Foundation of control

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook
Copyright © 2005 Prentice Hall, Inc.Copyright © 2005 Prentice Hall, Inc.
All rights reserved.All rights reserved.
8th
edition
Steven P. Robbins
Mary Coulter

Copyright © 2005 Prentice Hall, Inc. All
rights reserved. 18–2
L E A R N I N G O U T L I N E
Follow this Learning Outline as you read and study this chapter.
What Is Control and Why Is It Important?
• Define control.
• Contrast the three approaches to designing control
systems.
• Discuss the reasons why control is important.
The Control Process
• Describe the three steps in the control process.
• Tell why what is measured is more critical than how it’s
measured.
• Explain the three courses of action managers can take in
controlling.

L E A R N I N G O U T L I N E (cont’d)
Controlling Organizational Performance
• Define organizational performance.
• Describe the most frequently used measures of
organizational performance
Tools for Organizational Performance
• Contrast feedforward, concurrent, and feedback controls.
• Explain the types of financial and information controls
managers can use.
• Describe how balanced scorecards and benchmarking are
used in controlling.

L E A R N I N G O U T L I N E (cont’d)
Contemporary Issues in Control
• Tell how managers may have to adjust controls for cross-
cultural differences.
• Discuss the types of workplace concerns managers face
and how they can address those concerns.
• Explain why control is important to customer interactions.
• Discuss what corporate governance is and how it’s
changing.

What Is Control
• Control
The process of monitoring activities to ensure that
they are being accomplished as planned and of
correcting any significant deviations.
• The Purpose of Control
To ensure that activities are completed in ways that
lead to accomplishment of organizational goals.

Designing Control Systems
• Market Control
Emphasizes the use of external market mechanisms
to establish the standards used in the control system.
 External measures: price competition and relative
market share
• Bureaucratic Control
Emphasizes organizational authority and relies on
rules, regulations, procedures, and policies.
• Clan Control
Regulates behavior by shared values, norms,
traditions, rituals, and beliefs of the firm’s culture.

Why Is Control Important?
• As the final link in management functions:
Planning
 Controls let managers know whether their goals and
plans are on target and what future actions to take.
Empowering employees
 Control systems provide managers with information and
feedback on employee performance.
Protecting the workplace
 Controls enhance physical security and help minimize
workplace disruptions.

The Control Process
• The Process of Control
1. Measuring actual
performance.
2. Comparing actual
performance against a
standard.
3. Taking action to correct
deviations or inadequate
standards.

Measuring: How and What We Measure
• Sources of Information
 Personal observation
 Statistical reports
 Oral reports
 Written reports
• Control Criteria
 Employees
 Satisfaction
 Turnover
 Absenteeism
 Budgets
 Costs
 Output
 Sales

Comparing
• Determining the degree of variation between
actual performance and the standard.
Significance of variation is determined by:
 The acceptable range of variation from the standard
(forecast or budget).
 The size (large or small) and direction (over or under) of
the variation from the standard (forecast or budget).

Taking Managerial Action
• Courses of Action
“Doing nothing”
 Only if deviation is judged to be insignificant.
Correcting actual (current) performance
 Immediate corrective action to correct the problem at
once.
 Basic corrective action to locate and to correct the
source of the deviation.
Corrective Actions
 Change strategy, structure, compensation scheme, or
training programs; redesign jobs; or fire employees

Taking Managerial Action (cont’d)
• Courses of Action (cont’d)
Revising the standard
 Examining the standard to ascertain whether or not the
standard is realistic, fair, and achievable.
– Upholding the validity of the standard
– Resetting goals that were initially set too low or too high.

Controlling for Organizational
Performance
• What Is Performance?
The end result of an activity
• What Is Organizational
Performance?
The accumulated end results of all of the
organization’s work processes and activities.
 Designing strategies, work processes, and work
activities.
 Coordinating the work of employees

Organizational Performance Measures
• Organizational Productivity
Productivity: the overall output of goods and/or
services divided by the inputs needed to generate
that output.
 Output: sales revenues
 Inputs: costs of resources (materials, labor expense,
and facilities)
Ultimately, a measure of how efficiently employees do
their work.

