Management Chapter 11 Organizational Control and Change.

Controls System and IT

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Operating Budget

A budget that states how managers intend to use organizational resources to achieve organizational GOALS.

Four steps in the Organizational Change Process

Assess the need for change, decide on the change to make, implement the change, evaluate the change.

Step 3 (compare)

Compare actual performance against chosen standards of performance.

Feedback Control

Control that gives managers information about customers' reactions to goods and services so corrective action can be taken if necessary. Number of customer returns Measure increase or decrease in particular product sales.

What is Organizational Control?

Controlling is the process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals. Organizational Structure: Skeleton Organizational Control: Nerves and muscles.

Liquidity ratios:

Current ratio, quick ratio. Help meet short term obligations.

Goals

If goals are set so low that they are too easy to achieve, managers will not be motivated to use all their resources as efficiently and effectively as possible. 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. Such goals are often called STRETCH GOALS.

Why are financial measures used?

MORE OBJECTIVE.

MBO step 2:

Managers and their subordinates together determine the subordinates' goals.

Profit ratios:

Operating margin, return on investment.

Problems with Output Control

Output standards they create must motivate managers at all levels and do not cause managers to behave in inappropriate ways to achieve organizational goals. BE ETHICAL and promote ETHICAL VALUES.

Top managers are more concerned with _ organizational performance and use various _ measure to evaluate it.

Overall; financial

Financial Measures of Performance.

Profit ratio, liquidity ratio, leverage ratio, activity ratio, return on investment, Operating margin...

MBO step 1:

Specific goals and objectives are established at each level of the organization.

Direct supervision

The most immediate and potent form of behavior control is direct supervision by 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. Moreover, when managers personally supervise subordinates, they lead by example and in this way can help subordinates develop and increase their own skill levels. Become personally involved with their subordinates, mentor subordinates and develop their management skills. COSTLY and DEMOTIVATING.

The Importance of Organizational Control

To understand the importance of organizational control, consider how it helps managers obtain superior efficiency, quality, responsiveness to customers, and innovation-the four building blocks of competitive advantage. Efficiency, quality, responsiveness to customer, innovation. monitoring employee behavior can help managers find ways to increase employees performance levels.

Outputs

are easier to measure than behaviors.

4. Evaluate the change

compare percentage performance with postchage. Use benchmarking.

Current ratio:

current assets divided by current liabilities.

Days sales outstanding

how quickly managers are collecting revenue from clients.

When managers use rules and SOPs to make employees' behavior predictable, there is no need to

monitor the OUTPUTS of behavior.

Activity ratio

shows how well managers are creating value from organizational assets.

Although_reduces the number of quality problems, there si still need for quality chcks.

stadardization.

In summary,

three components-objective financial measures, challenging goals and performance standards, and appropriate operating budgets-are the essence of effective output control. FEEDBACK AND EVALUATION is not a mechanism to define success criteria.

When will management implement bureaucratic control to shape and motivate employee behavior?

when direct supervision is too expensive and management by objective is inappropriate.

Managing change

...

Concurrent Control

control that gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise. React to defective batch of inputs or worker lacking appropriate skills.

Leverage Ratios:

debt to asset, times covered ratio.

2. Decide on the change to make

decide what the organization's ideal future state would be, identify obstacles to change.

Evolutionary change

is gradual, incremental, and narrowly fovused. Not drastic and sudden, it is a constant attempt to imrove, adapt, and adjust strategy and structure incrementally to accommodate changes taking place in the environment. Sociotechnical systems theory, total quality management.

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.

Leverage ratios

such as the debt-to-assets rato and the time-covered ratio, measures the degree to which managers use debt or equity to finance ongoing operations.

Behavior Control

... Organizational structure by itself does not provide any mechanism that motivates managers and non managerial employees to behave in ways that make the structure work-or even improve how it works; hence the need for control. Output control is one method of motivating employees; behavior control is another method. THREE METHODS: DIRECT SUPERVISION, MANAGEMENT BY OBJECTIVES, AND RULES AND STANDARD OPERATING PROCEDURES.

Output Control

...All managers develop a system of output control for their organizations. The three main mechanisms that managers use to assess output or performance are FINANCIAL MEASURES, ORGANIZATIONAL GOALS, and OPERATING BUDGETS.

The Control Process

...The control process, whether at the input, conversion, or output stage, can be broken down into four steps: establishing standards of performance and then measuring, comparing, and evaluating actual performance. Monitor: responsiveness to customers, superior efficiency, innovation, quality.

Organizational Change

...affects functioning, communication, motivation, and leadership.

Clan Control

...the control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations.

Which ratios measure how well managers are creating value from organizational assets?

Days sales outstanding, inventory turnover.

3. Implement the change

Decide whether change will occur from the top down or from the bottom up, introduce and manage change.

Step 1 (standard)

Establish the standards of performance, goals, or targets against which performance is to be evaluated. Based on future goals. Efficiency, quality, resonsiveness to customers, and innovation. Standard is set at all levels of the organization.

Step 4 (evaluate)

Evaluate the result and initiate corrective action if the standard is not being achieved. The final step in the control process is the evaluate the results and bring about change as appropriate. Whether or not performance standards have been met, managers an 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-for example, a sales target was too optimistic and impossible to achieve. In this case, adopting more realistic standards can reduce the gap between actual performance and desired performance. Sometimes standard can be set too high. Be realistic.

Three Types of Control

Input stage: Feedforward Control (anticipate problems) Conversion Stage: Concurrent Control (manage problems as they occur) Output Stage: Feedback Control (manage problems after they occur.)

