mgt chapter 16

4. Quality Can Be Improved on the Basis of Hard Data, Using the PDCA Cycle

PDCA cycle, a plan-do-check-act cycle using observed data for continuous improvement of operations

Steps in the Control Process

The four control process steps are (1) establish standards; (2) measure performance; (3) compare performance to standards; and (4) take corrective action, if necessary.

2. Measure Performance: "What Is the Actual Outcome We Got?"

The second step in the control process is to measure performance, such as by number of products sold, units produced, or cost per item sold.

Six Areas of Control

The six areas of organizational control are physical, human, informational, financial, structural, and cultural.

3. Compare Performance to Standards: "How Do the Desired & 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?

Levels of Control: Strategic, Tactical, & Operational

There are three levels of control, which correspond to the three principal managerial levels: strategic planning by top managers, tactical planning by middle managers, and operational planning by first-line (supervisory) managers.

1. Quality Should Be Aimed at the Needs of the Consumer

"The consumer is the most important part of the production line," Deming wrote.43 Thus, the efforts of individual workers in providing the product or service should be directed toward meeting the needs and expectations of the ultimate user.

Fixed Versus Variable Budgets

Fixed budgets—where resources are allocated on a single estimate of costs. Also known as a static budget, Variable budgets—where resources are varied in proportion with various levels of activity. Also known as a flexible budget,

5. Structural Area

How is the organization arranged from a hierarchical or structural standpoint?26 Two examples are bureaucratic control and decentralized control.

Incremental budgeting

Incremental budgeting allocates increased or decreased funds to a department by using the last budget period as a reference point; only incremental changes in the budget request are reviewed.

Why Is Control Needed?

Lack of control mechanisms can lead to problems for both managers and companies

Leading

Leading is motivating people to work hard to achieve the organization's goals.

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

Four Barriers to Effective Measurement

Objectives are fuzzy Managers put too much trust in informal feedback systems. Employees resist new measurement systems. Companies focus too much on measuring activities instead of results

3. Operational Control by First-Level Managers

Operational control is monitoring performance to ensure that operational plans—day-to-day goals—are being implemented and taking corrective action as needed

Organizing

Organizing is arranging tasks, people, and other resources to accomplish the work.

2. Tactical Control by Middle Managers

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.

The Balanced Scorecard: Four "Perspectives"

The Balanced Scorecard: Four "Perspectives" The balanced scorecard establishes (a) goals and (b) performance measures according to four "perspectives" or areas—financial, customer, internal business, and innovation and learning. (See Figure 16.5, next page.)

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 employee surveys to assess job satisfaction and leadership

1. Physical Area

The physical area includes buildings, equipment, and tangible products.

enterprise resource planning

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.

external audit

external audit is a formal verification of an organization's financial accounts and statements by outside experts

income statement

income statement summarizes an organization's financial results—revenues and expenses—over a specified period of time, such as a quarter or a year.

internal audit

internal audit is a verification of an organization's financial accounts and statements by the organization's own professional staff.

ISO 14000.

• ISO 14000. The ISO 14000 series extends the concept, identifying standards for environmental performance.

ISO 9000

• ISO 9000. The 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

RATER dimensions are as follows:

• Reliability—ability to perform the desired service dependably, accurately, and consistently. • Assurance—employees' knowledge, courtesy, and ability to convey trust and confidence. • Tangibles—physical facilities, equipment, appearance of personnel. • Empathy—provision of caring, individualized attention to customers. • Responsiveness—willingness to provide prompt service and help customers

Six Sigma & Lean Six Sigma: Data-Driven Ways to Eliminate Defects

• Six Sigma. Six Sigma is a rigorous statistical analysis process that reduces defects in manufacturing and service-related processes

Budget

A budget is a formal financial projection. It states an organization's planned activities for a given period of time in quantitative terms, such as dollars, hours, or number of products. Budgets are prepared not only for the organization as a whole but also for the divisions and departments within it.

1. Establish Standards: "What Is the Outcome We Want?"

A control standard, or 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.

Financial Statements

A financial statement is a summary of some aspect of an organization's financial status.

strategy map

A strategy map is a visual representation of the four perspectives of the balanced scorecard that enables managers to communicate their goals so that everyone in the company can understand how their jobs are linked to the overall objectives of the organization.

