School Of Business

SOBU

Department of Management
&
International Management

Final Revision Sheet

Course Name: Introduction to Business Management
Semester: Fall 2023-2024
Chapters Included: 11, 14, 16, 17&18
MI

m
 Chapter 11: Organization Design
11.1 Describe Six Key Elements in Organizational Design
Organizational structure is the formal arrangement of jobs within an organization. This structure, is shown visually
in an organizational chart, also serves many purposes. When managers create or change the structure, they’re
engaged in organizational design, a process that involves decisions about six key elements:

I. Work Specialization: It is dividing work activities into separate job tasks. Individual employees
“specialize” in doing part of an activity rather than the entire activity in order to increase work output
and quality.
II. Departmentalization: After deciding what job tasks will be done and by whom, common work activities
need to be grouped back together so work gets done in a coordinated and integrated way. How jobs are
grouped together is called departmentalization.
III. Chain of Command: The chain of command is the line of authority extending from upper organizational
levels to lower levels, which clarifies who reports to whom. It helps employees with questions such as “Who
do I report to?” or “Who do I go to if I have a problem? To understand the chain of command, you have to
understand three other important concepts: Authority, Responsibility, and Unity of Command.
i. Authority: refers to the rights inherent in a managerial position to tell people what to do and to expect
them to do it. Line authority entitles a manager to direct the work of an employee. A manager with line
authority has the right to direct the work of employees and to make certain decisions without consulting
anyone. Staff authority positions with some authority that have been created to support, assist, and
advise those holding line authority.
ii. Responsibility: When managers use their authority to assign work to employees, those employees take
on an obligation to perform those assigned duties. This obligation or expectation to perform is known as
responsibility.
iii. Unity of command: States that a person should report to only one manager. Without unity of command,
conflicting demands from multiple bosses can occur.
IV. Span of Control: A Span of control refers to the number of employees a manager can efficiently and
effectively manage. Determining the span of control is important because, to a large degree, it determines
the number of levels and managers in an organization. Wider spans are more efficient in terms of cost.
However, at some point, wider spans may reduce effectiveness if employee performance worsens because
managers no longer have the time to lead effectively.
V. Centralization and Decentralization: At what organizational level are decisions made?
i. Centralization: is the degree to which decision making takes place at upper levels of the organization.
ii. Decentralization: is the degree to which lower-level employees provide input or actually make
decisions.
Centralization–Decentralization is not an either-or concept. The decision is relative, not absolute—that is, an
organization is never completely centralized or decentralized. Traditional organizations in which power and
authority were concentrated near the top of the organization, centralized decisions were the most prominent.
However, organizations today believe decisions need to be made by those individuals closest to the problems,
regardless of their organizational level. This trend, also known as employee empowerment, gives employees
more authority (power) to make decisions.

VI. Formalization: Formalization refers to how standardized an organization’s jobs are and the extent
to which employee behavior is guided by rules and procedures.

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 11.2 Mechanistic and Organic structures
A Mechanistic Organization (or bureaucracy) is an organizational design that’s rigid and tightly controlled.
It is the natural result of combining the six elements of structure. Adhering to the chain-of-command principle
ensured the existence of a formal hierarchy of authority, with each person controlled and supervised by one
superior.
An Organic Organization is a highly adaptive form that is as loose and flexible as the mechanistic organization
is rigid and stable. Rather than having standardized jobs and regulations, the organic organization’s loose structure
allows it to change rapidly, as required. It is low in centralization so that the professional can respond quickly to
problems and because top-level managers cannot be expected to possess the expertise to make necessary decisions.

11.3 Contingency Factors affecting Structural Choice

I. Strategy and Structure: An organization’s structure should facilitate goal achievement. Research has shown
that certain structural designs work best with different organizational strategies. Flexibility and free-
flowing information of the organic structure works well when an organization is pursuing meaningful and
unique innovations. The mechanistic organization with its efficiency, stability, and tight controls works best
for companies wanting to tightly control costs.

