Chapter 16 Control Systems and Quality Management: Techniques for Enhancing Organizational Effectiveness
Micromanagement = form of over-control that is counterproductive
Employees more effective/achieve greater job satisfaction if they feel empowered to use their own judgment as far as possible to get job done Micromanagers can slow the flow of work and decisions, if not stop it altogether
Takeaway from TQM research
Vast majority of TQM adopters follow its general principles, which in turn fosters improved operational performance
3. Overemphasis on means instead of ends
Control activities are not ends in themselves BUT the means to eliminating problems - Too much emphasis can lead to pushing workers and equipment too hard - Can also lead to game playing
Feedback control
Collecting performance information after a task or project is done - Information used to correct or improve future performance - Extensively used by supervisors and managers ***Problem with feedback control = occurs too late
Total quality management (TQM)
Comprehensive approach dedicated to continuous quality improvement, training, and customer satisfaction Led by top management and supported throughout the organization
Tactical control
Monitoring performance to ensure that tactical plans are being implemented and taking corrective action as needed - Done mainly by middle managers ***Division heads, plant managers, branch sales managers, etc. - Reporting done on weekly or monthly basis
Controlling
Monitoring performance, comparing it with goals, and taking corrective action as needed - Fourth management function - Purpose = make sure performance meets objectives
Two strategies for ensuring quality
Quality control & Quality assurance
Lean Six Sigma
Quality-control approach that focuses on problem solving and performance improvement (speed with excellence) of a well-defined project
Liabilities
Claims (debts) to suppliers, lenders, or other nonowners of the organization against a company's assets
Outputs
All the goods and services produced
Accurate
Meaning correct - Accuracy necessary if decision mistakes are to be avoided
Managers in the 21st century will operate in complex environment in which they need to deal with seven challenges
1) Competitive advantage 2) Diversity 3) Globalization 4) Information technology 5) Ethical standards 6) Sustainability 7) Your own happiness and life goals
Four key inhibitors to successfully implementing TQM
1) Failure to provide evidence supporting previous improvement activities 2) Lack of a champion who is responsible for leading the implementation 3) Inability to measure/track results of the program 4) Failure to develop a culture of quality or continuous learning
Common characteristics of 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
5 generic tips for managing your career below
1. MAKE EVERY DAY COUNT 2. STAY INFORMED AND NETWORK - Stay abreast of changes in your field and industry (look for new trends, changing regulations, best practices, and applications of new technology) 3. PROMOTE YOURSELF - Goal of self-promotion = inform others about your value and potential impact on organizational goals - Effective self-promotion (use humility) ***Discuss your accomplishments and specific actions taken to make them happen ***Discuss benefits you actions had on your team, department, etc. ("big picture" perspective) ***Discuss how others contributed to the accomplishments (reinforce you are a team player) 4. ROLL WITH CHANGE AND DISRUPTION - Careers rarely follow an organized trajectory 5. SMALL THINGS MATTER DURING INTERVIEWS
Barriers to a successful control system
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
Telltale signs of a micromanager
1. Working excessive hours/weekends and skipping vacation 2. Checking everyone's work because no one else can do things right 3. Needing to be copied on and approve everything 4. Requiring others to continually check in and be constantly available 5. Having to hire new people all the time b/c turnover is so high
US Productivity Track Record
1960s = productivity average 2.9% a year Up until 1995 = sank to disappointing 1.5% - Decline in productivity → no improvement in wages and living standards; millions took second jobs/worker longer hours 1995-2000 (longest economic boom in US history) = productivity rate jumped to 2.5 - Total output of goods and services rose faster than the total hours needed to produce them 2001-2007 (business cycle peak) = productivity grew at rate of 2.7% annually 2008 (recession year) = fell to 2% 2008 (fourth quarter) - 2009 (fourth quarter) = rose 5.4% 2010 = impressive 4.1% Recent = productivity has been declining globally
Incremental budgeting
Allocating 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
BSC serves as core management-control system
Balanced perspective of company performance Integrates various areas of the organization Managers record, analyze, and discuss the metrics
5. Overemphasis on one instead of multiple approaches
By having multiple control activities and information systems, an organization can have multiple performance indicators, thereby increasing accuracy and objectivity
Current assets
Cash and other assets that are readily convertible to cash within one year's time - Ex. inventory (accounts receivable), US treasury bills, or money market mutual funds
Structural area of control
Company's structure functions as control mechanism by: - Specifying chain of command (identifying who reports to whom) - Officially sanctioned communication channels Bureaucratic control & Decentralized control
