management, 2e by chuck williams south-western/thompson learning copyright 2003 chapter 7 control

Management, 2e by Chuck WilliamsSouth-Western/Thompson LearningCopyright © 2003

Chapter 7Chapter 7

Control

2


What Would What Would YouYou Do? Do? Movie theaters have changed greatly in the last

20 years Should Regal build its own megaplexes? What resources would be needed for this

expansion? Would fast expansion threaten their business

model?

3


After discussing this section you should be able to:

Learning ObjectivesLearning ObjectivesBasics of ControlBasics of Control

1. describe the basic control process2. be able to answer the question: Is

control necessary or possible?

4


The Control ProcessThe Control Process

Compare actual to desired performance

Establish clear standards

Take corrective action, if needed

Is a dynamic process

Consists of three basic methods

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Setting StandardsSetting Standards

Determine what should be benchmarkedIdentify companies against which to

benchmark standardsCollect data on other companies’

performance standards

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Cybernetic Control ProcessCybernetic Control Process

ActualPerformance

MeasurePerformance

Comparewith

Standard

IdentifyDeviations

DesiredPerformance

ImplementProgram

forCorrections

DevelopProgram

forCorrections

AnalyzeDeviations

Adapted from Exhibit 7.1

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Basic Control MethodsBasic Control Methods

Feedback controlgather information about performance

deficiencies after they occurConcurrent control

gather information about performance deficiencies as they occur

Feedforward controlgather information about performance

deficiencies before they occur

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Is Control Necessary or Possible?Is Control Necessary or Possible?

What should be doneif more control is

necessary but not possible?

Is more control necessary?

Is more control possible?

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Is More Control Necessary?Is More Control Necessary?

Degree of dependencethe extent to which a company needs a

particular resource to accomplish its goals

Resource flowthe extent to which a company has

easy access to critical resources

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Is More Control Possible?Is More Control Possible?

Cost of controldirect costs of the controlunintended costs

Cybernetic feasibilitythe extent to which it is possible to

implement each step in the control process

if a step cannot be implemented, then control may not be possible

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Quasi-Control: When Control Isn’t Quasi-Control: When Control Isn’t PossiblePossibleReducing dependence

choose to abandon or change goalswhen control over a critical resource is

not possibleRestructure dependence

exchange dependence on one critical resource for dependence on another

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Is Control Necessary or Possible?Is Control Necessary or Possible?

Dependencesufficientlyhigh?

Expectedresourceflowsunacceptable?

Cyberneticsfeasible?

Regulationcostacceptable?

Goodsfixed?

Response:

RegulateDependence

RestructureDependence

ReduceDependence

Do Nothing

yes yes yes yes

yesno

no nono

no


S.G. Green & M.A. Welsh, “Cybernetics and Dependence:Reframing the Control Concept, “ Academy of Management Review, 13 (1988): 287-301

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After discussing this section you should be able to:

Learning ObjectivesLearning ObjectivesHow and What to ControlHow and What to Control

3. discuss the various methods that managers can use to maintain control

4. describe the behaviors, processes, and outcomes that managers are choosing to control in today’s organizations

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Blast From The PastBlast From The PastFrom 1870 to the Present—Five Eras of From 1870 to the Present—Five Eras of Management ControlManagement Control

Industrial Betterment, 1870-1900Scientific Management, 1900-1922Human Relations, 1925-1955Systems Rationalism, 1955-1980Organizational Culture and Quality, 1980-

Present

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Control MethodsControl MethodsBureaucratic

Objective

Normative

Concertive

Self-Control

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BureaucraticBureaucratic

Top-down controlUse rewards and punishment to influence

employee behaviorsUse polices and rules to control

employeesOften inefficient and resistant to change

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ObjectiveObjective

The use of observable measuresBehavioral control

regulate employee behaviors and actionsmanagers monitor and shape employee

behaviorsOutput control

measure employee outputsfocus is on outcomes not behaviors

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Normative ControlNormative Control

