Management Ch. 8

disadvantages of direct supervision

-expensive because a manager can personally manage only a relatively small number of subordinates effectively -can demotivate subordinates. This occurs if employees feel they are under such close scrutiny that they are not free to make their own decisions or if they feel they are not being evaluated in an accurate and impartial way. Team members and other employees may start to pass the buck, avoid responsibility, and cease to cooperate with other team members if they feel their manager is not accurately evaluating their performance and is favoring some people over others. -personal control through direct supervision is simply not feasible. The more complex a job is, the more difficult it is for a manager to evaluate how well a subordinate is performing.

reasons output control and behavior control are inappropriate

1) A manager cannot evaluate the performance of workers such as doctors, research scientists, or engineers by observing their behavior on a day-to-day basis. 2) Rules and SOPs are of little use in telling a doctor how to respond to an emergency situation or a scientist how to discover something new. 3) Output controls such as the amount of time a surgeon takes for each operation or the costs of making a discovery are very crude measures of the quality of performance.

three steps of management by objectives

1) Specific goals and objectives are established at each level of the organization. 2) Managers and their subordinates together determine the subordinates' goals. 3) Managers and their subordinates periodically review the subordinates' progress toward meeting goals.

disadvantages of bureaucratic control

1) establishing rules is always easier than discarding them. Organizations tend to become overly bureaucratic over time as managers do everything according to the rule book. 2) because rules constrain and standardize behavior and lead people to behave in predictable ways, there is a danger that people become so used to automatically following rules that they stop thinking for themselves. 3) decision making slows and managers react slowly to changing conditions. This sluggishness can imperil an organization's survival if agile new competitors emerge.

steps in the change process

Assessing the Need for Change, Deciding on the Change to Make, Implementing the Change, and Evaluating the Change

concurrent control

At the conversion stage, this gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise.

feedback control

At the output stage, managers use this to provide information about customers' reactions to goods and services so corrective action can be taken if necessary.

output control

First they choose the goals or output performance standards or targets that they think will best measure efficiency, quality, innovation, and responsiveness to customers. Then they measure to see whether the performance goals and standards are being achieved at the corporate, divisional, functional, and individual employee levels of the organization. The three main mechanisms that managers use to assess are financial measures, organizational goals, and operating budgets.

Step 2: Measure actual performance.

Once managers have decided which standards or targets they will use to evaluate performance, the next step in the control process is to measure actual performance. In practice, managers can measure or evaluate two things: (1) the actual outputs that result from the behavior of their members and (2) the behaviors themselves

stretch goals

Research suggests that the best goals are specific, difficult goals—goals that challenge and stretch managers' ability but are not out of reach and do not require an impossibly high expenditure of managerial time and energy

direct supervision

The most immediate and potent form of behavior control. managers who actively monitor and observe the behavior of their subordinates, teach subordinates the behaviors that are appropriate and inappropriate, and intervene to take corrective action as needed.

Step 4: Evaluate the result and initiate corrective action (that is, make changes) if the standard is not being achieved.

Whether or not performance standards have been met, managers can learn a great deal during this step. If managers decide the level of performance is unacceptable, they must try to change how work activities are performed to solve the problem. Sometimes performance problems occur because the work standard was too high. In this case, adopting more realistic standards can reduce the gap between actual performance and desired performance. if managers determine that something in the situation is causing the problem, then to raise performance they will need to change how resources are utilized or shared

Management by objectives

a formal system of evaluating subordinates on their ability to achieve specific organizational goals or performance standards and to meet operating budgets. Most organizations use some form of this system because it is pointless to establish goals and then fail to evaluate whether they are being achieved

Control systems

are formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about whether the organization's strategy and structure are working efficiently and effectively. they alert managers when something is going wrong and give them time to respond to opportunities and threats. three characteristics: It is flexible enough to allow managers to respond as necessary to unexpected events; it provides accurate information about organizational performance; and it gives managers information in a timely manner because making decisions on the basis of outdated information is a recipe for failure.

