Part 5 Control Challenges in the 21st Century

Chapter
15
Organizational
Control in a
Complex Business
Environment

PowerPoint Presentation by Charlie Cook

The University of West Alabama
© 2007 Thomson/South-Western. All rights reserved.
 Organizational Control Defined
• Organizational Control
 The systematic process through which managers
regulate organizational activities to make them
consistent with the expectations established in plans,
and to help them achieve all predetermined standards
of performance.
• This definition implies that leaders must:
 Establish performance standards.
 Develop mechanisms for gathering performance
information in order to assess the degree to which
standards are being met.

© 2007 Thomson/South-Western. All rights reserved. 15–2

 Figure 15.1 Steps in the Control Process

© 2007 Thomson/South-Western. All rights reserved. 15–3

 Designing Quality and Effectiveness
into the Control System
• Factors affecting control system quality to
consider when designing a control system:
 The amount of variety in the control system.

 The ability to anticipate problems.

 The sensitivity of the measuring device.

 The composition of the feedback reports.

© 2007 Thomson/South-Western. All rights reserved. 15–4

 Figure 15.2 Control System–Design Issues

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 Design Factors Affecting Control
System Quality
• The Amount of Variety in the Control System
 Variety: the number of activities, processes, or items
that are measured and controlled.
 More variety leads to less predictability.
• Law of Requisite Variety in Control Systems
 Variety in control systems to match the variety in the
systems to be controlled can be achieved by:
 Increasing variety in the control system.
 Reducing variety in the system being controlled.

© 2007 Thomson/South-Western. All rights reserved. 15–6

 Design Factors Affecting Control
System Quality (cont’d)
• Ability to Anticipate Problems
 If a deviation can be anticipated before it occurs:
 Correctiveaction can be instituted more quickly.
 Negative consequences of the deviation (e.g.,
unacceptable performance time lags) are reduced.
• Sensitivity of the Measuring Device
 Sensitivity: the precision with which the measurement
can be made.
 Use a device sensitive enough to adequately
measure the system being controlled is required.

© 2007 Thomson/South-Western. All rights reserved. 15–7

 Design Factors Affecting Control
System Quality (cont’d)
• Composition of Feedback
Reports
 Variance Reporting
 Highlights
only those things
that fail to meet the
established standards.
 Management by Exception
 Focuses on the elements
that are not meeting the
standards.

© 2007 Thomson/South-Western. All rights reserved. 15–8

 Criteria for Effective Control
• Related to Organizational Strategy
 A control system should measure what is important
now and what will be important in the future… not
what was important in the past.
• Uses All Steps in the Control Process
 To be effective, a control system must employ all of
the steps in the control process.
• Composed of Objective and Subjective
Measures
 Effective control systems typically require managers
to blend quantitative (objective) and qualitative
(subjective) performance measures.
© 2007 Thomson/South-Western. All rights reserved. 15–9
 Criteria for Effective Control (cont’d)
• Incorporates Timeliness in Feedback Reporting
 Timeliness is the degree to which the control system
provides information when it is needed.
• Acceptable to a Diverse Work Force
 To be effective, organizational controls must be
accepted by employees.
 The control system should motivate workers to
recognize standards and act to achieve them.

© 2007 Thomson/South-Western. All rights reserved. 15–10

 Selecting the Proper Amount of
Control
• Costs in Control Systems
 Two basic categories of costs need to be considered
relative to control systems:
 The costs associated with the information needed
to perform the control process.
 The costs associated with undesirable deviations
from standards.

© 2007 Thomson/South-Western. All rights reserved. 15–11

 Selecting the Proper Amount of
Control (cont’d)
• Reliability of the System
 Reliability refers to the probability that the object or
process being controlled will consistently behave in
an acceptable manner.
 The basic premise is that the more reliable the
process, the less control that is needed.
• Importance of the Process Being Controlled
 The more important the object or process being
controlled, the greater the amount of control that
should be exercised.

© 2007 Thomson/South-Western. All rights reserved. 15–12

 Selecting the Focal Point for Control
• Feedforward (Preventive) Control
 Focuses on detecting undesirable material, financial, or human
resources that serve as inputs to the transformation process.
• Concurrent Control
 Focuses on the transformation process to ensure that it is
functioning properly.
• Feedback Control
 Focuses on discovering undesirable output and implementing
corrective action.
• Multiple Focal Points
 Most organizations use several control systems focused on
various phases of the transformation process.

© 2007 Thomson/South-Western. All rights reserved. 15–13

 Figure 15.5 Control Focal Points

Pre-process In-process Post-process

© 2007 Thomson/South-Western. All rights reserved. 15–14

 Control Philosophies for Leaders
• Bureaucratic Control
 Use of formal mechanisms to influence behavior,
assess performance, and correct unacceptable
deviations from standards.
• Organic Control (“Clan Control”)
 Reliance upon social values, traditions, shared
beliefs, flexible authority, and trust to assess
performance and correct unacceptable deviations.

© 2007 Thomson/South-Western. All rights reserved. 15–15

 Selecting A Control Style In Today’s
Diverse And Multinational
Organizations
• Top-level leaders are faced with a dilemma in
Top-level leaders are faced with a dilemma in
choosing a control style for their organization.
• Managers should evaluate:
 Individual management style
 Organizational culture
 Employee professionalism
 Performance measures.
• The choice of a control style is contingent on all
of these situational factors.

© 2007 Thomson/South-Western. All rights reserved. 15–16

 Impact of Information Technology on
Organizational Control
• Technological advances and improvements
serve to:
 Get critical control information to managers in a more
timely fashion.
 Allow managers to make the proper control
responses more quickly.
 Disseminate the information on those decisions more
quickly so that the negative consequences associated
with out-of-control situations can be minimized.

© 2007 Thomson/South-Western. All rights reserved. 15–17

 Mechanisms for Financial Control
• Financial Statements
 Balance sheet
 Summary
of an organization’s financial position at
a given point in time, showing assets, liabilities,
and owner’s equity.
 Income statement
 Summary of an organization’s financial
performance over a given time interval, showing
revenues, expenses, and bottom-line profit or loss.

© 2007 Thomson/South-Western. All rights reserved. 15–18

 Key Financial Terms
• Asset • Liability
 A thing of value that an  A debt or obligation of the
individual or organization firm.
owns. • Current Liability
• Current Asset  A debt that must be paid in
 An item that can be the near future.
converted into cash in a • Long-term Liability
short time period.
 A debt that is payable over
• Fixed Asset a long time span.
 An asset that is long term in
nature and cannot be
converted quickly into cash.

© 2007 Thomson/South-Western. All rights reserved. 15–19

 Financial Ratios
• Liquidity ratios • Debt ratios
 Indicators of the firm’s  Indicators of the firm’s
ability to meet its short- ability to handle long-
term debt obligations. term debt.
• Profitability ratios • Activity ratios
 Indicators of the  Indicators of
relative effectiveness, performance with
or profitability, of the respect to key activities
organization. defined by
management.

© 2007 Thomson/South-Western. All rights reserved. 15–20

 Ethical Issues in the Control of a
Diverse Work Force
• Drug Testing • Computer Monitoring
 Pre-employment testing  Privacy in communications
 Testing current employees  Measuring performance
 Random  Liability for harassment
 Probable cause
 Accident

• Undercover Surveillance
 Internal security
 External security
 Electronic devices

© 2007 Thomson/South-Western. All rights reserved. 15–21