Organizational Performance Measures
• Organizational Effectiveness
Measuring how appropriate organizational goals are
and how well the organization is achieving its goals.
 Systems resource model
– The ability of the organization to exploit its environment in
acquiring scarce and valued resources
 The process model
– The efficiency of an organization’s transformation process
in converting inputs to outputs
 The multiple constituencies model
– The effectiveness of the organization in meeting each
constituencies’ needs

Organizational Effectiveness Measures
• Industry rankings on:
 Profits
 Return on revenue
 Return on shareholders’
equity
 Growth in profits
 Revenues per employee
 Revenues per dollar of
assets
 Revenues per dollar of
equity
• Corporate Culture
Audits
• Compensation and
benefits surveys
• Customer satisfaction
surveys

Tools for Controlling Organizational
Performance
• Feedforward Control
A control that prevents anticipated problems before
actual occurrences of the problem.
 Building in quality through design
 Requiring suppliers conform to ISO 9002
• Concurrent Control
A control that takes place while the monitored activity
is in progress.
 Direct supervision: management by walking around.

Performance (cont’d)
• Feedback Control
A control that takes place after an activity is done.
 Corrective action is after-the-fact, when the problem has
already occurred.
Advantages of feedback controls
 Feedback provides managers with information on the
effectiveness of their planning efforts.
 Feedback enhances employee motivation by providing
them with information on how well they are doing.

Performance: Financial Controls
• Traditional Controls
 Ratio analysis
 Liquidity
 Leverage
 Activity
 Profitability
 Budget Analysis
 Quantitative standards
 Deviations
• Other Measures
 Economic Value Added
(EVA)
 Market Value Added
(MVA)

Performance: Financial Controls (cont’d)
• Other Measures
Economic Value Added (EVA)
 How much value is created by what a company does
with its assets, less any capital investments in those
assets: the rate of return earned over and above the
cost of capital.
– The choice is to use less capital or invest in high-return
projects.

Performance: Financial Controls (cont’d)
• Other Measures (cont’d)
Market Value Added (MVA)
 The value that the stock market places on a firm’s past
and expected capital investment projects
 If the firm’s market value (its stock and debt) exceeds
the value of its invest capital (its equity and retained
earnings), then managers have created wealth.

Controlling Organizational Performance
• Balanced Scorecard
A measurement tool that uses goals set by managers
in four areas to measure a company’s performance:
 Financial, customer, internal processes, and
people/innovation/growth assets

Information Controls
• Management Information Systems (MIS)
A system used to provide management with needed
information on a regular basis.
 Data: an unorganized collection of raw, unanalyzed
facts (e.g., unsorted list of customer names)
 Information: data that has been analyzed and organized
such that it has value and relevance to managers

Benchmarking of Best Practices
• Benchmarking
The search for the best practices among competitors
or noncompetitors that lead to their superior
performance.
 Benchmark: the standard of excellence against which
to measure and compare.
A control tool for identifying and measuring specific
performance gaps and areas for improvement.

Contemporary Issues in Control
• Cross-Cultural Issues
The use of technology to increase direct corporate
control of local operations
Legal constraints on corrective actions in foreign
countries
Difficulty with the comparability of data collected from
operations in different countries

Contemporary Issues in Control (cont’d)
• Workplace Concerns
Workplace privacy versus workplace monitoring:
 E-mail, telephone, computer, and Internet usage
 Productivity, harassment, security, confidentiality,
intellectual property protection
Employee theft
 The unauthorized taking of company property by
employees for their personal use.
Workplace violence
 Anger, rage, and violence in the workplace is affecting
employee productivity.

Contemporary Issues in Control (cont’d)
• Customer Interactions
Service profit chain
 The service sequence from employees to customers to
profit: service capability affects service value which
impacts on customer satisfaction that, in turn, leads to
customer loyalty in the form of repeat business (profit).
• Corporate Governance
The system used to govern a corporation so that the
interests of the corporate owners are protected.
 Changes in the role of boards of directors
 Increased scrutiny of financial reporting

Foundation of control

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Foundation of control