MBO step 3:

Managers and their subordinates periodically review the subordinates' progress toward meeting goals. salary raises and promotions are linked to the goal setting process, and managers who achieve their goals receive greater rewards than those who fall short. MUST BE ACCURATE AND FAIR

Problems with Bureaucratic Control.

Managers need to be aware of a number of problems associated with bureaucratic control because such problems can reduce organizational effectiveness. Establishing rules is always easier than discarding them. Organizations tend to become overly bureaucratic over time as manager do everything according to the rule book. If the among of red tape becomes too great, decision making slows and managers react sluggishly to changing conditions. This can imperil an organization's survival if agile new competitors edge.

Two opposing forces in the control process that influence how organizations change.

Managers need to realize when they need to depart from routines to be responsive to unpredictable events, managers need to make their operations routine and predictable.

Step 2 (measure)

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: The actual OUTPUTS that result from the behavior of their members and the BEHAVIORS themselves. MEASURE OUTPUTS AND BEHAVIORS. sometime both inputs and outputs can be easily measured. Measuring rountine tasks is easier.

Organizational Goals

Once top managers consult with lower-level managers and set the organization's overall goals, they establish performance standards for the divisions and functions. These standards specify for divisional and functional managers the level at which their units must perform if the organization is to achieve its overall goals. Corporate-level managers set goals for individual divisions that will allow the organization to achieve corporate goals, then divisional managers set goals for each function that will allow the decision to achieve its goals, finally functional managers set goals for each individual worker that will allow the function the achieve its goals

Why are output control and behavior control not the best control methods to use all the time?

Rules and standard operating procedures are innappropriate in some situation, some jobs are not observable on a day to day basis, output control cannot adequately measure the quality of performance in every job situation.

Control systems

Shapes the behavior of organizational members toward organizational goals, and keeping employees open to new opportunities THINK ABOUT WHAT IS BEST FOR THE ORGANIZATION. formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about how well the organization's strategy and structure are working. An effective control system has THREE CHARACTERISTICS: It is flexible enough to allow managers to respond as necessary to unexpected events; it provides accurate information about organizational performances; and it gives managers information in a timely manner because making decisions on the basis of outdated information is a recipe for failure. FLEXIBLE, TIMELY INFORMATION, ACCURATE PERFORMANCE INFORMATION. ENCOURAGE INNOVATION THROUGH RISK-TAKING.

Quick ratio

Whether or not they can pay creditor claims without selling inventory.

Management by Objectives

a goal-setting process in which a manager and each of his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals. CONTAINS 3 SPECIFIC STEPS: SPECIFIC GOALS FOR ORGANIZATION, SUBORDINATE GOALS, AND REVIEWING PROGRESS TOWARD MEETING GOALS. Potential flaw: managers and their subordinates at all levels must believe that performance evaluations are accurate and fair. Any suggestion that personal biases and political objectives play a part in the evaluation process can lower or even destroy MBO's effectiveness as a control system.

Lewin's Force Field Theory of Change

a wide variety of forces arise from the way an organization operates- from its structure, culture, and control systems-that make organizations resistant to change. Managers must balance the need for an organization to improve the way it currently operates and the need for it to change in response to new, unanticipated events. MANAGERS NEED TO REDUCE OR MANAGE RESISTANCE IN ORDER TO FACILITATE CHANGE.

Business-level strategy

achieving functional goals to help the division meet its goals.

Return on investment

an 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.

ROI

assesses how efficiently managers are using the organization's resources to generate profits. Allows managers to compare performance to other companies.

Benchmarking

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

Bureaucratic Control (Rules and SOPs)

control of behavior by means of a comprehensive system of rules and standard operating procedures (SOPs). Rules and SOPs guide behavior and specify what employees are to do when they confront a problem that needs a solution. It is the responsibility of a manager to develop rules that allow employees to perform their activities efficiently and effectively.

Feedforward control

control that allows managers to anticipate problems before they arise. task environments Control and information systems are developed to measure performance at each stage in the process of transforming inputs into finished goods and services. Stringent product specifications to suppliers

Profit budget

difference between revenues generated by the sales of goods and services and the budgeted cost of making those goods and services.

How can managers overcome resistance to change?

emphasizing shared goals, communication, and empowerment.

Organizational learning

increase employees' abilities to understand and appropriately respond to both internal and external changes.

Operating Margin

is calculated by dividing a company's operating profit by sales revenue. 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.

Bottom up change

is typically more gradual or evolutionary. Top managers consult with middle and first line managers about the need for change. Then, over time, managers at all levels work to develop a detailed plan for change. TOP MANAGERS CONSULT WITH MIDDLE AND FIRST LINE MANAGERS ABOUT THE NEED FOR CHANGE.

Cutting costs

lowers long term return.

Expense budget

managers are given a fixed budget for resources and then evaluated on the amount of goods and services they can produce using those resources.

Revenue expense

maximize sales of goods and services produced.

Profit ratio

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

Liquidity ratio

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

REvolutionary change

rapid, dramatic, and broadly focused. Bold attempts to quickly find new ways to be effective. INNOVATION, REENGINEERING, RESTRUCTURING.

1. Assess the need for change.

recognize that there is a problem, identify the source of the problem.

Standardized behavior

when employees follow the rules that managers have developed, actions are performed the same way time and time again. Their working outcomes are predictable. Leads to STANDARDIZED outputs. STANDARDIZED BEHAVIOR LEAD TO STANDARDIZED OUTPUTS.