They are realistic, positive, and understandable and they encourage self-control
Control systems have to focus on working for the people who will have to live with them (operate best when they are made acceptable to organization's members who are guided by them) Be realistic --> Incorporate realistic expectations Be positive --> Emphasize development and improvement &. avoid emphasizing punishment and reprimand Be understandable --> Should fit the people involved, be kept as simple and possible, and present data in understandable terms Encourage self-control --> Encourage good communication and mutual participation & should not be basis for creating distrust between employees and managers
Flexible control systems
Control systems must leave room for individual judgement, so they can be modified when necessary to meet new requirements
They are strategic and results oriented
Control systems support strategic plans and are concentrated on significant activities that will make real difference to the organization - Managers should pay attention to developing control standards that will measure how well the plans are being achieved when developing strategic plans for achieving strategic goals
Operational plan
Day-to-day goals/activities
Control (or performance) standard
Desired performance level for a given goal (first step in control process) - May be narrow or broad and can be set for almost anything - Best measures when they can be made quantifiable
Concurrent control
Entails collecting performance information in real time - Enables managers to determine if employee behavior and organizational processes conform to regulations and standards - Corrective action can be taken immediately when performance is not meeting expectations - Technology usually used for concurrent control
Two types of incremental budgets
Fixed (static) budget Variable (flexible) budget
Globalization effect on national economies
Globalization has made national economies far more interconnected and dependent on one another Has helped to increase the ripple effects of any country's economic downturns on its neighbors and trading partners
Goal of ISO 9000 series
Goal = reduce flaws in manufacturing and improve productivity by adopting eight "big picture" Quality Management Principles 1. Customer focus 2. Leadership 3. Involvement of people 4. Process approach 5. System approach to management 6. Continual improvement 7. Factual approach to decision making 8. Mutually beneficial supplier relationships
Sigma
Greek letter statisticians use to define a standard deviation Six Sigma → higher the sigma, the fewer the deviations from the norm (fewer defects)
Employees, managers and organizations ALL share responsibility for increasing individual productivity
INDIVIDUALS - Proactively bring their skills, energy, talents, and motivation to work on a daily basis - Engage in self-development and organizational citizenship MANAGERS - Bring their "best selves" to work just like any other employee - Behavior = key input to individual productivity - Take a learning orientation toward their jobs (attempt to continuously improve leadership skills) ORGANIZATIONS - Provide positive work environments and cultures that promote employee engagement, satisfaction, and flourishing - Invest in training and development for all employees - Invest in IT that helps people reduce distractions and focus on completing tasks
Role of Information Technology
In the last decade wages have stagnated for most workers, every as productivity gains from IT have slowed Financial rewards for tech innovation have been concentrated among very few inventors and entrepreneurs Problem may lie in a measurement error in which companies are incorrectly assessing with old tools - Companies charge users nothing and try to earn revenue from advertising
Physical area of control
Includes buildings, equipment, and tangible products
ISO
International Organization for Standardization (ISO) created set of quality standards in 1987
Important to recognize the difference between jobs and careers
Job - Something done to earn money - Tend to be temporary - In service of someone or something else Career - Belongs to you and lasts a lifetime - You own it, manage it, nurture it, and create it to fit your values and needs - What we do in pursuit of our own needs and fulfillment rather than someone else's
Inputs
Labor, capital, materials, and energy
Fixed assets
Property, buildings, equipment, and the like that have useful like that exceeds one year but that are harder to convert to cash
Control
Making something happen the way it was planned to happen
"Beating the system" (game playing)
Managers and employees manipulate data to seem to fulfill short-run goals instead of the organization's strategic plan
Manufacturing industries
Provide tangible products Products can be stored
Objective
Meaning impartial Control systems should be impartial and fair Information that is not objective is inaccurate for a special reason → it is biased or prejudiced Control systems need to be considered unbiased for everyone involved so that they will be respected for their fundamental purpose (enhancing performance)
Timely
Meaning when needed - Information should be delivered at an appropriate/specific time - Often enough to allow employees and managers to take corrective action for any deviations
What does the productivity formula mean for a manager?