II. Size and Structure: There’s considerable evidence that an organization’s size affects its structure. Large
organizations tend to have more specialization, departmentalization, centralization, and rules and
regulations than do small ones. However, once an organization grows past a certain size; size has less
influence on structure.
III. Technology and Structure: Every organization uses some form of technology to convert its inputs into
outputs. Technology has made it possible to conduct the work with few workers. Firms can be divided into
three distinct technologies that had increasing levels of complexity and sophistication.
i. Unit production: The production of items in units or small batches.
ii. Mass production: The production of items in large batches.
iii. Process production: The production of items in continuous processes.

IV. Environmental Uncertainty and Structure: In stable and simple environments, mechanistic designs can be
more effective. The greater the uncertainty, the more an organization needs the flexibility of an organic design.

11.4 Traditional Organizational Design Options

When designing a structure, managers may choose one of the traditional organizational designs:
I. Simple Structure
Most companies start as entrepreneurial ventures using a simple structure, an organizational design with little
departmentalization, wide spans of control, authority centralized in a single person, and little formalization.
As employees are added, however, most don’t remain as simple structures. The structure tends to become more
specialized and formalized. Rules and regulations are introduced, work becomes specialized, departments are
created, levels of management are added, and the organization becomes increasingly bureaucratic. At this point,
managers might choose a functional structure or a divisional structure.

II. Functional Structure

A functional structure is an organizational design that groups similar or related occupational specialties
together.

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 III. Divisional Structure
The divisional structure is an organizational structure made up of separate business units or divisions. In this
structure, each division has limited autonomy, with a division manager who has authority over his or her unit and
is responsible for performance. In divisional structures, however, the parent corporation typically acts as an
external overseer to coordinate and control the various divisions, and often provides support services such as
financial and legal.

11.5 Organizing for Flexibility in the Twenty-First Century

Organizations need to be lean, flexible, and innovative; that is, they need to be more organic.
I. Team Structures
A team structure is one in which the entire organization is made up of work teams that do the organization’s
work. In this structure, employee empowerment is crucial because no line of managerial authority flows from
top to bottom. Rather, employee teams design and do work in the way they think is best, but the teams are also
held responsible for all work performance results in their respective areas.

II. Matrix and Project Structures

i. The matrix structure: Assigns specialists from different functional departments to work on projects led by a
project manager. It creates a dual chain of command because employees in a matrix organization have two
managers, their functional area manager and their product or project manager, who share authority.
ii. The project structure: Many organizations use a project structure, in which employees continuously work on
projects. A project structure has no formal departments where employees return at the completion of a project.
Instead, they take their specific skills, abilities, and experiences to other projects.

III. The Boundaryless Organization

i. The boundaryless organization: An organization whose design is not defined by, or limited to, the
horizontal, vertical, or external boundaries imposed by a predefined structure.
ii. Virtual organization: An organization that consists of a small core of full-time employees and outside
specialists temporarily hired as needed to work on projects.
iii. Task force (or ad hoc committee): A temporary committee or team formed to tackle a specific short-term
problem affecting several departments.
iv. Open Innovation Opening up the search for new ideas beyond the organization’s boundaries and allowing
innovations to easily transfer inward and outward.

VI. Telecommuting
A work arrangement in which employees work at home and are linked to the workplace by computer.

VII. Compressed Workweeks, Flextime, and Job Sharing

i. Compressed workweek a workweek where employees work longer hours per day but fewer days per week.
ii. Flextime (or flexible work hours) A scheduling system in which employees are required to work a specific
number of hours a week but are free to vary those hours within certain limits.
iii. Job Sharing The practice of having two or more people split a full-time job.

VIII. The Contingent Workforce

Around the world, many organizations are coping with labor shortages and peak work demands by hiring employees
on a temporary or part-time basis. Contingent workers temporary, freelance, or contract workers whose
employment is contingent on demand for their services. As full-time jobs are eliminated through downsizing and
other organizational restructurings, managers often rely on a contingent workforce to fill in as needed.
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 Chapter 14: Interpersonal and Organizational Communication
14.1 The Nature and Function of Communication
Everything a manager does involves communicating. A manager can’t make a decision without information. That
information has to be communicated. Once a decision is made, communication must again take place.

 What Is Communication
Communication is the transfer and understanding of meaning, with a great emphasis on the transfer of meaning.
If information or ideas have not been conveyed, communication hasn’t taken place. Communication involves the
understanding of meaning. For communication to be successful, the meaning must be imparted and understood.

