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PENGANTAR

MANAJEMEN
PERTEMUAN 13
Control: When Managers Monitor
Performance

Control is making something happen the way it was planned to happen. Controlling is defined as
monitoring performance, comparing it with goals, and taking corrective action as needed.
Why Is Control Needed?

 1. To Adapt to Change and Uncertainty Markets shift.


Consumer tastes change. New competitors appear.  3. To Reduce Costs, Increase Productivity, or Add
Technologies are reborn. New materials are invented. Value; Control systems can reduce labor costs,
Government regulations are altered. All organizations eliminate waste, increase output, and increase
must deal with these kinds of environmental changes product delivery cycles. In addition, controls can help
and uncertainties. Control systems can help managers add value to a product so that customers will be more
anticipate, monitor, and react to these changes. inclined to choose them over rival products.
 2. To Discover Irregularities and Errors, Small  4. To Detect Opportunities and Increase Innovation,
problems can mushroom into big ones. Cost overruns, Hot-selling products. Competitive prices on materials.
manufacturing defects, employee turnover, Changing population trends. New overseas markets.
bookkeeping errors, and customer dissatisfaction are Controls can help alert managers to innovative
all matters that may be tolerable in the short run. But opportunities that might have otherwise gone
unnoticed.
in the long run, they can bring about even the
downfall of an organization.
Why Is Control Needed? Cont…

 5. To Provide Performance Feedback, can you improve without feedback? When a company becomes larger or
when it merges with another company, it may find it has several product lines, materials-purchasing policies,
customer bases, and worker needs that conflict with each other. Controls help managers coordinate these various
elements by providing feedback. Example: Global companies like Pepsi-Cola must manage broad and diverse arrays
of brands and products at locations around the world. To ensure the same high level of quality everywhere despite
dealing with a virtual army of suppliers, Pepsi relies on an interlocking set of sustainability and quality control
policies covering everything from ingredients to packaging. Feedback also has a control function for individuals and
teams, and the quality of this feedback affects employee attitudes and performance.
 6. To Decentralize Decision Making and Facilitate Teamwork, controls allow top management to decentralize
decision making at lower levels within the organization and to encourage employees to work together in teams.
Facing a possible shortage of doctors in some areas of medicine, for instance, health care professionals are
anticipating a rise in teamwork, small group practices, and the delegation of some routine patient services to
nurse practitioners. Controls, including secure digital patient records, will be important in ensuring high-quality
and personalized care.
1. Establish Standards: “What Is the Outcome We Want?” A control standard, or

Steps in the performance standard or simply standard, is the desired performance level for a
given goal. Standards may be narrow or broad, and they can be set for almost
anything, although they are best measured when they can be made quantifiable.
Control Process Example:
 Nonprofit institutions might have standards for level of charitable contributions,
number of students or volunteers retained, or degree of legal compliance.
3. Take Corrective Action, If Necessary:
“What Changes Should We Make to Obtain  For-profit organizations might have standards of financial performance,
Desirable Outcomes?” This step concerns employee hiring, manufacturing defects, percentage increase in market share,
feedback—modifying, if necessary, the percentage reduction in costs, number of customer complaints, and return on
control process according to the results or investment.
effects. This might be a dynamic process
that will produce different effects every  Service organizations may look at number of customers, clients, or patients
time you put the system to use. There are served; time spent with each; and resulting level of satisfaction.
three possibilities here: (1) Make no  More subjective standards, such as level of employee satisfaction, can also be
changes. (2) Recognize and reinforce
set, although they may have to be expressed more quantifiably in terms of, say,
positive performance. (3) Take action to
reduced absenteeism and sick days and increased job applications.
correct negative performance. Example,
when performance falls significantly short 2. Measure Performance: “What Is the Actual Outcome We Got?” The second step
of the standard, managers should carefully in the control process is to measure performance, such as by number of products
examine the reasons and take the sold, units produced, time to completion, or cost per item sold. Example,
appropriate action. Sometimes the performance data are usually obtained from five sources: (1) employee behavior
standards themselves were unrealistic, and deliverables, (2) peer input or observations, (3) customer feedback, (4)
owing to changing conditions, in which case
managerial evaluations, and (5) output from a production process.
the standards need to be altered
Steps in the Control Process Cont…