Means that you can increase overall productivity by making substitutions or increasing the efficiency of any on element (labor, capital, materials, and energy)
4. Overemphasis on paperwork
Misdirection of effort → management emphasis on getting reports done, to the exclusion of other performance activity - Can lead to too much focus on quantification of results and even to falsification of data
Why is increasing productivity important?
More goods and services produced & made easily available to us and for export → higher our standard of living Increasing GDP depends on raising productivity, as well as on a growing workforce
Attainment of Six Sigma
No more than 3.4 defects per million products or procedures
Continuous improvement
Ongoing, small, incremental improvements in all parts of an organization (products, services, functional areas, and work processes)
Quality-management viewpoint
Process that focuses on preventing problems rather than fixing them once they occur
ISO 9000 series
Quality-control procedures companies must install (from purchasing to manufacturing to inventory to shipping) that can be audited by independent quality-control experts ("registrars") Companies must document their ISO 9000 procedures and train their employees to use them Series of standards was expanded to induce ISO 9001:2008
Six Sigma philosophy (method)
Reduce variation in your company's business and make customer-focused, data-driven decisions - Use DMAIC (Define, Measure, Analyze, Improve, and Control) - Team leaders may be awarded Six Sigma "black belt" for applying DMAIC
Reduced cycle time
Reduction of steps in the work process - Emphasis on increasing speed with which an organization's operations and processes can be performed - Improve organization's performance by eliminating wasteful motions, barriers between departments, unnecessary procedural steps
Assets
Resources an organization controls (can be current or fixed)
Six Sigma
Rigorous statistical analysis process that reduces defects in manufacturing and service-related industries - By testing thousands of variable and eliminating guess work, company can use technique attempts to improve quality and reduce waste to point where errors nearly vanish - May not be perfect (cannot compensate for human error/control events outside of company) BUT they still let managers approach problems with assumption that there is a data-oriented, tangible way to approach problem solving
Best practices
Set of guidelines, ethics, or ideas that represent the most efficient or prudent course of actions - Can be developed internally through managers' and employees' positive experiences on the job - Can adopt strategies with which other companies have succeeded in similar situations
ISO 14000 series
Set of quality-control procedure that extends the concept of the ISO 9000 series, identifying standards for environmental performance Dictates standards for documenting a company's management of pollution, efficient use of raw materials, and reduction of the firm's impact on the environment
Enterprise resource planning (ERP)
Software information systems for integrating virtually all aspects of a business - Help managers stay on top of the latest developments
1. Too much control
Some organizations (particularly bureaucratic ones) try to exert too much control - Leads to micromanagement which frustrates employees and may lead them to ignore/try to sabotage the control process
Micromanager
Someone who is unable to delegate tasks and decisions and insists on taking an appropriately detailed focus on subordinates' work
Solutions to micromanagement
Start by delegating small decisions Recognize worst-case scenario you imagine if you let go is probably not going to happen Accept some degree of uncertainty is inevitable in management Give employees regular opportunities to discuss expectations, so they feel empowered to act independently
Quality control
Strategy for minimizing errors by managing each stage of production
Productivity
The formula of outputs divided by inputs for a specific period of time OUTPUTS/INPUTS or (Goods + Services) / Labor + Capital + Materials + Energy
Tactical plan
Those plans made at the divisional or departmental level
Quality
Total ability of a product/service to meet customer needs
Gross domestic product (GDP)
Total dollar value of all the goods and services produced in the US
Internal audit
Verification of an organization's financial accounts and statements by the organization's own professional staff - Same jobs as external auditors (verify accuracy of organization's records and operating activities) - Help uncover inefficiencies and help managers evaluate performance of their control systems
Strategy map
Visual representation of the four perspectives of the balance scoreboard 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
Control charts
Visual statistical tool used for quality-control purposes - Used by employees/managers to monitor the amount of variation in a work process - Help managers set upper and lower quality limits on a process and then monitor (control) performance in order to keep it within these limits - Can correct course if results stray above/below the upper/lower limit over time
2. Too little employee participation
W. Edwards Deming highlighted that employee participation can enhance productivity Involve employees in both the planning and execution of control systems - Can bring legitimacy to process and heighten employee morale