 Functions of Communication
Four major functions, each function is equally important:
1. Communication acts to control employee behavior.
2. Communication acts to Motivate by clarifying to employees what is to be done.
3. Communication provides a release for Emotional Expression of feelings & for fulfillment of social needs.
4. Communication provides individuals & groups by Information needed to get things done.

14.2 Methods and Challenges of Interpersonal Communication

Before communication can take place, a purpose must exist expressed as a message. It passes between a source:
the sender and a receiver. The message is converted to symbolic form (called encoding) and passed by way of some
medium (channel) to the receiver, who retranslates the sender’s message (called decoding). The result is the
transfer of meaning from one person to another. The entire process is susceptible to noise.

 Methods
An important part of interpersonal communication is nonverbal communication that is, communication
transmitted without words. Some of the most meaningful communications are neither spoken nor written. Body
language refers to gestures, facial expressions, and other body movements that convey meaning. Knowing the
meaning behind someone’s body moves and learning how to put forth your best body language can help you
personally and professionally. Verbal intonation refers to the emphasis someone gives to words or phrases in order
to convey meaning.

 Barriers
I. Cognitive: Managers should be familiar with two cognitive barriers to communication: information overload
and filtering.
i. Information overload occurs when information exceeds our processing capacity; when individuals have
more information than they can process; they tend to ignore, pass over, forget, or selectively choose
information.
ii. Filtering is the deliberate manipulation of information to make it appear more favorable to the receiver.

II. Emotions: How a receiver feels influences how he or she interprets it. Extreme emotions are most likely to hinder
effective communication. In such instances, we often disregard our rational and objective thinking processes and
substitute emotional judgments.

III. Sociocultural: Words mean different things to different people. Age, education, and cultural background are three
of the more obvious variables that influence the language a person uses and the definitions he or she gives to words.

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 IV. National culture: Communication differences can arise from national culture as well as different languages.

 Overcoming the Barriers

I. Use Feedback: Many communication problems are directly attributed to misunderstanding and inaccuracies.
These problems are less likely to occur if the manager gets feedback, both verbal and nonverbal.

II. Simplify Language: Because language can be a barrier, managers should consider the audience to whom the
message is directed and tailor the language to them. Remember, effective communication is achieved when a
message is both received and understood.

III. Listen Actively: When someone talks, we hear, but too often we don’t listen. Listening is an active search for
meaning, whereas hearing is passive. In listening, the receiver is also putting effort into the communication. Unlike
hearing, active listening, which is listening for full meaning without making premature judgments or
interpretations, demands total concentration.

IV. Constrain Emotions: We know that emotions can cloud and distort communication. A manager should calm
down and get emotions under control before communicating.

V. Watch Nonverbal Cues: If actions speak louder than words, then it’s important to make sure your actions align
with and reinforce the words that go along with them. An effective communicator watches his or her nonverbal
cues to ensure that they convey the desired message.

14.3 Effective Organizational Communication

I. Formal versus Informal: Communication within an organization is described as formal or informal.

i. Formal communication refers to communication that takes place within prescribed organizational work
arrangements (example when a manager asks an employee to complete a task).

ii. Informal communication is organizational communication not defined by the organization’s structural hierarchy
(example when employees talk with each other in the lunch room). The informal communication system fulfills
two purposes in organizations: (1) It permits employees to satisfy their need for social interaction, and (2) it can
improve an organization’s performance by creating alternative, and frequently faster and more efficient, channels
of communication.

II. Direction of Flow: Let’s look at the ways that organizational communication can flow:

i. Downward communication which is communication that flows from a manager to employees. It’s used to
inform, direct, coordinate, and evaluate employees. When managers assign goals to their employees, they’re using
downward communication.

ii. Upward communication is communication that flows from employees to managers. It keeps managers aware
of how employees feel about their jobs, their coworkers, and the organization in general. Managers also rely on
upward communication for ideas on how things can be improved.

iii. Laterally communication that takes place among employees on the same organizational level is called lateral
communication. In today’s dynamic environment, horizontal communications are frequently needed to save time
and facilitate coordination.

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 iv. Diagonal communication is communication that crosses both work areas and organizational levels. Because
of its efficiency and speed, diagonal communication can be beneficial. Increased e-mail use facilitates diagonal
communication. In many organizations, any employee can communicate by e-mail with any other employee,
regardless of organizational work area or level, even with upper-level managers.

