chapter 19

If the organization rewards inefficiency

People resist the intent of this control and behave in ways that run counter to the organization's intent

Budgets

all of these choices

Managers can improve the effectiveness of the control system by

integrating control with planning

Maintain the status quo

preferable when performance essentially matches the standards

establish standards

§ Control standard § Should be expressed in measurable terms § Should be consistent with the organization's goals § Identify performance indicators

control standard

A target against which subsequent performance will be compared

____ control is a form of organizational control characterized by formal and mechanistic structural arrangements.

Bureaucratic

operations control

Concerned with the processes the organization uses to transform resources into products or services

Determine need for corrective action

Draw heavily on a manager's analytic and diagnostic skills

employee's performance

Measured in terms of quality or quantity of output, but for many jobs, measuring performance is not so straightforward

Correct the deviation

More likely that some action will be needed to correct a deviation from the standards

Inappropriate focus

The control system may be too narrow, or it may focus too much on quantifiable variables and leave no room for analysis or interpretation

Four basic purposes

adapt to environmental change, limit errors, cope with organizational complexity, and minimize costs

In 2015, the Chinese stock market had a major decline that spread around the world. Companies with financial controls, that foresaw a major adjustment coming, accumulated cash and were prepared to buy back their own shares at low prices and help prevent their stock from sliding down further. The controls helped the company

adapt to environmental changes

Managing receivables to make sure customers are paying their bills on time is an example of the need for ____ control.

financial

When Boeing bought the aviation parts and services company Aviall, it stated that it expected to have no initial change in earnings and the following year a modest gain. It was

integrating planning with control

sales performance

measured daily, weekly, and monthly sales figures

Minimize cost

o When practiced effectively, control can also help reduce costs and boost output o Many businesses are cutting back on everything from health insurance coverage to overnight shipping to business lunches for clients in their quest to lower costs

strategic control

o control aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic goals o focuses on structure, leadership, technology, human resources, and information and operational control systems o extent to which implemented strategy achieves the organization's strategic goals

measure performance

§ Performance measurement is a constant, ongoing activity for most organizations § Valid performance measurement, however difficult to obtain, is nevertheless vital in maintain effective control, and performance indicators usually can be developed

Preliminary control

· Inputs § Focus is on inputs to the organizational system § Concentrates on the resources - financial, material, human, and information § Attempts to monitor the quality or quantity of these resources before they enter the organization § thorough hiring process (screening applicants)

One of three actions for determining need for corrective action

· Maintain the status quo · Correct the deviation · Change standards

Under a centralized system, each organizational unit around the world is responsible for frequently reporting the results of its performance to headquarters

· Managers from home office visit the foreign branches · Effective because it allows the home office to stay better informed of the performance of foreign units and to maintain more control over how decisions are made

postaction control

· Outputs § Focus is on outputs from the organizational system § Outputs of the organization after the transformation process is complete § taking that bike for a test drive

resistance to control

· Overcontrol occurs when an organization tries to control too many things o Employee's resist

Identify performance indicators

· Performance indicators are measures of performance that provide information that is directly relevant to what is being controlled · Could be buying a site, selecting a building contractor, and ordering equipment

production performance

Expressed in terms of unit cost, product quality, or volume produced

Limit errors

Over time, small errors may accumulate and become very serious

Compare measured performance against established standards

Performance may be higher than, lower than, or identical to the standard

Comparison can be easy

Standard is clear and total sales are easy to calculate, it is relatively simple to determine whether this standard has been met

budget

o A plan expressed in numerical terms o Yardsticks for measuring performance and facilitate comparisons across departments, between levels in the organization, and from one time period to another · Can be in time, money, or materials

example of international strategic control

Ikeas in Europe are not the same as Ikea's in US

Too much accountability

People who do not want to be answerable for their mistakes or who do not want to work as hard as their bosses might therefore resist control

control

The regulation of organizational activities so that some targeted element of performance remains within acceptable limits. Keeps organization moving in the proper direction. One of the four basic management functions in organizations

Under a decentralized system, organizations require foreign branches to report less often and, in less detail,