Benchmarking
Way to measure something against a standard (the benchmark) Use by companies - Internal benchmarks to set performance standards - Competitive benchmarking to assess themselves against their competitors - Strategic benchmarking when they are ready to look outside their industry
3. Internal Business Perspective
"AT WHAT MUST WE EXCEL?" Focuses on what the organization must excel at to effectively meet its financial objectives and customers' expectations Four critical high-level internal processes managers are encouraged to measure and manage 1. Innovation 2. Customers service and satisfaction 3. Operational excellence (includes safety and quality) 4. Good corporate citizenship
4. Innovation and Learning Perspective
"CAN WE CONTINUE TO IMPROVE AND CREATE VALUE?" - Learning and growth of employees = foundation for all other goals in balanced scorecard ****Capable and motivated employees (who possesses resources and culture needed to get job done) will provide higher-quality products and services in more efficient manner Typical metrics for this perspective → employee satisfaction/engagement, employe retention, employee productivity, training budget per employee, technology utilization, organizational climate/culture
1. Quality should be aimed at the need of the consumer
"Consumer is the most important part of the production line" Efforts of individual workers in providing product/service should be directed toward meeting the needs and expectations of the ultimate user
2. Customer Perspective
"HOW DO CUSTOMERS SEE US?" - Many companies view customers as one of their most important constituents - Measures include → market share, customer acquisition, customer retentions, customer satisfaction/loyalty, product/service quality, response time, and percentage of bids won
1. Financial Perspective
"HOW DO WE LOOK TO SHAREHOLDERS?" Typical buckets of corporate financial strategy/goals: - Revenue growth - Productivity growth (such as revenue per employee, total output/number of employees, or in terms of costs)
Financial area of control
****Concrete, things that have already happened Financial health of an organization
Service industries (applying TQM to services)
- Provide intangible products - Services generally need to be consumed immediately - Tend to require good deal of people effort - Generally provided at locations and times convenient for customers (customers much more involved in delivery of services than they are in delivery of manufactures products) ***Effective training = clear prerequisite for providing excellent service ***Judging the quality of services comes down to meeting the customer's satisfaction, which may be a matter of perception
Difference between service firms and manufacturers
- Service firms cannot hold any inventory of their services - Provide services on demand - Service firms usually develop personal relationship with their customer/client - Some services are highly perishable - US service industry has grown considerably in the last few decades as a great deal of manufacturing activity has moved overseas
Purpose of strategy map
- Shows relationship among company's strategic goals - Helps employees understand how their work contributes to their employer's overall success - Provides insight into how an organization creates value to its key constituents
Drawbacks of incremental budgeting
- Tend to lock departments into stable spending arrangement (not flexible in meeting environmental demands) - Not easy to sort out how well managers performed at various activities (so department activities and yearly budget increases take on lives of their own)
Benefits (of a strategy map)
- You can detect which of the four perspectives is most important by counting the number of goals in each perspective - Enables leaders to present strategic road map to employees on one page - Provides clear statement about the criteria used to assess organizational effectiveness - Serve as starting point for any organization that wants to implement goal cascading or management by objectives
Performance data usually obtained from five source:
1) Employee behaviors and deliverables 2) Peer input or observations 3) Customer feedback 4) Managerial evaluations 5) Output from a production process
Three possibilities for feedback
1) Make no changes 2) Recognize and reinforce positive performance - Performance meets or exceeds standards set → managers should give rewards to reinforce good behavior 3) Take actions to correct negative performance - Performance falls significantly short of the standard → managers should carefully examine the reasons and take appropriate action - Some reasons for below standard performance ***Standards themselves unrealistic (need to be altered) ***Employees have not been given the resources for achieving the standards ***Employees need more attention from management as way of signalling their efforts have been insufficient
Two core principles of TQM
1) People orientation 2) Improvement orientation
4 key mechanisms of measure-managed firms
1. Coherence - Top executives AGREE on strategy 2. Clarity - Communication is CLEAR 3. Goal reinforcement - Better focus and alignment 4. Behavior reinforcement - Organizational culture emphasizes teamwork and allows risk taking
Applying steps of control to your own management area? (3 things to consider/look at)