III. Networks: There are three common communication networks:

i. Chain network: communication flows according to the formal chain of command, both downward and upward.
ii. Wheel network: represents communication flowing between a clearly identifiable and strong leader and others
in a work group or team.
iii. All-channel network: communication flows freely among all members of a work team.

14.4 Communication in the Internet and Social Media Age

I. The 24/7 Work Environment: IT has made it possible to stay connected around the clock, seven days per
week. IT has made it possible for people in organizations to be fully accessible, at any time, regardless of
where they are.

II. Working from Anywhere: Employees don’t have to be at their desks to communicate with others in the
organization. As wireless technology continues to improve, we’ll see more organizational members using it
as a way to collaborate and share information.

III. Social Media: Social media can be used to start a useful conversation in which employees can share their
experiences and make suggestions for creating competitive advantage.

IV. Balancing the Pluses and Minuses: Collaborative work efforts among widely dispersed individuals and
teams, sharing of information, and integration of decisions and work throughout an entire organization have
the potential to increase organizational efficiency and effectiveness. While the economic benefits of IT are
obvious, managers must not forget the psychological drawbacks.

V. Choosing the Right Media: It is important for managers to understand the situations in which one or more
media facilitates effective communication. In some situations particular communication methods are better
or more appropriate than others.

14.5 Communication Issues in Today’s Organizations

I. Managing communication in a digitally connected world: new technology has created special
communication challenges; the two main ones are:

i. Legal and security issues: Although e-mail, blogs, tweets, and other forms of online communication are quick
and easy ways to communicate, managers need to be aware of potential legal problems from inappropriate
usage. Legal problems aren’t the only issue security concerns are as well; corporate computer and e-mail
systems should be protected against hackers and spam mail.

ii. Lack of personal interaction: When two people are communicating face-to-face, understanding is not always
achieved. However, it can be especially challenging to achieve understanding and collaborate on getting work
done when communication takes place in a virtual environment.

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 II. Managing the organization’s knowledge resources: What managers need to do with the organization’s
knowledge resources is to make it easier for employees to communicate and share their knowledge so they can
learn from each other ways to do their jobs more effectively and efficiently. One way organizations can do this is
to build online information databases that employees can access.

III. The role of communication in customer service: There are three components in any service delivery process:
the customer, the service organization, and the individual service provider; managers don’t have a lot of control
over what or how the customer communicates, but they can influence the other two.

IV. Getting employee input: In today’s challenging environment, companies need to get input from their
employees. Letting employees know that their opinions matter is an essential first step in building effective
suggestions systems.

V. Communicating ethically: Ethical communication includes all relevant information, is true in every sense, and
is not deceptive in any way.

14.6 Becoming a Better Communicator:

I. Sharpening Your Persuasion Skill:
Skills that enable a person to influence others to change their minds or behavior.

II. Sharpening Your Speaking Skills:

Skills that refer to the ability to communicate information and ideas in talking so others will understand.

III. Sharpening Your Writing Skills:

Skills that entail communicating effectively in text as appropriate for the needs of the audience.

IV. Sharpening Your Reading Skills:

Skills that entail an understanding of written sentences and paragraphs in work-related documents.

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 Chapter 16: Leadership
16.1 Who are Leaders and What is Leadership?

 A leader is someone who can influence others and who has managerial authority.
 Leadership is a process of leading a group and influencing that group to achieve its goals.

Are all managers leaders? Because leading is one of the four management functions, yes, ideally, all
managers should be leaders.

16.2 Early leadership theories The eight traits that shown to be associated with effective leadership:

I. Drive: Leaders exhibit a high effort level. They have a relatively high desire for achievement, they are
ambitious, they have a lot of energy, they are tirelessly persistent in their activities, and they show
initiative.

II. Desire to lead: Leaders have a strong desire to influence and lead others. They demonstrate the
willingness to take responsibility.
III. Honesty and integrity: Leaders build trusting relationships with followers by being truthful or non-
deceitful and by showing high consistency between word and deed.

IV. Self-confidence: Followers look to leaders for an absence of self-doubt. Leaders, therefore, need to
show self-confidence in order to convince followers of the rightness of their goals and decisions.