Visits from the home office are less frequent and less concerned with monitoring and assessing performance

The basic purpose of control is

all of these choices

The purpose of control is to

assess organizational performance relative to some desired goal

Where would you expect to find the following information: "XYZ Corporation has $746 million in assets and $593 million in liabilities on October 1, 2012?"

balance sheet

Which of the following is a type of financial budget that deals with forecasting the organization's assets and liabilities in the event all other budgets are met?

balance sheet

What can having an effective control system do?

can help ensure that an organization achieves its goals

Four interrelated steps in control

establish standards, measure performance, compare measured performance against establish standards, and determine need for corrective action

Bureaucratic control focuses on enhanced performance that exceeds minimum acceptable standards.

false

The ____ budgets are organizational budgets that outline quantities of product/service to be produced and what resources will be used.

nonmonetary

Bureaucratic control

o An approach to organization design characterized by formal and mechanistic structural arrangements o Follows bureaucratic model o Goal is employee compliance o Organizations rely on strict rules and a rigid hierarchy, insist that employees meet minimally acceptable levels of performance, and often have a tall structure o Focus rewards on individual performance and allow only limited and formal employee participation o these are my controls, you will follow, very strict, theory X

Decentralized control

o An approach to organizational control characterized by informal and organic structural arrangements o Goal is employee commitment to the organization o Relies on group norms and a strong corporate culture, and gives employees the responsibility for controlling themselves o Employees are encouraged to perform beyond minimally acceptable levels o Organizations using this approach are usually relatively flat o Direct rewards at group performance and favor widespread employee participation o theory Y, more flexible

Adapt to environmental change

o Between the time a goal is established and the time it is reached, many things can happen in the organization and its environment to disrupt movement toward the goal - or even to change the goal itself o A properly designed control system can help managers anticipate, monitor, and respond to changing circumstances

· International strategic control

o Control from home country or in other country o Global organizations must take a pronounced strategic view of their control systems

Budgetary control purposes

o Help managers coordinate resources and projects o Define the established standards for control o Provide guidelines about the organization's resources and expectations o Enable the organization to evaluate the performance of managers and organizational units

Change standards

o Usually is necessary if it was set too high or too low at the outset o Standards that seemed perfectly appropriate when they were established may need to be adjusted because circumstances have since changed

Cope with organizational complexity

o When a firm purchases only one raw material, produces one product, has a simple organization design, and enjoys constant demand for its product, its managers can maintain control with a very basic and simple system o A business that produces many products from myriad raw materials and has a large market area, a complicated organization design, and many competitors needs a sophisticated system to maintain adequate control

McDonald's fast-food restaurants aim to fill each order within 90 seconds and to have no customer wait longer than 3.5 minutes. This is derived from the company's

organizational goals

To the extent possible, standards used for control purposes should be derived from

organizational goals

without control...

organizations have no indication of how well they are performing in relation to their goals

Some managers at J.P. Morgan Chase viewed the CEO monitoring all of their expenses as too much involvement. They saw it as

overcontrol

At any point in time, control compares where the organization is in terms of....

performance (financial, productive, or otherwise) to where it is supposed to be

Everyone working or volunteering for Girl Scouts has a background check before they can work with girls or handle money. What kind of operations control is this?

preliminary

Politicians transform information from many sources into decisions about policies for the area they govern. When politicians "float an idea" by having a staff member leak it to the press to gauge reaction, the politician's staff is using ____ control.

preliminary

The University of Michigan develops a budget that shows its projected income from sources such as the state of Michigan, tuition and fees, alumni contributions, and research grants. This is an example of a(n) ____ budget

revenue

Politicians transform information from many sources into decisions about policies for the area they govern. When politicians follow poll results during legislative debate, the politicians are using ____ control.

screening

Some investment firms require traders to take two consecutive weeks of vacation, so the traders' books can be reviewed. This is an example of

verification procedures

screening control

· Transformation § Focus is on how inputs are being transformed into outputs § Meeting standards for product or service quality or quantity during the actual transformation process itself § Relies on feedback processes § testing bikes along the way

lost leader

·Visits from the home office are less frequent and less concerned with monitoring and assessing performance