1. Consider level of management at which you operate (top/strategic, middle/tactical, or first/operational level) 2. Consider areas you draw on for resources (physical, human, informational, financial, structural, control) 3. Look at the type of firm - Manufacturing firm → supply issues that require controls at many points - Service firm
Four components to TQM (from Chapter 2) -- 4 significant elements of TQM
1. Continuous improvement (make continuous improvement a priority) 2. Employee involvement (get every employee involved) 3. Focused on customer (listen to and learn from customers and employees) 4. Benchmarking (use accurate standards to identify and eliminate problems)
People orientation operates under the following assumptions
1. Delivering customer value is most important - Purpose of TQM = focus people, resources, and work processes to deliver products/services that create value for customers 2. People will focus on quality if given empowerment - TQM assumes employees will concentrate on making quality improvements if given decision-making power to do so ****People actually involved with product/service in best position to detect printers for quality improvements ****Research shows lack of employee involvement as biggest obstacle to successful TQM implementation 3. TQM requires training, teamwork, and cross-functional efforts - Teamwork important because many quality problems are spread across functional areas
4 steps of the control process (steps that control systems generally follow)
1. Establish standards - "What is the Outcome We Want?" 2. Measure performance - "What is the Actual Outcome We Got?" 3. Compare performance to standards - "How Do the Desired and Actual Outcomes Differ?" 4. Take corrective action (if necessary) - "What Changes Should We Make to Obtain Desirable Outcomes?" - Feedback Yes → take corrective action No → continue work process & recognize success
Improvement orientation makes the following assumptions
1. It is less expensive to do it right the first time - TQM assumes it's better to do things right the first time than to do costly reworking - High-quality products/services require costly investment in training, equipment, and tools BUT it is less expensive than dealing with poor quality and customer relationships that result 2. It is better to make small improvements all the time - Continuous improvement must be an everyday matter, no improvement is too small, and there must be an ongoing effort to make things better a little bit at a time all the time 3. Accurate standards must be followed to eliminate small variations - TQM emphasizes the collection of accurate data throughout every stage in the work process 4. There must be strong commitment from top management - Managers must go beyond lip service to support high-quality work
How managers construct control charts
1. Look at historical data for the process they want to measure 2. Use that information to establish normal/desired performance and its allowable upper/lower limits - Upper/lower limits shown as separate horizontal lines on control chart (which functions as timeline)
Six areas of organizational control:
1. Physical 2. Human 3. Informational 4. Financial 5. Structural 6. Cultural
Budget planning approaches (3)
1. Planning programing budget system (no longer favored today) 2. Zero based budgeting (no longer favored today) 3. Incremental budgeting (dominant approach today)
Four principles of Deming management
1. Quality should be aimed at the need of the consumer 2. Companies should aim at improving the system, not blaming the workers 3. Improved quality leads to increase market share, increased company prospects, and increased employment 4. Quality can be improved on the basis of hard data, using the PDCA cycle
Three levels of control which correspond to the three principal managerial levels
1. Strategic planning by top managers 2. Tactical planning by middle managers 3. Operational planning by first-line/supervisory managers and team leaders
6 reasons control is needed
1. To adapt to change and uncertainty - Control systems can help managers anticipate, monitor, and react to environmental changes/uncertainties 2. To discover irregularities and errors - Short run problems can turn into long run problems which can bring about the downfall of an organization 3. To reduce costs, increase productivity, or add value Control systems can: - Reduce labor cost - Eliminate waste - Increase output - Increase product delivery cycles - Add value to a product (so that customers are more inclined to choose them over rival products) 4. To detect opportunities and increase innovation - Controls can help alert managers to innovative opportunities that might have otherwise gone unnoticed 5. To provide performance feedback 6. To decentralize decision making and facilitate teamwork - Controls allow top management to decentralize decision making at lower levels within the organization and to encourage employees to work together in teams
Fixed (static) budget
Allocation of resources on the basis of a single estimate of costs - There is only one set of expenses (budget does not allow for adjustment over time)
Variable (flexible) budget
Allows the allocation of resources to vary in proportion with various levels of activity - Budget can be adjusted over time to accommodate pertinent changes in the environment
What was the downfall of scientific management?