V. Intelligence: Leaders need to be intelligent enough to gather, synthesize, and interpret large amounts
of information, and they need to be able to create visions, solve problems, and make correct decisions.

VI. Job-relevant knowledge: Effective leaders have a high degree of knowledge about the company,
industry, and technical matters. In-depth knowledge allows leaders to make well-informed decisions
and to understand the implications of those decisions.

VII. Extraversion: Leaders are energetic, lively people. They are sociable, assertive, and rarely silent or
withdrawn.

VIII. Proneness to guilt: Guilt proneness is positively related to leadership effectiveness because it
produces a strong sense of responsibility for others.

16.4 Contemporary Views of Leadership

I. Leader–Member Exchange (LMX) Theory

 Leader–member exchange theory (LMX) says leaders create in-groups and out-groups, and those
in the in-group will have higher performance ratings, less turnover, and greater job satisfaction.
 LMX theory suggests that early on in the relationship between a leader and a given follower, a leader
will implicitly categorize a follower as an “in” or as an “out.” That relationship tends to remain fairly
stable over time. Leaders also encourage LMX by rewarding those employees with whom they want
a closer linkage and punishing those with whom they do not.
 Evidence shows that in-group members have demographic, attitude, personality, and even gender
similarities with the leader or they have a higher level of competence than out-group members. The
leader does the choosing, but the follower’s characteristics drive the decision.

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 II. Transformational-Transactional Leadership

 Transactional leaders are leaders who lead primarily by using social exchanges (or transactions).
Transactional leaders guide or motivate followers to work toward established goals by exchanging
rewards for their productivity.
 Transformational leader—stimulates and inspires (transforms) followers to achieve extraordinary
outcomes. They pay attention to the concerns and developmental needs of individual followers; they
change followers’ awareness of issues by helping those followers look at old problems in new ways;
and they are able to excite, arouse, and inspire followers to exert extra effort to achieve group goals.
 Transactional and transformational leadership shouldn’t be viewed as opposing approaches to getting
things done. Transformational leadership develops from transactional leadership.
 Studies found that transformational leaders were evaluated as more effective, higher performers, more
promotable than their transactional counterparts, and more interpersonally sensitive.
 Transformational leadership is strongly correlated with lower turnover rates and higher levels of
productivity, employee satisfaction, creativity, goal attainment, follower well-being, and corporate
entrepreneurship, especially in start-up firms.

III. Charismatic-Visionary Leadership

 Charismatic leader—that is, an enthusiastic, self-confident leader whose personality and actions
influence people to behave in certain ways.
 Five characteristics of a charismatic leader: they have a vision, the ability to articulate that vision, a
willingness to take risks to achieve that vision, a sensitivity to both environmental constraints and
follower needs, and behaviors that are out of the ordinary.
 Charismatic- Visionary Leadership: Although the term vision is often linked with charismatic
leadership, visionary leadership is different; it’s the ability to create and articulate a realistic, credible,
and attractive vision of the future that improves on the present situation.

IV. Authentic Leadership

 Authentic leadership focuses on the moral aspects of being a leader.

 Authentic leaders know who they are, know what they believe in, and act on those values and beliefs
openly and candidly.

V. Ethical Leadership

Ethical Leadership means that individuals behave according to a set of principles & values that are
recognized by the majority as a sound basis for common good. These include Integrity, Respect, Trust, and
Fairness. An ethical leader places public safety ahead of profits.

VI. Team Leadership

The challenge for many managers is learning how to become an effective team leader. They have to learn skills
such as patiently sharing information, and being able to trust others and to give up authority. Effective team
leaders have mastered the difficult balancing act of knowing when to leave their teams alone and when
to get involved.

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 Chapter 17: Motivation
17.1 What is Motivation?
Motivation refers to the process by which a person’s efforts are energized, directed, and sustained toward attaining
a goal. This definition has three key elements:

 Energy: a measure of intensity, drive, and vigor. A motivated person puts forth effort and works hard.
 Direction: effort directed toward and consistent with organizational goals is the kind of effort we want from
employees.
 Persistence: we want employees to persist in putting forth effort to achieve those goals.