Entrepreneurs

are the people who notice opportunities and take responsibility for mobilizing the resources necessary to produce new and improved goods and services. bring change to companies and industries because they see new and improved ways to use resources to create products customers will want to buy. are responsible for all the initial planning, organizing, leading, and controlling necessary to make their idea a reality.

inert cultures

are those that lead to values and norms that fail to motivate or inspire employees; they lead to stagnation and often failure over time

feedforward control

at the input stage, they use this to anticipate problems before they arise so problems do not occur later during the conversion process

Operating margin

calculated by dividing a company's operating profit (the amount it has left after all the costs of making the product and running the business have been deducted) by sales revenues. This measure tells managers how efficiently an organization is using its resources; every successful attempt to reduce costs will be reflected in increased operating profit, for example. Also, is a means of comparing one year's performance to another

benchmarking

comparing their performance on specific dimensions with the performance of high-performing organizations, to decide how successful a change effort has been

current ratio

current assets divided by current liabilities. tells managers whether they have the resources available to meet the claims of short-term creditors.

three mechanisms of behavior control

direct supervision, management by objectives, and rules and standard operating procedures

intrapreneurs

employees of existing organizations who notice opportunities for product or service improvements and are responsible for managing the development process

4 steps of the control process

establishing standards of performance, and then measuring, comparing, and evaluating actual performance

operating budget

is a blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently

bureaucratic control

is control by means of a comprehensive system of rules and standard operating procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and individuals. most useful when organizational activities are routine and well understood and when employees are making programmed decisions

Top-down change

is implemented quickly: Top managers identify the need for change, decide what to do, and then move quickly to implement the changes throughout the organization.

Clan control

is the control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations. employees internalize organizational values and norms and then let these values and norms guide their decisions and actions.

entrepreneurship

is the mobilization of resources to take advantage of an opportunity to provide customers with new or improved goods and services; intrapreneurs engage in entrepreneurship within an existing company.

Organizational change

is the movement of an organization away from its present state toward some preferred future state to increase its efficiency and effectiveness.

organizational culture

is the shared set of beliefs, expectations, values, norms, and work routines that influences how members of an organization relate to one another and work together to achieve organizational goals

Step 1: Establish the standards of performance, goals, or targets against which performance is to be evaluated.

managers decide on the standards of performance, goals, or targets that they will use in the future to evaluate the performance of the entire organization or part of it (such as a division, a function, or an individual). The standards of performance that managers select measure efficiency, quality, responsiveness to customers, and innovation

Step 3: Compare actual performance against chosen standards of performance.

managers evaluate whether—and to what extent—performance deviates from the standards of performance chosen in step 1. If performance is higher than expected, managers might decide they set performance standards too low and may raise them for the next period to challenge their subordinates. Managers at successful companies are well known for the way they try to improve performance in manufacturing settings by constantly raising performance standards to motivate managers and workers to find new ways to reduce costs or increase quality. if performance is too low and standards were not reached, or if standards were set so high that employees could not achieve them, managers must decide whether to take corrective action

Profit ratios

measure how efficiently managers are using the organization's resources to generate profits

Liquidity ratios

measure how well managers have protected organizational resources to be able to meet short-term obligations

Inventory turnover

measures how efficiently managers are turning inventory over so excess inventory is not carried

adaptive culture

ones whose values and norms help an organization to build momentum and to grow and change as needed to achieve its goals and be effective

Return on investment

organization's net income before taxes divided by its total assets, is the most commonly used financial performance measure because it allows managers of one organization to compare performance with that of other organizations. lets managers assess an organization's competitive advantage.

three important types of control systems

output control, behavior control, and clan control

two important activities in assessing the need for change

recognizing that there is a problem and identifying its source.

Days sales outstanding

reveals how efficiently managers are collecting revenue from customers to pay expenses.

Activity ratios

show how well managers are creating value from organizational assets

quick ratio

shows whether they can pay these claims without selling inventory

Leverage ratios

such as the debt-to-assets ratio and the times-covered ratio, measure the degree to which managers use debt (borrow money) or equity (issue new shares) to finance ongoing operations. An organization is highly leveraged if it uses more debt than equity. Debt can be risky when net income or profit fails to cover the interest on the debt—as some people learn too late when their paychecks do not allow them to pay off their credit cards.

four building blocks of competitive advantage

superior efficiency, quality, responsiveness to customers, and innovation

Deciding on the Change to Make

they must decide what they think the organization's ideal future state would be. During this step, managers also must engage in planning how they are going to attain the organization's ideal future state.