Although it was designed to maximize worker productivity and widely instituted... Frederick Taylor's scientific management philosophy had led to organizations that were RIGID AND UNRESPONSIVE to both employees and customers
Decentralized control
Approach to organizational control characterized by informal and organic structural arrangements, the opposite of bureaucratic control - Aims to increase employee commitment, using corporate culture, group norms, and workers taking responsibility for their performance - Found in companies with relatively flat organization
Bureaucratic control
Approach to organizational control characterized by use of rules, regulations, and formal authority to guide performance - Attempts to elicit employee compliance, using strict rules, a rigid hierarchy, well-defined job descriptions, and administrative mechanisms such as budgets, performance appraisals, and compensations schemes - Foremost example = traditional military organization
Baldrige Award
Award given by POTUS to organizations that apply/are judged to be outstanding in seven areas of performance excellence Seven areas → leadership, strategy, customers, measurement/analysis/knowledge management, workforce, and operations, results Bristol Tennessee Essential Services (BTES) = 2017 award winner - Exceed benchmark the past three years in containing power outages to less than 60 min per customer per year (industry average = 90 min) - Saved customers money by constantly monitoring and controlling costs, investing in employee training, and integrating its fiber optic system - Outperforms industry in terms of preparedness (99.99% sustained performance rate) - 100% employee retention rate - ¾ employees have perfect attendance - Growing annual revenue
Management by exception
Control principle that states that managers should be informed of a situation only if data show a significant deviation from standards - Range of variation incorporated into computer system
Informational area of control
Controls on an organization's various information resources include: - Production schedules - Sales forecasts - Environmental impact statements - Analyses of competition - Public relations briefings ****Things that haven't happened yet (what should be occurring), but that will lead to concrete results
Human resources area of control
Controls used to monitor employees include: - Personality tests - Drug testing - Performance tests - Performance evaluations - Employee surveys - Engagement - Leadership
2. Companies should aim at improving the system, not blaming the workers
Deming suggested US managers were more concerned with blaming problems on individual workers rather than the organization's structure, culture, technology, work rules, and management (organizations "system") - Deming felt managers could bring about improvements in products and services by treating employees well and listening to their views/suggestions
4. Quality can be improved on the basis of hard data, using the PDCA cycle
Deming suggested quality control could be improved by acting on the basis of hard data
Why did Kaplan and Norton develop the strategy map?
Developed by Kaplan and Norton when they realized the common problem of employees feeling disengaged because they do not know how their work contributes to organizational effectiveness
What does the BSC do? (four areas/goals/measures)
Establishes (a) goals and (b) performance measures according to four perspectives/areas 1. Financial 2. Customer 3. Internal business 4. Innovation and learning
1) People orientation
Everyone involved with the organization should focus on delivering value to customers
2) Improvement orientation
Everyone should work on continuously improving the work process
Three types of control (that vary based on timing)
Feedforward Concurrent Feedback
Scorecard features (from lecture)
Financial → Do actions contribute to improving financial performance? Customers → How well do we serve our customers? Internal business processes → Do internal activities and processes add value for customers and shareholders? Learning and growth → Are we learning, changing, and improving? ****Targets, measures, outcomes, corrections
Feedforward control
Focuses on preventing future problems Process: 1. Collect performance information about past performance 2. Plan to avoid pitfalls/roadblocks prior to starting task/project (help people learn from mistakes)
Quality assurance
Focusing on the performance of workers and urging them to strive for "zero defects"
Budget
Formal financial projection - States organization's planned activities for given period of time in quantitative terms - Prepared for organization as a whole as well as for the divisions and departments within it - Allows managers to judge how well they are controlling monetary expenditures
External audit
Formal verification of an organization's financial accounts and statements by outside experts - Auditors are certified public accountants (CPAs) who work for an accounting firm that is independent of the organization being audited - Task = verify that the organization followed GAAP (generally accepted accounting principles) in preparing its financial statements and in determining its assets and liabilities
Audit
Formal verifications of an organization's financial and operational systems Two functions of auditing → verifying the accuracy and fairness of financial statements & being a tool for management decision making Can be external or internal
Challenges of measure-managed firms
Fuzzy objectives Reliance on informal feedback Implementation issues
Balanced scorecard (BSC)
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 4) financial measures Developed by: - Robert Kaplan (leading authority on strategic performance measurement & Harvard Business School prof of accounting) - David Norton (co-founder of Balanced Scorecard Collaborative) ***Complexity of managing an organization today requires that managers be able to view performance in several areas simultaneously
Deming management
Ideas proposed by W. Edwards Deming for making organizations more responsible, more democratic, and less wasteful
Cultural area of control
Informal method of control Influences work process and levels of performance through set of accepted norms and behaviors that develop as result of values/beliefs that constitute organization's culture
Example... a map...