 4. Compare Performance to Standards: “How Do the Desired and Actual Outcomes Differ?” The third step in
the control process is to compare measured performance against the standards established. Most managers
are delighted with performance that exceeds standards, which becomes an occasion for handing out bonuses,
promotions, and perhaps offices with a view. For performance that is below standards, they need to ask: Is the
deviation from performance significant? The greater the difference between desired and actual performance,
the greater the need for action.
 Employees and managers use control charts to monitor the amount of variation in a work process. Control
charts are a visual statistical tool used for quality control purposes. They help managers set upper and lower
quality limits on a process and then monitor (control) performance in order to keep it within these limits,
correcting course if results stray above the upper or below the lower limit over time. The range of variation is
often incorporated in computer systems into a principle called management by exception. Management by
exception is a control principle that states that managers should be informed of a situation only if data show a
significant deviation from standards.
Types of Controls
 Feedforward control focuses on preventing future problems. It does this by collecting performance information about past
performance and then planning to avoid pitfalls or roadblocks prior to starting a task or project, essentially helping people
learn from mistakes. A common preliminary control is preventive maintenance by routinely tuning up machines, engines,
autos, planes, and so forth to prevent breakdowns that would cause problems.
 Concurrent control entails collecting performance information in real time. This enables managers to determine if employee
behavior and organizational processes conform to regulations and standards. Corrective action can then be taken
immediately when performance is not meeting expectations. Technology is typically used for concurrent control. Word-
processing software is a good example. It immediately lets us know when we misspell words or use incorrect grammar or
employees spend time checking quality during the transformation process.
 Feedback control amounts to collecting performance information after a task or project is done. This form of control is
extensively used by supervisors and manager. This information then is used to correct or improve future performance,
example; receiving test scores a week after taking the test, receiving customer feedback after purchasing a product, receiving
student ratings of a teaching performance weeks after teaching a class, rating the quality of a movie after watching it, and
participating in a performance review at work. The problem with feedback control is that it occurs too late. Example, when it
comes to customer satisfaction and quality. On the positive side, many people want feedback, and late is better than never.
Levels and Areas of Control

 Strategic control is monitoring performance to ensure that strategic plans are being implemented and taking
corrective action as needed. Strategic control is mainly performed by top managers, those at the CEO and VP
levels, who have an organizationwide perspective.
 Tactical control is monitoring performance to ensure that tactical plans, those at the divisional or departmental
level are being implemented and taking corrective action as needed. Tactical control is done mainly by middle
managers, such as reporting is done on a weekly or monthly basis.
 Operational control is monitoring performance to ensure that operational plans day-to-day goals, are being
implemented and taking corrective action as needed. Operational control is done mainly by first-line managers,
those with titles such as “department head” or “supervisor.” It also includes team leaders. Reporting is done on
a daily basis.
 1. Physical Area, includes buildings, equipment, and tangible products.

Six Areas of Example, Equipment controls monitor the use of computers, cars, HVAC
equipment, and other machinery.

Control  2. Human Resources Area, the controls used to monitor employees include
personality tests and drug testing for hiring, performance tests during
training, performance evaluations to measure work productivity, and
5. Structural Area, a company’s structure functions as a control employee surveys to assess job satisfaction, engagement, and leadership.
mechanism by specifying a chain of command (identifying who
reports to whom) and officially sanctioned communication channels.  3. Informational Area, production schedules, sales forecasts, environmental
2 examples are: impact statements, analyses of competition, and public relations briefings all
 Bureaucratic control is an approach to organizational control that are controls on an organization’s various information resources.
is characterized by use of rules, regulations, and formal authority
to guide performance. Example, this form of control attempts to  4. Financial Area, the organization’s financial controls are important because
elicit employee compliance, using strict rules, a rigid hierarchy,
well-defined job descriptions, and administrative mechanisms
they can affect the preceding three areas. Such as Are bills being paid on
such as budgets, performance appraisals, and compensation time? How much money is owed by customers? How much money is owed
schemes (external rewards to get results). While rigid, it can be to suppliers? Is there enough cash on hand to meet payroll obligations? Or
an effective means of ensuring that performance standards are
being met. However, it may not be effective if people are looking
What is the advertising budget?
for ways to stay out of trouble by simply following the rules, or if
they try to beat the system by manipulating performance reports.
 6. Cultural Area, the company’s culture is an informal method of control. It
 Decentralized control is an approach to organizational control
influences the work process and levels of performance through the set of
that is characterized by informal and organic structural accepted norms and behaviors that develop as a result of the values and
arrangements. This form of control aims to get increased beliefs that constitute an organization’s culture.
employee commitment, using the corporate culture, group
norms, and workers taking responsibility for their performance.
Six Areas of Control Cont…