Company values and beliefs guide employee behavior and decisions

Cultural norms not rules, guide employees

Created by:careful selection of employeesrole-modeling and retelling of stories

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Concertive ControlsConcertive Controls

Employees are guided by the beliefs of work groups

Autonomous work groupsoperate without managersgroup members control processes,

output, and behaviors

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Self-ControlSelf-Control

Employees control their own behaviorEmployees make decisions within well-

established boundariesManagement and employees set goals

and monitor their own progress

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What to ControlWhat to Control

Balanced Scorecard

Financial Perspective

Customer Perspective

Internal Business Perspective

Innovation & Learning Perspective

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Example of a Balanced ScorecardExample of a Balanced Scorecard

Financial•EVA•Ratios and Budgets

Innovation/Learning•Waste minimization•Time to market

Customer•Defections•Partnerships

Internal Business•Quality•Productivity

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Balanced ScorecardBalanced Scorecard

Managers look beyond traditional financial measures

Managers set specific goals in each of four areas

Helps minimize the chances of suboptimization

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Controlling Economic Value AddedControlling Economic Value Added(Financial Perspective)(Financial Perspective)

The amount by which profits exceed the cost of capital in a given year

Important because:shows if a profit center is paying for

itselffocuses attention on specific

departmentsencourages creative ways to improve

organizational performance

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Basic Accounting ToolsBasic Accounting Tools Basic Cash Flow

Analysis StepsForecast salesProject changes in

anticipated cash flows

Project anticipated cash outflows

Project net cash flows by combining anticipated cash inflows and outflows

Parts of a Basic Balance SheetAssets

Current assets Fixed assets

Liabilities Current liabilities Long-term liabilities

Owner’s equity Stock Additional paid in

capital Retained earnings


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Basic Accounting Tools Basic Accounting Tools (cont’d)(cont’d) Basic Income Statement

SALES REVENUE- sales returns and allowances+other income=NET REVENUE- cost of goods sold=GROSS PROFIT- total operating expenses=INCOME FROM OPERATIONS- interest expense=PRETAX INCOME- income tax=NET INCOME


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Common Financial RatiosCommon Financial Ratios

Liquidity Ratios•Current Ratio•Quick Ratio

Profitability Ratios•Gross Profit Margin•Return on Equity

Leverage Ratios•Debt to Equity•Debt Coverage

Efficiency Ratios•Inventory Turnover•Average Collections Period


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Common Kinds of BudgetsCommon Kinds of Budgets

Revenue

Expense

Profit

Cash

Capital Expenditure

Variable

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Been There, Done ThatBeen There, Done ThatEVA at Armstrong World IndustriesEVA at Armstrong World Industries

It allows them to more closely align them with shareholders’ interests

Augments traditional measuresReinforced with long-term incentives

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Controlling Customer DefectionsControlling Customer Defections(Customer Perspective)(Customer Perspective)

The rate by which customers are leaving the company

Don’t rely completely on customer satisfaction surveys

Easier to retain a customer, than get new ones

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Controlling QualityControlling Quality(Internal Business Perspective)(Internal Business Perspective)

Internal perspectiveQuality is usually measured three ways:

excellencevalueconformance to expectations

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Controlling Waste and PollutionControlling Waste and Pollution(Innovation & Learning Perspective)(Innovation & Learning Perspective)

Often an over-looked areaThree strategies for waste prevention and

reductiongood housekeepingmaterial/product substitutionprocess modification

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Four Levels of Waste MinimizationFour Levels of Waste Minimization

Waste Disposal

Waste Treatment

Recycle & Reuse

WastePrevention

& Reduction


34


What What ReallyReally Happened? Happened?Regal built 111 new theatersLate to the megaplex market, competitors

already had the best locationsRegal uses its information system to

control costs, but that may not be enoughLosses and debt are mounting

management, 2e by chuck williams south-western/thompson learning copyright 2003 chapter 7 control

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