs are of little use in telling a doctor how to
respond to an emergency situation or a scientist how to
discover something new.
• Output controls such as the amount of time a surgeon
takes for each operation or the costs of making a
discovery are very crude measures of the quality of
performance.
Organizational Culture and Clan Control

• organizational culture is • Clan control is the control

the shared set of beliefs, exerted on individuals and
xpectations, values, groups in an organization
norms, and work routines by shared values, norms,
that influences how standards of behavior, and
members of an expectations
organization relate to one
another and work together
to achieve organizational
goals
Adaptive Cultures Vs Inert Cultures

• Adaptive cultures are ones • inert cultures are those

whose values and norms
help an organization to
build momentum and to
grow and change as
needed to achieve its
goals and be effective. • short-term employment
• reward employees based
on their performance
(ESOP), long term
relationship
that lead to values and
norms that fail to motivate
or inspire employees; they
lead to stagnation and
often failure over time
according to the needs of
the organization and on
minimal investment in
employees
Organizational change

• the movement of an
organization away from its
present state toward some
preferred future state to
increase its efficiency and
effectiveness
Change implementation model
Approaches to Managing
Organizational Change

• Lewin’s Three-Step Model of

Change
• Kotter’s Eight-Step Model of the
Change Process
• Organizational Development
Lewin’s Three-Step Model
Unfreezing the Status Quo

.
 Kotter’s Eight-Step Plan
1. Create urgency 5. Empower others
2. Form coalition 6. Reward “wins”
3. Create new vision 7. Consolidate
4. Communicate the improvements
vision

Movement Refreezing

8. Reinforce the
Unfreezing change
Organizational Development

• Organizational development:
A collection of change methods that try
to improve organizational effectiveness
and employee well-being
• Based on humanistic-democratic values
◼ Respect for people
◼ Trust and support
◼ Power equalization
◼ Confrontation
◼ Participation
.
Organizational Development
• 1. Respect for people. Individuals are perceived as responsible,
conscientious, and caring. They should be treated with dignity and
respect.
• 2. Trust and support. An effective and healthy organization is
characterized by trust, authenticity, openness, and a supportive
climate.
• 3. Power equalization. Effective organizations deemphasize
hierarchical authority and control.
• 4. Confrontation. Problems should be openly confronted, not swept
under the rug.
• 5. Participation. The more engaged in the decisions they are, the more
people affected by a change will be committed to implementing it.
Implementing the change
• Top Down Change – A • Bottom-up change – A
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.
gradual or evolutionary
approach to change in
which managers at all
levels work together to
develop a detailed plan for
change
Evaluating the change
• changes in market share,
in profits, or in the ability of
managers to meet their
goals,
• benchmarking The
process of comparing one
company’s performance
on specific dimensions
with the performance of
other, high-performing
organizations.
Entrepreneurship, Control, and Change

• entrepreneurs: Individuals who • intrapreneurs: Employees

notice opportunities and decide of existing organizations
how to mobilize the resources
necessary to produce new and who notice opportunities to
improved goods and services develop new or improved
• entrepreneurship: The products and better ways
mobilization of resources to take to make them
advantage of an opportunity to
provide customers with new or
improved goods and services
Entrepreneurship, Control, and Change

• entrepreneurs bring about • intrapreneurs become

change to companies and
industries because they
see new and improved
ways to use resources to
• venture capitalists (the people
create products customers
will want to buy
• Entrepreneurship does not
just end once a new
business is founded
dissatisfied when their
superiors decide not to
supportor to fund new product
ideas and development efforts
who provide the capital to fund
a new venture) lend
entrepreneurs the money .
The entrepreneur then
become CEO or the chair man
in the board of directors.