 The supply chain is the sequence of suppliers that contribute to creating and delivering a product, from raw materials to
production to final buyers. Supply chains are a major cost center for most companies, and the way firms structure the
distribution of their products can have enormous financial impact. Many organizations are creating specialized supply chain
departments that look specifically at cost and quality control in these areas and the way they contribute to the cost and
quality of finished products. Companies are paying closer attention to the sourcing, shipping, and warehousing of their
products and of the ingredients and component parts they require.
 Service providers, such as income-tax preparers, hospitals and dental practices, consultants, accountants, hair and nail
salons, stockbrokers, hotels, and airlines, differ from manufacturers in several ways. The most obvious is that service
companies cannot hold any inventory of their services, which are intangible; instead, they provide these services only on
demand. Your new haircut does not exist until you sit down in the stylist’s chair, for example. Because services are provided
by humans (for the most part), everything we have outlined in this chapter that relates to measuring and controlling
employee behavior applies to the role of control in service organizations. Clearly, training and education affect the quality of
any service. Health care organizations operate under high control standards, for example, as evidenced by the many years of
education and training required to obtain a license to practice medicine or dentistry. The same holds for the practice of law.
Ongoing training and certification are a form of control for airline pilots, tax accountants (CPAs), teachers, physical therapists,
and personal trainers.
Some Financial Tools for Control

 Incremental budgeting allocates increased or


decreased funds to a department by using the last
budget period as a reference point; only incremental
 A budget is a formal financial projection. It states an changes in the budget request are reviewed.
organization’s planned activities for a given period of  Fixed budget allocates resources on the basis of a
time in quantitative terms, such as dollars, hours, or single estimate of costs. Example, you might have a
number of products. Budgets are prepared not only budget of $50,000 for buying equipment in a given
for the organization as a whole but also for the year—no matter how much you may need equipment
divisions and departments within it. The point of a exceeding that amount.
budget is to provide a yardstick against which  Variable budget allows the allocation of resources to
managers can judge how well they are controlling vary in proportion with various levels of activity.
monetary expenditures Example, you might have a budget that allows you to
hire temporary workers or lease temporary
equipment if production exceeds certain levels.
Some Financial Tools for Control Cont…

A financial statement is a summary of some aspect of an organization’s Audits are formal verifications of an organization’s financial and
financial status. The information contained in such a statement is essential in operational systems.
helping managers maintain financial control over the organization.
 An internal audit is a verification of an organization’s financial
 A balance sheet summarizes an organization’s overall financial worth—
that is, assets and liabilities—at a specific point in time (Picture of
accounts and statements by the organization’s own professional
Organization’s Financial Worth for a Specific Point in Time). staff. Their jobs are the same as those of outside experts to
verify the accuracy of the organization’s records and operating
 Income statement summarizes an organization’s financial results—
revenues and expenses—over a specified period of time, such as a quarter activities. Internal audits also help uncover inefficiencies and
or a year (Picture of Organization’s Financial Results for a Specified Period thus help managers evaluate the performance of their control
of Time). systems.
 Cash flow statement presents the cash receipts and payments for the  An external audit is a formal verification of an organization’s
stated period. It commonly has two sections: operating and financial financial accounts and statements by outside experts. The
activities. The operating budgets and capital expenditures budget affect
auditors are certified public accountants (CPAs) who work for an
the cash flow statement as cash revenue is received and cash expenses
and expenditures are paid. Although you want to invest in capital assets,
accounting firm, that is independent of the organization being
you want your cash flow to run faster than your investments so you have audited. Their task is to verify that the organization, in preparing
enough cash to pay your expenses. Sales on credit are good, but you need its financial statements and in determining its assets and
to control collecting cash from your customers to pay your expenses. liabilities, followed generally accepted accounting principles.
Balanced scorecard, which gives top
managers a fast but comprehensive view of
the organization via four indicators:
1) Customer Perspective: “How Do
Customers See Us?”
2) Internal Business Perspective: “At What
Must We Excel?”
3) Innovation and Learning Perspective:
“Can We Continue to Improve and
Create Value?”
4) Financial Perspective: “How Do We
Look to Shareholders?”
A strategy map is a “visual representation of a
company’s critical objectives and the crucial
relationships among them that drive organizational
performance.” Maps show relationships among a
company’s strategic goals. This helps employees
understand how their work contributes to their
employer’s overall success. They also provide insight
into how an organization creates value to its key
constituents.