Informs others about the knowledge, skills, and systems that employees should possess (innovation and learning perspective) ...to innovate and build internal capabilities (internal business perspective) ...that deliver value to customers (customer perspective) ...which eventually creates higher shareholder value (financial perspective)
Performance below standards
Is the deviation from performance significant? - The greater the difference between desired and actual performance, the greater the need for action - The amount of deviation acceptable depends on the range of variation built in to the standards in step 1
Kaizen
Japanese philosophy of small continuous improvement that seeks to involve everyone at every level of the organization in the process of identifying opportunities and implementing/testing solutions
Variations in performance (managers)
Management takes note and investigates when process exceeds its upper or lower limits - Deviations that indicate "out of control" situation that requires attention - Some variations may be routine/expected
Operational control
Monitoring performance to ensure that operational plans are being implemented and taking corrective action as needed - Done mainly by first-line managers ***Department heads, supervisors, team leaders, etc. Reporting done on daily basis
Strategic control
Monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed - Mainly performed by top managers who have an organizational perspective **CEOs, VPs, etc.
People Orientation -- Focusing Everyone on Delivering Customer Value
Organizations adopting TQM value people as their most important resource (those who create product/service and those who receive it)
TQM tools, techniques, and standards
Outsourcing Reduced Cycle Time Statistical Process Control Six Sigma and Lean Sigma ISO 9000 and ISO 14000
Examples of outsourcing
Outsourcing short-term and project work to freelance/contract workers in gig-economy (saves companies many employee-related expenses) Privatization by state and local governments → subcontracted traditional government services
Four management functions
Planning → setting goals and deciding how to achieve them Organizing → arranging tasks, people, and other resources to accomplish work Leading → motivating people to work hard to achieve the organization's goals Controlling → concerned with seeing that the right things happen at the right time in the right way
Supply chain
Sequence of suppliers that contribute to creating and delivering a product, from raw materials to production to final buyers - Major cost center for most companies (structure of distribution of products can have enormous financial impact) - Companies paying more attention to sourcing, shipping, and warehousing of their products ****Some companies creating specialized supply chain departments that look specifically at cost and quality in these areas and the way they contribute to cost and quality of finished products
Budgetary control
Setting targets and monitoring expenditures - List planned and actual expenditures
Statistical process control (SPC)
Statistical technique that used periodic random samples from production runs to see if quality is being maintained within a standard range of acceptability - All kinds of products require periodic inspection during their manufacture - If quality is not acceptable, production is stopped to allow corrective measures
Outsourcing
Subcontracting of services and operations to an outside vendor - Using suppliers outside the company to provide goods and services - Usually done to reduce costs or increase productivity
Income (profit and loss) statement
Summary of an organization's financial results (revenues and expenses) over a specific period of time (such as a quarter or a year)
Balance sheet
Summary of an organization's overall financial worth (assets and liabilities) at a specific time
Financial statement
Summary of some aspect of an organization's financial status - Essential in helping managers maintain financial control over the organization
Evidence based management
Use of real-world data rather than fads and hunches in making management decisions Balanced scorecard and dashboard = important tools that make evidence based management possible
PDCA (Plan-Do-Check-Act) cycle
Using observed data for continuous improvement of operations 1. PLAN desired and important changes, based on observed data - Make pilot test, if necessary 2. DO implement the change or make a small-scale test 3. CHECK or observe what happened after the change or during the test - Feedback step in which performance is compared to goals 4. ACT on lessons learned, after study of results - Determine if predictions can be made as basis for new methods
3. Improved quality leads to increase market share, increased company prospects, and increased employment
When companies work to improve the quality of goods and services, they produce less waste, experience fewer delays, and are more efficiency - Lower prices and superior quality → greater market share → improved business prospects → increased employment