4. Financial Area

Are bills being paid on time? How much money is owed by customers? How much money is owed to suppliers? Is there enough cash on hand to meet payroll obligations? What are the debt-repayment schedules? What is the advertising budget?

Audits

Audits are formal verifications of an organization's financial and operational systems.

Bureaucratic control

Bureaucratic control is an approach to organizational control that is characterized by use of rules, regulations, and formal authority to guide performance

Controlling

Controlling is defined as monitoring performance, comparing it with goals, and taking corrective action as needed

Decentralized control.

Decentralized control is an approach to organizational control that is characterized by informal and organic structural arrangements, the opposite of bureaucratic control

2. Companies Should Aim at Improving the System, Not Blaming Workers

Deming suggested that U.S. managers were more concerned with blaming problems on individual workers rather than on the organization's structure, culture, technology, work rules, and management—that is, "the system."

W. Edwards Deming's

W. Edwards Deming's challenge, known as Deming management, proposed ideas for making organizations more responsive, more democratic, and less wasteful. These included the following principles:

3. Improved Quality Leads to Increased Market Share, Increased Company Prospects, & Increased Employment

When companies work to improve the quality of goods and services, they produce less waste, fewer delays, and are more efficient.

balanced scorecard

balanced scorecard, which gives top managers a fast but comprehensive view of the organization via four indicators: (1) customer satisfaction, (2) internal processes, (3) innovation and improvement activities, and (4) financial measures.

Benchmarking:

benchmarking is a process by which a company compares its performance with the best practices of high-performing organizations.

lean Six Sigma,

lean Six Sigma, which focuses on problem solving and performance improvement—speed with excellence—of a well-defined project.

ratio analysis

ratio analysis—the practice of evaluating financial ratios—to determine an organization's financial health. Among the types of financial ratios are those used to calculate liquidity, debt management, asset management, and return.

statistical process control,

statistical process control, a statistical technique that uses periodic random samples from production runs to see if quality is being maintained within a standard range of acceptability

The Keys to Successful Control Systems

(1) They are strategic and results oriented. (2) They are timely, accurate, and objective. (3) They are realistic, positive, and understandable and they encourage self-control. (4) They are flexible

two core principles of TQM

(1) people orientation—everyone involved with the organization should focus on delivering value to customers—and (2) improvement orientation—everyone should work on continuously improving the work processes.

What are six reasons why control is needed

1. To Adapt to Change & Uncertainty 2. To Discover Irregularities & Errors 3. To Reduce Costs, Increase Productivity, or Add Value 4. To Detect Opportunities 5. To Deal with Complexity 6. To Decentralize Decision Making & Facilitate Teamwork

Barriers to Control Success

1. Too Much Control 2. Too Little Employee Participation 3. Overemphasis on Means Instead of Ends 4. Overemphasis on Paperwork 5. Overemphasis on One Instead of Multiple Approaches

balance sheet

A balance sheet summarizes an organization's overall financial worth—that is, assets and liabilities—at a specific point in time.

Planning

Planning is setting goals and deciding how to achieve them.

3. Informational Area

Production schedules. Sales forecasts. Environmental impact statements. Analyses of competition. Public relations briefings. All these are controls on an organization's various information resources.

What Is Productivity?

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.

The RATER Scale

RATER scale, which enables customers to rate the quality of a service along five dimensions—reliability, assurance, tangibles, empathy, and responsiveness (abbreviated RATER)—each on a scale from 1 (for very poor) to 10 (for very good

Strategic Control by Top Managers

Strategic control is monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed.

6. Cultural Area

The cultural area is an informal method of control. It influences the work process and levels of performance through the set of norms that develop as a result of the values and beliefs that constitute an organization's culture.

4. Take Corrective Action, If Necessary: "What Changes Should We Make to Obtain Desirable Outcomes

There are three possibilities here: (1) Make no changes. (2) Recognize and reinforce positive performance. (3) Take action to correct negative performance.

Why Measurement-Managed Firms Succeed: Four Mechanisms of Success

Top executives agree on strategy Communication is clear. There is better focus and alignments. The organizational culture emphasizes teamwork and allows risk taking.

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.