general management - control

8/3/2019 General Management - Control

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Prof. Rushen Chahal 182

L E A R N I N G O U T L I N EFollow this Learning Outline as you read and study this chapter.

What Is Control and Why Is It Important?

Define control.

Contrast the three approaches to designing control

systems.

Discuss the reasons why control is important.

Explain the planning-controlling link.

The Control Process

Describe the three steps in the control process.

Explain why what is measured is more critical than howits measured.

Explain the three courses of action managers can take in

controlling.


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L E A R N I N G O U T L I N E (contd)Follow this Learning Outline as you read and study this chapter.

Controlling Organizational Performance

Define organizational performance.

Describe the most frequently used measures of

organizational performance.

Tools for Organizational Performance

Contrast feedforward, concurrent, and feedback controls.

Explain the types of financial and information controls

managers can use.

Describe how balanced scorecards and benchmarking are

used in controlling.


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L E A R N I N G O U T L I N E (contd)Follow this Learning Outline as you read and study this chapter.

Contemporary Issues in Control

Describe how managers may have to adjust controls for

cross-cultural differences.

Discuss the types of workplace concerns managers faceand how they can address those concerns.

Explain why control is important to customer interactions.

Discuss what corporate governance is and how its

changing.


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What Is Control?

Control

The process ofmonitoring activities to ensure that

they are being accomplished as planned and of

correcting any significant deviations.

The Purpose ofControl

To ensure that activities are completed in ways that

lead to accomplishmentoforganizationalgoals.


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Designing Control Systems

MarketControl

Emphasizes the use ofexternal market mechanisms

to establish the standards used inthe control system.

External measures: price competition and relative

market share

BureaucraticControl

Emphasizes organizational authority and relies on

rules, regulations, procedures, and policies.

ClanControl

Regulates behaviorby shared values, norms,

traditions, rituals, and beliefs ofthe firms culture.


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Why Is Control Important?

As the finallinkin managementfunctions:

Planning

Controls let managers know whethertheirgoals and

plans are ontarget and whatfuture actions totake.

Empowering employees

Control systems provide managers with information and

feedbackon employee performance.

Protectingthe workplace

Controls enhance physical security and help minimizeworkplace disruptions.


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Exhibit 18.2Exhibit 18.2

The PlanningControlling Link


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The Control Process

The Process ofControl

1. Measuring actual

performance.

2. Comparing actual

performance against a

standard.

3. Taking actiontocorrect

deviations orinadequate

standards.


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The Control Process


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Measuring: How and What We Measure

Sources of Information

Personal observation

Statistical reports

Oral reports

Written reports

Control Criteria

Employees

Satisfaction

Turnover Absenteeism

Budgets

Costs

Output

Sales


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Common Sources of Information for

Measuring Performance


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Comparing

Determiningthe degree ofvariation between

actual performance and the standard.

Significance ofvariationis determined by:

The acceptable range ofvariationfrom the standard(forecastorbudget).

The size (large orsmall) and direction (overorunder)of

the variationfrom the standard (forecastorbudget).


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Defining the Acceptable Range of Variation


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Sales Performance Figures for July, Eastern

StatesD

istributors


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Taking Managerial Action

Courses ofAction

Doingnothing

Only ifdeviationis judged to be insignificant.

Correcting actual (current) performance Immediate corrective actiontocorrectthe problem at

once.

Basiccorrective actiontolocate and tocorrectthe

source ofthe deviation.

Corrective Actions

Change strategy, structure, compensation scheme, or

training programs; redesign jobs; orfire employees


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Taking Managerial Action (contd)

Courses ofAction (contd)

Revisingthe standard

Examiningthe standard to ascertain whetherornotthe

standard is realistic, fair, and achievable. Upholdingthe validity ofthe standard.

Resettinggoals that were initially settoolow ortoo high.


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Managerial Decisions in the Control Process


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Controlling for Organizational

Performance What Is Performance?

The end resultofan activity

What Is OrganizationalPerformance?

The accumulated end results ofallofthe

organizations work processes and activities

Designing strategies, work processes, and workactivities.

Coordinatingthe workofemployees


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Organizational Performance Measures

Organizational Productivity

Productivity: the overalloutputofgoods and/or

services divided by the inputs needed togenerate

thatoutput.

Output: sales revenues

Inputs: costs ofresources (materials, laborexpense,

and facilities)

Ultimately, a measure ofhow efficiently employees do

theirwork.


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Organizational Performance Measures

OrganizationalEffectiveness

Measuring how appropriate organizationalgoals are

and how wellthe organizationis achievingits goals.

Systems resource model

The ability ofthe organizationto exploitits environmentin

acquiring scarce and valued resources.

The process model

The efficiency ofanorganizations transformation process

inconvertinginputs tooutputs.The multiple constituencies model

The effectiveness ofthe organizationin meeting each

constituencies needs.


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Organizational Effectiveness Measures

Industry rankings on:

Profits

Return on revenue

Return on shareholders

equityGrowth in profits

Revenues per employee

Revenues per dollar of

assets

Revenues per dollar of

equity

Corporate Culture

Audits

Compensation and

benefits surveys

Customer satisfaction

surveys


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Popular Industry andCompany Rankings


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Tools for Controlling Organizational

Performance Feedforward Control

Acontrolthat prevents anticipated problems before

actualoccurrences ofthe problem.