17.2 Early theories of motivation We begin by looking at four early motivation theories:
I. Maslow’s Hierarchy of Needs Theory
The best-known theory of motivation is probably Abraham Maslow’s hierarchy of needs theory. Maslow was a
psychologist who proposed that within every person is a hierarchy of five needs:

1. Physiological needs: A person’s needs for food, drink, shelter, sex, and other physical requirements.
2. Safety needs: A person’s needs for security and protection from physical and emotional harm as well as
assurance that physical needs will continue to be met.
3. Social needs: A person’s needs for affection, belongingness, acceptance, and friendship.

4. Esteem needs: A person’s needs for internal esteem factors such as self-respect, autonomy, and
achievement and external esteem factors such as status, recognition, and attention.

5. Self-actualization needs: A person’s needs for growth, achieving one’s potential, and self-fulfillment; the
drive to become what one is capable of becoming.
Physiological and safety needs were considered lower-order needs; social, esteem, and self-actualization needs
were considered higher order needs. To motivate someone, you need to understand at what need level that person
is on in the hierarchy and focus on satisfying needs at or above that level.

II. McGregor’s Theory X and Theory Y

Douglas McGregor is best known for proposing two assumptions about human nature:
 Theory X is a negative view of people that assumes workers have little ambition, dislike work, want
to avoid responsibility, and need to be closely controlled to work effectively.

 Theory Y is a positive view that assumes employees enjoy work, seek out and accept responsibility,
and exercise self-direction.
McGregor believed that Theory Y assumptions should guide management practice and proposed that
participation in decision making, responsible and challenging jobs, and good group relations would maximize
employee motivation.

III. Herzberg’s Two-Factor Theory

Frederick Herzberg’s two-factor theory (also called motivation–hygiene theory) proposes that intrinsic
factors are related to job satisfaction, while extrinsic factors are associated with job dissatisfaction.
Herzberg wanted to know when people felt exceptionally good (satisfied) or bad (dissatisfied) about their jobs.
He concluded that certain characteristics were consistently related to job satisfaction, and others to job
dissatisfaction.
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 When people felt good about their work, they tended to cite intrinsic factors arising from the job itself such as
achievement, recognition, and responsibility. On the other hand, when they were dissatisfied, they tended to cite
extrinsic factors arising from the job context such as company policy and administration, supervision,
interpersonal relationships, and working conditions. The extrinsic factors that create job dissatisfaction were
called hygiene factors. When these factors are adequate, people won’t be dissatisfied, but they won’t be satisfied
(or motivated) either. To motivate people, Herzberg suggested emphasizing motivators, the intrinsic factors
having to do with the job itself.

IV. Three-Needs Theory David McClelland and his associates proposed the three needs theory, which says
three acquired (not innate) needs are major motives in work. These three are:

 The need for achievement (nAch): the drive to succeed and excel in relation to a set of standards.
 The need for power (nPow): the need to make others behave in a way they would not have behaved otherwise.
 The need for affiliation (nAff): the desire for friendly and close interpersonal relationships.

17.4 Current Issues in Motivation

Motivating Unique Groups of Workers
 Motivating a diverse workforce: To maximize motivation among today’s workforce, managers need to think
in terms of flexibility.

 Motivating professionals: Professionals are different from nonprofessionals. They have a strong and long-term
commitment to their field of expertise. What motivates professionals? Money & promotions typically are low on
their priority list; since they tend to be well paid & enjoy what they do. Professionals value support; they want
others to think that what they are working on is important. That may be true for all employees, but professionals
tend to be focused on their work as their central life interest.

 Motivating contingent workers: What will motivate involuntarily temporary employees? An obvious answer
is the opportunity to become a permanent employee. In cases in which permanent employees are selected from
a pool of temps, the temps will often work hard in hopes of becoming permanent. A less obvious answer is the
opportunity for training. The ability of a temporary employee to find a new job is largely dependent on his or
her skills. If an employee sees that the job he or she is doing can help develop marketable skills, then motivation
is increased.
 Motivating low-skilled, minimum-wage employees: Although money is important as a motivator, it’s not the
only reward that people seek and that managers can use. In motivating minimum-wage employees, managers
might look at employee recognition programs. Many managers also recognize the power of praise; although
these “pats on the back” must be sincere and given for the right reasons.