For example, a map informs others about the


knowledge, skills, and systems that employees should
possess (innovation and learning perspective) to
innovate and build internal capabilities (internal
business perspective) that deliver value to customers
(customer perspective), which eventually creates higher
shareholder value (financial perspective).
Total Quality Management (TQM)

 Total quality management (TQM) is defined as a comprehensive approach led by top management and supported throughout
the organization—dedicated to continuous quality improvement, training, and customer satisfaction. 2 core principles of TQM,
namely:
1. People Orientation—Focusing Everyone on Delivering Customer Value; Organizations adopting TQM value people as their
most important resource—both those who create a product or service and those who receive it. Thus, not only are employees
given more decision-making power, so are suppliers and customers. This people orientation operates under the following
assumptions:
 Delivering customer value is most important. The purpose of TQM is to focus people, resources, and work processes to
deliver products or services that create value for customers.
 People will focus on quality if given empowerment. TQM assumes that employees (and often suppliers and customers) will
concentrate on making quality improvements if given the decision-making power to do so. The reasoning here is that the
people actually involved with the product or service are in the best position to detect opportunities for quality improvements.
 TQM requires training, teamwork, and cross-functional efforts. Employees and suppliers need to be well trained, and they
must work in teams. Teamwork is considered important because many quality problems are spread across functional areas.
Total Quality Management (TQM) Cont…

2. Improvement Orientation—Focusing Everyone on Continuously Improving Work Processes; Continuous improvement is defined
as ongoing, small, incremental improvements in all parts of an organization—all products, services, functional areas, and work
processes. This improvement orientation focuses on increasing operational performance and makes the following assumptions:
 It’s less expensive to do it right the first time. TQM assumes that it’s better to do things right the first time than to do costly
reworking. To be sure, creating high-quality products and services requires a costly investment in training, equipment, and tools,
for example. But it is less expensive than dealing with poor quality and the poor customer relationships that result.
 It’s better to make small improvements all the time. This is the assumption that continuous improvement must be an everyday
matter, that no improvement is too small, that there must be an ongoing effort to make things better a little bit at a time all the
time.
 Accurate standards must be followed to eliminate small variations. TQM emphasizes the collection of accurate data
throughout every stage of the work process. It also stresses the use of accurate standards (such as benchmarking) to evaluate
progress and eliminate small variations, which are the source of many quality defects.
 There must be strong commitment from top management. Employees and suppliers won’t focus on making small, incremental
improvements unless managers go beyond lip service to support high-quality work.
Total Quality Management (TQM) Cont…

 Kaizen is a Japanese philosophy of small continuous improvement that seeks to involve everyone at every level of
the organization in the process of identifying opportunities and implementing and testing solutions. Perhaps you’re
beginning to see how judging the quality of services is a different animal from judging the quality of manufactured
goods, because it comes down to meeting the customer’s satisfaction, which may be a matter of perception. (After
all, some hotel guests, restaurant diners, and supermarket patrons, for example, are more easily satisfied than
others.)
Some TQM Tools, Techniques, and Standards

