Chapter 16 Control PowerPoint slides by R Dennis Middlemist Colorado State University Learning Objectives After studying this chapter, you should be able to:   Discuss the effects of too much or too little control in an organization Describe the four basic elements of the control process and the issues involved in each ©2005 Learning Objectives After studying this chapter, you should be able to:   Differentiate between the different levels of control and compare their implications for managers Explain the concept of standards and why they are so important in organizations ©2005 Learning Objectives After studying this chapter, you should be able to:   Compare bureaucratic and clan controls Identify the important qualities required for information to be useful in the control process ©2005 Control Function in Management  Control  Regulation of activities and behaviors within organizations  Adjustment or conformity to specifications or objectives  Effective control depends heavily on other functions that precede it and feeds back to them  Planning  Organizing  Leading ©2005 Control Function in Management Ensures adjustment or conformity to objectives Control Ensures adjustment or conformity to specifications Regulates activities Regulates behavior ©2005 Adapted from Exhibit 16.1: The Control Function in Management Control’s Feedback Loop Planning Control Feedback Changes in Organizing ©2005 Adapted from Exhibit 16.2: Control’s Feedback Loop Establish standards Basic Elements in Control Process Establish standards • Specification starts at the top of the organization and involves every level of employee • Standards are the targets of performance • Involving employees in setting standards • Commits the employees to achieving the standards Results in more appropriate standards â2005 Adapted from Exhibit 16.3: The Basic Elements in the Control Process Level of confusion in performance measurement Specificity of Standards and Performance Measurement High Low ©2005 Concrete Specificity of standards Abstract Adapted from Exhibit 16.4: The Effect of Specificity of Standards on Performance Measurement ho W th e yb e? Establishing Standards sp ec if em ? Ho w t th se ld ic ou sh ou ld sh Standards How difficult should they be to reach? 10 ©2005 Adapted from Exhibit 16.5: Issues in Establishing Standards Centralization of Control and Environmental Stability Degree of centralization Decentralized Centralized 18 ©2005 Stable Environmental stability Turbulent Adapted from Exhibit 16.9: Degree of Centralization of Control in Relation to Environmental Stability High Low Environmental turbulence Approaches to Strategic Control Easy Difficult Ability to specify and measure precise strategic objectives 19 ©2005 Adapted from Exhibit 16.10: Approaches to Strategic Control Scope of Control Tactical Control  Assess and regulate day-to-day functions of the organization and its major units in implementing its strategy  Financial controls  Budgetary controls  Supervisory structure controls  Human resource controls  Contrasting approaches to using tactical controls  Bureaucratic control  Commitment, or clan, control 20 ©2005 Strategic and Tactical Controls Tactical Controls Time Frame Limited Strategic Controls Long, unspecific Objective Controls relate to specific, functional areas Types of Comparisons Comparisons made within organization Controls relate to organization as a whole Comparisons made to other organization Focus Implementation of strategy 21 ©2005 Determination of overall organizational strategy Adapted from Exhibit 16.11: Characteristics of Strategic and Tactical Controls Company Financial Ratios Ratio Formula Company The GAP, Inc 2001 in $ millions Net Profit before taxes Total Assets 241 7,591 0.03 904 4,719 0.19 Liquidity Current Ratio Current Assets Current Liabilities 3,044 2,056 1.4 2,682 1,319 2.0 Liabilities Leverage Debt to Assets Total Debts Total Assets 2,525 7,591 0.33 1,975 4,719 0.42 Profit Return on Investment 22 The Limited, Inc 2001 in $ millions ©2005 Adapted from exhibit 16.12: Examples of Company Financial Ratios Company Financial Ratios Ratio Formula Company The GAP, Inc 2001 in $ millions Activity Inventory Turnover 23 ©2005 Sales Inventory 13,847 1,677 8.3 The Limited, Inc 2001 in $ millions 9,363 966 9.7 Adapted from exhibit 16.12: Examples of Company Financial Ratios Budgetary Control 24 Issue Questions Rolling budgets and revision Should the budget period be for 12 months followed by another 12-month budget a year later, or should a calendar quarter be added each time a new calendar quarter begins? Should the budget remain