Buildingin quality through design.

Requiring suppliers conform to ISO 9002.

ConcurrentControl

Acontrolthattakes place while the monitored activityis in progress.

Direct supervision: management by walking around.


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Types of Control


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Performance: Financial Controls Traditional Controls

Ratio analysis

Liquidity

Leverage

Activity

Profitability

Budget Analysis

Quantitative standards

Deviations

Other Measures

Economic Value Added

(EVA)

Market Value Added

(MVA)


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Exhibit 18.10aExhibit 18.10a

Popular Financial Ratios


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Exhibit 18.10bExhibit 18.10b

Popular Financial Ratios


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Performance: Financial Controls (contd) OtherMeasures

Economic Value Added (EVA)

How much value is created by what a company doeswith its assets, less any capitalinvestments inthose

assets: the rate of return earned over and above the

cost of capital.

The choice is to use less capitalorinvestin high-return

projects.


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Performance: Financial Controls (contd) OtherMeasures (contd)

Market Value Added (MVA)

The value thatthe stock market places on a firms pastand expected capitalinvestment projects

Ifthe firms marketvalue (its stock and debt) exceeds

the value ofits investcapital (its equity and retained

earnings), then managers have created wealth.


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Controlling Organizational Performance

Balanced Scorecard

A measurementtoolthat uses goals set by managers

infourareas to measure a companys performance:

Financial, customer, internal processes, andpeople/innovation/growth assets


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Information Controls

Management InformationSystems (MIS)

A system used to provide management with needed

informationon a regularbasis.

Data: an unorganized collectionofraw, unanalyzedfacts (e.g., unsorted listofcustomernames).

Information: data that has been analyzed and

organized such thatit has value and relevance to

managers.


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Benchmarking of Best Practices

Benchmarking

The search forthe best practices amongcompetitors

ornoncompetitors thatlead totheirsuperior

performance.

Benchmark: the standard ofexcellence against which

to measure and compare.

Acontroltoolforidentifying and measuring specific

performance gaps and areas forimprovement.


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Contemporary Issues in Control

Cross-Cultural Issues

The use oftechnology toincrease directcorporate

controloflocaloperations

Legalconstraints oncorrective actions inforeigncountries

Difficulty with the comparability ofdata collected from

operations in differentcountries


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Contemporary Issues in Control (contd)

Workplace Concerns

Workplace privacy versus workplace monitoring:

E-mail, telephone, computer, and Internet usage

Productivity, harassment, security, confidentiality,

intellectual property protection

Employee theft

The unauthorized takingofcompany property by

employees fortheirpersonal use.

Workplace violence

Anger, rage, and violence inthe workplace is affecting

employee productivity.


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Types of Workplace Monitoring by Employers

Internet use 54.7%

Telephone use 44.0%

E-mail messages 38.1%

Computer files 30.8%

Job performance using video cameras 14.6%

Phone conversations 11.5%

Voice mail messages 6.8%

Source: Based onS. McElvoy, E-Mail and InternetMonitoring and theWorkplace: Do

Employees Have a Rightto Privacy?Communications and the Law, June 2002, p. 69.


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Control Measures for Employee Theft or Fraud

Sources:Based onA.H. Bell and D.M. Smith. Protectingthe

Company Against Theft and Fraud,Workforce Online(www.workforce.com)December3, 2000; J.D. Hansen. To

Catch a Thief,Journal of Accountancy,March 2000, pp. 4346;

and J. Greenberg, The Cognitive Geometry ofEmployee Theft,in

Dysfunctional Behavior in Organizations: Nonviolent and DeviantBehavior, eds. S.B.Bacharach, A. OLeary-Kelly, J.M. Collins, and

R.W. Griffin (Stamford, CT: JAI Press, 1998), pp. 14793.


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Workplace Violence

Witnessed yelling or other verbal abuse 42%

Yelled at co-workers themselves 29%

Cried over work-related issues 23%

Seen someone purposely damage

machines or furniture 14%

Seen physical violence in the workplace 10%

Struck a co-worker 2%

Source: Integra Realty Resources, October-NovemberSurvey ofAdults

18 and Over, inDeskRage.BusinessWeek,November20, 2000, p. 12.


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Control Measures for

Deterring or Reducing

Workplace Violence

Sources:Based onM. Gorkin, Five Strategies and Structures for

ReducingWorkplace Violence, Workforce Online (www.workforce.com).December3, 2000; InvestigatingWorkplace Violence:Where Do You

Start?Workforce Online (www.forceforce .com), December3, 2000;

Ten Tips onRecognizing and Minimizing Violence, Workforce Online

(www.workforce.com), December3, 2000; and Points toCover in aWorkplace Violence Policy,Workforce Online (www.workforce.com),

December3, 2000.


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Contemporary Issues in Control (contd)

CustomerInteractions

Service profitchain

The service sequence from employees tocustomers to

profit: service capability affects service value which

impacts oncustomersatisfactionthat, inturn, leads tocustomerloyalty inthe form ofrepeat business (profit).

Corporate Governance

The system used togovern a corporation sothatthe

interests ofthe corporate owners are protected.Changes inthe role ofboards ofdirectors

Increased scrutiny offinancialreporting


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The Service Profit Chain

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