 Outsourcing: Let Outsiders Handle It; s the subcontracting of services and operations to an outside vendor. Usually, this is done to reduce costs or increase
productivity. Outsourcing short-term and project work to freelance or contract workers which saves companies many employee-related expenses.
 Reduced Cycle Time: Increasing the Speed of Work Processes; is the emphasis on increasing the speed with which an organization’s operations and processes
can be performed. The point is to improve the organization’s performance by eliminating wasteful motions, barriers between departments, unnecessary
procedural steps, and the like. Example, fewer authorization steps required to grant a contract to a supplier.
 Statistical Process Control: Taking Periodic Random Samples; a statistical technique that uses periodic random samples from production runs to see if quality is
being maintained within a standard range of acceptability. If quality is not acceptable, production is stopped to allow corrective measures. Example, to make sure
that the quality of its burgers is always the same, no matter where in the world they are served and to ensure the reliability and quality of their products.
 Six Sigma and Lean Six Sigma: Data-Driven Ways to Eliminate Defects; Six Sigma is a rigorous statistical analysis process that reduces defects in manufacturing
and service-related processes. By testing thousands of variables and eliminating guesswork, a company using the technique attempts to improve quality and
reduce waste to the point where errors nearly vanish. Lean Six Sigma, which focuses on problem solving and performance improvement—speed with excellence
—of a well-defined project.
ISO 9000 and ISO 14000: Meeting Standards of Independent Auditors; at one time, buyers and sellers simply had to rely on a supplier’s past reputation or personal
assurances.
 ISO 9000 series consists of quality-control procedures companies must install from purchasing to manufacturing to inventory to shipping, that can be audited by
independent quality-control experts, or “registrars.”
 ISO 14000 series extends the concept, identifying standards for environmental performance. ISO 14000 dictates standards for documenting a company’s
management of pollution, efficient use of raw materials, and reduction of the firm’s impact on the environment.
Managing 1. They Are Strategic and Results Oriented, control systems support strategic
plans and are concentrated on significant activities that will make a real difference
Control to the organization. Thus, when managers are developing strategic plans for
achieving strategic goals, that is the point at which they should pay attention to
Effectively developing control standards that will measure how well the plans are being
achieved.
2. They Are Timely, Accurate, and Objective Good control systems, like good
information of any kind—should be;
 Timely—meaning when needed. The information should not necessarily be
delivered quickly, but it should be delivered at an appropriate or specific time,
such as every week or every month. And it certainly should be often enough
4. They Are Flexible, control systems to allow employees and managers to take corrective action for any deviations.
must leave room for individual  Accurate—meaning correct. Accuracy is paramount, if decision mistakes are
judgment, so that they can be to be avoided. Inaccurate sales figures may lead managers to mistakenly cut
modified when necessary to meet or increase sales promotion budgets. Inaccurate production costs may lead to
new requirements. faulty pricing of a product.
 Accurate—meaning correct. Accuracy is paramount, if decision mistakes are
to be avoided. Inaccurate sales figures may lead managers to mistakenly cut
or increase sales promotion budgets. Inaccurate production costs may lead to
faulty pricing of a product.
Managing Control Effectively Cont…

3. They Are Realistic, Positive, and Understandable and Encourage Self-Control, , they operate best when they are
made acceptable to the organization’s members who are guided by them. Thus, they should:
 Be realistic. They should incorporate realistic expectations. If employees feel performance results are too difficult,
they are apt to ignore or sabotage the performance system.
 Be positive. They should emphasize development and improvement. They should avoid emphasizing punishment
and reprimand.
 Be understandable. They should fit the people involved, be kept as simple as possible, and present data in
understandable terms. They should avoid complicated computer printouts and statistics.
 Encourage self-control. They should encourage good communication and mutual participation. They should not be
the basis for creating distrust between employees and managers.
1. Too Much Control, some organizations, particularly bureaucratic ones, try
to exert too much control. They may try to regulate employee behavior in
Barriers to everything from dress code to timing of coffee breaks. This leads to
micromanagement, which frustrates employees and may lead them to ignore
Control Success or try to sabotage the control process. Among the telltale signs that you (or
your boss) might be a micromanager, someone who is unable to delegate
tasks and decisions and insists on taking an inappropriately detailed focus on
2. Too Little Employee Participation,
subordinates’ work, are:
employee participation can enhance
productivity. Involving employees in both  Working excessive hours and weekends and skipping vacation.
the planning and the execution of control
 Checking everyone’s work because no one else can do things right.
systems can bring legitimacy to the
process and heighten employee morale.  Needing to be copied on and approve everything.