fixed for the budget period or should it be revised periodically during the period? Fixed or flexible budgets Should performance be evaluated against the original budget or against a budget that incorporates the actual activity level of the business? Bonuses based on budgets Should incentive compensation, if any, be based on actual versus budgeted performance, or on actual performance against some other standard? ©2005 Adapted from exhibit 16.13: Issues in Budgetary Control Budgetary Control Issue Questions Evaluation criteria Should the budget used to evaluate performance include only those items over which the evaluated manager has control, or should it include all unit costs and revenues appropriate to the managerial unit? Tightness of the budget What degree of “stretch” should there be in the budget? Source: Adapted from N C Churchill, “Budget Choices: Planning vs Control,” Harvard Business Review 62, no (1984), pp 150–164, (p 151) 25 ©2005 Adapted from exhibit 16.13: Issues in Budgetary Control Control in the Human Resource Function A an ppr d e ais va a l lua ti o n en p m Co 26 ©2005 tio sa Se n tio c e l n Human Resource Function Controls Tra in ing Adapted from Exhibit 16.14: Opportunities for Control in the Human Resource Function Control in Bureaucracy and Clan Structures Type of Control Social Requirementsa Bureaucracy Norm of reciprocity Legitimate authority Clan Norm of reciprocity Legitimate authority Shared values, beliefs Social requirements are the basic agreements between people that, at a minimum, are necessary for a form of control to be employed a Control Approach Adherence to rules and regulations Formal and impersonal Emphasis on detecting deviance Imposed on the individual Stresses group consensus on goals and their measurement Mutual assistance in meeting performance standards Uses deviations as guidelines in diagnosing problems Control comes from the individuals or groups Informational Requirements Rules Traditions Source: Adapted from William G Ouchi, “A Conceptual Framework for the Design or Organizational Control Mechanisms,” Management Science 25, no (1980), pp 833–847 (p 838) 27 ©2005 Adapted from exhibit 16.15: Control in Bureaucracy and Clan Structures Scope of Control Operational Control  Assess and regulate specific activities and methods used to produce goods and services  Precontrol of operations  Concurrent control of operations  Postcontrol of operations 28 ©2005 Operational Controls 29 Precontrol Concurrent Control Postcontrol • Controls the quality, quantity, and other characteristics of the inputs to the process • Evaluates the conversion process as it occurs • Provides immediate feedback, which impacts worker motivation • Traditionally, quality control • Many of these controls are being changed to preand concurrent controls ©2005 Adapted from Exhibit 16.16: Operational Controls Control Effectiveness  Focus of control  Balanced scorecard     Financial perspective Customer perspective Internal business perspective Innovation and learning perspective  Amount of control 30 ©2005 Control Effectiveness  Quality of information  Usefulness  Accuracy  Timeliness  Objectivity  Flexibility  Favorable cost-benefit ratio  Source of control 31 ©2005 Effectiveness of Controls Key Factor Concerns Focus of control What will be controlled? Where should controls be located in the organizational structure? Who is responsible for which controls? Is there a balance between over- and undercontrol? Amount of control Quality of information Is the information useful? collected by the Is the information accurate? controls Is the information timely? Is the information objective? Flexibility of controls Are the controls able to respond to varying conditions? Favorable costbenefit ratio Source of control 32 ©2005 Is the information being gathered worth the cost of gathering it? Is control imposed by others? Is control decided by those who are affected? Adapted from exhibit 16.17: Key Factors in Determining the Effectiveness of Controls ... 16.1: The Control Function in Management Control’s Feedback Loop Planning Control Feedback Changes in Organizing ©2005 Adapted from Exhibit 16.2: Control’s Feedback Loop Establish standards Basic... depends heavily on other functions that precede it and feeds back to them  Planning  Organizing  Leading ©2005 Control Function in Management Ensures adjustment or conformity to objectives Control... qualities required for information to be useful in the control process ©2005 Control Function in Management  Control  Regulation of activities and behaviors within organizations  Adjustment