Designing Appropriate Rewards Programs

 Open-book management: Many organizations involve their employees in workplace decisions by opening up
the financial statements (the “books”). They share that information so employees will be motivated to make better
decisions about their work and better able to understand the implications of what they do, how they do it, and the
ultimate impact on the bottom line. In many cases, employees begin to think like owners rather than hired hands.
 Employee recognition programs: Employee recognition programs consist of personal attention and expressing
interest, approval, and appreciation for a job well done. They can take numerous forms.
 Pay-for-performance: Pay-for-performance programs are variable compensation plans that pay employees on
the basis of some performance measure. Piece-rate pay plans, wage incentive plans, profit-sharing, and lump-sum
bonuses are examples. Individuals should perceive a strong relationship between their performance and the
rewards they receive for motivation to be maximized.

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 Chapter 18: Controlling Activities and Operations
18.1 What is controlling and why is it important?
 What is controlling?
Controlling is the process of monitoring, comparing, and correcting work performance. All managers should
control even if their units are performing as planned because they can’t really know that unless they’ve evaluated
what activities have been done and compared actual performance against the desired standard. Effective controls
ensure that activities are completed in ways that lead to the attainment of goals.

 Why is control so important?

Control is important because it’s the only way that managers know whether organizational goals are being met
and, if not, the reasons why.

18.2 The Control Process

The control process is a three-step process of measuring actual performance, comparing actual performance against
a standard, and taking managerial action to correct deviations or to address inadequate standards.

I. Step 1: Measuring Actual Performance

i. How we measure: Four approaches used by managers to measure and report actual performance are: Personal
observations, Statistical reports, Oral reports, Written reports. Most managers use a combination of these
approaches.

ii. What we measure: What control criteria might managers use? Criteria such as employee satisfaction or
turnover and absenteeism rates can be measured. Keeping costs within budget is also a fairly common control
measure. Other control criteria should recognize the different activities that managers supervise (example pizzas
delivered per day).

II. Step 2: Comparing Actual Performance Against the Standard

The comparing step determines the variation between actual performance and the standard. Although some variation
in performance can be expected in all activities, it’s critical to determine an acceptable “range of variation”.

What is Range of Variation? The acceptable parameters of variance between actual performance and the
standard.

III. Step 3: Taking Managerial Action

Managers can choose among three possible courses of action: do nothing, correct the actual performance, or
revise the standards.

 Correct actual performance: Depending on what the problem is, a manager could take different
corrective actions. One decision a manager must take is whether to take “immediate corrective action”,
which corrects problems at once to get performance back on track, or to use “basic corrective action,”
which looks at how and why performance deviated before correcting source of deviation.

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  Revise the Standard: It’s possible that the variance was a result of an unrealistic standard—too low or
too high a goal. In that situation, the standard needs the corrective action, not the performance. If
performance consistently exceeds the goal, then a manager should look at whether the goal is too easy and
needs to be raised. On the other hand, managers must be cautious about revising a standard downward.

18.3 Controlling for Organizational and Employee Performance

Managers in all types of businesses are responsible for managing organizational and employee performance.

 What Is Organizational Performance?

What is Performance?
It’s the end result of an activity. Managers are concerned with organizational performance—the accumulated results
of all the organization’s work activities. It’s a multifaceted concept, but managers need to understand the factors that
contribute to organizational performance.

 Measures of Organizational Performance

Organizational productivity: Productivity is the amount of goods or services produced divided by the inputs
needed to generate that output.
Organizational Effectiveness is a measure of how appropriate organizational goals are and how well those goals are
met.

 Controlling for Employee Performance

How do managers do that?
By following the control process. It’s particularly important for managers to deliver effective performance feedback
and to be prepared, if needed, to use disciplinary actions (actions taken by a manager to enforce the organization’s
work standards and regulations).

18.4 Tools for measuring organizational performance

I. Feedforward control
The most desirable type of control—feedforward control—prevents problems because it takes place before the
actual activity. The key to feedforward controls is taking managerial action before a problem occurs.

II. Concurrent control

As its name implies, takes place while a work activity is in progress. The best-known form of concurrent control is
direct supervision. Another term for it is management by walking around, which is when a manager is in the
work area interacting directly with employees.

III. Feedback control

The most popular type of control relies on feedback. In feedback control, the control takes place after the activity
is done.

Study well! 

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