3. Overemphasis on Paperwork, a  Requiring others to continually check in and be constantly available.


specific kind of misdirection of effort is  Having to hire new people all the time because turnover is so high.
management emphasis on getting reports
done, to the exclusion of other Employees are more effective and achieve greater job satisfaction if they feel
performance activity. Reports are not the empowered to use their own judgment as far as possible to get the job done.
be-all and end-all. Undue emphasis on And micromanagers can become bottlenecks who actually slow the flow of
reports can lead to too much focus on work and decisions. Another helpful strategy is to give employees regular
quantification of results and even to opportunities to discuss expectations, so they feel empowered to act
falsification of data. independently.
Barriers to Control Success Cont…

4. Overemphasis on Means Instead of Ends, we said that control activities should be strategic and results oriented.
They are not ends in themselves but the means to eliminating problems. Too much emphasis on accountability for
weekly production quotas. Example, can lead production supervisors to push their workers and equipment too hard,
resulting in absenteeism and machine breakdowns or as managers and employees manipulate data to seem to fulfill
short-run goals instead of the organization’s strategic plan.
5. Overemphasis on One Instead of Multiple Approaches, One type or method of control may not be enough. By
having multiple control activities and information systems, an organization can have multiple performance indicators,
thereby increasing accuracy and objectivity.
Managing for Productivity
Productivity can be applied at any level, whether for you as an individual, for the work unit you’re managing, or
for the organization you work for. Productivity is defined by the formula of outputs divided by inputs for a
specified period of time. Outputs are all the goods and services produced. Inputs are not only labor but also
capital, materials, and energy.
Why Is Increasing Productivity Important?

 The Role of Information Technology, some observers


say the problem is not a lack of productivity growth
but a measurement error. New technologies are
 What does this mean to you as a manager? It difficult to value, and new companies that charge
means that you can increase overall productivity users nothing and try to earn revenue from
by making substitutions or increasing the advertising (that users can sometimes avoid) are
entering a new world we may be incorrectly assessing
efficiency of any one element: labor, capital,
with old tools. In the last decade wages have
materials, energy. Example, increase the
stagnated for most workers, even as productivity
efficiency of labor by substituting capital in the
gains from information technology—automation and
form of equipment or machinery, as in employing the Internet, shareware, cloud computing, and other
a backhoe instead of laborers with shovels to dig communication technologies, for example—have
a hole. Or you can increase the efficiency of slowed. Many companies have implemented
materials inputs by expanding their uses. enterprise resource planning (ERP) software
systems, information systems for integrating virtually
all aspects of a business, helping managers stay on
top of the latest developments.
Benchmarking is a way to measure something
against a standard. Benchmark, is the process of
comparing an organization’s products or services

What Processes Can I


and processes with those of other companies. In
benchmarking, you try to find out about other
products and processes, through competitive

Use to Increase intelligence, and copy them or improve upon them


legally and ethically.

Productivity?
As a personal tool, benchmarking is a useful way
to measure your own growth as an employee and
eventually as a manager. Example, you can look at
colleagues and fellow team members who are
Best practices are “a set of guidelines, ethics or ideas that represent the most valued by the organization and measure your own
efficient or prudent course of action. Companies often develop best practices performance against theirs. What is each person
internally through managers’ and employees’ positive experiences on the job, particularly good at? Perhaps someone in your
and they sometimes adopt the strategies with which other companies have group is always asked to prepare the project
succeeded in similar situations. Example, teams were found to have higher report because he has excellent writing skills or
performance when they established a process of regularly meeting to discuss you can also think of your mentor as someone
work processes or best practices. Some best practices are guided by laws and against whose (likely high) standards of
regulations, for instance, companies may not ask job applicants questions that
performance and expertise you can benchmark
would allow hiring managers to discriminate based on race or ethnicity, sex, age,
or religion. So a best practice in hiring is to know the law and ask only allowed yourself.
questions.
Managing Individual Productivity

 Individual employees, managers, and organizations all share responsibility for increasing individual
productivity. Individuals contribute by proactively bringing their skills, energy, talents, and motivation to
work on a daily basis. They also can increase productivity by engaging in self-development and
organizational citizenship. This is most likely to happen, however, when employees work for supportive and
talented managers.
 This is where managers enter the productivity equation. Organizations contribute to individual productivity
by providing positive work environments and cultures that promote employee engagement, satisfaction,
and flourishing. This ultimately involves investing in training and development for all employees. Companies
can also invest in information technology that helps people to reduce distractions and focus on completing
tasks. Cloud computing tools, for example, are a way to reduce manual tasks, share responsibility, and
eliminate most paperwork.
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