Chapter 14

Designing
Entrepreneurial Control
Systems
Copyright (c) 2011 South-Western/Cengage Learning. All rights reserved.
 Introduction
Control sounds like an oppressive word.
It evokes images of restraint, dominance, regulation,
rigidity, and conformity. Yet organizations would be
reduced to chaos without meaningful control measures.
Policies, procedures, and rules are needed to ensure
order, achieve coordination, and maintain efficiency.
 Introduction, cont…
•Efficiency is concerned with minimizing the
amount of expenditures or resources needed to
accomplish a task. Effectiveness is concerned
with ensuring that the correct tasks are being
accomplished. Control systems have historically
placed a heavy emphasis on efficiency.
• “Many centralized companies with highly
sophisticated control systems are, in fact, out of
control.” - Pinchot, 2000
The Nature of Control in Organizations
•Control system – Formal and informal
mechanisms that help individuals regulate
what they do with themselves and other
resources on the job. It implies a carefully
constructed and well-integrated set of items.
•A set of control mechanisms evolves, with
components subject to change
The Nature of Control in Organizations
The various control measures and mechanisms can
be grouped into four general categories:
•Simple control
•Technological control
•Bureaucratic/administrative control
•Concertive/cultural control
Elements in an Organization’s Control System

•Budgets
•Purchasing policies
•Hiring rules
•Annual employee, dept, and division reports
•Performance reviews
•Strategic and operational plans
•Financial and resource audits
•Financial statements
 Organizations Out of Control: Unintended
Consequences
Control initiatives are almost always well
intentioned, yet they frequently have unintended
consequences. They become problematic for at
least 4 reasons:
•“Trust problem”
•“Slowness problem”
•“Means-end problem”
•“Efficiency-Effectiveness problem”
Organizations Out of Control: Unintended
Consequences
• Putting these four problems together, it becomes
apparent that the firm with a highly developed and
complex control system may actually be controlling
the wrong things – or nothing at all.
Dimensions of Control and Entrepreneurship
A control system can be characterized by a variety
of attributes:
=Degree of formality
=Desire for conformance and compliance
=Degree of rigidness
=Desire for consistency
=Use of coercive power
Dimensions of Control and Entrepreneurship
The principal outcomes sought through control efforts
include:
=Risk reduction
=Elimination of uncertainty
=Highly efficient operations
=Goal conformance
=Specific role definitions
(Unfortunately, outcomes such as these tend to be
inconsistent with entrepreneurship)
Dimensions of Control and Entrepreneurship

Consistent outcomes:

•Risk tolerance
•Management of uncertainty
•Enlightened efficiency
•Goal congruence
•Role flexibility
Dimensions of Control and Entrepreneurship
Administrative Domain
Entrepreneurial Domain
Tight, extremely Loose with broad
detailed guidelines
Centralized Decentralized
Stress conformity Decentralized
Inflexible, no Flexible, allow
discretion discretion
Formal Informal
Rule and People/comm.
procedure based based
Emphasis on Emphasis on feed
feedback forward
The Entrepreneurial Philosophy of Control

• Command and control. Control is tight, with orders

coming from above and with the expectation that they
will be executed exactly as they are given.
• No surprises. The concern is with a control system that
generates adequate information on a timely basis for
all who really need to know.
The Entrepreneurial Philosophy of Control

• Another core principle in the entrepreneurial philosophy

of control requires that managers give up control to gain
control.

• To give up control is to empower.

 The Entrepreneurial Philosophy of Control

• “Empowerment really means stopping the

disempowerment of people – but this just brings back to
hierarchy – for empowerment (typically) reinforces
hierarchy.”
-Mintzberg
 Key Questions for Control

•Over what specific activity, responsibility, or

requirement is management giving up control?
•Does the employee have or can he/she obtain
the proper information to exercise control over
the activity or behavior?
•Is it clear that this is a real and permanent
relinquishment of control, with no second-
guessing?
Key Questions for Control cont…

• What specific impact on behavior is

management attempting to have?
• Over what variables is control being gained, and
how is it manifested?
The Entrepreneurial Philosophy of Control

Two final points

• The relationship between entrepreneurship and
control is not one of simply getting more
entrepreneurship when there is less control. Control
is vital for sustained entrepreneurship. The real issue
is the nature and intent of the controls and how they
are used.